<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly period ended MARCH 31, 1997 OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to .
---------------------- ----------------------
Commission File Number 0-27238
WESTERN PACIFIC AIRLINES, INC.
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 86-0758778
(State or other jurisdiction (I.R.S. employer
of incorporation or organization) identification number)
2864 SOUTH CIRCLE DRIVE, SUITE 1100
COLORADO SPRINGS, COLORADO 80906
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (719) 579-7737
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [ ]
As of May 1, 1997 there were 13,413,691 shares of Common Stock of the
registrant issued and outstanding.
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<PAGE>
WESTERN PACIFIC AIRLINES, INC.
INDEX
PART I. FINANCIAL INFORMATION
PAGE NUMBER
-----------
ITEM 1. FINANCIAL INFORMATION
Consolidated Balance Sheets
March 31, 1997 and December 31, 1996 3
Consolidated Statements of Operations
Three Months ended March 31, 1997 and 1996 4
Consolidated Statements of Cash Flows
Three Months ended March 31, 1997 and 1996 5
Notes to Consolidated Financial Statements 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 7
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES 15
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 16
SIGNATURES 17
2
<PAGE>
WESTERN PACIFIC AIRLINES, INC.
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1997 AND DECEMBER 31, 1996
MAR. 31, 1997 DEC. 31, 1996
------------- -------------
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 5,946,537 $ 12,076,034
Restricted cash and cash equivalents 8,517,049 8,314,887
Accounts receivable, net of allowance for
uncollectible accounts of $358,000 and
$347,000 at March 31, 1997 and December 31,
1996, respectively 6,153,856 3,217,450
Prepaid expenses and other 8,018,863 6,104,414
Prepaid maintenance 7,426,174 5,204,698
Aircraft maintenance and engine reserves 7,398,068 6,819,841
------------ ------------
Total Current Assets 43,460,547 41,737,324
------------ ------------
PROPERTY AND EQUIPMENT, NET 43,143,311 41,702,859
PREPAID MAINTENANCE, net of current portion 7,208,830 7,983,560
MAINTENANCE RESERVES, net of current portion 7,042,611 7,495,345
AIRCRAFT AND ENGINE DEPOSITS 21,687,709 21,308,588
RESTRICTED CASH AND CASH EQUIVALENTS 1,581,974 2,638,158
OTHER 191,649 180,855
------------ ------------
$123,316,631 $123,046,689
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 9,866,149 $ 11,637,006
Accrued expenses 19,587,916 21,947,117
Air traffic liability 23,883,201 15,617,480
Short term debt 5,407,346 10,455,985
Current portion of long-term debt 1,003,185 1,007,757
Other 271,968 82,590
------------ ------------
Total Current Liabilities 60,019,765 60,747,915
------------ ------------
LONG-TERM DEBT, net of current portion 14,985,923 15,214,819
OTHER LIABILITIES 1,260,630 1,396,735
MINORITY INTEREST 1,449,474 2,239,033
COMMITMENTS AND CONTINGENCIES
PREFERRED STOCK, $.001 par value, 200,000 shares
issued and outstanding at March 31, 1997 12,226,498 -
STOCKHOLDERS' EQUITY:
Preferred stock, $.001 par value, no
shares outstanding at March 31, 1997 and
December 31, 1996 - -
Common stock, $.001 par value, 13,397,853 and
13,381,894 issued and outstanding at March
31, 1997 and December 31, 1996, respectively 13,498 13,387
Common stock to be issued - 800,411
Deferred compensation (916,667) (1,016,667)
Additional paid-in capital 80,708,581 80,265,823
Treasury stock, at cost - (84,902)
Warrants 7,988,040 -
Accumulated deficit (54,419,111) (36,529,865)
------------ ------------
Total stockholders' equity 33,374,341 43,448,187
------------ ------------
$123,316,631 $123,046,689
------------ ------------
------------ ------------
See accompanying notes.
3
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WESTERN PACIFIC AIRLINES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
1997 1996
------------ ------------
(Unaudited) (Unaudited)
OPERATING REVENUES:
Passenger $ 34,322,549 $ 32,787,072
Other 1,494,533 918,531
------------ ------------
Total Operating Revenues 35,817,082 33,705,603
------------ ------------
OPERATING EXPENSES:
Salaries, wages and benefits 9,842,332 6,941,177
Aircraft lease 9,880,337 7,757,070
Aircraft fuel and oil 9,165,192 5,872,625
Other rentals, landing and ground handling fees 5,205,656 4,238,657
Advertising 3,226,989 2,147,520
Insurance 1,370,988 1,778,689
Maintenance materials and repairs 5,868,641 1,874,612
Agency commissions 1,433,402 1,064,817
Depreciation and amortization 1,458,444 777,894
Other operating 6,614,011 4,429,859
------------ ------------
Total Operating Expenses 54,065,992 36,879,920
------------ ------------
OPERATING LOSS (18,248,910) (3,174,317)
INTEREST INCOME, NET OF EXPENSE (354,033) 731,106
------------ ------------
NET LOSS BEFORE MINORITY INTEREST (18,602,943) (2,443,211)
MINORITY INTEREST 788,599 -
------------ ------------
NET LOSS $(17,814,344) $ (2,443,211)
------------ ------------
------------ ------------
LOSS PER COMMON SHARE AND COMMON
SHARE EQUIVALENT $ (1.33) $ (0.18)
------------ ------------
------------ ------------
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES AND COMMON SHARE EQUIVALENTS
OUTSTANDING 13,395,021 13,222,815
------------ ------------
------------ ------------
See accompanying notes.
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4
<PAGE>
WESTERN PACIFIC AIRLINES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1999
1997 1996
------------ ------------
(Unaudited) (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $(17,814,344) $(2,443,214)
Adjustments to reconcile net loss to net cash
used in operations-
Depreciation and amortization 1,458,444 774,894
Gain on sales leaseback 18,471 18,471
Minority interest in loss (788,599) -
Amortization of deferred compensation 100,000 100,000
(Increase) decrease in accounts receivables (2,936,406) 210,379
Increase in prepaid expenses and deposits (1,914,449) (402,426)
Increase in prepaid maintenance (1,446,746) (726,977)
Increase in aircraft and engine reserves (125,493) (1,783,095)
Decrease (increase) in restricted cash and
cash equivalents 854,022 (2,107,396)
Increase in aircraft deposits (379,121) (848,019)
Increase in other assets (10,794) (42,235)
Decrease in accounts payable (1,770,857) (1,123,618)
Decrease in accrued expenses (2,359,201) (2,847,992)
Increase in air traffic liability 8,265,741 4,495,044
Increase (decrease) on other liabilities 34,802 (367,406)
------------ -----------
Net cash used in operating activities (18,814,530) (7,093,590)
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (1,898,896) (1,853,294)
------------ -----------
Net cash flows used in investing activities (1,898,896) (1,853,294)
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of preferred stock, net of conversion
of short-term debt 7,011,960 -
Issuance of warrants 7,988,040 -
Payment of interest on short-term debt (48,549) -
Principal payments on long-term debt (233,468) -
Additional issuance costs for initial public
offering - (289,028)
Issuance costs for preferred stock and warrants (235,447)
Sale of Common Stock in connection with employee
stock purchase plan and exercise of options 101,393 183,812
------------ -----------
Net cash flows provided by financing activity 14,583,929 (105,216)
------------ -----------
DECREASE IN CASH AND CASH EQUIVALENTS (6,129,497) (9,052,100)
CASH AND CASH EQUIVALENTS, beginning of period 12,076,034 49,966,697
------------ -----------
CASH AND CASH EQUIVALENTS, end of period(1) $ 5,946,537 $40,914,597
------------ -----------
------------ -----------
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for income taxes - 80
------------ -----------
------------ -----------
See accompanying notes.
(1) Excludes restricted cash and cash equivalents of $8,517,049 and $10,276,847
at March 31, 1997 and 1996, respectively.
5
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WESTERN PACIFIC AIRLINES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. PREPARATION OF FINANCIAL STATEMENTS
The accompanying financial statements are unaudited and reflect all adjustments
(consisting only of normal recurring adjustments) which are, in the opinion
of management, necessary for a fair presentation of the financial position
and operating results for the interim periods. The organization and business
of Western Pacific, accounting policies followed by Western Pacific, and
other information are contained in the notes to Western Pacific's audited
financial statements filed as part of Western Pacific's December 31, 1996
Annual Report on Form 10-K. This quarterly report should be read in
conjunction with such annual report. The results of operations for the three
months ended March 31, 1997 may not necessarily be indicative of the results
for the entire fiscal year ending December 31, 1997.
2. PREFERRED STOCK AND WARRANTS
On January 31, 1997, the Board of Directors of Western Pacific Airlines
authorized the designation of 200,000 shares of its preferred stock as Series B
Preferred Stock ("Series B") with a par value of $.001 per share. In
February 1997, Western Pacific completed the sale of all 200,000 shares of
Series B for total proceeds of $20.0 million, which included the conversion
of $5.0 million of notes payable issued in December 1996.
At any time after the three year anniversary of the issue date, the holders
of Series B shall have the right to cause Western Pacific to redeem all or
any part of Series B for an amount equal to the original issue price ($100
per share) plus all dividends accumulated and unpaid.
At any time after the three year anniversary of the issue date, the holders
of Series B shall have the right to convert all or any portion of such Series
B into an exchange note in the principal amount equal to the issue price plus
any accrued and unpaid cash dividends from the issue date. The exchange note
will bear interest at the rate of ten percent (10%) per annum.
The holders of Series B are entitled to receive, when, as and if authorized
by the Board of Directors out of funds legally available for that purpose,
quarterly cash dividends in an amount per share equal to $2.50 per quarter or
$10.00 per annum. Such dividends began to accumulate and are fully
cumulative from the issue date, whether or not authorized by the Board of
Directors and whether or not in any period there are funds of Western Pacific
legally available for the payment of such dividends.
In the event of any liquidation, dissolution or winding up of Western
Pacific, whether voluntary or involuntary, before any payment or distribution
of the assets of Western Pacific shall be made to or set apart for the
holders of shares ranking junior to the Series B, holders of Series B shall
be entitled to receive in immediately available funds an amount equal to the
issue price per share, plus all dividends accumulated and unpaid thereon to
the date of final distribution to such holders ("Liquidation Preference").
At any time after the issue date, the Series B may be redeemed by Western
Pacific, at its option in whole or in part at any time, for an amount payable
in immediately available funds equal to the Liquidation Preference on the
date fixed for redemption.
In connection with the sale of the Series B, Western Pacific issued to the
same parties, warrants to purchase up to 2,650,000 shares of Western
Pacific's common stock at a price of $.01 per share. The ultimate number of
warrants that will vest depends on the length of time that the Series B
remains outstanding. The vesting schedule is as follows: (i) warrants for
the purchase of 272,239 shares of common stock vested on the issue date of
the Series B, (ii) warrants for the purchase of 272,239 shares vest on
December 1, 1997, as long as and to the extent that the Series B remains
outstanding, (iii) warrants for the purchase of 907,514 shares of common
stock vest ratably from May 1, 1998 through April 30, 1999, as long as the
Series B remains outstanding, and (iv) warrants for the purchase of 1,198,008
shares of common stock vest ratably from May 1, 1999 to April 30, 2000, as
long as the Series B remains outstanding.
6
<PAGE>
The $20 million in gross proceeds received by Western Pacific is allocated
between the Series B and the warrants based on the respective fair values of
each instrument, or approximately $12.0 million for the Series B preferred
stock and approximately $8.0 million for the warrants. The initial carrying
amount of the Series B has, and will be, increased by periodic accretions so
that the carrying amount will equal the redemption amount ($20.0 million) at
the redemption date in February 2000. The periodic increases in carrying
amount have, and will be, affected by charges against additional paid in
capital.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
CERTAIN STATEMENTS CONTAINED IN THIS DOCUMENT CONTAIN "FORWARD LOOKING
STATEMENTS" WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM
ACT OF 1995. SUCH FORWARD LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS
AND UNCERTAINTIES. WESTERN PACIFIC'S ACTUAL ACTIONS OR RESULTS MAY DIFFER
MATERIALLY FROM THOSE DISCUSSED IN THE FORWARD LOOKING STATEMENTS. SPECIFIC
FACTORS THAT MIGHT CAUSE SUCH A DIFFERENCE INCLUDE, BUT ARE NOT LIMITED TO,
AVAILABILITY OF ADEQUATE WORKING CAPITAL, COMPETITIVE REACTION TO WESTERN
PACIFIC'S EXPANSION PLANS, RISE IN FUEL COSTS, REGULATORY ACTIONS BY THE
DEPARTMENT OF TRANSPORTATION OR THE FEDERAL AVIATION ADMINISTRATION, FUTURE
INCIDENTS SUCH AS THE GULF WAR, FUTURE AIRLINE ACCIDENTS (PARTICULARLY IF
INVOLVING A LOW COST CARRIER), AND GENERAL ECONOMIC CONDITIONS IN THE UNITED
STATES. SEE ADDITIONAL DISCUSSION UNDER "RISK FACTORS."
OVERVIEW
Western Pacific commenced operations on April 12, 1994 as a development
stage enterprise organized to operate a low-fare, medium-haul, scheduled
passenger airline from its hub at the Colorado Springs Airport. From its
inception until it commenced flight operations on April 28, 1995, Western
Pacific's activities were limited to start-up activities.
Western Pacific began flight operations on April 28, 1995 with two
Boeing 737-300 aircraft and provided six daily round-trips between Colorado
Springs and five cities. During 1995 and 1996, Western Pacific continued to
add aircraft and cities, and had 15 aircraft providing up to 37 round-trips
between Colorado Springs and 17 cities across the United States at May 1,
1997. On February 6, 1997 Western Pacific initiated a major schedule change
whereby available seat miles ("ASMs") were increased by 21% and average hours
of daily aircraft utilization were increased by 19% by scheduling night
flights, and reducing connection times. The following chart indicates Western
Pacific's changes in service since December 31, 1996.
<TABLE>
WESTERN PACIFIC
AIRLINES, INC. TOTAL NUMBER
NUMBER OF ROUND
AS OF MONTH END OF AIRCRAFT TRIPS SERVICE CHANGES
- --------------- ----------- -------- ---------------
<S> <C> <C> <C>
February 1997 15 38 Added additional service to all cities except Houston,
Miami, and Seattle, and withdrew service from Ontario
(CA), San Antonio, Nashville, and Las Vegas
April 1997 15 37 Withdrew service from Miami
</TABLE>
Western Pacific will accept delivery of four new 737-300 aircraft in May and
June 1997. Western Pacific has announced a major scheduling initiative,
whereby Western Pacific will enter the Denver market and daily flights will
be increased to approximately 67 per day on June 29, 1997. Approximately 45
of these flights will be originating at the Denver International Airport
("DIA"), while approximately 22 of these will be originating or terminating
at Colorado Springs Airport. Approximately 23 connecting flights between DIA
and Colorado Springs Airport will also be offered.
During 1996, Western Pacific assisted in the start-up of an affiliated
regional carrier, Mountain Air Express ("MAX") to carry traffic into and out
of Colorado ski markets and other smaller travel markets that cannot support
frequent jet service. MAX, which commenced flight operations on December 15,
1996, is a separate company from
7
<PAGE>
Western Pacific Airlines, Inc. with its own operating certificate and
management. Western Pacific's present ownership in MAX is approximately 57%
of the voting stock. MAX has also announced that it will be moving the bulk
of its operations to DIA, effective June 29, 1997, when MAX intends to begin
to offer up to 24 flights per day from DIA and one daily flight from Colorado
Springs.
The following chart indicates MAX's routes served since it commenced flight
operations on December 15, 1996.
<TABLE>
MOUNTAIN AIR EXPRESS,
INC. TOTAL NUMBER
NUMBER OF ROUND
AS OF MONTH END OF AIRCRAFT TRIPS SERVICE CHANGES
- --------------- ----------- -------- ---------------
<S> <C> <C> <C>
December 1996 4 up to 23 Initiated service to Steamboat Springs/Hayden,
Aspen/Snowmass, Crested Butte/Gunnison, and
Telluride/Montrose, Colorado
January 1997 4 up to 23 Added service to Durango, Colorado
April 1997 4 16 Added service to Casper and Cheyenne, Wyoming;
Grand Junction and Ft. Collins, Colorado; Oklahoma
City and Tulsa, Oklahoma; Sante Fe, New Mexico; and
Kansas City, Missouri; withdrew service from Steamboat
Springs/Hayden, Telluride/Montrose, and Durango, Colorado
</TABLE>
MAX expects to take delivery of a fifth Dornier 328 aircraft in May 1997.
In November 1996, Colorado Springs Car Rental, Inc., a Thrifty Rent-A-Car
franchisee and a 100% owned subsidiary of Western Pacific, commenced
operations from its base in Colorado Springs.
RESULTS OF OPERATIONS
OPERATING REVENUES
WESTERN PACIFIC AIRLINES
Airline revenue is primarily a function of the number of passengers
flown and the fares charged by the airline. Passenger ticket sales are
recognized as revenue when the transportation is provided. Western Pacific's
fares are generally non-refundable. Prior to completing the total conversion
of Western Pacific's reservations to the computerized reservation system
("CRS") on April 25, changes in travel plans could be made only prior to
scheduled departure for a $50 change fee, plus any fare increase. After the
change to the CRS, tickets not used remain a liability of the airline, until
used to pay for other flights or until the ticket expires, generally after
one year. Fares for passengers who did not cancel in advance of scheduled
departure and did not take the scheduled flight were recognized as revenue
when the scheduled flight departed for flights prior to April 25.
The chart presented below compares Western Pacific's passenger load
factor to the incremental growth in capacity as measured by available seat
miles (ASM) for the quarters of 1997 and 1996. The airline industry is
extremely seasonal, with the highest load factors typically occurring in the
summer months, and the lowest load factors occurring during September through
October and January, February, April and May. Western Pacific's load factor
decreased 11.4 percentage points for the quarter ended March 31, 1997 from
the quarter ended December 31, 1996, primarily due to prior large increases
in capacity and the inadequacy of certain marketing programs in the fourth
quarter of 1996.
During the fourth quarter of 1996, Robert A. Peiser joined Western
Pacific as President and Chief Executive Officer, Mark J. Coleman as Senior
Vice-President of Marketing and Planning, and George E. Leonard as
Vice-President of Finance and Chief Financial Officer. Under this new
management team, Western Pacific began the first quarter of 1997 with a large
increase in capacity and very low levels of advanced bookings. There were
substantial traffic improvements during the last two weeks of March, but the
full impact of the new marketing initiatives were not felt until April.
Western Pacific's load factor decreased 10.0 percentage points, when
comparing the quarter ended March 31, 1997 to the quarter ended March 31,
1996, due to aggressive capacity increases and pricing initiatives by
competitors at both Colorado Springs and Denver, and the reimposition of the
10% federal excise tax on tickets, effective March 7, 1997.
