Item 8.01 Other Events.
The information in this Current Report on Form 8-K is being filed to update and
supplement the proxy statement filed by Spirit Airlines, Inc. ("Spirit") with
the Securities and Exchange Commission (the "SEC") on May 11, 2022 (the "Proxy
Statement"), relating to Spirit's special meeting of stockholders to be held on
June 10, 2022 in connection with the proposed combination (the "Merger") of
Spirit and Frontier Group Holdings, Inc. ("Frontier") pursuant to the Agreement
and Plan of Merger, dated as of February 5, 2022, as it may be amended from time
to time (the "Merger Agreement"), by and among Spirit, Frontier and Top Gun
Acquisition Corp., a wholly owned subsidiary of Frontier ("Merger Sub").
As of May 31, 2022, ten lawsuits have been filed by alleged Spirit stockholders
against Spirit and the Spirit board of directors related to the Merger. A
complaint captioned Stein v. Spirit Airlines, Inc. et al., Case No.
1:22-cv-02069 (the "Stein complaint"), was filed in the United States District
Court for the Southern District of New York on March 14, 2022. A complaint
captioned Shuler v. Spirit Airlines, Inc. et al., Case No. 1:22-cv-02141, was
filed in the United States District Court for the Southern District of New York
on March 15, 2022. A complaint captioned Hiebert v. Spirit Airlines, Inc. et
al., Case No. 1:22-cv-01494, was filed in the United States District Court for
the Eastern District of New York on March 17, 2022. A complaint captioned Lo v.
Spirit Airlines, Inc. et al., Case No. 1:22-cv-01524, was filed in the United
States District Court for the Eastern District of New York on March 20, 2022. A
complaint captioned Crenshaw v. Spirit Airlines, Inc. et al., Case No.
1:22-cv-00358, was filed in the United States District Court for the District of
Delaware on March 21, 2022. A complaint captioned Justice v. Spirit Airlines,
Inc. et al., Case No. 2:22-cv-01079, was filed in the United States District
Court for the Eastern District of Pennsylvania on March 21, 2022. A complaint
captioned Daroczi v. Spirit Airlines, Inc. et al., Case No. 1:22-cv-02327, was
filed in the United States District Court for the Southern District of New York
on March 22, 2022. A complaint captioned Votto v. Spirit Airlines, Inc. et al.,
Case No. 1:22-cv-02563, was filed in the United States District Court for the
Southern District of New York on March 29, 2022. A complaint captioned Marcus v.
Spirit Airlines, Inc. et al., Case No. 1:22-cv-03911 (the "Marcus lawsuit"), was
filed in the United States District Court for the Southern District of New York
on May 13, 2022. A complaint captioned Nathan v. Spirit Airlines, Inc. et al.,
Case No. 1:22-cv-04152, was filed in the United States District Court for the
Southern District of New York on May 20, 2022. Spirit also received a draft
complaint, captioned Arthur v. Spirit Airlines, Inc. et al., on March 30, 2022.
The complaints name as defendants Spirit and members of the Spirit board of
directors. The Stein complaint also names as defendants Frontier and Merger Sub.
Each of the complaints alleges violations of Sections 14(a) and 20(a) of the
Securities Exchange Act of 1934, as amended, and Rule 14a-9 promulgated
thereunder. The complaints generally allege that the defendants filed a
materially incomplete and misleading registration statement or proxy statement
with the SEC. Each of the complaints seeks injunctive relief preventing the
consummation of the Merger, damages and other relief.
On May 23, 2022, the plaintiff in the Marcus lawsuit filed a motion for a
preliminary injunction, seeking to enjoin the stockholder vote on the Merger
until five days after Spirit files certain supplemental disclosures. Spirit's
opposition to the motion is due on June 2, 2022. The court has scheduled a
hearing for June 7, 2022.
As of May 31, 2022, five stockholder demand letters have been sent to Spirit by
alleged Spirit stockholders in connection with the Merger. A stockholder demand
letter was sent on behalf of Wade Alford on March 29, 2022. A stockholder demand
letter was sent on behalf of Catherine Coffman on April 6, 2022. A stockholder
demand letter was sent on behalf of Jordan Wilson on April 25, 2022. A
stockholder demand letter was sent on behalf of Steven Evans on May 2, 2022. A
stockholder demand letter was sent on behalf of Edward Smith on May 3, 2022.
