UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
( X ) QUARTERLY REPORT PURSUANT TO
SECTION 13 or 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13
OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934 FOR THE TRANSITION PERIOD FROM _______ TO
_______.
Commission File Number 0-27034
VANGUARD AIRLINES, INC.
(Exact name of Registrant as specified in
its charter)
Delaware 48-1149290
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
533 Mexico City Avenue
Kansas City International Airport
Kansas City, MO 64153
(913) 789-1388
(Address of principal executive offices, including zip
code; Registrant's telephone number, including area
code)
Indicate by check mark whether the Registrant (1) has
filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90
days.
Yes X No
------- ------
At March 31, 1999, there were 85,392,746 shares of Common
Stock, par value $.001 per share issued and outstanding.
<PAGE>
PART I. - FINANCIAL INFORMATION
ITEM 1. FINANCIAL
STATEMENTS
VANGUARD AIRLINES, INC.
BALANCE SHEETS
MARCH 31, DECEMBER 31,
1999 1998
----------- --------------
ASSETS
Current assets:
Cash and cash equivalents,
including restricted cash
and cash equivalents of
$2,909,737 at
March 31, 1999 $ 8,216,722 $ 7,417,048
Accounts receivable, less
allowance of $266,000 at
March 31, 1999 and $303,000
at December 31, 1998 2,790,476 2,030,309
Inventories 1,322,258 1,168,054
Current portion of supplemental
maintenance deposits 4,376,242 4,490,281
Prepaid expenses and other
current assets 1,059,560 1,022,953
------------ -----------
Total current assets 17,765,258 16,128,645
Property and equipment, at cost:
Aircraft improvements and
leasehold costs 5,280,208 4,854,683
Reservation system and
communication equipment 1,867,954 1,867,954
Aircraft engines and rotable
inventory 6,960,943 6,243,693
Other property and equipment 2,810,413 2,624,579
---------- ----------
16,919,518 15,590,909
Less accumulated depreciation
and amortization (8,140,279) (7,459,456)
----------- ---------
8,779,239 8,131,453
Other assets:
Supplemental maintenance deposits,
less current portion 5,713,986 5,121,050
Deferred debt issuance costs 208,250 83,448
Leased aircraft deposits 3,170,000 2,299,000
Fuel and security deposits 820,763 883,610
Other 1,231,821 999,377
--------- --------
11,144,820 9,386,485
Total assets $37,689,317 $33,646,583
=========== ==========
<PAGE>
VANGUARD AIRLINES, INC.
BALANCE SHEETS (CONTINUED)
MARCH 31, DECEMBER 31,
1999 1998
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $5,501,938 $5,848,635
Accrued expenses 3,222,553 3,062,823
Accrued maintenance 6,876,173 6,902,847
Air traffic liability 11,680,190 8,230,222
---------- ----------
Total current liabilities 27,280,854 24,044,527
Accrued maintenance, less
current portion 4,327,266 3,818,184
Commitments
Stockholders' equity:
Common stock, $.001 par value:
Authorized shares - 200,000,000
Issued and outstanding
shares - 85,396,965
in 1999 (83,372,309 in 1998) 85,397 85,372
Preferred stock, $.001 par value:
Authorized shares - 2,000,000
Issued and outstanding
shares - 302,362 in 1999 and 1998 302 302
Liquidation preference - $3,023,620
Additional paid-in capital 77,133,689 76,886,373
Accumulated deficit (71,129,608) (71,170,997)
------------ -----------
6,089,780 5,801,050
Deferred stock compensation (8,583) (17,178)
------------ ----------
Total stockholders' equity 6,081,197 5,783,872
------------ ----------
Total liabilities and
stockholders' equity $ 37,689,317 $ 33,646,583
============ ============
SEE ACCOMPANYING NOTES.
<PAGE>
VANGUARD AIRLINES, INC.
STATEMENTS OF OPERATIONS
THREE MONTHS ENDED
MARCH 31,
------------------------------------
1999 1998
Operating revenues:
Passenger revenues $23,469,110 $19,577,774
Other 1,437,906 1,665,988
------------ -----------
Total operating revenues 24,907,016 21,243,762
Operating expenses:
Flying operations 4,726,470 4,394,670
Aircraft fuel 2,886,569 3,646,645
Maintenance 5,093,549 4,374,915
Passenger service 1,563,434 1,809,697
Aircraft and traffic servicing 4,302,249 4,656,637
Promotion and sales 4,332,172 4,647,405
General and administrative 956,973 980,689
Depreciation and amortization 931,692 512,787
------------ -----------
Total operating expenses 24,793,108 25,023,445
Operating income (loss) 113,908 (3,779,683)
Other income (expense):
Deferred debt issuance cost
amortization (113,198) (548,738)
Interest expense --- (276,897)
Interest income 121,524 14,300
Other (9,345) ---
------------ ----------
Total other expense, net (1,019) (811,335)
------------ ----------
Net income (loss) before
income taxes 112,889 (4,591,018)
Provision for income taxes 71,500 ---
------------- ----------
Net income (loss) $ 41,389 $(4,591,018)
============ ============
Net income (loss) per share:
Basic $ 0.00 $ (0.10)
============= ============
Diluted $ 0.00 $ (0.10)
============ ============
Weighted average shares used in
per share computation:
Basic 85,386,280 45,697,332
========== ==========
Diluted 95,452,958 45,697,332
========== ==========
SEE ACCOMPANYING NOTES.
<PAGE>
VANGUARD AIRLINES, INC.
STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED
MARCH 31,
--------------------------------------
1999 1998
------------------ --------------------
OPERATING ACTIVITIES
Net income (loss) $ 41,389 $ (4,591,018)
Adjustments to reconcile
net income (loss) to net
cash used in operating
activities:
Depreciation 577,837 204,223
Amortization 353,855 308,564
Compensation related to
stock options 8,595 8,595
Debt issuance cost amortization 113,198 548,738
Provision for uncollectible
accounts --- 54,000
Changes in operating assets
and liabilities:
Restricted cash (2,909,737) ---
Accounts receivable (760,167) 233,487
Inventories (154,204) (112,596)
Prepaid expenses and other
current assets (36,607) (712,821)
Supplemental maintenance
deposits (478,897) (861,857)
Accounts payable (346,697) 405,966
Accrued expenses 159,730 (262,619)
Accrued maintenance 135,408 83,194
Air traffic liability 3,449,968 2,647,857
Deposits and other (1,040,597) (571,219)
------------ -----------
Net cash used in operating
activities (886,926) (2,617,506)
INVESTING ACTIVITIES
Purchases of property and
equipment (1,232,478) (482,882)
FINANCING ACTIVITIES
Proceeds from line of
credit borrowings --- 1,900,000
Principal payments on line of credit -- (1,900,000)
Proceeds from issuance of notes
payable to related parties --- 3,000,000
Proceeds from exercise of stock
options and warrants 9,341 738
Payment of preferred stock
offering costs --- (71,704)
----------- ----------
Net cash provided by financing
activities 9,341 2,929,034
----------- ----------
Net decrease in cash and cash
equivalents (2,110,063) (171,354)
Cash and cash equivalents at
beginning of period 7,417,048 1,082,712
----------- -----------
Cash and cash equivalents at
end of period (1) $ 5,306,985 $ 911,358
=========== =========
<PAGE>
VANGUARD AIRLINES, INC.
STATEMENTS OF CASH FLOWS (CONTINUED)
THREE MONTHS ENDED
MARCH 31,
---------------------------
1999 1998
------------- ------------
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
Cash paid during the period for
interest $ --- $ 57,871
============ ============
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Aircraft leasehold costs associated
with accrued maintenance $ 347,000 $ ---
============= =============
Conversion of notes payable to
related parties and accrued
interest to preferred stock $ --- $ 3,023,620
============= =============
Deferred debt issuance costs
recorded in conjunction with
warrants issued $ 238,000 $ 36,000
============== ==============
SEE ACCOMPANYING NOTES.
(1) Excludes restricted cash and cash equivalents
of $2,909,737 at March 31, 1999.
<PAGE>
VANGUARD AIRLINES, INC.
CONDENSED NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The financial statements of Vanguard Airlines, Inc.
(the "Company") presented herein, without audit except for balance sheet
information at December 31, 1998, have been properly prepared pursuant
to the rules of the Securities and Exchange
Commission for quarterly reports on Form
10Q and do not include all of the
information and note
disclosures required by generally
accepted accounting principles. These
statements should be read in
conjunction with the financial statements
and notes thereto for the year ended
December 31, 1998, included in the
Company's Form 10K as filed with
the Securities and Exchange
Commission on March 31, 1999.
The balance sheet as of March 31,
1999, the statements of operations for
the three months ended March 31, 1999
and 1998, and the statements of cash
flows for the three months ended March
31, 1999 and 1998 are unaudited but,
in the opinion of management,
include all adjustments (consisting of
normal, recurring adjustments)
necessary for a fair presentation of results for
these interim periods. The results of operations for
the three months ended March 31, 1999
are not necessarily indicative of the
results to be expected for the entire
fiscal year ending December 31, 1999.
2. EARNINGS PER SHARE
The following table sets forth the computation
of the adjusted weighted average shares
and assumed conversions used in the
calculation of diluted earnings per share
for the three months ended March 31, 1999:
Numerator:
Numerator for basic and diluted
earnings per shareincome available to
common stockholders
after assumed conversions $ 41,389
=========
Denominator:
Denominator for basic earnings per
share-weighted average shares 85,386,280
Effect of dilutive securities:
Employee stock options 3,878,013
Warrants 141,425
Convertible preferred stock 6,047,240
-----------
Dilutive potential common shares 10,066,678
---------
Denominator for diluted earnings
per share-adjusted weighted-
average shares and assumed
conversions 95,452,958
===========
For the three months ended March 31,
1999 and 1998, the computation of basic
earnings per share was based on the
weighted average number of outstanding
common shares. For the three
months ended March 31, 1999, the
computation of diluted net loss per share
was based on the weighted average number
of shares and dilutive potential common
shares. For the three months ended March
31, 1998, the computation of diluted net
loss per share was based solely on the
weighted average number of outstanding
common shares. Outstanding preferred
stock, employee stock options and
warrants were not included in the
calculation of diluted loss per share for
the three months ended March 31, 1998, as
their effect was antidilutive.
3. FINANCIAL INSTRUMENTS
In January 1999, major stockholders of the Company agreed
to renew the two-year $4,000,000
letter of credit in favor of the
Company's credit card processor. As
consideration for renewing the letter of
credit, the Company agreed to issue up to
4,000,000 warrants to purchase shares of
the Company's common stock at an exercise
price of $1.00. Upon execution of the
letter of credit, the Company issued
800,000 warrants that vested
<PAGE>
immediately. Accordingly, in January
1999, the estimated fair value of the
warrants issued of $238,000 was recorded
in other assets and is being charged to
expense over the term of the facility.
The remaining warrants vest quarterly
according to the amount of exposure under
such letter of credit, as defined in the
agreement.
4. USE OF ESTIMATES
The preparation of financial statements in
conformity with generally accepted accounting principles
requires management to make estimates and
assumptions that affect the amounts
reported in the financial statements and
accompanying notes. Actual results could
differ from those estimates.
ITEM 2. - MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS EXCEPT FOR THE
HISTORICAL INFORMATION CONTAINED HEREIN,
THIS REPORT OF FORM 10-K CONTAINS FORWARD
LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES AND INFORMATION THAT IS
BASED ON MANAGEMENT'S BELIEFS AS WELL AS
ASSUMPTIONS MADE BY AND INFORMATION
CURRENTLY AVAILABLE TO MANAGEMENT. WHEN
USED IN THIS DOCUMENT, THE WORDS
"ESTIMATE," "ANTICIPATE," "PROJECT" AND
SIMILAR EXPRESSIONS ARE INTENDED TO
IDENTIFY "FORWARD-LOOKING STATEMENTS"
WITHIN THE MEANING OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995. THE
COMPANY'S ACTUAL RESULTS MAY DIFFER
MATERIALLY FROM THOSE CURRENTLY
ANTICIPATED. FACTORS THAT COULD CAUSE OR
CONTRIBUTE TO SUCH DIFFERENCES INCLUDE,
BUT ARE NOT LIMITED TO, AVAILABILITY OF
WORKING CAPITAL AND FUTURE FINANCING
RESOURCES, GENERAL ECONOMIC CONDITIONS,
THE COST OF JET FUEL, THE OCCURRENCE OF
EVENTS INVOLVING OTHER LOW-FARE CARRIERS,
THE CURRENT LIMITED SUPPLY OF BOEING 737
JET AIRCRAFT AND THE HIGHER LEASE COSTS
ASSOCIATED WITH SUCH AIRCRAFT, POTENTIAL
CHANGES IN GOVERNMENT REGULATION OF
AIRLINES OR AIRCRAFT AND ACTIONS TAKEN BY
OTHER AIRLINES PARTICULARLY WITH RESPECT
TO SCHEDULING AND PRICE IN THE COMPANY'S
CURRENT OR FUTURE ROUTES AND
UNANTICIPATED YEAR 2000 COMPLIANCE COSTS
AND EXPENSES. FOR ADDITIONAL DISCUSSION
OF SUCH RISKS, SEE "FACTORS THAT MAY
AFFECT FUTURE RESULTS OF OPERATIONS," AS
WELL AS THOSE DISCUSSED ELSEWHERE IN THE
COMPANY'S REPORTS FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION.
COMPANY
The Company was incorporated on
April 25, 1994 and operates as a low-
fare, short- to medium-haul passenger
airline that provides convenient
scheduled jet service to attractive
destinations in established markets in
the United States. The Company's flight
operations began on December 4, 1994 with
two Boeing 737-200 jet aircraft operating
two daily flights each way between Kansas
City and Denver and two daily flights
each way between Denver and Salt Lake
City. The Company currently operates
eleven leased Boeing 737-200 jet
aircraft. The Company's current schedule
provides an average of 76 daily weekday
flights serving Kansas City, Atlanta,
Chicago-Midway, Cincinnati, Dallas/Fort
Worth, Denver, Minneapolis/St. Paul,
Pittsburgh and Myrtle Beach. The Company
continues to review its financing
alternatives in order to purchase or
lease additional aircraft under suitable
terms. There can be no assurance that
the Company will be able to secure
adequate financing arrangements for the
lease or purchase of additional aircraft.
The Company also provides limited charter
services.
The Company has experienced significant
growth since the commencement of operations in
December 1994, and has achieved operating
revenues of $36.2 million, $68.6 million,
$81.4 million and $104.3 million for the
years ended December 31, 1995, 1996,
1997, and 1998, respectively. For the
three months ended March 31, 1999, the
Company reported operating income and net
income of $114,000 and $41,000,
respectively. The Company has reported
an operating profit in the most recent
four consecutive quarters.
<PAGE>
The Company's operating revenues are derived principally
from the sale of airline services to
passengers and are recognized when
transportation is provided.
Total operating revenues are primarily a
function of fare levels and the number of
seats sold per flight. The Company's
business is characterized, as is true for
the airline industry generally, by high
fixed costs relative to operating
revenues and low profit margins. The
Company's principal business strategy is
to provide airline services in established, high
passenger volume markets that are not
served by other low-fare airlines.
The primary factors expected to
affect the Company's future operating
revenues are the Company's ability to
offer and maintain competitive fares, the
reaction of existing competitors to the
continuation or commencement of
operations by the Company in a particular
market (including changes in their fare
structure, aircraft type and schedule),
the possible entry of other low-fare
airlines into the Company's current and
future markets, the effectiveness of the
Company's marketing efforts, the
occurrence of events involving other low-
fare carriers, passengers' perceptions
regarding the safety of low-fare
carriers, general economic conditions and
seasonality factors. The Company's costs
are affected by fluctuations in the price
of jet fuel, scheduled and unscheduled
aircraft maintenance expenses, labor
costs, the level of government
regulation, fees charged by independent
contractors for services provided, rent
for gates and other facilities, and
marketing and advertising expenses. The
Company has a limited history of
operations and, from its inception in
1994 through the first quarter of 1998,
has experienced significant losses. As
of March 31, 1999, the Company had an
accumulated deficit of $71.1 million.
The Company had net income of $41,000 and
net cash flows used in operating
activities of $887,000 for the three
months ended March 31, 1999. The
Company's credit card processor restricts
the availability of cash generated from
credit card sales when the Company's
credit card exposure is calculated
to be in excess of $6 million ($4 million
subsequent to May 1999). The Company was
required to place cash of approximately
$2.9 million in a restricted cash account
as collateral to further secure the
Company's credit card processor, as a
result of increased sales activity during
the first quarter of 1999. At March 31,
1999, current liabilities exceeded
current assets by $9.5 million. As a
result of its limited operating history,
together with the uncertainty in the
airline industry generally, management is
unable to accurately predict the future
operating results of the Company.
The Company has generally generated
positive cash flow from operations over the past year
and anticipates generating positive cash
flows from operations through the fourth
quarter 1999. The Company received
proceeds of approximately $5.2 million in
August 1998 from the exercise of
warrants. Management believes that cash
generated from operations together with
the cash received in August 1998 from
the warrant exercise will provide the
necessary working capital for
operations through December 1999. The
Company is exploring options to raise
additional capital to fund anticipated
expansion of operations. There can be no
assurance the Company will be successful
in expanding operations or raising
additional capital that may be needed for
this purpose.
<PAGE>
OVERVIEW
THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THE THREE MONTHS ENDED
MARCH 31, 1998
Selected Financial and Operational Data:
THREE MONTHS ENDED MARCH 31,
----------------------------
$ %
1999 1998 CHANGE CHANGE
------- ------- ------- -------
Revenue passengers carried 371,748 346,150 25,598 7.4 %
Revenue passenger miles -
RPMs (000s) 173,786 167,511 6,275 3.8 %
Available seat miles -
ASMs (000s) 252,391 257,329 (4,939) (1.9) %
Load Factor 68.9 % 65.1 % 3.8 pts. 5.8 %
Average Stage Length 467 484 (17) (3.5) %
Miles flown (000s) 2,086 2,127 (41) (1.9) %
Block hours flown 6,993 6,939 54 0.8 %
Passenger Yield $ 0.135 $ 0.117 $0.018 15.4 %
Total Revenue per ASM $ 0.099 $ 0.083 $0.016 19.3 %
Operating Expenses per ASM $ 0.098 $ 0.097 $0.001 1.0 %
Operating cost per blockhour 3,545 3,606 (61) (1.7) %
Average fuel cost per gallon $ 0.49 $ 0.63 $ (0.14) (22.0) %
Average size of fleet for period 9.2 9.0 0.2 2.2 %
Net income for the first quarter
1999 was $41,000 compared with a net
loss of $4.6 million for the first
quarter 1998. The improved operating
performance was mainly the result of a
17% increase in operating revenues
combined with a 1% reduction in operating
expenses.
Total operating revenues increased
17% from $21.2 million
for the quarter ended March 31, 1998 to
$24.9 million for the quarter ended March
31, 1999. This increase was primarily
attributable to increases in the number
of passengers and passenger yield. The
number of passengers increased 7% from
346,150 in the quarter ended March 31,
1998 to 371,748 in the quarter ended
March 31, 1999 and passenger yield per
RPM increased 15% from 11.7 cents in the
quarter ended March 31, 1998 to 13.5 cents in
the quarter ended March 31, 1999. The
increases were realized despite a 2%
decrease in ASMs in the first quarter of
1999 compared to 1998. Aircraft fleet
levels remained relatively constant,
while average stage length decreased 3%.
The reduction in average stage length was
due to the Company's 1997 and early 1998
restructuring of routes, with terminated
service from Kansas City to San Francisco
in January 1998 and service from Kansas
City to New York City-JFK in May 1998.
RPMs, however, increased 4% from 168
million in the quarter ended March 31,
1998 to 174 million in the quarter ended
March 31, 1999. This increase was the
result of the 7% increase in the number
of passengers coupled with a 4% decrease
in average stage length in the quarter
ended March 31, 1999 as compared to 1998.
Load factor increased from 65% for the
quarter ended March 31, 1998 to 69% for
the quarter ended March 31, 1999. This
increase was primarily the result of a 4%
increase in the RPMs in the quarter ended
March 31, 1999 as compared to the quarter
ended March 31, 1998.
Passenger revenue increased $3.9
million, or 20%, for the quarter ended March 31, 1999
compared with the quarter ended March 31,
1998, while other revenue decreased $0.2
million, or 14%, for the same period.
Nonrefundable tickets are realized as
passenger revenue when forfeited. Other
revenues include fees generated as a
result of service charges from passengers
who change flight reservations. Subject
to certain restrictions, a customer may
pay a $50 service charge to use the value
of the unused reservation for rebooking
transportation for a period of 180 days
subsequent to the flight date. These
service charges were $1.1 million
(approximately 4% of total operating
revenues) and $1.4 million (approximately
7% of operating revenues) in the quarters
ended March 31, 1999 and 1998,
respectively. The reduction in service
fee revenue is a direct result of less
passengers changing their travel
itineraries.
<PAGE>
The Company's strategic plan to continue
to improve its product includes the delivery
of a reliable product with a number of
amenities found on larger, better-known
airlines that specifically cater to price-
sensitive business travelers. Those
amenities include assigned seating,
refundable tickets, greater legroom,
fixed ticket pricing under the Road
Warrior sm Class and greater frequencies
between city pairs. The Company believes
it has improved its brand awareness in
each of its markets through its direct
advertising program that
was modified in August 1997. The
Company's implementation of its strategic
plan continued to show positive results
in the first quarter of 1999 with
passenger yield increasing to 15% and
load factor increasing 6%. The Company,
however, cannot predict future fare
levels, which depend to a substantial
extent on actions of competitors and the
Company's ability to deliver a reliable
product. When sale prices or other price
changes have been made by competitors in
the Company's markets, the Company
believes that it must, in most cases,
match these competitive fares in order to
maintain its market share. The Company believes that
the negative impact of entering new
markets and the use of discounted fares
should decrease as the Company increases
its overall revenue base and customer
awareness and continues to improve its
brand awareness, service and reliability.
<PAGE>
OPERATING EXPENSES
Expenses are generally categorized
as related to flying operations, aircraft
fuel, maintenance, passenger service,
aircraft and traffic servicing, promotion
and sales, general and administrative,
depreciation and amortization and other
expense, including interest expense and
amortization of deferred debt issuance
costs. The following table sets forth
the percentage of total operating
revenues represented by these expense
categories:
THREE MONTHS ENDED
------------------
MARCH 31,
__________
1999 1998
------- --------
PERCENT OF PERCENT OF
---------- ----------
REVENUES CENTS PER REVENUES CENTS PER
ASM ASM
----------------------------------------------
Total operating revenues 100.0 % 9.87 cents 100.0 % 8.26 cents
================================================
Operating expenses:
Flying operations 19.0 % 1.87 20.7 % 1.71
Aircraft fuel 11.6 1.14 17.2 1.42
Maintenance 20.4 2.02 20.6 1.70
Passenger service 6.3 0.62 8.5 0.70
Aircraft and traffic servicing 17.3 1.70 21.9 1.81
Promotion and sales 17.4 1.72 21.9 1.81
General and administrative 3.8 0.38 4.6 0.38
Depreciation and amortization 3.7 0.37 2.4 0.20
---------------------------------------------
Total operating expenses 99.5 9.82 117.8 9.73
Total other expense, net 0.0 0.00 (3.8) (0.31)
Income tax expense 0.3 0.03 0.0 0.00
---------------------------------------------
Net income (loss) 0.2 % 0.02 CENTS (21.6)% (1.78)CENTS
==============================================
Flying operations expenses include
aircraft lease expenses, compensation of
pilots, expenses related to flight
operations administration, hull insurance
and all other expenses related directly
to the operation of the aircraft other
than aircraft fuel and maintenance
expenses. Flying operations expenses
increased 8% from $4.4 million
(approximately 21% of operating revenues)
for the quarter ended March 31, 1998 to
$4.7 million (approximately 19% of
operating revenues) for the quarter ended
March 31, 1999. The increase in flying
operations expenses was primarily the
result of an increase in pilot salaries
and increased aircraft rent. Pilot
salaries increased in anticipation of
commencing revenue service with two
additional aircraft in mid-March and mid-
April 1999. Pilots are typically hired
three months prior to flight commencement
in order to provide adequate time for
training. Aircraft rent increased as a
result of the addition of the Company's
tenth aircraft in March 1999, wetlease
costs incurred by the Company, and
additional rent paid to a lessor for
Stage III modifications to one aircraft.
Aircraft fuel expenses include the
direct cost of fuel, taxes and the costs
of delivering fuel into the aircraft.
Aircraft fuel expenses decreased 21% from
$3.6 million (approximately 17% of
operating revenues) for the quarter ended
March 31, 1998 to $2.9 million
(approximately 12% of operating revenues)
for the quarter ended March 31, 1999.
Lower fuel expense is directly related
to a decrease in cost per gallon in the
quarter ended March 31, 1999 versus
1998. Fuel cost per gallon (including
taxes and into-plane costs) decreased
$0.14 or 22% from $0.63 in the quarter
ended March 31, 1998 to $0.49 in the
quarter ended March 31, 1999. The
Company will seek to pass on any
significant fuel cost increases to the
Company's customers through fare
increases as permitted by then current
market conditions; however, there can be
no assurance that the Company will be
successful in passing on increased fuel
costs.
<PAGE>
Maintenance expenses include all
maintenancerelated labor, parts,
supplies and other expenses related to
the upkeep of aircraft. Maintenance
expenses increased 16% from $4.4 million
(approximately 21% of operating
revenues) for the quarter ended March
31, 1998 to $5.1 million (approximately
20% of operating revenues) for the
quarter ended March 31, 1999. The
increase in maintenance expense is
partially due to the increase in rotable
part overhaul costs incurred in
conjunction with major scheduled
airframe overhauls during the first
quarter 1999. In addition, maintenance
expense increased as a result of
accelerating aircraft input date for
scheduled required major maintenance,
and providing for engine maintenance
costs incurred in excess of accrued
amounts. Finally, the Company had three
aircraft in scheduled major maintenance
during the quarter ended March 31, 1999
for which certain airworthiness
directives were performed and expensed as incurred in
accordance with Company policy. The Company did not
have an aircraft in scheduled major maintenance
during the quarter ended March 31, 1998. The Company
has also made a concerted effort to improve its line
maintenance capabilities in Pittsburgh, Chicago and
Minneapolis. As a result, the Company has added
approximately thirty additional employees to support
these efforts. The Company deposits supplemental
rents with its aircraft lessors to cover a portion of
or all of the cost of its future major scheduled
maintenance for airframes, engines, landing gears and
APUs. These supplemental rents will vary and are
based on flight hours flown. The costs of routine
aircraft and engine maintenance are charged to
maintenance expense as incurred. Maintenance expenses
increased on a cents per ASM basis from 1.70+ for the
quarter ended March 31, 1998 to 2.02+ for the quarter
ended March 31, 1999. This increase in cents per ASM
mainly resulted from the increases in maintenance
expense as described above.
