Filed Pursuant to Rule 424(b)(3)
Registration Nos. 333-110031, 333-110031-01
PROSPECTUS
AMERICA WEST AIRLINES, INC.
SENIOR EXCHANGEABLE NOTES DUE 2023
GUARANTEED BY AMERICA WEST HOLDINGS CORPORATION
-----------------------
We issued $252,695,000 principal amount at maturity of the Senior
Exchangeable Notes due 2023 in private placements in July and August 2003. This
Prospectus will be used by the selling securityholders to resell their notes and
the class B common stock issuable upon exchange of the notes.
The notes were offered at an issue price of $343.61 per note (34.361% of
the principal amount at maturity). The notes bear cash interest at the rate of
2.4912% per year on the principal amount at maturity from July 30, 2003 until
July 30, 2008. During such period, cash interest is payable semi annually in
arrears on January 30 and July 30 each year, beginning January 30, 2004, until
July 30, 2008 unless the notes are earlier redeemed or exchanged. After July 30,
2008, we will not pay cash interest on the notes. Instead, on July 30, 2023, the
maturity date of the notes, a holder will receive $1,000 per note. The rate of
accrual of original issue discount represents a yield to maturity of 7.25% per
year, computed on a semi annual bond equivalent basis and calculated from July
30, 2008.
Holders may exchange their notes, in multiples of $1,000 principal amount
at maturity, for 32.038 shares of the class B common stock of America West
Holdings Corporation, subject to adjustment, only if (1) the sale price of the
class B common stock reaches, or the trading price of the notes falls below,
specified thresholds, (2) the notes are called for redemption, or (3) specified
corporate transactions have occurred. Upon exchange, we have the right to
deliver, in lieu of the class B common stock of America West Holdings
Corporation, cash in an amount described herein.
Holders may require us to purchase all or a portion of their notes on July
30, 2008 at a price of $343.61 per note plus accrued cash interest, if any, on
July 30, 2013 at a price of $490.58 per note plus accrued cash interest, if any,
and on July 30, 2018 at a price of $700.41 per note plus accrued and cash
interest, if any. In addition, if a change of control occurs, each holder may
require us to purchase all or a portion of such holder's notes at a price equal
to the sum of the issue price plus accrued original issue discount and cash
interest. America West Holdings Corporation may, at its option, elect to deliver
shares of its class B common stock to satisfy all or a portion of the applicable
purchase price of such notes.
The notes are senior unsecured obligations and rank equally with our
existing and future senior unsecured indebtedness. America West Holdings
Corporation, our parent company, has guaranteed the notes on a senior unsecured
basis.
The class B common stock is currently listed on the New York Stock
Exchange under the symbol "AWA." On January 21, 2004, the closing sale price of
our class B common stock was $12.66 per share.
-----------------------
CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE 6 OF THIS PROSPECTUS.
-----------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE SECURITIES OR PASSED UPON THE
ACCURACY OR ADEQUACY OF THE DISCLOSURES IN THE PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
-----------------------
The date of this prospectus is January 23, 2004
TABLE OF CONTENTS
PAGE
----
Prospectus Summary 1
Special Note About Forward-Looking Statements 5
Risk Factors 6
Ratio of Earnings to Fixed Charges 16
Use of Proceeds 16
Selling Securityholders 17
Plan of Distribution 21
Description of the Notes 23
Certain United States Federal Income Tax Considerations 41
Legal Matters 45
Experts 45
Where You Can Find More Information 45
Incorporation of Documents by Reference 46
--------------------
IMPORTANT NOTICE ABOUT THE INFORMATION PRESENTED IN THIS PROSPECTUS
---------------------
You should rely only on the information provided in this prospectus and
the information incorporated by reference. We have not authorized anyone to
provide you with different information. The selling securityholders are not
offering to sell, or seeking offers to buy, the notes or underlying shares in
any state where offers or sales are not permitted. We do not claim the accuracy
of the information in this prospectus as of any date other than the date stated
on the cover.
---------------------
We include cross-references in this prospectus to captions where you can
find further related discussions. The table of contents provides the pages on
which these captions are located.
--------------------
PROSPECTUS SUMMARY
This summary highlights selected information from this prospectus and does
not contain all of the information that you need to consider in making your
investment decision. You should carefully read the entire prospectus, including
the risks of investing discussed under "Risk Factors" beginning on page 6, the
information incorporated by reference, including our financial statements, and
the exhibits to the registration statement of which this prospectus is a part.
Throughout this prospectus references to the "Airline," the "Company,"
"we," "us" and "our" refer to America West Airlines, Inc. and references to
"Holdings" refer to America West Holdings Corporation, including its subsidiary,
the Airline, unless otherwise specified or the context otherwise requires.
-----------------------
OUR COMPANY
-----------------------
Based on 2002 revenues and operations, America West Airlines, Inc. is the
eighth largest domestic passenger airline with the lowest cost structure of the
eight major-hub-and-spoke airlines in the United States. At the end of 2002, the
Airline operated a fleet of 143 aircraft with an average fleet age of 10.1 years
and served 65 destinations in North America, including seven in Mexico and three
in Canada. Through regional alliance and code share arrangements with other
airlines, the Airline served an additional 49 destinations in North America as
of December 31, 2002. In 2002, the Airline flew approximately 19.5 million
passengers and generated revenues of approximately $2 billion. The Airline is
the wholly-owned subsidiary of America West Holdings Corporation.
Through The Leisure Company division of the Airline, the Airline also
sells individual and group travel packages, including air transportation on the
Airline and Hawaiian Airlines, hotel accommodations, car rentals, cruise
packages and other travel products, directly to consumers as well as through
retail travel agencies in the United States, Canada and Mexico.
The Airline was incorporated in Delaware in 1981 and its principal
executive offices are located at 4000 East Sky Harbor Boulevard, Phoenix,
Arizona 85034. Holdings was incorporated in Delaware in 1996 and its principal
executive offices are located at 111 West Rio Salado Parkway, Tempe, Arizona
85281.
Our telephone number is (480) 693-0800. Our website address is
www.americawest.com. Information on our website does not constitute part of this
prospectus.
-------------------------------
THE OFFERING
-------------------------------
This prospectus and the registration statement, of which this prospectus
is a part, are being filed with the SEC to satisfy our obligations to the
purchasers of the notes. The prospectus and the registration statement cover:
- The resale by selling securityholders of the notes; and
- The resale by selling securityholders of shares of class B common
stock issuable upon exchange of the notes.
Investing in our securities involves risks. You should carefully consider
the information under "Risk Factors" beginning on page 6 and the other
information included in this prospectus before investing in our securities.
1.
-------------------------
THE NOTES
-------------------------
The following is a brief summary of some of the terms of the notes offered
for resale in this prospectus. For a more complete description of the terms of
the notes, see "Description of the Notes."
NOTES OFFERED $252,695,000 aggregate principal amount at maturity
of Senior Exchangeable Notes due 2023. Each note was
issued at a price of $343.61 per note and will have a
principal amount at maturity of $1,000.
CASH INTEREST 2.4912% per year on the principal amount at maturity,
payable semi annually in arrears in cash on January
30 and July 30 of each year, beginning January 30,
2004 until July 30, 2008. Because cash interest is
not paid throughout the term of the notes, this cash
interest will be included in the notes' original
issue discount for U.S. federal income tax purposes
and accordingly, this cash interest, along with the
original issue discount, will be taxed to the holder
as it accrues regardless of the holder's method of
tax accounting. However, a holder will not recognize
any income upon the actual payment of such cash
interest. See "Certain United States Federal Income
Tax Considerations."
MATURITY July 30, 2023.
EXCHANGE RIGHTS For each note surrendered for exchange, if the
conditions for exchange are satisfied, a holder will
receive 32.038 shares of the class B common stock of
Holdings at an initial exchange rate of 32.038
shares, subject to adjustment. Upon an exchange, we
will have the right to deliver cash in lieu of the
delivery of class B common stock of Holdings for the
notes surrendered. If we elect to pay holders cash
for their notes, the payment will be based on the
average sale price of the class B common stock for
the five consecutive trading days immediately
following either:
- the date of our notice of our election to
deliver cash, which we must give within two
business days after receiving an exchange
notice, unless we have earlier given notice
of redemption as described in this
prospectus; or
- the exchange date, if we have given notice
of redemption specifying that we intend to
deliver cash upon exchange thereafter.
The exchange rate may be adjusted for certain
reasons, but will not be adjusted for accrued
original issue discount, cash interest or interest
payable upon the occurrence of a tax event. Upon
exchange, a holder will not receive any cash payment
representing accrued original issue discount or any
accrued cash interest. Instead, accrued original
issue discount or accrued cash interest will be
deemed paid by the shares of class B common stock
received by the holder on exchange.
Holders may surrender notes for exchange for the
shares of class B common stock of Holdings in any
fiscal quarter commencing after September 30, 2003,
if, as of the last day of the preceding fiscal
quarter, the closing sale price of the class B common
stock for at least 20 trading days in a period of 30
consecutive trading days ending on the last trading
day of such preceding fiscal quarter is more than
110% of the accreted exchange price per share of
class B common stock on the last day of such
preceding fiscal quarter. If the foregoing condition
is satisfied, then the notes will be exchangeable at
any time at the option of the holder, through
maturity. The accreted exchange price per share as of
any day will equal the issue price of a note plus
accrued original issue discount to that day divided
by 32.038, subject to any adjustments to the exchange
rate through that day.
2.
On or before July 30, 2018, a holder also may
exchange its notes for shares of the class B common
stock at any time after a 10 consecutive trading-day
period in which the average of the trading prices for
the notes for that 10 trading-day period was less
than 103% of the average exchange value for the notes
during that period. Exchange value is equal to the
product of the closing sale price for the shares of
class B common stock on a given day multiplied by the
then current exchange rate, which is the number of
shares of class B common stock for which each note is
then exchangeable.
Notes or portions of notes in integral multiples of
$1,000 principal amount at maturity called for
redemption may be surrendered for exchange until the
close of business on the second business day prior to
the redemption date. In addition, if we make a
distribution to our stockholders with a per share
value of more than 15% of the sale price of the class
B common stock on the date immediately preceding the
declaration of such distribution, or if we are a
party to certain consolidations, mergers or binding
share exchanges, in addition to any adjustment to the
exchange rate as a result of distribution,
consolidation, merger or exchange, notes may be
surrendered for exchange, as provided in "Description
of the Notes - Exchange Rights." The ability to
surrender notes for exchange will expire at the close
of business on July 30, 2023.
OPTIONAL REDEMPTION We may redeem for cash all or a portion of the notes
at any time on or after July 30, 2008 at redemption
prices equal to the sum of the issue price plus
original issue discount accrued after July 30, 2008
and accrued cash interest, if any, to the applicable
redemption date. See "Description of the Notes -
Redemption of Notes at Our Option."
REQUIRED REDEMPTION Holders may require us to purchase all or a portion
of their notes at the option of the Holder on each of
the following dates at the following prices, plus
accrued cash interest, if any, to the purchase date:
- on July 30, 2008 at a price of $343.61 per
note;
- on July 30, 2013 at a price of $490.58 per
note; and
- on July 30, 2018 at a price of $700.41 per
note.
Holdings may, at its option, elect to deliver shares
of class B common stock to satisfy all or a portion
of the purchase price. If Holdings elects to pay the
purchase price, in whole or in part, in shares of
class B common stock, the number of shares it
delivers will be equal to the portion of the purchase
price to be paid in class B common stock divided by
the market price of a share of such class B common
stock.
RANKING The notes are senior unsecured obligations and rank
equal in right of payment to all of the Airline's
other unsecured and unsubordinated indebtedness. The
notes are effectively subordinated to the Airline's
secured indebtedness to the extent of the security.
All liabilities of any subsidiaries of the Airline or
Holdings will be effectively senior in right of
payment to the notes, except to the extent that any
such subsidiary is a guarantor.
GUARANTEES Holdings guarantees the notes on a senior unsecured
basis. In addition, each domestic subsidiary of the
Airline and Holdings will guarantee the notes, on a
senior unsecured basis, for so long as such
subsidiary is a guarantor of other indebtedness of
the Airline. Each guarantee of a guarantor is equal
in right of payment to all existing and future
unsecured and unsubordinated indebtedness of such
guarantor. Each such guarantee is effectively
subordinated to the guarantor's secured indebtedness
to the extent of the security.
SINKING FUND None.
3.
REGISTRATION RIGHTS Pursuant to a registration rights agreement, we have
filed a shelf registration statement, of which this
prospectus is a part, with the Securities and
Exchange Commission, or SEC, with respect to the
notes and the class B common stock issuable upon
exchange of the notes. See "Description of the Notes
- Registration Rights."
USE OF PROCEEDS We will not receive any of the proceeds from the
resale by the selling securityholders of the notes or
the class B common stock for which the notes may be
exchanged.
TRADING The notes issued in the initial private placement are
eligible for trading in the Private Offerings,
Resales and Trading through Automatic Linkages
Market, commonly referred to as the PORTAL Market, of
The Nasdaq Stock Market, Inc. However, the notes sold
using this prospectus will no longer be eligible for
trading in the PORTAL system and we cannot assure you
about the liquidity or the development of any trading
market for the notes. We do not intend to list the
notes for trading on any automated interdealer
quotation system or national securities exchange.
INDENTURE AND TRUSTEE We have issued the notes under an indenture, dated
July 30, 2003, between U.S. Bank National
Association, as trustee, and us.
-------------------------
THE CLASS B COMMON STOCK
-------------------------
This prospectus covers, and the registration statement of which it is a
part registers, the resale by the selling securityholders of 8,095,842 shares of
Holding's class B common stock.
The number of shares to be issued upon exchange of the notes of the notes
is subject to specified anti-dilution provisions set forth in the indenture
relating to the notes. As of December 31, 2003, Holdings had 34,955,305 shares
of class B common stock outstanding and 859,117 shares of class A common stock
outstanding. The class B common stock votes together with the class A common
stock on all matters, except as otherwise required by law. Holders of class B
common stock are entitled to one vote per share on all matters submitted to a
vote of stockholders whereas the holders of class A common stock are entitled to
fifty votes per share.
Our class B common stock is listed on the New York Stock Exchange
under the symbol "AWA."
4.
SPECIAL NOTE ABOUT FORWARD-LOOKING STATEMENTS
This prospectus, including the information that we incorporate by
reference, contains various forward-looking statements within the meaning of
Section 27A of the Securities Act and Section 21E of the Securities Exchange Act
of 1934, as amended, (the "Exchange Act"). These statements are based on
management's beliefs as well as assumptions made by, and information currently
available to, management. When used in this document or the information that we
incorporate by reference, the words "anticipate," "estimate," "project,"
"expect" and similar expressions are intended to identify forward-looking
statements. Such statements are subject to certain risks, uncertainties and
assumptions. Should one or more of these risks or uncertainties materialize, or
should underlying assumptions prove incorrect, actual results may vary
materially from those anticipated, estimated, projected or expected. Among the
key factors that may have a direct bearing on the Airline's or Holdings' results
are:
- the duration and extent of the current soft economic conditions;
- the impact of global instability, including the continuing impact of
the continued military presence in Iraq and Afghanistan and the
terrorist attacks of September 11, 2001 and the potential impact of
future hostilities, terrorist attacks, infectious disease outbreaks,
such as SARS, or other global events;
- limitations on the Airline's or Holdings' ability to obtain
additional financing due to high levels of debt and the financial
and other covenants in its debt instruments;
- changes in federal and state laws and regulations;
- changes in prevailing interest rates and the availability of and
terms of financing to fund our business;
- the ability to attract and retain qualified personnel;
- the cyclical nature of the airline industry;
- competitive practices in the airline industry;
- the impact of changes in fuel prices;
- relations with unionized employees generally and the impact and
outcome of labor negotiations; and
- other factors referenced in this prospectus, including those set
forth under the caption "Risk Factors."
All of the forward-looking statements are qualified in their entirety by
reference to the factors discussed under the caption "Risk Factors."
We caution the reader that these risk factors may not be exhaustive. We
operate in a continually changing business environment and new risk factors
emerge from time to time. Management cannot predict such new risk factors, nor
can it assess the impact, if any, of such new risk factors on our businesses or
the extent to which any factor or combination of factors, may cause actual
results to differ materially from those projected in any forward-looking
statements. In light of these risks, uncertainties and assumptions, the
forward-looking events discussed in this prospectus might not occur.
You should carefully read this prospectus and the documents incorporated
by reference in their entirety. They contain information that you should
consider when making your investment decision.
5.
RISK FACTORS
You should carefully consider the following risks, as well as the other
information contained in this prospectus, before investing in the notes. If any
of the following risks actually occur, our business could be harmed. You should
refer to the other information set forth or incorporated by reference in this
prospectus, including our consolidated financial statements and the related
notes incorporated by reference herein.
RISKS RELATED TO THE NOTES
OUR HIGH LEVEL OF INDEBTEDNESS AND FIXED COSTS LIMITS OUR ABILITY TO FUND
GENERAL CORPORATE REQUIREMENTS AND OBTAIN ADDITIONAL FINANCING, LIMITS OUR
FLEXIBILITY IN RESPONDING TO COMPETITIVE DEVELOPMENTS AND INCREASES OUR
VULNERABILITY TO ADVERSE ECONOMIC AND INDUSTRY CONDITIONS.
