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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended March 31, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
Commission file number: 0-24126
FRONTIER AIRLINES, INC.
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(Exact name of registrant as specified in its charter)
Colorado 84-1256945
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporated or organization)
12015 E. 46th Avenue, Denver, CO 80239
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code: (303) 371-7400
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, No Par Value
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Title of Class
Indicate by check mark whether the Registrant (1) filed all reports required to
be filed by Section 13 or 15(d) of the Exchange Act 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
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K or any amendment to this Form 10-K. [X]
Aggregate Market Value of Stock held by Non-Affiliates of the Company as of June
23, 1998: $31,076,647, based on a closing average bid and asked price on that
date of $3.44 per share.
The number of shares of the Company's Common Stock outstanding as of June 24,
1998 is 13,616,564.
Documents incorporated by reference - Part III is incorporated by reference to
the company's 1998 Proxy Statement.
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TABLE OF CONTENTS
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Page
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PART I
Item 1: Description of Business........................................ 1
Item 2: Description of Property........................................ 9
Item 3: Legal Proceedings.............................................. 9
Item 4: Submission of Matters to a Vote of Security Holders............ 10
PART II
Item 5: Market for Common Equity and Related Stockholder Matters....... 10
Item 6: Selected Financial Data........................................ 13
Item 7: Management's Discussion and Analysis of Financial Condition and
Results of Operations.......................................... 14
Item 8: Financial Statements........................................... 28
Item 9: Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure........................................... 28
PART III
Item 10: Directors and Executive Officers of the Registrant............. 28
Item 11: Executive Compensation......................................... 28
Item 12: Security Ownership of Certain Beneficial Owners and Management. 28
Item 13: Certain Relationships and Related Transactions................. 28
PART IV
Item 14: Exhibits, Financial Statement Schedules and Reports on
Form 8-K....................................................... 29
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PART I
This report contains forward-looking statements within the meaning of Section
21E of the Securities Exchange Act of 1934 that describe the business and
prospects of Frontier Airlines, Inc. (the "Company") and the expectations of the
Company and management. When used in this document, the words "estimate,"
"anticipate," "project" and similar expressions are intended to identify
forward-looking statements. These statements are subject to certain risks and
uncertainties that could cause actual results to differ materially from those
set forth. These risks and uncertainties include, but are not limited to: the
timing of, and expense associated with, expansion and modification of the
Company's operations in accordance with its business strategy or in response to
competitive pressures or other factors such as the Company's commencement of
passenger service and ground handling operations at several airports and
assumption of maintenance and ground handling operations at DIA with its own
employees; general economic factors and behavior of the fare-paying public and
the federal government, such as the crash in May 1996 of another low-fare
carrier's aircraft that resulted in a federal investigation of the carrier,
suspension of the carrier's operations and increased federal scrutiny of low-
fare carriers generally that may increase the Company's operating costs or
otherwise adversely affect the Company; actions of competing airlines, such as
increasing capacity and pricing actions of United Airlines and other
competitors; the current limited supply of Boeing 737 aircraft and the higher
lease and maintenance costs associated with such aircraft, which may inhibit
the Company's ability to achieve operating economies and implement its business
strategy; recent changes to the former air transportation excise tax of 10% to a
combination of a percentage tax and flight segment fee; and uncertainties
regarding aviation fuel prices. Because the Company's business, like that of
the airline industry generally, is characterized by high fixed costs relative to
revenues, small fluctuations in the Company's yield per RPM or expense per ASM
can significantly affect operating results.
ITEM 1: DESCRIPTION OF BUSINESS
GENERAL
The Company is a low-fare, full-service commercial airline based in Denver,
Colorado. The Company currently operates routes linking its Denver hub to 14
cities in 12 states spanning the nation from coast to coast. The Company's
current route system extends from Denver to Los Angeles and San Francisco,
California; Chicago and Bloomington/Normal, Illinois; Boston, Massachusetts;
Baltimore, Maryland; Seattle/Tacoma, Washington; Phoenix, Arizona;
Minneapolis/St. Paul, Minnesota; Salt Lake City, Utah; Omaha, Nebraska;
Albuquerque, New Mexico, New York (LaGuardia), New York; and El Paso, Texas.
The Company has announced plans to additionally serve San Diego, California,
starting July 23, 1998. At present, the Company utilizes four gates at Denver
International Airport ("DIA") for approximately 60 daily flight departures and
arrivals.
Organized in February 1994, the Company commenced flight operations in July
1994 with two leased Boeing 737-200 jet aircraft. It has since expanded its
fleet to 14 leased jets, including seven Boeing 737-200s and seven larger Boeing
737-300s.
The Company's senior management team includes executives with substantial
experience in the airline industry, including persons who occupied similar
positions at a former airline called Frontier Airlines that served regional
routes to Denver from 1950 to 1986. From time to time, the former Frontier
Airlines served most of the Company's current and intended markets with jet
equipment from its Denver hub.
TERMINATED MERGER WITH WESTERN PACIFIC AIRLINES
On June 30, 1997, the Company signed an Agreement and Plan of Merger ("the
Merger Agreement") providing for the merger (the "Merger") of the Company with
Western Pacific Airlines ("Western Pacific"), a low-fare airline that had
previously used Colorado Springs, Colorado as its base of flight operations.
The Merger Agreement was signed following Western Pacific's shift of a portion
of its flight operations to DIA, and its announced intent to further expand its
operations at DIA. Pursuant to the Merger Agreement, a "code share" marketing
alliance between the Company and Western Pacific went into effect on August 1,
1997, in effect integrating the route networks of the two airlines.
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On September 29, 1997, both companies mutually agreed to terminate the Merger
Agreement and the code-share arrangement. The separation of the two carriers
required the Company to implement a costly restructuring of its flight schedule
and route system to support a stand-alone operation competing against both
Western Pacific and United Airlines, the dominant air carrier at DIA. On
October 5, 1997, Western Pacific filed for protection under Chapter 11 of the
U.S. Bankruptcy Code. Western Pacific ceased operations on February 4, 1998 and
is in the process of liquidating its business.
BUSINESS STRATEGY AND MARKETS
The Company's business strategy is to provide service at low fares to high
volume markets from its Denver hub. The strategy is based on the following:
* Filling gaps in flight frequencies in high volume Denver markets.
* Stimulating demand by offering a combination of low fares, quality
service and frequent flyer credits in Continental Airlines' OnePass
program.
* Expanding its Denver hub operation and increasing its connecting traffic
through the addition of service to other high volume markets.
The Company's initial service pattern in 1994 was designed to fill flight
voids on routes to eight relatively small cities in North Dakota and Montana
where there was little or no jet competition to Denver after Continental's
flight terminations. The Company has since refocused its marketing priorities
on more heavily traveled routes -typically markets dominated by one or more
major airlines and characterized by high fares due to the lack of low-fare
competition prior to the Company's entry. In line with its revised marketing
strategy, the Company in 1995 and 1996 suspended service in all eight of its
original markets, and redeployed the aircraft used on these routes to a number
of Denver's largest markets.
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The following table sets forth the Company's service commencements and
suspensions for the four-year period from its initiation of flight operations in
July 1994 through June 1998.
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Service Service
Denver Market Commenced Suspended
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<S> <C> <C>
Bismarck, ND July 1994 September 1996
Fargo, ND July 1994 September 1996
Grand Forks, ND July 1994 January 1995
Minot, ND July 1994 January 1995
Bozeman, MT August 1994 September 1995
Missoula, MT August 1994 September 1995
Billings, MT September 1994 September 1995
Great Falls, MT September 1994 September 1995
Tucson, AZ October 1994 April 1995
Albuquerque, NM October 1994
El Paso, TX October 1994
Omaha, NE January 1995
Las Vegas, NV January 1995 August 1997
Phoenix, AZ September 1995
Chicago (Midway), IL September 1995
Los Angeles, CA November 1995
Minneapolis, MN November 1995
Salt Lake City, UT November 1995
San Francisco, CA November 1995
Seattle, WA May 1996
St. Louis, MO June 1996 November 1997
San Diego, CA June 1996 November 1997(a)
Bloomington,/Normal, IL(b) January 1997
Boston, MA September 1997
Baltimore, MD November 1997
New York (LaGuardia), NY December 1997
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(a) Flights are scheduled to resume on July 23, 1998
(b) Flights are operated on Denver-Omaha-Bloomington/Normal routings.
The Company plans to introduce low-fare service in additional high volume
markets. Management believes that potential markets for its planned route
expansions can support greater flight capacity than is now provided by the
incumbent carriers and that passengers would welcome the restoration of
additional capacity, particularly at the low fares offered by the Company.
MARKETING
The Company's sales efforts are targeted to price-sensitive passengers in
both the leisure and corporate travel markets. In the leisure market, the
Company offers deeply discounted fares marketed through newspaper, radio and
television advertising along with special promotions throughout its route
system.
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To balance the seasonal changes in demand in the leisure market, the Company
in late 1996 introduced a number of programs designed to capture a larger share
of the less seasonally affected corporate market. These programs include
negotiated fares for large companies that sign contracts for a specified volume
of travel, future travel credits for small and medium size businesses
contracting with Frontier, and special discounts for members of trade and
nonprofit associations.
The Company also pursues sales opportunities with meeting and convention
arrangers, government travel offices and vacation clubs. Personal sales calls,
direct mail and telemarketing are the primary tools in attracting this business.
The Company offers air/ground vacation packages to many destinations on its
route system under contract with a tour operator.
An important marketing tool in today's airline environment is the frequent
flyer program. The Company joined Continental's OnePass program in January 1995.
The selection of OnePass was based on the established membership base in the
cities served by the Company and the consistent high marks that the program has
received when compared with other programs.
The Company has implemented marketing strategies to maintain relationships
with travel agencies throughout its route system. The Company communicates with
the travel agents through personal visits by Company executives and sales
managers, mailings of sales literature, telemarketing and advertising in the
travel agents' trade publications.
The Company participates in the four major computer reservation systems used
by the travel agents to make airline reservations. The Company also maintains a
reservations center in Denver, operated by its own personnel, and an "overflow"
center located in Miami, Florida, staffed by contract personnel, which assists
the Denver center during peak booking periods. In addition, the Company
maintains a booking capability on its Internet site, and makes limited numbers
of seats available to several travel consolidators specializing in very-low-
price bookings. Since early 1997 the Company has been making increasingly
greater use of electronic or "paperless" ticketing, a lower cost alternative to
ticketing passengers on relatively expensive ticket stock.
To gain connecting traffic from other carriers, the Company has negotiated
various types of interline agreements with approximately 95 domestic and
international airlines serving cities on the Company's route system. Generally,
the agreements include joint ticketing and baggage services and other
conveniences designed to expedite the connecting process. The Company has a
code share agreement with Aspen Mountain Air with respect to Aspen Mountain
Air's routes between DIA and Aspen, Colorado; Bozeman, Montana; and Sioux City,
Iowa. Among various sales benefits, these agreements provide prominent listings
of the carriers' connecting flights in the travel industry's computer
reservations systems.
PRODUCT PRICING
The Company offers all of its seats at various discount fares, which it
believes reduces the cost of travel in markets it enters by as much as 60
percent. Seat inventories on each flight are managed through a yield management
system. The Company generally offers discounts with three levels of advance
purchase requirements. In contrast to most carriers, the Company generally does
not require travelers to have a Saturday overnight stay to take advantage of
these discount rates. Unlike most other carriers, the Company does not charge a
premium for one-way fares.
Competition
The Airline Deregulation Act of 1978 (the "Deregulation Act") produced a
highly competitive airline industry, freed of certain government regulations
that for 40 years prior to the Deregulation Act had dictated where domestic
airlines could fly and how much they could charge for their services. Since then
small carriers such as the Company have entered markets long dominated by large
airlines with substantially greater resources such as United Airlines, American
Airlines, Northwest Airlines and Delta Air Lines.
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As shown in the following chart, as of June 1998, the Company competes
principally with United Airlines, the dominant carrier at DIA with a market
share of approximately 70%. This gives United a significant competitive
advantage compared to the Company and other carriers serving DIA.
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NONSTOP ROUTES FROM DENVER TO: COMPETING AIRLINES DAILY ROUND TRIPS
- ------------------------------ ------------------ -----------------
Competing
Frontier Airlines
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San Francisco, California United Airlines 3 17
Minneapolis, Minnesota United Airlines, Northwest Airlines 2 12
Salt Lake City, Utah United Airlines, Delta Air Lines 2 15
Los Angeles, California United Airlines 3 19
Phoenix, Arizona United Airlines, America West
Airlines 3 19
Chicago (Midway), Illinois American Trans Air 3 2
Omaha, Nebraska United Airlines 3 5
Albuquerque, New Mexico United Airlines 2 8
El Paso, Texas Southwest Airlines and Delta Air
Lines 2* 6
(to and from Albuquerque)
Seattle, Washington United Airlines 2 11
Bloomington/Normal, Illinois 1** 0
Boston, Massachusetts United Airlines 1 6
Baltimore, Maryland United Airlines 1 5
New York (LaGuardia), New York United Airlines 2 6
</TABLE>
* Operated via Albuquerque, New Mexico
** Operated via Omaha, Nebraska
While United Airlines' competitive reaction to the Company's market entries
had generally been limited to matching its lowest fares on a capacity controlled
basis, the Company believes that United began engaging in a number of predatory
practices in the fall of 1996, following the Company's report of its second
quarterly profit. In a written complaint submitted to the U.S. Department of
Justice ("DOJ") in February 1997, the Company requested the DOJ to investigate
eight separate counts of potential antitrust violations. These include
"capacity dumping" (adding an excessive volume of flight capacity in several of
the Company's key markets), alleged pricing abuses, "exclusive dealing" with
corporate customers, and other tactics. See "Legal Proceedings."
In a related matter, the U.S. Department of Transportation ("DOT"), in
response to complaints by the Company and other smaller airlines, in April 1998
published a number of proposed guidelines designed to identify predatory
practices in the airline industry, along with enforcement policies. These
issues are also currently addressed at a series of ongoing hearings being held
before transportation committees of the U.S. Senate and the U.S. House of
Representatives. The Company is unable to predict what actions, if any, will be
taken either by the DOT or by Congress with respect to these issues.
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AIRCRAFT
As of June 1998, the Company operates 14 leased Boeing 737 twinjet aircraft
in all-coach seating configurations. The age of these aircraft, their passenger
capacities and their lease expirations are shown in the following table:
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Aircraft No. of Year of Passenger Lease
Model Aircraft Manufacture Seats Expiration
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<S> <C> <C> <C> <C>
B-737-200 5 1968-1969 108 July-October
1999
B-737-200A 2 1981 119 2001(1), 2002(1)
B-737-300 7 1985, 1986, 136(5), 2000(2),
1991, 1997(3), 1998 138(2) 2004(2), 2005(3)
</TABLE>
The Company's aircraft fleet is currently in compliance with Stage 3 noise
level requirements. See "Description of Business - Government Regulation."
However, 75% of the Company's fleet must be in compliance by January 1, 1999 and
100% must be in compliance by January 1, 2000. If the Company is unable to
secure three additional Stage 3 aircraft by December 31, 1998, it will be
required to remove two of its non-Stage 3 Boeing 737-200 aircraft from its
certificate or retrofit an existing Stage 2 aircraft to Stage 3 compliance in
order to remain in compliance with the Stage 3 noise level requirements.
The demand for Boeing 737 aircraft has increased markedly in recent years.
The Company is seeking to lease additional aircraft in order to expand its
service and route system. However, there can be no assurance that additional
suitable aircraft will be available to the Company at favorable lease rates and
terms, or at the times needed for implementation of the Company's plan of
operation. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations-Liquidity and Capital Resources."
MAINTENANCE AND REPAIRS
All aircraft maintenance and repairs are accomplished in accordance with the
Company's maintenance program approved by the United States Federal Aviation
Administration ("FAA"). Spare or replacement parts are maintained by the Company
primarily in Denver. Certain of these parts are supplied through a contractual
arrangement with a major airline, with others purchased or leased from other
airline or vendor sources. There are two categories of aircraft maintenance and
repair: routine servicing and checks accomplished on a daily or weekly schedule,
and major maintenance. Routine maintenance is performed principally by the
Company's mechanics at its own maintenance facilities in Denver, Colorado, and
El Paso, Texas. The Company's major maintenance has been principally performed
by Tramco, a subsidiary of B.F. Goodrich.
The Company terminated a contract with Continental Airlines for routine
maintenance at Denver in August 1996. Since that time the Company has trained,
staffed and supervised its own maintenance work force at Denver. The Company
leases a portion of Continental Airlines' hangar at DIA where it presently
performs its own maintenance through the "B" check level. Major maintenance
continues to be performed by outside FAA approved contractors.
Under its aircraft lease agreements, the Company pays all expenses relating
to the maintenance and operation of the Company's aircraft, and the Company is
required under its lease agreements to pay monthly maintenance reserve deposits
to the lessors based on usage. Maintenance reserve deposits are applied against
the cost of major maintenance. Major maintenance has occurred or will occur for
two of the Company's aircraft in the fiscal year ending March 31, 1999. To the
extent not used for major maintenance during the lease terms, maintenance
reserve deposits remain with the aircraft lessors upon redelivery of the
aircraft.
The Company's monthly completion factors for its years ending March 31, 1998,
1997 and 1996 ranged from 92.8% to 99.9%, from 94% to 99.8%, and from 95% to
99%, respectively. The completion factor is the percentage
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of the Company's scheduled flights that were operated by the Company (i.e., not
canceled). Flights not completed were canceled principally as a result of
mechanical problems, and to a lesser extent, weather. There can be no assurance
that the Company's aircraft will continue to be sufficiently reliable over
longer periods of time.
FUEL
During the years ending March 31, 1998, 1997 and 1996, jet fuel accounted for
14.1%, 16.6% and 15.4%, respectively, of the Company's operating expenses. The
Company has arrangements with major fuel suppliers for substantial portions of
its fuel requirements, and management believes that such arrangements assure an
adequate supply of fuel for current and anticipated future operations. However,
the Company has not entered into any agreements that fix the price of fuel over
any period of time. Jet fuel costs are subject to wide fluctuations as a result
of sudden disruptions in supply beyond the Company's control. Therefore, the
future availability and cost of jet fuel cannot be predicted with any degree of
certainty. The Company's average fuel price per gallon including taxes and
into-plane fees was 70.5c for the year ended March 31, 1998, with the monthly
average price per gallon during the same period ranging from a low of 61.7c to a
high of 82.7c. As of June 5, 1998, the price per gallon was 58.3c.
Newer aircraft are more fuel efficient than the Company's Boeing 737-200
aircraft due to improved aircraft airframe design and engine technology.
Significant increases in the price of jet fuel would result in a higher increase
in the Company's overall total costs than those of competitors whose entire
fleet consists of more fuel efficient aircraft such as the Company's Boeing 737-
300 aircraft. Increases in fuel prices or a shortage of supply could have a
material adverse affect on the Company's operations and financial results. The
Company's ability to pass on increased fuel costs to passengers through price
increases or fuel surcharges may be limited, particularly given the Company's
low fare strategy.
INSURANCE
The Company carries $600 million per aircraft per occurrence in property
damage and passenger and third-party liability insurance, and insurance for
aircraft loss or damage as required by its aircraft lease agreements, and
customary coverage for other business insurance. While the Company believes such
insurance is adequate, there can be no assurance that such coverage will fully
protect it against all losses which it might sustain. Moreover, the Company's
insurance for aircraft loss or damage carries a deductible requiring the Company
to pay up to the first $500,000 of loss or damage unless the aircraft is
determined to be a total loss. The Company's property damage and passenger and
third-party liability insurance coverage exceeds the minimum amounts required by
the DOT regulations.
EMPLOYEES
As of June 15, 1998, the Company had 942 employees, including 828 full-time
and 114 part-time personnel. The Company's employees included 128 pilots, 178
flight attendants, 266 customer service agents, 115 reservations agents, 77
mechanics and related personnel, 140 general management personnel, and 38
personnel performing other miscellaneous functions. The Company considers its
relations with its employees to be good.
The Company believes it operates with lower personnel costs than many
established airlines, principally due to lower base salaries and greater
flexibility in the utilization of personnel. There can be no assurance that the
Company will continue to realize these advantages over established or other air
carriers for any extended period of time. None of the Company's employees is
represented by a labor union, although labor unions have approached certain of
the Company's employees concerning potential representation. If unionization of
the Company's employees occurs, the Company's labor costs could materially
increase.
Training, both initial and recurring, is required for many employees. Pilots,
flight attendants, ground service personnel, reservationists and mechanics are
trained by the Company. FAA regulations require pilots to be licensed as
commercial pilots, with specific ratings for aircraft to be flown and to be
medically certified as physically fit. Licenses and medical certification are
subject to periodic continuation requirements including recurrent training and
recent flying experience. Mechanics, quality control inspectors and flight
dispatchers must be licensed and qualified for specific aircraft. Flight
attendants must have initial and periodic competency fitness training and
certification.
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Training programs are subject to approval and monitoring by the FAA. Management
personnel directly involved in the supervision of flight operations, training,
maintenance and aircraft inspection must meet experience standards prescribed by
FAA regulations. Employees performing safety-sensitive functions are subject to
pre-employment and subsequent random drug and alcohol testing.
GOVERNMENT REGULATION
All interstate air carriers are subject to regulation by the DOT and the FAA
under the Federal Aviation Act. The DOT's jurisdiction extends primarily to the
economic aspects of air transportation, while the FAA's regulatory authority
relates primarily to air safety, including aircraft certification and
operations, crew licensing and training and maintenance standards.
In general, regulation of interstate air carriers in terms of market entry
and exit, pricing and inter-carrier agreements has been greatly reduced
subsequent to enactment of the Deregulation Act. As a result, the level of
regulation to which the Company and other airlines is subject has been greatly
reduced. By the same token, the availability to the Company of regulatory
protection from competition has been virtually eliminated.
U.S. Department of Transportation. The Company holds a Certificate of Public
Convenience and Necessity ("DOT Certificate") issued by the DOT which allows the
Company to engage in air transportation. Pursuant to law and DOT regulation,
each United States carrier must qualify as a United States citizen, which
requires that its President and at least two-thirds of its Board of Directors
and other managing officers be comprised of United States citizens; that not
more than 25% of its voting stock may be owned by foreign nationals, and that
the carrier not be otherwise subject to foreign control.
U.S. Federal Aviation Administration. The Company also holds an operating
certificate ("FAA Certificate") issued by the FAA pursuant to Part 121 of the
Federal Aviation Regulations. The FAA has jurisdiction over the regulation of
flight operations generally, including the licensing of pilots and maintenance
personnel, the establishment of minimum standards for training and maintenance,
and technical standards for flight, communications and ground equipment. The
Company must have and maintains FAA certificates of airworthiness for all of its
aircraft. The Company's flight personnel, flight and emergency procedures,
aircraft and maintenance facilities are subject to periodic inspections and
tests by the FAA.
In May 1996, a relatively new domestic airline, as is the Company, sustained
an accident in which one of its aircraft was destroyed and all persons on board
were fatally injured. In June 1996, that airline agreed at the FAA's request to
cease all of its flight operations for an indefinite period of time. Although
the FAA has subsequently, after an intensive and lengthy investigation, allowed
the new domestic airline to resume its operations, should the Company experience
a similar accident, it is probable that there would be a material adverse effect
on the Company's business.
The DOT and FAA also have authority under the Aviation Safety and Noise
Abatement Act of 1979, the Airport Noise and Capacity Act of 1990 ("ANCA") and
Clean Air Act of 1963 to monitor and regulate aircraft engine noise and exhaust
emissions. The Company is required to comply with all applicable FAA noise
control regulations and with current exhaust emissions standards. According to
FAA rules, each new entrant airline such as the Company must presently have at
least 50% of its fleet in compliance with the FAA's Stage 3 noise level
requirements. The balance of each airlines' fleet must be brought into
compliance with Stage 3 in phases, with 75% compliance by January 1999 and full
compliance by January 2000. The Company's aircraft fleet is currently in
compliance with Stage 3 noise level requirements. See "Description of
Business-Aircraft."
As a result of litigation and pressure from airport area residents, airport
operators have taken local actions over the years to reduce aircraft noise.
These actions have included regulations requiring aircraft to meet prescribed
decibel limits by designated dates, curfews during night time hours,
restrictions on frequency of aircraft operations and various operational
procedures for noise abatement. ANCA recognizes the right of airport operators
with special noise problems to implement local noise abatement procedures as
long as such procedures do not interfere unreasonably with the interstate and
foreign commerce of the national air transportation system. ANCA generally
requires FAA approval of local noise restrictions on Stage 3 aircraft and
establishes a regulatory notice and review
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process for local restrictions on Stage 2 aircraft. An agreement between the
City and County of Denver and another city adjacent to DIA precludes the use of
Stage 2 aircraft, such as certain of the Company's Boeing 737-200 aircraft, on
one of DIA's runways. On occasion, this results in longer taxi times for the
Company's aircraft than would otherwise be the case. However, this has not had a
material adverse effect on the Company's operations. The Company's operations
could be adversely affected if additional restrictions are imposed at DIA or if
locally-imposed regulations become restrictive at any other cities on the
Company's routes.
Miscellaneous. All air carriers are also subject to certain provisions of the
Communications Act of 1934 because of their extensive use of radio and other
communication facilities, and are required to obtain an aeronautical radio
license from the Federal Communications Commission ("FCC"). To the extent that
the Company is subject to FCC requirements, it takes all necessary steps to
comply with those requirements.
The Company's operations may become subject to additional federal regulatory
requirements in the future under certain circumstances. For example, if the
Company's employees were to unionize, the Company's labor relations would be
covered under Title II of the Railway Labor Act of 1926 and would be subject to
the jurisdiction of the National Mediation Board. During a period of past fuel
scarcity, air carrier access to jet fuel was subject to allocation regulations
promulgated by the Department of Energy. To the extent that the Company seeks to
provide international air transportation in the future, it will be required to
obtain additional authority from the DOT and become subject to other regulatory
requirements imposed by affected foreign jurisdictions.
ITEM 2: DESCRIPTION OF PROPERTY
The Company has leased approximately 28,000 square feet of office space in
Denver with terms ending August 1999 and 2001 at a current annual cost of
approximately $453,000 for the year ending March 31, 1999. This facility
provides space for the Company's reservations center together with space for
administrative activities including senior management, purchasing, accounting,
sales, marketing, advertising and human resources.
Each airport location requires leased space associated with gate operations,
ticketing and baggage operations. The ticket counters, gates and airport office
facilities at each of the airports the Company serves are leased from the
appropriate airport authority or subleased from other airlines.
The Company has entered into an airport lease and facilities agreement with
the City and County of Denver at DIA that expires in 2005. The Company subleases
ticket counter space and four gates at DIA from Continental Airlines until March
1, 2000 and a portion of Continental Airline's hangar at DIA until September 30,
1998. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations-Liquidity and Capital Resources."
ITEM 3: LEGAL PROCEEDINGS
In February 1997, the Company filed a complaint with the DOJ alleging that
United Airlines has engaged in predatory, anticompetitive and monopolistic
practices at DIA. The complaint asks the agency to investigate eight separate
counts of potential antitrust violations. The eight counts range from "capacity
dumping" in markets served by competitors to alleged abuses relating to United's
pricing practices, "exclusive dealing" with corporate customers and commuter
carriers, and other tactics used by United to allegedly drive competitors from
its markets. In early 1998 the Company received and answered a DOJ Civil
Investigative Demand which requested information and documents in the Company's
possession relating to possible violations of the federal antitrust laws
concerning monopolization or attempts to monopolize air transportation in
certain markets, including certain Denver city-pair markets. The Company is
unable to predict what action, if any, the DOJ will take in response to the
Company's complaint.
In December 1997, the DOT awarded the Company three take-off and three
landing slots at New York City's LaGuardia airport, a slot controlled airport to
and from which operations are not permitted absent the grant of such slots. The
Company as of June 1998 provides two daily round-trip flights in the Denver-
LaGuardia market by virtue of the award of these slots by the DOT. In December
1997, the City of New York filed a petition against the DOT and the Company in
the United States Court of Appeals for the Second Circuit alleging that the
DOT's award
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<PAGE>
of these slots to the Company was unlawful. The appellate court
heard oral arguments on this case in late June 1998 but has not issued a
decision in the case. A final adverse ruling could result in the Company's
inability to continue to serve New York City's LaGuardia Airport.
From time to time, the Company is engaged in routine litigation incidental to
its business. Except as may be otherwise specifically discussed in this
section, management believes there are no legal proceedings pending in which the
Company is a party or of which any of the Company's property is the subject that
are not adequately covered by insurance maintained by the Company, or which if
adversely decided, would have a material adverse effect on the Company's
business or financial condition.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of the year covered by this report, no matter was
submitted to a vote of security holders of the Company through the solicitation
of proxies or otherwise.
PART II
ITEM 5: MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
PRICE RANGE OF COMMON STOCK
The Company's Common Stock is traded on the Nasdaq SmallCap Market ("Nasdaq")
under the symbol "FRNT." The following table sets forth the range of high and
low bid prices per share for the Common Stock for the periods indicated as
reported by Nasdaq. Market quotations represent prices between dealers and do
not reflect retail mark-ups, mark-downs or commissions. As of June 24, there
were 541 holders of record of the Common Stock.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Price Range of
Common Stock
------------
Quarter Ended High Low
------------- ---- ---
June 30, 1996 $ 10 5/16 $ 4 11/16
September 30, 1996 9 3/4 6 3/4
December 31, 1996 6 29/32 3 1/4
March 31, 1997 4 2 5/8
June 30, 1997 4 5/8 3 1/32
September 30, 1997 3 15/16 2 5/8
December 31, 1997 3 5/32 1 29/32
March 31, 1998 3 7/8 1 3/4
June 30, 1998 (through
June 24, 1998) 3 15/16 2 7/8
</TABLE>
RECENT SALES OF UNREGISTERED SECURITIES
In February 1998, in connection with a $5,000,000 loan to the Company, the
Company issued a warrant to the Company's lender to purchase 1,750,000 shares of
the Company's Common Stock at a purchase price of $3.00 per share, which warrant
expires in December 2001. In April 1998, in connection with a private placement
of 4,363,001 shares of its Common Stock, the Company issued a warrant to an
institutional investor to purchase 716,929 shares of the Common Stock of the
Company at a purchase price of $3.75 per share, which warrant expires in April
2002. In May 1998, the Company issued a warrant to its financial advisor in
connection with debt and equity financings a warrant to purchase 548,000 shares
of the Company's Common Stock at a purchase price of $3.00 per share, which
warrant expires in May 2003. Each of these transactions was made under an
exemption from registration under the Securities Act of 1933 pursuant to
Sections 4(2) or 4(6) thereof.
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<PAGE>
As of June 15, 1998, the Company has granted stock options to employees and
Directors of the Company to purchase up to 1,931,250 shares of Common Stock,
409,188 of which options have been previously exercised and 1,445,394 of which
are currently exercisable at exercise prices ranging from $1.00 to $3.75 per
share.
DIVIDEND POLICY
Except for the Rights Dividend Distribution described below, the Company has
not declared or paid dividends on its Common Stock. The Company currently
intends to retain any future earnings to fund operations and the continued
development of its business, and, thus, does not expect to pay any cash
dividends on its Common Stock in the foreseeable future. Future cash dividends,
if any, will be determined by the Board of Directors and will be based upon the
Company's earnings, capital requirements, financial condition and other factors
deemed relevant by the Board of Directors.
RIGHTS DIVIDEND DISTRIBUTION
In February 1997, the Company's Board of Directors declared a dividend
distribution of one right (a "Right") for each outstanding share of the
Company's no par value common stock ("Common Stock") to shareholders of record
at the close of business on March 15, 1997. Except as described below, each
Right, when exercisable, entitles the registered holder to purchase from the
Company one share of the Company's Common Stock, at a purchase price of $17.50
per share (the "Purchase Price"), subject to adjustment. The Rights expire at
the close of business on February 20, 2007, unless earlier redeemed or exchanged
by the Company as described below. The description and terms of the Rights are
set forth in a Rights Agreement, as amended by amendments, dated June 30, 1997
and December 5, 1997 (as so amended, the "Rights Agreement").
The Rights are exercisable upon the earlier of (i) 10 days following a public
announcement that a person or group of affiliated or associated persons other
than the Company, its subsidiaries or any person receiving newly-issued shares
of Common Stock directly from the Company or indirectly via an underwriter in
connection with a public offering by the Company (an "Acquiring Person") has
acquired, or obtained the right to acquire, beneficial ownership of 20% or more
of the outstanding shares of Common Stock (the "Stock Acquisition Date"), or
(ii) 10 business days following the commencement of a tender offer or exchange
offer that would result in a person or group beneficially owning 20% or more of
such outstanding shares of Common Stock.
If any person becomes an Acquiring Person other than pursuant to a Qualifying
Offer (as defined below), each holder of a Right has the right to receive, upon
exercise, Common Stock (or, in certain circumstances, cash, property or other
securities of the Company) having a value equal to two times the exercise price
of the Right. Notwithstanding any of the foregoing, all Rights that are
beneficially owned by any Acquiring Person will be null and void. However,
Rights are not exercisable in any event until such time as the Rights are no
longer redeemable by the Company as set forth below.
A "Qualifying Offer" means a tender offer or exchange offer for, or merger
proposal involving, all outstanding shares of Common Stock at a price and on
terms determined by at least a majority of the Board of Directors who are not
officers or employees of the Company and who are not related to the Person
making such offer, to be fair to and in the best interests of the Company and
its shareholders.
If after the Stock Acquisition Date the Company is acquired in a merger or
other business combination transaction in which the Common Stock is changed or
exchanged or in which the Company is not the surviving corporation (other than a
merger that follows a Qualifying Offer) or 50% or more of the Company's assets
or earning power is sold or transferred, each holder of a Right shall have the
right to receive, upon exercise, common stock of the acquiring company having a
value equal to two times the exercise price of the Right.
The Purchase Price payable, and the number of shares of Common Stock or other
securities or property issuable, upon exercise of the Rights are subject to
adjustment from time to time to prevent dilution (i) in the event of a stock
dividend on, or a subdivision, combination or reclassification of, the Common
Stock, (ii) if holders of the Common Stock are granted certain rights or
warrants to subscribe for Common Stock or convertible securities at
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<PAGE>
less than the current market price of the Common Stock, or (iii) upon the
distribution to holders of the Common Stock of evidences of indebtedness or
assets or of subscription rights or warrants.
At any time until ten days following the Stock Acquisition Date, the Company
may redeem the Rights in whole at a price of $.01 per Right. Upon the action of
the Board of Directors ordering redemption of the Rights, the Rights will
terminate and the only right of the holders of Rights will be to receive the
$.01 redemption price.
While the distribution, if any, of the Rights will not be taxable to
shareholders or to the Company, shareholders may, depending upon the
circumstances, recognize taxable income if the Rights become exercisable for
Common Stock (or other consideration) of the Company or for common stock of the
acquiring company.
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<PAGE>
ITEM 6: SELECTED FINANCIAL DATA
The following selected financial data as of and for each of the years ended
March 31, 1998, 1997, 1996, 1995 and 1994 are derived from the audited financial
statements of the Company. This data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," and the financial statements and the related notes thereto included
elsewhere in this Report.
<TABLE>
<CAPTION>
Year Ended March 31,
1998 1997 1996 1995 1994
----------------------------------------------------------------------
(in thousands, except for per share data and selected operating statistics)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total operating revenues $ 147,142 $ 116,501 $ 70,393 $ 24,595 -
Total operating expenses 165,697 129,662 76,325 32,692 124
Operating loss (18,554) (13,161) (5,933) (8,122) (124)
Net loss (17,746) (12,186) (5,582) (7,999) (124)
Net loss per share
basic and diluted (1.95) (1.49) (1.23) (2.56) (0.15)
BALANCE SHEET DATA:
Cash and cash equivalents $ 3,641 $ 10,286 $ 6,359 $ 3,835 $ 415
Short-term investments - - 1,168 - -
Current assets 33,999 31,470 25,797 8,270 425
Total assets 50,598 44,093 30,990 13,746 486
Current liabilities 50,324 32,745 25,844 9,529 94
Long-term debt 3,468 56 92 147 -
Total liabilities 56,272 34,210 26,289 12,104 94
Stockholders' equity (5,673) 9,883 4,701 1,642 392
(deficit)
Working capital (16,325) (1,275) (47) (1,259) 331
(deficit)
SELECTED OPERATING DATA:
Passenger revenue $ 135,244 $ 109,088 $ 66,634 $ 23,620 -
Revenue passengers carried 1,356 1,180 758 269 -
Revenue passenger miles
(RPMs)(1) 1,119,378 839,939 479,887 147,215 -
Available seat miles
(ASMs)(2) 1,996,185 1,419,720 844,161 357,089 -
Passenger load factor(3) 56.1% 59.2% 56.8% 41.2% -
Break-even load factor(4) 63.4% 65.8% 61.6% 55.2% -
Block hours (5) 42,767 32,459 20,783 9,719 -
Average daily block hour
utilization (6) 9.5 10.3 9.9 8.7 -
Yield per RPM (7)(cents) 12.08 12.99 13.89 16.04 -
Yield per ASM (8)(cents) 6.78 7.68 7.89 6.61 -
Expense per ASM (cents) 8.30 9.13 9.04 9.16 -
Passenger revenue per
block hour $ 3,162.34 $ 3,360.79 $3,206.18 $2,430.29 -
Average fare (9) $ 100 $ 92 $ 88 $ 88 -
Average aircraft in service 12.3 9.6 5.7 4.1 -
</TABLE>
Note: The Company did not begin flight operations until July 1994 (during the
fiscal year ended March 31, 1995).
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<PAGE>
(1) "Revenue passenger miles," or RPMs, are determined by multiplying the
number of fare-paying passengers carried by the distance flown.
(2) "Available seat miles," or ASMs, are determined by multiplying the number
of seats available for passengers by the number of miles flown.
(3) "Passenger load factor" is determined by dividing revenue passenger miles
by available seat miles.
(4) "Break-even load factor" is the passenger load factor that will result in
operating revenues being equal to operating expenses, assuming constant
revenue per passenger mile and expenses
(5) "Block hours" represent the time between aircraft gate departure and
aircraft gate arrival.
(6) "Average daily block hour utilization" represents the total block hours
divided by the weighted average number of aircraft days in service.
(7) "Yield per RPM" is determined by dividing passenger revenues by revenue
passenger miles.
(8) "Yield per ASM" is determined by dividing passenger revenues by available
seat miles.
(9) "Average fare" excludes revenue included in passenger revenue for non-
revenue passengers, administrative fees, and revenue recognized for unused
tickets that are greater than one year from issuance date.
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
SELECTED OPERATING STATISTICS
The following table provides operating revenues and expenses for the Company
expressed as cents per total available seat miles ("ASM") and as a percentage of
total operating revenues, as rounded, for the years ended March 31, 1998, 1997
and 1996.
<TABLE>
<CAPTION>
1998 1997 1996
---------------------- ---------------------- --------------------
Per % Per % Per %
total of total of total of
ASM Revenue ASM Revenue ASM Revenue
--------- ------- --------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Passenger 7.11 96.5% 8.01 97.6% 8.12 97.4%
Cargo 0.15 2.0% 0.14 1.7% 0.14 1.6%
Other 0.11 1.4% 0.06 0.7% 0.08 1.0%
--------- ------- --------- ------- ------- --------
Total revenues 7.37 100.0% 8.21 100.0% 8.34 100.0%
Operating expenses:
Flight operations 3.32 45.1% 3.71 45.2% 3.32 39.8%
Aircraft and traffic
servicing 1.54 20.9% 1.75 21.3% 2.19 26.3%
Maintenance 1.59 21.6% 1.76 21.4% 1.39 16.7%
Promotion and sales 1.47 19.9% 1.52 18.5% 1.68 20.2%
General and administrative 0.32 4.3% 0.33 4.0% 0.39 4.7%
Depreciation and
amortization 0.06 0.9% 0.08 0.9% 0.06 0.8%
--------- ------- --------- ------- ------- --------
Total operating expenses 8.30 112.6% 9.13 111.3% 9.04 108.4%
========= ======= ========= ======= ======= ========
Total ASMs (000s) 1,996,185 1,419,720 844,161
</TABLE>
Results of Operations - Year Ended March 31, 1998 Compared to Year Ended March
31, 1997
GENERAL
During the year ended March 31, 1998, the Company added four new Boeing 737-
300 aircraft to its fleet. As a result of these new aircraft fleet additions,
the Company added service to Boston, Massachusetts in September 1997, Baltimore,
Maryland in November 1997 and New York (LaGuardia), New York in December 1997.
The Company terminated service to Las Vegas, Nevada in August 1997 and San
Diego, California and St. Louis, Missouri in November 1997.
In June 1997, the Company signed an Agreement and Plan of Merger (the "Merger
Agreement") providing for the merger of the Company with Western Pacific. In
September 1997, the Company and Western Pacific mutually agreed to terminate the
Merger Agreement. On October 5, 1997, Western Pacific filed for protection under
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<PAGE>
Chapter 11 of the U.S. Bankruptcy Code. Western Pacific, which originally began
service to and from Colorado Springs, Colorado, commenced service from DIA on
June 29, 1997. On February 4, 1998, Western Pacific ceased flight operations
and has since been engaged in liquidating its business.
Small fluctuations in the Company's yield per RPM or expense per ASM can
significantly affect operating results because the Company, like other airlines,
has high fixed costs in relation to revenues. Airline operations are highly
sensitive to various factors, including the actions of competing airlines and
general economic factors, which can adversely affect the Company's liquidity,
cash flows and results of operations.
As a result of its expansion of operations during the year ended March 31,
1998, the Company's results of operations are not necessarily indicative of
future operating results or comparable to the prior year ended March 31, 1997.
RESULTS OF OPERATIONS
The Company incurred a net loss of $17,746,000 or $1.95 per share for the
year ended March 31, 1998 as compared to a net loss of $12,186,000 or $1.49 per
share for the year ended March 31, 1997. Management believes that the Company's
operating results were adversely affected during the year ended March 31, 1998
by a code share agreement with Western Pacific which, in connection with the
proposed merger with Western Pacific, was effective August 1, 1997. The code
share was designed to coordinate the Company's schedule with Western Pacific's
schedule at DIA. The code share agreement was terminated effective November 15,
1997 as a part of the mutual termination of the Merger Agreement. As a result
of the schedule implemented under the code share agreement, the Company had
flights scheduled in certain markets that were not at peak travel times. This
arrangement did not benefit the Company as an independent airline. As a result
of the termination of the Merger Agreement and code share agreement, the Company
introduced a new, independent schedule, terminated service to San Diego,
California and St. Louis, Missouri, and added routes to Baltimore, Maryland and
to New York City's La Guardia Airport in November and December 1997.
Competition from Western Pacific on several of the Company's routes adversely
affected the Company's yields and load factors. Additionally, during the year
ended March 31, 1998 as compared to the prior comparable period, the Company
experienced higher average aircraft lease expenses on its newer aircraft, higher
maintenance expenses associated with its in-house maintenance operation which
began in September 1996, and unusual general and administrative expenses
associated with the Western Pacific merger.
REVENUES
General. Airline revenues are primarily a function of the number of
passengers carried and fares charged by the airline. The Company believes that
revenues will gradually increase in a new market over a 60 to 120 day period as
market penetration is achieved. The Company added three new markets during the
year ended March 31, 1998 and four new markets during the year ended March 31,
1997.
The Company's results are highly sensitive to changes in fare levels. Fare
pricing policies have a significant impact on the Company's revenues. Given the
elasticity of passenger demand, the Company believes that increases in fares
will result in a decrease in passenger demand in many markets. The Company
cannot completely predict future fare levels, which depend to a substantial
degree on actions of competitors. When sale prices or other price changes are
initiated by competitors in the Company's markets, the Company believes that it
must, in most cases, match those competitive fares in order to maintain its
market share. Passenger revenues are seasonal in leisure travel markets
depending on the markets' locations and when they are most frequently
patronized.
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<PAGE>
During the years ended March 31, 1998 and 1997, the Company faced
significant competitive actions by two airlines that maintained hubs at DIA.
During the year ended March 31, 1997, the Company competed with United Airlines
with respect to fare and other competitive actions. During the year ended March
31, 1998, the Company, as well as competing with United Airlines for passenger
traffic and on fares, also was forced to compete with Western Pacific in six of
the Company's markets where Western Pacific was offering extremely low fares in
an effort the Company believes was targeted toward increasing load factor and
revenues. The effect upon the Company of this competition during the year ended
March 31, 1997 was a low average fare and, to a lesser degree, fewer passengers
carried, and during the year ended March 31, 1998 fewer passengers carried and
with a slight downward effect on the average fare. Western Pacific discontinued
all flight operations on February 4, 1998 and has since been engaged in
liquidating its business.
The Company's average fares for the years ended March 31, 1998 and
1997 were $100 and $92, respectively. Management believes that the increase in
the average fare during the year ended March 31, 1998 over the prior comparable
period was largely a result of the Company's focus on increasing business
travelers, an increase in the average length of haul and stage length, and
reduced fare competition from United Airlines, offset by low pricing by Western
Pacific. Effective October 1, 1997, the U.S. Congress reduced the 10% excise
tax to 9%, but added a per-flight-segment fee of $1 on domestic flights. The
tax decreases to 8% October 1, 1998 and to 7.5% on October 1, 1999. The per-
flight-segment fee increases to $2 effective October 1, 1998, $2.25 effective
October 1, 1999 and thereafter increases in annual amounts of 25 cents until it
reaches $3 effective October 1, 2002.
Passenger Revenue. Passenger revenues totaled $142,018,000 for the
year ended March 31, 1998 compared to $113,758,000 for the year ended March 31,
1997, or an increase of 24.8%. Competition increased dramatically during the
months of July through January 1998 when Western Pacific began operations at DIA
and even more significantly during the months of October through January 1998
once the Company's merger and code share agreements with Western Pacific were
terminated. This increased competition had a negative impact on the number of
revenue passengers carried. The number of revenue passengers carried was
1,356,000 for the year ended March 31, 1998 compared to 1,181,000 for the year
ended March 31, 1997 or an increase of 14.9%. The Company had an average of
12.3 aircraft in service during the year ended March 31, 1998 compared to an
average of 9.6 aircraft in service during the year ended March 31, 1997 resulted
in an increase in ASMs of 576,465,000 or 40.6%.
An airline's break-even load factor is the passenger load factor that
will result in operating revenues being equal to operating expenses, assuming
constant revenue per passenger mile and expenses. For the year ended March 31,
1998, the Company's break-even load factor was 63.4% compared to a passenger
load factor of 56.1%. For the year ended March 31, 1997, the Company's break-
even load factor was 65.8% compared to a passenger load factor of 59.2%. The
Company's break-even load factor decreased from the prior comparable period
largely as a result of an increase in its average fare to $100 during the year
ended March 31, 1998 from $92 during the year ended March 31, 1997.
The Company's load factor decreased to 56.1% for the year ended March
31, 1998 from 59.2% the prior comparable period. Management believes that its
load factor for the year ended March 31, 1998 was adversely affected by
increased competition from Western Pacific and the ramp-up effect from new
routes the Company added during September, November and December 1997. The
Company's load factors increased to 57.1% during the three months ended March
31, 1998 from 49.4% during the three months ended December 31, 1997.
Management believes this was principally a result of Western Pacific's
termination of all air service effective February 4, 1998.
Cargo revenues, consisting of revenues from freight and mail service,
totaled $3,009,000 and $1,956,000 for the years ended March 31, 1998 and 1997,
representing 2.1% and 1.7% of total operating revenues, respectively. This
adjunct to the passenger business is highly competitive and depends heavily on
aircraft scheduling, alternate competitive means of same day delivery service
and schedule reliability.
Other revenues, comprised principally of interline handling fees,
liquor sales and excess baggage fees, totaled $2,115,000 and $786,000 or 1.4%
and .7% of total operating revenues for the years ended March 31, 1998 and 1997,
respectively. The increase for the year ended March 31, 1998 over the prior
comparable period is due to the increase in ticket handling fees associated with
the code share agreement with Western Pacific. Ticket handling fees
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<PAGE>
are earned by the ticketing airline to offset ticketing costs incurred on
segments ticketed on the flight operated by the Company's code share partner.
The Company recognized approximately $1,007,000 in ticket handling fees
associated with its code share agreement with Western Pacific during the year
ended March 31, 1998. The costs which offset this revenue are included in sales
and promotion expenses.
OPERATING EXPENSES
Operating expenses include those related to flight operations,
aircraft and traffic servicing, maintenance, promotion and sales, general and
administrative and depreciation and amortization. Total operating expenses
increased to 112.6% of revenue for the year ended March 31, 1998 compared to
111.3% of revenue for the year ended March 31, 1997. Operating expenses
increased as a percentage of revenue as the Company's revenue was adversely
effected by lower load factors caused by increased competition and the Company
also experienced higher average aircraft lease expenses on its newer larger
aircraft, higher maintenance expenses associated with its in-house maintenance
operation which began in September 1996, and unusual general and administrative
expenses associated with the Western Pacific merger.
Flight Operations. Flight operations expenses include all expenses
related directly to the operation of the aircraft including fuel, lease and
insurance expenses, pilot and flight attendant compensation, in flight catering,
crew overnight expenses, flight dispatch and flight operations administrative
expenses. Flight operations expenses of $66,288,000 and $52,650,000 were 45.1%
and 45.2% of total revenue for years ended March 31, 1998 and 1997,
respectively, or an increase of 25.9%.
Aircraft fuel expenses include both the direct cost of fuel including
taxes as well as the cost of delivering fuel into the aircraft. Aircraft fuel
costs of $23,332,000 for 33,098,000 gallons used and $21,551,000 for 25,926,000
gallons used resulted in an average fuel cost of 70.5c and 83.1c per gallon and
represented 35.2% and 40.9% of total flight operations expenses for the years
ended March 31, 1998 and 1997, respectively. The average fuel cost per gallon
decreased for the year ended March 31, 1998 from the comparable prior period due
to an overall decrease in the cost of fuel. Fuel prices are subject to change
weekly as the Company does not purchase supplies in advance for inventory. Fuel
consumption for the years ended March 31, 1998 and 1997 averaged 774 and 799
gallons per block hour, respectively. Fuel consumption per block hour decreased
as a result of more fuel efficient aircraft and an increase in the average
length of haul.
Aircraft lease expenses, excluding short-term aircraft lease expenses,
totaled $24,330,000 (16.5% of total revenue) and $16,704,000 (14.3% of total
revenue) for the years ended March 31, 1998 and 1997, respectively, or an
increase of 45.7%. The increase is partially attributable to the increase in
the average number of aircraft in service to 12.3 from 9.6, or 28.1%, for the
years ended March 31, 1998 and 1997, respectively, and largely due to higher
lease expenses for larger and newer Boeing 737-300 aircraft added to the fleet.
In August 1996, the Company entered into short-term lease agreements in order to
add a partial spare to its fleet to improve the Company's on-time performance
and completion factors and to substitute for aircraft in the Company's fleet
that were out of service for scheduled maintenance. Total expenses associated
with the short-term lease agreements totaled $3,359,000 for the months of August
1996 through March 1997 and none during the year ended March 31, 1998.
Because of the increase in the Company's fleet size, the Company at certain
times uses one of its aircraft as a spare and schedules most of its major
maintenance cycles to coincide with lesser traveled months.
Aircraft insurance expenses totaled $2,989,000 (2.0% of total revenue)
and $2,638,000 (2.3% of total revenue) for the years ended March 31, 1998 and
1997, respectively, or an increase of 13.3%. Aircraft insurance expenses
decreased as a percentage of revenue as a result of competitive pricing in the
aircraft insurance industry, the Company's favorable experience rating since it
began flight operations in July 1994 and economies of scale due to the increase
in fleet size.
Pilot and flight attendant salaries totaled $8,708,000 and $6,671,000
or 5.9% and 5.7% of passenger revenue for the years ended March 31, 1998 and
1997, respectively, or an increase of 30.5%. Pilot and flight attendant
compensation increased principally as a result of a 28.1% increase in the
average number of aircraft in service and an increase of 31.8% in block hours.
During the years ended March 31, 1998, the Company added four leased aircraft to
its fleet and during the year ended March 31, 1997, the Company added three
leased aircraft to its fleet.
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<PAGE>
The Company pays pilot and flight attendant salaries for training, consisting of
approximately six and three weeks, respectively, prior to scheduled increases in
service, causing the compensation expense for the years ended March 31, 1998 and
1997 to appear high in relationship to the average number of aircraft in
service. When the Company is not in the process of adding aircraft to its
system, it expects that pilot and flight attendant expense per aircraft will
normalize. With a scheduled passenger operation, and with salaried rather than
hourly crew compensation, the Company's expenses for flight operations are
largely fixed, with flight catering and fuel expenses the principal exception.
Aircraft and Traffic Servicing. Aircraft and traffic servicing
expenses were $30,685,000 and $24,849,000 for the years ended March 31, 1998 and
1997, respectively, and represented 20.9% and 21.3% of total revenue. These
include all expenses incurred at airports served by the Company, as well as
station operations administration and flight operations ground equipment
maintenance. Station expenses include landing fees, facilities rental, station
labor and ground handling expenses. Station expenses as a percentage of revenue
decreased during the year ended March 31, 1998 over the year ended March 31,
1997 as a result of the Company's rental costs (in particular, gate rentals at
DIA), which are largely fixed costs, remaining relatively constant as compared
to the increase in revenue and more of its "above wing" (including passenger
check-in at ticket counters, concourse gate operations and cabin cleaning)
operations being performed by Company personnel rather than by third party
suppliers. The Company began its own "above wing" operations at Los Angeles
International Airport in June 1996, Chicago (Midway) in July 1996, Seattle-
Tacoma in August 1996, and El Paso, Texas effective October 1996. Aircraft and
traffic servicing expenses will increase with the addition of new cities;
however, the increased existing gate utilization at DIA is expected to reduce
per unit expenses.
Maintenance. Maintenance expenses of $31,791,000 and $24,946,000 were
21.6% and 21.4% of total revenue for the years ended March 31, 1998 and 1997,
respectively. These include all maintenance, labor, parts and supplies expenses
related to the upkeep of the aircraft. Routine maintenance is charged to
maintenance expense as incurred while major engine overhauls and heavy
maintenance checks are accrued each quarter. Maintenance cost per block hour
was $743.34 and $768.52 for the years ended March 31, 1998 and 1997,
respectively. Maintenance costs per block hour decreased as a result of lower
maintenance costs associated with the four new aircraft the Company added to its
fleet this year. Continental Airlines had been providing routine aircraft
maintenance services for the Company at Denver but discontinued this service in
September 1996. As a result, the Company hired its own aircraft mechanics to
perform routine maintenance and subleased a portion of a hangar from Continental
at DIA in which to perform this work. The performance of this work by the
Company, together with the cost of leasing adequate hangar space, initially
increased the Company's maintenance cost per block hour. Management believes
that these costs will continue to normalize as it adds additional aircraft to
its fleet.
During the years ended March 31, 1998 and 1997, the Company revised
the timing of its scheduled maintenance and related estimates for its engine
maintenance reserves. The revised estimate resulted in an additional reserve
accrual of approximately $1,034,000 and $765,000, respectively, which
approximates $24.17 and $23.57 of the total maintenance cost per block hour of
$743.34 and $768.52 for the years ended March 31, 1998 and 1997, respectively.
Promotion and Sales. Promotion and sales expenses totaled $29,329,000
and $21,526,000 and were 20.7% and 18.5% of passenger revenue for the years
ended March 31, 1998 and 1997, respectively. These include advertising
expenses, telecommunications expenses, wages and benefits for reservationists
and reservations supervision as well as marketing management and sales
personnel. Credit card fees, travel agency commissions and computer reservations
costs are included in these costs. The promotion and sales expenses per
passenger were $21.63 and $18.24 for the years ended March 31, 1998 and 1997,
respectively. The Company's promotion and sales expenses per passenger
increased largely as a result of the code share agreement with Western Pacific,
under which the Company incurred additional communications, computer
reservation, credit card and interline handling fees, and increased advertising
expenses. These expenses were offset, in part, by interline handling fees earned
which are included in other revenues. The Company offers mileage credits on
Continental Airlines OnePass mileage program. The Company's expense associated
with the OnePass program has increased from $317,000 or 27c per passenger for
the year ended March 31, 1997 to $584,000 or 43c per passenger for the year
ended March 31, 1998. The Company's OnePass expense has increased as it has
become more mature and more passengers have become aware of the Company's
participation in the OnePass program. Additionally, the increase in business
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travelers, who generally participate in mileage programs more than leisure
travelers, has also caused an increase in the OnePass expense.
Advertising expenses of $3,048,000 and $2,482,000 were 2.2% of
passenger revenue for the year ended March 31, 1998 and 1997, respectively.
General and Administrative. General and administrative expenses for
the years ended March 31, 1998 and 1997 totaling $6,353,000 and $4,618,000 were
4.3% and 4.0% of total revenue, respectively. These expenses include the wages
and benefits for the Company's executive officers and various other
administrative personnel. Legal and accounting expenses, supplies and other
miscellaneous expenses are also included in this category. Included in general
and administrative expenses during the year ended March 31, 1998 are unusual
expenses of approximately $513,000 associated with the terminated merger
agreement with Western Pacific.
Depreciation and Amortization. Depreciation and amortization expense
of $1,251,000 and $1,072,000 were approximately .9% of total revenue for each of
the years ended March 31, 1998 and 1997, respectively. These expenses include
depreciation of office equipment, ground station equipment, and other fixed
assets of the Company. Amortization of start-up and route development costs are
not included as these expenses have been expensed as incurred.
Nonoperating Income (Expenses). Total net nonoperating income totaled
$808,000 for the year ended March 31, 1998 compared to $975,000 for the year
ended March 31, 1997, or a decrease of 17.1%. Interest income decreased from
$1,034,000 to $722,000 from the prior comparable period as a result of a
decrease in cash associated with the net loss incurred during the year ended
March 31, 1998. In December 1997, the Company's sold $5,000,000 of 10% senior
notes. In connection with this transaction, the Company issued warrants to
purchase 1,750,000 shares of its Common Stock. Total interest expense paid in
cash and the accretion of the warrants and deferred loan expenses totaled
$263,000 during the year ended March 31, 1998. The Company had $410,000 of
other net income for the year ended March 31, 1998 which was comprised
principally of $484,000 in insurance claims for the Company's telephone switch
which was subject to an electrical fire in October 1997, offset by other
miscellaneous expenses.
Expenses per ASM. The Company's expenses per ASM for the years ended
March 31, 1998 and 1997 were 8.30c and 9.13c, respectively, or a decrease of
9.1%. Expenses per ASM decreased from the prior comparable period as a result
of the economies of scale as the fixed costs were spread across a larger base
of operations and the average ASMs per aircraft have increased as the Company
adds planes with more seating capacity as compared to its earlier fleet
additions. Expenses per ASM are influenced to some degree by the utilization of
aircraft and by the seating configuration that each airline employs. For
example, with the 108 seat all coach seating configuration selected by the
Company on its first five Boeing 737-200 aircraft, the expenses per ASM of the
Company are higher by 11% when compared with the 120 seat alternative used by
many carriers. The Company's average seats per aircraft for the year ended
March 31, 1998 were 122 as compared to 118 seats per aircraft for the year ended
March 31, 1997.
RESULTS OF OPERATIONS - YEAR ENDED MARCH 31, 1997 COMPARED TO YEAR ENDED MARCH
31, 1996
GENERAL
The Company's flight operations began on July 5, 1994 with two Boeing
737-200 aircraft operating eight daily flights between Denver, Colorado and four
North Dakota cities. Since that time, the Company has increased the number of
markets it serves and the number of flights offered. The Company placed three
additional Boeing 737-200 aircraft in service in 1994 and added four cities in
Montana to its route system. In October 1995, the Company leased two Boeing 737-
300 aircraft which were placed in service during November 1995 in conjunction
with adding four new, high volume routes linking Denver to Los Angeles and San
Francisco, California, Minneapolis-St. Paul, Minnesota, and Salt Lake City,
Utah. The Company significantly rescheduled its flights during the year ended
March 31, 1996 through the elimination of Minot and Grand Forks, North Dakota
and all four of its Montana destinations, and the addition of Omaha, Nebraska,
Las Vegas, Nevada, Chicago (Midway), Illinois and Phoenix, Arizona to its
schedule. During the year ended March 31, 1997, the Company added two Boeing
737-
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200 aircraft and one Boeing 737-300 aircraft to its fleet and added flights
to Seattle/Tacoma, Washington, in May 1996, flights to San Diego, California and
St. Louis, Missouri in June 1996, and flights to Bloomington-Normal, Illinois,
in January 1997, as an extension of its service between Denver and Omaha,
Nebraska. Flights to Bismarck and Fargo, North Dakota, the last two of the
Company's eight original markets, were suspended in September 1996.
