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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended December 31, 1997 or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from ________________________
to _______________________
Commission file number 0-26914
AIRTRAN HOLDINGS, INC.
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(Exact name of registrant as specified in its charter)
NEVADA 58-2189551
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
9955 AirTran Boulevard, Orlando, Florida 32827
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(Address of principal executive offices) (Zip Code)
(407) 251-5600
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Registrant's telephone number, including area code
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
None None
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 par value
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(Title of class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during preceding 12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
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As of March 23, 1998, the aggregate market value of voting stock held by non-
affiliates of the Registrant, based on the closing sales price of such stock in
the NASDAQ Stock Market on March 23, 1998, was approximately $413,000,000. As
of March 23, 1998, the Registrant had 64,533,305 shares of Common Stock
outstanding.
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Documents Incorporated by Reference
-----------------------------------
Portions of the Proxy Statement to be used in connection with the
solicitation of proxies to be voted at the Registrant's annual meeting of
Stockholders to be held on May 14, 1998, to be filed with the Commission, are
incorporated by reference into Part III of this Report on Form 10-K.
Exhibit Index is located on pages 32-34.
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PART I
ITEM 1. BUSINESS
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GENERAL
The Company, through its wholly owned subsidiaries, AirTran Airlines, Inc.
and AirTran Airways, Inc., operates an affordable, no frills, limited frequency,
scheduled airline serving short haul markets primarily in the eastern United
States. The Company believes that its low cost, no frills philosophy allows it
to offer among the lowest fares in its markets and generate its own traffic by
stimulating incremental demand with fare conscious travelers.
The Company commenced flight operations in October 1993 with two McDonnell
Douglas DC-9 aircraft ("DC-9 aircraft") serving three cities from Atlanta with
eight flights per day. Prior to June 17, 1996, the Company 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. The
Company's operations were interrupted by the suspension of the Company's service
on June 17, 1996, pursuant to a consent order entered into with the FAA
following the accident involving Flight 592 on May 11, 1996 and the ensuing
extensive adverse media and intense FAA scrutiny. The Company resumed limited
operations with service between Atlanta and four other cities as of September
30, 1996. The Company has continued to work with the FAA since that time to
recertify aircraft and expand its flight operations. As of March 6, 1998, the
FAA has approved 35 of AirTran Airlines' DC-9 Series 30 aircraft for flight. In
addition, AirTran Airways operates 11 Boeing 737-200 aircraft ("B-737
aircraft"). As of March 1, 1998, the Company operates a total of up to 249
flights per day of which 196 flights per day are between Atlanta and 25 other
cities and 30 flights per day are between Orlando and 16 cities other than
Atlanta. Additional service is offered between Washington, D.C. (Dulles
Airport) and Boston and Chicago, between Boston and Philadelphia and between
Knoxville, Tennessee and New York (LaGuardia Airport).
MERGER WITH AIRWAYS CORPORATION
On July 10, 1997, the Company entered into a merger agreement with Airways
Corporation ("Airways"). Under the merger agreement, the Company acquired
Airways on November 17, 1997, through a merger of Airways with and into the
Company. In anticipation of the Merger, the name of ValuJet Airlines was
changed to "AirTran Airlines." Upon completion of the Merger, the Company
changed its name to AirTran Holdings, Inc. Airways' operating subsidiary
continues to operate under the AirTran Airways name. In January 1998, the
Company moved its headquarters to Airways' facilities in Orlando, Florida.
While the Company currently operates AirTran Airlines and AirTran Airways under
separate operating certificates, it may also merge these two operating
subsidiaries at a later date.
STRATEGY
In order to return to profitability and resume growth, the Company intends
to pursue a three-pronged strategy (i) to maintain its traditional cost and
value leadership in the markets that it serves, (ii) to reposition its brand
image to mitigate the long-term adverse effects of the May 1996 accident and the
subsequent suspension of operations, and (iii) to gradually expand capacity as
market demand warrants.
The Company's strategy is predicated on providing a reliable, customer
friendly alternative for affordable air transportation. The key element of this
approach is the successful repositioning of the product to broaden the base of
available traffic. The Company changed the name of its ValuJet operating
subsidiary to AirTran Airlines and, along with its other operating subsidiary,
AirTran Airways, introduced a new business strategy in late 1997 designed to
appeal to a broader travel market. The objective of this strategy is to make
air travel more attractive to fare conscious business travelers and even more
convenient for leisure travelers. The product enhancements included a new
corporate livery, a new business class service, featuring two by two seating,
pre-assigned seating
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and the nationwide distribution of its inventory through travel agents. The
Company retained those product aspects that continue to be of value to its
customers, such as a simplified, affordable fare structure and a ticketless
alternative.
As part of the product rebranding, the Company repainted its DC-9 aircraft
with a new livery. The Company has also completed repainting the first B-737
aircraft in a similar livery and intends to complete this process during the
second quarter of 1998. In addition, the Company reconfigured its DC-9 aircraft
to provide 16 business class seats in each aircraft. The Company plans to
reconfigure its B-737 aircraft to provide 12 business class seats in each
aircraft commencing in second quarter 1998.
The Company's pricing structure and affordable fares are intended to
stimulate new demand for air travel by leisure customers and fare conscious
business travelers who would have otherwise not traveled or who would have used
ground transportation. The Company's fare structure generally defines the
pricing in most markets that the Company serves, providing travelers with
substantial savings that would not be available in the absence of service by the
Company. In addition to advance purchase fares, the Company maintains
reasonably priced "walk-up" fares that are generally well below similar fares
offered by its competitors. The Company 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.
The Company's service is intended to satisfy not only the basic air
transportation needs of the Company's targeted customers--fare conscious
business travelers and short haul leisure travelers visiting friends and
relatives or vacationing--but to provide a travel experience worth repeating.
As a result, the Company has focused on retaining its customer friendly approach
to service and has developed internal programs to build on the positive
attitudes of its employees.
Once the Company reestablishes profitability and a favorable brand image,
the Company intends to pursue a prudent growth strategy. The Company has
entered into a contract with Boeing to purchase 50 new Boeing 717 aircraft ("B-
717 aircraft"), to be delivered from 1999 through 2002, with options to purchase
an additional 50 aircraft. The B-717 will have 115 seats, consisting of 16
business class seats and 99 coach seats. The Company estimates that the B-717
aircraft, which have a slightly larger seating capacity, increased fuel
efficiency and lower maintenance costs than the Company's DC-9 aircraft, will
provide a cost per ASM lower than the Company's DC-9 fleet, even after taking
into account the aircraft's higher acquisition cost. The Company is the
"launch" customer of the B-717 aircraft. As the launch customer, the Company
anticipates that this contract will provide material value in terms of
acquisition cost and manufacturer financing assistance. The Company determined
that the B-717 aircraft offers the optimum balance between operating cost and
revenue opportunity.
IMPACT OF ACCIDENT AND SUSPENSION OF OPERATIONS
On May 11, 1996, the Company tragically lost its Flight 592 en route from
Miami to Atlanta. The accident resulted in extensive media coverage calling
into question the safety of low-fare airlines in general and the Company in
particular. In response to the accident, the FAA conducted an extraordinary
review of the Company's operations. On June 17, 1996, the Company entered
into a consent order with the FAA under which the Company agreed to suspend
operations until such time as the Company was able to satisfy the FAA as to
various regulatory compliance concerns identified by the FAA as a result of its
intensive inspections of the Company's operations. On August 29, 1996, the FAA
returned the Company's operating certificate and the Department of
Transportation ("DOT") issued a "show cause" order regarding the Company's
fitness as an air carrier. The DOT gave its final approval on September 26,
1996, and the Company resumed operations with service between Atlanta and four
other cities on September 30, 1996.
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Other effects of the accident, ensuing FAA inspections, media coverage and
suspension of operations include:
1. The Company incurred substantial losses in 1996 and 1997.
2. The expansion of the Company's operations is subject to FAA and DOT
approval.
3. The Company is unable to predict how significantly the accident and
suspension of operations will affect load factors and yield or the length of
time load factors and yield will be impacted.
4. The Company's cost per ASM has increased from 1995 levels.
5. Although the Company believes that its 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.
6. Several stockholder lawsuits have been filed against the Company and
certain of its officers and directors alleging, among other things, violation of
federal securities laws. While the Company denies that it has violated any of
its obligations under the federal securities laws, there can be no assurance
that the Company will not sustain material liability under such or related
lawsuits.
7. Various governmental authorities are conducting investigations of the
circumstances surrounding the accident. The Company is cooperating with the
authorities in connection with these investigations.
In light of these factors, persons investing in the securities of the
Company should be apprised of the following additional risks:
1. There is no assurance that the Company will recover sufficient customer
acceptance in order to regain profitability.
2. If the Company regains profitability, there may be reduced customer
support which could decrease the Company's profitability indefinitely.
3. The expansion of the Company's operations will likely be subject to FAA
and DOT approval for an indefinite period of time.
4. The occurrence of one or more subsequent incidents by the Company's
aircraft could likely have a substantial adverse effect on the Company's public
perception and future operations.
GEOGRAPHIC MARKET
The Company's markets served from Atlanta are located predominantly in the
eastern United States. These markets are attractive to the Company due to the
concentration of major population centers within relatively short distances from
Atlanta, historically high air fares and the potential for attracting leisure
customers who would otherwise use ground transportation. During 1997, the
Atlanta Airport was the second busiest airport in the United States, enplaning
over 32 million passengers. Additionally, the Company offers service to Florida
markets as the Company believes that more than 20 million people visit the
Florida markets by automobile every year from Atlanta and other points in the
eastern United States.
The Company provides direct scheduled passenger air service between Orlando
and cities principally in the eastern half of the United States. The Company's
strategy in developing its route system from Orlando is to serve
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medium-sized cities from which direct service to Orlando is not typically
provided by the major airlines. This strategy involves flying longer stage
lengths to medium-sized markets on a low frequency basis.
In addition, the Company provides a limited amount of nonstop service
between certain of its markets served from Atlanta and Orlando.
In the Company's city selection process, the Company considers the amount of
airport charges, incentives offered by communities to be served, the ability to
stimulate air travel and competitive factors.
FARES, ROUTE SYSTEM AND SCHEDULING
The Company serves short haul markets (generally under 1,000 miles)
primarily from Atlanta and from Orlando offering basic air transportation at
affordable fares. The routes served to and from Atlanta range in frequency from
two to seven trips per day with some reductions in service on the weekends. The
schedules are designed to provide a consistent product for business-oriented
travelers and to facilitate connections for passengers traveling through
Atlanta. The Company also provides nonstop service between Orlando and various
cities in the Eastern United States. These routes are served on a daily basis
with one round trip per day.
The Company offers a range of fares based on advance purchases of 14 days, 7
days, 3 days and "walk-up" fares. Within the advance purchase fare types, the
Company manages the availability of seats by day of week and by flight to
maximize revenue on peak travel days. Most of the Company's fares are
nonrefundable, but can be changed prior to departure for a $35 fee. Business
class seats are priced at $25 in excess of the full coach fare. The Company's
fares are always purchased on a one-way basis. The Company's fares do not
require any minimum, maximum or day of week (e.g., Saturday night) stay. The
Company's fare offerings 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.
The Company's published Atlanta fares for non-stop service range from $39 to
$99 for one-way travel on a 14 day advance purchase basis and $99 to $169 for
one-way travel on a "walk-up" basis. The Company's published Orlando fares for
non-stop service range from $59 to $99 for one-way travel on a 14 day advance
purchase basis and $129 to $189 for one-way travel on a "walk-up" basis. The
Company offers fare sales from time to time in order to generate additional
traffic. There is recently passed legislation that imposes taxes on domestic
airline transportation equal to a per segment flown charge (initially $1.00 to
be increased to $3.00 by 2003) plus a percentage of the ticket price (initially
9% to be decreased to 7.5% in 1999). Such taxes will likely have a greater
effect on leisure travelers. Since the Company relies to a large extent on
leisure travelers, such tax increase may affect the Company to a greater extent
than the Company's competitors who rely more heavily on business travelers.
A majority of the Company's customers originate or terminate their travel on
the Company's non-stop service. One-stop connecting service is provided through
Atlanta between certain of the other cities served by the Company.
The following table sets forth certain information with respect to the
Company's route system based on the Company's schedule in effect as of March 1,
1998.
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<TABLE>
<CAPTION>
Daily
Service Round Trip
Commencement Flights
Airport Served Date (a) Scheduled (b)
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<S> <C> <C>
Atlanta-
Akron/Canton, OH.......... March 1997 3
Bloomington/Normal, IL.... March 1998 1
Boston, MA................ February 1997 4(c)
Chicago, IL (Midway)...... October 1996 4
Dallas/Fort Worth, TX..... April 1997 5
Dayton, OH................ March 1998 3
Flint, MI................. May 1997 3
Fort Lauderdale, FL....... September 1996 6
Fort Myers, FL............ January 1997 3
Fort Walton Beach, FL..... October 1996 2
Houston, TX............... September 1997 4
Jacksonville, FL.......... October 1996 4
Knoxville, TN............. March 1998 2
Memphis, TN............... October 1996 4
Mobile, AL................ October 1996 3
New Orleans, LA........... October 1996 4
Newport News, VA.......... October 1996 3
New York, NY (LaGuardia).. December 1997 6
Orlando, FL............... September 1996 7
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 7
West Palm Beach, FL....... December 1996 3
Washington, DC (Dulles)-
Atlanta, GA............... September 1996 7
Boston, MA................ February 1997 4
Chicago, IL (Midway)...... July 1997 3
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(a) For markets served by the Company prior to the suspension of its operations,
the date indicated is the date the Company recommenced service.
(b) Reduced service may be provided on certain days (usually Saturday or
Sunday).
(c) Does not include one-stop service through Washington, DC (Dulles) (up to
four round trips per peak day).
The Company offers one round trip flight per day between Orlando and each of
the following markets: Akron/Canton, OH, Albany, NY, Allentown, PA,
Bloomington/Normal, IL, Buffalo, NY, Dayton, OH, Des Moines, IA, Greensboro, NC,
Greenville/Spartanburg, SC, Islip, NY, Knoxville, TN, Moline, IL, Newburgh, NY,
Richmond, VA, Rochester, NY, and Syracuse, NY. The service between Orlando and
Des Moines, IA and Moline, IL is provided on a combined basis.
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The Company has announced that it will begin service between Atlanta and the
following markets effective April 1, 1998: Buffalo, NY (up to two round trips
per day), Greensboro, NC (up to three round trips per day) and Richmond, VA (up
to three round trips per day).
The Company also provides two round trips per day between Boston and
Philadelphia and two round trips per day between Knoxville, Tennessee and New
York (LaGuardia Airport). In the future, the Company may add additional service
between cities already served by the Company or may add service to new markets.
The Company's selection of markets depends on a number of factors existing at
the time service to such market is being considered. Consequently, there can be
no assurance that the Company will continue to provide service to all of the
markets listed above or that the Company will not provide service to any other
particular market.
Subject to the FAA's approval, the Company will consider the addition of
other markets and the provision of service between cities other than Atlanta and
Orlando. 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 the Company's operations.
The Company's aircraft scheduling strategy is directly related to the
perceived needs of its target market segments and the low fixed ownership costs
of its aircraft fleet. The Company's target customers are price sensitive
business travelers, travelers visiting friends and relatives and vacationers.
The Company 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 March 6, 1998, AirTran Airlines owned 42 DC-9 aircraft. As of March 6,
1998, the FAA has approved 35 of the Company's DC-9 aircraft for operation by
the Company. The Company's DC-9 aircraft in its operating fleet have 106 seats,
of which 16 are business class seats and 90 are coach seats. The addition of
aircraft to AirTran Airlines' operations is subject to FAA and DOT approval.
There can be no assurance as to the timing or extent of any such subsequent
approvals. The Company's expansion is subject to FAA approval and could be
affected by heightened FAA scrutiny and the Company's ability to regain customer
acceptance. The Company has leased out two of its aircraft under leases not
longer than 18 months. The Company is in the process of seeking to reactivate
its remaining aircraft not currently in service.
AirTran Airways' fleet currently consists of seven leased and four owned B-
737 aircraft with average capacities of 126 passengers. The lease terms range
from three to seven years and require monthly lease payments of $45,000 to
$142,000 as well as reserve payments for major engine and airframe overhauls.
The Company has entered into a contract with Boeing to purchase 50 new B-717
aircraft, to be delivered from 1999 through 2002, with options to purchase an
additional 50 aircraft. The B-717 aircraft will have 115 seats, consisting of
16 business seats and 99 coach seats. The Company estimates that the B-717
aircraft, with a slightly larger capacity, increased fuel efficiency and lower
maintenance costs, will provide a cost per ASM lower than the Company's existing
DC-9 fleet, even after including its higher acquisition cost. The Company is
the "launch" customer of the B-717 aircraft. As the launch customer, the
Company anticipates that this contract will provide material value in terms of
acquisition cost and manufacturer financing assistance. The Company has
determined that the B-717 aircraft offers the optimum balance for its purposes
between operating cost and revenue opportunity.
According to FAA rules, 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 March 6, 1998, 22 of AirTran Airlines' 42
DC-9 aircraft meet the Stage 3
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requirements. Six of AirTran Airways' 11 B-737 aircraft currently meet Stage 3
requirements. The Company intends to meet the Stage 3 requirements by installing
hush kits on certain of its Stage 2 aircraft, by disposing of other Stage 2
aircraft and by acquiring or leasing additional Stage 3 aircraft. The Company
expects that FAA certified hush kits will cost approximately $2.3 million per
DC-9 aircraft and approximately $1.5 million per B-737 aircraft.
MAINTENANCE AND REPAIRS
Since the Company's fleet of DC-9 aircraft are all more than 20 years old
and since the Company's B-737 aircraft were manufactured between 1968 and 1985,
they will require higher maintenance expenses than newer aircraft. The Company
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 the Company's
service in September 1996, the Company 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. The Company 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 the Company's maintenance expenses
(including costs to comply with aging aircraft requirements) will fall within
industry norms.
As a result of the accident involving Flight 592 and the suspension of the
Company's operations, the Company is likely to be subject to continuing
regulatory scrutiny which could affect the Company's operations, acquisition
program and expansion plans indefinitely.
Aircraft maintenance and repair consists of routine daily or "turn-around"
maintenance and major overhaul. Routine daily maintenance is performed at
Atlanta, Orlando, Boston, Fort Lauderdale and Greensboro by the Company's
employees and by on-call contractors at the other cities served by the Company.
Heavy maintenance and other work which require hangar facilities are currently
performed at two FAR Part 145-FAA approved maintenance contractors. The
contractors are AeroCorp, Inc. of Macon, Georgia and Lake City, Florida and
Pemco World Air Services of Dothan, Alabama. The Company may replace these
contractors or add additional contractors subject to FAA approval. Other routine
daily on-call maintenance contractors are either other airlines which operate
DC-9 or B-737 aircraft or other maintenance companies approved by the FAA, who
in either case have employees qualified and trained in DC-9 or B-737 aircraft
maintenance.
FUEL
The cost of jet fuel is an important expense for The Company. The Company
estimates that a one-cent increase in fuel cost would increase the Company's
fuel expenses by approximately $57,000 per month, based on the Company'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 the Company's
operations and operating results. The Company has not entered into any agreement
which fixes the price or guarantees delivery of fuel over any period of time.
A significant increase in the price of jet fuel would result in a
disproportionately higher increase in the Company's average total costs than its
competitors using more fuel efficient aircraft and whose fuel costs represent a
smaller portion of total costs. The Company would possibly seek to pass such a
cost increase to the Company's customers through a fare increase. There can be
no assurance that any such fare increase would not reduce the competitive
advantage the Company seeks by offering affordable fares.
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The Company's fleet of DC-9 and B-737 aircraft are relatively fuel
inefficient compared to newer aircraft and industry averages. The primary
reasons for this inefficiency are aircraft size and engine technology. The B-717
aircraft to be acquired by the Company are expected to be more fuel efficient.
DISTRIBUTION AND MARKETING
The Company's marketing efforts are vital to its success as it seeks to
reposition its product and to stimulate new customer demand. The Company has
targeted fare conscious business travelers and short haul travelers visiting
friends and relatives or vacationing. These are market segments which the
Company believes offer the greatest opportunity for stimulating new demand.
The primary objectives of the Company's marketing activities are to develop
a brand identity or personality which is visibly unique and easily contrasted
with its competitors and to communicate its service directly to potential
customers. When initiating service to a new market or restarting flights to
previously served markets, the Company 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.
The Company communicates regularly and frequently with potential customers
through the use of advertisements in newspapers, on radio, television and on
billboards and through toll-free telephone numbers and a web site on the
Internet. These communications feature the Company's destinations, everyday
affordable fares, ease of use (including its simplified fare structure and
ticketless alternative) and the Company's reservations phone number. The
Company uses tag lines such as "AirTran - it's something else" and "a more
civilized way to fly" to reinforce its identity.
The Company seeks to sell seats directly to the customer whenever possible.
The Company also sells seats through travel agents and pays customary sales
commissions, but without volume override payments. Information on its
customers' needs, travel patterns and identity is collected, organized and
stored by the Company's automated reservation system and can be used at a future
time for direct marketing efforts.
The Company is a participant in the leading travel agency computer
reservation systems ("CRS"). These systems provide flight schedules, pricing
information and allow travel agents participating in either of these two systems
to electronically process a flight reservation without contacting the Company's
reservations facility.
In March 1998, the Company instituted a frequent flyer program known as "A-
plus rewards" under which customers can earn free round trips on AirTran or on
14 other airlines. Free trips on AirTran are earned twice as fast as trips on
other airlines. The purchase of business class seats will provide customers
with double credit toward earning free trips. Free trips on other airlines may
be used only from Atlanta, Orlando or the Washington-Baltimore area, apply only
to cities not served by AirTran and are subject to other terms and conditions.
As initially instituted, the Company's frequent flyer program provides for
credit for flights taken by December 31, 1998 and the flight vouchers must be
redeemed by December 31, 1999 for travel by December 31, 2000.
The Company performs public relations and promotional activities in house.
Advertising is handled by an outside advertising agency.
The Company and The Hertz Corporation operate a joint program under which
the Company's customers are able to reserve a Hertz rental car at discounted
rates when making a reservation for the Company's flights.
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Air travel in the Company'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. Travel to Orlando is typically lower in late
spring, early fall and mid-winter. Advertising and promotional expenses may be
greater in lower traffic periods, as well as when entering a new market, in an
attempt to stimulate further air travel.
AUTOMATION
Automation is a key component of the Company's strategy. The Company's UNIX
based computer system has been specifically designed to implement the Company's
simplified, ticketless service and is an important component of the Company's
attempt to maintain its low cost structure, particularly as the Company grows.
The Company has designed its computer system to capture information in the
computer at its source, eliminating paper records whenever possible. These
entries are made by the reservation agents, eliminating subsequent data
processing entries. Once the initial data has been entered into the system, the
system updates various affected files and reports. The Company's software
supports all of the Company's operational areas (e.g., flight operations,
maintenance, accounting, marketing and personnel).
A key component of the Company's low cost structure is the "ticketless"
alternative. At the time of a sale/reservation, the Company provides its
customers with a confirmation number, similar to the systems used by hotels and
car rental agencies. At the airport, this information is available for customer
check-in, which 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.
The Company has also expanded the distribution of its product through travel
agencies. Travel agents confirm reservations and issue tickets to customers,
which are then processed by the Company.
The Company uses the Open Skies reservation system to provide greater
flexibility than its previous systems. Benefits expected from the Open Skies
system include improved mainframe and hardware performance and reliability, CRS
booking access, applications to improve unit revenue through enhanced data
reporting and software to facilitate Internet reservations booking and
processing.
EMPLOYEES
As of March 1, 1998, the Company employed approximately 3,500 people.
The Company 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. The Company from time to time considers alternative means
of providing compensation to its employees and the Company's method of
determining compensation is subject to possible change in the future.
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.
FAA regulations require pilots to be licensed as commercial pilots, with
specific ratings for aircraft to be flown, and to be medically certified as
physically fit. Licenses and medical certification are subject to periodic
continuation requirements including recurrent training and recent flying
experience. Mechanics, quality-control inspectors and flight dispatchers must
be licensed and qualified for specific aircraft. Flight attendants must have
initial and periodic competency fitness training and qualification. Training
programs are subject to approval and monitoring by the FAA. Management personnel
directly involved in the supervision of flight operations, training,
10
<PAGE>
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.
AirTran Airlines' flight attendants have elected the Association of Flight
Attendants ("AFA") and AirTran Airlines' mechanics have elected the
International Brotherhood of Teamsters (the "Teamsters") to represent them in
negotiating contracts with the Company. In April 1997, the Company reached an
agreement with the Teamsters. The mechanics and store clerks of AirTran Airways
have been represented by the International Association of Machinists. In
addition, the Company is in the process of negotiating a labor agreement with
the AirTran Airways' pilot group. Elections for union representation are
pending for AirTran Airways' flight attendants. The Company does not expect
that the unionization of these employee groups 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.
The Company is unable to predict whether any of its other employees will
elect to be represented by a labor union or other collective bargaining unit.
The election by the Company's employees for representation in such an
organization could result in employee compensation and working condition demands
that may affect operating performance or expenses.
The AFA and a former flight attendant have filed a lawsuit against the
Company relating to alleged violations under the Railway Labor Act. See "Legal
Proceedings" in Item 3 of this Report on Form 10-K.
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 the Company's customers at the check-in counter,
gate and baggage claim area. Underwing ground handling services include, but are
not limited to, marshaling the aircraft into and out of the gate, baggage and
mail loading and unloading, as well as lavatory and water servicing, deicing and
certain services provided to the aircraft overnight. Complete ground handling
consists of public contact and underwing services combined.
The Company conducts its own ground handling services in 20 airports,
including Atlanta and Orlando. At other airports, Company operations not
conducted by the Company's employees are contracted to other air carriers,
ground handling companies or fixed base operators. The Company has at least one
employee at each of the cities it serves to promote sales and oversee its
operations.
INSURANCE
The Company carries customary levels of passenger liability insurance,
aircraft insurance for aircraft loss or damage and other business insurance.
The Company is exposed to potential catastrophic losses that may be incurred in
the event of an aircraft accident. Any such accident could involve not only
repair or replacement of a damaged aircraft and its consequent temporary or
permanent loss from service, but also significant potential claims of injured
passengers and others. The Company is required by the DOT to carry liability
insurance on each of its aircraft. The Company currently maintains liability
insurance in the amount of $750 million per occurrence. Although the Company
currently believes its insurance coverage is adequate, there can be no assurance
that the amount of such coverage will not be changed or that the Company will
not be forced to bear substantial losses from accidents. Substantial claims
resulting from an accident in excess of related insurance coverage or not
covered by the Company's insurance could have a material adverse effect on the
Company. Moreover, any aircraft accident, even if fully insured, could cause
and has caused a public perception that some of the Company's aircraft are less
safe or reliable than other aircraft, which could have and has had a material
adverse effect on the Company's business. The Company's insurance premiums have
increased significantly since the accident on May 11, 1996.
11
<PAGE>
SEASONALITY AND CYCLICALITY
The Company's operations are primarily dependent upon passenger travel
demand and, as such, may be subject to seasonal variations. Management believes
that the weakest travel periods will generally be during the months of January,
May and September. Leisure travel generally increases during the summer months
and at holiday periods.
The airline industry is highly volatile. General economic conditions
directly affect the level of passenger travel. Leisure travel is highly
discretionary and varies depending on economic conditions. While business travel
is not as discretionary, business travel generally diminishes during unfavorable
economic times as businesses tend to tighten cost controls.
COMPETITION
The following table identifies airlines which provide non-stop service to
and from Atlanta in the city pair currently served by the Company and the
approximate number of daily round trip flights scheduled to be flown by those
other airlines as of March 1998.
<TABLE>
<CAPTION>
DAILY NON-STOP ROUND TRIPS
--------------------------
American/Northwest/
ATLANTA TO/FROM Delta USAir Others(a)
- ------------------------------ -------- ----- ---------
<S> <C> <C> <C>
Akron/Canton, OH.............. -- -- --
Bloomington/Normal, IL........ -- -- --
Boston, MA.................... 10 -- --
Chicago, IL (Midway)(b)....... -- -- 2
Dallas/Fort Worth, TX......... 17 14.5 --
Dayton, OH.................... 5 -- --
Flint, MI..................... -- -- --
Fort Lauderdale, FL........... 9.5 -- --
Fort Myers, FL................ 9 -- --
Fort Walton Beach, FL......... -- -- 9
Houston, TX................... 12 -- 9
Jacksonville, FL.............. 8 -- --
Knoxville, TN................. 9 -- --
Memphis, TN................... 9.5 6 --
Mobile, AL.................... 8 -- --
New Orleans, LA............... 10 -- --
Newport News, VA.............. 5(c) -- --
New York, NY (LaGuardia) (d).. 16 -- --
Orlando, FL................... 14 -- --
Philadelphia, PA.............. 9.5 6 --
Raleigh/Durham, NC............ 10 -- --
Savannah, GA.................. 8 -- --
Tampa, FL..................... 11 -- --
Washington DC (Dulles)(e)..... 7 -- 1
West Palm Beach, FL........... 9 -- 1
----- ----- ------
Total......................... 196.5 26.5 22
===== ===== ======
</TABLE>
12
<PAGE>
- ---------------------
(a) Includes United Airlines, Continental Airlines and Kiwi. Also includes
commuter affiliates of major airlines which generally provide service with
turboprop aircraft.
