SCHEDULE 14A
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
(Amendment No. __)
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted
by Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or
Section 240.14a-12
Vanguard Airlines, Inc.
(Name of Registrant as Specified In Its Charter)
_________________________________________________________________
(Name of Person(s) Filing Proxy Statement,
if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction
applies:
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applies:
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3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set
forth the amount on which the filing fee is calculated
and state how it was determined):
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for
which the offsetting fee was paid previously. Identify the
previous filing by registration statement number, or the
Form or Schedule and the date of its filing.
1) Amount Previously Paid:
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4) Date Filed:
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<PAGE>
Preliminary Copy
VANGUARD AIRLINES, INC.
30 N. W. ROME CIRCLE, TERMINAL B
KANSAS CITY INTERNATIONAL AIRPORT
KANSAS CITY, MISSOURI 64153
________________________________
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 15, 1998
________________________________
NOTICE IS HEREBY GIVEN that the Annual Meeting of
Stockholders of Vanguard Airlines, Inc., a Delaware corporation
(the "Company"), will be held at the Embassy Suites Hotel, 7640
N. W. Tiffany Springs Parkway, Kansas City, Missouri, on Friday,
May 15, 1998, at 10:00 a.m., Central Daylight Time, and
thereafter as it may from time to time be adjourned, for the
following purposes:
1. To elect one Class III Director to serve for a three-
year term expiring at the 2001 Annual Meeting of
Stockholders and until his successor is duly elected
and qualified;
2. To consider and act upon approval of an amendment to
the Company's Restated Certificate of Incorporation to
increase the number of authorized shares of the
Company's capital stock from 51,000,000 shares to
202,000,000 shares and to increase the number of
authorized shares of the Company's Common Stock from
50,000,000 shares to 200,000,000 shares and the number
of authorized shares of the Company's Preferred Stock
from 1,000,000 shares to 2,000,000 shares.
3. To consider and act upon approval of an amendment to
the Vanguard Airlines, Inc. 1994 Stock Option Plan
described in the accompanying Proxy Statement;
4. To consider and act upon ratification and approval of
the selection of Ernst & Young LLP as the Company's
independent auditors for the year ending December 31,
1998; and
5. To consider and act upon any other matters which
properly may come before the Annual Meeting or any
adjournment thereof.
The foregoing matters are more fully described in the
accompanying Proxy Statement.
In accordance with the provisions of the Bylaws of the
Company, the Board of Directors has fixed the close of business
on April 15, 1998, as the record date for the determination of
the holders of shares of the Company's Common Stock, par value
$0.001 per share, (the "Common Stock"), and Series A Preferred
Stock, par value $0.001 per share (the "Preferred Stock"),
entitled to notice of, and to vote at, the Annual Meeting and any
adjournment thereof.
You are cordially invited to attend the Annual Meeting. IF
THERE IS A POSSIBILITY THAT YOU MAY BE UNABLE TO ATTEND, PLEASE
SIGN, DATE AND RETURN THE ACCOMPANYING PROXY PROMPTLY SO THAT
YOUR SHARES MAY BE REPRESENTED AT THE ANNUAL MEETING. A return
envelope is enclosed for your convenience. If you are able to
attend the meeting and wish to vote your shares in person, your
proxy will not be used.
BY ORDER OF THE BOARD OF DIRECTORS,
Brian S. Gillman
Vice President, General Counsel and
Secretary
Kansas City, Missouri
April 16, 1998
<PAGE>
VANGUARD AIRLINES, INC.
30 N. W. ROME CIRCLE, TERMINAL B
KANSAS CITY INTERNATIONAL AIRPORT
KANSAS CITY, MISSOURI 64153
____________________________
PROXY STATEMENT
____________________________
ANNUAL MEETING
OF STOCKHOLDERS
MAY 15, 1998
____________________________
INTRODUCTION
This Proxy Statement is being furnished in connection with
the solicitation of proxies by the Board of Directors of Vanguard
Airlines, Inc., a Delaware corporation (the "Company"), for use
at the Annual Meeting of Stockholders to be held on Friday, May
15, 1998, commencing at 10:00 a.m., Central Daylight Time, at the
Embassy Suites Hotel, 7640 N. W. Tiffany Springs Parkway, Kansas
City, Missouri 64153, and all adjournments and postponements
thereof (the "Annual Meeting"). The Company anticipates mailing
this Proxy Statement, the accompanying form of proxy and the
Notice of Annual Meeting of Stockholders on or about April 16,
1997 to the holders of the outstanding shares of the Company's
Common Stock, par value $.001 per share (the "Common Stock"), and
Series A Preferred Stock, par value $0.001 per share (the
"Preferred Stock"), as of April 15, 1998.
Only the holders of record of shares of Common Stock and
Preferred Stock as of the close of business on April 15, 1998
(the "Record Date") are entitled to notice of and to vote at the
Annual Meeting. Holders of shares of Common Stock are entitled
to one vote per share standing in their names on the Record Date
with respect to the matters being brought before the Annual
Meeting. Holders of shares of Preferred Stock are entitled to 20
votes per share standing in their names on the Record Date (i.e.,
one vote for each share of Common Stock into which the Preferred
Stock is convertible) with respect to matters being brought
before the Annual Meeting. At the close of business on the
Record Date, there were outstanding and entitled to vote a total
of 45,697,316 shares of Common Stock and 302,362 shares of
Preferred Stock, constituting all of the outstanding voting
securities of the Company. As of the Record Date, the Preferred
Stock was convertible into 6,047,240 shares of Common Stock.
You are requested to complete, date and sign the
accompanying form of proxy and return it promptly in the enclosed
postage prepaid envelope. Such proxy may be revoked at any time
prior to its exercise by written notice of revocation delivered
to the Secretary of the Company. Attendance at the Annual
Meeting will not in and of itself constitute a revocation of a
proxy, but your proxy will not be used if you attend the Annual
Meeting and prefer to vote in person. The persons designated as
proxies were selected by the Board of Directors and are officers
or directors of the Company. Proxies duly executed and received
in time for the Annual Meeting will be voted in accordance with
stockholders' instructions. If no instructions are indicated,
the shares represented by such proxies will be voted as follows:
1. In favor of the election of Denis T. Rice as a Class
III Director, to serve for a three-year term expiring
at the 2001 Annual Meeting of Stockholders and until
his successor is duly elected and qualified;
2. In favor of the proposed amendment to the Company's
Restated Certificate of Incorporation, as amended (the
"Restated Certificate"), to increase the number of
authorized shares of the Company's capital stock from
51,000,000 shares to 202,000,000 shares and to increase
the number of authorized shares of the Company's Common
Stock from 50,000,000 shares to 200,000,000 shares and
the number of authorized shares of Company's Preferred
Stock from 1,000,000 shares to 2,000,000 shares;
3. In favor of the proposed amendment to the Vanguard
Airlines, Inc. 1994 Stock Option Plan described herein;
4. In favor of ratifying and approving the selection of
Ernst & Young LLP as the Company's independent auditors
for the year ending December 31, 1998; and
5. In the discretion of the proxy holder as to any other
matter coming before the Annual Meeting.
<PAGE>
SOLICITATION OF PROXIES
The solicitation of proxies for the Annual Meeting is being
made by the Company's Board of Directors. The Company will bear
all costs of such solicitation, including the cost of preparing
and mailing this Proxy Statement and the enclosed form of proxy.
After the initial mailing of this Proxy Statement, proxies may be
solicited in person or by telephone or telecopy by directors and
officers of the Company who will not receive compensation for
their soliciting activities. Brokerage houses and other nominees
will solicit proxies or authorizations from beneficial owners and
will be reimbursed for their reasonable expenses of forwarding
proxy materials to beneficial owners.
A list of stockholders entitled to vote at the Annual
Meeting will be available for examination at least ten days prior
to the date of the Annual Meeting during normal business hours at
the offices of the Company located at 30 N.W. Rome Circle,
Terminal B, Kansas City International Airport, Kansas City,
Missouri 64153. The list also will be available at the Annual
Meeting.
QUORUM REQUIREMENTS
The presence in person or by proxy of stockholders holding a
majority of the aggregate outstanding shares of Common Stock and
Preferred Stock is required for a quorum to transact business at
the Annual Meeting, but if a quorum should not be present, the
Annual Meeting may be adjourned from time to time until a quorum
is obtained. Shares of Common Stock or of Preferred Stock
represented by a proxy which directs that the shares be voted to
abstain or to withhold a vote on any matter will be counted in
determining whether a quorum is present.
PROPOSAL ONE
ELECTION OF DIRECTORS
The Restated Certificate of the Company provides that the
number of directors of the Company shall be fixed by, or in the
manner provided in, the Bylaws of the Company and that the
directors shall be divided into three classes as nearly equal as
possible, each having a term of three years. The Bylaws provide
that the number of directors shall be fixed by resolution of the
Board of Directors. The Board of Directors currently has fixed
the number of directors at five. Each year the term of office of
one class of directors expires.
The Board of Directors intends to present for action at the
Annual Meeting the election of Denis T. Rice, a Class III
director whose term expires at the Annual Meeting, to serve for a
three-year term expiring at the 2001 Annual Meeting of
Stockholders and until his successor is duly elected and
qualified. There are currently two vacancies on the Board of
Directors, which the Company does not intend to fill at the
Annual Meeting.
The Director in Class I (Robert J. Spane) and the Director
in Class II (Lee M. Gammill, Jr.) have been elected to terms
expiring at the time of the Annual Meetings of Stockholders in
1999 and 2000, respectively. Stockholders do not have cumulative
voting rights in the election of directors. Directors will be
elected by the plurality vote of the holders of shares of Common
Stock and Preferred Stock entitled to vote at the Annual Meeting
and present in person or by proxy.
One director is to be elected as the only member of Class
III at this meeting, for a term of three years and until his
successor is duly elected and qualified. It is intended that
shares represented by a proxy given pursuant to this solicitation
will be voted in favor of the election of Denis T. Rice as the
Class III Director, unless such authority is specifically
withheld. In the event that Mr. Rice should become unavailable
for election, it is intended that the shares of Common Stock and
Preferred Stock represented by the Proxy will be voted for such
substitute nominee as may be nominated by the Board of Directors.
The above named person has indicated his willingness to serve if
elected and it is not anticipated that he will become unavailable
for election.
The Restated Certificate and the Bylaws of the Company
provide that advance notice of stockholder nominations for an
election of directors must be given. Written notice of the
stockholder's intent to make a nomination at a meeting of
stockholders must be received by the Secretary of the Company not
later than 30 days prior to the first anniversary of the
preceding year's annual meeting, in the case of an annual meeting
and, in the case of a special meeting, not later than the close
of business on the later of (i) the 30th day prior to such
special meeting or (ii) the 10th day following the day on which
public announcement is first made of the date of the special
meeting. The notice must contain (i) the name and address of the
stockholder who intends to make the nomination and of the person
or persons to be nominated, (ii) a representation that such
stockholder is a holder of record of stock of the Company
entitled to vote in the election of directors at such meeting and
intends to appear in person or by proxy at the meeting to
nominate the person specified in the notice, (iii) the <PAGE> name and
address, as it appears on the Company's books, of such
stockholder, and of the beneficial owner, if any, on whose behalf
the nomination is made, (iv) the class and number of shares of
the Company which are owned beneficially and of record by such
nominating stockholder and each nominee proposed by such
stockholder, (v) a description of all arrangements or
understandings between the nominating stockholder and each
nominee and any other person (naming such persons) pursuant to
which the nomination or nominations are to be made by the
stockholder, (vi) such other information regarding each nominee
proposed by such stockholder as would have been required to be
included in a proxy statement filed pursuant to the proxy rules
of the Securities and Exchange Commission, as then in effect, had
the nominee been nominated, or intended to be nominated, by the
Board of Directors, and (vii) the consent of each nominee to
serve as a director of the Company if so elected. No such notice
has been received, and the Chairman of the Annual Meeting is
entitled to refuse to acknowledge the nomination of any person
that is not made in compliance with the foregoing procedure. In
any event, the Board of Directors has no reason to believe that
anyone will attempt to nominate another candidate for director.
The following table sets forth certain information as to the
person nominated by the Board of Directors for election as a
Class III Director of the Company and each director whose term of
office will continue after the Annual Meeting:
Name Age Director Since
Nominees
CLASS III: TERM TO EXPIRE IN 2001
Denis T. Rice /1/ 65 1997
DIRECTORS CONTINUING IN OFFICE
CLASS I: TERM TO EXPIRE IN 1999
Robert J. Spane 56 1996
CLASS II: TERM TO EXPIRE IN 2000
Lee M. Gammill, Jr. /1/ 63 1997
/1/ Member of Audit Committee.
The business experience of each of the directors of the
Company during the last five years is as follows:
LEE M. GAMMILL, JR. was elected a director of the Company in
September 1997. Mr. Gammill is the retired Vice Chairman of the
Board of New York Life Insurance Company. From 1989 until he
retired in May 1997, Mr. Gammill served as the Executive Vice
President - Individual Insurance Operations at New York Life.
Mr. Gammill joined New York Life in 1957 as a sales agent and
held various management and executive positions throughout his
40-year career at New York Life.
DENIS T. RICE was elected a director of the Company in April
1997. Mr. Rice is a director in the law firm of Howard, Rice,
Nemerovski, Canady, Falk & Rabkin, P.C., San Francisco,
California, a firm he has been associated with since 1961.
VICE ADMIRAL ROBERT J. SPANE USN (RET.) was elected a
director of the Company in May 1996 and elected Chairman of the
Board, Chief Executive Officer and President of the Company in
June 1997. Vice Admiral Spane served in the U.S. Navy for 35
years where his last position was Commander, Naval Air Force
Pacific, which he held from October 1993 to February 1996. Vice
Admiral Spane, as Commander, Naval Air Force Pacific, was
responsible for all finances, training, logistics and the
material condition of all aircraft carriers, aircraft and naval
air stations in the Pacific. Vice Admiral Spane retired from the
U.S. Navy in February 1996. Vice Admiral Spane is a 1962 graduate
of the U.S. Naval Academy.