The Company modified its initial operating plan and expanded operations
during the fiscal years ended March 31, 1996 and March 31, 1997. Therefore, the
Company's results of operations for the fiscal years ended March 31, 1996 and
1997 are not necessarily comparable or indicative of future operating results.
Effective in September 1996, the Company began performing scheduled maintenance
on its aircraft using its own mechanics, with the exception of major maintenance
cycles which continue to be performed by FAA approved contractors.
RESULTS OF OPERATIONS
The Company incurred a net loss of $12,186,000 or $1.49 per share for the
year ended March 31, 1997 as compared to a net loss of $5,582,000 or $1.23 per
share for the year ended March 31, 1996. The increase in net loss was
attributable to the increase in operating expenses exceeding the increase in
revenues, discussed below. During the year ended March 31, 1996, the Company
modified its initial operating strategy from serving "local" passengers (those
either beginning or ending their trips in Denver) and interline "connecting"
passengers (those transferring to and from other airline flights at Denver for
travel to destinations beyond Denver) to developing its own connecting hub at
Denver and to providing service to Denver's largest markets that are more
dependent on local traffic and less dependent on connecting traffic. The
Company began the implementation of its new business strategy in late September
1995. As a result of the completion of the first phase of its new business and
marketing strategy, the Company had its first profitable quarter during the
quarter ended March 31, 1996 with net income of $816,000 and its second
profitable quarter during the quarter ended June 30, 1996 with net income of
$1,336,000. Beginning in August 1996, the Company experienced higher fuel costs,
short-term lease expenses for aircraft to replace its aircraft during scheduled
maintenance cycles, intensive increased competition from DIA's dominant carrier,
United Airlines, increased maintenance expenses as it commenced in-house
maintenance operations in September 1996, and the return of the 10% passenger
excise tax in late August 1996. Because of United Airlines' competitive
activity, the Company was unable to adjust its fares to permit recovery of these
increased expenses. Management believes alleged anticompetitive practices by
United in the Denver market have had, and, to the extent they continue, will
have a material adverse effect on the Company's revenues and results of
operations. (See Part I, Item 3: Legal Proceedings.)
Small fluctuations in the Company's yield per RPM or expense per ASM can
significantly affect operating results because the Company, like other airlines,
has high fixed costs and low operating margins in relation to revenues. Airline
operations are highly sensitive to various factors, including the actions of
competing airlines and general economic factors, which can adversely affect the
Company's liquidity, cash flows and results of operations.
REVENUES
General. Airline revenues are primarily a function of the number of
passengers carried and fares charged by the airline. The Company believes that
revenues will gradually increase in a new market over a 60 to 120 day period as
market penetration is achieved. This occurred during the year ended March 31,
1996 in January, September and November 1995 when the Company commenced service
between Denver and Omaha, Nebraska, Las Vegas, Nevada, Chicago (Midway),
Illinois, Phoenix, Arizona, Los Angeles and San Francisco, California,
Minneapolis-St. Paul, Minnesota and Salt Lake City, Utah. During the year ended
March 31, 1997, the Company commenced service between Denver and Seattle/Tacoma,
San Diego and St. Louis in May and June, 1996, and between Denver and
Bloomington, Illinois via Omaha in January 1997.
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The Company's results are highly sensitive to changes in fare levels. Fare
pricing policies have a significant impact on the Company's revenues. Following
is a table of the Company's average fares:
<TABLE>
<CAPTION>
Quarter Ended Average Fare
------------- ------------
<S> <C>
June 30, 1995 $96
September 30, 1995 $85
December 31, 1995 $80
March 31, 1996 $93
June 30, 1996 $98
September 30, 1996 $92
December 31,1996 $86
March 31, 1997 $94
</TABLE>
In connection with the modification in the Company's strategy, the Company
reduced fares to maximize traffic and revenue. During the quarter ended
September 30, 1995, the Company reduced its fares system-wide in order to
"stimulate" markets and match competitors' fares. During the quarter ended
December 31, 1995, the Company's average fare decreased to $80 as a result of
introductory fares for its two new markets added in late September 1995 and the
four new markets added during the month of November 1995. The Company's average
fare for the quarters ended March 31, 1996 and June 30, 1996 increased to $93
and $98, respectively, largely as a result of the Company's new yield management
system, the elimination of introductory fares, and the expiration of excise
taxes on air transportation effective January 1, 1996. On August 27, 1996, the
10% excise tax on air transportation was reinstated through December 31, 1996.
The decrease in the average fare of $98 for the quarter ended June 30, 1996 to
$92 for the quarter ended September 30, 1996 and to $86 for the quarter ended
December 31, 1996 was largely due to alleged anticompetitive activity by United
Airlines in the Denver market which precluded the Company from adjusting fares
to recover increased costs, including the reinstatement of the 10% excise tax.
The excise tax expired again on December 31, 1996, was subsequently reinstated
on March 7, 1997 and is scheduled to expire again on September 30, 1997.
Management believes that the excise tax or some other type of tax will be
reinstated immediately upon expiration of the present tax and may be as high as
10% of the fare. Given the elasticity of passenger demand, the Company believes
that increases in fares will result in a decrease in passenger demand. To
maintain passenger traffic in the face of an excise tax increase may require
some downward adjustment in net fares realized by the Company. The Company
cannot completely predict future fare levels, which depend to a substantial
degree on actions of competitors. When sale prices or other price changes are
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. Passenger revenues are seasonal in each market.
Passenger Revenue. Passenger revenues totaled $113,758,000 for the year
ended March 31, 1997 compared to $68,530,000 for the year ended March 31, 1996,
or an increase of 66%. The number of revenue passengers carried was 1,180,000
for the year ended March 31, 1997 compared to 758,000 for the year ended March
31, 1997 or an increase of 56%. The average fare for the year ended March 31,
1997 was $93 compared to the average fare for the year ended March 31, 1996 of
$88. The Company had an average of 9.6 aircraft in service during the year
ended March 31, 1997 compared to an average of 5.7 aircraft during the year
ended March 31, 1996 for an increase in ASMs of 575,559,000 or 68%.
An airline's break-even load factor is the passenger load factor that will
result in operating revenues being equal to operating expenses, assuming
constant revenue per passenger mile and expenses. For the year ended March 31,
1997, the Company's break-even load factor was 66% compared to a passenger load
factor of 59.2%. For the year ended March 31, 1996 the Company's break-even
load factor was 61.8% compared to a passenger load factor of 56.9%. The
Company's break-even load factor increased over the prior comparable period as
increased price competition kept the Company from increasing fares to compensate
for the higher fuel prices, short term aircraft lease expenses, and increased
maintenance expenses associated with the Company's maintenance facility which
began operations in September 1996. The increase in these expenses began during
August 1996, which increased the break-even load factor from 58.3% for the
quarter ended June 30, 1996 to 66% for the quarter ended September 30, 1996.
The Company experienced the full impact of these increased expenses in the
quarter ended
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<PAGE>
December 31, 1996, as the break-even load factor increased to 73.1%. The break-
even load factor decreased to 68.1% for the quarter ended March 31, 1997 largely
as a result in the increase in the average fare from $86 to $94 during the
quarter ended March 31, 1997.
The improvement in the Company's load factor from 56.9% to 59.2% for year
ended March 31, 1997 over the prior comparable period reflects the result of the
Company's change in business strategy to provide service to higher volume
markets. However, management believes that its load factor for the year ended
March 31, 1997 could have been higher but was adversely affected by increased
competitive fare pricing and by the public's initial reaction to two significant
airline accidents which occurred during the year ended March 31, 1997. One of
the accidents involved a low fare carrier and the other involved a major
national airline. In both accidents the aircraft was destroyed and all
passengers and crew were killed.
Cargo revenues, consisting of revenues from freight and mail service, totaled
$1,956,000 and $1,148,000 for the years ended March 31, 1997 and 1996,
representing 1.7% and 1.6% of total operating revenues, respectively. This
adjunct to the passenger business is highly competitive and depends heavily on
aircraft scheduling, alternate competitive means of same day delivery service
and schedule reliability.
Other revenues, comprised principally of liquor sales and excess baggage
fees, totaled $787,000 and $714,000 or less than 1% of total operating revenues
for each of the years ended March 31, 1997 and 1996.
OPERATING EXPENSES
Operating expenses include those related to flight operations, aircraft and
traffic servicing, maintenance, promotion and sales, general and administrative
and depreciation and amortization. Total operating expenses increased to 111.3%
of revenue for the year ended March 31, 1997 compared to 108.4% of revenue for
the year ended March 31, 1996. Operating expenses increased as a percentage of
revenue largely as result of an increase in flight operations expenses. Flight
operations expenses were impacted by increased fuel prices, short-term lease
expenses to replace aircraft undergoing scheduled maintenance and an increase in
maintenance expenses as a result of the Company's commencement of its own
maintenance facility to perform routine maintenance at Denver. As a result,
total operating expenses for the year ended March 31, 1997 increased 70% over
the prior comparable period.
Flight Operations. Flight operations expenses of $52,650,000 and $28,019,000
were 45.2% and 39.8% of total revenue for the years ended March 31, 1997 and
1996, respectively. Flight operations expenses include all expenses related
directly to the operation of the aircraft including fuel, lease and insurance
expenses, pilot and flight attendant compensation, flight catering, crew
overnight expenses, flight dispatch and flight operations administrative
expenses.
Aircraft fuel expenses include both the direct cost of fuel including taxes
as well as the cost of delivering fuel into the aircraft. Aircraft fuel costs
of $21,551,000 for 25,926,000 gallons used and $11,775,000 for 16,706,000
gallons used resulted in an average fuel cost of 83.1c and 70.5c per gallon and
represented 40.9% and 42.0% of total flight operations expenses for the years
ended March 31, 1997 and 1996, respectively. The average fuel cost per gallon
increased for the year ended March 31, 1997 over the comparable prior period due
to an overall increase in the cost of fuel and the loss of the fuel tax
exemption for the calendar year ended December 31,1997. In 1993, the United
States increased taxes on domestic fuel, including aviation fuel, by 4.3 cents
per gallon. This tax increase was first imposed on the Company and other
airlines effective October 1, 1995. Fuel prices are subject to change weekly as
the Company does not purchase supplies in advance for inventory. Fuel
consumption for the years ended March 31, 1997 and 1996 averaged 799 and 804
gallons per block hour, respectively. Fuel consumption per block hour decreased
as a result of more fuel efficient aircraft and an increase in the average
length of haul.
Aircraft lease and insurance expenses, excluding short-term aircraft lease
expenses, totaled $15,983,000 (13.7% of total revenue) and $7,980,000 (11.3% of
total revenue) for the years ended March 31, 1997 and 1996, respectively, or an
increase of 100.3%. The increase is partially attributable to the increase in
the average number of aircraft in service to 9.6 from 5.7 for the years ended
March 31, 1997 and 1996, respectively, and partially due to higher lease
expenses on larger and newer aircraft added to the fleet. Beginning August 1996
and November 1995,
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<PAGE>
the Company entered into short-term aircraft lease agreements in order to add a
partial spare aircraft to its fleet to improve the Company's on-time performance
and completion factors for the year ended March 31, 1997, and to substitute for
aircraft in the Company's fleet which were out of service for scheduled
maintenance during a portion of the years ended March 31, 1997 and 1996. The
final short-term aircraft lease agreement terminated March 31, 1997. Aggregate
expenses associated with the short-term aircraft lease agreements totaled
$3,359,000 during the months of August through December 1996 and $526,000 for
the months of November 1995 through December 1995. The Company paid a premium
for short-term lease agreements and does not anticipate future short-term
agreements due to the addition of aircraft to its fleet.
Pilot and flight attendant compensation totaled $6,671,000 and $4,025,000 or
5.7% for each of the years ended March 31, 1997 and 1996, or an increase of
65.8%. Pilot and flight attendant compensation increased principally as a
result of a 68.4% increase in the average number of aircraft in service and an
increase of 56.1% in block hours. During the year ended March 31, 1997, the
Company added two leased aircraft to its fleet in June 1996 and December 1996.
During the year ended March 31, 1996 the Company added two leased aircraft to
its fleet in October 1995. The Company pays pilot and flight attendant
salaries for training consisting of approximately six and three weeks,
respectively, prior to scheduled increases in service, causing the compensation
expense for the years ended March 31, 1997 and 1996 to appear high in
relationship to the average number of aircraft in service. When the Company is
not in the process of adding aircraft to its system, it expects that pilot and
flight attendant expense per aircraft will normalize. With a scheduled
passenger operation, and with salaried rather than hourly crew compensation, the
Company's expenses for flight operations are largely fixed, with flight catering
and fuel expenses the principal exception.
Aircraft and Traffic Servicing. Aircraft and traffic servicing expenses were
$24,849,000 and $18,487,000 for the years ended March 31, 1997 and 1996,
respectively, and represented 21.3% and 26.3% of total revenue. These include
all expenses incurred at airports served by the Company, as well as station
operations administration and flight operations ground equipment maintenance.
Station expenses include landing fees, facilities rental, station labor and
ground handling expenses. Station expenses as a percentage of revenue decreased
during the year ended March 31, 1997 over the year ended March 31, 1996 as a
result of the Company's rental costs (in particular, the gate rentals at DIA)
which are largely fixed costs, remaining relatively constant as compared to the
increase in revenue. Additionally, the Company began its own "above wing"
operations at DIA (including passenger check-in at ticket counters, concourse
gate operations and cabin cleaning) effective April 1996, Los Angeles
International Airport in June 1996, Chicago (Midway) in July 1996, Seattle-
Tacoma in August 1996, and El Paso, Texas effective October 1996 rather than
contracting these services through a third party supplier. Aircraft and traffic
servicing expenses will increase with the addition of new cities; however, the
increased existing gate utilization at DIA is expected to reduce per unit
expenses.
Maintenance. Maintenance expenses of $24,946,000 and $11,732,000 were 21.4%
and 16.7% of total revenue for the years ended March 31, 1997 and 1996,
respectively. These include all maintenance, labor, parts and supplies expenses
related to the upkeep of the aircraft. Routine maintenance is charged to
maintenance expense as incurred while major engine overhauls and heavy
maintenance checks are accrued each quarter. Maintenance cost per block hour
was $769 and $565 per block hour for the years ended March 31, 1997 and 1996,
respectively. Continental Airlines had been providing routine aircraft
maintenance services for the Company at Denver but discontinued this service in
September 1996. As a result, the Company hired its own aircraft mechanics to
perform routine maintenance and subleased a portion of a hangar from Continental
at DIA in which to perform this work. The performance of this work by the
Company, together with the cost of leasing adequate hangar space, increased the
Company's maintenance cost per block hour. Management believes that these costs
will normalize as it adds additional aircraft to its fleet.
During the year ended March 31, 1997, the Company revised the timing of its
scheduled maintenance and related estimates for its engine maintenance reserves.
The revised estimate resulted in an additional reserve accrual of approximately
$765,000 which approximates $23 of the total maintenance cost per block hour of
$768 for the year ended March 31, 1997.
Promotion and Sales. Promotion and sales expenses totaled $21,526,000 and
$14,219,000 and were 18.5% and 20.2% of passenger revenue for the years ended
March 31, 1997 and 1996, respectively. These include
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<PAGE>
advertising expenses, telecommunications expenses, wages and benefits for
reservationists and reservations supervision as well as marketing management and
sales personnel. Credit card fees, travel agency commissions and computer
reservations costs are included in these costs. The promotion and sales expenses
per passenger were $18.24 and $18.75 for the years ended March 31, 1997 and
1996, respectively. The 51c reduction is largely a result of a decrease in
interline service charges and communication expenses.
The Company's interline service charges decreased as a result of a 2.8%
reduction in the percentage of interline revenue to total revenues. Interline
revenue is for travel on the Company's flights ticketed by another airline on
connecting traffic. The decrease in interline revenue as a percentage of total
revenues is a result of route reductions in regional markets.
Advertising expenses of $2,482,000 were 2.2% of passenger revenues for the
year ended March 31, 1997, compared to approximately $1,619,000 or 2.4% of
passenger revenues for the year ended March 31, 1996. As new cities are added
to the Company's flight schedule, advertising and marketing promotions are
designed and implemented to increase awareness of the Company's new service,
name and brand awareness. Advertising expenses decreased as a percentage of
passenger revenues as the Company entered four new markets during the year ended
March 31, 1997 compared to six new markets during the year ended March 31, 1996,
offset by an increase in advertising expenses during the year ended March 31,
1997 as a result of increased fare competition by United Airlines.
General and Administrative. General and administrative expenses for the years
ended March 31, 1997 and 1996 totaling $4,618,000 and $3,321,000 were 4.0% and
4.7% of total revenue, respectively. These expenses include the wages and
benefits for the Company's executive officers and various other administrative
personnel. Legal and accounting expenses, supplies and other miscellaneous
expenses are also included in this category. The overall increase in general
and administrative expenses is largely a result of an increase in employee
benefits and office rent with the increase in the number of full and part-time
employees from 533 in March 1996 to 738 in March 1997 and an increase in revenue
accounting fees as a result of a 55.6% increase in revenue passengers carried.
Depreciation and Amortization. Depreciation and amortization expense of
$1,072,000 and $547,000 were approximately one percent of total revenue for each
of the years ended March 31, 1997 and 1996. These expenses include depreciation
of office equipment, ground station equipment, and other fixed assets of the
Company. Amortization of start-up and route development costs are not included
as these expenses have been expensed as incurred.
Nonoperating Income (Expenses). Total net nonoperating income totaled
$975,000 for the year ended March 31, 1997 compared to $351,000 for the year
ended March 31, 1996, or an increase of 178% principally a result of an increase
in interest income of 146%. Interest income increased over the prior comparable
period as a result of increases in cash which occurred during the first quarter
of the year ended March 31, 1997 as a result of profitable operations during
that quarter, a private placement of the Company's Common Stock in April 1996,
and capital raised from the exercise of the Company's warrants.
Expenses per ASM. The Company's expenses per ASM for the years ended March
31, 1997 and 1996 were 9.13c and 9.04c, respectively, or an increase of 1%.
Expenses per ASM increased over the comparable period as a result of increased
flight operation expenses resulting from an increase in short-term aircraft
lease and fuel expenses and increased maintenance expenses largely as a result
of the Company's commencement of its own maintenance facility, offset by
economies of scale as the fixed costs were spread across a larger base of
operations.
Expenses per ASM are influenced to some degree by the utilization of aircraft
and by the seating configuration that each airline employs. For example, with
the 108 seat all coach seating configuration selected by the Company on five of
its Boeing 737-200 aircraft, the expenses per ASM of the Company are higher by
11% when compared with the 120 seat alternative used by many carriers.
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<PAGE>
Liquidity and Capital Resources
The Company's balance sheet reflected cash and cash equivalents of
$3,641,000 at March 31, 1998 and $10,286,000 at March 31, 1997. At March 31,
1998, total current assets were $33,999,000 as compared to $50,324,000 of total
current liabilities, resulting in a working capital deficit of $16,325,000. At
March 31, 1997, total current assets were $31,470,000 as compared to $32,745,000
of total current liabilities, resulting in a working capital deficit of
$1,275,000. The $15,050,000 increase in the working capital deficit is primarily
a result of the Company's operating losses during the year ended March 31, 1998.
Cash used by operating activities for the year ended March 31, 1998
was $8,168,000. This is largely attributable to the Company's net loss for the
period, an increase in restricted investments, trade receivables, security,
maintenance and other deposits, and prepaid expenses and other assets, offset by
increases in accounts payable, air traffic liability, other accrued expenses and
accrued maintenance expenses. Cash used by operating activities for the year
ended March 31, 1997 was $6,469,000. This is attributed primarily to the
Company's net loss for the period, increases in trade receivables, maintenance
deposits, prepaid expenses and other assets and inventories offset by increases
in accounts payable, air traffic liability, other accrued expenses and accrued
maintenance expenses.
Cash used in investing activities for the year ended March 31, 1998
was $3,863,000, largely a result of capital expenditures for rotable aircraft
components and aircraft leasehold costs and improvements for the aircraft
delivered in May, August, and September 1997 and February 1998. Additionally,
the Company secured lease obligations for the aircraft delivered in August 1997
and February 1998 with letters of credit totaling $1,500,000. In turn, the
Company received $650,000 during the year ended March 31, 1998 from the aircraft
lessor that was previously on deposit to secure lease obligations for these
aircraft. The Company's restricted investments increased $1,500,000 to
collateralize the letter of credit. Cash used in investing activities for the
year ended March 31, 1997 was $5,549,000. Restricted cash increased $600,000
for collateral for a letter of credit provided an aircraft lessor in lieu of a
cash security deposit for the Boeing 737-300 aircraft leased in November 1996.
The Company expended $2,682,000 for initial lease acquisition security deposits
for two Boeing 737-200 aircraft and partial security deposits for four Boeing
737-300 aircraft leased during the year ended March 31, 1997, all with delivery
dates during the year ended March 31, 1998. The Company made capital
expenditures totaling $3,435,000 for equipment, a spare engine, aircraft parts,
and aircraft improvements, maintenance equipment for its maintenance facility
which began operations in September 1996, ground equipment, computer equipment,
and leasehold improvements.
Cash provided by financing activities for the years ended March 31,
1998 and 1997 was $5,386,000 and $15,944,000, respectively. During the year
ended March 31, 1998, the Company received $435,000 from the exercise of stock
options. In December 1997, the Company sold $5,000,000 of 10% senior secured
notes. In connection with this transaction, the Company issued warrants to
purchase 1,750,000 shares of Common Stock at $3.00 per share. During the year
ended March 31, 1997, the Company completed a private placement of its Common
Stock that resulted in net proceeds of approximately $2,721,000 in April 1996.
In May 1996, the Company notified existing warrant holders of the Company's
intent to exercise its redemption rights with respect to such warrants not
exercised on or before June 28, 1996. The Company received net proceeds from the
exercise of these warrants of approximately $13,278,000.
In April 1998, the Company sold 4,363,001 shares of its common stock,
no par value, through a private placement to an institutional investor. Gross
proceeds to the Company from the transaction was approximately $14,180,000 of
which the Company received net proceeds of approximately $13,850,000. The
Company issued a warrant to this investor to purchase 716,929 shares of common
stock of the Company at a purchase price of $3.75 per share, which warrant
expires in April 2002.
Five of the Company's Boeing 737-200 aircraft are leased under
operating leases which originally expired in 1997. The leases provide for up to
two renewal terms of two years each with no increase in basic rent. The Company
renewed the leases for the first two-year renewal period and these leases now
expire in 1999. Under these leases, the Company was required to make security
deposits and makes deposits for maintenance of these leased aircraft. Security
and maintenance deposits totaled $625,000 and $2,392,000, respectively, at March
31, 1998.
-25-
<PAGE>
The Company in November 1995 leased two Boeing 737-300 aircraft under
operating leases which expire in 2000. The Company was required to make
security deposits and makes deposits for maintenance of these leased aircraft.
Security and maintenance deposits for these aircraft totaled $1,505,000 and
$3,207,000, respectively, at March 31, 1998. These aircraft are compliant with
FAA Stage 3 noise regulations. The Company has issued to each of the two Boeing
737-300 aircraft lessors a warrant to purchase 100,000 shares of the Company's
Common Stock at an aggregate purchase price of $500,000. These warrants, to the
extent not earlier exercised, expire upon the expiration dates of the aircraft
leases.
In June 1996, the Company leased two additional Boeing 737-200
aircraft under operating leases which expire in 2001. In November 1997, the
Company renegotiated one of these leases extending the lease term by one year to
2002 in return for a slight reduction in the monthly rental payment. The
Company was required to make security deposits for these aircraft totaling
$858,000. Commencing July 1996, the Company was required to make monthly
deposits for maintenance of these leased aircraft. At March 31, 1998, these
deposits totaled $2,190,000. These aircraft were "hush-kitted" by the lessor at
its expense during 1996 making them compliant with FAA Stage 3 noise
regulations. The Company has issued to the aircraft lessor two warrants, each
of which entitles the lessor to purchase 70,000 shares of the Company's Common
Stock at an aggregate purchase price of $503,300 per warrant.
In November 1996, the Company took delivery of a leased Boeing 737-300
aircraft which it placed in scheduled service in December 1996. The lease term
for this aircraft is eight years from date of delivery. The Company was
required to secure the aircraft lease with a letter of credit totaling $600,000.
The Company is also required to make monthly cash deposits for maintenance of
this aircraft. As of March 31, 1998, the Company had made maintenance deposits
associated with this leased aircraft totaling $1,324,000.
During the year ended March 31, 1997, the Company entered into four
operating lease agreements for four additional new Boeing 737-300 aircraft with
scheduled deliveries during the Company's year ended March 31, 1998. The
Company took delivery of these aircraft in May, August, and September 1997 and
in February 1998. In connection with the Boeing 737-300 aircraft delivered in
September 1997, the Company has issued to the lessor a warrant to purchase
55,000 shares of Common Stock at an aggregate purchase price of $385,000. As of
March 31, 1998, the Company had made cash security deposits totaling $1,616,000
with respect to these aircraft. During the year ended March 31, 1998, the
Company secured lease obligations for two of these aircraft with letters of
credit totaling $1,500,000 and, in turn, $650,000 of cash security deposits was
returned to the Company. The Company's restricted cash increased by $1,500,000
to collateralize the letters of credit. Two each of the four lease agreements
have seven and eight year terms from date of delivery, respectively. Two of the
four leases have up to two one year renewal terms and a third may be renewed for
up to three one year terms. The Company is required to pay monthly cash deposits
to each aircraft lessor based on flight hours and cycles operated to provide
funding of future scheduled maintenance costs. As of March 31, 1998, the
Company had maintenance deposits associated with these aircraft totaling
$2,092,000.
Management is continuing to take steps designed to improve the
Company's operating performance. Effective January 28, 1997, the Company
introduced electronic ticketing. Passengers who call the Company directly are
given the option of receiving a paper ticket or a confirmation number in lieu of
a paper ticket. Electronic ticketing decreases certain costs including postage
and handling costs, ticket stock, and reduced revenue accounting fees because
the accounting for electronic ticketing is automated. The Company also has
implemented and maintains a booking capability on its Internet site.
The Company has announced its intention to perform its own ground
handling operations at DIA effective September 1, 1998, a function which is
currently being provided by an independent contractor. The Company is in the
process of acquiring certain ground handling equipment with total capital
expenditures estimated to be $850,000. The Company is seeking financing for
these expenditures but there can be no assurance that it will be successful in
obtaining the necessary financing.
The Company is exploring various means to increase revenues and reduce
expenses. The Company is considering revenue enhancement initiatives which may
include the introduction of a premium class passenger service, development of
new marketing alliances, and ad hoc charters. Expense reduction programs
include the
-26-
<PAGE>
installation of an upgraded flight operations, maintenance, and parts inventory
management information system which will be installed during the first six
months of fiscal year ending March 31, 1999. Other potential cost savings
programs include an in-house revenue accounting system, and conducting certain
heavy maintenance checks in-house. These programs would require capital
expenditures and will be implemented if the Company is able to increase its
capital resources. The Company believes that it can reduce its airport operating
expenses at certain cities by performing its own ground handling operations
rather than continuing to contract out these services. Since April 1996,
conversions to the Company's own ground handling operations occurred at nine of
the Company's 14 stations.
The Company has a contract with a credit card processor that requires
the Company to provide a letter of credit to match the total amount of air
traffic liability associated with credit card customers if the Company does not
meet certain financial covenants and if the credit card processor requests that
the collateral be increased. As of September 30, 1997, the Company was in
default with respect to these financial covenants. In November 1997, the credit
card processor required an increase in the collateral amount from its present
level of $2,000,000 to $4,000,000, which increased the Company's current
restricted investment balance accordingly. As of June 16, 1998, the Company
could be required to increase the collateral amount to $6,600,000.
Most of the Company's suppliers currently provide goods, services and
operating equipment on open credit terms. If such terms were modified to
require immediate cash payments, the Company's cash position would be materially
and adversely affected.
The Company's goal is to lease a number of additional aircraft to
serve additional cities from Denver. The Company believes that such a route
system would facilitate a greater volume of connecting traffic as well as a
stable base of local traffic and offset the impact of higher DIA-related
operating costs through more efficient gate utilization. The expansion of the
Company's operations will entail the hiring of additional employees to staff
flight and ground operations in its new markets and significant initial costs
such as deposits for airport and aircraft leases. Because of the expansion of
the Company's business, and competition within the airline industry, which often
requires quick reaction by management to changes in market conditions, the
Company likely will require additional capital to maintain or further expand its
business.
Effective February 11, 1997, United Airlines commenced service using
its low fare United "Shuttle" between Denver and Phoenix, Arizona, and on
October 31, 1997 such service to Salt Lake City was added by United. These are
both markets in which the Company provides service, in addition to other
markets where United Airlines provides flights. This additional competition, as
well as other competitive activities by United and other carriers, have had and
could continue to have a material adverse effect on the Company's revenues and
results of operations.
The Company has incurred substantial operating losses in 1998 and 1997
and has a working capital deficit at March 31, 1998. In addition, the Company
has substantial contractual commitments for leasing and maintaining aircraft.
The Company believes that its existing cash balances coupled with improved
operating results projected for fiscal 1999 will be adequate to fund the
Company's operations at least through March 31, 1999. There can be no assurances
however, that the Company will be successful in improving its operating results
in fiscal 1999. If its operating results do not improve, the Company anticipates
that it would be required to obtain additional capital or other financing to
fund its operations.
YEAR 2000 COMPLIANCE
The Company uses information systems in managing and conducting
certain aspects of its business. The Company's systems are currently not Year
2000 compliant, and the Company is in the process of ascertaining the
modifications that will be necessary for its systems to attain Year 2000
compliance. The Company is taking measures to address this problem and has
created a Year 2000 committee, headed by an officer of the Company, to manage
and coordinate the Company's efforts to identify and fix critical date-sensitive
systems. While the Company believes it will be able to perform or obtain the
necessary modifications on a timely basis, the Company has not determined the
costs that will be necessary for attaining compliance, and there is no assurance
that such costs will not be significant. Failure by the Company and its key
business partners (e.g., the FAA, DOT, airport
-27-
<PAGE>
authorities, suppliers, and data providers) to achieve Year 2000 compliance on a
timely basis could have a significant adverse impact on the Company's business,
financial condition and operating results.
ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Note applicable.
ITEM 8: FINANCIAL STATEMENTS
The Company's financial statements are filed as a part of this report
immediately following the signature page.
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
The Company has not, during the past three years and through the date of
this report, had a change in its independent certified public accountants or had
a disagreement with such accountants on any matter of accounting principles,
practices or financial statement disclosure.
PART III
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by this Item is incorporated herein by reference
to the data under the heading "Election of Directors" in the Proxy Statement to
be used in connection with the solicitation of proxies for the Company's annual
meeting of shareholders to be held on September 10, 1998, which definitive Proxy
Statement is to be filed with the Commission on or before July 29, 1998.
Item 11. Executive Compensation.
The information required by this Item is incorporated herein by reference
to the data under the heading "Executive Compensation" in the Proxy Statement to
be used in connection with the solicitation of proxies for the Company's annual
meeting of shareholders to be held on September 10, 1998, which definitive Proxy
Statement is to be filed with the Commission on or before July 29, 1998.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this Item is incorporated herein by reference
to the data under the heading "Voting Securities and Principal Holders Thereof"
in the Proxy Statement to be used in connection with the solicitation of proxies
for the Company's annual meeting of shareholders to be held on September 10,
1998, which definitive Proxy Statement is to be filed with the Commission on or
before July 29, 1998.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this Item is incorporated herein by reference
to the data under the heading "Related Transactions" in the Proxy Statement to
be used in connection with the solicitation of proxies for the Company's annual
meeting of shareholders to be held on September 10, 1998, which definitive Proxy
Statement is to be filed with the Commission on or before July 29, 1998.
-28-
<PAGE>
PART IV
ITEM 14(A): EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
Exhibit
Numbers Description of Exhibits
- ------- -----------------------
3.1 Amended and Restated Articles of Incorporation of the Company. (10)
3.2 Amended Bylaws of the Company (June 9, 1997). (5)
4.1 Specimen Common Stock certificate of the Company. (1)
4.2 The Amended and Restated Articles of Incorporation and Amended Bylaws
of the Company are included as Exhibits 3.1 and 3.2.
4.3 Form of Warrant. (1)
4.4 Rights Agreement, dated as of February 20, 1997, between Frontier
Airlines, Inc. and American Securities Transfer & Trust, Inc,
including the form of Rights Certificate and the Summary of Rights
attached thereto as Exhibits A and B, respectively, incorporated by
reference to Frontier Airlines, Inc. Registration Statement on Form 8-
A dated March 11, 1997. (6)
4.4(a) Amendment to Rights Agreement dated June 30, 1997. (5)
10.1 Office Lease. (1)
10.2 Office Lease Supplements and Amendments. (5)
10.2(a) Addendum to Office Lease (10)
10.3 1994 Stock Option Plan. (1)
10.4 Amendment No. 1 to 1994 Stock Option Plan. (2)
10.4(a) Amendment No. 2 to 1994 Stock Option Plan (5)
10.5 Registration Rights Agreement. (1)
10.6 Sales Agreement. (1)
10.7 Airport Use and Facilities Agreement, Denver International Airport (2)
10.8 Aircraft Lease Agreement dated as of July 26, 1994. (2)
10.8(a) Assignment and Assumption Agreements dated as of March 28, 1997 and
March 20, 1997 between USAirways, Inc. and First Security Bank,
National Association ("Trustee") and Frontier Airlines, Inc. (5)
10.8(b) Amendment No. 1, dated June 5, 1997, to Lease Agreement dated as of
July 26, 1994 between Frontier Airlines, Inc. and First Security Bank,
National Association. (5)
10.9 Code Sharing Agreement. (5)
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<PAGE>
10.10 Aircraft Lease Agreement dated as of October 20, 1995 (MSN 23177).
(3)
10.11 Aircraft Lease Agreement dated as of October 20, 1995 (MSN 23257).
(3)
10.12 Aircraft Lease Agreement dated as of May 1, 1996. (3)
10.13 Aircraft Lease Agreement dated as of June 3, 1996. (3)
10.13(a) Amendment No. 1 to Aircraft Lease Agreement dated as of
June 3, 1996.(10)
10.14 Aircraft Lease Agreement dated as of June 12, 1996. Portions of
this Exhibit have been excluded from the publicly available
document and an order granting confidential treatment of the
excluded material has been received. (3)
10.15 Operating Lease Agreement dated November 1, 1996 between the
Company and First Security Bank, National Association. Portions of
this Exhibit have been excluded from the publicly available
document and an order granting confidential treatment of the
excluded material has been received. (4)
10.16 Aircraft Lease Agreement (MSN 28760) dated as of December 12, 1996
between the Company and Boullion Aircraft Holding Company, Inc.
Portions of this Exhibit have been excluded from the publicly
available document and an order granting confidential treatment of
the excluded material has been received. (4)
10.16(a) Amendment No. 1 to Aircraft Lease Agreement (MSN 28760) dated May
20, 1997. Portions of this Exhibit have been excluded from the
publicly available document and an application for an order
granting confidential treatment of the excluded material has been
made. (5)
10.17 Aircraft Lease Agreement (MSN 28662) dated as of December 12, 1996
between the Company and Boullion Aircraft Holding Company, Inc.
Portions of this Exhibit have been excluded from the publicly
available document and an order granting confidential treatment of
the excluded material has been received. (4)
10.17(a) Amendment No. 1 to Aircraft Lease Agreement (MSN 28662) dated May
20, 1997. Portions of this Exhibit have been excluded from the
publicly available document and an application for an order
granting confidential treatment of the excluded material has been
made. (5)
10.18 Aircraft Lease Agreement (MSN 28563) dated as of March 25, 1997
between the Company and General Electric Capital Corporation.
Portions of this Exhibit have been excluded from the publicly
available document and an application for an order granting
confidential treatment of the excluded material has been made. (5)
10.19 Space and Use Agreement with Continental Airlines, as amended.
Portions of this Exhibit have been excluded from the publicly
available document and an application for an order granting
confidential treatment of the excluded material has been made. (5)
10.20 Letter of Understanding with Continental Airlines dated August
16,1996. Portions of this Exhibit have been excluded from the
publicly available document and an application for an order
granting confidential treatment of the excluded material has been
made. (5)
10.21 Service Agreement between Frontier Airlines, Inc. and Greenwich Air
Services, Inc. dated May 19, 1997. Portions of this Exhibit have
been excluded from the publicly available document and an
application for an order granting confidential treatment of the
excluded material has been made. (5)
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<PAGE>
10.22 Agreement between Frontier Airlines, Inc. and Dallas Aerospace, Inc.
dated April 17, 1997. Portions of this Exhibit have been excluded
from the publicly available document and an application for an order
granting confidential treatment of the excluded material has been
made. (5)
10.23 General Services Agreement between Frontier Airlines, Inc. and Tramco,
Inc. dated as of August 6, 1996. (5)
10.24 General Terms Engine Lease Agreement between Frontier Airlines, Inc.
and Terandon Leasing Corporation dated as of August 15, 1996, as
assigned to U.S. Bancorp Leasing and Financial on February 19, 1997.
Portions of this Exhibit have been excluded from the publicly
available document and an application for an order granting
confidential treatment of the excluded material has been made. (5)
10.25 Lease Agreement between Frontier Airlines, Inc. and Aircraft
Instrument and Radio Company, Inc. dated December 11, 1995. Portions
of this Exhibit have been excluded from the publicly available
document and an application for an order granting confidential
treatment of the excluded material has been made. (5)
10.26 Agreement and Plan of Merger between Western dated June 30, 1997. (5)
Pacific Airlines, Inc. and Frontier Airlines, Inc.
10.26(a)Agreement dated as of September 29, 1997 between Airlines, Inc. (7)
Western Pacific Airlines, Inc. and Frontier
10.27 Security Agreement with Wexford Management LLC dated December 2, 1997.
(8)
10.28 Amended and Restated Warrant Agreement with Wexford Management LLC
dated as of February 27, 1998. (10)
10.29 Amended and Restated Registration Rights Agreement with Wexford
Management LLC dated asof February 27, 1998. (10)
10.30 Securties Purchase Agreement with B III Capital Partners, L.P. dated
as of April 24, 1998. (9)
10.31 Registration Rights Agreement with B III Capital Partners, L.P. dated
as of April 24, 1998. (10)
10.32 Warrant Agreement with The Seabury Group, LLC dated as of may 26,
1998. (10)
10.33 Registration rights Agreement with The Seabury Group, LLC dated as of
May 26, 1998. (10)
23.1 Consent of KPMG Peat Marwick LLP (10)
27.1 Financial Data Schedule (10)
- ---------------------------
(1) Incorporated by reference from the Company's Registration Statement on Form
SB-2, Commission File No. 33-77790-D, declared effective May 20, 1994.
(2) Incorporated by reference from the Company's Annual Report on Form 10-KSB,
Commission File No. 0-4877, filed on June 29, 1995.
(3) Incorporated by reference from the Company's Annual Report on Form 10-KSB,
Commission File No. 0-4877, filed on June 24, 1996.
(4) Incorporated by reference from the Company's Quarterly Report on Form 10-
QSB, Commission File No. 0-4877, filed on February 13, 1997.
(5) Incorporated by reference from the Company's Annual Report on Form 10-KSB,
Commission File No. 0-24126, filed July 14, 1997.
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<PAGE>
(6) Incorporated by reference from the Company's Report on Form 8-K filed on
March 12, 1997.
(7) Incorporated by reference from the Company's Report on Form 8-K filed on
October 1, 1997.
(8) Incorporated by reference from the Company's Report on Form 8-K filed on
December 12, 1997.
(9) Incorporated by reference from the Company's Report on Form 8-K filed on
May 4, 1998.
(10) Filed herewith.
ITEM 14(b): REPORTS ON FORM 8-K.
No reports on Form 8-K were filed during the quarter ended March 31, 1998.
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<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.
FRONTIER AIRLINES, INC.
Date: June 26, 1998 By: /s/ Samuel D. Addoms
---------------------
Samuel D. Addoms, Principal Executive
Officer and Principal Financial Officer
Date: June 26, 1998 By: /s/ Elissa A. Potucek
----------------------
Elissa A. Potucek, Vice President, Controller,
Treasurer and Principal Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Date: June 26, 1998 /s/ Samuel D. Addoms, Director
-------------------------------
Samuel D. Addoms, Director
Date: June 26, 1998 /s/ William B. McNamara, Director
----------------------------------
William B. McNamara, Director
Date: June 26, 1998 /s/ Paul Stephen Dempsey, Director
-----------------------------------
Paul Stephen Dempsey, Director
Date: June 26, 1998 /s/ B. LaRae Orullian, Director
--------------------------------
B. LaRae Orullian, Director
Date: June 26, 1998 /s/ D. Dale Browning, Director
--------------------------------
D. Dale Browning, Director
Date: June 26, 1998 /s/ Arthur H. Amron, Director
-------------------------------
Arthur H. Amron, Director
Date: June 26, 1998 /s/ John E. Luth, Director
----------------------------
John E. Luth, Director
Date: June 26, 1998 /s/ B. Ben Baldanza, Director
-------------------------------
B. Ben Baldanza, Director
<PAGE>
Independent Auditors' Report
----------------------------
THE BOARD OF DIRECTORS AND
STOCKHOLDERS
FRONTIER AIRLINES, INC.:
We have audited the accompanying balance sheets of Frontier Airlines, Inc. as of
March 31, 1998 and 1997, and the related statements of operations, stockholders'
equity, and cash flows for each of the years in the three-year period ended
March 31, 1998. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Frontier Airlines, Inc., as of
March 31, 1998 and 1997, and the results of its operations and its cash flows
for each of the years in the three-year period ended March 31, 1998, in
conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Denver, Colorado
June 16, 1998
F-1
<PAGE>
FRONTIER AIRLINES, INC.
BALANCE SHEETS
MARCH 31, 1998 AND 1997
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
MARCH 31, March 31,
1998 1997
------------- ------------
Assets
- ------
Current assets:
Cash and cash equivalents $ 3,641,395 $ 10,286,453
Restricted investments 4,000,000 2,000,000
Trade receivables, net of allowance for doubtful accounts of
$139,096 and $71,713 at March 31, 1998 and 1997 11,661,323 7,451,342
Maintenance deposits (note 3) 9,307,723 6,968,379
Prepaid expenses 3,843,694 3,449,871
Inventories 1,164,310 997,102
Deferred lease and other expenses 380,975 289,579
Note receivable - current portion - 27,288
------------ ------------
Total current assets 33,999,420 31,470,014
Security, maintenance and other deposits (note 3) 7,633,143 6,596,660
Property and equipment, net (note 2) 5,579,019 4,340,982
Note receivable - long-term portion - 31,762
Deferred lease and other expenses 780,429 918,994
Restricted investments 2,606,459 734,133
------------ ------------
$ 50,598,470 $ 44,092,545
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Accounts payable $ 13,664,750 $8,045,533
Air traffic liability 18,910,441 13,058,632
Other accrued expenses 5,157,640 3,318,043
Accrued maintenance expense (note 3) 12,537,228 8,277,115
Note payable - 9,812
Current portion of obligations under capital leases (note 3) 54,346 35,700
----------- ------------
Total current liabilities 50,324,405 32,744,835
Senior secured notes payable (note 4) 3,468,138 -
Accrued maintenance expense (note 3) 2,381,354 1,408,363
Obligations under capital leases, excluding current portion (note 3) 97,757 56,444
----------- ------------
Total liabilities 56,271,654 34,209,642
----------- -----------
Stockholders' (deficit) equity
Preferred stock, no par value, authorized 1,000,000 shares;
none issued and outstanding - -
Common stock, no par value, stated value of $.001 per share,
authorized 20,000,000 shares; 9,253,563 and 8,844,375
shares issued and outstanding at March 31, 1998 and 1997 9,253 8,844
Additional paid-in capital 37,954,584 35,764,710
Accumulated deficit (43,637,021) (25,890,651)
----------- ------------
Total stockholders' (deficit) equity (5,673,184) 9,882,903
----------- ------------
Commitments and contingencies (notes 3,6,10 and 11)
$ 50,598,470 $ 44,092,545
============ ============
See accompanying notes to financial statements.
</TABLE>
F-2
<PAGE>
FRONTIER AIRLINES, INC.
STATEMENTS OF OPERATIONS
YEARS ENDED MARCH 31, 1998, 1997 AND 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
Revenues:
<S> <C><C> <C><C> <C><C>
Passenger $ 142,018,392 $ 113,758,027 $ 68,530,051
Cargo 3,008,919 1,956,150 1,148,357
Other 2,115,326 786,457 714,167
------------- -------------- -------------
Total revenues 147,142,637 116,500,634 70,392,575
------------- -------------- -------------
Operating expenses:
Flight operations 66,288,125 52,650,575 28,019,390
Aircraft and traffic servicing 30,684,992 24,849,388 18,486,719
Maintenance 31,790,600 24,945,636 11,732,102
Promotion and sales 29,328,970 21,526,345 14,218,814
General and administrative 6,352,977 4,617,982 3,320,700
Depreciation and amortization 1,251,364 1,072,160 547,514
------------- -------------- -------------
Total operating expenses 165,697,028 129,662,086 76,325,239
------------- -------------- -------------
Operating loss (18,554,391) (13,161,452) (5,932,664)
------------- -------------- -------------
Nonoperating income:
Interest income 722,380 1,033,508 419,756
Interest expense (324,167) (20,435) (22,671)
Other, net 409,808 (37,953) (46,103)
------------- -------------- -------------
Total nonoperating income, net 808,021 975,120 350,982
------------- -------------- -------------
Net loss $ (17,746,370) $ (12,186,332) $ (5,581,682)
============== ============== =============
Basic and diluted loss per common share $(1.95) $(1.49) $(1.23)
============== ============== =============
Weight average shares outstanding 9,095,220 8,156,302 4,536,914
============== ============== =============
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
FRONTIER AIRLINES, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED MARCH 31, 1998, 1997 AND 1996
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMMON STOCK
----------------------- ADDITIONAL TOTAL
STATED PAID-IN ACCUMULATED stockholders'
SHARES VALUE CAPITAL DEFICIT (DEFICIT) EQUITY
------------ -------- ---------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
BALANCES,
MARCH 31, 1995 3,443,300 $3,443 9,761,686 (8,122,637) 1,642,492
Contribution of common stock to
employee stock ownership plan 137,340 - 721,000 - 721,000
Issuance of compensatory
common stock options - - 60,500 - 60,500
Sale of common stock and
warrants, net of offering
costs of $1,230,000 1,840,000 1,978 7,279,532 - 7,281,510
Issuance of warrants 577,200 577,200
Net loss - - - (5,581,682) (5,581,682)
------------- --------- ---------- ----------- ----------------
BALANCES,
MARCH 31, 1996 5,420,640 5,421 18,399,918 (13,704,319) 4,701,020
Sale of common stock, net of
offering costs of $279,385 678,733 679 2,720,615 2,721,294
Exercise of common stock
warrants, net of issuance
costs of $55,518 2,666,133 2,666 13,275,145 13,277,811
Contribution of common stock
to employee stock ownership
plan 78,869 78 499,922 500,000
Issuance of warrants 869,110 869,110
Net loss (12,186,332) (12,186,332)
------------- --------- ---------- ----------- ----------------
BALANCES,
MARCH 31, 1997 8,844,375 8,844 35,764,710 (25,890,651) 9,882,903
Exercise of common stock
options 409,188 409 434,948 435,357
Warrants issued in conjunction -
with debt 1,754,926 1,754,926
Net loss (17,746,370) (17,746,370)
------------- --------- ---------- ----------- ----------------
BALANCES,
MARCH 31, 1998 9,253,563 $9,253 37,954,584 (43,637,021) (5,673,184)
============= ========= ========== =========== ================
See accompanying notes to financial statements
</TABLE>
F-4
<PAGE>
FRONTIER AIRLINES, INC.
Statements of Cash Flows
Years Ended March 31, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C>
Cash flows from operating activities:
Net loss $(17,746,370) $(12,186,332) $(5,581,682)
Adjustments to reconcile net loss to net cash
used by operating activities:
Employee stock ownership plan compensation expense - 500,000 721,000
Issuance of compensatory common stock options - - 60,500
Depreciation and amortization 1,749,097 1,322,916 603,014
Loss on sale of equipment 10,334 4,708 62,940
Changes in operating assets and liabilities:
Restricted investments (2,372,326) 82,458 (842,574)
Trade receivables (4,209,981) (1,579,184) (2,289,183)
Security, maintenance and other deposits (3,583,327) (1,608,524) (5,149,965)
Prepaid expenses (393,823) (562,954) (2,269,203)
Inventories (167,208) (427,926) (362,581)
Note receivable 11,740 10,950 -
Accounts payable 5,619,217 3,643,071 1,590,072
Air traffic liability 5,851,809 1,858,072 7,384,114
Other accrued expenses 1,839,597 1,323,037 (337,294)
Accrued maintenance expense 5,233,104 1,151,443 5,572,559
------------- ------------- ------------
Net cash used in operating activities (8,158,137) (6,468,265) (838,283)
------------- ------------- ------------
Cash flows used by investing activities:
Decrease (increase) in short-term investments - 1,168,200 (1,168,200)
Aircraft lease deposits 207,500 (2,682,250) (1,661,250)
Increase in restricted investments (1,500,000) (600,000) -
Capital expenditures (2,355,266) (3,434,789) (1,097,788)
Proceeds from sale of property and equipment - - 32,440
------------- ------------- ------------
Net cash used in investing activities (3,647,766) (5,548,839) (3,894,798)
------------- ------------- ------------
Cash flows from financing activities:
Net proceeds from issuance of common stock and warrants 435,357 15,999,455 7,281,510
Proceeds from sale of senior secured notes including warrants 5,000,000 - -
Cash payments for debt issuance costs (227,500)
Proceeds from short-term borrowings 202,810 95,911 101,496
Principal payments on short-term borrowings (212,622) (96,540) (91,055)
Principal payments on obligations under capital leases (37,200) (54,523) (34,357)
------------- ------------- ------------
Net cash provided by financing activities 5,160,845 15,944,303 7,257,594
------------- ------------- ------------
Net (decrease) increase in cash and cash equivalents (6,645,058) 3,927,199 2,524,513
Cash and cash equivalents, beginning of year 10,286,453 6,359,254 3,834,741
------------- ------------- ------------
Cash and cash equivalents, end of year $3,641,395 $10,286,453 $6,359,254
============= ============= ============
See accompanying notes to financial statements.
</TABLE>
F-5
<PAGE>
FRONTIER AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998
- -------------------------------------------------------------------------------
(1) NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS AND INDUSTRY RISKS
Frontier Airlines, Inc. (the "Company") was incorporated in the State of
Colorado on February 8, 1994 and is a low-fare full service commercial
airline based in Denver, Colorado which currently serves cities on the west
and east coasts, as well as intermediate cities in relatively close
proximity to Denver. The Company commenced airline operations on July 5,
1994.
The airline industry is highly competitive primarily due to the effects of
the Airline Deregulation Act of 1978, which has substantially eliminated
government authority to regulate domestic routes and fares and has increased
the ability of airlines to compete with respect to flight frequencies and
fares. The Company's results are highly sensitive to changes in fare
levels. The Company cannot predict future fare levels, which can change
rapidly, and are subject to actions by the Company's competitors.
The airline industry is also characterized by fixed costs that are high in
relation to revenues. Accordingly, a shortfall from expected revenue levels
can have a material adverse effect on profitability and liquidity, including
those of the Company's. The Company's connecting hub is located at Denver
International Airport (DIA). DIA opened in March 1995. Financed through
revenue bonds, DIA depends on landing fees, gate rentals and other income
from airlines, the traveling public and others to pay debt service and
support operations. Management believes that the Company's operating costs
at DIA will continue to substantially exceed those that other airlines incur
at hub airports in other cities.
The airline industry is significantly affected by general economic
conditions. Because a substantial portion of business and personal airline
travel is discretionary, the industry tends to experience severe adverse
financial results during general economic downturns. The Company's business
also is seasonal, which affects the Company's results of operations from
quarter to quarter.
Fuel is a major component of operating expense for all airlines. Both the
cost and availability of fuel are subject to many economic and political
factors and events occurring throughout the world. The future cost and
availability of fuel to the Company cannot be predicted, and substantial
price increases or the unavailability of adequate fuel supplies could have a
material adverse effect on the Company's operations and profitability.
F-6
<PAGE>
FRONTIER AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
- -------------------------------------------------------------------------------
(1) NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
For financial statement purposes, the Company considers cash and short-
term investments with an original maturity of three months or less to be
cash equivalents.
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Noncash Financing and Investment Activities:
During the year ended March 31, 1998, the Company issued warrants to its
lender in connection with its $5,000,000 senior secured notes with an
estimated fair market value totaling $1,645,434, and issued warrants to its
financial advisor in connection with debt and equity financing with an
estimated fair market value totaling $109,492. Also during the year ended
March 31, 1998, the Company entered into capital lease agreements totaling
$97,000, and exchanged a note receivable for certain property and equipment
totaling $47,000. In the years ended March 31, 1997 and 1996, the Company
issued warrants to aircraft lessors with an estimated fair market value
totaling $869,110 and $577,200, respectively. The unamortized portion of
deferred lease expense totaled $850,125 and $1,139,703 at March 31, 1998 and
1997. In the year ended March 31, 1996, the Company sold equipment and
accepted a promissory note in lieu of cash for $70,000.
Interest and Taxes Paid During the Year:
Cash paid for interest totaled $184,999, $20,435, and $22,671, for the years
ended March 31, 1998, 1997 and 1996, respectively. No income taxes were
paid during the years ended March 31, 1998, 1997, and 1996.
F-7
<PAGE>
FRONTIER AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
- -------------------------------------------------------------------------------
(1) NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
RESTRICTED INVESTMENTS
Restricted investments include certificates of deposit which secure certain
letters of credit issued primarily to companies which process credit card
sale transactions, certain airport authorities and aircraft lessors.
Restricted investments are carried at cost, which management believes
approximates market value. Maturities are for one year or less and the
Company intends to hold restricted investments until maturity.
VALULATION AND QUALIFYING ACCOUNTS
The allowance for doubtful accounts was $139,096 and $72,713 at March 31,
1998 and 1997. Provisions for bad debts net of recoveries totaled $267,000,
$160,000, and $222,000 for the years ended March 31, 1998, 1997 and 1996.
Deductions from the reserve totaled $200,000, $120,000, and $190,000 for the
years ended March 31, 1998, 1997, and 1996.
INVENTORIES
Inventories consist of expendable parts, supplies and aircraft fuel and are
stated at the lower of cost or market. Inventories are accounted for on a
first-in, first-out basis and are charged to expense as they are used.
The Company has two aircraft parts agreements for the Company's 14 Boeing
737 aircraft discussed in note 3, one with another air carrier and another
with an aircraft parts supplier. The Company is required to pay a monthly
consignment fee to each of these lessors, based on the value of the
consigned parts, and to replenish any such parts when used with a like part.
At March 31, 1998 and 1997, the Company held consigned parts and supplies in
the amount of approximately $8,161,000 and $7,105,944, which are not
included in the Company's balance sheet.
PROPERTY AND EQUIPMENT
Property and equipment are carried at cost. Major additions, betterments
and renewals are capitalized. Depreciation and amortization is provided for
on a straight-line basis to estimated residual values over estimated
depreciable lives as follows:
Flight equipment 5-20 years
Improvements to leased aircraft Life of improvements or term of lease,
whichever is less
Ground property, equipment, and
leasehold improvements 3-5 years or term of lease
F-8
<PAGE>
FRONTIER AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
- -------------------------------------------------------------------------------
(1) NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
Assets utilized under capital leases are amortized over the lesser of
the lease term or the estimated useful life of the asset using the straight-
line method. Amortization of capital leases is included in depreciation
expense.
MAINTENANCE
Routine maintenance and repairs are charged to operations as incurred.
Under the terms of its aircraft lease agreements, the Company is required to
make monthly maintenance deposits based on usage; such deposits are applied
against the cost of major airframe maintenance checks, landing gear and
engine overhauls. These deposits are expensed in the month the usage was
incurred and a liability for accrued maintenance is established. Deposit
balances remaining at lease termination remain with the lessor and any
remaining liability for maintenance checks is reversed against the deposit
balance. Additionally, a provision is made for the estimated costs of
scheduled major overhauls required to be performed on leased aircraft and
components under the provisions of the aircraft lease agreements if the
required monthly deposit amounts are not adequate to cover the entire cost
of the scheduled maintenance. Accrued maintenance expense expected to be
incurred beyond one year is classified as long-term.
REVENUE RECOGNITION
Passenger, cargo, and other revenues are recognized when the transportation
is provided or after the tickets expire, and are net of excise taxes.
Revenues which have been deferred are included in the accompanying balance
sheet as air traffic liability.
PASSENGER TRAFFIC COMMISSIONS AND RELATED EXPENSES
Passenger traffic commissions and related expenses are expensed when the
transportation is provided and the related revenue is recognized. Passenger
traffic commissions and related expenses not yet recognized are included as
a prepaid expense.
FREQUENT FLYER AWARDS
The Company had maintained a frequent travel award program that provided
awards to program members based on accumulated segments flown, which was
discontinued effective September 11, 1996. The Company allows its
passengers to accumulate mileage on Continental Airlines' OnePass frequent
flyer program. The cost of providing mileage on the OnePass program is
based on an agreed upon rate per mileage credit, which is paid to
Continental Airlines on a monthly basis.
F-9
<PAGE>
FRONTIER AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
- -------------------------------------------------------------------------------
(1) NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
LOSS PER COMMON SHARE
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, Earnings Per Share (SFAS No.
128). This statement replaces the presentation of primary earnings per
share (EPS) and fully diluted EPS with a presentation of basic EPS and
diluted EPS, respectively. Basic EPS excludes dilution and is computed by
dividing earnings (loss) available to common stockholders by the weighted-
average number of common shares outstanding for the period. Similar to
fully diluted EPS, diluted EPS reflects the potential dilution of securities
that could share in earnings. This statement has been adopted in the
accompanying financial statements.
Common stock equivalents are excluded from the computation of diluted loss
per share as their effect would have been anti-dilutive.
INCOME TAXES
The Company accounts for income taxes using the asset and liability method
prescribed by Statement of Financial Accounting Standards No. 109,
Accounting for Income Taxes. Under the asset and liability method, deferred
income taxes are recognized for the tax consequences of "temporary
differences" by applying enacted statutory tax rates applicable to future
years to differences between the financial statement carrying amounts and
tax bases of the existing assets and liabilities. A valuation allowance for
net deferred tax assets is provided unless realizability is judged by
management to be more likely than not. The effect on deferred taxes from a
change in tax rates is recognized in income in the period that includes the
enactment date.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company estimates the fair value of its monetary assets and liabilities
based upon existing interest rates related to such assets and liabilities
compared to current rates of interest for instruments with a similar nature
and degree of risk. The Company estimates that the carrying value of all of
its monetary assets and liabilities approximates fair value as of March 31,
1998.
F-10
<PAGE>
FRONTIER AIRLINES, INC.
Notes to Financial Statements, continued
- --------------------------------------------------------------------------------
(1) NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
STOCK BASED COMPENSATION
The Company follows Accounting Principles Board Opinion No. 25 Accounting
for Stock Issued to Employees ("APB 25") and related Interpretations in
accounting for its employee stock options and follows the disclosure
provisions of Statement of financial Accounting Standards No. 123 (SFAS No.
123). Under APB 25, because the exercise price of the Company's employee
stock options equals the market price of the underlying stock on the date of
grant, no compensation expense is recognized. The Company has included the
pro forma disclosures required by SFAS No. 123 in Note 7.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company records impairment losses on long-lived assets used in
operations when indicators of impairment are present and either the
undiscounted future cash flows estimated to be generated by those assets or
the fair market value are less than the assets' carrying amount.
