UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY
PERIOD ENDED SEPTEMBER 30, 1996
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION
PERIOD FROM _______ TO _______.
Commission File Number 0-27034
VANGUARD AIRLINES, INC.
(Exact name of Registrant as specified in its charter)
Delaware 48-1149290
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
30 N.W. Rome Circle
Mezzanine Level
Kansas City International Airport
Kansas City, Missouri 64153
(816) 243-2100
(Address of principal executive offices, including zip code;
Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the Registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No ______
At September 30, 1996, there were 9,955,773 shares of Common
Stock , par value $.001 per share issued and outstanding.
<PAGE>
PART I. - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
VANGUARD AIRLINES, INC.
BALANCE SHEETS
<CAPTION>
SEPTEMBER 30, 1996 DECEMBER 31
(UNAUDITED) 1995
ASSETS
<S>
Current assets: <C> <C>
Cash and cash equivalents $ 1,859,487 $ 3,491,640
Restricted cash 2,540,068 ----
Accounts receivable, less
allowance 1,699,222 1,271,245
of $197,000 at September 30,
1996 and December 31, 1995
Inventory 721,334 338,119
Prepaid expenses and other
current assets 5,878,176 4,432,150
Total current assets 12,698,287 9,533,154
Property and equipment, at cost:
Aircraft improvements and
leasehold costs 3,559,192 3,409,633
Reservation system and
communication equipment 1,482,484 884,939
Other property and equipment 2,832,701 1,420,610
7,874,377 5,715,182
Less accumulated depreciation
and amortization (2,179,279) (1,164,364)
5,695,098 4,550,818
Other assets:
Leased aircraft deposits 1,506,000 1,506,000
Fuel and security deposits 977,238 820,213
Other 562,726 15,513
3,045,964 2,341,726
Total assets $21,439,349 $16,425,698
</TABLE>
<PAGE>
<TABLE>
VANGUARD AIRLINES, INC.
BALANCE SHEETS (CONTINUED)
<CAPTION>
SEPTEMBER 30, 1996 DECEMBER 31
(UNAUDITED) 1995
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
<S> <C> <C>
Current liabilities:
Notes payable $ 4,000,000 ----
Accounts payable 5,847,919 3,400,288
Accrued expenses 3,218,329 2,303,377
Accrued maintenance 5,090,565 4,728,557
Air traffic liability 3,681,959 2,260,721
Current portion of capital
lease obligations 97,976 101,989
Total current liabilities 21,936,748 12,794,932
Capital lease obligations,
less current portion 104,143 86,133
Commitments
Stockholders' equity (deficit):
Common Stock, $.001 par value:
Authorized shares - 15,000,000:
Issued and outstanding shares -
9,955,773 in 1996 and 8,524,376
in 1995 9,956 8,524
Additional paid-in capital 26,551,056 19,301,937
Accumulated deficit (27,067,755) (15,637,987)
(506,743) 3,672,474
Deferred stock compensation (94,560) (127,841)
Treasury stock (239) ----
Total stockholders' equity
(deficit) (601,542) 3,544,633
Total liabilities and stockholders'
equity (deficit) $21,439,349 $16,425,698
</TABLE>
See accompanying Notes.
<PAGE>
<TABLE>
VANGUARD AIRLINES, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1995 1996 1995 1996
<S> <C> <C> <C> <C>
Operating revenues:
Passenger revenues $10,524,122 $19,167,985 $24,457,405 $ 52,140,355
Other 547,565 722,308 1,106,186 2,534,986
Total operating revenues 11,071,687 19,890,293 25,563,591 54,675,341
Operating expenses:
Flying operations 1,982,180 4,419,541 5,646,247 12,711,098
Aircraft fuel 1,911,782 4,539,805 4,908,812 11,730,787
Maintenance 1,221,075 3,804,766 3,689,031 10,349,055
Passenger service 795,542 1,603,014 2,293,848 4,666,074
Aircraft and traffic
servicing 2,737,170 3,870,780 6,882,510 11,481,168
Promotion and sales 2,170,979 3,759,843 6,290,237 11,119,769
General and administrative 583,446 1,105,378 1,872,972 2,922,121
Depreciation and
amortization 302,787 402,627 726,360 1,111,923
Total operating expenses 11,704,961 23,505,754 32,310,017 66,091,995
Operating loss (633,274) (3,615,461) (6,746,426) (11,416,654)
Other income (expense):
Interest income 7,011 46,270 29,605 79,291
Interest expense (40,539) (62,446) (80,435) (92,405)
Total other income
(expense), net (33,528) (16,176) (50,830) (13,114)
Net loss $ (666,802) $(3,631,637) $(6,797,256) $(11,429,768)
Net loss per share $ (0.10) $ (0.40) $ (.98) $ (1.32)
Weighted average common and
common equivalent shares
outstanding 6,920,029 9,103,506 6,903,995 8,626,709
</TABLE>
See accompanying notes.
<PAGE>
VANGUARD AIRLINES, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1995 1996 1995 1996
<CAPTION>
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (666,802) $(3,631,637) $(6,797,256) $(11,429,768)
Adjustments to reconcile
net loss to net cash
provided by (used in)
operating activities:
Depreciation and
amortization 326,770 402,627 726,360 1,111,923
Compensation related to
stock options 4,830 8,588 117,330 33,281
Debt issuance cost
amortization ---- 33,333 ---- 33,333
Provision for
uncollectible accounts 8,893 15,703 55,893 45,842
Changes in operating assets
and liabilities:
Restricted cash ---- (1,740,068) ---- (2,540,068)
Accounts receivable (428,593) 930,221 (1,225,048) (473,819)
Inventory ---- (186,114) (36,349) (383,215)
Prepaid expenses and
other current assets (922,563) (1,298,194) (1,387,019) (1,446,026)
Deposits on leased
aircraft, fuel and
other (94,109) (508,817) (273,004) (637,571)
Accounts payable 2,629,714 339,770 4,826,279 3,443,889
Accrued expenses and
accrued maintenance (250,621) 862,741 1,451,430 1,276,960
Air traffic liability (213,464) (2,808,864) 2,133,357 1,421,238
Net cash provided by
(used in) operating
activities 394,055 (7,580,711) (408,027) (9,544,001)
INVESTING ACTIVITIES:
Purchase of property and
equipment (347,127) (899,129) (1,722,307) (3,076,763)
FINANCING ACTIVITIES:
Proceeds from sale of common
stock and exercise of
options, net of offering
costs 15,000 7,150,318 15,000 7,150,551
Purchase of treasury stock ---- ---- ---- (239)
Proceeds from notes payable ---- 8,650,000 1,250,000 8,650,000
Principal payments on notes
payable ---- (4,650,000) ---- (4,691,667)
Proceeds from issuance of
notes payable from
related parties ---- 900,000 ---- 900,000
Principal payments on notes
payable from related parties ---- (900,000) ---- (941,667)
Principal payments on capital
lease obligations (27,142) (43,259) (67,412) (120,034)
Net cash provided by
(used in) financing
activities (12,142) 11,107,059 1,197,588 10,988,611
Net increase (decrease) in
cash and cash equivalents 34,786 2,627,219 (932,746) (1,632,153)
Cash and cash equivalents,
beginning of period 159,277 (767,732) 1,126,809 3,491,640
Cash and cash equivalents,
at end of period $ 194,063 $ 1,859,487 $ 194,063 $ 1,859,487
</TABLE>
<PAGE>
VANGUARD AIRLINES, INC.
STATEMENTS OF CASH FLOWS (CONTINUED)
(UNAUDITED)
<TABLE>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1995 1996 1995 1996
<CAPTION>
<S> <C> <C> <C> <C>
Supplemental disclosures of
cash flow information:
Cash paid during the period
for interest $ 40,540 $ 42,770 $ 80,436 $ 72,729
Supplemental schedule of
noncash investing and
financing activities:
Aircraft leasehold costs
associated with accrued
maintenance $ ---- $ ---- $ 486,786 $ ----
Deferred compensation
costs associated with
compensatory stock options $ ---- $ ---- $ 250,000 $ ----
Aircraft improvements financed
through the issuance of
notes payable $ ---- $ ---- $ ---- $1,000,000
Capital leases entered into
for property and equipment $ ---- $ ---- $ 84,267 $ 134,031
Deferred debt issuance costs
recorded in in conjunction
with warrants issued $ ---- $ 100,000 $ 50,000 $ 100,000
Retirement of notes payable
and reduction of accounts
payable through sale of
property and equipment $ ---- $ 1,954,591 $ ---- $ 1,954,591
</TABLE>
See accompanying notes.
<PAGE>
VANGUARD AIRLINES, INC.
CONDENSED NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The financial statements of Vanguard Airlines, Inc. (the
"Company") presented herein, without audit except for balance
sheet information at December 31, 1995, have been properly
prepared pursuant to the rules of the Securities and Exchange
Commission for quarterly reports on Form 10-Q and do not include
all of the information and note disclosures required by generally
accepted accounting principles. These statements should be read
in conjunction with the consolidated financial statements and
notes thereto for the year ended December 31, 1995, included in
the Company's Form 10-K as filed with the Securities and Exchange
Commission on March 30, 1996.
The balance sheet as of September 30, 1996, the statements
of operations for the three months ended September 30, 1996 and
1995 and the nine months ended September 30, 1996 and 1995, and
the statements of cash flows for the three months ended September
30, 1996 and 1995 and the nine months ended September 30, 1996
and 1995 are unaudited but, in the opinion of management, include
all adjustments (consisting of normal, recurring adjustments)
necessary for a fair presentation of results for these interim
periods.
The results of operations for the nine months ended
September 30, 1996 are not necessarily indicative of the results
to be expected for the entire fiscal year ending December 31,
1996.
2. ACCOUNTING POLICIES
The Company provides price protection discounts and refunds
to passengers as a result of schedule changes initiated by the
Company. These amounts, which were previously netted against
service charge revenue and included as a component of other
revenues, have been reclassified against passenger revenue for
the periods ended September 30, 1996 on the accompanying
financial statements. These amounts were not material, and
therefore not reclassified, for the periods ended September 30,
1995.
3. NET LOSS PER SHARE
For the periods ended September 30, 1996, the computation of
net loss per share was based on the weighted average number of
outstanding common shares. Outstanding stock options and
warrants were not included in the calculation of net loss per
share as their effect was antidilutive.
For the periods ended September 30, 1995, net loss per share
was based on the weighted average number of common and preferred
shares outstanding and dilutive common stock equivalents during
the periods. Pursuant to Securities and Exchange Commission
Staff Accounting Bulletin No. 83, common stock and preferred
stock issued for consideration below the initial offering price
of $6.00 per share ( the "Offering Price") and stock options and
preferred stock warrants issued with exercise prices below the
Offering Price during the 12-month period preceding the initial
filing of the Registration Statement have been included in the
calculation of common shares, using the treasury stock method, as
if they were outstanding for the 1995 periods presented.
4. RESTRICTED CASH
The Company has recorded cash of approximately $2.5 million,
which relates to restricted cash accounts securing the risk of
loss exposure estimated by the Company's credit card processor.
<PAGE>
5. LINE OF CREDIT
On July 30, 1996, the Company entered into a new bank line
of credit agreement (the "Agreement") that permitted borrowing up
to $4,000,000 with interest payable monthly at the prime rate
published in The Wall Street Journal. On August 12, 1996 the
amount available under the Agreement was increased to $5,000,000.
The Agreement matures on January 30, 1997. As of September 30,
1996, the Company had borrowed $4,000,000 against amounts
available under the Agreement. The Agreement is guaranteed by
certain stockholders of the Company (the "Guarantors"). In
connection with the execution of the Agreement and related
guarantee, the Company issued the Guarantors warrants to purchase
an aggregate of up to 656,250 shares of common stock at a
weighted average exercise price of $6.65 per share. The warrants
vest immediately as of the date of grant and expire on July 30,
2006. Accordingly, effective July 31, 1996, the estimated fair
value of the warrants issued under the Agreement of $100,000 was
recorded in other assets as deferred debt issuance costs and is
being charged to expense over the term of the Agreement.
6. NOTES PAYABLE
In July 1996, the Company entered into promissory note
agreements totaling $900,000 with two stockholders. Deferred
debt issuance costs recorded by the Company were immaterial. In
August 1996, the Company repaid the principal balance of the
notes.
In March 1996, the Company made cash down payments of
$260,000 and signed promissory notes totaling $1,000,000 to
finance the purchase of two aircraft engines. In July 1996, the
Company restructured these note agreements whereby the two
aircraft engines were sold back the to the vendor and the vendor
subsequently leased the engines back to the Company. This
transaction was entered into in conjunction with other aircraft
engine sale and leaseback agreements, all of which are described
in Note 7.
7. LEASES
In July 1996, the Company entered into several agreements
for the sale and leaseback of four aircraft engines under
operating leases with terms ranging from one month to three
years. The Company has purchase and lease renewal options at
projected fair market values under such agreements. As of the
date of these transactions in July, the book values and related
long-term debt of the aircraft engines totaling approximately
$1,525,000 and $958,999, respectively, were removed from the
balance sheet. In addition, the Company reduced accounts payable
due to the Lessor, a vendor of the Company, by $567,000. Gains
and losses recorded by the Company in conjunction with these
transactions were immaterial. Fixed rental payments of
approximately $13,000 per engine are due monthly. In addition,
the company is required to make supplemental payments to the
lessor based on the number of cycles/flight hours, as defined by
the agreements.
8. STOCKHOLDERS EQUITY
In September 1996, the Company completed a private sale of
units securities, each unit consisting of one share of common
stock and one redeemable common stock purchase warrant. In
connection with the sale, the Company issued 1,319,774 shares of
common stock for aggregate proceeds of approximately $7.1
million, net of offering costs of approximately $154,000 .
Each redeemable warrant entitles the holder to purchase, at any
time over a five year period commencing after the sale closing,
one share of common stock at an exercise price of $6.64. The
redeemable warrant exercise price is subject to adjustment under
certain circumstances as defined in warrant agreement between the
warrant holder and the Company. Proceeds from the sale were
utilized for major scheduled maintenance costs, capital
expenditures, working capital requirements and the repayment of
notes payable to related parties.
ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
EXCEPT FOR THE HISTORICAL INFORMATION CONTAINED HEREIN, THIS
REPORT OF FORM 10-Q CONTAINS FORWARD-LOOKING STATEMENTS THAT
INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS
COULD DIFFER MATERIALLY. <PAGE> FACTORS THAT COULD CAUSE OR CONTRIBUTE
TO SUCH DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THOSE
DISCUSSED IN THE SECTION TITLED "FACTORS THAT MAY AFFECT FUTURE
RESULTS OF OPERATIONS," AS WELL AS THOSE DISCUSSED ELSEWHERE IN
THE COMPANY'S REPORTS FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION.
RESULTS OF OPERATIONS
Comparison of nine months ended September 30, 1996 and 1995
Operating revenues
Total operating revenues increased approximately 113.9% from
approximately $25.6 million for the first nine months of 1995 to
approximately $54.7 million for the first nine months of 1996.
This increase was primarily attributable to an increase in the
number of daily flights and the number of passengers on those
flights. As of September 30, 1995, the Company operated 40 daily
weekday flights with five aircraft and during the period then
ended had added service to Dallas/Ft. Worth, Wichita, Des Moines,
Minneapolis/St. Paul and Chicago-Midway. As of September 30,
1996, the Company operated 48 daily flights with eight aircraft,
having added service to San Francisco and Los Angeles in the
last quarter of 1995 and early 1996. The Company's capacity or
total available seat miles ("ASMs") increased approximately
104.2%, from approximately 403.9 million during the nine-month
period ended September 30, 1995 to approximately 824.8 million
during the nine-month period ended September 30, 1996. Revenue
passenger miles ("RPMs") increased approximately 148.9% from
approximately 210.5 million during the nine-month period ended
September 30, 1995 to approximately 523.9 million during the
nine-month period ended September 30, 1996. The increase in ASMs
was primarily attributable to an increase in the number of jet
aircraft in service, the number of daily flights and the addition
of destinations with greater flight lengths. The increase in
RPMs was primarily attributable to an increase in the number of
daily flights, an increase in the number of passengers on those
flights and the addition of destinations with greater flight
lengths. Load factor increased from approximately 52.12% for the
nine-month period ended September 30, 1995 to approximately
63.52% for the nine-month period ended September 30, 1996. This
increase was primarily the result of adjustments in capacity to
meet market demand, an increase in the number of city pairs
served and increased market awareness of the Company's service.
Passenger yield per RPM decreased approximately 14.3% from
approximately 11.6 cents for the first nine months of 1995 to
approximately 10.0 cents for the first nine months of 1996. The
Company believes this decrease was primarily attributable to the
ValuJet and Trans World Airlines (TWA) accidents in May 1996 and
August 1996, respectively, and the introduction of service from
Kansas City to San Francisco in December 1995 and to Los Angeles
in March 1996. The Company estimates that during the four-week
periods after the ValuJet and TWA accidents, call volume at its
reservation center declined substantially. As a result, the
Company's revenue/yield management fare system offered customers
seats at reduced fares. The Company's favorable load factors
remained unchanged, but at the cost of reduced passenger yields.
The Company also offered promotional fares on its new city pairs
throughout the first nine months of 1996, and these new routes
accounted for approximately 40% of the system wide RPMs during
that period. The Company is evaluating fares in all its markets
as well as its current route structure to improve passenger
yields.
The Company also generates operating revenues as a result of
service charges from passengers who change or cancel flight
reservations. For a period of ninety days after the flight date,
the customer may use the value of the unused reservation for
transportation, less a $25 service charge. These operating
revenues were approximately $533,000 (approximately 2.1% of total
operating revenues) and approximately $1.5 million
(approximately 2.7% of total operating revenues) in the first
nine months of 1995 and the first nine months of 1996,
respectively. The increase in cancellation and change fee
revenue as a percent of total operating revenues was primarily
attributable to the increase in the number of daily flights and
the number of passengers. The Company began carrying mail for the
United States Postal Service during the first quarter of 1995.
Mail revenue increased approximately 133.6% from approximately
$295,000 in the first nine months of 1995 to approximately
$689,000 in the first nine months of 1996.
<PAGE>
Operating Expenses
Expenses are generally categorized as related to flying
operations, aircraft fuel, maintenance, passenger service,
aircraft and traffic servicing, promotion and sales, general and
administrative, depreciation and amortization and other expense,
net.
Flying operations expenses include aircraft lease expenses,
compensation of pilots, expenses related to flight dispatch and
flight operations administration, hull insurance and all other
expenses related directly to the operation of the aircraft other
than aircraft fuel and maintenance expenses. Flying operations
expenses increased approximately 125.1% from approximately $5.6
million (approximately 22.1% of operating revenues) for the first
nine months of 1995 to $12.7 million (approximately 23.2% of
operating revenues) for the first nine months of 1996. The
number of departures increased approximately 54.9% from 8,253 for
the first nine months of 1995 to 12,782 for the first nine months
of 1996. The increase in flying operations expense as a
percentage of operating revenues was the result of the Company
leasing three additional jet aircraft in late 1995 and early
1996, two of which were newer, more advanced Boeing 737-300 jet
aircraft, which have substantially higher lease and aircraft
insurance costs. In connection with the acquisition of the three
planes, the Company hired 30 additional pilots and incurred
additional pilot training costs for existing and new pilots.
Aircraft fuel expenses include the direct cost of the fuel,
taxes and the costs of delivering fuel into the aircraft.
Aircraft fuel cost increased approximately 139.0% from
approximately $4.9 million (approximately 19.2% of operating
revenues) for the first nine months of 1995 to approximately
$11.7 million (approximately 21.5% of operating revenues) for the
first nine months of 1996. These fuel expenses represent an
increase in the fuel cost per block hour from $466 in the first
nine months of 1995 to $623 in the first nine months of 1996
primarily due to an increase in price and average burn rate and
to the imposition of a federal tax. Specifically, the average
price increased from $0.54 per gallon in the first nine months of
1995 to $0.64 per gallon in the first nine months of 1996, while
fuel consumption increased from 799 gallons per block hour in the
first nine months of 1995 to 816 gallons per block hour in the
first nine months of 1996. In addition, effective October 1,
1995, the Company was required to pay a fuel tax of 4.3 cents per
gallon. In the future, minor fuel cost increases will likely be
absorbed by the Company and would affect its operating results.
The Company will continue to seek to pass on significant fuel
cost increases to the Company's customers through fare increases
as permitted by the then current market conditions. However,
there can be no assurance that the Company will be successful in
passing on these increased costs.
Maintenance expenses include all maintenance-related labor,
parts, supplies and other expenses related to the upkeep of
aircraft. Maintenance expenses increased approximately 180.5%
from approximately $3.7 million (approximately 14.4% of operating
revenues) for the first nine months of 1995 to approximately
$10.3 million (18.9% of operating revenues) for the first nine
months of 1996. This increase was primarily due to the increase
in the fleet size and block hours. For the first nine months of
1995, the average fleet size was approximately 4.9 aircraft
compared to an average fleet size for the first nine months of
1996 of approximately 7.9 aircraft. In late 1995, the Company
leased two Boeing 737-300 jet aircraft, which generally are more
costly with respect to major scheduled maintenance. The costs of
routine aircraft and engine maintenance are charged to
maintenance expense as incurred. In addition, the Company
accrues the cost of future major scheduled maintenance on a
monthly basis. The Company deposits funds with its aircraft
lessors to cover a portion of the cost of its future major
scheduled maintenance.
Passenger service expenses include flight attendant wages
and benefits, in-flight service, flight attendant training,
uniforms and overnight expenses and passenger liability
insurance. Passenger service expenses increased approximately
103.4% from approximately $2.3 million (approximately 9.0% of
operating revenues) for the first nine months of 1995 to $4.7
million (approximately 8.5% of operating revenues) for the first
nine months of 1996. This increase was primarily due to the
approximately 54.9% increase in the number of departures and the
approximately 84.2% increase in number of passengers carried.
Passenger service expenses per flight increased approximately
31.3% from approximately $278 for the first nine months of 1995
to $365 for the first nine months of 1996. This increase per
flight is primarily due to the introduction of longer routes to
San Francisco and Los Angeles in late 1995 and early <PAGE> 1996 which
incur higher passenger service costs. The decrease in passenger
service expenses as a percentage of operating revenues was
primarily attributable to lower training costs for flight
attendants and a higher load factor in the 1996 period.
Aircraft and traffic servicing expenses include all expenses
incurred at the airports for handling aircraft, passengers and
mail, landing fees, facilities rental, station labor and ground
handling expenses. Aircraft and traffic servicing expenses
increased approximately 66.8% from approximately $6.9 million
(approximately 26.9% of operating revenues) in the first nine
months of 1995 to approximately $11.5 million (approximately
21.0% of operating revenues) in the first nine months of 1996.
This increase was primarily due to an increase in the number of
cities served and an increase in the number of departures.
Departures increased approximately 54.9% from 8,253 during the
first nine months of 1995 to 12,782 during the first nine months
of 1996, and the average cost per departure increased
approximately 7.7% from approximately $834 to approximately $898
in the same periods. The increase in cost per departure was
primarily attributable to the additional cost associated with
providing service to airports with higher operating costs. The
decrease in aircraft and traffic servicing as a percentage of
operating revenues was primarily attributable to station
personnel cost, landing fees and other traffic servicing costs
not rising in proportion to the increases in the number of
passengers and RPMs between the nine month periods in 1995 and
1996.
Promotion and sales expenses include the costs of the
reservations function, including all wages and benefits for
reservationists, rent, electricity, communication charges, credit
card fees, travel agency commissions, advertising expenses and
wages and benefits for the marketing department. Promotion and
sales expenses increased approximately 76.8% from approximately
$6.3 million (approximately 24.6% of operating revenues) in the
first nine months of 1995 to approximately $11.1 million
(approximately 20.3% of operating revenues) in the first nine
months of 1996. This increase was primarily the result of an
increase in cities served, reflecting the Company's plan to
increase advertising when new cities are introduced in order to
create brand awareness while maintaining stable advertising
programs in existing cities. In addition, the Company's
reservation operations expanded in May 1996 with the opening of a
new reservation center in Lawrence, Kansas. The average
promotion and sales cost per passenger decreased from $11.42 in
the first nine months of 1995 to $10.96 in the first nine months
of 1996. The decrease in average sales and promotion expenses
per passenger was primarily the result of an increased number of
passengers flown and improved brand awareness offset by the
increased advertising incurred in March and September 1996
related to the introduction of scheduled service to four new
cities.
General and administrative expenses include the wages and
benefits for the Company's executive and various other
administrative personnel, the cost for office supplies, office
rent, legal, accounting and other miscellaneous expenses.
General and administrative expenses increased approximately 56.0%
from $1.9 million (approximately 7.3% of operating revenues) in
the first nine months of 1995 to $2.9 million (approximately 5.3%
of operating revenues) in the first nine months of 1996. The
decrease in general and administrative expenses as a percentage
of operating revenues was primarily attributable to increased
productivity and economies of scale.
Depreciation and amortization expenses include depreciation
and amortization of aircraft modifications, ground equipment and
leasehold improvements, but does not include any amortization of
start-up and route development costs as all of these costs are
expensed as incurred. Depreciation and amortization expense
increased approximately 53.1% from approximately $726,000
(approximately 2.8% of operating revenues) in the first nine
months of 1995 to approximately $1.1 million (approximately 2.0%
of operating revenues) in the first nine months of 1996. This
increase was primarily the result of improvements to new and
existing aircraft and costs associated with modifications of the
Company's reservation system.
Other income (expense), net consists primarily of interest
income and interest expense. Interest income increased during
the first nine months of 1996, as a result of greater average
interest bearing cash balances compared to 1995. Interest
expense increased during the nine months ended September 30,
1996, as a result of higher average borrowing during the period
as compared to 1995.
<PAGE>
Comparison of three months ended September 30, 1996 and 1995
Operating revenues
Total operating revenues increased approximately 79.7% from
approximately $11.1 million for the third quarter 1995 to
approximately $19.9 million for the third quarter of 1996. This
increase in operating revenues is comparable to the increase
described for the nine months ended September 30, 1996 and 1995
which primarily resulted from increased daily flights and the
number of passengers on those flights. The Company's ASMs
increased approximately 113.7%, from approximately 144.7 million
during the three-month period ended September 30, 1995 to
approximately 309.1 million during the three-month period ended
September 30, 1996. RPMs increased approximately 133.7% from
approximately 79.7 million during the three-month period ended
September 30, 1995 to approximately 186.2 million during the
three-month period ended September 30, 1996. The increase in
ASMs and RPMs are comparable with nine month periods ended
September 30, 1996 and 1995. Load factor increased from
approximately 55.07% for the three-month period ended September
30, 1995 to approximately 60.23% for the three-month period ended
September 30, 1996 for reasons consistent with those described
above.
Passenger yield per RPM decreased approximately 22.1% from
approximately 13.2 cents for the third quarter of 1995 to
approximately 10.3 cents for the third quarter of 1996. The
Company believes this decrease was generally for the same reasons
as noted in the nine month comparison.
The Company generated other revenues as a result of service
charges from passengers who change or cancel flight reservations.
For a period of ninety days after the flight date, the customer
may use the value of the unused reservation for transportation,
less a $25.00 service charge. These operating revenues were
approximately $218,000 (approximately 2.0% of total operating
revenues) and approximately $398,000 (approximately 2.0% of total
operating revenues) in the third quarter of 1995 and the third
quarter of 1996, respectively. Mail revenue increased
approximately 33.3% from approximately $163,000 in the third
quarter of 1995 to approximately $217,000 in the third quarter of
1996.
Operating Expenses
Flying operations expenses increased approximately 123.0%
from approximately $2.0 million (approximately 17.9% of operating
revenues) for the third quarter of 1995 to approximately $4.4
million (approximately 22.2% of operating revenues) for the third
quarter of 1996. The number of departures increased
approximately 37.4% from 3,359 for the third quarter of 1995 to
4,614 for the third quarter of 1996. In addition, the additional
leased aircraft and related costs described above for the nine
months ended September 30, 1996 contributed to the increase in
flying operations expense.
Aircraft fuel expenses increased approximately 137.5% from
approximately $1.9 million (approximately 17.3% of operating
revenues) for the third quarter of 1995 to approximately $4.5
million (approximately 22.8% of operating revenues) for the third
quarter of 1996. These fuel expenses represent an increase in
the fuel cost per block hour from $493 in the third quarter of
1995 to $661 in the third quarter of 1996 primarily due to an
increase in price and average burn rate and to the imposition of
a federal tax. Specifically, the average price increased from
$0.54 per gallon in the third quarter of 1995 to $0.66 per gallon
in the third quarter of 1996, while fuel consumption increased
consistent with the nine month periods described above.
Maintenance expenses increased approximately 211.6% from
approximately $1.2 million (approximately 11.0% of operating
revenues) for the third quarter of 1995 to approximately $3.8
million (19.1% of operating revenues) for the third quarter of
1996. This increase was primarily due to the increase in fleet
size, block hours flown and the mix of aircraft making up the
Company's fleet.