Except as may be contemplated by Mr. Spane's Employment
Agreement, there is no arrangement or understanding between any
director and any other person pursuant to which such person was
selected as a director of the Company. See "Spane Employment
Agreement."
<PAGE>
COMPENSATION OF DIRECTORS
Directors do not receive any cash compensation for their
service as members of the Board of Directors, although they are
reimbursed for travel and out-of-pocket expenses in attending
Board and committee meetings. The Company granted to Messrs.
Rice and Gammill in 1997 on the dates of their election to the
Board, options to purchase 25,000 shares of Common Stock. In
October 1997, the Company granted to its non-employee directors
options to purchase an additional 200,000 shares of Common Stock.
All such options were granted with an exercise price equal to or
greater than the fair market value of the Common Stock on the
respective date of grant. Mr. Gammill and Mr. Rice have not
exercised their stock options. See "Stock Option Plan."
Directors who are also employees of the Company receive no
additional compensation and receive no stock options for serving
as directors. As described below under "Spane Employment
Agreement," Mr. Spane is the Chief Executive Officer and
President of the Company and Chairman of the Board of Directors.
See "Spane Employment Agreement."
MEETINGS OF THE BOARD AND COMMITTEES
During 1997, the Board of Directors held five meetings. Each
incumbent director attended at least 75% of the meetings of the
Board of Directors and committees on which they served. It
should be noted that the Company's directors discharge their
responsibilities throughout the year, not only at Board of
Directors and Committee meetings, but through personal meetings
and other communications with members of management and others
regarding matters of interest and concern to the Company.
The Board of Directors established an Audit Committee in
connection with its initial public offering in October 1995. The
Audit Committee assists the Board of Directors in fulfilling its
responsibilities with respect to the accounting and financial
reporting practices of the Company and in addressing the scope
and expense of audit and related services provided by the
Company's independent accountants. The Audit Committee currently
consists of Messrs. Gammill and Rice. During 1997, the Audit
Committee met two times (although neither Mr. Gammill nor Mr.
Rice was a member of the Audit Committee at the times of such
meetings). There currently is not a Nominating or Compensation
Committee, or committees performing similar functions, of the
Board of Directors.
EXECUTIVE COMPENSATION AND OTHER INFORMATION
BOARD OF DIRECTORS REPORT ON EXECUTIVE COMPENSATION AND REPRICING
OF OPTIONS
This report has been prepared by the members of the Board of
Directors who were responsible for establishing, directing and
administrating the compensation policies and programs for the
Company's executive officers in 1997.
The Board of Directors reviews, evaluates and approves the
structure and implementation of the Company's compensation
program for its executive officers. The Board of Directors also
determines the form and amount of compensation for the Chief
Executive Officer. Except as noted below, the compensation of
the Company's executive officers is determined by the Board of
Directors on an annual basis. In doing so, the Board of
Directors subjectively considers all elements of its compensation
program when making its compensation decisions, including the
level and scope of responsibility, experience, and performance of
the executive, the internal fairness and equity of the Company's
overall compensation structure and the compensation of executives
employed by other emerging companies in the airline industry.
With respect to the executive officers who do not serve on the
Company's Board of Directors, the Board of Directors also
considers the recommendation of the Company's Chairman of the
Board and Chief Executive Officer.
The Vanguard Executive Compensation Program
Elements of Executive Compensation. The compensation
program of the Company has been structured, in part, to enable
the Company to attract, motivate and retain experienced and
qualified executives. The Company seeks to provide a
compensation package to its executive officers that, in its
totality, is competitive. In addition, the Company intends to
grant stock options to executive officers upon their commencement
of employment with the Company, and at other times the Company
deems appropriate, in an effort to strengthen the mutuality of
interests between such executives and the Company's stockholders.
The Board of Directors believes stock options are an integral
part of the total compensation of such executive officers.
Annual Compensation. Currently, the Company's compensation
program is not performance-based. Upon a review of certain
publicly available salary information for executive officers at
other emerging airline companies, the Board of Directors made a
subjective determination as to the salary component of its
executive compensation program and further determined to maintain
such base salary at present levels until the Company has had a
sufficient operating history. In 1997 the Board of Directors
reaffirmed its determination to <PAGE> maintain base salaries at present
levels. The Company has maintained its salary levels for the
Company's Chief Executive Officer and Vice Presidents since its
startup in 1994.
Bonuses and Incentives. The Company currently does not have
a formal bonus plan or long-term incentive plan for its executive
officers.
Stock Options. The Board of Directors has determined to
grant stock options to executive officers upon their commencement
of employment with the Company, and at other times the Company
deems appropriate, to provide additional incentive to its
executive officers and to strengthen the mutuality of interests
between the executive officers and the Company's Stockholders.
The Board of Directors believes that stock option grants advance
the long-term interests of the Company and its stockholders by
rewarding executive officers for increasing shareholder value
(i.e., appreciation in the price of the Company's Common Stock).
Stock option grants provide the right to purchase shares of
Common Stock at a specified exercise price. All stock options
have exercise prices equal to or greater than the fair market
value of the Common Stock on the date of grant of the stock
option. On February 6, 1997 and November 3, 1997 the Company
adopted stock option repricing plans for its executive officers
and employees that had options with exercise prices greater than
the fair market value of the stock on such date. The effect of
these repricings was to reduce the option exercise price from up
to $9.25 to $1.8125 in February 1997 and to further reduce the
option exercise price to $0.50 in November 1997. In so doing, it
was intended that the option exercise prices would be established
at levels that correspond to the then current fair market value
of the Common Stock. The Company's executives, including three
of the Named Executive Officers in the Summary Compensation Table
below, would thereby be afforded a realistically achievable
opportunity to be rewarded for appreciation in the price of the
Company's Common Stock.
Payment of the total annual compensation for the Chief
Executive Officer and the other named executives appearing in the
Summary Compensation Table and other tables included in this
Proxy Statement is based on the previously discussed factors.
1997 Compensation of the Chief Executive Officers
The 1997 salary of Mr. John P. Tague, former Chairman, Chief
Executive Officer and President, was based primarily on the
factors discussed above. Mr. Tague's service to the Company in
such capacities was provided pursuant to the Company's Consulting
Agreement with The Pointe Group. The compensation provided to
The Pointe Group was an annual fee of $225,000 and a grant of
1,700,000 options that vest over a two-year period. Mr. Tague
resigned effective June 15, 1997. Mr. Robert J. Spane commenced
employment with the Company as Chief Executive Officer and
President on June 15, 1997. The 1997 salary of Mr. Robert J.
Spane also was based on the factors discussed above. In arriving
at Mr. Spane's compensation package, the Board of Directors took
into account the incentive to achieve earnings growth and return
on investment objectives that is inherent in the ownership of
shares of the Company's Common Stock and made the determination
to give disproportionate weight to the grant of stock options.
Accordingly, the Company agreed to pay Mr. Spane an annual salary
of $200,000 along with the grant of 3,386,980 stock options that
vest over a two-year period. In authorizing this package, the
Board of Directors made the subjective determination that Mr.
Spane would be appropriately motivated to achieve shareholder
returns over the long term while receiving sufficient short-term
compensation in the meantime.
Submitted by:
THE BOARD OF DIRECTORS
Lee M. Gammill, Jr.
Denis T. Rice
Robert J. Spane
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Currently, the Company does not have a Compensation
Committee. The Board of Directors determines the structure of
the Company's compensation system. As a result, Robert J. Spane,
Chairman of the Board, Chief Executive Officer and President of
the Company participated in decisions regarding their direct or
indirect compensation.
EXECUTIVE COMPENSATION
The following table sets forth certain information with
respect to the Chief Executive Officer and the most highly
compensated executive officers of the Company as to whom the
total salary and bonuses for the year ended December 31, 1997
exceeded $100,000 (collectively, the "Named Executive Officers"):
<PAGE>
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
Long-Term
Compensation
Annual Compensation Other Awards
Annual Securities All Other
Name and Compen- Underlying Compen-
Principal Position Year Salary Bonus sation/1/ Options/SARs/2/ sation
<S> <C> <C> <C> <C> <C> <C>
Robert J. Spane 1997/4/ $107,714 -- -- 3,386,980 --
Chairman, Chief Executive
Officer and President/3/
John P. Tague 1997/6/ 109,615 -- -- -- --
Former Chairman, CEO 1996/7/ 37,500 -- -- 1,700,000/8/ --
and President/5/
William A. Garrett 1997 100,000 -- -- 549,497/9/ --
Vice President --
Finance and 1996/9/ 45,577 -- -- 15,000 --
Chief Financial Officer
William F. McKinney 1997 100,000 -- -- 544,497/11/ --
Vice President --
Operations 1996/12/ 79,253 -- -- 20,000 --
Ronald L. McClellan 1997 100,000 -- -- 524,497/13/ --
Vice President --
Maintenance/14/ 1996 100,000 -- -- -- --
1995 100,000 -- -- 40,000 --
<TABLE\>
/1/ Excludes perquisites and other benefits, unless the aggregate amount of
such compensation exceeds the lesser of $50,000 or 10% of the total
salary and bonus for the Named Executive Officer.
/2/ The number in the Securities Underlying Options/SARs column reflects the
number of shares of Common Stock into which such options are
exercisable. No stock appreciation rights ("SARs") have been granted by
the Company.
/3/ Mr. Spane joined the Company as Chairman, Chief Executive Officer and
President on June 15, 1997.
/4/ Represents compensation for services performed from June 15, 1997
through December 31, 1997.
/5/ Mr. Tague joined the Company as Chairman, Chief Executive Officer and
President on November 1, 1996. Compensation reported for Mr. Tague
consisted of fees paid and stock options granted by the Company to The
Pointe Group. Mr. Tague was not compensated directly by the Company,
but rather performed his services for the Company and other clients of
The Pointe Group in exchange for such compensation as The Pointe Group
provides. Mr. Tague was Co-Chairman and Chief Executive Officer of The
Pointe Group, which was a firm that had been retained by the Company to
provide consulting and management services.
/6/ Represents compensation for services performed from January 1, 1997
through June 15, 1997. Mr. Tague resigned as Chairman, Chief Executive
Officer and President of the Company effective June 15, 1997.
/7/ Represents compensation for services performed from November 1, 1996
through December 31, 1996.
/8/ As of the date of Mr. Tague's resignation, 425,000 options had vested
and became immediately exercisable. Mr. Tague's vested options expired
ninety (90) days following his resignation. All vested and unvested
options have been canceled without being exercised.
<PAGE>
/9/ Of the 549,497 options reported, 85,000 options were the subject of a
November 3, 1997 repricing and 464,497 options were granted subject to
obtaining the approval by the Company's stockholders at the 1998 Annual
Meeting of the proposed amendments to the Company's 1994 Stock Option
Plan. See "Proposal Three." In addition to the 549,497 options granted
in 1997, 15,000 options granted in 1996 were the subject of February 6,
1997 and November 3, 1997 repricings.
/10/ Represents compensation for services performed from June 17, 1996
through December 31, 1996.
/11/ Of the 544,497 options reported, 80,000 options were the subject of a
November 3, 1997 repricing and 464,497 options were granted subject to
obtaining the approval by the Company's stockholders at the 1998 Annual
Meeting of the proposed amendments to the Company's 1994 Stock Option
Plan. See "Proposal Three." In addition to the 544,497 options granted
in 1997, 20,000 options granted in 1996 were the subject of February 6,
1997 and November 3, 1997 repricings.
/12/ Represents compensation for services performed from March 8, 1996 to
December 31, 1996.
/13/ Of the 524,497 options reported, 60,000 options were the subject of a
November 3, 1997 repricing and 464,497 options were granted subject to
obtaining the approval by the Company's stockholders at the 1998 Annual
Meeting of the proposed amendments to the Company's 1994 Stock Option
Plan. See "Proposal Three."
/14/ Mr. McClellan resigned from his position as Vice President --
Maintenance effective March 1, 1998.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth certain information with
respect to each Named Executive Officer concerning grants during
the year ended December 31, 1997 of stock options and stock
appreciation rights ("SARs").
</TABLE>
<TABLE>
OPTION GRANTS IN YEAR ENDED DECEMBER 31, 1997 /1/
<CAPTION>
Potential Realizable Value at
Assumed Annual Rates
Individual Of Stock Price Appreciation
Grants for Option Term/2/
% of Total
Options/
Number of SARs
Securities Granted to Exercise
Underlying Employees or
Options/ in Base
SARs Fiscal Price Expiration
Name Granted Year ($/Share) Date 5%($) 10%($)
<S> <C> <C> <C> <C> <C> <C>
Robert J. Spane 3,386,980/3/ 45.1% 0.50 June 15, 2002 $84,675 $169,349
John P. Tague -- -- -- -- -- --
William A. Garrett 15,000/4//5/ * 0.50 May 30, 2006 375 750
85,000/5/ 1.1 0.50 February 6, 2007 2,125 4,250
464,497/6/ 6.2 0.50 November 3, 2007 11,612 23,225
William F. McKinney 7,500/4/5/ * 0.50 March 28, 2006 188 375
12,500/4//5 * 0.50 May 30, 2006 133 625
80,000/5/ 1.1 0.50 February 6, 2007 2,000 4,000
464,497/6/ 6.2 0.50 November 3, 2007 11,612 23,225
Ronald L. McClellan 60,000/5/ * 0.50 February 6, 2007 1,500 3,000
464,497/6/ 6.2 0.50 November 3, 2007 11,612 23,225
<TABLE\>
* Represents less than 1%.
/1/ No SARs were granted by the Company during the year ended December 31,
1997.
(2) The potential realizable value portion of the foregoing table
illustrates value that might be realized upon exercise of the options
immediately prior to the expiration of their term, assuming the
specified compounded rates of appreciation on the Company's Common Stock
over the term of the options. Assumed stock price appreciation of five
percent and ten percent is used pursuant to rules <PAGE> promulgated by the
Securities and Exchange Commission. The potential realizable value is
calculated by assuming that the deemed fair market value of the
Company's Common Stock for financial statement presentation purposes on
the date of grant ($0.50) appreciates at the indicated rate for the
entire term of the option and that the option is exercised at the
exercise price and sold on the last day of its term at the appreciated
price. This table does not take into account any appreciation in the
price of the Common Stock to date.