We have a significant amount of indebtedness. In addition, we have
incurred significant capitalized and operating lease obligations in connection
with the financing of aircraft and the lease of airport and other facilities. As
of September 30, 2003, we had approximately $795.0 million of indebtedness
outstanding, of which $124.9 million was secured by substantially all of our
owned aircraft, spare engines and rotable aircraft parts inventory and a
maintenance facility. In addition, we had $12.0 million of capital lease
obligations. We also have fixed costs associated with our regional alliance with
Mesa Airlines. Due to our high fixed costs, including aircraft lease obligations
and debt service, a decrease in revenues results in a disproportionately greater
percentage decrease in earnings. In addition, as a result of our significant
indebtedness and fixed costs:
- our ability to satisfy our debt and lease obligations, including our
obligations under the notes, may be impaired;
- we have only a limited ability to obtain additional financing, if
needed. Our existing indebtedness is secured by a substantial
portion of our assets, leaving us with limited assets to use to
obtain additional financing. In addition, the terms of both the $429
million government guaranteed loan and the $73.2 million term loan
restrict Holdings' and the Airline's ability to incur additional
indebtedness or issue equity unless we use the proceeds of those
transactions to prepay or redeem certain of our existing
indebtedness;
- our ability to fund general corporate requirements, including
capital expenditures, may be impaired. We have substantial
obligations to pay principal and interest on our indebtedness and
other recurring fixed costs. Further, we may be required to prepay
portions of the government guaranteed loan if our employee
compensation costs exceed a certain threshold. Accordingly, we may
have to use our working capital to fund such payments and costs
instead of funding general corporate requirements. In addition,
because under the terms of certain of the Airline's indebtedness it
must maintain a minimum cash balance of $100 million, we cannot use
all of our available cash to fund operations, capital expenditures
and cash obligations without violating this minimum cash balance
requirement; and
- our ability to respond to competitive developments and adverse
economic conditions may be limited. Without the ability to obtain
additional financing and with substantial fixed costs, we may not be
able to fund the capital expenditures, including the purchase of new
aircraft, required to keep us competitive or to withstand prolonged
adverse economic conditions.
Moreover, our flexibility is limited because many of the agreements
governing our indebtedness, including the indenture governing the 10-3/4% senior
notes due 2005 and the agreements governing the government guaranteed loan and
the term loan, contain negative covenants that restrict our ability to take
certain actions as well as the minimum cash balance requirement discussed above.
As a result of these restrictive covenants, we may be limited in how we conduct
our business and 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 our ability to
generate revenues and make profits. Without sufficient revenues, we may not be
able to pay interest and principal on outstanding indebtedness, including the
notes. A breach of these covenants or a failure to make any required payments
under our indebtedness or certain of our aircraft leases could result in the
acceleration of a substantial portion of our indebtedness. In the event of a
breach of these covenants, a failure to make required payments or an
acceleration of our indebtedness, it is likely that credit card companies
6.
would begin to withhold proceeds due to us from the sale of our tickets and our
lessors may attempt to exercise remedies under their respective leases. In such
a situation, it is unlikely we would be able to fulfill our obligations under
the notes or otherwise repay the accelerated indebtedness or make required lease
payments.
IN THE RECENT PAST, WE SUSTAINED SIGNIFICANT OPERATING LOSSES AND WE MAY SUSTAIN
SIGNIFICANT LOSSES IN THE FUTURE. IF WE CONTINUE TO SUSTAIN OPERATING LOSSES IN
THE FUTURE, OUR ABILITY TO SATISFY OUR OBLIGATIONS UNDER THE NOTES MAY BE
ADVERSELY AFFECTED.
The soft economic conditions, coupled with the impact of the terrorist
attacks of September 11, 2001 and the continued military presence in Iraq and
Afghanistan, have had a substantial negative impact on our revenues and costs.
For the years ended December 31, 2002 and 2001, we incurred operating losses of
$160.1 million and $417.9 million, respectively. Our revenues for 2002 declined
1% as compared to 2001 and 13% compared to 2000. In addition, we have
experienced an increase in costs related to enhanced security measures, aviation
insurance and airport rents and landing fees. We do not expect our revenues to
increase significantly until general economic conditions improve and we expect
the threat of further terrorist attacks and continued instability in the Middle
East to continue to negatively impact our revenues and costs in the near-term.
We may not be able to effectively counteract decreasing revenues and increasing
costs through our cost reduction initiatives, customer service initiatives and
revised pricing structures. Moreover, our liquidity and borrowing options are
limited and we may not be able to survive a prolonged economic downturn, further
decreases in demand for air travel or substantial increases in fuel costs. The
inability to sustain profitability may hinder our ability to satisfy our
obligations under the notes and our other obligations as they become due, obtain
future equity or debt financing or to do so on economical terms and to sustain
or expand our business.
BECAUSE OF OUR RELATIVELY LOW CREDIT RATINGS, OUR BORROWING COSTS MAY BE HIGH
AND OUR ABILITY TO INCUR ADDITIONAL DEBT MAY BE IMPAIRED.
Our credit ratings are relatively low, with Moody's assessment of AWA's
senior implied rating and senior unsecured debt rating at Caa1 and Caa3,
respectively, and Standard & Poor's corporate credit ratings at B- for the
Airline and Holdings and senior unsecured rating at CCC for AWA's unsecured
debt. On September 4, 2003, the Standard & Poor's ratings on various
pass-through trust certificates were lowered. Standard & Poor's outlook for the
airline industry continues to be negative. Low credit ratings could cause our
borrowing costs to increase, which would increase our interest expense and could
affect our net income. In addition, our credit ratings could adversely affect
our ability to obtain additional financing. The rating agencies base their
ratings on our financial performance and operations, our cash flow and
liquidity, the level of our indebtedness and industry conditions in general. If
our financial performance or industry conditions do not improve, we may face
future downgrades, which could further negatively impact our borrowing costs and
the prices of our equity or debt securities. In addition, any downgrade of our
credit ratings may indicate a decline in our business and in our ability to
satisfy our obligations under the notes, and may affect the trading prices, if
any, of the notes.
YOUR RIGHT TO RECEIVE PAYMENTS ON THESE NOTES IS EFFECTIVELY SUBORDINATED TO THE
RIGHTS OF THE AIRLINE'S AND HOLDINGS' EXISTING AND FUTURE SECURED CREDITORS.
Holders of Holdings' and the Airline's secured indebtedness will have
claims that are senior to your claims as holders of the notes to the extent of
the value of the assets securing that other indebtedness. The Airline has
granted security interests in substantially all of its owned aircraft, spare
engines, rotable parts inventory and other assets pursuant to the term loan and
certain equipment notes. The notes will be effectively subordinated to the term
loan, the secured equipment notes and any other secured indebtedness. In the
event of any distribution or payment of the Airline's or Holdings' assets in any
foreclosure, dissolution, winding-up, liquidation, reorganization or other
bankruptcy proceeding, holders of secured indebtedness will have prior claim to
those assets that constitute their collateral. Holders of the notes will
participate ratably with all holders of our unsecured indebtedness that is
deemed to be of the same class as the notes, and potentially with all of our
other general creditors, based upon the respective amounts owed to each holder
or creditor, in our remaining assets. In any of the foregoing events, we cannot
assure you that there will be sufficient assets to pay amounts due on the notes.
As a result, holders of notes may receive less, ratably, than holders of secured
indebtedness.
As of September 30, 2003, the aggregate amount of the Airline's senior
secured indebtedness was $124.9 million, consisting primarily of the term loan
and the secured equipment notes. In addition, the notes effectively will
7.
be subordinated to all existing and future liabilities, including claims with
respect to trade payables of any future subsidiaries of Holdings or the Airline,
except to the extent any such subsidiary is a guarantor.
Furthermore, if Holdings fails to deliver the class B common stock upon
exchange of a note and thereafter becomes the subject of bankruptcy proceedings,
a holder's claim for damages arising from such failure could be subordinated to
all of Holdings' existing and future obligations.
HOLDINGS IS A HOLDING COMPANY AND RELIES ON DIVIDENDS OR DISTRIBUTIONS FROM ITS
SUBSIDIARIES, INCLUDING THE AIRLINE.
Holdings is a holding company with no operations of its own and no
significant assets other than its ownership of the capital stock of the Airline.
Holdings will, therefore, be dependent upon the receipt of dividends or other
distributions from the Airline to fund any obligations that it incurs, including
obligations under the guarantee. The indenture governing the 10-3/4% senior
notes due 2005, the government guaranteed loan and the term loan do not,
however, permit distributions from the Airline to Holdings, other than for
certain specified purposes. Accordingly, if the Airline at any time cannot pay
interest on or principal of the notes, it is unlikely that it will be permitted
to distribute to Holdings the funds necessary to enable Holdings to meet its
obligations under the guarantee.
THE NOTES HAVE BEEN ISSUED AT A SUBSTANTIAL DISCOUNT FROM THEIR PRINCIPAL
AMOUNT. AS A RESULT, CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES WILL APPLY TO
THE HOLDERS OF THE NOTES.
The notes have been issued at a substantial discount from their principal
amount and will not pay cash interest after July 30, 2008. Because cash interest
is not paid throughout the term of the notes, this cash interest will be
included in the notes' original issue discount for U.S. federal income tax
purposes. Accordingly, this cash interest, along with other original issue
discount, will be taxed to you as it accrues regardless of your regular method
of tax accounting and in advance of receipt of any payment on the notes to which
the original issue discount is attributable. To understand how this may affect
you, you should seek advice from your own tax adviser prior to purchasing these
notes. See "Certain Federal United States Income Tax Considerations" for a more
detailed discussion of the U.S. federal income tax consequences to the holders
of the notes of the purchase, ownership and disposition of the notes.
WE MAY NOT HAVE THE ABILITY TO RAISE FUNDS NECESSARY TO FINANCE THE CHANGE OF
CONTROL PURCHASE OR THE PURCHASE AT THE OPTION OF THE HOLDER.
On specified dates, and upon the occurrence of certain specific kinds of
change of control events, we may be required to offer to purchase all
outstanding notes if and to the extent Holdings does not elect to pay, or is
prohibited from paying, the purchase price in its class B common stock. Certain
of our and Holdings' other agreements may prohibit the purchase of the notes. In
addition, a change of control may trigger repayment obligations under the terms
of our other indebtedness, including the government guaranteed loan, the term
loan and the 10-3/4% senior notes due 2005. In such a situation, we would be
required to repay our other indebtedness in addition to being required to
purchase the notes at the option of the holders. We may not have or be able to
raise sufficient funds to make the required purchase of the notes and our other
outstanding indebtedness.
FEDERAL AND STATE STATUTES ALLOW COURTS, UNDER SPECIFIC CIRCUMSTANCES, TO VOID
GUARANTEES AND REQUIRE NOTE HOLDERS TO RETURN PAYMENTS RECEIVED FROM GUARANTORS.
Under the federal bankruptcy law and comparable provisions of state
fraudulent transfer laws, a guarantee could be voided, or claims in respect of a
guarantee could be subordinated to all other indebtedness of that guarantor, if,
among other things, at the time it incurred the indebtedness evidenced by its
guarantee, the guarantor received less than reasonably equivalent value or fair
consideration for the incurrence of such guarantee and the guarantor:
- was insolvent or rendered insolvent by reason of such incurrence;
8.
- was engaged in a business or transaction for which the guarantor's
remaining assets constituted unreasonably small capital; or
- intended to incur, or believed that it would incur, debts beyond its
ability to pay such debts as they matured.
In addition, any payment by that guarantor pursuant to its guarantee could
be voided and required to be returned to the guarantor or to a fund for the
benefit of the creditors of the guarantor.
The measures of insolvency for purposes of these fraudulent transfer laws
will vary depending upon the law applied in any proceeding to determine whether
a fraudulent transfer has occurred. Generally, however, a guarantor would be
considered insolvent if:
- the sum of its debts, including contingent liabilities, was greater
than the fair saleable value of all of its assets;
- if the present fair saleable value of its assets was less than the
amount that would be required to pay its probable liability on its
existing debts, including contingent liabilities, as they become
absolute and mature; or
- it could not pay its debts as they become due.
On the basis of historical financial information, recent operating history
and other factors, we believe that Holdings, after giving effect to its
guarantee of these notes, will not be insolvent, will not have unreasonably
small capital for the business in which it is engaged and will not have incurred
debts beyond its ability to pay such debts as they mature. We cannot assure you,
however, as to what standard a court would apply in making these determinations
or that a court would agree with our conclusions in this regard.
WE CANNOT ASSURE YOU THAT AN ACTIVE TRADING MARKET FOR THE NOTES WILL BE
SUSTAINED.
Except for PORTAL, which will not be available for notes sold under this
registration statement, there currently is no trading market for the notes and
we do not intend to apply for listing of the notes on any securities exchange or
other stock market. Additionally, the initial purchasers of the notes are not
obligated to make a market in the notes. Accordingly, no market for the notes
may develop, and any market that does develop may not last. Furthermore, we have
the right, pursuant to the registration rights agreement, to suspend the use of
this registration statement in certain circumstances. In the event of such a
suspension, you would not be able to sell any notes or shares of class B common
stock issuable upon exchange of the notes.
RISKS RELATED TO OUR BUSINESS AND OUR INDUSTRY
THE TERRORIST ATTACKS OF SEPTEMBER 11, 2001 AND GOVERNMENT RESPONSES HAVE HAD,
AND CONTINUE TO HAVE, A MATERIAL ADVERSE EFFECT ON OUR FINANCIAL CONDITION,
OPERATIONS AND PROSPECTS.
The terrorist attacks of September 11, 2001 have had, and continue to
have, a wide-ranging impact on our financial condition, operations and
prospects. The immediate impact of the terrorist attacks included a severe
strain on our liquidity as the government temporarily suspended all flights, as
passenger demand dropped precipitously after the attacks and as our credit
ratings were downgraded by both Moody's and Standard and Poor's. Since then,
although passenger demand has recovered, we continue to experience reduced
demand compared to prior years, especially in discretionary business travel, and
our costs relating to enhanced security measures, aviation insurance, airport
rents and landing fees have increased, in some cases significantly. The
continued impact of the terrorist attacks on our operations, and the sufficiency
of our financial resources to absorb this impact, will depend on:
- our ability to reduce our operating costs, to conserve financial
resources and to continue implementing our restructuring plan;
- general economic conditions and the extent to which the current soft
economic conditions improve;
- competition in the airline industry;
9.
- our ability to manage fuel and labor costs; and
- the other risks discussed in this prospectus.
Moreover, continued global instability (including fuel price
fluctuations), soft economic conditions and future terrorist attacks could
further reduce demand for air travel, increase our fuel, insurance and other
costs and generally impact our liquidity or financial condition. Our ability to
obtain additional financing to absorb the impact of these type of events is
limited by the constraints imposed by our existing indebtedness, reductions in
the value of our aircraft (as a result of the terrorist attacks) and our
relatively low credit ratings.
INCREASED INSURANCE COSTS DUE TO THE TERRORIST ATTACKS OF SEPTEMBER 11, 2001 MAY
ADVERSELY IMPACT OUR OPERATIONS AND FINANCIAL RESULTS.
The terrorist attacks of September 11, 2001 resulted in staggering losses
to the insurance industry. These losses led to a significant increase in our
insurance premiums and could lead to future increases in our insurance premiums.
These increases have and could continue to negatively impact our financial
results. In addition, the resulting general instability in the insurance
industry could adversely affect some of our existing insurance carriers or our
ability to obtain future insurance coverage. To the extent that our existing
insurance carriers are unable or unwilling to provide us with insurance
coverage, our insurance costs could further increase.
Moreover, since September 11, 2001, the Airline and other airlines have
been unable to obtain third party war risk (terrorism) insurance at reasonable
rates from the commercial insurance market and have been obtaining this
insurance through a special program administered by the Federal Aviation
Administration (the "FAA"). The Emergency Wartime Supplemental Appropriations
Act extended this insurance protection until August 2004. If the Federal
insurance program terminates, we would likely face a material increase in the
cost of terrorism insurance, but because of competitive pressures in our
industry, our ability to pass this additional cost to passengers would be
limited.
FLUCTUATIONS IN FUEL COSTS COULD ADVERSELY AFFECT OUR OPERATING EXPENSES AND
RESULTS.
The price and supply of jet fuel are unpredictable and fluctuate based on
events outside our control, including geopolitical developments, regional
production patterns and environmental concerns. Since fuel is the principal raw
material consumed by our business, accounting for 14% of our total operating
expenses in 2002, price escalations or reductions in the supply of jet fuel will
increase our operating expenses and cause our operating results and net income
to decline. For example, with our current level of fuel consumption, a one-cent
per gallon increase in jet fuel prices will cause our annual operating expense
to increase by $4.4 million.
We have implemented a fuel-hedging program to manage the risk and effect
of fluctuating jet fuel prices on our business. Our hedging program is intended
to offset increases in jet fuel costs by using derivative instruments keyed to
the future price of heating oil, which is highly correlated to the price of jet
fuel delivered on the East Coast. Our hedging program does not fully protect us
against increasing jet fuel costs. For example, our hedging program did not
cover all of our projected fuel volumes for 2003. In order to execute additional
hedging transactions, we anticipate that we will have to provide cash collateral
or other credit support, which we may not be able to provide in a cost-effective
manner. Furthermore, our ability to effectively hedge fuel prices is limited
because we purchase a substantially larger portion of our jet fuel requirements
on the West Coast than our large competitors and West Coast fuel prices are less
correlated to heating oil prices and other viable petroleum derivatives than
East Coast fuel prices and, therefore, more difficult to hedge. The
effectiveness of our fuel-hedging program may also be negatively impacted by
continued instability in the Middle East and Venezuela and terrorist activity.
10.
NEGOTIATIONS WITH LABOR UNIONS COULD DIVERT MANAGEMENT ATTENTION AND DISRUPT
OPERATIONS AND NEW COLLECTIVE BARGAINING AGREEMENTS OR AMENDMENTS TO EXISTING
COLLECTIVE BARGAINING AGREEMENTS COULD INCREASE OUR LABOR COSTS AND OPERATING
EXPENSES.
