-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SCU3u7n/B3BpoSM0jh6xYNlH5sp/iUDjZMJ0GcCA691m3Dpi7DNBXSwKNa4VnM+K ZCAQT1Av0+Kal942CCJ+eQ== 0000931763-98-000779.txt : 19980331 0000931763-98-000779.hdr.sgml : 19980331 ACCESSION NUMBER: 0000931763-98-000779 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 12 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980327 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: AIRTRAN HOLDINGS INC CENTRAL INDEX KEY: 0000948846 STANDARD INDUSTRIAL CLASSIFICATION: AIR TRANSPORTATION, SCHEDULED [4512] IRS NUMBER: 582189551 STATE OF INCORPORATION: NV FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-26914 FILM NUMBER: 98577294 BUSINESS ADDRESS: STREET 1: 1800 PHOENIX BLVD STREET 2: STE 126 CITY: ATLANTA STATE: GA ZIP: 30349 BUSINESS PHONE: 7709072580 MAIL ADDRESS: STREET 1: 1800 PHOENIX BOULEVARD STREET 2: SUITE 126 CITY: ATLANTA STATE: GA ZIP: 30349 10-K 1 FORM 10-K 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. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) NEVADA 58-2189551 - --------------------------------- ------------------- (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 9955 AirTran Boulevard, Orlando, Florida 32827 - ---------------------------------------- ---------- (Address of principal executive offices) (Zip Code) (407) 251-5600 - -------------------------------------------------- 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 - ----------------------------- ------------------------- Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.001 par value - -------------------------------------------------------------------------------- (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 --- --- 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. PART I ITEM 1. BUSINESS -------- 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 2 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. 3 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 4 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. 5
Daily Service Round Trip Commencement Flights Airport Served Date (a) Scheduled (b) -------------- ------------ ------------- 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 - --------------------------
(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. 6 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 7 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. 8 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. 9 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 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 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.
DAILY NON-STOP ROUND TRIPS -------------------------- American/Northwest/ ATLANTA TO/FROM Delta USAir Others(a) - ------------------------------ -------- ----- --------- 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 ===== ===== ======
12 - --------------------- (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 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 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 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 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 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: 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
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
Fiscal year ended December 31, 1996 High Low - ----------------- ------ ------ 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
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)
1997 1996 1995 1994 1993 --------- --------- -------- -------- -------- 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
19 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:
Number As of Total Number of Round Trip Quarter End of Aircraft Flights Per Day Number of Cities Served - --------------------------- ------------- ------------------ ------------------------- 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)
(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 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 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 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 (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):
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 ======= =======
24 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 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 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 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 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 (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 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 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 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 (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 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 AirTran Holdings, Inc. The following consolidated financial statements of AirTran Holdings, Inc. are included in Item 8:
CONTENTS 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
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 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 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 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 AirTran Holdings, Inc. Consolidated Statements of Stockholders' Equity [CAPTION] COMMON STOCK NOTES ---------------------------------- RECEIVABLE RETAINED ADDITIONAL FROM EARNINGS TOTAL PAID-IN COMMON (ACCUMULATED STOCKHOLDERS' SHARES AMOUNT CAPITAL STOCK SALE DEFICIT) EQUITY ------ ------ ---------- ----------- ------------ ------------- (In thousands) 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 ====== ===== ======== ====== ======== ========
See accompanying notes. F-6 AirTran Holdings, Inc. Consolidated Statements of Cash Flows
YEAR ENDED DECEMBER 31 1997 1996 1995 -------- -------- --------- (In thousands) 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 $ - $ - ======== ======== =========
See accompanying notes. F-7 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 AirTran Holdings, Inc. Notes to Consolidated Financial Statements 8. STOCK OPTION PLANS (CONTINUED) The following table summarizes information concerning currently outstanding and exercisable options:
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 - --------------- ---------------- -------------- ------------ --------------- ---------- $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 ========= =========
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):
1997 1996 1995 ------- -------- ------- 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
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 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):
1997 1996 1995 -------- -------- ------- 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 ======== ======== =======
F-27 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 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 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 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 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 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 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 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 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):
AirTran AirTran Airlines AirTran Holdings, Inc. and AirTran Holdings, and Subsidiaries Airways Inc. Eliminations Subsidiaries ------------ --------- --------- ------------ ------------ 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)
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):
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)
F-36 SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS AIRTRAN HOLDINGS, INC.