(3) These options were granted on June 15, 1997 and vest at the rate of
423,372 shares (one-eighth of the shares subject to the option) on June
15, 1997 and at the end of each three-month period thereafter. Full
vesting occurs on June 14, 1999. In the event of the sale of all or
substantially all the assets or capital stock of the Company or a merger
of the Company in which it is not the surviving corporation, the options
become fully vested. In addition, one-half of any unvested options
become fully vested upon the death or permanent disability of Mr. Spane.
(4) These options were the subject of a February 6, 1997 repricing in which
the option exercise price was reduced from $9.25 to $1.8125 and the date
of vesting was delayed by three months.
(5) These options were the subject of a November 3, 1997 repricing in which
the option exercise price was reduced from $1.8125 to $0.50 and the date
of vesting was delayed by three months.
(6) These options were granted subject to obtaining the approval by the
Company's stockholders at the 1998 Annual Meeting of the proposed
amendments to the Company's 1994 Stock Option Plan. See "Proposal
Three."
Option Exercises and Fiscal Year-End Values
The following table sets forth certain information with
respect to each Named Executive Officer concerning the exercise
of options and SARs during 1997 and unexercised options and SARs
held as of December 31, 1997.
</TABLE>
<TABLE>
AGGREGATED OPTION/SAR EXERCISES IN YEAR ENDED DECEMBER 31, 1997
AND DECEMBER 31, 1997 OPTION/SAR VALUES/1/
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Options/SARs at In-the-Money Options/SARs
December 31, 1997 ($)/2/ at December 31, 1997 (#)/2/
<C> <C> <C> <C> <C> <C> <C>
Shares Acquired Value
Name on Exercise (#) Realized ($) Exercisable Unexercisable/3/ Exercisable Unexercisable/3/
Robert J.
Spane -- -- 846,745 2,540,235 33,870 101,609
John P.
Tague/4/ -- -- -- -- -- --
William A
Garrett -- -- 14,375 549,625 575 21,985
William F.
McKinney -- -- 20,469 563,531 819 22,541
Ronald L.
McClellan 12,500 5,375 -- 7,500 -- 3,225
<TABLE\>
/1/ No SARs have ever been granted by the Company.
/2/ The numbers in the column headed Number of Securities Underlying
Unexercised Options/SARs and the dollar amounts in the column headed
Value of Unexercised In-the-Money Options/SARs reflect (i) the number of
shares of Common Stock issuable upon the exercise of options and (ii)
the difference between the fair market value of such shares of Common
Stock and the exercise price of the options, respectively. As of
December 31, 1997, the last reported sale price of the Company's Common
Stock, which was reported by the OTC Bulletin Board, was $0.54 per
share. Value is calculated by determining the difference between the
option exercise price and $0.54, multiplied by the number of shares of
Common Stock underlying the options.
/3/ These options are unexercisable because they have not vested under their
terms.
/4/ The options reported for Mr. Tague were granted by the Company to The
Pointe Group. Mr. Tague was not compensated directly by the Company,
but rather performs his services for the Company and other clients of
The Pointe Group in exchange for such compensation as The Pointe Group
provides. Mr. Tague is Co-Chairman and <PAGE> Chief Executive Officer of The
Pointe Group, which is a firm that has been retained by the Company to
provide consulting and management services.
OPTION REPRICINGS
The following table sets forth certain information with
respect to each executive officer of the Company concerning the
repricing of stock options during the last ten years.
TEN-YEAR OPTION/SAR REPRICINGS
Length of
Number of Original
Securities Market Price Exercise Option Term
Underlying of Stock at Price Remaining at
Options/SARs Time of at Time of Date of
Repriced Repricing Repricing New Repricing
or or or Exercise or
Name Date Amended Amendment Amendment Price Amendment
William A.
Garrett 2/6/97 15,000 $1.8125 $9.25 $1.8125 117 months
11/3/97 15,000 0.50 1.8125 0.50 103 months
11/3/97 85,000 0.50 1.8125 0.50 111 months
William F.
McKinney 2/6/97 7,500 1.8125 9.25 1.8125 110 months
2/6/97 12,500 1.8125 9.25 1.8125 117 months
11/3/97 7,500 0.50 1.8125 0.50 101 months
11/3/97 12,500 0.50 1.8125 0.50 106 months
11/3/97 80,000 0.50 1.8125 0.50 111 months
Ronald L.
McClellan 11/3/97 60,000 0.50 1.8125 0.50 111 months
Brian S.
Gillman 2/6/97 15,000 1.8125 7.75 1.8125 113 months
11/3/97 15,000 0.50 1.8125 0.50 104 months
11/3/97 85,000 0.50 1.8125 0.50 111 months
STOCK OPTION PLAN
The Company has one stock option plan pursuant to which
options are outstanding: the 1994 Vanguard Airlines, Inc. Stock
Option Plan (the "Plan"). The total number of shares of Common
Stock issuable pursuant to the exercise of options under the Plan
is 1,700,000 (proposed to be increased to 10,000,000 as more
fully described under "Proposal Three"). As of April 1, 1998,
options exercisable with respect to 1,642,372 shares of Common
Stock granted under the Plan, of which 324,986 options are
immediately exercisable and an additional 2,986,982 options had
been granted under the Plan subject to obtaining the approval by
the Company's stockholders at the 1998 Annual Meeting of the
proposed amendments to the Plan. See "Proposal Three."
The Plan is administered by the Board of Directors (the
"Plan Administrator"). Subject to the terms of the Plan, the
Plan Administrator determines the persons to whom awards are
granted, the type of award granted, the number of shares granted,
the vesting schedule, the type of consideration to be paid to the
Company upon exercise of options, and the term of each option
(not to exceed ten years).
Under the Plan, the Company may grant stock options,
("Incentive Options") intended to qualify under Section 422 of
the Internal Revenue Code of 1986, as amended (the "Code"), and
stock options which are not qualified as Incentive Options
("Nonstatutory Options"). Incentive Options must be granted at
an exercise price equal to or greater than the fair market value
of the Common Stock on the date of grant. The exercise price of
Nonstatutory Options granted under the Plan <PAGE> will be determined by
the Plan Administrator on the date of grant but may not be less
than 85% of the fair market value of the Common Stock on the date
of grant. The exercise price of Incentive Options granted to
holders for more than 10% of the Common Stock must be at least
110% of the fair market value of the Common Stock on the date of
grant, and the term of these options may not exceed five years.
The Plan provides the total number of shares covered by such
plan, the number of shares covered by each option and the
exercise price per share will be proportionately adjusted in the
event of a stock split, reverse stock split, stock dividend or
similar capital adjustment effected without receipt of
consideration by the Company.
In the event of a merger in which the Company is not the
surviving corporation, options may be assumed or continued by the
surviving corporation. If the outstanding options are not
assumed or continued, they will be terminated if not exercised
prior to the merger.
SPANE EMPLOYMENT AGREEMENT
In June 1997, the Company entered into an employment
agreement (the "Employment Agreement") with Mr. Spane. The
Employment Agreement provides for Mr. Spane's performance of
consulting and management services in the supervision, operation
and management of the Company's business.
The Employment Agreement provides for the Company's payment
to Mr. Spane of an annual salary of $200,000 per year, the grant
of options to purchase 3,386,980 shares of Common Stock, and the
payment of Mr. Spane's reasonable expenses, including Mr. Spane's
transportation, and lodging. The stock options granted to Mr.
Spane vest at the rate of 423,372 shares (one-eighth of the
shares subject to the options) on June 15, 1997 and at the end of
each three-month period thereafter, and have a $0.50 per share
exercise price.
The term of the Employment Agreement is two years, subject
to renewal upon written agreement of the parties and to earlier
termination under certain circumstances. The Employment
Agreement is terminable by either party upon the expiration of
the term (in which event, among other things, the Company must
offer to employ Mr. Spane as Chief Executive Officer and
President) and upon provision of 30 days-notice. The Company may
terminate the Employment Agreement upon Mr. Spane's death,
permanent disability or resignation as Chief Executive Officer
and President of the Company. In addition, the Company may
terminate the Employment Agreement at any time for cause (as
defined in the Employment Agreement).
STOCKHOLDER RETURN PERFORMANCE GRAPH
Included below is a comparison of the cumulative total
stockholder return on the Common Stock of the Company to the
cumulative total stockholder return of the Nasdaq Stock Market
Index and a composite peer index selected by the Company (the
"New Peer Issuer Group") for the period from October 31, 1995,
the date upon which the Common Stock of the Company was first
traded publicly, through December 31, 1997. The October 31, 1995
stock price used for the Common Stock of the Company is the $6.00
per share initial public offering price. Cumulative total
returns are calculated assuming that $100 was invested on
October 31, 1995, in each of the Common Stock of the Company, the
Nasdaq National Market and the New Peer Group, and the
reinvestment of all dividends, if any.
The New Peer Group was selected from among companies in the
airline industry having similarities in the following criteria:
size (total employment and sales); capital structure (similar
debt/equity ratios); and market orientation (primarily domestic
flights). Companies included in the New Peer Group in addition
to the Company are: AirTran Holdings, Inc. (which resulted from a
merger on November 17, 1997, of Airways Corporation, the parent
company of AirTran Airways, Inc., into ValuJet, Inc., the parent
company of ValuJet Airlines, Inc., which changed its name to
AirTran Holdings, Inc.); Frontier Airlines, Inc.; Reno Air, Inc.;
and Western Pacific Airlines, Inc. (Western Pacific filed for
bankruptcy and ceased all scheduled operation on February 4, 1998
and, consequently, will not be included in the New Peer Group in
future years).
In addition to comparing the Company's performance against
the Nasdaq National Market Index and the New Peer Group, the
chart and performance graph also compare the cumulative total
stockholder return on the Common Stock of the Company with the
Standard and Poor's Airlines Index (the "Old Peer Group"). The
New Peer Group differs from the Old <PAGE> Peer Group in that the Old
Peer Group included airlines that service multiple markets on a
much larger scale. The Company made the change because it
believes that the companies that comprise the New Peer Group more
closely approximate the size, capital structure and market
orientation of the Company.
COMPARISON OF CUMULATIVE TOTAL RETURN
10/31/95 12/31/95 12/31/96 12/31/97
Vanguard Airlines, Inc. $100.00 $100.00 $ 25.00 $ 9.00
New Peer Group $100.00 $105.00 $ 49.62 $29.06
Old Peer Group(1)(2) $100.00 $112.37 $123.19 $207.34
Nasdaq Stock Market $100.00 $100.99 $122.70 $149.24
/1/ Western Pacific Airlines, Inc. did not begin trading on a public market
until December 12, 1995. The cumulative total returns for Western
Pacific Airlines, Inc. are calculated assuming that $100 was invested on
that date.
/2/ The cumulative total returns for AirTran Holdings, Inc. prior to the
merger have been averaged with the pre-merger cumulative total returns
for ValuJet, Inc. and Airways Corp. to create one cumulative total
return for the purposes of creating the New Peer Group as an index for
comparison in 1997 and in future proxy statements.
The following graph compares the total return on the Common
Stock of the Company with the total return on the Nasdaq National
Market Index, the New Peer Group and the Old Peer Group for the
period from October 31, 1995, through December 31, 1997. For the
reasons stated above, the Company does not presently intend to
include the comparison of the total return on the Common Stock of
the Company to the Old Peer Group in future proxy statements.
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
The table below sets forth certain information, as of April
1, 1998 (as of January 9, 1998 with respect to J. F. Shea
Company, Inc.), regarding the beneficial ownership of the issued
and outstanding shares of Common Stock and Preferred <PAGE> Stock by
(i) each person known to the Board of Directors to own
beneficially 5% or more of the aggregate shares of Common Stock
outstanding, (ii) each director, (iii) each Named Executive
Officer of the Company, and (iv) the executive officers and
directors of the Company as a group. With respect to all matters
submitted to a vote of the stockholders, the holders of Common
Stock are entitled to one vote per share and the holders of the
Preferred Stock are entitled to 20 votes per share. Each share
of Preferred Stock is convertible into 20 shares of Common Stock
at the option of the holder at any time after July 15, 1998. All
information with respect to beneficial ownership has been
furnished by the respective directors, officers or 5% or more
stockholders, as the case may be.
Amount and Nature Percentage
of Beneficial of Shares
Name Ownership/1/ Outstanding/1/
Common Preferred Common Preferred
Hambrecht & Quist Group
and affiliated entities/2/ 46,087,343 -- 68.7 --
William R. Hambrecht/3/ 38,108,069 151,162 63.1 50.0%
J. F. Shea Company, Inc.
and affiliated entities/4/ 7,275,594 151,200 15.4% 50.0%
Robert J. Spane/5/ 1,270,118 -- 2.4% --
Lee M. Gammill, Jr./6/ 225,000 -- * --
Denis T. Rice/7/ 225,000 -- * --
William A. Garrett/8/ 26,875 -- * --
William F. McKinney/9/ 38,219 -- * --
Ronald L. McClellan/10/ 89,031 -- * --
All current directors and
executive officers as a group
(9 persons)/11/ 1,902,481 -- 4.0% --
* Represents beneficial ownership of less than 1% of the Common Stock of
the Company.
/1/ Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission, which generally attribute beneficial
ownership of securities to persons who possess sole or shared voting
power and/or investment power with respect to those securities. The
persons or entities named in this table have sole voting and investment
power with respect to all shares shown as beneficially owned by them,
except as noted below. The amount of shares reflected in the table
includes options and warrants that are exercisable into shares of Common
Stock within 60 days of the date as of which information is provided in
this table. Percentage ownership calculations are based on 45,697,316
shares of Common Stock outstanding and 302,362 shares of Preferred Stock
outstanding.
/2/ Includes 21,385,151 shares of Common Stock issuable upon the exercise of
outstanding warrants and 9,641,327 shares of Common Stock issuable
pursuant to Convertible Promissory Notes held by Hambrecht & Quist
California and H&Q TSP II Investors, L. P. The business address for
each of the entities affiliated with Hambrecht & Quist Group, which
include H & Q California, H & Q TSP Investors, L. P., H & Q TSP
Investors II, L. P., H & Q London Ventures, L. P., and RVR Securities
Corp., is the office of Hambrecht & Quist, One Bush Street, San
Francisco, CA 94104.
