<PAGE>
As filed with the Securities and Exchange Commission on August 18, 1997
Registration No. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------
VALUJET, INC.
(Exact name of registrant as specified in its charter)
------------------
<TABLE>
<CAPTION>
<S> <C> <C>
Nevada 4512 58-2189551
(State or other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
1800 PHOENIX BOULEVARD
SUITE 126
ATLANTA, GEORGIA 30349
(770) 907-2580
(Address, including zip code, and telephone number
including area code, of registrant's principal executive offices)
<TABLE>
<CAPTION>
Copies to:
<S> <C> <C>
MICHAEL D. ACKS ROBERT B. GOLDBERG, ESQ. CHRISTOPHER C. CLEVELAND, ESQ.
1800 PHOENIX BOULEVARD, SUITE 126 ELLIS, FUNK, GOLDBERG, LABOVITZ & DOKSON, P.C. BRIGGS AND MORGAN
ATLANTA, GEORGIA 30349 3490 PIEDMONT ROAD, SUITE 400 2400 IDS CENTER
(770) 907-2580 ATLANTA, GEORGIA 30305 MINNEAPOLIS, MINNESOTA 55402
(404) 233-2800 (612) 334-8489
</TABLE>
(Name, address, including zip code, and telephone number
including area code, of agent for service)
______________________________________
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as possible after this Registration Statement becomes effective and all other
conditions to the merger (the "Merger") of Airways Corporation with and into the
Registrant pursuant to the Plan of Reorganization and Agreement of Merger
described in the enclosed Joint Proxy Statement/Prospectus have been satisfied
or waived.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
=========================================================================================================
Proposed Proposed
Amount Maximum Maximum Amount of
Title of Securities to be Offering Price Aggregate Registration
to be Registered Registered Per Share Offering Price Fee
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.001 par value per share 9,629,937 (1) $5.72 (2) $55,071,202 (2) $16,688.24
=========================================================================================================
</TABLE>
(1) The number of shares of the Registrant's Common Stock being registered
hereunder is equal to the number of such shares required to consummate the
Merger pursuant to the provisions of the Plan of Reorganization and
Agreement of Merger based on the number of shares of Common Stock of Airways
Corporation outstanding as of the date of filing of this Registration
Statement and the number of options to purchase Airways Common Stock
expected to be vested as of the date of the Merger.
(2) Pursuant to Rule 457(f)(l), the registration fee is based on the average of
the high and low prices reported on The NASDAQ National Market for the
common stock of the Registrant on August 13, 1997 ($5.72).
------------------------
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>
VALUJET, INC.
CROSS-REFERENCE SHEET PURSUANT TO ITEM 501(B) OF
REGULATION S-K, SHOWING THE LOCATION
IN THE PROSPECTUS OF THE ITEMS ON FORM S-4
<TABLE>
<CAPTION>
NAME AND CAPTION IN FORM S-4 CAPTION OR LOCATIONS IN PROSPECTUS
---------------------------- ----------------------------------
<C> <S> <C>
A. INFORMATION ABOUT THE TRANSACTION
Item 1 Forepart of the Registration Statement and Outside Front Cover Page of Prospectus
Outside Front Cover Page of Prospectus
Item 2 Inside Front and Outside Back Cover Pages Inside Front Cover Page; Available
of Prospectus Information; Outside Back Cover Page
Item 3 Risk Factors, Ratios of Earnings to Fixed Summary; Risk Factors
Charges and Other Information
Item 4 Terms of the Transaction Summary; The Merger
Item 5 Pro Forma Financial Information Pro Forma Condensed Combined
Financial Information
Item 6 Material Contacts with the Company Being The Merger
Acquired
Item 7 Additional Information Required for Not Applicable
Reoffering by Persons and Parties
Deemed to Be Underwriters
Item 8 Interests of Named Experts and Counsel Experts; Legal Matters
Item 9 Disclosure of Commission Position on ValuJet Common Stock
Indemnification for Securities Act
Liabilities
B. INFORMATION ABOUT THE REGISTRANT
Item 10 Information with Respect to S-3 Registrants Business of ValuJet; ValuJet Management's
Discussion and Analysis of Financial Condition and
Results of Operations; ValuJet Financial Statements;
Incorporation of Certain Information by Reference
Item 11 Incorporation of Certain Information Incorporation of Certain Information by Reference
by Reference
Item 12 Information with Respect to S-2 or Not Applicable
S-3 Registrants
Item 13 Incorporation of Certain Information Not Applicable
by Reference
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NAME AND CAPTION IN FORM S-4 CAPTION OR LOCATIONS IN PROSPECTUS
---------------------------- ----------------------------------
<C> <S> <C>
Item 14 Information with Respect to Registrants Not Applicable
Other than S-2 or S-3 Registrants
C. INFORMATION ABOUT THE COMPANY BEING ACQUIRED
Item 15 Information with Respect to S-3
Companies Not Applicable
Item 16 Information with Respect to S-2 or Not Applicable
S-3 Companies
Item 17 Information with Respect to Companies Business of Airways; Airways Management's
Other than S-2 or S-3 Companies Discussion and Analysis of Financial Condition
and Results of Operations; Airways Changes in and
Disagreements with Accountants; Comparative Market
Prices and Dividends; Principal Stockholders; Executive
Compensation; Airways Financial Statements
D. VOTING AND MANAGEMENT INFORMATION
Item 18 Information if Proxies, Consents or The ValuJet Meeting; The Airways Meeting;
Authorizations are to be Solicited Summary; Merger
Item 19 Information if Proxies, Consents or Not Applicable
Authorizations are not to be
Solicited or in an Exchange Offer
</TABLE>
<PAGE>
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
To the Stockholders of ValuJet, Inc.:
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders of ValuJet,
Inc. (the "Company") will be held at ,
--------------------------------------
Atlanta, Georgia , on , ,
---------- ----------------- ------------------------
1997, at A.M. Eastern Time, for the following purposes:
--------
(1) To approve the merger of Airways Corporation with and into the Company;
(2) To approve an amendment to the Company's Articles of Incorporation to
change the name of the Company to "AirTran Holdings, Inc.;"
(3) To approve an amendment to the Company's By-laws to extend the term of
the members of the Company's Board of Directors until the 1999 annual
meeting of the Company's stockholders;
(4) To transact such other business as may properly come before the
meeting.
Holders of the Common Stock of record at the close of business on
, 1997, will be entitled to notice of and to vote at the
-------------------
meeting.
Whether or not you expect to be present in person at the meeting, please
sign and date the accompanying proxy and return it promptly in the enclosed
postage paid reply envelope. This will assist us in preparing for the
meeting.
By Order of the Board of Directors
Secretary
, 1997
----------------------
Atlanta, Georgia
<PAGE>
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
To the Stockholders of Airways Corporation:
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders of Airways
Corporation (the "Company") will be held at 4170 Wiley Drive, Orlando,
Florida 32827, on _________________, ________________________, 1997, at
________ A.M. Eastern Time, for the following purposes:
(1) To approve the merger of the Company with and into the ValuJet, Inc.;
(2) To transact such other business as may properly come before the
meeting.
Holders of the Common Stock of record at the close of business on
___________________, 1997, will be entitled to notice of and to vote at the
meeting.
Whether or not you expect to be present in person at the meeting, please
sign and date the accompanying proxy and return it promptly in the enclosed
postage paid reply envelope. This will assist us in preparing for the
meeting.
By Order of the Board of Directors
Secretary
______________________, 1997
Orlando, Florida
<PAGE>
JOINT PROXY STATEMENT
FOR THE SPECIAL MEETING FOR THE SPECIAL MEETING
OF STOCKHOLDERS OF STOCKHOLDERS
TO BE HELD ON , 1997 TO BE HELD ON , 1997
--------- ---------
VALUJET, INC. AIRWAYS CORPORATION
1800 PHOENIX BOULEVARD 6280 HAZELTINE NATIONAL DRIVE
SUITE 126 ORLANDO, FLORIDA 32822
ATLANTA, GEORGIA 30349 (407) 859-1579
(770) 907-2580
___________________________
PROSPECTUS
OF
VALUJET, INC.
1800 PHOENIX BOULEVARD
SUITE 126
ATLANTA, GEORGIA 30349
(770) 907-2580
FOR
UP TO 9,629,937 SHARES OF COMMON STOCK
___________________________
This Prospectus of ValuJet, Inc., a corporation organized and existing
under the laws of the State of Nevada ("ValuJet"), relates to the shares of
its common stock, par value $.001 per share ("ValuJet Common Stock"), which
are issuable to the stockholders of Airways Corporation ("Airways") herein,
pursuant to which Airways will merge with and into ValuJet pursuant to the
terms of that certain Plan of Reorganization and Agreement of Merger dated as
of July 10, 1997, by and between ValuJet and Airways (the "Merger Agreement"
or the "Agreement"). A copy of the Agreement is attached to this Joint Proxy
Statement/Prospectus as Appendix A.
On the effective date of the Merger (the "Effective Date"), (i) Airways
will merge with and into ValuJet, and (ii) each outstanding share of Airways
common stock, par value $.01 per share ("Airways Common Stock") will be
converted into one share of ValuJet Common Stock. ValuJet will survive the
Merger, its name will be changed to "AirTran Holdings, Inc." and the separate
existence of Airways will cease. AirTran Airways, Inc., a wholly owned
subsidiary of Airways ("AirTran"), will become a wholly owned subsidiary of
ValuJet. For a further description of the terms of the Merger, see "The
Merger."
This Prospectus also constitutes a Joint Proxy Statement of ValuJet and
Airways and is being furnished to their respective stockholders in connection
with the solicitation of proxies by their respective Boards of Directors. The
proxies solicited by the Airways Board of Directors will be used at the
Special Meeting of Stockholders of Airways (the "Airways Meeting") to be held
on ___________, 1997, including any adjournment or postponement thereof, to
consider and vote on the proposed Merger and to transact such other business
as may properly come before the Airways Meeting. The proxies solicited by the
ValuJet Board of Directors will be used at the Special Meeting of Stockholders
of ValuJet (the "ValuJet Meeting") to be held on __________, 1997, including
any adjournments or postponement thereof, (i) to consider and vote on the
proposed Merger, (ii) to approve and adopt the change in the name of ValuJet
(the "Name Change") to "AirTran Holdings, Inc." to be effected through an
amendment to ValuJet's Articles of Incorporation, (iii) to approve and adopt
an amendment to ValuJet's By-laws (the "By-law Amendment") which provides that
the terms of the members of the ValuJet Board of Directors serving immediately
after the Effective Date will not expire until the 1999 annual meeting of
stockholders of ValuJet, and (iv) to transact such other business as may
properly come before the ValuJet Meeting or any adjournment(s) thereof. This
Joint Proxy Statement/Prospectus and the accompanying proxy cards are first
being mailed to stockholders of ValuJet and Airways on or about ____________,
1997.
SEE "RISK FACTORS" BEGINNING ON PAGE 13 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY HOLDERS OF AIRWAYS COMMON STOCK WITH RESPECT TO
SHARES OF VALUJET COMMON STOCK OFFERED HEREBY.
___________________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS JOINT PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
___________________________
The date of this Joint Proxy Statement/Prospectus is , 1997.
-------
<PAGE>
AVAILABLE INFORMATION
ValuJet and Airways are subject to the reporting requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and, in
accordance therewith, file reports, proxy statements, and other information
with the Securities and Exchange Commission (the "SEC" or the "Commission").
Copies of such reports, proxy statements and other information can be
obtained, at prescribed rates, from the SEC by addressing written requests for
such copies to the Public Reference Section at the SEC at 450 Fifth Street,
N.W., Judiciary Plaza, Washington, D.C. 20549. In addition, such reports,
proxy statements and other information can be inspected at the public
reference facilities referred to above and at the regional offices of the SEC
at 7 World Trade Center, 13th Floor, New York, New York 10048 and Northwestern
Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
The SEC maintains a Web site that contains reports, proxy and information
statements and other information regarding ValuJet and Airways. The address of
such Web site is http://www:sec.gov.
This Joint Proxy Statement/Prospectus constitutes part of the
Registration Statement on Form S-4 of ValuJet (including any exhibits and
amendments thereto, the "Registration Statement") filed with the SEC under the
Securities Act of 1933, as amended (the "Securities Act"), relating to the
securities offered hereby. This Joint Proxy Statement/Prospectus does not
include all of the information in the Registration Statement, certain portions
of which have been omitted pursuant to the rules and regulations of the SEC.
For further information about ValuJet and Airways and the securities offered
hereby, reference is made to the Registration Statement. The Registration
Statement may be inspected and copied, at prescribed rates, at the SEC's
public reference facilities at the addresses set forth above. ValuJet Common
Stock and Airways Common Stock are both traded on the NASDAQ National Market.
Reports, proxy statements and other information concerning ValuJet and Airways
may be inspected at the offices of the National Association of Securities
Dealers, Inc. (the "NASD"), 1735 K Street, N.W., Washington, D.C. 20006.
THIS JOINT PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE
WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THERE WILL BE PROVIDED
WITHOUT CHARGE TO EACH PERSON, INCLUDING ANY BENEFICIAL OWNER, TO WHOM THIS
JOINT PROXY STATEMENT/PROSPECTUS IS DELIVERED, UPON ORAL OR WRITTEN REQUEST OF
ANY SUCH PERSON, A COPY OF ANY OR ALL DOCUMENTS INCORPORATED HEREIN BY
REFERENCE (EXCLUDING EXHIBITS, UNLESS SUCH EXHIBITS ARE SPECIFICALLY
INCORPORATED BY REFERENCE). THESE DOCUMENTS ARE AVAILABLE UPON REQUEST FROM
MICHAEL D. ACKS, CONTROLLER, VALUJET, INC., 1800 PHOENIX BOULEVARD, SUITE 126,
ATLANTA, GEORGIA 30349 (TELEPHONE (770) 907-2580). IN ORDER TO ENSURE TIMELY
DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE BY [5 BUSINESS DAYS
BEFORE THE MEETING DATE].
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE INCLUDED IN THIS JOINT PROXY
STATEMENT/PROSPECTUS, AND IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY VALUJET
OR AIRWAYS. THIS JOINT PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE SECURITIES OFFERED HEREBY
IN ANY JURISDICTION TO OR FROM ANY PERSON TO OR FROM WHOM IT IS UNLAWFUL TO
MAKE SUCH AN OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS JOINT PROXY
STATEMENT/PROSPECTUS NOR ANY DISTRIBUTION OF SECURITIES MADE HEREUNDER SHALL
UNDER ANY CIRCUMSTANCES CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN
THE AFFAIRS OF VALUJET OR AIRWAYS SINCE THE DATE HEREOF OR THAT THE
INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
All information included in this Joint Proxy Statement/Prospectus with
respect to ValuJet was supplied by ValuJet, and all information included
herein with respect to Airways was supplied by Airways.
(i)
<PAGE>
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents filed by ValuJet and Airways with the Commission
(ValuJet Commission File No. 0-26914; Airways Commission File No. 0-26432)
under Section 13(a) or 15(d) of the Exchange Act are hereby incorporated by
reference in this Joint Proxy Statement/Prospectus:
ValuJet documents:
(i) Annual Report on Form 10-K for the fiscal year ended December 31,
1996;
(ii) Quarterly Reports on Form 10-Q for the fiscal quarters ended March
31, 1997 and June 30, 1997;
(iii) Current Report on Form 8-K dated July 10, 1997; and
(iv) the description of ValuJet Common Stock set forth in ValuJet's
registration statement filed pursuant to Section 12 of the Exchange
Act, and any amendment or report filed for the purpose of updating
any such description.
Airways documents:
(i) Annual Report on Form 10-K for the fiscal year ended March 31,
1997;
(ii) Quarterly Report on Form 10-Q for the fiscal quarter ended June 30,
1997; and
(iii) Current Report on Form 8-K dated July 10, 1997.
All documents filed by ValuJet or Airways pursuant to Sections 13(a),
13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this Joint
Proxy Statement/Prospectus and prior to the later of the date of the ValuJet
Meeting and the date of the Airways Meeting are hereby incorporated by
reference in this Joint Proxy Statement/Prospectus and shall be deemed to be a
part hereof from the date of filing of such documents.
Any statement contained herein, in any amendment or supplement hereto or
in a document incorporated or deemed to be incorporated by reference herein,
shall be deemed to be modified or superseded for purposes of the Registration
Statement and this Joint Proxy Statement/Prospectus to the extent that a
statement contained herein, in any amendment or supplement hereto or in any
other subsequently filed document which also is or is 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 the Registration Statement,
this Joint Proxy Statement/Prospectus or any amendment or supplement hereto.
FORWARD LOOKING STATEMENTS
THIS JOINT PROXY STATEMENT/PROSPECTUS CONTAINS AND INCORPORATES BY
REFERENCE CERTAIN FORWARD LOOKING STATEMENTS WITHIN THE MEANING OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995 WITH RESPECT TO THE RESULTS OF
OPERATIONS AND BUSINESSES OF VALUJET AND AIRWAYS. THESE FORWARD LOOKING
STATEMENTS INVOLVE CERTAIN RISKS AND UNCERTAINTIES. FACTORS THAT MAY CAUSE
ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE CONTEMPLATED, PROJECTED,
FORECAST, ESTIMATED OR BUDGETED IN SUCH FORWARD LOOKING STATEMENTS INCLUDE,
AMONG OTHERS, THE FOLLOWING POSSIBILITIES: (I) HEIGHTENED COMPETITION,
INCLUDING SPECIFICALLY THE INTENSIFICATION OF PRICE COMPETITION AND THE ENTRY
OF NEW COMPETITORS; (II) INCREASED GOVERNMENT SCRUTINY OR GOVERNMENT IMPOSED
LIMITATIONS ON OPERATIONS; (III) ANY AIRLINE INCIDENTS OR ACCIDENTS SUFFERED
BY THE COMBINED COMPANY AFTER THE MERGER; (IV) LOSS OF KEY EXECUTIVES; (V)
GENERAL ECONOMIC AND BUSINESS CONDITIONS WHICH ARE LESS FAVORABLE THAN
EXPECTED; AND (VI) UNANTICIPATED CHANGES IN INDUSTRY TRENDS. IN ADDITION,
FACTORS THAT COULD CAUSE ACTUAL RESULTS OF VALUJET (ASSUMING CONSUMMATION OF
THE MERGER) TO DIFFER MATERIALLY FROM THOSE
(ii)
<PAGE>
CONTEMPLATED BY OR PROJECTED, FORECAST, ESTIMATED OR BUDGETED IN FORWARD LOOKING
STATEMENTS RELATING TO THE RESULTS OF OPERATIONS AND BUSINESS OF VALUJET
FOLLOWING THE MERGER, INCLUDE COSTS OR DIFFICULTIES RELATED TO THE INTEGRATION
OF THE BUSINESSES OF VALUJET AND AIRWAYS AND THE INABILITY TO REALIZE COST
SAVINGS OR REVENUE ENHANCEMENTS FROM THE MERGER, INCLUDING EXPECTED COST SAVINGS
TO BE REALIZED THROUGH COMBINING CERTAIN FUNCTIONS OF BOTH VALUJET AND AIRWAYS,
MAKING CHANGES TO THE OPERATING STRUCTURE OF BOTH COMPANIES TO ELIMINATE
REDUNDANT FACILITIES AND BETTER SERVE THE COMBINED COMPANY'S CUSTOMERS AND
REDUCTIONS IN STAFF. SEE "RISK FACTORS."
(iii)
<PAGE>
TABLE OF CONTENTS
AVAILABLE INFORMATION....................................... (i)
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE........... (ii)
FORWARD LOOKING STATEMENTS..................................(iii)
SUMMARY..................................................... 1
ValuJet................................................ 1
Airways................................................ 1
Special Meeting of Airways Stockholders................ 2
Special Meeting of ValuJet Stockholders................ 2
The Merger; Exchange Ratio............................. 2
Recommendations of Boards of Directors................. 3
Reasons for the Merger................................. 3
Fairness Opinions...................................... 3
Effective Date......................................... 3
Exchange of Stock Certificates......................... 4
Conditions to Merger................................... 4
Waiver, Amendment, and Termination of the Agreement.... 4
Directors and Executive Officers Following the Merger.. 4
Interests of Certain Persons in the Merger............. 5
Certain Federal Income Tax Consequences of the Merger.. 5
Accounting Treatment................................... 5
No Appraisal Rights.................................... 5
Certain Differences in Stockholders' Rights............ 5
Market Prices and Dividends............................ 6
SELECTED FINANCIAL DATA OF VALUJET (HISTORICAL)........... 6
SELECTED FINANCIAL DATA OF AIRWAYS (HISTORICAL)........... 7
PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION........ 8
Balance Sheet June 30, 1997............................ 8
Statements of Operations............................... 9
Notes to Pro Forma Financial Statements................ 10
Comparative Per Share Data............................. 11
RISK FACTORS.............................................. 13
THE AIRWAYS MEETING....................................... 20
General................................................ 20
Record Date; Vote Required............................. 20
THE VALUJET MEETING....................................... 21
General................................................ 21
Record Date; Vote Required............................. 21
THE MERGER................................................ 22
General................................................ 22
Treatment of Airways Options and Warrants.............. 22
Background of and Reasons for the Merger............... 22
Opinions of Financial Advisors......................... 25
Effective Date of the Merger........................... 32
(iv)
<PAGE>
Distribution of Stock Certificates After the Merger................... 32
Regulatory Approvals.................................................. 33
No Appraisal Rights................................................... 33
Stock Ownership Following the Merger.................................. 33
Interim Operations.................................................... 33
Acquisition Proposals................................................. 35
Conditions to the Merger.............................................. 35
Termination of the Merger Agreement................................... 37
Amendment of the Merger Agreement..................................... 38
Post-Merger Board of Directors........................................ 38
Post-Merger Officers of ValuJet....................................... 39
Post-Merger Principal Executive Offices............................... 39
Interests of Certain Persons in the Merger............................ 40
Material Federal Income Tax Consequences of the Merger................ 40
Required Votes........................................................ 41
PROPOSAL TO EFFECT A NAME CHANGE......................................... 41
Required Vote......................................................... 41
PROPOSAL TO AMEND BY-LAWS................................................ 42
Required Vote......................................................... 42
PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION....................... 43
Balance Sheet (June 30, 1997)......................................... 43
Statements of Operations.............................................. 44
Notes to Pro Forma Financial Statements............................... 45
Comparative Per Share Data............................................ 46
VALUJET MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS..................................... 48
Results of Operations................................................. 48
Comparison of Years Ended December 31, 1996, December 31, 1995
and December 31, 1994................................................ 50
Comparison of Quarters Ended June 30, 1997 and June 30, 1996.......... 53
Comparison of Six Months Ended June 30, 1997 and June 30, 1996........ 54
Liquidity and Capital Resources....................................... 56
AIRWAYS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS..................................... 58
Selected Operating Data for Years Ended March 31, 1997,
1996 and 1995........................................................ 58
Comparison of Years ended March 31, 1997, 1996 and 1995............... 59
Selected Operating Data for Quarters Ended June 30, 1997 and 1996..... 62
Liquidity and Capital Resources....................................... 64
BUSINESS OF VALUJET...................................................... 66
General............................................................... 66
Strategy.............................................................. 67
Geographic Market..................................................... 68
Fares, Route System and Scheduling.................................... 68
Aircraft.............................................................. 70
Maintenance and Repairs............................................... 70
Fuel.................................................................. 71
Distribution and Marketing............................................ 72
(v)
<PAGE>
<TABLE>
<S> <C>
Automation................................................................................... 73
Employees.................................................................................... 73
Airport Operations........................................................................... 74
Insurance.................................................................................... 74
Seasonality and Cyclicality.................................................................. 74
Competition.................................................................................. 75
Government Regulation........................................................................ 76
Property..................................................................................... 78
Litigation................................................................................... 78
BUSINESS OF AIRWAYS............................................................................. 81
General...................................................................................... 81
Business Strategy............................................................................ 81
Fares, Route System and Scheduling........................................................... 81
Maintenance and Repairs...................................................................... 83
Aircraft..................................................................................... 83
Fuel......................................................................................... 83
Insurance.................................................................................... 83
Seasonality.................................................................................. 83
Competition and Industry Considerations...................................................... 84
Marketing.................................................................................... 84
Employees.................................................................................... 84
Airport Operations........................................................................... 84
Real Property................................................................................ 84
SECURITY OWNERSHIP.............................................................................. 84
ValuJet After the Merger..................................................................... 84
PRINCIPAL STOCKHOLDERS.......................................................................... 85
Security Ownership of Management and Certain Beneficial Owners of ValuJet.................... 85
Security Ownership of Management and Certain Beneficial Owners of Airways.................... 86
EXECUTIVE COMPENSATION.......................................................................... 88
Summary of Cash and Certain Other Compensation - ValuJet..................................... 88
Employment Agreements - ValuJet.............................................................. 89
Stock Option Plans - ValuJet................................................................. 89
ValuJet's Option Grants in Last Fiscal Year.................................................. 90
ValuJet - Aggregated Option Exercises in Last Fiscal Year and Fiscal Year End Option Values.. 90
Summary of Cash and Certain Other Compensation - Airways..................................... 91
Airways Option Grants in Last Fiscal Year.................................................... 92
Airways - Aggregated Option Exercises in Last Fiscal Year and Fiscal Year End Option Value... 92
CERTAIN TRANSACTIONS............................................................................ 92
COMPARATIVE MARKET PRICES AND DIVIDENDS......................................................... 93
ValuJet Market Prices........................................................................ 93
Airways Market Prices........................................................................ 93
Recent Prices................................................................................ 94
Stockholders of Record....................................................................... 94
AIRWAYS CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS........................................... 94
VALUJET CAPITAL STOCK........................................................................... 94
General...................................................................................... 94
Anti-Takeover Provisions of Articles of Incorporation and By-laws of ValuJet................. 95
Limitation of Liability and Indemnification of Directors..................................... 95
</TABLE>
(vi)
<PAGE>
<TABLE>
<S> <C>
COMPARISON OF RIGHTS OF HOLDERS OF VALUJET COMMON STOCK AND
HOLDERS OF AIRWAYS COMMON STOCK............................... 96
General....................................................... 96
Anti-Takeover Protection...................................... 96
Appraisal Rights.............................................. 97
Amendments to Certificate or Articles of Incorporation........ 98
Amendments to By-laws......................................... 98
Preemptive Rights............................................. 99
Stockholder Action Without Meeting............................ 99
Stockholder Action - Quorum Requirement....................... 99
Special Meetings of Stockholders.............................. 99
Number and Election of Directors.............................. 100
Removal of Directors.......................................... 100
Indemnification of Directors, Officers, Agents and Employees.. 100
EXPERTS.......................................................... 102
LEGAL MATTERS.................................................... 102
INDEX TO FINANCIAL STATEMENTS.................................... F-1
VALUJET FINANCIAL STATEMENTS..................................... F-2
AIRWAYS FINANCIAL STATEMENTS..................................... FA-1
APPENDIX A: PLAN OF REORGANIZATION AND AGREEMENT OF MERGER...... A-1
APPENDIX B: OPINION OF THE ROBINSON-HUMPHREY COMPANY, INC........ B-1
APPENDIX C: OPINION OF PAINEWEBBER INCORPORATED.................. C-1
</TABLE>
(vii)
<PAGE>
SUMMARY
The following is a summary of certain information relating to the Airways
Meeting, the ValuJet Meeting, the proposed Merger, and the shares of ValuJet
Common Stock to be issued upon consummation thereof. This summary does not
purport to be complete and is qualified in its entirety by the more detailed
information appearing elsewhere or incorporated by reference in this Joint Proxy
Statement/Prospectus. Stockholders are urged to read carefully the entire Joint
Proxy Statement/Prospectus, including the Appendices. As used in this Joint
Proxy Statement/Prospectus, the terms "ValuJet" and "Airways" refer to those
entities, respectively, and, where the context requires, to those entities and
their respective subsidiaries.
This Joint Proxy Statement/Prospectus and the documents incorporated
herein by reference contain, in addition to historical information, forward-
looking statements that involve risks and uncertainties. ValuJet's actual
results, including ValuJet's actual results following the Merger if effected,
could differ materially from the results discussed in the forward-looking
statements. Factors that could cause or contribute to such differences include
those discussed under "Risk Factors," as well as those discussed elsewhere in
this Joint Proxy Statement/Prospectus and in the documents incorporated herein
by reference.
VALUJET
ValuJet, through its wholly owned subsidiary, ValuJet 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 price-conscious travelers. Prior to June 17, 1996, ValuJet offered
service to 30 cities from Atlanta, Washington DC (Dulles Airport), Boston and
Orlando. ValuJet'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 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. As of September 30, 1996, the Company
resumed operations with service between Atlanta and four other cities. As of
August 15, 1997, the FAA had approved 31 of the Company's DC-9 Series 30
aircraft for flight and ValuJet operated 200 flights per peak day of which 182
flights per peak day are between Atlanta and 23 other cities. There can be no
assurance as to when ValuJet will be able to reestablish its profitable
operations, if at all, or to resume its previous levels of service and growth
strategy.
ValuJet's address is 1800 Phoenix Boulevard, Suite 126, Atlanta, Georgia
30349, telephone number (770) 907-2580.
AIRWAYS
Airways, through its wholly owned subsidiary, AirTran, operates a
domestic commercial airline providing direct scheduled passenger air service
from Orlando, Florida to 21 locations in the eastern United States. AirTran
began flying commercially in July 1994 with one Boeing 737-200A aircraft
providing charter services and commenced scheduled flight operations in October
1994. As of August 15, 1997, AirTran operated a fleet of 11 Boeing 737-200A
aircraft.
Airways' address is 6280 Hazeltine National Drive, Orlando, Florida
32822, telephone number (407) 859-1579.
1
<PAGE>
SPECIAL MEETING OF AIRWAYS STOCKHOLDERS
The Airways Meeting will be held at _____ a.m., local time, on
____________, 1997, at 4170 Wiley Drive, Orlando, Florida 32827, for the purpose
of considering and voting on the Merger and transacting such other business as
may properly come before the meeting. See "The Airways Meeting." Only holders
of record of Airways Common Stock at the close of business on ____________, 1997
(the "Airways Record Date" or the "Record Date"), will be entitled to vote at
the Airways Meeting. Approval of the Merger requires the affirmative vote of a
majority of the shares of Airways Common Stock entitled to vote at the Airways
Meeting. As of the Airways Record Date, there were _________ shares of Airways
Common Stock outstanding and entitled to be voted.
The directors and executive officers of Airways beneficially owned, as of
the Airways Record Date, __________ outstanding shares (or approximately _____%
of the outstanding shares) of Airways Common Stock. Robert D. Swenson, Lowell
T. Swenson and Carl R. Pohlad have agreed to vote an aggregate of ______ shares
of Airways Common Stock in favor of the Merger.
As of the Airways Record Date, neither ValuJet nor any of its directors
or executive officers beneficially owned any shares of Airways Common Stock.
See "The Airways Meeting."
SPECIAL MEETING OF VALUJET STOCKHOLDERS
The ValuJet Meeting will be held at ______ a.m., local time, on
____________, 1997, at _________________________________________, Atlanta,
Georgia _______, to consider and vote on (i) the approval of the Merger, (ii)
the Name Change, (iii) the By-law Amendment, and (iv) such other business as may
properly come before the Meeting. See "The ValuJet Meeting."
Only holders of record of ValuJet Common Stock at the close of business
on ____________, 1997 (the "ValuJet Record Date" or the "Record Date") will be
entitled to vote at the ValuJet Meeting. The affirmative vote of a majority of
the ValuJet Common Stock outstanding and entitled to vote at the ValuJet Meeting
will be required to approve the Merger and the Name Change. Approval of the By-
laws Amendment will require the affirmative vote of a majority of the shares
present in person or by proxy and entitled to vote. As of the ValuJet Record
Date, there were ________ shares of ValuJet Common Stock outstanding and
entitled to vote.
The directors and executive officers of ValuJet beneficially owned, as of
the ValuJet Record Date, ____________ outstanding shares (or approximately
______% of the outstanding shares) of ValuJet Common Stock. Robert L. Priddy,
Lewis H. Jordan, Maurice J. Gallagher, Jr. and Timothy P. Flynn have agreed to
vote an aggregate of ______ shares of ValuJet Common Stock in favor of the
proposals to be presented at the ValuJet Meeting.
As of the ValuJet Record Date, neither Airways nor any of its directors
or executive officers beneficially owned any shares of ValuJet Common Stock.
See "The ValuJet Meeting."
THE MERGER; EXCHANGE RATIO
The Agreement provides for the combination of Airways with ValuJet
pursuant to the merger of Airways with and into ValuJet. On the Effective Date,
each share of Airways Common Stock then issued and outstanding will be converted
into one share of ValuJet Common Stock (the "Exchange Ratio"). See "The Merger-
General."
2
<PAGE>
RECOMMENDATIONS OF BOARDS OF DIRECTORS
Airways' Board of Directors has unanimously approved the Merger and the
Agreement and has determined that the Merger is fair to, and in the best
interests of, Airways and its stockholders. ACCORDINGLY, AIRWAYS' BOARD
UNANIMOUSLY RECOMMENDS THAT AIRWAYS' STOCKHOLDERS VOTE FOR APPROVAL OF THE
MERGER.
The ValuJet Board of Directors has unanimously approved the Merger and
the Agreement and has determined that the Merger is in the best interests of
ValuJet and its stockholders. ACCORDINGLY, VALUJET'S BOARD UNANIMOUSLY
RECOMMENDS THAT VALUJET'S STOCKHOLDERS VOTE FOR APPROVAL OF THE MERGER, NAME
CHANGE AND BY-LAW AMENDMENT.
REASONS FOR THE MERGER
In approving the Merger, Airways' directors considered the financial terms
of the Merger; various alternatives to the Merger (including remaining as an
independent airline); the need to expand operations; information concerning
ValuJet; advice of its financial advisor; certain financial analyses of ValuJet
and Airways; and other factors. See "The Merger-Background of and Reasons for
the Merger."
In approving the Merger, ValuJet's directors considered Airways' financial
condition, operations and market area; ValuJet's overall strategic focus; the
financial terms and income tax consequences of the Merger; the management
philosophy of Airways and its compatibility with that of ValuJet; advice of its
financial advisor; and other factors. See "The Merger -- Background of and
Reasons for the Merger."
FAIRNESS OPINIONS
ValuJet. The Robinson-Humphrey Company, Inc. ("R-H") has rendered an
opinion to ValuJet that, based on and subject to the procedures, matters and
limitations described in its opinion and such other matters as it considered
relevant, as of the date of its opinion, the terms of the Merger are fair, from
a financial point of view, to the stockholders of ValuJet. R-H's opinion is
attached as Appendix B to this Joint Proxy Statement/Prospectus. Stockholders
are urged to read the opinion in its entirety for a description of the
procedures followed, matters considered and limitations on the reviews
undertaken in connection therewith. See "The Merger-Opinions of Financial
Advisors."
Airways. PaineWebber Incorporated ("PaineWebber") has rendered an
opinion to Airways that, based on and subject to the procedures, matters and
limitations described in its opinion and such other matters as it considered
relevant, as of the date of its opinion, the terms of the Merger are fair, from
a financial point of view, to the stockholders of Airways. PaineWebber's
opinion is attached as Appendix C to this Joint Proxy Statement/Prospectus.
Stockholders are urged to read the opinion in its entirety for a description of
the procedures followed, matters considered and limitations on the reviews
undertaken in connection therewith. See "The Merger-Opinions of Financial
Advisors."
EFFECTIVE DATE
Subject to satisfaction or waiver of the conditions to the obligations
of the parties to effect the Merger, the Effective Date will occur on the date
the Certificate of Merger shall have been accepted for filing and filed with the
Delaware Secretary of State and Nevada Secretary of State. Subject to the
Agreement being approved by the requisite vote of ValuJet and Airways
stockholders, the parties expect that all conditions to consummation of the
Merger will be satisfied so that the Merger can be consummated one business day
after approval by the stockholders of both companies, although there can be no
assurance as to whether or when the Merger will occur. See "The Merger --
Effective Date of the Merger, -- Conditions to Consummation of the Merger, and -
- - Waiver, Amendment and Termination of the Agreement."
3
<PAGE>
EXCHANGE OF STOCK CERTIFICATES
Promptly after the Effective Date, ValuJet will cause First Union
National Bank, Charlotte, North Carolina acting in its capacity as exchange
agent for ValuJet (the "Exchange Agent") to mail to the former stockholders of
Airways a letter of transmittal, together with instructions for the exchange of
such stockholders' certificates representing shares of Airways Common Stock for
certificates representing shares of ValuJet Common Stock. AIRWAYS STOCKHOLDERS
SHOULD NOT SEND IN THEIR STOCK CERTIFICATES UNTIL THEY RECEIVE THE FORM LETTER
OF TRANSMITTAL AND INSTRUCTIONS. See "The Merger -- Distribution of Stock
Certificates After the Merger."
CONDITIONS TO MERGER
Consummation of the Merger is subject to various conditions, including
receipt of the required approval of the ValuJet and Airways stockholders,
receipt of an opinion as to the tax-free nature of certain aspects of the Merger
and certain other customary conditions. See "The Merger-Conditions to
Consummation of the Merger."
The change in ownership of AirTran that will be effectuated by the Merger
will require the approval of the Department of Transportation. Consummation of
the Merger is also subject to expiration or early termination of the relevant
waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended (the "HSR Act").
WAIVER, AMENDMENT AND TERMINATION OF THE AGREEMENT
The Agreement may be terminated, and the Merger abandoned, at any time
prior to the Effective Date by mutual action of the Boards of Directors of both
Airways and ValuJet, or by action of the Board of Directors of either company
under certain circumstances, including if the Merger is not consummated by
November 30, 1997. If for any reason the Merger is not consummated, both
ValuJet and Airways will continue to operate under their present management.
See "The Merger -- Waiver, Amendment and Termination of the Agreement." Under
certain circumstances, one party could become liable for liquidated damages to
the other party if the Merger is not consummated. See "The Merger --
Termination of the Merger Agreement -- Certain Consequences of Termination."
DIRECTORS AND EXECUTIVE OFFICERS FOLLOWING THE MERGER
The Agreement provides that ValuJet will be the surviving corporation
after the Merger and that the directors of ValuJet after the Merger will consist
of seven directors, four of whom are to be appointed by ValuJet and three of
whom are to be appointed by Airways. ValuJet has selected Robert L. Priddy,
Lewis H. Jordan, D. Joseph Corr and Don L. Chapman, all of whom are currently
Directors of ValuJet, to serve as its designees to the ValuJet Board of
Directors after the Merger. Airways has selected Robert D. Swenson, John K.
Ellingboe and Robert C. Pohlad to serve as its designees to the ValuJet Board of
Directors after the Merger. Messrs. Swenson and Ellingboe are currently
Directors of Airways. Under the Agreement, Airways has designated Robert D.
Swenson to serve as Chairman of the Board of ValuJet after the Merger. See "The
Merger -- Directors and Executive Officers Following the Merger." In accordance
with the By-law Amendment, the terms of such directors will not expire until
ValuJet's 1999 annual meeting of stockholders.
D. Joseph Corr, the current President and Chief Executive Officer of
ValuJet, will continue serving as President and Chief Executive Officer of
ValuJet after the Merger. Other executive officers of ValuJet will be selected
by the President and Chief Executive Officer prior to the Effective Date,
subject to the approval of the Board of Directors.
4
<PAGE>
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain executive officers and directors of ValuJet and of Airways have
interests in the Merger in addition to their respective interests as ValuJet or
Airways stockholders generally. Those interests relate to, among other things,
certain severance pay agreements, provisions in the Agreement regarding
indemnification and eligibility for certain ValuJet benefits and treatment of
outstanding options to acquire ValuJet and Airways Common Stock. See "The
Merger -- Interests of Certain Persons in the Merger."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
ValuJet and Airways have received an opinion of Briggs and Morgan,
Professional Association, counsel to Airways, to the effect that, among other
things: (i) the Merger will constitute a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code");
(ii) the exchange in the Merger of Airways Common Stock for ValuJet Common Stock
will not give rise to gain or loss to Airways stockholders; and (iii) neither
ValuJet nor Airways will recognize income, gain or loss as a consequence of the
Merger. See "The Merger -- Material Federal Income Tax Consequences of the
Merger."
DUE TO THE INDIVIDUAL NATURE OF THE INCOME TAX CONSEQUENCES OF THE
MERGER, STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS TO DETERMINE
THE SPECIFIC EFFECT OF THE MERGER ON THEM UNDER FEDERAL, STATE, LOCAL AND
FOREIGN TAX LAWS.
ACCOUNTING TREATMENT
The purchase method of accounting will be used to account for the Merger.
See "The Merger -- Accounting Treatment."
NO APPRAISAL RIGHTS
Neither the holders of Airways Common Stock nor the holders of ValuJet
Common Stock are entitled to appraisal or dissenters' rights in connection with
the Merger. See "The Airways Meeting" and "The ValuJet Meeting."
CERTAIN DIFFERENCES IN STOCKHOLDERS' RIGHTS
The rights of Airways stockholders currently are determined by reference
to the Delaware General Corporation Law ("DGCL") and Airways' Restated
Certificate of Incorporation ("Airways' Charter") and By-laws ("Airways'
Bylaws"). Following the Effective Time, Airways stockholders will become
stockholders of ValuJet, and their rights as stockholders will be determined by
the Nevada Revised Statutes (the "NRS") and ValuJet's Articles of Incorporation
("ValuJet's Articles") and By-laws ("ValuJet's By-laws"). For a description of
the material differences in the rights of Airways and ValuJet stockholders, see
"Comparison of Rights of Holders of ValuJet Common Stock and Holders of Airways
Common Stock."
5
<PAGE>
MARKET PRICES AND DIVIDENDS
ValuJet Common Stock is traded on the NASDAQ National Market ("NASDAQ")
under the symbol "VJET" and Airways Common Stock is traded on NASDAQ under the
symbol "AAIR". The following table sets forth the high and low sale prices per
share of ValuJet Common Stock on NASDAQ (as adjusted to reflect two separate
two-for-one stock splits, effective in April 1995 and November 1995) since
January 1, 1995 and the high and low sale prices per share of Airways Common
Stock on NASDAQ since September 1995 (when Airways stock first became publicly
traded).
Sales Prices Per Sales Prices Per
Share of ValuJet Share of Airways
Common Stock Common Stock
---------------- ----------------
Calendar Quarter Ending High Low High Low
- ------------------------- ------ ------ ------ -----
1995
March 31 $12.63 $ 4.75 N/A N/A
June 30 $17.94 $12.00 N/A N/A
September 30 $18.06 $13.31 $ 9.00 $7.25
December 31 $34.75 $15.94 $10.75 $7.25
1996
March 31 $27.63 $18.50 $11.00 $8.12
June 30 $27.50 $ 4.50 $10.75 $6.75
September 30 $14.00 $ 8.38 $ 7.25 $3.50
December 31 $12.25 $ 5.94 $ 5.62 $2.88
1997
March 31 $ 8.75 $ 6.13 $ 6.38 $2.88
June 30 $ 8.00 $ 6.25 $ 6.25 $4.88
On July 9, 1997, the last trading day prior to public announcement that
ValuJet and Airways had executed the Agreement, the last reported sale prices
per share of ValuJet Common Stock and Airways Common Stock on the NASDAQ Stock
Market were $6.81 and $5.38, respectively. On , 1997, the last reported
--------
sale prices per share of ValuJet Common Stock and Airways Common Stock on NASDAQ
were $ and $ , respectively. AIRWAYS STOCKHOLDERS SHOULD OBTAIN
------ ------
CURRENT MARKET QUOTATIONS FOR THE VALUJET COMMON STOCK AND AIRWAYS COMMON STOCK.
Neither ValuJet nor Airways has ever paid any cash dividends on their Common
Stock.
The Agreement provides for the filing of a listing application with the
NASDAQ Stock Market covering the shares of ValuJet Common Stock issuable
pursuant to the Agreement. It is a condition to consummation of the Merger that
such shares of ValuJet Common Stock be authorized for listing on the NASDAQ
Stock Market effective upon official notice of issuance. See "The Merger --
Conditions to Consummation of the Merger."
SELECTED FINANCIAL DATA OF VALUJET (HISTORICAL)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following selected financial data for the four years ended December 31,
1996 and the period from July 10, 1992 (date of inception) to December 31, 1992,
are derived from the audited consolidated financial statements of ValuJet. The
financial data for the six month periods ended June 30, 1997 and 1996 are
derived from unaudited financial statements. The unaudited financial statements
include all adjustments, consisting of normal recurring accruals, which ValuJet
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
6
<PAGE>
necessarily indicative of the results that may be expected for the entire year
ending December 31, 1997. The data should be read in conjunction with the
consolidated financial statements, related notes and other financial information
included herein.
<TABLE>
<CAPTION>
Period from
Inception
(July 10, 1992)
Six Months Ended to
June 30, Fiscal Year Ended December 31, December 31,
1997 1996 1996 1995 1994 1993 1992
--------- -------- --------- --------- --------- --------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Operating revenues $ 84,687 $191,212 $219,636 $367,757 $133,901 $ 5,811 $ 0
Net income (loss) (27,733) 1,093 (41,469) 67,763 20,732 (894) (23)
Earnings (loss) per share (.51) .02 (0.76) 1.13 0.44 (0.03) 0.00
Total assets
(as of end of period) 377,008 521,592 417,187 346,741 173,039 30,264 495
Long-term debt including
current maturities (as
of end of period) 235,661 312,439 244,706 109,038 46,965 10,398 0
</TABLE>
SELECTED FINANCIAL DATA OF AIRWAYS (HISTORICAL)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following selected financial data for the three years ended March 31,
1997 are derived from the audited consolidated financial statements of Airways.
The financial data for the three month periods ended June 30, 1997 and 1996 are
derived from unaudited 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. 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 ending March 31, 1998. The data should be read in
conjunction with the consolidated financial statements, related notes and other
financial information included herein.
<TABLE>
<CAPTION>
Three Months Ended
June 30, Fiscal Year Ended March 31,
1997 1996 1997 1996 1995 (1)
-------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C>
Operating revenues $27,052 $29,012 $102,623 $68,361 $ 9,607
Net income (loss) (172) (282) (6,991) 1,187 (3,496)
Earnings (loss) per share (.02) (.03) (.77) .13 (.39)
Total assets (as of end of period) 70,996 64,640 73,948 69,654 13,544
Long-term debt including current
maturities (as of end of period) 14,665 15,319 13,696 13,851 0
</TABLE>
(1)Inasmuch as AirTran commenced operations in July 1994, results prior thereto
are not included herein. Earnings per share for the year ended March 31, 1995 is
presented on a pro forma basis as though Airways had been spun off as of April
1, 1994.
7
<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 10 1/2% Senior Secured Notes (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.
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 0 1,713 (1,713)(l) 50,662
50,662 (n)
Deferred tax asset........... 0 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>
8
<PAGE>
<TABLE>
<CAPTION>
Pro Forma ValuJet Pro Forma Pro Forma
ValuJet Adjustments As Adjusted Airways Adjustments Combined
------------- --------------- -------------- ------------- --------------- --------
<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 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
========= ========= ======= =========
</TABLE>
9
<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
========= ========= ======= =========
</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 options holders in the Merger.
10
<PAGE>
<TABLE>
<CAPTION>
In Thousands
(except share and
and per share data)
------------------
<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.
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. See "The Merger-Accounting Treatment." 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 " -Selected Financial Data of
ValuJet (Historical)," "-- Selected Financial Data of Airways (Historical)," and
" -- Pro Forma Condensed Combined Financial Information."
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED
ENDED DECEMBER 31, 1996 (1)
----------------------
JUNE 30,1997
--------------------------------------
<S> <C><C> <C>
INCOME (LOSS) PER SHARE
ValuJet historical............. ($.51) ($.76)
Airways historical............. .01 ( .77)
ValuJet and Airways pro forma
combined(2)................ (.48) (.85)
</TABLE>
11
<PAGE>
BOOK VALUE PER SHARE (PERIOD END)
ValuJet historical............... 1.74
Airways historical............... 1.89
ValuJet and Airways pro forma
combined(2).................. 2.53
(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.
12
<PAGE>
RISK FACTORS
Prospective investors should read this entire Joint Proxy
Statement/Prospectus carefully and should consider, among other things, the
risks and the speculative factors inherent in and affecting ValuJet's business
described below and throughout this Joint Proxy Statement/Prospectus.
Accident/Suspension of Operations
As a result of the accident involving Flight 592, the ensuing
adverse media coverage and intensive FAA scrutiny, ValuJet suspended its
operations on June 17, 1996, pursuant to a consent order entered into with the
FAA. ValuJet now faces the following additional risk factors: (i) the
suspension of operations has resulted in the failure of ValuJet to meet
certain financial covenants (the fixed charge coverage ratio) under certain of
its secured debt instruments all of which debt has been repaid in August 1997;
(ii) there can be no assurance that ValuJet will be able to regain and
maintain its low cost structure or to recover sufficient customer acceptance
in order to regain profitability; (iii) ValuJet may have increased costs or
reduced customer support which could decrease ValuJet's profitability
indefinitely; (iv) the expansion of ValuJet's operations will likely be
subject to FAA and DOT approval for an indefinite period of time; (v) although
preliminary information indicates no connection, if the National
Transportation Safety Board (NTSB) were to determine that ValuJet's
maintenance procedures or aging aircraft contributed to the cause of the
accident, such determination could have a substantial adverse effect on
ValuJet's future operations; and (vi) the occurrence of one or more subsequent
incidents or accidents involving ValuJet's or Airways' aircraft would likely
have a substantial adverse effect on ValuJet's public image and future
operations.
Recent Operating Losses; Significant Leverage; Ability to Repay
Indebtedness At Maturity
ValuJet has realized net losses in each of its last five quarters.
Airways has realized net losses in two of its last three years. ValuJet's
earnings before fixed charges for the fiscal year ended December 31, 1996 and
six months ended June 30, 1997 were inadequate to cover fixed charges by
approximately $93.3 million and $59.0 million, respectively. Continued
failure by ValuJet to cover fixed charges in the future could result in a
failure to meet ValuJet's debt service obligations, restrictions on ValuJet's
activities or other material adverse effects on ValuJet's financial condition
and results of operations. ValuJet's consolidated leverage and recent history
of losses may adversely affect ValuJet's ability to obtain financing on terms
satisfactory to ValuJet in the future.
The entire principal amount of ValuJet's 10 1/4% senior notes
($150.0 million) and ValuJet's 10 1/2% senior secured notes ($80.0 million)
become due on April 15, 2001. ValuJet 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, ValuJet will likely
need to seek to refinance all or a portion of the 10 1/4% senior notes and 10
1/2% senior secured notes 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
ValuJet. If no such financing were available, ValuJet could be forced to
default on its debt obligations and, as an ultimate remedy, seek protection
under the Federal bankruptcy laws.
ValuJet's ability to make scheduled payments of principal of, to pay
interest on or to refinance its indebtedness 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 ValuJet's business will
generate sufficient cash flow from operations or that future borrowings will
be available in an amount sufficient to enable ValuJet to service its
indebtedness, or make necessary capital expenditures. The degree to which
ValuJet is leveraged could have important consequences to the stockholders of
ValuJet, including, but not limited to, the following: (i) a substantial
portion of ValuJet's cash flow from operations will be required to be
dedicated to debt service and will not be available to ValuJet for its
operations; (ii) ValuJet'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) ValuJet's increased
vulnerability to adverse general economic and industry conditions.
Limited Operating History
ValuJet began flight operations on October 26, 1993, and was
profitable for the two years prior to the May 11, 1996 accident. ValuJet'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 has
been subject to FAA approval. There can be no assurance that ValuJet will be
able to regain and maintain its profitability based on its limited period of
operations. ValuJet's success in the future will
13
<PAGE>
depend on its ability to continue to stimulate air traffic and attract
customers in its markets and to maintain a low cost structure that will allow
ValuJet to operate profitably its low fare, no frills, limited frequency
service.
Atlanta Market Dominance by Delta Air Lines, Inc.
The Atlanta market which is ValuJet'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 ValuJet 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 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. Although
ValuJet denies that it has violated any of its obligations under the federal
securities laws and believes that meritorious defenses exist in the lawsuits,
there can be no assurance that ValuJet will not sustain material liability
under such or related lawsuits. See "Business of ValuJet -- Litigation."
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. See "Business of ValuJet --
Litigation." 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 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 Offices 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 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 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.
ValuJet is party to other litigation which, if resolved unfavorably,
could have a material adverse effect on ValuJet. See "Business of ValuJet --
Litigation."
Aging Aircraft; Maintenance and Reliability
ValuJet's entire fleet consists of DC-9 aircraft manufactured
between 1967 and 1976. Airways' entire fleet consists of Boeing 737-200
aircraft manufacturered between 1968 and 1985. 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. ValuJet 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 ValuJet's service in September
1996, ValuJet has incurred higher than usual maintenance expenses as a result
of expenses related 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 ValuJet and
Airways, although it is uncertain whether the proposed amendments will require
any changes to the heavy maintenance procedures already utilized by ValuJet
and Airways. In addition, ValuJet and Airways 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 ValuJet's and Airways' costs
of maintenance (including costs to comply with aging aircraft requirements)
will not materially increase in the future.
