-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NgxeEtjHHl2TYxytK+4DpyRY0lk/PNy61VG8YV5HGGcu2dFPcCwGfKvjzKJQvwsW 5nuEpGUJzN+O3vouQxinWQ== /in/edgar/work/20000823/0000950149-00-001910/0000950149-00-001910.txt : 20000922 0000950149-00-001910.hdr.sgml : 20000922 ACCESSION NUMBER: 0000950149-00-001910 CONFORMED SUBMISSION TYPE: S-3/A PUBLIC DOCUMENT COUNT: 3 FILED AS OF DATE: 20000823 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SKYWEST INC CENTRAL INDEX KEY: 0000793733 STANDARD INDUSTRIAL CLASSIFICATION: [4512 ] IRS NUMBER: 870292166 STATE OF INCORPORATION: UT FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: S-3/A SEC ACT: SEC FILE NUMBER: 333-42508 FILM NUMBER: 708532 BUSINESS ADDRESS: STREET 1: 444 S RIVER RD CITY: ST GEORGE STATE: UT ZIP: 84790 BUSINESS PHONE: 8016343000 MAIL ADDRESS: STREET 1: 444 SOUTH RIVER ROAD CITY: ST GEORGE STATE: UT ZIP: 84790 S-3/A 1 s-3a.txt SKYWEST,INC. AMENDMENT #2 TO FORM S-3 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 23, 2000 REGISTRATION NO. 333-42508 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ AMENDMENT NO. 2 TO FORM S-3 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------ SKYWEST, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) UTAH 87-0292166 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
------------------------ BRADFORD R. RICH EXECUTIVE VICE PRESIDENT, CHIEF FINANCIAL OFFICER AND TREASURER SKYWEST, INC. 444 SOUTH RIVER ROAD ST. GEORGE, UTAH 84790 (435) 634-3000 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE) ------------------------ COPIES TO: BRIAN G. LLOYD, ESQ. JOHN J. KELLEY III, ESQ. ERIC D. BAWDEN, ESQ. KING & SPALDING PARR WADDOUPS BROWN GEE & LOVELESS 191 PEACHTREE STREET 185 SOUTH STATE STREET, SUITE 1300 ATLANTA, GEORGIA 30303-1763 SALT LAKE CITY, UTAH 84111 (404) 572-4600 (801) 532-7840
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after the effective date of this Registration Statement as determined by market conditions. If the only securities being registered on this Form are being offered pursuant to dividend or interest reinvestment plans, please check the following box: [ ] If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box: [ ] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering: [ ] __________ If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering: [ ] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box: [ ] THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. THESE SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED. SUBJECT TO COMPLETION, DATED AUGUST 23, 2000 PROSPECTUS 2,636,100 SHARES SKYWEST LOGO COMMON STOCK ------------------------ We are offering 2,500,000 shares of common stock of SkyWest, Inc. and the selling stockholders are offering 136,100 shares of common stock. We will not receive any proceeds from the sale of common stock by the selling stockholders. Our common stock is quoted on the Nasdaq National Market under the symbol "SKYW." On August 21, 2000, the closing price of our common stock, as reported by the Nasdaq National Market, was $45.13 per share. YOU SHOULD CONSIDER THE RISKS WHICH WE HAVE DESCRIBED IN "RISK FACTORS" ON PAGE 5 BEFORE DECIDING WHETHER TO INVEST IN SHARES OF OUR COMMON STOCK. ------------------------
PER SHARE TOTAL --------- ----- Public offering price....................................... $ $ Underwriting discount and commission........................ Proceeds, before expenses, to us............................ Proceeds to the selling stockholders........................
------------------------ We have granted the underwriters a 30-day option to purchase up to 395,415 additional shares of common stock solely to cover over-allotments, if any. If such option is exercised in full, the total public offering price will be $ , the total underwriting discount will be $ , and the total proceeds to us will be $ . NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. Raymond James & Associates, Inc., on behalf of the underwriters, expects to deliver the shares to purchasers on or before , 2000. ------------------------ RAYMOND JAMES & ASSOCIATES, INC. The date of this prospectus is , 2000 3 [MAP DISPLAYING SKYWEST ROUTES] SkyWest's fleet consists of the 30-passenger Embraer EMB-120 Brasilia turboprop aircraft and the 50-passenger Canadair Regional Jet. Both equipment types offer in-flight amenities such as snack and beverage service, lavatory and overhead storage. SkyWest Airlines is a regional carrier with a fleet of 104 aircraft and 3,593 employees. We operate as United Express(R) in Los Angeles, San Francisco, Seattle/Tacoma and Portland and as The Delta Connection(R) in Salt Lake City under code-sharing agreements with United Airlines and Delta Air Lines. We provide scheduled air service to 63 cities in 13 western states and Canada. United(R) and United Express(R) are trademarks of United Airlines, Inc. Delta(R), Delta Connection(R) and The Delta Connection(R) are trademarks of Delta Air Lines, Inc. All other trademarks and service marks appearing in this prospectus are the property of their respective holders. ------------------------ IN CONNECTION WITH AN UNDERWRITTEN OFFERING, THE SEC RULES PERMIT THE UNDERWRITERS TO ENGAGE IN TRANSACTIONS THAT STABILIZE THE PRICE OF OUR COMMON STOCK. THESE TRANSACTIONS MAY INCLUDE PURCHASES FOR THE PURPOSE OF FIXING OR MAINTAINING THE PRICE OF THE COMMON STOCK AT A LEVEL THAT IS HIGHER THAN THE MARKET WOULD DICTATE IN THE ABSENCE OF SUCH TRANSACTIONS. 4 PROSPECTUS SUMMARY This summary does not contain all of the information that you should consider before investing in our common stock. You should read this summary, together with the entire prospectus, including Risk Factors, for important information regarding our company and the common stock being sold in this offering. Unless otherwise indicated, "we," "us," "our" and similar terms refer to SkyWest, Inc. and our subsidiaries, and "SkyWest" refers to SkyWest Airlines, Inc., our principal operating subsidiary. SKYWEST, INC. We operate SkyWest Airlines, a regional airline offering scheduled passenger service with approximately 1,000 daily departures to 63 cities in 13 western states and Canada. All of our flights are operated as either United Express or The Delta Connection under code-sharing arrangements with United Airlines or Delta Air Lines. For the three months ended March 31, 2000, SkyWest was the largest regional airline at the San Francisco International Airport (100% of regional airline passengers), Salt Lake City International Airport (99% of regional airline passengers) and Los Angeles International Airport (65% of regional airline passengers). SkyWest offers a convenient schedule and frequent flights designed to encourage connecting and local traffic. For 17 of the 63 airports that SkyWest serves, it is the only scheduled commercial air service. SkyWest has been a code-sharing partner with United since 1997 and with Delta since 1987. SkyWest's development of code-sharing relationships with multiple major airlines enables us to reduce our reliance on a single major airline partner and increase the stability of our operating results. For the year ended March 31, 2000, 64% of SkyWest's operating revenues was derived from United code-share service and 36% was derived from Delta code-share service. Approximately 76% of SkyWest's current flights are structured as contract flights. On contract flights, United or Delta controls scheduling, ticketing, pricing and seat inventories, and SkyWest is compensated with a fixed fee for each flight completed and an amount per passenger, and is eligible for additional compensation if certain service quality levels are achieved. Also, United and Delta, under contractual arrangements, have agreed to reimburse SkyWest for the actual cost of fuel on all of SkyWest's contract flights. On SkyWest-controlled flights, SkyWest controls scheduling, ticketing, pricing and seat inventories, and shares revenues with United or Delta according to prorate formulas for those SkyWest passengers connecting to a United- or Delta-operated flight. The following are the principal elements of our business strategy: - Focus on Markets in the Western United States. We believe the market for air travel in the western United States offers attractive opportunities for long-term profitable growth for SkyWest. Generally, western air corridors are less congested than comparable routes in the eastern United States; longer stage lengths make air travel more attractive than alternate forms of travel; many western cities are experiencing significant population and economic growth; and mild year-round weather is common in many of the markets in which SkyWest operates. - Build Upon Relationships with Code-Sharing Partners. United is the world's largest airline, and Delta is the world's fourth-largest airline. SkyWest's significant recent growth in traffic and profitability are partially attributable to the success of its code-share relationships with United and Delta. At the same time, multiple code-sharing agreements reduce SkyWest's reliance on a single major airline. - Provide Excellent Customer Service. We strive for excellent customer service in every aspect of our operations. For the year ended March 31, 2000, our on-time performance ratio was 93.5% and our flight completion ratio was 98.6%. All aircraft in our fleet offer "cabin class" service, including a stand-up cabin, overhead and underseat storage, lavatories, and in-flight snack and beverage service. 1 5 - Operate Limited Types of Aircraft. We operate two types of aircraft, Embraer EMB-120 Brasilia turboprop aircraft ("Brasilia Turboprops") and Canadair Regional Jets. By simplifying our fleet, we believe we gain efficiencies in training, maintenance and flight operations. - Emphasize Contract Flying. We believe our emphasis on fixed-fee contract flying has reduced our exposure to fluctuations in fuel prices, fare competition and passenger volumes. In the future, we anticipate that our contract flying operations as a percentage of our total daily flights will increase as additional United and Delta contract flights are added to the SkyWest system. - Foster Our Employees' Best Efforts. With our anticipated growth in capacity, it is important that we encourage the best efforts of our employees and minimize turnover in all positions. We have a number of special employee compensation programs that we believe differentiate SkyWest as an attractive place to work and build a career. We have never had a work stoppage, and none of our employees are represented by a union. SkyWest's aircraft fleet consists of ninety-two 30-seat Brasilia Turboprops, which, as of June 30, 2000, had an average age of 5.7 years, and twelve 50-seat Canadair Regional Jets, which, as of June 30, 2000, had an average age of 5.0 years. In order to accommodate our expanding operations, we have placed a firm order to acquire an additional 54 Canadair Regional Jets over the next four years and a conditional order to acquire an additional 40 Canadair Regional Jets. If we acquire all such 94 aircraft, we will also be eligible to exercise options to acquire an additional 155 Canadair Regional Jets, 95 of which have been assigned scheduled delivery dates through 2005, and the balance of which have unspecified delivery dates. Our executive offices are located at 444 South River Road, St. George, Utah 84790. Our telephone number at that location is (435) 634-3000 and our web site address is www.skywest.com. The information on our web site is not part of this prospectus. GROWTH OPPORTUNITIES During the five fiscal years ended March 31, 2000, our total operating revenues expanded at an annual growth rate of 20.8%, and we increased the number of daily flights from approximately 550 in 1995 to approximately 1,000 in 2000. All of our growth during the five-year period was internally generated. We have not made any material business acquisitions. We believe that we are well-positioned for continued growth for several reasons, including the following: - 54 New Canadair Regional Jets Under Contract. We have placed firm orders for 54 additional Canadair Regional Jets to be delivered between September 2000 and October 2003. We have contracts with Delta covering our operation of 34 of such Canadair Regional Jets on a fixed-fee basis, and we have contracts with United covering our operation of an additional ten of such Canadair Regional Jets on a fixed-fee basis. The assignment of the remaining ten Canadair Regional Jets that are under firm orders will be determined upon United's completion of pending labor negotiations with its pilots and modification of contractual limitations on the number of regional jets that may be operated by United code-sharing partners. - 40 Additional Canadair Regional Jets Under a Conditional Order and Additional Opportunities for Placement. We have placed a conditional order (which currently expires in January 2001) to acquire an additional 40 Canadair Regional Jets with delivery dates scheduled between March 2002 and December 2004. Although we do not have agreements with United or Delta with respect to the placement of such Canadair Regional Jets, we believe that there are numerous opportunities for expansion of our relationship with both carriers. These opportunities include: - West Coast for United. United does not currently operate any regional jets from the Los Angeles, San Francisco, Seattle/Tacoma or Portland markets. We expect United to deploy most of the 20 Canadair Regional Jets we have designated for United service, and possibly additional Canadair Regional Jets, to medium and longer-distance, low-volume markets from such airports. 2 6 - Denver for United. We do not currently operate out of Denver International Airport, but were recently selected by United to commence Denver operations in October 2000 with two Canadair Regional Jets. In May 2000, United announced that it will build a new $100 million regional aircraft terminal in Denver. Construction of the facility is scheduled to begin in 2001, and the terminal is expected to feature up to 36 regional aircraft gates. We believe that United's Denver hub could support up to 100 regional jets over the next several years. Because SkyWest is the only United Express carrier located west of Denver, we believe SkyWest is well-positioned to operate as United Express flying westward out of Denver. - Intermountain Flights for Delta. During 1999, Delta replaced its service to six markets with our Canadair Regional Jets as part of its rationalization process at Salt Lake City. Delta's rationalization process involves increasing the number of longer-haul east/west Delta flights into Salt Lake City and the transitioning of its regional flights to SkyWest. With its smaller aircraft, SkyWest can often substitute several flights for each Delta flight, providing increased frequency of service at a lower overall cost. As such rationalization continues, we believe that Delta could substitute our Canadair Regional Jets for many of its flights between Salt Lake City and other cities. Delta currently has no system-wide limitations on the number of regional jets operated by its code-sharing partners. THE OFFERING The following information, which is based on 24,858,904 shares outstanding as of August 21, 2000, assumes that the underwriters do not exercise their over-allotment option to purchase 395,415 additional shares. Please see "Underwriting" for more information concerning this option. Common stock offered by SkyWest, Inc. ........ 2,500,000 shares Common stock offered by the selling stockholders.................................. 136,100 shares Common stock outstanding after the offering(1)................................... 27,358,904 shares Use of proceeds............................... For expansion of our operations, including the acquisition of additional aircraft and related spare parts and support equipment, and for general corporate purposes. We will not receive any of the proceeds from the sale of shares of common stock by the selling stockholders. See "Use of Proceeds" for more information concerning our proposed use of proceeds. Nasdaq National Market symbol................. "SKYW" - --------------- (1) Excludes 1,547,316 shares issuable upon exercise of outstanding stock options as of August 21, 2000. RISK FACTORS See "Risk Factors" beginning on page 5 for a discussion of certain factors that should be considered by prospective purchasers of our common stock. 3 7 SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA
THREE MONTHS ENDED FISCAL YEAR ENDED MARCH 31, JUNE 30, -------------------------------------------------------------- ----------------------- 1996 1997 1998 1999 2000 1999 2000 ---------- ---------- ---------- ---------- ---------- ---------- ---------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) CONSOLIDATED STATEMENTS OF INCOME DATA(1): Operating revenues................. $ 212,483 $ 245,766 $ 266,135 $ 388,626 $ 474,778 $ 111,562 $ 130,387 Operating income................... 5,636 16,025 32,819 64,305 86,680 20,476 25,174 Net income......................... 4,366 10,111 21,944 41,835 57,104 13,581 16,547 Net income per common share: Basic............................ $ 0.21 $ 0.50 $ 1.06 $ 1.73 $ 2.32 $ 0.55 $ 0.67 Diluted.......................... $ 0.21 $ 0.50 $ 1.04 $ 1.69 $ 2.29 $ 0.55 $ 0.65 Dividends declared per common share............................ $ 0.13 $ 0.12 $ 0.10 $ 0.12 $ 0.13 $ 0.03 $ 0.04 OTHER FINANCIAL DATA: EBITDA(2).......................... $ 24,827 $ 38,388 $ 57,360 $ 95,747 $ 125,126 $ 29,408 $ 35,767 EBITDAR(2)......................... 53,094 70,378 91,061 143,721 179,399 42,629 49,691 Cash flows from (used by): Operating activities............. 26,864 31,971 48,407 78,006 86,499 18,401 40,546 Investing activities............. (50,090) (11,627) (15,224) (181,480) (105,328) (41,741) (43,068) Financing activities............. 20,339 (7,087) 68,803 15,939 (8,864) (2,894) 12,729 AIRLINE OPERATING DATA(3): Passengers carried................. 2,340,366 2,656,602 2,989,062 4,900,921 5,503,290 1,365,706 1,401,113 Revenue passenger miles (000s)..... 617,136 717,322 745,386 1,015,872 1,196,680 290,590 319,830 Available seat miles (000s)........ 1,254,334 1,413,170 1,463,975 1,844,123 2,165,380 525,104 565,409 Passenger load factor.............. 49.2% 50.8% 50.9% 55.1% 55.3% 55.3% 56.6% Breakeven load factor.............. 48.4% 47.9% 45.0% 46.3% 45.5% 45.4% 45.9% Yield per revenue passenger mile... 33.2c 33.3c 34.8c 37.5c 39.0c 37.8c 40.1c Revenue per available seat mile.... 16.9c 17.3c 18.1c 21.0c 21.8c 21.1c 23.0c Cost per available seat mile....... 16.6c 16.3c 16.0c 17.6c 18.0c 17.4c 18.6c Average passenger trip length (miles).......................... 264 270 249 207 217 213 228 Number of aircraft (end of period): Canadair Regional Jet............ 10 10 10 11 11 11 12 Embraer Brasilia Turboprop....... 35 50 50 88 92 89 92 Fairchild Metroliner III......... 18 -- -- -- -- -- -- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Total aircraft................. 63 60 60 99 103 100 104 ========== ========== ========== ========== ========== ========== ==========
AS OF JUNE 30, 2000 -------------------------- ACTUAL AS ADJUSTED(4) -------- -------------- CONSOLIDATED BALANCE SHEET DATA: Cash and marketable securities............................ $189,675 $296,472 Working capital........................................... 160,692 267,489 Property and equipment, net............................... 260,734 260,734 Total assets.............................................. 515,260 622,057 Long-term debt, including current maturities(5)........... 74,043 74,043 Stockholders' equity...................................... 328,324 435,121
- --------------- (1) Reflects the reclassification of consolidated statements of income data to reflect the operations of Scenic Airlines, Inc., a subsidiary we sold in 1999 which provided sight-seeing tours of the Grand Canyon area, as discontinued operations. (2) EBITDA represents earnings before interest expense, income taxes, depreciation and amortization. EBITDAR represents earnings before interest expense, income taxes, depreciation, amortization and rental expense. EBITDA and EBITDAR are widely accepted financial indicators of a company's ability to incur and service debt. Neither EBITDA nor EBITDAR should, however, be considered in isolation, as a substitute for net income or cash flow prepared in accordance with generally accepted accounting principles or as a measure of a company's profitability or liquidity. For the fiscal year ended March 31, 1996, EBITDA and EBITDAR data have not been reduced to reflect $6.2 million of fleet restructuring and transition expenses. (3) Excludes the operations of Scenic Airlines, Inc., a subsidiary we sold in 1999, and National Parks Transportation, Inc., a subsidiary we sold on July 21, 2000, which operates a rental car business serving small regional airports. (4) Adjusted to reflect the sale of 2,500,000 shares we are offering hereby at an assumed price of $45.13 per share and the application of the estimated net proceeds therefrom. (5) At June 30, 2000, 82 of the aircraft operated by SkyWest were financed through operating leases. In addition to our indebtedness, we had $554.2 million of mandatory future payments under operating leases, primarily for aircraft and ground facilities. At an 8% discount factor, the present value of these obligations would be equal to approximately $365.5 million at June 30, 2000. 4 8 RISK FACTORS Before you invest in the common stock offered with this prospectus, you should be aware that such investment involves a high degree of risk, including those risks described below. You should consider carefully these risk factors, together with all of the other information included in this prospectus, before you decide to purchase any shares of our common stock. Additional risks and uncertainties not presently known to us or that we currently do not deem material may also impair our business operations. If any of the risks we describe below occur, or if any unforeseen risk develops, our operating results may suffer, our financial condition may deteriorate, the trading price of our common stock may decline and you may lose all or part of your investment. This prospectus contains various "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such statements can be identified by the use of the forward-looking words "anticipate," "estimate," "project," "likely," "believe," "intend," "expect," "hope" or similar words. These statements discuss future expectations, contain projections regarding future developments, operations or financial conditions, or state other forward-looking information. When considering such forward-looking statements, you should keep in mind the risks noted in this "Risk Factors" section and other cautionary statements throughout this prospectus, any prospectus supplement, and our periodic filings with the SEC that are incorporated by reference. You should also keep in mind that all forward-looking statements are based on our existing beliefs about present and future events outside of our control and on assumptions that may prove to be incorrect. If one or more risks identified in this prospectus, a prospectus supplement, or any applicable filings materializes, or any other underlying assumptions prove incorrect, our actual results may vary materially from those anticipated, estimated, projected or intended. RISKS RELATED TO OUR OPERATIONS WE ARE DEPENDENT ON OUR CODE-SHARING RELATIONSHIPS WITH UNITED AND DELTA. Termination of Relationship. We depend on relationships created by code-sharing agreements with United and Delta for a substantial portion of our business. Our code-sharing agreement with United terminates on May 31, 2008. Nevertheless, the United code-sharing agreement is subject to termination by United upon 180 days' prior notice for any or no reason. The term of the Delta code-sharing agreement continues until June 20, 2010, but is subject to termination in various circumstances including 180 days' notice by either party for any or no reason. Any material modification to, or termination of, our code- sharing agreements with United or Delta could have a material adverse effect on our operations and the price of our common stock. Delta Air Lines has adopted a policy of orderly monetization of minority ownership positions it holds in various companies. Consistent with this policy, Delta has already sold all or portions of its stakes in at least three other travel-related businesses. Delta has advised us that it may in the future consider the sale of all or a portion of its 3,107,798 shares of common stock in our company. Delta's stockholdings in our company may serve as a disincentive for Delta to terminate its code-sharing relationship with SkyWest or take other actions adverse to SkyWest. If Delta significantly reduces or completely liquidates its stock ownership in our company, Delta may be more likely to take actions, including terminating the code-sharing agreement, which would have an adverse effect on our share price. Direct Operation of Regional Jets by Majors. Our code-sharing relationships depend on major airlines like United and Delta electing to contract with us instead of purchasing and operating their own regional jets. However, these major airlines possess the resources to acquire and operate their own regional jets instead of entering into contracts with us. For example, American Airlines has acquired many regional jets. We have no guarantee that in the future our code-sharing partners will choose to enter into contracts with us instead of purchasing their own regional jets or entering into relationships with competing regional airlines. They are not prohibited from doing so under our code-sharing agreements. A decision by United or Delta to phase out contract-based code-sharing relationships and instead acquire and operate their own regional jets would have a material adverse effect on our business. 5 9 Passenger Volume and Strength of Code-Sharing Partners. We are directly affected by the financial and operational strength of our code-sharing partners. If United and/or Delta were to experience a sustained downturn in passenger volume or significantly reduce its ticket prices, our revenues would be negatively affected. In addition, in the event of a decrease in the financial or operational strength of one or both of our code-sharing partners, the respective code-sharing partner may terminate its relationship with us with respect to some or all of the flights we fly under its code. Any such event would have an adverse effect on our operations and the price of our common stock. OUR BUSINESS SUCCESS DEPENDS ON OUR PERFORMANCE IN A FEW HUB CITIES AND ROUTES. Our financial success is directly tied to the amount of air traffic flowing through Los Angeles (34% of our flights), Salt Lake City (25% of our flights) and San Francisco (21% of our flights). Any decrease in demand for regional flights in any of these cities, any natural disaster significantly affecting air travel to or from one of these cities or any political decision (such as the imposition of regulations or taxes adverse to regional airlines) in any of these cities may have a material adverse effect on our business operations and the price of our common stock. There can be no assurance that we will maintain our current market share in these cities, that the demand for air travel in these cities will not diminish or that governing laws and regulations in these cities will be favorable to us. WE FLY AND DEPEND UPON A LIMITED NUMBER OF AIRCRAFT TYPES. Our fleet consists of 92 Brasilia Turboprops and 12 Canadair Regional Jets. During the fiscal year ended March 31, 2000, 71% of our available seat miles (calculated by multiplying passenger seats available by miles flown) were generated by Brasilia Turboprops and 29% were generated by Canadair Regional Jets. Our operations could be materially adversely affected by, among other factors: - the failure or inability of Embraer-Empresa Brasileira de Aeronautica S.A. (the manufacturer of the Brasilia Turboprops) or Bombardier, Inc. (the manufacturer of the Canadair Regional Jets) to provide sufficient aircraft, parts or related support services on a timely basis, - the interruption of fleet service as a result of unscheduled or unanticipated maintenance requirements for these aircraft, - the issuance of FAA directives restricting or prohibiting the use of Brasilia Turboprops or Canadair Regional Jets, or - the adverse public perception of an aircraft type as a result of an accident or other adverse publicity. The risks associated with operating a limited number of aircraft types will increase since we have decided to exclusively acquire Canadair Regional Jets in our next 94 planned aircraft acquisitions. NEGATIVE PERCEPTION OF SMALLER AIRCRAFT MAY ADVERSELY AFFECT OUR OPERATIONS AND BUSINESS. Many air travelers may perceive smaller, regional aircraft, like our Brasilia Turboprops and Canadair Regional Jets, as unsafe, unstable or uncomfortable in comparison to the larger aircraft primarily used by major airline companies. The public's refusal to fly in the types of aircraft that we operate could cause us to lose our code-sharing agreements and could adversely affect our operations and the price of our common stock. THE LIMITED SIZE OF OUR FLEET MAY BE A DISADVANTAGE. We have substantially fewer aircraft and operate on substantially fewer routes than many of our current or potential competitors. Our ability to compete effectively with larger carriers may be materially and adversely affected by our size. If aircraft were removed from scheduled service for repairs or other reasons (other than for routine maintenance), any resulting interruption in service could materially and adversely affect our operations and the price of our common stock. 6 10 WE ARE AT RISK OF LOSSES STEMMING FROM AN ACCIDENT INVOLVING ONE OF OUR AIRCRAFT. For various reasons, one or more of our aircraft may crash, causing death or injury to individual air travelers and destroying the aircraft. Because of the limited number of aircraft that we operate and because of our relatively smaller size, any accident involving one of our aircraft would have a significant adverse effect on our business operations. Many factors can contribute to the occurrence of an accident, including: - pilot error, - air traffic or ground control error, - terrorism or other acts of sabotage, - manufacturing or similar product defects, - mechanical or maintenance error, and - adverse weather conditions. If one of our aircraft were to crash or be involved in an accident, we would be exposed to significant tort liability. Passengers, or their estates, may seek to recover damages for death or injury. 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, which could result in air travelers being reluctant to fly on our aircraft. DELTA HAS RIGHTS UNDER AN OPTION AGREEMENT THAT SIGNIFICANTLY IMPACT OUR COMPANY. Under the terms of a Stock Option Agreement we have executed with Delta, Delta acquired shares of our common stock, which currently represent 12.5% of the outstanding common stock (without giving effect to the issuance of additional shares to be sold in this offering). In addition, Delta has the right to be offered a percentage of our common stock each time we sell voting securities in order to maintain its percentage ownership of our common stock and the right to have us register shares of common stock on Delta's behalf. Delta also has the right to have management nominate a Delta designee to serve on our board of directors. Delta's rights under the Delta Stock Option Agreement may permit Delta to influence our management and policies, and Delta's ownership of shares of common stock may give it the ability to affect the outcome of matters submitted to a vote of our stockholders. UNITED HAS A RIGHT OF FIRST REFUSAL WITH RESPECT TO ANY SALE OF OUR BUSINESS. Under our code-sharing agreement with United, if we desire to merge with another company, sell or otherwise transfer our assets to a third party, or issue capital stock exceeding 5% of our outstanding capital stock (30% if the stock is issued in a public offering) to such third party, we are required to give United notice of the proposed transaction, offer to complete such transaction with United instead of such third party, negotiate with United in good faith terms and conditions on which we could complete such transaction with United and offer United any terms and conditions we offer to such third party. If we are unable to agree with United, we may enter into negotiations with other parties, but we may not enter into any agreement on terms more favorable to any such third party than those we offered to United. The existence of this right of first refusal may adversely affect our ability to negotiate or consummate the sale of all or part of our business to a company other than United and may adversely affect the terms of a sale to any company, including United. THE BRAZILIAN GOVERNMENT MAY FAIL TO HONOR ITS AGREEMENT TO PAY US SUBSIDIES. In connection with the acquisition of substantially all of our Brasilia Turboprops, we were granted a contractual right to receive subsidy payments through the export support program sponsored by the Federative Republic of Brazil. The amount of these subsidies, which are offered by the Brazilian government as an economic incentive to purchasers of the Brazilian-based Embraer aircraft and are 7 11 currently payable through January 2006, fluctuates based upon the number and age of the Brasilia aircraft eligible for subsidy payments. During the fiscal year ended March 31, 2000, the subsidy represented approximately $6 million in annual credits against our interest expense and aircraft rental expense related to Brasilia Turboprops. The subsidies would be jeopardized if the Brazilian government failed to meet its obligations under the export support program. From time to time, the Brazilian government has experienced economic conditions that have impaired its creditworthiness. There can be no assurance that a default will not occur under the Brazilian export support program. Any termination or significant interruption of the Brazilian subsidy payments could have a material adverse affect on our financial condition and operations. OUR FLEET EXPANSION PROGRAM WILL REQUIRE A SIGNIFICANT INCREASE IN OUR LEVERAGE. The airline business is very capital intensive and, as a result, many airline companies are highly leveraged. During the fiscal year ended March 31, 2000, our mandatory debt service payments totaled $9.6 million and our mandatory lease payments totaled $59.1 million. Our current growth strategy involves the acquisition of 94 more Canadair Regional Jets between September 2000 and December 2004. We estimate that the price of each new Canadair Regional Jet will be approximately $22 million. We expect to lease or otherwise acquire on credit all, or substantially all, such 94 Canadair Regional Jets, which leases or debt credit will significantly increase our mandatory debt and lease payments. There can be no assurance that our operations will generate sufficient cash flow to make such payments. If we default under our loan or lease agreements, the lender/lessor has available extensive remedies, including, without limitation, repossession of the respective aircraft or exertion of control over how we allocate our revenues. Even if we are able to timely service our debt, the size of our long-term debt and lease obligations could negatively affect our operations and the price of our common stock in many ways, including: - increasing the cost, or limiting the availability of, additional financing for working capital, capital acquisitions or other purposes, and - limiting the ways in which we can use our cash flow, much of which may have to be used to satisfy debt and lease obligations. OUR OPERATING REVENUES AND/OR PROFITS COULD DECREASE OR CEASE TO EXIST. There is no guarantee that we will generate profits in the future. Many factors will impact our ability to generate a profit, including: - the strength of the U.S. economy, - fluctuations in ticket prices and demand for air travel, - the price and supply of labor, - government regulation, - our ability to satisfy customers and business partners such as United and Delta, - supply and cost of aircraft fuel, and - competition in the airline industry. We could experience operating losses in the future based on unexpected conditions that arise in these and other areas. There is no assurance that our growth plans and overall business strategy will be successful. Failure to produce profits, or a reduction in the level of profits, would have a material adverse effect on our operations and the price of our common stock. 