RECLASSFICATIONS
Certain prior year amounts have been reclassified to conform to the current
year presentation.
(2) PROPERTY AND EQUIPMENT, NET
As of March 31, 1998 and 1997 property and equipment consisted of the
following:
1998 1997
---------- ----------
Flight equipment and improvements to leased aircraft $4,932,024 $3,251,284
Ground property, equipment and leasehold improvements 3,673,363 2,923,658
---------- ----------
8,605,387 6,174,942
Less accumulated depreciation and amortization 3,026,368 1,833,960
---------- ----------
Property and equipment, net $5,579,019 $4,340,982
========== ==========
Property and equipment includes certain office equipment under capital
leases. At March 31, 1998 and 1997, office equipment recorded under capital
leases was $280,857 and $183,698 and accumulated amortization was $113,364
and $104,479.
F-11
<PAGE>
FRONTIER AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
- --------------------------------------------------------------------------------
(3) LEASE COMMITMENTS
AIRCRAFT LEASES
At March 31, 1998, the Company operated 14 aircraft which are accounted for
under operating lease agreements with initial terms ranging from 2 to 8
years with certain leases that allow for renewal options. Security deposits
related to leased aircraft at March 31, 1998 and 1997 totaled $4,604,750 and
$4,812,250 and are included in security, maintenance and other deposits on
the balance sheet. Letters of credits issued to certain aircraft lessors in
lieu of cash deposits and related restricted investments to secure these
letters of credits at March 31, 1998 and 1997 totaled $2,100,000 and
$1,500,000.
In addition to scheduled future minimum lease payments, the Company is
required to pay to each aircraft lessor monthly cash deposits based on
flight hours and cycles operated to provide funding for certain scheduled
maintenance costs of leased aircraft. The lease agreements provide that the
Company shall pay taxes, maintenance, insurance, and other operating
expenses applicable to the leased property. At March 31, 1998 and 1997,
aircraft maintenance deposits totaled $11,466,033 and $8,142,176 and are
reported as a component of security, maintenance and other deposits on the
balance sheet.
Any cash deposits paid to aircraft lessors for future scheduled maintenance
costs to the extent not used during the lease term remain with the lessors,
and any remaining liability for maintenance checks is reversed against the
deposit balance. Maintenance deposits are unsecured and may be subject to
the risk of loss in the event the lessors are not able to satisfy their
obligations under the lease agreements.
OTHER LEASES
The Company leases a office and hangar space, a spare engine and office
equipment for its headquarters, airport facilities, and certain ground
equipment. The Company also leases certain airport gate facilities on a
month-to-month basis.
At March 31, 1998, commitments under capital and noncancelable operating
leases (excluding maintenance deposit requirements) with terms in excess of
one year were as follows:
F-12
<PAGE>
FRONTIER AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
- --------------------------------------------------------------------------------
(3) LEASE COMMITMENTS (CONTINUED)
Capital Operating
Leases Leases
-------- ------------
Year ended March 31:
1999 $ 69,069 $ 35,944,976
2000 43,167 32,112,675
2001 24,636 22,715,742
2002 24,636 18,688,397
2003 24,636 17,773,916
Thereafter - 32,987,326
-------- ------------
Total minimum lease payments 186,144 160,223,032
============
Less amount representing interest (34,041)
--------
Present value of obligations
under capital leases 152,103
Less current portion of
obligations under capital
leases 54,346
--------
Obligations under capital leases,
excluding current portion $ 97,757
========
The obligations under capital leases have been discounted at imputed
interest rates ranging from 10.5% to 12.2%.
Rental expense under operating leases, including month-to-month leases, for
the years ended March 31, 1998, 1997 and 1996 was $36,573,509, $25,336,749
and $12,625,175, respectively.
F-13
<PAGE>
FRONTIER AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
- --------------------------------------------------------------------------------
(4) SENIOR SECURED NOTES
In December 1997, the Company sold $5,000,000 of 10% senior secured notes to
Wexford Management LLC ("Wexford"). The notes are due and payable in full
on December 15, 2001 with interest payable quarterly in arrears. The notes
are secured by substantially all of the assets of the company. The Wexford
agreement contains restrictions primarily related to liens on assets and
requires prior written consent for expenditures outside the ordinary course
of business. In connection with this transaction, the Company issued
Wexford warrants to purchase 1,750,000 shares of Common Stock at $3.00 per
share. The Company determined the value of the warrants to be $1,645,434
and recorded the value as equity in additional paid-in capital. The balance
of the notes will be accreted to its face value over the term of the notes
and included as interest expense. The effective interest rate on the notes
is approximately 22.5% including the value of the warrants.
(5) INCOME TAXES
The Company has not recognized any income tax benefit related to net
operating losses incurred for the years ended March 31, 1998, 1997 and 1996
because the benefit of the net operating losses were offset by an increase
in the valuation allowance for net deferred tax assets.
The differences between the Company's provision for income taxes and such
provisions (benefit) for income taxes computed at the federal statutory rate
is comprised of the items shown in the following table:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Income tax benefit at the
statutory rate 34% 34% 34%
Net operating loss producing
no current benefit (34%) (34%) (34%)
----------------------------------------
- - -
========================================
</TABLE>
F-14
<PAGE>
FRONTIER AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
- --------------------------------------------------------------------------------
(5) INCOME TAXES, CONTINUED
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets at March 31, 1998 are presented below:
<TABLE>
<CAPTION>
1998 1997
--------------- ---------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 13,434,000 $ 7,603,000
Start-up cost deferred for tax purposes 108,000 198,000
Accrued maintenance not deductible for
tax purposes 899,000 717,000
Accrued vacation and health insurance
liability not deductible for tax purposes 527,000 395,000
Other 110,000 117,000
---------------------------------
Total gross deferred tax assets 15,078,000 9,030,000
Less valuation allowance (14,832,000) (8,934,000)
---------------------------------
246,000 96,000
---------------------------------
Deferred tax liabilities:
Equipment depreciation and amortization (246,000) (96,000)
---------------------------------
Net deferred taxes - -
=================================
</TABLE>
The valuation allowance is provided since it is uncertain that the
deferred tax assets will be realized. The Company established the valuation
allowance based principally on its historical financial results from
operations. Additionally, the utilization of these carryforwards may be
limited due to the ownership change provisions as enacted by the Tax Reform
Act of 1986 and subsequent legislation.
The valuation allowance for deferred tax assets as of March 31, 1997 was
$8,934,000. The increase in the valuation allowance for the year ended
March 31, 1998 was $5,989,000. At March 31, 1998, the Company had net
operating loss carryforwards of approximately $36,015,000, which expire in
the years 2010 to 2013.
F-15
<PAGE>
FRONTIER AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
- --------------------------------------------------------------------------------
(6) WARRANTS
The Company issued 2,670,000 warrants to purchase common stock in
conjunction with a private placement and its initial public offering. Each
warrant entitled the warrant holder to purchase one share of common stock
for $5.00. These warrants were subject to redemption at $.05 per warrant by
the Company on 45 days written notice if certain conditions were met. The
Company met these conditions in May 1996 and on May 14, 1996, the Company
notified the warrant holders of the Company's intent to exercise its
redemption rights with respect to the warrants not exercised on or before
June 28, 1996. 2,666,133 warrants were exercised with net proceeds to the
Company totaling $13,275,000.
At completion of the Company's initial public offering in 1994, an
underwriter acquired options to purchase up to 110,000 shares of common
stock exercisable at a price equal to $5.525 per share. Additionally, the
underwriter was granted up to 110,000 warrants to purchase common stock at a
price equal to $.325 per warrant and $5.00 per share of common stock. The
underwriters in a secondary public offering by the Company in 1995 received
a warrant to purchase 168,500 shares of common stock at $5.55 per share.
The options and warrants issued to underwriters in connection with the
initial and secondary public offerings expire, respectively, on May 20, 1999
and September 18, 2000.
In October 1995, the Company issued to each of two of its Boeing 737-300
aircraft lessors a warrant to purchase 100,000 shares of Common Stock for an
aggregate purchase price of $500,000. In June 1996, the Company issued two
warrants to a Boeing 737-200 lessor, each warrant entitling the lessor to
purchase 70,000 shares of common stock at an aggregate exercise price of
$503,300 per warrant. In connection with a Boeing 737-300 aircraft to be
delivered in August 1997, the Company has issued to the lessor a warrant to
purchase 55,000 shares of Common Stock at an aggregate purchase price of
$385,000. Warrants issued to aircraft lessors, to the extent not earlier
exercised, expire upon expiration of the aircraft leases in March 2000, May
and June 2001, and September 2005.
In February 1998, in connection with the $5,000,000 senior notes as
discussed in note 4, the Company issued a warrant to the lender to purchase
1,750,000 shares of the Company's Common Stock at a purchase price of $3.00
per share, which warrant expires in December 2001. In May 1998, the Company
issued a warrant to its financial advisor, in connection with debt and
equity financings, a warrant to purchase 548,000 shares of the Company's
Common Stock at a purchase price of $3.00 per share, which warrant expires
in May 2003. Of the 548,000 shares, 116,450 were recognized as of March 31,
1998 as part of the sale of the senior secured notes discussed in note 4.
The Company recorded a value of $109,492 for these shares and recorded the
value as equity in additional paid in capital and deferred loan expenses.
The value will be amortized over the life of the notes.
F-16
<PAGE>
FRONTIER AIRLINES, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
- --------------------------------------------------------------------------------
(7) STOCK OPTION PLAN
The Company has a stock option plan whereby the Board of Directors or its
Compensation Committee may issue options to purchase shares of the
Company's common stock to employees, officers, and directors of the
Company.
Under the plan, the Company has reserved an aggregate of 2,250,000 shares
of common stock for issuance pursuant to the exercise of options. With
certain exceptions, options issued through March 31, 1998 generally vest
one year from the date of grant and expire from March 9, 1999 to December
11, 2007. At March 31, 1998, 308,750 options are available for grant under
the plan.
A summary of the Plan's stock option activity and related information for
the years ended March 31, 1998, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------------------------------------------------------------------------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding-beginning of year 1,911,250 $1.85 1,731,250 $1.27 1,631,250 $1.17
Granted 30,000 2.77 180,000 7.40 100,000 3.07
Exercised (409,188) 1.06
Surrendered (180,000) 7.40
Re-issued 180,000 3.00
------------------------------------------------------------------------
1,532,062 $1.56 1,911,250 $1.85 1,731,250 $1.27
========================================================================
Exercisable at end of year 1,445,394 $1.48 1,761,250 $1.39 1,671,250 $1.20
</TABLE>
Exercise prices for options outstanding under the plan as of March 31, 1998
ranged from $1.00 to $3.75 per option share. The weighted-average remaining
contractual life of those options is 5.6 years. A summary of the
outstanding and exercisable options at March 31, 1998, segregated by
exercise price ranges, is as follows:
<TABLE>
<CAPTION>
Weighted-
Average
Weighted- Remaining Weighted-
Exercise Price Options Average Contractual Exercisable Average
Range Outstanding Exercise Price Life (in years) Options Exercise Price
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$1.00 - $ 2.75 1,200,812 $1.11 5.0 1,200,812 $1.11
$3.00 - $ 3.75 331,250 3.19 7.8 244,582 3.26
-----------------------------------------------------------------------------
1,532,062 $1.56 5.6 1,445,394 $1.48
=============================================================================
</TABLE>
F-17
<PAGE>
FRONTIER AIRLINES, INC.
Notes to Financial Statements, continued
- --------------------------------------------------------------------------------
(7) STOCK OPTION PLAN, CONTINUED
Pro forma information regarding net income and earnings per share is
required by SFAS No. 123, which also requires that the information be
determined as if the Company has accounted for its employee stock options
granted subsequent to March 31, 1995 under the fair value method of that
Statement. The fair value for these options was estimated at the date of
grant using a Black-Scholes option pricing model with the following
weighted-average assumptions for 1998, 1997 and 1996, respectively: risk-
free interest rates of 6.42%, 6.55% and 6.08%, dividend yields of 0%, 0%
and 0%; volatility factors of the expected market price of the Company's
common stock of 64.33%, 58.78% and 60.86%, and a weighted-average expected
life of the options of 7 years for each year.
The Company applies APB Opinion 25 and related Interpretations in accounting
for its plans. Accordingly, no compensation cost is recognized for options
granted at a price equal to the fair market value of the common stock. Had
compensation cost for the Company's stock-based compensation plan been
determined using the fair value of the options at the grant date, the
Company's net loss for the years ended March 31, 1998, 1997 and 1996, would
have been $17,843,000, $12,367,000 and $5,628,000, and loss per common share
would have been $1.96, $1.52 and $1.24 per share.
(8) EMPLOYEE STOCK OWNERSHIP PLAN
The Company has established an Employee Stock Ownership Plan (ESOP) which
inures to the benefit of each permanent employee of the Company, except
those employees covered by a collective bargaining agreement that does not
provide for participation in the ESOP. Company contributions to the ESOP
are discretionary and vary from year to year. In order for an employee to
receive an allocation of company common stock from the ESOP, the employee
must be employed on the last day of the ESOP's plan year, with certain
exceptions. The Company's annual contribution to the ESOP, if any, will be
allocated among the eligible employees of the Company as of the end of each
plan year in proportion to the relative compensation (as defined in the
ESOP) earned that plan year by each of the eligible employees. The ESOP
does not provide for contributions by participating employees. Employees
will vest in contributions made to the ESOP based upon their years of
service with the Company. A year of service is an ESOP plan year during
which an employee has at least 1,000 hours of service. Vesting generally
occurs at the rate of 20% per year, beginning after the first year of
service, so that a participating employee will be fully vested after five
years of service. Distributions from the ESOP will not be made to employees
during employment. However, upon termination of employment with the
Company, each employee will be entitled to receive the vested portion of his
or her account balance.
F-18
<PAGE>
FRONTIER AIRLINES, INC.
Notes to Financial Statements, continued
- --------------------------------------------------------------------------------
(8) EMPLOYEE STOCK OWNERSHIP PLAN, CONTINUED
The initial Company contribution to the ESOP was made on June 22, 1995 and
consisted of 137,340 shares of Common Stock, of which 27,468 shares relate
to the plan year ended March 31, 1995 and 109,872 shares relate to the
period from April 1, 1995 to December 31, 1995. During the years ended
March 31, 1997, the Company contributed 78,869 shares to the plan and none
during the year ended March 31, 1998. The Company recognized compensation
expense during the year ended March 31, 1997 and 1996 of $500,000 and
$721,000 related to its contribution to the ESOP and none during the year
ended March 31, 1998.
(9) CONCENTRATION OF CREDIT RISK
The Company does not believe it is subject to any significant concentration
of credit risk relating to trade receivables. At March 31, 1998 and 1997,
60% and 75% of the Company's trade receivables relate to tickets sold to
individual passengers through the use of major credit cards, travel
agencies approved by the Airlines Reporting Corporation, tickets sold by
other airlines and used by passengers on Company flights, or the United
States Postal Service. These receivables are short-term, generally being
settled shortly after sale or in the month following ticket usage.
(10) CONTINGENCIES
The Company is party to legal proceedings and claims which arise during the
ordinary course of business. In the opinion of management, the ultimate
outcome of these matters will not have a material adverse effect upon the
Company's financial position or results of operations.
(11) SUBSEQUENT EVENTS
In April 1998, the Company sold 4,363,001 shares of its common stock, no
par value, through a private placement to an institutional investor. Gross
proceeds to the Company from the transaction was $14,179,753, of which the
Company received net proceeds of approximately $13,850,000. The Company
issued a warrant to this investor to purchase 716,929 shares of common
stock of the Company at a purchase price of $3.75 per share, which warrant
expires in April 2002.
F-19
<PAGE>
EXHIBIT 3.1
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
FRONTIER AIRLINES, INC.
Pursuant to the provisions of the Colorado Business Corporation Act,
Frontier Airlines, Inc. (the "Corporation") adopts the following Amended and
Restated Articles of Incorporation. These articles correctly set forth the
provisions of the Articles of Incorporation, as amended, and supersede the
original Articles of Incorporation and all amendments thereto.
ARTICLE 1
Name
The name of the Corporation is Frontier Airlines, Inc.
ARTICLE 2
Capital; Shareholders
Section 2.1 Authorized Capital. The total number of shares that the
------------------
Corporation will have authority to issue is forty-one million (41,000,000), of
which forty million (40,000,000) shares will be common stock, without par value
and one million (1,000,000) shares will be preferred stock without par value.
Section 2.2 Common Stock. Each holder of common stock is entitled to
------------
one vote for each share of common stock held on all matters as to which holders
of common stock are entitled to vote. Except for and subject to those
preferences, rights, and privileges expressly granted to the holders of
preferred stock, and except as may be provided by the laws of the State of
Colorado, the holders of common stock have exclusively all other rights of
stockholders of the Corporation, including, but not by way of limitation, (i)
the right to receive dividends, when, as and if declared by the board of
directors out of assets lawfully available therefor, and (ii), in the event of
any distribution of assets upon the dissolution and liquidation of the
Corporation, the right to receive ratably and equally all of the assets of the
Corporation remaining after the payment to the holders of preferred stock of the
specific amounts, if any, which they are entitled to receive as may be provided
herein or pursuant hereto.
Section 2.3 Preferred Stock. The board of directors of the Corporation
---------------
is authorized to provide by resolution or resolutions for the issuance of the
shares of preferred stock as a class or in a series and to establish from time
to time the number of shares to be included in each such series, and to fix the
designation, powers, preferences, and rights of the shares of the class or of
<PAGE>
each such series and the qualifications, limitations and restrictions thereof.
The authority of the board of directors with respect to the class or each
series includes, but is not limited to, determination of the following:
(i) The number of shares constituting any series and the
distinctive designation of that series;
(ii) The dividend rate on the shares of the class or of any series,
whether dividends shall be cumulative and, if so, from which date or dates, and
the relative rights of priority, if any, of payment of dividends on shares of
the class or of that series;
(iii) Whether the class or any series shall have voting rights, in
addition to the voting rights provided by law and, if so, the terms of such
voting rights;
(iv) Whether the class or any series shall have conversion
privileges and, if so, the terms and conditions of such conversion, including
provisions for adjustment of the conversion rate in such events as the board of
directors shall determine;
(v) Whether or not the shares of the class or of any series shall
be redeemable and, if so, the terms and conditions of such redemption, including
the date or dates upon or after which they shall be redeemable and the amount
per share payable in case of redemption, which amount may vary under different
conditions and at different redemption dates;
(vi) Whether the class or any series shall have a sinking fund for
the redemption or purchase of shares of the class or that series and, if so, the
terms and amount of such sinking fund;
(vii) The rights of the shares of the class or of any series in the
event of voluntary or involuntary dissolution or winding up of the Corporation
and the relative rights of priority, if any, of payment of shares of the class
or of that series; and
(viii) Any other powers, preferences, rights, qualifications,
limitations, and restrictions of the class or of any series.
Section 2.4 Quorum; Manner of Acting. At all meetings of shareholders,
------------------------
a majority of the shares entitled to vote at such meeting represented in person
or by proxy, shall constitute a quorum. At any meeting at which a quorum is
present the affirmative vote of a majority of the shares represented at such
meeting and entitled to vote on the subject matter shall be the act of the
shareholders, unless the vote of a greater proportion or number is required by
the laws of Colorado and except that in each case where the Colorado Corporation
Code requires a two-thirds vote of all of the outstanding shares of the
Corporation entitled to vote, and such required vote is hereby reduced, as
permitted by such vote, to a majority of all of the outstanding shares of the
Corporation entitled to vote on the subject matter thereof.
-2-
<PAGE>
ARTICLE 3
Preemptive Rights
No shareholder of the Corporation shall have any preemptive or similar
right to acquire or subscribe for any additional unissued or treasury shares of
stock, or other securities of any class, or rights, warrants or options to
purchase stock or scrip, or securities of any kind convertible into stock or
carrying stock purchase warrants or privileges.
ARTICLE 4
Board of Directors
Section 4.1 Initial Board. The initial board of directors of the
-------------
Corporation shall consist of three persons and the names and addresses of such
persons, who are to serve as directors until the first annual meeting of the
shareholders or until their successors are elected and shall qualify, are as
follows:
M. C. Lund Hanger 9, Box B-5
7375 South Peoria Street
Englewood, Colorado 80112
Samuel D. Addoms Hanger 9, Box B-5
7375 South Peoria Street
Englewood, Colorado 80112
Arthur T. Voss Hanger 9, Box B-5
7375 South Peoria Street
Englewood, Colorado 80012
Section 4.2 Number of Directors. The number of directors of the
-------------------
Corporation shall be fixed and may be altered from time to time as provided in
the bylaws of the Corporation.
ARTICLE 5
Limitation on Liability
To the fullest extent permitted by the Colorado Corporation Code, as the
same exists or may hereafter be amended, a director of the Corporation shall not
be liable to the Corporation or its shareholders for monetary damages for breach
of fiduciary duty as a director. Any repeal or modification of the Article by
the shareholders of the Corporation shall be prospective only and shall not
adversely affect any right or protection of a director of the Corporation
existing at the time of such repeal or modification.
-3-
<PAGE>
ARTICLE 6
Offices
Section 6.1 Registered Agent. The address of the initial registered
----------------
office of the Corporation is 1400 Glenarm Place, Denver, Colorado 80202. The
name of its initial registered agent at such address is The Prentice-Hall
Corporation.
Section 6.2 Principal Office. The address of the Corporation's initial
----------------
principal office is 12015 East 46th Avenue, Denver, Colorado 80239.
ARTICLE 7
Incorporator
The name and address of the incorporator is:
Nancy M. Garrett
1700 Lincoln Street, Suite 4100
Denver, Colorado 80203
FRONTIER AIRLINES, INC.
By: /s/ Arthur T. Voss
------------------------
Its: Secretary
-----------------------
-4-
<PAGE>
EXHIBIT 10.2(a)
EXHIBIT D
ADDENDUM TO LEASE AGREEMENT
This Addendum is attached to and made part of a certain agreement made as of 15
March 1994 between prior building owners ORIAM LIMITED LIABILITY CO. (prior
"Landlord") and Frontier Airlines ("Tenant") (the "Leasee"), with the new
building owner and "Landlord" now being Pacific Rim Investments.
1. Basic Lease Term Sheets
1. Term Sheet drawn for suite #110 with a Lease Commencement Date of
October 1st, 1997, and a Termination Date of 8/31/99.
2. Term Sheet drawn for suite #200 with a Lease Commencement Date of
September 1st, 1994, and a Termination Date of 8/31/99.
3. Term Sheet drawn for suite #350 with a Lease Commencement Date of
November 1st, 1997, and a Termination Date of 8/31/99.
4. Term Sheet drawn for suite #500 with a Lease Commencement Date of
February 1st, 1996, and a Termination Date of 1/31/2001.
5. Term Sheet drawn for suite #605 with a Lease Commencement Date of
November 1st, 1997, and a Termination Date of 8/31/99.
6. Term Sheet drawn for suite #'s 610, 615, 620, with a Lease Commencement
Date of November 1st, 1997, and a Termination Date of 8/31/99.
Executed this 12th day of March, 1998.
PACIFIC RIM INVESTMENTS, LLP FRONTIER AIRLINES
LANDLORD TENANT
By___________________________ By___________________________
Title _______________________ Title________________________
<PAGE>
OFFICE LEASE
------------
LEASE TERM SHEET
----------------
BUILDING: AIRPORT PLAZA
LEASE DATE: NOV 1, 1997
LANDLORD: PACIFIC RIM INVESTMENTS, A COLORADO LIMITED LIABILITY PARTNERSHIP
Address: 12015 E. 46TH AVE. SUITE #115
DENVER, COLORADO 80239
TENANT:
Name: FRONTIER AIRLINES
Address: 12015 E. 46TH AVENUE, SUITE 200 DENVER, COLORADO 80239
---------------------------------------------------------------
(Address for Notice if
different than above)
BROKER OF RECORD: NA
TENANT'S BROKER (if any) NA
LEASED PREMISES:
Suite Number: #110 Floor: 1st floor
Address: 12015 E. 46TH AVENUE-DENVER, COLORADO 80239
Tenant's Rentable Area: 926 RSF (rentable square feet)
LEASE TERM:
Lease Commencement Date: NOVEMBER 1, 1997
Lease Expiration Date: AUGUST 31, 1999
Lease Period: 1 year(s), plus 10 month(s)with 1 option for tenant to renew
-- --
for a period of six to twelve months at tenants election and at current rental
rate. An annual rental rate of $12,038.04 divided into 12 (twelve) equal monthly
installments of $1,003.17 per month, due and payable on the first day of each
month.
"BUILDING OPERATING COST" REFERENCE (ARTICLE 5):
BASE YEAR: Calendar Year 1997 or
EXPENSE STOP: $5.00 per square foot.
TENANT'S PRO RATA SHARE (OF BUILDING FOR BUILDING OPERATING COSTS):
926/63,226
SECURITY DEPOSIT: (EQUIVALENT TO FIRST AND LAST MONTHS RENT)
<PAGE>
PERMITTED USE: General Office
PARKING: Number of parking Spaces: N/A
LOCATION OF PARKING SPACES: ADJACENT TO OFFICE BUILDING
PACIFIC RIM INVESTMENTS FRONTIER AIRLINES
LANDLORD TENANT
______________________________ ______________________________
<PAGE>
OFFICE LEASE
------------
LEASE TERM SHEET
----------------
BUILDING: AIRPORT PLAZA
LEASE DATE: NOV 1, 1997
LANDLORD: PACIFIC RIM INVESTMENTS, A COLORADO LIMITED LIABILITY PARTNERSHIP
Address: 12015 E. 46TH AVE. SUITE #115
DENVER, COLORADO 80239
TENANT:
Name: FRONTIER AIRLINES
Address: 12015 E. 46/TH/ AVENUE. SUITE 200 DENVER, COLORADO 80239
---------------------------------------------------------
(Address for Notice if
different than above)
BROKER OF RECORD: NA
TENANT'S BROKER(IF ANY) NA
LEASED PREMISES:
Suite Numbers: 200 Floor: 2/nd/ floor
Address: 12015 E. 46/TH/ AVENUE-DENVER, COLORADO 80239
Tenant's Rentable Area: 10,571 RSF (rentable square feet)
LEASE TERM:
Lease Commencement Date: SEPTEMBER 1, 1994
Lease Expiration Date: AUGUST 31, 1999
Lease Period: 5 year(s), plus 0 month(s) with 1 option for tenant to renew
-- -
for a period of six to twelve months at tenants election and at current rental
rate. An annual rental rate of $ 73,997.00 divided into 12 (twelve) equal
monthly installments of $6,166.42 per month through August 31/st/, 1998, and an
annual rental rate of $ 95,139.00 divided into 12 (twelve) equal monthly
installments of $7,928.25 through August 31/st/, 1999, due and payable on the
first day of each month.
"BUILDING OPERATING COST" REFERENCE (ARTICLE 5.02):
BASE YEAR: Calendar Year 1997, or
EXPENSE STOP: $5.00 per square foot.
TENANT'S PRO RATA SHARE (OF BUILDING FOR BUILDING OPERATING COSTS):
10,571 /63,226
SECURITY DEPOSIT: (EQUIVALENT TO FIRST AND LAST MONTHS RENT)
<PAGE>
PERMITTED USE: General Office
PARKING: Number of parking Spaces: N/A
LOCATION OF PARKING SPACES: ADJACENT TO OFFICE BUILDING
PACIFIC RIM INVESTMENTS FRONTIER AIRLINES
LANDLORD TENANT
______________________________ ______________________________
<PAGE>
OFFICE LEASE
------------
LEASE TERM SHEET
----------------
BUILDING: AIRPORT PLAZA
-------------
LEASE DATE: NOV 1, 1997
-----------
LANDLORD: PACIFIC RIM INVESTMENTS, A COLORADO LIMITED LIABILITY PARTNERSHIP
-----------------------------------------------------------------
Address: 12015 E. 46/TH /AVENUE, SUITE #115
----------------------------------
DENVER, COLORADO 80239
----------------------
TENANT:
Name: FRONTIER AIRLINES
-----------------
Address: 12015 E. 46TH AVENUE, SUITE #350 DENVER, COLORADO 80239
--------------------------------------------------------------
_______________
(Address for Notice if
different than above):
BROKER OF RECORD: NA
TENANT'S BROKER (if any): NA
LEASED PREMISES:
Suite Number: 350 Floor: 3rd floor
----------
Address: 12015 E. 46TH AVENUE-DENVER, COLORADO 80239
-------------------------------------------
Tenants Rentable Area: 640 RSF (rentable square feet)
---
LEASE TERM:
Lease Commencement Date: NOVEMBER 1, 1997
----------------
Lease Expiration Date: AUGUST 31. 1999
---------------
Lease Period: 1 year(s), plus 10 month(s) with 1
------ ---- ------
Option for tenant to renew for a period of six to twelve months at tenants
election and at current rental rate.
BASE RENT: $ 17,365.26 total aggregate Base Rent, payable in monthly
----------
installments as follows:
An annual rental rate of $ 9,471.96 divided into 12 (twelve) equal monthly
----------
installments of $ 789.33 per month, due and payable on the first day of
---------
each month.
<PAGE>
"BUILDING OPERATING COST" REFERENCE (ARTICLE 5):
BASE YEAR: Calendar Year 1997 or
--
EXPENSE STOP: $5.00 per square foot
TENANT'S PRO RATA SHARE (OF BUILDING HR BUILDING OPERATING COSTS): 640/63226
---------
SECURITY DEPOSIT: (EQUIVALENT TO FIRST AND LAST MONTHS RENT)
--
PERMITTED USE: GENERAL OFFICE
--------------
PARKING:
Number of Parking Spaces: N/A
---
Location of Parking Spaces: Adjacent to office building
---------------------------
PACIFIC RIM INVESTMENTS FRONTIER AIRLINES
LANDLORD TENANT TENANT
______________________________ ______________________________
<PAGE>
OFFICE LEASE
------------
LEASE TERM SHEET
----------------
BUILDING: AIRPORT PLAZA
LEASE DATE: NOV 1, 1997
LANDLORD: PACIFIC RIM INVESTMENTS, A COLORADO LIMITED LIABILITY PARTNERSHIP
Address: 12015 E. 46/TH/ AVE. SUITE #115
DENVER, CO 80239
TENANT:
Name: FRONTIER AIRLINES
Address: 12015 E. 46/TH/ AVENUE, SUITE 200 DENVER, COLORADO 80239
---------------------------------------------------------
Address for Notice if
different than above)
BROKER OF RECORD: NA
TENANT'S BROKER(if any) NA
LEASED PREMISES:
Suite Numbers: 500 Floor 5th floor
Address: 12015 E. 46TH AVENUE-DENVER, COLORADO 80239
Tenant's Rentable Area: 10,571 RSF (rentable square feet)
LEASE TERM:
Lease Commencement Date: FEBRUARY 1, 1996
Lease Expiration Date: JANUARY 31, 2001
Lease Period: 5 year(s), plus 0 month(s) with 1 option for tenant to
-- ---
renew for a period of twelve to twenty four months at tenants election and at
current rental rate. An annual rental rate of $ 126,852 divided into 12 (twelve)
equal monthly installments of $10,571.00 per month, due and payable on the first
day of each month.
"BUILDING OPERATING COST" REFERENCE (ARTICLE 5):
BASE YEAR: Calendar Year 1997, or
EXPENSE STOP: $5.00 per square foot.
TENANT'S PRO RATA SHARE (OF BUILDING FOR BUILDING OPERATING COSTS):
10,571/63,226
SECURITY DEPOSIT: (EQUIVALENT TO FIRST AND LAST MONTHS RENT)
<PAGE>
PERMITTED USE: General Office
PARKING: Number of parking Spaces: N/A
LOCATION OF PARKING SPACES: ADJACENT TO OFFICE BUILDING
PACIFIC RIM INVESTMENTS FRONTIER AIRLINES
LANDLORD TENANT
______________________________ ______________________________
<PAGE>
OFFICE LEASE
------------
LEASE TERM SHEET
----------------
BUILDING: AIRPORT PLAZA
LEASE DATE: NOV 1, 1997
LANDLORD: PACIFIC RIM INVESTMENTS, A COLORADO LIMITED LIABILITY PARTNERSHIP
Address: 12015 E. 46TH AVE. SUITE #115
DENVER, COLORADO 80239
TENANT:
Name: FRONTIER AIRLINES
Address: 12015 E. 46/TH/ AVENUE. SUITE 200 DENVER. COLORADO 80239
-------------------------------------------------------------
(Address for Notice if
different than above)
BROKER OF RECORD: NA
TENANT'S BROKER(if any) NA
LEASED PREMISES:
Suite Numbers: 610, 615, 620 Floor: 6th floor
Address: 12015 E. 46/TH/ AVENUE-DENVER, COLORADO 80239
Tenant's Rentable Area: 5285.50 RSF (rentable square feet)
-------
LEASE TERM:
Lease Commencement Date: NOVEMBER 1,1997
Lease Expiration Date: AUGUST 31, 1999
Lease Period: 1 year(s), plus 10 month(s) with 1 option for tenant to
--- ----
renew for a period of six to twelve months at tenants election and at
current rental rate. An annual rental rate of $ 78,225.40 divided into 12
(twelve) equal monthly installments of $6,518.78 per month, due and payable
on the first day of each month.
"BUILDING OPERATING COST" REFERENCE (ARTICLE 5)
BASE YEAR: Calendar Year 1997 or
EXPENSE STOP: $5.00 per square foot.
TENANT'S PRO RATA SHARE (OF BUILDING FOR BUILDING OPERATING COSTS):
5,285/63,226
SECURITY DEPOSIT: (EQUIVALENT TO FIRST AND LAST MONTHS RENT)
<PAGE>
PERMITTED USE: General Office
PARKING: Number of parking Spaces: N/A
LOCATION OF PARKING SPACES: ADJACENT TO OFFICE BUILDING
PACIFIC RIM INVESTMENTS FRONTIER AIRLINES
LANDLORD TENANT
______________________________ ______________________________
<PAGE>
OFFICE LEASE
------------
LEASE TERM SHEET
----------------
BUILDING: AIRPORT PLAZA
-------------
LEASE DATE: NOV 1, 1997
-----------
LANDLORD: PACIFIC RIM INVESTMENTS, A COLORADO LIMITED LIABILITY PARTNERSHIP
-----------------------------------------------------------------
Address: 12015 E. 46TH AVE. SUITE #115 DENVER. COLORADO 80239
-----------------------------------------------------
TENANT:
Name: FRONTIER AIRLINES
-----------------
Address: 12015 E. 46TH AVENUE, SUITE 200 DENVER. COLORADO 80239
----------------------------------------------------------
- ---------------
(Address for Notice if
different than above):
BROKER OF RECORD: NA
TENANT'S BROKER (if any): NA
LEASED PREMISES:
Suite Number: 605 Floor: 6th floor
----------
Address: 12015 E.46TH AVENUE - DENVER. COLORADO 80239
--------------------------------------------
Tenant's Rentable Area: 238 RSF (rentable square feet)
---
LEASE TERM:
Lease Commencement Date: NOVEMBER 1.1997
----------------
Lease Expiration Date: AUGUST 31. 1999
----------------
Lease Period: 1 year(s), plus 10 month(s) with 1 option for
-- ---- -
tenant to renew for a period of six to twelve months at tenants election and
at current rental rate.
BASE RENT: $6,457.66 total aggregate Base Rent, payable in monthly
---------
installments as follows:
An annual rental rate of $ 3522.40 divided into 12 (twelve) equal
---------
monthly installments of $ 293.53 per month, due and payable on the first
--------
day of each month.
<PAGE>
"BUILDING OPERATING COST" REFERENCE (ARTICLE 5):
BASE YEAR: Calendar Year 1997 or
--
EXPENSE STOP: $ 5.00 per square foot
TENANT'S PRO RATA SHARE (OF BUILDING FOR BUILDING OPERATING COSTS): 238/63226
---------
SECURITY DEPOSIT: na (EQUIVALENT TO FIRST AND LAD MONTHS RENT)
--------
PERMITTED USE: General Office
----------------
PARKING:
Number of Parking Spaces: N/A
---
Location of Parking Spaces: Adjacent to office building
---------------------------
PACIFIC RIM INVESTMENTS FRONTIER AIRLINES
LANDLORD TENANT
______________________________ ______________________________
<PAGE>
OFFICE LEASE
------------
LEASE TERM SHEET
----------------
BUILDING: AIRPORT PLAZA
LEASE DATE: MAY 1/ST/, 1998
LANDLORD: PACIFIC RIM INVESTMENTS, A COLORADO LIMITED LIABILITY PARTNERSHIP
Address: 12015 E. 46/TH/ AVE. SUITE #115
DENVER, COLORADO 80239
TENANT:
Name: FRONTIER AIRLINES
Address: 12015 E. 46/TH/ AVENUE, SUITE 200 DENVER. COLORADO 80239
-------------------------------------------------------------
(Address for Notice if
different than above)
BROKER OF RECORD: NA
TENANT'S BROKER(if any) NA
LEASED PREMISES:
Suite Numbers: roof Floor: roof space
----------
Address: 12015 E. 46/TH/ AVENUE-DENVER, COLORADO 80239
Tenant's Rentable Area: 433 RSF (rentable square feet)
---
LEASE TERM:
Lease Commencement Date: MAY 1/ST/, 1998
Lease Expiration Date: AUGUST 31, 1999
Lease Period: l year(s), plus 4 month(s) with 1 Option(s) To
---- -
Renew for a period of six to twelve months at tenants election and at current
rental rate. A monthly rental rate of $100.00 per month, due and payable on the
first day of each month, and a no charge cost commencing Sept. 1, 1998 through
August 31, 1999, whereby Antenna will be allowed to stand as is.
"BUILDING OPERATING COST" REFERENCE (ARTICLE 5):
BASE YEAR: na
EXPENSE STOP: na
TENANT'S PRO RATA SHARE (OF BUILDING FOR BUILDING OPERATING COSTS): NA
SECURITY DEPOSIT: na (EQUIVALENT TO FIRST AND LAST MONTHS RENT)
PERMITTED USE: Satellite antenna
PARKING: Number of parking Spaces: N/A
LOCATION OF PARKING SPACES: ADJACENT TO OFFICE BUILDING
<PAGE>
GUARANTOR:
Name:
Address:
As per our agreement, we will waive all roof charges and other accrued
charges, i.e. conference room for the $1,600.00 trade for tickets.
PACIFIC RIM INVESTMENTS FRONTIER AIRLINES
LANDLORD TENANT
______________________________ ______________________________
<PAGE>
EXHIBIT 10.13(a)
________________________________
AMENDMENT NO. 1
dated as of
November 17, 1997
to
AIRCRAFT LEASE AGREEMENT
dated as of June 3, 1996
BETWEEN
POLARIS HOLDING COMPANY
as Lessor
AND
FRONTIER AIRLINES, INC.
as Lessee
________________________________
One Boeing Model 737-2L9 Aircraft
Manufacturer's Serial No. 22734
U.S. Registration No. N271FL
<PAGE>
AMENDMENT NO. 1
to
Aircraft Lease Agreement
THIS AMENDMENT NO. 1 dated as of November 17, 1997 to the Aircraft Lease
Agreement dated as of June 3, 1996 (the "Lease Agreement") between Polaris
Holding Company ("Lessor"), and Frontier Airlines, Inc. ("Lessee").
WHEREAS, the Lease Agreement as supplemented by Lease Supplement No. 1
dated June 26, 1996 ("Lease Supplement No. 1") was recorded by the Federal
Aviation Administration (the "FAA") on August 7, 1996, as Conveyance No. X129854
(the Lease Agreement as so supplemented is hereinafter referred to as the
"Lease"):
WHEREAS, the Lease is in respect of one Boeing Model 737-2L9 Aircraft
bearing manufacturer's serial number 22734 and U.S. Registration No. N271FL, and
certain related equipment (the "Aircraft"), and
WHEREAS, Lessee and Lessor desire to amend the Lease to extend the Term by
an additional twelve months, and to make certain other changes therein, and
WHEREAS, capitalized terms used and not otherwise defined herein shall have
the meanings ascribed to them in the Lease.
NOW THEREFORE, in consideration of the mutual covenants and agreements
contained herein, the parties hereto agree as follows:
1. Amendments to the Lease.
The definition of Expiry Date in Clause 1.1 of the Lease is revised in its
entirety to read:
EXPIRY DATE: the day preceding the day which is the 72nd monthly
anniversary of the Delivery Date or if earlier the date
on which:
(a) the date Lessor, acting in accordance with the
terms of this Agreement terminates the leasing of the
Aircraft to Lessee under this Agreement; or
(b) Lessor receives the Agreed Value together with any
other amounts then due and unpaid by Lessee following
an Event of Loss.
1
<PAGE>
2. Ratification.
------------
Except as expressly provided herein, Lessee acknowledges that nothing
contained in this Amendment is intended to discharge, amend or otherwise modify
its obligations under the Lease The Lease is hereby ratified and confirmed, but
only as amended, in all respects.
3. Representations and Warranties of Lessee.
----------------------------------------
Lessee represents and warrants to Lessor that:
(a) Lessee has full corporate power, authority and legal right to own its
property and to carry on its business as now being conducted and is duly
authorized to execute and deliver this Amendment, and to perform its obligations
hereunder and thereunder;
(b) This Amendment has been duly authorized, executed and delivered by
Lessee and constitutes the legal, valid and binding obligation of Lessee
enforceable in accordance with its terms, except as such enforceability may be
limited by applicable bankruptcy, insolvency, moratorium or other similar laws
affecting creditors' rights generally and subject to principles of equity;
(c) The execution and delivery by Lessee of this Amendment will not
conflict with or result in any breach of, constitute any default under, or
result in the creation of any lien, charge or encumbrance pursuant to, any
applicable law, any term or provision of Lessee's articles of incorporation or
by-laws or any judgment, order, writ, injunction, or decree of any court,
omission, board or Governmental Entity, or contravene any indenture, mortgage,
credit agreement, lease, license, contract or other agreement to which Lessee is
a party or by which it is bound; and
(d) All consents or approvals required of Lessee by any Governmental Entity
or other Person in connection with the execution and delivery of this Amendment
and the consummation by Lessee of the transactions contemplated hereby have been
duly obtained or waived.
4. Representations and Warranties of Lessor.
----------------------------------------
Lessor represents and warrants to Lessee that:
(a) Lessor has full corporate power, authority and legal right to own its
property and to carry on its business as now being conducted and is duly
authorized to execute and deliver this Amendment and to perform its obligations
hereunder;
(b) this Amendment has been duly authorized, executed and delivered by
Lessor and constitutes the legal, valid and binding obligation of Lessor
enforceable in accordance with its
2
<PAGE>
terms, except as such enforceability may be limited by applicable bankruptcy,
insolvency, moratorium or other similar laws affecting creditors' rights
generally and subject to principles of equity;
(c) The execution and delivery by Lessor of this Amendment will not
conflict with or result in any breach of, constitute any default under, or
result in the creation of any lien, charge or encumbrance pursuant to, any
applicable law, any term or provision of or Lessor's articles of incorporation
or by-laws or any judgment, order, writ, injunction, or decree of any court,
commission, board of Governmental Entity, or contravene any indenture, mortgage,
credit agreement, lease, license, contract or other agreement to which Lessor is
a party or by which it is bound; and
(d) Any consents or approvals required of Lessor by any Governmental Entity
in connection with the execution and delivery of this Amendment and the
consummation by Lessor of the transactions contemplated hereby have been duly
obtained or waived.
5. Miscellaneous.
-------------
(a) Amendment. No amendment, modification or waiver of any provision of
---------
this Amendment shall in any event be effective unless the same shall be in
writing and signed by the parties hereto or, in the case of a waiver, by the
party waiving compliance, and then such waiver shall be effective only in the
specific instance and for the specific purpose for which given.
(b) Notices. Any notices, requests, demands or other communications
-------
required or permitted to be made hereunder shall be in writing and shall be
addressed provided in Clause 16 11 of the Lease.
(c) Governing Law. THIS AMENDMENT, SHALL IN ALL RESPECTS BE GOVERNED BY,
-------------
AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF CALIFORNIA.
(d) Severability. If any one or more of the provisions contained in this
------------
Amendment or any document executed in connection herewith shall be invalid,
illegal or unenforceable in any respect under any law, the validity, legality
and enforceability of the remaining provisions contained herein shall not in any
way be affected or impaired.
(e) Counterparts. This Amendment may be executed in counterparts and any
------------
single counterpart or set of counterparts signed in either case, by all of the
parties hereto shall for all purposes be deemed to be an original, and all such
counterparts when taken together shall constitute one and the same instrument. A
facsimile signature on any counterpart hereto will be deemed an original for all
purposes.
(f) Entire Agreement. The terms and conditions contained in the Lease,
----------------
this
3
<PAGE>
Amendment and the other documents and instruments executed in connection
therewith or herewith constitute the entire agreement among the parities
pertaining to the subject matter thereof and hereof and supersede all prior
agreements, understandings, negotiations and discussions, whether oral or
written, of the parties.
(g) Headings. The headings in this Amendment are for reference only, and
--------
do not form part of and are not to be used to interpret this Agreement.
(h) Further Assurances. Each party shall cooperate with the other and
------------------
execute and deliver such instruments and other documents as my be necessary to
effectuate and carry out the provisions of this Amendment.
(i) Successors and Assigns. This Amendment shall insure to the benefit
----------------------
of, and be binding upon, the parties hereto and their respective successors and
assigns.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 1 to
be duly executed by their respective officers thereunto duly authorized as of
the day and year first above written.
LESSOR:
POLARIS HOLDING COMPANY
By: /s/ Henry A. Hubschman
--------------------------------
Name: Henry A. Hubschman
------------------------------
Title: President
-----------------------------
LESSEE:
FRONTIER AIRLINES, INC.
By: /s/ William B. Durlin
--------------------------------
Name: William B. Durlin
------------------------------
Title: Vice President
-----------------------------
4
<PAGE>
EXHIBIT 10.28
================================================================
AMENDED AND RESTATED
WARRANT AGREEMENT
Between
FRONTIER AIRLINES, INC.
and
WEXFORD MANAGEMENT LLC, as AGENT
Dated as of February 27, 1998
================================================================
<PAGE>
(i)
TABLE OF CONTENTS
Page
----
SECTION 1. Definitions; Accounting Terms and Determinations...................1
1.01 Definitions.........................................................1
1.02 Accounting Terms and Determinations.................................7
SECTION 2. Purchase and Sale of Warrant.......................................8
2.01 Authorization and Issuance of Original Warrant......................8
2.02 Issuance of the Original Warrant....................................8
2.03 Authorization and Issuance of Replacement Warrant...................8
2.04 Issuance of the Replacement Warrant.................................8
2.05 Securities Act Compliance; Brokers..................................8
SECTION 3. Representations and Warranties.....................................9
3.01 Existence; Qualification............................................9
3.02 No Breach...........................................................9
3.03 Corporate Action....................................................9
3.04 Approvals..........................................................10
3.05 Investment Company Act.............................................10
3.06 Capitalization.....................................................10
3.07 Private Offering...................................................11
3.08 Litigation.........................................................11
3.09 Rights Agreement...................................................11
3.10 Brokers............................................................11
SECTION 4. Restrictions on Transferability...................................11
4.01 Transfers Generally................................................11
4.02 Transfers of Restricted Securities Pursuant to Registration
Statements, Rule 144 and Rule 144A...............................12
4.03 Restrictive Legends................................................12
4.04 Termination of Restrictions........................................12
SECTION 5. Dispositions of Securities........................................12
5.01 Dispositions of Securities.........................................12
SECTION 6. Adjustments of Warrant Stock Issuable Upon Exercise...............13
6.01 Number of Shares; Exercise Price...................................13
6.02 Adjustment of Exercise Price.......................................13
6.03 Treatment of Options and Convertible Securities....................15
6.04 Treatment of Stock Dividends, etc. ................................17
<PAGE>
(ii)
Page
----
6.05 Computation of Consideration.......................................17
6.06 Adjustments for Combinations, Subdivisions, etc. ..................19
6.07 Dilution in Case of Other Securities...............................19
6.08 Consolidation, Merger, Sale of Assets, Reorganization etc. ........19
6.09 Other Dilutive Events..............................................21
6.10 No Dilution or Impairment..........................................21
6.11 Accountants' Report as to Adjustments..............................21
6.12 Notices of Corporate Action........................................22
SECTION 7. Holders' Rights...................................................23
7.01 Delivery Expenses..................................................23
7.02 Taxes..............................................................23
7.03 Replacement of Instruments.........................................23
7.04 Indemnification....................................................23
7.05 Inspection Rights..................................................24
SECTION 8. Other Covenants of Company........................................24
8.01 Availability of Information........................................24
8.02 Repurchases and Redemption.........................................25
8.03 Transactions with Affiliates.......................................25
8.04 Restrictions on Performance........................................25
8.05 Modification of Other Equity Documents.............................25
8.06 Ownership of Subsidiaries..........................................26
8.07 Reservation of Stock. etc. ........................................26
8.08 Listing on Securities Exchanges....................................26
SECTION 9. Miscellaneous....................................................26
9.01 Waiver.............................................................26
9.02 Notices............................................................26
9.03 Expenses, Etc. ....................................................27
9.04 Amendments, Etc. ..................................................28
9.05 Successors and Assigns.............................................28
9.06 Survival...........................................................28
9.07 Specific Performance...............................................28
9.08 WAIVER OF JURY TRIAL...............................................28
9.09 Consent to Jurisdiction and Service of Process. ...................29
9.10 Limitation of Liability............................................29
9.11 Captions...........................................................29
9.12 Counterparts.......................................................29
9.13 Governing Law......................................................29
9.14 Severability.......................................................29
9.15 Entire Agreement...................................................30
<PAGE>
(iii) Page
----
ANNEX 1 - FORM OF ASSIGNMENT
ANNEX 2 - REPURCHASES FROM MANAGEMENT
<PAGE>
AMENDED AND RESTATED WARRANT AGREEMENT dated as of February 27, 1998
between FRONTIER AIRLINES, INC., a Colorado corporation (the "Company"), and
-------
WEXFORD MANAGEMENT LLC, a Connecticut limited liability company, as Agent (the
"Investor").
- ---------
WHEREAS, in connection with (i) the issuance on December 2, 1997 by
the Company of a Senior Secured Promissory Note (the "Senior Secured Note") in
-------------------
the amount of $5,000,000 to the Investor and (ii) the proposed delivery by the
Investor of a commitment letter with respect to additional financial
accommodations in favor of the Company aggregating up to $10,000,000 (the
"Additional Financing"), as more fully described in that certain letter
- ---------------------
agreement, dated December 2, 1997, between the Company and the Investor (the
"Letter Agreement"), on December 2, 1997, the Company issued to the Investor a
- -----------------
warrant to purchase 3,000,000 shares of Common Stock, a copy of which is
attached hereto as Exhibit A and entered into a Warrant Agreement dated as of
---------
December 17, 1997 (the "Original Agreement");
WHEREAS, pursuant to a letter agreement dated February 27, 1998 (the
"March Letter Agreement"), the parties have agreed, among other things, to
terminate the Letter Agreement and to amend and restate the Original Agreement;
and
WHEREAS, in consideration of the extension of credit evidenced by the
Senior Secured Note and the March Letter Agreement, and for other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties have agreed, pursuant to the March Letter Agreement,
to enter into this Amended and Restated Warrant Agreement.
NOW, THEREFORE, the parties hereto agree as follows:
SECTION 1. Definitions; Accounting Terms and Determinations.
------------------------------------------------
1.01 Definitions. As used herein, the following terms shall have the
-----------
following meanings (all terms defined in this Section 1 or in other provisions
of this Agreement in the singular to have the same meanings when used in the
plural and vice versa):
"Acquiring Person" shall mean the continuing or surviving corporation
----------------
of a consolidation or merger with the Company (if other than the Company), the
transferee of substantially all of the properties and assets of the Company, the
corporation consolidating with or merging into the Company in a consolidation or
merger in connection with which the Common Stock is changed into or exchanged
for stock or other securities of any other Person or cash or any other property,
or, in the case of a capital reorganization or reclassification, the Company.
"Acquisition Price" shall mean, as applied to the Common Stock, with
-----------------
respect to any transaction to which Section 6.08 applies, (a) the price per
share equal to the greater of the following, determined in each case as of the
date immediately preceding the date of consummation of such transaction: (i)
the Market Price of the Common Stock and (ii) the highest amount of
Warrant Agreement
-----------------
<PAGE>
2
cash plus the Fair Value of the highest amount of securities or other property
which a Holder of Warrants would have been entitled as a shareholder to receive
upon such consummation if such Holder had exercised its Warrants immediately
prior thereto, or (b) if a purchase, tender or an exchange offer is made by the
Acquiring Person (or by any of its affiliates) to the holders of the Common
Stock and such offer is accepted by the holders of more than 50% of the
outstanding shares of Common Stock, the greater of (i) the price determined in
accordance with the foregoing subdivision (a) and (ii) the price per share equal
to the greater of the following, determined in each case as of the date
immediately preceding the acceptance of such offer by the holders of more than
50% of the outstanding shares of Common Stock: (x) the Market Price of the
Common Stock and (y) the highest amount of cash plus the Fair Value of the
highest amount of securities or other property which a Holder of Warrants would
have been entitled as a shareholder to receive pursuant to such offer if such
Holder had exercised its Warrants immediately prior to the expiration of such
offer and accepted the same.
"Additional Shares of Common Stock" shall mean all shares (including
---------------------------------
treasury shares) of Common Stock issued or sold (or, pursuant to Section 6.03 or
6.04, deemed to be issued) by the Company after the Initial Date hereof, whether
or not subsequently reacquired or retired by the Company other than (a) shares
of Common Stock issued upon the exercise of Warrants, (b) shares of Common Stock
issued or authorized prior to December 2, 1997 under the Option Plan and (c)
shares of Common Stock issuable on conversion or exercise of the Convertible
Securities or Options set forth in Schedule 3.06 attached hereto.
-------------
"Affiliate" shall mean, with respect to a specified Person, another
---------
Person that directly, or indirectly through one or more intermediaries, Controls
or is Controlled by or is under common Control with the Person specified.
"Base Price" shall mean, on any date specified herein, the greater of
----------
(i) the Current Market Price and (ii) the Exercise Price.
"Business Day" shall mean any day that is not a Saturday, Sunday or
------------
other day on which commercial banks in New York City are authorized or required
by law to remain closed.
"Commission" shall mean the Securities and Exchange Commission or any
----------
other similar or successor agency of the federal government administering the
Securities Act and/or the Exchange Act.
"Common Stock" shall mean the Common Stock of the Company, no par
------------
value per share, or any other common stock or other securities receivable
thereon, or into which the Common Stock is convertible or exchangeable, as a
result of any recapitalization, reclassification, merger or consolidation of, or
disposition of assets by, the Company.
Warrant Agreement
-----------------
<PAGE>
3
"Company" shall have the meaning assigned to such term in the preamble
-------
of this Agreement.
"Control" shall mean the possession, directly or indirectly, of the
-------
power to direct or cause the direction of the management or policies of a
Person, whether through the ability to exercise voting power, by contract or
otherwise. "Controlling" and "Controlled" shall have meanings correlative
----------- ----------
thereto.
"Convertible Securities" shall mean evidences of indebtedness,
----------------------
interests or other securities or rights which are exchangeable for or
exercisable or convertible into Additional Shares of Common Stock other than the
Warrants.
"Current Market Price" shall mean, on any date specified herein, (a)
--------------------
with respect to Common Stock or to Voting Common Stock (or equivalent equity
interests) of an Acquiring Person or its Parent, (i) the average daily Market
Price during the period of the most recent 20 consecutive Business Days ending
on such date, or (ii) if shares of Common Stock or such Voting Common Stock (or
equivalent equity interests), as the case may be, are not then listed or
admitted to trading on any national securities exchange and if the closing bid
and asked prices thereof are not then quoted or published in the over-the-
counter market, the Market Price on such date; and (b) with respect to any other
securities, the Market Price on such date.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
------------
amended, or any similar federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
"Exercise Notice" shall have the meaning assigned to such term in
---------------
Warrant No. Wex-2, a copy of which is attached as Exhibit B hereto.
---------
"Exercise Price" shall have the meaning assigned to such term in
--------------
Section 6.01 hereof.
"Expiration Date" shall have the meaning assigned to such term in
---------------
Warrant No. Wex-2, a copy of which is attached hereto as Exhibit B.
---------
"Fair Value" shall mean, with respect to any securities or other
----------
property, the fair value thereof as of a date which is within 15 days of the
date as of which the determination is to be made (a) determined by the Board of
Directors of the Company or (b), if the Requisite Holders of Warrants shall
object in writing to such determination within ten Business Days after notice of
such determination, as determined by an agreement between the Company and the
Requisite Holders of Warrants or (c) if the Company and the Requisite Holders of
Warrants fail to agree, determined jointly by an independent investment banking
firm retained by the Company and by an independent investment banking firm
retained by the Requisite Holders of Warrants, either of
Warrant Agreement
-----------------
<PAGE>
4
which firms may be an independent investment banking firm regularly retained by
the Company or any such holder or (d) if the Company or such holders shall fail
so to retain an independent investment banking firm within five Business Days of
the retention of such firm by such holders or the Company, as the case may be,
determined solely by the firm so retained or (e) if the firms so retained by the
Company and by such holders shall be unable to reach a joint determination
within 15 Business Days of the retention of the last firm so retained,
determined by another independent investment banking firm (whose fees shall be
paid equally by such holders, on the one hand, and the Company, on the other)
which is not a regular investment banking firm of the Company or any such holder
chosen by the first two such firms.
"GAAP" shall mean generally accepted accounting principles,
----
consistently applied throughout the specified period.
"Governmental Authority" shall mean the government of the United
----------------------
States of America, any other nation or any political subdivision thereof,
whether state or local, and any agency, authority, instrumentality, regulatory
body, court, central bank or other entity exercising executive, legislative,
judicial, taxing, regulatory, monetary or administrative powers or functions of
or pertaining to government.
"Holder" shall mean any Person who acquires Warrants or Warrant Stock
------
pursuant to the provisions of this Agreement, including any transferees of
Warrants or Warrant Stock; provided, however, that a holder of Warrant Stock
-------- -------
purchased pursuant to an effective registration statement or pursuant to Rule
144 shall not be deemed a Holder.
"include" and "including" shall be construed as if followed by the
------- ---------
phrase "without being limited to".
"Initial Date" shall have the meaning assigned in such term in Section
------------
6.02 hereof.
"Investor" shall have the meaning assigned to such term in the
--------
preamble of this Agreement.
"Letter Agreement" shall have the meaning assigned to such term in the
----------------
preamble of this Agreement.
"Lien" shall mean, with respect to any asset, any mortgage, lien,
----
pledge, charge, security interest or encumbrance of any kind in respect of such
asset. For purposes of this Agree ment, a Person shall be deemed to own
subject to a Lien any asset which it has acquired or holds subject to the
interest of a vendor or lessor under any conditional sale agreement, capital
lease or other title retention agreement relating to such asset.
Warrant Agreement
-----------------
<PAGE>
5
"Market Price" shall mean, on any date specified herein, (a) with
------------
respect to Common Stock or Voting Common Stock (or equivalent equity interests)
of an Acquiring Person or its Parent, the amount per share equal to (i) the last
sale price of shares of such security, regular way, on such date or, if no such
sale takes place on such date, the average of the closing bid and asked prices
thereof on such date, in each case as officially reported on the principal
national securities exchange on which the same are then listed or admitted to
trading, or (ii) if no shares of such security are then listed or admitted to
trading on any national securities exchange, the last reported sale price as
officially reported by the Nasdaq National Market System or, (iii) if not quoted
on the Nasdaq National Market System, the average closing bid and asked prices
as furnished by the NASD through the Nasdaq National Market System or similar
organization if the NASDAQ is no longer reporting such information, or (iv) if
no closing bid and asked prices thereof are then so quoted or published in the
over-the-counter market, the Fair Value thereof as of a date which is within 15
days of the date as of which the determination is to be made; and (b) with
respect to any other securities, the Fair Value thereof as of a date which is
within 15 days of the date as of which the determination is to be made.
"NASD" shall mean the National Association of Securities Dealers.
