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Filed Pursuant to Rule 424(b)(3)
Registration No. 333-39673
PROSPECTUS
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4,201,351 Shares
WORLD AIRWAYS, INC.
Common Stock
We have registered 4,201,351 shares of our common stock for sale or
distribution by the selling security holders named in this prospectus. We will
not receive any proceeds of sale. The selling security holders may sell or
distribute the shares from time to time in public trading transactions at the
market price, in negotiated transactions, or in any other way described in this
prospectus. The offering will not be underwritten.
Our common stock is traded on the Nasdaq SmallCap Market under the symbol
"WLDA". The closing sale price of our common stock on that market, on June 28,
2000, was $.8125 per share.
Investing in our common stock involves a high degree of risk. See "Risk
Factors," beginning on page 9.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined whether
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
The date of this prospectus is June 29, 2000.
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WHERE YOU CAN GET MORE INFORMATION
We are a reporting company and file annual, quarterly, and current reports,
proxy statements, and other information with the SEC. You may read and copy
these reports, proxy statements, and other information at the SEC's public
reference rooms at 450 Fifth Street, N.W., Washington, D.C. 20549, Seven World
Trade Center, 13th Floor, New York, New York 10048, and 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. Please call the SEC at (800) SEC-
0330 for more information about the operation of the public reference rooms.
You may also request copies of these documents by writing to the SEC and paying
a fee for the copying cost. Our SEC filings are also available at the SEC's web
site at "http://www.sec.gov" and at our own web site at
"http://www.worldair.com".
The SEC allows us to "incorporate by reference" information included in
documents that we file with it, which means that we may disclose important
information to you by referring you to other documents. Information
incorporated by reference is an important part of this prospectus, and documents
that we file later with the SEC will automatically update and supersede that
information. We are incorporating by reference in this prospectus the documents
listed below and, until the termination of the offering, any future filings
which we make with the SEC under Sections 13(a), 13(c), 14, and 15 (d) of the
Securities Exchange Act of 1934:
. Our annual report on Form 10-K for the year ended December 31,
1999, which contains our financial statements for our latest
fiscal year,
. Our quarterly report on Form 10-Q for the quarter ended March 31,
2000, and
. Our registration statement on Form 8-A, as amended, which
includes a description of our common stock.
We will provide you, without cost, with a copy of any of these filings on
request made orally or in writing to us at the following address:
World Airways, Inc.
13873 Park Center Road, Suite 490
Herndon, Virginia 20171
Attn: Investor Relations
Tel: (703) 834-9200
Fax: (703) 834-9360
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WORLD AIRWAYS, INC.
We are a U.S. certificated airline, founded in 1948. We provide long-range
domestic and international supplemental air transportation service, for both
passengers and cargo, to the United States government, international air
carriers, tour operators, major international freight forwarders, and cruise
ship companies. We do not provide scheduled service. We are a Delaware
corporation. Our principal executive offices are located near Washington Dulles
International Airport in The Hallmark Building, 13873 Park Center Road, Suite
490, Herndon, Virginia 20171, and our main telephone number is (703) 834-9200.
Shares Being Offered
By WorldCorp
In 1987, WorldCorp, Inc., a Delaware corporation, acquired us, and we
became its wholly-owned subsidiary. In 1994, WorldCorp sold 24.9% of our
outstanding common stock to Naluri Berhad, a Malaysian aviation company. In
October 1995, we engaged in an initial public offering of our common stock.
Since then, we have issued shares to our employees and others under various
employee benefit plans.
On February 12, 1999, unable to pay its debts, WorldCorp filed a petition
for reorganization, under Chapter 11 of the United States Bankruptcy Code, in
the United States Bankruptcy Court for the District of Delaware. From the
petition date to May 23, 2000, WorldCorp continued to own and manage its various
properties as debtor and debtor-in-possession. These included, at March 31,
2000, an aggregate of 2,201,351 shares of our common stock, our only outstanding
class of voting securities, then equal to approximately 21.6% of the total
shares outstanding. WorldCorp held our shares directly and through its wholly-
owned subsidiary, WorldCorp Acquisition Corp., a Delaware corporation, which was
then a debtor in a separate Chapter 11 case in Delaware.
In August 1999, we concluded an agreement with WorldCorp and WorldCorp
Acquisition Corp., later approved by the bankruptcy court, under which we
reacquired 1,069,000 shares of our common stock in payment and satisfaction of
approximately $1.8 million in debt owed to us by WorldCorp. As a result of that
transaction, we ceased to be a creditor of WorldCorp. Even after the
reacquisition, however, on account of WorldCorp's continuing large stake in our
outstanding common stock and its contractual right to designate up to three
persons for appointment to our board of directors, WorldCorp may be deemed to be
our affiliate.
On March 16, 2000, WorldCorp and WorldCorp Acquisition Corp. filed with the
bankruptcy court a proposed liquidating plan of reorganization that called for
the remaining shares of our common stock held by them to be sold or distributed
to some of their creditors. Under the plan, WorldCorp and WorldCorp Acquisition
Corp. were to cease operations, distribute their assets, and be dissolved. The
required classes of creditors voted to approve the plan, and the bankruptcy
court held a confirmation hearing in which the creditors of WorldCorp and
WorldCorp Acquisition Corp. had the opportunity to participate and be heard.
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By order dated May 23, 2000, the bankruptcy court confirmed the liquidating
plan with modifications; substantively consolidated the two bankruptcy cases to
permit WorldCorp Acquisition Corp. to be treated as having merged with and into
WorldCorp; permitted the two debtors to continue to exist, as a liquidating
entity, solely to be liquidated; appointed W. Joseph Dryer as president and
liquidating agent of the debtors; appointed Wilbur L. Ross, Jr., Gordon C.
McCormick, and Thomas Siering as sole directors and members of the liquidating
committee of the debtors; and permitted the remaining assets of the debtors to
be retained by the debtors, as the liquidating entity, for future sale or
distribution to their creditors, in either case free and clear of all liens,
encumbrances, claims, or interests of creditors and shareholders of the debtors
and without further supervision by the bankruptcy court generally, except as
otherwise provided in the plan.
