-----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,
BEEC5Ex4908xjZ7nRQP4r6KO3B+7qhJ0kAasmMFpOafs6ooglAWO3VJIi64+cIED
z8oLMbGOijyGqg/wwQLmKw==
<SEC-DOCUMENT>0000931763-00-000724.txt : 20000331
<SEC-HEADER>0000931763-00-000724.hdr.sgml : 20000331
ACCESSION NUMBER: 0000931763-00-000724
CONFORMED SUBMISSION TYPE: 10-K
PUBLIC DOCUMENT COUNT: 7
CONFORMED PERIOD OF REPORT: 19991231
FILED AS OF DATE: 20000330
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: 1231
FILING VALUES:
FORM TYPE: 10-K
SEC ACT:
SEC FILE NUMBER: 000-26914
FILM NUMBER: 584200
BUSINESS ADDRESS:
STREET 1: 9955 AIRTRAN BLVD
CITY: ORLANDO
STATE: FL
ZIP: 32827
BUSINESS PHONE: 4072515600
MAIL ADDRESS:
STREET 1: 9955 AIRTRAN BLVD
CITY: ORLANDO
STATE: FL
ZIP: 32827
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-K
<SEQUENCE>1
<DESCRIPTION>FORM 10-K
<TEXT>
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
[X] Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934 for the fiscal year ended December 31, 1999.
[_] Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934.
Commission File No.: 0-26914
AirTran Holdings, Inc.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Nevada 58-2189551
------------------------------- -----------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
9955 AirTran Boulevard, Orlando, Florida 32827
-----------------------------------------------
(Address of principal executive offices) (Zip code)
(407) 251-5600
--------------
(Registrant's telephone number, including area code)
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[_]
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. [ ]
As of March 10, 2000, 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 10, 2000, was approximately $244,367,000. As
of March 10, 2000, the Registrant had 65,724,148 shares of Common Stock
outstanding.
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 18, 2000 and 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 38-41
<PAGE>
PART I
ITEM 1. BUSINESS
--------
General
The Company operates a low fare scheduled airline serving short-haul markets
primarily in the eastern United States. The Company is the second-largest
"affordable fare" airline in the United States behind Southwest Airlines (in
terms of originating travel). The Company's operations are focused on its hub in
Atlanta, Georgia, the nation's busiest airport and the fourth largest travel
market (in terms of passengers) in the United States. As of December 31, 1999,
the Company operated eight Boeing 717-200 (B717) aircraft, 35 McDonnell Douglas
DC-9 aircraft (DC-9) and four Boeing 737-200 (B737) aircraft and offered more
than 274 flights per day, including more than 130 daily departures from Atlanta
to 29 other cities. Additional contractual service is offered between
Gulfport/Biloxi and Dallas/Fort Worth, Houston (Hobby), Fort Lauderdale, Tampa
and Orlando.
The Company commenced operations in 1993 as ValuJet Airlines, Inc. ("ValuJet")
with two DC-9 aircraft serving three cities from Atlanta with eight flights per
day. In 1995, ValuJet became a wholly-owned subsidiary of ValuJet, Inc. The
Company's operations were interrupted by the suspension of the Company's service
on June 17, 1996, resuming on September 30, 1996 with limited operations.
ValuJet changed its name to "AirTran Airlines, Inc." ("Airlines"), and ValuJet,
Inc. changed its name to "AirTran Holdings, Inc." ("Holdings") in connection
with the Company's acquisition of Airways Corporation and its subsidiary,
AirTran Airways, Inc. ("Airways"), in November 1997. As part of that
transaction, Airways became a wholly-owned subsidiary of the Company. From
November 1997 until April 1998, the Company operated under the FAA operating
certificates of both Airlines and Airways. Since April 1998, all of the
Company's airline operations have been conducted under the Airways operating
certificate. The Airlines operating certificate was extinguished in August 1998.
In August 1999, Airlines merged with and into Airways.
The principal executive offices of the Company are located at 9955 AirTran
Boulevard, Orlando, Florida 32827, and its telephone number is (407) 251-5600.
The Company maintains an Internet site at http://www.airtran.com. The reference
to the Company's web address does not constitute incorporation by reference of
the information contained at the site.
Strategy
The Company's strategy is to offer among the lowest fares in its markets and
generate traffic by stimulating demand with price-sensitive travelers. The
Company controls 22 gates at Hartsfield Atlanta International Airport. Atlanta
provides a large local traffic base and the hub is well positioned for
connecting traffic throughout the Southeast. Atlanta's geographic position
enhances the Company's connecting opportunities. To maintain profitability, the
Company intends to maintain an affordable fare structure and offer safe and
reliable travel to both price-sensitive business and fare-conscious leisure
travelers. The Company intends to pursue a modest growth strategy while
maintaining its low cost structure. The Company also generates revenue by
carrying cargo, primarily U.S. Mail, A.S.A.P. express package service and air
freight. The
2
<PAGE>
Company's pricing structure is intended to stimulate new demand for air travel
by leisure customers and business travelers who would have otherwise not
traveled or who would have utilized ground transportation. The Company's fare
structure generally dictates pricing in most markets it serves, providing
travelers with substantial savings not generally 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 in comparable markets, as well as
business class prices at substantial discounts to competitors' offerings. The
Company's fare structure is possible as a result of its comparatively low cost
structure.
The Company's comparatively low cost structure is made possible through low
ownership costs of its DC-9 aircraft, more fuel-efficient and less maintenance
burdened B717 aircraft, lower labor costs, lower distribution costs due to high
percentage of Internet bookings and the Company's decision not to offer many
amenities offered by many major airlines (such as hot meals and airport clubs).
As a result of the acquisition of B717 aircraft, the Company's ownership cost
will increase, but the Company believes that it will be able to maintain its
comparatively low cost structure as a result of expected savings in maintenance
and aircraft fuel efficiency.
The Company's service is intended to satisfy not only the basic air
transportation needs of its targeted customers, price-sensitive business
travelers and fare-conscious leisure travelers, but to provide customers with a
travel experience worth repeating.
In 1998, the Company sought to enhance its product offerings with the
introduction of business class, assigned seating, travel agency distribution and
an innovative frequent flyer program. In 1999, the Company focused on unit
revenue improvement, customer satisfaction and retention, increased penetration
of the corporate market, enhanced programs for leisure traffic, and continued
growth of alternative distribution channels, such as the Internet. For the
fourth quarter of 1999, Internet sales provided approximately 16.7% of total
passenger revenue.
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 a
significant number of leisure and business customers.
In the Company's city selection process, the Company considers the market
demographics, the support offered by the airport communities to be served, the
ability to stimulate air travel and competitive factors.
3
<PAGE>
Fares, Route System and Scheduling
The Company serves 29 markets from Atlanta, generally under 1,000 miles. The
Company serves major metropolitan markets, including New York, Newark, Boston,
Philadelphia, Washington, Chicago, Miami, Houston and Dallas, and leisure
markets in Florida. The routes served to and from Atlanta range in frequency
from two to fifteen trips per day. The schedules are designed to provide a
consistent product for business-oriented travelers and to facilitate connections
for passengers traveling through Atlanta.
The Company offers a range of fares based on advance purchases of 14 days, 7
days, 3 days and "walk-up" fares. The Company manages the availability of seats,
at each fare level, 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 with a $50 service charge. The Company's fares are always
offered on a one-way basis. The Company's fares do not require a round trip
purchase or a specific 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 coach non-stop service range from $39
to $99 for one-way travel on a 14-day advance purchase basis and $79 to $239 for
one-way travel on a "walk-up" basis. The Company offers fare sales from time to
time in order to generate additional traffic. The Company utilizes the Internet
and other distribution channels to stimulate incremental demand.
The Company provides one-stop service between many of its markets 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 alternate airports in the same metropolitan areas as served by the
Company (such as Washington's Ronald Reagan National Airport, Chicago's O'Hare
Airport and New York's Kennedy Airport).
The airline industry is highly competitive. The Company competes primarily with
Delta in the markets served by the Company from Atlanta. In most all of these
markets, Delta offers more frequency than the Company.
The identity of competing airlines and the number of the flights they may fly
changes from month to month. Competing airlines and their flight schedules are
subject to frequent change. The Company's competition includes carriers with
substantially greater financial resources and name recognition.
The Company's aircraft scheduling strategy is directly related to the perceived
needs of its target market segments. The Company's target customers are price-
sensitive business travelers and fare-conscious leisure travelers.
The Company operates with a limited number of support aircraft in order to
provide operating spares and to rotate aircraft into routine scheduled
maintenance.
Maintenance and Repairs
Since all of the Company's DC-9 and B737 aircraft are more than 20 years old,
they will generally require higher maintenance expense than newer aircraft. The
Company believes that its aircraft are mechanically reliable and that in the
long-term the estimated cost of maintenance
4
<PAGE>
to fly such aircraft will be within industry norms for these aircraft types and
ages. Amendments to Federal Aviation Administration ("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 would 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.
Aircraft maintenance and repair consists of routine daily or "turn-around"
maintenance and major overhaul. Routine daily maintenance is performed at
Atlanta by the Company's employees or contract employees and by contractors at
the other cities served by the Company. Heavy maintenance and other work which
require hangar facilities are currently performed at outside maintenance
contractors. Other routine daily maintenance contractors are provided by other
airlines, which operate DC-9 aircraft or other maintenance companies approved by
the FAA, both of which have employees qualified in DC-9 aircraft maintenance.
The Company expects that its maintenance expenses will be significantly reduced
with the addition of the B717 aircraft. However, the B717 aircraft will require
greater inventories of spare parts and associated costs.
Fuel
Jet fuel is a significant expenditure for the Company. The Company estimates
that a ten percent increase in the December 31, 1999 fuel cost would increase
fuel expenses by approximately $10.8 million in the year 2000, net of fuel hedge
instruments outstanding at December 31, 1999. Jet fuel costs are subject to wide
fluctuations as a result of sudden disruptions in supply. 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 majority of the Company's aircraft are relatively fuel inefficient compared
to newer aircraft and industry averages. The primary reason for this
inefficiency is engine technology. The B717 aircraft are expected to be more
fuel-efficient and should make the Company relatively less susceptible to
adverse effects attributable to fuel price changes.
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, whose fuel costs represent a
smaller portion of total costs, and who have greater purchasing leverage because
of size. Subject to market conditions, the Company might seek to pass such a
cost increase to its customers through a fare increase. There can be no
assurance that any such fare increase, or surcharge, would not reduce the
competitive advantage the Company seeks by offering affordable fares.
5
<PAGE>
Distribution and Marketing
The Company's marketing efforts are vital to its success as it seeks to position
its product to stimulate new customer demand. The Company focuses on two primary
market segments: the price conscious business travellers and leisure travellers.
These are the market segments in which the consumers seek value and in which the
Company believes it offers the greatest opportunity for stimulating new demand.
The primary objectives of the Company's marketing activities are to develop an
innovative brand identity and personality that is visibly unique and easily
contrasted with its competitors. The Company communicates directly with its
existing customer base and attempts to reach potential customers through
extensive use of advertising as well as active public relations efforts. The
Company communicates regularly and frequently with existing and potential
customers through the use of advertisements in newspapers, on radio, on
television, on billboards, through direct mail, in movie theatres and through a
website on the Internet. These communications feature the Company's
destinations, everyday affordable fares, ease of use (including its simplified
fare structure, ticketless alternative and easy-to-use web site) and calls to
action (through travel agents, toll-free numbers or the website).
The Company distributes its product through various channels: (1) direct to the
consumer via phone; (2) direct to the consumer via Internet; (3) through travel
agents and the global distribution systems ("GDS"); (4) through travel agents
direct - both via phone and via Internet. Of the distribution channels, during
1999, 47.3% of passenger revenue was booked direct from the consumer via phone,
11.0% was booked from the consumer and travel agents via the Internet and 41.7%
was booked through travel agents' GDS. The Company pays customary 5% sales
commissions to travel agents. Information on its customers' needs, travel
patterns and demographics is collected, organized and stored by the Company's
automated reservation system and may be used at a future time for direct
marketing efforts.
Travel agents play an integral role distributing the Company's product. In
1997, 8% of the Company's product was distributed through travel agents. During
1999, the percentage of distribution through travel agents was 41.7%. In 1999,
the Company was awarded "Best Domestic Airline of 1999" by the Southeast Chapter
of the American Society of Travel Agents.
The Company's Internet site is a leader in the field of airline electronic
commerce. In 1999, 11% of the Company's bookings came through this important
distribution channel. In May 1999, Travel Agent magazine ranked the Company's
web site an "A" for the user friendliness of its online booking engine. The
magazine further reported that the Company's web site booking engine is "simple"
and "elegant". In October 1999, the Company created additional functionality
with its website by allowing travel agents and corporate accounts the ability to
book travel online.
To attract more business fliers, the Company launched Business Class in late
1997. Business Class consists of a premium cabin with 2 by 2 oversized seats
with seven inches more legroom and additional seatroom than the coach seat.
Targeted to the price-sensitive business flier,
6
<PAGE>
Business Class is currently available for $25 over full coach fare to Atlanta.
In addition, a standby program for upgrades is available at the departure gates.
In addition, the Company began assigning seats in 1997. Full fare passengers,
the Company's most profitable business customers who tend to book at the last
minute, are allowed to reserve seats at the time of booking. All other
customers may reserve seats one hour prior to departure. In effect, the
Company's most profitable customers choose the best seats first, but all
passengers have assigned seats prior to boarding.
Furthermore, in March 1998, the Company launched a self-administered frequent
flier program known as "A-Plus Rewards" under which customers may earn either
free roundtrip travel or Business Class upgrades. A customer may earn a free
roundtrip by flying as few as six paid roundtrips. Full fare Business Class
customers earn double credits which make a free roundtrip even easier to obtain.
In addition, free travel on other airlines may be earned by doubling the
required number of roundtrips needed for free travel. Free trips on other
airlines may be used only to/from Atlanta, apply only to cities not served by
the Company and are subject to other terms and conditions. Furthermore, free
upgrades to Business Class may be earned in lieu of free tickets.
The Company performs marketing, promotional and media relations in house. An
outside firm assists the Company in handling advertising and public relations.
The Company has partnered with The Hertz Corporation to operate a reservation
call and Internet booking solicitation agreement 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. In addition, the Company partners with
American Express to send direct mail pieces to American Express Cardmembers who
regularly fly over the Company's route system. The American Express offer
allows customers (who charge their airfare on their American Express Card) to
earn a free ticket in A-Plus Rewards at an even faster pace.
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 and northeastern United States. Advertising and promotional
expenses may be greater in lower traffic periods, as well as when entering a new
market, in an attempt to stimulate air travel.
Computer Reservations
The Company is a participant in all of the leading travel agency GDSs, which
include Amadeus, Galileo, SABRE, SystemOne, and WorldSpan. These systems provide
flight schedules, pricing information and allow travel agents participating in
all of these systems to electronically process a flight reservation without
contacting the Company's reservations facility.
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
7
<PAGE>
quicker turnaround of aircraft. After the flight has departed, the Company's
internal information system posts passenger revenue from the passenger manifest
information.
Employees
As of February 24, 2000, the Company employed approximately 4,000 employees and
3,200 full-time equivalents.
Training, both initial and recurrent, is required for most employees. The
average training period for all new employees is approximately one to three
weeks, depending on classification. Both pilot training and mechanic training
are provided by in-house training instructors and at times, may be provided by
professional training organizations.
FAA regulations require pilots to be certificated as commercial pilots, with
specific ratings for aircraft to be flown, and to be medically certified as
physically fit. Pilot certificates and medical certifications are subject to
periodic continuation requirements including recurrent training and recent
flying experience. Mechanics, quality-control inspectors and flight dispatchers
must be certificated 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,
maintenance and aircraft inspection must meet experience standards prescribed by
FAA regulations. All of these employees are subject to pre-employment, random
and post-accident drug testing.
The Company has entered into a collective bargaining agreement with its pilots
represented by the National Pilots Association ("NPA"). The contract includes
competitive wages to those of similar airlines and expires in March 2001.
The Company has entered into a collective bargaining agreement with its
mechanics represented by the International Brotherhood of Teamsters ("the
Teamsters"). The contract includes simplified work rules and pay increases.
The contract expires in August 2001.
The Company has entered into a collective bargaining agreement with its flight
attendants represented by the Association of Flight Attendants ("AFA"). The
contract includes a ten percent pay increase in year one and a four percent
increase each year thereafter expiring in October 2002.
The Company's dispatchers voted to be represented by the Transport Workers Union
("TWU") in April 1999. The TWU and the Company have yet to sign a contract, but
are in negotiations and expect to sign one in early 2000.
In February 2000, the Company's customer service, ramp and reservation agents
rejected the International Association of Machinists in a vote that received
less than 30% support. The
8
<PAGE>
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 Company does not expect that the unionization of these employee groups will
have a material adverse effect on its operating costs or performance.
Airport Operations
Ground handling services typically can be placed in three categories - public
contact, under-wing 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. Under-wing 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 under-wing services
combined.
The Company conducts its own ground handling services in 24 airports, including
Atlanta. 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 these
cities to 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 $850 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.
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 and
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
9
<PAGE>
conditions. While business travel is not as discretionary, business travel
generally diminishes during unfavorable economic times, as businesses tend to
tighten cost controls.
Government Regulations
The airline industry is highly competitive, primarily due to the effects of the
Airline Deregulation Act of 1978, which has substantially eliminated government
authority to regulate domestic routes and fares. Deregulation has increased the
ability of airlines to compete with respect to destination, flight frequencies
and fares. Nevertheless, the airline industry remains highly regulated in other
aspects, as more fully described below.
DOT Oversight
Although regulation of domestic routes and fares was abolished by the Airline
Deregulation Act of 1978, the Department of Transportation ("DOT") retains the
authority to alter or amend any airline's certificate or to revoke such
certificate for intentional failure to comply with the terms and conditions of
the certificate. In addition, the DOT has jurisdiction over international
tariffs and pricing, international routes, computer reservation systems, and
economic and consumer protection matters such as advertising, denied boarding
compensation, smoking and codeshare arrangements and has the authority to impose
civil penalties for violation of the United States Transportation Code or DOT
regulations.
Aircraft Maintenance and Operations
The Company is subject to the jurisdiction of the FAA with respect to aircraft
maintenance and operations, including equipment, dispatch, communications,
training, flight personnel and other matters affecting air safety. The FAA has
the authority to issue new or additional regulations. To ensure compliance with
its regulations, the FAA conducts regular safety audits and requires all
airlines to obtain operating, airworthiness and other certificates, which are
subject to suspension or revocation for cause.
The FAA has issued several Airworthiness Directives ("ADs") mandating
modifications to the older aircraft maintenance programs. These ADs were issued
to ensure that the oldest portion of the nation's aircraft fleet remains
airworthy and require structural modifications to or inspections of those
aircraft. The Company believes that all of its aircraft are in compliance with
the aging aircraft mandates.
The Company cannot predict the cost of compliance with all present and future
rules and regulations and the effect of such compliance on the business of the
Company, particularly its expansion plans and aircraft acquisition program.
FAA Funding
In 1997, a law was enacted imposing new aviation ticket taxes as part of larger
tax legislation designed to balance the nation's budget, provide targeted tax
relief and fund air traffic control, other FAA programs and airport development.
As enacted, these new taxes will be imposed through September 30, 2007. Included
in the new law is a phase in of a modified federal air
10
<PAGE>
transportation excise tax structure with a system that includes: a domestic
excise tax starting at 9% which decreased to 7.5% in 1999; a domestic segment
tax starting at $1.00 and increasing to $3.00 by 2002; and an increase in taxes
imposed on international travel. Both the domestic segment tax and the
international tax are indexed for inflation. The legislation also includes a
7.5% excise tax on certain amounts paid to an air carrier for the right to
provide mileage and similar awards (e.g., purchase of frequent flyer miles by a
credit card company). As a result of competitive pressures, the Company and
other airlines have been limited in their ability to pass on the cost of these
taxes to passengers through fare increases.
Fuel Tax
In August 1993, the federal government increased taxes on fuel, including
aircraft fuel, by 4.3 cents per gallon. Total fuel taxes paid by the Company in
1999 were $9.4 million.
Passenger Facility Charges
During 1990, Congress enacted legislation to permit airport authorities, with
prior approval from the DOT, to impose passenger facility charges ("PFCs") as a
means of funding local airport projects. These charges, which are intended to be
collected by the airlines from their passengers, are limited to $3.00 per
enplanement and to no more than $12.00 per round trip. To date, the Company has
passed on the cost of the PFCs to its passengers.
Slot Restrictions
At New York City's John F. Kennedy Airport and LaGuardia Airport, Chicago's
O'Hare International Airport and Washington's Ronald Reagan National Airport,
which have been designated "High Density Airports" by the FAA, there are
restrictions on the number of aircraft that may land and take off during peak
hours. In the future, these take off and landing time slot restrictions and
other restrictions on the use of various airports and their facilities may
result in curtailment of services by, and increased operating costs for,
individual airlines, including the Company, particularly in light of the
increase in the number of airlines operating at such airports. In general, the
FAA rules relating to allocated slots at the High Density Airports contain
provisions requiring the relinquishment of slots for nonuse and permit carriers,
under certain circumstances, to sell, lease or trade their slots to other
carriers. The Company currently utilizes 12 slots at LaGuardia Airport.
Additional Security and Safety Measures
In 1996 and 1997 the President's Commission on Aviation Safety and Security
issued recommendations and the U.S. Congress and the FAA adopted increased
safety and security measures designed to increase airline passenger safety and
security and protect against terrorist acts. Such measures have resulted in
additional operating costs to the airline industry. Examples of increased safety
and security measures include the introduction of a domestic passenger manifest
requirement, increased passenger profiling, enhanced pre-board screening of
passengers and carry on baggage, positive bag match for profile selections,
continuous physical bag search at checkpoints, additional airport security
personnel, expanded criminal background checks for
11
<PAGE>
selected airport employees, significantly expanded use of bomb sniffing dogs,
certification of screening companies, aggressive testing of existing security
systems, expansion of aging aircraft inspections to include non structural
components, development of a new systems approach for air carriers and the FAA
to monitor and improve safety oversight and installation of new ground proximity
warning systems on all commercial aircraft. The Company cannot forecast what
additional security and safety requirements may be imposed in the future or the
costs or revenue impact that would be associated with complying with such
requirements.
Miscellaneous
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. 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.
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. 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.
Environmental Regulations
The Airport Noise and Capacity Act of 1990 ("ANCA") generally recognizes the
rights of airport operators with noise problems to implement local noise
abatement programs so long as they do not interfere unreasonably with interstate
or foreign commerce or the national air transportation system. The ANCA
generally requires FAA approval of local noise restrictions on Stage 3 aircraft
first effective after October 1990. While the Company has had sufficient
scheduling flexibility to accommodate local noise restrictions imposed to date,
the Company's operations could be adversely affected if locally-imposed
regulations become more restrictive or widespread.
The Environmental Protection Agency ("EPA") regulates operations, including air
carrier operations, which affect the quality of air in the United States. The
Company believes it has made all necessary modifications to its fleet to meet
emission standards issued by the EPA.
12
<PAGE>
Risk Factors
The Company's Recent Operating Losses; Negative Net Worth
The Company recorded net losses of $99.4 million in 1999, $40.7 million in 1998,
and $96.7 million in 1997. The Company's earnings before fixed charges for each
of the three years ended December 31, 1999 were inadequate to cover fixed
charges. Continued losses by the Company or continued failure by the Company to
cover fixed charges in the future would likely have a material adverse effect on
the Company's financial condition. The recording of a non-cash fleet
disposition charge of $147.7 million in fourth quarter 1999 resulted in the
Company incurring a net loss for the 1999 year and having negative net worth at
December 31, 1999. The Company's consolidated debt, recent history of losses
and negative net worth may adversely affect the Company's ability to obtain
financing on terms satisfactory to the Company in the future.
Risks Due to the Company's Significant Amount of Debt
The entire principal amount of the Company's 10.25% Senior Notes ($150.0
million) and 10.5% Senior Secured Notes ($80.0 million) will become due on April
15, 2001. The Company does not expect to generate sufficient cash flow from
operations to repay all $230.0 million of such debt by its due date.
Accordingly, the Company will likely need to refinance all or a portion of the
outstanding debt through additional equity or debt or a combination thereof.
However, the Company may not be able to obtain such financing on acceptable
terms. In such event, the Company could be forced to default on its debt
obligations and, ultimately, seek protection under federal bankruptcy laws.
The ability of the Company to make scheduled payments of principal or interest
and the Company's ability to refinance its debt depend on its future performance
and financial results. Such results are subject to general economic, financial,
competitive, legislative, regulatory, and other factors that are, to some
extent, beyond the Company's control.
In 1999, the Company issued $178.9 million of enhanced equipment trust
certificates and will incur substantial additional debt (some of which may be
under capital leases) to finance the acquisition of the B717 aircraft. See
"Item 7 - Management's Discussion and Analysis of Financial Condition and
Results of Operations - Liquidity and Capital Resources."
The amount of the Company's debt could have important consequences to investors,
including the following:
. a substantial portion of the Company's cash flow from operations must be
dedicated to debt service and will not be available for operations;
. the Company's ability to obtain additional financing for aircraft purchases,
capital expenditures, working capital, or general corporate purposes could be
limited;
. the Company's vulnerability to adverse economic and industry conditions is
greater than its larger and more financially secure competitors;
13
<PAGE>
. 24 of the Company's DC-9 aircraft are pledged as collateral to secure its
$80.0 million 10.5% Senior Secured Notes due 2001;
. eight B717 aircraft are pledged as collateral to secure other debt of the
Company with a principal balance of $178.9 million as of December 31, 1999;
. an additional one DC-9, three B737s and certain engines are pledged as
collateral to secure other debt of the Company with a principal balance of
$6.8 million as of December 31, 1999; and
. future B717 aircraft to be acquired by the Company will be pledged as
collateral to secure debt incurred by the Company.
The Company's Debt Covenants Could Limit How It Conducts Its Business
The Company's debt instruments contain covenants that, among other things,
restrict its ability to:
. incur additional indebtedness
. pay dividends and make other distributions
. prepay subordinated indebtedness
. make investments and other restricted payments
. create liens
. sell assets
. enter into certain mergers
. engage in certain transactions with affiliates
The Company's current and future financing arrangements contain and are expected
to continue to contain similar or more restrictive covenants. As a result of
these restrictions, the Company may be limited in how it conducts business, and
the Company may be unable to raise additional debt or equity financing to
operate during general economic or business downturns, to compete effectively,
or to take advantage of new business opportunities. This may affect the
Company's ability to generate revenues and make profits. Without sufficient
revenues and cash, the Company may not be able to pay interest and principal on
its indebtedness.
The Company's failure to comply with the covenants and restrictions contained in
its indentures and other financing agreements could lead to a default under the
terms of these agreements. If such a default occurs, the other parties to such
agreements could declare all amounts borrowed
14
<PAGE>
and all amounts due under other instruments that contain provisions for cross-
acceleration or cross-default due and payable. If that occurs, the Company
cannot assure investors it would be able to make payments on its debt, meet its
working capital and capital expenditure requirements, or be able to find
additional alternative financing. Even if the Company could obtain additional
alternative financing, it cannot assure investors such financing would be on
favorable or acceptable terms.
Fuel Costs
The cost of jet fuel is an important expense for the Company. 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. The
Company estimates that a ten percent increase in fuel cost at December 31, 1999
would increase fuel expenses by approximately $10.8 million in the year 2000,
net of fuel hedge instruments outstanding at December 31, 1999. Comparatively,
based on 1999 fuel usage, a 10% increase in fuel prices would have resulted in
an increase in fuel expense of approximately $2.8 million, net of hedging
instruments utilized during 1999. The change in market risk is the result of
the Company hedging a larger portion of its fuel consumption in 1999 than in
2000. 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 materially adverse effect on the Company's operations and
operating results.
The Company's DC-9 and B737 aircraft are relatively fuel-inefficient compared to
newer aircraft and industry averages. The primary reason for this inefficiency
is engine technology. As a result, a significant increase in the price of jet
fuel would likely 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 may seek to pass such increase to its customers through a fare increase.
There can be no assurance that any such fare increase would not reduce the
competitive price advantage the Company seeks by offering affordable fares.
In order to provide a measure of control over price and supply, effective March
1999, the Company commenced participation in a fuel-hedging program whereby the
Company manages the price risk of fuel by entering into fixed rate fuel swap
contracts. The fuel-hedging program is designed to mitigate, but not eliminate,
the adverse effect of increases in fuel prices. The Company's fuel hedging
contracts covered approximately 80% of the Company's estimated fuel requirements
for the last ten months of 1999 and will cover 11% of its estimated fuel
requirements for the first six months of 2000. There can be no assurance that
the Company's fuel hedging program will continue to cover any of its fuel
requirements in the future.
Market Dominance by Delta Air Lines, Inc.
The Atlanta market, which is the Company's principal hub, is currently dominated
by Delta Air Lines, Inc. ("Delta"). Delta offers more than 620 flights per day
from Atlanta, which represents more than 75% of all departures from Hartsfield
Atlanta International Airport. Based on departures, the Company operates
approximately 12% of all departures from Hartsfield. The
15
<PAGE>
Company's Atlanta-based strategy may not be successful in light of Delta's
Atlanta market dominance.
Competitors in the Low-Fare Market
Delta Express, a division of Delta, began offering low-cost, low-fare service in
several of the Company's markets in 1996. MetroJet, a division of US Airways,
began offering low-fare service in both Boston and Washington, D.C. (Dulles) in
1999. The Company does not presently compete directly with Delta Express or
Southwest Airlines on any routes, but competes with MetroJet on its Atlanta-
Washington, D.C. and Atlanta-Boston routes. The Company may face greater
competition from Delta Express, MetroJet, Southwest Airlines or other low fare
carriers in the future.
A Highly Competitive Industry
The airline industry is highly competitive, primarily due to the effects of the
Airline Deregulation Act of 1978, which has substantially eliminated government
authority to regulate domestic routes and fares. Deregulation has increased the
ability of airlines to compete with respect to destination, flight frequencies
and fares. The Company competes with airlines that serve the Company's current
and proposed routes and which are larger and have greater name recognition and
greater financial resources than the Company.
The Company may also face competition from any of the following:
. existing airlines that may begin serving markets which the Company currently
serves or may serve in the future;
. current competitors that may expand their existing service;
. new competitors that may form new airline companies and enter the low-fare
market; and
. companies that provide ground transportation.
Competitors with greater financial resources than the Company may price their
fares at or below the Company's fares or increase their service. Such
competition could prevent the Company from attaining a share of the passenger
traffic necessary to sustain profitable operations. The Company's ability to
meet price competition depends on its ability to operate at costs equal to or
lower than its competitors or potential competitors.
Industry Profitability
The airline industry is characterized by low gross profit margins and high fixed
costs. The expenses of each flight do not vary significantly with the number of
passengers carried and, therefore, a relatively small change in the number of
passengers, or in average fare or traffic mix (the ratio of typically high-
yielding business passengers to typically low-yielding leisure passengers),
could have a disproportionate effect on an airline's operating and financial
results.
16
<PAGE>
Accordingly, a minor shortfall from expected revenue levels could have a
material adverse effect on the Company's results of operations.
The industry has experienced and continues to experience substantial
restructuring as many established carriers have implemented varying strategies
in pursuit of profitability, including consolidation to expand operations and
increase market strength, establishing lower cost airlines within airlines, such
as Shuttle by United, Delta Express by Delta and MetroJet by U.S. Airways, and
by entering into global alliance arrangements. Because these restructurings
have only recently begun to appear in the marketplace or, in some cases, have
not yet been implemented, the Company is unable to predict what effect, if any,
these activities will have on its business, financial condition and results of
operations.
Significant Dependence on Atlanta Market
The Company's business strategy has focused and is expected to continue to focus
on adding flights to and from its Atlanta base of operations. A reduction in
the Company's share of the Atlanta market or reduced passenger traffic to or
from Atlanta could have a material adverse effect on the Company's financial
condition and results of operations. In addition, the Company's dependence on a
primary hub and on a route network operating largely on the East Coast makes it
more susceptible to adverse weather conditions along the East Coast than some of
its competitors that may be better able to spread weather-related risks over
larger route systems.
Aging Aircraft; Maintenance and Reliability
The Company's fleet consists predominantly of DC-9 aircraft manufactured between
1967 and 1976 and B737 aircraft manufactured between 1968 and 1985. Many
aircraft components must be replaced after specified numbers of flight hours or
take-off and landing cycles and new aviation technology may need to be
retrofitted. As a result, the cost in general to maintain aging aircraft will
exceed the cost to maintain newer aircraft.
Currently, the FAA is considering amendments to FAA regulations, which would
require certain heavy maintenance checks and other additional maintenance
requirements for aircraft operating beyond certain operational limits. It is
likely that these maintenance requirements will apply to the aircraft operated
by the Company, although it is uncertain whether the proposed amendments will
require any changes to the heavy maintenance procedures already used by the
Company. In addition, the Company will be required to comply with any other
future regulations or Airworthiness Directives issued with respect to aging
aircraft. As a result, the Company's costs of maintenance (including costs to
comply with aging aircraft requirements for its DC-9 and B737 aircraft) may
increase in the future.
The Company believes that its aircraft are mechanically reliable based on the
percentage of scheduled flights completed. However, the Company cannot assure
that its aircraft will continue to be sufficiently reliable over longer periods
of time. Furthermore, given the age of the Company's fleet, any public
perception that the Company's aircraft are less than completely reliable could
have a material adverse effect on the Company's business.
17
<PAGE>
Purchase Commitments
The Company is obligated to purchase 50 B717 aircraft from The Boeing Company
("Boeing"). As of December 31, 1999, the Company has taken delivery of eight of
these aircraft. See "Item 7 - Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources." There
can be no assurance that the Company will be able to obtain satisfactory
financing to allow it to fulfill its obligations under the contract. If the
Company defaults in its obligations, Boeing would have the right to terminate
the purchase agreement and to seek other remedies available to it. The Company
may not be able to utilize all the aircraft it has committed to purchase. If the
Company cannot use such aircraft, it may be required to sell or lease such
aircraft on terms which will depend upon market conditions at the time. There
can be no assurance that the Company will not suffer a financial loss from any
such sales or leases.
Risk of Loss
Any accident involving the Company's aircraft 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. 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 negative effect
on the Company's business. The occurrence of one or more subsequent incidents or
accidents involving the Company's aircraft would likely have a substantial
adverse effect on the Company's public perception and future operations.
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
$850 million per occurrence. Although the Company currently believes its
insurance coverage is adequate, the amount of such coverage may be changed in
the future or the Company may be forced to bear substantial losses from
accidents. Substantial claims resulting from an accident in excess of related
insurance coverage could have a material adverse impact on the Company.
Risks Due to Litigation
For a discussion of certain risks presented by litigation affecting the Company,
see "Item 3 - Legal Proceedings."
Dependence on Executive Officers
The Company is dependent on the services of Joseph B. Leonard, Robert L. Fornaro
and its other executive officers. The loss of services of these officers could
materially and adversely affect the business of the Company and its future
prospects. The Company does not, and does not presently intend to, maintain key
man life insurance on any of its officers.
18
<PAGE>
Beginning in 1999, the Company has a new senior management team. There can be
no assurance that the new management team will be effective in managing the
Company or will be able to successfully work with existing personnel.
Reliance on Others
The Company has entered into agreements with contractors, including other
airlines, to provide certain facilities and services required for its
operations, including aircraft maintenance, ground facilities, baggage handling
and personnel training. The Company will likely need to enter into similar
agreements in any new markets that it decides to serve. All of these agreements
are subject to termination after notice. The Company's reliance upon others to
provide essential services on behalf of the Company may result in relative
inability to control the efficiency, timeliness and quality of contract
services. Management expects that the Company will be required to rely on such
contractors for some time in the future.
Airport Access
The Company's markets are located primarily in the eastern United States.
Access to certain "slot" controlled airports (such as Washington's Reagan
National, New York's Kennedy and LaGuardia and Chicago's O'Hare) is limited, and
the Company may not be able to obtain or maintain access to such airports at an
acceptable cost. Any condition, which would deny or limit the Company's access
to the airports it serves or seeks to serve, may have a negative impact on the
Company's business.
Taxation Affecting Air Fares
Recent federal legislation has imposed taxes on domestic airline transportation
equal to a segment charge (currently $2.50 to be increased to $3.00 by 2002)
plus 7.5% of the ticket price. These taxes will likely have a greater effect on
leisure travelers. Since the Company relies to a large extent on leisure
travelers, such a tax increase may affect the Company to a greater extent than
competitors who rely more heavily on business travelers.
Employee Relations
For a discussion of certain risks presented by the possible unionization of
employee groups not currently represented by unions, see "Employees".
Regulatory Matters
In the last several years, the FAA has issued a number of maintenance directives
and other regulations relating to, among other things, retirement of older
aircraft, security measures, collision avoidance systems, airborne windshear
avoidance systems, noise abatement, commuter aircraft safety, and increased
inspections and maintenance procedures to be conducted on older aircraft. The
Company expects to continue incurring expenses for the purpose of complying with
the FAA's aging aircraft regulations. In addition, several airports have
recently sought to
19
<PAGE>
increase substantially the rates charged to airlines, and the ability of
airlines to contest such increases has been restricted by federal legislation,
DOT regulations, and judicial decisions.
Additional laws and regulations have been proposed from time to time that could
significantly increase the cost of airline operations by imposing additional
requirements or restrictions on operations. Laws and regulations have also been
considered that would prohibit or restrict the ownership and/or transfer of
airline routes or takeoff and landing slots. Also, the availability of
international routes to United States carriers is regulated by treaties and
related agreements between the United States and foreign governments that are
amendable. The Company cannot predict what laws and regulations may be adopted
or their impact, but there can be no assurance that laws or regulations
currently proposed or enacted in the future will not adversely affect the
Company.
Seasonal and Cyclical Nature of Airline Business
Due to the greater demand for air travel during the summer months, revenue in
the airline industry in the second and third quarters of the year is generally
significantly greater than revenue in the first quarter of the year and
moderately greater than revenue in the fourth quarter of the year for the
majority of air carriers. The Company's results of operations generally reflect
this seasonality, but have also been impacted by numerous other factors that are
not necessarily seasonal, including the extent and nature of competition from
other airlines, fare competition, changing levels of operations, fuel prices,
and general economic conditions.
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.
20
<PAGE>
ITEM 2. PROPERTY
--------
Operating Aircraft Fleet
Owned and leased aircraft operated by the Company as of December 31, 1999
included:
Average Average
No. of Operating Age
Aircraft Type Seats Owned Leases Total (Years)
- ------------- ------- ----- --------- ----- --------
B717 117 8 0 8 0.21
DC-9 106 28 7 35 29.10
B737 119 3 1 4 22.80
----- --------- -----
Total 39 8 47 23.63
For information concerning the estimated useful lives, residual values, lease
terms, operating rent expense and firm orders on additional aircraft, see Note 1
to the consolidated financial statements.
As of December 31, 1999, 36 of the Company's owned aircraft were encumbered
under debt agreements.
The Company took delivery of the first of 50 B717's beginning in September,
1999. These aircraft will be used to replace the B737's and DC-9's currently in
operation. The Company returned five B737's to lessors during 1999. The
Company expects to take delivery of eight B717 aircraft in 2000.
The delivery schedule for the Company's 42 B717's under firm contract is as
follows:
Aircraft Type 2000 2001 2002 2003
- ------------- ---- ---- ---- ----
B717 8 16 18 -
The first of the eight B717 aircraft to be delivered in 2000 was delivered in
January 2000.
A preliminary retirement schedule of the Company's aircraft is as follows:
Aircraft Type 2000 2001 2002 2003
- ------------- ---- ---- ---- ----
DC-9 - 10 15 10
B737 - 3 - 1
21
<PAGE>
The delivery and retirement schedules represent Management's best estimates as
of March 15, 2000. Consequently, actual deliveries and/or retirements may vary
from the above tables. See Item 7. Management's Discussion and Analysis -
Forward Looking statements.
Ground Facilities
The Company's principal executive offices are located two miles from the Orlando
International Airport in a leased facility consisting of approximately 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 in-flight
operations and station operations), general administrative staff, computer
systems and personnel training facility. The lease agreement for this facility
expires in 2007 and may be extended an additional ten years through the exercise
of options in five-year increments.
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. The ground lease agreement for this facility expires
in 2011 and may be extended an additional ten years through the exercise of
options in five-year increments. The hangar houses a portion of the Company's
maintenance staff, maintenance records and parts inventory.
The Company leases 19,739 square feet of office space in Atlanta for use as a
reservations center under a lease that expires September 30, 2004. 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, 2004. The Company also
leases a 13,028 square feet reservations center in Savannah, Georgia, which
expires in January 2003.
The Company has signatory status on the lease of facilities at Hartsfield
Atlanta International Airport, which expires in 2010. The check-in-counters,
gates and airport office facilities at each of the other 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.
ITEM 3. LEGAL PROCEEDINGS
-----------------
Of the numerous lawsuits that were filed against the Company seeking damages
attributable to those on Flight 592, the remaining two cases are being pursued
in state courts in Florida and Texas. The Company believes that the $750
million coverage available with respect to these claims will be sufficient to
cover all claims arising from the accident. As all claims are handled
independently by the Company's insurance carrier, the Company cannot reasonably
estimate the amount of liability that may 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.
There can be no assurance that the total amount of judgments and
22
<PAGE>
settlements will not exceed the amount of insurance available therefor or that
all damages awarded will be covered by insurance.
On October 1, 1999, the Company filed suit in the Superior Court of Gwinnett
County, Georgia, against United States Aviation Underwriters, Inc. and United
States Aviation Insurance Group for declaratory relief and damages based on
claims of breach of contract and tortious breach of covenant of good faith and
fair dealing for matters involving litigation related to Flight 592.
From time to time, the Company is engaged in other 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.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
-------------------------------------------------
None.
23
<PAGE>
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". As of March 10, 2000, there were approximately
5,512 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, 1998.
Fiscal year ended December 31, 1998 High Low
- ----------------------------------- ---- ---
Quarter Ending March 31, 1998 $8.06 $3.00
Quarter Ending June 30, 1998 $9.44 $6.76
Quarter Ending September 30, 1998 $8.12 $3.88
Quarter Ending December 31, 1998 $4.47 $2.13
Fiscal year ended December 31, 1999 High Low
- ----------------------------------- ---- ---
Quarter Ending March 31, 1999 $5.13 $2.75
Quarter Ending June 30, 1999 $6.00 $4.13
Quarter Ending September 30, 1999 $7.25 $4.94
Quarter Ending December 31, 1999 $6.06 $3.50
As of March 10, 2000, the closing price of the Common Stock was $3.94.
Dividends
No cash dividends have ever been declared by the Company on its Common Stock. In
addition, the Company's debt indentures restrict the Company's ability to pay
cash dividends. 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.
24
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
-----------------------
The information required by this item is as follows:
<TABLE>
<CAPTION>
(in thousands except per share data)
1999 1998(b) 1997 1996 1995
-------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
Operating revenues $523,468 $439,307 $211,456 $219,636 $367,757
Net income (loss) (99,394) (40,738) (96,663) (41,469) 67,763
Net income (loss),
excluding special items 29,094 (a) (13,246) (c) (66,581) (d) (11,098) (e) 67,763
Basic earnings (loss)
per share (1.53) (0.63) (1.72) (0.76) 1.24
Diluted earnings (loss)
per share (1.53) (0.63) (1.72) (0.76) 1.13
Diluted earnings (loss) per share,
excluding special items 0.45 (a) (0.20) (c) (1.19) (d) (0.20) (e) 1.13
Total assets 467,014 376,406 433,864 417,187 346,741
Long-term debt including
current maturities 415,688 245,994 250,712 244,706 109,038
</TABLE>
Notes: All special items listed below are pre-tax.
(a) Excludes a $147.7 million impairment loss related to the accelerated
retirement of the DC-9 fleet as a result of the introduction of the B717
fleet and a gain of $19.6 million for a litigation settlement.
(b) See Note 1 to the consolidated financial statements.
(c) Excludes a $27.5 million impairment loss related to the acceleration of the
retirement of four owned B737 aircraft as a result of the elimination of
their original route system and continued operating losses upon their
redeployment to other routes.
(d) Excludes a $24.8 million charge related to the shutdown of the airline in
1996 and a $5.2 million charge for the renaming of the airline in connection
with the merger with Airways Corporation in November 1997.
(e) Excludes a $68.0 million charge related to the shutdown of the airline in
1996, a $3.9 million gain on the sale of property, a $13.0 million
arrangement fee for aircraft transfer and a $2.8 million gain on insurance
recovery.