Passenger service expenses increased approximately 101.5%
from approximately $795,000 (approximately 7.2% of operating
revenues) for the third quarter of 1995 to $1.6 million
(approximately 8.1% of operating revenues) for the third quarter
of 1996. This increase was primarily due to the approximately
37.4% increase in the numbers of departures and the approximately
45.7% increase in number of passengers carried. Passenger
service expenses per flight increased approximately 46.7% from
approximately $237 for the third quarter of 1995 to $347 for the
third quarter of 1996. The increase per flight costs as a
percentage of operating revenues was generally for the same
reasons <PAGE> as in the nine months comparison. Passenger service
expenses for the third quarter of 1996 increased as a percentage
of operating revenues compared to the third quarter of 1995;
however, passenger service expenses for the nine months ended
September 30, 1996 decreased as a percentage operating revenues
compared to the nine months ended September 30, 1995. The
increase in the third quarter 1996 is attributable to a lower
revenue increase for the third quarter 1996, 80.0%, as compared
to a 113.9% increase in revenues experienced in the nine month
period ended September 30, 1996.
Aircraft and traffic servicing expenses increased
approximately 41.4% from approximately $2.7 million
(approximately 24.7% of operating revenues) in the third quarter
of 1995 to approximately $3.9 million (approximately 19.5% of
operating revenues) in the third quarter of 1996. This increase
was primarily due do to an increase in the number of cities
served and an increase in the number of departures. Departures
increased approximately 37.4% from 3,359 during the third quarter
of 1995 to 4,614 during the third quarter of 1996, and the
average cost per departure increased approximately 3% from
approximately $815 to approximately $839 in the same periods.
The increase in cost per departure and the decrease in aircraft
and traffic servicing as a percentage of operating revenues was
comparable with the same reasons described above for the nine
months ended September 30, 1996 and 1995.
Promotion and sales expenses increased approximately 73.2%
from approximately $2.2 million (approximately 19.6% of operating
revenues) in the third quarter of 1995 to approximately $3.8
million (approximately 18.9% of operating revenues) in the third
quarter of 1996. The average promotion and sales cost per
passenger increased from $9.27 in the third quarter of 1995 to
$11.02 in the third quarter of 1996. The increase in average
sales and promotion expenses per passenger for the third quarter
of 1996 as compared to the third quarter of 1995 is attributable
to an increase in advertising in September 1996 related to the
introduction of scheduled service to three new cities in October
1996.
General and administrative expenses increased approximately
89.5% from $583,000 (approximately 5.3% of operating revenues) in
the third quarter of 1995 to $1.1 million (approximately 5.6% of
operating revenues) in the third quarter of 1996. General and
administrative expenses as a percentage of operating revenues
remained constant during the three month period ended
September 30, 1995 and 1996 respectively.
Depreciation and amortization expenses increased
approximately 33.0% from approximately $303,000 (approximately
2.7% of operating revenues) in the third quarter of 1995 to
approximately $403,000 (approximately 2.0% of operating revenues)
in the third quarter of 1996. This increase was primarily the
result of improvements to new and existing aircraft and costs
associated with modifications of the Company's reservation
system.
Interest income increased during the third quarter of 1996,
as a result of greater average interest bearing cash balances
compared to 1995. Interest expense increased during the third
quarter of 1996 as a result of higher average borrowings during
the period as compared to 1995.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has financed its operations and
met its capital expenditure requirements primarily with proceeds
from (i) the initial private sale of equity securities, which
raised an aggregate of approximately $6.0 million, (ii) the
initial public offering of its Common Stock, which raised
approximately $13.0 million in November 1995 and (iii) the
private sale of units of securities, each unit consisting of
common stock and a redeemable common stock purchase warrant,
which raised aggregate net proceeds of approximately $7.1 million
in August and September 1996. In addition, the Company has utilized
current liabilities as an additional source of cash by delaying
payments to certain of its creditors. Most of the Company's
suppliers currently provide goods, services and operating
equipment on open credit terms. If such terms were modified to
require immediate cash payments, the Company's cash position
would be materially and adversely affected.
<PAGE>
In July 1996, the Company established a $4.0 million line of
credit. On August 12, 1996 the Company amended its line of
credit to increase it to $5.0 million. The line of credit is
guaranteed by certain of the Company's stockholders. As of
September 30, 1996, $4.0 million is outstanding on the Company's
line of credit. The Company has used the proceeds of the line of
credit primarily to reduce past accounts payable balances, repay
$900,000 of outstanding notes held by certain of the Company's
stockholders, provide for scheduled engine maintenance repairs and
increase its restricted cash account balance held by its credit
card processor. Borrowings accrue interest at the prime rate as
published in The Wall Street Journal. The line of credit expires
January 30, 1997 at which time all funds are due and payable.
The Company has begun discussions with certain financial
institutions to replace the line of credit and, if possible, to
increase the Company's borrowing capacity to $7 or $8 million.
There can be no assurance that a replacement line of credit will
be available on acceptable terms if, at all. In the event that
the Company is unable to replace the line of credit prior to
January 30, 1997, the Company would be required to utilize
available cash balances and borrow additional funds. There can
be no assurance that the Company will be successful in this
regard.
As of September 30, 1996 the Company has recorded cash of
approximately $2.5 million, which relates to restricted cash
accounts securing the potential risk of loss exposure estimated
by the Company's credit card processor. The Company has begun
discussions with certain credit card processors in order to reduce
required restricted cash balances through a letter of credit
arrangement between the Company's credit card processor and one
of the Company's stockholders. The Company intends to use any
proceeds that become available pursuant to a letter of credit
arrangement for working capital purposes. There can be no
assurance such arrangement can be available on acceptable terms,
if at all.
The Company estimates that major scheduled maintenance of
its existing aircraft fleet through September 1997 will cost
approximately $2 million. The Company expects to expend
approximately $1.8 million on various capital expenditures, the
majority of which relate to improvements to existing aircraft.
While the Company does not intend to lease additional aircraft
for the foreseeable future, the Company's capital expenditures
during this period would increase if it leases additional
aircraft to expand its service in existing or new markets.
During the nine months ended September 30, 1996, the
Company's operating activities resulted in a cash flow deficit of
approximately $9.5 million. Accordingly, the Company relies on
cash balances, available credit arrangements and continued sales
of its equity securities to fund operations until profitability
is attained. Management does not expect to achieve profitability
or positive cash flows from operations during the fourth quarter
of 1996, but is continuing to take steps to improve the Company's
operating performance and reduce the negative cash flow from
operations. There can be no assurance that the Company will be
successful in this regard. Effective November 1996 the Company
is eliminating certain unprofitable routes in order to improve
operating performance. The aircraft used to serve these
destinations will be redeployed to routes between cities that
supports the Company's current operating strategy. Additional
financing will be required to continue its operating strategy.
There can be no assurance that additional financing will be
available on acceptable terms, if at all.
FACTORS THAT MAY AFFECT FUTURE RESULTS OF OPERATIONS
Limited Operating History; History of Losses; Future
Operating Results Uncertain; Working Capital Deficit. The
Company has a limited history of operations, beginning flight
operations on December 4, 1994. Since the Company's inception on
April 25, 1994, the Company has incurred significant losses and
as of September 30, 1996 had an accumulated deficit of
approximately $27.1 million and a stockholders' deficit of
approximately $602,000. The Company's limited operating history
makes the prediction of future operating results difficult.
Effective November 1996 the Company is in the process of
eliminating certain unprofitable routes in order to improve
operating performance and introducing new routes that supports
the Company's current operating strategy. The Company's future
operating results will depend on many factors, including general
economic conditions, the cost of jet fuel, the occurrence of
events involving other low-cost carriers, potential changes in
government regulation of airlines or aircraft and actions taken
by other airlines particularly with respect to scheduling and
pricing in the Company's current and new routes. A negative
change in any one or more of these factors could have a material
adverse effect on the Company's business, financial condition and
results of operations. There can be no assurance that the
Company will achieve profitability at any time in the future.
<PAGE>
Impact of Continued Nasdaq Listing on Marketability of
Common Stock. The Common Stock currently is quoted on the Nasdaq
SmallCap Market. The National Association of Securities Dealers,
Inc. ("NASD") has rules that establish criteria for the continued
listing of the Common Stock on the Nasdaq SmallCap Market. Under
these rules, companies must maintain at least $1,000,000 in
capital and surplus for continued inclusion on the Nasdaq
SmallCap Market. In August 1996, the NASD informed the Company
that it must demonstrate capital and surplus of $3,000,000. As
of the date of the report, the Company does not meet Nasdaq
SmallCap listing requirements. There can be no assurance that the
Company will continue to be listed on the Nasdaq SmallCap Market
or that the Nasdaq Stock Market will not take actions in the
future with respect to the listing of the Company's Common Stock.
If the Common Stock does not continue to be listed on the Nasdaq
SmallCap Market, trading in the Common Stock will be conducted on
the OTC Bulletin Board or in the over-the-counter market in what
is commonly referred to as the "pink sheets." Consequently, an
investor will find it more difficult to dispose of such
securities or to obtain accurate quotations as to the price of
such securities.
In addition, if the Common Stock is delisted from trading on the
Nasdaq SmallCap Market and the trading price of the such security
is less than $5.00 per share, trading in such securities would
also be subject to the requirements of Rule 15g-9 promulgated
under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). Under such rule, broker/dealers who recommend
such low-priced securities to persons other than established
customers and accredited investors must satisfy special sales
practice requirements, including a requirement that they make an
individualized written suitability determination for the
purchaser and receive the purchaser's written consent prior to
the transaction. The Securities Enforcement Remedies and Penny
Stock Reform Act of 1990 also requires additional disclosure in
connection with any trades involving a stock defined as a penny
stock (generally, according to recent regulations adopted by the
Securities and Exchange Commission, any equity security not
traded on an exchange or quoted on Nasdaq that has a market price
of less than $5.00 per share, subject to certain exceptions),
including the delivery, prior to any penny stock transaction, of
a disclosure schedule explaining the penny stock market and the
risks associated therewith. Such requirements could severely
limit the market liquidity of the Common Stock and the ability of
purchasers in the offering to sell their securities in the
secondary market. There can be no assurance that the Common
Stock will not be delisted or treated as a penny stock.
Seasonality and Cyclicality. The Company's operations are
dependent upon passenger travel demand. Airlines typically
experience reduced demand at various times during the fall and
winter and increased demand for service during the spring and
summer. Within these periods, an airline may experience
variations in passenger demand based on its particular routes and
passenger demographics. Due to the Company's limited operating
history, the Company is unable to predict, and to what extent,
seasonal variations in its operations will differ from those of
the airline industry generally. If the Company's demand patterns
are similar to those of the airlines industry generally, the
Company would experience reduced demand during the fall and
winter with adverse effects on revenues, operation results and
cash flow. In addition, passenger travel in the airline
industry, particularly leisure travel, is highly sensitive to
adverse changes in general economic conditions. A worsening of
current economic conditions, or an extended period of recession
nationally or in the regions services by the Company, could have
a material adverse effect of the Company's business, financial
condition or results of operations.
Adverse Industry Conditions. The airline industry is
characterized generally by high fixed costs relative to revenues,
and low profit margins. As a result, profit levels are highly
sensitive to changes in fuel costs (which comprise a substantial
portion of operating expenses), fare levels and passenger demand.
Fare levels and passenger demand in the airline industry have
been, at times, adversely affected by, among other things, the
general state of the economy, the economic conditions in markets
in which an airline operates and actions taken by other carriers
with respect to fare levels. The enactment of the Airline
Deregulation Act of 1978 (the "Deregulation Act") substantially
eliminated government authority to regulate domestic routes and
fares. Since the enactment of the Deregulation Act, the airline
industry has been subject to intense competition, both from
traditional carriers and new low-cost carriers, which generally
has reduced fare levels and earnings. These factors, combined
with the general economic conditions, resulted in unprecedented
losses in the airline industry in the late 1980s and early 1990s,
and, as a consequence, many restructurings, bankruptcies and
liquidations in the industry. In recent years, Continental
Airlines, America West Airlines, and Trans World Airlines, among
others, have filed for bankruptcy and Eastern Airlines, Pan
American <PAGE> World Airways, Mark Air and Braniff Airlines, among
others, have either ceased operations or were liquidated. There
can be no assurance that these industry conditions, including
intense price competition, will not adversely affect the
Company's business, financial condition and results of
operations.
Competition and Competitive Reaction. Under the
Deregulation Act, domestic certificated airlines are free to
enter and exit domestic markets and to set fares without
regulatory approval, and all city-pair domestic airline markets
are generally open to any domestic certificated airline. As a
consequence, the airline industry is intensely competitive.
Airlines compete primarily with respect to fares, scheduling
(frequency and flight times), destinations, frequent flyer
programs and type (jet or propeller ) and size of aircraft. The
Company competes with numerous other airlines on its routes and
expects to compete with other airlines on any future routes.
Many of these airlines are larger and have greater name
recognition and greater financial resources than the Company. In
response to the Company's commencement of service to a particular
market, competing airlines have, at times, added flights and
capacity in the market and lowered their fares, making it more
difficult for the Company to achieve or maintain profitable
operations in such markets. In the future, other airlines may
set their prices at or below the Company's fares or introduce new
non-stop service between cities served by the Company in attempts
to prevent the Company from achieving or maintaining profitable
operations. The Company may also face competition from existing
airlines that may begin serving markets the Company serves, from
new low-cost airlines that may be formed to compete in the low-fare
market (including any airlines that may be formed by traditional
airlines) and from ground transportation alternatives. Any airline
operating under bankruptcy protection could have a competitive
advantage over the Company and there can be no assurance that
this advantage will not adversely affect the Company's business,
financial condition and results of operations.
Fuel. The cost of jet fuel is one of the largest operating
expenses for an airline and particularly for the Company due to
the relative fuel inefficiency of its aircraft. Jet fuel costs
are subject to wide fluctuations as a result of sudden
disruptions in supply. The Company cannot predict the effect of
events on the future availability and cost of jet fuel. The
Boeing 737-200 jet aircraft are relatively fuel inefficient
compared to newer aircraft (such as its Boeing 737-300 jet
aircraft). Accordingly, a significant increase in the price of
jet fuel would result in a disproportionately higher increase in
the Company's fuel expenses as compared with many of its
competitors who have, on average, newer and thus more fuel
efficient aircraft. The Company has not entered into any
agreements which fix the price of jet fuel over any period of
time because such agreements generally are not available.
Therefore, an increase in the cost of jet fuel will be
immediately passed through to the Company by suppliers and the
Company will experience reduced margins if it is unable to
increase fares to compensate for such higher fuel costs. Even if
it is able to raise fares, the Company will experience reduced
margins on sales prior to such fare increases. In addition to
increases in fuel prices, a shortage of supply would also have a
material adverse effect on the Company's business, financial
condition and results of operations. Effective October 1, 1993,
Congress enacted a law imposing a 4.3 cents per gallon fuel tax, and
at the same time exempted commercial airlines from this tax until
September 30, 1995. Since October 1, 1995, all commercial
airlines, including the Company, have been required to pay a tax
of 4.3 cents per gallon of fuel purchased. Congress currently is
considering proposed legislation to reinstate the airline fuel
tax exemption through December 31, 1996, but there can be no
assurances that the fuel tax exemption will be reinstated.
Government Regulation. The Company is subject to 49 U.S.C.,
Subtitle VII (formerly the Federal Aviation Act of 1958, as
amended) (the "Aviation Act"), under which the United States
Department of Transportation (the "DOT") and the FAA exercise
regulatory authority over airlines. This regulatory authority
includes, but is not limited to: (I) the initial determination
and continuing review of the fitness of air carriers (including
financial, managerial, compliance-disposition and citizenship
fitness); (ii) the certification and regulation of aircraft and
other flight equipment; (iii) the certification and approval of
personnel who engage in flight, maintenance and operations
activities; and (iv) the establishment and enforcement of safety
standards and requirements with respect to the operation and
maintenance of aircraft, all as set forth in the Aviation Act and
the Federal Aviation Regulations. The FAA has promulgated a
number of maintenance regulations and directives relating to,
among other things, retirement of aging aircraft, increased
inspections and maintenance procedures to be conducted on aging
aircraft, collision avoidance systems, aircraft corrosion,
airborne windshear avoidance systems and noise abatement. As a
result of recent incidents involving airlines, the FAA has
increased its review of commercial airlines generally and
particularly with respect to small and start-up airlines, such as
the Company. In recent months, after extensive FAA
investigations, ValuJet <PAGE> suspended operations and Kiwi Airlines
substantially reduced operations, and Mesa Airlines and Western
Pacific Airlines have been subject to extensive investigations by
the FAA. The Company's operations recently have been subject to
increased review by the FAA. There can be no assurance that
safety issues will not arise or that the Company will not be
required to pay fines in an amount which could have a material
adverse effect on the Company's business, financial condition
and results of operations. Additional rules and regulations have
been proposed from time to time and might be enacted which could
significantly increase the cost of airline operations by imposing
substantial additional requirements or restrictions on airline
operations. For example, the National Transportation Safety
Board has proposed new regulations to require carriers to upgrade
would be approximately $90,000 for each of the Company's nine
737-200 jet aircraft. There can be no assurances that any of
these rules or regulations would not have material adverse effect
on the Company's business, financial condition and results of
operations.
In accordance with the Deregulation Act, domestic certificated
airlines are permitted to enter and exit domestic markets and to
set fares without regulatory approval, and all city-pair domestic
airline markets are generally open to any domestic certificated
airline. The DOT maintains and exercises authority over
consumer protection issues, computer reservations system issues
and unfair trade practices. The DOT also maintains regulatory
authority over international routes, subject to review by the
President of the United States.
The DOT and FAA also enforce federal law with respect to aircraft
noise compliance requirements. The Company's current fleet
exceeds the current Stage-3 noise compliance requirements (25% of
its fleet Stage-3 compliance), with two of its Boeing 737-200 jet
aircraft being equipped with hush kits and its two Boeing 737-300
jet aircraft satisfying the Stage-3 requirements. In the future,
the Company's aircraft fleet is required to meet the following
federal Stage-3 noise compliance deadlines: 50% of its fleet
must be Stage-3 compliant by January 1, 1997; 75% of its fleet
must be Stage-3 compliant by January 1, 1999; and 100% of its
fleet must be Stage-3 compliant by January 1, 2000.
The Company has obtained the necessary authority to perform
airline operations, including a Certificate of Public Convenience
and Necessity issued by the DOT pursuant to 49 U.S.C. Section 41102
and an air carrier operating certificate issued by the FAA under
Part 121 of the Federal Aviation Regulations. The continuation
of such authority is subject to continued compliance with
applicable rules, regulations and laws pertaining to or affecting
the airline industry, including any rules and regulations that
may be adopted by the DOT and FAA in the future. No assurance
can be given that the Company will be able to continue to comply
with all present or future rules, regulations and laws or that
such rules, regulations and laws would not materially and
adversely affect the Company's business, financial condition and
results of operations.
PART II. - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is not involved in any material litigation or
legal proceedings at this time and is not aware of any material
litigation or legal proceedings threatened against it.
ITEM 2. CHANGES IN SECURITIES
a. None.
b. None.
c. Furnish the information required by Item 701 of
Regulation S-K as to all equity securities of the
registrant sold by the registrant during the
period covered by the report that were not
registered under the Securities Act other than
unregistered sales made in reliance on Regulation
S.
In August and September 1996, the Company
completed a private sale of units of securities,
each unit consisting of one share of the Company's
common stock, $.001 par value, and a redeemable
common stock <PAGE> purchase warrant (the "units"). In
connection with the sale of units of securities,
the Company issued 1,319,774 shares of common
stock for aggregate proceeds of approximately 7.1
million, net of offering costs of approximately
$154,000. Each redeemable common stock purchase
warrant entitles the registered holder to purchase
one share of common stock, at any time over a five
year period, at an exercise price of $6.64. The
units were sold to a limited number of "accredited
investors," as defined in the Securities Act of
1933, pursuant to an exemption from registration
provided by Regulation D promulgated under the
Securities Act.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 10.38-- Revolving Promissory Note, dated
as of August 7, 1996, between the Company and Bank
IV, N.A.
Exhibit 10.39-- Guaranty Agreement, dated as of
July 30, 1996, among Bank IV, N.A., Hambrecht &
Quist Group, Kenneth J. Wagnon, Daniel M. Carney
and Starwood Investments, L.P.
Exhibit 10.40-- Amendment to Guaranty Agreement,
dated as of August 7, 1996, among Hambrecht &
Quist Group, Kenneth J. Wagnon, Daniel M. Carney
and Starwood Investments, L.P.
Exhibit 10.41-- Form of Warrant Purchase Agreement
among the Company and certain of its stockholders
Exhibit 10.42-- Form of Warrant for the purchase
of shares of Common Stock
Exhibit 10.43-- Form of Warrant Agreement among
the Company and certain of its stockholders
Exhibit 10.44-- Form of Warrant for the purchase
of shares of Common Stock
Exhibit 10.45-- Form of Registration Rights
Agreement
Exhibit 11- Statement of Computation of Earnings
per Share for the Nine-month Periods Ended
September 30, 1995 and 1996
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K.
On August 5, 1996, the Company filed a report on
Form 8-K under Item 5 - Other Events regarding (i)
a press release issued by the Company on August 5,
1996, announcing the appointment of William A.
Garrett <PAGE> as Vice President - Finance and Chief
Financial Officer and Brian S. Gillman as Vice
President and General Counsel of the Company. The
Company also announced its termination of the
employment relationship with Fred L deLeeuw, Vice
President - Finance and Chief Financial Officer.
In addition, the Company announced second- quarter
earnings and its revision to its previously
reported financial results for the first quarter
of 1996, and (ii) a press release issued by the
Company on August 5, 1996, announcing its
intention to seek additional time for meeting
Nasdaq's continue listing requirements.
On August 5, 1996, the Company filed a report on
Form 8-K under Item 5 - Other Events regarding a
press release issued by the Company announcing its
intention to make an public offering of
convertible preferred stock.
On August 30, 1996, the Company filed a report on
Form 8-K under Item 5 - Other Events regarding a
press release issued by the Company on August 29,
1996, announcing that the Nasdaq SmallCap Market
has granted the Company conditional listing on the
Nasdaq SmallCap Market and an extension of time
until September 11, 1996 to satisfy net worth
requirements for continued listing on the Nasdaq
SmallCap Market and that effective August 30, 1996
the symbol for the Company's securities will be
changed from VNGD to VNGDC. The Company also
announced the completion of a $5.2 million private
placement of units of securities, each unit
consisting of the Company's common stock, par
value $.001, and a redeemable common stock
purchase warrant and that the Company estimates
that it has raised 70% of the equity financing
required to satisfy the Nasdaq net worth
requirement.
On September 10, 1996, the Company filed a report
on Form 8-K under Item 5 - Other Events regarding
a press release issued by the Company on September
10, 1996 announcing the completion of its private
placement of units of securities, each unit
consisting of the Company's common stock, par
value $.001, and a redeemable common stock
purchase warrant and that the Company has
satisfied the requirements outlined by the Nasdaq
Stock Market and that it believes Nasdaq will
grant the Company continued listing on the Nasdaq
SmallCap Market.
On November 1, 1996, the Company filed a report on
Form 8-K under Item 5- Other Events regarding a
press release issued by the Company on November 1,
1996 announcing that Robert J. McAdoo, Chief
Executive Officer and President of the Company and
Chairman of the Board resigned effective November
1, 1996. Mr. McAdoo will continue as a director
of the Company. The Board of Directors has named
John P. Tague as Chief Executive Officer and
President and Chairman of the Board of Directors.
Mr. Tague currently is Chief Executive Officer and
President and Chairman of the Board of Air South
Airlines, Inc. Mr. Tague will continue in his
positions as Chief Executive Officer and President
and Chairman of the Board of Directors of Air
South.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of
the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Signature and Title Date
/s/John P. Tague November 14, 1996
John P. Tague, President and
and Chief Executive Officer
/s/ William A Garrett November 14, 1996
William A. Garrett, Vice
President-Finance and Chief
Financial Officer (Principal
Financial and Accounting Officer)
REPLACEMENT NOTE REVOLVING PROMISSORY NOTE
FOR BANK USE ONLY
Loan Type: 50 FDIC Code: 220 SIC: 3721 Class:
60 Officer: A48 Tied To: Customer # Line #
Name: VANGUARD AIRLINES, INC. Tax ID: 48-1149290
Address: 30 NORTH WEST ROME CIRCLE, TERMINAL B, GATE 30, MEZZANINE KCI AIRPORT
Maturity Date: January 30, 1997 City: KANSAS CITY State: MO
Zip: 64153 Customer No. 0121595 Note No.: 03651
Initial Interest Rate: 8.250% Variable
REVOLVING PROMISSORY NOTE
$5,000,000.00 August 7, 1996
FOR VALUE RECEIVED, the undersigned ("Borrower") unconditionally (and jointly
and severally, if more than one) promise(s) to pay to the order of BANK IV,
National Association ("Bank"), at its principal offices in Wichita
Kansas, the principal sum of Five Million And 00/100
DOLLARS ($5,000,000.00 ), or such lesser principal sum as may have been
advanced hereunder, in lawful money of the United States of America, together
with interest from the date hereof on the unpaid principal balance hereunder,
computed daily, at the RATE per annum indicated below and in accordance with
the PAYMENT SCHEDULE indicated below:
The RATE shall be:
[ ] Base Rate %; [ ] A fixed rate of %;
[X] (Other) Prime Rate as published in the Wall Street Journal Plus 0%
Rate shall be adjusted as it changes.
After default, the RATE shall be FIXED AT 18.00 % per annum.
A RATE based on the Base Rate of the Bank will change [ ] if this box is
checked, each time and as of the date that the Base Rate of the Bank changes,
without prior notice to Borrower or [ ] if this box is checked, as follows:
______________________________________________________________________________
The ________________ Base Rate means the fluctuating rate of interest
established by the Bank from time to time and quoted or described by the Bank
as such rate of interest, whether or not such rate shall be otherwise
published. Interest shall be calculated on the basis of a 360-day year for
the actual number of days elapsed.
PAYMENT SCHEDULE
The principal amount of and interest upon this note shall be due and payable
as follows:
A. The entire principal amount advanced hereunder shall be due and payable
[ ] on DEMAND, but in no event later than on ___________, ________, or
[X] on January 30,1997, (the "Maturity Date");
B. Interest shall be paid:
[X] monthly or [ ] quarterly or [ ] semi-annually commencing on
August 30, 1996, and continuing on the same day of each successive month
thereafter with a final payment of all unpaid interest at the Maturity
Date; or
[ ] at the Maturity Date; or
[ ] (Other) ____________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
From the date hereof until the Maturity Date, Borrower may borrow, repay
without penalty or premium, and reborrow hereunder an aggregate principal
amount at any one time outstanding up to but not to exceed the principal
amount set forth above, provided, however, that each such borrowing,
repayment, and reborrowing shall be in the sum of $___________________ or any
higher integral multiple thereof. If any payment is not paid within 10 days
after the date when due, Borrower shall pay to Bank a late charge, for the
purpose of defraying Bank's expense in handling such late payment, in an
amount equal to the lesser of $50.00 or 1/2 of 1% of the principal amount
outstanding hereunder.
Collateral
Borrower hereby grants to the Bank a security interest in all deposit accounts
of Borrower now or hereafter at the Bank.
[X] In addition, if this box is checked, this Note is secured by and is
entitled to the benefits of the following collateral documents and any
other collateral documents now or hereafter held by the Bank:
[ ] Security Agreement(s) dated any date, including, without limitation:___.
[ ] Pledge Agreement(s) dated any date, including, without limitation: ____.
[ ] Real Estate Mortgage(s) dated any date, including, without limitation:
_______________________________________________________________________.
[ ] Deposit Account Assignment(s) dated any date, including, without
limitation: ___________________________________________________________.
[ ] Oil and Gas Mortgage and Security Agreement(s) dated any date,
including, without limitation: ________________________________________.
[X] Other (describe) : Limited Guaranties (4) dated 7/30/96 and Amendment
dated 8/7/96.
THE ADDITIONAL TERMS AND CONDITIONS SET FORTH ON THE REVERSE SIDE OF THIS NOTE
ARE A PART OF THIS NOTE.
______________________________________________________________________________
Borrower's Initials:
<PAGE>
ADDITIONAL TERMS AND CONDITIONS
1. Borrower and any co-maker and endorser hereof and any other party hereto
and any guarantor hereof (collectively "Obligors") and each of them:
(i) waive(s) presentment, demand, notice of demand, protest, notice of
protest and notice of nonpayment and any other notice required to be
given under the law to any of Obligors, in connection with the delivery,
acceptance, performance, default or enforcement of this Note, or any
endorsement or guaranty of this Note or of any document or instrument
evidencing any security for payment of this Note; and (ii) consent(s) to
any and all delays, extensions, renewals or other modifications of the
Note or waivers of any term hereof or release or discharge by Bank of
any of Obligors or release, substitution or exchange of any security for
the payment hereof or the failure to act on the part of Bank or any
indulgence shown by Bank, from time to time and in one or more instances
(without notice to or further assent from any of Obligors) and agree(s)
that no such action, failure to act, or failure to exercise any right or
remedy on the part of the Bank shall in any way effect or impair the
obligation of any Obligor or be construed as a waiver by Bank of, or
otherwise affect, any of Bank's rights under this Note, under any
endorsement or guaranty of this Note, or under any document or
instrument evidencing any security for the payment of this Note.