----
"NASDAQ" shall mean the National Association of Securities Dealers
------
automated quotation system.
"Option Plan" shall mean the Company's 1994 Stock Option Plan.
-----------
"Options" shall mean all rights, options or warrants to subscribe for,
-------
purchase or otherwise acquire either Additional Shares of Common Stock or
Convertible Securities.
"Original Warrant" shall mean the Warrant evidenced by Warrant
----------------
Certificate No. Wex-1, a copy of which is attached hereto as Exhibit A;
---------
"Other Equity Documents" shall mean the Option Plan, the certificate
----------------------
of incorporation of the Company, the by-laws of the Company, the Rights
Agreement and any other instrument or document of organization or governance of
the Company.
"Other Securities" shall mean any stock (other than Common Stock) and
----------------
other securities of the Company or any other Person (corporate or otherwise)
which the holders of the Warrants at any time shall be entitled to receive, or
shall have received, upon the exercise of the Warrants, in lieu of or in
addition to Common Stock, or which at any time shall be issuable or shall have
been issued in exchange for or in replacement of Common Stock or Other
Securities pursuant to Section 6.08 or otherwise.
"Parent" as to any Acquiring Person, any corporation which (a)
------
controls the Acquiring Person directly or indirectly through one or more
intermediaries, (b) is required to
Warrant Agreement
-----------------
<PAGE>
6
include the Acquiring Person in its consolidated financial statements under GAAP
and (c) is not itself included in the consolidated financial statements of any
other Person (other than its consolidated subsidiaries).
"Person" shall mean any natural person, corporation, limited liability
------
company, trust, joint venture, association, company, partnership, Governmental
Authority or other entity.
"Registration Rights Agreement" shall mean the Registration Rights
-----------------------------
Agreement dated as of December 17, 1997, between the Company and the Investor.
"Requisite Holders of Warrants" shall mean the holders of at least a
-----------------------------
majority of all the Warrants at the time outstanding determined on the basis of
the number of shares of Warrant Stock or Other Securities deliverable upon
exercise thereof; provided, that Warrants held by the Company or any of its
--------
Subsidiaries shall be excluded from both the numerator and denominator of any
calculation of the Requisite Holders of Warrants.
"Restricted Certificate" shall mean a certificate for Warrant Stock or
----------------------
Warrants bearing or required to bear the restrictive legend set forth in Section
4.03.
"Restricted Securities" shall mean Restricted Warrant Stock and
---------------------
Restricted Warrants.
"Restricted Warrant Stock" shall mean Warrant Stock evidenced by a
------------------------
Restricted Certificate.
"Restricted Warrants" shall mean Warrants evidenced by a Restricted
-------------------
Certificate.
"Rights Agreement" shall mean the Rights Agreement dated as of
----------------
February 20, 1997 between the Company and American Securities Transfer & Trust,
Inc., as amended.
"Rule 144" shall mean Rule 144 promulgated by the Commission under the
--------
Securities Act (or any successor or similar rule then in force).
"Rule 144A" shall mean Rule 144A promulgated by the Commission under
---------
the Securities Act (or any successor or similar rule then in force).
"Securities Act" shall mean the Securities Act of 1933, as amended, or
--------------
any similar federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"Senior Secured Note" shall have the meaning assigned to such term in
-------------------
the preamble of this Agreement.
Warrant Agreement
-----------------
<PAGE>
7
"Shareholder" shall mean any Person who directly or indirectly owns
-----------
any shares of Common Stock (including Warrant Stock).
"Subsidiary" of a Person means (a) any corporation more than 50% of
----------
the outstanding securities having ordinary voting power of which shall at the
time be owned or controlled, directly or indirectly, by such Person or by one or
more of its Subsidiaries or by such Person and one or more of its Subsidiaries,
or (b) any company, partnership, association, joint venture or similar business
organization more than 50% of the ownership interests having ordinary voting
power of which shall at the time be so owned or controlled. Unless otherwise
expressly provided, all references herein to a "Subsidiary" shall mean a direct
or indirect Subsidiary of the Company.
"Voting Common Stock" shall mean, with respect to any corporation,
-------------------
association or other business entity, stock of any class or classes (or
equivalent interest), if the holders of the stock of such class or classes (or
equivalent interests) are ordinarily, in the absence of contingencies, entitled
to vote for the election of a majority of the directors (or persons performing
similar functions) of such corporation, association or business entity, even if
the right so to vote has been suspended by the happening of such a contingency.
"Warrant Stock" shall mean all shares of Common Stock issuable from
-------------
time to time upon exercise of the Warrant.
"Warrant," "Warrants" and "Replacement Warrant" and "Replacement
------- -------- --------------------- ------------
Warrants" shall mean Warrant No. Wex-2 issued by the Company to the Investor on
- ---------
the date hereof, a copy of which is attached hereto as Exhibit B, evidencing
rights to purchase up to an aggregate of 1,750,000 shares of Warrant Stock and
other securities, cash or other property as shall result from the adjustment
specified in Section 6, and all Warrants issued upon transfer, division or
combination of, or in substitution for, any thereof.
1.02 Accounting Terms and Determinations. Except as otherwise may be
-----------------------------------
expressly provided herein, all accounting terms used herein shall be
interpreted, and all financial statements and certificates and reports as to
financial matters required to be delivered to any Holder of Warrant shall be
prepared, in accordance with GAAP. All calculations made for the purposes of
determining compliance with the terms of this Agreement shall (except as
otherwise may be expressly provided herein) be made by application of GAAP.
SECTION 2. Purchase and Sale of Warrant.
----------------------------
2.01 Authorization and Issuance of Original Warrant. On or prior to
----------------------------------------------
December 2, 1997, the Company authorized: (a) the issuance of the Original
Warrant evidenced by Warrant Certificate No. Wex-1, a copy of which is attached
hereto as Exhibit A; and (b) the issuance of
---------
Warrant Agreement
-----------------
<PAGE>
8
such number of shares of Common Stock as shall be necessary to permit the
Company to comply with its obligations to issue shares of Warrant Stock pursuant
to the Original Warrant.
2.02 Issuance of the Original Warrant. (a) On December 2, 1997, in
--------------------------------
consideration of the purchase by the Investor of the Senior Secured Note and the
Additional Financing, the Company delivered to the Investor Warrant Certificate
No. Wex-1, registered in the name of the Investor.
2.03 Authorization and Issuance of Replacement Warrant. On or prior
-------------------------------------------------
to February 27, 1998, the Company authorized the issuance of the Replacement
Warrant evidenced by Warrant Certificate No. Wex-2, a copy of which is attached
hereto as Exhibit B.
---------
2.04 Issuance of the Replacement Warrant. (a) On the date hereof,
-----------------------------------
in consideration of the purchase by the Investor of the Senior Secured Note and
the March Letter Agreement, the Company delivered to the Investor Warrant
Certificate No. Wex-2, registered in the name of the Investor.
2.05 Securities Act Compliance; Brokers. (a) The Investor
----------------------------------
understands that the Company has not registered the Warrant or the Warrant Stock
under the Securities Act or applicable state securities laws, and the Investor
agrees that neither the Warrant nor the Warrant Stock shall be sold or
transferred or offered for sale or transfer without registration or
qualification under the Securities Act or applicable state securities laws or
the availability of an exemption therefrom, all as more fully provided in
Section 4.
(b) The Investor purchased the Warrant for its own account for
investment and not with a view to the distribution of the Warrant or any part
thereof, it being understood that the right to dispose of the Warrant shall be
entirely within the discretion of the Investor. Nothing in this paragraph (b)
is meant to limit or restrict the rights granted to the Investor under the
Registration Rights Agreement.
(c) The Investor is an "accredited investor" within the meaning of
Regulation D promulgated under the Securities Act.
(d) All negotiations relative to this Agreement and the transactions
contemplated hereby have been carried out by the Investor directly with the
Company without the intervention of any Person on behalf of the Investor in such
manner as to give rise to any valid claim by any Person against the Company for
a finder's fee, brokerage commission or similar payment.
SECTION 3. Representations and Warranties. The Company represents
------------------------------
and warrants as follows:
Warrant Agreement
-----------------
<PAGE>
9
3.01 Existence; Qualification. The Company is duly organized,
------------------------
validly existing and in good standing under the laws of the State of Colorado.
The Company is duly qualified, licensed or admitted to do business and is in
good standing as a foreign corporation in every jurisdiction in which the nature
of the business conducted by it makes such qualification necessary, except where
the failure to be so qualified would not have a material adverse effect on the
Company, and has all requisite corporate power and authority to transact its
business as now conducted in all such jurisdictions.
3.02 No Breach. The execution, delivery and performance of this
---------
Agreement, the Warrant and the Registration Rights Agreement by the Company and
the consummation by it of the transactions contemplated hereby and thereby will
not (a) violate the articles of incorporation or by-laws or any other instrument
or document of organization or governance of the Company, (b) violate, or result
in a breach of or default under, any other material instrument or agreement to
which the Company is a party or is bound, (c) violate any judgment, order,
injunction, decree or award against or binding upon the Company, (d) result in
the creation of any material Lien upon any of the properties or assets of the
Company (other than as contemplated by the Senior Secured Note or the Additional
Financing), or (e) violate any law, rule or regulation applicable to the
Company.
3.03 Corporate Action. The Company has all necessary corporate power
----------------
and authority to execute, deliver and perform its obligations under this
Agreement, the Warrant and the Registration Rights Agreement; the execution,
delivery and performance by the Company of this Agreement, the Warrant and the
Registration Rights Agreement have been duly authorized by all necessary action
(including all Shareholder action) on the part of the Company; this Agreement,
the Warrant and the Registration Rights Agreement have been duly executed and
delivered by the Company and constitute the legal, valid and binding obligations
of the Company, enforceable against the Company in accordance with their
respective terms; the shares of Warrant Stock covered by the Warrant have been
duly and validly authorized and reserved for issuance and shall, when paid for,
issued and delivered in accordance with the Warrant, be duly and validly issued,
fully paid and nonassessable and free and clear of any Liens; and none of the
Warrant Stock issued pursuant to the terms hereof will be in violation of any
preemptive rights of any Shareholder.
3.04 Approvals. Except in connection with the registration rights
---------
provided for pursuant to the terms of the Registration Rights Agreement, no
authorizations, approvals or consents of, and no filings or registrations with,
any Governmental Authority or any other Person are necessary for the execution,
delivery or performance by the Company of this Agreement, the Warrant or the
Registration Rights Agreement or for the validity or enforceability hereof or
thereof. Any such action required to be taken as a condition to the execution
and delivery of this Agreement or the Registration Rights Agreement, or the
execution, issuance and delivery of the Warrant, has been duly taken by all such
Governmental Authorities or other Persons, as the case may be.
Warrant Agreement
-----------------
<PAGE>
10
3.05 Investment Company Act. The Company is not an "investment
----------------------
company", or a company "controlled by" an "investment company", within the
meaning of the Investment Company Act of 1940, as amended.
3.06 Capitalization.
--------------
(a) On the date hereof, the total number of shares of Common Stock
that the Company has authority to issue is 40,000,000 of which 9,233,563 are
outstanding. Upon the issuance of the Warrant under this Agreement, other than
the Warrant, and other than as set forth in Schedule 3.06 attached hereto, the
-------------
Company shall not have outstanding any Convertible Securities or Options
exercisable or convertible into or exchangeable for any interests or other
equity rights of the Company, nor shall it have outstanding any agreements
providing for the issuance (contingent or otherwise) of, or any calls,
commitments or claims of any character relating to, any interests or equity
rights of the Company or Convertible Securities exercisable or convertible into
or exchangeable for any interests or equity rights of the Company.
(b) Except as set forth in Schedule 3.06 attached hereto, other than
-------------
this Agreement and the Registration Rights Agreement, there is not in effect on
the date hereof any agreement by the Company pursuant to which any holders of
securities of the Company have a right to cause the Company to register such
securities under the Securities Act or any agreement to which the Company or (to
its knowledge) any of its Shareholders is a party relating to the voting,
transfer or sale of such securities.
(c) There is not in effect on the date hereof any agreement by the
Company or any of its Shareholders which (i) restricts the transferability of
the Warrant and/or the Warrant Stock (whether or not in connection with a
transfer of the Senior Secured Note or any note or other instrument issued in
connection with the Additional Financing), except as provided in Sections 4 and
5, (ii) restricts the transferability of the right of the Holder in this
Agreement to any transferee of all or a portion of the Holder's Warrant and/or
Warrant Stock, or (iii) requires any consent or other approval of any Person to
the exercise of the Warrant by the Holder or the issuance of Warrant Stock upon
such exercise.
3.07 Private Offering.
----------------
(a) Based on the representations of the Investor in Sections 2.03(a)-
----------------
(c) hereof, the issuance and sale of the Warrant to the Investor hereunder were
- ---
exempt from the registration and prospectus delivery requirements of the
Securities Act.
(b) All equity interests of the Company heretofore issued and sold by
the Company were issued and sold in accordance with, or were exempt from, the
registration and prospectus delivery requirements of the Securities Act.
Warrant Agreement
-----------------
<PAGE>
11
3.08 Litigation.
----------
There is no action, suit, proceeding or investigation pending or, to
the best of the Company's knowledge after due inquiry, threatened against the
Company before any Governmental Authority seeking to enjoin the transactions
contemplated by this Agreement or the Warrant.
3.09 Rights Agreement. Neither the ownership nor exercise of the
----------------
Warrant or any portion thereof by the Investor or any Holder will result in a
"Distribution Date" or a "Triggering Event" (as defined in the Rights
Agreement), or in the Investor or such Holder being deemed an "Acquiring Person"
under the Rights Agreement.
3.10 Brokers. All negotiations relative to this Agreement and the
-------
transactions contemplated hereby have been carried out by the Company directly
with the Investor without the intervention of any Person on behalf of the
Company in such manner as to give rise to any valid claim by any Person against
the Investor or the Holder for a finder's fee, brokerage commission or similar
payment.
SECTION 4. Restrictions on Transferability.
-------------------------------
4.01 Transfers Generally. Except as otherwise provided in Section 5,
-------------------
the Restricted Securities shall be transferable only upon the conditions
specified in this Section 4 and in the Registration Rights Agreement, which
conditions are intended to ensure compliance with the provisions of the
Securities Act and applicable state securities laws in respect of the transfer
of any Restricted Securities.
4.02 Transfers of Restricted Securities Pursuant to Registration
-----------------------------------------------------------
Statements, Rule 144 and Rule 144A. The Restricted Securities may be offered or
- ----------------------------------
sold by the Holder thereof pursuant to (a) an effective registration statement
under the Securities Act, (b) to the extent applicable, Rule 144 or Rule 144A or
(c) any other legally available means of transfer; provided, that the Holder
--------
receives an opinion of counsel to the effect that the proposed transfer may
legally be effected without registration of such Registrable Securities under
the Securities Act.
4.03 Restrictive Legends. Unless and until otherwise permitted by
-------------------
this Section 4, each certificate for any Warrants issued to any subsequent
transferee of Warrant Certificate No. Wex-1, each certificate for any Warrant
Stock issued upon exercise of any Warrant and each certificate for any Warrant
Stock issued to any subsequent transferee of any such certificate, shall be
stamped or otherwise imprinted with a legend in substantially the following
form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS, AND ACCORDINGLY, SUCH
Warrant Agreement
-----------------
<PAGE>
12
SECURITIES MAY NOT BE TRANSFERRED, SOLD OR OTHERWISE DISPOSED OF EXCEPT IN
COMPLIANCE WITH THE REGISTRATION OR QUALIFICATION PROVISIONS OF APPLICABLE
FEDERAL AND STATE SECURITIES LAWS OR APPLICABLE EXEMPTIONS THEREFROM.
4.04 Termination of Restrictions. All of the restrictions imposed by
---------------------------
this Section 4 upon the transferability of the Restricted Securities shall cease
and terminate as to any par ticular Restricted Security when such Restricted
Security shall have been effectively registered under the Securities Act and
applicable state securities laws and sold by the Holder thereof in accordance
with such registration or sold under and pursuant to Rule 144 or is eligible to
be sold under and pursuant to paragraph (k) of Rule 144. Whenever the
restrictions imposed by this Section 4 shall terminate as to any Restricted
Security as hereinabove provided, the Holder thereof shall be entitled to
receive from the Company, without expense, a new certificate evidencing such
Restricted Security not bearing the restrictive legend otherwise required to be
borne by a certificate evidencing such Restricted Security.
SECTION 5. Dispositions of Securities.
--------------------------
5.01 Dispositions of Securities.
--------------------------
(a) Notwithstanding anything herein in this Agreement or the Warrant
to the contrary, but subject to compliance with the Securities Act, applicable
state securities laws and the requirement as to placement of a legend on
certificates for Restricted Securities specified in Section 4.03, the Warrant
and all rights thereunder are transferable (subject to any restrictive legends
thereon), in whole or in part, upon surrender of the Warrant to the Company,
together with a written assignment of the Warrant duly executed by the Holder
thereof or such Holder's agent or attorney. Such written assignment shall be in
the form of the Assignment Form attached as Annex 1 hereto. Upon such
-------
surrender, the Company shall execute and deliver a new Warrant or Warrants in
the name of the assignee or assignees and in the denominations specified in such
instrument of assignment, and the original Warrant shall promptly be canceled.
(b) The Warrant may be exchanged for other Warrants of the same series
upon presentation to the Company, together with a written notice specifying the
denominations in which new Warrants are to be issued, signed by the Holder
thereof. The Company shall execute and deliver a new Warrant or Warrants to the
Holder in exchange for the Warrant or Warrants to be divided or combined in
accordance with such notice. The Company shall pay all expenses, taxes
(including transfer taxes) and other charges payable in connection with the
preparation, issuance and delivery of the Warrants, including any transfer or
exchange thereof.
(c) The Company shall maintain books for the registration and transfer
of the Warrants, and shall allow each Holder of Warrants to inspect such books
at such reasonable times as such Holder shall request.
Warrant Agreement
-----------------
<PAGE>
13
SECTION 6. Adjustments of Warrant Stock Issuable Upon Exercise.
---------------------------------------------------
6.01 Number of Shares; Exercise Price. The number of shares of
--------------------------------
Warrant Stock which a Holder of Warrants shall be entitled to receive upon each
exercise thereof shall be determined by multiplying the number of shares of
Warrant Stock which would otherwise (but for the provisions of this Section 6)
be issuable upon such exercise, as designated by the Holder thereof in its
Exercise Notice, by a fraction of which (i) the numerator is $3.00 and (ii) the
denominator is the Exercise Price in effect on the date of such exercise. The
"Exercise Price" shall initially be $3.00 per share, shall be adjusted and
readjusted from time to time as provided in this Section 6 and, as so adjusted
or readjusted, shall remain in effect until a further adjustment or readjustment
thereof is required by this Section 6.
6.02 Adjustment of Exercise Price.
----------------------------
(a) Issuance of Additional Shares of Common Stock. In case the
---------------------------------------------
Company, at any time or from time to time after December 2, 1997 (the "Initial
-------
Date"), shall issue or sell Additional Shares of Common Stock (including
- ----
Additional Shares of Common Stock deemed to be issued pursuant to Section 6.03
or 6.04) without consideration or for a consideration per share less than the
Base Price in effect, in each case, on the date of and immediately prior to such
issue or sale, then, and in each such case,
(i) in the event that the number of shares to be so issued or sold,
together with all other Additional Shares of Common Stock issued or sold or
deemed issued by the Company subsequent to the Initial Date for a consideration
per share less than the Base Price (collectively, the "Below Base Price Shares")
-----------------------
is less than 250,000, such Exercise Price shall be reduced, concurrently with
such issue or sale, to a price (calculated to the nearest .001 of a cent)
determined by multiplying such Exercise Price by a fraction,
(A) the numerator of which shall be (x) the number of shares of Common
Stock outstanding immediately prior to such issue or sale plus (y) the
number of shares of Common Stock which the aggregate consideration received
by the Company for the total number of such Additional Shares of Common
Stock so issued or sold would purchase at the Base Price, and
(B) the denominator of which shall be the number of shares of Common
Stock outstanding immediately after such issue or sale, and
(ii) in the event that the number of Below Base Price Shares issued or
sold or deemed issued by the Company subsequent to the Initial Date is equal to
or greater than 250,000, the Exercise Price shall be reduced to an amount equal
to the lowest consideration per share (as determined under Section 6.05)
received by the Company for any such issue or sale,
Warrant Agreement
-----------------
<PAGE>
14
provided that, for the purposes of this Section 6.02(a), immediately after any
- --------
Additional Shares of Common Stock are deemed to have been issued pursuant to
Section 6.03 or 6.04, such Additional Shares shall be deemed to be outstanding,
and treasury shares shall not be deemed to be outstanding.
(b) Dividends and Distributions. In case the Company at any time or
---------------------------
from time to time after the Initial Date shall declare, order, pay or make a
dividend or other distribution (including, without limitation, any distribution
of other or additional stock or other securities or property or Options by way
of dividend or spin-off, reclassification, recapitalization or similar corporate
rearrangement) on any Common Stock, other than a dividend payable in Additional
Shares of Common Stock or in Options for Common Stock, then, unless the Company
permits the Holders to participate in such dividend or distribution based on the
number of shares of Warrant Stock then underlying each Warrant, the Exercise
Price in effect immediately prior to the close of business on the record date
fixed for the determination of holders of any class of securities entitled to
receive such dividend or distribution shall be reduced, effective as of the
close of business on such record date, to a price (calculated to the nearest
.001 of a cent) determined by multiplying such Exercise Price by a fraction,
(A) the numerator of which shall be the Current Market Price in effect
on such record date or, if the Common Stock trades on an ex-dividend basis,
on the date prior to the commencement of ex-dividend trading, less the
value of such dividend or distribution applicable to one share of Common
Stock, and
(B) the denominator of which shall be such Current Market Price.
6.03 Treatment of Options and Convertible Securities. In case the
-----------------------------------------------
Company at any time or from time to time after the Initial Date shall issue,
sell, grant or assume, or shall fix a record date for the determination of
holders of any class of securities entitled to receive, any Options or
Convertible Securities, then, and in each such case, the maximum number of
Additional Shares of Common Stock (as set forth in the instrument relating
thereto, without regard to any provisions contained therein for a subsequent
adjustment of such number) issuable upon the exercise of such Options or, in the
case of Convertible Securities and Options therefor, the conversion or exchange
of such Convertible Securities, shall be deemed to be issued for purposes of
Section 6.02 as of the time of such issue, sale, grant or assumption or, in case
such a record date shall have been fixed, as of the close of business on such
record date (or, if the Common Stock trades on an ex-dividend basis, on the date
prior to the commencement of ex-dividend trading), provided that such Additional
--------
Shares of Common Stock shall not be deemed to have been issued unless the
consideration per share (determined pursuant to Section 6.05) of such shares
would be less than the Base Price in effect, in each case, on the date of and
immediately prior to such issue, sale, grant or assumption or immediately prior
to the close of business on such record date (or, if the Common Stock trades on
an ex-dividend basis, on the date prior to the
Warrant Agreement
------------------
<PAGE>
15
commencement of ex-dividend trading), as the case may be, and provided, further,
-------- -------
that in any such case in which Additional Shares of Common Stock are deemed to
be issued,
(a) no further adjustment of the Exercise Price shall be made upon the
subsequent issue or sale of Additional Shares of Common Stock or
Convertible Securities upon the exercise of such Options or the conversion
or exchange of such Convertible Securities;
(b) if such Options or Convertible Securities by their terms provide,
with the passage of time or otherwise, for any increase or decrease in the
consideration payable to the Company, or increase or decrease in the number
of Additional Shares of Common Stock issuable, upon the exercise,
conversion or exchange thereof (by change of rate or otherwise), the
Exercise Price computed upon the original issue, sale, grant or assumption
thereof (or upon the occurrence of the record date, or date prior to the
commencement of ex-dividend trading, as the case may be, with respect
thereto), and any subsequent adjustments based thereon, shall, upon any
such increase or decrease becoming effective, be recomputed to reflect such
increase or decrease insofar as it affects such Options, or the rights of
conversion or exchange under such Convertible Securities, which are
outstanding at such time;
(c) upon the expiration of any such Options or of the rights of
conversion or exchange under any such Convertible Securities which shall
not have been exercised (or upon purchase by the Company and cancellation
or retirement of any such Options which shall not have been exercised or of
any such Convertible Securities the rights of conversion or exchange under
which shall not have been exercised), the Exercise Price computed upon the
original issue, sale, grant or assumption thereof (or upon the occurrence
of the record date, or date prior to the commencement of ex-dividend
trading, as the case may be, with respect thereto), and any subsequent
adjustments based thereon, shall, upon such expiration (or such
cancellation or retirement, as the case may be), be recomputed as if:
(i) in the case of Options for Common Stock or of Convertible
Securities, the only Additional Shares of Common Stock issued or sold
were the Additional Shares of Common Stock, if any, actually issued or
sold upon the exercise of such Options or the conversion or exchange
of such Convertible Securities and the consideration received therefor
was (x) an amount equal to (1) the consideration actually received by
the Company for the issue, sale, grant or assumption of all such
Options, whether or not exercised, plus (2) the consideration actually
received by the Company upon such exercise, minus (3) the
consideration paid by the Company for any purchase of such Options
which were not exercised, or (y) an amount equal to (1) the
consideration actually received by the Company for the issue, sale,
grant or assumption of all such Convertible
Warrant Agreement
-----------------
<PAGE>
16
Securities which were actually converted or exchanged, plus (2) the
additional consideration, if any, actually received by the Company
upon such conversion or exchange, minus (3) the consideration paid by
the Company for any purchase of such Convertible Securities the rights
of conversion or exchange under which were not exercised, and
(ii) in the case of Options for Convertible Securities, only the
Convertible Securities, if any, actually issued or sold upon the
exercise of such Options were issued at the time of the issue, sale,
grant or assumption of such Options, and the consideration received by
the Company for the Additional Shares of Common Stock deemed to have
then been issued was an amount equal to (x) the consideration actually
received by the Company for the issue, sale, grant or assumption of
all such Options, whether or not exercised, plus (y) the consideration
deemed to have been received by the Company (pursuant to Section 6.05)
upon the issue or sale of the Convertible Securities with respect to
which such Options were actually exercised, minus (z) the
consideration paid by the Company for any purchase of such Options
which were not exercised;
(d) no readjustment pursuant to subdivision (b) or (c) above shall
have the effect of increasing the Exercise Price by an amount in excess of
the amount of the adjustment thereof originally made in respect of the
issue, sale, grant or assumption of such Options or Convertible Securities;
and
(e) in the case of any such Options which expire by their terms not
more than 30 days after the date of issue, sale, grant or assumption
thereof, no adjustment of the Exercise Price shall be made until the
expiration or exercise of all such Options, whereupon such adjustment shall
be made in the manner provided in subdivision (c) above.
In case at any time after the Initial Date the Company shall be
required to increase the number of Additional Shares of Common Stock subject to
any Option or into which any Convertible Securities are convertible or
exchangeable pursuant to the operation of anti-dilution provisions applicable
thereto, such Additional Shares shall be deemed to be issued for purposes of
Section 6.02 as of the time of such increase.
6.04 Treatment of Stock Dividends, etc. In case the Company at any
----------------------------------
time or from time to time after the Initial Date shall declare or pay any
dividend or other distribution on any class of stock of the Company payable in
Common Stock, then, and in each such case, Additional Shares of Common Stock
shall be deemed to have been issued immediately after the close of business on
the record date for the determination of holders of any class of securities
entitled to receive such dividend; provided, however, that no Additional Shares
-------- -------
of Common Stock shall be deemed to have been issued in the case of any such
dividend if the Company shall have declared
Warrant Agreement
-----------------
<PAGE>
17
such dividend payable, and paid such dividend, with respect to all shares of
Warrant Stock then underlying the Warrants.
6.05 Computation of Consideration. For the purposes of this Section 6:
----------------------------
(a) The consideration for the issue or sale of any Additional Shares
of Common Stock or for the issue, sale, grant or assumption of any Options
or Convertible Securities, irrespective of the accounting treatment of such
consideration, shall
(i) insofar as it consists of cash, be computed at the amount of
cash received by the Company, after deducting any expenses paid or
incurred by the Company or any commissions or compensation paid or
concessions or discounts allowed to underwriters, dealers or others
performing similar services and any accrued interest or dividends in
connection with such issue or sale,
(ii) insofar as it consists of consideration (including
securities) other than cash, be computed at the Fair Value thereof at
the time of such issue or sale, after deducting any expenses paid or
incurred by the Company for any commissions or compensation paid or
concessions or discounts allowed to underwriters, dealers or others
performing similar services and any accrued interest or dividends in
connection with such issue or sale, and
(iii) in case Additional Shares of Common Stock are issued or sold
or Convertible Securities are issued, sold, granted or assumed
together with other stock or securities or other assets of the Company
for a consideration which covers both, be the proportion of such
consideration so received, computed as provided in subdivisions (i)
and (ii) above, allocable to such Additional Shares of Common Stock or
Convertible Securities, as the case may be.
(b) Subject to the proviso contained in Section 6.04, all Additional
Shares of Common Stock, Options or Convertible Securities issued in payment
of any dividend or other distribution on any class of stock of the Company
shall be deemed to have been issued without consideration.
(c) Additional Shares of Common Stock deemed to have been issued for
consideration pursuant to Section 6.03, relating to Options and Convertible
Securities, shall be deemed to have been issued for a consideration per
share determined by dividing
(i) the total amount, if any, received and receivable by the
Company as consideration for the issue, sale, grant or assumption of
the Options or Convertible Securities in question, plus the minimum
aggregate amount of additional consideration (as set forth in the
instruments relating thereto, without regard to
Warrant Agreement
-----------------
<PAGE>
18
any provision contained therein for a subsequent adjustment of such
consideration) payable to the Company upon the exercise in full of
such Options or the conversion or exchange of such Convertible
Securities or, in the case of Options for Convertible Securities, the
exercise of such Options for Convertible Securities and the conversion
or exchange of such Convertible Securities, in each case computing
such consideration as provided in the foregoing subdivision (a), by
(ii) the maximum number of shares of Common Stock (as set forth in
the instruments relating thereto, without regard to any provision
contained therein for a subsequent adjustment of such number) issuable
upon the exercise of such Options or the conversion or exchange of
such Convertible Securities.
(d) Additional Shares of Common Stock issued or deemed to have been
issued pursuant to the operation of anti-dilution provisions applicable to
Convertible Securities, Options or other securities of the Company (either
as a result of the adjustments provided for by the Warrants or otherwise)
shall be deemed to have been issued without consideration.
6.06 Adjustments for Combinations, Subdivisions, etc. In case the
------------------------------------------------
outstanding shares of Common Stock shall be combined or consolidated into a
lesser number of shares of Common Stock (by reclassification or otherwise) or
shall be subdivided into a greater number of shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in Common Stock),
the Exercise Price in effect immediately prior to such combination or
consolidation or subdivision shall, concurrently with the effectiveness of such
combination or consolidation or subdivision, be proportionately increased or
decreased, as the case may be.
6.07 Dilution in Case of Other Securities. In case any Other
------------------------------------
Securities shall be issued or sold or shall become subject to issue or sale upon
the conversion or exchange of any stock (or Other Securities) of the Company (or
any issuer of Other Securities or any other Person referred to in Section 6.08)
or to subscription, purchase or other acquisition pursuant to any Options issued
or granted by the Company (or any such other issuer or Person) for a
consideration such as to dilute, on a basis consistent with the standards
established in the other provisions of this Section 6, the purchase rights
granted by the Warrants, then, and in each such case, the computations,
adjustments and readjustments provided for in this Section 6 with respect to the
Exercise Price shall be made as nearly as possible in the manner so provided and
applied to determine the amount of Other Securities from time to time receivable
upon the exercise of the Warrants, so as to protect the holders of the Warrants
against the effect of such dilution.
6.08 Consolidation, Merger, Sale of Assets, Reorganization etc. (a)
----------------------------------------------------------
General Provisions. In case the Company, after the Initial Date, (i) shall
- ------------------
consolidate with or merge into any other Person and shall not be the continuing
or surviving corporation of such consolidation or merger, or (ii) shall permit
any other Person to consolidate with or merge into the Company and
Warrant Agreement
-----------------
<PAGE>
19
the Company shall be the continuing or surviving Person but, in connection with
such consolidation or merger, Common Stock or Other Securities shall be changed
into or exchanged for cash, stock or other securities of any Person or any other
property, or (iii) shall transfer all or substantially all of its properties and
assets to any other Person, or (iv) shall effect a capital reorganization or
reclassification of Common Stock or Other Securities (other than a capital
reorganization or reclassification resulting in the issue of Additional Shares
of Common Stock for which adjustment in the Exercise Price is provided in
Section 6.02(a) or 6.02(b)), then, and in the case of each such transaction, the
Company shall give written notice thereof to each Holder of Warrants not less
than 45 days prior to the consummation thereof and proper provision shall be
made so that, upon the basis and the terms and in the manner provided in this
Section 6.08, each Holder of Warrants, upon the exercise thereof at any time
after the consummation of such transaction, shall be entitled to receive, at the
aggregate Exercise Price in effect at the time of such consummation for all
Common Stock (or Other Securities) issuable upon such exercise immediately prior
to such consummation, in lieu of the Common Stock (or Other Securities) issuable
upon such exercise prior to such consummation, the following:
the highest amount of cash, securities or other property to which such
Holder would actually have been entitled as a shareholder upon such
consummation if such Holder had exercised such Warrants immediately prior
thereto, subject to adjustments (subsequent to such consummation) as nearly
equivalent as possible to the adjustments provided for in this Section 6,
provided that if a purchase, tender or exchange offer shall have been made
--------
to and accepted by the holders of Common Stock under circumstances in
which, upon completion of such purchase, tender or exchange offer, the
maker thereof, together with members of any group (within the meaning of
Rule 13d-5(b)(l) under the Exchange Act) of which such maker is a part, and
together with any affiliate or associate of such maker (within the meaning
of Rule 12b-2 under the Exchange Act) and any members of any such group of
which any such affiliate or associate is a part, own beneficially (within
the meaning of Rule 13d-3 under the Exchange Act) more than 50% of the
outstanding shares of Common Stock, and if any Holder of Warrants so
designates in such notice given to the Company, such Holder shall be
entitled to receive the highest amount of cash, securities or other
property to which such Holder would actually have been entitled as a
shareholder if such Holder had exercised its Warrants prior to the
expiration of such purchase, tender or exchange offer, accepted such offer
and all of the Common Stock held by such Holder had been purchased pursuant
to such purchase, tender or exchange offer, subject to adjustments (from
and after the consummation of such purchase, tender or exchange offer) as
nearly equivalent as possible to the adjustments provided for in this
Section 6; provided that, if any of the transactions described in
--------
subdivisions (i) through (iv) of this Section 6.08(a) involve the issuance
of Voting Common Stock, the Company shall not effect any of such
transactions unless, immediately after the date of the consummation of such
transaction, the Acquiring Person or its Parent is required to file, by
virtue of having an outstanding class of Voting Common Stock (or equivalent
equity interests), reports with the Commission pursuant to section 13 or
section 15(d) of the Exchange Act, and such
Warrant Agreement
-----------------
<PAGE>
Voting Stock (or equivalent equity interest) is listed or admitted to
trading on a national securities exchange or is included for trading on the
NASDAQ National Market or Small Cap Market.
(b) Assumption of Obligations. Notwithstanding anything contained in
-------------------------
this Agreement to the contrary, the Company will not effect any of the
transactions described in subdivisions (i) through (iv) of Section 6.08(a)
unless, prior to the consummation thereof, each Person (other than the Company)
which may be required to deliver any cash, stock or other securities or other
property upon the exercise of any Warrants as provided herein shall assume, by
written instrument delivered to, and reasonably satisfactory to, the Holder of
such Warrants, (i) the obligations of the Company under this Agreement (and if
the Company shall survive the consummation of such transaction, such assumption
shall be in addition to, and shall not release the Company from, any continuing
obligations of the Company under this Agreement) and (ii) the obligation to
deliver to such holder such cash, stock or other securities or other property
as, in accordance with the foregoing provisions of this Section 6.08, such
Holder may be entitled to receive.
6.09 Other Dilutive Events. In case any event shall occur as to
---------------------
which the provisions of this Section 6 is not strictly applicable but the
failure to make any adjustment would not fairly protect the purchase rights
represented by the Warrants in accordance with the essential intent and
principles of this Section 6, then, in each such case, an adjustment on a basis
consistent with the essential intent and principles established in this Section
6, necessary to preserve, without dilution, the purchase rights represented by
the Warrants shall be made.
6.10 No Dilution or Impairment. The Company will not, by amendment
-------------------------
of its articles of incorporation or through any consolidation, merger,
reorganization, transfer of assets, dissolution, issue or sale of securities or
any other voluntary action, avoid or seek to avoid the observance or performance
of any of the terms of this Agreement, 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
holders of Warrants against dilution or other impairment. Without limiting the
generality of the foregoing, the Company (a) will not permit the par value of
any shares of stock receivable upon the exercise of Warrants to exceed the
amount payable therefor upon such exercise, and, if the Exercise Price in effect
at any time shall be reduced to such par value, the Company will promptly cause
the par value of such shares to be reduced to $0.01, (b) will take all such
action as may be necessary or appropriate in order that the Company may validly
and legally issue fully paid and nonassessable shares of stock upon the exercise
of all of the Warrants from time to time outstanding, (c) will not take any
action which results in any adjustment of the Exercise Price if the total number
of shares of Common Stock (or Other Securities) issuable after the action upon
the exercise of all of the Warrants would exceed the total number of shares of
Common Stock (or Other Securities) then authorized by the Company's certificate
of incorporation and available for the purpose of issue upon such exercise, (d)
will not issue any capital stock of any class which has the right to more than
one vote per
Warrant Agreement
-----------------
<PAGE>
21
share and (e) will not issue any security other than Common Stock unless the
rights of the holders thereof shall be limited to a fixed sum or percentage of
par value or a sum determined by reference to a formula based on a published
index of interest rates, an interest rate publicly announced by a financial
institution or a similar indicator of interest rates in respect of interest or
participation in dividends and to a fixed sum or percentage of par value as
principal or in any distribution of assets.
6.11 Accountants' Report as to Adjustments. In each case of any
-------------------------------------
adjustment or readjustment in the shares of Warrant Stock (or Other Securities)
issuable upon the exercise of the Warrants, the Company at its expense will
promptly compute such adjustment or readjustment in accordance with the terms of
the Warrants and cause independent public accountants of recognized national
standing selected by the Company (which may be the regular auditors of the
Company) to verify such computation and prepare a report setting forth such
adjustment or readjustment and showing in reasonable detail the method of
calculation thereof and the facts upon which such adjustment or readjustment is
based, including without limitation a statement of (a) the consideration
received or to be received by the Company for any Additional Shares of Common
Stock issued or sold or deemed to have been issued, (b) the number of shares of
Common Stock outstanding or deemed to be outstanding, and (c) the Exercise Price
in effect immediately prior to such issue or sale and as adjusted and readjusted
on account thereof. The Company will forthwith mail a copy of each such report
to each holder of a Warrant and will, upon the written request at any time of
any Holder of a Warrant, furnish to such Holder a like report setting forth the
Exercise Price at the time in effect and showing in reasonable detail how it was
calculated. The Company will also keep copies of all such reports at its
principal office and will cause the same to be available for inspection at such
office during normal business hours by any Holder of a Warrant or any
prospective purchaser of a Warrant designated by the Holder thereof.
6.12 Notices of Corporate Action. In the event of
---------------------------
(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 any right to
subscribe for, purchase or otherwise acquire any shares of stock of any
class or any other securities or property, or to receive any other right,
or
(b) any capital reorganization of the Company, any reclassification or
recapitalization of the capital stock of the Company or any consolidation
or merger involving the Company and any other Person or any transfer of all
or substantially all the assets of the Company to any other Person, or
(c) any voluntary or involuntary dissolution, liquidation or winding-
up of the Company,
Warrant Agreement
-----------------
<PAGE>
22
the Company will mail to each Holder of a Warrant a notice specifying (i) the
date or expected date on which any such record is to be taken for the purpose of
such dividend, distribution or right, and the amount and character of such
dividend, distribution or right, and (ii) the date or expected date on which any
such reorganization, reclassification, recapitalization, consolidation, merger,
transfer, dissolution, liquidation or winding-up is to take place and the time,
if any such time is to be fixed, as of which the holders of record of Common
Stock (or Other Securities) shall be entitled to exchange their shares of Common
Stock (or Other Securities) for the securities or other property deliverable
upon such reorganization, reclassification, recapitalization, consolidation,
merger, transfer, dissolution, liquidation or winding-up. Such notice shall be
mailed at least 20 days prior to the date therein specified, in the case of any
date referred to in the foregoing subdivision (i), and at least 45 days prior to
the date therein specified, in the case of the date referred to in the foregoing
subdivision (ii).
SECTION 7. Holders' Rights.
---------------
7.01 Delivery Expenses. If any Holder surrenders any certificate for
-----------------
Warrants or Warrant Stock to the Company or a transfer agent of the Company for
exchange for instruments of other denominations or registered in another name or
names, the Company shall cause such new instruments to be issued and shall pay
the cost of delivering to or from the office of such Holder from or to the
Company or its transfer agent, duly insured, the surrendered instrument and any
new instruments issued in substitution or replacement for the surrendered
instrument.
7.02 Taxes. The Company shall pay all taxes (other than federal,
-----
state or local income taxes) which may be payable in connection with the
execution and delivery of this Agreement or the issuance of the Warrants and
Warrant Stock hereunder or in connection with any modification of this Agreement
or the Warrants and shall hold each Holder harmless without limitation as to
time against any and all liabilities with respect to all such taxes. The
obligations of the Company under this Section 7.02 shall survive any redemption,
repurchase or acquisition of Warrants or Warrant Stock by the Company, any
termination of this Agreement, and any cancellation or termination of the
Warrants.
7.03 Replacement of Instruments. Upon receipt by the Company of
--------------------------
evidence reasonably satisfactory to it of the ownership of and the loss, theft,
destruction or mutilation of any certificate or instrument evidencing any
Warrants or Warrant Stock, and
(a) in the case of loss, theft or destruction, of indemnity reasonably
satisfactory to it (provided that, if the Company's Common Stock is not at
--------
the time publicly traded and the owner of the same is Investor or an
institutional lender or investor, its own agreement of indemnity shall be
deemed to be satisfactory), or
(b) in the case of mutilation, upon surrender or cancellation thereof,
Warrant Agreement
-----------------
<PAGE>
23
the Company, at its expense, shall execute, register and deliver, in lieu
thereof, a new certificate or instrument for (or covering the purchase of) an
equal number of Warrants or Warrant Stock.
7.04 Indemnification. The Company shall indemnify and hold harmless
---------------
each of the Investor and the Holders and each of their respective directors,
officers, employees, shareholders, members, Affiliates and agents (each, an
"indemnified person") on demand from and against any and all losses, claims,
- -------------------
damages, liabilities (or actions or other proceedings commenced or threatened in
respect thereof) and expenses that arise out of, result from, or in any way
relate to, this Agreement or the Warrants or Warrant Stock, or in connection
with the other transactions contemplated hereby and thereby, other than such
losses, claims, damages, liabilities and expenses relating to the value of the
Warrants or Warrant Stock or other securities issued to the Investor or the
Holders in connection with this Agreement, the Warrants or the Warrant Stock or
the other transactions contemplated hereby or thereby unless such losses,
claims, damages, liabilities, and expenses are directly related to a breach by
the Company of this Agreement or other agreements entered into in connection
with the other transactions contemplated hereby or thereby, and to reimburse
each indemnified person, upon its demand, for any legal or other expenses
incurred in connection with investigating, defending or participating in the
defense of any such loss, claim, damage, liability, action or other proceeding
(whether or not such indemnified person is a party to any action or proceeding
out of which any such expenses arise), other than any of the foregoing claimed
by any indemnified person to the extent there has been a final judicial
determination not subject to appeal that it was incurred by reason of the gross
negligence or willful misconduct of such indemnified person. No indemnified
person shall be responsible or liable to either the Company or any other Person
for any damages which may be alleged as a result of or relating to this
Agreement or the Warrants or Warrant Stock (other than in connection with a
breach of this Agreement), or in connection with the other transactions
contemplated hereby and thereby other than any of the foregoing claimed by any
indemnified person to the extent there has been a final judicial determination
not subject to appeal that it was incurred by reason of the gross negligence or
willful misconduct of such indemnified person.
7.05 Inspection Rights. From and after the date hereof, the Company
-----------------
shall afford any Holder or its authorized agents, access, at reasonable times,
upon reasonable prior notice, (i) to inspect the books and records of the
Company, (ii) to discuss with management of the Company the business and affairs
of the Company and (iii) to inspect the properties of the Company.
SECTION 8. Other Covenants of Company. The Company agrees with each
--------------------------
Holder that, so long as any of the Warrants and/or Warrant Stock shall be
outstanding:
8.01 Availability of Information. The Company will cooperate with
---------------------------
each holder of any Restricted Securities in supplying such information as may be
necessary for such holder to complete and file any information reporting forms
presently or hereafter required by the Commission as a condition to the
availability of an exemption from the Securities Act for the sale
Warrant Agreement
-----------------
<PAGE>
24
of any Restricted Securities. The Company will furnish to each holder of any
Warrants, promptly upon their becoming available, copies of all financial
statements, reports, notices and proxy statements sent or made available
generally by the Company to its stockholders, and copies of all regular and
periodic reports and all registration statements and prospectuses filed by the
Company with the NASD, any securities exchange or with the Commission.
8.02 Repurchases and Redemption. Except as otherwise specifically
--------------------------
provided herein, and other than repurchases or redemptions of shares of Common
Stock from management pursuant to the terms set forth in Annex 2 hereto, the
-------
Company shall not effect any repurchase or redemption of shares of Common Stock,
or Options or Convertible Securities (other than pursuant to their respective
terms), and shall cause its Subsidiaries not to effect any repurchase or
redemption of shares of Common Stock, or Options or Convertible Securities
(other than pursuant to their respective terms), from any Shareholder or holder
of Options or Convertible Securities, without the prior written consent of the
Requisite Holders of Warrants.
8.03 Transactions with Affiliates. Except as expressly permitted by
----------------------------
this Agreement, the Company shall not, nor shall it permit its Subsidiaries to,
directly or indirectly, sell, lease or otherwise transfer any property or assets
to, or purchase, lease or otherwise acquire any property or assets from, or
otherwise engage in any other transactions with or for the benefit of, any of
its Affiliates, except (a) in the ordinary course of business at prices and on
terms and conditions not less favorable to the Company or such Subsidiary than
could be obtained on an arm's-length basis from unrelated third parties, (b)
transactions between or among the Company and its wholly-owned Subsidiaries not
involving any other Affiliate and (c) any transactions or arrangements existing
on the date hereof.
8.04 Restrictions on Performance. The Company shall not at any time
---------------------------
after the Initial Date enter into an agreement or other instrument limiting in
any manner its ability to perform its obligations under this Agreement or the
Warrants, or making such performance or the issuance of Warrant Stock upon the
exercise of any Warrant a default under any such agreement or instrument other
than the Senior Secured Note or any other instrument issued by the Company in
the Additional Financing.
8.05 Modification of Other Equity Documents. The Company shall not
--------------------------------------
amend or consent to any modification, supplement or waiver of any provision of
any Other Equity Documents in any manner which would have an adverse effect on
the Holders, in each case without the prior written consent of the Requisite
Holders of Warrants. Without limiting the generality of the foregoing, the
Company shall not amend, or consent to any modification, supplement or waiver of
any provision of any Other Equity Documents in a way which would (i) restrict
the transferability of the Warrants and the Warrant Stock, (ii) restrict the
transferability of the rights of any Holder in this Agreement to any transferee
of all or a portion of such Holder's Warrants and/or Warrant Stock or (iii)
require any consent or other approval of any Person to the exercise of the
Warrants by any Holder, the issuance of Warrant Stock upon such exercise or the
Warrant Agreement
-----------------
<PAGE>
25
admission of such Holder as a member of the Company upon such exercise. Anything
in the Rights Agreement to the contrary notwithstanding, on issuance of shares
of Common Stock on exercise of Warrants prior to the redemption or exercise of
Rights (as defined in the Rights Agreement), the Company shall issue Rights, or
after the Distribution Date (as therein) Rights Certificates, in connection with
such exercise.
8.06 Ownership of Subsidiaries. The Company will, and will cause
-------------------------
each of its Subsidiaries to take such action as will be necessary from time to
time to ensure that the Company or a Subsidiary owns 100% of each class of
capital stock of each Subsidiary.
8.07 Reservation of Stock. etc. The Company will at all times
--------------------------
reserve and keep available, solely for issuance and delivery upon exercise of
the Warrants, the number of shares of Warrant Stock (or Other Securities) from
time to time issuable upon exercise of all Warrants at the time outstanding.
All shares of Common Stock (or Other Securities) shall be duly authorized and,
when issued upon such exercise, shall be validly issued and, in the case of
shares, fully paid and nonassessable with no liability on the part of the
holders thereof.
8.08 Listing on Securities Exchanges. The Company will list on each
-------------------------------
national securities exchange on which any Common Stock may at any time be
listed, subject to official notice of issuance upon exercise of the Warrants,
and will maintain such listing of, all shares of Warrant Stock from time to time
issuable upon exercise of the Warrants. The Company will also so list on each
national securities exchange, and will maintain such listing of, any Other
Securities if at the time any securities of the same class shall be listed on
such national securities exchange by the Company.
SECTION 9. Miscellaneous.
-------------
9.01 Waiver. No failure on the part of any Holder to exercise and no
------
delay in exercising, and no course of dealing with respect to, any right, power
or privilege under this Agreement or the Warrants shall operate as a waiver
thereof, nor shall any single or partial exercise of any right, power or
privilege under this Agreement or the Warrant preclude any other or further
exercise thereof or the exercise of any other right, power or privilege. The
remedies provided herein are cumulative and not exclusive of any remedies
provided by law.
9.02 Notices.
-------
(a) All notices, requests and other communications provided for
herein and the Warrants (including any waivers or consents under this Agreement
and the Warrants) shall be given or made in writing,
(i) if to the Company:
Warrant Agreement
-----------------
<PAGE>
26
Frontier Airlines, Inc.
12015 East 46th Avenue
Denver, Colorado 80239
Attention: Arthur T. Voss, General Counsel
Telephone No.: (303) 371-7400
Fax No.: (303) 371-9669
(ii) if to the Investor:
Wexford Management LLC
411 West Putnam Avenue
Greenwich, Connecticut 06830
Attention: Joseph Jacobs, President
Telephone No.: (203) 862-7020
Fax No.: (203) 862-7320
and
Attention: Arthur Amron, General Counsel
Telephone No.: (203) 862-7012
Fax No.: (203) 862-7312
(iii) if to any other Person who is the registered Holder of any
Warrants or Warrant Stock, to the address for such Holder as it
appears in the stock or warrant ledger of the Company;
or, in the case of any Holder, at such other address as shall be designated by
such party in a notice to the Company; or, in the case of the Company, at such
other address as the Company may designate in a notice to the Investor and all
other Holders.
(b) All such notices, requests and other communications shall be: (i)
personally delivered, sent by courier guaranteeing overnight delivery or sent by
registered or certified mail, return receipt requested, postage prepaid, in each
case given or addressed as aforesaid; and (ii) effective upon receipt.
9.03 Expenses, Etc. The Company agrees to pay or reimburse the
--------------
Investor and, if applicable, the Holders for: (a) all reasonable out-of-pocket
costs and expenses of the Investor and the Holders incurred in connection with
the negotiation, preparation, execution and delivery of this Agreement and the
issuance of Warrants hereunder in accordance with the terms of paragraph 8 of
the Senior Secured Note; and (b) all reasonable costs and expenses of the
Investor
Warrant Agreement
-----------------
<PAGE>
27
and the Holders (including reasonable legal fees and expenses) in
connection with (i) any default by the Company hereunder or under the Warrants
or any enforcement proceedings resulting therefrom, and (ii) the enforcement of
this Section 9.03.
9.04 Amendments, Etc. Except as otherwise expressly provided in this
----------------
Agreement, any provision of this Agreement may be amended or modified only by an
instrument in writing signed by the Company and the Requisite Holders of
Warrants and, to the extent any such amendment or modification could have an
adverse effect on the rights hereunder of the holders of Warrant Stock, a
majority of such holders; provided, however, that no such amendment or waiver
-------- -------
shall, without the written consent of all Holders of Warrants and Warrant Stock,
amend this Section 9.04 or the definition of "Requisite Holders of Warrants".
9.05 Successors and Assigns. This Agreement shall be binding upon
----------------------
and inure to the benefit of the parties hereto and their respective successors
and permitted assigns including, without limitation, all Holders of Warrants.
9.06 Survival. All representations and warranties made by the
--------
Company herein or in any certificate or other instrument delivered by it or on
its behalf under this Agreement shall be considered to have been relied upon by
the Investor and shall survive the issuance of the Warrants or the Warrant Stock
regardless of any investigation made by or on behalf of the Investor. All
statements in any such certificate or other instrument so delivered shall
constitute representations and warranties by the Company hereunder. All
representations and warranties made by the Investor herein shall be considered
to have been relied upon by the Company and shall survive the issuance to the
Investor of the Warrants or the Warrant Stock regardless of any investigation
made by the Company or on its behalf.
9.07 Specific Performance. Damages in the event of breach of this
--------------------
Agreement by a Holder or the Company would be difficult, if not impossible, to
ascertain, and it is therefore agreed that each Holder and the Company, in
addition to and without limiting any other remedy or right it may have, will
have the right to an injunction or other equitable relief in any court of
competent jurisdiction, enjoining any such breach, and enforcing specifically
the terms and provisions hereof, and each Holder and the Company hereby waives
any and all defenses it may have on the ground of lack of jurisdiction or
competence of the court to grant such an injunction or other equitable relief.
The existence of this right will not preclude the Holders or the Company from
pursuing any other rights and remedies at law or in equity which the Holders or
the Company may have.
9.08 WAIVER OF JURY TRIAL. THE COMPANY AND THE INVESTOR HEREBY
--------------------
KNOWINGLY, VOLUNTARILY, AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE TO A
TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF ,
UNDER, OR IN CONNECTION WITH, THIS AGREEMENT, THE WARRANTS OR ANY OTHER DOCUMENT
DELIVERED IN
Warrant Agreement
-----------------
<PAGE>
28
CONNECTION HEREWITH, OR ANY COURSE OF CONDUCT, COURSE OF DEALING,
STATEMENTS (WHETHER VERBAL OR WRITTEN), OR ACTIONS OF THE COMPANY OR THE
INVESTOR RELATING HERETO.
9.09 Consent to Jurisdiction and Service of Process. Each party
----------------------------------------------
hereby irrevocably submits to the exclusive jurisdiction of the United States
District Court for the Southern District of New York or any court of the State
of New York located in the Borough of Manhattan in the City of New York in any
action, suit or proceeding arising out of or relating to this Agreement or the
Warrants or any of the transactions contemplated hereby, and agrees that any
such action, suit or proceeding shall be brought only in such court, provided,
--------
however, that such consent to jurisdiction is solely for the purpose referred to
- -------
in this Section and shall not be deemed to be a general submission to the
jurisdiction of said courts or in the State of New York other than for such
purpose. Each party hereby irrevocably waives, to the fullest extent permitted
by Law, any objection that it may now or hereafter have to the laying of the
venue of any such action, suit or proceeding brought in such a court and any
claim that any such action, suit or proceeding brought in such a court has been
brought in an inconvenient forum.
9.10 Limitation of Liability. No provision hereof, in the absence of
-----------------------
affirmative action by any Holder to purchase shares of Common Stock, and no mere
enumeration herein of the rights or privileges of the Holder, shall give rise to
any liability of the Holder for the Exercise Price or as a shareholder of the
Company, whether such liability is asserted by the Company, by any creditor of
the Company or any other Person.
9.11 Captions. The captions and section headings appearing herein
--------
are included solely for convenience of reference and are not intended to affect
the interpretation of any provi sion of this Agreement.
9.12 Counterparts. This Agreement may be executed in any number of
------------
counterparts, all of which taken together shall constitute one and the same
instrument and any of the parties hereto may execute this Agreement by signing
any such counterpart signature page or counterpart.
9.13 Governing Law. This Agreement shall be governed by, and
-------------
construed in accordance with, the law of the State of New York without giving
effect to the conflicts of law principles thereof.
9.14 Severability. If any provision of this Agreement is held to be
------------
illegal, invalid or unenforceable under any present or future law, and if the
rights or obligations of any party hereto under this Agreement will not be
materially and adversely affected thereby, (a) such provision will be fully
severable, (b) this Agreement will be construed and enforced as if such illegal,
invalid or unenforceable provision had never comprised a part hereof, (c) the
remaining provisions of this Agreement will remain in full force and effect and
will not be affected by the
Warrent Agreement
-----------------
<PAGE>
illegal, invalid or unenforceable provision or by its severance herefrom and (d)
in lieu of such illegal, invalid or unenforceable provision, there will be added
automatically as a part of this Agreement a legal, valid and enforceable
provision as similar in terms to such illegal, invalid or unenforceable
provision as may be possible.
9.15 Entire Agreement. This Agreement supersedes all prior
----------------
discussions and agreements between the parties with respect to the subject
matter hereof, and together with the Warrant and the Registration Rights
Agreement contains the sole and entire agreement between the parties hereto with
respect to the subject matter hereof.
IN WITNESS WHEREOF, the parties hereto have duly executed this Warrant
Agreement as of the date first above written.
FRONTIER AIRLINES, INC.
By ____________________
Name:
Title:
WEXFORD MANAGEMENT LLC
By _____________________
Name:
Title:
Warrant Agreement
-----------------
<PAGE>
Annex 1
to
Warrant Agreement
FORM OF ASSIGNMENT
------------------
(To be executed by the registered holder hereof)
FOR VALUE RECEIVED the undersigned registered owner of this Warrant
hereby sells, assigns and transfers unto the assignee named below all the rights
of the undersigned under this Warrant with respect to the number of shares of
Warrant Stock covered thereby set forth hereinbelow unto:
Number of Shares
Name of Assignee Address of Common Stock
- --------------------------------------------------------------------------------
Dated:__________________
________________________________
Signature of Registered Holder
________________________________
Name of Registered Holder
(Please Print)
Witness:
______________________
<PAGE>
EXHIBIT A
WARRANT
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS, AND ACCORDINGLY, SUCH SECURITIES MAY NOT BE TRANSFERRED,
SOLD OR OTHERWISE DISPOSED OF EXCEPT IN COMPLIANCE WITH THE REGISTRATION OR
QUALIFICATION PROVISIONS OF APPLICABLE FEDERAL AND STATE SECURITIES LAWS OR
APPLICABLE EXEMPTIONS THEREFROM.
No. of Shares of Common Stock: 3,000,000 Warrant No. Wex-1
WARRANT
to Purchase Common Stock of
FRONTIER AIRLINES, INC.
THIS IS TO CERTIFY THAT WEXFORD MANAGEMENT LLC, as Agent ("Wexford"),
-------
or its registered assigns (the "Holder"), is entitled to purchase in whole or in
------
part from FRONTIER AIRLINES, INC., a Colorado corporation (the "Company"), at
-------
any time and from time to time on or after the date hereof with respect to
1,000,000 warrants and on or after December 17, 1997 with respect to the
remaining 2,000,000 warrants, subject to cutback as provided in Exhibit A (as
defined below), but not later than 5:00 p.m., New York City time, on December
15, 2001 (the "Expiration Date"), three million shares of common stock of the
---------------
Company (the "Common Stock") at a purchase price of $3.00 per share (the
"Exercise Price"), subject to the terms and conditions set forth herein and in
- ---------------
the Warrant Agreement to be entered into between the Company and Wexford (the
"Warrant Agreement") and prior to the execution and delivery thereof, subject to
- ------------------
the terms and conditions set forth on Exhibit A to the Letter Agreement entered
into between the Company and Wexford ("Exhibit A"), each such purchase of Common
---------
Stock to be made, and to be deemed effective for the purpose of determining the
date of exercise, only upon surrender of this Warrant to the Company at 12015
East 46th Avenue, Denver, Colorado 80239, with the Form of Exercise attached
hereto, or a reasonable facsimile thereof (the "Exercise Notice"), duly
---------------
completed and signed, and upon payment in full to the Company of the Exercise
Price by one or more of the following: (i) in cash or (ii) by certified or
official bank check to the order of the Company or (iii) by wire transfer of
immediately available funds to an account designated by the Company, or (iv) by
tender of unpaid principal and interest thereon owing under the Senior Secured
Note and any New Senior Secured Notes, or (v) in the event the then Current
Market Price is greater than $5.00, by delivery of this Warrant Certificate to
the Company for cancellation in accordance with the following formula: in
exchange for each share of Common Stock issuable on exercise of each Warrant
represented by this Warrant Certificate that is being exercised, such holder
shall receive such number of shares of Common Stock as is equal to the product
of (x) the number of shares of Common Stock issuable upon exercise of the
Warrants being exercised at such time multiplied by (y) a fraction, the
numerator of which is the Current Market Price per share of Common Stock at such
time minus the Exercise
<PAGE>
Price per share of Common Stock at such time, and the denominator of which is
the Current Market Price per share of Common Stock at such time. For purposes of
this Warrant, "Current Market Price", shall mean, with respect to a share of
--------------------
Common Stock as of any date, the average of the daily market prices for each day
during the 20 consecutive trading days commencing 30 Business Days before such
date as of which such a price can be established in the manner set forth below.