/3/ Mr. Hambrecht may be deemed the beneficial owner of Common Stock held by
the 1980 Hambrecht Revocable Trust. Includes 1,702,500 shares of Common
Stock issuable upon the exercise of outstanding warrants, and 17,878,065
shares of Common Stock and 6,327,353 shares of Common Stock issuable
upon the exercise of outstanding warrants beneficially owned by H&Q TSP
Investors, L.P. and H&Q TSP Investors II, L.P. (Mr. Hambrecht is a
managing member of the limited liability companies that are the
investment general partners of these two partnerships) and H&Q London
Ventures, L.P. (Mr. Hambrecht is one of two general partners of the
investment general partners of this partnership). The Hambrecht Trust
does not beneficially own warrants to acquire 6,046,480 shares of Common
Stock that are exercisable on July 15, 1998. Mr. Hambrecht disclaims
beneficial ownership of shares of Common Stock held by H&Q TSP
Investors, L.P. and H&Q TSP Investors II, L.P., except as to the extent
of his pecuniary interest therein. Mr. Hambrecht retired from his
position as Chairman of Hambrecht & Quist Group and its principal
subsidiary Hambrecht & Quist LLC, effective January 1, 1998 and,
consequently <PAGE> his beneficial ownership no longer will include shares
held by H&Q California. Includes 6,657,050 shares of Common Stock to be
issued pursuant to a Convertible Promissory Note of $3,328,528.
Mr. Hambrecht's business address is 550 15th Street, San Francisco, CA
94103.
/4/ Includes 6,820,594 shares of Common Stock beneficially owned by J. F.
Shea Company, Inc. ("Shea Company"), of which 1,702,500 shares of Common
Stock are issuable upon the exercise of outstanding warrants. Mr.
Edmund Shea, Mr. Peter Shea, Mr. John Shea and Mr. James Shontere
(collectively, the "Shea Company Stockholders") also may be deemed the
beneficial owner of the 6,820,594 shares of Common Stock beneficially
owned by Shea Company by virtue of this stock ownership in Shea Company
and their positions as directors and executive officers of the Shea
Company. In addition, Mr. Edmund Shea may be deemed the beneficial
owner of 90,000 shares of Common Stock owned by E&M R. P. Trust (the
'Trust"), of which Mr. Shea is a trustee, 90,000 shares of Common Stock
owned by Siam Partners II, a California limited partnership ("Siam"), of
which the Trust is the general partner, and 200,000 shares of Common
Stock issuable upon the exercise of stock options. Mr. Shea disclaims
beneficial ownership of the shares of Common Stock held by Siam, except
to the extent of the Trust's 4.97% interest in Siam. The business
address for Shea Company and each of the Shea Company Stockholders is
655 Brea Canyon Road, Walnut, CA 91789.
5/ Includes 1,270,118 shares of Common Stock issuable upon the exercise of
stock options.
/6/ Includes 225,000 shares of Common Stock issuable upon the exercise of
stock options.
/7/ Includes 225,000 shares of Common Stock issuable upon the exercise of
stock options.
/8/ Includes 26,875 shares of Common Stock issuable upon the exercise of
stock options.
/9/ Includes 39,219 shares of Common Stock issuable upon the exercise of
stock options.
/10/ Includes 29,031 shares of Common Stock issuable upon the exercise of
stock options.
/11/ Includes an aggregate of 1,900,181 shares of Common Stock issuable upon
the exercise of stock options.
CERTAIN TRANSACTIONS
On January 17, 1997, an affiliate of Hambrecht & Quist
Group, a principal stockholder of the Company, agreed to
establish a two-year $4.0 million letter of credit on behalf of
the Company in favor of the Company's credit card processor in
order to reduce required restricted cash balances with such
processor. On May 7, 1997 this affiliate of Hambrecht & Quist
Group agreed to establish a two-year $2.0 million guarantee on
behalf of the Company in favor of the Company's credit card
processor in order to further reduce required restricted cash
balances with such processor to secure its increased exposure due
to increased advance ticket sales. In consideration for these
agreements, the Company agreed to issue warrants to purchase up
to 5,030,928 shares of the Company's Common Stock to the
affiliate of Hambrecht & Quist Group.
In April 1997, the Company completed a private sale of units
of securities, each unit consisting of one share of Common Stock
and two redeemable common stock purchase warrants. In connection
with the sale, the Company issued 5,150,000 shares of its Common
Stock. Included in this sale were 5,000,000 shares of Common
Stock issued to certain principal stockholders in lieu of
repayment of $10.0 million of notes payable to the stockholders
in conjunction with this offering. In this transaction, (i)
851,250 shares of Common Stock and 1,702,500 warrants were issued
to J. F. Shea Company, Inc. in exchange for the repayment of
$1,702,5000 of notes to said stockholder, (ii) 1,687,500 shares
of Common Stock and 3,375,000 warrants were issued to H&Q TSP
Investors, L.P. in exchange for the repayment of $3,375,000 of
notes to said stockholder, (iii) 475,000 shares of Common Stock
and 950,000 warrants were issued to H&Q TSP Investors II, L.P. in
exchange for the repayment of $950,000 of notes to said
stockholder, (iv) 1,135,000 shares of Common Stock and 2,270,000
warrants were issued to H&Q California in exchange for the
repayment of $2,270,000 of notes to said <PAGE> stockholder, and (v)
851,250 shares of Common Stock and 1,702,500 warrants were issued
to the 1980 Hambrecht Revocable Trust in exchange for the
repayment of $1,702,500 of notes to said stockholder.
In December 1997, the Company completed a sale of 30,455,714
shares of Common Stock through a Rights Offering. Under the
Rights Offering, the Company distributed nontransferable rights,
at no cost, to stockholders of record. Each record holder
received two rights, with each right entitling the holder to
purchase one share of Common Stock for a price of $0.50 per
share. Certain principal stockholders exercised all of their
rights pursuant to the basic subscription and the
oversubscription privileges of the Rights Offering. In lieu of
paying the subscription price in cash, they relieved and
discharged the Company of approximately $12.2 million notes
payable to principal stockholders. In this transaction, (i)
4,266,844 shares of Common Stock were issued to J. F. Shea
Company, Inc. in exchange for the discharge of $2,133,422 of
notes to said stockholder, (ii) 10,029,316 shares of Common Stock
were issued to H&Q TSP Investors, L.P. in exchange for the
discharge of $5,014,658 of notes to said stockholder, (iii)
950,000 shares of Common Stock were issued to H&Q TSP Investors
II, L.P. in exchange for the discharge of $475,000 of notes to
said stockholder, (iv) 5,689,127 shares of Common Stock were
issued to H&Q California in exchange for the discharge of
$2,844,563.50 of notes to said stockholder, and (v) 4,596,845
shares of Common Stock were issued to 1980 Hambrecht Revocable
Trust in exchange for the discharge of $2,298,422.50 of notes to
said stockholder.
On March 20, 1998, the Company closed on a private sale of
equity securities, each unit costing $10 and consisting of one
share of Preferred Stock and one common stock purchase warrant
(each a "Preferred Unit"). The purchasers of Preferred Units
included (i) J. F. Shea Company, Inc., who purchased 151,200
Preferred Units, and (ii) 1980 Hambrecht Revocable Trust, who
purchased 151,162 Preferred Units. In connection with the sale,
the Company converted approximately $3.0 million of bridge
financing notes and interest. Each warrant entitles the holder
to purchase, at any time over a seven-year period commencing
September 30, 1998, 40 shares of Common Stock at an exercise
price of $0.55 per share of Common Stock. In addition, under the
same agreement, the Company has the option to sell additional
150,000 Preferred Units under the same terms and conditions,
provided the sale occurs not later than 90 days from March 20,
1998. The Company has not determined whether to sell additional
Preferred Units.
During the period from January 1, 1997 through March 20,
1998, the Company borrowed an aggregate $30.6 million from the
principal stockholders of the Company in the form of unsecured
demand notes payable (collectively, the "Notes"), including (i)
$2,276,683 of Notes from J. F. Shea Company, Inc., (ii) $217,000
of Notes from H&Q TSP Investors II, L.P., (iii) $4,603,664 of
Notes from H&Q California, and (iv) $3,328,528 from 1980
Hambrecht Revocable Trust. The Notes accrue interest at 8.00% to
9.00%. During 1997, approximately $22.2 million of notes payable
to stockholders was converted to Common Stock in conjunction with
the sales of certain equity securities completed in 1997. On
March 20, 1998, the Company entered into a Note Exchange
Agreement whereby the principal stockholders holding the notes
agreed to exchange their remaining unsecured demand notes payable
totaling approximately $9.5 million, and all accrued unpaid
interest, for new unsecured convertible demand notes payable (the
"Convertible Notes"). The Convertible Notes are automatically
convertible at such time as the Company has an adequate number of
authorized shares available for issuance.
PROPOSAL TWO
AMENDMENT TO THE
RESTATED CERTIFICATE OF INCORPORATION
GENERAL
On January 23, 1998, the Board of Directors unanimously
adopted a resolution setting fourth a proposed amendment to the
Company's Restated Certificate. The proposed amendment would
increase the total number of authorized shares of the Company's
capital stock from 51,000,000 shares to 202,000,000 shares and
increase the number of authorized shares of the Company's Common
Stock from 50,000,000 shares to 200,000,000 shares and increase
the number of authorized shares of the Company's Preferred Stock
from 1,000,000 shares to 2,000,000 shares.
<PAGE>
The text of the proposed amendment to the Restated
Certificate is set forth in Exhibit A hereto. If the proposed
amendment is adopted by the stockholders, the Company will cause
a Certificate of Amendment consistent with the text of the
amendment set forth in Exhibit A to be filed with the office of
the Delaware Secretary of State as promptly as practicable after
the Annual Meeting. The description of the proposed amendment
contained herein is qualified in its entirety by reference to
Exhibit A.
DESCRIPTION OF THE AMENDMENT
The Company's Restated Certificate, as currently in effect,
provides that the Company is authorized to issue 51,000,000
shares of capital stock, consisting of 50,000,000 shares of
Common Stock, and 1,000,000 shares of Preferred Stock. On
January 23, 1998 the Board of Directors authorized an amendment
to the Restated Certificate to increase the authorized shares of
the Company's capital stock form 50,000,000 shares to 202,000,000
shares and increase the number of authorized shares of the
Company's Common Stock from 50,000,000 shares to 200,000,000
shares and increase the number of authorized shares of the
Company's Preferred Stock from 1,000,000 shares to 2,000,000
shares. The stockholders are being asked to approve such
amendment to the Restated Certificate at the Annual Meeting.
The Company currently has 51,000,000 authorized shares of
capital stock. As of April 15, 1998, 45,697,316 shares of Common
Stock and 302,362 shares of Preferred Stock were issued and
outstanding and an additional 4,219 shares of Common Stock were
being held in treasury. As of April 15, 1998, 5,027,681 shares
of Common Stock were reserved for future issuance upon the
exercise of outstanding options under the Company's benefit plans
and employment agreements and 2,986,982 options have not yet been
reserved for future issuance and were granted subject to
obtaining the approval of the Company's stockholders at the 1998
Annual Meeting of the proposed amendments to the Company's 1994
Stock Option Plan. See "Proposal Three." In addition to the
reservations for stock options, there are 20,088,305 warrants
exercisable into shares of Common Stock that have not yet been
reserved for issuance.
PURPOSES AND EFFECTS OF THE PROPOSED AMENDMENT
Purposes and Effects. The principal purpose of the
proposed amendment to the Restated Certificate is to authorize
additional shares of Common Stock, which will be available in the
event that holders of outstanding warrants wish to exercise such
warrants or the Board of Directors determines that it is
necessary or appropriate to permit future stock dividends or
stock splits, to adopt or amend employee benefit plans, to raise
additional capital through the sale of securities, to acquire
another company or its business or assets, or to establish a
strategic relationship with a corporate partner. If the proposed
amendment is approved by the stockholders, the Board of Directors
does not intend to solicit further stockholder approval prior to
the issuance of any additional shares of Common Stock, except as
may be required by applicable law.
The increase in authorized Common Stock will not have any
immediate effect on the rights of existing stockholders. To the
extent that the additional authorized shares are issued in the
future, the existing stockholder's percentage equity ownership
will decrease and, depending on the price at which shares are
issued, could have the effect of diluting the earnings per share
and book value per share of outstanding shares of Common Stock.
The holders of Common Stock have no preemptive rights. The
increase in the authorized number of shares of Common Stock and
the subsequent issuance of such shares could have the effect of
delaying or preventing a change in control of the Company without
further action by the stockholders by diluting the stock
ownership or voting rights of a person seeking to obtain control
of the Company.
VOTE REQUIRED
The adoption of the proposed amendment to the Restated
Certificate of the Company requires approval by a majority of the
votes cast at the Annual Meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE PROPOSED
AMENDMENT TO THE COMPANY'S RESTATED CERTIFICATE OF INCORPORATION
TO INCREASE THE NUMBER OF SHARES OF AUTHORIZED CAPITAL STOCK.
<PAGE>
PROPOSAL THREE
AMENDMENT OF THE 1994 STOCK OPTION PLAN
GENERAL
The Company's Board of Directors has unanimously approved
an amendment to the Vanguard Airlines, Inc. 1994 Stock Option
Plan (the "Plan" or the "1994 Plan") to increase the number of
shares of Common Stock reserved for issuance thereunder from
1,700,000 to 10,000,000 and has recommended the amendment to the
stockholders. The Board has also unanimously approved an
amendment to the plan to increase the maximum number of options
that may be granted to an employee in any calendar year from
200,000 to 1,000,000.
As of April 1, 1998, of the 1,700,000 shares of Common
Stock initially reserved under the Plan, options exercisable with
respect to 1,642,372 shares of Common Stock had been granted
under the Plan and an additional 2,986,982 options had been
granted under the Plan subject to obtaining the approval by the
Company's stockholders at the 1998 Annual Meeting of the proposed
amendment to the Plan. The Board believe that the grant of stock
options to executive officers and key employees of the Company is
a vital factor in attracting and retaining effective and capable
employees who can contribute to the growth and success of the
Company.