(b) Several major airlines operate daily flights to Chicago's O'Hare Airport
which are not reflected in the table above.
(c) Service provided by Delta to Norfolk, VA.
(d) Several major airlines operate daily flights to other airports in the New
York City area which are not reflected in the table above.
(e) Delta operates daily flights to Washington DC's National Airport which are
not reflected in the table above.
There is minimal non-stop competition on the routes currently served by the
Company directly to and from Orlando, although there are multiple connecting
services available through several competitive hubs, including Atlanta. Delta
Express, Delta's low fare operation, currently provides non-stop competition in
only one of the Company's Orlando markets (Islip, NY).
With respect to the Company's one-stop service provided between markets served
on a connecting basis through Atlanta, the Company faces competition from
numerous airlines with varying degrees of flight frequency and marketing
approaches. In addition, the Company competes with numerous nonstop flights to
many of its cities from other airports in the same metropolitan areas as served
by the Company (such as Washington's National Airport, Chicago's O'Hare Airport
and New York's Kennedy Airport).
In October 1996, Delta Express, Delta's new low fare operation, commenced
nonstop service from Orlando to various midwest and northeast cities --
Hartford, CT / Springfield, MA / Boston, MA / Columbus, OH / Newark, NJ /
Washington, DC (Dulles) / Indianapolis, IN/ Philadelphia, PA / Louisville, KY /
and Providence, RI; plus Orlando to four other Florida cities -- Tampa, Ft.
Lauderdale, Ft. Myers and West Palm Beach. Delta Express discontinued service
to Philadelphia as of September 30, 1997, and commenced service to Islip, New
York, and Raleigh-Durham, North Carolina. Delta Express operates a dedicated
single class fleet of 25 B-737 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 the Company's Orlando
service to Islip, NY and the Company's connecting fares via Atlanta. The
addition of new markets to be served by Delta Express from Orlando could pose
additional competition for the Company's flights. 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 March 1998, upon which the foregoing information was
based, are representative of the competition the Company may face, competing
airlines and their flight schedules are subject to frequent change. The
Company's competition includes carriers with substantially greater financial
resources.
The Company may also face competition from other airlines which may begin
serving any of the markets it serves or plans to serve, from new low cost
airlines that may be formed to compete in the low fare market (including any
that may be formed by other major airlines) and from ground transportation
alternatives.
The Company 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. The Company
typically offers more limited flight frequencies than the major airlines with
which it competes. 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.
13
<PAGE>
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 the Company 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 the Company's suspension of
operations on June 17, 1996, AirTran Airlines 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 AirTran Airlines had
satisfied the DOT requirements and issued its final order on September 26, 1996,
approving the Company's return to service.
Each United States carrier must qualify as a United States citizen, which
requires that it be organized under the laws of the United States or a state,
territory or possession thereof, that its President and at least two-thirds of
its Board of Directors and other managing officers must be comprised of United
States citizens, that not more than 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
The Company has also obtained an operating certificate issued by the FAA
pursuant to Part 119 of the Federal Aviation Regulations. AirTran Airlines'
operating certificate was surrendered to the FAA in connection with the consent
order dated June 17, 1996 and returned to the Company on August 29, 1996, after
the Company satisfied the requirements of the FAA in the consent order. In the
consent order, the FAA alleged that the Company violated various federal
regulations relating to aircraft maintenance, maintenance manuals, training,
record keeping and reporting and the Company agreed to present a plan to the FAA
specifying the methods by which it would demonstrate to the FAA its
qualifications to hold an air carrier operating certificate. Under the consent
order, the Company 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, the Company has
made voluntary self disclosures to the FAA for maintenance, operational and in-
flight violations in the ordinary course of business. Under the voluntary self
disclosure program, when a violation is detected, the air carrier promptly
discloses and remedies the violation. If the FAA accepts the remedy proposed by
the air carrier, the FAA will not impose civil penalties for the violation.
Minor penalties have been assessed with respect to certain of these self-
disclosures with all penalties totaling less than $84,000 in 1997. To its
knowledge, the Company believes that it has disclosed all relevant items, but
there can be no assurance that the Company will not have other non-compliance
items in the future. Although the Company 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 the Company, the
Company 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
14
<PAGE>
standards for flight, communications and ground equipment. As required, the
Company has effective FAA certificates of airworthiness for all of the aircraft
used in its operations. The Company's flight personnel, flight and emergency
procedures, aircraft and maintenance facilities are subject to periodic
inspections and tests by the FAA. The Company's director of safety and
regulatory compliance acts as a liaison between the Company and the FAA,
implementing any changes requested by the FAA with respect to operating
procedures or training programs and generally ensuring proper compliance with
aviation regulations applicable to the Company.
The DOT and FAA also have authority under the Aviation Safety and Noise
Abatement Act of 1979, as amended, under the Airport Noise and Capacity Act of
1990 ("ANCA") and, along with the Environmental Protection Agency, under the
Clean Air Act to monitor and regulate aircraft engine noise and exhaust
emissions. To the Company's knowledge, the Company's aircraft comply with all
applicable FAA noise control regulations (except as indicated below) and with
current emissions standards.
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 March 6, 1998, the Company's operating aircraft consisted of 46 aircraft,
28 of which comply with Stage 3. See "Aircraft" above. Therefore, the Company
must take action to continually assure that its fleet will be in compliance with
ANCA.
Miscellaneous
All international service is subject to the regulatory requirements of the
appropriate authorities of the other country involved. The Company does not
currently provide any international service.
All air carriers are subject to certain provisions of the Communications Act
of 1934, as amended, because of their extensive use of radio and other
communication facilities, and are required to obtain an aeronautical radio
license from the Federal Communications Commission ("FCC"). To the extent the
Company is subject to FCC requirements, it has taken and will continue to take
all necessary steps to comply with those requirements.
The Company's operations may become subject to additional federal regulatory
requirements in the future under certain circumstances. The Company's labor
relations are covered under Title II of the Railway Labor Act of 1926, as
amended, and are subject to the jurisdiction of the National Mediation Board.
During a period of past fuel scarcity, air carrier access to jet fuel was
subject to allocation regulations promulgated by the Department of Energy. To
the extent the Company seeks to provide international air transportation in the
future, it will be required to obtain additional authority from the DOT and
become subject to regulatory requirements imposed by affected foreign
jurisdictions. The Company is also subject to state and local laws and
regulations at locations where it operates and the regulations of various local
authorities that operate the airports it serves.
SAFE HARBOR STATEMENTS
Statements made by the Company in this Report regarding the Company's ability
to increase its service levels, to maintain its low cost structure, to become
profitable again and to obtain financing for the acquisition of the B-717
aircraft contracted for are forward-looking statements and are not historical
facts. Instead, they are estimates or projections involving numerous risks and
uncertainties including, but not limited to, governmental approval of increases
in service by the Company, the utilization level of the Company's aircraft, the
level of those costs which are beyond the Company's control, the availability of
financing, the effect of the Company's accounting policies, the Company's
ability to hire and retain qualified personnel under its new compensation
program and results of pending lawsuits. These risks and uncertainties could
potentially cause the Company's implementation of additional service to be
delayed or the Company's costs to exceed present estimates. The Company
disclaims any obligation to update or correct any of its forward-looking
statements.
15
<PAGE>
ITEM 2. PROPERTY
--------
The Company's principal executive offices are located two miles from the
Orlando International Airport in a leased facility consisting of 34,000 square
feet of office space. The facility houses the executive offices of the Company
as well as the Company's operations staff (including inflight operations and
station operations), general administrative staff, reservations staff, computer
systems and personnel training facility. The lease agreement for this facility
expires in the year 2007.
The Company owns an aircraft hangar of approximately 70,000 square feet at
the Orlando International Airport, subject to a ground lease with the Greater
Orlando Aviation Authority expiring in 2016. The hangar houses the Company's
maintenance staff and maintenance records and parts inventory.
The Company also leases approximately 40,500 square feet of office space in
Atlanta for general corporate and operational use (including Atlanta
reservations) under a lease which expires September 30, 1999. The portion of
these premises not being used for reservations has been vacated in connection
with the Company's move of its headquarters to Orlando, Florida. The Company
also leases approximately 15,000 square feet of space in Atlanta for use as a
training center under a lease that expires August 31, 1999. The Company has
signatory status on a lease of facilities at the Atlanta Airport, which lease
expires in the year 2010. The Company 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. The Company 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 the Company serves are leased from the appropriate airport authority or
subleased from other airlines. Such arrangements may include baggage handling,
station operations, cleaning and other services. If such facilities at any
additional cities to be served by the Company are not available to the Company
at acceptable rates, or if such facilities become no longer available to the
Company at acceptable rates, then the Company may choose not to service such
markets.
The Company 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., and by Airways Corporation, The Company currently operates its
FBO business under an FAA repair station certificate.
ITEM 3. LEGAL PROCEEDINGS
-----------------
Several stockholder class action suits have been filed against the Company
and certain of its present and former executive officers and Directors
("Defendants"). The consolidated lawsuits discussed below 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 omission
to disclose material facts in violation of federal securities laws. A total of
14 stockholder lawsuits have been filed against and served upon the Company
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. On November 10, 1997, the Court ordered this suit
to be consolidated into In re ValuJet, Inc. A Consolidated Amended Complaint
-------------
was filed on October 18, 1996. All of the Defendants filed a joint Motion to
Dismiss the Consolidated Amended Complaint on December 23, 1996. On November
10, 1997, the Court denied this Motion to Dismiss in part and granted it in part
(dismissing the negligent misrepresentations claims). Pursuant to a Stipulation
and Order, Defendants must now answer the Consolidated Amended Complaint by
March 24, 1998. On November 25, 1996, Plaintiffs filed their Motion for
16
<PAGE>
Class Certification. Pursuant to a Stipulation and Order, Defendants have
until March 20, 1998, to consider stipulating to certification of the class.
If Defendants determine to contest certification of the Class, Defendants shall
conduct discovery including the taking of the depositions of the lead
Plaintiffs and shall file their response memorandum of law by May 15, 1998.
Plaintiffs have until June 30, 1998, to file their reply memorandum of law. The
discovery period will end on February 28, 1999. 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, 1997, a Consent
Order of Dismissal in favor of all Defendants without prejudice was entered.
Although the Company denies that it has violated any of its obligations under
the federal securities laws, there can be no assurance that the Company will not
sustain material liability under such or related lawsuits.
Numerous lawsuits have been filed against the Company seeking damages
attributable to the deaths of those on Flight 592, and additional lawsuits are
expected. Thus far, approximately 80 such lawsuits have been filed against
ValuJet Airlines, Inc. 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, Georgia, Texas and Missouri. The Company's insurance carrier has
assumed defense of all of these suits under a reservation of rights against
third parties and the Company and has settled and paid approximately 61 claims
as of March 20, 1998, and is pursuing settlements in the balance of the claims.
In the remaining lawsuits, SabreTech has been named as a co-defendant as a
result of the role that it played in the accident. The Company maintains a $750
million policy of liability insurance per occurrence. The Company believes that
the coverage will be sufficient to cover all claims arising from the accident.
In November 1997, the Company filed a suit in the Circuit Court of St. Louis
County, Missouri against SabreTech and its parent corporation (Sabreliner
Corporation), 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 believed to have caused or contributed
to the fire which resulted in the accident. The complaint seeks indemnification
against losses attributable to the lawsuits referred to above and other damages
that the Company suffered as a result of the accident.
In May 1997, SabreTech filed a Complaint for declaratory judgment and other
relief against the Company. The action seeks a determination that SabreTech is
not liable to the Company for the accident involving Flight 592 as a result of
language contained in certain of the contracts between the parties and that the
Company is liable to SabreTech for damages that it has suffered. The Company
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 the Company in State Court in Tennessee for breach of contract and a
declaratory judgment for an anticipatory breach. The Nashville Airport
Authority seeks damages of approximately $2.6 million. The dispute involves
whether the Company was entitled to exercise a termination right contained in
its lease agreement.
In May 1997, the State of Florida filed suit against the Company and its
insurers in the United States District Court for the Southern District of
Florida seeking recovery of costs incurred relating to the accident involving
Flight 592. The Company does not believe that it is obligated for such amounts
and has filed a motion to dismiss this lawsuit.
In November 1997, the Association of Flight Attendants ("AFA") and a former
flight attendant filed suit in federal court in the Eastern District of Virginia
alleging that the Company had violated the Railway Labor Act. The Company
believes that it has not violated such act. This case has been removed to the
United States District Court in the Northern District of Georgia.
17
<PAGE>
From time to time, the Company is engaged in litigation arising in the
ordinary course of its business. The Company does not believe that any such
pending litigation will have a material adverse effect on its results of
operations or financial condition.
Governmental Investigations
Several governmental inquiries and investigations have been launched in
connection with the loss of Flight 592, including investigations by the DOT, the
NTSB, the U.S. Attorney's Office in Atlanta, Georgia and Miami, Florida and
certain state agencies in Florida. Although the Company does not believe, based
on information currently available to it, that such investigations and inquiries
will result in any finding of criminal wrongdoing on its part, the
investigations have not yet been concluded and the possibility of such a finding
cannot be ruled out. The Company may also be assessed civil penalties in
connection with the accident and/or the results of ensuing investigations. Any
such findings or penalties could be material. In addition, it is possible that
the Company could be indirectly affected by negative publicity related to
charges of wrongdoing, if any, against others acting on behalf of the Company at
the time of the accident.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
-------------------------------------------------
A special meeting of the stockholders of the Company was held on November 17,
1997. At the special meeting, the stockholders approved a merger agreement
between Airways Corporation and the Company, the change of the Company's name to
"AirTran Holdings, Inc." and an amendment to the Company's By-laws under which
the term of 75% of the members of the Board of Directors will be extended until
the 1999 annual meeting of the Company's stockholders. The following indicates
the voting on each matter:
<TABLE>
<S> <C> <C> <C> <C>
Broker
For Against Abstentions Non-Votes
---------- ------- ----------- ---------
1. Approve merger
agreement 28,922,269 144,147 93,347 3,228,976
2. Approve name
change 32,014,012 263,244 111,483 None
3. Approve By-law
amendment 30,743,968 254,029 582,924 807,818
</TABLE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
-------------------------------------------------
STOCKHOLDER MATTERS
-------------------
Market Information
- ------------------
The Company's Common Stock, $.001 par value, is traded on the NASDAQ Stock
Market under the symbol "AAIR." Prior to November 18, 1997, the Company's
Common Stock was traded under the symbol "VJET." As of March 23, 1998, there
were approximately 5,842 holders of record of the Company's Common Stock. The
following table sets forth the reported high and low sale prices for the Common
Stock for each fiscal quarter since January 1, 1996.
18
<PAGE>
<TABLE>
<CAPTION>
Fiscal year ended
December 31, 1996 High Low
- ----------------- ------ ------
<S> <C> <C>
Quarter Ending March 31, 1996 $27.63 $18.50
Quarter Ending June 30, 1996 $27.50 $ 4.50
Quarter Ending September 30, 1996 $14.00 $ 8.38
Quarter Ending December 31, 1996 $12.25 $ 5.94
Fiscal year ended
December 31, 1997 High Low
- ----------------- ------ ------
Quarter Ending March 31, 1997 $ 8.75 $ 6.13
Quarter Ending June 30, 1997 $ 8.00 $ 6.25
Quarter Ending September 30, 1997 $ 7.84 $ 4.75
Quarter Ending December 31, 1997 $ 6.25 $ 3.50
</TABLE>
As of March 23, 1998, the closing price of the Common Stock was $6.97.
Dividends
- ---------
No cash dividends have ever been declared by the Company on its Common Stock.
The Company intends to retain earnings to finance the development and growth of
its business. Accordingly, the Company does not anticipate that any dividends
will be declared on its Common Stock for the foreseeable future. Future
payments of cash dividends, if any, will depend on the Company's financial
condition, results of operations, business conditions, capital requirements,
restrictions contained in agreements, future prospects and other factors deemed
relevant by the Company's Board of Directors.
ITEM 6. SELECTED FINANCIAL DATA
-----------------------
The information required by this Item is as follows:
(in thousands except per share data)
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
--------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Operating revenues $211,456 $219,636 $367,757 $133,901 $ 5,811
Net income (loss) (96,663) (41,469) 67,763 20,732 (894)
Basic (loss) earnings
per share (1.72) (0.76) 1.24 0.51 (0.06)
Diluted (loss) earnings
per share (1.72) (0.76) 1.13 0.46 (0.06)
Total assets 433,864 417,187 346,741 173,039 30,264
Long-term debt including
current maturities 250,712 244,706 109,038 46,965 10,398
</TABLE>
19
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
-----------------------------------------------------------------------
OF OPERATIONS
-------------
RESULTS OF OPERATIONS
---------------------
The following chart indicates the service offered by the Company from January
1995 through December 1997:
<TABLE>
<CAPTION>
Number
As of Total Number of Round Trip
Quarter End of Aircraft Flights Per Day Number of Cities Served
- --------------------------- ------------- ------------------ -------------------------
<S> <C> <C> <C>
March 1995 27 184 23
June 1995 28 208 24
September 1995 34 228 26
December 1995 42 268 26
March 1996 47 286 28
June 1996 51 0 Service suspended to all markets as of
June 17, 1996
September 1996 46(1) 16 Service resumed on September 30, 1996 to
Atlanta, Fort Lauderdale, Orlando, Tampa,
Washington, D.C.
December 1996 43(2) 124 18
March 31, 1997 42(3) 148 21
June 30, 1997 42(4) 184 24
September 30, 1997 42(5) 200 22
December 31, 1997 53(6) 237(7) 43(7)
</TABLE>
(1) Of which 4 had been approved for service by the FAA.
(2) Of which 15 had been approved for service by the FAA.
(3) Of which 24 had been approved to service by the FAA.
(4) Of which 30 had been approved to service by the FAA.
(5) Of which 31 had been approved to service by the FAA.
(6) Of which 44 had been approved to service by the FAA. Includes 11 B-737
aircraft operated by AirTran Airways.
(7) Includes service offered by AirTran Airlines and AirTran Airways.
As a result of the accident, the ensuing extraordinary review of the
Company'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 the Company, the Company's results for periods prior to
May 11, 1996 are not necessarily reflective of the results to be expected in
future periods. The Company's operations for 1996 and 1997 are also not
reflective of future operations as a result of the suspension of operations for
a significant portion of 1996, reduced service levels during fourth quarter 1996
and during 1997, incremental costs incurred to reinitiate service to
20
<PAGE>
certain markets and to reactivate aircraft taken out of service during the
suspension of operations and due to the merger of Airways Corporation into the
Company in November 1997. The Company's financial results for 1997 include the
operations of Airways Corporation only from and after November 17, 1997, the
date of the Merger. The following is a description of the costs incurred by
category for the year ended December 31, 1997 compared to the years ended
December 31, 1996 and 1995.
Year Ended December 31, 1995
-------------------------------
% of
Amount Revenues Per ASM
---------- --------- --------
(000)
OPERATING REVENUES $367,757 100.0% 9.62c
======== ===== =====
EXPENSE CATEGORY
Flight Operations $ 16,273 4.4% 0.42c
Aircraft Fuel 55,813 15.2 1.46
Maintenance 47,330 12.9 1.24
Station Operations 49,931 13.6 1.31
Passenger Services 10,363 2.8 0.27
Marketing and Advertising 8,989 2.4 0.23
Sales and Reservations 31,156 8.5 0.81
General and Administrative 10,617 2.9 0.28
Employee Bonuses 14,382 3.9 0.38
Depreciation 15,148 4.1 0.40
Shutdown and Other Nonrecurring 0 0.0 0.00
Other expenses (income), net (70) (0.0) (0.00)
-------- ----- -----
Total Expenses $259,932 70.7% 6.80c
======== ===== =====
Year Ended December 31, 1996
---------------------------------
% of
Amount Revenues Per ASM
------ -------- -------
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
Shutdown and Other Nonrecurring 67,994 31.0 2.51
Other expenses (income), net (5,252) (2.4) (0.19)
-------- ----- -----
Total Expenses $285,568 130.0% 10.57c
======== ===== =====
21
<PAGE>
Year Ended December 31, 1997
---------------------------------
% of
Amount Revenues Per ASM
------ -------- -------
OPERATING REVENUES $211,456 100.0% 7.01c
======== ====== =====
EXPENSE CATEGORY
Flight Operations $ 22,260 10.5% 0.74c
Aircraft Fuel 48,796 23.1 1.62
Maintenance 76,502 36.2 2.53
Station Operations 49,625 23.5 1.64
Passenger Services 9,558 4.5 0.32
Marketing and Advertising 16,998 8.0 0.56
Sales and Reservations 19,025 9.0 0.63
General and Administrative 12,228 5.8 0.41
Employee Bonuses --- --- ---
Depreciation 28,024 13.3 0.93
Shutdown and Other Nonrecurring 24,839 11.7 0.82
Rebranding expenses 5,243 2.5 0.17
Other expenses (income), net 17,796 8.4 0.59
-------- ----- -----
Total Expenses $330,894 156.5% 10.96c
======== ===== =====
OPERATING REVENUES
- ------------------
Total operating revenues in 1997 were $211.5 million as compared to $219.6
million and $367.8 million for the years ending December 31, 1996 and 1995,
respectively. The 3.7% decrease from 1996 to 1997 is primarily due to a 7.3%
decrease in load factor. The decrease from 1995 to 1996 resulted from the
Company's reduced service level and suspension of operations during the second
and third quarters of 1996. The Company flew 3.0 billion ASMs in 1997 as
compared to 2.7 billion ASMs and 3.8 billion ASMs in 1996 and 1995,
respectively. The Company's load factors for 1997, 1996 and 1995 were 52.9%,
57.1% and 68.8%, respectively. The lower load factors in 1996 and 1997 were due
in part to the 1996 accident and ensuing circumstances. Due to the eight-month
lapse of the 10% excise tax during 1996, the Company's average fare in 1996 was
$69.81 compared to $66.85 in 1997 and $68.10 in 1995.
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 in total and on a per ASM basis for the year
ended December 31, 1997 than 1996 due to an 11% increase in ASMs, the Company's
change in compensation structure in September 1996 which reduced the percentage
of compensation represented by bonuses and shifted the cost to base pay and a
substantial increase in the cost of hull insurance effective October 1996.
Flight operations expenses were higher in total and on a per ASM basis for 1996
compared to 1995 due to the extended period of time that the Company's
operations were suspended, the additional training costs at restart, the change
in compensation structure and the increase in hull insurance. In addition,
certain flight administrative costs were also incurred during the period of
suspension during 1996 with no ASMs being generated over which to spread the
costs.
22
<PAGE>
Aircraft fuel expenses include both the direct costs of the fuel as well as
the cost of delivering fuel into the aircraft. Fuel expense, on a per ASM
basis, was lower for 1997 than 1996 due to the lower market price of fuel. Fuel
cost in total increased 4.5% due to a 6.6% increase in consumption due to the
increase in ASMs. The average price of fuel decreased 2.9% in 1997 from $0.71
per gallon to $0.69 per gallon. In 1996, fuel cost per gallon increased 18.3%
to $0.71 per gallon up from $0.60 in 1995. The increase in the price per gallon
of fuel in 1996 accounts for the 18% increase in fuel cost per ASM from 1995 to
1996.
Maintenance expenses include all administrative costs of the maintenance
department as well as normal recurring maintenance performed during the year.
Most non-routine maintenance costs performed during the suspension of operations
are included in the shutdown and nonrecurring expense line item. Maintenance
expenses in 1997 were higher, in total and on a per ASM basis, than both 1996
and 1995 primarily due to a higher number of operating aircraft during the year.
The number of aircraft in service at December 31, 1997 was 44 as compared to 15
at December 31, 1996. Maintenance expenses for the year ended December 31, 1996
were higher, on a per ASM basis, than 1995 due to the suspension of operations
during the second and third quarters of 1996 and the reduced level of service
once the Company was able to resume operations. During 1996, the Company had a
lower aircraft utilization rate, which resulted in the spreading of certain
fixed costs over fewer ASMs and block hours. Certain maintenance administrative
costs were also incurred during the period of the suspension of operations
during 1996 with no ASMs being generated over which to spread these costs
causing a higher cost per ASM in 1996 than 1995.
Station operations expenses include all expenses incurred at the airports,
as well as station operations administration and liability insurance. Station
operations expenses were higher, on a per ASM basis, for the years ended
December 31, 1997 and 1996 than in 1995 due largely to the reduced number of
ASMs flown, the suspension of operations and inefficiencies generated from
restarting operations. Many of the station facilities were not fully utilized
during the fourth quarter of 1996 and during a portion of 1997 due to the
limited operations. Of the 31 stations operated by the Company prior to its
suspension of operations, 15 were restarted during 1996 and eight during 1997.
Certain facility rental expenses related to non-operating stations as a result
of the suspension of operations, are included in shutdown and other nonrecurring
expenses. Other factors contributing to a higher 1997 station operations expense
were an increase in insurance costs as of October 1, 1996 and an approximate 5%
increase in labor rates. Certain station operations administrative costs were
also incurred during the suspension of operations during 1996 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. Passenger service cost in 1997 was
relatively flat, on a per ASM basis, compared to 1996. The increase in passenger
services expenses for 1996, on a per ASM basis, over 1995 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 the
department 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. The increase in 1997, as a
percentage of revenue, compared to 1996 was due to the aggressive marketing
campaign in the fourth quarter of 1997 to introduce the Company's new business
class product combined with a cost reduction effort in 1996 after the accident.
Marketing and advertising expenses for 1996, as a percentage of revenue, were
higher than 1995 due to the additional advertising costs incurred at the
resumption of operations being spread over a reduced revenue base caused by
lower service levels and load factors. Certain marketing administrative costs
were also incurred during the period of the suspension of operations during 1996
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, ARC
processing fees and travel agency commissions. Sales and reservations expenses,
as a percentage of revenue, increased in 1997 to 9.0% of revenues due to the
fact that the Company joined the Airline Reporting Corporation
23
<PAGE>
(ARC) in September 1997 to process all of its ARC member travel agency bookings.
Sales and reservations expenses were 8.4% and 8.5% of revenues for 1996 and
1995, respectively.
General and administrative expenses include the wages and benefits for the
Company's executive officers and various other administrative personnel. Also
included are costs for legal expenses, bad debts, accounting and other
miscellaneous expenses. General and administrative costs for 1997 decreased
10.5% from 1996 due to significantly reduced legal fees. The increase of 28.7%
in general and administrative expense in 1996 compared to 1995 was due to the
shift in compensation structure to one based to a lesser extent on bonuses and
also due to increased legal fees incurred from various matters related to the
accident.
The Company did not pay bonuses during 1997 as a result of generating
operating losses for the year. The decrease in bonus expense in 1996 reflected
the change in salary structure as of September 1996 to less of a bonus based
structure and the fact that the Company had a net loss from the second quarter
1996 through the end of the year.
Depreciation expense includes depreciation on aircraft and ground equipment.
Start-up and route development costs are expensed as incurred. Depreciation
expense for the year ended December 31, 1997 was higher than each of the
previous two years due to the return to operating status of aircraft which were
previously idled or held for disposition and due to additional capital spending
primarily to purchase and install hush kits to meet Stage 3 noise requirements.
Depreciation on idled aircraft, as a result of the suspension of operations and
reduced operations, was recorded in shutdown and other nonrecurring expenses.
All of these aircraft were reactivated during 1997. During 1996, the Company
made the decision to ground and dispose of certain idled aircraft. Subsequent
to the decision to sell or lease out such aircraft, no depreciation was recorded
on those aircraft held for sale. During 1997, as a result of the Merger, the
Company's management decided to return these aircraft to service. The aircraft
were reclassified to flight equipment and will continue to be depreciated over
their remaining useful lives.
Shutdown and other nonrecurring expenses in 1997 and 1996 include costs
associated with the loss of Flight 592, 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, 1997. Such costs consisted 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, related
inspection costs and maintenance in excess of normal operating maintenance. In
addition, depreciation on grounded aircraft in 1996 and 1997, rental of
abandoned or idled facilities and costs of personnel idled as a result of the
reduced and suspended operations from May through December 1997 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. The 63.5% decrease in shutdown and other
nonrecurring expenses is primarily due to the resumption of operations in
September 1996 and the related increasing service levels. No significant
shutdown expenses are expected to be incurred going forward.