Passenger service expenses include flight
attendant wages and benefits, in-flight service,
flight attendant training, uniforms and overnight
expenses, inconvenienced passenger charges and
passenger liability insurance. Passenger service
expenses decreased 14% from $1.8 million
(approximately 9% of operating revenues) for the
quarter ended March 31, 1998 to $1.6 million
(approximately 6% of operating revenues) for the
quarter ended March 31, 1999. The Company reduced
its inconvenienced passenger charges during the first
quarter of 1999 because of improved operating
reliability and certain changes to its passenger
reaccommodation policies. The Company also realized
cost savings from the reduction in the Company's
passenger liability insurance rates. These
decreases were partially offset by an increase in
flight attendant wages during 1998.
Aircraft and traffic servicing expenses include
all expenses incurred at the airports for handling
aircraft, passengers and mail, landing fees,
facilities rent, station labor and ground handling
expenses. Aircraft and traffic servicing expenses
decreased 8% from $4.7 million (approximately 22% of
operating revenues) for the quarter ended March 31,
1998 to $4.3 million (approximately 17% of operating
revenues) for the quarter ended March 31, 1999. The
Company began employing its own underwing servicing
in Kansas City in July 1998 and Minneapolis/St. Paul
during February 1999, and has realized significant
savings. Aircraft and traffic servicing expenses
decreased on a cents per ASM basis from 1.81+ for the
quarter ended March 31, 1998 to 1.70+ for the quarter
ended March 31, 1999 as a result of the strategic
moves described above.
Promotion and sales expenses include the costs
of the reservations functions, including all wages
and benefits for reservations, rent, electricity,
telecommunication charges, credit card fees, travel
agency commissions, as well as advertising expenses
and wages and benefits for the marketing department.
Promotion and sales expenses decreased 7% from $4.6
million (approximately 22% of operating revenues) in
the quarter ended March 31, 1998 to $4.3 million
(approximately 17% of operating revenues) in the
quarter ended March 31, 1999. The Company brought
its outside reservation system in-house in April of
1998. The first quarter 1999 showed savings of
approximately $300,000 compared to the same period in
1998 as a result of this strategic move. These
savings were partially offset by increases in both
credit card processing fees from higher credit card
rates and in revenue recognized in the first quarter
of 1999 as compared to 1998. Direct advertising
costs decreased approximately $100,000 for the first
quarter 1999 compared with the first quarter 1998.
Stability of the established route structure helped
to reduce direct advertising expenses. The Company
continues to rely on its direct advertising methods
to attract its passengers, and therefore, continues
to incur significant advertising expenses each month.
The average promotion and sales cost per passenger
decreased $1.78 or 13% from $13.43 in the quarter
ended March 31, 1998 to $11.65 in the quarter ended
March 31, 1999.
<PAGE>
General and administrative expenses include the
wages and benefits for the Company's corporate
employees and various other administrative personnel,
the costs for office supplies, office rent, legal,
accounting, insurance, and other miscellaneous
expenses. General and administrative expenses
decreased 2% from $0.98 million (approximately 5% of
operating revenues) in the quarter ended March 31,
1998 to $0.96 million (approximately 4% of operating
revenues) in the quarter ended March 31, 1999. The
decrease in general and administrative expenses in
the first quarter of 1999 as compared to 1998 is the
result of decreases in general liability insurance,
property taxes, and a reduction in accounting staff.
Depreciation and amortization expenses include
depreciation and amortization of aircraft
modifications, ground equipment, computer and
reservation equipment, leasehold improvements and
rotable parts inventory. Depreciation and
amortization expenses increased 82% from $0.51
million (approximately 2% of operating revenues) in
the quarter ended March 31, 1998 to $0.93 million
(approximately 4% of operating revenues) in the
quarter ended March 31, 1999. The increase in
depreciation expense is mainly the result of the
increase in depreciable rotable part inventories of
approximately $4 million since March 31, 1998.
Other expense, net, consists primarily of debt
issuance cost amortization, interest income and
interest expense. The Company's renewal of the
letters of credit issued securing the Company's
credit card processor under new terms and the
termination of its bank line of credit agreement in
January 1999 significantly reduced the amount of
deferred debt issuance amortization in the first
quarter 1999 compared with the first quarter 1998.
Under the previous arrangement, warrants vested
quarterly in amounts dependent upon the Company's
exposure under the letter and line of credit, as
defined in the respective agreements. The warrant's
estimated fair value is recorded as deferred debt
issuance costs and related amortization expense is
recorded over the terms of the related guarantees.
The Company's improved cash position has also reduced
interest expense for the quarter ended March 31, 1999
mainly as a result of the payoff of the line of
credit in August 1998 and the conversion of demand
notes payable to related parties to common stock
during the quarter ended June 30, 1998.
LIQUIDITY AND CAPITAL RESOURCES
During 1998, the Company was able to generate
sufficient cash from operating activities to support
its operations. Prior to 1998 and since inception,
the Company has mainly financed its operations and
met its capital expenditure requirements with
proceeds from private sales of equity securities,
proceeds from its initial public offering of Common
Stock, proceeds from its public rights offering and
the issuance of debt primarily to its principal
stockholders. As of May 1, 1999, the Company has
received net proceeds from the sale of its equity
securities aggregating approximately $70.2 million.
During the first quarter of 1999, the Company 's
operating activities and property and equipment
purchases required the use of approximately $2.1
million of cash flows. These uses of cash were
funded with cash balances on hand. As of March 31,
1999, the Company had a working capital deficit of
$9.5 million.
During the quarter ended March 31, 1999, the
Company experienced a significant increase in
advanced ticket sales that has resulted in an
increase to its air traffic liability. In January
1999, the principal stockholders of the Company
agreed to renew the two-year $4.0 million letter of
credit facility in order to secure the Company's
credit card processor. The letters of credit expire
in January 2001. In May 1999, a $2.0 million
stockholder guarantee securing the Company's credit
card processor expires. The Company does not plan to
renew a $2.0 million stockholder guarantee. Instead,
the Company expects to transfer $2.0 million
available cash reserves from its operating cash
accounts to a restricted cash account maintained at
the Company's credit card processor.
Currently, the Company must deposit cash into a
restricted cash account to provide for the Company's
credit card exposure in excess of $4.0 million. To
the extent that exposure exceeds $4.0 million, the
Company must deposit cash from ticket sales as
collateral to secure the Company credit card
processor. As of May 3, 1999 due to increased ticket
sales, the Company's credit card exposure was
approximately $11.1 million. The Company funded
<PAGE>
the credit card exposure in excess of $4.0 million
with $7.1 million in available cash on hand. The
Company estimates that its credit card exposure will
range between $8.0 to $13.0 million through the end
of the third quarter when the balance should reduce
due to expected seasonality. The Company's existing
credit card facility limits its ability to utilize
cash generated from operations. For example, during
the first quarter of 1999, $2.9 million of cash
generated from operating activities was withheld by
the Company's credit card processing bank to provide
additional collateral against the Company's increased
advance ticket sales. The Company would have
generated positive cashflows from operations of
approximately $2.0 million had this restrictive
credit card collateral facility not been required.
As a result, the Company plans to renegotiate its
collateral requirements during the later part of
1999. There can be no assurance that the Company will
be successful with these negotiations or that the
Company will be able to reduce its collateral
requirements. Currently, any cash utilized as
collateral is refunded by the credit card processor,
on a daily basis, when the Company's exposure falls
below the previously calculated exposure or $4.0
million, whichever is greater.
The Company estimates that scheduled heavy
maintenance of its existing aircraft fleet through
December 1999 will cost $7.9 million, of which $3.3
million will be funded from existing supplemental
rent payments recoverable from aircraft lessors. In
addition, the Company expects to expend $4.6 million
on various capital expenditures in the next year,
which are primarily related to improvements for
existing aircraft, increased aircraft parts inventory
levels and improvements to its in-house computer
systems.
The Company continues to review its financing
alternatives in order to purchase or lease additional
aircraft under suitable terms. In January 1999, the
Company signed leases for two additional Boeing 737
200 jet aircraft and accepted delivery of these
aircraft in February and March, respectively. The
Company began flying revenue service in March and in
April 1999 with these additional aircraft. In
connection with these leases, the Company has
established letters of credit in favor of the lessor
to secure said aircraft. The Company has also signed
letters of intent for three additional aircraft to
replace its three remaining Stage II compliant
aircraft. The Company must deposit with the lessor or
establish a letter of credit in the aggregate amount
of $690,000 for these three aircraft. As of May 3,
1999, the Company had placed deposits totaling
$345,000 with the lessor. In addition, the Company is
currently in discussion with various aircraft lessors
regarding the addition of two more aircraft in the
fourth quarter of 1999. The Company's cash balance as
of May 3, 1999 is sufficient to provide for the
necessary estimated lease deposit requirements for up
to two additional aircraft. Historically, the Company
has been required to deposit between $140,000 and
$400,000 per aircraft depending on the specific terms
negotiated in the lease.
The Company has generally generated positive
cash flows from operations since March 1998 and
expects to continue to generate sufficient cash to
support its operations through the year ending
December 31, 1999. The Company plans to continue to
implement certain actions designed to achieve long
term profitability and improve its capital resources.
Management's plans to achieve long- term
profitability include increased focus on the price
sensitive business traveler, pricing strategies
designed to maximize passenger revenue and continued
focus on cost savings programs. There can be no
assurance that its efforts will be successful.
Whether or not the Company's strategic plans to
achieve long-term profitability are successful, any
expansion beyond that discussed above would be
dependent upon the Company raising additional
capital. The Company is evaluating options on raising
additional capital or issuing debt during 1999. The
Company's success in implementing actions designed to
achieve long-term profitability and its ability to
operate at profitable levels will determine if the
Company will be able to raise additional capital.
There can be no assurance that the Company's
necessary working capital requirements to expand
operations will be available on acceptable terms, or
at all.
<PAGE>
OTHER MATTERS
YEAR 2000 COMPLIANCE
Older computers were programmed to use a two-
digit code for the date entry rather than a fourdigit
code. For example, the date November 17, 1970 would
be entered as "11/17/70" rather than "11/17/1970."
The decision to use two digits instead of four was
based largely on cost-reduction considerations and
the belief that the code would no longer be used at
the millennium. Nevertheless, coding conventions have
not changed, and on January 1, 2000, computers may
read the digits "00" as denoting the year 1900 rather
than 2000. At the least, this could result in massive
quantities of incorrect data. At worst, it could
result in the total or partial failure of time
sensitive computer systems and software.
THE COMPANY'S YEAR 2000 ISSUES. The Company
began operations in December 1994, and its operations
depend predominantly on third party computer systems.
Because of the Company's limited resources during its
start-up, the most cost-effective way to establish
its computer systems was to outsource or to use
manual systems. Internal systems developed and any
software acquired are limited and were designed or
purchased with the Year 2000 taken into
consideration.
Management has neared the completion of the
modification of the Company's information technology
to recognize the Year 2000 and the conversion or
purchase of critical data process systems. The
Company's new reservations software installed in the
third quarter of 1997 is Year 2000 compliant. In
addition, the Company purchased a new revenue
management system in February 1998 that is Year 2000
compliant. The Company's financial reporting software
is currently not Year 2000 compliant. The Company can
upgrade its financial reporting software for less
than $10,000 if it elects not to purchase and install
a new financial reporting system. The Company is
currently reviewing proposals from various financial
software vendors and expects to begin the financial
software conversion process prior to June 30, 1999.
The cost of a new financial software system is
estimated to be between $200,000 and $400,000. The
Company believes these three systems are critical
data processing systems.
Secondary systems that the Company has completed
its Year 2000 assessment on include, but are not
limited to, the Company's telephone switch software
and equipment at its Reservations Center, intranet
network systems, flight operations and tracking
software and maintenance inventory tracking system.
Management has completed the modification on these
systems and all are Year 2000 compliant except for
the Company's Reservation Center telephone switch
software and equipment. In April 1999, the Company
entered into a lease for a new Year 2000 compliant
telephone switch software and equipment. The lease
for the telephone switch software and equipment is
expected to cost less than $10,000 per month.
The Company relies on third parties that provide
goods and services that are imperative to the
Company's operations including, but not limited to,
the FAA, the DOT, local airport authorities,
utilities, communication providers, credit card
processor and fuel suppliers. The Company continues
to monitor each of these entities, and has initiated
formal communications with these third party service
providers to determine their Year 2000 readiness.
There can be no assurance that the systems of such
third parties on which the Company's business relies
(including those of the FAA) will be modified on a
timely basis. The Company's business, financial
condition and results of operations could be
materially affected by the failure of its equipment
or systems or those operated by other parties to
operate properly beyond 1999.
While the Company believes it is taking all
appropriate steps to assure Year 2000 compliance, it
is dependent on key third party business and
governmental partners' compliance to some extent. The
Year 2000 problem is pervasive and complex, as
virtually every computer operation will be affected
in some way. Consequently, no assurance can be given
that Year 2000 compliance can be achieved without a
material cost by these outside parties. The Company
has utilized existing resources and has not incurred
any significant costs to implement its Year 2000
project to date and the total remaining cost of the
Year 2000 project is expected to be immaterial and
will be funded through cash from operations. The
costs and the dates on which the Company anticipates
it will complete the Year 2000 project are based on
management's best estimates and estimates received in
writing from applicable third parties. There can be
no guarantee that these estimates will be achieved
and actual results could differ materially from those
anticipated.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET
RISK
MARKET RISK SENSITIVE INSTRUMENTS AND POSITIONS
The risk inherent in the Company's market risk
sensitive position is the potential loss arising from
an adverse change in the price of fuel as described
below. The sensitivity analysis presented does not
consider either the effects that such an adverse
change may have on overall economic activity or
additional actions management may take to mitigate
its exposure to such a change. At the present time,
management does not utilize fuel price hedging
instruments to reduce the Company's exposure to
fluctuations in fuel prices. Actual results may
differ.
<PAGE>
The Company's earnings are affected by changes
in the price and availability of aircraft fuel.
Market risk is estimated as a hypothetical 10 percent
increase in the average cost per gallon of fuel over
the past twelve months. Based on actual fuel usage
over the past twelve months, such an increase would
have resulted in an increase to aircraft fuel expense
of approximately $0.8 million over the past twelve
months. Comparatively, based on projected fuel usage
over the next twelve months, such an increase would
result in an increase to aircraft fuel expense of
approximately $1.2 million over the next twelve
months. The increase in exposure to fuel price
fluctuations in 1999 is due to the Company's plan to
increase its average aircraft fleet size and related
gallons purchased.
FACTORS THAT MAY AFFECT FUTURE RESULTS OF OPERATIONS
Vanguard's business operations and financial
results are subject to various uncertainties and
future developments that cannot be predicted.
Certain of the principal risks and uncertainties that
may affect Vanguard's operations and financial
results are identified below.
LIMITED OPERATING HISTORY; HISTORY OF
SIGNIFICANT LOSSES. The Company has a limited
history of operations, beginning flight operations on
December 4, 1994. Since the Company's inception on
April 25, 1994 and until 1997, the Company incurred
significant losses from operations. In 1998, the
Company recorded income from operations of $1.5
million and generated positive cash flow from
operations of $6.0 million. As of March 31, 1999 the
Company had an accumulated deficit of $71.1 million
and a working capital deficit of $9.5 million. As of
March 31, 1999, the Company had positive
stockholders' equity of $6.1 million. The Company's
limited operating history makes the prediction of
future operating results difficult. There can be no
assurance that the Company will be able to sustain
profitable operations.
AVAILABILITY OF WORKING CAPITAL AND FUTURE
FINANCING RESOURCES. The airline business is
extremely capital intensive, including, but not
limited to, lease payment obligations and related
maintenance requirements for existing or additional
aircraft. Historically, the Company's continued
operations have been dependent upon equity and debt
financings from its principal stockholders. There
can be no assurance that the Company's principal
stockholders will provide working capital for the
Company's operations if the Company is unable to
continue to generate positive cash flow from its
operations. Any inability to obtain additional
financing when needed could require the Company to
cease or significantly curtail operations and would
have a material adverse effect on the Company's
business, financial condition and results of
operations. See "Management's Discussion and
Analysis of Financial Condition and Results of
Operations-Liquidity and Capital Resources."
INTENSE COMPETITION AND COMPETITIVE REACTION.
The Company is subject to intense competition on all
of its routes. Under the Deregulation Act, domestic
certificated airlines may enter and exit domestic
markets and set fares without regulatory approval.
All city-pair domestic airline markets, except for
those that are slot-controlled, are generally open to
any domestic certificated airline. Airlines compete
primarily with respect to fares, schedules (frequency
and flight times), destinations, frequent flyer
programs and type (jet or propeller) and size of
aircraft. The Company competes with various other
airlines on its routes and expects to compete with
other airlines on any future routes. Most of the
Company's competitors are larger and have greater
name recognition and financial resources than the
Company. In response to the Company's commencement
of service in a particular market, competing airlines
have, at times, added flights and capacity and
lowered their fares in the market, making it more
difficult for the Company to achieve profitable
operations in such markets. In the future, other
airlines may set their prices at or below the
Company's fares or introduce new non-stop service
between cities served by the Company in attempts to
prevent the Company from achieving or maintaining
profitable operations in that market.
<PAGE>
CONSUMER CONCERN ABOUT OPERATING SAFETY AT NEW
ENTRANT CARRIERS OR TYPE OF AIRCRAFT. Aircraft
accidents or other safety-related issues involving
any carrier, may have an adverse effect on airline
passengers' perceptions regarding the safety of new
entrant, low-fare carriers. As a result, any such
future event could have a material adverse effect on
the Company's business, financial condition and
results of operations, even if such events do not
include the Company's operations or personnel.
Similarly, publicized accounts of mechanical problems
or accidents involving Boeing 737s or other aging
aircraft could have a material adverse effect on the
Company's business, financial condition and results
of operations, even though the Company itself may not
experience any such problems with its jet aircraft.
SEASONALITY AND CYCLICALITY. The Company's
operations are dependent upon passenger travel
demand. Airlines typically experience reduced demand
at various times during the fall and winter and
increased demand for service during the spring and
summer. Within these periods, the Company
experiences variations in passenger demand based on
its particular routes and passenger demographics.
The Company has experienced reduced demand during the
fall and winter with adverse effects on revenues,
operating results and cash flow. In addition,
passenger travel in the airline industry,
particularly leisure travel, is highly sensitive to
adverse changes in general economic conditions. A
worsening of current economic conditions, or an
extended period of recession nationally or in the
regions served by the Company, would have a material
adverse effect of the Company's business, financial
condition and results of operations.
FUEL COSTS. The cost of jet fuel is one of the
largest operating expenses for an airline and
particularly for the Company due to the relative fuel
inefficiency of its aircraft. Jet fuel costs,
including taxes and the cost of delivering fuel into
the aircraft, accounted for approximately 11.6% of
the Company's operating expenses for the quarter
ended March 31, 1999. The Company's average cost per
gallon for the past three years have been $0.79 per
gallon in the year ended December 31, 1996, $0.74 per
gallon in the year ended December 31, 1997, $0.58 per
gallon in the year ended December 31, 1998, and $0.49
for the quarter ended March 31, 1999. Jet fuel costs
are subject to wide fluctuations as a result of
sudden disruptions in supply. The Company cannot
predict the effect on the future availability and
cost of jet fuel. The Boeing 737-200 jet aircraft is
relatively fuel inefficient compared to newer
aircraft. Accordingly, a significant increase in the
price of jet fuel will result in a disproportionately
higher increase in the Company's fuel expenses as
compared with many of its competitors who have, on
average, newer and thus more fuel-efficient aircraft.
The Company has not entered into any agreements that
fix the price of jet fuel over any period of time.
Therefore, an increase in the cost of jet fuel will
be immediately passed through to the Company by
suppliers. The Company has experienced reduced
margins at times when the Company has been unable to
increase fares to compensate for such higher fuel
costs. Even at times when the Company is able to
raise selected fares, the Company has experienced
reduced margins on sales prior to such fare
increases. In addition to increases in fuel prices,
a shortage of supply will also have a material
adverse effect on the Company's business, financial
condition and results of operations.
LIMITED NUMBER OF AIRCRAFT; AIRCRAFT
ACQUISITIONS. The Company's fleet consists of eleven
aircraft and if one or more of its aircraft were not
in service, the Company would experience a
proportionally greater loss of capacity than would be
the case for an airline utilizing a larger fleet.
Any interruption of aircraft service as a result of
scheduled or unscheduled maintenance could materially
and adversely affect the Company's service,
reputation and financial performance. The market for
leased aircraft fluctuates based on certain worldwide
macroeconomic factors. There can be no assurance
that the Company will be able to lease additional
aircraft on satisfactory terms or at the times
needed.
GOVERNMENT REGULATION. The Company is subject
to the Aviation Act, under which the DOT and the FAA
exercise regulatory authority over airlines. This
regulatory authority includes, but is not limited to:
(i) the initial determination and continuing review
of the fitness of air carriers (including financial,
managerial, compliance-disposition and citizenship
fitness); (ii) the certification and regulation of
aircraft and other flight equipment; (iii) the
certification and approval of personnel who engage in
flight, maintenance and operations activities; and
(iv) the establishment and enforcement of safety
standards and requirements with respect to the
operation and maintenance of aircraft, all as set
forth in the Aviation Act and the Federal Aviation
Regulations. The FAA has promulgated a number of
maintenance regulations and directives relating to,
among other things, retirement of aging aircraft,
increased inspections and maintenance procedures to
be conducted on aging aircraft, collision avoidance
systems,
<PAGE>
aircraft corrosion, airborne windshear avoidance
systems and noise abatement. As a result of recent
incidents involving airlines, the FAA has increased
its review of commercial airlines generally and
particularly with respect to small and new-entrant
airlines, such as the Company. The Company's
operations are subject to constant review by the FAA.
Additional rules and regulations have been
proposed from time to time in the last several years
and that, if enacted, could significantly increase
the cost of airline operations by imposing
substantial additional requirements or restrictions
on airline operations. There can be no assurances
that any of these rules or regulations would not have
a material adverse effect on the Company's business,
financial condition and results of operations.
The DOT and FAA also enforce federal law with
respect to aircraft noise compliance requirements.
The Company's current fleet meets the current, Stage
III noise compliance requirements (75% of its fleet
Stage III compliance). By the end of 1999, the
Company's aircraft fleet is required be 100% Stage
III compliant. The Company plans to return its three
remaining Stage II aircraft this year upon the
expiration of their leases.
The Company has obtained the necessary authority
to perform airline operations, including a
Certificate of Public Convenience and Necessity
issued by the DOT pursuant to 49 U.S.C. ) 41102 and
an air carrier operating certificate issued by the
FAA under Part 121 of the Federal Aviation
Regulations. The continuation of such authority is
subject to continued compliance with applicable
rules, regulations and laws pertaining to or
affecting the airline industry, including any rules
and regulations that may be adopted by the DOT and
FAA in the future. No assurance can be given that
the Company will be able to continue to comply with
all present or future rules, regulations and laws or
that such rules, regulations and laws would not
materially and adversely affect the Company's
business, financial condition and results of
operations.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is not involved in any material
litigation or legal proceedings at this time
and is not aware of any material litigation or
legal proceedings threatened against it.
ITEM 2. CHANGES IN SECURITIES
a. None.
b. None.
c. None
d. None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
10.29 Reimbursement Agreement, dated as of
January 18, 1999, by and among Registrant, J. F. Shea
Co., Inc. and The Hambrecht 1980 Revocable Trust,
William Hambrecht as Trustee.
10.30 Security Agreement, dated as of January 18,
1999, by Registrant in favor of J. F.
Shea Co., Inc. and The Hambrecht 1980
Revocable Trust, William Hambrecht as
Trustee.
10.34 Warrant for the purchase of Common
Stock issued to The
Hambrecht 1980 Revocable
Trust, William Hambrecht as
Trustee
10.35 Warrant for the
purchase of Common Stock
issued to J. F. Shea Co.,
Inc.
27 Financial Data Schedule
(b) Reports on Form 8-K
On March 30, 1999, the Company
filed a report on Form 8-K under
Item 5 - Other Events regarding a
press release issued by the
Company on March 30, 1999
announcing that its Board of
Directors has approved a one-for-
five reverse stock split of the
Company's Common Stock, $0.001 par
value per share, subject to
approval by the stockholders at
the Annual Meeting to be held on
May 18, 1999.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section
13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this
report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Signature and Title Date
\S\ ROBERT J. SPANE May 14, 1999
Robert J. Spane, President and Chief
Executive Officer
\S\ WILLIAM A. GARRETT May 14, 1999
William A. Garrett, Vice President - Finance
and Chief Financial Officer
(Principal Financial and Accounting Officer)
<PAGE>
REIMBURSEMENT AGREEMENT
THIS REIMBURSEMENT AGREEMENT dated as of January 18, 1999, is
made by and between VANGUARD AIRLINES, INC., a Delaware
corporation having its principal place of business at 533 Mexico
City Avenue, Kansas City International Airport, Kansas City, MO
64153 ("Corporation"), in favor of J. F. SHEA CO., INC., a Nevada
Corporation ("Shea") and THE HAMBRECHT 1980 REVOCABLE TRUST,
WILLIAM HAMBRECHT AS TRUSTEE (the "Hambrecht Trust")
(individually, a "Lender" and, collectively, the "Lenders").
RECITALS
A. Corporation has established with H & Q TSP II Investors,
LP a guaranty in favor of Michigan National Bank for the account
of the Corporation in the aggregate amount of Two Million Dollars
($2,000,000.00) (the "Guaranty") to secure and provide a source of
payments of the Corporation under the MNB Merchant Agreement, as
hereinafter defined.
B. Corporation has requested that Lenders arrange for the
issuance of letters of credit to be issued in favor of Michigan
National Bank for the account of the Corporation in the aggregate
amount of Four Million Dollars ($4,000,000) (the "Letters of
Credit") as additional collateral to secure and provide a source
of payments of the Corporation under the MNB Merchant Agreement.
C. Lenders are willing to arrange for the issuance of the
Letters of Credit, but only upon the condition, among others, that
Corporation shall have executed and delivered to Lenders this
Reimbursement Agreement.