2. Upon the occurrence of any of the following events of default, this Note
and any other obligation or liability of Borrower to the Bank shall, at
the option of the Bank, become immediately due and payable: (1) default
in the performance of any liability or obligation of Borrower or of any
co-maker, endorser, guarantor or surety of any liability of Borrower to
the Bank, including default in the payment of any part of the principal
of or interest upon this Note as the same becomes due; (2) failure of
Borrower promptly to furnish additional security when requested by the
Bank to do so; (3) depreciation in value of the collateral or any
additional thereto or substitutions therefor, or any part thereof, to
the extent that this Note is not regarded by the Bank as properly
secured; (4) determination by an officer of the Bank that the collateral
has become unsatisfactory to the Bank; (6) determination by an officer
of the Bank that a material adverse change has occurred in the financial
condition of Borrower or of any co-maker, endorser, guarantor or surety
thereof; (6) death, dissolution, termination of existence, insolvency,
business failure, or appointment of, or application for the appointment
of, a receiver of any part of the property of, service of any order of
attachment, garnishment, or the existence or making or issuance of any
tax lien or similar process on or with respect to any property of,
assignment for the benefit of creditors by, or the commencement of any
proceedings under any bankruptcy or insolvency laws by or against,
Borrower or any co-maker, endorser, guarantor or surety hereof; (7) any
other event which causes the Bank, in good faith, to deem itself
insecure.
3. If any one or more of the provisions of this Note shall for any reason
be held to be invalid, illegal or unenforceable, in whole or in part or
in any respect, or if any one or more of the provisions of this Note
operate or would prospectively operate to invalidate this Note, then and
in either of those events, such provision or provisions only shall be
deemed null and void and shall not affect any other provision of this
Note and the remaining provisions shall in no way be affected,
prejudiced or disturbed hereby.
4. The Bank shall, to the extent allowable by law, be entitled to recover
reasonable attorneys' fees incurred in the collection of this Note.
5. No provision of this Note shall require the payment or permit the
collecting of interest in excess of the maximum rate permitted by
applicable law; and, if any sum is collected in excess of the applicable
maximum rate it shall be construed as a mutual mistake of Borrower and
Bank and such excess sum shall be credited to principal or, if this Note
has been repaid in full, refunded to Borrower.
6. This Note is delivered in and shall be construed under the laws of the
State of Kansas.
7. From time to time upon Bank's request, Borrower will furnish the Bank
copies of the balance sheet of Borrower as of the end of each fiscal or
calendar year or other applicable period and the statement of income and
retained earnings of Borrower for such year or period, and such further
information regarding the business, contingent liabilities, affairs, and
financial condition of Borrower as the Bank may reasonably request.
OTHER TERMS, IF ANY:
8.
"Borrower" "Borrower"
VANGUARD AIRLINES, INC.
By: ___________________________________ By:_________________________
William A. Garrett
Vice President of Finance
"Borrower" "Borrower"
By: ___________________________________ By:_________________________
GUARANTY AGREEMENT
FOR VALUE RECEIVED, and intending to be legally bound,
each of HAMBRECHT & QUIST GROUP, a California corporation
("H&Q"), KENNETH J. WAGNON, an individual ("Wagnon"), DANIEL M.
CARNEY, an individual ("Carney"), and STARWOOD INVESTMENTS, L.P.,
a Kansas limited partnership ("Starwood")(each, a "Guarantor" and
collectively, the "Guarantors"), do hereby absolutely, uncondi-
tionally, and irrevocably guarantee to BANK IV, N.A., a national
banking association, and its successors and assigns ("Lender"),
the due and punctual payment and performance of the Obligations
(as hereinafter defined), as and when such payment or performance
shall respectively become due, payable and/or performable in
accordance with the terms of the Obligations, whether at maturity
or by declaration, acceleration, or otherwise.
As used herein, the following terms shall have the
indicated meanings:
"Borrower" shall mean VANGUARD AIRLINES, INC., a
Delaware corporation.
"Borrower Collection Costs" shall mean all costs, fees
and expenses incurred by or on behalf of Lender to enforce any of
Lender's rights or remedies against Borrower or any of its
properties arising out of or relating in any respect to the Loan
Documents or to otherwise collect any Obligations of Borrower,
including, without limitation, reasonable attorneys' fees and
expenses, irrespective of whether litigation is commenced in
pursuance of any of the foregoing, and all costs, fees and
expenses incurred by or on behalf of Lender in respect of any
bankruptcy or other insolvency proceeding relating to Borrower or
any of its properties.
"Guaranty Amount" shall mean:
(i) with respect to H&Q, the sum of (a) H&Q's
Principal Amount, (b) accrued but unpaid interest under the
Note in respect of H&Q's Principal Amount, (c) H&Q's Pro
Rata Share of Borrower Collection Costs incurred by or on
behalf of Lender (excluding, however, any Borrower
Collection Costs arising after the date H&Q has satisfied
its then-existing obligations under this Guaranty
Agreement), and (d) Guarantor Collection Costs incurred by
or on behalf of Lender in respect of H&Q;
(ii) with respect to Wagnon, the sum of (a) Wagnon's
Principal Amount, (b) accrued but unpaid interest under the
Note in respect of Wagnon's Principal Amount, (c) Wagnon's
Pro Rata Share of Borrower Collection Costs incurred by or
on behalf of Lender (excluding, however, any Borrower
Collection Costs arising after the date Wagnon has satisfied
his then-existing obligations under this Guaranty
Agreement), and (d) Guarantor Collection Costs incurred by
or on behalf of Lender in respect of Wagnon;
(iii) with respect to Carney, the sum of (a)
Carney's Principal Amount, (b) accrued but unpaid interest
under the Note in respect of Carney's Principal Amount, (c)
Carney's Pro Rata Share of Borrower Collection Costs
incurred by or on behalf of Lender (excluding, however, any
Borrower Collection Costs arising after the date Carney has
satisfied his then-existing obligations under this Guaranty
Agreement), and (d) Guarantor Collection Costs incurred by
or on behalf of Lender in respect of Carney;
(iv) with respect to Starwood, the sum of (a)
Starwood's Principal Amount, (b) accrued but unpaid interest
under the Note in respect of Starwood's Principal Amount,
(c) Starwood's Pro Rata Share of Borrower Collection Costs
incurred by or on behalf of Lender (excluding, however, any
Borrower Collection Costs arising after the date Starwood
has satisfied its then-existing obligations under this
Guaranty Agreement), and (d) Guarantor Collection Costs
incurred by or on behalf of Lender in respect of Starwood;
<PAGE>
"Guarantor Collection Costs" shall mean all costs, fees
and expenses incurred by or on behalf of Lender to enforce any of
Lender's rights or remedies against any Guarantor or any of its
properties arising out of or relating in any respect to this
Guaranty Agreement or to otherwise collect any amounts due to
Lender from any Guarantor arising out of this Guaranty Agreement,
including, without limitation, reasonable attorneys' fees and
expenses, irrespective of whether litigation is commenced in
pursuance of any of the foregoing, and all costs, fees and
expenses incurred by or on behalf of Lender in respect of any
bankruptcy or other insolvency proceeding relating to any
Guarantor or any of its properties.
"Loan Amount" shall mean $4,000,000.00.
"Loan Document" or "Loan Documents" shall mean any or
all, respectively, of the Note and all other documents executed
in connection with or evidencing or securing the indebtedness
evidenced by the Note, as any of the same may be amended,
modified, supplemented or replaced from time to time.
"Note" shall mean that certain Revolving Promissory
Note in the original principal amount of $4,000,000.00, dated on
or about the date hereof, made by Borrower and payable to the
order of Lender, as the same may be amended, modified,
supplemented, replaced, rearranged, renewed or extended from time
to time.
"Obligations" shall mean and include (i) all
indebtedness of Borrower to Lender heretofore or hereafter
created under the Note and the Loan Documents, together with any
and all indebtedness created or incurred under any extension,
renewal, refinancing, or refunding of such indebtedness in whole
or in part, whether on account of principal, interest, or
otherwise, (ii) payment, performance, and discharge of all
obligations, covenants, agreements, terms, and conditions of
Borrower under the Loan Documents, (iii) all taxes incurred by
Lender in connection with the Loan Documents and/or Borrower,
including, specifically but not by way of limitation, any
federal, state or local payroll taxes in respect of Borrower
incurred by Lender, but excluding in any event any taxes based
upon the income or revenues of Lender, (iv) all Borrower
Collection Costs, (v) all future advances made by Lender for the
maintenance, preservation, protection, or enforcement of, or
realization upon, the property, or any portion thereof, subjected
and intended to be subjected to the lien and security interest
created by any of the Loan Documents, including, without
limitation, advances for storage, transportation charges, taxes,
insurance, repairs, and the like, and (vi) any extensions,
modifications, or renewals of (i) through (v) above.
NOTWITHSTANDING THE FOREGOING, THE LIABILITY OF EACH GUARANTOR
UNDER THIS GUARANTY AGREEMENT SHALL NOT EXTEND TO RENEWALS OR
EXTENSIONS OF THE NOTE BEYOND THE ORIGINAL MATURITY DATE OF THE
NOTE UNLESS CONSENTED TO IN WRITING BY SUCH GUARANTOR. FURTHER,
NOTWITHSTANDING THE FOREGOING, THE LIABILITY OF EACH GUARANTOR AT
ANY TIME AND FROM TIME TO TIME UNDER THIS GUARANTY AGREEMENT
SHALL BE LIMITED TO SUCH GUARANTOR'S PRO RATA SHARE OF THE
OBLIGATIONS PLUS ANY GUARANTOR COLLECTION COSTS INCURRED BY
LENDER IN RESPECT OF SUCH GUARANTOR (BUT IN NO EVENT SHALL EXCEED
SUCH GUARANTOR'S GUARANTY AMOUNT). EXCEPT AS EXPRESSLY PROVIDED
ABOVE, THE LIABILITY OF THE GUARANTORS SHALL NOT BE DISCHARGED,
REDUCED OR OTHERWISE IMPAIRED BY (A) ANY REDUCTION OF THE
PRINCIPAL BALANCES OF THE NOTE, WHETHER BY REGULARLY SCHEDULED
PAYMENTS OR OTHERWISE, (B) ANY APPLICATION OF ANY SECURITY HELD
BY LENDER TO THE PRINCIPAL BALANCES OF THE NOTE, (C) ANY FAILURE
OF LENDER TO ADVANCE THE ENTIRE PRINCIPAL AMOUNT OF THE NOTE, OR
(D) ANY OTHER ACTION, OMISSION, FORBEARANCE OR INDULGENCE BY
LENDER IN CONNECTION WITH THE NOTE, ANY OF THE OTHER LOAN
DOCUMENTS, OR THE TRANSACTIONS CONTEMPLATED THEREBY. EXCEPT AS
EXPRESSLY PROVIDED ABOVE, NO OBLIGATIONS SHALL BE IN ANY WAY
DISCHARGED, REDUCED, IMPAIRED OR OTHERWISE AFFECTED BY THE
FOREGOING PROVISIONS.
"Principal Amount" shall mean (i) as to H&Q,
$2,700,000, (ii) as to Wagnon, $600,000, (iii) as to Carney,
$400,000, and (iv) as to Starwood, $300,000.
<PAGE>
"Pro Rata Share" shall mean, as to each Guarantor, the
proportion (expressed as a percentage) that such Guarantor's
Principal Amount bears to the Loan Amount.
This is a continuing Guaranty Agreement related to the
Obligations, including without limitation, those arising under
successive transactions which either continue the Obligations or
from time to time renew them. Except as expressly provided
above, the liability of each Guarantor hereunder shall be
unlimited.
The respective obligations of Guarantors hereunder are
irrevocable, continuing, absolute, and unconditional,
irrespective of the value, genuineness, validity, regularity, or
enforceability of the Note or any of the Obligations, or any of
the Loan Documents or any other guaranty of, or security for, any
thereof or any other instruments or documents contemplated
thereby or executed and delivered in connection therewith, and
irrespective of any other circumstance whatsoever which might
otherwise constitute a legal or equitable discharge or defense of
a guarantor or surety. Without limiting the generality of the
foregoing, the obligations of Guarantors hereunder shall remain
in full force and effect without regard to, and shall not be
impaired, released, discharged, or in any way affected by:
(1) any amendment or modification of or supplement to
the Note or any other instrument or agreement made at any
time in respect of the indebtedness evidenced by the Note or
any other Loan Document; or
(2) any change in the identity, structure or
capitalization of Borrower, any Guarantor or any other
person or entity; or
(3) any exercise or non-exercise of or delay in
exercising any right, remedy, power, or privilege under or
in respect of this Guaranty Agreement, the Note or any other
Loan Document (even if any such right, remedy, power, or
privilege shall be lost thereby), or any waiver, consent,
indulgence, or other action or inaction in respect thereof;
or
(4) any bankruptcy, insolvency, reorganization,
arrangement, composition, assignment for the benefit of
creditors, or similar proceeding commenced by or against
Borrower, any Guarantor or any other person or entity; or
(5) any impairment of any collateral (whether real or
personal) securing the Obligations, including but not
limited to any failure to perfect or continue perfection of,
or any release or waiver of, any right given to Lender in
any property serving as security for the performance of any
of Borrower's obligations under the Note or any other Loan
Document, and also including any surrender, release, ex-
change, substitution, dealing with, or alteration of any
collateral or other property directly or indirectly securing
the Note; or
(6) any forbearance, renewal, or extension of time for
payment or performance of any of the Obligations; or
(7) the failure of Lender to give notice of default on
the part of Borrower, any Guarantor or any other person or
entity (whether or not such notice is required to be given
under any Loan Document or by law); or
(8) the death, incompetency or divorce of any
individual Guarantor; or
<PAGE>
(9) abstaining from taking advantage of or realizing
upon any lien or other security interest, or other guaranty;
or
(10) the genuineness, validity, or enforceability of
the Note or any other Loan Document; or
(11) the forged signature of any Guarantor to this
Guaranty Agreement or the failure of any Guarantor to
execute this Guaranty Agreement; or
(12) changing the place of payment set forth in the
Note; or
(13) the addition of new parties who have liability to
pay and/or perform all or any part of the Obligations; or
(14) any limitation of liability of Borrower, any
Guarantor or any other person or entity contained in any
Loan Document except in this Guaranty Agreement; or
(15) any defense that may arise by reason of the
failure of Lender to file or enforce a claim against the
estate of Borrower, any Guarantor or any other person or
entity in any bankruptcy, probate or other proceeding; or
(16) any voluntary or involuntary liquidation,
dissolution, termination or winding-up of, or sale or other
transfer of all or substantially all of the assets of
Borrower, any Guarantor or any other person or entity, or
any marshalling of assets and liabilities, or other similar
proceeding affecting Borrower, any Guarantor or any other
person or entity or any of their respective assets,
properties or revenues; or
(17) the release of Borrower, any Guarantor or any
other person or entity (other than the voluntary release by
Lender of Borrower or any Guarantor) from the payment, per-
formance or observance of any of the agreements, covenants,
terms, or conditions contained in any of the Loan Documents
by operation of law or otherwise; or
(18) the foreclosure of any security interest securing
the Note, notwithstanding any provisions of law or of the
Loan Documents that may prevent Lender from seeking or
enforcing any deficiency remaining after a foreclosure of
such security interest; or
(19) the endorsement, assignment, or transfer of any of
the Loan Documents by Lender to any other party; or
(20) any legal or equitable defenses which Borrower,
any Guarantor or any other person or entity may assert with
respect to any of the Obligations or any obligations of any
other Guarantor under this Guaranty Agreement, including
without limitation, failure of consideration, breach of
warranty, payment, statute of frauds, statute of
limitations, accord and satisfaction, laches and usury.
No set-off, claim, counterclaim, reduction, or
diminution of any Obligation, or any defense of any kind or
nature which Borrower or any Guarantor now has or hereafter may
have against Lender shall be available hereunder to any Guarantor
against Lender. The Obligations of Guarantors hereunder shall be
automatically reinstated if for any reason any payment by or on
behalf of Borrower is rescinded or must otherwise be restored,
whether as a result of any proceedings in bankruptcy,
reorganization, or otherwise, notwithstanding <PAGE> any termination of
this Guaranty Agreement or the cancellation of the Note, any
other Loan Document or other agreement evidencing the Obliga-
tions.
Neither Lender nor any of its officers, directors,
employees or agents shall be liable for failure to use diligence
in collecting any Obligation or any obligation hereunder, or in
realizing upon any collateral securing the Obligations, in
creating or preserving the liability of any person or entity with
respect to any of the Obligations or any obligations hereunder,
or in creating or perfecting any lien on, or preserving, any
collateral securing the Obligations. Each Guarantor also
expressly and irrevocably waives (a) presentment for payment of,
notice of dishonor or nonpayment of, demand for, protest or
notice of protest with respect to, notice of any default with
respect to, or notice of acceleration of or intention to
accelerate, any of the Obligations, (b) all other notices or
formalities of any kind or nature whatsoever, including without
limitation, any notice of advances made to Borrower from time to
time under the Note or any of the other Loan Documents, any
notice of acceptance hereof or reliance hereon by Lender or any
owner or holder of any of the Obligations, any notice of any
other act or omission on the part of Lender, Borrower, any other
Guarantor or any other person or entity, (c) any notice of, or
defense based upon, any errors and omissions in connection with
Lender's administration of the loans evidenced by the Note or any
of the other Loan Documents, (d) any notice of, or defense based
upon, any and all other acts or omissions of Lender which change
the scope of such Guarantor's risk, (e) any requirement that any
right, power or remedy be exhausted, or asserted against,
Borrower, any Guarantor, any other person or entity, or any
collateral securing the Obligations, (f) any right to require the
marshalling of assets of Borrower, any other Guarantor, or any
other person or entity, (g) any defense based upon any election
of remedies by Lender, including without limitation, any defense
based upon any foreclosure on any collateral securing the
Obligations by nonjudicial means, and, until such time as the
Obligations are indefeasibly paid in full, (h) all rights of
subrogation, reimbursement, and indemnity whatsoever arising from
or in respect to any payment made by any Guarantor hereunder, and
(i) all rights of recourse to or to participate in any collateral
securing the Obligations. Furthermore, except as expressly set
forth herein, no set-off, claim, counterclaim, reduction, or
diminution of any Obligation, or any defense of any kind or
nature whatsoever which any Guarantor now has or hereafter may
have against Borrower, any other Guarantor, any other person or
entity, or Lender shall be available hereunder to such Guarantor
against Lender.
In addition to all liens upon and rights of set-off
against moneys, securities, or other property of Guarantors, or
any of them, given to Lender at law or in equity, Lender shall
have a lien upon, security interest in, and right of set-off
against, all moneys, securities, and other property of Guarantors
or of any of them now or hereafter in the possession of or on de-
posit with Lender, whether held in a general or special account
for deposit, or for safe-keeping, or otherwise. Every such lien
and right of set-off may be exercised after the occurrence of a
default by any Guarantor under this Guaranty Agreement without
notice to Guarantors.
Each and every right, remedy, and power hereby granted
to Lender or allowed it by law or other agreement shall be
cumulative and not exclusive of any other, and may be exercised
by Lender at any time and from time to time.
If one or more of the following shall occur and be con-
tinuing or shall exist:
(a) A proceeding shall have been instituted in a
court having jurisdiction seeking a decree or order for
relief in respect of any of the Guarantors, in an
involuntary case under any applicable bankruptcy,
insolvency, or other similar law now or hereafter in effect,
or for the appointment of a receiver, liquidator, assignee,
custodian, trustee, sequestrator, or other similar official
of or for any of the Guarantors, or for any substantial part
of such Guarantor's property, or for the winding-up or
liquidation of such Guarantor's affairs; or
<PAGE>
(b) Any of the Guarantors shall commence a
voluntary case under any applicable bankruptcy, insolvency,
or other similar law now or hereafter in effect, shall
consent to the entry of an order for relief in an
involuntary case under any such law, or shall consent to the
appointment of or taking possession by a receiver,
liquidator, assignee, trustee, custodian, sequestrator, or
other similar official, of any Guarantor or of any
substantial part of any Guarantor's property, or makes a
general assignment for the benefit of creditors, or admits
in writing their inability to pay their debts as they become
due, or fails generally to pay such Guarantor's debts as
they become due, or takes any action in furtherance of any
of the foregoing; or
(c) Any Guarantor shall fail to pay or perform
any of the Obligations immediately upon demand by Lender
following a default in the payment or performance thereof by
Borrower; or
(d) Any Guarantor shall fail or refuse to perform
any obligation or covenant of such Guarantor under this
Guaranty Agreement when such performance is required under
the terms hereof; or
(e) Any Guarantor revokes his or its obligations
under this Guaranty Agreement or this Guaranty Agreement
becomes ineffective or unenforceable in any manner; or
(f) Any representation or warranty made by any
Guarantor shall prove to be false or misleading as of the
time it was made or furnished; or
(g) Lender reasonably determines that there is
any material adverse change in the financial condition of
any Guarantor;
then the Guarantors shall be in default under this Guaranty
Agreement. Upon the occurrence of any such default, Lender may,
at its option, as to the Guarantors, accelerate the indebtedness
evidenced and secured by the Loan Documents (if not previously
accelerated), and exercise any other remedies available to Lender
at law, in equity, under any Loan Document, or otherwise.
This Guaranty Agreement is a guaranty of payment and
performance and not of collection. Without waiving any rights
against other persons, entities, or property, Lender may proceed
directly against any and all of the Guarantors (to the extent of
such Guarantor's Pro Rata Share of the Obligations plus any
Guarantor Collection Costs incurred by Lender in respect of such
Guarantor, but in any event not to exceed such Guarantor's
Guaranty Amount) whenever any payment or performance required
pursuant to the Obligations is not made or rendered to Lender
without being required to proceed first against Borrower or any
other person or entity, or to enforce any remedies against them,
or to foreclose on, sell, or otherwise dispose of or collect or
apply any property, real or personal, which is security for the
Obligations or for Guarantor's obligations hereunder. Lender
also may proceed against Borrower or any other person or entity,
or enforce any remedies against them, or foreclose on, sell, or
otherwise dispose of or collect or apply any property, real or
personal, securing the Obligations, without notice to and either
before, after, or concurrently with any proceeding against the
undersigned. Furthermore, the Guarantors waive as defenses to
the Obligations the pleading or defense based upon any election
of remedies by Lender, including but not limited to an election
to foreclose by nonjudicial sale or pursue any other remedy.
The Guarantors irrevocably: (i) agree that Lender or
any other holder or holders of the Note may bring suit, action,
or other legal proceedings arising out of this Guaranty Agreement
or the transaction contemplated hereby in the courts of Sedgwick
County, Kansas or the courts of the United States District Court
for the District of Kansas, but shall not be restricted to such
courts; (ii) consent to the jurisdiction of each such <PAGE> court in
any such suit, action, or proceeding; and (iii) consent to and
waive any objection which the Guarantors may have to proper venue
existing in any such courts.
H&Q covenants that until termination of this Guaranty
Agreement, H&Q will furnish to Lender: (i) within 120 days of
the close of each fiscal year of H&Q, certified year-end
financial statements of H&Q, prepared by independent certified
public accountants, prepared in accordance with GAAP,
consistently applied to the books and records; and (ii) within 45
after the end of each fiscal quarter, quarterly financial
statements of H&Q, prepared on a basis consistent with GAAP, as
applied to the annual financial statements of H&Q, certified as
true and correct to the best knowledge of the chief executive
officer, controller or chief financial officer of H&Q.
Each of Wagnon and Carney covenants that until
termination of this Guaranty Agreement, such Guarantor will
furnish to Lender, within 90 days of the end of each calendar
year, such Guarantor's personal balance sheet (which shall
include full disclosure and detail of any and all contingent
liabilities) and such Guarantor's personal income statement on
such forms (which Lender has agreed may be in the form of such
Guarantor's complete Federal Income Tax return) as Lender shall
reasonably require.
Starwood covenants that until termination of this
Guaranty Agreement, Starwood will furnish to Lender, within 90
days of the close of each fiscal year of Starwood, compiled
year-end financial statements of Starwood, prepared by independent
certified public accountants, prepared in accordance with GAAP,
consistently applied to the books and records.
Each of the Guarantors shall furnish to Lender,
promptly upon request by Lender, such additional financial and
other information concerning such Guarantor as Lender may
request.
Any notice, demand, or request by Lender to the
Guarantors, or any of them, or by the Guarantors, or any of them,
to Lender shall be in writing and shall be deemed to have been
duly given or made if either delivered personally or if mailed by
certified or registered mail, postage prepaid, addressed, in the
case of Lender, to Bank IV, N.A., 100 North Broadway, Wichita,
Kansas 67202, Attention: Mr. Cal Glasco (or to the correct
address of any assignee of Lender), and in the case of each of
the Guarantors, to the address set forth below the signature of
such Guarantor to this Guaranty Agreement. Notice by mail shall
be deemed given upon deposit in the United States mail in such
manner.
Guarantors agree that Lender shall have no duty to
disclose to the Guarantors any information it may now or
hereafter have about Borrower or any of the Guarantors,
regardless of whether Lender has reason to believe that any such
information materially increases the risk beyond that which the
Guarantors intend to assume or has reason to believe that such
information is unknown to the Guarantors or has a reasonable
opportunity to communicate such information to the Guarantors.
It is expressly understood and agreed by the Guarantors that the
Guarantors are fully responsible for being and keeping themselves
informed of the financial condition of Borrower and each other
and of all circumstances bearing on the risk of non-payment and
non-performance of any of the Obligations. Without limiting the
generality of the foregoing or any other provision hereof, each
Guarantor represents, warrants and covenants to Lender that (i)
such Guarantor has independently obtained information, financial
and otherwise, about the financial condition and operations of
Borrower and has not relied on Lender for any such information,
(ii) such Guarantor is aware that Borrower has not been operating
profitably, (iii) such Guarantor has reviewed and is familiar
with the financial statements of Borrower dated on or about June
30, 1996, (iv) notwithstanding the contents of such financial
statements or the financial condition of Borrower as reflected
therein, such Guarantor has requested that Lender extend credit
to Borrower pursuant to the Note, (v) such Guarantor will
benefit from the extension of credit to Borrower pursuant to the
Note, (vi) such Guarantor acknowledges that Lender would not
extend such credit to Borrower pursuant to the Note but for such
Guarantor's promises hereunder, and (vii) the present or future
financial condition of Borrower, or Lender's <PAGE> or such Guarantor's
knowledge or lack of knowledge thereof, shall not constitute a
defense to or otherwise affect such Guarantor's obligations
hereunder.
After the occurrence and during the continuance of any
default under this Guaranty Agreement, the Note or any other Loan
Document, all existing and future indebtedness of Borrower to any
of the Guarantors is hereby subordinated to all indebtedness
hereby guaranteed and, without the prior written consent of
Lender, which consent may be withheld at Lender's sole
discretion, shall not be paid or withdrawn in whole or in part,
nor will any of the Guarantors accept any payment of or on
account of any such indebtedness or as a withdrawal of capital
while this Guaranty Agreement is in effect. Immediately upon
Lender's request, Borrower shall pay to Lender all or any part of
such subordinated indebtedness and any capital which any of the
Guarantors is entitled to withdraw. Each payment by Borrower to
any of the Guarantors in violation of this Guaranty Agreement
shall be received by such Guarantor in trust for Lender and shall
be paid to Lender immediately on account of the indebtedness of
Borrower to Lender. No such payment shall reduce or affect in
any manner the liability of any of the Guarantors under this
Guaranty Agreement.
Guarantors will file all claims against Borrower in any
bankruptcy or other proceeding in which the filing of claims is
required by law upon any indebtedness of Borrower to Guarantors
and will assign to Lender all rights of Guarantors thereunder.
If Guarantors do not file any such claim, Lender, as attorney-
in-fact for the undersigned hereby irrevocably appointed, is hereby
authorized to do so in the name of the undersigned or, in
Lender's discretion, to assign the claim and to cause proof of
claim to be filed in the name of Lender's nominee. In all such
cases, whether in administration, bankruptcy, or otherwise, the
person or persons authorized to pay such claims shall pay to
Lender the full amount thereof and, to the full extent necessary
for that purpose, Guarantors hereby assign to Lender all of
Guarantors' rights to any such payments or distributions to which
Guarantors otherwise would be entitled.
Each of the Guarantors represents, warrants, and
covenants to and with Lender that:
(i) There is no action or proceeding pending or,
to the knowledge of such Guarantor, threatened against such
Guarantor before any court or administrative agency which is
reasonably likely to result in any material adverse change
in the business or financial condition of such Guarantor or
in the property of such Guarantor;
(ii) Such Guarantor has filed all federal and
state income tax returns which such Guarantor has been
required to file, and has paid all taxes as shown on said
returns and on all assessments received by such Guarantor to
the extent that such taxes have become due;
(iii) The execution and delivery of this Guaranty
Agreement, the fulfillment of and compliance with the terms
and provisions hereof, and the failure to give notice to or
to obtain the consent, authorization, or approval of any
person or entity, private or public, will not conflict with
or violate any applicable law, regulation or statute, nor
conflict with or result in a breach of the terms, condi-
tions, or provisions of, or constitute a default under, any
agreement, contract, instrument, order, decree, or judgment
to which any of the Guarantors are parties or by which any
of them are bound, where such breach or default would have a
material adverse effect on the business or financial
condition of such Guarantor, or result in the creation of
any lien, charge, or encumbrance upon any property or assets
of any of the undersigned;
(iv) This Guaranty Agreement has been duly and
validly executed and delivered by each Guarantor and this
Guaranty Agreement is a valid and legally binding agreement
of such Guarantor and is enforceable against such Guarantor
in accordance with its terms;
<PAGE>
(v) Such Guarantor has either examined the Loan
Documents or has had an opportunity to examine the Loan
Documents and has waived the right to examine them;
(vi) Such Guarantor has the full power, authority,
and legal right to execute and deliver this Guaranty
Agreement;
(vii) Such Guarantor's financial statements and
all other financial data and information furnished by it to
Lender fairly and accurately represent the financial
condition of such Guarantor. As of the date hereof, there
has been no material change in the financial position of
such Guarantor of a material adverse nature which could
reasonably be expected to impair its ability to perform the
Obligations; and
(viii) To the best of such Guarantor's knowledge,
such Guarantor is not violating any law, regulation,
ordinance, or order of any court or federal, state,
municipal, or other governmental agency, commission, board,
bureau, agency, or instrumentality, the violation of which
would have a material adverse effect on the business or
financial condition of such Guarantor.