A summary of such costs is as follows (in thousands):
<TABLE>
<CAPTION>
Year ended December 31
1997 1996
------ -------
<S> <C> <C>
Maintenance $15,380 $27,750
Legal and other 6,318 16,181
Depreciation 3,141 11,054
Facilities rental --- 6,114
Wages, salaries and benefits,
excluding maintenance --- 4,895
FAA remediation --- 2,000
------- -------
$24,839 $67,994
======= =======
</TABLE>
24
<PAGE>
No accrual was provided for costs to be incurred in future periods related
to aircraft depreciation and maintenance and rental costs associated with
temporarily idled facilities as such costs will be recognized as they are
incurred.
Rebranding expenses include costs incurred in 1997 related to the renaming of
the airline. The rebranding expenses emanated from the merger with Airways
Corporation, the parent company of AirTran Airways, Inc., which was announced in
July and consummated in November 1997 and the Company's decision to change the
name of its operating subsidiary to "AirTran Airlines" in September 1997. These
costs primarily include changing the signage, uniforms, information systems and
advertising. No significant rebranding expenses are expected to be incurred
going forward.
Other expenses (income), net includes interest income and interest expense as
well as certain property transactions. Net interest expense increased 21.6% in
1997 due to the issuance of $80.0 million, 10.5% senior notes due 2001 to
refinance previous outstanding debt and due to reduced interest income as a
result of reduced cash available for investment. During 1996, interest expense
exceeded interest income by approximately $14.5 million due to increasing debt
levels attributable to the acquisition of aircraft and the completion of the
issuance of $150.0 million 10.25 % senior notes due 2001. During 1996, the
Company 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.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
For the year ended December 31, 1997, operating activities used $15.6 million
of cash flow. Capital expenditures used $30.3 million primarily for the
acquisition and installation of hush kits and Boeing 717 advanced purchase
deposits. During 1997, the Company generated $3.6 million from the disposal of
property and equipment. The Company also used $11.7 million making
preacquisition advances to Airways Corporation. Financing activities used $9.6
million as a result of $83.1 million in debt payments offset by $72.5 million in
proceeds received from debt issuance.
As of December 31, 1997, the Company had cash and cash equivalents of
approximately $86.0 million compared to $150.0 million in 1996 and working
capital of $25.9 million compared to $168.6 million in 1996. The Company also
had approximately $8.9 million of income tax receivable which it expects to
receive during the second or third quarter of 1998. There can be no assurance
that the Internal Revenue Service will not dispute or delay this refund.
As of December 31, 1997, the Company's operating fleet consisted of 33
McDonnell Douglas DC-9-30 aircraft and 11 Boeing 737-200 aircraft. During 1996,
the Company sold its remaining McDonnell Douglas MD-80 aircraft and DC-9-21
aircraft. The Company currently leases two DC-9-30 aircraft to other carriers
and has seven aircraft being reactivated from non-operating status.
The Company has contracted with Boeing (successor to McDonnell Douglas) for
the purchase of 50 B-717-200 aircraft, at a cost of approximately $1.0 billion
(subject to adjustments for inflation), for delivery in 1999 to 2002.
Approximately $67.2 million of this amount will be paid in progress payments
during 1998 and 1999. The balance of the purchase price after all progress
payments will be paid upon delivery of each aircraft. If the Company exercises
its option to acquire up to an additional 50 B-717-200 aircraft, additional
payments could be required beginning in 1998. The Company expects to finance at
least 80% of the cost of each of these aircraft. Although Boeing has agreed to
provide assistance with respect to the financing of aircraft to be acquired, the
Company will be required to obtain the financing from other sources. The
Company believes that with the assistance to be provided by Boeing, aircraft
related debt financing should be available when needed. There is no assurance
that the Company will be able to obtain sufficient financing on attractive
terms. If it is unable to do so, the Company could be required to modify its
aircraft acquisition plans or to incur higher than anticipated financing costs,
which could have a material adverse effect on the Company's results of
operations and cash flows.
25
<PAGE>
The Company's compliance with Stage 3 noise requirements will require
substantial additional capital expenditures over the next two years. By December
31, 1998, 75% of the Company's aircraft must be brought into compliance with
Stage 3 requirements and by December 31, 1999, full compliance is required. The
Company intends to meet its Stage 3 noise requirement obligations by installing
hush kits on Stage 2 aircraft or disposing of Stage 2 aircraft and by acquiring
or leasing Stage 3 aircraft. The Company expects that FAA certified hush kits
will cost approximately $53.6 million for its remaining non-hushed DC-9-30 and
B-737-200 aircraft. Any disposition of Stage 2 aircraft would reduce this
obligation. The Company may be able to finance a portion of the cost of these
hush kits and plans to make the balance of payments on these hush kits out of
its working capital. The Company expects to pay the debt service on such loans
out of cash flow generated from operations during the term of the financing.
The phase-in period for full compliance with Stage 3 (until December 31, 1999)
and the expected terms of financing, if available, should allow the Company to
spread the payments for Stage 3 compliance over a number of years.
As of December 31, 1997, the Company's debt related to asset financing
totaled $100.7 million, with respect to which the Company's aircraft and certain
other equipment are pledged as security. Included in such amount is $80.0
million of the Company's 10.5% senior secured notes due 2001 under which
interest is payable semi-annually. In addition, the Company has $150 million of
10.25 % senior unsecured notes outstanding. The principal balance of the senior
notes is due in 2001 and interest is payable semi-annually. All of the
Company's debt has final maturities ranging from 1998 to 2002 with scheduled
debt payments as follows: 1998--$9.5 million, 1999--$5.7 million, 2000--$4.0
million, 2001--$231.1 million, 2002 --$418,000.
Certain debt bears interest at fixed rates ranging from 5.85% to 13% per
annum and is repayable in consecutive monthly or quarterly installments over a
four- to seven-year period. Certain other notes with an aggregate unpaid
principal balance of approximately $6.3 million as of December 31, 1997 have a
variable rate of interest based on the London interbank offered rate (LIBOR)
plus 1.75% to 3.75%
As a result of the accident and suspension of operations, several class
action suits have been filed by stockholders against the Company and various
officers and directors alleging, among other things, misrepresentations under
applicable securities laws. The plaintiffs seek unspecified damages based upon
the decrease in market value of shares of the Company's stock. Although
management of the Company intends to defend these actions vigorously and
believes that the suits are without merit, any litigation contains elements of
uncertainty and there can be no assurance that the Company will not sustain
material liability under such or related lawsuits.
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. As all claims are handled independently by the
Company's insurance carrier, the Company cannot reasonably estimate the amount
of liability which might exist. As a result, no accruals for losses or 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
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.
The Company's internal computer software and computerized operating systems
were developed in conjunction with the commencement of the Company's business in
1993 and were initially designed to take into consideration the Year 2000 issue.
Nevertheless, the Company has implemented a Year 2000 compliance program to
ensure that the Company's computer systems and applications will perform
properly beyond 1999. In addition to the internal review, the Company has
received assurance from its major computer system vendors that their
applications are Year 2000 compliant. The Company believes that the Year 2000
issue will not pose any significant operational problems. Maintenance or
modification costs associated with making existing changes, if needed, will be
expensed as incurred.
26
<PAGE>
The Company's business relies on government agencies and other third parties
(e.g., Department of Transportation, Federal Aviation Administration, airport
authorities, data suppliers). The ability of third parties, upon whom the
Company relies, to adequately address their Year 2000 issues is outside the
Company's control. There can be no assurance that the systems of the third
parties will be modified on a timely basis. The Company's business, financial
condition and results of operations could be materially adversely affected by
the failure of those systems and applications, licensed to or operated for third
parties, or operated by other parties to properly operate on dates beyond 1999.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
----------------------------------------------------------
Not required to be included.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-------------------------------------------
The response to this Item is submitted as a separate section of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
------------------------------------------------
ACCOUNTING AND FINANCIAL DISCLOSURE
-----------------------------------
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
--------------------------------------------------
The information required by this Item is incorporated herein by reference to
the data under the heading "ELECTION OF DIRECTORS" in the Proxy Statement to be
used in connection with the solicitation of proxies for the Company's annual
meeting of Stockholders to be held May 14, 1998, which Proxy Statement is to be
filed with the Commission.
ITEM 11. EXECUTIVE COMPENSATION
----------------------
The information required by this Item is incorporated herein by reference to
the data under the heading "EXECUTIVE COMPENSATION" in the Proxy Statement to be
used in connection with the solicitation of proxies for the Company's annual
meeting of Stockholders to be held May 14, 1998, which Proxy Statement is to be
filed with the Commission.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
--------------------------------------------------------------
The information required by this Item is incorporated herein by reference to
the data under the heading "VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF" in
the Proxy Statement to be used in connection with the solicitation of proxies
for the Company's annual meeting of Stockholders to be held May 14, 1998, which
Proxy Statement is to be filed with the Commission.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
The information required by this Item is incorporated herein by reference to
the data under the heading "CERTAIN TRANSACTIONS" in the Proxy Statement to be
used in connection with the solicitation of proxies
27
<PAGE>
for the Company's annual meeting of Stockholders to be held May 14, 1998, which
Proxy Statement is to be filed with the Commission.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
----------------------------------------------------------------
(a)
l. The response to this portion of Item 14 is submitted as a separate
section of this report.
2. The response to this portion of Item 14 is submitted as a separate
section of this report.
3. Filing of Exhibits:
Exhibit 23 - Consent of Independent Auditors
Exhibit 27 - Financial Data Schedule
(b) During fourth quarter 1997, the Registrant filed a current report on
Form 8-K dated as of November 17, 1997, to report the merger of Airways
Corporation with and into the Registrant.
(c) The following exhibits are filed herewith or incorporated by reference as
indicated. Exhibit numbers refer to Item 601 of Regulation S-K.
Exhibit No. and Description
- ---------------------------
3.1 Articles of Incorporation. (1)
3.2 Bylaws. (As amended on November 17, 1997).
4.1 See the Articles of Incorporation filed as Exhibit 3.1 and Bylaws filed as
Exhibit 3.2
4.2 Agreement and Plan of Merger among the Registrant, ValuJet Airlines, Inc.
and VJET Acquisition, Inc. (1)
4.3 Plan of Reorganization and Agreement of Merger dated July 10, 1997,
between ValuJet, Inc. and Airways Corporation. (2)
4.4 Plan of Merger dated July 10, 1997, between ValuJet, Inc. and Airways
Corporation. (2)
4.5 Amendment to Plan of Reorganization and Agreement of Merger between
ValuJet, Inc. and Airways Corporation. (2)
4.6 Amendment to Plan of Merger between ValuJet, Inc. and Airways
Corporation. (2)
4.7 Indenture dated as of April 17, 1996, among the Company, its subsidiaries
and Bank of Montreal Trust Company, as Trustee. (3)
4.8 Exchange and Registration Rights Agreement dated as of April 17, 1996,
between the Company and Goldman, Sachs & Co. (3)
4.9 First Supplemental Indenture dated August 26, 1996, among the Company,
its subsidiaries, Bank of Montreal Trust Company and Fleet National Bank.
4.10 Second Supplemental Indenture dated August 5, 1997, among the Company,
its subsidiaries and State Street Bank and Trust.
4.11 Indenture dated as of August 13, 1997, among the Company, ValuJet
Airlines, Inc., its subsidiaries and The Bank of New York, as
Trustee. (4)
4.12 Registration Rights Agreement dated as of August 13, 1997, among the
Company, ValuJet Airlines, Inc. and UBS Securities, LLC. (4)
10.1 Incentive Stock Option Agreement dated June 1, 1993, between ValuJet
Airlines, Inc. and Lewis H. Jordan. (5)(6)
28
<PAGE>
10.2 ValuJet Airlines, Inc. 1993 Incentive Stock Option Plan. (5)(6)
10.3 ValuJet Airlines, Inc. 1994 Stock Option Plan. (5)(6)
10.4 Director Noncompete Agreement dated as of May 18, 1994, between ValuJet
Airlines, Inc. and Don L. Chapman. (5)(6)
10.5 Hush Kit Purchase and Aircraft Modification Contract dated as of
June 1, 1994, between ABS Partnership and ValuJet Airlines, Inc. (7)
10.6 DC-9-32 Hushkit Financing Facility dated December 2, 1994. The
Commission has granted confidential treatment with respect to certain
portions of this Agreement. (8)
10.7 ValuJet Airlines, Inc. 401(k) Plan Adoption Agreement. (8)
10.8 ValuJet Airlines, Inc. 1995 Employee Stock Purchase Plan. (9)
10.9 Purchase Agreement between McDonnell Douglas Corporation and ValuJet
Airlines, Inc. dated December 6, 1995. The Commission has granted
confidential treatment with respect to certain portions of this
Agreement. (10)
10.10 Agreement and Lease of Premises Central Passenger Terminal Complex
Hartsfield Atlanta International Airport. (10)
10.11 Consent Order in the Matter of ValuJet Airlines, Inc. with United States
Department of Transportation, Federal Aviation Administration. (11)
10.12 ValuJet, Inc. 1996 Stock Option Plan. (12)
10.13 Employment letter dated October 28, 1996, between ValuJet Airlines, Inc.
and D. Joseph Corr. (6) (12)
10.14 Code Share Agreement dated September 24, 1997, between AirTran Airways,
Inc. and ValuJet Airlines, Inc. (2)
10.15 Consulting Agreement dated November 17, 1997, between the Company and
Robert L. Priddy. (6)
10.16 Consulting Agreement dated November 17, 1997, between the Company and
Lewis H. Jordan. (6)
10.17 Airways Corporation 1995 Stock Option Plan. (13)
10.18 Airways Corporation 1995 Directors Stock Option Plan. (13)
10.19 Lease of headquarters in Orlando, Florida, dated November 14, 1995. (14)
10.20 Orlando International Lease and Use Agreement. (15)
10.21 Orlando Tradeport Maintenance Hangar Lease Agreement by and between
Greater Orlando Aviation Authority and Page AvJet Corporation dated
December 11, 1989. (16)
10.22 Amendment No. 1 to Orlando Tradeport Maintenance Hangar Lease Agreement
by and between Greater Orlando Aviation Authority and Page AvJet
Corporation dated June 22, 1990. (16)
10.23 Agreement and Second Amendment to Orlando Tradeport Maintenance Hangar
Lease Agreement by and between Greater Orlando Aviation Authority and
AirTran Airways, Inc. dated January 25, 1996. (16)
10.24 Severance Compensation Agreement dated February 18, 1997, between Airways
Corporation and Robert D. Swenson.
21 Subsidiaries of the Registrant.
23 Consent of Independent Auditors.
27 Financial Data Schedule.
- ---------------
(1) Incorporated by reference to the Company's Registration Statement on
Form S-4, registration number 33-95232, filed with the Commission on
August 1, 1995, and amendments thereto.
(2) Incorporated by reference to the Company's Registration Statement Form S-4,
registration number 333-33837, filed with the Commission on August 18,
1997, and amendments thereto.
29
<PAGE>
(3) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1996, Commission File No. 0-26914, filed
with the Commission on May 3, 1996.
(4) Incorporated by reference to the Company's Registration Statement on Form
S-4, registration number 333-37487, filed with the Commission on October 9,
1997, and amendments thereto.
(5) Incorporated by reference to the Company's Registration Statement on
Form S-1, registration number 33-78856, filed with the Commission on May
12, 1994, and amendments thereto.
(6) Management contract or compensation plan or arrangement required to be
filed as an exhibit to this Report on Form 10-K pursuant to Item 14(c) of
Form 10-K.
(7) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1994, Commission File No. 0-24164, filed
with the Commission on August 4, 1994.
(8) Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1994, Commission File No. 0-24164, filed with
the Commission on March 31, 1995, and amendment thereto.
(9) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1995, Commission File No. 0-24164, filed
with the Commission on August 11, 1995.
(10) Incorporated by reference to the Company'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.
(11) Incorporated by reference to the Company'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.
(12) Incorporated by reference to the Company'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.
(13) Incorporated by reference to Airways Corporation's Registration Statement
on Form S-4, registration number 33-93104, filed with the Commission.
(14) Incorporated by reference to Form 10-Q of Airways Corporation (Commission
File No. 0-26432) for the quarter ended December 31, 1995.
(15) Incorporated by reference to Form 10-Q of Airways Corporation (Commission
File No. 0-26432) for the quarter ended December 31, 1996.
(16) Incorporated by reference to Form 10-K of Airways Corporation (Commission
File No. 0-26432) for the year ended March 31, 1997.
(d) Financial Statement Schedules - The response to this portion of Item 14
is submitted as a separate section of this Report.
30
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
AIRTRAN HOLDINGS, INC.
By: /s/ D. Joseph Corr
----------------------
D. Joseph Corr,
President and
Chief Executive Officer
Date: March 19, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
/s/ D. Joseph Corr March 19, 1998
- ----------------------------------------
D. Joseph Corr, President (Chief
Executive Officer) and Director
/s/ David W. Lancelot March 19, 1998
- ----------------------------------------
David W. Lancelot, Controller (Principal
Accounting Officer)
/s/ Don L. Chapman March 19, 1998
- ----------------------------------------
Don L. Chapman, Director
March ___, 1998
- ----------------------------------------
John K. Ellingboe, Director
/s/ Lewis H. Jordan March 19, 1998
- ----------------------------------------
Lewis H. Jordan, Director
/s/ Robert C. Pohlad March 19, 1998
- ----------------------------------------
Robert C. Pohlad, Director
/s/ Robert L. Priddy March 19, 1998
- ----------------------------------------
Robert L. Priddy, Director
March ___, 1998
- ----------------------------------------
Robert D. Swenson, Director
31
<PAGE>
EXHIBIT INDEX
-------------
Exhibit No. and Description
- ---------------------------
3.1 Articles of Incorporation. (1)
3.2 Bylaws. (As amended on November 17, 1997).
4.1 See the Articles of Incorporation filed as Exhibit 3.1 and Bylaws filed as
Exhibit 3.2
4.2 Agreement and Plan of Merger among the Registrant, ValuJet Airlines, Inc.
and VJET Acquisition, Inc. (1)
4.3 Plan of Reorganization and Agreement of Merger dated July 10, 1997,
between ValuJet, Inc. and Airways Corporation. (2)
4.4 Plan of Merger dated July 10, 1997, between ValuJet, Inc. and Airways
Corporation. (2)
4.5 Amendment to Plan of Reorganization and Agreement of Merger between
ValuJet, Inc. and Airways Corporation. (2)
4.6 Amendment to Plan of Merger between ValuJet, Inc. and Airways
Corporation. (2)
4.7 Indenture dated as of April 17, 1996, among the Company, its subsidiaries
and Bank of Montreal Trust Company, as Trustee. (3)
4.8 Exchange and Registration Rights Agreement dated as of April 17, 1996,
between the Company and Goldman, Sachs & Co. (3)
4.9 First Supplemental Indenture dated August 26, 1996, among the Company,
its subsidiaries, Bank of Montreal Trust Company and Fleet National Bank.
4.10 Second Supplemental Indenture dated August 5, 1997, among the Company,
its subsidiaries and State Street Bank and Trust.
4.11 Indenture dated as of August 13, 1997, among the Company, ValuJet
Airlines, Inc., its subsidiaries and The Bank of New York, as
Trustee. (4)
4.12 Registration Rights Agreement dated as of August 13, 1997, among the
Company, ValuJet Airlines, Inc. and UBS Securities, LLC. (4)
10.1 Incentive Stock Option Agreement dated June 1, 1993, between ValuJet
Airlines, Inc. and Lewis H. Jordan. (5)(6)
10.2 ValuJet Airlines, Inc. 1993 Incentive Stock Option Plan. (5)(6)
10.3 ValuJet Airlines, Inc. 1994 Stock Option Plan. (5)(6)
10.4 Director Noncompete Agreement dated as of May 18, 1994, between ValuJet
Airlines, Inc. and Don L. Chapman. (5)(6)
10.5 Hush Kit Purchase and Aircraft Modification Contract dated as of
June 1, 1994, between ABS Partnership and ValuJet Airlines, Inc. (7)
10.6 DC-9-32 Hushkit Financing Facility dated December 2, 1994. The
Commission has granted confidential treatment with respect to certain
portions of this Agreement. (8)
10.7 ValuJet Airlines, Inc. 401(k) Plan Adoption Agreement. (8)
10.8 ValuJet Airlines, Inc. 1995 Employee Stock Purchase Plan. (9)
10.9 Purchase Agreement between McDonnell Douglas Corporation and ValuJet
Airlines, Inc. dated December 6, 1995. The Commission has granted
confidential treatment with respect to certain portions of this
Agreement. (10)
10.10 Agreement and Lease of Premises Central Passenger Terminal Complex
Hartsfield Atlanta International Airport. (10)
10.11 Consent Order in the Matter of ValuJet Airlines, Inc. with United States
Department of Transportation, Federal Aviation Administration. (11)
10.12 ValuJet, Inc. 1996 Stock Option Plan. (12)
10.13 Employment letter dated October 28, 1996, between ValuJet Airlines, Inc.
and D. Joseph Corr. (6) (12)
10.14 Code Share Agreement dated September 24, 1997, between AirTran Airways,
Inc. and ValuJet Airlines, Inc. (2)
10.15 Consulting Agreement dated November 17, 1997, between the Company and
Robert L. Priddy. (6)
32
<PAGE>
10.16 Consulting Agreement dated November 17, 1997, between the Company and
Lewis H. Jordan. (6)
10.17 Airways Corporation 1995 Stock Option Plan. (13)
10.18 Airways Corporation 1995 Directors Stock Option Plan. (13)
10.19 Lease of headquarters in Orlando, Florida, dated November 14, 1995. (14)
10.20 Orlando International Lease and Use Agreement. (15)
10.21 Orlando Tradeport Maintenance Hangar Lease Agreement by and between
Greater Orlando Aviation Authority and Page AvJet Corporation dated
December 11, 1989. (16)
10.22 Amendment No. 1 to Orlando Tradeport Maintenance Hangar Lease Agreement
by and between Greater Orlando Aviation Authority and Page AvJet
Corporation dated June 22, 1990. (16)
10.23 Agreement and Second Amendment to Orlando Tradeport Maintenance Hangar
Lease Agreement by and between Greater Orlando Aviation Authority and
AirTran Airways, Inc. dated January 25, 1996. (16)
10.24 Severance Compensation Agreement dated February 18, 1997, between Airways
Corporation and Robert D. Swenson.
21 Subsidiaries of the Registrant.
23 Consent of Independent Auditors.
27 Financial Data Schedule.
- ---------------
(1) Incorporated by reference to the Company's Registration Statement on Form S-
4, registration number 33-95232, filed with the Commission on August 1,
1995, and amendments thereto.
(2) Incorporated by reference to the Company's Registration Statement Form S-4,
registration number 333-33837, filed with the Commission on August 18, 1997,
and amendments thereto.
(3) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1996, Commission File No. 0-26914, filed with
the Commission on May 3, 1996.
(4) Incorporated by reference to the Company's Registration Statement on Form S-
4, registration number 333-37487, filed with the Commission on October 9,
1997, and amendments thereto.
(5) Incorporated by reference to the Company's Registration Statement on Form S-
1, registration number 33-78856, filed with the Commission on May 12, 1994,
and amendments thereto.
(6) Management contract or compensation plan or arrangement required to be filed
as an exhibit to this Report on Form 10-K pursuant to Item 14(c) of Form 10-
K.
(7) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1994, Commission File No. 0-24164, filed with the
Commission on August 4, 1994.
(8) Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1994, Commission File No. 0-24164, filed with
the Commission on March 31, 1995, and amendment thereto.
(9) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1995, Commission File No. 0-24164, filed with the
Commission on August 11, 1995.
33
<PAGE>
(10) Incorporated by reference to the Company'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.
(11) Incorporated by reference to the Company'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.
(12) Incorporated by reference to the Company'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.
(13) Incorporated by reference to Airways Corporation's Registration Statement
on Form S-4, registration number 33-93104, filed with the Commission.
(14) Incorporated by reference to Form 10-Q of Airways Corporation (Commission
File No. 0-26432) for the quarter ended December 31, 1995.
(15) Incorporated by reference to Form 10-Q of Airways Corporation (Commission
File No. 0-26432) for the quarter ended December 31, 1996.
(16) Incorporated by reference to Form 10-K of Airways Corporation (Commission
File No. 0-26432) for the year ended March 31, 1997.
34
<PAGE>
ANNUAL REPORT ON FORM 10-K
ITEM 8, ITEM 14(a)(1) and (2), (c) and (d)
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT
SCHEDULES
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CERTAIN EXHIBITS
FINANCIAL STATEMENT SCHEDULE
YEAR ENDED DECEMBER 31, 1997
AirTran Holdings, Inc.
Orlando, Florida
F-1
<PAGE>
AirTran Holdings, Inc.
The following consolidated financial statements of AirTran Holdings, Inc. are
included in Item 8:
<TABLE>
<CAPTION>
CONTENTS
<S> <C>
Consolidated balance sheets - December 31, 1997 and 1996.................. F-4
Consolidated statements of operations - Years
ended December 31, 1997, 1996, and 1995.............................. F-5
Consolidated statements of stockholders' equity - Years ended
December 31, 1997, 1996, and 1995.................................... F-6
Consolidated statements of cash flows - Years ended
December 31, 1997, 1996, and 1995.................................... F-7
Notes to consolidated financial statements - December 31, 1997............ F-8
</TABLE>
The following consolidated financial statements schedule of AirTran Holdings,
Inc. is included in Item 14(d):
Schedule II - Valuation and qualifying accounts
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable and therefore have been omitted.
F-2
<PAGE>
Report of Independent Auditors
The Stockholders and Board of Directors
AirTran Holdings, Inc.
We have audited the accompanying consolidated balance sheets of AirTran
Holdings, Inc. as of December 31, 1997 and 1996, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
three years in the period ended December 31, 1997. Our audits also included the
financial statement schedule listed in the Index at Item 14(a). These financial
statements and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule 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 AirTran Holdings,
Inc. at December 31, 1997 and 1996, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.
Also, in our opinion, the related financial statement schedule, when considered
in relation to the basic financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.
ERNST & YOUNG LLP
Atlanta, Georgia
February 13, 1998
F-3
<PAGE>
AirTran Holdings, Inc.
Consolidated Balance Sheets
December 31
1997 1996
--------- --------
(In thousands, except
share and per share data)
ASSETS
Current assets:
Cash and cash equivalents $ 86,025 $150,013
Restricted cash 5,965 --
Accounts receivable, less allowance
of $1,354 and $838 at December 31, 1997
and 1996, respectively 5,660 7,015
Income tax receivable 8,862 36,440
Inventories of parts and supplies 11,650 6,607
Prepaid expenses 2,811 8,067
Assets held for disposition -- 42,060
Other current assets 3,079 839
--------- --------
Total current assets 124,052 251,041
Property and equipment:
Flight equipment 257,619 174,535
Other property and equipment 29,268 17,957
Deposits on flight equipment purchase contracts 22,101 14,535
--------- --------
308,988 207,027
Less accumulated depreciation (74,643) (44,455)
--------- --------
234,345 162,572
Cost in excess of net assets acquired 57,776 --
Debt issuance costs 9,863 3,574
Other assets 7,828 --
--------- --------
Total assets $ 433,864 $417,187
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 12,215 $ 3,222
Accrued liabilities 61,574 22,719
Air traffic liability 14,916 3,814
Deferred tax liability -- 1,298
Current maturities of long-term debt 9,461 33,246
Debt on assets held for disposition -- 18,188
--------- --------
Total current liabilities 98,166 82,487
Long-term debt less current maturities 241,251 193,272
Deferred income taxes payable -- 18,029
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value:
Authorized shares - 5,000,000
Issued and outstanding shares - none
Common stock, $.001 par value:
Authorized shares - 1,000,000,000
Issued and outstanding - 64,312,207 and
54,875,610 at December 31, 1997 and
1996, respectively 64 55
Additional paid-in capital 144,937 77,235
(Accumulated deficit) retained earnings (50,554) 46,109
--------- --------
Total stockholders' equity 94,447 123,399
--------- --------
Total liabilities and stockholders' equity $ 433,864 $417,187
========= ========
See accompanying notes.
F-4
<PAGE>
AirTran Holdings, Inc.