AGREEMENT
NOW, THEREFORE, in order to induce Lenders to cause the
issuance of the Letters of Credit and for other good and valuable
consideration, the receipt and adequacy of which are hereby
acknowledged, and intending to be legally bound, the parties
hereto represent, warrant, covenant and agree as follows:
ARTICLE 1
DEFINITIONS
SECTION 1.1 DEFINITIONS. Unless otherwise defined herein
the following terms shall have the following meanings (such
meanings being equally applicable to both the singular and plural
forms of the terms defined):
<PAGE>
"ACT OF BANKRUPTCY" shall mean the Corporation shall
commence a voluntary case or other proceeding in seeking
liquidation, reorganization, arrangement, readjustment of its
debts or for any other relief under the federal bankruptcy laws,
including the Federal Bankruptcy Code, as amended, or under any
other insolvency act or law, state or federal, now or hereafter
existing, or shall take any other action indicating its consent
to, approval of, or acquiescence in, any such petition or
proceedings; the Corporation shall apply for, or consent to or
acquiesce in, the appointment of a receiver, liquidator,
custodian, sequestrator, or a trustee for all or a substantial
part of its property; the Corporation shall make an assignment for
the benefit of its creditors; the Corporation shall be unable, or
shall admit in writing its inability, to pay its debts when due;
or a petition in bankruptcy shall be filed against the
Corporation, as a debtor, under any applicable bankruptcy,
insolvency or similar law as now or hereafter in effect which
shall not be discharged by a court of competent jurisdiction
within sixty (60) days of the date of such filing.
"AGREEMENT" shall mean this Reimbursement Agreement
together with all duly authorized and executed amendments thereto.
"APPLICATIONS" shall mean that certain Applications and
Agreements for the Standby Letters of Credit by and between
Issuing Bank and Lenders in connection with the Letters of Credit
to be issued to and MNB.
"BUSINESS DAY" shall mean any day other than (i) a
Saturday or Sunday, (ii) a day on which banking institutions in
the States of California, Michigan or Missouri are authorized or
required by law or executive order not to be open for the conduct
of their commercial banking business, or (iii) a day on which the
federal reserve bank for the federal reserve district in which MNB
is located is closed.
"COLLATERAL" shall have the meaning assigned to such term
in SECTION 2 of the Security Agreement.
"DATE OF DELIVERY" shall mean January 18, 1999 or any
other date agreed upon by the Corporation and Lenders as the date
upon which the Letters of Credit shall be issued to MNB.
"DEFAULT RATE" shall mean a rate per annum equal to five
(5) percentage points above the interest rate applicable
immediately prior to the occurrence of the Event of Default.
<PAGE>
"DRAWING" shall mean a drawing under the Letters of
Credit in accordance with their terms.
"EVENT OF DEFAULT" shall have the meaning set forth in
SECTION 7.1 hereof.
"INTEREST RATE" shall mean [nine percent (9%)] per annum.
"ISSUING BANK" shall mean Wells Fargo Bank or Bank of
America National Trust and Savings Association acting through its
Chicago branch, or any surviving, resulting or transferee entity,
whichever is applicable.
"LETTERS OF CREDIT" shall mean the Letters of Credit
arranged by Lenders and issued by a Issuing Bank pursuant to the
Applications on the Date of Delivery, as the same may from time to
time be amended, modified, supplemented or restated, and shall
include any substitute Letter of Credit issued pursuant to
Lenders' obligations hereunder including without limitations any
replacement Letters of Credit in connection with the switch of
credit card processors.
"MAXIMUM CREDIT" initially shall mean, as of any date of
calculation, the aggregate maximum amount available to be drawn
under the Letters of Credit. Initially, the Maximum Credit shall
be $2,000,000 for Shea and $2,000,000 for the Hambrecht Trust, or,
collectively for the lenders, $4,000,000.
"MNB" shall mean Michigan National Bank, a national
banking association with its principal office located at or any
surviving, resulting or transferee entity.
"MNB MERCHANT AGREEMENT" shall mean any Merchant
Agreement between Corporation and MNB that may be entered into
with respect to credit card processing, as the same may from time
to time be amended, modified, supplemented or restated.
"PERSON" shall mean any individual, sole proprietorship,
partnership, limited liability company, limited liability
partnerships, joint venture, trust, unincorporated organization,
association, corporation, institution, public benefit corporation,
firm, joint stock corporation, estate, entity or governmental
agency.
"REIMBURSEMENT LOAN NOTE" shall mean the note evidencing
the Reimbursement Loans, substantially in the form attached hereto
as EXHIBITS A AND B.
<PAGE>
"REIMBURSEMENT LOANS" shall mean the reimbursement loans
described in SECTION 2.8 hereof.
"SECURITY AGREEMENT" shall mean that certain Security
Agreement dated as of January 18, 1999 made by Corporation in
favor of Lenders.
"TERMINATION DATE" shall mean the date determined in the
manner provided in SECTION 2.7 hereof.
"TRANSACTION DOCUMENTS" means, collectively, this
Agreement, the Security Agreement, the Reimbursement Loan Note,
and any other agreement entered into between Corporation and
Lender, and any certificate or instrument executed by Lender, in
connection with said agreements and note, as the same may from
time to time be amended, modified, supplemented or restated.
SECTION 1.2 CONSTRUCTION. In this Agreement, unless the
context otherwise requires:
(A) Articles and Sections referred to by number shall
mean the corresponding Articles and Sections of this Agreement.
(B) The terms "hereby," "hereof," "hereto," "herein,"
"hereunder," and any similar terms, as used in this Agreement
refer to this Agreement, and the term "hereafter" shall mean
after, and the term "heretofore" shall mean before the date of
execution of this Agreement.
(C) Words of the masculine gender shall be deemed and
construed to include correlative words of the feminine and neuter
genders. Words importing the singular number shall include the
plural number and vice versa, and words importing persons shall
include corporations and associations, including public bodies, as
well as natural persons.
ARTICLE 2
LETTER OF CREDIT
SECTION 2.1 AMOUNT AND TERMS OF LETTER OF CREDIT. At the
request of Corporation, each Lender agrees, on the terms and
subject to the conditions set forth in this Agreement, including
without limitation the conditions set forth in ARTICLE 3 hereof,
to on or before the applicable Date of Delivery cause the issuance
of a Letter of Credit by a Issuing Bank, in favor of MNB, for the
account of Corporation, to secure, and to provide a source of
payment of the obligations of the Corporation under the MNB
Merchant Agreement. The Letters of Credit will be issued in an
<PAGE>
initial aggregate amount equal to the Maximum Credit. The Letters
of Credit shall be issued in favor of MNB for the account of the
Corporation substantially in the form of EXHIBIT C and EXHIBIT D
attached hereto.
SECTION 2.2 DRAWINGS AND REINSTATEMENT.
(A) Drawings under the Letters of Credit are intended
to be made by MNB for the account of the Corporation and to be
honored by Issuing Bank, all pursuant to the provisions, on the
terms and subject to the conditions set forth in the applicable
Letter of Credit. The honoring of any Drawing shall automatically
reduce by like amount the Maximum Credit. No Drawing under the
Letters of Credit shall be honored in an amount exceeding the
Maximum Credit.
(B) The Maximum Credit, or any lesser amount, may be
reinstated by Lenders at its sole option, provided Lenders has
been reimbursed by Corporation any such amounts to be reinstated.
SECTION 2.3 FEES AND OTHER PAYMENT.
(A) The Corporation hereby agrees to pay to or
reimburse Lenders:
(I) On or before a Date of Delivery, the
origination fees paid to an Issuing Bank;
(II) On or before a Date of Delivery, an amount
equal to all costs and expenses (including attorneys' fees and
expenses) incurred by Lenders in connection with the preparation
and negotiation of this Agreement, the Reimbursement Loan Note,
the other Transaction Documents and the closing of the
transactions contemplated hereby; provided, however, such
attorney's fees and expenses shall not exceed Five Thousand
Dollars ($5,000.00);
(III) On demand from time to time from Lenders,
any fees or other amounts (not otherwise reimbursed by Corporation
to Lenders pursuant to SECTION 2.4 hereof) required to be paid by
Lenders to the Issuing Bank in connection with the Letters of
Credit, including, without limitation, a one percent (1%) per
annum fee, payable quarterly by Lenders to Issuing Bank;
(IV) On demand from time to time by Lenders, an
amount equal to all costs and expenses (including attorneys' fees
and expenses) (not otherwise reimbursed by Corporation to Lenders
pursuant to SECTION 2.4 hereof) incurred by Lenders relative to a
Drawing under a Letter of Credit;
<PAGE>
(V) On demand from time to time by Lenders, an
amount equal to all costs and expenses (including attorneys' fees
and expenses) incurred by Lenders relative to the Letters of
Credit (not otherwise reimbursed by Corporation to Lenders
pursuant to this SECTION 2.3 or SECTION 2.4) or each Reimbursement
Loan or the enforcement or preservation of any rights of Lenders
under this Agreement, the other Transaction Documents, each
Reimbursement Loan or the Reimbursement Loan Note, or in
connection with the exercise or waiver of any of Lenders'
discretionary rights under this Agreement, the Reimbursement Loan
Note or under the other Transaction Documents; and,
(VI) On demand from time to time by Lenders,
interest, at the Default Rate, on any and all amounts unpaid by
the Corporation when due under this Agreement or the Reimbursement
Loan Note, but in no event shall such rates exceed the maximum
rate of nonusurious interest allowed from time to time by law, as
is now or, to the extent allowable by law, as hereinafter may be
in effect, to be paid by the Corporation.
Each such payment or reimbursement shall be deemed to be
earned in full the date on which such amount is due and payable by
the Corporation.
(B) The Corporation agrees to pay, on demand from time
to time by the Lenders, all reasonable costs and expenses incurred
by the Lenders, in connection with (i) any transfer or amendment
of the Letter of Credit or amendment of this Agreement, (ii) any
review by the Lenders of the documents necessary for Lenders to
honor a Drawing under the Letter of Credit, or relative to the
Lenders' curing of any event of default by Borrower under any of
the Transaction Documents, (iii) the exercise, enforcement or
preservation of any rights of Lenders under this Agreement, (iv)
any action or proceeding relating to a court order, injunction, or
other process or decree restraining or seeking to restrain Lenders
from paying any amount under the Letter of Credit, and (v) the
waiver or amendment of any of the Lenders' rights under any of the
Transaction Documents; PROVIDED, HOWEVER, that no payment shall be
required under this SECTION 2.3(B) in respect of any cost or
expense Lenders has incurred because of its gross negligence or
willful misconduct if so determined by a court of competent
jurisdiction.
SECTION 2.4 REIMBURSEMENT. The Corporation agrees to pay
to or reimburse Lenders in full for any and all Drawings made
under the Letter of Credit on the date any Drawing is made. Any
amount drawn under a Letter of Credit shall be, to the extent
permitted by and in accordance with SECTION 2.8 hereof,
automatically converted
<PAGE>
into a Reimbursement Loan. A Reimbursement Loan, when made, will
satisfy the reimbursement obligation of the Corporation to Lenders
in the principal amount of such Reimbursement Loan.
SECTION 2.5 SECURITY. The obligations of the Corporation
under this Agreement, including, without limitation, the
Corporation's obligations to make payments under SECTIONS 2.3 and
2.4 hereof, are secured by the Collateral identified and described
as security therefore in the Security Agreement.
SECTION 2.6 PLACE OF PAYMENT. All payments to be made by
the Corporation to the Lenders hereunder shall be made in lawful
currency of the United States of America and in immediately
available funds by wire to the following accounts to the
appropriate Lender:
J. F. Shea Co., Inc.
c/o Wells Fargo Bank
420 Montgomery Street
San Francisco, CA
ABA # 121000248
Account # 4776-019002
The Hambrecht 1980 Revocable Trust
c/o Union Bank of California
400 California Street
San Francisco, CA 94104
ABA: 121000496
Account #: 0012913414
Account Name: William R. Hambrecht Account
or at such other address as Lenders may specify from time to time
by notice to the Corporation.
SECTION 2.7 TERMINATION OF AGREEMENT. This Agreement
(except for the obligations of the Corporation set forth in
SECTIONS 2.3(B) and 9.4) shall terminate at such time as the
Letters of Credit shall have expired and when all amounts due and
payable to Lenders hereunder shall be paid in full (the
"Termination Date").
SECTION 2.8 REIMBURSEMENT LOANS.
(A) Each Lender agrees, upon the terms, subject to the
conditions and relying upon the representations and warranties set
forth in this Agreement and the other Transaction Documents, that,
unless an Event of Default shall have occurred and be continuing a
Drawing under a Letter of Credit that is not repaid in full by the
Corporation on the date thereof shall automatically be converted
<PAGE>
into a Reimbursement Loan. On and as of the date of the making of
each Reimbursement Loan, the Corporation shall be deemed to have
(A) remade, ratified and confirmed all representations and
warranties of the Corporation contained in SECTION 5.1 of this
Agreement, and (B) certified compliance with all covenants
contained in ARTICLE 6 hereof.
(B) The principal amount of each Reimbursement Loan
shall not exceed the applicable Maximum Credit available under the
Letter of Credit on such date. All the Reimbursement Loans with
each Lender shall be evidenced by a single Reimbursement Loan Note
to each Lender substantially in the forms of EXHIBIT A and EXHIBIT
B hereto with appropriate insertions, duly executed and delivered
by the Corporation to the respective Lender, dated by each Lender
on the attached schedule the date of each Drawing under a Letter
of Credit that gives rise to a Reimbursement Loan, and payable to
a Lender or its assigns in an amount equal to the amount drawn on
the Letter of Credit that is not reimbursed as provided in the
first sentence of SECTION 2.4 of this Agreement. The principal
amount of each Reimbursement Loan, together with any unpaid and
accrued interest thereon, shall be due and payable on the later of
(a) the first anniversary of such Reimbursement Loan or (b) such
time as the Letter of Credit shall have expired.
(C) Each Reimbursement Loan shall bear interest at the
Interest Rate. Such interest shall be calculated on the basis of
a 365 or 366 day year and actual number of days elapsed. Lenders
shall, and is hereby authorized by the Corporation to, date the
schedule attached to the Reimbursement Loan Notes the date of any
Drawing under a Letter of Credit that is not reimbursed as
provided in the first sentence of SECTION 2.4 of this Agreement
and insert the amount (or the portion thereof not so reimbursed,
as the case may be), and endorse on such schedule an appropriate
notation evidencing the date and amount of each repayment and any
other information provided for on such schedule; PROVIDED,
HOWEVER, that the failure of Lenders to insert any such date or
amount or set forth such repayments and other information on such
schedule shall not in any manner affect the obligation of the
Corporation to repay the related Reimbursement Loans in accordance
with the terms of this Agreement.
(D) Lenders agree that the Corporation may prepay a
Reimbursement Loan in whole or in part without premium or penalty
at any time.
<PAGE>
ARTICLE 3
CONDITIONS PRECEDENT TO ISSUANCE
OF LETTER OF CREDIT
SECTION 3.1 DOCUMENTS TO BE RECEIVED. Lenders' obligations
to cause the issuance of the Letters of Credit as set forth in
SECTION 2.1 hereof are subject to the conditions precedent that,
on or prior to the Date of Delivery, Lenders shall receive the
following documents, all in form and substance satisfactory to
Lenders:
(A) executed counterparts of this Agreement, the
Security Agreement and the Reimbursement Loan Note, which shall be
duly executed and dated by the Corporation (except for the
schedule attached thereto, which shall be undated and blank as to
amount);
(B) a certificate of the appropriate officer(s) of the
Corporation certifying (i) that the statements contained in
SECTIONS 3.2(A) and 5.1 are true and correct, (ii) the name and
true signatures of the officers of the Corporation authorized to
sign this Agreement and the other documents to be delivered by the
Corporation hereunder and (iii) as to such other matters as
Lenders shall determine, in substantially the form attached hereto
as EXHIBIT E;
(C) all filings, notices and recordings necessary to
perfect the security interest granted Lenders pursuant to the
Security Agreement shall have been delivered to Lenders;
(D) the Warrant duly executed and delivered by
Corporation in the form attached hereto as EXHIBIT F;
(E) such other documents, certificates, instruments,
approvals or filings as Lenders may reasonably deem necessary or
appropriate.
SECTION 3.2 OTHER CONDITIONS PRECEDENT. The Lenders'
obligation to cause the issuance of the Letters of Credit as set
forth in SECTION 2.1 hereof shall be subject to the additional
conditions precedent that:
(A) the following statements shall be true and correct
on a Date of Delivery and Lenders shall have received a
certificate signed by a duly authorized officer of the
Corporation, dated the Date of Delivery to the following effect
and to such other effects as the Lenders may request,
substantially in the form attached hereto as EXHIBIT E:
<PAGE>
(I) the representations and warranties of the
Corporation set forth in SECTION 5.1 hereof and in the other
Transaction Documents are true and correct as of the Date of
Delivery as though made on and as of such date;
(II) no event has occurred and is continuing, or
would result directly or indirectly from the issuance of the
Letters of Credit, which constitutes an Event of Default hereunder
or which would constitute such an Event of Default, but for the
requirement that notice be given or time elapse, or both; and
(III) no "event of default" (however defined or
designated) has occurred under any of the Transaction Documents,
and no event has occurred and is continuing which would constitute
such an event of default, but for the requirement that notice be
given or time elapse, or both.
(B) On or before the Date of Delivery, the Corporation
shall have duly adopted a resolution authorizing the execution,
delivery and performance by the Corporation of the Transaction
Documents to which it is a party, and on and after the Date of
Delivery such resolution shall continue to be in full force and
effect.
ARTICLE 4
OBLIGATIONS OF THE CORPORATION
SECTION 4.1 OBLIGATIONS OF THE CORPORATION.
(A) The obligations of the Corporation under this
Agreement shall be absolute, unconditional and irrevocable, and
shall be performed strictly in accordance with the terms of this
Agreement, under all circumstances whatsoever, including without
limitation the following circumstances:
(I) any lack of validity or enforceability of any
of the Transaction Documents (other than this Agreement) or any
other agreement or instrument contemplated thereby or related
thereto;
(II) any amendment or waiver of or any consent to
departure from all or any of the documents contemplated hereby;
(III) the existence of any claim, setoff,
defense or other rights which the Corporation may have at any time
against any beneficiary or any transferee of a Letter of Credit
(or any Persons for whom such beneficiary may be acting), the
Lenders or any other Person, whether in connection with the
Transaction or any unrelated transaction;
<PAGE>
(IV) any breach of contract or other dispute
between the Corporation and any beneficiary of the Letters of
Credit (or any persons or entities for whom any such beneficiary
may be acting), Lenders, Issuing Bank, Bank or any other Person;
(V) any statement or any other document presented
under the Transaction Documents proving to be forged, fraudulent,
invalid or insufficient in any respect or any statement therein
being untrue or inaccurate in any respect whatsoever;
(VI) payment by the Issuing Bank under the Letters
of Credit against presentation of a sight draft or certificate
which does not comply with the terms of the Letter of Credit,
provided that such payment shall not have constituted an act of
gross negligence or willful misconduct by Lenders as determined by
a court of competent jurisdiction; or
(VII) any delay, extension of time, renewal,
compromise or other indulgence or modification granted or agreed
to by Lenders, with or without notice to or approval by the
Corporation, as the case may be, in respect of any of the
Corporation's indebtedness to Lenders under this Agreement.
(B) Lenders shall not be deemed to have waived or
released any of its rights or remedies (whether specified in or
arising under this Agreement or otherwise available to it by law
or agreement) unless it signs a written waiver or release. Delay
or failure to act on the Lenders' part shall not constitute a
waiver of or otherwise preclude enforcement of any of its rights
and remedies. All of Lenders' rights and remedies shall be
cumulative and may be exercised singularly or concurrently.
Lenders need not resort to any particular right or remedy before
exercising or enforcing any other, and Lenders' resort to any
right or remedy shall not preclude the exercise or enforcement of
each other right and remedy.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES
SECTION 5.1 REPRESENTATIONS AND WARRANTIES OF THE
CORPORATION.
The Corporation represents and warrants as follows:
(A) ORGANIZATION AND POWERS. The Corporation is a
corporation duly organized and validly existing under the laws of
the State of Delaware and is authorized to transact business and
exercise its power under the applicable laws of any state in which
<PAGE>
the conduct of its business or its ownership of property requires
that it be so qualified except where failure to do so would not
have a material adverse effect on the ability of the Corporation
to conduct its business as currently conducted or as proposed or
contemplated to be conducted.
(B) AUTHORIZATION AND ABSENCE OF CONFLICTS. The
execution, delivery and performance of the Transaction Documents
(i) have been duly authorized by all necessary action on the part
of the Corporation, (ii) do not and will not conflict with, or
result in a violation of, any provision of law, or any order,
writ, rule or regulation of any court or governmental agency or
instrumentality binding upon or applicable to the Corporation and
(iii) do not and will not conflict with, result in a violation of,
or constitute a default under, any resolution, material agreement
or instrument to which the Corporation is a party or by which the
Corporation or any of its property is bound.
(C) BINDING OBLIGATION. Each of the Transaction
Documents will be a valid and binding obligation of the
Corporation enforceable in accordance with its terms.
(D) GOVERNMENTAL CONSENT OR APPROVAL. No consent,
approval, permit, authorization or order of, or registration or
filing with, any court or governmental agency, authority or other
instrumentality not already obtained, given or made is required on
the part of the Corporation for the execution, delivery and
performance by the Corporation of any of the Transaction
Documents.
(E) ABSENCE OF LITIGATION. There is no action, suit,
proceeding, inquiry or investigation, at law or in equity, before
or by any court, arbitrator, governmental or other board, body or
official, pending or, to the best knowledge of the Corporation,
threatened against or affecting the Corporation, questioning the
validity of any proceeding taken or to be taken by the Corporation
in connection with the execution, delivery and performance by the
Corporation of the Transaction Documents or seeking to prohibit,
restrain or enjoin the execution, delivery or performance by the
Corporation of any of the foregoing, nor, to the best knowledge of
the Corporation, is there any basis therefor, wherein an
unfavorable decision, ruling or finding would (i) adversely affect
the validity or enforceability of, or the authority or ability of
the Corporation to perform its obligations under the Transaction
Documents or (ii) have a material adverse effect on the ability of
the Corporation to conduct its business as currently conducted or
as proposed or contemplated to be conducted.
(F) NO DEFAULTS BY THE CORPORATION. The Corporation is
not in default in the performance, observance or fulfillment of
any
<PAGE>
of the obligations, covenants or conditions contained in any
agreement or instrument to which the Corporation is a party or by
which the Corporation or any of its property is bound, except for
such defaults as would not have a material adverse effect on the
ability of the Corporation to conduct its business as currently
conducted or as proposed or contemplated to be conducted.
(G) INCORPORATION OF REPRESENTATIONS. The Corporation
hereby makes to the Lenders the same representations and
warranties as are made by the Corporation and set forth in any
other Transaction Documents, which representations and warranties,
as well as the defined terms contained therein (or in such defined
terms), are hereby incorporated by reference with the same effect
as if each and every such representation and warranty and defined
term were set forth herein in its entirety. No amendment to such
representations and warranties or defined terms made pursuant
thereto shall be effective to amend such representations and
warranties and defined terms as incorporated by reference herein
without the consent of Lenders.
(H) COMPLIANCE WITH LAWS. The Corporation is in
material compliance with all provisions of applicable law.
ARTICLE 6
COVENANTS OF THE CORPORATION
SECTION 6.1 AFFIRMATIVE COVENANTS. So long as the
Termination Date has not occurred or so long as any amount is due
and owing to Lenders hereunder, the Corporation will, unless
Lenders otherwise shall consent in writing:
(A) DELIVERY OF INFORMATION, REPORTS AND OPINIONS.
Furnish to Lenders the following: (i) as soon as possible and in
any event within two (2) Business Days after the occurrence of (A)
each Event of Default or any event or condition that, with the
passage of time or the giving of notice or both, would constitute
an Event of Default, under this Agreement, and (B) each "event of
default" (however defined or designated) or any event or condition
that, with the passage of time or the giving of notice or both,
would constitute an "event of default" under any Transaction
Document, a statement of an officer of the Corporation setting
forth details thereof and the action which the Corporation
proposes to take with respect thereto; (ii) audited financial
statements, if any, of the Corporation within ten (10) days after
the Corporation's receipt of the same from the respective
accountants; and (iii) as promptly as practicable, written notice
to the Lenders of all proceedings before any court or governmental
authority which, if adversely determined, would materially and
adversely
<PAGE>
affect (i) the ability of the Corporation to pay when due the
principal of or any interest on the Reimbursement Loan Note or
(ii) the priority or enforceability of Lenders' security interest
in the collateral.
(B) PAYMENT OF INDEBTEDNESS. Duly and punctually pay or
cause to be paid all principal and interest on the indebtedness of
the Corporation legally due and owing to third parties, comply
with and perform all conditions, terms and obligations of the
notes or bonds evidencing such indebtedness and the security
agreements, deeds of trust and mortgages securing such
indebtedness, and upon being notified of or learning of a default
or having made a determination not to pay an indebtedness when
due, promptly inform Lenders of any such default, or anticipated
default, under any such note, bond, security agreement, deed of
trust or mortgage, and forward to the Lenders a copy of any notice
of default or notice of an event that might result in default
under any such note, bond, security agreement, deed of trust or
mortgage;
(C) ACCESS TO RECORDS AND AUDIT. Upon reasonable
notice to Corporation (unless an Event of Default has occurred and
is continuing, in which case no notice is necessary) (i)
Corporation shall permit Lenders to at all times have full and
free access during normal business hours to all the books and
records and correspondence of Corporation, and Lenders or any
agents or representatives of Lenders may examine the same, take
extracts therefrom and make photocopies thereof, and Corporation
agrees to render to Lenders, at Corporation's cost and expense,
such clerical and other assistance as may be reasonably requested
with regard thereto and (ii) Corporation shall permit Lender to
discuss the Corporation's financial affairs with the Corporation's
accountants; and permit Lenders to have all rights of the
Corporation to audit, copy or make extracts of the records of MNB
as are specified under the MNB Merchant Agreement and applicable
to the Corporation's account.
(D) RELATED COVENANTS. Fully and faithfully perform
each of the covenants and agreements required of it pursuant to
the provisions of the Transaction Documents;
(E) FURTHER ACTION. At any and all times, insofar as it
may be authorized to do so by law, pass, make, do, execute,
acknowledge and deliver all and every such further resolutions,
acts, deeds, conveyances, assignments, recordings, filings,
transfers and assurances as may be necessary or reasonably
desirable for the better assuring, conveying, granting, assigning
and confirming the amounts due hereunder and under the
Reimbursement Loan Note, or intended so to be, or which the
Corporation may hereafter become bound to pledge or assign
thereto;
<PAGE>
(F) COMPLIANCE WITH LAWS. Comply in all material
respects with all applicable (A) laws (including, rules,
regulations, writs, decrees and orders of all Federal, state,
local or foreign courts or governmental agencies, authorities,
instrumentalities or regulatory bodies and (B) rules, regulations
and requirements necessary to maintain its operating and business
licenses, authorizations and permits;
(G) INCORPORATION OF COVENANTS. The Corporation hereby
makes to Lenders the same covenants as are made by the Corporation
and set forth in any other Transaction Document, which covenants,
as well as the defined terms contained therein (or in such defined
terms), are hereby incorporated by reference with the same effect
as if each and every such covenant and defined term were set forth
herein in its entirety. No amendment to such covenants or defined
terms made pursuant thereto shall be effective to amend such
covenants and defined terms as incorporated by reference herein
without the consent of the Lenders.