H&Q further represents, warrants, and covenants to and
with Lender that:
(a) It is duly organized and validly existing
pursuant to the laws of the State of California, is in good
standing in the State of California, and is qualified to do
business in all states in which qualification is so
required; and
(b) H&Q has duly and validly authorized
execution, delivery and performance of this Guaranty
Agreement by all necessary corporate action and this
Guaranty Agreement in fact has been duly and validly
executed and delivered; and
(c) H&Q has good and marketable title to all of
its property and assets as disclosed in the financial
information provided Lender and there are no mortgages,
deeds of trust, liens, pledges, or other encumbrances of any
character on such property other than liens for current
taxes and governmental assessments not yet due and payable
and liens in favor of Lender or approved in writing by
Lender; and
(d) There are no legal or governmental claims,
actions, suits, or proceedings pending against or, to the
best of H&Q's knowledge, affecting H&Q or any of H&Q's
property, at law or in equity, which, if determined ad-
versely to H&Q, would individually or in the aggregate
result in a material adverse change in the conditions
(financial or otherwise), business, or results of operations
of H&Q, and, to the best of H&Q's knowledge, no such claims,
actions, suits, or proceedings are threatened or
contemplated by any governmental authorities or by others.
Each of Wagnon and Carney further represents,
warrants, and covenants to and with Lender that:
(a) such Guarantor has good and marketable title
to all of his property and assets as disclosed in the
financial information provided Lender and there are no
mortgages, deeds of trust, liens, pledges, or other
encumbrances of any character on such property other than
liens for current taxes and governmental assessments not yet
due and payable and liens in favor of Lender or approved in
writing by Lender; and
<PAGE>
(b) There are no legal or governmental claims,
actions, suits, or proceedings pending against or, to the
best of such Guarantor's knowledge, affecting such Guarantor
or any of such Guarantor's property, at law or in equity,
which, if determined adversely to such Guarantor, would
individually or in the aggregate result in a material
adverse change in the condition (financial or otherwise) of
such Guarantor, and, to the best of such Guarantor's
knowledge, no such claims, actions, suits, or proceedings
are threatened or contemplated by any governmental author-
ities or by others.
Starwood further represents, warrants, and covenants to
and with Lender that:
(a) It is a limited partnership duly organized
and validly existing pursuant to the laws of the State of
Kansas, is in good standing in the State of Kansas, and is
qualified to do business in all states in which
qualification is so required; and
(b) Starwood has duly and validly authorized
execution, delivery and performance of this Guaranty
Agreement by all necessary partnership action and this
Guaranty Agreement in fact has been duly and validly
executed and delivered; and
(c) The Robert A. Geist Revocable Trust dated
October 13, 1993 is the sole manager of Starwood, and Robert
A. Geist is the sole trustee of the Robert A. Geist
Revocable Trust dated October 13, 1993; and
(d) Starwood has good and marketable title to all
of its property and assets as disclosed in the financial
information provided Lender and there are no mortgages,
deeds of trust, liens, pledges, or other encumbrances of any
character on such property other than liens for current
taxes and governmental assessments not yet due and payable
and liens in favor of Lender or approved in writing by
Lender; and
(e) There are no legal or governmental claims,
actions, suits, or proceedings pending against or, to the
best of Starwood's knowledge, affecting Starwood or any of
Starwood's property, at law or in equity, which, if
determined adversely to Starwood, would individually or in
the aggregate result in a material adverse change in the
conditions (financial or otherwise), business, or results of
operations of Starwood, and, to the best of Starwood's
knowledge, no such claims, actions, suits, or proceedings
are threatened or contemplated by any governmental author-
ities or by others.
All of the foregoing representations, warranties, and
covenants shall survive the execution hereof and be continuing
and will not terminate until Lender has received payment and per-
formance in full of all Obligations.
Each Guarantor shall promptly give Lender notice of all
litigation or proceedings before any court or governmental
authority affecting said Guarantor or its property, except
litigation or proceedings which, if adversely determined, would
not have a material adverse effect on the financial condition or
operations of said Guarantor or its ability to perform any of its
obligations hereunder.
Each Guarantor shall give any representative of Lender
access to, and permit such representative to examine, copy, or
make extracts from, any and all books, records, and documents in
the possession of said Guarantor relating to the performance of
said Guarantor's obligations hereunder and under any other Loan
Document, all at such times during normal business hours after
reasonable notice and as often as Lender may reasonably request.
<PAGE>
No failure to exercise, nor any delay in exercising or
course of dealing in respect of, any right, power, or remedy
hereunder or under any other Loan Document by Lender shall
operate as a waiver thereof, nor shall any single or partial
exercise by Lender of any such right, power or remedy preclude
any other or further exercise thereof or the exercise of any
other right. The remedies provided herein and in any other Loan
Document shall be cumulative and not exclusive of any remedies
provided by law.
Each Guarantor shall pay, and will reimburse Lender
upon demand for, all Guarantor Collection Costs incurred by or on
behalf of Lender in respect of such Guarantor. This Guaranty
Agreement shall terminate upon the full payment and performance
of the Obligations, except that each Guarantor's obligations
under this paragraph shall survive the payment or performance of
the Obligations.
This Guaranty Agreement may be executed in two or more
counterparts and by the different parties hereto on separate
counterparts, each of which shall be deemed an original, but all
such counterparts shall together constitute but one and the same
instrument. The Guaranty Agreement may be executed and
delivered by fax or other electronic transmission and any such
execution and delivery shall be fully effective, as if an
original hereof had been executed and delivered in person.
This Guaranty Agreement constitutes the entire
agreement, and supersedes all prior agreements and
understandings, both written and oral, between Guarantors and
Lender with respect to the subject matter hereof. No course of
dealing between the parties, no course of performance, no usage
of trade, and no parol or extrinsic evidence of any nature shall
be used to supplement or modify any term hereof, nor are there
any conditions to the full effectiveness of this Guaranty
Agreement. If any clause, provision, or section of this Guaranty
Agreement shall be held illegal or invalid by any court, the
validity of such clause, provision, or section shall not affect
any of the remaining clauses, provisions, or sections hereof, and
this Guaranty Agreement shall be construed and enforced as if
such illegal or invalid clause, provision, or section had not
been contained herein. In case any agreement or obligation
contained in this Guaranty Agreement be held to be in violation
of law, then such agreement or obligation shall be deemed to be
the agreement or obligation of Guarantors, as the case may be, to
the full extent permitted by law. No waiver of any breach of
this Guaranty Agreement or of any warranty or representation
hereunder by Lender shall be deemed to be a waiver of any other
breach by the Guarantors (whether preceding or succeeding and
whether or not of the same or similar nature), and no acceptance
of payment or performance by Lender after any breach by the
Guarantors shall be deemed to be a waiver of any breach of this
Guaranty Agreement or of any representation or warranty hereunder
by the Guarantors, whether or not Lender knows of such breach at
the time it accepts such payment or performance. Except as
otherwise expressly provided herein, any approval or consent
provided to be given by a party hereunder may be given or
withheld in the absolute discretion of such party.
As expressly provided herein, the obligations and
liabilities of the Guarantors under this Guaranty Agreement are
several and not joint. The obligations of Guarantors hereunder
extend to the separate and community property of each of the
Guarantors. The unconditional liability of each Guarantor
applies notwithstanding that such Guarantor is severally liable
only for such Guarantor's Pro Rata Share of the Obligations and
any Guarantor Collection Costs incurred by Lender in respect of
such Guarantor as expressly set forth herein. As used herein,
the singular shall mean the plural, the male the female, the
personal the impersonal, and vice versa.
This Guaranty Agreement is executed to induce Lender to
extend credit to Borrower and in consideration of such credit
extended to be extended by Lender to Borrower and Lender is
relying upon this Guaranty Agreement in agreeing to extend credit
to Borrower.
Each Guarantor may give written notice to Mr. Cal
Glasco of Lender that the Guarantor giving such notice will not
be liable under this Guaranty Agreement for any Obligations
created, incurred or arising after <PAGE> the giving of such notice, and
such notice will be effective as to the Guarantor who gives such
notice from and after (but not before) such time as said written
notice is actually delivered to and received by, and receipted
for in writing by, Mr. Cal Glasco of Lender; provided that such
notice shall not in anyway impair, limit or otherwise affect the
liability and responsibility of any other Guarantor hereunder
with respect to any Obligations theretofore or thereafter
existing or arising; and provided further, that such notice shall
not discharge, impair or otherwise affect the liability and
responsibility of the Guarantor giving such notice with respect
to all Obligations created, incurred or arising prior to the
receipt of such notice by Mr. Cal Glasco of Lender as aforesaid,
or with respect to any renewals or extensions of such
Obligations, or with respect to interest or costs of collection
(including, without limitation, reasonable attorneys' fees)
thereafter accruing on or with respect to such Obligations.
This Guaranty Agreement shall be construed and enforced
in accordance with, and the rights of the parties shall be
governed by, the laws of the State of Kansas.
This Guaranty Agreement is fully assignable by Lender,
together with the Obligations.
These presents shall bind the Guarantors and the
Guarantors' heirs, personal representative, successors, and
assigns, and the benefits hereof shall inure to Lender, its
successors and assigns.
LENDER SHALL NOT BE LIABLE FOR ANY CLAIMS, DEMANDS,
LOSSES, OR DAMAGES MADE, CLAIMED, OR SUFFERED BY BORROWER OR ANY
AND ALL GUARANTOR(S), EXCEPT THOSE CAUSED BY LENDER'S WILLFUL
MISCONDUCT OR GROSS NEGLIGENCE.
EACH OF THE UNDERSIGNED WAIVES TRIAL BY JURY IN ANY
LAWSUIT, ACTION, PROCEEDING, COUNTERCLAIM, OR CROSS-CLAIM ARISING
OUT OF OR IN ANY WAY CONNECTED WITH THIS GUARANTY AGREEMENT OR
THE LOAN OR THE TRANSACTIONS CONTEMPLATED HEREBY.
WITNESS the due execution hereof this 30th day of July,
1996.
HAMBRECHT & QUIST GROUP, a
California corporation
By:________________________________
Name:______________________________
Title:_____________________________
Address:___________________________
___________________________________
___________________________________
KENNETH J. WAGNON, an individual
Address:___________________________
<PAGE>
___________________________________
DANIEL M. CARNEY, an individual
Address:___________________________
___________________________________
STARWOOD INVESTMENTS, L.P., a
Kansas limited partnership
By: Robert A. Geist Revocable
Trust Dated October 13, 1993,
Manager of Starwood
Investments, L.P.
By: ______________________________
Robert A. Geist, Trustee
Address:
STATE OF CALIFORNIA )
) ss.
COUNTY OF ________ )
The foregoing instrument was acknowledged before me this
____ day of _________, 1996, by _____________________, the/a
_________________ of HAMBRECHT & QUIST GROUP, a California
corporation, on behalf of the corporation.
[SEAL] _____________________________
Notary Public
My Commission Expires:
______________________
<PAGE>
STATE OF KANSAS )
) ss.
COUNTY OF _________ )
On this ____ day of ________, 1996, before me, a notary
public in and for said state, personally appeared KENNETH J.
WAGNON to me personally known, who being duly sworn, acknowledged
that he had executed the foregoing instrument for purposes
therein mentioned and set forth.
____________________________________
Notary Public
My Commission Expires:
______________________
STATE OF KANSAS )
) ss.
COUNTY OF _________ )
On this ____ day of ________, 1996, before me, a notary
public in and for said state, personally appeared DANIEL M.
CARNEY, to me personally known, who being duly sworn,
acknowledged that he had executed the foregoing instrument for
purposes therein mentioned and set forth.
____________________________________
Notary Public
My Commission Expires:
______________________
STATE OF KANSAS )
) ss.
COUNTY OF _________ )
On this ____ day of ________, 1996, before me, a notary
public in and for said state, personally appeared ROBERT A.
GEIST, trustee of the Robert A. Geist Revocable Trust dated
October 13, 1993, to me personally known, who being duly sworn,
acknowledged that he had executed the foregoing instrument for
purposes therein mentioned and set forth.
____________________________________
Notary Public
My Commission Expires:
______________________
<PAGE>
Borrower joins in this Guaranty Agreement for the sole
purpose of consenting to and agreeing to any provisions hereof
affecting Borrower.
VANGUARD AIRLINES, INC.
By:________________________________
Name:______________________________
Title: ____________________________
AMENDMENT TO GUARANTY AGREEMENT
This Amendment to Guaranty Agreement (the "AMENDMENT")
is made as of August ___, 1996, by and among HAMBRECHT & QUIST
GROUP, a California corporation ("H&Q"), KENNETH J. WAGNON, an
individual ("WAGNON"), DANIEL M. CARNEY, an individual
("CARNEY"), STARWOOD INVESTMENTS, L.P., a Kansas limited
partnership ("STARWOOD"), and BANK IV, N.A., a national banking
association (together with its successors and assigns, the
"LENDER"). H&Q, Wagnon, Carney and Starwood are each referred to
herein as a "GUARANTOR", and are collectively referred to herein
as the "GUARANTORS".
PRELIMINARY STATEMENT. The Guarantors have guaranteed
in favor of the Lender certain obligations of VANGUARD AIRLINES,
INC., a Delaware corporation (the "BORROWER"), pursuant to a
Guaranty Agreement dated July 30, 1996 (the "ORIGINAL GUARANTY").
Capitalized terms used and not defined in this Amendment shall
have the meanings given to the them in the Original Guaranty.
The Borrower, the Guarantors and the Lender now desire to amend,
supplement and/or replace certain of the Loan Documents to, among
other things, increase the principal amount of the loan evidenced
thereby from $4,000,000 to $5,000,000 (all such amendments,
supplements and replacements are collectively referred to herein
as the "LOAN MODIFICATION"). In connection with the Loan
Modification, the Guarantors now desire to amend the Original
Guaranty in certain respects, all as more particularly set forth
below.
NOW, THEREFORE, to induce the Lender to enter into the
Loan Modification, and in recognition that the Lender is
reasonably relying upon the promises of the Guarantors hereunder
in entering into the Loan Modification, and for other good and
valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties agree as follows:
1. LOAN MODIFICATION. The Guarantors consent to the
Loan Modification, including, without limitation, the increase in
the principal amount of the indebtedness evidenced by the Loan
Documents from $4,000,000 to $5,000,000.
2. CERTAIN DEFINED TERMS. The parties agree that the
defined terms "Loan Amount," "Principal Amount" and "Note" in the
Original Guaranty are deleted in their entirety, and that the
following definitions are added to the Original Guaranty in lieu
thereof:
(a) "LOAN AMOUNT" shall mean $5,000,000.
(b) "PRINCIPAL AMOUNT" shall mean (i) as to
H&Q, $3,375,000, (ii) as to Wagnon, $750,000,
(iii) as to Carney, $500,000, and (iv) as to
Starwood, $375,000.
<PAGE>
(c) "NOTE" shall mean the promissory note in
the stated principal amount of $5,000,000, dated
on or about the date hereof, from the Borrower, as
maker, to the Lender, as payee, as the same may be
amended, renewed, rearranged, replaced, restated,
supplemented, extended or otherwise modified from
time to time.
The term "Guaranty Agreement," as used in the Original Guaranty,
shall mean the Original Guaranty as amended hereby.
3. REAFFIRMATION OF GUARANTY. Each Guarantor
reaffirms its obligations under the Original Guaranty, as amended
hereby, and represents, warrants and covenants to the Lender, as
a material inducement to the Lender to enter into the Loan
Modification, that (a) such Guarantor has no, and in any event
waives any, defense, claim or right of setoff with respect to its
obligations under the Original Guaranty, as amended hereby, and
(b) all representations and warranties made by such Guarantor in
the Original Guaranty are true and complete as of the date hereof
as if made on the date hereof.
4. NO ADDITIONAL DUTIES ON LENDER. This Amendment
shall not impose any duty on the Lender to give notice to or
obtain the consent of any Guarantor with respect to any
subsequent modifications of the Obligations or any of the Loan
Documents, except to the extent provided in the Original
Guaranty.
5. NO OTHER MODIFICATIONS. Except as amended hereby,
the Original Guaranty shall remain in full force and effect and
shall be binding on the Guarantors in accordance with its terms.
6. COUNTERPARTS; FAX SIGNATURES. This Amendment may
be executed in one or more counterparts and by different parties
thereto, all of which counterparts, when taken together, shall
constitute but one agreement. Facsimile or other electronically
transmitted signatures hereof shall have the same force and
effect as if executed and delivered in person.
7. GOVERNING LAW. The Original Guaranty, as amended
hereby, shall be construed and enforced in accordance with, and
the rights of the parties shall be governed by, the laws of the
State of Kansas without regard to any choice of law rule thereof.
<PAGE>
IN WITNESS WHEREOF, the parties have entered into this
Amendment as of the date first written above.
HAMBRECHT & QUIST GROUP, a
California corporation
By:____________________________
Name:
Title:
________________________________
KENNETH J. WAGNON, an individual
_______________________________
DANIEL M. CARNEY, an individual
STARWOOD INVESTMENTS, L.P., a
Kansas limited partnership
By: Robert A. Geist Revocable Trust
Dated October 13, 1993
By: ________________________
Robert A. Geist, Trustee
BANK IV, N.A., a national banking
association
By:_____________________________
Name:
Title:
<PAGE>
STATE OF CALIFORNIA )
) ss.
COUNTY OF ________ )
The foregoing instrument was acknowledged before me this
____ day of _________, 1996, by _____________________, the/a
_________________ of HAMBRECHT & QUIST GROUP, a California
corporation, on behalf of the corporation.
[SEAL] _____________________________
Notary Public
My Commission Expires:
______________________
STATE OF KANSAS )
) ss.
COUNTY OF _________ )
On this ____ day of ________, 1996, before me, a notary
public in and for said state, personally appeared KENNETH J.
WAGNON to me personally known, who being duly sworn, acknowledged
that he had executed the foregoing instrument for purposes
therein mentioned and set forth.
__________________________________
Notary Public
My Commission Expires:
______________________
<PAGE>
STATE OF KANSAS )
) ss.
COUNTY OF _________ )
On this ____ day of ________, 1996, before me, a notary
public in and for said state, personally appeared DANIEL M.
CARNEY, to me personally known, who being duly sworn,
acknowledged that he had executed the foregoing instrument for
purposes therein mentioned and set forth.
_________________________________
Notary Public
My Commission Expires:
______________________
STATE OF KANSAS )
) ss.
COUNTY OF _________ )
On this ____ day of ________, 1996, before me, a notary
public in and for said state, personally appeared ROBERT A.
GEIST, trustee of the Robert A. Geist Revocable Trust dated
October 13, 1993, to me personally known, who being duly sworn,
acknowledged that he had executed the foregoing instrument for
purposes therein mentioned and set forth.
__________________________________
Notary Public
My Commission Expires:
______________________
<PAGE>
CONSENT OF BORROWER
Vanguard Airlines, Inc. hereby consents to the
Amendment to Guaranty Agreement, dated August ___, 1996 (the
"AMENDMENT"), and agrees to be bound by the Original Guaranty (as
defined in the Amendment), as amended by the Amendment.
VANGUARD AIRLINES, INC.
By:____________________________
Name:
Title:
WARRANT PURCHASE AGREEMENT
This WARRANT PURCHASE AGREEMENT ("Agreement"), dated as of
August 12, 1996 by and among VANGUARD AIRLINES, INC., a Delaware
corporation ("the "Company"), and the persons and entities named
on the Schedule I attached hereto and their permitted successors
and assigns (individually, a "Purchaser" and, collectively, the
"Purchasers").
SECTION 1. AMOUNT AND TERMS OF THE GUARANTEE; PURCHASE AND
SALE OF WARRANTS
1.1 THE GUARANTEE. Subject to the terms of this Agreement,
the Purchasers shall guarantee and promise to pay to Bank IV,
N.A. ("Lender") or its order, the indebtedness of the Company to
the Lender in the amount of, and on the terms and conditions set
forth in that certain Amendment to Guaranty Agreement, dated
August 12, 1996, executed by each of the Purchasers (the
"Guaranty"). A copy of the Guaranty is attached hereto as
Exhibit A.
1.2 ISSUANCE OF WARRANTS. In consideration of the
Guaranty, the Company will issue to each of the Purchasers a
warrant to purchase shares of the Common Stock in the form
attached hereto as Exhibit B (individually, a "Warrant" and,
collectively, the "Warrants"), which Warrants will be exercisable
into the number of shares of Common Stock set forth opposite such
Purchaser's name on Schedule I at a purchase price to be
determined by the average of the closing sales prices of the
Company's Common Stock for the five trading days prior to the
Closing Date (as hereinafter defined), as quoted on the Nasdaq
SmallCap Market (the "Exercise Price"). The number of the shares
of Common Stock (or other capital stock) issuable upon exercise
of the Warrants (collectively, the "Warrant Shares") and Exercise
Prices are subject to adjustment as provided in the Warrants.
1.3 EXERCISE OF WARRANT. Each Purchaser may exercise his
or its Warrant at any time or from time to time on any business
day during the Exercise Period (as defined in the respective
Warrant) of such Warrant.
SECTION 2. THE CLOSINGS
2.1 CLOSING DATE. The closing (the "Closing") of the
issuance of the Warrants shall be held on August 12, 1996 at
10:00 a.m. at the offices of the Company, or at such other time
or place as the Company and Purchasers shall agree (the "Closing
Date").
2.2 DELIVERY. At the Closing, the Company shall deliver to
each Purchaser a Warrant, and the Purchasers shall deliver to the
Company the Guaranty executed by the Purchasers.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to each Purchaser
as follows:
<PAGE>
3.1 ORGANIZATION, GOOD STANDING, QUALIFICATION. The
Company is a corporation duly organized, validly existing and in
good standing under the laws of the state of Delaware. The
Company has full power and authority to own and operate its
properties and assets, and to carry on its business as currently
conducted and as currently proposed to be conducted. The Company
is duly qualified and is authorized to do business and is in good
standing as a foreign corporation in all jurisdictions in which
the nature of its activities and of its properties (both owned
and leased) makes such qualification necessary, except for those
jurisdictions in which failure to do so would not have a material
adverse effect on the Company or its business.
3.2 AUTHORIZATION. All corporate action on the part of the
Company, its directors and its shareholders necessary for the
authorization, execution, delivery and performance of this
Agreement by the Company and the performance of the Company's
obligations hereunder, including the issuance and delivery of the
Warrants has been taken or will be taken prior to the Closing.
This Agreement and the Warrants, when executed and delivered by
the Company, shall constitute valid and binding obligations of
the Company enforceable in accordance with their terms, except as
rights to indemnity may be limited by applicable laws and except
as enforcement may be limited by applicable bankruptcy,
insolvency, reorganization, arrangement, moratorium or other
similar laws affecting creditors' rights and subject to general
equity principles and to limitations on availability of equitable
relief, including specific performance. The Common Stock
issuable upon exercise of the Warrants has been duly and validly
reserved and, when issued in compliance with the provisions of
this Agreement, the Warrants and the Amended and Restated
Certificate of Incorporation of the Company (as the same may
hereinafter be amended, the "Certificate of Incorporation"), will
be validly issued, fully paid and nonassessable and free of any
liens or encumbrances.
3.3 COMPLIANCE WITH OTHER INSTRUMENTS. The Company is not
in violation of any term of its Certificate of Incorporation,
By-Laws or any statute, rule or regulation applicable to the
Company. The execution, delivery and performance of this
Agreement, the issuance of the shares of Common Stock pursuant to
an exercise of the Warrants in accordance with the Certificate of
Incorporation will not result in any such violation, or be in
conflict with or constitute a default under any such term, or
result in the creation of any mortgage, pledge, lien,
encumbrance, or charge upon any of the properties or assets of
the Company or contravene any provision of, or constitute a
default under, any indenture, mortgage, contract or other
instrument to which it is a party or by which it is bound.
3.4 GOVERNMENT CONSENTS. All consents, approvals, orders,
or authorizations of, or registrations, qualifications,
designations, declarations, or filings with, any government
authority, required on the part of the Company in accordance with
the valid execution and delivery of this Agreement, the offer,
sale or issuance of the Warrants and the capital stock issuable
upon exercise of the Warrants, or the consummation of any other
transaction contemplated have been obtained, except for the
filing of notices pursuant to Regulation D under the Securities
Exchange Act of 1933, as amended (the "Securities Act"), and any
filing required under applicable state securities laws which will
be effective by the time required thereby.
<PAGE>
3.5 LITIGATION. There are no actions, suits, audits,
investigations or proceedings pending or, to the knowledge of the
Company, threatened against or affecting the Company in any court
or before any governmental commission, board or authority which,
if adversely determined, will have a material adverse effect on
business, financial condition or prospects of the Company or the
ability of the Company to perform its obligations under this
Agreement.
3.6 OFFERING. Assuming the accuracy of the representations
and warranties of the Purchasers contained in Section 4 hereto,
the offer, issue, and sale of the Warrants are and will be exempt
from the registration and prospectus delivery requirements of the
Securities Act, and have been registered or qualified (or are
exempt from registration and qualifications) under the
registration, permit, or qualification requirements of all
applicable state securities laws.
SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
4.1 REQUISITE POWER AND AUTHORITY. Each Purchaser has all
necessary power and authority under all applicable provisions of
law to execute and deliver this Agreement and to carry out its
provisions. All actions on each Purchaser's part required for
the lawful execution and delivery of this Agreement has been or
will be effectively taken prior to the Closing. Upon execution
and delivery of this Agreement, this Agreement will be a valid
and binding obligation of each Purchaser, enforceable in
accordance with its terms, except (i) as limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other laws
of general application affecting enforcement of creditors' rights
and (ii) general principles of equity that restrict the
availability of equitable remedies.
4.2 PURCHASE FOR OWN ACCOUNT. Each Purchaser represents
that it is acquiring the Warrants and the capital stock issuable
upon exercise of the Warrants (collectively, the "Securities")
solely for its own account and beneficial interest for investment
and not for sale or with a view to distribution of the Securities
or any part thereof, has no present intention of selling (in
connection with a distribution or otherwise), granting any
participation in, or otherwise distributing the same, and does
not currently have reason to anticipate a change in such
intention.
4.3 INFORMATION AND SOPHISTICATION. Each Purchaser
acknowledges having received all the information such Purchaser
has requested from the Company and considers necessary or
appropriate for deciding whether to acquire the Warrants. Each
Purchaser represents that such Purchaser has had an opportunity
to ask questions and receive answers from the Company regarding
the terms and conditions of the offering of the Warrants and to
obtain any additional information necessary to verify the
accuracy of the information given the Purchaser. Each Purchaser
further represents that such Purchaser has sufficient knowledge
and experience in financial and business matters so as to be
capable of evaluating the merits and risk of this investment.
4.4 ABILITY TO BEAR ECONOMIC RISK. Each Purchaser
acknowledges that investment in the Warrants involves a high
degree of risk, and represents that such Purchaser is able,
without material impairment of financial condition, to hold the
Securities for an indefinite period of time and to suffer a
complete loss of its investment.
<PAGE>
4.5 FURTHER LIMITATIONS ON DISPOSITION. Without any way
limiting the representations set forth above, each Purchaser
further agrees not to make any disposition of all or any portion
of the Securities unless and until;
(a) There is then in effect a Registration Statement
under the Securities Act covering such proposed disposition and
such disposition is made in accordance with such Registration
Statement; or
(b) (i) The Purchaser shall have notified the Company
of the proposed disposition and shall have furnished the Company
with a detailed statement of the circumstances surrounding the
proposed disposition, and (ii) if reasonably requested by the
Company, such Purchaser shall have furnished the Company with an
opinion of counsel, reasonably satisfactory to the Company, that
such disposition will not require registration under the
Securities Act.
(c) Notwithstanding the provisions of paragraphs (a)
and (b) above, no such registration statement or opinion of
counsel shall be necessary for a transfer by such Purchaser to a
stockholder or partner (or retired partner) or "affiliate" (as
defined under the Securities Exchange Act of 1934) of such
Purchaser, or transfers by gift, will or interstate succession to
any spouse or lineal descendants or ancestors, if all transferees
agree in writing to be subject to the terms hereof to the same
extent as if they were Purchasers hereunder.
4.6 EXPERIENCE. Each Purchaser is an "accredited investor"
as such term is defined in Rule 501 promulgated under the
Securities Act.
SECTION 5. MISCELLANEOUS
5.1 REGISTRATION RIGHTS. The Purchasers and the Company
agree that all Securities issuable upon exercise of the Warrants
shall be subject to the terms and conditions of that certain
Amended and Restated Investor Rights Agreement, dated August 24,
1994 (as the same may hereinafter be amended, the "Investors'
Rights Agreement"), by and among the Company and those certain
parties identified therein.
5.2 BINDING AGREEMENT. The terms and conditions of this
Agreement shall inure to the benefit of and be binding upon the
respective successors and assigns of the parties. Nothing in
this Agreement, express or implied, is intended to confer upon
any third party any rights, remedies, obligations, or liabilities
under or by reason of this Agreement, except as expressly
provided in this Agreement.
5.3 GOVERNING LAW. This Agreement shall be governed by and
construed under the laws of the State of Delaware as applied to
agreements made and to be performed entirely within the State of
Delaware.