8 12 WE ARE DEPENDENT UPON KEY PERSONNEL. Our success depends in part on our ability to retain our key executive officers and directors. Jerry C. Atkin is our current chief executive officer. His decision-making skills and leadership have been vital to our operations to date. The departure of Mr. Atkin could have a significant material adverse effect on our operations and the price of our common stock. UNIONIZATION OF OUR EMPLOYEES MAY ADVERSELY AFFECT OUR PROFITABILITY. Our employees are not currently represented by any union. We are aware, however, that collective bargaining group organization efforts among our employees occur from time to time and expect that such efforts will continue in the future. During August 1999, the question of whether or not to join the Air Line Pilots Association was submitted to our pilots, who voted against joining the union by a narrow margin. Under governing rules, our pilots may again vote on this issue as early as August 2000. If unionizing efforts are successful, we may be subjected to risks of work interruption or stoppage and/or incur additional administrative expenses associated with union representation of our employees. We recognize that such efforts will likely continue in the future and may ultimately result in some or all of our employees being represented by a union. In connection with our proposed expansion, we anticipate hiring between 2,300 and 3,000 new employees, many of whom may be represented by a union in their current employment and who may, therefore, influence efforts to organize into a collective bargaining group. RISKS ASSOCIATED WITH OUR EXPANSION PLANS SUBSTANTIAL RISKS ACCOMPANY OUR CURRENT GROWTH PLANS. We have contracted to add a substantial number of aircraft over the next few years. Substantial risks accompany our growth plans. Some factors that may impact our growth plans include: - demand for regional air transportation, - the likelihood of continued business relations with our current code-sharing partners, - the condition of the United States economy generally, particularly the economy in California and other western states, - our ability to hire and retain enough flight crews and mechanics for our aircraft, - our ability to acquire enough new Canadair Regional Jets and other aircraft, and - our ability to obtain the financing necessary to pay for expansion at acceptable rates. Many of these factors are beyond our control. If we are incorrect in our assessment of the profitability and feasibility of our growth plans, or if circumstances change in a way that was unforeseen to us, we may not be able to grow as planned or growth may have an adverse effect on operations and the price of our common stock. WE MAY NOT BE ABLE TO IMPLEMENT OUR EXPANSION PLANS. We have agreed with both United and Delta to increase the number of flight segments we operate on their behalf. Our expansion plans over the next five years include the acquisition of at least 94 Canadair Regional Jets and related additional ground and maintenance facilities and support equipment, the employment of more than 2,500 additional employees and the integration of those aircraft, facilities and employees into our existing operations. There is no assurance that we will be able to obtain the facilities, aircraft, gates and personnel required for our proposed expansion on a timely basis. The failure to obtain such aircraft, facilities, gates or personnel could adversely affect our financial condition and results of operations. Due to the limited supply of Canadair Regional Jets and airport facilities, among other factors, there can be no assurance that 9 13 our current estimates of the cost of our proposed expansion will be accurate. Any material deviation from our current estimates could adversely affect our financial condition and results of operations. WE MAY EXPERIENCE DIFFICULTY FINDING AND RETAINING EMPLOYEES. Our business is labor-intensive; we require large numbers of pilots, flight attendants, mechanics and other personnel. As of June 30, 2000, we employed 3,593 full-time equivalent employees, including 1,487 pilots and flight attendants, 1,425 customer service personnel, 443 mechanics and other maintenance personnel and 238 administration and support personnel. We anticipate that our expansion plans will require us to find, hire and train approximately 2,500 new employees, including 1,035 pilots and flight attendants, 990 customer service personnel, 310 mechanics and other maintenance personnel and 165 administration and support personnel. There is no assurance that we will be able to locate, hire and retain the qualified employees that we need in order to carry out our expansion plans. Current labor market conditions generally favor employees. Companies are finding it difficult to hire and retain qualified employees, and wages and salaries are generally increasing. If we are unable to hire and retain qualified employees at a reasonable cost, we may be unable to complete our expansion plans, which would adversely affect our operations and the price of our common stock. UNITED'S CONTRACT WITH ITS PILOTS MAY INHIBIT EXPANSION OF OUR RELATIONSHIP WITH UNITED. Our expansion plans depend primarily on our ability to increase the number of flights we operate for United and Delta. Employees at major airlines generally oppose efforts by their companies to outsource flights to regional airlines because of their perception that such outsourcing leads to layoffs at the major airline, and lower wages and salaries. A "scope" clause in United's current collective bargaining agreement with its pilots prevents United from using (directly or indirectly) more than 65 regional jets in its operations. Currently, United uses approximately 30 regional jets. We hope to use the majority of the aircraft we intend to acquire over the next five years in United Express service. This can be achieved only if United's current limit of 65 regional jets is changed as part of the new United labor contract currently under negotiation. There can be no assurance that United will succeed in expanding the scope clause. Furthermore, United's recently announced plans to merge with U.S. Airways may prevent them from addressing the scope clause issue in a timely manner. United's failure to timely modify its regional jet scope clause in order to permit the full implementation of our and United's expansion plans could have a material adverse effect on our operations and the price of our common stock. THERE IS A RISK OF NONDELIVERY OF AIRCRAFT WE INTEND TO ACQUIRE. We anticipate adding at least 94 Canadair Regional Jets to our fleet over the next five years. This almost doubles our current fleet. A number of factors may limit or preclude our planned expansion, including: - breach by Bombardier, Inc. of our firm order contracts for the delivery of 54 Canadair Regional Jets or our conditional order for 40 additional Canadair Regional Jets, - a fire, strike or other event which affects the ability of Bombardier, Inc. to completely or timely fulfill its contractual obligations, and - our ability to obtain necessary financing or to fulfill our contractual obligations related to the acquisition of the Canadair Regional Jets. Any disruption or change in the delivery schedule of such Canadair Regional Jets would affect our overall operations and could have a material adverse impact on our operating results and the price of our common stock. 10 14 RISKS ASSOCIATED WITH THE AIRLINE INDUSTRY OUR INDUSTRY IS HIGHLY COMPETITIVE. The airline industry is highly competitive. We not only compete with other regional airlines, some of which are owned by or operated as code-sharing partners of major airlines, but we also face competition from low-fare airlines and major airlines on many of our routes. Southwest Airlines, a national low-fare airline, serves the Salt Lake City International Airport, which results in significant price competition at the Salt Lake City hub. Competition in the California and Pacific Northwest markets, which we service from our hubs in Los Angeles, San Francisco, Seattle/Tacoma and Portland is particularly intense, with a large number of carriers in these markets. Certain of our competitors are larger and have significantly greater financial and other resources than we do. Moreover, federal deregulation of the industry allows competitors to rapidly enter our markets and to quickly discount and restructure fares. The airline industry is particularly susceptible to price discounting because airlines incur only nominal costs to provide service to passengers occupying otherwise unsold seats. Increased fare competition could adversely affect our operations and the price of our common stock. ADVERSE WEATHER MAY HAVE A MATERIAL ADVERSE EFFECT ON OUR REVENUES. On SkyWest-controlled routes, our revenues depend upon the number of passengers we carry on each flight, the fare paid by each passenger and our proration of such fare. On contract flights, our revenues depend primarily on our completion of the flight and secondarily on service factors such as timeliness of departure and arrival. During periods of fog, low temperatures, storms or other adverse weather, our flights may be canceled or significantly delayed. Because our revenues are dependent upon successful and timely completion of each scheduled flight, any sustained period of adverse weather at one or more of the airports we serve would have a material adverse effect on our operations and the price of our common stock. AVAILABILITY AND COST OF FUEL IMPACTS OUR OPERATIONS. One of our principal cost components is fuel. Fuel prices have increased significantly during the last year, from $0.73 per gallon as of June 30, 1999 to $1.05 per gallon as of June 30, 2000. At our current rate of consumption, for every one cent increase in the price of fuel, our annual operating income would decrease by approximately $192,000, after giving effect to our fuel reimbursement arrangements related to United and Delta contract flights. In addition, an increase in the price of fuel may lead to higher airfares, which would tend to decrease the passenger load of our code-sharing partners. In the long run, such decrease will have an adverse effect on the number of flights such partner will ask us to provide and the revenues associated with such flights. Both the cost and the availability of fuel are subject to many economic and political factors and events occurring throughout the world. We have no agreement with any fuel supplier assuring the availability or price of fuel. Our ability to pass on increased fuel costs through fare increases on SkyWest- controlled flights may be limited by several factors, including, without limitation, economic and competitive conditions. The future cost and availability of fuel to us cannot be predicted, and substantial fuel cost increases or the unavailability of adequate supplies of fuel may have a material adverse effect on our results of operations. THE AIRLINE INDUSTRY IS HEAVILY REGULATED. We incur substantial costs in maintaining our current certifications and otherwise complying with the laws, rules and regulations to which we are subject. We cannot predict whether we will be able to comply with all present and future laws, rules, regulations and certification requirements or that the cost of continued compliance will not have a material adverse effect on us. We are subject to regulation by the FAA, which has the authority to issue mandatory orders relating to, among other things, the grounding of aircraft, inspection of aircraft, installation of new safety-related 11 15 items and removal and replacement of aircraft parts that have failed or may fail in the future. A decision by the FAA to ground, or require time-consuming inspections of or maintenance on, all or any of our Brasilia Turboprops or Canadair Regional Jets, for any reason, may have a material adverse effect on our operations and the price of our common stock. In addition to state and federal regulation, airports and municipalities enact rules and regulations that affect our operations. From time to time, various airports throughout the country have considered limiting the use of smaller aircraft, such as Brasilia Turboprops and Canadair Regional Jets, at such airports. The imposition of any limits on the use of Brasilia Turboprops or Canadair Regional Jets at any airport at which we operate could have a material adverse effect on our operations and the price of our common stock. RISKS RELATED TO OUR COMMON STOCK WE CAN ISSUE ADDITIONAL SHARES WITHOUT STOCKHOLDER APPROVAL. Our Restated Articles of Incorporation, as amended on August 9, 2000, authorize the issuance of up to 120,000,000 shares of common stock. All such shares may be issued without any action or approval by our stockholders. We have two stock option plans under which approximately 1,059,000 shares are reserved for issuance, and an employee stock purchase plan under which approximately 594,000 shares are reserved for issuance. On August 8, 2000, our stockholders approved two new stock option plans that will become effective January 1, 2001, and will supersede our two current stock option plans. We have reserved up to 4,000,000 shares for issuance under the new stock option plans. The number of shares reserved for issuance under the new plans could potentially increase by the number of shares subject to options previously granted under the current stock option plans that are forfeited, cancelled or expired. This potential increase could result in an aggregate number of shares available for issuance under the new plans of approximately 5,569,000 shares. The issuance of any additional shares of common stock would further dilute the percentage ownership of existing stockholders. DISTRIBUTION OF DIVIDENDS MAY DECREASE OR CEASE. Historically, we have paid dividends in varying amounts on our common stock. The future payment and amount of cash dividends will depend upon our financial condition and results of operations, loan covenants and other factors deemed relevant by our board of directors. There can be no assurance that we will continue our practice of paying dividends on the common stock or that we will have the financial resources to pay such dividends. ANTI-TAKEOVER PROVISIONS AFFECT THE ABILITY OF OTHERS TO GAIN CONTROL OF OUR COMPANY. Certain provisions of our Restated Articles of Incorporation and Bylaws, including provisions authorizing the issuance of shares of preferred stock from time to time without stockholder approval, may have the effect of delaying or preventing a change in control and may adversely affect the voting and other rights of the holders of common stock, even in circumstances where such a change in control would be viewed as desirable by most investors. In addition, the provisions of the Utah Control Shares Acquisition Act may discourage persons or entities interested in acquiring a significant interest in or control of our company. SALES OF STOCK BY DELTA AIR LINES. Delta Air Lines has adopted a policy of orderly monetization of minority ownership positions it holds in various companies. Consistent with this policy, Delta has already sold all or portions of its stakes in at least three other travel-related businesses. Delta has advised us that it may in the future consider the sale of all or a portion of its 3,107,798 shares of common stock in our company. Sales of stock by Delta in meaningful amounts may have the effect of depressing the market price of our common stock. 12 16 USE OF PROCEEDS The net proceeds we will receive from the sale of the 2,500,000 shares of common stock offered by us, assuming a public offering price of $45.13 per share and after deducting estimated underwriting discounts and offering expenses, are estimated to be $106.8 million ($123.7 million if the underwriters' over-allotment option is exercised in full). We currently intend to use the net proceeds of the offering to fund expansion of our operations, including the acquisition of additional aircraft and related spare parts and support equipment, and for general corporate purposes. With respect to the acquisition of aircraft, we will determine on a case-by-case basis whether to purchase an aircraft with a portion of the net proceeds from the offering or to finance the acquisition of the aircraft through long-term loans or lease arrangements. We believe that the expenses of obtaining the loans or leases may be reduced, and the availability of the loans or leases may be facilitated, by the increase in stockholders' equity resulting from the offering. Pending the use of our net proceeds as described above, the net proceeds will be invested in short-term, investment grade, interest-bearing securities. We will not receive any proceeds from the sale of common stock by the selling stockholders. PRICE RANGE OF COMMON STOCK AND DIVIDENDS Our common stock is quoted on the Nasdaq National Market under the symbol "SKYW." The following table sets forth, for the periods indicated, the high and low closing sale prices per share for our common stock, as reported by the Nasdaq National Market, and the cash dividends we have declared.
CASH DIVIDENDS HIGH LOW DECLARED ------ ------ --------- FISCAL YEAR ENDED MARCH 31, 1999: First Quarter......................................... $29.75 $17.69 $0.03 Second Quarter........................................ 34.00 15.00 0.03 Third Quarter......................................... 32.69 16.06 0.03 Fourth Quarter........................................ 38.00 25.13 0.03 FISCAL YEAR ENDED MARCH 31, 2000: First Quarter......................................... $30.25 $21.50 $0.03 Second Quarter........................................ 27.63 20.13 0.03 Third Quarter......................................... 29.00 21.44 0.03 Fourth Quarter........................................ 39.13 27.50 0.04 FISCAL YEAR ENDING MARCH 31, 2001: First Quarter......................................... $46.50 $33.88 $0.04 Second Quarter (through August 21, 2000).............. 49.38 37.38 $0.04
The closing sale price of our common stock on August 21, 2000, was $45.13. As of August 21, 2000, there were 24,858,904 shares of common stock outstanding, held by approximately 1,000 stockholders of record, which does not include shares held in securities position listings. We have historically paid cash dividends on our common stock. In fiscal 1997, we revised our dividend policy from paying a regular annual dividend, supplemented by special dividends paid from time to time, to a policy of paying a regular quarterly cash dividend. The future payment and amount of cash dividends will depend upon our financial condition and results of operations, applicable loan covenants and other factors deemed relevant by our board of directors. 13 17 CAPITALIZATION The following table sets forth our capitalization at June 30, 2000, and as adjusted to give effect to the sale of the 2,500,000 shares of common stock offered by us at an assumed offering price of $45.13 per share and the application of the estimated net proceeds therefrom, as described under "Use of Proceeds." The following table should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Consolidated Financial Statements, including the Notes thereto, appearing elsewhere in this prospectus or incorporated herein by reference.
JUNE 30, 2000 ----------------------- ACTUAL AS ADJUSTED -------- ----------- (IN THOUSANDS) Current portion of long-term debt(1)........................ $ 12,836 $ 12,836 ======== ======== Long-term debt, net of current portion(1)................... $ 61,207 $ 61,207 -------- -------- Stockholders' equity: Preferred stock, no par value; 5,000,000 shares authorized; none outstanding........................... -- -- Common stock, no par value; 40,000,000 shares authorized; 27,739,454 shares issued; 30,239,454 shares issued, as adjusted(2)............................................ 166,198 272,995 Retained earnings......................................... 183,887 183,887 Treasury stock; 2,949,200 shares.......................... (20,285) (20,285) Net unrealized depreciation on available-for-sale securities............................................. (1,476) (1,476) -------- -------- Total stockholders' equity............................. 328,324 435,121 -------- -------- Total capitalization................................... $389,531 $496,328 ======== ========
- --------------- (1) As of June 30, 2000, we had financed 82 of our aircraft and certain of our airport and maintenance facilities through operating leases. In addition to our indebtedness, we had $554.2 million of mandatory future payments under operating leases, primarily for aircraft and ground facilities. At an 8% discount factor, the present value of these obligations would be equal to approximately $365.5 million at June 30, 2000. See Note 4 of the Notes to our Consolidated Financial Statements incorporated herein by reference. (2) Assumes underwriters' over-allotment option of 395,415 shares is not exercised and excludes 1,615,966 shares issuable upon exercise of outstanding stock options we have granted at a weighted average exercise price of $23.50 per share as of June 30, 2000. 14 18 SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA The following table sets forth our selected consolidated financial and airline operating data with respect to the periods indicated. This information should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our Consolidated Financial Statements, including the Notes thereto, appearing elsewhere in this prospectus or incorporated by reference herein. The selected consolidated financial data as of and for each of the fiscal years ended March 31, 1996 through March 31, 2000 have been derived from our Consolidated Financial Statements, which statements have been audited by Arthur Andersen LLP, independent public accountants. The airline operating data set forth below is unaudited. The selected consolidated financial data as of and for the three months ended June 30, 1999 and 2000 have been derived from our unaudited Consolidated Financial Statements which, in our opinion, reflect all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the information contained therein. Data for the three months ended June 30, 2000 are not necessarily indicative of results to be expected for the fiscal year ending March 31, 2001.
THREE MONTHS ENDED FISCAL YEAR ENDED MARCH 31, JUNE 30, -------------------------------------------------------------- ------------------------ 1996 1997 1998 1999 2000 1999 2000 ---------- ---------- ---------- ---------- ---------- ---------- ---------- (IN THOUSANDS, EXCEPT PER SHARE DATA) CONSOLIDATED STATEMENTS OF INCOME DATA(1): Operating revenues: Passenger...................... $ 205,034 $ 239,222 $ 259,314 $ 381,409 $ 466,733 $ 109,713 $ 128,403 Freight and other.............. 7,449 6,544 6,821 7,217 8,045 1,849 1,984 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Total operating revenues..... 212,483 245,766 266,135 388,626 474,778 111,562 130,387 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Operating expenses: Flying operations.............. 85,117 101,689 103,636 137,231 176,159 39,584 49,338 Aircraft, traffic and passenger service...................... 32,522 37,044 38,957 58,826 65,822 16,010 17,517 Maintenance.................... 28,713 29,149 29,299 51,370 60,400 14,409 15,118 Promotion and sales............ 25,965 29,606 25,505 29,432 27,698 7,692 6,954 Depreciation and amortization................. 15,392 18,481 19,305 23,237 28,463 6,487 7,827 General and administrative..... 11,962 12,577 14,992 22,460 27,601 6,387 8,012 Fleet restructuring and transition................... 6,247 -- -- -- -- -- -- Other.......................... 929 1,195 1,622 1,765 1,955 517 447 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Total operating expenses..... 206,847 229,741 233,316 324,321 388,098 91,086 105,213 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Operating income................. 5,636 16,025 32,819 64,305 86,680 20,476 25,174 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Other income (expense): Interest expense............... (2,160) (2,431) (1,639) (2,376) (2,726) (563) (579) Interest income................ 2,500 2,328 4,090 7,553 8,575 2,084 2,450 Gain on sales of property and equipment.................... 556 936 (45) 419 309 90 80 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Total other income........... 896 833 2,406 5,596 6,158 1,611 1,951 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Income before provision for income taxes................... 6,532 16,858 35,225 69,901 92,838 22,087 27,125 Provision for income taxes....... 2,341 6,572 13,565 27,273 35,734 8,506 10,578 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Income from continuing operations..................... 4,191 10,286 21,660 42,628 57,104 13,581 16,547 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Discontinued operations: Income (loss) from operations of Scenic Airlines........... 175 (175) 284 (168) -- -- -- Loss on disposition of Scenic Airlines..................... -- -- -- (625) -- -- -- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Total income (loss) from discontinued operations.... 175 (175) 284 (793) -- -- -- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Net income....................... $ 4,366 $ 10,111 $ 21,944 $ 41,835 $ 57,104 $ 13,581 $ 16,547 ========== ========== ========== ========== ========== ========== ========== Net income per common share: Basic.......................... $ 0.21 $ 0.50 $ 1.06 $ 1.73 $ 2.32 $ 0.55 $ 0.67 ========== ========== ========== ========== ========== ========== ========== Diluted........................ $ 0.21 $ 0.50 $ 1.04 $ 1.69 $ 2.29 $ 0.55 $ 0.65 ========== ========== ========== ========== ========== ========== ========== Dividends declared per common share.......................... $ 0.13 $ 0.12 $ 0.10 $ 0.12 $ 0.13 $ 0.03 $ 0.04 ========== ========== ========== ========== ========== ========== ========== Weighted average common shares outstanding: Basic.......................... 20,568 20,170 20,799 24,199 24,563 24,488 24,761 ========== ========== ========== ========== ========== ========== ========== Diluted........................ 20,736 20,248 21,168 24,787 24,961 24,707 25,276 ========== ========== ========== ========== ========== ========== ==========
15 19
THREE MONTHS ENDED FISCAL YEAR ENDED MARCH 31, JUNE 30, -------------------------------------------------------------- ------------------------ 1996 1997 1998 1999 2000 1999 2000 ---------- ---------- ---------- ---------- ---------- ---------- ---------- (IN THOUSANDS, EXCEPT AIRLINE OPERATING DATA) OTHER FINANCIAL DATA: EBITDA(2)........................ $ 24,827 $ 38,388 $ 57,360 $ 95,747 $ 125,126 $ 29,408 $ 35,767 EBITDAR(2)....................... 53,094 70,378 91,061 143,721 179,399 42,629 49,691 Cash flows from (used by): Operating activities........... 26,864 31,971 48,407 78,006 86,499 18,401 40,546 Investing activities........... (50,090) (11,627) (15,224) (181,480) (105,328) (41,741) (43,068) Financing activities........... 20,339 (7,087) 68,803 15,939 (8,864) (2,894) 12,729 AIRLINE OPERATING DATA(3): Passengers carried............... 2,340,366 2,656,602 2,989,062 4,900,921 5,503,290 1,365,706 1,401,113 Revenue passenger miles (000s)(4)...................... 617,136 717,322 745,386 1,015,872 1,196,680 290,590 319,830 Available seat miles (000s)(5)... 1,254,334 1,413,170 1,463,975 1,844,123 2,165,380 525,104 565,409 Passenger load factor(6)......... 49.2% 50.8% 50.9% 55.1% 55.3% 55.3% 56.6% Breakeven load factor(7)......... 48.4% 47.9% 45.0% 46.3% 45.5% 45.4% 45.9% Yield per revenue passenger mile(8)........................ 33.2c 33.3c 34.8c 37.5c 39.0c 37.8c 40.1c Revenue per available seat mile(9)........................ 16.9c 17.3c 18.1c 21.0c 21.8c 21.1c 23.0c Cost per available seat mile(10)....................... 16.6c 16.3c 16.6c 17.6c 18.0c 17.4c 18.6c Average passenger trip length (miles)........................ 264 270 249 207 217 213 228 Number of aircraft (end of period): Canadair Regional Jet.......... 10 10 10 11 11 11 12 Embraer Brasilia Turboprop..... 35 50 50 88 92 89 92 Fairchild Metroliner III....... 18 -- -- -- -- -- -- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Total aircraft............. 63 60 60 99 103 100 104 ========== ========== ========== ========== ========== ========== ==========
AS OF MARCH 31, ---------------------------------------------------- AS OF JUNE 30, 1996 1997 1998 1999 2000 2000 -------- -------- -------- -------- -------- -------------- CONSOLIDATED BALANCE SHEET DATA: Cash and marketable securities..................... $ 43,626 $ 55,756 $154,399 $161,817 $171,348 $189,675 Working capital.................................... 32,818 45,278 143,109 142,358 154,179 160,692 Property and equipment, net........................ 145,071 137,743 133,470 198,924 233,954 260,734 Total assets....................................... 226,996 231,934 318,914 417,660 470,183 515,260 Long-term debt, including current maturities(11)... 59,972 53,736 57,809 70,327 60,758 74,043 Stockholders' equity............................... 115,800 124,552 211,133 256,256 312,220 328,324
- --------------- (1) Reflects the reclassification of consolidated statements of income data to reflect the operations of Scenic Airlines, Inc., a subsidiary we sold in 1999 which provided sight-seeing tours of the Grand Canyon area, as discontinued operations. (2) EBITDA represents earnings before interest expense, income taxes, depreciation and amortization. EBITDAR represents earnings before interest expense, income taxes, depreciation, amortization and rental expense. EBITDA and EBITDAR are widely accepted financial indicators of a company's ability to incur and service debt. Neither EBITDA nor EBITDAR should, however, be considered in isolation, as a substitute for net income or cash flow prepared in accordance with generally accepted accounting principles or as a measure of a company's profitability or liquidity. For the fiscal year ended March 31, 1996, EBITDA and EBITDAR data have not been reduced to reflect $6.2 million of fleet restructuring and transition expenses. (3) Excludes the operations of Scenic Airlines, Inc. and National Parks Transportation, Inc., a subsidiary we sold on July 21, 2000, which operates a rental car business serving small regional airports. (4) Revenue passengers multiplied by miles flown. (5) Passenger seats available multiplied by miles flown. (6) Revenue passenger miles divided by available seat miles. (7) Passenger load factor at which total airline operating revenues equals total airline operating expenses, including interest expense. Calculated by dividing airline operating expenses plus interest expense by airline operating revenues and multiplying the result by passenger load factor. (8) Passenger revenues divided by revenue passenger miles flown. (9) Total airline operating revenues divided by available seat miles. (10) Airline operating expenses plus interest expense divided by available seat miles. (11) At June 30, 2000, 82 of the aircraft operated by SkyWest were financed through operating leases. In addition to our indebtedness, we had $554.2 million of mandatory future payments under operating leases, primarily for aircraft and ground facilities. At an 8% discount factor, the present value of these obligations would be equal to approximately $365.5 million at June 30, 2000. 16 20 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW SkyWest operates a regional airline offering scheduled passenger service with approximately 1,000 daily departures to 63 cities in 13 western states and Canada. Total operating revenues and passengers carried have grown from fiscal 1995 through fiscal 2000 at annual growth rates of approximately 20.8% and 21.6%, respectively. All of our growth has been internally generated without any material acquisitions. In fiscal 1995, SkyWest generated approximately 976 million available seat miles and had a fleet of twenty-six 19-seat Fairchild Metroliners, twenty-eight 30-seat Brasilia Turboprops and six Canadair Regional Jets at fiscal year end. As a result of additional aircraft acquisitions, SkyWest generated approximately 2.2 billion available seat miles in fiscal 2000 with a fleet of 92 Brasilia Turboprops and 11 Canadair Regional Jets at fiscal year end. The transition out of the Fairchild Metroliner aircraft, completed in December 1996, enabled SkyWest to upgrade its aircraft to an all cabin class fleet of Brasilia Turboprops and Canadair Regional Jets, which offer increased passenger acceptance and capacity and higher operating efficiencies. In fiscal 2000, we generated net income of $57.1 million, compared to $41.8 million in fiscal 1999 and $21.9 million in fiscal 1998. During fiscal 1999, we sold the operations of Scenic Airlines, Inc., and recorded a net loss of $625,000 on the sale. The amount has been reflected as discontinued operations in our consolidated financial statements incorporated by reference herein. The improvement since fiscal 1998 reflects, among other factors, the addition of United as a code-sharing partner in October 1997. The percentage of our available seat miles operated under fixed-fee contracts has increased from 25% in fiscal 1998 to 65% in fiscal 2000. The shift to fixed-fee contract flying has reduced SkyWest's exposure to fluctuations in fuel prices, fare competition and passenger volumes. We anticipate that our contract flying operations will increase as a percentage of our total daily flights as additional United and Delta routes are added to the SkyWest system; however, we anticipate that margins associated with contract routes will be less than the margins we have historically generated on mature SkyWest-controlled routes. We have continued to emphasize cost management and better utilization of existing resources. During fiscal 2000, SkyWest experienced only a 2.3% increase in cost per available seat mile in spite of a 45% increase in the average cost of fuel during the year. Fuel costs are currently 12.5% of total airline operating expenses. Cost per available seat mile was 18.0c for fiscal 2000 compared to 17.6c for fiscal 1999. 17 21 RESULTS OF OPERATIONS The following table sets forth information regarding our operating expense components. Airline operating expenses are expressed as a percentage of total airline operating revenues. Nonairline expenses are expressed as a percentage of total nonairline revenues. Total operating expenses and interest are expressed as a percentage of total consolidated revenues. Individual expense components are also expressed as cents per available seat mile.