14
<PAGE>
ValuJet and Airways believe that their respective aircraft are
mechanically reliable based on the percentage of scheduled flights completed.
However, there can be no assurance that these aircraft will continue to be
sufficiently reliable over longer periods of time. Furthermore, given the age
of ValuJet's and Airways' fleet, any public perception that such aircraft are
less than completely reliable could have a material adverse effect on their
business. Various incidents involving ValuJet'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
ValuJet's aircraft and operations. See"Risk Factors -- Risks Related to
ValuJet -- Accident/Suspension of Operations."
Various FAA findings and safety violations by ValuJet discovered by
the FAA in connection with its special scrutiny of ValuJet led to the consent
order under which ValuJet's operations were suspended. Although ValuJet has
satisfied the FAA sufficiently to justify a return of its operating
certificate, ValuJet continues to be subject to a high level of FAA scrutiny
and there can be no assurance that ValuJet 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
As a result of the Merger, ValuJet will face the following
additional risks: (i) the usual risks associated with the combination of two
businesses; (ii) Airways has a limited operating history and has incurred
losses during two of its most recent three fiscal years; (iii) risks
associated with ValuJet's name change and loss of market recognition; (iv)
although ValuJet is seeking to achieve various economies of scale and costs
savings synergies, there can be no assurance that ValuJet will be able to
realize such benefits; (v) the FAA and DOT may elect to monitor Airways more
closely and may seek to impose limitations on Airways' operations that are not
currently in effect; and (vi) Airways operates Boeing 737-200 aircraft,
thereby adding a second aircraft type to the aircraft fleet to be operated by
ValuJet's subsidiaries.
Stage 3 Compliance
To satisfy FAA rules regarding allowable noise levels, each of
ValuJet and Airways 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 15, 1997, only 18 of ValuJet's 42 aircraft
meet the Stage 3 requirements. As of August 15, 1997, ValuJet complied with
Stage 3 requirements by virtue of 16 of the 31 operating aircraft complying
with these requirements. See "Business of ValuJet -- Aircraft." Six of
Airways' 11 aircraft currently satisfy the Stage 3 requirements. ValuJet and
Airways intend to meet their 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 "ValuJet Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources." Although
ValuJet 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 ValuJet will be able to do so or that failure to do so would
not have a material adverse effect on ValuJet's business.
Low Fuel Efficiency of Fleet
ValuJet's DC-9 Series 30 aircraft and Airways' Boeing 737-200
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 ValuJet'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 4.3c per gallon. ValuJet and Airways estimate that a 1.0c increase in the
per gallon cost of fuel would increase their respective fuel expenses by
approximately $59,000 and $20,000 per month, respectively, based on their
current fuel consumption rates.
The cost and availability of fuel are subject to many economic and
political factors and events occurring throughout the world. Neither ValuJet
nor Airways has any agreement with any fuel suppliers assuring the
availability and price stability of fuel. Consequently, the future cost and
availability of fuel to ValuJet or Airways cannot be predicted, and
substantial price or tax increases or the unavailability of adequate supplies
could have a material adverse effect on their business.
15
<PAGE>
Aircraft Acquisition Expenditures
ValuJet 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
financing these aircraft, ValuJet will be required to obtain its financing
from other sources. While ValuJet 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.
ValuJet 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 ValuJet'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 FAA aircraft
approval process, ValuJet's continuing expansion has been and may continue to
be delayed. Accordingly, ValuJet may not be able to utilize all the aircraft
it has committed to purchase. Although ValuJet has obtained attractive
purchase terms from McDonnell Douglas, if ValuJet 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 ValuJet will
not suffer a financial loss from any such sales or leases. See "Risk Factors
-- Risks Related to ValuJet - Accident/Suspension of Operations."
Employee Relations
ValuJet believes it operates with lower labor costs than many
established airlines, principally due to greater flexibility in its
utilization of personnel. There can be no assurance that ValuJet will be able
to maintain these advantages for any extended period of time. Many airline
industry employees are represented by labor unions. Other than its flight
attendants and mechanics, ValuJet's employees are not unionized. The
Association of Flight Attendants ("AFA") has filed a lawsuit against ValuJet
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
ValuJet's employees will not materially increase ValuJet's costs.
Airways has 33 mechanics and ten maintenance stores personnel
represented by the International Association of Machinists (IAM). Contract
negotiations are underway with the mechanics. The remainder of the employees
at Airways are non-union. Union organizing activity directed at various
employee groups is ongoing; therefore, there can be no assurance that the
current labor environment will continue.
Risks of Expansion
ValuJet intends to expand its operations into new markets, subject
to FAA and DOT approval. Although ValuJet's low fare service had previously
been accepted in ValuJet'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 increased competition in ValuJet's markets.
Furthermore, ValuJet's continued expansion will require substantial additional
capital expenditures, thereby increasing the risks associated with expansion.
Nontraditional Distribution System and Reliance on Automation
ValuJet employs a computerized airline reservation system which does
not require ValuJet to issue traditional airline tickets. Instead, at the
time of sale/reservation, ValuJet provides its customers with a confirmation
number similar to the systems used by hotels and car rental agencies.
Furthermore, ValuJet does not participate in the Airline Reporting Corporation
("ARC"), the airline industry collection agent for travel agency sales.
ValuJet bills and collects directly from travel agents based on sales
information generated through its automation system at the time of the travel
agent reservation. ValuJet relies on its computerized information and
reservation system as an important factor in its business strategy. In the
event of unanticipated problems, ValuJet 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 ValuJet's business.
16
<PAGE>
Airport Access
As of August 15, 1997, ValuJet provided air service to 24 markets
primarily from Atlanta and Airways provided air service to 21 markets from
Orlando. ValuJet's and Airways' markets are located primarily in the eastern
United States. In late 1995, ValuJet attempted to acquire flight slots at New
York's LaGuardia Airport from TWA. When the slots were ultimately sold to
Delta, ValuJet filed suit to enjoin the transaction. Although injunctive
relief was denied, ValuJet has amended its lawsuit to seek antitrust damages.
See "Business of ValuJet -- Litigation." Subsequently, ValuJet was able to
lease other slots at LaGuardia from Continental Airlines which enabled ValuJet
to commence service to New York in May 1996, but ValuJet 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 ValuJet will be able to obtain or maintain
access to such airports at an acceptable cost. Any condition which would deny
or limit ValuJet's access to the airports it serves or seeks to serve may have
a material adverse effect on ValuJet's business.
Reliance on Others
ValuJet 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. ValuJet 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. ValuJet's reliance upon
others to provide essential services on behalf of ValuJet may result in
relative inability to control the efficiency, timeliness and quality of
contract services. For example, ValuJet's reliance on SabreTech, Inc.
("SabreTech") for certain maintenance work appears to have contributed to the
accident involving Flight 592. Management expects that ValuJet will be
required to rely on independent contractors for some time in the future.
AirTran contracts with Delta to provide ground handling service and
five gates at Orlando International Airport. In addition, AirTran contracts
for ground handling services with Delta at the Cincinnati Airport. The
contracts under which those services are performed are cancelable by either
party provided the requisite notice provisions are met. Although no notice
has been given to date that Delta intends to cancel these contracts, there can
be no assurance that they will not serve notice at a later date of their
intention to cancel forcing AirTran to find alternate gates in Orlando and
make alternate arrangements for ground handling in Orlando and Cincinnati.
AirTran entered into a code share agreement with Comair on June 19,
1997 wherein AirTran sells through flights from AirTran cities (other than
Cincinnati and Orlando) to nine Comair destinations in Florida and Nassau
under the tradename "AirTran Florida Connection". Comair is owned 25% by
Delta and has its own code share agreement with Delta under which through
passengers from Delta cities fly on Comair to its destinations, tradenamed
"The Delta Connection". The code share agreement that AirTran has with Comair
can be canceled by either party provided the requisite notice provisions are
met. Although no notice has been given to date that Comair intends to cancel
this contract, there can be no assurance that they will not serve notice at a
later date of their intention to cancel forcing AirTran to stop selling those
routes and potentially reducing AirTran's traffic and revenue.
Risk of Loss
As evidenced by the crash of Flight 592 on May 11, 1996, 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. ValuJet is required by the Department of Transportation ("DOT")
to carry liability insurance on each of its aircraft. ValuJet currently
maintains liability insurance in the amount of $750.0 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.
ValuJet'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 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.
17
<PAGE>
Dependence on Executive Officers
ValuJet is dependent on the services of D. Joseph Corr (President
and Chief Executive Officer of ValuJet Airlines, Inc.) and its other executive
officers. The loss of services of these officers could materially and
adversely affect the business of ValuJet and its future prospects. ValuJet
does not now, and does not presently intend to, maintain key man life
insurance on any of ValuJet's officers.
Control by Management Group
As of July 31, 1997, ValuJet's Executive Officers and Directors (ten
persons) owned approximately 20.8% of ValuJet'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."
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 destinations, flight frequencies and fares. ValuJet competes with
airlines which presently serve ValuJet's current and proposed routes and which
are larger and have greater name recognition and greater financial resources
than ValuJet. ValuJet may also face competition from airlines which may begin
serving any of the markets ValuJet 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 ValuJet's fares
or introduce new non-stop service between cities served by ValuJet on a one-
stop basis, and prevent ValuJet from attaining a share of the passenger
traffic necessary to achieve profitable operations. ValuJet'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 ValuJet may price their fares below ValuJet's
fares or increase their service which could have a material adverse effect on
ValuJet'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 ValuJet relies to a large extent on leisure travelers, such
a tax increase may affect ValuJet to a greater extent than ValuJet's
competitors who rely more heavily on business travelers.
Delta Express, a low cost/low fare division of Delta, entered
service in several of Airways' markets in 1996. As a result of the intense
competitive environment generated by Delta Express and by Southwest Airlines'
entry into certain markets, Airways withdrew service from Nashville, Hartford
and Providence. Airways presently is engaged in competition with Delta
Express only on its route to Islip, New York. Furthermore, Delta is the
largest carrier in Orlando, accounting for 31% of enplanements (based on
February 1997 data). There can be no assurance that Airways will not face
greater competition from Delta, Delta Express and Southwest Airlines in the
future.
Cyclical Nature of Airline Industry
The airline industry is highly sensitive to general economic
conditions. Because a substantial portion of airline travel 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 ValuJet, particularly since ValuJet is
substantially dependent on leisure travel and on the stimulation of additional
discretionary air travel.
Federal Regulation
Each of ValuJet and Airways 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,
18
<PAGE>
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 an airline'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 ValuJet or Airways, particularly
their expansion plans and aircraft acquisition program.
Extraordinary regulatory review of ValuJet'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 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
implemented several operating and administrative charges to address the FAA's
concerns and subsequently satisfied the FAA with respect to the safety
violations referenced in the consent order. 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.
Unauthorized Parts
ValuJet 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 ValuJet has procedures in place to ensure
the use of authorized materials during the performance of maintenance. A risk
exists, however, that through fraud or negligence unauthorized parts could be
used on any air carrier's aircraft including those of ValuJet.
19
<PAGE>
THE AIRWAYS MEETING
GENERAL
This Joint Proxy Statement/Prospectus is being furnished to the
holders of Airways Common Stock in connection with the solicitation by the
Airways Board of Directors of proxies for use at the Airways Meeting, at which
the Airways stockholders will be asked to vote upon a proposal to approve the
Merger. The Airways Meeting will be held at _______ a.m., local time, on
__________, 1997, at 4170 Wiley Drive, Orlando, Florida 32827.
Airways stockholders are requested promptly to sign, date and return
the accompanying proxy card to Airways in the enclosed postage-paid, addressed
envelope.
Any Airways stockholder who has delivered a proxy may revoke it at
any time before it is voted by giving notice of revocation in writing or
submitting to Airways a signed proxy card bearing a later date, provided that
such notice or proxy card is actually received by Airways before the vote of
stockholders or in open meeting prior to the taking of the stockholder vote at
the Airways Meeting. Any notice of revocation should be sent to Airways, 6280
Hazeltine National Drive, Orlando, Florida 32822, Attention: Corporate
Secretary. The shares represented by properly executed proxies received at or
prior to the Airways Meeting and not subsequently revoked will be voted as
directed in such proxies. IF INSTRUCTIONS ARE NOT GIVEN, SHARES REPRESENTED
BY PROXIES RECEIVED WILL BE VOTED FOR APPROVAL OF THE MERGER AND IN THE
DISCRETION OF THE PROXY HOLDER AS TO ANY OTHER MATTERS THAT PROPERLY MAY COME
BEFORE THE AIRWAYS MEETING. As of the date of this Joint Proxy
Statement/Prospectus, Airways is unaware of any other matter to be presented
at the Airways Meeting.
Solicitation of proxies will be made by mail but also may be made by
telephone or facsimile or in person by the directors, officers and employees
of Airways, who will receive no additional compensation for such solicitation
but may be reimbursed for out-of-pocket expenses. Brokerage houses, nominees,
fiduciaries and other custodians will be requested to forward solicitation
materials to beneficial owners and will be reimbursed for their reasonable
out-of-pocket expenses.
Airways stockholders should not forward any stock certificates with
their proxy cards.
RECORD DATE; VOTE REQUIRED
Airways' Board of Directors has established the close of business on
____________, 1997, as the Record Date for determining the stockholders
entitled to notice of and to vote at the Airways Meeting. Only Airways
stockholders of record as of the Record Date will be entitled to vote at the
Airways Meeting. Approval of the Merger requires the affirmative vote of a
majority of the shares of Airways Common Stock entitled to vote at the Airways
Meeting. Therefore, an abstention, broker non-vote or failure to return a
properly executed proxy card will have the same effect as a vote against the
Merger. As of the Record Date, there were approximately _______ shares of
Airways Common Stock outstanding and entitled to vote at the Airways Meeting,
with each share entitled to one vote.
The presence, in person or by proxy, of a majority of the
outstanding shares of Airways Common Stock is necessary to constitute a quorum
of the stockholders in order to take action at the Airways Meeting. For these
purposes, shares of Airways Common Stock that are present, or represented by
proxy, at the Airways Meeting will be counted for quorum purposes regardless
of whether the holder of the shares or proxy votes on the Merger.
The directors and executive officers of Airways and their affiliates
beneficially owned, as of the Record Date, ________ shares (or approximately
______% of the outstanding shares) of Airways Common Stock. As of the Record
Date, neither ValuJet nor the directors and executive officers of ValuJet
beneficially owned any shares of Airways Common Stock.
Robert D. Swenson, Lowell T. Swenson and Carl R. Pohlad have agreed
to vote an aggregate of _________ shares of Airways Common Stock in favor of
the Merger.
20
<PAGE>
THE VALUJET MEETING
GENERAL
This Joint Proxy Statement/Prospectus is being furnished to the
holders of ValuJet Common Stock in connection with the solicitation by the
ValuJet Board of Directors of proxies for use at the ValuJet Meeting, at which
the ValuJet stockholders will be asked to vote upon a proposal to approve the
Merger, the Name Change and the By-laws Amendment. The ValuJet Meeting will
be held at _______ a.m., local time, on __________, 1997, at
________________________________________, Atlanta, Georgia _______.
ValuJet stockholders are requested promptly to sign, date and return
the accompanying proxy card to ValuJet in the enclosed postage-paid, addressed
envelope.
Any ValuJet stockholder who has delivered a proxy may revoke it at
any time before it is voted by giving notice of revocation in writing or
submitting to ValuJet a signed proxy card bearing a later date, provided that
such notice or proxy card is actually received by ValuJet before the vote of
stockholders or in open meeting prior to the taking of the stockholder vote at
the ValuJet Meeting. Any notice of revocation should be sent to ValuJet, 1800
Phoenix Boulevard, Suite 126, Atlanta, Georgia 30349, Attention: Corporate
Secretary.
The shares represented by properly executed proxies received at or
prior to the ValuJet Meeting and not subsequently revoked will be voted as
directed in such proxies. IF INSTRUCTIONS ARE NOT GIVEN, SHARES REPRESENTED
BY PROXIES RECEIVED WILL BE VOTED FOR APPROVAL OF THE MERGER, THE NAME CHANGE
AND THE BY-LAW AMENDMENT AND IN THE DISCRETION OF THE PROXY HOLDER AS TO ANY
OTHER MATTERS THAT PROPERLY MAY COME BEFORE THE VALUJET MEETING. As of the
date of this Joint Proxy Statement/Prospectus, ValuJet is unaware of any other
matter to be presented at the ValuJet Meeting.
Solicitation of proxies will be made by mail but also may be made by
telephone or facsimile or in person by the directors, officers and employees
of ValuJet, who will receive no additional compensation for such solicitation
but may be reimbursed for out-of-pocket expenses. Brokerage houses, nominees,
fiduciaries and other custodians will be requested to forward solicitation
materials to beneficial owners and will be reimbursed for their reasonable
out-of-pocket expenses.
RECORD DATE; VOTE REQUIRED
ValuJet's Board of Directors has established the close of business
on ____________, 1997, as the Record Date for determining the stockholders
entitled to notice of and to vote at the ValuJet Meeting. Only ValuJet
stockholders of record as of the Record Date will be entitled to vote at the
ValuJet Meeting. Approval of the Merger and Name Change requires the
affirmative vote of a majority of the shares of ValuJet Common Stock entitled
to vote at the ValuJet Meeting. Therefore, abstentions, broker non-votes or
failures to return a properly executed proxy card will have the same effect as
a vote against the Merger and Name Change. The affirmative vote of a majority
of the shares of ValuJet Common Stock present in person or represented by
proxy will be required to approve the By-law Amendment to be considered at the
ValuJet Meeting. As of the Record Date, there were approximately _______
shares of ValuJet Common Stock outstanding and entitled to vote at the ValuJet
Meeting, with each share entitled to one vote.
The presence, in person or by proxy, of a majority of the
outstanding shares of ValuJet Common Stock is necessary to constitute a quorum
of the stockholders in order to take action at the ValuJet Meeting. For these
purposes, shares of ValuJet Common Stock that are present, or represented by
proxy, at the ValuJet Meeting will be counted for quorum purposes regardless
of whether the holder of the shares or proxy fails to vote on the Merger or
other proposals to be voted upon.
The directors and executive officers of ValuJet and their affiliates
beneficially owned, as of the Record Date, ________ shares (or approximately
______% of the outstanding shares) of ValuJet Common Stock. As of the Record
Date, neither Airways nor the directors and executive officers of Airways
beneficially owned any shares of ValuJet Common Stock.
Robert L. Priddy, Lewis H. Jordan, Maurice J. Gallagher, Jr. and
Timothy P. Flynn have agreed to vote an aggregate of _________ shares of
ValuJet Common Stock in favor of the Merger.
21
<PAGE>
THE MERGER
The following description of the Merger does not purport to be
complete and is qualified in its entirely by reference to the Appendices
hereto, including the Agreement, which is attached as Appendix A to this Joint
Proxy Statement/Prospectus and incorporated herein by reference. All
stockholders are urged to read the Appendices in their entirety.
GENERAL
Upon consummation of the Merger, Airways will merge with and into
ValuJet. ValuJet will survive the Merger and ValuJet will change its name to
AirTran Holdings, Inc. and the separate existence of Airways will cease.
AirTran will become a wholly owned subsidiary of ValuJet.
At the Effective Date, each share of Airways Common Stock issued and
outstanding will be converted into one newly issued share of ValuJet Common
Stock, subject to adjustment in the event of a stock dividend, stock split or
similar stock reclassification. Each share of ValuJet Common Stock
outstanding immediately prior to the Effective Date will remain outstanding
and unchanged as a result of the Merger. No fractional shares of ValuJet
Common Stock will be issued in connection with the Merger.
TREATMENT OF AIRWAYS OPTIONS AND WARRANTS
The Agreement provides that all rights with respect to Airways
Common Stock pursuant to stock options granted by Airways under its stock
option plans or stock warrants which are outstanding at the Effective Date,
whether or not then exercisable, will become rights with respect to ValuJet
Common Stock and ValuJet will assume each of such options and warrants in
accordance with their respective terms. After the Effective Date, such
options and warrants will become options and warrants to purchase ValuJet
Common Stock, with the exercise price and number of shares of ValuJet Common
Stock purchasable thereunder being equal to the exercise price and number of
shares of Airways Common Stock that could have been purchased thereunder
immediately prior to the consummation of the Merger. The executive officers
and directors of Airways collectively hold options to purchase ________ shares
of Airways Common Stock.
BACKGROUND OF AND REASONS FOR THE MERGER
Since the successful initiation of ValuJet's business plan in 1993,
ValuJet has received and pursued generally various proposals from others in
the airline industry. In October 1995, ValuJet created a holding company
structure, one of the purposes of which was to provide more flexibility for
possible acquisitions of other businesses.
After the accident involving Flight 592 and the suspension of
ValuJet's operations in June 1996, ValuJet management believed that closer
scrutiny has been focused on low fare airlines and the FAA's oversight of such
airlines. In such environment, ValuJet management believes that a
consolidation of low fare airlines will strengthen their ability to compete
with the major airlines. Since the recommencement of ValuJet's operations on
September 30, 1996, ValuJet has actively sought a merger partner to implement
this strategy. Airways was an attractive target to ValuJet as a result of its
low fare philosophy, its target market of leisure travelers, its location in
the eastern United States and its historical operating performance.
Preliminary discussions between ValuJet and Airways commenced in November 1996
between Robert L. Priddy and Robert D. Swenson, the Chief Executive Officers
of ValuJet and Airways, respectively. After a period of inactivity,
discussions between the parties recommenced in February 1997, at which time a
confidentiality agreement, in customary form, was signed by the parties.
After several discussions between Messrs. Priddy and Swenson, Airways legal
counsel commenced a due diligence review of the outstanding ValuJet litigation
matters and a meeting was held in Atlanta on February 13, 1997, at which
representatives of the parties were present along with their respective legal
counsel and investment bankers. After that meeting, discussions between the
parties terminated for a variety of reasons.
Discussions between the parties recommenced on March 20, 1997, when
D. Joseph Corr, President and Chief Executive Officer of ValuJet Airlines, met
with Carl R. Pohlad, a significant stockholder of Airways, and John K.
Ellingboe, an outside director of Airways in Minneapolis, Minnesota.
Thereafter, negotiations were pursued primarily between Mr. Corr and Mr.
Ellingboe. The parties exchanged various term sheets in pursuit of a mutually
agreeable transaction. On May 22, 1997, the Board of Directors of Airways
held a special meeting to consider strategic options, including possible
business combinations with various air carriers including ValuJet. The
Airways Board also considered
22
<PAGE>
ways of generating the additional cash required by Airways to remain
independent, including through the possible refinancing of Airways' Orlando
hangar and the sale-leaseback of an aircraft. After lengthy deliberations,
the Airways Board authorized Messrs. Swenson and Ellingboe to continue
negotiations with ValuJet and a second potential merger candidate. The
Airways Board met on June 17, 1997, to discuss the status of the negotiations
with ValuJet and the second merger candidate. On June 25, 1997, the parties
met again in Atlanta with their legal counsel and authorized the commencement
of due diligence and the preparation of a definitive merger agreement.
On-site due diligence of Airways was conducted by representatives of
ValuJet during the week of June 30, 1997. Similarly, on-site due diligence of
ValuJet was conducted by Airways representatives during the weeks of June 30
and July 7, 1997. Subsequently, additional off-site due diligence and
discussions with legal counsel and financial advisors were undertaken by both
companies.
During the negotiations between the parties, Airways disclosed that
AirTran was pursuing a sale leaseback transaction with respect to one of its
owned Boeing 737-200A aircraft in order to provide cash for its operations.
Rather than having AirTran commit to a long term lease at what ValuJet
management believed was a high rate, ValuJet offered to provide the financing
itself. As a result of these discussions, ValuJet loaned AirTran $7.0 million
on July 3, 1997, guaranteed by Airways and secured by a first priority
security interest on one Boeing 737-200A aircraft. The loan bears interest at
10% per annum and is due in December 1997.
On July 9, 1997, at a special meeting of the Board of Directors of
ValuJet, due diligence reports on Airways given by ValuJet's financial
officers, management and legal counsel were considered in depth.
Representatives of Robinson-Humphrey commented on the fairness of the Merger
to ValuJet's stockholders. Legal counsel then reviewed the terms and
conditions of the proposed Merger Agreement. After a lengthy discussion,
ValuJet's Board unanimously approved the Merger on the terms and conditions
substantially as provided in the Merger Agreement, subject to receipt of a
fairness opinion from Robinson-Humphrey, and further approved the issuance,
when necessary and as appropriate, of a press release regarding the Merger.
A special meeting of the Board of Directors of Airways was held on
July 9 and 10, 1997 for the purpose of considering the proposed merger with
ValuJet. PaineWebber presented its report to the Airways Board, including an
in-depth discussion of the procedures employed in their evaluation of the
fairness of the Exchange Ratio and their conclusions based on those
procedures. On July 10, 1997, the Merger Agreement was unanimously approved
by the Airways Board of Directors and was authorized to be submitted to the
stockholders of Airways for approval.
On July 10, 1997, the parties executed the Merger Agreement and
issued a joint press release announcing the execution of the Agreement.
Airways' Reasons for the Merger. The Airways Board of Directors has
unanimously approved the Agreement and has determined that the Merger is in
the best interests of Airways and its stockholders. The terms of the Merger
were the result of arms-length negotiations between representatives of Airways
and representatives of ValuJet.
The Merger Agreement was approved by the Airways Board following its
review of various alternatives for increasing stockholder value, creating
flexible options for the future growth of Airways and advancing Airways'
strategic goals. In making its determination to approve the Merger Agreement,
the Airways Board considered, with the assistance of its management and legal
and financial advisors, the following material factors:
The financial terms of the Merger. PaineWebber presented to the Airways
Board a transaction valuation analysis which showed that Airways' stockholders
would receive a 32.2% premium in the Merger, based on the relative price per
share of Airways and ValuJet Common Stock on July 7, 1997. Based on stock
prices on July 7, 1997, PaineWebber arrived at the following per share
valuation ranges for Airways Common Stock: comparable public company
analysis, $3.60 to $5.75; comparable transaction analysis, $2.15 to $3.75; and
premiums paid analysis, $6.20 to $6.75. Based on ValuJet's closing price of
$6.94 on July 7, 1997, the Exchange Ratio in the Merger exceeds the implied
exchange ratios derived from the foregoing valuations, which ranged from 0.31x
to 0.97x.
The potential effect of a business combination on Airways and its
stockholders. The Airways Board considered the relative benefits of
alternative business combinations with three air carriers, including ValuJet,
including (i) the estimated relative cash position of the entity following
completion of the transaction; (ii) estimated route synergies following
completion of the transaction, such as non duplication of existing route
investments and fit for future expansion
23
<PAGE>
and route blending purposes; (iii) management; (iv) brand identity; (v)
financial markets; (vi) balance sheet; (vii) aircraft fleet, including the
number of aircraft, commonality of types, and condition of the combined fleet
after the transaction; (viii) infrastructure; (ix) market niche, including an
assessment of the defensibility of current market niche and an estimate of the
post-transaction niche; (x) labor issues, including an assessment of the
impact of the transaction on Airways' current officers and employees; (xi)
cost structure; (xii) post-transaction stock ownership percentages of the
current Airways stockholders; (xiii) risk, including an assessment of the risk
to the Airways' stockholders of the transaction not being consummated and the
estimated risks of post-transaction combined company; and (xiv) an estimate of
the potential for the increase in value for the Airways' stockholders as
stockholders of the post-transaction combined company.
The effect of remaining independent compared to the effect of merging
with ValuJet. The Airways Board considered various strategic alternatives,
including remaining independent or merging with another air carrier, including
ValuJet. The Airways Board examined various means of generating additional
cash to sustain Airways as an independent company, including the possible
refinancing of Airways' Orlando hangar facility, sale-leaseback financing of
an aircraft, obtaining access to restricted cash through a third-party
guarantee of credit card receipts and the code-sharing arrangement with
Comair. After detailed consideration of the advantages and disadvantages of a
business combination with various air carriers, the Airways Board concluded
that a merger with ValuJet would provide greater value to Airways'
stockholders than would remaining independent.
Need to expand operations. The Airways Board considered the general
growth trend of air carriers, either through internal expansion or
acquisitions, and the belief that achieving sustainable profitability would
require Airways to expand its operations.
Information concerning ValuJet. Airways' management and legal counsel
presented information to the Airways Board concerning the business,
operations, profits and losses, assets, liabilities, financial condition, debt
structure, litigation and various potential liabilities of ValuJet.
Particular emphasis was placed on the effects of ValuJet's suspension of
operations since the loss of Flight 592, claims arising from the accident,
lawsuits alleging securities law violations by ValuJet, various government
investigations of ValuJet and the possibility that ValuJet's lenders could
accelerate its indebtedness as the result of certain covenant defaults.
Advice of financial advisor and fairness opinion. The Airways Board
received the report of PaineWebber, its financial advisor, which compared
Airways with selected peer air carriers and the premium to be paid for Airways
compared with premiums paid in similar transactions. Additionally, the
Airways Board considered the opinion of PaineWebber (including the assumptions
and financial information and projections relied upon by PaineWebber in
arriving at such opinion) that, as of ___________, 1997, the Exchange Ratio
was fair, from a financial point of view, to the stockholders of Airways. See
"-- Opinions of Financial Advisors."
Certain financial analyses of ValuJet and Airways. The Airways Board
considered information regarding recent and historical stock performance,
valuation analyses, pro forma financial information, comparative financial and
operating performance data and comparable merger and acquisition transactions
presented by PaineWebber.
Certain non-financial factors. The Airways Board considered the terms of
the Merger Agreement, including the Board's right to terminate the Merger
Agreement in the event that Airways received a superior acquisition proposal
from a third party. The Airways Board also required that the Merger be tax-
free, for federal income tax purposes, to Airways' stockholders.
Regulatory approvals. The Airways Board considered the probability and
timing of receiving the regulatory approvals necessary to consummate the
Merger. See "The Merger -- Regulatory Approvals."
The Airways Board did not quantify or assign relative values to the
various factors considered in reaching its determination that the Merger is
advisable and fair to, and in the best interests of, Airways and its
stockholders.
AIRWAYS' BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT AIRWAYS
STOCKHOLDERS VOTE FOR APPROVAL OF THE MERGER.
24
<PAGE>
ValuJet's Reasons for the Merger. The ValuJet Board of Directors has
unanimously approved the Agreement and has determined that the Merger is in
the best interests of ValuJet and its stockholders. In approving the
Agreement, the ValuJet Board considered a number of factors. Without assigning
any relative or specific weights to the factors, the ValuJet Board of
Directors considered the following material factors:
(a) a review of (i) the business, operations, earnings and financial
condition of Airways on an historical and prospective basis, (ii) the
demographic characteristics of the markets in which Airways operates,
including existing competition; and (iii) the results of a due diligence
review of Airways by ValuJet management and legal counsel;
(b) a variety of factors affecting and relating to the overall strategic
focus of ValuJet, including ValuJet's desire to expand its services;
(c) the financial terms and income tax consequences of the proposed
Merger;
(d) the management and operating philosophy of Airways and its
compatibility with that of ValuJet; and
(e) the opinion of its financial advisor.
VALUJET'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT VALUJET
STOCKHOLDERS VOTE FOR APPROVAL OF THE AGREEMENT.
OPINIONS OF FINANCIAL ADVISORS
ValuJet. ValuJet has retained Robinson-Humphrey to act as its financial
advisor in connection with the Merger. Representatives of Robinson-Humphrey
participated in the due diligence review of Airways and in the meeting of the
ValuJet Board of Directors held on July 9, 1997 when the merger with Airways
was considered in depth. On July 9, 1997, the ValuJet Board approved the
Merger. At the July 9, 1997 meeting, Robinson-Humphrey rendered its oral
opinion to the effect that, as of such date, an Exchange Ratio of one share of
ValuJet Common Stock for each share of Airways Common Stock was fair to the
ValuJet stockholders from a financial point of view. Robinson-Humphrey has
also rendered its written opinion to the ValuJet Board of Directors that on
the date of this Joint Proxy Statement/Prospectus, based on the information
set forth therein, the Exchange Ratio was fair, from a financial point of
view, to the ValuJet stockholders.
THE FULL TEXT OF ROBINSON-HUMPHREY'S WRITTEN OPINION IS ATTACHED AS
APPENDIX B TO THIS JOINT PROXY STATEMENT/PROSPECTUS AND IS INCORPORATED HEREIN
BY REFERENCE. THE DESCRIPTION OF THE OPINION SET FORTH HEREIN IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO APPENDIX B. VALUJET STOCKHOLDERS ARE URGED TO
READ THE OPINION IN ITS ENTIRETY FOR A DESCRIPTION OF THE PROCEDURES FOLLOWED,
ASSUMPTIONS MADE, MATTERS CONSIDERED AND QUALIFICATIONS AND LIMITATIONS ON THE
REVIEW UNDERTAKEN BY ROBINSON-HUMPHREY IN CONNECTION THEREWITH.
Robinson-Humphrey's opinion is directed only to the Exchange Ratio and
does not constitute a recommendation to any ValuJet stockholder regarding how
such stockholder should vote at the ValuJet Meeting.
In arriving at its opinion, Robinson-Humphrey among other things: (i)
reviewed the Merger Agreement and certain related documents; (ii) analyzed
certain audited and unaudited financial statements and other information of
ValuJet and Airways; (iii) reviewed and discussed with management of ValuJet
and Airways, the past and current business activities and financial results
and the business and financial outlook of ValuJet and Airways; (iv) reviewed
the historical price and trading activity of the common stock of ValuJet and
Airways and other airlines; (v) compared certain financial and stock market
data relating to ValuJet and Airways with similar data of other publicly held
airlines; (vi) performed an analysis comparing the pro forma consequences of
the Merger to both ValuJet and Airways stockholders with respect to earnings
per share and tangible book value per share represented by the ValuJet Common
Stock; (vii) considered the relative contributions of ValuJet and Airways to a
combined company in terms of balance sheet, earnings and current equity market
valuation measures; (viii) reviewed the premiums, prices and multiples paid in
certain comparable acquisition transactions of airlines and of merger
transactions in general; (ix) considered the potential synergies and cost
savings that could be achieved through the Merger; (x) evaluated the financial
and capital implications to ValuJet of the Merger; and (xi) performed such
other analyses as Robinson-Humphrey deemed appropriate.
In conducting its analysis and arriving at its opinion, Robinson-Humphrey
assumed and relied upon, without independent verification, the accuracy and
completeness of the information it reviewed for purposes of the opinion.
Robinson-Humphrey also relied upon the managements of ValuJet and Airways with
respect to the reasonableness and
25
<PAGE>
achievability of the financial forecasts (and the assumptions and bases
underlying such forecasts) provided to Robinson-Humphrey. Robinson-Humphrey
did not make, nor was it furnished with, independent valuations or appraisals
of the assets or liabilities of either ValuJet or Airways or any of their
subsidiaries. Robinson-Humphrey did not express any opinion about the
expected price of ValuJet Common Stock when issued to the holders of Airways
Common Stock pursuant to the Merger or the price at which ValuJet Common Stock
will trade subsequent to the Merger. ValuJet has informed Robinson-Humphrey,
and Robinson-Humphrey has assumed, that the Merger will be recorded utilizing
the purchase method of accounting.
No limitations were imposed by ValuJet or the ValuJet Board of Directors
on the scope of Robinson-Humphrey's investigation or the procedures to be
followed by Robinson-Humphrey in rendering its opinion. The opinion is
necessarily based on economic, market and other conditions as in effect on,
and the information made available to Robinson-Humphrey as of, the date of its
analysis.
In addressing the fairness, from a financial point of view, of the
consideration to be issued by ValuJet to the stockholders of Airways,
Robinson-Humphrey employed a variety of generally recognized valuation
methodologies and merger analyses and performed those which it believed were
most appropriate for developing its opinion. The preparation of a fairness
opinion involves various determinations of the most appropriate and relevant
methods of financial analysis and the application of those methods to the
particular circumstances, and, therefore, such an opinion is not readily
susceptible to summary description. In arriving at its fairness opinion,
Robinson-Humphrey did not attribute any particular weight to any analysis or
factor considered by it, but rather made qualitative judgments about the
significance and relevance of each analysis and factor. None of the analyses
performed by Robinson-Humphrey was assigned a greater significance by
Robinson-Humphrey than any other. Accordingly, Robinson-Humphrey believes
that its analyses must be considered as a whole and that a review of selected
portions of such analyses and the factors considered therein, without
considering all analyses and factors, could create a misleading or incomplete
view of the processes underlying its opinion and any conclusions reached
therein. In its analyses, Robinson-Humphrey made numerous assumptions with
respect to industry performance, general business and economic conditions, and
other matters, many of which are beyond ValuJet's control. Any estimates
contained in Robinson-Humphrey's analyses are not necessarily indicative of
actual values or predictive of future results or values that may be
significantly more or less favorable than such estimates. Estimates of values
of companies do not purport to be appraisals or necessarily reflect the prices
at which companies or their securities actually may be sold. In addition, as
described above, Robinson-Humphrey's opinion and presentation to the ValuJet
Board of Directors was one of many factors taken into consideration by the
ValuJet Board of Directors in making its determination to approve the Merger
Agreement.
The following is a brief summary of analyses performed by Robinson-
Humphrey in connection with its oral opinion delivered to the ValuJet Board of
Directors on July 9, 1997.
Comparable Public Companies Analysis. Using publicly available
information, Robinson-Humphrey compared certain financial and operating
information and ratios (described below) for Airways with corresponding
financial and operating information and ratios for a group of publicly traded
airlines. The companies included in the Airways comparable public companies
analysis were Atlantic Coast Airlines, Inc., ASA Holdings, Inc., Comair
Holdings, Inc., Frontier Airlines, Inc., Mesa Air Group, Inc., Mesaba
Holdings, Inc., Midwest Express Holdings, Inc., Reno Air, Inc., Ryanair
Holdings, plc, Skywest, Inc., Southwest Airlines Company and Western Pacific
Airlines, Inc. (collectively, the "Airways Comparables"). Robinson-Humphrey
compared (i) price/earnings ("P/E") ratios for calendar 1997 (based on
information from First Call Earnings Estimates ("First Call") and Robinson-
Humphrey Research Department Estimates ("Robinson-Humphrey Research") which
ranged from 10.4x to 21.8x for the Airways Comparables (with a mean of 14.5x
and a median of 14.1x), compared to 16.4x for Airways (based on an Airways
estimate from Principal Financial Group); (ii) P/E ratios for calendar 1998
(based on information from First Call and Robinson-Humphrey Research) which
ranged from 8.7x to 24.5x for the Airways Comparables (with a mean of 13.5x
and a median of 12.6x), compared to 5.5x for Airways (based on the ValuJet
management forecast for Airways); (iii) the ratio of market price per share to
book value per share which ranged from 1.5x to 5.8x for the Airways
Comparables (with a mean of 3.3x and a median of 3.4x), compared to 2.7x for
Airways; (iv) the ratio of enterprise value to revenues for the last twelve
months ("LTM") which ranged from 0.62x to 2.09x for the Airways Comparables
(with a mean of 0.98x and a median of 0.74x), compared to 0.57x for Airways;
(v) the ratio of enterprise value as a multiple of 1997 revenues (based on
Robinson-Humphrey Research estimates) which ranged from 0.32x to 1.89x for the
Airways Comparables (with a mean of 0.84x and a median of 0.65x), compared to
0.47x for Airways (based on the ValuJet management forecast for Airways); (vi)
enterprise value as a multiple of 1997 earnings before interest, taxes,
depreciation and amortization ("EBITDA") (based on Robinson-Humphrey Research
26
<PAGE>
estimates) which ranged from 4.5x to 12.5x for the Airways Comparables (with a
mean of 6.4x and a median of 6.3x), compared to 6.9x for Airways (based on the
ValuJet management forecast for Airways).
Analysis of Selected Merger Transactions. Robinson-Humphrey analyzed and
compared the consideration paid in fifteen mergers and acquisitions involving
airlines occurring since December 12, 1985. In each such acquisition,
Robinson-Humphrey calculated enterprise value as a multiple of revenues, as a
multiple of LTM EBITDA, and as a multiple of LTM earnings before interest and
taxes ("EBIT") with resulting average multiples of 0.68x, 10.8x and 16.1x,
respectively, Robinson-Humphrey also calculated equity value as a multiple of
book value and as a multiple of LTM net income with resulting average
multiples of 2.55x and 19.2x, respectively.
Premium Analysis. Robinson-Humphrey reviewed certain purchase price
premiums paid for the stock of selected publicly-held companies in
acquisitions involving total consideration of between $50 million and $150
million during the period from July 1, 1995 to June 30, 1997. This analysis
measured the average purchase price premium paid by acquirors over the
prevailing stock market prices of acquirees one day prior to the announcement
of an offer, one week prior to the announcement of an offer, and four weeks
prior to the announcement of an offer, resulting in average premiums of 27.5%,
35.2% and 46.1%, respectively, and median premiums of 22.1%, 29.1% and 37.3%,
respectively. For all transactions with total consideration ranging from $50
million to $150 million that were announced between January 1, 1997 and June
30, 1997, the average purchase price premium paid by acquirors over the
prevailing open market stock prices of acquirees one day prior, one week prior
and four weeks prior to the announcement of an offer resulted in average
premiums of 24.8%, 30.0% and 39.3%, respectively, and median premiums of
19.3%, 26.8% and 41.0%, respectively.
Pro Forma Contribution Analysis. Robinson-Humphrey analyzed certain pro
forma effects resulting from the Merger, including the potential impact of the
Merger on projected earnings per share for the combined company. Robinson-
Humphrey analyzed the pro forma effects for the combined company with and
without merger synergies. The financial projections for ValuJet and the
potential merger synergies were provided by ValuJet management and the
financial projections for Airways were provided by Airways and modified by
ValuJet management.
No company or transaction used in the above analyses as a comparison is
identical to ValuJet, Airways or the Merger. Accordingly, an analysis of the
results of the foregoing necessarily involves complex considerations and
judgments concerning differences in financial and operating characteristics of
the companies and other factors that could affect the public trading value of
the companies to which they are being compared.
In connection with its opinion dated the date of this Joint Proxy
Statement/Prospectus, Robinson-Humphrey confirmed the appropriateness of its
reliance on the analyses used to render its July 9, 1997 report and oral
opinion by performing procedures to update certain of such analyses and by
reviewing the assumptions on which such analyses were based and the factors
considered in connection therewith.
Robinson-Humphrey is a nationally recognized investment banking firm and,
as a customary part of its investment banking activities, is regularly engaged
in the valuation of businesses and their securities in connection with mergers
and acquisitions, negotiated underwritings, private placements and valuations
for corporate and other purposes.
In the ordinary course of Robinson-Humphrey's business, Robinson-Humphrey
actively trades in ValuJet's Common Stock for its own account and for the
account of its customers and, accordingly, may at any time hold a long or
short position in such securities.
Pursuant to a letter agreement dated July 7, 1997 (the "Robinson-Humphrey
Engagement Letter"), ValuJet engaged Robinson-Humphrey to provide investment
banking advice and services to ValuJet in connection with ValuJet's review and
analysis of potential business combinations. ValuJet agreed to pay Robinson-
Humphrey a fee of $200,000 (the "Advisory Fee") upon rendering an opinion as
to whether or not the consideration payable by ValuJet in the Merger is fair
from a financial point of view. In addition, if the Merger is consummated,
ValuJet has agreed to pay Robinson-Humphrey additional compensation, based on
a percentage of the total consideration for Airways' Common Stock, less the
amount of the Advisory Fee. If the Merger is consummated, this additional
compensation will be approximately $_________. Due to its contingent nature,
this compensation arrangement could be viewed as creating a conflict of
interest for Robinson-Humphrey. Pursuant to the Robinson-Humphrey Engagement
Letter, ValuJet has agreed to reimburse Robinson-Humphrey for reasonable
expenses incurred by Robinson-Humphrey, subject to certain limitations,
27
<PAGE>
and to indemnify Robinson-Humphrey against certain liabilities in connection
with its engagement.
Airways. Airways retained PaineWebber Incorporated ("PaineWebber") as a
financial advisor in connection with the Merger. In connection with such
engagement, Airways requested PaineWebber to render an opinion as to whether
or not the exchange ratio of one share of Airways Common Stock for each share
of ValuJet Common Stock (the "Exchange Ratio") received in the Merger is fair,
from a financial point of view, to the holders of Airways Common Stock.
In connection with the Airways Board's consideration of the Merger
Agreement, PaineWebber delivered its written opinion (the "PaineWebber
Opinion"), to the effect that, as of August __, 1997, and based on its review
and assumptions and subject to the limitations summarized below, the Exchange
Ratio is fair, from a financial point of view, to the holders of Airways
Common Stock. The PaineWebber Opinion was prepared at the request and for the
information of the Airways Board and does not constitute a recommendation to
any holder of Airways Common Stock as to how any such stockholder should vote
with respect to the Merger.
THE FULL TEXT OF THE PAINEWEBBER OPINION, DATED AUGUST __, 1997, WHICH
SETS FORTH THE ASSUMPTIONS MADE, PROCEDURES FOLLOWED, MATTERS CONSIDERED AND
LIMITATIONS ON THE REVIEW UNDERTAKEN, IS ATTACHED AS APPENDIX C TO THIS JOINT
PROXY STATEMENT/PROSPECTUS. AIRWAYS STOCKHOLDERS ARE URGED TO READ SUCH
OPINION CAREFULLY AND IN ITS ENTIRETY. THE SUMMARY OF THE PAINEWEBBER OPINION
SET FORTH IN THIS JOINT PROXY STATEMENT/PROSPECTUS IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH OPINION.
In arriving at its opinion, PaineWebber, among other things: (i)
reviewed, among other public information, Airways' Annual Reports, Forms 10-K
and related financial information for the two fiscal years ended March 31,
1996 and 1997; (ii) reviewed, among other public information, ValuJet's Annual
Reports, Forms 10-K and related financial information for the three fiscal
years ended December 31, 1994, 1995 and 1996 and Form 10-Q and the related
unaudited financial information for the three months ended [March 31, 1997];
(iii) reviewed certain information, including financial forecasts, relating to
the business, earnings, cash flows, assets and prospects of Airways and
ValuJet, furnished to PaineWebber by Airways and ValuJet, respectively; (iv)
conducted discussions with members of senior management of Airways and ValuJet
concerning their respective businesses and prospects; (v) reviewed the
historical market prices and trading activity for Airways Common Stock and
ValuJet Common Stock and compared such prices and trading histories with those
of certain other publicly traded companies which PaineWebber deemed to be
relevant; (vi) compared the financial position and operating results of
Airways and ValuJet with those of certain publicly traded companies which
PaineWebber deemed to be relevant; (vii) compared the financial terms of the
Merger with the financial terms of certain other business combinations which
PaineWebber deemed to be relevant; (viii) considered the potential pro forma
effects of the Merger on ValuJet; (ix) reviewed the Merger Agreement; and (x)
reviewed such other financial studies and analyses and performed such other
investigations and took into account such other matters as PaineWebber deemed
necessary, including PaineWebber's assessment of regulatory, economic, market
and monetary conditions.
In preparing the PaineWebber Opinion, PaineWebber relied on the accuracy
and completeness of all information that was publicly available, supplied or
otherwise communicated to PaineWebber by or on behalf of Airways and ValuJet,
and PaineWebber did not assume any responsibility to independently verify the
same. PaineWebber assumed that the financial forecasts examined by it were
reasonably prepared on bases reflecting the best currently available estimates
and good faith judgments of the respective senior management teams of Airways
and ValuJet as to the future performance of Airways and ValuJet, respectively.
PaineWebber also relied on the assurances of the management of each of Airways
and ValuJet that they were unaware of any facts that would make the
information or financial forecasts provided to PaineWebber incomplete or
misleading. PaineWebber also assumed, with the consent of Airways, that the
Merger will be accounted for under the purchase method of accounting and that
the Merger will qualify as a tax-free reorganization. PaineWebber did not
undertake, and was not provided with, an independent evaluation or appraisal
of the assets or liabilities (contingent or otherwise) of Airways or ValuJet
and assumed that all liabilities (contingent or otherwise, known or unknown)
of Airways and ValuJet were as set forth in their respective consolidated
financial statements. The PaineWebber Opinion is based upon regulatory,
economic, monetary and market conditions existing on the date thereof.
Furthermore, PaineWebber expressed no opinion as to the price or trading range
at which the securities to be issued in the Merger to the stockholders of
Airways may trade at any time. The PaineWebber Opinion does not address the
relative merits of the Merger and any other transactions or business
strategies discussed by the Airways Board as alternatives to the Merger, or
the decision of the Airways Board to proceed with the Merger. The Exchange
Ratio was determined by Airways and ValuJet in arm's-length negotiations.
PaineWebber was not requested to, and did not, solicit third party indications
of interest with respect to a business combination with Airways.
28
<PAGE>
Airways did not place any limitations upon PaineWebber with respect to the
procedures followed or factors considered in rendering the PaineWebber
Opinion.
The preparation of a fairness opinion involves various determinations as
to the most appropriate and relevant quantitative methods of financial
analyses and the application of those methods to the particular circumstances
and, therefore, such an opinion is not readily susceptible to partial analysis
or summary description. Accordingly, PaineWebber believes that its analysis
must be considered as a whole and that considering any portion of such
analysis and of the factors considered, without considering all analyses and
factors, could create a misleading or incomplete view of the process
underlying the PaineWebber Opinion. In its analyses, PaineWebber made
numerous assumptions with respect to industry performance, general business
and economic conditions and other matters, many of which are beyond the
control of Airways and ValuJet. Any estimates contained in these analyses are
not necessarily indicative of actual values or predictive of future results or
values, which may be significantly more or less favorable than as set forth
therein. In addition, analyses relating to the value of businesses do not
purport to be appraisals or to reflect the prices at which businesses may
actually be sold. Accordingly, such analyses and estimates are inherently
subject to substantial uncertainty and PaineWebber does not assume
responsibility for the accuracy of such analyses and estimates.
The following paragraphs summarize the significant analyses performed by
PaineWebber in arriving at the PaineWebber Opinion.
Stock Trading History. PaineWebber reviewed the history of the trading
prices and volume for the Airways Common Stock and the ValuJet Common Stock,
both separately and in relation to each other, the Nasdaq Composite Index, a
Regional Airline Index and a Major Airline Index. The Regional Airline Index
included Amtran, Inc., Comair Holdings, Inc., Frontier Airlines, Inc., Midwest
Express Holdings, Inc., Reno Air, Inc., Vanguard Airlines, Inc., and Western
Pacific Airlines, Inc. The Major Airline Index included Alaska Air Group,
Inc., America West Airlines, Inc., AMR Corporation, Continental Airlines, Inc.
(Class B Stock), Delta AirLines, Inc., Northwest Airlines Corp., Southwest
Airlines Company, Trans World Airlines, Inc., UAL Corporation, and US Airways
Group Inc. In addition, PaineWebber reviewed the implied exchange ratio
between Airways Common Stock and ValuJet Common Stock from August 31, 1995 to
July 8, 1997 and compared this to the Exchange Ratio. PaineWebber noted that
the implied exchange ratio fell below the Exchange Ratio on each day of the
historical period except for June 18, 1996 through June 21, 1996.
Selected Comparable Public Company Analysis. Using publicly available
information, PaineWebber compared selected historical and projected financial,
operating and stock market performance data of Airways and ValuJet to the
corresponding data of the companies comprising the Regional Airline Index
(collectively, the "Regional Comparable Companies").
With respect to Airways and the Regional Comparable Companies,
PaineWebber compared multiples of total enterprise value ("TEV") (market value
of equity, based on stock market prices as of July 8, 1997, plus total debt
less cash and cash equivalents as of [March 31, 1997]) to latest twelve months
ended [March 31, 1997] ("LTM") revenue, LTM earnings before interest, taxes
depreciation and amortization ("EBITDA") and LTM earnings before interest and
taxes ("EBIT"). PaineWebber also compared multiples of adjusted TEV (TEV plus
capitalized aircraft rent expense, with capitalized aircraft rent expense
equal to 7.5 times LTM aircraft rent expense) to LTM earnings before interest,
taxes, depreciation, amortization and aircraft rent expense ("EBITDAR") and
LTM earnings before interest, taxes and aircraft rent expense ("EBITR").