5.4 COUNTERPARTS. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but
all of which together shall constitute one and the same
instrument.
<PAGE>
5.5 TITLES AND SUBTITLES. The titles and subtitles used in
this Agreement are used for convenience only and are not to be
considered in construing or interpreting this Agreement.
5.6 NOTICES. Any notice required or permitted under this
Agreement shall be given in writing and shall be deemed
effectively given upon personal delivery or upon deposit with the
United States Post Office, postage prepaid, addressed to the
Company at 30 NW Rome Circle, Terminal B, Kansas City
International Airport, Mezzanine, Kansas City, MO 64153 or to a
Purchaser at its address shown on Schedule I, or at such other
address as such party may designate by ten (10) days advance
written notice to the other party.
5.7 MODIFICATION; WAIVER. No modification or waiver of any
provision of this Agreement or consent to departure therefrom
shall be effective unless in writing and approved by the Company
and the holders of more than fifty percent (50%) of the
outstanding Warrants.
IN WITNESS WHEREOF, the parties have executed this Agreement
as to the date first written above.
VANGUARD AIRLINES, INC.
By:___________________________
Name: Brian S. Gillman
Title: Vice President
and General Counsel
PURCHASER
______________________________
Name:
Title:
<PAGE>
VANGUARD AIRLINES, INC.
____________________________________________
WARRANT PURCHASE AGREEMENT
____________________________________________
As of August 12, 1996
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE
SECURITIES LAWS OF ANY STATE. ANY TRANSFER OF SUCH SECURITIES
WILL BE INVALID UNLESS A REGISTRATION STATEMENT UNDER THE ACT AND
AS REQUIRED BY BLUE SKY LAWS IS IN EFFECT AS TO SUCH TRANSFER OR
IN THE OPINION OF COUNSEL SATISFACTORY TO THE COMPANY SUCH
REGISTRATION IS UNNECESSARY IN ORDER FOR SUCH TRANSFER TO COMPLY
WITH THE ACT AND BLUE SKY LAWS.
VANGUARD AIRLINES, INC.
WARRANT FOR THE PURCHASE
OF SHARES OF COMMON STOCK
No. PB-33 August 12, 1996
VANGUARD AIRLINES, INC., a Delaware corporation (the
"COMPANY"), hereby certifies that, for value received, ____________
__________ or any transferee who has received this warrant (the
"WARRANT") in compliance with applicable law and the terms hereof
(the "HOLDER"), is entitled, on the terms set forth below, to
purchase from the Company, during the Exercise Period (as defined
in Section 15 below) __________________________________________
(______) shares of Common Stock of the Company at a price
equal to the average of the closing sales prices of the Company's
Common Stock for the five (5) trading days prior to the Closing
Date (as defined in the Warrant Purchase Agreement) as quoted on
the Nasdaq SmallCap Market, subject to adjustment as provided
below (the "EXERCISE PRICE").
1. EXERCISE OF WARRANT.
1.1 GENERAL. The holder may exercise this Warrant at
any time or from time to time on any business day during the
Exercise Period (as defined in Section 15 below), for Thirteen
thousand one hundred and twenty-five (13,125) shares or any
lesser number of shares of Common Stock purchasable hereunder.
The Holder may exercise any shares then exercisable by
surrendering this Warrant to the Company at its principal office,
with a duly executed Subscription Form (in substantially the form
attached hereto), together with payment of the sum obtained by
multiplying the number of shares of Common Stock to be purchased
by the Exercise Price then in effect. Promptly after such
exercise, the Company shall issue and deliver to or upon the
order of the Holder a certificate or certificates for the number
of shares of Common Stock issuable upon such exercise, and the
Company will pay all issue or transfer taxes in connection with
the issue thereof. To the extent permitted by law, this Warrant
shall be deemed to have been exercised immediately prior to the
close of business on the date of its surrender for exercise as
provided herein, even if the <PAGE> Company's stock transfer books are
at that time closed, and the Holder shall be treated for all
purposes as the holder of record of the Common Stock to be issued
upon such exercise as of the close of business on such date.
Upon any partial exercise, the Company will issue to or upon the
order of the Holder a new Warrant for the number of shares of
Common Stock as to which this Warrant has not been exercised.
1.2 NET ISSUE EXERCISE. Notwithstanding any
provisions herein to the contrary, if the fair market value of
one share of the Common Stock subject to this Warrant is greater
than the Exercise Price (at the date of calculation as set forth
below), in lieu of exercising this Warrant for cash, the Holder
may elect to receive shares equal to the value (as determined
below) of this Warrant (or the portion thereof being canceled) by
surrender of this Warrant at the principal office of the Company
together with the properly endorsed Form of Subscription and
notice of such election in which event the Company shall issue to
the Holder a number of shares of Common Stock computed using the
following formula:
X = Y (A-B)
A
Where X = the number of shares of Common Stock to be issued
to the Holder
Y = the number of shares of Common Stock
purchasable under the Warrant or, if only a
portion of the Warrant is being exercised,
the portion of the Warrant being canceled (at
the date of such calculation)
A = the fair market value of one share of the
Common Stock (at the date of such
calculation)
B = Exercise Price (as adjusted to the date of
such calculation)
For purposes of the above calculation, fair market value of one
share of Common Stock shall be determined by the Company's Board
of Directors in good faith; provided, however, if there is a
public market for the Company's Common Stock, the fair market
value per share shall be the average of the closing sales prices
of the Company's Common Stock quoted on the Nasdaq National
Market or on the primary securities exchange on which the Common
Stock is then listed, whichever is applicable, as published in
the Wall Street Journal for the ten (10) trading days prior to
the date of determination of fair market value.
2. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF WARRANT
SHARES. The Exercise Price and the number of shares of Common
Stock subject to this Warrant shall be subject to adjustment from
time to time as follows:
<PAGE>
2.1 ADJUSTMENT FOR CHANGE IN CAPITAL STOCK. If at any
time the Company:
i. pays a dividend or makes a distribution on
its Common Stock in shares of its Common
Stock;
ii. subdivides its outstanding shares of Common
Stock into a greater number of shares;
iii. combines its outstanding shares of Common
Stock into a smaller number of shares;
iv. makes a distribution on its Common Stock in
shares of its capital stock other than Common
Stock; or
v. issues by reclassification of its Common
Stock any shares of its capital stock;
then the Exercise Price in effect immediately prior to such
action shall be adjusted so that the Holder may receive upon
exercise of the Warrant and payment of the same aggregate
consideration the number of shares of capital stock of the
Company which the Holder would have owned immediately following
such action if the Holder had exercised the Warrant immediately
prior to such action.
The adjustment shall become effective immediately after
the record date in the case of a dividend or distribution and
immediately after the effective date in the case of a
subdivision, combination or reclassification.
2.2 REORGANIZATION, CONSOLIDATION OR MERGER. Subject
to the provisions of Section 15, in the event of any
consolidation or merger of the Company with or into another
corporation (other than a merger in which merger the Company is
the continuing corporation and that does not result in any
reclassification, capital reorganization or other change of
outstanding shares of Common Stock issuable upon exercise of this
Warrant) or in the event of any sale, lease, transfer or
conveyance to another corporation of the property and assets of
the Company as an entirety or substantially as an entirety, the
Company shall cause effective provisions to be made so that the
Holder shall have the right thereafter, by exercising this
Warrant, to purchase the kind and amount of shares of stock and
other securities and property (including cash) receivable upon
such capital reorganization and other change, consolidation,
merger, sale, lease, transfer or conveyance by a holder of the
number of shares of Common Stock that might have been received
upon exercise of this Warrant immediately prior to such capital
reorganization, change, consolidation, merger, sale, lease,
transfer or conveyance. Any such provision shall include
provisions for adjustments in respect of such shares of stock and
other securities and property that shall be as nearly equivalent
as may be practicable to the adjustments provided for in this
Warrant. The foregoing provisions of this Section 2.2 shall
similarly apply to successive capital reorganizations and changes
of shares of Common Stock and to successive consolidations,
mergers, sales, leases, transfers or conveyances. In the event
that in connection with any such <PAGE> capital reorganization, or
change, consolidation, merger, sale, lease, transfer or
conveyance, additional shares of Common Stock shall be issued in
exchange, conversion, substitution or payment, in whole or in
part, for, or of, a security of the Company other than Common
Stock, any such issue shall be treated as an issue of Common
Stock covered by the provisions of Section 2.1.
2.3 MINIMAL ADJUSTMENTS. No adjustment in the
Exercise Price and/or the number of shares of Common Stock
subject to this Warrant need be made if such adjustment would
result in a change in the Exercise Price of less than five cents
($0.05) (the "ADJUSTMENT THRESHOLD AMOUNT") or a change in the
number of subject shares of less than one (1) share. Any
adjustment which is less than the Adjustment Threshold Amount and
not made shall be carried forward and shall be made, together
with any subsequent adjustments, at the time when (a) the
aggregate amount of all such adjustments is equal to at least the
Adjustment Threshold Amount or (b) the Warrant is exercised.
2.4 DEFERRAL OF ISSUANCE OR PAYMENT. In any case in
which an event covered by this Section 2 shall require that an
adjustment in the Exercise Price be made effective as of a record
date, the Company may elect to defer until the occurrence of such
event (i) issuing to the Holder, if this Warrant is exercised
after such record date, the shares of Common Stock and other
capital stock of the Company, if any, issuable upon such exercise
over and above the shares of Common Stock or other capital stock
of the Company, if any, issuable upon such exercise on the basis
of the Exercise Price in effect prior to such adjustment, and
(ii) paying to the Holder by check any amount in lieu of the
issuance of fractional shares pursuant to Section 6.
2.5 WHEN NO ADJUSTMENT REQUIRED. No adjustment need
be made for a change in the par value or no par value of the
Common Stock. To the extent the Warrants become exercisable into
cash, no adjustment need be made thereafter as to the cash, and
interest will not accrue on the cash.
2.6 CERTIFICATE AS TO ADJUSTMENTS. Upon the
occurrence of each adjustment or readjustment of the Exercise
Price pursuant to this Section 2, the Company, at its expense,
shall promptly compute such adjustment or readjustment in
accordance with the terms hereof and prepare and furnish to the
Holder a certificate setting forth such adjustment or
readjustment and showing the facts upon which such adjustment or
readjustment is based. The Company shall, upon written request
at any time of the Holder, furnish or cause to be furnished to
the Holder a like certificate setting forth (a) such adjustments
and readjustments, (b) the then effective Exercise Price and
number of shares of Common Stock subject to the Warrant, and (c)
the then effective amount of securities (other than Common Stock)
and other property, if any, which would be received upon exercise
of the Warrant.
3. REGISTRABLE SECURITIES. The shares of Common Stock
issuable upon exercise of this Warrant shall be deemed to be
"Registrable Securities" for purposes of that certain Amended and
Restated Investor Rights Agreement, dated as of August 24, 1994,
among the Company and the persons named therein (the "Investors'
Rights Agreement"), and the holder of such shares shall have all
the rights, subject to all the obligations, of a holder of
Registrable Securities pursuant to <PAGE> the Investors' Rights
Agreement, and shall be treated for all purposes as a holder of
Registrable Securities under and subject to the terms of the
Investor Rights Agreement.
4. RIGHTS OF THE HOLDER. The Holder shall not, by virtue
hereof, be entitled to any rights of a stockholder in the
Company, either at law or equity, and the rights of the Holder
are limited to those expressed in this Warrant. Nothing
contained in this Warrant shall be construed as conferring upon
the Holder hereof the right to vote or to consent or to receive
notice as a stockholder of the Company on any matters or with
respect to any rights whatsoever as a stockholder of the Company.
No dividends or interest shall be payable or accrued in respect
of this Warrant or the interest represented hereby or the shares
of Common Stock purchasable hereunder until, and only to the
extent that, this Warrant shall have been exercised in accordance
with its terms.
5. NO IMPAIRMENT. The Company will not, by any voluntary
action, avoid or seek to avoid the observance or performance of
any of the terms of this Warrant, but will at all times in good
faith assist in the carrying out of all such terms and in the
taking of all such action as may be necessary or appropriate in
order to protect the rights of the Holder against dilution or
other impairment.
6. NO FRACTIONAL SHARES. No fractional share shall be
issued upon exercise of this Warrant. The Company shall, in lieu
of issuing any fractional share, pay the Holder entitled to such
fraction a sum in cash equal to the fair market value of such
fraction on the date of exercise (as determined in good faith by
the Board of Directors of the Company). The fair market value of
a fraction of a share is determined by multiplying the fair
market price of a full share by the fraction of a share, rounded
to the nearest cent.
7. RESERVATION OF STOCK ISSUABLE ON EXERCISE OF WARRANT.
The Company will at all times reserve and keep available, solely
for issuance and delivery upon the exercise of this Warrant,
all such shares of Common Stock or other shares of capital stock,
from time to time issuable upon the exercise of this Warrant. If
at any time the number of authorized but unissued shares of
Common Stock shall not be sufficient to effect the exercise of
this Warrant, the Company will use its best efforts to take such
corporate action as may, in the opinion of its counsel, be
necessary to increase its authorized but unissued shares of
Common Stock to such number of shares as shall be sufficient for
such purposes. All shares that may be issued upon exercise of
the rights represented by this Warrant and payment of the
Exercise Price, all as set forth herein, will be free from all
taxes, liens and charges in respect of the issue of such shares
(other than taxes in respect of any transfer occurring
contemporaneously with such exercise and payment or otherwise
specified herein). All such shares shall be duly authorized and
when issued, sold and delivered in accordance with the terms of
the Warrant for the consideration expressed herein, will be duly
and validly issued, fully paid and nonassessable, and will be
free of restrictions on transfer other than restrictions on
transfer set forth in this Warrant, the Investors Rights
Agreement and applicable state and federal securities laws.
8. NOTICES OF RECORD DATE. Upon (a) any taking by the
Company of a record of the holders of any class of securities for
the purpose of determining the holders thereof who are <PAGE> entitled
to receive any dividend or other distribution or (b) any capital
reorganization of the Company, any reclassification or
recapitalization of the capital stock of the Company, any merger
or consolidation of the Company with or into any other
corporation, or any transfer of all or substantially all the
assets of the Company to any other person, or any voluntary or
involuntary dissolution, liquidation or winding up of the
Company, the Company shall mail to each Holder at least ten (10)
days, or such longer period as is required by law, prior to the
record date, a notice specifying (i) the date on which any such
record is to be taken for the purpose of such dividend or
distribution and a description of such dividend or distribution,
(ii) the date on which any such reorganization, reclassification,
transfer, consolidation, merger, dissolution, liquidation or
winding up is expected to become effective, and (iii) the date,
if any, that is to be fixed as to when the holders of record of
Common Stock (or other capital stock at that time receivable upon
exercise of the Warrant) shall be entitled to exchange their
shares of Common Stock (or such other stock or securities) for
securities or other property deliverable upon such
reorganization, reclassification, transfer, consolidation,
merger, dissolution, liquidation or winding up.
9. EXCHANGES OF WARRANT. Upon surrender for exchange of
this Warrant (in negotiable form, if not surrendered by the
Holder named on the face hereof) to the Company at its principal
office, the Company, at its expense, will issue and deliver a new
Warrant or Warrants calling in the aggregate for the same number
of shares of Common Stock, in the denomination or denominations
requested, to or on the order of such Holder upon payment by such
Holder of any applicable transfer taxes; PROVIDED that any
transfer of the Warrant shall be subject to the conditions on
transfer set forth herein.
10. REPLACEMENT OF WARRANT. Upon receipt of evidence
reasonably satisfactory to the Company of the loss, theft,
destruction or mutilation of this Warrant, and (in the case of
loss, theft or destruction) upon delivery of an indemnity
agreement in such reasonable amount as the Company may determine,
or (in the case of mutilation) upon surrender and cancellation
hereof, the Company, at its expense, shall issue a replacement.
11. NOTICES. All notices and other communications from the
Company to the Holder shall be mailed by overnight courier or by
first-class, registered or certified mail, postage prepaid, to
the address furnished to the Company in writing by the last
Holder who has furnished an address to the Company in writing.
Notice shall be deemed given one (1) day after deposit with an
overnight courier service, three (3) days after deposit in the
mails as aforesaid or upon delivery if personally delivered.
12. MODIFICATION; WAIVER. Neither this Warrant nor any
term hereof may be changed, waived, discharged or terminated
orally, but only by an instrument in writing signed by the party
against which enforcement of the change, waiver, discharge or
termination is sought.
13. HEADINGS. The headings in this Warrant are for
purposes of convenience of reference only, and shall not be
deemed to constitute a part hereof.
14. GOVERNING LAW. This Warrant shall be construed in
accordance with and governed by the laws of the State of
Delaware.
<PAGE>
15. EXERCISABILITY PERIOD. The Holder may exercise this
Warrant at any time after January 30, 1997 and before the
Expiration Time (as hereinafter defined) (the "Exercise Period").
This Warrant will be wholly void and of no effect after the time
(the "Expiration Time") which is the earlier of (a) 5:00 p.m.
(Kansas City time) August 12, 2006, (b) the effective time of a
merger or reorganization following which the stockholders of the
Company immediately prior to such transaction own after such
transaction less than fifty percent (50%) of the equity
securities of the surviving corporation (or its parent, if any),
or (c) the effective time of a sale of all or substantially all
of the assets of the Company.
16. TRANSFER RESTRICTIONS. The Company is relying upon an
exemption from registration of this Warrant and the shares of
Common Stock issuable upon exercise hereof under the Act and
applicable state securities laws. The Holder by acceptance
hereof represents that the Holder understands that neither this
Warrant nor the Common Stock issuable upon exercise hereof has
been registered with the Securities and Exchange Commission nor
under any state securities law. By acceptance hereof, the Holder
represents and warrants that (a) it is acquiring the Warrant (and
the shares of Common Stock) for its own account for investment
purposes and not with a view to distribution, (b) has received
all such information as the Holder deems necessary and
appropriate to enable the Holder to evaluate the financial risk
inherent in making an investment in the Company, and satisfactory
and complete information concerning the business and financial
condition of the Company in response to all inquiries in respect
thereof, (c) the Holder's acquisition of shares upon exercise
hereof will be a highly speculative investment, (d) the Holder is
able, without impairing its financial condition, to hold such
shares for an indefinite period of time and to suffer a complete
loss of the Holder's investment, and (e) the Holder has such
knowledge and experience in financial and business matters that
it is capable of evaluating the merits and risks of acquisition
of this Warrant and the shares issuable upon exercise hereof and
of making an informed investment decision with respect thereto.
This Warrant may not be exercised and neither this Warrant
nor any of the shares issuable upon exercise of the Warrant, nor
any interest in either, may be sold, assigned, pledged,
hypothecated, encumbered or in any other manner transferred or
disposed of, in whole or in part, except in compliance with
applicable United States federal and state securities or Blue Sky
laws and the terms and conditions hereof. Each Warrant or each
certificate representing shares of Common Stock or other
securities issued upon exercise of this Warrant shall have
conspicuously endorsed on its face, at the time of its issuance,
such legends as counsel to the Company deems necessary or
appropriate, including without limitation the legend set forth on
the top of the first page of this Warrant. Any certificate for
any securities issued at any time in exchange or substitution for
any certificate for any shares of Common Stock or Common Stock
bearing such legend shall also bear such legend unless, in the
opinion of counsel for the Company, the securities represented
thereby need no longer be subject to the restriction contained
herein. In addition to those restrictions on transfer imposed by
the Act and other applicable securities laws, this Warrant may
not be sold or transferred unless to (i) an underwriter
acceptable to the Company for immediate exercise by such
underwriter in connection with a fully underwritten public
offering of the Company's Common Stock underlying this Warrant,
(ii) any entity who acquires the Holder or substantially all of
its assets, or (iii) an Affiliate of the Holder (as that term is
defined in Rule <PAGE> 144(a)(1) of the Act). The provision of this
Section 16 shall be binding upon all subsequent holders of
certificates for shares of Common Stock or Common Stock bearing
such legends and all subsequent holders of this Warrant, if any.
In Witness Whereof, the Company has caused this Warrant to
be duly executed and delivered on the date first set forth above.
VANGUARD AIRLINES, INC.
By:______________________________
Brian S. Gillman
Vice President and General
Counsel
<PAGE>
SUBSCRIPTION FORM
[To be executed if holder desires to exercise the Warrant]
The undersigned, holder of this Warrant, (1) hereby
irrevocably elects to exercise the right of purchase represented
by this Warrant for, and to purchase thereunder, ______________
full shares of the Common Stock of VANGUARD AIRLINES, INC.
provided for therein, (2) makes payment in full (as permitted in
Section 1 of the Warrant) of the purchase price of such shares,
(3) requests that certificates for such shares be issued in the
name of
________________________________________________________________
(Please print name and address)
________________________________________________________________
(Please insert social security or other identifying number)
and (4) if said number of shares shall not be all the shares
purchasable thereunder, requests that a new Warrant for the
unexercised portion of this Warrant be issued in the name of and
delivered to:
________________________________________________________________
________________________________________________________________
(Please print name and address)
Dated:__________________________
By:__________________________
_____________________________
Title
WARRANT AGREEMENT
<PAGE>
WARRANT AGREEMENT
This WARRANT AGREEMENT (the "Warrant Agreement") is made and
entered into as of the Initial Closing Date between VANGUARD
AIRLINES, INC., a Delaware corporation (the "Company"), and each
Warrant Holder (as hereinafter defined).
RECITALS
WHEREAS, pursuant to the terms of a Confidential Private
Placement Memorandum, dated as of August 16, 1996 (the "Placement
Memorandum"), the Company is issuing up to an aggregate of
$7,300,000 of units (each a "Unit" and, collectively, the
"Units"), each Unit consisting of one share (each a "Share" and,
collectively, the "Shares") of Common Stock, $0.001 par value of
the Company (the "Common Stock") and one Redeemable Common Stock
Purchase Warrant (each a "Warrant" and, collectively, the
"Warrants") exercisable, subject to certain adjustments, into one
share of Common Stock at an exercise price equal to the Unit
Price (as hereinafter defined) multiplied by 1.2; and
WHEREAS, the Warrant Holders are willing to have their
rights with respect to the ownership of the Warrants and the
Warrant Shares (as hereinafter defined) governed by the
provisions of this Agreement.
NOW, THEREFORE, in consideration of the above recitals, the
mutual promises contained herein and for other good and valuable
consideration, the parties hereto agree as follows:
1. DEFINITIONS. The following words and terms shall have
the following meanings:
1.1 "BUSINESS DAY" shall mean any day other than a
Saturday, a Sunday or a day on which commercial banks in Kansas
City, Missouri are required or authorized to be closed.
1.2 "CODE" shall mean the Internal Revenue Code of 1986, as
amended and supplemented from time to time, and shall include
temporary, interim and permanent regulations of the United States
Treasury Department applicable thereunder.
1.3 "COMPANY REDEMPTION" shall have the meaning ascribed to
such term in Section 10(a) hereof.
1.4 "EXERCISE PERIOD" shall have the meaning set forth in
Section 5.
1.5 "EXERCISE PRICE" shall mean the Unit Price multiplied
by 1.2.
1.6 "INITIAL CLOSING DATE" shall mean the first date upon
which the Company shall schedule a closing with respect to the
purchase of Units by subscribers for Units.
<PAGE>
1.7 "QUALIFIED TRANSACTION" shall mean a public offering of
capital stock by the Company or sale by the Company of all or
substantially all of its stock or assets.
1.8 "REDEMPTION PRICE" shall mean $0.05 per Warrant.
1.9 "REGISTRATION RIGHTS AGREEMENT" shall mean that certain
Registration Right Agreement, dated as of the date hereof, among
the Company and the holders of Warrant Shares.
1.10 "UNIT PRICE" shall mean the closing bid price of the
Company's Common Stock on the Nasdaq SmallCap Market (or any
subsequent exchange or market on which the Company's Common Stock
is traded) on August 16, 1996.
1.11 "WARRANT HOLDER(S)" shall mean each subscriber of Units
whose subscription is accepted by the Company and each permitted
transferee of Warrants held by such subscriber.
1.12 "WARRANT SHARES" shall mean any shares of Common Stock
or other securities issuable upon exercise of the Warrants.
2. ISSUANCE OF WARRANTS; FORM OF WARRANT. The Company will
issue, sell and deliver a Warrant to each Warrant Holder upon
execution of the Omnibus Signature Page. The text of the Warrant
and the form of election to purchase shares to be attached
thereto shall be substantially as set forth in Exhibit A attached
hereto.
3. REGISTERED FORM. The Warrant shall be registered in a
Warrant Register as they are issued. The Company shall be
entitled to treat the registered holder of any Warrant on the
Warrant Register as the owner in fact thereof for all purposes
and shall not be bound to recognize any equitable or other claim
to or interest in such Warrant on the part of any other person.
4. TRANSFER OF WARRANTS. The Warrant and Warrant Shares
will not be transferable, in part or in whole, on the books of
the Company except upon delivery of such Warrant or Warrant
Shares duly endorsed by the Warrant Holder or by his duly
authorized attorney or representative and accompanied by proper
evidence of succession, assignment or authority to transfer. In
all cases of transfer by an attorney, the original power of
attorney, duly approved, or an official copy thereof, duly
certified, shall be deposited with the Company. In case of
transfer by executors, administrators, guardians or other legal
representatives, duly authenticated evidence of their authority
shall be produced, and may be required to be deposited with the
Company in its discretion. Upon any registration of transfer, the
Company shall deliver a new Warrant or Warrants to the persons
entitled thereto. The Warrants may be exchanged at the option of
the then Warrant Holder thereof, for another Warrant, or other
Warrant of different denominations, of like tenor and
representing in the aggregate the right to purchase a like number
of Warrant Shares upon surrender to the Company or its duly
authorized agent. Notwithstanding the foregoing, the Company
shall have no obligation to cause Warrants to be transferred on
its books to any person, unless the Warrant Holder or Warrant
Holders thereof shall furnish to the Company reasonably
<PAGE> satisfactory evidence of compliance with the Securities Act of
1933, as amended (the "Act"), in accordance with the provisions
of Section 12 of this Agreement.
5. TERM OF WARRANTS; EXERCISE OF WARRANTS. Each Warrant
entitles the Warrant Holder thereof to purchase one share of
Common Stock at the Exercise Price at any time after August 20,
1996 (the "Effective Date") and before 5:00 p.m., prevailing
Central Time, on August 19, 2001 (the "Expiration Date"). On the
Expiration Date, all rights evidenced by the Warrants shall cease
and the Warrants shall become void. The period from the Effective
Date to the Expiration Date is sometimes hereinafter referred to
as the "Exercise Period." The Exercise Price and the Warrant
Shares issuable upon exercise of the Warrants are subject to
adjustment upon the occurrence of certain events, pursuant to the
provisions of Section 9 of this Agreement. Subject to the
provisions of this Agreement, each Warrant Holder shall have the
right, which may be exercised as set forth in such Warrants to
purchase from the Company (and the Company shall issue and sell
to such Warrant Holder) the number of fully paid and
nonassessable shares of Common Stock specified in such Warrant,
upon surrender to the Company, or its duly authorized agent, of
such Warrants, with the form of election to purchase attached
thereto duly completed and signed, and upon payment to the
Company of the Exercise Price, as adjusted in accordance with the
provisions of Section 9 of this Agreement, for the number of
Warrant Shares in respect of which such Warrants are then
exercised. Payment of such Exercise Price may be made in cash or
by check payable to the order of the Company. Upon each
surrender of Warrants and payment of the Exercise Price as
aforesaid, the Company shall issue and cause to be delivered with
all reasonable dispatch to or upon the written order of the
Warrant Holder and (subject to receipt of evidence of compliance
with the Act in accordance with the provisions of Section 12 of
this Agreement) in such name or names as such Warrant Holder may
designate, a certificate or certificates for the number of full
Warrant Shares so purchased upon the exercise of such Warrants,
together with cash, as provided in Section 11 of this Agreement,
in respect of any fractional Warrant Shares otherwise issuable
upon such surrender. Such certificate or certificates shall be
deemed to have been issued and any person so designated to be
named therein shall be deemed to have become a holder of record
of such Warrant Shares as of the date of the surrender of
Warrants and payment of the Exercise Price as aforesaid;
provided, however, that if, at the date of surrender of such
Warrants and payment of such Exercise Price, the transfer books
for the Common Stock or other class of stock purchasable upon the
exercise of such Warrants shall be closed, the certificates for
the shares shall be issuable as of the next succeeding date on
which such books shall be opened and until such date the Company
shall be under no duty to deliver any certificate for such
Warrant Shares; provide, further, that the transfer books, unless
otherwise required by law, shall not be closed at any one time
for a period longer than 20 days.
6. PAYMENT OF TAXES. The Company will pay all documentary
stamp taxes, if any, attributable to the issuance of Warrant
Shares upon the exercise of Warrants; provided, however, that the
Company shall not be required to pay any tax or taxes which may
be payable in respect of any transfer involved in the issue or
delivery of any certificates for Warrant Shares in a name other
than that of the Warrant Holder.
<PAGE>
7. MUTILATED OR MISSING WARRANTS. In case any of the
Warrants shall be mutilated, lost, stolen or destroyed, the
Company may, in its discretion, issue and deliver in exchange and
substitution for and upon cancellation of the mutilated Warrant,
or in lieu of and substitution for the Warrant lost, stolen or
destroyed, a new Warrant for the number of Warrants represented
by the Warrant so mutilated, lost, stolen or destroyed but only
upon receipt of evidence of such loss, theft or destruction of
such Warrant, and of the ownership thereof, and the indemnity, if
requested, all satisfactory to the Company. An applicant for such
substitute Warrants shall also comply with such other reasonable
regulations and pay such other reasonable charges incidental
thereto as the Company may prescribe.