In the confirmation order, the bankruptcy court established April 21, 2000
as the record date for determining which creditors of the debtors were eligible
to receive distributions under the plan. The bankruptcy court permitted Mr.
Dryer, as the liquidating agent, with the consent of Messrs. Ross, McCormick,
and Siering, as the liquidating committee, to distribute our shares ratably to
certain eligible creditors of the debtors without making a prior offer to
distribute them to any creditor, so long as the distribution would be
permitted by and made in compliance with applicable securities laws. Messrs.
Ross, McCormick, and Siering are all creditors, or representatives of creditors,
of the debtors that are eligible to receive distributions of our shares. Legal
counsel representing WLR Recovery Fund, L.P., a principal creditor of WorldCorp,
replaced pre-confirmation counsel representing WorldCorp and WorldCorp
Acquisition Corp. Mr. Ross is managing member of the general partner of WLR
Recovery Fund, L.P.
Before the entry of the confirmation order, at the request of the debtors,
we had registered the remaining shares of our common stock held by WorldCorp and
WorldCorp Acquisition Corp., under the federal Securities Act of 1933, for sale
or distribution by them. The federal registration statement became effective on
April 26, 2000. Having concluded, on the advice of their counsel, that they
might properly do so, WorldCorp and WorldCorp Acquisition Corp. have now advised
us that they intend to use this prospectus to permit the distribution of our
shares, in conformity with the federal securities laws, to or for the benefit of
otherwise eligible creditors in each U.S. state or other jurisdiction where such
distribution may properly be made without registration or qualification under
the state securities laws. They have further advised us of their conclusion
that such a distribution may properly be made in all of the 50 U.S. states, the
District of Columbia, Puerto Rico, and Guam.
In a separate transaction, WLR Recovery Fund, L.P., the beneficial holder
of a claim against WorldCorp entitling it to a distribution of approximately
760,000 shares of our common stock, has agreed with our chairman of the board of
directors and chief executive officer, Hollis L. Harris, and certain of our
other executives and senior managers (the "Harris Group") to sell to the members
of the Harris Group, for their individual accounts, for a purchase price of $.50
per share, any of our shares which it in fact receives in a liquidating
distribution. The members of the Harris Group are all "accredited investors"
within the meaning of the federal securities laws.
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By ILFC and Boeing
In August 1999 and March 2000, respectively, we entered into separate
agreements with International Lease Finance Corporation, a California
corporation, and The Boeing Company, a Delaware corporation, our principal
aircraft lessors. Under each agreement, we issued warrants, exercisable at any
time during the five years after the date of each warrant agreement, to purchase
up to 1,000,000 shares of our common stock at a purchase price of $2.50 per
share. We also agreed to register the shares, before or after exercise of the
warrants, for public sale. Accordingly, ILFC and Boeing are using this
prospectus to offer a total of 2,000,000 shares of our common stock which they
have the right to acquire, at market prices, in negotiated transactions, or in
any other way described in this prospectus.
Market for Our Shares
Our common stock is traded on the Nasdaq SmallCap Market under the symbol
"WLDA". The closing sale price of our common stock on that market on June 28,
2000, was $.8125 per share.
Our Business
We provide supplemental aircraft to our customers under two types of
contracts. These are called "wet leases" (also known as "ACMI contracts") and
"full service contracts" (also known as "charters"). Under wet leases, we
supply aircraft, crew, maintenance, and insurance only, while the customers
agree to be responsible for other operating costs, including fuel. Under full
service contracts, we supply ACMI and agree to be responsible for most other
operating costs, including landing, handling, and fuel. In either case, the
customer bears the risk of filling the aircraft.
We generally charge our customers on a block hour basis. "Block hours" are
the elapsed time from the moment an aircraft first moves under its own power at
the point of origin to the time it comes to rest at its final destination. We
generally charge a lower rate per block hour for wet leases than full service
contracts.
We focus our marketing efforts on the U.S. Air Force Air Mobility Command,
international leisure tour operators, freight operators, international airlines
operating in countries where rapid economic development drives demand for our
services, and cruise ship companies. During the last ten years, a material
portion of our revenues has been derived from providing charter transportation
services to airlines transporting pilgrims to the annual Hadj pilgrimage in
Mecca. All of our aircraft are operated under long-term leases. We believe
that our fleet of modern aircraft is well suited to the needs of our customers
and provides superior economic service.
The market for passenger and cargo ACMI and full service charter business
is highly competitive. Some of the passenger and cargo air carriers that we
compete against have substantially greater financial resources and more
extensive facilities and equipment than we do.
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We believe that the age of an aircraft fleet, the passenger, range, and payload
capacities of aircraft, and price are the principal competitive factors in our
industry. Competitors in the passenger charter market include Martinair, Tower
Air, Omni Air International, and American Trans Air. Competitors in the cargo
charter market include all-cargo carriers Atlas Air, Gemini Air Cargo, Polar Air
Cargo, and Kitty Hawk and scheduled and non-scheduled passenger carriers that
have substantial belly capacity. Our ability to compete depends, in part, upon
our success in convincing major international airlines and tour operators that
outsourcing some portion of their air passenger and cargo business is cost-
effective.
The domestic and international air transportation industry is highly
sensitive to general economic conditions and can be adversely affected by
unexpected global political developments. In fact, during the 1997-99 period, we
were adversely affected by economic conditions in Malaysia, Indonesia, and other
countries in the Asia Pacific region. Those conditions included national
liquidity crises, currency devaluations, higher regional interest rates, reduced
opportunities for refinancing or refunding of maturing debts, and a general
reduction in spending throughout the region. Largely as a result of these
factors, we operated unprofitably in our 1998 and 1999 fiscal years. However,
management believes that these conditions have started to improve and will
provide new opportunities to lease aircraft to airline customers, particularly
customers which have deferred or canceled new aircraft orders but are now in
need of providing additional airlift.