PaineWebber also compared multiples of market value of equity, based on stock
market prices as of July 8, 1997, to book value of stockholders' equity as of
[March 31, 1997], LTM net income, and estimated calendar years 1997 and 1998
net income based on IBES earnings estimates for the Regional Comparable
Companies and Airways management's earnings forecasts for Airways. Airways'
TEV multiples of LTM revenue, LTM EBITDA, and LTM EBIT; adjusted TEV multiples
of LTM EBITDAR and LTM EBITR; and market value of equity multiples of book
value, LTM net income and estimated 1997 and 1998 net income were 0.6x,
negative and therefore not meaningful, negative and therefore not meaningful,
negative and therefore not meaningful, negative and therefore not meaningful,
3.6x, negative and therefore not meaningful, negative and therefore not
meaningful and 18.6x, respectively. The Regional Comparable Companies' median
TEV multiples of LTM revenue, LTM EBITDA and LTM EBIT; adjusted TEV multiples
of LTM EBITDAR and LTM EBITR; and market value of equity multiples to book
value, LTM net income and estimated 1997 and 1998 net income were 0.5x, 5.5x,
7.3x, 8.3x, 9.6x, 2.7x, 11.8x, 13.6x and 9.3x, respectively. PaineWebber
applied the Regional Comparable Companies' median multiples to Airways' LTM
revenue, LTM EBITDA, LTM EBIT, LTM EBITDAR, LTM EBITR, book value, LTM net
income and estimated 1997 and 1998 net income and derived a range of fully
diluted equity values for Airways of $3.60 to $5.75 per Airways share. Based
on the closing stock price of $6.88 for ValuJet Common Stock on July 8, 1997,
such derived
29
<PAGE>
equity value range for Airways implied an exchange ratio range of 0.52x to
0.84x. PaineWebber noted that the Exchange Ratio fell above this range.
With respect to ValuJet and the Regional Comparable Companies,
PaineWebber compared multiples of TEV to LTM revenue, LTM EBITDA and LTM EBIT.
PaineWebber also compared multiples of adjusted TEV to LTM EBITDAR and LTM
EBITR. PaineWebber also compared multiples of market value of equity to book
value, LTM net income, and estimated 1997 and 1998 net income based on IBES
earnings estimates for the Regional Comparable Companies and ValuJet
management's earnings forecasts for ValuJet. ValuJet's LTM TEV multiples of
LTM revenue, LTM EBITDA and LTM EBIT; adjusted TEV multiples of LTM EBITDAR
and LTM EBITR; and market value of equity multiples of book value, LTM net
income and estimated 1997 and 1998 net income were 3.2x, negative and
therefore not meaningful, negative and therefore not meaningful, negative and
therefore not meaningful, negative and therefore not meaningful, 3.6x,
negative and therefore not meaningful, negative and therefore not meaningful
and 20.2x, respectively. The Regional Comparable Companies' median TEV
multiples of LTM revenue, LTM EBITDA and LTM EBIT; adjusted TEV multiples of
LTM EBITDAR and LTM EBITR; and market value of equity multiples of book value,
LTM net income and estimated 1997 and 1998 net income were 0.5x, 5.5x, 7.3x,
8.3x, 9.6x, 2.7x, 11.8x, 13.6x and 9.3x, respectively. PaineWebber applied
the Regional Comparable Companies' median multiples to ValuJet's LTM revenue,
LTM EBITDA, LTM EBIT, LTM EBITDAR, LTM EBITR, book value, LTM net income and
estimated 1997 and 1998 net income and derived a range of fully diluted equity
values for ValuJet of $3.80 to $5.15 per ValuJet share. PaineWebber noted
that the closing stock price of $6.88 for ValuJet Common Stock on July 8, 1997
fell above this range.
As an additional reference point, using publicly available information,
PaineWebber compared selected historical and projected financial, operating
and stock market performance data of Airways and ValuJet to the corresponding
data of the companies comprising the Major Airline Index (collectively, the
"Major Comparable Companies"). The Major Comparable Companies' median TEV
multiples of LTM revenue, LTM EBITDA and LTM EBIT; adjusted TEV multiples of
LTM EBITDAR and LTM EBITR; and market value of equity multiples of book value,
LTM net income and estimated 1997 and 1998 net income were 0.5x, 4.1x, 5.6x,
5.7x, 6.8x, 2.3x, 10.9x, 7.9x and 7.7x, respectively. Given the nature of the
businesses of the Major Comparable Companies, PaineWebber determined that the
applicability of this analysis was limited and did not derive a range of fully
diluted equity values for Airways or ValuJet based on these multiples.
Selected Comparable Mergers and Acquisitions Analysis. PaineWebber
reviewed publicly available financial information for mergers and acquisitions
involving selected airline companies. The selected mergers and acquisitions
PaineWebber analyzed included (acquirer/target): Mesa Airlines,
Inc./AirMidwest; UAL Corp./Air Wis Services Inc.; Mesa Airlines, Inc./WestAir
Holding Inc.; Investor Group/Continental Airlines Holdings, Inc.; Investor
Group/America West Airlines Inc.; Pan American World Airways, Inc./Carnival
Airlines Inc.; and Western Pacific Airlines/Frontier Airlines (collectively,
the "Comparable Transactions").
PaineWebber reviewed the consideration paid in the Comparable
Transactions and compared multiples of TEV to the target's revenue, EBITDA and
EBIT, each for the latest twelve months prior to the announcement of the
transaction. With respect to stock-for-stock transactions, stock prices for
acquirors on the day prior to the announcement of the transaction were used to
calculate consideration paid. PaineWebber also reviewed multiples of the
equity consideration paid to the target's net income for the latest twelve
months prior to the announcement of the transaction and book value for the
quarter ended prior to the announcement of the transaction. PaineWebber
calculated the Comparable Transactions' median multiples of revenue, EBITDA,
EBIT, net income and book value to be 0.31x, 4.4x, 5.4x, 8.5x and 1.1x,
respectively. PaineWebber applied the Comparable Transactions' median
multiples to Airways' LTM revenue, LTM EBITDA, LTM EBIT, LTM net income and
book value of equity and derived a range of fully diluted equity values for
Airways of $2.15 to $3.75 per Airways share. Based on the closing stock price
of $6.88 for ValuJet Common Stock on July 8, 1997, such derived equity value
range for Airways implied an exchange ratio range of 0.31x to 0.55x.
PaineWebber noted that the Exchange Ratio fell above this range.
Contribution Analysis. PaineWebber analyzed Airways' and ValuJet's
relative contribution to the combined entity with respect to LTM revenue, LTM
EBITDA, LTM EBIT, LTM EBITDAR, LTM EBITR, LTM net income and estimated 1997
and 1998 net income (based on December 31 year end) based on Airways'
management forecasts and ValuJet's management forecasts. PaineWebber also
analyzed the relative contribution of certain balance sheet items as of [March
31, 1997] for Airways and ValuJet, respectively, including: cash and cash
equivalents, total assets, book value of shareholders' equity and total debt.
Based on the Exchange Ratio, holders of Airways Common Stock will own
approximately 14.2% of the common Stock outstanding of the combined company
after giving effect to the Merger. Airways would have contributed to the
combined entity's LTM revenue, LTM EBITDA, LTM EBIT, LTM EBITDAR, LTM EBITR,
LTM net income,
30
<PAGE>
estimated 1997 and 1998 net income, cash and cash equivalents, total assets,
book value of shareholders' equity and total debt the following percentages:
41.2%, negative therefore not meaningful, negative therefore not meaningful,
negative therefore not meaningful, negative therefore not meaningful, negative
therefore not meaningful, negative and therefore not meaningful, 13.6%, 9.8%,
15.4%, 14.4% and 5.7%, respectively. The results of this contribution
analysis are not necessarily indicative of the contributions that the
respective businesses may have in the future.
Due to the suspension of ValuJet's operations for approximately three
months following the ValuJet Flight 592 accident, PaineWebber performed a
relative contribution analysis for the fiscal quarter ended prior to such
accident as an additional point of reference. PaineWebber analyzed Airways'
and ValuJet's relative contribution to the combined entity with respect to the
three month period ending March 31, 1996 Quarterly (three month period)
revenue, Quarterly EBITDA, Quarterly EBIT, Quarterly EBITDAR, Quarterly EBITR,
Quarterly net income, based on Airways' and ValuJet's reported financial
statements. PaineWebber also analyzed the relative contribution of certain
balance sheet items as of March 31, 1996 for Airways and ValuJet,
respectively, including: cash and cash equivalents, total assets, book value
of shareholders' equity and total debt. Based on the Exchange Ratio, holders
of Airways Common Stock will own approximately 14.2% of the Common Stock
outstanding of the combined company after giving effect to the Merger.
Airways would have contributed to the combined entity's Quarterly revenue,
Quarterly EBITDA, Quarterly EBIT, Quarterly EBITDAR, Quarterly EBITR,
Quarterly net income, cash and cash equivalents, total assets, book value of
shareholders' equity and total debt the following percentages: 19.9%, 7.4%,
12.7%, 8.8%, 12.5%, 6.5%, 18.8%, 15.1%, 12.2% and 11.1%, respectively. The
results of this contribution analysis are not necessarily indicative of the
contributions that the respective businesses may have in the future.
Premiums Paid Analysis. PaineWebber analyzed purchase price per share
premiums paid in selected publicly disclosed stock-for-stock transactions,
between $50 million to $200 million enterprise value, excluding merger of
equals transactions, in all industries announced and completed from July 7,
1996 through July 7, 1997. This analysis indicated mean premiums to the
target's closing stock price one day, one week and four weeks prior to the
announcement of the transaction of 22.1%, 25.8% and 25.4%, respectively. This
analysis also indicated median premiums to the target's closing stock price
one day, one week and four weeks prior to the announcement of the transaction
of 18.1%, 25.2% and 24.1%, respectively. Based on the closing stock prices of
Airways' Common Stock one day, one week and four weeks prior to its closing
stock price on July 8, 1997, applying the mean and median premiums to the
applicable closing stock prices yielded fully diluted equity values of $6.20
to $6.75 per share. Based on the closing stock price of $6.88 for ValuJet
Common Stock on July 8, 1997, this range of equity values implied an exchange
ratio range of 0.90x to 0.98x. PaineWebber noted that the Exchange Ratio fell
above this range.
Liquidity Analysis. PaineWebber discussed with the Airways Board of
Directors Airways' liquidity constraints. PaineWebber noted that Airways
nearly depleted its cash during the winter of 1996-1997 and continued to
operate with a minimal cash balance until ValuJet made a $5.0 million secured
loan to Airways the week of June 30, 1997 in anticipation of the Merger.
PaineWebber further noted that, based on management's projections and then
current trends, absent the ValuJet loan and absent possible borrowings by
Airways secured by certain of its fixed assets, Airways would run out of cash
during the third calendar quarter of 1997. PaineWebber also noted the
difficulties that Airways was having in obtaining such secured loans, based on
Airways' discussions with one existing and one prospective lender.
PaineWebber also noted that, even if Airways obtained such secured loans,
Airways would not have a material cash reserve for contingencies and would not
in all likelihood have the capital necessary to implement its business plan.
PaineWebber noted that Airways' access to other sources of capital was
extremely limited and that such capital, if available at all, would likely
result in material dilution to existing Airways stockholders. PaineWebber
also noted the negative impact that liquidity constraints had on the business
and financial condition of a number of other new-entrant jet carriers.
Discounted Cash Flow Analysis. PaineWebber determined that a discounted
cash flow analysis was not relevant due the short-term nature (through March
31, 1999) of the projections provided by Airways' management.
Pro Forma Dilution Analysis. PaineWebber performed an analysis of the
potential pro forma effect of the Merger on ValuJet's earnings per share
("EPS") for fiscal year 1998. In performing this analysis, PaineWebber
assumed, with Airways' consent, (i) a fiscal year ending December 31 for the
combined company; (ii) the Merger would be accounted for under the purchase
method of accounting; and (iii) cost savings, efficiencies and other synergies
would be achieved as a result of the Merger. PaineWebber combined the
projected operating results of Airways (provided by Airways management) with
the corresponding projected operating results of ValuJet (provided by ValuJet
management) and applied the projected cost savings/synergies (provided by
ValuJet management) to arrive at the combined company's projected net income.
PaineWebber divided this by the pro forma shares outstanding to arrive at a
combined company EPS. PaineWebber then
31
<PAGE>
compared the combined company EPS to ValuJet's projected stand-alone EPS
(provided by ValuJet management) to determine the pro forma impact on
ValuJet's EPS. This analysis suggested that the Merger should result in
slight dilution to ValuJet's EPS in the fiscal year ending December 31, 1998.
Other Considerations. PaineWebber reviewed the trading activity of
ValuJet Common Stock over the two month period beginning May 8, 1997 and
ending July 8, 1997. PaineWebber noted that over this period ValuJet's stock
traded over 14.8 million shares in a price range of $6.69 to $7.38. ValuJet
had a substantial cash position of $138.9 million on March 31, 1997.
PaineWebber further noted that ValuJet's contract to purchase McDonnell
Douglas MD-95 aircraft has significant value which is not reflected on
ValuJet's balance sheet.
Airways selected PaineWebber to be its financial advisor in connection
with the Merger because PaineWebber is a prominent investment banking and
financial advisory firm with experience in the valuation of businesses and
their securities in connection with mergers and acquisitions, negotiated
underwritings, secondary distributions of securities, private placements and
valuations for corporate purposes.
Pursuant to an engagement letter between Airways and PaineWebber dated
July 1, 1997, PaineWebber has earned a fee of $425,000 for the rendering of
the PaineWebber Opinion and will be reimbursed for certain of its related
expenses. Airways also agreed, under separate agreement, to indemnify
PaineWebber, its affiliates and each of its directors, officers, agents and
employees and each person, if any, controlling PaineWebber or any of its
affiliates against certain liabilities, including liabilities under federal
securities laws.
PaineWebber may provide financial advisory services to, and may act as
underwriter or placement agent for, the combined company in the future. In
the ordinary course of PaineWebber's business, PaineWebber may actively trade
the securities of Airways and ValuJet for its own account and for the accounts
of its customers and, accordingly, may at any time hold long or short
positions in such securities.
EFFECTIVE DATE OF THE MERGER
Subject to the conditions to the obligations of the parties to effect the
Merger, the Effective Date will occur on the date the Certificate of Merger
shall have been accepted for filing and filed with the Secretary of State of
Nevada and the Secretary of State of Delaware.
No assurance can be provided that the necessary stockholder approvals can
be obtained or that other conditions precedent to the Merger can or will be
satisfied. ValuJet and Airways anticipate that all conditions to consummation
of the Merger will be satisfied so that the Merger can be consummated one
business day after approval by the stockholders of both companies. However,
there can be no assurance as to whether or when the Merger will occur.
The Board of Directors of either ValuJet or Airways generally may
terminate the Agreement if the Merger is not consummated by November 30, 1997.
See "-Conditions to the Merger" and "-Waiver, Amendment and Termination of the
Agreement."
DISTRIBUTION OF STOCK CERTIFICATES AFTER THE MERGER
Promptly after the Effective Date, ValuJet will cause First Union
National Bank, Charlotte, North Carolina, acting in the capacity of Exchange
Agent, to mail to the former stockholders of Airways a letter of transmittal,
together with instructions for the exchange of such stockholders' certificates
representing shares of Airways Common Stock for certificates representing
shares of ValuJet Common Stock.
AIRWAYS STOCKHOLDERS SHOULD NOT SEND IN THEIR STOCK CERTIFICATES UNTIL
THEY RECEIVE THE FORM LETTER OF TRANSMITTAL AND INSTRUCTIONS. Upon surrender
to the Exchange Agent of certificates for Airways Common Stock, together with
a properly completed letter of transmittal, there will be issued and mailed to
each holder of Airways Common Stock surrendering such items a certificate or
certificates representing the number of shares of ValuJet Common Stock to
which such holder is entitled as a result of the Merger. After the Effective
Date, to the extent permitted by law, holders of record of Airways Common
Stock as of the Effective Date will be entitled to vote at any meeting of
ValuJet stockholders the number of shares of ValuJet Common Stock into which
their Airways Common Stock has been converted, regardless of whether such
stockholders have surrendered their Airways stock certificates.
32
<PAGE>
After the Effective Date, there will be no transfers of shares of Airways
Common Stock on Airways' stock transfer books. If certificates representing
shares of Airways Common Stock are presented for transfer after the Effective
Date, they will be canceled and exchanged for the shares of ValuJet Common
Stock deliverable in respect thereof.
REGULATORY APPROVALS
Consummation of the Merger is conditioned upon receipt by ValuJet and
Airways of such regulatory and other approvals as are required under
applicable law, including approval by the DOT of the change in ownership of
AirTran and the registration of the ValuJet Common Stock to be issued in the
Merger with the Securities and Exchange Commission and certain state
securities commissions as well as the issuance by the Secretary of State of
the States of Nevada and Delaware of a Certificate of Merger.
Under the HSR Act, certain acquisition transactions, including the
proposed Merger, may not be consummated unless certain information has been
furnished to the Federal Trade Commission (the "FTC") and the Antitrust
Division of the Justice Department (the "Antitrust Division") and certain
waiting period requirements have expired or been terminated. In accordance
with the HSR Act, ValuJet and Airways expect to file in August 1997,
Notification and Report Forms and certain supplementary materials with the
Antitrust Division and the FTC for review in connection with the proposed
Merger.
ValuJet and Airways are not aware of any other material governmental
approvals or actions that are required for consummation of the Merger. Should
any other approval or action be required, it presently is contemplated that
such approval or action would be sought.
NO APPRAISAL RIGHTS
The shares of Common Stock of Airways are listed on NASDAQ. As a result,
holders of record of Airways Common Stock will not have any dissenters' or
appraisal rights under Delaware law with regard to the Merger. Since ValuJet
is the surviving corporation, stockholders of ValuJet do not have any
dissenters' or appraisal rights under Nevada law.
STOCK OWNERSHIP FOLLOWING THE MERGER
Based upon the number of shares of Airways Common Stock outstanding as of
the Record Date, an aggregate of __________ shares of ValuJet Common Stock
(excluding the exercise of stock options and a warrant assumed by ValuJet in
the Merger) will be issued to Airways stockholders in the Merger. After
giving effect to the issuance of such __________ shares of ValuJet Common
Stock in connection with the Merger, former stockholders of Airways will hold
approximately _______% of the total outstanding shares of ValuJet Common
Stock.
Based on the options and the warrant to acquire Airways Common Stock
outstanding as of the Record Date, ValuJet will assume options and a warrant
to purchase approximately ________ shares of Airways Common Stock. After
giving effect to the full exercise of such options and warrants issued in the
Merger into an identical number of shares of ValuJet Common Stock, former
stockholders of Airways and holders of options and warrants to acquire Airways
Common Shares will hold approximately _______% of the total outstanding shares
of ValuJet Common Stock.
INTERIM OPERATIONS
Pursuant to the Merger Agreement, each of ValuJet and Airways have agreed
that, prior to the Effective Date (unless ValuJet or Airways, respectively,
shall otherwise agree in writing and except as otherwise contemplated by the
Merger Agreement):
(1) Such company and its subsidiaries will conduct their respective
businesses in a manner consistent with the current operation of their business
and only in the ordinary course and, by way of amplification and not
limitation, neither such company nor its subsidiaries will (i) except with
respect to Common Stock issued upon exercise of the warrants outstanding on
the date of the Agreement and of options vested prior to theEffective Date,
issue any capital stock, or (ii) declare, set aside or pay any dividend or
distribution with respect to its capital stock or any of its subsidiaries
(other than the payment of a dividend by a subsidiary of such company to such
company or to another subsidiary of such company), or (iii) directly or
indirectly redeem, purchase or otherwise acquire any capital stock of such
company or any of its subsidiaries, or (iv) effect a split or reclassification
of any of its capital stock or a recapitalization, or (v) change its charter
or bylaws, or (vi)
33
<PAGE>
grant any increase in the compensation payable or to become payable to
officers or salaried employees whose 1996 remuneration exceeded $50,000 or
grant any increase regardless of amount, in any bonus, insurance, pension or
other benefit plan, program, payment or arrangement made to, for or with any
officers or employees, or (vii) adopt any employee benefit plans including but
not limited to stock option plans, or (viii) acquire direct or indirect
ownership or control of voting shares of any other corporation, or of any
interest in any partnership, joint venture, association or similar
organization, other than shares acquired in satisfaction of a security
interest or of a debt previously contracted for in a fiduciary or custodial
capacity, or (ix) waive any rights of substantial value, or (x) enter into any
material agreement, contract or commitment calling for aggregate payments in
excess of $200,000 over the life of the contract or extending for more than
twelve months other than contracts entered into for the maintenance or repair
of aircraft, those disclosed to the other party and, in the case of ValuJet,
financing and refinancing agreements and fees and expenses paid in connection
therewith and fees paid to lenders to secure consents to this transaction and
to ValuJet's debt refinancing, or (xi) acquire a fee interest in any real
property.
(2) Neither company nor any of its subsidiaries will undertake or enter
into any sale, disposition, surrender, acquisition, agreement or transaction,
between the date of this Agreement and the Effective Date, relating to any of
their assets except in the ordinary course of business or as contemplated by
this Agreement or disclosed in its filings with the Commission.
(3) Each company will pay and discharge all taxes, assessments and
governmental charges lawfully imposed upon it, upon any subsidiary or upon any
of their property, or upon the income and profits thereof to the extent such
taxes, assessments and governmental charges are due and payable on or before
the Effective Date except for certain deferrals of taxes arranged by Airways
and disclosed to ValuJet.
(4) Each company will maintain its existence and the existence of its
subsidiaries as corporations in good standing under the laws of the state of
its incorporation, other states in which such company and its subsidiaries
operate and the United States and comply and cause its subsidiaries to comply
in all material respects with all laws, governmental regulations, rules and
ordinances, and judicial orders, judgments and decrees applicable to their
business or their properties.
(5) Each company will notify the other party in writing within five days
of the commencement of any material litigation against such company, or
against any of its subsidiaries, or of the existence of any adverse business
conditions threatening its continued, normal business operations or of any
agreement, consent or order of the FAA or DOT involving such company or any of
its subsidiaries.
(6) Each company shall at all times maintain, preserve and keep its
properties and the properties of its subsidiaries in good repair, working
order and condition in all material respects so that the business carried on
in connection therewith may be properly and advantageously conducted, except
for those items that have been designated as obsolete or damaged beyond
economic repair.
(7) Each company will make every reasonable effort to fulfill its
contractual obligations and the contractual obligations of its subsidiaries,
and to maintain in effect its insurance and the insurance of its subsidiaries.
(8) Neither company will enter into, institute or permit any of its
subsidiaries to enter into or institute, any employment contract, employee
policy manual (other than AirTran's current employee manual which is
undergoing revision), deferred compensation, non-competition, bonus, stock
option, profit-sharing, pension, retirement, consultation after retirement,
payments upon retirement, incentive, extraordinary vacation accrual, education
payment or benefit, disability insurance (including medical, travel, group
life or other similar insurance plans) agreement, plan or arrangement or any
other similar arrangement or plan, or, except as required by applicable law or
regulation, renew, amend, modify or terminate any such arrangement or plan now
in existence.
(9) Neither company will enter into, or permit any of its subsidiaries to
enter into, any agreement, understanding or commitment, written or oral, with
any other person which would be a breach of its obligations arising under the
Agreement.
(10) Neither company will make, or permit any of its subsidiaries to make
any loan, advance or commitment to extend credit to any of its directors,
officers or any affiliated or related persons of its directors or officers;
renew, or permit any of its subsidiaries to renew, any outstanding loan or any
outstanding commitment to extend credit to any of its directors, officers or
any affiliated or related persons of its directors or officers; increase, or
permit any of its subsidiaries to increase, any outstanding loan to any of its
directors, officers of any affiliated or related persons of its directors or
officers; or enter into
34
<PAGE>
any agreement, understanding or commitment, written or oral, which obligates
it, any of its subsidiaries or their successors or assigns to make any loan or
advance or payment to any of its directors or officers or to any affiliated or
related persons of any of its directors or officers.
Furthermore, ValuJet and Airways agreed that neither will grant any
additional stock options or other rights to acquire stock except that ValuJet
is permitted to grant options in connection with the employment of new
employees consistent with prior practices.
In addition, Airways has agreed that neither Airways nor AirTran will
without the prior written consent of ValuJet: (i) borrow or agree to borrow
any funds in excess of $200,000 or guarantee or agree to guarantee the
obligations of others (excluding any refinancing of AirTran's hangar in an
amount ranging from $6.5 million to $8.5 million secured by the hangar and
AirTran's accounts receivable, provided that the terms of such refinancing do
not preclude prepayment on reasonable terms; credit terms extended by
creditors, lessors and vendors in the ordinary course of business; and debt
incurred for expenses of this transaction), or (ii) make any capital
improvement, purchase of equipment or furnishings or lease of any aircraft
(excluding the purchase, lease or repair of aircraft parts and components
required in the ordinary course of maintenance of aircraft) involving an
aggregate expenditure in excess of $200,000, or (iii) transfer, pledge,
hypothecate or otherwise dispose of any assets having a book or market value,
whichever is greater, in excess of $200,000.
ACQUISITION PROPOSALS
Pursuant to the Merger Agreement, Airways has agreed that it will not,
and shall use its reasonable best efforts not to permit any of its officers,
directors, employees, attorneys, financial advisors, agents or other
representatives or those of any of its subsidiaries, directly or indirectly,
to solicit, initiate or knowingly encourage (including by way of furnishing
information) any "Acquisition Proposal" from any person, or engage in or
continue discussions or negotiations relating thereto; provided, however, that
Airways may engage in discussions or negotiations with, and furnish
information concerning Airways and its subsidiaries, businesses, properties or
assets to, any third party which makes an Acquisition Proposal if the Board of
Directors of Airways concludes in good faith after consultation with its
outside counsel that the failure to take such action would present a
reasonable possibility of violating the obligations of such Board to Airways
or to Airways' stockholders under applicable law. Airways will promptly
notify ValuJet of the receipt of any Acquisition Proposal, including the
material terms and conditions thereof and the identify of the person or group
making such Acquisition Proposal, and will promptly notify ValuJet of any
determination by Airways' Board of Directors that a "Superior Proposal" has
been made. As used in this Agreement, (i) "Acquisition Proposal" means any
proposal or offer, or any expression of interest by any third party relating
to Airways' willingness or ability to receive or discuss a proposal or offer
for a merger, consolidation or other business combination involving, or any
purchase of, all or substantially all of the assets of Airways or AirTran or
100% of the voting securities of Airways, and (ii) "Superior Proposal" shall
mean a bona fide Acquisition Proposal made by a third party on terms that a
majority of the members of the Board of Directors of Airways determines in
their good faith reasonable judgment (based on the advice of an independent
financial advisor) may be more favorable to Airways and to its stockholders
than the transactions contemplated hereby and for which any required financing
is committed or which, in the good faith reasonable judgment of a majority of
such members (after consultation with any independent financial advisor), is
then available to such third party. In the event Airways continues to
entertain or negotiate an Acquisition Proposal for a period of 21 days after
its receipt, then ValuJet will have the right to terminate the Agreement and
receive reimbursement of its out-of-pocket expenses in connection with the
transaction.
CONDITIONS TO THE MERGER
Conditions to ValuJet's Obligation
ValuJet's obligation to consummate the Merger is subject to the
satisfaction of various conditions, including the following:
. Approval of the Merger, the Name Change and By-law Amendment by the
stockholders of ValuJet at the ValuJet Meeting and the approval of the
Merger by the stockholders of Airways at the Airways Meeting;
. Receipt by ValuJet of the consent to this transaction of the requisite
proportion of the holders of ValuJet's 10 1/4 senior notes due 2001
(which consent has been obtained);
35
<PAGE>
. No court or other governmental agency shall have issued any order
(whether temporary, preliminary or permanent) which in effect
prohibits consummation of the transactions contemplated by the Merger
Agreement or imposes material restrictions on ValuJet in connection
with the consummation of the Merger or to obtain damages with respect
thereto; the FAA and DOT shall have approved the transaction in such a
manner that Airways and AirTran shall not after the Merger become
subject to any restrictions currently applicable to ValuJet or its
subsidiaries or subject to any restrictions not currently applicable
to Airways and AirTran with respect to its business operations
(collectively, an "Order");
. All consents, approvals and authorizations required to be obtained
prior to the Effective Date by Airways from any third party and from
any governmental entity in connection with the Merger and the Merger
Agreement shall have been made or obtained;
. The representations and warranties of Airways set forth in the
Agreement shall be true in all material respects as of the Effective
Date as though made at and as of the Effective Date, and Airways shall
have performed in all material respects all obligations required to be
performed by it under this Agreement at or prior to the Effective
Date;
. ValuJet shall have received a customary legal opinion of Briggs and
Morgan, legal counsel to Airways;
. ValuJet shall have received a written opinion of Ernst & Young LLP
(based upon appropriate representations of Airways, ValuJet and
stockholders of Airways) to the effect that the Merger will constitute
a reorganization within the meaning of Section 368(a) of the Code;
. The Registration Statement shall have become effective under the
Securities Act and no stop order suspending the effectiveness of the
Registration Statement shall have been initiated or be threatened by
the SEC;
. The ValuJet Common Stock to be issued to Airways stockholders in the
Merger shall have been approved for listing on NASDAQ upon official
notice of issuance;
. ValuJet shall have received a written opinion from Robinson-Humphrey,
in customary form, that the terms of the Merger are fair to the
stockholders of ValuJet from a financial point of view.
. Airways shall not have suffered or incurred any material adverse
effect since March 31, 1997, except as disclosed to ValuJet prior to
the execution of the Agreement.
Conditions to Airways' Obligation
Airways' obligation to consummate the Merger is subject to the
satisfaction of various conditions, including the following:
. Approval of the Merger by the stockholders of Airways and the approval
of the Merger, Name Change and By-law Amendment by the stockholders of
ValuJet;
. Receipt by ValuJet of the consent to this transaction of the requisite
proportion of the holders of ValuJet's 10 1/4% senior notes due 2001
(which consent has been obtained);
. There shall be in effect no Order;
. All consents, approvals and authorizations required to be obtained
prior to the Effective Date by ValuJet from, any governmental entity
in connection with the Merger and the Merger Agreement shall have been
made or obtained;
. The representations and warranties of ValuJet set forth in the Merger
Agreement shall be true in all material respects as of the Effective
Date as though made at and as of the Effective Date, and ValuJet shall
have
36
<PAGE>
performed in all material respects all obligations required to be
performed by it under this Agreement at or prior to the Effective
Date;
. Airways shall have received a customary legal opinion of Ellis,
Funk, Goldberg, Labovitz & Dokson, P.C., legal counsel to ValuJet;
. Airways shall have received a written opinion of Briggs and Morgan
(based upon appropriate representations of ValuJet) to the effect that
the Merger will constitute a reorganization within the meaning of
Section 368(a) of the Code;
. The Registration Statement shall have become effective under the
Securities Act and no stop order suspending the effectiveness of the
Registration Statement shall have been initiated or be threatened by
the SEC ;
. The ValuJet Common Stock to be issued to Airways stockholders in the
Merger shall have been approved for listing on NASDAQ upon official
notice of issuance;
. Airways shall have received a written opinion from PaineWebber, in
customary form, that the terms of the Merger are fair to the
stockholders of Airways from a financial point of view;
. ValuJet shall not have suffered or incurred any material adverse
effect since March 31, 1997, except as disclosed to Airways prior to
the execution of the Agreement;
. There shall not be then in existence any event of default under any
of ValuJet's secured debt.
TERMINATION OF THE MERGER AGREEMENT
Possible Termination Events
The Merger Agreement may be terminated at any time prior to the Effective
Date, whether before or after the approval by stockholders of ValuJet or
Airways, in the following circumstances:
(1) By the mutual consent of the Boards of Directors of ValuJet and
Airways.
(2) By either ValuJet or Airways if its conditions to closing shall not
have been satisfied or waived by November 30, 1997, or if the Merger
shall not have been consummated by November 30, 1997.
(3) By Airways to allow Airways to enter into an agreement which the
Board of Directors of Airways determines to be a Superior Proposal
provided that Airways pays to ValuJet a $3,000,000 termination fee.
(4) By ValuJet in the event Airways considers an Acquisition Proposal for
more than 21 days.
37
<PAGE>
Certain Consequences of Termination
In the event ValuJet is ready, willing and able to consummate the Merger,
but Airways shall fail to consummate the Merger after all of the conditions to
Airways' performance shall have been satisfied or waived or in the event
ValuJet shall elect not to consummate the Merger as a result of Airways'
failure to comply in all material respects with certain material covenants
required to be performed by Airways prior to the Effective Date as provided in
the Agreement, then Airways shall pay to ValuJet upon its demand therefor
liquidated damages of $5,000,000.
In the event Airways is ready, willing and able to consummate the Merger,
but ValuJet shall fail to consummate the Merger after all of the conditions to
ValuJet's performance shall have been satisfied or waived or in the event
Airways shall elect not to consummate the Merger as a result of ValuJet's
failure to comply in all material respects with certain material covenants
required to be performed by ValuJet prior to the Effective Date as provided
in the Agreement, then ValuJet shall pay to Airways upon its demand therefor
liquidated damages of $5,000,000.
AMENDMENT OF THE MERGER AGREEMENT
The Merger Agreement may be amended by the Boards of Directors of ValuJet
and Airways at any time before or after the approval of the Merger Agreement
by the ValuJet stockholders and the Airways stockholders, provided that after
any such approval has been obtained, no amendment of the Merger Agreement may
be made which materially changes the terms of the Merger Agreement without
obtaining such further approval.
POST-MERGER BOARD OF DIRECTORS
At the Effective Date, Timothy P. Flynn and Maurice J. Gallagher, Jr.
will resign from the ValuJet Board of Directors and the three designees of
Airways will be added to the ValuJet Board of Directors such that the Board
will consist of the following seven members (the "Post-Merger Directors"):
Robert L. Priddy, Lewis H. Jordan, D. Joseph Corr, Don L. Chapman, Robert D.
Swenson, John K. Ellingboe and Robert C. Pohlad.
Approval of the Merger and the By-law Amendment by the stockholders of
ValuJet at the ValuJet Annual Meeting shall be deemed to constitute
ratification by such stockholders of the election of the Post-Merger Directors
for a term to expire upon the 1999 annual meeting of stockholders of ValuJet.
Information with respect to the age and principal occupation during the
past five years of each Post-Merger Director, as of August 15, 1997, is set
forth below. There are no family relationships among the Post-Merger
Directors.
Robert L. Priddy, age 50, has been actively employed by ValuJet since
June 1993. He has served as a Director and Chairman of the Board of ValuJet
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
ValuJet Airlines. Prior to his involvement with ValuJet, Mr. Priddy founded
Florida Gulf Airlines as a subsidiary of Mesa Airlines, Inc. ("Mesa") 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. 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, Inc. ("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 and as a director of Accumed International, Inc.,
a medical technology company, since May 1997.
Lewis H. Jordan, age 53, has served as President, Chief Operating Officer
and a Director of ValuJet since June 1993. As of November 1996, he resigned
his position as President and Chief Operating Officer of ValuJet Airlines, and
he became Chairman of the Board of ValuJet Airlines. He served as President
and Chief Operating Officer and as a director of Continental Airlines, Inc.
("Continental") 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 The Flying Tigers Line,
Inc. ("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
38
<PAGE>
Vice President - Maintenance and Engineering from 1979 to 1980. From 1982 to
1984, he served as Executive Vice President and Chief Operating Officer of Air
Treads, Inc., an aviation tire retreading, wheel and brake company. From 1962
to 1979, he held various positions with Southern Airways, his last position
being Assistant Vice President in charge of technical operations.
D. Joseph Corr, age 56, joined ValuJet in November 1996 as President and
Chief Executive Officer of ValuJet Airlines. Mr. Corr was elected as a
Director and Executive Vice President of ValuJet 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 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 Air Lines Inc. during 1986 and as Chairman
and a Director of Midcoast Aviation, Inc. from 1986 to 1988.
Don L. Chapman, age 58, was elected as a Director of ValuJet 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, Co., a plastic cutlery manufacturer. He also
serves as a director of RARE Hospitality International, Inc. (since 1992) and
Omni Insurance Company (since 1993).
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.
POST-MERGER OFFICERS OF VALUJET
At the Effective Date, D. Joseph Corr will continue to serve as President
and Chief Executive Officer of ValuJet. Other executive officers of ValuJet
after the Merger will be selected by the President and Chief Executive Officer
prior to the Effective Date, subject to the approval of the Board of
Directors.
POST-MERGER PRINCIPAL EXECUTIVE OFFICES
Promptly following the Effective Date, the principal executive offices of
ValuJet may be relocated to Orlando, Florida (initially, in the office space
presently occupied by Airways, but a final decision has not yet been made).
39
<PAGE>
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Severance Agreements. Airways has entered into agreements with a number
of its officers that provide for severance payments in the event their
employment is terminated for any reason other than for cause, death or
disability within 12 months after a change in control. The Merger will effect
such a change in control. These severance agreements provide for the payment
of the following amounts of severance with respect to the classification of
employees indicated: (i) president and chief executive officer (Robert D.
Swenson) - 12 months salary; and (ii) other executive officers (six persons) -
six months salary. Upon the Effective Date of the Merger, Mr. Swenson will
become Chairman of the Board of ValuJet, but he is not expected to be an
employee of ValuJet. As a result, severance pay of $200,000 will be payable
to Mr. Swenson.
Consulting Agreements. Upon the Effective Date, Robert L. Priddy and
Lewis H. Jordan will enter into five-year consulting agreements with ValuJet.
Under these agreements, each of them will be entitled to the following during
the term of these agreements: (i) compensation of $100,000 per year, (ii)
lifetime pass privileges for himself and his spouse and dependents, (iii)
lifetime health insurance coverage for himself and his family, and (iv) all
stock options granted to them will be amended such that such options will be
exercisable at any time during the option term rather than expire 90 days
after termination of employment. The number of option shares to which this
applies are as follows: Priddy - 640,000 shares and Jordan - 3,040,000
shares. In addition, Messrs. Priddy and Jordan have been designated to serve
as Directors of Airways after the Merger. As such, they will receive such
compensation for serving as Directors and attending Board of Director and
Committee meetings as is paid to other outside Directors of Airways.
Benefits for Airways Directors. Each present member of the Airways Board
of Directors (Robert D. Swenson, John K. Ellingboe, Alan Stephen and Roger T.
Munt) will receive lifetime pass privileges for himself and his spouse and
dependents. In addition, all stock options previously granted to such persons
will be amended so that the stock options will be exercisable at any time
during the option term rather than expire 90 days after termination of service
as a director. The number of stock options to which this applies are as
follows: Swenson - 325,000 shares, Ellingboe - 12,000 shares, Stephen -12,000
shares and Munt - 12,000 shares.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The following summary discusses the material federal income tax
consequences of the Merger. The summary is based upon the Code, applicable
Treasury Regulations thereunder and administrative rulings and judicial
authority as of the date hereof. All of the foregoing are subject to change,
possibly with retroactive effect, and any such change could affect the
continuing validity of the discussion. The discussion assumes that each
holder of Airways Common Stock holds such shares as a capital asset. Further,
the discussion does not address the tax consequences that may be relevant to a
particular stockholder subject to special treatment under certain federal
income tax laws, such as dealers in securities, banks, insurance companies,
tax-exempt organizations, non-United States persons, stockholders who acquired
Airways Common Stock through the exercise of options or otherwise as
compensation or through a tax-qualified retirement plan and holders of Airways
options. This discussion does not address any consequences arising under the
laws of any state, locality or foreign jurisdiction.
Neither ValuJet nor Airways has requested a ruling from the Internal
Revenue Service ("IRS") with regard to any of the federal income tax
consequences of the Merger and the opinion of counsel as to such federal
income tax consequences set forth below will not be binding on the IRS.
General
As of the date hereof, it is intended that the Merger will constitute a
reorganization pursuant to Section 368(a) of the Code and that for federal
income tax purposes no gain or loss will be recognized by Airways or ValuJet.
The respective obligations of the parties to consummate the Merger are
conditioned upon (i) the receipt by Airways of an opinion of Briggs and Morgan
dated the Effective Date confirming that the Merger will qualify as a
reorganization within the meaning of Section 368(a) of the Code and that each
of Airways and ValuJet will be a party to the reorganization within the
meaning of Section 368(b) of the Code, and (ii) the receipt by ValuJet of an
opinion of Ernst & Young LLP dated the EffectiveDate confirming that the
Merger will qualify as a reorganization within the meaning of Section 368(a)
of the Code and that each of Airways and ValuJet will be a party to the
reorganization within the meaning of Section 368(b) of the Code. Such
opinions will be based upon, among other things, (i) representations of
Airways, ValuJet and certain stockholders of Airways customarily given in
transactions of this type and (ii) the assumption that the Merger will be
consummated in accordance with the terms of the Agreement.
40
<PAGE>
The discussion below summarizes the material federal income tax
consequences of the Merger, assuming that the Merger will qualify as a
reorganization within the meaning of Section 368(a) of the Code.
Consequences to Airways Stockholders
Under the reorganization provisions of the Code, no gain or loss will be
recognized by holders of Airways Common Stock with respect thereto as a result
of the surrender of Airways Common Stock in exchange for shares of ValuJet
Common Stock pursuant to the Merger. The aggregate tax basis of the shares of
ValuJet Common Stock received in the Merger will be the same as the aggregate
tax basis of the Airways Common Stock surrendered in exchange therefor in the
Merger. The holding period of the shares of ValuJet Common Stock received in
the Merger will include the holding period of Airways Common Stock surrendered
in exchange therefor in the Merger.
Consequences to Airways, ValuJet and Holders of ValuJet Common Stock
None of Airways, ValuJet or the holders of ValuJet Common Stock will
recognize gain or loss as a result of the Merger.
THE PRECEDING DISCUSSION DOES NOT PURPORT TO BE A COMPLETE ANALYSIS OR
DISCUSSION OF ALL POTENTIAL TAX EFFECTS RELEVANT TO THE MERGER. THUS, AIRWAYS
STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE SPECIFIC
TAX CONSEQUENCES TO THEM OF THE MERGER, INCLUDING TAX RETURN REPORTING
REQUIREMENTS, THE APPLICABILITY AND EFFECT OF FEDERAL, STATE, LOCAL AND OTHER
APPLICABLE TAX LAWS AND THE EFFECT OF ANY PROPOSED CHANGES IN THE TAX LAWS.
REQUIRED VOTES
THE VALUJET BOARD OF DIRECTORS AND THE AIRWAYS BOARD OF DIRECTORS HAVE
UNANIMOUSLY APPROVED THE MERGER AGREEMENT, THE VALUJET BOARD OF DIRECTORS AND
THE AIRWAYS BOARD OF DIRECTORS RECOMMEND THAT STOCKHOLDERS VOTE IN FAVOR OF
APPROVAL OF THE MERGER.
Approval and adoption of the Merger requires the affirmative vote of the
holders of a majority of the outstanding shares of Airways Common Stock and a
majority of the outstanding shares of ValuJet Common Stock. The effect of an
abstention is the same as a vote against the Merger.
PROPOSAL TO EFFECT A NAME CHANGE
As part of their consideration of the Merger and the Merger Agreement,
the ValuJet Board of Directors has unanimously approved an amendment to the
ValuJet Articles, contingent upon the effectiveness of the Merger, to change
the corporate name of ValuJet to "AirTran Holdings, Inc." Following the
Effective Date and implementation of the Name Change, ValuJet has been advised
by NASDAQ that ValuJet Common Stock will trade under the new quotation symbol
of "AAIR." If approved, the name change will become effective on the date of
filing Articles of Amendment with the Secretary of State of Nevada.
REQUIRED VOTE
Approval and adoption of the Name Change requires the affirmative vote of
the holders of a majority of the shares of ValuJet Common Stock issued and
outstanding on the ValuJet Record Date. The effect of an abstention or broker
nonvote on the proposal is the same as a vote against the proposal.
THE VALUJET BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE NAME CHANGE.
THE VALUJET BOARD RECOMMENDS THAT STOCKHOLDERS VOTE IN FAVOR OF APPROVAL AND
ADOPTION OF THE NAME CHANGE.
41
<PAGE>
PROPOSAL TO AMEND BY-LAWS
As part of their consideration of the Merger and the Merger Agreement,
the ValuJet Board of Directors has unanimously approved an amendment to the
ValuJet By-Laws (the "By-law Amendment") contingent upon the effectiveness of
the Merger, to extend the term of all members of ValuJet's Board of Directors
immediately after the Merger until the 1999 annual meeting of stockholders of
ValuJet. The text of the By-law Amendment is as follows:
The last sentence of Section 4.2 of the By-Laws of ValuJet, Inc. shall be
amended to read as follows:
"The Directors shall be elected at an annual or special meeting of
the Shareholders and shall serve for a term of one (1) year or until
their successors are elected and qualified; provided, however, that
the Board of Directors in place as of the effective date of the
merger of Airways Corporation with and into the corporation shall
serve for a term that will expire upon the election of Directors at
the corporation's 1999 annual meeting of Shareholders or until their
successors are elected and qualified."
A Director's term of service on the Board may terminate earlier upon his
death, resignation or removal from service by the Board. Without this
amendment, each member of the Board of Directors would serve a one year term
and would be subject to reelection at ValuJet's 1998 annual meeting. Approval
of this amendment to ValuJet's By-laws is a condition to each party's
obligation to consummate the Merger.
REQUIRED VOTE
Approval and adoption of the By-law Amendment requires the affirmative vote
of the holders of a majority of the shares of ValuJet Common Stock represented
at the ValuJet Meeting.
THE VALUJET BOARD OF DIRECTORS UNANIMOUSLY APPROVED THE BY-LAW AMENDMENT.
THE VALUJET BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE IN FAVOR OF
APPROVAL AND ADOPTION OF THE BY-LAW AMENDMENT.
42
<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 10 1/2% Senior Secured Notes (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.
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 0 1,713 (1,713)(l) 50,662
50,662 (n)
Deferred tax asset........... 0 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>
43
<PAGE>
<TABLE>
<CAPTION>
Pro Forma ValuJet Pro Forma Pro Forma
ValuJet Adjustments As Adjusted Airways Adjustments Combined
------------- --------------- -------------- ------------- --------------- --------
<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 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
========= ========= ======= =========
</TABLE>
44
<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
========= ========= ======= =========
</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 options holders in the Merger.
45
<PAGE>
<TABLE>
<CAPTION>
In Thousands
(except share and
and per share data)
------------------
<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.
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. See "The Merger-Accounting Treatment." 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 " -Selected Financial Data of
ValuJet (Historical)," "-- Selected Financial Data of Airways (Historical)," and
" -- Pro Forma Condensed Combined Financial Information."
<TABLE>
<CAPTION>
YEAR ENDED
SIX MONTHS DECEMBER 31, 1996 (1)
ENDED ----------------------
JUNE 30,1997
---------------
<S> <C> <C>
INCOME (LOSS) PER SHARE
ValuJet historical............. ($.51) ($.76)
Airways historical............. .01 ( .77)
ValuJet and Airways pro forma
combined(2)................ (.48) (.85)
</TABLE>
46
<PAGE>
BOOK VALUE PER SHARE (PERIOD END)
ValuJet historical............... 1.74
Airways historical............... 1.89
ValuJet and Airways pro forma
combined(2).................. 2.53
(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.
47
<PAGE>
VALUJET MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following chart indicates the service offered by ValuJet 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:
48
<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 is considering 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 and believes that
meritorious defenses exist in the lawsuits, 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.
49
<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
-------- --------- -------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
(000) (000)
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
</TABLE>
<TABLE>
<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>
50
<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.
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
51
<PAGE>
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:
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
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.
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.
52
<PAGE>
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
--------- -------- ---- ------- ----------- -----
<S> <C> <C> <C> <C> <C> <C>
(000) (000)
Total opeating 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.
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.
53
<PAGE>
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.
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 also due to
increased legal fees 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.
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
--------- --------- ----- -------- --------- -----
<S> <C> <C> <C> <C> <C> <C>
(000) (000)
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>
54
<PAGE>
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
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.
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.
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 also due to increased legal fees 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.
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.
55
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
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 $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 working capital. ValuJet expects to pay the debt service on 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.
In August 1997, ValuJet completed the issuance of $80 million of its 10 1/2%
Secured Notes due April 15, 2001. Approximately $68.5 million of the proceeds
of this new debt issuance 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 10 1/2% Secured 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 10 1/2% Secured 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 and believes that
56
<PAGE>
meritorious defenses in the litigation exist, 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 therefor or that all damages awarded will be covered by
insurance.
57
<PAGE>
AIRWAYS MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Airways generated operating (loss) income of $(12,122,000) and $1,494,000 for
the years ended March 31, 1997 ("1997") and March 31, 1996 ("1996"),
respectively, a reduction of $13,616,000. Pre-tax (loss) income, as a
percentage of total revenues, was (12.4%) in 1997 and 2.9% in 1996. The
dramatic reduction, year over year, is the result of four separate factors.
First, demand in AirTran's segment of the travel industry was negatively
affected by the accident on May 11, 1996 of a ValuJet aircraft. Second, Airways
initiated an intensive and costly review of maintenance and other operations
systems and processes to enhance system safety, reliability and efficiency.
Third, fuel prices increased dramatically during the year. Lastly, Airways
realigned its route system partly in response to the entry into Orlando of other
competing major airlines and partly to leave underperforming markets.
Airways achieved operating income (loss) of $1,494,000 and ($6,421,000) for
the years ended 1996 and March 31, 1995 ("1995"), respectively, an improvement
of $7,915,000. Pre-tax income, as a percentage of total revenues, was 2.9% in
1996 and (66.8)% in 1995. The dramatic change, year over year, is principally
the result of AirTran's move from startup mode to full fledged operations.
SELECTED OPERATING DATA FOR YEARS ENDED MARCH 31, 1997, 1996 AND 1995
The table below sets forth selected operating data for Airways for its fiscal
years ended March 31, 1997, 1996 and 1995.
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
---------------------------------------------
1997 1996 1995
--------------- ------------- -------------
<S> <C> <C> <C>
Available seat miles (1) 1,426,873,000 974,642,000 180,480,000
Revenue passenger miles (2) 932,305,000 605,130,000 80,783,000
Load factor (3) 65.3% 62.1% 44.8%
Yield per revenue passenger mile (4) $ 0.107 $ 0.107 $ 0.098
Passenger enplanements 1,089,000 685,000 87,000
Departures 13,569 8,861 1,627
Miles 11,295,000 7,739,000 1,432,000
Block hours (5) 30,578 21,078 3,405
Average stage length (miles) (6) 832 873 880
Average daily aircraft utilization (hours) 8.4 8.9 4.9
Aircraft (end of period) 10 10 4
Full-time equivalent employees (end of period) 592 429 194
</TABLE>
(1)The number of seats available for passengers multiplied by the number of
scheduled miles those seats are flown.
(2) The number of scheduled miles flown by revenue passengers.
(3)Revenue passenger miles divided by available seat miles. Year over year
percent change is measured only as percentage points difference.
(4) Passenger revenue divided by revenue passenger miles.
(5)The number of hours aircraft were flown as measured from the time of pushback
from the gate to the time of arrival at the next airport's gate.
(6)The average length of the routes flown on AirTran's scheduled route system.
58
<PAGE>
The table below sets forth the major components of operating revenue and
expenses per ASM for the Company as a comparison among the three years 1997,1996
and 1995.
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
---------------------
1997 1996 1995
-------- ------- --------
<S> <C> <C> <C>
Operating revenue:
Passenger $ 0.070 $0.067 $ 0.044
Charter 0.000 0.002 0.007
Other 0.002 0.001 0.003
------- ------ -------
Total operating revenue 0.072 0.070 0.053
------- ------ -------
Operating expenses:
Flight operations 0.032 0.024 0.036
Maintenance 0.018 0.012 0.016
Aircraft and traffic services 0.012 0.014 0.013
Reservations, sales, and marketing 0.012 0.012 0.010
General and administrative 0.004 0.003 0.011
Depreciation and amortization 0.003 0.002 0.003
------- ------ -------
Total operating expense 0.080 .067 0.089
------- ------ -------
Operating income $(0.008) $0.003 $(0.035)
======= ====== =======
</TABLE>
COMPARISON OF YEARS ENDED MARCH 31, 1997, 1996 AND 1995
OPERATING REVENUES
Total passenger revenues were $100,077,000 and $64,894,000 in 1997 and 1996,
an increase of $35,183,000 or 54.2%. The increase is a result of having the
entire fleet for twelve months of 1997 whereas in 1996, the fleet was building
up to that level through February 1996.
ASMs were 1,426,873,000 and 974,642,000 in 1997 and 1996, respectively, an
increase of 452,231,000 or 46.4%. This was principally the result of the growth
in departures and AirTran's fleet and mitigated somewhat by shorter stage
lengths in 1997. Revenue Passenger Miles ("RPMs") were 932,305,000 and
605,130,000 in 1997 and 1996, respectively, an increase of 327,175,000 or 54.1%.
This was driven by the increased capacity and improved load factor in 1997.
Load factors were 65.3% and 62.1% in 1997 and 1996, respectively, an increase of
3.2 percentage points.