The market price for each such Business Day shall be the last sale price on such
day as reported in the Consolidated Last Sale Reporting System or as quoted in
the National Association of Securities Dealers Automated Quotation System, or if
such last sale price is not available, the average of the closing bid and asked
prices as reported in either such system, or in any other case the higher bid
price quoted for such day as reported by The Wall Street Journal and the
National Quotation Bureau pink sheets.
Upon receipt thereof, the Company shall, as promptly as practicable
and in any event within five Business Days thereafter, execute or cause to be
executed and deliver or cause to be delivered to the Holder a stock certificate
or certificates representing the aggregate number of shares of Common Stock
issuable upon such exercise ("Warrant Stock") and any other property to which
-------------
such Holder is entitled.
The stock certificate or certificates for Warrant Stock so delivered
shall be in such denominations as may be specified in the Exercise Notice and
shall be registered in the name of the Holder or such other name or names as
shall be designated in such Exercise Notice. Such stock certificate or
certificates shall be deemed to have been issued and the Holder or any other
Person so designated to be named therein shall be deemed to have become a holder
of record of such shares, including, to the extent permitted by law and to the
extent such shares represent voting stock of the Company, the right to vote such
shares or to consent or to receive notice as a shareholder, as of the date on
which the last of the Exercise Notice, payment of the Exercise Price and this
Warrant is received by the Company as aforesaid. If this Warrant shall have
been exercised only in part, the Company shall, at the time of delivery of the
certificate or certificates representing Warrant Stock and other securities,
execute and deliver to the Holder a new Warrant evidencing the rights of the
Holder to purchase the unpurchased Common Stock called for by this Warrant,
which new Warrant shall in all other respects be identical with this Warrant,
or, at the request of the Holder, appropriate notation may be made on this
Warrant and the same returned to the Holder.
All shares of Common Stock issuable upon the exercise of this Warrant
shall, upon payment therefor in accordance herewith, be duly and validly issued,
fully paid and nonassessable and free and clear of any liens, charges or other
encumbrances of any nature.
Upon the execution and delivery of the Warrant Agreement, this Warrant
shall be exchanged at the office of the Company referred to above for new
Warrants in substantially the form hereof and representing the same aggregate
number of Warrants evidenced by this Warrant.
This Warrant is issued in accordance with Exhibit A and is subject to
the terms and provisions of Exhibit A, which terms and provisions are hereby
incorporated by reference herein
<PAGE>
and made a part hereof. Every holder of this Warrant consents to all of the
terms contained in Exhibit A by acceptance hereof.
The Exercise Price and the number of shares of Common Stock issuable
upon exercise of this Warrant are subject to adjustment in certain events as
provided in Exhibit A and as to be provided in the Warrant Agreement.
The Company shall not be required to issue a fractional share of
Common Stock upon exercise of this Warrant. As to any fraction of a share which
the Holder hereof would otherwise be entitled to purchase upon such exercise,
the Company shall pay a cash adjustment in respect of such final fraction in an
amount equal to the same fraction of the Current Market Price per share of
Common Stock on the date of exercise.
The Warrants and the Warrant Stock shall be transferable on or after
December 17, 1997 subject only to applicable securities laws. Upon any such
transfer a new Warrant or new Warrants of different denominations, representing
in the aggregate a like number of Warrants, will be issued to the transferee.
Every Holder hereof, by accepting this Warrant, consents and agrees with the
Company and with every subsequent Holder of this Warrant that until due
presentation for the registration of transfer of this Warrant on the Warrant
register maintained by the Company, the Company may deem and treat the Person in
whose name this Warrant is registered as the absolute and lawful owner for all
purposes whatsoever and the Company shall not be affected by any notice to the
contrary. The Company agrees to provide registration rights on the terms
contained in Exhibit A.
Nothing contained in the Warrant Agreement or in this Warrant shall be
construed as conferring on the holder of any Warrants or his or her transferee
any rights whatsoever as a shareholder of the Company.
No provision hereof, in the absence of affirmative action by the
Holder hereof to purchase shares of Common Stock, and no mere enumeration herein
of the rights or privileges of such Holder, shall give rise to any liability of
such Holder for the Exercise Price or as a shareholder of the Company, whether
such liability is asserted by the Company, by any creditor of the Company or any
other Person.
Any notices and other communications pursuant to the provisions hereof
shall be sent in accordance with Paragraph 10 of the Senior Secured Note of the
Company dated the date hereof in favor of Wexford (the "Senior Secured Note").
This Warrant shall be deemed a contract made under the laws of the
State of New York and for all purposes shall be construed in accordance with the
laws of the State of New York without giving effect to the principles of
conflicts of laws thereof.
Each term used herein without definition shall have the meaning
assigned thereto in the Senior Secured Note.
<PAGE>
IN WITNESS WHEREOF, the Company has duly executed this Warrant.
Dated: December 2, 1997
FRONTIER AIRLINES, INC.
By___________________________
Name: Samuel D. Addoms
Title: President
<PAGE>
Annex A
to
Warrant
FORM OF EXERCISE
----------------
(To be executed by the registered holder hereof)
The undersigned registered owner of this Warrant irrevocably exercises
this Warrant for the purchase of Common Stock of Frontier Airlines, Inc., and
herewith makes payment therefor, all at the price and on the terms and
conditions specified in this Warrant, and requests that (i) certificates and/or
other instrument covering such Common Stock be issued in accordance with the
instructions given below and (ii) if such Common Stock shall not include all of
the Common Stock to which the Holder is entitled under this Warrant, that a new
Warrant of like tenor and date for the unpurchased balance of the Common Stock
issuable hereunder be delivered to the undersigned.
Dated: _________________
________________________________
(Signature of Registered Holder)
Instructions for issuance and
registration of Common Stock:
_____________________________
Name of Registered Holder
(please print)
Social Security or Other Identifying
Number:_____________________________
Please deliver certificate to
the following address:
_____________________________________
Street
_____________________________________
City, State and Zip Code
<PAGE>
EXHIBIT B
WARRANT
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS, AND ACCORDINGLY, SUCH SECURITIES MAY NOT BE TRANSFERRED,
SOLD OR OTHERWISE DISPOSED OF EXCEPT IN COMPLIANCE WITH THE REGISTRATION OR
QUALIFICATION PROVISIONS OF APPLICABLE FEDERAL AND STATE SECURITIES LAWS OR
APPLICABLE EXEMPTIONS THEREFROM.
No. of Shares of Common Stock: 1,750,000 Warrant No. Wex-2
WARRANT
to Purchase Common Stock of
FRONTIER AIRLINES, INC.
THIS IS TO CERTIFY THAT WEXFORD MANAGEMENT LLC, as Agent ("Wexford"),
-------
or its registered assigns (the "Holder"), is entitled to purchase in whole or in
------
part from FRONTIER AIRLINES, INC., a Colorado corporation (the "Company"), at
-------
any time and from time to time on or after the date hereof, but not later than
5:00 p.m., New York City time, on December 15, 2001 (the "Expiration Date"),
---------------
1,750,000 shares of common stock of the Company (the "Common Stock") at a
purchase price of $3.00 per share (the "Exercise Price"), subject to the terms
--------------
and conditions set forth herein and in the Amended and Restated Warrant
Agreement dated as of February 27, 1998 between the Company and Wexford (the
"Warrant Agreement"), each such purchase of Common Stock to be made, and to be
- ------------------
deemed effective for the purpose of determining the date of exercise, only upon
surrender of this Warrant to the Company at 12015 East 46th Avenue, Denver,
Colorado 80239, with the Form of Exercise attached hereto, or a reasonable
facsimile thereof (the "Exercise Notice"), duly completed and signed, and upon
---------------
payment in full to the Company of the Exercise Price by one or more of the
following: (i) in cash or (ii) by certified or official bank check to the order
of the Company or (iii) by wire transfer of immediately available funds to an
account designated by the Company, or (iv) by tender of unpaid principal and
interest thereon owing under the Senior Secured Note, or (v) in the event the
then Current Market Price is greater than $5.00, by delivery of this Warrant
Certificate to the Company for cancellation in accordance with the following
formula: in exchange for each share of Common Stock issuable on exercise of each
Warrant represented by this Warrant Certificate that is being exercised, such
holder shall receive such number of shares of Common Stock as is equal to the
product of (x) the number of shares of Common Stock issuable upon exercise of
the Warrants being exercised at such time multiplied by (y) a fraction, the
numerator of which is the Current Market Price per share of Common Stock at such
time minus the Exercise Price per share of Common Stock at such time, and the
denominator of which is the Current Market Price per share of Common Stock at
such time. For purposes of this Warrant, "Current Market Price", shall mean,
--------------------
with respect to a share of Common Stock as of any date, the
<PAGE>
average of the daily market prices for each day during the 20 consecutive
trading days commencing 30 Business Days before such date as of which such a
price can be established in the manner set forth below. The market price for
each such Business Day shall be the last sale price on such day as reported in
the Consolidated Last Sale Reporting System or as quoted in the National
Association of Securities Dealers Automated Quotation System, or if such last
sale price is not available, the average of the closing bid and asked prices as
reported in either such system, or in any other case the higher bid price quoted
for such day as reported by The Wall Street Journal and the National Quotation
Bureau pink sheets.
Upon receipt thereof, the Company shall, as promptly as practicable
and in any event within five Business Days thereafter, execute or cause to be
executed and deliver or cause to be delivered to the Holder a stock certificate
or certificates representing the aggregate number of shares of Common Stock
issuable upon such exercise ("Warrant Stock") and any other property to which
-------------
such Holder is entitled.
The stock certificate or certificates for Warrant Stock so delivered
shall be in such denominations as may be specified in the Exercise Notice and
shall be registered in the name of the Holder or such other name or names as
shall be designated in such Exercise Notice. Such stock certificate or
certificates shall be deemed to have been issued and the Holder or any other
Person so designated to be named therein shall be deemed to have become a holder
of record of such shares, including, to the extent permitted by law and to the
extent such shares represent voting stock of the Company, the right to vote such
shares or to consent or to receive notice as a shareholder, as of the date on
which the last of the Exercise Notice, payment of the Exercise Price and this
Warrant is received by the Company as aforesaid. If this Warrant shall have
been exercised only in part, the Company shall, at the time of delivery of the
certificate or certificates representing Warrant Stock and other securities,
execute and deliver to the Holder a new Warrant evidencing the rights of the
Holder to purchase the unpurchased Common Stock called for by this Warrant,
which new Warrant shall in all other respects be identical with this Warrant,
or, at the request of the Holder, appropriate notation may be made on this
Warrant and the same returned to the Holder.
All shares of Common Stock issuable upon the exercise of this Warrant
shall, upon payment therefor in accordance herewith, be duly and validly issued,
fully paid and nonassessable and free and clear of any liens, charges or other
encumbrances of any nature.
The Exercise Price and the number of shares of Common Stock issuable
upon exercise of this Warrant are subject to adjustment in certain events as
provided in the Warrant Agreement.
The Company shall not be required to issue a fractional share of
Common Stock upon exercise of this Warrant. As to any fraction of a share which
the Holder hereof would otherwise be entitled to purchase upon such exercise,
the Company shall pay a cash adjustment in respect of such final fraction in an
amount equal to the same fraction of the Current Market Price per share of
Common Stock on the date of exercise.
<PAGE>
The Warrants and the Warrant Stock are transferable subject only to
applicable securities laws. Upon any such transfer a new Warrant or new
Warrants of different denominations, representing in the aggregate a like number
of Warrants, will be issued to the transferee. Every Holder hereof, by
accepting this Warrant, consents and agrees with the Company and with every
subsequent Holder of this Warrant that until due presentation for the
registration of transfer of this Warrant on the Warrant register maintained by
the Company, the Company may deem and treat the Person in whose name this
Warrant is registered as the absolute and lawful owner for all purposes
whatsoever and the Company shall not be affected by any notice to the contrary.
The Warrants and the Warrant Stock are subject to registration rights under the
Registration Rights Agreement dated as of December 17, 1997 between the Company
and Wexford.
Nothing contained in the Warrant Agreement or in this Warrant shall be
construed as conferring on the holder of any Warrants or his or her transferee
any rights whatsoever as a shareholder of the Company.
No provision hereof, in the absence of affirmative action by the
Holder hereof to purchase shares of Common Stock, and no mere enumeration herein
of the rights or privileges of such Holder, shall give rise to any liability of
such Holder for the Exercise Price or as a shareholder of the Company, whether
such liability is asserted by the Company, by any creditor of the Company or any
other Person.
Any notices and other communications pursuant to the provisions hereof
shall be sent in accordance with Paragraph 10 of the Senior Secured Note of the
Company dated the date hereof in favor of Wexford (the "Senior Secured Note").
This Warrant shall be deemed a contract made under the laws of the
State of New York and for all purposes shall be construed in accordance with the
laws of the State of New York without giving effect to the principles of
conflicts of laws thereof.
Each term used herein without definition shall have the meaning
assigned thereto in the Senior Secured Note.
IN WITNESS WHEREOF, the Company has duly executed this Warrant.
Dated: February 27, 1998
FRONTIER AIRLINES, INC.
By___________________________
Name: Samuel D. Addoms
Title: President
<PAGE>
Annex A
to
Warrant
FORM OF EXERCISE
----------------
(To be executed by the registered holder hereof)
The undersigned registered owner of this Warrant irrevocably exercises
this Warrant for the purchase of Common Stock of Frontier Airlines, Inc., and
herewith makes payment therefor, all at the price and on the terms and
conditions specified in this Warrant, and requests that (i) certificates and/or
other instrument covering such Common Stock be issued in accordance with the
instructions given below and (ii) if such Common Stock shall not include all of
the Common Stock to which the Holder is entitled under this Warrant, that a new
Warrant of like tenor and date for the unpurchased balance of the Common Stock
issuable hereunder be delivered to the undersigned.
Dated: _________________
________________________________
(Signature of Registered Holder)
Instructions for issuance and
registration of Common Stock:
_____________________________
Name of Registered Holder
(please print)
Social Security or Other Identifying
Number:_____________________________
Please deliver certificate to
the following address:
_____________________________________
Street
_____________________________________
City, State and Zip Code
<PAGE>
EXHIBIT 10.29
FRONTIER AIRLINES, INC.
AMENDED AND RESTATED
REGISTRATION RIGHTS AGREEMENT
Dated as of February 27, 1997
<PAGE>
TABLE OF CONTENTS
-----------------
THIS TABLE OF CONTENTS IS NOT PART OF THE AGREEMENT TO WHICH IT IS
ATTACHED BUT IS INSERTED FOR CONVENIENCE ONLY.
Page
No.
----
1. Requested Registrations................................................ 1
(a) Registration Requests....................................... 1
(b) Limitations on Requested Registrations...................... 2
(c) Registration Statement Form................................. 2
(d) Registration Expenses....................................... 2
(e) Priority in Cutback Registrations........................... 2
2. Piggyback Registrations................................................ 3
(a) Right to Include Registrable Securities..................... 3
(b) Registration Expenses....................................... 3
(c) Priority in Cutback Registrations........................... 3
3. Registration Procedures................................................ 4
4. Underwritten Offerings................................................. 8
(a) Underwritten Requested Offerings............................ 8
(b) Underwritten Piggyback Offerings............................ 8
5. Indemnification........................................................ 9
(a) Indemnification by the Company.............................. 9
(b) Indemnification by the Sellers.............................. 10
(c) Notices of Claims, etc...................................... 10
(d) Contribution................................................ 11
(e) Other Indemnification....................................... 12
(f) Indemnification Payments.................................... 12
6. Covenants Relating to Rule 144......................................... 12
7. Other Registration Rights.............................................. 12
(a) No Existing Agreements...................................... 12
(b) Future Agreements........................................... 12
8. Definitions............................................................ 13
9. Miscellaneous......................................................... 16
(a) Notices..................................................... 16
(b) Entire Agreement............................................ 17
(c) Amendment................................................... 17
(d) Waiver...................................................... 17
(e) Consents and Waivers by Holders of Registrable Securities... 18
(f) No Third Party Beneficiary.................................. 18
<PAGE>
(g) Successors and Assigns...................................... 18
(h) Headings.................................................... 18
(i) Invalid Provisions.......................................... 18
(j) Remedies.................................................... 18
(k) Governing Law............................................... 19
(l) Counterparts................................................ 19
-ii-
<PAGE>
FRONTIER AIRLINES, INC.
AMENDED AND RESTATED
REGISTRATION RIGHTS AGREEMENT
-----------------------------
This AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT dated as of
February 27, 1998 is made and entered into by and between Wexford Management
LLC, a Connecticut limited liability company, as Agent (the "Investor"), and
--------
Frontier Airlines, Inc., a Colorado corporation (the "Company"). Capitalized
-------
terms not otherwise defined herein have the meanings set forth in Section 8.
---------
WHEREAS, in connection with (i) the issuance on December 2, 1997 by
the Company of a Senior Secured Promissory Note (the "Senior Secured Note") in
-------------------
the amount of $5,000,000 to the Investor and (ii) the proposed delivery by the
Investor of a commitment letter with respect to additional financial
accommodations in favor of the Company aggregating up to $10,000,000 (the
"Additional Financing"), as more fully described in that certain letter
- ---------------------
agreement, dated December 2, 1997, between the Company and the Investor (the
"Letter Agreement"), on December 2, 1997, the Company issued to the Investor
- -----------------
warrants to purchase 3,000,000 shares of Common Stock (the "Original Warrants"),
-----------------
entered into a Warrant Agreement dated as of December 17, 1997 (the "Original
--------
Warrant Agreement"), and entered into a Registration Rights Agreement with the
- -----------------
Investor dated as of December 17, 1997 (the "Original Registration Rights
----------------------------
Agreement") pursuant to which the Company granted to the Investor certain
- ---------
registration rights with respect to the Original Warrants, the Common Stock
underlying the Original Warrants (the "Original Warrant Stock"), the Senior
----------------------
Secured Note and certain other securities;
WHEREAS, pursuant to a letter agreement dated February 27, 1998 (the
"February Letter Agreement"), the parties have agreed, among other things, to
terminate the Letter Agreement, to exchange warrants to purchase 1,750,000
shares of Common Stock (the "New Warrants") for the Original Warrants, and to
amend and restate the Original Warrant Agreement (the "Amended Warrant
---------------
Agreement") and the Original Registration Rights Agreement; and
WHEREAS, the parties have agreed, pursuant to the February Letter
Agreement, to enter into this Amended and Restated Registration Rights
Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements set forth in this Agreement, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
1. Requested Registrations. (a) Registration Requests. At any
----------------------- ---------------------
time after March 17, 1998, upon the written request of the Investor (either on
its own behalf or on behalf of any holder of Registrable Securities) requesting
that the Company effect the registration under the Securities Act of all or part
of the Investor's (or any such holder's) Registrable Securities and specifying
the number of Registrable Securities to be registered and the intended method of
disposition thereof, the Company will promptly, and in no event more than 10
Business Days after receipt of such request, give written notice (a "Notice of
---------
Requested Registration") of such request
- ----------------------
<PAGE>
to all other holders of Registrable Securities, and thereupon will use its best
efforts to effect the registration under the Securities Act of
(*THIS DOES NOT FOLLOW THE FAXED DRAFT)
(i) the Registrable Securities which the Company has been so
requested to register by the Investor, and
(ii) all other Registrable Securities the holders of which have made
written requests to the Company for registration thereof within 15 days
after the giving of the Notice of Requested Registration (which requests
shall specify the intended method of disposition thereof),
all to the extent requisite to permit the disposition (in accordance with the
intended methods thereof) of the Registrable Securities so to be registered in
accordance with Section 3. If requested by the Investor, the method of
---------
disposition of all Registrable Securities included in such registration shall be
an underwritten offering effected in accordance with Section 4(a). Neither the
------------
Company nor any of its securityholders shall have the right to include any of
the Company's securities (other than Registrable Securities) in a registration
statement to be filed as part of a Requested Registration.
(b) Limitations on Requested Registrations. Notwithstanding anything
--------------------------------------
herein to the contrary, the Company shall not be required to honor a request for
a Requested Registration if, in the case of a Long-Form Registration, the
Company has previously effected one Effective Long-Form Registration; provided
--------
that there shall be no limit on the number of registrations effected as Short-
Form Registrations, subject to the other provisions of this Section 1(b).
------------
(c) Registration Statement Form. Subject to Section 1(b), requested
---------------------------
Registrations shall be on such appropriate registration form promulgated by the
Commission as shall be selected by the Company, and shall be reasonably
acceptable to the Investor, and shall permit the disposition of such Registrable
Securities in accordance with the intended method or methods specified in their
request for such registration, but the Company may not effect a Long-Form
Registration without the Investor's consent. Notwithstanding the foregoing, if
in the case of an underwritten offering on Form S-3 the Managing Underwriter
notifies the Company that in its judgment the inclusion of more detailed
information of the type required in Form S-1 is of material importance to such
offering, the Company shall include in the Registration Statement such
information.
(d) Registration Expenses. The Company will pay all Registration
---------------------
Expenses incurred in connection with any Requested Registration.
(e) Priority in Cutback Registrations. If a Requested Registration
---------------------------------
becomes a Cutback Registration, the Company will include in any such
registration to the extent of the number which the Managing Underwriter advises
the Company can be sold in such offering Registrable Securities requested to be
included in such registration by the Initiating Holders, pro rata on the basis
--- ----
of the number of Registrable Securities requested to be included by such
holders.
-2-
<PAGE>
2. Piggyback Registrations. (a) Right to Include Registrable
----------------------- ----------------------------
Securities. Notwithstanding any limitation contained in Section 1, if the
- ---------- ---------
Company at any time proposes after the date hereof to effect a Piggyback
Registration, it will each such time give written notice (a "Notice of Piggyback
-------------------
Registration"), at least 30 days prior to the anticipated filing date, to all
- ------------
holders of Registrable Securities of its intention to do so and of such holders'
rights under this Section 2, which Notice of Piggyback Registration shall
---------
include a description of the intended method of disposition of such securities.
Upon the written request of any such holder made within 20 days after receipt of
a Notice of Piggyback Registration (which request shall specify the Registrable
Securities intended to be disposed of by such holder) , the Company will,
subject to the other provisions of this Agreement, include in the registration
statement relating to such Piggyback Registration all Registrable Securities
which the Company has been so requested to register, all to the extent requisite
to permit the disposition of such Registrable Securities in accordance with the
intended method of disposition set forth in the Notice of Piggyback
Registration. Notwithstanding the foregoing, if, at any time after giving a
Notice of Piggyback Registration and prior to the effective date of the
registration statement filed in connection with such registration, the Company
shall determine for any reason not to register or to delay registration of such
securities, the Company may, at its election, give written notice of such
determination to each holder of Registrable Securities and, thereupon, (i) in
the case of a determination not to register, shall be relieved of its obligation
to register any Registrable Securities in connection with such registration (but
not from its obligation to pay the Registration Expenses in connection
therewith) without prejudice, however, to the rights of any Requesting Holder
entitled to do so to request that such registration be effected as a Requested
Registration under Section 1, and (ii) in the case of a determination to delay
---------
registering, shall be permitted to delay registering any Registrable Securities
for the same period as the delay in registering such other securities. No
registration effected under this Section 2 shall relieve the Company of its
---------
obligations to effect a Requested Registration under Section 1 with respect to
---------
Registrable Securities that are not registered and sold thereunder.
(b) Registration Expenses. The Company will pay all Registration
---------------------
Expenses incurred in connection with each Piggyback Registration.
(c) Priority in Cutback Registrations. If a Piggyback Registration
---------------------------------
becomes a Cutback Registration, the Company will include in such registration to
the extent of the amount of the securities which the Managing Underwriter
advises the Company can be sold in such offering:
(i) if such Piggyback Registration as initially proposed by the
Company was solely a primary registration of its securities, (x) first, the
-----
securities proposed by the Company to be sold for its own account, and (y)
second, (A) if no other holders of securities of the Company have requested
------
registration of their securities in such registration, any Registrable
Securities requested to be included in such registration by Requesting
Holders, pro rata on the basis of the number of Registrable Securities
--- ----
requested to be included by such holders or (B) if other holders of
securities of the Company have requested registration of their securities
in such registration, such securities of such holders and any Registrable
Securities requested to be included in such registration by Requesting
Holders, on a pari passu basis; and
-3-
<PAGE>
(ii) if such Piggyback Registration as initially proposed by the
Company was in whole or in part requested by holders of securities of the
Company, other than holders of Registrable Securities in their capacities
as such, pursuant to demand registration rights, such securities held by
the holders initiating such registration and any Registrable Securities
requested to be included in such registration by Requesting Holders, on a
pari passu basis;
and any securities so excluded shall be withdrawn from and shall not be included
in such Piggyback Registration.
3. Registration Procedures. If and whenever the Company is required
-----------------------
to effect the registration of any Registrable Securities under the Securities
Act pursuant to Section 1 or Section 2, the Company will use its best efforts to
--------- ---------
effect the registration and sale of such Registrable Securities in accordance
with the intended method of disposition thereof. Without limiting the
foregoing, the Company in each such case will, as expeditiously as possible, use
its best efforts:
(a) to prepare and file with the Commission (in the case of a
Requested Registration, not later than 20 days after the filing by the
Company with the Commission of its next required report on Form 10-K or
Form 10-Q, as the case may be, under the Exchange Act, or as soon
thereafter as possible) the requisite registration statement to effect such
registration and to cause such registration statement to become effective,
provided that the Company may defer filing a registration statement for up
to 90 days after the filing would otherwise be required to be made pursuant
to this section if and so long as, in the reasonable judgment of the
Company's Board of Directors, the filing of such registration statement
within the period otherwise required by this Section 3(a) would compel the
------------
Company to disclose material nonpublic information the disclosure of which
would be materially detrimental to the Company or would materially
interfere with any material financing, acquisition, corporate
reorganization, or merger involving the Company.
(b) as far in advance as practical before filing such registration
statement or any amendment thereto, to furnish to the Requesting Holders
copies of reasonably complete drafts of all such documents proposed to be
filed (including exhibits), and any such holder shall have the opportunity
to object to any information pertaining solely to such holder that is
contained therein and the Company will make the corrections reasonably
requested by such holder with respect to such information prior to filing
any such registration statement or amendment;
(c) to prepare and file with the Commission such amendments and
supplements to such registration statement and any prospectus used in
connection therewith as may be necessary to maintain the effectiveness of
such registration statement and to comply with the provisions of the
Securities Act with respect to the disposition of all Registrable
Securities covered by such registration statement, in accordance with the
intended methods of disposition thereof, until such time as all of such
securities have been disposed of in accordance with the intended methods of
disposition by the seller or sellers thereof set forth in such registration
statement;
-4-
<PAGE>
(d) to promptly notify each Requesting Holder and the underwriter or
underwriters, if any:
(i) when such registration statement or any prospectus used in
connection therewith, or any amendment or supplement thereto, has been
filed and, with respect to such registration statement or any post-
effective amendment thereto, when the same has become effective;
(ii) of any written comments from the Commission with respect to
any filing referred to in clause (i) and of any written request by the
Commission for amendments or supplements to such registration
statement or prospectus;
(iii) of the notification to the Company by the Commission of its
initiation of any proceeding with respect to the issuance by the
Commission of, or of the issuance by the Commission of, any stop order
suspending the effectiveness of such registration statement; and
(iv) of the receipt by the Company of any notification with
respect to the suspension of the qualification of any Registrable
Securities for sale under the applicable securities or blue sky laws
of any jurisdiction;
(e) to furnish to each seller of Registrable Securities covered by
such registration statement such number of conformed copies of such
registration statement and of each amendment and supplement thereto (in
each case including all exhibits and documents incorporated by reference),
such number of copies of the prospectus contained in such registration
statement (including each preliminary prospectus and any summary
prospectus) and any other prospectus filed under Rule 424 promulgated under
the Securities Act relating to such holder's Registrable Securities, and
such other documents, as such seller may reasonably request to facilitate
the disposition of its Registrable Securities;
(f) to register or qualify all Registrable Securities covered by such
registration statement under such other securities or blue sky laws of such
jurisdictions as each holder thereof shall reasonably request, to keep such
registration or qualification in effect for so long as such registration
statement remains in effect, and take any other action which may be
reasonably necessary or advisable to enable such holder to consummate the
disposition in such jurisdictions of the Registrable Securities owned by
such holder, except that the Company shall not for any such purpose be
required (i) to qualify generally to do business as a foreign corporation
in any jurisdiction wherein it would not but for the requirements of this
paragraph (f) be obligated to be so qualified, (ii) to subject itself to
-------------
taxation in any such jurisdiction or (iii) to consent to general service of
process in any jurisdiction;
(g) to cause all Registrable Securities covered by such registration
statement to be registered with or approved by such other governmental
agencies or authorities as may be
-5-
<PAGE>
necessary to enable each holder thereof to consummate the disposition of
such Registrable Securities;
(h) to furnish to each Requesting Holder a signed counterpart,
addressed to such holder (and the underwriters, if any), of
(i) an opinion of counsel for the Company, dated the effective
date of such registration statement (or, if such registration includes
an underwritten Public Offering, dated the date of any closing under
the underwriting agreement), reasonably satisfactory in form and
substance to such holder, and
(ii) a "comfort" letter, dated the effective date of such
registration statement (and, if such registration includes an
underwritten Public Offering, dated the date of any closing under the
underwriting agreement), signed by the independent public accountants
who have certified the Company's financial statements included in such
registration statement,
in each case covering substantially the same matters with respect to such
registration statement (and the prospectus included therein) and, in the
case of the accountants' letter, with respect to events subsequent to the
date of such financial statements, as are customarily covered in opinions
of issuer's counsel and in accountants' letters delivered to the
underwriters in underwritten Public Offerings of securities and, in the
case of the accountants' letter, such other financial matters, as such
holder (or the underwriters, if any) may reasonably request;
(i) to notify each holder of Registrable Securities covered by such
registration statement, at any time when a prospectus relating thereto is
required to be delivered under the Securities Act, of the happening of any
event as a result of which any prospectus included in such registration
statement, as then in effect, includes an untrue statement of a material
fact or omits to state any material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading, and at the request of any such
holder promptly prepare and furnish to such holder a reasonable number of
copies of a supplement to or an amendment of such prospectus as may be
necessary so that, as thereafter delivered to the purchasers of such
securities, such prospectus shall not include an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading;
(j) to otherwise use its best efforts to comply with all applicable
rules and regulations of the Commission, and make available to its
securityholders, as soon as reasonably practicable, an earnings statement
covering the period of at least twelve months, but not more than eighteen
months, beginning with the first full calendar month after the effective
date of such registration statement, which earnings statement shall satisfy
the provisions of Section 11(a) of the Securities Act and Rule 158
promulgated thereunder;
-6-
<PAGE>
(k) to make available for inspection by any Requesting Holder, any
underwriter participating in any disposition pursuant to such registration
statement and any attorney, accountant or other agent retained by any such
seller or underwriter (collectively, the "Inspectors"), all financial and
----------
other records, pertinent corporate documents and properties of the Company
(collectively, the "Records") as shall be reasonably necessary to enable
-------
them to exercise their due diligence responsibility, and cause the
Company's officers, directors and employees to supply all information
reasonably requested by any such Inspector in connection with such
registration statement, and permit the Inspectors to participate in the
preparation of such registration statement and any prospectus contained
therein and any amendment or supplement thereto. Records which the Company
determines, in good faith, to be confidential and which it notifies the
Inspectors are confidential shall not be disclosed by the Inspectors unless
(i) the disclosure of such Records is necessary to avoid or correct a
misstatement or omission in the registration statement, (ii) the release of
such Records is ordered pursuant to a subpoena or other order from a court
of competent jurisdiction or (iii) the information in such Records has been
made generally available to the public. The seller of Registrable
Securities agrees by acquisition of such Registrable Securities that it
will, upon learning that disclosure of such Records is sought in a court of
competent jurisdiction, give notice to the Company and allow the Company,
at the Company's expense, to undertake appropriate action to prevent
disclosure of the Records deemed confidential;
(l) to provide a transfer agent and registrar for all Registrable
Securities covered by such registration statement not later than the
effective date of such registration statement; and
(m) to cause all Registrable Securities covered by such registration
statement to be listed, upon official notice of issuance, on any securities
exchange on which any of the securities of the same class as the
Registrable Securities are then listed.
The Company may require each holder of Registrable Securities as to
which any registration is being effected to, and each such holder, as a
condition to including Registrable Securities in such registration, shall,
furnish the Company with such information and affidavits regarding such holder
and the distribution of such securities as the Company may from time to time
reasonably request in writing in connection with such registration.
Each holder of Registrable Securities agrees by acquisition of such
Registrable Securities that upon receipt of any notice from the Company of the
happening of any event of the kind described in paragraph (h), such holder will
-------------
forthwith discontinue such holder's disposition of Registrable Securities
pursuant to the registration statement relating to such Registrable Securities
until such holder's receipt of the copies of the supplemented or amended
prospectus contemplated by paragraph (h) and, if so directed by the Company,
-------------
will deliver to the Company (at the Company's expense) all copies, other than
permanent file copies, then in such holder's possession of the prospectus
relating to such Registrable Securities current at the time of receipt of such
notice.
-7-
<PAGE>
4. Underwritten Offerings.
----------------------
(a) Underwritten Requested Offerings. In the case of any
--------------------------------
underwritten Public Offering being effected pursuant to a Requested
Registration, the Managing Underwriter and any other underwriter or underwriters
with respect to such offering shall be selected, after consultation with the
Company, by the holders of a majority of the Registrable Securities to be
included in such underwritten offering with the consent of the Company, which
consent shall not be unreasonably withheld. The Company shall enter into an
underwriting agreement in customary form with such underwriter or underwriters,
which shall include, among other provisions, indemnities to the effect and to
the extent provided in Section 5. The holders of Registrable Securities to be
---------
distributed by such underwriters shall be parties to such underwriting agreement
and may, at their option, require that any or all of the representations and
warranties by, and the other agreements on the part of, the Company to and for
the benefit of such underwriters also be made to and for their benefit and that
any or all of the conditions precedent to the obligations of such underwriters
under such underwriting agreement also be conditions precedent to their
obligations. No holder of Registrable Securities shall be required to make any
representations or warranties to or agreements with the Company or the
underwriters other than representations, warranties or agreements regarding such
holder and its ownership of the securities being registered on its behalf and
such holder's intended method of distribution and any other representation
required by law. No Requesting Holder may participate in such underwritten
offering unless such holder agrees to sell its Registrable Securities on the
basis provided in such underwriting agreement and completes and executes all
questionnaires, powers of attorney, indemnities and other documents reasonably
required under the terms of such underwriting agreement. If any Requesting
Holder disapproves of the terms of an underwriting, such holder may elect to
withdraw therefrom and from such registration by notice to the Company and the
Managing Underwriter, and each of the remaining Requesting Holders shall be
entitled to increase the number of Registrable Securities being registered to
the extent of the Registrable Securities so withdrawn in the proportion which
the number of Registrable Securities being registered by such remaining
Requesting Holder bears to the total number of Registrable Securities being
registered by all such remaining Requesting Holders.
(b) Underwritten Piggyback Offerings. If the Company at any time
--------------------------------
proposes to register any of its securities in a Piggyback Registration and such
securities are to be distributed by or through one or more underwriters, the
Company will, subject to the provisions of Section 2(c), use its best efforts to
------------
arrange for such underwriters to include the Registrable Securities to be
offered and sold by Requesting Holders among the securities to be distributed by
such underwriters. The holders of Registrable Securities to be distributed by
such underwriters shall be parties to the underwriting agreement between the
Company and such underwriter or underwriters and may, at their option, require
that any or all of the representations and warranties by, and the other
agreements on the part of, the Company to and for the benefit of such
underwriters also be made to and for their benefit and that any or all of the
conditions precedent to the obligations of such underwriters under such
underwriting agreement also be conditions precedent to their obligations. No
holder of Registrable Securities shall be required to make any representations
or warranties to or agreements with the Company or the underwriters other than
representations, warranties or agreements regarding such holder and its
ownership of the securities being registered
-8-
<PAGE>
on its behalf and any other representation required by law. No Requesting Holder
may participate in such underwritten offering unless such holder agrees to sell
its Registrable Securities on the basis provided in such underwriting agreement
and completes and executes all questionnaires, powers of attorney, indemnities
and other documents reasonably required under the terms of such underwriting
agreement. If any Requesting Holder disapproves of the terms of an underwriting,
such holder may elect to withdraw therefrom and from such registration by notice
to the Company and the Managing Underwriter, and each of the remaining
Requesting Holders shall be entitled to increase the number of Registrable
Securities being registered to the extent of the Registrable Securities so
withdrawn in the proportion which the number of Registrable Securities being
registered by such remaining Requesting Holder bears to the total number of
Registrable Securities being registered by all such remaining Requesting
Holders.
5. Indemnification. (a) Indemnification by the Company. The
--------------- ------------------------------
Company shall, to the full extent permitted by law, indemnify and hold harmless
each seller of Registrable Securities included in any registration statement
filed in connection with a Requested Registration or a Piggyback Registration,
its directors and officers, and each other Person, if any, who controls any such
seller within the meaning of the Securities Act, against any Losses, claims,
damages, expenses or liabilities, joint or several (together, "Losses"), to
------
which such seller or any such director or officer or controlling Person may
become subject under the Securities Act or otherwise, insofar as such Losses (or
actions or proceedings, whether commenced or threatened, in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue statement
of any material fact contained in any such registration statement, any
preliminary prospectus, final prospectus or summary prospectus contained
therein, or any amendment or supplement thereto, or any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein (in the case of a prospectus, in the
light of the circumstances under which they were made) not misleading, and the
Company will reimburse such seller and each such director, officer and
controlling Person for any legal or any other expenses reasonably incurred by
them in connection with investigating or defending any such Loss (or action or
proceeding in respect thereof); provided that the Company shall not be liable in
--------
any such case to the extent that any such Loss (or action or proceeding in
respect thereof) arises out of or is based upon an untrue statement or alleged
untrue statement or omission or alleged omission made in any such registration
statement, preliminary prospectus, final prospectus, summary prospectus,
amendment or supplement in reliance upon and in conformity with written
information furnished to the Company through an instrument duly executed by such
seller specifically stating that it is for use in the preparation thereof. Such
indemnity shall remain in full force and effect regardless of any investigation
made by or on behalf of such seller or any such director, officer or controlling
Person, and shall survive the transfer of such securities by such seller. The
Company shall also indemnify each other Person who participates (including as an
underwriter) in the offering or sale of Registrable Securities, their officers
and directors and each other Person, if any, who controls any such participating
Person within the meaning of the Securities Act to the same extent as provided
above with respect to sellers of Registrable Securities.
(b) Indemnification by the Sellers. Each holder of Registrable
------------------------------
Securities which are included or are to be included in any registration
statement filed in connection with a Requested
-9-
<PAGE>
Registration or a Piggyback Registration, as a condition to including
Registrable Securities in such registration statement, shall, to the full extent
permitted by law, indemnify and hold harmless the Company, its directors and
officers, and each other Person, if any, who controls the Company within the
meaning of the Securities Act, against any Losses to which the Company or any
such director or officer or controlling Person may become subject under the
Securities Act or otherwise, insofar as such Losses (or actions or proceedings,
whether commenced or threatened, in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of any material fact
contained in any such registration statement, any preliminary prospectus, final
prospectus or summary prospectus contained therein, or any amendment or
supplement thereto, or any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein (in the case of a prospectus, in the light of the circumstances under
which they were made) not misleading, if such untrue statement or alleged untrue
statement or omission or alleged omission was made in reliance upon and in
conformity with written information furnished to the Company through an
instrument duly executed by such seller specifically stating that it is for use
in the preparation of such registration statement, preliminary prospectus, final
prospectus, summary prospectus, amendment or supplement; provided, however, that
-------- -------
the obligation to provide indemnification pursuant to this Section 5(b) shall be
------------
several, and not joint and several, among such Indemnifying Parties on the basis
of the number of Registrable Securities included in such registration statement
and the aggregate amount which may be recovered from any holder of Registrable
Securities pursuant to the indemnification provided for in this Section 5(b) in
------------
connection with any registration and sale of Registrable Securities shall be
limited to the total proceeds received by such holder from the sale of such
Registrable Securities. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of the Company or any such
director, officer or controlling Person and shall survive the transfer of such
securities by such seller. Such holders shall also indemnify each other Person
who participates (including as an underwriter) in the offering or sale of
Registrable Securities, their officers and directors and each other Person, if
any, who controls any such participating Person within the meaning of the
Securities Act to the same extent as provided above with respect to the Company.
(c) Notices of Claims, etc. Promptly after receipt by an Indemnified
-----------------------
Party of notice of the commencement of any action or proceeding involving a
claim referred to in the preceding paragraph (a) or (b) of this Section 5, such
-------------------- ---------
Indemnified Party will, if a claim in respect thereof is to be made against an
Indemnifying Party pursuant to such paragraphs, give written notice to the
latter of the commencement of such action, provided that the failure of any
--------
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under the preceding paragraphs of this
Section 5, except to the extent that the Indemnifying Party is actually
- ---------
prejudiced by such failure to give notice. In case any such action is brought
against an Indemnified Party, the Indemnifying Party shall be entitled to
participate in and, unless, in the judgment of any Indemnified Party, a conflict
of interest between such Indemnified Party and any Indemnifying Party exists
with respect to such claim, to assume the defense thereof, jointly with any
other Indemnifying Party similarly notified to the extent that it may wish, with
counsel reasonably satisfactory to such Indemnified Party, and after notice from
the Indemnifying Party to such Indemnified Party of its election so to assume
the defense thereof, the Indemnifying Party shall not be liable to such
-10-
<PAGE>
Indemnified Party for any legal or other expenses subsequently incurred by the
latter in connection with the defense thereof other than reasonable costs of
investigation; provided that the Indemnified Party may participate in such
--------
defense at the Indemnified Party's expense; and provided further that the
-------- -------
Indemnified Party or Indemnified Parties shall have the right to employ one
counsel to represent it or them if, in the reasonable judgment of the
Indemnified Party or Indemnified Parties, it is advisable for it or them to be
represented by separate counsel by reason of having legal defenses which are
different from or in addition to those available to the Indemnifying Party, and
in that event the reasonable fees and expenses of such one counsel shall be paid
by the Indemnifying Party. If the Indemnifying Party is not entitled to, or
elects not to, assume the defense of a claim, it will not be obligated to pay
the fees and expenses of more than one counsel for the Indemnified Parties with
respect to such claim, unless in the reasonable judgment of any Indemnified
Party a conflict of interest may exist between such Indemnified Party and any
other Indemnified Parties with respect to such claim, in which event the
Indemnifying Party shall be obligated to pay the fees and expenses of such
additional counsel for the Indemnified Parties or counsels. No Indemnifying
Party shall consent to entry of any judgment or enter into any settlement
without the consent of the Indemnified Party which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such claim or
litigation. No Indemnifying Party shall be subject to any liability for any
settlement made without its consent, which consent shall not be unreasonably
withheld.
(d) Contribution. If the indemnity and reimbursement obligation
------------
provided for in any paragraph of this Section 5 is unavailable or insufficient
---------
to hold harmless an Indemnified Party in respect of any Losses (or actions or
proceedings in respect thereof) referred to therein, then the Indemnifying Party
shall contribute to the amount paid or payable by the Indemnified Party as a
result of such Losses (or actions or proceedings in respect thereof) in such
proportion as is appropriate to reflect the relative fault of the Indemnifying
Party on the one hand and the Indemnified Party on the other hand in connection
with statements or omissions which resulted in such Losses, as well as any other
relevant equitable considerations. The relative fault shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Indemnifying Party or the Indemnified
Party and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such untrue statement or omission. The
parties hereto agree that it would not be just and equitable if contributions
pursuant to this paragraph were to be determined by pro rata allocation or by
--- ----
any other method of allocation which does not take account of the equitable
considerations referred to in the first sentence of this paragraph. The amount
paid by an Indemnified Party as a result of the Losses referred to in the first
sentence of this paragraph shall be deemed to include any legal and other
expenses reasonably incurred by such Indemnified Party in connection with
investigating or defending any Loss which is the subject of this paragraph.
No Indemnified Party guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from the Indemnifying Party if the Indemnifying Party was not
guilty of such fraudulent misrepresentation.
-11-
<PAGE>
(e) Other Indemnification. Indemnification similar to that specified
---------------------
in the preceding paragraphs of this Section 5 (with appropriate modifications)
---------
shall be given by the Company and each seller of Registrable Securities with
respect to any required registration or other qualification of securities under
any federal or state law or regulation of any governmental authority other than
the Securities Act. The provisions of this Section 5 shall be in addition to
---------
any other rights to indemnification or contribution which an Indemnified Party
may have pursuant to law, equity, contract or otherwise.
(f) Indemnification Payments. The indemnification required by this
------------------------
Section 5 shall be made by periodic payments of the amount thereof during the
- ---------
course of the investigation or defense, as and when bills are received or Losses
are incurred.
6. Covenants Relating to Rule 144. The Company will file reports in
------------------------------
compliance with the Exchange Act, will comply with all rules and regulations of
the Commission applicable in connection with the use of Rule 144 and take such
other actions and furnish such holder with such other information as such holder
may request in order to avail itself of such rule or any other rule or
regulation of the Commission allowing such holder to sell any Registrable
Securities without registration. If at any time the Company is not required to
file reports in compliance with either Section 13 or Section 15(d) of the
Exchange Act, the Company at its expense will, forthwith upon the written
request of the holder of any Registrable Securities, make available adequate
current public information with respect to the Company within the meaning of
paragraph (c)(2) of Rule 144.
7. Other Registration Rights.
-------------------------
(a) No Existing Agreements. The Company represents and warrants to
----------------------
the Investor that there is not in effect on the date hereof any agreement by the
Company (other than this Agreement and as set forth in Schedule 3.06 to the
-------------
Warrant Agreement) pursuant to which any holders of securities of the Company
have a right to cause the Company to register or qualify such securities under
the Securities Act.
(b) Future Agreements. The Company shall not hereafter agree with the
-----------------
holders of any securities issued or to be issued by the Company to register or
qualify such securities under the Securities Act unless such agreement
specifically provides that (i) the holder of such securities may not participate
in any Requested Registration except as provided in Section 1 and (ii) the
---------
holder of such securities may not participate in any Piggyback Registration
except as provided in Section 2.
---------
8. Definitions.
-----------
(a) Except as otherwise specifically indicated, the following terms
will have the following meanings for all purposes of this Agreement:
-12-
<PAGE>
"Agreement" means this Amended and Restated Registration Rights
---------
Agreement, as the same shall be amended from time to time.
"Amended Warrant Agreement" has the meaning ascribed to it in the
-------------------------
preamble.
"Business Day" means a day other than Saturday, Sunday or any other
------------
day on which banks located in the State of New York are authorized or obligated
to close.
"Commission" means the United States Securities and Exchange
----------
Commission, or any successor governmental agency or authority.
"Common Stock" means shares of Common Stock, no par value per share,
------------
of the Company, as constituted on the date hereof, and any stock into which such
Common Stock shall have been changed or any stock resulting from any
reclassification of such Common Stock.
"Company" has the meaning ascribed to it in the preamble.
-------
"Cutback Registration" means any Requested Registration or Piggyback
--------------------
Registration to be effected as an underwritten Public Offering in which the
Managing Underwriter with respect thereto advises the Company and the Requesting
Holders in writing that, in its opinion, the number of securities requested to
be included in such registration (including securities of the Company which are
not Registrable Securities) exceed the number which can be sold in such offering
without a material reduction in the selling price anticipated to be received for
the securities to be sold in such Public Offering.
"Effective Long-Form Registration" means a Long-Form Registration that
--------------------------------
results in an Effective Registration.
"Effective Registration" means a Requested Registration which (a) has
----------------------
been declared or ordered effective in accordance with the rules of the
Commission and (b) has been kept effective for the period of time contemplated
by Section 3(b).
------------
"Effective Short-Form Registration" means a Short-Form Registration
---------------------------------
that results in an Effective Registration.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
------------
and the rules and regulations promulgated thereunder.
"February Letter Agreement" has the meaning ascribed to it in the
-------------------------
preamble.
"Form S-1" means Form S-1 promulgated by the Commission under the
--------
Securities Act, or any successor or similar long-form registration statement.
-13-
<PAGE>
"Form S-2" means Form S-2 promulgated by the Commission under the
--------
Securities Act, or any successor or similar short-form registration statement.
"Form S-3" means Form S-3 promulgated by the Commission under the
--------
Securities Act, or any successor or similar short-form registration statement.
"Indemnified Party" means a party entitled to indemnity in accordance
-----------------
with Section 5.
---------
"Indemnifying Party" means a party obligated to provide indemnity in
------------------
accordance with Section 5.
---------
"Initiating Holders" means the Investor and any holder of Registrable
------------------
Securities with respect to which the Investor has made a written request
pursuant to Section 1 for the registration of Registrable Securities.
---------
"Inspectors" has the meaning ascribed to it in Section 3(i).
---------- ------------
"Letter Agreement" has the meaning ascribed to it in the preamble.
----------------
"Long-Form Registration" means a Requested Registration effected by
----------------------
the filing of a registration statement on Form S-1 with the Commission.
"Losses" has the meaning ascribed to it in Section 5(a).
------ ------------
"Managing Underwriter" means, with respect to any Public Offering, the
--------------------
underwriter or underwriters managing such Public Offering.
"NASD" means the National Association of Securities Dealers.
----
"New Warrants" has the meaning ascribed to it in the preamble.
------------
"Notice of Piggyback Registration" has the meaning ascribed to it in
--------------------------------
Section 2(a).
- ------------
"Notice of Requested Registration" has the meaning ascribed to it in
--------------------------------
Section 1(a).
- ------------
"Original Registration Rights Agreement" has the meaning ascribed to
--------------------------------------
it in the preamble.
"Original Warrant Agreement" has the meaning described to it in the
--------------------------
preamble.
"Original Warrant Stock" has the meaning ascribed to it in the
----------------------
preamble.
"Original Warrants" has the meaning ascribed to it in the preamble.
-----------------
-14-
<PAGE>
"Person" means any natural person, corporation, general partnership,
------
limited partnership, limited liability company, proprietorship, other business
organization, trust, union or association.
"Piggyback Registration" means any registration of securities of the
----------------------
Company of the same class as any of the Registrable Securities under the
Securities Act (other than a registration in respect of a dividend reinvestment
or similar plan for shareholders of the Company or on Form S-4 or Form S-8
promulgated by the Commission, or any successor or similar forms thereto),
whether for sale for the account of the Company or for the account of any holder
of securities of the Company (other than Registrable Securities.
"Public Offering" means any offering of Common Stock to the public,
---------------
either on behalf of the Company or any of its securityholders, pursuant to an
effective registration statement under the Securities Act (other than a
registration in respect of a dividend reinvestment or similar plan for
shareholders of the Company or on Form S-4 or Form S-8 promulgated by the
Commission, or any successor or similar forms thereto).
"Records" has the meaning ascribed to it in Section 3(i).
------- ------------
"Registrable Securities" means (i) the New Warrants, shares of Warrant
----------------------
Stock, the Senior Secured Note, and (ii) any additional shares of Common Stock
or other securities issued or distributed by way of a dividend, stock split or
other distribution in respect of the any of the securities referred to in clause
(i), or acquired by way of any rights offering or similar offering made in
respect of such securities. As to any particular Registrable Securities, once
issued such securities shall cease to be Registrable Securities when (i) a
registration statement with respect to the sale of such securities shall have
become effective under the Securities Act and such securities shall have been
disposed of in accordance with such registration statement, (ii) they shall have
been sold to the public pursuant to Rule 144, or (iii) they shall have ceased to
be outstanding.
"Registration Expenses" means all expenses incident to the Company's
---------------------
performance of or compliance with its obligations under this Agreement to effect
the registration of Registrable Securities in a Requested Registration or a
Piggyback Registration, including, without limitation, all registration, filing,
securities exchange listing and NASD fees, all registration, filing,
qualification and other fees and expenses of complying with securities or blue
sky laws, all word processing, duplicating and printing expenses, messenger and
delivery expenses, the fees and disbursements of counsel for the Company and of
its independent public accountants, including the expenses of any special audits
or "cold comfort" letters required by or incident to such performance and
compliance, the reasonable fees and disbursements of a single counsel, premiums
and other costs of policies of insurance purchased by the Company against
liabilities arising out of the Public Offering of the Registrable Securities
being registered and any fees and disbursements of underwriters customarily paid
by issuers or sellers of securities if the offering is an underwritten offering
initiated by the Company, but excluding underwriting discounts and commissions
and transfer taxes, if any, in respect of Registrable Securities and fees and
disbursements of underwriters if the offering is an
-15-
<PAGE>
underwritten offering initiated by the Investor or the Requesting Holders, which
shall be payable by each holder thereof.
"Requesting Holders" means, with respect to any Requested Registration
------------------
or Piggyback Registration, the holders of Registrable Securities requesting to
have Registrable Securities included in such registration in accordance with
this Agreement.
"Requested Registration" means any registration of Registrable
----------------------
Securities under the Securities Act effected in accordance with Section 1.
---------
"Rule 144" means Rule 144 promulgated by the Commission under the
--------
Securities Act, and any successor provision thereto.
"Securities Act" means the Securities Act of 1933, as amended, and the
--------------
rules and regulations promulgated thereunder.
"Senior Secured Note" has the meaning ascribed to it in the preamble.
-------------------
"Short-Form Registration" means a Requested Registration effected by
-----------------------
the filing of a registration statement on Form S-2 or Form S-3 with the
Commission.
"Warrant Stock" means the Common Stock underlying the New Warrants.
-------------
(b) Unless the context of this Agreement otherwise requires, (i)
words of any gender include each other gender; (ii) words using the singular or
plural number also include the plural or singular number, respectively; (iii)
the terms "hereof," "herein," "hereby" and derivative or similar words refer to
this entire Agreement; and (iv) the term "Section" refers to the specified
Section of this Agreement. Whenever this Agreement refers to a number of days,
such number shall refer to calendar days unless Business Days are specified.
9. Miscellaneous.
-------------
(a) Notices. All notices, requests and other communications
-------
hereunder must be in writing and will be deemed to have been duly given only if
delivered personally or by facsimile transmission or mailed (first class postage
prepaid) to the parties at the following addresses or facsimile numbers:
-16-
<PAGE>
If to Investor, to:
Wexford Management LLC
411 West Putnam Avenue
Greenwich, Connecticut 06830
Attn: Joseph Jacobs, President
Facsimile No.: (203) 862-7320
Attn: Arthur Amron, General Counsel
Facsimile No.: (203) 862-7312
If to the Company, to:
Frontier Airlines, Inc.
12015 East 46th Avenue
Denver, Colorado 80239
Attn: Arthur T. Voss, General Counsel
Facsimile No.: (303) 371-9669
With respect to any other holder of Registrable Securities, such notices,
requests and other communications shall be sent to the addresses set forth in
the transfer records regularly maintained by the Company. All such notices,
requests and other communications will (i) if delivered personally to the
address as provided in this Section, be deemed given upon delivery, (ii) if
delivered by facsimile transmission to the facsimile number as provided in this
Section, be deemed given upon receipt, and (iii) if delivered by mail in the
manner described above to the address as provided in this Section, be deemed
given upon receipt (in each case regardless of whether such notice, request or
other communication is received by any other Person to whom a copy of such
notice is to be delivered pursuant to this Section). Any party from time to
time may change its address, facsimile number or other information for the
purpose of notices to that party by giving notice specifying such change to the
other parties hereto.
(b) Entire Agreement. This Agreement supersedes all prior discussions
----------------
and agreements between the parties with respect to the subject matter hereof,
and contains the sole and entire agreement between the parties hereto with
respect to the subject matter hereof.
(c) Amendment. This Agreement may be amended, supplemented or
---------
modified only by a written instrument (which may be executed in any number of
counterparts) duly executed by or on behalf of each of the Company and the
Investor.
(d) Waiver. Subject to paragraph (e) of this Section, any term or
------ -------------
condition of this Agreement may be waived at any time by the party that is
entitled to the benefit thereof, but no such waiver shall be effective unless
set forth in a written instrument duly executed by or on behalf
-17-
<PAGE>
of the party waiving such term or condition. No waiver by any party of any term
or condition of this Agreement, in any one or more instances, shall be deemed to
be or construed as a waiver of the same term or condition of this Agreement on
any future occasion.
(e) Consents and Waivers by Holders of Registrable Securities. Any
---------------------------------------------------------
consent of the holders of Registrable Securities pursuant to this Agreement, and
any waiver by such holders of any provision of this Agreement, shall be in
writing (which may be executed in any number of counterparts) and may be given
or taken by the Investor, and any such consent or waiver so given or taken will
be binding on all the holders of Registrable Securities.
(f) No Third Party Beneficiary. The terms and provisions of this
--------------------------
Agreement are intended solely for the benefit of each party hereto, their
respective successors or permitted assigns and any other holder of Registrable
Securities, and it is not the intention of the parties to confer third-party
beneficiary rights upon any other Person other than any Person entitled to
indemnity under Section 5.
---------
(g) Successors and Assigns. This Agreement is binding upon, inures to
----------------------
the benefit of and is enforceable by the parties hereto and their respective
successors and assigns.
(h) Headings. The headings used in this Agreement have been inserted
--------
for convenience of reference only and do not define or limit the provisions
hereof.
(i) Invalid Provisions. If any provision of this Agreement is held
------------------
to be illegal, invalid or unenforceable under any present or future law, and if
the rights or obligations of any party hereto under this Agreement will not be
materially and adversely affected thereby, (i) such provision will be fully
severable, (ii) this Agreement will be construed and enforced as if such
illegal, invalid or unenforceable provision had never comprised a part hereof
and (iii) the remaining provisions of this Agreement will remain in full force
and effect and will not be affected by the illegal, invalid or unenforceable
provision or by its severance herefrom.
(j) Remedies. Except as otherwise expressly provided for herein, no
--------
remedy conferred by any of the specific provisions of this Agreement is intended
to be exclusive of any other remedy, and each and every remedy shall be
cumulative and shall be in addition to every other remedy given hereunder or now
or hereafter existing at law or in equity or by statute or otherwise. The
election of any one or more remedies by any party hereto shall not constitute a
waiver by any such party of the right to pursue any other available remedies.
Damages in the event of breach of this Agreement by a party hereto or
any other holder of Registrable Securities would be difficult, if not
impossible, to ascertain, and it is therefore agreed that each such Person, in
addition to and without limiting any other remedy or right it may have, will
have the right to an injunction or other equitable relief in any court of
competent jurisdiction, enjoining any such breach, and enforcing specifically
the terms and provisions hereof and the Company and each holder of Registrable
Securities, by its acquisition of such Registrable Securities, hereby waives any
and all defenses it may have on the ground of lack of jurisdiction or
-18-
<PAGE>
competence of the court to grant such an injunction or other equitable relief.
The existence of this right will not preclude any such Person from pursuing any
other rights and remedies at law or in equity which such Person may have.
(k) Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the laws of the State of New York applicable to a contract
executed and performed in such State, without giving effect to the conflicts of
laws principles thereof.