Some of our employees are represented by unions and other groups of our
employees may seek union representation in the future. On January 13, 2003,
negotiations commenced with the Transportation Workers Union ("TWU") on a second
contract covering the Airline's dispatchers. On September 17, 2003, TWU filed a
petition for mediation with the National Mediation Board. Mediated discussions
began on October 15, 2003 and will continue during 2004. Additionally,
negotiations with the International Brotherhood of Teamsters ("IBT") for a
second collective bargaining agreement covering the Airline's mechanics and
related employees commenced on October 9, 2003 and will continue during 2004.
We cannot predict the outcome of the negotiations with TWU or IBT or any
future negotiations relating to union representation or collective bargaining
agreements. Agreements reached in collective bargaining may increase operating
expenses and lower operating results and net income. This is particularly
significant because our current employee costs contribute substantially to the
low cost structure that we believe is one of our competitive strengths and
because we are required to repay a portion of the government guaranteed loan if
our labor costs exceed a certain threshold. In addition, negotiations with
unions could divert management attention and disrupt operations, which may
result in increased operating expenses and lower net income. If we are unable to
negotiate acceptable collective bargaining agreements, we might have to address
the threat of, or wait through "cooling off" periods, which could be followed by
union-initiated work actions, including strikes. Depending on the nature of the
threat or the type and duration of any work action, these actions could disrupt
our operations and, as a result, have a significant adverse affect on our
operating results.
FLUCTUATIONS IN INTEREST RATES COULD ADVERSELY AFFECT OUR LIQUIDITY, OPERATING
EXPENSES AND RESULTS.
Our indebtedness under both the government guaranteed loan and the term
loan bears interest at fluctuating interest rates based on the London interbank
offered rate for deposits of U.S. dollars ("LIBOR"). LIBOR tends to fluctuate
based on general economic conditions, general interest rates, including the
prime rate, and the supply of and demand for credit in the London interbank
market. We have not hedged our interest rate exposure and, accordingly, our
interest expense for any particular period may fluctuate based on LIBOR. To the
extent LIBOR increases, our interest expense will increase, in which event, we
may have difficulties making interest payments and funding our other fixed costs
and our available cash flow for general corporate requirements may be adversely
affected.
OUR OPERATING COSTS COULD INCREASE AS A RESULT OF PAST, CURRENT OR NEW
REGULATIONS THAT IMPOSE ADDITIONAL REQUIREMENTS AND RESTRICTIONS ON AIRLINE
OPERATIONS.
The airline industry is heavily regulated. Both federal and state
governments from time to time propose laws and regulations that impose
additional requirements and restrictions on airline operations. Implementing
these measures, such as aviation ticket taxes and passenger safety measures, has
increased operating costs for us and the airline industry as a whole. In
addition, new security measures imposed by the Aviation and Transportation
Security Act or otherwise by the FAA as a result of the recent terrorist attacks
are expected to continue to increase costs for us and the airline industry as a
whole. Depending on the implementation of these laws and other measures, our
operating costs could increase significantly. Certain governmental agencies,
such as the DOT and the FAA, have the authority to impose mandatory orders, such
as Airworthiness Directives in connection with our aircraft, and civil penalties
for violations of applicable laws and regulations, each of which can result in
material costs and adverse publicity. We cannot predict which laws and
regulations will be adopted or what other action regulators might take.
11.
Accordingly, we cannot guarantee that future legislative and regulatory acts
will not have a material impact on our operating results.
THE AIRLINE INDUSTRY AND THE MARKETS WE SERVE ARE HIGHLY COMPETITIVE AND WE MAY
BE UNABLE TO COMPETE EFFECTIVELY AGAINST CARRIERS WITH SUBSTANTIALLY GREATER
RESOURCES OR LOWER COST STRUCTURES.
The airline industry and most of the markets we serve are highly
competitive. We compete with other airlines on the basis of pricing, scheduling
(frequency and flight times), on-time performance, type of equipment, cabin
configuration, amenities provided to passengers, frequent flyer programs, the
automation of travel agent reservation systems, on-board products and other
services. Certain airlines have in the past engaged in retaliatory activities,
including steep pricing discounts in certain markets and termination of alliance
agreements, in response to changes in our pricing structure. Our principal
competitor is Southwest Airlines, which has a lower operating cost structure
than we do. We also compete against other existing carriers, many of which offer
more extensive routes, frequencies and customer loyalty, marketing and
advertising programs than we do. From time to time, we also compete with new
carriers that enter the airline industry, which typically have low operating
cost structures. We may be unable to compete effectively against carriers with
substantially greater resources or lower cost structures. The entry of
additional new carriers in our markets, the consolidation of existing carriers
or increased competition from existing carriers, could adversely affect our
operating results.
The terrorist attacks of September 11, 2001, the continued military
presence in Iraq and Afghanistan, and the current soft economic conditions have
led to the airline industry's significant losses since 2001. Largely as a result
of these losses, both U.S. Airways and United Airlines filed for bankruptcy
protection in 2001. Because bankruptcy protection may allow for greater
flexibility in reducing costs by voiding contracts and renegotiating existing
business obligations, current and future airline bankruptcies could have a
substantial impact on industry competition. Continued weakness in the airline
industry may also result in additional industry consolidation, greater reliance
on industry alliances and increased price competition among the existing
airlines, each of which could dramatically alter competitive environments in the
markets we serve.
OUR BUSINESS IS SENSITIVE TO GENERAL ECONOMIC CONDITIONS, UNFORESEEN EVENTS AND
SEASONAL FLUCTUATIONS. AS A RESULT, OUR PRIOR PERFORMANCE IS NOT NECESSARILY
INDICATIVE OF OUR FUTURE RESULTS.
The air travel business historically fluctuates on a seasonal basis and in
response to general economic conditions. Due to the greater demand for air and
leisure travel during the summer months, revenues in the airline industry in the
second and third quarters of the year tend to be greater than revenues in the
first and fourth quarters of the year. In addition, the airline industry is
highly susceptible to unforeseen events that result in declines in revenues or
increased costs, such as political instability, regional hostilities, terrorist
attacks, recession, fuel price escalation, inflation, adverse weather
conditions, consumer preferences, labor instability or regulatory oversight.
Also, our results of operations for interim periods are not necessarily
indicative of those for an entire year and our prior results are not necessarily
indicative of our future results.
WE DEPEND ON THE EXPERTISE OF OUR MANAGEMENT TEAM. IF KEY INDIVIDUALS LEAVE
UNEXPECTEDLY, OUR BUSINESS AND OPERATIONS COULD SUFFER.
Many of our executive officers are key to the management of our business
and operations. Our future success depends on our ability to retain these
officers and other capable managers. Although we believe we could replace key
personnel given adequate prior notice, the unexpected departure of key executive
officers could cause substantial disruption to our business and operations. In
addition, we may not be able to retain and recruit talented personnel without
incurring substantial costs. Moreover, we must repay a portion of the government
guaranteed loan if our labor costs exceed a certain threshold. As a result, our
ability to spend additional amounts to retain and recruit talented personnel is
limited.
THE STOCKHOLDERS WHO EFFECTIVELY CONTROL THE VOTING POWER OF HOLDINGS COULD TAKE
ACTIONS THAT WOULD FAVOR THEIR OWN PERSONAL INTERESTS TO THE DETRIMENT OF OUR
INTERESTS.
Currently, three stockholders collectively control more than 50% of the
total voting power of Holdings. These stockholders, TPG Partners, L.P., TPG
Parallel I, L.P. and Air Partners II, L.P. (collectively, the "TPG
12.
Stockholders") are all controlled by the same company, TPG Advisors, Inc. Since
TPG Advisors, Inc. is an investment firm, its strategic objectives may be
different than both the short-term or long-term objectives of our board of
directors and management. We cannot guarantee that the TPG Stockholders will not
try to influence Holdings' business in a way that would favor their own personal
interests to the detriment of our interests.
WE ARE AT RISK OF LOSSES AND ADVERSE PUBLICITY STEMMING FROM ANY ACCIDENT
INVOLVING ANY OF OUR AIRCRAFT.
If one of our aircraft were to crash or be involved in an accident, we
could be exposed to significant tort liability. There can be no assurance that
the insurance we carry to cover damages arising from any future accidents will
be adequate. In the event that our insurance is not adequate, we may be forced
to bear substantial losses from an accident. Claims resulting from an accident
in excess of our insurance coverage would harm our business and results of
operations. Accidents could also result in unforeseen mechanical and maintenance
costs. In addition, any accident involving an aircraft that we operate could
create a public perception that our aircraft are not safe or reliable, which
could harm our reputation, result in air travelers being reluctant to fly on our
aircraft and harm our business.
OUR OPERATIONS ARE OFTEN AFFECTED BY FACTORS BEYOND OUR CONTROL, INCLUDING
TRAFFIC CONGESTION AT AIRPORTS, WEATHER CONDITIONS AND INCREASED SECURITY
MEASURES, ANY OF WHICH COULD HARM OUR FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
Like other airlines, our operations are subject to delays caused by
factors beyond our control, including air traffic congestion at airports,
adverse weather conditions and increased security measures, such as those
required to be implemented under the Aviation and Transportation Security Act.
During periods of fog, snow, rain, storms or other adverse weather conditions,
flights may be cancelled or significantly delayed. Cancellations and delays
frustrate passengers, reduce aircraft utilization and increase costs, all of
which in turn affect profitability. As a result, cancellations or delays could
harm our financial condition and results of operations.
RISKS RELATED TO THE CLASS B COMMON STOCK OF HOLDINGS
SHARES OF HOLDINGS' CLASS B COMMON STOCK ISSUABLE UPON EXERCISE OR CONVERSION OF
OUTSTANDING SECURITIES COULD ADVERSELY AFFECT OUR STOCK PRICE AND DILUTE THE
OWNERSHIP INTERESTS OF EXISTING STOCKHOLDERS.
Sales and potential sales of substantial amounts of Holdings' class B
common stock or securities exercisable for or convertible into class B common
stock in the public market, or the perception that these sales could occur,
could adversely affect the market price of the class B common stock. A
substantial number of additional shares of class B common stock are issuable
upon the conversion or exercise of outstanding securities. As of December 31,
2003, the 34,955,305 outstanding shares of class B common stock were subject to
dilution by:
- 19,912,000 shares of class B common stock that are issuable upon the
exercise, at an exercise price of $3.00 per share, of certain
warrants issued in connection with the government guaranteed loan,
including 18,754,000 shares of class B common stock issuable upon
exercise of a warrant issued to the ATSB; and
- 7,993,894 shares of class B common stock that were issuable upon the
exercise of outstanding options.
Also as of December 31, 2003, 859,117 shares of class B common stock were
issuable upon conversion of the outstanding shares of Holdings' class A common
stock held by the TPG Stockholders (but subject to certain contractual
restrictions on transfer). In addition, up to 8,095,842 shares of Holdings'
class B common stock will be issuable upon the exchange of the notes (which
exchange may not occur until the trading price of Holdings' class B common stock
reaches certain thresholds, or other triggering events occur) and up to
approximately 9,400,000 shares of Holdings' class B common stock will be
issuable after January 18, 2005 upon conversion of Holdings' 7.5% convertible
senior notes due 2009. Holdings has registered either the issuance or resale of
all of these shares, meaning that upon exercise, exchange or conversion, as
applicable, such shares could be sold in the public market at any time.
13.
The conversion, exchange or exercise of some or all of these notes,
warrants and options will dilute the ownership interests of existing
stockholders and any sales in the public market of the class B common stock
issuable upon such conversion, exchange or exercise could adversely affect
prevailing market prices of the class B common stock and the trading price of
the notes, if any. In addition, the existence of the notes, warrants and options
may encourage short selling by market participants because conversion, exchange
or exercise of the notes or warrants could depress the price of the class B
common stock.
14.
PROVISIONS IN OUR CHARTER DOCUMENTS MIGHT DETER ACQUISITION BIDS FOR US.
Holdings' Certificate of Incorporation and Restated Bylaws contain
provisions that, among other things:
- authorize Holdings' board of directors to issue preferred stock
ranking senior to the class B common stock without any action on the
part of the stockholders;
- establish advance notice procedures for stockholder proposals,
including nominations of directors, to be considered at
stockholders' meetings;
- authorize Holdings' board of directors to fill vacancies on the
board resulting from an increase in the authorized number of
directors or any other cause; and
- restrict the ability of stockholders to call special meetings of
stockholders.
These provisions might make it more difficult for a third party to acquire
us, even if doing so would benefit the stockholders.
OUR STOCK PRICE MAY CONTINUE TO BE VOLATILE AND COULD DECLINE SUBSTANTIALLY.
The stock market has, from time to time, experienced extreme price and
volume fluctuations. Many factors may cause the market price for the class B
common stock to decline, including:
- our operating results failing to meet the expectations of securities
analysts or investors in any quarter;
- downward revisions in securities analysts' estimates;
- material announcements by us or our competitors;
- public sales of a substantial number of shares of the class B common
stock;
- governmental regulatory action; and
- adverse changes in general market conditions or economic trends.
15.
RATIO OF EARNINGS TO FIXED CHARGES
Holdings' ratio of earning to fixed charges for the years ended December
31, 2000, 1999, and 1998 was 1.09, 2.32, and 2.33, respectively. Earnings for
the years ended December 31, 2001 and December 31, 2002 were inadequate to cover
fixed charges by $336.9 million and $217.7 million, respectively. Earnings to
fixed charges for the nine months ended September 30, 2003 was 1.31.
AWA's ratio of earnings to fixed charges for the years ended December 31,
2000, 1999, and 1998 was 1.03, 2.23, and 2.20, respectively. Earnings for the
years ended December 31, 2001 and December 31, 2002 were inadequate to cover
fixed charges by $338.7 million and $222.5 million, respectively. Earnings to
fixed charges for the nine months ended September 30, 2003 was 1.26.
For the purpose of computing the ratio of earnings to fixed charges,
earnings consist of income (loss) before income taxes and extraordinary items
plus fixed charges less capitalized interest. Fixed charges consist of interest
expense, including amortization of debt expense, one-third of rent expense,
which is deemed to be representative of an interest factor, and capitalized
interest.
USE OF PROCEEDS
The net proceeds from the original offering of the notes by the Airline
were approximately $83.7 million, after deducting the initial purchasers'
discounts and commissions and fees and expenses. We will not receive any
proceeds from the sale by any selling securityholder of the notes or the common
stock issuable upon exchange of the notes.
16.
SELLING SECURITYHOLDERS
We originally issued the notes in a private placement in July 2003. The
notes were resold by the initial purchasers to persons reasonably believed by
the initial purchasers to be qualified institutional buyers within the meaning
of Rule 144A under the Securities Act in transactions exempt from registration
under the Securities Act. The notes and the underlying class B common stock of
Holdings that may be offered with this prospectus will be offered by the selling
securityholders, which includes their transferees, pledgees or donees or their
successors. Our registration for resale of the notes and the shares of class B
common stock issuable upon exchange for the notes does not necessarily mean that
the selling securityholders will sell all or any of the notes or shares of class
B common stock.
The following table sets forth certain information as of January 21, 2004
concerning the principal amount of notes beneficially owned by each selling
securityholder and the number of shares of underlying class B common stock of
Holdings that may be offered from time to time by each selling securityholder
with this prospectus. The number of shares of class B common stock shown in the
table below assumes exchange of the full amount of notes held by such holder at
the initial exchange rate of 32.038 shares per $1,000 principal amount of the
notes. This exchange rate is subject to certain adjustments. Accordingly, the
number of shares of class B common stock issuable upon exchange of the notes may
increase or decrease from time to time. Under the terms of the indenture,
fractional shares will not be issued upon exchange of the debt securities. Cash
will be paid instead of fractional shares, if any.
We have prepared the table below based on information given to us by the
selling securityholders on or prior to the date of this prospectus. Because the
selling securityholders may offer all or some portion of the notes or the
underlying shares of class B common stock, we have assumed for purposes of this
table that the selling securityholders will sell all of the notes and all of the
underlying shares of class B common stock offered by this prospectus. The
selling securityholders listed in the table below may have acquired, sold or
transferred, in transactions exempt from the registration requirements of the
Securities Act, some or all of their securities since the date this information
was last provided to us.
Information about the selling securityholders may change over time. Any
changed information that is properly communicated to us by the selling
securityholders will be set forth in prospectus supplements and/or amendments,
as permitted under applicable SEC rules and regulations. We have no arrangements
or understandings with any selling securityholders to distribute the securities.
None of the selling securityholders nor any of their affiliates, officers,
directors or principal equity holders has held any position or office or has had
any material relationship with us within the last three years.
PRINCIPAL
AMOUNT
AT MATURITY OF SHARES OF CLASS B CLASS B COMMON STOCK
NOTES COMMON STOCK OWNED UPON
BENEFICIALLY EXCHANGE SHARES BENEFICIALLY OWNED COMPLETION OF THE OFFERING
OWNED AND OFFERED BEFORE THE --------------------------
NAME OFFERED(1) (1)(2)(3) OFFERING(4) NUMBER PERCENTAGE
- ------------------------------- ---------------- ---------------- ------------------- ----------- -----------
AIG DKR SoundShore Holdings
Ltd.(19) 9,092,000 291,289 -- -- --
Amaranth L.L.C.(5)(8) 38,139,000 1,221,897 -- -- --
BNP Paribas Equity
Strategies, SNC(5)(9) 4,263,000 136,577 14,100 14,100 *
BP Amoco PLC Master Trust(10) 718,000 23,003 -- -- --
Citigroup Global Markets
Ltd.(6)(21)(22) 53,225,000 1,705,222 --(22) --(22) --(22)
17.