25
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- -------------------------------------------------------------------------------
OF OPERATIONS
- -------------
Results of Operations
For the twelve months ended December 31, 1999, 1998 and 1997
The following is a table of selected operational statistics and financial data
for the twelve months ended December 31, 1999, 1998 and 1997:
<TABLE>
<CAPTION>
Twelve Months Ended
December 31,
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Revenues passengers 6,460,533 5,462,827 3,005,731
Revenue passengers miles /(1)/ (000's) 3,473,490 3,244,539 1,597,585
Available seat miles /(2)/ (000's) 5,467,556 5,442,234 3,017,892
Passenger load factor /(3)/ 63.5% 59.6% 52.9%
Break-even load factor /(4)/ 59.4% 61.5% 76.3%
Average yield per revenue
passenger mile /(5)/ 14.01(cents) 12.97(cents) 12.58(cents)
Passenger revenue per available
seat mile /(6)/ 8.90(cents) 7.73(cents) 6.66(cents)
Operating cost per available seat mile /(7)/ 8.19(cents) 7.91(cents) 9.38(cents)
Average stage length (miles) 528 546 468
Average cost of aircraft fuel per gallon 49.95(cents) 54.87(cents) 69.00(cents)
Average daily utilization /(8)/ (hours) 9:54 9:42 8:25
Number of aircraft in fleet at end of period 47 50 53
</TABLE>
(1) The number of scheduled revenue miles flown by passengers.
(2) The number of seats available for passengers multiplied by the number of
scheduled miles each seat is flown.
(3) The percentage of aircraft seating capacity that is utilized is calculated
by dividing revenue passenger miles by available seat miles.
(4) Excluding shutdown and other nonrecurring, rebranding and impairment
charges, the percentage of seats that must be occupied by revenue
passengers in order for the Company to break even on a pre-tax income
basis.
(5) The average amount one passenger pays to fly one mile.
(6) Passenger revenue divided by available seat miles.
(7) Operating expenses, excluding shutdown and other nonrecurring, rebranding
and impairment charges, divided by available seat miles.
(8) The average number of hours per day that an aircraft flown in revenue
service is operated.
26
<PAGE>
Operating expenses per Available Seat Mile: (excluding shutdown and other
nonrecurring, rebranding and impairment charges)
<TABLE>
<CAPTION>
For the twelve months
ended December 31,
1999 1998 1997
-------- --------- ---------
<S> <C> <C> <C>
Operating expenses
Salaries, wages and benefits 2.21(cents) 1.99(cents) 1.79(cents)
Aircraft fuel 1.25 1.32 1.62
Maintenance, materials and repairs 1.58 1.37 2.03
Commissions 0.68 0.64 0.33
Landing fees and other rents 0.49 0.43 0.60
Marketing and advertising 0.29 0.28 0.44
Aircraft rent 0.09 0.13 0.03
Depreciation 0.52 0.53 0.93
Other operating 1.08 1.22 1.61
---------- ---------- ----------
Total operating expenses 8.19(cents) 7.91(cents) 9.38(cents)
========== ========== ==========
</TABLE>
1999 Compared to 1998
Summary
Excluding the pre-tax impairment charge of $147.7 million and litigation
settlement gain of $19.6 million, we recorded net income of $29.1 million or 45
cents per share in 1999 versus a net loss, excluding a pre-tax impairment charge
of $27.5 million, of $13.2 million or 20 cents per share in 1998. We recorded a
net loss of $99.4 million for the year ended December 31, 1999 compared to a net
loss of $40.7 million for the year ended December 31, 1998.
Excluding the special items mentioned above, our operating income increased
$47.2 million to $56.1 million in 1999 from $8.9 million in 1998. Excluding
special items, our operating margin in 1999 was 11.1% versus an operating margin
of 2.0% in 1998.
Operating Revenues
Passenger revenues increased by 15.6% or $65.6 million in 1999 compared to 1998.
The growth in our passenger revenue stems from increasing traffic demand in both
the business and leisure market segments. Business class loads were up
significantly versus last year. Adjustments in pricing and inventory strategies
also led to gains in leisure traffic. Yield (the average amount a passenger
pays to fly one mile) increased by 8.0%, year over year, from 13.0 cents to 14.0
cents.
27
<PAGE>
Unit revenue increased 15.1%, from 7.7 cents to 8.9 cents in 1998 and 1999,
respectively - better improvements than any major airline in the industry.
Our traffic, or revenue passenger miles (RPMs), increased 7.1% or 229.0 million
on a 0.5% increase in capacity, or available seat miles (ASMs). For the year
ended December 31, 1999, load factor increased 3.9 points to 63.5% versus 59.6%
for the year ended December 31, 1998. However, we continue to experience strong
competition that could negatively impact future loads and yields.
Other revenue increased 121.8%, or $18.2 million, this year compared to last
year due to the $19.6 million gain from a litigation settlement.
Operating Expenses
Excluding the impairment charges in 1999 and 1998, operating expenses increased
$17.4 million or 4.0% year over year. Our operating cost per ASM, excluding
impairment charges, increased 3.5% to 8.19 cents from 7.91 cents a year ago.
Salaries, wages and benefits increased 11.3%, or $12.3 million, due to a 6.1%
increase in overall headcount and contractual wage increases for our union-
represented labor groups. Aircraft fuel expense decreased year over year by
$3.6 million, or 5.0%, due to a 9.0% decrease in the average fuel cost per
gallon offset by a 4.4% increase in fuel consumption. Maintenance increased
15.8% or $11.8 million, due to a volume increase of five check lines as a result
of completing our structural life improvement program, and six additional engine
overhauls. The timing of maintenance to be performed is determined by the
number of hours an aircraft and engine are flown. Commissions paid to travel
agents increased $2.4 million or 6.9% due to an increase in commissionable
sales, offset by a rate reduction from 10% to 8% during the second quarter of
1998 and a further reduction to 5% during the fourth quarter of 1999. Landing
fees and other rents increased $3.6 million compared to the year ended 1998 due
to increased departures. We operated 5.1% more departures in 1999 than 1998, at
96,858 and 92,141, respectively. Aircraft rent decreased $2.4 million in 1999
from 1998 due to the return of five leased B737 aircraft throughout the year.
Other operating expenses decreased by $7.3 million, or 11.0%, primarily due to
the decline of credit card chargebacks and communications costs.
In the fourth quarter of 1999, we decided to accelerate the retirement of our
owned DC-9 fleet to accommodate the introduction of the B717 fleet. In
connection with our decision to accelerate the retirement of these aircraft, we
performed an evaluation to determine, in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 121, whether future cash flows (undiscounted
and without interest charges) expected to result from the use and eventual
disposition of these aircraft would be less than the aggregate carrying amount
of these aircraft and related assets. As a result of the evaluation, we
determined that the estimated future cash flows expected to be generated by
these aircraft would be less than their carrying amount, and therefore these
aircraft are impaired as defined by SFAS No. 121. Consequently, the original
cost bases of these assets were reduced to reflect the fair market value at the
date the decision was made, resulting in a $147.7 million impairment charge. We
considered recent transactions and market trends involving similar aircraft in
determining the fair market value. See Note 10 to the consolidated financial
statements.
28
<PAGE>
Non-operating Expenses
Interest expense, net of interest income, increased 11.2% due to the November 3,
1999, issuance of $178.9 million of debt for financing ten B717 aircraft. See
Note 5 to the consolidated financial statements.
Income tax expense was $2.7 million and $0 in 1999 and 1998, respectively. The
1999 tax expense results from the utilization of a portion of our $141 million
of net operating loss ("NOL") carryforwards, existing at December 31, 1998,
offset in part by alternative minimum tax and the application to goodwill of the
tax benefit related to the realization of a portion of the Airways Corporation
NOL carryforwards. We have not recognized any benefit from the use beyond 1999
of NOL carryforwards because our evaluation of all the available evidence in
assessing the realizability of 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.
1998 Compared to 1997
Summary
Our results of operations for 1997 are not reflective of the results to be
expected in future periods. This comes as a result of reduced service levels
during the year of 1997, incremental costs incurred to reinitiate service to
certain markets and to reactivate aircraft taken out of service and the merger
of Airways Corporation into our Company in November 1997. Our financial results
include the operations of Airways Corporation only from and after November 17,
1997, the date of the Merger.
We recorded a net loss of $40.7 million and $96.7 million for the years ended
December 31, 1998 and 1997, respectively. Excluding the impairment charge of
$27.5 million, we recorded a net loss of $13.2 million, or 20 cents per share,
in 1998 versus a net loss of $66.6 million, excluding a charge of $30.1 million
related to rebranding and shutdown costs, or $1.19 per share, in 1997.
Excluding the special items previously mentioned, our operating income increased
$80.6 million, from an operating loss of $71.7 million in 1997 to operating
income of $8.9 million in 1998. Our operating margin in 1998 was 2.0% versus an
operating margin deficit of 33.9% in 1997.
Operating Revenues
Passenger revenues in 1998 were $420.9 million as compared to $200.9 million for
the year ending December 31, 1997. The 109.5% increase is principally due to an
81.8% increase in revenue passengers enplaned and a 103.1% increase in revenue
passenger miles. Our yield (the average amount that a passenger pays to fly one
mile) increased 3.2%, year over year, from 12.6 cents to 13.0 cents.
29
<PAGE>
Our RPMs increased 103.1%, or 1.6 billion, on an 80.3% increase in ASMs. For
the year ended December 31, 1998, load factor increased 6.7 points to 59.6%
versus 52.9% for the twelve months ended December 31, 1997.
Cargo revenue increased 55.0%, from $2.3 million in 1997 to $3.5 million in 1998
due to an 80.3% increase in capacity.
Other revenues increased 80.5%, or $6.7 million, in 1998 compared to 1997 due to
the 81.8% increase in revenue passengers enplaned.
Operating Expenses
Excluding the impairment charge in 1998 and rebranding and shutdown and other
nonrecurring charges in 1997, operating expenses increased $147.2 million or
52.0%. Our operating cost per ASM decreased 15.7% to 7.91 cents from 9.38 cents
in 1997. Labor costs increased from $54.1 million in 1997 to $108.5 million in
1998 primarily due to contractual wage increases for our union-represented labor
groups and the acquisition of Airways Corporation on November 17, 1997. Aircraft
fuel increased 47.4% primarily due to the increase in consumption related to
increased service levels, offset by a 21.7% decrease in price per gallon in 1998
from 69.0 cents per gallon 54.0 cents per gallon. Maintenance costs increased
21.7% due to additional check lines and engine overhauls principally resulting
from an increase in the number of operating aircraft from 44 at December 31,
1997 to 50 at December 31, 1998. Commissions expense increased 246.1% largely
due to the increase in passenger volume and the increase of travel agency
bookings through the Airline Reporting Corporation ("ARC"), which we joined in
September 1997. Landing fees and other rents increased 28.2%, from $18.2 million
in 1997 to $23.4 million in 1998, due to a 72% increase in number of departures.
Marketing and advertising increased 13.6% from $13.3 million in 1997 to $15.1
million in 1998. However, as a percentage of revenue, marketing and advertising
decreased 2.9 percentage points from 6.3% in 1997 to 3.4% in 1998, which is more
in line with industry standards. Aircraft rent increased from $0.9 million in
1997 to $7.2 million in 1998 due to a full year of B737 rent expense versus only
six weeks of aircraft rent expense recognized after the acquisition of Airways
Corporation in November 1997. Depreciation expense remained flat year over year.
Additional capital spending increased depreciation $12 million offset by a $12
million reduction due to revising the salvage values of our DC-9 equipment. See
Note 1 of the consolidated financial statements. Other operating expenses
increased 37.3%, or $18.0 million, in 1998 as compared to 1997, primarily as a
result of increases in passenger and aircraft servicing expenses.
In the fourth quarter of 1998, we decided to accelerate the retirement of four
owned Boeing B737 aircraft as a result of the elimination of their original
route system and continued operating losses upon their redeployment to other
routes. The B737s are intended to be replaced with B717 aircraft. In connection
with our decision to accelerate the retirement of these aircraft, which were
acquired in the acquisition of Airways Corporation, we performed an evaluation
to determine, in accordance with SFAS No. 121, whether future cash flows
(undiscounted and without interest charges) expected to result from the use and
eventual disposition of these aircraft would be less than the aggregate carrying
amount of these aircraft and related assets and an allocation of cost in excess
of net assets acquired resulting from the acquisition of Airways
30
<PAGE>
Corporation. SFAS No. 121 requires that when a group of assets being tested for
impairment was acquired as part of a business combination that was accounted for
using the purchase method of accounting, any cost in excess of net assets
acquired that arose as part of the transaction must be included as part of the
asset grouping. As a result of the evaluation, we determined that the estimated
future cash flows expected to be generated by these aircraft would be less than
their carrying amount and allocated cost in excess of net assets acquired, and
therefore these aircraft are impaired as defined by SFAS No. 121. Consequently,
the original cost bases of these assets were reduced to reflect the fair market
value at the date the decision was made, resulting in a $27.5 million impairment
loss. We considered recent transactions and market trends involving similar
aircraft in determining the fair market value. See Note 10 to our consolidated
financial statements.
During 1997, we incurred $30.1 million of costs attributable to rebranding the
airline and shutdown and other nonrecurring costs attributable to the continued
effects of the reduced schedule after the 1996 suspension of operations. No
such costs were incurred during 1998.
Non-operating Expenses
Interest expense, net, increased $4.5 million primarily due to the decrease in
interest income earned from excess cash as a result of cash and cash equivalents
decreasing from $86.0 million at December 31, 1997 to $10.9 million at December
31, 1998.
We have not recognized any benefit from the future use of operating loss
carryforwards because our 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. Our
income tax benefit was $0 and $22.8 million in 1998 and 1997, respectively. The
benefit recorded in 1997 was the result of operating loss carryback claims.
Outlook for 2000
During 1999, we celebrated many accomplishments on our return to profitability.
The accomplishments include, but are not limited to:
. Four quarters of profitability (exclusive of impairment loss in fourth quarter
and litigation settlement gain)
. Significant improvement in cash balance
. Introduction and delivery of eight B717 aircraft
. Awarded 75% of Department of Defense contract awards in which we bid -
estimated to be worth nearly $9.0 million per year
. Significant Revenue per ASM growth compared to the industry
31
<PAGE>
We expect 2000 to be another good year for our airline. We will benefit from
the travel agent commission reduction from 8% to 5%, reduced maintenance costs
per block hour and reduced depreciation expense as a result of the impairment
loss. We are exposed to high jet fuel prices without the benefit of a
significant hedge. Higher interest expense is also a risk we will face in 2000.
We are incurring higher interest expense due to aircraft financing. In
addition, there can be no assurance that attractive financing will be available
when we seek to refinance our $230.0 million of debt due in April 2001.
Year 2000
In prior years, we discussed the nature and progress of our plans to become Year
2000 ready. In late 1999, we completed our remediation and testing of systems.
As a result of those planning and implementation efforts, we experienced no
significant disruptions in mission critical information technology and non-
information technology systems and believe those systems successfully responded
to the Year 2000 date change. We expensed approximately $800,000 during 1999 in
connection with remediating our systems. We are not aware of any material
problems resulting from Year 2000 issues, either with our internal systems, or
the products and services of third parties. We will continue to monitor our
mission critical computer applications and those of our suppliers and vendors
throughout the year 2000 to ensure that any latent Year 2000 matters that may
arise are addressed promptly.
Liquidity and Capital Resources
We rely primarily on operating cash flows to provide working capital. We have
no lines of credit or other facilities. As of December 31, 1999, we had cash
and cash equivalents of $58.1 million compared to $10.9 million at December 31,
1998 and working capital deficit of $7.3 million compared to a working capital
deficit of $30.8 million at December 31, 1999 and 1998, respectively. We
generally must satisfy all of our working capital expenditure requirements from
cash provided by operating activities, from external capital sources or from the
sale of assets. Substantial portions of our assets have been pledged to secure
various issues of our outstanding indebtedness. To the extent that the pledged
assets are sold, the applicable financing agreements generally require the sales
proceeds to be applied to repay the corresponding indebtedness. To the extent
that our access to capital is constrained, we may not be able to make certain
capital expenditures or to continue to implement certain other aspects of our
strategic plan, and we may therefore be unable to achieve the full benefits
expected therefrom. Based on the favorable economic conditions of the U.S.
airline industry, we expect to be able to generate positive working capital
through our operations; however, we cannot predict whether the current favorable
economic trends and conditions will continue, or the effects of competition or
other factors, such as increased fuel prices, that are beyond our control.
As of December 31, 1999, cash and cash equivalents increased from December 31,
1998 by $47.2 million. Operating activities generated $75.7 million in cash.
Investing activities used cash of $197.7 million primarily related to the
acquisition of eight B717 aircraft and several DC-9 hush kits. Financing
activities generated cash of $169.2 million in connection with issuance of debt
for the acquisition of ten B717 aircraft offset by long-term debt payments.
32
<PAGE>
As of December 31, 1999, our operating fleet consisted of 35 DC-9 aircraft, four
B737 aircraft and eight B717 aircraft. We returned five leased B737 aircraft and
grounded six Stage 2 DC-9 and B737 aircraft during 1999.
We have contracted with Boeing for the purchase of 50 B717 aircraft for delivery
from 1999 to 2002 - of which eight had been delivered as of December 31, 1999.
During the third quarter of 1998, we reached an agreement with Boeing to defer
the remaining progress payments until the first delivery, which occurred in
September 1999. Progress payments resumed in September 1999 and we paid $6.6
million in progress payments through December 1999. There can be no assurance
that cash provided by Operations will be sufficient to meet the progress
payments for the B717s. If we exercise our option to acquire up to an
additional 50 B717 aircraft, additional payments could be required beginning in
2001. We expect to finance at least 85% of the cost of each of these aircraft.
We completed a private placement of $178.9 million, enhanced equipment trust
certificates (EETCs) on November 3, 1999. The proceeds will be used to purchase
the first ten B717 aircraft. The EETCs bear interest at 10.63% per annum and
are payable in semi-annual installments from April 17, 2000, through April 17,
2017. Although Boeing has agreed to provide financing support with respect to
the remaining aircraft to be acquired, we will be required to obtain the
financing from other sources. We believe that with the support to be provided
by Boeing, aircraft-related debt financing should be available when needed.
However, there is no assurance that we will be able to obtain sufficient
financing on attractive terms, if at all. If we are unable to secure acceptable
financing, we could be required to modify our aircraft acquisition plans or to
incur higher than anticipated financing costs, which could have a material
adverse effect on our results of operations and cash flows.
On November 5, 1999, we announced our decision to accelerate the retirement of
the DC-9 fleet to accommodate the introduction of the B717 fleet. The
accelerated retirement allows for a more moderate capacity growth and resulted
in a non-cash pretax fleet disposition charge of $147.7 million during the
fourth quarter of 1999.
As of December 31, 1999, our debt related to asset financing totaled $265.7
million, with respect to which aircraft and certain other equipment are pledged
as security. Included in such amount is $80.0 million of 10.50% Senior Secured
Notes due April 2001 under which interest is payable semi-annually and the
$178.9 million of 10.63% enhanced equipment trust certificates, of which a
portion of interest and principal is payable semi-annually. In addition, we
have $150.0 million of 10.25% Senior Notes outstanding. The principal balance
of the Senior Notes is due in April 2001 and interest is payable semi-annually.
The entire principal amount of the Senior Notes ($150.0 million) and Senior
Secured Notes ($80.0 million) will become due on April 15, 2001. We do not
expect to generate sufficient cash flow from operations to repay all $230.0
million of such debt by its due date. Accordingly, we will likely need to
refinance all or a portion of the outstanding debt through additional equity or
debt or a combination thereof. The ability to refinance our debt depends on our
future performance and financial results. Such results are subject to general
economic, financial, competitive, legislative, regulatory, and other factors
that are, to some extent, beyond our control. All of our debt has final
maturities ranging from 2000 to 2017 with scheduled debt payments as of December
31, 1999 as follows: 2000--$19.6 million, 2001--$232.2 million, 2002--$7.5
million, 2003--$4.6 million, 2004--$6.1 million and thereafter--$145.7 million.
33
<PAGE>
Certain debt bears interest at rates ranging from 5.85% to 11.67% per annum and
is repayable in consecutive monthly or quarterly installments over a four- to
seven-year period. One of these notes, with an aggregate unpaid principal
balance of approximately $1.2 million as of December 31, 1999, has a variable
rate of interest based on the London Interbank Offered Rate ("LIBOR") plus 1.50%
to 3.73%.
Due to the competitive nature of the airline industry, in the event of any
increase in the price of jet fuel, there can be no assurance that we would be
able to pass on increased fuel prices to our customers by increasing fares.
New Accounting Standards
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 133 establishes accounting and
reporting standards for derivative instruments and for hedging activities. SFAS
No. 133 is effective for periods beginning after June 15, 2000. We are
currently evaluating SFAS No. 133 and have not yet determined its impact on the
consolidated financial statements.
Forward-Looking Statements
The statements that are contained in this Report that are not historical facts
are "forward-looking statements" which can be identified by the use of forward-
looking terminology such as "expects", "intends", "believes", "will" or the
negative thereof or other variations thereon or comparable terminology.
We wish to caution the reader that the forward-looking statements contained in
this Report are only estimates or predictions and are not historical facts.
Such statements include, but are not limited to:
. Our performance in future periods;
. our ability to maintain profitability and to generate working capital from
operations;
. our ability to take delivery of and to finance aircraft;
. the adequacy of our Company's insurance coverage; and
. the results of pending litigation or investigations.
No assurance can be given that future results will be achieved and actual events
or results may differ materially as a result of risks facing our Company or
actual events differing from the assumptions underlying such statements. Such
risks and assumptions include, but are not limited to:
. consumer demand and acceptance of services offered by our Company;
34
<PAGE>
. our ability to achieve and maintain acceptable cost levels;
. fare levels and actions by competitors;
. regulatory matters, general economic conditions; commodity prices; and
. changing business strategy and results of litigation.
Additional information concerning factors that could cause actual results to
vary materially from the future results indicated, expressed or implied in such
forward-looking statements is contained elsewhere in our Form 10-K for the year
ended December 31, 1999.
All forward-looking statements made in connection with this Report are expressly
qualified in their entirety by these cautionary statements. Our Company
disclaims any obligation to update or correct any of its forward-looking
statements.
Business Strategy
Even though we currently have no plans to do so, we may change our business
strategy in the future and may not pursue some of the goals and initiatives
stated herein.
35
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
----------------------------------------------------------
Market Risk Sensitive Instruments and Positions
We are subject to certain market risks including interest rates and commodity
prices (i.e., aircraft fuel). The adverse effects of changes in these markets
pose a potential loss as discussed below. The sensitivity analyses do not
consider the effects that such adverse changes may have on overall economic
activity nor do they consider additional actions we may take to mitigate our
exposure to such changes. Actual results may differ. See the Notes to the
consolidated financial statements for a description of our Company's financial
policies and additional information.
Interest Rates
As of December 31, 1999 and 1998, the fair value of our long-term debt was
estimated to be $392.3 million and $175.3 million, respectively, based upon
discounted future cash flows using current incremental borrowing rates for
similar types of instruments or market prices. Market risk, estimated as the
potential increase in fair value resulting from a hypothetical one percent
decrease in interest rates, was approximately $8.0 million as of December 31,
1999, and approximately $4.2 million as of December 31, 1998.
Aircraft Fuel
Our results of operations are impacted by changes in the price of aircraft fuel.
Excluding the impairment charges, aircraft fuel accounted for 15.3% and 16.7% of
our operating expenses in 1999 and 1998, respectively. Based on our 2000
projected fuel consumption, a ten percent increase in the average price per
gallon of aircraft fuel at December 31, 1999 would increase fuel expense for the
next twelve months by approximately $10.8 million, net of hedging instruments
outstanding at December 31, 1999. Comparatively, based on 1999 fuel usage, a
10% increase in fuel prices would have resulted in an increase in fuel expense
of approximately $2.8 million, net of hedging instruments utilized during 1999.
The increase in market risk is primarily due to our fuel hedging contracts
covering significantly more fuel requirements in 1999 than in 2000. In 1999, we
entered into fixed rate swap contracts and jet fuel purchase commitments in
order to manage the price risk and utilization of fuel cost. At December 31,
1999, we had hedged approximately 11% of our projected fuel requirements for the
first six months of 2000.
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.
36
<PAGE>
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 18, 2000, 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 18, 2000, 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 "STOCK OWNERSHIP" 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 18, 2000, 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 for the Company's annual meeting
of Stockholders to be held May 18, 2000, which Proxy Statement is to be filed
with the Commission.
37
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
----------------------------------------------------------------
(a) 1. 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:
4.13 Second Supplemental Indenture dated April 23, 1999, among the
Company, its subsidiaries and The Bank of New York.
4.14 Third Supplemental Indenture dated December 30, 1999, among the
Company, its subsidiaries and The Bank of New York
10.21 Note Purchase Agreement dated as of November 3, 1999, among the
Company, AirTran Airways, Inc., State Street Bank and Trust Company
of Connecticut, National Association and First Security Bank, National
Association.
Exhibit 21 - Subsidiaries of the Registrant
Exhibit 23 - Consent of Independent Auditors
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K:
Form 8-K dated October 21, 1999 to report third quarter earnings.
(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) (10)
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 Company, ValuJet Airlines, Inc. and
VJET Acquisition, Inc. (1)
4.3 Plan of Reorganization and Agreement of Merger dated July 10, 1997,
between the Company and Airways Corporation (2)
4.4 Plan of Merger dated July 10, 1997, between the Company and Airways
Corporation (2)
4.5 Amendment to Plan of Reorganization and Agreement of Merger between the
Company and Airways Corporation (2)
38
<PAGE>
4.6 Amendment to Plan of Merger between the Company 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 First Supplemental Indenture dated August 26, 1996, among the Company, its
subsidiaries, Bank of Montreal Trust Company and Fleet National Bank (11)
4.9 Second Supplemental Indenture dated August 5, 1997, among the Company, its
subsidiaries and State Street Bank and Trust (10)
4.10 Third Supplemental Indenture dated November 17, 1997, among the Company,
its subsidiaries and State Street Bank and Trust (11)
4.11 Indenture dated August 13, 1997, among the Company, its subsidiaries and
The Bank of New York, as Trustee (4)
4.12 First Supplemental Indenture dated November 17, 1997, among the Company,
its subsidiaries and The Bank of New York (11)
4.13 Second Supplemental Indenture dated April 23, 1999, among the Company, its
subsidiaries and The Bank of New York (Page 71)
4.14 Third Supplemental Indenture dated December 30, 1999, among the Company,
its subsidiaries and The Bank of New York (Page 75)
10.1 Incentive Stock Option Agreement dated June 1, 1993, between ValuJet
Airlines, Inc. and Lewis H. Jordan (5)(6)
10.2 1993 Incentive Stock Option Plan (5)(6)
10.3 1994 Stock Option Plan (5)(6)
10.5 1995 Employee Stock Purchase Plan (7)
10.6 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
(8)
10.7 Agreement and Lease of Premises Central Passenger Terminal Complex
Hartsfield Atlanta International Airport (8)
10.8 1996 Stock Option Plan (6)(9)
10.9 Consulting Agreement dated November 17, 1997, between the Company and
Robert L. Priddy (6) (10)
10.10 Consulting Agreement dated November 17, 1997, between the Company and
Lewis H. Jordan (6) (10)
10.11 Airways Corporation 1995 Stock Option Plan (6)(12)
10.12 Airways Corporation 1995 Directors Stock Option Plan (6)(12)
10.13 Lease of headquarters in Orlando, Florida, dated November 14, 1995 (13)
10.14 Orlando International Lease and Use Agreement (14)
10.15 Orlando Tradeport Maintenance Hangar Lease Agreement by and between
Greater Orlando Aviation Authority and Page AvJet Corporation dated
December 11, 1989 (15)
10.16 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 (15)
10.17 Agreement and Second Amendment to Orlando Tradeport Maintenance Hangar
Lease Agreement by and between Greater Orlando Aviation Authority and The
Company. dated January 25, 1996 (15)
10.18 Supplemental Agreement dated as of November 17, 1998, between the
Company and D. Joseph Corr (11)
10.19 Employment Agreement dated as of January 4, 1999, between the Company and
Joseph B. Leonard (11)
39
<PAGE>
10.20 Loan Agreement dated as of January 25, 1999, among the Company, Lewis H.
Jordan, Robert L Priddy, Timothy P. Flynn and Maurice J. Gallagher, Jr.
(11)
10.21 Note Purchase Agreement dated as of November 3, 1999, among the Company,
AirTran Airways, Inc., State Street Bank and Trust Company of
Connecticut National Association and First Security Bank, National
Association. (Page 82)
21 Subsidiaries of the Registrant (Page 574)
23 Consent of Independent Auditors (Page 575)
27 Financial Data Schedule (Page 576)
- ---------------
(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, 1995, Commission File No. 0-24164, filed
with the Commission on August 11, 1995.
(8) Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1995, Commission File No. 0-24164, filed with
the Commission on March 29, 1996 and amendment thereto.
(9) Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1996, Commission File No. 0-24164, filed with
the Commission on March 31, 1997.
(10) Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1997, Commission File No. 0-26914, filed with
the Commission on March 27, 1998.
(11) Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1998, Commission File No. 0-26914, filed with
the Commission on
40
<PAGE>
March 31, 1999.
(12) Incorporated by reference to Airways Corporation's Registration Statement
on Form S-4, registration number 33-93104, filed with the Commission.
(13) Incorporated by reference to the Quarterly Report on Form 10-Q of Airways
Corporation (Commission File No. 0-26432) for the quarter ended December
31, 1995.
(14) Incorporated by reference to the Quarterly Report on Form 10-Q of Airways
Corporation (Commission File No. 0-26432) for the quarter ended December
31, 1996.
(15) Incorporated by reference to the Annual Report on Form 10-K of Airways
Corporation (Commission File No. 0-26432) for the year ended March 31,
1997.
41
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
AIRTRAN HOLDINGS, INC.
By:
/s/ Joseph B. Leonard
---------------------
Joseph B. Leonard
Chairman, President and Chief Executive Officer
Date: March 22, 2000
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:
<TABLE>
<CAPTION>
<S> <C>
/s/ Joseph B. Leonard March 22, 2000
- ---------------------
Joseph B. Leonard
Chairman, President and Chief Executive Officer
/s/ Robert L. Fornaro March 22, 2000
- ---------------------
Robert L. Fornaro
President and Chief Financial Officer
/s/ David W. Lancelot March 22, 2000
- ---------------------
David W. Lancelot
Vice President and Controller (Chief Accounting Officer)
/s/ Don L. Chapman March 22, 2000
- ------------------
Don L. Chapman
Director
/s/ John K. Ellingboe March 22, 2000
- ---------------------
John K. Ellingboe
Director
/s/ Lewis H. Jordan March 22, 2000
- -------------------
Lewis H. Jordan
Director
/s/ Robert L. Priddy March 22, 2000
- --------------------
Robert L. Priddy
Director
</TABLE>
42
<PAGE>
<TABLE>
<S> <C>
/s/ Robert D. Swenson March 22, 2000
- ---------------------
Robert D. Swenson
Director
</TABLE>
43
<PAGE>
ANNUAL REPORT ON FORM 10-K
ITEM 8, ITEM 14(a)(1) and (2), (c) and (d)
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CERTAIN EXHIBITS
FINANCIAL STATEMENT SCHEDULE
YEAR ENDED DECEMBER 31, 1999
AirTran Holdings, Inc.
Orlando, Florida
44
<PAGE>
The following consolidated financial statements of AirTran Holdings, Inc. are
included in Item 8:
CONTENTS
Consolidated statements of operations - Years ended
December 31, 1999, 1998, and 1997........................................ 47
Consolidated balance sheets - December 31, 1999 and 1998................. 48
Consolidated statements of stockholders' equity (deficit) - Years ended
December 31, 1999, 1998, and 1997........................................ 50
Consolidated statements of cash flows - Years ended
December 31, 1999, 1998, and 1997........................................ 51
Notes to consolidated financial statements - December 31, 1999........... 52
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
regulations of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable and therefore have been omitted.
45
<PAGE>
Report of Independent Auditors
The Stockholders and Board of Directors
AirTran Holdings, Inc.
We have audited the accompanying consolidated balance sheets of AirTran
Holdings, Inc. as of December 31, 1999 and 1998 and the related consolidated
statements of operations, stockholders' equity (deficit), and cash flows for
each of the three years in the period ended December 31, 1999. 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 auditing standards generally
accepted in the United States. 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, 1999 and 1998, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1999, in conformity with accounting principles generally
accepted in the United States. 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
January 25, 2000
46
<PAGE>
AirTran Holdings, Inc.
Consolidated Statements of Operations
(In thousands, except per share data)
<TABLE>
<CAPTION>
Year ended December 31,
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Operating revenues:
Passenger $486,487 $420,901 $200,939
Cargo 3,888 3,488 2,250
Other 33,093 14,918 8,267
-------- -------- --------
Total operating revenues 523,468 439,307 211,456
Operating expenses:
Salaries, wages and benefits 120,737 108,461 54,133
Aircraft fuel 68,331 71,922 48,797
Maintenance, materials and repairs 86,374 74,577 61,270
Commissions 37,278 34,886 10,079
Landing fees and other rents 27,004 23,366 18,227
Marketing and advertising 15,643 15,112 13,299
Aircraft rent 4,869 7,241 946
Depreciation 28,533 28,591 28,148
Other operating 58,952 66,216 48,241
Impairment loss 147,735 27,492 -
Shutdown and other nonrecurring - - 24,839
Rebranding - - 5,243
-------- -------- --------
Total operating expenses 595,456 457,864 313,222
-------- -------- --------
Operating loss (71,988) (18,557) (101,766)
Interest (income) expense:
Interest income (3,183) (3,181) (6,659)
Interest expense 27,850 25,362 24,331
-------- -------- --------
Interest expense, net 24,667 22,181 17,672
-------- -------- --------
Loss before income taxes (96,655) (40,738) (119,438)
Income tax expense (benefit) 2,739 - (22,775)
-------- -------- ---------
Net loss $(99,394) $(40,738) $ (96,663)
======== ======== =========
Basic and diluted loss per share $ (1.53) $ (0.63) $ (1.72)
======== ======== =========
Weighted average shares outstanding
(basic and diluted) 65,097 64,641 56,068
======== ======== =========
</TABLE>
See accompanying notes to consolidated financial statements.
47
<PAGE>
AirTran Holdings, Inc.
Consolidated Balance Sheets
(In thousands, except per share data)
<TABLE>
<CAPTION>
December 31,
Assets 1999 1998
- ------ -------- --------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 58,102 $ 10,882
Restricted cash 18,069 13,459
Accounts receivable, less allowance of $927 and
$1,325 at December 31, 1999 and 1998, respectively 7,599 7,784
Spare parts, materials and supplies, less allowance
for obsolescence of $2,260 and $4,259 at
December 31, 1999 and 1998, respectively 5,816 11,486
Prepaid expenses 14,058 9,346
-------- --------
Total current assets 103,644 52,957
Property and equipment:
Flight equipment 244,662 306,026
Less: Accumulated depreciation (4,973) (87,084)
-------- --------
239,689 218,942
Purchase deposits for flight equipment 22,562 36,518
Other property and equipment 24,914 23,491
Less: Accumulated depreciation (13,436) (10,542)
-------- --------
11,478 12,949
-------- --------
273,729 268,409
Other assets:
Intangibles resulting from business acquisition 38,862 42,727
Unexpended debt proceeds 39,232 -
Debt issuance costs 5,733 6,956
Other assets 5,814 5,357
-------- --------
Total assets $467,014 $376,406
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
48
<PAGE>
AirTran Holdings, Inc.
Consolidated Balance Sheets
(In thousands, except per share data)
<TABLE>
<CAPTION>
December 31,
Liabilities and Stockholders' Equity (Deficit) 1999 1998
- ---------------------------------------------- -------- --------
<S> <C> <C>
Current liabilities:
Accounts payable $ 10,410 $ 13,252
Accrued liabilities 57,456 44,508
Air traffic liability 23,491 17,022
Current portion of long-term debt 19,569 8,929
-------- --------
Total current liabilities 110,926 83,711
Long-term debt, less current portion 396,119 237,065
Stockholders' equity (deficit):
Preferred stock, $.01 par value per share, 5,000 shares
authorized, no shares issued or outstanding - -
Common stock, $.001 par value per share, 1,000,000
shares authorized, and 65,698 and 64,898 shares
issued and outstanding at December 31, 1999 and
1998, respectively 66 65
Additional paid-in capital 150,589 146,857
Accumulated deficit (190,686) (91,292)
--------- --------
Total stockholders' equity (deficit) (40,031) 55,630
--------- --------
Total liabilities and stockholders' equity (deficit) $ 467,014 $376,406
========= ========
</TABLE>
See accompanying notes to consolidated financial statements.
49
<PAGE>
AirTran Holdings, Inc.
Consolidated Statements of Stockholders' Equity (Deficit)
(In thousands)
<TABLE>
<CAPTION>
Common Stock
--------------
Retained Total
Additional Earnings Stockholders'
Paid-in (Accumulated Equity
Shares Amount Capital Deficit) (Deficit)
----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1997 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
Issuance of common stock for exercise of options 563 1 1,790 - 1,791
Issuance of common stock under stock purchase plan 23 - 130 - 130
Net loss - - - (40,738) (40,738)
----------------------------------------------------------------
Balance at December 31, 1998 64,898 65 146,857 (91,292) 55,630
Issuance of common stock for exercise of option 226 - 1,031 - 1,031
Issuance of common stock under stock purchase plan 51 - 202 - 202
Issuance of common stock in litigation settlement 523 1 2,499 - 2,500
Net loss - - - (99,394) (99,394)
----------------------------------------------------------------
Balance at December 31, 1999 65,698 $ 66 $150,589 $(190,686) $(40,031)
================================================================
See accompanying notes to consolidated financial statements.
</TABLE>
50
<PAGE>
AirTran Holdings, Inc.
Consolidated Statements of Cash Flows
(In thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
1999 1998 1997
---------- --------- ---------
<S> <C> <C> <C>
Operating activities:
Net loss $ (99,394) $(40,738) $ (96,663)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 30,432 31,525 32,376
Impairment loss 147,735 27,492 -
Provisions for uncollectible accounts 4,022 8,003 2,895
Deferred income taxes 2,387 - (13,221)
Changes in current operating assets and liabilities:
Restricted cash (4,610) (7,494) 4,480
Accounts receivable (3,837) (11,425) (1,420)
Spare parts, materials and supplies (1,657) (1,878) (94)
Prepaid expenses and deposits (5,169) 5,911 5,556
Accounts payable and accrued liabilities (636) (19,476) 28,879
Air traffic liability 6,469 2,106 153
Income tax payable - - 21,472
--------- -------- ---------
Net cash flows provided by (used for) operating activities 75,742 (5,974) (15,587)
Investing activities:
Purchases of property and equipment (187,667) (66,716) (30,349)
Refund of aircraft purchase deposits 4,374 - -
Cash paid for acquisition, net of cash acquired - - (364)
Preacquisition advance to Airways Corporation - - (11,681)
Restricted funds for aircraft purchases (39,232) - -
Proceeds from disposal of equipment 24,815 370 3,595
--------- -------- ---------
Net cash flows used for investing activities (197,710) (66,346) (38,799)
Financing activities;
Issuance of long-term debt 244,756 6,100 72,493
Payments of long-term debt (76,801) (10,844) (83,142)
Proceeds from sale of common stock 1,233 1,921 1,047
--------- --------- ---------
Net cash flows provided (used for) financing activities 169,188 (2,823) (9,602)
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents 47,220 (75,143) (63,988)
Cash and cash equivalents at beginning of period 10,882 86,025 150,013
--------- --------- ---------
Cash and cash equivalents at end of period $ 58,102 $ 10,882 $ 86,025
========= ========= =========
Supplemental disclosures of cash flow activities:
Cash paid for interest, net of amounts capitalized $ 23,911 $ 21,557 $ 22,776
========= ========= =========
Income taxes (refunded) paid $ 420 $ (9,686) $ (31,124)
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
51
<PAGE>
AirTran Holdings, Inc.
Notes to Consolidated Financial Statements
December 31, 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Reorganization and Principles of Consolidation
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 AirTran Holdings, Inc.
(formerly ValuJet, Inc.) and AirTran Airways, Inc. ("AirTran Airways"), Airways'
wholly-owned subsidiary, became a wholly-owned subsidiary of AirTran Holdings,
Inc. On August 6, 1999, AirTran Airlines, Inc., a wholly-owned subsidiary of
the Company, was merged with and into AirTran Airways. See Note 2.
The consolidated financial statements include the accounts of the Company and
its subsidiaries, all of which are wholly-owned. Significant inter-company
accounts and transactions have been eliminated in consolidation.
Description of Business
The Company offers affordable scheduled air transportation and mail 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 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.
52
<PAGE>
Spare Parts, Materials 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 used.
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 salvage values using the straight-line method.
The B717 fleet has a salvage value of 10% and useful life of 25 years. In
conjunction with the 1999 impairment charge, the DC-9 fleet was written down to
its fair market value. Accordingly, the salvage values were revised to 38% -
52%, and the useful lives were revised to 1 - 3 years. In conjunction with the
1998 impairment charge, the B737 fleet was written down to its fair market
value, and the Company believes that the fair market value is indicative of its
salvage value. The useful lives of the B737 aircraft were revised to two years.
Aircraft parts are depreciated over the respective fleet life to a salvage value
of 5%.
Other property and equipment is depreciated over three to ten years.
The estimated salvage values and depreciable lives are periodically reviewed for
reasonableness and revised if necessary. At January 1, 1998, the Company
revised its salvage values and useful lives on its DC-9 fleet and related
equipment as outlined below:
1997 1998 1997 1998
Salvage Value Salvage Value Useful Life Useful Life
------------- ------------- ----------- -----------
Airframes 10% 40% 10-20 years 10-12 years
Engines 10% 10% 3 years 10-12 years
Aircraft parts 5-50% 5% 3 years fleet life
The revised salvage value of the Company's DC-9 fleet ranged from approximately
$434,000 to $2,614,000 per aircraft. The effect of this change for the year
ended December 31, 1998, was to increase income by approximately $12 million or
$0.19 per share. At the time, these estimates more accurately reflected
management's expectations of estimated fair values at the anticipated dates of
disposal.
53
<PAGE>
Measurement of Impairment
In accordance with Statement of Financial Accounting Standard No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of ("SFAS No. 121"), the Company records impairment losses on long-
lived assets used in operations when events or circumstances indicate that the
assets may be impaired and the undiscounted cash flows estimated to be generated
by those assets are less than the net book value of those assets.
Intangibles Resulting from Business Acquisition
Intangibles resulting from business acquisition consist of cost in excess of net
assets acquired and the trade name and are being amortized using the straight-
line method over 30 years. Accumulated amortization at December 31, 1999 and
1998 was approximately $3,704,000 and $2,227,000, respectively.
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) are 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.
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 1999,
1998 and 1997, approximately $6,736,000, $3,339,000 and $1,555,000 of interest
cost was capitalized, respectively.
Aircraft and Engine Maintenance
The Company accounts for airframe and 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 airframe 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 $14,799,000, $14,835,000 and $13,087,000
for the years ended December 31, 1999, 1998 and 1997, 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.
54
<PAGE>
Rebranding Expenses
Rebranding expenses represent costs incurred in 1997 in connection with the
Company's name change such as costs for advertising, new signs, uniforms and
conforming information systems.
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.
SFAS No. 123, Accounting for Stock-Based Compensation, provides an alternative
to APB Opinion No. 25 in accounting for stock-based compensation issued to
employees. However, the Company will continue to account for stock-based
compensation in accordance with APB Opinion No. 25.
Net Loss Per Share
Net loss per share (basic and diluted) was computed by dividing net loss by the
weighted average number of shares of common stock outstanding. Common stock
equivalents were anti-dilutive and therefore excluded from the computation of
weighted average shares used in computing diluted loss per share.
Impact of Recently Issued Accounting Standards
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 133 establishes accounting and
reporting standards for derivative instruments and for hedging activities. SFAS
No. 133 is effective for periods beginning after June 15, 2000. The Company is
currently evaluating SFAS No. 133 and has not yet determined its impact on the
consolidated financial statements.
Reclassification
Operating expenses in the 1998 and 1997 financial statements have been
reclassified to the current presentation. This presentation complies with
current industry standards. Certain other prior year amounts have been
reclassified to conform with the current year financial statement presentation.