8
<PAGE>
<TABLE>
PASSENGER TOTAL INCREASE (DECREASE)
OPERATING PERIOD LOAD FACTOR AVAILABLE SEAT MILES IN CAPACITY
- ---------------- ----------- -------------------- -------------------
(000S)
<S> <C> <C> <C>
Quarter ended March 31, 1996........... 58.7 565,706 32.2%
Quarter ended June 30, 1996............ 56.5 622,519 10.0%
Quarter ended September 30, 1996....... 57.5 745,821 19.8%
Quarter ended December 31, 1996........ 60.1 673,607 (9.7%)
Quarter ended March 31, 1997........... 48.7 758,592 12.6%
</TABLE>
Passenger revenue per revenue passenger mile (RPM) or yield is expected
to increase due to a combination of factors, including increases in average
fares and decreases in discounted introductory fares as a percentage of total
fares. However, in periods when Western Pacific introduces promotional fares
to stimulate additional travel in existing markets, Western Pacific generally
experiences a decrease in passenger revenue per RPM as is reflected in the
decline in the passenger revenue per RPM during the third and fourth quarters
of 1996 and the first quarter of 1997 when Western Pacific introduced
"Mystery Fares", "Peak Pacs", "Pack USAs", travel agents' "Love A Fares", and
"Best to the West/Least to the East" fares. As noted previously, new
management joined Western Pacific in the fourth quarter of 1996. At December
31, 1996, there were very low levels of advance bookings for the first
quarter of 1997. Western Pacific determined, therefore, that promotional
fares were needed to stimulate the market. Western Pacific believes that the
negative impact of entering new markets and the use of discounted fares
should decrease as Western Pacific increases its overall revenue base,
customer awareness and expands into the Denver market. For the quarter ended
March 31, 1997, Western Pacific produced a yield of 8.61 CENTS which is a 2.7%
increase in yield from the prior quarter when a high number of passengers
traveled as part of the "Mystery Fare" promotion which was held primarily
during the fourth quarter of 1996. Western Pacific's yield during the
quarter ended March 31, 1997 was 12.8% below the yield experienced during the
first quarter of 1996.
<TABLE>
PASSENGER
PASSENGER REVENUE AVERAGE REVENUE
OPERATING PERIOD REVENUE PASSENGER MILES SEGMENT FARE PER RPM
- ---------------- --------- --------------- ------------ ---------
(000'S) (000'S)
<S> <C> <C> <C> <C>
Quarter ended March 31, 1996....... 32,787 332,061 80.36 9.87
Quarter ended June 30, 1996........ 38,265 351,547 91.89 10.60
Quarter ended September 30, 1996... 44,375 428,509 90.98 10.36
Quarter ended December 31, 1996.... 33,909 404,689 74.37 8.38
Quarter ended March 31, 1997....... 32,045 369,557 77.54 8.61
</TABLE>
Western Pacific's operating break-even load factor during the
twenty-four months of its operations has fallen from a high of 104.8% in May
1995 to 56.4% for the quarter ended June 30, 1996. The Company's cost per
ASM for the fourth quarter of 1996 was 8.28 CENTS included restructuring
charges; without these restructuring charges, the cost per ASM for the fourth
quarter of 1996 was 7.14 CENTS. The cost per ASM for the quarter ended March
31, 1997 was 6.58 CENTS, a decrease of .56 CENTS, net of restructuring charges,
or 7.8% from the prior quarter. This decrease was due to decreased fuel
costs and tighter cost controls implemented by the new management team. The
cost per ASM for the quarter ended March 31, 1997 was only .9% above the cost
per ASM from the quarter ended March 31, 1996 despite higher expenses related
to fuel costs and maintenance expenses. However, the operating break even
load factor increased by 9.6 percentage points based on the reduction in
yield year over year as explained previously. There can be no assurance that
any incremental passenger revenue generated in the future as Western Pacific
expands its fleet will be sufficient to cover incremental costs or that,
ultimately, as a result of these or other factors, Western Pacific's
operating break-even load factor will decrease.
OPERATING OPERATING
COST PER BREAK-EVEN
OPERATING PERIOD ASM (CENTS) LOAD FACTOR
- ---------------- ----------- -----------
Quarter ended March 31, 1996.......... 6.52 64.2
Quarter ended June 30, 1996........... 6.31 56.4
Quarter ended September 30, 1996...... 6.23 58.7
Quarter ended December 31, 1996....... 8.28 96.2
Quarter ended March 31, 1997.......... 6.58 73.8
9
<PAGE>
MOUNTAIN AIR EXPRESS
Mountain Air Express commenced flight operations on December 15, 1996.
The determination of MAX's revenues is currently governed by an Alliance
Agreement between MAX and Western Pacific and the number of passengers flown.
Under the Alliance Agreement, all of MAX's marketing, scheduling, and
pricing decisions are made by Western Pacific. In return, MAX receives an
agreed amount from Western Pacific, ranging from $57.26 to $92.50, for each
passenger segment flown. The agreed amount may be renegotiated by MAX in the
event of certain occurrences, such as decreases in load factors or increases
in fuel prices. MAX also expects its revenue to be seasonal, with higher
load factors in the winter and summer, and reduced load factors in the spring
and fall.
<TABLE>
TOTAL PASSENGER OPERATING
PASSENGER AVAILABLE SEAT MILES REVENUE BREAK-EVEN
OPERATING PERIOD LOAD FACTOR (000S) PER RPM (CENTS) LOAD FACTOR
- ---------------- ----------- ------ --------------- -----------
<S> <C> <C> <C> <C>
Dec. 15 - Dec. 31, 1996........ 44.4% 1,250 43.39CENTS 674.0%
Quarter ended March 31, 1997... 28.3% 12,215 65.84CENTS 50.4%
</TABLE>
The decrease in load factor for the quarter ended March 31, 1997 from the
period ended December 31, 1996 is due primarily to seasonality. The increase
in the passenger revenue per RPM or yield for the quarter ended March 31,
1997 can be attributed to increases in the agreed amount per segment flown.
The decrease in the operating break-even load factor percentage is due to the
increase in yield and the effect of a full quarter of operations over which
to allocate fixed costs.
OPERATING EXPENSES
WESTERN PACIFIC AIRLINES
The following table shows the components of operating cost per available
seat mile (shown in cents):
THREE MONTHS THREE MONTHS
ENDED ENDED
MAR. 31, 1997 MAR. 31, 1996
------------- --------------
(CENTS) (CENTS)
Salaries, wages and benefits 1.14 1.23
Aircraft lease expense 1.22 1.37
Aircraft fuel and oil 1.15 1.04
Other rentals, landing, and ground handling fees .62 .75
Advertising and public relations .42 .38
Insurance expense .15 .31
Maintenance materials and repairs .75 .33
Agency and cargo commissions .19 .19
Depreciation and amortization .19 .14
Other operating expenses .75 .78
---- ----
Total 6.58 6.52
---- ----
---- ----
Salaries, wages and benefits decreased by .09 cents per ASM or 7% when
comparing the quarter ended March 31, 1997 to the quarter ended March 31,
1996. This decrease can be attributed to a 34% increase in ASMs, with only a
19% increase in full-time equivalent (FTE) personnel.
Aircraft lease expense decreased .15 cents per ASM, or 11% for the
quarter ended March 31, 1997 from the quarter ended March 31, 1996. At March
31, 1996, Western Pacific had 13 leased aircraft, while at March 31, 1997,
Western Pacific had 14 leased aircraft, and one owned aircraft whose costs
are accounted for in depreciation expense. The increase in the number of
ASMs for the quarter ended March 31, 1997 from the quarter ended March 31,
1996 is 34%, with only an 8% increase in the number of aircraft. The
increase is ASMs was due to a schedule change initiated on February 6, 1997
which increased the number of hours of daily aircraft utilization by 19%.
10
<PAGE>
Aircraft fuel and oil expense increased by .11 cents per ASM or 11% when
comparing the quarter ended March 31, 1997 to the quarter ended March 31,
1996. This increase reflects the effect of a 10.6 cent per gallon or 14%
fuel price increase over the period, partially offset by reduced consumption
per aircraft flight hour due to the longer average stage length.
Other rentals, landing, airport and ground handling fees decreased by
.13 cents per ASM or 17% when comparing the quarter ended March 31, 1997 to
the quarter ended March 31, 1996. This decrease was primarily due to a 5%
increase in average stage length, which increased from 829 miles for the
quarter ended March 31, 1996 to 869 miles for the quarter ended March 31,
1997. This increase in the average stage length indicates that the increase
in the number of flights was materially less on a percentage basis than the
increase in the number of ASMs. Additionally, airport rents and fees per ASM
at Western Pacific's hub in Colorado Springs decreased substantially because
of a substantial increase in the number of passengers enplaned. Lastly,
Western Pacific added flight frequencies in existing markets so the increase
in ASMs did not have a corresponding increase in costs.
Advertising expense increased by .04 cents per ASM or 11% when comparing
the quarter ended March 31, 1997 to the quarter ended March 31, 1996. This
increase is due to the high number of promotional fares and schedule changes
advertised in the first quarter of 1997 such as "Peak Pacs", "Pack USA", and
"Best to the West/Least to the East", necessitated by the low levels of
advance bookings for the quarter at December 31, 1996.
Insurance expense decreased by .16 cents per ASM or 50% when comparing
the quarter ended March 31, 1997 to the quarter ended March 31, 1996. This
decrease reflects a premium reduction obtained by Western Pacific due to
fewer aircraft in service than originally projected for the policy year.
Maintenance materials and repairs expense increased by .42 cents per ASM
or 127% when comparing the quarter ended March 31, 1997 to the quarter ended
March 31, 1996. This increase reflects the amortization of airframe "C"
maintenance checks and engine overhauls performed on Western Pacific's fleet.
Western Pacific uses the deferral method of accounting for "C" check
maintenance and engine overhaul costs.
Agency and cargo commissions remained flat at .19 cents per ASM for both
the quarter ended March 31, 1997 and the quarter ended March 31, 1996.
Western Pacific anticipates that agency and cargo commissions will increase
as a percentage of total expenses in future quarters, as Western Pacific
entered into agreements with several of the industry's CRS systems in March
of 1997 so that seats on Western Pacific's flights could be booked directly
by a travel agent without the need to telephone Western Pacific's reservation
office. This agreement has given Western Pacific's flights increased
exposure to travel agents, who are now expected to account for a larger
percentage of Western Pacific's flight booking activity.
Depreciation and amortization increased by .05 cents per ASM or 36% when
comparing the quarter ended March 31, 1997 to the quarter ended March 31,
1996. Western Pacific acquired its first aircraft which was purchased in
June 1996. The depreciation associated with this purchased aircraft was
$256,000 or .03 cents per ASM for the quarter ended March 31, 1997. The
remainder of the increase can be attributed to Western Pacific's maintenance
hangar and new concourse at Colorado Springs Airport.
Other operating expenses decreased by .03 cents per ASM or 4% when
comparing the quarter ended March 31, 1997 to the quarter ended March 31,
1996. Other operating expenses include property taxes, telecommunication and
utilities charges, professional and consulting services, supplies and minor
equipment (excluding aircraft maintenance supplies), credit card processing
fees, bad debt expense, travel and incidental expense, and passenger
reaccommodation and baggage delivery charges. Some of these costs, such as
utilities, professional fees, and travel and incidental are costs which do
not vary with the number of ASMs so the decrease in these costs results from
the larger number of ASMs over which such costs are allocated. Decreases in
variable costs such as telecommunications, supplies, credit card processing
fees, etc., resulted from Western Pacific's continued focus on cost control
and an increase in the number of ASMs over which such costs are allocated.
MOUNTAIN AIR EXPRESS
The following table shows the components of operating cost per available
seat mile (shown in cents):
11
<PAGE>
<TABLE>
THREE MONTHS
ENDED DEC. 15 -
MAR. 31, 1997 DEC. 31, 1996
------------- -------------
<S> <C> <C>
(CENTS) (CENTS)
Salaries, wages and benefits 10.03 14.16
Aircraft lease expense 4.87 9.52
Aircraft fuel and oil 3.45 4.16
Other rentals, landing, and ground handling fees 4.09 3.44
Advertising and public relations .01 2.80
Insurance expense 1.82 3.12
Maintenance materials and repairs 1.42 5.52
Agency and cargo commissions --
Depreciation and amortization .30 .24
Other operating expenses 7.19 3.04
----- -----
Total 33.18 46.00
----- -----
</TABLE>
The decrease in the cost per ASM for the quarter ended March 31, 1997 can be
attributed to the effects of operating for a complete quarter over which to
spread fixed costs.
BALANCE SHEET FLUCTUATION ANALYSIS (CONSOLIDATED)
Western Pacific's accounts receivable increased by $2.9 million or 91%
during the three months ended March 31, 1997. Approximately $2.2 million of
this increase is due to a lag in processing credit card receivables as a
result of Western Pacific having Airline Reporting Corporation process its
travel agency billing information. The remaining $.7 million is an increase
in the balance due from Airline Reporting Corporation resulting from the
timing of its weekly processing cycles.
Western Pacific's prepaid expenses and other current assets account
increased by $1.9 million or 31% during the three months ended March 31,
1997. Approximately $.6 million of this increase is prepaid travel agency
commissions, $.5 million is prepaid CRS fees, and $.5 million related to
reaccommodation charges for schedule changes for passengers who have not yet
traveled.
Western Pacific's current and long-term prepaid maintenance accounts
increased by $1.4 million or 11% during the three months ended March 31,
1997. Western Pacific follows the deferral method of accounting for
maintenance events, whereby costs for "C" checks on Western Pacific's fleet
of aircraft are capitalized when the event occurs and amortized over the
period until the next scheduled maintenance event.
Western Pacific's air traffic liability account increased by $8.3
million or 53% during the three months ended March 31, 1997. This increase
resulted primarily from an increase in the number of bookings due to Western
Pacific's expanded distribution via the CRS systems.
Western Pacific's short term debt decreased $5.0 million due to
conversion of a portion of such debt to preferred stock and warrants. See
Notes to Consolidated Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES
WESTERN PACIFIC
From Western Pacific's inception on April 12, 1994 through March 31, 1997,
its preoperating and development costs, as well as its operating costs since
it commenced flight operations, have been funded primarily with the proceeds
from private sales of its equity securities, the proceeds from its initial
public offering, and the issuance of debt, as well as from operating
revenues. Western Pacific has received net proceeds from the sale of its
equity securities aggregating approximately $76.8 million. During the
quarter ended March 31, 1997, Western Pacific's operating activities resulted
in a cash flow deficit of $16.8 million. These cash flow deficits have been
funded primarily with the proceeds from the issuance of Western Pacific's
equity securities as discussed in Notes to Consolidated Financial Statements.
At March 31, 1997, Western Pacific had cash and cash equivalents of $13.2
million, including restricted cash and cash equivalents of $8.5 million.
Western Pacific had a working capital deficit at March 31, 1997 of $17.2
million.
12
<PAGE>
Cash flow used in investing activities totaled $1.9 million during the
quarter ended March 31, 1997 and $1.9 million for the quarter ended March 31,
1996. Capital expenditures in each of the first quarters of 1997 and 1996
consisted of aircraft improvements and miscellaneous equipment. In December
1996, Western Pacific issued a $1.5 million letter of credit in favor of
MAX. MAX drew $1.0 million of this letter of credit in March 1997.
Western Pacific expects to incur approximately $1.6 million for capital
expenditures during 1997 for aircraft modifications, including Heads Up
Display and Wind Shear avoidance systems, aircraft fleet induction costs,
reservation and information system improvements and facility leasehold
improvements. An additional $1.4 million in payments will be made to The
Boeing Company for interest payments on new aircraft deliveries. Western
Pacific is in negotiations for the financing of these new aircraft, and
anticipates the majority of the costs of these aircraft will be financed by
third parties. In addition, Western Pacific may be required to post a letter
of credit or other type of financial bond of up to $3.0 million to secure
gates, ramp, and office space at DIA when Western Pacific begins to serve
that market on June 29, 1997.
The State of Colorado General Assembly amended its aviation fuel tax
laws at the request of Western Pacific. This legislation has been signed by
the Governor of Colorado into law. This law allows the use of aviation fuel
tax money for the fiscal year beginning July 1, 1997 for economic development
projects at airports in Colorado, including Denver. The City and County of
Denver have indicated that it is willing to consider applying for a loan
guarantee to Western Pacific for expenditures related to the move of flight
operations to Denver. It is anticipated that the City and County of Denver
will make an application to the state of Colorado to use some of these fuel
tax moneys as cash collateral for a loan to Western Pacific. However, there
is no assurance that this loan will be made.
At March 31, 1997, Western Pacific operated fifteen aircraft, with
fourteen under operating leases with original terms of either five or ten
years. Rent expense under these leases is recognized on a straight-line basis
over the lease terms. The amount charged to aircraft lease expense was
approximately $9.3 million and $7.8 million for the quarters ended March 31,
1997 and 1996, respectively. Future minimum rental payments under these
fourteen operating leases over the remaining terms, are approximately $258
million, of which $35.8 million will be paid during 1997. During 1997,
Western Pacific expects to incur approximately $33.5 million for aircraft
maintenance reserve deposits, aircraft lease security deposits and aircraft
heavy maintenance (net of reserves and lessor contributions). Additionally,
Western Pacific owns one aircraft, with minimum principal and interest
payments of $2.6 million due during 1997.
Cash flow provided by financing activities totaled $14.6 million and
($.1) million during the quarters ended March 31, 1997 and 1996,
respectively. On January 31, 1997, the Board of Directors of Western Pacific
authorized the designation of 200,000 shares of its preferred stock as Series
B Preferred Stock with a par value of $.001 per share. In February 1997,
Western Pacific completed the sale of all 200,000 shares of Series B
Preferred Stock for total proceeds of $20.0 million, which included the
conversion of $5.0 million in notes payable issued in December 1996. See
Notes to the Consolidated Financial Statements.
On April 25, 1997, Western Pacific entered into a revised Aviation Fuel
Management Agreement (the "Fuel Management Agreement") with Mercury Air Group
("Mercury"), whereby Mercury agreed to provide certain fuel supply services
to Western Pacific. In conjunction with the Fuel Management Agreement,
Western Pacific also executed a promissory note in favor of Compass Bank in
the principal sum of $6.0 million (the "Compass Note"). The Compass Note
provides that Western Pacific may borrow funds from Compass Bank in order to
pay amounts due and owing under the Fuel Management Agreement. Payment of
all amounts due and owing from Western Pacific to Compass Bank under the
Compass Note is guaranteed by Mercury. In consideration of Mercury entering
into the Fuel Management Agreement and its agreement to guarantee the
obligations of Western Pacific arising pursuant to the Compass Note, on April
25, 1997, Western Pacific issued warrants to Mercury to purchase 200,000
shares of Western Pacific's Common Stock (the "Mercury Warrants") at an
exercise price of $6.875 per share. The Mercury warrants became exercisable
upon issuance and expire on April 25, 2000. With respect to Mercury Warrants
that remain unexercised on July 28, 1998, Western Pacific may become
obligated thereunder to issue additional shares of Common Stock to Mercury
(or make cash payments to Mercury) to the extent that the highest average
trading price of Western Pacific's Common Stock (as reported on Nasdaq during
any 20 consecutive trading days during the three month period ending July 28,
1998) does not meet at least a 20% target return level, as set forth in the
Mercury Warrants. Western Pacific drew down $3.7 million on this credit line
on April 28, 1997, and is expected to use the remaining $2.3 million
available during the month of May 1997.
13
<PAGE>
Western Pacific is actively seeking arrangements that will allow it to
increase its liquidity. Western Pacific has taken certain short term
measures to conserve its cash resources through the month of May which is
generally a lower revenue month in the airline industry. Western Pacific has
contracted to outsource its Information Technology function to Perot Systems
Corporation. This transaction allows Western Pacific to issue common stock
in lieu of cash for certain of the required monthly service fees. Western
Pacific is also working with the City of Colorado Springs to issue Special
Facility Bonds to repay Western Pacific for the costs of construction of the
new concourse at Colorado Springs Airport. There can be no assurance that
these bonds will actually be sold, nor at what price. Western Pacific
continues to seek other methods of raising additional capital, including the
sale and leaseback of its one owned aircraft and additional equity or debt
offerings. Although management believes that Western Pacific will be able to
secure such additional capital, if Western Pacific is unable to do so, cash
flow from operations might not be sufficient to cover Western Pacific's
financial obligations during 1997.