(l) Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same instrument.
IN WITNESS WHEREOF, this Agreement has been duly executed and
delivered by the duly authorized officer of each party hereto as of the date
first above written.
WEXFORD MANAGEMENT LLC
By: __________________________
Name:
Title:
FRONTIER AIRLINES, INC.
By: __________________________
Name:
Title:
-19-
<PAGE>
EXHIBIT 10.31
REGISTRATION RIGHTS AGREEMENT
-----------------------------
REGISTRATION RIGHTS AGREEMENT (the "Agreement") dated as of April 24, 1998
by and among Frontier Airlines, Inc., a Colorado corporation (the "Company"),
and each Holder (as hereinafter defined) executing a signature page hereto.
This Agreement is made pursuant to a certain Stock Purchase Agreement dated
as of the date hereof by and among the Company and the purchasers named (the
"Purchase Agreement"). In order to induce the purchasers to enter into the
Purchase Agreement, the Company has agreed to provide the registration rights
set forth in this Agreement. The execution of this Agreement is a condition to
the closing of the transactions contemplated by the Purchase Agreement.
In consideration of the foregoing, the parties hereby agree as follows:
SECTION 1. DEFINITIONS.
-----------
As used in this Agreement, the following terms shall have the following
meanings:
"Advice" has the meaning set forth in Section 5.
------
"Affiliate" means, with respect to any specified Person, any other Person
---------
who, directly or indirectly, controls, is controlled by, or is under common
control with such specified Person.
"Business Day" means any day other than a day on which banks are authorized
------------
or required to be closed in the State of New York.
"Commission" means the Securities and Exchange Commission.
----------
"Common Stock" means the common stock, par value $.01 per share, of the
------------
Company.
"Company" has the meaning set forth in the preamble and shall include the
-------
Company's successors by merger, acquisition, reorganization or otherwise.
"Controlling Persons" has the meaning set forth in Section 7(a).
-------------------
"Damages" has the meaning set forth in Section 5(a).
-------
"Demand Registration Statement" has the meaning set forth in Section 3(a).
-----------------------------
"Exchange Act" means the Securities Exchange Act of 1934, as amended from
------------
time to time, or any successor statute, and the rules and regulations of the
Commission promulgated thereunder.
<PAGE>
"Holder" means (i) each Person (other than the Company and its Affiliates)
------
who is a signatory to this Agreement as listed on Schedule 1 hereto and (ii)
each Person (other than the Company and its Affiliates) to whom a Holder
transfers Securities if such Person acquires such Securities as Registrable
Securities.
"Holders' Counsel" means Goodwin, Procter & Hoar LLP, special counsel to
----------------
the Holders, or any successor counsel selected by Holders of a majority in
interest of the Registrable Securities.
"Inspectors" has the meaning set forth in Section 5(m).
----------
"NASD" has the meaning set forth in Section 5(q).
----
"Nasdaq" has the meaning set forth in Section 5(o).
------
"Objection Notice" has the meaning set forth in Section 5(a).
----------------
"Objecting Party" has the meaning set forth in Section 5(a).
---------------
"Person" means any individual, corporation, partnership, joint venture,
------
association, joint-stock company, trust, limited liability company,
unincorporated organization or government or other agency or political
subdivision thereof.
"Piggy-Back Registration" has the meaning set forth in Section 4(a).
-----------------------
"Prospectus" means the prospectus included in any Registration Statement
----------
(including, without limitation, a prospectus that discloses information
previously omitted from a prospectus filed as part of an effective Registration
Statement in reliance upon Rule 430A promulgated under the Securities Act), as
amended or supplemented by any prospectus supplement, with respect to the terms
of the offering of any portion of the Registrable Securities covered by such
Registration Statement, and all other amendments and supplements to the
prospectus, including post-effective amendments, and all material incorporated
by reference or deemed to be incorporated by reference in such prospectus.
"Public Offering" means a public offering of Securities registered on Form
---------------
S-11 or Form S-3 (or any successor or equivalent forms) under the Securities Act
for the Company's own or others' account.
"Purchase Agreement" means the Securities Purchase Agreement, dated as of
------------------
the date hereof, between the Company and the Holders pursuant to which the
Securities are being issued as amended, modified or supplemented from hereto
time, together with any exhibits, schedules or other attachments thereto.
"Records" has the meaning set forth in Section 5(m).
-------
2
<PAGE>
"Registrable Securities" means the Securities; provided, however, that any
---------------------- -------- -------
Securities shall cease to be Registrable Securities when (i) a Registration
Statement covering such Registrable Securities has been declared effective and
such Registrable Securities have been disposed of by the holder thereof pursuant
to such effective Registration Statement, (ii) such Registrable Securities are
transferred by the holder thereof to any Person other than a Holder pursuant to
Rule 144 (or any successor rule or similar provision then in effect, but not
Rule 144A) under the Securities Act, including a sale pursuant to the provisions
of Rule 144(k), or (iii) such Securities shall have ceased to be outstanding.
"Registration Expenses" has the meaning set forth in Section 6.
---------------------
"Registration Statement" means any registration statement of the Company
----------------------
that covers any of the Registrable Securities pursuant to the provisions of this
Agreement (including any Demand Registration Statement and any Shelf
Registration Statement), and all amendments and supplements to any such
registration statement, including post-effective amendments, in each case
including the Prospectus, all exhibits, and all material incorporated by
reference or deemed to be incorporated by reference in such registration
statement.
"Required Filing Date" has the meaning set forth in Section 2(a).
--------------------
"Securities" means (i) all shares of Common Stock held by any Holder, (ii)
----------
all shares of Common Stock issued to any Holder upon exercise of any options,
warrants or other rights to subscribe for, purchase or otherwise acquire Common
Stock and (iii) all shares of Common Stock directly or indirectly issued or
issuable in respect of the securities referred to in clauses (i) and (ii) above
by way of stock dividend or stock split or in connection with a combination of
shares, recapitalization, merger, consolidation, or other reorganization.
"Securities Act" means the Securities Act of 1933, as amended from time to
--------------
time, or any successor statute, and the rules and regulations of the Commission
promulgated thereunder.
"Shelf Registration Statement" has the meaning set forth in Section 2(a).
----------------------------
"Suspension Notice" has the meaning set forth in Section 5.
-----------------
"Suspension Period" has the meaning set forth in Section 5.
-----------------
"Target Effective Date" means the date 120 days after the earlier of (i)
---------------------
the Required Filing Date or (ii) the date on which the Shelf Registration
Statement is actually filed with the Commission.
"Target Effective Period" means the period of time between the date on
-----------------------
which a Shelf Registration Statement is actually declared effective and the
earlier of (i) the date which is four years following the date hereof, and (ii)
the date when no Holder holds any Registrable Securities.
3
<PAGE>
"Target Filing Date" has the meaning set forth in Section 3(a).
------------------
SECTION 2. SHELF REGISTRATION.
------------------
(a) Filing; Effectiveness. As soon as practicable but not later than
---------------------
the July 10, 1998 (the "Required Filing Date"), the Company shall prepare and
file with the Commission a "shelf" registration statement (the "Shelf
Registration Statement") on the appropriate form for an offering to be made on a
continuous basis pursuant to Rule 415 under the Securities Act (or any successor
rule or similar provision then in effect) covering all of the Registrable
Securities. The Company shall use its best efforts to have the Shelf
Registration Statement declared effective on or before the Target Effective Date
and to keep such Shelf Registration Statement continuously effective for the
Target Effective Period. Any Holder of Registrable Securities shall be
permitted to withdraw all or any part of the Registrable Securities from a Shelf
Registration Statement at any time prior to the effective date of such Shelf
Registration Statement.
(b) Supplements; Amendments. The Company agrees, if necessary, to
-----------------------
supplement or amend the Shelf Registration Statement, as required by the rules,
regulations or instructions applicable to the registration form used by the
Company for such Shelf Registration Statement or by the Securities Act or as
requested (which request shall result in the filing of a supplement or
amendment) by any Holder of Registrable Securities to which such Shelf
Registration Statement relates, and the Company agrees to furnish to the
Holders, Holders' Counsel and any managing underwriter copies of any such
supplement or amendment prior to its being used and/or filed with the
Commission.
(c) Liquidated Damages. If the Shelf Registration Statement is not
------------------
filed on or before the Required Filing Date, the Company shall pay liquidated
damages to each Holder in an amount equal to $10.00 per 1,000 shares of the
Registrable Securities per week beginning on the Required Filing Date. If the
Shelf Registration Statement is filed, but has not become effective on or before
the Target Effective Date, the Company shall pay liquidated damages to each
Holder in an amount equal to $10.00 per 1,000 shares of the Registrable
Securities per week beginning on the Target Effective Date. The weekly
liquidated damages payable by the Company to the Holders as a result of a late
filing or a late declaration of effectiveness shall increase by an amount equal
to $1.00 per 1,000 shares of the Registrable Securities two weeks after the
Required Filing Date or the Target Effective Date, as the case may be, and shall
thereafter increase by an amount equal to $1.00 per 1,000 shares of the
Registrable Securities at the end of each subsequent two week period for so long
as the Shelf Registration Statement is not filed or is not declared effective.
If a stop order is imposed or if for any other reason the effectiveness of the
Shelf Registration Statement is suspended during the Target Effective Period,
then the Company shall pay liquidated damages to each Holder of the Registrable
Securities in an amount equal to $10.00 per 1,000 shares of Registrable
Securities per week beginning on the date of such stop order or other suspension
of effectiveness. The weekly liquidated damages payable by the Company to the
Holders as a result of the imposition of a stop order or such other suspension
of the effectiveness of the Shelf Registration Statement during the Target
Effective Period shall increase by an amount
4
<PAGE>
equal to $1.00 per 1,000 shares of the Registrable Securities two weeks after
the stop order was imposed or the effectiveness of the Shelf Registration
Statement was otherwise suspended and shall thereafter increase by an amount
equal to $1.00 per 1,000 shares of the Registrable Securities at the end of each
subsequent two week period for so long as such stop order remains in effect or
the effectiveness of the Shelf Registration Statement continues to be suspended.
For purposes of the two preceding sentences, the Holders will not be entitled to
receive liquidated damages under this Agreement during a Suspension Period (as
hereinafter defined) except to the extent permitted by Section 5 of this
Agreement. The Registrable Securities with respect to which liquidated damages
shall accrue and be payable in accordance with this Section 2(c) shall be those
Registrable Securities held by the Holders which are included or proposed to be
included in the Shelf Registration Statement.
The liquidated damages payable by the Company to the Holders pursuant to
this Section 2(c) shall be deemed to commence accruing on the day on which the
event triggering such liquidated damages occurs. Such liquidated damages shall
cease to accrue (i) with respect to the liquidated damages payable as a result
of the Company's failure to file the Shelf Registration Statement on or prior to
the Required Filing Date, on the day after the Shelf Registration Statement is
filed, (ii) with respect to the liquidated damages payable as a result of the
Company's failure to have the Shelf Registration Statement declared effective
on or prior to the Target Effective Date, on the day after the Shelf
Registration Statement is declared effective, or (iii) with respect to the
liquidated damages payable as a result of the imposition of a stop order or the
suspension for any other reason of the effectiveness of the Shelf Registration
Statement, on the day after the stop order is withdrawn or the effectiveness of
the Shelf Registration Statement is otherwise reinstated.
Notwithstanding the foregoing, if the sole reason why (i) the Company has
not filed the Shelf Registration Statement on or before the Required Filing Date
and/or (ii) the Shelf Registration Statement has not become effective on or
before the Target Effective Date, is because the Holders did not provide the
Company with information which is required to be disclosed in the Shelf
Registration Statement and which the Company requested the Holders to so provide
in writing at least 15 days prior to the Required Filing Date and/or the Target
Effective Date, as the case may be, the Company's obligation to pay liquidated
damages with respect to such late filing or such late declaration of
effectiveness will not begin to accrue until five days after the Holders have
provided such information to the Company.
The Company shall pay the liquidated damages due with respect to any
Registrable Securities at the end of each week during which such liquidated
damages accrue and, to the extent such liquidated damages are not paid when due,
shall thereafter accrue dividends at a rate equal to the U.S. prime rate plus 5%
per annum. Liquidated damages shall be paid to the Holders of Registrable
Securities entitled to receive such liquidated damages by wire transfer in
immediately available funds to the accounts designated by such Holders.
5
<PAGE>
The parties hereto agree that the liquidated damages provided for in this
Section 2 constitute a reasonable estimate as of the date hereof of the damages
that will be suffered by Holders of Registrable Securities by reason of the
failure of the Shelf Registration Statement to be filed, to be declared
effective and/or to remain effective, as the case may be, in accordance with
this Agreement. However, the right of the Holders to be paid the liquidated
damages provided for in this Section 2(c) is not intended to be and shall not be
construed or deemed to be an exclusive remedy, it being understood that the
Holders shall have the full right to pursue all available remedies at law or in
equity for any breach by the Company of any of its obligations under this
Agreement.
(d) Effective Registration. A registration under this Section 2 will
----------------------
not be deemed to have been effected unless the Shelf Registration Statement with
respect thereto has been declared effective by the Commission and the Company
has complied in all material respects with its obligations under this Agreement
with respect thereto; provided, however, that if, after the Shelf Registration
-------- -------
Statement has been declared effective, the offering of Registrable Securities
pursuant to such Shelf Registration Statement is interfered with by any stop
order, injunction or other order or requirement of the Commission or any other
governmental agency or court, such Shelf Registration Statement will be deemed
not to have become effective during the period of such interference (and
liquidated damages shall accrue and be payable under Section 2(c)) until the
offering of Registrable Securities pursuant to such Shelf Registration Statement
may legally resume. If a registration requested pursuant to this Section 2 is
deemed not to have been effected, then the Company shall continue to be
obligated to effect a registration pursuant to this Section 2.
(e) Selection of Underwriter. If the Holders of a majority of the
------------------------
Registrable Securities so elect, the offering of Registrable Securities pursuant
to a Shelf Registration Statement shall be in the form of an underwritten
offering. If they so elect, the Holders participating in such Shelf
Registration Statement shall select one or more nationally recognized firms of
investment bankers to act as the book-running managing underwriter or
underwriters in connection with such offering and shall select any additional
investment bankers and managers to be used in connection with the offering;
provided, however, that such selection shall be subject to the consent of the
- -----------------
Company, which consent shall not be unreasonably withheld.
SECTION 3. DEMAND REGISTRATION.
-------------------
(a) Request for Registration. At any time following the Required
------------------------
Filing Date when a Shelf Registration Statement is not effective pursuant to
Section 2 hereof, the Holders of Registrable Securities constituting at least
majority of all Registrable Securities at the time may request, in writing (a
"Demand Request"), that the Company prepare and file with the Commission a
- ---------------
"shelf" registration statement (the "Demand Registration Statement") on the
-----------------------------
appropriate form for an offering to be made on a continuous basis pursuant to
Rule 415 under the Securities Act (or any successor rule or similar provision
then in effect); provided, however, that the Company shall not be required to
-----------------
file such Demand Registration Statement unless, in the reasonable opinion of
legal counsel to the Holders so requesting, such registration is required in
order for such Holders
6
<PAGE>
to transfer their Registrable Securities and deliver unlegended certificates to
the purchaser(s) thereof; provided, further, that, subject to Section 5(e), the
-----------------
Company shall not be required to effect more than two Demand Registration
Statements. Each Demand Request so made by a Holder shall specify the number of
Registrable Securities proposed to be sold. Subject to Section 3(g), the Company
shall file the Demand Registration Statement within 30 days after receiving a
Demand Request (the "Target Filing Date") and shall use best efforts to cause
------------------
the same to be declared effective by the Commission as promptly as practicable
after such filing and to keep such Demand Registration Statement continuously
effective for a period beginning on the date such Demand Registration Statement
is declared effective and ending on the earlier of (i) the date which is
[twelve] months following such date, or (ii) the date on which all Registrable
Securities covered by such Demand Registration Statement have been disposed of
pursuant thereto.
(b) Supplements; Amendments. The Company agrees, if necessary, to
-----------------------
supplement or amend the Demand Registration Statement, as required by the rules,
regulations or instructions applicable to the registration form used by the
Company for such Demand Registration Statement or by the Securities Act or as
requested (which request shall result in the filing of a supplement or
amendment) by any Holder of Registrable Securities to which such Demand
Registration Statement relates, and the Company agrees to furnish to the
Holders, Holders' Counsel and any managing underwriter copies of any such
supplement or amendment prior to its being used and/or filed with the
Commission.
(c) Rights of Nonrequesting Holders. Upon receipt of any Demand
-------------------------------
Request, the Company shall promptly (but in any event within 10 days following
the receipt thereof) give written notice of such proposed Demand Registration
Statement to all other Holders of Registrable Securities. Each of such Holders
shall have the right, exercisable by written notice to the Company within 15
days of their receipt of the Company's notice, to elect to include in such
Demand Registration Statement such portion of each such Holder's Registrable
Securities as each such Holder may request. All Holders requesting to have
their Registrable Securities included in a Demand Registration Statement in
accordance with the preceding sentence (including the Holder or Holders giving
the Demand Request) shall be deemed "Requesting Holders" for purposes of this
Section 3.
(d) Priority with Respect to Demand Registration Statement. No
------------------------------------------------------
Securities to be sold for the account of any Person (including the Company)
other than a Requesting Holder shall be included in a Demand Registration
Statement unless the managing underwriter or underwriters, if any, shall advise
the Company or the Requesting Holders in writing that the inclusion of such
Securities will not materially and adversely affect the price at which the
Securities included in such Demand Registration Statement may be sold or the
success of the offering (a "Material Adverse Effect"). Furthermore, in the
-----------------------
event the managing underwriter or underwriters, if any, shall advise the Company
or the Requesting Holders that even after exclusion of all Securities of other
Persons pursuant to the immediately preceding sentence, the amount of
Registrable Securities proposed to be included in such Demand Registration
Statement by Requesting Holders is sufficiently large to cause a Material
Adverse Effect, the number of
7
<PAGE>
Registrable Securities of the Requesting Holders to be included in such Demand
Registration Statement shall equal the number of shares which the Company is so
advised can be sold in such offering without a Material Adverse Effect and the
number of shares to be excluded from such Demand Registration Statement such
shares shall be allocated first to any Requesting Holders who requested
inclusion of their Registrable Securities pursuant to Section 3(c) hereof and
then, if an additional reduction is required, to all other requesting Holders,
in each case pro rata among such Requesting Holders on the basis of the number
of shares of Registrable Securities requested to be included in such
registration by each such Requesting Holder.
(e) Effective Registration. A registration statement will not be
----------------------
deemed to have been effected as a Demand Registration Statement unless such
Demand Registration Statement has been declared effective by the Commission and
the Company has complied in all material respects with its obligations under
this Agreement with respect thereto; provided, however, that if, after a Demand
-------- -------
Registration Statement has been declared effective, the offering of Registrable
Securities pursuant to such Demand Registration Statement is interfered with by
any stop order, injunction or other order or requirement of the Commission or
any other governmental agency or court, such Demand Registration Statement will
be deemed not to have become effective during the period of such interference
until the offering of Registrable Securities pursuant to such Demand
Registration Statement may legally resume. If a Demand Registration Statement
is deemed not to have been effected, then the Company shall continue to be
obligated to effect such Demand Registration Statement pursuant to this Section
3.
(f) Selection of Underwriter. If the Holders of a majority of the
------------------------
Registrable Securities requested to be included in such Demand Registration
Statement so elect, the offering of Registrable Securities pursuant to such
Demand Registration Statement shall be in the form of an underwritten offering.
If they so elect, the Holders of a majority of the Registrable Securities
requested to be included in such Demand Registration Statement shall select one
or more nationally recognized firms of investment bankers to act as the book-
running managing underwriter or underwriters in connection with such offering
and shall select any additional investment bankers and managers to be used in
connection with the offering; provided, however, that such selection shall be
------------------
subject to the consent of the Company, which consent shall not be unreasonably
withheld.
(g) Deferral of Filing. The Company may defer the filing (but not the
------------------
preparation) of a Demand Registration Statement required by Section 3(a) until a
date not later than 30 days after the Target Filing Date (or, if longer, 30 days
after the effective date of the registration statement contemplated by clause
(ii) below) if (i) at the time the Company receives the Demand Request, the
Company or any of its Subsidiaries is engaged in confidential negotiations or
other confidential business activities, disclosure of which would be required in
such Demand Registration Statement (but would not be required if such Demand
Registration Statement were not filed), and the Board of Directors of the
Company determines in good faith that such disclosure would be materially
detrimental to the Company and its stockholders or would have a material adverse
effect on any such confidential negotiations or other confidential business
8
<PAGE>
activities, or (ii) prior to receiving the Demand Request, the Board of
Directors had determined to effect a registered underwritten public offering of
the Company's equity securities for the Company's account and the Company had
taken substantial steps (including, but not limited to, selecting a managing
underwriter for such offering) and is proceeding with reasonable diligence to
effect such offering. A deferral of the filing of a Demand Registration
Statement pursuant to this Section 3(g) shall be lifted, and the requested
Demand Registration Statement shall be filed forthwith, if, in the case of a
deferral pursuant to clause (i) of the preceding sentence, the negotiations or
other activities are disclosed or terminated, or, in the case of a deferral
pursuant to clause (ii) of the preceding sentence, the proposed registration for
the Company's account is abandoned. In order to defer the filing of a Demand
Registration Statement pursuant to this Section 3(g), the Company shall promptly
(but in any event within 10 days), upon determining to seek such deferral,
deliver to each Holder a certificate signed by an executive officer of the
Company stating that the Company is deferring such filing pursuant to this
Section 3(g) and an approximation of the anticipated delay. The Company may
defer the filing of a particular Demand Registration Statement pursuant to this
Section 3(g) only once.
SECTION 4. PIGGY-BACK REGISTRATION.
-----------------------
(a) Request for Registration. Each time the Company proposes to file
------------------------
a registration statement under the Securities Act with respect to an offering by
the Company for its own account or for the account of any of its securityholders
of any class of equity security (other than (i) a registration statement on Form
S-4 or S-8 (or any substitute form that is adopted by the Commission), (ii) a
registration statement filed in connection with an exchange offer or the
offering of securities solely to the Company's existing securityholders, or
(iii) a demand or requested registration statement filed pursuant to the terms
of any other registration rights granted by the Company pursuant to an agreement
to which the Company is a party prior to the date hereof, which agreement,
pursuant to the terms thereof, prohibits or otherwise restricts the inclusion in
such demand or requested registration statement the securities of any other
securityholder of the Company other than the party making such demand or
request), then the Company shall give written notice of such proposed filing to
each Holder of Registrable Securities as soon as practicable (but in no event
less than 30 days before the anticipated filing date), and such notice shall
offer such Holder the opportunity to register such number of shares of
Registrable Securities as each such Holder may request (which request must be
made in writing and shall specify the Registrable Securities intended to be
disposed of by such Holder and the intended method of distribution thereof) (a
"Piggy-Back Registration"). The Company shall permit, or, if the offering
relating to a Piggy-Back Registration is an underwritten offering, shall use its
best efforts to cause the managing underwriter or underwriters of such proposed
underwritten offering to permit, the Registrable Securities requested to be
included in such Piggy-Back Registration to be included on the same terms and
conditions as any similar securities of the Company or any other securityholder
included therein and shall permit, or use its best efforts to cause such
managing underwriter or underwriters to permit, the sale or other disposition of
such Registrable Securities in accordance with such Holder's intended method of
distribution thereof. Any Holder shall have the right to withdraw its request
for inclusion of its Registrable
9
<PAGE>
Securities in any registration statement pursuant to this Section 4 by giving
written notice to the Company of such withdrawal. The Company may withdraw a
Piggy-Back Registration at any time prior to the time it becomes effective,
provided that the Company shall give immediate notice of such withdrawal to the
Holders who requested Registrable Securities to be included in such Piggy-Back
Registration and shall reimburse such Holders for all reasonable out-of-pocket
expenses (including counsel fees and expenses) incurred prior to such
withdrawal.
(b) Reduction of Offering. In connection with an underwritten offering
---------------------
where Holders have requested a Piggy-Back Registration pursuant to Section 3(a),
the Company shall use its best efforts to cause all Registrable Securities
requested to be included in such Piggy-Back Registration to be included as
provided in Section 4(a). If the managing underwriter or underwriters of any
such Piggy-Back Registration which is an underwritten offering have informed, in
writing, the Holders requesting inclusion of Registrable Securities in such
offering that it is their opinion that the total number of shares which the
Company, Holders of Registrable Securities and any other Persons participating
in such registration intend to include in such offering is such as to materially
and adversely affect the success of such offering, then the number of shares to
be offered for the account of all Persons (other than the Company) participating
in such Piggy-Back Registration shall be reduced or limited (to zero if
necessary) pro rata in proportion to the respective number of shares requested
--- ----
to be included in such offering by such Persons to the extent necessary to
reduce the total number of shares requested to be included in such offering to
the number of shares, if any, recommended by such managing underwriter or
underwriters.
Although the specific shares of Common Stock disposed of pursuant to a
Piggy-Back Registration will cease to be Registrable Securities, the mere
registration of Registrable Securities under this Section 4 shall not relieve
the Company of its obligation to effect or maintain a Shelf Registration
Statement pursuant to Section 2 or a Demand Registration Statement pursuant to
Section 3. No failure by the Holders to elect a Piggy-Back Registration under
this Section 4 or to complete the sale of Registrable Securities pursuant to the
registration statement effected in connection therewith, and no withdrawal of
Registrable Securities from a Piggy-Back Registration, shall relieve the Company
of any other obligation under this Agreement, including without limitation, the
Company's obligations under Sections 6 and 7.
SECTION 5. REGISTRATION PROCEDURES.
-----------------------
In connection with the obligations of the Company to effect or cause the
registration of any Registrable Securities pursuant to the terms and conditions
of this Agreement, the Company shall use its best efforts to effect the
registration and sale of such Registrable Securities in accordance with the
intended method of distribution thereof as quickly as practicable, and in
connection therewith:
(a) The Company shall prepare and file with the Commission a
Registration Statement on the appropriate form under the Securities Act,
which Registration Statement
10
<PAGE>
shall comply as to form in all material respects with the requirements of
the applicable form and include all financial statements required by the
Commission to be filed therewith, and use its best efforts to cause such
Registration Statement to become effective and remain effective in
accordance with the provisions of this Agreement; provided, however, that,
-------- -------
at least ten Business Days prior to filing a Registration Statement or
Prospectus or any amendments or supplements thereto, including documents
incorporated by reference after the initial filing of the Registration
Statement, the Company shall furnish to the Holders of the Registrable
Securities covered by such Registration Statement, Holders' Counsel and the
underwriters, if any, draft copies of all such documents proposed to be
filed, which documents will be subject to the review of Holders' Counsel
and the underwriters, if any, and the Company will not, unless required by
law or this Agreement, file any Registration Statement or amendment thereto
or any Prospectus or any supplement thereto to which Holders holding a
majority in interest of the Registrable Securities covered by such
Registration Statement or the underwriters with respect to such Securities,
if any, shall object; provided, however, that any such objection to the
-------- -------
filing of any Registration Statement or amendment thereto or any Prospectus
or supplement thereto shall be made by written notice (the "Objection
---------
Notice") delivered to the Company no later than ten Business Days after the
------
party or parties asserting such objection (the "Objecting Party") receives
---------------
draft copies of the documents that the Company proposes to file. The
Objection Notice shall set forth the objections and the specific areas in
the draft documents where such objections arise. The Company shall have
five Business Days after receipt of the Objection Notice to correct such
deficiencies to the satisfaction of the Objecting Party, and will notify
each Holder of any stop order issued or threatened by the Commission in
connection therewith and shall use its best efforts to prevent the entry of
such stop order or, if entered, to have such stop order withdrawn at the
earliest possible moment.
(b) The Company shall promptly prepare and file with the Commission
such amendments and post-effective amendments to the Registration Statement
as may be necessary to keep such Registration Statement effective for as
long as the Company is required to keep such Registration Statement
effective pursuant to the terms hereof; shall cause the Prospectus to be
supplemented by any required Prospectus supplement, and, as so
supplemented, to be filed pursuant to Rule 424 under the Securities Act;
and shall comply with the provisions of the Securities Act applicable to it
with respect to the disposition of all Registrable Securities covered by
such Registration Statement during the applicable period in accordance with
the intended methods of disposition by the Holders set forth in such
Registration Statement or amendment thereto or such Prospectus or
supplement thereto;
(c) The Company shall promptly furnish to any Holder and the
underwriters, if any, without charge, such number of conformed copies of
such Registration Statement and any post-effective amendment thereto and
such number of copies of the Prospectus (including each preliminary
Prospectus) and any amendments or supplements thereto, any documents
incorporated by reference therein and such other documents as any such
Holder
11
<PAGE>
or underwriter may request in order to facilitate the public sale or other
disposition of the Registrable Securities being sold by such Holder.
(d) The Company shall, on or prior to the date on which a Registration
Statement is declared effective, (i) use its best efforts to register or
qualify the Registrable Securities covered by such Registration Statement
under the securities or "blue sky" laws of each of the 50 states of the
United States (or such jurisdictions as any Holder, Holders' counsel or
underwriter may request) or obtain appropriate exemptions therefrom; (ii)
do any and all other acts and things which may be necessary or advisable to
enable the Holders of Registrable Securities included in such Registration
Statement to consummate the disposition of such Registrable Securities in
accordance with their intended method of distribution thereof; (iii) use
its best efforts to keep each such state securities or "blue sky"
registration or qualification (or exemption therefrom) effective during the
period in which the Company is required to keep the Registration Statement
effective; and (iv) do any and all other acts or things which may be
necessary or advisable to enable the Holders of Registrable Securities
included in such Registration Statement to complete the disposition in such
jurisdictions of such Registrable Securities in accordance with their
intended method of distribution thereof; provided, however, that the
-------- -------
Company shall not be required (A) to qualify to do business in any
jurisdiction where it would not otherwise be required to so qualify but for
this Section 5(d) or (B) to file any general consent to service of process.
(e) The Company shall use its best efforts to cause the Registrable
Securities covered by a Registration Statement to be registered with or
approved by such other governmental agencies or authorities as may be
necessary by virtue of the business and operations of the Company to enable
the Holders to consummate the disposition of such Registrable Securities in
accordance with their intended method of distribution thereof.
(f) The Company shall promptly notify each Holder, Holders' Counsel
and any underwriter and (if requested by any such Person) confirm such
notice in writing, (i) when a Registration Statement or a Prospectus or any
post-effective amendment or any Prospectus supplement has been filed and,
with respect to a Registration Statement or any post-effective amendment,
when the same has become effective, (ii) of any request by the Commission
or any state securities authority for amendments and supplements to a
Registration Statement and Prospectus or for additional information after
the Registration Statement has become effective, (iii) of the issuance by
the Commission of any stop order suspending the effectiveness of a
Registration Statement or the initiation or threatening of any proceedings
for that purpose, (iv) of the issuance by any state securities commission
or other regulatory authority of any order suspending the registration or
qualification or exemption from registration or qualification of any of the
Registrable Securities under state securities or "blue sky" laws or the
initiation of any proceedings for that purpose, (v) if, between the
effective date of a Registration Statement and the closing of any sale of
Registrable Securities covered thereby, the representations and warranties
of the Company
12
<PAGE>
contained in any underwriting agreement, securities sales agreement or
other similar agreement, if any, relating to the offering of such
Registrable Securities cease to be true and correct in all material
respects, and (vi) of the happening of any event which makes any statement
of a material fact made in a Registration Statement or related Prospectus
untrue or which requires the making of any changes in such Registration
Statement or Prospectus so that such Registration Statement or Prospectus
will not contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading; and, as promptly as practicable thereafter, prepare
and file an amendment to such Registration Statement with the Commission
and furnish to the Holders and any underwriter a supplement or amendment to
such Prospectus so that, as thereafter deliverable to the purchasers of
such Registrable Securities, such Prospectus will not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements therein, in light of the circumstances under which they
were made, not misleading.
(g) The Company shall make generally available to the Holders an
earnings statement satisfying the provisions of Section 11(a) of the
Securities Act no later than 30 days after the end of the 12-month period
beginning with the first day of the Company's first fiscal quarter
commencing after the effective date of a Registration Statement, which
earnings statement shall cover said 12-month period, and which requirement
will be deemed to be satisfied if the Company timely files complete and
accurate information on Forms 10-Q, 10-K and 8-K under the Exchange Act and
otherwise complies with Rule 158 under the Securities Act.
(h) The Company shall promptly use its best efforts to prevent the
issuance of any order suspending the effectiveness of a Registration
Statement, and, if any such order suspending the effectiveness of a
Registration Statement is issued, shall promptly use its best efforts to
obtain the withdrawal of such order at the earliest possible moment.
(i) The Company shall, if requested by the managing underwriter or
underwriters, if any, Holders' Counsel, or any Holder promptly incorporate
in a Prospectus supplement or post-effective amendment such information as
such managing underwriter or underwriters or Holder or Holders' Counsel
requests to be included therein, including, without limitation, with
respect to the Registrable Securities being sold by such Holder to such
underwriter or underwriters, the purchase price being paid therefor by such
underwriter or underwriters and any other terms of an underwritten offering
of the Registrable Securities to be sold in such offering, and the Company
shall promptly make all required filings of such Prospectus supplement or
post-effective amendment.
(j) The Company shall, as promptly as practicable after the filing
with the Commission of any document which is incorporated by reference into
a Registration
13
<PAGE>
Statement (in the form in which it was incorporated), deliver a copy of
each such document to each of the Holders and to Holders' Counsel.
(k) The Company shall cooperate with the Holders and the managing
underwriter or underwriters, if any, to facilitate the timely preparation
and delivery of certificates (which shall not bear any restrictive legends
unless required under applicable law) representing Registrable Securities
sold under a Registration Statement to the purchasers thereof, and enable
such Registrable Securities to be in such denominations and registered in
such names as the managing underwriter or underwriters, if any, or such
Holders may request and keep available and make available to the Company's
transfer agent prior to the effectiveness of such Registration Statement a
supply of such certificates.
(l) The Company shall enter into such customary agreements (including,
if applicable, an underwriting agreement in customary form) and take such
other actions as the Holders or the underwriters retained by the Holders
participating in an underwritten public offering, if any, may request in
order to expedite or facilitate the disposition of Registrable Securities
(the Holders may, at their option, require that any or all of the
representations, warranties and covenants of the Company to or for the
benefit of any underwriters also be made to and for the benefit of the
Holders).
(m) The Company shall promptly make available to each Holder, any
underwriter participating in any disposition of Registrable Securities
pursuant to a Registration Statement, and any attorney, accountant or other
agent or representative retained by any such Holder or underwriter
(collectively, the "Inspectors"), all financial and other records,
pertinent corporate documents and properties of the Company (collectively,
the "Records"), as shall be reasonably necessary to enable them to exercise
their due diligence responsibility, and cause the Company's officers,
directors and employees to supply all information requested by any such
Inspector in connection with such Registration Statement.
(n) The Company shall furnish to each Holder of Registrable Securities
included in such offering and to each underwriter, if any, a signed
counterpart, addressed to such Holder or underwriter, of (i) an opinion or
opinions of counsel to the Company, and (ii) a comfort letter or comfort
letters from the Company's independent public accountants, each in
customary form and covering matters of the type customarily covered by
opinions or comfort letters, as the case may be.
(o) The Company shall use its best efforts to cause the Registrable
Securities included in a Registration Statement (if the Company and the
Registrable Securities so qualify) (i) to be listed on each national
securities exchange, if any, on which similar securities issued by the
Company are then listed, or (ii) if similar securities of the Company are
not then listed, to be authorized for quotation or listing, as applicable,
on
14
<PAGE>
the New York Stock Exchange or The Nasdaq Stock Market, Inc.'s ("Nasdaq")
National Market or Small-Cap Market.
(p) The Company shall provide a CUSIP number for all Registrable
Securities covered by a Registration Statement not later than the effective
date of such Registration Statement.
(q) The Company shall cooperate with each Holder and each underwriter
participating in the disposition of Registrable Securities and their
respective counsel in connection with any filings required to be made with
the National Association of Securities Dealers, Inc. ("NASD").
(r) The Company shall, during the period when the Prospectus is
required to be delivered under the Securities Act, promptly file all
documents required to be filed with the Commission pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act.
(s) The Company shall appoint or maintain a transfer agent and
registrar for all Registrable Securities covered by a Registration
Statement not later than the effective date of such Registration Statement.
(t) In connection with an underwritten offering, the Company shall
participate, to the extent reasonably requested by the managing underwriter
for the offering or the Holders, in customary efforts to sell the
securities being offered, including without limitation, participating in
"road shows", provided, however, that the selling Holder or Holders shall
reimburse the Company for its reasonable out-of-pocket expenses actually
incurred at the request of such selling Holder or Holders in connection
with such selling efforts.
(u) If a Holder proposes to sell a block of Registrable Securities
with a value in excess of $20 million, the Company shall make members of
the management of the Company available for reasonable selling efforts,
including senior management attendance at "road shows", provided, however,
that the selling Holder or Holders shall reimburse the Company for its
reasonable out-of-pocket expenses actually incurred at the request of such
selling Holder or Holders in connection with such selling efforts.
(v) If the Registrable Securities are of a class of securities that is
listed on a national securities exchange, the Company shall file copies of
any Prospectus with such exchange in compliance with Rule 153 under the
Securities Act so that the Holders shall benefit from the prospectus
delivery procedures described therein.
In the case of a Shelf Registration Statement, each Holder, upon receipt of
any notice (a "Suspension Notice") from the Company of the happening of any
event of the kind described in Section 5(f)(vi), shall forthwith discontinue
disposition of the Registrable Securities pursuant to
15
<PAGE>
the Shelf Registration Statement covering such Registrable Securities until such
Holder's receipt of the copies of the supplemented or amended Prospectus
contemplated by Section 5(f) or until such Holder is advised in writing (the
"Advice") by the Company that the use of the Prospectus may be resumed, and such
Holder has received copies of any additional or supplemental filings which are
incorporated by reference in the Prospectus, and, if so directed by the Company,
such Holder will, or will request the managing underwriter or underwriters, if
any, to, deliver to the Company (at the Company's expense) all copies, other
than permanent file copies then in such Holder's possession, of the Prospectus
covering such Registrable Securities current at the time of receipt of such
notice; provided, however, that the Company shall not give a Suspension Notice
-------- -------
until after the Shelf Registration Statement has been declared effective and
shall not give more than one Suspension Notice during any period of 12
consecutive months and in no event shall the period from the date on which any
Holder receives a Suspension Notice to the date on which any Holder receives
either the Advice or copies of the supplemented or amended Prospectus
contemplated by Section 5(f) (the "Suspension Period") exceed 30 days. In the
event that the Company shall give any Suspension Notice, (i) the Company shall
use its best efforts and take such actions as are reasonably necessary to render
the Advice and end the Suspension Period as promptly as practicable and (ii) the
time periods for which a Shelf Registration Statement is required to be kept
effective pursuant to Section 2 hereof shall be extended by the number of days
during the Suspension Period. If any Suspension Period exceeds 30 days or more
than one Suspension Notice is given during any period of 12 consecutive months,
the Company shall pay liquidated damages to each Holder of Registrable
Securities in an amount equal to $10.00 per 1,000 shares of the Registrable
Securities included in the Shelf Registration Statement per week beginning on
the 31st day of such Suspension Period or the date of such additional Suspension
Notice, as the case may be. The weekly liquidated damages payable by the
Company to the Holders as a result of the continuance of a Suspension Period
beyond 30 days or as a result of the giving of more than one Suspension Notice
during any 12 consecutive month period shall increase by an amount equal to
$1.00 per 1,000 shares of the Registrable Securities two weeks after the event
triggering such liquidated damages and shall thereafter increase by an amount
equal to $1.00 per 1,000 shares of the Registrable Securities at the end of each
subsequent two week period for so long as the event triggering such liquidated
damages has not been eliminated. The Company shall pay the liquidated damages
due with respect to any Registrable Securities at the end of each week during
which such damages accrue. Liquidated damages shall be paid to the Holders of
Registrable Securities entitled to receive such liquidated damages by wire
transfer in immediately available funds to the accounts designated by such
Holders.
If any Registration Statement refers to any Holder by name or otherwise as
the holder of any securities of the Company, then such Holder shall have the
right to require (i) the insertion therein of language, in form and substance
reasonably satisfactory to such Holder, to the effect that the holding by such
Holder of such securities is not to be construed as a recommendation by such
Holder of the investment quality of the Company's securities covered thereby and
that such holding does not imply that such Holder will assist in meeting any
future financial requirements of the Company, or (ii) in the event that such
reference to such Holder by name or otherwise is
16
<PAGE>
not required by the Securities Act or any similar Federal or state securities or
"blue sky" statute and the rules and regulations thereunder then in force, the
deletion of the reference to such Holder.
SECTION 6. REGISTRATION EXPENSES. Any and all expenses incident to the
---------------------
Company's performance of or compliance with this Agreement, including without
limitation, all Commission and securities exchange, Nasdaq or NASD registration,
listing and filing fees, all fees and expenses incurred in connection with
compliance with state securities or "blue sky" laws (including reasonable fees
and disbursements of counsel for any underwriters or Holder in connection with
the state securities or "blue sky" qualifications of the Registrable
Securities), printing expenses, messenger and delivery expenses, internal
expenses (including, without limitation, all salaries and expenses of the
Company's officers and employees performing legal or accounting duties), all
expenses for word processing, printing and distributing any Registration
Statement, any Prospectus, any amendments or supplements thereto, any
underwriting agreements, securities sales agreements and other documents
relating to the performance of and compliance with this Agreement, the fees and
expenses incurred in connection with the listing of the Registrable Securities,
the fees and disbursements of counsel for the Company and of the independent
certified public accountants of the Company (including the expenses of any
comfort letters or costs associated with the delivery by independent certified
public accountants of a comfort letter or comfort letter requested pursuant to
Section 5(n), Securities Act liability insurance (if the Company elects to
obtain such insurance), the reasonable fees and expenses of any special experts
or other Persons retained by the Company in connection with any registration,
the reasonable fees and disbursements of Holders' Counsel and any reasonable
out-of-pocket expenses of the Holders and their agents, including any reasonable
travel costs (but excluding underwriting discounts and commissions and transfer
taxes, if any, relating to the sale or disposition of Registrable Securities and
fees and disbursements of underwriters if any such sale or disposition is
effected pursuant to an underwritten offering initiated by the Holders) (all
such expenses being herein called "Registration Expenses"), will be borne by the
Company whether or not the Shelf Registration Statement or Piggy-Back
Registration to which such expenses relate becomes effective.
SECTION 7. INDEMNIFICATION AND CONTRIBUTION.
--------------------------------
(a) Indemnification by the Company. The Company agrees to indemnify
------------------------------
and hold harmless, to the full extent permitted by law, each Holder, its
partners, officers, directors, trustees, stockholders, employees, agents and
investment advisers, and each Person who controls such Holder within the meaning
of either Section 15 of the Securities Act or Section 20 of the Exchange Act, or
is under common control with, or is controlled by, such Holder, together with
the partners, officers, directors, trustees, stockholders, employees, agents and
investment advisors of such controlling Person (collectively, the "Controlling
-----------
Persons"), from and against all losses, claims, damages, liabilities and
- -------
expenses (including, without limitation, any legal or other fees and expenses
incurred by any Holder or any such Controlling Person in connection with
defending or investigating any action or claim in respect thereof)
(collectively, the "Damages") to which such Holder, its partners, officers,
-------
directors, trustees, stockholders, employees, agents and
17
<PAGE>
investment advisers, and any such Controlling Person, may become subject under
the Securities Act or otherwise, insofar as such Damages (or proceedings in
respect thereof) arise out of or are based upon any untrue or alleged untrue
statement of material fact contained in any Registration Statement (or any
amendment thereto) pursuant to which Registrable Securities were registered
under the Securities Act, including all documents incorporated therein by
reference, or are caused by any omission or alleged omission to state therein a
material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, or arise out of or are
based upon any untrue statement or alleged untrue statement of a material fact
contained in any Prospectus (as amended or supplemented if the Company shall
have furnished any amendments or supplements thereto), or are caused by any
omission or alleged omission to state therein a material fact necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading; provided, however, that the Company shall not be liable
-------- -------
for Damages to any Holder under this Section 6(a) to the extent that any such
Damages (i) arise out of or are based upon any such untrue statement or omission
which is based upon information relating to such Holder furnished in writing to
the Company by such Holder expressly for use in any such Registration Statement
(or any amendment thereto) or Prospectus (or amendment or supplement thereto);
or (ii) were caused by the fact that such Holder sold Securities to a Person as
to whom it shall be established that there was not sent or given, or deemed sent
or given pursuant to Rule 153 under the Securities Act, at the time of or prior
to the written confirmation of such sale, a copy of the Prospectus as then
amended or supplemented if, and only if, (a) the Company has previously
furnished copies of such amended or supplemented Prospectus to such Holder and
(b) such Damages were caused by any untrue statement or omission or alleged
untrue statement or omission contained in the Prospectus so delivered which was
corrected in such amended or supplemented Prospectus. In connection with an
underwritten offering, the Company will indemnify the underwriters thereof,
their officers and directors and each Person who controls such underwriters
(within the meaning of either Section 15 of the Securities Act or Section 20 of
the Exchange Act) to the same extent as provided above with respect to the
indemnification of the Holders of Registrable Securities except with respect to
information provided by the underwriter specifically for inclusion therein.
(b) Indemnification by the Holders. Each Holder agrees, severally and
------------------------------
not jointly, to indemnify and hold harmless the Company, its directors and
officers and each Person, if any, who controls the Company within the meaning of
either Section 15 of the Securities Act or Section 20 of the Exchange Act from
and against all Damages to the same extent as the foregoing indemnity from the
Company to such Holder, but only to the extent such Damages arise out of or are
based upon any untrue statement of a material fact contained in any Registration
Statement (or any amendment thereto) or Prospectus (or any amendment or
supplement thereto) or are caused by any omission to state therein a material
fact necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading, which untrue statement or omission
is based upon information relating to such Holder furnished in writing to the
Company by such Holder expressly for use in any such Registration Statement (or
any amendment thereto) or any such Prospectus (or any amendment or supplement
thereto); provided, however, that such Holder shall not be obligated to provide
-------- -------
such indemnity to the extent that such
18
<PAGE>
Damages result from the failure of the Company to promptly amend or take action
to correct or supplement any such Registration Statement or Prospectus on the
basis of corrected or supplemental information furnished in writing to the
Company by such Holder expressly for such purpose. In no event shall the
liability of any Holder of Registrable Securities hereunder be greater in amount
than the amount of the proceeds received by such Holder upon the sale of the
Registrable Securities giving rise to such indemnification obligation.
(c) Indemnification Procedures. In case any proceeding (including any
--------------------------
governmental investigation) shall be instituted involving any Person in respect
of which indemnity may be sought pursuant to either paragraph (a) or (b) above,
such Person (the "indemnified party") shall promptly notify the Person against
whom such indemnity may be sought (the "indemnifying party") in writing and the
indemnifying party, upon request of the indemnified party, shall retain counsel
reasonably satisfactory to the indemnified party to represent the indemnified
party and any others the indemnifying party may designate in such proceedings
and shall pay the fees and disbursements of such counsel relating to such
proceeding. The failure of an indemnified party to notify the indemnifying
party with respect to a particular proceeding shall not relieve the indemnifying
party from any obligation or liability (i) which it may have pursuant to this
Agreement if the indemnifying party is not materially prejudiced by such failure
to so notify it or (ii) which it may otherwise have pursuant to this Agreement.
The failure of an indemnified party to notify the indemnifying party with
respect to a particular proceeding shall not relieve the indemnifying party from
any obligation or liability (i) which it may have pursuant to this Agreement if
the indemnifying party is not substantially prejudiced by such failure to so
notify it or (ii) which it may have otherwise than pursuant to this Agreement.
In any such proceeding, any indemnified party shall have the right to retain its
own counsel, but the fees and expenses of such counsel shall be at the expense
of such indemnified party unless (i) the indemnifying party and the indemnified
party shall have mutually agreed to the retention of such counsel, or (ii) the
indemnifying party fails promptly to assume the defense of such proceeding or
fails to employ counsel reasonably satisfactory to such indemnified party, or
(iii) (A) the named parties to any such proceeding (including any impleaded
parties) include both such indemnified party or an Affiliate of such indemnified
party and any indemnifying party or an Affiliate of such indemnifying party, (B)
there may be one or more defenses available to such indemnified party or any
Affiliate of such indemnified party that are different from or additional to
those available to any indemnifying party or any Affiliate of any indemnifying
party and (C) such indemnified party shall have been advised by such counsel
that there may exist a conflict of interest between or among such indemnified
party or any Affiliate of such indemnified party and such indemnifying party or
any Affiliate of such indemnifying party, in which case, if such indemnified
party notifies the indemnifying party in writing that it elects to employ
separate counsel of its choice at the expense of the indemnifying party, the
indemnifying party shall not have the right to assume the defense thereof and
such counsel shall be at the expense of the indemnifying party, it being
understood, however, that unless there exists a conflict among indemnified
parties, the indemnifying parties shall not, in connection with any one such
proceeding or separate but substantially similar or related proceedings in the
same jurisdiction, arising out of the same general allegations or circumstances,
be liable for the fees and expenses of more than one separate firm
19
<PAGE>
of attorneys (together with appropriate local counsel) at any time for such
indemnified parties. The indemnifying party shall not be liable for any
settlement of any proceeding effected without its written consent but, if
settled with such consent or if there be a final judgment for the plaintiff, the
indemnifying party agrees to indemnify each indemnified party from and against
any loss or liability by reason of such settlement or judgment. No indemnifying
party shall, without the prior written consent of each indemnified party, effect
any settlement of any pending or threatened proceeding in respect of which such
indemnified party is a party, and indemnity could have been sought hereunder by
such indemnified party, unless such settlement includes an unconditional release
of such indemnified party from all liability on all claims that are the subject
matter of such proceeding with no payment by such indemnified party of
consideration in connection with such settlement.
(d) Contribution. If the indemnification from the indemnifying
------------
party provided for in this Section 7 is found, pursuant to a final judicial
determination not subject to appeal, to be unavailable to an indemnified party
hereunder or insufficient in respect of any Damages incurred by such indemnified
party, then each indemnifying party, in lieu of indemnifying such indemnified
party, shall contribute to the Damages paid or payable by such indemnified party
in such proportion as is appropriate to reflect the relative fault of the
indemnifying party and the indemnified parties in connection with the actions or
omissions that resulted in such Damages, as well as any other relevant equitable
considerations. The relative fault of such indemnifying party and indemnified
parties shall be determined by reference to, among other things, whether any
action or omission in question, including any untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact,
has been made by, or relates to information supplied by, such indemnifying party
or indemnified parties, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such action. The amount paid
or payable by a party as a result of the Damages referred to above shall be
deemed to include, subject to the limitations set forth in Section 7(c), any
legal or other expenses reasonably incurred by such party in connection with any
investigation or proceeding.
The parties hereto agree that it would not be just or equitable if
contribution pursuant to this Section 7(d) were determined by pro rata
allocation or by any other method of allocation that does not take account of
the equitable considerations referred to in the immediately preceding paragraph.
Notwithstanding the provisions of this Section 7(d), no underwriter shall be
required to contribute any amount in excess of the amount by which the total
price at which the Registrable Securities underwritten by it and distributed to
the public were offered to the public (less any underwriting discounts or
commissions) exceeds the amount of any damages which such underwriter has
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission, and no selling Holder shall be
required to contribute any amount in excess of the amount by which the total net
proceeds received by such selling Holder with respect to Registrable Securities
sold by such selling Holder exceeds the amount of any damages which such selling
Holder has otherwise been required to pay by reason of such untrue statement or
alleged untrue statement or omission or alleged omission. Each Holder's
obligation to contribute pursuant to this Section 7(d) is several and not joint
and shall be
20
<PAGE>
determined by reference to the proportion that the proceeds of the offering
received by such Holder bears to the total proceeds of the offering received by
all the Holders. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The remedies provided for in this Section 7 are not exclusive
and shall not limit any rights or remedies that may otherwise be available to
any indemnified party at law or in equity.
Notwithstanding the foregoing, if indemnification is available under
paragraph (a) or (b) of this Section 7, the indemnifying parties shall indemnify
each indemnified party to the full extent provided in such paragraphs without
regard to the relative fault of said indemnifying party or indemnified party or
any other equitable consideration provided for in this Section 7(d).
SECTION 8. RULE 144. The Company covenants that it will file any
---------
reports required to be filed by it under the Securities Act and the Exchange
Act, and the rules and regulations adopted by the Commission thereunder (or, if
the Company is not required to file such reports, it will, upon the request of
any Holder, make publicly available other information so long as necessary to
permit sales of the Registrable Securities under Rule 144 under the Securities
Act), and it will take such further action as any Holder may request, all to the
extent required from time to time to enable such Holder to sell Registrable
Securities without registration under the Securities Act within the limitation
of the exemptions provided by (a) Rule 144 under the Securities Act, as such
Rule may be amended from time to time, or (b) any successor rule or similar
provision or regulation hereafter adopted by the Commission. Upon the request
of any Holder, the Company will deliver to such Holder a written statement as to
whether it has complied with such requirements.
SECTION 9. MISCELLANEOUS.
-------------
(a) No Inconsistent Agreements. The Company has not entered into nor
--------------------------
will the Company on or after the date of this Agreement enter into any agreement
which is inconsistent with the rights granted to the Holders of Registrable
Securities in this Agreement or otherwise conflicts with the provisions hereof.
The rights granted to the Holders hereunder do not in any way conflict with and
are not inconsistent with the rights granted to the holders of the Company's
other issued and outstanding securities under any such agreements.
(b) Amendments and Waivers. The provisions of this Agreement,
----------------------
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given unless the Company has obtained the written consent of Holders
of at least a majority in interest of the outstanding Registrable Securities
affected by such amendment, modification, supplement, waiver or consent;
provided, however, that, no amendment, modification, supplement, waiver or
- -------- -------
consent to any departure from the provisions of Section 5 hereof (other than any
immaterial amendment,
21
<PAGE>
modification, supplement, waiver or consent) shall be effective as against any
Holder of Registrable Securities unless consented to in writing by such Holder.
(c) Notices. All notices and other communications provided for or
-------
permitted hereunder shall be in writing and shall be deemed to have been duly
given if delivered personally or sent by telecopier, registered or certified
mail (return receipt requested), postage prepaid or courier to the parties at
their respective addresses set forth on the signature pages hereof (or at such
other address for any party as shall be specified by like notice, provided that
notices of a change of address shall be effective only upon receipt thereof).
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five Business
Days after being deposited in the mail, postage prepaid, if mailed; by confirmed
receipt of transmission, if telecopied; and on the next Business Day if timely
delivered to a courier guaranteeing overnight delivery.
(d) Successors and Assigns. This Agreement shall inure to the benefit
----------------------
of and be binding upon the successors, assigns and transferees of each of the
parties, including, without limitation and without the need for an express
assignment, subsequent Holders. If any transferee of any Holder shall acquire
Registrable Securities in any manner, whether by operation of law or otherwise,
such Registrable Securities shall be held subject to all of the terms of this
Agreement, and by taking and holding such Registrable Securities such person
shall be conclusively deemed to have agreed to be bound by and to perform all of
the terms and provisions of this Agreement and such person shall be entitled to
receive the benefits hereof.
(e) Counterparts. This Agreement may be executed in any number of
------------
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(f) Headings. The headings in this Agreement are for convenience of
--------
reference only and shall not limit or otherwise affect the meaning hereof.
(g) Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the laws of the State of Colorado without regard to
principles or rules of conflicts of law.
(h) Severability. In the event that any one or more of the provisions
------------
contained herein, or the application thereof in any circumstances, is held
invalid, illegal or unenforceable in any respect for any reason, the validity,
legality and enforceability of any such provision in every other respect and of
the remaining provisions contained herein shall not be in any way impaired
thereby, it being intended that all of the rights and privileges of the Holders
shall be enforceable to the fullest extent permitted by law.
22
<PAGE>
(i) Entire Agreement. This Agreement is intended by the parties as a
----------------
final expression of their agreement and is intended to be the complete and
exclusive statement of the agreement and understanding of the parties hereto in
respect of the subject matter contained herein. There are no restrictions,
promises, warranties or undertakings, other than those set forth or referred to
herein. This Agreement supersedes all prior agreements and understandings
between the parties with respect to such subject matter.
(j) Attorneys' Fees. In any action or proceeding brought to enforce
---------------
any provision of this Agreement or where any provision hereof is validly
asserted as a defense, the successful party shall, to the extent permitted by
applicable law, be entitled to recover reasonable attorneys' fees in addition to
any other available remedy.
(k) Further Assurances. Each party shall cooperate and take such
------------------
action as may be reasonably requested by another party in order to carry out the
provisions and purposes of this Agreement and the transactions contemplated
hereby.
(l) Remedies. In the event of a breach or a threatened breach by any
--------
party to this Agreement of its obligations under this Agreement, any party
injured or to be injured by such breach will be entitled to specific performance
of its rights under this Agreement or to injunctive relief, in addition to being
entitled to exercise all rights provided in this Agreement and granted by law.
The parties agree that the provisions of this Agreement shall be specifically
enforceable, it being agreed by the parties that remedies at law for violations
hereof, including monetary damages, are inadequate and that the right to object
in any action for specific performance or injunctive relief hereunder on the
basis that a remedy at law would be adequate is waived.
[Remainder of page left intentionally blank]
23
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
FRONTIER AIRLINES, INC., a Colorado
corporation
By:______________________________________________
Name: Samuel D. Addoms
Title: President
Notice Information:
Frontier Airlines, Inc.
12015 East 46th Ave.
Denver, CO 80239
Attn: Arthur T. Voss, Esq.
General Counsel
Tel. No: (303) 371-7400
Fax No: (303) 371-9669
B III CAPITAL PARTNERS, L.P.
By: DDJ Capital III, LLC
Its: General Partner
By: DDJ Capital Management, LLC
Its: Manager
By:___________________________________
Its:
Notice Information
B III Capital Partners, L.P.