8. RESERVATION OF WARRANT SHARES, ETC. The Company shall
at all times after the Effective Date keep reserved, out of the
authorized and unissued Common Stock, a number of shares of
Common Stock sufficient to provide for the exercise of the rights
of purchase represented by the outstanding Warrants. The Company
will keep a copy of this Warrant Agreement on file at its
principal offices. All Warrants surrendered in the exercise of
the rights thereby evidenced shall be cancelled, and such
cancelled Warrants shall constitute sufficient evidence of the
number of shares of Common Stock that have been issued upon the
exercise of such Warrants. No shares of Common Stock shall be
subject to reservation in respect of unexercised Warrants
subsequent to the Expiration Date.
9. ADJUSTMENTS OF EXERCISE PRICE AND NUMBER OF WARRANT
SHARES. The Exercise Price and the number and kind of securities
purchasable upon exercise of each Warrant shall be subject to
adjustment from time to time upon the happening of certain
events, as follows:
(a) In ease the Company shall (a) declare a dividend
on its Common Stock in shares of Common Stock or make a
distribution in shares of Common Stock, (b) subdivide its
outstanding shares of Common Stock into a greater number of
shares, (e) combine its outstanding shares of Common Stock into a
smaller number of shares of Common Stock or (d) issue by
reclassification of its shares of Common Stock other securities
of the Company (including any such reclassification in connection
with a consolidation or merger in which the Company is the
continuing corporation), the number of Warrant Shares purchasable
upon exercise of each Warrant immediately prior thereto shall be
adjusted so that the Warrant Holder of each Warrant shall be
entitled to receive the kind and number of Warrant Shares or
other securities of the Company which he would have owned or have
been entitled to receive after the happening of any of the events
described above, had such Warrant been exercised immediately
prior to the happening of such event or any record date with
respect thereto. An adjustment made pursuant to this clause (i)
shall become effective immediately after the effective date of
such event retroactive to immediately after the record date, if
any, for such event.
(b) Whenever the number of Warrant Shares purchasable
upon the exercise of each Warrant is adjusted, as provided in
this Section 9, the Exercise Price shall be adjusted by
multiplying such Exercise Price immediately prior to such
adjustment by a fraction, of which the numerator shall be the
number of Warrant Shares purchasable upon the exercise of each
Warrant <PAGE> immediately prior to such adjustment, and of which the
denominator shall be the number of Warrant Shares so purchasable
immediately thereafter.
(c) No adjustment in the Exercise Price and/or the
number of Warrant Shares issuable upon exercise of the Warrants
if such adjustment would result in a change in the Exercise Price
of less than $0.05 per share (the "Adjustment Threshold Amount")
or a change in the number of subject shares of less than one
share. Any adjustment which is less than the Adjustment
Threshold Amount and not made shall be carried forward and shall
be made, together with any subsequent adjustments, at the time
when (a) the aggregate amount of all such adjustments is equal to
at least the Adjustment Threshold Amount or (b) the Warrant is
exercised.
(d) For the purpose of this Section 9, the term
"shares of Common Stock" shall mean (a) the class of stock
designated as the Common Stock of the Company at the date of this
Agreement or (b) any other class of stock resulting from
successive changes or reclassification of such shares consisting
solely of changes in par value, or from par value to no par
value, or from no par value to par value. In the event that at
any time, as a result of an adjustment made pursuant to clause
(i) above, the Warrant Holders shall become entitled to purchase
any shares of capital stock of the Company other than shares of
Common Stock, thereafter the number of such other shares so
purchasable upon exercise of each Warrant and the Exercise Price
of such shares shall be subject to adjustment from time to time
in a manner and on terms as nearly equivalent as practicable to
the provisions with respect to the Warrant Shares contained in
clauses (i) and (ii), inclusive, above, and clauses (iv) through
(vii), inclusive, of this Section 9, and the provisions of
Sections 5, 6, 8 and 15, with respect to the Warrant Shares,
shall apply on like terms to any such other shares.
(e) The Company may at its option, at any time during
the term of the Warrants, reduce the then current Exercise Price
to any amount deemed appropriate by the Board of Directors of the
Company; provided, however, that in no event shall the Exercise
Price be adjusted below the par value per share of the Common
Stock.
(f) In case of any consolidation or merger of the
Company with or into another corporation or in case of any sale
or conveyance to another corporation of the property of the
Company as an entirety or substantially as an entirety, the
Company or such successor or purchasing corporation (or an
affiliate of such successor or purchasing corporation), as the
case may be, agrees that each Warrant Holder shall have the right
thereafter upon payment of the Exercise Price in effect
immediately prior to such action to purchase upon exercise of
each Warrant the kind and amount of shares and other securities
and property (including cash) which he would have owned or have
been entitled to receive after the happening of such
consolidation, merger, sale or conveyance had such Warrant been
exercised immediately prior to such action. The provisions of
this clause (v) shall similarly apply to successive
consolidations, mergers, sales or conveyances.
<PAGE>
(g) Notwithstanding any adjustments in the Exercise
Price or the number or kind of shares purchasable upon the
exercise of the Warrants pursuant to this Section 9 of Agreement,
certificates for Warrants issued prior or subsequent to such
adjustments may continue to express the same price and number and
kind of shares as are stated in the Warrants initially issuable
pursuant to this Agreement.
10. REDEMPTION OF WARRANTS.
(a) The Company, at its option, may redeem all of the
Warrants (a "Company Redemption") at the Redemption Price
commencing on the Effective Date and at any time thereafter on
forty-five (45) days prior notice to the Warrant Holders if the
average closing bid price of the Common Stock on the Nasdaq
SmallCap Market (or the last bid price on any subsequent exchange
or market on which the Common Stock is traded) equals or exceeds
the Exercise Price multiplied by two for any twenty (20) trading
days within a period of thirty (30) consecutive trading days
prior to notice of redemption.
(b) On a Company Redemption Date, the Warrant Holder
shall surrender the Warrant to the Company and the Company shall
deliver payment of the Redemption Price in full, in cash or
certified or cashier's check to the Warrant Holder.
11. FRACTIONAL INTERESTS. The Company shall not be required
to issue fractions of shares of Common Stock on the exercise of
Warrants. The Company shall, in lieu of issuing any fractional
share, pay the Holder entitled to such fraction a sum in cash
equal to the closing bid price of the Company's Common Stock as
quoted on the Nasdaq SmallCap Market (or any subsequent exchange
or market on which the Company's Common Stock is traded) on the
date of exercise.
12. RESTRICTIONS ON DISPOSITIONS. The Warrants and the
Warrant Shares have not been registered under the Securities Act
of 1933, as amended. The Warrant Holder represents and warrants
to the Company that it understands that neither the Warrants nor
the Warrant Shares may be transferred except pursuant to (i) an
effective Registration Statement under the Act, or (ii) any
available rule or exemption from registration under the Act
permitting such disposition of securities and an opinion of
counsel, reasonably satisfactory to counsel for the Company, that
an exemption from such registration is available.
13. CERTIFICATES TO BEAR LEGENDS. The Warrants shall be
subject to a stop-transfer order and the certificate or
certificates therefor shall bear the following legend:
NEITHER THE WARRANTS REPRESENTED HEREBY NOR THE
SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT), OR CERTAIN STATE SECURITIES LAWS, AND MAY
NOT BE SOLD, OFFERED OR OTHERWISE TRANSFERRED, PLEDGED
OR <PAGE> HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER THE
ACT OR AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE
AND THE COMPANY SHALL HAVE RECEIVED AN OPINION OF
COUNSEL, REASONABLY SATISFACTORY TO COUNSEL FOR THE
COMPANY, THAT AN EXEMPTION FROM REGISTRATION UNDER THE
ACT IS AVAILABLE.
The Warrant Shares or other securities issued upon exercise
of the Warrants shall be subject to a stop-transfer order and the
certificate or certificates evidencing any such Warrant Shares or
securities shall bear a legend in substantially the following
form:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"), OR CERTAIN STATE SECURITIES LAWS, AND MAY
NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED
OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER THE
ACT OR AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE
AND THE COMPANY SHALL HAVE RECEIVED AN OPINION OF
COUNSEL, REASONABLY SATISFACTORY TO COUNSEL FOR THE
COMPANY, THAT SUCH AN EXEMPTION FROM REGISTRATION UNDER
THE ACT IS AVAILABLE.
14. REGISTRATION RIGHTS AGREEMENT. Each Warrant Holder is
entitled to the benefits of the Registration Rights Agreement and
by purchases of the Units each Warrant Holder agrees to be bound
by the terms of the Registration Rights Agreement.
15. NOTICES TO WARRANT HOLDERS. Nothing contained in this
Agreement or in any of the Warrants shall be construed as
conferring upon the Warrant Holders thereof the right to vote or
to receive dividends or to consent or to receive notice as
stockholders in respect of the meetings of stockholders or the
election of directors of the Company or any other matter, or any
rights whatsoever as stockholders of the Company; provided,
however, that in the event that a meeting of stockholders shall
be called to consider and take action on a proposal for the
voluntary dissolution of the Company, then and in that event the
Company shall cause a notice thereof to be sent by first-class
mail, postage prepaid, at least 10 days prior to the date fixed
as a record date or the date of closing the transfer books in
relation to such meeting, to each registered Warrant Holder of
Warrants at such Warrant Holder's address appearing on the
Warrants at such Warrant Holder's address appearing on the
Warrant register; but failure to mail or to receive such notice
or any defect therein or in the mailing thereof shall not affect
the validity of any action taken in connection with such
voluntary dissolution. If such notice shall have been so given
and if such a voluntary dissolution shall be authorized at such
meeting or any adjournment thereof, then from and after the date
on which such voluntary dissolution shall have been duly
authorized by the stockholders, all other rights with respect
thereto shall cease and terminate.
<PAGE>
16. NOTICES. Any notice pursuant to this Agreement to be
given or made by the Warrant Holder of any Warrant to or on the
Company shall be sufficiently given or made if sent by first-class
mail, postage prepaid, addressed as follows:
Vanguard Airlines, Inc.
30 N.W. Rome Circle
Mezzanine Level
Kansas City International Airport
Kansas City, MO 64153
Attention: Brian S. Gillman
Notices or demands authorized by this Agreement to be given
or made by the Company to the Warrant Holder of any Warrants
and/or Warrant Shares shall be sufficiently given or made (except
as otherwise provided in this Agreement) if sent by first-class
mail, postage prepaid, addressed to such Warrant Holder at the
address of such Warrant Holder as shown on the Warrant Register.
Each such notice shall be effective if given by mail, three
(3) days after such communication is deposited in the mails with
first class postage prepaid, addressed as aforesaid.
17. AMENDMENT. This Agreement may be amended only if the
Company shall have obtained the prior written consent of the
Warrant Holders. Each Warrant Holder at the time or thereafter
outstanding shall be bound by any consent authorized by this
Section 17.
18. COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which so executed shall be deemed
to be an original; but such counterparts together shall
constitute but one and the same instrument.
19. GOVERNING LAW. THIS AGREEMENT AND EACH WARRANT ISSUED
HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE SUBSTANTIVE LAWS OF THE STATE OF MISSOURI.
20. SIGNATURE. THIS WARRANT AGREEMENT WILL BE DEEMED TO
HAVE BEEN EXECUTED FOR ALL PURPOSES WHEN THE SUBSCRIBER SIGNS AND
DATES THE OMNIBUS SIGNATURE PAGE.
<PAGE>
(Form of Warrant Certificate)
NEITHER THE WARRANTS REPRESENTED BY THIS CERTIFICATE NOR THE
SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR CERTAIN STATE
SECURITIES LAWS, AND MAY NOT BE SOLD, OFFERED FOR SALE,
TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS THEY ARE SO
REGISTERED OR AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE
AND THIS COMPANY SHALL HAVE RECEIVED AN OPINION OF COUNSEL,
REASONABLY SATISFACTORY TO COUNSEL FOR THIS COMPANY, THAT SUCH AN
EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE.
No. CW
VOID AFTER 5:00 P.M. CENTRAL TIME
On August 26, 2001
VANGUARD AIRLINES, INC.
Warrant Certificate
THIS CERTIFIES THAT for value received
_____________________, or registered assigns, is the registered
holder of ____________ Warrants, each of which entitles the owner
thereof to purchase any time after August 20, 1996 (the
"Effective Date") until 5:00 P.M. prevailing Central Time on
August 26, 2001 (the "Expiration Date"), one share of the common
stock, par value $0.001 per share (the "Common Stock"), of
Vanguard Airlines, Inc., a Delaware corporation (the "Company"),
multiplied by the number of warrants set forth above, at an
exercise price per share equal to the Unit Price, as defined in
the Warrant Agreement ("Warrant Agreement") between the Company,
the registered holder hereof and certain other holders of Warrant
Certificates, dated as of the date hereof, multiplied by 1.2 (the
"Exercise Price"), subject to certain adjustments, upon
presentation and surrender of this Warrant Certificate with the
Form of Election to Purchase duly executed. Upon the Expiration
Date, all rights evidenced by this Warrant shall cease and the
Warrants shall become void. The number of Warrants evidenced by
this Warrant Certificate (and the number of shares which may be
purchased upon exercise thereof) set forth above, and the
Exercise Price per share set forth above, are the number and
Exercise Price as of the date of original issuance of the
Warrants, based on the shares of Common Stock of the Company as
constituted at such date. As provided in the Warrant Agreement
referred to below, the Exercise Price and the number or kind of
shares which may be purchased upon the exercise of the Warrants
evidenced by this Warrant Certificate are, upon the happening of
certain events, subject to modification and adjustment.
<PAGE>
This Warrant Certificate is subject to, and entitled to the
benefits of, all of the terms, provisions and conditions of the
Warrant Agreement which Warrant Agreement is hereby incorporated
herein by reference and made a part hereof and to which Warrant
Agreement reference is hereby made for a full description of the
rights, limitations of rights, duties and immunities hereunder of
the Company and the holders of the Warrant Certificates. Copies
of the Warrant Agreement are on file at the principal office of
the Company.
This Warrant Certificate, with or without other Warrant
Certificates, upon surrender at the principal office of the
Company, may be exchanged for another Warrant Certificate or
Warrant Certificates of like tenor and date evidencing Warrants
entitling the holder to purchase a like aggregate number of
shares of Common Stock as the Warrants evidenced by the Warrant
Certificate or Warrant Certificates surrendered entitled such
holder to purchase. If this Warrant Certificate shall be
exercised in part, the holder hereof shall be entitled to receive
upon surrender hereof another Warrant Certificate or Warrant
Certificates for the number of whole Warrants not exercised.
No fractional shares of Common Stock will be issued upon the
exercise of any Warrant or Warrants evidenced hereby, but in lieu
thereof a cash payment will be made as provided in the Warrant
Agreement.
No holder of this Warrant Certificate shall be entitled to
vote or receive dividends or be deemed the holder of Common Stock
or any other securities of the Company which may at any time be
issuable on the exercise hereof for any purpose, nor shall
anything contained in the Warrant Agreement herein be construed
to confer upon the holder hereof, as such, any of the rights of a
stockholder of the Company or any right to vote for the election
of directors or upon any matter submitted to stockholders at any
meeting thereof, or to give or withhold consent to any corporate
action (whether upon any recapitalization, issue of stock,
reclassification of stock, change of par value or change of stock
to no par value, consolidation, merger, conveyance, or otherwise)
or, except as provided in the Warrant Agreement, to receive
notice of meetings, or to receive dividends or subscription
rights or otherwise, until the Warrant or Warrants evidenced by
this Warrant Certificate shall have been exercised and the shares
of Common Stock shall have become deliverable as provided in the
Warrant Agreement.
If this Warrant Certificate shall be surrendered for
exercise within any period during which the transfer books for
the Company's Common Stock or other class of stock purchasable
upon the exercise of this Warrant are closed for any purpose, the
Company shall not be required to make delivery of certificates
for shares purchasable upon such exercise until the date of the
reopening of said transfer books.
This Warrant Certificate may be redeemed under the
circumstances described in the Warrant Agreement.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to
be duly executed and delivered on the date first set forth above.
___________________________________
Robert J. McAdoo
Chairman, President & Chief
Executive Officer
<PAGE>
FORM OF ASSIGNMENT
(To be executed by the registered holder if such holder desires
to transfer the Warrant Certificates.)
FOR VALUE RECEIVED ________________________________ hereby sells,
assigns and transfers unto this Warrant Certificate, together
with all right, title and interest therein, and does hereby
irrevocably constitute and appoint ___________________________,
to transfer the within Warrant Certificate on the books of the
within-named Company, with full power of substitution.
Dated:_______________________, 199__ _________________________
Signature
NOTICE
The signature of the foregoing Assignment must correspond to
the name as written upon the face of this Warrant Certificate in
every particular, without alteration or enlargement or any change
whatsoever.
<PAGE>
FORM OF
ELECTION TO PURCHASE
(To be executed if holder desires to exercise the Warrant
Certificate.)
TO VANGUARD AIRLINES, INC.:
The undersigned hereby irrevocably elects to exercise
_____________ Warrants represented by this Warrant Certificate to
purchase the shares of Common Stock issuable upon the exercise of
such ____________ Warrants and requests that certificates for
such shares be issued in the name of:
_______________________________________.
Please insert social security or other identifying number:
___________________________________
(Please print name and address)
___________________________________
Signature
(Signature must conform in all
respects to name of holder as
specified on the face of this
Warrant Certificate)
<PAGE>
REGISTRATION RIGHTS AGREEMENT
<PAGE>
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "Agreement") is
entered into as of the Initial Closing Date (as hereinafter
defined), by and among Vanguard Airlines, Inc., a Delaware
corporation (the "Company"), and the Holders (as hereinafter
defined).
RECITALS
WHEREAS, pursuant to the terms of a Confidential Private
Placement Memorandum, dated August 16, 1996 the Company is
issuing up to $7,000,000 of units (each a "Unit" and,
collectively, the "Units"), each consisting of one share (each a
"Share" and, collectively, the "Shares") of Common Stock, $0.001
par value, of the Company (the "Common Stock") and one Redeemable
Common Stock Purchase Warrant (each a "Redeemable Warrant" and,
collectively, the "Redeemable Warrants"), exercisable, subject to
certain adjustments, into one share of Common Stock (each a
"Warrant Share" and, collectively, the "Warrant Shares") at an
exercise price per share equal to the Unit Price (as hereinafter
defined) multiplied by 1.2; and
WHEREAS; as a condition to purchasing the Units, the Holders
have requested that the Company extend to them registration
rights as set forth below; and
WHEREAS; the Company desires to extend certain rights
herein, subject to the obligations provided for herein, in
accordance with the terms of this Agreement;
NOW, THEREFORE, in consideration of the mutual promises,
representations, warranties, covenants, and conditions set forth
in this Agreement, the Subscription Agreement and the Warrant
Agreement, each of even date herewith, entered into by the
Company and each of the Holders, the parties mutually agree as
follows:
1. GENERAL
1.1 DEFINITIONS. As used in this Agreement the following
terms shall have the following respective meanings:
"1934 ACT" means the Securities Exchange Act of 1934,
as amended.
"EQUITY SECURITIES" means (i) any stock or similar
security of the Company, (ii) any security convertible, with or
without consideration, into any stock or similar security
(including any option to purchase such a convertible security),
(iii) any security carrying any warrant or right to subscribe to
or purchase any stock or similar security or (iv) any such
warrant or right.
"FAMILY MEMBER" means a Holder's spouse, siblings,
children, stepchildren and grandchildren.
"FINAL PROSPECTUS" means an amended prospectus filed
with the SEC pursuant to SEC Rule 424(b) of the Securities Act.
"HOLDER" means any person owning of record Registrable
Securities.
"INITIAL CLOSING DATE" means the first date upon which
the Company shall schedule a closing with respect to the purchase
of Units.
"INITIATING HOLDERS" means the Holders of at least
forty percent (40%) of the Registrable Securities then
outstanding.
<PAGE>
"REGISTER," "REGISTERED," and "REGISTRATION" refer to a
registration effected by preparing and filing a registration
statement in compliance with the Securities Act, and the
declaration or ordering of effectiveness of such registration
statement or document.
"REGISTRABLE SECURITIES" means (i) the Shares; (ii) the
Warrant Shares; and (iii) any Common Stock of the Company issued
as (or issuable upon the conversion or exercise of any warrant,
right or other security which is issued as) a dividend or other
distribution with respect to, or in exchange for or in
replacement of, such above-described securities. Notwithstanding
the foregoing, Registrable Securities shall not include any
securities (i) sold by a person to the public either pursuant to
a an effective registration statement or pursuant to Rule 144 (or
any successor provision), (ii) sold in a private transaction in
which the transferror's rights under Article 2 of this Agreement
are not assigned or (iii) for which a disposition would not
require registration or qualification under the Securities Act or
any similar state law then in force, provided, however, that the
Company has delivered new certificates for such securities not
bearing a legend restricting further transfer. For the purposes
of determining the holders of Registrable Securities hereunder on
any date, the Redeemable Warrants shall be deemed to have been
exercised as of such date to acquire the number of shares of
Common Stock covered thereby.
"SECURITIES ACT" shall mean the Securities Act of 1933,
as amended.
"FORM S-3" means such form under the Securities Act as
in effect on the date hereof or any successor registration form
under the Securities Act subsequently adopted by the SEC which
permits inclusion or incorporation of substantial information by
reference to other documents filed by the Company with the SEC.
"SEC" or "COMMISSION" means the Securities and Exchange
Commission.
2. RESTRICTIONS ON TRANSFER; REGISTRATION
2.1 RESTRICTIONS ON TRANSFER.
(a) Each Holder agrees not to make any disposition of
all or any portion of the Registrable Securities unless and until
the transferee has agreed in writing for the benefit of the
Company to be bound by this Section 2.1, provided and to the
extent such Sections are then applicable and:
(i) There is then in effect a registration
statement under the Securities Act covering such proposed
disposition and such disposition is made in accordance with such
registration statement; or
(ii) Such Holder shall have notified the Company
of the proposed disposition and shall have furnished the Company
with a detailed statement of the circumstances surrounding the
proposed disposition, and if reasonably requested by the Company,
such Holder shall have furnished the Company with an opinion of
counsel, reasonably satisfactory to the Company, that such
disposition will not require registration of such shares under
the Securities Act.
(b) Notwithstanding the provisions of paragraphs (i)
and (ii) above, no such registration statement or opinion of
counsel shall be necessary for a transfer by a Holder which is
(A) a partnership, to its partners in accordance with partnership
interests, or (B) to the Holder's family member or trust for the
benefit of an individual Holder, provided the transferee will be
subject to the terms of this Section 2.1 to the same extent as if
he were an original Holder hereunder.
(c) Each Redeemable Warrant and each certificate
representing Registrable Securities shall (unless otherwise
permitted by the provisions of the Agreement) be stamped or
otherwise imprinted with a legend substantially similar to the
following (in addition to any legend required under applicable
state securities laws or as provided elsewhere in the Agreement):
<PAGE>
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT") OR CERTAIN STATE SECURITIES LAWS, AND MAY
NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED
OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER THE
ACT OR AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE
AND THE COMPANY SHALL HAVE RECEIVED AN OPINION OF
COUNSEL, REASONABLY SATISFACTORY TO COUNSEL FOR THE
COMPANY THAT SUCH AN EXEMPTION FROM REGISTRATION UNDER
THE ACT IS AVAILABLE.
(d) The Company shall be obligated to reissue promptly
unlegended certificates at the request of any holder thereof if
the holder shall have obtained an opinion of counsel (which
counsel may be counsel to the Company) reasonably acceptable to
the Company to the effect that the securities proposed to be
disposed of may lawfully be so disposed of without registration,
qualification or legend.
(e) Any legend endorsed on an instrument pursuant to
applicable state securities laws and the stop-transfer
instructions with respect to such securities shall be removed
upon receipt by the Company of an order of the appropriate blue
sky authority authorizing such removal.
2.2 DEMAND REGISTRATION.
(a) Subject to the conditions of this Section 2.2, if
the Company shall receive at any time after April 1, 1998, a
written request from the Initiating Holders that the Company file
a registration statement under the Securities Act covering the
registration of Registrable Securities, then the Company shall,
within thirty (30) days of the receipt thereof, give written
notice of such request to all Holders, and subject to the
limitations of Section 2.2(b), effect, as soon as practicable,
the registration under the Securities Act of at least 25% of the
Registrable Securities held by such Initiating Holder on a pro
rata basis; provided, however, that the Company may register less
than 25% of such Registrable Securities if the anticipated
aggregate offering price, net of underwriting discounts and
commissions, exceeds $5,000,000.
(b) If the Initiating Holders intend to distribute the
Registrable Securities covered by their request by means of an
underwriting, they shall so advise the Company as a part of their
request made pursuant to this Section 2.2 and the Company shall
include such information in the written notice referred to in
Section 2.2(a). In such event, the right of any Holder to
include his Registrable Securities in such registration shall be
conditioned upon such Holder's participation in such underwriting
and the inclusion of such Holder's Registrable Securities in the
underwriting (unless otherwise mutually agreed by a majority in
interest of the Initiating Holders and such Holder) to the extent
provided herein. All Holders proposing to distribute their
securities through such underwriting shall enter into an
underwriting agreement in customary form with the underwriter or
underwriters selected for such underwriting by a majority in
interest of the Initiating Holders (which underwriter or
underwriters shall be reasonably acceptable to the Company).
Notwithstanding any other provision of this Section 2.2, if the
underwriter advises the Company in writing that marketing factors
require a limitation of the number of securities to be
underwritten (including Registrable Securities) then the Company
shall so advise all Holders of Registrable Securities which would
otherwise be underwritten pursuant hereto, and the number of
shares that may be included in the underwriting shall be
allocated to the holders of registrable securities on a pro rata
basis based on the number of registrable securities held by all
holders (including the Initiating Holders). Any Registrable
Securities excluded or withdrawn from such underwriting shall be
withdrawn from the registration.
(c) The Company shall not be obligated to effect more
than two (2) registrations pursuant to this Section 2.2.
(d) Notwithstanding the foregoing, if the Company
shall furnish to Holders requesting a registration statement
pursuant to this Section 2.2, a certificate signed by the
Chairman of the Board stating that in the good faith judgment of
the Board of Directors of the Company, it would be seriously
detrimental to the Company and its stockholders for such
registration statement to be filed and it is therefore essential
to defer the filing of such registration statement, the Company
shall have the right to defer such filing for a period of not
more than ninety (90) days after receipt <PAGE> of the request of the
Initiating Holders; provided that such right to delay a request
shall be exercised by the Company no more than once in any one-year
period.
(e) All expenses incurred in connection with a
registration pursuant to this Section 2.2 (excluding
underwriters' discounts and commissions, which shall be paid by
the selling Holders pro rata with respect to their included
shares), including without limitation all registration, filing,
qualification, printers' and accounting fees, fees and
disbursements of counsel for the Company, and the reasonable fees
and disbursements of a single counsel for the selling Holders,
shall be borne by the Company; provided, however, that the
Company shall not be required to pay for any expenses of any
registration proceeding begun pursuant to Section 2.2 if the
registration request is subsequently withdrawn, unless the
withdrawal of the registration request results from either (a)
intentional actions by the Company outside the normal course of
business that materially reduce the feasibility of the
registration proceeding, or (b) the discovery of information
about the Company that was not known at the time of the
Initiating Holders' request made pursuant to Section 2.2(a), and
such information materially reduces the feasibility of the
registration proceeding. If the Company is required to pay the
registration expenses pursuant to this Section 2.2(e)(a) or (b),
then the Holders shall not forfeit their rights pursuant to this
Section 2.2 to a demand registration.
2.3 PIGGYBACK REGISTRATIONS.
(a) The Company shall notify all Holders in writing at
least thirty (30) days prior to the filing of any registration
statement under the Securities Act for purposes of a public
offering of securities of the Company (including, but not limited
to, registration statements relating to secondary offerings of
securities of the Company, but excluding registration statements
relating to employee benefit plans and corporate reorganizations)
and will afford each such Holder an opportunity to include in
such registration statement all or part of such Registrable
Securities held by such Holder. Each Holder desiring to include
in any such registration statement all or any part of the
Registrable Securities held by it shall, within twenty (20) days
after receipt of the above-described notice from the Company, so
notify the Company in writing. Such notice shall state the
intended method of disposition of the Registrable Securities by
such Holder. If a Holder decides not to include all of its
Registrable Securities in any registration statement thereafter
filed by the Company, such Holder shall nevertheless continue to
have the right to include any Registrable Securities in any
subsequent registration statement or registration statements as
may be filed by the Company with respect to offerings of its
securities, all upon the terms and conditions set forth herein.
Notwithstanding anything to the contrary, the foregoing shall not
apply to any registrations occurring on or after the fifth
anniversary of the Initial Closing Date.
(b) If the registration statement under which the
Company gives notice under this Section 2.3 is for an
underwritten offering, the Company shall so advise the Holders.