SECTION 6.2 NEGATIVE COVENANTS. So long as the Termination
Date has not occurred or any amount remains due and owing to
Lenders hereunder, unless the Lenders otherwise shall consent in
writing, the Corporation agrees not to issue any indebtedness
which would be secured (whether on a senior, parity or junior lien
basis) by any pledge of or security interest in the Collateral.
ARTICLE 7
EVENTS OF DEFAULT
SECTION 7.1 EVENTS OF DEFAULT. The occurrence of any of
the following events shall be an "Event of Default" hereunder
unless waived by Lenders pursuant to SECTION 9.1 hereof:
(A) the Corporation shall fail to pay when due any
amount specified under the terms of this Agreement, including,
without limitation, amounts due under any of the Reimbursement
Loan Notes;
(B) any representation or warranty made by the
Corporation pursuant to SECTION 5.1 hereof or under the Security
Agreement or any other Transaction Document shall prove to have
been incorrect in any material respect when made;
<PAGE>
(C) the Corporation shall fail to perform or observe
any other term, covenant or agreement contained in this Agreement
(other than those specifically referenced in SECTION 7.1(A) and
(B) above) or any other Transaction Document and such failure
shall remain unremedied for thirty (30) days after written notice
thereof shall have been given to the Corporation, by Lenders;
(D) an "event of default" (however defined or
designated) under any Transaction Document shall have occurred and
be continuing;
(E) an event of default under any indebtedness of the
Corporation from time to time outstanding or under any agreement
to which Borrower is a party with a third party or parties
resulting in a right by such third party or parties, whether or
not exercised, to accelerate the maturity of any indebtedness in
an amount in excess of Five Hundred Thousand Dollars ($500,000) or
that could materially and adversely affect the ability of the
Corporation to pay when due the principal of or any interest on
any outstanding amounts under a Reimbursement Loan Note.
(F) any material provision of this Agreement or the
other Transaction Documents shall at any time for any reason cease
to be valid and binding on the Corporation, or shall be declared
to be null and void, or the validity or enforceability thereof
shall be contested by the Corporation or any governmental agency
or authority, and the happening of the events heretofore set forth
in this SUBSECTION (F) shall materially and adversely affect
Lenders' rights under this Agreement or under any other
Transaction Document, including its security interest in the
collateral or the Corporation shall deny that it has any or
further liability or obligation under this Agreement or any other
Transaction Document;
(G) Lenders shall fail to have a valid and enforceable
perfected first priority security interest under the Security
Agreement, subject only to the Permitted Liens;
(H) The occurrence of (or with the giving of notice,
lapse of time, determination of materiality or the fulfillment of
any other applicable condition or any combination of the
foregoing, might constitute) a default by Borrower under, or the
termination of, the Credit Card Agreement; or
(I) an Act of Bankruptcy.
<PAGE>
ARTICLE 8
RIGHTS AND REMEDIES
SECTION 8.1 RIGHTS AND REMEDIES.
(A) DEFAULTS UNDER THIS AGREEMENT. Upon the occurrence
of an Event of Default hereunder, or at any time thereafter while
such default continues, Lenders, in their sole discretion, may do
any one or more of the following:
(I) send notice of such Event of Default to the
Corporation;
(II) declare the Reimbursement Loan Note, if
outstanding, and any and all amounts due and owing under this
Agreement or under the other Transaction Documents, to be
immediately due and payable;
(III) terminate the Letter of Credit; and
(IV) exercise any rights and remedies available to
it by law or under this Agreement, the Security Agreement, any
other Transaction Document or any other agreement, document or
instrument contemplated hereby.
(B) DEFAULTS UNDER THE MERCHANT AGREEMENTS. Lenders may
cure an event of default under the MNB Merchant Agreement;
PROVIDED, HOWEVER, that nothing contained herein shall obligate
Lenders to cure any such event of default.
ARTICLE 9
MISCELLANEOUS
SECTION 9.1 MODIFICATION OF AGREEMENT. No modification or
waiver of any provision of this Agreement, and no consent to any
departure by the Corporation therefrom, shall be effective unless
the same shall be in writing and signed by Lenders and the
Corporation and no modification or waiver of any provision of the
Letters of Credit, and no consent to any departure by the
Corporation or MNB therefrom, shall in any event be effective
unless the same shall be in writing and signed by Lenders. Any
such waiver or consent shall be effective only in the specific
instance and for the purpose for which given. No notice to or
demand on the Corporation in any case shall entitle the
Corporation to or any other or further notice or demand in the
same, similar or other circumstances.
<PAGE>
SECTION 9.2 WAIVER OF RIGHTS BY LENDERS; REMEDIES. No
course of dealing or failure or delay on the part of Lenders in
exercising any right, power or privilege hereunder or under the
Letters of Credit shall operate as a waiver hereof or thereof, nor
shall a single or partial exercise thereof preclude any other or
further exercise or the exercise of any other right, power or
privilege. The rights of Lenders under this Agreement are
cumulative and not exclusive of any rights or remedies which
Lenders would otherwise have.
SECTION 9.3 NOTICES. All notices, requests, consents and
other communications hereunder shall be in writing and shall be
deemed effectively given: (i) upon personal delivery to the party
to be notified; (ii) upon receipt at the address specified below
after having been sent by certified or registered mail, return
receipt requested, postage prepaid; or (iii) one (1) day after
deposit with a nationally recognized overnight courier, specifying
next day delivery, with written verification of receipt. All
communications shall be sent to the party to be notified at the
address set forth below:
If to the Corporation:
Vanguard Airlines, Inc.
7000 Squibb Road
Third Floor
Mission, KS 66202
Attention: Brian Gillman, Vice President
and General Counsel
Facsimile: (913) 789-1351
If to Lenders:
W. R. Hambrecht & Company
attn: William R. Hambrecht
550 Fifteenth Street
San Francisco, CA 94103
Facsimile: 415-551-8686
J. F. Shea Co., Inc.
attn: Edmund Shea, Jr.
655 Brea Canyon Road
Walnut, CA 91789-3010
Facsimile: 909-869-0840
or, in any such case, at such other address or addresses as shall
have been furnished in writing by such party to the others.
<PAGE>
SECTION 9.4 INDEMNIFICATION. In addition to other amounts
payable by the Corporation under this Agreement, the Corporation
hereby agrees to the fullest extent permitted by applicable law,
to protect, defend, indemnify and hold harmless each Lender and,
its affiliates and assignees, the Issuing Banks, and their
respective directors, officers, employees, agents, counsel,
successors and assigns from and against any and all claims,
demands, judgments, damages, actions, injuries, losses,
liabilities, penalties, costs, charges and expenses whatsoever
which such Person may (or which may be claimed against such Person
whatsoever), including, without limitation, the fees and expenses
of counsel for such Person by reason of or in connection with: (a)
the issuance of the Letters of Credit; or (b) the Transaction
Documents or any act or omission by them with respect thereto,
including all reasonable fees or expenses resulting from the
settlement or defense of any claims or liabilities arising as a
result of any such breach or default; PROVIDED, HOWEVER, that the
Corporation shall not be required to indemnify any such Person for
any claims, demands, damages, losses, liabilities, costs, charges
and expenses to the extent, but only to the extent, that a court
of competent jurisdiction determines that resulted from the gross
negligence or willful misconduct of such Persons. The
indemnification obligations in this SECTION 9.4 shall survive the
expiration of this Agreement or the Letters of Credit.
SECTION 9.5 LIABILITY OF LENDERS. The Corporation assumes
all risks of the acts or omissions of MNB and any transferee of
the Letters of Credit with respect to its use of the Letters of
Credit or the proceeds thereof; PROVIDED, HOWEVER, this assumption
is not intended to, and shall not, preclude the Corporation from
pursuing such rights and remedies as it may have against MNB at
law or under the MNB Merchant Agreement or any other agreement.
Neither the Lenders nor any Person participating in the Letters of
Credit or the Reimbursement Loan Note shall be liable or
responsible for: (a) the use which may be made of the Letters of
Credit or the proceeds thereof or for any acts or omissions of MNB
and any transferee of the Letters of Credit in connection
therewith; (b) the validity, sufficiency or genuineness of
documents presented under the Letters of Credit, or of any
endorsement(s) thereon, even if such documents should in fact
prove to be in any or all respects invalid, insufficient,
fraudulent or forged; PROVIDED, HOWEVER, (a) and (b) to the
contrary notwithstanding, the Corporation shall have a claim
against the Lenders, and the Lenders shall be liable to the
Corporation, to the extent, but only to the extent, of any direct,
as opposed to consequential, damages suffered by the Corporation
which the Corporation proves, as determined by a court of
competent jurisdiction, were caused by (i) Lenders' gross
negligence or (ii) Lenders' willful act that prevents payment
under the Letters of Credit after the presentation to Issuing Bank
by MNB (or a successor under the MNB Merchant Agreement to whom
the Letters of
<PAGE>
Credit has been transferred in accordance with its terms) of a
sight draft and all required certificates strictly complying with
the terms and conditions of the Letters of Credit. In furtherance
and not in limitation of the foregoing, the Lenders may accept
documents that appear on their face to be in order, without
responsibility for further investigation, regardless of any notice
or information to the contrary; PROVIDED, HOWEVER, that if Lenders
shall receive timely written notification from each of MNB or the
Corporation and that sufficiently identifies (in the reasonable
opinion of Lenders) documents that thereafter may be presented to
Issuing Bank or Lenders which are not to be honored, Lenders
agrees to use its best efforts to avoid honoring such documents
thereafter. Lenders assumes no responsibility for any failure or
delay in the transmission to MNB of funds drawn under the Letters
of Credit through the federal funds wire system.
SECTION 9.6 PARTICIPATIONS. Lenders may participate to
other Persons and institutions of the Lenders' choosing all or any
portion of its obligations under the Letter of Credit and the
obligations of the Corporation under the Reimbursement Loan Note.
No such participation shall relieve the Lenders of its obligations
hereunder nor shall it cause an increase in Corporation's
obligations under this Agreement, including under SECTION 2.3(B)
above.
SECTION 9.7 SATISFACTION REQUIREMENT. If any agreement,
certificate or other writing, or any action taken or to be taken,
is by the terms of this Agreement required to be satisfactory to
the Lenders, the determination of such satisfaction shall be made
by Lenders in its sole and exclusive judgment exercised in good
faith.
SECTION 9.8 GOVERNING LAW. In all respects, including all
matters of construction, validity and performance, this Agreement,
the Reimbursement Loan Note and the other Transaction Documents,
and any obligations arising hereunder or thereunder, shall be
governed by, and construed and enforced in accordance with, the
laws of the State of California applicable to contracts made and
performed in such state, without regard to the principles thereof
regarding conflict of laws.
SECTION 9.9 WAIVER OF JURY TRIAL. THE CORPORATION HEREBY
WAIVES TRIAL BY JURY IN ANY LITIGATION IN ANY COURT WITH RESPECT
TO, IN CONNECTION WITH, OR ARISING OUT OF THIS AGREEMENT, THE
REIMBURSEMENT LOAN NOTE, THE OTHER TRANSACTION DOCUMENTS OR ANY
INSTRUMENT OR DOCUMENT DELIVERED PURSUANT TO THIS AGREEMENT, THE
REIMBURSEMENT LOAN NOTE OR THE OTHER TRANSACTION DOCUMENTS, OR THE
VALIDITY, PROTECTION, INTERPRETATION, COLLECTION OR ENFORCEMENT
THEREOF, OR ANY OTHER CLAIM OR DISPUTE HOWSOEVER ARISING, BETWEEN
<PAGE>
THE CORPORATION, ON THE ONE HAND, AND LENDERS, ON THE OTHER HAND.
SECTION 9.10 JURISDICTION: SERVICE OF PROCESS. The
Corporation hereby irrevocably consents to the jurisdiction of the
Courts of the State of California, County of San Francisco and of
any Federal Court located in the county of San Francisco
California, and agree that venue in each of such Courts is proper
in connection with any action or proceeding arising out of or
relating to this Agreement, the other Transaction Documents, or
any document or instrument delivered pursuant to this Agreement or
the other Transaction Documents. Corporation waives any right it
may have to assert the doctrine of forum non-conveniens or to
object to such venue, and consents to any court ordered relief.
Corporation waives personal service of process and agrees that a
summons and complaint commencing an action or proceeding in any
such Court shall be promptly served and shall confer personal
jurisdiction if served by registered or certified mail to
Corporation. If Corporation fails to appear or answer any
summons, complaint, process or papers so served within thirty (30)
days after the mailing or other service thereof, it shall be
deemed in default and an order of judgment may be entered against
it as demanded or prayed for in such summons, complaint, process
or papers. The choice of forum set forth herein shall not be
deemed to preclude the enforcement of the same forum, or the
taking of any action under the Transaction Documents to enforce
the same, in any appropriate jurisdiction. Nothing herein shall
affect the right of Lenders to serve process in any other manner
permitted by law or to commence legal proceedings or otherwise
proceed against the Corporation in any other jurisdiction.
SECTION 9.11 SURVIVAL OF AGREEMENT. All covenants,
agreements, representations and warranties made in this Agreement
shall survive the issuance of the Letters of Credit by Issuing
Bank and shall continue in full force and effect so long as the
Letters of Credit shall be unexpired or any sums drawn or due
hereunder or under the Reimbursement Loan Note shall be
outstanding and unpaid, regardless of any investigation made by
any Person and so long as any amount payable hereunder remains
unpaid. Whenever in this Agreement Lenders is referred to, such
reference shall be deemed to include the successors and assigns of
Lenders, and all covenants, promises and agreements by or on
behalf of the Corporation which are contained in this Agreement
shall inure to the benefit of the successors and assigns of
Lenders and such other Persons as are indemnified herein, subject
to such limitations as are set forth in SECTION 9.6 above
regarding participations. The rights and duties of the
Corporation, however, may not be assigned or transferred, except
as specifically provided in this Agreement or with the prior
written consent of the Lenders, and all obligations of the
Corporation shall continue in full force and effect
notwithstanding
<PAGE>
any assignment by the Corporation of any of their respective
rights or obligations under any of the Transaction Documents or
the Reimbursement Loan Note or any entering into, or consent by
the Corporation supplement or amendment to any of the Transaction
Documents.
SECTION 9.12 SEVERABILITY. Any provision of this Security
Agreement which is prohibited or unenforceable in any jurisdiction
shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
SECTION 9.13 HEADINGS. The various headings in this
Agreement are inserted for convenience only and shall not affect
the meaning or interpretation of this agreement or any provisions
hereof.
SECTION 9.14 COUNTERPARTS. This Agreement may be executed
in any number of counterparts, each of which when so delivered
shall be deemed an original, but all such counterparts shall
constitute but one and the same instrument. Each such agreement
shall become effective upon the execution of a counterpart hereof
or thereof by each of the parties hereto and telephonic
notification thereof has
been received by Corporation and Lenders.
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused
this Agreement to be executed and delivered by its duly authorized
officer on the date first set forth above.
CORPORATION: VANGUARD AIRLINES, INC.
By:
-----------------------------
Printed Name:
------------------
Title:
---------------------------
ATTEST:
- ------------------------------
Name: Brian Gillman
Title: Vice President, General
Counsel and Secretary
THE HAMBRECHT 1980 REVOCABLE TRUST,
WILLIAM R. HAMBRECHT AS TRUSTEE
By:
-------------------------------
Printed Name:
--------------------
Title:
--------------------------
J. F. SHEA CO., INC.
By:
-------------------------------
Printed Name:
--------------------
Title:
--------------------------
<PAGE>
EXHIBIT A
FORM OF
REIMBURSEMENT LOAN NOTE
$2,000,000 SAN FRANCISCO, CALIFORNIA
JANUARY 18, 1999
FOR VALUE RECEIVED, VANGUARD AIRLINES, INC., a Delaware
corporation (the "Corporation") hereby unconditionally promises to
pay to the order of J. F. SHEA CO., INC., a Nevada Corporation
("Shea"), or its assigns, in lawful money of the United States of
America and in immediately available funds, the sum of Two Million
Dollars ($2,000,000) or so much thereof as from time to time may
be advanced hereunder pursuant to SECTION 2.8 of that certain
Reimbursement Agreement, dated as of January 18, 1999, between the
Corporation and Lenders, as amended from time to time (the
"Agreement"), in connection with drawings under the certain Letter
of Credit No. NZS316225 dated January 15, 1999, issued by Wells
Fargo Bank, N.A. in favor of MICHIGAN NATIONAL BANK (including any
amendment thereof or substitute therefor or replacement thereof)
(collectively, the "Letters of Credit") in accordance with the
terms and conditions set forth in the Agreement. Borrower shall
also pay interest (calculated on the basis of a 365 or 366 day
year and actual number of days elapsed) on such sum or the portion
thereof from time to time outstanding hereunder, monthly, at the
rates and in accordance with the terms and conditions set forth in
the Agreement.
This Reimbursement Loan Note is issued under and is subject
to the terms and conditions of the Agreement. All definitions,
terms, conditions, rights and provisions set forth in the
Agreement, are hereby incorporated herein in their entirety.
Annexed hereto and made a part hereof is a schedule (the
"Loan and Repayment Schedule") on which shall be shown all
advances by Shea pursuant to the Agreement (each such advance, a
"Reimbursement Loan") and all repayments of principal made to Shea
hereunder. The Corporation hereby appoints Shea as its agent to
endorse the date and the amount of each such Reimbursement Loan or
principal repayment made hereunder. Such endorsement shall
constitute prima facie evidence of the accuracy of the information
endorsed; provided, however, that failure to make any such
endorsement (or any errors in notation) shall not affect in any
manner the obligations of Corporation with respect to the amounts
payment hereunder.
This Reimbursement Loan Note is subject to acceleration upon
the occurrence of certain events as provided in the Agreement.
The Corporation shall have the right to prepay this Reimbursement
Loan Note in whole or in part, without penalty or premium, at any
time.
All payments or prepayments of principal of and interest on
this Reimbursement Loan Note shall be payable to the Account of
Shea as specified in SECTION 2.6 of the Agreement.
All payments and prepayments hereon shall be applied FIRST,
to costs and expenses and other amounts due and owing to Shea
under the Agreement; SECOND, to accrued interest then payable; and
THIRD to principal of the Reimbursement Loans in chronological
order of funding of the Reimbursement Loans and within each
Reimbursement Loan in inverse chronological order of principal
amortization.
The full amount of this Reimbursement Loan Note is secured by
the Collateral identified and described as security therefor in
that certain Security Agreement executed and delivered by
Corporation as of January 18, 1999. Corporation shall not,
directly or indirectly, suffer or permit to be created or to
remain, and shall promptly discharge, any lien on or in the
Collateral, or in any portion thereof, except as permitted
pursuant to the Security Agreement. In addition, Corporation
shall not suffer any other matter whereby an interest of Shea
under the Security Agreement in the Collateral or in any lien
pursuant to the Security Agreement or any part of the foregoing
might by impaired, except as permitted pursuant to the Security
Agreement.
<PAGE>
The Corporation hereby waives presentment, demand, protest,
notice of protest or other notice of dishonor of any kind or of
non-payment of this Reimbursement Loan Note, and promises to pay
all reasonable costs of collection when incurred, including,
without limitation, reasonable attorneys' fees, costs and other
expenses.
The right to plead any and all statutes of limitations as a
defense to any demands hereunder is hereby waived to the full
extent permitted by law.
No extension of the time for the payment of this
Reimbursement Loan Note or any installment hereof made by
agreement with any Person now or hereafter liable for the payment
of this Reimbursement Loan Note shall operate to release or
discharge the original liability under this Reimbursement Loan
Note, either in whole or in part, of the Corporation.
This Reimbursement Loan Note is to be construed according to
the laws of the State of California, without regard to principles
of conflict of laws.
The provisions of this Note shall inure to the benefit of
and be binding on any successor to Shea and shall extend to any
holder hereof.
CORPORATION: VANGUARD AIRLINES, INC.
By:
----------------------
Printed Name:
--------------------
Title:
--------------------------
<PAGE>
REIMBURSEMENT LOAN NOTE
$2,000,000 San Francisco, California
January 18, 1999
FOR VALUE RECEIVED, VANGUARD AIRLINES, INC., a Delaware
corporation (the "Corporation") hereby unconditionally promises to
pay to the order of J. F. SHEA CO., INC., a Nevada Corporation
("SHEA"), or its assigns, in lawful money of the United States of
America and in immediately available funds, the sum of Two Million
Dollars ($2,000,000) or so much thereof as from time to time may
be advanced hereunder pursuant to SECTION 2.8 of that certain
<PAGE>
Reimbursement Agreement, dated as of January 18, 1999 between the
Corporation and Shea, as amended from time to time (the
"Agreement"), in connection with drawings under the certain Letter
of Credit No. NZS316225 dated January 15, 1999, issued by Wells
Fargo Bank, N.A. in favor of Michigan National Bank (including any
amendment thereof or substitute therefor or replacement (the
"Letter of Credit") in accordance with the terms and conditions
set forth in the Agreement. Borrower shall also pay interest
(calculated on the basis of a 365 or 366 day year and actual
number of days elapsed) on such sum or the portion thereof from
time to time outstanding hereunder, monthly, at the rates and in
accordance with the terms and conditions set forth in the
Agreement.
This Reimbursement Loan Note is issued under and is subject
to the terms and conditions of the Agreement. All definitions,
terms, conditions, rights and provisions set forth in the
Agreement, are hereby incorporated herein in their entirety.
Annexed hereto and made a part hereof is a schedule (the
"Loan and Repayment Schedule") on which shall be shown all
advances by Shea pursuant to the Agreement (each such advance, a
"Reimbursement Loan") and all repayments of principal made to Shea
hereunder. The Corporation hereby appoints Shea as its agent to
endorse the date and the amount of each such Reimbursement Loan or
principal repayment made hereunder. Such endorsement shall
constitute prima facie evidence of the accuracy of the information
endorsed; provided, however, that failure to make any such
endorsement (or any errors in notation) shall not affect in any
manner the obligations of Corporation with respect to the amounts
payment hereunder.
This Reimbursement Loan Note is subject to acceleration upon
the occurrence of certain events as provided in the Agreement.
The Corporation shall have the right to prepay this Reimbursement
Loan Note in whole or in part, without penalty or premium, at any
time.
All payments or prepayments of principal of and interest on
this Reimbursement Loan Note shall be payable to the Account of
Shea as specified in SECTION 2.6 of the Agreement.
All payments and prepayments hereon shall be applied FIRST,
to costs and expenses and other amounts due and owing to Shea
under the Agreement; SECOND, to accrued interest then payable; and
THIRD to principal of the Reimbursement Loans in chronological
order of funding of the Reimbursement Loans and within each
Reimbursement Loan in inverse chronological order of principal
amortization.
The full amount of this Reimbursement Loan Note is secured
by the Collateral identified and described as security therefor in
<PAGE>
that certain Security Agreement executed and delivered by
Corporation as of January 18, 1999. Corporation shall not,
directly or indirectly, suffer or permit to be created or to
remain, and shall promptly discharge, any lien on or in the
Collateral, or in any portion thereof, except as permitted
pursuant to the Security Agreement. In addition, Corporation
shall not suffer any other matter whereby an interest of Shea
under the Security Agreement in the Collateral or in any lien
pursuant to the Security Agreement or any part of the foregoing
might by impaired, except as permitted pursuant to the Security
Agreement.
The Corporation hereby waives presentment, demand, protest,
notice of protest or other notice of dishonor of any kind or of
non-payment of this Reimbursement Loan Note, and promises to pay
all reasonable costs of collection when incurred, including,
without limitation, reasonable attorneys' fees, costs and other
expenses.
The right to plead any and all statutes of limitations as a
defense to any demands hereunder is hereby waived to the full
extent permitted by law.
No extension of the time for the payment of this
Reimbursement Loan Note or any installment hereof made by
agreement with any Person now or hereafter liable for the payment
of this Reimbursement Loan Note shall operate to release or
discharge the original liability under this Reimbursement Loan
Note, either in whole or in part, of the Corporation.
This Reimbursement Loan Note is to be construed according to
the laws of the State of California, without regard to principles
of conflict of laws.
The provisions of this Note shall inure to the benefit of and
be binding on any successor to Shea and shall extend to any holder
hereof.
CORPORATION: VANGUARD AIRLINES, INC.
By:
-------------------------------
Printed Name:
--------------------
Title:
--------------------------
<PAGE>
EXHIBIT B
FORM OF
REIMBURSEMENT LOAN NOTE
$2,000,000 SAN FRANCISCO, CALIFORNIA
JANUARY 18, 1999
FOR VALUE RECEIVED, VANGUARD AIRLINES, INC., a Delaware
corporation (the "Corporation") hereby unconditionally promises to
pay to the order of THE HAMBRECHT 1980 REVOCABLE TRUST (THE
"HAMBRECHT TRUST"), or its assigns, in lawful money of the United
States of America and in immediately available funds, the sum of
Two Million Dollars ($2,000,000) or so much thereof as from time
to time may be advanced hereunder pursuant to SECTION 2.8 of that
certain Reimbursement Agreement, dated as of January 18, 1999, by
and among the Corporation and Hambrecht Trust, as amended from
time to time (the "Agreement"), in connection with drawings under
the certain Standby Letter of Credit No. V01-519 dated January
19, 1999, issued by the Union Bank of California, N.A. in favor of
MICHIGAN NATIONAL BANK (including any amendment thereof or
substitute therefor or replacement thereof) (collectively, the
"Letters of Credit") in accordance with the terms and conditions
set forth in the Agreement. Borrower shall also pay interest
(calculated on the basis of a 365 or 366 day year and actual
number of days elapsed) on such sum or the portion thereof from
time to time outstanding hereunder, monthly, at the rates and in
accordance with the terms and conditions set forth in the
Agreement.
This Reimbursement Loan Note is issued under and is subject
to the terms and conditions of the Agreement. All definitions,
terms, conditions, rights and provisions set forth in the
Agreement, are hereby incorporated herein in their
entirety.Annexed hereto and made a part hereof is a schedule (the
"Loan and Repayment Schedule") on which shall be shown all
advances by Hambrecht Trust pursuant to the Agreement (each such
advance, a "Reimbursement Loan") and all repayments of principal
made to Hambrecht Trust hereunder. The Corporation hereby
appoints Hambrecht Trust as its agent to endorse the date and the
amount of each such Reimbursement Loan or principal repayment made
hereunder. Such endorsement shall constitute prima facie evidence
of the accuracy of the information endorsed; provided, however,
that failure to make any such endorsement (or any errors in
notation) shall not affect in any manner the obligations of
Corporation with respect to the amounts payment hereunder.
<PAGE>
This Reimbursement Loan Note is subject to acceleration upon
the occurrence of certain events as provided in the Agreement.
The Corporation shall have the right to prepay this Reimbursement
Loan Note in whole or in part, without penalty or premium, at any
time.