AirTran also had charter revenue which is derived from making its airplanes
available to charter operators when they would otherwise not be efficiently
used. Charter revenues were $402,000 and $1,692,000 in 1997 and 1996,
respectively, a decrease of $l,290,000 or 76.2%. Often when the fleet is
expanded and additional aircraft are delivered, there is a period of adjustment
for the schedule during which aircraft utilization would drop; during such
times, Airways endeavors to use the aircraft in charter operations to minimize
this cost. During 1996, four aircraft were delivered whereas none were
delivered during 1997 accounting for the reduction in 1997.
In addition, the consolidated operations include other revenues, principally
cancellation revenue, change fees, liquor sales and the sales of the FBO which,
collectively, were $2,144,000 and $1,775,000 in 1997 and 1996, respectively, an
increase of $369,000 or 20.8%. The increase in other revenues is the result of
increased sales by the FBO and reduced cancellation revenue for AirTran. The
FBO sold one of the aircraft that it had been holding for sale for $175,000 and
continued to market its inventory of spare parts successfully during 1997.
AirTran experienced lower cancellation revenue in 1997 as a result of offering
vouchers for later travel to passengers who otherwise would have had to forfeit
their fare.
Total passenger revenues were $64,894,000 and $7,896,000 in 1996 and 1995,
respectively. The increase of $56,998,000 or 721.9% in 1996 reflects the fact
that AirTran had just commenced scheduled operations in the third quarter of
1995.
ASMs were 974,642,000 and 180,480,000 in 1996 and 1995, respectively, an
increase of 794,162,000 or 440.0%. This was principally the result of the growth
in departures and AirTran's fleet. RPMs were 605,130,000 and 80,783,000 in
59
<PAGE>
1996 and 1995, respectively, an increase of 524,347,000 or 649.1%. This was the
result of the increased ASMs as well as stronger load factors on existing routes
in 1996. Load factors were 62.1% and 44.8% in 1996 and 1995, respectively, an
increase of 17.3 percentage points.
Charter revenues were $1,692,000 and $1,241,000 in 1996 and 1995,
respectively, an increase of $451,000 or 36.3%. The increase reflects full year
operations and more aircraft during the year but the relatively small increase
also reflects the deliberate shift to scheduled service in 1996.
Other revenues were $1,775,000 and $470,000 in 1996 and 1995, respectively,
an increase of $1,305,000 or 277.7%. The increase in other revenues is
principally the result of full year operations.
OPERATING EXPENSES
Flight operations expense includes expenses related directly to the
operation of aircraft except for depreciation and amortization of aircraft and
aircraft improvements. Expenses for hull insurance, crew salaries and their
overnight expenses, aircraft fuel and flight operations administration are all
included in flight operations. Flight operations expenses were $45,507,000 and
$26,913,000 in 1997 and 1996, respectively, an increase of $18,594,000 or 69.1%.
Departures were 13,569 and 8,861 in 1997 and 1996, respectively, an increase of
4,708 or 53.1% which, together with the increased ASMs, drove a significant
portion of the increase in flight operations expense. Flight operations
expense increased significantly more than operating activity because of several
factors. Fuel prices escalated dramatically during 1997 causing fuel expense to
increase by $3,500,000 more than it otherwise would have. Also, Airways
embarked upon a program of intense scrutiny of its aircraft and its maintenance
and operational procedures during 1997. In order to facilitate that work
without disrupting its schedule of operations, Airways entered into wet leases
of aircraft for use during the periods when Airways' aircraft were not
available. The wet leases cost Airways $3,322,000.
Flight operations expenses were $26,913,000 and $6,429,000 in 1996 and 1995,
respectively, an increase of $20,484,000 or 318.6%. Departures were 8,861 and
1,627 in 1996 and 1995, respectively, an increase of 7,234 or 444.6% which,
together with the increased ASMs, drove the increase in flight operations
expense. Better aircraft utilization and reduced fleet ownership costs
mitigated the increase, year over year, in flight operations expense. AirTran
purchased four aircraft in 1996 which shifts fleet ownership costs to
depreciation from flight operations expense.
Maintenance expense includes all expenses related to the upkeep of aircraft.
Such expenses include labor, parts, supplies and contract maintenance. The
direct cost of airframe and engine overhauls are generally expensed and, for
leased aircraft, paid monthly to the lessors in the form of reserves. For owned
aircraft, AirTran reserves on a per flight hour basis for future maintenance
that becomes due in the ordinary course. These reserves are recorded on
AirTran's balance sheet each month as the aircraft are flown. The reserves are
then available for major overhauls when they occur. When aircraft are first
delivered to Airways and shortly thereafter, the cost of overhauls of engines
and airframes that may be required to render them fully serviceable is
capitalized and amortized over the period remaining until the next scheduled
overhaul. Maintenance expenses were $25,851,000 and $12,112,000 in 1997 and
1996, respectively, an increase of $13,739,000 or 113.4%. Three cost drivers
pushed maintenance expense dramatically higher during 1997. Firstly, block
hours (which are a cost driver for maintenance) were 30,578 and 21,078 in 1997
and 1996, respectively, an increase of 9,500 or 45.1%. Secondly, Airways
invested heavily in overhauling engines, airframes and related equipment. Much
of its equipment has been substantially improved and serviceable lives extended.
To that extent, those expenditures were capitalized and are recorded in Fixed
Assets on the balance sheet. Nonetheless, $3,400,000 more was spent on repairs
that were identified and necessary in the circumstances but which did not
significantly extend the useful lives of the underlying assets. Those repairs
were charged to expense in 1997. Thirdly, to facilitate the engine overhauls,
Airways entered into short term leases for replacement engines which cost
Airways $950,000 more in 1997 than in 1996. Lastly, the previously mentioned
independent review of the aircraft and the maintenance procedures and records
cost Airways $2,700,000.
Maintenance expenses were $12,112,000 and $2,845,000 in 1996 and 1995,
respectively, an increase of $9,267,000 or 325.7%. Maintenance expense is a
semi-variable cost, facilities and administrative salaries for which are
relatively fixed while reserve expense is driven principally by block hours.
Block hours were 21,078 and 3,405 in 1996 and 1995, respectively, an increase of
17,673 or 519.0%. The increased block hours, year over year, contributed
substantially to the increased maintenance expense.
60
<PAGE>
Aircraft and traffic servicing expense includes all expenses incurred at
airports, including landing fees, facilities rental, station labor, passenger
liability insurance, ground handling services and catering expenses. Aircraft
and traffic servicing expenses were $16,742,000 and $10,169,000 in 1997 and
1996, respectively, an increase of $6,573,000 or 64.6%. The increase is driven
largely by the increased number of flights, passengers, block hours and higher
load factors. As a consequence of Airways' extensive internal reviews and
renovations of aircraft, the operating reliability suffered during parts of
1997. This triggered the need to purchase alternative transportation, costing
$1,700,000 more in 1997, for passengers who would have otherwise not been able
to travel to their destinations.
Aircraft and traffic servicing expenses were $10,169,000 and $2,390,000 in
1996 and 1995, respectively, an increase of $7,779,000 or 325.5%. The increase
was driven by the increased number of flights, markets served, passengers, block
hours and higher load factors.
Reservations and sales expense includes all sales, marketing and advertising
expenses as well as the cost of reservations. Reservation expense includes
salaries of reservations personnel, computer reservation system expenses and
travel agent commissions. Reservations and sales expenses were $16,739,000 and
$11,901,000 in 1997 and 1996, respectively, an increase of $4,838,000 or 40.7%.
Although travel agency commission, advertising expense and reservation expenses
increased, they did not increase proportionately with revenue. The increases
were mitigated by the shift of customer mix toward passengers booking directly
with AirTran on its toll-free 1-800-AIR-TRAN reservations line as opposed to a
travel agency. This reduced Airways' CRS fees and commissions by nearly
$1,000,000 compared to what they would have been if the shift in bookings had
not occurred. In addition, Airways' marketing department established several
cooperative advertising arrangements with other companies to moderate its
advertising expense in 1997.
Reservations and sales expenses were $11,901,000 and $1,830,000 in 1996 and
1995, respectively, an increase of $10,071,000 or 550.3%. The increase was due
to increased travel agent commissions, advertising and reservation activity
associated with higher passenger volume and increased sales of future tickets.
The increased activity was caused by the expansion of AirTran's service into new
markets and higher load factors on existing routes in 1996. AirTran had
passenger volume of 685,000 and 87,000 in 1996 and 1995, respectively, an
increase of 598,000 or 687.4%.
General and administrative expense includes the wages and benefits for
executive officers and various other administrative personnel. Also included
are costs for office supplies, legal expenses, accounting and miscellaneous
expenses. General and administrative expenses were $5,185,000 and $3,623,000 in
1997 and 1996, respectively, an increase of $1,562,000 or 43.1%. The principal
cause of the increased expense in 1997 was the continued development of
headquarters and administrative infrastructure to support AirTran's full and
expanding operation.
General and administrative expenses were $3,623,000 and $2,012,000 in 1996
and 1995, respectively, an increase of $1,611,000 or 80.1%. The principal cause
of the increased expense in 1996 was the development of headquarters and
administrative infrastructure to support AirTran's full and expanding operation.
In addition, AirTran introduced a program of profit sharing for all full time
employees during 1996 which, due to AirTran's profitability, contributed to the
increase.
Depreciation and amortization expenses include depreciation on equipment,
aircraft and aircraft improvements and amortization of leasehold improvements,
goodwill and aircraft and loan acquisition costs. Depreciation and amortization
expenses were $4,721,000 and $2,149,000 in 1997 and 1996, respectively, an
increase of $2,572,000 or 119.7%. Purchases of four aircraft largely completed
in the latter part of 1997, were the principal cause of the increase.
Depreciation and amortization expenses were $2,149,000 and $522,000 in 1996
and 1995, respectively, an increase of $1,627,000 or 311.7%. Purchases of
aircraft completed in the latter part of 1996 were the principal cause of the
increased depreciation expense.
61
<PAGE>
SELECTED OPERATING DATA FOR QUARTERS ENDED JUNE 30, 1997 AND 1996
The table below sets forth selected operating data for the quarters ended June
30, 1997 and 1996.
<TABLE>
<CAPTION>
QUARTERS ENDED
------------------------------------------
JUNE 30, JUNE 30, PERCENTAGE
1997 1996 CHANGE
------------ ------------ ---------------
<S> <C> <C> <C>
Available seat miles (1) 360,193,000 372,202,000 (3.2) %
Revenue passenger miles (2) 245,149,000 264,490,000 (7.3) %
Load factor (3) 68.1% 71.1% (3.0) %
Yield per revenue passenger mile (4) 10.4c 10.8c (3.5) %
Passenger enplanements 287,716 303,108 (5.1) %
Departures 3,931 3,450 17.7 %
Miles 2,858,674 2,951,513 (3.1) %
Block hours (5) 7,829 7,892 (.8) %
Average stage length (miles) (6) 735 893 (17.7) %
Average daily aircraft utilization (hours) 8.5 8.3 2.8 %
Aircraft (end of period) 10 10 -
Full-time equivalent employees (end of period) 576 429 34.3 %
</TABLE>
(1) The number of seats available for passengers multiplied by the number of
scheduled nules those seats are flown.
(2) The number of scheduled miles flown by revenue passengers.
(3)Revenue passenger miles divided by available seat miles. Year over year
percent change is measured only as percentage points difference.
(4) Passenger revenue divided by revenue passenger miles.
(5)The number of hours aircraft were flown as measured from the time of pushback
from the gate to the time of arrival at the next airport's gate,
(6) The average length of the routes flown on Airways' scheduled route system.
Airways generated operating losses of $172,000 and $282,000 for the quarters
ended June 30, 1997 and 1996, respectively, a decrease in operating loss of
$110,000. Pre-tax loss, as a percentage of total revenues, was 0.6% and 1.0% in
the quarters ended June 30, 1997 and 1996, respectively.
The table below sets forth the major components of operating revenue and
expenses per ASM for Airways.
<TABLE>
<CAPTION>
QUARTERS ENDED JUNE 30,
-------------------------
1997 1996
------------ -----------
<S> <C> <C>
Operating revenue:
Passenger $ .071 $ .077
Charter .000 .000
Other .004 .001
------ ------
Total operating revenue .075 .078
------ ------
Operating expenses:
Flight operations .029 .030
Maintenance .015 .017
Aircraft and traffic services .011 .012
Reservations, sales, and marketing .012 .014
General and administrative .004 .003
Depreciation and amortization .005 .003
------ ------
Total operating expense .076 .079
------ ------
Operating income $(.001) $(.001)
====== ======
</TABLE>
62
<PAGE>
OPERATING REVENUES
Total passenger revenues were $25,550,000 and $28,557,000 in the quarters
ended June 30, 1997 and 1996, respectively, a decrease of $3,007,000 or 10.5%.
The decrease is due to a 3.1% reduction in capacity available in this year's
quarter compared to the prior year and a lower load factor.
ASMs were 360,193,000 and 371,881,000 in the quarters ended June 30, 1997
and 1996, respectively, a decrease of 11,688,000 or 3.1%. This was principally
the result of Airways' rescheduling of the aircraft to make one available at all
times to serve as a spare. This was one of the initiatives designed to improve
Airways' completion factors and reliability performance. RPMs were 245,149,000
and 264,490,000 in the quarters ended June 30, 1997 and 1996, respectively, a
decrease of 19,341,000 or 7.3%. This was driven by the decreased capacity and
the reduced load factor. Load factors were 68.1% and 71.1% in the quarters
ended June 30, 1997 and 1996, respectively, a decrease of three percentage
points. The Easter holiday fell in March this year and not in the first quarter
as it did last year markedly decreasing the demand this year.
Airways also had charter revenue which is derived from making its airplanes
available to charter operators when they would otherwise not be efficiently
used. Charter revenues were $562,000 and $23,000 in the quarters ended June 30,
1997 and 1996, respectively. This was entirely due to service Airways provided
for another carrier during the month of May 1997.
In addition, the consolidated operations include other revenues, principally
cancellation revenue, change fees, liquor sales and the sales of its fixed base
operation which, collectively, were $940,000 and $432,000 in the quarters ended
June 30, 1997 and 1996, respectively, an increase of $508,000 or 117.5%. Airways
initiated accounting processes in fiscal 1998 which enabled it to record
cancellation revenue and change fees more closely in line with when they were
earned.
OPERATING EXPENSES
Flight operations expenses were $10,480,000 and $11,148,000 in the quarters
ended June 30, 1997 and 1996, respectively, a decrease of $668,000 or 6.0%.
ASMs decreased by 3.2% and last year's first quarter included $ 541,000
associated with aircraft which were leased by Airways, on a short term basis, in
an effort to ensure the reliability of its schedule. Departures were 3,931 and
3,450 in the quarters ended June 30, 1997 and 1996, respectively, an increase of
441 or 13.9%, the cost of which offset a portion of the decrease resulting from
the reduced capacity in this year's quarter.
Maintenance expenses were $5,447,000 and $6,492,000 in the quarters ended
June 30, 1997 and 1996, respectively, a decrease of $1,045,000 or 16.1%.
Airways spent $ 175,000 less this year on independent consultants. In the prior
year, Airways had engaged experts to assist in evaluating the maintenance
records and systems. As an outgrowth of those reviews, Airways invested heavily
in engines, airframes and related equipment during last year's first quarter.
Those repairs were charged to expense. Block hours (which normally are a cost
driver for maintenance) were essentially unchanged and, therefore, did not
contribute to the variance between years.
Aircraft and traffic servicing expenses were $3,909,000 and $4,643,000 in
the quarters ended June 30, 1997 and 1996, respectively, a decrease, of $734,000
or 15.8%. Although Airways had 17.7% more flights during this years first
quarter which drove upward a number of expenses, the cost of interrupted trips
for Airways' passengers dropped by $957,000 or 92.1% from the prior year. The
significant decrease is largely a consequence of Airways' improved operating
performance, having completed over 99% of flights in this year's first quarter.
Last year, the extensive internal reviews and renovations of aircraft that were
taking place caused interruptions.
Reservations, sales and marketing expenses were $4,351,000 and $5,130,000
for the quarters ended June 30, 1997 and 1996, respectively, a decrease of
$779,000 or 15.2%. Although sales declined by 6.8% and a resulting decrease was
expected in reservations, sales and marketing expenses, Airways was able to
mitigate these costs further. A shift of customer mix toward passengers booking
directly with AirTran on its toll-free 1-800-AIR-TRAN reservations line, as
opposed to travel agencies, caused an increase in reservation-related expenses
(salaries and telephone expenses) of about $ 227,000 or 44% over the prior
year's first quarter. On the other hand, Airways' CRS fees, ARC processing fees
and travel agency commissions dropped by nearly $500,000 or 20%. In addition,
Airways' marketing department reduced its media advertising since last year and
established several cooperative advertising arrangements with other companies to
moderate its advertising expense this year, resulting in a reduction of $
424,000 or 34%.
63
<PAGE>
General and administrative expenses were $1,403,000 and $978,000 in the
quarters ended June 30, 1997 and 1996, respectively, an increase of $425,000 or
43.4%. The principal cause of the increased expense in 1997 was the continued
development of headquarters and administrative infrastructure.
Depreciation and amortization expenses were $1,637,000 and $1,102,000 in the
quarters ended June 30, 1997 and 1996, respectively, an increase of $535,000 or
48.5%. The increase is primarily due to depreciation on the fixed assets added
since the prior year. Property and equipment at June 30, 1997 and 1996,
respectively, were $44,724,000 and $32,370,000, an increase of $ 12,354,000 or
38.2%. More of the fixed assets added during the past year have shorter useful
lives. Largely, they represent capitalized improvements to aircraft and engines
which will benefit Airways until the next scheduled overhaul, causing
depreciation expense to increase more rapidly than the underlying fixed assets.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents were $1,672,000 and $2,354,000 at June 30, 1997
and March 31, 1997, respectively, a decrease of $682,000 or 29.0%. The use of
cash and cash equivalents from operating activities was $189,000. The principal
uses of cash and cash equivalents were for purchases of property and equipment
of $1,374,000 and payments on long-term debt of $676,000.
Restricted cash was $10,411,000 and $12,670,000 at June 30, 1997 and March
31, 1997, respectively, a decrease of $2,259,000 or 17.8%. The decrease in
restricted cash related to the seasonal decline in advance bookings since the
end of March.
Airways' consolidated current ratio was 0.71 and 0.82 to 1.0 at June 30,
1997 and March 31, 1997, respectively. The decrease in the ratio at June 30,
1997 was entirely due to the reclassification of $ 3,493,000 of deferred tax
asset from current to long term during the quarter ended June 30, 1997.
During the quarter ended June 30, 1997, Airways entered into an installment
loan with a finance company and a bank in the amount of $1,600,000 which is
secured by one of Airways' owned aircraft. The loan carries a fixed interest
rate of 13 %. The note requires payment of principal and interest monthly which
will amortize the loan by May 2002 and has provisions allowing early repayment.
Airways had consolidated current assets of $26,463,000 and $32,666,000 as of
June 30, 1997 and March 31, 1997, respectively. Management believes that such
assets, along with internally generated funds as well as financing which
management believes is or will be made available, will satisfy projected
operating and capital needs. If AirTran increases its rate of growth over
current projections, acquires another company, purchases or leases more aircraft
than is presently planned, sustains further losses or otherwise requires
additional capital, other sources of funds will need to be secured and there is
no assurance that such funds will be secured. During fiscal 1997, Airways
invested heavily in its aircraft and engines. Much of this investment was paid
for from funds generated the year before or from Airways' working capital. As a
consequence, Airways' working capital position weakened. Therefore, several
undertakings were initiated to strengthen its position. They are as follows:
. On June 13, 1997, Airways entered into a code-sharing agreement with
Comair, a large regional airline operating flights in Florida. The code-
sharing agreement permits AirTran Airways to sell tickets to its passengers
allowing them to connect in Orlando with Comair flights continuing on to
nine Florida destinations other than Orlando. These tickets will be sold to
passengers under the tradename "AirTran's Florida Connection." Airways began
taking reservations on June 19 and carried its first passenger that same
day.
. On July 3, 1997, Airways refinanced one of its aircraft by borrowing
$7,000,000 from ValuJet and repaying a major commercial lender approximately
$3,200,000. The new loan is secured by one of Airways' owned aircraft and
matures in December 1997.
. In addition, Airways has engaged an investment banker for the purpose of
refinancing the maintenance hangar it acquired at Orlando International
Airport last year. The hangar has an appraised value of $7,100,000 and
Airways' indebtedness is approximately $1,400,000.
64
<PAGE>
There can be no assurance that the hangar financing will be obtained nor
that the recently executed loan with ValuJet will be able to be refinanced when
it comes due in December 1997.
The effect of inflation on Airways is not considered material.
65
<PAGE>
BUSINESS OF VALUJET
GENERAL
ValuJet, through its wholly owned subsidiary, ValuJet Airlines, 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 15, 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.
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 6.77c 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
10.24c in the first quarter of 1997, ValuJet reported that its cost per ASM
declined to 8.22c 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
66
<PAGE>
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>
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 eight 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 travelled 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
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 is considering the implementation of a program to enhance
its image. This program will consider effecting changes to ValuJet's product and
its promotional efforts. Among the options being considered are changes to
ValuJet's distribution system, advertising campaign, name and logo and the
possibility of adding business class seating and advance seat selection. This
program is scheduled to be 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 consummated, ValuJet intends to operate under the AirTran brand
name and will change its marketing accordingly.
67
<PAGE>
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 127 seats in a single class configuration.
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) from Atlanta and
Washington, D.C., with a limited number of flights (up to eight 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.
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 $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 $39 to $89
for off-peak one-way travel on a 14 day advance purchase basis and $109 to $149
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 has
extended and increased the federal excise tax on air travel. Since the law has
only recently been enacted, ValuJet has not yet been able to determine how such
a tax would affect ValuJet's fares or its competitive position. 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.
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 June 30, 1997.
68
<PAGE>
<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 4
Boston, MA.............. February 1997 3(c)
Charlotte, NC (d)....... May 1997 4
Chicago, IL (Midway).... October 1996 4
Columbus, OH (d)........ October 1996 3
Dallas/Fort Worth, TX... April 1997 4
Flint, MI............... May 1997 3
Fort Lauderdale, FL..... September 1996 6
Fort Myers, FL.......... January 1997 3
Fort Walton Beach, FL... October 1996 2
Jacksonville, FL........ October 1996 3
Louisville, KY (d)...... October 1996 3
Memphis, TN............. October 1996 3
Mobile, AL.............. October 1996 2
New Orleans, LA......... October 1996 4
Newport News, VA........ October 1996 3
Orlando, FL............. September 1996 6
Philadelphia, PA........ October 1996 4
Raleigh/Durham, NC...... October 1996 4
Savannah, GA............ October 1996 3
Tampa, FL............... September 1996 6
Washington DC (Dulles).. September 1996 8
West Palm Beach, FL..... December 1996 3
Washington, DC (Dulles)-
Atlanta, GA............. September 1996 8
Boston, MA.............. February 1997 4
- --------------------------
</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).
(d) ValuJet announced the discontinuance of service to these markets effective
September 1997.
Effective July 10, 1997, new service commenced between Washington, D.C.
(Dulles Airport) and Chicago (Midway) and between Boston and Philadelphia and
one round trip per day was added to the schedule between Atlanta and Chicago
(Midway), Jacksonville, Louisville, Memphis and Newport News.
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
eight frequencies per peak travel day in any given market.
69
<PAGE>
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 15, 1997, ValuJet owned 42 DC-9 Series 30 aircraft with 113 to
115 seats. All of ValuJet's aircraft are configured with a single class of
service. As of August 15, 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.
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 127 seats in a single
class configuration. 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 June 30, 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 12
aircraft, two comply with Stage 3 as of the date of this Joint Proxy
Statement/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. For a discussion of the cost of hush kits and
their financing, see "ValuJet Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."
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.
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,
70
<PAGE>
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
hanger 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.
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.
71
<PAGE>
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 uses tag lines such as "Good Times, Great Fares", "Wherever We
Fly, You Win" and "Low Fares Everyday, Everywhere We Fly" to reinforce its
identity. ValuJet offers a toll-free telephone number (1-800-VALUJET) for
reservations from outside Atlanta and its reservations number in the Atlanta
area is 770-994-VALU (8258).
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.
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.
72
<PAGE>
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 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 July 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
73
<PAGE>
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.
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, marshalling the aircraft into and out of the
gate, baggage and mail loading and unloading, as well as lavatory and water
servicing, anti-icing and deicing and certain services provided to the aircraft
overnight. Complete ground handling consists of public contact and underwing
services combined.
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
74
<PAGE>
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 June
1997.
<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 -- --
Charlotte, NC.............. 8 7 1
Chicago, IL (Midway)(b).... -- -- 1
Columbus, OH............... 6.5 -- --
Dallas/Fort Worth, TX...... 17 14.5 --
Flint, MI.................. -- -- --
Fort Lauderdale, FL........ 10 -- --
Fort Myers, FL............. 7.5 -- --
Fort Walton Beach, FL...... -- -- 9
Jacksonville, FL........... 8 -- 3
Louisville, KY............. 7.5 -- 1
Memphis, TN................ 9.5 6 --
Mobile, AL................. 8 -- --
New Orleans, LA............ 9 -- --
Newport News, VA........... 5(c) -- --
Orlando, FL................ 14 -- 3
Philadelphia, PA........... 9.5 7 --
Raleigh/Durham, NC......... 9.5 -- --
Savannah, GA............... 9 -- --
Tampa, FL.................. 10 -- --
Washington DC (Dulles)(d).. 6 -- 1
West Palm Beach, FL........ 9 -- 1
--- ----- --
Total...................... 173 34.5 20
=== ===== ==
- ---------------------
</TABLE>
(a) Includes Air South 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 between Washington, D.C. (Dulles
Airport) and Boston. 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.
75
<PAGE>
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 August 1996, Delta announced the formation of Delta Express, its new-low-
fare operation with nonstop service from Orlando to various midwest and
northeast cities -- Hartford, CT / Springfield, MA / Nashville, TN / Boston, MA
/ Columbus, OH / Newark, NJ / Washington, DC (Dulles) / Indianapolis, IN/
Philadelphia, PA / Louisville, KY / and Providence, RI; plus Orlando to four
other Florida cities -- Tampa, Ft. Lauderdale, Ft. Myers and West Palm Beach.
The new service began October 1, 1996. 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 June 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.
76
<PAGE>
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 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 inflight 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. 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 15, 1997, ValuJet's operating aircraft consisted of 31 aircraft, 16
of which comply with Stage 3. See "Business of ValuJet -- Aircraft" and
"ValuJet 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.
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
77
<PAGE>
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 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. Additionally, Defendant Timothy Flynn filed a Motion to Dismiss for
lack of personal jurisdiction. 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. Although ValuJet denies that it has violated
- --------------------------------
any of its
78
<PAGE>
obligations under the federal securities laws and believes that meritorious
defenses exist in the lawsuits, 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 52 such lawsuits have been filed against
ValuJet Airlines, Inc. prior to May 31, 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. In approximately 40 of these lawsuits,
SabreTech, has been named as a co-defendant as a result of the role that it
played in the accident. 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 30 claims as of May 31, 1997, and is
pursuing settlements in the balance of the claims. 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.
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. Trial
is currently set for fall 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
79
<PAGE>
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.
80
<PAGE>
BUSINESS OF AIRWAYS
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-
200A 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.
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 $229.
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 June 30, 1997.
81
<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 DesMoines and Moline
FISCAL YEAR 1998:
April 10 1,357 -
May 10 1,290 -
June 10 1,245 -
</TABLE>
* Service to these locations was subsequently discontinued.
82
<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 $50,000 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 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.
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.
83
<PAGE>
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 March 31, 1997, Airways had 592 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.
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
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.
SECURITY OWNERSHIP
VALUJET AFTER THE MERGER
At and after the Effective Date, by reason of the conversion of Airways Common
Stock into ValuJet Common Stock, the equity ownership of ValuJet will be shared
by the persons who were holders of ValuJet Common Stock and Airways Common Stock
immediately prior to the Effective Date. Accordingly, the equity interest which
each holder of
84
<PAGE>
ValuJet Common Stock or Airways Common Stock holds in ValuJet or Airways, as the
case may be, immediately prior to the Effective Date will be converted into a
smaller percentage ownership interest in a larger company.
As a result of the Merger, immediately after the Effective Date the current
holders of ValuJet Common Stock will hold ____% of the then outstanding shares
of ValuJet Common Stock, and the current holders of Airways Common Stock will
hold ____% of the then outstanding shares of ValuJet Common Stock, assuming in
each case that no outstanding options or warrants are exercised. Assuming the
exercise of all outstanding options and warrants to purchase ValuJet Common
Stock and Airways Common Stock that are currently exercisable or that become
exercisable within 60 days, the current holders of ValuJet Common Stock would
hold ____% of outstanding shares of ValuJet after the Effective Date and the
current holders of Airways Common Stock would own the remaining ____%. The
percentage of outstanding shares of ValuJet Common Stock to be beneficially
owned by the current officers and directors of ValuJet as a group will be ____%,
and the percentage of outstanding shares of ValuJet Common Stock to be
beneficially owned by the current officers and directors of Airways as a group
will be ____%, assuming in each case the exercise of all outstanding options to
acquire ValuJet Common Stock or Airways Common Stock held by the respective
officer and director group currently exercisable or exercisable within 60 days
and that no other such options, including options held by the other officer and
director group, are exercised.
PRINCIPAL STOCKHOLDERS
SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS OF VALUJET
The following table sets forth, as of July 31, 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)........................ 5,289,540 9.1%
Robert L. Priddy (4)....................... 4,140,000 7.4%
Maurice J. Gallagher, Jr. (5).............. 3,475,000 6.3%
Timothy P. Flynn (6)....................... 2,282,000 4.2%
Don L. Chapman (7)......................... 79,000 *
All Executive Officers and Directors as a
group (10 persons) (2)(3)(4)(5)(6)(7)(8)... 15,455,740 26.2%
</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.
85
<PAGE>
(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 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 options to purchase 5,000 shares of Common Stock which are
presently exercisable and 120,000 shares of Common Stock owned by Mr.
Flynn's children. Mr. Flynn's address is 6900 Westcliff Drive, Suite 505,
Las Vegas, Nevada 89128.
(7) 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.
(8) In addition to outstanding shares of Common Stock owned by Executive
Officers not named in the table, also included are options to purchase
88,400, 31,000 and 36,600 shares of Common Stock by Stephen C. Nevin, Thomas
Kalil and M. Ponder Harrison, respectively, which are presently exercisable.
SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS OF AIRWAYS
The following table sets forth, as of July 31, 1997, certain information with
respect to Airways' Common Stock owned beneficially by each Airways director, by
all executive officers and directors as a group and by each person known by
Airways to be a beneficial owner of more than 5% of the outstanding Common Stock
of Airways. Except as noted in the footnotes, each of the persons listed has
sole investment and voting power with respect to the shares of Airways Common
Stock included in the table.
<TABLE>
<CAPTION>
Name of Number of Shares Percent of
Beneficial Owner Beneficially Owned (1)(2)(3) Ownership (1)
- ---------------------------------- ----------------------------- -------------
<S> <C> <C>
Carl R. Pohlad 1,379,310 15.33%
Lowell T. Swenson 462,748 (4) 5.10%
Robert D. Swenson 707,895 (5) 7.54%
Alan R. Stephen 42,000 *
John K. Ellingboe 29,620 *
Roger T. Munt 10,000 *
All directors and executive
officers as a group (11 persons) 890,515 9.37%
</TABLE>
_________________________________
* Less than 1%.
(1) A person is deemed to be the beneficial owner of securities that can be
acquired by such person within 60 days from the date hereof upon exercise of
options and warrants. Each beneficial owner's percentage ownership is
determined by assuming that options and warrants that are held by such
person (but not those held by any other person) and that are exercisable
within 60 days from the date hereof have been exercised.
86
<PAGE>
(2) Includes shares which may be acquired within the next 60 days in the
following amounts by exercise of stock options: R. D. Swenson -- 325,000;
A. Stephen -- 8,000; J. Ellingboe -- 8,000; R. Munt -- 8,000; and all
directors and executive officers as a group -- 444,000.
(3) The shares shown do not include the following shares of Common Stock which
are subject to stock options that are not exercisable within the next 60
days: A. Stephen -- 4,000; J. Ellingboe -- 4,000; R. Munt -- 4,000; and all
directors and executive officers as a group -- 97,000.
(4) Includes 100,000 shares of Common stock for which Mr. Swenson shares voting
power with his wife.
(5) Includes (i) 83,220 shares of Common Stock held by Mr. Swenson's wife and
(ii) 69,720 shares of Common Stock Mr. Swenson holds as custodian for his
minor children.
87
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION - VALUJET
The following table shows, for the fiscal years ended December 31,
1994, December 31, 1995, and December 31, 1996, the cash compensation paid by
ValuJet, as well as certain other compensation paid or accrued for such year,
for ValuJet's Chief Executive Officers and four most highly compensated
Executive Officers other than the Chief Executive Officer. Such table also
indicates all capacities in which they served.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------------------------ ------------
Other All
Name and Annual other
Principal Compen- Options Compen-
Position Year Salary ($) Bonus ($) sation($) (#) sation ($)
- ----------------------------------- ---- -------- ----------- ------------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Robert L. Priddy 1996 135,781 0 0 None 0
Chairman of the Board, 1995 150,000 250,000 0 290,000 0
Chief Executive Officer (1) 1994 150,000 225,000 0 350,000 0
Lewis H. Jordan 1996 135,781 0 0 None 0
President, Chief 1995 150,000 250,000 17,507(3) 290,000 0
Operating Officer (2) 1994 150,000 225,000 35,721(3) 350,000 0
Stephen C. Nevin 1996 105,480 0 0 None 0
Senior Vice President - 1995 100,000 38,000 0 26,000 0
Finance, Chief Financial 1994 59,452 70,000 0 180,000 30,000(5)
Officer (4)
James R. Jensen 1996 110,465 0 5,000 30,000(5)
Senior Vice President -
Maintenance and Engineering (6)
Thomas Kalil 1996 105,480 0 None 0
Senior Vice President - 1995 65,206 30,000 55,000 5,000(5)
Customer Service (7)
</TABLE>
_________________________________
(1) The options granted to Mr. Priddy during 1994 include options to purchase
150,000 shares of Common Stock at $3.75 per share granted in January 1995 as
a part of Mr. Priddy's 1994 compensation package. The options granted to
Mr. Priddy during 1995 include options to purchase 250,000 shares of Common
Stock at $18.375 per share granted in January 1996 as a part of Mr. Priddy's
1995 compensation package.
(2) The options granted to Mr. Jordan during 1994 include options to purchase
150,000 shares of Common Stock at $3.75 per share granted in January 1995 as
a part of Mr. Jordan's 1994 compensation package. The options granted to
Mr. Jordan during 1995 include options to purchase 250,000 shares of Common
Stock at $18.375 per share granted in January 1996 as a part of Mr. Jordan's
1995 compensation package.
(3) Consists of reimbursements of moving and related expenses which were paid in
accordance with the terms of his employment agreement with ValuJet.
(4) Mr. Nevin commenced employment with ValuJet on May 9, 1994, and therefore,
the compensation shown for him for 1994 is for the period from May 9, 1994
to December 31, 1994. The options granted to Mr. Nevin during 1995
88
<PAGE>
include options to purchase 14,000 shares of Common Stock at $18.375 per
share granted in January 1996 as a part of Mr. Nevin's 1995 compensation
package.
(5) The amounts indicated are amounts paid by ValuJet for moving and related
expenses.
(6) Mr. Jensen commenced employment with ValuJet in July 1996, and therefore,
the compensation shown for him for 1996 is for the period from July 1996
through December 1996.
(7) Mr. Kalil commenced employment with ValuJet in May 1995, and therefore, the
compensation shown for him for 1995 is for the period from May 1995 through
December 1995. The options granted to Mr. Kalil during 1995 include options
to purchase 15,000 shares of Common Stock at $18.375 per share granted in
January 1996 as a part of Mr. Kalil's 1995 compensation package.
EMPLOYMENT AGREEMENTS - VALUJET
D. Joseph Corr. ValuJet's employment agreement with Mr. Corr provides
for a three year term, a base salary of $250,000 per year, bonuses of up to
$250,000 per year based on the performance of ValuJet and severance pay equal to
one year's base salary in the event Mr. Corr's employment is terminated by
ValuJet without cause. Under the agreement, Mr. Corr is also entitled to
reimbursement of certain temporary living and moving expenses.
STOCK OPTION PLANS - VALUJET
ValuJet has three existing stock option plans ("Stock Option Plans"):
the 1993 Stock Option Plan (the "1993 Plan") and the 1994 Stock Option Plan (the
"1994 Plan") and the 1996 Stock Option Plan (the "1996 Plan").
A total of 4,800,000 shares of Common Stock are reserved for issuance
under the 1993 Plan. As of December 31, 1996, options to purchase 4,325,300
shares have been granted under the 1993 Plan, of which options to purchase
1,352,000 shares have been exercised and options to purchase 104,500 shares have
lapsed due to employment terminations prior to vesting. At such date, options
to purchase 2,868,800 shares were outstanding under the 1993 Plan at an average
option price of $2.26 per share and options for up to 579,200 additional shares
may be granted under the 1993 Plan. The 1993 Plan contemplates that options
will be granted to officers, directors and other key employees of ValuJet. An
optionee must remain an employee of ValuJet to retain his options. If such
status terminates, other than by reason of the death of the optionee, the
options will expire within three months of the termination.
The exercise price of the options granted under the 1993 Plan cannot
be less than the fair market value of the Common Stock on the date the option is
granted, as determined by the Compensation Committee or the Board of Directors.
Options granted under the 1993 Plan may be subject to vesting schedules which
defer the optionees' rights to exercise the option. The terms of the options
and the dates after which they become exercisable are established by the
Compensation Committee of the Board of Directors, subject to the terms of the
1993 Plan. All options granted to date under the 1993 Plan vest over a five
year period.
Options granted under the 1994 Plan and 1996 Plan may be either
incentive stock options or nonqualified options. The 1994 Plan and 1996 Plan
contemplate that options may be granted to directors, key employees and
consultants of ValuJet. The exercise price of the options granted under the
1994 Plan and 1996 Plan will be determined by the Compensation Committee of the
Board of Directors. Options granted under the 1994 Plan and 1996 Plan may be
subject to vesting schedules which defer the optionees' rights to exercise the
option. The terms of the options and the dates after which they become
exercisable are established by the Compensation Committee of the Board of
Directors, subject to the terms of the 1994 Plan.
A total of 4,000,000 shares of Common Stock are reserved for issuance
under the 1994 Plan. As of December 31, 1996, options to purchase 3,925,100
shares have been granted under the 1994 Plan, of which options to purchase
303,810 have been exercised and options to purchase 316,560 shares have lapsed
due to employment terminations prior to vesting. At that date, options to
purchase 3,304,730 shares were outstanding under the 1994 Plan at an average
option price of $6.87 per share and options for up to 391,460 additional shares
may be granted under the 1994 Plan. Of the options granted under the 1994 Plan,
options to purchase 1,296,465 shares are incentive stock options and options to
purchase 2,008,265 shares are
89
<PAGE>
nonqualified options. Options granted under the 1994 Plan generally vest over a
five year period except for certain options granted to certain officers and
Directors of ValuJet.
A total of 5,000,000 shares of Common Stock are reserved for issuance
under the 1996 Plan. As of March 10, 1997, options to purchase 450,000 shares
have been granted and are outstanding under the 1996 Plan, all of which have
been granted at a price of $7.125 per share. No options have been exercised or
have lapsed. Options for up to an additional 4,550,000 shares may be granted
under the 1996 Plan. Of the options granted under the 1996 Plan, options to
purchase 42,105 shares are incentive stock options and options to purchase
407,895 shares are nonqualified options.
ValuJet has from time to time granted stock options under the Stock
Option Plans in order to provide certain officers, directors, employees and
consultants with a competitive total compensation package and to reward them for
their contribution to ValuJet's performance. These grants of stock options are
designed to align the individual's interest with that of the Stockholders of
ValuJet.
The number of shares and per share stock prices indicated above have
been adjusted to reflect the two separate 2-for-1 stock splits paid to
Stockholders in the form of 100% stock dividends in April 1995 and November
1995.
VALUJET'S OPTION GRANTS IN LAST FISCAL YEAR
The table below sets forth information regarding all stock options
granted in the 1996 fiscal year under ValuJet's Stock Option Plans to those
Executive Officers of ValuJet named in the Compensation Table above:
<TABLE>
<CAPTION>
% of
Total Market
Number of Options Price
Securities Granted to or Fair Potential Realized
Underlying Employees Value Assumed Annual Rates of
Options in Fiscal Exercise on Date Expiration Stock Price Appreciation
Granted Year(2) Price of Grant Date 5% 10%
----------- ---------- -------- --------- ---------- --------------------------
<S> <C> <C> <C> <C> <C> <C>
Robert L. Priddy None(1)
Lewis H. Jordan None(1)
Stephen C. Nevin None(1)
James R. Jensen 5,000 1.0% $11.50 $11.50 July 8, 2006 $36,161 $91,640
Thomas Kalil None(1)
</TABLE>
___________________________________
(1) Excludes options to purchase an aggregate of 529,000 shares at $18.375 per
share granted in January 1996 to the Executive Officers indicated as a part
of their respective 1995 compensation packages.
(2) Excludes options to purchase an additional 391,800 shares at $18.375 or
$21.375 to other employees as a part of their respective 1996 compensation
packages.
(3) The dollar amounts under these columns are the result of calculations at the
5% and 10% rates set by the Securities and Exchange Commission and therefore
are not intended to forecast possible future appreciation, if any, of the
price of ValuJet's stock.
VALUJET - AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END
OPTION VALUES
The following table shows aggregate exercises of options during 1996 and the
values of options held by ValuJet's Executive Officers as of December 31, 1996.
90
<PAGE>
<TABLE>
Number of Value of Unexercised
Unexercised Options In-The-Money Options
December 31, 1996 (#) December 31, 1996 (2)
Shares Acquired Value Exercisable (E)/ Exercisable (E)/
Name on Exercise (#) Realized Unexercisable (U) Unexercisable (U)
- ------------------ --------------- ------------------- ---------------------- ----------------------
<S> <C> <C> <C> <C>
Robert L. Priddy - - 640,000 E $ 1,118,125 E
Lewis H. Jordan - - 3,040,000 E $ 16,168,105 E
Stephen C. Nevin 38,400 $785,400(1) 36,000 E $ 153,250 E
Stephen C. Nevin - - 131,600 U $ 472,350 U
James R. Jensen - - 5,000 U None
Thomas Kalil - - 23,000 E None
Thomas Kalil - - 32,000 U None
- --------------------------------------------------------------------------------------------------------
</TABLE>
(1) Amount shown is based upon the closing sale price for ValuJet's Common Stock
on each date of option exercise, which was $22.56 - $23.00 per share.
(2) Amounts shown are based upon the closing sale price for ValuJet's Common
Stock on December 31, 1996, which was $6.44 per share.
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION - AIRWAYS
The following compensation table sets forth, for the fiscal year ended
March 31, 1997 ("1997"), the cash and certain other compensation paid by Airways
to its Chief Executive Officer and Airways' other executive officers whose
compensation for 1997 exceeded $100,000 (collectively, the "Named Executive
Officers"). No other executive officer earned an annual salary and bonus in
excess of $100,000 during such year.
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation Awards
---------------------------------------------------- -------------------
Name and Principal Position Year Salary Bonus Compensation Options (#)
- -------------------------------- ------------------- --------- ------ ------------- ------------------
<S> <C> <C> <C> <C> <C>
Robert D. Swenson 1997 $161,088 $ - $ 78,100 (1) 75,000
Chairman and Chief Executive 1996 30,771 - - 250,000
Officer of Airways,
Chairman of AirTran
John F. Horn (2) 1997 42,283 - 115,975 (2) -
President of Airways 1996 140,005 1,855 81 100,000
and President and Chief
Executive Officer of AirTran
Mark B. Rinder 1997 116,800 - - 10,000
Vice President, Finance and
Chief Financial Officer of
Airways and AirTran
Cathy Hoag 1997 110,284 - - 10,000
Vice President, Sales and
</TABLE>
Marketing of AirTran
_____________________________________
(1) Includes relocation costs ($40,000), rental of a home in Orlando, Florida
($19,600) and the cost of transporting the Swenson family twice annually to
their principal home in Anchorage, Alaska ($12,000).
91
<PAGE>
(2) Mr. Horn retired on July 10, 1996 and the other annual compensation includes
compensation paid in connection with the post-employment period.
AIRWAYS' OPTION GRANTS IN LAST FISCAL YEAR
The following table shows all grants of options to the Named Executive
Officers of Airways in 1997. The options were granted under the Airways' 1995
Stock Option Plan. Pursuant to SEC rules, the table also shows the value of the
options granted at the end of the option terms (six years) if the stock price
were to appreciate annually by 5% and 10%, respectively, from the date the
options were granted. There is no assurance that the stock price will
appreciate at the rates shown in the table.
<TABLE>
<CAPTION>
Individual Grants
--------------------------------------------------------- Potential Realized Value
Percent at Assumed Annual Rates of
Number of of Total Options Stock Price Appreciation
Securities Granted to for Option Term
Underlying Employees in Exercise or Expiration ---------------------------
Options Granted the Fiscal Year Base Price Date 5% 10%
--------------- --------------- ----------- ----------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Robert D. Swenson 75,000 23% $5.25 7/25/02 $527,663 $697,552
Mark B. Rinder 5,000 2% 5.25 7/25/02 35,178 46,503
Mark B. Rinder 5,000 2% 3.00 12/22/02 20,101 26,573
Cathy Hoag 5,000 2% 5.25 7/25/02 35,178 46,503
Cathy Hoag 5,000 2% 3.00 12/22/02 20,101 26,573
</TABLE>
_______________________________
AIRWAYS - AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END
OPTION VALUES
The following table provides information as to options exercised by
each of the Named Executive Officers of Airways during 1997 and the value of
options held by such officers at year end.
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Shares Underlying Unexercised In-the-Money Options
Acquired Options at 3/31/97 at March 31, 1997 (1)
on Value -------------------------- --------------------------
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- ------------------- -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Robert D. Swenson - - 325,000 - $759,375 $ -
Mark B. Rinder - - 30,000 5,000 1,875 13,125
Cathy Hoag - - 30,000 5,000 1,875 13,125
</TABLE>
_______________________________
(1) The closing sale price of the Airways Common Stock on March 31, 1997 (the
last trading day of the Company's fiscal year) as reported by NASDAQ was
$5.625 per share. Value is calculated by multiplying (a) the difference
between $5.625 and the option exercise price by (b) the number of shares of
Common Stock underlying the option.
CERTAIN TRANSACTIONS
Prior to August 1996, ValuJet 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 ValuJet with flight attendants and ticket and gate agents
during 1996. ValuJet's expense to Jordan Temporaries for the services of
temporary personnel and recruiting services provided was approximately $4.2
million for the year ending
92
<PAGE>
December 31, 1996. Management of ValuJet 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. ValuJet discontinued its relationship with Jordan
Temporaries in August 1996.
ValuJet 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 ValuJet from Tug was
approximately $328,000 during 1996. ValuJet intends to continue purchasing such
equipment from Tug so long as Tug's equipment meets ValuJet's quality, price and
time of delivery requirements. ValuJet began to purchase equipment from Tug
prior to Mr. Chapman being elected to ValuJet's Board of Directors and
management believes that its purchases from Tug are at competitive prices and
terms.
COMPARATIVE MARKET PRICES AND DIVIDENDS
VALUJET MARKET PRICES
The ValuJet Common Stock is traded on NASDAQ under the symbol "VJET".
The following table sets forth, for the indicated periods, the high and low
closing sales prices for ValuJet Common Stock as reported by NASDAQ for prior
periods. Historical share prices have been adjusted to refect the two 2 for 1
splits of the ValuJet Common Stock effective April 1995 and November 1995.
<TABLE>
<CAPTION>
Sales Price
-------------------------
Calendar Quarter Ending High Low
- ------------------------- ------ ------
<S> <C> <C>
1995
March 31............. $12.63 $ 4.75
June 30.............. 17.94 12.00
September 30......... 18.06 13.31
December 31.......... 34.75 15.94
1996
March 31............. 27.63 18.50
June 30.............. 27.50 4.50
September 30......... 14.00 8.38
December 31.......... 12.25 5.94
1997
March 31............. 8.75 6.13
June 30.............. 8.00 6.25
</TABLE>
AIRWAYS MARKET PRICES
Since September 1995, Airways' Common Stock has been traded on NASDAQ under
the symbol "AAIR." Prior to August 31, 1995, there was no established public
trading market for the Airways Common Stock. The following table sets forth
quarterly high and low sales prices per share of Airways Common Stock as
reported by NASDAQ.
<TABLE>
<CAPTION>
Sales Price
-------------------------
Calendar Quarter Ending High Low
- ------------------------- ------ ------
<S> <C> <C>
1995
September 30......... $ 9.00 $7.25
December 31.......... 10.75 7.25
</TABLE>
93
<PAGE>
<TABLE>
<S> <C> <C>
1996
March 31............. 11.00 8.12
June 30.............. 10.75 6.75
September 30......... 7.25 3.50
December 31.......... 5.62 2.88
1997
March 31............. 6.38 2.88
June 30.............. 6.25 4.88
</TABLE>
Neither ValuJet nor Airways has ever paid any cash dividends with respect to
its stock.
RECENT PRICES
On ______________, 1997, the last day on which ValuJet Common Stock was
traded prior to the mailing of this Joint Proxy Statement/Prospectus, the last
reported sales price of ValuJet Common Stock as reported on the NASDAQ was
$_______ per share, and, the last reported sale price of Airways Common Stock as
reported on NASDAQ was $_______ per share. At the close of trading on July 9,
1997, the date of the last sale reported by the NASDAQ prior to July 10, 1997
(the date the proposed Merger was publicly announced), the last reported sales
price of ValuJet Common Stock was $6.81 per share and the last reported sales
price of Airways Common Stock was $5.38 per share.
STOCKHOLDERS OF RECORD
As of the Record Date, there were approximately ______ holders of record of
ValuJet Common Stock, and _______ holders of record of Airways Common Stock.
AIRWAYS CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
As a consequence of the relocation of Airways' headquarters to Orlando,
Florida in 1995, Airways terminated its relationship with the independent public
accounting firm of Arthur Andersen LLP ("Arthur Andersen") on September 28,
1995. Arthur Andersen's report on Airways' financial statements for the fiscal
year ended March 31, 1995, did not contain an adverse opinion or a disclaimer of
opinion, nor was it qualified or modified as to uncertainty, audit scope or
accounting principles. From the time Arthur Andersen was engaged by Airways
through the date of Arthur Andersen's dismissal, there were no disagreements
with Arthur Andersen on any matter of accounting principles or practices,
financial statement disclosure or auditing scope or procedure, which
disagreements, if not resolved to the satisfaction of Arthur Andersen, would
have caused it to make reference to the subject matter of the disagreements in
connection with its report.
Airways hired the independent public accounting firm of KPMG Peat Marwick
LLP ("KPMG") for the purpose of conducting audits for its 1996 and 1997 fiscal
years.
VALUJET CAPITAL STOCK
GENERAL
The authorized Capital Stock of ValuJet consists of 1,000,000,000 shares of
Common Stock, $.001 par value per share and 5,000,000 shares of Preferred Stock,
$.01 par value per share. As of ____________, 1997, ValuJet had outstanding
_______ shares of Common Stock owned by _________ holders of record.
Any Preferred Stock that may be issued shall have the rights, terms and
preferences delineated by ValuJet's Board of Directors in a certificate filed
with the Secretary of State of Nevada. As of the date of this Joint Proxy
Statement/Prospectus, no shares of Preferred Stock have been issued. The Board
of Directors of ValuJet has no present intention to authorize the issuance of
any series of Preferred Stock. See "Anti-Takeover Provisions of Articles of
Incorporation and By-laws of ValuJet" below.
94
<PAGE>
Holders of the Common Stock of ValuJet are entitled to cast one vote per
share on all matters submitted to a vote of stockholders. Such holders are
entitled to receive dividends when, as and if declared by the Board of Directors
out of funds legally available therefor. Holders of ValuJet Common Stock do not
have any preemptive, subscription, redemption or conversion rights. Upon any
liquidation of ValuJet, holders of ValuJet Common Stock are entitled to share
ratably in the net assets of ValuJet available for distribution after payment or
provision for all debts and obligations of ValuJet and any preferences
attributable to any series of Preferred Stock outstanding. Shares of ValuJet
Common Stock issued in connection with the Merger will be fully paid and non-
assessable.
ANTI-TAKEOVER PROVISIONS OF ARTICLES OF INCORPORATION AND BY-LAWS OF VALUJET
The Board of Directors of ValuJet, without approval of its stockholders, is
authorized to establish the voting, dividend, redemption, conversion,
liquidation and other provisions of a particular series of Preferred Stock. The
issuance of Preferred Stock could, among other things, adversely affect the
voting power or other rights of the holders of Common Stock and, under certain
circumstances, make it more difficult for a third party to acquire, or
discourage a third party from acquiring, control of ValuJet.