Each of the letters alleges disclosure deficiencies in the registration
statement soliciting stockholder approval of the Merger Agreement and demands
that additional disclosures be made before Spirit stockholders vote on the
Merger.
On May 16, 2022, JetBlue sent Spirit two demand letters, under Section 220 of
the Delaware General Corporation Law ("DGCL"), demanding the right to inspect,
among other items, a complete list of Spirit stockholders (as of May 6, 2022 and
the most recent available date as of the time of each inspection by JetBlue),
and certain other books and records of Spirit relating to the Spirit board of
directors' determination that the JetBlue tender offer was not, and was not
reasonably likely to lead to, a Superior Proposal (as defined in the Merger
Agreement) and the independence and
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disinterestedness of the members of the Spirit board of directors generally and
with respect to such determination. On May 23, 2022, Spirit sent JetBlue letters
in response to the demand letters denying JetBlue's request for certain books
and records relating to the Spirit board of directors since JetBlue's request
did not satisfy the requirements under Section 220 of the DGCL that would
entitle JetBlue to inspect certain books and records of Spirit. Spirit agreed,
however, to provide JetBlue with a complete list of Spirit stockholders, subject
to JetBlue entering into a confidentiality agreement and advancing certain
expenses of Spirit in connection with providing the information requested.
On May 23, 2022, Teamsters Local 237 Additional Security Benefit Fund and
Teamsters Local 237 Supplemental Fund for Housing Authority Employees sent
Spirit a demand letter, under Section 220 of the DGCL, demanding the right to
inspect, among other things, certain books and records relating to the Merger
and JetBlue's proposal and information relating to the independence and
disinterestedness of the members of the Spirit board of directors.
Spirit may receive additional stockholder demand letters and additional lawsuits
related to the Merger may be filed in the future.
Spirit believes that the claims asserted in the complaints are without merit and
that no supplemental disclosure to the Proxy Statement is required under any
applicable rule, statute, regulation or law. However, to, among other things,
eliminate the burden, inconvenience, expense, risk and disruption of continuing
litigation, and without admitting liability or wrongdoing, Spirit has determined
that it will make the below supplemental disclosures. Nothing in these
supplemental disclosures shall be deemed an admission of the legal necessity or
materiality under applicable law of any of the disclosures set forth herein. The
Spirit board of directors continues to recommend unanimously that you vote "FOR"
the proposals being considered at Spirit's special meeting of stockholders.
The information contained in this Current Report on Form 8-K is incorporated by
reference into the Proxy Statement. All page references in this Current Report
on Form 8-K are to pages of the Proxy Statement, and all terms used in this
Current Report on Form 8-K, but not otherwise defined, shall have the meanings
ascribed to such terms in the Proxy Statement. The following information should
be read in conjunction with the Proxy Statement, which should be read in its
entirety. To the extent that information in this Current Report on Form 8-K
differs from or updates information contained in the Proxy Statement, the
information in this Current Report on Form 8-K shall supersede or supplement
such information in the Proxy Statement.
SUPPLEMENTAL DISCLOSURE
The disclosure on pages 61 through 71 of the Proxy Statement in the section
entitled "The Merger-Background of the Merger" is hereby supplemented by adding
the following full paragraph between paragraphs two and three on page 62:
Immediately prior to Spirit's initial public offering in June 2011 (the "Spirit
IPO"), Indigo owned approximately 56% of Spirit common stock, and immediately
following the Spirit IPO, Indigo owned approximately 31% of Spirit common stock.
Mr. Franke served as Chairman of the Spirit board of directors from July 2006 to
August 2013. During the time Mr. Franke was Chairman of the Spirit board of
directors, H. McIntyre Gardner (from July 2010), Robert D. Johnson (from July
2010), Barclay G. Jones III (from July 2006) and Carlton D. Donaway (from
January 2013) also served on the Spirit board of directors. Mr. Donaway did not
stand for reelection at the 2022 Spirit annual meeting of stockholders. Indigo
ceased to own any shares of Spirit common stock in August 2013, and Mr. Franke
resigned from the Spirit board of directors in August 2013. Following
Mr. Franke's resignation, the Spirit board of directors appointed Mr. Gardner as
Chairman of the Spirit board of directors. Mr. Christie served in various
positions at Frontier from 2002 to 2010, including serving as Chief Financial
Officer from 2008 to 2010, prior to Indigo's acquisition of Frontier.