All payments or prepayments of principal of and interest on
this Reimbursement Loan Note shall be payable to the Account of
Hambrecht Trust as specified in SECTION 2.6 of the Agreement.
All payments and prepayments hereon shall be applied FIRST,
to costs and expenses and other amounts due and owing to Hambrecht
Trust under the Agreement; SECOND, to accrued interest then
payable; and THIRD to principal of the Reimbursement Loans in
chronological order of funding of the Reimbursement Loans and
within each Reimbursement Loan in inverse chronological order of
principal amortization.
The full amount of this Reimbursement Loan Note is secured by
the Collateral identified and described as security therefor in
that certain Security Agreement executed and delivered by
Corporation as of January 18, 1999. Corporation shall not,
directly or indirectly, suffer or permit to be created or to
remain, and shall promptly discharge, any lien on or in the
Collateral, or in any portion thereof, except as permitted
pursuant to the Security Agreement. In addition, Corporation
shall not suffer any other matter whereby an interest of Hambrecht
Trust under the Security Agreement in the collateral or in any
lien pursuant to the Security Agreement or any part of the
foregoing might by impaired, except as permitted pursuant to such
Security Agreement.
The Corporation hereby waives presentment, demand, protest,
notice of protest or other notice of dishonor of any kind or of
non-payment of this Reimbursement Loan Note, and promises to pay
all reasonable costs of collection when incurred, including,
without limitation, reasonable attorneys' fees, costs and other
expenses.
The right to plead any and all statutes of limitations as a
defense to any demands hereunder is hereby waived to the full
extent permitted by law.
No extension of the time for the payment of this
Reimbursement Loan Note or any installment hereof made by
agreement with any Person now or hereafter liable for the payment
of this Reimbursement Loan Note shall operate to release or
discharge the original liability under this Reimbursement Loan
Note, either in whole or in part, of the Corporation.
This Reimbursement Loan Note is to be construed according to
the laws of the State of California, without regard to principles
of conflict of laws.
<PAGE>
The provisions of this Note shall inure to the benefit of and
be binding on any successor to Lenders and shall extend to any
holder hereof.
CORPORATION: VANGUARD AIRLINES, INC.
By:
-------------------------------
Printed Name:
--------------------
Title:
---------------------------
<PAGE>
REIMBURSEMENT LOAN NOTE
$2,000,000 San Francisco, California
January 18, 1999
FOR VALUE RECEIVED, VANGUARD AIRLINES, INC., a Delaware
corporation (the "Corporation") hereby unconditionally promises to
pay to the order of THE HAMBRECHT 1980 REVOCABLE TRUST (the
"HAMBRECHT TRUST"), or their assigns, in lawful money of the
United States of America and in immediately available funds, the
sum of Two Million Dollars ($2,000,000) or so much thereof as from
time to time may be advanced hereunder pursuant to SECTION 2.8 of
that certain Reimbursement Agreement, dated as of January 18, 1999
by and among the Corporation and Hambrecht Trust, as amended from
time to time (the "Agreement"), in connection with drawings under
the certain Standby Letter of Credit No. V01-519 dated January
19, 1999, issued by the Union Bank of California, N.A. in favor of
Michigan National Bank (including any amendment thereof or
substitute therefor or replacement (the "Letter of Credit") in
accordance with the terms and conditions set forth in the
Agreement. Borrower shall also pay interest (calculated on the
basis of a 365 or 366 day year and actual number of days elapsed)
on such sum or the portion thereof from time to time outstanding
hereunder, monthly, at the rates and in accordance with the terms
and conditions set forth in the Agreement.
This Reimbursement Loan Note is issued under and is subject
to the terms and conditions of the Agreement. All definitions,
terms, conditions, rights and provisions set forth in the
Agreement, are hereby incorporated herein in their entirety.
Annexed hereto and made a part hereof is a schedule (the
"Loan and Repayment Schedule") on which shall be shown all
advances by Hambrecht Trust pursuant to the Agreement (each such
advance, a "Reimbursement Loan") and all repayments of principal
made to
<PAGE>
Hambrecht Trust hereunder. The Corporation hereby appoints
Hambrecht Trust as its agent to endorse the date and the amount of
each such Reimbursement Loan or principal repayment made
hereunder. Such endorsement shall constitute prima facie evidence
of the accuracy of the information endorsed; provided, however,
that failure to make any such endorsement (or any errors in
notation) shall not affect in any manner the obligations of
Corporation with respect to the amounts payment hereunder.
This Reimbursement Loan Note is subject to acceleration upon
the occurrence of certain events as provided in the Agreement.
The Corporation shall have the right to prepay this Reimbursement
Loan Note in whole or in part, without penalty or premium, at any
time.
All payments or prepayments of principal of and interest on
this Reimbursement Loan Note shall be payable to the Account of
Hambrecht Trust as specified in SECTION 2.6 of the Agreement.
All payments and prepayments hereon shall be applied FIRST,
to costs and expenses and other amounts due and owing to Hambrecht
Trust under the Agreement; SECOND, to accrued interest then
payable; and THIRD to principal of the Reimbursement Loans in
chronological order of funding of the Reimbursement Loans and
within each Reimbursement Loan in inverse chronological order of
principal amortization.
The full amount of this Reimbursement Loan Note is secured by
the Collateral identified and described as security therefor in
that certain Security Agreement executed and delivered by
Corporation as of January 18, 1999. Corporation shall not,
directly or indirectly, suffer or permit to be created or to
remain, and shall promptly discharge, any lien on or in the
Collateral, or in any portion thereof, except as permitted
pursuant to the Security Agreement. In addition, Corporation
shall not suffer any other matter whereby an interest of Hambrecht
Trust under the Security Agreement in the collateral or in any
lien pursuant to the Security Agreement or any part of the
foregoing might by impaired, except as permitted pursuant to such
Security Agreement.
The Corporation hereby waives presentment, demand, protest,
notice of protest or other notice of dishonor of any kind or of
non-payment of this Reimbursement Loan Note, and promises to pay
all reasonable costs of collection when incurred, including,
without limitation, reasonable attorneys' fees, costs and other
expenses.
The right to plead any and all statutes of limitations as a
defense to any demands hereunder is hereby waived to the full
extent permitted by law.
<PAGE>
No extension of the time for the payment of this
Reimbursement Loan Note or any installment hereof made by
agreement with any Person now or hereafter liable for the payment
of this Reimbursement Loan Note shall operate to release or
discharge the original liability under this Reimbursement Loan
Note, either in whole or in part, of the Corporation.
This Reimbursement Loan Note is to be construed according to
the laws of the State of California, without regard to principles
of conflict of laws.
The provisions of this Note shall inure to the benefit of and
be binding on any successor to Hambrecht Trust and shall extend to
any holder hereof.
CORPORATION: VANGUARD AIRLINES, INC.
By:
-------------------------------
Printed Name:
--------------------
Title:
--------------------------
<PAGE>
EXHIBIT C
LETTER OF CREDIT
J. F. SHEA CO., INC.
<PAGE>
EXHIBIT D
LETTER OF CREDIT
THE HAMBRECHT 1980 REVOCABLE TRUST, WILLIAM R. HAMBRECHT AS
TRUSTEE
<PAGE>
EXHIBIT E
FORM OF
CERTIFICATE RELATING TO ACCURACY OF CERTAIN CORPORATION
REPRESENTATIONS CONTAINED IN, AND THE
AUTHORIZATION TO EXECUTE, CERTAIN DOCUMENTS
We, the undersigned, DO HEREBY CERTIFY to J. F. Shea Co.,
Inc., a Nevada Corporation and The Hambrecht 1980 Revocable Trust,
William R. Hambrecht as Trustee (collectively, the "Lenders")
that:
1. We are the duly qualified and acting Vice President
- - Finance, and Secretary, respectively, of Vanguard Airlines, Inc.
(the "Corporation").
2. The statements contained in SECTIONS 3.2 and 5.1 of
the Reimbursement Agreement (the "Agreement"), dated as of January
18, 1999 by and among the Corporation and the Lenders are true and
correct as of the date hereof.
3. The names and true signatures of the officers of
the Corporation authorized to sign the Agreement, and the other
documents to be delivered by the Corporation under the Agreement,
are as follows:
NAME SIGNATURE TITLE
Robert J. Spane ------------------ Chairman of the Board,
President and CEO
William A. Garrett ------------------ Vice President -
Finance and Chief
Financial Officer
Brian S. Gillman ------------------ Vice President,
General Counsel and
Secretary
4. All conditions precedent to the issuance of the Letter
of Credit have been satisfied by the Corporation.
5. No Event of Default has occurred and is continuing, or
no event which would result directly or indirectly from the
execution and delivery of the Agreement by the Corporation or the
issuance of the Letter of Credit which constitutes an Event of
Default or which would constitute such an Event of Default but for
the requirement that notice be given or time elapse, or both.
<PAGE>
6. All capitalized terms not otherwise defined shall have
the meaning ascribed thereto in the Agreement.
IN WITNESS WHEREOF, we have hereunto set our hands and the
seal of the Corporation as of January 18, 1999.
VANGUARD AIRLINES, INC.
By:
- --------------------
Printed Name: William A. Garrett
Title: Vice President
By:---------------------------
Printed Name: Brian S. Gillman
Title: Secretary
<PAGE>
CERTIFICATE RELATING TO ACCURACY OF CERTAIN CORPORATION
REPRESENTATIONS CONTAINED IN, AND THE
AUTHORIZATION TO EXECUTE, CERTAIN DOCUMENTS
We, the undersigned, DO HEREBY CERTIFY to J. F. Shea Co.,
Inc., a Nevada Corporation and The Hambrecht 1980 Revocable Trust
(collectively, the "Lenders") that:
1. We are the duly qualified and acting Vice President -
Finance, and Secretary, respectively, of Vanguard Airlines, Inc.
(the "Corporation").
2. The statements contained in SECTIONS 3.2 and 5.1 of the
Reimbursement Agreement (the "Agreement"), dated as of January 18,
1999 by and among the Corporation and the Lenders are true and
correct as of the date hereof.
<PAGE>
3. The names and true signatures of the officers of the
Corporation authorized to sign the Agreement, and the other
documents to be delivered by the Corporation under the Agreement,
are as follows:
NAME SIGNATURE TITLE
Robert J. Spane ------------------- Chairman of the Board,
President and CEO
William A. Garrett ------------------- Vice President -
Finance and Chief
Financial Officer
Brian S. Gillman ------------------- Vice President, General
Counsel and Secretary
4. All conditions precedent to the issuance of the Letter
of Credit have been satisfied by the Corporation.
5. No Event of Default has occurred and is continuing, or
no event which would result directly or indirectly from the
execution and delivery of the Agreement by the Corporation or the
issuance of the Letter of Credit which constitutes an Event of
Default or which would constitute such an Event of Default but for
the requirement that notice be given or time elapse, or both.
6. All capitalized terms not otherwise defined shall have
the meaning ascribed thereto in the Agreement.
IN WITNESS WHEREOF, we have hereunto set our hands and the
seal of the Corporation as of January 18, 1999.
VANGUARD AIRLINES, INC.
By:
- ----------------------------
Printed Name: William A. Garrett
Title: Vice President - Finance
and Chief Financial Officer
By:
- ------------------------------
Printed Name: Brian S. Gillman
Title: Vice President, General
Counsel and Secretary
<PAGE>
REIMBURSEMENT AGREEMENT
BY AND AMONG
VANGUARD AIRLINES, INC.
AND
THE HAMBRECHT 1980 REVOCABLE TRUST
AND
J. F. SHEA CO., INC.
DATED AS OF JANUARY 18, 1999
RELATING TO THE ISSUANCE OF
LETTERS OF CREDIT
in the aggregate amount of
$4,000,000
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE 1 DEFINITIONS 1.
Section 1.1 Definitions 1.
Section 1.2 Construction 4.
ARTICLE 2 LETTER OF CREDIT 4.
Section 2.1 Amount and Terms of Letter of Credit 4.
Section 2.2 Drawings and Reinstatement 5.
Section 2.3 Fees and Other Payment 5.
Section 2.4 Reimbursement 6.
Section 2.5 Security 6.
Section 2.6 Place of Payment 6.
Section 2.7 Termination of Agreement 7.
Section 2.8 Reimbursement Loans 7.
ARTICLE 3 CONDITIONS PRECEDENT TO ISSUANCE OF LETTER
OF CREDIT 8.
Section 3.1 Documents To Be Received 8.
Section 3.2 Other Conditions Precedent 9.
ARTICLE 4 OBLIGATIONS OF THE CORPORATION 9.
Section 4.1 Obligations of the Corporation 9.
ARTICLE 5 REPRESENTATIONS AND WARRANTIES 11.
Section 5.1 Representations and Warranties of the
Corporation 11.
ARTICLE 6 COVENANTS OF THE CORPORATION 12.
Section 6.1 Affirmative Covenants 12.
Section 6.2 Negative Covenants 14.
ARTICLE 7 EVENTS OF DEFAULT 14.
Section 7.1 Events of Default 14.
ARTICLE 8 RIGHTS AND REMEDIES 15.
Section 8.1 Rights and Remedies 15.
ARTICLE 9 MISCELLANEOUS 16.
Section 9.1 Modification of Agreement 16.
Section 9.2 Waiver of Rights by Lenders; Remedies 16.
Section 9.3 Notices 16.
Section 9.4 Indemnification 17.
Section 9.5 Liability of Lenders 17.
Section 9.6 Participations 18.
Section 9.7 Satisfaction Requirement 18.
Section 9.8 Governing Law 18.
Section 9.9 Waiver of Jury Trial 18.
Section 9.10 Jurisdiction: Service of Process 19.
Section 9.11 Survival of Agreement 19.
Section 9.12 Severability 19.
Section 9.13 Headings . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19.
Section 9.14 Counterparts 19.
<PAGE>
EXHIBITS
EXHIBIT A Form of Reimbursement Loan Note with J. F.
Shea Co., Inc.
EXHIBIT B Form of Reimbursement Loan Note with The
Hambrecht 1980 Revocable Trust
EXHIBIT C Form of Letter of Credit, J. F. Shea Co., Inc.
EXHIBIT D Form of Letter of Credit, The Hambrecht 1980
Revocable Trust, William R. Hambrecht as Trustee
EXHIBIT E Form of Certificate Relating to Accuracy of
Certain Corporation Representations Contained
in, and the Authorization to Execute, Certain
Documents
EXHIBIT E Form of Warrant
EXHIBIT F Merchant Agreement between Michigan National Bank and
Vanguard Airlines, Inc.
<PAGE>
SECURITY AGREEMENT
This SECURITY AGREEMENT dated as of January 18, 1999, is made
by and between VANGUARD AIRLINES, INC., a Delaware Corporation
having its principal place of business at 533 Mexico City Avenue,
Kansas City, Missouri, 64153 ("Grantor"), in favor of J. F. SHEA
CO., INC., a Nevada Corporation ("Shea") and THE HAMBRECHT 1980
REVOCABLE TRUST (the "Hambrecht Trust") (individually, a "Lender"
and, collectively, the "Lenders").
RECITALS
A. Corporation has requested that the Lenders arrange for
the issuance of letters of credit to be issued in favor of
Michigan National Bank for the account of the Corporation in the
aggregate amount of Four Million Dollars ($4,000,000) (the "Letter
of Credit.")
B. Substantially concurrently herewith Grantor and Lenders
have entered into that certain Reimbursement Agreement dated as of
January 18, 1999 (as the same may from time to time be amended,
modified, supplemented or restated, the "Reimbursement Agreement")
whereby Grantor has agreed to reimburse Lenders in full for any an
all drawings made under the Letter of Credit.
C. Lenders are willing to arrange for the issuance of the
Letters of Credit, but only upon the condition, among others, that
Grantor shall have executed and delivered to Lenders this Security
Agreement in order to secure Grantor's obligations to Lenders
under and in connection with the Transaction Documents (as defined
herein).
AGREEMENT
NOW, THEREFORE, in order to induce Lenders to arrange the
Letters of Credit, enter into the Reimbursement Agreement and for
other good and valuable consideration, the receipt and adequacy of
which are hereby acknowledged, and intending to be legally bound,
Grantor hereby represents, warrants, covenants and agrees as
follows:
1.1 DEFINED TERMS. Unless otherwise defined herein the
following terms shall have the following meanings (such meanings
being equally applicable to both the singular and plural forms of
the terms defined):
"ACCOUNTS" means (i) any and all accounts or other
distributions acquired by, owned by, owed to or payable to Grantor
in any manner, whether now existing or hereafter acquired, in
connection with the MNB Merchant Agreement and (ii) all rights to
payments (including, without limitation actual collections held by
MNB Bank, in connection with any Credit Card transactions), from
Cardholders or card issuers, whether now existing or hereafter
acquired, IN THE AMOUNT OF AND AS A RESULT of such CHANGES, and,
which with respect to each case (i) and (ii) above, shall <PAGE>
include, without limitation, accounts receivable, book debts and
other forms of obligations now owned or hereafter received or
acquired by or belonging or owing to Grantor (including, without
limitation, under any trade name, style or division thereof)
WHETHER ARISING OUT OF GOODS SOLD or services rendered by Grantor
or from any other transaction, whether or not the same involves
the sale of goods or services by Grantor (including, without
limitation, any such obligation which may be characterized as an
account or contract right under the UCC) and all of GRANTOR'S
RIGHTS IN, TO AND UNDER ALL PURCHASE orders or receipts now owned
or hereafter acquired by it for goods or services, and all of
Grantor's rights to any goods represented by any of the foregoing
(including, without limitation, unpaid seller's rights of
rescission, replevin, reclamation and stoppage in transit and
rights to returned, reclaimed or repossessed goods), and all
monies due or to become due to Grantor under all purchase orders
and contracts or other agreements for the sale of goods or the
performance of services or both by Grantor (whether or not yet
earned by performance on the part of Grantor or in connection with
any other transaction), now in existence or hereafter occurring,
including, without limitation, the right to receive the proceeds
of said purchase orders and contracts, and all Collateral and
guarantees of any kind given by any Person with respect to any of
the foregoing;
"ACCOUNT DEBTOR" means any "account debtor," as such term is
defined in Section 9-105(1)(a) of the UCC, including, without
limitation, all Cardholders.
"ACT OF BANKRUPTCY" shall have the meaning assigned to such
term in Section 1.1 of the Reimbursement Agreement.
"CREDIT CARD" shall have the meaning assigned to such term
in Section 1 of the MNB Merchant Agreement.
"CARDHOLDERS" shall have the meaning assigned to such term in
Section A of the MNB Merchant Agreement, whichever is applicable.
"CHATTEL PAPER" means any "chattel paper," as such term is
defined in Section 9-105(1)(b) of the UCC, now owned or hereafter
acquired by Grantor.
"COLLATERAL" shall have the meaning assigned to such term in
SECTION 2.1 of this Agreement.
"CONTRACTS" shall mean all contracts, undertakings,
franchise agreements or other agreements in or under which Grantor
may now or hereafter have any right, title or interest with
respect to an Account, any agreement relating to the terms of
payment or the terms of performance with respect to an Account,
including, without limitation, the MNB Merchant Agreement.
"DEPOSITS" shall mean cash, Instruments, Documents or Chattel
Paper or any other securities, including, without limitation, the
Letters of Credit, now existing or hereafter received, acquired or
arising, deposited by or on behalf of Grantor with MNB Bank, all
additions thereto from time to time and all monies, securities
investments and instruments purchase therewith and <PAGE>
all interest, profits and/or dividends accruing thereon and
proceeds thereof, all of the foregoing held by MNB Bank in an
account or otherwise, whether or not within MNB Bank sole dominion
or control, relating to the payment and/or performance by Grantor
of its obligations to Bank under or in connection with the MNB
Merchant Agreement.
"DOCUMENTS" shall mean any "documents," as such term is
defined in Section 9-105(1)(f) of the UCC, now owned or hereafter
acquired by Grantor.
"EVENT OF DEFAULT" means any of the following:
(A) Failure by Grantor to pay, distribute or otherwise
perform the Secured Obligations;
(B) Grantor's failure in any material respect to
perform or observe any term, covenant or agreement contained
herein or in any of the Transaction Documents;
(C) Any warranty, representation or statement made or
furnished to Lenders by or on behalf of Grantor under this
Security Agreement or any Transaction Document is or proves false
or misleading in any material respect either now or at the time
made;
(D) An Act of Bankruptcy; or
(E) The occurrence of (or with the giving of notice, lapse
of time, determination of materiality or the fulfillment of any
other applicable condition or any combination of the foregoing,
might constitute) a default under, or the termination of, the MNB
Merchant Agreement.
"GROSS EXPOSURE" shall mean the Gross Exposure, as such term
is defined in Section C of Amendment to the MNB Merchant Agreement
by and between Grantor and MNB, dated as of December 31, 1996.
"INSTRUMENTS" means any "instrument," as such term is defined
in Section 9-105(1)(i) of the UCC, now owned or hereafter acquired
by Grantor, including, without limitation, all notes, certificated
securities, and other evidences of indebtedness, other than
instruments that constitute, or are a part of a group of writings
that constitute, Chattel Paper.
"LIEN" means any mortgage, deed of trust, pledge,
hypothecation, assignment for security, security interest,
encumbrance, levy, lien or charge of any kind, whether voluntarily
incurred or arising by operation of law or otherwise, against any
property of Grantor, including any agreement to grant any of the
foregoing, any conditional sale or other title retention
agreement, any lease in the nature of a security interest, and the
filing of or agreement to file or deliver any financing statement
(other than a precautionary financing statement with respect to a
lease that is not in the nature of a security interest) under the
UCC or comparable law of any jurisdiction.
<PAGE>
"MNB BANK" means Michigan National Bank, a national banking
association, with its principal office located at 77 Monroe
Center, Grand Rapids, MI 49503.
"MNB MERCHANT AGREEMENT" means an Agreement between Michigan
National Bank and Vanguard Airlines, Inc., that may be entered
into with respect to credit card processing services, as the same
may from time to time be amended, modified or restated.
"PERMITTED LIEN" means (a) any lien in favor of Hambrecht &
Quist California or H & Q TSP II Investors granted pursuant to the
Security Agreement, dated May 7, 1997, (b) any lien in favor of
Lenders granted hereunder or arising under any of the Transaction
Agreements to secure the Secured Obligations and (c) any interest
in the Pledged Collateral securing a credit to Grantor which is
listed on SCHEDULE III attached hereto and incorporated herein by
this reference.
"PERSON" means any individual, sole proprietorship,
partnership, limited liability company, limited liability
partnership, joint venture, trust, unincorporated organization,
association, corporation, institution, public benefit corporation,
firm, joint stock corporation, estate, other entity or
governmental agency.
"PROCEEDS" means "proceeds," as such term is defined in
Section 9-306(1) of the UCC, and, in any event, shall include,
without limitation, (a) any and all Accounts, Chattel Paper,
Instruments, cash or other proceeds payable to Grantor from time
to time in respect of the Collateral, (b) any and all proceeds of
any insurance, indemnity, warranty or guaranty payable to Grantor
from time to time with respect to any of the Collateral, (c) any
and all payments (in any form whatsoever) made or due and payable
to Grantor from time to time in connection with any requisition,
confiscation, condemnation, seizure or forfeiture of all or any
part of the Collateral above by any governmental body, authority,
bureau or agency (or any person acting under color of governmental
authority), and (d) any and all other amounts from time to time
paid or payable under or in connection with any of the Collateral.
"REIMBURSEMENT LOANS" shall have the meaning assigned to such
term in Section 1.1 of the Reimbursement Agreement.
"REIMBURSEMENT LOAN NOTE" shall have the meaning assigned to
such term in Section 1.1 of the Reimbursement Agreement.
"SECURED OBLIGATIONS" means all loans, advances, debts,
liabilities and obligations, for monetary amounts owed by Grantor
to Lenders whether due or to become due, matured or unmatured,
liquidated or unliquidated, contingent or non-contingent, and all
covenants and duties regarding such amounts, of any kind or
nature, present or future, whether or not evidenced by any note,
agreement or other instrument, arising under the Transaction
Documents. This term includes, without limitation, all principal,
interest (including interest that accrues after the commencement
of a case against Grantor or any affiliate of Grantor under the
Bankruptcy Code), fees, including, without limitation, any and all
closing fees, prepayment fees, commitment fees, advisory fees,
agent fees and attorneys' fees and any and all other fees,
expenses, costs or other sums chargeable to Guarantor under any of
the Transaction Documents.
<PAGE>
"SECURITY AGREEMENT" means this Security Agreement and all
Schedules hereto, as the same may from time to time be amended,
modified or supplemented.
"TRANSACTION DOCUMENTS" means, collectively, this Security
Agreement, the Reimbursement Agreement, the Reimbursement Loan
Note, and any other agreement entered into between Grantor and
Lenders, and any certificate or instrument executed by Lenders, in
connection with said agreements and note, as the same may from
time to time be amended, modified, supplemented or restated.
"UCC" means the Uniform Commercial Code as the same may,
from time to time, be in effect in the State of California;
PROVIDED, HOWEVER, in the event that, by reason of mandatory
provisions of law, any or all of the attachment, perfection or
priority of Lenders' security interest in any collateral is
governed by the Uniform Commercial Code as in effect in a
jurisdiction other than the State of California, the term "UCC"
shall mean the Uniform Commercial Code as in effect in such other
jurisdiction for purposes of the provisions hereof relating to
such attachment, perfection of priority and for purposes of
definitions related to such provisions.
"VANGUARD" means Vanguard Airlines, Inc.
2.1 GRANT OF SECURITY INTEREST. As collateral security for
the prompt and complete payment and performance when due (whether
at stated maturity, by acceleration or otherwise) of all the
Secured Obligations and in order to induce Lenders to arrange the
Letters of Credit, to enter into the Transaction Documents and to
make the Reimbursement Loans, each in accordance with the terms
and conditions thereof, Grantor hereby assigns, conveys,
mortgages, pledges, hypothecates and transfers to Lenders, and
hereby grants to Lenders, a security interest in and to all of
Grantor's right, title and interest in, to and under the following
(all of which being hereinafter collectively called the
"COLLATERAL"):
(A) All Accounts;
(B) All Contracts;
(C) The Deposit; and
(D) To the extent not otherwise included, all Proceeds
of each of the foregoing and all accessions to, substitutions and
replacements for, and rents, profits and products of each of the
foregoing.
3.1 RIGHTS OF LENDERS; COLLECTION OF ACCOUNTS.
(A) Notwithstanding anything contained in this Security
Agreement to the contrary, Grantor expressly agrees that it shall
remain liable under each of its Contracts to observe
<PAGE>
and perform all the conditions and obligations to be observed and
performed by it thereunder and that it shall perform all of its
duties and obligations thereunder, all in accordance with and
pursuant to the terms and provisions of each such Contract.