Under the By-law Amendment being submitted to a vote of the ValuJet
stockholders, the Board of Directors of ValuJet in place after the Merger will
not be subject to reelection until the 1999 annual meeting of ValuJet
stockholders.
Under ValuJet's By-laws, special meetings of the stockholders of ValuJet may
be called only by a majority of the Board of Directors in office or by
stockholders holding not less than 25% of the voting power of the corporation.
Action may be taken by Stockholders without a meeting by written consent setting
forth the action taken signed by Stockholders holding at least a majority of the
voting power, unless a greater vote is required (i) under the corporation's
Articles of Incorporation, (i) under a Certificate or Rights, Preferences and
Privileges filed in accordance with the laws of the State of Nevada, or (iii)
under Nevada law.
LIMITATION OF LIABILITY AND INDEMNIFICATION OF DIRECTORS
The right of the Stockholders to sue any director for misconduct in
conducting the affairs of ValuJet is limited by that company's Articles of
Incorporation and Nevada statutory law to cases for damages resulting from
breaches of fiduciary duties involving acts or omissions involving intentional
misconduct, fraud, knowing violations of the law or the unlawful payment of
dividends. Ordinary negligence is not a ground for such a suit. The statute
does not limit the liability of directors or officers for monetary damages under
the Federal securities laws.
ValuJet also has the obligation, pursuant to ValuJet's By-laws, to indemnify
any director or officer of ValuJet 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 ValuJet, 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.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended, may be permitted to directors, officers or persons
controlling ValuJet pursuant to the foregoing provisions, ValuJet has been
informed that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in such Act and is
therefore unenforceable.
95
<PAGE>
COMPARISON OF RIGHTS OF HOLDERS OF VALUJET COMMON STOCK
AND HOLDERS OF AIRWAYS COMMON STOCK
GENERAL
If the Merger is consummated, holders of Airways Common Shares will become
holders of ValuJet Common Stock, and the rights of such former Airways
stockholders will be governed by the laws of the State of Nevada and by the
ValuJet Articles of Incorporation ("ValuJet Articles") and the ValuJet By-laws.
The rights of former Airways stockholders under the Delaware General Corporation
Law ("DGCL"), the Airways Charter and the Airways Bylaws differ in certain
respects from the rights of ValuJet stockholders under the Nevada Revised
Statutes ("NRS"), the ValuJet Articles and the ValuJet By-laws. Certain of
these differences are summarized below. This summary is qualified in its
entirety by reference to the full text of such documents.
ANTI-TAKEOVER PROTECTION
Stockholder Approval. Except as indicated below, under the DGCL, a merger
or consolidation generally must be approved by the holders of a majority of all
of the outstanding stock of each constituent corporation entitled to vote. The
sale of all or substantially all of the assets of a corporation must be approved
by the holders of a majority of the outstanding stock entitled to vote. The
DGCL does not require a stockholder vote of the surviving corporation in a
merger, unless required by the surviving Corporation's certificate of
incorporation, if (i) the merger agreement does not amend the existing
certificate of incorporation, (ii) each share of stock (including treasury
shares) of the surviving corporation before the merger is to be identical after
the merger and (iii) the number of shares of stock to be issued by the surviving
corporation in the merger, plus those initially issuable upon conversion of any
other shares, do not exceed 20% of the shares of stock outstanding immediately
prior to the effective date of the merger. In addition, no stockholder approval
is required if the acquiring corporation owns 90% or more of the outstanding
shares of the acquired corporation. The Airways Bylaws and Charter do not alter
or address these provisions.
Unless the constituent corporation's articles of incorporation, by-laws or
board of directors require a greater vote, the NRS generally require that a
merger be approved by (i) a majority of all votes entitled to be cast on the
matter, voting as a single group and (ii) a majority of all the votes entitled
to be cast by each voting group entitled to vote separately on the plan as a
voting group. The sale of all or substantially all of the assets of a
corporation must be approved by the affirmative vote of a majority of all the
votes entitled to be cast on the matter, regardless of voting groups, unless the
articles of incorporation require a greater vote. Stockholders of the surviving
domestic corporation need not approve a merger if (i) the articles of
incorporation of the surviving domestic corporation will not differ from its
articles before the merger; (ii) each stockholder of the surviving domestic
corporation whose shares were outstanding immediately before the effective date
of the merger will hold the same number of shares, with identical designations,
preferences, limitations and relative rights immediately after the merger; (iii)
the number and kind of voting shares outstanding immediately after the merger,
plus the number of voting shares issued as a result of the merger, either by the
conversion of securities issued pursuant to the merger or the exercise of rights
and warrants issued pursuant to the merger, will not exceed by more than 20% the
total number of voting shares of the surviving domestic corporation outstanding
immediately before the merger, and (iv) the number of participating shares
outstanding immediately after the merger, plus the number of participating
shares issuable as a result of the merger, either by the conversion of
securities issued pursuant to the merger or the exercise of rights and warrants
issued pursuant to the merger, will not exceed by more than 20% the total number
of participating shares outstanding immediately before the merger. The ValuJet
Articles and By-laws do not alter or address these provisions.
Business Combinations. Section 203 of the DGCL prohibits a corporation that
does not opt out of its provisions from entering into certain business
combination transactions with "interested stockholders" (generally defined to
include persons beneficially owning 15% or more of the corporation's outstanding
voting stock or affiliates or associates of the corporation who owned 15% or
more of the outstanding voting stock during the three prior years) for a period
of three years following the time that such stockholder became an interested
stockholder. The DGCL permits business combinations with interested
stockholders if (i) prior to the stockholder's becoming an interested
stockholder, the board of directors of the corporation approved either the
business combination or the transaction which resulted in the stockholder
becoming an interested stockholder, (ii) upon consummation of the transaction
which resulted in the stockholder becoming an interested stockholder, the
interested stockholder owned at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced, excluding, for purposes of
determining the number of shares outstanding, shares owned by persons
96
<PAGE>
who are directors and also officers and by certain employee stock plans or (iii)
certain supermajority votes are obtained. The Airways Articles do not contain a
provision opting out of Section 203.
Section 78.438 of the NRS prohibits a domestic corporation from entering
into certain business combination transactions, including mergers, with
"interested stockholders" (defined to include persons beneficially owning 10% or
more of the voting power of the outstanding voting shares of the corporation or
affiliates or associates of the corporation who owned 10% or more of the
outstanding voting stock during the three prior years) for a period of three
years after the interested stockholder or stockholders acquired shares of the
corporation unless the combination or the purchase of shares made by the
interested stockholder is approved by the board of directors of the resident
domestic corporation before the date that the interested stockholder acquired
its shares. The NRS merger provisions apply to all Nevada resident domestic
corporations that have a class of voting shares registered with the Securities
and Exchange Commission unless the corporation's articles of incorporation opt
out. The ValuJet Articles do not contain such an opting out provision.
Blank Check Preferred Stock. The DGCL permits corporations to issue one or
more series of stock within any class thereof, which classes or series may have
such voting powers, full or limited, or no voting powers, and such designations,
preferences and relative, participating, optional or other special rights, and
qualifications, limitations or restrictions thereof as shall be stated and
expressed in the certificate of incorporation or any amendment thereto, or in
the resolution or resolutions providing for the issue of such stock adopted by
the board of directors pursuant to authority expressly vested in it by the
provisions of the certificate of incorporation. The Airways Charter expressly
authorizes the board of directors, upon the filing of a certificate pursuant to
the applicable law of the State of Delaware, to issue 1,000,000 shares of such
"blank check" preferred stock. No series of preferred stock has been authorized
under the Airways Charter nor are there any shares of Airways preferred stock
outstanding.
The NRS provide that the classes, series and number of shares which the
corporation is authorized to issue must be set forth in the articles of
incorporation. The NRS require that if a corporation desires to have more than
one class or series of stock, the articles of incorporation must prescribe, or
vest authority in the board of directors to prescribe, prior to their issuance,
the classes, series and number of each class or series of stock and the voting
powers, designations, preferences, limitations, restrictions and relative rights
of each class or series of stock. The NRS permit the authorization of one or
more classes of stock that have special rights and powers including specified
voting, distribution or redemption rights. The ValuJet Articles authorize the
board of directors to issue 5,000,000 shares of preferred stock and to determine
the relative rights and preferences of any class or series of preferred stock.
No series of preferred stock has been authorized under the ValuJet Articles nor
are there any shares of ValuJet preferred stock outstanding.
Advance Notice Requirements. The Airways Bylaws provide that an annual
meeting of stockholders wil be held at such date and time as the Airways Board
designates. Section 211 of the DGCL provides that if an annual meeting has not
been held for a period of 13 months after the corporation's last annual meeting,
any stockholder or director may apply to the Delaware Court of Chancery to order
that a meeting be held.
The ValuJet By-laws provide that if an annual meeting has not been called
and held by June 30 of any year, such meeting may be called by the holders of
10% or more of the outstanding voting power of the corporation. At the annual
meeting, the stockholders shall elect a board of directors and transact other
properly brought business.
APPRAISAL RIGHTS
Under the DGCL, stockholders of corporations not surviving a merger have the
right to serve upon the corporation a written demand for appraisal of their
shares in certain circumstances. Unless otherwise provided in the certificate
of incorporation, this right is not available if (i) the shares of the
corporation are listed on a national securities exchange or designated as a
national market system security by Nasdaq or held of record by more than 2,000
stockholders or (ii) the corporation is the surviving corporation and no vote of
its stockholders is required. Notwithstanding these provisions, appraisal
rights are available if stockholders are required to accept any form of
consideration for their shares other than (i) shares of the surviving
corporation, (ii) shares of any other corporation listed on a national
securities exchange or designated as a national market system security by Nasdaq
or held of record by more than 2,000 stockholders or (iii) cash in lieu of
fractional shares, or any combination thereof. Stockholders entitled to
appraisal rights who properly perfect those rights subsequently receive cash
from the corporation equal to the fair value of their shares as established by
judicial appraisal (exclusive of any element of value arising from the
accomplishment or expectation of the merger). Corporations may
97
<PAGE>
enlarge these statutory rights in their certificates of incorporation. The
Airways Charter contains no such provision enlarging these statutory rights.
The NRS grant stockholders the right to dissent and receive payment of the
fair value of their shares in the event of certain corporate actions, including
certain mergers such as where stockholders are required to approve the merger
transaction. The plan of merger does not require the approval of the
stockholders as the surviving domestic corporation where the number of voting
shares outstanding immediately after the merger plus the number of voting shares
issued as a result of the merger will not exceed by more than 20% the total
number of voting shares of the surviving corporation outstanding immediately
before the merger. The right to dissent and receive payment is not available
when the affected shares are listed on a national securities exchange or
designated as a National Market Security by Nasdaq or held by more than 2,000
stockholders unless (i) the articles of incorporation or a resolution of the
board of directors approving the transaction provide otherwise or (ii) in a plan
of merger or share exchange, stockholders are required to accept anything other
than shares of the surviving corporation or another publicly held corporation
(except for payments in lieu of fractional shares). The ValuJet Articles do not
modify these limitations on dissenters' appraisal rights.
AMENDMENTS TO CERTIFICATE OR ARTICLES OF INCORPORATION
The DGCL permits a corporation to amend its certificate of incorporation so
long as the amended certificate of incorporation contains only provisions
permissible in an original certificate of incorporation filed when the amendment
is filed. Any amendment to a certificate of incorporation requires the approval
of a majority of the stockholders entitled to vote. Without limiting the
general power of amendment, the DGCL specifically allows a corporation to amend
its certificate of incorporation so as to (i) change its corporate name, (ii)
change the nature of its business or its corporate powers and purposes, (iii)
increase, decrease or reclassify its authorized capital stock, (iv) cancel or
otherwise affect the right of the holders of the shares of any class to receive
accrued, undeclared dividends, (v) create new classes of stock or (vi) change
the duration of the corporate charter.
Under the NRS, every amendment of articles of incorporation adopted after a
corporation has issued stock must be effected by the board of directors adopting
a resolution setting out the proposed amendment, declaring its advisability, and
calling a meeting of stockholders entitled to vote to consider and vote on the
resolution. When the proposal is approved by a majority of the stockholders or
as otherwise provided, then a certificate setting forth the amendment must be
prepared, executed and filed with the Secretary of State.
AMENDMENTS TO BY-LAWS
Under the DGCL, the power to adopt, amend or repeal bylaws rests with those
stockholders entitled to vote; however, any corporation's certificate of
incorporation may additionally confer such power upon the directors. The
Airways Charter expressly authorizes the Airways Board to make, amend, rescind
or repeal the Airways Bylaws, without the assent of the stockholders, by a
majority vote of the total number of authorized directors. Under the DGCL,
conferring the power to adopt, amend or repeal bylaws upon the directors does
not divest or limit the stockholders' power to adopt, amend or repeal bylaws.
The Airways Charter however, expressly requires that Airways Bylaws fixing the
number of directors or their classifications, qualifications, or terms of
office, or prescribing procedures for removing directors or filling vacancies in
the board shall not be adopted, amended or repealed by the stockholders, except
by the vote of the holders of not less than 75% of the total voting power of all
shares of the corporation entitled to vote in the election of directors (voting
together as a single class).
The NRS empower any private corporation to make by-laws for the mangement,
regulation and government of its affairs and property, the transfer of its
stock, the transaction of its business, and the calling and holding of meetings
of its stockholders. The ValuJet By-laws reserve the right of the ValuJet Board
of Directors to amend the By-laws by majority vote at any meeting of the Board.
The ValuJet By-laws do not provide for the stockholders to repeal, amend, adopt
or alter the corporation's By-laws, nor do they require that the stockholders be
notified of the intention to alter or repeal the By-laws.
98
<PAGE>
PREEMPTIVE RIGHTS
Under the DGCL stockholders have no preemptive rights to subscribe to any
additional issues of stock of the corporation unless and except to the extent
that the certificate of incorporation expressly grants such rights. The Airways
Charter does not contain a provision granting preemptive rights.
Under the NRS, stockholders of a corporation organized on or after October
1, 1991 do not have preemptive rights to acquire the corporation's unissued
shares except to the extent provided by the articles of incorporation. The
ValuJet Articles expressly deny the holders of shares in the corporation any
preemptive rights to acquire any unissued stock of the corporation.
STOCKHOLDER ACTION WITHOUT MEETING
Unless the certificate of incorporation otherwise provides, the DGCL permits
any action which must or may be taken at an annual or special meeting of
stockholders to be taken without a meeting, without prior notice and without a
vote. Before stockholder action without a meeting may be taken, written consents
setting forth the action taken must be signed by the stockholders having at
least the minimum number of votes necessary to authorize or take such action at
a meeting where all shares entitled to vote were present and voted, and the
consent must be delivered to the corporation in accordance with the DGCL.
Airways Charter, however, provides that no action required or permitted to be
taken by the stockholders at an annual or special meeting may be taken except at
an annual or special meeting; and no action may be taken by stockholders without
a meeting by written consent.
Under the NRS, any action required or permitted to be taken at a meeting of
the stockholders may be taken without a meeting if a written consent thereto is
signed by stockholders holding at least a majority or other proportion of the
voting power necessary to authorize or take the action, unless otherwise
provided by the articles of incorporation or the by-laws. The ValuJet By-laws
permit action by written consent setting forth the action taken.
STOCKHOLDER ACTION - QUORUM REQUIREMENT
The DGCL allows a corporation's certificate of incorporation or bylaws to
specify the number of shares, or the amount of other securities having voting
power whose holders must be present or represented by proxy at any meeting in
order to constitute a quorum for the transaction of any business, but requires
the quorum to equal at least one-third of the shares entitled to a vote at the
meeting. Unless the certificate of incorporation or bylaws specify otherwise, a
majority of the shares entitled to vote, present in person or represented by
proxy, constitutes a quorum at a stockholder meeting. The Airways By-laws
provide that a majority of the stock issued and outstanding and entitled to vote
constitutes a quorum at all stockholder meetings.
Under the NRS, in order for business to be transacted at a meeting of
stockholders, a quorum of stockholders must be present. Unless the articles of
incorporation or bylaws provide for different proportions, stockholders holding
at least a majority of the voting power entitled to cast a vote are necessary to
constitute a quorum. A vote of the stockholders holding the majority of voting
power present at a meeting at which a quorum is constituted will be recognized
as an act of the stockholders. The ValuJet By-laws provide that the majority of
shares entitled to vote, represented in person or by proxy, shall constitute a
quorum. Once a quorum is present to organize a meeting, the stockholders
present may continue to do business at the meeting even though enough
stockholders withdraw to leave less than a quorum.
SPECIAL MEETINGS OF STOCKHOLDERS
Under the DGCL, special meetings of stockholders may be called by the board
of directors or those persons authorized by the corporation's certificate of
incorporation or bylaws. The Airways Bylaws provide that special meetings may
be called by the corporation's president and shall be called by the president or
secretary at the request in writing by a majority of the Airways Board or a
majority of the corporation's voting stock. The Airways Bylaws specify that
written notice of the meeting and the specific purposes and business to be
considered at the meeting must be given by mail to each stockholder of record
entitled to vote at the meeting not less than ten nor more than 60 days prior to
the scheduled date of the special meeting.
99
<PAGE>
The NRS is silent regarding the calling of special meetings of stockholders.
The ValuJet By-laws provide that special meetings may be called at any time by
either a majority of the board of directors or by stockholders holding not less
than 25% of the voting power of the corporation. Business transacted at all
special meetings must be confined to the objects stated in the calling of the
meeting. A written request to the corporate president or secretary shall cause
such officer to give notice to the stockholders entitled to vote at such special
meeting within 30 days after delivery of the request. The request may fix the
time of meeting and contents of the notice. The notice of a special meeting
shall specify the place, day, hour and purpose for calling the meeting and shall
be sent to stockholders not less than 10 days nor more than 60 days before the
meeting, except where the meeting is for the purpose of approving a merger or
consolidation agreement in which case notice must be given not less than 20 days
prior to the meeting.
NUMBER AND ELECTION OF DIRECTORS
The DGCL allows the number of directors to be fixed or determined in the
manner the bylaws provide, unless the corporation's certificate of incorporation
fixes the number of directors, in which case the number of directors may ordy be
changed by amending the certificate of incorporation. The DGCL permits the
certificate of incorporation or bylaws to divide the directors into one, two or
three classes, with the term of office of one class of directors to expire each
year and the terms of office of no two classes to expire during the same year.
Unless the certificate of incorporation or bylaws require otherwise, the
directors need not be stockholders of the corporation. The Airways Charter sets
the number of directors at not less than three nor more than 12. The Airways
Charter divides the Airways Board into three classes as nearly equal in number
as possible. At each annual stockholders' meeting, the successors to the
directors whose term expired that year are elected to a three-year term. The
Airways Charter also provides that directors need not be stockholders.
The NRS permit the articles of incorporation or bylaws to specify the
classification of directors as to the duration of their respective terms of
office or as to their election by one or more authorized classes or series of
shares, but requires that at least 1/4 of the directors of the corporation must
be elected annually. The NRS authorize the articles of incorporation to vary
the relative voting power of individual directors or classes of directors in
relation to that of any other class of directors or individual director. The
ValuJet By-laws provide that the board of directors shall consist of not less
than three nor more than nine members. The number required shall be determined
by resolution or unanimous written consent of the board. The Board currently
consists of six members but the number will be increased to seven upon the
Effective Date. The directors are to be elected at an annual or special meeting
of the stockholders to serve for a term of one year or until their successors
are elected and qualified. Under the By-law Amendment being submitted to a vote
of the ValuJet stockholders, the Board of Directors in place as of the Effective
Date of Merger will continue in place until the 1999 annual meeting of ValuJet
stockholders.
REMOVAL OF DIRECTORS
The DGCL permits any director, or the entire board of directors, to be
removed, with or without cause, by the holders of a majority of the shares
entitled to vote for directors, except that stockholders may only effect removal
for cause if the board of directors is classified, unless the certificate of
incorporation provides otherwise. The Airways Charter provides that any
director or the entire Board may be removed only for cause and only by the
affirmative vote of holders of 75% or more of the shares then entitled to vote
in an election of directors, cast at a meeting called for the purpose of
removing directors.
Under the NRS, any director may be removed from office with or without
cause, by the vote of stockholders holding not less than 2/3 of the voting power
of issued and outstanding voting stock, unless the articles of incorporation
require a larger percentage of voting power. The ValuJet Articles and By-laws
do not contain a provision affecting removal of directors.
INDEMNIFICATION OF DIRECTORS, OFFICERS, AGENTS AND EMPLOYEES
The DGCL allows corporations to indemnify a director, officer, agent or
employee against civil or criminal liability if such person acted in good faith
and in a manner the person reasonably believed to be in or not opposed to the
best interests of the corporation, and, with respect to any criminal action, if
the person had no reasonable cause to believe the person's conduct was unlawful.
In a suit by the corporation or in a derivative suit, no indemnification may be
made if the director, officer, agent or employee is held liable to the
corporation unless a court determines that indemnification is appropriate. In
100
<PAGE>
any action in which the director, officer, agent or employee has been
successful, on the merits or otherwise, the corporation must indemnify him
against reasonable expenses. The indemnification provisions of the DGCL provide
that they are not exclusive of additional rights to indemnification.
Under the NRS, a corporation may indemnify any director, officer, employee
or agent of the corporation for expenses including amounts paid in settlement
actually and reasonably incurred as a party to a suit or proceeding by reason of
his relationship with the corporation if he acted in a manner that he reasonably
believed in good faith in, or not opposed to, the best interests of the
corporation and, in the case of any criminal proceeding, that he had no
reasonable cause to believe his conduct was unlawful. Where a determination
that the director or officer met a specified standard of conduct is required,
the determination whether indemnification is proper in the circumstances must be
made by the stockholders, the majority vote of a quorum of the board of
directors not parties to the proceeding, or by written opinion of an independent
legal counsel in the circumstance where a quorum of disinterested directors so
orders, or where no quorum of disinterested directors can be obtained. A
corporation may not indemnify a director, officer, agent or employee in a
derivative action or in a proceeding by the corporation in which that person is
adjudged liable to the corporation, or for amounts paid in settlement to the
corporation, unless and only to the extent that the court in which a suit was
brought, or other competent court, determines that in view of all the
circumstances the person is fairly entitled to indemnity. A corporation may
indemnify an officer or employee for expenses ordered or authorized by a court
in an action in his official capacity or another capacity if authorized by its
articles of incorporation, by-laws, vote of stockholders or disinterested
members of the board of directors or by contract unless his acts or omissions
involved intentional misconduct, fraud or knowing violation of the law or were
material to the cause of action. The corporation is required to indemnify a
director or officer to the extent that the director has been successful, on the
merits or otherwise, in the defense of any proceeding to which he was a party
because of his status as a director or officer of the corporation. Before a
final disposition is reached, the NRS permit a corporation to pay or reimburse a
director the reasonable expenses incurred by the director in his defense if he
attests in writing that he acted in good faith or in the best interest of the
corporation and that he will repay the expenses if it is determined he is not
entitled to indemnification.
The ValuJet By-laws require ValuJet to indemnify a director, officer,
employee or agent against expenses actually and reasonably incurred in any
actual or threatened action, suit or proceeding, whether civil, criminal,
administrative or investigative, by virtue of the fact that he or she is or was
a director, officer, employee or agent of the corporation, to the extent allowed
by law. The ValuJet By-laws provide for indemnification of any officer or
director for any liability incurred by him in a proceeding if he acted in good
faith and in a way he believed to be in, or not opposed to the best interests of
the corporation, and in a criminal proceeding with no reasonable cause to
believe his conduct was unlawful. The By-laws deny indemnification in a
proceeding where the person was adjudged liable to the corporation unless the
competent court determines that the person is fairly entitled to
indemnification.
The ValuJet Articles eliminate the personal liability of the directors of
the corporation to the extent permitted by the general corporate law of Nevada.
Under the NRS, the corporation may mitigate the personal liability of a
director, officer, employee or agent to the corporation or its Stockholders for
monetary damages for breach of duties of care or other fiduciary duties, by the
purchase and maintenance of insurance or by making other financial arrangements.
However, no protection may be provided by any financial arrangement for a person
adjudged by a competent court to be liable for intentional misconduct, fraud or
knowingly violated law, except by a court ordering advancement of expenses or
indemnification.
The DGCL allows a corporation's certificate of incorporation to eliminate or
limit a director's personal liability to the corporation or its stockholders for
monetary damages for the director's breach of his fiduciary duty as a director.
However, the corporation may not eliminate or limit a director's liability for
(i) any breach of the director's duty of loyalty to the corporation or its
stockholders, (ii) acts or omissions not in good faith or involving intentional
misconduct or a knowing violation of law, (iii) unlawful payment of dividends or
unlawful stock purchase or redemption or (iv) any transaction from which the
director derived an improper personal benefit. No provision may retroactively
eliminate or limit a director's liability. The Airways Charter limits the
liability of Airways directors to the full extent permitted by Delaware law now
or in the future, and states that any repeal or modification of the DGCL
provision will not adversely affect any right or protection of any Airways
director existing immediately prior to such repeal or modification.
101
<PAGE>
EXPERTS
The consolidated financial statements of ValuJet at December 31, 1996 and
1995, and for each of the three years in the period ended December 31, 1996,
included in this Joint Proxy Statement/Prospectus of ValuJet, have been audited
by Ernst & Young LLP, independent auditors, as set forth in their report
appearing elsewhere herein, and are included in reliance upon such report given
upon the authority of such firm as experts in accounting and auditing.
The consolidated financial statements of Airways included in this Joint
Proxy Statement/Prospectus have been audited by KPMG Peat Marwick LLP,
independent auditors, as set forth in their report also appearing elsewhere
herein and are included herein in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
LEGAL MATTERS
The validity of the ValuJet Common Stock issuable pursuant to the Merger and
certain other legal matters relating to the Merger and the transactions
contemplated thereby will be passed upon for ValuJet by Ellis, Funk, Goldberg,
Labovitz & Dokson, P.C., Atlanta, Georgia. The shareholders of Ellis, Funk,
Goldberg, Labovitz & Dokson, P.C. own approximately 23,000 shares of the Common
Stock of ValuJet. Certain legal matters relating to the Merger and the
transactions contemplated thereby will be passed upon for Airways by Briggs and
Morgan, Professional Association, St. Paul and Minneapolis, Minnesota.
102
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
VALUJET, INC.
Page
--------
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
AIRWAYS CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS - YEARS ENDED MARCH 31, 1997,
1996 AND 1995
Independent Auditors Reports FA-1
Consolidated Balance Sheets - March 31, 1997 and 1996 FA-3
Consolidated Statements of Operations - Years Ended March 31,
1997, 1996 and 1995 FA-5
Consolidated Statements of Cash Flows - Years Ended March 31,
1997, 1996 and 1995 FA-6
Consolidated Statements of Changes in Stockholders' Equity and
Group Equity - Years Ended March 31, 1997, 1996 and 1995 FA-8
Notes to Consolidated Financial Statements - March 31, 1997 FA-9
CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - QUARTERS ENDED
JUNE 30, 1997 AND 1996
Consolidated Balance Sheets (Unaudited) - March 31, 1997 and
June 30, 1997 FA-25
Consolidated Statements of Operations (Unaudited) - Quarters
Ended June 30, 1997 and 1996 FA-27
Consolidated Statements of Cash Flows (Unaudited) - Quarters
Ended June 30, 1997 and 1996 FA-28
Notes to Financial Statements (Unaudited) - June 30, 1997 FA-30
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 trans-
fers.............................. (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 ex-
penses............................ 67,994,000 -- --
------------ ------------ ------------
Total operating expenses and oth-
er, 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 DE-
CEMBER 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 op-
erating 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 equip-
ment............................. 97,598,198 3,000,000 --
------------- ------------- ------------
Net cash used in investing activi-
ties............................. (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 ac-
tivities......................... 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 be-
ginning 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.
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.
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
F-8
<PAGE>
VALUJET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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.
Reclassifications
Certain amounts in the 1995 and 1994 financial statements have been
reclassified to conform to the current year presentation.
F-9
<PAGE>
VALUJET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 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
F-10
<PAGE>
VALUJET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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>
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>
F-11
<PAGE>
VALUJET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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.
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>
F-12
<PAGE>
VALUJET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 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.
F-13
<PAGE>
VALUJET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 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.
F-14
<PAGE>
VALUJET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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>
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.
F-15
<PAGE>
VALUJET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 federal
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:
<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>
F-16
<PAGE>
VALUJET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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.
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.
F-17
<PAGE>
VALUJET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following methods and assumptions were used by the Company in estimating
its fair value disclosures for financial instruments:
Cash and cash equivalents: The carrying amount reported in the balance
sheet for cash and cash equivalents approximates its fair value.
Accounts receivable and accounts payable: The carrying amounts reported
in the balance sheet for accounts receivable and accounts payable
approximate their fair value.
Long-term debt: The fair values of the Company's long-term debt are
estimated using discounted cash flow analyses, based on the Company's
current incremental borrowing rates for similar types of borrowing
arrangements.
The 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 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>
F-18
<PAGE>
VALUJET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<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
------------ ------------
<S> <C> <C>
ASSETS (Note) (Unaudited)
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>
LIABILITIES AND STOCKHOLDERS' EQUITY
December 31, June 30,
1996 1997
------------- -------------
(Note) (Unaudited)
<S> <C> <C>
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: 54,876 54,964
1,000,000,000 shares authorized: issued
and outstanding - 54,875,610 at December 31,
1996 and 54,963,330 at June 30, 1997
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 activities (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 activities 201,582,146 (8,828,442)
------------- -------------
Net increase (decrease) in cash and cash equivalents 80,029,999 (287,927)
Cash and cash equivalents at beginning of period 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.
<TABLE>
<CAPTION>
C. LONG-TERM DEBT
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.
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
F-25
<PAGE>
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
"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
F-26
<PAGE>
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 Ended June 30, Six Months 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 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-27
<PAGE>
INDEPENDENT AUDITORS REPORT
Board of Directors
Airways Corporation:
We have audited the accompanying consolidated balance sheets of Airways
Corporation and subsidiary (the "Company") as of March 31, 1997 and 1996, and
the related consolidated statements of operations, changes in stockholders'
equity and group equity and cash flows for the years then ended. These
consolidated financial statements are the responsibility of Airways
Corporation's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Airways Corporation
and subsidiary as of March 31, 1997 and 1996 and the results of its operations
and its cash flows for the years ended March 31, 1997 and 1996, in conformity
with generally accepted accounting principles.
As discussed in Notes 10 and 11 to the consolidated financial statements, the
Company changed its methods of accounting for Computer Reservation System fee
expense in 1997 and Credit card processing fee expense in 1996.
KPMG PEAT MARWICK LLP
Orlando, Florida
June 6, 1997
FA-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Airways Corporation:
We have audited the combined statements of operations, changes in group equity
and cash flows of the Airways Group for the year ended March 31, 1995. These
financial statements are the responsibility of The Airways Group's management.
Our responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations and cash flows of the Airways
Group for the year ended March 31, 1995, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Minneapolis, Minnesota,
May 19, 1995
FA-2
<PAGE>
AIRWAYS CORPORATION
CONSOLIDATED BALANCE SHEETS
March 31, 1997 and 1996
(In thousands)
<TABLE>
<CAPTION>
ASSETS 1997 1996
------ ---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,354 $16,437
Restricted cash 12,670 11,309
Account receivable, net 4,212 3,135
Inventory, expendable parts and supplies 1,034 1,847
Prepaid expenses 4,020 1,947
Deferred Tax Asset 8,376 1,294
------- -------
Total current assets 32,666 35,969
------- -------
Property and equipment
Flight equipment 34,485 24,943
Other property and equipment 9,405 6,587
Less: Accumulated depreciation (6,192) (2,072)
------- -------
37,698 29,458
------- -------
Other assets:
Goodwill, net 1,749 1,891
Lease and equipment deposits 1,244 1,339
Other assets, net 591 997
------- -------
Total assets $73,948 $69,654
======= =======
</TABLE>
See accompanying notes to consolidated financial statements. (Continued)
FA-3
<PAGE>
AIRWAYS CORPORATION
CONSOLIDATED BALANCE SHEETS
March 31, 1997 and 1996
(In thousands)
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY 1997 1996
------------------------------------ ---- ----
<S> <C> <C>
Current liabilities:
Accounts Payable $18,022 $ 9,362
Air traffic liability 16,198 14,912
Accrued expenses 908 2,775
Current portion of long-term debt 3,157 3,574
Current portion of maintenance reserves 1,525 307
Income taxes payable - 533
------- -------
Total current liabilities 39,810 31,463
------- -------
Long-term debt, less current portion 10,539 10,277
Maintenance Reserves 3,186 2,207
Deferred income taxes 2,772 1,344
------- -------
Total liabilities 56,307 45,291
------- -------
Stockholders' equity
Preferred stock, $.01 par value per shares,
1,000,000 shares authorized, no shares
issued or outstanding - -
Common stock, $.01 par value per shares,
19,000,000 shares authorized, 9,061,937
and 8,966,937 shares issued and
outstanding at March 31, 1997 and 1996,
respectively 91 90
Additional paid-in capital 26,618 26,350
Accumulated deficit (9,068) (2,077)
------- -------
Total stockholders' equity 17,641 24,363
------- -------
Total liabilities and stockholders' equity $73,948 $69,654
======= =======
Commitments and contingencies
</TABLE>
See accompanying notes to consolidated financial statements.
FA-4
<PAGE>
AIRWAYS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended March 31, 1997, 1996 and 1995
(In thousands, except per share information)
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Operating revenues:
Passenger $ 100,077 $64,894 $ 7,896
Charter 402 1,692 1,241
General aviation and other 2,144 1,775 470
--------- ------- --------
Total operating revenues 102,623 68,361 9,607
--------- ------- --------
Operating expenses:
Flight operations 45,507 26,913 6,429
Maintenance 25,851 12,112 2,845
Aircraft and traffic servicing 16,742 10,169 2,390
Reservations, sales and marketing 16,739 11,901 1,830
General and administrative 5,185 3,623 2,012
Depreciation and amortization 4,721 2,149 522
--------- ------- --------
Total operating expenses 114,745 66,867 16,028
--------- ------- --------
Operating (loss) income (12,122) 1,494 (6,421)
Interest (income) and other (984) (1,007) (59)
Interest expense 1,507 524 -
--------- ------- --------
(Loss) income before income taxes (12,645) 1,977 (6,362)
Income tax (benefit) expense (5,654) 790 (2,866)
--------- ------- --------
Net (loss) income $ (6,991) $ 1,187 $ (3,496)
========= ======= ========
Net (loss) income per share (pro-forma in 1996 and 1995) $ (0.77) $ .13 $ (0.39)
========= ======= ========
Weighted average shares outstanding (pro-forma in 1996
and 1995) 9,029 9,230 8,927
========= ======= ========
</TABLE>
See accompanying notes to consolidated financial statements.
FA-5
<PAGE>
AIRWAYS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended March 31, 1997, 1996 and 1995
(In thousands)
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Operating activities:
Net (loss) income $ (6,991) $ 1,187 $ (3,496)
Adjustments to reconcile net (loss) income to
net cash provided by (used for) operating activities:
Depreciation and amortization 4,721 2,146 522
Maintenance Reserves 2,197 2,229 285
Deferred taxes (5,654) 21 -
Compensation expense incurred in connection
with stock options granted and issued - 224 -
Change in current operating items:
Restricted cash (1,361) (7,544) (3,765)
Accounts receivable, net (1,077) (2,722) (333)
Inventories 813 435 (68)
Prepaid expenses and deposits (2,073) (1,527) (357)
Accounts payable and accrued liabilities 6,793 8,060 1,839
Air traffic liability 1,286 11,284 3,628
Income tax payable (533) 533 -
-------- -------- --------
Net cash flows (used for) provided by
operating activities (1,879) 14,326 (1,745)
Investing activities:
Purchase of Conquest Sun Airlines, Inc. - - (2,500)
Purchase of property and equipment, net (11,126) (28,380) (2,277)
Increase (decrease) in other assets 58 (1,390) (1,356)
-------- -------- --------
Net cash flows used for investing activities (11,068) (29,770) (3,633)
</TABLE>
See accompanying notes to consolidated financial statements. (Continued)
FA-6
<PAGE>
AIRWAYS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended March 31, 1997, 1996 and 1995
(In thousands)
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Financing activites:
Capital contributions - 15,154 8,831
Proceeds from long-term debt - 16,800 -
Repayments of long-term debt (1,405) (1,142) -
Proceeds from issuance of common stock 269 108 -
Borrowings from former parent - - 458
Repayments to former parent - - (458)
---------- --------- --------
Net cash flows (used) provided by financing activities (1,136) 30,920 8,831
Net (decrease) increase in cash and short-term investments $ (14,083) $ 15,476 $ 953
Cash and short-term investments at begining of year $ 16,437 $ 961 $ 8
---------- --------- --------
Cash and short-term investments at end of year $ 2,354 $ 16,437 $ 961
========== ========= ========
Supplemental disclosures of cash flow activities:
Cash paid for interest $ 1,459 $ 501 $ -
========== ========= ========
Cash paid for income taxes $ 533 $ 278 $ -
========== ========= ========
Supplemental disclosure of non-cash investing and financing activities:
During the year ended March 31, 1997 and 1996, the Company
purchased $1,250 and $400 of flight equipment with
long-term debt.
</TABLE>
FA-7
<PAGE>
AIRWAYS CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY AND GROUP EQUITY
For the years ended March 31, 1997, 1996 and 1995
(In thousands)
<TABLE>
<CAPTION>
Retained
Additional Earnings Total
Group Common Preferred Paid-in (Accumulated Stockholders'
Equity Shares Stock Stock Capitol Deficit) Equity
------ ------ ------ --------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, April 1, 1994 $ 2,123 - - - - $ 232 $ 2,355
Net Loss - - - - - (3,496) (3,496)
Capitol Contributions 8,831 - - - - - 8,831
-----------------------------------------------------------------------------------------
Balance, March 31, 1995 10,954 - - - - (3,264) 7,690
Net Income - - - - - 1,187 1,187
Stock options granted
and exercised under
stock option plan - 40 1 - 331 - 332
Shares issued and
contribution of group
equity (10,954) 8,927 89 - 26,019 - 15,154
-----------------------------------------------------------------------------------------
Balance, March 31, 1996 - 8,967 90 - 26,350 (2,077) 24,363
Net Loss - - - - - (6,991) (6,991)
Stock options granted
and exercised under
stock option plan - 99 1 - 268 - 269
-----------------------------------------------------------------------------------------
Balance, March 31, 1997 - 9066 $ 91 - $ 26,618 $ 9,068 $ 17,641
-----------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
FA-8
<PAGE>
AIRWAYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended March 31, 1997, 1996 and 1995
(Dollars in thousands, except share and per share amounts)
(1) CORPORATE ORGANIZATION AND BUSINESS
In June 1994, AirTran Corporation, former parent company, now doing business as
Mesaba Holdings, Inc. ("Mesaba"), acquired the common stock of Conquest Sun
Airlines, Inc. ("Conquest") for $2,500 in a transaction accounted for under the
purchase method of accounting. At the time of the acquisition, Conquest had
recently obtained U.S. Department of Transportation ("DOT") approval to operate
a jet airline. Conquest's name was subsequently changed to AirTran Airways,
Inc. ("AirTran") and scheduled passenger service commenced on October 6, 1994.
In March 1995, Mesaba and Northwest Airlines, Inc. ("Northwest") entered into
an agreement to spin off AirTran Airways, Inc. and a fixed-base operation
("FBO") in Grand Rapids, Minnesota. Under the terms of the spin-off, on April 7,
1995, Mesaba established a new wholly-owned subsidiary, Airways Corporation (the
"Company") into which the above operations were consolidated (and previously
referred to as The Airways Group) in order to facilitate the distribution of the
Company common stock to Mesaba shareholders (other than Northwest). In
connection with the spin-off, Mesaba made a contribution in cash and certain
assets to the Company prior to the spin-off date. The distribution was approved
by Mesaba's shareholders on August 29, 1995 and was made on September 7, 1995 to
the shareholders of record (other than Northwest) on August 31, 1995.
The FBO has historically operated as a division of Mesaba. The accompanying
consolidated financial statements present the results of the combined entities
whereby significant intercompany accounts and transactions are eliminated.
AirTran serves 23 cities from Orlando, operating as AirTran Airways. The FBO
sells aircraft parts, provides fueling and other aircraft servicing, rentals and
flight training.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) CASH, CASH EQUIVALENTS AND RESTRICTED CASH
Cash equivalents consist primarily of U.S. government securities and
interest-bearing deposits with maturities of less than 90 days and are stated
at cost, which approximates market. Restricted cash represents amounts
escrowed relating to the Company's air traffic liability and to cash
collateralizing the Company's long-term debt.
FA-9
<PAGE>
AIRWAYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)
(2), CONTINUED
(b) INVENTORY
Inventory parts held for sale by the FBO are stated at the lower of average cost
or market and consist of expendable aircraft service parts and fuel. Consumable
spare parts, materials and supplies relating to flight equipment are expensed as
purchased.
(c) PROPERTY AND EQUIPMENT
Property and equipment is stated at cost and depreciated on a straight-line
basis for financial reporting purposes with no residual values except for the
aircraft which are assumed to have 10% residual value. The depreciable lives
used for the principal depreciable asset classifications are:
<TABLE>
<CAPTION>
Depreciable Lives
-----------------
<S> <C>
Aircraft 5-12 years
Rotable parts 5 years
Leasehold improvements Shorter of useful life or lease term
Buildings 20 years
Other equipment 3-5 years
</TABLE>
Equipment and property under capital leases are amortized over the term of the
leases and such amortization is included in depreciation and amortization.
(d) GOODWILL
The excess of purchase price paid for Conquest over the fair market value of net
tangible assets acquired totaled $2,141 and is being amortized over 15 years.
Accumulated amortization totaled $393 and $250 at March 31, 1997 and 1996,
respectively.
(e) OTHER ASSETS
Certain costs incurred in connection with the acquisition of aircraft and the
start-up of AirTran's airline service have been deferred. As of March 31, 1997
and 1996, such costs totaled $1,335 and $1,297 respectively, and consisted of
initial flight crew training,
FA-10
<PAGE>
AIRWAYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)
(2), CONTINUED
aircraft rent and insurance expenses incurred prior to AirTran's scheduled
airline service. Pre-operating costs are being amortized over three years and
accumulated amortization totaled $743 and $300 at March 31, 1997 and 1996,
respectively. Development costs relating to new routes, obtaining regulatory
approval, and administrative and promotional costs are charged to expense as
incurred.
(f) REVENUE RECOGNITION
Passenger and charter revenues are recorded as income when the respective
services are rendered or the passenger ticket otherwise expires. Cash received
on advance ticket and charter sales is deferred and recorded as air traffic
liability.
(g) INCOME TAXES
The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards No. 109, which is an asset and liability approach to
financial accounting and reporting for income taxes. Deferred income tax assets
and liabilities are computed annually for differences between the financial
statement and tax bases of assets and liabilities that will result in taxable or
deductible amounts in the future based on enacted tax laws and rates applicable
to the periods in which the differences are expected to affect taxable income.
(h) INCENTIVE COMPENSATION
In October, 1995 the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 123 - "Accounting for
Stock-Based Compensation" (SFAS 123), effective for financial statements with
fiscal years beginning after December 15, 1996. SFAS 123 establishes the
financial accounting and reporting standard for stock-based employee
compensation plans as well as transactions in which an entity issues its equity
instruments to acquire goods or services from non-employees. This statement
defines a fair value-based method of accounting for employee based stock options
and encourages all entities to adopt this method of accounting for all employee
stock compensation plans. However, it does allow an entity to continue applying
FA-11
<PAGE>
AIRWAYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)
(2), CONTINUED
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("Opinion 25") to measure the intrinsic value-based compensation
cost. Entities electing to remain with the accounting method prescribed by
Opinion 25 must make pro forma disclosures of net income and earnings per share,
as if the fair valued-based method of accounting as prescribed by SFAS 123 had
been applied. The Company has elected to continue accounting for its stock-
based compensation plans prescribed by Opinion 25 and has included in the Notes
to the Consolidated Financial Statements the pro forma disclosures required by
SFAS 123.
(i) AIRFRAME AND ENGINE OVERHAUL EXPENSE
The Company has adopted the accrual method for recognizing the estimated cost
of future airframe and engine overhaul expenses. The accrual method provides
for estimating the cost of such overhauls, when they occur in the ordinary
course, and recording the estimated cost, based on an hourly rate, in
maintenance expense. Costs associated with overhauls of airframes and engines
which occur at or near the aircraft's introduction into the fleet are
capitalized and amortized over the period to the next overhaul. The actual
expenditures of ongoing overhauls not incurred at inception are charged to the
accrual and any deficiency or excess is charged or credited to expense in the
period incurred.
(j) NET (LOSS) INCOME PER SHARE
Net (loss) income per share is computed based on the weighted average number of
common shares and, if dilutive, common stock equivalent shares (options)
outstanding in 1997 and for the prior years is on a pro-forma basis.
(k) CONSOLIDATION POLICY
The accompanying consolidated financial statements include the accounts of the
Company and AirTran, a wholly-owned subsidiary of the Company. All material
intercompany transactions have been eliminated.
(l) CONCENTRATION OF CREDIT RISK
At March 31, 1997, most of the Company's receivables related to tickets sold to
individual passengers through the use of major credit cards on the Company's
flights. These receivables are short-term, generally being settled within 14
days after sale. The Company does not believe it is subject to any significant
concentration of credit risk.
FA-12
<PAGE>
AIRWAYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)
(2), CONTINUED
(m) USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the amounts reported in the consolidated financial statements and
accompanying notes. Actual results could differ from those estimates.
(n) RECLASSIFICATIONS
Certain amounts in the 1996 and 1995 consolidated financial statements have been
reclassified to conform with the 1997 presentation. These reclassifications had
no impact on net income or shareholder's or group equity as previously reported.
(o) FUTURE APPLICATION ACCOUNTING STANDARDS
On March 3, 1997 the FASB issued Statement of Financial Accounting Standards No.
128 (SFAS 128) "Earnings per Share". The new statement is effective for fiscal
years beginning after December 15, 1997 and applies to all entities that have
issued common stock or potential common stock (e.g. options, warrants,
convertible securities etc.) if those securities trade in a public market or in
a stock exchange or over-the-counter market. SFAS 128 replaces primary Earnings
Per Share ("EPS") with Basic EPS. Basic EPS will be computed by dividing
reported earnings available to common stockholders by weighted average shares
outstanding. No dilution for any potentially dilutive securities is included.
Fully diluted EPS, now called diluted EPS is still required.
(3) PROPERTY AND EQUIPMENT
The Company's aircraft fleet consisted of ten Boeing 737-200s, of which six are
held under operating leases as of March 31, 1997. The remaining four aircraft
are owned by the Company and had a net book value of $17,716 at March 31, 1997.
Approximately $4,380 and $2,514 has been accrued for major airframe and engine
overhauls as of March 31, 1997 and 1996, respectively. The Company estimates
that the costs of major engine and airframe overhauls due in 1998 will total
approximately $6,500, virtually all of which is either reserved and on the
balance sheet, will be reversed during 1998 pursuant to the Company's
accounting policies for leased and owned aircraft or will be reimbursable from
lessors.
FA-13
<PAGE>
AIRWAYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)
(3), CONTINUED
The aircraft operating leases require future minimum rental payments as follows
at March 31, 1997:
<TABLE>
<S> <C>
1998 $ 5,443
1999 4,558
2000 3,002
2001 3,002
2002 2,893
Thereafter 1,278
-------
$ 20,176
========
</TABLE>
Rent expense under aircraft operating leases totaled approximately $5,984 and
$4,535 in 1997 and 1996, respectively and is included in flight operations in
the accompanying consolidated statements of operations. In addition, the Company
spent $3,322 and $54 on subservice aircraft rentals which was also charged to
expense in 1997 and 1996, respectively.
(4) COMMITMENTS AND CONTINGENCIES
LEASE COMMITMENTS
As detailed in Note 3 the Company leases six aircraft under operating leases.
In addition, the Company leases office and hangar facilities and certain
terminal facilities under operating leases which are all month to month lease
terms. Rent expense under all facility operating leases totaled approximately
$554 in 1997, $365 in 1996 and $360 in 1995.
CREDIT FACILITY
The Company has negotiated with a bank to issue eleven letters of credit
totaling $1,100 which were outstanding at March 31, 1997. In the event advances
under the facility are drawn, the borrowings would bear interest at the bank's
prime rate plus 1-1/4%. No amounts were drawn under this facility as of or
during the year ended March 31, 1997.
FA-14
<PAGE>
AIRWAYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)
(4), CONTINUED
LITIGATION
The Company is a party to ongoing legal proceedings arising in the ordinary
course of business. In the opinion of management, the resolution of these
matters will not have a materially adverse effect on the Company's financial
position, results of operations, or its cash flows.
AIRCRAFT COMMITMENTS
In order to comply with the Airport Noise and Capacity Act (ANCA) requirements,
the Company is required to purchase hush kits for its aircraft to convert them
from Stage 2 to Stage 3. The installation of these hush kits will bring the
aircraft into compliance with FAA Stage 3 noise level requirements. The
projected payments associated with the purchase of the hush kits are $0 in
fiscal year 1998 and $3,000 in 1999 and based on those purchases combined with
AirTran's current plans for aircraft acquisitions and upcoming aircraft lease
expirations, it will continue to meet the Stage 3 requirements. The Company
has contracted to purchase four hush kits for its aircraft at its installed
cost of $6,000 of which two have already been purchased during fiscal 1997.
FA-15
<PAGE>
AIRWAYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)
(5) LONG-TERM DEBT
Long-term debt as of March 31, 1997 is summarized as follows:
<TABLE>
<S> <C>
Installment loan, dated August 1995, collateralized by flight equipment,
payments of $100 plus interest at 11.67%, maturing August 2000 $ 3,332
Installment loan, dated August 1995, collateralized by flight equipment,
payments of $23 including interest at 5.85%, maturing August 2000 834
Installment loan, dated December 1995, collateralized by flight equipment,
payments of $85 including interest at 10.04%, maturing December 2000 3,182
Installment loan, dated December 1995, collateralized by flight equipment,
payments of $85 including interest at 10.04%, maturing December 2000 3,182
Installment loan, dated February 1996, collateralized by flight equipment,
payments of $13 including interest at 10%, maturing February 1999 269
Term loan, dated March 1996, collateralized by a hangar, payments of $25
plus interest at prime + 1% (9.25% as of March 31, 1996), maturing
October 2002 1,700
Installment loan, dated December 1996, collateralized by flight equipment,
payments of $23 including interest of 10%, maturing November 2002 1,198
------------
Total long-term debt 13,697
Less current installments of long-term debt 3,157
------------
Net long-term debt $ 10,540
============
</TABLE>
FA-16
<PAGE>
AIRWAYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)
(5), CONTINUED
The aggregate amounts of principal maturities of debt outstanding at March 31,
1997, for the five subsequent years are as follows:
<TABLE>
<S> <C>
1998 $ 3,157
1999 3,452
2000 3,642
2001 2,520
2002 546
Thereafter 380
---------
$ 13,697
=========
</TABLE>
(6) INCOME TAXES
Income tax (benefit) expense attributable to (loss) income for the years ended
March 31, 1997, 1996 and 1995 consist of the following:
<TABLE>
<CAPTION>
Current Deferred Total
------- -------- -----
<S> <C> <C> <C>
1997
Federal - $ (3,931) $ (3,931)
State - (1,723) (1,723)
--------- -------- --------
- $ (5,654) $ (5,654)
========= ======== ========
1996
Federal $ 722 $ (52) $ 670
State 89 31 120
--------- -------- --------
$ 811 $ (21) $ 790
========= ======== ========
1995
Federal $ (2,423) $ (59) $ (2,482)
State (514) 12 (502)
--------- -------- --------
$ (2,937) $ (47) $ (2,984)
========= ======== ========
</TABLE>
FA-17
<PAGE>
AIRWAYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)
(6), CONTINUED
Total income tax (benefit) expense for the years ended March 31, 1997, 1996 and
1995 differed from amounts computed by applying the U.S. federal income tax rate
of 35% to (loss) income before income taxes as a result of the following:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Computed "expected" tax (benefit) expense $ (4,425) $ 672 $ (2,163)
(Increase) decrease in income tax expense (benefit)
resulting from:
Nondeductible expenses 5 - (60)
State income tax (benefit) expense
net of federal income taxes (1,120) 72 (502)
Reorganization costs 42
Other, net (114) 4 (141)
-------- -------- --------
$ (5,654) $ 790 $ (2,866)
======== ======== ========
</TABLE>
FA-18
<PAGE>
AIRWAYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)
(6), CONTINUED
The tax effects of temporary differences that give rise to a significant portion
of the deferred tax assets and deferred tax liabilities as of March 31, 1997 and
1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Deferred tax assets:
Workers' compensation - $ 11
Alternative minimum tax credit carry forwards - 337
Deferred maintenance costs 1,730 946
Vacation Pay 139 -
Net Operating Loss carry forward 6,507 -
------ ------
Total gross deferred tax assets $8,376 $1,294
------ ------
Deferred tax liabilities:
Property, plant and equipment, principally
due to differences in depreciation $2,602 $ 996
Deferred pre-operating costs 170 267
Prepaid expenses, principally due to prepaid
commissions - 46
Other - 35
------ ------
Total gross deferred tax liabilities 2,772 1,344
------ ------
Net deferred tax (liabilities) $5,604 $ (50)
====== ======
Presented as:
Current deferred income tax asset $5,604
======
Noncurrent deferred tax (liability) $ 50
------
</TABLE>
The valuation allowance for deferred tax assets as of March 31, 1997 and 1996
was $0. The net change in the total valuation allowance for the years ended
March 31, 1997 and 1996 was $0. In assessing the realizability of deferred tax
assets, management considers whether it is more likely than not that some
portion or all of the deferred tax assets will not be realized. The ultimate
realization of deferred tax assets is dependent upon the generation of future
taxable income or the reversal of deferred tax liabilities during the periods
in which those temporary differences become deductible. Management considers
the scheduled reversal of deferred tax liabilities, projected future taxable
income and tax planning strategies in making this assessment. Based upon
management's projections for future taxable income over the periods which the
deferred tax assets are deductible,
FA-19
<PAGE>
AIRWAYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)
(6), CONTINUED
management believes it is more likely than not that the Company will realize the
benefits of these deductible differences as of March 31, 1997. See Note 14 to
the Consolidated Financial Statements for subsequent events which have a bearing
on the Company's operating plan under which these estimates were made.