141 Linden Street, Suite 4
Wellesley, MA 02181
Attn: Wendy Schnipper Clayton
Tel. No: (781) 283-8500
Fax No: (781) 283-8541
24
<PAGE>
EXHIBIT 10.32
================================================================
WARRANT AGREEMENT
Between
FRONTIER AIRLINES, INC.
and
THE SEABURY GROUP, LLC
Dated as of May 26, 1998
================================================================
<PAGE>
(i)
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 1. Definitions; Accounting Terms and Determinations.............. 1
------------------------------------------------
1.01 Definitions................................................... 1
-----------
1.02 Accounting Terms and Determinations........................... 7
-----------------------------------
Purchase and Sale of Warrant............................................................... 7
- ----------------------------
2.01 Authorization and Issuance of Warrant......................... 7
-------------------------------------
2.02 Issuance of the Warrant....................................... 7
-----------------------
2.03 Securities Act Compliance; Brokers............................ 7
----------------------------------
SECTION 3. Representations and Warranties................................ 8
------------------------------
3.01 Existence; Qualification...................................... 8
------------------------
3.02 No Breach..................................................... 8
---------
3.03 Corporate Action.............................................. 8
----------------
3.04 Approvals..................................................... 9
---------
3.05 Investment Company Act........................................ 9
----------------------
3.06 Capitalization................................................ 9
--------------
3.07 Private Offering.............................................. 10
----------------
3.08 Litigation.................................................... 10
----------
3.09 Rights Agreement.............................................. 10
----------------
3.10 Brokers....................................................... 10
-------
SECTION 4. Restrictions on Transferability............................... 10
-------------------------------
4.01 Transfers Generally........................................... 10
-------------------
4.02 Transfers of Restricted Securities Pursuant to Registration
-----------------------------------------------------------
Statements, Rule 144 and Rule 144A............................ 11
----------------------------------
4.03 Restrictive Legends........................................... 11
-------------------
4.04 Termination of Restrictions................................... 11
---------------------------
SECTION 5. Dispositions of Securities.................................... 11
--------------------------
5.01 Dispositions of Securities.................................... 11
--------------------------
SECTION 6. Adjustments of Warrant Stock Issuable Upon Exercise........... 12
---------------------------------------------------
6.01 Number of Shares; Exercise Price.............................. 12
--------------------------------
6.02 Adjustment of Exercise Price.................................. 12
----------------------------
6.03 Treatment of Options and Convertible Securities............... 14
-----------------------------------------------
6.04 Treatment of Stock Dividends, etc............................. 16
---------------------------------
6.05 Computation of Consideration.................................. 16
----------------------------
6.06 Adjustments for Combinations, Subdivisions, etc............... 17
-----------------------------------------------
6.07 Dilution in Case of Other Securities.......................... 18
------------------------------------
</TABLE>
<PAGE>
(ii)
<TABLE>
<CAPTION>
Page
----
<S> <C>
6.08 Consolidation, Merger, Sale of Assets, Reorganization etc..... 18
---------------------------------------------------------
6.09 Other Dilutive Events......................................... 20
---------------------
6.10 No Dilution or Impairment..................................... 20
-------------------------
6.11 Accountants' Report as to Adjustments......................... 20
-------------------------------------
6.12 Notices of Corporate Action................................... 21
---------------------------
SECTION 7. Holders' Rights............................................... 22
---------------
7.01 Delivery Expenses............................................. 22
-----------------
7.02 Taxes......................................................... 22
-----
7.03 Replacement of Instruments.................................... 22
--------------------------
7.04 Indemnification............................................... 22
---------------
7.05 Inspection Rights............................................. 23
-----------------
SECTION 8. Other Covenants of Company.................................... 23
--------------------------
8.01 Availability of Information................................... 23
---------------------------
8.02 Repurchases and Redemption.................................... 23
--------------------------
8.03 Transactions with Affiliates.................................. 24
----------------------------
8.04 Restrictions on Performance................................... 24
---------------------------
8.05 Modification of Other Equity Documents........................ 24
--------------------------------------
8.06 Ownership of Subsidiaries..................................... 24
-------------------------
8.07 Reservation of Stock. etc..................................... 25
-------------------------
8.08 Listing on Securities Exchanges............................... 25
-------------------------------
SECTION 9. Miscellaneous................................................. 25
-------------
9.01 Waiver........................................................ 25
------
9.02 Notices....................................................... 25
-------
9.03 Expenses, Etc................................................. 26
-------------
9.04 Amendments, Etc............................................... 26
---------------
9.05 Successors and Assigns........................................ 27
----------------------
9.06 Survival...................................................... 27
--------
9.07 Specific Performance.......................................... 27
--------------------
9.08 WAIVER OF JURY TRIAL.......................................... 27
--------------------
9.09 Limitation of Liability....................................... 27
-----------------------
9.10 Captions...................................................... 28
--------
9.11 Counterparts.................................................. 28
------------
9.12 Governing Law................................................. 28
-------------
9.13 Severability.................................................. 28
------------
9.14 Entire Agreement.............................................. 28
----------------
</TABLE>
ANNEX 1 - FORM OF ASSIGNMENT
ANNEX 2 - REPURCHASES FROM MANAGEMENT
<PAGE>
WARRANT AGREEMENT dated as of May 26, 1998 between FRONTIER AIRLINES,
INC., a Colorado corporation (the "Company"), and THE SEABURY GROUP, LLC, a
-------
limited liability company ("Seabury").
-------
WHEREAS, Seabury or an affiliate of Seabury has provided financial
advisory services to the Company under a Financial Advisory Agreement dated May
26, 1998 (the "Advisory Agreement").
WHEREAS, in consideration of the services provided by Seabury, and for
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, the parties have agreed, pursuant to the Agreement, to
enter into this Agreement.
NOW, THEREFORE, the parties hereto agree as follows:
SECTION 1. Definitions; Accounting Terms and Determinations.
------------------------------------------------
1.01 Definitions. As used herein, the following terms shall have the
-----------
following meanings (all terms defined in this Section 1 or in other provisions
of this Agreement in the singular to have the same meanings when used in the
plural and vice versa):
"Acquiring Person" shall mean the continuing or surviving corporation
----------------
of a consolidation or merger with the Company (if other than the Company), the
transferee of substantially all of the properties and assets of the Company, the
corporation consolidating with or merging into the Company in a consolidation or
merger in connection with which the Common Stock is changed into or exchanged
for stock or other securities of any other Person or cash or any other property,
or, in the case of a capital reorganization or reclassification, the Company.
"Acquisition Price" shall mean, as applied to the Common Stock, with
-----------------
respect to any transaction to which Section 6.08 applies, (a) the price per
share equal to the greater of the following, determined in each case as of the
date immediately preceding the date of consummation of such transaction: (i)
the Market Price of the Common Stock and (ii) the highest amount of cash plus
the Fair Value of the highest amount of securities or other property which a
Holder of Warrants would have been entitled as a shareholder to receive upon
such consummation if such Holder had exercised its Warrants immediately prior
thereto, or (b) if a purchase, tender or an exchange offer is made by the
Acquiring Person (or by any of its affiliates) to the holders of the Common
Stock and such offer is accepted by the holders of more than 50% of the
outstanding shares of Common Stock, the greater of (i) the price determined in
accordance with the foregoing subdivision (a) and (ii) the price per share equal
to the greater of the following, determined in each case as of the date
immediately preceding the acceptance of such offer by the holders of more than
50% of the outstanding shares of Common Stock: (x) the Market Price of the
Common Stock and (y) the highest amount of cash plus the Fair Value of the
highest amount of securities or other property which a Holder of Warrants would
have been entitled as a shareholder
Warrant Agreement
-----------------
<PAGE>
2
to receive pursuant to such offer if such Holder had exercised its Warrants
immediately prior to the expiration of such offer and accepted the same.
"Additional Shares of Common Stock" shall mean all shares (including
---------------------------------
treasury shares) of Common Stock issued or sold (or, pursuant to Section 6.03 or
6.04, deemed to be issued) by the Company after the Initial Date hereof, whether
or not subsequently reacquired or retired by the Company other than (a) shares
of Common Stock issued upon the exercise of Warrants, (b) shares of Common Stock
issued or authorized prior to May 26, 1998 under the Option Plan and (c) shares
of Common Stock issuable on conversion or exercise of the Convertible Securities
or Options set forth in Schedule 3.06 attached hereto.
-------------
"Affiliate" shall mean, with respect to a specified Person, another
---------
Person that directly, or indirectly through one or more intermediaries, Controls
or is Controlled by or is under common Control with the Person specified.
"Base Price" shall mean, on any date specified herein, the greater of
----------
(i) the Current Market Price and (ii) the Exercise Price.
"Business Day" shall mean any day that is not a Saturday, Sunday or
------------
other day on which commercial banks in New York City are authorized or required
by law to remain closed.
"Commission" shall mean the Securities and Exchange Commission or any
----------
other similar or successor agency of the federal government administering the
Securities Act and/or the Exchange Act.
"Common Stock" shall mean the Common Stock of the Company, no par
------------
value per share, or any other common stock or other securities receivable
thereon, or into which the Common Stock is convertible or exchangeable, as a
result of any recapitalization, reclassification, merger or consolidation of, or
disposition of assets by, the Company.
"Company" shall have the meaning assigned to such term in the preamble
-------
of this Agreement.
"Control" shall mean the possession, directly or indirectly, of the
-------
power to direct or cause the direction of the management or policies of a
Person, whether through the ability to exercise voting power, by contract or
otherwise. "Controlling" and "Controlled" shall have meanings correlative
----------- ----------
thereto.
"Convertible Securities" shall mean evidences of indebtedness,
----------------------
interests or other securities or rights which are exchangeable for or
exercisable or convertible into Additional Shares of Common Stock other than the
Warrants.
Warrant Agreement
-----------------
<PAGE>
3
"Current Market Price" shall mean, on any date specified herein, (a)
--------------------
with respect to Common Stock or to Voting Common Stock (or equivalent equity
interests) of an Acquiring Person or its Parent, (i) the average daily Market
Price during the period of the most recent 20 consecutive Business Days ending
on such date, or (ii) if shares of Common Stock or such Voting Common Stock (or
equivalent equity interests), as the case may be, are not then listed or
admitted to trading on any national securities exchange and if the closing bid
and asked prices thereof are not then quoted or published in the over-the-
counter market, the Market Price on such date; and (b) with respect to any other
securities, the Market Price on such date.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
------------
amended, or any similar federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
"Exercise Notice" shall have the meaning assigned to such term in
---------------
Warrant No. Sea-1, a copy of which is attached as Exhibit A hereto.
---------
"Exercise Price" shall have the meaning assigned to such term in
--------------
Section 6.01 hereof.
"Expiration Date" shall have the meaning assigned to such term in
---------------
Warrant No. Sea-1, a copy of which is attached hereto as Exhibit A.
---------
"Fair Value" shall mean, with respect to any securities or other
----------
property, the fair value thereof as of a date which is within 15 days of the
date as of which the determination is to be made (a) determined by the Board of
Directors of the Company or (b), if the Requisite Holders of Warrants shall
object in writing to such determination within ten Business Days after notice of
such determination, as determined by an agreement between the Company and the
Requisite Holders of Warrants or (c) if the Company and the Requisite Holders of
Warrants fail to agree, determined jointly by an independent investment banking
firm retained by the Company and by an independent investment banking firm
retained by the Requisite Holders of Warrants, either of which firms may be an
independent investment banking firm regularly retained by the Company or any
such holder or (d) if the Company or such holders shall fail so to retain an
independent investment banking firm within five Business Days of the retention
of such firm by such holders or the Company, as the case may be, determined
solely by the firm so retained or (e) if the firms so retained by the Company
and by such holders shall be unable to reach a joint determination within 15
Business Days of the retention of the last firm so retained, determined by
another independent investment banking firm (whose fees shall be paid equally by
such holders, on the one hand, and the Company, on the other) which is not a
regular investment banking firm of the Company or any such holder chosen by the
first two such firms.
"GAAP" shall mean generally accepted accounting principles,
----
consistently applied throughout the specified period.
Warrant Agreement
-----------------
<PAGE>
4
"Governmental Authority" shall mean the government of the United
----------------------
States of America, any other nation or any political subdivision thereof,
whether state or local, and any agency, authority, instrumentality, regulatory
body, court, central bank or other entity exercising executive, legislative,
judicial, taxing, regulatory, monetary or administrative powers or functions of
or pertaining to government.
"Holder" shall mean any Person who acquires Warrants or Warrant Stock
------
pursuant to the provisions of this Agreement, including any transferees of
Warrants or Warrant Stock; provided, however, that a holder of Warrant Stock
-------- -------
purchased pursuant to an effective registration statement or pursuant to Rule
144 shall not be deemed a Holder.
"include" and "including" shall be construed as if followed by the
------- ---------
phrase "without being limited to".
"Initial Date" shall have the meaning assigned in such term in Section
------------
6.02 hereof.
"Letter Agreement" shall have the meaning assigned to such term in the
----------------
preamble of this Agreement.
"Lien" shall mean, with respect to any asset, any mortgage, lien,
----
pledge, charge, security interest or encumbrance of any kind in respect of such
asset. For purposes of this Agree ment, a Person shall be deemed to own
subject to a Lien any asset which it has acquired or holds subject to the
interest of a vendor or lessor under any conditional sale agreement, capital
lease or other title retention agreement relating to such asset.
"Market Price" shall mean, on any date specified herein, (a) with
------------
respect to Common Stock or Voting Common Stock (or equivalent equity interests)
of an Acquiring Person or its Parent, the amount per share equal to (i) the last
sale price of shares of such security, regular way, on such date or, if no such
sale takes place on such date, the average of the closing bid and asked prices
thereof on such date, in each case as officially reported on the principal
national securities exchange on which the same are then listed or admitted to
trading, or (ii) if no shares of such security are then listed or admitted to
trading on any national securities exchange, the last reported sale price as
officially reported by the Nasdaq National Market System or, (iii) if not quoted
on the Nasdaq National Market System, the average closing bid and asked prices
as furnished by the NASD through the Nasdaq National Market System or similar
organization if the NASDAQ is no longer reporting such information, or (iv) if
no closing bid and asked prices thereof are then so quoted or published in the
over-the-counter market, the Fair Value thereof as of a date which is within 15
days of the date as of which the determination is to be made; and (b) with
respect to any other securities, the Fair Value thereof as of a date which is
within 15 days of the date as of which the determination is to be made.
"NASD" shall mean the National Association of Securities Dealers.
----
Warrant Agreement
-----------------
<PAGE>
5
"NASDAQ" shall mean the National Association of Securities Dealers
------
automated quotation system.
"Option Plan" shall mean the Company's 1994 Stock Option Plan.
-----------
"Options" shall mean all rights, options or warrants to subscribe for,
-------
purchase or otherwise acquire either Additional Shares of Common Stock or
Convertible Securities.
"Other Equity Documents" shall mean the Option Plan, the certificate
----------------------
of incorporation of the Company, the by-laws of the Company, the Rights
Agreement and any other instrument or document of organization or governance of
the Company.
"Other Securities" shall mean any stock (other than Common Stock) and
----------------
other securities of the Company or any other Person (corporate or otherwise)
which the holders of the Warrants at any time shall be entitled to receive, or
shall have received, upon the exercise of the Warrants, in lieu of or in
addition to Common Stock, or which at any time shall be issuable or shall have
been issued in exchange for or in replacement of Common Stock or Other
Securities pursuant to Section 6.08 or otherwise.
"Parent" as to any Acquiring Person, any corporation which (a)
------
controls the Acquiring Person directly or indirectly through one or more
intermediaries, (b) is required to include the Acquiring Person in its
consolidated financial statements under GAAP and (c) is not itself included in
the consolidated financial statements of any other Person (other than its
consolidated subsidiaries).
"Person" shall mean any natural person, corporation, limited liability
------
company, trust, joint venture, association, company, partnership, Governmental
Authority or other entity.
"Registration Rights Agreement" shall mean the Registration Rights
-----------------------------
Agreement dated as of May 26, 1998, between the Company and Seabury.
"Requisite Holders of Warrants" shall mean the holders of at least a
-----------------------------
majority of all the Warrants at the time outstanding determined on the basis of
the number of shares of Warrant Stock or Other Securities deliverable upon
exercise thereof; provided, that Warrants held by the Company or any of its
--------
Subsidiaries shall be excluded from both the numerator and denominator of any
calculation of the Requisite Holders of Warrants.
"Restricted Certificate" shall mean a certificate for Warrant Stock or
----------------------
Warrants bearing or required to bear the restrictive legend set forth in Section
4.03.
"Restricted Securities" shall mean Restricted Warrant Stock and
---------------------
Restricted Warrants.
Warrant Agreement
-----------------
<PAGE>
6
"Restricted Warrant Stock" shall mean Warrant Stock evidenced by a
------------------------
Restricted Certificate.
"Restricted Warrants" shall mean Warrants evidenced by a Restricted
-------------------
Certificate.
"Rights Agreement" shall mean the Rights Agreement dated as of
----------------
February 20, 1997 between the Company and American Securities Transfer & Trust,
Inc., as amended.
"Rule 144" shall mean Rule 144 promulgated by the Commission under the
--------
Securities Act (or any successor or similar rule then in force).
"Rule 144A" shall mean Rule 144A promulgated by the Commission under
---------
the Securities Act (or any successor or similar rule then in force).
"Seabury" shall have the meaning assigned to such term in the preamble
-------
of this Agreement.
"Securities Act" shall mean the Securities Act of 1933, as amended, or
--------------
any similar federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"Shareholder" shall mean any Person who directly or indirectly owns
-----------
any shares of Common Stock (including Warrant Stock).
"Subsidiary" of a Person means (a) any corporation more than 50% of
----------
the outstanding securities having ordinary voting power of which shall at the
time be owned or controlled, directly or indirectly, by such Person or by one or
more of its Subsidiaries or by such Person and one or more of its Subsidiaries,
or (b) any company, partnership, association, joint venture or similar business
organization more than 50% of the ownership interests having ordinary voting
power of which shall at the time be so owned or controlled. Unless otherwise
expressly provided, all references herein to a "Subsidiary" shall mean a direct
or indirect Subsidiary of the Company.
"Voting Common Stock" shall mean, with respect to any corporation,
-------------------
association or other business entity, stock of any class or classes (or
equivalent interest), if the holders of the stock of such class or classes (or
equivalent interests) are ordinarily, in the absence of contingencies, entitled
to vote for the election of a majority of the directors (or persons performing
similar functions) of such corporation, association or business entity, even if
the right so to vote has been suspended by the happening of such a contingency.
"Warrant Stock" shall mean all shares of Common Stock issuable from
-------------
time to time upon exercise of the Warrant.
Warrant Agreement
-----------------
<PAGE>
7
"Warrant" and "Warrants" shall mean Warrant No. Sea-1 issued by the
------- --------
Company to Seabury on the date hereof, a copy of which is attached hereto as
Exhibit A, evidencing rights to purchase up to an aggregate of 548,000 shares of
Warrant Stock and other securities, cash or other property as shall result from
the adjustment specified in Section 6, and all Warrants issued upon transfer,
division or combination of, or in substitution for, any thereof.
1.02 Accounting Terms and Determinations. Except as otherwise may be
-----------------------------------
expressly provided herein, all accounting terms used herein shall be
interpreted, and all financial statements and certificates and reports as to
financial matters required to be delivered to any Holder of Warrant shall be
prepared, in accordance with GAAP. All calculations made for the purposes of
determining compliance with the terms of this Agreement shall (except as
otherwise may be expressly provided herein) be made by application of GAAP.
SECTION 2. Purchase and Sale of Warrant.
----------------------------
2.01 Authorization and Issuance of Warrant. On or prior to the date
-------------------------------------
hereof, the Company authorized: (a) the issuance of the Warrant evidenced by
Warrant Certificate No. Sea-1, a copy of which is attached hereto as Exhibit A;
---------
and (b) the issuance of such number of shares of Common Stock as shall be
necessary to permit the Company to comply with its obligations to issue shares
of Warrant Stock pursuant to the Warrant.
2.02 Issuance of the Warrant. (a) The Company has delivered to
-----------------------
Seabury Warrant Certificate No. Sea-1, registered in the name of Seabury.
2.03 Securities Act Compliance; Brokers.
----------------------------------
(a) Seabury understands that the Company has not registered the
Warrant or the Warrant Stock under the Securities Act or applicable state
securities laws, and Seabury agrees that neither the Warrant nor the Warrant
Stock shall be sold or transferred or offered for sale or transfer without
registration or qualification under the Securities Act or applicable state
securities laws or the availability of an exemption therefrom, all as more fully
provided in Section 4.
(b) Seabury purchased the Warrant for its own account for investment
and not with a view to the distribution of the Warrant or any part thereof, it
being understood that the right to dispose of the Warrant shall be entirely
within the discretion of Seabury. Nothing in this paragraph (b) is meant to
limit or restrict the rights granted to Seabury under the Registration Rights
Agreement.
(c) Seabury is an "accredited investor" within the meaning of
Regulation D promulgated under the Securities Act.
Warrant Agreement
-----------------
<PAGE>
8
(d) All negotiations relative to this Agreement and the transactions
contemplated hereby have been carried out by Seabury directly with the Company
without the intervention of any Person on behalf of Seabury in such manner as to
give rise to any valid claim by any Person against the Company for a finder's
fee, brokerage commission or similar payment.
SECTION 3. Representations and Warranties. The Company represents
------------------------------
and warrants as follows:
3.01 Existence; Qualification. The Company is duly organized,
------------------------
validly existing and in good standing under the laws of the State of Colorado.
The Company is duly qualified, licensed or admitted to do business and is in
good standing as a foreign corporation in every jurisdiction in which the nature
of the business conducted by it makes such qualification necessary, except where
the failure to be so qualified would not have a material adverse effect on the
Company, and has all requisite corporate power and authority to transact its
business as now conducted in all such jurisdictions.
3.02 No Breach. The execution, delivery and performance of this
---------
Agreement, the Warrant and the Registration Rights Agreement by the Company and
the consummation by it of the transactions contemplated hereby and thereby will
not (a) violate the articles of incorporation or by-laws or any other instrument
or document of organization or governance of the Company, (b) violate, or result
in a breach of or default under, any other material instrument or agreement to
which the Company is a party or is bound, (c) violate any judgment, order,
injunction, decree or award against or binding upon the Company, (d) result in
the creation of any material Lien upon any of the properties or assets of the
Company, or (e) violate any law, rule or regulation applicable to the Company.
3.03 Corporate Action. The Company has all necessary corporate power
----------------
and authority to execute, deliver and perform its obligations under this
Agreement, the Warrant and the Registration Rights Agreement; the execution,
delivery and performance by the Company of this Agreement, the Warrant and the
Registration Rights Agreement have been duly authorized by all necessary action
(including all Shareholder action) on the part of the Company; this Agreement,
the Warrant and the Registration Rights Agreement have been duly executed and
delivered by the Company and constitute the legal, valid and binding obligations
of the Company, enforceable against the Company in accordance with their
respective terms; the shares of Warrant Stock covered by the Warrant have been
duly and validly authorized and reserved for issuance and shall, when paid for,
issued and delivered in accordance with the Warrant, be duly and validly issued,
fully paid and nonassessable and free and clear of any Liens; and none of the
Warrant Stock issued pursuant to the terms hereof will be in violation of any
preemptive rights of any Shareholder
Warrant Agreement
-----------------
<PAGE>
9
3.04 Approvals. Except in connection with the registration rights
---------
provided for pursuant to the terms of the Registration Rights Agreement, no
authorizations, approvals or consents of, and no filings or registrations with,
any Governmental Authority or any other Person are necessary for the execution,
delivery or performance by the Company of this Agreement, the Warrant or the
Registration Rights Agreement or for the validity or enforceability hereof or
thereof. Any such action required to be taken as a condition to the execution
and delivery of this Agreement or the Registration Rights Agreement, or the
execution, issuance and delivery of the Warrant, has been duly taken by all such
Governmental Authorities or other Persons, as the case may be.
3.05 Investment Company Act. The Company is not an "investment
----------------------
company", or a company "controlled by" an "investment company", within the
meaning of the Investment Company Act of 1940, as amended.
3.06 Capitalization.
--------------
(a) On the date hereof, the total number of shares of Common Stock
that the Company has authority to issue is 40,000,000 of which 9,233,563 are
outstanding. Upon the issuance of the Warrant under this Agreement, other than
the Warrant, and other than as set forth in Schedule 3.06 attached hereto, the
-------------
Company shall not have outstanding any Convertible Securities or Options
exercisable or convertible into or exchangeable for any interests or other
equity rights of the Company, nor shall it have outstanding any agreements
providing for the issuance (contingent or otherwise) of, or any calls,
commitments or claims of any character relating to, any interests or equity
rights of the Company or Convertible Securities exercisable or convertible into
or exchangeable for any interests or equity rights of the Company.
(b) Except as set forth in Schedule 3.06 attached hereto, other than
-------------
this Agreement and the Registration Rights Agreement, there is not in effect on
the date hereof any agreement by the Company pursuant to which any holders of
securities of the Company have a right to cause the Company to register such
securities under the Securities Act or any agreement to which the Company or (to
its knowledge) any of its Shareholders is a party relating to the voting,
transfer or sale of such securities.
(c) There is not in effect on the date hereof any agreement by the
Company or any of its Shareholders which (i) restricts the transferability of
the Warrant and/or the Warrant Stock, except as provided in Sections 4 and 5,
(ii) restricts the transferability of the right of the Holder in this Agreement
to any transferee of all or a portion of the Holder's Warrant and/or Warrant
Stock, or (iii) requires any consent or other approval of any Person to the
exercise of the Warrant by the Holder or the issuance of Warrant Stock upon such
exercise.
3.07 Private Offering.
----------------
Warrant Agreement
-----------------
<PAGE>
10
(a) Based on the representations of Seabury in Sections 2.03(a)-(c)
--------------------
hereof, the issuance and sale of the Warrant to Seabury hereunder were exempt
from the registration and prospectus delivery requirements of the Securities
Act.
(b) All equity interests of the Company heretofore issued and sold by
the Company were issued and sold in accordance with, or were exempt from, the
registration and prospectus delivery requirements of the Securities Act.
3.08 Litigation.
----------
There is no action, suit, proceeding or investigation pending or, to
the best of the Company's knowledge after due inquiry, threatened against the
Company before any Governmental Authority seeking to enjoin the transactions
contemplated by this Agreement or the Warrant.
3.09 Rights Agreement. Neither the ownership nor exercise of the
----------------
Warrant or any portion thereof by Seabury or any Holder will result in a
"Distribution Date" or a "Triggering Event" (as defined in the Rights
Agreement), or in Seabury or such Holder being deemed an "Acquiring Person"
under the Rights Agreement.
3.10 Brokers. All negotiations relative to this Agreement and the
-------
transactions contemplated hereby have been carried out by the Company directly
with Seabury without the intervention of any Person on behalf of the Company in
such manner as to give rise to any valid claim by any Person against Seabury or
the Holder for a finder's fee, brokerage commission or similar payment.
SECTION 4. Restrictions on Transferability.
-------------------------------
4.01 Transfers Generally. Except as otherwise provided in Section 5,
-------------------
the Restricted Securities shall be transferable only upon the conditions
specified in this Section 4 and in the Registration Rights Agreement, which
conditions are intended to ensure compliance with the provisions of the
Securities Act and applicable state securities laws in respect of the transfer
of any Restricted Securities.
4.02 Transfers of Restricted Securities Pursuant to Registration
-----------------------------------------------------------
Statements, Rule 144 and Rule 144A. The Restricted Securities may be offered or
- ----------------------------------
sold by the Holder thereof pursuant to (a) an effective registration statement
under the Securities Act, (b) to the extent applicable, Rule 144 or Rule 144A or
(c) any other legally available means of transfer; provided, that the Holder
--------
receives an opinion of counsel to the effect that the proposed transfer may
legally be effected without registration of such Registrable Securities under
the Securities Act.
Warrant Agreement
-----------------
<PAGE>
11
4.03 Restrictive Legends. Unless and until otherwise permitted by
-------------------
this Section 4, each certificate for any Warrants issued to any subsequent
transferee of Warrant Certificate No. Sea-1, each certificate for any Warrant
Stock issued upon exercise of any Warrant and each certificate for any Warrant
Stock issued to any subsequent transferee of any such certificate, shall be
stamped or otherwise imprinted with a legend in substantially the following
form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS, AND ACCORDINGLY, SUCH SECURITIES MAY NOT BE TRANSFERRED,
SOLD OR OTHERWISE DISPOSED OF EXCEPT IN COMPLIANCE WITH THE REGISTRATION OR
QUALIFICATION PROVISIONS OF APPLICABLE FEDERAL AND STATE SECURITIES LAWS OR
APPLICABLE EXEMPTIONS THEREFROM.
4.04 Termination of Restrictions. All of the restrictions imposed by
---------------------------
this Section 4 upon the transferability of the Restricted Securities shall cease
and terminate as to any particular Restricted Security when such Restricted
Security shall have been effectively registered under the Securities Act and
applicable state securities laws and sold by the Holder thereof in accordance
with such registration or sold under and pursuant to Rule 144 or is eligible to
be sold under and pursuant to paragraph (k) of Rule 144. Whenever the
restrictions imposed by this Section 4 shall terminate as to any Restricted
Security as hereinabove provided, the Holder thereof shall be entitled to
receive from the Company, without expense, a new certificate evidencing such
Restricted Security not bearing the restrictive legend otherwise required to be
borne by a certificate evidencing such Restricted Security.
SECTION 5. Dispositions of Securities.
--------------------------
5.01 Dispositions of Securities.
--------------------------
(a) Notwithstanding anything herein in this Agreement or the Warrant
to the contrary, but subject to compliance with the Securities Act, applicable
state securities laws and the requirement as to placement of a legend on
certificates for Restricted Securities specified in Section 4.03, the Warrant
and all rights thereunder are transferable (subject to any restrictive legends
thereon), in whole or in part, upon surrender of the Warrant to the Company,
together with a written assignment of the Warrant duly executed by the Holder
thereof or such Holder's agent or attorney. Such written assignment shall be in
the form of the Assignment Form attached as Annex 1 hereto. Upon such
-------
surrender, the Company shall execute and deliver a new Warrant or Warrants in
the name of the assignee or assignees and in the denominations specified in such
instrument of assignment, and the original Warrant shall promptly be canceled.
Warrant Agreement
-----------------
<PAGE>
12
(b) The Warrant may be exchanged for other Warrants of the same series
upon presentation to the Company, together with a written notice specifying the
denominations in which new Warrants are to be issued, signed by the Holder
thereof. The Company shall execute and deliver a new Warrant or Warrants to the
Holder in exchange for the Warrant or Warrants to be divided or combined in
accordance with such notice. The Company shall pay all expenses, taxes
(including transfer taxes) and other charges payable in connection with the
preparation, issuance and delivery of the Warrants, including any transfer or
exchange thereof.
(c) The Company shall maintain books for the registration and transfer
of the Warrants, and shall allow each Holder of Warrants to inspect such books
at such reasonable times as such Holder shall request.
SECTION 6. Adjustments of Warrant Stock Issuable Upon Exercise.
---------------------------------------------------
6.01 Number of Shares; Exercise Price. The number of shares of
--------------------------------
Warrant Stock which a Holder of Warrants shall be entitled to receive upon each
exercise thereof shall be determined by multiplying the number of shares of
Warrant Stock which would otherwise (but for the provisions of this Section 6)
be issuable upon such exercise, as designated by the Holder thereof in its
Exercise Notice, by a fraction of which (i) the numerator is $3.00 and (ii) the
denominator is the Exercise Price in effect on the date of such exercise. The
"Exercise Price" shall initially be $3.00 per share, shall be adjusted and
readjusted from time to time as provided in this Section 6 and, as so adjusted
or readjusted, shall remain in effect until a further adjustment or readjustment
thereof is required by this Section 6.
6.02 Adjustment of Exercise Price.
----------------------------
(a) Issuance of Additional Shares of Common Stock. In case the
---------------------------------------------
Company, at any time or from time to time after May 26, 1998 (the "Initial
-------
Date"), shall issue or sell Additional Shares of Common Stock (including
- ----
Additional Shares of Common Stock deemed to be issued pursuant to Section 6.03
or 6.04) without consideration or for a consideration per share less than the
Base Price in effect, in each case, on the date of and immediately prior to such
issue or sale, then, and in each such case,
(i) in the event that the number of shares to be so issued or sold,
together with all other Additional Shares of Common Stock issued or sold or
deemed issued by the Company subsequent to the Initial Date for a consideration
per share less than the Base Price (collectively, the "Below Base Price Shares")
-----------------------
is less than 250,000, such Exercise Price shall be reduced, concurrently with
such issue or sale, to a price (calculated to the nearest .001 of a cent)
determined by multiplying such Exercise Price by a fraction,
Warrant Agreement
-----------------
<PAGE>
13
(A) the numerator of which shall be (x) the number of shares of Common
Stock outstanding immediately prior to such issue or sale plus (y) the number of
shares of Common Stock which the aggregate consideration received by the Company
for the total number of such Additional Shares of Common Stock so issued or sold
would purchase at the Base Price, and
(B) the denominator of which shall be the number of shares of Common
Stock outstanding immediately after such issue or sale, and
(ii) in the event that the number of Below Base Price Shares issued
or sold or deemed issued by the Company subsequent to the Initial Date is equal
to or greater than 250,000, the Exercise Price shall be reduced to an amount
equal to the lowest consideration per share (as determined under Section 6.05)
received by the Company for any such issue or sale,
provided that, for the purposes of this Section 6.02(a), immediately after any
- --------
Additional Shares of Common Stock are deemed to have been issued pursuant to
Section 6.03 or 6.04, such Additional Shares shall be deemed to be outstanding,
and treasury shares shall not be deemed to be outstanding.
(b) Dividends and Distributions. In case the Company at any time or
---------------------------
from time to time after the Initial Date shall declare, order, pay or make a
dividend or other distribution (including, without limitation, any distribution
of other or additional stock or other securities or property or Options by way
of dividend or spin-off, reclassification, recapitalization or similar corporate
rearrangement) on any Common Stock, other than a dividend payable in Additional
Shares of Common Stock or in Options for Common Stock, then, unless the Company
permits the Holders to participate in such dividend or distribution based on the
number of shares of Warrant Stock then underlying each Warrant, the Exercise
Price in effect immediately prior to the close of business on the record date
fixed for the determination of holders of any class of securities entitled to
receive such dividend or distribution shall be reduced, effective as of the
close of business on such record date, to a price (calculated to the nearest
.001 of a cent) determined by multiplying such Exercise Price by a fraction,
(A) the numerator of which shall be the Current Market Price in effect
on such record date or, if the Common Stock trades on an ex-dividend basis, on
the date prior to the commencement of ex-dividend trading, less the value of
such dividend or distribution applicable to one share of Common Stock, and
(B) the denominator of which shall be such Current Market Price.
6.03 Treatment of Options and Convertible Securities. In case the
-----------------------------------------------
Company at any time or from time to time after the Initial Date shall issue,
sell, grant or assume, or shall fix a record date for the determination of
holders of any class of securities entitled to receive, any Options or
Convertible Securities, then, and in each such case, the maximum number of
Warrant Agreement
-----------------
<PAGE>
14
Additional Shares of Common Stock (as set forth in the instrument relating
thereto, without regard to any provisions contained therein for a subsequent
adjustment of such number) issuable upon the exercise of such Options or, in the
case of Convertible Securities and Options therefor, the conversion or exchange
of such Convertible Securities, shall be deemed to be issued for purposes of
Section 6.02 as of the time of such issue, sale, grant or assumption or, in case
such a record date shall have been fixed, as of the close of business on such
record date (or, if the Common Stock trades on an ex-dividend basis, on the date
prior to the commencement of ex-dividend trading), provided that such Additional
--------
Shares of Common Stock shall not be deemed to have been issued unless the
consideration per share (determined pursuant to Section 6.05) of such shares
would be less than the Base Price in effect, in each case, on the date of and
immediately prior to such issue, sale, grant or assumption or immediately prior
to the close of business on such record date (or, if the Common Stock trades on
an ex-dividend basis, on the date prior to the commencement of ex-dividend
trading), as the case may be, and provided, further, that in any such case in
-------- -------
which Additional Shares of Common Stock are deemed to be issued,
(a) no further adjustment of the Exercise Price shall be made upon the
subsequent issue or sale of Additional Shares of Common Stock or Convertible
Securities upon the exercise of such Options or the conversion or exchange of
such Convertible Securities;
(b) if such Options or Convertible Securities by their terms provide,
with the passage of time or otherwise, for any increase or decrease in the
consideration payable to the Company, or increase or decrease in the number of
Additional Shares of Common Stock issuable, upon the exercise, conversion or
exchange thereof (by change of rate or otherwise), the Exercise Price computed
upon the original issue, sale, grant or assumption thereof (or upon the
occurrence of the record date, or date prior to the commencement of ex-dividend
trading, as the case may be, with respect thereto), and any subsequent
adjustments based thereon, shall, upon any such increase or decrease becoming
effective, be recomputed to reflect such increase or decrease insofar as it
affects such Options, or the rights of conversion or exchange under such
Convertible Securities, which are outstanding at such time;
(c) upon the expiration of any such Options or of the rights of
conversion or exchange under any such Convertible Securities which shall not
have been exercised (or upon purchase by the Company and cancellation or
retirement of any such Options which shall not have been exercised or of any
such Convertible Securities the rights of conversion or exchange under which
shall not have been exercised), the Exercise Price computed upon the original
issue, sale, grant or assumption thereof (or upon the occurrence of the record
date, or date prior to the commencement of ex-dividend trading, as the case may
be, with respect thereto), and any subsequent adjustments based thereon, shall,
upon such expiration (or such cancellation or retirement, as the case may be),
be recomputed as if:
(i) in the case of Options for Common Stock or of Convertible
Securities, the only Additional Shares of Common Stock issued or sold were the
Additional Shares of Common
Warrant Agreement
-----------------
<PAGE>
15
Stock, if any, actually issued or sold upon the exercise of such Options or the
conversion or exchange of such Convertible Securities and the consideration
received therefor was (x) an amount equal to (1) the consideration actually
received by the Company for the issue, sale, grant or assumption of all such
Options, whether or not exercised, plus (2) the consideration actually received
by the Company upon such exercise, minus (3) the consideration paid by the
Company for any purchase of such Options which were not exercised, or (y) an
amount equal to (1) the consideration actually received by the Company for the
issue, sale, grant or assumption of all such Convertible Securities which were
actually converted or exchanged, plus (2) the additional consideration, if any,
actually received by the Company upon such conversion or exchange, minus (3) the
consideration paid by the Company for any purchase of such Convertible
Securities the rights of conversion or exchange under which were not exercised,
and
(ii) in the case of Options for Convertible Securities, only the
Convertible Securities, if any, actually issued or sold upon the exercise of
such Options were issued at the time of the issue, sale, grant or assumption of
such Options, and the consideration received by the Company for the Additional
Shares of Common Stock deemed to have then been issued was an amount equal to
(x) the consideration actually received by the Company for the issue, sale,
grant or assumption of all such Options, whether or not exercised, plus (y) the
consideration deemed to have been received by the Company (pursuant to Section
6.05) upon the issue or sale of the Convertible Securities with respect to which
such Options were actually exercised, minus (z) the consideration paid by the
Company for any purchase of such Options which were not exercised;
(d) no readjustment pursuant to subdivision (b) or (c) above shall
have the effect of increasing the Exercise Price by an amount in excess of the
amount of the adjustment thereof originally made in respect of the issue, sale,
grant or assumption of such Options or Convertible Securities; and
(e) in the case of any such Options which expire by their terms not
more than 30 days after the date of issue, sale, grant or assumption thereof, no
adjustment of the Exercise Price shall be made until the expiration or exercise
of all such Options, whereupon such adjustment shall be made in the manner
provided in subdivision (c) above.
In case at any time after the Initial Date the Company shall be
required to increase the number of Additional Shares of Common Stock subject to
any Option or into which any Convertible Securities are convertible or
exchangeable pursuant to the operation of anti-dilution provisions applicable
thereto, such Additional Shares shall be deemed to be issued for purposes of
Section 6.02 as of the time of such increase.
6.04 Treatment of Stock Dividends, etc. In case the Company at any
----------------------------------
time or from time to time after the Initial Date shall declare or pay any
dividend or other distribution on
Warrant Agreement
-----------------
<PAGE>
16
any class of stock of the Company payable in Common Stock, then, and in each
such case, Additional Shares of Common Stock shall be deemed to have been issued
immediately after the close of business on the record date for the determination
of holders of any class of securities entitled to receive such dividend;
provided, however, that no Additional Shares of Common Stock shall be deemed to
- -------- -------
have been issued in the case of any such dividend if the Company shall have
declared such dividend payable, and paid such dividend, with respect to all
shares of Warrant Stock then underlying the Warrants.
6.05 Computation of Consideration. For the purposes of this Section
----------------------------
6:
(a) The consideration for the issue or sale of any Additional Shares
of Common Stock or for the issue, sale, grant or assumption of any Options or
Convertible Securities, irrespective of the accounting treatment of such
consideration, shall
(i) insofar as it consists of cash, be computed at the amount of
cash received by the Company, after deducting any expenses paid or incurred by
the Company or any commissions or compensation paid or concessions or discounts
allowed to underwriters, dealers or others performing similar services and any
accrued interest or dividends in connection with such issue or sale,
(ii) insofar as it consists of consideration (including securities)
other than cash, be computed at the Fair Value thereof at the time of such issue
or sale, after deducting any expenses paid or incurred by the Company for any
commissions or compensation paid or concessions or discounts allowed to
underwriters, dealers or others performing similar services and any accrued
interest or dividends in connection with such issue or sale, and
(iii) in case Additional Shares of Common Stock are issued or sold or
Convertible Securities are issued, sold, granted or assumed together with other
stock or securities or other assets of the Company for a consideration which
covers both, be the proportion of such consideration so received, computed as
provided in subdivisions (i) and (ii) above, allocable to such Additional Shares
of Common Stock or Convertible Securities, as the case may be.
(b) Subject to the proviso contained in Section 6.04, all Additional
Shares of Common Stock, Options or Convertible Securities issued in payment of
any dividend or other distribution on any class of stock of the Company shall be
deemed to have been issued without consideration.
(c) Additional Shares of Common Stock deemed to have been issued for
consideration pursuant to Section 6.03, relating to Options and Convertible
Securities, shall be deemed to have been issued for a consideration per share
determined by dividing
Warrant Agreement
-----------------
<PAGE>
17
(i) the total amount, if any, received and receivable by the Company
as consideration for the issue, sale, grant or assumption of the Options or
Convertible Securities in question, plus the minimum aggregate amount of
additional consideration (as set forth in the instruments relating thereto,
without regard to any provision contained therein for a subsequent adjustment of
such consideration) payable to the Company upon the exercise in full of such
Options or the conversion or exchange of such Convertible Securities or, in the
case of Options for Convertible Securities, the exercise of such Options for
Convertible Securities and the conversion or exchange of such Convertible
Securities, in each case computing such consideration as provided in the
foregoing subdivision (a), by
(ii) the maximum number of shares of Common Stock (as set forth in the
instruments relating thereto, without regard to any provision contained therein
for a subsequent adjustment of such number) issuable upon the exercise of such
Options or the conversion or exchange of such Convertible Securities.
(d) Additional Shares of Common Stock issued or deemed to have been
issued pursuant to the operation of anti-dilution provisions applicable to
Convertible Securities, Options or other securities of the Company (either as a
result of the adjustments provided for by the Warrants or otherwise) shall be
deemed to have been issued without consideration.
6.06 Adjustments for Combinations, Subdivisions, etc. In case the
------------------------------------------------
outstanding shares of Common Stock shall be combined or consolidated into a
lesser number of shares of Common Stock (by reclassification or otherwise) or
shall be subdivided into a greater number of shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in Common Stock),
the Exercise Price in effect immediately prior to such combination or
consolidation or subdivision shall, concurrently with the effectiveness of such
combination or consolidation or subdivision, be proportionately increased or
decreased, as the case may be.
6.07 Dilution in Case of Other Securities. In case any Other
------------------------------------
Securities shall be issued or sold or shall become subject to issue or sale upon
the conversion or exchange of any stock (or Other Securities) of the Company (or
any issuer of Other Securities or any other Person referred to in Section 6.08)
or to subscription, purchase or other acquisition pursuant to any Options issued
or granted by the Company (or any such other issuer or Person) for a
consideration such as to dilute, on a basis consistent with the standards
established in the other provisions of this Section 6, the purchase rights
granted by the Warrants, then, and in each such case, the computations,
adjustments and readjustments provided for in this Section 6 with respect to the
Exercise Price shall be made as nearly as possible in the manner so provided and
applied to determine the amount of Other Securities from time to time receivable
upon the exercise of the Warrants, so as to protect the holders of the Warrants
against the effect of such dilution.
6.08 Consolidation, Merger, Sale of Assets, Reorganization etc.
----------------------------------------------------------
Warrant Agreement
-----------------
<PAGE>
18
(a) General Provisions. In case the Company, after the Initial Date,
------------------
(i) shall consolidate with or merge into any other Person and shall not be the
continuing or surviving corporation of such consolidation or merger, or (ii)
shall permit any other Person to consolidate with or merge into the Company and
the Company shall be the continuing or surviving Person but, in connection with
such consolidation or merger, Common Stock or Other Securities shall be changed
into or exchanged for cash, stock or other securities of any Person or any other
property, or (iii) shall transfer all or substantially all of its properties and
assets to any other Person, or (iv) shall effect a capital reorganization or
reclassification of Common Stock or Other Securities (other than a capital
reorganization or reclassification resulting in the issue of Additional Shares
of Common Stock for which adjustment in the Exercise Price is provided in
Section 6.02(a) or 6.02(b)), then, and in the case of each such transaction, the
Company shall give written notice thereof to each Holder of Warrants not less
than 45 days prior to the consummation thereof and proper provision shall be
made so that, upon the basis and the terms and in the manner provided in this
Section 6.08, each Holder of Warrants, upon the exercise thereof at any time
after the consummation of such transaction, shall be entitled to receive, at the
aggregate Exercise Price in effect at the time of such consummation for all
Common Stock (or Other Securities) issuable upon such exercise immediately prior
to such consummation, in lieu of the Common Stock (or Other Securities) issuable
upon such exercise prior to such consummation, the following:
the highest amount of cash, securities or other property to which such
Holder would actually have been entitled as a shareholder upon such
consummation if such Holder had exercised such Warrants immediately prior
thereto, subject to adjustments (subsequent to such consummation) as nearly
equivalent as possible to the adjustments provided for in this Section 6,
provided that if a purchase, tender or exchange offer shall have been made
--------
to and accepted by the holders of Common Stock under circumstances in
which, upon completion of such purchase, tender or exchange offer, the
maker thereof, together with members of any group (within the meaning of
Rule 13d-5(b)(l) under the Exchange Act) of which such maker is a part, and
together with any affiliate or associate of such maker (within the meaning
of Rule 12b-2 under the Exchange Act) and any members of any such group of
which any such affiliate or associate is a part, own beneficially (within
the meaning of Rule 13d-3 under the Exchange Act) more than 50% of the
outstanding shares of Common Stock, and if any Holder of Warrants so
designates in such notice given to the Company, such Holder shall be
entitled to receive the highest amount of cash, securities or other
property to which such Holder would actually have been entitled as a
shareholder if such Holder had exercised its Warrants prior to the
expiration of such purchase, tender or exchange offer, accepted such offer
and all of the Common Stock held by such Holder had been purchased pursuant
to such purchase, tender or exchange offer, subject to adjustments (from
and after the consummation of such purchase, tender or exchange offer) as
nearly equivalent as possible to the adjustments provided for in this
Section 6; provided that, if any of the transactions described in
--------
subdivisions (i) through (iv) of this Section 6.08(a) involve the issuance
of Voting Common Stock, the Company shall not effect any of such
transactions unless, immediately after the date of the consummation of such
Warrant Agreement
-----------------
<PAGE>
19
transaction, the Acquiring Person or its Parent is required to file, by
virtue of having an outstanding class of Voting Common Stock (or equivalent
equity interests), reports with the Commission pursuant to section 13 or
section 15(d) of the Exchange Act, and such Voting Stock (or equivalent
equity interest) is listed or admitted to trading on a national securities
exchange or is included for trading on the NASDAQ National Market or Small
Cap Market.
(b) Assumption of Obligations. Notwithstanding anything contained in
-------------------------
this Agreement to the contrary, the Company will not effect any of the
transactions described in subdivisions (i) through (iv) of Section 6.08(a)
unless, prior to the consummation thereof, each Person (other than the Company)
which may be required to deliver any cash, stock or other securities or other
property upon the exercise of any Warrants as provided herein shall assume, by
written instrument delivered to, and reasonably satisfactory to, the Holder of
such Warrants, (i) the obligations of the Company under this Agreement (and if
the Company shall survive the consummation of such transaction, such assumption
shall be in addition to, and shall not release the Company from, any continuing
obligations of the Company under this Agreement) and (ii) the obligation to
deliver to such holder such cash, stock or other securities or other property
as, in accordance with the foregoing provisions of this Section 6.08, such
Holder may be entitled to receive.
6.09 Other Dilutive Events. In case any event shall occur as to
---------------------
which the provisions of this Section 6 is not strictly applicable but the
failure to make any adjustment would not fairly protect the purchase rights
represented by the Warrants in accordance with the essential intent and
principles of this Section 6, then, in each such case, an adjustment on a basis
consistent with the essential intent and principles established in this Section
6, necessary to preserve, without dilution, the purchase rights represented by
the Warrants shall be made.
6.10 No Dilution or Impairment. The Company will not, by amendment
-------------------------
of its articles of incorporation or through any consolidation, merger,
reorganization, transfer of assets, dissolution, issue or sale of securities or
any other voluntary action, avoid or seek to avoid the observance or performance
of any of the terms of this Agreement, 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
holders of Warrants against dilution or other impairment. Without limiting the
generality of the foregoing, the Company (a) will not permit the par value of
any shares of stock receivable upon the exercise of Warrants to exceed the
amount payable therefor upon such exercise, and, if the Exercise Price in effect
at any time shall be reduced to such par value, the Company will promptly cause
the par value of such shares to be reduced to $0.01, (b) will take all such
action as may be necessary or appropriate in order that the Company may validly
and legally issue fully paid and nonassessable shares of stock upon the exercise
of all of the Warrants from time to time outstanding, (c) will not take any
action which
Warrant Agreement
-----------------
<PAGE>
20
results in any adjustment of the Exercise Price if the total number of shares of
Common Stock (or Other Securities) issuable after the action upon the exercise
of all of the Warrants would exceed the total number of shares of Common Stock
(or Other Securities) then authorized by the Company's certificate of
incorporation and available for the purpose of issue upon such exercise, (d)
will not issue any capital stock of any class which has the right to more than
one vote per share and (e) will not issue any security other than Common Stock
unless the rights of the holders thereof shall be limited to a fixed sum or
percentage of par value or a sum determined by reference to a formula based on a
published index of interest rates, an interest rate publicly announced by a
financial institution or a similar indicator of interest rates in respect of
interest or participation in dividends and to a fixed sum or percentage of par
value as principal or in any distribution of assets.
6.11 Accountants' Report as to Adjustments. In each case of any
-------------------------------------
adjustment or readjustment in the shares of Warrant Stock (or Other Securities)
issuable upon the exercise of the Warrants, the Company at its expense will
promptly compute such adjustment or readjustment in accordance with the terms of
the Warrants and cause independent public accountants of recognized national
standing selected by the Company (which may be the regular auditors of the
Company) to verify such computation and prepare a report setting forth such
adjustment or readjustment and showing in reasonable detail the method of
calculation thereof and the facts upon which such adjustment or readjustment is
based, including without limitation a statement of (a) the consideration
received or to be received by the Company for any Additional Shares of Common
Stock issued or sold or deemed to have been issued, (b) the number of shares of
Common Stock outstanding or deemed to be outstanding, and (c) the Exercise Price
in effect immediately prior to such issue or sale and as adjusted and readjusted
on account thereof. The Company will forthwith mail a copy of each such report
to each holder of a Warrant and will, upon the written request at any time of
any Holder of a Warrant, furnish to such Holder a like report setting forth the
Exercise Price at the time in effect and showing in reasonable detail how it was
calculated. The Company will also keep copies of all such reports at its
principal office and will cause the same to be available for inspection at such
office during normal business hours by any Holder of a Warrant or any
prospective purchaser of a Warrant designated by the Holder thereof.
6.12 Notices of Corporate Action. In the event of
---------------------------
(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 any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right, or
(b) any capital reorganization of the Company, any reclassification or
recapitalization of the capital stock of the Company or any consolidation or
merger involving the
Warrant Agreement
-----------------
<PAGE>
21
Company and any other Person or any transfer of all or substantially all the
assets of the Company to any other Person, or
(c) any voluntary or involuntary dissolution, liquidation or winding-
up of the Company,
the Company will mail to each Holder of a Warrant a notice specifying (i) the
date or expected date on which any such record is to be taken for the purpose of
such dividend, distribution or right, and the amount and character of such
dividend, distribution or right, and (ii) the date or expected date on which any
such reorganization, reclassification, recapitalization, consolidation, merger,
transfer, dissolution, liquidation or winding-up is to take place and the time,
if any such time is to be fixed, as of which the holders of record of Common
Stock (or Other Securities) shall be entitled to exchange their shares of Common
Stock (or Other Securities) for the securities or other property deliverable
upon such reorganization, reclassification, recapitalization, consolidation,
merger, transfer, dissolution, liquidation or winding-up. Such notice shall be
mailed at least 20 days prior to the date therein specified, in the case of any
date referred to in the foregoing subdivision (i), and at least 45 days prior to
the date therein specified, in the case of the date referred to in the foregoing
subdivision (ii).
SECTION 7. Holders' Rights.
---------------
7.01 Delivery Expenses. If any Holder surrenders any certificate for
-----------------
Warrants or Warrant Stock to the Company or a transfer agent of the Company for
exchange for instruments of other denominations or registered in another name or
names, the Company shall cause such new instruments to be issued and shall pay
the cost of delivering to or from the office of such Holder from or to the
Company or its transfer agent, duly insured, the surrendered instrument and any
new instruments issued in substitution or replacement for the surrendered
instrument.
7.02 Taxes. The Company shall pay all taxes (other than federal,
-----
state or local income taxes) which may be payable in connection with the
execution and delivery of this Agreement or the issuance of the Warrants and
Warrant Stock hereunder or in connection with any modification of this Agreement
or the Warrants and shall hold each Holder harmless without limitation as to
time against any and all liabilities with respect to all such taxes. The
obligations of the Company under this Section 7.02 shall survive any redemption,
repurchase or acquisition of Warrants or Warrant Stock by the Company, any
termination of this Agreement, and any cancellation or termination of the
Warrants.
7.03 Replacement of Instruments. Upon receipt by the Company of
--------------------------
evidence reasonably satisfactory to it of the ownership of and the loss, theft,
destruction or mutilation of any certificate or instrument evidencing any
Warrants or Warrant Stock, and
Warrant Agreement
-----------------
<PAGE>
22
(a) in the case of loss, theft or destruction, of indemnity reasonably
satisfactory to it (provided that, if the Company's Common Stock is not at the
--------
time publicly traded and the owner of the same is Seabury or an institutional
lender or Seabury, its own agreement of indemnity shall be deemed to be
satisfactory), or
(b) in the case of mutilation, upon surrender or cancellation thereof,
the Company, at its expense, shall execute, register and deliver, in lieu
thereof, a new certificate or instrument for (or covering the purchase of) an
equal number of Warrants or Warrant Stock.
7.04 Indemnification. The Company shall indemnify and hold harmless
---------------
each of Seabury and the Holders and each of their respective directors,
officers, employees, shareholders, members, Affiliates and agents (each, an
"indemnified person") on demand from and against any and all losses, claims,
- -------------------
damages, liabilities (or actions or other proceedings commenced or threatened in
respect thereof) and expenses that arise out of, result from, or in any way
relate to, this Agreement or the Warrants or Warrant Stock, or in connection
with the other transactions contemplated hereby and thereby, other than such
losses, claims, damages, liabilities and expenses relating to the value of the
Warrants or Warrant Stock or other securities issued to Seabury or the Holders
in connection with this Agreement, the Warrants or the Warrant Stock or the
other transactions contemplated hereby or thereby unless such losses, claims,
damages, liabilities, and expenses are directly related to a breach by the
Company of this Agreement or other agreements entered into in connection with
the other transactions contemplated hereby or thereby, and to reimburse each
indemnified person, upon its demand, for any legal or other expenses incurred in
connection with investigating, defending or participating in the defense of any
such loss, claim, damage, liability, action or other proceeding (whether or not
such indemnified person is a party to any action or proceeding out of which any
such expenses arise), other than any of the foregoing claimed by any indemnified
person to the extent there has been a final judicial determination not subject
to appeal that it was incurred by reason of the gross negligence or willful
misconduct of such indemnified person. No indemnified person shall be
responsible or liable to either the Company or any other Person for any damages
which may be alleged as a result of or relating to this Agreement or the
Warrants or Warrant Stock (other than in connection with a breach of this
Agreement), or in connection with the other transactions contemplated hereby and
thereby other than any of the foregoing claimed by any indemnified person to the
extent there has been a final judicial determination not subject to appeal that
it was incurred by reason of the gross negligence or willful misconduct of such
indemnified person.
7.05 Inspection Rights. From and after the date hereof, the Company
-----------------
shall afford any Holder or its authorized agents, access, at reasonable times,
upon reasonable prior notice, (i) to inspect the books and records of the
Company, (ii) to discuss with management of the Company the business and affairs
of the Company and (iii) to inspect the properties of the Company.
Warrant Agreement
-----------------
<PAGE>
23
SECTION 8. Other Covenants of Company. The Company agrees with
--------------------------
each Holder that, so long as any of the Warrants and/or Warrant Stock shall be
outstanding:
8.01 Availability of Information. The Company will cooperate with
---------------------------
each holder of any Restricted Securities in supplying such information as may be
necessary for such holder to complete and file any information reporting forms
presently or hereafter required by the Commission as a condition to the
availability of an exemption from the Securities Act for the sale of any
Restricted Securities. The Company will furnish to each holder of any Warrants,
promptly upon their becoming available, copies of all financial statements,
reports, notices and proxy statements sent or made available generally by the
Company to its stockholders, and copies of all regular and periodic reports and
all registration statements and prospectuses filed by the Company with the NASD,
any securities exchange or with the Commission.
8.02 Repurchases and Redemption. Except as otherwise specifically
--------------------------
provided herein, and other than repurchases or redemptions of shares of Common
Stock from management pursuant to the terms set forth in Annex 2 hereto, the
-------
Company shall not effect any repurchase or redemption of shares of Common Stock,
or Options or Convertible Securities (other than pursuant to their respective
terms), and shall cause its Subsidiaries not to effect any repurchase or
redemption of shares of Common Stock, or Options or Convertible Securities
(other than pursuant to their respective terms), from any Shareholder or holder
of Options or Convertible Securities, without the prior written consent of the
Requisite Holders of Warrants.
8.03 Transactions with Affiliates. Except as expressly permitted by
----------------------------
this Agreement, the Company shall not, nor shall it permit its Subsidiaries to,
directly or indirectly, sell, lease or otherwise transfer any property or assets
to, or purchase, lease or otherwise acquire any property or assets from, or
otherwise engage in any other transactions with or for the benefit of, any of
its Affiliates, except (a) in the ordinary course of business at prices and on
terms and conditions not less favorable to the Company or such Subsidiary than
could be obtained on an arm's-length basis from unrelated third parties, (b)
transactions between or among the Company and its wholly-owned Subsidiaries not
involving any other Affiliate and (c) any transactions or arrangements existing
on the date hereof.
8.04 Restrictions on Performance. The Company shall not at any time
---------------------------
after the Initial Date enter into an agreement or other instrument limiting in
any manner its ability to perform its obligations under this Agreement or the
Warrants, or making such performance or the issuance of Warrant Stock upon the
exercise of any Warrant a default under any such agreement or instrument.
8.05 Modification of Other Equity Documents. The Company shall not
--------------------------------------
amend or consent to any modification, supplement or waiver of any provision of
any Other Equity Documents in any manner which would have an adverse effect on
the Holders, in each case
Warrant Agreement
-----------------
<PAGE>
24
without the prior written consent of the Requisite Holders of Warrants. Without
limiting the generality of the foregoing, the Company shall not amend, or
consent to any modification, supplement or waiver of any provision of any Other
Equity Documents in a way which would (i) restrict the transferability of the
Warrants and the Warrant Stock, (ii) restrict the transferability of the rights
of any Holder in this Agreement to any transferee of all or a portion of such
Holder's Warrants and/or Warrant Stock or (iii) require any consent or other
approval of any Person to the exercise of the Warrants by any Holder, the
issuance of Warrant Stock upon such exercise or the admission of such Holder as
a member of the Company upon such exercise. Anything in the Rights Agreement to
the contrary notwithstanding, on issuance of shares of Common Stock on exercise
of Warrants prior to the redemption or exercise of Rights (as defined in the
Rights Agreement), the Company shall issue Rights, or after the Distribution
Date (as therein) Rights Certificates, in connection with such exercise.
8.06 Ownership of Subsidiaries. The Company will, and will cause
-------------------------
each of its Subsidiaries to take such action as will be necessary from time to
time to ensure that the Company or a Subsidiary owns 100% of each class of
capital stock of each Subsidiary.
8.07 Reservation of Stock. etc. The Company will at all times
--------------------------
reserve and keep available, solely for issuance and delivery upon exercise of
the Warrants, the number of shares of Warrant Stock (or Other Securities) from
time to time issuable upon exercise of all Warrants at the time outstanding. All
shares of Common Stock (or Other Securities) shall be duly authorized and, when
issued upon such exercise, shall be validly issued and, in the case of shares,
fully paid and nonassessable with no liability on the part of the holders
thereof.
8.08 Listing on Securities Exchanges. The Company will list on each
-------------------------------
national securities exchange on which any Common Stock may at any time be
listed, subject to official notice of issuance upon exercise of the Warrants,
and will maintain such listing of, all shares of Warrant Stock from time to time
issuable upon exercise of the Warrants. The Company will also so list on each
national securities exchange, and will maintain such listing of, any Other
Securities if at the time any securities of the same class shall be listed on
such national securities exchange by the Company.