FISCAL YEAR ENDED MARCH 31, --------------------------------------------------------------------------------------- 1998 1999 2000 --------------------------- --------------------------- --------------------------- PERCENT CENTS PERCENT CENTS PERCENT CENTS OF PER OF PER OF PER AMOUNT REVENUES ASM AMOUNT REVENUES ASM AMOUNT REVENUES ASM -------- -------- ----- -------- -------- ----- -------- -------- ----- Salaries, wages and employee benefits......... $ 67,591 25.5% 4.6c $101,243 26.2% 5.5c $122,617 25.9% 5.7c Aircraft costs............. 52,357 19.8 3.6 70,561 18.2 3.8 82,102 17.4 3.8 Maintenance................ 20,535 7.8 1.4 36,563 9.5 2.0 42,611 9.0 2.0 Fuel....................... 28,510 10.8 2.0 29,477 7.6 1.6 48,424 10.2 2.2 Other airline expenses..... 62,701 23.7 4.3 84,712 21.9 4.6 90,389 19.1 4.2 Interest................... 1,639 0.6 0.1 2,376 0.6 0.1 2,726 0.6 0.1 -------- ---- ---- -------- ---- ---- -------- ---- ---- Total airline expenses..... 233,333 88.3 16.0c 324,932 84.0 17.6c 388,869 82.2 18.0c ==== ==== ==== Other...................... 1,622 93.6 1,765 94.1 1,955 93.8 -------- -------- -------- Total operating expenses and interest.............. $234,955 88.3% $326,697 84.1% $390,824 82.3% ======== ======== ======== THREE MONTHS ENDED JUNE 30, -------------------------------------------------------- 1999 2000 -------------------------- --------------------------- PERCENT CENTS PERCENT CENTS OF PER OF PER AMOUNT REVENUES ASM AMOUNT REVENUES ASM ------- -------- ----- -------- -------- ----- Salaries, wages and employee benefits......... $28,708 25.9% 5.5c $ 33,088 25.5% 5.8c Aircraft costs............. 19,546 17.6 3.7 21,589 16.6 3.8 Maintenance................ 10,251 9.2 2.0 10,307 7.9 1.8 Fuel....................... 9,122 8.2 1.7 15,029 11.6 2.7 Other airline expenses..... 22,943 20.7 4.4 24,753 19.1 4.4 Interest................... 563 0.5 0.1 579 0.4 0.1 ------- ---- ---- -------- ---- ---- Total airline expenses..... 91,133 82.1 17.4c 105,345 81.1 18.6c ==== ==== Other...................... 518 89.2 448 95.8 ------- -------- Total operating expenses and interest.............. $91,651 82.2% $105,793 81.1% ======= ========
THREE MONTHS ENDED JUNE 30, 2000 COMPARED TO THREE MONTHS ENDED JUNE 30, 1999 For the three months ended June 30, 2000, we continued to develop our code-sharing relationships with our code-sharing partners and took delivery of the first of 55 Canadair Regional Jets on order. Net income increased to $16.5 million, or $0.65 per diluted share, for the three months ended June 30, 2000, compared to $13.6 million, or $0.55 per diluted share, for the three months ended June 30, 1999. Consolidated operating revenues increased 16.9% to $130.4 million for the three months ended June 30, 2000, from $111.6 million for the three months ended June 30, 1999. Passenger revenues, which represented 98.5% of consolidated operating revenues, increased 17.0% to $128.4 million for the three months ended June 30, 2000 from $109.7 million, or 98.3% of consolidated operating revenues, for the three months ended June 30, 1999. The increase was due primarily to a 10.1% increase in revenue passenger miles and a 6.1% increase in yield per revenue passenger mile. The increase in yield per revenue passenger mile was principally the result of competitors eliminating and reducing scheduled service in the San Francisco and Los Angeles markets. Additionally, SkyWest implemented selected fare increases during the 2000 fiscal year which have remained intact. Fuel surcharges have also been added to fares to mitigate the increase in fuel prices. On SkyWest-controlled flights, SkyWest also continues its efforts to maximize revenue by use of a sophisticated revenue management and control system which utilizes historical booking data and trends to optimize revenue. Together these factors increased revenue per available seat mile 9.0% to 23.0c for the three months ended June 30, 2000 from 21.1c for the three months ended June 30, 1999. Passenger load factor increased to 56.6% for the three months ended June 30, 2000 from 55.3% for the three months ended June 30, 1999. The increase in load factor was due primarily to the further development of code-sharing relationships with United and Delta whereby SkyWest is experiencing high load factors in many markets. The increase was also due, in part, to refinements in SkyWest's flight schedules and continued operational improvements. Total operating expenses and interest increased 15.4% to $105.8 million for the three months ended June 30, 2000 compared to $91.6 million for the three months ended June 30, 1999. As a percentage of consolidated operating revenues, total operating expenses and interest decreased to 81.1% for the three months ended June 30, 2000, from 82.2% for the comparable period of fiscal 2000. For the three months ended June 30, 2000, total airline operating expenses and interest (excluding nonairline expenses) were 18 22 81.1% of airline operating revenues, compared to 82.1% for the three months ended June 30, 1999. The improved margin was largely the result of increased passenger enplanements, growth in yield per revenue passenger mile and operating revenues which outpaced the increase in operating expenses. Airline operating costs per available seat mile (including interest expense) increased 6.9% to 18.6c for the three months ended June 30, 2000 from 17.4c for the three months ended June 30, 1999. The increase was primarily due to increased fuel costs and higher employee incentive payments based on increased profitability. Factors relating to the change in operating expenses are discussed below. Salaries, wages and employee benefits decreased as a percentage of airline operating revenues to 25.5% for the three months ended June 30, 2000, from 25.9% for the three months ended June 30, 1999. The decrease was principally the result of airline operating revenues increasing 17.1% period over period, and salaries, wages and employee benefits increasing only 15.2% period over period. The average number of full-time equivalent employees for the three months ended June 30, 2000 was 3,500, compared to 3,180 for the three months ended June 30, 1999, an increase of 10.1%. The increase in number of personnel was due, in large part, to the addition of personnel required for SkyWest's expansion. Salaries, wages and employee benefits per available seat mile increased to 5.8c for the three months ended June 30, 2000, compared to 5.5c for the three months ended June 30, 1999, principally as a result of additional employees and higher employee incentive payments based on increased profitability. Aircraft costs, including aircraft rent and depreciation, decreased as a percentage of airline operating revenues to 16.6% for the three months ended June 30, 2000, from 17.6% for the three months ended June 30, 1999. The decrease was due primarily to airline operating revenues increasing 17.1% period over period and aircraft costs increasing only 10.5% period over period. Aircraft costs per available seat mile increased slightly to 3.8c for the three months ended June 30, 2000 from 3.7c for the three months ended June 30, 1999. Maintenance expense decreased as a percentage of airline operating revenues to 7.9% for the three months ended June 30, 2000, compared to 9.2% for the three months ended June 30, 1999. The decrease was due primarily to airline operating revenues increasing 17.1% period over period and maintenance expense increasing only 0.5% period over period. Maintenance expense per available seat mile decreased to 1.8c for the three months ended June 30, 2000, from 2.0c for the three months ended June 30, 1999. Fuel costs increased as a percentage of airline operating revenues to 11.6% for the three months ended June 30, 2000, from 8.2% for the three months ended June 30, 1999. The increase was due primarily to a 43.8% increase in the average fuel price per gallon to $1.05 from $0.73. Fuel costs per available seat mile increased to 2.7c for the three months ended June 30, 2000, from 1.7c for the three months ended June 30, 1999. Other expenses, primarily consisting of commissions, landing fees, station rentals, computer reservation system fees and hull and liability insurance, decreased as a percentage of airline operating revenues to 19.1% for the three months ended June 30, 2000, from 20.7% for the three months ended June 30, 1999. The decrease was primarily the result of SkyWest not incurring commissions on United Express passenger related revenues. Other expenses per available seat mile were 4.4c for both periods ended June 30, 2000 and 1999. FISCAL 2000 COMPARED TO FISCAL 1999 During fiscal 2000, SkyWest continued to develop its code-sharing relationships with its code-sharing partners and took delivery of the last five Brasilia Turboprops ordered. SkyWest experienced growth in available seat miles, revenue passenger miles, passengers carried and load factors. In fiscal 2000, net income increased 36.5% to $57.1 million, or $2.29 per diluted share, compared to $41.8 million, or $1.69 per diluted share, in fiscal 1999. Consolidated operating revenues increased 22.2% to a record $474.8 million in fiscal 2000 compared to $388.6 million in fiscal 1999. Passenger revenues, which represented 98.3% of total operating revenues, increased 22.4% to $466.7 million in fiscal 2000 compared to $381.4 million, or 98.1% of total operating revenues, in fiscal 19 23 1999. The increase was due to a 17.8% increase in revenue passenger miles and a 4.0% increase in yield per revenue passenger mile. The increase in yield per revenue passenger mile was principally the result of competitors eliminating or reducing scheduled service in the San Francisco and Los Angeles markets. Additionally, SkyWest implemented selected fare increases during the 2000 fiscal year, which have remained intact. Fuel surcharges were also added to fares to mitigate the increase in fuel prices during the last half of the year. With respect to SkyWest-controlled flying, SkyWest also continued its efforts to maximize revenue by use of a sophisticated revenue management and control system which utilizes historical booking data and trends to optimize revenue. Together, these factors increased revenue per available seat mile 3.8% to 21.8c in fiscal 2000 compared to 21.0c in fiscal 1999. During fiscal 2000, total airline operating revenues increased 22.2% and total airline operating expenses increased only 19.7%. As a result, total airline operating expenses and interest were 82.2% of total airline operating revenues in fiscal 2000 compared to 84.0% in fiscal 1999. Salaries, wages and employee benefits decreased as a percentage of airline operating revenues to 25.9% in fiscal 2000 from 26.2% in fiscal 1999. The decrease was the result of airline operating revenues increasing 22.2% year over year and salaries, wages and employee benefits increasing only 21.1% year over year. The average number of employees was 3,302 for fiscal 2000 compared to 3,092 for fiscal 1999, an increase of 6.8%. The increase was due to the addition of personnel required for SkyWest's expansion. Salaries, wages and employee benefits per available seat mile increased to 5.7c in fiscal 2000 from 5.5c in fiscal 1999. Aircraft costs, including aircraft rent and depreciation, decreased as a percentage of airline operating revenues to 17.4% in fiscal 2000 from 18.2% in fiscal 1999. The decrease was due to airline operating revenues increasing 22.2% year over year and aircraft costs increasing only 16.4% year over year. Aircraft costs per available seat mile were 3.8c for both fiscal 2000 and 1999. Maintenance expense decreased slightly as a percentage of airline operating revenues to 9.0% in fiscal 2000 from 9.5% in fiscal 1999. The decrease was due to airline operating revenues increasing 22.2% year over year and maintenance expenses increasing only 16.5% year over year. Maintenance cost per available seat mile was 2.0c for both fiscal 2000 and 1999. Fuel costs increased as a percentage of airline operating revenues to 10.2% in fiscal 2000 from 7.6% in fiscal 1999. The increase was due to an increase in the average cost of fuel per gallon to 93.0c in fiscal 2000 from 64.0c in fiscal 1999. As a result, fuel costs per available seat mile increased to 2.2c in fiscal 2000 from 1.6c in fiscal 1999. Other expenses, which consist primarily of commissions, landing fees, station rents, computer reservation systems and hull and liability insurance, decreased as a percentage of airline operating revenues to 19.1% in fiscal 2000 compared to 21.9% in fiscal 1999. The decrease was primarily the result of SkyWest not incurring commissions on United Express related passenger revenues. As a result, cost per available seat mile decreased to 4.2c in fiscal 2000 from 4.6c in fiscal 1999. FISCAL 1999 COMPARED TO FISCAL 1998 During fiscal 1999, SkyWest dramatically expanded its code-sharing relationships with United and added a record number of aircraft to the fleet. SkyWest experienced high growth factors in available seat miles, revenue passenger miles, passengers carried and load factors. In fiscal 1999, net income increased 90.6% to $41.8 million, or $1.69 per diluted share, compared to $21.9 million, or $1.04 per diluted share in fiscal 1998. Consolidated operating revenues increased 46.0% to $388.6 million in fiscal 1999 compared to $266.1 million in fiscal 1998. Passenger revenues, which represented 98.1% of total operating revenues, increased 47.1% to $381.4 million in fiscal 1999, compared to $259.3 million or 97.4% of total operating revenues in fiscal 1998. The increase was due to a 36.3% increase in revenue passenger miles and a 7.8% increase in yield per revenue passenger mile. Effective April 23, 1998, SkyWest expanded its code-sharing relationship with United, as United Express, and began operating flights to and from Seattle/Tacoma and Portland. 20 24 SkyWest also expanded its United Express operations at Los Angeles at the same time. Effective June 1, 1998, SkyWest further expanded its United Express operations and began operating flights to and from San Francisco. The increase in yield per revenue passenger mile was also the result of improved revenue management resulting from schedule refinements and fleet rationalization. SkyWest also continued its efforts to maximize revenue by use of a sophisticated revenue management and control system which utilizes historical booking data and trends to optimize revenue. Together, these factors increased revenue per available seat mile 16.0% to 21.0c in fiscal 1999 compared to 18.1c in fiscal 1998. During fiscal 1999, total airline operating revenues increased 46.3% and total airline operating expenses increased only 39.0%. As a result, total airline operating expenses and interest were 84.0% of total airline operating revenues in fiscal 1999 compared to 88.4% in fiscal 1998. Salaries, wages and employee benefits increased as a percentage of airline operating revenues to 26.2% in fiscal 1999 from 25.5% in fiscal 1998. The increase was primarily the result of incentive payments to employees, which are based on SkyWest's profitability. The average number of employees was 3,092 for fiscal 1999 compared to 1,915 for fiscal 1998, an increase of 61.5%. The large increase was due primarily to the addition of personnel required for SkyWest's expansion. Salaries, wages and employee benefits per available seat mile increased to 5.5c in fiscal 1999 from 4.6c in fiscal 1998. Aircraft costs, including aircraft rent and depreciation, decreased slightly as a percentage of airline operating revenues to 18.2% in fiscal 1999 from 19.8% in fiscal 1998. The decrease was due to airline operating revenues increasing at 46.3% year over year and aircraft costs increasing only 34.8% year over year. Aircraft costs per available seat mile were 3.8c in fiscal 1999 compared to 3.6c in fiscal 1998. Maintenance expense increased slightly as a percentage of airline operating revenues to 9.5% in fiscal 1999 from 7.8% in fiscal 1998. The increase was due to initial heavy maintenance charges to bring the acquired used Brasilia Turboprops up to SkyWest's maintenance standards. Maintenance cost per available seat mile was 2.0c in fiscal 1999, compared to 1.4c in fiscal 1998. Fuel costs decreased as a percentage of airline operating revenues to 7.6% in fiscal 1999 from 10.8% in fiscal 1998. The decrease was due primarily to a decrease in the average cost of fuel per gallon to 64.0c in fiscal 1999 from 81.0c in fiscal 1998. As a result, fuel costs per available seat mile decreased to 1.6c in fiscal 1999 from 2.0c in fiscal 1998. Other expenses, which consist primarily of commissions, landing fees, station rents, computer reservation systems and hull and liability insurance, decreased as a percentage of airline operating revenues to 21.9 % in fiscal 1999 compared to 23.7 % in fiscal 1998. The decrease was primarily the result of SkyWest not incurring commissions on United Express related passenger revenues. However, due to a 17% decrease in the average passenger trip length, cost per available seat mile increased to 4.6c in fiscal 1999 from 4.3c in fiscal 1998. LIQUIDITY AND CAPITAL RESOURCES We had working capital of $160.7 million and a current ratio of 2.8:1 at June 30, 2000, compared to working capital of $154.2 million and a current ratio of 2.9:1 at March 31, 2000. During the three months ended June 30, 2000 the principal sources of funds were $40.5 million generated from operations, $778,000 of proceeds from the sale of property and equipment and $433,000 from the issuance of common stock upon exercise of stock options. During the three months ended June 30, 2000 we invested $28.8 million in flight equipment, $8.1 million in available-for-sale securities, $3.8 million in aircraft deposits, $2.4 million in buildings and ground equipment and other, $875,000 in rental vehicles, reduced long-term debt by $2.5 million, and paid cash dividends of $989,000. These factors resulted in an increase of $10.2 million in cash and cash equivalents. Our position in available-for-sale securities, consisting primarily of investment grade bonds, bond funds and commercial paper, increased to $154.9 million at June 30, 2000, compared to $146.8 million at March 31, 2000. At June 30, 2000, our ratio of long-term debt to stockholders' equity was 16%, compared to 13% at March 31, 2000. 21 25 In May 2000, SkyWest took delivery of one new Canadair Regional Jet in connection with SkyWest's expansion and financed the aircraft with long-term debt. SkyWest has agreed to acquire 54 more Canadair Regional Jets at an aggregate purchase price of approximately $1.2 billion. SkyWest also has options to acquire an additional 75 Canadair Regional Jets, of which 55 are at fixed prices (subject to cost escalations), have delivery schedules, are exercisable in blocks of five aircraft and expire at varying dates between January 2002 and February 2008. The 20 remaining options are at fixed prices (subject to cost escalations), do not have delivery schedules and do not carry an expiration date. SkyWest has also entered into a conditional agreement for 40 additional Canadair Regional Jets at an aggregate cost of $880 million. The conditional agreement is subject to the final resolution of the scope clause negotiations between United and their pilot union and expires on January 15, 2001. We have also secured options on an additional 80 Canadair Regional Jets, of which 40 are at fixed prices (subject to cost escalations), have delivery schedules, are exercisable in blocks of five aircraft and expire at varying dates between July 2003 and June 2006. The 40 remaining options are at fixed prices (subject to cost escalations), do not have delivery schedules and do not carry an expiration date. Depending on the state of the aircraft financing market at the time of delivery, we will determine whether to acquire the remaining Canadair Regional Jets through third-party, long-term loans or operating lease arrangements. We have significant long-term lease obligations primarily relating to our aircraft fleet. These leases are classified as operating leases and therefore are not reflected as liabilities in our consolidated balance sheets. At June 30, 2000, SkyWest leased 82 aircraft under leases with an average remaining term of approximately 8.8 years. Future minimum lease payments due under all long-term operating leases were approximately $554.2 million at June 30, 2000. At an 8% discount factor, the present value of these obligations would be equal to approximately $365.5 million at June 30, 2000. Our total long-term debt of $74.0 million was incurred in connection with the acquisition of Brasilia Turboprops and Canadair Regional Jets. Certain amounts related to the Brasilia Turboprops are supported by continuing subsidy payments through the export support program of the Federative Republic of Brazil. The subsidy payments reduced the stated interest rates to an average effective rate of approximately 4.07% on $32.8 million of the long-term debt at June 30, 2000. The continuing subsidy payments are at risk if the Federative Republic of Brazil does not meet its obligations under the export support program. While we have no reason to believe, based on information currently available, that we will not continue to receive these subsidy payments from the Federative Republic of Brazil in the future, there can be no assurance that such a default will not occur. On the remaining Brasilia Turboprop long-term debt of $25.4 million, the average effective rate is 3.82% at June 30, 2000 and the lender has assumed the risk of the subsidy payments. The average effective rate on the debt related to the Canadair Regional Jets of $15.8 million was 7.66% at June 30, 2000 and is not subject to subsidy payments. We spent approximately $13.5 million for nonaircraft capital expenditures during the three months ended June 30, 2000, consisting primarily of aircraft engine overhauls, rotable spare parts, buildings and ground equipment and rental vehicles. We have available $10.0 million in an unsecured bank line of credit with interest payable at the bank's base rate less one-quarter percent, which was a net rate of 9.25% at June 30, 2000. We believe that, in the absence of unusual circumstances, the working capital available to us will be sufficient to meet our present requirements, including expansion, capital expenditures, lease payments and debt service requirements for at least the next 12 months. SEASONALITY As is common in the airline industry, SkyWest's operations are favorably affected by increased travel, historically occurring in the summer months, and are unfavorably affected by decreased business travel during the months from November through January and by inclement weather which occasionally results in cancelled flights, principally during the winter months. However, SkyWest does expect some mitigation of the historical seasonal trends due to an increase in the portion of its operations in contract flying. 22 26 QUARTERLY RESULTS OF OPERATIONS The following table sets forth certain quarterly financial and operating data for the periods indicated:
FISCAL 1999 FISCAL 2000 ------------------------------------------------- ---------- JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, 1998 1998 1998 1999 1999 ---------- ---------- ---------- ---------- ---------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) Operating revenues.............. $ 81,959 $ 101,229 $ 102,255 $ 103,183 $ 111,562 Operating income................ 13,502 17,708 15,276 17,819 20,476 Net income...................... 9,741 12,854 8,525 10,715 13,581 Net income per common share: Basic.......................... $ 0.41 $ 0.53 $ 0.35 $ 0.44 $ 0.55 Diluted........................ $ 0.40 $ 0.52 $ 0.34 $ 0.43 $ 0.55 Passengers carried.............. 1,017,312 1,321,955 1,322,740 1,238,914 1,365,706 Revenue passenger miles (000s)......................... 215,726 278,281 266,216 255,649 290,590 Available seat miles (000s)..... 393,755 473,025 495,063 482,279 525,104 Passenger load factor........... 54.8% 58.8% 53.8% 53.0% 55.3% Passenger breakeven load factor......................... 45.9% 49.0% 45.9% 44.3% 45.4% Yield per revenue passenger mile........................... 37.3c 35.7c 37.7c 39.6c 37.8c Revenue per available seat mile........................... 20.7c 21.3c 20.6c 21.3c 21.1c Cost per available seat mile.... 17.3c 17.7c 17.5c 17.8c 17.4c Average passenger trip (miles)........................ 212 211 201 206 213 FISCAL FISCAL 2000 2001 ------------------------------------ ---------- SEPT. 30, DEC. 31, MAR. 31, JUNE 30, 1999 1999 2000 2000 ---------- ---------- ---------- ---------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) Operating revenues.............. $ 122,737 $ 117,381 $ 123,098 $ 130,387 Operating income................ 24,661 20,180 21,363 25,174 Net income...................... 15,944 13,618 13,961 16,547 Net income per common share: Basic.......................... $ 0.65 $ 0.55 $ 0.57 $ 0.67 Diluted........................ $ 0.64 $ 0.54 $ 0.55 $ 0.65 Passengers carried.............. 1,487,297 1,354,955 1,295,332 1,401,113 Revenue passenger miles (000s)......................... 323,282 292,397 290,411 319,830 Available seat miles (000s)..... 550,629 542,050 547,597 565,409 Passenger load factor........... 58.7% 53.9% 53.0% 56.6% Passenger breakeven load factor......................... 47.3% 44.8% 44.1% 45.9% Yield per revenue passenger mile........................... 37.3c 39.5c 41.7c 40.1c Revenue per available seat mile........................... 22.2c 21.6c 22.4c 23.0c Cost per available seat mile.... 17.9c 17.9c 18.7c 18.6c Average passenger trip (miles)........................ 217 216 224 228
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Aircraft Fuel We are exposed to fluctuations in the price and availability of aircraft fuel that affect our earnings. Our financial statements reflect both the cost of fuel we purchase for SkyWest-controlled flights, as well as fuel we purchase for contract flights, which is subject to reimbursement by our code-sharing partners. Currently, we have limited our exposure to fuel price increases with respect to approximately 65% of available seat miles produced, due to contractual arrangements with Delta and United. These major airlines reimburse us for the actual cost of fuel on contracted flights. For illustrative purposes only, we have estimated the impact of market risk using a hypothetical increase in fuel price per gallon of 10% for the three months ended June 30, 2000 and 1999. Based on this hypothetical assumption, and after considering the impact of the contractual arrangements, we would have experienced an increase in fuel expense of approximately $517,000 for the three months ended June 30, 2000 and $323,000 for the three months ended June 30, 1999. We currently intend to use cash generated by operating activities to fund any adverse change in the price of fuel. Interest Rates Our earnings are affected by changes in interest rates due to the amounts of variable rate long-term debt and the amount of cash and securities held. The interest rate applicable to variable rate notes may rise and increase the amount of interest expense. We would also receive higher amounts of interest income on our cash and securities held at the time; however, the market value of our available-for-sale securities would decline. At June 30, 2000, we had variable rate notes representing 27% of our total long-term debt and 8% at June 30, 1999. For illustrative purposes only, we have estimated the impact of market risk using a hypothetical increase in interest rates of one percentage point for both our variable rate long-term debt and cash and securities. Based on this hypothetical assumption, we would have incurred an additional $31,000 in interest expense and received $451,000 in additional interest income for the three months ended June 30, 2000 and an additional $14,000 in interest expense and received $393,000 in additional interest income for the three months ended June 30, 1999. As a result of this hypothetical assumption, we believe we could fund interest rate increases on our variable rate long-term debt with the increased amounts of interest income. We do not believe we have significant exposure to the changing interest rates on our fixed-rate, long-term debt instruments, which represented 73% of our total long-term debt at June 30, 2000 and 92% of our total long-term debt at June 30, 1999. 23 27 BUSINESS GENERAL We operate SkyWest Airlines, a regional airline offering scheduled passenger service with approximately 1,000 daily departures to 63 cities in 13 western states and Canada. All of our flights are operated as either United Express or The Delta Connection under code-sharing arrangements with United Airlines or Delta Air Lines. SkyWest has been a code-sharing partner with United since 1997 and with Delta since 1987. SkyWest's development of code-sharing relationships with multiple major airlines enables us to reduce our reliance on a single major airline partner and increase the stability of our operating results. For the year ended March 31, 2000, 64% of SkyWest's operating revenues was derived from United code-share service and 36% was derived from Delta code-share service. Approximately 76% of SkyWest's current flights are structured as contract flights. On contract flights, United or Delta controls scheduling, ticketing, pricing and seat inventories, and SkyWest is compensated with a fixed fee for each flight completed and an amount per passenger, and is eligible for additional compensation if certain service quality levels are achieved. Also, United and Delta, under contractual arrangements, have agreed to reimburse SkyWest for the actual cost of fuel on all of SkyWest's contract flights. On SkyWest-controlled flights, SkyWest controls scheduling, ticketing, pricing and seat inventories, and shares revenues with United or Delta according to prorate formulas for those SkyWest passengers connecting to a United- or Delta-operated flight. SkyWest's fleet consists of: - Ninety-two 30-seat Brasilia Turboprops, with an average age of 5.7 years; and - Twelve 50-seat Canadair Regional Jets, with an average age of 5.0 years. All of our aircraft are "cabin class" planes, which means they offer stand-up headroom, overhead and underseat storage, lavatories and in-flight attendant service. In order to accommodate our expanding operations, we have placed a firm order to acquire an additional 54 Canadair Regional Jets over the next four years, and a conditional order to acquire an additional 40 Canadair Regional Jets. We believe we will be able to place all 94 firm and conditional-order aircraft into code-sharing service under fixed-fee contract-flying arrangements with United, Delta or other major carriers. If we acquire all such 94 aircraft, we will also be eligible to exercise options to acquire an additional 155 Canadair Regional Jets, 95 of which have been assigned scheduled delivery dates through 2005, and the balance of which have unspecified delivery dates. For the fiscal year ended March 31, 2000, we generated record operating revenues of $474.8 million and net income of $57.1 million, as compared to operating revenues of $388.6 million and net income of $41.8 million for the fiscal year ended March 31, 1999. INDUSTRY OVERVIEW Major, Low-fare and Regional Airlines The airline industry in the United States has traditionally been dominated by between five and ten "major airlines," including United, Delta, American Airlines, Continental Airlines, Northwest Airlines and US Airways. The major airlines offer scheduled flights to most major cities within the United States and throughout all or part of the world and also serve numerous smaller cities. The major airlines benefit from wide name recognition, a multi-decade operating history, control over gates and substantial financial resources. According to the Air Transport Association, during 1999, the major airlines collectively reported revenues of $84.2 billion. 24 28 "Low-fare" airlines, such as Southwest Airlines and Frontier Airlines, generally offer fewer conveniences to travelers and have lower cost structures than major airlines, which permits them to offer flights to and from many of the same markets as the major airlines, but at lower prices. Regional airlines, including SkyWest, Comair, Atlantic Southeast Airlines, Mesa, Mesaba, Midway, Midwest Express, Horizon Airlines and Atlantic Coast Airlines, typically operate smaller aircraft on lower-volume routes than major airlines. Several regional airlines, including Comair, Atlantic Southeast Airlines and Horizon Airlines, are wholly-owned subsidiaries of major airlines. In contrast to low-fare airlines, regional airlines generally do not try to establish an independent route system to compete with the major airlines. Rather, regional airlines typically enter into relationships with one or more major airlines, pursuant to which the regional airline agrees to use its smaller, lower-cost aircraft to carry passengers booked and ticketed by the major airline between a hub of the major airline and a smaller outlying city. In exchange for such services, the regional airline is either paid a fixed per-flight fee by the major airline or receives a percentage of applicable ticket revenues. See "-- Relationship of Regional and Major Airlines." Growth of the Regional Airline Industry According to the Regional Airline Association, the regional airline sector of the airline industry experienced annual passenger growth of 7.6% between 1989 and 1999. We believe that the growth of the number of passengers using regional airlines and the revenues of regional airlines during the last decade is attributable to a number of factors, including: - Regional airlines work with, and often benefit from the strength of, the major airlines. Since many major airlines have incorporated increased use of regional airlines into their future growth strategies, many regional airlines have expanded, and may continue to expand, with the major airlines they serve. - Regional airlines tend to have a more favorable cost structure and leaner corporate culture than many major airlines. Many regional airlines were founded in the midst of the highly competitive market that developed following deregulation of the airline industry in 1978. - Many major airlines have determined that an effective method for retaining customer loyalty and maximizing system revenue, while lowering costs, is to outsource shorter, low-volume routes to more cost-efficient regional airlines flying under the major airline's code and name. - The regional airlines are gradually replacing smaller turboprop planes with 32- to 79-seat regional jets. Such regional jets feature cabin class comfort, low noise levels, high speed and range similar to the 120-seat plus aircraft operated by the major airlines, but are cheaper to acquire and operate because of their smaller size. We believe the increasing use of regional jets has led, and may continue to lead, to greater public acceptance of regional airlines. Relationship of Regional and Major Airlines Regional airlines generally enter into code-sharing agreements with major airlines, pursuant to which the regional airline is authorized to use the major airline's two-letter flight designator codes to identify the regional airline's flights and fares in the central reservation systems, to paint its aircraft with the colors and/or logos of its code-sharing partner and to market and advertise its status as a carrier for the code-sharing partner. For example, SkyWest flies out of Los Angeles, San Francisco, Seattle/Tacoma and Portland as United Express and out of Salt Lake City as The Delta Connection. In addition, the major airline generally provides reservation services, ticket stock, certain ticketing services, ground support services and gate access to the regional airline, and both partners often coordinate marketing, advertising and other promotional efforts. In exchange, the regional airline provides a designated number of low capacity (usually between 30 and 70 seats) flights between larger airports served by the major airline and surrounding cities, usually lower-volume markets. The financial arrangements between the regional airlines and their code-sharing partners usually involve either a revenue-sharing or a per-flight fixed-fee arrangement. 