Due to the high fixed costs of leasing and maintaining aircraft and the
costs for cockpit crewmembers and flight attendants, our aircraft must have high
utilization at attractive rates in order for us to operate profitably. Although
our strategy is to enter into long-term contracts with customers, the terms of
existing customer contracts are shorter than the terms of our aircraft leases.
Customers
Our business has historically been dependent on a few major customers, the
loss of any one or more of which could have a material adverse effect on our
business. In 1999, our principal customers were the United States Air Force and
Malaysian Airline System Berhad. They provided approximately 51% and 9%,
respectively, of our revenues and 35% and 11%, respectively, of total block
hours flown. In 1998, our principal customers were the USAF, MAS, and P.T.
Garuda Indonesia. They provided approximately 41%, 19%, and 12%, respectively,
of our revenues and 27%, 18%, and 13%, respectively, of total block hours flown.
In 1997, the same customers provided approximately 25%, 21%, and 10%,
respectively, of our revenues and 16%, 23%, and 11%, respectively, of total
block hours flown. A contract with Philippine Airlines, which expired in
February 1998, provided 31% of our revenues and 34% of our block hours flown in
1997.
USAF. We have provided air transportation services, principally
internationally, to the USAF since 1956. In exchange for requiring pledges of
aircraft to the Civil Reserve Aircraft Fleet for use in times of national
emergency, the USAF awards contracts to CRAF participants, acting alone or
through teaming arrangements, for peacetime transportation of personnel and
cargo.
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We have historically led a contractor teaming arrangement that has enjoyed
a large share of the USAF's overall commercial airlift requirement. During a
period in which the U.S. military downsized substantially, our portion of the
fixed USAF award increased from $15.6 million for the government's 1993 fiscal
year to $86 million for the government's 1999 fiscal year. In our 1999 fiscal
year, our revenue from the fixed award was $94 million, and our AMC expansion
revenue was $40.5 million.
Our teaming agreement negotiations for the government's 2000 fiscal year
resulted in a substantial reduction in our share of the USAF's fixed commercial
airlift requirement, to $27 million. However, in the first six months of the
government's 2000 fiscal year, our AMC expansion revenue was approximately $42
million, including approximately $13.5 million from the requested operation of
passenger charter flights to replace another carrier. The AMC has also requested
us to operate long-range passenger charter flights across the Pacific for the
balance of the government's 2000 fiscal year, with a value to us of
approximately $13.1 million.
The USAF recently approved AMC teaming arrangements for the government's
2001 fiscal year. We will be a member of the 2001 Emery Worldwide Airlines
Contractor Team, which will also include American Airlines, Continental
Airlines, Delta Air Lines, Evergreen International Airlines, North American
Airlines, Northwest Airlines, Trans World Airlines, United Parcel Service, and
US Airways with an acquisition of mobilization points from United Airlines. We
will be entitled to approximately 65%, or $108 million, of the expected $166
million wide-body fixed-buy contract award and a proportionate amount of any
expansion business.
Malaysian Airline System. We have provided wet lease transportation
services to Malaysian Airline System since 1981. Naluri, which owned 18.9% of
our outstanding common stock at March 31, 2000, owns approximately 28% of MAS.
Beginning in October 1999, we ceased operating for MAS as a result of its
failure to make monthly payments for our aircraft. MAS disputed its obligation
to make payments after September 30, 1999, and we deployed our aircraft
elsewhere following MAS's cessation of payments. In May 2000, we resolved our
dispute with MAS when it made, and we accepted, an additional lump-sum payment
of $7 million as final payment of its existing contract obligations.
Renaissance Cruises. We began flying one aircraft for Renaissance Cruises
in August 1999, providing exclusive air service to Athens and Istanbul from New
York. Our contract with Renaissance was later extended and a second aircraft was
added. The contract provides for a third aircraft to operate in 2001. However,
the most recent Renaissance flight schedule requires significantly fewer hours
of flying, and it is therefore unclear whether or when a third aircraft will be
added.
Garuda. We have flown for Garuda periodically since 1973. In 1997,
approximately 40,000 of the 200,000 Indonesians who traveled to Mecca for the
Hadj pilgrimage flew on our aircraft. We operated six aircraft for Garuda
during the 1998 pilgrimage, and we are operating four aircraft for Garuda for
the 2000 Hadj.
STAF. We have entered into an agreement with Servicios De Transportes
Aereos Fueguinos to provide one cargo aircraft to STAF for a three-year term
that began in May 1998.
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Aircraft Fleet
Our fleet consists of eight leased MD-11 and two leased DC10-30 aircraft.
The MD-11 aircraft include five passenger aircraft (two of which are long-range
versions), one freighter aircraft, and two convertible aircraft. The DC10-30
aircraft include one passenger aircraft and one convertible aircraft. In
addition, we have executed letters of intent to lease three DC10-30 freighter
aircraft for 36 months with two one-year extension options each, commencing
October 2000, December 2000, and May 2001 respectively.
Maintenance
Airframe and engine maintenance costs account for most of our maintenance
expenses, and they typically increase as the aircraft fleet ages. We outsource
major airframe maintenance and engine work to several suppliers, including
United Technologies Corporation's Pratt & Whitney Group.
Aviation Fuel
We purchase aviation fuel at spot prices from major oil companies, under
delivery contracts at often frequented commercial locations and from United
States military organizations at military bases. Fluctuations in the price of
fuel have not had a significant impact on our operations in recent years
because, in general, our customer contracts limit our exposure to fuel price
increases. Nevertheless, substantial increases in the cost, or reductions in
the availability, of aviation fuel could have a material adverse effect on the
air transportation industry in general and accordingly on our financial
condition and results of operations.
Regulatory Matters
We are subject to numerous regulations of the U.S. Department of
Transportation, the Federal Aviation Administration, and other federal, state,
and local government agencies. In 1999, the FAA issued a notice of proposed
rulemaking concerning an airworthiness directive that would require the
replacement of insulation blankets on our MD-11aircraft, within four years, at
an estimated cost of approximately $4.9 million per aircraft. We have not
determined how any portion of the replacement cost for which we might be
responsible would be financed.