SECTION 9. Miscellaneous.
-------------
9.01 Waiver. No failure on the part of any Holder to exercise and no
------
delay in exercising, and no course of dealing with respect to, any right, power
or privilege under this Agreement or the Warrants shall operate as a waiver
thereof, nor shall any single or partial exercise of any right, power or
privilege under this Agreement or the Warrant preclude any other or further
exercise thereof or the exercise of any other right, power or privilege. The
remedies provided herein are cumulative and not exclusive of any remedies
provided by law.
9.02 Notices.
-------
Warrant Agreement
-----------------
<PAGE>
25
(a) All notices, requests and other communications provided for herein
and the Warrants (including any waivers or consents under this Agreement and the
Warrants) shall be given or made in writing,
(i) if to the Company:
Frontier Airlines, Inc.
12015 East 46th Avenue
Denver, Colorado 80239
Attention: Arthur T. Voss, General Counsel
Telephone No.: (303) 371-7400
Fax No.: (303) 371-9669
(ii) if to Seabury:
The Seabury Group, LLC
135 West 50th Street, Suite 1820
New York, New York 10020
Attention: John Luth
Telephone No.: (212) 541-7300
Fax No.: (212) 541-6334
(iii) if to any other Person who is the registered Holder of any
Warrants or Warrant Stock, to the address for such Holder as it
appears in the stock or warrant ledger of the Company;
or, in the case of any Holder, at such other address as shall be designated by
such party in a notice to the Company; or, in the case of the Company, at such
other address as the Company may designate in a notice to Seabury and all other
Holders.
(b) All such notices, requests and other communications shall be: (i)
personally delivered, sent by courier guaranteeing overnight delivery or sent by
registered or certified mail, return receipt requested, postage prepaid, in each
case given or addressed as aforesaid; and (ii) effective upon receipt.
9.03 Expenses, Etc. The Company agrees to pay or reimburse Seabury
--------------
and, if applicable, the Holders for: (a) all reasonable out-of-pocket costs and
expenses of Seabury and the Holders incurred in connection with the negotiation,
preparation, execution and delivery of this Agreement and the issuance of
Warrants hereunder; and (b) all reasonable costs and expenses
Warrant Agreement
-----------------
<PAGE>
26
of Seabury and the Holders (including reasonable legal fees and expenses) in
connection with (i) any default by the Company hereunder or under the Warrants
or any enforcement proceedings resulting therefrom, and (ii) the enforcement of
this Section 9.03.
9.04 Amendments, Etc. Except as otherwise expressly provided in this
----------------
Agreement, any provision of this Agreement may be amended or modified only by an
instrument in writing signed by the Company and the Requisite Holders of
Warrants and, to the extent any such amendment or modification could have an
adverse effect on the rights hereunder of the holders of Warrant Stock, a
majority of such holders; provided, however, that no such amendment or waiver
-------- -------
shall, without the written consent of all Holders of Warrants and Warrant Stock,
amend this Section 9.04 or the definition of "Requisite Holders of Warrants".
9.05 Successors and Assigns. This Agreement shall be binding upon
----------------------
and inure to the benefit of the parties hereto and their respective successors
and permitted assigns including, without limitation, all Holders of Warrants.
9.06 Survival. All representations and warranties made by the
--------
Company herein or in any certificate or other instrument delivered by it or on
its behalf under this Agreement shall be considered to have been relied upon by
Seabury and shall survive the issuance of the Warrants or the Warrant Stock
regardless of any investigation made by or on behalf of Seabury. All statements
in any such certificate or other instrument so delivered shall constitute
representations and warranties by the Company hereunder. All representations and
warranties made by Seabury herein shall be considered to have been relied upon
by the Company and shall survive the issuance to Seabury of the Warrants or the
Warrant Stock regardless of any investigation made by the Company or on its
behalf.
9.07 Specific Performance. Damages in the event of breach of this
--------------------
Agreement by a Holder or the Company would be difficult, if not impossible, to
ascertain, and it is therefore agreed that each Holder and the Company, in
addition to and without limiting any other remedy or right it may have, will
have the right to an injunction or other equitable relief in any court of
competent jurisdiction, enjoining any such breach, and enforcing specifically
the terms and provisions hereof, and each Holder and the Company hereby waives
any and all defenses it may have on the ground of lack of jurisdiction or
competence of the court to grant such an injunction or other equitable relief.
The existence of this right will not preclude the Holders or the Company from
pursuing any other rights and remedies at law or in equity which the Holders or
the Company may have.
9.08 WAIVER OF JURY TRIAL. THE COMPANY AND SEABURY HEREBY KNOWINGLY,
--------------------
VOLUNTARILY, AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE TO A TRIAL BY JURY
IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF , UNDER, OR IN
CONNECTION WITH, THIS AGREEMENT, THE WARRANTS OR ANY OTHER DOCUMENT DELIVERED IN
Warrant Agreement
-----------------
<PAGE>
27
CONNECTION HEREWITH, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS
(WHETHER VERBAL OR WRITTEN), OR ACTIONS OF THE COMPANY OR SEABURY RELATING
HERETO.
9.09 Limitation of Liability. No provision hereof, in the absence of
-----------------------
affirmative action by any Holder to purchase shares of Common Stock, and no mere
enumeration herein of the rights or privileges of the Holder, shall give rise to
any liability of the Holder for the Exercise Price or as a shareholder of the
Company, whether such liability is asserted by the Company, by any creditor of
the Company or any other Person.
9.10 Captions. The captions and section headings appearing herein
--------
are included solely for convenience of reference and are not intended to affect
the interpretation of any provision of this Agreement.
9.11 Counterparts. This Agreement may be executed in any number of
------------
counterparts, all of which taken together shall constitute one and the same
instrument and any of the parties hereto may execute this Agreement by signing
any such counterpart signature page or counterpart.
9.12 Governing Law. This Agreement shall be governed by, and
-------------
construed in accordance with, the law of the State of New York without giving
effect to the conflicts of law principles thereof.
9.13 Severability. If any provision of this Agreement is held to be
------------
illegal, invalid or unenforceable under any present or future law, and if the
rights or obligations of any party hereto under this Agreement will not be
materially and adversely affected thereby, (a) such provision will be fully
severable, (b) this Agreement will be construed and enforced as if such illegal,
invalid or unenforceable provision had never comprised a part hereof, (c) the
remaining provisions of this Agreement will remain in full force and effect and
will not be affected by the illegal, invalid or unenforceable provision or by
its severance herefrom and (d) in lieu of such illegal, invalid or unenforceable
provision, there will be added automatically as a part of this Agreement a
legal, valid and enforceable provision as similar in terms to such illegal,
invalid or unenforceable provision as may be possible.
9.14 Entire Agreement. This Agreement supersedes all prior
----------------
discussions and agreements between the parties with respect to the subject
matter hereof, and together with the Warrant and the Registration Rights
Agreement contains the sole and entire agreement between the parties hereto with
respect to the subject matter hereof.
Warrant Agreement
-----------------
<PAGE>
28
IN WITNESS WHEREOF, the parties hereto have duly executed this Warrant
Agreement as of the date first above written.
FRONTIER AIRLINES, INC.
By ____________________
Name:
Title:
THE SEABURY GROUP, LLC
By _____________________
Name:
Title:
Warrant Agreement
-----------------
<PAGE>
Annex 1
to
Warrant Agreement
FORM OF ASSIGNMENT
------------------
(To be executed by the registered holder hereof)
FOR VALUE RECEIVED the undersigned registered owner of this Warrant
hereby sells, assigns and transfers unto the assignee named below all the rights
of the undersigned under this Warrant with respect to the number of shares of
Warrant Stock covered thereby set forth hereinbelow unto:
Number of Shares
Name of Assignee Address of Common Stock
- --------------------------------------------------------------------------------
Dated:__________________
________________________________
Signature of Registered Holder
________________________________
Name of Registered Holder
(Please Print)
Witness:
______________________
<PAGE>
Annex 2
to
Warrant Agreement
REPURCHASE FROM MANAGEMENT
--------------------------
<PAGE>
SCHEDULE 3.06
-------------
<PAGE>
EXHIBIT A
WARRANT
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS, AND ACCORDINGLY, SUCH SECURITIES MAY NOT BE TRANSFERRED,
SOLD OR OTHERWISE DISPOSED OF EXCEPT IN COMPLIANCE WITH THE REGISTRATION OR
QUALIFICATION PROVISIONS OF APPLICABLE FEDERAL AND STATE SECURITIES LAWS OR
APPLICABLE EXEMPTIONS THEREFROM.
No. of Shares of Common Stock: 548,000 Warrant No. Sea-1
WARRANT
to Purchase Common Stock of
FRONTIER AIRLINES, INC.
THIS IS TO CERTIFY THAT THE SEABURY GROUP, LLC ("Seabury"), or its
-------
registered assigns (the "Holder"), is entitled to purchase in whole or in part
------
from FRONTIER AIRLINES, INC., a Colorado corporation (the "Company"), at any
-------
time and from time to time on or after the first anniversary of the date hereof,
but not later than 5:00 p.m., New York City time, on May 26, 2003 (the
"Expiration Date"), 548,000 shares of common stock of the Company (the "Common
- ----------------
Stock") at a purchase price of $3.00 per share (the "Exercise Price"), subject
--------------
to the terms and conditions set forth herein and in the Warrant Agreement dated
as of May 26, 1998 between the Company and Seabury (the "Warrant Agreement"),
-----------------
each such purchase of Common Stock to be made, and to be deemed effective for
the purpose of determining the date of exercise, only upon surrender of this
Warrant to the Company at 12015 East 46th Avenue, Denver, Colorado 80239, with
the Form of Exercise attached hereto, or a reasonable facsimile thereof (the
"Exercise Notice"), duly completed and signed, and upon payment in full to the
- ----------------
Company of the Exercise Price by one or more of the following: (i) in cash or
(ii) by certified or official bank check to the order of the Company or (iii) by
wire transfer of immediately available funds to an account designated by the
Company, or (iv) in the event the then Current Market Price is greater than
$5.00, by delivery of this Warrant Certificate to the Company for cancellation
in accordance with the following formula: in exchange for each share of Common
Stock issuable on exercise of each Warrant represented by this Warrant
Certificate that is being exercised, such holder shall receive such number of
shares of Common Stock as is equal to the product of (x) the number of shares of
Common Stock issuable upon exercise of the Warrants being exercised at such time
multiplied by (y) a fraction, the numerator of which is the Current Market Price
per share of Common Stock at such time minus the Exercise Price per share of
Common Stock at such time, and the denominator of which is the Current Market
Price per share of Common Stock at such time. For purposes of this Warrant,
"Current Market Price", shall mean, with respect to a share of Common Stock as
- ---------------------
of any date, the average of the daily market prices for each day during the 20
consecutive trading days commencing 30 Business Days before such date as of
which such a price can be established in the manner set forth below. The market
price for each such Business
<PAGE>
Day shall be the last sale price on such day as reported in the Consolidated
Last Sale Reporting System or as quoted in the National Association of
Securities Dealers Automated Quotation System, or if such last sale price is not
available, the average of the closing bid and asked prices as reported in either
such system, or in any other case the higher bid price quoted for such day as
reported by The Wall Street Journal and the National Quotation Bureau pink
sheets.
Upon receipt thereof, the Company shall, as promptly as practicable
and in any event within five Business Days thereafter, execute or cause to be
executed and deliver or cause to be delivered to the Holder a stock certificate
or certificates representing the aggregate number of shares of Common Stock
issuable upon such exercise ("Warrant Stock") and any other property to which
-------------
such Holder is entitled.
The stock certificate or certificates for Warrant Stock so delivered
shall be in such denominations as may be specified in the Exercise Notice and
shall be registered in the name of the Holder or such other name or names as
shall be designated in such Exercise Notice. Such stock certificate or
certificates shall be deemed to have been issued and the Holder or any other
Person so designated to be named therein shall be deemed to have become a holder
of record of such shares, including, to the extent permitted by law and to the
extent such shares represent voting stock of the Company, the right to vote such
shares or to consent or to receive notice as a shareholder, as of the date on
which the last of the Exercise Notice, payment of the Exercise Price and this
Warrant is received by the Company as aforesaid. If this Warrant shall have
been exercised only in part, the Company shall, at the time of delivery of the
certificate or certificates representing Warrant Stock and other securities,
execute and deliver to the Holder a new Warrant evidencing the rights of the
Holder to purchase the unpurchased Common Stock called for by this Warrant,
which new Warrant shall in all other respects be identical with this Warrant,
or, at the request of the Holder, appropriate notation may be made on this
Warrant and the same returned to the Holder.
All shares of Common Stock issuable upon the exercise of this Warrant
shall, upon payment therefor in accordance herewith, be duly and validly issued,
fully paid and nonassessable and free and clear of any liens, charges or other
encumbrances of any nature.
The Exercise Price and the number of shares of Common Stock issuable
upon exercise of this Warrant are subject to adjustment in certain events as
provided in the Warrant Agreement.
The Company shall not be required to issue a fractional share of
Common Stock upon exercise of this Warrant. As to any fraction of a share which
the Holder hereof would otherwise be entitled to purchase upon such exercise,
the Company shall pay a cash adjustment in respect of such final fraction in an
amount equal to the same fraction of the Current Market Price per share of
Common Stock on the date of exercise.
The Warrants and the Warrant Stock shall be transferable on or after
the date hereof subject only to applicable securities laws. Upon any such
transfer a new Warrant or new Warrants of different denominations, representing
in the aggregate a like number of Warrants, will
<PAGE>
be issued to the transferee. Every Holder hereof, by accepting this Warrant,
consents and agrees with the Company and with every subsequent Holder of this
Warrant that until due presentation for the registration of transfer of this
Warrant on the Warrant register maintained by the Company, the Company may deem
and treat the Person in whose name this Warrant is registered as the absolute
and lawful owner for all purposes whatsoever and the Company shall not be
affected by any notice to the contrary.
Nothing contained in the Warrant Agreement or in this Warrant shall be
construed as conferring on the holder of any Warrants or his or her transferee
any rights whatsoever as a shareholder of the Company.
No provision hereof, in the absence of affirmative action by the
Holder hereof to purchase shares of Common Stock, and no mere enumeration herein
of the rights or privileges of such Holder, shall give rise to any liability of
such Holder for the Exercise Price or as a shareholder of the Company, whether
such liability is asserted by the Company, by any creditor of the Company or any
other Person.
Any notices and other communications pursuant to the provisions hereof
shall be sent in accordance with the Warrant Agreement.
This Warrant shall be deemed a contract made under the laws of the
State of New York and for all purposes shall be construed in accordance with the
laws of the State of New York without giving effect to the principles of
conflicts of laws thereof.
Each term used herein without definition shall have the meaning
assigned thereto in the Warrant Agreement.
<PAGE>
IN WITNESS WHEREOF, the Company has duly executed this Warrant.
Dated: May 26, 1998.
FRONTIER AIRLINES, INC.
By___________________________
Name: Samuel D. Addoms
Title: President
<PAGE>
Annex A
to
Warrant
FORM OF EXERCISE
----------------
(To be executed by the registered holder hereof)
The undersigned registered owner of this Warrant irrevocably exercises
this Warrant for the purchase of Common Stock of Frontier Airlines, Inc., and
herewith makes payment therefor, all at the price and on the terms and
conditions specified in this Warrant, and requests that (i) certificates and/or
other instrument covering such Common Stock be issued in accordance with the
instructions given below and (ii) if such Common Stock shall not include all of
the Common Stock to which the Holder is entitled under this Warrant, that a new
Warrant of like tenor and date for the unpurchased balance of the Common Stock
issuable hereunder be delivered to the undersigned.
Dated: _________________
________________________________
(Signature of Registered Holder)
Instructions for issuance and
registration of Common Stock:
_____________________________
Name of Registered Holder
(please print)
Social Security or Other Identifying
Number:_____________________________
Please deliver certificate to
the following address:
_____________________________________
Street
_____________________________________
City, State and Zip Code
<PAGE>
EXHIBIT 10.33
FRONTIER AIRLINES, INC.
REGISTRATION RIGHTS AGREEMENT
Dated as of May 26, 1998
<PAGE>
TABLE OF CONTENTS
-----------------
THIS TABLE OF CONTENTS IS NOT PART OF THE AGREEMENT TO WHICH IT IS ATTACHED
BUT IS INSERTED FOR CONVENIENCE ONLY.
Page
No.
----
1. Requested Registrations................................................ 1
-----------------------
(a) Registration Requests....................................... 1
---------------------
(b) Limitations on Requested Registrations...................... 2
--------------------------------------
(c) Registration Statement Form................................. 2
---------------------------
(d) Registration Expenses....................................... 2
---------------------
(e) Priority in Cutback Registrations........................... 2
---------------------------------
2. Piggyback Registrations................................................ 2
-----------------------
(a) Right to Include Registrable Securities..................... 2
---------------------------------------
(b) Registration Expenses....................................... 3
---------------------
(c) Priority in Cutback Registrations........................... 3
---------------------------------
3. Registration Procedures................................................ 4
-----------------------
4. Underwritten Offerings................................................. 8
----------------------
(a) Underwritten Requested Offerings............................ 8
--------------------------------
(b) Underwritten Piggyback Offerings............................ 8
--------------------------------
5. Indemnification........................................................ 9
---------------
(a) Indemnification by the Company.............................. 9
------------------------------
(b) Indemnification by the Sellers.............................. 10
------------------------------
(c) Notices of Claims, etc...................................... 10
-----------------------
(d) Contribution................................................ 11
------------
(e) Other Indemnification....................................... 12
---------------------
(f) Indemnification Payments.................................... 12
------------------------
6. Covenants Relating to Rule 144......................................... 12
------------------------------
7. Other Registration Rights.............................................. 12
-------------------------
(a) No Existing Agreements...................................... 12
----------------------
(b) Future Agreements........................................... 12
-----------------
8. Definitions............................................................ 13
-----------
9. Miscellaneous......................................................... 16
-------------
(a) Notices..................................................... 16
-------
(b) Entire Agreement............................................ 17
----------------
(c) Amendment................................................... 17
---------
(d) Waiver...................................................... 17
------
(e) Consents and Waivers by Holders of Registrable Securities... 17
----------------------------------------------------------
(f) No Third Party Beneficiary.................................. 18
--------------------------
<PAGE>
(g) Successors and Assigns...................................... 18
----------------------
(h) Headings.................................................... 18
--------
(i) Invalid Provisions.......................................... 18
------------------
(j) Remedies.................................................... 18
--------
(k) Governing Law............................................... 18
-------------
(l) Counterparts................................................ 19
------------
-ii-
<PAGE>
FRONTIER AIRLINES, INC.
REGISTRATION RIGHTS AGREEMENT
-----------------------------
This REGISTRATION RIGHTS AGREEMENT dated as of May 26, 1998 is made
and entered into by and between The Seabury Group, LLC, a limited liability
company ("Seabury"), and Frontier Airlines, Inc., a Colorado corporation (the
"Company"). Capitalized terms not otherwise defined herein have the meanings
- --------
set forth in Section 8.
---------
WHEREAS, Seabury or an affiliate of Seabury has provided financial
advisory services to the Company under a Financial Advisory Agreement dated May
26, 1998 (the "Advisory Agreement").
WHEREAS, Seabury and the Company have entered into a Warrant Agreement
dated as of May 26, 1998 (the "Warrant Agreement").
WHEREAS, the Warrant Agreement and the Advisory Agreement provide that
the Company enter into a registration rights agreement with Seabury pursuant to
which the Company will grant to Seabury certain registration rights with respect
to the Common Stock underlying the Warrants (the "Warrant Stock");
-------------
NOW, THEREFORE, in consideration of the mutual covenants and
agreements set forth in this Agreement, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
1. Requested Registrations. (a) Registration Requests. At any
----------------------- ---------------------
time after the first anniversary of this agreement, upon the written request of
Seabury (either on its own behalf or on behalf of any holder of Registrable
Securities) requesting that the Company effect the registration under the
Securities Act of all or part of Seabury's (or any such holder's) Registrable
Securities and specifying the number of Registrable Securities to be registered
and the intended method of disposition thereof, the Company will promptly, and
in no event more than 10 Business Days after receipt of such request, give
written notice (a "Notice of Requested Registration") of such request to all
--------------------------------
other holders of Registrable Securities, and thereupon will use its best efforts
to effect the registration under the Securities Act of
(i) the Registrable Securities which the Company has been so
requested to register by Seabury, and
(ii) all other Registrable Securities the holders of which have made
written requests to the Company for registration thereof within 15 days
after the giving of the Notice of Requested Registration (which requests
shall specify the intended method of disposition thereof),
all to the extent requisite to permit the disposition (in accordance with the
intended methods thereof) of the Registrable Securities so to be registered in
accordance with Section 3. If requested
---------
<PAGE>
by Seabury, the method of disposition of all Registrable Securities included in
such registration shall be an underwritten offering effected in accordance with
Section 4(a). Neither the Company nor any of its securityholders shall have the
- ------------
right to include any of the Company's securities (other than Registrable
Securities) in a registration statement to be filed as part of a Requested
Registration.
(b) Limitations on Requested Registrations. Notwithstanding anything
--------------------------------------
herein to the contrary, the Company shall not be required to honor a request for
a Requested Registration if, in the case of a Long-Form Registration, the
Company has previously effected one Effective Long-Form Registration; provided
--------
that there shall be no limit on the number of registrations effected as Short-
Form Registrations, subject to the other provisions of this Section 1(b).
------------
(c) Registration Statement Form. Subject to Section 1(b), requested
---------------------------
Registrations shall be on such appropriate registration form promulgated by the
Commission as shall be selected by the Company, and shall be reasonably
acceptable to Seabury, and shall permit the disposition of such Registrable
Securities in accordance with the intended method or methods specified in their
request for such registration, but the Company may not effect a Long-Form
Registration without Seabury's consent. Notwithstanding the foregoing, if in
the case of an underwritten offering on Form S-3 the Managing Underwriter
notifies the Company that in its judgment the inclusion of more detailed
information of the type required in Form S-1 is of material importance to such
offering, the Company shall include in the Registration Statement such
information.
(d) Registration Expenses. The Company will pay all Registration
---------------------
Expenses incurred in connection with any Requested Registration.
(e) Priority in Cutback Registrations. If a Requested Registration
---------------------------------
becomes a Cutback Registration, the Company will include in any such
registration to the extent of the number which the Managing Underwriter advises
the Company can be sold in such offering Registrable Securities requested to be
included in such registration by the Initiating Holders, pro rata on the basis
--- ----
of the number of Registrable Securities requested to be included by such
holders.
2. Piggyback Registrations. (a) Right to Include Registrable
----------------------- ----------------------------
Securities. Notwithstanding any limitation contained in Section 1, if the
- ---------- ---------
Company at any time proposes after the first anniversary of the date hereof to
effect a Piggyback Registration, it will each such time give written notice (a
"Notice of Piggyback Registration"), at least 30 days prior to the anticipated
- ---------------------------------
filing date, to all holders of Registrable Securities of its intention to do so
and of such holders' rights under this Section 2, which Notice of Piggyback
---------
Registration shall include a description of the intended method of disposition
of such securities. Upon the written request of any such holder made within 20
days after receipt of a Notice of Piggyback Registration (which request shall
specify the Registrable Securities intended to be disposed of by such holder) ,
the Company will, subject to the other provisions of this Agreement, include in
the registration statement relating to such Piggyback Registration all
Registrable Securities which the Company has been so requested to register, all
to the extent requisite to permit the disposition of such Registrable Securities
in
-2-
<PAGE>
accordance with the intended method of disposition set forth in the Notice of
Piggyback Registration. Notwithstanding the foregoing, if, at any time after
giving a Notice of Piggyback Registration and prior to the effective date of the
registration statement filed in connection with such registration, the Company
shall determine for any reason not to register or to delay registration of such
securities, the Company may, at its election, give written notice of such
determination to each holder of Registrable Securities and, thereupon, (i) in
the case of a determination not to register, shall be relieved of its obligation
to register any Registrable Securities in connection with such registration (but
not from its obligation to pay the Registration Expenses in connection
therewith) without prejudice, however, to the rights of any Requesting Holder
entitled to do so to request that such registration be effected as a Requested
Registration under Section 1, and (ii) in the case of a determination to delay
---------
registering, shall be permitted to delay registering any Registrable Securities
for the same period as the delay in registering such other securities. No
registration effected under this Section 2 shall relieve the Company of its
---------
obligations to effect a Requested Registration under Section 1 with respect to
---------
Registrable Securities that are not registered and sold thereunder.
(b) Registration Expenses. The Company will pay all Registration
---------------------
Expenses incurred in connection with each Piggyback Registration.
(c) Priority in Cutback Registrations. If a Piggyback Registration
---------------------------------
becomes a Cutback Registration, the Company will include in such registration to
the extent of the amount of the securities which the Managing Underwriter
advises the Company can be sold in such offering:
(i) if such Piggyback Registration as initially proposed by the
Company was solely a primary registration of its securities, (x) first, the
-----
securities proposed by the Company to be sold for its own account, and (y)
second, (A) if no other holders of securities of the Company have requested
------
registration of their securities in such registration, any Registrable
Securities requested to be included in such registration by Requesting
Holders, pro rata on the basis of the number of Registrable Securities
--- ----
requested to be included by such holders or (B) if other holders of
securities of the Company have requested registration of their securities
in such registration, such securities of such holders and any Registrable
Securities requested to be included in such registration by Requesting
Holders, on a pari passu basis; and
(ii) if such Piggyback Registration as initially proposed by the
Company was in whole or in part requested by holders of securities of the
Company, other than holders of Registrable Securities in their capacities
as such, pursuant to demand registration rights, such securities held by
the holders initiating such registration and any Registrable Securities
requested to be included in such registration by Requesting Holders, on a
pari passu basis;
and any securities so excluded shall be withdrawn from and shall not be included
in such Piggyback Registration.
-3-
<PAGE>
3. Registration Procedures. If and whenever the Company is required
-----------------------
to effect the registration of any Registrable Securities under the Securities
Act pursuant to Section 1 or Section 2, the Company will use its best efforts to
--------- ---------
effect the registration and sale of such Registrable Securities in accordance
with the intended method of disposition thereof. Without limiting the
foregoing, the Company in each such case will, as expeditiously as possible, use
its best efforts:
(a) to prepare and file with the Commission (in the case of a
Requested Registration, not later than 20 days after the filing by the
Company with the Commission of its next required report on Form 10-K or
Form 10-Q, as the case may be, under the Exchange Act, or as soon
thereafter as possible) the requisite registration statement to effect such
registration and to cause such registration statement to become effective,
provided that the Company may defer filing a registration statement for up
to 90 days after the filing would otherwise be required to be made pursuant
to this section if and so long as, in the reasonable judgment of the
Company's Board of Directors, the filing of such registration statement
within the period otherwise required by this Section 3(a) would compel the
------------
Company to disclose material nonpublic information the disclosure of which
would be materially detrimental to the Company or would materially
interfere with any material financing, acquisition, corporate
reorganization, or merger involving the Company.
(b) as far in advance as practical before filing such registration
statement or any amendment thereto, to furnish to the Requesting Holders
copies of reasonably complete drafts of all such documents proposed to be
filed (including exhibits), and any such holder shall have the opportunity
to object to any information pertaining solely to such holder that is
contained therein and the Company will make the corrections reasonably
requested by such holder with respect to such information prior to filing
any such registration statement or amendment;
(c) to prepare and file with the Commission such amendments and
supplements to such registration statement and any prospectus used in
connection therewith as may be necessary to maintain the effectiveness of
such registration statement and to comply with the provisions of the
Securities Act with respect to the disposition of all Registrable
Securities covered by such registration statement, in accordance with the
intended methods of disposition thereof, until such time as all of such
securities have been disposed of in accordance with the intended methods of
disposition by the seller or sellers thereof set forth in such registration
statement;
(d) to promptly notify each Requesting Holder and the underwriter or
underwriters, if any:
(i) when such registration statement or any prospectus used in
connection therewith, or any amendment or supplement thereto, has been
filed and, with respect to such registration statement or any post-
effective amendment thereto, when the same has become effective;
-4-
<PAGE>
(ii) of any written comments from the Commission with respect to
any filing referred to in clause (i) and of any written request by the
Commission for amendments or supplements to such registration
statement or prospectus;
(iii) of the notification to the Company by the Commission of its
initiation of any proceeding with respect to the issuance by the
Commission of, or of the issuance by the Commission of, any stop order
suspending the effectiveness of such registration statement; and
(iv) of the receipt by the Company of any notification with
respect to the suspension of the qualification of any Registrable
Securities for sale under the applicable securities or blue sky laws
of any jurisdiction;
(e) to furnish to each seller of Registrable Securities covered by
such registration statement such number of conformed copies of such
registration statement and of each amendment and supplement thereto (in
each case including all exhibits and documents incorporated by reference),
such number of copies of the prospectus contained in such registration
statement (including each preliminary prospectus and any summary
prospectus) and any other prospectus filed under Rule 424 promulgated under
the Securities Act relating to such holder's Registrable Securities, and
such other documents, as such seller may reasonably request to facilitate
the disposition of its Registrable Securities;
(f) to register or qualify all Registrable Securities covered by such
registration statement under such other securities or blue sky laws of such
jurisdictions as each holder thereof shall reasonably request, to keep such
registration or qualification in effect for so long as such registration
statement remains in effect, and take any other action which may be
reasonably necessary or advisable to enable such holder to consummate the
disposition in such jurisdictions of the Registrable Securities owned by
such holder, except that the Company shall not for any such purpose be
required (i) to qualify generally to do business as a foreign corporation
in any jurisdiction wherein it would not but for the requirements of this
paragraph (f) be obligated to be so qualified, (ii) to subject itself to
-------------
taxation in any such jurisdiction or (iii) to consent to general service of
process in any jurisdiction;
(g) to cause all Registrable Securities covered by such registration
statement to be registered with or approved by such other governmental
agencies or authorities as may be necessary to enable each holder thereof
to consummate the disposition of such Registrable Securities;
(h) to furnish to each Requesting Holder a signed counterpart,
addressed to such holder (and the underwriters, if any), of
(i) an opinion of counsel for the Company, dated the effective
date of such registration statement (or, if such registration includes
an underwritten Public
-5-
<PAGE>
Offering, dated the date of any closing under the underwriting
agreement), reasonably satisfactory in form and substance to such
holder, and
(ii) a "comfort" letter, dated the effective date of such
registration statement (and, if such registration includes an
underwritten Public Offering, dated the date of any closing under the
underwriting agreement), signed by the independent public accountants
who have certified the Company's financial statements included in such
registration statement,
in each case covering substantially the same matters with respect to such
registration statement (and the prospectus included therein) and, in the
case of the accountants' letter, with respect to events subsequent to the
date of such financial statements, as are customarily covered in opinions
of issuer's counsel and in accountants' letters delivered to the
underwriters in underwritten Public Offerings of securities and, in the
case of the accountants' letter, such other financial matters, as such
holder (or the underwriters, if any) may reasonably request;
(i) to notify each holder of Registrable Securities covered by such
registration statement, at any time when a prospectus relating thereto is
required to be delivered under the Securities Act, of the happening of any
event as a result of which any prospectus included in such registration
statement, as then in effect, includes an untrue statement of a material
fact or omits to state any material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading, and at the request of any such
holder promptly prepare and furnish to such holder a reasonable number of
copies of a supplement to or an amendment of such prospectus as may be
necessary so that, as thereafter delivered to the purchasers of such
securities, such prospectus shall not include an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading;
(j) to otherwise use its best efforts to comply with all applicable
rules and regulations of the Commission, and make available to its
securityholders, as soon as reasonably practicable, an earnings statement
covering the period of at least twelve months, but not more than eighteen
months, beginning with the first full calendar month after the effective
date of such registration statement, which earnings statement shall satisfy
the provisions of Section 11(a) of the Securities Act and Rule 158
promulgated thereunder;
(k) to make available for inspection by any Requesting Holder, any
underwriter participating in any disposition pursuant to such registration
statement and any attorney, accountant or other agent retained by any such
seller or underwriter (collectively, the "Inspectors"), all financial and
----------
other records, pertinent corporate documents and properties of the Company
(collectively, the "Records") as shall be reasonably necessary to enable
-------
them to exercise their due diligence responsibility, and cause the
Company's officers, directors and employees to supply all information
reasonably requested by any such
-6-
<PAGE>
Inspector in connection with such registration statement, and permit the
Inspectors to participate in the preparation of such registration statement
and any prospectus contained therein and any amendment or supplement
thereto. Records which the Company determines, in good faith, to be
confidential and which it notifies the Inspectors are confidential shall
not be disclosed by the Inspectors unless (i) the disclosure of such
Records is necessary to avoid or correct a misstatement or omission in the
registration statement, (ii) the release of such Records is ordered
pursuant to a subpoena or other order from a court of competent
jurisdiction or (iii) the information in such Records has been made
generally available to the public. The seller of Registrable Securities
agrees by acquisition of such Registrable Securities that it will, upon
learning that disclosure of such Records is sought in a court of competent
jurisdiction, give notice to the Company and allow the Company, at the
Company's expense, to undertake appropriate action to prevent disclosure of
the Records deemed confidential;
(l) to provide a transfer agent and registrar for all Registrable
Securities covered by such registration statement not later than the
effective date of such registration statement; and
(m) to cause all Registrable Securities covered by such registration
statement to be listed, upon official notice of issuance, on any securities
exchange on which any of the securities of the same class as the
Registrable Securities are then listed.
The Company may require each holder of Registrable Securities as to
which any registration is being effected to, and each such holder, as a
condition to including Registrable Securities in such registration, shall,
furnish the Company with such information and affidavits regarding such holder
and the distribution of such securities as the Company may from time to time
reasonably request in writing in connection with such registration.
Each holder of Registrable Securities agrees by acquisition of such
Registrable Securities that upon receipt of any notice from the Company of the
happening of any event of the kind described in paragraph (h), such holder will
-------------
forthwith discontinue such holder's disposition of Registrable Securities
pursuant to the registration statement relating to such Registrable Securities
until such holder's receipt of the copies of the supplemented or amended
prospectus contemplated by paragraph (h) and, if so directed by the Company,
-------------
will deliver to the Company (at the Company's expense) all copies, other than
permanent file copies, then in such holder's possession of the prospectus
relating to such Registrable Securities current at the time of receipt of such
notice.
4. Underwritten Offerings.
----------------------
(a) Underwritten Requested Offerings. In the case of any
--------------------------------
underwritten Public Offering being effected pursuant to a Requested
Registration, the Managing Underwriter and any other underwriter or underwriters
with respect to such offering shall be selected, after consultation with the
Company, by the holders of a majority of the Registrable Securities to be
included in such underwritten offering with the consent of the Company, which
consent shall not be unreasonably
-7-
<PAGE>
withheld. The Company shall enter into an underwriting agreement in customary
form with such underwriter or underwriters, which shall include, among other
provisions, indemnities to the effect and to the extent provided in Section 5.
---------
The holders of Registrable Securities to be distributed by such underwriters
shall be parties to such underwriting agreement and may, at their option,
require that any or all of the representations and warranties by, and the other
agreements on the part of, the Company to and for the benefit of such
underwriters also be made to and for their benefit and that any or all of the
conditions precedent to the obligations of such underwriters under such
underwriting agreement also be conditions precedent to their obligations. No
holder of Registrable Securities shall be required to make any representations
or warranties to or agreements with the Company or the underwriters other than
representations, warranties or agreements regarding such holder and its
ownership of the securities being registered on its behalf and such holder's
intended method of distribution and any other representation required by law. No
Requesting Holder may participate in such underwritten offering unless such
holder agrees to sell its Registrable Securities on the basis provided in such
underwriting agreement and completes and executes all questionnaires, powers of
attorney, indemnities and other documents reasonably required under the terms of
such underwriting agreement. If any Requesting Holder disapproves of the terms
of an underwriting, such holder may elect to withdraw therefrom and from such
registration by notice to the Company and the Managing Underwriter, and each of
the remaining Requesting Holders shall be entitled to increase the number of
Registrable Securities being registered to the extent of the Registrable
Securities so withdrawn in the proportion which the number of Registrable
Securities being registered by such remaining Requesting Holder bears to the
total number of Registrable Securities being registered by all such remaining
Requesting Holders.
(b) Underwritten Piggyback Offerings. If the Company at any time
--------------------------------
proposes to register any of its securities in a Piggyback Registration and such
securities are to be distributed by or through one or more underwriters, the
Company will, subject to the provisions of Section 2(c), use its best efforts to
------------
arrange for such underwriters to include the Registrable Securities to be
offered and sold by Requesting Holders among the securities to be distributed by
such underwriters. The holders of Registrable Securities to be distributed by
such underwriters shall be parties to the underwriting agreement between the
Company and such underwriter or underwriters and may, at their option, require
that any or all of the representations and warranties by, and the other
agreements on the part of, the Company to and for the benefit of such
underwriters also be made to and for their benefit and that any or all of the
conditions precedent to the obligations of such underwriters under such
underwriting agreement also be conditions precedent to their obligations. No
holder of Registrable Securities shall be required to make any representations
or warranties to or agreements with the Company or the underwriters other than
representations, warranties or agreements regarding such holder and its
ownership of the securities being registered on its behalf and any other
representation required by law. No Requesting Holder may participate in such
underwritten offering unless such holder agrees to sell its Registrable
Securities on the basis provided in such underwriting agreement and completes
and executes all questionnaires, powers of attorney, indemnities and other
documents reasonably required under the terms of such underwriting agreement.
If any Requesting Holder disapproves of the terms of an underwriting, such
holder may elect to withdraw therefrom and from such registration by notice to
the Company and the Managing Underwriter, and each of the remaining Requesting
Holders shall be entitled to
-8-
<PAGE>
increase the number of Registrable Securities being registered to the extent of
the Registrable Securities so withdrawn in the proportion which the number of
Registrable Securities being registered by such remaining Requesting Holder
bears to the total number of Registrable Securities being registered by all such
remaining Requesting Holders.
5. Indemnification. (a) Indemnification by the Company. The
--------------- ------------------------------
Company shall, to the full extent permitted by law, indemnify and hold harmless
each seller of Registrable Securities included in any registration statement
filed in connection with a Requested Registration or a Piggyback Registration,
its directors and officers, and each other Person, if any, who controls any such
seller within the meaning of the Securities Act, against any Losses, claims,
damages, expenses or liabilities, joint or several (together, "Losses"), to
------
which such seller or any such director or officer or controlling Person may
become subject under the Securities Act or otherwise, insofar as such Losses (or
actions or proceedings, whether commenced or threatened, in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue statement
of any material fact contained in any such registration statement, any
preliminary prospectus, final prospectus or summary prospectus contained
therein, or any amendment or supplement thereto, or any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein (in the case of a prospectus, in the
light of the circumstances under which they were made) not misleading, and the
Company will reimburse such seller and each such director, officer and
controlling Person for any legal or any other expenses reasonably incurred by
them in connection with investigating or defending any such Loss (or action or
proceeding in respect thereof); provided that the Company shall not be liable in
--------
any such case to the extent that any such Loss (or action or proceeding in
respect thereof) arises out of or is based upon an untrue statement or alleged
untrue statement or omission or alleged omission made in any such registration
statement, preliminary prospectus, final prospectus, summary prospectus,
amendment or supplement in reliance upon and in conformity with written
information furnished to the Company through an instrument duly executed by such
seller specifically stating that it is for use in the preparation thereof. Such
indemnity shall remain in full force and effect regardless of any investigation
made by or on behalf of such seller or any such director, officer or controlling
Person, and shall survive the transfer of such securities by such seller. The
Company shall also indemnify each other Person who participates (including as an
underwriter) in the offering or sale of Registrable Securities, their officers
and directors and each other Person, if any, who controls any such participating
Person within the meaning of the Securities Act to the same extent as provided
above with respect to sellers of Registrable Securities.
(b) Indemnification by the Sellers. Each holder of Registrable
------------------------------
Securities which are included or are to be included in any registration
statement filed in connection with a Requested Registration or a Piggyback
Registration, as a condition to including Registrable Securities in such
registration statement, shall, to the full extent permitted by law, indemnify
and hold harmless the Company, its directors and officers, and each other
Person, if any, who controls the Company within the meaning of the Securities
Act, against any Losses to which the Company or any such director or officer or
controlling Person may become subject under the Securities Act or otherwise,
insofar as such Losses (or actions or proceedings, whether commenced or
threatened, in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of any
-9-
<PAGE>
material fact contained in any such registration statement, any preliminary
prospectus, final prospectus or summary prospectus contained therein, or any
amendment or supplement thereto, or any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein (in the case of a prospectus, in the light of the
circumstances under which they were made) not misleading, if such untrue
statement or alleged untrue statement or omission or alleged omission was made
in reliance upon and in conformity with written information furnished to the
Company through an instrument duly executed by such seller specifically stating
that it is for use in the preparation of such registration statement,
preliminary prospectus, final prospectus, summary prospectus, amendment or
supplement; provided, however, that the obligation to provide indemnification
-------- -------
pursuant to this Section 5(b) shall be several, and not joint and several, among
------------
such Indemnifying Parties on the basis of the number of Registrable Securities
included in such registration statement and the aggregate amount which may be
recovered from any holder of Registrable Securities pursuant to the
indemnification provided for in this Section 5(b) in connection with any
------------
registration and sale of Registrable Securities shall be limited to the total
proceeds received by such holder from the sale of such Registrable Securities.
Such indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of the Company or any such director, officer
or controlling Person and shall survive the transfer of such securities by such
seller. Such holders shall also indemnify each other Person who participates
(including as an underwriter) in the offering or sale of Registrable Securities,
their officers and directors and each other Person, if any, who controls any
such participating Person within the meaning of the Securities Act to the same
extent as provided above with respect to the Company.
(c) Notices of Claims, etc. Promptly after receipt by an Indemnified
-----------------------
Party of notice of the commencement of any action or proceeding involving a
claim referred to in the preceding paragraph (a) or (b) of this Section 5, such
-------------------- ---------
Indemnified Party will, if a claim in respect thereof is to be made against an
Indemnifying Party pursuant to such paragraphs, give written notice to the
latter of the commencement of such action, provided that the failure of any
--------
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under the preceding paragraphs of this
Section 5, except to the extent that the Indemnifying Party is actually
- ---------
prejudiced by such failure to give notice. In case any such action is brought
against an Indemnified Party, the Indemnifying Party shall be entitled to
participate in and, unless, in the judgment of any Indemnified Party, a conflict
of interest between such Indemnified Party and any Indemnifying Party exists
with respect to such claim, to assume the defense thereof, jointly with any
other Indemnifying Party similarly notified to the extent that it may wish, with
counsel reasonably satisfactory to such Indemnified Party, and after notice from
the Indemnifying Party to such Indemnified Party of its election so to assume
the defense thereof, the Indemnifying Party shall not be liable to such
Indemnified Party for any legal or other expenses subsequently incurred by the
latter in connection with the defense thereof other than reasonable costs of
investigation; provided that the Indemnified Party may participate in such
--------
defense at the Indemnified Party's expense; and provided further that the
-------- -------
Indemnified Party or Indemnified Parties shall have the right to employ one
counsel to represent it or them if, in the reasonable judgment of the
Indemnified Party or Indemnified Parties, it is advisable for it or them to be
represented by separate counsel by reason of having legal defenses which are
different from or in addition to those available to the Indemnifying Party, and
in that
-10-
<PAGE>
event the reasonable fees and expenses of such one counsel shall be paid by the
Indemnifying Party. If the Indemnifying Party is not entitled to, or elects not
to, assume the defense of a claim, it will not be obligated to pay the fees and
expenses of more than one counsel for the Indemnified Parties with respect to
such claim, unless in the reasonable judgment of any Indemnified Party a
conflict of interest may exist between such Indemnified Party and any other
Indemnified Parties with respect to such claim, in which event the Indemnifying
Party shall be obligated to pay the fees and expenses of such additional counsel
for the Indemnified Parties or counsels. No Indemnifying Party shall consent to
entry of any judgment or enter into any settlement without the consent of the
Indemnified Party which does not include as an unconditional term thereof the
giving by the claimant or plaintiff to such Indemnified Party of a release from
all liability in respect to such claim or litigation. No Indemnifying Party
shall be subject to any liability for any settlement made without its consent,
which consent shall not be unreasonably withheld.
(d) Contribution. If the indemnity and reimbursement obligation
------------
provided for in any paragraph of this Section 5 is unavailable or insufficient
---------
to hold harmless an Indemnified Party in respect of any Losses (or actions or
proceedings in respect thereof) referred to therein, then the Indemnifying Party
shall contribute to the amount paid or payable by the Indemnified Party as a
result of such Losses (or actions or proceedings in respect thereof) in such
proportion as is appropriate to reflect the relative fault of the Indemnifying
Party on the one hand and the Indemnified Party on the other hand in connection
with statements or omissions which resulted in such Losses, as well as any other
relevant equitable considerations. The relative fault shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Indemnifying Party or the Indemnified
Party and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such untrue statement or omission. The
parties hereto agree that it would not be just and equitable if contributions
pursuant to this paragraph were to be determined by pro rata allocation or by
--- ----
any other method of allocation which does not take account of the equitable
considerations referred to in the first sentence of this paragraph. The amount
paid by an Indemnified Party as a result of the Losses referred to in the first
sentence of this paragraph shall be deemed to include any legal and other
expenses reasonably incurred by such Indemnified Party in connection with
investigating or defending any Loss which is the subject of this paragraph.
No Indemnified Party guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from the Indemnifying Party if the Indemnifying Party was not
guilty of such fraudulent misrepresentation.
(e) Other Indemnification. Indemnification similar to that specified
---------------------
in the preceding paragraphs of this Section 5 (with appropriate modifications)
---------
shall be given by the Company and each seller of Registrable Securities with
respect to any required registration or other qualification of securities under
any federal or state law or regulation of any governmental authority other than
the Securities Act. The provisions of this Section 5 shall be in addition to
---------
any other rights to indemnification or contribution which an Indemnified Party
may have pursuant to law, equity, contract or otherwise.
-11-
<PAGE>
(f) Indemnification Payments. The indemnification required by this
------------------------
Section 5 shall be made by periodic payments of the amount thereof during the
- ---------
course of the investigation or defense, as and when bills are received or Losses
are incurred.
6. Covenants Relating to Rule 144. The Company will file reports in
------------------------------
compliance with the Exchange Act, will comply with all rules and regulations of
the Commission applicable in connection with the use of Rule 144 and take such
other actions and furnish such holder with such other information as such holder
may request in order to avail itself of such rule or any other rule or
regulation of the Commission allowing such holder to sell any Registrable
Securities without registration. If at any time the Company is not required to
file reports in compliance with either Section 13 or Section 15(d) of the
Exchange Act, the Company at its expense will, forthwith upon the written
request of the holder of any Registrable Securities, make available adequate
current public information with respect to the Company within the meaning of
paragraph (c)(2) of Rule 144.
7. Other Registration Rights.
-------------------------
(a) No Existing Agreements. The Company represents and warrants to
----------------------
Seabury that there is not in effect on the date hereof any agreement by the
Company (other than this Agreement and as set forth in Schedule 3.06 to the
-------------
Warrant Agreement) pursuant to which any holders of securities of the Company
have a right to cause the Company to register or qualify such securities under
the Securities Act.
(b) Future Agreements. Reference is made to the Amended and Restated
-----------------
Registration Rights Agreement dated as of February 27, 1998 between the Company
and Wexford Management, LLC (the "Wexford Agreement"), a copy of which has been
provided to Seabury. Seabury and the Requesting Holders agree that (i) they may
not participate in any Requested Registration except as provided in Section 1 of
---------
the Wexford Agreement and (ii) they may not participate in any Piggyback
Registration except as provided in Section 2 of the Wexford Agreement.
---------
8. Definitions.
-----------
(a) Except as otherwise specifically indicated, the following terms
will have the following meanings for all purposes of this Agreement:
"Agreement" means this Registration Rights Agreement, as the same
---------
shall be amended from time to time.
"Business Day" means a day other than Saturday, Sunday or any other
------------
day on which banks located in the State of New York are authorized or obligated
to close.
"Commission" means the United States Securities and Exchange
----------
Commission, or any successor governmental agency or authority.
-12-
<PAGE>
"Common Stock" means shares of Common Stock, no par value per share,
------------
of the Company, as constituted on the date hereof, and any stock into which such
Common Stock shall have been changed or any stock resulting from any
reclassification of such Common Stock.
"Company" has the meaning ascribed to it in the preamble.
-------
"Cutback Registration" means any Requested Registration or Piggyback
--------------------
Registration to be effected as an underwritten Public Offering in which the
Managing Underwriter with respect thereto advises the Company and the Requesting
Holders in writing that, in its opinion, the number of securities requested to
be included in such registration (including securities of the Company which are
not Registrable Securities) exceed the number which can be sold in such offering
without a material reduction in the selling price anticipated to be received for
the securities to be sold in such Public Offering.
"Effective Long-Form Registration" means a Long-Form Registration that
--------------------------------
results in an Effective Registration.
"Effective Registration" means a Requested Registration which (a) has
----------------------
been declared or ordered effective in accordance with the rules of the
Commission and (b) has been kept effective for the period of time contemplated
by Section 3(b).
------------
"Effective Short-Form Registration" means a Short-Form Registration
---------------------------------
that results in an Effective Registration.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
------------
and the rules and regulations promulgated thereunder.
"Form S-1" means Form S-1 promulgated by the Commission under the
--------
Securities Act, or any successor or similar long-form registration statement.
"Form S-2" means Form S-2 promulgated by the Commission under the
--------
Securities Act, or any successor or similar short-form registration statement.
"Form S-3" means Form S-3 promulgated by the Commission under the
--------
Securities Act, or any successor or similar short-form registration statement.
"Indemnified Party" means a party entitled to indemnity in accordance
-----------------
with Section 5.
---------
"Indemnifying Party" means a party obligated to provide indemnity in
------------------
accordance with Section 5.
---------
-13-
<PAGE>
"Initiating Holders" means Seabury and any holder of Registrable
------------------
Securities with respect to which Seabury has made a written request pursuant to
Section 1 for the registration of Registrable Securities.
- ---------
"Inspectors" has the meaning ascribed to it in Section 3(i).
---------- ------------
"Letter Agreement" has the meaning ascribed to it in the preamble.
----------------
"Long-Form Registration" means a Requested Registration effected by
----------------------
the filing of a registration statement on Form S-1 with the Commission.
"Losses" has the meaning ascribed to it in Section 5(a).
------ ------------
"Managing Underwriter" means, with respect to any Public Offering, the
--------------------
underwriter or underwriters managing such Public Offering.
"NASD" means the National Association of Securities Dealers.
----
"Notice of Piggyback Registration" has the meaning ascribed to it in
--------------------------------
Section 2(a).
- ------------
"Notice of Requested Registration" has the meaning ascribed to it in
--------------------------------
Section 1(a).
- ------------
"Person" means any natural person, corporation, general partnership,
------
limited partnership, limited liability company, proprietorship, other business
organization, trust, union or association.
"Piggyback Registration" means any registration of securities of the
----------------------
Company of the same class as any of the Registrable Securities under the
Securities Act (other than a registration in respect of a dividend reinvestment
or similar plan for shareholders of the Company or on Form S-4 or Form S-8
promulgated by the Commission, or any successor or similar forms thereto),
whether for sale for the account of the Company or for the account of any holder
of securities of the Company (other than Registrable Securities.
"Public Offering" means any offering of Common Stock to the public,
---------------
either on behalf of the Company or any of its securityholders, pursuant to an
effective registration statement under the Securities Act (other than a
registration in respect of a dividend reinvestment or similar plan for
shareholders of the Company or on Form S-4 or Form S-8 promulgated by the
Commission, or any successor or similar forms thereto).
"Records" has the meaning ascribed to it in Section 3(i).
------- ------------
"Registrable Securities" means (i) shares of Warrant Stock, and (ii)
----------------------
any additional shares of Common Stock or other securities issued or distributed
by way of a dividend, stock split or other distribution in respect of the any of
the securities referred to in clause (i), or acquired by
-14-
<PAGE>
way of any rights offering or similar offering made in respect of such
securities. As to any particular Registrable Securities, once issued such
securities shall cease to be Registrable Securities when (i) a registration
statement with respect to the sale of such securities shall have become
effective under the Securities Act and such securities shall have been disposed
of in accordance with such registration statement, (ii) they shall have been
sold to the public pursuant to Rule 144, or (iii) they shall have ceased to be
outstanding.
"Registration Expenses" means all expenses incident to the Company's
---------------------
performance of or compliance with its obligations under this Agreement to effect
the registration of Registrable Securities in a Requested Registration or a
Piggyback Registration, including, without limitation, all registration, filing,
securities exchange listing and NASD fees, all registration, filing,
qualification and other fees and expenses of complying with securities or blue
sky laws, all word processing, duplicating and printing expenses, messenger and
delivery expenses, the fees and disbursements of counsel for the Company and of
its independent public accountants, including the expenses of any special audits
or "cold comfort" letters required by or incident to such performance and
compliance, the reasonable fees and disbursements of a single counsel, premiums
and other costs of policies of insurance purchased by the Company against
liabilities arising out of the Public Offering of the Registrable Securities
being registered and any fees and disbursements of underwriters customarily paid
by issuers or sellers of securities if the offering is an underwritten offering
initiated by the Company, but excluding underwriting discounts and commissions
and transfer taxes, if any, in respect of Registrable Securities and fees and
disbursements of underwriters if the offering is an underwritten offering
initiated by Seabury or the Requesting Holders, which shall be payable by each
holder thereof.
"Requesting Holders" means, with respect to any Requested Registration
------------------
or Piggyback Registration, the holders of Registrable Securities requesting to
have Registrable Securities included in such registration in accordance with
this Agreement.
"Requested Registration" means any registration of Registrable
----------------------
Securities under the Securities Act effected in accordance with Section 1.
---------
"Rule 144" means Rule 144 promulgated by the Commission under the
--------
Securities Act, and any successor provision thereto.
"Securities Act" means the Securities Act of 1933, as amended, and the
--------------
rules and regulations promulgated thereunder.
"Short-Form Registration" means a Requested Registration effected by
-----------------------
the filing of a registration statement on Form S-2 or Form S-3 with the
Commission.
"Warrant Stock" has the meaning ascribed to it in the preamble.
-------------
(b) Unless the context of this Agreement otherwise requires, (i)
words of any gender include each other gender; (ii) words using the singular or
plural number also include the
-15-
<PAGE>
plural or singular number, respectively; (iii) the terms "hereof," "herein,"
"hereby" and derivative or similar words refer to this entire Agreement; and
(iv) the term "Section" refers to the specified Section of this Agreement.
Whenever this Agreement refers to a number of days, such number shall refer to
calendar days unless Business Days are specified.
9. Miscellaneous.
-------------
(a) Notices. All notices, requests and other communications
-------
hereunder must be in writing and will be deemed to have been duly given only if
delivered personally or by facsimile transmission or mailed (first class postage
prepaid) to the parties at the following addresses or facsimile numbers:
If to Investor, to:
The Seabury Group, LLC
135 West 50th Street, Suite 1820
New York, New York 10020
Attn: John Luth
Facsimile No.: (212) 541-6334
If to the Company, to:
Frontier Airlines, Inc.
12015 East 46th Avenue
Denver, Colorado 80239
Attn: Arthur T. Voss, General Counsel
Facsimile No.: (303) 371-9669
With respect to any other holder of Registrable Securities, such notices,
requests and other communications shall be sent to the addresses set forth in
the transfer records regularly maintained by the Company. All such notices,
requests and other communications will (i) if delivered personally to the
address as provided in this Section, be deemed given upon delivery, (ii) if
delivered by facsimile transmission to the facsimile number as provided in this
Section, be deemed given upon receipt, and (iii) if delivered by mail in the
manner described above to the address as provided in this Section, be deemed
given upon receipt (in each case regardless of whether such notice, request or
other communication is received by any other Person to whom a copy of such
notice is to be delivered pursuant to this Section). Any party from time to
time may change its address, facsimile number or other information for the
purpose of notices to that party by giving notice specifying such change to the
other parties hereto.
-16-
<PAGE>
(b) Entire Agreement. This Agreement supersedes all prior discussions
----------------
and agreements between the parties with respect to the subject matter hereof,
and contains the sole and entire agreement between the parties hereto with
respect to the subject matter hereof.
(c) Amendment. This Agreement may be amended, supplemented or
---------
modified only by a written instrument (which may be executed in any number of
counterparts) duly executed by or on behalf of each of the Company and Seabury.
(d) Waiver. Subject to paragraph (e) of this Section, any term or
------ -------------
condition of this Agreement may be waived at any time by the party that is
entitled to the benefit thereof, but no such waiver shall be effective unless
set forth in a written instrument duly executed by or on behalf of the party
waiving such term or condition. No waiver by any party of any term or condition
of this Agreement, in any one or more instances, shall be deemed to be or
construed as a waiver of the same term or condition of this Agreement on any
future occasion.
(e) Consents and Waivers by Holders of Registrable Securities. Any
---------------------------------------------------------
consent of the holders of Registrable Securities pursuant to this Agreement, and
any waiver by such holders of any provision of this Agreement, shall be in
writing (which may be executed in any number of counterparts) and may be given
or taken by Seabury, and any such consent or waiver so given or taken will be
binding on all the holders of Registrable Securities.
(f) No Third Party Beneficiary. The terms and provisions of this
--------------------------
Agreement are intended solely for the benefit of each party hereto, their
respective successors or permitted assigns and any other holder of Registrable
Securities, and it is not the intention of the parties to confer third-party
beneficiary rights upon any other Person other than any Person entitled to
indemnity under Section 5.
---------
(g) Successors and Assigns. This Agreement is binding upon, inures to
----------------------
the benefit of and is enforceable by the parties hereto and their respective
successors and assigns.
(h) Headings. The headings used in this Agreement have been inserted
--------
for convenience of reference only and do not define or limit the provisions
hereof.
(i) Invalid Provisions. If any provision of this Agreement is held
------------------
to be illegal, invalid or unenforceable under any present or future law, and if
the rights or obligations of any party hereto under this Agreement will not be
materially and adversely affected thereby, (i) such provision will be fully
severable, (ii) this Agreement will be construed and enforced as if such
illegal, invalid or unenforceable provision had never comprised a part hereof
and (iii) the remaining provisions of this Agreement will remain in full force
and effect and will not be affected by the illegal, invalid or unenforceable
provision or by its severance herefrom.
(j) Remedies. Except as otherwise expressly provided for herein, no
--------
remedy conferred by any of the specific provisions of this Agreement is intended
to be exclusive of any other remedy, and each and every remedy shall be
cumulative and shall be in addition to every other
-17-
<PAGE>
remedy given hereunder or now or hereafter existing at law or in equity or by
statute or otherwise. The election of any one or more remedies by any party
hereto shall not constitute a waiver by any such party of the right to pursue
any other available remedies.
Damages in the event of breach of this Agreement by a party hereto or
any other holder of Registrable Securities would be difficult, if not
impossible, to ascertain, and it is therefore agreed that each such Person, in
addition to and without limiting any other remedy or right it may have, will
have the right to an injunction or other equitable relief in any court of
competent jurisdiction, enjoining any such breach, and enforcing specifically
the terms and provisions hereof and the Company and each holder of Registrable
Securities, by its acquisition of such Registrable Securities, hereby waives any
and all defenses it may have on the ground of lack of jurisdiction or competence
of the court to grant such an injunction or other equitable relief. The
existence of this right will not preclude any such Person from pursuing any
other rights and remedies at law or in equity which such Person may have.
(k) Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the laws of the State of New York applicable to a contract
executed and performed in such State, without giving effect to the conflicts of
laws principles thereof.
(l) Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same instrument.
IN WITNESS WHEREOF, this Agreement has been duly executed and
delivered by the duly authorized officer of each party hereto as of the date
first above written.
THE SEABURY GROUP, LLC
By: __________________________
Name:
Title:
FRONTIER AIRLINES, INC.
By: __________________________
Name:
Title:
<TABLE> <S> <C>
<PAGE>
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<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1997
<PERIOD-END> MAR-31-1998
<CASH> 3,641,395
<SECURITIES> 0
<RECEIVABLES> 11,800,419
<ALLOWANCES> 139,096
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0
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<TOTAL-LIABILITY-AND-EQUITY> 50,598,470
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