PROPOSED AMENDMENT
The proposed amendment to the 1994 Plan would revise
Sections 4(a) and 5(d) of the Plan to read as follows:
4(a). Subject to the provisions of Section 10
relating to adjustments upon changes in
stock, the stock that may be sold pursuant to
Options shall not exceed in the aggregate
11,000,000 shares of the Company's Common
Stock. If any Option shall for any reason
expire or otherwise terminate, in whole or in
part, without having been exercised in full,
the stock not purchased shall revert to and
again be available for issuance under the
1994 Plan.
5(d). No person shall be eligible to be granted
Options covering more than 1,000,000 shares
of the Company's Common Stock in any calendar
year.
Other than the increase in the number of shares of Common
Stock reserved for issuance pursuant to options and the number of
stock appreciation rights reserved for grant, and the increase in
the maximum number of options or stock appreciation rights that
may be granted to an employee in any calendar year, no additional
amendments to the Plan are contemplated at this time.
PURPOSES AND EFFECTS OF THE PROPOSED AMENDMENT
The purpose of the proposed amendment to the Plan is to
increase the number of shares of Common Stock that may be issued
upon the exercise of options under the Plan and to increase the
number of options that may be granted to an employee in any
calendar year. The proposed amendment would be necessary to give
effect to 2,986,982 options granted under the Plan to six
executive officers of the Company, which option grants were made
subject to stockholder approval of the amendment. Of these
2,986,982 options, options exercisable with respect to 464,497
shares of Common Stock had been granted under the Plan to each of
Messrs. Garrett, McKinney and McClellan.
The proposed amendment to the Plan will not have any
immediate effect on the rights of existing stockholders. To the
extent that the additional shares of Common Stock are issued upon
the exercise of options granted under the Plan, the existing
stockholder's percentage equity ownership will decrease and,
depending on the price at which shares are issued, could have the
effect of diluting the earnings per share and book value per
share of outstanding shares of Common Stock.
<PAGE>
SUMMARY OF THE 1994 PLAN
Set for below is a summary of the 1994 Plan and tax
consequences to the Company and employees who receive stock
options under the 1994 Plan.
The purpose of the Plan is to encourage selected employees,
directors of and consultants to the Company and its affiliates to
participate in the ownership of the Company, to attract and
retain the services of selected persons who serve the Company and
its affiliates as employees, directors and consultants, and to
provide additional incentive for such persons to promote the
success of the business of the Company and its affiliates through
sharing in the future growth of such business.
ELIGIBLE PARTICIPANTS. Options granted under the Plan
intended to qualify as "incentive stock options" ("Incentive
Options") under section 422 of the Internal Revenue Code of 1986,
as amended (the "Code"), may be granted under the Plan only to
employees of the Company or of any of its affiliates. Options
granted under the Plan not intended to so qualify under the Code
("Nonstatutory Options") may be granted under the Plan only to
employees of the Company or of any of its affiliates, members of
the Company's Board of Directors, and persons engaged by the
Company or any of its affiliates to render consulting services.
No option may be granted under the Plan to any person who,
immediately before the option is granted, owns (either directly
or by application of the rules contained in section 424(d) of the
Code) stock possessing more than ten percent of the total
combined voting power of all classes of stock of the Company or
of any of its affiliates. Such stock ownership limitation shall
not apply, however, if at the time the option is granted (i) the
option exercise price is at least 110 percent of the fair market
value (as defined in the Plan) of the shares of the Common Stock
subject to the option, and (ii) such option will expire by its
terms no later than five years from the date on which it is
granted.
The aggregate fair market value of shares of Common Stock
for which a person may be granted options under the Plan has no
limit. However, no person presently shall be eligible to be
granted options exercisable with respect to more than 200,000
shares of Common Stock in any calendar year (proposed to be
increased to 1,000,000 shares at the Annual Meeting).
ADMINISTRATION OF THE PLAN. The Plan currently is
administered by the Company's Board of Directors. The Company's
Board of Directors is permitted, however, to delegate its
discretionary authority over the Plan to a committee (the
"Committee") composed of not less than two members of the Board
of Directors who qualify as "disinterested persons." The Board
of Directors (or the Committee) is authorized to construe,
interpret and administer the Plan and the options granted
thereunder, and from time to time to adopt such rules and
regulations for carrying out the Plan as it may choose.
TERMS OF OPTIONS. The Board of Directors (or the Committee)
is authorized to establish the terms which will govern each
option granted under the Plan, provided that such terms are
consistent with the terms, provisions and conditions of the Plan.
The period during which each option granted under the Plan may be
exercised is fixed by the Board of Directors (or the Committee)
at the time such option is granted. The maximum period during
which an option is exercisable is ten years from the date that it
is granted.
Except as provided below with respect to termination of
employment or relationship, disability or death of the optionee,
options granted under the Plan may be exercised only by persons
who are then employed or engaged as a director of or consultant
to the Company or any of its affiliates and who have been so
employed or engaged at all times since the date on which such
options were granted. See "Withdrawal From the Plan."
PRICE. No consideration is paid to the Company by any
optionee in exchange for the grant of an option. The exercise
price at which shares of Common Stock may be purchased under an
option granted pursuant to the Plan shall be determined by the
Board of Directors (or the Committee), but in no event will the
exercise price be less than the greater of (i) the par value
thereof, or (ii) in the case of Incentive Options, 100 percent of
the fair market value of such shares on <PAGE> the date that the option
is granted, and in the case of Nonstatutory Options, 85 percent
of the fair market value of such shares on the date that the
option is granted. For purposes of the Plan, the fair market
value of shares of Common Stock on the date that the option is
granted will be the mean between the bid and asked prices for
Common Stock on the last market trading day prior to such date of
grant.
PAYMENT FOR SHARES. The exercise of any option will be
contingent upon receipt by the Company of (i) written notice of
the number of shares with respect to which the optionee is
exercising an option and (ii) the full option exercise price for
the shares of Common Stock. Such payment for the shares may be
made in cash at the time of exercise, or, at the discretion of
the Board or Directors (or the Committee) and to the extent
permitted by applicable law, in other shares of Common Stock
according to a deferred payment or other arrangement, or other
consideration acceptable to the Board or Directors (or the
Committee).
DILUTION OR ENLARGEMENT. In the event that there is any
change in the capital structure of the Company, including but not
limited to a change resulting from a stock dividend, stock split,
reorganization, merger, consolidation, liquidation or any
combination or exchange of shares of Common Stock, the number of
shares of Common Stock subject to an option under the Plan which
remains unexercised, and the number of shares of Common Stock
subject to the Plan, will be subject to increase or decrease in
order to prevent dilution or enlargement. The option exercise
price also will be adjusted upon the occurrence of any of such
events so that there will be no change in the aggregate option
exercise price payable upon the exercise of the option.
FEDERAL INCOME TAX CONSEQUENCES
Incentive Options Incentive Options granted under the
Plan are intended to qualify as "incentive stock options" under
section 422(b) of the Code. Generally, an optionee incurs no
Federal income tax consequences at the time of a grant of an
Incentive Option under the Plan or upon exercise of an Incentive
Option granted under the Plan; however, as explained below, an
optionee may incur alternative minimum tax consequences upon the
exercise of an Incentive Option.
Upon the sale of stock received pursuant to the exercise of
an Incentive Option granted under the Plan, other than a sale of
stock which is a "disqualifying disposition," as defined below,
an optionee will recognize either (1) a taxable gain equal to the
excess of the amount realized from the sale over the optionee's
basis in the shares, or (2) a taxable loss equal to the excess of
the optionee's basis in the shares over the amount realized from
the sale. The basis in shares received upon exercise of an
Incentive Option granted under the Plan will be the amount paid
for those shares, or, if the Incentive Option was exercised by
exchanging shares of Common Stock for the new shares, the basis
in the shares surrendered in the exchange.
Gain or loss from the sale of stock received upon exercise
of an Incentive Option granted under the Plan, other than a sale
of stock which is a "disqualifying disposition," as defined
below, will be considered gain or loss from the sale of a capital
asset. Losses from sales of capital assets are subject to
limitations based upon the amount and nature of the taxpayer's
other income, deductions, gains and losses.
A "disqualifying disposition" of shares received pursuant to
the exercise of an Incentive Option occurs if the optionee
disposes of such shares within two years from the date of the
granting of the option or within one year after the transfer of
the shares to such optionee, unless such disposition is (i) a
transfer from a decedent to an estate or a transfer by bequest or
inheritance, (ii) an exchange to which section 354, section 355,
section 356 or section 1036 of the Code (or so much of section
1031 as relates to section 1036) applies, or (iii) a mere pledge
or hypothecation. In the event of a "disqualifying disposition,"
the optionee generally will realize ordinary income in the year
of the "disqualifying disposition" in an amount equal to the
difference between the fair market value of the shares on the
date of exercise and the exercise price. If the disposition is
one in which a loss, if sustained, would be recognized by the
optionee, the amount recognized as taxable income is the excess,
if any, of the amount realized on the sale over the basis of the
shares sold.
<PAGE>
Upon expiration of any Incentive Option, no taxable income
will be recognized by the optionee whose option has expired and
was not exercised.
There are generally no Federal income tax consequences to a
Company upon the issuance or exercise of the Incentive Options.
If the optionee makes a "disqualifying disposition," however, the
Company may deduct an amount equal to the amount that the
optionee recognizes as compensation income due to the
disqualifying disposition, provided the Company satisfies
applicable information reporting and income and payroll tax
withholding requirements.
If the stock received pursuant to the exercise of an
Incentive Option granted under the Plan is freely transferable or
not subject to a substantial risk of forfeiture, then the excess,
if any, of the fair market value of such stock (determined
without regard to any restriction other than a restriction which
by its term will never lapse) over the amount paid for such stock
is included in the determination of alternative minimum taxable
income in the year of exercise. If the stock received pursuant
to the exercise of an Incentive Option granted under the Plan is
not freely transferable and is subject to a substantial risk of
forfeiture, then the excess, if any, of the fair market value of
such stock (determined as above) over the amount paid for such
stock is included in the determination of alternative minimum
taxable income in the year in which such stock becomes freely
transferable or is no longer subject to a substantial risk of
forfeiture, whichever of said two events first occurs. Special
rules apply for purposes of determining whether stock received
pursuant to the exercise of an Incentive Option granted under the
Plan is freely transferable or subject to a substantial risk of
forfeiture. These rules may impact the determination of
alternative minimum taxable income for optionees whose sale of
such stock at a profit could subject the optionee to suit under
section 16(b) of the Exchange Act and in certain other
circumstances.
For purposes of computing the alternative minimum income tax
in the year of sale, the basis in the shares sold is increased by
the amount included in the determination of alternative minimum
taxable income in the year the Incentive Option was exercised.
If stock received pursuant to the exercise of an Incentive Option
granted under the Plan is sold in the same taxable year in which
the option was exercised then the amount includible in the
determination of alternative minimum taxable income cannot exceed
the excess (if any) of the amount realized on the sale less the
optionee's adjusted basis in such stock.
Nonstatutory Options An optionee will, generally, not
recognize any taxable income at the time of a grant of a
Nonstatutory Option under the Plan.
Generally, under section 83 of the Code an optionee will
recognize ordinary income on the exercise of a Nonstatutory
Option granted under the Plan provided the stock received by the
optionee is freely transferable or is not subject to a
substantial risk of forfeiture. If the shares received pursuant
to the exercise of a Nonstatutory Option granted under the Plan
are freely transferable or not subject to a substantial risk of
forfeiture, an optionee will recognize ordinary income on the
date of exercise of an option equal to the amount by which the
fair market value of the shares of Common Stock acquired pursuant
to the exercise of the option on the date of exercise exceeds the
exercise price. However, shares received upon exercise of a
Nonstatutory Option granted under the Plan held by a person who
could be subject to suit under section 16(b) of the Exchange Act
if the stock were sold at a profit would be considered to be
"subject to a substantial risk of forfeiture" and "not
transferable" under section 83 of the Code until such time as the
optionee is no longer subject to suit under section 16(b) of the
Exchange Act. Persons who could be subject to suit under section
16(b) of the Exchange Act (hereinafter referred to as "Insiders")
include officers and directors of the Company and any stockholder
who is a beneficial owner of more than 10% of any class of the
Company's equity securities. Special rules apply for purposes of
determining the time at which income which must be recognized by
Insiders granted Nonstatutory Options under the Plan as described
below.
The grant of a Nonstatutory Option to an Insider under the
Plan will be treated as the immediate purchase of the underlying
shares for purposes of section 16(b) of the Exchange Act, and, in
general, the exercise of a Nonstatutory Option is not considered
a purchase matchable with a sale under section 16(b). As a
result, an Insider who exercises a Nonstatutory Option under the
Plan when the option has been outstanding for at least six months
will recognize taxable income on the date of exercise equal to
the difference between the fair market value of the shares
subject to the option and the amount paid for the shares. If a
Nonstatutory Option is exercised by an Insider within six months
of the date of grant, the optionee will generally recognize
ordinary income on the expiration of six months from the date of
grant in an <PAGE> amount equal to the difference between the fair
market value of the option shares on the date the six-month
period expires and the amount paid for such shares on exercise.
If, however, at the time a Nonstatutory Option is exercised, the
exercise price exceeds the fair market value of the shares
subject to the option, then, regardless of the time of the
exercise, the acquisition of shares pursuant to the exercise of
the option is treated as a matchable purchase under section 16(b)
of the Exchange Act. Accordingly, an Insider who exercises a
Nonstatutory Option at a time when the exercise price exceeds the
fair market value of the shares subject to the option will
recognize ordinary income on the date which is six months from
the date of exercise equal to the amount by which the fair market
value of such shares on expiration of the six-month period
exceeds the exercise price.
An optionee who is an Insider and who exercises a
Nonstatutory Option prior to the expiration of the six-month
period beginning on the date the option is granted or an optionee
who exercises an option at any time when the exercise price of
such option exceeds the fair market value of the shares subject
to option may, however, elect to be taxed at the time of exercise
on the difference between the fair market value of the shares on
the date of exercise and the exercise price, even though such
optionee could be subject to suit under section 16(b), if the
optionee elects, in a timely manner, to be so treated under
section 83(b) of the Code and the regulations thereunder. Any
optionee considering a section 83(b) election should consult his
or her tax advisor as to the consequences of, and manner of
making, the election.