Our international operations are generally governed by a network of
bilateral civil air transport agreements providing for the exchange of traffic
rights between governments which then select and designate air carriers
authorized to exercise such rights.
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Employees
On May 31, 2000, we had 882 full time equivalent employees classified as
follows:
Classification Number
Management 14
Administrative and Operations 271
Cockpit Crew 244
Flight Attendants 353
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Total: 882
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Our flight attendants, cockpit crewmembers, and dispatchers are represented
under collective bargaining agreements amendable June 30, 2000, June 30, 2003,
and December 31, 2003, respectively. Fewer than twelve of our employees are
dispatchers.
RISK FACTORS
Some of the statements contained or incorporated by reference in this
prospectus are "forward-looking statements" within the meaning of Section 27A of
the Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934. Statements about our expectations, beliefs, plans, objectives,
assumptions, or future events or performance are not historical facts and may be
forward-looking. Forward-looking statements are often, but not always, made
through the use of words or phrases like "anticipate," "estimate," "plans,"
"projects," "continuing," "ongoing," "expects," "management believes," "we
believe," "we intend," and similar words or phrases. Accordingly, these
statements involve estimates, assumptions, and uncertainties. Any forward-
looking statements are qualified in their entirety by reference to the factors,
including risk factors, discussed in this prospectus or incorporated by
reference.
Because the factors discussed in this prospectus or incorporated by
reference could cause actual results or outcomes to differ materially from those
expressed in forward-looking statements, you should not over-rely on forward-
looking statements. Further, each forward-looking statement speaks only as of
the date on which it is made, and we undertake no obligation to update any
forward-looking statement to reflect later events or circumstances as they
occur.
Investing in our common stock involves a high degree of risk. Before
agreeing to buy, you should carefully consider the following risk factors, in
addition to the other information contained or incorporated by reference in this
prospectus:
Our history of operating losses and expected future losses may hurt our ability
to realize our business goals, to operate profitably, or even to continue
operations.
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We have experienced operating losses during each of our last two fiscal
years. During the years ended December 31, 1999 and 1998, we incurred losses
from continuing operations before income taxes and an extraordinary item of
approximately $13.7 million and $10.9 million, respectively, and we expect to
incur an operating loss in our current fiscal year. At December 31, 1999, we had
current assets of approximately $30.3 million and deficit working capital of
approximately $24.9 million. We have historically financed our working capital
and capital expenditure needs out of cash flow from operations, sales of our
common stock, secured borrowings, and other financing from banks and other
lenders. However, as a result of our recent operating losses, extended decline
in the market price of our common stock, and other factors, we have no practical
ability to rely on several of these sources. Specifically, our cash flows from
operating activities have declined significantly since 1997, much of our cash
flow is used to repay borrowings, we have little or no additional borrowing
capability under our existing credit arrangements, all of them asset-based, and
there is no perceived market demand for new issuances of our debt or equity
securities. In March 2000, we commenced a salary reduction program for many of
our employees in an effort to save $5 million over 18 months. The realization of
our business goals, the return to profitable operations, or even continued
operations, under these circumstances, may depend on our ability, over the next
two to three years, to establish and maintain collaborative arrangements with
our aircraft lessors, current credit providers, and customers and to establish
new sources of revenue with minimal capital expenditures. We are seeking to
accomplish each of these objectives but may not succeed.
Our liquidity needs may impair our ability to compete in a capital- and labor-
intensive industry.
In August 1997, we issued $50 million of 8% subordinated senior debentures,
due August 26, 2004 and convertible into shares of our common stock at a rate of
$8.90 per share, and used net proceeds of approximately $30.6 million to
repurchase four million shares of our common stock from WorldCorp and Naluri.
During 1999, the holders of $1.2 million of the debentures converted them into
our common stock, and we repurchased approximately $8.2 million principal amount
of the debentures at approximately a 75% discount from face value.
Nevertheless, at December 31, 1999, our long-term obligations net of current
maturities totaled $52.1 million (including $40.5 million in principal amount of
debentures). We have established no sinking fund or other mechanism to assure
payment of the debentures when they come due, and we have no arrangements or
understandings with any debenture holders regarding the possible conversion of
the debentures or the restructuring of the debt which they represent. To
increase capacity and effectively compete in the airline industry normally
requires large investments of capital for the purchase or long-term lease of
aircraft, engines, and spare parts and large investments in cockpit crew, flight
attendants, and other personnel. Through restructuring our existing aircraft
leases and entering into new leases on more attractive terms and conditions, we
have been seeking to mitigate that risk. Nevertheless we retain substantial
liquidity requirements for debt service and operations, and without any assured
source of new capital financing, we may not be able to acquire the equipment,
personnel, and other resources we need.
Our business is a market niche activity which is subject to fluctuations in
demand.
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We have incurred long-term lease and other obligations to hold aircraft and
personnel available for lease to established airline companies and other users
of transportation services. Our strategy is to seek to enter into long-term
leases with our customers, but our existing commitments for aircraft are for
longer terms than our customer commitments. We have historically been dependent
on a small number of customers and potential customers, the loss of any one or
more of which could have a material adverse effect on our business and
operations. Furthermore, our ability to compete in the airline industry
requires us to convince the United States government, whose funding is subject
to annual appropriations, to contract with us and to persuade other air
transportation providers to outsource a portion of their business to us. There
is no long-term pent-up demand for our services, and we therefore typically have
unused capacity to fill over a six- to twelve-month horizon. This is an
inherently risky business model for which there are no clear strategies for
success, and it places a premium on our being able to respond opportunistically
to transitory market developments.
Political and economic developments beyond our control may impact adversely on
our business and operations.