PRINCIPAL
AMOUNT
AT MATURITY OF SHARES OF CLASS B CLASS B COMMON STOCK
NOTES COMMON STOCK OWNED UPON
BENEFICIALLY EXCHANGE SHARES BENEFICIALLY OWNED COMPLETION OF THE OFFERING
OWNED AND OFFERED BEFORE THE --------------------------
NAME OFFERED(1) (1)(2)(3) OFFERING(4) NUMBER PERCENTAGE
- ------------------------------- ---------------- ---------------- ------------------- ----------- -----------
CitiJL, Ltd.(24) 23,000 736 -- -- --
CNH CA Master
Account, L.P. (17) 800,000 25,630 22,500 22,500 *
CooperNeff Convertible
Strategies (Cayman) Master
Fund, L.P.(11) 4,630,000 148,335 -- -- --
Common Fund Event
Driven Co., Inc.(5)(24) 18,000 576 -- -- --
DBAG London(5)(12) 84,500,000 2,707,211 -- -- --
DKR SoundShore Opportunity
Holding Fund Ltd.(19) 4,598,000 147,310 -- -- --
DKR SoundShore Strategic
Holding Fund, Ltd.(7) 4,545,000 145,612 -- -- --
Goldman, Sachs & Co.(6) 2,500,000 80,095 15,611 15,611 *
Goldman Sachs International(5) 10,750,000 344,408 4,013 4,013 *
Hamilton Multi-Strategy
Master Fund, L.P. (16) 1,000,000 32,038 -- -- --
Hotel Union & Hotel Industry
of Hawaii Pension Plan(10) 252,000 8,073 -- -- --
Institutional Benchmarks
Master Fund, Ltd.(10) 1,471,000 47,127 -- -- --
Jeffries & Co., Inc.(6)(10) 5,000 160 -- -- --
LDG Limited(13) 522,000 16,723 -- -- --
Levco Alternative Fund,
Ltd.(5)(24) 704,000 22,554 --
Lexington Vantage Fund(13) 87,000 2,787 -- -- --
Lyxor / Convertible Arbitrage
Fund Limited(5)(9) 294,000 9,419 -- -- --
Lyxor / JLC Fund, Ltd.(5)(24) 65,000 2,082 -- -- --
Newport Alternative Income Fund(20) 370,000 11,854 -- -- --
OIP Limited(20) 1,020,000 32,678 -- -- --
Polaris Vega Fund, L.P.(14) 1,500,000 48,057 -- -- --
Privileged Portfolio Sicav(23) 2,000,000 64,076 -- -- --
Purchase Associates,
L.P.(5)(24) 125,000 4,004 -- -- --
Purchase Associates II,
L.P.(5)(24) 65,000 2,824 -- -- --
Silvercreek II Limited(20) 1,150,000 36,843 -- -- --
Silvercreek Limited
Partnership(20) 2,460,000 78,813 -- -- --
18.
PRINCIPAL
AMOUNT
AT MATURITY OF SHARES OF CLASS B CLASS B COMMON STOCK
NOTES COMMON STOCK OWNED UPON
BENEFICIALLY EXCHANGE SHARES BENEFICIALLY OWNED COMPLETION OF THE OFFERING
OWNED AND OFFERED BEFORE THE --------------------------
NAME OFFERED(1) (1)(2)(3) OFFERING(4) NUMBER PERCENTAGE
- ------------------------------- ---------------- ---------------- ------------------- ----------- -----------
Singlehedge U.S. Convertible
Arbitrage Fund(5)(9) 704,000 22,554 -- -- --
Sphinx Convertible Arb Fund
SPC(10) 264,000 8,458 -- -- --
Sphinx Fund, LLC(13) 135,000 4,325 -- -- --
SSI Blended Market Neutral
L.P.(10) 484,000 15,506 -- -- --
SSI Hedged Convertible Market
Neutral, L.P.(10) 533,000 17,076 -- -- --
Sturgeon Limited(5)(9) 609,000 19,511 -- -- --
Sunrise Partners Limited
Partnership(5)(15) 27,540,000 882,236 44,000 44,000 *
TQA Master Fund(13) 4,016,010 128,664 -- -- --
TQA Master Plus Fund, Ltd.(13) 4,897,990 156,921 -- -- --
UBS AG LON F/B/O PB 3,500,000 112,133 -- -- --
Viacom Inc. Pension Plan
Master Trust(10) 23,000 736 -- -- --
Windmill Master Fund, LP (18) 5,500,000 176,209 -- -- --
Xavex Convertible Arbitrage 7
Fund(13) 873,000 27,969 -- -- --
Zurich Institutional
Benchmarks Master Fund
Ltd.(13) 571,000 18,293 -- -- --
* Less than one percent (1%).
(1) Our registration of these securities does not necessarily mean that the
selling securityholders will sell any or all of the securities. The total
principal amount of notes and shares of common stock issuable upon
exchange of notes listed in the table may be more than $252,695,000 and
8,095,842 shares, respectively, because certain of the selling
securityholders may have sold, transferred or otherwise disposed of all or
a portion of their notes in transactions exempt from the registration
requirements of the Securities Act since the date on which they provided
information regarding their notes for inclusion in this table. The maximum
principal amount of notes and number of shares of common stock issuable
upon exchange of the notes that may be sold under this prospectus will not
exceed $252,695,000 and 8,095,842 shares, respectively.
(2) Figures in this column assume that the selling securityholder will fully
exchange the notes for shares of Holdings' class B common stock held by
them.
(3) Pursuant to the terms of the indenture governing the terms of the notes,
no fractional shares will be issued upon exchange. Instead of fractional
shares, the holders of the notes will receive cash in an amount equal to
the same fraction of the closing sale price of the class B common stock as
set forth on the New York Stock Exchange on the business day preceding the
day the notes are exchanged into shares of class B common stock.
Therefore, the total sum of shares listed in this column are less than the
total shares of class B common stock being registered pursuant to the
registration statement of which this prospectus is a part.
(4) Figures in this column do not include the shares of class B common stock
issuable upon exchange of the notes listed in the column to the right.
(5) This selling securityholder is an affiliate of a registered broker-dealer
and has advised us that it purchased the notes in the ordinary course of
business and, at the time of the purchase of the notes, had no agreements
or understandings directly or indirectly with any person to distribute the
notes or the underlying shares of class B common stock.
(6) This selling securityholder is a registered broker-dealer and therefore is
an "underwriter" within the meaning of Section 2(11) of the Securities
Act.
(7) DKR Capital Partners L.P. ("DKR LP") is a registered investment adviser
with the SEC and, as such, is the investment manager to this entity (the
"Fund"). DKR LP has retained certain portfolio managers to act as the
portfolio manager to the Fund managed by DKR LP. As such, DKR LP and
certain portfolio managers have shared dispositive and voting power over
the securities. DKR Capital Partners LP is located at 1281 East Main
Street, Stamford, Connecticut 06902.
19.
'(8) Amaranth Advisors L.L.C. is the managing member of Amaranth L.L.C.
Nicholas M. Maounis is the managing member of Amaranth Advisors L.L.C. Mr.
Maounis expressly disclaims equitable ownership of and pecuniary interest
in any of the securities listed hereunder of the Issuer.
(9) CooperNeff Advisors, Inc. ("CNA") exercises dispositive power of the
securities held by this entity pursuant to an investment management
agreement. The ultimate beneficial owner of CNA is BNP Parabas S.A.
(10) SSI Investment management is the controlling person of this entity.
Principal shareholders of SSI Investment Management are John Gottfurcht,
George Douglas and Amy Jo Gottfurcht.
(11) CooperNeff (Cayman) Ltd. is the sole general partner of Cooperneff
Convertible Strategies (Cayman) Master Fund, L.P.
(12) DBAG London is a wholly-owned subsidiary of Deutsche Bank Securities,
Inc., a registered broker-dealer.
(13) TQA Investors L.L.C. is the controlling person of this entity. The members
and managers of TQA Investors, L.L.C. are Robert Butman, John Idone, Paul
Bucci, George Esser and Bartholomew Tesoriero.
(14) Silverton Management Company is the general partner of Polaris Vega Fund,
L.P. and Gregory Levinson has voting and dispositive power over the
securities.
(15) Dawn General Partner Corp. is the general partner of Sunrise Partners
Limited Partnership. S. Donald Sussman has voting and dispositive power
over the securities.
(16) Hamilton Investment Management GP, LLC ("Hamilton") is the controlling
person of this entity. The members of Hamilton are Michael Knox, Neil
Kennedy, Evan Zimmerman, James Wohlmacher, Sandra Satz, James McNeil,
Jeffrey Sawyer, William Moore and Geoffrey Cragin.
(17) CNH Partners, LLC ("CNH") is the controlling person of this entity. The
members of CNH are AQR Capital Management, LLC ("ACQ") and Raim, LLC
("Raim"). The members of AQR are Clifford Assness, David Kabiller, Robert
Krail and John Liew. The members of Raim are Mark Mitchell and Todd
Pulvino.
(18) Duquesne Capital Management, LLC ("Duquesne") is the controlling person of
this entity. The members of Duquesne are Adison Fischer and Stanley
Druckenmiller.
(19) DKR LP is the investment manager to this entity (the "Fund"). DKR LP has
retained has retained Basso Securities to act as the portfolio manager to
the Fund. Accordingly, DKR LP and Basso Securities have shared dispositive
and voting power over the securities. Howard Fischer is president of Basso
Securities.
(20) Silvercreek Management Inc. is the controlling person of this entity. The
sole stockholders of Silvercreek Management Inc. are Bryn Joynt and Louise
Morowick.
(21) Citigroup Global Markets Ltd. is a wholly-owned subsidiary of Citigroup
Inc.
(22) Citigroup Global Markets Ltd. or its affiliates may from time to time make
markets or take principal positions in the Company's debt and equity
securities.
(23) David Clott is the controlling person of this entity.
(24) John A. Levin & Co., Inc. ("JAL") or its wholly-owned subsidiary, Levco
GP, Inc. exercises sole or shared voting or dispositive power over the
securities. JAL is a wholly-owned subsidiary of BKF Capital Group, a
company that is publicly traded on the New York Stock Exchange.
Only selling securityholders identified above who beneficially own the
securities set forth opposite each such selling securityholders's name in the
foregoing table on the effective date of the registration statement of which
this prospectus forms a part may sell such securities under the registration
statement. Prior to any use of this prospectus in connection with an offering of
the notes and/or the underlying common stock by any holder not identified above,
this prospectus will be supplemented (if those notes and the underlying common
stock were previously listed above as being owned by a holder identified above
and being offered by that identified holder), or the registration statement of
which this prospectus is a part will be amended (if those notes and the
underlying common stock were not so previously listed), as permitted by
applicable SEC rules and regulations, to set forth the name and other
information about the holder intending to sell such notes and/or underlying
common stock. The prospectus supplement or post-effective amendment, as
applicable, will also disclose whether any selling securityholder selling in
connection therewith has held any position or office with, been employed by or
otherwise has had a material relationship with, us or any of our affiliates
during the three years prior to the date of the prospectus supplement or
post-effective amendment, as applicable, if such information has not been
disclosed in this prospectus.
20.
PLAN OF DISTRIBUTION
We will not receive any of the proceeds of the sale of the notes and the
underlying class B common stock offered by this prospectus. The selling
securityholders and their successors, which includes their pledgees, donees,
partnership distributees, other transferees receiving the notes or class B
common stock from the selling securityholders in non-sale transfers, may sell
the notes and the class B common stock underlying the notes directly to
purchasers or through underwriters, broker-dealers or agents. Underwriters,
broker-dealers or agents may receive compensation in the form of discounts,
concessions or commissions from the selling securityholders or the purchasers.
These discounts, concessions or commissions may be in excess of those customary
in the types of transactions involved.
The notes and the class B common stock underlying the notes may be sold in
one or more transactions:
- at fixed prices;
- at prevailing market prices at the time of sale;
- at varying prices determined at the time of sale; or
- at negotiated prices.
These sales may be effected in transactions, which may involve block
transactions, in the following manner:
- on any national securities exchange or quotation service on which
the notes or the class B common stock may be listed or quoted at the
time of sale;
- in the over-the-counter-market;
- in transactions other than on these exchanges or services or in the
over-the-counter market; or
- through the writing and exercise of options, whether these options
are listed on an options exchange or otherwise.
Selling securityholders may enter into hedging transactions with
broker-dealers or other financial institutions, which may in turn engage in
short sales of the notes or the class B common stock underlying the notes and
deliver these securities to close out short positions, short and deliver the
notes and class B common stock underlying the notes to close out short
positions, or loan or pledge the notes or the class B common stock underlying
the notes to broker-dealers that in turn may sell these securities.
The aggregate proceeds to the selling securityholders from the sale of the
notes or class B common stock underlying the notes will be the purchase price of
the notes or class B common stock less any discounts and commissions. A selling
securityholder reserves the right to accept and, together with their agents, to
reject (except when we decide to redeem the notes in accordance with the terms
of the indenture), any proposed purchase of notes or class B common stock to be
made directly or through agents.
In order to comply with the securities laws of some jurisdictions, if
applicable, the holders of notes and the class B common stock underlying the
notes may sell in some jurisdictions through registered or licensed broker
dealers.
Our outstanding class B common stock is listed for trading on the New York
Stock Exchange. Upon their initial issuance, the notes were eligible for trading
in the PORTAL system. However, the notes sold using this prospectus will not be
eligible for trading in the PORTAL system and we cannot assure you about the
liquidity of or the development of any trading market for the notes. We do not
intend to list the notes for trading on any automated interdealer quotation
system or national securities exchange.
21.
The selling securityholders and any underwriters, broker-dealers or agents
that participate in the sale of the notes and class B common stock underlying
the notes may be "underwriters" within the meaning of Section 2(11) of the
Securities Act. See "Selling Securityholders" for information on which selling
securityholders are broker-dealers and deemed "underwriters." Any discounts,
commissions, concessions or profit they earn on any resale of the notes or the
shares of the class B common stock underlying the notes may be underwriting
discounts and commissions under the Securities Act. Selling securityholders who
are "underwriters" within the meaning of Section 2(11) of the Securities Act
will be subject to the prospectus delivery requirements of the Securities Act.
In addition, Regulation M under the Securities Act may restrict the
ability of any person engaged in the distribution of the notes and the
underlying common stock to engage in market-making activities with respect to
the particular notes and the underlying class B common stock being distributed
for a period of up to five business days before the commencement of such
distribution. This may affect the marketability of the notes and the underlying
class B common stock and the ability of any person or entity to engage in
market-making activities with respect to the notes and the underlying class B
common stock.
The selling securityholders have acknowledged that they understand their
obligations to comply with the provisions of the Exchange Act and the rules
thereunder relating to stock manipulation, particularly Regulation M, and have
agreed that they will not engage in any transaction in violation of such
provisions. The selling securityholders have also agreed to comply with the
prospectus delivery requirements of the Securities Act, if any.
In addition, any securities covered by this prospectus that qualify for
sale pursuant to Rule 144 or Rule 144A under the Securities Act may be sold
under Rule 144 or Rule 144A rather than pursuant to this prospectus. Each
selling securityholder has represented that it will not sell any notes or any
class B common stock pursuant to this prospectus except as described in this
prospectus.
If required, the specific notes or the class B common stock to be sold,
the names of the selling securityholders, the respective purchase prices and
public offering prices, the names of any agent, dealer or underwriter, and any
applicable commissions or discounts with respect to a particular offer will be
set forth in an accompanying prospectus supplement or, if appropriate, a
post-effective amendment to the registration statement of which this prospectus
is a part.
We entered into a registration rights agreement for the benefit of the
holders of the notes. Pursuant to this registration rights agreement, we agreed
to register the notes and the class B common stock underlying the notes with the
SEC under specific circumstances and specific times. In addition, the selling
securityholders and we have agreed to indemnify each other and our respective
directors, officers and controlling persons against, and in certain
circumstances to provide contribution with respect to, specific liabilities in
connection with the offer and sale of the notes and the class B common stock,
including liabilities under the Securities Act. We will pay substantially all of
the expenses incident to the registration of the notes and the class B common
stock underlying the notes, except that the selling securityholders will pay all
brokers' commissions and, in connection with an underwritten offering,
underwriting discounts and commissions.
22.
DESCRIPTION OF THE NOTES
We issued the notes under an indenture, dated as of July 30, 2003, between
us, as issuer, and U.S. Bank National Association, as trustee. The notes
constitute senior debt securities under the indenture. In addition, Holdings
entered into a guarantee and exchange Agreement with the trustee, pursuant to
which Holdings fully and unconditionally guaranteed the performance and full and
punctual payment when due of our obligations under the indenture and agreed to
issue shares of class B common stock upon exchange of the notes. The following
summarizes the material provisions of the indenture, the notes and the guarantee
and exchange agreement. The following description does not purport to be
complete and is subject to, and qualified by reference to, all of the provisions
of the indenture, the notes, the form of note and the guarantee and exchange
agreement, which we urge you to read because they, and not this description,
define your rights as a noteholder. A copy of the indenture, the form of note
and the guarantee and exchange agreement are filed as exhibits to the
registration statement, of which this prospectus is a part. As used in this
description of the notes, the words "we," "us," "our," or the "Airline" refer
only to America West Airlines, Inc. and do not include any current or future
subsidiary of America West Airlines, Inc., and references to "Holdings" refer
only to America West Holdings Corporation and do not include any current or
future subsidiary of America West Holdings Corporation.
GENERAL
The notes are limited to $252,695,000 aggregate principal amount at
maturity. The notes will mature on July 30, 2023. The principal amount at
maturity of each note will be $1,000. The notes are payable at the principal
corporate trust office of the paying agent, which initially will be an office or
agency of the trustee, or an office or agency maintained by us for such purpose,
in the Borough of Manhattan, The City of New York.