2. Acquisitions
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
55
<PAGE>
price was approximately $68,374,000 compromised 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; 50,000 warrants to purchase the Company's common stock valued at
$210,000; 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 tangible
and intangible assets purchased and the liabilities assumed based on the
estimated fair market values at the date of acquisition. The allocation of the
purchase price was finalized in 1998 resulting in an $8,154,000 increase in
goodwill. The excess of cost over the fair value of the net assets acquired has
been recorded as goodwill and is being amortized on a straight-line basis over
30 years.
The non-cash investing activity for the acquisition is as follows:
Fair value of assets acquired $ 45,709
Intangibles resulting from business acquisition 58,029
Liabilities assumed (36,710)
Fair value of common stock and options issued (66,664)
--------
Net cash paid for acquisition $ 364
========
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 period 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 market 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
Year Ended December 31, 1997
(In thousands, except per share data)
Total operating revenues $ 303,669
Net loss (107,017)
Net loss per share:
basic and diluted (1.67)
3. Commitments and Contingencies
Of the numerous lawsuits that were filed against the Company seeking damages
attributable to those on Flight 592, there are two remaining cases proceeding in
state courts in Florida and Texas. As all claims are handled independently by
the Company's insurance carrier, the Company cannot reasonably estimate the
amount of liability that may 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
56
<PAGE>
statements. The Company believes that the $750 million coverage available with
respect to these claims will be sufficient to cover all claims arising from the
accident. However, 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.
In November 1997, the Company filed a suit against SabreTech and its parent
corporation seeking to hold them responsible for the accident involving Flight
592. On September 23, 1999, the Company settled its lawsuit against SabreTech
and its parent. The net proceeds of $19,640,000 from the settlement are
included in other revenue in the 1999 statement of operations.
Several stockholder class action suits were filed against the Company and
certain of its current and former executive officers and Directors. The suits
were subsequently consolidated into a single action. On December 31, 1998, the
Company entered into a Memorandum of Understanding to settle the consolidated
lawsuit. Although the Company denied that it violated any of its obligations
under the federal securities laws, it paid $2.5 million in cash and $2.5 million
in common stock in the settlement which was approved on October 28, 1999.
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, 1999, the Company's contractual commitments consisted primarily
of scheduled aircraft acquisitions. The Company has entered into a contract with
The Boeing Company to purchase 50 new B717 aircraft, to be delivered from 1999
to 2002, with options to purchase another 50 B717 aircraft. Aggregate funding
needed for these and all other aircraft commitments was approximately $780
million at December 31, 1999.
Approximately $86 million of this amount is required to be paid in progress
payments due from 2000 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 2001. In conjunction with these
contractual commitments, the Company has made non-refundable deposits of
approximately $22,562,000 at December 31, 1999.
57
<PAGE>
The following chart outlines the approximate future required deposits for
aircraft progress payments as of December 31, 1999 (in thousands):
2000 $56,211
2001 29,565
2002 -
-------
$85,776
=======
4. Fuel Price Risk Management
The Company entered into two fixed rate fuel swap contracts to protect against
increases in jet fuel prices. Under the swap agreements, the Company receives or
makes payments based on the difference between a fixed price and a variable
price for certain fuel commodities. The change in market value of such
agreements has a high correlation to the price changes of the fuel being hedged.
Gains or losses on the fuel hedging agreements are recognized as a component of
fuel expense when the underlying fuel being hedged is used. Gains and losses on
the fuel hedging agreements would be recognized immediately should the changes
in the market value of the agreements cease to have a high correlation to the
price changes of the fuel being hedged. At December 31, 1999, the Company had a
fuel hedging agreement with a broker-dealer on approximately 7.2 million gallons
of fuel products, which represents 11% of its expected fuel needs for the first
six months of 2000. The fair value of the Company's fuel hedging agreement at
December 31, 1999, representing the amount the Company would receive upon
termination of the agreement, totaled $1.1 million. If in the future, a fuel
swap agreement were terminated, any resulting gain or loss would be deferred and
amortized to fuel expense over the remaining life of the agreement. A default
by the broker-dealer to the swap agreement would expose the Company to potential
fuel price risk on the remaining fuel purchases in that the Company would be
required to purchase fuel at the current fuel price rather than at the swap
agreement exchange rate. The Company does not enter into fuel swap contracts
for trading purposes.
58
<PAGE>
5. Accrued Liabilities
December 31,
1999 1998
-------- --------
(In Thousands)
Accrued maintenance $24,278 $15,541
Accrued interest 9,447 5,508
Accrued salaries, wages and benefits 8,961 4,931
Deferred gain 6,300 -
Accrued federal excise taxes 2,176 3,042
Other 6,294 15,486
------- -------
$57,456 $44,508
======= =======
6. Long-Term Debt
December 31,
1999 1998
-------- --------
(In Thousands)
Aircraft notes payable through 2017, 10.63% weighted
average interest rate $178,850 $ -
Senior notes due April 2001, 10.25% interest rate 150,000 150,000
Senior secured notes due April 2001, 10.50% interest rate 80,000 80,000
Promissory notes for aircraft and other equipment payable
through 2002, 5.85% to 11.7% interest rates 6,838 15,994
-------- --------
415,688 245,994
Less current maturities (19,569) (8,929)
-------- --------
$396,119 $237,065
======== ========
The Company completed a private placement of $178,850,000 enhanced equipment
trust certificates (EETCs) on November 3, 1999. The proceeds have been and will
be used to purchase the first ten B717 aircraft, which will serve as collateral
for the EETCs. Unexpended proceeds from the EETCs issue, $39,232,000 at
December 31, 1999, are presented as a non-current asset in the balance sheet.
The promissory notes relate primarily to aircraft financing and bear interest at
rates ranging from 5.85% to 11.67% 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. One of these notes, with an aggregate unpaid principal balance of
approximately $1,200,000 at December 31, 1999, has a variable rate of interest
based on the London Interbank Offered Rate ("LIBOR") (5.82% at December 31,
1999) plus a range of 1.50% to 3.73%.
59
<PAGE>
Certain aircraft, engines, computer and telephone equipment with a book value
totaling approximately $218,028,000 serve as collateral on the Senior Secured
Notes, EETC's and promissory notes.
Future long-term debt principal payments at December 31, 1999 are as follows (in
thousands):
2000 $ 19,569
2001 232,158
2002 7,523
2003 4,643
2004 6,142
Thereafter 145,653
--------
$415,688
========
7. Leases
The Company leases seven DC-9's and one B737 under operating leases with terms
that expire in 2003. The Company has the option to renew the DC-9 lease for one
or more periods of not less than six months, with the renewal term to commence
upon the expiration of the original term. 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, 1999, 1998 and 1997 was approximately
$21,705,000, $23,851,000 and $13,655,000, respectively.
The following schedule outlines the future minimum lease payments at December
31, 1999, under non-cancelable operating leases with initial terms in excess of
one year (in thousands):
2000 $ 18,059
2001 17,208
2002 15,609
2003 15,233
2004 8,700
Thereafter 45,623
--------
$120,432
========
8. Stock Option Plans
The 1993 Incentive Stock Option Plan (the "1993 Plan") provides up to 4,800,000
options to be granted to officers, directors and key employees to purchase
shares of
60
<PAGE>
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.
The 1994 Stock Option Plan (the "1994 Plan") provides up to 4,000,000 incentive
stock options or non-qualified options to be granted to officers, directors, key
employees and consultants of the Company.
The 1996 Stock Option Plan (the "1996 Plan") provides up to 5,000,000 incentive
stock options or non-qualified options to 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.
Pro forma information regarding net loss and loss per share is required by SFAS
No. 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 1999,
1998 and 1997, respectively: risk-free interest rates of 5.0%, 5.4% and 5.7%; no
dividend yields; volatility factors of the expected market price of the
Company's common stock of 0.648, 0.710 and 0.570; and a weighted average
expected life of the options of 6 years.
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options that 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.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period.
61
<PAGE>
The Company's pro forma information is as follows (in thousands, except per
share data):
1999 1998 1997
--------- -------- --------
Pro forma net loss $(102,173) $(42,279) $(97,876)
Basic and diluted pro forma
net loss per share (1.57) (0.65) (1.75)
Because SFAS No. 123 is applicable only to options granted subsequent to
December 31, 1994, its pro forma effect is not fully reflected until 1999.
A summary of stock option activity under the aforementioned plans is as follows:
Weighted
Average
Shares Price Range Price
--------- ------------- ------
Balance at January 1, 1997 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
Granted 235,000 5.50 - 8.13 7.67
Exercised (562,580) 0.17 - 5.69 2.81
Canceled (997,870) 0.17 - 21.38 7.16
---------
Balance at December 31, 1998 6,790,980 0.17 - 23.19 4.71
Granted 2,571,000 3.03 - 6.41 3.52
Exercised (226,420) 0.17 - 5.50 4.56
Canceled (495,040) 3.13 - 21.50 7.04
---------
Balance at December 31, 1999 8,640,520 $0.17 - 23.19 $4.16
=========
Exercisable at December 31, 1999 5,382,149 $0.17 - 23.19 $3.61
=========
62
<PAGE>
The following table summarizes information concerning currently outstanding and
exercisable options:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
- -------------------------------------------------------- -------------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Range of Number Contractual Exercise Number Exercise
Exercise Prices Outstanding Life Price Exercisable Price
- --------------- ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$0.17 2,407,000 3.5 $ 0.17 2,407,000 $ 0.17
1.00-4.00 3,549,300 7.1 3.18 1,339,300 3.13
4.50-6.88 1,909,580 7.4 5.36 1,152,835 5.41
7.03-13.25 108,400 6.7 10.45 77,734 10.75
18.38-23.19 666,240 6.1 19.04 405,280 19.03
---------- ---------
$0.17-23.19 8,640,520 6.0 $ 4.14 5,382,149 $ 3.60
========== =========
</TABLE>
The weighted average fair value of options granted during 1999, 1998 and 1997,
with option prices equal to the market price on the date of grant, was $2.07,
$7.98 and $2.66, respectively. There were no options granted during 1999, 1998
and 1997 with option prices less than the market price of the stock on the date
of grant.
At December 31, 1999, the Company had reserved a total of 12,519,330 shares of
common stock for future issuance, upon exercise of stock options.
9. Income Taxes
The income tax provision (benefit) is as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Current:
Federal $ 352 $ - $ (9,554)
State - - -
------ ------ --------
Total current 352 - (9,554)
Deferred:
Federal 2,010 - (13,321)
State 377 - -
------ ------ --------
Total deferred 2,387 - (13,321)
------ ------ --------
$2,739 $ - $(22,875)
====== ====== ========
</TABLE>
63
<PAGE>
A reconciliation of the provision for income taxes (benefit) to the federal
statutory rate is as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
---------- --------- ----------
<S> <C> <C> <C>
Tax at statutory rate $(33,829) $(14,258) $(41,803)
State taxes, net of federal
benefit (3,089) (606) (4,761)
Goodwill 517 7,705 89
Alternative minimum tax 909 - -
Benefit of preacquisition net
operating loss carryforwards 2,387 - -
Other (434) (110) (570)
Valuation reserve 36,278 7,269 24,270
-------- --------- --------
$ 2,739 $ - $(22,775)
======== ========= ========
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax liabilities and assets are as follows (in thousands):
<TABLE>
<CAPTION>
December 31,
1999 1998
---------- ----------
<S> <C> <C>
Deferred tax liabilities:
Depreciation $ - $ 28,370
Other - 342
--------- ----------
Total deferred tax liabilities - 28,712
Deferred tax assets:
Depreciation 21,740 -
Accrued liabilities 1,011 2,362
Nonqualified stock options 930 930
Federal operating loss carryforwards 37,938 49,470
State operating loss carryforwards 6,741 8,158
AMT credit carryforwards 3,526 2,617
Other 4,024 4,807
--------- ----------
Total deferred tax assets 75,910 68,344
Valuation allowance for deferred
tax assets (75,910) (39,632)
--------- ----------
Net deferred tax assets - 28,712
--------- ----------
Net deferred tax liabilities $ - $ -
========= ==========
</TABLE>
For financial reporting purposes, a valuation allowance has been recognized at
December 31, 1999 and 1998, 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
64
<PAGE>
assumptions of future profitable operations contain risks that do not provide
sufficient assurance to recognize such tax benefits currently.
At December 31, 1999, the Company had net operating loss carryforwards for
income tax purposes of approximately $108,394,000 that begin to expire in 2012.
In addition, the Company has Alternative Minimum Tax credit carryforwards for
income tax purposes of $3,526,000.
The amount of net operating loss carryforwards generated by Airways prior to the
Airways Merger is $23,098,000. 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 was recognized at the date of the acquisition
to offset the deferred tax assets related to those carryforwards. This valuation
allowance was increased to $8,093,000 during 1998 in connection with a
reallocation of the purchase price. When realized, the tax benefit for those
items will be applied to reduce goodwill related to the acquisition of Airways.
During 1999, the Company utilized $6,282,000 of Airways' net operating loss
carryforwards and reduced goodwill by the $2,387,000 tax benefit of such
utilization.
10. Impairment Loss
In the fourth quarter of 1998, the Company decided to accelerate the retirement
of its four owned B737 aircraft as a result of the elimination of their original
route system and continued operating losses upon their redeployment to other
routes. The B737s, which were acquired in the Airways merger, will be replaced
with B717 aircraft. In the fourth quarter of 1999, the Company decided to
accelerate the retirement of its 42 DC-9 aircraft to accommodate the
introduction of its B717 fleet.
In connection with each of the decisions to accelerate the retirement of these
aircraft, the Company performed evaluations to determine, in accordance with
SFAS No. 121, whether future cash flows (undiscounted and without interest
charges) expected to result from the use and eventual disposition of these
aircraft would be less than the aggregate carrying amount of these aircraft and
related assets and, for the B737's, an allocation of cost in excess of net
assets acquired resulting from the Airways merger. SFAS No. 121 requires that
when a group of assets being tested for impairment was acquired as part of a
business combination that was accounted for using the purchase method of
accounting, any cost in excess of net assets acquired that arose as part of the
transaction must be included as part of the asset grouping. As a result of the
evaluations, management determined that the estimated future cash flows expected
to be generated by these aircraft would be less than their carrying amounts and,
for the B737's, allocated cost in excess of net assets acquired, and therefore
these aircraft are impaired as defined by SFAS No. 121. Consequently, the
original cost bases of these assets were reduced to reflect the fair market
value at the date the decisions were made, resulting in a $27,492,000 impairment
loss on the B737's in 1998 and a $147,735,000 impairment loss on the DC-9's in
1999. The Company considered recent transactions and market trends involving
similar aircraft in determining the fair market value.
65
<PAGE>
11. Shutdown And Other Nonrecurring Expenses
Shutdown and other nonrecurring expenses include costs associated with the loss
of Flight 592 and the resulting excess costs related to the reduced schedule in
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
is included in shutdown and other nonrecurring expenses.
Below is a detail of such costs for the year ended December 31, 1997 (in
thousands):
<TABLE>
<CAPTION>
<S> <C>
Maintenance $15,380
Legal and other 6,318
Depreciation 3,141
-------
$24,839
=======
</TABLE>
12. 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 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 long-term debt were $415,688,000 and $392,288,000, respectively, at
December 31, 1999 and $245,994,000 and $175,294,000, respectively, at December
31, 1998.
13. Employee Benefit Plans
Effective January 1, 1998, the Company consolidated its 401(k) Plans (the
"Plan"). All employees of AirTran Holdings, Inc., and AirTran Airways are
eligible to participate in the consolidated Plan, a defined contribution benefit
plan which qualifies under Section 401(k) of the Internal Revenue Code.
Participants may contribute up to 15% of their base salary to the Plan.
Contributions to the Plan by the Company are discretionary and amounted to
approximately $347,000 in 1999 and $288,000 in 1998. There were no
contributions made during 1997.
Under the 1995 Employee Stock Purchase Plan (the "Stock Plan"), employees who
complete twelve months of service are eligible to make quarterly purchases of
the
66
<PAGE>
Company's common stock at up to a 15% discount from the market value on the
offering date. The Board of Directors determines the discount rate before each
offering date. The Company is authorized to issue up to 4,000,000 shares of
common stock under this plan. During 1999, 1998 and 1997 the employees purchased
a total of 51,318, 23,023 and 24,190 shares, respectively, at an average price
of $3.94, $5.65 and $5.90 per share, respectively, which represented a 5%
discount from the market price on the offering dates.
14. Quarterly Financial Data (Unaudited)
Summarized quarterly financial data for 1999 and 1998 is as follows (in
thousands, except per share data):
<TABLE>
<CAPTION>
Quarter
---------------------------------------------------------
First Second Third Fourth
-------- -------- --------- ----------
<S> <C> <C> <C> <C>
Fiscal 1999
Operating revenues $119,873 $140,015 $143,483 $ 120,097
Operating income (loss) 9,001 21,455 29,570 (132,014)
Net income (loss) 3,054 14,959 23,167 (140,574)
Basic earnings (loss) per share 5 (cent) 23 (cent) 36 (cent) (2.15)
Diluted earnings (loss) per share 5 (cent) 22 (cent) 34 (cent) (2.15)
Quarter
---------------------------------------------------------
First Second Third Fourth
-------- -------- --------- ----------
Fiscal 1998
Operating revenues $ 94,541 $123,988 $115,060 $ 105,718
Operating income (loss) (2,874) 14,421 (5,319) (24,785)
Net income (loss) (7,873) 8,559 (10,893) (30,531)
Basic and diluted income
(loss) per share (12)(cent) 13 (cent) (17)(cent) (47)(cent)
</TABLE>
The results of the fourth quarters of 1999 and 1998 include impairment charges
of $147,735,000 and $27,492,000, respectively, related to the DC-9 fleet and the
B737 fleet.
The results of the third quarter of 1999 include net proceeds of $19,640,000
from the settlement of a lawsuit against a third party maintenance provider.
Year-end adjustments resulted in increasing the loss before income taxes during
the fourth quarter of 1999 by approximately $5,250,000. Of this amount,
approximately $3,160,000 relates to the correction of revenue recorded in
earlier quarters during 1999 and approximately $2,090,000 relates to changes in
management's estimates and assumptions primarily related to accruals for
vacation and group health insurance.
At December 31, 1997, the Company had accrued the estimated costs to reactivate
certain aircraft. During the quarter ended June 30, 1998, the reactivation of
these aircraft was completed and the associated costs were finalized. The
remaining maintenance accrual
67
<PAGE>
was therefore revised based on this additional information and $3 million was
reversed into income, increasing income for the quarter ended June 30, 1998, by
approximately $0.05 per share on a diluted basis.
15. Supplemental Guarantor Financial Information
The Company's $150,000,000 of 10.25% Senior Notes issued during 1996 are fully
and unconditionally guaranteed on a joint and several basis by AirTran Airways,
a wholly-owned subsidiary of the Company, and by AirTran Airways' subsidiary
("Guarantors"). The $80,000,000 of 10.50% Senior Secured Notes issued by
AirTran Airlines, now AirTran Airways, during 1997 are fully and unconditionally
guaranteed on a joint and several basis by AirTran Holdings, Inc., and AirTran
Airways' subsidiary. AirTran Airways and its subsidiary conduct all of the
operations of the Company. 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.
Summarized consolidated financial information as of and for the year ended
December 31, 1999 is as follows (in thousands):
AirTran AirTran
Airways AirTran Holdings, Inc.
and Holdings, and
Subsidiary Inc. Eliminations Subsidiaries
---------- --------- ------------ --------------
Current assets $103,644 $ - $ - $103,644
Non-current assets 362,355 113,172 (112,157) 363,370
Current liabilities 107,723 3,203 - 110,926
Non-current liabilities 399,322 150,000 (153,203) 396,119
Operating revenues 523,468 - - 523,468
Operating loss (71,988) - - (71,988)
Loss before income taxes (96,655) - - (96,655)
Net loss (99,394) - - (99,394)
68
<PAGE>
Summarized consolidated financial information as of and for the year ended
December 31, 1998 is as follows (in thousands):
<TABLE>
<CAPTION>
AirTran AirTran
Airways AirTran Holdings, Inc.
and AirTran Holdings, and
Subsidiaries Airways Inc. Eliminations Subsidiaries
------------ --------- --------- ------------ --------------
<S> <C> <C> <C> <C> <C>
Current assets $ 52,957 $ - $ - $ - $ 52,957
Non-current assets 321,646 3,290 208,835 (210,322) 323,449
Current liabilities 83,798 - 3,203 (3,290) 83,711
Non-current liabilities 240,268 - 150,000 (153,203) 237,065
Operating revenues 439,307 - - - 439,307
Operating loss (18,557) - - - (18,557)
Loss before income
taxes (benefit) (39,922) (816) - - (40,738)
Net loss (39,922) (816) - - (40,738)
</TABLE>
69
<PAGE>
AirTran Holdings, Inc.
Schedule II - Valuation and Qualifying Accounts
(In Thousands)
<TABLE>
<CAPTION>
CHARGED TO
BALANCE AT CHARGED TO OTHER
BEGINNING OF COSTS AND ACCOUNTS- DEDUCTIONS- BALANCE AT
PERIOD EXPENSES DESCRIBE DESCRIBE END OF PERIOD
------------ ---------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1999
Allowance for Doubtful Accounts 1,325 4,022 - 4,420 927
Provision for Obsolescence 4,259 1,406 - 3,405 2,260
------ ------ ------ ------ ------
Total 5,584 5,428 - 7,825 3,187
====== ====== ====== ====== ======
Year ended December 31, 1998
Allowance for Doubtful Accounts 1,354 8,003 - 8,032 1,325
Provision for Obsolescence 2,217 2,042 - - 4,259
------ ------ ------ ------ ------
Total 3,571 10,045 - 8,032 5,584
====== ====== ====== ====== ======
Year ended December 31, 1997
Allowance for Doubtful Accounts 838 2,895 - 2,379 1,354
Provision for Obsolescence 500 1,717 - - 2,217
------ ------ ------ ------ ------
Total 1,338 4,612 - 2,379 3,571
====== ====== ====== ====== ======
</TABLE>
70
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-4.13
<SEQUENCE>2
<DESCRIPTION>SECOND SUPPLEMENTAL INDENTURE
<TEXT>
<PAGE>
EXHIBIT 4.13
================================================================================
AIRTRAN AIRLINES, INC.,
as Issuer,
AIRTRAN HOLDINGS, INC. AND
THE SUBSIDIARY GUARANTORS SIGNATORIES HERETO,
as Guarantors
and
THE BANK OF NEW YORK,
as Trustee and Collateral Trustee
__________________________
SECOND SUPPLEMENTAL INDENTURE
Dated as of April 23, 1999
to
INDENTURE
Dated as of August 13, 1997
__________________________
10 1/2% Senior Secured Notes due 2001
================================================================================
<PAGE>
SECOND SUPPLEMENTAL INDENTURE
SECOND SUPPLEMENTAL INDENTURE (this "Supplemental Indenture"), dated as of
----------------------
April 23, 1999, by and among AirTran Airlines, Inc., a Nevada corporation (the
"Company"), AirTran Holdings, Inc., a Nevada corporation (the "Parent Company"),
- -------- --------------
the Subsidiary Guarantors parties hereto (the "Guarantors") and The Bank of New
----------
York, as trustee and collateral trustee (the "Trustee").
-------
RECITALS
WHEREAS, the Company, the Parent Company and the Guarantors have heretofore
executed and delivered to the Trustee an Indenture, dated as of August 13, 1997
(the "Indenture"), providing for the issuance of an aggregate principal amount
---------
of $80,000,000 of 10 1/2% Senior Secured Notes due 2001 (the "Notes"); and
-----
WHEREAS, certain of the Company=s Subsidiaries (i.e., ValuJet Capital
----
Corp., ValuJet Management Corp., ValuJet I, Ltd., ValuJet II, Ltd., ValuJet
Reservation Partners, L.P. and ValuJet Corporate Partners, L.P.) have been
liquidated into the Company as their parent entity and the Company has succeeded
to all of the rights and obligations of such Subsidiaries; and
WHEREAS, pursuant to Section 901 of the Indenture, the Company and the
Trustee may enter into one or more supplemental indentures without the consent
of any Holders to make certain changes to the Indenture; and
WHEREAS, the Indenture provides for the execution and delivery of a
supplement to the Indenture which shall particularly describe the Collateral
being specifically mortgaged to the Trustee for the benefit and security of the
Holders pursuant to the Indenture; and
WHEREAS, the Indenture relates to certain Airframes more particularly
described therein, which Indenture was recorded with the FAA on November 4, 1997
and given Conveyance No. GG011890; and
WHEREAS, it is the desire of the Trustee and the Company to add as
Collateral under the Indenture one (1) McDonnell Douglas DC-9-32 aircraft,
registration number N911VV and serial number 47285 (the "Replacement Aircraft")
--------------------
in replacement of and substitution for one (1) McDonnell Douglas DC-9-32
aircraft, registration number N925VV and serial number 47319 (the "Released
--------
Aircraft");
- --------
NOW THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the receipt of which is hereby acknowledged, the
Company, the Parent Company, the Guarantors and the Trustee mutually covenant
and agree for the equal and ratable benefit of the Holders of the Notes as
follows:
1. Definitions. Capitalized terms used herein without definition shall
-----------
have the meanings assigned to them in the Indenture. For all purposes of this
Supplemental Indenture, except as otherwise herein expressly provided or unless
the context otherwise requires, the words "herein," "hereof" and "hereby" and
other words of similar import used in this Supplemental Indenture refer to this
Supplemental Indenture as a whole and not to any particular section hereof.
2
<PAGE>
2. Substitute Security.
-------------------
(a) To secure the prompt payment of the principal amount of and
interest on, and all other amounts due with respect to, all Securities from time
to time outstanding under the Indenture and the performance and observance by
the Company of all the agreements, covenants and provisions contained in the
Indenture for the benefit and security of the Holders under the Indenture and
the prompt payment of any and all amounts from time to time owing under the
Indenture by the Company to the Trustee, the Company does hereby grant, sell,
assign, transfer, convey, pledge and confirm unto the Trustee, its successors
and assigns, for the benefit and security of the Holders and the Trustee, a
first priority security interest in all estate, right, title and interest of the
Company in and to the Replacement Aircraft together with all equipment and
accessories, parts and appurtenances pertaining or attached to the Replacement
Aircraft, whether now owned or hereafter acquired, and all warranties of any
manufacturer with respect thereto.
(b) As evidence of the releasing of all right, title and interest of
the Trustee in, to and under the Released Aircraft and Released Engines, the
Trustee shall execute a separate Partial Release and any other document
reasonably requested by the Company to evidence such release.
(c) The Company hereby acknowledges that the Replacement Aircraft
referred to in this Supplemental Indenture is owned by and has been delivered to
the Company and is included in the property of the Company subject to the pledge
and mortgage thereof under the Indenture.
3. Ratification of Indenture; Supplemental Indentures Part of Indenture.
--------------------------------------------------------------------
Except as expressly amended hereby, the Indenture is in all respects ratified
and confirmed and all the terms, conditions and provisions thereof shall remain
in full force and effect. This Supplemental Indenture shall form a part of the
Indenture for all purposes, and every Holder of Notes heretofore or hereafter
authenticated and delivered shall be bound hereby.
4. 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 LAW.
5. Trustee Makes No Representation. The Trustee makes no representation
-------------------------------
as to the validity or sufficiency of this Supplemental Indenture.
6. Counterparts. The parties may sign any number of copies of this
------------
Supplemental Indenture. Each signed copy shall be an original, but all of them
together represent the same agreement.
7. Effect of Headings. The Section headings herein are for convenience
------------------
only and shall not affect the construction thereof.
[SIGNATURES ON NEXT PAGE]
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental
Indenture to be duly executed as of the date first above written.
AIRTRAN AIRLINES, INC., the Company
By: /s/ Joseph B. Leonard
--------------------------------
Name: Joseph B. Leonard
Title: CEO
AIRTRAN HOLDINGS, INC., the Parent
Company
By: /s/ Joseph B. Leonard
--------------------------------
Name: Joseph B. Leonard
Title: CEO
AIRTRAN AIRWAYS, INC., as Guarantor
By: /s/ Joseph B. Leonard
--------------------------------
Name: Joseph B. Leonard
Title: CEO
VALUJET INVESTMENT CORP., as
Guarantor
By: /s/ Joseph B. Leonard
--------------------------------
Name: Joseph B. Leonard
Title: CEO
THE BANK OF NEW YORK, as Trustee and
Collateral Trustee
By:
----------------------------------
Name:
Title:
4
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-4.14
<SEQUENCE>3
<DESCRIPTION>THIRD SUPPLEMENTAL INDENTURE
<TEXT>
<PAGE>
================================================================================
AIRTRAN AIRWAYS, INC.
(successor by merger to
AIRTRAN AIRLINES, INC.,)
as Issuer,
AIRTRAN HOLDINGS, INC. AND
THE SUBSIDIARY GUARANTORS SIGNATORIES HERETO,
as Guarantors
and
THE BANK OF NEW YORK,
as Trustee and Collateral Trustee
__________________________
THIRD SUPPLEMENTAL INDENTURE
Dated as of December ___, 1999
to
INDENTURE
Dated as of August 13, 1997
__________________________
10 1/2% Senior Secured Notes due 2001
================================================================================
<PAGE>
THIRD SUPPLEMENTAL INDENTURE
THIRD SUPPLEMENTAL INDENTURE (this "Supplemental Indenture"), dated as of
-----------------------
December ___, 1999, by and among AirTran Airways, Inc., a Delaware corporation
as successor in interest by merger to AirTran Airlines, Inc. (the "Company"),
--------
AirTran Holdings, Inc., a Nevada corporation (the "Parent Company"), the
---------------
Subsidiary Guarantors parties hereto (the "Guarantors") and The Bank of New
-----------
York, as trustee and collateral trustee (the "Trustee").
--------
RECITALS
WHEREAS, the Company, the Parent Company and the Guarantors have heretofore
executed and delivered to the Trustee an Indenture, dated as of August 13, 1997
(the "Indenture"), providing for the issuance of an aggregate principal amount
----------
of $80,000,000 of 10 1/2% Senior Secured Notes due 2001 (the "Notes"); and
-----
WHEREAS, certain of the Company's Subsidiaries (i.e., ValuJet Capital
----
Corp., ValuJet Management Corp., ValuJet I, Ltd., ValuJet II, Ltd., ValuJet
Reservation Partners, L.P. and ValuJet Corporate Partners, L.P.) have been
liquidated into the Company as their parent entity and the Company has succeeded
to all of the rights and obligations of such Subsidiaries; and
WHEREAS, AirTran Airlines, Inc., the original obligor under the Indenture,
has merged with and into the Company which has succeeded to all of the rights
and obligations of AirTran Airlines, Inc.; and
WHEREAS, pursuant to Section 901 of the Indenture, the Company and the
Trustee may enter into one or more supplemental indentures without the consent
of any Holders to make certain changes to the Indenture; and
WHEREAS, the Indenture provides for the execution and delivery of a
supplement to the Indenture which shall particularly describe the Collateral
being specifically mortgaged to the Trustee for the benefit and security of the
Holders pursuant to the Indenture; and
WHEREAS, the Indenture relates to certain Airframes and Engines more
particularly described therein, which Indenture was recorded with the FAA on
November 4, 1997 and given Conveyance No. GG011890, as supplemented by First and
Second Supplemental Indentures to Indenture dated as of November 17, 1997 and
April 23, 1999, respectively, recorded together by the FAA on August 23, 1999 as
Conveyance Nos. HH023345 and HH023346, respectively; and
WHEREAS, it is the desire of the Trustee and the Company to add as
Collateral under the Indenture the Replacement Aircraft (defined on Schedule
"A") and the Replacement Engines (defined on Schedule "A") and to release the
Released Aircraft (defined on Schedule "A") and the Released Engines (defined on
Schedule "A");
2
<PAGE>
NOW THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the receipt of which is hereby acknowledged, the
Company, the Parent Company, the Guarantors and the Trustee mutually covenant
and agree for the equal and ratable benefit of the Holders of the Notes as
follows:
1. Definitions. Capitalized terms used herein without definition shall
-----------
have the meanings assigned to them in the Indenture. For all purposes of this
Supplemental Indenture, except as otherwise herein expressly provided or unless
the context otherwise requires, the words herein, hereof and hereby and other
words of similar import used in this Supplemental Indenture refer to this
Supplemental Indenture as a whole and not to any particular section hereof.
2. Substitute Security.
-------------------
(a) To secure the prompt payment of the principal amount of and
interest on, and all other amounts due with respect to, all Securities from time
to time outstanding under the Indenture and the performance and observance by
the Company of all the agreements, covenants and provisions contained in the
Indenture for the benefit and security of the Holders under the Indenture and
the prompt payment of any and all amounts from time to time owing under the
Indenture by the Company to the Trustee, the Company does hereby grant, sell,
assign, transfer, convey, pledge and confirm unto the Trustee, its successors
and assigns, for the benefit and security of the Holders and the Trustee, a
first priority security interest in all estate, right, title and interest of the
Company in and to the Replacement Aircraft and Replacement Engines (each such
Replacement Engine having 750 or more rated takeoff horsepower or the equivalent
thereof) together with all equipment and accessories, parts and appurtenances
pertaining or attached to the Replacement Aircraft and Replacement Engines,
whether now owned or hereafter acquired and all substitutions, modifications,
improvements, accessions and accumulations to the Replacement Aircraft and
Replacement Engines, and all warranties of any manufacturer with respect
thereto.
(b) The Trustee hereby releases all right, title, and interest in, to
and under the Released Aircraft and Released Engines.
(c) The Company hereby acknowledges that the Replacement Aircraft and
Replacement Engines referred to in this Supplemental Indenture is owned by and
has been delivered to the Company and is included in the property of the Company
subject to the pledge and mortgage thereof under the Indenture.
3. Ratification of Indenture; Supplemental Indentures Part of Indenture.
--------------------------------------------------------------------
Except as expressly amended hereby, the Indenture is in all respects ratified
and confirmed and all the terms, conditions and provisions thereof shall remain
in full force and effect. This Supplemental Indenture shall form a part of the
Indenture for all purposes, and every Holder of Notes heretofore or hereafter
authenticated and delivered shall be bound hereby.
4. 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 LAW.
3
<PAGE>
5. Trustee Makes No Representation. The Trustee makes no representation
-------------------------------
as to the validity or sufficiency of this Supplemental Indenture.
6. Counterparts. The parties may sign any number of copies of this
------------
Supplemental Indenture. Each signed copy shall be an original, but all of them
together represent the same agreement.
7. Effect of Headings. The Section headings herein are for convenience
------------------
only and shall not affect the construction thereof.
[remainder of page intentionally left blank]
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental
Indenture to be duly executed as of the date first above written.
AIRTRAN AIRWAYS, INC., the Company
By:________________________________
Name:
Title:
AIRTRAN HOLDINGS, INC., the Parent
Company
By:________________________________
Name:
Title:
VALUJET INVESTMENT CORP., as
Guarantor
By:________________________________
Name:
Title:
THE BANK OF NEW YORK, as Trustee and
Collateral Trustee
By:________________________________
Name:
Title:
5
<PAGE>
SCHEDULE A
REPLACEMENT AIRCRAFT
---------------------
Manufacturer Model Serial No. Registration No.
- ------------ ------- ---------- ----------------
Douglas DC-9-32 47260 N819AT
Douglas DC-9-32 47323 N817AT
Douglas DC-9-32 47320 N818AT
REPLACEMENT ENGINES
-------------------
Manufacturer Model Serial No.
- ------------ ----- ----------
Pratt & Whitney JT8D-9A 674577
Pratt & Whitney JT8D-9A 654432
Pratt & Whitney JT8D-9A 657485
Pratt & Whitney JT8D-9A 666871
Pratt & Whitney JT8D-9A 654163
Pratt & Whitney JT8D-9A 666055
Pratt & Whitney JT8D-9A 665737
Pratt & Whitney JT8D-9A 665214
Pratt & Whitney JT8D-9A 666334
Pratt & Whitney JT8D-9A 665828
Pratt & Whitney JT8D-9A 657590
Pratt & Whitney JT8D-9A 665636
Pratt & Whitney JT8D-9A 665732
Pratt & Whitney JT8D-9A 665252
6
<PAGE>
RELEASED AIRCRAFT
------------------
Manufacturer Model Serial No. Registration No.
- ------------ ------- ---------- ----------------
Douglas DC-9-31 47202 N132NK
Douglas DC-9-32 47318 N813AT
Douglas DC-9-32 47285 N811AT
RELEASED ENGINES
----------------
Manufacturer Model Serial No.
- ------------ ------- ---------
Pratt & Whitney JT8D-9A 666674
Pratt & Whitney JT8D-9A 666967
Pratt & Whitney JT8D-9A 666957
Pratt & Whitney JT8D-9A 656953
Pratt & Whitney JT8D-9A 666836
Pratt & Whitney JT8D-9A 666949
Pratt & Whitney JT8D-9A 674615
Pratt & Whitney JT8D-9A 665194
Pratt & Whitney JT8D-9A 666135
Pratt & Whitney JT8D-9A 674429
Pratt & Whitney JT8D-9A 667002
Pratt & Whitney JT8D-9A 667166
Pratt & Whitney JT8D-9A 687728
Pratt & Whitney JT8D-9A 665942
7
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.21
<SEQUENCE>4
<DESCRIPTION>NOTE PURCHASE AGREEMENT
<TEXT>
<PAGE>
Exhibit 10.21
- ------------------------------------------------------------------------------
NOTE PURCHASE AGREEMENT
Dated as of November 3, 1999
Among
AIRTRAN AIRWAYS, INC.
AIRTRAN HOLDINGS, INC.
STATE STREET BANK AND TRUST COMPANY
OF CONNECTICUT, NATIONAL ASSOCIATION,
as Pass Through Trustee under each of the
Pass Through Trust Agreements
STATE STREET BANK AND TRUST COMPANY
OF CONNECTICUT, NATIONAL ASSOCIATION,
as Subordination Agent
FIRST SECURITY BANK, NATIONAL ASSOCIATION,
as Escrow Agent
and
STATE STREET BANK AND TRUST COMPANY
OF CONNECTICUT, NATIONAL ASSOCIATION,
as Paying Agent
- ------------------------------------------------------------------------------
<PAGE>
INDEX TO NOTE PURCHASE AGREEMENT
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 1. Financing of New Aircraft.............................................................................3
SECTION 2. Conditions Precedent..................................................................................7
SECTION 3. Representations and Warranties........................................................................8
SECTION 4. Covenants............................................................................................11
SECTION 5. Notices..............................................................................................12
SECTION 6. Expenses.............................................................................................12
SECTION 7. Further Assurances...................................................................................13
SECTION 8. Miscellaneous........................................................................................13
SECTION 9. Holdings Guarantee...................................................................................15
SECTION 10. Governing Law.......................................................................................15
</TABLE>
Schedules
Schedule I New Aircraft and Scheduled Delivery Months
Schedule II Pass Through Trust Agreements
Schedule III Deposit Agreements
Schedule IV Escrow and Paying Agent Agreements
Schedule V Mandatory Document Terms
Schedule VI Mandatory Economic Terms
Schedule VII Aggregate Amortization Schedule
Schedule VIII Holdings Guarantee
<PAGE>
Annex
Annex A Definitions
Exhibits
--------
Exhibit A-1 Form of Leased Aircraft Participation Agreement
Exhibit A-2 Form of Lease
Exhibit A-3 Form of Leased Aircraft Indenture
Exhibit A-4 Form of Aircraft Purchase Agreement Assignment
Exhibit A-5 Form of Leased Aircraft Trust Agreement
Exhibit A-6 Form of Leased Aircraft Guarantee
Exhibit B Form of Delivery Notice
Exhibit C-1 Form of Owned Aircraft Participation Agreement
Exhibit C-2 Form of Owned Aircraft Indenture
Exhibit C-3 Form of Owned Aircraft Guarantee
<PAGE>
NOTE PURCHASE AGREEMENT
This NOTE PURCHASE AGREEMENT, dated as of November 3, 1999,
among (i) AIRTRAN AIRWAYS, INC., a Delaware corporation (the "Company"), (ii)
AIRTRAN HOLDINGS, INC., a Nevada corporation ("Holdings"), (iii) STATE STREET
BANK AND TRUST COMPANY OF CONNECTICUT, NATIONAL ASSOCIATION, a national banking
corporation, not in its individual capacity except as otherwise expressly
provided herein, but solely as trustee (in such capacity together with its
successors in such capacity, the "Pass Through Trustee") under each of the three
separate Pass Through Trust Agreements (as defined below), (iv) STATE STREET
BANK AND TRUST COMPANY OF CONNECTICUT, NATIONAL ASSOCIATION, a national banking
corporation, as subordination agent and trustee (in such capacity together with
its successors in such capacity, the "Subordination Agent") under the
Intercreditor Agreement (as defined below), (v) FIRST SECURITY BANK, NATIONAL
ASSOCIATION, a national banking association, as Escrow Agent (in such capacity
together with its successors in such capacity, the "Escrow Agent") under each of
the Escrow and Paying Agent Agreements (as defined below) and (vi) STATE STREET
BANK AND TRUST COMPANY OF CONNECTICUT, NATIONAL ASSOCIATION, a national banking
corporation, as Paying Agent (in such capacity together with its successors in
such capacity, the "Paying Agent") under each of the Escrow and Paying Agent
Agreements.
W I T N E S S E T H:
--------------------
WHEREAS, capitalized terms used but not defined herein shall
have the meanings ascribed to such terms in Annex A hereto;
WHEREAS, the Company has obtained commitments from the
Manufacturer pursuant to the Aircraft Purchase Agreement for the delivery of the
ten Boeing 717-200 aircraft listed in Schedule I hereto (together with any
aircraft substituted therefor in accordance with the Aircraft Purchase Agreement
prior to the delivery thereof, the "New Aircraft"), and the Company wishes to
finance the New Aircraft pursuant to this Agreement;
WHEREAS, pursuant to each of the Pass Through Trust Agreements
set forth in Schedule II hereto, and concurrently with the execution and
delivery of this Agreement, separate grantor trusts (collectively, the "Pass
Through Trusts" and, individually, a "Pass Through Trust") have been created to
facilitate certain of the transactions contemplated hereby, including, without
limitation, the issuance and sale of pass through certificates pursuant thereto
(collectively, the "Certificates") to provide for a portion of the financing of
the New Aircraft;
WHEREAS, the Company has entered into twelve Purchase
Agreements dated as of November 3, 1999 (the "Class A Purchase Agreements") with
the purchasers (the "Class A Purchasers") named therein, which provide that the
Company will cause the Pass Through Trustee of the Class A Trust to issue and
sell Class A Certificates to the Class A Purchasers;
<PAGE>
WHEREAS, the Company has entered into a Class B Trust
Certificate Purchase Agreement dated as of November 3, 1999 (the "Class B
Purchase Agreement") with Kreditanstalt fur Wiederaufbau ("KfW") which provides
that the Company will cause the Pass Through Trustee of the Class B Trust to
issue and sell Class B Certificates to KfW;
WHEREAS, the Company has entered into a Class C Trust
Certificate Purchase Agreement, dated as of November 3, 1999 (the "Class C
Purchase Agreement") with The Boeing Company ("Boeing") which provides that the
Company will cause the Pass Through Trustee of the Class C Trust to issue and
sell Class C Certificates to Boeing;
WHEREAS, concurrently with the execution and delivery of this
Agreement, (i) the Escrow Agents and the Depositary entered into the Deposit
Agreements set forth in Schedule III hereto (the "Deposit Agreements") whereby
the applicable Escrow Agent agreed to direct the Class A Purchasers, KfW and
Boeing to make certain deposits referred to therein on the Issuance Date (the
"Initial Deposits") and to permit the applicable Pass Through Trustee to make
additional deposits from time to time thereafter (the Initial Deposits together
with such additional deposits are collectively referred to as the "Deposits")
and (ii) the Pass Through Trustees, the Class A Purchasers or KfW or Boeing (as
applicable), the Paying Agents and the Escrow Agents entered into the applicable
Escrow and Paying Agent Agreements set forth in Schedule IV hereto (the "Escrow
and Paying Agent Agreements") whereby, among other things, (a) the Class A
Purchasers, KfW and Boeing agreed to deliver an amount, in the aggregate, equal
to the amount of the Initial Deposits to the Depositary on behalf of the
applicable Escrow Agent and (b) the applicable Escrow Agent, upon the Depositary
receiving such amount, has agreed to deliver escrow receipts to be affixed to
each Certificate;
WHEREAS, prior to (or, in the case of the utilization of
bridge financing, after) the delivery of each New Aircraft from the
Manufacturer, the Company will determine whether to enter into a leveraged lease
transaction as lessee with respect to such New Aircraft (a "Leased Aircraft") or
to purchase as owner such New Aircraft (an "Owned Aircraft") and which series of
Equipment Notes will be issued with respect to such New Aircraft, and the
Company will give to the Pass Through Trustee a Delivery Notice (as defined
below) specifying its election;
WHEREAS, upon receipt of a Delivery Notice with respect to a
New Aircraft, subject to the terms and conditions of this Agreement, the
applicable Pass Through Trustees will enter into the applicable Financing
Agreements relating to such New Aircraft;
WHEREAS, upon the delivery of each New Aircraft or the
financing hereunder of a previously delivered New Aircraft, each applicable Pass
Through Trustee will fund its purchase of Equipment Notes with the proceeds of
one or more Deposits withdrawn by the applicable Escrow Agent under the related
Deposit Agreement bearing the same interest rate as the Certificates issued by
such Pass Through Trust (or in the case of New Aircraft financed on the date of
issuance of the Certificates, with a portion of the proceeds of such issuance);
and
2
<PAGE>
WHEREAS, concurrently with the execution and delivery of this
Agreement, (i) ABN AMRO Bank N.V., acting through its Chicago Branch (the
"Liquidity Provider"), has entered into three separate revolving credit
agreements (each such revolving credit agreement with a Liquidity Provider, a
"Liquidity Facility"), one each for the benefit of the Certificateholders of
each Pass Through Trust, with the Subordination Agent, as agent for the Pass
Through Trustee on behalf of each such Pass Through Trust and (ii) the Pass
Through Trustee, the Liquidity Provider and the Subordination Agent have entered
into the Intercreditor Agreement, dated as of the date hereof (the
"Intercreditor Agreement");
NOW, THEREFORE, in consideration of the foregoing premises and
the mutual agreements herein contained and other good and valuable
consideration, the receipt and adequacy of which are hereby acknowledged, the
parties hereto agree as follows:
SECTION 1. Financing of New Aircraft.(a) The Company confirms
that it has entered into the Aircraft Purchase Agreement with the Manufacturer
pursuant to which the Company has agreed to purchase (or has purchased), and the
Manufacturer has agreed to deliver (or has delivered), the New Aircraft in the
months specified in Schedule I hereto, all on and subject to terms and
conditions specified in the Aircraft Purchase Agreement. The Company agrees to
finance (or refinance) the New Aircraft in the manner provided herein, all on
and subject to the terms and conditions hereof and of the relevant Financing
Agreements.