25 29 - Revenue-Sharing Arrangements. Under a revenue-sharing arrangement, the major airline and regional airline negotiate a proration formula, pursuant to which the regional airline receives a percentage of the ticket revenues for those passengers traveling for one portion of their trip on the regional airline and the other portion of their trip on the major airline. Substantially all costs associated with the regional airline flight are borne by the regional airline. In such a revenue- sharing arrangement, the regional airline realizes increased profits as ticket prices and passenger loads increase or fuel prices decrease and, correspondingly, realizes decreased profits as ticket prices and passenger loads decrease or fuel prices increase. - Fixed-Fee Arrangements. Under a fixed-fee arrangement, the major airline generally pays the regional airline a fixed fee per flight, with additional incentives based on completion of flights, on-time performance and correct baggage handling. In addition, the major and regional airline often enter into an arrangement pursuant to which the major airline bears the risk of changes in the price of fuel. Regional airlines benefit from a fixed-fee arrangement because they are sheltered from most of the elements that cause volatility in airline earnings -- variations in ticket prices, passenger loads and fuel prices. However, regional airlines in fixed-fee arrangements do not benefit from a positive trend in ticket prices, passenger loads or fuel prices and, because the major airlines absorb most of the risks, the margin between the per-flight fixed fee and expected per-flight costs tends to be smaller than the margins associated with revenue-sharing arrangements. BUSINESS STRATEGY Our business strategy consists of the following elements: - Focus on Markets in the Western United States. For the three months ended March 31, 2000, SkyWest held the largest market share of regional airline traffic at San Francisco International Airport (100% of regional airline passengers), Salt Lake City International Airport (99% of regional airline passengers) and Los Angeles International Airport (65% of regional airline passengers). We believe these markets, as well as the Pacific Northwest markets which SkyWest began serving in 1998 and the Denver market which SkyWest will begin serving in October 2000, offer attractive opportunities for long-term, profitable growth. Generally, western routes are less congested and, due to longer stage lengths than many eastern routes, offer significant time savings and convenience over alternate forms of travel. Many western cities are experiencing significant population and economic growth, and benefit from mild year-round weather. We also believe SkyWest is well positioned to capitalize on United's recently increased presence in western markets. - Build Upon Relationships With Code-Sharing Partners. We attribute significant growth in traffic and profitability to SkyWest's code-sharing agreements with United and Delta, two of the world's four largest airlines. SkyWest views the development of these relationships as a significant opportunity to achieve stable, long-term growth. SkyWest works closely with its code-sharing partners to expand service to existing markets, open new markets and schedule convenient and frequent flights. We believe that the principal reason SkyWest has attracted multiple code-sharing partners is its delivery of high quality customer service with an all-cabin class fleet. SkyWest's competitive fares and ability to offer passengers participation in frequent flyer programs of United and Delta are attractive incentives for passengers to fly on SkyWest. We also believe that multiple code-sharing agreements with major carriers diversifies operating risk by reducing reliance on a single major carrier. - Provide Excellent Customer Service. We believe SkyWest's insistence on excellent customer service in every aspect of its operations (personnel, flight equipment, in-flight amenities, on-time performance, flight completion ratios and baggage handling) has resulted in customer loyalty and preference for SkyWest as a regional carrier. We also believe that excellent customer service is largely responsible for SkyWest's multiple code-sharing relationships as United and Delta seek to build customer loyalty and preference for major carriers through high quality customer service provided by their regional partners. SkyWest believes that, for the year ended March 31, 2000, its 26 30 flight completion ratio was among the highest of all regional airlines at 98.6%. SkyWest also believes its on-time performance ratio was among the highest of all regional carriers at 93.5%. Maintaining high performance ratios increases customer satisfaction and adds to SkyWest's profitability by meeting incentive payment standards included in its contract-flying arrangements with United and Delta. SkyWest has achieved these performance measures by: - operating a modern fleet of aircraft, - maintaining spare aircraft to assure a high rate of flight completion, and - pursuing its commitment to high quality maintenance. - Operate Limited Types of Aircraft. SkyWest operates two types of aircraft, Brasilia Turboprops and Canadair Regional Jets. By simplifying its fleet, SkyWest has gained efficiencies in training, maintenance and flight operations. Generally, Canadair Regional Jets are utilized on longer routes to supplement existing service by major carriers, to replace larger jets on routes where service is discontinued by major carriers, to replace Brasilia Turboprops as markets develop and demand increases, and to develop new markets. The design of the Canadair Regional Jets gives SkyWest the flexibility to configure seating arrangements and capacities to match market demands. SkyWest believes that Brasilia Turboprops are most efficiently used on shorter stage lengths to provide frequent and convenient service. For example, as SkyWest expanded service in Los Angeles with United in October 1997, Brasilia Turboprops were shifted from less efficient, non-hub based routes to more efficient Los Angeles hub and spoke routes connecting with code-sharing partners. Expansion into additional hubs will offer similar opportunities. - Emphasize Contract Flying. We believe that the shift from revenue-sharing arrangements to fixed-fee contract flying has reduced SkyWest's exposure to fluctuations in fuel prices, fare competition and passenger volumes. In some circumstances, contract flying also enables SkyWest to operate routes selected by United or Delta for strategic purposes, even though those routes might not offer margins that are attractive enough to motivate SkyWest to offer SkyWest-controlled flights. Approximately 65% of SkyWest's current operations are conducted under contract-flying arrangements with United and Delta. SkyWest anticipates that its contract flying operations will increase as a percentage of its total daily flights as additional United and Delta routes are added to the SkyWest system; however, we anticipate that margins associated with contract routes will be less than the margins SkyWest has historically generated on mature SkyWest-controlled routes. - Foster Our Employees' Best Efforts. With our anticipated growth in capacity, it is important that we encourage the best efforts of our employees and minimize turnover in all positions, particularly those positions that require us to bear significant training expenses. In addition to offering competitive compensation and benefits, we take a number of steps to make SkyWest an attractive place to work and build a career. For example, we have made company-wide stock option grants twice since 1995; we contribute 5% of net income to employees' accounts within our 401(k) plan; and we match employee contributions to those accounts, up to a maximum of 6% of the employee's compensation. We also have an incentive plan that allows every employee to benefit from our success. In fiscal 2000, we contributed 10% of our net income to this incentive plan, in which all employees with two years of service (excluding management) participate equally. That year, each full-time employee received $4,176 in incentive checks. We have never had a work stoppage, and none of our employees is represented by a union. GROWTH OPPORTUNITIES During the five years ended March 31, 2000, our total operating revenues expanded at an annual rate of 20.8%, and we increased the number of daily flights from approximately 550 in 1995 to approximately 1,000 in 2000. All of our growth during the five-year period was internally generated. We have not made 27 31 any material business acquisitions. We believe that we are well-positioned for continued growth for several reasons, including the following: - West Coast For United. United does not currently operate any regional jets from the Los Angeles, San Francisco, Seattle/Tacoma or Portland markets. We expect United to deploy most of the 20 Canadair Regional Jets we have designated for United service, and possibly additional Canadair Regional Jets, to medium and longer-distance, low-volume markets from such airports. - Denver For United. We do not currently operate out of Denver International Airport, but were recently selected by United to commence Denver operations in October 2000 with two Canadair Regional Jets. In May 2000, United announced that it will build a new $100 million regional aircraft terminal in Denver. Construction of the facility is scheduled to begin in 2001, and the terminal is expected to feature up to 36 regional aircraft gates. We believe that United's Denver hub could support up to 100 regional jets over the next several years. Because SkyWest is the only United Express carrier located west of Denver, we believe SkyWest is well-positioned to operate as United Express flying westward out of Denver. - Intermountain Flights For Delta. During 1999, Delta replaced its service to six markets with our Canadair Regional Jets as part of its rationalization process at Salt Lake City. Delta's rationalization process involves an increase in the number of longer-haul east/west Delta flights into Salt Lake City, and the transitioning of its regional flights to SkyWest. With its smaller aircraft, SkyWest can often substitute several flights for each Delta flight, providing increased frequency of service at a lower overall cost. As such rationalization continues, we believe that Delta could substitute our Canadair Regional Jets for many of its flights between Salt Lake City and other cities. Delta currently has no system-wide limitations on the number of regional jets operated by its code-sharing partners. CODE-SHARING AGREEMENTS Our code-sharing agreements with United and Delta authorize us to use their two-letter flight designator codes ("UA" and "DL") to identify our flights and fares in the central reservation systems, to paint our aircraft with their colors and/or logos and to market and advertise our status as United Express or The Delta Connection carrier. Under our code-sharing agreement with United, we are compensated on a fixed-fee per-flight basis on 96% of our United Express flights and on a revenue-sharing basis for the remaining 4% of our United Express flights. Under our code-sharing agreement with Delta, we are compensated on a revenue-sharing basis for approximately 86% of our Delta Connection Flights, and on a fixed-fee per-flight basis on the remaining 14% of our Delta Connection flights. In addition, under both our United and our Delta code-sharing agreements, our passengers participate in frequent flyer programs of the major airline, and the major airline provides additional services such as reservations, ticket issuance, ground support services and gate access. We pay negotiated fees with respect to such services. We also coordinate our marketing, advertising and other promotional efforts with United and Delta. The significant terms of each of our code-sharing agreements are as follows: The United Code-Sharing Agreement. We provide a designated number of flights per day as United Express between Los Angeles, San Francisco, Seattle/Tacoma, Portland and designated outlying cities. United provides reservation services, tickets, baggage tags, ticket wallets and similar items with respect to such flights and also controls scheduling, ticket prices and seat inventories with respect to such flights. In exchange for providing the designated number of flights and performing our other obligations under the United agreement, we receive from United a fixed fee per flight, an additional amount per passenger, and per-passenger incentives based upon on-time performance, flight completion rates and correct baggage handling. We have also entered into a fuel reimbursement arrangement with United, pursuant to which United has agreed to reimburse SkyWest for the actual cost of fuel for all of SkyWest's contract flights. We presently operate 706 flights per day (96% of our United Express flights) pursuant to such provisions. 28 32 We also operate as a United Express carrier between certain cities with respect to which we do not receive a fixed fee per flight. With respect to such flights, we control scheduling, inventory and pricing subject to United's concurrence that such service does not adversely affect its other operations in the region. In lieu of a fixed fee with respect to such flights, we share revenues with United based upon a portion of passenger fares. We presently operate 26 flights per day (4% of our United Express flights) pursuant to such provisions. The United agreement terminates on May 31, 2008; however, United may terminate the United agreement in whole or in part at any time for any or no reason upon 180 days' notice. The United agreement may also be terminated upon 30 days' notice for cause and in the event of a merger or other transaction in which substantially all of the assets of SkyWest are transferred to another entity. Under the United agreement, if we desire to merge with another company, sell or otherwise transfer our assets to a third party, or issue capital stock exceeding 5% of our outstanding capital stock (30% if the stock is issued in a public offering) to such third party, we are required to give United notice of the proposed transaction, offer to complete such transaction with United instead of such third party, negotiate with United in good faith terms and conditions on which we could complete such transaction with United and offer United any terms and conditions we offer to such third party. If we are unable to agree with United, we may enter into negotiations with other parties, but we may not enter into any agreement on terms more favorable to any such party than those we offered to United. The United agreement also provides that United must concur in any marketing or code-sharing relationship with any other carrier with respect to city pairs served by United. The Delta Code-Sharing Agreement. We have operated as The Delta Connection from Delta's Salt Lake City and Los Angeles hubs since 1987. As of June 30, 2000, 204 of our Delta flights per day (86% of our Delta flights) are subject to a revenue-sharing arrangement, and the remaining 34 Delta flights per day (14% of our Delta flights) are subject to a fixed-fee arrangement. Delta has entered into a fuel reimbursement arrangement with respect to flights subject to the fixed-fee arrangement, pursuant to which Delta has agreed to reimburse SkyWest for the actual cost of fuel for all of SkyWest's contract flights. The Delta agreement establishes procedures, allocates responsibility and sets standards for such matters as schedule publication, billing and accounting procedures, ticketing, customer services, inconvenienced customers and insurance. The Delta agreement continues until June 20, 2010, but is subject to earlier termination under various circumstances, including upon 180 days' advance notice by either party for any or no reason or upon the occurrence of a merger or similar transaction in which our company or business is acquired. Delta currently owns approximately 12.5% of our outstanding common stock (without giving effect to the issuance of additional shares of common stock to be sold in this offering), which was acquired under the Delta Stock Option Agreement entered into in January 1987, concurrently with the initial Delta agreement. MARKETS AND ROUTES Markets. We believe that our development of hub operations in Los Angeles, San Francisco, Seattle/ Tacoma and Portland with United, and Salt Lake City with Delta, has been a principal factor in the growth of our flight operations and will facilitate implementation of our growth and operating strategy. As of June 30, 2000, we scheduled 326 daily flights to or from Los Angeles International Airport, 200 daily flights to or from San Francisco International Airport, 238 daily flights to or from Salt Lake City International Airport and 180 daily flights to or from Seattle/Tacoma International Airport and Portland International Airport combined. We expect to commence operations with two Canadair Regional Jets from Denver International Airport on behalf of United in October 2000. At the San Francisco International Airport, Salt Lake City International Airport and Los Angeles International Airport, SkyWest is the largest regional airline, with market shares as of March 31, 2000 of 100% of regional airline passengers in San Francisco, 99% of regional airline passengers in Salt Lake City and 65% of regional airline passengers in Los Angeles. As of June 30, 2000, our primary code-sharing partner in such cities, United, operated 492 daily flights to or from San Francisco, with 54% of total traffic, 29 33 and 438 daily flights to or from Los Angeles, with 23% of total traffic. As of the same date, Delta operated 290 daily flights to or from Salt Lake City, with 67% of total traffic. In 17 of the 63 cities that SkyWest serves, it is the only scheduled commercial air service. Routes. The following tables identify the cities we served as of June 30, 2000: ARIZONA: Yuma CALIFORNIA: Bakersfield Carlsbad Chico Crescent City Eureka/Arcata Fresno* Imperial/El Centro Inyokern Los Angeles Merced Modesto Monterey Ontario Orange County* Oxnard Palm Springs* Redding Sacramento San Diego San Francisco* San Jose San Luis Obispo Santa Barbara Santa Maria Santa Rosa Visalia COLORADO: Colorado Springs* Denver*+ Grand Junction IDAHO: Boise* Idaho Falls* Pocatello Sun Valley Twin Falls MONTANA: Billings* Bozeman* Butte* Helena* Missoula* West Yellowstone NEBRASKA Omaha* NEW MEXICO: Albuquerque* NEVADA: Elko Las Vegas Reno* OREGON: Eugene Medford Portland* Redmond/Bend SOUTH DAKOTA: Rapid City* UTAH: Cedar City Salt Lake City* St. George WASHINGTON: Bellingham Pasco* Seattle/Tacoma Spokane Yakima WYOMING: Casper* Cody Jackson Hole CANADA: Calgary* Vancouver, B.C.* - --------------- * Service provided by SkyWest utilizing one or more Canadair Regional Jets. + Effective October 1, 2000. 30 34 FLIGHT EQUIPMENT As of June 30, 2000, we operated a fleet of 104 aircraft, consisting of 92 Brasilia Turboprops and 12 Canadair Regional Jets, as described in the following table:
SCHEDULED AVERAGE AIRCRAFT FLIGHT CRUISING AVERAGE --------------- PASSENGER RANGE SPEED AGE OWNED LEASED CAPACITY (MILES) (MPH) (YEARS) ----- ------ --------- --------- -------- ------- Brasilia Turboprop................. 21 71 30 300 300 5.7 Canadair Regional Jet.............. 1 11 50 850 530 5.0
In addition, United has agreed to contract for the use of 10 additional Canadair Regional Jets on a fixed-fee basis, and Delta has agreed to contract for the use of 34 additional Canadair Regional Jets on a fixed-fee basis. Based on such agreements, we have placed a firm order to acquire an additional 54 Canadair Regional Jets over the next four years, and a conditional order to acquire an additional 40 Canadair Regional Jets. If we acquire all such 94 aircraft, we will also be eligible to exercise options to acquire an additional 155 Canadair Regional Jets, 95 of which have been assigned scheduled delivery dates through 2005, and the balance of which have unspecified delivery dates. We have no orders for additional aircraft other than the Canadair Regional Jets. The following table outlines the number of Canadair Regional Jets we are scheduled to receive during each of the next four fiscal years and the expected size and composition of our fleet following the receipt of such Canadair Regional Jets. The information presented in the table is based on our firm order for 54 Canadair Regional Jets and does not include any of the 40 Canadair Regional Jets subject to our conditional order or any aircraft subject to options. If we acquire any Canadair Regional Jets that are subject to conditional orders or options, the number of Brasilia Turboprops in flight will be reduced from the number indicated below.
DURING THE FISCAL YEAR ENDED MARCH 31, ----------------------------------------- 2000 2001 2002 2003 2004 ----- ----- ----- ----- ----- Additional 50-seat Canadair Regional Jets................. -- 7 15 26 7 Total Canadair Regional Jets.............................. 11 18 33 59 66 Total Brasilia Turboprops................................. 92 91 86 75 70
The Canadair Regional Jets are the quietest commercial jet currently available and offer many of the amenities of larger commercial jet aircraft, including a stand-up cabin, overhead and underseat storage, lavatories, in-flight snack and beverage service, and, in many cases, more leg room than larger jets. The speed of Canadair Regional Jets is comparable to larger aircraft operated by the major airlines, and they have a range of up to 1,200 miles; however, because of their smaller size and efficient design, the per-flight cost of operating a Canadair Regional Jet is less than that of a 120-seat or larger jet aircraft. As of June 30, 2000, we operated our 12 Canadair Regional Jets out of Salt Lake City to approximately 22 destinations, generally on longer stage lengths. The Brasilia Turboprops are 30-seat, pressurized aircraft designed to operate more economically over short-haul routes with lower passenger load factors than larger jet aircraft. These factors make it economically feasible for SkyWest to provide high frequency service in markets with relatively low volumes of passenger traffic. Passenger comfort features of the Brasilia Turboprop aircraft include stand-up headroom, a lavatory, overhead baggage compartments and flight attendant service. We expect that United and Delta will want us to continue to operate Brasilia Turboprops in markets where passenger load and other factors make the operation of a Canadair Regional Jet impractical. As of June 30, 2000, we operated 92 Brasilia Turboprops out of Salt Lake City, Los Angeles, San Francisco, Seattle/Tacoma and Portland to approximately 52 destinations. Our Brasilia Turboprops are generally used in our California markets, which are characterized by high frequency service on shorter stage lengths. 31 35 GROUND OPERATIONS Our employees perform substantially all routine airframe and engine maintenance and periodic inspection of equipment. Maintenance is performed primarily at facilities in Salt Lake City, Utah and Fresno and Palm Springs, California. We lease a 90,000 square foot aircraft maintenance and training facility at the Salt Lake City International Airport and own a 56,600 square foot maintenance facility in Palm Springs. Our Salt Lake City facility consists of a 40,000 square foot maintenance hangar and 50,000 square feet of training and other facilities to support our growing hub operations. The facility was constructed and is owned by the Salt Lake City Airport Authority. We are leasing the facility under an operating lease arrangement over a 36-year term, expiring in August 2021. The Palm Springs maintenance facility supports our expanding Southern California operations. We also lease a 90,000 square-foot maintenance hangar and 15,000 square-foot administrative and support facility in Fresno, California. We lease ticket counters and check-in, boarding and other facilities in the passenger terminal areas in the majority of the airports we serve and staff these facilities with our personnel. United and Delta provide ticket handling and ground support services for SkyWest in 32 of the 63 airports SkyWest serves. Our employees provide substantially all training to SkyWest pilots and maintenance personnel, utilizing our training facilities located at Salt Lake City, Utah and Fresno, California. We also own our corporate headquarters, located in a 63,000 square foot building in St. George, Utah. NATIONAL PARKS TRANSPORTATION In order to maintain our focus on our core business, on July 21, 2000 we completed the sale of National Parks Transportation, Inc., which provides car rental services at six airports served by SkyWest, including Page, Arizona, Ely and Elko, Nevada and St. George, Cedar City and Vernal, Utah. Revenues from the operations of National Parks Transportation, Inc. represented less than 1% of our revenues during the fiscal year ended March 31, 2000. EMPLOYEES As of June 30, 2000, we employed 3,593 full-time equivalent employees, including 1,487 pilots and flight attendants, 1,425 customer service personnel, 443 mechanics and other maintenance personnel and 238 administration and support personnel. Our employees are not currently represented by any union. We are aware, however, that collective bargaining group organization efforts among our employees occur from time to time and expect that such efforts will continue in the future. During August 1999, the question of whether or not to join the Air Line Pilots Association was submitted to our pilots, who voted against joining the association by a narrow margin. Under governing rules, our pilots may again vote on this issue as early as August 2000. If unionizing efforts are successful, we may be subjected to risks of work interruption or stoppage and/or incur additional expenses associated with union representation of our employees. In connection with our proposed acquisition of at least 54 Canadair Regional Jets and related expansion, we anticipate hiring approximately 2,500 additional employees, many of whom may be represented by a union in their current employment. We have never experienced any work stoppages and consider our relationship with our employees to be good. COMPETITION AND ECONOMIC CONDITIONS The airline industry is highly competitive. We not only compete with other regional airlines, some of which are owned by or are operated as code-sharing partners of major airlines, but also face competition from low-fare airlines and major airlines on many of our routes. We are the dominant regional airline operating out of the Salt Lake City International Airport; however, Southwest Airlines, a national low-fare airline, also operates out of the Salt Lake City International Airport, which results in significant price competition at the Salt Lake City hub. Competition in the Southern California and Pacific Northwest markets, which we service from our hubs in Los Angeles, Seattle/Tacoma and Portland, is particularly intense, with a large number of carriers in these markets. In our markets served from Los Angeles 32 36 International Airport, our principal competitor is American Eagle. In our markets served from airports in Seattle/Tacoma and Portland, our principal competitor is Horizon Airlines. The principal competitive factors in the regional airline industry are fare pricing, customer service, routes served, flight schedules, aircraft types and code-sharing relationships. Certain of our competitors are larger and have significantly greater financial and other resources than we do. Moreover, federal deregulation of the industry allows competitors to rapidly enter our markets and to quickly discount and restructure fares. The airline industry is particularly susceptible to price discounting because airlines incur only nominal costs to provide service to passengers occupying otherwise unsold seats. Generally, the airline industry is highly sensitive to general economic conditions, in large part due to the discretionary nature of a substantial percentage of both business and pleasure travel. In the past, many airlines have reported decreased earnings or substantial losses resulting from periods of economic recession, heavy fare discounting and other factors. Economic downturns combined with competitive pressures have contributed to a number of bankruptcies and liquidations among major and regional carriers. The effect of economic downturns is somewhat mitigated by our fixed-fee arrangements with respect to certain flights. Nonetheless, the per passenger component in such fee structure would be affected by a economic downturn. In addition, if our major airline code-sharing partners experience longer-term decline in passenger load or are injured by low ticket prices or high fuel prices, they will likely seek to reduce our fixed fees or cancel a number of flights in order to reduce their costs. REGULATION All interstate air carriers, including SkyWest, are subject to regulation by the DOT, the FAA and certain other governmental agencies. Regulations promulgated by the DOT primarily relate to economic aspects of air service. The FAA requires operating, air worthiness and other certificates; approval of personnel who may engage in flight maintenance or operations activities; record keeping procedures in accordance with FAA requirements; and FAA approval of flight training and retraining programs. Generally, governmental agencies enforce their regulations through, among other mechanisms, certifications, which are necessary for our continued operations, and proceedings, which can result in civil or criminal penalties or revocation of operating authority. The FAA can also issue maintenance directives and other mandatory orders relating to, among other things, grounding of aircraft, inspection of aircraft, installation of new safety-related items and the mandatory removal and replacement of aircraft parts that have failed or may fail in the future. We believe that we are operating in material compliance with FAA regulations and hold all necessary operating and air worthiness certificates and licenses. We incur substantial costs in maintaining our current certifications and otherwise complying with the laws, rules and regulations to which we are subject. Our flight operations, maintenance programs, record keeping and training programs are conducted under FAA approved procedures. We do not operate at any airports where landing slots are restricted. All air carriers are required to comply with federal law and regulations pertaining to noise abatement and engine emissions. All air carriers are also subject to certain provisions of the Federal Communications Act of 1934, as amended, because of their extensive use of radio and other communication facilities. We are also subject to certain other federal and state laws relating to protection of the environment, labor relations and equal employment opportunity. Management believes that we are in compliance in all material respects with these laws and regulations. INSURANCE We maintain insurance policies that we believe are of types customary in the industry and in amounts we believe are adequate to protect us against material loss. The policies principally provide coverage for public liability, passenger liability, baggage and cargo liability, property damage, including coverages for loss or damage to our flight equipment, and workers' compensation insurance. There is no assurance, however, that the amount of insurance we carry will be sufficient to protect us from material loss. 33 37 LEGAL PROCEEDINGS We are subject to certain legal and administrative actions which we consider routine to our business activities. As of June 30, 2000 we believe, after consultation with our legal counsel, that the ultimate outcome of any pending legal matters will not have a material adverse effect on our financial position, liquidity or results of operation. 34 38 MANAGEMENT EXECUTIVE OFFICERS AND DIRECTORS The following are our executive officers and directors:
NAME AGE POSITION ---- --- -------- Jerry C. Atkin............................ 51 Chairman, President and Chief Executive Officer Ron B. Reber.............................. 46 Executive Vice President and Chief Operating Officer Bradford R. Rich.......................... 39 Executive Vice President, Chief Financial Officer and Treasurer Sidney J. Atkin........................... 66 Vice Chairman J. Ralph Atkin............................ 57 Director Mervyn K. Cox............................. 63 Director Ian M. Cumming............................ 59 Director Henry J. Eyring........................... 36 Director Robert G. Sarver.......................... 38 Director Hyrum W. Smith............................ 56 Director Steven F. Udvar-Hazy...................... 54 Director
Jerry C. Atkin joined us in July 1974 as a member of our Board of Directors and as our Director of Finance. In 1975, he assumed the office of President and Chief Executive Officer. He was elected Chairman of our Board of Directors in 1991. Prior to employment with us, Mr. Atkin was employed by a public accounting firm and is a certified public accountant. Mr. Atkin is a board member of each of (i) The Regence Group, a medical insurance holding company, and (ii) Zions Bancorporation, a Utah bank holding company. He also serves as the 2000 Chairman of the Regional Airline Association. Ron B. Reber has served in various capacities since joining us in 1977. He is currently Executive Vice President and Chief Operating Officer of SkyWest Airlines, Inc. with general responsibility for flight operations, maintenance, customer service, market planning, marketing, revenue control and pricing. Bradford R. Rich joined us in 1987 as Corporate Controller. He was previously employed with Arthur Andersen LLP and is a certified public accountant. He is currently Executive Vice President, Chief Financial Officer and Treasurer with responsibility for financial accounting, treasury, public reporting, investor relations, internal audit and information technology. Sidney J. Atkin has served as a member of our Board of Directors since 1973, and was elected Vice Chairman of our Board of Directors in 1988. From 1984 to 1988, he served as our Senior Vice President. For more than five years, Mr. Atkin has been president of Sugarloaf Corp., a Utah corporation involved in the operation of restaurants and hotels. J. Ralph Atkin is the founder of our company, served as our President and Chief Executive Officer from 1972 to 1975, and has served as a member of our Board of Directors since 1972. He served as Chairman of our Board of Directors from 1972 to 1991. From 1984 to 1988 he served as our Senior Vice President. He served as chief executive officer of EuroSky, a company organized to explore the feasibility of a regional airline in Austria, during 1994 and 1995. From March 1991 to January 1993, he was director of business and economic development for the State of Utah. Mr. Atkin is an attorney and is currently engaged in the private practice of law in St. George, Utah. Mervyn K. Cox has served as a member of our Board of Directors since 1974. He is an orthodontist engaged in private practice, and has also engaged in the development and management of real estate. Ian M. Cumming has served as a member of our Board of Directors since 1986. He is chairman of Leucadia National Corporation, a diversified financial services holding company principally engaged in personal and commercial lines of property and casualty insurance, life and health insurance, banking and lending and manufacturing. Mr. Cumming is also a director of Allcity Insurance Company, a property and 35 39 casualty insurer, and MK Gold Company, a gold mining and exploration company. In addition, he is the chairman of Barbados Light & Power Co., a Caribbean utilities company. Henry J. Eyring has served as a member of our Board of Directors since 1995. He is also the director of the MBA Program at Brigham Young University's Marriott School of Management. From 1989 to 1998, he was employed by the Monitor Company, an international management consulting firm based in Cambridge, Massachusetts, and he continues to serve as a consultant to the Monitor Company. From June 1986 to June 1990, he was chief financial officer for the Huntsman Cancer Foundation. He is also a member of the Board of Trustees of Southern Utah University. Robert G. Sarver has served as a member of our Board of Directors since January 2000. He also serves as chairman of the board and chief executive officer of California Bank and Trust, positions he has held since 1995. He has been the executive vice president of Zions Bancorporation, a bank holding company, since October 1998 and is currently on its board of directors. Mr. Sarver also serves as an executive director of Southwest Value Partners, a real estate investment company. He is also a director of Meritage Corporation, a builder of single-family homes. Hyrum W. Smith has served as a member of our Board of Directors since 1996. He is also co-founder and current vice chairman of Franklin Covey Co., a publicly-held learning and performance solutions company dedicated to increasing the effectiveness of individuals and organizations. Mr. Smith served as chief executive officer and chairman of Franklin Covey Co. from February 1997 to March 1998, a position he also held from April 1991 to September 1996. Mr. Smith was senior vice president of Franklin Quest Co. from December 1984 to April 1991. Franklin Covey Co. was formerly known as Franklin Quest Co. until its merger with Covey Leadership Center, Inc. in May 1997. Steven F. Udvar-Hazy has served as a member of our Board of Directors since 1986. He is also currently president, director and chief executive officer of International Lease Finance Corporation, a wholly owned subsidiary of American International Group, Inc., which leases and finances commercial jet aircraft worldwide. Mr. Udvar-Hazy has been engaged in aircraft leasing and finance for 35 years. J. Ralph Atkin and Sidney J. Atkin are brothers. Jerry C. Atkin is their nephew. KEY EMPLOYEES In addition to the executive officers listed above, the following are certain of our key employees:
NAME AGE POSITION ---- --- -------- James K. Boyd............................. 43 Vice President -- Customer Service Eric D. Christensen....................... 42 Vice President -- Planning and Secretary H. Michael Gibson......................... 50 Vice President -- Maintenance Steven L. Hart............................ 39 Vice President -- Market Development Brad Holt................................. 40 Vice President -- Flight Operations Michael J. Kraupp......................... 39 Vice President -- Controller
James K. Boyd joined us in 1981. He is currently Vice President -- Customer Service with responsibility for SkyWest ticket counter, gate and ramp personnel. He also has served as Director of Stations and Station Manager. Eric D. Christensen joined us in 1985. He is currently Vice President -- Planning and Secretary with responsibility for aircraft acquisitions, fleet planning and risk management. He has also served as Assistant to the President and Director of Finance. H. Michael Gibson joined us in 1988. He is currently Vice President -- Maintenance with responsibility for aircraft maintenance, parts, inventory control and maintenance personnel training. He also has served as Director of Quality Assurance for SkyWest. 36 40 Steven L. Hart joined us in 1986. He is currently Vice President -- Market Development with responsibility for flight scheduling, revenue control and pricing. He also has served as Director of Market Planning, Market Analyst and Director of Marketing. Brad Holt joined us in 1983. He is currently Vice President -- Flight Operations with responsibility for flight crew supervision and dispatch, flight safety and flight quality standards. He also has served as Director of Flight Standards, Chief Flight Instructor, Check Airman and Line Pilot. Michael J. Kraupp joined us in 1991. He has been Vice President -- Controller since 1993 with responsibility for financial accounting and public reporting. He previously was employed by Arthur Andersen LLP and is a certified public accountant. 37 41 PRINCIPAL AND SELLING STOCKHOLDERS The following table sets forth information with respect to the beneficial ownership of our common stock as of August 21, 2000, and as adjusted to reflect the sale of the shares of our common stock offered hereby, by: - each selling stockholder; - each person known by us to be a beneficial owner of more than 5% of the outstanding shares of our common stock; - each of our directors; and - all directors and executive officers as a group. Unless otherwise indicated, each of the stockholders has sole voting and investment power with respect to the shares indicated. The address for each of the directors and officers listed below is 444 South River Road, St. George, Utah 84790.