The notes bear cash interest at the rate of 2.4912% per year on the
principal amount at maturity from July 30, 2003 until July 30, 2008. During such
period, cash interest is payable semi annually in arrears on January 30 and July
30 of each year, commencing on January 30, 2004, to holders of record at the
close of business on January 15 or July 15 immediately preceding such interest
payment date. Each payment of cash interest on the notes will include interest
accrued through the day before the applicable interest payment date (or
purchase, redemption or, in certain circumstances, exchange date, as the case
may be). Any payment required to be made on any day that is not a business day
will be made on the next succeeding business day.
The notes were offered at a substantial discount from their $1,000
principal amount at maturity. The notes were issued at an issue price of $343.61
per note. Beginning July 30, 2008, the notes will accrue original issue discount
while they remain outstanding at a rate of 7.25% per year. Original issue
discount is the difference between the issue price and the principal amount (or
stated redemption price for U.S. federal income tax purposes) at maturity of a
note. The calculation of the accrual of original issue discount will be on a
semi annual bond equivalent basis, using a 360-day year composed of twelve
30-day months. When we refer to original issue discount in this prospectus, we
are referring to the original issue discount that economically accrues beginning
July 30, 2008, unless we specifically refer to original issue discount for U.S.
federal income tax purposes. For U.S. federal income tax purposes, the stated
redemption price at maturity of the notes will include the semi annual cash
interest payments payable through July 30, 2008 and original issue discount will
accrue at a constant rate of 7.25% per year, calculated on a semi annual bond
equivalent basis throughout the term of the notes from July 30, 2008. Thus,
holders are required to accrue the cash interest as original issue discount
regardless of their method of tax accounting but will not recognize any income
when such interest is actually paid. See "Certain United States Federal Income
Tax Considerations - U.S. Holders - Original Issue Discount."
Original issue discount or cash interest, as the case may be, will cease
to accrue on a note upon its maturity, exchange, purchase by us at the option of
a holder or redemption. We may not reissue a note that has matured or been
exchanged, purchased by us at your option, redeemed or otherwise cancelled,
except for registration of transfer, exchange or replacement of such note.
Notes may be presented for exchange at the office of the exchange agent
and for registration of transfer at the office of the registrar. The exchange
agent, paying agent and the registrar shall initially be the trustee. We may
change paying agent or registrar without prior notice to the holders of the
notes, and Holdings may change the exchange agent without prior notice to the
holders of the notes and we or any of our subsidiaries may act as
23.
exchange agent, paying agent or registrar. No service charge will be made for
any registration of transfer or exchange of notes. However, Holdings may require
the holder to pay any tax, assessment or other governmental charge payable as a
result of such transfer or exchange.
The indenture does not limit the amount of indebtedness or securities that
may be issued by us or any of our subsidiaries. The indenture does not contain
any financial covenants or restrictions on the payment of dividends, the
incurrence of senior debt or the repurchase of our securities (other than the
notes). The indenture contains no covenants or other provisions to afford
protection to holders of notes in the event of a highly leveraged transaction or
a change of control except to the extent described under " - Change of Control
Permits Purchase of Notes by the Airline at the Option of the Holder."
METHODS OF RECEIVING PAYMENTS ON THE NOTES
Each installment of semi annual interest on any note shall be paid in
same-day funds by transfer to an account maintained by the payee located inside
the United States, if the trustee shall have received proper wire transfer
instructions from such payee not later than the related record date or, if no
such instructions have been received, by check drawn on a bank in New York City
mailed to the payee at its address set forth on the registrar's books.
RANKING OF THE NOTES
The notes are senior unsecured obligations and rank equal in right of
payment to all of our other senior unsecured and unsubordinated indebtedness.
The notes are effectively subordinated to our secured indebtedness to the extent
of the security. At September 30, 2003, the Airline had $795.0 million of
indebtedness outstanding of which $124.9 million was secured by substantially
all of our owned aircraft, spare engines and rotable aircraft parts inventory
and a maintenance facility. All liabilities of any subsidiaries of the Airline
are effectively senior in right of payment to the notes, except to the extent
any such subsidiary is a guarantor. As of January 21, 2004, the Airline had no
subsidiaries. See "Risk Factors - Your right to receive payments on these notes
is effectively subordinated to the rights of the Airline's and Holdings'
existing and future secured creditors."
GUARANTEES
Holdings unconditionally guarantees the performance and full and punctual
payment when due, whether at stated maturity or otherwise, of all our
obligations under the indenture (including obligations to the trustee) and the
notes, whether for payment of principal of or interest on or any additional
amounts in respect of the notes, expenses, indemnification or otherwise. In
addition, each domestic subsidiary of Holdings or the Airline, including any
person that becomes a domestic subsidiary of Holdings or the Airline after the
date of the indenture, is a guarantor under the indenture for so long as such
subsidiary is a guarantor of any other indebtedness of the Airline or Holdings.
The guarantors jointly and severally guarantee our obligations under the
notes on a senior unsecured basis. Each guarantee of a guarantor is equal in
right of payment to all existing and future unsecured and unsubordinated
indebtedness of such guarantor. Each such guarantee is effectively subordinated
to the guarantor's secured indebtedness to the extent of the security and is
effectively subordinated in right of payment to all liabilities of the
subsidiaries of the guarantor, except to the extent such subsidiary is also a
guarantor. As of September 30, 2003, Holdings had $795.0 million of indebtedness
outstanding on a consolidated basis, of which $124.9 million was secured by the
assets of the Airline.
The obligation of each guarantor under its guarantee is limited in amount
to an amount not to exceed the maximum amount that can be guaranteed by such
guarantor without rendering the guarantee voidable under applicable law relating
to fraudulent conveyance or fraudulent transfer or similar laws affecting the
rights of creditors generally.
The indenture provides that so long as no default exists or would exist,
the guarantee issued by any guarantor other than Holdings shall be automatically
and unconditionally released and discharged upon any sale to any person that is
not affiliated with us of all of the capital stock of such guarantor owned,
directly or indirectly, by Holdings or the Airline if such transaction is
otherwise in compliance with the indenture. The indenture also
24.
provides that a subsidiary will only be required to guarantee the notes until
such time as such subsidiary no longer guarantees any of indebtedness of
Holdings or Airline (other than the notes), at which time such guarantee by such
subsidiary will be released and discharged. If, however, such subsidiary
subsequently guarantees any indebtedness of Holdings or the Airline (other than
the notes), the guarantee by such subsidiary will be reinstated.
EXCHANGE RIGHTS
A holder may exchange a note, in multiples of $1,000 principal amount at
maturity, into class B common stock of Holdings only if at least one of the
conditions described below is satisfied. In addition, a holder may exchange a
note only until the close of business on the second business day prior to the
redemption date if we call a note for redemption. A note for which a holder has
delivered a purchase notice or a change of control purchase notice requiring us
to purchase the note may be surrendered for exchange only if such notice is
withdrawn in accordance with the indenture.
The initial exchange rate is 32.038 shares of class B common stock per
note, subject to adjustment upon the occurrence of certain events described
below. A holder of a note otherwise entitled to a fractional share will receive
cash equal to the applicable portion of the then current sale price of the class
B common stock on the trading day immediately preceding the exchange date. Upon
an exchange, we will have the right to deliver cash in lieu of the delivery of
class B common stock by Holdings. The ability to surrender notes for exchange
will expire at the close of business on July 30, 2023.
To exchange a note into shares of class B common stock, a holder must:
- complete and manually sign an exchange notice, a form of which is on
the back of the note, and deliver the exchange notice to the exchange
agent;
- surrender the note to the exchange agent;
- if required by the exchange agent, furnish appropriate endorsements
and transfer documents; and
- if required, pay all transfer or similar taxes.
Upon exchange of a note, a holder will not receive any cash payment of
interest representing accrued original issue discount or, except as described
below, accrued cash interest. Delivery to the holder of the full number of
shares of class B common stock into which the note is exchangeable, together
with any cash payment of such holder's fractional shares, will be deemed:
- to satisfy our obligation to pay the principal amount at maturity of
the note; and
- to satisfy our obligation to pay accrued original issue discount or
accrued cash interest attributable to the period from the issue date
through the exchange date.
As a result, accrued original issue discount or accrued cash interest is
deemed paid in full rather than cancelled, extinguished or forfeited.
Notwithstanding the foregoing, accrued cash interest, if any, will be payable
upon any exchange of notes at the option of the holder made concurrently with or
after acceleration of the notes following an event of default described under "
- - Events of Default and Acceleration" below. Holders of notes surrendered for
exchange during the period from the close of business on any regular record date
next preceding any interest payment date to the opening of business of such
interest payment date will receive the semi annual interest payable on such
notes on the corresponding interest payment date notwithstanding the exchange
and such notes (except notes called for redemption) upon surrender must be
accompanied by funds equal to the amount of semi annual interest payable on the
principal amount at maturity of notes so exchanged.
The exchange rate will not be adjusted for accrued original issue discount
or accrued cash interest. A certificate for the number of full shares of class B
common stock into which any note is exchanged, together with any cash payment
for fractional shares, will be delivered through the exchange agent as soon as
practicable following the exchange date. For a discussion of the tax treatment
of a holder receiving shares of class B common
25.
stock upon surrendering notes for exchange, see "Certain United States Federal
Income Tax Considerations - U.S. Holders - Exchange, Sale, Redemption and other
Disposition of Notes."
In lieu of delivery by Holdings of class B common stock upon notice of
exchange of any notes , we may elect to pay holders surrendering notes an amount
in cash per note equal to the average sale price of class B common stock for the
five consecutive trading days immediately following either (a) the date of our
notice of our election to deliver cash as described below, if we have not given
notice of redemption, or (b) the exchange date, in the case of exchange
following our notice of redemption specifying that we intend to deliver cash
upon exchange, in either case multiplied by the exchange rate in effect on that
date. We will inform the holders through the trustee no later than two business
days following the exchange date of our election to pay cash in lieu of delivery
of the shares by Holdings, unless we have already informed holders of our
election in connection with our optional redemption of the notes as described
under " - Redemption of Notes at Our Option." If we elect not to deliver any
cash, the shares will be delivered through the exchange agent no later than the
fifth business day following the exchange date. If we elect to pay such payment
in cash, the payment will be made to holders surrendering notes no later than
the tenth business day following the applicable exchange date. If an event of
default, as described under " - Events of Default and Acceleration" below (other
than a default in a cash payment upon exchange of the notes), has occurred and
is continuing, the indenture will not permit us to pay cash upon exchange of any
notes or portion of a note (other than cash for fractional shares).
If Holdings is unable to deliver shares of class B common stock upon
notice of exchange of any notes (for all or any portion of the notes) for any
reason, including, without limitation, Holdings' failure to deliver or make such
shares available to the trustee, we will pay the holders surrendering notes an
amount in cash per note (or a portion of a note) calculated in the manner
described in the immediately preceding paragraph as if we had elected to deliver
cash upon exchange.
For a discussion of the tax treatment of a holder receiving shares of
class B common stock upon surrendering the notes for exchange, see "Certain
United States Federal Income Tax Considerations - U.S. Holders - Exchange, Sale,
Redemption and other Disposition of Notes."
Holdings will adjust the exchange rate for:
(1) dividends or distributions on class B common stock payable in
class B common stock or other capital stock of Holdings;
(2) subdivisions, combinations or certain
reclassifications of class B common stock;
(3) distributions to all holders of class B common stock of certain
rights to purchase class B common stock for a period expiring within 60
days of issuance at less than the then current sale price; and
(4) distributions to the holders of class B common stock of a
portion of the assets of Holdings (including shares of capital stock, or
similar equity interests in, of a subsidiary) or debt securities issued by
us or certain rights to purchase our securities or the securities of
Holdings (excluding cash dividends or other cash distributions from
current or retained earnings unless the annualized amount thereof per
share exceeds 5% of the sale price of the class B common stock on the day
preceding the date of declaration of such dividend or other distribution).
However, no adjustment to the exchange rate need be made if holders of the
notes may participate in the transaction without exchange or in certain other
cases.
In the event that Holdings pays a dividend or makes a distribution on
shares of its class B common stock consisting of capital stock of, or similar
equity interests in, a subsidiary or other business unit of Holdings, the
exchange rate will be adjusted based on the market value of the securities so
distributed relative to the market value of the class B common stock, in each
case based on the average closing prices of those securities for the 10 trading
days commencing on and including the fifth trading day after the date on which
"ex-dividend trading" commences for such dividend or distribution on the
principal U.S. securities exchange or market on which the securities are then
listed or quoted.
26.
In the event that Holdings elects to make a distribution to all holders of
shares of its class B common stock pursuant to clause (3) or clause (4) of the
third preceding paragraph, which, in the case of clause (4), has a per share
value equal to more than 15% of the sale price of the shares of class B common
stock on the day preceding the declaration date for such distribution, Holdings
will be required to give notice to the holders of notes at least 20 days prior
to the date for such distribution and, upon the giving of such notice, the notes
may be surrendered for exchange at any time until the close of business on the
business day prior to the date of distribution or until Holdings announces that
such distribution will not take place.
In addition, the indenture provides that upon exchange of the notes, the
holders of such notes will receive, in addition to the shares of class B common
stock issuable upon such exchange, the rights related to such class B common
stock pursuant to any future shareholder rights plan, whether or not such rights
have separated from the class B common stock at the time of such exchange.
However, there shall not be any adjustment to the exchange privilege or exchange
rate as a result of:
- the issuance of the rights;
- the distribution of separate certificates representing the rights;
- the exercise or redemption of such rights in accordance with any
rights agreement; or
- the termination or invalidation of the rights.
The indenture permits us to increase the exchange rate from time to time.
If Holdings is a party to a consolidation, merger or binding share
exchange or a transfer of all or substantially all of its assets, the right to
exchange a note into class B common stock may be changed into a right to
exchange it into the kind and amount of securities, cash or other assets of
Holdings or another person which the holder would have received if the holder
had exchanged the holder's note immediately prior to the transaction.
The exchange agent will, on Holding's behalf, determine if the notes are
exchangeable and notify the trustee and us accordingly. If one or more of the
conditions to the exchange of the notes has been satisfied, Holdings will
promptly notify the holders of the notes thereof and use its reasonable best
efforts to post this information on its website or otherwise publicly disclose
this information.
Exchange Based on Class B Common Stock Price. Holders may surrender notes
for exchange into shares of class B common stock in any fiscal quarter
commencing after September 30, 2003 if, as of the last day of the preceding
fiscal quarter, the sale price of the class B common stock for at least 20
trading days in a period of 30 consecutive trading days ending on the last
trading day of such preceding fiscal quarter is more than 110% of the accreted
exchange price per share of class B common stock on the last day of such
preceding fiscal quarter. If the foregoing condition is satisfied, then the
notes will be exchangeable at any time at the option of the holder, through
maturity. Upon an exchange, we will have the right to deliver cash in lieu of
delivery of class B common stock by Holdings, for all or a portion of the
exchanged notes as described above.
The accreted exchange price per share as of any day will equal the issue
price of a note plus the accrued original issue discount to that day, divided by
the number of shares of class B common stock issuable upon exchange of a note on
that day. The sale price of the class B common stock on any trading day means
the closing per share sale price (or if no closing sale price is reported, the
average of the bid and ask prices or, if more than one in either case, the
average of the average bid and the average ask prices) on such date on the
principal national securities exchange on which the class B common stock is
listed or, if the class B common stock is not listed on a national securities
exchange, as reported by the New York Stock Exchange or otherwise as provided in
the indenture.
The exchange trigger price per share of class B common stock in respect of
each of the first 20 fiscal quarters following issuance of the notes is $11.80.
This exchange trigger price reflects the accreted exchange price per share of
class B common stock multiplied by 110%. Thereafter, the accreted exchange price
per share of class B common stock increases each fiscal quarter by the accreted
original issue discount for the quarter. The exchange
27.
trigger price per share for the fiscal quarter beginning July 1, 2023 is $34.13.
The foregoing exchange trigger prices assume that no events have occurred that
would require an adjustment to the exchange rate.
Exchange Based on Trading Price of the Notes. On or before July 30, 2018,
a holder also may exchange its notes into shares of class B common stock of
Holdings at any time after a 10 consecutive trading-day period in which the
average of the trading prices for the notes for that 10 trading-day period was
less than 103% of the average exchange value for the notes during that period.
The exchange value of a note is equal to the product of the closing sale
price of class B common stock on a given day multiplied by the then current
exchange rate, which is the number of shares of class B common stock into which
each note is then exchangeable. The trading price of the notes on any date of
determination is the average of the secondary market bid quotations per note
obtained by us or the calculation agent for $2,500,000 principal amount of notes
at approximately 3:30 p.m., New York City time, on such determination date from
two independent nationally recognized securities dealers we select, provided
that if at least two such bids cannot reasonably be obtained by Holdings or the
calculation agent, but one such bid is obtained, then this one bid shall be
used.
Exchange Based on Redemption. A holder may surrender for exchange a note
called for redemption at any time prior to the close of business on the second
business day immediately preceding the redemption date, even if it is not
otherwise exchangeable at such time. A note for which a holder has delivered a
purchase notice or a change of control purchase notice, as described below,
requiring us to purchase such note may be surrendered for exchange only if such
notice is withdrawn in accordance with the indenture.
A "business day" is any weekday that is not a day on which banking
institutions in The City of New York are authorized or obligated to close. A
"trading day" is any day on which the New York Stock Exchange is open for
trading or, if the applicable security is quoted on the Nasdaq National Market,
a day on which trades may be made on such market or, if the applicable security
is not so listed, admitted for trading or quoted any business day.