Consolidated Statements of Operations
YEAR ENDED DECEMBER 31
1997 1996 1995
--------- -------- ---------
(In thousands, except per share data)
Operating revenues:
Passenger $ 200,939 $209,707 $ 352,575
Cargo 2,250 2,969 4,874
Other 8,267 6,960 10,308
--------- -------- ---------
Total operating revenues 211,456 219,636 367,757
Operating expenses and other, net:
Flight operations 22,260 16,479 16,273
Aircraft fuel 48,796 46,691 55,813
Maintenance 76,502 49,500 47,330
Station operations 49,625 42,018 49,931
Passenger services 9,558 8,879 10,363
Marketing and advertising 16,998 8,426 8,989
Sales and reservations 19,025 18,378 31,156
General and administrative 12,228 13,659 10,617
Employee bonus -- 1,245 14,382
Depreciation and amortization 28,024 17,551 15,148
Arrangement fee for aircraft
transfers -- (13,036) --
Gain on insurance recovery -- (2,815) (1,094)
Loss (gain) on sale of property 124 (3,935) --
Shutdown and other nonrecurring
expenses 24,839 67,994 --
Rebranding expenses 5,243 -- --
--------- -------- ---------
Total operating expenses and other,
net 313,222 271,034 258,908
--------- -------- ---------
Operating (loss) income (101,766) (51,398) 108,849
Interest expense (income):
Interest expense 24,331 22,186 6,579
Interest income (6,659) (7,652) (5,555)
--------- -------- ---------
Total interest expense, net 17,672 14,534 1,024
--------- -------- ---------
(Loss) income before income taxes (119,438) (65,932) 107,825
Income tax (benefit) expense (22,775) (24,463) 40,062
--------- -------- ---------
Net (loss) income $ (96,663) $(41,469) $ 67,763
========= ======== =========
Basic (loss) earnings per share $ (1.72) $ (0.76) $ 1.24
========= ======== =========
Diluted (loss) earnings per share $ (1.72) $ (0.76) $ 1.13
========= ======== =========
See accompanying notes.
F-5
<PAGE>
AirTran Holdings, Inc.
Consolidated Statements of Stockholders' Equity
[CAPTION]
<TABLE>
COMMON STOCK NOTES
---------------------------------- RECEIVABLE RETAINED
ADDITIONAL FROM EARNINGS TOTAL
PAID-IN COMMON (ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL STOCK SALE DEFICIT) EQUITY
------ ------ ---------- ----------- ------------ -------------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1995 53,217 $ 532 $ 72,970 $ (200) $ 19,815 $ 93,117
Issuance of common stock for
exercise of options 1,337 13 383 -- -- 396
Issuance of common stock under
stock purchase plan 2 -- 39 -- -- 39
Change in par value -- (490) 490 -- -- --
Accrued compensation related
to stock options -- -- 550 -- -- 550
Payments on notes receivable
from common stock sale -- -- -- 200 -- 200
Net income -- -- -- -- 67,763 67,763
------ ----- -------- ------ -------- --------
Balance at December 31, 1995 54,556 55 74,432 -- 87,578 162,065
Issuance of common stock
for exercise of options 311 -- 836 -- -- 836
Issuance of common stock under
stock purchase plan 9 -- 113 -- -- 113
Accrued compensation related
to stock options -- -- 1,854 -- -- 1,854
Net loss -- -- -- -- (41,469) (41,469)
------ ----- -------- ------ -------- --------
Balance at December 31, 1996 54,876 55 77,235 -- 46,109 123,399
Issuance of common stock
for exercise of options 317 -- 904 -- -- 904
Issuance of common stock
under stock purchase plan 24 -- 143 -- -- 143
Issuance of common stock and
stock options to acquire
business 9,095 9 66,655 -- -- 66,664
Net loss -- -- -- -- (96,663) (96,663)
------ ----- -------- ------ -------- --------
Balance at December 31, 1997 64,312 $ 64 $144,937 $ -- $(50,554) $ 94,447
====== ===== ======== ====== ======== ========
</TABLE>
See accompanying notes.
F-6
<PAGE>
AirTran Holdings, Inc.
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1997 1996 1995
-------- -------- ---------
(In thousands)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net (loss) income $(96,663) $(41,469) $ 67,763
Adjustments to reconcile net (loss) income to cash (used in) provided by
operating activities:
Depreciation and amortization 32,500 29,165 15,148
Provision for uncollectible accounts 2,895 3,638 3,160
Deferred income taxes (13,221) 8,925 7,390
Gain on disposal of flight equipment (124) (6,749) (1,094)
Changes in operating assets and liabilities:
Restricted cash 4,480 - -
Accounts receivable 1,120 1,422 (7,705)
Other current assets 3,463 (6,149) (6,644)
Other assets (541) - -
Accounts payable and accrued liabilities 28,879 (14,355) 23,738
Air traffic liability 153 (18,408) 12,614
Income taxes payable 21,472 (36,466) (582)
-------- -------- ---------
Net cash (used in) provided by operating activities (15,587) (80,446) 113,788
INVESTING ACTIVITIES
Purchases of property and equipment (30,349) (127,570) (142,128)
Proceeds from disposal of equipment 3,595 97,598 3,000
Cash paid for acquisition, net of cash acquired (364) - -
Preacquisition advance to Airways Corporation (11,681) - -
-------- -------- ---------
Net cash used in investing activities (38,799) (29,972) (139,128)
FINANCING ACTIVITIES
Notes receivable - - 5,500
Payment received on notes receivable from common stock sale - - 200
Issuance of long-term debt 72,493 224,497 73,708
Proceeds from sale of common stock 1,047 950 436
Payment of long-term debt (83,142) (92,963) (11,634)
-------- -------- ---------
Net cash (used in) provided by financing activities (9,602) 132,484 68,210
-------- -------- ---------
Net (decrease) increase in cash and cash equivalents (63,988) 22,066 42,870
Cash and cash equivalents at beginning of year 150,013 127,947 85,077
-------- -------- ---------
Cash and cash equivalents at end of year $ 86,025 $150,013 $ 127,947
======== ======== =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION - CASH
PAID DURING THE YEAR FOR
Income taxes (refunded) paid $ (31,124) $ 4,041 $ 32,770
======== ======== =========
Interest, net of amounts capitalized $ 22,776 $ 19,412 $ 6,592
======== ======== =========
NONCASH INVESTING ACTIVITIES
Fair value of assets acquired $ 45,709 $ - $ -
Cost in excess of assets acquired 58,029 - -
Liabilities assumed (36,710) - -
Fair value of common stock and options issued (66,664) - -
-------- -------- ---------
Net cash paid for acquisition $ 364 $ - $ -
======== ======== =========
</TABLE>
See accompanying notes.
F-7
<PAGE>
AirTran Holdings, Inc.
Notes to Consolidated Financial Statements
December 31, 1997
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.
Pursuant to a Plan of Reorganization and Agreement of Merger, the Company
acquired Airways Corporation ("Airways") on November 17, 1997 through a merger
of Airways with and into the Company ("the Airways Merger"). In connection with
the Airways Merger, each outstanding share of Common Stock, $.01 par value per
share, of Airways was converted into and became the right to receive one share
of Common Stock, $.001 par value per share, of ValuJet, Inc. Therefore, the then
current shareholders of Airways became stockholders of ValuJet, Inc., and
AirTran Airways, Inc. ("AirTran Airways"), Airways' wholly-owned subsidiary,
became a wholly-owned subsidiary of ValuJet, Inc. In connection with the Airways
Merger, the Company changed its name to AirTran Holdings, Inc. and changed the
name of ValuJet Airlines, Inc. to AirTran Airlines, Inc. ("AirTran Airlines").
See Note 2.
F-8
<PAGE>
AirTran Holdings, Inc.
Notes to Consolidated Financial Statements
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REORGANIZATION AND PRINCIPLES OF CONSOLIDATION (CONTINUED)
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, 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, CASH EQUIVALENTS AND RESTRICTED CASH
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents. Restricted cash primarily
represents amounts escrowed relating to AirTran Airways' air traffic liability.
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-9
<PAGE>
AirTran Holdings, Inc.
Notes to Consolidated Financial Statements
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVENTORIES OF PARTS AND SUPPLIES
Spare parts, materials and supplies are stated at cost 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 10-20%, using the straight-line
method over seven to ten years. Other property and equipment is depreciated over
three years.
COST IN EXCESS OF NET ASSETS ACQUIRED
Cost in excess of net assets acquired represents the excess of cost over fair
value of the net assets of Airways Corporation and is being amortized on the
straight-line method over 30 years. Accumulated amortization at December 31,
1997 was approximately $253,000.
The carrying value of cost in excess of net assets acquired is reviewed for
impairment whenever events or changes in circumstances indicate that it may not
be recoverable. If such an event occurred, the Company would prepare projections
of future results of operations for the remaining amortization period. If such
projections indicated that the expected future net cash flows (undiscounted and
without interest) would become less than the carrying amount of cost in excess
of net assets acquired, the Company would record an impairment loss in the
period such determination is made based on the fair value of the related
business.
F-10
<PAGE>
AirTran Holdings, Inc.
Notes to Consolidated Financial Statements
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CAPITALIZED INTEREST
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 1997
and 1996, approximately $1,555,000 and $1,212,000 of interest cost was
capitalized, respectively. No interest was capitalized in 1995.
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 $13,087,000, $6,261,000 and $8,038,000 for
the years ended December 31, 1997, 1996 and 1995, respectively.
REVENUE RECOGNITION
Passenger and cargo revenue is recognized when transportation is provided.
Transportation purchased but not yet used is included in air traffic liability.
ARRANGEMENT FEE FOR AIRCRAFT TRANSFERS
During 1996, the Company sold its contractual purchase commitments with respect
to certain aircraft to other entities for approximately $17,000,000 which, net
of related deposits, resulted in income of approximately $13,000,000. This
amount is reflected as Arrangement Fee for Aircraft Transfers in the
accompanying statement of operations. The Company has no further obligations
with respect to these purchase commitments.
F-11
<PAGE>
AirTran Holdings, Inc.
Notes to Consolidated Financial Statements
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REBRANDING EXPENSES
Rebranding expenses represent costs incurred in connection with the Company's
name change such as costs for advertising, new signs, uniforms and conforming
information systems.
INCOME TAXES
The Company accounts for income taxes using the liability method in accordance
with Statement of Financial Accounting Standards ("SFAS") No. 109, Accounting
----------
for Income Taxes.
- ----------------
PREOPERATING COSTS
The costs of routine development of new routes and the pre-operating costs
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 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 Financial Accounting Standards Board ("FASB") issued SFAS
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.
F-12
<PAGE>
AirTran Holdings, Inc.
Notes to Consolidated Financial Statements
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NET INCOME (LOSS) PER SHARE
In 1997, the FASB issued SFAS No. 128, Earnings per Share. Statement 128
------------------
replaced the calculation of primary and fully diluted earnings per share with
basic and diluted earnings per share. Unlike primary earnings per share, basic
earnings per share excludes any dilutive effects of options, warrants and
convertible securities. Diluted earnings per share is very similar to the
previously reported fully diluted earnings per share. All earnings per share
amounts for all periods have been presented, and where appropriate, restated to
conform to the Statement 128 requirements.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In March 1995, the FASB issued SFAS 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 amounts.
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 Federal Aviation Administration ("FAA") which contemplated that
the Company would reestablish operations with not more than 15 aircraft and
subjected further expansion of the Company's operations to the FAA and the
Department of Transportation ("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 classified in the balance sheet
as assets held for disposition and were stated at the lower of carrying amount
or fair value less cost to sell. Such aircraft were available for sale and an
active sales program was initiated. The fair value, as estimated by the current
market value of these aircraft, less cost to sell exceeded the carrying amount
of such aircraft.
During 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
F-13
<PAGE>
AirTran Holdings, Inc.
Notes to Consolidated Financial Statements
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS (CONTINUED)
decided to make the remaining aircraft classified as assets held for disposition
available for a return to its operating specifications. Each of AirTran Airlines
and AirTran 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. 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.
In June 1997, the FASB issued Statement No. 130, Reporting Comprehensive Income
------------------------------
("Statement 130"). Statement 130 establishes new standards for the reporting and
display of comprehensive income and its components in a full set of general
purpose financial statements. These new standards require that all items
recognized as components of comprehensive income be reported in a financial
statement that is displayed with the same prominence as other financial
statements. Statement 130 is effective for fiscal years beginning after December
15, 1997. The adoption of Statement 130 will not impact the Company's
consolidated financial statements.
In June 1997, the FASB issued Statement 131, Disclosures About Segment of an
-------------------------------
Enterprise and Related Information ("Statement 131"). Statement 131 changes the
- ----------------------------------
way public companies report segment information in annual financial statements
and also requires those companies to report selected segment information in
interim financial reports. Statement 131 is effective for periods beginning
after December 15, 1997. The adoption of Statement 131 will not have a
significant impact on the Company's consolidated financial statements.
RECLASSIFICATIONS
Certain amounts in the 1996 and 1995 financial statements have been reclassified
to conform to the current year presentation.
F-14
<PAGE>
AirTran Holdings, Inc.
Notes to Consolidated Financial Statements
2. ACQUISITION
On November 17, 1997, the Company acquired all of the outstanding shares of
common stock of Airways, which through its wholly-owned subsidiary, AirTran
Airways, Inc., operates a domestic commercial airline providing point-to-point
scheduled air transportation. The acquisition was recorded under the purchase
method of accounting, and accordingly, Airways' results of operations are
included in the accompanying consolidated financial statements from the date of
acquisition. The aggregate purchase price was approximately $68,164,000
comprised of the following: 9,094,937 shares of the Company's common stock
valued at approximately $63,664,000; 732,700 options to purchase the Company's
common stock valued at approximately $3,000,000; and cash of approximately
$1,500,000 for the expenses of the Airways Merger and other costs. The purchase
price has been allocated to the assets purchased and the liabilities assumed
based on their estimated fair market values at the date of acquisition. The
excess of cost over the fair value of the net assets acquired of approximately
$58,029,000 has been recorded as goodwill and is being amortized on a straight-
line basis over 30 years.
The following data represents the combined unaudited operating results of the
Company on a pro forma basis as if the acquisition of Airways had occurred at
the beginning of the periods presented. The pro forma information does not
necessarily reflect the results of operations as they would have been had the
acquisition actually taken place at that time, nor are they indicative of the
results of future combined operations. Adjustments include amounts of
depreciation to reflect the fair value and economic lives of property and
equipment and amortization of intangible assets. In addition, adjustments were
made to reflect the additional shares issued.
Unaudited Pro Forma
Years ended December 31
1997 1996
-------------------------------------
(In thousands, except per share data)
Total operating revenues $ 303,669 $319,843
Net loss (107,017) (49,743)
Net loss per share:
Basic and diluted (1.67) (0.78)
F-15
<PAGE>
AirTran Holdings, Inc.
Notes to Consolidated Financial Statements
3. 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. In response to
the accident, the 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 to
resume operations during August 1996. The Company received its determination of
fitness from the DOT on September 25, 1996 and restarted operations on September
30, 1996. See Note 11 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 80 such lawsuits have been filed against
AirTran 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, Georgia, Texas and Missouri. The Company's insurance carrier has
assumed defense of these suits under a reservation of rights against third
parties. The insurance carrier has settled and paid approximately 60 claims and
is pursuing settlements in the balance of the claims. In the remaining lawsuits,
a third party maintenance contractor has been named as a co-defendant as a
result of the role that it played in the accident. 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 provides facilities for all forms of
aviation insurance for many major airlines.
F-16
<PAGE>
AirTran Holdings, Inc.
Notes to Consolidated Financial Statements
3. COMMITMENTS AND CONTINGENCIES (CONTINUED)
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.
In November 1997, the Company filed a suit in the Circuit Court of St. Louis
County, Missouri against a third party maintenance contractor, seeking to hold
it responsible for the accident involving Flight 592. The complaint seeks
indemnification against losses attributable to the lawsuits referred to above
and other damages that the Company suffered as a result of the accident.
In May 1997, the third party maintenance contractor filed a Complaint for
declaratory judgment and other relief against the Company. The action seeks a
determination that the third party maintenance contractor is not liable to the
Company for the accident involving Flight 592 as a result of language contained
in certain of the contracts between the parties and that the Company is liable
to the third party maintenance contractor for damages that it has suffered. The
Company intends to vigorously defend this lawsuit and to assert all claims it
has against the third party maintenance contractor.
Also in May 1997, the State of Florida filed suit against the Company and its
insurers in the United States District Court for the Southern District of
Florida seeking recovery of costs incurred relating to the accident involving
Flight 592. The Company does not believe that it is obligated for such amounts
and has filed a motion to dismiss this lawsuit.
Several governmental inquiries and investigations have been launched in
connection with the loss of Flight 592, including investigations by the DOT, the
National Transportation Safety Board, the U.S. Attorney's Office in Atlanta,
Georgia and Miami, Florida and certain state agencies in Florida. Although the
Company does not believe, based on information currently available to it, that
such investigations and inquiries will result in any finding of criminal
wrongdoing on its part, the investigations have not yet been concluded and the
possibility of such a finding cannot be ruled out. The Company may also be
assessed civil penalties in connection with the accident and/or the results of
ensuing investigations. Any such findings or penalties could be material.
F-17
<PAGE>
AirTran Holdings, Inc.
Notes to Consolidated Financial Statements
3. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Several stockholder class action suits have been filed against the Company and
certain of its present and former 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. 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 other litigation arising in the
ordinary course of business. The Company does not believe that any such pending
litigation will have a materially adverse effect on its results of operations or
financial condition.
At December 31, 1997, 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 $980
million at December 31, 1997.
Approximately $142 million of this amount is required to be paid in progress
payments due from 1998 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 1998. In conjunction with these
contractual commitments, the Company has made refundable deposits of
approximately $22,000,000 at December 31, 1997.
F-18
<PAGE>
AirTran Holdings, Inc.
Notes to Consolidated Financial Statements
3. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Future required deposits for aircraft progress payments as of December 31, 1997
are as follows (in thousands):
1998 $ 31,655
1999 35,512
2000 44,874
2001 29,565
---------
$ 141,606
=========
By December 31, 1999, all of the Company's aircraft must be brought into
compliance with the FAA's Stage 3 noise requirements. The Company intends to
meet its Stage 3 noise requirement obligations by installing hush kits on Stage
2 aircraft, disposing of other Stage 2 aircraft and acquiring or leasing Stage 3
aircraft. The Company expects that FAA certified hush kits will cost
approximately $53,600,000 for its aircraft not currently meeting such
requirements.
4. ACCRUED LIABILITIES
DECEMBER 31
1997 1996
----------------------
(In thousands)
Accrued maintenance $35,644 $ 7,710
Accrued interest 5,405 4,162
Accrued salaries, wages, and vacation 3,042 1,042
Accrued federal excise taxes 1,843 --
Other 15,640 9,805
------- -------
$61,574 $22,719
======= =======
F-19
<PAGE>
AirTran Holdings, Inc.
Notes to Consolidated Financial Statements
5. LONG-TERM DEBT
December 31
1997 1996
--------------------
(In thousands)
Senior notes $150,000 $150,000
Senior secured notes 80,000 --
Promissory notes for aircraft and
other equipment 20,712 94,706
-------- --------
250,712 244,706
Less current maturities (9,461) (33,246)
Less debt on assets held for
disposition -- (18,188)
-------- --------
$241,251 $193,272
======== ========
During April 1996, the Company closed a private offering of $150,000,000
principal amount of 10 1/4% Senior Notes due 2001. In November 1996, the
Company exchanged substantially all of 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.
During August 1997, the Company closed a private offering of $80,000,000
principal amount of 10 1/2% Senior Secured Notes due 2001. In January 1998, the
Company exchanged the unregistered Notes for Registered 10 1/2% Senior Secured
Notes due 2001. Interest on the Senior Secured Notes is payable semiannually on
April 15 and October 15. Certain aircraft, together with the installed engines
related thereto, three spare engines and four hush kits after their purchase by
AirTran Airlines serve as collateral for the Senior Secured Notes.
The promissory notes relate to aircraft financing and bear interest at rates
ranging from 5.85% to 13.00% 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
$6,300,000 at December 31, 1997, have a variable rate of interest based on the
London interbank offered rate ("LIBOR") (5.81% at December 31, 1997) plus a
range of 1.75% to 3.73%.
F-20
<PAGE>
AirTran Holdings, Inc.
Notes to Consolidated Financial Statements
5. LONG-TERM DEBT (CONTINUED)
Certain of the Company's aircraft, engines and certain computer and telephone
equipment totalling approximately $176,056,000 serve as collateral on the Senior
Secured Notes and promissory notes.
Future statutory long-term debt principal payments at December 31, 1997 were as
follows (in thousands):
Year ending December 31,
1998 $ 9,461
1999 5,726
2000 4,046
2001 231,061
2002 418
---------
$250,712
=========
6. LEASES
The Company leases seven Boeing 737-200's under operating leases with terms of
four to seven years. The Company also 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 thirteen years.
Total rental expense charged to operations for aircraft, facilities and office
space for the years ended December 31, 1997, 1996 and 1995 was approximately
$13,655,000, $15,824,000, and $12,516,000, respectively.
F-21
<PAGE>
AirTran Holdings, Inc.
Notes to Consolidated Financial Statements
6. LEASES (CONTINUED)
Future minimum lease payments under non-cancelable operating leases with initial
terms in excess of one year at December 31, 1997 were as follows (in thousands):
1998 $12,642
1999 9,838
2000 9,399
2001 8,922
2002 7,740
Thereafter 36,340
-------
$84,881
=======
7. 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.
On June 28, 1994 ("the IPO date"), 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 was recognized over the vesting period of three years from the
issuance date. At the end of the vesting term in 1997, the shares were divided
among the employees employed at the IPO date remaining with the Company at the
end of the three year vesting period. All of these shares were issued during
1997.
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.
F-22
<PAGE>
AirTran Holdings, Inc.
Notes to Consolidated Financial Statements
8. STOCK OPTION PLANS
In 1993, the Company established its 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 its 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 its 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.
In connection with the acquisition of Airways on November 17, 1997, the Company
assumed the Airways Corporation 1995 Stock Option Plan ("Airways Plan") and the
Airways Corporation 1995 Director Stock Option Plan ("Airways DSOP"). Under the
Airways Plan up to 1,150,000 incentive stock options or non-qualified options
may be granted to officers, directors, key employees or consultants of the
Company. Under the Airways DSOP, up to 150,000 non-qualified options may be
granted to Directors.
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.
F-23
<PAGE>
AirTran Holdings, Inc.
Notes to Consolidated Financial Statements
8. STOCK OPTION PLANS (CONTINUED)
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 1997, 1996 and 1995, respectively: risk-free interest rates of
5.7%, 7.3% and 6.4%; no dividend yields; volatility factors of the expected
market price of the Company's common stock of .570, .625 and .625; 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-24
<PAGE>
AirTran Holdings, Inc.
Notes to Consolidated Financial Statements
8. STOCK OPTION PLANS (CONTINUED)
A summary of stock option activity under the above-described plans is as
follows:
Weighted
Average
Shares Price Range Price
------ ----------- --------
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
Granted 1,304,000 5.31 - 6.88 5.52
Assumed in Airways Merger 732,700 2.70 - 10.75 4.60
Exercised (317,480) 0.17 - 5.13 2.85
Canceled (226,320) 1.00 - 21.38 12.20
----------
Balance at December 31, 1997 8,116,430 0.17 - 23.19 4.84
==========
Exercisable at December 31, 1997 5,549,050 0.17 - 23.19 4.38
==========
F-25
<PAGE>
AirTran Holdings, Inc.
Notes to Consolidated Financial Statements
8. STOCK OPTION PLANS (CONTINUED)
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 2,488,000 5.5 $0.17 2,456,000 $0.17
$1.00 - $6.88 4,126,630 7.9 3.65 1,815,690 3.59
$7.13 - $15.00 651,000 8.6 8.15 595,100 7.85
$18.38 - $23.19 850,800 8.1 19.16 682,260 18.60
--------- ---------
8,116,430 7.2 4.84 5,549,050 4.38
========= =========
</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 (in thousands, except per share data):
<TABLE>
<CAPTION>
1997 1996 1995
------- -------- -------
<S> <C> <C> <C>
Pro forma net (loss) income $97,876 $(44,880) $67,194
Basic pro forma (loss) earnings per share (1.75) (0.82) 1.23
Diluted pro forma (loss) earnings per share (1.75) (0.82) 1.12
</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 1997, 1996 and 1995
with option prices equal to the market price on the date of grant was $2.66,
$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. There were no
options granted during 1997 with option prices less than the market price of the
stock on the date of grant.
F-26
<PAGE>
AirTran Holdings, Inc.
Notes to Consolidated Financial Statements
8. STOCK OPTION PLANS (CONTINUED)
At December 31, 1997, the Company had reserved a total of 10,984,720 shares of
common stock for future issuance upon exercise of stock options.
9. (LOSS) EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted (loss)
earnings per share (in thousands except per share data):
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- -------
<S> <C> <C> <C>
Numerator for basic and diluted (loss) earnings per share -
(loss) income available to common stockholders:
Net (loss) income $(96,663) $(41,469) $67,763
======== ======== =======
Denominator:
Denominator for basic (loss) earnings per share -
weighted average shares 56,068 54,702 54,494
Effect of dilutive securities:
Employee stock options - - 5,299
-------- -------- -------
Denominator for diluted (loss) earnings per share -
adjusted weighted-average shares
56,068 54,702 59,793
======== ======== =======
Basic (loss) earnings per share $ (1.72) $ (0.76) $ 1.24
======== ======== =======
Diluted (loss) earnings per share $ (1.72) $ (0.76) $ 1.13
======== ======== =======
</TABLE>
F-27
<PAGE>
AirTran Holdings, Inc.
Notes to Consolidated Financial Statements (continued)
9. (LOSS) EARNINGS PER SHARE (CONTINUED)
Options to purchase shares of common stock were outstanding in 1997 and 1996,
but were not included in the computation of diluted (loss) earnings per share
because the Company reported a loss and, therefore, the effect would be anti-
dilutive.
10. INCOME TAXES
The income tax provision (benefit) consists of the following (in thousands):
YEAR ENDED DECEMBER 31
1997 1996 1995
-------- --------- -------
Current:
Federal $(9,554) $(31,311) $30,390
State -- (2,077) 2,282
------- -------- -------
Total current (9,554) (33,388) 32,672
Deferred:
Federal (13,221) 10,614 6,314
State -- (1,689) 1,076
------- -------- -------
Total deferred (13,221) 8,925 7,390
------- -------- -------
$(22,775) $(24,463) $40,062
======== ======== =======
A reconciliation of the provision for income taxes (benefit) to the federal
statutory rate is as follows (in thousands):
YEAR ENDED DECEMBER 31
1997 1996 1995
-------- --------- -------
Tax at statutory rate $(41,803) $(23,076) $37,739
State taxes, net of federal benefit (4,761) (2,448) 2,183
Other (481) 1,061 140
Valuation reserve 24,270 -- --
-------- --------- --------
$(22,775) $(24,463) $40,062
======== ======== =======
F-28
<PAGE>
AirTran Holdings, Inc.
Notes to Consolidated Financial Statements (continued)
10. INCOME TAXES (CONTINUED)
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 (in thousands):
DECEMBER 31
1997 1996
-------- -------
Deferred tax liabilities:
Prepaid insurance $ -- $ 2,687
Depreciation 26,894 19,585
Gain on involuntary conversion 1,484 1,484
Other 2,761 --
-------- -------
Total deferred tax liabilities 31,139 23,756
Deferred tax assets:
Accrued liabilities 3,347 770
Nonqualified stock options 930 930
Federal operating loss carryforwards 42,463 --
State operating loss carryforwards 7,364 2,036
AMT credit carryforwards 2,617 --
Other 3,418 693
-------- -------
Total deferred tax assets 60,139 4,429
Valuation allowance for deferred tax assets (29,000) --
-------- -------
Net deferred tax assets 31,139 4,429
-------- -------
Net deferred tax liabilities $ -- $19,327
======== =======
For financial reporting purposes, a valuation allowance has been recognized at
December 31, 1997 to reduce the net deferred income tax assets to zero. The
Company has not recognized any benefit from the future use of operating loss
carryforwards, because management's evaluation of all the available evidence in
assessing the realizability of the tax benefits of such loss carryforwards
indicates that the underlying assumptions of future profitable operations
contain risks that do not provide sufficient assurance to recognize such tax
benefits currently.
F-29
<PAGE>
AirTran Holdings, Inc.
Notes to Consolidated Financial Statements
10. INCOME TAXES (CONTINUED)
At December 31, 1997, the Company had net operating loss carryforwards for
income tax purposes of approximately $121,324,000 which begin to expire in 2012.
In addition, the Company has Alternative Minimum Tax credit carryforwards for
income tax purposes of $2,617,000. Various subsidiaries of the Company have
additional state operating loss carryforwards of approximately $3,100,000 with
expiration dates through the year 2011.
The amount of net operating loss carryforwards generated by Airways prior to the
Airways Merger is $23,436,000. The use of pre-acquisition operating loss
carryforwards is subject to limitations imposed by the Internal Revenue Code.