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP PRIOR TO THE OFFERING AFTER THE OFFERING ---------------------- SHARES -------------------- NAME AND ADDRESS OF BENEFICIAL OWNERS SHARES PERCENT OFFERED SHARES PERCENT ------------------------------------- ---------- -------- ------- --------- ------- Delta Air Holdings, Inc. ............... 3,107,798 12.5% -- 3,107,798 11.4% Hartsfield Atlanta International Airport Atlanta, Georgia 30320 Wellington Management Co. LLP(1)........ 1,705,800 6.9 -- 1,705,800 6.2 75 State Street Boston, Massachusetts 02109 Nicholas-Applegate Capital Management... 1,353,243 5.4 -- 1,353,243 4.9 600 West Broadway, 29th Floor San Diego, California 92101 Jerry C. Atkin.......................... 1,030,899(2) 4.1 30,000 1,000,899 3.6 Sidney J. Atkin......................... 886,528(3) 3.6 30,000 856,528 3.1 Mervyn K. Cox........................... 332,500(4) 1.3 30,000 302,500 1.1 Bradford R. Rich........................ 64,401(5) * -- 64,401 * Ron B. Reber............................ 63,026(6) * -- 63,026 * Ian M. Cumming.......................... 34,000(4) * 33,000 1,000 * Steven F. Udvar-Hazy.................... 16,500(7) * -- 16,500 * Hyrum W. Smith.......................... 16,000(8) * -- 16,000 * Henry J. Eyring......................... 15,100(7) * 9,100 6,000 * Robert G. Sarver........................ 8,500 * -- 8,500 * J. Ralph Atkin.......................... 4,000(7) * 4,000 -- -- All executive officers and directors, as a group (11 persons).................. 2,471,454(9) 9.8% 136,100 2,335,354 8.5%
- --------------- * Represents less than 1% of total outstanding shares. (1) Data for Wellington Management Co. LLP is as of March 31, 2000, the most recent publicly available data for their stockholdings. (2) Includes 414,470 shares held separately by Carolyn J. Atkin, Mr. Atkin's wife, and 105,000 shares issuable upon exercise of options. (3) Includes 604,000 shares held by a family limited partnership of which Mr. Atkin and his wife are the general partners, 265,744 shares held by Mr. Atkin as trustee of a trust for the benefit of his family, 8,784 shares held by his wife and 8,000 shares issuable upon exercise of options. (4) Includes 16,000 shares issuable upon exercise of options. (5) Includes 63,000 shares issuable upon exercise of options. (6) Includes 38,000 shares issuable upon exercise of options. (7) Includes 4,000 shares issuable upon exercise of options. (8) Includes 12,000 shares issuable upon exercise of options. (9) Includes 270,000 shares issuable upon exercise of options. 38 42 DESCRIPTION OF CAPITAL STOCK Our authorized capital stock consists of 120,000,000 shares of common stock, no par value, and 5,000,000 shares of preferred stock, no par value. COMMON STOCK As of August 21, 2000, there were 24,858,904 shares of our common stock issued and outstanding that were held by approximately 1,000 stockholders of record. No shares of our preferred stock have been issued. Subject to the rights of the holders of our preferred stock, each holder of our common stock has equal ratable rights to dividends from funds legally available therefor, if, as and when declared by our board of directors. The declaration and payment of all dividends, however, is subject to the discretion of our board of directors. In the event of our liquidation or dissolution or the winding up of our affairs, the holders of our common stock are entitled to share ratably in all assets remaining after payment of liabilities and amounts, if any, due to holders of our preferred stock. Holders of our common stock are entitled to one vote per share on all matters that stockholders may vote on at all meetings of our stockholders. The holders of our common stock do not have cumulative voting rights. The holders of our common stock do not have preemptive, subscription or conversion rights, and there are no redemption or sinking fund provisions applicable thereto. All the outstanding shares of our common stock are fully paid and nonassessable, and the shares of our common stock to be outstanding upon completion of this offering will be fully paid and nonassessable. Pursuant to the terms of the Stock Option Agreement we have executed with Delta, if we propose to issue any additional voting securities while Delta owns at least 10% of the outstanding shares of our common stock and our code-sharing agreement with Delta or a substantially similar agreement with Delta remains in effect, then Delta has a preemptive right to acquire, on the same terms and conditions as the proposed issuance of securities, the number of voting securities that, when added to all voting securities then owned by Delta, would provide Delta with the number of votes necessary to preserve Delta's percentage voting interest. Delta also has the right to require us to register its shares of our common stock for re-sale under the Securities Act and has the right to piggyback on any registration we initiate other than at Delta's request. The Stock Option Agreement also provides us with a right of first refusal to purchase shares of our common stock proposed to be sold by Delta in certain types of transactions. Delta has elected not to exercise its preemptive or registration rights under the Stock Option Agreement in connection with this offering and we have agreed to permanently waive our right of first refusal under the Stock Option Agreement. PREFERRED STOCK We are authorized to issue preferred stock from time to time in one or more series without stockholder approval. No shares of preferred stock are presently outstanding. With respect to our preferred stock, our board of directors is authorized, without any further action by our stockholders, to: (i) divide the preferred stock into series; (ii) designate each such series; (iii) fix and determine dividend rights; (iv) determine the price, terms and conditions on which shares of preferred stock may be redeemed; (v) determine the amount payable to holders of preferred stock in the event of voluntary or involuntary liquidation; (vi) determine any sinking fund provisions; and (vii) establish any conversion privileges. Thus, our board of directors, without stockholder approval, could authorize the issuance of preferred stock with rights which could decrease the amount of earnings and assets available for distribution to holders of shares of our common stock or otherwise adversely affect the rights of the holders of our common stock. Any future issuance of preferred stock may have the effect of delaying or preventing a change in control of our company and may adversely affect the voting and other rights of the holders of our common stock. At present, we have no plans to issue any preferred stock. BOARD OF DIRECTORS Our board of directors currently consists of nine directors who are elected for one-year terms at the annual meetings of our stockholders. Pursuant to the terms of the Delta Stock Option Agreement, for as long as Delta owns at least 10% of the outstanding shares of our common stock, it has the right to require us to include at least one Delta designee, reasonably acceptable to us, on the slate of nominees for election as directors nominated by our board of directors, and we are further required to use our reasonable best efforts to assure that such 39 43 individual is elected to our board of directors. From August 9, 1988 to April 1, 1997, the date of the resignation of Delta's most recent nominee, Delta had continuous representation on our board of directors through such nominees. Since April 1997, Delta has not designated a nominee to serve on our board of directors. UTAH CONTROL SHARES ACQUISITION ACT The Utah Control Shares Acquisition Act (the "Control Shares Act") provides that any person or entity that acquires "control shares" of a publicly held Utah corporation in a "control share acquisition" is denied voting rights with respect to the acquired shares, unless a majority of the disinterested stockholders of the corporation elects to restore such voting rights. The Control Shares Act provides that a person or entity acquires "control shares" whenever it acquires shares that, but for the operation for the Control Shares Act would bring its voting power within any of the following three ranges: (i) 20% to 33 1/3%, (ii) 33 1/3% to 50%, or (iii) 50% or more. A "control share acquisition" is generally defined as the direct or indirect acquisition of either ownership or voting power associated with issued and outstanding control shares. The directors or stockholders of a corporation may elect to exempt the stock of the corporation from the provisions of the Control Shares Act through adoption of a provision to that effect in the articles of incorporation or bylaws of the corporation. Our Restated Articles of Incorporation and Bylaws do not exempt our common stock from the provisions of the Control Shares Act. The stockholders of a corporation must consider the status of the voting rights of control shares of the corporation acquired in a control share acquisition at the next annual or special meeting of stockholders held following such acquisition. The acquiror may accelerate the decision and require the corporation to hold a special meeting of stockholders for the purpose of considering the status of those rights if the acquiror (i) files an "acquiring person statement" with the corporation, and (ii) agrees to pay all expenses of the meeting. If the stockholders do not vote to restore voting rights to the control shares, the corporation may, if its articles of incorporation or bylaws so provide, redeem the control shares from the acquiror at fair market value. If the acquiror fails to file an acquiring person statement, the corporation may, if its articles of incorporation or bylaws so provide, redeem the control shares at any time within 60 days of the acquiror's last acquisition of control shares, regardless of the decision of the stockholders to restore voting rights. Our Restated Articles of Incorporation and Bylaws do not provide for such redemption. Unless otherwise provided in the articles of incorporation or bylaws of a corporation, stockholders are entitled to dissenters' rights if the control shares are accorded full voting rights and the acquiror has obtained majority or more control shares. Our Restated Articles of Incorporation and Bylaws do not deny such dissenters' rights to our stockholders. The provisions of the Control Shares Act may discourage companies interested in acquiring a significant interest in or control of us. UNITED'S RIGHT OF FIRST REFUSAL Under our code-sharing agreement with United, if we desire to merge with another company, sell or otherwise transfer our assets to a third party, or issue capital stock exceeding 5% of our outstanding capital stock (30% if the stock is issued in a public offering) to such third party, we are required to give United notice of the proposed transaction, offer to complete such transaction with United instead of such third party, negotiate with United in good faith terms and conditions on which we could complete such transaction with United and offer United any terms and conditions we offer such third party. If we are unable to agree with United, we may enter into negotiations with other parties, but we may not enter into any agreement on terms more favorable to any such party than those we offered to United. The existence of this right of first refusal may adversely affect our ability to negotiate or consummate the sale of all or part of our business to a company other than United and may adversely affect the terms of a sale to any company, including United. TRANSFER AGENT AND REGISTRAR The transfer agent and registrar for our common stock is Zions First National Bank, N.A., Salt Lake City, Utah. 40 44 UNDERWRITING Subject to the terms and conditions of an underwriting agreement dated , 2000, the underwriters named below, through their representative, Raymond James & Associates, Inc., have severally agreed to purchase from us and the selling stockholders the respective number of shares of common stock set forth opposite their names below:
NUMBER OF UNDERWRITERS SHARES ------------ --------- Raymond James & Associates, Inc. ...........................
--------- Total..................................................... 2,636,100 =========
The underwriting agreement provides that the obligations of the underwriters are subject to certain conditions precedent, including the absence of any materially adverse change in our business and the receipt of certain certificates, opinions and letters from us and our attorneys and independent auditors. The nature of the underwriters' obligation is such that they are committed to purchase all shares of common stock offered hereby if any of the shares are purchased. We have granted an option to the underwriters, exercisable for 30 days after the date of this prospectus, to purchase up to an aggregate of 395,415 shares of our common stock at the public offering price, less the underwriting discounts and commissions set forth on the cover page of this prospectus. The underwriters may exercise this option solely to cover over-allotments, if any, in connection with the sale of our common stock. If the underwriters exercise this option, each underwriter will be obligated, subject to certain conditions, to purchase a number of additional shares of our common stock proportionate to the underwriter's initial amount set forth in the table above. The following table summarizes the underwriting discounts and commissions to be paid by us to the underwriters and the expenses payable by us for each share of our common stock and in total. This information is presented assuming either no exercise or full exercise of the underwriters' option to purchase additional shares of common stock.
PER WITHOUT WITH SHARE OPTION OPTION ------- ------- ------- Underwriting discounts and commissions payable by us........ $ $ $ Underwriting discounts and commissions payable by the selling stockholders...................................... $ $ $ Expenses payable by us...................................... $ $ $
We have been advised that the underwriters propose to offer the shares of our common stock to the public at the public offering price set forth on the cover page of this prospectus and to certain dealers at that price less a concession not in excess of $ per share. The underwriters may allow, and such dealers may re-allow, a concession not in excess of $ per share to certain other dealers. The offering of the shares of common stock is made for delivery when, as and if accepted by the underwriters and subject to prior sale and to withdrawal, cancellation or modification of this offering without notice. The underwriters reserve the right to reject an order for the purchase of shares, in whole or in part. We, our executive officers, our directors, the selling stockholders and Delta Air Lines, Inc. have agreed that for a period of 90 days after the date of this prospectus we and they will not, without the prior written consent of Raymond James & Associates, Inc., directly or indirectly: offer, offer to sell, sell, pledge, contract to sell, grant any option to purchase, or otherwise dispose or transfer (or announce any offer, offer of sale, sale, contract of sale, grant of any option to purchase, or any other disposition or transfer) of (i) any shares of our common stock or of securities substantially similar thereto or (ii) any other securities convertible into, exchangeable, or exercisable for, shares of our common stock or such similar securities, beneficially owned (within the meaning of Rule 13d-3 under the Securities Exchange Act of 1934, as amended) by such person whether owned as of the date of this prospectus, acquired after 41 45 the date of this prospectus, other than (A) an exercise of stock options or sale of our common stock pursuant to a "cashless exercise" of stock options which are either (x) outstanding on the date of this prospectus, (y) issued under our Amended and Combined Incentive and Nonstatutory Stock Option Plan, or (z) issued under our AllShare Incentive Stock Option Plan, (B) a bona fide gift of our common stock, provided that the donee agrees in writing to be bound by the foregoing terms or (C) the offer and/or sale of shares of our common stock in the offering. Until the offering is completed, rules of the SEC may limit the ability of the underwriters and certain selling group members to bid for and purchase our common stock. As an exception to these rules, the underwriters may engage in certain transactions that stabilize the price of our common stock. These transactions may include short sales, stabilizing transactions and purchases to cover positions created by short sales. Short sales involve the sale by the underwriters of a greater number of shares of our common stock than they are required to purchase in the offering. Stabilizing transactions consist of certain bids or purchases made for the purpose of preventing or retarding a decline in the market price of our common stock while the offering is in progress. The underwriters also may impose a penalty bid. This occurs when a particular underwriter repays to the other underwriters a portion of the underwriting discount received by it because the representatives have repurchased shares sold by or for the account of such underwriter in stabilizing or short covering transactions. These activities by the underwriters may stabilize, maintain or otherwise affect the market price of our common stock. As a result, the price of our common stock may be higher than the price that otherwise might exist in the open market. If these activities are commenced, they may be discontinued by the underwriters without notice at any time. These transactions may be effected on the Nasdaq National Market, or otherwise. We and the selling stockholders have agreed to indemnify the underwriters against certain liabilities, including liabilities under the Securities Act, and to contribute to payments which the underwriters may be required to make in respect thereof. LEGAL MATTERS The legality of our common stock offered hereby will be passed upon for us by Parr Waddoups Brown Gee & Loveless, a professional corporation, Salt Lake City, Utah and for the underwriters by King & Spalding. King & Spalding will rely upon the opinion of Parr Waddoups as to all matters of Utah law. EXPERTS The consolidated financial statements and schedules incorporated by reference in this Prospectus and elsewhere in the Registration Statement, to the extent and for the periods indicated in their reports, have been audited by Arthur Andersen LLP, independent public accountants, and are incorporated herein in reliance upon the authority of said firm as experts in accounting and auditing in giving said reports. INCORPORATION OF CERTAIN INFORMATION BY REFERENCE As permitted by SEC rules, this prospectus does not contain all of the information that prospective investors can find in the registration statement of which it is a part or the exhibits to the registration statement. The SEC permits us to incorporate by reference, into this prospectus, information filed separately with the SEC. The information incorporated by reference is deemed to be part of this prospectus, except as superseded or modified by information contained directly in this prospectus or in a subsequently filed document that also is (or is deemed to be) incorporated herein by reference. 42 46 This prospectus incorporates by reference the documents set forth below that we previously have filed (File No. 0-14719) with the SEC pursuant to the Securities Exchange Act of 1934, as amended. These documents contain important information about us and our financial condition. 1. Our Quarterly Report on Form 10-Q for the three months ended June 30, 2000. 2. Our Annual Report on Form 10-K for the fiscal year ended March 31, 2000. 3. The description of our common stock contained in our Registration Statement on Form 8-A as filed on June 15, 1986 with the SEC under the Exchange Act, including any amendment or report filed for the purpose of updating such description. We hereby incorporate by reference all reports and other documents filed by us pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this prospectus and prior to the termination of this offering. WHERE YOU CAN FIND MORE INFORMATION We file annual, quarterly, and current reports, proxy statements, and other information with the SEC. You may read and copy any reports, statements, or other information that we file at the SEC's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the Public Reference Room. The SEC also maintains an Internet site (http://www.sec.gov) that makes available to the public reports, proxy statements, and other information regarding issuers that file electronically with the SEC. In addition, we will provide, without charge, to each person to whom this prospectus is delivered, upon written or oral request of any such person, a copy of any or all of the foregoing documents (other than exhibits to such documents that are not specifically incorporated by reference in such documents). Please direct written requests for such copies to SkyWest, Inc., 444 South River Road, St. George, Utah 84790, Attention: Bradford R. Rich, Executive Vice President, Chief Financial Officer and Treasurer. Telephone requests may be directed to the office of our Chief Financial Officer at (435) 634-3000. Shares of our common stock are quoted on the Nasdaq National Market. Reports, proxy statements and other information concerning us can be inspected and copied at the Public Reference Room of the National Association of Securities Dealers, 1735 K Street, N.W., Washington, D.C. 20006. 43 47 INSIDE BACK COVER Photo of United Express and Delta Connection aircraft in flight. [SkyWest Airlines Logo] 48 ------------------------------------------------------ ------------------------------------------------------ YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE HAVE NOT, AND THE UNDERWRITERS HAVE NOT, AUTHORIZED ANY OTHER PERSON TO PROVIDE YOU WITH DIFFERENT INFORMATION. IF ANYONE PROVIDES YOU WITH DIFFERENT OR INCONSISTENT INFORMATION, YOU SHOULD NOT RELY ON IT. WE ARE NOT, AND THE UNDERWRITERS ARE NOT, MAKING AN OFFER TO SELL THESE SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED. YOU SHOULD ASSUME THAT THE INFORMATION IN THIS PROSPECTUS IS ACCURATE ONLY AS OF THE DATE ON THE FRONT COVER OF THIS PROSPECTUS. OUR BUSINESS, FINANCIAL CONDITION AND PROSPECTS MAY HAVE CHANGED SINCE THAT DATE. ------------------------ TABLE OF CONTENTS
PAGE ---- Prospectus Summary..................... 1 Risk Factors........................... 5 Use of Proceeds........................ 13 Price Range of Common Stock and Dividends............................ 13 Capitalization......................... 14 Selected Consolidated Financial and Operating Data....................... 15 Management's Discussion and Analysis of Financial Condition and Results of Operations........................... 17 Business............................... 24 Management............................. 35 Principal and Selling Stockholders..... 38 Description of Capital Stock........... 39 Underwriting........................... 41 Legal Matters.......................... 42 Experts................................ 42 Incorporation of Certain Information by Reference............................ 42 Where You Can Find More Information.... 43
------------------------------------------------------ ------------------------------------------------------ ------------------------------------------------------ ------------------------------------------------------ 2,636,100 SHARES [SKYWST LOGO] COMMON STOCK ------------------------ PROSPECTUS ------------------------ RAYMOND JAMES & ASSOCIATES, INC. , 2000 ------------------------------------------------------ ------------------------------------------------------ 49 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The following table sets forth the costs and expenses in connection with the issuance and distribution of the common stock being registered, other than underwriting discounts and commissions payable by us. We will bear all of the expenses listed below. All of the amounts shown are estimates, except the registration fee and the NASD filing and listing fees.