(b) In furtherance of the foregoing, the Company agrees to
give the parties hereto, the Depositary and the Rating Agency not less than two
Business Days' prior written notice in the form of the notice set out in Exhibit
B hereto (a "Delivery Notice") of the scheduled delivery date (the "Scheduled
Delivery Date") (or, in the case of a substitute Delivery Notice under Section
1(e) or (f) hereof, one Business Day's prior notice) in respect of each New
Aircraft under the Aircraft Purchase Agreement, or in the case of the
utilization of bridge financing as contemplated by Section 1(f) hereof in
respect of any Aircraft, one Business Day's prior notice of the date of the
financing of such New Aircraft pursuant to the relevant Financing Agreements,
which notice shall:
(i) specify whether the Company has elected to treat such New Aircraft
as a Leased Aircraft or an Owned Aircraft;
(ii) specify the Scheduled Delivery Date of such New Aircraft (which
shall be a Business Day before the Cut-off Date and, except as provided in
Section 1(f) hereof, the date (the "Funding Date") on which the financing
therefor in the manner provided herein shall be consummated) or, in the case of
bridge-financed aircraft under Section 1(f) hereof, the Delivery Date and the
Funding Date of such New Aircraft;
(iii) instruct each Pass Through Trustee being requested to purchase
Equipment Notes pursuant to such Delivery Notice (the "Applicable Pass Through
Trustees") to execute and deliver to the relevant Escrow Agent a withdrawal
certificate in the form of Annex A to Exhibit B hereof so as to provide a Notice
of Purchase Withdrawal to the Depositary with respect
3
<PAGE>
to the Equipment Notes to be issued in connection with the financing of such New
Aircraft (except in the case of any such financing on the date of issuance of
the Certificates);
(iv) instruct each Applicable Pass Through Trustee to enter into the
Participation Agreement included in the Financing Agreements with respect to
such Aircraft in such form and at such a time on or before the Funding Date
specified in such Delivery Notice and to perform its obligations thereunder;
(v) specify the aggregate principal amount of each series of Equipment
Notes, if any, to be issued, and purchased by the Applicable Pass Through
Trustees, in connection with the financing of such New Aircraft scheduled to be
delivered on such Funding Date (which shall in all respects comply with the
Mandatory Economic Terms); and
(vi) if such New Aircraft is to be a Leased Aircraft, certify that the
related Owner Participant (A) is not an Affiliate of the Company or Holdings and
(B) based on the representations of such Owner Participant, is either (1) a
Qualified Owner Participant or (2) any other Person the obligations of which
under the Owner Participant Agreements (as defined in the applicable
Participation Agreement) are guaranteed by a Qualified Owner Participant.
Notwithstanding the foregoing, in the event the date of issuance of the
Certificates coincides with the Funding Date of any Aircraft to be financed
pursuant to the terms hereof, the Delivery Notice therefor may be delivered to
the parties hereto on such Funding Date.
(c) Upon receipt of a Delivery Notice, the Applicable Pass
Through Trustees shall, and shall cause the Subordination Agent to, enter into
and perform their obligations under the Participation Agreement and other
instructions specified in such Delivery Notice, provided that such Participation
Agreement and the other Lease Financing Agreements or Owner Financing Agreements
to be entered into pursuant to such Participation Agreement shall be in the
forms thereof annexed hereto in all material respects with such changes therein
as shall have been requested by the related Owner Participant (in the case of
Lease Financing Agreements), agreed to by the Company and, if modified in any
material respect (including, without limitation, modifications related to
"deferred equity" or other similar rent provisions), as to which Rating Agency
Confirmation shall have been obtained from the Rating Agency by the Company (to
be delivered by the Company to the Applicable Pass Through Trustees on or before
the relevant Funding Date, it being understood that if Rating Agency
Confirmation shall have been received with respect to any Lease Financing
Agreements and such Lease Financing Agreements are utilized for subsequent New
Aircraft (or Substitute Aircraft) without material modifications, no additional
Rating Agency Confirmation shall be required (it being further understood that
the Owner Financing Agreements shall be in the forms thereof annexed hereto
without any changes other than to complete any blanks)); provided, however, that
the relevant Financing Agreements as executed and delivered shall not vary the
Mandatory Economic Terms and shall contain the Mandatory Document Terms.
4
<PAGE>
(d) With respect to each New Aircraft, the Company shall cause
State Street (or such other Person that meets the eligibility requirements to
act as mortgagee under the Leased Aircraft Indenture or Owned Aircraft
Indenture) to execute as Loan Trustee the Financing Agreements relating to such
New Aircraft to which such Loan Trustee is intended to be a party, and the
Company shall concurrently therewith execute such Financing Agreements to which
the Company is intended to be a party and perform its respective obligations
thereunder. Upon the request of the Rating Agency or any Certificateholder, the
Company shall deliver or cause to be delivered to such Rating Agency or
Certificateholder a true and complete copy of each Financing Agreement relating
to the financing of each New Aircraft together with a true and complete set of
the closing documentation (including legal opinions) delivered to the related
Loan Trustee, Subordination Agent and Pass Through Trustee under the related
Participation Agreement.
(e) If after giving any Delivery Notice, there shall be a
delay in the delivery of the New Aircraft referred to therein, or if on the
Scheduled Delivery Date of such New Aircraft the financing thereof in the manner
contemplated hereby shall not be consummated for whatever reason, the Company
shall give the parties hereto prompt notice thereof. Concurrently with the
giving of such notice of postponement or subsequently, the Company shall give
the parties hereto a substitute Delivery Notice specifying the date to which the
delivery and/or related financing of such New Aircraft or of another New
Aircraft of the same type in lieu thereof shall have been re-scheduled (which
shall be a Business Day before the Cut-off Date on which the Escrow Agents shall
be entitled to withdraw one or more Deposits under each of the applicable
Deposit Agreements to enable each Applicable Pass Through Trustee to fund its
purchase of the related Equipment Notes). Upon receipt of any such notice of
postponement, each applicable Pass Through Trustee shall comply with its
obligations under Section 2.01 of each of the Pass Through Trust Agreements and
thereafter the financing of the relevant New Aircraft shall take place on the
re-scheduled Delivery Date therefor (all on and subject to the terms and
conditions of the relevant Financing Agreements) unless further postponed as
provided herein.
(f) Anything in this Section 1 to the contrary
notwithstanding, the Company shall have the right at any time on or before the
Scheduled Delivery Date of any New Aircraft, and subsequent to its giving a
Delivery Notice therefor, to postpone the Scheduled Delivery Date of such New
Aircraft so as to enable the Company to change its election to treat such New
Aircraft as a Leased Aircraft or an Owned Aircraft by written notice of such
postponement to the other parties hereto. The Company shall subsequently give
the parties hereto a substitute Delivery Notice complying with the provisions of
Section 1(b) hereof and specifying the new Funding Date for such postponed New
Aircraft (which shall be a Business Day occurring before the Cut-off Date and on
which the Escrow Agents shall be entitled to withdraw Deposits under each of the
applicable Deposit Agreements sufficient to enable each Applicable Pass Through
Trustee to fund its purchase of the related Equipment Notes). In addition, the
Company shall have the further right, anything in this Section 1 to the contrary
notwithstanding, to accept delivery of a New Aircraft under the applicable
Aircraft Purchase Agreement on the Delivery Date thereof by utilization of
bridge financing of such New Aircraft and thereafter give the
5
<PAGE>
parties hereto a Delivery Notice specifying a Funding Date not later than
April 1, 2000 and otherwise complying with the provisions of Section 1(b)
hereof. All other terms and conditions of this Note Purchase Agreement shall
apply to the financing of any such New Aircraft on the re-scheduled Funding Date
therefor except (i) the re-scheduled Funding Date shall be deemed the Scheduled
Delivery Date of such New Aircraft for all purposes of this Section 1, (ii) the
related Financing Agreements shall be amended to reflect the original delivery
of such New Aircraft to the Company, (iii) the related Financing Agreements
shall be amended to reflect the seller of such Aircraft, and the recipient of
payment of the purchase price therefor, as the Company and (iv) in the case of a
Leased Aircraft, the Aircraft Purchase Agreement Assignment shall be modified to
cover only an assignment of the relevant warranties.
(g) If the Scheduled Delivery Date for any New Aircraft is
delayed for any reason (including the casualty loss thereof) more than 30 days
beyond the last day of the month set forth opposite such New Aircraft under the
heading "Scheduled Delivery Month" in Schedule I hereto ("Scheduled Delivery
Month"), the Company may identify for delivery a substitute aircraft therefor
meeting the following conditions (a "Substitute Aircraft"): (i) a Substitute
Aircraft must be a Boeing 717-200 aircraft (together with BMW Rolls-Royce BR715
engines) manufactured after the date of this Agreement, (ii) one or more
Substitute Aircraft (together with engines) of the same types may be substituted
for one or more New Aircraft (together with engines) of the same types so long
as after giving effect thereto such substitution does not vary the Mandatory
Economic Terms and (iii) the Company shall be obligated to obtain Rating Agency
Confirmation in respect of the replacement of any New Aircraft by Substitute
Aircraft. Upon the satisfaction of the conditions set forth above with respect
to a Substitute Aircraft, the New Aircraft to be replaced shall cease to be
subject to this Agreement and all rights and obligations of the parties hereto
concerning such New Aircraft shall cease, and such Substitute Aircraft shall
become and thereafter be subject to the terms and conditions of this Agreement
to the same extent as such New Aircraft.
(h) The Company shall have no liability for the failure of the
Pass Through Trustees to purchase Equipment Notes with respect to any New
Aircraft or Substitute Aircraft, other than the Company's obligation, if any, to
pay the Deposit Make-Whole Premium pursuant to Section 4(a)(i) of this
Agreement.
(i) The parties agree that if, in connection with the delivery
of a New Aircraft or Substitute Aircraft, any Owner Participant who is to be a
party to any Lease Financing Agreement shall not be a "Citizen of the United
States" within the meaning of Section 40102(a)(15) of the Act, then the
applicable Lease Financing Agreements shall be modified, consistent with the
Mandatory Document Terms, to require such Owner Participant to enter into a
voting trust, voting powers or similar arrangement satisfactory to the Company
that (A) enables such New Aircraft or Substitute Aircraft to be registered in
the United States and (B) complies with the FAA regulations issued under the Act
applicable thereto.
(j) Anything herein to the contrary notwithstanding, (i) the
Company shall
6
<PAGE>
not have the right, and shall not be entitled, at any time to request the
issuance of Equipment Notes of any series to any Pass Through Trustee in an
aggregate principal amount in excess of the amount of the Deposits then
available for withdrawal by the Escrow Agent under and in accordance with the
provisions of the related Deposit Agreement and (ii) if any New Aircraft is not
delivered and financed by the Company under the Financing Agreements in the
applicable Scheduled Delivery Month, then the Company shall ensure that the
aggregate amortization schedule of the Equipment Notes will correspond as
closely as reasonably practicable to the aggregate amortization schedule set
forth in Schedule VII hereto.
(k) Notwithstanding the foregoing provisions of this Section
1, the Company shall have the right, with respect to any Owned Aircraft, to
enter into the transaction described in Section 8.3 of the relevant Owned
Aircraft Participation Agreement, subject to the restrictions set forth therein,
and the Company further agrees to comply with the provisions of Sections 1(c)
and 2 hereof in connection with such transaction.
SECTION 2. Conditions Precedent. The obligation of the Pass
Through Trustees to enter into, and to cause the Subordination Agent to enter
into, any Participation Agreement as directed pursuant to a Delivery Notice and
to perform its obligations under such Participation Agreement is subject to
satisfaction of the following conditions:
(a) no Triggering Event shall have occurred;
(b) the Company shall have delivered a certificate to each
such Pass Through Trustee and each Liquidity Provider stating that (i) such
Participation Agreement and the other Financing Agreements to be entered into
pursuant to such Participation Agreement do not vary the Mandatory Economic
Terms and contain the Mandatory Document Terms and (ii) any substantive
modification of such Financing Agreements from the forms of Financing Agreements
attached to this Agreement do not materially and adversely affect the
Certificateholders, and such certification shall be true and correct; and
(c) after such Participation Agreement has been entered into,
no less than four New Aircraft (or, if the Company has taken delivery on less
than four New Aircraft, all of the New Aircraft) will be Owned Aircraft.
Anything herein to the contrary notwithstanding, the
obligation of each Pass Through Trustee to purchase Equipment Notes shall
terminate on the Cut-off Date.
7
<PAGE>
SECTION 3. Representations and Warranties.(a) The Company
represents and warrants that:
(i) the Company is duly incorporated, validly existing and in good
standing under the laws of the State of Delaware and is a "citizen of the United
States" and an "air carrier" as each such term is defined in Section 40102 of
the Act, and has the full corporate power, authority and legal right under the
laws of the State of Delaware to execute and deliver this Agreement and each
Financing Agreement to which it will be a party and to carry out the obligations
of the Company under this Agreement and each Financing Agreement to which it
will be a party;
(ii) the execution and delivery by the Company of this Agreement and
the performance by the Company of its obligations under this Agreement have been
duly authorized by all necessary corporate action on the part of the Company and
will not violate its Certificate of Incorporation or by-laws or the provisions
of any indenture, mortgage, contract or other agreement to which it is a party
or by which it is bound; and
(iii) this Agreement constitutes the legal, valid and binding
obligation of the Company, enforceable against it in accordance with its terms,
except as the same may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the rights of creditors
generally and by general principles of equity, whether considered in a
proceeding at law or in equity.
(b) Holdings represents and warrants that:
(i) Holdings is duly incorporated, validly existing and in good
standing under the laws of the State of Nevada and has the full corporate power,
authority and legal right under the laws of the State of Nevada to execute and
deliver this Agreement and each Financing Agreement to which it will be a party
and to carry out the obligations of Holdings under this Agreement and each
Financing Agreement to which it will be a party;
(ii) the execution and delivery by Holdings of this Agreement and the
performance by Holdings of its obligations under this Agreement have been duly
authorized by all necessary corporate action on the part of Holdings and will
not violate its Certificate of Incorporation or by-laws or the provisions of any
indenture, mortgage, contract or other agreement to which it is a party or by
which it is bound; and
(iii) this Agreement constitutes the legal, valid and binding
obligation of Holdings, enforceable against it in accordance with its terms,
except as the same may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the rights of creditors
generally and by general principles of equity, whether considered in a
proceeding at law or in equity.
(c) State Street represents and warrants that:
8
<PAGE>
(i) State Street is a national banking association duly organized,
validly existing and in good standing under the laws of the United States and is
a "citizen of the United States" as defined in Section 40102 of the Act, and has
the full power, authority and legal right under the laws of the State of
Connecticut and the United States pertaining to its banking, trust and fiduciary
powers to execute and deliver this Agreement and each Financing Agreement to
which it will be a party and to carry out the obligations of State Street, in
its capacity as Subordination Agent, Pass Through Trustee or Paying Agent, as
the case may be, under this Agreement and each Financing Agreement to which it
will be a party;
(ii) the execution and delivery by State Street, in its capacity as
Subordination Agent, Pass Through Trustee or Paying Agent, as the case may be,
of this Agreement and the performance by State Street, in its capacity as
Subordination Agent, Pass Through Trustee or Paying Agent, as the case may be,
of its obligations under this Agreement have been duly authorized by all
necessary action on the part of State Street, in its capacity as Subordination
Agent, Pass Through Trustee or Paying Agent, as the case may be, and will not
violate its articles of association or by-laws or the provisions of any
indenture, mortgage, contract or other agreement to which it is a party or by
which it is bound; and
(iii) this Agreement constitutes the legal, valid and binding
obligations of State Street, in its capacity as Subordination Agent, Pass
Through Trustee or Paying Agent, as the case may be, enforceable against it in
accordance with its terms, except as the same may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the
rights of creditors generally and by general principles of equity, whether
considered in a proceeding at law or in equity.
(d) The Pass Through Trustee hereby confirms to each of the
other parties hereto that its representations and warranties set forth in
Section 7.15 of each Pass Through Trust Agreement are true and correct as of the
date hereof.
(e) The Subordination Agent represents and warrants that:
(i) the Subordination Agent is a national banking association duly
organized, validly existing and in good standing under the laws of the United
States, and has the full power, authority and legal right under the laws of the
State of Connecticut and the United States pertaining to its banking, trust and
fiduciary powers to execute and deliver this Agreement and each Financing
Agreement to which it is or will be a party and to perform its obligations under
this Agreement and each Financing Agreement to which it is or will be a party;
(ii) this Agreement has been duly authorized, executed and delivered by
the Subordination Agent; this Agreement constitutes the legal, valid and binding
obligations of the Subordination Agent enforceable against it in accordance with
its terms, except as the same may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting the rights of
creditors generally and by general principles of equity, whether considered
9
<PAGE>
in a proceeding at law or in equity;
(iii) none of the execution, delivery and performance by the
Subordination Agent of this Agreement contravenes any law, rule or regulation of
the State of Connecticut or any United States governmental authority or agency
regulating the Subordination Agent's banking, trust or fiduciary powers or any
judgment or order applicable to or binding on the Subordination Agent and do not
contravene the Subordination Agent's articles of association or by-laws or
result in any breach of, or constitute a default under, any agreement or
instrument to which the Subordination Agent is a party or by which it or any of
its properties may be bound;
(iv) neither the execution and delivery by the Subordination Agent of
this Agreement nor the consummation by the Subordination Agent of any of the
transactions contemplated hereby requires the consent or approval of, the giving
of notice to, the registration with, or the taking of any other action with
respect to, any Connecticut governmental authority or agency or any federal
governmental authority or agency regulating the Subordination Agent's banking,
trust or fiduciary powers;
(v) there are no Taxes payable by the Subordination Agent imposed by
the State of Connecticut or any political subdivision or taxing authority
thereof in connection with the execution, delivery and performance by the
Subordination Agent of this Agreement (other than franchise or other taxes based
on or measured by any fees or compensation received by the Subordination Agent
for services rendered in connection with the transactions contemplated by the
Intercreditor Agreement or any of the Liquidity Facilities), and there are no
Taxes payable by the Subordination Agent imposed by the State of Connecticut or
any political subdivision thereof in connection with the acquisition, possession
or ownership by the Subordination Agent of any of the Equipment Notes (other
than franchise or other taxes based on or measured by any fees or compensation
received by the Subordination Agent for services rendered in connection with the
transactions contemplated by the Intercreditor Agreement or any of the Liquidity
Facilities); and
(vi) there are no pending or threatened actions or proceedings against
the Subordination Agent before any court or administrative agency which
individually or in the aggregate, if determined adversely to it, would
materially adversely affect the ability of the Subordination Agent to perform
its obligations under this Agreement.
(f) The Escrow Agent represents and warrants that:
(i) the Escrow Agent is a national banking association duly organized,
validly existing and in good standing under the laws of the United States and
has the full power, authority and legal right under the laws of the United
States pertaining to its banking, trust and fiduciary powers to execute and
deliver this Agreement, each Deposit Agreement and each Escrow and Paying Agent
Agreement (collectively, the "Escrow Agent Agreements") and to carry out the
obligations of the Escrow Agent under each of the Escrow Agent Agreements;
10
<PAGE>
(ii) the execution and delivery by the Escrow Agent of each of the
Escrow Agent Agreements and the performance by the Escrow Agent of its
obligations hereunder and thereunder have been duly authorized by all necessary
action on the part of the Escrow Agent and will not violate its articles of
association or by-laws or the provisions of any indenture, mortgage, contract or
other agreement to which it is a party or by which it is bound; and
(iii) each of the Escrow Agent Agreements constitutes the legal, valid
and binding obligations of the Escrow Agent enforceable against it in accordance
with its terms, except as the same may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting the rights of
creditors generally and by general principles of equity, whether considered in a
proceeding at law or in equity.
(g) The Paying Agent represents and warrants that:
(i) the Paying Agent is a national banking association duly organized,
validly existing and in good standing under the laws of the United States and
has the full power, authority and legal right under the laws of the United
States pertaining to its banking, trust and fiduciary powers to execute and
deliver this Agreement and the Escrow and Paying Agent Agreement (collectively,
the "Paying Agent Agreements") and to carry out the obligations of the Paying
Agent under each of the Paying Agent Agreements;
(ii) the execution and delivery by the Paying Agent of each of the
Paying Agent Agreements and the performance by the Paying Agent of its
obligations hereunder and thereunder have been duly authorized by all necessary
action on the part of the Paying Agent and will not violate its articles of
association or by-laws or the provisions of any indenture, mortgage, contract or
other agreement to which it is a party or by which it is bound; and
(iii) each of the Paying Agent Agreements constitutes the legal, valid
and binding obligations of the Paying Agent enforceable against it in accordance
with its terms, except as the same may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting the rights of
creditors generally and by general principles of equity, whether considered in a
proceeding at law or in equity.
SECTION 4. Covenants.(a) The Company covenants with each of
the other parties hereto that:
(i) on the date that the Depositary is obligated to pay the amount of
the Final Withdrawal to the Paying Agent pursuant to a Deposit Agreement
relating to any Trust, the Company shall pay to the Pass Through Trustee of such
Trust no later than 12:30 p.m. (New York time) an amount equal to the Deposit
Make-Whole Premium, if any, required to be paid in respect of such Final
Withdrawal amount;
(ii) subject to Section 4(a)(iv) of this Agreement, the Company shall
at all times maintain its corporate existence and shall not wind up, liquidate
or dissolve or take any action, or
11
<PAGE>
fail to take any action, that would have the effect of any of the foregoing;
(iii) the Company shall at all times remain a U.S. Air Carrier (as
defined in the Financing Agreements) and shall at all times be otherwise
certificated and registered to the extent necessary to entitle (i) in the case
of Leased Aircraft, the Owner Trustee (and the Loan Trustee as assignee of the
Owner Trustee's rights under each Lease) to the rights afforded to lessors of
aircraft equipment under Section 1110 and (ii) in the case of Owned Aircraft,
the Loan Trustee to the rights afforded to secured parties of aircraft equipment
under Section 1110;
(iv) Section 13.2.1 of the form of Lease attached hereto as Exhibit A-2
is hereby incorporated by reference herein; and
(v) on the Delivery Period Termination Date, the Company shall deliver
a certificate to each Pass Through Trustee specifying the Delivery Period
Termination Date and stating that, on such date, the Participation Agreements
and the other Financing Agreements theretofore entered into do not vary the
Mandatory Economic Terms.
(b) State Street, in its individual capacity, covenants with
each of the other parties to this Agreement that it will, immediately upon
obtaining knowledge of any facts that would cast doubt upon its continuing
status as a "citizen of the United States" as defined in Section 40102 of the
Act and promptly upon public disclosure of negotiations in respect of any
transaction which would or might adversely affect such status, notify in writing
all parties hereto of all relevant matters in connection therewith. Upon State
Street giving any such notice, State Street shall, subject to Section 8.02 of
any Indenture then entered into, resign as Loan Trustee in respect of such
Indenture.
SECTION 5. Notices. Unless otherwise specifically provided
herein, all notices required or permitted by the terms of this Agreement shall
be in English and in writing, and any such notice shall become effective upon
being delivered personally or, if promptly confirmed by mail, when dispatched by
facsimile or other written telecommunication, addressed to such party hereto at
its address or facsimile number set forth below the signature of such party at
the foot of this Agreement.
SECTION 6. Expenses. (a) The Company agrees to pay to the
Subordination Agent when due an amount or amounts equal to the fees payable to
the Liquidity Provider under Section 2.03 of each Liquidity Facility and the
related Fee Letter (as defined in the Intercreditor Agreement) multiplied by a
fraction the numerator of which shall be the then outstanding aggregate amount
of the Deposits under the Deposit Agreements and the denominator of which shall
be the sum of (x) the then outstanding aggregate principal amount of the Series
A Equipment Notes, Series B Equipment Notes and Series C Equipment Notes issued
under all of the Indentures and (y) the then outstanding aggregate amount of the
Deposits under the Deposit Agreements.
12
<PAGE>
(b) So long as no Equipment Notes have been issued in respect
of any New Aircraft, the Company agrees to pay (i) to the Subordination Agent
when due (A) the amount equal to interest on any Downgrade Advance (other than
any Applied Downgrade Advance) payable under Section 3.07 of each Liquidity
Facility, (B) the amount equal to interest on any Non-Extension Advance (other
than any Applied Non-Extension Advance) payable under Section 3.07 of each
Liquidity Facility and (C) any other amounts owed to the Liquidity Provider by
the Subordination Agent as borrower under each Liquidity Facility (other than
amounts due as repayment of advances thereunder or as interest on such advances,
except to the extent payable pursuant to clause (A) or (B)), (ii) all
compensation and reimbursement of expenses, disbursements and advances payable
by the Company under the Pass Through Trust Agreements, (iii) all compensation
and reimbursement of expenses and disbursements payable to the Subordination
Agent under the Intercreditor Agreement except with respect to any income or
franchise taxes incurred by the Subordination Agent in connection with the
transactions contemplated by the Intercreditor Agreement and (iv) in the event
the Company requests any amendment to any Operative Agreement, all reasonable
fees and expenses (including, without limitation, fees and disbursements of
counsel) of the Escrow Agent and/or the Paying Agent in connection therewith.
For purposes of this Section 6(b), the terms "Applied Downgrade Advance",
"Applied Non-Extension Advance", "Downgrade Advance", "Investment Earnings" and
"Non-Extension Advance" shall have the meanings specified in each Liquidity
Facility.
SECTION 7. Further Assurances. Each party hereto shall duly
execute, acknowledge and deliver, or shall cause to be executed, acknowledged
and delivered, all such further agreements, instruments, certificates or
documents, and shall do and cause to be done such further acts and things, in
any case, as any other party hereto shall reasonably request in connection with
its administration of, or to carry out more effectually the purposes of, or to
better assure and confirm unto it the rights and benefits to be provided under,
this Agreement.
SECTION 8. Miscellaneous.(a) Provided that the transactions
contemplated hereby have been consummated, and except as otherwise provided for
herein, the representations, warranties and agreements herein of the Company,
Holdings, the Subordination Agent, the Escrow Agent, the Paying Agent and the
Pass Through Trustee, and the Company's, Holdings's, the Subordination Agent's,
the Escrow Agent's, the Paying Agent's and the Pass Through Trustee's
obligations under any and all thereof, shall survive the expiration or other
termination of this Agreement and the other agreements referred to herein.
(b) This Agreement may be executed in any number of
counterparts (and each of the parties hereto shall not be required to execute
the same counterpart). Each counterpart of this Agreement, including a signature
page executed by each of the parties hereto, shall be an original counterpart of
this Agreement, but all of such counterparts together shall constitute one
instrument. Neither this Agreement nor any of the terms hereof may be
terminated, amended, supplemented, waived or modified orally, but only by an
instrument in writing signed by the party against which the enforcement of the
termination, amendment, supplement, waiver or
13
<PAGE>
modification is sought. The index preceding this Agreement and the headings of
the various Sections of this Agreement are for convenience of reference only and
shall not modify, define, expand or limit any of the terms or provisions hereof.
The terms of this Agreement shall be binding upon, and shall inure to the
benefit of, the Company and its successors and permitted assigns, the Holdings
and its successors, the Pass Through Trustee and its successors as Pass Through
Trustee (and any additional trustee appointed) under any of the Pass Through
Trust Agreements, the Escrow Agent and its successors as Escrow Agent under the
Escrow and Paying Agent Agreements, the Paying Agent and its successors as
Paying Agent under the Escrow and Paying Agent Agreement and the Subordination
Agent and its successors as Subordination Agent under the Intercreditor
Agreement.
(c) This Agreement is not intended to, and shall not, provide
any Person not a party hereto (other than the Certificateholders and each of the
beneficiaries of Section 6 hereof) with any rights of any nature whatsoever
against any of the parties hereto, and no Person not a party hereto (other than
the Certificateholders and each of the beneficiaries of Section 6 hereof) shall
have any right, power or privilege in respect of, or have any benefit or
interest arising out of, this Agreement.
14
<PAGE>
SECTION 9. Holdings Guarantee. Holdings absolutely,
irrevocably and unconditionally guarantees the Company's obligations hereunder
on the terms set forth in Schedule VIII (the "Guarantee"), the provisions of
which are incorporated herein by reference as if fully set forth herein.
SECTION 10. Governing Law. THIS AGREEMENT SHALL BE GOVERNED
BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. THIS
AGREEMENT IS BEING DELIVERED IN THE STATE OF NEW YORK.
15
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed by their respective officers thereunto duly
authorized as of the day and year first above written.
AIRTRAN AIRWAYS, INC.
By /s/
-----------------------------------
Name:
Title:
Address:
9955 AirTran Boulevard
Orlando, Florida 32827
Attention: Treasurer
Facsimile: (407) 251-5567
AIRTRAN HOLDINGS, INC.
By /s/
-----------------------------------
Name:
Title:
Address:
9955 AirTran Boulevard
Orlando, Florida 32827
Attention: Treasurer
Facsimile: (407) 251-5567
STATE STREET BANK AND TRUST
COMPANY OF CONNECTICUT, NATIONAL
ASSOCIATION
not in its individual capacity,
except as otherwise provided
herein, but solely as Pass
Through Trustee
By /s/
-----------------------------------
Name:
Title:
Address:
225 Asylum Street
Goodwin Square
Hartford, Connecticut 06103
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Attention: Corporate Trust Administration
Facsimile: (860) 244-1889
With a copy to:
State Street Bank and Trust Company
2 Avenue de Lafayette, 6th Floor
Boston, MA 02111
Attention: Corporate Trust Department
Facsimile: (617) 664-1461
STATE STREET BANK AND TRUST
COMPANY OF CONNECTICUT, NATIONAL
ASSOCIATION
not in its individual capacity, except as otherwise
provided herein, but solely as Subordination Agent
By /s/
---------------------------------------
Name:
Title:
Address:
225 Asylum Street
Goodwin Square
Hartford, Connecticut 06103
Attention: Corporate Trust Administration
Facsimile: (860) 244-1889
With a copy to:
State Street Bank and Trust Company
2 Avenue de Lafayette, 6th Floor
Boston, MA 02111
Attention: Corporate Trust Department
Facsimile: (617) 664-1461
FIRST SECURITY BANK,
NATIONAL ASSOCIATION
as Escrow Agent
By /s/
---------------------------------------
Name:
Title:
Address:
79 South Main Street
Salt Lake City, Utah 84111
</TABLE>
<PAGE>
Attention: Corporate Trust Department,
3rd Floor
Facsimile: (801) 246-5053
STATE STREET BANK AND TRUST
COMPANY OF CONNECTICUT, NATIONAL
ASSOCIATION as Paying Agent
By /s/
-----------------------------------------
Name:
Title:
Address:
225 Asylum Street
Goodwin Square
Hartford, Connecticut 06103
Attention: Corporate Trust Administration
Facsimile: (860) 244-1889
With a copy to:
State Street Bank and Trust Company
2 Avenue de Lafayette, 6th Floor
Boston, MA 02111
Attention: Corporate Trust Department
Facsimile: (617) 664-1461
<PAGE>
SCHEDULE I to
Note Purchase Agreement
NEW AIRCRAFT AND SCHEDULED DELIVERY MONTHS
<TABLE>
<CAPTION>
Expected Registration Manufacturer's Serial Scheduled Delivery Month
New Aircraft Type Number Number
------------------- --------------------- --------------------- -------------------------
<S> <C> <C> <C> <C>
Boeing 717-200 N942AT 55005 September 1999
Boeing 717-200 N943AT 55006 September 1999
Boeing 717-200 N944AT 55007 October 1999
Boeing 717-200 N945AT 55008 October 1999
Boeing 717-200 N940AT 55004 November 1999
Boeing 717-200 N946AT 55009 November 1999
Boeing 717-200 N947AT 55010 December 1999
Boeing 717-200 N948AT 55011 December 1999
Boeing 717-200 N949AT 55003 January 1999
Boeing 717-200 N950AT 55012 March 2000
Boeing 717-200 N951AT 55013 May 2000
</TABLE>
<PAGE>
SCHEDULE II to
Note Purchase Agreement
PASS THROUGH TRUST AGREEMENTS
Pass Through Trust Agreement dated as of the Issuance Date between the Company
and the Pass Through Trustee in respect of AirTran Pass Through Trust, Series
1999-1A.
Pass Through Trust Agreement dated as of the Issuance Date between the Company
and the Pass Through Trustee in respect of AirTran Pass Through Trust, Series
1999-1B.
Pass Through Trust Agreement dated as of the Issuance Date between the Company
and the Pass Through Trustee in respect of AirTran Pass Through Trust, Series
1999-1C.
<PAGE>
SCHEDULE III to
Note Purchase Agreement
DEPOSIT AGREEMENTS
Deposit Agreement (Class A) dated as of the Issuance Date between the Depositary
and the Escrow Agent.
Deposit Agreement (Class B) dated as of the Issuance Date between the Depositary
and the Escrow Agent.
Deposit Agreement (Class C) dated as of the Issuance Date between the Depositary
and the Escrow Agent.
<PAGE>
SCHEDULE IV to
Note Purchase Agreement
ESCROW AND PAYING AGENT AGREEMENTS
Escrow and Paying Agent Agreement (Class A) dated as of the Issuance Date among
the Escrow Agent, the Class A Purchasers, the Pass Through Trustee for the Class
A Trust and the Paying Agent.
Escrow and Paying Agent Agreement (Class B) dated as of the Issuance Date among
the Escrow Agent, Kreditanstalt fur Wiederaufbau, the Pass Through Trustee for
the Class B Trust and the Paying Agent.
Escrow and Paying Agent Agreement (Class C) dated as of the Issuance Date among
the Escrow Agent, The Boeing Company, the Pass Through Trustee for the Class C
Trust and the Paying Agent.
<PAGE>
SCHEDULE V to
Note Purchase Agreement
-----------------------
MANDATORY DOCUMENT TERMS
The terms "Indenture Form," "Lease Form" and "Participation Agreement Form"
shall have the respective meanings specified in Schedule VI to the Note Purchase
Agreement.
1. May not modify in any material adverse respect the Granting
Clause of the Trust Indenture Form so as to deprive the Note Holders of a first
priority security interest in and mortgage lien on the Aircraft, the Lease, all
of the Owner Trustee's rights in the Aircraft Purchase Agreement and the
Aircraft Purchase Agreement Assignment or to eliminate any of the obligations
secured thereby or otherwise modify in any material adverse respect as regards
the interests of the Note Holders, the Subordination Agent, the Liquidity
Provider or the Mortgagee the provisions of Article II, III or IV, or Section
5.02, 5.06, 9.01(b), 10.04, 10.11 or 10.12 of the Trust Indenture Form.
2. May not modify in any material adverse respect as regards
the interests of the Note Holders, the Subordination Agent, the Liquidity
Provider or the Mortgagee the provisions of Section 3.2.1(e), 3.3(c), 4.7, the
final sentence of 7.1.1, 10.3.1(d)(2), 13.3, 16, 18.3 or 18.7 of the Lease Form
or otherwise modify the terms of the Lease Form so as to deprive the Mortgagee
of rights expressly granted to the "Mortgagee" therein.
3. May not modify in any material adverse respect as regards
the interests of the Note Holders, the Subordination Agent, the Liquidity
Provider or the Mortgagee the provisions of Section 5.1.9, 5.1.10, 5.1.11,
5.1.12, 7.5, 12, 15.8(a) or 15.9 of the Participation Agreement Form or of the
provisions of Section 5.1.2(t) or 10.1.1(a)(4) of the Participation Agreement
Form so as to eliminate the requirement to deliver to the Loan Participant or
the Mortgagee, as the case may be, the legal opinions to be provided to such
Persons thereunder (recognizing that the lawyers rendering such opinions may be
changed) or of the provisions of Section 7.6.11(a)(13) of the Participation
Agreement Form as regards the rights of the Mortgagee thereunder or otherwise
modify the terms of the Participation Agreement Form to deprive the Trustees,
the Subordination Agent, the Liquidity Provider or the Mortgagee of any
indemnity or right of reimbursement in its favor for Expenses or Taxes.
4. May not modify, in any material adverse respect as regards
the interests of the Note Holders, the Subordination Agent, the Liquidity
Provider or the Mortgagee, the definition of "Make Whole Amount" in Annex A to
the Participation Agreement Form.
Notwithstanding the foregoing, any such Mandatory Document
Term may be modified to correct or supplement any such provision which may be
defective or to cure any ambiguity or correct any mistake, provided that any
such action shall not materially adversely affect the interests of the Note
Holders, the Subordination Agent, the Liquidity Provider, the Mortgagee or the
Certificateholders.
<PAGE>
SCHEDULE VI to
Note Purchase Agreement
-----------------------
MANDATORY ECONOMIC TERMS
Equipment Notes
- ---------------
Obligor: AirTran Airways Inc., or an Owner Trust
- --------
Holdings: AirTran Holdings, Inc.
- ---------
Maximum Principal Amount:
The maximum principal amount of all the Equipment Notes issued with respect to a
New Aircraft shall not exceed the maximum principal amount of Equipment Notes
indicated for each such Aircraft set forth in the table below under the column
"Maximum Principal Amount of Equipment Notes":
<TABLE>
<CAPTION>
MAXIMUM PRINCIPAL AMOUNT OF
MANUFACTURER'S SERIAL NUMBER EQUIPMENT NOTES APPRAISED VALUE
<S> <C> <C> <C>
55004 $ 17,856,430 $ 26,396,667
55005 17,856,430 26,396,667
55006 17,856,430 26,460,000
55007 17,856,430 26,460,000
55008 17,856,430 26,493,333
55009 17,856,430 26,493,333
55010 17,927,856 26,526,667
55011 17,927,856 26,526,667
55003 17,927,856 26,723,333
55012 17,927,856 26,790,000
</TABLE>
The original aggregate principal amount of all Equipment Notes for all New
Aircraft shall not exceed the aggregate face amount of all Certificates issued
on the Issuance Date. The original aggregate principal amount of all Equipment
Notes of any series shall not exceed the original aggregate face amount of all
Certificates of the related Class issued on the Issuance Date.
Initial Loan to Aircraft Value with respect to a New Aircraft with (i) the
principal amount of the series of Equipment Notes that rank senior aggregated
for purposes of the calculation and (ii) the value of any Aircraft for these
purposes equal to the Assumed Appraised Value for such Aircraft, shall not
exceed the percentages set forth in the following table:
<PAGE>
SERIES A SERIES B SERIES C
EQUIPMENT EQUIPMENT EQUIPMENT
AIRCRAFT TYPE NOTES NOTES NOTES
------------- ---------- --------- ----------
Boeing 717-200 40.2% 52.0% 68.0%
In this Schedule VI:
"Assumed Appraisal Value" means the value set forth above under the column
"Appraised Value"; and
"Depreciation Assumption" means an assumption that the value of each New
Aircraft depreciates by approximately 3% of the initial appraised value per year
for the first fifteen years after the year of delivery of such New Aircraft, by
approximately 4% of the initial appraised value per year for the next five years
and by approximately 5% per year thereafter.
The Loan to Aircraft Value for each series of Equipment Notes issued in respect
of each New Aircraft (computed (i) after aggregating the principal amount of the
series of Equipment Notes that rank senior and (ii) as of the date of the
issuance thereof on the basis of the Assumed Appraised Value of such Aircraft
and the Depreciation Assumption will not exceed as of any Regular Distribution
Date thereafter (assuming no default in the payment of the Equipment Notes) the
Initial Loan to Aircraft Value for such series of Equipment Notes set forth in
the preceding table.
As of the Delivery Period Termination Date and each Regular Distribution Date
thereafter the Loan to Aircraft Value for each Class of Certificates (computed
(i) after aggregating the principal amount of the class of Certificates that
rank equally or senior and (ii) as of any such date on the basis of the Assumed
Appraisal Value of all Aircraft that have been delivered and the Depreciation
Assumption) will not exceed (assuming no default in payment of the Equipment
Notes and after giving effect to scheduled payments) the percentages set forth
in the following table:
CLASS A CLASS B CLASS C
AIRCRAFT TYPE CERTIFICATES CERTIFICATES CERTIFICATES
------------- ------------ ------------- -------------
Boeing 717-200 39.6% 50.0% 67.4%
2
<PAGE>
Initial Average Life (in years) as of the Funding Date for any Aircraft (from
- -----------------------------------------------------------------------------
the Issuance Date):
- -------------------
Series A: not more than 11.5 years
Series B: not more than 10.0 years
Series C: not more than 7.0 years
Average Life (in years)
- -----------------------
As of the Delivery Period Termination Date, the average life of the
Class A Certificates, the Class B Certificates and the Class C
Certificates shall not be more than, respectively, 11.5 years, 9.4
years, and 7.0 years from the Issuance Date (computed without regard to
the acceleration of any Equipment Notes and after giving effect to any
special distribution on the Certificates thereafter required in respect
of unused Deposits).
Final Maturity Date
- -------------------
There shall be a payment of principal scheduled on at least one Series
A Equipment Note on April 1, 2017, and no Series A Equipment Note shall
mature after such date.
There shall be a payment of principal scheduled on at least one Series
B Equipment Note on October 1, 2014, and no Series B Equipment Note
shall mature after such date.
There shall be a payment of principal scheduled on at least one Series
C Equipment Note on April 1, 2017, and no Series C Equipment Note shall
mature after such date.
Debt Rate (computed on the basis of a 360-day year consisting of twelve 30-day
- ------------------------------------------------------------------------------
months, payable semi-annually in arrears):
- ------------------------------------------
Series A: 10.41 %
Series B: 10.81%
Series C: 11.42%
Payment Due Rate: Debt Rate plus 2% per annum
Payment Dates: April 1 and October 1
Make-Whole Premiums: As provided in Article II
- -------------------- of the form of Trust Indenture
marked as Exhibit A-3 of the Note
Purchase Agreement or the Owned
Aircraft Indenture marked as Exhibit
C-2 of the Note Purchase Agreement
(the "Indenture Form")
Redemption and Purchase: As provided in Article II of the
- ------------------------ Indenture Form
3
<PAGE>
Lease
- -----
Term: The Base Lease Term shall expire by
its terms on or after final maturity
date of the latest maturity date of
the related Equipment Notes
Lease Payment Dates: April 1 and October 1
and (to the extent elected by the
Company) upon the commencement of
the Lease and on any other date
occurring after the latest maturity
date of the Equipment Notes issued
in connection with the related New
Aircraft.