Mr. Christie joined Spirit as Chief Financial Officer in April 2012.
Mr. Canfield has served as Spirit's Senior Vice President, General Counsel and
Secretary since October 2007.
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The disclosure on pages 61 through 71 of the Proxy Statement in the section
entitled "The Merger-Background of the Merger" is hereby supplemented by
amending and restating the fourth full paragraph on page 62 as follows (with new
text underlined):
On August 23, 2021, the Spirit board of directors and senior management team
held a scheduled meeting by video conference during which the potential business
combination with Frontier was discussed. The Spirit board of directors asked
management to have Spirit's outside advisers, Campbell-Hill Aviation Group
("CHAG"), refresh their analysis of synergies, but determined that further work
on a transaction with Frontier should be put on hold for the time being, in the
aftermath of the operating challenges experienced by Spirit in early August.
The disclosure on pages 61 through 71 of the Proxy Statement in the section
entitled "The Merger-Background of the Merger" is hereby supplemented by
amending and restating the last full paragraph on page 62 as follows (with new
text underlined):
On November 3, 2021, members of Spirit management met by video conference with
representatives of Spirit's financial advisors, Barclays and Morgan Stanley, to
discuss financial overviews of the two companies and potential next steps.
Spirit engaged Morgan Stanley and Barclays in 2016 and 2019, respectively, in
each case to assist on potential M&A matters, and worked with both financial
advisors on several capital markets transactions. Spirit management believes
that both financial advisors have a strong knowledge of the airline industry and
related developments, as well as Spirit's business, and therefore provide a
broader perspective than would either financial advisor individually.
The disclosure on pages 61 through 71 of the Proxy Statement in the section
entitled "The Merger-Background of the Merger" is hereby supplemented by
amending and restating the first paragraph on page 63 as follows (with new text
underlined):
On November 4, 2021, with Spirit management's consent, two senior
representatives of Morgan Stanley held a previously scheduled and ordinary
course industry landscape review meeting with representatives of Indigo Partners
in Phoenix, Arizona. The principal purpose of the meeting was to discuss with
Indigo Partners the general state of, and opportunities in, the aviation
industry in light of the multiple investments Indigo Partners has in the
industry. The conversation also included the status of a potential transaction
involving Frontier and Spirit, which Morgan Stanley discussed with Indigo
Partners in Morgan Stanley's capacity as financial advisor to Spirit.
The disclosure on pages 61 through 71 of the Proxy Statement in the section
entitled "The Merger-Background of the Merger" is hereby supplemented by
amending and restating the third full paragraph on page 65 as follows (with new
text underlined):
On January 5, 2022, in a phone call with Mr. Franke, Mr. Christie stated that
the board of directors split at the combined company, as proposed by Mr. Franke
on January 4, was acceptable to Spirit's board of directors. Mr. Christie also
discussed various other matters covered in his email of December 27. On the same
day, Mr. Gardner called Mr. Franke to express appreciation for the work
undertaken on the Indigo side and the outcome of the parties' discussions which,
he stated, would result in a transaction with significant benefits to both
companies. He also discussed aspects of the management and board of directors of
the combined company and reconfirmed the Spirit board of directors' support for
continuing to work to finalize the transaction. On the same day, Spirit
management provided the Spirit board of directors with the updated CHAG synergy
analysis. Spirit compensates CHAG based on its established hourly rates, with no
contingency or success bonus. CHAG has previously performed services for Spirit
in connection with other strategic matters. CHAG has not previously performed
services for Frontier, Indigo or any of their respective affiliates.