Upon expiration of any Nonstatutory Option, no taxable
income will be recognized by the optionee whose option has
expired and was not exercised.
Upon the sale of stock received pursuant to the exercise of
a Nonstatutory Option under the Plan, an optionee will recognize
either a taxable gain equal to the excess of the amount realized
from the sale over the basis in the shares, or a taxable loss
equal to the excess of the basis in the shares over the amount
realized from the sale. The basis in shares received upon
exercise of a Nonstatutory Option under the Plan generally will
be the fair market value of the shares at the time of exercise.
Gain or loss from the sale of such stock will be considered gain
or loss from the sale of a capital asset if the shares are held
for investment purposes. Losses from sales of capital assets are
subject to limitations based upon the amount and nature of the
taxpayer's other income, deductions, gains and losses.
There are no Federal Income tax consequences to a company
upon the granting of Nonstatutory Options under the Plan. When
an optionee exercises a Nonstatutory Option, however, the Company
is entitled to a deduction equal to the amount included in the
gross income of the optionee as a result of the optionee's
exercise of the Nonstatutory Option, provided the Company
satisfies applicable information reporting and income and payroll
tax withholding requirements.
The Plan is not one which can be qualified under section
401(a) of the Code.
THE FEDERAL INCOME TAX CONSEQUENCES DESCRIBED ABOVE ARE FOR
GENERAL INFORMATION ONLY. NO INFORMATION IS PROVIDED AS TO
STATE, LOCAL OR FOREIGN TAX CONSEQUENCES OF THE ACQUISITION OR
EXERCISE OF OPTIONS GRANTED UNDER THE PLAN OR THE SALE OF SHARES
OF COMMON STOCK ACQUIRED UPON SUCH EXERCISE. EACH OPTIONEE
SHOULD CONSULT HIS OR HER OWN TAX ADVISOR AS TO THE SPECIFIC
FEDERAL INCOME TAX CONSEQUENCES AND AS TO THE SPECIFIC
CONSEQUENCES UNDER STATE, LOCAL AND FOREIGN TAX LAWS.
EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974. The Plan
is not subject to any provision of the Employee Retirement Income
Security Act of 1974, as amended.
WITHDRAWAL FROM THE PLAN
Termination of Employment or Relationship. If a person
to whom options are granted under the Plan ceases to be employed
or engaged as a director of or consultant to the Company or any
of its affiliates for any reason other than death or disability,
any option or unexercised portion thereof granted to him under
the Plan that is otherwise exercisable will terminate unless it
is exercised within three months (or longer or shorter period
(not less than 30 days) specified in the applicable stock option
agreement) of the date on which such person ceased to be so
employed or <PAGE> engaged (but in no event later than the expiration
date of such option specified in the applicable stock option
agreement). The Plan does not, nor will any stock option
agreement issued pursuant to the Plan, confer upon any optionee
any right with respect to continuance of employment or other
relationship by the Company or any of its affiliates.
Disability of Optionee. If a person to whom options
are granted under the Plan ceases to be employed or engaged as a
director of or consultant to the Company or any of its affiliates
as a result of such person's disability, any option or
unexercised portion thereof granted to him under the Plan that is
otherwise exercisable will terminate unless it is exercised
within twelve months (or such longer or shorter period (not less
than six months) specified in the applicable stock option
agreement) of the date on which such person ceased to be so
employed or engaged (but in no event later than the expiration
date of such option specified in the applicable stock option
agreement).
Death of Optionee. In the event a person to whom
options are granted under the Plan dies while he is an employee,
director of or consultant to the Company or any of its affiliates
(or within a period specified in the applicable stock option
agreement after the date on which such person ceases to be so
employed or engaged) any option or unexercised portion thereof
granted to him under the Plan that is otherwise exercisable may
be exercised by the person or persons to whom the optionee's
rights under the option pass by operation of the optionee's will
or the laws of descent and distribution, at any time within 18
months (or such longer or shorter period (not less than six
months) specified in the applicable stock option agreement)
following the date of death (but in no event later than the
expiration date of the option as specified in the applicable
stock option agreement).
TERMINATION OF THE PLAN. The Plan will terminate on May 1,
2004, except as to options then outstanding under the Plan.
Options which are outstanding on the date of such termination
shall remain in effect until they have been exercised or have
expired.
ASSIGNMENT. An Incentive Option granted pursuant to the
Plan shall not be transferable or assignable by the optionee
other than by will or the laws of descent and distribution, and
during the lifetime of the optionee the option shall be
exercisable only by the optionee. A Nonstatutory Option granted
pursuant to the Plan shall not be transferable or assignable by
the optionee other than by will or the laws of descent and
distribution or pursuant to a qualified domestic relations order
satisfying applicable Securities and Exchange Commission Rules,
and during the lifetime of the optionee the option shall be
exercisable only by the optionee (or by the transferee pursuant
to such a qualified domestic relations order).
PLAN BENEFITS
The following table sets forth the Plan benefits that will
be received by or allocated to each Named Executive Officer, all
executive officers as a group, all directors who are not
executive officers as a group, and all employees, including
officers who are not executive officers, as a group with respect
to the options granted under the Plan made subject to obtaining
the approval by the Company's stockholders of the proposed
amendment at the Annual Meeting.
NEW PLAN BENEFITS
Vanguard Airlines, Inc.
1994 Stock Option Plan
Dollar Number
Name and Position Value /1/ of Units
William A. Garrett,
Vice President -- $29,031 464,497
Finance and Chief Financial
Officer
William F. McKinney,
Vice President -- $29,031 464,497
Operations
<PAGE>
Ronald L. McClellan,
Vice President -- $29,031 464,497
Maintenance
Executive Group $186,686 2,986,982
Non-Executive Director Group -- --
Non-Executive Officer Employee Group -- --
/1/ The dollar value of options to purchase shares of common
stock granted under the Plan has been determined as of April
1, 1998 based on (i) the number of shares of Common Stock
issuable upon the exercise of options and (ii) the
difference between the fair market value of such shares of
Common Stock and the exercise price of the options,
respectively. As of April 1, 1998, the last reported sale
price of the Company's Common Stock, which was reported by
the OTC Bulletin Board, was $0.5625 per share. Value is
calculated by determining the difference between the option
exercise price and $0.5625, multiplied by the number of
shares of Common Stock underlying the options.
VOTE REQUIRED
The adoption of the amendment requires approval by a
majority of the votes cast at the Annual Meeting.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR"
THE PROPOSED AMENDMENTS OF THE 1994 PLAN.
PROPOSAL FOUR
RATIFICATION OF THE SELECTION OF
INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors has selected the firm of Ernst &
Young LLP as the Company's independent certified public
accountants to audit the financial statements of the Company for
the year ending December 31, 1998. Ernst & Young LLP has served
as auditors for the Company since 1994.
It is expected that a representative of Ernst & Young LLP
will be present at the Annual Meeting. Such representative will
have the opportunity to make a statement, if he or she desires to
do so, and also will be available to respond to appropriate
questions.
The ratification of the selection of Ernst & Young LLP as
independent public accountants requires approval by a majority of
the votes cast at the Annual Meeting.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE
APPROVAL AND RATIFICATION OF THE SELECTION OF ERNST & YOUNG LLP
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934
requires the Company's directors and executive officers, and
persons who own more than ten percent of a registered class of
the Company's equity securities, to file with the Securities and
Exchange Commission initial reports of ownership and reports of
changes in ownership of Common Stock and other equity securities
of the Company. Executive officers, directors and holders of ten
percent or more of the Company's equity securities are required
by Securities and Exchange Commission regulations to furnish the
Company with copies of all Section 16(a) reports they file.
<PAGE>
Based solely on a review of the copies of such reports
furnished to the Company and written representations that no
other reports were required, the Company believes that during the
year ended December 31, 1997, all Section 16(a) filing
requirements applicable to its executive officers, directors and
holders of ten percent or more of the Company's equity securities
were complied with, except that Mr. Edmund H. Shea, Jr. failed to
timely file a statement of changes in beneficial ownership on
Form 4 with respect to one transaction.
FINANCIAL STATEMENTS
The Annual Report to Shareholders of the Company for the
year ended December 31, 1997, is enclosed with this Proxy
Statement. Such Annual Report is not to be regarded as proxy
solicitation material.
GENERAL INFORMATION
OTHER MATTERS
To permit the Company and its stockholders to deal with
stockholders' proposals in an informed and orderly manner, the
Bylaws of the Company require that for business to be properly
brought before an annual stockholders' meeting, the Secretary of
the Company must have received prior written notice of such
business not later than 60 days prior to the first anniversary of
the preceding year's annual meeting. The notice to the Secretary
must set forth as to each matter: (i) a brief description of
proposed business to be brought before the annual meeting; (ii) a
representation that such stockholder is a holder of record of
stock entitled to vote on the business proposed by such
stockholder and intends to appear in person or by proxy at the
meeting to present the proposed business to be brought before the
meeting; (iii) the name and address of the stockholder and of the
beneficial owner (as such term is defined under Rule 13d-3 under
the Securities Exchange Act of 1934); (iv) a description of the
class and number of shares of stock of the Company which are
owned beneficially and of record by the stockholder; (v) the
reason for conducting such business at the meeting and any
material interest of the stockholder or such beneficial owner in
such business; and (vi) all other information regarding the
proposal which the Company would be required to provide in a
proxy statement filed pursuant to the proxy rules of the
Securities and Exchange Commission if proxies for the proposal
were being solicited by the Company. Because no such notice has
been received in a timely manner, the only business that may be
properly brought before the Annual Meeting are the matters set
forth herein or those brought before the meeting by or at the
direction of the Board of Directors.
The Board of Directors does not intend to present any matter
for action at the Annual Meeting other than the matters referred
to in this Proxy Statement. If any other matters properly come
before the Annual Meeting, it is intended that the holders of the
proxies hereby solicited will act in respect of such matters in
accordance with their best judgment.
DEADLINE FOR STOCKHOLDER PROPOSALS
Proposals by stockholders that are intended to be presented
at the 1999 Annual Meeting of Stockholders must be received by
the Company no later than March 15, 1999 to be eligible for
inclusion in the Company's Proxy Statement and form of proxy
relating to that meeting. Such proposals must also comply in
full with the requirements of Rule 14a-8 under the Securities
Exchange Act of 1934 and must comply with the advance notice and
information requirement described under the heading "General
Information -- Other Matters" above to be presented at that
meeting. Stockholders' proposals should be addressed to the
attention of the Secretary of the Company.
VOTING MATTERS
In accordance with Delaware law, a stockholder entitled to
vote in the election of directors can withhold authority to vote
for all nominees for directors or can withhold authority to vote
for certain nominees for directors. Abstentions from the
proposal to approve the amendment to the Company's Restated
Certificate described herein, the proposal to approve the
amendment to the Company's 1994 Plan described herein or the
proposal to approve and ratify the selection of the Company's
independent auditors are treated as votes against the particular
proposal. Broker non-votes are treated as shares <PAGE> of Common Stock
as to which voting power has been withheld by the respective
beneficial holders and, therefore, as shares not entitled to vote
on the proposal as to which there is the broker non-vote.
BY ORDER OF THE BOARD OF DIRECTORS,
Brian S. Gillman
Vice President, General Counsel
and Secretary
Kansas City, Missouri
April 16, 1998
<PAGE>
Exhibit A
VANGUARD AIRLINES, INC.
PROPOSED AMENDMENT
TO THE
RESTATED CERTIFICATE OF INCORPORATION
(Increase in Authorized Capital)
RESOLVED, that the Restated Certificate of Incorporation of
Vanguard Airlines, Inc., a Delaware corporation (the
"Corporation"), be amended by deleting the Article IV, Section
(a) in its entirety and inserting in lieu thereof the following
new Article IV Section (a):
(a) The total number of shares of all classes of stock
which the Corporation shall have the authority to issue is
two hundred two million (202,000,000), of which (i) two
hundred million (200,000,000) shares, of the par value of
$0.001 per share, shall be denominated "Common Stock" and
(ii) two million (2,000,000) shares of the par value shall
be denominated "Preferred Stock."
<PAGE>
APPENDIX A - 1994 STOCK OPTION PLAN
VANGUARD AIRLINES, INC.
1994 STOCK OPTION PLAN
Adopted May 2, 1994
As Amended by the Board and
Approved by the Stockholders on June 23, 1995
1. PURPOSES.
(a) The purpose of the Plan is to provide a means by which
selected Employees and Directors of and Consultants to the
Company, and its Affiliates, may be given an opportunity to
purchase stock of the Company.
(b) The Company, by means of the Plan, seeks to retain the
services of persons who are now Employees or Directors of or
Consultants to the Company or its Affiliates, to secure and
retain the services of new Employees, Directors and Consultants,
and to provide incentives for such persons to exert maximum
efforts for the success of the Company and its Affiliates.
(c) The Company intends that the Options issued under the
Plan shall, in the discretion of the Board or any Committee to
which responsibility for administration of the Plan has been
delegated pursuant to subsection 3(c), be either Incentive Stock
Options or Nonstatutory Stock Options. All Options shall be
separately designated Incentive Stock Options or Nonstatutory
Stock Options at the time of grant, and in such form as issued
pursuant to Section 6, and a separate certificate or certificates
will be issued for shares purchased on exercise of each type of
Option.
2. DEFINITIONS.
(a) "AFFILIATE" means any parent corporation or subsidiary
corporation, whether now or hereafter existing, as those terms
are defined in Sections 424(e) and (f) respectively, of the Code.
(b) "BOARD" means the Board of Directors of the Company.
<PAGE>
(c) "CODE" means the Internal Revenue Code of 1986, as
amended.
(d) "COMMITTEE" means a Committee appointed by the Board in
accordance with subsection 3(c) of the Plan.
(e) "COMPANY" means Vanguard Airlines, Inc., a Delaware
corporation.