MOUNTAIN AIR EXPRESS
MAX's cash balance at March 31, 1997 was $1.4 million and working
capital was $.9 million. Additionally, MAX had a receivable from Western
Pacific for revenue under the Alliance Agreement of $1.2 million. MAX raised
$4.2 million from the private sale of its preferred stock during 1996,
including $.1 million from Western Pacific. MAX's loss from operations for
the quarter ended March 31, 1997 totaled $1.8 million, and $3.3 million for
the period from inception through December 31, 1996. This loss was funded by
MAX's sale of equity securities and a loan from Western Pacific for $2.1
million. Western Pacific provided MAX with a $1.5 million letter of credit
prior to MAX's commencement of flight operations, which MAX has drawn $1.0
million.
MAX incurred $1.1 million in investing activities, primarily for the
purchase of property and equipment, and aircraft acquisition since inception.
These activities were financed by the proceeds of the sale of equity
securities and a loan from Western Pacific. MAX expects to incur
approximately $4.0 million for investing activities in 1997: $3.3 million for
aircraft acquisition and lease payments on current aircraft, and $0.7 million
for capital expenditures. MAX expects to finance these payments through cash
flow from operations, third party financings, and the sale of equity
securities. Western Pacific has no further commitment to MAX to provide any
future financing or capital. MAX may renegotiate the agreed amount it is
receiving per segment from Western Pacific on a quarterly basis if certain
events occur, such as increases in the price of fuel or shortfalls in MAX's
load factor from its plan. Western Pacific is currently using MAX to
supplement service on some of its shorter haul routes such as Tulsa, Oklahoma
City, and Kansas City, bringing additional revenue to MAX, and freeing
Western Pacific's aircraft to add service in higher yield markets.
RISK FACTORS
The following issues and uncertainties, among others, should be considered in
evaluating Western Pacific's future performance.
HISTORICAL LOSSES. Western Pacific began scheduled flight operations on April
28, 1995, and Mountain Air Express began scheduled flight operations on
December 15, 1996. During the period from the Company's inception through
March 31, 1997, the Company incurred net losses totaling $35.7 million.
Given the Company's limited operating history, there can be no assurances
that the Company will be profitable in the future.
AVAILABILITY OF WORKING CAPITAL AND FINANCING SOURCES. Neither Western
Pacific nor Mountain Air Express have generated positive cash flow
consistently since inception. Western Pacific had a deficit in consolidated
working capital at March 31, 1997 of $16.6 million. The airline industry is
extremely capital intensive, especially for a growing carrier, with payments
for new aircraft and maintenance requirements for the existing fleet.
Western Pacific is evaluating additional sources of working capital and
financing sources (See discussion of Liquidity and Capital Resources in
Management's Discussion and Analysis), but there is no assurance that
additional sources will be available at competitive rates and conditions.
Although management believes that Western Pacific will be able to secure such
additional capital, if Western Pacific is unable to do so, cash flow from
operations might not be sufficient to cover Western Pacific's financial
obligations during 1997.
CONSUMER CONCERN ABOUT OPERATING SAFETY CONDITIONS AT LOW COST CARRIERS. The
highly publicized safety issues that led to the Federal Aviation
Administration (FAA) grounding of ValuJet have caused some consumers to
question the operating safety of all low cost airlines. During 1996, Western
Pacific passed a rigorous National Aeronautical Safety Inspection Program
("NASIP") audit conducted by the FAA and passed an independently commissioned
14
<PAGE>
comprehensive safety audit conducted by the Flight Safety Foundation.
However, there is no assurance that the FAA will not take more restrictive
actions against Western Pacific because of its low cost status. Such actions
by the FAA could increase operating costs and reduce future earnings
potential.
RISING FUEL COSTS. Western Pacific's average cost per gallon of fuel has
increased from 73.13 cents for the three months ended March 31, 1996 to 83.7
cents for the three months ended March 31, 1997. At Western Pacific's
current consumption rate, each one cent increase in the price of fuel
increases Western Pacific's monthly fuel expense by approximately $40,000.
Some carriers have begun to assess a fuel surcharge to be added to their base
fares to cover these increased costs. Western Pacific has considered this
alternative, but there can be no assurance that Western Pacific would be able
to pass along any increases in the price of fuel to its consumers.
UNIONIZATION OF EMPLOYEE GROUPS. Western Pacific's mechanics voted to join
the International Brotherhood of Teamsters union in May 1996. No other work
groups are currently represented by, or have voted to be represented by, a
labor union. While the mechanics' action has not altered Western Pacific's
work rules or increased Western Pacific's costs, there can be no assurance
that such action will not result in future changes or that other employee
groups will not vote for union representation, nor that labor costs for those
groups represented by a union will not increase.
COMPETITION. The airline industry is highly competitive. Other airlines that
presently serve Western Pacific's routes in competition with Western Pacific
are larger and have greater name recognition and resources than Western
Pacific. Western Pacific may also face competition from other airlines which
may begin serving the markets that Western Pacific currently serves or may
serve in the future such as Denver International Airport, and competition
from new low-cost airlines that may be formed to compete in the low-fare
market (including those formed by other major airlines) and from ground
transportation alternatives.
GENERAL STATE OF UNITED STATES ECONOMY. The airline industry is highly
susceptible to general changes in the economic climate, particularly in the
leisure travel segment of the market. Any downturn in the economy of the
United States could have an adverse effect on Western Pacific's business.
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
Effective April 1, 1997, Western Pacific entered into an Information
Technology Services Agreement with Perot Systems Corporation ("Perot"),
pursuant to which Perot will deliver an integrated suite of technology
related services to Western Pacific over a five year period. Western Pacific
has agreed to issue to Perot a number of shares of Common Stock having a
value of $.8 million. By the first anniversary of the effective date,
Western Pacific will issue to Perot a number of shares of Common Stock having
a value of $.6 million. By the second anniversary of the effective date,
Western pacific will issue to Perot a number of shares of Common Stock having
a value of $.4 million. During the first six months of the agreement, Western
Pacific may elect to issue shares of its Common Stock to Perot in lieu of
cash for up to three months of base monthly fees and pass-through expense,
not to exceed $2.0 million in the aggregate. The number of shares to be
issued is to be determined by dividing the amount of the base monthly service
fees by the average closing bid price for Western Pacific's Common Stock for
the five trading days ending two days prior to the date the shares are to be
delivered.
On April 25, 1997, Western Pacific entered into a revised Aviation Fuel
Management Agreement (the "Fuel Management Agreement") with Mercury Air
Group, Inc. ("Mercury"), whereby Mercury has agreed to provide certain fuel
supply services to Western Pacific. Western Pacific also executed a
promissory note in favor of Compass Bank in the principal sum of $6.0 million
(the "Compass Note"). The Compass Note provides that Western Pacific may
borrow funds from Compass Bank in order to pay amounts due and owing under
the Fuel Management Agreement. Payment of all amounts due and owing from
Western Pacific to Compass Bank under the Compass note is guaranteed by
Mercury. In consideration of Mercury's entering into the Fuel Management
Agreement and its agreement to guarantee the obligations of Western Pacific
arising pursuant to the Compass Note, on April 25, 1997 Western Pacific
issued warrants to Mercury to purchase 200,000 shares of Western Pacific's
Common Stock (the "Mercury Warrants") at an exercise price of $6.875 per
share. The Mercury Warrants become exercisable upon issuance and expire on
April 25, 2000. With respect to Mercury Warrants that remain unexercised on
July 28, 1998, Western Pacific may become obligated to issue additional
shares of Common Stock to Mercury (or to make cash payments to Mercury) to
the extent that the highest average trading price of Western Pacific's
15
<PAGE>
Common Stock (as reported on Nasdaq during any 20 consecutive trading days
during the three month period ending July 28, 1998) does not meet at least a
20% target return level, as set forth in the Mercury Warrants.
The shares under each of these transactions were issued under the exemption
from registration in Section 4(2) of the Securities Act of 1933, and the
issuances were not underwritten.
EXHIBITS AND REPORTS ON FORM 8-K.
(a) The following exhibits are filed herewith. Exhibit numbers refer to Item
601 of Regulation S-K.
EXHIBIT INDEX
<TABLE>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
<S> <C>
4.9 Promissory Note, dated April 25, 1997, in the original principal amount of
$6,000,000, made by Western Pacific in favor of Compass Bank, a Texas banking
corporation
4.10 Warrant to purchase common stock, dated April 25, 1977, issued by Western
Pacific to Mercury Air Group, Inc.
10.77 Aviation Fuel Management Agreement, dated April 25, 1977, between Western
Pacific and Mercury Air Group, Inc., a New York corporation
10.78 Agreement relating to Brokering of Financing and Guaranty of MAG, dated April 25,
1977, between Western Pacific and Mercury Air Group, Inc.
10.79 Amended and Restated 1994 Stock Option Plan, as amended through April 19, 1997
10.80 Amended and Restated 1995 Directors' Option Plan, as amended through April 19,
1997
10.81 1996 Restricted Stock Plan for Non-Employee Directors
27 -- Financial Data Schedule
- ---------------------
(b) The Company filed a report on Form 8-K dated January 31, 1997, reporting under Item 5 the
creation and private placement of the Company's Series B Preferred Stock and warrants to
purchase common stock.
</TABLE>
16
<PAGE>
SIGNATURES
Pursuant to the requirements 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.
WESTERN PACIFIC AIRLINES, INC.
By: /s/ ROBERT A. PEISER
-----------------------------------------
Robert A. Peiser
PRESIDENT AND CHIEF EXECUTIVE OFFICER
Date: May 15, 1997
By: /s/ GEORGE E. LEONARD
-----------------------------------------
George E. Leonard
VICE PRESIDENT FINANCE AND CHIEF
FINANCIAL OFFICER
Date: May 15, 1997
17
<PAGE>
NOTE
Houston, Texas
$6,000,000 April 25, 1997
FOR VALUE RECEIVED, WESTERN PACIFIC AIRLINES, INC., a Delaware
corporation, promises to pay to the order of COMPASS BANK, a Texas banking
association (or such other place as the holder hereof may hereafter designate
in writing), in immediately available funds and in lawful money of the United
States of America, the principal sum of Six Million Dollars ($6,000,000) (or
the unpaid balance of all principal advanced against this note, if that
amount is less), together with interest as follows: (a) interest on the
unpaid principal balance of this note from time to time outstanding at the
Stated Rate and interest on all past due amounts, both principal and accrued
interest, from the respective due dates thereof until paid at the Past Due
Rate and (b) the Additional Interest; PROVIDED, that for the full term of
this note the interest rate produced by the aggregate of all sums paid or
agreed to be paid to the holder of this note for the use, forbearance or
detention of the debt evidenced hereby (including, but not limited to, all
interest on this note at the Stated Rate plus the Additional Interest) shall
not exceed the Ceiling Rate.
1. DEFINITIONS. As used in this note, the following terms shall have the
respective meanings indicated:
(a) "ADDITIONAL INTEREST" means the aggregate of all amounts accrued or
paid pursuant to this note or any of the other Credit Documents (other than
interest on this note at the Stated Rate) which, under applicable laws, are
or may be deemed to constitute interest on the indebtedness evidenced by this
note.
(b) "BUSINESS DAY" means a day when Payee is open for business.
(c) "CEILING RATE" means, on any day, the maximum nonusurious rate of
interest permitted for that day by whichever of applicable federal or Texas
laws permits the higher interest rate, stated as a rate per annum. On each
day, if any, that Chapter One establishes the Ceiling Rate, the Ceiling Rate
shall be the "indicated rate ceiling" (as defined in Chapter One) for that
day. Payee may from time to time, as to current and future balances,
implement any other ceiling under Chapter One by notice to Maker, if and to
the extent permitted by Chapter One. Without notice to Maker or any other
person or entity, the Ceiling Rate shall automatically fluctuate upward and
downward as and in the amount by which such maximum nonusurious rate of
interest permitted by applicable law fluctuates.
(d) "CHAPTER ONE" means Chapter One of Title 79, Texas Revised Civil
Statutes, 1925, as amended.
<PAGE>
(e) "CREDIT DOCUMENTS" means any and all papers now or hereafter
governing, evidencing, guaranteeing or securing or otherwise relating to all
or any part of the indebtedness evidenced by this note, including without
limitation this note, the Security Agreements, and the Guaranty.
(f) "DEBT" means the indebtedness evidenced by this note and the
indebtedness to Payee incurred under or evidenced by the Credit Documents.
(g) "GUARANTOR" means MERCURY AIR GROUP, INC., a New York corporation.
(h) "GUARANTY" means that certain Guaranty executed by Guarantor of
even date herewith, executed in favor of Payee, guaranteeing the Debt, as the
same may be amended, restated, modified, renewed and extended from time to
time.
(i) "MAKER" means Western Pacific Airlines, Inc., a Delaware
corporation.
(j) "MATURITY DATE" means the maturity of this note, which is February
5, 1998.
(k) "OBLIGOR" means any person or entity now or hereafter primarily or
secondarily obligated to pay all or any part of the Debt, including, without
limitation, Maker and Guarantor.
(l) "PAST DUE RATE" means, on any day, a rate per annum equal to the
Ceiling Rate for that day, or only if applicable law imposes no maximum
nonusurious rate of interest for that day, then the Past Due Rate for that
day shall be a rate per annum equal to eighteen percent (18%) per annum.
(m) "PAYEE" means COMPASS BANK, a Texas banking corporation, and any
other holder or holders of this note from time to time and, upon acquisition
of this note by any holder or holders other than the named payee, effective
as of the time of such acquisition, the term "Payee" shall mean all of the
then holders of this note, to the exclusion of all prior holders not then
retaining or reserving an interest in this note, to the end that all the
rights, powers, remedies, liens, benefits and privileges accruing and to
accrue hereunder to Payee, as such term is used herein, shall inure to the
benefit of and be owned and held by the holder or holders of this note from
time to time, whether such holder acquires this note through succession to or
assignment from a prior Payee.
(n) "REQUEST FOR CREDIT" means a request for credit duly executed by an
appropriate officer or other responsible party acceptable to Payee on behalf
of Maker, appropriately completed, acknowledged by Guarantor and otherwise
substantially in the form of Exhibit A attached hereto and incorporated
herein by reference for all purposes.
(o) "SECURITY AGREEMENTS" means that certain Security Agreement-Pledge
of even date herewith, by and between Guarantor, as debtor, and Payee, as
secured party, covering a
2
<PAGE>
certificate of deposit in the principal amount of $3,156,000 and any and all
other security agreements from time to time executed by and between
Guarantor, as debtor, and Payee, as secured party, covering the certificates
of deposit described or referenced therein and covering any and all
certificates of deposit hereafter delivered to Payee as a condition for Loans
hereunder, as any of the same may be amended, modified, renewed, extended and
supplemented from time to time.
(p) "STATED RATE" means, on any day, a rate per annum equal to ten
percent (10%) not to exceed on any day the Ceiling Rate for such day.
(q) "TERMINATION DATE" means September 1, 1997.
2. LOANS. Payee agrees, subject to all of the terms and conditions of
this Note (including PARAGRAPH 3 hereof), to make loans (each a "LOAN" and
collectively, the "LOANS") prior to the Termination Date under this Paragraph
to Maker in an aggregate principal amount up to but not exceeding Six Million
Dollars ($6,000,000) (the "COMMITMENT"). Loan proceeds shall be made
available to Maker by depositing them in an account designated by Maker and
maintained with Payee. The unpaid principal balance of this note at any time
shall be the total of all amounts lent or advanced against this note less the
amount of all payments or permitted prepayments made on this note and by or
for the account of Maker. All loans and advances and all payments and
permitted prepayments made hereon may be endorsed by the holder of this note
on a schedule which may be attached hereto (and thereby made a part hereof
for all purposes) or otherwise recorded in the holder's records; PROVIDED,
that any failure to make notation of (a) any advance shall not cancel, limit
or otherwise affect Maker's obligations or any holder's rights with respect
to that advance, or (b) any payment or permitted prepayment of principal
shall not cancel, limit or otherwise affect Maker's entitlement to credit for
that payment as of the date received by the holder. The obligation (if any)
of Payee to make any further advances against this note shall cease and
terminate upon the occurrence of an Event of Default (defined hereinafter).
Amounts paid or prepaid under this note may not be reborrowed.
3. CONDITIONS PRECEDENT.
(a) The obligation of Payee to make any Loan is subject to the accuracy
of all representations and warranties of Maker or any other Obligor in this
Note or any other Credit Document on the date thereof (and Payee's receipt of
evidence of such accuracy), to the performance by Maker and the other
Obligors of their respective obligations under the Credit Documents in all
material respects (and Payee's receipt of evidence of such performance) and
to the satisfaction of the following conditions: (i) Payee shall have
received, no later than 11:00 a.m. Houston, Texas time on the day one (1)
Business Day preceding the date of the requested Loan a duly completed and
executed Request for Credit; (ii) a certificate of deposit issued by Payee or
another financial institution acceptable to Payee (and which such other
financial institution has executed and delivered to Payee a subordination
agreement in form and substance satisfactory to Payee in its sole
discretion), issued in the name of Guarantor in an amount equal
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to the amount of the Loan, with a maturity date mutually agreeable to Payee
and Guarantor, together with a Security Agreement and a Uniform Commercial
Code financing statement, each in form and substance satisfactory to Payee,
covering said certificate of deposit; (iii) no Event of Default shall have
occurred and be continuing or will occur as a result of the requested Loan,
(iv) the making of the Loan shall not be prohibited by, or subject Payee to
any penalty or onerous condition under, any applicable Legal Requirement; (v)
all of the Credit Documents have been executed and delivered, and shall be
valid, enforceable and in full force and effect; (vi) all fees and expenses
owed to Payee under any of the Credit Documents as of the date thereof shall
have been paid in full; (vii) Payee shall have received evidence reasonably
satisfactory to Payee as to the perfection and priority of the liens and
security interests created by the Security Agreements; and (viii) Payee shall
have received such other documents as it may reasonably require. Each such
Loan shall be subject to the further condition that, at the time thereof, all
legal matters incident to the transactions herein contemplated shall be
satisfactory to Payee's legal counsel. Delivery of any Request for Credit to
Payee shall constitute a representation by Maker that the representations and
warranties made by Maker under this Note and the other Credit Documents are
true and correct as of the date of delivery of such Request for Credit.
(b) In addition to the conditions described in PARAGRAPH 3(a) hereof,
the obligation of Payee to make the initial Loan in the principal amount of
$3,156,000 is subject to the receipt by Payee of each of the following: (1) a
duly executed Borrowing Authorization with respect to Maker, (2) a current
certificate from the Secretary of State or other appropriate official of the
State of Delaware as to the continued existence and good standing of Maker,
(3) a current certificate from the Secretary of State or other appropriate
official of the State of Colorado as to the qualification of Maker to do
business in State of Colorado, and (4) a current certificate from the
Secretary of State or other appropriate official of the State of New York as
to the continued existence and good standing of Guarantor.
(c) The conditions precedent set forth above may not be modified or
changed without the prior written consent of Guarantor.
4. SECURITY. This note is secured or guaranteed by, among other
security, the Security Agreements and the Guaranty.