The disclosure on pages 61 through 71 of the Proxy Statement in the section
entitled "The Merger-Background of the Merger" is hereby supplemented by
amending and restating the fifth full paragraph on page 65 as follows (with new
text underlined):
On January 7, 2022, Spirit and Frontier entered into an NDA, which contained a
customary standstill provision, to facilitate the exchange of confidential
information in connection with the parties' evaluation of the proposed
transaction. The standstill provision of the NDA would automatically terminate
and cease to be of any
--------------------------------------------------------------------------------
effect with respect to a party (i) following the other party publicly announcing
the execution of a definitive agreement contemplating a transaction pursuant to
which holders of such other party's common stock immediately prior to the
transaction will own less than 50% of the voting securities of the surviving
parent entity immediately following the transaction, (ii) following the
commencement by any person of a tender or exchange offer seeking to acquire
beneficial ownership of more than 50% of such other party's outstanding voting
securities or (iii) following any public announcement by such other party that
it is exploring strategic alternatives or soliciting proposals for strategic
transactions.
The disclosure on pages 61 through 71 of the Proxy Statement in the section
entitled "The Merger-Background of the Merger" is hereby supplemented by adding
a sentence at the end of the second full paragraph on page 67 as follows (with
new text underlined):
On February 1, 2022, Messrs. Christie and Canfield held discussions with Messrs.
William Franke and Brian Franke, an executive at Indigo and a member of the
Frontier board of directors. It was agreed, among other things, that (i) the
termination fee would be set at 3.25% of the equity value of Spirit, (ii) the
share exchange ratio would be fixed at signing subject to further issuances of
shares prior to closing being constrained to the satisfaction of Frontier, and
(iii) the outside date would be up to 24 months following signing, unless
further extended by mutual agreement of the parties. The parties also discussed
certain changes to the covenants governing interim operations between signing
and closing. Additionally, between January 29 and February 4, Mr. Brian Franke
had a number of telephone conversations with Messrs. Christie and/or Canfield
regarding other commercial terms contained in the draft merger agreement. During
the negotiations between Spirit and Frontier, no commitments were made for
continued employment of Mr. Christie or any other member of management.
The disclosure on pages 61 through 71 of the Proxy Statement in the section
entitled "The Merger-Background of the Merger" is hereby supplemented by adding
a sentence at the end of the seventh full paragraph on page 69 as follows (with
new text underlined):
The Spirit board of directors directed Spirit's senior management to negotiate a
confidentiality agreement with JetBlue and to engage in discussions with JetBlue
with respect to JetBlue's proposal, in accordance with the terms of the merger
agreement. Spirit and JetBlue entered into a confidentiality agreement on
April 8, 2022 and commenced discussions regarding the JetBlue proposal on
April 9, 2022. The confidentiality agreement does not contain any standstill
provisions.
The disclosure on pages 76 through 77 of the Proxy Statement in the section
entitled "The Merger-Unaudited Prospective Financial Information-Synergy
Forecasts" is hereby supplemented by amending and restating the paragraph
beginning at the bottom of page 76 and ending on the top of page 77 as follows
(with new text underlined):
In addition, in connection with the evaluation of the merger, Frontier and
Spirit jointly developed estimates of synergies that could be achieved by the
combined company in connection with the merger, which are summarized in the
below table (which we refer to as the "Synergy Forecasts"). The Synergy
Forecasts were developed between late December 2021 and the end of January 2022,
in a collaboration between CHAG and Frontier's own aviation/synergy advisers.
The Synergy Forecasts differed in minor respects from the separate analyses
prepared previously by the companies' respective synergy advisers. Management of
each of Frontier and Spirit stressed to their respective advisers that the
Synergy Forecasts should be prepared using conservative assumptions and with a
methodology to which regulatory economists would be familiar. Accordingly, the
Synergy Forecasts showed somewhat lower synergy values than those previously
prepared independently by the respective advisers. Frontier and Spirit are
electing to provide the Synergy Forecasts in this section of the information
statement and proxy statement/prospectus to provide each of Frontier's and
Spirit's stockholders access to the Synergy Forecasts that were made available
to each of the Frontier and Spirit board of directors, for purposes of
considering and evaluating the merger, as well as each company's financial
advisors, for purposes of their respective financial analyses and opinions. The
inclusion of this information should not be regarded as an indication that any
of Frontier, Spirit, their respective affiliates, officers, directors, advisors
or other representatives or any other recipient of this information considered,
or now considers, it necessarily to be predictive of actual future results, or
that it should be construed as financial guidance, and it should not be relied
on as such. This information was prepared solely for internal use and is
subjective in many respects.