In recent years, much of our operations and an even greater share of our
operating revenues have been dependent on our relationship with the USAF Air
Mobility Command and with customers in the Asia Pacific region. The
establishment of teaming arrangements for CRAF contracts, the awarding of
government contracts, and the structure or even the continuation of the CRAF
program involve many political, economic, and other factors over which we have
no control. In the United States government's 2000 fiscal year, we lost
approximately two-thirds of the USAF's fixed commercial airlift requirement that
we enjoyed in the government's previous fiscal year. The Asia Pacific region,
meanwhile, endured a major economic crisis, with adverse impact on our operating
revenues, in 1997-99. We cannot predict how future military spending budgets,
aircraft requirements, national security considerations for a continued strong
and balanced CRAF, the political and economic stability of other countries
(including those in the Asia Pacific region), and the stability of our
competitors will interact to affect our future business.
Airworthiness directives of the FAA may impose significant financial burdens on
us.
We are subject to regulation by the U.S. Federal Aviation Administration
and other agencies. The FAA has the power to issue airworthiness directives, the
effect of which may be to require us to modify our aircraft, at our expense, to
meet perceived inadequacies throughout the airline industry. If we were
financially unable to meet a particular airworthiness directive, or if we
concluded that complying with an airworthiness directive could not be cost-
justified, we would be unable to operate the related aircraft. The FAA has
issued an airworthiness directive that will require the replacement, within five
years, of the insulation blankets in our eight MD-11 aircraft. We estimate that
the replacement will cost approximately $4.9 million per aircraft. We have not
determined how any portion of that cost for which we might be responsible would
be financed.
If we fail to meet certain financial performance requirements under any of our
MD-11 aircraft leases, the lessors could cancel the leases on twelve months
notice.
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In 1999, we renegotiated the lease terms for our eight MD-11 aircraft. In
connection with those negotiations, we gave the lessors, Boeing and ILFC, the
right to cancel the lease of any of the aircraft on twelve months notice, should
we fail to meet defined financial performance requirements. We failed to meet
the financial performance requirements in 1999, without receiving notice of
default or cancellation, and we may continue to be unable to meet them in 2000.
Any failure to meet the financial performance requirements and cancellation of
the leases could make it difficult or impossible for us to perform on existing
contracts with our customers.
If we fail to reach agreement with our flight attendants, we could be subject to
a labor stoppage.
Approximately 39% of our employees are flight attendants, who are
represented by a labor union. We have entered into a collective bargaining
agreement with the union, and that agreement will be amendable June 30, 2000.
Any failure to reach timely agreement with our flight attendants could lead to a
labor stoppage that would impair our ability to continue operations and to serve
our customers.
We are subject to several large contingent liabilities which, if not resolved in
our favor, could impair our operations.
A German tour operator is seeking damages of approximately $3.5 million
against us, in a German court, in connection with a contract dispute. Our
flight attendants challenge our compliance with contract provisions requiring us
to use foreign flight attendant crews on our flights for Garuda and other
foreign carriers, and have filed several grievances against us under which they
seek sizeable awards of back pay. We believe that we have meritorious defenses
to each of these claims. Nevertheless, if these and other contingent
liabilities are not resolved in our favor, our net earnings would be reduced or
our net losses increased, perhaps substantially, and our cash available for
operations would be further limited.
Any delisting of our common stock by Nasdaq might make it difficult for our
shareholders to sell their shares.
Our common stock is included for trading on the Nasdaq SmallCap Market
under the symbol "WLDA". Continued inclusion on that market is subject to our
meeting various requirements relating to our assets, capital, earnings, stock
price, and corporate governance. Current requirements for continued listing
include (1) maintaining net tangible assets of $2 million, market capitalization
of $35 million, or net income of $500,000 in the last fiscal year or in two of
the last three fiscal years, (2) at least 500,000 shares publicly held with a
market value of at least $1 million (excluding shares held directly or
indirectly by any officer or director and by any more than 10% beneficial
shareholder), (3) a minimum bid price for our common stock of $1.00, (4) at
least two market makers, and (5) at least 300 round-lot holders of our shares.
In April 2000, Nasdaq informed us that we did not meet the minimum net tangible
assets, market capitalization, or net income listing requirement. We have
provided Nasdaq with information on our plan to comply with that requirement. In
May 2000, Nasdaq informed us that our common
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stock had not maintained the minimum $1.00 bid price for the required period but
told us that it would re-determine our compliance with that requirement if the
minimum bid price were maintained for ten consecutive trading days before August
14, 2000. If we are unable to demonstrate compliance after opportunity for a
hearing, Nasdaq will delist our common stock from the SmallCap Market, in which
case we would seek to list it on the Over-the-Counter Bulletin Board or other
national trading market. This might make it more difficult for the holders of
our common stock to obtain accurate market value quotations or to sell or pledge
their shares. In addition, delisting could subject our common stock to onerous
regulation as a "penny stock," further restricting the ability of broker-dealers
to sell it.
Federal law and our charter documents limit our non-U.S. ownership.
As required by federal law, our charter documents provide that no more than
25% of our voting stock may be beneficially owned or controlled by persons who
are not citizens of the United States. Any person proposing to purchase or
otherwise acquire the shares to be sold, distributed, or otherwise transferred
by the selling security holders may be required to give assurances that the
proposed purchase will comply with these provisions. These provisions may delay
the sale, distribution, or other transfer of our shares, make it impossible for
certain persons to acquire our shares at all, or restrict our ability to seek
capital on attractive terms.
Since becoming a public company, we have never paid dividends.
Since becoming a public company in 1995, we have never paid any cash
dividends, and we do not anticipate paying cash dividends in the foreseeable
future.
The distribution of our shares by WorldCorp and WorldCorp Acquisition Corp. will
probably severely limit our use of net operating loss carryforwards.