Exchange upon Occurrence of Certain Corporate Transactions. If Holdings is
a party to a consolidation, merger or binding share exchange or a transfer of
all or substantially all of its assets, a note may be surrendered for exchange
at any time from and after the date which is 15 days prior to the anticipated
effective date of the transaction until 15 days after the actual effective date
of such transaction, and at the effective date, the right to exchange a note
into class B common stock will be changed into a right to exchange it into the
kind and amount of securities, cash or other assets of Holdings or another
person which the holder would have received if the holder had exchanged the
holder's notes immediately prior to the transaction. If such transaction also
constitutes a change of control of Holdings or the Airline, the holder will be
able to require us to purchase all or a portion of such holder's notes as
described under " - Change of Control Permits Purchase of Notes by the Airline
at the Option of the Holder."
The notes are exchangeable upon the occurrence of certain distributions
resulting in an adjustment to the exchange price as described above.
REDEMPTION OF NOTES AT OUR OPTION
No sinking fund is provided for the notes. Prior to July 30, 2008, we
cannot redeem the notes at our option. Beginning on July 30, 2008, we may redeem
the notes for cash, as a whole at any time or from time to time in part. We will
give not less than 30 days' or more than 60 days' notice of redemption by mail
to holders of notes.
If redeemed at our option, the notes will be redeemed at a price equal to
the sum of the issue price plus accrued original issue discount and accrued cash
interest, if any, on such notes to the applicable redemption date. The table
below shows the redemption prices of a note on July 30, 2008, on each July 30
thereafter prior to maturity and at maturity on July 30, 2023. In addition, the
redemption price of a note that is redeemed between the dates listed below would
include an additional amount reflecting the additional accrued original issue
discount that has accrued on such note since the immediately preceding date in
the table below.
28.
(2)
(1) ACCRUED
NOTE ORIGINAL (3)
ISSUE ISSUE REDEMPTION
REDEMPTION DATE PRICE DISCOUNT PRICE (1) +(2)
- --------------- ----- -------- --------------
2008 ............................... 343.61 $ 0.00 $ 343.61
2009 ............................... 343.61 25.36 368.97
2010 ............................... 343.61 52.60 396.21
2011 ............................... 343.61 81.84 425.45
2012 ............................... 343.61 113.25 456.86
2013 ............................... 343.61 146.97 490.58
2014 ............................... 343.61 183.18 526.79
2015 ............................... 343.61 222.07 565.68
2016 ............................... 343.61 263.82 607.43
2017 ............................... 343.61 308.66 652.27
2018 ............................... 343.61 356.80 700.41
2019 ............................... 343.61 408.50 752.11
2020 ............................... 343.61 464.02 807.63
2021................................ 343.61 523.64 867.25
2022 ............................... 343.61 587.65 931.26
At stated maturity ................. 343.61 656.39 1,000.00
If we convert the notes to semi annual coupon notes following the
occurrence of a tax event, the notes will be redeemable at the restated
principal amount plus accrued and unpaid interest from the date of the
conversion through the redemption date. However, in no event may the notes be
redeemed prior to July 30, 2008. For more information on this optional
conversion, see "Optional Conversion to Semi annual Coupon Notes upon Tax
Event."
If less than all of the outstanding notes are to be redeemed, the trustee
will select the notes to be redeemed in principal amounts at maturity of $1,000
or integral multiples of $1,000. In this case, the trustee may select the notes
by lot, pro rata or by any other method the trustee considers fair and
appropriate. If a portion of a holder's notes is selected for partial redemption
and the holder exchanges a portion of the notes, the exchanged portion will be
deemed to be the portion selected for redemption.
PURCHASE OF NOTES AT THE OPTION OF THE HOLDER
On the purchase dates of July 30, 2008, July 30, 2013 and July 30, 2018,
we may, at the option of the holder, be required to purchase, at the purchase
price set forth below plus accrued cash interest, if any, to the purchase date,
any outstanding note for which a written purchase notice has been properly
delivered by the holder and not withdrawn, subject to certain additional
conditions. Holders may submit their written purchase notice to the paying agent
at any time from the opening of business on the date that is 20 business days
prior to such purchase date until the close of business on the second business
day immediately preceding such purchase date.
The purchase price of a note will be:
- $343.61 per note on July 30, 2008;
- $490.58 per note on July 30, 2013; and
- $700.41 per note on July 30, 2018.
The above purchase prices reflect a price equal to the sum of the issue
price and accrued original issue discount, if any, on such notes as of the
applicable purchase date.
29.
Holdings may, at its option, elect to deliver shares of class B common
stock to satisfy all or a portion of the purchase price.
If prior to a purchase date the notes have been converted to semi annual
coupon notes following the occurrence of a tax event, the purchase price will be
equal to the restated principal amount plus accrued and unpaid cash interest
from the date of the conversion to the purchase date. For more information on
this optional conversion, see " - Optional Conversion to Semi Annual Coupon
Notes upon Tax Event."
We will be required to give notice on a date not less than 20 business
days prior to each purchase date to all holders at their addresses shown in the
register of the registrar, and to beneficial owners as required by applicable
law, stating among other things:
- the amount of the purchase price;
- whether Holdings has elected to deliver shares of class B common stock
to satisfy all or a portion of the purchase price, specifying the
percentages of being satisfied in class B common stock;
- if Holdings elects to deliver class B common stock, the calculation of
the market price of the class B common stock; and
- the procedures that holders must follow to require us to purchase
their notes.
The purchase notice given by each holder electing to require us to
purchase notes shall state:
- the certificate numbers of the holder's notes to be delivered for
purchase;
- the portion of the principal amount at maturity of notes to be
purchased, which must be $1,000 or an integral multiple of $1,000;
- that the notes are to be purchased by us pursuant to the applicable
provisions of the notes; and
- in the event Holdings elects, pursuant to the notice that we are
required to give, to deliver class B common stock, in full or in
partial satisfaction of the purchase price, but the purchase price is
ultimately to be paid to the holder entirely in cash because any of
the conditions to payment of the purchase price or portion of the
purchase price in class B common stock is not satisfied prior to the
close of business on the purchase date, as described below, whether
the holder elects:
- to withdraw the purchase notice as to some or all of the notes to
which it relates; or
- to receive cash in respect of the entire purchase price for all notes
or portions of notes subject to such purchase notice.
If the purchase price for the notes subject to the purchase notice is
ultimately to be paid to a holder entirely in cash because Holdings has not
satisfied one or more of the conditions to payment of the purchase price in
class B common stock prior to the close of business on the purchase date, a
holder shall be deemed to have elected to receive cash in respect of the entire
purchase price for all such notes unless such holder has properly notified us of
its election to withdraw the purchase notice.
Any purchase notice may be withdrawn by the holder by a written notice of
withdrawal delivered to the paying agent prior to the close of business on the
second business day prior to the purchase date.
The notice of withdrawal shall state:
- the principal amount at maturity being withdrawn;
- the certificate numbers of the notes being withdrawn; and
- the principal amount at maturity, if any, of the notes that remain
subject to the purchase notice.
30.
If Holdings elects to deliver, in full or in partial satisfaction at the
purchase price, shares of its class B common stock, the number of such shares it
delivers shall be equal to the portion of the purchase price to be paid in class
B common stock divided by the market price of a share of class B common stock.
Holdings will pay cash in lieu of, and based on the market price, for all
fractional shares of class B common stock in the event it elects to deliver
class B common stock in payment, in whole or in part, of the purchase price.
The "market price" of the class B common stock of Holdings shall be an
amount equal to the average of the closing sale prices of the class B common
stock for the five-trading-day period ending on and including the third business
day prior to the applicable purchase date, or, if such business day is not a
trading day, then on the last trading day prior to such business day,
appropriately adjusted to take into account any occurrence that would result in
an adjustment of the exchange rate with respect to the class B common stock. See
" - Exchange Rights" for a description of the manner in which the sale price of
the class B common stock is determined.
Because the market price of the class B common stock is determined prior
to the applicable purchase date, holders of notes bear the market risk with
respect to the value of the class B common stock to be received from the date
such market price is determined to such purchase date. Holdings may pay the
purchase price or any portion of the purchase price in class B common stock only
if the information necessary to calculate the market price is published in a
daily newspaper of national circulation.
Upon determination of the actual number of shares of class B common stock
in accordance with the foregoing provisions, Holdings will promptly issue a
press release and publish such information on its website.
Holdings' right to deliver, in full or in partial satisfaction of the
purchase price, class B common stock is subject to its satisfying various
conditions, including:
- listing the class B common stock on the principal U.S. securities
exchange on which the class B common stock is then listed or, if not
so listed, the Nasdaq National Market;
- the registration of the class B common stock under the Securities Act
and the Exchange Act, if required; and
- any necessary qualification or registration under applicable state
securities law or the availability of an exemption from such
qualification and registration.
If such conditions are not satisfied with respect to a holder prior to the
close of business on the purchase date, we will pay the purchase price of the
notes of the holder entirely in cash. Holdings may not change the form or
components or percentages of components of consideration to be paid for the
notes once we have given the notice that we are required to give to holders of
notes, except as described in the first sentence of this paragraph.
In connection with any purchase offer, we will:
- comply with the provisions of Rule 13e-4, Rule 14e-1 and any other
tender offer rules under the Exchange Act which may then be
applicable; and
- file Schedule TO or any other required schedule under the Exchange
Act.
Payment of the purchase price for a note for which a purchase notice has
been delivered and not validly withdrawn is conditioned upon book-entry transfer
or delivery of the note, together with necessary endorsements, to the paying
agent at any time after delivery of the purchase notice. Payment of the purchase
price for the note will be made as soon as practicable following the later of
the purchase date or the time of delivery of the note.
If the paying agent holds money or securities sufficient to pay the
purchase price of the note on the business day following the purchase date in
accordance with the terms of the indenture, then, immediately after the purchase
date, the note will cease to be outstanding and cash interest or original issue
discount on such note will cease to accrue, whether or not the note is delivered
to the paying agent. Thereafter, all other rights of the holder shall terminate,
other than the right to receive the purchase price upon delivery of the note.
31.
No notes may be purchased for cash at the option of holders if there has
occurred and is continuing an event of default with respect to the notes, other
than a default in the payment of the purchase price with respect to such notes.
CHANGE OF CONTROL PERMITS PURCHASE OF NOTES BY THE AIRLINE AT THE OPTION OF THE
HOLDER
In the event of a change of control of Holdings or the Airline, each
holder will have the right, at the holder's option, subject to the terms and
conditions of the indenture, to require us to purchase for cash all or any
portion of such holder's notes. However, the principal amount at maturity
submitted for purchase by a holder must be $1,000 or an integral multiple of
$1,000.
We will be required to purchase the notes as of a date no later than 30
business days after the occurrence of such change of control at a price equal to
the sum of the issue price plus accrued original issue discount or accrued cash
interest, if any, on such note to such date of purchase.
If prior to such date of purchase upon a change of control, the notes have
been converted to semi annual coupon notes following the occurrence of a tax
event, we will be required to purchase the notes at a price equal to the
restated principal amount plus accrued and unpaid interest from the date of the
conversion to such date of purchase. For more information on this optional
conversion, see " - Optional Conversion to Semi annual Coupon Notes upon Tax
Event."
Instead of paying the change of control purchase price in cash, Holdings
may, at its option, elect to deliver, in full or partial satisfaction of the
change of control purchase price, class B common stock or the common stock of
the acquiring party in a change of control for which class B common stock is
exchanged in connection with such change of control ("acquiror stock"), if it so
elects in the notice referred to below. The number of shares of Holdings common
stock or acquiror stock that a holder will receive will equal the change of
control purchase price (less any amounts paid in cash) divided by 95% of the
market price (determined in the manner described under " - Purchase of Notes as
the Option of the Holder") of the class B common stock or acquiror stock, as
applicable. However, Holdings may not deliver class B common stock for full or
partial satisfaction of the change of control purchase price in class B common
stock or acquiror stock, or in a combination of class B common stock or acquiror
stock and cash, unless it satisfies certain conditions prior to the change of
control purchase date as provided in the indenture.
Within 15 days after the occurrence of a change of control, we are
obligated to mail to the trustee and to all holders of notes at their addresses
shown in the register of the registrar and to beneficial owners as required by
applicable law a notice regarding the change of control, which notice shall
state, among other things:
- the events causing a change of control;
- the date of such change of control;
- the last date on which the purchase right may be exercised;
- the change of control purchase price;
- the change of control purchase date;
- whether Holdings has elected to deliver class B common stock or
acquiror stock in full or partial satisfaction of the change of
control purchase price;
- if Holdings elects to deliver class B common stock or acquiror stock,
the calculation of the market price of the class B common stock or
acquiror stock;
- the name and address of the paying agent and the exchange agent;
- the exchange rate and any adjustments to the exchange rate resulting
from such change of control;
32.
- that notes with respect to which a change of control purchase notice
is given by the holder may be exchanged only if the change of control
purchase notice has been withdrawn in accordance with the terms of the
indenture; and
- the procedures that holders must follow to exercise these rights.
To exercise this right, the holder must deliver a written notice to the
paying agent prior to the close of business on the second business day prior to
the change of control purchase date. The required purchase notice upon a change
of control shall state:
- the certificate numbers of the notes to be delivered by the holder;
- the portion of the principal amount at maturity of notes to be
purchased, which portion must be $1,000 or an integral multiple of
$1,000; and
- that we are to purchase such notes pursuant to the applicable
provisions of the notes.
Any such change of control purchase notice may be withdrawn by the holder
by a written notice of withdrawal delivered to the paying agent prior to the
close of business on the second business day prior to the change of control
purchase date.
The notice of withdrawal shall state:
- the principal amount at maturity being withdrawn;
- the certificate numbers of the notes being withdrawn; and
- the principal amount at maturity, if any, of the notes that remain
subject to a change of control purchase notice.
Payment of the change of control purchase price for a note for which a
change of control purchase notice has been delivered and not validly withdrawn
is conditioned upon delivery of the note, together with necessary endorsements,
to the paying agent at any time after the delivery of such change of control
purchase notice. Payment of this change of control purchase price for such note
will be made promptly following the later of the change of control purchase date
or the time of delivery of such note.
If the paying agent holds cash, class B common stock or acquiror stock, or
a combination of class B common stock or acquiror stock and cash, sufficient to
pay the change of control purchase price of the note on the business day
following the change of control purchase date in accordance with the terms of
the indenture, then immediately after the change of control purchase date, cash
interest or original issue discount on the note will cease to accrue, whether or
not the note is delivered to the paying agent. Thereafter, all other rights of
the holder shall terminate, other than the right to receive the change of
control purchase price upon delivery of the note.
Under the indenture, a "change of control" will be deemed to have occurred
if any of the following occurs:
- any person or group other than the TPG Entities, any of Holdings'
subsidiaries or any of Holdings' employee benefit plans, is or becomes
the beneficial owner, directly or indirectly, of shares of the voting
stock of Holdings representing 50% or more of the total voting power
of all outstanding classes of the voting stock of Holdings or has the
power, directly or indirectly, to elect a majority of the members of
the board of directors of Holdings; or
- any person or group, including the TPG Entities, files a Schedule TO
or a Schedule 13D (or any successors to those schedules) stating that
they have become and actually are beneficial owners of the voting
stock of Holdings representing more than 80%, in the aggregate, of the
total voting power of all outstanding classes of voting stock of
Holdings entitled to vote generally in the election of the members of
our board of directors; or
33.
- Holdings or the Airline consolidates with, or merges with or into,
another person or Holdings or the Airline sells, assigns, conveys,
transfers, leases or otherwise disposes of all or substantially all of
its assets, or any person consolidates with, or merges with or into,
Holdings or the Airline, in any such event other than pursuant to a
transaction in which the persons that beneficially owned, directly or
indirectly, the shares of the voting stock of Holdings immediately
prior to such transaction beneficially own, directly or indirectly,
shares of the voting stock of Holdings representing at least a
majority of the total voting power of all outstanding classes of
voting stock of the surviving or transferee person; or
- the adoption of a plan relating to the liquidation or dissolution of
Holdings or the Airline (other than a dissolution of the Airline into
Holdings); or
- the first day on which more than a majority of the members of the
board of directors of Holdings are not continuing directors; or
- Holdings ceases to own, directly or indirectly, shares of the voting
stock of the Airline representing 100% of the total voting power of
all outstanding classes of the voting stock of the Airline, other than
as a result of a merger or dissolution of the Airline with or into
Holdings.
For purposes of the foregoing change of control definition:
- "person" and "group" have the meanings given to them for purposes of
Sections 13(d) and 14(d) of the Exchange Act (or any successor to such
sections);
- "beneficial ownership" will be determined in accordance with Rule
13d-3 under the Exchange Act (or any successor to such rule);
- "continuing directors" means any member of the board of directors of
Holdings who (i) was a member of the board of directors of Holdings on
the date of original issuance of the notes or (ii) was nominated for
election to the board of directors of Holdings with the approval of,
or whose election to the board of directors of Holdings was ratified
by, at least a majority of the continuing directors who were members
of the board of directors of Holdings at the time of such nomination
or election; and
- "TPG Entities" means TPG Partners, L.P., a Delaware limited
partnership, TPG Parallel I L.P., a Delaware limited partnership, Air
Partners II, L.P., a Texas limited partnership, or any person or
entity that directly or indirectly through one or intermediaries
controls, is controlled by, or is under common control with such TPG
Entity.
The indenture does not permit our board of directors to waive our
obligation to purchase notes at the option of holders in the event of a change
of control.
In connection with any purchase offer in the event of a change of control,
we will:
- comply with the provisions of Rule 13e-4, Rule 14e-1 and any other
tender offer rules under the Exchange Act which may then be
applicable; and
- file Schedule TO or any other required schedule under the Exchange
Act.