(f) "CONSULTANT" means any person, including an advisor,
engaged by the Company or an Affiliate to render consulting
services and who is compensated for such services, provided that
the term "Consultant" shall not include Directors who are paid
only a director's fee by the Company or who are not compensated
by the Company for their services as Directors.
(g) "CONTINUOUS STATUS AS AN EMPLOYEE, DIRECTOR OR
CONSULTANT" means the employment or relationship as a Director or
Consultant is not interrupted or terminated. The Board, in its
sole discretion, may determine whether Continuous Status as an
Employee, Director or Consultant shall be considered interrupted
in the case of: (i) any leave of absence approved by the Board,
including sick leave, military leave, or any other personal
leave; or (ii) transfers between locations of the Company or
between the Company, Affiliates or their successors.
(h) "COVERED EMPLOYEE" means the Chief Executive Officer
and the four (4) other highest compensated officers of the
Company.
(i) "DIRECTOR" means a member of the Board.
(j) "DISINTERESTED PERSON" means a Director who either
(i) was not during the one year prior to service as an
administrator of the Plan granted or awarded equity securities
pursuant to the Plan or any other plan of the Company or any of
its affiliates entitling the participants therein to acquire
equity securities of the Company or any of its affiliates except
as permitted by Rule 16b- <PAGE> 3(c)(2)(i); or (ii) is otherwise
considered to be a "disinterested person" in accordance with
Rule 16b-3(c)(2)(i), or any other applicable rules, regulations
or interpretations of the Securities and Exchange Commission.
(k) "EMPLOYEE" means any person, including Officers and
Directors, employed by the Company or any Affiliate of the
Company. Neither service as a Director nor payment of a
director's fee by the Company shall be sufficient to constitute
"employment" by the Company.
(l) "EXCHANGE ACT" means the Securities Exchange Act of
1934, as amended.
(m) "FAIR MARKET VALUE" means, as of any date, the value of
the common stock of the Company determined as follows and in each
case in a manner consistent with Section 260.140.50 of Title 10
of the California Code of Regulations:
(1) If the common stock is listed on any established
stock exchange or a national market system, including without
limitation the National Market System of the National Association
of Securities Dealers, Inc. Automated Quotation ("NASDAQ")
System, the Fair Market Value of a share of common stock shall be
the closing sales price for such stock (or the closing bid, if no
sales were reported) as quoted on such system or exchange (or the
exchange with the greatest volume of trading in common stock) on
the last market trading day prior to the day of determination, as
reported in the Wall Street Journal or such other source as the
Board deems reliable;
(2) If the common stock is quoted on the NASDAQ System
(but not on the National Market System thereof) or is regularly
quoted by a recognized securities dealer but selling prices are
not reported, the Fair Market Value of a share of common stock
shall be the mean between the bid and asked prices for the common
stock on the last market trading day prior to the day of
determination, as reported in the Wall Street Journal or such
other source as the Board deems reliable;
<PAGE>
(3) In the absence of an established market for the
common stock, the Fair Market Value shall be determined in good
faith by the Board.
(n) "INCENTIVE STOCK OPTION" means an Option intended to
qualify as an incentive stock option within the meaning of
Section 422 of the Code and the regulations promulgated
thereunder.
(o) "NONSTATUTORY STOCK OPTION" means an Option not
intended to qualify as an Incentive Stock Option.
(p) "OFFICER" means a person who is an officer of the
Company within the meaning of Section 16 of the Exchange Act and
the rules and regulations promulgated thereunder.
(q) "OPTION" means a stock option granted pursuant to the
Plan.
(r) "OPTION AGREEMENT" means a written agreement between
the Company and an Optionee evidencing the terms and conditions
of an individual Option grant. Each Option Agreement shall be
subject to the terms and conditions of the Plan.
(s) "OPTIONEE" means an Employee, Director or Consultant
who holds an outstanding Option.
(t) "OUTSIDE DIRECTOR" means a Director who either (i) is
not a current employee of the Company or an "affiliated
corporation" (as defined in the Treasury regulations promulgated
under Section 162(m) of the Code), is not a former employee of
the Company or an affiliated corporation receiving compensation
for prior services (other than benefits under a tax qualified
pension plan), was not an officer of the Company or an affiliated
corporation at any time, and is not currently receiving
compensation for personal services in any capacity other than as
a Director, or (ii) is otherwise considered an "outside director"
for purposes of Section 162(m) of the Code.
<PAGE>
(u) "PLAN" means this Vanguard Airlines, Inc. 1994 Stock
Option Plan.
(v) "RULE 16B-3" means Rule 16b-3 of the Exchange Act or
any successor to Rule 16b-3, as in effect when discretion is
being exercised with respect to the Plan.
3. ADMINISTRATION.
(a) The Plan shall be administered by the Board unless and
until the Board delegates administration to a Committee, as
provided in subsection 3(c).
(b) The Board shall have the power, subject to, and within
the limitations of, the express provisions of the Plan:
(1) To determine from time to time which of the
persons eligible under the Plan shall be granted Options; when
and how each Option shall be granted; whether an Option will be
an Incentive Stock Option or a Nonstatutory Stock Option; the
provisions of each Option granted (which need not be identical),
including the time or times such Option may be exercised in whole
or in part; and the number of shares for which an Option shall be
granted to each such person.
(2) To construe and interpret the Plan and Options
granted under it, and to establish, amend and revoke rules and
regulations for its administration. The Board, in the exercise
of this power, may correct any defect, omission or inconsistency
in the Plan or in any Option Agreement, in a manner and to the
extent it shall deem necessary or expedient to make the Plan
fully effective.
(3) To amend the Plan as provided in Section 11.
<PAGE>
(c) The Board may delegate administration of the Plan to a
committee composed of not fewer than two (2) members (the
"Committee"), all of the members of which Committee shall be
Disinterested Persons and may also be, in the discretion of the
Board, Outside Directors. If administration is delegated to a
Committee, the Committee shall have, in connection with the
administration of the Plan, the powers theretofore possessed by
the Board (and references in this Plan to the Board shall
thereafter be to the Committee), subject, however, to such
resolutions, not inconsistent with the provisions of the Plan, as
may be adopted from time to time by the Board. The Board may
abolish the Committee at any time and revest in the Board the
administration of the Plan. Additionally, prior to the date of
the first registration of an equity security of the Company under
Section 12 of the Exchange Act, and notwithstanding anything to
the contrary contained herein, the Board may delegate
administration of the Plan to any person or persons and the term
"Committee" shall apply to any person or persons to whom such
authority has been delegated. Notwithstanding anything in this
Section 3 to the contrary, the Board or the Committee may
delegate to a committee of one or more members of the Board the
authority to grant Options to eligible persons who (1) are not
then subject to Section 16 of the Exchange Act and/or (2) are
either (i) not then Covered Employees and are not expected to be
Covered Employees at the time of recognition of income resulting
from such Option, or (ii) not persons with respect to whom the
Company wishes to comply with Section 162(m) of the Code.
(d) Any requirement that an administrator of the Plan be a
Disinterested Person shall not apply (i) prior to the date of the
first registration of an equity security of the Company under
Section 12 of the Exchange Act, or (ii) if the Board or the
Committee expressly declares that such requirement shall not
apply. Any Disinterested Person shall otherwise comply with the
requirements of Rule 16b-3.
<PAGE>
4. SHARES SUBJECT TO THE PLAN.
(a) Subject to the provisions of Section 10 relating to
adjustments upon changes in stock, the stock that may be sold
pursuant to Options shall not exceed in the aggregate one million
seven hundred thousand (1,700,000) shares of the Company's common
stock. If any Option shall for any reason expire or otherwise
terminate, in whole or in part, without having been exercised in
full, the stock not purchased under such Option shall revert to
and again become available for issuance under the Plan.
(b) The stock subject to the Plan may be unissued shares or
reacquired shares, bought on the market or otherwise.
5. ELIGIBILITY.
(a) Incentive Stock Options may be granted only to
Employees. Nonstatutory Stock Options may be granted only to
Employees, Directors or Consultants.
(b) A Director shall in no event be eligible for the
benefits of the Plan unless at the time discretion is exercised
in the selection of the Director as a person to whom Options may
be granted, or in the determination of the number of shares which
may be covered by Options granted to the Director: (i) the Board
has delegated its discretionary authority over the Plan to a
Committee which consists solely of Disinterested Persons; or
(ii) the Plan otherwise complies with the requirements of Rule
16b-3. The Board shall otherwise comply with the requirements of
Rule 16b-3. This subsection 5(b) shall not apply (i) prior to
the date of the first registration of an equity security of the
Company under Section 12 of the Exchange Act, or (ii) if the
Board or Committee expressly declares that it shall not apply.
<PAGE>
(c) No person shall be eligible for the grant of an Option
if, at the time of grant, such person owns (or is deemed to own
pursuant to Section 424(d) of the Code) stock possessing more
than ten percent (10%) of the total combined voting power of all
classes of stock of the Company or of any of its Affiliates
unless the exercise price of such Option is at least one hundred
ten percent (110%) of the Fair Market Value of such stock at the
date of grant and the Option is not exercisable after the
expiration of five (5) years from the date of grant.
(d) No person shall be eligible to be granted Options
covering more than two hundred thousand (200,000) shares of the
Company's common stock in any calendar year.
6. OPTION PROVISIONS.
Each Option shall be in such form and shall contain such
terms and conditions as the Board shall deem appropriate. The
provisions of separate Options need not be identical, but each
Option shall include (through incorporation of provisions hereof
by reference in the Option or otherwise) the substance of each of
the following provisions:
(a) TERM. No Option shall be exercisable after the
expiration of ten (10) years from the date it was granted.
(b) PRICE. The exercise price of each Incentive Stock
Option shall be not less than one hundred percent (100%) of the
Fair Market Value of the stock subject to the Option on the date
the Option is granted. The exercise price of each Nonstatutory
Stock Option shall be not less than eighty-five percent (85%) of
the Fair Market Value of the stock subject to the Option on the
date the Option is granted.
(c) CONSIDERATION. The purchase price of stock acquired
pursuant to an Option shall be paid, to the extent permitted by
applicable statutes and regulations, either (i) in cash at the
time the Option is exercised, or (ii) at the discretion of the
Board or the Committee, either at the time of the <PAGE> grant or
exercise of the Option, (A) by delivery to the Company of other
common stock of the Company, (B) according to a deferred payment
or other arrangement (which may include, without limiting the
generality of the foregoing, the use of other common stock of the
Company) with the person to whom the Option is granted or to whom
the Option is transferred pursuant to subsection 6(d), or (C) in
any other form of legal consideration that may be acceptable to
the Board.
In the case of any deferred payment arrangement, interest
shall be payable at least annually and shall be charged at the
minimum rate of interest necessary to avoid the treatment as
interest, under any applicable provisions of the Code, of any
amounts other than amounts stated to be interest under the
deferred payment arrangement.
(d) TRANSFERABILITY. An Incentive Stock Option shall not
be transferable except by will or by the laws of descent and
distribution, and shall be exercisable during the lifetime of the
person to whom the Incentive Stock Option is granted only by such
person. A Nonstatutory Stock Option shall not be transferable
except by will or by the laws of descent and distribution or
pursuant to a qualified domestic relations order satisfying the
requirements of Rule 16b-3 and the rules thereunder (a "QDRO"),
and shall be exercisable during the lifetime of the person to
whom the Nonstatutory Stock Option is granted only by such person
or any transferee pursuant to a QDRO. The person to whom the
Option is granted may, by delivering written notice to the
Company, in a form satisfactory to the Company, designate a third
party who, in the event of the death of the Optionee, shall
thereafter be entitled to exercise the Option.
(e) VESTING. The total number of shares of stock subject
to an Option may, but need not, be allotted in periodic
installments (which may, but need not, be equal). The Option
Agreement may provide that from time to time during each of such
installment periods, the Option may become <PAGE> exercisable ("vest")
with respect to some or all of the shares allotted to that
period, and may be exercised with respect to some or all of the
shares allotted to such period and/or any prior period as to
which the Option became vested but was not fully exercised. The
Option may be subject to such other terms and conditions on the
time or times when it may be exercised (which may be based on
performance or other criteria) as the Board may deem appropriate.
The vesting provisions of individual Options may vary but in each
case will provide for vesting of at least twenty percent (20%)
per year of the total number of shares subject to the Option.
The provisions of this subsection 6(e) are subject to any Option
provisions governing the minimum number of shares as to which an
Option may be exercised.
(f) SECURITIES LAW COMPLIANCE. The Company may require any
Optionee, or any person to whom an Option is transferred under
subsection 6(d), as a condition of exercising any such Option,
(1) to give written assurances satisfactory to the Company as to
the Optionee's knowledge and experience in financial and business
matters and/or to employ a purchaser representative reasonably
satisfactory to the Company who is knowledgeable and experienced
in financial and business matters, and that he or she is capable
of evaluating, alone or together with the purchaser
representative, the merits and risks of exercising the Option;
and (2) to give written assurances satisfactory to the Company
stating that such person is acquiring the stock subject to the
Option for such person's own account and not with any present
intention of selling or otherwise distributing the stock. The
foregoing requirements, and any assurances given pursuant to such
requirements, shall be inoperative if (i) the issuance of the
shares upon the exercise of the Option has been registered under
a then currently effective registration statement under the
Securities Act of 1933, as amended (the "Securities Act"), or
(ii) as to any particular requirement, a determination is made by
counsel for the <PAGE> Company that such requirement need not be met in
the circumstances under the then applicable securities laws. The
Company may, upon advice of counsel to the Company, place legends
on stock certificates issued under the Plan as such counsel deems
necessary or appropriate in order to comply with applicable
securities laws, including, but not limited to, legends
restricting the transfer of the stock.
(G) TERMINATION OF EMPLOYMENT OR RELATIONSHIP AS A DIRECTOR
OR CONSULTANT. In the event an Optionee's Continuous Status as
an Employee, Director or Consultant terminates (other than upon
the Optionee's death or disability), the Optionee may exercise
his or her Option (to the extent that the Optionee was entitled
to exercise it at the date of termination) but only within such
period of time ending on the earlier of (i) the date three (3)
months after the termination of the Optionee's Continuous Status
as an Employee, Director or Consultant (or such longer or shorter
period, which in no event shall be less than thirty (30) days,
specified in the Option Agreement), or (ii) the expiration of the
term of the Option as set forth in the Option Agreement. If,
after termination, the Optionee does not exercise his or her
Option within the time specified in the Option Agreement, the
Option shall terminate, and the shares covered by such Option
shall revert to and again become available for issuance under the
Plan.