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The disclosure on pages 94 through 96 of the Proxy Statement in the section
entitled "The Merger-Opinion of Barclays Capital Inc.-Selected Comparable
Company Analysis" is hereby supplemented by deleting the table on page 95 and
replacing it with a new table as follows (with new text underlined and deleted
text stricken):
Low High Median
Adj. EV / 2023E EBITDAR . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . .
P / 2023E EPS . . . . . . . . . . . . . . . . . . . . . . . 3.8x 5.1x 4.9x
. . . . . . . . . . . . . . . . . .
8.1x 13.4x 9.4x
Adj. EV /2023E EBITDAR P /2023E EPS EPS
Southwest Airlines Co. 5.1x 13.4x
Allegiant Travel Company 5.0x 9.9x
Sun Country Airlines Holdings,
Inc. 5.0x 9.7x
JetBlue Airways Corporation 3.8x 9.1x
Frontier (based on publicly
available financial data and
closing prices) 4.3x 8.2x
Spirit (based on publicly
available financial data and
closing prices) 4.8x 8.1x
Low 3.8x 8.1x
High 5.1x 13.4x
Median 4.9x 9.4x
The disclosure on pages 96 through 97 of the Proxy Statement in the section
entitled "The Merger-Opinion of Barclays Capital Inc.-Discounted Cash Flow
Analysis" is hereby supplemented by amending and restating the last paragraph on
page 96 as follows (with new text underlined):
Spirit Standalone Valuation. To calculate the estimated enterprise value of
Spirit using the discounted cash flow method, Barclays (i) added Spirit's
projected after-tax unlevered free cash flows for fiscal years 2022 through 2026
based on the Spirit Projections to the "terminal value" of Spirit as of
December 31, 2026 and then (ii) discounted such amount to its present value
using a range of selected discount rates. The after-tax unlevered free cash
flows were calculated by taking the projected total EBITDAR, adjusted for
one-time or non-recurring items ("Adj. EBITDAR"), and subtracting rent expenses,
unlevered cash taxes and capital expenditures and adjusting for the impact of
depreciation and amortization, changes in working capital (including changes in
deferred heavy maintenance) and certain other non-cash expenses. The residual
value of Spirit at the end of the forecast period, or "terminal value," was
estimated by selecting a range of terminal value multiples based on estimated
last twelve months EBITDAR ("LTM EBITDAR") for the five year period ending
December 31, 2026 of 5.5x to 7.5x, which was derived by analyzing historical
average LTM EBITDAR multiples from selected comparable companies and applying
such range to Spirit's 2026 estimated LTM EBITDAR, as set out in the Spirit
Projections. The range of after-tax discount rates of 9.0% to 11.0% was selected
based on an analysis of the weighted average cost of capital of Spirit and the
comparable companies. Barclays then calculated a range of implied prices per
share of Spirit by (A) (i) subtracting estimated total debt of $3.157 billion
and (ii) adding cash of $1.440 billion, each as of December 31, 2021, from the
estimated enterprise value using the discounted cash flow method and
(B) dividing such amount by the fully diluted number of shares of Spirit common
stock. These calculations resulted in a range of implied price per share of $34
to $64 (the "Spirit DCF Range"). Barclays noted that the implied per share
merger consideration of $25.83 was below the Spirit DCF Range.
The disclosure on pages 96 through 97 of the Proxy Statement in the section
entitled "The Merger-Opinion of Barclays Capital Inc.-Discounted Cash Flow
Analysis" is hereby supplemented by amending and restating the first paragraph
on page 97 as follows (with new text underlined):
Frontier Standalone Valuation. To calculate the estimated enterprise value of
Frontier using the discounted cash flow method, Barclays (i) added Frontier's
projected after-tax unlevered free cash flows for fiscal years 2022 through 2026
based on the Frontier Projections to the "terminal value" of Frontier as of
December 31, 2026 and then (ii) discounted such amount to its present value
using a range of selected discount rates. The after-tax unlevered free
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cash flows were calculated by taking the projected total Adj. EBITDAR and
subtracting rent expenses, unlevered cash taxes and capital expenditures and
adjusting for the impact of depreciation and amortization, changes in working
capital (including changes in deferred heavy maintenance), the net cash proceeds
from sale-leaseback transactions (proceeds from sale-leaseback transactions less
gains recognized on sale-leaseback transactions) and certain other non-cash
expenses. The residual value of Frontier at the end of the forecast period, or
"terminal value," was estimated by selecting a range of terminal value multiples
based on estimated LTM EBITDAR for the five year period ending December 31, 2026
of 5.5x to 7.5x, which was derived by analyzing historical average LTM EBITDAR
multiples from selected comparable companies and applying such range to
Frontier's 2026 estimated LTM EBITDAR, as set out in the Frontier Projections.