At December 31, 1999, we had net operating loss carryforwards for federal
income tax purposes of $73.4 million. These might be available to reduce our
U.S. federal income tax obligation in future years. However, if we fail to
generate future taxable income before the net operating loss carryforwards
expire, the opportunity to use them will be lost. Moreover, Section 382 of the
Internal Revenue Code limits the use of net operating loss carryforwards in the
event of an "ownership change," as defined in the Code. Based on the current
market value of our common stock, an ownership change occurring in the near
future would severely limit, and might cause a substantial loss of, our existing
net operating loss carryforwards to offset future taxable income. The
distribution to creditors or other transfer of our common stock by WorldCorp and
WorldCorp Acquisition Corp. as described in this prospectus, together with other
transactions affecting the ownership of our common stock, will probably result
in a severe limitation of our ability to use our existing net operating loss
carryforwards to offset future taxable income.
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<PAGE>
Creditors of WorldCorp and WorldCorp Acquisition Corp. may be unable to enforce
any claims they may have in connection with the debtors' distribution of our
shares.
WorldCorp and WorldCorp Acquisition Corp. are being liquidated. The
bankruptcy court has permitted them to transfer their remaining shares of our
common stock to certain of their creditors. The court's confirmation order
provides generally that neither WorldCorp or WorldCorp Acquisition Corp., the
liquidating entity, the liquidating agent, the liquidating committee, nor any of
their employees, officers, directors, agents, or representatives, nor any
professionals employed by any of them nor the creditors' committee, or any of
its members, agents, representatives, or professional advisors shall have or
incur any liability to any person for any negligent act or omission taken or
made in good faith in connection with the liquidating plan. These facts and
provisions may make it difficult or impossible for creditors of WorldCorp and
WorldCorp Acquisition Corp., whether or not receiving a distribution of our
shares, to assert or enforce any claims they may have in connection with the
distribution.
Creditors of WorldCorp and WorldCorp Acquisition Corp. receiving a distribution
of our shares may incur additional costs, expenses, inconvenience, or risks to
dispose of them.
WorldCorp and WorldCorp Acquisition Corp. have the right to sell the
remaining shares of our common stock which they hold and to distribute the
proceeds of sale ratably to their eligible creditors. However, in view of the
limited trading market for our common stock, WorldCorp and WorldCorp Acquisition
Corp. believe that a sale or sales in this manner would likely extend over a
long period of time, depress the market price for our common stock, or both.
They have therefore determined to distribute the shares, to or for the benefit
of creditors beneficially holding allowed WorldCorp debenture and general
unsecured claims, without an offer being made to any creditor. Distributing our
shares in this manner will effectively transfer to the beneficial holders the
cost, expense, inconvenience, and market risk associated with any resale or
other transfer of the shares. Moreover, creditors of the debtors beneficially
holding allowed debenture claims whose claims are held of record by broker-
dealers and other financial institutions through the Depository Trust Company
will not receive certificates for shares registered in their names. Instead,
share allocations for street name securities holders will be reflected by book
entry in accordance with applicable law and customer account agreements.
Certificates may be issued in the future to the beneficial holders of our shares
held initially in street name only as permitted by applicable law, customer
account agreements, and our agreement with our stock transfer agent. Customary
transfer charges may be imposed for future certificate issuances.
The distribution of our shares by WorldCorp and WorldCorp Acquisition Corp. will
complete our transition to a stand-alone company.
Since 1987, we have historically operated as a controlled subsidiary of
WorldCorp. Our interests and business objectives began to diverge from
WorldCorp's as its financial condition worsened and it eventually filed for
bankruptcy relief. The distribution of our shares by WorldCorp and WorldCorp
Acquisition Corp. will complete our transition to a stand-alone entity and may
permit us to pursue our objectives more directly. However, to succeed as a
stand-alone
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<PAGE>
entity we may have to continuously change or improve our business strategies,
customer base, management, liquidity, and work force. We may not be able to
accomplish this.
The distribution of our shares by WorldCorp and WorldCorp Acquisition Corp. may
involve additional uncertainties.
WorldCorp and WorldCorp Acquisition Corp. have advised us that they intend
to distribute our remaining shares to the beneficial holders of allowed
WorldCorp debenture and general unsecured claims in any and all U.S. states and
other jurisdictions, without registration or qualification under the securities
laws of those states and other jurisdictions, in reliance on exemptions or
exclusions from registration or qualification. Neither we nor any state
securities regulator has confirmed the availability of the exemptions or
exclusions being relied upon by WorldCorp and WorldCorp Acquisition Corp., and
we disclaim any obligation to do so. Beneficial holders will have no right to
dissent from the distribution of our shares or to demand cash or any other items
of value in lieu of our shares. If applicable law prohibits a creditor from
holding our shares, the liquidating agent may sell the shares of our common
stock allocable to the creditor and distribute the net proceeds of sale to
the creditor. Creditors will have no rights of shareholders, including the
right to vote their shares and to share in any dividends or distributions which
may be declared by our board of directors, until the outstanding certificates of
WorldCorp and WorldCorp Acquisition Corp. for our shares have been tendered for
transfer and all requirements of our transfer agent for the issuance of
certificates to the beneficial holders have been complied with. This plan of
distribution may be deemed to involve additional uncertainties, the extent of
which cannot be quantified with precision.
USE OF PROCEEDS
We will not receive any proceeds from the sale or distribution of the
shares of common stock offered by the selling security holders.