The change of control purchase feature of the notes may, in certain
circumstances, make more difficult or discourage a takeover of Holdings or the
Airline. The change of control purchase feature, however, is not the result of
our knowledge of any specific effort:
- to accumulate shares of class A common stock or class B common stock;
- to obtain control of us by means of a merger, tender offer,
solicitation or otherwise; or
- part of a plan by management to adopt a series of anti-takeover
provisions.
34.
Instead, the change of control purchase feature is a standard term
contained in other offerings of securities similar to the notes that have been
marketed by the initial purchasers. The terms of the change of control purchase
feature resulted from negotiations between the initial purchasers and us.
We or Holdings could, in the future, enter into certain transactions,
including certain recapitalizations, that would not constitute a change of
control with respect to the change of control purchase feature of the notes but
that would increase the amount of outstanding indebtedness of the Airline or
Holdings. In addition, we or Holdings are party to, and we or Holdings could in
the future enter into, certain agreements that limit our ability to pay the
change of control purchase price. Any failure to pay the change of control
purchase price could result in an event of default under the indenture. The
indenture will not contain any covenants or provisions that may afford holders
of the notes protection in the event of a highly leveraged transaction or that
prevent us from entering into such agreements. We may not have the ability to
raise funds necessary to finance the change of control purchase or the purchase
at the option of holder."
The definition of change of control includes a phrase relating to the
sale, lease, transfer, conveyance or other distribution of "all or substantially
all" of the properties or assets of Holdings or the Airline. Although there is a
limited body of case law interpreting the phrase "substantially all," there is
no precise established definition of the phrase under applicable law.
Accordingly, the ability of a holder of notes to require us to repurchase its
notes as a result of a sale, lease, transfer, conveyance, or other disposition
of less than all of the assets or Holdings or the Airline to another person or
group may be uncertain.
No notes may be purchased at the option of holders upon a change of
control if there has occurred and is continuing an event of default with respect
to the notes, other than a default in the payment of the change of control
purchase price with respect to the notes.
EVENTS OF DEFAULT AND ACCELERATION
The following are events of default under the indenture:
- default in the payment of any principal amount (including accrued
original issue discount and, if the notes have been converted to semi
annual coupon notes following a tax event, the restated principal
amount) at maturity, redemption price, purchase price, or change of
control purchase price due with respect to the notes, when the same
become due and payable;
- default in payment of any interest under the notes, which default
continues for 30 days;
- our failure or any guarantor's failure to comply with any of our or
such guarantor's other agreements in the notes or the indenture upon
our receipt of notice of such default from the trustee or from holders
of not less than 25% in aggregate principal amount at maturity of the
notes, and our failure or such guarantor's failure to cure (or obtain
a waiver of) such default within 60 days after we receive such notice;
- default in the payment by the Airline, Holdings or any guarantor of
indebtedness when due or resulting in acceleration of other
indebtedness of the Airline, Holdings or any guarantor for borrowed
money where the aggregate principal amount with respect to which the
default or acceleration has occurred exceeds $25 million, and such
acceleration has not been rescinded or annulled within a period of 30
days after written notice to us by the trustee or to us and the
trustee by the holders of at least 25% in principal amount at maturity
of the notes;
- any guarantee ceases to be in full force and effect or is declared
null and void or any guarantor denies that it has any further
liability under any guarantee, or gives notice to such effect (other
than by reason of the termination of the indenture or the release of
any such guarantee in accordance with the indenture), and such
condition shall have continued for a period of 30 days after written
notice of such failure requiring the guarantor or us to remedy the
same shall have been given to us by the trustee or to us and the
trustee by the holders of 25% in aggregate principal amount at
maturity of the notes outstanding; or
35.
- certain events of bankruptcy, insolvency or reorganization affecting
any guarantor or us.
If an event of default shall have happened and be continuing, either the
trustee or the holders of not less than 25% in aggregate principal amount at
maturity of the notes then outstanding may declare the issue price of the notes
plus the original issue discount on the notes accrued through the date of such
declaration, and any accrued and unpaid cash interest (or, if the notes have
been converted to semiannual coupon notes following a tax event, the restated
principal amount, plus accrued interest) through the date of such declaration,
to be immediately due and payable. In the case of certain events of bankruptcy
or insolvency, the issue price of the notes plus the original issue discount
accrued thereon, together with any accrued cash interest (or, if the notes have
been converted to semi annual coupon notes following a tax event, the restated
principal amount, plus accrued interest) through the occurrence of such event
shall automatically become and be immediately due and payable.
MERGERS AND SALES OF ASSETS
The indenture provides that we may not consolidate with or merge into any
person or convey, transfer or lease all or substantially all of our properties
and assets to another person unless:
- the resulting, surviving or transferee person is a corporation
organized and existing under the laws of the United States, any state
thereof or the District of Columbia, and such corporation (if other
than us) assumes all our obligations under the notes and the
indenture;
- after giving effect to the transaction no event of default, and no
event that, after notice or passage of time, would become an event of
default, has occurred and is continuing; and
- other conditions described in the indenture are met.
Upon the assumption of our obligations by such corporation in such
circumstances, subject to certain exceptions, we shall be discharged from all
obligations under the notes and the indenture. Although such transactions are
permitted under the indenture, certain of the foregoing transactions occurring
could constitute a change of control of Holdings or the Airline, permitting each
holder to require us to purchase the notes of such holder as described above.
The indenture also provides that a guarantor may not consolidate with or
merge into any person or convey, transfer or lease all or substantially all of
its properties and assets to another person unless the surviving person assumes
the obligations of such guarantor and the surviving person is a corporation
organized and existing under the laws of the United States, any state thereof or
the District of Columbia, except if all of the assets or all of the common stock
of such guarantor (other than Holdings) is sold to a non-affiliate of Holdings
or the Airline, in which case the guarantee is released.
OPTIONAL CONVERSION TO SEMIANNUAL COUPON NOTES UPON TAX EVENT
From and after the date of the occurrence of a tax event (as defined
below), we will have the option to elect to have interest in lieu of future
accrued original issue discount or cash interest accrue at 7.25% per year on a
principal amount per note equal to the sum of the issue price and accrued
original issue discount on such note on the date of the tax event or the date on
which we exercise such option, whichever is later.
Such interest shall accrue from the option exercise date, and shall be
payable semiannually on the interest payment dates of January 30 and July 30 of
each year to holders of record at the close of business on January 15 or July 15
immediately preceding the interest payment date. Interest will be computed on
the basis of a 360-day year comprised of twelve 30-day months. Interest will
accrue from the most recent date to which interest, if applicable, has been paid
or provided for or, if no interest is payable or has been paid or provided for,
from the option exercise date. In the event that we exercise our option to pay
interest in lieu of accrued original issue discount or cash interest, the
redemption price, purchase price and change of control purchase price on the
notes will be adjusted. However, there will be no change in the holder's
conversion rights.
A "tax event" means that we shall have received an opinion from
independent tax counsel experienced in such matters to the effect that, on or
after the date of this prospectus, as a result of:
36.
- any amendment to, or change (including any announced prospective
change) in, the laws (or any regulations thereunder) of the United
States or any political subdivision or taxing authority thereof or
therein; or
- any amendment to, or change in, an interpretation or application of
such laws or regulations by any legislative body, court, governmental
agency or regulatory authority,
in each case which amendment or change is enacted, promulgated, issued or
announced or which interpretation is issued or announced or which action is
taken, on or after the date of this prospectus, there is more than an
insubstantial risk that accrued original issue discount payable on the notes
either:
- would not be deductible on a current accrual basis; or
- would not be deductible under any other method,
in either case in whole or in part, by us (by reason of deferral,
disallowance, or otherwise) for U.S. federal income tax purposes.
The Clinton administration previously proposed to change the tax law to
defer the deduction of original issue discount on convertible debt instruments
until the issuer pays the interest. Congress did not enact those proposed
changes. It is not certain what the views of the Bush administration are on this
issue and we cannot assure you that the same or a similar proposal will not be
proposed and enacted.
If a similar proposal were ever enacted and made applicable to the notes
in a manner that would limit our ability to either:
- deduct the interest, including the accrued original issue discount,
payable on the notes on a current accrual basis; or
- deduct the interest, including accrued original issue discount,
payable on the notes under any other method for U.S. federal income
tax purposes,
such enactment would result in a tax event and the terms of the notes would be
subject to modification at our option as described above.
The modification of the terms of notes by us upon a tax event as described
above could possibly alter the timing of income recognition by holders of the
notes with respect to the semi annual payments of interest due on the notes
after the date on which we exercise our option to pay interest in lieu of
accrued original issue discount or accrued interest, if any, on the notes.
MODIFICATION AND AMENDMENT
The trustee and we may modify or amend the indenture or the notes with the
consent of the holders of not less than a majority in aggregate principal amount
at maturity of the notes then outstanding. However, the consent of the holders
of each outstanding note would be required to:
- alter the manner of calculation or rate of accrual of original issue
discount or interest on any note or change the time of payment;
- make any note payable in money or securities other than that stated in
the note;
- change the stated maturity of any note;
- reduce the principal amount at maturity, restated principal amount,
issue price, accrued original issue discount, redemption price,
purchase price or change of control purchase price with respect to any
note;
- make any change that adversely affects the rights of a holder to
exchange any note;
37.
- make any change that adversely affects the right to require us to
purchase a note;
- impair the right to institute suit for the enforcement of any payment
with respect to the notes, or any guarantees, or with respect to
exchange of the notes;
- change the provisions in the indenture that relate to modifying or
amending the indenture; and
- release any guarantor from any of its obligations under its guarantee
other than in accordance with the terms of the indenture.
Without the consent of any holder of notes, the trustee and we may enter
into supplemental indentures for any of the following purposes:
- to evidence a successor to us and the assumption by that successor of
our obligations under the indenture and the notes;
- to add to our covenants for the benefit of the holders of the notes or
to surrender any right or power conferred upon us;
- to secure our obligations in respect of the notes;
- to cure any ambiguity or inconsistency in the indenture; or
- to make any change that does not adversely affect the rights of any
holder of the notes.
The holders of a majority in principal amount at maturity of the
outstanding notes may, on behalf of all the holders of all notes:
- waive compliance by us with restrictive provisions of the indenture,
as detailed in the indenture; and
- waive any past default under the indenture and its consequences,
except a default in the payment of the principal amount at maturity,
issue price, accrued and unpaid interest, accrued original issue
discount, redemption price, purchase price or change of control
purchase price or obligation to deliver class B common stock upon
exchange with respect to any note or in respect of any provision which
under the indenture cannot be modified or amended without the consent
of the holder of each outstanding note affected.
DISCHARGE OF THE INDENTURE
We may satisfy and discharge our obligations under the indenture by
delivering to the trustee for cancellation all outstanding notes or by
depositing with the trustee, the paying agent or the exchange agent, if
applicable, after the notes have become due and payable, whether at stated
maturity or any redemption date, or any purchase date, or a change of control
purchase date, or upon exchange or otherwise, cash or shares of class B common
stock (as applicable under the terms of the indenture) sufficient to pay all of
the outstanding notes and paying all other sums payable under the indenture.
CALCULATIONS IN RESPECT OF NOTES
We will be responsible for making all calculations called for under the
notes. These calculations include, but are not limited to, determination of the
market prices of the class B common stock. We will make all these calculations
in good faith and, absent manifest error, our calculations will be final and
binding on holders of notes. We will provide a schedule of our calculations to
the trustee, and the trustee is entitled to rely upon the accuracy of our
calculations without independent verification.
LIMITATIONS OF CLAIMS IN BANKRUPTCY
If a bankruptcy proceeding is commenced in respect of the Airline or
Holdings or any guarantor, the claim of a holder of a note is, under Title 11 of
the United States Code, limited to the issue price of the note plus that
38.
portion of the original issue discount, together with any cash interest, that
has accrued from the date of issue to the commencement of the proceeding.
GOVERNING LAW
The indenture and the notes and guarantee will be governed by, and
construed in accordance with, the law of the State of New York.
INFORMATION CONCERNING THE TRUSTEE
U.S. Bank National Association is the trustee, registrar,
paying agent and exchange agent under the indenture for the notes.
BOOK-ENTRY SYSTEM
The notes were issued in the form of global securities held in book-entry
form. DTC or its nominee is the sale registered holder of the notes for all
purposes under the indenture. Owners of beneficial interests in the notes
represented by the global securities hold their interests pursuant to the
procedures and practices of DTC. As a result, beneficial interests in any such
securities are shown on, and may only be transferred through, records maintained
by DTC and its direct and indirect participants and any such interest may not be
exchanged for certificated securities, except in limited circumstances. Owners
of beneficial interests must exercise any rights in respect of their interests,
including any right to convert or require purchase of their interests in the
notes, in accordance with the procedures and practices of DTC. Beneficial owners
are not holders and are not entitled to any rights under the global securities
or the indenture. The Airline and the trustee, and any of their respective
agents, may treat DTC as the sole holder and registered owner of the global
securities.
EXCHANGE OF GLOBAL SECURITIES
Notes represented by a global security will be exchangeable for
certificated securities with the same terms only if:
- DTC has notified us that it is unwilling or unable to continue as
depositary or if DTC ceases to be a clearing agency registered under
the Exchange Act and a successor depositary is not appointed by us
within 90 days;
- we decide to discontinue use of the system of book-entry transfer
through DTC (or any successor depositary); or
- a default under the indenture occurs and is continuing.
DTC has advised us as follows: DTC is a limited-purpose trust company
organized under the New York Banking Law, a "banking organization" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. DTC
facilitates the settlement of transactions among its participants through
electronic computerized book-entry changes in participants' accounts,
eliminating the need for physical movement of securities certificates. DTC's
participants include securities brokers and dealers, including the initial
purchasers, banks, trust companies, clearing corporations and other
organizations, some of whom and/or their representatives, own DTC. Access to
DTC's book-entry system is also available to others, such as banks, brokers,
dealers and trust companies that clear through or maintain a custodial
relationship with a participant, either directly or indirectly.
REGISTRATION RIGHTS
We and each guarantor have entered into a registration rights agreement
with the initial purchasers pursuant to which we have agreed to use our
reasonable best efforts to cause the registration statement, of which this
prospectus is a part, to be declared effective no later than 180 days of such
first date of original issuance, and to keep the registration statement
effective until the earlier of:
39.
- the sale pursuant to the registration statement of all the securities
registered thereunder;
- the expiration of the holding period applicable to such securities
held by persons that are not affiliates of Holdings or the Airline
under Rule 144(k) under the Securities Act or any successor provision;
and
- two years after the effective date of the registration statement,
subject to certain permitted exceptions.
Under the registration rights agreement, we are permitted to suspend the
use of this prospectus under certain circumstances relating to corporate
developments, public filings with the SEC and similar events for a period not to
exceed 45 days in any three-month period and not to exceed an aggregate of 120
days in any 12-month period. We have also agreed to pay predetermined liquidated
damages as described below ("liquidated damages") to holders of the notes and
Holdings have agreed to pay predetermined liquidated damages to holders of
shares of class B common stock if the registration statement is not made
effective or if this prospectus is unavailable for the periods in excess of
those permitted above. The liquidated damages will accrue until such failure to
become effective or unavailability is cured, (i) in respect of any notes, at a
rate per year equal to 0.25% for the first 90 day period after the occurrence of
such event and 0.50% thereafter of the applicable principal amount (as defined
below) thereof and (ii) in respect of any shares of class B common stock issued
upon exchange at a rate per year equal to 0.25% for the first 90 day period and
0.50% thereafter of the then applicable exchange price (as defined below). So
long as the failure to become effective or unavailability continues, we have
agreed to pay liquidated damages in cash on January 30 and July 30 of each year
to the holders of record of the notes or shares of class B common stock on the
immediately preceding January 15 or July 15. When such registration default is
cured, we have agreed to pay accrued and unpaid liquidated damages in cash to
the record holder as of the date of such cure.
The term "applicable principal amount" means, as of any date of
determination, with respect to each $1,000 principal amount at maturity of
notes, the sum of the initial issue price of such notes plus accrued original
issue discount with respect to such notes through such date of determination or,
if no notes are then outstanding, such sum calculated as if such notes were then
outstanding.
The term "applicable exchange price" means, as of any date of
determination, the applicable principal amount per $1,000 principal amount at
maturity of notes as of such date of determination divided by the exchange rate
in effect as of such date of determination or, if no notes are then outstanding,
the exchange rate that would be in effect were notes then outstanding.
The summary herein of certain provisions of the registration rights
agreement is subject to, and is qualified in its entirety by reference to, all
the provisions of the registration rights agreement, a copy of which is filed as
an exhibit to the registration statement, of which this prospectus is a part.
40.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following summary discusses certain material U.S. federal income
tax (and in the case of non-U.S. holders, as defined below, certain U.S. federal
estate tax) consequences relating to the purchase, ownership, and disposition of
the notes and the shares of class B common stock of Holdings for which the notes
may be exchanged. Except where noted, this summary deals only with notes and
shares of class B common stock of Holdings held as capital assets and is
applicable only to initial purchasers of notes who purchased the notes for an
amount of cash equal to the initial offering price of such notes. Additionally,
this summary does not deal with special situations, such as:
- tax consequences to holders who may be subject to special tax
treatment, such as dealers in securities or currencies, banks,
financial institutions, insurance companies, tax-exempt entities and
traders in securities that elect to use a mark-to-market method of
accounting for their securities holdings;
- tax consequences to persons holding notes or class B common stock of
Holdings as part of a hedging, integrated, constructive sale or
conversion transaction or a straddle;
- tax consequences to U.S. holders (as defined below) whose
"functional currency" is not the U.S. dollar;
- alternative minimum tax consequences, if any; or
- any state, local or foreign tax consequences.