5. COMPUTATION OF INTEREST. Interest on the amount of each advance
against this note shall be computed on the amount of that advance and from
the date it is made. Such interest shall be computed for the actual number
of days elapsed in a year consisting of 360 days, unless the Ceiling Rate
would thereby be exceeded, in which event, to the extent necessary to avoid
exceeding the Ceiling Rate, interest shall be computed on the basis of the
actual number of days elapsed in the applicable calendar year in which
accrued.
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6. MANDATORY PAYMENTS OF PRINCIPAL AND INTEREST.
(a) Accrued and unpaid interest on the unpaid principal balance of this
note shall be due and payable on May 5, 1997, and (ii) on the fifth (5th) day
of each succeeding calendar month thereafter before the Maturity Date. In
addition, all accrued and unpaid interest on the unpaid principal balance of
this note shall be due and payable at the Maturity Date.
(b) The principal of this note shall be due and payable in monthly
installments of One Million Dollars ($1,000, 000) each. The first
installment shall be due and payable on September 5, 1997, and a like
installment shall be due and payable on the fifth (5th) day of each
succeeding calendar month thereafter until this note shall have been fully
paid and satisfied; PROVIDED, that on the Maturity Date, the entire unpaid
principal balance of this note and all accrued and unpaid interest on the
unpaid principal balance of this note shall be finally due and payable.
(c) All payments hereon made pursuant to this Paragraph shall be
applied first to accrued interest, the balance to principal.
(d) If any payment provided for in this note shall become due on a day
other than a Business Day, such payment may be made on the next succeeding
Business Day (unless the result of such extension of time would be to extend
the date for such payment beyond the Maturity Date, and in such event such
payment shall be made on the Business Day immediately preceding the day on
which such payment would otherwise have been due), and such extension of time
shall in such case be included in the computation of interest on this note.
7. NO USURY INTENDED; SPREADING. Notwithstanding any provision to the
contrary contained in this note or any of the other Credit Documents, it is
expressly provided that in no case or event shall the aggregate of (i) all
interest on the unpaid balance of this note, accrued or paid from the date
hereof and (ii) the aggregate of any other amounts accrued or paid pursuant
to this note or any of the other Credit Documents, which under applicable
laws are or may be deemed to constitute interest upon the indebtedness
evidenced by this note from the date hereof, ever exceed the Ceiling Rate.
In this connection, Maker and Payee stipulate and agree that it is their
common and overriding intent to contract in strict compliance with applicable
usury laws. In furtherance thereof, none of the terms of this note or any of
the other Credit Documents shall ever be construed to create a contract to
pay, as consideration for the use, forbearance or detention of money,
interest at a rate in excess of the Ceiling Rate. Maker or other parties now
or hereafter becoming liable for payment of the indebtedness evidenced by
this note shall never be liable for interest in excess of the Ceiling Rate.
If, for any reason whatever, the interest paid or received on this note
during its full term produces a rate which exceeds the Ceiling Rate, the
holder of this note shall credit against the principal of this note (or, if
such indebtedness shall have been paid in full, shall refund to the payor of
such interest) such portion of said interest as shall be necessary to cause
the interest paid on this note to produce a rate equal to the Ceiling Rate.
All sums paid or agreed to be paid to the holder of this note for the use,
forbearance or
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detention of the indebtedness evidenced hereby shall, to the extent permitted
by applicable law, be amortized, prorated, allocated and spread in equal
parts throughout the full term of this note, so that the interest rate is
uniform throughout the full term of this note. The provisions of this
Paragraph shall control all agreements, whether now or hereafter existing and
whether written or oral, between Maker and Payee.
8. DEFAULT. The occurrence of any of the following events (each an
"EVENT OF DEFAULT") shall constitute default under this note, whereupon, and
for so long as such Event of Default is continuing, the obligation (if any)
of Payee to make any further advances against this note shall cease and
terminate and the owner or holder hereof may, at its, his or her option,
exercise any or all rights, powers and remedies afforded under any of the
Credit Documents and by law, including the right to declare the unpaid
balance of principal and accrued interest on this note at once mature and
payable, PROVIDED that for any non-monetary default, Payee shall give Maker
fifteen (15) days after notice (with copy of notice to Guarantor) to cure the
default, and for any monetary default, Payee shall give maker three (3)
Business Days after notice (with copy of notice to Guarantor) to cure the
default, prior to an Event of Default hereunder being deemed to have occurred:
(a) any part of the Debt is not paid when due, whether by lapse of time
or acceleration or otherwise.
(b) any Obligor fails in any material respect to perform, observe or
comply with--or defaults under--any of the terms, covenants, conditions or
provisions contained in any Credit Document.
(c) any representation or warranty made in this note or any of the
other Credit Documents or in any other report or other paper now or hereafter
provided to Payee pursuant or incident to this note or any other Credit
Document or the Debt proves to have been untrue or misleading in any material
respect as of the date made or deemed made.
(d) any Obligor: (i) voluntarily suspends transaction of business; (ii)
becomes insolvent or unable to pay its debts as they mature; (iii) commences
a voluntary case in bankruptcy or a voluntary petition seeking reorganization
or to effect a plan or other arrangement with creditors; (iv) makes an
assignment for the benefit of creditors; (v) applies for or consents to the
appointment of any receiver or trustee for any such party or for any
substantial portion of its property; or (vi) make an assignment to an agent
authorized to liquidate any substantial part of its assets.
(e) in respect of any Obligor: (i) an involuntary case shall be
commenced with any court or other authority seeking liquidation,
reorganization or a creditor's arrangement of any such party; (ii) an order
of any court or other authority shall be entered appointing any receiver or
trustee for any such party or for any substantial portion of its property; or
(iii) a writ or warrant of attachment or any similar process shall be issued
by any court or other authority against any
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substantial portion of the property of any such party and such petition
seeking liquidation, reorganization or a creditor's arrangement or such order
appointing a receiver or trustee is not vacated or stayed or such writ,
warrant or attachment or similar process is not vacated, released or bonded
off within sixty (60) days after its entry or levy.
(f) the legal incompetency, dissolution, liquidation or termination of
any Obligor.
(g) any action, suit or proceeding shall be commenced materially
adversely affecting or involving the validity or enforceability of this note
or any other Credit Document, at law or in equity, or before any governmental
authority.
(h) any Obligor shall be prevented or relieved by any governmental
authority from performing or observing any material term, covenant or
condition of this note or any other Credit Document.
(i) any Obligor shall claim--or any court shall find or rule--that
Payee does not have a valid lien on any security which may have been provided
by such Obligor.
(j) the sale, encumbrance or abandonment (except as otherwise expressly
agreed to in writing by Payee) of any property now or hereafter covered by
any instrument now or hereafter securing the Debt, the making of any levy,
seizure or attachment of or on any such property or the loss, theft,
substantial damage or destruction of any such property.
(k) any Obligor shall have concealed, removed, or permitted to be
concealed or removed, any part of its property, with intent to hinder, delay
or defraud any of its creditors, or made or suffered a transfer of any of its
property which may be fraudulent under any bankruptcy, fraudulent conveyance
or similar law, or shall have made any transfer of its property to or for the
benefit of a creditor at a time when other creditors similarly situated have
not been paid, or, while insolvent, shall have suffered or permitted any
creditor to obtain a lien upon any of its property through legal proceedings
or distraint which is not vacated within thirty (30) days from its date.
(l) any Obligor fails to pay when due any amount which he or it is
liable to pay to the Pension Benefit Guaranty Corporation ("PBGC") or its
successor or to any plan (a "PLAN") maintained for any of the such Obligor's
employees subject to Title IV of the Employee Retirement Benefit Act of 1974,
as amended, and related regulations ("ERISA"), or notice of intent to
terminate any Plan is filed under ERISA, or PBGC commences proceedings under
ERISA to terminate any Plan or to cause a trustee to be appointed to
administer any Plan, or a proceeding is commenced by any fiduciary of any
Plan to enforce Section 515 or Section 4219(c)(5) of ERISA, or PBGC becomes
entitled to obtain a decree adjudicating that any Plan must be terminated.
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(m) Guarantor shall deliver a written notice substantially in the form
of EXHIBIT B, attached hereto and incorporated herein by reference for all
purposes, to Payee that Maker is in default under any of Maker's agreements
with Guarantor, including, without limitation, the Agreement and the
Agreement Relating Brokering of Financing and Guaranty of MAG.
(n) a default, an event of default or a similar event (however
denominated) shall occur under the terms and conditions of any other Credit
Document.
9. NO WAIVER BY PAYEE. No delay or omission of Payee or any other
holder hereof to exercise any power, right or remedy accruing to Payee or any
other holder hereof shall impair any such power, right or remedy or shall be
construed to be a waiver of the right to exercise any such power, right or
remedy. Payee's right to accelerate this note for any late payment or Maker's
failure to timely fulfill its other obligations hereunder or under the other
Credit Documents shall not be waived or deemed waived by Payee by Payee's
having accepted a late payment or late payments in the past or Payee
otherwise not accelerating this note or exercising other remedies for Maker's
failure to timely perform its obligations hereunder or under the other Credit
Documents. Payee shall not be obligated or be deemed obligated to notify
Maker that it is requiring Maker to strictly comply with the terms and
provisions of this note and the other Credit Documents before accelerating
this note and exercising its other remedies hereunder or under the other
Credit Documents because of Maker's failure to timely perform its obligations
under this note and the other Credit Documents.
10. COSTS AND ATTORNEYS' FEES. If any holder of this note retains an
attorney (i) in connection with any default which is, as the time of such
retention, continuing or (ii) to collect, enforce or defend this note or any
of the Credit Documents in any lawsuit or in any probate, reorganization,
bankruptcy or other proceeding, or if Maker sues any holder in connection
with this note or any of the Credit Documents and does not prevail, then
Maker agrees to pay to each such holder, in addition to principal and
interest, all reasonable costs and expenses incurred by such holder in trying
to collect this note or in any such suit or proceeding, including reasonable
attorneys' fees. To the extent not prohibited by applicable law, Maker will
pay all reasonable out-of-pocket costs and expenses and reimburse Payee for
any and all reasonable out-of-pocket expenditures of every character incurred
or expended from time to time, regardless of whether or not a default has
occurred, in connection with (a) the preparation, negotiation, documentation,
closing, renewal, revision, modification, increase, review or restructuring
of this note or any loan or credit facility evidenced by or relating to this
note, including legal, accounting, auditing, architectural engineering and
inspection services and disbursements, or in connection with collecting or
attempting to enforce or collect this note or any of the other Credit
Documents, (b) Payee's evaluating, monitoring, administrating and protecting
any collateral ("COLLATERAL") now or hereafter securing payment of any part
of this note and (c) Payee's creating, perfecting and realizing upon Payee's
security interests in and liens on any Collateral, and all reasonable
out-of-pocket costs and expenses relating to Payee's exercising any of its
rights and remedies hereunder or under any other Credit Document or at law,
including, without limitation, all appraisal fees, consulting fees, filing
fees, taxes, brokerage fees and commissions, title review and abstract fees,
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Uniform Commercial Code search fees, other fees and expenses incident to
title searches, reports and security interests, escrow fees, attorneys' fees,
legal expenses, court costs, other fees and expenses incurred in connection
with any complete or partial liquidation of any Collateral and all fees and
expenses for any professional services relating to the Collateral or any
operations conducted in connection with it; PROVIDED, that no right or option
granted by Maker to Payee or otherwise arising pursuant to any provision of
this or any other instrument shall be deemed to impose or admit a duty on
Payee to supervise, monitor or control any aspect of the character or
condition of the Collateral or any operations conducted in connection with it
for the benefit of Maker or any other person or entity other than Payee.
Maker agrees to indemnify, defend and hold Payee, its shareholders,
directors, officers, agents, attorneys, advisors and employees (collectively
"INDEMNIFIED PARTIES") harmless from and against any and all loss, liability,
obligation, damage, penalty, judgment, claim, deficiency, expense, action,
suit, cost and disbursement of any kind or nature whatsoever (including
interest, penalties, attorneys' fees and amounts paid in settlement),
REGARDLESS OF WHETHER CAUSED IN WHOLE OR IN PART BY THE NEGLIGENCE OF ANY OF
THE INDEMNIFIED PARTIES, imposed on, incurred by or asserted against the
Indemnified Parties growing out of or resulting from this note, any Credit
Document or any transaction or event contemplated herein or therein (except
that such indemnity shall not be paid to any Indemnified Party to the extent
that such loss, etc. directly results from the gross negligence or willful
misconduct of that Indemnified Party). If any person or entity (including,
without limitation, Maker or any of its affiliates) ever alleges gross
negligence or willful misconduct by an Indemnified Party, the full amount of
indemnification provided for in this Paragraph shall nonetheless be paid upon
DEMAND, subject to later adjustment or reimbursement at such time--if any--as
a court of competent jurisdiction enters a final judgment as to the extent
and effect of the alleged gross negligence or willful misconduct. Any amount
to be paid under this Paragraph by Maker to Payee shall be a demand
obligation owing by Maker to Payee and shall bear interest from the date of
expenditure until paid at the Past Due Rate.
11. WAIVERS BY MAKER AND OTHERS. Except to the extent, if any, that
notice of default is expressly required herein or in any of the other Credit
Documents, Maker and any and all co-makers, endorsers, guarantors and
sureties severally waive notice (including, but not limited to, notice of
intent to accelerate and notice of acceleration, notice of protest and notice
of dishonor), demand, presentment for payment, protest, diligence in
collecting and the filing of suit for the purpose of fixing liability and
consent that the time of payment hereof may be extended and re-extended from
time to time without notice to any of them. Each such person agrees that
his, her or its liability on or with respect to this note shall not be
affected by any release of or change in any guaranty or security at any time
existing or by any failure to perfect or to maintain perfection of any lien
against or security interest in any such security or the partial or complete
unenforceability of any guaranty or other surety obligation, in each case in
whole or in part, with or without notice and before or after maturity.
12. LIFTING OF AUTOMATIC STAY. In the event that Maker or any other
Obligor is the subject of any insolvency, bankruptcy, receivership,
dissolution, reorganization or similar
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proceeding, federal or state, voluntary or involuntary, under any present or
future law or act, Payee is entitled to the automatic and absolute lifting of
any automatic stay as to the enforcement of its remedies under the Credit
Documents against the security for the Debt including specifically the stay
imposed by Section 362 of the United States Federal Bankruptcy Code, as
amended. Maker hereby consents to the immediate lifting of any such
automatic stay, and will not contest any motion by Payee to lift such stay.
Maker expressly acknowledges that the security for the Debt is not now and
will never be necessary to any plan of reorganization of any type.
13. PARAGRAPH HEADINGS. Paragraph headings appearing in this note are
for convenient reference only and shall not be used to interpret or limit the
meaning of any provision of this note.
14. VENUE; CHOICE OF LAW. This note is performable in Harris County,
Texas, which shall be a proper place of venue for suit on or in respect of
this note. Maker hereby irrevocably agrees that any legal proceeding in
respect of this note shall be brought in the district courts of Harris
County, Texas, or in the United States District Court for the Southern
District of Texas, Houston Division (collectively, the "SPECIFIED COURTS").
Maker hereby irrevocably submits to the nonexclusive jurisdiction of the
state and federal courts of the State of Texas. Maker hereby irrevocably
waives, to the fullest extent permitted by law, any objection which it may
now or hereafter have to the laying of venue of any suit, action or
proceeding arising out of or relating to this note or any of the Credit
Documents brought in any Specified Court, and hereby further irrevocably
waives any claims that any such suit, action or proceeding brought in any
such court has been brought in an inconvenient forum. Maker further (1)
agrees to designate and maintain an agent for service of process in the City
of Houston in connection with any such suit, action or proceeding and to
deliver to Payee evidence thereof and (2) irrevocably consents to the service
of process out of any of the Specified Courts in any such suit, action or
proceeding by the mailing of copies thereof by certified mail, return receipt
requested, postage prepaid, to Maker. Nothing herein shall affect the right
of Payee to commence legal proceedings or otherwise proceed against Maker in
any jurisdiction or to serve process in any manner permitted by applicable
law. Maker agrees that a final judgment in any such action or proceeding
shall be conclusive and may be enforced in other jurisdictions by suit on the
judgment or in any other manner provided by law. THIS NOTE SHALL BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE APPLICABLE LAWS OF THE STATE OF TEXAS
AND THE UNITED STATES OF AMERICA FROM TIME TO TIME IN EFFECT.
15. OFFSET RIGHTS. Payee is hereby authorized at any time and from
time to time following default, without notice to any person or entity (and
Maker hereby WAIVES any such notice) to the fullest extent permitted by law,
to set-off and apply any and all monies, securities and other properties of
Maker now or in the future in the possession, custody or control of Payee, or
on deposit with or otherwise owed to Maker by Payee--including without
limitation all such monies, securities and other properties held in general,
special, time, demand, provisional or final accounts or for safekeeping or as
collateral or otherwise (but excluding those accounts clearly
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designated as escrow or trust accounts held by Maker for others unaffiliated
with Maker)--against any and all of Maker's obligations to Payee now or
hereafter existing under this note, irrespective of whether Payee shall have
made any demand under this note. Payee agrees to use reasonable efforts to
promptly notify Maker after any such set-off and application made by Payee,
PROVIDED that failure to give--or delay in giving--any such notice shall not
affect the validity of such set-off and application or impose any liability
on Payee. Payee's rights under this Paragraph are in addition to other
rights and remedies (including, without limitation, other rights of set-off)
which Payee may have.
16. SUCCESSORS AND ASSIGNS. This note and all the covenants and
agreements contained herein shall be binding upon, and shall inure to the
benefit of, the respective legal representatives, heirs, successors and
assigns of Maker and Payee.
17. RECORDS OF PAYMENTS. The records of Payee shall be prima facie
evidence of the amounts owing on this note.
18. SEVERABILITY. If any provision of this note is held to be illegal,
invalid or unenforceable under present or future laws, the legality, validity
and enforceability of the remaining provisions of this note shall not be
affected thereby, and this note shall be liberally construed so as to carry
out the intent of the parties to it. Each waiver in this note is subject to
the overriding and controlling rule that it shall be effective only if and to
the extent that (a) it is not prohibited by applicable law and (b) applicable
law neither provides for nor allows any material sanctions to be imposed
against Payee for having bargained for and obtained it.
19. SALE AND ASSIGNMENT. Payee reserves the right, exercisable in its
sole discretion and without notice to Maker or any other person, to sell
participations or assign its interest, or both, in all or any part of this
note or any loan evidenced by this note.
20. NOTICES. Any notice, request or other communication required or
permitted to be given hereunder shall be given in writing by delivering it
against receipt for it, by depositing it with an overnight delivery service
or by depositing it in a receptacle maintained by the United States Postal
Service, postage prepaid, registered or certified mail, return receipt
requested, addressed to the respective parties as follows (and if so given,
shall be deemed given when mailed):
If to Maker: If to Payee:
Western Pacific Airlines, Inc. Compass Bank
2864 South Circle Drive P.O. Box 4444
Suite 1100 Houston, Texas 77210-4444
Colorado Springs, Colorado 80906 Attention: David LePori
Attention: Robert A. Peiser, President
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Maker's address for notice may be changed at any time and from time to time,
but only after thirty (30) days' advance written notice to Payee and shall be
the most recent such address furnished in writing by Maker to Payee. Payee's
address for notice may be changed at any time and from time to time, but only
after ten (10) days' advance written notice to Maker and shall be the most
recent such address furnished in writing by Payee to Maker. Actual notice,
however and from whomever given or received, shall always be effective when
received.