Minimum Rent: Basic Rent due and payable on
each Payment Date (together with
any advances or payments by Lessee
on such Payment Date in respect of,
or any payments by an Owner
Participant, of deferred equity
amounts) shall be at least
sufficient to pay in full, on the
date on which such installment of
Basic Rent, advance, other payment
or deferred equity is due (assuming
timely payment of the related
Equipment Notes prior to such
date), the aggregate principal
amount of scheduled installments
due on the related Equipment Notes
outstanding on such Payment Date,
together with accrued and unpaid
interest thereon.
If an Owner Participant is required
to make a deferred equity payment to
be used by an Owner Trustee to pay
principal of, and interest on, the
Equipment Notes and the Owner
Participant fails to make the
payment, Lessee will be required to
provide the Owner Trustee with funds
sufficient to make the payment.
Supplemental Rent: Sufficient to cover the sums
described in clauses (1) through
(6) of such term as defined in
Annex A to the form of Lease (the
"Lease Form") marked as Exhibit A of
the Note Purchase Agreement
Stipulated Loss Value: At all times equal to or greater
than the then outstanding principal
amount of the related Equipment
Notes together with accrued interest
thereon and any Section 467 or other
adjustment reducing the payment from
Stipulated Loss Value.
Termination Value: At all times equal to or greater
than the then outstanding principal
amount of the related Equipment
Notes together with accrued interest
thereon and any Section 467 or other
adjustment reducing the payment from
Termination Value.
4
<PAGE>
EBO Price (if there is an
early purchase option): At all times equal to or greater
than the then outstanding principal
amount of the related Equipment
Notes together with accrued interest
thereon and any Section 467 or other
adjustment reducing the payment from
EBO Price.
All-risk hull insurance: Not less than Stipulated Loss Value,
subject to Lessee's right to
self-insure on terms no more
favorable to Lessee in any material
respect than those set forth in
Section G of Annex D to the Lease
Form.
Minimum Liability As set forth in Schedule 1 to the
Insurance Amount: Lease Form.
Past-Due Rate: As set forth in Schedule 1 to the
Lease Form.
SLV Rate: As set forth in Schedule 1 Lease
Form.
Participation Agreement
- -----------------------
Mortgagee, Subordination Agent, Liquidity Provider, Pass Through Trustees,
Escrow Agents and Note Holders indemnified against Expenses and Taxes to the
extent set forth in Section 9 of the form of the Participation Agreement (the
"Participation Form") marked as Exhibit A-1 to the Note Purchase Agreement
5
<PAGE>
SCHEDULE VII to
Note Purchase Agreement
-----------------------
AGGREGATE AMORTIZATION SCHEDULE
- --------------------------------------------------------------------------------
PAYMENT DATE CLASS A CLASS B CLASS C
CERTIFICATES CERTIFICATES CERTIFICATES
- --------------------------------------------------------------------------------
1-Apr-00 4,668,776.28 1,311,916.91 1,785,317.37
- --------------------------------------------------------------------------------
1-Oct-00 3,545,805.90 996,364.44 1,364,118.93
- --------------------------------------------------------------------------------
1-Apr-01 461,057.52 129,556.25 0
- --------------------------------------------------------------------------------
1-Oct-01 451,411.80 126,845.82 184,963.57
- --------------------------------------------------------------------------------
1-Apr-02 3,147,918.48 884,558.87 985,852.39
- --------------------------------------------------------------------------------
1-Oct-02 391,821.64 794,357.28 1,075,633.49
- --------------------------------------------------------------------------------
1-Apr-03 2,751,743.54 88,978.31 0
- --------------------------------------------------------------------------------
1-Oct-03 325,728.90 91,529.18 1,384,658.44
- --------------------------------------------------------------------------------
1-Apr-04 2,393,391.84 672,538.39 543,991.21
- --------------------------------------------------------------------------------
1-Oct-04 283,277.82 674,880.01 1,573,610.05
- --------------------------------------------------------------------------------
1-Apr-05 2,382,366.84 74,160.89 689,824.13
- --------------------------------------------------------------------------------
1-Oct-05 264,650.82 603,734.75 7,163,038.46
- --------------------------------------------------------------------------------
1-Apr-06 2,126,937.96 68,296.99 833,833.83
- --------------------------------------------------------------------------------
1-Oct-06 634,262.20 620,847.38 7,605,695.75
- --------------------------------------------------------------------------------
1-Apr-07 1,817,110.64 67,983.53 966,496.60
- --------------------------------------------------------------------------------
1-Oct-07 240,899.82 674,591.42 10,017,872.46
- --------------------------------------------------------------------------------
1-Apr-08 2,424,619.68 74,414.27 1,083,749.87
- --------------------------------------------------------------------------------
1-Oct-08 2,513,807.78 720,888.10 842,205.71
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
1-Apr-09 336,481.90 80,037.65 1,105,678.63
- --------------------------------------------------------------------------------
1-Oct-09 2,723,815.50 1,537,193.90 99,123.30
- --------------------------------------------------------------------------------
1-Apr-10 301,843.50 431,173.29 800,000.00
- --------------------------------------------------------------------------------
1-Oct-10 2,880,787.14 4,966,669.49 0
- --------------------------------------------------------------------------------
1-Apr-11 319,270.98 932,806.28 800,000.00
- --------------------------------------------------------------------------------
1-Oct-11 3,697,508.88 8,578,909.04 0
- --------------------------------------------------------------------------------
1-Apr-12 442,099.44 720,930.89 800,000.00
- --------------------------------------------------------------------------------
1-Oct-12 4,443,189.69 3,431,181.17 0
- --------------------------------------------------------------------------------
1-Apr-13 1,514,799.61 0 800,000.00
- --------------------------------------------------------------------------------
1-Oct-13 15,578,491.80 0 0
- --------------------------------------------------------------------------------
1-Apr-14 1,353,617.54 0 800,000.00
- --------------------------------------------------------------------------------
1-Oct-14 11,755,821.43 196,655.5 0
- --------------------------------------------------------------------------------
1-Apr-15 1,435,438.63 0 0
- --------------------------------------------------------------------------------
1-Oct-15 22,132,001.41 0 124,335.81
- --------------------------------------------------------------------------------
1-Apr-16 1,305,757.46 0 0
- --------------------------------------------------------------------------------
1-Oct-16 3,321,485.63 0 0
- --------------------------------------------------------------------------------
1-Apr-17 800,000.00 0 700,000.00
- --------------------------------------------------------------------------------
1-Oct-17 0 0 0
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TOTAL 105,168,000.00 29,552,000.00 44,130,000.00
- ------------------=======================---====================---=============
2
<PAGE>
SCHEDULE VIII to
Note Purchase Agreement
-----------------------
HOLDINGS GUARANTEE
1. GUARANTEE OF OBLIGATIONS.
(a) GUARANTEE. Holdings acknowledges that it is a party to the
Guaranteed Document, and hereby irrevocably and unconditionally guarantees to
the Guaranteed Parties, as primary obligor and not merely as surety, without
offset, abatement, deferment, or deduction, (1) Company's payment of all its
payment obligations under the Guaranteed Document when due (the "Financial
Obligations"), and (2) Company's performance and observance of all its other
obligations under the Guaranteed Document as and when due (the "Nonfinancial
Obligations") (the Financial Obligations and Nonfinancial Obligations being the
"Obligations").
If Company fails to pay any Financial Obligation when it becomes due
and payable, Holdings will promptly and fully pay all Financial Obligations then
due and payable.
If Company fails to perform or observe any Nonfinancial Obligation for
any reason when it is required to be performed or observed, Holdings will
promptly and fully perform such Nonfinancial Obligation or cause such
Nonfinancial Obligation to be performed or observed.
(b) ABSOLUTE GUARANTEE. Holdings's obligations under this Guarantee
shall be absolute and unconditional, shall remain in full force and effect until
irrevocable payment, performance, or observance in full of all of the
Obligations, and shall not be affected by any action taken or not taken by any
Guaranteed Party, by any lack of prior enforcement or retention of any rights
against Company or Holdings, by any illegality, unenforceability, or invalidity
of the Obligations or the Guaranteed Document, by any other guarantee or other
obligations, or by any other circumstance or condition (whether or not Holdings
or Company shall have any knowledge or notice thereof), including: (1) any
termination, amendment, modification, or other change in, or supplement to, the
Guaranteed Document or any other agreement, or any furnishing or acceptance of
additional security, or release of any security, for the obligations of Company
under the Guaranteed Document, or the failure of any security or any failure to
perfect any interest in any collateral given by Company under the Guaranteed
Document; (2) any failure, omission, or delay on the part of any Person to
conform or comply with any term of the Guaranteed Document or any other
agreement, (3) any waiver of the payment, performance, or observance of any of
the obligations, conditions, covenants, or agreements contained in the
Guaranteed Document or any other agreement or any other waiver, consent,
extension, indulgence, compromise, settlement, release, or other action or
inaction under or in respect of the Guaranteed Document, or any exercise or
nonexercise of any right or remedy under the Guaranteed Document or any
obligation or liability of Company or any Guaranteed Party, or any exercise or
nonexercise of any right, remedy, power, or privilege under or in respect of the
Guaranteed Document or any such obligation or liability; (4)
<PAGE>
any extension of time for payment or performance of any Obligation; (5) the
exchange, modification, substitution, or surrender of any collateral; (6) any
failure, omission, or delay on the part of any Guaranteed Party to enforce,
assert, or exercise any right, power, or remedy conferred on it in connection
with the Guaranteed Document, or any other action on the part of any Guaranteed
Party; (7) any voluntary or involuntary bankruptcy, insolvency, assignment for
the benefit of creditors, receivership, conservatorship, custodianship,
liquidation, marshalling of assets and liabilities, or similar proceeding with
respect to Company, Holdings, or any other Person or any of their respective
properties or creditors, or the disaffirmance in whole or in part of any of the
Guaranteed Document in any such proceeding, or any action taken by any trustee
or receiver or by any court in any such proceeding; (8) any limitation on
Company's liability or obligations (or the liabilities and obligations of any
other Person) or any discharge, termination, cancellation, frustration,
irregularity, invalidity, or unenforceability, in whole or in part, of any of
the Guaranteed Document or any other agreement; (9) any defect in the title,
compliance with specifications, condition, design, operation, or fitness for use
of the New Aircraft, or any damage to or loss or destruction of the Aircraft, or
any interruption or cessation of the use of the Aircraft for any reason
(including any force majeure and any act of a governmental or military
authority); (10) any merger or consolidation of Company or Holdings into or with
any other corporation, or any sale, lease, or other transfer of any of the
assets of Company or Holdings to any other Person or any change in the ownership
of Holdings or in the control of any such owner; (11) to the extent permitted by
law, any release or discharge, by operation of law, of Holdings from the
performance or observance of any obligation, covenant, or agreement contained in
this Guarantee; and (12) any other condition or circumstance which might
otherwise constitute a legal or equitable discharge, release, or defense of a
surety or Holdings, or which might otherwise limit recourse against Holdings,
including any discharge, release, defense, or limitation arising out of any laws
of the United States of America or any state thereof or any other Government
Entity having authority thereover which would exempt, modify, or delay the due
or punctual payment and performance of the obligations of Holdings hereunder
(the obligations of Holdings hereunder not being dischargeable except by payment
or performance). No failure or delay in exercising any right under this
Guarantee shall operate as a waiver thereof, nor shall any single or partial
exercise of any such right preclude any other or further exercise thereof or the
exercise of any other right of any Guaranteed Party under this Guarantee or the
Guaranteed Document.
(c) GUARANTEE OF PAYMENT AND PERFORMANCE. This Guarantee is a guarantee
of payment and performance and not merely of collection, and Holdings waives any
right to require that any action against Company or any other Person or any
collateral or security be taken or exhausted before action is taken against
Holdings. No Guaranteed Party shall be required (1) to file suit or to proceed
to obtain or assert a claim against Company for the Obligations, (2) to make any
effort at collection of the Obligations from Company, (3) to foreclose against
or seek to realize upon any present or future security for the Obligations, (4)
to file suit or to proceed to obtain or assert a claim for personal judgment
against any other Person liable for the Obligations, or to make any effort at
collecting the Obligations from any such other Person, or to exercise or assert
any other right or remedy to which any Guaranteed Party is or becomes entitled
in connection with the Obligations or any security or other guarantee therefor,
or (5) to assert or to file any claim against the assets of Company or any other
Holdings or any other Person liable for the Obligations, or any part thereof,
either before or as a condition to enforcing Holdings's liability under this
Guarantee or
2
<PAGE>
to require Holdings to pay or perform the Obligations at any time thereafter.
(d) WAIVER. Except as otherwise expressly provided in this Guarantee,
Holdings hereby waives diligence, presentment, demand, protest, and notice of
any kind whatsoever with respect to this Guarantee or the Obligations, including
(1) notice of acceptance of this Guarantee, notice of nonpayment or
nonperformance of any of the Obligations, and notice of a Default; (2) any
requirement to exhaust any remedies exercisable upon a default under the
Guaranteed Document or other agreement; (3) any other circumstance whatsoever
which might otherwise constitute a legal or equitable discharge, release, or
defense of a Holdings or surety or which might otherwise limit recourse against
Holdings.
(e) TERMINATION. Holdings's obligations under this (S) 1 shall
terminate (subject to reinstatement under (S) 3) when the Obligations have been
irrevocably paid and performed in full.
2. RIGHTS LIMITED TO GUARANTEED PARTIES. This Guarantee shall not
create any right in any Person except the Guaranteed Parties (and their
permitted successors and assigns), and shall not be construed in any respect to
be a contract in whole or in part for the benefit of any other Person.
3. BANKRUPTCY, ETC. If at any time all or any part of any payment or
performance theretofore applied to any of the Obligations is or must be
rescinded or returned for any reason whatsoever (including the bankruptcy,
insolvency, or reorganization of Company), such Obligations shall, for purposes
of this Guarantee, to the extent rescinded or returned, be deemed to have
continued in existence, notwithstanding such application by the Guaranteed
Party, and this Guarantee shall continue to be effective or be reinstated, as
the case may be, as to such Obligations all as though such application by any
Guaranteed Party had not been made. If an event permitting the declaration of
default under the Guaranteed Document exists at any time, and such declaration
of default is prevented by the pendency against Company or any other Person of a
case or proceeding under a bankruptcy or insolvency law, then for purposes of
this Guarantee and Holdings's obligations hereunder, such Guaranteed Document
shall be deemed to have been declared in default with the same effect as if such
Guaranteed Document had been enforceable in accordance with the terms thereof,
and Holdings shall forthwith pay the amounts due hereunder as specified by any
Guaranteed Party, any interest thereon, and any other amounts guaranteed
hereunder, without further notice or demand.
4. SUBROGATION. Holdings hereby irrevocably and unconditionally waives
any and all rights it may have or obtain, by reason of the performance of the
terms and provisions of this Guarantee, to be subrogated to the rights and
privileges of any Guaranteed Party against any collateral security or guarantee
or right of offset held by any Guaranteed Party for the payment of the
Obligations pursuant to Guaranteed Document or otherwise. If Holdings makes a
payment to a Guaranteed Party under this Guarantee, Holdings shall be subrogated
to that Guaranteed Party's claims against Company or any other Person relating
to that payment. Any such subrogation right and any contractual, common law,
statutory, or other rights of reimbursement, contribution, exoneration, or
indemnification (or any similar rights) from or against Company which may arise
in connection with this Guarantee shall be subject and subordinate to the
Guaranteed Parties' rights
3
<PAGE>
under the Guaranteed Document until all of the Obligations that are due and
payable have been paid in full, and until such time, Holdings agrees not to
claim or enforce any such right in whole or in part against Company. No payment
or performance hereunder by Holdings shall give rise to any claim of Holdings
against any of the Guaranteed Parties; provided, that this sentence shall not
prevent Holdings from being subrogated to any claim available to Company.
5. ASSIGNMENT. Any Guaranteed Party may at any time sell, assign,
transfer, or otherwise dispose of its interest in all or any part of this
Guarantee, the Guaranteed Document, or any other agreement and in the property
and interests subject thereto and hereto, subject to any limitations and
conditions thereon in any such Guaranteed Document or other agreement. To the
extent of the interest acquired by it, any purchaser, assignee, transferee, or
other party so acquiring any Guaranteed Party's interest shall have the same
rights as such assigning Guaranteed Party hereby and shall be deemed and
declared a "Guaranteed Party" hereunder. Holdings shall not assign any of its
rights or obligations hereunder, including any claim arising by subrogation.
6. PAYMENTS. All payments by Holdings hereunder shall be made in the
United States in U.S. dollars and in immediately available funds, and otherwise
as provided in the Guaranteed Document. All payments hereunder shall be made
free and clear of, and without deduction or withholding for or on account of,
any Taxes to the extent that any such Taxes would reduce the amount that the
Guaranteed Party receiving the payment otherwise would have received had Company
made such payment. If any Taxes must be deducted or withheld from any payment
hereunder, Holdings shall increase the amount paid so that the Guaranteed Party
receiving the payment receives the full amount of the payment provided for in
this Guarantee on an after-tax basis.
7. REPRESENTATIONS, WARRANTIES, AND COVENANTS. In addition to the
representations and warranties in Section 3(b) of the Note Purchase Agreement,
Holdings hereby represents, warrants, and covenants to the Guaranteed Parties as
follows:
(a) VALIDITY OF GUARANTEE. Holdings's obligations under this Guarantee
rank, and until discharged in full will continue to rank, in right of payment
and security, equally and ratably in all respects with all Holdings's present
and future unsecured and unsubordinated indebtedness for borrowed money.
(b) LITIGATION. There are no pending or, to Holdings's knowledge,
threatened actions or proceedings before any court or administrative agency of
the United States or any state thereof, which may be expected to have a
materially adverse effect on Holdings's financial condition or ability to
perform its obligations under this Guarantee.
(c) FINANCIAL STATEMENTS. All financial statements of Holdings that
Holdings or its agents delivered to any Guaranteed Party before the date of this
Guarantee have been prepared in accordance with generally accepted accounting
principles and are true and correct as of the date thereof. No materially
adverse change has occurred in Holdings's financial condition since the latest
date of such financial statements.
(d) TAX ASSESSMENTS. Holdings does not know of any proposed tax
assessment against
4
<PAGE>
it and all Holdings's tax liabilities are adequately provided for.
(e) CORPORATE EXISTENCE; MERGER, SALE, ETC. Holdings will do or cause
to be done all things necessary to preserve and keep in full force and effect
(1) its corporate existence, provided, that nothing in this paragraph (e) shall
prevent Holdings from merging into, consolidating with, or selling all or
substantially all of its assets to Company if the conditions of the
Participation Agreements are met, and (2) its qualifications to do business in
such jurisdictions as may be necessary for it to carry out the transactions
contemplated by this Guarantee.
(f) MERGER, SALE, ETC. Holdings shall not consolidate with or merge
into any other Person, or sell, convey, lease, or otherwise transfer all or
substantially all of its assets as an entirety (whether in one transaction or a
series of transactions) to any Person, unless:
(1) the Person formed by such consolidation or surviving such
merger, or the Person who acquires by sale, conveyance, transfer, or
lease all or substantially all of the Company's assets as an entirety
(the "Successor") is a U.S. Citizen;
(2) the Successor executes and delivers to the Guaranteed
Parties an agreement, in form and substance reasonably satisfactory to
the Guaranteed Parties, containing an assumption by the Successor of
the due and punctual performance and observance of Holdings's
obligations under this Guarantee;
(3) such transaction shall not materially impair the
Successor's ability to perform its obligations under this Guarantee,
and this Guarantee shall remain in full force and effect (unless
Holdings has merged with Company); and
(4) the Successor delivers to the Guaranteed Parties a
Certificate, signed on its behalf by a Responsible Officer, stating
that the conditions precedent set forth in clauses (1), (2), and (3)
have been complied with and an opinion of counsel for Holdings or for
the Successor, from counsel (who may be in-house counsel) and in form
and substance reasonably satisfactory to the Guaranteed Parties, (x)
stating that the agreements entered into to effect such consolidation,
merger, sale, conveyance, transfer, or lease and such assumption
agreements have been duly authorized, executed, and delivered by the
Successor and that they (and this Guarantee so assumed) constitute
legal, valid, and binding obligations of the Successor, enforceable in
accordance with their terms (to the same extent as this Guarantee was
enforceable against Holdings immediately prior to such transaction),
(y) stating that all conditions precedent that are legal in nature
provided for in this Guarantee and relating to such transaction have
been fulfilled, and (z) containing such other matters as the Guaranteed
Parties reasonably request.
Upon any such consolidation, sale, conveyance, merger, transfer, or
lease, the Successor shall succeed to, shall be substituted for, and may
exercise every right and power of Holdings under this Guarantee, with the same
effect as if the Successor had been named as Holdings herein. No such merger,
consolidation, conveyance, sale, transfer, or lease shall have the effect of
releasing Holdings (or any Successor) from its liability under this Guarantee.
5
<PAGE>
8. CONSENT TO JURISDICTION; SERVICE OF PROCESS; JURY TRIAL WAIVER.
Holdings irrevocably agrees that any legal action or proceeding brought against
Holdings with respect to this Guarantee may be brought and determined in the
Supreme Court of the State of New York, New York County, or in the United States
District Court for the Southern District of New York, and Holdings hereby
irrevocably accepts with regard to any such action or proceeding, for itself and
in respect of its properties, generally and unconditionally, the nonexclusive
jurisdiction of those courts. Holdings hereby irrevocably waives, and agrees not
to assert, by way of motion, as a defense or counterclaim, or otherwise, in any
such action or proceeding, any claim that it is not personally subject to the
jurisdiction of the foregoing courts, that it or its property is exempt or
immune from jurisdiction of any court or from any legal process (whether through
service of notice, attachment prior to judgment, attachment in aid of execution,
or otherwise), and, to the extent permitted by law, that the suit, action, or
proceeding is brought in an inconvenient forum, that the venue of the suit,
action, or proceeding is improper, or that this Guarantee or the subject matter
hereof may not be enforced in or by such courts, and further irrevocably waives,
to the extent permitted by law, the benefit of any defense that would hinder or
delay the levy, execution, or collection of any amount to which any Guaranteed
Party is entitled pursuant to a final judgment of any court having jurisdiction
(provided, that this sentence shall not waive any requirement of service of
process). Nothing herein shall affect any Guaranteed Party's right to commence
legal proceedings or otherwise proceed against Holdings in any other
jurisdiction in which Holdings shall be subject to suit. HOLDINGS WAIVES ANY
RIGHT THAT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF
OR RELATING TO THIS GUARANTEE.
9. INTEGRATION; SUCCESSORS AND ASSIGNS. This Guarantee constitutes the
entire agreement, and supersedes all prior agreements and understandings, both
written and oral, among Holdings and the Guaranteed Parties, with respect to the
subject matter hereof. This Guarantee shall bind Holdings's successors and
assigns, and shall benefit, and be enforceable by, the Guaranteed Parties and
their successors and assigns.
10. PERFORMANCE. Holdings's performance of any or all of the
Obligations shall, for all purposes of the Guaranteed Document, constitute
performance by Company of such Obligations.
6
<PAGE>
ANNEX A to
Note Purchase Agreement
-----------------------
DEFINITIONS
"Act" means 49 U.S.C. (S)(S) 40101-46507.
"Affiliate" means, with respect to any Person, any other
Person directly or indirectly controlling, controlled by or under common control
with such Person. For purposes of this definition, "control" means the power,
directly or indirectly, to direct or cause the direction of the management and
policies of such Person, whether through the ownership of voting securities or
by contract or otherwise and "controlling," "controlled by" and "under common
control with" have correlative meanings.
"Aircraft Purchase Agreement" means the Purchase Agreement DAC
95-40-D dated December 6, 1995, as amended, between ValueJet Airlines, Inc.
(predecessor to the Company) and the Manufacturer (including all exhibits
thereto, together with all letter agreements entered into that by their terms
constitute part of any such Purchase Agreement);
"Aircraft Purchase Agreement Assignment" means a Purchase
Agreement and Engine Warranties Assignment substantially in the form of Exhibit
A-4 to the Note Purchase Agreement.
"Assumed Amortization Schedule" means Schedule VII to the Note
Purchase Agreement.
"Bankruptcy Code" means the United States Bankruptcy Code, 11
U.S.C. (S)(S) 101 et seq.
"Boeing" has the meaning set forth in the sixth recital to the
Note Purchase Agreement.
"Business Day" means any day, other than a Saturday, Sunday or
other day on which commercial banks are authorized or required by law to close
in New York, New York, Orlando, Florida, or, so long as any Certificate is
outstanding, the city and state in which any Trustee, the Subordination Agent or
any Loan Trustee maintains its Corporate Trust Office or receives and disburses
funds.
"Certificate" has the meaning set forth in the third recital
to the Note Purchase Agreement.
"Certificateholder" means the Person in whose name a
Certificate is registered in the Register.
"Class" means the class of Certificates issued by each Pass
Through Trust.
<PAGE>
"Class A Certificates" means the certificates issued by Class
A Trust.
"Class A Purchase Agreement" has the meaning set forth in the
fourth recital to the Note Purchase Agreement.
"Class A Purchasers" has the meaning set forth in the fourth
recital to the Note Purchase Agreement.
"Class A Trust" means the AirTran Pass Through Trust 1999-1A
created and administered pursuant to the applicable Pass Through Trust
Agreement.
"Class B Certificates" means the certificates issued by Class
B Trust.
"Class B Purchase Agreement" has the meaning set forth in the
fifth recital to the Note Purchase Agreement.
"Class B Trust" means the AirTran Pass Through Trust 1999-1B
created and administered pursuant to the applicable Pass Through Trust
Agreement.
"Class C Certificates" means the certificates issued by Class
C Trust.
"Class C Purchase Agreement" has the meaning set forth in the
sixth recital to the Note Purchase Agreement.
"Class C Trust" means the AirTran Pass Through Trust 1999-1C
created and administered pursuant to the applicable Pass Through Trust
Agreement.
"Company" means AirTran Airways, Inc., a Delaware corporation.
"Corporate Trust Office" with respect to any Pass Through
Trustee or any Loan Trustee, means the office of such trustee in the city at
which at any particular time its corporate trust business shall be principally
administered.
"Cut-off Date" means the earlier of (a) the day after the
Delivery Period Termination Date and (b) the date on which a Triggering Event
occurs.
"Delivery Period Termination Date" means the earlier of (a)
May 31, 2000, or, if the Equipment Notes relating to all of the New Aircraft (or
Substitute Aircraft in lieu thereof) have not been purchased by the Pass Through
Trustees on or prior to such date due to any reason beyond the control of the
Company and not occasioned by the Company's fault or negligence, June 30, 2000
and (b) the date on which Equipment Notes issued with respect to all of the New
Aircraft (or Substitute Aircraft in lieu thereof) have been purchased by the
Pass Through Trustees in accordance with the Note Purchase Agreement.
"Delivery Date" means the Business Day on which a New Aircraft
is delivered to and accepted by the Company.
2
<PAGE>
"Deposit" has the meaning set forth in the seventh recital to
the Note Purchase Agreement.
"Deposit Agreement" has the meaning set forth in the seventh
recital to the Note Purchase Agreement.
"Depositary" means ABN AMRO Bank, N.V., Chicago Branch, a
banking institution organized under the laws of The Netherlands.
"Deposit Make-Whole Premium" means, with respect to the
distribution of unused Deposits to holders of any Class of Certificates (other
than the Class C Certificates), as of any date of determination, an amount equal
to the excess, if any, of (a) the present value of the excess of (i) the
scheduled payment of principal and interest to maturity of the related Series of
Equipment Notes, assuming the maximum principal amount thereof were issued on
each remaining Regular Distribution Date for such Class under the Assumed
Amortization Schedule, over (ii) the scheduled payment of principal and interest
to maturity of the Equipment Notes actually acquired by the Pass Through Trustee
for such Class on each such Regular Distribution Date, such present value
computed by discounting such excess on a semiannual basis on each Regular
Distribution Date (assuming a 360-day year of twelve 30-day months) using a
discount rate equal to the Treasury Yield plus 4.50% for the Class A
Certificates and 4.88% for the Class B Certificates (provided that so long as
KfW is the holder of all the Class B Certificates, in the case of the Class B
Certificates, a discount rate equal to the Treasury Yield plus 3.91% per annum
plus the Swap Spread), in each case, over (b) the amount of such unused Deposits
to be distributed to the holders of such Certificates, plus accrued and unpaid
interest to but excluding such date of determination from and including the
preceding Regular Distribution Date (or if such date of determination precedes
the first Regular Distribution Date, the Issuance Date). For purposes of this
definition, "Swap Spread" means, as of the date of determination, the nine-year
swap spread rate, offer side, as displayed on the Reuters Monitor Money Rate
Services page RTRSWP1 (or such other page of such service as may replace such
page) as determined by KfW.
"Equipment Notes" means and includes any equipment notes
issued under any Indenture in the form specified in Section 2.01 thereof (as
such form may be varied pursuant to the terms of such Indenture) and any
Equipment Note issued under any Indenture in exchange for or replacement of any
other Equipment Note.
"Escrow Agent" has the meaning set forth in the first
paragraph of the Note Purchase Agreement.
"Escrow and Paying Agent Agreement" has the meaning set forth
in the seventh recital to the Note Purchase Agreement.
"FAA" means the Federal Aviation Administration of the United
States.
"Final Withdrawal" with respect to each Escrow and Paying
Agent Agreement, has the meaning set forth in Section 1.02 thereof.
3
<PAGE>
"Financing Agreements" means, collectively, the Lease
Financing Agreements and the Owner Financing Agreements.
"Funding Date" has the meaning set forth in Section 1(b)(ii)
of the Note Purchase Agreement.
"Government Entity" means (a) any federal, state, provincial
or similar government, and any body, board, department, commission, court,
tribunal, authority, agency or other instrumentality of any such government or
otherwise exercising any executive, legislative, judicial, administrative or
regulatory functions of such government or (b) any other government entity
having jurisdiction over any matter contemplated by the Operative Agreements or
relating to the observance or performance of the obligations of any of the
parties to the Operative Agreements.
"Guarantee" has the meaning assigned to such term in Section
9.
"Guaranteed Parties" means each of the Escrow Agent, the Pass
Through Trustees, the Subordination Agent, the Certificateholders and the Paying
Agent.
"Guaranteed Document" means the Note Purchase Agreement.
"Holdings" means AirTran Holdings, Inc., a Nevada corporation.
"Indentures" means, collectively, the Leased Aircraft
Indentures and the Owned Aircraft Indentures.
"Intercreditor Agreement" has the meaning set forth in the
eleventh recital to the Note Purchase Agreement.
"Issuance Date" means the date of the original issuance of the
Certificates.
"KfW" has the meaning set forth in the fifth recital to the
Note Purchase Agreement.
"Law" means (a) any constitution, treaty, statute, law,
decree, regulation, order, rule or directive of any Government Entity, and (b)
any judicial or administrative interpretation or application of, or decision
under, any of the foregoing.
"Lease" means a Lease Agreement substantially in the form of
Exhibit A-2 to the Note Purchase Agreement.
"Leased Aircraft" means a New Aircraft subject to a Lease.
"Leased Aircraft Guarantee" means a Guarantee substantially in
the form of Exhibit A-6 to the Note Purchase Agreement.
"Leased Aircraft Indenture" means a Trust Indenture and
Mortgage substantially
4
<PAGE>
in the form of Exhibit A-3 to the Note Purchase Agreement.
"Leased Aircraft Participation Agreement" means a
Participation Agreement substantially in the form of Exhibit A-1 to the Note
Purchase Agreement.
"Lease Financing Agreements" means, collectively, the Aircraft
Purchase Agreement Assignment, the Leased Aircraft Participation Agreement, the
Lease, the Leased Aircraft Indenture, the Leased Aircraft Guarantee, the
Equipment Notes issued thereunder and the Trust Agreement relating to the
financing of a Leased Aircraft.
"Liquidity Facility" has the meaning set forth in the eleventh
recital to the Note Purchase Agreement.
"Liquidity Provider" has the meaning set forth in the eleventh
recital to the Note Purchase Agreement.
"Loan Trustee" means the "Mortgagee" as defined in the
Financing Agreements.
"Mandatory Document Terms" means the terms set forth on
Schedule V to the Note Purchase Agreement.
"Mandatory Economic Terms" means the terms set forth on
Schedule VI to the Note Purchase Agreement.
"Manufacturer" means McDonnell Douglas Corporation, a Maryland
corporation, solely in its capacity as manufacturer or seller of New Aircraft.
"New Aircraft" has the meaning set forth in the second recital
to the Note Purchase Agreement.
"Note Purchase Agreement" means the Note Purchase Agreement to
which this Annex A is attached.
"Notice of Purchase Withdrawal" with respect to each Deposit
Agreement, has the meaning set forth in Section 2.3 thereof.
"Operative Agreements" means, collectively, the Pass Through
Trust Agreements, the Escrow and Paying Agent Agreements, the Deposit
Agreements, the Liquidity Facilities, the Intercreditor Agreement, the Trust
Agreements, the Certificates and the Financing Agreements.
"Owned Aircraft" means a New Aircraft subject to an Owned
Aircraft Indenture.
"Owned Aircraft Guarantee" means a Guarantee substantially in
the form of Exhibit C-3 to the Note Purchase Agreement.
"Owned Aircraft Indenture" means a Trust Indenture and
Mortgage substantially in the form of Exhibit C-2 to the Note Purchase
Agreement.
5
<PAGE>
"Owned Aircraft Participation Agreement" means a Participation
Agreement substantially in the form of Exhibit C-1 to the Note Purchase
Agreement.
"Owner Financing Agreements" means, collectively, the Owned
Aircraft Participation Agreement, the Owned Aircraft Indenture, the Owned
Aircraft Guarantee and the Equipment Notes issued thereunder.
"Owner Participant" means, with respect to any Leased
Aircraft, the Person named as the Owner Participant in the Participation
Agreement with respect to such Leased Aircraft.
"Owner Trust" means with respect to any Leased Aircraft, the
trust created by the "Trust Agreement" referred to in the Leased Aircraft
Indenture related thereto.
"Owner Trustee" means with respect to any Leased Aircraft, the
"Owner Trustee" party to the "Trust Agreement" referred to in the Leased
Aircraft Indenture related thereto.
"Participation Agreements" means, collectively, the Leased
Aircraft Participation Agreements and the Owned Aircraft Participation
Agreements.
"Pass Through Trust" has the meaning set forth in the third
recital to the Note Purchase Agreement.
"Pass Through Trust Agreement" means any of the agreements
described in Schedule II to the Note Purchase Agreement.
"Pass Through Trustee" has the meaning set forth in the first
paragraph of the Note Purchase Agreement.
"Paying Agent" has the meaning set forth in the first
paragraph of the Note Purchase Agreement.
"Person" means any individual, firm, partnership, joint
venture, trust, trustee, Government Entity, organization, association,
corporation, limited liability company, government agency, committee,
department, authority and other body, corporate or incorporate, whether having
distinct legal status or not, or any member of any of the same.
"Qualified Owner Participant" means any bank, trust company,
insurance company, financial institution or corporation (other than, without the
Company's consent, a commercial air carrier, a commercial aircraft operator, a
freight forwarder or Affiliate of any of the foregoing), in each case with a
combined capital and surplus or net worth of at least $50,000,000.
"Rating Agency" means, at any time, the nationally recognized
rating agency which shall have been requested to rate the Certificates and which
shall then be rating the Certificates. The initial Rating Agency will be Moody's
Investors Service, Inc.
6
<PAGE>
"Rating Agency Confirmation" means, with respect to any
Financing Agreement that has been modified in any material respect from the
forms thereof attached to the Note Purchase Agreement or with respect to
Substitute Aircraft, a written confirmation from each of the Rating Agencies
that the use of such Financing Agreement with such modifications, the
substituting of such Substitute Aircraft for an New Aircraft, whichever of the
foregoing shall in a particular case require Rating Agency Confirmation, would
not result in (i) a reduction of the rating for any Class of Certificates below
the then current rating for such Class of Certificates or (ii) a withdrawal or
suspension of the rating of any Class of Certificates.
"Register" means the register maintained pursuant to Sections
3.04 and 7.12 of the Pass Through Trust Agreement with respect to each Pass
Through Trust.
"Regular Distribution Dates" shall mean April 1 and October 1
of each year, commencing April 1, 2000.
"Section 1110" means 11 U.S.C. (S) 1110 of the Bankruptcy Code
or any successor or analogous Section of the federal bankruptcy Law in effect
from time to time.
"Series A Equipment Notes" means Equipment Notes issued under
an Indenture and designated as "Series A" thereunder.
"Series B Equipment Notes" means Equipment Notes issued under
an Indenture and designated as "Series B" thereunder.
"Series C Equipment Notes" means Equipment Notes issued under
an Indenture and designated as "Series C" thereunder.
"State Street" means the State Street Bank and Trust Company
of Connecticut, National Association.
"Subordination Agent" has the meaning set forth in the first
paragraph of the Note Purchase Agreement.
"Substitute Aircraft" has the meaning set forth in Section
1(g) of the Note Purchase Agreement.
"Taxes" means all license, recording, documentary,
registration and other similar fees and all taxes, levies, imposts, duties,
charges, assessments or withholdings of any nature whatsoever imposed by any
Taxing Authority, together with any penalties, additions to tax, fines or
interest thereon or additions thereto.
"Taxing Authority" means any federal, state or local
government or other taxing authority in the United States, any foreign
government or any political subdivision or taxing authority thereof, any
international taxing authority or any territory or possession of the United
States or any taxing authority thereof.
"Treasury Yield" means, as of any date of determination and
with respect to any
7
<PAGE>
Equipment Note, the weighted average yield to maturity of United States Treasury
Notes then most recently auctioned with maturities equal to the average life of
such Equipment Note, or if United States Treasury Notes with such a maturity are
not then auctioned and publicly traded, with maturities next above and below the
then remaining average life of such Equipment Note, such yields in each case to
be determined by averaging (and rounding to the nearest whole multiple of 1/100
of 1% per annum, if the average is not such a multiple) the yields of the
relevant United States Treasury Notes (rounded, if necessary, to the nearest
1/100 of 1% with any figure of 1/200 of 1% or above rounded upward) (i) which
appear on the Reuters Monitor Money Rates Service RTRTSY1 Page (or such other
page of such service as may replace such page), or (ii) if no such yields are
available on any such page of such service, then which appear on Telerate Page
7677 (or such other page of such service as may replace such page) or (iii) if
no such yields are available on any such page of such service, then as quoted by
Salomon Smith Barney Inc. and Merrill Lynch, Pierce, Fenner & Smith
Incorporated, in each case, at approximately 11:00 A.M. New York time on the
date two Business Days next preceding the date of such purchase or acceleration,
as the case may be; such weighted average yield of United States Treasury Notes
to be calculated by the Subordination Agent in accordance with the following
formula:
WAY = Y1 + (Y2 - Y1) (X - X1)
-------------------
(X2 - X1)
Where:
WAY = weighted average yield.
X = then remaining average life in years of such
Equipment Note.
X1 = whole integer closest to and less than X that
equals the maturity in years of a United States
Treasury Note then publicly traded.
X2 = whole integer closest to and greater than X that
equals the maturity in years of a United States
Treasury Note then publicly traded.
Y1 = yield of United States Treasury Notes then most
recently auctioned with maturities equal to X1.
Y2 = yield of United States Treasury Notes then most
recently auctioned with maturities equal to X2.
"Triggering Event" has the meaning assigned to such term in
the Intercreditor Agreement.
"Trust Agreement" means a Trust Agreement substantially in the
form of Exhibit A-5 to the Note Purchase Agreement.
8
<PAGE>
EXHIBIT A-1 to
Note Purchase Agreement
-----------------------
FORM OF LEASED AIRCRAFT PARTICIPATION AGREEMENT
<PAGE>
EXHIBIT A-2 to
Note Purchase Agreement
-----------------------
FORM OF LEASE
<PAGE>
EXHIBIT A-3 to
Note Purchase Agreement
-----------------------
FORM OF LEASED AIRCRAFT INDENTURE
<PAGE>
EXHIBIT A-4 to
Note Purchase Agreement
-----------------------
FORM OF AIRCRAFT PURCHASE AGREEMENT ASSIGNMENT
<PAGE>
EXHIBIT A-5 to
Note Purchase Agreement
-----------------------
FORM OF LEASED AIRCRAFT TRUST AGREEMENT
<PAGE>
EXHIBIT A-6 to
Note Purchase Agreement
-----------------------
FORM OF LEASED AIRCRAFT GUARANTEE
<PAGE>
EXHIBIT B to
Note Purchase Agreement
-----------------------
FORM OF DELIVERY NOTICE
Dated as of __________ __, ____
To each of the addressees listed
in Schedule A hereto
RE: Delivery Notice in accordance with Note Purchase
Agreement referred to below
Ladies and Gentlemen:
Reference is made to the Note Purchase Agreement dated as of November
3, 1999 among AirTran Airways, Inc. (the "Company"), AirTran Holdings, Inc.,
State Street Bank and Trust Company of Connecticut, National Association, as
Pass Through Trustee under each of the Pass Through Trust Agreements (as defined
therein) (the "Pass Through Trustee"), State Street Bank and Trust Company of
Connecticut, National Association, as Subordination Agent (the "Subordination
Agent"), First Security Bank, National Association, as Escrow Agent (the "Escrow
Agent") and State Street Bank and Trust Company of Connecticut, National
Association, as Paying Agent (the "Paying Agent") (as in effect from time to
time, the "Note Purchase Agreement"). Unless otherwise defined herein,
capitalized terms used herein shall have the meanings set forth in the Note
Purchase Agreement or, to the extent not defined therein, the Intercreditor
Agreement.
Pursuant to Section 1(b) of the Note Purchase Agreement, the
undersigned hereby notifies you, in respect of the Boeing 717-200 aircraft with
manufacturer's serial number _______ (the "Aircraft"), of the following:
(1) The Company has elected to treat the Aircraft as a [Leased](1)/
[Owned](2) Aircraft;
(2) The Scheduled Delivery Date of the Aircraft is __________ __, ____ [The
Delivery Date of the Aircraft is _________ __, __ and the Funding Date
of the Aircraft is ________ __, __]*; and
- --------
(1) To be inserted in the case of a Leased Aircraft.
(2) To be inserted in the case of an Owned Aircraft.
(*) To be inserted in the case of bridge-financed Aircraft pursuant to
Section 1(f) of the Note Purchase Agreement.
<PAGE>
(3) The aggregate amount of each series of Equipment Notes to be issued,
and purchased by the respective Pass Through Trustees, on the
[Scheduled Delivery Date / Funding Date]*, in connection with the
financing of such Aircraft is as follows:
(a) the Class A Trustee shall purchase Series A Equipment Notes in
the amount of $__________;
(b) the Class B Trustee shall purchase Series B Equipment Notes in
the amount of $__________; and
(c) the Class C Trustee shall purchase Series C Equipment Notes in
the amount of $__________.
The Company hereby instructs the Class A Trustee to (i) execute a
Withdrawal Certificate in the form of Annex A hereto dated _____ __, ____ [a
date which is no later than one Business Day prior to the [Scheduled Delivery
Date / Funding Date]o] and attach thereto a Notice of Purchase Withdrawal
dated such date completed as set forth on Exhibit A hereto and (ii) deliver such
Withdrawal Certificate and Notice of Purchase Withdrawal to the applicable
Escrow Agent.
The Company hereby instructs the Class B Trustee to (i) execute a
Withdrawal Certificate in the form of Annex A hereto dated _____ __, ____ [a
date which is no later than one Business Day prior to the [Scheduled Delivery
Date / Funding Date]*] and attach thereto a Notice of Purchase Withdrawal
dated such date completed as set forth on Exhibit B hereto and (ii) deliver such
Withdrawal Certificate and Notice of Purchase Withdrawal to the applicable
Escrow Agent.
The Company hereby instructs the Class C Trustee to (i) execute a
Withdrawal Certificate in the form of Annex A hereto dated _____ __, ____ [a
date which is no later than one Business Day prior to the [Scheduled Delivery
Date / Funding Date]*] and attach thereto a Notice of Purchase Withdrawal
dated such date completed as set forth on Exhibit C hereto and (ii) deliver such
Withdrawal Certificate and Notice of Purchase Withdrawal to the applicable
Escrow Agent.