The discussion below is based upon the provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), and Treasury regulations, rulings
and judicial decisions as of the date hereof. Those authorities may be changed,
perhaps retroactively, so as to result in U.S. federal income tax consequences
different from those discussed below. There can be no assurance that the
Internal Revenue Service (the "IRS") will not challenge one or more of the tax
consequences discussed herein. If a partnership holds our notes or class B
common stock of Holdings, the tax treatment of a partner in the partnership will
generally depend upon the status of the partner and the activities of the
partnership. If you are a partner of a partnership holding our notes or class B
common stock of Holdings, you should consult your tax adviser.
IF YOU ARE CONSIDERING THE PURCHASE OF NOTES, YOU SHOULD CONSULT YOUR
OWN TAX ADVISERS CONCERNING THE U.S. FEDERAL INCOME TAX CONSEQUENCES TO YOU AND
ANY CONSEQUENCES ARISING UNDER THE LAWS OF ANY OTHER TAXING JURISDICTION.
U.S. HOLDERS
The following is a summary of certain material U.S. federal income tax
consequences that will apply to you if you are a U.S. holder. A "U.S. holder"
means a beneficial owner of a note or class B common stock of Holdings that is:
- a citizen or resident alien individual of the United States;
- a corporation (or any entity treated as a corporation for U.S.
federal income tax purposes) created or organized in or under the
laws of the United States or any political subdivision of the United
States;
- an estate the income of which is subject to U.S. federal income
taxation regardless of its source; or
- a trust if it (1) is subject to the primary supervision of a court
within the United States and one or more U.S. persons have the
authority to control all substantial decisions of the trust or (2)
has a valid election in effect under applicable U.S. Treasury
regulations to be treated as a U.S. person.
41.
ORIGINAL ISSUE DISCOUNT
The notes have original issue discount ("OID") for U.S. federal income
tax purposes, and accordingly, you will be subject to special rules relating to
the accrual of income for such purposes. You generally must include OID in gross
income for U.S. federal income tax purposes on an annual basis under a constant
yield accrual method described below regardless of your regular method of tax
accounting. As a result, you may be required to include OID in income in advance
of the receipt of cash attributable to such income.
The notes are treated as issued with OID equal to the excess of a
note's "stated redemption price at maturity" over its "issue price." The stated
redemption price at maturity of a note will include all payments of principal
and cash interest on the note. Because the notes provide for payment of cash
interest only through July 30, 2008, cash interest will be included in the
stated redemption price at maturity and taxed as part of OID. Such cash interest
will not be again included separately in your gross income when accrued or paid.
The issue price is the first price at which a substantial amount of notes are
sold for money (excluding sales to bond houses, brokers or similar persons or
organizations acting as underwriters, placement agents or wholesalers). The
amount of OID includible in your income is the sum of the "daily portions" of
OID with respect to the note for each day during the taxable year or portion
thereof in which you hold such note ("accrued OID"). A daily portion is
determined by allocating to each day in any "accrual period" a pro rata portion
of the OID that accrued in such period. The "accrual period" of a note may be of
any length and may vary in length over the term of the note, provided that each
accrual period is no longer than one year and each scheduled payment of
principal or interest occurs either on the first or last day of an accrual
period. The amount of OID that accrues with respect to any accrual period is the
product of the note's adjusted issue price at the beginning of such accrual
period and its yield to maturity, determined on the basis of compounding at the
close of each accrual period and properly adjusted for the length of such
period. The "adjusted issue price" of a note at the start of any accrual period
is equal to its issue price, increased by the accrued OID for each prior accrual
period and reduced by any payments of cash interest and principal made on such
note.
EXCHANGE, SALE, REDEMPTION AND OTHER DISPOSITION OF NOTES
You will generally recognize gain or loss upon the exchange, sale,
redemption or other disposition of a note, including the exchange of your notes
for class B common stock of Holdings, equal to the difference between the amount
realized upon the exchange, sale, redemption or other disposition and your
adjusted tax basis in the note. Your adjusted tax basis in a note will be equal
to the amount paid for the note, increased by the amount of OID previously
included in income (including in the tax year of disposition) and decreased by
the amount of payments of cash interest and principal. Any gain or loss
recognized on a disposition of the note will be capital gain or loss. If you are
a noncorporate U.S. holder, including an individual, and have held the note for
more than one year, such capital gain will be subject to tax at a maximum rate
of 15% (through December 31, 2008, after which time it will revert to a maximum
rate of 20%). Your ability to deduct capital losses may be limited.
The tax basis of the class B common stock of Holdings received upon an
exchange will equal the fair market value of the class B common stock as of the
exchange date. Your holding period for class B common stock of Holdings will
commence on the day following the date of delivery of the class B common stock
DIVIDENDS ON CLASS B COMMON STOCK OF HOLDINGS
If, after you exchange a note for class B common stock of Holdings,
Holdings makes a distribution of cash or other property (other than certain pro
rata distributions class B common stock of Holdings) in respect of that stock,
the distribution will be treated as a dividend to the extent that it is paid
from Holdings' current or accumulated earnings or profits. If you are a
noncorporate U.S. holder, including an individual, and provided you hold the
class B common stock of Holdings for more than 60 days during the 120-day period
beginning 60 days before the ex-dividend date, such dividend will be taxable to
you at a maximum rate of 15% (through December 31, 2008 after which time it will
revert to being taxable at ordinary income rates). If the distribution exceeds
Holdings' current or accumulated earnings and profits, the excess will be
treated first as a tax-free return of your investment, up to your basis in such
class B common stock. Any remaining excess will be treated as capital gain. If
you are a corporation, you may be able to claim a deduction for a portion of any
distribution received that is considered a dividend.
42.
SALE OR OTHER DISPOSITION OF CLASS B COMMON STOCK OF HOLDINGS
You will generally recognize capital gain or loss on a sale or other
disposition of class B common stock of Holdings. Your gain or loss will equal
the difference between the proceeds you receive and your adjusted tax basis in
the stock. The proceeds received will include the amount of any cash and the
fair market value of any other property received for the stock. If you are a
noncorporate U.S. holder, including an individual, and have held the stock for
more than one year, such capital gain will be subject to tax at a maximum rate
of 15% (through December 31, 2008, after which time it will revert to a maximum
rate of 20%). Your ability to deduct capital losses may be limited.
NON-U.S. HOLDERS
The following is a summary of certain material U.S. federal tax
consequences that will apply to you if you are a non-U.S. holder. The term
"non-U.S. holder" means a beneficial owner of a note or class B common stock of
Holdings that is not a U.S. holder. Special rules may apply to certain non-U.S.
holders such as "controlled foreign corporations", "passive foreign investment
companies", "foreign personal holding companies", persons eligible for benefits
under income tax conventions to which the United States is a party and certain
U.S. expatriates. You should consult your own tax advisers to determine the U.S.
federal, state, local and other tax consequences that may be relevant to you.
PAYMENT OF INTEREST
The 30% U.S. federal withholding tax will not apply to any payment to
you of interest (including OID) on a note provided that:
- you do not actually or constructively own 10% or more of the total
combined voting power of all classes of our stock that are entitled
to vote within the meaning of section 871 (h) (3) of the Code;
- you are not a "controlled foreign corporation" that is related to us
within the meaning of section 864 (d) (4) of the Code;
- you are not a bank whose receipt of interest on a note is described
in section 881 (c) (3) (A) of the Code; and
- (a) you provide your name and address, and certify, under penalties
of perjury, that you are not a U.S. person (which certification may
be made on an IRS Form W-8BEN (or successor form)) or (b) you hold
your notes through certain foreign intermediaries, and you and the
foreign intermediary satisfy the certification requirements of
applicable U.S. Treasury regulations.
Special certification rules apply to non-U.S. holders that are
pass-through entities rather than corporations or individuals.
If you cannot satisfy the requirements described above, payments of
interest (and OID) will be subject to the 30% U.S. federal withholding tax,
unless you provide us with a properly executed (1) IRS Form W-8BEN (or successor
form) claiming an exemption from or reduction in withholding under the benefit
of an applicable tax treaty or (2) IRS Form W-8ECI (or successor form) stating
that interest paid on the note is not subject to withholding tax because it is
effectively connected with your conduct of a trade or business in the United
States. If you are engaged in a trade or business in the United States and
interest on a note is effectively connected with the conduct of that trade or
business or, if a tax treaty applies, is attributable to your U.S. permanent
establishment, you will be subject to U.S. federal income tax on that interest
on a net income basis (although you will be exempt from the 30% withholding tax,
provided you satisfy the certification requirements described above) in the same
manner as if you were a U.S. person as defined under the Code. In addition, if
you are a foreign corporation, you may be subject to a branch profits tax equal
to 30% (or lower applicable treaty rate) of your earnings and profits for the
taxable year, subject to adjustments, that are effectively connected with your
conduct of a trade or business in the United States. If you are eligible for a
reduced rate of U.S. withholding tax pursuant to an income tax treaty, you may
obtain a refund of any excess amounts withheld by filing an appropriate claim
for refund with the IRS.
43.
DIVIDENDS
Any dividends paid to you with respect to the class B common stock of
Holdings will be subject to withholding tax at a 30% rate or such lower rate as
may be specified by an applicable income tax treaty. However, dividends that are
effectively connected with the conduct of a trade or business within the United
States or, if a tax treaty applies, attributable to a U.S. permanent
establishment, are not subject to the withholding tax, but instead are subject
to U.S. federal income tax on a net income basis at applicable graduated
individual or corporate rates. Certain certification and disclosure requirements
must be complied with in order for effectively connected income to be exempt
from withholding. Any such effectively connected dividends received by a foreign
corporation may, under certain circumstances, be subject to an additional branch
profits tax at a 30% rate or such lower rate as may be specified by an
applicable income tax treaty. If you are a non-U.S. holder of class B common
stock who wishes to claim the benefit of an applicable treaty rate, you are
required to satisfy applicable certification and other requirements. If you are
eligible for a reduced rate of U.S. withholding tax pursuant to an income tax
treaty, you may obtain a refund of any excess amounts withheld by filing an
appropriate claim for refund with the IRS.
EXCHANGE, SALE OR REDEMPTION OF NOTES OR CLASS B COMMON STOCK OF HOLDINGS
Any gain realized upon the exchange, sale, redemption or other
disposition of a note (including the exchange of your notes for the class B
common stock of Holdings) or share of class B common stock of Holdings generally
will not be subject to U.S. federal income tax unless:
- that gain is effectively connected with the conduct of a trade or
business in the United States by you, or if a tax treaty applies,
attributable to a U.S. permanent establishment;
- you are an individual who is present in the United States for 183
days or more in the taxable year of that disposition, and certain
other conditions are met; or
- Holdings is or has been a "U.S. real property holding corporation"
for U.S. federal income tax purposes.
If you are a non-U.S. holder whose gain is described in the first or
third bullet point above, you will be subject to U.S. federal income tax on the
net gain derived from the sale at the applicable graduated rates. If you are a
corporate non-U.S. holder whose gain is described in the first bullet point
above may also be subject to a branch profits tax at a 30% rate or a lower rate
if an income tax treaty applies. If you are an individual non-U.S. holder
described in the second bullet point above, you will be subject to a flat 30%
U.S. federal income tax on the gain derived from the sale, which may be offset
by U.S. source capital losses, even though you are not considered a resident of
the United States.
We believe Holdings is not and does not anticipate that it will become
a U.S. real property holding corporation for U.S. federal income tax purposes.
However, there can be no assurances that Holdings will not become a U.S. real
property holding corporation in the future.
U.S. FEDERAL ESTATE TAX
The U.S. federal estate tax will not apply to notes owned by you at the
time of your death, provided that (1) you do not own 10% or more of the total
combined voting power of all classes of our voting stock (within the meaning of
the Code and the Treasury regulations) and (2) interest on the note would not
have been, if received at the time of your death, effectively connected with
your conduct of a trade or business in the United States. However, class B
common stock of Holdings held by you at the time of your death will be included
in your gross estate for U.S. federal estate tax purposes unless an applicable
estate tax treaty provides otherwise. If you are an individual, you should be
aware that there have been recent amendments to the U.S. federal estate tax
rules, and you should consult with your tax advisers before considering an
investment in the notes.
INFORMATION REPORTING AND BACKUP WITHHOLDING
If you are a U.S. holder, in general, information reporting
requirements will apply to certain payments of principal and interest on the
notes, dividends paid on the class B common stock of Holdings, and the proceeds
of
44.
sale of a note or share of class B common stock of Holdings unless you are an
exempt recipient (such as a corporation). Backup withholding tax at a rate of
28% will apply to such payments if you fail to provide your taxpayer
identification number or certification of exempt status or fail to report in
full dividend and interest income.
If you are a non-U.S. holder, in general, you will not be subject to
backup withholding and information reporting with respect to payments that we or
Holdings make to you provided that we or Holdings do not have actual knowledge
or reason to know that you are a U.S. person and you have given us or Holdings
the statement described above under " - Non-U.S. Holders - Payment of Interest."
In addition, you will not be subject to backup withholding or information
reporting with respect to the proceeds of the sale of a note or share of class B
common stock within the United States or conducted through certain U.S.-related
financial intermediaries, if the payor receives the statement described above
and does not have actual knowledge or reason to know that you are a U.S. person,
as defined under the Code, or you otherwise establish an exemption. However, we
or Holdings may be required to report annually to the IRS and to you the amount
of, and the tax withheld, if any, with respect to, any interest or dividends
paid to you, regardless of whether any tax was actually withheld. Copies of
these information returns may also be made available under the provisions of a
specific treaty or agreement to the tax authorities of the country in which the
non-U.S. holder resides.
Any amounts withheld under the backup withholding rules will be allowed
as a refund or a credit against your U.S. federal income tax provided the
required information is furnished to the IRS in a timely manner.
LEGAL MATTERS
The validity of the notes and class B common stock is being passed upon
for us by Cooley Godward llp, our special counsel.
EXPERTS
The consolidated financial statements of Holdings and the financial
statements of Airlines as of December 31, 2002 and 2001 and for the years then
ended incorporated in this prospectus by reference to the annual report on Form
10-K for the year ended December 31, 2002 have been so incorporated in reliance
on the reports (which reports include explanatory paragraphs relating to the
restatement of Holdings' and Airline's 2001 financial statements as described in
Note 2 to those financial statements) of PricewaterhouseCoopers LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
The consolidated financial statements of Holdings and the financial
statements of the Airline for the year ended December 31, 2000 have been
incorporated by reference herein and in the registration statement in reliance
upon the reports of KPMG LLP, independent accountants, incorporated herein by
reference, and upon the authority of said firm as experts in accounting and
auditing.
WHERE YOU CAN FIND MORE INFORMATION
This prospectus is a part of a registration statement on Form S-3 that
we are filing with the SEC. The registration statement includes additional
information and attaches exhibits that are referenced in this prospectus. You
can review a copy of the registration statement on the SEC's web site at
http://www.sec.gov.
We are required to publicly file certain information with the SEC under
the Exchange Act. All of our public filings, including reports, proxy
statements, information statements and other information regarding us, are
available to the public on the SEC's web site at http://www.sec.gov. You may
also read and copy all of our public filings in the SEC's Public Reference Room
at 450 Fifth Street, N.W., Washington, D.C. 20549. Please call the SEC at (800)
SEC-0330 for information on the operation of the Public Reference Room.
Additionally, our filings are available at the offices of the New York Stock
Exchange.
45.
INCORPORATION OF DOCUMENTS BY REFERENCE
The SEC allows us to incorporate by reference information we file with
the SEC, which means that we can disclose information to you by referring you to
those documents that contain that information. The information incorporated by
reference is considered to be part of this prospectus. Information in this
prospectus supersedes information incorporated by reference that we filed with
the SEC prior to the date of this prospectus, and information that we later file
with the SEC will automatically update and supercede the information in this
prospectus. We incorporate by reference the documents listed below and any
filings we will make with the SEC under Section 13(a), 13(c), 14 or 15(d) of the
Exchange Act after the date of the initial registration statement and prior to
the termination of the offering (other than information or reports furnished on
Form 8-K under Items 9 and 12):
- Our and Holdings' combined Annual Report on Form 10-K for the year
ended December 31, 2002.
- Our and Holdings' combined Quarterly Reports on Form 10-Q for the
quarters ended March 31, 2003, June 30, 2003 and September 30, 2003.
- Holdings' proxy statement relating to its 2003 annual meeting of
stockholders.
- Current Reports on Form 8-K filed on February 14, 2003, April 23,
2003*, July 2, 2003*, July 22, 2003*, July 24, 2003, July 25, 2003,
August 1, 2003, August 5, 2003*, August 27, 2003, September 4, 2003,
September 11, 2003*, October 3, 2003, October 21, 2003, November 5,
2003*, December 3, 2003*, December 30, 2003, January 6, 2004*,
January 12, 2004 and January 22, 2004*.
- The description of our class B common stock set forth in our
Registration Statement on Form 8-A filed on August 10, 1994,
including any amendments or reports filed for the purpose of
updating such description.
* These reports contain information furnished to the SEC under Item 9,
Regulation FD Disclosure, and/or Item 12, Results of Operations and
Financial Condition. Pursuant to General Instruction B(2) and (6) of Form
8-K, information furnished under Items 9 and 12 is not deemed to be
"filed" for the purpose of Section 18 of the Exchange Act, and the Airline
and Holdings are not subject to the liabilities of that section. We are
not incorporating and will not incorporate by reference future information
or reports furnished under Item 9 and/or Item 12 of Form 8-K into a filing
under the Securities Act or the Exchange Act or into this prospectus.
As a recipient of this prospectus, you may request a copy of any
document we incorporate by reference, other than exhibits to such documents
(unless the exhibits are specifically incorporated by reference into this
prospectus), at no cost, by writing or calling us at:
Corporate Secretary
America West Holdings Corporation
111 West Rio Salado Parkway
Tempe, Arizona 85281
(480) 693-0800
46.