SELLING SECURITY HOLDERS
Under federal law, we have registered for sale or distribution 4,201,351
shares of our common stock which, at March 31, 2000, were beneficially owned by
the following selling security holders:
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<PAGE>
<TABLE>
<CAPTION>
Shares Beneficially Owned Number of Shares Beneficially Owned
Before Shares After
the Offering Being the Offering
------------ Offered ------------
-------
Selling Security Holder Number Percent Number Percent
----------------------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C>
WorldCorp, Inc. 2,201,351 21.6% 2,201,351 0 0.0%
5068 West Plano Parkway
Suite 345
Plano, TX 75093
Attn: W. Joseph Dryer, President
The Boeing Company 1,000,000 8.9% 1,000,000 0 0.0%
7755 E. Marginal Way South
Seattle, WA 98108
International Lease Finance 1,000,000 8.9% 1,000,000 0 0.0%
Corporation
1999 Avenue of the Stars
Suite 3900
Los Angeles, CA 90067
</TABLE>
At March 31, 2000, WorldCorp owned 13,761 shares directly and 2,187,590
shares indirectly, through its wholly-owned subsidiary, WorldCorp Acquisition
Corp. Boeing and ILFC have the right to acquire their shares, for $2.50 per
share, upon the exercise of currently exercisable common stock purchase
warrants. ILFC is a wholly-owned subsidiary of National Union Fire Insurance
Company of Pittsburgh, Pa., and National Union is a wholly-owned subsidiary of
American International Group, Inc., with which other companies ILFC shares
beneficial ownership of our warrant shares. Percentages of shares outstanding
before the offering are based on the 10,179,419 shares of our common stock
outstanding on March 31, 2000 and, in the case of Boeing and ILFC, assume the
exercise in full of their warrants. Shares to be offered and shares beneficially
owned after the offering assume the exercise in full of the warrants and the
sale of all shares offered, respectively.
WorldCorp is our affiliate based on its stock ownership and the fact that
two of its directors - Wilbur L. Ross, Jr. and Gordon C. McCormick - are members
of our Board of Directors. (Messrs. Ross and McCormick have advised us that they
will resign from our Board of Directors when the distribution of our shares held
by WorldCorp has been commenced.) As lessors, Boeing and ILFC provide us with
eight of the ten of the aircraft which we use in our operations under written
lease agreements. They too may be deemed to be our affiliates based on their
beneficial stock ownership or the control which they may be deemed to exercise
as lessors, or both.
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<PAGE>
Each selling security holder has provided us with the information
concerning it in this section for use in this prospectus.
PLAN OF DISTRIBUTION
Each of the selling security holders may sell our shares of common stock
from time to time in one or more transactions at fixed prices, at market prices
at the time of sale, at varying prices determined at the time of sale, or at
negotiated prices. Thus, for example, each selling security holder may offer
the shares in any one or more of the following transactions:
. on any national securities exchange or quotation service on which the
common stock may be listed or quoted at the time of sale, including
the Nasdaq SmallCap Market
. in the over-the-counter market
. in private transactions
. through the sale and exercise of options
. by pledge to secure debts or other obligations
In addition, WorldCorp and WorldCorp Acquisition Corp., in the discretion
of their liquidating agent and with the consent of their liquidating committee,
may distribute remaining shares of our common stock held by them to holders of
record, at April 21, 2000, of allowed WorldCorp debenture claims and general
unsecured claims, as those terms are defined in the WorldCorp liquidating plan
of reorganization, without making an offer to distribute the shares, provided
that the distribution is permitted by and made in compliance with applicable
securities laws. A copy of the liquidating plan of reorganization is filed as an
exhibit to the registration statement of which this prospectus is a part. It is
also attached to the disclosure statement which WorldCorp previously provided to
the holders of its allowed debenture claims and general unsecured claims. Any
shares not disposed of in this fashion would be held by the liquidating entity
for future sale or other disposition for the benefit of holders of allowed
WorldCorp debenture claims and general unsecured claims.
WorldCorp has advised us that it believes there are approximately 25
holders of WorldCorp allowed general unsecured claims. Substantially all of the
WorldCorp allowed debenture claims are held of record by Cede & Co., the nominee
holder for Depository Trust Company, through which many registered broker-
dealers and other financial institutions hold securities. Under agreements
between Depository Trust Company and the financial institutions it represents,
and between the financial institutions and their customers, respectively,
Depository Trust Company and the financial institutions are restricted from
identifying to us the beneficial owners, their beneficial holdings, their
qualifications as investors, and their jurisdictions of
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<PAGE>
residence or domicile, but will routinely agree to act as a conduit in the
distribution to beneficial owners of securities disclosure documents and other
communications.
WorldCorp has further advised us that, on the advice of their counsel, the
liquidating agent, the liquidating committee, and WorldCorp and WorldCorp
Acquisition Corp. have concluded that the remaining shares of our common stock
held by the liquidating entity may properly be distributed in reliance upon
exemptions or exclusions from registration or qualification (including those
applicable to acts incident to a "judicially approved reorganization") under the
securities laws of all 50 U.S. states, the District of Columbia, Puerto Rico,
and Guam.
If required, we will distribute a supplement to this prospectus to describe
material changes in the terms of the offering.
The shares of common stock described in this prospectus may be sold from
time to time directly by the selling security holders. Alternatively, the
selling security holders may from time to time offer shares of common stock to
or through underwriters, broker-dealers, or agents. The selling security
holders, and any underwriters, broker-dealers, or agents that participate in the
distribution of the shares of common stock may be deemed to be "underwriters"
within the meaning of the Securities Act of 1933. Any profits on the resale of
shares of common stock and any compensation received by any underwriter, broker-
dealer, or agent may be deemed to be underwriting discounts and commissions
under the Securities Act of 1933.
Any shares covered by this prospectus which qualify for sale pursuant to
Rule 144 under the Securities Act of 1933 may be sold under Rule 144 rather than
under the terms of this prospectus. The selling security holders may not sell
all of the shares. The selling security holders may transfer, will, or gift such
shares by other means not described in this prospectus.
To comply with the securities laws of some jurisdictions, the common stock
must be offered or sold only through registered or licensed brokers or dealers.
In addition, in some jurisdictions, the common stock may not be offered or sold
unless it has been registered or qualified for sale or an exemption is available
and complied with.
Under the Securities Exchange Act of 1934, any person engaged in a
distribution of the common stock may not simultaneously engage in market-making
activities with respect to the common stock for nine business days prior to the
start of the distribution. In addition, each selling security holder and any
other person participating in a distribution will be subject to the Securities
Exchange Act of 1934, which may limit the timing of purchases and sales of
common stock by the selling security holders or any such other person. These
factors may affect the marketability of the common stock and the ability of
brokers or dealers to engage in market-making activities.