The Company hereby instructs each Pass Through Trustee to (i) purchase
Equipment Notes of a series and in an amount set forth opposite such Pass
Through Trustee in clause (3) above with a portion of the proceeds of the
withdrawals of Deposits referred to in the applicable Notice of Purchase
Withdrawal referred to above and (ii) re-deposit with the Depositary the excess,
if any, of the amount so withdrawn over the purchase price of such Equipment
Notes.
- --------
* Insert "Funding Date" only in the case of bridge-financed Aircraft pursuant to
Section 1(f) of the Note Purchase Agreement.
2
<PAGE>
The Company hereby instructs each Pass Through Trustee to (a) enter
into the Participation Agreement dated as of _____ __, ____ among the Company,
as [Lessee](3)/[Owner](4), the Subordination Agent, the Pass Through Trustee,
___________________, as Mortgagee [and Loan Participant, _____________________,
as Owner Trustee and _________, as Owner Participant](5), (b) perform its
obligations thereunder and (c) deliver such certificates, documents and legal
opinions relating to such Pass Through Trustee as required thereby.
[The Company hereby certifies that the Owner Participant with respect
to the Aircraft is (a) not an Affiliate of the Company or the Guarantor and (b)
based on representation(s) of the Owner Participant, a [Qualified Owner
Participant/person whose obligations under the Owner Participant Agreements (as
defined in the Participation Agreement) are guaranteed by a Qualified Owner
Participant].](6)
Yours faithfully,
AirTran Airways, Inc.
By:____________________________________
Name:
Title:
- -----------
(3) To be inserted in the case of a Leased Aircraft.
(4) To be inserted in the case of an Owned Aircraft.
(5) To be inserted in the case of a Leased Aircraft.
(6) To be inserted in the case of a Leased Aircraft.
3
<PAGE>
SCHEDULE A
State Street Bank and Trust Company
of Connecticut, National Association, as
Pass Through Trustee, Subordination
Agent, Escrow Agent and Paying Agent
225 Asylum Street
Goodwin Square
Hartford, Connecticut 06103
Attention: Corporate Trust Administration
Facsimile: (860) 244-1889
Moody's Investors Service, Inc.
99 Church Street
New York, New York 10007
Attention: Robert Jankowitz
Facsimile: (212) 553-4600
<PAGE>
ANNEX A
WITHDRAWAL CERTIFICATE
(Class __)
First Security Bank, National Association,
as Escrow Agent
Dear Sirs:
Reference is made to the Escrow and Paying Agent Agreement,
dated as of November 3, 1999 (the "Agreement"). We hereby certify to you that
the conditions to the obligations of the undersigned to execute a Participation
Agreement pursuant to the Note Purchase Agreement have been satisfied. Pursuant
to Section 1.02(c) of the Agreement, please execute the attached Notice of
Purchase Withdrawal and immediately transmit by facsimile to the Depositary, at
(312) 992-5111, Attention: Credit Administration, with a copy to (312) 606-8428,
Attention: Claudia Heldring.
Very truly yours,
STATE STREET BANK AND TRUST
COMPANY OF CONNECTICUT, NATIONAL
ASSOCIATION, not in its individual capacity but
solely as Pass Through Trustee
By __________________________
Name:
Title:
Dated: ____________, ____
<PAGE>
EXHIBIT A
NOTICE OF PURCHASE WITHDRAWAL
ABN AMRO Bank N.V.
208 South Lasalle Street
Suite 1500
Chicago, IL 60604-1003
Attention: Credit Administration
Telecopier: (312) 992-5111
Copy:
ABN AMRO Bank N.V.
135 South Lasalle Street
Chicago, Illinois 60603
Attention: Claudia Heldring
Telecopier: (312) 606-8428
Ladies and Gentlemen:
Reference is made to the Deposit Agreement (Class __) dated as
of November 3, 1999 (the "Deposit Agreement") between First Security Bank,
National Association, as Escrow Agent, and ABN AMRO Bank N.V., Chicago Branch,
as Depositary (the "Depositary").
In accordance with Section 2.3(a) of the Deposit Agreement,
the undersigned hereby requests the withdrawal of the entire amount of the
Deposit, $_______, Account No. ____________.
The undersigned hereby directs the Depositary to pay the
proceeds of the Deposit to [________________, Account No. _____, Reference:
_________] on _________ __, 199_, upon the telephonic request of a
representative of the Pass Through Trustee.
FIRST SECURITY BANK, NATIONAL
ASSOCIATION,
as Escrow Agent
By__________________________
Name:
Title:
Dated: _______ __, ____
<PAGE>
EXHIBIT C-1 to
Note Purchase Agreement
-----------------------
FORM OF OWNED AIRCRAFT PARTICIPATION AGREEMENT
<PAGE>
EXHIBIT C-2 to
Note Purchase Agreement
-----------------------
FORM OF OWNED AIRCRAFT INDENTURE
<PAGE>
EXHIBIT C-3 to
Note Purchase Agreement
-----------------------
FORM OF OWNED AIRCRAFT GUARANTEE
<PAGE>
ANNEX A
DEFINITIONS
GENERAL PROVISIONS
(a) In each Operative Agreement, unless otherwise expressly
provided, a reference to:
(1) each of "Lessee", "Lessor", "Loan Participant", "Owner
Trustee", "Owner Participant", "Mortgagee", "Note Holder", and any
other Person includes any successor in interest to it and any permitted
transferee, permitted purchaser, or permitted assignee of it;
(2) any agreement or other document (including any annex,
schedule, or exhibit thereto, or any other part thereof) includes that
agreement or other document as amended, supplemented, or otherwise
modified from time to time in accordance with its terms and in
accordance with the Operative Agreements, and any agreement or other
document entered into in substitution or replacement therefor;
(3) any provision of any Law includes any such provision as
amended, modified, supplemented, substituted, reissued, or reenacted
before the Delivery Date, and thereafter from time to time;
(4) "Agreement", "this Agreement", "hereby", "herein",
"hereto", "hereof", "hereunder", and words of similar import, when used
in any Operative Agreement, refer to such Operative Agreement as a
whole and not to any particular provision of such Operative Agreement;
(5) "including", "include", and terms or phrases of similar
import means "including [etc.], without limitation";
(6) "or" is conjunctive and not disjunctive; and
(7) a reference to a "section" or "(S)", an "Exhibit", an
"Annex", or a "Schedule" in any Operative Agreement, or in any annex
thereto, is a reference to a section of, or an exhibit, an annex, or a
schedule to, such Operative Agreement or such annex, respectively.
(b) Each exhibit, annex, and schedule to each Operative Agreement is
incorporated in, and is a part of, such Operative Agreement.
1
<PAGE>
(c) Unless otherwise defined or specified in any Operative Agreement,
all accounting terms therein shall be construed and all accounting
determinations thereunder shall be made in accordance with GAAP.
(d) Headings used in any Operative Agreement are for convenience only,
and shall not in any way affect the construction of, or be taken into
consideration in interpreting, such Operative Agreement.
(e) For purposes of each Operative Agreement, the existence of a Lease
Event of Default, Lease Default, or Special Default referred to in (S) 14.5 of
the Lease shall not prohibit Lessee from taking any action or exercising any
right that is conditioned on the non-existence of any Lease Event of Default,
Lease Default, or Special Default if such Lease Event of Default, Lease Default,
or Special Default consists of the institution of reorganization proceedings
with respect to Lessee under Chapter 11 of the Bankruptcy Code, and the trustee
or debtor-in-possession in such proceedings (1) has agreed to perform its
obligations under the Lease with the approval of the applicable court and
thereafter continues to perform such obligations in accordance with Section
1110, or (2) has assumed the Lease with the approval of the relevant court and
thereafter continues to perform its obligations under the Lease.
DEFINED TERMS
Actual Knowledge: (a) as it applies to Owner Trustee or Mortgagee,
actual knowledge of a responsible officer in the Corporate Trust Department or
the Corporate Trust Office, respectively, and (b) as it applies to Owner
Participant or Lessee, actual knowledge of a Vice President or more senior
officer of Owner Participant or Lessee (respectively), or any other officer of
Owner Participant or Lessee (respectively) having responsibility for the
Transactions; provided, that each of Lessee, Owner Participant, Owner Trustee,
and Mortgagee shall be deemed to have "Actual Knowledge" of any matter as to
which it has received notice from Lessee, Owner Participant, any Note Holder,
Owner Trustee, or Mortgagee, given pursuant to (S) 15.7 of the Participation
Agreement.
Additional Insured: defined in (S) D of Annex D to the Lease.
Adverse Change in Tax Law: (a) for Lessee, a Change in Tax Law that
Lessee regards as one that could adversely affect the economic consequences of
the Transactions as anticipated by Lessee, or (b) for Owner Participant, any
Change in Tax Law that would adversely affect any of the following tax
assumptions:
(1) for federal income tax purposes, the Lease will be a
"true" lease for purposes of the Code, Owner Participant will be
treated as the
2
<PAGE>
owner of the Aircraft, and Lessee will be treated as the lessee of the
Aircraft;
(2) for federal income tax purposes, Owner Participant will
be entitled to depreciation or cost recovery deductions with respect to
Lessor' s Cost of the Aircraft; and
(3) for federal income tax purposes, Owner Participant will
be entitled to deductions for interest payments on the Equipment Notes.
Affiliate of any Person: any other Person directly or indirectly
controlling, controlled by, or under common control with such Person. For
purposes of this definition, "control" means the power, directly or indirectly,
to direct or cause the direction of the management and policies of such Person,
whether through the ownership of voting securities, by contract, or otherwise,
and "controlling", "controlled by", and "under common control with" have
correlative meanings.
After-Tax Basis: a basis such that any payment to be received or
receivable by any Person is supplemented by a further payment to that Person so
that the sum of all the two payments, after deducting all Taxes (taking into
account any related current credits or deductions payable by such Person or any
of its Affiliates under any law or governmental authority, is equal to the
payment due to such Person.
Aircraft: the Airframe and the two Engines.
Aircraft Bill of Sale: the full warranty bill of sale covering the
Aircraft delivered by Seller to Owner Trustee on the Delivery Date.
Aircraft Description Exhibit: Exhibit A to the Lease or Exhibit A to
the Mortgage.
Aircraft Documents: all technical data, manuals, and log books, and all
inspection, modification, and overhaul records and other service, repair,
maintenance, and technical records that the relevant Aviation Authority requires
be maintained with respect to the Aircraft, including all required additions,
renewals, revisions, and replacements of any such materials, in each case in
whatever form and by whatever means or medium (including microfiche, microfilm,
paper, or computer disk) such materials are maintained or retained by or on
behalf of Lessee.
Airframe: (1) the aircraft (excluding Engines or engines from time to
time installed thereon) manufactured by Airframe Manufacturer and identified by
Airframe Manufacturer's model number, United States registration number,
3
<PAGE>
and Airframe Manufacturer's serial number set forth in the Aircraft Description
Exhibit, or (2) any Replacement Airframe, including in either case any and all
Parts incorporated or installed in or attached or appurtenant to such airframe,
and any and all Parts removed from such airframe, unless title to such Parts
does not vest in Lessor in accordance with (S) 8.1 and Annex C of the Lease.
Upon substitution of a Replacement Airframe under and in accordance with the
Lease, such Replacement Airframe shall become subject to the Lease and shall be
the "Airframe" for all purposes of the Operative Agreements, and the replaced
Airframe shall cease to be subject to the Lease and shall cease to be the
"Airframe".
Airframe Manufacturer: McDonnell Douglas Corporation, a Maryland
corporation.
Amortization Amount for any Equipment Note, as of any Payment Date: the
amount determined by multiplying the percentage set forth opposite such Payment
Date on the Amortization Schedule by the Original Amount of such Equipment Note.
Amortization Schedule for an Equipment Note: the amortization schedule
for that Equipment Note delivered pursuant to (S) 2.02 of the Mortgage.
Appraiser: a firm of internationally-recognized, independent aircraft
appraisers.
Average Life Date for any Equipment Note: the date which follows the
time of determination by a period equal to the Remaining Weighted Average Life
of such Equipment Note. The "REMAINING WEIGHTED AVERAGE LIFE" for any Equipment
Note on a given date is the number of days equal to (1) the sum of (a) each
then-remaining scheduled payment of principal of such Equipment Note, TIMES (b)
the number of days from and including such determination date to but excluding
the date on which such payment of principal is scheduled to be made, DIVIDED BY
(2) the then-outstanding principal amount of such Equipment Note.
Aviation Authority: the FAA or, if the Aircraft is registered with any
other Government Entity under and in accordance with (S) 7.1.2 of the Lease,
such other Government Entity.
Bankruptcy Code: the United States Bankruptcy Code, 11 U.S.C. (S) 101
ET SEQ.
Base term: the period beginning on and including the Commencement Date
and ending on the Scheduled Expiration Date, or such earlier date on which the
Term terminates in accordance with the provisions of the Lease.
4
<PAGE>
Basic Rent: the rent (including, to the extent applicable, Interim Rent
and Renewal Rent) payable for the Aircraft pursuant to (S) 3.2.1(a) of the
Lease.
Bills of Sale: the FAA Bill of Sale and the Aircraft Bill of Sale.
Boeing Agreement: defined in (S) 14.8(b) of the Lease.
Business Day: any day other than a Saturday, Sunday, or other day on
which commercial banks are authorized or required by law to close in New York,
NY, Orlando, FL, Salt Lake City, UT, and so long as any Equipment Note is
outstanding, the city and state in which Mortgagee maintains its corporate trust
office or receives and disburses funds.
Cash Equivalents: the following securities (which shall mature within
90 days of the date of purchase thereof): (1) direct obligations of the U.S.
Government; (2) obligations fully guaranteed by the U.S. Government; (3)
certificates of deposit issued by, or bankers' acceptances of, or time deposits
or a deposit account with, Owner Trustee, Mortgagee, or any bank, trust company,
or national banking association incorporated or doing business under the laws of
the United States or any state thereof having a combined capital and surplus and
retained earnings of at least $1 billion and having a rate of "A" or better from
the Thomson BankWatch Service; or (4) commercial paper of any issuer doing
business under the laws of the United States or one of the states thereof and in
each case having a rating assigned to such commercial paper by Standard & Poor's
or Moody's equal to or higher than A1 or P1, respectively.
Certificate Holder: a registered holder of one or more Pass-Through
Certificates or, if any Pass-Through Certificate is held by Depository Trust
Company, a beneficiary in a fractional Interest of such Pass-Through
Certificate.
Change in Tax Law: any amendment, modification, addition, or change in
or to the provisions of the Code, any other federal tax statutes, the Treasury
Regulations promulgated thereunder, the Internal Revenue Service Revenue
Rulings, Revenue Procedures, or other administrative or judicial interpretations
of the Code or the federal tax statutes that affects the tax assumptions set
forth in the Tax Indemnity Agreement or otherwise affects Owner Participant's
anticipated Net Economic Return (other than a change in the alternative minimum
tax or other change that results in Owner Participant's being subject to
alternative minimum tax or unable to use all tax benefits because of its
particular tax situation).
Citizen of the United States: defined in (S) 40102(a)(15) of the
Transportation Code and in the FARs.
5
<PAGE>
Closing: the closing of the transactions contemplated by the
Participation Agreement on the Delivery Date.
Code: the Internal Revenue Code of 1986; provided, that when used in
relation to a Plan, "Code" shall be interpreted in accordance with the
regulations and rulings issued thereunder.
Collateral: defined in the "Granting Clause" of the Mortgage.
Commencement Date: defined in Schedule 1 to the Lease.
Commitment for any Participant: the amount of its participation in the
payment of Lessor's Cost.
Commitment Termination Date: defined in Schedule 3 to the Participation
Agreement.
Consent and Agreement: Consent and Agreement N9__AT, dated the Delivery
Date, of Airframe Manufacturer.
Continuous Stay Period: defined in (S) 4.04(a) of the Mortgage.
Corporate Trust Department or Trust Office: Owner Trustee's principal
corporate trust office, located from time to time at Owner Trustee's address for
notices under the Participation Agreement, or such other office at which Owner
Trustee's corporate trust business shall be administered and which Owner Trustee
specifies by notice in writing to Lessee, Mortgagee, and each Note Holder.
Corporate Trust Office: Mortgagee's principal office, located at
Mortgagee's address for notices under the Participation Agreement, or such other
office at which Mortgagee's corporate trust business shall be administered and
which Mortgagee specifies by notice in writing to Lessee, Owner Trustee, and
each Note Holder.
CRAF: the Civil Reserve Air Fleet Program established pursuant to 10
U.S.C. (S) 9511 - 13, or any similar substitute program.
Debt: any liability for borrowed money, or any liability for the
payment of money in connection with any letter of credit transaction, or any
other liabilities evidenced or to be evidenced by bonds, debentures, notes, or
other similar instruments.
Debt Rate: (1) for any Series, the rate per annum specified for such
Series under the heading "Interest Rate" in Schedule I to the Mortgage, and (2)
for any other purpose, with respect to any period, the weighted average interest
rate
6
<PAGE>
per annum during such period borne by the outstanding Equipment Notes, excluding
any interest payable at the Past-Due Rate.
Deficiency Agreement: Deficiency Agreement N9__AT, dated the Delivery
Date, among Airframe Manufacturer, Owner Trustee, and Owner Participant.
Delayed Delivery Date: a delayed Delivery Date notified to each
Participant, Owner Trustee, and Mortgagee by Lessee pursuant to (S) 4.3 of the
Participation Agreement, which delayed Delivery Date shall be a Business Day not
later than the Commitment Termination Date.
Delivery Date: _______________, _____ (which is the date when the
Aircraft is delivered to and accepted by Lessee under the Lease and when the
Closing occurs).
Deposit Agreement: each of the three Deposit Agreements between
Depository and Escrow Agent, dated as of the Issuance Date, each of which
relates to one of the Pass-Through Trusts, provided, that, for purposes of any
obligation of Lessee, no amendment, modification, or supplement to, or
substitution or replacement of, any such Deposit Agreement shall be effective
unless Lessee consents to it.
Depository: ABN AMRO Bank N.V. (acting through its Chicago branch), as
Depository under each Deposit Agreement.
Dollars, United States Dollars, or $: the lawful currency of the United
States.
DoT: the Department of Transportation of the United States, or any
Government Entity succeeding to the functions of such Department of
Transportation.
EBO Date: defined in Schedule 1 to the Lease.
EBO Price: defined in Schedule 1 to the Lease.
Eligible Account: an account established by and with an Eligible
Institution at Mortgagee's request, which institution agrees, for all purposes
of the UCC (including UCC Article 8), that (1) such account shall be a
"securities account" (as defined in UCC (S) 8-501), (2) all property (other than
cash) credited to such account shall be treated as a "financial asset" (as
defined in UCC (S) 8-102(9)), (3) Mortgagee shall be the "entitlement holder"
(as defined in UCC (S) 8-102(7)) of such account, (4) it will comply with all
entitlement orders issued by Mortgagee to the exclusion of Lessee and Owner
Trustee, and (5) the "securities
7
<PAGE>
intermediary jurisdiction" (under UCC (S) 8-110(e)) shall be the state of New
York.
Eligible Institution: the corporate trust department of (1) State
Street Bank and Trust Company of Connecticut, National Association, acting
solely in its capacity as a "securities intermediary" (as defined in UCC (S)
8-102(14)), or (2) a depository institution organized under the laws of the
United States of America or any one of the states thereof or the District of
Columbia (or any U.S. branch of a foreign bank), which has a long-term unsecured
debt rating from Moody's and Standard & Poor's of at least A-3 or its
equivalent.
Enforcement Date: defined in (S) 4.03 of the Mortgage.
Engine: (1) each of the engines manufactured by Engine Manufacturer and
identified by Engine Manufacturer's model number and Engine Manufacturer's
serial number in the Aircraft Description Exhibit and originally installed on
the Airframe on delivery thereof pursuant to the Lease, or (2) any Replacement
Engine, in any case whether or not from time to time installed on the Airframe
or installed on any other airframe or aircraft, including (for both clauses (1)
and (2)) any and all Parts incorporated or installed in or attached or
appurtenant to such engine, and any and all Parts removed from such engine,
unless title to such Parts does not vest in Lessor in accordance with (S) 8.1
and Annex C of the Lease. Upon substitution of a Replacement Engine under and in
accordance with the Lease, such Replacement Engine shall become subject to the
Lease and shall be an "Engine" for all purposes of the Operative Agreements, and
the replaced Engine shall cease to be subject to the Lease and shall cease to be
an "Engine".
Engine Consent and Agreement: Engine Consent and Agreement N9__AT,
dated the Delivery Date, of Engine Manufacturer.
Engine Manufacturer: BMW Rolls-Royce GmbH.
Equipment Note: any equipment note issued under the Mortgage in the
form specified in (S) 2.01 and Exhibit B thereof (as such form may be varied
pursuant to the terms of the Mortgage), or any Equipment Note issued under the
Mortgage in exchange for or replacement of any Equipment Note.
Equipment Note Register: defined in (S) 2.07 of the Mortgage.
ERISA: the Employee Retirement Income Security Act of 1974.
Escrow Agent: First Security Bank, National Association, as Escrow
Agent under each of the Escrow Agreements.
8
<PAGE>
Escrow Agreement: each of the three Escrow and Paying Agent Agreements,
among Escrow Agent, Paying Agent, certain initial purchasers of the Pass-Through
Certificates named therein, and one of the Pass-Through Trustees, dated as of
the Issuance Date, each of which relates to one of the Pass-Through Trusts,
provided, that, for purposes of any obligation of Lessee, no amendment,
modification, or supplement to, or substitution or replacement of, any such
Escrow Agreement shall be effective unless Lessee consents to it.
Event of Loss with respect to the Aircraft, the Airframe, or any
Engine: any of the following circumstances, conditions, or events with respect
to such property, for any reason whatsoever:
(1) the destruction of such property, damage to such property
beyond economic repair, or rendition of such property
permanently unfit for normal use by Lessee;
(2) the actual or constructive total loss of such property, or any
damage to such property, or requisition of title or use of
such property, which results in an insurance settlement with
respect to such property on the basis of a total loss or
constructive or compromised total loss;
(3) any theft, hijacking, or disappearance of such property for 90
consecutive days or more;
(4) any seizure, condemnation, confiscation, taking, or
requisition of use of such property by any Government Entity
or purported Government Entity (other than a requisition of
use by a U.S. Government Entity) for 180 consecutive days or,
if earlier, at the end of the Term; or any taking of title to
such property by any Government Entity or purported Government
Entity (whether by seizure, condemnation, confiscation,
requisition, or otherwise);
(5) any seizure, condemnation, confiscation, taking, or
requisition of use of such property by any U.S. Government
Entity that continues until the 30th day after the last day of
the Term; and
(6) as a result of any law, rule, regulation, order, or other
action by the Aviation Authority or by any Government Entity
of the government of registry of the Aircraft or by any
Government Entity otherwise having jurisdiction over the
operation or use of the Aircraft, the use of such property in
the normal course of Lessee's business of passenger air
transportation is prohibited for 180 consecutive days, unless,
before the expiration of such 180-day period, Lessee
undertakes and is diligently carrying forward such
9
<PAGE>
steps as are necessary or desirable to permit the normal use
of such property by Lessee, but in any event if such use is
prohibited for a continuous period of one year.
Excluded Payments: (1) indemnity payments paid or payable by Lessee to
or in respect of Owner Participant or FSB, their Affiliates, successors, and
permitted assigns, and their directors, officers, employees, and agents pursuant
to (S) 9 of the Participation Agreement, or any corresponding payments under the
Lease, (2) proceeds of public liability insurance paid or payable as a result of
insurance claims made, or losses suffered, by Owner Participant or FSB, that are
payable directly to Owner Participant or FSB for its own account, (3) proceeds
of insurance maintained with respect to the Aircraft by Owner Participant or any
Affiliate thereof for its own account or benefit (whether directly or through
Owner Trustee) and permitted under (S) 11.2 of the Lease, (4) all payments
required to be made under the Tax Indemnity Agreement by Lessee, or under the
Deficiency Agreement or RVG by Airframe Manufacturer, (5) any Transaction
Expenses paid or payable by Lessee to Owner Trustee (to the extent for its sole
benefit) or Owner Participant pursuant to the Lease or the Participation
Agreement, (6) any interest that pursuant to the Operative Agreements may from
time to time accrue in respect of any of the amounts described in clauses (1)
through (5) above, and (7) any right to enforce the payment of any amount
described in clauses (1) through (6) above (provided, that the rights referred
to in this clause (7) shall not include the exercise of any remedies provided
for in the Lease, other than the right to sue for specific performance of any
covenant to make such payment or to sue for damages for the breach of any such
covenant).
Expenses: any and all liabilities, obligations, losses, damages,
settlements, penalties, claims, actions, suits, costs, expenses, and
disbursements (including reasonable fees and disbursements of legal counsel,
accountants, appraisers, inspectors, or other professionals, and costs of
investigation).
FAA: thet Federal Aviation Administration of the United States, or any
Government Entity succeeding to the functions of such Federal Aviation
Administration.
FAA Bill of Sale: a bill of sale for the Aircraft on AC Form 8050-2 (or
any other FAA-approved form), delivered to Owner Trustee on the Delivery Date by
Seller.
FAA Counsel: Crowe & Dunlevy.
FAA-Filed Documents: the Lease, the Mortgage, the Trust Agreement, the
FAA Bill of Sale, [INCLUDE ANY RELEASE OR TERMINATION,] an application for
10
<PAGE>
registration of the Aircraft with the FAA in Owner Trustee's name, and the
related affidavits of U.S. citizenship.
FARS: the Federal Aviation Regulations issued or promulgated pursuant
to the Transportation Code from time to time.
Fair Market Rental Value: the fair market rental value in Dollars for
the Aircraft that would apply in an arm's-length transaction between an informed
and willing lessee under no compulsion to lease, and an informed and willing
lessor under no compulsion to lease, for the applicable Renewal Term, assuming
that (1) the Aircraft has been maintained in accordance with, and is in the
condition required by, the Lease, (2) rent would be paid semiannually, and (3)
the Aircraft would be leased during any such Renewal Term on the same terms and
conditions (except for Basic Rent amount) as during the Base Term.
Fair Market Sales Value: the fair market sales value in Dollars for the
Aircraft that would apply in an arm's-length transaction between an informed and
willing buyer under no compulsion to buy, and an informed and willing seller
under no compulsion to sell, in a transaction that would close on or about the
relevant time of determination, assuming that (1) the Aircraft has been
maintained in accordance with the Lease, and is in the condition required by the
Lease, and (2) the Aircraft will be delivered to such informed and willing buyer
in the return condition required by the Lease.
Financing Statements: UCC-1 (and, where appropriate, UCC-3) financing
statements (1) covering the Collateral, by Owner Trustee, as debtor, showing
Mortgagee as secured party, for filing in Utah and each other jurisdiction where
(in Mortgagee's opinion) filing is necessary to perfect its Lien on the
Collateral, and (2) covering the Aircraft, as a precautionary matter, by Lessee,
as lessee, showing Owner Trustee as lessor and Mortgagee as assignee of Owner
Trustee, for filing in Florida and each other jurisdiction where (in Owner
Trustee's or Mortgagee's opinion) filing is reasonably desirable.
Fixed Renewal Term: the first or second term for which the Lease is
extended by Lessee (if applicable) pursuant to (S) 17 of the Lease.
FSB: First Security Bank, National Association, a national banking
association, not in its capacity as trustee under the Trust Agreement, but in
its individual capacity.
GAAP: generally accepted accounting principles as set forth in the
statements of financial accounting standards issued by the Financial Accounting
Standards Board of the American Institute of Certified Public Accountants, as
varied by any applicable financial accounting rules or
11
<PAGE>
regulations issued by the SEC, and applied on a basis consistent with prior
periods except as disclosed in the pertinent Person's financial statements.
Government Entity: (1) any federal, state, provincial, or similar
government, and any body, board, department, commission, court, tribunal,
authority, agency, or other instrumentality of any such government or otherwise
exercising any executive, legislative, judicial, administrative, or regulatory
functions of such government, or (2) any other government entity having
jurisdiction over any matter contemplated by the Operative Agreements or
relating to the observance or performance of the obligations of any of the
parties to the Operative Agreements.
GTA: the General Terms Agreement, as defined in the Purchase Agreement
Assignment.
Guarantee: Guarantee N9__AT, dated the Delivery Date, issued by
Holdings in favor of Owner Trustee, FSB, Mortgagee, SSB, the Certificate
Holders, and each Participant.
Guarantor Confirmation: an agreement, in form and substance reasonably
satisfactory to the Participants, under which Holdings confirms its obligations
under the Guarantee after giving effect to the transactions necessitating the
delivery of that agreement.
Holdings: AirTran Holdings, Inc., a Nevada corporation
Indemnitee: (1) FSB and Owner Trustee; (2) SSB and Mortgagee; (3) each
separate or additional trustee appointed pursuant to the Trust Agreement or the
Mortgage; (4) each Participant; (5) each Certificate Holder; (6) the Trust
Estate and the Collateral; (7) each Affiliate of the Persons described in
clauses (1), (2), (3), (4) and (5); (8) the directors, officers, employees, and
agents of each of the Persons described in clauses (1) through (4) and in
clauses (5) and (7); (9) the successors and permitted assigns of the Persons
described in clauses (1) through (5), and in clauses (7) through (8); and (9)
the Pass-Through Indemnitees; provided, that the Pass-Through Indemnitees are
Indemnitees only for purposes of (S) 9.1 of the Participation Agreement. If any
Indemnitee is Airframe Manufacturer or Engine Manufacturer or any subcontractor
or supplier of either thereof, such Person shall be an Indemnitee only in its
capacity as Owner Participant or Certificate Holder.
Intercreditor Agreement: the Intercreditor Agreement among Pass-Through
Trustees, Liquidity Provider, and Subordination Agent, dated as of the Issuance
Date.
12
<PAGE>
Interim Term: the period commencing on and including the Delivery Date,
and ending on and including the day before the Commencement Date (or such
earlier date on which the Term terminates in accordance with the provisions of
the Lease).
Interim Rent: defined in Schedule 1 to the Lease.
IRS: the Internal Revenue Service of the United States, or any
Government Entity succeeding to the functions of such Internal Revenue Service.
Issuance Date: November ___, 1999.
KFW Agreement: defined in (S) 14.8(a) of the Lease.
Law: (1) any constitution, treaty, statute, law, decree, regulation,
order, rule, or directive of any Government Entity, and (2) any judicial or
administrative interpretation or application of, or decision under, any of the
foregoing.
Lease or Lease Agreement: Lease Agreement N9__AT, dated the Delivery
Date, between Owner Trustee and Lessee.
Lease Default: (1) any condition, circumstance, act, or event that,
with the giving of notice or the lapse of time, would constitute a Lease Event
of Default, or (2) any Lease Event of Default.
Lease Event of Default: any one or more of the conditions,
circumstances, acts, or events set forth in (S) 14 of the Lease.
Lessee: AirTran Airways, Inc., a Delaware corporation.
Lessee Operative Agreements: the Participation Agreement, the Lease,
the Tax Indemnity Agreement, the Purchase Agreement Assignment, and each other
agreement between Lessee and any other party to the Participation Agreement,
relating to the Transactions, delivered on the Delivery Date.
Lessee Person: Lessee, any sublessee, assignee, successor, or other
user or Person in possession of the Aircraft, the Airframe, or an Engine with or
without color of right, or any Affiliate of any of the foregoing (excluding any
Tax Indemnitee or any related Tax Indemnitee with respect thereto, or any Person
using or claiming any rights with respect to the Aircraft, the Airframe, or an
Engine directly by or through any of the Persons in this parenthetical, but not
excluding any Person claiming directly or indirectly through or under the
Lease).
13
<PAGE>
Lessee's Advisor: defined in Schedule 3 to the Participation Agreement.
Lessor: Owner Trustee in its capacity as lessor under the Lease.
Lessor Lien, with respect to any Person, on any property (including the
Trust Estate, the Collateral, the Aircraft, Airframe, Engines, Parts, or
Aircraft Documents) or any payments: any Lien on such property or payments that
results from (1) claims against such Person (if such Person is a trustee,
whether in its individual capacity or in its capacity as a trustee) not related
to any of the Transactions, (2) acts or omissions of such Person (if such Person
is a trustee, whether in its individual capacity or in its capacity as a
trustee) in violation of its obligations under any of the terms of the Operative
Agreements, or not related to the Transactions, (3) Taxes against such Person
(if such Person is a trustee, whether in its individual capacity or in its
capacity as a trustee) or any of its Affiliates that Lessee is not required to
indemnify under the Participation Agreement, or (4) from claims against such
Person arising out of its transfer of all or part of its interest in the
Aircraft, the Trust Estate, or the Operative Agreements, other than a Transfer
required by the terms of the Operative Agreements or occurring pursuant to the
exercise of remedies set forth in (S) 15 of the Lease.
Lessor's Cost: the aggregate of the amounts paid by Owner Trustee to
Airframe Manufacturer and Lessee to purchase the Aircraft pursuant to the
Purchase Agreement Assignment and the Participation Agreement, as designated by
Dollar amount in Schedule 3 to the Participation Agreement.
Lien: any mortgage, pledge, lien, charge, claim, encumbrance, lease, or
security interest affecting the title to or any interest in property.
Liquidity Facilities: the three Revolving Credit Agreements (consisting
of a separate Revolving Credit Agreement with Liquidity Provider with respect to
each Pass-Through Trust) between Subordination Agent, as borrower, and Liquidity
Provider, each dated as of the Issuance Date, provided, that, for purposes of
any obligation of Lessee, no amendment, modification, or supplement to, or
substitution or replacement of, any such Liquidity Facility shall be effective
unless Lessee consents to it.
Liquidity Provider: ABN AMRO Bank N.V. (acting through its Chicago
branch), as "Class A Liquidity Provider", "Class B Liquidity Provider", and
"Class C Liquidity Provider" (as such terms are defined in the Intercreditor
Agreement).
Loan Participants: (1) until the Closing is consummated, Pass-Through
Trustees, and (2) after the Closing is consummated, each Note Holder.
14
<PAGE>
Loss Payment Date: the date on which payment is due pursuant to (S)
10.1.2(a)(1) of the Lease.
Maintenance Program: defined in Annex C to the Lease.
Majority in Interest of Note Holders as of a particular date of
determination: the holders of a majority in unpaid Original Amount of all
Equipment Notes outstanding as of such date (excluding any Equipment Notes held
by Owner Trustee, Lessee, or Owner Participant or any Affiliate of any such
party or any interests of Owner Trustee or Owner Participant therein by reason
of subrogation pursuant to (S) 4.03 of the Mortgage (unless all Equipment Notes
then outstanding are held by Owner Trustee, Lessee, Owner Participant, or any
Affiliate of any thereof)); provided, that for the purposes of directing any
action, casting any vote, or giving any consent, waiver, or instruction
hereunder, any Note Holder may (in its sole discretion) allocate any fractional
portion of the principal amount of its Equipment Note(s) in favor of or in
opposition to any such action, vote, consent, waiver, or instruction. A
"majority in interest" of holders of any Series of Equipment Notes shall be the
holders described in the preceding sentence if each reference therein to
"Equipment Notes" were replaced with "such Series of Equipment Notes".
Make-Whole Amount with respect to any Equipment Note: an amount (as
determined by an independent investment bank of national standing) equal to the
excess, if any, of (a) the present value of the remaining scheduled payments of
principal and interest to maturity of such Equipment Note, computed by
discounting such payments on a semiannual basis on each Payment Date (assuming a
360-day year of twelve 30-day months), using a discount rate equal to the
Treasury Yield plus the Margin, over (b) the outstanding principal amount of
such Equipment Note plus accrued interest to the determination date. For
purposes of this definition, "Treasury Yield" means, at the determination date
for any Equipment Note, the interest rate (expressed as a decimal and, in the
case of United States Treasury bills, converted to a bond equivalent yield)
determined to be the per annum rate equal to the semi-annual yield to maturity
for United States Treasury securities maturing on the Average Life Date of such
Equipment Note and trading in the public securities markets as determined by
interpolation between the most-recent weekly average yield to maturity for two
series of United States Treasury securities, trading in the public securities
markets, (aa) one maturing as close as possible to, but earlier than, the
Average Life Date of such Equipment Note, and (bb) the other maturing as close
as possible to, but later than, the Average Life Date of such Equipment Note,
such yields in each case to be determined by averaging (and rounding to the
nearest whole multiple of 1/100 of 1% per annum, if the average is not such a
multiple) the yields of the relevant United States Treasury securities (rounded,
if necessary, to the nearest 1/100 of 1% with any figure of
15
<PAGE>
1/200 of 1% or above rounded upward) (aa) which appear on the Reuter Monitor
Money Rates Service BNDS Page (or such other page of such service as may replace
such page), (bb) if no such yields are available on any such page of such
service, then which appear on Telerate Page 7677 (or such other page of such
service as may replace such page), or (cc) if no such yields are available on
any such page of such service, then as quoted by Salomon Smith Barney Inc. and
Merrill Lynch, Pierce, Fenner & Smith Incorporated, in each case, at
approximately 11:00 a.m. New York City time on the date two Business Days before
the determination date). "Margin" means (1) for the purpose of computing the
Make-Whole Amount payable under (S) 4.04 of the Mortgage, 1.5% per annum and (2)
in all other cases, 0% per annum. The determination date for a Make-Whole Amount
shall be the third Business Day before the applicable payment or redemption
date. Notwithstanding the foregoing, the Make-Whole Amount shall be zero on any
Series C Equipment Note prepaid on or before the second anniversary of the
Issuance Date other than pursuant to (S) 4.04 of the Mortgage.
Materially Adverse Change with respect to any Person: any event,
condition, or circumstance that materially adversely affects such Person's
business or consolidated financial condition, or its ability to observe or
perform its obligations, liabilities, and agreements under the Operative
Agreements.
Minimum Liability Insurance Amount: defined in Schedule 1 to the Lease.
Moody's: Moody's Investors Service, Inc.
Mortgage: Trust Indenture and Mortgage N9__AT, dated the Delivery Date,
between Owner Trustee and Mortgagee.
Mortgage Agreements: the Participation Agreement, the Lease, the
Purchase Agreement, the Purchase Agreement Assignment, the Consent and
Agreement, the Engine Consent and Agreement, the Bills of Sale, any Permitted
Sublease assignment or assigned Permitted Sublease contemplated by subclause (3)
of the Granting Clause in the Mortgage, and any other contract, agreement, or
instrument from time to time assigned or pledged under the Mortgage.
Mortgage Default: (1) any condition, circumstance, act, or event that,
with the giving of notice or the lapse of time, would constitute a Mortgage
Event of Default, or (2) any Mortgage Event of Default.
Mortgage Event of Default: any one or more of the conditions,
circumstances, acts, or events in (S) 4.02 of the Mortgage.
16
<PAGE>
Mortgage Indemnitee: (1) SSB and Mortgagee, (2) each separate or
additional trustee appointed pursuant to the Mortgage, (3) Subordination Agent,
(4) Liquidity Provider, (5) each Pass-Through Trustee, (6) Paying Agent, (7)
Escrow Agent, and (8) each of the directors, officers, employees, and agents of
the Persons described in clauses (1) through (7).
Mortgaged Property: defined in (S) 3.03 of the Mortgage.
Mortgagee: State Street Bank and Trust Company of Connecticut, National
Association, a national banking association, not in its individual capacity but
solely as loan trustee under the Mortgage.
Mortgagee Agreements: the Participation Agreement, the Mortgage, and
each other agreement between Mortgagee and any other party to the Participation
Agreement, relating to the Transactions, delivered on the Delivery Date.
Mortgagee Event: (1) in the event of a reorganization proceeding
involving Lessee under Chapter 11 of the Bankruptcy Code, (a) the trustee in
such proceeding or Lessee does not assume or agree to perform its obligations
under the Lease, as contemplated under Section 1110, during the 60-day period
under Section 1110(a)(1)(A) of the Bankruptcy Code (or such longer period as may
apply under Section 1110(b) of the Bankruptcy Code), or (b) at any time after
agreeing to perform or assuming such obligations, such trustee or Lessee ceases
to perform such obligations with the result that the Continuous Stay Period
comes to an end, or (2) either the Equipment Notes become due and payable
pursuant to (S) 4.04(b) of the Mortgage, or Mortgagee takes action or notifies
Owner Trustee that it intends to take action to foreclose the Lien of the
Mortgage or otherwise commence the exercise of any significant remedy in
accordance with (S) 4.04(a) of the Mortgage.
Net Economic Return: Owner Participant's net after-tax yield, using the
"multiple investment sinking fund" method of analysis, and aggregate net
after-tax cash flow, computed on the basis of the same methodology and
assumptions as the initial Owner Participant used in determining Basic Rent,
Stipulated Loss Value percentages, and Termination Value percentages, as of the
Delivery Date, as such assumptions are adjusted for events that have been the
basis for adjustments to Basic Rent pursuant to (S) 3.2.1(b) of the Lease or
events giving rise to indemnity payments pursuant to (S) 5 of the Tax Indemnity
Agreement; provided, that, even if the initial Owner Participant transfers its
interest, Net Economic Return shall be calculated as if the initial Owner
Participant had retained its interest; provided further, that, notwithstanding
the preceding proviso, solely for purposes of (S) 11 of the Participation
Agreement and calculating any adjustments to Basic Rent, Stipulated Loss Values,
and
17
<PAGE>
Termination Values in connection with a refunding pursuant to such (S) 11 at a
time when Owner Participant is a transferee (other than an Affiliate of the
initial Owner Participant), the after-tax yield (but not the after-tax cash
flow) component of Net Economic Return shall be calculated on the basis of the
methodology and assumptions used by the transferee Owner Participant as of the
date when it acquires its interest.
Net Present Value of Rents: the present value, as of the date of
determination, discounted at 10% per annum, compounded semiannually to the date
of determination, of all unpaid Basic Rent payments during the then-remaining
portion of the Base Term, expressed as a percentage of Lessor's Cost.
Net Worth for any Person: the excess of its total assets over its total
liabilities.
New Debt: debt securities in an aggregate principal amount specified in
the Re-Funding Information.
Non-U.S. Person: any Person, other than a United States person as
defined in Code (S) 7701(a)(30).
Note Holder: a registered holder of one or more Equipment Notes.
Note Purchase Agreement: the Note Purchase Agreement, dated as of the
Issuance Date, among AirTran Airways, Inc., Subordination Agent, Escrow Agent,
Paying Agent, and Pass-Through Trustee under each Pass-Through Trust Agreement,
providing for the issuance and sale of equipment notes.
Officer's Certificate of any party to the Participation Agreement: a
certificate signed by the Chairman, the President, any Vice President (including
those with varying ranks such as Executive, Senior, Assistant, or Staff Vice
President), the Treasurer, or the Secretary of such party.
Operative Agreements: the Participation Agreement, the Trust Agreement,
the Purchase Agreement Assignment, the Consent and Agreement, the Engine Consent
and Agreement, the Lease, the Mortgage, the Bills of Sale, the Tax Indemnity
Agreement, the Deficiency Agreement, the RVG, the Guarantee, the Boeing
Agreement, the KfW Agreement, and the Equipment Notes.
Operative Indenture: an indenture under which notes have been issued
and purchased by Pass-Through Trustees pursuant to the Note Purchase Agreement.
OP Jurisdiction: defined in Schedule 3 to the Participation Agreement.
18
<PAGE>
Original Amount of an Equipment Note: the stated original principal
amount of such Equipment Note and, with respect to all Equipment Notes, the
aggregate stated original principal amounts of all Equipment Notes.
Owner Participant: the Person executing the Participation Agreement as
"Owner Participant"; except that, after an Owner Participant Transfers its
interest to a successor Owner Participant, such transferor shall not be an
"Owner Participant".
Owner Participant Agreements: the Participation Agreement, the Tax
Indemnity Agreement, the Trust Agreement and each other agreement between Owner
Participant and any other party to the Participation Agreement relating to the
Transactions, delivered [on the Delivery Date].
Owner Participant's Percentage: the percentage of Lessor's Cost
allocated to Owner Participant in Schedule 2 to the Participation Agreement.
Owner Trustee: First Security Bank, National Association, a national
banking association, not in its individual capacity, except as expressly
provided in any Operative Agreement, but solely as Owner Trustee under the Trust
Agreement.
Owner Trustee Agreements: the Participation Agreement, the Lease, the
Trust Agreement, the Mortgage, the Equipment Notes, the Purchase Agreement
Assignment, and each other agreement between Owner Trustee and any other party
to the Participation Agreement, relating to the Transactions, delivered on the
Delivery Date.
Participant: Owner Participant or a Loan Participant.