The Company does not anticipate that these limitations will affect utilization
of the carryforwards prior to expiration. For financial reporting purposes, a
valuation allowance of $4,730,000 has been recognized to offset the deferred tax
assets related to those carryforwards. When realized, the tax benefit for those
items will be applied to reduce goodwill related to the acquisition of Airways.
11. 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, 1997. 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 abandoned or idled facilities and costs of
personnel idled as a result of the reduced and suspended operations from May,
1996 through December, 1997 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.
F-30
<PAGE>
AirTran Holdings, Inc.
Notes to Consolidated Financial Statements (continued)
11. SHUTDOWN AND OTHER NONRECURRING EXPENSES (CONTINUED)
A summary of such costs is as follows (in thousands):
YEAR ENDED DECEMBER 31
1997 1996
------- -------
Maintenance $15,380 $27,750
Legal and other 6,318 16,181
Depreciation 3,141 11,054
Facilities rental -- 6,114
Wages, salaries and benefits,
excluding maintenance -- 4,895
FAA remediation -- 2,000
------- -------
$24,839 $67,994
======= =======
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.
12. 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 and $12,663,000 for the years ended
December 31, 1996 and 1995, respectively.
F-31
<PAGE>
AirTran Holdings, Inc.
Notes to Consolidated Financial Statements (continued)
13. FINANCIAL INSTRUMENTS
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash and cash equivalents
and accounts receivable. The Company maintains cash and cash equivalents with
various high credit-quality financial institutions or in short-duration high
quality debt securities. The Company periodically evaluates the relative credit
standing of those financial institutions that are considered in the Company's
investment strategy. Concentration of credit risk with respect to accounts
receivable is limited due to the large number of customers comprising the
Company's customer base.
The following methods and assumptions were used by the Company in estimating its
fair value disclosures for financial instruments:
Cash, cash equivalents and restricted cash: The carrying amounts
------------------------------------------
reported in the balance sheet for cash and cash equivalents and
restricted cash approximate their fair value.
Long-term debt: The fair values of the Company's long-term debt are
--------------
based on quoted market prices, if available, or 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 (in thousands):
1997 1996
------------------- --------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
--------- -------- -------- --------
Cash, cash equivalents and
restricted cash $ 91,990 $ 91,990 $150,013 $150,013
Long-term debt 250,712 235,093 244,706 219,326
F-32
<PAGE>
AirTran Holdings, Inc.
Notes to Consolidated Financial Statements
14. EMPLOYEE BENEFIT PLANS
Effective April 1, 1995, the Company adopted its 401(k) Plan (the "Plan"), a
defined contribution benefit plan which qualifies under Section 401(k) of the
Internal Revenue Code. All employees of AirTran Holdings, Inc. and AirTran
Airlines 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 1997, 1996 or
1995.
In connection with the Airways Merger, the Company acquired the Airways
Corporation 401(k) Plan (the "Airways Plan"), a defined contribution benefit
plan which qualifies under Section 401(k) of the Internal Revenue Code. All
employees of AirTran Airways are eligible to participate in the Airways Plan.
Participants may contribute up to 15% of their base salary to the Airways Plan.
Contributions to the Airways Plan by the Company are equal to 10% of employee
contributions and were not material during 1997.
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 1997, 1996 and 1995, the employees purchased a total of 24,190, 8,770 and
1,880 shares, respectively, at an average price of $5.90, $12.94 and $20.86 per
share, respectively, which represented a 5% discount from the market price on
the offering dates.
F-33
<PAGE>
AirTran Holdings, Inc.
Notes to Consolidated Financial Statements (continued)
15. QUARTERLY FINANCIAL DATA (UNAUDITED)
The 1996 and first three quarters of 1997 earnings (loss) per share amounts as
shown below have been restated to comply with Statement 128.
Summarized quarterly financial data for 1997 and 1996 is as follows (in
thousands, except per share data):
Quarter
First Second Third Fourth
-------- -------- -------- --------
Fiscal 1997:
Operating revenues $ 36,928 $ 47,759 $ 56,413 $ 70,356
Operating loss (24,864) (9,854) (12,800) (54,248)
Net loss (18,507) (9,226) (14,612) (54,318)
Basic and diluted loss
per share (.34) (.17) (.27) (.91)
Quarter
First Second Third Fourth
-------- -------- -------- --------
Fiscal 1996:
Operating revenues $109,995 $ 81,217 $ 311 $ 28,113
Operating income (loss) 17,525 (11,581) (29,946) (27,396)
Net income (loss) 10,667 (9,574) (21,945) (20,617)
Basic earnings (loss)
per share .20 (.18) (.40) (.38)
Diluted earnings (loss)
per share .18 (.18) (.40) (.38)
The results of operations for the fourth quarter of 1997 include shutdown and
other non-recurring expenses of approximately $15,501,000 which primarily relate
to unusual maintenance costs incurred in returning eight aircraft to service and
to legal costs. The results of the fourth quarter of 1997 also include
rebranding expenses of approximately $5,240,000.
F-34
<PAGE>
AirTran Holdings, Inc.
Notes to Consolidated Financial Statements (continued)
15. QUARTERLY FINANCIAL DATA (UNAUDITED)
During the year the Company provides for income taxes using anticipated
effective annual tax rates. The rates are based on expected operating results
and permanent differences between book and tax income. Adjustments are made in
each quarter for changes in the anticipated rates used in previous quarters. If
the actual annual effective tax rate had been used in each of the quarters of
1997, net loss for the year would be unchanged. However, net loss for the first
through fourth quarters of 1997 would have been $(23,880,000), $(11,869,000),
$(14,800,000), and $(46,114,000), respectively.
16. 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 AirTran Airlines
and AirTran Airways, wholly-owned subsidiaries of the Company, and by all of
AirTran Airlines' subsidiaries ("Guarantors"). AirTran Airways has no
subsidiaries. The $80,000,000 of 10 1/2% Senior Secured Notes issued by AirTran
Airlines during 1997 are fully and unconditionally guaranteed on a joint and
several basis by AirTran Holdings, Inc., AirTran Airways, and all of AirTran
Airlines' subsidiaries. All of the operations of the Company are conducted by
AirTran Airlines and its subsidiaries and AirTran Airways. All of the subsidiary
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 subsidiary Guarantors are not presented
because AirTran Holdings, Inc. and all of its subsidiaries guarantee the Senior
Notes and the Senior Secured Notes on a full, unconditional and joint and
several basis.
F-35
<PAGE>
AirTran Holdings, Inc.
Notes to Consolidated Financial Statements (continued)
16. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION (CONTINUED)
Summarized consolidating financial information as of and for the year ended
December 31, 1997 is as follows (in thousands):
<TABLE>
<CAPTION>
AirTran AirTran
Airlines AirTran Holdings, Inc.
and AirTran Holdings, and
Subsidiaries Airways Inc. Eliminations Subsidiaries
------------ --------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Current assets $ 118,485 $ 15,601 $ 35,931 $ (45,965) $124,052
Non-current assets 206,510 100,480 238,651 (235,829) 309,812
Current liabilities 71,162 42,834 30,135 (45,965) 98,166
Non-current liabilities 230,967 6,150 150,000 (145,866) 241,251
Operating revenues 198,084 13,246 126 -- 211,456
Operating (loss) income (101,894) 490 (362) -- (101,766)
(Loss) income before
income (benefit)
taxes (119,509) 433 (362) -- (119,438)
Net (loss) income (96,839) 433 (257) -- (96,663)
</TABLE>
Summarized financial information of AirTran Airlines, Inc. and its subsidiaries
as of and for the year ended December 31, 1996 is as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Current assets................................ $246,041
Non-current assets.............................. 162,572
Current liabilities............................. 81,743
Non-current liabilities......................... 207,167
Operating revenues.............................. 219,636
Operating loss.................................. (51,398)
Loss before income taxes........................ (65,932)
Net loss........................................ (41,469)
</TABLE>
F-36
<PAGE>
SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS
AIRTRAN HOLDINGS, INC.
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL. E
- ------------------------------------------------------------------------------------------------------------------------------------
ADDITIONS
------------------------------------
BALANCE AT BEGINNING CHARGED TO COSTS CHARGED TO OTHER DEDUCTIONS - BALANCE AT END
DESCRIPTION OF PERIOD AND EXPENSES ACCOUNTS-DESCRIBE DESCRIBE OF PERIOD
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1997
Deducted from asset accounts:
Allowance for doubtful accounts $837,707 $ 2,894,994 $ 0 $2,378,133/(1)/ $ 1,354,568
---------------------------------------------------------------------------------------------
TOTAL $837,707 $2,894,994 $ 0 $2,378,133 $ 1,354,568
=============================================================================================
Year ended December 31, 1996
Deducted from asset accounts:
Allowance for doubtful accounts $404,870 $ 3,637,589 $3,204,752/(1)/ $ 837,707
---------------------------------------------------------------------------------------------
TOTAL $404,870 $ 3,637,589 $3,204,752 $ 837,707
=============================================================================================
Year ended December 31, 1995
Deducted from asset accounts:
Allowance for doubtful accounts $949,870 $ 3,159,935 $3,704,935 /(1)/ $ 404,870
---------------------------------------------------------------------------------------------
TOTAL $949,870 $ 3,159,935 $3,704,935 $ 404,870
=============================================================================================
</TABLE>
(1) Uncollectible accounts written off, net of recoveries.
S-1
<PAGE>
Exhibit 3.2
BY-LAWS
OF
VALUJET, INC.
ARTICLE ONE
OFFICES
-------
Section 1.1 Registered Office and Agent. The corporation shall
---------------------------
maintain a registered office and shall have a registered agent whose business
office is identical with such registered office.
Section 1.2 Other Offices. The corporation may have offices at such
-------------
place or places, within or without the State of Nevada, as the Board of
Directors may, from time to time, appoint or as the business of the corporation
may require or make desirable.
ARTICLE TWO
CAPITAL STOCK
-------------
Section 2.1 Issuance and Notice. Certificates of each class of stock
-------------------
shall be numbered consecutively in the order in which they are issued. They
shall be signed by the President and Secretary and the seal of the corporation
shall be affixed thereto. In an appropriate place in the corporate records
there shall be entered the name of the person owning the shares, the number of
shares and the date of issue. Certificates of stock exchanged or returned shall
be canceled and placed in the corporate records. Facsimile signatures may be
utilized in accordance with Section 2.2 of this Article.
Section 2.2 Transfer Agents and Registrars. The Board of Directors
------------------------------
of the corporation may appoint a transfer agent or agents and a registrar or
registrars of transfer (other than the corporation itself or an employee
thereof) for the issuance of shares of stock of the corporation and may require
that all stock certificates bear the signature of such transfer agent and
registrar. In the event a share certificate is authenticated by both the
transfer agent and registrar, any share certificate may be signed by the
facsimile of the signature of either or both of the President and Secretary
printed thereon. If the same is countersigned by the transfer agent and
registrar of the corporation, the certificates bearing the facsimile of the
signatures of the President and Secretary shall be valid in all respects as if
such person or persons were still in office even though such person or persons
shall have died or otherwise ceased to be officers.
Section 2.3 Transfer. Upon the surrender to the corporation or to
--------
the transfer agent of the corporation of a certificate for shares duly endorsed
or accompanied by proper evidence of assignment of authority to transfer, it
shall be the duty of the corporation to issue a certificate to the person
entitled thereto, to cancel the surrendered certificate and to record the
transaction upon its books.
Section 2.4 Lost Certificates. Any person claiming a certificate of
-----------------
stock to be lost or destroyed shall make an affidavit or affirmation of that
fact and shall, if the Board of Directors so requires, comply with such other
conditions applicable to the circumstances as the Board of Directors may
require, including the delivery of a bond of indemnity, in form and with one or
more sureties satisfactory to the Board of Directors, in at least double the
value of the stock represented by said certificates; whereupon a new certificate
may be issued of the same tenor and for the same number of shares as the one
alleged to be lost or destroyed.
<PAGE>
Section 2.5 Shareholders of Record. The corporation shall be
----------------------
entitled to recognize the exclusive right of a person registered on the books as
the owner of shares entitled to receive dividends or to vote as such owner and
shall not be bound to recognize any equitable or other claim to or interest in
such shares on the part of any other person, whether or not it shall have
express or other notice thereof, except as otherwise expressly provided by law.
Section 2.6 Determining Shareholders of Record. The Board of
----------------------------------
Directors shall have the power to close the stock transfer books of the
corporation for a period not exceeding sixty (60) days preceding the date of any
meeting of Shareholders or the date for payment of any dividend. Such date
shall serve as the record date for the determination of the Shareholders
entitled to notice of and to vote at such meeting or to receive payment of such
dividend. When a record date is so fixed, only Shareholders of record on that
date shall be entitled to notice of and to vote at the meeting or to receive
payment of any dividend, notwithstanding any transfer of any shares on the books
of the corporation after the record date.
Section 2.7 Voting. The holders of the common stock shall be
------
entitled to one vote for each share of stock standing in their name. The
holders of any class or series of preferred stock shall have the rights to vote
specified in the corporation's certificate of rights, preferences and privileges
filed in accordance with the laws of the State of Nevada.
Section 2.8 Statement of Rights of Holders of Stock. So long as the
---------------------------------------
corporation is authorized to issue more than one class of stock or more than one
series of any class, there shall be set forth on the face or back of each
certificate of stock, or the certificate shall have a statement that the
corporation will furnish to any Shareholder upon request and without charge, a
full or summary statement of the voting powers, designations, preferences,
limitations, restrictions and relative rights of the various classes of stock or
series thereof.
ARTICLE THREE
SHAREHOLDERS' MEETINGS
----------------------
Section 3.1 Place of Meetings. All meetings of the Shareholders
-----------------
shall be held at the registered office of the corporation or at such other
place, either within or without the State of Nevada, as the Board of Directors
may, from time to time, designate.
Section 3.2 Annual Meeting. An annual meeting of the Shareholders
--------------
shall be held each year at such time and date between January 1 and June 30 as
shall be designated by the Board of Directors and stated in the notice of the
meeting. 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 ten percent (10%) or more of
the voting power of the corporation outstanding and entitled to vote. At such
annual meeting, the Shareholders shall elect a Board of Directors by a plurality
vote and transact such other business as may properly be brought before the
meeting.
Section 3.3 Special Meetings.
----------------
A. Calling of Special Meetings. Upon request in writing to the
---------------------------
President or Secretary, sent by registered mail or delivered to such Officer in
person, by any of the persons entitled to call a meeting of Shareholders, as
provided in Section 3.3B below, such Officer shall forthwith cause notice to be
given
-2-
<PAGE>
to the Shareholders entitled to vote at such meeting. If the notice is not given
within thirty (30) days after the date of delivery of the request, the persons
calling the meeting may fix the time of meeting and give the notice in the
manner provided in these By-laws.
B. Persons Entitled to Call Special Meetings. Special meetings of
-----------------------------------------
the Shareholders, for any purpose whatsoever, may be called at any time by any
of the following: (1) a majority of the Board of Directors in office; and (2)
Shareholders holding not less than twenty-five percent (25%) of the voting power
of the corporation.
C. Permissible Matters. Business transacted at all special meetings
-------------------
shall be confined to the objects stated in the call.
Section 3.4 Notice.
------
A. Notice of Meetings. Notice of all meetings of Shareholders shall
------------------
be given in writing to Shareholders entitled to vote signed by the Secretary or
an Assistant Secretary or other person charged with that duty, or, in case of
his neglect or refusal, or if there is no person charged with the duty of giving
notice, by any Director or Shareholder.
B. Method of Notice. A notice may be given by the corporation to
----------------
any Shareholder, either personally or by mail or other means of written
communication, charges prepaid, addressed to the Shareholder at his address
appearing on the books of the corporation. If mailed, such notice shall be
deemed to be delivered when deposited in the United States mail with first-class
postage thereon, prepaid and addressed to the Shareholder at his address as it
appears on the stock transfer books of the corporation.
C. Time of Notice. Notice of meeting of Shareholders shall be sent
--------------
to each Shareholder entitled thereto not less than ten (10) days nor more than
sixty (60) days before the meeting, except in the case of a meeting for the
purpose of approving a merger or consolidation agreement in which case the
notice must be given not less than twenty (20) days prior to the date of the
meeting.
D. Contents of Notice. Notice of any meeting of Shareholders shall
------------------
specify the place, the day and the hour of the meeting and the purpose for
calling the meeting.
Section 3.5 Waiver of Notice. Notice of a meeting need not be given
----------------
to any Shareholder who signs a waiver of notice, in person or by proxy, either
before or after the meeting; and a Shareholder's waiver shall be deemed the
equivalent of giving proper notice. Attendance of a Shareholder at a meeting,
either in person or by proxy, shall by itself constitute a waiver of notice and
a waiver of any and all objections to the time or place of the meeting or the
manner in which it has been called or convened, unless a Shareholder attends a
meeting solely for the purpose of stating, at the beginning of the meeting, any
such objection or objections to the transaction of business. Unless otherwise
specified herein, neither the business transacted nor the purpose of the meeting
need be specified in the waiver.
Section 3.6 Presence by Telephone. Shareholders may participate in a
---------------------
meeting of the Shareholders by means of a conference telephone or similar
communications equipment by which all participants in the meeting can hear each
other, and participation in a meeting pursuant to this Section 3.6 shall
constitute presence in person at such meeting.
-3-
<PAGE>
Section 3.7 Quorum. The majority of the shares entitled to vote,
------
represented in person or by proxy, shall constitute a quorum at any meeting of
Shareholders. If a quorum is present, action on a matter (other than the
election of Directors) by the Shareholders is approved if the votes cast by the
Shareholders favoring the action exceed the votes cast opposing the action
unless provided otherwise (i) under the corporation's articles of incorporation,
(ii) under the rights and preferences of any class or series of stock
authorized, or (iii) under Nevada law. When a quorum is once present to
organize a meeting, the Shareholders present may continue to do business at the
meeting until adjournment even though enough Shareholders withdraw to leave less
than a quorum.
Section 3.8 Adjournment. Any meeting of the Shareholders may be
-----------
adjourned by the holders of a majority of the voting shares represented at a
meeting, whether or not a quorum is present. Notice of the adjourned meeting or
of the business to be transacted at such meeting shall not be necessary,
provided the time and place to which the meeting is adjourned are announced at
the meeting at which the adjournment is taken. Notwithstanding the preceding
sentence, if the Board of Directors fixes a new record date for the adjourned
meeting with respect to who can vote at such meeting, then notice of the
adjourned meeting shall be given to each Shareholder of record on the new record
date who is entitled to vote at such meeting, which notice shall be given in
accordance with the provisions of Section 3.4 hereof. At an adjourned meeting
at which a quorum is present or represented, any business may be transacted
which could have been transacted at the meeting originally called.
Section 3.9 Voting Rights. Each Shareholder shall be entitled at
-------------
each Shareholders' meeting to one vote for each share of the capital stock
having voting power held by such Shareholder except as otherwise provided (i)
under the corporation's articles of incorporation, or (ii) the corporation's
certificate of rights, preferences and privileges filed in accordance with the
laws of the State of Nevada. Neither treasury shares nor shares held by a
subsidiary of the corporation shall be voted at any meeting or counted in
determining the total number of outstanding shares at any given time.
Section 3.10 Proxies. A Shareholder entitled to vote may vote in
-------
person or by proxy executed in writing by the Shareholder or by his attorney-in-
fact. If any Shareholder designates two or more persons to act as proxies, a
majority of those present at the meeting, or if only one shall be present, then
that one, shall have and may exercise all of the powers conferred by such
Shareholder upon all of the persons so designated unless the Shareholder shall
otherwise provide. A proxy shall not be valid after six (6) months from the
date of its execution unless it is coupled with an interest, or unless a longer
period is expressly stated in such proxy, which may not exceed seven (7) years
from the date of its creation. Every proxy shall be revocable at the pleasure
of the Shareholder executing it except as may be otherwise provided in the
Nevada Revised Statutes.
Section 3.11 Election Judges. The Board of Directors, or if the
---------------
Board shall not have made the appointment, the chairman presiding at any meeting
of Shareholders, shall appoint two or more persons to act as election judges to
receive, canvass, certify and report the votes cast by the Shareholders at such
meeting; but no candidate for the office of Director shall be appointed as an
election judge at any meeting for the election of Directors.
Section 3.12 Chairman of Meeting. The Chairman of the Board shall
-------------------
preside at all meetings of the Shareholders; and, in the absence of the Chairman
of the Board, the President shall serve as chairman of the meeting.
-4-
<PAGE>
Section 3.13 Secretary of Meeting. The Secretary of the corporation
--------------------
shall act as secretary of all meetings of the Shareholders; and, in his absence,
the chairman of the meeting may appoint any person to act as secretary of the
meeting.
Section 3.14 Action by Consent of Shareholders. Any action required
---------------------------------
or permitted to be taken at a meeting of the Shareholders may be taken without a
meeting if a written consent setting forth the action shall be signed by
Shareholders holding at least a majority of the voting power, unless a greater
vote is required (i) under the corporation's articles of incorporation, (ii)
under the corporation's certificate of rights, preferences and privileges filed
in accordance with the laws of the State of Nevada, or (iii) under Nevada law,
in which event, such greater proportion of written consent shall be required.
Any such consent shall be filed with the Secretary of the corporation and shall
have the same force and effect as a unanimous vote of the Shareholders.
ARTICLE FOUR
DIRECTORS
---------
Section 4.1 Management of Business. Subject to these by-laws, the
----------------------
full and entire management of the affairs and business of the corporation shall
be vested in the Board of Directors which shall have and which may exercise all
of the powers that may be exercised or performed by the corporation.
Section 4.2 Number, Qualification and Term of Office. The business
----------------------------------------
and affairs of the corporation shall be managed by a Board of Directors which
shall consist of such number of members, not less than three nor more than nine,
as shall be determined from time to time by resolution of the Board of Directors
at any meeting of the Board or by the unanimous written consent of the Board.
Each member of the Board of Directors of the corporation shall be elected by a
plurality of the votes cast by the shares entitled to vote for the election of
Directors. None of the Directors need be a resident of the State of Nevada or
hold shares of stock in the corporation. The Directors shall be elected at an
annual or special meeting of the Shareholders. The term of seventy-five percent
(75%) of the Directors serving as such immediately after the effective date of
the merger of Airways Corporation with and into the corporation will expire upon
the election of Directors at the corporation's 1999 annual meeting of
Shareholders. All other Directors shall serve for a term of one (1) year or
until their successors are elected and qualified. For purposes of determining
the number of Directors constituting seventy-five percent (75%) of the members
of the Board of Directors, any fraction shall be rounded down to the next lower
whole number.
Section 4.3 Vacancies.
---------
A. When Vacancies Occur. Vacancies in the Board of Directors shall
--------------------
exist in the case of happening of any of the following events: (1) the death,
resignation or removal of any Directors; (2) a declaration of vacancy by the
Board of Directors as provided in Paragraph B below; (3) the authorized number
of Directors is increased by resolution of the Board of Directors; or (4) at any
meeting of Shareholders at which the Directors are elected, the Shareholders
fail to elect the full authorized number of Directors to be voted for at that
meeting. A reduction of the authorized number of Directors does not remove any
Director prior to the expiration of his term in office.
B. Declaration of Vacancy. The Board of Directors may declare
----------------------
vacant the office of any Director in either of the following cases: (1) if he
is declared of unsound mind by an appropriate court
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order or convicted of a felony; or (2) if within sixty (60) days after notice of
his election he does not accept the office either in writing or by attending a
meeting of the Board of Directors.
C. Filling Vacancies. Unless the Articles of Incorporation or a
-----------------
provision of these By-laws approved by the Shareholders provides otherwise, if a
vacancy occurs on the Board of Directors, including a vacancy resulting from an
increase in the number of Directors, the Board of Directors may fill the
vacancy. If the Directors remaining in office do not constitute a quorum of the
Board, the Directors may fill the vacancy by affirmative vote of a majority of
all the Directors remaining in office. Such appointment by the Shareholders or
Directors shall continue until the expiration of the term of the Director whose
place has become vacant.
Section 4.4 Compensation. For their services as Directors, the
------------
Directors may receive a fixed sum salary and reimbursement of expenses of
attendance at each meeting of the Board as approved by the Shareholders or Board
of Directors from time to time. A Director may serve the corporation in a
capacity other than that of Director and receive compensation for the services
rendered in such other capacity.
ARTICLE FIVE
DIRECTORS' MEETINGS
-------------------
Section 5.1 Place of Meetings. The meetings of the Board of
-----------------
Directors may be held at the registered office of the corporation or at any
place, within or without the State of Nevada, which a majority of the Board of
Directors may, from time to time, designate.
Section 5.2 Annual Meeting. The Board of Directors shall meet each
--------------
year immediately following the annual meeting of the Shareholders at the place
such Shareholders' meeting was held or at such other time, date and place as a
majority of the Board of Directors may designate. At such annual meeting,
Officers shall be elected and such other business may be transacted which is
within the powers of the Directors. Notice of the annual meeting of the Board
of Directors need not be given.
Section 5.3 Regular Meetings.
----------------
A. When Regular Meetings Held. Regular meetings of the Board of
--------------------------
Directors (which includes the annual meeting) shall be held not less than every
three (3) months.
B. Call of Regular Meetings. All regular meetings of the Board of
------------------------
Directors of the Corporation shall be called by the Chairman of the Board or by
the President.
C. Notice of Regular Meetings. Written notice of the time and place
--------------------------
of the regular meetings of the Board of Directors shall be delivered personally
to each Director or sent to each Director by mail or by other form of written
communication (including facsimile transmission) at least two (2) business days
before the meeting.
Section 5.4 Special Meetings.
----------------
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A. Special Meetings. Special meetings of the Board of Directors may
----------------
be called by the Chairman of the Board or by any two Directors.
B. Notice of Special Meeting. Written notice of the time and place
-------------------------
of special meetings of the Board of Directors shall be delivered personally to
each Director or sent to each Director by mail or by other form of written
communication (including facsimile transmission) at least two (2) business days
before the meeting.
Section 5.5 Waiver of Notice. A Director may waive in writing notice
----------------
of a special meeting of the Board, either before or after the meeting, and his
waiver shall be deemed the equivalent of giving notice. Attendance of a
Director at a meeting shall constitute a waiver of notice of that meeting unless
he attends for the express purpose of objecting to the transaction of business
on the grounds that the meeting has not been lawfully called or convened.
Section 5.6 Purpose of Meeting. Neither the business to be
------------------
transacted at a regular or special meeting, nor the purpose of such meeting,
need be specified in the notice or waiver of notice of such meeting.
Section 5.7 Presence by Telephone. Members of the Board of Directors
---------------------
may participate in a meeting of the Board of Directors by means of a conference
telephone or similar communications equipment by which all Directors
participating in the meeting can hear each other, and participation in a meeting
pursuant to this Section 5.7 shall constitute presence in person at such
meeting.
Section 5.8 Quorum. At meetings of the Board of Directors, a
------
majority of the Directors shall constitute a quorum for the transaction of
business. Only when a quorum is present may the Board of Directors continue to
do business at any such meeting. If a quorum is present, the acts of a majority
of Directors in attendance shall be the acts of the Board.
Section 5.9 Adjournment. A meeting of the Board of Directors may be
-----------
adjourned. Notice of the time and the place of the adjourned meeting and of the
business to be transacted thereat, other than by announcement at the meeting at
which the adjournment is taken, shall not be necessary. At an adjourned meeting
at which a quorum is present, any business may be transacted which could have
been transacted at the meeting originally called.
Section 5.10 Manifestation of Dissent. A Director of the corporation
------------------------
who is present at a meeting of the Board of Directors at which action on any
corporate matter is taken shall be presumed to have assented to the action taken
unless his dissent shall be entered in the minutes of the meeting or unless he
shall file his written dissent to such action with the person acting as the
secretary of the meeting before the adjournment thereof or shall forward such
dissent by registered mail to the Secretary of the corporation immediately after
the adjournment of the meeting. Such right to dissent shall not apply to a
Director who voted in favor of such action.
Section 5.11 Action by Consent. If all of the Directors, severally
-----------------
or collectively, consent in writing to any action taken or to be taken by the
corporation and the writing or writings evidencing their consent are filed with
the Secretary of the corporation, the action shall be as valid as though it had
been authorized at a meeting of the Board of Directors.
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<PAGE>
Section 5.12 Committees. The Board of Directors may from time to
----------
time, by majority resolution of the full Board of Directors, appoint from among
its members such Committees as the Board may determine. The members of the
Executive Committee, if there is one, shall include the Chief Executive Officer,
Chief Operating Officer, Chief Financial Officer and such other persons
designated by the Board of Directors. If an Executive Committee is formed, such
Committee shall, during the interval between meetings of the Board, advise and
aid the Officers of the corporation in all matters in the corporation's interest
and the management of its business and generally perform such duties and
exercise such powers as may be directed or delegated by the Board of Directors
from time to time. The Board may delegate to the Executive Committee authority
to exercise all powers of the Board, excepting powers which may not be delegated
to such Committee under Nevada law, while the Board is not in session.