21. PREPAYMENT. Maker may on the date of any regularly scheduled
principal installment hereon, and with five (5) Business Days advance written
notice to Payee and Guarantor, pay the full amount or any part of this note
without the payment of any premium or fee. All prepayments hereon shall be
applied first to accrued interest and the balance to the remaining principal
installments in inverse order of their maturity.
22. BUSINESS LOANS. Maker warrants and represents to Payee and all
other holders of this note that all loans evidenced by this note are and will
be for business, commercial, investment or other similar purpose and not
primarily for personal, family, household or agricultural use, as such terms
are used in Chapter One.
23. ASSIGNMENT OF NOTE AND LIENS TO GUARANTOR; NOTICE OF INTENT TO MAKE
DEMAND. Maker hereby acknowledges and agrees and consents to the provisions
of the Guaranty which permits Guarantor at any time to tender to Payee or any
other holder of the Note an amount equal to the then current principal and
accrued interest owing hereunder, and related costs and expenses under the
Credit Documents, and to receive an assignment (an "ASSIGNMENT") of this note
and the liens and security interests securing the same (including, without
limitation, those arising pursuant to the Security Agreements), and, further,
agrees that if an Assignment should occur, Payee shall have no liability (and
Maker hereby agrees to INDEMNIFY AND HOLD HARMLESS Payee and any and all
officers, directors, employees, counsel and their respective heirs,
successors and assigns, for any damages or losses which Maker or any other
person or entity may incur) as a result of any actions taken or omitted by
Guarantor or any of its respective heirs, successors or assigns in their
capacities as the holder(s) of this note and the liens and security interests
securing it (except that such indemnity shall not be paid to any Indemnified
Party to the extent that such loss, etc. directly results from the gross
negligence or willful misconduct of Payee). Nothing contained in the Guaranty
shall in any way entitle Maker to modify the provisions of PARAGRAPH 12
hereof.
24. ENTIRE AGREEMENT. This note and the other Credit Documents embody
the entire agreement and understanding between Payee and Maker and other
parties with respect to their subject matter and supersede all prior
conflicting or inconsistent agreements, consents and understandings relating
to such subject matter. Maker acknowledges and agrees that there is no oral
agreement between Maker and Payee which has not been incorporated in this
note and the other Credit Documents.
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25. RELEASE OF CLAIMS. MAKER HEREBY RELEASES, DISCHARGES AND ACQUITS
FOREVER PAYEE AND ITS OFFICERS, DIRECTORS, AGENTS, EMPLOYEES AND COUNSEL FROM
ANY AND ALL CLAIMS EXISTING AS OF THE DATE HEREOF. AS USED HEREIN, THE TERM
"CLAIM" SHALL MEAN ANY AND ALL LIABILITIES, CLAIMS, JUDGMENTS, DEFICIENCIES,
INTEREST, LIENS, COSTS OR EXPENSES (INCLUDING BUT NOT LIMITED TO COURT COSTS,
PENALTIES, ATTORNEYS' FEES AND DISBURSEMENTS, AND AMOUNTS PAID IN SETTLEMENT)
OF ANY KIND AND CHARACTER WHATSOEVER, INCLUDING BUT NOT LIMITED TO CLAIMS FOR
USURY, IN EACH CASE WHETHER NOW KNOWN OR UNKNOWN, SUSPECTED OR UNSUSPECTED,
ASSERTED OR UNASSERTED OR PRIMARY OR CONTINGENT, AND WHETHER ARISING OUT OF
WRITTEN DOCUMENTS, UNWRITTEN UNDERTAKINGS OR COURSE OF CONDUCT.
WESTERN PACIFIC AIRLINES, INC.,
a Delaware corporation
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
ATTACHMENTS:
EXHIBIT A - Request for Credit
EXHIBIT B - Guarantor Notice
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REQUEST FOR CREDIT
----------------
Compass Bank
P.O. Box 4444
Houston, Texas 77210-4444
Attention: Mr. David LePori
Gentlemen:
The undersigned hereby certifies that [he] [she] is the
_________________________ of Western Pacific Airlines, Inc. ("BORROWER"), and
that as such is authorized to execute this Request for Credit (the "REQUEST")
on behalf of Borrower pursuant to the promissory note (as it may be amended,
renewed, extended, supplemented or restated from time to time, the "NOTE")
dated as of April __, 1997, executed by Borrower and payable to the order of.
The Loan being requested hereby is to be in the amount set forth in (b)
below and is requested to be made on ______________, which is a business day.
On behalf of Borrower, the undersigned further certifies, represents and
warrants as follows (each capitalized term used herein having the same
meaning given to it in the Note unless otherwise specified herein):
(1) As of the date hereof, the aggregate outstanding amount of Loans is
$_________.
(2) Borrower hereby requests under this Request a Loan in the amount of
$_________.
(3) The representations and warranties made in each Credit Document are
true and correct in all respects on and as of the time of delivery
hereof, with the same force and effect as if made on and as of the
time of delivery hereof.
(4) No Event of Default has occurred and is continuing or will occur as a
result of the requested Loan.
The proceeds of the Loan shall be deposited into Borrower's account
number _______ maintained by Borrower with Lender. Further, Borrower hereby
instructs Lender to electronic wire transfer to Guarantor an amount equal to
the amount of such Loan as soon as practicable after the Loan proceeds have
been deposited into such account in accordance with the instructions set
forth on the attached page.
<PAGE>
Thank you for your attention to this matter.
Very truly yours,
By:
-------------------------------------
Name:
-----------------------------------
Title:
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Acknowledged by the undersigned this day of , 1997.
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MERCURY AIR GROUP, INC., a New York
corporation
By:
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Name:
-----------------------------------
Title:
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15
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NOTICE OF DEFAULT
Compass Bank
P.O. Box 4444
Houston, Texas 77210-4444
Attention: Mr. David LePori
Gentlemen:
Pursuant to Section 8(m) of that certain Promissory Note of Western
Pacific Airlines, Inc., a Delaware corporation ("WESTERN PACIFIC") dated
April ___, 1997, you are hereby notified that Western Pacific is in default
under the terms of that certain Agreement Relating to Brokering of Financing
and Guaranty of MAG, Aviation Fuel Management Agreement, or any other
agreement between Western Pacific and Mercury Air Group, Inc.
MERCURY AIR GROUP, INC., a New York corporation
By:
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Name:
-----------------------------------
Title:
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<PAGE>
THE WARRANTS REPRESENTED BY THIS WARRANT CERTIFICATE MAY NOT BE SOLD,
ASSIGNED OR TRANSFERRED. AT THE TIME OF ISSUANCE OF THIS WARRANT
CERTIFICATE, NEITHER THE RIGHTS REPRESENTED BY THIS WARRANT
CERTIFICATE NOR THE SHARES ISSUABLE UPON THE EXERCISE HEREOF HAVE BEEN
REGISTERED FOR OFFER OR SALE UNDER THE SECURITIES ACT OF 1933, AS
AMENDED. NEITHER THIS WARRANT CERTIFICATE NOR THE SHARES ISSUABLE
UPON THE EXERCISE HEREOF MAY BE SOLD OR OTHERWISE TRANSFERRED IN THE
ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM.
WESTERN PACIFIC AIRLINES, INC.
WARRANT TO PURCHASE COMMON STOCK
This Warrant Certificate certifies that Mercury Air Group, Inc., a
New York corporation ("MERCURY") is the registered holder of 200,000
warrants (the "WARRANTS") to purchase shares of Common Stock, $0.001 par
value per share (the "SHARES"), of WESTERN PACIFIC AIRLINES, INC., a Delaware
corporation (the "COMPANY"), on the terms and subject to the conditions set
forth below. Subject to adjustment as provided herein, each Warrant entitles
Mercury, upon exercise, to receive from the Company one share (the CONVERSION
RATIO") of fully paid, nonassessable Common Stock of the Company at a price
equal to $6.875 per share (the "WARRANT EXERCISE PRICE"). The Warrants have
been issued by the Company to Mercury in consideration of (i) Mercury's
entering into that certain Guaranty, dated April 25, 1997 (the "GUARANTY"),
between Mercury and Compass Bank (the "LENDER"), whereby Mercury has agreed
to unconditionally guarantee certain obligations of the Company arising
pursuant to that certain Note, dated April 25, 1997 (the "NOTE"), between
Company and the Lender, all on the terms and conditions as stated in the
Guaranty and the Note, respectively; and (ii) the Fuel Administration
Agreement, dated April 25, 1997 (the "FUEL ADMINISTRATION AGREEMENT"),
between Company and Mercury.
SECTION 1. DEFINITIONS. For purposes hereof, the following words
and terms will have the meanings set forth below:
"ACTUAL RETURN AMOUNT" shall have the meaning set forth in Section
4(c) hereof.
"AFFILIATE" means, with respect to a Person, any other Person that,
directly or indirectly through one or more intermediaries, controls, or is
controlled by, or is under common control with, such first Person.
"Business Day"" means a day other than a Saturday, a Sunday or a
day on which banking institutions in the City of New York are authorized or
obligated by law or required by executive order to be closed.
<PAGE>
"COMMON STOCK" when used with reference to stock of the Company,
means all shares now or hereafter authorized of any class of the common stock
of the Company.
"NASDAQ" means the NASDAQ National Market System.
"PERSON" means a domestic or foreign individual or corporation,
partnership, limited liability company, trust, incorporated or unincorporated
association, joint venture, joint stock company, government (or an agency or
political subdivision thereof) or other entity of any kind.
"REGISTRATION STATEMENT" means a registration statement filed or to
be filed by the Company under the Securities Act.
"RETURN DETERMINATION DATE" shall have the meaning set forth in
Section 4(a) hereof.
"SEC" means the Securities and Exchange Commission.
"SECURITIES ACT" means the Securities Act of 1933, as the same may
be amended from time to time, and the regulations thereunder.
"TARGET RETURN AMOUNT" shall have the meaning set forth in Section
4(c) hereof.
"TRADING DAY" means any day on which Nasdaq is open for trading on
a regular basis.
Other defined terms are contained in the body of this Warrant
Certificate.
SECTION 2. TERMINATION OF WARRANT. Any portion of the Warrants
which have not been exercised by Mercury in accordance with Section 3 hereof
prior to 5:00 p.m. E.S.T. on April 25, 2000 (the "EXPIRATION TIME") shall,
without further action by the Company or Mercury, immediately terminate and
be of no further force or effect.
SECTION 3. EXERCISE OF WARRANT.
a. Subject to the terms and conditions hereof, any portion of the
Warrants may be exercised by Mercury in accordance with the terms of this
Section 3, in whole or in part, at any time prior to the Expiration Time
during the Company's normal business hours; PROVIDED, however, that (i) if
the Company reasonably believes that any governmental or regulatory filing is
required prior to the exercise of such Warrants, the Company shall not be
required to honor any exercise of the Warrants until such filing has been
made and any applicable waiting period thereunder has expired or been
terminated, and (ii) Mercury may not exercise any portion of the Warrants
more than once in any calendar month without the prior written consent of the
Chief Executive Officer of the Company.
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<PAGE>
b. Subject to the terms and conditions hereof, all or any portion
of the Warrants may be exercised by Mercury by: (i) delivering a written
notice to the Company in the form of the Subscription Notice attached as
EXHIBIT A hereto, (ii) unless Mercury has elected a cashless exercise in the
Subscription Notice pursuant to Section 3(c) below, payment by Mercury to the
Company of an amount equal to the Warrant Exercise Price times the number of
Warrants so exercised (plus any applicable issue or transfer taxes) (x) in
cash or by certified or official bank check in immediately available funds,
or (y) by repayment on the Company's behalf of all amounts due under the
Note, (iii) the surrender of this Warrant Certificate, properly endorsed, at
the principal office of the Company (or at such other agency or office of the
Company as the Company may designate by notice to Mercury) and (iv) delivery
to the Company by Mercury of a letter in the form of EXHIBIT B attached
hereto.
c. Mercury and the Company hereby agree that, notwithstanding
provisions in this Warrant Certificate to the contrary, in lieu of
exercising any portion of this Warrant Certificate for cash, Mercury may
elect to surrender this Warrant Certificate to the Company at its principal
office, together with a notice delivered to the Company stating that Mercury
desires to receive Shares equal to the value (as determined below) of such
Warrants, in which event, the Company shall issue to Mercury a number of
shares of Common Stock computed using the following formula:
X = Y(A - B)
--------
A
Where X = the number of Shares to be issued to Mercury.
Y = the number of Shares purchasable under the Warrants or,
if only a portion of the Warrants are being exercised,
the portion of the Warrants being exercised (at the date
of such calculation).
A = the closing price of one share of the Company's Common
Stock as of the Trading Day immediately preceding the
receipt of such notice by the Company.
B = the Warrant Exercise Price.
d. If, at the time of exercise, Mercury has not elected to
exercise all Warrants, upon the Company's receipt of each of the documents
referred to in this Section 3, in addition to the issuance of a stock
certificate representing the Shares issuable upon exercise of the Warrants,
the Company shall issue a new Warrant Certificate to Mercury, on the same
terms as set forth herein, representing the remaining number of Warrants
under this Warrant Certificate. Fractional shares of Common Stock shall not
be issued upon the exercise of the Warrants. In lieu thereof, the Company
shall pay Mercury cash in an amount equal to such fractional share interest
multiplied by the closing price of a share of Common Stock as of the date of
exercise.
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<PAGE>
SECTION 4. CONTINGENT PAYMENT.
a. Within five (5) Business Days after July 25, 1998 (the "RETURN
DETERMINATION DATE"), the Company shall determine the Target Return Amount
(as defined below) and the Actual Return Amount (as defined below). If the
Target Return Amount is greater than the Actual Return Amount, then the
Company shall pay to Mercury an amount equal to the difference between the
Target Return Amount and the Actual Return Amount within forty-five (45) days
of the Return Determination Date. If the Target Return Amount is equal to or
less than the Actual Return Amount, then the Company shall not be required to
make any payment whatsoever pursuant to this Section 4.
b. Except as set forth below, at the sole and absolute discretion
of the Company, all or any portion of the amounts, if any, required to be
paid by the Company to Mercury under this Section 4, may be satisfied by
either the payment of cash, or the issuance of shares of Common Stock of the
Company, valued at a price equal to the closing price of the Company's Common
Stock as quoted on Nasdaq (and as reported by The Wall Street Journal or, if
not reported thereby, by another authoritative source) on the Trading Day
immediately preceding the Return Determination Date, in each case, without
interest thereon. The Company will not have the right to make any payments
due under this Section 4 in cash unless and until all amounts due and owing
under the Note have been paid in full.
c. For purposes of this Section 4, (i) the term "TARGET RETURN
AMOUNT" shall mean the product obtained by multiplying (X) the Annualized
Return (as defined below), by (Y) a fraction, the numerator of which is equal
to the number of unexercised Warrants on the Return Determination Date and
the denominator of which is 200,000; (ii) the term "ACTUAL RETURN AMOUNT"
shall mean the product obtained by multiplying (X) (1) the Highest Average
Closing Price, minus (2) the Warrant Exercise Price (but in no event shall
the product be less than zero), by (Y) an amount equal to the number of
unexercised Warrants on the Return Determination Date; (iii) the term
"AVERAGE DAILY BALANCE" shall mean the average daily balance of amounts due
and owing by the Company under the Note for the period commencing on April
25, 1997 and ending on the earlier of the Target Determination Date or such
time as all principal amounts due and owing under the Note have been paid in
full; (iv) the term "ANNUALIZED RETURN" shall mean the product obtained by
multiplying (X) twenty percent (20.0%) of the Average Daily Balance, by (Y) a
fraction, the numerator of which is the number of days that the Note remains
outstanding (commencing on April 25, 1997 and ending on the earlier of the
Return Determination Date or such time as all amounts due and owing under the
Note are paid in full), and the denominator of which is 365; (v) the term
"HIGHEST AVERAGE CLOSING PRICE" shall mean the highest average of the per
share last daily closing price of the Company's Common Stock as quoted on
Nasdaq (and as reported by The Wall Street Journal or, if not reported
thereby, by another authoritative source) during any consecutive twenty (20)
Trading Days occurring during the period commencing April 25, 1998 and ending
on the Trading Day immediately preceding the Return Determination Date.
4
<PAGE>
SECTION 5. REPRESENTATIONS AND WARRANTIES; COVENANTS AS TO COMMON
STOCK.
a. The Company represents and warrants to Mercury as of the date
hereof as follows:
(1) The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware.
The Company is duly qualified or licensed and in good standing as a
foreign corporation and authorized to do business in each jurisdiction
in which the ownership or leasing of its properties or the character
of its operations makes such qualification necessary, except where the
failure to be so qualified, licensed or authorized, or to be in good
standing, would not, individually or in the aggregate, reasonably be
expected to have a material adverse effect upon the assets, financial
condition, earnings or operations of the Company (a "MATERIAL ADVERSE
EFFECT"). The Company has all requisite corporate power and authority
to own its assets and to carry on its business as presently conducted,
except where a lack of such corporate power or authority would not
reasonably be expected to have a Material Adverse Effect.
(2) (i) The Company has all requisite corporate power and
authority to execute, deliver and perform its obligations under this
Warrant Certificate; and (ii) the execution and delivery by the
Company of this Warrant Certificate and the consummation of the
transactions contemplated hereby have been duly and validly authorized
by the Company.
(3) The total authorized capital stock of the Company
consists of (i) 20,000,000 shares of Common Stock, of which 13,394,348
are issued and outstanding as of March 15, 1997, and (ii) 200,000
shares of Series B Preferred Stock, par value $0.001 per share, all of
which are issued and outstanding. Except for (i) the warrants and
options issued under the Western Pacific Airlines, Inc. 1994 Stock
Option Plan, (ii) the Affinity Warrants granted to certain vendors and
strategic partners of the Company (substantially in the form of those
issued to Mercury on June 26, 1995), (iii) the options granted
pursuant to the Company's Amended and Restated 1995 Directors' Stock
Option Plan, (iv) the options granted pursuant to the Company's 1996
Restricted Stock Plan for Non-Employee Directors, (v) the rights
granted to certain employees of the Company pursuant to the Company's
Employee Stock Purchase Plan and (vi) the warrants issued by the
Company to each of Hunt Petroleum of Texas, Inc. and GFI Company,
there are outstanding no securities or indebtedness convertible into,
exchangeable for, or carrying the right to acquire, Common Stock or
other equity securities of the Company, or subscriptions, warrants,
options, rights, or other arrangements or commitments obligating the
Company to issue or dispose of any Common Stock or other equity
securities or any ownership therein. All of the Underlying Shares
have been duly and validly authorized and reserved for issuance upon
exercise of this Warrant Certificate and, when issued and delivered in
accordance
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<PAGE>
with the provisions hereof and the Company's Certificate of
Incorporation (assuming issuance and delivery of the Shares pursuant
to this Warrant Certificate against payment of the consideration
specified therefor), will be duly and validly issued, fully paid and
non-assessable.
b. The Company covenants and agrees that all Shares which may be
issued upon the exercise of the rights represented by this Warrant
Certificate will, upon issuance and payment of the Warrant Exercise Price
applicable to such Shares, be validly issued, fully paid and nonassessable.
The Company further covenants and agrees that from the date hereof until the
Expiration Time, the Company will at all times have authorized and reserved a
sufficient number of shares of Common Stock to provide for the exercise of
this Warrant Certificate and that the par value of said shares will at all
times be less than or equal to the applicable Warrant Exercise Price.