Lenders shall not have any obligation or liability under any
Contract by reason of or arising out of this Security Agreement or
the granting to Lenders of a Lien therein or the receipt by
Lenders of any payment relating to any Contract pursuant hereto,
nor shall Lenders be required or obligated in any manner to
perform or fulfill any of the obligations of Grantor under or
pursuant to any Contract, or to make any payment, or to make any
inquiry as to the nature or the sufficiency of any payment
received by it or the sufficiency of any performance by any Person
under any Contract, or to present or file any claim, or to take
any action to collect or enforce any performance or the payment of
any amounts which may have been assigned to it or to which it may
be entitled at any time or times.
(B) Lenders authorizes Grantor to collect its Accounts,
provided that such collection is performed in a prudent and
businesslike manner, and Lenders may, upon the occurrence and
during the continuation of any Event of Default and without
notice, limit or terminate said authority at any time. If
required by Lenders at any time during the continuation of any
Event of Default, any Proceeds, when first collected by Grantor,
received in payment of any such Account or on account of any of
its Contracts shall, subject to the rights of MNB under the MNB
Merchant Agreement, be promptly deposited by Grantor in precisely
the form received (with all necessary endorsements) in a special
bank account maintained by Lenders subject to withdrawal by
Lenders only, as hereinafter provided, and until so turned over
shall be deemed to be held in trust by Grantor for and as Lenders'
property and shall not be commingled with Grantor's other funds or
properties. Such Proceeds, when deposited, shall continue to be
Collateral for all of the Secured Obligations and shall not
constitute payment thereof until applied as hereinafter provided.
Lenders may, in its sole discretion, apply all or a part of the
funds on deposit in said special account to the principal of or
interest on or both in respect of any of the Secured Obligations
in accordance with the provisions of SECTION 7.1(D) hereof, and
any part of such funds which Lenders elects not so to apply and
deem not required as Collateral for the Secured Obligations shall
be paid over from time to time by Lenders to Grantor. If an Event
of Default has occurred and is continuing, at the request of
Lenders, subject to the rights of MNB Bank under the MNB Merchant
Agreement, Grantor shall deliver all original and other documents
evidencing and relating to, the performance of service which
created such Accounts, including, without limitation, all original
orders, invoices, and shipping receipts.
(C) Lenders may at any time, upon the occurrence and
during the continuation of any Event of Default after first
notifying Grantor of its intention to do so, notify Account
Debtors of Grantor, parties to the Contracts of Grantor and
obligors in respect of Instruments and Chattel Paper of Grantor
constituting or relating to the Collateral, that the Accounts and
the right, title and interest of Grantor in and under such
Contracts, Instruments and Chattel Paper have been assigned to
Lenders and that payments shall be made directly to Lenders. Upon
the request of Lenders, Grantor shall so notify such Account
Debtors, parties to such Contracts, obligors in respect of such
Instruments and such Chattel Paper. Upon the occurrence and
<PAGE>
during the continuation of an Event of Default, Lenders may, in
its name, or in the name of others communicate with such Account
Debtors, parties to such Contracts, such Instruments and such
Chattel Paper to verify with such parties, to Lenders'
satisfaction, the existence, amount and terms of any such
Accounts, Contracts, Instruments or Chattel Paper.
(D) Notwithstanding anything to the contrary set forth
in paragraphs (a) or (b) above or elsewhere herein, Grantor shall,
by execution and delivery of the Notification of Assignment
attached hereto as EXHIBIT A, immediately notify MNB of the
security interest granted hereby and (b) authorize and direct MNB,
at such time as Lenders shall notify MNB as to the occurrence of
an Event of Default hereunder, to pay and or distribute to Lenders
all Collateral owned by, owed to, payable to or otherwise
distributable to Grantor pursuant to the MNB Merchant Agreement.
In the event that the Company's credit card processing function is
transferred to MNB Bank, Grantor shall cause to be executed a
Notification of Assignment in substantially the form attached
hereto as EXHIBIT A from MNB Bank.
4.1 REPRESENTATIONS AND WARRANTIES. Grantor hereby
represents and warrants to Lenders that:
(a) Except for the security interest granted to Lenders
under this Security Agreement and other Permitted Liens, Grantor
is the sole legal and equitable owner of each item of the
Collateral in which it purports to grant a security interest
hereunder, having good, marketable and insurable title thereto
free and clear of any and all Liens other than Permitted Liens.
(b) This Security Agreement creates a legal and valid
security interest on and in all of the Collateral in which Grantor
now has rights, and all filings and other actions necessary or
desirable to perfect and protect such security interest have been
duly taken. Accordingly, Lenders has a fully perfected first
priority security interest in all of the Collateral in which
Grantor now has rights, subject only to the Permitted Liens. This
Security Agreement will create a legal and valid and fully
perfected first priority security interest in the Collateral in
which Grantor later acquires rights, when Grantor acquires those
rights, subject only to the Permitted Liens.
(c) Subject to the Permitted Liens, Grantor's chief
executive office, principal place of business, and the place where
Grantor maintains its records concerning the Collateral are
presently located at the addresses set forth on SCHEDULE I
attached hereto and incorporated herein by this reference.
Grantor shall not, during the continuance of this Security
Agreement, change such chief executive office or principal place
of business or remove or cause to be removed, except in the
ordinary course of Grantor's business, the records relating to the
Collateral from those premises without prior written notice to
Lenders.
(d) All Collateral of Grantor with respect to which a
security interest may be perfected by the secured party's taking
possession thereof, including, without limitation, all Chattel
Paper and Instruments, except for any such Collateral which is in
the possession of Bank, <PAGE>
are set forth on SCHEDULE II attached hereto and incorporated
herein by this reference. All action necessary or desirable to
protect and perfect such security interest in each item set forth
on SCHEDULE II, including, without limitation, the delivery of
all originals thereof to Lenders, has been duly taken, except with
respect to those Chattel Paper, Instruments or other documents
constituting or relating to the Collateral evidencing obligations
of non-material amounts payable to Grantor. The security interest
of Lenders in the Collateral listed on SCHEDULE II is prior in
right and interest to all other Liens and is enforceable as such
against creditors of and purchasers from Grantor.
(e) The amount represented by Grantor to Lenders from
time to time as owing by each Account Debtor or by all Account
Debtors in respect of the Accounts of Grantor shall at such time
be the correct amount actually and unconditionally owing by such
Account Debtors thereunder.
(f) The amount represented by Grantor to Lenders from
time to time as the Deposits and as the Gross Exposure shall at
such time be the correct total of such Amounts.
5.1 COVENANTS. Grantor covenants and agrees with Lenders
that from and after the date of this Security Agreement and until
the Secured Obligations have been performed and paid in full and
the letter of credit has expired:
5.2 FURTHER ASSURANCES; PLEDGE OF INSTRUMENTS. At any time
and from time to time, upon the written request of Lenders, and at
the sole expense of Grantor, Grantor shall promptly and duly
execute and deliver any and all such further instruments and
documents and take such further action as Lenders may reasonably
deem desirable to obtain the full benefits of this Security
Agreement and of the rights and powers herein granted, including,
without limitation, (a) using its best efforts to secure all
consents and approvals necessary or appropriate for the assignment
to Lenders of any Contract held by Grantor or in which Grantor has
any rights not heretofore assigned, (b) filing any financing or
continuation statements under the UCC with respect to the security
interests granted hereby, and (c) transferring Collateral to
Lenders' possession (if a security interest in such Collateral can
be perfected by possession). Grantor also hereby authorizes
Lenders to file any such financing or continuation statement
without the signature of Grantor. If any amount payable under or
in connection with any of the Collateral is or shall become
evidenced by any Instrument, such Instrument, other than checks
and notes received in the ordinary course of business, shall be
duly endorsed in a manner satisfactory to Lenders and, subject to
the rights of MNB under the MNB Merchant Agreement, be delivered
to Lenders immediately upon Grantor's receipt thereof.
5.3 MAINTENANCE OF RECORDS. Grantor shall keep and maintain
at its own cost and expense satisfactory and complete records of
the Collateral, including, without limitation, a record of all
payments received and all credits granted with respect to the
Collateral and all other dealings with the Collateral. Grantor
shall mark its books and records pertaining to the Collateral to
<PAGE>
evidence this Security Agreement and the security interests
granted hereby. All Chattel Paper shall be marked with the
following legend: "THIS WRITING AND THE OBLIGATIONS EVIDENCED OR
SECURED HEREBY ARE SUBJECT TO THE SECURITY INTEREST OF HAMBRECHT &
QUIST CALIFORNIA."
5.4 INDEMNIFICATION. In any suit, proceeding or action
brought by or against Lenders relating to any Account or Contract,
or any Chattel Paper, Instrument or Document constituting or
relating to the Collateral, for any sum owing thereunder, or to
enforce any provision of any Account or Contract, or any Chattel
Paper, Instrument or Document constituting or relating to the
Collateral, Grantor shall save, indemnify and keep Lenders
harmless from and against all expense, loss or damage suffered by
reason of any defense, setoff, counterclaim, recoupment or
reduction of liability whatsoever of the obligor thereunder
arising out of a breach by Grantor of any obligation thereunder or
arising out of any other agreement, indebtedness or liability at
any time owing to, or in favor of, such obligor or its successors
from Grantor, and all such obligations of Grantor shall be and
remain enforceable against and only against Grantor and shall not
be enforceable against Lenders.
5.5 COMPLIANCE WITH TERMS OF ACCOUNTS, ETC. In all material
respects, Grantor shall perform and comply with all obligations in
respect of the Accounts and Contracts and in respect to any
Chattel Paper, Documents and Instruments constituting or relating
to the Collateral.
5.6 LIMITATION ON LIENS ON COLLATERAL. Grantor shall not
create, permit or suffer to exist, and shall defend the Collateral
against and take such other action as is necessary to remove, any
Lien on the Collateral, except (a) Permitted Liens and (b) the
Lien granted to Lenders under this Security Agreement. Grantor
shall further defend the right, title and interest of Lenders in
and to any of Grantor's rights under the Contracts and Accounts or
in the Deposit or under Chattel Paper, Documents, and Instruments
constituting or relating to the Collateral, and in and to the
Proceeds thereof against the claims and demands of all Persons
whomsoever.
5.7 LIMITATIONS ON MODIFICATIONS OF ACCOUNTS, ETC. Upon the
occurrence and during the continuation of any Event of Default,
Grantor shall not, without Lenders' prior written consent, (a)
grant any extension of the time of payment of any of the Accounts
or amounts due under any Contract (including, without limitation,
amounts due from the Deposit) or under any Chattel Paper,
Instruments or Document constituting or relating to the
Collateral, (b) compromise, compound or settle the same for less
than the full amount thereof, (c) release, wholly or partly, any
Person liable for the payment thereof, or (d) allow any credit or
discount whatsoever thereon other than trade discounts granted in
the ordinary course of business of Grantor.
5.8 TAXES, ASSESSMENTS, ETC. Grantor shall pay promptly when
due all property and other taxes, assessments and government
charges or levies imposed upon, and all claims (including claims
for labor, materials and supplies) against, the Collateral except
to the extent the validity thereof is being contested in good
faith and adequate reserves are being maintained in connection
therewith.
<PAGE>
5.9 LIMITATIONS ON DISPOSITION. Grantor shall keep the
records regarding the Collateral and any Collateral in possession
of Grantor separate and identifiable from other property located
on the same premises as the Collateral and Grantor shall not sell,
lease, transfer or otherwise dispose of any of the Collateral, or
attempt or contract to do so.
5.10 FURTHER IDENTIFICATION OF COLLATERAL. Grantor shall, if
so requested by Lenders, furnish to Lenders, as often as Lenders
shall reasonably request, statements and schedules further
identifying and describing the Collateral and such other reports
in connection with the Collateral as Lenders may reasonably
request, all in reasonable detail.
5.11 NOTICES. Grantor shall advise Lenders promptly, in
reasonable detail, of (a) any material Lien, other than Permitted
Liens, attaching to or asserted against any of the Collateral, (b)
any material change in the composition of the Collateral and (c)
the occurrence of any other event which would have a material
adverse effect on the aggregate value of the Collateral or on the
Lien created hereunder.
5.12 RIGHT OF INSPECTION AND AUDIT.
(A) Upon reasonable notice to Grantor (unless an Event
of Default has occurred and is continuing, in which case no notice
is necessary), Lenders shall at all times have full and free
access during normal business hours to all the books and records
and correspondence of Grantor, and Lenders or any agents or
representatives of Lenders may examine the same, take extracts
therefrom and make photocopies thereof, and Grantor agrees to
render to Lenders, at Grantor's cost and expense, such clerical
and other assistance as may be reasonably requested with regard
thereto. Upon reasonable notice to Grantor (unless an Event of
Default has occurred and is continuing, in which case no notice is
necessary), Lenders and its agents and representatives shall also
have the right to enter into and upon any premises where any of
records regarding the Collateral are located for the purpose of
conducting audits and making test verifications of the Accounts in
any manner and through any medium that it considers advisable, and
Grantor agrees to furnish all such assistance and information as
Lenders may reasonably require in connection therewith. Grantor,
at its own expense, shall cause certified independent public
accountants, reasonably satisfactory to Lenders, to prepare and
deliver to Lenders the results of and any test verification of
Grantor's Accounts made or observed by such accountants when and
if such verification is conducted.
(B) Lenders shall have all rights of Grantor to audit,
copy or make extracts of the records of MNB Bank as are specified
under the respective agreements.
<PAGE>
5.13 CONTINUOUS PERFECTION. Grantor shall not change its
name, identity or corporate structure in any manner which might
make any financing or continuation statement filed in connection
herewith seriously misleading within the meaning of Section 9-
402(7) of the UCC (or any other then applicable provision of the
UCC) unless Grantor shall have given Lenders at least thirty (30)
days' prior written notice thereof and shall have taken all action
(or made arrangements to take such action substantially
simultaneously with such change if it is impossible to take such
action in advance) necessary or reasonably requested by Lenders to
amend such financing statement or continuation statement so that
it is not seriously misleading.
5.14 Grantor shall provide upon written request of Lenders,
or shall cause MNB Bank to provide, to Lenders such reports and
notices as are required to be sent, or may be sent, by MNB to
Grantor with respect to the Accounts, the Deposit, the Gross
Exposure, or as otherwise are required to be sent or may be made
available to Grantor pursuant to the MNB Merchant Agreement.
5.15 Grantor may not enter into any amendment to the MNB
Merchant Agreement, without the written consent of Lenders,
except where such amendment only relates to the fees and charges
to be paid to MNB by Vanguard or the extension of said agreement.
6.1 LENDERS' APPOINTMENT AS ATTORNEY-IN-FACT.
(A) Grantor hereby irrevocably constitutes and appoints
Lenders, and any officer or agent thereof, with full power of
substitution, as its true and lawful attorney-in-fact with full
irrevocable power and authority in the place and stead of Grantor
and in the name of Grantor or in its own name, from time to time
at Lenders' discretion, for the purpose of carrying out the terms
of this Security Agreement, to take any and all appropriate action
and to execute and deliver any and all documents and instruments
which may be necessary or desirable to accomplish the purposes of
this Security Agreement and, without limiting the generality of
the foregoing, hereby gives Lenders the power and right, on behalf
of Grantor, without notice to or assent by Grantor, to do the
following:
(I) to ask, demand, collect, receive and give
acquittances and receipts for any and all monies due or to become
due under any Collateral and, in the name of Grantor in its own
name or otherwise to take possession of, endorse and collect any
checks, drafts, notes, acceptances or other Instruments for the
payment of monies due under any Collateral and to file any claim
or to take or commence any other action or proceeding in any court
of law or equity or otherwise deemed appropriate by Lenders for
the purpose of collecting any and all such monies due under any
Collateral whenever payable;
(II) to pay or discharge any Liens, including,
without limitation, any tax lien, levied or placed on or
threatened against the Collateral, to effect any repairs or any
insurance called for by the terms of this Security Agreement and
to pay all or any part of the premiums therefor and the costs
thereof; and
<PAGE>
(III) (1) direct any person liable for any payment
under or in respect of any of the Collateral to make payment of
any and all monies due or to become due thereunder directly to
Lenders or as Lenders shall direct, (2) receive payment of any and
all monies, claims and other amounts due or to become due at any
time arising out of or in respect of any Collateral, (3) sign and
endorse any invoices, freight or express bills, bills of lading,
storage or warehouse receipts, drafts against debtors,
assignments, verifications and notices in connection with Accounts
and other Instruments and Documents constituting or relating to
the Collateral, (4) commence and prosecute any suits, actions or
proceedings at law or in equity in any court of competent
jurisdiction to collect the Collateral or any part thereof and to
enforce any other right in respect of any Collateral, (5) defend
any suit, action or proceeding brought against Grantor with
respect to any Collateral, (6) settle, compromise or adjust any
suit, action or proceeding described above and, in connection
therewith, give such discharges or releases as Lenders may deem
appropriate, and (7) sell, transfer, pledge, make any agreement
with respect to or otherwise deal with any of the Collateral as
fully and completely as though Lenders were the absolute owner
thereof for all purposes, and to do, at Lenders' option and
Grantor's expense, at any time, or from time to time, all acts and
things which Lenders may reasonably deem necessary to protect,
preserve or realize upon the Collateral and Lenders' Lien therein
in order to effect the intent of this Security Agreement, all as
fully and effectively as Grantor might do.
(B) Lenders agrees that, except upon the occurrence and
during the continuation of an Event of Default, it shall not
exercise the power of attorney or any rights granted to Lenders
pursuant to this SECTION 6.1 provided; however, that Lender may
exercise the power of attorney with respect to filing of financing
statements and otherwise perfecting its security interest in the
Collateral when no Event of Default exists. Grantor hereby
ratifies, to the extent permitted by law, all that said attorney
shall lawfully do or cause to be done by virtue hereof. The power
of attorney granted pursuant to this SECTION 6.1 is a power
coupled with an interest and shall be irrevocable until the
Secured Obligations are paid and performed in full.
(C) The powers conferred on Lenders hereunder are
solely to protect Lenders' interests in the Collateral and shall
not impose any duty upon it to exercise any such powers. Lenders
shall be accountable only for amounts that it actually receives as
a result of the exercise of such powers and neither it nor any of
its officers, directors, employees, agents or representatives
shall be responsible to Grantor for any act or failure to act,
except for its own gross negligence or willful misconduct.
(D) Grantor also authorizes Lenders, at any time and
from time to time upon the occurrence and during the continuation
of any Event of Default, to (i) communicate in its own name with
any party to any Contract with regard to the assignment of the
right, title and interest of Grantor in and under the Contracts
hereunder and other matters relating thereto and (ii) execute, in
connection with the sale of Collateral provided for in SECTION 7.1
hereof, any endorsements, assignments or other instruments of
conveyance or transfer with respect to the Collateral.
<PAGE>
(E) If Grantor fails to perform or comply with any of
its agreements contained herein and Lenders, as provided for by
the terms of this Security Agreement, shall perform or comply, or
otherwise cause performance or compliance, with such agreement,
the reasonable expenses, including attorneys' fees, of Lenders
incurred in connection with such performance or compliance,
together with interest thereon at the rate then in effect in
respect of the Reimbursement Loans, shall be payable by Grantor to
Lenders on demand and shall constitute Secured Obligations secured
hereby.
7.1 RIGHTS AND REMEDIES UPON DEFAULT.
(A) If any Event of Default shall occur and be
continuing, Lenders may exercise in addition to all other rights
and remedies granted to it under this Security Agreement, the MNB
Merchant Agreement, the other Loan Documents and under any other
instrument or agreement securing, evidencing or relating to the
Secured Obligations, all rights and remedies of a secured party
under the UCC. Without limiting the generality of the foregoing,
Grantor expressly agrees that in any such event Lenders, without
demand of performance or other demand, advertisement or notice of
any kind (except the notice specified below of time and place of
public or private sale) to or upon Grantor or any other person
(all and each of which demands, advertisements and notices are
hereby expressly waived to the maximum extent permitted by the UCC
and other applicable law), may forthwith collect, receive,
appropriate and realize upon the Collateral, or any part thereof,
and may forthwith sell, lease, assign, give an option or options
to purchase or sell or otherwise dispose of and deliver said
Collateral (or contract to do so), or any part thereof, in one or
more parcels at public or private sale or sales, at any exchange
or broker's board or at any of Lenders' offices or elsewhere at
such prices as it may deem best, for cash or on credit or for
future delivery without assumption of any credit risk. Lenders
shall have the right upon any such public sale or sales, and, to
the extent permitted by law, upon any such private sale or sales,
to purchase the whole or any part of said Collateral so sold, free
of any right or equity of redemption, which equity of redemption
Grantor hereby releases. Grantor further agrees, at Lenders'
request, to assemble the Collateral and make it available to
Lenders at places which Lenders shall reasonably select, whether
at Grantor's premises or elsewhere. Lenders shall apply the net
proceeds of any such collection, recovery, receipt, appropriation,
realization or sale as provided in SECTION 7.1(D) hereof, Grantor
remaining liable for any deficiency remaining unpaid after such
application, and only after so paying over such net proceeds and
after the payment by Lenders of any other amount required by any
provision of law, including Section 9-504(1)(c) of the UCC, need
Lenders account for the surplus, if any, to Grantor. To the
maximum extent permitted by applicable law, Grantor waives all
claims, damages, and demands against Lenders arising out of the
repossession, retention or sale of the Collateral except such as
arise out of the gross negligence or willful misconduct of
Lenders. Grantor agrees that Lenders need not give more than ten
(10) days' notice (which notification shall be deemed given if
given in accordance with SECTION 9.3 of the Reimbursement
Agreement) of the time and place of any public sale or of the time
after which a private sale may take place and that such notice is
reasonable notification <PAGE>
of such matters. Grantor shall remain liable for any deficiency
if the proceeds of any sale or disposition of the Collateral are
insufficient to pay all amounts to which Lenders are entitled,
Grantor also being liable for the reasonable fees of any attorneys
employed by Lenders to collect such deficiency.
(B) Grantor also agrees to pay all fees, costs and
expenses of Lenders, including, without limitation, reasonable
attorneys' fees, incurred in connection with the enforcement of
any of its rights and remedies hereunder.
(C) Grantor hereby waives presentment, demand, protest
or any notice (to the maximum extent permitted by applicable law)
of any kind in connection with this Security Agreement or any
Collateral.
(D) The Proceeds of any sale, disposition or other
realization upon all or any part of the Collateral shall be
distributed by Lenders in the following order of priorities:
FIRST, to Lenders in an amount sufficient to
pay in full the reasonable costs of Lenders in
connection with such sale, disposition or other
realization, including all fees, costs, expenses,
liabilities and advances incurred or made by Lenders in
connection therewith, including, without limitation,
reasonable attorneys' fees;
SECOND, to Lenders in an amount equal to the
then unpaid principal of and accrued interest and
prepayment premiums, if any, on the Secured Obligations;
THIRD, to Lenders in an amount equal to any
other Secured Obligations which are then unpaid; and
FINALLY, upon payment in full of all of the
Secured Obligations, to Grantor or its representatives
or as a court of competent jurisdiction may direct.
8.1 LIMITATION ON LENDERS' DUTY IN RESPECT OF COLLATERAL.
Lenders shall be deemed to have acted reasonably in the custody,
preservation and disposition of any of the Collateral if it takes
such action as Grantor requests in writing, but failure of Lenders
to comply with any such request shall not in itself be deemed a
failure to act reasonably, and no failure of Lenders to do any act
not so requested shall be deemed a failure to act reasonably.
9.1 REINSTATEMENT. This Security Agreement shall remain in
full force and effect and continue to be effective should any
petition be filed by or against Grantor for liquidation or
reorganization, should Grantor become insolvent or make an
assignment for the benefit of
<PAGE>
creditors or should a receiver or trustee be appointed for all or
any significant part of Grantor's property and assets, and shall
continue to be effective or be reinstated, as the case may be, if
at any time payment and performance of the Secured Obligations, or
any part thereof, is, pursuant to applicable law, rescinded or
reduced in amount, or must otherwise be restored or returned by
any obligee of the Secured Obligations, whether as a "voidable
preference," "fraudulent conveyance," or otherwise, all as though
such payment or performance had not been made. In the event that
any payment, or any part thereof, is rescinded, reduced, restored
or returned, the Secured Obligations shall be reinstated and
deemed reduced only by such amount paid and not so rescinded,
reduced, restored or returned.
10.1 MISCELLANEOUS.
10.2 NOTICES. Any notice or other communication hereunder to
any party shall be addressed and delivered (and shall be deemed
given) in accordance with SECTION 9.3 of the Reimbursement
Agreement.
10.3 SEVERABILITY. Any provision of this Security Agreement
which is prohibited or unenforceable in any jurisdiction shall, as
to such jurisdiction, be ineffective to the extent of such
prohibition or unenforceability without invalidating the remaining
provisions hereof, and any such prohibition or unenforceability in
any jurisdiction shall not invalidate or render unenforceable such
provision in any other jurisdiction.
10.4 HEADINGS. The various headings in this Security
Agreement are inserted for convenience only and shall not affect
the meaning or interpretation of this agreement or any provisions
hereof.
10.5 NO WAIVER; CUMULATIVE REMEDIES.
(A) Lenders shall not by any act, delay, omission or
otherwise be deemed to have waived any of its respective rights or
remedies hereunder, nor shall any single or partial exercise of
any right or remedy hereunder on any one occasion preclude the
further exercise thereof or the exercise of any other right or
remedy.
(B) The rights and remedies hereunder provided are
cumulative and may be exercised singly or concurrently, and are
not exclusive of any rights and remedies provided by law.
(C) None of the terms or provisions of this Security
Agreement may be waived, altered, modified or amended except by an
instrument in writing, duly executed by Grantor and Lenders.
<PAGE>
10.6 TERMINATION OF THIS SECURITY AGREEMENT. Subject to
SECTION 9.1 hereof, this Security Agreement shall terminate on the
Termination Date, as defined in the Reimbursement Agreement.
10.7 SUCCESSOR AND ASSIGNS. This Security Agreement and all
obligations of Grantor hereunder shall be binding upon the
successors and assigns of Grantor, and shall, together with the
rights and remedies of Lenders hereunder, inure to the benefit of
Lenders, any future holder of any Reimbursement Loan Note executed
by Grantor in connection with the Reimbursement Agreement and
their respective successors and assigns. No sales of
participations, other sales, assignments, transfers or other
dispositions of any agreement governing or instrument evidencing
the Secured Obligations or any portion thereof or interest therein
shall in any manner affect the Lien granted to Lenders hereunder.
10.8 FURTHER INDEMNIFICATION. Grantor agrees to pay, and to
save Lenders harmless from, any and all liabilities with respect
to, or resulting from any delay in paying, any and all excise,
sales or other similar taxes which may be payable or determined to
be payable with respect to any of the Collateral or in connection
with any of the transactions contemplated by this Security
Agreement.
10.9 GOVERNING LAW. In all respects, including all matters
of construction, validity and performance, this Security Agreement
and the Secured Obligations arising hereunder shall be governed
by, and construed and enforced in accordance with, the laws of the
State of California applicable to contracts made and performed in
such state, without regard to the principles thereof regarding
conflict of laws.