Vacancies in the membership of any Committee which shall be so appointed by the
Board of Directors shall be filled by the Board of Directors at a regular
meeting or at a special meeting called for that purpose. All committees shall
keep regular minutes of their proceedings and report the same to the full Board
when requested or required.
ARTICLE SIX
OFFICERS
--------
Section 6.1 Officers. The Officers of the corporation shall consist
--------
of those Officers, if any, as the Board of Directors shall designate from time
to time. Upon such action by the Board of Directors, the officers of the
corporation may include a Chairman of the Board, a Vice Chairman of the Board, a
President, a Vice President or Vice Presidents, Secretary, Treasurer and
Assistants to the Vice President, Secretary or Treasurer. The Officers shall be
elected by and shall serve at the pleasure of the Board of Directors. The same
individual may simultaneously hold more than one office in the corporation. The
Board of Directors may designate one or more of the officers with the additional
titles of Chief Executive Officer, Chief Operating Officer and Chief Financial
Officer. The officers so designated shall have those duties incident to the
respective designations, in addition to the duties set forth herein.
Section 6.2 Duties of Officers. All Officers of the corporation, as
------------------
between themselves and the corporation, shall have such authority and perform
such duties in the management of the corporation as hereinafter provided in
these By-laws or as may be determined by action of the Board of Directors to the
extent not inconsistent with these By-laws.
Section 6.3 Chairman of the Board. The Chairman of the Board shall
---------------------
be a member of the Board of Directors. He shall, when present, preside at all
meetings of the Board of Directors. He may execute any deeds, mortgages, bonds
or other contracts pursuant to authority (which may be general authority) from
the Board of Directors, except in cases where the execution thereof shall be
expressly delegated by the Board of Directors or by these by-laws to some other
officer or agent of the corporation or shall be required by law to be otherwise
signed or executed; and in general shall perform all duties incident to the
office of Chairman of the Board and such other duties as may be prescribed by
the Board of Directors from time to time.
Section 6.4 Vice Chairman of the Board. The Vice Chairman of the
--------------------------
Board, if there is one, shall serve in the place of the Chairman of the Board
in the absence of the Chairman. The Vice Chairman of the Board shall perform
such other duties as may be prescribed by the Board of Directors from time to
time.
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<PAGE>
Section 6.5 President. The President shall have the responsibility
---------
for the general supervision of the day-to-day business affairs of the
corporation. He shall be responsible for the day-to-day administration of the
corporation, including general supervision of the implementation of the policies
of the corporation, general and active management of the financial affairs of
the corporation and may execute certificates for shares of the corporation,
deeds, mortgages, bonds or other contracts under the seal of the corporation
pursuant to authority (which may be general authority) from the Board of
Directors except in cases where the execution thereof shall be expressly
delegated by the Board of Directors or by these by-laws to some other officer or
agent of the corporation or shall be required by law to be otherwise signed or
executed. He shall preside at all meetings of the Directors and Shareholders
(except when there is a separately elected Chairman of the Board) and shall
discharge the duties of a presiding officer. He shall present at each annual
meeting of the Shareholders a report of the business of the corporation for the
preceding fiscal year. The President shall also perform whatever other duties
the Board of Directors may from time to time prescribe.
Section 6.6 Vice Presidents. The Vice President or Vice Presidents
---------------
shall perform such duties and have such powers as the Chairman of the Board or
the Board of Directors may from time to time prescribe. The Board of Directors
or the Chairman of the Board may designate the order of seniority of Vice
Presidents, in the event there is more than one, and may designate one or more
Vice Presidents as Senior Vice Presidents. The duties and powers of the
President shall disburse first to the Senior Vice President or to the Vice
Presidents in the order of seniority specified by the Board of Directors or the
Chairman of the Board.
Section 6.7 Secretary. The Secretary shall (i) keep minutes of all
---------
meetings of the Shareholders and Directors, (ii) have charge of the minute
books, stock books and seal of the corporation, and (iii) perform such other
duties and have such other powers as may, from time to time, be delegated to him
by the Board of Directors or Chairman of the Board.
Section 6.8 Treasurer. The Treasurer shall:
---------
(1) Funds - Custody and Deposit. Have charge and custody of, and
---------------------------
be responsible for, all funds and securities of the corporation and shall
deposit all such funds and other valuable effects in the name and to the credit
of the corporation in such depositories as shall be authorized by the Board of
Directors.
(2) Funds - Receipt. Give receipts for all moneys due and
---------------
payable to the corporation.
(3) Funds - Disbursement. Disburse the funds of the corporation,
--------------------
keeping proper vouchers for such disbursements.
(4) Maintain Accounts. Keep and maintain adequate and correct
-----------------
accounts of the corporation's properties and business transactions, including
accounts of its assets, liabilities, receipts, disbursements, gains, losses,
capital, surplus and shares.
(5) Other Duties. Perform all the duties incident to the office
------------
of Treasurer and such other duties as from time to time may be assigned to him
by the Board of Directors or Chairman of the Board.
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<PAGE>
Section 6.9 Assistant Vice Presidents, Assistant Secretary and
--------------------------------------------------
Assistant Treasurer. Assistants to the Vice Presidents, Secretary and Treasurer
- -------------------
may be appointed and shall have such duties as shall be delegated to them by the
Board of Directors or Chairman of the Board.
Section 6.10 Delegation of Duties. In case of the absence of any
--------------------
Officer of the corporation, or for any other reason and for any duration that
the Board of Directors may deem advisable, the Board of Directors may delegate
the powers or duties, or any of them, of such Officer to any other Officer, or
to any Director, provided a majority of the entire Board concurs therein.
Section 6.11 Removal of Officers. Any Officer elected or appointed
-------------------
by the Board of Directors may be removed by the Board of Directors whenever, in
the judgment of a majority of the members of the Board of Directors, the best
interest of the corporation will be served thereby. The removal of any such
Officer shall be without prejudice to the contract rights, if any, of the person
so removed; however, the election or appointment of an Officer shall not in and
of itself create any contract rights.
Section 6.12 Vacancies. When a vacancy occurs in one of the
---------
executive offices by death, resignation or otherwise, it shall be filled by the
Board of Directors. The Officer so elected shall hold office until his
successor is chosen and qualified.
Section 6.13 Compensation. The Board of Directors shall prescribe or
------------
fix the salaries, bonuses, pensions, benefits under pension plans and profit
sharing plans, stock option plans and all other plans, benefits and compensation
to be paid or allowed to or in respect of (i) all Officers and any or all
employees of the corporation, including Officers and employees who may also be
Directors of the corporation and (ii) the Directors of the corporation, as such.
Directors of the corporation shall not be disqualified from voting on their own
or any other person's plan, benefit or compensation to be paid by the
corporation merely because they or such other person is a Director or an Officer
or an employee of the corporation. The Board of Directors may delegate these
functions to any Officer not a Director except those determinations involving an
Officer or Director.
ARTICLE SEVEN
SEAL
----
Section 7.1 Seal. The seal of the corporation shall be in such form
----
as the Board of Directors may, from time to time, determine. In the event it is
inconvenient to use such a seal at any time, the signature of the corporation
followed by the words "Corporate Seal" enclosed in parentheses or scroll shall
be deemed the seal of the corporation. The seal shall be in the custody of the
Secretary and affixed by him or any Assistant Secretary on the certificates of
stock and such other papers as may be directed by law, by these by-laws or by
the Chairman of the Board, President or Board of Directors.
ARTICLE EIGHT
AMENDMENTS
----------
Section 8.1 Amendments. These by-laws may be amended at any meeting
----------
of the Board of Directors by the affirmative vote of a majority of the Directors
except as otherwise provided herein or except as prohibited by law.
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<PAGE>
ARTICLE NINE
INDEMNIFICATION
---------------
Section 9.1 Definitions. As used in this Article, the term:
-----------
A. "Corporation" means this corporation and includes any
domestic or foreign predecessor entity of this corporation in a merger or other
transaction in which the predecessor's existence ceased upon consummation of the
transaction.
B. "Director" means an individual who is or was a Director of
the Corporation or an individual who, while a Director of the Corporation, is or
was serving at the Corporation's request as a director, officer, partner,
trustee, employee, or agent of another foreign or domestic corporation,
partnership, joint venture, trust, employee benefit plan, or other enterprise. A
Director is considered to be serving an employee benefit plan at the
Corporation's request if his duties to the Corporation also impose duties on, or
otherwise involve services by, him to the plan or to participants in or
beneficiaries of the plan. "Director" includes, unless the context requires
otherwise, the estate or personal representative of a Director.
C. "Expenses" includes attorneys' fees.
D. "Liability" means the obligation to pay a judgment,
settlement, penalty, fine (including an excise tax assessed with respect to an
employee benefit plan), or reasonable expenses incurred with respect to a
proceeding.
E. "Officer" means an individual who is or was an officer of
the Corporation or an individual who, while an officer of the Corporation, is or
was serving at the Corporation's request as a director, officer, partner,
trustee, employee, or agent of another foreign or domestic corporation,
partnership, joint venture, trust, employee benefit plan, or other enterprise.
An officer is considered to be serving an employee benefit plan at the
Corporation's request if his duties to the Corporation also impose duties on, or
otherwise involve services by, him to the plan or to participants in or
beneficiaries of the plan. "Officer" includes, unless the context requires
otherwise, the estate or personal representative of an officer.
F. "Party" includes an individual who was, is, or is threatened
to be made a named defendant or respondent in a proceeding.
G. "Proceeding" means any threatened, pending, or completed
action, suit, or proceeding, whether civil, criminal, administrative, or
investigative and whether formal or informal but shall include an action or suit
by or in the right of the Corporation only if such action or suit is to procure
a judgment in the Corporation's favor.
Section 9.2 Basic Indemnification Arrangement.
---------------------------------
A. Except as provided in subsections 9.2D and 9.2E below, the
Corporation shall indemnify any Officer or Director in the event he is made a
party to a proceeding because he is or was a director or officer against
liability incurred by him in the proceeding if he acted in good faith and in a
manner he believed to be in or not opposed to the best interests of the
Corporation and, in the case of any criminal proceeding, he had no reasonable
cause to believe his conduct was unlawful.
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<PAGE>
B. An Officer's or Director's conduct with respect to an
employee benefit plan for a purpose he believed in good faith to be in the
interests of the participants in and beneficiaries of the plan is conduct that
satisfies the requirement of subsection 9.2A.
C. The termination of a proceeding by judgment, order,
settlement, or conviction, or upon a plea of nolo contendere or its equivalent
shall not, of itself, be determinative that any Officer or Director did not meet
the standard of conduct set forth in subsection 9.2A.
D. The Corporation shall not indemnify any Officer or Director
under this Article in connection with a proceeding by or in the right of the
Corporation in which such Officer or Director was adjudged liable to the
Corporation, unless and only to the extent the court in which the proceeding was
brought or other court of competent jurisdiction determines upon application
that in view of all circumstances of the case, the Officer or Director is fairly
and reasonably entitled to indemnity for such expenses as the court deems
proper.
E. Indemnification permitted under this Article in connection
with a proceeding is limited to liability and expenses actually and reasonably
incurred in connection with the proceeding.
Section 9.3 Advances for Expenses.
---------------------
A. The Corporation shall pay for or reimburse the reasonable
expenses incurred by an Officer or Director as a party to a proceeding in
advance of final disposition of the proceeding if he furnishes the Corporation a
written undertaking (meeting the qualifications set forth below in subsection
9.3B), executed personally or on his behalf, to repay any advances if it is
ultimately determined that he is not entitled to any indemnification under this
Article or otherwise.
B. The undertaking required by subsection 9.3A above must be an
unlimited general obligation of such Officer or Director but need not be secured
and may be accepted without reference to financial ability to make repayment.
Section 9.4 Authorization of and Determination of Entitlement to
----------------------------------------------------
Indemnification.
- ---------------
A. The Corporation shall not indemnify any Officer or Director
under Section 9.2 unless a separate determination has been made in the specific
case that indemnification of such Officer or Director is permissible in the
circumstances because he has met the standard of conduct set forth in subsection
9.2A or unless ordered by a court or advanced pursuant to Subsection 9.3;
provided, however, that regardless of the result or absence of any such
determination, to the extent that such Officer or Director has been successful,
on the merits or otherwise, in the defense of any proceeding to which he was a
party, or in defense of any claim, issue or matter therein, because he is or was
a Director or Officer, the Corporation shall indemnify such Officer or Director
against liability incurred by him in connection therewith.
B. The determination referred to in subsection 9.4A above shall
be made, at the election of the Board of Directors:
1. By the Board of Directors of the Corporation by
majority vote of a quorum consisting of Directors not at the time
parties to the proceeding;
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2. By special independent legal counsel:
(a) selected by the Board of Directors in the manner
prescribed in subparagraph 1 immediately above; or
(b) if a quorum of the Board of Directors cannot be
obtained under subparagraph 1 immediately above, selected by a
majority vote of the full Board of Directors (in which selection
Directors who are parties may participate); or
3. By the Shareholders provided that shares owned by or
voted under the control of Directors or Officers who are at the time
parties to the proceeding may not be voted on the determination.
C. Evaluation as to reasonableness of expenses of an Officer or
Director in the specific case shall be made in the same manner as the
determination that indemnification is permissible, as described in subsection
9.4B above, except that if the determination is made by special legal counsel,
evaluation as to reasonableness of expenses shall be made by those entitled
under subsection 9.4B2 to select counsel.
Section 9.5 Limitations on Indemnification of Officers and Directors.
--------------------------------------------------------
Nothing in this Article shall require or permit indemnification of an Officer or
Director for any liability if a final adjudication establishes that his acts or
omissions involved intentional misconduct, fraud or a knowing violation of law
and was material to the cause of action.
Section 9.6 Witness Fees. Nothing in this Article shall limit the
------------
Corporation's power to pay or reimburse expenses incurred by an Officer or
Director in connection with his appearance as a witness in a proceeding at a
time when he has not been made a named defendant or respondent in the
proceeding.
Section 9.7 Non-exclusivity, Etc. The rights of an Officer or
---------------------
Director hereunder shall be in addition to any other rights with respect to
indemnification, advancement of expenses or otherwise that such Officer or
Director may have under the Corporation's By-laws or the Nevada Revised Statutes
or otherwise.
Section 9.8 Intent. It is the intention of this corporation that
------
this Article of the By-laws of this Corporation and the indemnification
hereunder shall extend to the maximum indemnification possible under the laws of
the State of Nevada and if one or more words, phrases, clauses, sentences or
sections of this Article should be held unenforceable for any reason, all of the
remaining portions of this Article shall remain in full force and effect.
ARTICLE TEN
DEALINGS
--------
Section 10.1 Related Transactions. No contract or other transaction
--------------------
between this corporation and any other firm, association or corporation shall be
affected or invalidated by the fact that any of the members of the Board of
Directors of this corporation are interested in or are members, shareholders,
governors or directors of such firm, association or corporation; and no
contract, act or
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transaction of this corporation with any individual firm, association or
corporation shall be affected or invalidated by the fact that any of the members
of the Board of Directors of this corporation are parties to or interested in
such contract, act or transaction or are in any way connected with such
individual, firm, association or corporation. Each and every individual who may
become a member of the Board of Directors of this corporation is hereby relieved
from any liability that might otherwise exist from contracting with this
corporation for the benefit of himself or herself or any firm, association or
corporation in which he or she may in any way be interested. Notwithstanding the
above, the provisions of this Section 10.1 shall be applicable only in the
absence of fraud and only where the interest in such transaction of an
interested party has been disclosed and the interested party, if a Director, has
abstained from a vote thereon.
ARTICLE ELEVEN
DIVIDENDS AND RESERVES
----------------------
Section 11.1 Dividends. The Board of Directors of the corporation
---------
may from time to time declare, and in such event the corporation shall pay,
dividends on the corporation's outstanding shares in cash, property or the
corporation's own shares, except when the corporation is insolvent or when the
declaration or payment thereof would be contrary to any restrictions contained
in the Articles of Incorporation or any applicable law, subject to the
following:
A. Dividends may be declared and paid in the corporation's own
shares out of any treasury shares that have been reacquired by the corporation.
B. Dividends may be declared and paid in the corporation's own
authorized but unissued shares, provided that such shares shall be issued at not
less than the par value thereof and there shall be transferred to stated capital
at the time such dividend is paid an amount at least equal to the aggregate par
value of the shares to be issued as a dividend.
C. The corporation shall have the use of any cash or property
declared as a dividend that is unclaimed until the time it escheats to the
applicable jurisdiction. Any stock declared as a dividend or unclaimed shall be
voted by the Board of Directors.
Section 11.2 Reserves. Before payment of any dividend, there may be
--------
set aside out of any funds of the corporation available for dividends such sum
or sums as the Directors, from time to time, in their absolute discretion, think
proper as a reserve fund to meet contingencies or for equalizing dividends or
for repairing or maintaining any property of the corporation or for such other
purpose as the Directors shall think conducive to the interest of the
corporation, and the Directors may modify or abolish any such reserve in the
manner by which it was created.
ARTICLE TWELVE
CORPORATE BOOKS AND RECORDS
---------------------------
Section 12.1 Minutes of Corporate Meetings. The corporation shall
-----------------------------
keep at its principal office, or such other place as the Board of Directors may
order, a book of minutes of all meetings of its Directors and of its
Shareholders, with the time and place of holding, whether annual, regular or
special,
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and, if special, how authorized, the notice thereof given, the names of those
present at Directors' meetings, the number of shares present or represented at
Shareholders' meetings and the proceedings thereof.
Section 12.2 Share Register. The corporation shall keep at the
--------------
principal office, or at the office of the transfer agent, a share register
showing the names of the Shareholders and their addresses, the number of shares
held by each and the number and date of cancellation of every certificate
surrendered for cancellation. The above specified information may be kept by
the corporation on punch cards, magnetic tape or other information storage
device related to electronic data processing equipment provided that such card,
tape or other equipment is capable of reproducing the information in clearly
legible form.
ARTICLE THIRTEEN
GENERAL PROVISIONS
------------------
Section 13.1 Fiscal Year. The fiscal year of the corporation shall
-----------
be fixed by resolution of the Board of Directors.
Section 13.2 Authority for Execution of Contracts and Instruments.
----------------------------------------------------
The Board of Directors, except as otherwise provided in these By-laws, may
authorize any Officer or Officers, agent or agents to enter into any contract or
execute and delivery any instrument in the name and on behalf of the
corporation, and such authority may be general or confined to specified
instances; and, unless so authorized, no Officer, agent or employee shall have
any power or authority to bind the corporation by any contract or engagement or
to pledge its credit or to render it liable pecuniarily for any purpose or in
any amount.
Section 13.3 Signing of Checks, Drafts, Etc. All checks, drafts or
-------------------------------
other order for payment of money, notes or other evidences of indebtedness
issued in the name of or payable to the corporation shall be signed or endorsed
by such person or persons and in such manner as shall be determined from time to
time by resolution of the Board of Directors.
AS ADOPTED BY THE DIRECTORS OF THE CORPORATION ON JULY 20, 1995. AS AMENDED BY
THE DIRECTORS OF THE CORPORATION ON DECEMBER 12, 1996. AS AMENDED BY THE
DIRECTORS AND SHAREHOLDERS OF THE CORPORATION AS OF NOVEMBER 17, 1997.
-15-
<PAGE>
EXHIBIT 4.9
________________________________________________________________________________
VALUJET, INC.,
THE SUBSIDIARY GUARANTORS NAMED HEREIN,
as Guarantors
and
FLEET NATIONAL BANK,
successor to
BANK OF MONTREAL TRUST COMPANY, as Trustee
____________________
First Supplemental Indenture
Dated as of August 26, 1996
to
Indenture
Dated as of April 17, 1996
____________________
$150,000,000
10 1/4% Senior Notes due 2001
________________________________________________________________________________
<PAGE>
<PAGE>
FIRST SUPPLEMENTAL INDENTURE
THIS FIRST SUPPLEMENTAL INDENTURE (this "SUPPLEMENTAL INDENTURE"), dated as
of August 26, 1996, is among ValuJet, Inc., a Nevada corporation (the
"COMPANY"), each of the Subsidiary Guarantors (as hereinafter defined), Bank of
Montreal Trust Company, a New York corporation (the "RESIGNING TRUSTEE"), and
Fleet National Bank, a national banking association (the "SUCCESSOR TRUSTEE").
All terms used herein but not defined herein shall have the meanings assigned to
such terms in that certain Indenture dated as of April 17, 1996, relating to the
Company's 10 1/4% Senior Notes due 2001 (the "INDENTURE").
RECITALS
A. The Company and the Resigning Trustee executed the Indenture as of
April 17, 1996.
B. On July 17, 1996 (the "RESIGNATION NOTICE DATE"), the Resigning
Trustee gave written notice, as required by Section 610 of the Indenture, to the
Company of its resignation as Trustee under the Indenture, such resignation to
become effective upon the acceptance of appointment by a successor Trustee under
Section 611 of the Indenture.
C. The parties hereto have entered into that certain Agreement of
Resignation, Appointment and Acceptance dated as of the date hereof (the
"RESIGNATION AGREEMENT"), pursuant to which, among other things, (i) the Company
agrees to accept the resignation of the Resigning Trustee, as Trustee, and (ii)
the Company appoints, as of the date of execution of the Resignation Agreement
and this Supplemental Indenture by all parties thereto and hereto, the Successor
Trustee as Trustee under the Indenture.
D. The parties hereto desire to execute this Supplemental Indenture to
(i) provide for the substitution of the Successor Trustee as Trustee under the
Indenture pursuant to the Resignation Agreement, (ii) provide for the
substitution of the Successor Trustee as Security Registrar and Paying Agent
under the Indenture, and (iii) amend certain provisions of the Indenture in
connection with such substitution as hereinafter set forth.
NOW, THEREFORE, THIS SUPPLEMENTAL INDENTURE WITNESSETH, the Company, the
Subsidiary Guarantors (as defined in the Indenture, the "SUBSIDIARY
GUARANTORS"), Resigning Trustee and Successor Trustee mutually covenant and
agree for the equal and proportionate benefit of all Holders as follows:
ARTICLE ONE
Amendment of Indenture
----------------------
Section 1.1 Amendment of Certain Sections of Indenture
------------------------------------------
1
<PAGE>
(a) The introductory paragraph of the Indenture is hereby deleted in its
entirety and substituted in lieu thereof with the following:
"INDENTURE, dated as of April 17, 1996, among VALUJET, INC., a
corporation duly organized and existing under the laws of the State of
Nevada (herein called the "Company"), having its principal office at
1800 Phoenix Boulevard, Suite 126, Atlanta Georgia 30349, each of the
SUBSIDIARY GUARANTORS (as hereinafter defined) and FLEET NATIONAL
BANK, a national banking association, as Trustee (herein called the
"Trustee").
(b) The definition of the term "Corporate Trust Office" in Section 101 of
the Indenture is hereby deleted in its entirety and substituted in lieu thereof
with the following:
"Corporate Trust Office" means an office of the Trustee in New York,
New York or Boston, Massachusetts, at which at any time its corporate
trust business shall be administered."
(c) Subparagraph (1) of Section 105 of the Indenture is hereby deleted in
its entirety and substituted in lieu thereof with the following:
"(1) the Trustee by any Holder or by the Company or any
Subsidiary Guarantor shall be sufficient for every purpose hereunder
if made, given, furnished or filed in writing to or with the Trustee
at its Corporate Trust Office, Attention: Corporate Trust Department,
or any other address previously furnished in writing to the Holders or
the Company by the Trustee, or, with respect to notices by the Company
or any Subsidiary Guarantor, transmitted by facsimile transmission
(confirmed by overnight courier) to the following facsimile numbers:
(617) 346-5501 or (617) 346-5502 or to any other facsimile number
previously furnished in writing to the Company by the Trustee, or"
Except as amended by this Section 1.1(c), all other provisions of Section 105
--------------
of the Indenture shall remain in full force and effect.
(d) The first sentence of Section 609 of the Indenture is hereby deleted
in its entirety and substituted in lieu thereof with the following:
"There shall at all times be a Trustee hereunder which shall be a
Person that is eligible pursuant to the Trust Indenture Act to act as
such, has a combined capital and surplus of at least $10,000,000 and
has its Corporate Trust Office located in the Borough of Manhattan,
The City of New York, or in The City of Boston, the Commonwealth of
Massachusetts; provided, however, that if the Corporate Trust Office
-------- -------
is located in the City of Boston,
2
<PAGE>
the Trustee shall maintain an office or agency in the Borough of
Manhattan, The City of New York, for purposes of performing its
obligations as Trustee hereunder."
Except as amended by this Section 1.1(d), all other provisions of Section 609 of
--------------
the Indenture shall remain in full force and effect.
(e) The first paragraph of Section 1002 of the Indenture is hereby deleted
in its entirety and substituted in lieu thereof with the following:
"The Company will maintain in the Borough of Manhattan, the City of
New York, an office or agency where Securities may be presented or
surrendered for payment, where Securities may be surrendered for
registration of transfer or exchange and where notices and demands to
or upon the Company or any Subsidiary Guarantor in respect of the
Securities, the Subsidiary Guarantees and this Indenture may be
served. The Company will give prompt written notice to the Trustee of
the location, and any change in the location, of such office or
agency. If at any time the Company shall fail to maintain any such
required office or agency or shall fail to furnish the Trustee with
the address thereof, such presentations, surrenders, notices and
demands may be made or served at the Corporate Trust Office of the
Trustee (provided, however, that if the Corporate Trust Office is
-------- -------
located in the City of Boston, the State of Massachusetts, such
presentations, surrenders, notices and demands may be made or served
at the office or agency of the Trustee located in the Borough of
Manhattan, the City of New York), and the Company and each Subsidiary
Guarantor hereby appoints the Trustee as its agent to receive all such
presentations, surrenders, notices and demands."
The second paragraph of Section 1002 of the Indenture is hereby deleted in its
entirety and substituted in lieu thereof with the following:
"The Company may also from time to time designate one or more other
offices or agencies (in or outside the Borough of Manhattan, the City of New
York) where the Securities may be presented or surrendered for any and all such
purposes and may from time to time rescind such designations; provided, however,
-------- -------
that no such designation or rescission shall in any manner relieve the Company
of its obligation to maintain an office or agency in the Borough of Manhattan,
the City of New York, for such purposes. The Company will give prompt written
notice to the Trustee of any such designation or rescission and of any change in
the location of any such other office or agency."
Except as amended by this Section 1.1(e), all other provisions of Section 1002
--------------
of the Indenture shall remain in full force and effect.
3
<PAGE>
ARTICLE TWO
Section 2.1 Resignation. The Resigning Trustee hereby resigns as
-----------
Trustee under the Indenture, and the Company hereby accepts such resignation.
Section 2.2 Appointment and Acceptance. As of the close of business on the
--------------------------
date hereof, the Company hereby appoints the Successor Trustee as Trustee under
the Indenture with all of the rights, powers and duties heretofore vested in the
Resigning Trustee, as Trustee under the Indenture, and the Successor Trustee
hereby acknowledges and accepts such appointment.
Section 2.3 Transfer. Pursuant to Section 611 of the Indenture, the
--------
Resigning Trustee hereby transfers to the Successor Trustee all the rights,
powers and trusts of the Resigning Trustee and hereby assigns, transfers and
delivers to the Successor Trustee all property and money held by the Resigning
Trustee under the Indenture.
Section 2.4 Confirmation. Pursuant to Section 611 of the Indenture, (i)
------------
the Company and the Subsidiary Guarantors hereby confirm that the Successor
Trustee is vested with all rights, powers and trusts of the Trustee under the
Indenture, and (ii) upon the request of the Successor Trustee, the Company and
the Subsidiary Guarantors shall execute any and all instruments for more fully
and certainly vesting in and confirming to the Successor Trustee all such
rights, powers and trusts.
Section 2.5 Notice. Pursuant to Section 610(f) of the Indenture, the
------
Company shall give notice of the resignation of the Resigning Trustee and the
appointment of the Successor Trustee to all Holders in the manner provided in
Section 106 of the Indenture. Such notice shall include the name of the
Successor Trustee and the address of its Corporate Trust Office. The Resigning
Trustee shall, within five (5) business days of the execution of this
Supplemental Indenture, provide the Company with a list of all Holders.
ARTICLE THREE
Section 3.1 Resignation. The Resigning Trustee hereby resigns as Security
-----------
Registrar and Paying Agent under the Indenture, and the Company hereby accepts
such resignation.
Section 3.2 Appointment and Acceptance. As of the close of business on
--------------------------
the date hereof, the Company hereby appoints the Successor Trustee as Security
Registrar for the purpose of registering Securities and transfers and exchanges
of Securities as provided in the Indenture, and as Paying Agent under the
Indenture, with all of the rights, powers and duties heretofore vested in the
Resigning Trustee, as Security Registrar and Paying Agent under the Indenture,
and the Successor Trustee hereby accepts such appointments.