SECTION 6. REORGANIZATION, RECLASSIFICATION, ISSUANCE OF
ADDITIONAL SHARES OF COMMON STOCK, ETC. In case of any capital
reorganization, or of any reclassification of the capital stock, of the
Company (other than a change in par value or from par value to no par value
or from no par value to par value or as a result of a split-up or
combination) or in case of the consolidation or merger of the Company with or
into any other corporation or entity (other than a consolidation or merger in
which the Company is the surviving corporation and which does not result in
the Common Stock being changed into or exchanged for stock or other
securities or property of any other person), or of the sale of the properties
and assets of the Company as, or substantially as, an entirety to any other
corporation, this Warrant Certificate shall, after such capital
reorganization, reclassification of capital stock, consolidation, merger or
sale, entitle Mercury to purchase the kind and number of shares of stock or
other securities or property of the Company, or of the corporation or entity
resulting from such consolidation or surviving such merger or to which such
sale shall be made, as the case may be, to which Mercury would have been
entitled if it had held the Common Stock issuable upon the exercise hereof
immediately prior to such capital reorganization, reclassification of capital
stock, consolidation, merger or sale, and in any such case appropriate
provision shall be made with respect to the rights and interests of Mercury
hereunder to the end that the provisions hereof (including, without
limitation, provisions for adjustment of the number or class of shares
purchasable upon the exercise of this Warrant Certificate) shall thereafter
be applicable, as nearly as may be in relation to any shares of stock,
securities or assets thereafter deliverable upon the exercise of the rights
represented hereby. The Company shall not effect any such consolidation,
merger or sale, unless prior to or simultaneously with the consummation
thereof the successor corporation or entity (if other than the Company)
resulting from such consolidation or merger or the corporation or entity
purchasing such assets shall assume by written instrument executed and mailed
or delivered to Mercury at the address of Mercury appearing on the books of
the Company, the obligation to deliver to Mercury such shares of stock,
securities or assets as, in accordance with the foregoing provisions, Mercury
may be entitled to purchase.
6
<PAGE>
SECTION 7. ANTIDILUTION PROVISIONS.
a. The Conversion Ratio shall be subject to adjustment from time
to time as provided in this Section 7. For purposes of this Section 7, the
term "COMMON STOCK" includes the Shares and any other class of equity
interest in the Company having no preference over the Shares as to
distributions which may be authorized in the future by an amendment to the
Company's Certificate of Incorporation.
b. In case the Company shall, at any time after the date this
Warrant Certificate was first issued, with respect to all of the holders of
its outstanding Common Stock (i) declare a dividend on the outstanding Common
Stock payable in shares or rights to acquire shares of its Common Stock, (ii)
subdivide the outstanding Common Stock, (iii) combine the outstanding Common
Stock into a smaller number of shares, or (iv) issue any shares of its
capital stock by reclassification of the Common Stock (including any such
reclassification in connection with a consolidation or merger in which the
Company is the continuing corporation but excluding the events set forth in
Section 6 hereof or the issuance of shares of Common Stock by the Company in
connection with a merger when the Company is the surviving corporation of the
merger and no such reclassification of the Common Stock has occurred), then,
in each case, the Conversion Ratio and the number of Shares issuable upon
exercise of this Warrant Certificate in effect at the time of the record date
for such dividend or of the effective date of such subdivision, combination,
or reclassification, shall be proportionately adjusted so that Mercury after
such time shall be entitled to receive the aggregate number and kind of
Shares which, if this Warrant Certificate had been exercised immediately
prior to such time, it would have owned upon such exercise and been entitled
to receive by virtue of such dividend, sub-division, combination, or
reclassification. Such adjustment shall be made successively whenever any
event listed above shall occur.
SECTION 8. PIGGYBACK REGISTRATION RIGHTS.
a. If at any time after the date hereof, the Company proposes to
register any of its Common Stock under the Securities Act (except for the
registration of securities on Form S-4 or to be offered pursuant to an
employee benefit plan on Form S-8 or any successor forms then in effect) (a
"PIGGYBACK REGISTRATION"), it will so notify Mercury not later than thirty
(30) Business Days prior to the anticipated filing date. Subject to the
provisions set forth below, the Company will include in the Piggyback
Registration all Registrable Securities owned by Mercury with respect to
which the Company has received a written request for inclusion within ten
(10) Business Days after Mercury's receipt of the Company's notice. Mercury
may withdraw all or any part of the Registrable Securities from a Piggyback
Registration at any time before the printing of the preliminary prospectus
relating to the Piggyback Registration. Mercury must sell its Registrable
Securities on the same terms and conditions as apply to the securities being
issued and sold by the Company or, if the Company is not issuing and selling
shares, the Person who initiated the Piggyback Registration. For purposes
hereof, "REGISTRABLE SECURITIES" shall mean all Shares issuable upon exercise
of this Warrant Certificate that remain owned by Mercury; provided, however,
that the right to a Piggyback Registration provided pursuant to this Section
8 shall not apply to any Shares which,
7
<PAGE>
at the time of such Piggyback Registration, are available for sale by Mercury
pursuant to Rule 144 under the Act.
b. If a Piggyback Registration is an underwritten registration on
behalf of the Company or the person who initiated the Piggyback Registration
and the managing underwriters give the Company their written opinion that the
total number or dollar amount of securities requested to be included in the
registration exceeds the number or dollar amount of securities that can be
sold, the Company shall be entitled to reduce the Registrable Securities of
Mercury to be included in such registration. Unless otherwise consented to
in writing by Mercury, if the number of Mercury's Registrable Securities are
reduced as provided above, such number will only be reduced on a
proportionate basis with all other selling stockholders of the Company
included in the offering, if any, so that all selling stockholders sell the
same percentage of their securities being offered.
c. If any Piggyback Registration is an underwritten offering, the
Company will select the investment banker(s) and manager(s) that will
administer the offering and shall enter into a customary underwriting
agreement with the investment banker(s) and manager(s) containing such
representations, warranties and covenants (including indemnities) as are
customarily given by issuers in similar underwritten offerings.
d. Mercury shall cooperate with the Company in connection with a
registration of the Registrable Securities and shall furnish (i) such
information as may be reasonably required by the Company or by the SEC in
connection therewith and (ii) such representations, undertakings and
agreements as may be reasonably required by the SEC, the Company and the
Company's underwriters in connection therewith.
e. All expenses incurred in connection with any registration or
qualification pursuant to this Section 8, including, without limitation, all
SEC registration fees, blue sky filing fees, printing expenses (excluding the
printing of any agreements, memoranda or other documents pertaining solely to
the sale of securities by Mercury) and fees and disbursements of experts used
by the Company in connection with such registration, shall, subject to
requirements of any applicable regulatory agency, be borne by the Company;
PROVIDED, that Mercury shall bear the fees and disbursements of its own legal
counsel, underwriting or brokerage discounts and commissions, and transfer
taxes, on the sale of its securities.
f. In the event of any registration of the Registrable Securities
under the Securities Act pursuant to this Section 8, the Company will
indemnify and hold harmless Mercury and its Affiliates (collectively, the
"INDEMNIFIED PERSONS"), against any losses, claims, damages or liabilities,
joint or several, to which any Indemnified Person may become subject, under
the Securities Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon
any untrue statement or alleged untrue statement of any material fact
contained in or incorporated by reference into such Registration Statement or
preliminary prospectus (if used prior to the effective date of such
Registration Statement) or final or summary prospectus contained therein (if
used during the period the Company is required to keep
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<PAGE>
the Registration Statement effective), or any amendment or supplement
thereto, or arise out of or are based upon the omission or alleged omission
to state therein a material fact required to be stated therein or necessary
to make the statements made therein not misleading, and will promptly
reimburse each Indemnified Person for any legal or any other expenses
reasonably incurred by it (from time to time as such expenses are incurred)
in connection with investigating or defending any such action or claim
(excluding any amounts paid in settlement of any litigation, commenced or
threatened, if such settlement is effected without the prior written consent
of the Company, which shall not be unreasonably withheld); provided, however,
that the Company will not be liable to a particular Indemnified Person in any
such case to the extent that any such loss, claim, damage, liability or
expense arises out of or is based upon (i) an untrue statement or omission or
alleged omission made in said Registration Statement, said preliminary
prospectus or said final or summary prospectus or any amendment or supplement
thereto, in reliance upon and in conformity with written information
furnished to the Company by that Indemnified Person or by Mercury or its
Affiliates specifically for use in the preparation thereof; or (ii) any act
or action of the Indemnified Person other than as a selling stockholder under
the Registration Statement.
g. In the event of any registration of the Registrable Securities
under the Securities Act pursuant to this Section 8, Mercury shall indemnify
and hold harmless the Company, each of the Company's directors and officers,
any underwriter and each other person, if any, who controls the Company or
any underwriter within the meaning of the Securities Act, against any losses,
claims, damages or liabilities, to which the Company or any such director,
officer, underwriter or controlling person may become subject under the
Securities Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of, or are based upon,
any untrue statement or alleged untrue statement of any material fact
contained in such Registration Statement or preliminary prospectus or final
or summary prospectus contained therein, or any amendment or supplement
thereto, or arise out of or are based upon the omission or alleged omission
to state therein a material fact required to be stated therein or necessary
to make the statements made therein not misleading, and will promptly
reimburse the Company, each such director, officer, underwriter and
controlling person for any legal or other expenses reasonably incurred (from
time to time as such expenses are incurred) by them in connection with
investigating or defending any such action or claim (excluding any amounts
paid in settlement of any litigation, commenced or threatened, if such
settlement is effected without the prior written consent of Mercury, which
shall not be unreasonably withheld); but in all such cases only if, and to
the extent that, any such loss, claim, damage, liability or expense arises
out of or is based upon an untrue statement or alleged untrue statement or
omission or alleged omission therein made in reliance upon and in conformity
with written information furnished to the Company by Mercury or its
Affiliates specifically for use in the preparation thereof.
h. Promptly after receipt by a party entitled to indemnification
hereunder of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against the indemnifying
party hereunder, notify the indemnifying party in writing of the commencement
thereof. In case any such action is brought against the indemnified party
and it shall so notify the indemnifying party of the commencement thereof,
the indemnifying party shall
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be entitled to participate in and, to the extent that it so chooses, to
assume the defense thereof with counsel reasonably satisfactory to such
indemnified party, and, after notice from the indemnifying party that it so
chooses, such indemnifying party shall not be liable for any legal or other
expenses subsequently incurred by such indemnified party in connection with
the defense thereof; provided, however, that if the indemnifying party fails
to take reasonable steps necessary to diligently defend such claim within
twenty (20) days after receiving notice from the indemnified party that the
indemnified party believes the indemnifying party has failed to take such
steps, the indemnified party may assume its own defense and the indemnifying
party shall be liable for any expenses therefor. The indemnity agreements in
this Section 8 shall be in addition to any liabilities which the indemnifying
parties may have pursuant to law or contract.
SECTION 9. TAXES. The Company shall not be required to pay any
tax or taxes attributable to the initial issuance of shares of Common Stock
upon any exercise, in whole or part, of this Warrant Certificate.
SECTION 10. MERCURY NOT DEEMED A STOCKHOLDER. Mercury, as the
holder of this Warrant Certificate, shall not be entitled to vote or receive
dividends or be deemed the holder of shares of the Company for any purpose,
nor shall anything contained in this Warrant Certificate be construed to
confer upon Mercury any of the rights of a stockholder of the Company or any
right to vote, give or withhold consent to any corporate action (whether any
reorganization, issue of stock, reclassification of stock, consolidation,
merger, conveyance or otherwise), receive notice of meetings, receive
dividends or subscription rights, or otherwise, prior to the issuance of
record to Mercury of the Shares which it is then entitled to receive upon the
due exercise of this Warrant Certificate.
SECTION 11. NO LIMITATION ON CORPORATE ACTION. No provisions of
this Warrant Certificate and no right or option granted or conferred
hereunder shall in any way limit, affect or abridge the exercise by the
Company of any of its corporate rights or powers to recapitalize, amend its
Articles of Incorporation, reorganize, consolidate or merge with or into
another corporation, or to transfer, all or any part of its property or
assets, or the exercise or any other of its corporate rights and powers.
SECTION 12. NOT TRANSFERABLE. This Warrant Certificate and the
Warrants represented hereby are not transferable to any other person.
SECTION 13. LOST, STOLEN, MUTILATED OR DESTROYED WARRANT
CERTIFICATE. If this Warrant Certificate is lost, stolen, mutilated or
destroyed, the Company shall, on such terms as to indemnity or otherwise as
it may in its discretion impose (which shall, in the case of a mutilated
Warrant Certificate, include the surrender thereof), issue a new Warrant
Certificate of like denomination and tenor as the Warrant Certificate so
lost, stolen, mutilated or destroyed. Any such new Warrant Certificate shall
constitute an original contractual obligation of the Company, whether or not
the allegedly lost, stolen, mutilated or destroyed Warrant Certificate shall
be at any time enforceable by anyone.
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SECTION 14. NOTICES. All notices and other communications under
this Warrant Certificate shall (a) be in writing, (b) be sent by (i)
telecopier, (ii) delivered by hand, or (iii) delivered by an overnight
courier service which maintains records confirming the receipt of documents
by the receiving party (c) be given at the following respective addresses and
telecopier and telephone number and to the attention of the following persons:
(i) if to the Company, to it at:
Western Pacific Airlines, Inc.
2864 Circle Drive
Suite 1100
Colorado Springs, Colorado 80906
Telecopier No.: (719) 527-7259
Telephone No.: (719) 527-7421
Attention: Chief Executive Officer.
with a copy to:
D'Ancona & Pflaum
30 North LaSalle Street
Suite 2900
Chicago, Illinois 60602
Telecopier No.: (312) 580-0923
Telephone No.: (312) 580-2111
Attention: Allan J. Reich
(ii) if to Mercury:
Mercury Air Group, Inc.
5456 McConnell Avenue
Los Angeles, California 90066
Telecopier No.: (310) 827-5510
Telephone No.: (310) 827-2737
Attention: Seymour Kahn
with a copy to:
11
<PAGE>
Brooks, Baker and Lange
1700 Niels Esperson Building
808 Travis Street
Houston Texas 77002
Telecopier No.:
Telephone No.: 713-222-1434
Attention: Reese W. Baker
or at such other address or telecopier or telephone number or to the
attention of such other person as the party to whom such information pertains
may hereafter specify for the purpose in a notice to the other specifically
captioned "Notice of Change of Address," and (d) be effective or deemed
delivered or furnished (i) if given by telecopier, when such communication is
transmitted to the appropriate number determined as above provided in this
Section 14, (ii) if given by hand delivery or overnight courier service, when
left at the address of the addressee addressed as above provided, except that
notices of a change of address, telecopier or telephone number, shall not be
deemed furnished until received.
SECTION 15. MISCELLANEOUS. (a) This Warrant Certificate and any
term hereof may be changed, waived, discharged, or terminated only by an
instrument in writing signed by the party or holder hereof against which
enforcement of such change, waiver, discharge or termination is sought.
(b) The headings in this Warrant Certificate are for purposes of
reference only and shall not limit or otherwise affect the meaning hereof
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate
to be executed by its duly authorized officers as of the 25th day of April,
1997.
WESTERN PACIFIC AIRLINES, INC.
By:
-------------------------------
Name: Robert A. Peiser
Title: President/
ATTEST:
BY:
--------------------------
Secretary
12
<PAGE>
EXHIBIT A
SUBSCRIPTION FORM
TO BE EXECUTED BY THE REGISTERED HOLDER
TO EXERCISE THIS WARRANT
Dated:
---------------------
The undersigned hereby exercises the right to purchase __________
of the Shares covered by this Warrant Certificate according to the conditions
thereof and herewith (CHOOSE ONE):
1. Makes payment of the Warrant Exercise Price of such
----- Shares, in full; or
2. Elects to effect a cashless exercise of such Warrants
----- pursuant to Section 3(c) of the Warrant Certificate.
MERCURY AIR GROUP, INC.
By:
--------------------------------
Title:
13
<PAGE>
EXHIBIT B
Western Pacific Airlines, Inc.
2864 Circle Drive
Suite 1100
Colorado Springs, Colorado 80906
Attention:
----------------------
Re: EXERCISE OF WARRANT CERTIFICATE, DATED
----------------------------------------------------------------
Ladies & Gentlemen:
In connection with the undersigned's purchase of Common Stock of
Western Pacific Airlines, Inc., upon exercise of a Warrant Certificate
therefor, the undersigned confirms and agrees as follows:
1. The undersigned has sufficient knowledge and experience
in financial and business matters that it is capable of evaluating the
merits and risks of its prospective investment in the shares of Common
Stock.
2. The undersigned understands that it is purchasing the
shares of Common Stock pursuant to an exemption from the registration
requirements of the Securities Act of 1933, as amended (the "Act"), or
any state securities or Blue Sky laws.
3. The undersigned is an "accredited investor" as defined
in Rule 501(a) of Regulation D under the Act.
4. The undersigned agrees that it will not offer, sell,
transfer or exchange such shares of Common Stock, except in accordance
with the registration requirements under the Act or pursuant to an
available exemption therefrom.
If administrative or legal proceedings are commenced or threatened
in connection with which this notice is or would be relevant, the undersigned
irrevocably authorizes Western Pacific Airlines, Inc. to produce this notice
or a copy thereof to any interested party in such proceedings.
Date: MERCURY AIR GROUP, INC.
By:
-------------------------------
Title:
14
<PAGE>
AVIATION FUEL MANAGEMENT AGREEMENT
This agreement is made and entered into between Western Pacific Airlines,
Inc., a Delaware corporation, having its principal place of business at 2864
South Circle Drive, Suite 1100, Colorado Springs, Colorado 80906 (hereinafter
called "Buyer") and Mercury Air Group, Inc. having its a place of business at
15710 J.F.K. Blvd., Suite 200, Houston, Texas 77032 (hereinafter called
"Administrator").
WHEREAS, Administrator wishes to provide Fuel Management services to Buyer
and Buyer wishes to obtain such services from Administrator, upon the terms and
conditions hereinafter set forth.
NOW, THEREFORE, it is agreed as follows:
1. PERIOD. The period of this Agreement shall commence upon the date
hereof and terminate April 30, 1998. Administrator agrees that, during this
contractual period, it shall use its best efforts in obtaining fuel prices for
Buyer which are the most competitive available in a given market relative to
other carriers of Buyer's same scope of size and operations.
2. SPECIFICATIONS. Administrator shall provide Fuel Management Services
to Buyer, which shall include the following services:
(a) Provide or cause to be provided to Buyer aviation fuels at
various locations, including the provision of storage and into-plane services,
in the name and for the account of Buyer.
(b) Solicit and review fuel and into-plane bids with Buyer including
explanation of all information regarding market conditions and all cost
components.
(c) Monitor the aviation fuel consumption at each location and ensure
proper quantities are available for the forecast operations of Buyer.
(d) Make arrangements for the provision of aviation fuel and into-
plane services at the alternate and diversion locations required in accordance
with applicable FAA and/or other governing authority.
(e) Provide or cause to be provided fueling of aircraft at off-line
stations as requested.
<PAGE>
(f) Receive, review and verify correctness of all invoices from fuel
suppliers, into-plane agents and others related to fuel, such as truckers and
state tax agencies. Obtain corrections from the suppliers and agents as
necessary.
(g) Provide a report weekly which shall detail component cost; base
market price and all applicable duties, taxes and fees.