In such event, the right of any such Holder to be included in a
registration pursuant to this Section 2.3 shall be conditioned
upon such Holder's participation in such underwriting and the
inclusion of such Holder's Registrable Securities in the
underwriting to the extent provided herein. All Holders
proposing to distribute their Registrable Securities through such
underwriting shall enter into an underwriting agreement in
customary form with the underwriter or underwriters selected for
such underwriting. Notwithstanding any other provision of the
Agreement, if the underwriter determines in good faith that
marketing factors require a limitation of the number of shares to
be underwritten, the number of shares that may be included in the
underwriting shall be allocated, first, to the Company; second,
to the holders of registrable securities of the Company who are
parties to the Amended and Restated Investors' Rights Agreement,
dated August 24, 1994, on a pro rata basis based on the total
number of registrable securities held by the parties thereto; and
third, to the Holders on a pro rata basis based on the total
number of Registrable Securities held by the Holders. No such
reduction shall reduce the securities being offered by the
Company for its own account to be included in the registration
and underwriting, except that in no event shall the amount of
securities of the selling Holders included in the registration be
reduced below twenty percent (20%) of the total amount of
securities included in such registration.
(c) The Company shall bear all fees and expenses
incurred in connection with any registration under this Section
2.3 (excluding underwriters' discounts and commissions, which
shall be paid by the selling Holders pro rata with respect to
their included shares), including without limitation all
registration, filing, qualification, printers' and accounting
fees, fees and disbursements of counsel to the Company, and the
reasonable fees and disbursements of <PAGE> a single counsel to the
selling Holders (which counsel shall also be counsel to the
Company unless counsel to the Company has a conflict of interest
with respect to the representation of any selling Holder or the
underwriters object to the selling Holders representation by
Company counsel).
2.4 FORM S-3 REGISTRATION. In case the Company shall
receive from the Holders of at least ten percent (10%) of the
Registrable Securities a written request or requests that the
Company effect a registration on Form S-3 and any related
qualification or compliance with respect to all or a part of the
Registrable Securities owned by such Holder or Holders, the
Company will:
(a) promptly give written notice of the proposed
registration, and any related qualification or compliance, to all
other Holders of Registrable Securities; and
(b) as soon as practicable, effect such registration
and all such qualifications and compliances as may be so
requested and as would permit or facilitate the sale and
distribution of all or such portion of such Holder's or Holders'
Registrable Securities as are specified in such request, together
with all or such portion of the Registrable Securities of any
other Holder or Holders joining in such request as are specified
in a written request given within fifteen (15) days after receipt
of such written notice from the Company; provided, however, that
the Company shall not be obligated to effect any such
registration, qualification or compliance pursuant to this
Section 2.4: (i) if Form S-3 is not available under the
Securities Act or rules or regulations promulgated thereunder for
such offering by the Holders, (ii) if the Holders, together with
the holders of any other securities of the Company entitled to
inclusion in such registration, propose to sell Registrable
Securities and such other securities (if any) at an aggregate
price to the public of less than $500,000, (iii) if the Company
shall furnish to the Holders a certificate signed by the Chairman
of the Board of Directors of the Company stating that in the good
faith judgment of the Board of Directors of the Company, it would
be seriously detrimental to the Company and its stockholders for
such Form S-3 Registration to be effected at such time, in which
event the Company shall have the right to defer the filing of the
Form S-3 registration statement for a period of not more than
ninety (90) days after receipt of the request of the Holder or
Holders under this Section 2.4, provided that, such right to
defer the filing may be exercised by the Company no more than
once in any one-year period, (iv) if the Company has, within the
twelve (12) month period preceding the date of such request,
already effected two (2) registrations on Form S-3 for the
Holders pursuant to this Section 2.4, or (v) in any particular
jurisdiction in which the Company would be required to qualify to
do business or to execute a general consent to service of process
in effecting such registration, qualification or compliance.
(c) Subject to the foregoing, the Company shall file a
Form S-3 registration statement covering the Registrable
Securities and other securities so requested to be registered as
soon as practicable after receipt of the request or requests of
the Holders. All such expenses incurred in connection with
registrations requested pursuant to this Section 2.4 shall be
paid by the selling Holders pro rata with respect to their
included shares, including without limitation all registration,
filing, qualification, printers' and accounting fees, fees and
disbursements of counsel for the Company, and the reasonable fees
and disbursements of a single counsel for the selling Holder or
Holders.
2.5 OBLIGATIONS OF THE COMPANY. Whenever required to
effect the registration of any Registrable Securities, the
Company shall, as expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration
statement with respect to such Registrable Securities and use its
best efforts to cause such registration statement to become
effective, and, upon the request of the Holders of a majority of
the Registrable Securities registered thereunder, keep such
registration statement effective for up to ninety (90) days.
(b) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus
used in connection with such registration statement as may be
necessary to comply with the provisions of the Securities Act
with respect to the disposition of all securities covered by such
registration statement.
<PAGE>
(c) Furnish to the Holders such number of copies of a
prospectus, including a preliminary prospectus, in conformity
with the requirements of the Securities Act, and such other
documents as they may reasonably request in order to facilitate
the disposition of Registrable Securities owned by them.
(d) Use its best efforts to register and qualify the
securities covered by such registration statement under such
other securities or Blue Sky laws of such jurisdictions as shall
be reasonably requested by the Holders, provided that the Company
shall not be required in connection therewith or as a condition
thereto to qualify to do business or to file a general consent to
service of process in any such states or jurisdictions.
(e) In the event of any underwritten public offering,
enter into and perform its obligations under an underwriting
agreement, in usual and customary form, with the managing
underwriter(s) of such offering. Each Holder participating in
such underwriting shall also enter into and perform its
obligations under such an agreement.
(f) Notify each Holder of Registrable Securities
covered by such registration statement at any time when a
prospectus relating thereto is required to be delivered under the
Securities Act of the happening of any event as a result of which
the prospectus included in such registration statement, as then
in effect, includes an untrue statement of a material fact or
omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in the
light of the circumstances then existing.
(g) Furnish, at the request of a majority of the
Holders participating in the registration, on the date that such
Registrable Securities are delivered to the underwriters for
sale, if such securities are being sold through underwriters, or,
if such securities are not being sold through underwriters, on
the date that the registration statement with respect to such
securities becomes effective, (i) an opinion, dated as of such
date, of the counsel representing the Company for the purposes of
such registration, in form and substance as is customarily given
to underwriters in an underwritten public offering and reasonably
satisfactory to a majority in interest of the Holders requesting
registration, addressed to the underwriters, if any, and to the
Holders requesting registration of Registrable Securities and
(ii) a letter dated as of such date, from the independent
certified public accountants of the Company, in form and
substance as is customarily given by independent certified public
accountants to underwriters in an underwritten public offering
and reasonably satisfactory to a majority in interest of the
Holders requesting registration, addressed to the underwriters,
if any, and to the Holders requesting registration of Registrable
Securities.
2.6 FURNISH INFORMATION. It shall be a condition precedent
to the obligations of the Company to take any action pursuant to
Sections 2.2, 2.3 or 2.4 that the selling Holders shall furnish
to the Company such information regarding themselves, the
Registrable Securities held by them, and the intended method of
disposition of such securities as shall be required to effect the
registration of their Registrable Securities.
2.7 DELAY OF REGISTRATION. No Holder shall have any right
to obtain or seek an injunction restraining or otherwise delaying
any such registration as the result of any controversy that might
arise with respect to the interpretation or implementation of
this Article II.
2.8 INDEMNIFICATION. In the event any Registrable
Securities are included in a registration statement under
Sections 2.2, 2.3 or 2.4:
(a) To the extent permitted by law, the Company will
indemnify and hold harmless each Holder, the partners, officers
and directors of each Holder, any underwriter (as defined in the
Securities Act) for such Holder and each person, if any, who
controls such Holder or underwriter within the meaning of the
Securities Act or the 1934 Act, against any losses, claims,
damages, or liabilities (joint or several) to which they may
become subject under the Securities Act, the 1934 Act or other
federal or state law, insofar as such losses, claims, damages, or
liabilities (or actions in respect thereof) arise out of or are
based upon any of the following statements, omissions or
violations (collectively a "Violation") by the Company: (i) any
untrue statement or alleged untrue statement of a material fact
contained in such registration statement, including any
preliminary prospectus or final prospectus contained therein or
any amendments or supplements thereto, (ii) the omission or
alleged omission to state therein a material fact required to be
stated therein, or necessary <PAGE> to make the statements therein not
misleading, or (iii) any violation or alleged violation by the
Company of the Securities Act, the 1934 Act, any state securities
law or any rule or regulation promulgated under the Securities
Act, the 1934 Act or any state securities law in connection with
the offering covered by such registration statement; and the
Company will reimburse each such Holder, partner, officer or
director, underwriter or controlling person for any legal or
other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage,
liability or action; provided however, that the indemnity
agreement contained in this Section 2.8(a) shall not apply to
amounts paid in settlement of any such loss, claim, damage,
liability or action if such settlement is effected without the
consent of the Company (which consent shall not be unreasonably
withheld), nor shall the Company be liable in any such case for
any such loss, claim, damage, liability or action to the extent
that it arises out of or is based upon a Violation which occurs
in reliance upon and in conformity with written information
furnished to the Company expressly for use in connection with
such registration by such Holder, partner, officer, director,
underwriter or controlling person of such Holder.
(b) To the extent permitted by law, each selling
Holder will indemnify and hold harmless the Company, each of its
directors, each of its officers, each person, if any, who
controls the Company within the meaning of the Securities Act,
any underwriter and any other Holder selling securities under
such registration statement or any of such other Holder's
partners, directors or officers or any person who controls such
Holder, against any losses, claims, damages or liabilities (joint
or several) to which the Company or any such director, officer,
controlling person, underwriter or other such Holder, or partner,
director, officer or controlling person of such other Holder may
become subject under the Securities Act, the 1934 Act or other
federal or state law, insofar as such losses, claims, damages or
liabilities (or actions in respect thereto) arise out of or are
based upon any Violation, in each case to the extent (and only to
the extent) that such Violation occurs in reliance upon and in
conformity with written information furnished to the Company by
such Holder expressly for use in connection with such
registration; and each such Holder will reimburse any legal or
other expenses reasonably incurred by the Company or any such
director, officer, controlling person, underwriter or other
Holder, or partner, officer, director or controlling person of
such other Holder in connection with investigating or defending
any such loss, claim, damage, liability or action if it is
judicially determined that there was such a Violation; provided,
however, that the indemnity agreement contained in this Section
2.8(b) shall not apply to amounts paid in settlement of any such
loss, claim, damage, liability or action if such settlement is
effected without the consent of the Holder, which consent shall
not be unreasonably withheld; provided further, that in no event
shall any indemnity under this Section 2.8 exceed the net
proceeds from the offering received by such Holder.
(c) Promptly after receipt by an indemnified party
under this Section 2.8 of notice of the commencement of any
action (including any governmental action), such indemnified
party will, if a claim in respect thereof is to be made against
any indemnifying party under this Section 2.8, deliver to the
indemnifying party a written notice of the commencement thereof
and the indemnifying party shall have the right to participate
in, and, to the extent the indemnifying party so desires, jointly
with any other indemnifying party similarly noticed, to assume
the defense thereof with counsel mutually satisfactory to the
parties; provided, however, that an indemnified party shall have
the right to retain its own counsel, with the fees and expenses
to be paid by the indemnifying party, if representation of such
indemnified party by the counsel retained by the indemnifying
party would be inappropriate due to actual or potential differing
interests between such indemnified party and any other party
represented by such counsel in such proceeding. The failure to
deliver written notice to the indemnifying party within a
reasonable time of the commencement of any such action, if
materially prejudicial to its ability to defend such action,
shall relieve such indemnifying party of any liability to the
indemnified party under this Section 2.8, but the omission so to
deliver written notice to the indemnifying party will not relieve
it of any liability that it may have to any indemnified party
otherwise than under this Section 2.8.
(d) If the indemnification provided for in this
Section 2.8 is held by a court of competent jurisdiction to be
unavailable to an indemnified party with respect to any losses,
claims, damages or liabilities referred to herein, the
indemnifying party, in lieu of indemnifying such indemnified
party thereunder, shall to the extent permitted by applicable law
contribute to the amount paid or payable by such indemnified
party as a result of such loss, claim, damage or liability in
such proportion as is appropriate to reflect the relative fault
of the indemnifying party on the one hand and of the indemnified
party on the other in connection with the Violation(s) that
resulted in such loss, claim, damage or liability, as well as any
other relevant equitable considerations. The relative fault of
the indemnifying party and of the indemnified party shall be
determined by a court of law by reference to, among other things,
whether the untrue or alleged <PAGE> untrue statement of a material fact
or the omission to state a material fact relates to information
supplied by the indemnifying party or by the indemnified party
and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement
or omission; provided that, in no event shall any contribution by
a Holder hereunder exceed the net proceeds from the offering
received by such Holder.
(e) The foregoing indemnity agreements of the Company
and Holders are subject to the condition that, insofar as they
relate to any Violation made in a preliminary prospectus but
eliminated or remedied in the amended prospectus on file with the
SEC at the time the registration statement in question becomes
effective or the Final Prospectus, such indemnity agreement shall
not inure to the benefit of any person obligated under the
Securities Act to furnish to the person asserting the loss,
liability, claim or damage a copy of the Final Prospectus if a
copy of the Final Prospectus was furnished to the indemnified
party and was not furnished to the person asserting the loss,
liability, claim or damage at or prior to the time such action is
required by the Securities Act.
(f) The obligations of the Company and Holders under
this Section 2.9 shall survive the completion of any offering of
Registrable Securities pursuant to a registration statement, or
otherwise.
2.9 ASSIGNMENT OF REGISTRATION RIGHTS. The rights to cause
the Company to register Registrable Securities pursuant to this
Article II may be assigned by a Holder to a transferee or
assignee of Registrable Securities; provided, however, that no
such transferee or assignee shall be entitled to registration
rights under Sections 2.2, 2.3 or 2.4 hereof unless such
transferee or assignee: (i) is a Holder; (ii) holds after such
transfer or assignment at least one hundred thousand (100,000)
shares of Registrable Securities (as adjusted for stock
dividends, splits and combinations); or (iii) is a Family Member
or a subsidiary, parent, general partner, or limited partner of a
Holder. In each such case, the Company shall, within twenty (20)
days after such transfer, be furnished with written notice of the
name and address of such transferee or assignee and the
securities with respect to which such registration rights are
being assigned.
2.10 AMENDMENT OF REGISTRATION RIGHTS. Any provision of
this Article II may be amended and the observance thereof may be
waived (either generally or in a particular instance and either
retroactively or prospectively), only with the written consent of
the Company and the Holders of more than fifty percent (50%) of
the Registrable Securities. Any amendment or waiver effected in
accordance with this Section 2.10 shall be binding upon each
Holder and the Company. By acceptance of any benefits under this
Article II, Holders hereby agree to be bound by the provisions
hereunder.
2.11 "MARKET STAND-OFF" AGREEMENT. If requested by the
Company and an underwriter of Common Stock (or other securities)
of the Company, a Purchaser shall not sell or otherwise transfer
or dispose of any Common Stock (or other securities) of the
Company held by such Stockholder (other than those included in
the registration) for a period specified by the underwriters not
to exceed one hundred eighty (180) days following the effective
date of a registration statement of the Company filed under the
Securities Act, provided, that all officers and directors of the
Company and holders of at least ten percent (10%) of the
Company's voting securities enter into similar agreements. The
obligations described in this Section 2.11 shall not apply to a
registration relating solely to employee benefit plans on Form S-1
or Form S-8 or similar forms that may be promulgated in the
future, or a registration relating solely to a Commission Rule
145 transaction on Form S-4 or similar forms that may be
promulgated in the future. The Company may impose stop-transfer
instructions with respect to the shares (or securities) subject
to the foregoing restriction until the end of said one hundred
eighty (180) day period.
3. MISCELLANEOUS.
3.1 GOVERNING LAW. This Agreement shall be governed by and
construed under the laws of the State of Missouri as applied to
agreements among Missouri residents entered into and to be
performed entirely within Missouri.
3.2 SURVIVAL. The representations, warranties, covenants,
and agreements made herein shall survive any investigation made
by any Holder and the closing of the transactions contemplated
hereby. All statements as to factual matters contained in any
certificate or other instrument delivered by or on behalf of the
Company pursuant hereto in <PAGE> connection with the transactions
contemplated hereby shall be deemed to be representations and
warranties by the Company hereunder solely as of the date of such
certificate or instrument.
3.3 SUCCESSORS AND ASSIGNS. Except as otherwise expressly
provided herein, the provisions hereof shall inure to the benefit
of, and be binding upon, the successors, assigns, heirs,
executors, and administrators of the parties hereto and shall
inure to the benefit of and be enforceable by each person who
shall be a holder of Registrable Securities from time to time;
provided, however, that prior to the receipt by the Company of
adequate written notice of the transfer of any Registrable
Securities specifying the full name and address of the
transferee, the Company may deem and treat the person listed as
the holder of such shares in its records as the absolute owner
and holder of such shares for all purposes, including the payment
of dividends or any redemption price.
3.4 SEPARABILITY. In case any provision of the Agreement
shall be invalid, illegal, or unenforceable, the validity,
legality, and enforceability of the remaining provisions shall
not in any way be affected or impaired thereby.
3.5 AMENDMENT AND WAIVER.
(a) Except as otherwise expressly provided, this
Agreement may be amended or modified only upon the written
consent of the Company and the holders of more than fifty percent
(50%) of the Registrable Securities.
(b) Except as otherwise expressly provided, the
obligations of the Company and the rights of the Holders under
this Agreement may be waived only with the written consent of the
holders of more than fifty percent (50%) of the Registrable
Securities.
3.6 DELAYS OR OMISSIONS. It is agreed that no delay or
omission to exercise any right, power, or remedy accruing to any
Holder, upon any breach, default or noncompliance of the Company
under this Agreement shall impair any such right, power, or
remedy, nor shall it be construed to be a waiver of any such
breach, default or noncompliance, or any acquiescence therein, or
of any similar breach, default or noncompliance thereafter
occurring. It is further agreed that any waiver, permit,
consent, or approval of any kind or character on any Holder's
part of any breach, default or noncompliance under the Agreement
or any waiver on such Holder's part of any provisions or
conditions of this Agreement must be in writing and shall be
effective only to the extent specifically set forth in such
writing. All remedies, either under this Agreement, by law, or
otherwise afforded to Holders, shall be cumulative and not
alternative.
3.7 NOTICES. All notices required or permitted hereunder
shall be in writing and shall be deemed effectively given: (i)
upon personal delivery to the party to be notified, (ii) when
sent by confirmed telex or facsimile, (iii) five (5) days after
having been sent by registered or certified mail, return receipt
requested, postage prepaid, or (iv) one (1) day after deposit
with a nationally recognized overnight courier, specifying next
day delivery, with written verification of receipt. All
communications shall be sent to the party to be notified at the
address as set forth on the signature page hereof or at such
other address as such party may designate by ten (10) days
advance written notice to the other parties hereto.
3.8 ATTORNEYS' FEES. If legal action is brought to enforce
or interpret this Agreement, the prevailing party shall be
entitled to recover its reasonable attorneys' fees and legal
costs in connection therewith.
3.9 TITLES AND SUBTITLES. The titles of the sections and
subsections of this Agreement are for convenience of reference
only and are not to be considered in construing this Agreement.
3.10 COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which shall be an original, but
all of which together shall constitute one instrument.
3.11 SIGNATURES. THIS REGISTRATION RIGHTS AGREEMENT WILL BE
DEEMED TO HAVE BEEN EXECUTED FOR ALL PURPOSES WHEN THE SUBSCRIBER
SIGNS AND DATES THE OMNIBUS SIGNATURE PAGE.
(Form of Warrant Certificate)
NEITHER THE WARRANTS REPRESENTED BY THIS CERTIFICATE NOR THE
SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR CERTAIN STATE
SECURITIES LAWS, AND MAY NOT BE SOLD, OFFERED FOR SALE,
TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS THEY ARE SO
REGISTERED OR AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE
AND THIS COMPANY SHALL HAVE RECEIVED AN OPINION OF COUNSEL,
REASONABLY SATISFACTORY TO COUNSEL FOR THIS COMPANY, THAT SUCH AN
EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE.
No. CW
VOID AFTER 5:00 P.M. CENTRAL TIME
On August 26, 2001
VANGUARD AIRLINES, INC.
Warrant Certificate
THIS CERTIFIES THAT for value received
_____________________, or registered assigns, is the registered
holder of ____________ Warrants, each of which entitles the owner
thereof to purchase any time after August 20, 1996 (the
"Effective Date") until 5:00 P.M. prevailing Central Time on
August 26, 2001 (the "Expiration Date"), one share of the common
stock, par value $0.001 per share (the "Common Stock"), of
Vanguard Airlines, Inc., a Delaware corporation (the "Company"),
multiplied by the number of warrants set forth above, at an
exercise price per share equal to the Unit Price, as defined in
the Warrant Agreement ("Warrant Agreement") between the Company,
the registered holder hereof and certain other holders of Warrant
Certificates, dated as of the date hereof, multiplied by 1.2 (the
"Exercise Price"), subject to certain adjustments, upon
presentation and surrender of this Warrant Certificate with the
Form of Election to Purchase duly executed. Upon the Expiration
Date, all rights evidenced by this Warrant shall cease and the
Warrants shall become void. The number of Warrants evidenced by
this Warrant Certificate (and the number of shares which may be
purchased upon exercise thereof) set forth above, and the
Exercise Price per share set forth above, are the number and
Exercise Price as of the date of original issuance of the
Warrants, based on the shares of Common Stock of the Company as
constituted at such date. As provided in the Warrant Agreement
referred to below, the Exercise Price and the number or kind of
shares which may be purchased upon the exercise of the Warrants
evidenced by this Warrant Certificate are, upon the happening of
certain events, subject to modification and adjustment.
<PAGE>
This Warrant Certificate is subject to, and entitled to the
benefits of, all of the terms, provisions and conditions of the
Warrant Agreement which Warrant Agreement is hereby incorporated
herein by reference and made a part hereof and to which Warrant
Agreement reference is hereby made for a full description of the
rights, limitations of rights, duties and immunities hereunder of
the Company and the holders of the Warrant Certificates. Copies
of the Warrant Agreement are on file at the principal office of
the Company.
This Warrant Certificate, with or without other Warrant
Certificates, upon surrender at the principal office of the
Company, may be exchanged for another Warrant Certificate or
Warrant Certificates of like tenor and date evidencing Warrants
entitling the holder to purchase a like aggregate number of
shares of Common Stock as the Warrants evidenced by the Warrant
Certificate or Warrant Certificates surrendered entitled such
holder to purchase. If this Warrant Certificate shall be
exercised in part, the holder hereof shall be entitled to receive
upon surrender hereof another Warrant Certificate or Warrant
Certificates for the number of whole Warrants not exercised.
No fractional shares of Common Stock will be issued upon the
exercise of any Warrant or Warrants evidenced hereby, but in lieu
thereof a cash payment will be made as provided in the Warrant
Agreement.
No holder of this Warrant Certificate shall be entitled to
vote or receive dividends or be deemed the holder of Common Stock
or any other securities of the Company which may at any time be
issuable on the exercise hereof for any purpose, nor shall
anything contained in the Warrant Agreement herein be construed
to confer upon the holder hereof, as such, any of the rights of a
stockholder of the Company or any right to vote for the election
of directors or upon any matter submitted to stockholders at any
meeting thereof, or to give or withhold consent to any corporate
action (whether upon any recapitalization, issue of stock,
reclassification of stock, change of par value or change of stock
to no par value, consolidation, merger, conveyance, or otherwise)
or, except as provided in the Warrant Agreement, to receive
notice of meetings, or to receive dividends or subscription
rights or otherwise, until the Warrant or Warrants evidenced by
this Warrant Certificate shall have been exercised and the shares
of Common Stock shall have become deliverable as provided in the
Warrant Agreement.
If this Warrant Certificate shall be surrendered for
exercise within any period during which the transfer books for
the Company's Common Stock or other class of stock purchasable
upon the exercise of this Warrant are closed for any purpose, the
Company shall not be required to make delivery of certificates
for shares purchasable upon such exercise until the date of the
reopening of said transfer books.
This Warrant Certificate may be redeemed under the
circumstances described in the Warrant Agreement.
<PAGE>
In Witness Whereof, the Company has caused this Warrant to
be duly executed and delivered on the date first set forth above.
________________________________
Robert J. McAdoo
Chairman, President & Chief
Executive Officer
<PAGE>
FORM OF ASSIGNMENT
(To be executed by the registered holder if such holder desires
to transfer the Warrant Certificates.)
FOR VALUE RECEIVED ________________________________ hereby sells,
assigns and transfers unto this Warrant Certificate, together
with all right, title and interest therein, and does hereby
irrevocably constitute and appoint ___________________________,
to transfer the within Warrant Certificate on the books of the
within-named Company, with full power of substitution.
Dated:_______________________, 199__ _________________________
Signature
NOTICE
The signature of the foregoing Assignment must correspond to
the name as written upon the face of this Warrant Certificate in
every particular, without alteration or enlargement or any change
whatsoever.
<PAGE>
FORM OF
ELECTION TO PURCHASE
(To be executed if holder desires to exercise the Warrant
Certificate.)
TO VANGUARD AIRLINES, INC.:
The undersigned hereby irrevocably elects to exercise
_____________ Warrants represented by this Warrant Certificate to
purchase the shares of Common Stock issuable upon the exercise of
such ____________ Warrants and requests that certificates for
such shares be issued in the name of: _________________________.
Please insert social security or other identifying number:
___________________________________
(Please print name and address)
___________________________________
Signature
(Signature must conform in all
respects to name of holder as
specified on the face of this
Warrant Certificate)
REGISTRATION RIGHTS AGREEMENT
<PAGE>
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "Agreement") is
entered into as of the Initial Closing Date (as hereinafter
defined), by and among Vanguard Airlines, Inc., a Delaware
corporation (the "Company"), and the Holders (as hereinafter
defined).
RECITALS
WHEREAS, pursuant to the terms of a Confidential Private
Placement Memorandum, dated August 16, 1996 the Company is
issuing up to $7,000,000 of units (each a "Unit" and,
collectively, the "Units"), each consisting of one share (each a
"Share" and, collectively, the "Shares") of Common Stock, $0.001
par value, of the Company (the "Common Stock") and one Redeemable
Common Stock Purchase Warrant (each a "Redeemable Warrant" and,
collectively, the "Redeemable Warrants"), exercisable, subject to
certain adjustments, into one share of Common Stock (each a
"Warrant Share" and, collectively, the "Warrant Shares") at an
exercise price per share equal to the Unit Price (as hereinafter
defined) multiplied by 1.2; and
WHEREAS; as a condition to purchasing the Units, the Holders
have requested that the Company extend to them registration
rights as set forth below; and
WHEREAS; the Company desires to extend certain rights
herein, subject to the obligations provided for herein, in
accordance with the terms of this Agreement;
NOW, THEREFORE, in consideration of the mutual promises,
representations, warranties, covenants, and conditions set forth
in this Agreement, the Subscription Agreement and the Warrant
Agreement, each of even date herewith, entered into by the
Company and each of the Holders, the parties mutually agree as
follows:
1. GENERAL
1.1 DEFINITIONS. As used in this Agreement the following
terms shall have the following respective meanings:
"1934 ACT" means the Securities Exchange Act of 1934,
as amended.
"EQUITY SECURITIES" means (i) any stock or similar
security of the Company, (ii) any security convertible, with or
without consideration, into any stock or similar security
(including any option to purchase such a convertible security),
(iii) any security carrying any warrant or right to subscribe to
or purchase any stock or similar security or (iv) any such
warrant or right.
"FAMILY MEMBER" means a Holder's spouse, siblings,
children, stepchildren and grandchildren.
"FINAL PROSPECTUS" means an amended prospectus filed
with the SEC pursuant to SEC Rule 424(b) of the Securities Act.
"HOLDER" means any person owning of record Registrable
Securities.
"INITIAL CLOSING DATE" means the first date upon which
the Company shall schedule a closing with respect to the purchase
of Units.
"INITIATING HOLDERS" means the Holders of at least
forty percent (40%) of the Registrable Securities then
outstanding.
<PAGE>
"REGISTER," "REGISTERED," and "REGISTRATION" refer to a
registration effected by preparing and filing a registration
statement in compliance with the Securities Act, and the
declaration or ordering of effectiveness of such registration
statement or document.
"REGISTRABLE SECURITIES" means (i) the Shares; (ii) the
Warrant Shares; and (iii) any Common Stock of the Company issued
as (or issuable upon the conversion or exercise of any warrant,
right or other security which is issued as) a dividend or other
distribution with respect to, or in exchange for or in
replacement of, such above-described securities. Notwithstanding
the foregoing, Registrable Securities shall not include any
securities (i) sold by a person to the public either pursuant to
a an effective registration statement or pursuant to Rule 144 (or
any successor provision), (ii) sold in a private transaction in
which the transferror's rights under Article 2 of this Agreement
are not assigned or (iii) for which a disposition would not
require registration or qualification under the Securities Act or
any similar state law then in force, provided, however, that the
Company has delivered new certificates for such securities not
bearing a legend restricting further transfer. For the purposes
of determining the holders of Registrable Securities hereunder on
any date, the Redeemable Warrants shall be deemed to have been
exercised as of such date to acquire the number of shares of
Common Stock covered thereby.
"SECURITIES ACT" shall mean the Securities Act of 1933,
as amended.
"FORM S-3" means such form under the Securities Act as
in effect on the date hereof or any successor registration form
under the Securities Act subsequently adopted by the SEC which
permits inclusion or incorporation of substantial information by
reference to other documents filed by the Company with the SEC.
"SEC" or "COMMISSION" means the Securities and Exchange
Commission.