AMOUNT -------- SEC registration fee........................................ $ 39,371 NASD filing fee............................................. 16,000 NASD listing fee............................................ 17,500 Accounting fees and expenses................................ 90,000 Legal fees and expenses..................................... 75,000 Printing expenses........................................... 100,000 Blue sky fees and expenses.................................. 10,000 Transfer agent fees and expenses............................ 1,000 Miscellaneous expenses...................................... 32,129 -------- Total..................................................... $375,000 ========
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS We are a Utah corporation. Section 16-10a-902 of the Utah Revised Business Corporation Act (the "Revised Act") provides that a corporation may indemnify any individual who was, is, or is threatened to be made a named defendant or respondent (a "Party") in any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative and whether formal or informal (a "Proceeding"), because he or she is or was a director of the corporation or, while a director of the corporation, is or was serving at its request as a director, officer, partner, trustee, employee, fiduciary or agent of another corporation or other person or of an employee benefit plan (an "Indemnifiable Director"), against any obligation incurred with respect to a Proceeding, including any judgment, settlement, penalty, fine or reasonable expenses (including attorneys' fees), incurred in the Proceeding if his or her conduct was in good faith, he or she reasonably believed that his or her conduct was in, or not opposed to, the best interests of the corporation, and, in the case of any criminal Proceeding, had no reasonable cause to believe such conduct was unlawful; provided, however, that pursuant to Subsection 902(4): (i) indemnification under Section 902 in connection with a Proceeding by or in the right of the corporation is limited to payment of reasonable expenses (including attorneys' fees) incurred in connection with the Proceeding and (ii) the corporation may not indemnify an Indemnifiable Director in connection with a Proceeding by or in the right of the corporation in which the Indemnifiable Director was adjudged liable to the corporation, or in connection with any other Proceeding charging that the Indemnifiable Director derived an improper personal benefit, whether or not involving action in his or her official capacity, in which Proceeding he or she was adjudged liable on the basis that he or she derived an improper personal benefit. Section 16-10a-903 of the Revised Act provides that, unless limited by its articles of incorporation, a corporation shall indemnify an Indemnifiable Director who was successful, on the merits or otherwise, in the defense of any Proceeding, or in the defense of any claim, issue or matter in the Proceeding, to which he or she was a Party because he or she is or was an Indemnifiable Director of the corporation, against reasonable expenses (including attorneys' fees) incurred in connection with the Proceeding or claim with respect to which he or she has been successful. In addition to the indemnification provided by Sections 902 and 903, Section 16-10a-905 of the Revised Act provides that, unless otherwise limited by a corporation's articles of incorporation, an II-1 50 Indemnifiable Director may apply for indemnification to the court conducting the Proceeding or to another court of competent jurisdiction. Section 16-10a-904 of the Revised Act provides that a corporation may pay for or reimburse the reasonable expenses (including attorneys' fees) incurred by an Indemnifiable Director who is a Party to a Proceeding in advance of the final disposition of the Proceeding upon the satisfaction of certain conditions. Section 16-10a-907 of the Revised Act provides that, unless a corporation's articles of incorporation provide otherwise, (i) an officer of the corporation is entitled to mandatory indemnification under Section 903 and is entitled to apply for court-ordered indemnification under Section 905, in each case to the same extent as an Indemnifiable Director, (ii) the corporation may indemnify and advance expenses to an officer, employee, fiduciary or agent of the corporation to the same extent as an Indemnifiable Director, and (iii) a corporation may also indemnify and advance expenses to an officer, employee, fiduciary or agent who is not an Indemnifiable Director to a greater extent than the right of indemnification granted to an Indemnifiable Director, if not inconsistent with public policy, and if provided for by its articles of incorporation, bylaws, general or specific action of its board of directors or contract. Our Amended and Restated Bylaws (the "Bylaws") provide that, subject to the limitations described below, we shall, to the maximum extent and in the manner permitted by the Revised Act, indemnify any individual made party to a proceeding because he or she is or was one of our directors or officers against liability incurred in the proceeding if his or her conduct was in good faith, he or she reasonably believed that his or her conduct was in, or not opposed to, our best interests and, in the case of any criminal proceeding, he or she had no reasonable cause to believe such conduct was unlawful. We may not, however, extend such indemnification to an officer or director in connection with a proceeding by us or in our right in which such officer or director was adjudged liable to us, or in connection with any other proceeding charging that such person derived an improper personal benefit, whether or not involving action in his or her official capacity, in which proceeding he or she was adjudged liable on the basis that he or she derived an improper personal benefit, unless ordered by a court of competent jurisdiction. Notwithstanding the foregoing, the Bylaws obligate us to indemnify an officer or director who was successful on the merits or otherwise, in the defense of any proceeding or the defense of any claim, issue or matter in the proceeding to which the officer or director was a party because he or she is or was one of our directors or officers against reasonable expenses that he or she incurred in connection with the proceeding or claim with respect to which he or she was successful. The Bylaws also permit us to pay for or reimburse the reasonable expenses incurred by an officer or director who is party to a proceeding in advance of final disposition of the proceeding if (i) the officer or director furnishes to us a written affirmation of a good faith belief that he or she has met the applicable standard of conduct necessary for indemnification, (ii) the officer or director furnishes to us a written undertaking to repay the advance if it is ultimately determined that he or she did not meet the standard of conduct, and (iii) a determination is made that the facts then known to those making the determination would not preclude indemnification pursuant to the Bylaws. The Bylaws also provide that any indemnification or advancement of expenses provided thereby shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any articles of incorporation, bylaw, agreement, vote of stockholders or disinterested directors, or otherwise, both as to action in such person's official capacity and as to action in another capacity while holding such office. Utah law permits director liability to be eliminated in accordance with Section 16-10a-841 of the Revised Act, which provides that the liability of a director to the corporation or its stockholders for monetary damages for any action taken or any failure to take any action, as a director, may be limited or eliminated by the corporation except for liability for (i) the amount of financial benefit received by a director to which he is not entitled; (ii) an intentional infliction of harm on the corporation or its stockholders; (iii) a violation of Section 16-10a-842 of the Revised Act, which prohibits unlawful distributions by a corporation to its stockholders; or (iv) an intentional violation of criminal law. Such a provision may appear either in a corporation's articles of incorporation or bylaws; however, to be effective, such a provision must be approved by the corporation's stockholders. II-2 51 Our Restated Articles of Incorporation, as amended (the "Restated Articles"), provide that the personal liability of any director to SkyWest, Inc. or its stockholders for monetary damages for any action taken or the failure to take any action, as a director, is eliminated to the fullest extent permitted by Utah law. The Bylaws provide that we may purchase and maintain insurance on behalf of any person who is or was one of our directors, officers, employees, fiduciaries or agents, or is or was serving at our request as a director, officer, employee, fiduciary or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him or her or incurred by him or her in such capacity or arising out of his or her status in such capacity, whether or not we would have the power to indemnify him or her against such liability under the indemnification provisions of the Bylaws or the laws of the State of Utah, as the same are amended or modified. We maintain insurance from commercial carriers against certain liabilities that may be incurred by our directors and officers. Indemnification may be granted pursuant to any other agreement, bylaw or vote of stockholders or directors. Reference is also made to the Underwriting Agreement filed herewith pursuant to which the underwriters have agreed to indemnify us and our officers and directors against certain liabilities, including liabilities under the Securities Act. The foregoing description is necessarily general and does not describe all details regarding the indemnification of our officers, directors or controlling persons. ITEM 16. EXHIBITS
EXHIBIT NUMBER DESCRIPTION - ------- ----------- 1.1 Form of Underwriting Agreement. 4.1+ Specimen Form of Common Stock Certificate. 4.2 Restated Articles of Incorporation, as amended.(1) 4.3+ Articles of Amendment to Restated Articles of Incorporation. 4.4 Amended and Restated Bylaws.(2) 4.5 Stock Option Agreement, dated January 28, 1987, between Delta Air Lines, Inc. and SkyWest, Inc.(3) 5.1+ Opinion of Parr Waddoups Brown Gee & Loveless as to the legality of the securities being registered. 23.1 Consent of Arthur Andersen LLP. 23.2+ Consent of Parr Waddoups Brown Gee & Loveless (included in Item 5.1 above). 24.1+ Power of Attorney.
- --------------- + Previously filed. (1) Incorporated by reference to the Exhibits to a Registration Statement filed as of June 12, 1995, on Form S-8, File No. 33-60173. (2) Incorporated by reference to the Exhibits to a Registration Statement filed on January 20, 1994, on Form S-3, File No. 33-74290. (3) Incorporated by reference to the Exhibits to a Registration Statement filed on January 21, 1998, on Form S-3, as amended, File No. 333-44619. ITEM 17. UNDERTAKINGS The undersigned registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of registrant's annual report pursuant to Section 13(a) or Section 15(d) of the Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan's annual report pursuant to Section 15(d) of the Exchange Act of 1934) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of registrant pursuant to the foregoing provisions, or otherwise, II-3 52 registrant has been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act of 1933 and will be governed by the final adjudication of such issue. The undersigned registrant hereby undertakes that: (1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act of 1933 shall be deemed to be part of this registration statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-4 53 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-3 and has duly caused this Amendment No. 2 to Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of St. George, State of Utah, on August 23, 2000. SKYWEST, INC. By: /s/ JERRY C. ATKIN ------------------------------------ Jerry C. Atkin Chairman of the Board, President and Chief Executive Officer
SIGNATURE TITLE DATE --------- ----- ---- /s/ JERRY C. ATKIN Chairman of the Board, August 23, 2000 - ----------------------------------------------------- President Jerry C. Atkin and Chief Executive Officer (principal executive officer) /s/ SIDNEY J. ATKIN* Vice Chairman of the Board August 23, 2000 - ----------------------------------------------------- Sidney J. Atkin /s/ BRADFORD R. RICH* Executive Vice President, Chief August 23, 2000 - ----------------------------------------------------- Financial Officer and Treasurer Bradford R. Rich (principal financial and accounting officer) Director - ----------------------------------------------------- J. Ralph Atkin /s/ MERVYN K. COX* Director August 23, 2000 - ----------------------------------------------------- Mervyn K. Cox /s/ IAN M. CUMMING* Director August 23, 2000 - ----------------------------------------------------- Ian M. Cumming /s/ HENRY J. EYRING* Director August 23, 2000 - ----------------------------------------------------- Henry J. Eyring /s/ ROBERT G. SARVER* Director August 23, 2000 - ----------------------------------------------------- Robert G. Sarver /s/ HYRUM W. SMITH* Director August 23, 2000 - ----------------------------------------------------- Hyrum W. Smith Director - ----------------------------------------------------- Steven F. Udvar-Hazy *By: /s/ JERRY C. ATKIN ------------------------------------------------ Jerry C. Atkin Attorney-in-fact
II-5 54 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION - ------- ----------- 1.1 Form of Underwriting Agreement. 4.1+ Specimen Form of Common Stock Certificate. 4.2 Restated Articles of Incorporation, as amended.(1) 4.3+ Article of Amendment to Restated Articles of Incorporation. 4.4 Amended and Restated Bylaws.(2) 4.5 Stock Option Agreement, dated January 28, 1987, between Delta Air Lines, Inc. and SkyWest, Inc.(3) 5.1+ Opinion of Parr Waddoups Brown Gee & Loveless as to the legality of the securities being registered. 23.1 Consent of Arthur Andersen LLP. 23.2+ Consent of Parr Waddoups Brown Gee & Loveless (included in Item 5.1 above). 24.1+ Power of Attorney.
- --------------- + Previously filed. (1) Incorporated by reference to the Exhibits to a Registration Statement filed as of June 12, 1995, on Form S-8, File No. 33-60173. (2) Incorporated by reference to the Exhibits to a Registration Statement filed on January 20, 1994, on Form S-3, File No. 33-74290. (3) Incorporated by reference to the Exhibits to a Registration Statement filed on January 21, 1998, on Form S-3, as amended, File No. 333-44619. EX-1.1 2 ex1-1.txt FORM OF UNDERWRITING AGREEMENT 1 Exhibit 1.1 2,636,100 Shares SKYWEST, INC. Common Stock UNDERWRITING AGREEMENT St. Petersburg, Florida August , 2000 RAYMOND JAMES & ASSOCIATES, INC. As Representative of the Several Underwriters c/o Raymond James & Associates, Inc. 880 Carillon Parkway St. Petersburg, Florida 33716 Ladies and Gentlemen: SkyWest, Inc., a Utah corporation (the "Company"), proposes, subject to the terms and conditions stated herein, to issue and sell an aggregate of 2,500,000 authorized and unissued shares (the "Company Firm Shares") of the Company's common stock, no par value, to the several Underwriters named in Schedule I hereto (the "Underwriters"). Certain stockholders of the Company, named in Schedule II hereto (the "Selling Stockholders"), acting severally and not jointly, propose, subject to the terms and conditions stated herein, to issue and sell an aggregate of 136,100 authorized and outstanding shares (the "Stockholder Firm Shares") of the Company's common stock, no par value, to the Underwriters. The Company Firm Shares and the Stockholder Firm Shares are hereafter collectively referred to as the "Firm Shares." In addition, the Company has agreed to sell to the Underwriters, upon the terms and conditions set forth herein, up to an additional 395,415 authorized and unissued shares of the Company's common stock, no par value (the "Additional Shares"), solely to cover over-allotments by the Underwriters, if any. The Firm Shares and the Additional Shares are hereinafter collectively referred to as the "Shares." The Company's common stock, no par value, including the Shares, is hereinafter referred to as the "Common Stock." Raymond James & Associates, Inc. is acting as the representative of the several Underwriters and in such capacity is hereinafter referred to as the "Representative." 2 Each of the Company and each Selling Stockholder wishes to confirm as follows its agreement with you and the other several Underwriters, on whose behalf you are acting, in connection with the several purchases of the Shares from the Company and the Selling Stockholders. SECTION 1. REGISTRATION STATEMENT AND PROSPECTUS. The Company has prepared and filed with the Securities and Exchange Commission (the "Commission") in accordance with the provisions of the Securities Act of 1933, as amended, and the rules and regulations of the Commission thereunder (collectively, the "Act"), a registration statement on Form S-3 (File No. 333-42508), including a prospectus subject to completion, relating to the Shares. Such registration statement (including all financial schedules and exhibits), as amended at the time when it became effective and as thereafter amended by post-effective amendment, together with any documents incorporated by reference therein and any registration statement filed by the Company pursuant to Rule 462(b) under the Act, is referred to in this Agreement as the "Registration Statement." The term "Prospectus" as used in this Agreement means (i) the prospectus in the form included in the Registration Statement, or (ii) if the prospectus included in the Registration Statement omits information in reliance upon Rule 430A under the Act and such information is included in a prospectus filed with the Commission pursuant to Rule 424(b) under the Act or as part of a post-effective amendment to the Registration Statement after the Registration Statement becomes effective, the prospectus as so filed, or (iii) if the prospectus included in the Registration Statement omits information in reliance upon Rule 430A under the Act and such information is included in a term sheet (as described in Rule 434(c) under the Act) filed with the Commission pursuant to Rule 424(b) under the Act, the prospectus included in the Registration Statement and such term sheet, taken together, in each case together with any documents incorporated by reference therein. The prospectus subject to completion in the form included in the Registration Statement at the time of the initial filing of such Registration Statement with the Commission and as such prospectus is amended from time to time until the date upon which the Registration Statement was declared effective by the Commission, together with any documents incorporated by reference therein, is referred to in this Agreement as the "Prepricing Prospectus." SECTION 2. AGREEMENTS TO SELL AND PURCHASE. The Company hereby agrees to sell the Company Firm Shares, and each Selling Stockholder hereby agrees to sell such number of Stockholder Firm Shares as is set forth opposite such Selling Stockholder's name on Schedule II hereto, to the Underwriters and, upon the basis of the representations, warranties and agreements of the Company and the Selling Stockholders herein contained and subject to all the terms and conditions set forth herein, each Underwriter agrees, severally and not jointly, to purchase from the Company and the Selling Stockholders the aggregate number of Firm Shares set forth opposite the name of such Underwriter in Schedule I hereto (or such number of Firm Shares as adjusted pursuant to Section 10 hereof), at a purchase price of $_________ per Share (the "Purchase Price per Share"). The Company also agrees to sell to the Underwriters, and upon the basis of the representations, warranties and agreements of the Company herein contained and subject to all the terms and conditions set forth herein, the Underwriters shall have the right for 30 days from 2 3 the date upon which the Registration Statement is declared effective by the Commission to purchase from the Company up to 395,415 Additional Shares at the Purchase Price per Share for the Firm Shares. The Additional Shares shall, if purchased, be purchased solely for the purpose of covering over-allotments made in connection with the offering of the Firm Shares. If any Additional Shares are to be purchased, each Underwriter agrees, severally and not jointly, to purchase the number of Additional Shares (subject to such adjustments as you may determine to avoid fractional shares) which bears the same proportion to the number of Additional Shares to be sold as the number of Firm Shares set forth opposite the name of such Underwriter in Schedule I hereto (or such number of Firm Shares as adjusted pursuant to Section 10 hereof) bears to the total number of Firm Shares. SECTION 3. TERMS OF PUBLIC OFFERING. The Company has been advised by you that the Underwriters propose to make a public offering of their respective portions of the Shares as soon after the Registration Statement and this Agreement have become effective as in our judgment is advisable and initially to offer the Shares upon the terms set forth in the Prospectus. SECTION 4. DELIVERY OF THE SHARES AND PAYMENT THEREFOR. Delivery to the Underwriters of the Firm Shares and payment therefor shall be made at the offices of Raymond James & Associates, Inc., 880 Carillon Parkway, St. Petersburg, Florida, at 10:00 a.m., St. Petersburg, Florida time, [three] business days after the date hereof (the "Closing Date"). The place of closing for the Firm Shares and the Closing Date may be varied by agreement between you and the Company. Delivery to the Underwriters of and payment for any Additional Shares to be purchased by the Underwriters shall be made at the offices of Raymond James & Associates, Inc., 880 Carillon Parkway, St. Petersburg, Florida, at 10:00 a.m., St. Petersburg, Florida time, on such date or dates (the "Additional Closing Date") (which may be the same as the Closing Date but shall in no event be earlier than the Closing Date nor earlier than three nor latter than ten business days after the giving of the notice hereinafter referred to), as shall be specified in a written notice from you on behalf of the Underwriters to the Company, of the Underwriters' determination to purchase a number, specified in such notice, of Additional Shares. Such notice may be given to the Company by you at any time within 30 days after the date upon which the Registration Statement is declared effective by the Commission. The place of closing for the Additional Shares and the Additional Closing Date may be varied by agreement between you and the Company. Certificates for the Company Firm Shares and for any Additional Shares to be purchased hereunder shall be registered in such names and such denominations as you shall request prior to 1:00 p.m., St. Petersburg, Florida time, on the second full business day preceding the Closing Date or the Additional Closing Date, as the case may be. Such certificates shall be made available to you in St. Petersburg, Florida for inspection and packaging not later than 9:30 a.m., St. Petersburg, Florida time, on the business day immediately preceding the Closing Date or the Additional Closing Date, as the case may be. The certificates evidencing the Firm Shares and any Additional Shares to be purchased hereunder shall be delivered to you on the Closing Date or the Additional Closing Date, as the case may be, against payment of the Purchase Price therefor by wire transfer or certified or official bank check or checks payable in same day funds. 3 4 If the Representative so elects, delivery of the Shares may be made by credit through full fast transfer to the accounts at the Depository Trust Company designated by the Representative. The certificates in negotiable form for the Stockholder Firm Shares have been placed in custody (for deliver under this Agreement) under the Custody Agreement (as defined below). Each Selling Stockholder agrees that the certificates for the Shares for such Selling Stockholder so held in custody are subject to the interests of the Underwriters hereunder, that the arrangements made by such Selling Stockholder for such custody, including the Power of Attorney (as defined below) is to that extent irrevocable and that the obligations of such Selling Stockholder hereunder shall not be terminated by the act of such Selling Stockholder or by operation of law, whether by the death or incapacity of such Selling Stockholder or the occurrence of any other event, except as specifically provided herein or in the Custody Agreement. If any Selling Stockholder should die or be incapacitated, or if any other such event should occur, before the delivery of the certificates for the Shares to be sold by such Selling Stockholder hereunder, such Shares, except as specifically provided herein or in the Custody Agreement, shall be delivered by the Custodian (as defined below) in accordance with the terms and conditions of this Agreement as if such death, incapacity or other event had not occurred, regardless of whether the Custodian shall have received notice of such death or other event. SECTION 5. AGREEMENTS OF THE COMPANY. The Company agrees with the several Underwriters as follows: (a) The Company will advise you promptly and, if requested by you, will confirm such advice in writing (i) when the Registration Statement has become effective (if not effective as of the time and date of this Agreement) and when any post-effective amendment to the Registration Statement or any registration statement filed pursuant to Rule 462(b) under the Act if filed or becomes effective, (ii) if Rule 430A under the Act is employed, when the Prospectus or term sheet (as described in Rule 434(b) under the Act) has been timely filed pursuant to Rule 424(b) under the Act, (iii) of any request by the Commission for amendments or supplements to the Registration Statement, any Prepricing Prospectus or the Prospectus or for additional information, (iv) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or of the suspension of qualification of the Shares for offering or sale in any jurisdiction or the initiation (or threatened initiation) of an proceeding for such purposes, and (v) within the period of time referred to in Section 5(e) below, of any change in the Company's condition (financial or other), business, prospects, properties, net worth or results of operations, or of any event that comes to the attention of the Company that makes any statement made in the Registration Statement or the Prospectus (as then amended or supplemented) misleading in any material respect or that requires the making of any additions thereto or changes therein in order to make the statements therein not misleading in any material respect, or of the necessity to amend or supplement the Prospectus (as then amended or supplemented) to comply with the Act or any other law. If at any time the Commission shall issue any stop order suspending the effectiveness of the Registration Statement, the Company will make every reasonable effort to obtain the withdrawal of such order at the earliest possible time. 4 5 (b) The Company will furnish to you, without charge, two signed copies of the Registration Statement as originally filed with the Commission and of each amendment thereto, including financial statements and all exhibits thereto, and will also furnish to you, without charge, such number of conformed copies of the Registration Statement as originally filed and of each amendment thereto as you may reasonably request. (c) The Company will not file any amendment to the Registration Statement, file any registration statement pursuant to Rule 462(b) under the Act or make any amendment or supplement to the Prospectus of which you shall not previously have been advised (with a reasonable opportunity to review such amendment or supplement) or to which you have reasonably objected after being so advised, or which is not in compliance with the Act. The Company will prepare and file with the Commission any amendments or supplements to the Registration Statement or Prospectus which, in the opinion of counsel of the several Underwriters may be necessary or advisable in connection with the distribution of the Shares by the Underwriters. (d) The Company has delivered or will deliver to you, without charge, in such quantities as you have requested or may hereafter reasonably request, copies of each form of the Prepricing Prospectus. The Company consents to the use, in accordance with the Provisions of the Act and with the securities or Blue Sky laws of the jurisdictions in which the Shares are offered by the several Underwriters and by dealers, prior to the date of the Prospectus, of each Prepricing Prospectus so furnished by the Company. (e) As soon after the execution and delivery of this Agreement as is practicable and thereafter from time to time for such period as in the reasonable opinion of counsel for the Underwriters a prospectus is required by the Act to be delivered in connection with sales by any Underwriter or a dealer, the Company will deliver to each Underwriter and each dealer, without charge, as many copies of the Prospectus (and of any amendment or supplement thereto) as they may reasonably request. The Company consents to the use of the Prospectus (and of any amendment or supplement thereto) in accordance with the provisions of the Act and with the securities or blue Sky laws of the jurisdictions in which the Shares are offered by the several Underwriters and by all dealers to whom Shares may be sold, both in connection with the offering and sale of the Shares and for such period of time thereafter as the Prospectus is required by the Act to be delivered in connection with sales by any Underwriter or dealer. If during such period of time any event shall occur that in the judgment of the Company or in the opinion of counsel for the Underwriters is required to be set forth in the Prospectus (as then amended or supplemented) or should be set forth therein in order to make the statements therein, in light of the circumstances under which they were made, not misleading, or if it is necessary to supplement or amend the Prospectus to comply with the Act or any other law, the Company will promptly prepare and file with the Commission an appropriate supplement or amendment thereto, and will furnish to each Underwriter and to each dealer who has previously requested Prospectuses, without charge, a reasonable number of copies thereof. (f) The Company will cooperate with you and counsel for the Underwriters in connection with the registration or qualification of the Shares for offering and sale by the several Underwriters and by dealers under the securities or Blue Sky laws of such jurisdictions as you 5 6 may reasonably designate and will file such consents to service of process in suits, other documents as may be reasonably necessary in order to effect such registration or qualification; provided that in no event shall the Company be obligated to qualify to do business in any jurisdiction where it is not now so qualified or to take any action which would subject it to service of process in suits, in any jurisdiction where it is not now so subject. In each jurisdiction in which the Shares shall have been qualified as above provided, the Company will make and file such statements and reports in each year as are or may be required by the laws of such jurisdiction. In the event that the qualification of the Shares in any jurisdiction is suspended, the Company shall so advise you promptly in writing. (g) The Company will make generally available to its security holders a consolidated earnings statement, which need not be audited, covering a 12-month period commencing after the effective date of the Registration Statement and ending not later than 15 months thereafter, as soon as practicable after the end of such period, which consolidated earnings statement shall satisfy the provisions of Section 11(a) of the Act and Rule 158 under the Act, and will advise you in writing when such statement has been so made available. (h) During the period of five years hereafter, the Company will furnish to you (i) as soon as practicable after the end of each fiscal year, (ii) as soon as available, a copy of each report or definitive proxy statement of the Company filed with the Commission under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or mailed to stockholders, and (iii) from time to time such other information concerning the Company as you may reasonably request. Until the termination of the offering of the Shares, the Company will timely file all documents, and any amendments to previously filed documents, required to be filed by it pursuant to Sections 13, 14 or 15(d) of the Exchange Act. (i) The Company will apply the net proceeds from the sale of the Shares to be sold by it hereunder substantially in accordance with the description set forth under "Use of Proceeds" in the Prospectus. (j) If Rule 430A under the Act is employed, the Company will timely file the Prospectus or term sheet (as described in Rule 434(b) under the Act) pursuant to Rule 424(b) under the Act. (k) The Company will not sell, contract to sell, pledge or otherwise dispose of any Common Stock or rights to purchase Common Stock or securities convertible into or exchangeable for shares of Common Stock until after the date 90 days from the effective date of the Registration Statement, without the prior written consent of Raymond James & Associates, Inc., except to the Underwriters pursuant to this Agreement, and except that the Company may issue Common Stock upon the exercise or conversion of stock options issued and outstanding at the time of effectiveness of the Registration Statement and described in the Registration Statement. (l) The Company will not, directly or indirectly, take any action that would constitute or any action designed, or which might reasonably be expected to cause or result in or constitute, 6 7 under the Act or otherwise, stabilization nor manipulation of the price of any security of the Company to facilitate the sale or resale of the Shares. (m) If at any time during the 90-day period after the first date that any of the Shares are released by you for sale to the public, any rumor, publication, or event relating to or affecting the Company shall occur as a result of which in your opinion the market price of the Common Stock (including the Shares) has been or is likely to be materially affected (regardless of whether such rumor, publication, or event necessitates a supplement to or amendment of the Prospectus), the Company will, after written notice from you of advising the Company to the effect set forth above, promptly consult with you concerning the advisability and substance of, and, if appropriate, disseminate, a press release or other public statement responding to or commenting on such rumor, publication, or event. (n) The Company shall not invest or otherwise use the proceeds received by the Company from its sale of the Shares, or otherwise conduct its business, in such a manner as would require the Company or any of its subsidiaries to register as an investment company under the Investment Company Act of 1940, as amended. (o) The Company will maintain a transfer agent and, if necessary under the jurisdiction of its incorporation or the rules of the Nasdaq National Market or any national securities exchange on which the Common Stock is then listed, a registrar (which, if permitted by applicable laws and rules, may be the same entity as the transfer agent) for its Common Stock. (p) The Company hereby agrees that this Agreement shall be deemed, for all purposes, to have been made and entered into in Pinellas County, Florida. The Company agrees that any dispute hereunder shall be litigated solely in the Circuit Court of the State of Florida in Pinellas County, Florida or in the United States District Court for the Middle district of Florida, Tampa Division, and further agrees to submit itself to the personal jurisdiction of such courts. SECTION 6. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SELLING STOCKHOLDERS. Each of the Company and the Selling Stockholders, jointly and severally, represents and warrants to each Underwriter on the date hereof, and shall be deemed to represent and warrant to each Underwriter on the Closing Date and the Additional Closing Date, that: (a) The Registration Statement has been declared effective by the Commission under the Act and no post-effective amendment to the Registration Statement has been filed as of the date of this Agreement. Each Prepricing Prospectus included as part of the Registration Statement as originally filed or as part of any amendment or supplement thereto, or filed pursuant to Rule 424(a) under the Act, complied when so filed in all material respects with the provisions of the Act, except that this representation and warranty does not apply to statements in or omissions from such Prepricing Prospectus (or any amendment or supplement thereto) made in reliance upon and in conformity with information relating to any Underwriter furnished to the Company in writing by or on behalf of any Underwriter through you expressly for use therein. 