10.10 COUNTERPARTS. This Security Agreement may be executed
in any number of counterparts, each of which when so delivered
shall be deemed an original, but all such counterparts shall
constitute but one and the same instrument. Each such agreement
shall become effective upon the execution of a counterpart hereof
or thereof by each of the parties hereto and telephonic
notification thereof has been received by Grantor and Lenders.
[Intentionally Left Blank]
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused
this Security Agreement to be executed and delivered by its duly
authorized officer on the date first set forth above.
GRANTOR VANGUARD AIRLINES, INC.
By:
--------------------------
Printed Name:
-----------------
Title:
-----------------------
Accepted and acknowledged by:
THE HAMBRECHT 1980 REVOCABLE TRUST,
WILLIAM R. HAMBRECHT AS TRUSTEE
By:
-----------------------------
Printed Name:
-------------------
Title:
--------------------------
Accepted and acknowledged by:
J. F. SHEA CO., INC.
By:
-----------------------------
Printed Name:
-------------------
Title:
--------------------------
<PAGE>
SCHEDULE I
LOCATION OF GRANTOR'S CHIEF EXECUTIVE OFFICE
PRINCIPAL PLACE OF BUSINESS
AND RECORDS PERTAINING TO COLLATERAL
CHIEF EXECUTIVE OFFICE:
533 Mexico City Avenue
Kansas City International Airport
Kansas City, MO 64153
RECORDS PERTAINING TO COLLATERAL:
7000 Squibb Road
Third Floor
Mission, KS 66202
PRINCIPAL PLACE OF BUSINESS:
533 Mexico City Avenue
Kansas City, MO 64153
<PAGE>
SCHEDULE II
LIST OF COLLATERAL DELIVERED TO LENDERS
None
<PAGE>
SCHEDULE III
PERMITTED LIENS
None
<PAGE>
EXHIBIT A
NOTIFICATION OF ASSIGNMENT
<PAGE>
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR UNDER THE SECURITIES LAWS OF ANY
STATE. ANY TRANSFER OF SUCH SECURITIES WILL BE INVALID
UNLESS A REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND
AS REQUIRED BY BLUE SKY LAWS IS IN EFFECT AS TO SUCH
TRANSFER OR IN THE OPINION OF COUNSEL SATISFACTORY TO THE
COMPANY SUCH REGISTRATION IS UNNECESSARY IN ORDER FOR SUCH
TRANSFER TO COMPLY WITH THE SECURITIES ACT AND BLUE SKY
LAWS.
VANGUARD AIRLINES, INC.
WARRANT FOR THE PURCHASE
OF SHARES OF COMMON STOCK
No. PB-82 January 18, 1999
VANGUARD AIRLINES, INC., a Delaware corporation (the
"COMPANY"), hereby certifies that, for value received, THE
HAMBRECHT 1980 REVOCABLE TRUST., the transferee who has
received this warrant (the "WARRANT") in compliance with
applicable law and the terms hereof (the "HOLDER"), is
entitled, on the terms set forth below, to purchase from the
Company, on or before the Expiration Time (as defined in
Section 18 below) two million (2,000,000) shares of Common
Stock, par value $0.001 per share, of the Company at a price
of one dollar ($1.00) per share, subject to adjustment as
provided below (the "EXERCISE PRICE").
1. REIMBURSEMENT AGREEMENT. This Warrant is the
"Warrant" referred to in the Reimbursement Agreement dated
as of January 18, 1999, by and between the Company, the
Holder and The Hambrecht 1980 Revocable Trust (the
"REIMBURSEMENT AGREEMENT"). Any capitalized term used but
not defined herein shall have the meaning ascribed to it in
the Reimbursement Agreement.
2. EXERCISE OF WARRANT.
(A) INITIAL VESTING. The Holder may exercise
this Warrant, in whole or in part, at any time or from time
to time on any business day prior to the Expiration Date (as
defined herein), for four hundred thousand (400,000) shares
of Common Stock.
(B) SUBSEQUENT VESTING. On any business day
beginning immediately after the end of each Measurement
Period (as defined below) and prior to the Expiration Date,
the Holder may exercise this Warrant, in whole or in part,
at any time or from time to time, as to an additional number
of shares of Common Stock equal to (i) the product of (A)
the average daily Gross Exposure (as defined in that certain
Security Agreement by and between the Company, the Holder
and The Hambrecht 1980 Revocable Trust of even date herewith
(or the schedules or exhibits thereto), subject to Section
9(b) hereof) during the Measurement Period and (B) one-tenth
(0.1), divided by (ii) one dollar ($1.00). Notwithstanding
the preceding sentence, in no event shall this Warrant be
exercisable for more than two million (2,000,000) shares of
Common Stock. For the purposes of this Warrant,
"MEASUREMENT PERIOD" shall mean the 90 day period
<PAGE>
commencing on the date of this Warrant and each succeeding
90 day period thereafter prior to the Termination Date.
(c) The Holder may exercise any shares then
exercisable by surrendering this Warrant to the Company at
its principal office, with a duly executed Subscription Form
(in substantiality the form attached hereto), together with
payment of the sum obtained by multiplying the number of
shares of Common Stock to be purchased by the Exercise Price
then in effect. Promptly after such exercise, the Company
shall issue and deliver to or upon the order of the Holder a
certificate or certificates for the number of shares of
Common Stock issuable upon such exercise, and the Company
will pay all issue or transfer taxes in connection with the
issue thereof. To the extent permitted by law, this Warrant
shall be deemed to have been exercised immediately prior to
the close of business on the date of its surrender for
exercise as provided herein, even if the Company's stock
transfer books are at that time closed, and the Holder shall
be treated for all purposes as the holder of record of the
Common Stock to be issued upon such exercise as of the close
of business on such date. Upon any partial exercise, the
Company will issue to or upon the order of the Holder a new
Warrant for the number of shares of Common Stock as to which
this Warrant has not been exercised.
(D) NET ISSUE EXERCISE. Notwithstanding any
provisions herein to the contrary, if the fair market value
of one share of the Common Stock subject to this Warrant is
greater than the Exercise Price (at the Date of
Determination, as defined below), in lieu of exercising this
Warrant for cash, the Holder may elect to receive shares
equal to the value (as determined below) of this Warrant (or
the portion thereof being canceled) by surrender of this
Warrant at the principal office of the Company together with
the properly endorsed Form of Subscription and notice of
such election (the date of such delivery being referred to
herein as the "DATE OF DETERMINATION") in which event the
Company shall issue to the Holder a number of shares of
Common Stock computed using the following formula:
X = Y (A-B)
-----------
A
Where X = the number of shares of Common Stock to be
issued to the Holder
Y = the number of shares of Common Stock
purchasable under the Warrant or, if only a portion of the
Warrant is being exercised, the portion of the Warrant being
canceled (at the Date of Determination)
A = the fair market value of one share of the
Common Stock (at the Date of Determination)
B = Exercise Price (as adjusted to the Date of
Determination). For purposes of the above calculation, fair
market value of one share of Common Stock shall be
determined by the Company's Board of Directors in good faith
as of the Date of Determination;
<PAGE>
PROVIDED, HOWEVER, when there is a public market for the
Company's Common Stock, the fair market value per share
shall be the average of the closing prices of the Company's
Common Stock quoted on the Nasdaq National Market or on the
primary securities exchange on which the Common Stock is
then listed, whichever is applicable, as published in the
Wall Street Journal for the twenty-five (25) trading days
prior to the Date of Determination.
3. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF WARRANT
SHARES.
The Exercise Price and the number of shares of Common Stock
subject to this Warrant (and all other adjustment to
exercise price and shares herein as appropriate) shall be
subject to adjustment from time to time as follows:
(A) ADJUSTMENT FOR CHANGE IN CAPITAL STOCK. If at any
time the Company:
(i) pays a dividend or makes a distribution
on its Common Stock in shares of its
Common Stock;
(ii) subdivides its outstanding shares of
Common Stock into a greater number
of shares;
(iii) combines its outstanding shares of
Common Stock into a smaller number
of shares;
(iv) makes a distribution on its Common
Stock in shares of its capital stock
other than Common Stock; or
(v) issues by reclassification of its
Common Stock any shares of its
capital stock;
then the Exercise Price in effect immediately prior to such
action shall be adjusted so that the Holder may receive upon
exercise of the Warrant and payment of the same aggregate
consideration the number of shares of capital stock of the
Company which the Holder would have owned immediately
following such action if the Holder had exercised the
Warrant immediately prior to such action.
The adjustment shall become effective immediately after
the record date in the case of a dividend or distribution
and immediately after the effective date in the case of a
subdivision, combination or reclassification.
(B) ADJUSTMENT FOR DILUTIVE ISSUANCE. If the
Company shall issue, after the date hereof any Additional
Stock (as defined below) without consideration or for a
consideration per share less than the Exercise Price for the
Shares, the Exercise Price in effect immediately prior to
each such issuance shall forthwith be adjusted to a price
equal to the price paid per share for such Additional Stock.
The term "Additional Stock" shall mean any and all <PAGE>
shares of equity securities issued after the date hereof,
other than shares of stock issuable pursuant to (i) options,
warrants, or other similar rights outstanding on the date
hereof, or (ii) stock options hereafter granted to officers,
directors, employees or consultants of the Company pursuant
to the Company's stock option plan.
(C) REORGANIZATION, CONSOLIDATION OR MERGER. In
the event of any consolidation or merger of the Company with
or into another corporation (other than a merger in which
merger the Company is the continuing corporation and that
does not result in any reclassification, capital
reorganization or other change of outstanding shares of
Common Stock issuable upon exercise of this Warrant) or in
the event of any sale, lease, transfer or conveyance to
another corporation of the property and assets of the
Company as an entirety or substantially as an entirety, the
Company shall cause effective provisions to be made so that
the Holder shall have the right thereafter, by exercising
this Warrant, to purchase the kind and amount of shares of
stock and other securities and property (including cash)
receivable upon such capital reorganization and other
change, consolidation, merger, sale, lease, transfer or
conveyance by a holder of the number of shares of Common
Stock that might have been received upon exercise of this
Warrant immediately prior to such capital reorganization,
change, consolidation, merger, sale, lease, transfer or
conveyance. Any such provision shall include provisions for
adjustments in respect of such shares of stock and other
securities and property that shall be as nearly equivalent
as may be practicable to the adjustments provided for in
this Warrant. The foregoing provisions of this Section 3(c)
shall similarly apply to successive capital reorganizations
and changes of shares of Common Stock and to successive
consolidations, mergers, sales, leases, transfers or
conveyances. In the event that in connection with any such
capital reorganization, or change, consolidation, merger,
sale, lease, transfer or conveyance, additional shares of
Common Stock shall be issued in exchange, conversion,
substitution or payment, in whole or in part, for, or of, a
security of the Company other than Common Stock, any such
issue shall be treated as an issue of Common Stock covered
by the provisions of Section 3(a) hereof.
(D) MINIMAL ADJUSTMENTS. No adjustment in the
Exercise Price and/or the number of shares of Common Stock
subject to this Warrant need be made if such adjustment
would result in a change in the Exercise Price of less than
one percent (1%) or the Exercise Price (the "ADJUSTMENT
THRESHOLD AMOUNT") or a change in the number of subject
shares of less than one (1) share. Any adjustment which is
less than the Adjustment Threshold Amount and not made shall
be carried forward and shall be made, together with any
subsequent adjustments, at the time when (a) the aggregate
amount of all such adjustments is equal to at least the
Adjustment Threshold Amount or (b) the Warrant is exercised.
(E) DEFERRAL OF ISSUANCE OR PAYMENT. In any case
in which an event covered by this Section 3 shall require
that an adjustment in the Exercise Price be made effective
as of a record date, the Company may elect to defer until
the occurrence of such event (i) issuing to the Holder, if
this Warrant is exercised after such record date, the shares
of Common Stock and other capital stock of the Company, if
any, issuable upon such exercise over and above the shares
of Common Stock or other capital stock of the Company, if
any, issuable upon such exercise on the <PAGE>
basis of the Exercise Price in effect prior to such
adjustment, and (ii) paying to the Holder by check any
amount in lieu of the issuance of fractional shares pursuant
to Section 7 hereof.
(F) WHEN NO ADJUSTMENT REQUIRED. No adjustment
need be made for a change in the par value or no par value
of the Common Stock. To the extent the Warrants become
exercisable into cash, no adjustment need be made thereafter
as to the cash, and interest will not accrue on the cash.
(G) CERTIFICATE AS TO ADJUSTMENTS. Upon the
occurrence of each adjustment or readjustment of the
Exercise Price pursuant to this Section 3, the Company, at
its expense, shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and prepare
and furnish to the Holder a certificate setting forth such
adjustment or readjustment and showing the facts upon which
such adjustment or readjustment is based. The
Company shall, upon written request at any time of the
Holder, furnish or cause to be furnished to the Holder a
like certificate setting forth (a) such adjustments and
readjustments, (b) the then effective Exercise Price and
number of shares of Common Stock subject to the Warrant, and
(c) the then effective amount of securities (other than
Common Stock) and other property, if any, which would be
received upon exercise of the Warrant.
(H) NOTICE OF ADJUSTMENT. When any adjustment is
required to be made in the number or kind of shares
purchasable upon exercise of the Warrant, or in the Warrant
Price, the Company shall promptly notify the holder of such
even and of the number of shares of Preferred Stock or other
securities or property thereafter purchasable upon exercise
of this Warrant.
4. REGISTRATION RIGHTS. Shares of the Company's
Common Stock issued or issuable pursuant to the exercise of
this Warrant shall be deemed to be "Registrable Securities"
for purposes of that certain Registration Rights Agreement,
dated as of March 20, 1998, and amended as of the date
hereof, among the Company and the persons named therein (the
"Registration Rights Agreement"), as such agreement may be
subsequently amended or restated or consolidated with other
similar agreements granting registration rights in the
securities of the Company, and the holder of such shares
shall have all the rights, subject to the obligations, of a
holder of Registrable Securities pursuant to the
Registration Rights Agreement, and shall be treated for all
purposes as a holder of Registrable Securities under and
subject to the terms of the Registration Rights Agreement.
5. RIGHTS OF THE HOLDER. The Holder shall
not, solely by virtue of this Warrant, be entitled to any
rights of a stockholder in the Company, either at law or
equity, and the rights of the Holder are limited to those
expressed in this Warrant. Nothing contained in this
Warrant shall be construed as conferring upon the Holder
hereof the right to vote or to consent or to receive notice
as a stockholder of the Company on any matters or with
respect to any rights whatsoever as a stockholder of the
Company. No dividends or interest shall be payable or
accrued in respect of this Warrant or the interest
represented hereby or the shares of Common Stock purchasable
hereunder until, and only to the extent that, this Warrant
shall have been exercised in accordance with its terms.
<PAGE>
6. NO IMPAIRMENT. The Company will not, by any
voluntary action, avoid or seek to avoid the observance or
performance of any of the terms of this Warrant, but will at
all times in good faith assist in the carrying out of all
such terms and in the taking of all such action as may be
necessary or appropriate in order to protect the rights of
the Holder against dilution or other impairment.
7. NO FRACTIONAL SHARES. No fractional share shall be
issued upon exercise of this Warrant. The Company shall, in
lieu of issuing any fractional share, pay the Holder
entitled to such fraction a sum in cash equal to the fair
market value of such fraction on the date of exercise (as
determined in good faith by the Board of Directors of the
Company). The fair market value of a fraction of a share is
determined by multiplying the fair market price of a full
share by the fraction of a share, rounded to the nearest
cent.
8. RESERVATION OF STOCK ISSUABLE ON EXERCISE OF
WARRANT. The Company will at all times reserve and keep
available, solely for issuance and delivery upon the
exercise of this Warrant, all such shares of Common Stock or
other shares of capital stock, from time to time issuable
upon the exercise of this Warrant. If at
any time the number of authorized but unissued shares of
Common Stock shall not be sufficient to effect the exercise
of this Warrant, the Company will use its best efforts to
take such corporate action as may, in the opinion of its
counsel, be necessary to increase its authorized but
unissued shares of Common Stock to such number of shares as
shall be sufficient for such purposes. All shares that may
be issued upon exercise of the rights represented by this
Warrant and payment of the Exercise Price, all as set forth
herein, will be free from all taxes, liens and charges in
respect of the issue of such shares (other than taxes in
respect of any transfer occurring contemporaneously with
such exercise and payment or otherwise specified herein).
All such shares shall be duly authorized and when issued,
sold and delivered in accordance with the terms of the
Warrant for the consideration expressed herein, will be duly
and validly issued, fully paid and nonassessable, and will
be free of restrictions on transfer other than restrictions
on transfer set forth in this Warrant and applicable state
and federal securities laws.
9. COVENANTS OF THE COMPANY.
(a) The Company shall use its best efforts to
amend the Restated Certificate of Incorporation of the
Company in such a manner so that no reduction of the
Exercise Price pursuant to Section 3 (c) hereof shall occur
at any time.
(b) The Company shall cause a report of the daily
Gross Exposure in each Measurement Period (each, an
"EXPOSURE REPORT") to be delivered by Boatmen's POS and MNB
to the Holder at the address specified in Section 14 hereof
within 30 days of the end of such Measurement Period so long
as this Warrant remains subject to additional vesting. In
the event that the Holder has not received an Exposure
Report within 30 days after the end or any Measuring Period,
then, notwithstanding anything else contained herein, for
the purposes of this Warrant, the daily Gross Exposure
throughout such period shall be deemed to be four million
dollars ($4,000,000).
<PAGE>
10. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company hereby represents and warrants to and for the
benefit of the Purchaser as follows:
(A) AUTHORIZATION. All corporate action on the
part of the Company and its directors necessary for the
authorization, execution, issuance and delivery by the
Company of this Warrant and the performance of the Company's
obligations hereunder. This Warrant, when executed and
delivered by the Company, shall constitute a valid and
binding obligation of the Company enforceable in accordance
with its terms. The shares of Common Stock issuable upon
exercise of this Warrant, when issued in compliance with the
provisions of this Warrant and the Company's Amended and
Restated Certificate of Incorporation (the "Restated
Certificate"), will be validly issued, fully paid and
nonassessable and free of any liens or encumbrances.
(B) COMPLIANCE WITH OTHER INSTRUMENTS. The
Company is not in violation of any term of its Restated
Certificate, By-Laws or any statute, rule or regulation
applicable to the Company. The execution, delivery and
performance of this Agreement, the creation and issuance of
this Warrant and the issuance of the shares of Common Stock
pursuant to an exercise of the Warrant in accordance with
the Restated Certificate will not result in any such
violation, or be in conflict with or constitute a default
under any such term, or result in the creation of any
mortgage, pledge, lien, encumbrance, or charge upon any of
the properties or assets of the Company or contravene any
provision of, or constitute a default under, any indenture,
mortgage, contract or other instrument to which it is a
party or by which it is bound.
(C) GOVERNMENTAL CONSENTS. All consents,
approvals, orders, or authorizations of, or registrations,
qualifications, designations, declarations, or filings with,
any governmental authority, required on the part of the
Company in accordance with the valid execution, delivery,
offer, sale or issuance of this Warrant and the capital
stock issuable upon exercise of the Warrant, have been
obtained, except for the filing of notices pursuant to
Regulation D under the Securities Act, and any filing
required under applicable state securities laws which will
be effective by the time required thereby.
(D) OFFERING. Assuming the accuracy of the
representations and warranties of the Purchaser contained in
Section 19 hereof, the offer, issue, and sale of the Warrant
are and will be exempt from the registration and prospectus
delivery requirements of the Securities Act, and have been
registered or qualified (or are exempt from registration and
qualification) under the registration, permit, or
qualification requirements of all applicable state
securities laws.
11. NOTICES OF RECORD DATE. Upon (a) any taking by
the Company of a record of the holders of any class of
securities for the purpose of determining the holders
thereof who are entitled to receive any dividend or other
distribution or (b) any capital reorganization of the
Company, any reclassification or recapitalization of the
capital stock of the Company, any merger or consolidation of
the Company with or into any other corporation, or any
transfer of all or substantially all the assets of the
Company to any other person, or any voluntary or involuntary
dissolution, liquidation or winding up of the Company, the
Company shall mail to
<PAGE>
the Holder at least twenty (20) days, or such longer period
as is required by law, prior to the record date, a notice
specifying (i) the date on which any such record is to be
taken for the purpose of such dividend or distribution and a
description of such dividend or distribution, (ii) the date
on which any such reorganization, reclassification,
transfer, consolidation, merger, dissolution, liquidation or
winding up is expected to become effective, and (iii) the
date, if any, that is to be fixed as to when the holders of
record of Common Stock (or other capital stock at that time
receivable upon exercise of the Warrant) shall be entitled
to exchange their shares of Common Stock (or such other
stock or securities) for securities or other property
deliverable upon such reorganization, reclassification,
transfer, consolidation, merger, dissolution, liquidation or
winding up.
12. EXCHANGES OF WARRANT. Upon surrender for exchange
of this Warrant (in negotiable form, if not surrendered by
the Holder named on the face hereof) to the Company at its
principal office, the Company, at its expense, will issue
and deliver a new Warrant or Warrants calling in the
aggregate for the same number of shares of Common Stock, in
the denomination or denominations requested, to or on the
order of such Holder upon payment by such Holder of any
applicable transfer taxes; PROVIDED that any transfer of the
Warrant shall be subject to the conditions on transfer set
forth herein.
13. REPLACEMENT OF WARRANT. Upon receipt of evidence
reasonably satisfactory to the Company of the loss, theft,
destruction or mutilation of this Warrant, and (in the case
of loss, theft or destruction) upon delivery of an indemnity
agreement in such reasonable amount as the Company may
determine, or (in the case of mutilation) upon surrender and
cancellation hereof, the Company, at its expense, shall
issue a replacement.
14. NOTICES. Any notice required or permitted under
this Agreement shall be given in writing and shall be deemed
effectively given upon personal delivery or upon deposit
with the United States Post Office, postage prepaid,
addressed to the Company at 30 NW Rome Circle, Mezzanine
Level, Kansas City International Airport, Kansas City, MO
64153, or to the Holder at 655 Brea Canyon Road, Walnut, CA
91789, Attention: Edmund H. Shea, Jr. or at such other
address as the Company or any Holder may designate by ten
(10) days advance written notice to the other party.
15. MODIFICATION; WAIVER. Except as provided in this
Warrant, no modification or waiver of any provision of this
Warrant or consent to departure therefrom shall be effective
unless in writing and approved by the Company and the
Holder.
16. TITLES AND SUBTITLES. The titles and subtitles
used in this Warrant are used for convenience only and are
not to be considered in construing or interpreting this
Warrant.
17. GOVERNING LAW. This Warrant shall be construed in
accordance with and governed by and under the laws of the
State of California as applied to contracts made and to be
performed entirely within the State of California.
18. EXPIRATION TIME. This Warrant will be wholly void
and of no effect after 5:00 p.m. (San Francisco time)
January 18, 2004 (the "EXPIRATION TIME").
<PAGE>
19. TRANSFER RESTRICTIONS. The Company is relying
upon an exemption from registration of this Warrant and the
shares of Common Stock issuable upon exercise hereof under
the Securities Act and applicable state securities laws.
The Holder by acceptance hereof represents that the Holder
understands that neither this Warrant nor the Common Stock
issuable upon exercise hereof has been registered with the
Securities and Exchange Commission nor under any state
securities law. By acceptance hereof, the Holder represents
and warrants that (a) it is acquiring the Warrant (and the
shares of Common Stock or other securities issuable upon
exercise hereof) for its own account for investment purposes
and not with a view to distribution, (b) has received all
such information as the Holder deems necessary and
appropriate to enable the Holder to evaluate the financial
risk inherent in making an investment in the Company, and
satisfactory and complete information concerning the
business and financial condition of the Company in response
to all inquiries in respect thereof, (c) the Holder's
acquisition of shares upon exercise hereof will be a highly
speculative investment, (d) the Holder is able, without
impairing its financial condition, to hold such shares for
an indefinite period of time and to suffer a complete loss
of the Holder's investment, and (e) the Holder has such
knowledge and experience in financial and business matters
that it is capable of evaluating the merits and risks of
acquisition of this Warrant and the shares issuable upon
exercise hereof and of making an informed investment
decision with respect thereto.
This Warrant may not be exercised and neither this
Warrant nor any of the shares issuable upon exercise of the
Warrant, nor any interest in either, may be sold, assigned,
pledged, hypothecated, encumbered or in any other manner
transferred or disposed of, in whole or in part, except in
compliance with applicable United States federal and state
securities or Blue Sky laws and the terms and conditions
hereof. Each Warrant or each certificate representing
shares of Common Stock or other securities issued upon
exercise of this Warrant shall have conspicuously endorsed
on its face, at the time of its issuance, such legends as
counsel to the Company deems necessary or appropriate,
including without limitation the legend set forth on the top
of the first page of this Warrant. Any certificate for any
securities issued at any time in exchange or substitution
for any certificate for any shares of Common Stock bearing
such legend shall also bear such legend unless, in the
opinion of counsel for the Company, the securities
represented thereby need no longer be subject to the
restriction contained herein.
Without in any way limiting the foregoing, the Holder
agrees not to make any disposition of all or any portion of
the Securities unless and until:
a. There is then in effect a Registration
Statement under the Securities Act covering such proposed
disposition and such disposition is made in accordance with
such Registration Statement; or
b. (i) The Holder shall have notified the Company
of the proposed disposition and shall have furnished the
Company with a detailed statement of the circumstances
surrounding the proposed disposition, and (ii) if reasonably
requested by the Company, the Holder shall have furnished
the Company with an opinion of counsel, reasonably
satisfactory to the Company, that such disposition will not
require registration under the Securities Act.
<PAGE>
c. Notwithstanding the provisions of paragraphs
(i) and (ii) above, no such registration statement or
opinion of counsel shall be necessary for a transfer by the
Holder to (i) an underwriter acceptable to the Company for
immediate exercise by such underwriter in connection with a
fully underwritten public offering of the Company's Common
Stock underlying this Warrant (ii) a partner (or retired
partner) or "affiliate" (as defined under the Securities
Exchange Act of 1934) of the Holder or (iii) transfers by
gift, will or intestate succession to any spouse or lineal
descendants or ancestors of any such partner, retired
partner or affiliate, if all transferees agree in writing to
be subject to the terms hereof to the same extent as if they
were a purchaser hereunder.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant
to be duly executed and delivered on the date first set
forth above.
VANGUARD AIRLINES, INC.