2. RESTRICTIONS ON TRANSFER; REGISTRATION
2.1 RESTRICTIONS ON TRANSFER.
(a) Each Holder agrees not to make any disposition of
all or any portion of the Registrable Securities unless and until
the transferee has agreed in writing for the benefit of the
Company to be bound by this Section 2.1, provided and to the
extent such Sections are then applicable and:
(i) There is then in effect a registration
statement under the Securities Act covering such proposed
disposition and such disposition is made in accordance with such
registration statement; or
(ii) Such Holder shall have notified the Company
of the proposed disposition and shall have furnished the Company
with a detailed statement of the circumstances surrounding the
proposed disposition, and if reasonably requested by the Company,
such Holder shall have furnished the Company with an opinion of
counsel, reasonably satisfactory to the Company, that such
disposition will not require registration of such shares under
the Securities Act.
(b) Notwithstanding the provisions of paragraphs (i)
and (ii) above, no such registration statement or opinion of
counsel shall be necessary for a transfer by a Holder which is
(A) a partnership, to its partners in accordance with partnership
interests, or (B) to the Holder's family member or trust for the
benefit of an individual Holder, provided the transferee will be
subject to the terms of this Section 2.1 to the same extent as if
he were an original Holder hereunder.
(c) Each Redeemable Warrant and each certificate
representing Registrable Securities shall (unless otherwise
permitted by the provisions of the Agreement) be stamped or
otherwise imprinted with a legend substantially similar to the
following (in addition to any legend required under applicable
state securities laws or as provided elsewhere in the Agreement):
<PAGE>
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT") OR CERTAIN STATE SECURITIES LAWS, AND MAY
NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED
OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER THE
ACT OR AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE
AND THE COMPANY SHALL HAVE RECEIVED AN OPINION OF
COUNSEL, REASONABLY SATISFACTORY TO COUNSEL FOR THE
COMPANY THAT SUCH AN EXEMPTION FROM REGISTRATION UNDER
THE ACT IS AVAILABLE.
(d) The Company shall be obligated to reissue promptly
unlegended certificates at the request of any holder thereof if
the holder shall have obtained an opinion of counsel (which
counsel may be counsel to the Company) reasonably acceptable to
the Company to the effect that the securities proposed to be
disposed of may lawfully be so disposed of without registration,
qualification or legend.
(e) Any legend endorsed on an instrument pursuant to
applicable state securities laws and the stop-transfer
instructions with respect to such securities shall be removed
upon receipt by the Company of an order of the appropriate blue
sky authority authorizing such removal.
2.2 DEMAND REGISTRATION.
(a) Subject to the conditions of this Section 2.2, if
the Company shall receive at any time after April 1, 1998, a
written request from the Initiating Holders that the Company file
a registration statement under the Securities Act covering the
registration of Registrable Securities, then the Company shall,
within thirty (30) days of the receipt thereof, give written
notice of such request to all Holders, and subject to the
limitations of Section 2.2(b), effect, as soon as practicable,
the registration under the Securities Act of at least 25% of the
Registrable Securities held by such Initiating Holder on a pro
rata basis; provided, however, that the Company may register less
than 25% of such Registrable Securities if the anticipated
aggregate offering price, net of underwriting discounts and
commissions, exceeds $5,000,000.
(b) If the Initiating Holders intend to distribute the
Registrable Securities covered by their request by means of an
underwriting, they shall so advise the Company as a part of their
request made pursuant to this Section 2.2 and the Company shall
include such information in the written notice referred to in
Section 2.2(a). In such event, the right of any Holder to
include his Registrable Securities in such registration shall be
conditioned upon such Holder's participation in such underwriting
and the inclusion of such Holder's Registrable Securities in the
underwriting (unless otherwise mutually agreed by a majority in
interest of the Initiating Holders and such Holder) to the extent
provided herein. All Holders proposing to distribute their
securities through such underwriting shall enter into an
underwriting agreement in customary form with the underwriter or
underwriters selected for such underwriting by a majority in
interest of the Initiating Holders (which underwriter or
underwriters shall be reasonably acceptable to the Company).
Notwithstanding any other provision of this Section 2.2, if the
underwriter advises the Company in writing that marketing factors
require a limitation of the number of securities to be
underwritten (including Registrable Securities) then the Company
shall so advise all Holders of Registrable Securities which would
otherwise be underwritten pursuant hereto, and the number of
shares that may be included in the underwriting shall be
allocated to the holders of registrable securities on a pro rata
basis based on the number of registrable securities held by all
holders (including the Initiating Holders). Any Registrable
Securities excluded or withdrawn from such underwriting shall be
withdrawn from the registration.
(c) The Company shall not be obligated to effect more
than two (2) registrations pursuant to this Section 2.2.
(d) Notwithstanding the foregoing, if the Company
shall furnish to Holders requesting a registration statement
pursuant to this Section 2.2, a certificate signed by the
Chairman of the Board stating that in the good faith judgment of
the Board of Directors of the Company, it would be seriously
detrimental to the Company and its stockholders for such
registration statement to be filed and it is therefore essential
to defer the filing of such registration statement, the Company
shall have the right to defer such filing for a period of not
more than ninety (90) days after receipt <PAGE> of the request of the
Initiating Holders; provided that such right to delay a request
shall be exercised by the Company no more than once in any one-year
period.
(e) All expenses incurred in connection with a
registration pursuant to this Section 2.2 (excluding
underwriters' discounts and commissions, which shall be paid by
the selling Holders pro rata with respect to their included
shares), including without limitation all registration, filing,
qualification, printers' and accounting fees, fees and
disbursements of counsel for the Company, and the reasonable fees
and disbursements of a single counsel for the selling Holders,
shall be borne by the Company; provided, however, that the
Company shall not be required to pay for any expenses of any
registration proceeding begun pursuant to Section 2.2 if the
registration request is subsequently withdrawn, unless the
withdrawal of the registration request results from either (a)
intentional actions by the Company outside the normal course of
business that materially reduce the feasibility of the
registration proceeding, or (b) the discovery of information
about the Company that was not known at the time of the
Initiating Holders' request made pursuant to Section 2.2(a), and
such information materially reduces the feasibility of the
registration proceeding. If the Company is required to pay the
registration expenses pursuant to this Section 2.2(e)(a) or (b),
then the Holders shall not forfeit their rights pursuant to this
Section 2.2 to a demand registration.
2.3 PIGGYBACK REGISTRATIONS.
(a) The Company shall notify all Holders in writing at
least thirty (30) days prior to the filing of any registration
statement under the Securities Act for purposes of a public
offering of securities of the Company (including, but not limited
to, registration statements relating to secondary offerings of
securities of the Company, but excluding registration statements
relating to employee benefit plans and corporate reorganizations)
and will afford each such Holder an opportunity to include in
such registration statement all or part of such Registrable
Securities held by such Holder. Each Holder desiring to include
in any such registration statement all or any part of the
Registrable Securities held by it shall, within twenty (20) days
after receipt of the above-described notice from the Company, so
notify the Company in writing. Such notice shall state the
intended method of disposition of the Registrable Securities by
such Holder. If a Holder decides not to include all of its
Registrable Securities in any registration statement thereafter
filed by the Company, such Holder shall nevertheless continue to
have the right to include any Registrable Securities in any
subsequent registration statement or registration statements as
may be filed by the Company with respect to offerings of its
securities, all upon the terms and conditions set forth herein.
Notwithstanding anything to the contrary, the foregoing shall not
apply to any registrations occurring on or after the fifth
anniversary of the Initial Closing Date.
(b) If the registration statement under which the
Company gives notice under this Section 2.3 is for an
underwritten offering, the Company shall so advise the Holders.
In such event, the right of any such Holder to be included in a
registration pursuant to this Section 2.3 shall be conditioned
upon such Holder's participation in such underwriting and the
inclusion of such Holder's Registrable Securities in the
underwriting to the extent provided herein. All Holders
proposing to distribute their Registrable Securities through such
underwriting shall enter into an underwriting agreement in
customary form with the underwriter or underwriters selected for
such underwriting. Notwithstanding any other provision of the
Agreement, if the underwriter determines in good faith that
marketing factors require a limitation of the number of shares to
be underwritten, the number of shares that may be included in the
underwriting shall be allocated, first, to the Company; second,
to the holders of registrable securities of the Company who are
parties to the Amended and Restated Investors' Rights Agreement,
dated August 24, 1994, on a pro rata basis based on the total
number of registrable securities held by the parties thereto; and
third, to the Holders on a pro rata basis based on the total
number of Registrable Securities held by the Holders. No such
reduction shall reduce the securities being offered by the
Company for its own account to be included in the registration
and underwriting, except that in no event shall the amount of
securities of the selling Holders included in the registration be
reduced below twenty percent (20%) of the total amount of
securities included in such registration.
(c) The Company shall bear all fees and expenses
incurred in connection with any registration under this Section
2.3 (excluding underwriters' discounts and commissions, which
shall be paid by the selling Holders pro rata with respect to
their included shares), including without limitation all
registration, filing, qualification, printers' and accounting
fees, fees and disbursements of counsel to the Company, and the
reasonable fees and disbursements of <PAGE> a single counsel to the
selling Holders (which counsel shall also be counsel to the
Company unless counsel to the Company has a conflict of interest
with respect to the representation of any selling Holder or the
underwriters object to the selling Holders representation by
Company counsel).
2.4 FORM S-3 REGISTRATION. In case the Company shall
receive from the Holders of at least ten percent (10%) of the
Registrable Securities a written request or requests that the
Company effect a registration on Form S-3 and any related
qualification or compliance with respect to all or a part of the
Registrable Securities owned by such Holder or Holders, the
Company will:
(a) promptly give written notice of the proposed
registration, and any related qualification or compliance, to all
other Holders of Registrable Securities; and
(b) as soon as practicable, effect such registration
and all such qualifications and compliances as may be so
requested and as would permit or facilitate the sale and
distribution of all or such portion of such Holder's or Holders'
Registrable Securities as are specified in such request, together
with all or such portion of the Registrable Securities of any
other Holder or Holders joining in such request as are specified
in a written request given within fifteen (15) days after receipt
of such written notice from the Company; provided, however, that
the Company shall not be obligated to effect any such
registration, qualification or compliance pursuant to this
Section 2.4: (i) if Form S-3 is not available under the
Securities Act or rules or regulations promulgated thereunder for
such offering by the Holders, (ii) if the Holders, together with
the holders of any other securities of the Company entitled to
inclusion in such registration, propose to sell Registrable
Securities and such other securities (if any) at an aggregate
price to the public of less than $500,000, (iii) if the Company
shall furnish to the Holders a certificate signed by the Chairman
of the Board of Directors of the Company stating that in the good
faith judgment of the Board of Directors of the Company, it would
be seriously detrimental to the Company and its stockholders for
such Form S-3 Registration to be effected at such time, in which
event the Company shall have the right to defer the filing of the
Form S-3 registration statement for a period of not more than
ninety (90) days after receipt of the request of the Holder or
Holders under this Section 2.4, provided that, such right to
defer the filing may be exercised by the Company no more than
once in any one-year period, (iv) if the Company has, within the
twelve (12) month period preceding the date of such request,
already effected two (2) registrations on Form S-3 for the
Holders pursuant to this Section 2.4, or (v) in any particular
jurisdiction in which the Company would be required to qualify to
do business or to execute a general consent to service of process
in effecting such registration, qualification or compliance.
(c) Subject to the foregoing, the Company shall file a
Form S-3 registration statement covering the Registrable
Securities and other securities so requested to be registered as
soon as practicable after receipt of the request or requests of
the Holders. All such expenses incurred in connection with
registrations requested pursuant to this Section 2.4 shall be
paid by the selling Holders pro rata with respect to their
included shares, including without limitation all registration,
filing, qualification, printers' and accounting fees, fees and
disbursements of counsel for the Company, and the reasonable fees
and disbursements of a single counsel for the selling Holder or
Holders.
2.5 OBLIGATIONS OF THE COMPANY. Whenever required to
effect the registration of any Registrable Securities, the
Company shall, as expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration
statement with respect to such Registrable Securities and use its
best efforts to cause such registration statement to become
effective, and, upon the request of the Holders of a majority of
the Registrable Securities registered thereunder, keep such
registration statement effective for up to ninety (90) days.
(b) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus
used in connection with such registration statement as may be
necessary to comply with the provisions of the Securities Act
with respect to the disposition of all securities covered by such
registration statement.
<PAGE>
(c) Furnish to the Holders such number of copies of a
prospectus, including a preliminary prospectus, in conformity
with the requirements of the Securities Act, and such other
documents as they may reasonably request in order to facilitate
the disposition of Registrable Securities owned by them.
(d) Use its best efforts to register and qualify the
securities covered by such registration statement under such
other securities or Blue Sky laws of such jurisdictions as shall
be reasonably requested by the Holders, provided that the Company
shall not be required in connection therewith or as a condition
thereto to qualify to do business or to file a general consent to
service of process in any such states or jurisdictions.
(e) In the event of any underwritten public offering,
enter into and perform its obligations under an underwriting
agreement, in usual and customary form, with the managing
underwriter(s) of such offering. Each Holder participating in
such underwriting shall also enter into and perform its
obligations under such an agreement.
(f) Notify each Holder of Registrable Securities
covered by such registration statement at any time when a
prospectus relating thereto is required to be delivered under the
Securities Act of the happening of any event as a result of which
the prospectus included in such registration statement, as then
in effect, includes an untrue statement of a material fact or
omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in the
light of the circumstances then existing.
(g) Furnish, at the request of a majority of the
Holders participating in the registration, on the date that such
Registrable Securities are delivered to the underwriters for
sale, if such securities are being sold through underwriters, or,
if such securities are not being sold through underwriters, on
the date that the registration statement with respect to such
securities becomes effective, (i) an opinion, dated as of such
date, of the counsel representing the Company for the purposes of
such registration, in form and substance as is customarily given
to underwriters in an underwritten public offering and reasonably
satisfactory to a majority in interest of the Holders requesting
registration, addressed to the underwriters, if any, and to the
Holders requesting registration of Registrable Securities and
(ii) a letter dated as of such date, from the independent
certified public accountants of the Company, in form and
substance as is customarily given by independent certified public
accountants to underwriters in an underwritten public offering
and reasonably satisfactory to a majority in interest of the
Holders requesting registration, addressed to the underwriters,
if any, and to the Holders requesting registration of Registrable
Securities.
2.6 FURNISH INFORMATION. It shall be a condition precedent
to the obligations of the Company to take any action pursuant to
Sections 2.2, 2.3 or 2.4 that the selling Holders shall furnish
to the Company such information regarding themselves, the
Registrable Securities held by them, and the intended method of
disposition of such securities as shall be required to effect the
registration of their Registrable Securities.
2.7 DELAY OF REGISTRATION. No Holder shall have any right
to obtain or seek an injunction restraining or otherwise delaying
any such registration as the result of any controversy that might
arise with respect to the interpretation or implementation of
this Article II.
2.8 INDEMNIFICATION. In the event any Registrable
Securities are included in a registration statement under
Sections 2.2, 2.3 or 2.4:
(a) To the extent permitted by law, the Company will
indemnify and hold harmless each Holder, the partners, officers
and directors of each Holder, any underwriter (as defined in the
Securities Act) for such Holder and each person, if any, who
controls such Holder or underwriter within the meaning of the
Securities Act or the 1934 Act, against any losses, claims,
damages, or liabilities (joint or several) to which they may
become subject under the Securities Act, the 1934 Act or other
federal or state law, insofar as such losses, claims, damages, or
liabilities (or actions in respect thereof) arise out of or are
based upon any of the following statements, omissions or
violations (collectively a "Violation") by the Company: (i) any
untrue statement or alleged untrue statement of a material fact
contained in such registration statement, including any
preliminary prospectus or final prospectus contained therein or
any amendments or supplements thereto, (ii) the omission or
alleged omission to state therein a material fact required to be
stated therein, or necessary <PAGE> to make the statements therein not
misleading, or (iii) any violation or alleged violation by the
Company of the Securities Act, the 1934 Act, any state securities
law or any rule or regulation promulgated under the Securities
Act, the 1934 Act or any state securities law in connection with
the offering covered by such registration statement; and the
Company will reimburse each such Holder, partner, officer or
director, underwriter or controlling person for any legal or
other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage,
liability or action; provided however, that the indemnity
agreement contained in this Section 2.8(a) shall not apply to
amounts paid in settlement of any such loss, claim, damage,
liability or action if such settlement is effected without the
consent of the Company (which consent shall not be unreasonably
withheld), nor shall the Company be liable in any such case for
any such loss, claim, damage, liability or action to the extent
that it arises out of or is based upon a Violation which occurs
in reliance upon and in conformity with written information
furnished to the Company expressly for use in connection with
such registration by such Holder, partner, officer, director,
underwriter or controlling person of such Holder.
(b) To the extent permitted by law, each selling
Holder will indemnify and hold harmless the Company, each of its
directors, each of its officers, each person, if any, who
controls the Company within the meaning of the Securities Act,
any underwriter and any other Holder selling securities under
such registration statement or any of such other Holder's
partners, directors or officers or any person who controls such
Holder, against any losses, claims, damages or liabilities (joint
or several) to which the Company or any such director, officer,
controlling person, underwriter or other such Holder, or partner,
director, officer or controlling person of such other Holder may
become subject under the Securities Act, the 1934 Act or other
federal or state law, insofar as such losses, claims, damages or
liabilities (or actions in respect thereto) arise out of or are
based upon any Violation, in each case to the extent (and only to
the extent) that such Violation occurs in reliance upon and in
conformity with written information furnished to the Company by
such Holder expressly for use in connection with such
registration; and each such Holder will reimburse any legal or
other expenses reasonably incurred by the Company or any such
director, officer, controlling person, underwriter or other
Holder, or partner, officer, director or controlling person of
such other Holder in connection with investigating or defending
any such loss, claim, damage, liability or action if it is
judicially determined that there was such a Violation; provided,
however, that the indemnity agreement contained in this Section
2.8(b) shall not apply to amounts paid in settlement of any such
loss, claim, damage, liability or action if such settlement is
effected without the consent of the Holder, which consent shall
not be unreasonably withheld; provided further, that in no event
shall any indemnity under this Section 2.8 exceed the net
proceeds from the offering received by such Holder.
(c) Promptly after receipt by an indemnified party
under this Section 2.8 of notice of the commencement of any
action (including any governmental action), such indemnified
party will, if a claim in respect thereof is to be made against
any indemnifying party under this Section 2.8, deliver to the
indemnifying party a written notice of the commencement thereof
and the indemnifying party shall have the right to participate
in, and, to the extent the indemnifying party so desires, jointly
with any other indemnifying party similarly noticed, to assume
the defense thereof with counsel mutually satisfactory to the
parties; provided, however, that an indemnified party shall have
the right to retain its own counsel, with the fees and expenses
to be paid by the indemnifying party, if representation of such
indemnified party by the counsel retained by the indemnifying
party would be inappropriate due to actual or potential differing
interests between such indemnified party and any other party
represented by such counsel in such proceeding. The failure to
deliver written notice to the indemnifying party within a
reasonable time of the commencement of any such action, if
materially prejudicial to its ability to defend such action,
shall relieve such indemnifying party of any liability to the
indemnified party under this Section 2.8, but the omission so to
deliver written notice to the indemnifying party will not relieve
it of any liability that it may have to any indemnified party
otherwise than under this Section 2.8.
(d) If the indemnification provided for in this
Section 2.8 is held by a court of competent jurisdiction to be
unavailable to an indemnified party with respect to any losses,
claims, damages or liabilities referred to herein, the
indemnifying party, in lieu of indemnifying such indemnified
party thereunder, shall to the extent permitted by applicable law
contribute to the amount paid or payable by such indemnified
party as a result of such loss, claim, damage or liability in
such proportion as is appropriate to reflect the relative fault
of the indemnifying party on the one hand and of the indemnified
party on the other in connection with the Violation(s) that
resulted in such loss, claim, damage or liability, as well as any
other relevant equitable considerations. The relative fault of
the indemnifying party and of the indemnified party shall be
determined by a court of law by reference to, among other things,
whether the untrue or alleged <PAGE> untrue statement of a material fact
or the omission to state a material fact relates to information
supplied by the indemnifying party or by the indemnified party
and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement
or omission; provided that, in no event shall any contribution by
a Holder hereunder exceed the net proceeds from the offering
received by such Holder.
(e) The foregoing indemnity agreements of the Company
and Holders are subject to the condition that, insofar as they
relate to any Violation made in a preliminary prospectus but
eliminated or remedied in the amended prospectus on file with the
SEC at the time the registration statement in question becomes
effective or the Final Prospectus, such indemnity agreement shall
not inure to the benefit of any person obligated under the
Securities Act to furnish to the person asserting the loss,
liability, claim or damage a copy of the Final Prospectus if a
copy of the Final Prospectus was furnished to the indemnified
party and was not furnished to the person asserting the loss,
liability, claim or damage at or prior to the time such action is
required by the Securities Act.
(f) The obligations of the Company and Holders under
this Section 2.9 shall survive the completion of any offering of
Registrable Securities pursuant to a registration statement, or
otherwise.
2.9 ASSIGNMENT OF REGISTRATION RIGHTS. The rights to cause
the Company to register Registrable Securities pursuant to this
Article II may be assigned by a Holder to a transferee or
assignee of Registrable Securities; provided, however, that no
such transferee or assignee shall be entitled to registration
rights under Sections 2.2, 2.3 or 2.4 hereof unless such
transferee or assignee: (i) is a Holder; (ii) holds after such
transfer or assignment at least one hundred thousand (100,000)
shares of Registrable Securities (as adjusted for stock
dividends, splits and combinations); or (iii) is a Family Member
or a subsidiary, parent, general partner, or limited partner of a
Holder. In each such case, the Company shall, within twenty (20)
days after such transfer, be furnished with written notice of the
name and address of such transferee or assignee and the
securities with respect to which such registration rights are
being assigned.
2.10 AMENDMENT OF REGISTRATION RIGHTS. Any provision of
this Article II may be amended and the observance thereof may be
waived (either generally or in a particular instance and either
retroactively or prospectively), only with the written consent of
the Company and the Holders of more than fifty percent (50%) of
the Registrable Securities. Any amendment or waiver effected in
accordance with this Section 2.10 shall be binding upon each
Holder and the Company. By acceptance of any benefits under this
Article II, Holders hereby agree to be bound by the provisions
hereunder.
2.11 "MARKET STAND-OFF" AGREEMENT. If requested by the
Company and an underwriter of Common Stock (or other securities)
of the Company, a Purchaser shall not sell or otherwise transfer
or dispose of any Common Stock (or other securities) of the
Company held by such Stockholder (other than those included in
the registration) for a period specified by the underwriters not
to exceed one hundred eighty (180) days following the effective
date of a registration statement of the Company filed under the
Securities Act, provided, that all officers and directors of the
Company and holders of at least ten percent (10%) of the
Company's voting securities enter into similar agreements. The
obligations described in this Section 2.11 shall not apply to a
registration relating solely to employee benefit plans on Form S-1
or Form S-8 or similar forms that may be promulgated in the
future, or a registration relating solely to a Commission Rule
145 transaction on Form S-4 or similar forms that may be
promulgated in the future. The Company may impose stop-transfer
instructions with respect to the shares (or securities) subject
to the foregoing restriction until the end of said one hundred
eighty (180) day period.
3. MISCELLANEOUS.
3.1 GOVERNING LAW. This Agreement shall be governed by and
construed under the laws of the State of Missouri as applied to
agreements among Missouri residents entered into and to be
performed entirely within Missouri.
3.2 SURVIVAL. The representations, warranties, covenants,
and agreements made herein shall survive any investigation made
by any Holder and the closing of the transactions contemplated
hereby. All statements as to factual matters contained in any
certificate or other instrument delivered by or on behalf of the
Company pursuant hereto in <PAGE> connection with the transactions
contemplated hereby shall be deemed to be representations and
warranties by the Company hereunder solely as of the date of such
certificate or instrument.
3.3 SUCCESSORS AND ASSIGNS. Except as otherwise expressly
provided herein, the provisions hereof shall inure to the benefit
of, and be binding upon, the successors, assigns, heirs,
executors, and administrators of the parties hereto and shall
inure to the benefit of and be enforceable by each person who
shall be a holder of Registrable Securities from time to time;
provided, however, that prior to the receipt by the Company of
adequate written notice of the transfer of any Registrable
Securities specifying the full name and address of the
transferee, the Company may deem and treat the person listed as
the holder of such shares in its records as the absolute owner
and holder of such shares for all purposes, including the payment
of dividends or any redemption price.
3.4 SEPARABILITY. In case any provision of the Agreement
shall be invalid, illegal, or unenforceable, the validity,
legality, and enforceability of the remaining provisions shall
not in any way be affected or impaired thereby.
3.5 AMENDMENT AND WAIVER.
(a) Except as otherwise expressly provided, this
Agreement may be amended or modified only upon the written
consent of the Company and the holders of more than fifty percent
(50%) of the Registrable Securities.
(b) Except as otherwise expressly provided, the
obligations of the Company and the rights of the Holders under
this Agreement may be waived only with the written consent of the
holders of more than fifty percent (50%) of the Registrable
Securities.
3.6 DELAYS OR OMISSIONS. It is agreed that no delay or
omission to exercise any right, power, or remedy accruing to any
Holder, upon any breach, default or noncompliance of the Company
under this Agreement shall impair any such right, power, or
remedy, nor shall it be construed to be a waiver of any such
breach, default or noncompliance, or any acquiescence therein, or
of any similar breach, default or noncompliance thereafter
occurring. It is further agreed that any waiver, permit,
consent, or approval of any kind or character on any Holder's
part of any breach, default or noncompliance under the Agreement
or any waiver on such Holder's part of any provisions or
conditions of this Agreement must be in writing and shall be
effective only to the extent specifically set forth in such
writing. All remedies, either under this Agreement, by law, or
otherwise afforded to Holders, shall be cumulative and not
alternative.
3.7 NOTICES. All notices required or permitted hereunder
shall be in writing and shall be deemed effectively given: (i)
upon personal delivery to the party to be notified, (ii) when
sent by confirmed telex or facsimile, (iii) five (5) days after
having been sent by registered or certified mail, return receipt
requested, postage prepaid, or (iv) one (1) day after deposit
with a nationally recognized overnight courier, specifying next
day delivery, with written verification of receipt. All
communications shall be sent to the party to be notified at the
address as set forth on the signature page hereof or at such
other address as such party may designate by ten (10) days
advance written notice to the other parties hereto.
3.8 ATTORNEYS' FEES. If legal action is brought to enforce
or interpret this Agreement, the prevailing party shall be
entitled to recover its reasonable attorneys' fees and legal
costs in connection therewith.
3.9 TITLES AND SUBTITLES. The titles of the sections and
subsections of this Agreement are for convenience of reference
only and are not to be considered in construing this Agreement.
3.10 COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which shall be an original, but
all of which together shall constitute one instrument.
3.11 SIGNATURES. THIS REGISTRATION RIGHTS AGREEMENT WILL BE
DEEMED TO HAVE BEEN EXECUTED FOR ALL PURPOSES WHEN THE SUBSCRIBER
SIGNS AND DATES THE OMNIBUS SIGNATURE PAGE.
Exhibit 11
LOSS PER COMMON SHARE COMPUTATION
VANGUARD AIRLINES, INC.
Computation of Loss per Share
<TABLE>
Nine Months Ended
September 30, 1996
1996 1995
<CAPTION>
<S> <C> <C>
Net loss $(11,429,768) $(6,797,256)
Weighted average number of common shares 8,626,709 441,483
outstanding during the period
Add - common equivalent shares representing ---- 2,000,000
shares issuable upon the conversion of
Series A Preferred Stock (2)
Add - common equivalent shares representing ---- 3,641,043
shares issuable upon the conversion of
Series B Preferred Stock (2)
Add - common equivalent shares (determined
using the "treasury stock method")
representing the shares issuable upon the
exercise of stock options and warrants
outstanding (1) ---- 821,469
Weighted average number of common
and common equivalent shares outstanding 8,626,709 6,903,995
Net loss per share $(1.32) $(0.98)
</TABLE>
___________________________
(1) In 1995, the computation of loss per share was determined under the
provisions of Securities and Exchange Commission Staff Accounting Bulletin No.
83. In 1996, outstanding stock options and warrants were not considered in
the net loss per share calculation, as their effects are antidilutive.
(2) Series A and Series B Preferred Stock converted on November 3, 1995 in
connection with the closing of the Company's initial public offering of Common
Stock.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 1,859,487
<SECURITIES> 0
<RECEIVABLES> 1,896,222
<ALLOWANCES> 197,000
<INVENTORY> 721,334
<CURRENT-ASSETS> 12,698,287
<PP&E> 7,874,377
<DEPRECIATION> 2,179,279
<TOTAL-ASSETS> 21,439,349
<CURRENT-LIABILITIES> 21,936,748
<BONDS> 0
0
0
<COMMON> 9,956
<OTHER-SE> (611,498)
<TOTAL-LIABILITY-AND-EQUITY> 21,439,349
<SALES> 52,140,355
<TOTAL-REVENUES> 54,675,341
<CGS> 66,091,995
<TOTAL-COSTS> 66,091,995
<OTHER-EXPENSES> (79,291)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 92,405
<INCOME-PRETAX> (11,429,768)
<INCOME-TAX> (11,429,768)
<INCOME-CONTINUING> (11,429,768)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (11,429,768)
<EPS-PRIMARY> (1.32)
<EPS-DILUTED> (1.32)
</TABLE>