7 8 (b) The Commission has not issued any order preventing or suspending the use of any Prepricing Prospectus, and the Prepricing Prospectus included as part of the Registration Statement declared effective by the Commission complies as to form in all material respects with the requirements of the Act. The Company has satisfied all conditions to the use of Form S-3 with respect to the offering of the Shares for sale to the public. The Registration Statement, in the form in which it became effective and also in such form as it may be when any post-effective amendment thereto shall become effective, and any registration statement filed pursuant to Rule 462(b) under the Act, complies and will comply in all material respects with the provisions of the Act and does not and will not at any such times contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading, except that this representation and warranty does not apply to statements in or omissions from the Registration Statement (or any amendment or supplement thereto) made in reliance upon and in conformity with information relating to any Underwriter furnished to the Company in writing by or on behalf of any Underwriter through you expressly for use therein. The Prospectus, and any supplement or amendment thereto, when filed with the Commission under Rule 424(b) under the Act, complies and will comply in all material respects with the provisions of the Act and does not and will not at any such times contain an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements, in the light of the circumstances under which they were made, not misleading, except that this representation and warranty does not apply to statements in or omissions from the Prospectus (or any amendment or supplement thereto) made in reliance upon and in conformity with information relating to any Underwriter furnished to the Company in writing by or on behalf of any Underwriter through you expressly for use therein. (c) The capitalization of the Company is as set forth in the Prospectus as of the date set forth therein. All the outstanding shares of Common Stock (including without limitation the Stockholder Firm Shares) and other securities of the Company have been duly authorized and validly issued, are fully paid and nonassessable and are free of any preemptive or similar rights; all offers and sales of the capital stock, warrants, options and debt or other securities or the Company and the Subsidiaries prior to the date hereof (including without limitation the Stockholder Firm Shares) were made in compliance with the Act and all other applicable state, federal and foreign laws or regulations, or any actions under the Act or any state, federal or foreign laws or regulations in respect of any such offers or sales are effectively barred by effective waivers or statutes of limitation; the Shares to be issued and sold to the Underwriters by the Company hereunder have been duly authorized and, when issued and delivered to the Underwriters against payment therefor in accordance with the terms hereof, will be validly issued, fully paid and nonassessable and free of any preemptive or similar rights; the securities of the Company conform to the description thereof in the Registration Statement and the Prospectus (or any amendment or supplement thereto); the form of certificate for the Shares conforms to the corporate law of the State of Utah; and the delivery of certificates for the Shares to be issued and sold by the Company pursuant to the terms of this Agreement and payment for such Shares will pass valid marketable title to such shares, free and clear of any voting trust arrangements, liens, encumbrances, equities, claims or defects in title to the several Underwriters purchasing such Shares in good faith and without notice of any lien, claim or encumbrance. (d) The descriptions in the Registration Statement and the Prospectus of statutes, 8 9 legal and governmental proceedings or contracts and other documents are accurate and fairly present the information required to be shown; and there are no statutes or legal or governmental proceedings required to be described in the Registration Statement or the Prospectus that are not described as required and no contracts or documents of a character that are required to be described in the Registration Statement or the Prospectus or to be filed as exhibits to the Registration Statement that are not described and filed as required. (e) Each of the Company and its subsidiaries has been duly incorporated, is validly existing as a corporation in good standing under the laws of its jurisdiction of incorporation and has full corporate and other power and authority to own or lease its properties and conduct its business as described in the Prospectus. The Company has full corporate and other power and authority to enter into this Agreement and to perform its obligations hereunder. Each of the Company and its subsidiaries is duly qualified to transact business as a foreign corporation and is in good standing under the laws of each other jurisdiction in which it owns or leases properties, or conducts any business, so as to require such qualification, except where the failure to so qualify would not subject them to any material liability or disability. (f) The only subsidiary of the Company is SkyWest Airlines, Inc., a Utah corporation. All of the issued shares of capital stock of SkyWest Airlines, Inc. have been duly authorized and validly issued, are fully paid and nonassessable and are owned beneficially by the Company free and clear of all liens, security interests, pledges, charges, encumbrances, defects, shareholders' agreements, voting trusts, equities or claims of any nature whatsoever. Other than the subsidiary set forth in this paragraph, the Company does not own, directly or indirectly, any capital stock or other equity securities of any other corporation or any ownership interest in any partnership, joint venture, limited liability company or other association other than as disclosed in the Prospectus. (g) Except as disclosed in the Prospectus, there are no outstanding (A) securities or obligations of the Company or any of its subsidiaries convertible into or exchangeable for any capital stock of the Company or any such subsidiary, (B) warrants, rights or options to subscribe for or purchase from the Company or any such subsidiary any such capital stock or any such convertible or exchangeable securities or obligations, or (C) obligations of the Company or any such subsidiary to issue any shares of capital stock, any such convertible or exchangeable securities or obligations, or any such warrants, rights or options. (h) Since the date of the most recent audited financial statements included in the Prospectus, neither the Company nor any of its subsidiaries has sustained any material loss or interference with its business from fire, explosion, flood or other calamity, whether or not covered by insurance, or from any labor dispute or court or governmental action, order or decree, including without limitation any such dispute or court or governmental action, order or decree relating to United Airlines and its pilots otherwise than as disclosed in or contemplated by the Prospectus. (i) Since the respective dates as of which information is given in the Registration Statement and the Prospectus, (A) neither the Company nor any of its subsidiaries has incurred any liabilities or obligations, direct or contingent, or entered into any transactions, not in the 9 10 ordinary course of business, that are material to the Company and its subsidiaries, (B) the Company has not purchased any of its outstanding capital stock or declared, paid or otherwise made any dividend or distribution of any kind on its capital stock, (C) there has not been any change in the capital stock, long-term debt or short-term debt of the Company or any of its subsidiaries, and (D) there has not been any material adverse change, or any development involving a prospective material adverse change, in or affecting the financial position, results of operations or business of the Company and its subsidiaries, in each case other than as disclosed in or contemplated by the Prospectus. (j) Except as disclosed in the Prospectus, there are no contracts, agreements or understandings between the Company and any person granting such person the right to require the Company to file a registration statement under the Act with respect to any securities of the Company owned or to be owned by such person or to require the Company to include such securities in the securities registered pursuant to the Registration Statement (or any such right has been effectively waived) or any securities being registered pursuant to any other registration statement filed by the Company under the Act. (k) Neither the Company nor any of its subsidiaries is, or with the giving of notice or passage of time or both would be, in violation of its Articles of Incorporation or Bylaws or in default under any indenture, mortgage, deed of trust, loan agreement, lease or other agreement or instrument to which the Company or any of its subsidiaries is a party or to which any of their respective properties or assets are subject. (l) The issue and sale of the Shares to be issued and sold by the Company and the performance of this Agreement and the consummation of the transactions herein contemplated will not conflict with, or (with or without the giving of notice or the passage of time or both) result in a breach or violation of any of the terms or provisions of, or constitute a default under, any indenture, mortgage, deed of trust, loan agreement, lease or other agreement or instrument to which the Company or any of its subsidiaries is a party or to which any of their respective properties or assets is subject, nor will such action conflict with or violate any provision of the Articles of Incorporation or Bylaws of the Company or any of its subsidiaries or any statute, rule or regulation or any order, judgment or decree of any court or governmental agency or body having jurisdiction over the Company or any of its subsidiaries or any of their respective properties or assets. (m) The Company and its subsidiaries have good and marketable title in fee simple to all real property, if any, and good title to all personal property owned by them, in each case free and clear of all liens, security interests, pledges, charges, encumbrances, mortgages and defects, except such as are disclosed in the Prospectus or such as do not materially and adversely affect the value of such property and do not interfere with the use made or proposed to be made of such property by the Company and its subsidiaries; and any real property and buildings held under lease by the Company or any of its subsidiaries are held under valid, subsisting and enforceable leases, with such exceptions as are disclosed in the Prospectus or are not material and do not interfere with the use made or proposed to be made of such property and buildings by the Company or such subsidiary. 10 11 (n) No consent, approval, authorization, order or declaration of or from, or registration, qualification or filing with, any court or governmental agency or body is required for the issue and sale of the Shares to be issued and sold by the Company or the consummation of the transactions contemplated by this Agreement, except the registration of the Shares under the Act (which, if the Registration Statement is not effective as of the time of execution hereof, shall be obtained as provided in this Agreement) and such as may be required under state securities or blue sky laws in connection with the offer, sale and distribution of the Shares by the Underwriters. (o) Other than as disclosed in the Prospectus, there is no litigation, arbitration, claim, proceeding (formal or informal) or investigation pending or threatened (or any basis therefor) in which the Company or any of its subsidiaries is a party or of which any of their respective properties or assets are the subject which, if determined adversely to the Company or any such subsidiary, would individually or in the aggregate have a material adverse effect on the financial position, results of operations or business of the Company and its subsidiaries. Neither the Company nor any of its subsidiaries is in violation of, or in default with respect to, any statute, rule, regulation, order, judgment or decree, except as described in the Prospectus or such as do not and will not individually or in the aggregate have a material adverse effect on the financial position, results of operations or business of the Company and its subsidiaries, and neither the Company nor any of its subsidiaries is required to take any action in order to avoid any such violation or default. (p) Arthur Andersen & Co. LLP, who has certified certain financial statements of the Company and its consolidated subsidiaries for the fiscal years ended March 31, 1998, 1999 and 2000, is and was during the periods covered by their reports incorporated by reference in the Registration Statement and the Prospectus, independent public accountants as required by the Act, the Exchange Act and the respective rules and regulations of the Commission thereunder. (q) The consolidated financial statements and schedules (including the related notes) of the Company and its consolidated subsidiaries incorporated by reference in the Registration Statement, the Prospectus or any Preliminary Prospectus were prepared in accordance with generally accepted accounting principles consistently applied throughout the periods involved and fairly present the financial position and results of operations of the Company and its subsidiaries, on a consolidated basis, at the dates and for the periods presented. The selected financial and operating data set forth under the caption "Selected Financial and Operating Data" in the Prospectus fairly present, on the basis stated in the Prospectus, the information included therein. (r) This Agreement has been duly authorized, executed and delivered by the Company and constitutes the valid and binding agreement of the Company enforceable against the Company in accordance with its terms, subject, as to enforcement, to applicable bankruptcy, insolvency, reorganization and moratorium laws and other laws relating to or affecting the enforcement of creditors' rights generally and to general equitable principles and except as the enforceability of rights to indemnity and contribution under this Agreement may be limited under applicable securities laws or the public policy underlying such laws. 11 12 (s) Neither the Company nor any of its officers, directors or affiliates has (A) taken, directly or indirectly, any action designed to cause or result in, or that has constituted or might reasonably be expected to constitute, the stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of the Shares or (B) since the filing of the Registration Statement (1) sold, bid for, purchased or paid anyone any compensation for soliciting purchases of, the Shares or (2) paid or agreed to pay to any person any compensation for soliciting another to purchase any other securities of the Company (t) The Company has obtained for the benefit of the Company and the Underwriters from each of its directors and executive officers and from Delta Air Lines, Inc. a written agreement that for a period of 90 days from the date of the Prospectus such persons will not, without your prior written consent, offer, pledge, sell, contract to sell, grant any option for the sale of, or otherwise dispose of, directly or indirectly, any shares of Common Stock or securities convertible into, or exercisable or exchangeable for, shares of Common Stock. (u) Neither the Company, any of its subsidiaries, nor any director, officer, agent, employee or other person associated with or acting on behalf of the Company or any such subsidiary has, directly or indirectly: used any corporate funds for unlawful contributions, gifts, entertainment or other unlawful expenses relating to political activity; made any unlawful payment to foreign or domestic government officials or employees or to foreign or domestic political parties or campaigns from corporate funds; violated any provision of the Foreign Corrupt Practices Act of 1977, as amended; or made any bribe, rebate, payoff, influence payment, kickback or other unlawful payment. (v) The operations of the Company and its subsidiaries with respect to any real property currently leased or owned or by any means controlled by the Company or any subsidiary (the "Real Property") are in compliance with all federal, state, and local laws, ordinances, rules, and regulations relating to occupational health and safety and the environment (collectively, "Laws"), and the Company and its subsidiaries have all licenses, permits and authorizations necessary to operate under all Laws and are in compliance with all terms and conditions of such licenses, permits and authorizations; neither the Company nor any subsidiary has authorized, conducted or has knowledge of the generation, transportation, storage, use, treatment, disposal or release of any hazardous substance, hazardous waste, hazardous material, hazardous constituent, toxic substance, pollutant, contaminant, petroleum product, natural gas, liquefied gas or synthetic gas defined or regulated under any environmental law on, in or under any Real Property; and there is no pending or threatened claim, litigation or any administrative agency proceeding, nor has the Company or any subsidiary received any written or oral notice from any governmental entity or third party, that: (A) alleges a violation of any Laws by the Company or any subsidiary; (B) alleges the Company or any subsidiary is a liable party under the Comprehensive Environmental Response, Compensation, and Liability Act, 42 U.S.C. Section 9601 et seq. or any state superfund law; (C) alleges possible contamination of the environment by the Company or any subsidiary; or (D) alleges possible contamination of the Real Property. (w) The Company and its subsidiaries own or have the right to use all patents, patent applications, trademarks, trademark applications, tradenames, service marks, copyrights, franchises, trade secrets, proprietary or other confidential information and intangible properties 12 13 and assets (collectively, "Intangibles") necessary to their respective businesses as presently conducted or as the Prospectus indicates the Company or such subsidiary proposes to conduct; to the best knowledge of the Company, neither the Company nor any subsidiary has infringed or is infringing, and neither the Company nor any subsidiary has received notice of infringement with respect to, asserted Intangibles of others; and, to the best knowledge of the Company, there is no infringement by others of Intangibles of the Company or any of its subsidiaries. (x) The Company and each of its subsidiaries are insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as are prudent and customary in the businesses in which they are engaged; and neither the Company nor any such subsidiary has any reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business at a comparable cost, except as disclosed in the Prospectus. (y) Each of the Company and its subsidiaries makes and keeps accurate books and records reflecting its assets and maintains internal accounting controls which provide reasonable assurance that (A) transactions are executed in accordance with management's authorization, (B) transactions are recorded as necessary to permit preparation of the Company's consolidated financial statements in accordance with generally accepted accounting principles and to maintain accountability for the assets of the Company, (C) access to the assets of the Company and each of its subsidiaries is permitted only in accordance with management's authorization, and (D) the recorded accountability for assets of the Company and each of its subsidiaries is compared with existing assets at reasonable intervals and appropriate action is taken with respect to any differences. (z) No subsidiary of the Company is currently prohibited, directly or indirectly, from paying any dividends to the Company, from making any other distributions on such subsidiary's capital stock, from repaying to the Company any loans or advances to such subsidiary or from transferring any of such subsidiary's property or assets to the Company or any other subsidiary of the Company, except as disclosed in the Prospectus. (aa) The Company and its subsidiaries have filed all foreign, federal, state and local tax returns that are required to be filed by them and have paid all taxes shown as due on such returns as well as all other taxes, assessments and governmental charges that are due and payable; and no deficiency with respect to any such return has been assessed or proposed. (bb) SkyWest Airlines, Inc. is a "citizen of the United States" (as defined in Section 40102(a)(15) of Title 49 of the United States Code, as amended) and is an air carrier operating under a certificate of public convenience and necessity issued by the Secretary of Transportation pursuant to Section 41102 of Title 49, United States Code. There is in force with respect to SkyWest Airlines, Inc. an air carrier operating certificate issued by the Federal Aviation Administration pursuant to 14 C.F.R. Part 119. (cc) The Company is not, will not become as a result of the transactions contemplated hereby, and does not intend to conduct its business in a manner that would cause it to become, an 13 14 "investment company" or a company "controlled" by an "investment company" within the meaning of the Investment Company Act of 1940. (dd) The Company and the Subsidiaries are in compliance with all provisions of Section 1 of Laws of Florida, Chapter 92-198, An Act Relating to Disclosure of doing Business with Cuba; if the Company or any of its subsidiaries commences engaging in business with the government of Cuba or with any person or affiliate located in Cuba after the date the Registration Statement becomes or has become effective with the Commission or with the Florida Department of Banking and Finance (the "Department"), whichever date is later, or if the information reported or incorporated by reference in the Prospectus, if any, concerning the business of the Company or any of its subsidiaries with Cuba or with any person or affiliate located in Cuba changes in any material way, the Company will provide the Department notice of such business or change, as appropriate in a form acceptable to the Department. SECTION 6A. REPRESENTATIONS AND WARRANTIES OF THE SELLING STOCKHOLDERS. Each Selling Stockholder, severally and not jointly, represents and warrants to each Underwriter and the Company on the date hereof, and shall be deemed to represent and warrant to each Underwriter and the Company on the Closing Date and the Additional Closing Date, that: (a) Such Selling Stockholder has full right, power and authority to sell, assign, transfer and deliver the Shares to be sold by such Selling Stockholder hereunder; and upon delivery of such Shares hereunder and payment of the purchase price as herein contemplated, each of the Underwriters will obtain valid marketable title to the Shares purchased by it from such Selling Stockholder, free and clear of any pledge, lien, security interest, encumbrance, claim or equitable interest, including any liability for estate or inheritance taxes, or any liability to or claims of any creditor, devisee, legatee or beneficiary of such Selling Stockholder. (b) Such Selling Stockholder has duly authorized (if applicable), executed and delivered, in the form heretofore furnished to the Representative, a Power of Attorney (the "Power of Attorney") appointing Jerry C. Atkin and Bradford R. Rich as attorneys-in-fact (collectively, the "Attorneys" and individually, an "Attorney") and a Letter of Transmittal and Custody Agreement (the "Custody Agreement") with Zions First National Bank, N.A., as custodian (the "Custodian"); each of the Power of Attorney and the Custody Agreement constitutes a valid and binding agreement of such Selling Stockholder, enforceable against such Selling Stockholder in accordance with its terms; and each of such Selling Stockholder `s Attorneys, acting alone, is authorized to execute and deliver this Agreement and the certificate referred to in Section 9(i) hereof on behalf of such Selling Stockholder, to determine the purchase price to be paid by the several Underwriters to such Selling Stockholder as provided in Section 2 hereof, to authorize the delivery of the Shares to be sold by the Selling Stockholders under this Agreement and to duly endorse (in blank or otherwise) the certificate or certificates representing such Shares or a stock power or powers with respect thereto, to accept payment therefor, and otherwise to act on behalf of such Selling Stockholder in connection with this Agreement. Certificates in negotiable form for all Shares to be sold by such Selling Stockholder under this Agreement, together with a stock power or powers duly endorsed in blank by such Selling Stockholder, have been placed in custody with the Custodian for the purpose of effecting delivery hereunder. 14 15 (c) All authorizations, approvals, consents and orders necessary for the execution and delivery by such Selling Stockholder of the Power of Attorney and the Custody Agreement, the execution and delivery by or on behalf of such Selling Stockholder of this Agreement and the sale and delivery of the Shares to be sold by the Selling Stockholders under this Agreement (other than such authorizations, approvals or consents as may be necessary under state or other securities or Blue Sky laws) have been obtained and are in full force and effect; such Selling Stockholder, if other than a natural person, has been duly organized and is validly existing and in good standing under the laws of the jurisdiction of its organization as the type of entity that it purports to be; and such Selling Stockholder has full right, power, and authority to enter into and perform its obligations under this Agreement and such Power of Attorney and Custody Agreement, and to sell, assign, transfer and deliver the Shares to be sold by such Selling Stockholder under this Agreement. (d) Such Selling stockholder will not offer, sell, pledge or otherwise dispose of any shares of Common Stock or any securities convertible into or exercisable or exchangeable for, or any rights to purchase or acquire, Common Stock, during the period from August , 2000, to the date 90 days following the effective date of the Registration Statement, inclusive, without the prior written consent of Raymond James & Associates, Inc. (e) Certificates in negotiable form for all Shares to be sold by such Selling stockholder under this Agreement, together with a stock power or powers duly endorsed in blank by such Selling Stockholder, have been placed in custody with the Custodian for the purpose of effecting delivery hereunder. (f) This Agreement has been duly authorized by such Selling Stockholder that is not a natural person and has been duly executed and delivered by or on behalf of such Selling Stockholder and constitutes the valid and binding agreement of such Selling Stockholder, enforceable against such Selling Stockholder in accordance with its terms; and the performance of this Agreement and the consummation of the transactions herein contemplated will not result in a breach of or default under any material bond, debenture, note or other evidence of indebtedness, or any material contract, indenture, mortgage, deed of trust, loan agreement, lease or other agreement or instrument to which such Selling Stockholder is a party or by which such Selling Stockholder or any Selling Stockholder Shares hereunder may be bound or, to the best of such Selling Stockholder's knowledge, result in any violation of any law, order, rule, regulation, writ, injunction or decree of any court or governmental agency or body or, if such Selling Stockholder is other than a natural person, result in any violation of any provisions of the charter, bylaws or other organizational documents of such Selling Stockholder. (g) Such Selling Stockholder has not taken and will not take, directly or indirectly, any action designed to, or which might reasonably be expected to, cause or result in stabilization or manipulation of the price of the Common Stock to facilitate the sale or resale of the Shares. (h) Such Selling Stockholder has not distributed and will not distribute any prospectus or other offering material in connection with the offering and sale of the Shares. 15 16 (i) All information furnished by or on behalf of such Selling Stockholder relating to such Selling Stockholder and the Shares to be sold by such Selling Stockholders under this Agreement that is contained in the representations and warranties of such Selling Stockholder in such Selling Stockholder's Power of Attorney or set forth in the Registration Statement and the Prospectus is, and on the Closing Date will be, true, correct and complete, and does not, and on the Closing Date will not, contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make such statements not misleading. (j) Such Selling Stockholder will review the Prospectus and will comply with all agreements and satisfy all conditions on its part to be complied with or satisfied pursuant to this Agreement on or prior to the Closing Date and will advise one of its Attorneys prior to the Closing Date if any statement to be made on behalf of such Selling Stockholder in the certificate contemplated by Section 9(i) would be inaccurate if made as of the Closing Date. (k) Such Selling Stockholder does not have, or has waived prior to the date hereof, any preemptive right, co-sale right or right of first refusal or other similar right to purchase any of the Shares that are to be sold by the Company or any of the other Selling Stockholders to the Underwriters pursuant to this Agreement; and such Selling Stockholder does not own any capital stock of the Company or warrants, options or similar rights to acquire, and does not have any right or arrangement to acquire, any capital stock, rights, warrants, options or other securities from the Company, other than those described in the Registration Statement and the Prospectus. SECTION 7. EXPENSES. The Company hereby agree with the several Underwriters that the Company will pay or cause to be paid the costs and expenses associated with the following: (i) the preparation, printing or reproduction, and filing with the Commission of the Registration Statement (including financial statements and exhibits thereto), each Prepricing Prospectus, the Prospectus, each registration statement filed pursuant to Rule 462(b) under the Act, and each amendment or supplement to any of them; (ii) the printing (or reproduction) and delivery (including postage, air freight charges and charges for counting and packaging) of such copies of the Registration Statement, each Prepricing Prospectus, the Prospectus, each registration statement filed pursuant to Rule 462(b) under the Act, and all amendments or supplements to any of them, as may be reasonably requested for use in connection with the offering and sale of the Shares; (iii) the preparation, printing, authentication, issuance and delivery of certificates for the Shares, including any stamp taxes in connection with the offering of the Shares; (iv) the printing (or reproduction) and delivery of this Agreement, the preliminary and supplemental Blue Sky Memoranda and all other agreements or documents printed (or reproduced) and delivered in connection with the offering of the Shares; (v) the listing of the Shares on the Nasdaq National Market; (vi) the registration or qualification of the Shares for offer and sale under the securities or Blue Sky laws of the several states as provided in Section 5(f) hereof (including the reasonable fees and expenses of counsel for the Underwriters relating to the preparation, printing or reproduction, and delivery of the preliminary and supplemental Blue Sky Memoranda and such registration and qualification); (vii) the filing fees in connection with any filings required to be made with the National Association of Securities Dealers, Inc. in connection with the offering; (viii) the transportation and other expenses incurred by or on behalf of representatives of the Company in connection with the presentations to prospective purchasers of the Shares; (ix) the fees and expenses of the Company's accountants and the fees and expenses of counsel 16 17 (including local and special counsel) for the Company; (x) the preparation, printing and distribution of bound volumes for the Representative and its counsel; and (xi) the performance by the Company of its other obligations under this Agreement. If the transactions contemplated hereby are not consummated by reason of any failure, refusal or inability on the part of the Company or any Selling Stockholder to perform any agreement on its part to be performed hereunder or to fulfill any condition of the Underwriters' obligations hereunder, the Company will reimburse the several Underwriters for all reasonable out-of-pocket expenses (including fees and disbursements of counsel for the several Underwriters) incurred by the Underwriters in investigating, preparing to market or marketing the Shares. SECTION 8. INDEMNIFICATION AND CONTRIBUTION. The Company agrees to indemnify and hold harmless you and each other Underwriter and each person, if any, who controls any Underwriter within the meaning of Section 15 of the Act or Section 20 of the Exchange Act, from and against any and all losses, claims, damages, liabilities and expenses (including reasonable costs of investigation) arising out of or based upon any breach of any representation, warranty, agreement or covenant of the Company contained herein or any untrue statement or alleged untrue statement of a material fact contained in any Prepricing Prospectus the Registration Statement, the Prospectus, any amendment or supplement thereto, or in any Registration Statement filed pursuant to Rule 462(b) under the Act, or arising out of or based upon any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein no misleading, or arising out of or based upon any untrue statement or alleged untrue statement of any material fact contained in any audio or visual materials used in connection with the marketing of the Shares, including, without limitation, slides, videos, films and tape recordings, except insofar as such losses, claims, damages, liabilities or expenses arise out of or are based upon an untrue statement or omission or alleged untrue statement or omission which has been made therein or omitted therefrom in reliance upon and in conformity with the information relating to an Underwriter furnished in writing to the Company by or on behalf of any Underwriter through you expressly for use in connection therewith or arise out of materials prepared solely by the Underwriters without the knowledge of the Company or any of its representatives based upon material information obtained from sources other than, directly or indirectly, the Company or its representatives. This indemnification shall be in addition to any liability that the Company may otherwise have. Each Selling Stockholder, severally and not jointly, agrees to indemnify and hold harmless you and each other Underwriter and each person, if any, who controls any underwriter within the meaning of Section 15 of the Act or Section 20 of the Exchange Act, from and against any and all losses, claims, damages, liabilities and expenses (including reasonable costs of investigation) arising out of or based upon any breach of any representation, warranty, agreement or covenant of such Selling Stockholder contained herein or any untrue statement or alleged untrue statement of a material fact contained in any Prepricing Prospectus the Registration Statement, the Prospectus, any amendment or supplement thereto, or in any Registration Statement filed pursuant to Rule 462(b) under the Act, or arising out of or based upon any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein no misleading, but only with respect to information relating to such Selling Stockholder furnished in writing by or on behalf of such Selling Stockholder through you expressly for use in the Registration Statement, the Prospectus or any 17 18 Prepricing Prospectus, any amendment or supplement thereto, or any Registration Statement filed pursuant to Rule 462(b) under the Act. This indemnification shall be in addition to any liability that the Selling Stockholders or any Selling Stockholder may otherwise have. If any action or claim shall be brought against any Underwriter or any person controlling any Underwriter in respect of which indemnity may be sought against the Company or any Selling Stockholder, such Underwriter or such controlling person shall promptly notify in writing the party(s) against whom indemnification is being sought (the "indemnifying party" or "indemnifying parties"), and such indemnifying party(s) shall assume the defense thereof, including the employment of counsel reasonably acceptable to such Underwriter or such controlling person and payment of all fees and expenses. Such Underwriter or any such controlling person shall have the right to employ separate counsel in any such action and participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Underwriter or such controlling person unless (i) the indemnifying party(s) has (have) agreed in writing to pay such fees and expenses, (ii) the indemnifying party(s) has (have) failed to assume the defense and employ counsel reasonably acceptable to the Underwriter or such controlling person, or (iii) the named parties to any such action (including any impleaded parties) include both such Underwriter or such controlling person and the indemnifying party(s), and such Underwriter or such controlling person shall have been advised by its counsel that representation of such indemnified party and any indemnifying party(s) by the same counsel would be inappropriate under applicable standards of professional conduct (whether or not such representation by the same counsel has been proposed) due to actual or potential differing interests between them (in which case the indemnifying party(s) shall not have the right to assume the defense of such action on behalf of such Underwriter or such controlling person). The indemnifying party(s) shall not be liable for any settlement of any such action effected without its (their) written consent, but if settled with such written consent, or if there be a final judgment for the plaintiff in any such action, the indemnifying party(s) agrees to indemnify and hold harmless any Underwriter and any such controlling person from and against any loss, claim, damage, liability or expense by reason of such settlement or judgment, but in the case of a judgment only to the extent stated in the immediately preceding paragraph. Each Underwriter agrees, severally and not jointly, to indemnify and hold harmless the Company, its directors, its officers who sign the Registration Statement, and any person who controls the Company within the meaning of Section 15 of the Act or Section 20 of the Exchange Act, and each Selling Stockholder, to the same extent as the foregoing indemnity from the Company and each Selling Stockholder to each Underwriter, but only with respect to information relating to such Underwriter furnished in writing by or on behalf of such underwriter through you expressly for use in the Registration Statement, the Prospectus or any Prepricing Prospectus, any amendment or supplement thereto, or any Registration Statement filed pursuant to Rule 462(b) under the Act. If any action or claim shall be brought or asserted against the Company, any of its directors, any such officers, or any such controlling person or any Selling Stockholder based on the Registration Statement, the Prospectus or any Prepricing Prospectus, any amendment or supplement thereto, or any Registration Statement filed pursuant to Rule 462(b) under the Act, and in respect of which indemnity may besought against any Underwriter pursuant to this paragraph, such Underwriter shall have the rights and duties given to the Company and the Selling Stockholders by the preceding paragraph (except that if the Company 18 19 or any Selling Stockholder shall have assumed the defense thereof such Underwriter shall not be required to do so, but may employ separate counsel therein and participate in the defense thereof, but the fees and expenses of such counsel shall be at such Underwriter's expense), and the Company, its directors, any such officers, and any such controlling persons and the Selling Stockholders shall have the rights and duties given to the Underwriters by the immediately preceding paragraph. This indemnification shall be in addition to any liability the Underwriters or any Underwriter may otherwise have. If the indemnification provided for in this Section 8 is unavailable to an indemnified party under the first, second or fourth paragraph hereof in respect of any losses, claims, damages, liabilities or expenses referred to therein, then an indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages, liabilities or expenses (i) in such proportion as is appropriate to reflect the relative benefits received by the Company or the Selling Stockholders, as applicable, on the one hand and the Underwriters on the other hand from the offering of the Shares of (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company or the Selling Stockholders, as applicable, on the one hand and the Underwriters on the other in connection with the statements or omissions that resulted in such losses, claims, damages, liabilities or expenses, as well as any other relevant equitable considerations. The relative benefits received by the Company or the Selling Stockholders, as applicable, on the one hand and the Underwriters on the other hand shall be deemed to be in the same proportion as the