By:
-----------------------
Name:
---------------------
---
Title:
------------------------
<PAGE>
SUBSCRIPTION FORM
[To be executed if holder desires to exercise the Warrant]
The undersigned, holder of this Warrant, (1) hereby
irrevocably elects to exercise the right of purchase
represented by this Warrant for, and to purchase thereunder,
- -----------full shares of the Common Stock of Vanguard
Airlines, Inc. provided for therein, (2) makes payment in
full (as permitted in Section 2 of the Warrant) of the
purchase price of such shares, (3) requests that
certificates for such shares be issued in the name of
- ---------------------------------------------------------
(Please print name and address)
--------------------------------------------------------
(Please insert social security or other identifying number)
and (4) if said number of shares shall not be all the shares
purchasable thereunder, requests that a new Warrant for the
unexercised portion of this Warrant be issued in the name of
and delivered to:
- ----------------------------------------------------------
(Please print name and address)
Dated:
------------------
By:
----------------------
Title:
------------------
<PAGE>
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR UNDER THE SECURITIES LAWS OF ANY
STATE. ANY TRANSFER OF SUCH SECURITIES WILL BE INVALID
UNLESS A REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND
AS REQUIRED BY BLUE SKY LAWS IS IN EFFECT AS TO SUCH
TRANSFER OR IN THE OPINION OF COUNSEL SATISFACTORY TO THE
COMPANY SUCH REGISTRATION IS UNNECESSARY IN ORDER FOR SUCH
TRANSFER TO COMPLY WITH THE SECURITIES ACT AND BLUE SKY
LAWS.
VANGUARD AIRLINES, INC.
WARRANT FOR THE PURCHASE
OF SHARES OF COMMON STOCK
No. PB-81 January 18, 1999
VANGUARD AIRLINES, INC., a Delaware corporation (the
"COMPANY"), hereby certifies that, for value received, J.F.
SHEA CO., INC., the transferee who has received this warrant
(the "WARRANT") in compliance with applicable law and the
terms hereof (the "HOLDER"), is entitled, on the terms set
forth below, to purchase from the Company, on or before the
Expiration Time (as defined in Section 18 below) two million
(2,000,000) shares of Common Stock, par value $0.001 per
share, of the Company at a price of one dollar ($1.00) per
share, subject to adjustment as provided below (the
"EXERCISE PRICE").
1. REIMBURSEMENT AGREEMENT. This Warrant is
the "Warrant" referred to in the Reimbursement Agreement
dated as of January 18, 1999, by and between the Company,
the Holder and The Hambrecht 1980 Revocable Trust (the
"REIMBURSEMENT AGREEMENT"). Any capitalized term used but
not defined herein shall have the meaning ascribed to it in
the Reimbursement Agreement.
2. EXERCISE OF WARRANT.
(A) INITIAL VESTING. The Holder may exercise
this Warrant, in whole or in part, at any time or from time
to time on any business day prior to the Expiration Date (as
defined herein), for four hundred thousand (400,000) shares
of Common Stock.
(B) SUBSEQUENT VESTING. On any business day
beginning immediately after the end of each Measurement
Period (as defined below) and prior to the Expiration Date,
the Holder may exercise this Warrant, in whole or in part,
at any time or from time to time, as to an additional number
of shares of Common Stock equal to (i) the product of (A)
the average daily Gross Exposure (as defined in that certain
Security Agreement by and between the Company, the Holder
and The Hambrecht 1980 Revocable Trust of even date herewith
(or the schedules or exhibits thereto), subject to Section
9(b) hereof) during the Measurement Period and (B) one-tenth
(0.1), divided by (ii) one dollar ($1.00). Notwithstanding
the preceding sentence, in no event
shall this Warrant be exercisable for more than two million
(2,000,000) shares of Common
<PAGE>
Stock. For the purposes of this Warrant, "MEASUREMENT
PERIOD" shall mean the 90 day period commencing on the date
of this Warrant and each succeeding 90 day period thereafter
prior to the Termination Date.
(C) The Holder may exercise any shares then
exercisable by surrendering this Warrant to the Company at
its principal office, with a duly executed Subscription Form
(in substantiality the
form attached hereto), together with payment of the sum
obtained by multiplying the number of shares of Common Stock
to be purchased by the Exercise Price then in effect.
Promptly after such exercise, the Company shall issue and
deliver to or upon the order of the Holder a certificate or
certificates for the number of shares of Common Stock
issuable upon such exercise, and the Company will pay all
issue or transfer taxes in connection with the issue
thereof. To the extent permitted by law, this Warrant shall
be deemed to have been exercised immediately prior to the
close of business on the date of its surrender for exercise
as provided herein, even if the Company's stock transfer
books are at that time closed, and the Holder shall be
treated for all purposes as the holder of record of the
Common Stock to be issued upon such exercise as of the close
of business on such date. Upon any partial exercise, the
Company will issue to or upon the order of the Holder a new
Warrant for the number of shares of Common Stock as to which
this Warrant has not been exercised.
(D) NET ISSUE EXERCISE. Notwithstanding any
provisions herein to the contrary, if the fair market value
of one share of the Common Stock subject to this Warrant is
greater than the Exercise Price (at the Date of
Determination, as defined below), in lieu of exercising this
Warrant for cash, the Holder may elect to receive shares
equal to the value (as determined below) of this Warrant (or
the portion thereof being canceled) by surrender of this
Warrant at the principal office of the Company together with
the properly endorsed Form of Subscription and notice of
such election (the date of such delivery being referred to
herein as the "DATE OF DETERMINATION") in which event the
Company shall issue to the Holder a number of shares of
Common Stock computed using the following formula:
X = Y (A-B)
--------
A
Where X = the number of shares of Common Stock to be
issued to the Holder
Y = the number of shares of Common
Stock purchasable under the Warrant or, if only a portion of
the Warrant is being exercised, the portion of the Warrant
being canceled (at the Date of Determination)
A = the fair market value of one share of the
Common Stock (at the Date of Determination)
B = Exercise Price (as adjusted to the Date of
Determination)
For purposes of the above calculation, fair market value of
one share of Common Stock shall be determined by the
Company's Board of Directors in good faith as of the Date of
Determination; PROVIDED, HOWEVER, when there is a public
market for the
<PAGE>
Company's Common Stock, the fair market value per share
shall be the average of the closing prices of the Company's
Common Stock quoted on the Nasdaq National Market or on the
primary securities exchange on which the Common Stock is
then listed, whichever is applicable, as published in the
Wall Street Journal for the twenty-five (25) trading days
prior to the Date of Determination.
3. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF
WARRANT SHARES.
The Exercise Price and the number of shares of Common Stock
subject to this Warrant (and all other adjustment to
exercise price and shares herein as appropriate) shall be
subject to adjustment from time to time as follows:
(A) ADJUSTMENT FOR CHANGE IN CAPITAL STOCK. If at any
time the Company:
(I) pays a dividend or makes a distribution on
its Common Stock in shares of its Common
Stock;
(II) subdivides its outstanding shares of Common
Stock into a greater number of shares;
(III) combines its outstanding shares of Common
Stock into a smaller number of shares;
(IV) makes a distribution on its Common Stock in
shares of its capital stock other than Common
Stock; or
(V) issues by reclassification of its Common
Stock any shares of its capital stock;
then the Exercise Price in effect immediately prior to such
action shall be adjusted so that the Holder may receive upon
exercise of the Warrant and payment of the same aggregate
consideration the number of shares of capital stock of the
Company which the Holder would have owned immediately
following such action if the Holder had exercised the
Warrant immediately prior to such action.
The adjustment shall become effective immediately after
the record date in the case of a dividend or distribution
and immediately after the effective date in the case of a
subdivision, combination or reclassification.
(B) ADJUSTMENT FOR DILUTIVE ISSUANCE. If the
Company shall issue, after the date hereof any Additional
Stock (as defined below) without consideration or for a
consideration per share less than the Exercise Price for the
Shares, the Exercise Price in effect immediately prior to
each such issuance shall forthwith be adjusted to a price
equal to the price paid per share for such Additional Stock.
The term "Additional Stock" shall mean any and all shares of
equity securities issued after the date hereof, other than
shares of stock issuable pursuant to (i) options, warrants,
or other similar rights outstanding on the date hereof, or
(ii) stock options hereafter granted to officers, directors,
employees or consultants of the Company pursuant to the
Company's stock option plan.
<PAGE>
REORGANIZATION, CONSOLIDATION OR MERGER. In the event of
any consolidation or merger of the Company with or into
another corporation (other than a merger in which merger the
Company is the continuing corporation and that does not
result in any reclassification, capital reorganization or
other change of outstanding shares of Common Stock issuable
upon exercise of this Warrant) or in the event of any sale,
lease, transfer or conveyance to another corporation of the
property and assets of the Company as an entirety or
substantially as an entirety, the Company shall cause
effective provisions to be made so that the Holder shall
have the right thereafter, by exercising this Warrant, to
purchase the kind and amount of shares of stock and other
securities and property (including cash) receivable upon
such capital reorganization and other change, consolidation,
merger, sale, lease, transfer or conveyance by a holder of
the number of shares of Common Stock that might have been
received upon exercise of this Warrant immediately prior to
such capital reorganization, change, consolidation, merger,
sale, lease, transfer or conveyance. Any such provision
shall include provisions for adjustments in respect of such
shares of stock and other securities and property that shall
be as nearly equivalent as may be practicable to the
adjustments provided for in this Warrant. The foregoing
provisions of this Section 3(c) shall similarly apply to
successive capital reorganizations and changes of shares of
Common Stock and to successive consolidations, mergers,
sales, leases, transfers or conveyances. In the event that
in connection with
any such capital reorganization, or change, consolidation,
merger, sale, lease, transfer or conveyance, additional
shares of Common Stock shall be issued in exchange,
conversion, substitution or payment, in whole or in part,
for, or of, a security of the Company other than Common
Stock, any such issue shall be treated as an issue of Common
Stock covered by the provisions of Section 3(a) hereof.
MINIMAL ADJUSTMENTS. No adjustment in the Exercise Price
and/or the number of shares of Common Stock subject to this
Warrant need be made if such adjustment would result in a
change in the Exercise Price of less than one percent (1%)
or the Exercise Price (the "ADJUSTMENT THRESHOLD AMOUNT") or
a change in the number of subject shares of less than one
(1) share. Any adjustment which is less than the Adjustment
Threshold Amount and not made shall be carried forward and
shall be made, together with any subsequent adjustments, at
the time when (a) the aggregate amount of all such
adjustments is equal to at least the Adjustment Threshold
Amount or (b) the Warrant is exercised.
(C) DEFERRAL OF ISSUANCE OR PAYMENT. In any case
in which an event covered by this Section 3 shall require
that an adjustment in the Exercise Price be made effective
as of a record date, the Company may elect to defer until
the occurrence of such event (i) issuing to the Holder, if
this Warrant is exercised after such record date, the shares
of Common Stock and other capital stock of the Company, if
any, issuable upon such exercise over and above the shares
of Common Stock or other capital stock of the Company, if
any, issuable upon such exercise on the basis of the
Exercise Price in effect prior to such adjustment, and (ii)
paying to the Holder by check any amount in lieu of the
issuance of fractional shares pursuant to Section 7 hereof.
(D) WHEN NO ADJUSTMENT REQUIRED. No adjustment
need be made for a change in the par value or no par value
of the Common Stock. To the extent the Warrants become
exercisable into cash, no adjustment need be made thereafter
as to the cash, and interest will not accrue on the cash.
<PAGE>
(E) CERTIFICATE AS TO ADJUSTMENTS. Upon the
occurrence of each adjustment or readjustment of the
Exercise Price pursuant to this Section 3, the Company, at
its expense, shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and prepare
and furnish to the Holder a certificate setting forth such
adjustment or readjustment and showing the facts upon which
such adjustment or readjustment is based. The Company
shall, upon written request at any time of the Holder,
furnish or cause to be furnished to the Holder a like
certificate setting forth (a) such adjustments and
readjustments, (b) the then effective Exercise Price and
number of shares of Common Stock subject to the Warrant, and
(c) the then effective amount of securities (other than
Common Stock) and other property, if any, which would be
received upon exercise of the Warrant.
(F) NOTICE OF ADJUSTMENT. When any adjustment is
required to be made in the number or kind of shares
purchasable upon exercise of the Warrant, or in the Warrant
Price, the Company shall promptly notify the holder of such
even and of the number of shares of Preferred Stock or other
securities or property thereafter purchasable upon exercise
of this Warrant.
4. REGISTRATION RIGHTS. Shares of the
Company's Common Stock issued or issuable pursuant to the
exercise of this Warrant shall be deemed to be "Registrable
Securities" for purposes of that certain Registration Rights
Agreement, dated as of March 20, 1998, and amended as of the
date hereof, among the Company and the persons named therein
(the "Registration Rights Agreement"), as such agreement may
be subsequently amended or restated or consolidated with
other similar agreements granting registration rights in the
securities of the Company, and the holder of such shares
shall have all the rights, subject to the obligations, of a
holder of Registrable Securities pursuant to the
Registration Rights Agreement, and shall be treated for all
purposes as a holder of Registrable Securities under and
subject to the terms of the Registration Rights Agreement.
5. RIGHTS OF THE HOLDER. The Holder shall
not, solely by virtue of this Warrant, be entitled to any
rights of a stockholder in the Company, either at law or
equity, and the rights of the Holder are limited to those
expressed in this Warrant. Nothing contained in this
Warrant shall be construed as conferring upon the Holder
hereof the right to vote or to consent or to receive notice
as a stockholder of the Company on any matters or with
respect to any rights whatsoever as a stockholder of the
Company. No dividends or interest shall be payable or
accrued in respect of this Warrant or the interest
represented hereby or the shares of Common Stock purchasable
hereunder until, and only to the extent that, this Warrant
shall have been exercised in accordance with its terms.
6. NO IMPAIRMENT. The Company will not, by any voluntary
action, avoid or seek to avoid the observance or performance
of any of the terms of this Warrant, but will at all times
in good faith assist in the carrying out of all such terms
and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the Holder
against dilution or other impairment.
7. NO FRACTIONAL SHARES. No fractional share shall
be issued upon exercise of this Warrant. The Company shall,
in lieu of issuing any fractional share, pay the Holder
entitled to
<PAGE>
such fraction a sum in cash equal to the fair market value
of such fraction on the date of exercise (as determined in
good faith by the Board of Directors of the Company). The
fair market value of a fraction of a share is determined by
multiplying the fair market price of a full share by the
fraction of a share, rounded to the nearest cent.
8. RESERVATION OF STOCK ISSUABLE ON EXERCISE
OF WARRANT. The Company will at all times reserve and keep
available, solely for issuance and delivery upon the
exercise of this Warrant, all such shares of Common Stock or
other shares of capital stock, from time to time issuable
upon the exercise of this Warrant. If at any time the
number of authorized but unissued shares of Common Stock
shall not be sufficient to effect the exercise of this
Warrant, the Company will use its best efforts to take such
corporate action as may, in the opinion of its counsel, be
necessary to increase its authorized but unissued shares of
Common Stock to such number of shares as shall be sufficient
for such purposes. All shares that may be issued upon
exercise of the rights represented by this Warrant and
payment of the Exercise Price, all as set forth herein, will
be free from all taxes, liens and charges in respect of the
issue of such shares (other than taxes in respect of any
transfer occurring contemporaneously with such exercise and
payment or otherwise specified herein). All such shares
shall be duly authorized and when issued, sold and delivered
in accordance with the terms of the Warrant for the
consideration expressed herein, will be duly and validly
issued, fully paid and nonassessable, and will be free of
restrictions on transfer other than restrictions on transfer
set forth in this Warrant and applicable state and federal
securities laws.
9. COVENANTS OF THE COMPANY.
(A) The Company shall use its best efforts to
amend the Restated Certificate of Incorporation of the
Company in such a manner so that no reduction of the
Exercise Price pursuant to Section 3 (c) hereof shall occur
at any time.
(B) The Company shall cause a report of the daily
Gross Exposure in each Measurement Period (each, an
"EXPOSURE REPORT") to be delivered by Boatmen's POS and MNB
to the Holder at the address specified in Section 14 hereof
within 30 days of the end of such Measurement Period so long
as this Warrant remains subject to additional vesting. In
the event that the Holder has not received an Exposure
Report within 30 days after the end or any Measuring Period,
then, notwithstanding anything else contained herein, for
the purposes of this Warrant, the daily Gross Exposure
throughout such period shall be deemed to be four million
dollars ($4,000,000).
10. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The
Company hereby represents and warrants to and for the
benefit of the Purchaser as follows:
(A) AUTHORIZATION. All corporate action on the
part of the Company and its directors necessary for the
authorization, execution, issuance and delivery by the
Company of this Warrant and the performance of the Company's
obligations hereunder. This Warrant, when executed and
delivered by the Company, shall constitute a valid and
binding obligation of the
<PAGE>
Company enforceable in accordance with its terms. The shares
of Common Stock issuable upon exercise of this Warrant, when
issued in compliance with the provisions of this Warrant and
the Company's Amended and Restated Certificate of
Incorporation (the "Restated Certificate"), will be validly
issued, fully paid and nonassessable and free of any liens
or encumbrances.
(B) COMPLIANCE WITH OTHER INSTRUMENTS.
The Company is not in violation of any term of its Restated
Certificate, By-Laws or any statute, rule or regulation
applicable to the Company. The execution, delivery and
performance of this Agreement, the creation and issuance of
this Warrant and the issuance of the shares of Common Stock
pursuant to an exercise of the Warrant in accordance with
the Restated Certificate will not result in any such
violation, or be in conflict with or constitute a default
under any such term, or result in the creation of any
mortgage, pledge, lien, encumbrance, or charge upon any of
the properties or assets of the Company or contravene any
provision of, or constitute a default under, any indenture,
mortgage, contract or other instrument to which it is a
party or by which it is bound.
(C) GOVERNMENTAL CONSENTS. All consents,
approvals, orders, or authorizations of, or registrations,
qualifications, designations, declarations, or filings with,
any governmental authority, required on the part of the
Company in accordance with the valid execution, delivery,
offer, sale or issuance of this Warrant and the capital
stock issuable upon exercise of the Warrant, have been
obtained, except for the filing of notices pursuant to
Regulation D under the Securities Act, and any filing
required under applicable state securities laws which will
be effective by the time required thereby.
(D) OFFERING. Assuming the accuracy of the
representations and warranties of the Purchaser contained in
Section 19 hereof, the offer, issue, and sale of the Warrant
are and will be exempt from the registration and prospectus
delivery requirements of the Securities Act, and have been
registered or qualified (or are exempt from registration and
qualification) under the registration, permit, or
qualification requirements of all applicable state
securities laws.
11. NOTICES OF RECORD DATE. Upon (a) any taking by
the Company of a record of the holders of any class of
securities for the purpose of determining the holders
thereof who are entitled to receive any dividend or other
distribution or (b) any capital reorganization of the
Company, any reclassification or recapitalization of the
capital stock of the Company, any merger or consolidation of
the Company with or into any other corporation, or any
transfer of all or substantially all the assets of the
Company to any other person, or any voluntary or involuntary
dissolution, liquidation or winding up of the Company, the
Company shall mail to the Holder
at least twenty (20) days, or such longer period as is
required by law, prior to the record date, a notice
specifying (i) the date on which any such record is to be
taken for the purpose of such dividend or distribution and a
description of such dividend or distribution, (ii) the date
on which any such reorganization, reclassification,
transfer, consolidation, merger, dissolution, liquidation or
winding up is expected to become effective, and (iii) the
date, if any, that is to be fixed as to when the holders of
record of Common Stock (or other capital stock at that time
receivable upon exercise of the Warrant) shall be entitled
to exchange their shares of Common Stock (or such other
stock or securities) for securities or other property
deliverable upon such reorganization, reclassification,
transfer, consolidation, merger, dissolution, liquidation or
winding up.
<PAGE>
12. EXCHANGES OF WARRANT. Upon surrender for exchange
of this Warrant (in negotiable form, if not surrendered by
the Holder named on the face hereof) to the Company at its
principal office, the Company, at its expense, will issue
and deliver a new Warrant or Warrants calling in the
aggregate for the same number of shares of Common Stock, in
the denomination or denominations requested, to or on the
order of such Holder upon payment by such Holder of any
applicable transfer taxes; PROVIDED that any transfer of the
Warrant shall be subject to the conditions on transfer set
forth herein.
13. REPLACEMENT OF WARRANT. Upon receipt of
evidence reasonably satisfactory to the Company of the loss,
theft, destruction or mutilation of this Warrant, and (in
the case of loss, theft or destruction) upon delivery of an
indemnity agreement in such reasonable amount as the Company
may determine, or (in the case of mutilation) upon surrender
and cancellation hereof, the Company, at its expense, shall
issue a replacement.
14. NOTICES. Any notice required or permitted under
this Agreement shall be given in writing and shall be deemed
effectively given upon personal delivery or upon deposit
with the United States Post Office, postage prepaid,
addressed to the Company at 30 NW Rome Circle, Mezzanine
Level, Kansas City International Airport, Kansas City, MO
64153, or to the Holder at 655 Brea Canyon Road, Walnut, CA
91789, Attention: Edmund H. Shea, Jr. or at such other
address as the Company or any Holder may designate by ten
(10) days advance written notice to the other party.
15. MODIFICATION; WAIVER. Except as provided in this
Warrant, no modification or waiver of any provision of this
Warrant or consent to departure therefrom shall be effective
unless in writing and approved by the Company and the
Holder.
16. TITLES AND SUBTITLES. The titles and subtitles
used in this Warrant are used for convenience only and are
not to be considered in construing or interpreting this
Warrant.
17. GOVERNING LAW. This Warrant shall be construed in
accordance with and governed by and under the laws of the
State of California as applied to contracts made and to be
performed entirely within the State of California.
18. EXPIRATION TIME. This Warrant will be
wholly void and of no effect after 5:00 p.m. (San Francisco
time) January 18, 2004 (the "EXPIRATION TIME").
19. TRANSFER RESTRICTIONS. The Company is relying
upon an exemption from registration of this Warrant and the
shares of Common Stock issuable upon exercise hereof under
the Securities Act and applicable state securities laws.
The Holder by acceptance hereof represents that the Holder
understands that neither this Warrant nor the Common Stock
issuable upon exercise hereof has been registered with the
Securities and Exchange Commission nor under any state
securities law. By acceptance hereof, the Holder represents
and warrants that (a) it is acquiring the Warrant (and the
shares of Common Stock or other securities issuable upon
exercise hereof) for its own account for investment purposes
and not with a view to distribution, (b) has received all
such information as the Holder deems necessary
<PAGE>
and appropriate to enable the Holder to evaluate the
financial risk inherent in making an investment in the
Company, and satisfactory and complete information
concerning the business and financial condition of the
Company in response to all inquiries in respect thereof, (c)
the Holder's acquisition of shares upon exercise hereof will
be a highly speculative investment, (d) the Holder is able,
without impairing its financial condition, to hold such
shares for an indefinite period of time and to suffer a
complete loss of the Holder's investment, and (e) the Holder
has such knowledge and experience in financial and business
matters that it is capable of evaluating the merits and
risks of acquisition of this Warrant and the shares issuable
upon exercise hereof and of making an informed investment
decision with respect thereto.
This Warrant may not be exercised and neither
this Warrant nor any of the shares issuable upon exercise of
the Warrant, nor any interest in either, may be sold,
assigned, pledged, hypothecated, encumbered or in any other
manner transferred or disposed of, in whole or in part,
except in compliance with applicable United States federal
and state securities or Blue Sky laws and the terms and
conditions hereof. Each Warrant or each certificate
representing shares of Common Stock or other securities
issued upon exercise of this Warrant shall have
conspicuously endorsed on its face, at the time of its
issuance, such legends as counsel to the Company deems
necessary or appropriate, including without limitation the
legend set forth on the top of the first page of this
Warrant. Any certificate for any securities issued at any
time in exchange or substitution for any certificate for any
shares of Common Stock bearing such legend shall also bear
such legend unless, in the opinion of counsel for the
Company, the securities represented thereby need no longer
be subject to the restriction contained herein.
Without in any way limiting the foregoing, the Holder
agrees not to make any disposition of all or any portion of
the Securities unless and until:
A. There is then in effect a Registration
Statement under the Securities Act covering such proposed
disposition and such disposition is made in accordance with
such Registration Statement; or
B. (i) The Holder shall have notified the
Company of the proposed disposition and shall have furnished
the Company with a detailed statement of the circumstances
surrounding the proposed disposition, and (ii) if reasonably
requested by the Company, the Holder shall have furnished
the Company with an opinion of counsel, reasonably
satisfactory to the Company, that such disposition will not
require registration under the Securities Act.
C. Notwithstanding the provisions of paragraphs
(i) and (ii) above, no such registration statement or
opinion of counsel shall be necessary for a transfer by the
Holder to (i) an underwriter acceptable to the Company for
immediate exercise by such underwriter in connection with a
fully underwritten public offering of the Company's Common
Stock underlying this Warrant (ii) a partner (or retired
partner) or "affiliate" (as defined under the Securities
Exchange Act of 1934) of the Holder or (iii) transfers by
gift, will or intestate succession to any spouse or lineal
descendants or ancestors of any such partner, retired
partner or affiliate, if all transferees agree in writing to
be subject to the terms hereof to the same extent as if they
were a purchaser hereunder.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant
to be duly executed and delivered on the date first set
forth above.
VANGUARD AIRLINES, INC.
By:
-------------------
Name:
-----------------
Title:
----------------
<PAGE>
SUBSCRIPTION FORM
[To be executed if holder desires to exercise the Warrant]
The undersigned, holder of this Warrant, (1)
hereby irrevocably elects to exercise the right of purchase
represented by this Warrant for, and to purchase thereunder,
- ----------full shares of the Common Stock of Vanguard
Airlines, Inc. provided for therein, (2) makes payment in
full (as permitted in Section 2 of the Warrant) of the
purchase price of such shares, (3) requests that
certificates for such shares be issued in the name of
- ---------------------------------------------------
(Please print name and address)
- ---------------------------------------------------
(Please insert social security or other identifying number)
and (4) if said number of shares shall not be all the shares
purchasable thereunder, requests that a new Warrant for the
unexercised portion of this Warrant be issued in the name of
and delivered to:
- --------------------------------------------------------
(Please print name and address)
Dated:
-------------
By:
--------------Title
-------------
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1999.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 8,216,722
<SECURITIES> 0
<RECEIVABLES> 3,056,476
<ALLOWANCES> (266,000)
<INVENTORY> 1,322,258
<CURRENT-ASSETS> 17,765,258
<PP&E> 16,919,518
<DEPRECIATION> (8,140,279)
<TOTAL-ASSETS> 37,689,317
<CURRENT-LIABILITIES> 27,280,854
<BONDS> 0
0
302
<COMMON> 85,386
<OTHER-SE> 5,995,499
<TOTAL-LIABILITY-AND-EQUITY> 37,689,317
<SALES> 24,907,016
<TOTAL-REVENUES> 24,907,016
<CGS> 24,793,108
<TOTAL-COSTS> 24,793,108
<OTHER-EXPENSES> 1,019
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 112,889
<INCOME-TAX> 71,500
<INCOME-CONTINUING> 41,389
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 41,389
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