(h) Provide a monthly gallon report showing uplift by-city and by day
of the month.
(i) Provide summaries of fuel tickets (as provided by into-plane
agents) and fuel supplier invoices for review and audit by Buyer (such review
and audit to be upon Buyer's request and conducted in a mutually convenient
manner given the scope of the audit).
(j) Receive and pay all fuel, fuel storage, throughput, consortium
and into-plane delivery bills on behalf of Buyer.
3. FEES. See ATTACHMENT "A".
4. PAYMENTS. Buyer agrees to pay Administrator the full amount of all
invoices for product and services including any applicable duties, taxes, fees
or other charges levied or imposed, whether directly or indirectly, on the
aviation products or services furnished to Buyer. Buyer shall also pay all
into-plane fees, consortium fees, throughput fees and other fuel service fees.
It is further agreed that if Administrator shall be called upon to pay any tax,
fee or other charge not now in effect, Administrator shall promptly notify Buyer
and shall thereupon be entitled to collect such amounts from the Buyer.
5. TERMS. Payment shall be due twenty (20) days from the date of the
invoice from Administrator to Buyer via wire transfer to the account specified
on ATTACHMENT "A". Notwithstanding the credit terms specified, Buyer shall have
an initial credit limit (the "Credit Limit") with Administrator of up to
$2,000,000 (Two Million Dollars). If Buyer exceeds the Credit Limit, then Buyer
agrees to make payments to Administrator within no more than two business (2)
days after notice to Buyer (which may be telephonic) in amounts such that the
amounts payable by Buyer to Administrator are equal to or less than the Credit
Limit. All amounts received by Administrator from Buyer shall be applied to the
invoices with the earliest dates.
6. FINANCE CHARGE. Administrator shall have the right to charge and
collect from the Buyer a reasonable service charge in the amount of the lesser
of 10% per annum or the highest non-usurious rate allowed by applicable law on
past due outstanding and uncollected balances. To the extent such highest non-
usurious interest rate chargeable hereunder is determined by reference to the
laws of the State of Texas, same shall be determined by reference to the
indicated (weekly) rate ceiling (as defined and described in Texas Revised Civil
Statutes, Article 5069-
2
<PAGE>
1.04, as amended) at the applicable time in effect. It is the intention of
Administrator and Buyer to conform strictly to all applicable usury laws. It
is therefore agreed that (i) the aggregate of all interest and other charges
constituting interest under applicable law and contracted for, chargeable or
receivable under this Agreement or otherwise in connection with this
Agreement shall never exceed the maximum amount of interest, nor produce a
rate in excess of the maximum rate of interest that Administrator may charge
Buyer under applicable law and in regard to which Buyer may not successfully
assert the claim or defense of usury, and (ii) if any excess interest is
provided for, it shall be deemed a mistake and the same shall either be
refunded to Buyer or credited to the unpaid principal amount hereof and this
Agreement shall be deemed reformed automatically so as to permit only the
collection of the maximum legal non-usurious rate and amount of interest. All
sums paid or agreed to be paid to Administrator for the use, forbearance or
detention of money to the full extent allowed by applicable law, shall be
amortized, prorated, allocated and spread through the full term of this
Agreement.
7. DELIVERY. Measurement of the quantities of the Product delivered
shall be determined by calibrated meters and any complaint by the Buyer, or its
representative, with respect to defects in quality or short delivery shall be
made to Administrator's representative at the airfield concerned at the time of
the delivery or upon receipt of the ticket or invoice covering the delivery of
product and/or services and confirmed in writing within seven (7) calendar days.
The Buyer, or the Buyer's representative, shall have the right to take in the
presence of the Administrator or Administrator's representative samples of the
Product delivered. Where Buyer's flight schedule requires maintenance of
inventory, Administrator shall have the right, upon notice to Buyer, to deliver
into-storage (as opposed to into-wing) and Administrator shall bill for such
fuel based on bulk delivery into-storage. Notwithstanding the foregoing,
Administrator will still coordinate into-wing delivery.
8. NOTICES. All notices given by either party to the other party
pursuant to this Agreement shall be in writing and shall be deemed given when
delivered to the other by an overnight mail service which maintains records
confirming delivery, addressed as follows:
Administrator: Mercury Air Group, Inc.
15710 J.F.K. Blvd., Suite 200
Houston, TX 77032
Attn: Jeff Stallones
With copy to:
Mercury Air Group, Inc.
5456 McConnell Avenue
Los Angeles, CA 90066
Attn: Executive Vice President Fuel Sales/Credit
Manager
and
3
<PAGE>
Mercury Air Group, Inc.
104 E. Mountain Sky
Phoenix, AZ 85048
Attn: Bruce Crocker
Buyer: Western Pacific Airlines, Inc.
2864 South Circle, Suite 1100
Colorado Springs, CO 80906
Attn: President and Vice President Vendor
Management
9. FORCE MAJEURE. No act or commission by Administrator or Buyer in the
performance of any obligation of this Agreement shall be deemed a breach of this
Agreement nor create any liability for damages if the same shall arise from any
cause or causes beyond the reasonable control of Administrator or Buyer,
including, but not limited to, the following, which for the purpose of this
Agreement shall be regarded as beyond the reasonable control of Administrator or
Buyer: acts of God; acts of federal, state or local government or any agency
thereof, fires; storms; floods; earthquakes; explosions; accidents; wars;
insurrections; riots; sabotage; strikes; lockouts; disputes or differences with
workers; failures or delays in transportation; or exhaustion, reduction or
unavailability of petroleum products at the source of supply from which
deliveries are made hereunder resulting from shortages or circumstances beyond
the reasonable control of Administrator. In the event that Administrator or
Buyer finds it necessary to avail itself of the foregoing force majeure
provision, the term of this Agreement shall not be extended thereby but any
quantities otherwise deliverable hereunder shall be rateably reduced or
suspended for the period during which such force majeure may exist. In the
event that Administrator takes any action contemplated in this paragraph, Buyer
may obtain from any other supplier or suppliers that portion of its requirements
for such Product which Administrator is unable to furnish to Buyer under this
Agreement and such portion so purchased from another supplier or suppliers shall
be deducted from the quantities Buyer has agreed to purchase and Administrator
has agreed to sell under this Agreement during the continuation of such event
and for such period thereafter as to which Buyer may have been required to
commit to the other supplier or suppliers in order to obtain such requirements.
10. OBLIGATION. Nothing herein contained shall excuse Buyer from paying
Administrator when due any amounts payable hereunder.
11. DEFAULT/TERMINATION. Buyer shall be in default ("Default" or "Event
of Default") hereunder (i) for failure to make all payments due hereunder on a
timely basis and such failure continuing for three (3) business days after
written notice to Buyer, (ii) for any material violation, breach or default of
any non-payment covenant, term or condition under this Agreement and the failure
of Buyer to cure such default within thirty (30) days after written notice of
such default, or (iii) the occurrence of an "Event of Default" under the
Agreement Relating to Guaranty (as hereinafter defined). Administrator shall be
in default hereunder for any material violation, breach or default of any
covenant, term or condition under this Agreement or
4
<PAGE>
any other agreement between Buyer and Administrator and the failure of
Administrator to cure such default within fifteen (15) days after written
notice of such default. Either party may terminate this Agreement upon the
occurrence and during the continuance of an Event of Default. Upon
termination of this Agreement for any reason (other than by Buyer as a result
of a default by Administrator) or upon the occurrence of a default by Buyer,
then (i) all outstanding invoices of Buyer to Administrator (regardless of
the terms of payment or the due dates) at all locations must be paid by Buyer
to Administrator within five (5) days (or thirty (30) days in the event that
this Agreement is terminated by Buyer as a result of a default by
Administrator) of the effective date of termination, (ii) upon demand by the
Bank (as hereinafter defined), Buyer must immediately pay to the Bank all
amounts due and owing on the Note (as hereinafter defined), (iii) Buyer must
pay all amounts due and owing to Administrator on the Agreement Relating to
Guaranty (as hereinafter defined), and (iv) Buyer acknowledges that any of
such events shall be an Event of Default under the Note. The Bank shall
accelerate and demand payment of the Note upon the occurrence of an Event of
Default.
12. REQUIRED PRE-PAYMENT. Notwithstanding the foregoing periods for
notice and cure prior to the occurrence of an "Event of Default", on twenty-four
(24) hours written notice, Administrator may require Buyer to pre-pay for all
fuel delivered pursuant to this Agreement following the failure of Buyer to make
all payments due hereunder on a timely basis and such pre-payment requirement
shall remain in effect until such time as Buyer cures the applicable non-payment
or Administrator terminates this Agreement as a result of an "Event of Default"
after giving the required notice and cure periods.
13. ASSIGNMENT. Neither this Agreement nor any right hereunder or
interest herein may be assigned or transferred by either party directly or
indirectly without the prior written consent of the other. The Agreement shall
extend to and be binding upon the successors and assigns of Administrator and
Buyer.
14. ENTIRETY OF CONTRACT. Buyer has executed and delivered to Compass
Bank-Texas (the "Bank") in Houston, Texas, USA, that certain promissory note
(the "Note") dated of even date herewith in the original principal amount of Six
Million Dollars ($6,000,000) with interest at the rate of ten percent (10%) per
annum with a maturity date of February 1, 1998. Administrator has guaranteed
payment of the Note. Buyer and Administrator have also executed that certain
Agreement Relating to Brokering of Financing and Guaranty ("Agreement Related to
Guaranty") dated of even date with the Note. This Agreement, the Agreement
Related to Guaranty, and the Note comprise the agreement of the parties.
Furthermore, in the course of the contemplated business relationship between
Buyer and Administrator, it is anticipated that Buyer may forward documents to
Administrator that may contain various terms and conditions. Buyer and
Administrator agree that if there is any conflict between such documentation
sent to Administrator by Buyer and this Agreement, then this Agreement shall
govern. This Agreement supersedes all prior communications, written or wire,
regarding this transaction and cannot be modified without written consent of
Administrator and Buyer. Without limiting the generality of the foregoing, this
Agreement supersedes the Aviation Fuel Sales Agreement between Buyer and
5
<PAGE>
Administrator dated May 31, 1995 (the "Aviation Fuel Sales Agreement").
Immediately upon execution of this Agreement, Buyer will pay all invoices
presently outstanding under the Aviation Fuel Sales Agreement (regardless of the
credit terms provided) and all amounts subsequently invoiced under such
agreement for fuel provided prior to the date hereof will be paid in accordance
with the credit terms set forth herein.
15. ATTORNEYS' FEES. Should any party hereto retain counsel for the
purpose of enforcing, or preventing the breach of, any provision of this
Agreement, the prevailing party shall be entitled to be reimbursed by the losing
party for all reasonable costs and expenses incurred thereby, including, but not
limited to reasonable attorneys' fees (including costs of appeal).
16. INDEPENDENT CONTRACTOR. Both parties understand and agree that no
partnership, joint venture or relationship is created hereby. Each party shall
be conclusively deemed to be an independent contractor and not under the control
or supervision of the other.
17. DISCLAIMER OF WARRANTIES. Administrator makes no warranty as to the
quality control aspects of the fuel delivered at the various locations, the
storage services at the various locations or the into-plane services provided at
the various locations. Buyer shall be solely responsible for insuring that the
into-plane delivery, fuel receipt and storage services arranged by Administrator
under this Agreement meet Buyer's quality control requirements. Administrator
shall, upon request, furnish periodic reports to Buyer from each of the
refineries which manufactures Product sold to Buyer under this Agreement, on the
conformity of such Product to those specifications as established by Buyer.
EXCEPT FOR THIS WARRANTY, ADMINISTRATOR MAKES NO OTHER WARRANTY EXPRESS OR
IMPLIED AND ANY IMPLIED WARRANTY OF MERCHANT ABILITY OR FITNESS FOR PARTICULAR
PURPOSE WHICH EXCEEDS THE FOREGOING WARRANTY IS HEREBY DISCLAIMED BY
ADMINISTRATOR AND EXCLUDED FROM THIS AGREEMENT. IN NO EVENT SHALL EITHER PARTY
BE LIABLE TO THE OTHER PARTY FOR CONSEQUENTIAL, SPECIAL OR INCIDENTAL DAMAGES;
provided, however, that this provision shall in no way limit either party's
right to indemnification with respect to third-party claims.
18. EXCLUSIVITY. Buyer agrees that during the term of this Agreement all
aviation fuel purchased by Buyer for its aircraft shall be purchased under this
Agreement and otherwise subject to the fees set forth on ATTACHMENT A.
19. GOVERNING LAW, JURISDICTION AND VENUE. The parties hereto agree that
this Agreement and any dispute arising hereunder shall be governed by the laws
of the State of Texas. The parties further agree the State of Texas has
personal jurisdiction over the parties to this Agreement. The parties further
agree that venue of any lawsuit or legal proceeding shall be in the District
Courts of Harris County, Texas in the United States District Court for the
Southern District of Texas. Houston Division.
6
<PAGE>
WHEREOF, the parties hereto have affixed their signatures and cause this
agreement to be duly, executed this 25th day of April 1997.
BUYER: ADMINISTRATOR:
Western Pacific Airlines, Inc. Mercury Air Group Inc.
BY: BY:
----------------------- ----------------------
TITLE: TITLE:
-------------------- -------------------
7
<PAGE>
ATTACHMENT "A"
SERVICE FEES
RATE/GALLON
- -----------
For gallons delivered before September 1, 1997 $.0025
For gallons delivered after September 1, 1997 $.0075
<PAGE>
AGREEMENT RELATING TO BROKERING OF FINANCING AND GUARANTY OF MAG
This Agreement Relating to Brokering of Financing and Guaranty of MAG (this
"Agreement") is made between Mercury Air Group, Inc., a New York corporation
("MAG"), and Western Pacific Airlines, Inc., a Delaware corporation ("WPA").
1. PRELIMINARY STATEMENT. WPA is desirous of obtaining a loan for
$6,000,000 (the "Loan") for the purchase of aviation fuel. MAG has acted as a
broker in locating and obtaining a lending institution willing to provide the
Loan to WPA. MAG located Compass Bank-Texas (the "Bank") as the lending source.
As consideration for acting as a broker in assisting WPA in locating a funding
source for the Loan, WPA has agreed to pay a broker fee to MAG. As part of the
Loan, WPA will execute and deliver to the Bank a promissory note (the "Note") in
the amount of the Loan. WPA desires that the Loan have a maturity date of
February 5, 1998, and that WPA will be required to make only monthly interest
payments on the loan until August 31, 1997, and principal reductions of
$1,000,000 per month (plus accrued interest) starting on September 5, 1997, and
on the fifth day of each consecutive month thereafter until paid in full. The
Bank will not make a Loan to WPA without a guaranty by an entity with financial
credit acceptable to the Bank. MAG has agreed to provide a guaranty to the Bank
to allow WPA to make the Loan. The Bank has indicated that the guaranty of MAG
will be acceptable to the Bank for purposes for the Bank making the Loan. In
consideration for the guaranty by MAG, WPA has agreed to pay a guaranty fee to
MAG and to insure that the Bank is fully and timely paid. In addition, MAG and
WPA have entered into an Aviation Fuel Management Agreement (the "Fuel
Management Agreement") for the management of the supply of aviation fuel by MAG
to WPA at various locations. The execution, delivery and continuation of the
Fuel Management Agreement is a condition to the execution, delivery and
continuation of this Agreement and the Bank Guaranty (as hereinafter defined).
The term "Bank" shall include all successors and assigns of the Bank.
2. AGREEMENT. MAG hereby agrees to (a) execute and deliver to the Bank a
guaranty in a form acceptable to WPA and the Bank (the "Bank Guaranty") and a
Security Agreement in a form acceptable to WPA and the Bank (the "Security
Agreement") in order to satisfy the requirements of the Bank for the Loan to
WPA; and (b) subject to the provisions of this Agreement, to maintain such Bank
Guaranty and Security Agreement in full force and effect and comply with the
terms thereof. In consideration of the brokering services and the execution and
delivery of the Bank Guaranty, WPA agrees (i) to pay the Fee (as hereinafter
defined) to MAG at the time stated, and (ii) to immediately reimburse or pay to
MAG all amounts that MAG is required or obligated to pay to the Bank pursuant to
the Bank Guaranty other than expenses related to the preparation and
documentation thereof and the Note, as to which WPA and MAG will share equally.
<PAGE>
3. TERM. This Agreement shall commence on the date that MAG delivers to
the Bank the Bank Guaranty (the "Commencement Date"). Subject to earlier
termination in the manner as provided for herein, the obligation of MAG to
provide the Bank Guaranty to the Bank shall continue until the earlier of
February 5, 1998, or until the Note is fully and completely paid by WPA. All
other terms and conditions of this Agreement shall continue until the full and
complete payment of the Note by WPA, complete performance and discharge of all
the obligations of WPA under the Note and all related documents, and final
termination of any obligations of MAG under the Bank Guaranty.
4. CONSIDERATION. On the Commencement Date and in consideration of the
brokering of the Loan by MAG and the guaranty of the Loan by MAG, WPA shall
deliver to MAG three (3) year warrants to purchase two hundred thousand
(200,000) shares of common stock of WPA in the form of Exhibit A attached hereto
(the "Fee"). MAG shall have no obligation to execute and deliver the Bank
Guaranty until the Fee has been fully paid. The parties acknowledge and agree
that this Agreement shall be deemed to have been executed and delivered
simultaneously with the delivery of the Guaranty Fee.
5. CONDITIONS PRECEDENT. Prior to the Commencement Date, WPA shall
deliver to MAG certified copies of (i) the certificate of incorporation of WPA,
(ii) resolutions of WPA's board of directors in form and substance satisfactory
to MAG with respect to authorization of the Loan, the Note, this Agreement, the
Fee (including the authorization and validity of the warrants and the stock to
be issued thereunder), and the officers of WPA authorized to sign such
instruments, and (iii) specimen signatures of the officers so authorized.
6. INTEREST ON PAST DUE AMOUNTS. All past due amounts due to MAG
(pursuant to Section 8 hereto) shall bear interest from and after fifteen (15)
days from the date such amounts are due and owing to MAG until paid at the
lesser of fifteen percent (15%) or the highest non-usurious rate allowed by
applicable law. To the extent such highest non-usurious interest rate
chargeable hereunder is determined by reference to the laws of the State of
Texas, same shall be determined by reference to the indicated (weekly) rate
ceiling (as defined and described in Teas Revised Civil Statues, Article 5069-
1.04, as amended) at the applicable time in effect. It is the intention of MAG
and WPA to conform strictly to all applicable usury laws. It is therefore
agreed that (i) the aggregate of all interest and other charges constituting
interest under applicable law and contracted for, chargeable or receivable under
this Agreement or otherwise in connection with this Agreement shall never exceed
the maximum amount of interest, nor produce a rate in excess of the maximum rate
of interest that MAG may charge WPA under applicable law and in regard to which
WPA may not successfully asset the claim or defense of usury, and (ii) if any
excess interest is provided for, it shall be deemed a mistake and the same shall
either be refunded to WPA or credited on the unpaid principal amount hereof and
this Agreement shall be automatically deemed reformed so as to permit only the
collection of the maximum legal non-usurious rate and amount of interest. All
sums paid or agreed to be paid to MAG for the use,
2
<PAGE>
forbearance or detention of money to the full extent allowed by applicable
law, shall be amortized, prorated, allocated and spread through the full term
of this Agreement.