Section 3.3 Confirmation. The Company and the Subsidiary Guarantors
------------
hereby confirm that (i) the Successor Trustee is vested with all rights, powers
and trusts of the Registrar and the Paying Agent under the Indenture, and (ii)
upon the request of the Successor Trustee, the
4
<PAGE>
Company and the Subsidiary Guarantors shall execute any and all instruments for
more fully and certainly vesting in and confirming to the Successor Trustee all
such rights, powers and trusts.
ARTICLE FOUR
Miscellaneous Provisions
------------------------
Section 4.1 Counterparts. This Supplemental Indenture may be executed in
------------
counterparts, each of which when so executed shall be deemed to be an original,
but all such counterparts shall together constitute one and the same instrument.
Section 4.2 Severability. In the event that any provision in this
------------
Supplemental Indenture shall be invalid, illegal or unenforceable, the validity,
legality and enforceability of the remaining provisions shall not in any way be
affected or impaired thereby.
Section 4.3 Headings. The article and section headings herein are for
--------
convenience only and shall not affect the construction hereof.
Section 4.4 Successors and Assigns. All the covenants, stipulations,
----------------------
promises and agreements in this Supplemental Indenture by or on behalf of the
Company or the Trustee shall bind such party's respective successors and
assigns, whether so expressed or not.
Section 4.5 Governing Law. THIS SUPPLEMENTAL INDENTURE SHALL BE GOVERNED
-------------
BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS
APPLIED TO CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT
REGARD TO PRINCIPLES OF CONFLICTS OF LAWS.
Section 4.6 Effect of Supplemental Indenture. Except as amended by this
--------------------------------
Supplemental Indenture, the terms and provisions of the Indenture shall remain
in full force and effect.
Section 4.7 Trustee. The Resigning Trustee and the Successor Trustee
-------
accept the modifications of trusts referenced in the Indenture and effected by
this Supplemental Indenture. Without limiting the generality of the foregoing,
neither the Resigning Trustee nor the Successor Trustee assumes any
responsibility for the correctness of the recitals herein contained, which shall
be taken as the statements of the Company, and neither the Resigning Trustee nor
the Successor Trustee shall be responsible or accountable in any way whatsoever
for or with respect to the validity or execution or sufficiency of this
Supplemental Indenture, and neither the Resigning Trustee nor the Successor
Trustee makes any representation with respect thereto.
Remainder of this Page Intentionally Left Blank
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this agreement to be
duly executed and their respective corporate seals to be hereunto duly affixed
and attested by their respective officers thereunto duly authorized, all as of
the day and year first above written.
(Corporate Seal)
Attest: VALUJET, INC.
as the Company
_________________________ By: _______________________________
Name:
Title:
Attest: VALUJET AIRLINES, INC.,
as Subsidiary Guarantor
_________________________ By: _______________________________
Name: Name:__________________________
Title: Title:_________________________
Attest: VALUJET MANAGEMENT CORP.,
as Subsidiary Guarantor
_________________________ By: _______________________________
Name: Name:__________________________
Title: Title:_________________________
6
<PAGE>
Attest: VALUJET INVESTMENT CORP.,
as Subsidiary Guarantor
____________________________ By:________________________________
Name: Name:____________________________
Title: Title:___________________________
Attest: VALUJET CAPITAL CORP.,
as Subsidiary Guarantor
____________________________ By:_________________________________
Name: Name:____________________________
Title: Title:___________________________
Attest: VALUJET CORPORATE PARTNERS, L.P.,
as Subsidiary Guarantor
By: VALUJET MANAGEMENT CORP.,
its General Partner
____________________________ By:_________________________________
Name: Name:____________________________
Title: Title:___________________________
7
<PAGE>
Attest: VALUJET RESERVATION PARTNERS, L.P.,
as Subsidiary Guarantor
By: VALUJET MANAGEMENT CORP.,
its General Partner
____________________________ By:_________________________________
Name: Name:____________________________
Title: Title:___________________________
VALUJET I, LTD.,
as Subsidiary Guarantor
By:_________________________________
Name:____________________________
Title:___________________________
VALUJET II, LTD.,
as Subsidiary Guarantor
By:_________________________________
Name:____________________________
Title:___________________________
8
<PAGE>
Attest: BANK OF MONTREAL TRUST COMPANY,
as Resigning Trustee
_________________________ By:_________________________________
Name: Name:____________________________
Title: Title:___________________________
Attest: FLEET NATIONAL BANK,
as Successor Trustee
_________________________ By:_________________________________
Name: Name:____________________________
Title: Title:___________________________
9
<PAGE>
STATE OF )
COUNTY OF ) ss.
On this the ______ day of August, 1996, before me, the undersigned officer,
personally appeared, ________________________, who acknowledged himself/herself
to be the _____________ of VALUJET, INC., a Nevada corporation, and that he, as
such officer, being authorized so to do, executed the foregoing instrument for
purposes therein contained as his and its free act and deed, by signing the name
of the corporation by himself as such of officer.
In witness whereof I hereunto set my hand.
_____________________________
Notary Public
My Commission Expires: ______
STATE OF )
COUNTY OF ) ss.
On this the ______ day of August, 1996, before me, the undesigned officer,
personally appeared, ______________________, who acknowledged himself/herself to
be the ______________ of VALUEJET AIRLINES, INC., a Nevada corporation, and that
he, as such officer, being authorized so to do, executed the foregoing
instrument for purposes therein contained as his and its free act and deed, by
signing the name of the corporation by himself as such of officer.
In witness whereof I hereunto set my hand.
_____________________________
Notary Public
My Commission Expires: ______
10
<PAGE>
STATE OF )
COUNTY OF ) ss.
On this the ______ day of August, 1996, before me, the undersigned officer,
personally appeared, ________________________, who acknowledged himself/herself
to be the _____________ of VALUJET, MANAGEMENT CORP., a Nevada corporation, and
that he, as such officer, being authorized so to do, executed the foregoing
instrument for purposes therein contained as his and its free act and deed, by
signing the name of the corporation by himself as such of officer.
In witness whereof I hereunto set my hand.
_____________________________
Notary Public
My Commission Expires: ______
STATE OF )
COUNTY OF ) ss.
On this the ______ day of August, 1996, before me, the undesigned officer,
personally appeared, ______________________, who acknowledged himself/herself to
be the ______________ of VALUEJET INVESTMENT CORP., a Nevada corporation, and
that he, as such officer, being authorized so to do, executed the foregoing
instrument for purposes therein contained as his and its free act and deed, by
signing the name of the corporation by himself as such of officer.
In witness whereof I hereunto set my hand.
_____________________________
Notary Public
My Commission Expires: ______
11
<PAGE>
STATE OF )
COUNTY OF ) ss.
On this the ______ day of August, 1996, before me, the undersigned officer,
personally appeared, ________________________, who acknowledged himself/herself
to be the _____________ of VALUJET, CAPITAL CORP., a Nevada corporation, and
that he, as such officer, being authorized so to do, executed the foregoing
instrument for purposes therein contained as his and its free act and deed, by
signing the name of the corporation by himself as such of officer.
In witness whereof I hereunto set my hand.
_____________________________
Notary Public
My Commission Expires: ______
STATE OF )
COUNTY OF ) ss.
On this the ______ day of August, 1996, before me, the undesigned officer,
personally appeared, ______________________, who acknowledged himself/herself to
be the ______________ of VALUEJET I, LTD., a Nevada corporation, and that
he, as such officer, being authorized so to do, executed the foregoing
instrument for purposes therein contained as his and its free act and deed, by
signing the name of the corporation by himself as such of officer.
In witness whereof I hereunto set my hand.
_____________________________
Notary Public
My Commission Expires: ______
12
<PAGE>
STATE OF )
COUNTY OF ) ss.
On this the ______ day of August, 1996, before me, the undersigned officer,
personally appeared, ________________________, who acknowledged himself/herself
to be the _____________ of VALUJET, II, LTD., a Nevada corporation, and that he,
as such officer, being authorized so to do, executed the foregoing instrument
for purposes therein contained as his and its free act and deed, by signing the
name of the corporation by himself as such of officer.
In witness whereof I hereunto set my hand.
_____________________________
Notary Public
My Commission Expires: ______
STATE OF )
COUNTY OF ) ss.
On this the ______ day of August, 1996, before me, the undesigned officer,
personally appeared, ______________________, who acknowledged himself/herself to
be the ______________ of BANK OF MONTREAL TRUST COMPANY, a New York corporation,
and that he, as such officer, being authorized so to do, executed the foregoing
instrument for purposes therein contained as his and its free act and deed, by
signing the name of the corporation by himself as such of officer.
In witness whereof I hereunto set my hand.
_____________________________
Notary Public
My Commission Expires: ______
13
<PAGE>
STATE OF )
COUNTY OF ) ss:
On this the _______ day of August, 1996, before me, the undersigned officer,
personally appeared, _______________________________, who acknowledged
himself/herself to be the _________________ of FLEET NATIONAL BANK, a National
Banking Association, and that he, as such officer, being authorized so to do,
executed the foregoing instrument for purposes therein contained as his and its
free act and deed, by signing the name of the corporation by himself as such of
officer.
In witness whereof I hereunto set my hand.
_______________________________
Notary Public
My Commission Expires: ________
14
<PAGE>
EXHIBIT 4.10
EXECUTION COPY
SECOND SUPPLEMENTAL INDENTURE
SECOND SUPPLEMENTAL INDENTURE (the "Supplemental Indenture"), dated
as of August 5, 1997, between VALUJET, INC., a Nevada corporation (the
"Company"), VALUJET AIRLINES, INC., as subsidiary guarantor, VALUJET MANAGEMENT
CORP., as subsidiary guarantor, VALUJET INVESTMENT CORP., as subsidiary
guarantor, VALUJET CAPITAL CORP., as subsidiary guarantor, VALUJET MANAGEMENT
CORP., as general partner of VALUJET CORPORATE PARTNERS, L.P., as subsidiary
guarantor, VALUJET MANAGEMENT CORP., as general partner of VALUJET RESERVATION
PARTNERS, L.P., as subsidiary guarantor, VALUJET I., LTD., as subsidiary
guarantor, and VALUJET II, LTD., as subsidiary guarantor, and STATE STREET BANK
AND TRUST COMPANY, a state chartered bank (the "Trustee").
WITNESSETH:
WHEREAS, in accordance with Section 902 of the indenture, dated as of
April 17, 1996, as modified by the First Supplemental Indenture thereto dated as
of August 26, 1996 (the "Indenture"), between the Company and the Trustee,
relating to the 10 1/4% Senior Notes due 2001 of the Company, (a) the Trustee,
the Company, the Subsidiary Guarantors and the Holders (as defined in the
Indenture) of a majority in principal amount of the Outstanding Securities (as
defined in the Indenture) as of the date hereof have agreed (i) to add a
definition of New Securities (as defined below) to Section 101 of the Indenture
and (ii) to amend certain terms related to the definition of Aircraft
Acquisition Debt (as defined in the Indenture) contained in Section 101 of the
Indenture and certain other terms contained in Section 801, Section 1008,
Section 1009, Section 1010 and Section 1012 of the Indenture (the "Amended
Covenants") and (b) the Holders of a majority in principal amount of the
Outstanding Securities as of the date hereof have agreed to waive the
application of certain provisions of the Indenture, including Section 801,
Section 1010, Section 1008, section 1009 and Section 1012 thereof in connection
with (i) the issuance and sale by ValuJet Airlines, Inc. ("ValuJet Airlines") of
the New Securities (as defined in Section 1.2(a) below) and (ii) the acquisition
of Airways Corporation ("Airways") by the Company through a merger of Airways
with and into the Company and the subsequent potential merger of AirTran
Airways, Inc., an operating subsidiary of Airways ("AirTran"), with and into
ValuJet Airlines.
WHEREAS, all things necessary to make this Supplemental Indenture a
valid supplement to the Indenture according to its terms have been done.
NOW, THEREFORE, the parties hereto hereby agree as follows:
SECTION 1.1 Certain Terms Defined in the Indenture. All capitalized
--------------------------------------
terms used herein without definition herein shall have the meanings ascribed
thereto in the Indenture.
SECTION 1.2 Amendments of Section 101. (a) Section 101 of the
-------------------------
Indenture is amended by adding the following definitions in appropriate
alphabetical order:
"'New Securities' means the senior secured notes in an aggregate
principal amount of up to $85.0 million issued by ValuJet Airlines,
Inc. and guaranteed by the Company and its other subsidiaries and
secured by a pool of collateral consisting of (i)
<PAGE>
E-2
24 DC-9 aircraft and three spare engines currently securing the debt
to be refinanced and (ii) four hush kits to be acquired with a portion
of the proceeds of the offering of New Securities, in the form and
substance approved by the Chief Financial Officer of the Company, with
such other terms and conditions as the Chief Financial Officer of the
Company shall deem appropriate, such approval to be evidenced by a
certificate of the Chief Financial Officer of the Company delivered
upon issuance of the New Securities."
(b) The definition of "Aircraft Acquisition Debt" located in Section
101 of the Indenture is amended in full to read as follows:
"Aircraft Acquisition Debt" means Debt Incurred by the Company or
any of its Restricted Subsidiaries either:
(i) in connection with an acquisition of aircraft, related
engines or spare engines which Debt either constitutes
part of the purchase price of such aircraft, engine or
spare engines, as the case may be, or is Incurred prior
to, at the time of or within 270 days (or 365 days if such
acquisition involves a purchase of an MD-95 aircraft,
related engine or spare engine from the manufacturer
thereof) after the acquisition of such equipment for the
purpose of financing or refinancing part of the purchase
price thereof, and which equipment was not owned by the
Company or a Restricted Subsidiary of the Company prior to
such purchase: provided, however, that in either case (A)
-------- -------
the proportion (expressed as a percentage) of such Debt to
the purchase price or appraised value of such equipment at
the time of such financing does not exceed 80% (or, with
respect to Debt Incurred to acquire MD-95 aircraft,
related engines and spare engines, 90%) and (B) other than
in the case of financing of MD-95 aircraft, related
engines and spare engines, after giving effect to the
Incurrence of such Debt and the acquisition of such
equipment, the Company's Consolidated Net Worth is not
less than $150.0 million; or
(ii) which is a Restricted Lease Obligation relating solely to
an aircraft, related engine or spare engine that was not
owned by the Company or a Restricted Subsidiary of the
Company more than 270 days prior to such Incurrence:
provided, however, that, other than in the case of
-------- -------
financing of MD-95 aircraft, related engines or spare
engines, after giving effect to the Incurrence of such
Debt the Company's Consolidated Net Worth is not less than
$150.0 million."
(c) The definition of "Permitted Investments" shall be amended by
adding at the end of clause (vi), immediately after the phrase "not to exceed
$35.0 million", the following:
";provided that the amount under this clause (vi) may be increased from
time to time by an amount equal to the net reduction of an Investment
made under this clause (vi) through a cash payment to the Company or
any Restricted Subsidiary by
<PAGE>
E-3
such Person, or through the forgiveness of Debt of the Company or any
Restricted Subsidiary to such Person (except, in either case, to the
extent such payment or proceeds are included in the calculation of
Consolidated Net Income), not to exceed, in each case, the amount of
such Permitted Investment previously made by the Company or any
Restricted Subsidiary"
SECTION 1.3. Amendments of Section 1008. (a) Section 1008 of the
--------------------------
Indenture is amended by deleting the parenthetical phrase "(vii)" at the
beginning of subsection (vii), adding the parenthetical phrase "(viii)" in lieu
thereof and adding immediately after subsection (vi), the following:
"(vii) Debt Incurred to finance the acquisition and installation
after June 30, 1997 of Stage III hush kit units, which Debt is
Incurred prior to, at the time of or within 180 days after the
acquisition of such hush kit units and which hush kit units were not
owned by the Company or a Restricted Subsidiary of the Company prior
to such acquisition; provided, however, that the aggregate principal
-------- -------
amount of all Debt Incurred pursuant to the provisions described under
this Clause (vii) and Clause (viii) of Section 1009, or all such Debt
refinanced pursuant to Clause (viii) below or clause (x) of Section
1009, does not exceed $53.0 million at any one time outstanding."
(b) Section 1008 of the Indenture is amended (v) by deleting the
parenthetical phrase "(vi)" in the first sentence of subsection (vii) and adding
the parenthetical phrase "(vii)" in lieu thereof, (w) by deleting the
parenthetical phrase "(viii)" at the beginning of subsection (viii) and adding
the parenthetical phrase "(ix)" in lieu thereof, (x) by deleting the
parenthetical phrase "(ix)" at the beginning of subsection (ix) and adding the
parenthetical phrase "(x)" in lieu thereof, (y) by deleting the parenthetical
phrase "(viii)" in the first sentence of subsection (ix) and adding the
parenthetical phrase "(ix)" in lieu thereof and (z) by deleting the words
"Clause (ix)" in the first sentence of subsection (ix) and adding the words
"Clause (x)" in lieu thereof.
SECTION 1.4. Amendments of Section 1009. (a) Section 1009 of the
--------------------------
Indenture is amended by deleting the parenthetical phrase "(viii)" at the
beginning of subsection (viii), adding the parenthetical phrase "(x)" in lieu
thereof, by deleting the words "through (vii)" in the first sentence of
subsection (viii), adding the words "through (ix)" in lieu thereof and adding
immediately after subsection (vii), the following:
"(viii) Debt Incurred to finance the acquisition and installation
after June 30, 1997 of Stage III hush kit units, which Debt is
Incurred prior to, at the time of or within 180 days after the
acquisition of such hush kit units and which hush kit units were not
owned by the Company or a Restricted Subsidiary of the Company prior
to such acquisition: provided, however, that the aggregate principal
-------- -------
amount of all Debt Incurred pursuant to the provisions described under
this Clause (viii) and Clause (vii) of Section 1008, or all such Debt
refinanced pursuant to Clause (x) below or clause (viii) of Section
1008, does not exceed $53.0 million at any one time outstanding;"
<PAGE>
E-4
(b) Section 1009 of the Indenture is amended by adding immediately
after the new subsection (viii) and immediately prior to subsection (viii)
(which will have been renumbered as subsection (x) pursuant to this Section
1.4), the following:
"(ix) Debt consisting of Guarantees of the Securities
and the New Securities Incurred by any Restricted Subsidiary
upon such Person becoming a Restricted Subsidiary; and"
SECTION 1.5. Amendments of Section 1010. (a) Section 1010 of the
--------------------------
Indenture is amended by deleting from the exceptions thereto contained in the
last paragraph of Section 1010 the word "and" which precedes the words "(ii) any
refinancing" and adding the following immediately after the words "pursuant to
Clause (viii) of Section 1009" in clause (ii):
"; and (iii) Investments acquired as a capital contribution
to the Company or in exchange for Capital Stock (other than
Disqualified Stock) of the Company; provided, however, that
-------- -------
the amount of any such capital contribution or Investment
acquired in exchange of Capital Stock shall not be added to
the aggregate amount available to the Company to make
Restricted Payments as calculated under clause (3)(b) of the
preceding paragraph"
(b) Section 1010 of the Indenture is amended by deleting the words
"Clause (vii)" in the last sentence of Section 1010 and adding the words
"Clause (viii)" in lieu thereof and by deleting the words "Clause (viii)" in
the last sentence of Section 1010 and adding the words "Clause (x)" in lieu
thereof.
SECTION 1.6. Amendment of Section 1012. Section 1012 of the Indenture
-------------------------
is amended by deleting the word "and" immediately following the word "business;"
in subsection (xiii) and by deleting subsection (xiv) and adding the following
in lieu thereof:
"(xiv) Liens (a) on an aggregate of four DC-9 aircraft to
secure Debt of up to $3.0 million per aircraft, which is
permitted to be Incurred under Section 1008 or Section 1009,
Incurred to finance the acquisition and installation after
June 30, 1997 of Stage III hush kit units on other aircraft
and (b) on an aircraft to secure Debt, which is permitted to
be Incurred under Section 1008 or Section 1009, Incurred to
finance the acquisition and installation after June 30, 1997
of Stage III hush kit units on such aircraft; and
(xv) any Liens securing Debt Incurred to extend, renew,
refinance or refund secured Debt which is permitted to be
Incurred under Clause (viii) of Section 1008 or Clause (x)
of Section 1009; provided, however, that such Liens do not
-------- -------
extend to any property other than the property securing the
Debt being extended, renewed, refinanced or refunded."
<PAGE>
E-5
SECTION 1.7. Amendment of Section 801. Section 801 of the Indenture
------------------------
is amended by deleting the word "and" immediately following the word "Lien;" in
subsection (5), deleting the period after the word "foregoing" at the end of
subsection (6) and adding the word "; and" in lieu thereof and adding the
following immediately after subsection (6):
"(7) notwithstanding the foregoing, any Restricted
Subsidiary may consolidate with, merge into or transfer all
or part of its properties and assets to the Company or another
Restricted Subsidiary."
SECTION 1.8. Waivers Relating to the Airways Acquisition. Subject to
-------------------------------------------
Section 1020 of the Indenture, the Holders of a majority in principal amount of
the Outstanding Securities as of the date hereof, solely to permit (i) the
acquisition of Airways by the Company through a merger of Airways with and into
the Company and (ii) the potential merger of AirTran with and into ValuJet
Airlines, hereby (x) waive the requirements of the Indenture, including Sections
801 and 1010 thereof, and (y) permit the Company to increase the amount
available under clause (vi) of the definition of Permitted Investment by $7.0
million to reflect the conversion to an intercompany loan of an outstanding loan
for such amount from the Company to AirTran.
SECTION 1.9. Waiver Relating to the Issuance of the New Securities.
-----------------------------------------------------
Subject to Section 1020 of the Indenture, the Holders of a majority in principal
amount of the Outstanding Securities as of the date hereof hereby waive, solely
to permit the issuance of the New Securities in an aggregate principal amount
not to exceed $85,000,000, the requirements of the Indenture, including Sections
1008, 1009 and 1012 thereof.
SECTION 2. Conditions of Effectiveness. This Supplemental
---------------------------
Indenture shall become effective when, and only when, all of the following
conditions shall have been satisfied:
(a) the Trustee shall have received the written consent of the
Holders of a majority in principal amount of the Outstanding Securities to
the execution of this Supplemental Indenture (the "Required Consents"):
(b) duly executed counterparts hereof shall have been signed by the
Trustee, the Subsidiary Guarantors and the Company; and
(c) the Trustee shall have received the Opinion of Counsel which it
is entitled to receive under Section 903 of the Indenture.
The receipt by the Trustee of the Required Consents shall not obligate the
Company to execute this Supplemental Indenture.
SECTION 3. Payment upon Effectiveness. Upon effectiveness of this
--------------------------
Supplemental Indenture, the Company shall pay to the Trustee for the account of
Holders (other than the Company or any Affiliate of the Company) as of the
Expiration Date (as defined in the Company's Consent Solicitation Statement
dated July 22, 1997) who, on or prior to the Expiration Date, shall have
consented to the adoption of this Supplemental Indenture and shall not have
subsequently withdrawn such consent ("Consenting Holders"), a fee equal to
$35.00 in cash for each $1,000 in principal
<PAGE>
E-6
amount of Notes in respect of which such Consent has been delivered and received
and not subsequently withdrawn on or prior to the Expiration Date. As soon as
practicable after the effectiveness of this Supplemental Indenture and receipt
by the Trustee of such funds from the Company, the Trustee shall pay to each
Consenting Holder (other than the Company or any Affiliate of the Company) a fee
equal to $35.00 in cash for each $1,000 in principal amount of Notes in respect
of which such Consent has been delivered and received and not subsequently
withdrawn.
SECTION 4. Governing Law. THIS SUPPLEMENTAL INDENTURE SHALL BE GOVERNED BY
-------------
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
SECTION 5. Counterparts. This Supplemental Indenture may be signed in any
------------
number of counterparts, each of which shall be an original, with the same effect
as if the signatures thereto and hereto were upon the same instrument.
SECTION 6. Severability. In case any provisions in this Supplemental
------------
Indenture shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
SECTION 7. Ratification. Except as expressly amended hereby, each provision
------------
of the Indenture shall remain in full force and effect.
SECTION 8. Trustee. The recitals contained herein shall be taken as the
-------
statements of the Company or the Subsidiary Guarantors, as the case may be, and
the Trustee assumes no responsibility for their correctness. The Trustee makes
no representations as to the validity or sufficiency of this Second Supplemental
Indenture.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental
Indenture to be duly executed as of the date first above written.
VALUJET, INC.
By: /s/ D. Joseph Corr
-------------------------
Name: D. JOSEPH CORR
Title: Executive Vice President
Attest: /s/ Stephen C. Nevin
-----------------------------
Name: STEPHEN C. NEVIN
Title: CHIEF FINANCIAL OFFICER
VALUJET AIRLINES, INC.,
as Subsidiary Guarantor
By: /s/ D. Joseph Corr
------------------------
Name: D. JOSEPH CORR
Title: President & CEO
Attest: /s/ Stephen C. Nevin
-------------------------
Name: STEPHEN C. NEVIN
Title: CHIEF FINANCIAL OFFICER
VALUJET MANAGEMENT, CORP.,
as Subsidiary Guarantor
By: /s/ Stephen C. Nevin
--------------------------
Name: STEPHEN C. NEVIN
Title: SECRETARY & TREASURER
Attest: /s/ Robert Priddy
------------------------
Name: ROBERT PRIDDY
Title:
<PAGE>
VALUJET INVESTMENT CORP.,
as Subsidiary Guarantor
By: /s/ Stephen C. Nevin
-------------------------
Name: STEPHEN C. NEVIN
Title: SECRETARY & TREASURER
Attest: /s/ Robert Priddy
------------------------
Name: ROBERT PRIDDY
Title:
VALUJET CAPITAL CORP.,
as Subsidiary Guarantor
By: /s/ Stephen C. Nevin
-------------------------
Name: STEPHEN C. NEVIN
Title: VICE PRESIDENT
Attest:
-----------------------
Name:
Title:
VALUJET MANAGEMENT CORP.,
as General Partner of:
VALUJET CORPORATE PARTNERS,
L.P.,
as Subsidiary Guarantor
By: /s/ Stephen C. Nevin
-------------------------
Name: STEPHEN C. NEVIN
Title: SECRETARY & TREASURER
Attest: /s/ Robert Priddy
-----------------------
Name: ROBERT PRIDDY
Title:
<PAGE>
VALUJET MANAGEMENT CORP.,
as General Partner of:
VALUJET RESERVATION PARTNERS,
L.P.,
as Subsidiary Guarantor
By: /s/ Stephen C. Nevin
-----------------------------
Name: STEPHEN C. NEVIN
Title: SECRETARY & TREASURER
Attest: /s/ Robert Priddy
------------------------------
Name: ROBERT PRIDDY
Title:
VALUJET I, LTD.,
as Subsidiary Guarantor
By: /s/ Michael Acks
---------------------------------
Name: MICHAEL ACKS
Title:
Attest:______________________________
Name:
Title:
VALUJET II, LTD.,
as Subsidiary Guarantor
By: /s/ Stephen C. Nevin
---------------------------------
Name: STEPHEN C. NEVIN
Title: SECRETARY & TREASURER
Attest:______________________________
Name:
Title:
<PAGE>
STATE STREET BANK AND TRUST
COMPANY, Trustee
By: /s/ Robert L. Bice II
---------------------------
Name: Robert L. Bice II
Title: Vice President
Attest: /s/ Leah M. Barrett
-------------------------------
Name: Leah M. Barrett
Title: Assistant Secretary
<PAGE>
Exhibit 10.15
CONSULTING AGREEMENT
THIS CONSULTING AGREEMENT ("Agreement") is made and entered into as of this 17th
day of November, 1997.
BY AND BETWEEN AIRTRAN HOLDINGS, INC.,
a Nevada corporation, hereinafter
referred to as the "Company"
AND Robert L. Priddy,
an individual, hereinafter referred
to as "Priddy"
WITNESSETH:
1. EMPLOYMENT. Company hereby retains and employs Priddy to serve in the
----------
capacity of consultant to the Company. Priddy accepts such employment upon
the terms and conditions herein set forth. For all purposes, Priddy shall
be treated as an employee of the Company during the term of this Agreement.
2. TERM. The term of this Agreement shall commence on November 17, 1997 and
----
shall continue until December 31, 2004, unless terminated earlier in
accordance herewith.
3. DUTIES. During the term of this Agreement, Priddy shall perform upon
------
request of the Company, such duties and functions as may be necessary or
desirable to consult and otherwise participate in the defense of litigation
involving the Company relating to events taking place prior to the date
hereof. The parties agree that Priddy will only devote a limited portion of
his time and attention to the performance of his duties for the Company and
will likely have other commitments that may interfere with requested
services hereunder. Priddy agrees to use his good faith efforts to be
available for the purposes set forth herein when sufficient advance notice
is provided by the Company.