Participation Agreement: Participation Agreement N9__AT, dated the
Delivery Date, among Lessee, Owner Participant, Owner Trustee, Pass-Through
Trustees, Subordination Agent, and Mortgagee.
Parts: all appliances, parts, components, instruments, appurtenances,
accessories, furnishings, seats, and other equipment of whatever nature (other
than (1) Engines or engines, and (2) any items leased by Lessee from a third
party other than Lessor) from time to time installed or incorporated in or
attached or appurtenant to the Airframe or any Engine.
Pass-Through Agreements: the Pass-Through Trust Agreements, the Note
Purchase Agreement, the Deposit Agreements, the Escrow Agreements, the
Intercreditor Agreement, the Liquidity Facilities, and the Fee Letters referred
to in (S) 2.03 of each of the Liquidity Facilities, provided,, that no
amendment, modification, or supplement to, or substitution or replacement of,
any such Fee
19
<PAGE>
Letter shall be effective for purposes of any obligation of Lessee, unless
Lessee consents to it.
Pass-Through Certificates: the pass-through certificates issued by the
Pass-Through Trusts (including any pass-through certificates for which such
pass-through certificates may be exchanged).
Pass-Through Indemnitees: (1) Subordination Agent, Paying Agent, Escrow
Agent, Liquidity Provider, and Pass-Through Trustees, (2) each Affiliate of a
Person described in the preceding clause (1), (3) the directors, officers,
employees, and agents of the Persons described in clauses (1) and (2), and (4)
the successors and permitted assigns of the Persons described in clauses (1),
(2), and (3).
Pass-Through Trust: each of the three separate pass-through trusts
created under the Pass-Through Trust Agreements.
Pass-Through Trust Agreement: each of the three separate Pass-Through
Trust Agreements, each dated as of the Issuance Date, by and between Lessee and
Pass-Through Trustee.
Pass-Through Trustee: State Street Bank and Trust Company of
Connecticut, National Association, a national banking association, in its
capacity as trustee under each Pass-Through Trust Agreement.
Pass-Through Trustee Agreements: the Participation Agreement, the
Pass-Through Trust Agreements, the Note Purchase Agreement, the Deposit
Agreements, the Escrow Agreements, and the Intercreditor Agreement.
Past-Due Rate: defined in Schedule 1 to the Lease.
Paying Agent: State Street Bank and Trust Company of Connecticut,
National Association, as Paying Agent under each of the Escrow Agreements.
Payment Date: (1) each April 1 and October 1 during the Term,
commencing with the first such date to occur after the Commencement Date, (2)
the Scheduled Expiration Date, and (3) each Scheduled Renewal Term Expiration
Date, if any.
Payment Period: each of the consecutive semiannual periods (or such
applicable shorter period ended on the Scheduled Expiration Date and the first
and last Payment Dates of any Renewal Term) during the Term ending on a Payment
Date, the first such period commencing on and including the Commencement Date.
20
<PAGE>
Permitted Air Carrier: any Permitted Foreign Air Carrier or U.S. Air
Carrier.
Permitted Country: any country listed on Schedule 5 to the Lease,
except any such country that, when the pertinent sublease or other transfer
begins, does not maintain normal diplomatic relations with the United States
(or, in the case of Taiwan, diplomatic relations at least as good as those in
effect on the Issuance Date), is involved in internal or external war or
military conflict, or is a country with which it would constitute a breach of
Law for Lessor, Mortgagee, or any Participant to engage directly or indirectly
in busine(S)
Permitted Foreign Air Carrier: any air carrier that (1) has its
principal executive offices in a Permitted Country, and (2) is authorized to
conduct commercial airline operations and to operate jet aircraft similar to the
Aircraft under the applicable Laws of such Permitted Country.
Permitted Government Entity: (1) the U.S. Government, or (2) any
Government Entity if the Aircraft is then registered under the laws of the
country of such Government Entity.
Permitted Institution: any bank, trust company, insurance company,
financial institution, or corporation (other than, without Lessee's consent, a
commercial air carrier, a commercial aircraft operator, a freight forwarder, an
airframe or aircraft engine manufacturer, or an Affiliate of any of the
foregoing), in each case with a combined capital and surplus or net worth of at
least $50,000,000.
Permitted Lien: any Lien described in clauses (a) through (g) of (S) 6
of the Lease.
Permitted Manufacturer: any manufacturer of commercial airframes or jet
aircraft engines, or subsidiary of any such manufacturer, that has its principal
executive offices in the United States or a Permitted Country.
Permitted Sublease: a sublease or sub-sublease permitted under (S)
7.2.7 of the Lease.
Permitted Sublessee: the sublessee under a Permitted Sublease.
Person or Person: an individual, firm, partnership, joint venture,
trust, trustee, Government Entity, organization, association, corporation,
limited liability company, government agency, committee, department, authority,
and other body, corporate or incorporate, whether having distinct legal status
or not, or any member of any of the same.
21
<PAGE>
Plan: any employee benefit plan within the meaning of ERISA (S) 3(3),
or any plan within the meaning of Code (S) 4975(e)(1).
Preliminary Notice: defined in (S) 17.1 of the Lease.
PTT Percentage with respect to each Pass-Through Trustee: the
percentage of Lessor's Cost allocated to such Pass-Through Trustee in Schedule 2
to the Participation Agreement.
Purchase Agreement: Purchase Agreement DAC 95-40-D, dated December 6,
1995, between Airframe Manufacturer and ValuJet Airlines, Inc. (predecessor to
Lessee), including all exhibits thereto, and all letter agreements that by their
terms constitute part of such Purchase Agreement, all to the extent assigned
pursuant to the Purchase Agreement Assignment.
Purchase Agreement Assignment: Purchase Agreement and Engine Warranties
Assignment N9__AT, dated the Delivery Date, between Lessee and Owner Trustee.
Purchase Date: the last Business Day of the Base Term or any Renewal
Term, as specified in any Purchase Notice.
Purchase Notice: defined in (S) 17.3.1 of the Lease.
Purchase Price: the amount required to be paid to Seller to purchase
the Aircraft.
QIB: defined in (S) 2.08 of the Mortgage.
Re-Funding Certificate: a certificate of an authorized representative
of Owner Participant delivered pursuant to (S) 11.1.1 of the Participation
Agreement, setting forth (1) the Re-Funding Date and (2) the following
information, subject to the limitations in (S) 11 of the Participation
Agreement: (a) the principal amount of debt to be issued by Owner Trustee on the
Re-Funding Date, (b) the proposed adjusted debt-to-equity ratio, and (c) the
proposed revised schedules of Basic Rent, Stipulated Loss Value percentages, and
Termination Value percentages, and the proposed Amortization Schedules,
calculated in accordance with (S) 3.2.1 of the Lease.
Re-Funding Date: the proposed date on which the outstanding Equipment
Notes will be redeemed and refinanced pursuant to (S) 11 of the Participation
Agreement.
22
<PAGE>
Re-Funding Information: the information set forth in the Re-Funding
Certificate (other than the Re-Funding Date), as revised by any verification
procedures demanded by Lessee pursuant to (S) 3.2.1(d) of the Lease.
Removable Parts: defined in (S) D of Annex C to the Lease.
Renewal Notice: defined in (S) 17.2.1 of the Lease.
Renewal Rent: the basic rent payable for a Renewal Term, determined
pursuant to (S) 17.2.2 of the Lease.
Renewal Rent Limit: defined in Schedule 1 to the Lease.
Renewal Term: a Fixed Renewal Term or a Subsequent Renewal Term.
Rent: Basic Rent and Supplemental Rent.
Replacement Airframe: an airframe substituted for the Airframe pursuant
to (S) 10 of the Lease.
Replacement Engine: an engine substituted for an Engine pursuant to the
Lease.
Responsible Officer of a Person: (1) the President or Chief Financial
Officer of such Person, (2) any other officer of such Person customarily bearing
responsibility for matters relating to the transactions contemplated by the
Operative Agreements, or (3) any officer of such Person specifically authorized
to take responsibility for any matter relating to the transactions contemplated
by the Operative Agreements.
RVG: Residual Agreement N9__AT, dated the Delivery Date, between
Airframe Manufacturer and Owner Participant.
Return Acceptance Supplement: a Return Acceptance Supplement, dated as
of the date the Aircraft is returned to Lessor pursuant to (S) 5 of the Lease,
entered into by Lessor and Lessee, substantially in the form of Exhibit B to the
Lease.
Scheduled Delivery Date: the expected Delivery Date that Lessee
notifies to each Participant, Owner Trustee, and Mortgagee pursuant to (S) 4.1
of the Participation Agreement, which must be a Business Day not later than the
Commitment Termination Date.
Scheduled Expiration Date: defined in Schedule 1 to the Lease.
23
<PAGE>
Scheduled Renewal Term Expiration Date: (1) for the first Fixed Renewal
Term, the second anniversary of the Scheduled Expiration Date, (2) for the
second Fixed Renewal Term, the fourth anniversary of the Scheduled Expiration
Date, and (3) for any Subsequent Renewal Term, the first anniversary of its
commencement date.
SEC: the Securities and Exchange Commission of the United States, or
any Government Entity succeeding to the functions of the Securities and Exchange
Commission.
Section 1110: 11 U.S.C. (S) 1110 of the Bankruptcy Code, or any
successor or analogous section of the federal bankruptcy Law in effect from time
to time.
Secured Obligations: defined in (S) 2.06 of the Mortgage.
Securities Act: the Securities Act of 1933.
Security: a "security" as defined in (S) 2(1) of the Securities Act.
Seller: [Airframe Manufacturer] [Lessee] [other].
Senior Holder: defined in (S) 2.14(c) of the Mortgage.
Series: Series A, Series B, or Series C.
Series A or Series A Equipment Notes: Equipment Notes issued under the
Mortgage and designated as "Series A" thereunder, in the Original Amount and
maturities and bearing interest as specified in Schedule I to the Mortgage under
the heading "Series A".
Series B or Series B Equipment Notes: Equipment Notes issued under the
Mortgage and designated as "Series B" thereunder, in the Original Amount and
maturities and bearing interest as specified in Schedule I to the Mortgage under
the heading "Series B".
Series C or Series C Equipment Notes: Equipment Notes issued under the
Mortgage and designated as "Series C" thereunder, in the Original Amount and
maturities and bearing interest as specified in Schedule I to the Mortgage under
the heading "Series C".
Similar aircraft: defined in Schedule 1 to the Lease.
SLV Date for any month: the day in that month specified in Schedule 3
to the Lease or, if that day is not a Business Day, the following Business Day.
SLV Rate: defined in Schedule 1 to the Lease.
24
<PAGE>
Special Default: (1) Lessee's failure to pay any amount of Basic Rent,
Stipulated Loss Value, Termination Value, or EBO Price when due, (2) any Default
referred to in (S) 14.5 of the Lease, or (3) any Lease Event of Default.
SSB: State Street Bank and Trust Company of Connecticut, National
Association, a national banking association, not in its capacity as Mortgagee
under the Mortgage, but in its individual capacity.
Standard & Poor's: Standard & Poor's Ratings Services.
Stipulated Loss Value for the Aircraft: (1) during the Interim Term or
the Base Term, Lessor's Cost multiplied by the percentage in Schedule 3 to the
Lease (as adjusted from time to time in accordance with (S) 3.2.1 of the Lease)
for the pertinent SLV Date, and (2) during any Renewal Term, the amount
determined pursuant to (S) 17.2.3 of the Lease. Notwithstanding anything to the
contrary in any Operative Agreement, Stipulated Loss Value shall always be
sufficient to pay in full, as of the date of payment thereof (assuming timely
payment of the Equipment Notes before such date), the unpaid principal amount of
all Equipment Notes outstanding as of such date, together with accrued and
unpaid interest on all Equipment Notes as of such date (without regard to any
interest accrued on the Equipment Notes at a rate exceeding the Debt Rate).
Subordination Agent: State Street Bank and Trust Company of
Connecticut, National Association, as subordination agent under the
Intercreditor Agreement.
Subordination Agent Agreements: the Participation Agreement, the
Liquidity Facilities, and the Intercreditor Agreement.
Subsequent Renewal Term: each term (if any) for which the Lease is
extended by Lessee after the second Fixed Renewal Term.
Supplemental Rent: without duplication, (1) all amounts, liabilities,
indemnities, and obligations (other than Basic Rent, but including any
Make-Whole Amount) that Lessee assumes or becomes obligated to pay or agrees to
pay under any Lessee Operative Agreement to or on behalf of Lessor or any other
Person, including Stipulated Loss Value, Termination Value, and indemnity
payments under (S) 9 of the Participation Agreement, but excluding any amount as
to which Lessee is obligated to pay a pro rata share pursuant to clause (5) of
this definition, (2) (a) to the extent not payable (whether or not in fact paid)
under (S) 6(a) of the Note Purchase Agreement (as originally in effect or
amended with Owner Participant's consent), the fees payable to Liquidity
Provider under (S) 2.03 of each Liquidity Facility and the related Fee Letter
(as defined in the Intercreditor Agreement), multiplied by a fraction the
numerator
25
<PAGE>
of which is the then-outstanding aggregate principal amount of the Equipment
Notes, and the denominator of which is the then-outstanding aggregate principal
amount of all "Series A Equipment Notes", "Series B Equipment Notes", and
"Series C Equipment Notes" (each as defined in the Note Purchase Agreement); (b)
(x) the amount equal to interest on any Downgrade Advance (other than any
Applied Downgrade Advance) payable under (S) 3.07 of each Liquidity Facility,
multiplied by (y) the fraction specified in the foregoing clause (a); (c) (x)
the amount equal to interest on any Non-Extension Advance (other than any
Applied Non-Extension Advance) payable under (S) 3.07 of each Liquidity
Facility, multiplied by (y) the fraction specified in the forgoing clause (a);
(d) if any payment default exists with respect to interest on any Equipment
Notes, (x) an amount equal to interest on any Unpaid Advance, Applied Downgrade
Advance, or Applied Non-Extension Advance payable under (S) 3.07 of each
Liquidity Facility, plus any interest in the Past-Due Rate actually payable
(whether or not in fact paid) by Lessee in respect of the overdue scheduled
interest on the Equipment Notes in respect of which such Unpaid Advance, Applied
Downgrade Advance, or Applied Non-Extension Advance was made, multiplied by (y)
a fraction the numerator of which is the sum of all then-overdue interest on the
Equipment Notes (other than interest becoming due and payable solely as a result
of acceleration of any Equipment Notes), and the denominator of which shall be
the sum of all then-overdue interest on all "Series A Equipment Notes", "Series
B Equipment Notes", and "Series C Equipment Notes" (each as defined in the Note
Purchase Agreement) (other than interest becoming due and payable solely as a
result of acceleration of any such "Equipment Notes"); and (e) Lessee's pro rata
share of any other amounts owed to Liquidity Provider by Subordination Agent as
borrower under each Liquidity Facility (other than amounts due as repayment of
advances thereunder or as interest on such advances), except to the extent
payable pursuant to clause (a), (b), (c), or (d) above, (3) Lessee's pro rata
share of all compensation and reimbursement of expenses, disbursements, and
advances payable by Lessee under the Pass-Through Trust Agreements, (4) Lessee's
pro rata share of all compensation and reimbursement of expenses and
disbursements payable to Subordination Agent under the Intercreditor Agreement,
except with respect to any income or franchise taxes incurred by Subordination
Agent in connection with the transactions contemplated by the Intercreditor
Agreement, (5) Lessee's pro rata share of any amount payable under (S) 9.1 (and,
if attributable thereto, (S) 9.5) of the Participation Agreement to any
Pass-Through Indemnitee to the extent such amount relates to, results from, or
arises out of or in connection with (a) the Pass-Through Agreements or the
enforcement of any of the terms of any of the Pass-Through Agreements, (b) the
offer, sale, or delivery of the Pass-Through Certificates or any interest
therein or represented thereby, or (c) any breach of or failure to perform or
observe, or any other noncompliance with, any covenant or agreement or other
26
<PAGE>
obligation to be performed by Lessee under any Pass-Through Agreement, or the
falsity of any representation or warranty of Lessee in any Pass-Through
Agreement, and (6) if Lessee requests any amendment to any Operative Agreement
or Pass-Through Agreement, Lessee's pro rata share of all reasonable fees and
expenses (including fees and disbursements of counsel) of Escrow Agents and
Paying Agents in connection therewith payable by Pass-Through Trustees under the
Escrow Agreements. As used herein, "LESSEE'S PRO RATA SHARE" means as of any
time a fraction, the numerator of which is the then-outstanding principal
balance of Equipment Notes, and the denominator of which is the aggregate
then-outstanding principal balance of all "Equipment Notes" (as each such term
is defined in each of the Operative Indentures). For purposes of this
definition, "Applied Downgrade Advance", "Applied Non-Extension Advance", "Cash
Collateral Account", "Downgrade Advance", "Final Advance", "Investment
Earnings", "Non-Extension Advance", and "Unpaid Advance" have the same meanings
as in each Liquidity Facility.
Tax Attribute Period: the period from the Delivery Date through
December 31, 200[6][7].
Tax Indemnitee: (1) FSB and Owner Trustee, (2) SSB and Mortgagee, (3)
each separate or additional trustee appointed pursuant to the Trust Agreement or
the Mortgage, (4) each Participant, (5) the Trust Estate and the Collateral, and
(6) the successors, assigns, and agents of the foregoing. For purposes of this
definition, the term "Owner Participant" shall include any member of an
affiliated group (within the meaning of Code (S) 1504) of which Owner
Participant is a member at the pertinent time, if consolidated, joint, or
combined returns are filed for such affiliated group for federal, state, or
local income tax purposes. If any Tax Indemnitee is Airframe Manufacturer or
Engine Manufacturer or any subcontractor or supplier of either thereof, such
Person shall be a Tax Indemnitee only in its capacity as Owner Participant.
Tax Indemnity Agreement: Tax Indemnity Agreement N9__AT, dated the
Delivery Date, between Lessee and Owner Participant.
Taxes: all taxes, levies, imposts, duties, charges, assessments, or
withholdings of any nature whatsoever imposed by any Taxing Authority, and any
penalties, additions to tax, fines, or interest thereon or additions thereto.
Taxing Authority: any federal, state, or local government or other
taxing authority in the United States, any foreign government or political
subdivision or taxing authority thereof, any international taxing authority, or
any territory or possession of the United States or taxing authority thereof.
Term: the term, commencing on the Delivery Date, for which the Aircraft
is leased pursuant to (S) 3 of the Lease, consisting of the Interim Term, the
Base
27
<PAGE>
Term, and any Renewal Term(s); provided, that, if at the scheduled end of the
Term the Aircraft or Airframe is being used, or was within the previous six
months being used, by the U.S. Government pursuant to CRAF, the Term shall be
deemed extended for the period necessary to accommodate usage of the Aircraft or
Airframe pursuant to CRAF plus six months thereafter, and Lessee shall be
obligated to pay Basic Rent for any such extension period at a semiannual rate
equal to the average of the Basic Rent paid during the Base Term or the
applicable Renewal Term (whichever ended immediately before such extension).
Termination Date: any Payment Date occurring after the fifth
anniversary of the Delivery Date on which the Lease terminates in accordance
with (S) 9 of the Lease.
Termination Value for the Aircraft: Lessor's Cost multiplied by the
percentage in Schedule 4 to the Lease (as adjusted from time to time in
accordance with (S) 3.2.1 of the Lease) for the pertinent Termination Value
Date. Notwithstanding anything to the contrary in any Operative Agreement,
Termination Value shall always be sufficient to pay in full, as of the date of
payment thereof (assuming timely payment of the Equipment Notes before such
date), the unpaid principal amount of all Equipment Notes outstanding as of such
date, together with accrued and unpaid interest on all such Equipment Notes as
of such date (without regard to any interest accrued on the Equipment Notes at a
rate exceeding the Debt Rate).
Termination Value Date for any month: the day in such month specified
in Schedule 4 to the Lease or, if such day is not a Business Day, the following
Business Day.
Threshold Amount: defined in Schedule 1 to the Lease.
Transaction Expenses: (1) the reasonable and actual fees and
disbursements incurred in connection with the negotiation, execution, and
delivery of the Operative Agreements of (a) Bingham Dana LLP (special counsel
for Mortgagee and the Loan Participants), such information to be furnished by
Mortgagee and Subordination Agent, (b) Ray, Quinney & Nebeker (special counsel
for Owner Trustee under the Trust Agreement), such information to be furnished
by Owner Trustee, (c) FAA Counsel, such information to be furnished by Lessee,
(d) special counsel to Owner Participant (as defined in Schedule 3 to the
Participation Agreement), such information to be furnished by Owner Participant,
(e) Milbank, Tweed, Hadley & McCloy LLP (special counsel to the placement agents
for the Class A and Class B Pass-Through Certificates), such information to be
furnished by Lessee, (f) Chapman and Cutler and Milbank, Tweed, Hadley & McCloy
LLP (special counsel to (respectively) the initial Class
28
<PAGE>
A and Class B Pass-Through Certificate holders), such information to be
furnished by Lessee, and (g) Troutman Sanders LLP (special counsel to Lessee),
such information to be furnished by Lessee, (2) all fees, taxes, and other
charges payable in connection with the recording or filing of instruments and
financing statements, such information to be furnished by Lessee, (3) the
initial fee and reasonable and actual disbursements of Owner Trustee under the
Trust Agreement, such information to be furnished by Owner Trustee, (4) the
initial fee and reasonable and actual disbursements of Mortgagee under the
Mortgage, such information to be furnished by Mortgagee, (5) the fee of the
Appraiser with respect to the appraisal of the Aircraft referred to in (S)
5.1.2(l) of the Participation Agreement, such information to be furnished by
Owner Participant, (6) the equity placement fee and reasonable disbursements of
Lessee's Advisor, such information to be furnished by Lessee, and (7) an
allocable portion of the placement fee and other expenses (including legal fees)
relating to the offering of the Pass-Through Certificates, such information to
be furnished by Lessee.
Transactions: the transactions contemplated by the Operative
Agreements.
Transfer: the transfer, sale, assignment, or other conveyance of all or
any interest in any property, right, or interest.
Transferee: a Person to whom Owner Participant, Owner Trustee, Loan
Participant, or Note Holder purports or intends to Transfer any or all of its
right, title, or interest in the Trust Estate or in its Equipment Note and the
Collateral, as described in (S) 10.1.1(a), (S) 10.1.2, or (S) 10.1.3 (but
excluding participants in any participation referred to in (S) 10.1.3) of the
Participation Agreement.
Transportation Code: subtitle VII of title 49, United States Code.
Trust: the trust created by the Trust Agreement.
Trust Agreement: Trust Agreement N9__AT, dated the Delivery Date,
between Owner Participant and Owner Trustee.
Trust Estate: all Owner Trustee's estate, right, title, and interest in
and to the Aircraft, the Lease, the Purchase Agreement, and the other Mortgage
Agreements, including all Basic Rent and Supplemental Rent (including insurance
proceeds and requisition, indemnity, or other payments of any kind for of with
respect to the Aircraft), but excluding any Excluded Payment.
UCC: the Uniform Commercial Code as in effect in any applicable
jurisdiction.
29
<PAGE>
United States or U.S.: the United States of America; provided, that for
geographic purposes, "United States" means the 50 states and the District of
Columbia of the United States of America.
U.S. Air Carrier: any United States air carrier who is a Citizen of the
United States holding an air carrier operating certificate issued by the
Secretary of Transportation pursuant to chapter 447 of the Transportation Code
for aircraft capable of carrying 10 or more individuals or 6000 pounds or more
of cargo, and as to whom there is in force an air carrier operating certificate
issued pursuant to FAR Part 121, or who may operate as an air carrier by
certification or otherwise under any successor or substitute provisions therefor
or in the absence thereof.
U.S. Government: the federal government of the United States, or any
instrumentality or agency thereof the obligations of which are guaranteed by the
full faith and credit of the federal government of the United States.
U.S. Person: any Person described in Code (S) 7701(a)(30).
Wet Lease: any arrangement whereby Lessee or a Permitted Sublessee
agrees to furnish the Aircraft, the Airframe, or any Engine to a third party
pursuant to which the Aircraft, Airframe, or Engine is at all times in the
operational control of Lessee or a Permitted Sublessee, provided, that Lessee's
obligations under this Lease shall continue in full force and effect
notwithstanding any such arrangement.
30
<PAGE>
------------------------------------------------------
CONFIDENTIAL: Subject to restrictions on dissemination
set forth in (S) 8 of this Agreement
------------------------------------------------------
================================================================================
PARTICIPATION AGREEMENT N9__AT
dated as of _______________, ____
among
AIRTRAN AIRWAYS, INC.,
Lessee,
[_______________________ ],
Owner Participant,
FIRST SECURITY BANK, NATIONAL ASSOCIATION,
not in its individual capacity except as expressly
provided herein, but solely as Owner Trustee,
Owner Trustee,
and
STATE STREET BANK AND TRUST COMPANY
OF CONNECTICUT, NATIONAL ASSOCIATION,
not in its individual capacity except as expressly provided
herein, but solely as Mortgagee, Subordination Agent under
the Intercreditor Agreement, and Pass-Through Trustee under
each of the Pass-Through Trust Agreements,
Mortgagee and Loan Participant
----------------------------
One Boeing model 717-200 aircraft
bearing manufacturer's serial no. 550__
and U.S. registration no. N9__AT
================================================================================
<PAGE>
CONTENTS
<TABLE>
<CAPTION>
<S> <C>
1. DEFINITIONS AND CONSTRUCTION...........................................................................2
2. PARTICIPATION IN LESSOR'S COST; ISSUANCE OF
EQUIPMENT NOTES; TERMINATION OF
OBLIGATION TO PARTICIPATE.......................................................................2
2.1 Participation in Lessor's Cost...............................................................2
2.2 Nature of Obligations of Participants........................................................3
2.3 Termination of Obligation to Participate.....................................................3
3. COMMITMENT TO LEASE AIRCRAFT...........................................................................3
4. PROCEDURE FOR PARTICIPATION IN PAYMENT OF LESSOR'S
COST; POSTPONEMENT OF SCHEDULED
DELIVERY DATE...................................................................................3
4.1 Notices of Scheduled Delivery Date...........................................................3
4.2 Payment of Lessor's Cost.....................................................................4
4.3 Postponement of Scheduled Delivery Date......................................................5
4.4 Closing......................................................................................5
5. CLOSING CONDITIONS.....................................................................................5
5.1 Conditions to Participants' Obligations......................................................5
5.2 Conditions to Owner Trustee's Obligations....................................................12
5.3 Conditions to Mortgagee's Obligations........................................................12
5.4 Conditions to Lessee's Obligations...........................................................13
5.5 Post-Registration Opinion....................................................................14
6. REPRESENTATIONS AND WARRANTIES.........................................................................14
6.1 Lessee's Representations and Warranties......................................................14
6.2 Owner Participant's Representations and Warranties...........................................19
6.3 FSB's Representations and Warranties.........................................................21
6.4 SSB's Representations and Warranties.........................................................23
7. COVENANTS..............................................................................................26
7.1 Lessee's Covenants...........................................................................27
7.2 Owner Participant's Covenants................................................................28
7.3 FSB's and Owner Trustee's Covenants..........................................................31
7.4 SSB's Covenants..............................................................................33
7.5 Note Holders' Covenants......................................................................34
7.6 Other Agreements.............................................................................35
8. CONFIDENTIALITY........................................................................................43
9. INDEMNIFICATION AND EXPENSES...........................................................................44
9.1 General Indemnity............................................................................44
9.2 Expenses.....................................................................................51
9.3 General Tax Indemnity........................................................................52
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
9.4 Payments.....................................................................................63
9.5 Interest.....................................................................................63
9.6 Benefit of Indemnities.......................................................................63
10. ASSIGNMENT OR TRANSFER OF INTERESTS...................................................................63
10.1 Participants, Owner Trustee, and Note Holders...............................................63
10.2 Effect of Transfer..........................................................................65
11. RE-FUNDING AND CERTAIN OTHER MATTERS..................................................................66
11.1 Re-Funding Generally........................................................................66
11.2 Limitations on Obligation to Refund.........................................................68
11.3 Execution of Facilitating Documents.........................................................68
11.4 ERISA.......................................................................................68
11.5 Consent to Optional Redemptions.............................................................69
11.6 Lessee's Assumption of Equipment Notes......................................................69
12. SECTION 1110..........................................................................................72
13. CHANGE OF CITIZENSHIP.................................................................................72
13.1 Generally...................................................................................72
13.2 Owner Participant...........................................................................73
13.3 Owner Trustee...............................................................................73
13.4 Mortgagee...................................................................................73
14. CONCERNING OWNER TRUSTEE..............................................................................73
15. MISCELLANEOUS.........................................................................................74
15.1 Amendments..................................................................................74
15.2 Severability................................................................................74
15.3 Survival....................................................................................74
15.4 Reproduction of Documents...................................................................75
15.5 Counterparts................................................................................75
15.6 No Waiver...................................................................................75
15.7 Notices.....................................................................................75
15.8 Governing Law; Submission to Jurisdiction; Venue............................................76
15.9 Third-Party Beneficiary.....................................................................77
15.10 Entire Agreement...........................................................................77
15.11 Further Assurances.........................................................................77
</TABLE>
ii
<PAGE>
ANNEX, SCHEDULES, AND EXHIBITS
ANNEX A Definitions
SCHEDULE 1 Accounts; Addresses
SCHEDULE 2 Commitments
SCHEDULE 3 Certain Terms
EXHIBIT A Opinion of special counsel to Lessee and Holdings
EXHIBIT B Opinion of corporate counsel to Lessee and Holdings
EXHIBIT C Opinion of corporate counsel to Airframe Manufacturer
EXHIBIT D Opinion of special counsel to Owner Trustee
EXHIBIT E Opinion of special counsel to Mortgagee and Loan Participants
EXHIBIT F Opinion of special counsel to Owner Participant
EXHIBIT G Opinion of FAA Counsel
iii
<PAGE>
PARTICIPATION AGREEMENT N9__AT
This Participation Agreement N9__AT (this "Agreement"), dated as of
_______________, ____, is entered into by and among (1) AirTran Airways, Inc.
("Lessee"), a Delaware corporation, (2) ______________________________ ("Owner
participant"), a corporation organized under the laws of the OP Jurisdiction,
(3) First Security Bank, National Association, a national banking association,
not in its individual capacity (except as expressly provided herein), but solely
as Owner Trustee (in its capacity as Owner Trustee, "Owner Trustee" or "Lessor",
and in its individual capacity, "FSB"), (4) State Street Bank and Trust Company
of Connecticut, National Association, a national banking association, not in its
individual capacity (except as expressly provided herein), but solely as
mortgagee (in its capacity as Mortgagee, "Mortgagee", and in its individual
capacity, "SSB"), (5) State Street Bank and Trust Company of Connecticut,
National Association, not in its individual capacity (except as expressly
provided herein), but solely as trustee under each of the Pass-Through Trust
Agreements (each, a "Pass-Through Trustee"), and (6) State Street Bank and Trust
Company of Connecticut, National Association, not in its individual capacity
(except as expressly provided herein), but solely as subordination agent under
the Intercreditor Agreement ("Subordination Agent").
RECITALS
A. Owner Participant and FSB are entering into the Trust
Agreement, pursuant to which Owner Trustee agrees to hold the Trust Estate for
the use and benefit of Owner Participant.
B. Lessee and Airframe Manufacturer entered into the Purchase
Agreement, pursuant to which Airframe Manufacturer agreed to manufacture certain
aircraft (including the Aircraft) and sell them to Lessee, and Lessee agreed to
buy certain aircraft (including the Aircraft) from Airframe Manufacturer.
C. Lessee and Owner Trustee are entering into the Purchase
Agreement Assignment, pursuant to which Lessee assigns to Owner Trustee [certain
of Lessee's rights relating to the Aircraft against] [Lessee's right to purchase
the Aircraft from] Airframe Manufacturer.
D. Pursuant to each of the Pass-Through Trust Agreements, on the
Issuance Date, the Pass-Through Trusts were created and the Pass-Through
Certificates were issued and sold.
1
<PAGE>
E. Pursuant to the Note Purchase Agreement, each Pass-Through
Trustee agreed to use a portion of the proceeds from the issuance and sale of
the Pass-Through Certificates issued by each Pass-Through Trust to purchase from
Owner Trustee, on behalf of the related Pass-Through Trust, the Equipment Note
bearing the same interest rate as the Pass-Through Certificates issued by such
Pass-Through Trust.
F. Owner Trustee and Mortgagee are entering into the Mortgage for
the benefit of the Note Holders, pursuant to which Owner Trustee agrees (1) to
issue Equipment Notes, in the amounts and otherwise as provided in the Mortgage,
the proceeds of which will be used to pay a portion of Lessor's Cost, and (2) to
mortgage, pledge, and assign to Mortgagee all of Owner Trustee's right, title,
and interest in the Collateral to secure the Secured Obligations, including
Owner Trustee's obligations under the Equipment Notes.
G. Lessor and Lessee are entering into the Lease, pursuant to
which Lessor is leasing the Aircraft to Lessee and Lessee is leasing the
Aircraft from Lessor.
H. The parties to this Agreement want to set forth in this
Agreement the terms and conditions upon and subject to which the foregoing
transactions shall be effected.
The parties hereto agree as follows:
1. DEFINITIONS AND CONSTRUCTION
The terms defined in Annex A, when capitalized as in Annex A, have the
same meanings when used in this Agreement. Annex A also contains rules of usage
that control construction in this Agreement.
2. PARTICIPATION IN LESSOR'S COST; ISSUANCE OF EQUIPMENT NOTES;
TERMINATION OF OBLIGATION TO PARTICIPATE
2.1 PARTICIPATION IN LESSOR'S COST
Subject to the terms and conditions of this Agreement, on the Delivery
Date, Owner Participant and each Pass-Through Trustee shall participate in the
payment of Lessor's Cost as follows:
(a) Owner Participant shall participate in the payment of Lessor's
Cost for the Aircraft by making an equity investment in the
beneficial ownership of the Aircraft in the amount in Dollars
equal to Owner Participant's Percentage multiplied by Lessor's
Cost; and
2
<PAGE>
(b) each Pass-Through Trustee shall make a non-recourse secured
loan to Owner Trustee to finance, in part, Owner Trustee's
payment of Lessor's Cost in the amount in Dollars equal to
such Pass-Through Trustee's PTT Percentage multiplied by
Lessor's Cost, such loan to be evidenced by one or more
Equipment Notes, dated the Delivery Date, issued to
Subordination Agent as the registered holder on behalf of each
such Pass-Through Trustee for the related Pass-Through Trust
by Owner Trustee in accordance with this Agreement and the
Mortgage, in an aggregate principal amount equal to the
Commitment of each such Pass-Through Trustee.
2.2 NATURE OF OBLIGATIONS OF PARTICIPANTS
The obligations hereunder of each Participant are several, and not
joint, and a Participant shall have no obligation to make available to Owner
Trustee any portion of any amount not paid hereunder by any other Participant.
The failure by either Participant to perform its obligations hereunder shall not
affect the obligations of Lessee toward the other Participant, except to the
extent provided in (S) 5.4.
2.3 TERMINATION OF OBLIGATION TO PARTICIPATE
Notwithstanding any other provision of this Agreement, if the Closing
does not occur on or before the Commitment Termination Date, the Commitment of
each Participant and its obligation to participate in the payment of Lessor's
Cost shall expire and be of no further force and effect; provided, that the
liability of any Participant that has defaulted in the payment of its Commitment
shall not be released.
3. COMMITMENT TO LEASE AIRCRAFT
Subject to the terms and conditions of this Agreement, concurrently
with the issuance of the Equipment Notes on the Delivery Date, Owner Trustee
shall purchase and accept delivery of the Aircraft under and pursuant to the
Purchase Agreement and the Purchase Agreement Assignment, and thereupon Owner
Trustee shall lease the Aircraft to Lessee, and Lessee shall lease the Aircraft
from Owner Trustee, under the Lease.
4. PROCEDURE FOR PARTICIPATION IN PAYMENT OF LESSOR'S COST; POSTPONEMENT
OF SCHEDULED DELIVERY DATE
4.1 NOTICES OF SCHEDULED DELIVERY DATE
3
<PAGE>
Without limiting its obligations to the Loan Participant under (S) 1(b)
of the Note Purchase Agreement, Lessee agrees to give Participants, Owner
Trustee, and Mortgagee at least one Business Day's written notice of the
Scheduled Delivery Date, which notice shall set forth Lessor's Cost and the
amount of each Participant's Commitment. Each Participant agrees that making its
Commitment available shall constitute a waiver of such notice. Owner Trustee and
Mortgagee shall be deemed to have waived such notice if Mortgagee receives from
each Participant funds in the full amount of its respective Commitment.
4.2 PAYMENT OF LESSOR'S COST
(a) Each Participant agrees, subject to the terms and conditions
of this Agreement, to make the Dollar amount of its Commitment available, by
wire transfer of immediately available funds to SSB's account at __________
Bank, ABA no. __________, account no. __________, reference AirTran Lease
N9__AT, at or before 12:00 noon, New York City time, on the Scheduled Delivery
Date. All such funds made available by each Participant to SSB shall, until
payment thereof to Seller and Lessee as provided in (S) 4.2(b)(2) or return
thereof to the respective Participant as provided in (S) 4.3.2, be held by SSB
in trust for the benefit of the respective Participant, as the sole and
exclusive property of the respective Participant and not as part of the Trust
Estate or the Collateral.
(b) Subject to the satisfaction, or waiver by the applicable
party, of the conditions precedent set forth in (S) 5, and simultaneously with
the receipt by the parties hereto of all amounts to be paid to them on the
Delivery Date pursuant to this (S) 4.2, Owner Trustee shall:
(1) purchase, take title to, and accept delivery of the
Aircraft;
(2) in consideration of the transfer of title to the Aircraft
to Owner Trustee, direct SSB to pay, from the funds made available to
SSB hereunder by the Participants, all or a specified portion of its
Commitment to (aa) Seller, which payments in the aggregate shall be
equal to Lessor's Cost, by wire transfer of immediately available funds
to Seller's account set forth in Schedule 1, or (bb) to Seller and
Lessee, which payments in the aggregate shall be equal to Lessor's
Cost, by wire transfer of immediately available funds to Seller's and
Lessee's accounts set forth in Schedule 1 or as otherwise directed by
Lessee;
(3) execute an application for registration of the Aircraft
with the FAA;
4
<PAGE>
(4) execute the Mortgage and issue the Equipment Notes to
Subordination Agent in accordance with (S) 2.1(b);
(5) lease the Aircraft to Lessee pursuant to the Lease; and
(6) take such other action as may be required to be taken by
Owner Trustee on the Delivery Date by the terms of any Operative
Agreement.
4.3 POSTPONEMENT OF SCHEDULED DELIVERY DATE
4.3.1 POSTPONEMENT
If for any reason whatsoever the Closing is not consummated on the
Scheduled Delivery Date, Lessee may, subject to the provisions of 1(e) of the
Note Purchase Agreement, by telephonic notice, given by 5:00 p.m. New York City
time (such telephonic notice to be promptly confirmed in writing by personal
delivery or facsimile) on the Scheduled Delivery Date, to each Participant,
Owner Trustee, and Mortgagee, designate a Delayed Delivery Date, in which case
Owner Participant will keep its funds available, and each Loan Participant shall
comply with its obligations under (S) 5.01 of each applicable Pass-Through Trust
Agreement.
4.3.2 RETURN OF FUNDS
SSB shall promptly return to each Participant that makes funds
available to it in accordance with (S) 4.2(a) such funds, together with interest
or income earned thereon, if the Closing fails to occur on the Scheduled
Delivery Date, provided, that any funds made available by the Loan Participant
shall be returned on such Scheduled Delivery Date.
4.4 CLOSING
The Closing shall occur at the offices of Troutman Sanders LLP, 5200
Bank of America Plaza, Atlanta, GA (with a set of Operative Agreements also
being delivered in New York City), or such other place as the parties shall
agree.
5. CLOSING CONDITIONS
5.1 CONDITIONS TO PARTICIPANTS' OBLIGATIONS
Each Participant's obligation to make the Dollar amount of its
Commitment available for payment as directed by Owner Trustee on the Delivery
Date is subject to the satisfaction or such Participant's waiver, on or before
the Delivery Date, of the conditions in this (S) 5.1; provided, that it shall
5
<PAGE>
not be a condition to the obligation of any Participant that any document be
produced or action taken that is to be produced or taken by such Participant or
by a Person within such Participant's control; provided, further, that
(S) 5.1.2(b), (l) and (t)(8) shall not be conditions to the Loan Participants'
obligations and (S) 5.1.15 and (S) 5.1.16 shall not be conditions to Owner
Participant's obligations.
5.1.1 NOTICE
Such Participant received the notice described in (S) 4.1 or, in the
case of a Delayed Delivery Date, (S) 4.3, when and as required thereby.
5.1.2 DELIVERY OF DOCUMENTS
Except as otherwise provided in this (S) 5.1.2, such Participant
receives executed counterparts of the following documents, and such counterparts
(x) have been duly authorized, executed, and delivered by the party or parties
thereto, (y) are reasonably satisfactory in form and substance to such
Participant, and (z) are in full force and effect:
(a) the Lease (Mortgagee to receive the sole executed chattel
paper original thereof);
(b) the Tax Indemnity Agreement, the Deficiency Agreement,
and the RVG; provided, that only Owner Participant, Lessee, and (as to
the Deficiency Agreement only) Owner Trustee shall receive copies of
those agreements;
(c) the Trust Agreement;
(d) the Mortgage;
(e) the Purchase Agreement Assignment, the Consent and
Agreement, and the Engine Consent and Agreement;
(f) the Guarantee;
(g) the Equipment Notes dated the Delivery Date; provided,
that only Subordination Agent shall receive the authenticated Equipment
Notes;
(h) an excerpted copy of the Purchase Agreement to the extent
relating to Airframe Manufacturer's or Engine Manufacturer's warranties
or related obligations or any right in the Purchase Agreement assigned
to Owner Trustee pursuant to the Purchase Agreement Assignment;
provided, that only Owner Trustee and Mortgagee shall receive copies of
6
<PAGE>
such agreements (copies of which may be inspected by Participants and
their respective special counsel on the Delivery Date, but after the
Delivery Date such copies shall be retained by Owner Trustee and
Mortgagee and may be inspected and reviewed by Owner Participant or
Loan Participant or their counsel if and only if a Lease Default
exists);
(i) the Bills of Sale;
(j) an invoice from Seller to Owner Trustee in respect of the
Aircraft specifying the amount of the Purchase Price and an invoice
from Lessee specifying the amount due to Lessee in respect of the
Aircraft, which shall equal Lessor's Cost of the Aircraft;
(k) the broker's report and insurance certificates required
by (S) 11 of the Lease;
(l) an appraisal or appraisals from an Appraiser, which
appraisal or appraisals shall be reasonably satisfactory in form and
substance to Owner Participant; provided, that only Owner Participant
and Lessee shall receive copies of such appraisal(s);
(m) (1) a copy of Lessee's articles of incorporation,
by-laws, and resolutions, in each case certified as of the Delivery
Date by the Secretary or an Assistant Secretary of Lessee, duly
authorizing Lessee's execution, delivery, and performance of the Lessee
Operative Agreements required to be executed and delivered by Lessee on
or before the Delivery Date in accordance with the provisions hereof
and thereof; (2) a copy of Holdings's articles of incorporation,
by-laws, and resolutions, in each case certified as of the Delivery
Date by the Secretary or an Assistant Secretary of Holdings, duly
authorizing Holdings's execution, delivery, and performance of the
Guarantee; (3) incumbency certificates of Lessee, Holdings, Owner
Participant, FSB, and SSB as to the person(s) authorized to execute and
deliver the relevant Operative Agreements on behalf of such party; (4)
copies of the certificate or articles of incorporation, by-laws, and
general authorizing resolutions of the boards of directors (or
executive committees) or other satisfactory evidence of authorization
of Owner Participant, FSB, and SSB, certified as of the Delivery Date
by the Secretary or an Assistant or Attesting Secretary of Owner
Participant, FSB, and SSB, respectively, which authorize the execution,
delivery and performance by Owner Participant, FSB, and SSB,
respectively, of each of the Operative Agreements to which it is a
party, together with such other documents and evidence with respect to
it as Lessee or any Participant reasonably requests in order to
establish the consummation of the transactions contemplated by this
Agreement
7
<PAGE>
and the taking of all corporate proceedings in connection therewith;
and (5) good-standing certificates for Lessee for Delaware and Florida,
for Holdings for Nevada and Florida, and for Owner Participant for
_________;
(n) Officer's Certificates of Lessee and Holdings, dated the
Delivery Date, stating that its representations and warranties in this
Agreement or the Guarantee (respectively) are true and correct as of
the Delivery Date (or, to the extent that any such representation and
warranty expressly relates to an earlier date, true and correct as of
such earlier date);
(o) an Officer's Certificate of FSB, dated the Delivery Date,
stating that its representations and warranties, in its individual
capacity and as Owner Trustee, in this Agreement are true and correct
as of the Delivery Date (or, to the extent that any such representation
and warranty expressly relates to an earlier date, true and correct as
of such earlier date);
(p) an Officer's Certificate of Owner Participant, dated the
Delivery Date, stating that its representations and warranties in this
Agreement are true and correct as of the Delivery Date (or, to the
extent that any such representation and warranty expressly relates to
an earlier date, true and correct as of such earlier date);
(q) an Officer's Certificate of SSB, dated the Delivery Date,
stating that its representations and warranties, in its individual
capacity or as Mortgagee, a Pass-Through Trustee, or Subordination
Agent (as applicable) in this Agreement are true and correct as of the
Delivery Date (or, to the extent that any such representation and
warranty expressly relates to an earlier date, true and correct as of
such earlier date);
(r) an application for registration of the Aircraft with the
FAA in the name of Owner Trustee (FAA Counsel to receive the sole
executed copy thereof, for filing with the FAA);
(s) the Financing Statements;
(t) the following opinions of counsel, in each case dated the
Delivery Date:
(1) an opinion of Troutman Sanders LLP, special
counsel to Lessee and Holdings, substantially in the form of
Exhibit A;
(2) an opinion of Lessee's and Holdings's Legal
Department, substantially in the form of Exhibit B;
8
<PAGE>
(3) an opinion of [______,] corporate counsel to
Airframe Manufacturer, substantially in the form of Exhibit C;
(4) an opinion of Ray, Quinney & Nebeker, special
counsel to Owner Trustee, substantially in the form of Exhibit
D;
(5) an opinion of Bingham Dana LLP, special counsel
to Mortgagee and the Loan Participants, substantially in the
form of Exhibit E;
(6) an opinion of [______,] special counsel to Owner
Participant, substantially in the form of Exhibit F;
(7) an opinion of FAA Counsel, substantially in the
form of Exhibit G; and
(8) an opinion of [___________,] special tax counsel
to Owner Participant, with respect to certain tax consequences
of the transactions contemplated hereby; provided, that only
Owner Participant shall receive such opinion; and
(u) each Participant receives copies of such other documents
as it reasonably requests, except that the Loan Participants will not
receive copies of the Purchase Agreement (although special counsel for
the Loan Participants may inspect the Purchase Agreement in connection
with the transactions contemplated hereby or as a basis for such
counsel's closing opinion) or of the Tax Indemnity Agreement.