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 - ------------------------------------------------------------------------------------------------------------------------------------ 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 =============================================================================================
(1) Uncollectible accounts written off, net of recoveries. S-1 EX-3.2 2 BY-LAWS 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. 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- 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- 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- 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 -5- 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. ---------------- -6- 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. -7- 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. -8- 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. -9- 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. -10- 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. -11- 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; -12- 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 -13- 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, -14- 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- EX-4.9 3 FIRST SUPPLEMENTAL INDENTURE 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 ________________________________________________________________________________ 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 (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 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 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 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 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 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 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 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 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 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 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 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 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 EX-4.10 4 SECOND SUPPLEMENTAL INDNETURE 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) 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 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;" 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." 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 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. 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: 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: 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: 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 EX-10.15 5 CONSULTING AGREEMENT 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 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 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 (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 EXHIBIT "A" Outstanding Stock Options
- ------------------------------------------------------------------------------ DATE OF NUMBER OF EXERCISE EXPIRATION GRANT SHARES PRICE DATE - ------------------------------------------------------------------------------ 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
5 EX-10.16 6 CONSULTING AGREEMENT 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 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 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 (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 EXHIBIT "A" Outstanding Stock Options
- ------------------------------------------------------------------------------ DATE OF NUMBER OF EXERCISE EXPIRATION GRANT SHARES PRICE DATE - ------------------------------------------------------------------------------ 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
5 EX-10.24 7 SEVERANCE COMPENSATION AGREEMENT 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 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 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 (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 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 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 EX-21 8 SUBSIDIARIES 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 EX-23 9 CONSENT OF ERNST & YOUNG 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 EX-27 10 ARTICLE 5 FINANCIAL DATA SCHEDULE
5 1,000 YEAR YEAR YEAR DEC-31-1997 DEC-31-1996 DEC-31-1995 JAN-01-1997 JAN-01-1996 JAN-01-1995 DEC-31-1997 DEC-31-1996 DEC-31-1995 91,990 150,013 0 0 0 0 15,876 44,293 0 1,354 838 0 11,650 6,607 0 124,052 251,041 0 308,988 207,027 0 74,643 44,455 18,834 433,864 417,187 346,741 98,166 82,487 86,265 230,000 150,000 0 0 0 0 0 0 0 64 55 55 94,383 123,344 162,011 433,864 417,187 346,741 200,939 209,707 352,575 211,456 219,636 367,757 0 0 0 313,222 271,034 258,908 0 0 0 0 0 0 24,331 22,186 6,579 (119,438) (65,932) 107,825 (22,775) (24,463) 40,062 0 0 0 0 0 0 0 0 0 0 0 0 (96,663) (41,469) 67,763 (1.72) (0.76) 1.24 (1.72) (0.76) 1.13
EX-27.1 11 ARTICLE 5 FINANCIAL DATA SCHEDULE
5 3-MOS 3-MOS 3-MOS DEC-31-1997 DEC-31-1997 DEC-31-1997 JAN-01-1997 APR-01-1997 JUL-01-1997 MAR-31-1997 JUN-30-1997 SEP-30-1997 138,870 149,725 123,210 0 0 0 7,481 7,725 9,066 9,880 1,141 1,291 6,343 6,159 7,812 243,325 179,779 166,633 211,422 252,425 261,570 51,013 58,375 66,372 407,111 377,008 372,176 87,600 47,782 53,877 150,000 230,000 230,000 0 0 0 0 0 0 55 55 55 104,851 95,829 81,363 407,111 377,008 372,176 35,115 45,192 53,570 36,928 47,759 56,413 0 0 0 61,792 57,613 69,213 0 0 0 0 0 0 6,210 6,513 7,131 (29,507) (14,665) (18,287) (11,000) (5,439) (3,675) 0 0 0 0 0 0 0 0 0 0 0 0 (18,507) (9,226) (14,612) (.34) (.17) (.27) (.34) (.17) (.27)
EX-27.2 12 ARTICLE 5 FINANCIAL DATA SCHEDULE
5 3-MOS 3-MOS 3-MOS DEC-31-1996 DEC-31-1996 DEC-31-1996 JAN-01-1996 APR-01-1996 JUL-01-1996 MAR-31-1996 JUN-30-1996 SEP-30-1996 119,601 207,997 178,986 0 0 0 16,458 2,385 5,025 514 642 663 5,299 4,516 6,566 148,833 292,428 279,330 261,546 257,156 203,668 25,351 31,888 32,395 385,028 521,592 454,353 95,743 107,406 96,680 0 230,000 206,488 0 0 0 0 0 0 55 55 55 174,755 165,347 143,687 385,028 521,592 454,353 105,569 77,962 17 109,995 81,217 311 0 0 0 92,470 92,798 30,257 0 0 0 0 0 0 2,403 6,221 7,198 16,969 (15,124) (34,870) 6,302 (5,550) (12,925) 0 0 0 0 0 0 0 0 0 0 0 0 10,667 (9,574) (21,945) .20 (.18) (.40) .18 (.18) (.40)
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