All expenses of this registration will be allocated among the selling
security holders based on the number of shares offered by each under this
prospectus. These expenses include the SEC registration fee and any state
securities or "blue sky" filing fees, legal fees, accounting fees, printing
expenses, Nasdaq listing fees, and other charges. We estimate that total
expenses in
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<PAGE>
connection with this offering will be approximately $75,000. We will pay Boeing
and ILFC's share of the registration expenses as provided in the warrant
agreements under which they acquired their registration rights. WorldCorp will
pay the share of the registration expenses allocable to it and to WorldCorp
Acquisition Corp.
Except during the first 90 days after the April 26, 2000 effective date of
the registration statement of which this prospectus is a part, any selling
security holder requesting or requiring a post-effective amendment to the
registration statement or a supplement to this prospectus will pay all expenses
in connection with the preparation of the post-effective amendment or
supplement. During the first 90 days after the effective date of the
registration statement, we will pay these expenses for Boeing and ILFC, and the
WorldCorp liquidating entity will pay these expenses with respect to any of our
shares it may then own.
The selling security holders will pay all applicable selling expenses,
including any broker-dealer discounts and commissions, transfer fees, and taxes
and tax withholdings, in connection with any sale by them of our shares.
This prospectus may not be used in connection with any resale of our common
stock sold or distributed in this offering. However, we believe that, except
for our "affiliates" and statutory underwriters within the meaning of the
federal securities and bankruptcy laws, persons acquiring our shares in this
offering may resell without registration under the federal securities laws and
that, except for "affiliates" and statutory underwriters, our shares may be
resold without restriction or volume limitation under federal law.
WorldCorp has advised us that its distribution of cash and our shares to
beneficial holders of its allowed debenture claims and general unsecured claims
will be treated as a taxable distribution to the holders in exchange for or
satisfaction of their claims, and that a holder generally will recognize gain or
loss in an amount equal to the difference between (i) the "amount realized" in
respect of the claim (other than any claim for accrued but unpaid interest) and
(ii) the holder's tax basis in the claim (other than any claim for accrued but
unpaid interest). In general, the "amount realized" by the holder will equal the
aggregate fair market value of the cash and shares received, and any of our
shares received by a holder will have a tax basis in the hands of the holder
equal to the fair market value of the shares on the date of distribution. (It is
possible, however, that a holder realizing a loss on a claim may not be able to
recognize that loss until there has been a final determination of the entire
amount the holder is to receive.) The character of any gain or loss recognized
by a holder in respect of its claim as long-term or short-term capital gain or
loss, or as ordinary income or loss, will be determined by a number of factors,
including the tax status of the holder, whether the claim constitutes a capital
asset in the hands of the holder and has been held for more than one year,
whether the claim was purchased at a discount, and whether and to what extent
the holder has previously claimed a bad debt deduction.
WorldCorp has advised us that each distribution in respect of a claim will
be allocated first to the principal amount of the claim and, only if there is
any excess, second to accrued but unpaid interest. However, there is no
assurance that the Internal Revenue Service will respect that allocation for
federal income tax purposes. WorldCorp has also advised us that, in general, to
the
19
<PAGE>
extent that the amount received (whether in cash or our shares) by a WorldCorp
debtholder is received in satisfaction of interest that accrued during the
holder's holding period, the amount will be taxable to the holder as interest
income if not previously included in the holder's income. Conversely, a holder
generally recognizes a deductible loss to the extent that it does not receive
payment of interest that has previously been included in its income.
Finally, WorldCorp has advised us that the brief discussion of applicable
federal income tax principles summarized in this prospectus is not intended to
constitute tax advice to any recipient of our shares or to substitute for
careful tax planning with a tax professional, and that the tax consequences of
the distribution are complex and, in some cases, uncertain. Accordingly,
beneficial holders of allowed WorldCorp debenture claims and general unsecured
claims receiving distributions of our shares should consult with their
individual accountants and tax advisors about the accounting and tax aspects of
the distribution, refer to the WorldCorp disclosure statement for additional
information, and, until the completion of WorldCorp's liquidation, direct any
questions they may have about the distribution to W. Joseph Dryer, President,
WorldCorp, Inc., 5068 West Plano Parkway, Suite 345, Plano, Texas 75093, tel:
(972) 381-4255, fax: (972) 381-4254.
The information disclosed in this section concerning each selling security
holder's plan of distribution has been provided by the respective security
holder specifically for inclusion in this prospectus. Neither we nor any other
person has made any independent determination that any plan of distribution is
in compliance with all applicable legal requirements, and we disclaim any
obligation to do so.
LEGAL MATTERS
Cathy Sigalas, Esq., our general counsel, has given her opinion that the
shares offered in this prospectus have been validly authorized and that the
shares which have been issued are, and the shares which may be acquired upon the
exercise of issued and outstanding warrants, when issued for the consideration
set forth in the warrant agreements, will be, validly issued, fully paid, and
nonassessable.
EXPERTS
Our financial statements as of December 31, 1999 and 1998, and for each of
the years in the three-year period ended December 31, 1999, have been
incorporated by reference in the registration statement of which this prospectus
is a part in reliance upon the report of KPMG LLP, independent certified public
accountants, incorporated by reference herein, and upon the authority of KPMG
LLP as experts in accounting and auditing.
20
<PAGE>
Table of Contents
<TABLE>
<CAPTION>
Page
<S> <C>
Where You Can Get More Information 2
World Airways, Inc. 3
Risk Factors 9
Use Of Proceeds 15
Selling Security Holders 15
Plan Of Distribution 17
Legal Matters 20
Experts 20
</TABLE>
_________________________
4,201,351 Shares
WORLD AIRWAYS, INC.
Common Stock
________________________
PROSPECTUS
________________________
Until August 16, 2000 (40 days after the commencement of WorldCorp's
distribution), all dealers that effect transactions in these securities, whether
or not participating in this offering, may be required to deliver a prospectus.
This is in addition to the dealers' obligation to deliver a prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
June 29, 2000