4. COMPENSATION. As compensation for his services hereunder, Priddy shall
------------
receive an annual base salary of (i) $100,000 per annum for the years 1998
through 2002, and (ii) $20,000 per annum for the years 2003 and 2004. Such
salary shall be payable quarterly or at other intervals agreeable to Priddy
and the Company. Such annual base salary shall be prorated for any partial
period of employment. The Company shall deduct from each salary payment any
and all sums required to be deducted by the Company for Social Security,
federal and state withholding taxes, and any other federal or local tax or
charge, whether now in effect or hereafter enacted or required, on such
compensation.
1
<PAGE>
5. REIMBURSEMENT OF EXPENSES. The Company shall reimburse Priddy for his
-------------------------
reasonable and necessary out-of-pocket expenses incurred in connection with
the performance of services hereunder.
6. BENEFITS.
--------
(a) Priddy and his wife and dependents shall have lifetime pass privileges
on Company flights, consistent with the most favorable pass privileges
available to any Company executives as in effect from time to time.
(b) Priddy and his wife shall have the right during their lifetimes to
continuing coverage in the Company's health insurance plan in effect from
time to time. So long as this Agreement remains in effect, such coverage
shall be provided at the Company's expense. After the termination or
expiration of this Agreement such participation shall be at Priddy's cost,
not to exceed the COBRA (or equivalent) premium that would be chargeable
with respect to such coverage.
(c) Priddy shall not be entitled to any other benefits as an employee of
the Company.
7. NONDISCLOSURE. Priddy shall not, at any time during or after the
-------------
termination of his employment hereunder, except when acting on behalf of
the Company, make use of or disclose to any person, corporation, or other
entity, for any purpose whatsoever, any trade secret or other confidential
information concerning the Company's business, finances or marketing
information (collectively referred to as the "Proprietary Information").
For the purposes of this Agreement, trade secrets and confidential
information shall mean information disclosed to Priddy or known by him as a
consequence of his employment by the Company, whether or not pursuant to
this Agreement, and not generally known in the industry, concerning the
business, finances, methods, operations and marketing of the Company;
provided that trade secrets shall not include information publicly
available or otherwise publicly disclosed except for public disclosures in
violation of this Agreement. Priddy acknowledges that trade secrets and
other items of confidential information, as they may exist from time to
time, are valuable and unique assets of the Company, and that disclosure of
any such information could cause substantial injury to the Company.
8. TERMINATION. The Company may terminate Priddy's employment hereunder only
-----------
if Priddy has willfully and unreasonably neglected or refused to perform
his duties or responsibilities reasonably requested hereunder and fails to
cure such breach within ten (10) days after written notice thereof from the
Company. Otherwise, this Agreement may not be terminated without Priddy's
consent.
9. REMEDIES. Priddy acknowledges that a breach by him of any of the covenants
--------
contained in Section 7 of this Agreement could cause irreparable harm and
injury to the Company for which the Company may have no adequate remedy at
law. Priddy therefore agrees that, upon the occurrence of any breach or
threatened breach of such covenants, the Company may be entitled, in
addition to any damages it may have suffered as a result of the breach, to
an injunction against breach of any of said covenants.
10. ASSIGNMENT. This Agreement shall be binding upon and shall inure to the
----------
benefit of the
2
<PAGE>
successors and assigns of the Company. The services to be rendered by
Priddy to the Company are individual and personal, and performance of such
services may not be rendered to the Company on behalf of Priddy by any
other person.
11. MISCELLANEOUS.
-------------
(a) Entire Agreement. This Agreement rescinds and supersedes any and all
----------------
other agreements between the Company and Priddy with the exception of:
(i) Priddy's options to purchase stock in the Company, as more
specifically described in Exhibit "A" attached hereto, and (ii) that
certain Indemnification Agreement between the Company and Priddy
attached hereto as Exhibit "B." This Agreement contains the entire
understanding between the parties relative to the employment of
Priddy, there being no terms, conditions, warranties, or
representations other than those contained herein, and no amendment
hereto shall be valid unless made in writing and signed by both of the
parties hereto.
(b) Governing Law. This Agreement shall be construed, in accordance with
-------------
the laws of the State of Nevada.
(c) Severability. In the event that any provision herein shall be legally
------------
unenforceable, the remaining provisions nevertheless shall be carried
into effect. Although the parties believe Priddy's covenants contained
in Section 7 are fair and reasonable, if a court of competent
jurisdiction determines that one or more of the covenants is excessive
in duration or scope, the covenant shall be deemed modified and shall
be enforceable to the extent determined reasonable by the court.
(d) Notices. All notices required or permitted to be given hereunder shall
-------
be deemed given if in writing and delivered personally or sent by
telex, telegram, telecopy, or forwarded by prepaid registered or
certified mail (return receipt requested) to the party or parties at
the following addresses (or at such other addresses as shall be
specified by like notices), and any notice however given, shall be
effective when received:
To Priddy: Robert L. Priddy
3435 Kingsboro Road, #1601
Atlanta, GA 30326
Fax: (404) 842-9431
To the Company:
AirTran Holdings, Inc.
1800 Phoenix Blvd., Suite 126
Atlanta, GA 30349
Attn: President
Fax: (770) 907-2586
3
<PAGE>
(e) Waiver. The waiver by any party of a breach of any provision of this
------
Agreement by the other shall not operate or be construed as a waiver
of any subsequent breach of the same provision or any other provision
of this Agreement.
(f) Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
(g) Headings. The subject headings to the sections in this Agreement are
--------
included for purposes of convenience only and shall not affect the
construction or interpretation of any of its provisions.
(h) Construction. Each party has had the opportunity to set forth in this
------------
Agreement all matters related to the subject hereof. Priddy and the
Company acknowledge the binding legal effect of this Agreement, that
this Agreement has been negotiated by the parties hereto and that each
party has, to the extent desired, sought legal counsel related to the
terms, conditions and effect of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first hereinabove written.
/s/ Robert L. Priddy
-------------------------------
Robert L. Priddy
AIRTRAN HOLDINGS, INC.
By: /s/ D. Joseph Corr
----------------------------
Title:
--------------------------
4
<PAGE>
EXHIBIT "A"
Outstanding Stock Options
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
DATE OF NUMBER OF EXERCISE EXPIRATION
GRANT SHARES PRICE DATE
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
June 28, 1994 200,000 $ 3.125 June 28, 2004
January 26, 1995 150,000 $ 3.75 January 26, 2005
January 26, 1995 40,000 $ 5.125 January 26, 2005
January 30, 1996 250,000 $18.375 January 30, 2006
</TABLE>
5
<PAGE>
Exhibit 10.16
CONSULTING AGREEMENT
THIS CONSULTING AGREEMENT ("Agreement") is made and entered into as of this 17th
day of November, 1997.
BY AND BETWEEN AIRTRAN HOLDINGS, INC.,
a Nevada corporation, hereinafter
referred to as the "Company"
AND Lewis H. Jordan,
an individual, hereinafter referred
to as "Jordan"
WITNESSETH:
1. EMPLOYMENT. Company hereby retains and employs Jordan to serve in the
----------
capacity of consultant to the Company. Jordan accepts such employment upon
the terms and conditions herein set forth. For all purposes, Jordan shall
be treated as an employee of the Company during the term of this Agreement.
2. TERM. The term of this Agreement shall commence on November 17, 1997 and
----
shall continue until December 31, 2004, unless terminated earlier in
accordance herewith.
3. DUTIES. During the term of this Agreement, Jordan shall perform upon
------
request of the Company, such duties and functions as may be necessary or
desirable to consult and otherwise participate in the defense of litigation
involving the Company relating to events taking place prior to the date
hereof. The parties agree that Jordan will only devote a limited portion of
his time and attention to the performance of his duties for the Company and
will likely h ave other commitments that may interfere with requested
services hereunder. Jordan agrees to use his good faith efforts to be
available for the purposes set forth herein when sufficient advance notice
is provided by the Company.
4. COMPENSATION. As compensation for his services hereunder, Jordan shall
------------
receive an annual base salary of (i) $100,000 per annum for the years 1998
through 2002, and (ii) $20,000 per annum for the years 2003 and 2004. Such
salary shall be payable quarterly or at other intervals agreeable to Jordan
and the Company. Such annual base salary shall be prorated for any partial
period of employment. The Company shall deduct from each salary payment any
and all sums required to be deducted by the Company for Social Security,
federal and state withholding taxes, and any other federal or local tax or
charge, whether now in effect or hereafter enacted or required, on such
compensation.
5. REIMBURSEMENT OF EXPENSES. The Company shall reimburse Jordan for his
-------------------------
reasonable and necessary out-of-pocket expenses incurred in connection with
the performance of services hereunder.
1
<PAGE>
6. BENEFITS.
--------
(a) Jordan and his wife and dependents shall have lifetime pass privileges
on Company flights, consistent with the most favorable pass privileges
available to any Company executives as in effect from time to time.
(b) Jordan and his wife shall have the right during their lifetimes to
continuing coverage in the Company's health insurance plan in effect from
time to time. So long as this Agreement remains in effect, such coverage
shall be provided at the Company's expense. After the termination or
expiration of this Agreement, such participation shall be at Jordan's cost,
not to exceed the COBRA (or equivalent) premium that would be chargeable
with respect to such coverage.
(c) Jordan shall not be entitled to any other benefits as an employee of
the Company.
7. NONDISCLOSURE. Jordan shall not, at any time during or after the
-------------
termination of his employment hereunder, except when acting on behalf of
the Company, make use of or disclose to any person, corporation, or other
entity, for any purpose whatsoever, any trade secret or other confidential
information concerning the Company's business, finances or marketing
information (collectively referred to as the "Proprietary Information").
For the purposes of this Agreement, trade secrets and confidential
information shall mean information disclosed to Jordan or known by him as a
consequence of his employment by the Company, whether or not pursuant to
this Agreement, and not generally known in the industry, concerning the
business, finances, methods, operations and marketing of the Company;
provided that trade secrets shall not include information publicly
available or otherwise publicly disclosed except for public disclosures in
violation of this Agreement. Jordan acknowledges that trade secrets and
other items of confidential information, as they may exist from time to
time, are valuable and unique assets of the Company, and that disclosure of
any such information could cause substantial injury to the Company.
8. TERMINATION. The Company may terminate Jordan's employment hereunder only
-----------
if Jordan has willfully and unreasonably neglected or refused to perform
his duties or responsibilities reasonably requested hereunder and fails to
cure such breach within ten (10) days after written notice thereof from the
Company. Otherwise, this Agreement may not be terminated without Jordan's
consent.
9. REMEDIES. Jordan acknowledges that a breach by him of any of the covenants
--------
contained in Section 7 of this Agreement could cause irreparable harm and
injury to the Company for which the Company may have no adequate remedy at
law. Jordan therefore agrees that, upon the occurrence of any breach or
threatened breach of such covenants, the Company may be entitled, in
addition to any damages it may have suffered as a result of the breach, to
an injunction against breach of any of said covenants.
10. ASSIGNMENT. This Agreement shall be binding upon and shall inure to the
----------
benefit of the successors and assigns of the Company. The services to be
rendered by Jordan to the Company are individual and personal, and
performance of such services may not be rendered to the Company on behalf
of Jordan by any other person.
2
<PAGE>
11. MISCELLANEOUS.
-------------
(a) Entire Agreement. This Agreement rescinds and supersedes any and all
----------------
other agreements between the Company and Jordan with the exception of:
(i) Jordan's options to purchase stock in the Company, as more
specifically described in Exhibit "A" attached hereto, and (ii) that
certain Indemnification Agreement between the Company and Jordan
attached hereto as Exhibit "B." This Agreement contains the entire
understanding between the parties relative to the employment of
Jordan, there being no terms, conditions, warranties, or
representations other than those contained herein, and no amendment
hereto shall be valid unless made in writing and signed by both of the
parties hereto.
(b) Governing Law. This Agreement shall be construed, in accordance with
-------------
the laws of the State of Nevada.
(c) Severability. In the event that any provision herein shall be legally
------------
unenforceable, the remaining provisions nevertheless shall be carried
into effect. Although the parties believe Jordan's covenants contained
in Section 7 are fair and reasonable, if a court of competent
jurisdiction determines that one or more of the covenants is excessive
in duration or scope, the covenant shall be deemed modified and shall
be enforceable to the extent determined reasonable by the court.
(d) Notices. All notices required or permitted to be given hereunder shall
-------
be deemed given if in writing and delivered personally or sent by
telex, telegram, telecopy, or forwarded by prepaid registered or
certified mail (return receipt requested) to the party or parties at
the following addresses (or at such other addresses as shall be
specified by like notices), and any notice however given, shall be
effective when received:
To Jordan: Lewis H. Jordan
610 Wingspread
Peachtree City, Georgia 30269
Fax: (770) 486-1617
To the Company:
AirTran Holdings, Inc.
1800 Phoenix Blvd., Suite 126
Atlanta, GA 30349
Attn: President
Fax: (770) 907-2586
(e) Waiver. The waiver by any party of a breach of any provision of this
------
Agreement by the other shall not operate or be construed as a waiver
of any subsequent breach of the same provision or any other provision
of this Agreement.
3
<PAGE>
(f) Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
(g) Headings. The subject headings to the sections in this Agreement are
--------
included for purposes of convenience only and shall not affect the
construction or interpretation of any of its provisions.
(h) Construction. Each party has had the opportunity to set forth in this
------------
Agreement all matters related to the subject hereof. Jordan and the
Company acknowledge the binding legal effect of this Agreement, that
this Agreement has been negotiated by the parties hereto and that each
party has, to the extent desired, sought legal counsel related to the
terms, conditions and effect of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first hereinabove written.
/s/ Lewis H. Jordan
---------------------------
Lewis H. Jordan
AIRTRAN HOLDINGS, INC.
By: /s/ D. Joseph Corr
-----------------------
Title:
---------------------
4
<PAGE>
EXHIBIT "A"
Outstanding Stock Options
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
DATE OF NUMBER OF EXERCISE EXPIRATION
GRANT SHARES PRICE DATE
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
June 17, 1993 2,400,000 $.166675 June 17, 2003
June 28, 1994 200,000 $ 3.125 June 28, 2004
January 26, 1995 150,000 $ 3.75 January 26, 2005
January 26, 1995 40,000 $ 5.125 January 26, 2005
January 30, 1996 250,000 $ 18.375 January 30, 2006
</TABLE>
5
<PAGE>
EXHIBIT 10.24
SEVERANCE COMPENSATION AGREEMENT
The Severance Compensation Agreement ("Agreement") dated as of February
18th, 1997, by and among Airways Corporation ("AirWays"), AirTran Airways, Inc.
("AirTran"), the wholly owned operating subsidiary of AirWays, and Robert D.
Swenson, (the "Executive"). (AirWays and AirTran are hereinafter sometimes
collectively called "the Company").
WHEREAS, the Company has determined that it is appropriate to reinforce and
encourage the continued attention and dedication of members of the Company's
management, including the Executive to their assigned duties without distraction
in potentially disturbing circumstances arising from the possibility of a Change
of Control of the Company (as defined in Section 3).
NOW, THEREFORE, to induce Executive to remain in the employ of the Company,
and in consideration of the mutual covenants set forth herein, and other good
and valuable consideration, the receipt and sufficiency whereof are hereby
acknowledged, the parties agree as follows:
1. Company. As used in this Agreement, "Company" shall mean the Company as
- ------------
hereinbefore defined and any successor or assign to the business and/or assets
of AirWays or AirTran as aforesaid which executes and delivers the agreement
provided for in this Section 8 or which otherwise becomes bound by all the terms
and provisions of this Agreement by operation of law.
2. At Will Employment by the Company. For all of the purposes hereof,
- --------------------------------------
employment of the Executive by either AirWays or AirTran shall constitute
employment by the Company. Executive acknowledges and agrees that he is an "at
will" employee of the Company and that, subject to the terms of this Agreement,
his or her employment may be terminated by the Company at any time with or
without Cause or reason.
3. Term. This Agreement shall terminate, except to the extent that any
- --------
obligation of the Company hereunder remains unpaid as of such time, upon the
earliest of:
(a) the termination of the Executive's employment with the Company with or
without Cause or reason prior to a Change of Control of the Company,
irrespective of whether the Company or the Executive causes such
termination;
(b) the termination of the Executive's employment with the Company after a
Change of Control of the Company based on death, Disability (as defined in
Section 5(b), Retirement (as defined in Section 5(c) or Cause (as defined
in Section 5(d) or by the Executive for any reason other than for Good
Reason (as defined in Section 5(e));
(c) one year from the date of a Change of Control of the Company if the
Executive's employment with the Company has not been terminated ;
(d) April 1, 1999.
4. Change of Control of the Company. No severance compensation shall be
- ------------------------------------
payable under this Agreement unless and until (a) there shall have been a Change
of control of the Company while the Executive is still an employee of the
1
<PAGE>
Company, and (b) the Executive's employment by the Company thereafter shall have
been terminated during the one year period following the Change of Control of
the Company for any reason other than one of the reasons set forth in Section
5(a). For purposes of this Agreement, a Change of Control of the Company shall
be deemed to have occurred if (u) there shall be consummated any consolidation
or merger of AirWays in which AirWays is not the continuing or surviving
corporation or pursuant to which shares of AirWays' common stock would be
converted into cash, securities or other property, other than a merger of
AirWays in which the holders of AirWays' common stock immediately prior to the
merger have the same proportionate ownership of common stock of the surviving
corporation immediately after the merger, or (v) any sale, lease, exchange or
other transfer (in one transaction or a series of related transactions) of all,
or substantially all, of the assets of AirTran, or (w) the taking of any action
by AirWays which results in AirWays owning less than 80% of the issued and
outstanding voting stock of AirTran, or (x) the stockholders of AirWays or
AirTran approve any plan or proposal for the liquidation of dissolution of
AirWays or AirTran, or (y) any person (as such term is used in Section 13(d) and
14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), shall become the beneficial owner (within the meaning of Rule 13d-3 under
the Exchange Act) of 30% or more of AirWays' outstanding common stock, or (z)
during any period of two consecutive years, individuals who at the beginning of
such period constitute the entire Board of Directors of AirWays shall cease for
any reason to constitute a majority thereof unless the election, or the
nomination for election by Airway's stockholders, of each new director was
approved by a vote of at least two-thirds of the directors then still in office
who were directors at the beginning of the period.
5. Termination Following Change of Control of the Company: Definitions.
- ------------------------------------------------------------------------
(a) If a Change of Control of the Company shall have occurred while the
Executive still an employee of the Company, the Executive shall be entitled
to the compensation provided for in Section 6 upon the subsequent
termination of the Executive's employment with the Company by the Executive
or by the Company, during the year following the Change of Control of the
Company, unless such termination is as a result of (i) the Executive's
death; (ii)the Executive's Disability (as defined in Section 5(b); (iii)
the Executive's Retirement (as defined in Section 4(c)); (iv) the
Executive's termination by the Company for Cause (as defined in Section
4(d); or (v) the Executive's decision to terminate employment for any
reason other than for Good Reason (as defined in Section 5(e)).
(b) Executive shall be deemed to be suffering from a "Disability" if, as a
result of the Executive's incapacity due to physical or mental illness, the
Executive shall have been absent from his duties with the Company on a
full-time basis for three months and within 30 days after written Notice of
Termination is thereafter given by the Company the Executive shall not have
returned to the full-time performance of the Executive's duties.
(c) The term "Retirement" as used in this Agreement shall mean termination
by the Company or the Executive of the Executive's employment based on the
Executive's having reached age 65 or such other age as shall have been
fixed in any arrangement established with the Executive's consent with
respect to the Executive.
(d) The term "Cause" as used in this Agreement means (i) theft or
embezzlement of Company's assets, (ii) conviction of a felony, or (iii) the
continued failure by Executive to satisfactorily perform his or her duties,
2
<PAGE>
as the same existed immediately prior to a Change of Control of the
Company, for a period of 90 days after a written demand for such
satisfactory performance which specifically identifies the manner in which
it is alleged the Executive has not satisfactorily performed such duties,
unless such failure is due to the Executive's death, Disability or
Retirement. Notwithstanding the foregoing, the Executive shall not be
deemed to have been terminated for Cause during the one year period
following a Change of Control of the Company unless and until there shall
have been delivered to the Executive a copy of a resolution duly adopted by
the affirmative vote of not less than three-quarters of the entire
membership of directors of the Company at a meeting of the board called and
held for the purpose (after reasonable notice to the Executive and an
opportunity for the Executive, together with the Executive's counsel, to be
heard before the board) finding that in the good faith opinion of the board
the Executive was guilty of the conduct set forth in the first sentence of
this Section 5(d) and specifying the particulars thereof in detail.
(e) The term "Good Reason" as used in this Agreement shall mean any of the
following that occur without the Executive's express written consent:
(i) the assignment to the Executive by the Company of duties
inconsistent with the Executive's title, position, duties,
responsibilities and status with the Company immediately prior to the
Change of Control of the Company, or a change in the Executive's
titles as in effect immediately prior to the Change of Control of the
Company, or any removal of the Executive from or any failure to
reelect the Executive to any of such positions, except in connection
with the termination of the Executive's employment for Disability,
Retirement or Cause, or as a result of the Executive's death or by the
Executive for any reason other than for Good Reason;
(ii) a reduction by the Company in the Executive's base salary as in
effect immediately prior to the Change of Control of the Company;
(iii) any failure by the Company to continue in effect any benefit
plan or arrangement, (other than the Company's Profit Sharing Plan),
in which the Executive is participating immediately prior to the
Change of Control of the Company (or any other plans providing the
Executive with substantially similar benefits) (hereinafter
collectively referred to as "Benefit Plans");
(iv) a relocation of the Company's principal executive offices to a
location outside of Orlando, Florida, or the Executive's relocation to
any place 45 miles or greater in distance from the current location at
which the Executive performed his or her duties immediately prior to
the Change of Control of the Company , except for required travel by
the Executive on the Company's business to an extent substantially
consistent with the Executive's business travel obligations
immediately prior to the Change of Control of the Company;
(v) any failure by the Company to provide the Executive with the
number of paid vacation days to which the Executive is entitled
immediately prior to the Change of Control of the Company;
(vi) any material breach by the Company of any provision of this
Agreement;
3
<PAGE>
(vii) any purported termination of the Executive's employment which is
not effected pursuant to a Notice of Termination satisfying the
requirements of Section 5(f), and for purposes of this Agreement, no
such purported termination shall be effective.
(f) Notice of Termination. During the one year period following the
Change of Control of the Company, any termination by the Company due to
Executive's Disability, Retirement or for Cause shall be communicated by a
Notice of Termination. For purposes of this Agreement, a "Notice of
Termination" shall mean a written notice which shall indicate those
specific termination provisions in this Agreement relied upon and which
sets forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of the Executive's employment under the
provision so indicated. For purposes of the Agreement, no such purported
termination by the Company shall be effective without such Notice of
Termination.
(g) Date of Termination. "Date of Termination" shall mean (i) if this
Agreement is terminated by the Company for Disability, 30 days after Notice
of Termination is given to the Executive (provided that the Executive shall
not have returned to the performance of the Executive's duties on a full-
time basis during such 30-day period) or (ii) if the Executive's employment
is terminated by the Company for any other reason, the date on which a
Notice of Termination is given; provided that if within 30 days after any
Notice of Termination is given to the Executive by the Company the
Executive notifies the Company that a dispute exists concerning the
termination, the Date of Termination shall be the date the dispute is
finally determined, whether by mutual agreement by the parties or upon
final judgment, order or decree of a court of competent jurisdiction (the
time for appeal therefrom having expired and no appeal having been
perfected).
6. Severance Compensation upon Termination of Employment, Acceleration of
- -------------------------------------------------------------------------
Certain Benefits; etc. If within one year following a Change of Control of
- -----------------------
the Company, the Company shall terminate the Executive's employment other than
due to (a) the Executive's death, (b) the Executive's Disability, (c) the
Executive's Retirement, or (d) for Cause, or if the Executive shall terminate
his employment for Good Reason, then:
(i) the Company shall pay to the Executive, in addition to all other
benefits, monies or entitlements that the Executive may be entitled to
receive, as severance pay in a lump sum, in cash, on the day of the Date of
Termination, an amount equal to 100% of the Executive's then current annual
salary.
(ii) notwithstanding any language contained in any other agreement or
undertaking by Executive which survive Executive's termination, there shall
be no prohibition or restriction with respect to Executive's subsequent
activities.
7. No Obligation to Mitigate Damages; No Effect on Other Contractual Rights.
- ----------------------------------------------------------------------------
(a) The Executive shall not be required to mitigate damages or the amount
of any payment provided for under this Agreement by seeking other
employment or otherwise, nor shall the amount of any payment provided for
4
<PAGE>
under this Agreement be reduced by any compensation earned by the Executive
as the result of employment by another employer after the Date of
Termination, or otherwise.
(b) The provisions of this Agreement, and any payment provided for
hereunder, shall not reduce any amounts otherwise payable, or in any way
diminish the Executive's existing rights, or rights which would accrue
solely as a result of the passage of time, under any Benefit Plan,
Incentive Plan or Securities Plan, employment agreement or other contract,
plan or arrangement.
8. Successor to the Company
- ----------------------------
(a) The Company will require any successor or assign (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of AirWays or AirTran, to
assume and agree to perform this Agreement.
(b) This Agreement shall inure to the benefit of and be enforceable by the
Executive's personal and legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If the Executive
should die while any amounts are still payable to him hereunder, all such
amounts, unless otherwise provided herein, shall be paid in accordance with
the terms of this Agreement to the Executive's devisee, legatee, or other
designee or, if there be no such designee, to the Executive's estate.
9. Notice. For purposes of this Agreement, notices and all other
- ----------
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, as follows:
If to the Company: Airways Corporation
6280 Hazeltine National Drive
Orlando, FL 32822
Attn: President
If to the Executive: Robert D. Swenson
3541 W. 100th Avenue
Anchorage, AK 99515
or such other address as either party may have furnished to the other in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
10. Miscellaneous. No provisions of this Agreement may be modified, waived or
- -------------------
discharged unless such waiver, modification or discharge is agreed to in writing
signed by the Executive and the Company. No waiver by either party hereto at any
time of any breach by the other party hereto of, or compliance with, any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or subsequent term. No agreements or representations,
oral or otherwise, express or implied, with respect to the subject matter hereof
have been made by either party which are not set forth expressly in this
5
<PAGE>
Agreement. This Agreement shall be governed by and construed in accordance with
the laws of the State of Florida.
11. Validity. The invalidity or unenforceability of any provisions of this
- --------------
Agreement shall not affect the validity or enforceability of any other provision
of this agreement, which shall remain in full force and effect.
12. Counterparts. This Agreement may be executed in one o more counterparts,
- ------------------
each of which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
13. Confidentiality. The Executive shall retain in confidence any and all
- ---------------------
confidential information known to the Executive concerning the Company and its
business so long as such information is not otherwise publicly disclosed.
IN WITNESS HEREOF, the parties have executed this Agreement as of the date
first written above.
AIRWAYS CORPORATION
By
--------------------------------
Name:
Title:
AIRTRAN AIRWAYS, INC.
By
--------------------------------
Name:
Title:
-----------------------------------
Executive
6
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
AirTran Airlines, Inc., a Nevada corporation
AirTran Airways, Inc., a Delaware Corporation
ValuJet Investment Corp., a Nevada corporation
ValuJet Management Corp., a Nevada corporation
ValuJet Capital Corp., a Nevada corporation
ValuJet I, Ltd., a Nevada corporation
ValuJet II, Ltd., a Nevada corporation
ValuJet Reservation Partners, L.P., a Georgia limited partnership
ValuJet Corporate Partners, L.P., a Georgia limited partnership
<PAGE>
EXHIBIT 23
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 33-87658) pertaining to the ValuJet Airlines, Inc. 1993 Incentive Stock
Option Plan and the ValuJet Airlines, Inc. 1994 Stock Option Plan, in the
Registration Statement (Form S-8 No. 33-91624) pertaining to the ValuJet
Airlines, Inc. 1995 Employee Stock Purchase Plan, in the Registration Statement
(Form S-8 No. 333-33887) pertaining to the ValuJet, Inc. 1994 Employee Stock
Trust, in the Registration statement (Form S-8 No. 33-98566) pertaining to the
Airways Corporation 1995 Stock Option Plan and 1995 Director Stock Option Plan
and in the Registration Statement (Form S-3 No. 33-83048) of ValuJet Airlines,
Inc. of our report dated February 13, 1998, with respect to the consolidated
financial statements and schedule of AirTran Holdings, Inc. included in the
Annual Report (Form 10-K) for the year ended December 31, 1997.
ERNST & YOUNG LLP
Atlanta, Georgia
March 26, 1998
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