(h) DISABILITY OF OPTIONEE. In the event an Optionee's
Continuous Status as an Employee, Director or Consultant
terminates as a result of the Optionee's disability, the Optionee
may exercise his or her Option (to the extent that the Optionee
was entitled to exercise it at the date of termination), but only
within such period of time ending on the earlier of (i) the date
twelve (12) months following such termination (or such longer or
shorter period, which in no event shall be less than six (6)
months, specified in the Option Agreement), or (ii) the
expiration of the term of the <PAGE> Option as set forth in the Option
Agreement. If, at the date of termination, the Optionee is not
entitled to exercise his or her entire Option, the shares covered
by the unexercisable portion of the Option shall revert to and
again become available for issuance under the Plan. If, after
termination, the Optionee does not exercise his or her Option
within the time specified herein, the Option shall terminate, and
the shares covered by such Option shall revert to and again
become available for issuance under the Plan.
(i) DEATH OF OPTIONEE. In the event of the death of an
Optionee during, or within a period specified in the Option after
the termination of, the Optionee's Continuous Status as an
Employee, Director or Consultant, the Option may be exercised (to
the extent the Optionee was entitled to exercise the Option at
the date of death) by the Optionee's estate, by a person who
acquired the right to exercise the Option by bequest or
inheritance or by a person designated to exercise the option upon
the Optionee's death pursuant to subsection 6(d), but only within
the period ending on the earlier of (i) the date eighteen (18)
months following the date of death (or such longer or shorter
period, which in no event shall be less than six (6) months,
specified in the Option Agreement), or (ii) the expiration of the
term of such Option as set forth in the Option Agreement. If, at
the time of death, the Optionee was not entitled to exercise his
or her entire Option, the shares covered by the unexercisable
portion of the Option shall revert to and again become available
for issuance under the Plan. If, after death, the Option is not
exercised within the time specified herein, the Option shall
terminate, and the shares covered by such Option shall revert to
and again become available for issuance under the Plan.
(j) EARLY EXERCISE. The Option may, but need not, include
a provision whereby the Optionee may elect at any time while an
Employee, Director or Consultant to exercise the Option as to any
part or all of the shares subject to the Option prior to the full
vesting of the Option. Any <PAGE> unvested shares so purchased shall be
subject to a repurchase right in favor of the Company, with the
repurchase price to be equal to the original purchase price of
the stock, or to any other restriction the Board determines to be
appropriate; provided, however, that (i) the right to repurchase
at the original purchase price shall lapse at a minimum rate of
twenty percent (20%) per year over five (5) years from the date
the Option was granted, and (ii) such right shall be exercisable
only (A) within the ninety (90) day period following the
termination of employment or the relationship as a Director or
Consultant or (B) such longer period as may be agreed to by the
Company and the Optionee (for example, for purposes of satisfying
the requirements of Section 1202(c)(3) of the Code (regarding
"qualified small business stock")), and (iii) such right shall be
exercisable only for cash or cancellation of purchase money
indebtedness for the shares. Should the right of repurchase be
assigned by the Company, the assignee shall pay the Company cash
equal to the difference between the original purchase price and
the stock's Fair Market Value if the original purchase price is
less than the stock's Fair Market Value.
(k) WITHHOLDING. To the extent provided by the terms of an
Option Agreement, the Optionee may satisfy any federal, state or
local tax withholding obligation relating to the exercise of such
Option by any of the following means or by a combination of such
means: (1) tendering a cash payment; (2) authorizing the Company
to withhold shares from the shares of the common stock otherwise
issuable to the participant as a result of the exercise of the
Option; or (3) delivering to the Company owned and unencumbered
shares of the common stock of the Company.
7. COVENANTS OF THE COMPANY.
(a) During the terms of the Options, the Company shall keep
available at all times the number of shares of stock required to
satisfy such Options.
<PAGE>
(b) The Company shall seek to obtain from each regulatory
commission or agency having jurisdiction over the Plan such
authority as may be required to issue and sell shares of stock
upon exercise of the Options; provided, however, that this
undertaking shall not require the Company to register under the
Securities Act either the Plan, any Option or any stock issued or
issuable pursuant to any such Option. If, after reasonable
efforts, the Company is unable to obtain from any such regulatory
commission or agency the authority which counsel for the Company
deems necessary for the lawful issuance and sale of stock under
the Plan, the Company shall be relieved from any liability for
failure to issue and sell stock upon exercise of such Options
unless and until such authority is obtained.
8. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock pursuant to Options shall
constitute general funds of the Company.
9. MISCELLANEOUS.
(a) Neither an Optionee nor any person to whom an Option is
transferred under subsection 6(d) shall be deemed to be the
holder of, or to have any of the rights of a holder with respect
to, any shares subject to such Option unless and until such
person has satisfied all requirements for exercise of the Option
pursuant to its terms.
(b) Throughout the term of any Option, the Company shall
deliver to the holder of such Option, not later than one hundred
twenty (120) days after the close of each of the Company's fiscal
years during the Option term, a balance sheet and an income
statement. This section shall not apply when issuance is limited
to key employees whose duties in connection with the Company
assure them access to equivalent information.
<PAGE>
(c) Nothing in the Plan or any instrument executed or
Option granted pursuant thereto shall confer upon any Employee,
Director, Consultant or Optionee any right to continue in the
employ of the Company or any Affiliate (or to continue acting as
a Director or Consultant) or shall affect the right of the
Company or any Affiliate to terminate the employment or
relationship as a Director or Consultant of any Employee,
Director, Consultant or Optionee with or without cause.
(d) To the extent that the aggregate Fair Market Value
(determined at the time of grant) of stock with respect to which
Incentive Stock Options granted after 1986 are exercisable for
the first time by any Optionee during any calendar year under all
plans of the Company and its Affiliates exceeds one hundred
thousand dollars ($100,000), the Options or portions thereof
which exceed such limit (according to the order in which they
were granted) shall be treated as Nonstatutory Stock Options.
(e) (1) The Board or the Committee shall have the
authority to effect, at any time and from time to time (i) the
repricing of any outstanding Options under the Plan and/or
(ii) with the consent of the affected holders of Options, the
cancellation of any outstanding Options and the grant in
substitution therefor of new Options under the Plan covering the
same or different numbers of shares of Common Stock, but having
an exercise price per share not less than eighty-five percent
(85%) of the Fair Market Value (one hundred percent (100%) of the
Fair Market Value in the case of an Incentive Stock Option or, in
the case of a ten percent (10%) stockholder (as defined in
subsection 5(c)), not less than one hundred and ten percent
(110%) of the Fair Market Value) per share of Common Stock on the
new grant date.
(2) Shares subject to an Option canceled under this
subsection 9(e) shall continue to be counted against the maximum
award of Options permitted to be granted pursuant to subsection
<PAGE>
5(d) of the Plan. The repricing of an Option under this
subsection 9(e), resulting in a reduction of the exercise price,
shall be deemed to be a cancellation of the original Option and
the grant of a substitute Option; in the event of such repricing,
both the original and the substituted Options shall be counted
against the maximum awards of Options permitted to be granted
pursuant to subsection 5(d) of the Plan. The provisions of this
subsection 9(e) shall be applicable only to the extent required
by Section 162(m) of the Code.
10. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) If any change is made in the stock subject to the Plan,
or subject to any Option (through merger, consolidation,
reorganization, recapitalization, stock dividend, dividend in
property other than cash, stock split, liquidating dividend,
combination of shares, exchange of shares, change in corporate
structure or otherwise), the Plan and outstanding Options will be
appropriately adjusted in the class(es) and maximum number of
shares subject to the Plan and the class(es) and number of shares
and price per share of stock subject to outstanding Options.
(b) In the event of: (1) a merger or consolidation in
which the Company is not the surviving corporation or (2) a
reverse merger in which the Company is the surviving corporation
but the shares of the Company's common stock outstanding
immediately preceding the merger are converted by virtue of the
merger into other property, whether in the form of securities,
cash or otherwise then to the extent permitted by applicable law:
(i) any surviving corporation shall assume any Options
outstanding under the Plan or shall substitute similar Options
for those outstanding under the Plan, or (ii) such Options shall
continue in full force and effect. In the event any surviving
corporation refuses to assume or continue such Options, or to
substitute similar options for those outstanding under the Plan,
then such Options shall be terminated if not exercised prior to
such event. <PAGE> In the event of a dissolution or liquidation of the
Company, any Options outstanding under the Plan shall terminate
if not exercised prior to such event.
11. AMENDMENT OF THE PLAN.
(a) The Board at any time, and from time to time, may amend
the Plan. However, except as provided in Section 10 relating to
adjustments upon changes in stock, no amendment shall be
effective unless approved by the stockholders of the Company
within twelve (12) months before or after the adoption of the
amendment, where the amendment will:
(1) Increase the number of shares reserved for Options
under the Plan;
(2) Modify the requirements as to eligibility for
participation in the Plan (to the extent such modification
requires stockholder approval in order for the Plan to satisfy
the requirements of Section 422 of the Code); or
(3) Modify the Plan in any other way if such
modification requires stockholder approval in order for the Plan
to satisfy the requirements of Section 422 of the Code or to
comply with the requirements of Rule 16b-3.
(b) The Board may in its sole discretion submit any other
amendment to the Plan for stockholder approval, including, but
not limited to, amendments to the Plan intended to satisfy the
requirements of Section 162(m) of the Code and the regulations
promulgated thereunder regarding the exclusion of performance-
based compensation from the limit on corporate deductibility of
compensation paid to certain executive officers.
(c) It is expressly contemplated that the Board may amend
the Plan in any respect the Board deems necessary or advisable to
provide Optionees with the maximum benefits provided or <PAGE> to be
provided under the provisions of the Code and the regulations
promulgated thereunder relating to Incentive Stock Options and/or
to bring the Plan and/or Incentive Stock Options granted under it
into compliance therewith.
(d) Rights and obligations under any Option granted before
amendment of the Plan shall not be altered or impaired by any
amendment of the Plan unless (i) the Company requests the consent
of the person to whom the Option was granted and (ii) such person
consents in writing.
12. TERMINATION OR SUSPENSION OF THE PLAN.
(a) The Board may suspend or terminate the Plan at any
time. Unless sooner terminated, the Plan shall terminate on May
1, 2004 which shall be within ten (10) years from the date the
Plan is adopted by the Board or approved by the stockholders of
the Company, whichever is earlier.
(b) Rights and obligations under any Option granted while
the Plan is in effect shall not be altered or impaired by
suspension or termination of the Plan, except with the consent of
the person to whom the Option was granted.
13. EFFECTIVE DATE OF PLAN.
The Plan shall become effective as determined by the Board,
but no Options granted under the Plan shall be exercised unless
and until the Plan has been approved by the stockholders of the
Company, which approval shall be within twelve (12) months before
or after the date the Plan is adopted by the Board, and, if
required, an appropriate permit has been issued by the
Commissioner of Corporations of the State of California.
<PAGE>
APPENDIX B - PROXY
Preliminary Copy
PROXY
VANGUARD AIRLINES, INC.
ANNUAL MEETING OF STOCKHOLDERS
May 15, 1998
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
OF VANGUARD AIRLINES, INC.
The undersigned stockholder of VANGUARD AIRLINES, INC.
hereby appoints Robert J. Spane and Brian S. Gillman, and each or
either of them, with full power of substitution, as attorneys-in-
fact, agents and proxies of the undersigned, to vote all the
shares of capital stock of the Company which the undersigned is
entitled to vote at the 1998 Annual Meeting of Stockholders of
Vanguard Airlines, Inc. to be held on Friday, May 15, 1998, at
10:00 a.m. Central Daylight Time, at the Kansas City Airport
Embassy Suites Hotel, 7640 N.W. Tiffany Springs Parkway, Kansas
City, Missouri, and at any adjournment thereof, on the
transaction of any and all business which may come before said
meeting, as fully and with the same effect as the undersigned
might or could do if personally present for the following
purposes:
1. Election of Denis T. Rice as a Class III director.
[ ] FOR [ ] WITHHELD
2. Approval of an amendment to the Company's Restated
Certificate of Incorporation to increase the number of
authorized shares of the Company's capital stock from
51,000,000 shares to 202,000,000 shares and to increase the
number of authorized shares of the Company's Common Stock
from 50,000,000 shares to 200,000,000 shares and the number
of authorized shares of the Company's Preferred Stock from
1,000,000 shares to 2,000,000 shares.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. Approval of an amendment to the Vanguard Airlines, Inc. 1994
Stock Option Plan to increase the number of shares of Common
Stock issuable under the Plan and to increase the number of
options that may be granted to an employee in any calendar
year, as described in the accompanying Proxy Statement.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. Ratification and approval of the selection of Ernst & Young
LLP as the independent public accountants of Vanguard
Airlines, Inc., for the year ending December 31, 1998.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
5. In their discretion, the proxies are to vote upon such other
business as may properly come before the meeting of which
the board of directors does not have knowledge a reasonable
period before the solicitation of this proxy.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE
MANNER DIRECTED HEREIN BY THE UNDERSIGNED STOCKHOLDER(S). IF NO
DIRECTION IS MADE, THIS PROXY WILL BE VOTED "FOR" PROPOSALS 1, 2,
3 AND 4.
The undersigned hereby acknowledges receipt of the Notice of
Annual Meeting and Proxy Statement, dated April 16, 1998.
Dated: ____________________, 1998
_________________________________________
Signature of Stockholders
Please date and sign exactly as name or names
appear hereon. If shares are held jointly or by
two or more persons, each stockholder named should
sign. Executors, administrators, trustees, etc.
should so indicate when signing. If the signer is
a corporation, please sign full corporate name by
duly authorized officer. If a partnership, please
sign in partnership name by authorized person.
PLEASE MARK, SIGN, DATE AND MAIL THIS PROXY IN THE
ENVELOPE PROVIDED.
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