5.1.3 OTHER COMMITMENTS
Each other Participant makes available the Dollar amount of its
Commitment as directed by Owner Trustee in accordance with (S) 4.
5.1.4 VIOLATION OF LAW
No change occurs after the date of this Agreement in any applicable Law
that makes it a violation of Law for (a) Lessee, any Participant, Subordination
Agent, Owner Trustee, or Mortgagee to execute, deliver, and perform the
Operative Agreements to which it is a party, or (b) any Participant to make the
Dollar amount of its Commitment available or, in the case of any Loan
Participant, to acquire an Equipment Note or to realize the benefits of the
security afforded by the Mortgage.
5.1.5 TAX LAW CHANGE
9
<PAGE>
In respect of Owner Participant, no Adverse Change in Tax Law has been
enacted, promulgated, or issued on or before the Delivery Date. Owner
Participant shall consider promptly, and shall consult with Lessee concerning,
any such Adverse Change in Tax Law, and shall advise Lessee and Loan Participant
promptly if Owner Participant determines that an Adverse Change in Tax Law which
has been enacted or promulgated or, if proposed, has a substantial likelihood of
becoming effective, would cause Owner Participant to elect not to close. At any
time on or before the Delivery Date, Owner Participant may notify Lessee and
Loan Participant that Owner Participant elects not to close as a result of the
enactment, promulgation, or issuance of any Adverse Change in Tax Law on or
before the Delivery Date, specifying such Adverse Change in Tax Law; and failure
to give such notice on or before the Delivery Date shall preclude Owner
Participant from not closing as a result of any Adverse Change in Tax Law.
5.1.6 REPRESENTATIONS, WARRANTIES, AND COVENANTS
The representations and warranties of each other party to this
Agreement made, in each case, in any Operative Agreement to which it is a party,
are true and accurate in all material respects as of the Delivery Date (unless
any such representation and warranty was made with reference to a specified
date, in which case such representation and warranty was true and accurate as of
such specified date), and each other party to this Agreement has performed and
observed, in all material respects, all of its covenants, obligations, and
agreements in each Operative Agreement to which it is a party to be observed or
performed by it as of the Delivery Date.
5.1.7 NO DEFAULT
On the Delivery Date, no Lease Default or Mortgage Default exists or
would result from the sale, mortgage, or lease of the Aircraft, and no "Event of
Default" or "Mortgage Event of Default" exists with respect to any other
aircraft financed through the issuance of Pass-Through Certificates.
5.1.8 NO EVENT OF LOSS
No Event of Loss with respect to the Airframe or any Engine has
occurred, and no circumstance, condition, act, or event has occurred that, with
the giving of notice or lapse of time, would give rise to or constitute an Event
of Loss with respect to the Airframe or any Engine.
5.1.9 TITLE
Owner Trustee has good and marketable title (subject to filing and
recordation of the FAA Bill of Sale with the FAA) to the Aircraft, free and
clear
10
<PAGE>
of Liens, except (a) the rights of Lessee under the Lease, (b) the Lien created
by the Mortgage, (c) the beneficial interest of Owner Participant created by the
Trust Agreement, (d) Liens permitted by clause (d) (solely for taxes not yet
due) of (S) 6 of the Lease, and (e) Liens permitted by clause (e) of (S) 6 of
the Lease.
5.1.10 CERTIFICATION
The Aircraft has been duly certificated by the FAA as to type, and
(upon registration in Owner Trustee's name) will be eligible for an FAA
airworthiness certificate.
5.1.11 SECTION 1110
Owner Trustee, as lessor under the Lease (and Mortgagee, as assignee of
Owner Trustee under the Mortgage), is entitled to the benefits of Section 1110
(as currently in effect) with respect to the right to take possession of the
Airframe and Engines as provided in the Lease in the event of a case under
Chapter 11 of the Bankruptcy Code in which Lessee is a debtor.
5.1.12 FILING
The FAA-Filed Documents are in the process of being duly filed for
recordation with the FAA in accordance with the Transportation Code, and each
Financing Statement has been duly filed or is in the process of being duly filed
in the appropriate jurisdiction.
5.1.13 NO PROCEEDINGS
No action or proceeding has been instituted, nor is any action
threatened in writing, before any Government Entity, nor has any order,
judgment, or decree been issued or proposed to be issued by any Government
Entity, to set aside, restrain, enjoin, or prevent the completion and
consummation of any Operative Agreement or the Transactions.
5.1.14 GOVERNMENTAL ACTION
All appropriate action required to have been taken before the Delivery
Date by the FAA, or any other Government Entity of the United States, in
connection with the Transactions has been taken, and all orders, permits,
waivers, authorizations, exemptions, and approvals of such entities required to
be in effect on the Delivery Date in connection with the Transactions have been
issued.
5.1.15 NOTE PURCHASE AGREEMENT
11
<PAGE>
The conditions precedent to the obligations of the Loan Participants
and the other requirements relating to the Aircraft and the Equipment Notes in
the Note Purchase Agreement have been satisfied.
5.1.16 PERFECTED SECURITY INTEREST
After giving effect to the filing of the FAA-Filed Documents and the
Financing Statements, Mortgagee shall have a duly-perfected first-priority
security interest in all of Owner Trustee's right, title, and interest in the
Aircraft, the Lease, and all other then-existing Collateral subject only to
Permitted Liens not of record.
5.1.17 NO MATERIALLY ADVERSE CHANGE
Since the date of Holdings's balance sheet referred to in (S) 6.1.7,
there has been no materially adverse change in Holdings's financial condition or
operations, except for matters disclosed in the financial statements referred to
in (S) 6.1.7.
5.2 CONDITIONS TO OWNER TRUSTEE'S OBLIGATIONS
Owner Trustee's obligation to direct the Participants to apply the
Commitments to pay Lessor's Cost on the Delivery Date is subject to the
satisfaction or Owner Trustee's waiver, on or before the Delivery Date, of the
conditions in this (S) 5.2.
5.2.1 NOTICE
Owner Trustee received the notice described in (S) 4.1 or, in the case
of a Delayed Delivery Date, (S) 4.3, when and as required thereby.
5.2.2 DOCUMENTS
Owner Trustee receives executed originals of the documents described in
(S) 5.1.2, except as otherwise provided therein, unless the failure to receive
any such document is the result of any action or inaction by Owner Trustee.
5.2.3 OTHER CONDITIONS PRECEDENT
Each of the conditions in (S)(S) 5.1.4, 5.1.6, 5.1.7, and 5.1.11 are
satisfied, unless the failure of any such condition to be satisfied is the
result of any action or inaction by Owner Trustee.
5.3 CONDITIONS TO MORTGAGEE'S OBLIGATIONS
12
<PAGE>
Mortgagee's obligation to authenticate the Equipment Notes on the
Delivery Date is subject to the satisfaction or Mortgagee's waiver, on or before
the Delivery Date, of the conditions in this (S) 5.3.
5.3.1 NOTICE
Mortgagee received the notice described in (S) 4.1 or, in the case of a
Delayed Delivery Date, (S) 4.3, when and as required thereby.
5.3.2 DOCUMENTS
Mortgagee receives executed originals of the documents described in (S)
5.1.2, except as otherwise provided therein, unless the failure to receive any
such document is the result of any action or inaction by Mortgagee.
5.3.3 OTHER CONDITIONS PRECEDENT
Each of the conditions in (S)(S) 5.1.4, 5.1.6, 5.1.7, and 5.1.11 have
been satisfied, unless the failure of any such condition to be satisfied is the
result of any action or inaction by Mortgagee.
5.4 CONDITIONS TO LESSEE'S OBLIGATIONS
Lessee's obligation to lease the Aircraft on the Delivery Date is
subject to the satisfaction or Lessee's waiver, on or before the Delivery Date,
of the conditions in this (S) 5.4.
5.4.1 DOCUMENTS
Lessee receives executed originals of the documents described in (S)
5.1.2, except as otherwise provided therein, and they are satisfactory to
Lessee, unless the failure to receive any such document is the result of any
action or inaction by Lessee.
5.4.2 SALES TAX
Lessee is satisfied that no sales, use, value-added,
goods-and-services, or like tax, and no stamp tax duty, is payable with respect
to the delivery of the Aircraft on the Delivery Date (to the extent that Lessee
could be liable therefor under (S) 9.3).
5.4.3 OTHER CONDITIONS
Each of the conditions in (S)(S) 5.1.3 (as to all Participants),
5.1.4, 5.1.5, 5.1.6, 5.1.7 (as to Mortgage Defaults' not constituting Lease
Defaults), 5.1.8, 5.1.9, 5.1.10, 5.1.11, 5.1.12, 5.1.13, and 5.1.14 have been
satisfied or waived
13
<PAGE>
by Lessee, unless the failure of any such condition to be satisfied is the
result of any action or inaction by Lessee.
5.4.4 TAX LAW CHANGE
No Adverse Change in Tax Law has been enacted, promulgated, or proposed
on or before the Delivery Date. Lessee agrees to consider promptly, and to
consult with Owner Participant concerning, any such Adverse Change in Tax Law,
and to notify Owner Participant and Loan Participant promptly if Lessee
determines that an Adverse Change in Tax Law which has been enacted or
promulgated or, if proposed, has a substantial likelihood of becoming effective,
would cause Lessee to elect not to close the transactions contemplated by the
Lease and this Agreement. At any time on or before the Delivery Date, Lessee may
notify Owner Participant and Loan Participant that Lessee elects not to close
the transactions contemplated by the Lease and this Agreement as a result of the
enactment, promulgation, or proposal of any Adverse Change in Tax Law on or
before the Delivery Date, specifying such Adverse Change in Tax Law.
5.5 POST-REGISTRATION OPINION
Promptly after the registration of the Aircraft and the recordation of
the FAA-Filed Documents pursuant to the Transportation Code, Lessee will cause
FAA Counsel to deliver to Lessee, each Participant, Owner Trustee, and Mortgagee
a favorable opinion or opinions addressed to each of them with respect to such
registration and recordation.
6. REPRESENTATIONS AND WARRANTIES
6.1 LESSEE'S REPRESENTATIONS AND WARRANTIES
Lessee represents and warrants to each Participant, Subordination
Agent, Owner Trustee, and Mortgagee that:
6.1.1 ORGANIZATION; QUALIFICATION
Lessee is a corporation duly incorporated, validly existing, and in
good standing under the Laws of Delaware, and has the corporate power and
authority to conduct the business in which it is currently engaged and to own or
hold under lease its properties and to enter into and perform its obligations
under the Lessee Operative Agreements. Lessee is duly qualified to do business
as a foreign corporation in good standing in each jurisdiction in which the
nature and extent of the business conducted by it, or the ownership of its
properties, requires such qualification, except where the failure to be so
qualified would not give rise to a Materially Adverse Change to Lessee.
14
<PAGE>
6.1.2 CORPORATE AUTHORIZATION
Lessee has taken, or caused to be taken, all necessary corporate action
(including obtaining any consent or approval of stockholders required by its
articles of incorporation or by-laws) to authorize its execution, delivery, and
performance of its obligations under each of the Lessee Operative Agreements.
6.1.3 NO VIOLATION
Lessee's execution, delivery, and performance of its obligations under
the Lessee Operative Agreements do not and will not (a) violate any provision of
Lessee's articles of incorporation or by-laws, (b) violate any Law applicable to
or binding on Lessee, or (c) violate or constitute any default under (other than
any violation or default that would not result in a Materially Adverse Change to
Lessee), or result in the creation of any Lien (other than as permitted under
the Lease) upon the Aircraft under, any lease, loan, or other material agreement
to which Lessee is a party or by which Lessee or any of its properties is bound.
6.1.4 APPROVALS
Lessee's execution, delivery, and performance of its obligations under
the Lessee Operative Agreements do not and will not require the consent or
approval of, the giving of notice to, the registration with, the recording or
filing of any documents with, or the taking of any other action in respect of
(a) any trustee or other holder of any Debt of Lessee, or (b) any Government
Entity, other than (x) the FAA-Filed Documents and the Financing Statements (and
continuation statements periodically), and (y) filings, recordings, notices, or
other ministerial actions pursuant to any routine recording, contractual, or
regulatory requirements.
6.1.5 VALID AND BINDING AGREEMENTS
The Lessee Operative Agreements have been duly authorized, executed,
and delivered by Lessee, and (assuming their due authorization, execution, and
delivery by the other parties thereto) constitute legal, valid, and binding
obligations of Lessee and are enforceable against Lessee in accordance with
their terms, except as such enforceability may be limited by bankruptcy,
insolvency, and other similar Laws affecting the rights of creditors generally
and general principles of equity.
6.1.6 LITIGATION
Except as set forth in Holdings's most recent Annual Report on Form
10-K, filed by Lessee with the SEC before the Issuance Date, or in any Quarterly
Report on Form 10-Q or Current Report on Form 8-K filed by
15
<PAGE>
Holdings with the SEC subsequent to such Form 10-K but before the Issuance Date,
no action, claim, or proceeding is now pending or, to Lessee's Actual Knowledge,
threatened, against Lessee, Holdings, or any of their Affiliates, before any
Government Entity, that is reasonably likely to be determined adversely to
Lessee and if determined adversely to Lessee would result in a Materially
Adverse Change.
6.1.7 FINANCIAL CONDITION
Holdings's audited consolidated balance sheet for its most-recent
fiscal year ended before the Issuance Date, included in Holdings's most-recent
Annual Report on Form 10-K filed by Holdings with the SEC, and the related
consolidated statements of operations and cash flows for the period then ended,
have been prepared in accordance with GAAP and fairly present in all material
respects the financial condition of Holdings and its consolidated subsidiaries
as of such date and the results of its operations and cash flows for such
period, and since the date of such balance sheet, there has been no materially
adverse change in such financial condition or operations, except for matters
disclosed in (a) the financial statements referred to above, or (b) any
subsequent Quarterly Report on Form 10-Q or Current Report on Form 8-K filed by
Holdings with the SEC before the Issuance Date.
6.1.8 REGISTRATION AND RECORDATION
Except for (a) registering the Aircraft with the FAA pursuant to the
Transportation Code in the name of Owner Trustee, (b) filing for recordation
(and recording) the FAA-Filed Documents, (c) filing the Financing Statements
(and continuation statements relating thereto at periodic intervals), (d)
Mortgagee's taking possession and retaining the chattel paper original
counterpart of the Lease, and (e) affixing the placards referred to in (S) 7.1.3
of the Lease, no further action, including filing or recording any document
(including any financing statement under UCC Article 9) is necessary in order to
establish and perfect Owner Trustee's right, title, and interest, and
Mortgagee's security interest, in the Aircraft and the Lease, as against Lessee
and any other Person, in any applicable jurisdiction in the United States. On
the Delivery Date, subject to making the filings described above and to
Mortgagee's taking possession of the chattel paper original counterpart of the
Lease, Mortgagee, shall have a duly-perfected first-priority Lien on all of the
then-existing items of the Collateral, free and clear of Liens (other than
Permitted Liens not of record).
6.1.9 UCC LOCATION
Lessee's chief executive office and chief place of business (as defined
in UCC Article 9) are located at 9955 AirTran Blvd., Orlando, FL 32807.
16
<PAGE>
6.1.10 NO DEFAULT
No Lease Default exists.
6.1.11 NO EVENT OF LOSS
No Event of Loss has occurred with respect to the Airframe or any
Engine, and, to Lessee's Actual Knowledge, no circumstance, condition, act, or
event has occurred that, with the giving of notice or lapse of time, gives rise
to or constitutes an Event of Loss to the Airframe or any Engine.
6.1.12 COMPLIANCE WITH LAWS
(a) Lessee is a Citizen of the United States and a U.S. Air Carrier.
(b) Lessee holds all licenses, permits, and franchises from the
appropriate Government Entities necessary to authorize Lessee to engage in air
transportation and to carry on scheduled commercial passenger service as
currently conducted, except to the extent that the failure to hold any such
license, permit, or franchise would not give rise to a Materially Adverse Change
to Lessee.
(c) Lessee is not an "investment company" or a company controlled by an
"investment company" within the meaning of the Investment Company Act of 1940.
6.1.13 SECURITIES LAWS
Neither Lessee nor any Person authorized to act on its behalf has
directly or indirectly offered any beneficial interest or Security relating to
the ownership of the Aircraft or the Lease or any interest in the Trust Estate
and Trust Agreement, or any of the Equipment Notes or any other interest in or
security under the Mortgage, for sale to, or solicited any offer to acquire any
such interest or security from, or has sold any such interest or security to,
any Person in violation of the Securities Act.
6.1.14 BROKER'S FEES
No Person acting on behalf of Lessee is or will be entitled to any
broker's fee, commission, or finder's fee in connection with the Transactions,
except for fees payable to Lessee's Advisor(s), if any.
6.1.15 SECTION 1110
Owner Trustee, as lessor under the Lease (and Mortgagee, as assignee
under the Mortgage), will be entitled to the benefits of Section 1110 (as
17
<PAGE>
currently in effect), with respect to the right to take possession of the
Airframe and Engines as provided in the Lease, in the event of a case under
Chapter 11 of the Bankruptcy Code in which Lessee is a debtor.
6.1.16 TITLE
On the Delivery Date, Owner Trustee will receive good and marketable
title to the Aircraft free and clear of all Liens except Permitted Liens not of
record.
6.1.17 CONDITION OF AIRCRAFT
The Aircraft is fully equipped to operate in commercial service, does
not require any modifications, additions, or improvements for its intended use
by Lessee, and complies with all governmental requirements governing the service
in which the Aircraft is being used and is anticipated to be used by Lessee and
is in the condition required by the Lease. The Aircraft has been duly
certificated by the FAA as to type. A current and valid airworthiness
certificate issued by the FAA is in effect with respect to the Aircraft (or, if
not yet in effect because the Aircraft has not yet been FAA-registered, the
Aircraft is in such condition as to be immediately eligible for an FAA
airworthiness certificate upon FAA registration).
6.1.18 TAXES
On the Delivery Date, all sales, use, or transfer taxes then due and
payable upon the purchase of the Aircraft by Owner Trustee and on the leasing
thereof to Lessee will have been paid or, as between the parties to this
Agreement, Lessee shall be liable for the payment thereof. Except as set forth
in (S) 9, no fees or other charges in connection with the execution and delivery
of the Operative Agreements or the issuance of the Equipment Notes to be
delivered on the Delivery Date are payable for which, as between the parties to
this Agreement, Lessee is not liable.
6.1.19 INSURANCE
On the Delivery Date, the insurance required by the Lease is in full
force and effect, and all premiums which have become due or are due with respect
to the insurance required to be provided by Lessee in respect of the Aircraft or
required under (S) 11 of the Lease have been paid.
6.1.20 MARGIN REQUIREMENTS
Lessee will not directly or indirectly use any of the proceeds from the
issuance of the Equipment Notes, or from Owner Participant's acquisition of its
beneficial interest in the Trust Estate, so as to result in a violation of
Regulation T, U or X of the Board of Governors of the Federal Reserve System.
18
<PAGE>
6.1.21 ERISA
No Plan maintained by Lessee or any entity required to be aggregated
with Lessee under Code (S) 414(b) or (c) (an "ERISA Affiliate") has incurred an
"accumulated funding deficiency" (within the meaning of ERISA), and neither
Lessee nor any ERISA Affiliate of Lessee has incurred any material liability to
the Pension Benefit Guaranty Corporation.
6.2 OWNER PARTICIPANT'S REPRESENTATIONS AND WARRANTIES
Owner Participant represents and warrants to Lessee, Loan Participants,
Subordination Agent, Owner Trustee, and Mortgagee that:
6.2.1 ORGANIZATION, ETC.
Owner Participant (a) is a corporation duly incorporated, validly
existing and in good standing under the Laws of the OP Jurisdiction, (b) has the
corporate power and authority to conduct the business in which it is currently
engaged, to own or hold under lease its properties, and to enter into and
perform its obligations under the Owner Participant Agreements, and (c) has [or
its guarantor has] a tangible net worth (exclusive of goodwill) greater than $50
million.
6.2.2 CORPORATE AUTHORIZATION
Owner Participant has taken (or caused to be taken) all necessary
corporate action (including obtaining any consent or approval of stockholders
required by its [certificate] of incorporation or by-laws) to authorize its
execution, delivery, and performance of its obligations under each of the Owner
Participant Agreements.
6.2.3 NO VIOLATION
Owner Participant's execution, delivery, and performance of its
obligations under each of the Owner Participant Agreements do not and will not
(a) violate any provision of Owner Participant's [certificate] of incorporation
or by-laws, (b) violate any Law applicable to or binding on Owner Participant,
or (c) violate or constitute any default under, or result in the creation of any
Lien (other than as provided for or otherwise permitted in the Operative
Agreements) upon the Trust Estate under, any lease, loan, or other material
agreement to which Owner Participant is a party or by which Owner Participant or
any of its properties is bound.
6.2.4 APPROVALS
19
<PAGE>
Owner Participant's execution, delivery, and performance of its
obligations under each of the Owner Participant Agreements do not and will not
require the consent or approval of, the giving of notice to, the registration
with, the recording or filing of any documents with, or the taking of any other
action in respect of (a) any trustee or other holder of any Debt of Owner
Participant, and (b) any Government Entity, other than filing the FAA-Filed
Documents and the Financing Statements.
6.2.5 VALID AND BINDING AGREEMENTS
The Owner Participant Agreements have been duly authorized, executed,
and delivered by Owner Participant, and (assuming the due authorization,
execution, and delivery by the other parties thereto) constitute legal, valid,
and binding obligations of Owner Participant and are enforceable against Owner
Participant in accordance with their terms, except as such enforceability may be
limited by bankruptcy, insolvency, and other similar Laws affecting the rights
of creditors generally and general principles of equity.
6.2.6 CITIZENSHIP
[IF APPLICABLE] Owner Participant is a Citizen of the United States.
6.2.7 NO LIENS
There are no Lessor Liens attributable to Owner Participant on all or
any part of the Trust Estate.
6.2.8 INVESTMENT BY OWNER PARTICIPANT
Owner Participant is acquiring its beneficial interest in the Trust
Estate for its own account, for investment and not with a view to any resale or
distribution thereof; provided, that, subject to the transfer restrictions in
(S) 10, its disposition of its beneficial interest in the Trust Estate shall at
all times be within its control.
6.2.9 ERISA
No part of the funds to be used by Owner Participant to acquire or hold
its interests in the Trust Estate directly or indirectly constitutes assets of a
Plan.
6.2.10 LITIGATION
There are no pending or, to Owner Participant's Actual Knowledge,
threatened actions or proceedings against Owner Participant before any
Government Entity that, if determined adversely to Owner Participant, would
20
<PAGE>
materially adversely affect Owner Participant's ability to perform its
obligations under the Owner Participant Agreements.
6.2.11 SECURITIES LAWS
Neither Owner Participant nor any Person authorized to act on its
behalf has directly or indirectly offered any beneficial interest in or Security
relating to the ownership of the Aircraft or any interest in the Trust Estate,
or any of the Equipment Notes or any other interest in or Security under the
Mortgage, for sale to, or solicited any offer to acquire any of the same from,
any Person in violation of the Securities Act or applicable state securities
Laws.
6.2.12 BROKER'S FEES
No Person acting on behalf of Owner Participant is or will be entitled
to any broker's fee, commission, or finder's fee in connection with the
Transactions.
6.3 FSB'S REPRESENTATIONS AND WARRANTIES
FSB represents and warrants to Lessee, Owner Participant, Loan
Participants, Subordination Agent, and Mortgagee that:
6.3.1 ORGANIZATION, ETC.
FSB is a national banking association duly organized, validly existing
and in good standing under the Laws of the United States, holding a valid
certificate to do business as a national banking association with banking
authority to execute, deliver, and perform its obligations under the Owner
Trustee Agreements.
6.3.2 CORPORATE AUTHORIZATION
FSB has taken (or caused to be taken) all necessary corporate action
(including obtaining any consent or approval of stockholders required by Law or
by its articles of association or by-laws) to authorize the execution and
delivery by FSB or Owner Trustee, of each of the Owner Trustee Agreements, and
the performance of its obligations thereunder.
6.3.3 NO VIOLATION
FSB's and Owner Trustee's execution, delivery, and performance of their
respective obligations under the Owner Trustee Agreements do not and will not
(a) violate any provision of FSB's articles of association or by-laws, (b)
violate any Utah Law or federal banking Law applicable to or binding on Owner
Trustee or FSB, or (c) violate or constitute any default under, or result in the
21
<PAGE>
creation of any Lien (other than the Lien of the Mortgage) upon any property of
FSB, Owner Trustee, or any of FSB's subsidiaries under, any lease, loan, or
other material agreement to which FSB or Owner Trustee is a party or by which
FSB, Owner Trustee, or any of their properties is or may be bound or affected.
6.3.4 APPROVALS
FSB's and Owner Trustee's execution, delivery, and performance of their
respective obligations under the Owner Trustee Agreements do not and will not
require the consent, approval, or authorization of, the giving of notice to, the
registration with, the recording or filing of any documents with, or the taking
of any other action in respect of, (a) any trustee or other holder of any Debt
of FSB, or (b) any Government Entity governing banking and trust powers, other
than filing the FAA-Filed Documents and the Financing Statements.
6.3.5 VALID AND BINDING AGREEMENTS
The Owner Trustee Agreements have been duly authorized, executed, and
delivered by FSB and Owner Trustee, and (assuming the due authorization,
execution, and delivery thereof by the other parties thereto) constitute legal,
valid, and binding obligations of FSB and Owner Trustee and are enforceable
against FSB and Owner Trustee in accordance with their terms, except as such
enforceability may be limited by bankruptcy, insolvency, and other similar Laws
affecting the rights of creditors generally and general principles of equity.
6.3.6 CITIZENSHIP
FSB is a Citizen of the United States.
6.3.7 CHIEF EXECUTIVE OFFICE
The chief executive office (as defined in UCC Article 9) of Owner
Trustee is located at 79 South Main Street, Salt Lake City, Utah 84111.
6.3.8 TITLE
On the Delivery Date, Owner Trustee shall have received whatever title
to the Aircraft as was conveyed to it by Seller.
6.3.9 NO LIENS; FINANCING STATEMENTS
There are no Lessor Liens attributable to FSB or Owner Trustee in
respect of all or any part of the Aircraft, Trust Estate, or the Collateral.
Except for the Financing Statements, neither FSB nor Owner Trustee has executed
any UCC financing statement relating to the Aircraft or the Lease.
22
<PAGE>
6.3.10 LITIGATION
There are no pending or, to FSB's Actual Knowledge, threatened actions
or proceedings against FSB or Owner Trustee before any Government Entity that,
if determined adversely to FSB, would materially adversely affect the ability of
FSB or Owner Trustee to perform its obligations under the Owner Trustee
Agreements.
6.3.11 SECURITIES LAWS
Neither FSB, nor any Person authorized to act on its behalf, has
directly or indirectly offered any beneficial interest or Security relating to
the ownership of the Aircraft or any interest in the Trust Estate or any of the
Equipment Notes or any other interest in or security under the Mortgage for sale
to, or solicited any offer to acquire any such interest or security from, or has
sold any such interest or security to, any Person other than the Participants,
except for the offering and sale of the Pass-Through Certificates.
6.3.12 EXPENSES AND TAXES
There are no Expenses or Taxes that may be imposed on or asserted
against the Trust, the Trust Estate, or any part thereof or any interest
therein, the Collateral, Lessee, Owner Participant, any Pass-Through Trustee,
Subordination Agent, Owner Trustee, or Mortgagee (except as to Owner Trustee,
Taxes imposed on the fees payable to Owner Trustee) under the laws of Utah in
connection with Owner Trustee's execution, delivery, or performance of any
Operative Agreement or in connection with the issuance of the Equipment Notes,
which Expenses or Taxes would not have been imposed if Owner Trustee had not (x)
had its principal place of business in Utah, (y) performed (in its individual
capacity or as Owner Trustee) any or all of its duties under the Operative
Agreements in Utah, or (z) engaged in any activities unrelated to the
transactions contemplated by the Operative Agreements in Utah.
6.4 SSB'S REPRESENTATIONS AND WARRANTIES
SSB represents and warrants (with respect to (S) 6.4.10, solely in its
capacity as Subordination Agent) to Lessee, Owner Participant, and Owner Trustee
that:
6.4.1 ORGANIZATION, ETC.
SSB is a national banking association corporation duly organized,
validly existing and in good standing under the Laws of the United States, with
banking and trust authority to execute, deliver, and perform its obligations
23
<PAGE>
under the Mortgagee Agreements, the Pass-Through Trustee Agreements, and the
Subordination Agent Agreements.
6.4.2 CORPORATE AUTHORIZATION
SSB has taken (or caused to be taken) all necessary corporate action
(including obtaining any consent or approval of stockholders required by Law or
by its certificate of incorporation or by-laws) to authorize the execution and
delivery by SSB, Mortgagee, each Pass-Through Trustee, and Subordination Agent
(as applicable) of the Mortgagee Agreements, the Pass-Through Trustee
Agreements, and the Subordination Agent Agreements and the performance by SSB,
Mortgagee, each Pass-Through Trustee, and Subordination Agent (as applicable) of
its obligations thereunder.
6.4.3 NO VIOLATION
The execution and delivery by SSB, Mortgagee, each Pass-Through
Trustee, and Subordination Agent (as applicable) of the Mortgagee Agreements,
the Pass-Through Trustee Agreements, and the Subordination Agent Agreements, and
the performance by SSB, Mortgagee, each Pass-Through Trustee, and Subordination
Agent (as applicable) of its obligations thereunder, do not and will not (a)
violate any provision of SSB's articles of association or by-laws, (b) violate
any Law applicable to or binding on SSB governing SSB's banking or trust powers
or (except in the case of any Law relating to any Plan) Mortgagee, any
Pass-Through Trustee, or Subordination Agent, or (c) violate or constitute any
default under, or result in the creation of any Lien (other than the Lien of the
Mortgage) upon any property of SSB, Mortgagee, any Pass-Through Trustee,
Subordination Agent, or any of SSB's subsidiaries under any lease, loan, or
other agreement to which SSB, Mortgagee, any Pass-Through Trustee, or
Subordination Agent is a party or by which SSB, Mortgagee, any Pass-Through
Trustee, Subordination Agent, or any of their properties is bound.
6.4.4 APPROVALS
The execution and delivery by SSB, Mortgagee, each Pass-Through
Trustee, and Subordination Agent (as applicable) of the Mortgagee Agreements,
the Pass-Through Trustee Agreements, and the Subordination Agent Agreements, and
the performance by SSB, Mortgagee, each Pass-Through Trustee, and Subordination
Agent (as applicable) of its obligations thereunder, do not and will not require
the consent, approval, or authorization of, the giving of notice to, the
registration with, the recording or filing of any document with, or the taking
of any other action in respect of (a) any trustee or other holder of any Debt of
SSB, or (b) any Government Entity governing SSB's banking or trust powers.
24
<PAGE>
6.4.5 VALID AND BINDING AGREEMENTS
The Mortgagee Agreements, the Pass-Through Trustee Agreements, and the
Subordination Agent Agreements have been duly authorized, executed, and
delivered by SSB, Mortgagee, each Pass-Through Trustee, and Subordination Agent
(as applicable), and (assuming the due authorization, execution, and delivery by
the other parties thereto) constitute legal, valid, and binding obligations of
SSB, Mortgagee, each Pass-Through Trustee, and Subordination Agent (as
applicable) and are enforceable against SSB, Mortgagee, each Pass-Through
Trustee, and Subordination Agent (as applicable) in accordance with their terms,
except as such enforceability may be limited by bankruptcy, insolvency, or other
similar Laws affecting the rights of creditors generally and general principles
of equity.
6.4.6 CITIZENSHIP
SSB is a Citizen of the United States.
6.4.7 NO LIENS
There are no Lessor Liens attributable to SSB in respect of all or any
part of the Trust Estate or the Collateral.
6.4.8 LITIGATION
There are no pending or, to SSB's Actual Knowledge, threatened actions
or proceedings against SSB, Mortgagee, any Pass-Through Trustee, or
Subordination Agent, before any Government Entity that, if determined adversely
to SSB, Mortgagee, any Pass-Through Trustee, or Subordination Agent, would
materially adversely affect the ability of SSB, Mortgagee, any Pass-Through
Trustee, or Subordination Agent to perform its obligations under any of the
Mortgagee Agreements, the Pass-Through Trustee Agreements, or the Subordination
Agent Agreements.
6.4.9 SECURITIES LAWS
Neither SSB nor any Person authorized to act on its behalf has directly
or indirectly offered any beneficial interest or Security relating to the
ownership of the Aircraft or any interest in the Collateral or any of the
Equipment Notes or any other interest in or security under the Mortgage for sale
to, or solicited any offer to acquire any such interest or security from, or has
sold any such interest or security to, any Person other than the Participants,
except for the offering and sale of the Pass-Through Certificates.
25
<PAGE>
6.4.10 INVESTMENT
Subordination Agent has not directly or indirectly offered any
Equipment Note for sale to any Person or solicited any offer to acquire any
Equipment Notes from any Person, nor has the Subordination Agent authorized
anyone to act on its behalf to offer directly or indirectly any Equipment Note
for sale to any Person, or to solicit any offer to acquire any Equipment Note
from any Person; and Subordination Agent is not in default under any Liquidity
Facility.
6.4.11 TAXES
There are no Taxes payable by any Pass-Through Trustee or SSB imposed
by Connecticut or any political subdivision or taxing authority thereof in
connection with such Pass-Through Trustee's or SSB's execution, delivery, and
performance of this Agreement or any Pass-Through Trustee Agreement (other than
franchise or other taxes based on or measured by any fees or compensation
received by any such Pass-Through Trustee or SSB for services rendered in
connection with the transactions contemplated by any of the Pass-Through Trust
Agreements), and there are no Taxes payable by any Pass-Through Trustee or SSB
imposed by Connecticut or any political subdivision of such state in connection
with the acquisition, possession, or ownership by any such Pass-Through Trustee
of any of the Equipment Notes (other than franchise or other taxes based on or
measured by any fees or compensation received by any such Pass-Through Trustee
or SSB for services rendered in connection with the transactions contemplated by
any of the Pass-Through Trust Agreements), and, assuming that the trusts created
by the Pass-Through Trust Agreements will not be taxable as corporations, but,
rather, that each will be characterized as a grantor trust under Part I, subpart
E of Subchapter J of the Code or as a partnership under Subchapter K of the
Code, such trusts will not be subject to any Taxes imposed by Connecticut or any
political subdivision of such state.
6.4.12 CONTROL
SSB is not an Affiliate of Owner Participant or Owner Trustee.
6.4.13 BROKER'S FEES
No Person acting on behalf of SSB, Mortgagee, any Pass-Through Trustee,
or Subordination Agent is or will be entitled to any broker's fee, commission,
or finder's fee in connection with the Transactions.
7. COVENANTS
26
<PAGE>
7.1 LESSEE'S COVENANTS
Lessee agrees for the benefit of Owner Participant, Loan Participants,
Owner Trustee, and Mortgagee as follows:
7.1.1 CORPORATE EXISTENCE; U.S. AIR CARRIER
Lessee shall at all times maintain its corporate existence, except as
permitted by (S) 13.2 of the Lease, and shall at all times remain a U.S. Air
Carrier.
7.1.2 NOTICE OF CHANGE OF CHIEF EXECUTIVE OFFICE
Lessee will give to Owner Participant, Owner Trustee, and Mortgagee
timely written notice (but in any event at least 30 days before the expiration
of the period of time specified under applicable Law to prevent lapse of
perfection) of any relocation of its chief executive office (as defined in UCC
Article 9), and will promptly take any action required by (S) 7.1.3(c) as a
result of such relocation.
7.1.3 CERTAIN ASSURANCES
(a) Lessee shall duly execute, acknowledge, and deliver (or cause to be
executed, acknowledged, and delivered) all such further documents, and shall do
and cause to be done such further things, as Owner Participant, Owner Trustee,
or Mortgagee reasonably requests to accomplish the purposes of the Operative
Agreements, provided that no document so executed by Lessee will expand any
obligations or limit any rights of Lessee in respect of the Transactions.
(b) Lessee shall promptly take such action with respect to the
recording, filing, re-recording, and refiling of the Lease, the Trust Agreement,
and the Mortgage, and any supplements thereto, as shall be necessary to
establish, perfect, and protect Owner Trustee's interests and rights in and to
the Aircraft and under the Lease and the perfection and priority of the Lien
created by the Mortgage. Lessee shall furnish to Owner Participant or Owner
Trustee such information (other than with respect to the citizenship of Owner
Participant and Owner Trustee) in Lessee's possession or otherwise reasonably
available to Lessee and required to enable Owner Participant or Owner Trustee to
apply to register the Aircraft under the Transportation Code (subject to
Lessee's rights under (S) 7.1.2 of the Lease), and shall pay or cause to be paid
all out-of-pocket costs and expenses thereof (including reasonable attorneys'
fees and disbursements).
(c) Lessee will cause the FAA-Filed Documents, the Financing
Statements, and all continuation statements (and any amendments necessitated by
any combination, consolidation, or merger pursuant to (S) 13.2
27
<PAGE>
of the Lease, or any relocation of its chief executive office) in respect of the
Financing Statements to be prepared and, subject only to the execution and
delivery thereof by Owner Trustee or Mortgagee (as applicable), duly and timely
filed and recorded, or filed for recordation, to the extent permitted under the
Transportation Code (with respect to the FAA-Filed Documents) or the UCC or
similar law of any other applicable jurisdiction (with respect to such other
documents).
(d) If the Aircraft is registered in a country other than the United
States pursuant to (S) 7.1.2 of the Lease and (S) 7.6.11 hereof, Lessee will
furnish to Owner Trustee, Mortgagee, and each Participant annually while the
Aircraft is not U.S.-registered (starting with the calendar year after such
registration is effected) an opinion of special counsel reasonably satisfactory
to Owner Trustee and Mortgagee stating that, in the opinion of such counsel,
either (1) such action has been taken with respect to the recording, filing,
re-recording, and re-filing of the Operative Agreements and any supplements and
amendments thereto as is necessary to establish, perfect, and protect Owner
Trustee's and Mortgagee's right, title and interest in and to the Aircraft and
the Operative Agreements, reciting the details of such actions, or (2) no such
action is necessary to maintain the perfection of such right, title, and
interest.
7.1.4 SECURITIES LAWS
Neither Lessee nor any Person authorized to act on its behalf will
directly or indirectly offer any beneficial interest or Security relating to the
ownership of the Aircraft or the Lease or any interest in the Trust Estate and
Trust Agreement or any of the Equipment Notes or any other interest in or
security under the Mortgage for sale to, or solicit any offer to acquire any
such interest or security from, or sell any such interest or security to, any
Person in violation of the Securities Act or applicable state or foreign
securities Laws.
7.1.5 ASSET DISPOSITIONS
Lessee will not transfer or assign assets, or pay dividends to any
Affiliate, subsidiary, or related company, if such a transfer, assignment, or
payment would materially impair Lessee's ability to meet its obligations under
the Operative Agreements.
7.2 OWNER PARTICIPANT'S COVENANTS
Owner Participant agrees for the benefit of Lessee, and (except with
respect to (S) 7.2.4) Loan Participants, Owner Trustee, and Mortgagee, as
follows:
28
<PAGE>
7.2.1 LIENS
Owner Participant (a) (x) will not directly or indirectly create,
incur, assume, or suffer to exist any Lessor Lien attributable to it on or with
respect to all or any part of the Trust Estate, the Collateral, or the Aircraft,
and (y) will, at its own cost and expense, promptly take such action as is
necessary to discharge any Lessor Lien attributable to Owner Participant on all
or any part of the Trust Estate, the Collateral or the Aircraft; provided, that
Owner Participant may in good faith by appropriate proceedings contest claims or
charges resulting in any such Lien as long as such contest does not involve any
material danger of the sale, forfeiture, loss, or loss of use of the Aircraft or
the interest of Lessor, Mortgagee, or any Participant therein; and (b) will hold
harmless and indemnify Lessee, Owner Trustee, each Note Holder, Mortgagee, each
of their respective Affiliates, successors, and permitted assigns, the Trust
Estate, and the Collateral from and against (1) any and all Expenses, (2) any
reduction in the amount payable out of the Trust Estate or the Collateral, and
(3) any interference with the possession, operation, or other use of all or any
part of the Aircraft imposed on, incurred by, or asserted against any of the
foregoing as a consequence of any such Lessor Lien.
7.2.2 REVOCATION OF TRUST AGREEMENT
(a) Owner Participant will comply with the provisions of the Trust
Agreement applicable to it, will not terminate or revoke the Trust Agreement or
the trusts created thereunder without the prior written consent of Lessee and
Mortgagee, and will not amend, modify, or supplement the Trust Agreement, or
waive any of the provisions thereof, if such amendment, modification,
supplement, or waiver would have a materially adverse effect on Lessee, without
the consent of Lessee, or any adverse effect on Mortgagee or any Note Holder,
without the consent of Mortgagee.
(b) Notwithstanding (S) 7.2.2(a), Owner Participant may at any time
remove Owner Trustee pursuant to (S) 9.1 of the Trust Agreement or terminate the
Trust Agreement pursuant to (S) 11.2 of the Trust Agreement (subject to the
proviso thereto).
7.2.3 CHANGE OF SITUS OF OWNER TRUST
If, at any time, any Tax Indemnitee or the Trust Estate becomes subject
to any Taxes for which it is indemnified pursuant to (S) 9.3 of this Agreement
and if, as a consequence thereof, Lessee requests that the situs of the Trust be
moved to another state in the United States from the state in which it is then
located, the situs of the Trust may be moved with the written consent of Owner
Participant (which consent shall not be unreasonably withheld) and Owner
Participant will take whatever action is reasonably necessary to accomplish such
removal; provided, that, in any event, (a) Lessee shall provide such additional
tax indemnification as Owner Participant and the Note Holders or
29
<PAGE>
th