The range of after-tax discount rates of 9.0% to 11.0% was selected based on an
analysis of the weighted average cost of capital of Frontier and the comparable
companies. Barclays then calculated a range of implied prices per share of
Frontier by (A) (i) subtracting estimated total debt of $414 million and
(ii) adding cash of $918 million, each as of December 31, 2021, from the
estimated enterprise value using the discounted cash flow method and
(B) dividing such amount by the fully diluted number of shares of Frontier
common stock. These calculations resulted in a range of implied price per share
of $23 to $37.
The disclosure on page 104 of the Proxy Statement in the section entitled "The
Merger-Opinion of Morgan Stanley & Co. LLC-Discounted Cash Flow Analysis-Spirit
Discounted Cash Flow Analysis" is hereby supplemented by amending and restating
the third full paragraph on page 104 as follows (with new text underlined):
Morgan Stanley calculated terminal values for Spirit by applying a range of
multiples of Adj. EV / EBITDAR of 5.5x to 7.0x, based on Morgan Stanley's
professional judgment, to the Adjusted EBITDAR of Spirit for the calendar year
2026. Morgan Stanley then adjusted the terminal value for the capitalized
operating leases at December 31, 2026 (based on the Spirit Management Forecasted
Financial Information) and discounted the unlevered free cash flows and terminal
value to present value as of December 31, 2021 using mid-year convention (except
for terminal value which was discounted using end-of-period methodology) and a
range of discount rates from 9.8% to 11.4%, which were selected based on Morgan
Stanley's professional judgment to reflect an estimate of Spirit's weighted
average cost of capital ("WACC"). The WACC was determined utilizing the capital
asset pricing model to calculate Spirit's cost of equity and utilizing an
estimated interest rate for Spirit unsecured debt as the basis for Spirit's cost
of debt. To calculate the implied per share equity value, Morgan Stanley then
divided the implied equity value by the number of fully diluted shares of Spirit
common stock outstanding as of February 4, 2022, as provided by Spirit
management on February 4, 2022 using the treasury stock method.
The disclosure on pages 104 through 105 of the Proxy Statement in the section
entitled "The Merger-Opinion of Morgan Stanley & Co. LLC-Discounted Cash Flow
Analysis-Frontier Discounted Cash Flow Analysis" is hereby supplemented by
amending and restating the paragraph beginning at the bottom of page 104 and
ending on the top of page 105 as follows (with new text underlined):
Morgan Stanley calculated terminal values for Frontier by applying a range of
multiples of Adj. EV / EBITDAR of 5.5x to 7.0x, based on Morgan Stanley's
professional judgment, to the Adjusted EBITDAR of Frontier for the calendar year
2026. Morgan Stanley then adjusted the terminal value for the capitalized
operating leases at December 31, 2026 (based on the Frontier Management
Forecasted Financial Information) and discounted the unlevered free cash flows
and terminal value to present value as of December 31, 2021 using mid-year
convention (except for terminal value which was discounted using end-of-period
methodology) and a range of discount rates from 9.5% to 11.2%, which were
selected based on Morgan Stanley's professional judgment to reflect an estimate
of Frontier's WACC. The WACC was determined utilizing the capital asset pricing
model to calculate Frontier's cost of equity and utilizing an estimated interest
rate for Frontier unsecured debt as the basis for Frontier's cost of debt. To
calculate the implied per share equity value, Morgan Stanley then divided the
implied equity value by the number of fully diluted shares of Frontier common
stock outstanding as of February 4, 2022, as provided by Frontier management on
February 4, 2022 using the treasury stock method.
. . .
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