As of March 31, 1997, the Company has alternative minimum tax credit
carryforwards of $0.
(7) BENEFIT PROGRAM
The Company introduced a profit sharing arrangement during 1996 covering
substantially all employees. Profit sharing expense was $0 in 1997 and $338 in
1996.
(8) FINANCIAL INSTRUMENTS
The fair value of the Company's long-term debt is estimated using the present
value of discounted cash flows based on the borrowing rate currently available
to the Company for debt with similar remaining terms and maturity. The carrying
amounts reported in the consolidated financial statements for cash and cash
equivalents, restricted cash, accounts receivable, accounts payable and accrued
expenses approximate fair value due to their immediate or short-term maturities.
The carrying amounts of the Company's long-term debt with variable interest
rates approximate fair value as these instruments are repriced regularly.
The carrying amount and fair value of the Company's fixed long-term debt at
March 31, 1997 is as follows:
<TABLE>
<CAPTION>
CARRYING AMOUNT FAIR VALUE
--------------- ----------
<S> <C> <C>
Long-term debt $13,696 $13,649
</TABLE>
(9) EFFECT OF FOURTH QUARTER RESULTS
Adjustments were made to the air traffic liability during the fourth quarters
of 1997 and 1996 which totaled $1,742 and $1,197, respectively, of which $1,742
and $886 were recorded as additional passenger revenue in 1997 and 1996,
respectively, and $311 was recorded as other revenue in 1996. These
adjustments were made to record passenger, cancellation and change fee revenue
not previously recognized by the Company. The Company has put into place
accounting processes, during fiscal 1998, which will enable it to record these
revenues more closely in line with when they are earned.
FA-20
<PAGE>
AIRWAYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)
(9), CONTINUED
In addition, other adjustments were made in 1996 to operating expenses for
costs incurred which were under accrued in prior periods totaling $1,515.
Adjustments were made to flight operations expense - $660, maintenance - $490,
aircraft and traffic services - $85 and reservations and sales expense - $280.
(10) CHANGE IN ACCOUNTING METHOD FOR CREDIT CARD PROCESSING FEE EXPENSE IN
1996
Credit card processing fees paid are deferred and recognized when the passenger
travel has been completed. Prior to 1996, these fees were expensed when paid.
The new method was adopted to match the credit card processing fee expense more
appropriately with the related revenue and to make treatment consistent with the
Company's standard revenue recognition policies. The effect of the change was to
increase income by approximately $165 or $0.02 per share net of the effect of
income taxes in 1996. The cumulative effect of the change in accounting
principle on prior years is immaterial.
(11) CHANGE IN ACCOUNTING METHOD FOR CRS FEE EXPENSE IN 1997
Computer Reservation System (CRS) fees, the fees charged for travel agents' use
of the computer reservation systems owned by others, are deferred and
recognized when the passenger travel has been completed. Prior to 1997, these
fees were expensed when paid. The new method was adopted to match the CRS fee
expense more appropriately with the related revenue and to make treatment
consistent with the Company's standard revenue recognition policies. The effect
of the change was to increase income by approximately $144 or $0.02 per share
net of the effect of income taxes in 1997. The cumulative effect of the change
in accounting principle on prior years is immaterial.
(12) STOCK-BASED COMPENSATION
In 1995, the Airways Corporation Stock Option Plan and Director Stock Option
Plan (the "Plans") were established. The Plans provide for the granting to
directors, officers and key employees of the Company qualified and non-qualified
stock options and incentive stock options. Options are granted at the fair
market value of the Company's common stock at the time of grant for a period not
in excess of ten years. Generally, options vest over a one year period from
the date of grant. The purchase price of the stock may not be less than 110% of
the fair market value of the Company's common stock on the date of the grant for
participants owning 10% or more of the outstanding common stock or 100% of the
fair market value for all other participants. As of March 31, 1996, 40,000
options had been exercised pursuant to a change made to the Plan resulting in
$224 of compensation expense during the year ended March 31, 1996. A total of
1,300,000 shares of the Company's common stock have been reserved for issuance
pursuant to options
FA-21
<PAGE>
AIRWAYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)
granted under the Plans. At March 31, 1997 the number of shares available for
future grant was 358,000.
Information with respect to stock options granted under the Plans is as
follows:
<TABLE>
<CAPTION>
1997 1996
---------------------- ---------------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
------ ----- ------ -----
<S> <C> <C> <C> <C>
Balance, beginning of fiscal year 610,000 $ 4.60 0 -
Granted 344,000 5.22 820,000 $ 4.13
Lapsed 119,000 5.43 103,000 2.81
Exercised 32,000 2.70 107,000 2.70
------- ------- ------- ------
Outstanding at 3/31 803,000 $ 4.82 610,000 $ 4.60
======= ======= ======= ======
Exercisable at
year end March 31 503,000 - 0 -
======= ======= ======= ======
</TABLE>
FA-22
<PAGE>
AIRWAYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)
(12), CONTINUED
The following table summarizes information about stock options outstanding at
March 31, 1997:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
--------------------------------------------------- -----------------------
Weighted Weighted Weighted
Range of Average Average Average
Exercise Number Remaining Exercise Number Exercise
Prices Outstanding Contractual Life Price Exercisable Price
------- ----------- ---------------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$0-5 496,000 4.6 years $ 3.04 350,000 $ 2.70
$5-10 282,000 5.1 years $ 7.43 128,000 $ 8.73
$10-15 25,000 4.9 years $ 10.75 25,000 $10.75
------- -------
$0-15 803,000 4.8 years $ 4.82 503,000 $ 4.63
------- -------
</TABLE>
The Company applies Opinion 25 in accounting for the Plans. Since stock
options under the Plans are issued at fair market value on the date of award,
no compensation cost has been recognized.
SFAS 123 provides an alternative to Opinion 25 whereby values may be ascribed
to options using a valuation model and amortize to compensation expense over
the vesting period of the options. Had the Company applied SFAS 123 in
accounting for stock options, net income and net income per share would have
been the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1997 1996
---------------------------- ----------------------------
In Thousands Per Share In Thousands Per Share
------------ --------- ------------ ---------
<S> <C> <C> <C> <C>
Net Income $ (6,991) (.77) $ 1,187 0.13
SFAS No. 123 pro-forma
adjustment after tax $ (620) (.07) $ (298) (0.03)
--------- ----- --------- ------
Net Income pro-forma $ (7,611) (.84) $ 889 0.10
--------- ----- --------- ------
</TABLE>
FA-23
<PAGE>
AIRWAYS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)
(12), CONTINUED
The pro forma adjustments relate to options granted during 1997 and 1996 for
which a fair value on the date of grant was determined using the Black-Schole
option pricing model. Valuation and related assumption information are
presented below:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Valuation Assumption:
Expected life 4 4
Expected volatility 69.00% 69.00%
Risk free interest rate 6.53% 5.97%
Expected annual dividend per share 0 0
Expected annual forfeitures 0 0
</TABLE>
FA-24
<PAGE>
AIRWAYS CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
1997
---------------------
ASSETS JUNE 30, MARCH 31,
-------- ---------
<S> <C> <C>
(Unaudited) (Audited)
CURRENT ASSETS:
Cash and cash equivalents $ 1,672 $ 2,354
Restricted cash 10,411 12,670
Accounts receivable, net 3,956 4,212
Inventory, expendable parts and supplies 1,066 1,034
Prepaid expenses 4,257 4,020
Deferred income taxes 5,101 8,376
------- -------
TOTAL CURRENT ASSETS 26,463 32,666
------- -------
PROPERTY AND EQUIPMENT:
Flight equipment 35,093 34,485
Other property and equipment 9,631 9,405
Less: Accumulated depreciation (7,694) (6,192)
------- -------
37,030 37,698
------- -------
OTHER ASSETS:
Deferred income taxes 3,493 -
Goodwill, net 1,713 1,749
Lease and equipment deposits 1,774 1,244
Other assets, net 523 591
------- -------
TOTAL ASSETS $70,996 $73,948
======= =======
Continued
</TABLE>
FA-25
<PAGE>
AIRWAYS CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
1997
---------------------
LIABILITIES AND STOCKHOLDERS' EQUITY JUNE 30, MARCH 31,
-------- ---------
(Unaudited) (Audited)
<S> <C> <C>
CURRENT LIABILITIES:
Accounts Payable $16,380 $18,022
Air traffic liability 13,441 16,198
Accrued liabilities 2,123 908
Current portion of long-term debt 3,476 3,157
Current portion of maintenance reserves 1,779 1,525
------- -------
TOTAL CURRENT LIABILITIES 37,199 39,810
Long-term debt, less current portion 11,188 10,539
Maintenance Reserves 2,343 3,186
Deferred income taxes 2,794 2,772
------- -------
TOTAL LIABILITIES 53,524 56,307
------- -------
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value per share, 1,000,000 shares
authorized, no shares issued or outstanding - -
Common stock, $.01 par value per share, 19,000,000 shares
authorized, 9,067,937 and 9,065,937 shares issued and
outstanding at June 30 and March 31, 1997, respectively 91 91
Additional paid-in capital 26,621 26,618
Accumulated deficit (9,240) (9,068)
------- -------
TOTAL STOCKHOLDERS' EQUITY 17,472 17,641
------- -------
Commitments and contingencies - -
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $70,996 $73,948
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
FA-26
<PAGE>
AIRWAYS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share information)
<TABLE>
<CAPTION>
FOR THE QUARTERS ENDED
JUNE 30,
--------------------
1997 1996
------- -------
<S> <C> <C>
OPERATING REVENUES:
Passenger $25,550 $28,557
Charter 562 23
General aviation and other 940 432
------- -------
TOTAL OPERATING REVENUES 27,052 29,012
------- -------
OPERATING EXPENSES:
Flight operations 10,480 11,148
Maintenance 5,447 6,492
Aircraft and traffic servicing 3,909 4,643
Reservations, sales and marketing 4,351 5,130
General and administrative 1,403 978
Depreciation and amortization 1,637 1,102
------- -------
TOTAL OPERATING EXPENSES 27,227 29,493
------- -------
OPERATING LOSS (175) (481)
Interest income and other (184) (359)
Interest expense 399 390
------- -------
LOSS BEFORE INCOME TAXES (390) (512)
Income tax benefit (218) (230)
------- -------
NET LOSS $ (172) $ (282)
======= =======
NET LOSS PER SHARE $ (0.02) $ (0.03)
======= =======
Weighted average shares outstanding 9,068 9,303
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
FA-27
<PAGE>
AIRWAYS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
FOR THE QUARTERS ENDED
JUNE 30,
------------------
1997 1996
------ ------
<S> <C> <C>
Operating activities:
NET LOSS $ (172) $ (282)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH PROVIDED
BY (USED FOR) OPERATING ACTIVITIES:
Depreciation and amortization 1,637 1,105
Maintenance Reserves 1,546 585
Deferred income taxes (218) -
CHANGES IN CURRENT OPERATING ITEMS:
Restricted cash 2,260 2,448
Accounts receivable, net 255 723
Inventory, expendable parts and supplies (32) 82
Prepaid expenses and deposits (237) (323)
Accounts payable and accrued liabilities (2,472) 682
Air traffic liability (2,756) (3,514)
Income tax payable - (706)
------ ------
NET CASH FLOWS (USED FOR) PROVIDED BY OPERATING ACTIVITIES (189) 800
INVESTING ACTIVITIES:
Purchases of property and equipment (844) (1,095)
Decrease in other assets (530) (38)
------ ------
NET CASH FLOWS USED FOR INVESTING ACTIVITIES (1,374) (1,133)
</TABLE>
See accompanying notes to consolidated financial statements. (Continued)
FA-28
<PAGE>
AIRWAYS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
FOR THE QUARTERS ENDED
JUNE 30,
------------------
1997 1996
------ -------
<S> <C> <C>
FINANCING ACTIVITIES:
Proceeds from long-term debt 1,555 -
Repayments of long-term debt (676) (739)
Proceeds from issuance of common stock - 81
------ -------
NET CASH FLOWS PROVIDED BY (USED FOR) FINANCING ACTIVITIES 879 (658)
------ -------
NET DECREASE IN CASH AND CASH EQUIVALENTS (682) (991)
CASH AND CASH EQUIVALENTS AT BEGINNING OF QUARTER 2,354 16,437
------ -------
CASH AND CASH EQUIVALENTS AT END OF QUARTER $1,672 $15,446
====== =======
Supplemental disclosures of cash flow activities:
Cash paid for interest $ 358 $ 334
====== =======
Cash paid for income taxes $ - $ 475
====== =======
</TABLE>
See accompanying notes to consolidated financial statements.
FA-29
<PAGE>
AIRWAYS CORPORATION
NOTES TO FINANCIAL STATEMENTS
June 30, 1997
The financial statements included herein have been prepared by Airways
Corporation (the Company), without audit, pursuant to the rules and regulations
of the Securities and Exchange Commission. The information furnished in the
financial statements includes normal recurring adjustments and reflects all
adjustments which are, in the opinion of management, necessary for a fair
presentation of such financial statements. The Company's business is seasonal
and, accordingly, interim results are not indicative of results for a full
year. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations, although the Company believes that the disclosures are adequate to
make the information presented not misleading. It is suggested that these
financial statements be read in conjunction with the financial statements for
the year ended March 31, 1997, and the notes thereto, included in the Company's
Form 10-K and the Company's Form 10-K/A (File No. 0-26432) filed with the
Securities and Exchange Commission.
(1) SPIN-OFF TRANSACTION
_______________________
In March 1995, AirTran Corporation, parent of the Company ("AirTran"),
Mesaba Aviation, Inc. and Northwest Airlines, Inc. ("Northwest") entered
into an agreement to spin-off AirTran's Orlando-based jet carrier and
fixed-base operations ("FBO") in Grand Rapids, Minnesota. On April 7,
1995, AirTran established the Company as a wholly owned subsidiary to
consolidate the above operations in order to facilitate the spin-off.
The spin-off, in the form of a one-for-one dividend of all of the
outstanding shares of the Company to the shareholders of AirTran, was
approved by AirTran's shareholders on August 29, 1995. The distribution
was made on September 7, 1995 to shareholders of record (other than
Northwest) on August 31, 1995.
AirTran Airways, Inc., which operates the Orlando-based jet carrier, was
previously a subsidiary of AirTran. The FBO had historically been a
division of AirTran. The following financial statements present the
results of the combined entities whereby significant intercompany accounts
and transactions are eliminated.
(2) NET LOSS PER SHARE
Net loss per share information for the quarters ended June 30, 1997 and
1996 were based on 9,067,104 and 9,303,140 shares outstanding,
respectively, calculated using the treasury method, fully-diluted basis.
Pursuant to the rules promulgated by the Financial Accounting Standards
Board, no common stock equivalents were included in the computation of
loss per share amounts in either quarter in order to ensure that the
reported loss per share would not be inadvertently minimized through
their inclusion.
FA-30
<PAGE>
AIRWAYS CORPORATION
NOTES TO FINANCIAL STATEMENTS
(3) AIRCRAFT
The Company's fleet, at June 30, 1997, consisted of six leased and four
owned Boeing 737 with average capacities of 126 passengers. The Company's
eleventh aircraft, leased from a major aircraft lessor, was delivered to
the Company on August 9, 1997.
(4) ROUTE MATTERS
During the three months ended June 30, 1997, the Company withdrew service
from Orlando to Chattanooga.
(5) LETTERS OF CREDIT
The Company's bank has issued eleven letters of credit totaling
$1,100,000. In the event advances under the facility are drawn, the
borrowings would bear interest at the bank's prime rate plus 1-1/4%.
No advances were outstanding under this facility as of or during either
of the quarters ended June 30, or March 31, 1997.
(6) LITIGATION
The Company is a party to ongoing legal proceedings arising in the
ordinary course of business. In the opinion of management, the
resolution of these matters will not have a material adverse effect on
the Company's financial position, results of operations, or its cash
flows.
(7) RECLASSIFICATION
Certain amounts in the June 30, 1996 consolidated financial statements
have been reclassified to conform with the presentation in this quarter.
FA-31
<PAGE>
APPENDIX A
PLAN OF REORGANIZATION
AND
AGREEMENT OF MERGER
BETWEEN
VALUJET, INC.
AND
AIRWAYS CORPORATION
THIS PLAN OF REORGANIZATION AND AGREEMENT OF MERGER (hereinafter called the
"Agreement") is dated as of the 10th day of July, 1997 by and between VALUJET,
INC. , a Nevada corporation ("VJET"), and AIRWAYS CORPORATION, a Delaware
corporation ("Airways").
W I T N E S S E T H:
WHEREAS, the Boards of Directors of VJET and Airways, respectively, deem it
advisable and in the best interests of VJET and Airways and their respective
stockholders that Airways merge with and into VJET pursuant to this Agreement, a
Plan of Merger between Airways and VJET substantially in the form of Exhibit "A"
attached hereto (the "Plan of Merger"), and applicable provisions of the laws of
the States of Nevada and Delaware (such transaction being hereinafter called the
"Merger"); and
WHEREAS, the parties propose to enter into the Plan of Merger which
provides, among other things, for the conversion of each share of Airways common
stock, no par value ("Airways Common Stock"), issued and outstanding immediately
prior to the "Effective Date of the Merger" (as herein defined), into the
"Merger Price" as determined in accordance with Section 6.01 of this Agreement,
all as more fully described in the Plan of Merger; and
WHEREAS, the Boards of Directors of VJET and Airways, respectively, have
approved and adopted this Agreement and the Plan of Merger as a plan of merger
under the provisions of Section 78.451 of the Nevada Revised Statutes and
Section 252 of the Delaware General Corporation Law; and
WHEREAS, for federal income tax purposes, it is intended that the Merger
qualify as a tax free reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code").
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements, provisions and covenants herein contained, the parties hereto hereby
agree as follows:
A-1
<PAGE>
ARTICLE I
The Merger
----------
1.01 The Merger, Effective Time and Conversion Ratio. Subject to
-----------------------------------------------
Article V of this Agreement, the Plan of Merger shall be executed and
acknowledged by each of VJET and Airways and delivered to the Secretary of State
of the States of Nevada and Delaware for filing as provided in Section 78.458 of
the Nevada Revised Statutes and Section 252 of the Delaware General Corporation
Law as of the "Closing Date" (as herein defined). The effective date of the
Merger shall be the date the Articles of Merger or a Certificate of Merger shall
have been duly filed with the Secretary of State of the States of Nevada and
Delaware and the Merger shall have become effective under Nevada and Delaware
law (the "Effective Date of the Merger"). On the Effective Date of the Merger,
the separate existence of Airways shall cease and Airways shall be merged with
and into VJET. VJET agrees on the Effective Date of the Merger to pay the Merger
Price as determined in accordance with Section 6.01 of this Agreement and
pursuant to the terms of the Plan of Merger.
1.02 Closing. Subject to the terms and conditions hereof, Airways and
-------
VJET shall communicate and consult with each other with respect to the
fulfillment of the various conditions to their obligations under this Agreement.
The exchange of the certificates, opinions and other documents contemplated in
connection with the consummation of the Merger (the "Closing") shall take place
at the offices of Ellis, Funk, Goldberg, Labovitz & Dokson, P.C., 3490 Piedmont
Road, Suite 400, Atlanta, Georgia 30305, on the twenty-eighth (28th) day
following the effective date of the Registration Statement described in Section
4.07 of this Agreement or such earlier or later date as may be agreed upon by
Airways and VJET. Such date and time is herein sometime referred to as the
"Closing" or "Closing Date." In the event that at the Closing no party exercises
any right it may have to terminate this Agreement and no condition to the
obligations of the parties exists that has not been satisfied or waived, the
parties shall (i) deliver to each other the certificates, opinions and other
documents required to be delivered under this Agreement including, the Articles
of Merger and (ii) at the Closing or as soon thereafter as possible, consummate
the Merger by filing the Articles or Certificate of Merger with the Secretary of
State of the States of Delaware and Nevada.
ARTICLE II
Representations and Warranties of Airways
-----------------------------------------
Airways does hereby represent and warrant to VJET as follows:
2.01 Organization. Airways is a corporation duly organized, validly
------------
existing and in good standing under the laws of the State of Delaware. Each
Subsidiary of Airways has been duly organized and is validly existing and in
good standing under the laws of its state of its organization. Airways and each
of its Subsidiaries has the corporate power to own its property and to carry on
its business as now being conducted; Airways has the corporate power and
authority to execute and deliver this Agreement, subject to stockholder
approval, the Plan of Merger and to consummate the transactions contemplated
hereby.
A-2
<PAGE>
2.02 Authorization, Execution and Delivery of Agreement. The execution
--------------------------------------------------
and delivery and, subject to the stockholder approval of Airways, the
performance of this Agreement and the Plan of Merger by Airways have been duly
and validly authorized and approved by the Board of Directors of Airways, and
Airways has taken, or will use reasonable efforts to take prior to the Effective
Date of the Merger, all other action required by law on the part of Airways, its
Articles of Incorporation and bylaws or otherwise to effect the transactions
contemplated by this Agreement and the Plan of Merger.
2.03 Capital Stock of Airways; Subsidiaries.
--------------------------------------
(a) As of the date of this Agreement, the authorized capital
stock of Airways consists of 1,000,000 shares of Preferred Stock, $.01 par value
per share, none of which is outstanding and 19,000,000 shares of Common Stock,
$.01 par value per share, of which 9,067,937 shares were outstanding as of June
27, 1997. No additional shares of stock have been issued between June 27, 1997
and the date of this Agreement. As of the date of this Agreement, 1,150,000
shares of Airways Common Stock were reserved for issuance under Airways' 1995
Stock Option Plans and 150,000 shares of Airways Common Stock were reserved for
issuance under Airways' 1995 Directors Stock Option Plan (such plans being
hereinafter collectively referred to as the "Airways Plans"). Schedule 2.03(a)
----------------
to the Airways' Disclosure Statement delivered to VJET contemporaneously with
the execution and delivery of this Agreement ("Airways' Disclosure Statement")
is a complete list of all outstanding options and warrants granted by Airways,
including for each option and warrant, the optionee, exercise price and vesting
provisions. Other than the options and warrants described in this Section 2.03,
there are no outstanding options, warrants or rights to subscribe for or
purchase from Airways any capital stock of Airways or securities convertible
into or exchangeable for capital stock of Airways.
(b) Schedule 2.03(b) to Airways' Disclosure Statement lists each
----------------
Subsidiary of Airways. All the outstanding shares of capital stock of each such
Subsidiary have been validly issued and are fully paid and nonassessable and are
owned by Airways, by another Subsidiary of Airways or by Airways and another
such Subsidiary, free and clear of all pledges, claims, liens, charges,
encumbrances and security interests of any kind or nature whatsoever. Except
for the capital shares of its Subsidiaries, Airways does not own, directly or
indirectly, any capital stock or other ownership interest in any corporation,
partnership, joint venture or other entity. There are no outstanding options,
warrants or rights to subscribe for or purchase from Airways or any Airways
Subsidiary any capital stock of any Airways Subsidiary or securities convertible
into or exchangeable for capital stock of any Airways Subsidiary.
2.04 Financial.
---------
(a) Airways has previously furnished VJET true and complete
copies of the following documents which have been filed by Airways with the
Securities and Exchange Commission ("SEC") pursuant to Sections 13(a), 14(a),
(b) or (c) or 15(d) of the Securities Exchange Act of 1934 (the "Exchange Act")
(such documents are hereinafter collectively called the "Airways SEC Filings"):
(i) its Annual Report on Form 10-K for the year ended March 31, 1997, which
report includes, among other things, Consolidated Balance Sheets as at March 31,
1996 and
A-3
<PAGE>
March 31, 1997 and Consolidated Statements of Operations, Consolidated
Statements of Stockholders' Equity and Group Equity and Consolidated Statements
of Cash Flows of Airways for the periods ended March 31, 1997, March 31, 1996
and March 31, 1995, examined and reported upon by Airways' independent certified
public accountants,(ii) quarterly reports on Form 10-Q for the quarters ended
June 30, 1996, September 30, 1996 and December 31, 1996, which reports include
Consolidated Balance Sheets, Consolidated Statements of Operations and
Consolidated Statements of Cash Flows of Airways at and for the respective
fiscal periods then ended and at and for the corresponding date and fiscal
periods for the prior year, (iii) all reports on Form 8-K filed by Airways with
the SEC during the period from and after April 1, 1996, and (iv) Airways' Proxy
Statement dated July 27, 1996. The Airways SEC Filings constitute all reports
Airways was required to file under Sections 13(a), 14(a), (b) or (c) and 15(d)
of the Exchange Act since April 1, 1996. At the time of filing with the SEC, the
Airways SEC Filings (i) were prepared in all material respects in accordance
with the applicable requirements of the Exchange Act, and the rules and
regulations thereunder, (ii) did not contain any untrue statement of a material
fact, and (iii) did not omit to state a material fact necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. Except to the extent information contained in any Airways SEC
Filing has been revised or superseded by a later-filed Airways SEC Filing, the
audited and unaudited financial statements contained in the Airways SEC Filings
are true and correct in all material respects and present fairly the
consolidated financial condition and results of operations and changes in
stockholders' equity and group equity and cash flows as of the dates and for the
periods indicated, except as may otherwise be stated in such financial
statements. For purposes of this Agreement, all financial statements of Airways
shall be deemed to include any notes to such financial statements. The financial
statements described in this Section 2.04 are hereinafter referred to as the
"Airways Financial Statements".
(b) Except as publicly disclosed by Airways or disclosed to VJET
in Schedule 2.04(b) or any other Schedule to Airways' Disclosure Statement (in
----------------
either case, which disclosure is made prior to the execution of this Agreement),
Airways has not experienced or suffered any Material Adverse Effect between
March 31, 1997 and the date of this Agreement.
2.05 No Breach of Statute or Contract, Governmental Authorizations.
-------------------------------------------------------------
Except as set forth in Schedule 2.05 to Airways' Disclosure Statement, neither
-------------
the execution and delivery of this Agreement by Airways, nor compliance with the
terms and provisions of this Agreement by Airways will violate any law, statute,
rule or regulation of any governmental authority, domestic or foreign, or will
on the Effective Date of the Merger conflict with or result in a breach of any
of the terms, conditions or provisions of any judgment, order, injunction,
decree or ruling of any court or governmental agency or authority, domestic or
foreign, to which Airways or any Subsidiary is subject or of any agreement or
instrument to which Airways or any Subsidiary is a party or by which it is
bound, or constitute a default thereunder, or result in the creation of any
lien, charge or encumbrance upon any property or assets of Airways or any
Subsidiary or cause any acceleration of maturity of any obligation or loan, or
give to others any interest or rights, including rights of termination or
cancellation, in or with respect to any of the material properties, assets,
agreements, contracts or business of Airways or any Subsidiary. No consent,
approval, order or authorization of, or registration, declaration or filing
with, any Governmental Entity is required by or with respect to Airways or any
Subsidiary in connection with the execution and delivery of this Agreement by
A-4
<PAGE>
Airways or the consummation by Airways of the transactions contemplated hereby,
except for (i) the filing required by the Hart-Scott-Rodino Anti-Trust
Improvements Act of 1976, as amended ("HSR" Act"), (ii) the filing with the SEC
of (A) a proxy statement relating to the adoption of this Agreement by Airways'
shareholders (the "Merger Proxy Statement") and (B) such reports and schedules
under the Exchange Act as may be required in connection with this Agreement and
the transactions contemplated hereby, (iii) the filing of the Articles of Merger
with the Secretary of the State of Delaware and appropriate documents with the
relevant authorities of other states in which Airways is qualified to do
business; and (iv) any required filings with and any approvals required by the
DOT and the FAA.
2.06 No Litigation or Adverse Events. Except as set forth in the
-------------------------------
Airways SEC Filings or in Schedule 2.06 to Airways' Disclosure Statement, there
-------------
is no suit, action or legal, administrative, arbitration or other proceeding or
governmental investigation pending, or to the best of the knowledge of Airways
threatened, which if adversely determined, would be a Material Adverse Effect.
2.07 Employee Benefit Plans. Schedule 2.07 to Airways' Disclosure
---------------------- -------------
Statement contains a list of all employment contracts (including agreements with
any union), severance agreements, and all employee policy manuals, all deferred
compensation, non-competition, bonus, stock option, profit sharing, pension,
retirement, consultation after retirement, payment upon retirement, incentive,
extraordinary vacation accrual, material consulting contracts, education payment
or benefit, disability insurance (including medical, travel, group life or other
similar insurance plans), agreements, arrangements or plans, or any other fringe
benefit arrangements of, or applicable to, employees of Airways or any Airways
Subsidiary. Each employee plan is in full compliance with all applicable
government laws, rules and regulations, except for any noncompliance which is
not a Material Adverse Effect. No such plan which is subject to Part 3 of
Subtitle B of Title 1 of the Employment Retirement Income Security Act of 1974
and the rules and regulations thereunder ("ERISA") ("Airways' ERISA Plan") has
incurred any "accumulated funding deficiency" within the meaning of Section 302
of ERISA or Section 412 of the Code and neither Airways nor any Airways
Subsidiary has incurred any liability on account of such an "accumulated funding
deficiency" with respect to any Airways' ERISA Plan. No liability to the Pension
Benefit Guaranty Corporation established under ERISA has been incurred with
respect to any Airways' ERISA Plan and to the best knowledge of Airways, neither
Airways nor any Airways Subsidiary has incurred any liability for any tax
imposed by Section 4975 of the Code. Neither Airways nor any Subsidiary has
suffered or otherwise caused a "complete withdrawal" or a "partial withdrawal",
as such terms are defined in Section 4203 and Section 4205, respectively, of
ERISA, since the effective date of such Sections 4203 and 4205 with respect to
any Multi-employer Pension Plan.
2.08 Governmental Approvals. The business of Airways and the Airways
----------------------
Subsidiaries as presently conducted does not require any approval of any
governmental body, whether federal, state, local or foreign, which has not been
obtained or applied for, except as would not result in a Material Adverse
Effect. Except as set forth in Schedule 2.08 to Airways' Disclosure Statement,
-------------
Airways and the Airways Subsidiaries have, as of the date hereof, and will have
as of the Closing Date, such permits, licenses, authorities, operating
certificates, "slot" assignments, essential air service designations, and other
certificates or approvals required by the Federal Aviation Administration
A-5
<PAGE>
("FAA") or the U.S. Department of Transportation ("DOT"). Except as may be
expressly permitted by the terms of this Agreement or otherwise disclosed in
this Agreement or any Schedule hereto, the business of Airways and any Airways
Subsidiary as presently conducted in any jurisdiction meets all known applicable
legal requirements of such jurisdiction and all known requisite governmental
approvals have been duly obtained or applied for and are in full force and
effect, except for any failure of legal requirements or any lack of governmental
approvals which is not a Material Adverse Effect; and to the best of Airways'
knowledge there is no basis for any governmental body to deny or rescind any
approval for the conduct of the business of Airways or of any Airways
Subsidiary.
2.09 Accuracy of Books and Records. The books and records, financial
-----------------------------
and otherwise, of Airways and of the Airways Subsidiaries present fairly the
financial position of Airways and of the Airways Subsidiaries in all material
respects and all transactions of Airways and of the Airways Subsidiaries have
been recorded in such books and records in a manner consistent with generally
accepted accounting principles ("GAAP").
2.10 Aircraft and Other Property. Except as disclosed in Schedule
--------------------------- --------
2.10, to Airways' Disclosure Statement all aircraft owned, leased or in the
- ----
possession and control of Airways or of any Airways Subsidiary are, and on the
Closing Date will be, in an airworthy condition, and are being maintained
according to FAA regulatory standards and Airways' FAA-authorized maintenance
program. A list of all aircraft now owned, leased or in the possession and
control of Airways or of any Airways Subsidiary is attached hereto as said
Schedule 2.10. Except as set forth in said Schedule 2.10, all other operating
- ------------- -------------
properties, leasehold improvements and equipment of Airways and of the Airways
Subsidiaries are in normal operating condition, free from any known defects,
except such minor defects as do not materially interfere with the continued use
thereof in the conduct of normal operations.
2.11 Material Contracts. Schedule 2.11 to Airways' Disclosure
------------------ -------------
Statement is a list of all contracts of Airways or of any Airways Subsidiary
involving aggregate payments by Airways or any Airways Subsidiary or to Airways
or to any Airways Subsidiary of more than $200,000, or extending for a term
beyond twenty-four (24) months or providing for severance benefits upon a
termination of employment after the consummation of the Merger. Said Schedule
--------
2.11 also contains a list showing all policies of insurance in force as of the
- ----
date hereof.
2.12 Taxes. Airways and the Airways Subsidiaries have filed or secured
-----
extensions for filing all tax returns required to be filed by the United States
Government, by any of the states of the United States and by any other
governmental authority; all taxes, assessments and other governmental charges
known by the officers of Airways to be due from Airways or from any Airways
Subsidiary or with respect to any of their income, property or assets have been
duly paid and no extensions for the time of payment have been requested, except
as disclosed in Schedule 2.12 to Airways' Disclosure Statement. There are no
-------------
pending or, to the best of Airways' knowledge, threatened additional assessments
of taxes by any governmental authority known to any of the officers of Airways,
except as disclosed in said Schedule 2.12. No unexpired waivers of the statute
-------------
of limitations executed by Airways or by any Airways Subsidiary with respect to
federal or state income taxes are in effect on the date hereof, except as
disclosed in said Schedule 2.12. Except as set forth in Schedule 2.12, the
------------- -------------
accruals and reserves made for tax liabilities of Airways in the March
A-6
<PAGE>
31, 1997, Consolidated Balance Sheet of Airways are adequate for the payment of
all of Airways and Airways Subsidiaries' federal, state and local tax
liabilities for all periods ending on or before March 31, 1997. Airways and
each of its Subsidiaries has withheld all required amounts from its employees
for all periods in full and complete compliance with the tax withholding
provisions of applicable laws, all required returns with respect to income tax
withholding, social security and unemployment and other taxes have been filed by
Airways and the Airways Subsidiaries for all periods for which returns were due
and the amounts shown on such returns to be due and payable have been paid in
full, except for any such failure to do any of the foregoing which is not a
Material Adverse Effect.
2.13 Title to Properties. Except as disclosed in Schedule 2.13 to
-------------------
Airways' Disclosure Statement, Airways and the Airways Subsidiaries have good
and (in the case of owned real property) marketable title, free and clear of any
mortgage, pledge, lien, charge or other encumbrance, to all of their real or
personal property and other assets reflected on Airways' Consolidated Balance
Sheet as of March 31, 1997, or acquired by Airways or the Airways Subsidiaries
subsequent to the date thereof except for (i) liens or encumbrances on such
property or assets described in the Consolidated Balance Sheet as of March 31,
1997, (ii) liens for current taxes not yet due and payable, and (iii) such
imperfections of title and encumbrances, if any, as are not material in
character, amount or extent, and do not detract from the value or interfere with
the present or presently contemplated future use of the properties subject
thereto or affected thereby or those arising by operation of law for which
payment is not yet delinquent, and (iv) dispositions in the ordinary course of
business. Airways and the Airways Subsidiaries enjoy peaceable and undisturbed
possession under all material leases under which they are operating and all of
their equipment and premises which are leased are in good condition and repair
(ordinary wear and tear excepted) and are suitable for the purposes for which
such equipment and premises are being utilized. Except as disclosed in said
Schedule 2.13, neither Airways nor any of the Airways Subsidiaries is in default
- -------------
under or has received any notice of default under any lease agreement. Except as
disclosed in said Schedule 2.13, neither Airways nor any of the Airways
-------------
Subsidiaries has received any notice of violation of any applicable zoning
ordinance or other law, order, regulation or requirement relating to their
operations or to their owned or leased properties. To the best of its knowledge,
each parcel of real property owned, leased or operated by Airways or by any
Airways Subsidiary is reasonably free of any and all hazardous wastes, hazardous
emissions, toxic substances or other types of contamination or matters of
environmental concern, and neither Airways nor any Airways Subsidiary is subject
to any material liability (under the Comprehensive Environmental Response,
Compensation and Liability Act or otherwise) resulting from or related to any
such wastes, emissions, substances, contaminants or matters of environmental
concern in connection with any such property.
2.14 Disclosure. No representation or warranty by Airways contained in
----------
this Agreement and no statement contained in any certificate, exhibit, schedule
or other instrument furnished or to be furnished to VJET pursuant hereto,
contains or will contain any untrue statement of a material fact or omits or
will omit to state a material fact necessary to make the statements contained
therein not misleading. The information contained in the Prospectus/Proxy
Statement to be furnished to the stockholders of the parties pursuant to the
Merger (other than information included in reliance upon and in conformity with
information furnished by VJET in writing expressly for use therein) will not
A-7
<PAGE>
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.
2.15 Broker's or Finder's Fees. Except as provided in Schedule 2.15 to
------------------------- -------------
Airways' Disclosure Statement, no agent, broker, person or firm acting on behalf
of Airways or any of its subsidiaries or under the authority of any of them is
or will be entitled to any commission or broker's or finder's fee from any of
the parties hereto in connection with any of the transactions contemplated
herein.
2.16 No Antitakeover Provisions. Except as disclosed in Schedule 2.16
-------------------------- -------------
to Airways' Disclosure Statement, there are no antitakeover provisions or other
provisions of similar effect applicable to Airways under the terms of Airways'
Articles of Incorporation or By-laws or under Delaware or other law applicable
to Airways that must be complied with prior to the consummation of the Merger.
2.17 Intellectual Property.
---------------------
(a) Schedule 2.17 to Airways' Disclosure Statement contains a
-------------
correct and complete list of all of intellectual property of Airways and its
Subsidiaries ("Airways' Intellectual Property"). Neither Airways nor any of its
Subsidiaries has violated, infringed upon or unlawfully or wrongfully used the
Intellectual Property of others and none of Airways' Intellectual Property or
any related rights as used in its business or in the other businesses now or
heretofore conducted by Airways infringes upon or otherwise violates the rights
of others, nor has any person asserted a claim of such infringement or misuse.
Airways has taken all reasonable measures (other than registration) to enforce,
maintain and protect its interests and to the extent applicable, the rights of
third parties, in and to Airways' Intellectual Property. Airways has, and upon
consummation of the transactions co ntemplated by this Agreement, VJET will
have, all right, title and interest in the Intellectual Property identified on
said Schedule 2.17. The consummation of the transactions contemplated by this
-------------
Agreement will not alter or impair any Intellectual Property rights of Airways
or result in a default under any contract of Airways. Except as set forth in
said Schedule 2.17, Airways is not obligated nor has Airways incurred any
-------------
liability to make any payments for royalties, fees or otherwise to any person in
connection with any of Airways' Intellectual Property. All patents, trademarks,
trade names, service marks, assumed names and copyrights and all registrations
thereof included in or related to Airways' Intellectual Property are valid,
subsisting and in full force and effect.
(b) No present or former officer, director, partner or employee
of Airways owns or has any proprietary, financial or other interest, direct or
indirect, in any of Airways' Intellectual Property, except as described on said
Schedule 2.17. No officer, director, partner or employee of Airways has entered
- -------------
into any contract that requires such officer, director, partner or employee to
assign any interest in any Airways Intellectual Property.
2.18 Labor Matters. Airways has made available to VJET copies of all
-------------
collective bargaining agreements, contracts or other agreements or
understandings with a labor union or labor organization to which Airways or any
of its Subsidiaries is a party or by which any of them is
A-8
<PAGE>
bound. Except as and to the extent set forth in Schedule 2.18 to Airways'
-------------
Disclosure Statement, (i) Airways or any of its Subsidiaries is not a party to
any union agreement or collective bargaining agreement or work rules or
practices agreed to with any labor organization or employee association
applicable to any employees of Airways or any of its Subsidiaries and no attempt
to organize any of the employees of Airways' business is currently proposed or
threatened, (ii) Airways or any of its Subsidiaries has not had any Equal
Employment Opportunity Commission charges or other claims of employment
discrimination made against it which, if resolved adversely to Airways or its
Subsidiaries, would result in a Material Adverse Effect to Airways or its
Subsidiaries, (iii) no Wage and Hour Department investigations have been made of
Airways or any of its Subsidiaries which, if resolved adversely to Airways or
its Subsidiaries, would result in a Material Adverse Effect to Airways or its
Subsidiaries, (iv) no labor strike, dispute, stoppage or lockout is pending or
threatened against or affecting Airways or any of its Subsidiaries, the assets
or the business of Airways or any of its Subsidiaries, and (v) no unfair labor
practice charge or complaint against Airways or any of its Subsidiaries is
pending or threatened before the National Labor Relations Board or any similar
governmental authority. Since the enactment of the Worker Adjustment and
Retraining Notification Act (the "WARN Act"), Airways and any of its
Subsidiaries has not effectuated (i) a "plant closing" (as defined in the WARN
Act) affecting any site of employment or one or more facilities or operating
units within any site of employment or facility of Airways or any of its
Subsidiaries, or (ii) a "mass layoff" (as defined in the WARN Act) affecting any
site of employment or facility of Airways or any of its Subsidiaries, nor has
Airways or any of its Subsidiaries been affected by any transaction or engaged
in layoffs or employment terminations sufficient in number to trigger
application of any similar state or local law. Except as set forth in said
Schedule 2.18, none of Airways' or any of its Subsidiaries' employees suffered
- -------------
an "employment loss" (as defined in the WARN Act) within the six (6) month
period prior to the date hereof.
ARTICLE III
Representations and Warranties of VJET
--------------------------------------
VJET represents and warrants to Airways as follows:
3.01 Organization, etc. VJET is a corporation duly organized, validly
-----------------
existing and in good standing under the laws of the State of Nevada. Each
Subsidiary of VJET has been duly organized and is validly existing and in good
standing under the laws of the state of its organization. VJET and each of its
Subsidiaries has the corporate power to own its property and to carry on its
business as now being conducted; VJET has the corporate power and authority to
execute and deliver this Agreement and the Plan of Merger and, subject to the
stockholder approval referenced in Section 5.02(a)(i) hereof, to consummate the
transactions contemplated hereby.
3.02 Authorization, Execution and Delivery of Agreement. The execution
--------------------------------------------------
and delivery and, subject to the stockholder approval of VJET, the performance
of this Agreement and the Plan of Merger by VJET have been duly and validly
authorized and approved by the Board of Directors of VJET, and VJET has taken,
or will use reasonable efforts to take prior to the Effective Date of the
Merger, all other action required by law on the part of VJET, its respective
Articles of
A-9
<PAGE>
Incorporation and bylaws or otherwise to effect the transactions contemplated by
this Agreement and the Plan of Merger.
3.03 Capital Stock of VJET.
---------------------
(a) As of the date of this Agreement, the authorized capital
stock of VJET consists of 5,000,000 shares of Preferred Stock, $.01 par value,
none of which is outstanding and 1,000,000,000 shares of Common Stock, $.001 par
value, of which 54,969,238 shares were outstanding as of June 30, 1997. No
additional shares of stock have been issued between June 30, 1997, and the date
of execution of this Agreement. As of the date of this Agreement, 3,420,000
shares of VJET Common Stock were reserved for issuance under VJET's 1993
Incentive Stock Option Plan, 3,640,790 shares of VJET Common Stock were reserved
for issuance under VJET's Stock Option Plan, 5,000,000 shares of VJET Common
Stock were reserved for issuance under VJET's 1996 Stock Option Plan and
3,979,864 shares of VJET Common Stock were reserved for issuance under VJET's
Employee Stock Purchase Plan (such plans being hereinafter collectively referred
to as the "VJET Plans"). Other than the options described in this Section 3.03,
there are no outstanding options, warrants or rights to subscribe for or
purchase from VJET any capital stock of VJET or securities convertible into or
exchangeable for capital stock of VJET.
(b) Schedule 3.03(b) to VJET's Disclosure Statement delivered to
----------------
Airways contemporaneously with the execution and delivery of this Agreement
("VJET's Disclosure Statement") lists each Subsidiary of VJET. All the
outstanding shares of capital stock of each such Subsidiary have been validly
issued and are fully paid and nonassessable and are owned by VJET, by another
Subsidiary of VJET or by VJET and another such Subsidiary, free and clear of all
pledges, claims, liens, charges, encumbrances and security interests of any kind
or nature whatsoever. Except for the capital shares of its Subsidiaries, VJET
does not own, directly or indirectly, any capital stock or other ownership
interest in any corporation, partnership, joint venture or other entity. There
are no outstanding options, warrants or rights to subscribe for or purchase from
VJET or any VJET Subsidiary any capital stock of any VJET Subsidiary or
securities convertible into or exchangeable for capital stock of any VJET
Subsidiary.
3.04 Financial.
---------
(a) VJET has previously furnished Airways true and complete
copies of the following documents which have been filed by VJET with the SEC
pursuant to Sections 13(a), 14(a), (b) or (c) or 15(d) of the Exchange Act (such
documents are hereinafter collectively called the "VJET SEC Filings"): (i) its
Annual Report on Form 10-K for the year ended December 31, 1996, which report
includes, among other things, Consolidated Balance Sheets as at December 31,
1995 and December 31, 1996 and Consolidated Statements of Operations,
Consolidated Statements of Stockholders' Equity and Consolidated Statements of
Cash Flows of VJET for the periods ended December 31, 1996, December 31, 1995
and December 31, 1994, examined and reported upon by Ernst & Young, LLP,
independent certified public accountants, (ii) quarterly reports on Form 10-Q
for the quarter ended March 31, 1997, which reports include Consolidated Balance
Sheets, Consolidated Statements of Operations and Consolidated Statements of
Cash Flows of VJET at and for the respective fiscal periods then ended and at
and for the corresponding date and fiscal periods
A-10
<PAGE>
for the prior year, (iii) all reports on Form 8-K filed by VJET with the SEC
during the period from and after January 1, 1997, (iv) VJET's Proxy Statement
dated April 10, 1997, and (v) VJET's S-4 Registration Statement declared
effective as of October 11, 1996. The VJET SEC Filings constitute all reports
VJET was required to file under Sections 13(a), 14(a), (b) or (c) and 15(d) of
the Exchange Act since January 1, 1997. At the time of filing with the SEC, the
VJET SEC Filings (i) were prepared in all material respects in accordance with
the applicable requirements of the Exchange Act, and the rules and regulations
thereunder, (ii) did not contain any untrue statement of a material fact, and
(iii) did not omit to state a material fact necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading. Except to the extent information contained in any VJET SEC Filing
has been revised or superseded by a later filed VJET SEC Filing, the audited and
unaudited financial statements contained in the VJET SEC Filings are true and
correct in all material respects and present fairly the consolidated financial
condition and results of operations and changes in stockholders' equity and cash
flows as of the dates and for the periods indicated, except as may otherwise be
stated in such financial statements. For purposes of this Agreement, all
financial statements of VJET shall be deemed to include any notes to such
financial statements. The financial statements described in this Section 3.04
are hereinafter referred to as the "VJET Financial Statements".
(b) Except as publicly disclosed by VJET or disclosed to Airways in
Schedule 3.04(b) or any other Schedule to VJET's Disclosure Statement (in either
- ----------------
case, which disclosure is made prior to the execution of this Agreement), VJET
has not experienced or suffered any Material Adverse Effect between March 31,
1997 and the date of this Agreement.
3.05 Status of VJET Common Stock. All shares of VJET Common Stock, when
---------------------------
issued to the stockholders of Airways pursuant to this Agreement and the Plan of
Merger, will be duly and validly authorized and issued, fully paid and
nonassessable.
3.06 No Breach of Statute or Contract, Governmental Authorizations. Except
-------------------------------------------------------------
as set forth in Schedule 3.06 to VJET's Disclosure Statement, neither the
-------------
execution and delivery of this Agreement by VJET, nor compliance with the terms
and provisions of this Agreement by VJET, will violate any law, statute, rule or
regulation of any governmental authority, domestic or foreign, or will on the
Effective Date of the Merger conflict with or result in a breach of any of the
terms, conditions or provisions of any judgment, order, injunction, decree or
ruling of any court or governmental agency or authority, domestic or foreign, to
which VJET or any Subsidiary is subject or of any agreement or instrument to
which VJET or any Subsidiary is a party or by which it is bound, or constitute a
default thereunder, or result in the creation of any lien, charge or encumbrance
upon any property or assets of VJET or any Subsidiary or cause any acceleration
of maturity of any obligation or loan, or give to others any interest or rights,
including rights of termination or cancellation, in or with respect to any of
the material properties, assets, agreements, contracts or business of VJET or
any Subsidiary. No consent, approval, order or authorization of, or
registration, declaration or filing with, any Governmental Entity is required by
or with respect to VJET or any subsidiary or in connection with the execution
and delivery of this Agreement by VJET or the consummation by VJET of the
transactions contemplated hereby, except for (i) the filings required by the HSR
Act, (ii) the filing with the SEC of (A) the Registration Statement required by
Section 4.07, (B) a proxy statement relating to the VJET shareholders meeting to
be held prior to
A-11
<PAGE>
Closing to approve the Merger and to amend VJET's Articles of Incorporation and
Bylaws and (C) such reports and schedules under the Exchange Act as may be
required in connection with this Agreement and the transactions contemplated
hereby and (iii) the filing of the Articles or Certificate of Merger with the
Secretary of State of Nevada and appropriate documents with the relevant
authorities of other states in which VJET is qualified to do business, and (iv)
any required filings with and any approvals required by the DOT and the FAA.
3.07 No Litigation or Adverse Events. Except as set forth in the VJET SEC
-------------------------------
Filings or in Schedule 3.07 to VJET's Disclosure Statement, there is no suit,
-------------
action or legal, administrative, arbitration or other proceeding or governmental
investigation pending, or to the best of the knowledge of VJET threatened,
which, if adversely determined, would be a Material Adverse Effect.
3.08 Employee Benefit Plans. Schedule 3.08 to VJET's Disclosure Statement
---------------------- -------------
hereto contains a list of all employment contracts (including agreements with
any union), severance agreements, and all employee policy manuals, all deferred
compensation, non-competition, bonus, stock option, profit sharing, pension,
retirement, consultation after retirement, payment upon retirement, incentive,
extraordinary vacation accrual, material consulting contracts, education payment
or benefit, disability insurance (including medical, travel, group life or other
similar insurance plans), agreements, arrangements or plans, or any other fringe
benefit arrangements of, or applicable to, employees of VJET or any VJET
Subsidiary. Each employee plan is in full compliance with all applicable
government laws, rules and regulations, except for any noncompliance which is
not a Material Adverse Effect. No such plan which is subject to ERISA ("VJET
ERISA Plan") has incurred any "accumulated funding deficiency" within the
meaning of Section 302 of ERISA or Section 412 of the Code and neither VJET nor
any Subsidiary has incurred any liability on account of such an "accumulated
funding deficiency" with respect to any VJET ERISA Plan. No liability to the
Pension Benefit Guaranty Corporation established under ERISA has been incurred
with respect to any VJET ERISA Plan and to the best knowledge of VJET, neither
VJET nor any VJET Subsidiary has incurred any liability for any tax imposed by
Section 4975 of the Code. Neither VJET nor any VJET Subsidiary has suffered or
otherwise caused a "complete withdrawal" or a "partial withdrawal", as such
terms are defined in Section 4203 and Section 4205, respectively, of ERISA,
since the effective date of such Sections 4203 and 4205 with respect to any
Multi-employer Pension Plan.