total net proceeds from the offering of the Shares (before deducting expenses) received by the Company or the Selling Stockholders, as applicable, bear to the total underwriting discounts and commissions received by the Underwriters, in each case as set forth in the table on the cover page of the Prospectus; provided that, in the event that the Underwriters shall have purchased any Additional Shares hereunder, any determination of the relative benefits received by the Company or the Underwriters from the offering of the Shares shall include the net proceeds (before deducting expenses) received by the Company, and the underwriting discounts and commissions received by the Underwriters, from the sale of such Additional Shares, in each case computed on the basis of the respective amounts set forth in the notes to the table on the cover page of the Prospectus. The relative fault of the Company or the Selling Stockholders, as applicable on the one hand and the Underwriters on the other hand shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or the Selling Stockholders, as applicable, on the one hand or by the Underwriters on the other hand and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. In any event, neither the Company nor the Selling Stockholder will, without the prior written consent of the Representative, settle or compromise or consent to the entry of any judgment in any proceeding or threatened claim, action, suit or proceeding in respect of which indemnification may be sought hereunder (whether or not the Representative or any person who controls the Representative within the meaning of Section 15 of the Act or Section 20 of the Exchange Act is a party to such claim, action, suit or proceeding) unless such settlement, 19 20 compromise or consent includes an unconditional release of all Underwriters and such controlling persons from all liability arising out of such claim, action, suit or proceeding. The Company, the Selling Stockholders and the Underwriters agree that it would not be just and equitable if contribution pursuant to this Section 8 was determined by a pro rata allocation (even if the Underwriters were treated as one entity for such purpose) or by any other method of allocation that does not take account of the equitable considerations referred to in the fifth paragraph of this Section 8. The amount paid or payable by an indemnified party as a result of the losses, claims, damages, liabilities and expenses referred to in the fifth paragraph of this Section 8 shall be deemed to include, subject to the limitations set forth above, any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Section 8, no Underwriter shall be required to contribute any amount in excess of the amount by which the total price of the Shares underwritten by it and distributed to the public exceeds the amount of any damages which such Underwriter has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Underwriters' obligations to contribute pursuant to this Section 8 are several in proportion to the respective numbers of Firm Shares set forth opposite their names in Schedule I hereto (or such numbers of Firm Shares increased as set forth in Section 10 hereof) and not joint. Notwithstanding the foregoing, the liability of each Selling Stockholder under the representations and warranties contained in Section 6 and Section 6A hereof and under the indemnity agreements contained in the provisions of this Section 8 shall be limited to an amount equal to the public offering price of the Shares sold by such Selling Stockholder to the Underwriters minus the amount of the underwriting discount paid thereon to the Underwriters by such Selling Stockholder. The Company and such Selling Stockholders may agree, as among themselves and without limiting the rights of the Underwriters under this Agreement, as to the respective amounts of such liability for which they each shall be responsible. In any proceeding relating to the Registration Statement, any Preliminary Prospectus, the Prospectus, any supplement or amendment thereto, or any registration statement filed pursuant to Section 462(b) of the Act, each party against whom contribution may be sought under this Section 8 hereby consents to the jurisdiction of any court having jurisdiction over any other contributing party, agrees that process issuing from such court may be served upon him or it by any other contributing party and consents to the service of such process and agrees that any other contributing party may join him or it as an additional defendant in any such proceeding in which such other contributing party is a party. Any losses, claims, damages, liabilities or expenses for which an indemnified party is entitled to indemnification or contribution under this Section 8 shall be paid by the indemnifying party to the indemnified party as such losses, claims, damages, liabilities or expenses are incurred. The indemnity and contribution agreements contained in this Section 8 and the representations and warranties of the Company and the Selling Stockholders set forth in this Agreement shall remain operative and in full force and effect, regardless of (i) any investigation 20 21 made by or on behalf of any Underwriter or any person controlling any Underwriter, the Company, its directors or officers or any person controlling the Company, or any Selling Stockholder, (ii) acceptance of any Shares and payment therefor hereunder, and (iii) any termination of this Agreement. A successor to any Underwriter or any person controlling any Underwriter, to the Company, its directors or officers, or any person controlling the Company, or any Selling Stockholder, shall be entitled to the benefits of the indemnity, contribution and reimbursement agreements contained in this Section 8. SECTION 9. CONDITIONS OF UNDERWRITER'S OBLIGATIONS. The several obligations of the Underwriters to purchase the Firm Shares hereunder are subject to the following conditions: (a) The Registration Statement shall have become effective not later than 5:00 p.m., New York City time, on the date hereof, or at such later date and time as shall be consented to in writing by you, and all filings required by Rules 424(b) and 430A under the Act shall have been timely made; and any request of the Commission for additional information (to be included in the Registration Statement or otherwise) shall have been disclosed to the Representative and complied with to its reasonable satisfaction. (b) Subsequent to the effective date of the Registration Statement there shall not have occurred any change, or any development involving, or which might reasonably be expected to involve, a potential future material adverse change, in the condition (financial or other), business, properties, net worth or results of operations of the Company and its subsidiary, taken as a whole, not contemplated by the Prospectus (or any supplement thereto), that in your reasonable opinion, as Representative of the several Underwriters, would materially and adversely affect the market for the Shares. (c) You shall have received on the Closing Date (and the Additional Closing Date, if any) an opinion of Parr Waddoups Brown Gee & Loveless, counsel for the Company, dated the Closing Date (and the Additional Closing Date, if any), satisfactory to you and your counsel, to the effect that: (i) The Company is a corporation duly incorporated under the laws of the State of Utah, and validly existing in good standing, with full corporate power and authority to own, lease and operate its properties and to conduct its business as described in the Registration Statement and the Prospectus (and any amendment or supplement thereto), and is duly registered and qualified to conduct its business and is in good standing in each jurisdiction or place where the nature of its properties or the conduct of its business requires such registration or qualification, except where the failure to so register or qualify does not have a material adverse effect on the condition (financial or other), business, properties, net worth or results of operation of the Company and the Subsidiaries, taken as a whole. (ii) Each subsidiary of the Company is a corporation duly organized and validly existing in good standing under the laws of the jurisdiction of its organization, with full corporate power and authority to own, lease and operate its properties and to conduct its business as described in the Registration Statement and the Prospectus (and 21 22 any amendment or supplement thereto), and is duly registered and qualified to conduct its business and is in good standing in each jurisdiction or place where the nature of its properties or the conduct of its business requires such registration or qualification, except where the failure to so register or qualify does not have a material adverse effect on the condition (financial or other), business, properties, net worth or results of operation of the Company and its subsidiaries, taken as a whole. All issued and outstanding shares of capital stock of each subsidiary have been validly issued and are fully paid and nonassessable and free and clear of all liens, encumbrances, equities and claims. To such counsel's knowledge, the Company does not own or control, directly or indirectly, any corporation, association or other entity other than SkyWest Airlines, Inc.; (iii) The authorized capital stock and other securities of the Company conform in all material respects as to legal matters to the description thereof contained in the Prospectus under the caption "Description of Capital Stock." (iv) All shares of capital stock or other securities of the Company outstanding prior to the issuance of the Shares to be issued and sold by the Company hereunder have been duly authorized and validly issued, are fully paid and nonassessable and have not been issued in violation of any co-sale right, registration right, right of first refusal, preemptive right, or other similar right. (v) All offers and sales of the Company's capital stock or other securities prior to the date hereof were made in compliance with the registration provisions of the Act and the registration provisions of all other applicable state and federal laws or regulations or any actions under the Act, or any state or federal laws or regulations in respect of any such offers or sales are effectively barred by effective waivers or statutes of limitation. (vi) The Shares to be issued and sold to the Underwriters by the Company, and the Shares to be sold by the Selling Stockholders, hereunder have been duly authorized and, when issued and delivered to the Underwriters against payment therefor in accordance with the terms hereof, will be validly issued, fully paid and nonassessable and free and clear of all liens, encumbrances, equities and claims and will not have been issued in violation of any co-sale right, registration right, right of first refusal, preemptive right, or other similar right. (vii) The form of certificates for the Shares conforms to the requirements of the applicable corporate laws of the State of Utah. (viii) The Registration Statement has become effective under the Act and, to the knowledge of such counsel after reasonable inquiry, no stop order suspending the effectiveness of the Registration Statement has been issued and no proceedings for that purpose are pending before or threatened by the Commission. (ix) The Company has all requisite corporate power and authority to enter into this Agreement and to issue, sell and deliver the Shares to be sold by it to the 22 23 Underwriters as provided herein, and this Agreement has been duly authorized, executed and delivered by the Company and is a valid, legal and binding agreement of the Company enforceable against the Company in accordance with its terms, except as enforceability thereof may be limited by (A) the application of bankruptcy, reorganization, insolvency and other laws affecting creditors' rights generally, and (B) equitable principles being applied at the discretion of a court before which any proceeding may be brought; and the Company has adequate authorization and has taken all action necessary to authorize the indemnification provisions contained in Section 8 herein, provided, however that such counsel may specifically refrain from opining as to the validity of the indemnification provisions hereof insofar as they are or may be held to be violative of public policy (under either state or federal law) against such types of provisions in the context of the offer, offer for sale, or sale of securities. (x) Neither the Company nor any subsidiary is in violation of its respective articles of incorporation or bylaws or other charter documents, and to the knowledge of such counsel after reasonable inquiry, neither the Company nor any subsidiary is in default in the performance of any material obligation, agreement or condition contained in any bond, indenture, note or other evidence of indebtedness or in any other agreement material to the Company and its subsidiaries, taken as a whole. (xi) Neither the offer, sale or delivery of the Shares, the execution, delivery or performance of this Agreement, compliance by the Company with all provisions hereof nor consummation by the Company of the transactions contemplated hereby conflicts or will conflict with or constitutes or will constitute a breach of, or a default under, articles of incorporation or bylaws or other charter documents, of the Company or any subsidiary, or any agreement, indenture, lease or other instrument to which the Company or any subsidiary, or any of their respective properties, is bound, that is or was required to be filed by the Company with the Commission, or is known to such counsel after reasonable inquiry, or will result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Company or any subsidiary, nor will any such action result in any violation of any existing law, regulation, ruling (assuming compliance with all applicable state securities and Blue Sky laws), judgment, injunction, order or decree known to such counsel after reasonable inquiry, applicable to the Company or any subsidiary, or any of their respective properties. (xii) No consent, approval, authorization or other order of, or registration or filing with, any court, regulatory body, administrative agency or other governmental body, agency or official is required on the part of the Company (except such as have been obtained under the Act or such as may be required under state securities or Blue Sky laws governing the purchase and distribution of the Shares) for the valid issuance and sale of the Shares to the Underwriters under this Agreement. (xiii) The Registration Statement and the Prospectus and any supplements or amendments thereto (except for the financial statements and the notes thereto and the schedules and other financial and statistical data included or incorporated by reference therein, as to which such counsel need not express any opinion) comply as to form in all 23 24 material respects with the requirements of the Act, and the conditions to the use of Form S-3 have been satisfied by the Company. (xiv) To the knowledge of such counsel after reasonable inquiry, (A) there are no legal or governmental proceedings pending or threatened against the Company or any subsidiary, or to which the Company or any subsidiary, or any of their respective properties, are subject, that are required to be described in the Registration Statement or Prospectus (or any amendment or supplement thereto) or any document incorporated by reference therein that are not described as required therein, and (B) there are no agreements, contracts, indentures, leases or other instruments, that are required to be described in the Registration Statement or the Prospectus (or any amendment or supplement thereto) or any document incorporated by reference therein or to be filed as an exhibit to the Registration Statement or incorporated by reference therein that are not described or filed as required, as the case may be. (xv) To the knowledge of such counsel after reasonable inquiry, neither the Company nor any subsidiary is in violation of any law, ordinance, administrative or governmental rule or regulation applicable to the Company or any subsidiary or of any decree of any court or governmental agency or body having jurisdiction over the Company or any subsidiary except where such violation does not and will not have a material adverse effect on the condition (financial or other), business, properties, net worth or results of operation of the Company and its subsidiaries, taken as a whole. (xvi) To the knowledge of such counsel after reasonable inquiry, the Company and the Subsidiaries have such permits, licenses, franchises, approvals, consents and authorizations of governmental or regulatory authorities ("permits"), as are necessary to own their respective properties and to conduct their respective businesses in the manner described in the Registration Statement and the Prospectus (or any amendment or supplement thereto), subject to such qualifications as may be set forth therein; the Company and the Subsidiaries have fulfilled and performed all of their respective material obligations with respect to such permits and no event has occurred which allows, or after notice or lapse of time would allow, revocation or termination thereof or result in any other material impairment of the rights of the holder of any such permit, subject in each case to such qualification as may be set forth in the Registration Statement and the Prospectus (or any amendment or supplement thereto); and except as described in the Registration Statement and the Prospectus (or any amendment or supplement thereto), such permits contain no restrictions that are materially burdensome to the Company and the Subsidiaries, taken as a whole. (xvii) The property described in the Registration Statement and the Prospectus (or any amendment or supplement thereto) as held under lease by the Company or any of its subsidiaries is held under valid, subsisting and enforceable leases, with only such exceptions as in the aggregate are not material and do not interfere in any material respect with the conduct of the business of the Company and the Subsidiaries, taken as a whole. 24 25 (xviii) Such counsel has reviewed all agreements, contracts, indentures, leases or other documents or instruments referred to in the Registration Statement and the Prospectus (or any amendment or supplement thereto) (other than routine contracts entered into by the Company or any of its subsidiaries for the purchase of materials or the sale of products, entered into in the normal course of business) and such agreements, contracts, indentures, leases or other documents or instruments are fairly summarized or disclosed therein, and filed as exhibits thereto or incorporated by reference therein as required, and such counsel does not know, after reasonable inquiry, of any agreements, contracts, indentures, leases or other documents or instruments required to be so summarized or disclosed or filed which have not been so summarized or disclosed or filed. (xix) The statements in the Registration Statement and the Prospectus, insofar as such statements constitute a summary of documents referred to therein or matters of law, are accurate summaries and fairly and correctly summarize and present in all material respects the information called for with respect to such documents and matters. Such counsel has no reason to believe that the descriptions in the Registration Statement and the Prospectus (or any amendment or supplement thereto) of statutes, regulations or legal or governmental proceedings are other than accurate or fail to present fairly the information required to be shown. (xx) Neither the Company nor any subsidiary is, nor will any of them become, as a result of the consummation of the transactions contemplated hereby and the application of the net proceeds therefrom as set forth in the Registration Statement and the Prospectus (or any amendment or supplement thereto) under the caption "Use of Proceeds," an "investment company" or an "affiliated person" of, or "promoter" or "principal underwriter" for, an "investment company," as such terms are defined in the Investment Company Act of 1940, as amended. (xxi) Each Selling Stockholder that is not a natural person has full right, power and authority to enter into and to perform its obligations under the Power of Attorney and Custody Agreement to be executed and delivered by it in connection with the transactions contemplated herein; the Power of Attorney and Custody Agreement of each Selling Stockholder that is not a natural person has been duly authorized by such Selling Stockholder has been duly executed and delivered by or on behalf of such Selling Stockholder; and the Power of Attorney and Custody Agreement of each Selling Stockholder constitutes the valid and binding agreement of such Selling Stockholder, enforceable in accordance with its terms, except as the enforcement thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to or affecting creditors' rights generally or by general equitable principles; (xxii) Each of the Selling Stockholders has full right, power and authority to enter into and to perform its obligations under this Agreement and to sell, transfer, assign and deliver the Shares to be sold by such Selling Stockholder hereunder; 25 26 (xxiii) This Agreement has been duly authorized by each Selling Stockholder that is not a natural person and has been duly executed and delivered by or on behalf of each Selling Stockholder and, assuming due authorization, execution and delivery by you, is a valid and binding agreement of such Selling Stockholder, enforceable in accordance with its terms, except insofar as the indemnification and contribution provisions hereunder may be limited by applicable law and except as the enforcement hereof may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to or affecting creditors' rights generally or by general equitable principles; (xxiv) Upon the delivery of and payment for the Shares as contemplated in this Agreement, each of the Underwriters will receive valid marketable title to the Shares purchased by it from such Selling Stockholder, free and clear of any pledge, lien, security interest, encumbrance, claim or equitable interest. In rendering such opinion, such counsel may assume that the Underwriters are without notice of any defect in the title of any of such Selling Stockholders to the Shares being purchased from such Selling Stockholders; In rendering such opinion, counsel may rely upon an opinion or opinions, each dated the Closing Date (and the Additional Closing Date, if applicable), of other counsel as to the laws of a jurisdiction other than the State of Utah, provided that (1) each such local counsel is acceptable to you, (2) each such opinion so relied upon is addressed to counsel and you, (3) such reliance is expressly authorized by each opinion so relied upon and a copy of each such opinion is delivered to you and is in form and substance satisfactory to you, and (4) counsel shall state in their opinion that they believe that they and you are justified in relying thereon. In rendering such opinion, local counsel may rely, to the extent they deem such reliance proper, as to matters of fact upon certificates of officers of the Company and of government officials. Copies of all such certificates shall be furnished to you and your counsel on the Closing Date (and the Additional Closing Date, if applicable). In rendering such opinion, in each case where such opinion is qualified by "the knowledge of such counsel after reasonable inquiry," such counsel may rely as to matters of fact upon certificates of executive and other officers and employees of the Company as you and such counsel shall deem are appropriate and such other procedures as you and such counsel shall mutually agree; provided, however, in each such case, such counsel shall state that it has no knowledge contrary to the information contained in such certificates or developed by such procedures and knows of no reason why you should not reasonably rely upon the information contained in such certificates or developed by such procedures. In addition to the opinion set forth above, such counsel shall state that during the course of the preparation of the Registration Statement and the Prospectus, and any amendments or supplements thereto, nothing has come to the attention of such counsel which has caused it to believe that the Registration Statement, as of the time it became effective under the Act, the Prospectus or any amendment or supplement thereto, on the date it was filed pursuant to Rule 424(b), as of the respective dates when such documents were filed with the Commission, and the Registration Statement and the Prospectus, or any amendment or supplement thereto, as of the Closing Date (except for the financial statements and other financial and statistical information 26 27 contained therein or omitted therefrom as to which no opinion need be expressed), contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statement therein not misleading. With respect to such statement, counsel shall state that although such counsel did not undertake to determine independently the accuracy, completeness and fairness of the statements contained in the Registration Statement or in the Prospectus and takes no responsibility therefor (except to the extent specifically set forth herein), such counsel did participate in discussions and meetings with officers and other representatives of the Company and discussions with the auditor for the Company in connection with the preparation of the Registration Statement and the Prospectus, and it is on the basis of the foregoing (relying as to certain factual matters on the information provided to such counsel and not on an independent investigation) that such counsel is making such statement. (d) You shall have received on the Closing Date (and the Additional Closing Date, if nay) an opinion of King & Spalding, counsel for the Underwriters, dated the Closing Date (and the Additional Closing Date, if any), with respect to the issuance and sale of the Firm Shares, the Registration Statement and other related matters as you may reasonably request, and the Company and its counsel shall have furnished to your counsel such documents as they may reasonably request for the purpose of enabling them to pass upon such matters. (e) You shall have received letters addressed to you and dated the date hereof and the Closing Date (and the Additional Closing Date, if any) from Arthur Andersen & Co. LLP, independent certified public accountants, substantially in the forms heretofore approved by you. (f) (i) No stop order suspending the effectiveness of the Registration Statement shall have been issued and no proceedings for that purpose shall have been taken or, to the knowledge of the Company, shall be contemplated by the Commission at or prior to the Closing Date; (ii) there shall not have been any change in the capital stock or other securities of the Company nor any material increase in the short-term or long-term debt of the Company (other than in the ordinary course of business) from that set forth or contemplated in the Registration Statement or the Prospectus (or any amendment or supplement thereto); (iii) there shall not have been since the respective dates as of which information is given in the Registration Statement and the Prospectus (or any amendment or supplement thereto), except as may otherwise be stated in the Registration Statement and Prospectus (or any amendment or supplement thereto), any material adverse change (present or potential future) in the condition (financial or other), business properties, net worth or results of operations of the Company and the Subsidiaries shall not have any liabilities or obligations, direct or contingent (whether or not in the ordinary course of business) that are material to the Company and its subsidiaries, taken as a whole, other than those reflected in the Registration Statement or the Prospectus (or any amendment or supplement thereto); and (v) all of the representations and warranties of the Company contained in this Agreement shall be true and correct in all material respects on and as of the date hereof and on and as of the Closing Date as if made on and as of the Closing Date, and you shall have received a certificate, dated the Closing Date and signed by the chief executive officer and the chief financial officer of the Company (or such other officers as are acceptable to you) to the effect set forth in this Section 9(f) and in Section 9(g) hereof. 27 28 (g) The Company shall not have failed in any material respect at or prior to the Closing Date to have performed or complied with any of its agreements herein contained and required to be performed or complied with by it hereunder at or prior to the Closing Date. (h) You shall be satisfied that, and you shall have received a certificate dated the Closing Date, from the Attorneys for each Selling Stockholder to the effect that, as of the Closing Date, they have not been informed that: (i) the representations and warranties made by such Selling Stockholder herein are not true or correct in any material respect on the Closing Date; or (ii) such Selling Stockholder has not complied with any obligation or satisfied any condition which is required to be performed or satisfied on his or its part at or prior to the Closing Date. (i) The Company and the Selling Stockholders shall have furnished or caused to have been furnished to you such further certificates and documents as you shall be reasonably requested. (j) At or prior to the Closing Date, you shall have received the written agreement of each of the Company's directors and executive officers not to offer, sell or otherwise dispose of any shares of Common Stock or any securities convertible into or exercisable or exchangeable for, or any rights to purchase or acquire, Common Stock, during the period from August , 2000 to the date 90 days following the effective date of the Registration Statement, inclusive, without the prior written consent of Raymond James & Associates, Inc., which commitments shall be in full force and effect as of the Closing Date (and the Additional Closing Date, if any). All such opinions, certificates, letters and other documents will be in compliance with the provisions hereof only if they are reasonably satisfactory in form and substance to you and your counsel. The several obligations of the Underwriters to purchase Additional Shares hereunder are subject to the satisfaction on and as of the Additional Closing Date of the conditions set forth in this Section 9, except that, if the Additional Closing Date is other than the Closing Date, the certificates, opinions and letters referred to in paragraphs (c) through (i) shall be dated in the Additional Closing Date and the opinions and letters referred to in paragraphs (c) through (i) shall be revised to reflect the sale of Additional Shares. SECTION 10. EFFECTIVE DATE OF AGREEMENT. This Agreement shall become effective upon the later of (a) the execution and delivery hereof by the parties hereto, or (b) release of notification of the effectiveness of the Registration Statement by the Commission. If any one or more of the Underwriters shall fail or refuse to purchase Firm Shares which it or they have agreed to purchase hereunder, and the aggregate number of Firm Shares which such defaulting Underwriter or Underwriters agreed but failed or refused to purchase is not more than one-tenth of the aggregate number of Firm Shares, each non-defaulting Underwriter shall be obligated, severally, in the proportion which the number of Firm Shares set forth opposite its name in Schedule I hereto bears to the aggregate number of Firm Shares set forth opposite the names of all non-defaulting Underwriters or in such other proportion as you may specify in the 28 29 Agreement Among Underwriters, to purchase the Firm Shares which such defaulting Underwriter or Underwriters agreed, but failed or refused to purchase. If any Underwriter or Underwriters shall fail or refuse to purchase Firm Shares and the aggregate number of Firm Shares with respect to which such default occurs is more than one-tenth of the aggregate number of Firm Shares and arrangements satisfactory to you and the Company for the purchase of such Firm Shares are not made with 36 hours after such default, this Agreement will terminate without liability on the part of any non-defaulting Underwriter or the Company or any Selling Stockholder. In any such case that does not result in termination of this Agreement, either you or the Company shall have the right to postpone the Closing Date, but in no event for longer than seven (7) days, in order that the required changes, if any, in the Registration Statement and the Prospectus or any other documents or arrangements may be effected. Any action taken under this paragraph shall not relieve any defaulting Underwriter from liability in respect of any such default of any such Underwriter under this Agreement. SECTION 11. TERMINATION OF AGREEMENT. This Agreement shall be subject to termination in your absolute discretion, without liability on the part of any Underwriter to the Company, by notice to the Company, if prior to the Closing Date or the Additional Closing Date (if different from the Closing Date and then only as to the Additional Shares), as the case may be, (i) trading in securities generally on the New York Stock Exchange, American Stock Exchange or The Nasdaq Stock Market shall have been suspended or materially limited, (ii) trading of any securities of the Company, including the Shares, on the New York Stock Exchange, American Stock Exchange or The Nasdaq Stock Market shall have been suspended or materially limited, whether as the result of a stop order by the Commission or otherwise, (iii) a general moratorium on commercial banking activities in New York or Florida shall have been declared by either federal or state authorities, (iv) there shall have occurred any outbreak or escalation of hostilities or other international or domestic calamity, crisis or change in political, financial or economic conditions or other material event the effect of which on the financial markets of the United States is such as to make it, in your judgment, impracticable or inadvisable to market the Shares or to enforce contracts for the sale of the Shares, or (v) the Company or any subsidiary shall have, in the sole judgment of the Representative, sustained any loss or interference, material to the Company and its subsidiaries, taken as a whole, with their respective businesses or properties from fire, flood, hurricane, accident, or other calamity, whether or not covered by insurance, or from any labor disputes or any legal or governmental proceeding, or there shall have been any material adverse change (including, without limitation, a material change in management or control of the Company) in the condition (financial or otherwise), business prospects, net worth, or results of operations of the Company and its subsidiaries, taken as a whole, except in each case as described in, or contemplated by, the Prospectus (excluding any amendment or supplement thereto). Notice of such cancellation shall be promptly given to the Company and its counsel by telegraph, telecopy or telephone and shall be subsequently confirmed by letter. All representations, warranties, covenants and agreements of the Company and the Selling Stockholders herein or in certificates delivered pursuant hereto, and the indemnity and contribution agreements contained in Section 8 hereof shall remain operative and in full force and effect regardless of any investigation made by or on behalf of any Underwriter or any controlling person, or by or on behalf of the Company or any Selling Stockholder, or any of their 29 30 officers, directors or controlling persons, and shall survive the delivery of the Shares to the several Underwriters hereunder or the termination of this Agreement. SECTION 12. INFORMATION FURNISHED BY THE UNDERWRITERS. The statements set forth under the caption "Underwriting" in any Prepricing Prospectus and in the Prospectus, constitute all the information furnished by or on behalf of the Underwriters through you or on your behalf as such information is referred to in Sections 6 and 8 hereof. SECTION 13. NOTICES; SUCCESSORS AND ASSIGNS. Except as otherwise provided herein, notice given pursuant to any of the provisions of this Agreement shall be in writing and shall be delivered (i) if to the Company, at the office of the Company at 444 South River Road, St. George, Utah 84790, Attention: Jerry C. Atkin, Chief Executive Officer (with a copy to Parr Waddoups Brown Gee & Loveless, 185 South State Street, Suite 1300, Salt Lake City, Utah 84111, Attention: Brian G. Lloyd); or (ii) if to you, as the Underwriters, to Raymond James & Associates, Inc., 880 Carillon Parkway, St. Petersburg, Florida 33716, Attention: Thomas W. Mullins (with a copy to King & Spalding, 191 Peachtree Street, Atlanta, Georgia 30303, Attention: John J. Kelley III); or (iii) if to one or more of the Selling Stockholders, to Jerry C. Atkin, as Attorney-in-Fact for the Selling Stockholders, at 444 South River Road, St. George, Utah 84790. This Agreement has been and is made solely for the benefit of the several Underwriters, the Company, its directors and officers and the other controlling persons referred to in Section 8 hereof, and the Selling Stockholders, and their respective successors and assigns, to the extent provided herein, and no other person shall acquire or have any right under or by virtue of this Agreement. Neither of the terms "successor" and "successors and assigns" as used in this Agreement shall include a purchaser from you of any of the Shares in his status as such purchaser. SECTION 14. APPLICABLE LAW; COUNTERPARTS. This Agreement shall be governed by and construed in accordance with the laws of the State of Florida without reference to choice of law principles thereunder. This Agreement may be signed in various counterparts which together shall constitute one and the same instrument. This Agreement shall be effective when, but only when, at least one counterpart hereof shall have been executed on behalf of each party hereto. 30 31 If the foregoing correctly sets forth our understanding, please indicate your acceptance thereof in the space provided below for that purpose, whereupon this letter and your acceptance shall constitute a binding agreement between us. Very truly yours, SKYWEST, INC. By:_________________________________ Name:_______________________________ Title:______________________________ SELLING STOCKHOLDERS By:_________________________________ Attorney-in-Fact for the Selling Stockholders named in Schedule II hereto CONFIRMED as of the date first above mentioned, on behalf of itself and the other several Underwriters named in Schedule I hereto. RAYMOND JAMES & ASSOCIATES, INC. By:__________________________________ Authorized Representative 32 SCHEDULE I UNDERWRITERS
Number of Name Firm Shares - ---- ----------- Raymond James & Associates Inc. Total
33 SCHEDULE II SELLING STOCKHOLDERS
Number of Name Firm Shares - ---- ----------- TOTAL ===========
EX-23.1 3 ex23-1.txt CONSENT OF ARTHUR ANDERSEN LLP 1 EXHIBIT 23.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation by reference in this Registration Statement of our reports dated May 19, 2000, included in SkyWest, Inc.'s Form 10-K for the year ended March 31, 2000 and to all references to our Firm included in this Registration Statement. /s/ ARTHUR ANDERSEN LLP - ----------------------- Arthur Andersen LLP Salt Lake City, Utah August 23, 2000 -----END PRIVACY-ENHANCED MESSAGE-----