3.09 Governmental Approvals. The business of VJET and the VJET Subsidiaries
----------------------
as presently conducted does not require any approval of any governmental body,
whether federal, state, local or foreign, which has not been obtained or applied
for, except as would not result in a Material Adverse Effect. Except as set
forth in Schedule 3.09 to VJET's Disclosure Statement, VJET and the VJET
-------------
Subsidiaries have, as of the date hereof, and will have as of the Closing Date,
such permits, licenses, authorities, operating certificates, "slot" assignments,
essential air service designations, and other certificates or approvals required
by the FAA or the DOT. Except as may be expressly permitted by the terms of this
Agreement or otherwise disclosed in this Agreement or any Schedule hereto, the
business of VJET and any VJET Subsidiary as presently conducted in any
jurisdiction meets all known applicable legal requirements of such jurisdiction
and all known requisite governmental approvals have been duly obtained or
applied for and are in full force and
A-12
<PAGE>
effect, except for any failure of legal requirements or any lack of governmental
approvals which is not a Material Adverse Effect; and to the best of its
knowledge there is no basis for any governmental body to deny or rescind any
approval for the conduct of the business of VJET or of any VJET Subsidiary.
3.10 Accuracy of Books and Records. The books and records, financial and
-----------------------------
otherwise, of VJET present fairly the financial position of VJET in all material
respects and all transactions of VJET have been recorded in such books and
records in a manner consistent with GAAP.
3.11 Surviving Corporation After Merger. Immediately after the Closing Date
----------------------------------
and after giving effect to any changes in the assets and liabilities of VJET as
a result of the Merger, VJET will not (i) be insolvent (either because its
financial condition is such that the sum of its debts is greater than the fair
value of its assets or because the fair saleable value of its assets is less
than the amount required to pay its probable liability on its existing debts as
they mature), (ii) have unreasonably small capital with which to engage in its
business, or (iii) have incurred debts beyond its ability to pay the same as
they become due.
3.12 Aircraft and Other Property. Except as disclosed in Schedule 3.12 to
--------------------------- -------------
VJET's Disclosure Statement, all aircraft owned, leased or in the possession and
control of VJET or of any VJET Subsidiary are, and on the Closing Date will be,
in an airworthy condition, and are being maintained according to FAA regulatory
standards and VJET's FAA-authorized maintenance program. A list of all aircraft
now owned, leased or in the possession and control of VJET or of any VJET
Subsidiary is attached hereto as Schedule 3.12. Except as set forth in said
-------------
Schedule 3.12, all other operating properties, leasehold improvements and
- -------------
equipment of VJET and of the VJET Subsidiaries are in normal operating
condition, free from any known defects, except such minor defects as do not
materially interfere with the continued use thereof in the conduct of normal
operations.
3.13 Material Contracts. Attached hereto as Schedule 3.13 to VJET's
------------------ -------------
Disclosure Statement is a list of all contracts of VJET or of any VJET
Subsidiary involving aggregate payments by VJET or any VJET Subsidiary or to
VJET or to any VJET Subsidiary of more than $200,000, or extending for a term
beyond twenty-four (24) months and a list showing all policies of insurance in
force as of the date hereof.
3.14 Taxes. VJET and the VJET Subsidiaries have filed or secured extensions
-----
for filing all tax returns required to be filed by the United States Government,
by any of the states of the United States and by any other governmental
authority; all taxes, assessments and other governmental charges known by the
officers of VJET to be due from VJET or from any VJET Subsidiary or with respect
to any of their income, property or assets have been duly paid and no extensions
for the time of payment have been requested, except as disclosed in Schedule
--------
3.14 to VJET's Disclosure Statement. There are no pending or, to the best of
- ----
VJET's knowledge, threatened additional assessments of taxes by any governmental
authority known to any of the officers of VJET, except as disclosed in said
Schedule 3.14. No unexpired waivers of the statute of limitations executed by
- -------------
VJET or by any VJET Subsidiary with respect to federal or state income taxes are
in effect on the date hereof, except as disclosed in said Schedule 3.14. Except
-------------
as set forth
A-13
<PAGE>
in said Schedule 3.14, the accruals and reserves made for tax liabilities of
-------------
VJET in the March 31, 1997, Consolidated Balance Sheet of VJET are adequate for
the payment of all of VJET and VJET Subsidiaries' federal, state and local tax
liabilities for all periods ending on or before March 31, 1997. VJET and each
of its Subsidiaries has withheld all required amounts from its employees for all
periods in full and complete compliance with the tax withholding provisions of
applicable laws, all required returns with respect to income tax withholding,
social security and unemployment and other taxes have been filed by VJET and the
VJET Subsidiaries for all periods for which returns were due and the amounts
shown on such returns to be due and payable have been paid in full, except for
any such failure to do the foregoing which is not a Material Adverse Effect.
3.15 Title to Properties. Except as disclosed in Schedule 3.15 to VJET's
------------------- -------------
Disclosure Statement, VJET and the VJET Subsidiaries have good and, (in the case
of owned real property) marketable title, free and clear of any mortgage,
pledge, lien, charge or other encumbrance, to all of their real or personal
property and other assets reflected on VJET's Consolidated Balance Sheet as of
March 31, 1997, or acquired by VJET or the VJET Subsidiaries subsequent to the
date thereof except for (i) liens or encumbrances on such property or assets
described in the Consolidated Balance Sheet as of March 31, 1997, (ii) liens for
current taxes not yet due and payable, and (iii) such imperfections of title and
encumbrances, if any, as are not material in character, amount or extent, and do
not detract from the value or interfere with the present or presently
contemplated future use of the properties subject thereto or affected thereby or
those arising by operation of law for which payment is not yet delinquent, and
(iv) dispositions in the ordinary course of business. VJET and the VJET
Subsidiaries enjoy peaceable and undisturbed possession under all material
leases under which they are operating and all of their equipment and premises
which are leased are in good condition and repair (ordinary wear and tear
excepted) and are suitable for the purposes for which such equipment and
premises are being utilized. Except as disclosed in said Schedule 3.15, neither
-------------
VJET nor any of the VJET Subsidiaries is in default under or has received any
notice of default under any lease agreement. Except as disclosed in said
Schedule 3.15, neither VJET nor any of the VJET Subsidiaries has received any
- -------------
notice of violation of any applicable zoning ordinance or other law, order,
regulation or requirement relating to their operations or to their owned or
leased properties. To the best of its knowledge, each parcel of real property
owned, leased or operated by VJET or by any VJET Subsidiary is reasonably free
of any and all hazardous wastes, hazardous emissions, toxic substances or other
types of contamination or matters of environmental concern, and neither VJET nor
any VJET Subsidiary is subject to any material liability (under the
Comprehensive Environmental Response, Compensation and Liability Act or
otherwise) resulting from or related to any such wastes, emissions, substances,
contaminants or matters of environmental concern in connection with any such
property.
3.16 Disclosure. No representation or warranty by VJET contained in this
----------
Agreement and no statement contained in any certificate, exhibit or other
instrument furnished or to be furnished to Airways pursuant hereto, contains or
will contain any untrue statement of a material fact or omits or will omit to
state a material fact necessary to make the statements contained therein not
misleading. The information contained in the Prospectus/Proxy Statement to be
furnished to stockholders of the parties pursuant to the Merger (other than
information included in reliance upon and in conformity with information
furnished by Airways in writing expressly for use therein) will
A-14
<PAGE>
not 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.
3.17 Broker's or Finder's Fees. Except as provided in Schedule 3.17 to
------------------------- -------------
VJET's Disclosure Statement, no agent, broker, person or firm acting on behalf
of VJET or any of its Subsidiaries or under the authority of any of them is or
=
will be entitled to any commission or broker's or finder's fee from any of the
parties hereto in connection with any of the transactions contemplated herein.
3.18 No Antitakeover Provisions. Except as disclosed in Schedule 3.18 to
-------------------------- -------------
VJET's Disclosure Statement, there are no antitakeover provisions or other
provisions of similar effect applicable to VJET under the terms of VJET's
Articles of Incorporation or By-laws or under Nevada or other law applicable to
VJET that must be complied with prior to the consummation of the Merger.
3.19 Intellectual Property.
---------------------
(a) Schedule 3.19 to VJET's Disclosure Statement contains a correct
-------------
and complete list of all of intellectual property of VJET and its Subsidiaries
("VJET's Intellectual Property"). Neither VJET nor any of its Subsidiaries has
violated, infringed upon or unlawfully or wrongfully used the Intellectual
Property of others and none of VJET's Intellectual Property or any related
rights as used in its business or in the other businesses now or heretofore
conducted by VJET infringes upon or otherwise violates the rights of others, nor
has any person asserted a claim of such infringement or misuse. VJET has taken
all reasonable measures (other than registration) to enforce, maintain and
protect its interests and to the extent applicable, the rights of third parties,
in and to VJET's Intellectual Property. VJET has, and upon consummation of the
transactions contemplated by this Agreement, VJET will have, all right, title
and interest in the Intellectual Property identified on said Schedule 3.19. The
-------------
consummation of the transactions contemplated by this Agreement will not alter
or impair any Intellectual Property rights of VJET or result in a default under
any contract of VJET. Except as set forth in said Schedule 3.19, VJET is not
-------------
obligated nor has VJET incurred any liability to make any payments for
royalties, fees or otherwise to any person in connection with any of VJET's
Intellectual Property. All patents, trademarks, trade names, service marks,
assumed names and copyrights and all registrations thereof included in or
related to VJET's Intellectual Property are valid, subsisting and in full force
and effect.
(b) No present or former officer, director, partner or employee of
VJET owns or has any proprietary, financial or other interest, direct or
indirect, in any of VJET's Intellectual Property, except as described on said
Schedule 3.19. No officer, director, partner or employee of VJET has entered
- -------------
into any contract that requires such officer, director, partner or employee to
assign any interest in any VJET Intellectual Property.
3.20 Labor Matters. VJET has made available to Airways copies of all
-------------
collective bargaining agreements, contracts or other agreements or
understandings with a labor union or labor organization to which VJET or any of
its Subsidiaries is a party or by which any of them is bound. Except as and to
the extent set forth in Schedule 3.20 to VJET's Disclosure Statement, (i) VJET
-------------
or
A-15
<PAGE>
any of its Subsidiaries is not a party to any union agreement or collective
bargaining agreement or work rules or practices agreed to with any labor
organization or employee association applicable to any employees of VJET or any
of its Subsidiaries and no attempt to organize any of the employees of VJET's
business is currently proposed or threatened, (ii) VJET or any of its
Subsidiaries has not had any Equal Employment Opportunity Commission charges or
other claims of employment discrimination made against it which, if resolved
adversely to VJET or its Subsidiaries, would result in a Material Adverse Effect
to VJET or its Subsidiaries, (iii) no Wage and Hour Department investigations
have been made of VJET or any of its Subsidiaries which, if resolved adversely
to VJET or its Subsidiaries, would result in a Material Adverse Effect to VJET
or its Subsidiaries, (iv) no labor strike, dispute, stoppage or lockout is
pending or threatened against or affecting VJET or any of its Subsidiaries, the
assets or the business of VJET or any of its Subsidiaries, and (v) no unfair
labor practice charge or complaint against VJET or any of its Subsidiaries is
pending or threatened before the National Labor Relations Board or any similar
governmental authority. Since the enactment of the Worker Adjustment and
Retraining Notification Act (the "WARN Act"), VJET and any of its Subsidiaries
has not effectuated (i) a "plant closing" (as defined in the WARN Act) affecting
any site of employment or one or more facilities or operating units within any
site of employment or facility of VJET or any of its Subsidiaries, or (ii) a
"mass layoff" (as defined in the WARN Act) affecting any site of employment or
facility of VJET or any of its Subsidiaries, nor has VJET or any of its
Subsidiaries been affected by any transaction or engaged in layoffs or
employment terminations sufficient in number to trigger application of any
similar state or local law. Except as set forth in said Schedule 3.20, none of
-------------
VJET's or any of its Subsidiaries' employees suffered an "employment loss" (as
defined in the WARN Act) within the six (6) month period prior to the date
hereof.
3.21 Offering Memorandum. The draft of the Offering Memorandum set forth in
-------------------
Schedule 3.21 to VJET's Disclosure Statement is true and correct in all material
- -------------
respects.
ARTICLE IV
Covenants and Transactions Prior to the Closing Date
----------------------------------------------------
4.01. Investigations; Operation of Business of Airways. Between the date
------------------------------------------------
of this Agreement and the Effective Date of the Merger:
(a) Airways agrees to give to VJET full access to all the premises
and books and records of it and its Subsidiaries, and to cause its and its
Subsidiaries' officers to furnish VJET with such financial and operating data
and other information with respect to the business and properties of it and its
Subsidiaries as VJET shall from time to time request; provided, however, that
any such investigation shall not affect any of the representations, warranties
or covenants of Airways hereunder; and provided further, that any such
investigation shall be conducted in such manner as not to interfere unreasonably
with the operation of the respective businesses of Airways and its Subsidiaries.
In the event of termination of this Agreement, VJET will return to Airways or
destroy any and all financial statements, agreements, documents, memoranda or
other repositories of information relating to Airways that VJET has obtained or
prepared in connection with its review of
A-16
<PAGE>
Airways and its operations and VJET agrees that any information relating to
Airways, its financial condition, business, operations and prospects is strictly
confidential and shall not be disclosed to any third party or used by VJET for
its benefit or the benefit of any other person. VJET shall have the right to
have a representative present at all meetings of the Board of Directors of
Airways (the "VJET Observation Rights") and there shall be no meeting of the
Board of Directors of Airways unless (i) a representative of VJET shall be
present in person or by conference telephone call, or (ii) VJET shall have been
given notice in accordance with the by-laws of Airways with respect to such
meeting; provided, however, that failure of Airways to comply with the terms of
this Paragraph shall not affect the validity of action taken by Airways' Board
of Directors. In addition, VJET shall have the right to review any consent
resolutions of the Airways Board of Directors prior to signing. Exercise of the
VJET Observation Rights shall not be, and shall not be construed as being,
participation by VJET on the Board of Directors of Airways. Notwithstanding the
foregoing, the VJET representative shall not be entitled to be present during
discussion of any Acquisition Proposal or of any matters directly relating to
VJET and shall not have the right to review in advance any consent resolutions
relating to any Acquisition Proposal or VJET.
(b) Airways will, to the extent required for continued operation of
its business without impairment, use its best efforts to preserve substantially
intact the business organization of Airways and its Subsidiaries, to keep
available the services of the present officers and employees of Airways and its
Subsidiaries, and to preserve the present relationships of Airways and its
Subsidiaries with persons having significant business relations therewith such
as suppliers, customers, tour operators, brokers, agents or otherwise.
(c) Airways and its Subsidiaries will conduct their respective
businesses in a manner consistent with the current operation of their business
and only in the ordinary course and, by way of amplification and not limitation,
neither Airways nor its Subsidiaries will without the prior written consent of
VJET which consent shall not be unreasonably withheld (i) except with respect to
Airways Common Stock issued upon exercise of the warrants outstanding on the
date hereof and of options vested prior to the Closing Date, issue any capital
stock, or (ii) declare, set aside or pay any dividend or distribution with
respect to the capital stock of Airways or any of its Subsidiaries (other than
the payment of a dividend by a subsidiary of Airways to Airways or to another
subsidiary of Airways), or (iii) directly or indirectly redeem, purchase or
otherwise acquire any capital stock of Airways or any of its Subsidiaries, or
(iv) effect a split or reclassification of any capital stock of Airways or a
recapitalization of Airways, or (v) change the charter or bylaws of Airways, or
(vi) grant any increase in the compensation payable or to become payable by
Airways or its Subsidiaries to officers or salaried employees of Airways or its
Subsidiaries whose 1996 remuneration exceeded $50,000 or grant any increase
regardless of amount, in any bonus, insurance, pension or other benefit plan,
program, payment or arrangement made to, for or with any officers or employees,
or (vii) adopt any employee benefit plans including but not limited to stock
option plans, or (viii) borrow or agree to borrow any funds in excess of
$200,000 or guarantee or agree to guarantee the obligations of others (excluding
any refinancing of Airways' Subsidiary's hangar in an amount ranging from $6.5
million to $8.5 million secured by the hangar and Airways' Subsidiary's accounts
receivable, provided that the terms of such refinancing do not preclude
prepayment on reasonable terms; credit terms extended by creditors, lessors and
vendors in the ordinary course of business; and debt incurred for expenses of
this transaction), or (ix) make any
A-17
<PAGE>
capital improvement, purchase of equipment or furnishings or lease of any
aircraft (excluding the purchase, lease or repair of aircraft parts and
components required in the ordinary course of maintenance of aircraft) involving
an aggregate expenditure in excess of $200,000, or (x) transfer, pledge,
hypothecate or otherwise dispose of any assets having a book or market value,
whichever is greater, in excess of $200,000, or (xi) acquire direct or indirect
ownership or control of voting shares of any other corporation, or of any
interest in any partnership, joint venture, association or similar organization,
other than shares acquired in satisfaction of a security interest or of a debt
previously contracted for in a fiduciary or custodial capacity, or (xii) waive
any rights of substantial value, or (xiii) enter into any material agreement,
contract or commitment calling for aggregate payments in excess of $200,000 over
the life of the contract or extending for more than twelve months other than
contracts entered into for the maintenance or repair of aircraft or those
disclosed on Schedule 4.01(c) to Airways' Disclosure Statement, or (xiv) acquire
----------------
a fee interest in any real property.
(d) Subject to Section 4.04 hereof, without the prior written
consent of VJET, neither Airways nor any of its Subsidiaries will undertake or
enter into any sale, disposition, surrender, acquisition, agreement or
transaction, between the date of this Agreement and the Closing Date, relating
to any of their assets except in the ordinary course of business or as
contemplated by this Agreement or disclosed in the Airways SEC Filings.
(e) Airways will pay and discharge all taxes, assessments and
governmental charges lawfully imposed upon it, upon any Airways Subsidiary or
upon any of their property, or upon the income and profits thereof to the extent
such taxes, assessments and governmental charges are due and payable on or
before the Closing Date except for deferrals of taxes arranged by Airways with
the respective taxing authorities as indicated on Schedule 4.01(e) to Airways'
----------------
Disclosure Statement; provided, however, that nothing herein contained shall
require Airways or any Airways Subsidiary to pay or discharge any tax assessment
or governmental charge, so long as the validity thereof shall be contested in
good faith and by appropriate proceedings unless property essential to the
conduct of Airways or of any Airways Subsidiary's business will be lost,
forfeited or materially endangered.
(f) Airways will maintain its existence and the existence of the
Subsidiaries as corporations in good standing under the laws of the State of
Delaware, other states in which Airways and the Airways Subsidiaries operate and
the United States and comply and cause the Airways Subsidiaries to comply in all
material respects with all laws, governmental regulations, rules and ordinances,
and judicial orders, judgments and decrees applicable to their business or their
properties, except while contesting the validity of any of the foregoing in good
faith and by appropriate proceedings.
(g) Airways will notify VJET in writing within five (5) days of the
commencement of any material litigation against Airways, or against any Airways
Subsidiary, or of the existence of any adverse business conditions threatening
the continued, normal business operations of Airways or of any Airways
Subsidiary, or of any agreement, consent or order of the FAA or DOT involving
Airways or any Airways Subsidiary.
A-18
<PAGE>
(h) Airways shall at all times maintain, preserve and keep its
properties and the properties of its Subsidiaries in good repair, working order
and condition in all material respects so that the business carried on in
connection therewith may be properly and advantageously conducted, except for
those items that have been designated as obsolete or damaged beyond economic
repair.
(i) Airways will make every reasonable effort to fulfill its
contractual obligations and the contractual obligations of its Subsidiaries, and
to maintain in effect its insurance and the insurance of its Subsidiaries.
(j) Airways will not enter into, institute or permit any Airways
Subsidiary to enter into or institute, any employment contract, employee policy
manual (other than Airways' Subsidiary's current employee manual which is
undergoing revision), deferred compensation, non-competition, bonus, stock
option, profit-sharing, pension, retirement, consultation after retirement,
payments upon retirement, incentive, extraordinary vacation accrual, education
payment or benefit, disability insurance (including medical, travel, group life
or other similar insurance plans) agreement, plan or arrangement or any other
similar arrangement or plan, or, except as required by applicable law or
regulation, renew, amend, modify or terminate any such arrangement or plan now
in existence.
(k) Airways will not enter into, or permit any Subsidiary to enter
into, any agreement, understanding or commitment, written or oral, with any
other person which would be a breach of the obligations of Airways arising under
this Agreement.
(l) Airways will not make, or permit any Subsidiary to make any
loan, advance or commitment to extend credit to any of the directors, officers
or any affiliated or related persons of the directors or officers of Airways or
of any Airways Subsidiary; renew, or permit any Airways Subsidiary to renew, any
outstanding loan or any outstanding commitment to extend credit to any
directors, officers or any affiliated or related persons of the directors or
officers of Airways or of any Airways Subsidiary; increase, or permit any
Airways Subsidiary to increase, any outstanding loan to any of the directors,
officers of any affiliated or related persons of the directors or officers of
Airways or of any Airways Subsidiary; or enter into any agreement, understanding
or commitment, written or oral, which obligates Airways, any of the Airways
Subsidiaries or their successors or assigns to make any loan or advance or
payment to any of the directors or officers or to any affiliated or related
persons of any of the directors or officers of Airways or of any Airways
Subsidiary.
4.02. Investigation of VJET. Between the date of this Agreement and the
---------------------
Effective Date of the Merger:
(a) VJET agrees to give to Airways full access to all the premises
and books and records of it and its Subsidiaries, and to furnish Airways with
such financial and operating data and other information with respect to the
business and properties of it and its Subsidiaries as Airways shall from time to
time request; provided, however, that any such investigation shall not affect
any of the representations, warranties or covenants of VJET hereunder; and
provided further, that any such investigation shall be conducted in such manner
as not to interfere unreasonably with the
A-19
<PAGE>
operation of the respective businesses of VJET and its Subsidiaries. In the
event of termination of this Agreement, Airways will return to VJET or destroy
any and all financial statements, agreements, documents, memoranda or other
repositories of information relating to VJET or its Subsidiaries that Airways
has obtained or prepared in connection with its review of VJET and its
operations and Airways agrees that any information relating to VJET, its
Subsidiaries and their financial condition, business, operations and prospects
is strictly confidential and shall not be disclosed to any third party, or used
by Airways for its benefit or the benefit of any other person. Airways shall
have the right to have a representative present at all meetings of the Board of
Directors of VJET (the "Airways Observation Rights") and there shall be no
meeting of the Board of Directors of VJET unless (i) a representative of Airways
shall be present in person or by conference telephone call, or (ii) Airways
shall have been given notice in accordance with the by-laws of VJET with respect
to such meeting; provided, however, that failure of VJET to comply with the
terms of this Paragraph shall not affect the validity of action taken by VJET's
Board of Directors. In addition, Airways shall have the right to review any
consent resolutions of the VJET Board of Directors prior to signing. Exercise
of the Airways Observation Rights shall not be, and shall not be construed as
being, participation by Airways on the Board of Directors of VJET.
Notwithstanding the foregoing, the Airways representative shall not be entitled
to be present during discussions of any matters directly relating to Airways and
shall not have the right to review in advance any consent resolutions relating
to Airways.
(b) VJET and its Subsidiaries will conduct their respective
businesses in a manner consistent with the current operation of their business
and only in the ordinary course and, by way of amplification and not limitation,
neither VJET nor its Subsidiaries will without the prior written consent of
Airways which consent shall not be unreasonably withheld (i) except with respect
to VJET Common Stock issued upon exercise of options vested prior to the Closing
Date, issue any capital stock, or (ii) declare, set aside or pay any dividend or
distribution with respect to the capital stock of VJET or any of its
Subsidiaries (other than the payment of a dividend by a subsidiary of VJET to
VJET or to another subsidiary of VJET), or (iii) directly or indirectly redeem,
purchase or otherwise acquire any capital stock of VJET or any of its
Subsidiaries, or (iv) effect a split or reclassification of any capital stock of
VJET or a recapitalization of VJET, or (v) change the charter or bylaws of VJET,
or (vi) grant any increase in the compensation payable or to become payable by
VJET or its Subsidiaries to officers or salaried employees of VJET or its
Subsidiaries whose 1996 remuneration exceeded $50,000 or grant any increase
regardless of amount, in any bonus, insurance, pension or other benefit plan,
program, payment or arrangement made to, for or with any officers or employees,
or (vii) adopt any employee benefit plans including but not limited to stock
option plans, or (viii) acquire direct or indirect ownership or control of
voting shares of any other corporation, or of any interest in any partnership,
joint venture, association or similar organization, other than shares acquired
in satisfaction of a security interest or of a debt previously contracted for in
a fiduciary or custodial capacity, or (ix) waive any rights of substantial
value, or (x) enter into any material agreement, contract or commitment calling
for aggregate payments in excess of $200,000 over the life of the contract or
extending for more than twelve months other than (a) financing or refinancing
agreements and fees and expenses paid in connection therewith, (b) fees paid to
lenders to secure consents to this transaction and to VJET's debt refinancing,
and (c) contracts entered into for the maintenance, repairs or refurbishment of
aircraft or those disclosed on Schedule 4.02(c) to VJET's Disclosure Statement
----------------
or (xi) acquire a fee interest in any real property.
A-20
<PAGE>
(c) Without the prior written consent of Airways, neither VJET nor
any of its Subsidiaries will undertake or enter into any sale, disposition,
surrender, acquisition, agreement or transaction, between the date of this
Agreement and the Closing Date, relating to any of their assets except in the
ordinary course of business or as contemplated by this Agreement or as disclosed
in the VJET SEC Filings.
(d) VJET will pay and discharge all taxes, assessments and
governmental charges lawfully imposed upon it, upon any VJET Subsidiary or upon
any of their property, or upon the income and profits thereof to the extent such
taxes, assessments and governmental charges are due and payable on or before the
Closing Date; provided, however, that nothing herein contained shall require
VJET or any VJET Subsidiary to pay or discharge any tax assessment or
governmental charge, so long as the validity thereof shall be contested in good
faith and by appropriate proceedings unless property essential to the conduct of
VJET or of any VJET Subsidiary's business will be lost, forfeited or materially
endangered.
(e) VJET will maintain its existence and the existence of the
Subsidiaries as corporations in good standing under the laws of the State of
Nevada, other states in which VJET and the VJET Subsidiaries operate and the
United States and comply and cause the VJET Subsidiaries to comply in all
material respects with all laws, governmental regulations, rules and ordinances,
and judicial orders, judgments and decrees applicable to their business or their
properties, except while contesting the validity of any of the foregoing in good
faith and by appropriate proceedings.
(f) VJET will notify Airways in writing within five (5) days of the
commencement of any material litigation against VJET or any of its Subsidiaries
or of the existence of any adverse business conditions threatening the
continued, normal business operations of VJET or any of its Subsidiaries, or of
any agreement, consent or order of the FAA or DOT involving VJET or any of its
Subsidiaries.
(g) VJET shall at all times maintain, preserve and keep its
properties and the properties of its Subsidiaries in good repair, working order
and condition in all material respects so that the business carried on in
connection therewith may be properly and advantageously conducted, except for
those items that have been designated as obsolete or damaged beyond economic
repair.
(h) VJET will make every reasonable effort to fulfill its contractual
obligations and the contractual obligations of its Subsidiaries, and to maintain
in effect its insurance and the insurance of its Subsidiaries.
(i) VJET will not enter into, institute or permit any VJET Subsidiary
to enter into or institute, any employment contract, employee policy manual,
deferred compensation, non-competition, bonus, stock option, profit-sharing,
pension, retirement, consultation after retirement, payments upon retirement,
incentive, extraordinary vacation accrual, education payment or benefit,
disability insurance (including medical, travel, group life or other similar
insurance plans) agreement, plan or arrangement or any other similar arrangement
or plan, or, except as required by applicable law or regulation, renew, amend,
modify or terminate any such arrangement or plan now in existence.
A-21
<PAGE>
(j) VJET will not enter into, or permit any Subsidiary to enter into,
any agreement, understanding or commitment, written or oral, with any other
person which would be a breach of the obligations of VJET arising under this
Agreement.
(k) VJET will not make, or permit any Subsidiary to make any loan,
advance or commitment to extend credit to any of the directors, officers or any
affiliated or related persons of the directors or officers of VJET or of any
VJET Subsidiary; renew, or permit any VJET Subsidiary to renew, any outstanding
loan or any outstanding commitment to extend credit to any directors, officers
or any affiliated or related persons of the directors or officers of VJET or of
any VJET Subsidiary; increase, or permit any VJET Subsidiary to increase, any
outstanding loan to any of the directors, officers of any affiliated or related
persons of the directors or officers of VJET or of any VJET Subsidiary; or enter
into any agreement, understanding or commitment, written or oral, which
obligates VJET, any of the VJET Subsidiaries or their successors or assigns to
make any loan or advance or payment to any of the directors or officers or to
any affiliated or related persons of any of the directors or officers of VJET or
of any VJET Subsidiary.
(l) VJET agrees to provide to the law firm or accounting firm
providing the tax opinion referred to in Section 5.02(n) hereof, those customary
representations (to the extent true) which would be required by the Internal
Revenue Service under Revenue Procedure 86-42 to obtain a favorable ruling that
the Merger qualifies as a tax-deferred reorganization under Internal Revenue
Code Section 368(a).
4.03 Airways Stockholder Approval. Subject to Section 4.04 hereof, Airways
----------------------------
agrees to submit this Agreement and the Plan of Merger to its stockholders for
approval, all as provided by law and its Articles of Incorporation, at a meeting
(the "Airways Special Meeting") which shall be held prior to the Closing Date.
The Board of Directors of Airways will, subject to Section 4.04 hereof,
recommend that the stockholders of Airways vote to adopt and approve the Merger
and use its best efforts to solicit from stockholders proxies in favor of such
adoption and approval. By separate agreement, Robert D. Swenson, Lowell T.
Swenson and Carl R. Pohlad (collectively, the "Insiders") have agreed that they
will not dispose of their shares of Airways Common Stock and will vote in favor
of the Merger; provided, however, that the Insiders' obligations under said
Agreement will be suspended if the Board of Directors of Airways determines in
the exercise of its fiduciary duties to entertain, negotiate or participate in
any other Acquisition Proposal for so long as it is so entertaining, negotiating
or participating in any such other Acquisition Proposal (and shall terminate if
Airways accepts a Superior Proposal) and pays the termination fee set forth in
Section 5.04(c).
4.04 No Solicitation. From and after the date hereof, Airways will not,
---------------
and shall use its reasonable best efforts not to permit, any of its officers,
directors, employees, attorneys, financial advisors, agents or other
representatives or those of any of its Subsidiaries to, directly or indirectly,
solicit, initiate or knowingly encourage (including by way of furnishing
information) any Acquisition Proposal from any person, or engage in or continue
discussions or negotiations relating thereto; provided, however, that Airways
may engage in discussions or negotiations with, and furnish information
concerning Airways and its Subsidiaries, businesses, properties or assets to,
any third party which makes an Acquisition Proposal if the Board of Directors of
Airways concludes in good faith after consultation with its outside counsel (who
may be Airways' engaged outside counsel) that
A-22
<PAGE>
the failure to take such action would present a reasonable possibility of
violating the obligations of such Board to Airways or to Airways' stockholders
under applicable law. Airways will promptly (but in no case later than 48 hours)
notify VJET of the receipt of any Acquisition Proposal, including the material
terms and conditions thereof and the identify of the person or group making such
Acquisition Proposal, and will promptly (but in no case later than 48 hours)
notify VJET of any determination by Airways' Board of Directors that a Superior
Proposal (as hereinafter defined) has been made. As used in this Agreement, (i)
"Acquisition Proposal" shall mean any proposal or offer, or any expression of
interest by any third party relating to Airways' willingness or ability to
receive or discuss a proposal or offer, in each case made prior to the
stockholder vote at the Airways Special Meeting, other than a proposal or offer
by VJET or any of its Subsidiaries, for a merger, consolidation or other
business combination involving, or any purchase of, all or substantially all of
the assets of Airways or Airways' Subsidiary or 100% of the voting securities of
Airways, and (ii) "Superior Proposal" shall mean a bona fide Acquisition
Proposal made by a third party on terms that a majority of the members of the
Board of Directors of Airways determines in their good faith reasonable judgment
(based on the advice of an independent financial advisor) may be more favorable
to Airways and to its stockholders than the transactions contemplated hereby and
for which any required financing is committed or which, in the good faith
reasonable judgment of a majority of such members (after consultation with any
independent financial advisor), is then available to such third party.
4.05 VJET Stockholder Approval. VJET agrees to submit to its stockholders
-------------------------
a proposal to amend its Articles of Incorporation and Bylaws as set forth in
Exhibit B annexed hereto and made a part hereof and, if required under Nevada
- ---------
law or by NASDAQ, VJET agrees to submit this Agreement and the Plan of Merger to
its stockholders for approval, all as provided by law and its Articles of
Incorporation, at a meeting (the "VJET Meeting") which shall be held prior to
the Closing Date. The Board of Directors of VJET will recommend that the
stockholders of VJET vote to adopt and approve the amendment to its Articles of
Incorporation, Bylaws and the Merger, and use their best efforts to solicit from
stockholders proxies in favor of such adoption and approval. By separate
agreement, at least three of the following persons (Timothy P. Flynn, Maurice J.
Gallagher, Jr., Lewis H. Jordan and Robert L. Priddy) shall agree that they will
vote in favor of the amendment to VJET's Articles of Incorporation and By-laws
and in favor of the Merger.
4.06 No Granting of Options.
----------------------
(a) Prior to the Closing Date, neither Airways nor any of its
Subsidiaries will, without the prior written consent of VJET, grant any options,
warrants or other rights to purchase or otherwise acquire any shares of its
capital stock or issue any securities convertible into shares of its capital
stock or to accelerate the vesting of any such option, warrant or right.
(b) Prior to the Closing Date, neither VJET nor any of its
Subsidiaries will, without the prior written consent of Airways, grant any
options, warrants or other rights to purchase or otherwise acquire any shares of
its capital stock or issue any securities convertible into shares of its capital
stock or to accelerate the vesting of any such option, warrant or right except
that options may be granted to newly hired executive officers in amounts
consistent with prior practice.
A-23
<PAGE>
4.07 VJET Registration Statement. Prior to the Effective Date of the
---------------------------
Merger, VJET shall have prepared and filed with the SEC, a registration
statement on Form S-4 (the "Registration Statement") under the Securities Act of
1933, as amended (the "Securities Act") , and under the blue sky laws of such
states as may be required by law, for the purpose of registering the shares of
VJET Common Stock into which the shares of Airways Common Stock will be
converted pursuant to Article V of the Plan of Merger, which Registration
Statement is intended to permit Airways' stockholders (other than Airways
Affiliates who would be subject to Rule 144 limitations) to freely trade their
shares. VJET will use reasonable efforts to cause such Registration Statement
to become effective as soon as reasonably practicable.
4.08 Information for Registration Statement and Proxy Statement. Airways
----------------------------------------------------------
and VJET will each furnish to the other such data and information relating to it
as the other may reasonably request for the purpose of including such data and
information in any proxy statement or registration statement which the other may
use in connection with the special meetings of stockholders to be held to
consider and take action with respect to the approval and adoption of this
Agreement and the Plan of Merger.
4.09 Restricted VJET Common Stock. Airways will deliver to VJET not later
----------------------------
than three business days before the Effective Date of the Merger a schedule
listing all Airways Affiliates and the amounts of shares held by each, for the
purpose of permitting VJET to imprint appropriate legends on the certificates
representing the shares of VJET Common Stock to be issued pursuant to the Merger
to Airways Affiliates. For the purposes of this Agreement, "Airways Affiliates"
means each director of Airways and each person who, should such person resell,
transfer or distribute VJET Common Stock acquired by him in connection with the
Merger, would be subject to the requirements of paragraphs (c) and (d) of Rule
145, as amended, under the Securities Act, or who would otherwise be considered
to be an Airways Affiliate under the applicable rules and regulations of the SEC
and the Securities Act.
4.10 Consents. Airways and VJET shall each use its best efforts to obtain
--------
the consent or approval of each person whose consent or approval shall be
required in order to permit the respective party to consummate the Merger
without acceleration of indebtedness of such party or without breaching any
contract to which such party is subject. Airways may not, without VJET's prior
written consent, pay or agree to pay more than a mutually agreed amount to
obtain any such consent.
4.11 Best Efforts. Upon the terms and subject to the conditions of this
------------
Agreement, each of VJET and Airways agrees to use its respective best efforts to
take, or cause to be taken, and to assist and cooperate with the other party
hereto in doing, all things reasonably necessary, proper or advisable under
applicable laws and regulations to consummate and make effective, in the most
expeditious manner practicable, the transactions contemplated by this Agreement
and the Plan of Merger, including, without limitation, using such best efforts
to obtain any necessary actions, waivers, consents and approvals from the DOT,
the FAA and other governmental agencies and make all necessary registrations and
filings (including, without limitation, joint filings with the DOT, the United
States Federal Trade Commission and other governmental agencies).
A-24
<PAGE>
4.12 Indemnification and Insurance.
-----------------------------
(a) VJET agrees that all rights to exculpation and indemnification
for acts or omissions occurring prior to the Effective Date of the Merger now
existing in favor of the current or former directors or officers (the
"Indemnified Parties") of Airways as provided in its charter, by-laws, in any
agreement or any statute or other law shall survive the Merger and shall
continue in full force and effect in accordance with their terms. For six years
from the Effective Date of the Merger, VJET shall indemnify the Indemnified
Parties to the same extent as such Indemnified Parties are entitled to
indemnification pursuant to the preceding sentence.
(b) For six years and one month from the Effective Date of the
Merger, VJET shall maintain in effect directors' and officers' liability
insurance covering those persons who are currently covered by Airways'
directors' and officers' liability insurance policy with respect to all acts
occurring prior to the Effective Date of the Merger. Such continuing liability
insurance shall be maintained with limits not less than $25,000,000 so long as
it is commercially reasonable to do so, but in no event less than the coverage
limits applicable to the then current officers and directors of VJET.
4.13 Governmental Reports.
--------------------
(a) Between the date of this Agreement and the Closing Date, Airways
shall furnish or make available to VJET any and all reports, not heretofore
delivered to VJET under this Agreement or which are filed subsequent to the date
of this Agreement, to any state or federal government, agency or department,
including but not limited to, the FAA, DOT, IRS, EPA, FTC and PBGC.
(b) Between the date of this Agreement and the Closing Date, VJET
shall furnish or make available to Airways any and all reports, not heretofore
delivered to Airways under this Agreement or which are filed subsequent to the
date of this Agreement, to any state or federal government, agency or
department, including but not limited to, the FAA, DOT, IRS, EPA, FTC and PBGC.
4.14 SEC Filings. Each party shall provide the other party with all
-----------
reports and other filings it makes with the SEC under the Securities Act or
under the Exchange Act from the date of this Agreement to the Closing Date.
4.15 Listing of VJET Common Stock. VJET shall use reasonable efforts to
----------------------------
obtain, prior to the Closing Date, approval for listing on the NASDAQ Stock
Market ("NASDAQ"), upon official notice of issuance, the shares of VJET Common
Stock constituting the Merger Price.
4.16 Hart-Scott-Rodino Filing. VJET shall assume the responsibility for
------------------------
completing and filing the Notification and Report Form required by the HSR Act.
Airways shall furnish VJET with all information needed from Airways to complete
the Hart-Scott-Rodino Notification and Report Form, and shall otherwise fully
cooperate with VJET in the completion and filing of the Notification and Report
Form.
A-25
<PAGE>
4.17 Fees and Expenses. Except to the extent set forth in Section 5.04(d),
-----------------
all fees and expenses incurred in connection with the Merger and the other
transactions contemplated hereby shall be paid by the party incurring such fees
or expenses, whether or not the Merger is consummated.
ARTICLE V
Conditions of Merger; Abandonment of Merger
-------------------------------------------
5.01 Conditions of Obligations of VJET. The obligations of VJET to effect
---------------------------------
the Merger shall be subject to the following conditions:
(a) Airways Stockholder and Board of Directors Approvals. Airways
----------------------------------------------------
shall have furnished VJET with (i) evidence that the stockholders of Airways
shall have approved the Merger, (ii) certified copies of resolutions duly
adopted by the Board of Directors of Airways authorizing all necessary and
proper corporate action to enable Airways to comply with the terms of this
Agreement and the Plan of Merger and approving the execution and delivery to
VJET of this Agreement and the execution and delivery of the Plan of Merger to
VJET; and (iii) an Incumbency Certificate for the appropriate officers of
Airways.
(b) Representations and Warranties of Airways to be True. Except
----------------------------------------------------
to the extent waived hereunder, (i) the representations and warranties of
Airways herein contained shall be true on the Closing Date with the same effect
as though made at such time as if none of such representations and warranties
contained any qualifications as to materiality or the absence of a Material
Adverse Effect; provided, however, that notwithstanding the foregoing, this
-------- -------
condition shall be deemed to be satisfied if all breaches of such
representations and warranties, do not cumulatively constitute a Material
Adverse Effect; and (ii) Airways shall have performed all obligations and
complied with all covenants required by this Agreement to be performed or
complied with by it prior to the Effective Date of the Merger. Airways shall
also have delivered to VJET a certificate of Airways, dated the Effective Date
of the Merger and signed by its Chairman of the Board or Presi dent to both of
the aforementioned effects. Notwithstanding the foregoing, VJET shall not rely
on this Section 5.01(b) to excuse its performance hereunder unless: (i) VJET
shall have given Airways written notice of any breach of covenants and Airways
fails to cure such breach within a reasonable time (but not more than ten days)
after receipt of such notice, and (ii) the breach of representations, warranties
or covenants will constitute a Material Adverse Effect with respect to Airways.
(c) Third Party Consents. Airways shall have obtained consents to
--------------------
the transactions contemplated by this Agreement to the extent required from its
bank lender group, from other persons which are parties to material contracts
with Airways or its Subsidiaries (except Comair, Inc. and Delta Air Lines, Inc.)
and from all federal, state or local governmental agencies except to the extent
the failure to obtain one or more consents would not materially affect the
continuing business of the Airways' Subsidiary. There shall have been completed
all Hart-Scott-Rodino and other like governmental filings, and there shall have
been obtained Hart-Scott-Rodino approval or expiration of the applicable waiting
period.
A-26
<PAGE>
(d) Registration of VJET Stock. The Registration Statement shall
--------------------------
have become effective under the Securities Act and no stop order suspending the
effectiveness shall have been issued and no proceedings for that purpose shall
have been instituted, pending or contemplated under such Act, and the shares to
be issued to Airways' stockholders pursuant hereto shall have been duly
registered under the Securities Act.
(e) No Material Adverse Effect. Airways shall not have suffered or
--------------------------
incurred any Material Adverse Effect since March 31, 1997, other than as
disclosed by Airways to VJET (whether by public filings or separate disclosure)
prior to the execution of this Agreement.
(f) VJET Bond Holder Consent. VJET shall have secured the consent
------------------------
to the transactions contemplated hereby by the requisite proportion of the
holders of the VJET 10 1/4% Senior Notes due 2001. VJET agrees to use good faith
efforts to obtain such bondholder consent on or before the earlier of the date
the Registration Statement is declared effective by the SEC or the date that is
sixty (60) days after the date of this Agreement.
(g) Performance of Agreement. There shall not have been issued and
------------------------
be in effect any order of any court or tribunal of competent jurisdiction or
governmental agency which in effect prohibits the performance of this Agreement
or the Merger and the transactions contemplated hereby, or would impose
limitations on the ability of VJET effectively to exercise and possess all the
rights, privileges, immunities and franchises of Airways or of any Airways
Subsidiary as of the Closing Date.
(h) Statutory Requirements; Litigation. All statutory requirements
----------------------------------
for the valid consummation by VJET and Airways of the transactions contemplated
by Agreement and the Plan of Merger shall have been fulfilled; all
authorizations, consents and approvals of all federal, state or local
governmental agencies and authorities required to be obtained in order to permit
con summation by VJET and Airways of the transactions contemplated by this
Agreement and the Plan of Merger and to permit the business presently carried on
by Airways and its Subsidiaries to continue unimpaired immediately following the
Effective Date of the Merger shall have been obtained; the FAA and DOT shall
have approved the transaction in such a manner that Airways and its Subsidiaries
shall not after the Merger become subject to any restrictions currently
applicable to VJET or its Subsidiaries or subject to any restrictions not
currently applicable to Airways and its Subsidiaries; between the date of this
Agreement and the Effective Date of the Merger, no governmental agency, whether
federal, state or local, shall have instituted (or threatened to institute
either orally or in a writing directed to Airways, any of its Subsidiaries, VJET
or any of its Subsidiaries) an investigation which is pending on the Effective
Date of the Merger relating to the Merger and between the date of this Agreement
and the Effective Date of the Merger no action or proceeding shall have been
instituted or, to the knowledge of VJET, shall have been threatened before a
court or other governmental body or by any public authority to restrain or
prohibit the transaction contemplated by this Agreement or the Plan of Merger or
to obtain damages in respect thereof.
(i) Opinion of Counsel of Airways. VJET shall have received from
-----------------------------
Briggs & Morgan, counsel to Airways, an opinion, dated the Closing
Date, in form and substance satisfactory
A-27
<PAGE>
to VJET's counsel, Ellis, Funk, Goldberg, Labovitz & Dokson, P.C., to the effect
that (i) each of Airways and its Subsidiaries is a corporation duly organized
and validly existing and in good standing under the laws of the jurisdiction of
its respective incorporation, (ii) each of Airways and its Subsidiaries is duly
qualified or licensed, as may be required, as a foreign corporation, and in good
standing in each jurisdiction where the failure to do so would constitute a
Material Adverse Effect, (iii) each of Airways and its Subsidiaries has the
corporate power to carry on its business as now being conducted, (iv) the
authorized capital stock of Airways is as set forth in Section 2.03 hereof, and
stating the number of such shares which have been issued, and that such issued
shares have been duly authorized, are validly issued and outstanding, and are
fully paid and nonassessable, (v) all of the outstanding shares of capital stock
of the Airways Subsidiaries are directly or indirectly owned free and clear of
all liens, charges or encumbrances, all of such shares have been duly
authorized, are validly issued and outstanding, and are fully paid and
nonassessable, and neither Airways nor its Subsidiaries is a party to or bound
by any outstanding option or agreement to sell, issue or otherwise dispose of
any capital stock of Airways or its Subsidiaries except the Airways options and
warrants referred to in Section 2.03 hereof, and (vi) this Agreement and the
Plan of Merger each has been duly executed and delivered by Airways and is the
valid, binding and enforceable obligation of Airways (subject to equity
principles of general application and to applicable bankruptcy, reorganization,
insolvency and moratorium laws and other laws from time to time in effect
affecting the enforcement of creditor's rights generally and no opinion shall be
required with respect to the enforceability of any liquidated damage provision
contained herein), and all corporate action by the Board of Directors and
stockholders of Airways required to authorize the Merger has been taken, and
Airways has the corporate power to effect the Merger provided for in this
Agreement and the Plan of Merger. In rendering such opinion such counsel may
rely, to the extent such counsel deems such reliance necessary or appropriate,
on opinions of local counsel as to matters involving the law other than that of
the United States or the State of Delaware and, as to matters of fact, upon
certificates of state officials and of corporate officers of Airways, provided
the extent of such reliance is specified in such opinion.
(j) VJET Stockholder Approval. The holders of a majority of the
-------------------------
outstanding shares of VJET Common Stock shall have approved the amendment to
VJET's Articles of Incorporation, the amendment to the By-laws set forth in
Exhibit "B" attached hereto and the Merger at a meeting of stockholders duly
called for such purpose.
(k) Plan of Merger. Airways shall have delivered to VJET a duly
--------------
executed copy of the Plan of Merger and Articles of Merger.
(l) Listing of VJET Common Stock. The shares of VJET Common Stock to
----------------------------
be delivered to Airways stockholders in payment of the Merger Price shall have
been approved for listing on NASDAQ, upon official notice of issuance.
(m) Fairness Opinion. The Board of Directors of VJET shall have
----------------
received a written opinion from The Robinson-Humphrey Company, Inc. dated as of
the date of the Proxy Statement relating to VJET's stockholder meeting
contemplated by Section 5.01(j), in customary form, stating that the terms of
the Merger are fair to the stockholders of VJET from a financial point of view;
provided, however, that this condition shall be deemed to have been waived if
(i) VJET
A-28
<PAGE>
does not receive such fairness opinion on or before the date of such Proxy
Statement, and (ii) VJET does not terminate this Agreement as provided in
Section 5.03(g). VJET agrees to use its good faith efforts to obtain such
- ---------------
fairness opinion within such time period.
(n) Minute Books and Stock Ledgers. Airways shall have delivered to
------------------------------
VJET the minute books and stock ledgers for Airways and each of its
Subsidiaries.
(o) Tax Opinion. VJET shall have received a tax opinion from Ernst &
-----------
Young LLP to the effect that the Merger will be treated for federal income tax
purposes as a tax free reorganization within the meaning of Internal Revenue
Code Section 368(a); provided, however, that if Ernst & Young LLP does not
provide such opinion, then Airways shall have the right to have such opinion
provided by Airways' counsel or independent public accountants.
5.02 Conditions of Obligation of Airways. The obligation of Airways to
-----------------------------------
effect the Merger shall be subject to the following conditions:
(a) VJET Stockholders and Board of Director Approvals. VJET shall
-------------------------------------------------
have furnished Airways with (i) evidence that the stockholders of VJET shall
have approved the amendment to its Articles of Incorporation and Bylaws set
forth in Exhibit A and, if required by NASDAQ, the Merger (ii) certified copies
of resolutions duly adopted by its Board of Directors authorizing all necessary
and proper corporate action to enable VJET to comply with the terms of this
Agreement and the Plan of Merger and approving the execution and delivery to
Airways of this Agreement and the Plan of Merger; and (iii) Incumbency
Certificates for the officers of VJET.
(b) Representations and Warranties of VJET to be True. Except to the
-------------------------------------------------
extent waived hereunder, (i) the representations and warranties of VJET herein
contained shall be true on the Closing Date with the same effect as though made
at such time as if none of such representations and warranties contained any
qualifications as to materiality or the absence of a Material Adverse Effect;
provided, however, notwithstanding the foregoing this condition shall be deemed
- -------- -------
to be satisfied if all breaches of such representations and warranties do not
cumulatively constitute a Material Adverse Effect; and (ii) VJET shall have
performed all obligations and complied with all covenants required by this
Agreement to be performed or complied with by it prior to the Effective Date of
the Merger. VJET shall also have delivered to Airways a certificate of VJET,
dated the Effective Date of the Merger and signed by its Chairman of the Board
or President as to both of the aforementioned effects. Notwithstanding the
foregoing, Airways shall not rely on this Section 5.02(b) to excuse its
performance hereunder unless: (i) Airways shall have given VJET written notice
of any breach of covenants and VJET fails to cure such breach within a
reasonable time (but not more than ten days) after receipt of such notice, and
(ii) the breach of representations, warranties or covenants will constitute a
Material Adverse Effect with respect to VJET or has or is likely to materially
adversely affect VJET's stock price.
(c) Third Party Consents. VJET shall have obtained consents to the
--------------------
transactions contemplated by this Agreement to the extent required from all
federal, state or local governmental agencies except to the extent the failure
to obtain one or more consents would not materially affect VJET's continuing
business. There shall have been completed all Hart-Scott-Rodino and other like
A-29
<PAGE>
governmental filings, and there shall have been obtained Hart-Scott-Rodino
approval or expiration of the applicable waiting period.
(d) VJET Bondholder Consent. VJET shall have secured the consent of
-----------------------
the requisite proportion of the holders of the VJET 10 1/4% Senior
Notes due 2001 to the transactions contemplated hereby.
(e) Registration of VJET Stock. The Registration Statement shall
--------------------------
have become effective under the Securities Act and all other applicable statutes
and no stop order suspending the effectiveness shall have been issued and no
proceedings for that purpose shall have been instituted, pending or contemplated
under such Act, and the shares to be issued to Airways' stockholders pursuant
hereto shall have been duly registered under the Securities Act.
(f) No Material Adverse Effect. VJET shall not have suffered or
---------------------------
incurred any Material Adverse Effect since March 31, 1997, other than as
disclosed by VJET to Airways (whether by public filings or separate disclosure)
prior to the execution of this Agreement.
(g) Statutory Requirements; Litigation. All statutory requirements
----------------------------------
for the valid consummation by VJET and Airways of the transaction contemplated
by this Agreement and the Plan of Merger shall have been fulfilled; all
authorizations, consents and approvals of all federal, state or local
governmental agencies and authorities required to be obtained in order to permit
consummation by VJET and Airways of the transactions contemplated by this
Agreement and the Plan of Merger and to permit the business presently carried on
by VJET to continue unimpaired immediately following the Effective Date of the
Merger shall have been obtained; the FAA and DOT shall have approved the
transaction in such a manner that Airways and its Subsidiaries will not after
the Merger become subject to any restrictions currently applicable to VJET or
its Subsidiaries or subject to any restrictions not currently applicable to
Airways and its Subsidiaries; between the date of this Agreement and the
Effective Date of the Merger no governmental agency, whether federal, state or
local, shall have instituted (or threatened to institute either orally or in a
writing directed to Airways, any of its Subsidiaries, VJET or its Subsidiaries)
an investigation which is pending on the Effective Date of the Merger relating
to the Merger and between the date of this Agreement and the Effective Date of
the Merger no action or proceeding shall have been instituted or, to the
knowledge of Airways, shall have been threatened before a court or other
governmental body or by any public authority to restrain or prohibit the
transaction contemplated by this Agreement or the Plan of Merger or to obtain
damages in respect thereof.
(h) Performance of Agreement. There shall not have been issued and
------------------------
be in effect any order of any court or tribunal of competent jurisdiction or
governmental agency which in effect prohibits the performance of this Agreement
or the Merger and the transactions contemplated hereby.
A-30
<PAGE>
(i) Opinion of Counsel of VJET. Airways shall have received from
--------------------------
Ellis, Funk, Goldberg, Labovitz & Dokson, P.C., counsel to VJET, an opinion,
dated the Closing Date, in form and substance satisfactory to Airways' counsel,
Briggs & Morgan to the effect that (i) VJET is a corporation duly organized and
validly existing and in good standing under the laws of the State of Nevada,
(ii) VJET has the corporate power to carry on its business as now being
conducted, (iii) the authorized capital stock of VJET is as set forth in Section
3.03 hereof, and stating the number of shares of such authorized capital stock
which are issued, that such issued shares have been duly authorized, are validly
issued and outstanding, and are fully paid and nonassessable, (iv) the shares of
VJET Common Stock for which the shares of Airways Common Stock are to be
exchanged pursuant to the Plan of Merger have been duly authorized and,
immediately after the Effective Date of the Merger, will be duly and validly
issued and will be fully paid and nonassessable, (v) this Agreement and the Plan
of Merger have been duly executed and delivered by VJET and this Agreement is
the valid, binding and enforceable (subject to equity principles of general
application and to bankruptcy, reorganization, insolvency and moratorium laws
and other laws from time to time in effect affecting the enforcement of
creditors' rights generally and no opinion shall be required with respect to the
enforceability of any liquidated damage provision contained herein) obligation
of VJET, the Plan of Merger is the valid and binding obligation of VJET, all
corporate action by the Board of Directors of VJET and the stockholders of VJET
required to authorize the Merger has been taken, and VJET has the corporate
power to effect the Merger provided for in this Agreement and the Plan of
Merger, and (vi) the Registration Statement shall have been declared effective
by the SEC. In rendering such opinion such counsel may rely, to the extent such
counsel deems such reliance necessary or appropriate, on opinions of local
counsel as to matters involving the law other than that of the United States or
the State of Nevada and, as to matters of fact, upon certificates of state
officials and of corporate officers of VJET, provided the extent of such
reliance is specified in such opinion.
(j) Airways Stockholder Approval. The holders of a majority of
----------------------------
the outstanding shares of Airways Common Stock shall have approved the Merger at
a meeting of stockholders duly called and held for such purpose.
(k) Plan of Merger. VJET shall have delivered to Airways a duly
--------------
executed copy of the Plan of Merger and Articles of Merger containing the Plan
of Merger.
(l) Listing of VJET Common Stock. The shares of VJET Common Stock to
----------------------------
be delivered to Airways stockholders in payment of the Merger Price shall have
been approved for listing on NASDAQ, upon official notice of issuance.
(m) Fairness Opinion. The Board of Directors of Airways shall have
----------------
received a written opinion from Paine Webber Incorporated dated as of the date
of the Proxy Statement relating to Airways' stockholders meeting contemplated by
Section 5.02(j), in customary form, stating that the terms of the Merger are
fair to the stockholders of Airways from a financial point of view; provided,
however, that this condition shall be deemed to have been waived if (i) Airways
does not receive such fairness opinion on or before the date of said Proxy
Statement, and (ii) Airways does not terminate this Agreement as provided in
Section 5.03(h). Airways agrees to use its good faith efforts to obtain such
fairness opinion within such time period.
A-31
<PAGE>
(n) Tax Opinion. Airways shall have received a tax opinion from
-----------
Briggs & Morgan to the effect that the Merger will be treated for federal income
tax purposes as a tax free reorganization within the meaning of Internal Revenue
Code Section 368(a) and that the tax treatment to be accorded Airways'
stockholders in connection with the spin-off of Airways which occurred in
September 1995, shall not be adversely affected by the consummation of the
transactions contemplated hereby; provided, however, that if Briggs & Morgan
does not provide such opinion, then VJET shall have the right to have such
opinion provided by VJET's counsel or independent public accountants. For
purposes of this subparagraph (n), the law firm or accounting firm may assume
that the Airways' stockholders will maintain their respective interests in VJET
after the Merger to the extent necessary to support the rendering of such
favorable opinion.
(o) No Event of Default on VJET Secured Debt. There shall not be then
----------------------------------------
in existence any event of default under any of VJET's secured debt.
5.03 Termination of Agreement and Abandonment of Merger. Anything herein to
--------------------------------------------------
the contrary notwithstanding, this Agreement and the Merger contemplated hereby
may be terminated at any time before the Effective Date of the Merger, whether
before or after approval of this Agreement by the respective stockholders of
VJET and Airways, as follows, and in no other manner:
(a) Mutual Consent. By mutual consent of the Boards of Directors of
--------------
VJET and Airways.
(b) Conditions of Airways Not Met. By the Board of Directors of VJET
-----------------------------
if, by November 30, 1997 or such later date as may be determined by mutual
agreement of VJET and Airways, the conditions set forth in Section 5.01 of this
Article V shall not have been met (or waived as provided in Article VIII of this
Agreement).
(c) Conditions of VJET Not Met. By the Board of Directors of Airways
--------------------------
if, by November 30, 1997 or such later date as may be determined by mutual
agreement of VJET and Airways, the conditions set forth in Section 5.02 of this
Article V shall not have been met (or waived as provided in Article VIII of this
Agreement).
(d) Expiration Date. By the Board of Directors of either VJET or
---------------
Airways if the Merger shall not have become effective by November 30, 1997,
which date may be extended by mutual agreement of the Board of Directors of VJET
and Airways.
(e) Superior Proposal. By Airways if Airways receives a Superior
-----------------
Proposal and pays the termination fee set forth in Section 5.06(a).
(f) Acquisition Proposal. By VJET if Airways receives an Acquisition
--------------------
Proposal which Airways continues to entertain or negotiate for a period of 21
days after its receipt.
(g) VJET Fairness Opinion. By VJET if it does not receive the
fairness opinion referred to in Section 5.01(m) within the time period provided
therein; provided, however, that this
A-32
<PAGE>
right to terminate may not be exercised later than ten (10) days after the date
the Registration Statement is declared effective by the SEC.
(h) Airways Fairness Opinion. By Airways if it does not receive the
------------------------
fairness opinion referred to in Section 5.02(m) within the time period provided
therein; provided, however, that this right to terminate may not be exercised
later than ten (10) days after the date the Registration Statement is declared
effective by the SEC.
5.04 Liquidated Damages to VJET.
--------------------------
(a) In the event VJET is ready, willing and able to consummate the
Merger, but Airways shall fail to consummate the Merger after all of the
conditions to Airways' performance as set forth in Section 5.02 hereof shall
have been satisfied or shall have been waived by Airways, then Airways shall pay
to VJET upon its demand therefor, in immediately available funds, Five Million
Dollars ($5,000,000) as liquidated damages and not as a penalty.
(b) In the event VJET shall elect not to consummate the Merger as a
result of Airways' failure to comply in all material respects with all material
covenants required to be performed by Airways prior to the Effective Date of
Merger as provided in Sections 4.01 and 4.06 of this Agreement, then Airways
shall pay to VJET upon its demand therefor, in immediately available funds, Five
Million Dollars ($5,000,000) as liquidated damages and not as a penalty.
(c) In the event the Merger is not consummated for the reasons set
forth in this Section 5.04, VJET will suffer substantial damage to its
reputation and public image, in addition to the costs and expenses incurred by
it in the pursuit of this transaction. Airways acknowledges and agrees that the
actual losses to be suffered by VJET in the event the Merger is not consummated
for the reasons set forth in this Section 5.04 will be difficult to ascertain
and that these liquidated damages have been arrived at after a good faith effort
to estimate such losses and are reasonable.
5.05 Liquidated Damages to Airways.
-----------------------------
(a) In the event Airways is ready, willing and able to consummate the
Merger, but VJET shall fail to consummate the Merger after all of the conditions
to VJET's performance as set forth in Section 5.01 of this Agreement shall have
been satisfied or shall have been waived by VJET, then VJET shall pay to Airways
upon its demand therefor, in immediately available funds, Five Million Dollars
($5,000,000) as liquidated damages and not as a penalty.
(b) In the event Airways shall elect not to consummate the Merger as
a result of VJET's failure to comply in all material respects with all material
covenants required to be performed by VJET prior to the Effective Date of Merger
as provided in Sections 4.02 and 4.06 of this Agreement, then VJET shall pay to
Airways upon its demand therefor, in immediately available funds, Five Million
Dollars ($5,000,000) as liquidated damages and not as a penalty.
(c) In the event the Merger is not consummated for the reasons set
forth in this Section 5.05, Airways will suffer substantial damage to its
reputation and public image, in addition
A-33
<PAGE>
to the costs and expenses incurred by it in the pursuit of this transaction.
VJET acknowledges and agrees that the actual losses to be suffered by Airways in
the event the Merger is not consummated for the reasons set forth in this
Section 5.05 will be difficult to ascertain and that these liquidated damages
have been arrived at after a good faith effort to estimate such losses and are
reasonable.
5.06 Certain Termination Payments.
----------------------------
(a) In the event Airways terminates this Agreement pursuant to
Section 5.03(e), then Airways shall pay to VJET, upon VJET's demand, a
termination fee equal to the sum of Three Million Dollars ($3,000,000) in
immediately available funds.
(b) In the event VJET terminates this Agreement pursuant to Section
5.03(f), then Airways shall pay to VJET, upon VJET's demand all of VJET's out-
of-pocket costs incurred to third parties in connection with this Agreement and
the transactions contemplated hereby.
ARTICLE VI
Determination of the Merger Price
---------------------------------
6.01 The Merger Price. Upon the Effective Date of the Merger, holders of
----------------
Airways Common Stock shall be entitled to receive the portion of the Merger
Price to which each is entitled pursuant to the Plan of Merger. The Merger
Price shall be paid in the form of VJET Common Stock. The total number of
shares of VJET Common Stock to be issued to the stockholders of Airways in the
Merger (the "Merger Price") shall be equal to the number of shares of Airways
Common Stock issued and outstanding on the Closing Date.
ARTICLE VII
Other Agreements After Closing
------------------------------
7.01 Corporate Governance After Merger. VJET shall expand its Board of
---------------------------------
Directors to seven (7) members effective as of the Closing Date. Four (4) of
the members of the Board of Directors will be selected by VJET prior to the
Closing and three (3) of the members of the Board of Directors will be selected
by Airways prior to the Closing. Said Directors will be elected for a term
expiring upon VJET's 1999 annual stockholders' meeting.
7.02 Press Releases. Each party shall consult with the other party hereto
--------------
before publishing, releasing or otherwise disseminating to the public any
information, publicity or statements concerning this Agreement, the Plan of
Merger or any of the transactions herein contemplated; provided, however, that
this section shall not be construed to prohibit any of the
A-34
<PAGE>
parties hereto from making announcements to the press with respect to other
factual business or financial developments concerning its operations or making
any such releases as are time-critical under applicable law or regulations.
7.03 Other Agreements.
----------------
(a) Promptly after the Effective Date of the Merger, VJET shall issue
lifetime passes to all persons who were members of Airways' Board of Directors
immediately prior to the Effective Date of the Merger, which passes shall
provide the same level of authority as the passes granted to Robert L. Priddy
and Lewis H. Jordan and may be used by each such person, his spouse and
dependents.
(b) VJET will enter into a consulting agreement with each of Robert
L. Priddy and Lewis H. Jordan providing for: (i) a five (5) year term, (ii)
compensation of $100,000 per year, (iii) their respective option agreements with
VJET will be amended such that such options will remain exercisable until the
expiration date thereof notwithstanding his termination of employment, (iv)
lifetime pass benefits for himself, his spouse and dependents, and (v) lifetime
eligibility for coverage in VJET's health insurance plan in effect from time to
time. In consideration therefor, each of them agrees to devote such time during
such five year period as may be necessary to supervise on behalf of VJET in
connection with its defense to litigation in process prior to the Closing Date.
7.04 Tax Treatment. Each of VJET and Airways will use its best efforts to
-------------
cause the Merger to qualify as a reorganization under the provisions of Section
368(a) of the Code. Neither party nor any affiliate shall take any action that
would cause the Merger not to qualify as a reorganization under Section 368(a)
except to the extent that such action is specifically contemplated by this
Agreement.
ARTICLE VIII
Termination of Obligations and Waiver of Conditions
---------------------------------------------------
8.01 Termination. In the event that this Agreement shall be terminated
-----------
pursuant to Section 5.03 of Article V hereof, all further obligations of the
parties hereto under this Agreement shall terminate without further liability of
any party to another and each party hereto will pay all costs and expenses
incident to its negotiation and preparation of this Agreement and to its
performance and compliance with all agreements and conditions contained herein
on its part to be performed or complied with, including the fees, expenses and
disbursements of its counsel. The foregoing shall not apply to the extent
certain provisions survive the termination of this Agreement as provided in
Section 9.06.
8.02 Waiver. If any of the conditions specified in Section 5.01 of Article
------
V hereof has not been satisfied, VJET may nevertheless, at the election of VJET,
proceed with the transactions contemplated hereby and, if any of the conditions
specified in Section 5.02 of Article V hereof has
A-35
<PAGE>
not been satisfied, Airways may nevertheless, at its election, proceed with the
transactions contemplated hereby. Any such election to proceed shall be
evidenced by a certificate executed on behalf of the electing party by its
Chairman of the Board or President.
8.03 Confidentiality. In the event of the termination of the transactions
---------------
contemplated by this Agreement, all information acquired by either VJET or
Airways, shall be held in the strictest of confidence if not public information,
and neither party shall use such information to the disadvantage of the other.
ARTICLE IX
General
-------
9.01 Amendments. This Agreement and the form of any exhibit attached hereto
----------
may be amended in writing by the parties hereto before and after the meeting of
stockholders referred to in Sections 4.03 and 4.04 hereof at any time prior to
the Effective Date of the Merger.
9.02 "Subsidiaries". A "Subsidiary" with respect to any corporation
--------------
referred to in this Agreement shall mean a corporation (or equivalent legal
entity under foreign law) of which Airways, VJET or any other corporation
referred to in this Agreement, as the case may be, owns directly or indirectly
50% or more of the stock the holders of which are ordinarily and generally, in
the absence of contingencies, entitled to vote for the election of a majority of
the directors.
9.03 "Knowledge". Wherever in this Agreement any representation or warranty
-----------
is expressed in the terms of "knowledge" or "to the best of its knowledge" of
Airways or VJET, such knowledge shall be deemed to refer to matters which the
respective officers and directors of Airways or VJET, as the case may be, knew
or should have known after diligent inquiry.
9.04 "Material Adverse Effect". With respect to any person or entity shall
-------------------------
mean any event, condition, development or effect which, individually or in the
aggregate, shall have had, or insofar as can reasonably be foreseen will have, a
material adverse effect on the business, operations, assets, liabilities or
condition (financial or otherwise) or prospects of a person and its subsidiaries
(if applicable) taken as a whole. For purposes of this Agreement, the
termination or expiration without renewal of Airways' code sharing agreement
with Comair, Inc. or the termination of Airways' lease of gate space from Delta
Air Lines, Inc. at the Orlando airport shall not be a Material Adverse Effect.
9.05 Schedules. Each Disclosure Statement described in this Agreement has
---------
been delivered simultaneously with the execution and pursuant to the terms of
this Agreement. Any information supplied to either party in writing between the
date hereof and the Closing Date if accepted by either party shall be made a
part of the Schedules hereto and be deemed to have been disclosed to the other
party for all purposes of this Agreement.
A-36
<PAGE>
9.06 No Survival of Representations and Warranties. The respective
---------------------------------------------
covenants, representations and warranties of Airways and VJET shall expire and
be terminated and extinguished on the Effective Date of the Merger, except for
Section 4.12 relating to indemnification and D&O liability insurance and those
covenants contained in Article VII hereof. Except for the provisions of
Sections 5.04, 5.05, 7.01, and 7.03, the confidentiality provisions of Sections
4.01(a) and 4.02(a) and 8.03, the respective covenants, representations and
warranties of Airways and VJET shall expire and be terminated and extinguished
in the event of the termination and abandonment of this Agreement as provided in
Article VIII hereof. No party to this Agreement shall have any liability to any
other party to this Agreement after the Effective Date of the Merger as a result
of any breach of any covenant, representation or warranty contained in this
Agreement.
9.07 Governing Law. This Agreement and the legal relations between the
-------------
parties shall be governed by and construed in accordance with the laws of the
State of Nevada with respect to the Merger and governed by and construed in
accordance with the laws of the State of Georgia in all other respects.
9.08 Notices. All notices hereunder shall be deemed given if in writing and
-------
delivered personally or sent by telecopy (with written evidence of receipt),
telegram, registered mail or certified mail (return receipt requested) to the
parties at the following addresses (or at such other addresses as shall be
specified by like notice):
(a) If to VJET, to: ValuJet, Inc.
1800 Phoenix Blvd.
Suite 126
Atlanta, Georgia 30349
Attn: D. Joseph Corr
Fax: (770) 907-2586
With a copy to: Ellis, Funk, Goldberg, Labovitz &
Dokson, P.C.
3490 Piedmont Road
Suite 400
Atlanta, Georgia 30305
Attn: Robert B. Goldberg
Fax: (404) 233-2188
(b) If to Airways, to Airways Corporation
6280 Hazeltine National Drive
Orlando, Florida 32822
Attn: Robert D. Swenson
Fax: (407) 888-9693
A-37
<PAGE>
With a copy to: Briggs & Morgan
2400 IDS Center
80 South 8th Street
Minneapolis, Minnesota 55402
Attn: R. L. Sorenson, Esq.
Fax: (612) 334-8650
Any such notice or communication shall be deemed to have been given as of three
days after posting, one day after next day delivery service or upon personal
delivery or confirmed telecopy.
9.09 No Assignment. This Agreement may not be assigned by operation of law
-------------
or otherwise without the express written consent of the other parties.
9.10 Headings. The descriptive headings of the several Articles, Sections
--------
and paragraphs of this Agreement are inserted for convenience only and do not
constitute a part of this Agreement.
9.11 Counterparts. This Agreement may be executed in one or more
------------
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties hereto and delivered to each of the other parties hereto.
9.12 Entire Agreement. This Agreement and the exhibits hereto and other
----------------
documents delivered or to be delivered pursuant hereto or incorporated by
reference herein, taken together contain the entire agreement between the
parties hereto concerning the transactions contemplated hereby and supersede all
prior agreements or understandings, written or oral, between the parties hereto
relating to the subject matter hereof. No oral representation, agreement or
understanding made by any party hereto shall be valid or binding upon such party
or any other party hereto.
9.13 Severability. The parties intend for this Agreement to be severable.
------------
It is mutually agreed that in the event any paragraph, subparagraph, section,
subsection, sentence, clause or phrase hereof shall be construed as illegal,
invalid or unenforceable for any reason, such determination shall in no manner
affect the other paragraphs, subparagraphs, sections, subsections, sentences,
clauses or phrases hereof which shall remain in full force and effect, as if the
said paragraph, subparagraph, section, subsection, sentence, clause or phrase so
construed as illegal, invalid or unenforceable were not originally a part
hereof, and the enforceability hereof as a whole will not be affected. The
parties hereby declare that they would have agreed to the remaining parts hereof
if they had known that such parts hereof would be construed as illegal, invalid
or unenforceable.
A-38
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed on its behalf by its officers thereunto duly authorized, all as of
the day and year first above written.
VALUJET, INC.
By: /s/ Robert L. Priddy
--------------------
AIRWAYS CORPORATION
By: /s/ Robert D. Swenson
---------------------
A-39
<PAGE>
DEFINED TERMS
-------------
<TABLE>
<CAPTION>
Defined Term Section Reference
- ------------ -----------------
<S> <C>
Acquisition Proposal Section 4.05
Airways Introductory Paragraph
Airways Affiliates Section 4.09
Airways Common Stock Recitals
Airways Financial Statements Section 2.04(a)
Airways' Intellectual Property Section 2.17(a)
Airways Plans Section 2.03
Airways SEC Filings Section 2.04(a)
Airways Special Meeting Section 4.03
Closing Date or Closing Section 1.02
Dissenting Stockholder Section 6.02
DOT Section 2.08
Effective Date of the Merger Section 1.01
Exchange Act Section 2.04(a)
FAA Section 2.08
GAAP Section 2.09
HSR Act Section 2.05
Insiders Section 4.03
Material Adverse Effect Section 9.04
Merger Recitals
Merger Price Section 6.01
NASDAQ Section 4.15
Plan of Merger Exhibit "A"
Proxy Statement Section 5.01(j)
Registration Statement Section 4.07
SEC Section 2.04(a)
Securities Act Section 4.07
Subsidiaries Section 9.02
Superior Proposal Section 4.04
VJET Introductory Paragraph
VJET Financial Statement Section 3.04(a)
VJET Meeting Section 4.04
VJET Plans Section 3.03
VJET SEC Filings Section 3.04(a)
VJET's Intellectual Property Section 3.19(a)
</TABLE>
A-40
<PAGE>
EXHIBIT "A"
PLAN OF MERGER
PLAN OF MERGER, dated July 10, 1997, by and between Airways Corporation, a
Delaware corporation ("Airways"), and ValuJet, Inc., a Nevada corporation
("VJET"), herein sometimes referred to as the "Surviving Corporation", said
corporations being hereinafter collectively referred to as the "Constituent
Corporations".
W I T N E S S E T H:
WHEREAS, Airways is a corporation organized and existing under and by
virtue of the laws of the State of Delaware and having an authorized
capitalization of 1,000,000 shares of preferred stock, $.01 par value per share,
no shares of which are issued or outstanding and 19,000,000 shares of common
stock, $.01 par value per share ("Airways Common Stock"), of which 9,067,937
shares are issued and outstanding as of the date of this Plan of Merger; and
WHEREAS, VJET is a corporation organized and existing under and by virtue
of the laws of the State of Nevada and having an authorized capitalization of
5,000,000 shares of preferred stock, par value $.01 per share ("Preferred
Stock"), no shares of which are issued or outstanding and 1,000,000,000 shares
of Common Stock, par value $.001 per share ("VJET Common Stock") of which
54,969,238 shares are issued and outstanding as of the date of this Plan of
Merger; and
WHEREAS, Airways and VJET have entered into a Plan of Reorganization and
Agreement of Merger, dated as of July 10, 1997 (the "Merger Agreement"),
providing, among other things, for the execution and acknowledgment of this Plan
of Merger, the execution, acknowledgment and filing of Articles or Certificates
of Merger and the merger of Airways with and into VJET upon the terms set forth
in the Merger Agreement and this Plan of Merger; and
WHEREAS, the respective Boards of Directors of each of the Constituent
Corporations deem it advisable and in the best interest of each of such
corporations and their respective stockholders that Airways be merged with and
into VJET in the manner contemplated herein and in the Merger Agreement and have
adopted resolutions approving this Agreement and the Merger Agreement and have
recommended that the merger of Airways with and into VJET (the
A-41
<PAGE>
"Merger") be approved, and that this Plan of Merger and the Merger Agreement be
approved and adopted by the stockholders of VJET and by the stockholders of
Airways;
NOW, THEREFORE, in consideration of the premises and mutual covenants and
agreements herein contained, and subject to the conditions herein set forth, and
for the purpose of stating the terms and conditions of the Merger, the mode of
carrying the same into effect, the manner of exchanging the shares of VJET
Common Stock issued and outstanding immediately prior to the effective date of
the Merger for the Merger Price in accordance with Article V hereof, and such
other details and provisions as are deemed desirable all as contemplated by
Section 78.451 of the Nevada Revised Statutes and Section 252 of the Delaware
General Corporation Law, the parties hereto have agreed, and do hereby agree,
subject to the terms and conditions hereinafter set forth, as follows:
ARTICLE I.
The Constituent Corporations shall be merged into a single corporation by
Airways merging into and with VJET, the Surviving Corporation, which shall
survive the Merger, pursuant to the provisions of the Nevada Revised Statutes
and the Delaware General Corporation Law. Upon such Merger, the separate
corporate existence of Airways shall cease and the Surviving Corporation shall
become the owner, without transfer, of all rights and property of the
Constituent Corporations, and the Surviving Corporation shall become subject to
all the debt and liabilities of the Constituent Corporations in the same manner
as if the Surviving Corporation had itself incurred them.
ARTICLE II.
The name of the Surviving Corporation (heretofore "ValuJet, Inc.") shall be
changed to AirTran Holdings, Inc.
ARTICLE III.
A. On the effective date of the merger, which shall be the day the
Articles or Certificates of Merger shall have been accepted for filing and filed
with the Secretary of the State of the States of Nevada and Delaware (the
"Effective Date of the Merger"), the Articles of Incorporation of VJET shall be
the Articles of Incorporation of the Surviving Corporation, provided they shall
be amended as set forth in ARTICLE II above.
A-42
<PAGE>
B. On the Effective Date of the Merger, the bylaws of VJET, as in effect
on the Effective Date of the Merger, shall remain the bylaws of the Surviving
Corporation. Subsequent to the Effective Date of the Merger, such bylaws shall
be the bylaws of the Surviving Corporation until they shall thereafter be duly
amended, except that such Bylaws shall be amended as set forth in Exhibit B in
the Merger Agreement.
ARTICLE IV.
A. On the Effective Date of the Merger the members of the board of
directors of the Surviving Corporation shall be as follows: [FOUR PERSONS TO BE
SELECTED BY VJET PRIOR TO THE CLOSING AND THREE PERSONS TO BE SELECTED BY
AIRWAYS PRIOR TO THE CLOSING] all of whom shall continue to hold their positions
as directors until the 1999 shareholders meeting and thereafter until the
election and qualification of their respective successors or until they shall
resign, die or otherwise cease to hold such directorships in accordance with the
bylaws of the Surviving Corporation.
B. The Chairman of the Board immediately after the Effective Date of the
Merger shall be Robert D. Swenson, a non-employee Director to be designated by
Airways.
C. As of the Effective Date of the Merger, D. Joseph Corr shall become
President and Chief Executive Officer of the Surviving Corporation. All other
officers of the Surviving Corporation shall be selected by the Chief Executive
Officer, subject to the approval of the Board of Directors.
ARTICLE V.
A. On the Effective Date of the Merger, each of the then issued and
outstanding shares of VJET Common Stock shall continue to be an issued and
outstanding share of Common Stock of the Surviving Corporation.
B. On the Effective Date of the Merger, each of the then issued and
outstanding shares of Airways Common Stock shall be converted into the right to
receive the "Merger Price" which shall be one (1) share of Common Stock of the
Surviving Corporation for each share of Airways Common Stock.
C. The manner of exchanging the shares of Airways Common Stock issued and
outstanding immediately prior to the Effective Date of the Merger for the Merger
Price to be distributed to the
A-43
<PAGE>
Airways stockholders in accordance with paragraph (1) below, shall be as
follows:
(1) On the Effective Date of the Merger, each share of Airways Common
Stock issued and outstanding immediately prior to the Effective Date of the
Merger shall, by virtue of the Merger and without any action on the part of the
holder thereof, automatically be cancelled and converted into the Merger Price,
as allocated below, and each share of treasury stock of Airways shall be
cancelled.
(2) On the Effective Date of the Merger:
(i) Each record holder of a certificate theretofore evidencing
Airways Common Stock who has surrendered the same to VJET, duly endorsed with
the signatures appropriately guaranteed and accompanied by any evidence required
by VJET, shall be entitled to receive therefor one (1) share of VJET Common
Stock for each share of Airways Common Stock surrendered. The exchange agent for
VJET, First Union National Bank, Charlotte, North Carolina, will send a notice
and a transmittal form to each holder of an outstanding certificate or
certificates of Airways Common Stock who on the Effective Date of the Merger has
not so surrendered his certificate or certificates, advising such stockholder of
the terms of the conversion effected by the Merger, the method of selling any
fractional share interest (when applicable) as described in Section (2)(iii) of
this Article V, and the procedure for surrendering to the Exchange Agent such
certificate or certificates in exchange for the Merger Price allocated therefor.
Until so surrendered, each such outstanding certificate which prior to the
Effective Date of the Merger represented shares of Airways Common Stock shall
be deemed for all corporate purposes (subject to the further provisions of this
Section (2)) to evidence ownership of one (1) share of VJET Common Stock. After
the Effective Date of the Merger, the stock transfer book of Airways shall be
closed and no transfer of Airways Common Stock shall thereafter be made. If,
after the Effective Date of the Merger, certificates representing shares of
Airways Common Stock are presented to the Surviving Corporation, they shall be
cancelled and exchanged for certificates representing VJET Common Stock.
(ii) If any certificate of VJET Common stock is to be issued to
a person other than the person in whose name the Airways Common Stock
certificate is surrendered in exchange therefor is registered, it shall be a
condition to such exchange that the certificate so surrendered shall be properly
endorsed and otherwise in proper form for transfer and that the person
A-44
<PAGE>
requesting such transfer pay to Airways and VJET or the Exchange Agent, as the
case may be, any transfer or other taxes required by reason of the issuance of
VJET Common Stock in any name other than that of the registered holder of the
Airways stock certificate surrendered or establish to the satisfaction of VJET
or the Exchange Agent, as the case may be, that such tax has been paid or is not
applicable.
(iii) Neither certificates nor scrip for fractional shares of
VJET Common Stock will be issued but each holder of Airways Common Stock who
otherwise would be entitled to receive a fractional share of VJET Common Stock
will be entitled in lieu thereof to an amount of cash, without interest,
determined by multiplying such fraction times the closing price of VJET's Common
Stock as reported for the NASDAQ Stock Exchange in The Wall Street Journal,
-----------------------
Southeast Edition, on the Effective Date of the Merger. After the expiration of
sixty (60) days after the Effective Date of the Merger, the Exchange Agent will
sell to VJET, for the account of the holders of such fractional share interests
who have not surrendered stock certificates, shares of VJET Common Stock
equivalent to the aggregate of such fractional share interests then outstanding.
The Exchange Agent will thereafter, subject to any applicable abandoned property
or similar law, until one (1) year after the Effective Date of the Merger pay to
such holders upon surrender of their certificates representing Airways Common
Stock their pro rata proceeds of any such sale, without interest. Any balance of
such proceeds and any amounts paid to the Exchange Agent in respect of VJET
Common Stock issued in the Merger, certificates for which shall not have been
surrendered by the expiration of such one (1) year period, will, together with
any interest thereon, be paid over to VJET as soon as practicable after the
expiration of such period subject to any applicable abandoned property or
similar law. The fee of the Exchange Agent and any expenses of the Exchange
Agent incidental to the sale of fractional share interests shall be borne by the
Surviving Corporation.
D. Prior to the Effective Date of the Merger, the Board of Directors of
VJET will adopt Airways' stock option plans and assume Airway's obligations
under all outstanding warrants and to take such other action as may be required
such that on the Effective Date of Merger, any option or warrant to acquire
Airways Common Stock granted or issued pursuant to any stock option plan or
otherwise that have not been exercised and have not lapsed, shall, by operation
of the Merger, be converted into and become, without any action on the part of
the holder thereof, an option or right to acquire shares of VJET Common Stock
equal to the number of shares of Airways Common Stock subject to such options or
warrants prior
A-45
<PAGE>
to the Merger. The exercise price for such options or warrants to purchase
shares of VJET Common Stock after the Merger shall be the same as the exercise
price under such stock options or warrants applicable prior to the Merger. All
of the other terms and conditions applicable to the options and warrants to
purchase Airways stock prior to the Merger shall continue to apply after the
Merger.
E. If between the date of this Plan of Merger and the Effective Date of
the Merger the outstanding shares of VJET Common Stock shall have been changed
into a different number of shares or a different class by reason of any
reclassification, recapitalization, split-up, combination, exchange of shares or
readjustment, or a stock dividend thereon shall be declared with a record date
within said period, the conversion ratio set forth in Sections VB and VD above,
shall be correspondingly adjusted.
ARTICLE VI.
This Plan of Merger shall be submitted to the stockholders of the
Constituent Corporations for their approval in the manner provided to the extent
required by the applicable laws of the States of Nevada and Delaware, at
meetings to be held on such date(s) as the respective Boards of Directors of the
Constituent Corporations shall agree. After approval by the vote of the holders
representing a majority of the issued and outstanding shares of VJET and by
Airways, Articles or Certificates of Merger shall be filed as required by the
laws of the States of Nevada and Delaware; the Merger being effective when the
Articles or Certificates of Merger, as provided by the laws of the States of
Nevada and Delaware, are accepted for filing and filed in the office of the
Secretary of State of the States of Nevada and Delaware.
ARTICLE VII.
The Merger may be abandoned at any time (before or after this Plan of
Merger shall have been approved by the stockholders of VJET or Airways) prior to
the Effective Date of the Merger as provided in, and subject to the conditions
set forth in Section 5.03 of the Merger Agreement.
ARTICLE VIII.
The Surviving Corporation hereby agrees that it may be served with process
in the State of Delaware in any proceeding for enforcement of any obligation of
Airways, as well as for
A-46
<PAGE>
enforcement of any obligation of the Surviving Corporation arising from the
Merger, including any suit or other proceeding to enforce the rights of any
stockholders as determined in appraisal proceedings pursuant to Section 262 of
the Delaware General Corporation Law, and hereby irrevocably appoints the
Secretary of State of the State of Delaware as its agent to accept service of
procession any such suit or proceedings. The address to which a copy of such
process shall be mailed by the Secretary of State is as follows:
Robert B. Goldberg
Ellis, Funk, Goldberg, Labovitz & Dokson
3490 Piedmont Road, Suite 400
Atlanta, Georgia 30305
ARTICLE IX.
For the convenience of the parties hereto and to facilitate the filing and
recording of this Plan of Merger, any number of counterparts hereof may be
executed, and each such counterpart shall be deemed to be an original
instrument.
IN WITNESS WHEREOF, each of the Constituent Corporations have caused this
Plan of Merger to be executed by its respective duly authorized officers and its
respective corporate seal to be impressed thereon, as of the 10th day of July,
1997.
VALUJET, INC.
By /s/ Robert L. Priddy
Robert L. Priddy
Its Chairman of the Board and
Chief Executive Officer
AIRWAYS CORPORATION
By /s/ Robert D. Swenson
Robert D. Swenson
Its President
A-47
<PAGE>
EXHIBIT "B"
TO
PLAN OF REORGANIZATION
AND AGREEMENT OF MERGER
BETWEEN
VALUJET, INC.
AND
AIRWAYS CORPORATION
The last sentence of Section 4.2 of the By-Laws of ValuJet, Inc. shall be
amended to read as follows:
"The Directors shall be elected at an annual or special
meeting of the Shareholders and shall serve for a term of
one (1) year or until their successors are elected and
qualified; provided, however, that the Board of Directors in
place as of the effective date of the merger of Airways
Corporation with and into the corporation shall serve for a
term that will expire upon the election of Directors at the
corporation's 1999 annual meeting of Shareholders or until
their successors are elected and qualified."
A-48
<PAGE>
APPENDIX B
August ___, 1997
Board of Directors
ValuJet, Inc.
1800 Phoenix Boulevard
Suite 126
Atlanta, Georgia 30349
Gentlemen:
We understand that ValuJet, Inc. ("ValuJet" or the "Company") has entered
into a proposed plan of merger with Airways Corporation ("Airways"). We
understand that under this plan of merger (the "'Proposed Transaction"), Airways
will merge with and into ValuJet and each issued and outstanding share of Common
Stock of Airways (the "Airways Conmon Stock") will be converted into one share
of Valulet Common Stock. The terms and conditions of the Proposed Transaction
are set forth in more detail in the Plan of Peorganization and Agreement of
Merger dated July 10, 1997 by and among ValuJet and Airways (the "Agreement").
We have been requested by the Company to render our opinion (the "Opinion")
with respect to the fairness, from a financial point of view, to the Company's
stockholders of the consideration to be paid by the Company in the Proposed
Transaction. We have not been requested to opine as to, and our opinion does
not in any manner address, the Company's underlying business decision to proceed
with or effect the Proposed Transaction.
In arriving at its opinion, Robinson-Humphrey among other things: (i)
reviewed the Agreement and certain related documents; (ii) analyzed certain
audited and unaudited financial statements and other information of ValuJet and
Airways; (iii) reviewed and discussed with management of ValuJet and Airways,
the past and current business activities and financial results and the business
and financial outlook of ValuJet and Airways; (iv) reviewed the historical price
and trading activity of the common stock of ValuJet and Airways and other
airlines; (v) compared certain financial and stock market data relating to
Valulet and Airways with similar data of other publicly held airlines; (vi)
performed an analysis comparing the pro forma consequences of the Proposed
Transaction to ValuJet stockholders with respect to earnings per share and
tangible book value per share represented by the ValuJet Common Stock; (vii)
considered the relative contributions of ValuJet and Airways to a combined
company in terms of balance sheet, earnings and current equity market valuation
measures; (viii) reviewed the premiums, prices and multiples paid in certain
comparable acquisition transactions of airlines and of merger transactions in
general; (ix) considered the potential synergies and cost savings that could be
achieved through the Proposed Transaction based on discussions with the
managements of ValuJet and Airways; (x) evaluated the financial and capital
implications to Valulet of the Proposed Transaction; and (xi) performed such
other analyses as Robinson-Humphrey deemed appropriate.
In conducting its analysis and arriving at its Opinion, Robinson-Humphrey
assumed and relied upon, without independent verification, the accuracy and
completeness of the information it reviewed for the purposes of the Opinion.
Robinson-Humphrey also relied upon the managements of ValuJet and
B-1
<PAGE>
Board of Directors
ValuJet, Inc.
August ___, 1997
Page 2
________________________
Airways with respect to the reasonableness and achievability of the financial
forecasts (and the assumptions and bases underlying such forecasts) provided to
Robinson-Humphrey. Robinson-Humphrey did not make, nor was it furnished with,
independent valuations or appraisals of the assets or liabilities of either
ValuJet or Airways or any of their subsidies. Our Opinion is necessarily based
upon market, economic and other conditions as they exist and can be evaluated as
of the date of this letter.
We have acted as financial advisor to the Company in connection with the
Proposed Transaction and will receive a fee for our services a portion of which
will be paid upon the delivery of this Opinion and the remaining portion of the
fee will be paid upon consummation of the Proposed Transaction. In addition,
the Company has agreed to indemnify us for certain potential liabilities arising
out of the rendering of this Opinion.
Based upon and subject to the foregoing, we are of the Opinion as of the
date hereof that, from a financial point of view, the consideration to be paid
by the Company in the Proposed Transaction is fair to the stockholders of the
Company.
Very truly yours,
THE ROBINSON-HUMPHREY COMPANY, INC.
B-2
<PAGE>
APPENDIX C
Confidential August ___, 1997
- ------------
Board of Directors
Airways Corporation
6280 Hazeltine National Drive
Orlando, FL 32822
Gentlemen:
Airways Corporation (the "Company") has entered into a Plan of Reorganization
and Agreement of Merger (the "Agreement") with ValuJet, Inc. ("ValuJet") dated
as of July 10, 1997 pursuant to which the Company will be merged with and into
ValuJet (the "Merger"). At the Effective Time (as defined in the Agreement) of
the Merger, each outstanding share of common stock, par value $0.01 per share of
the Company (the "Company Common Stock"), other than shares held in the
Company's treasury, will be converted solely into one share of common stock, par
value $0.001 per share of ValuJet ("ValuJet Common Stock") (the "Exchange
Ratio").
You have asked us whether or not, in our opinion, the Exchange Ratio is fair
to the shareholders of the Company from a financial point of view.
In arriving at the opinion set forth below, we have, among other things:
(1) Reviewed, among other public information, the Company's Annual Reports,
Forms 10-K and related financial information for the two fiscal years ended
[March 31, 1997];
(2) Reviewed, among other public information, ValuJet's Annual Reports, Forms
10-K and related financial information for the three fiscal years ended
December 31, 1996 and ValuJet's Form 10-Q and the related unaudited
financial information for the three months ended [March 31, 1997];
(3) Reviewed certain information, including financial forecasts, relating to
the business, earnings, cash flow, assets and prospects of the Company and
ValuJet, furnished to us by the Company and ValuJet, respectively;
(4) Conducted discussions with members of senior management of the Company and
ValuJet concerning their respective businesses and prospects;
(5) Reviewed the historical market prices and trading activity for the Company
Common Stock and the ValuJet Common Stock and compared such prices and
trading activity with those of certain publicly traded companies which we
deemed to be relevant;
(6) Compared the financial position and results of operation of the Company and
ValuJet with those of certain publicly traded companies which we deemed to
be relevant;
C-1
<PAGE>
Board of Directors
Airways Corporation
August ___, 1997
Page 2
(7) Compared the proposed financial terms of the Merger with the financial
terms of certain other business combinations which we deemed to be
relevant;
(8) Considered the potential pro forma financial effects of the Merger on
ValuJet;
(9) Reviewed the Agreement dated July 10, 1997; and
(10) Reviewed such other financial studies and analyses and performed such
other investigations and took into account such other matters as we deemed
necessary, including our assessment of regulatory, economic, market and
monetary conditions.
In preparing our opinion, we have relied on the accuracy and completeness of
all information that was publicly available, supplied or otherwise communicated
to us by or on behalf of the Company and ValuJet, and we have not assumed any
responsibility to independently verify such information. With respect to the
financial forecasts examined by us, we have assumed that they were reasonably
prepared on bases reflecting the best currently available estimates and good
faith judgments of the Company's and ValuJet's respective senior management
teams as to the future performance of the Company and ValuJet, respectively. We
have also relied upon the assurances of the management of each of the Company
and ValuJet that they are unaware of any facts that would make the information
or financial forecasts provided to us incomplete or misleading. We have not
undertaken, and have not been provided with, an independent evaluation or
appraisal of the assets or liabilities (contingent or otherwise) of the Company
or ValuJet and have assumed that all liabilities (contingent or otherwise, known
or unknown) of the Company and ValuJet are as set forth in their respective
consolidated financial statements. We have also assumed with your consent that
the Merger will be accounted for under the purchase method of accounting and
that the Merger will qualify as a tax-free reorganization. Our opinion is based
upon the regulatory, economic, market and monetary conditions existing on the
date hereof.
Our opinion is directed to the Board of Directors of the Company and does not
constitute a recommendation to any shareholder of the Company as to how any such
shareholder should vote on the Merger. This opinion does not address the
relative merits of the Merger and any other transactions or business strategies
discussed by the Board of Directors of the Company as alternatives to the Merger
or the decision of the Board of Directors of the Company to proceed with the
Merger. The Exchange Ratio was determined by the Company and ValuJet in arms
length negotiations. PaineWebber has not been requested to, and did not,
solicit third party indications of interest with respect to a business
combination with the Company. Furthermore, no opinion is expressed herein as to
the price or trading range at which the securities to be issued in the Merger to
the shareholders of the Company may trade at any time.
This opinion has been prepared for the information of the Board of Directors
of the Company in connection with the Merger and shall not be reproduced,
summarized, described or referred to, provided to any person or otherwise made
public or used for any other purpose without the prior written consent of
C-2
<PAGE>
Board of Directors
Airways Corporation
August ___, 1997
Page 3
PaineWebber Incorporated; provided, however, that this letter may be reproduced
in full in the Proxy Statement/Prospectus relating to the Merger.
PaineWebber is currently acting as a financial advisor to the Company in
connection with the Merger and will receive a fee upon the delivery of this
opinion.
In the ordinary course of our business, we may trade the securities of the
Company and ValuJet for our own account and for the accounts of our customers
and, accordingly, may at any time hold long or short positions in such
securities.
On the basis of and subject to the foregoing, we are of the opinion that, as
of the date hereof, the Exchange Ratio is fair to the shareholders of the
Company from a financial point of view.
Very truly yours,
PAINEWEBBER INCORPORATED
C-3
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Articles of Incorporation of the Registrant provide that directors of the
Registrant will not be personally liable for monetary damages to the 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).
The Registrant also has the obligation, pursuant to the 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.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The following exhibits are filed as part of this Registration Statement:
2.1 Plan of Reorganization and Agreement of Merger dated July 10, 1997
between ValuJet and Airways Corporation. (1)
2.2 Plan of Merger dated July 10, 1997 between ValuJet and Airways
Corporation. (1)
3.1 Articles of Incorporation of ValuJet. (2)
3.2 By-laws of ValuJet. (2)
5.1 Opinion of Ellis, Funk, Goldberg, Labovitz & Dokson, P.C.*
10.1 Employment Agreement dated September 1, 1993, between ValuJet
Airlines, Inc. and Robert L. Priddy. (3)(4)
10.2 Employment Agreement dated June 1, 1993, between ValuJet Airlines,
Inc. and Lewis H. Jordan. (3)(4)
10.3 Letter Agreement dated July 26, 1993, between ValuJet Airlines, Inc.
and Lewis H. Jordan amending Employment Agreement. (3)(4)
10.4 Incentive Stock Option Agreement dated June 1, 1993, between ValuJet
Airlines, Inc. and Lewis H. Jordan. (3)(4)
10.5 ValuJet Airlines, Inc. 1993 Incentive Stock Option Plan. (3)(4)
10.6 ValuJet Airlines, Inc. 1994 Stock Option Plan. (3)(4)
10.7 Director Noncompete Agreement dated as of May 18, 1994, between
ValuJet Airlines, Inc. and Timothy P. Flynn. (3)(4)
10.8 Director Noncompete Agreement dated as of May 18, 1994, between
ValuJet Airlines, Inc. and Don L. Chapman. (3)(4)
10.9 ValuJet Airlines, Inc. 401(k) Plan Adoption Agreement. (5)
10.10 ValuJet Airlines, Inc. 1995 Employee Stock Purchase Plan. (6)
10.11 Purchase Agreement between McDonnell Douglas
Corporation and ValuJet Airlines, Inc. dated December 6, 1995. (7)
10.12 Agreement and Lease of Premises Central Passenger
Terminal Complex Hartsfield Atlanta International Airport. (7)
10.13 Indenture dated as of April 17, 1996, among ValuJet, its
subsidiaries and Bank of Montreal Trust Company, as Trustee. (8)
10.14 Exchange and Registration Rights Agreement dated as of April 17,
1996, between ValuJet and Goldman, Sachs & Co. (8)
10.15 Consent Order in the Matter of ValuJet Airlines, Inc. with United
States Department of Transportation, Federal Aviation
Administration. (9)
II-1
<PAGE>
10.16 ValuJet, Inc. 1996 Stock Option Plan. (10)
10.17 Employment letter dated October 28, 1996, between
ValuJet Airlines, Inc. and D. Joseph Corr. (4)(10)
23.1 Consent of Ellis, Funk, Goldberg, Labovitz &
Dokson, P.C. (included in Exhibit 5.1) *
23.2 Consent of Ernst & Young LLP
23.3 Consent of KPMG Peat Marwick LLP
23.4 Consent of Arthur Andersen LLP
23.5 Consent of PaineWebber Incorporated
23.6 Consent of The Robinson-Humphrey Company, Inc.
24.1 Powers of Attorney (included on signature pages)
Financial Statement Schedules - Schedule II - Valuation and Qualifying Accounts
(10)
____________________________________
* To be filed by amendment.
(1) Incorporated by reference to ValuJet's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1997, Commission file No. 0-26914, filed with
the Commission on August 14, 1997.
(2) Incorporated by reference to ValuJet's Registration Statement on Form S-4,
registration number 33-95232, filed with the Commission on August 1, 1995,
and amendments thereto.
(3) Incorporated by reference to ValuJet's Registration Statement on Form S-1,
registration number 33-78856, filed with the Commission on May 12, 1994,
and amendments thereto.
(4) Management contract or compensation plan or arrangement.
(5) Incorporated by reference to ValuJet's Annual Report on Form 10-K for the
year ended December 31, 1994, Commision file No. 0-24164, filed with the
Commision on March 31, 1995, and amendment thereto.
(6) Incorporated by reference to ValuJet's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1995, Commision file No. 0-24164, filed with
the Commision on August 11, 1995.
(7) Incorporated by reference to ValuJet's Annual Report on Form 10-K for the
year ended December 31, 1995, Commission File No. 0-26914, filed with the
Commission on March 29, 1996.
(8) Incorporated by reference to ValuJet's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1996, Commission file No. 0-26914, filed with
the Commission on May 3, 1996.
(9) Incorporated by reference to ValuJet's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1996, Commission file No. 0-26914, filed with
the Commission on August 14, 1996.
(10) Incorporated by reference to ValuJet's Annual Report on Form 10-K for the
year ended December 31, 1996, Commission File No.0-26914, filed with the
Commission on March 31, 1997.
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;
II-2
<PAGE>
(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) The 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 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.
(iv) The undersigned Registrant hereby undertakes as follows: that
prior to any public reoffering of the securities registered hereunder through
use of a prospectus which is a part of this Registration Statement, by any
person or party who is deemed to be an underwriter within the meaning of Rule
145(c), the issuer undertakes that such reoffering prospectus will contain the
information called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other Items of the applicable form.
(v) The Registrant undertakes that every prospectus (i) that is filed
pursuant to paragraph (iv) immediately preceding, or (ii) that purports to meet
the requirements of section 10(a)(3) of the Act and is used in connection with
an offering of securities subject to Rule 415, will be filed as a part of an
amendment to the Registration Statement and will not be used until such
amendment is effective, and that, for purposes 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.
(b) The 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) The 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 18th day of August, 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 18th day of August, 1997.
/s/ ROBERT L. PRIDDY Chairman of the Board
------------------------------------------ (principal executive
Robert L. Priddy officer) and Director
/s/ LEWIS H. JORDAN President and Director
------------------------------------------
Lewis H. Jordan
/s/ D. JOSEPH CORR Executive Vice President and
------------------------------------------ Director
D. Joseph Corr
/s/ STEPHEN C. NEVIN 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.
II-4
<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 Joint Proxy Statement of ValuJet, Inc.
and Airways Corporation that is made a part of the Registration Statement (Form
S-4) and Prospectus of ValuJet, Inc. for the registration of 9,629,937 shares of
its common stock.
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
August 12, 1997
<PAGE>
EXHIBIT 23.3
The Board of Directors
Airways Corporation:
We consent to the use of our reports included in the Form S-4 of ValuJet, Inc.
and the reference to our firm under the heading "Experts" in the prospectus.
KPMG PEAT MARWICK LLP
Tampa, Florida
August 15, 1997
<PAGE>
EXHIBIT 23.4
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
(and to all references to our firm) included in or made a part of this
registration statement.
ARTHUR ANDERSEN LLP
Minneapolis, Minnesota
August 15, 1997
<PAGE>
EXHIBIT 23.5
[August 18, 1997]
PaineWebber Incorporated ("PaineWebber") hereby consents to the
inclusion in the Joint Proxy Statement-Prospectus of ValuJet Inc. and Airways
Corporations, filed as a part of this Registration Statement on Form S-4 of
ValuJet Inc., of its opinion dated [July 10, 1997], and to the references made
to PaineWebber in the "Summary" and "The Merger --Opinions of Financial
Advisors--Opinion of Airways Corporation's Financial Advisors" sections of such
Joint Proxy Statement-Prospectus. In giving such consent, we do not thereby
admit that we come within the category of persons whose consent is required
under Section 7 of the Securities Act of 1933, as amended, or the rules and
regulations of the Securities and Exchange Commission promulgated thereunder.
Very truly yours,
PAINEWEBBER INCORPORATED
By
<PAGE>
EXHIBIT 23.6
[August 18, 1997]
The Robinson-Humphrey Company, Inc. ("R-H") hereby consents to the inclusion
in the Joint Proxy Statement-Prospectus of ValuJet Inc. and Airways
Corporations, filed as a part of this Registration Statement on Form S-4 of
ValuJet Inc., of its opinion dated [July 9, 1997], and to the references made to
R-H in the "Summary" and "The Merger --Opinions of Financial Advisors--Opinion
of ValuJet's Financial Advisors" sections of such Joint Proxy Statement-
Prospectus. In giving such consent, we do not thereby admit that we come within
the category of persons whose consent is required under Section 7 of the
Securities Act of 1933, as amended, or the rules and regulations of the
Securities and Exchange Commission promulgated thereunder.
Very truly yours,
THE ROBINSON-HUMPHREY COMPANY, INC.
By /s/ William T. Sherman
Senior Managing Director