7. EVENTS OF DEFAULT. Each of the following shall constitute an event of
default ("Event of Default" or "Default") by WPA of this Agreement:
a. the Bank declares a default under the Note and/or accelerates
payment of the Note for any reason and WPA fails to cure such default within the
applicable cure period of the Note; or
b. WPA reports to the public, its shareholders, or the Securities &
Exchange Commission the then existing occurrence of a default under its senior
credit facility, aircraft lease arrangements, or other material agreements and
MAG notifies WPA in writing that an Event of Default has occurred; or
c. the effective date of termination of, or an Event of Default
under, the Fuel Management Agreement; or
d. the demand by the Bank to MAG for the payment of any amounts
under the Bank Guaranty; or
e. any material violation, breach or default by WPA of any covenant,
agreement or other obligation under this Agreement, the Note, the Fuel
Management Agreement or any other related document or agreement and such
violation, breach or default continuing after ten (10) days written notice has
been provided to WPA; provided that MAG shall not be required to provide more
than two (2) notices during any one year period; or
f. except for a payment default and as otherwise provided in
subsection 7(e) above, any representation or warranty made by WPA in the Note,
this Agreement or any related document or instrument is false or misleading in
any material respect at the time when made; or
g. WPA uses amounts advanced to it under the Note for purposes other
than those acknowledged in writing by MAG in the Request for Credit (Exhibit A
to the Note).
WPA agrees and acknowledges that by execution and delivery of the Bank
Guaranty and the required collateral to the Bank and its continued performance
of its obligations under said Guaranty and the Fuel Management Agreement, MAG
has fully and completely performed all obligations of MAG hereunder and that MAG
shall have no further obligations or responsibilities to WPA under this
Agreement.
8. ACTIONS UPON EVENTS OF DEFAULT.
3
<PAGE>
a. Upon the occurrence of an Event of Default and as long as it
continues, (i) this Agreement (and any performance hereunder), (ii) the Fuel
Management Agreement, and (iii) any other agreement then existing between MAG
and WPA may be terminated or suspended at any time by MAG. Such suspension or
termination by MAG shall be without any liability to MAG. In addition, MAG
shall have all rights, powers or remedies provided by law or in equity for
breach of this Agreement, the parties acknowledging and agreeing that no one
remedy shall be considered as exclusive of the others or as exclusive of any
other rights, powers and remedies allowed by law or in equity. Without limiting
the generality of the foregoing, WPA agrees that, in addition to all other
rights and remedies available at law or in equity, MAG shall be entitled to
enforcement of this Agreement in accordance with the principles of equity,
including, but not limited to, injunctive relief and specific performance.
b. Upon the occurrence of an Event of Default and demand by the Bank
for payment of the Note (provided that said Event of Default has not otherwise
ceased or been cured and the Bank has not terminated or rescinded its demand for
payment), WPA hereby agrees to (i) promptly pay to the Bank all amounts then due
and owing to the Bank under the Note, or (ii) promptly pay to or deposit with,
MAG the full amount then due and owing by WPA to the Bank on the Note, such
amounts to include all outstanding principal, accrued and unpaid interest and
any other costs due and owing to the Bank regardless of any defense, right of
set-off or counterclaim which WPA may have or assert against MAG. If WPA fully
pays the Bank and discharges all of WPA's obligations to the Bank under the Note
and all obligations to MAG under this Agreement and WPA has paid to, or
deposited with MAG, the amounts due to the Bank, then MAG shall return such
payment or deposit to WPA less any reasonable costs or expenses incurred by MAG.
If WPA fails to pay the Bank, then MAG may retain such funds as reimbursement to
MAG for the amounts that MAG has been, or may be, required to pay to the Bank on
the Bank Guaranty. In addition, WPA is immediately obligated to reimburse or
repay to MAG all amounts paid by MAG to the Bank pursuant to the Bank Guaranty.
9. PAYMENT OF BANK GUARANTY BY MAG. WPA hereby agrees that if the Bank
makes demand upon MAG for payment of the Bank Guaranty, then MAG shall have no
obligation or liability to WPA to raise any defenses or claims to the payment of
the Bank Guaranty. MAG may promptly pay the Bank Guaranty and immediately seek
repayment or reimbursement from WPA.
10. REPRESENTATIONS AND WARRANTIES. WPA hereby represents and warrants as
follows:
a. WPA is duly organized, validly existing and in good standing
under the laws of the state of Delaware and has full legal right, power and
authority to carry on its business as presently conducted and to execute,
deliver and perform its obligations under this Agreement, the Fuel
Administration Management Agreement and all related agreements.
4
<PAGE>
b. WPA is duly qualified to do business and in good standing in the
State of Texas and in each jurisdiction in which the nature of the business it
conducts makes such qualification necessary except where the failure to be so
qualified or to be in good standing would not have a material adverse effect on
the business or financial condition of WPA. WPA currently has employees,
operations and offices in Texas.
c. WPA's execution, delivery and performance of this Agreement the
Fuel Management Agreement and all related agreements have been duly authorized
by all necessary action under WPA's organizational documents and otherwise.
d. No authorization or approval or other action by, and no notice to
or filing with, any governmental authority is required for the due execution,
delivery and performance by WPA of this Agreement.
e. This Agreement, the Note, the Loan and all related documents to
which WPA is a party do not and will not violate any provisions of the
certificate of incorporation or bylaws of WPA, or any contract, agreement, law,
regulation, order, injunction, judgment, decree or writ to which WPA is subject,
or result in the creation or imposition of any lien upon any properties of WPA,
other than those contemplated by this Agreement.
f. This Agreement is a legal, valid and binding obligation of WPA
enforceable against WPA in accordance with its terms subject to applicable
bankruptcy, insolvency, moratorium or other similar laws relating to creditors'
rights and general principles of equity.
g. There is no pending or threatened action or proceeding affecting
WPA before any court, governmental agency or arbitrator, which may materially
adversely affect the financial condition of WPA.
h. WPA has filed all federal, state and foreign income tax returns
which are required to be filed, and has paid all taxes as shown on such returns
or on any assessment received by it to the extent that such taxers have become
due, except for such taxes and assessments as are being contested and reserved
for in good faith.
i. WPA is not in default nor has any event or circumstance occurred
which, but for the passage of time or the giving of notice, or both, would
constitute a default under any loan or credit agreement, indenture, mortgage,
deed of trust, aircraft lease security agreement or other instrument or
agreement evidencing or pertaining to any indebtedness of WPA, or any agreement
or instrument to which WPA is a party or by which WPA is bound, which default or
potential default could result in a material adverse effect on the financial
condition or operations of WPA.
5
<PAGE>
11. REPRESENTATIONS AND WARRANTIES. MAG hereby represents and warrants as
follows:
a. MAG is duly organized, validly existing and in good standing
under the laws of the state of New York and has full legal right, power and
authority to carry on its business as presently conducted and to execute,
deliver and perform its obligations under this Agreement, the Fuel
Administration Management Agreement and all related agreements.
b. MAG is duly qualified to do business and in good standing in the
State of Texas and in each jurisdiction in which the nature of the business it
conducts makes such qualification necessary except where the failure to be so
qualified or to be in good standing would not have a material adverse effect on
the business or financial condition of MAG. MAG currently has employees,
operations and offices in Texas.
c. MAG's execution, delivery and performance of this Agreement the
Fuel Management Agreement and all related agreements have been duly authorized
by all necessary action under WPA's organizational documents and otherwise.
d. No authorization or approval or other action by, and no notice to
or filing with, any governmental authority is required for the due execution,
delivery and performance by MAG of this Agreement.
e. This Agreement, the Note, the Loan and all related documents to
which WPA is a party do not and will not violate any provisions of the
certificate of incorporation or bylaws of MAG, or any contract, agreement, law,
regulation, order, injunction, judgment, decree or writ to which MAG is subject,
or result in the creation or imposition of any lien upon any properties of MAG,
other than those contemplated by this Agreement.
f. This Agreement is a legal, valid and binding obligation of MAG
enforceable against MAG in accordance with its terms subject to applicable
bankruptcy, insolvency, moratorium or other similar laws relating to creditors'
rights and general principles of equity.
g. There is no pending or threatened action or proceeding affecting
WPA before any court, governmental agency or arbitrator, which may materially
adversely affect the financial condition of MAG.
h. MAG has filed all federal, state and foreign income tax returns
which are required to be filed, and has paid all taxes as shown on such returns
or on any assessment received by it to the extent that such taxes have become
due, except for such taxes and assessments as are being contested and reserved
for in good faith.
6
<PAGE>
i. MAG is not in default nor has any event or circumstance occurred
which, but for the passage of time or the giving of notice, or both, would
constitute a default under any loan or credit agreement, indenture, mortgage,
deed of trust, aircraft lease security agreement or other instrument or
agreement evidencing or pertaining to any indebtedness of MAG, or any agreement
or instrument to which MAG is a party or by which MAG is bound, which default or
potential default could result in a material adverse effect on the financial
condition or operations of MAG.
12. COVENANTS OF WPA.
a. Except as provided below, until the Note is fully and completely
paid by WPA, WPA shall not pay any dividends on, or make any redemption of, any
stock of WPA. So long as no Event of Default has occurred and is continuing WPA
may pay dividends (i) to the holders of Series B Preferred Stock of WPA in
accordance with the Certificate of Designation, Preferences and Rights of Series
B Preferred Stock of Western Pacific Airlines, Inc. dated January 31, 1997 (the
"Certificate of Designation") at a rate not to exceed the per share rate for the
Series B Preferred Stock as set forth in Exhibit A, Section 2 of the Certificate
of Designation, and (ii) to any other holders of preferred shares that may
subsequently be issued by WPA prior to, or on a parity with, the Series B
Preferred Stock as set forth in Section 8a and 8b on "Ranking" on Exhibit A to
the Certificate of Designation at a rate note to exceed 15% per annum, so long
as such other preferred shares have been fully paid in cash (or cash
equivalent). Further, WPA may redeem stock of WPA so long as (i) no Event of
Default has occurred and is continuing, (ii) new equity funds (in cash or cash
equivalent) are contributed to WPA (or received by WPA) prior to such
redemption in an amount equal to or greater than the amount to be paid by WPA
for such redemption, (iii) to the extent such redemption relates to the Series B
Preferred Stock, such redemption is in accordance with the requirements set
forth in the Certificate of Designation, and (iv) to the extent that such
redemption relates to stock other than the Series B Preferred Stock, such
redemption is in accordance with the requirements set forth in the applicable
instrument.
b. During the term of this Agreement, all funds borrowed by WPA from
the Bank shall be used by WPA only for purposes acknowledged in writing by MAG
in the Request for Credit.
13. RETURN OF FUNDS. If at any time all or any part of any payment
previously made by WPA to MAG is or must be returned by MAG (or is recovered
from MAG) for any reason, including orders from bankruptcy courts, this
Agreement shall be automatically reinstated to the same effect as if the
obligations hereunder had not been satisfied or the prior obligation had not
been paid.
7
<PAGE>
14. ATTORNEYS' FEES. (i) WPA shall pay one-half of the reasonable out-of-
pocket legal fees and expenses incurred by MAG in the preparation of this
Agreement and the related documents. (ii) In case of default arising hereunder
by either party hereto, should it become necessary for the one of the party's
hereto to place the enforcement of this Agreement or any part thereof, in the
hands of an attorney, or file suit upon the same, or the same is collected
through any judicial proceeding whatsoever, the prevailing party shall reimburse
the other party for all reasonable expenses incurred by the prevailing party by
reason thereof, including, but not limited to, reasonable attorneys' fees and
court and related costs.
15. AMENDMENTS, ETC. No amendment or waiver of any provision of this
Agreement nor consent to any departure therefrom shall in any event be effective
unless the same shall be in writing and signed by MAG and WPA, and then such
waiver or consent shall be effective only in the specific instance and for the
specific purpose given.
16. NO WAIVER; REMEDIES. No failure on the part of MAG or WPA to
exercise, and no delay in exercising, any right hereunder shall operate as a
waiver thereof; nor shall any single or partial exercise of any right hereunder
preclude any other or further exercise thereof or the exercise of any right
hereunder preclude any other or further exercise thereof or the exercise of any
other right. The remedies herein provided are cumulative and not exclusive of
any remedies provided by law.
17. SEPARABILITY. If any clause, sentence, paragraph, subsection or
Section of this Agreement should be judicially declared to be invalid,
unenforceable or void, such decisions will not have the effect of invalidating
or voiding the remainder of this Agreement, and the parties hereto agree that
the part or parts of this Agreement so held to be invalid, unenforceable or void
will be deemed to have been stricken herefrom by the parties hereto, and the
remainder will have the same force and effectiveness as if such stricken part or
parts had never been included herein.
18. USURY. It is the intention of MAG and WPA to conform strictly to all
applicable usury laws. It is therefore agreed that in the event that the Fee
specified in this Agreement is deemed to be interest subject to the usury laws,
the aggregate of all interest and other charges constituting interest under
applicable law and contracted for, chargeable or receivable under this Agreement
or otherwise in connection with the transaction for which this Agreement relates
shall never exceed the maximum amount of interest, nor produce a rate in excess
of the maximum rate of interest that MAG may charge WPA under applicable law and
in regard to which MAG may not successfully assert the claim or defense of
usury. If any excess interest is provided for, it shall be deemed a mistake and
the same shall either be refunded to WPA or credited on the unpaid principal
amount hereof, and this Agreement shall be automatically deemed reformed so as
to permit only the collection of the maximum legal non-usurious rate and amount
of interest. All sums paid or agreed to be paid to MAG for the use, forbearance
or detention of the indebtedness evidenced hereby to the full extent allowed by
applicable law, shall be amortized, prorated, allocated and spread through the
full term of this Agreement.
8
<PAGE>
19. SURVIVAL. All warranties, representation and covenants made by WPA
and MAG 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 and
shall survive the execution and delivery of this Agreement, regardless of any
investigation made by or on behalf of any thereof. All statements in any such
certificate or other instrument shall constitute warranties and representations
hereunder.
20. FURTHER ASSURANCES. WPA and MAG hereby agree to execute and deliver
all such instruments and take all such action as WPA or MAG may from time to
time reasonably request in order to fully effectuate the purpose of this
Agreement.
21. EFFECT OF BANKRUPTCY PROCEEDING, ETC. This Agreement shall continue
to be effective, or be automatically reinstated, as the case may be, if at any
time payment, in whole or in part, of any of the sums due MAG pursuant to the
terms of this Agreement or the Fuel Management Agreement is rescinded or must
otherwise be restored returned by MAG upon the insolvency, bankruptcy,
dissolution, liquidation or reorganization of WPA, or upon or as a result of the
appointment of a custodian, receiver, trustee or other officer with similar
powers with respect to WPA or any substantial part of its property, or
otherwise, all as though such payments had not been made. If an Event of
Default shall at any time have occurred and be continuing and declaration of
such Event of Default shall at such time be prevented by reason of the pendency
against WPA of a case or proceeding under a bankruptcy or insolvency law, WPA
agrees that, for purposes of this Agreement and its obligations hereunder ,the
Fuel Management Agreement and its obligations thereunder shall be deemed to have
been declared in default with the same effect as if the Fuel Management
Agreement had been declared in default in accordance with the terms thereof, and
WPA shall forthwith pay the amounts specified by MAG to be paid thereunder, any
interest thereon and any other amounts guaranteed hereunder without further
notice or demand.
22. GOVERNING LAW, JURISDICTION AND VENUE. THE PARTIES HERETO AGREE THAT
(I) THIS AGREEMENT AND ANY DISPUTE ARISING HEREUNDER SHALL BE DEEMED TO HAVE
BEEN DELIVERED, ACCEPTED AND CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE
LAWS AND DECISIONS OF THE STATE OF TEXAS AND THE UNITED STATES OF AMERICA; (II)
THE STATE OF TEXAS HAS PERSONAL JURISDICTION OVER THE PARTIES TO THIS AGREEMENT;
AND (III) VENUE OF ANY LAWSUIT OR LEGAL PROCEEDING SHALL BE IN THE DISTRICT
COURTS OF HARRIS COUNTY, TEXAS, OR THE UNITED STATES DISTRICT COURT FOR THE
SOUTHERN DISTRICT OF TEXAS, HOUSTON DIVISION.
23. ENTIRE AGREEMENT. This Agreement, the Fuel Management Agreement and
all related documents constitute the entire agreement and understanding of the
parties relating to the subject matter hereof.
9
<PAGE>
24. INDEMNITY. WPA agrees to indemnify, hold harmless and defend MAG from
and against any and all claims, liabilities, losses and expenses, if any, which
MAG may suffer or incur in connection with this Agreement except to the extent
such claims, liabilities, losses and expenses result from MAG's gross
negligence, willful misconduct or a breach of its obligations hereunder.
25. NOTICES. Any notice, demand or communication required, permitted, or
desired to be given hereunder shall be deemed effectively given when personally
delivered, when received by telegraphic or other electronic means (including
facsimile and telex) or when delivered by overnight courier, or five (5) days
after being deposited in the United States mail, with postage prepaid thereon,
certified or registered mail return receipt requested, addressed as follows:
MAG: Mercury Air Group, Inc.
15710 JFK Blvd., Suite 200
Houston, Texas 77032
Attn: Jeffrey C. Stallones
Copy to: Mercury Air Group, Inc.
5456 McConnell Avenue
Los Angeles, California 90066
Attn: Executive Vice President
Fuel Sales and Credit Management
Mercury Air Group, Inc.
104 E. Mountain Sky
Phoenix, Arizona 85048
Attn: Bruce Crocker
Mr. Reese W. Baker
Broocks, Baker & Lange, L.L.P.
808 Travis Street, Suite 1700
Houston, Texas 77002
Facsimile: 713-547-7000
WPA: Western Pacific Airlines, Inc.
2864 South Circle Drive, Suite 1100
Colorado Springs, Colorado 80906
Attn: Chief Executive Officer
Facsimile: 719-527-7421
Copy to: D'Ancona & Pflaum
30 North LaSalle Street, Suite 2900
10
<PAGE>
Chicago, Illinois 60602
Attn: Allan J. Reich
Facsimile: 312-580-0923
or to such other address or number, and to the attention of such other person or
offices, as any party may designate, at any time, in writing in conformity with
these notice provisions.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement to be
effective as of the 25th day of April, 1997.
MERCURY AIR GROUP, INC.,
a New York corporation
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
WESTERN PACIFIC AIRLINES, INC.,
a Delaware corporation
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
11
<PAGE>
WESTERN PACIFIC AIRLINES, INC.
AMENDED AND RESTATED 1994 STOCK OPTION PLAN
(as amended through April 19, 1996)
1. PURPOSES OF THE PLAN. The purposes of this Stock Option Plan are:
- to attract and retain the best qualified personnel for positions
of substantial responsibility,
- to provide additional incentive to Employees and Consultants,
and
- to promote the success of the Company's business.
Options granted under the Plan may be Incentive Stock Options or Nonstatutory
Stock Options, as determined by the Administrator at the time of grant.
2. DEFINITIONS. As used herein, the following definitions shall apply:
(a) "ADMINISTRATOR" means the Board or any of its Committees as
shall be administering the Plan, in accordance with Section 4 of the Plan.
(b) "APPLICABLE LAWS" means the legal requirements relating to the
administration of stock option plans under state corporate and securities laws
and the Code.
(c) "BOARD" means the Board of Directors of the Company.
(d) "CODE" means the Internal Revenue Code of 1986, as amended.
(e) "COMMITTEE" means a Committee appointed by the Board in
accordance with Section 4 of the Plan.
(f) "COMMON STOCK" means the Common Stock of the Company.
(g) "COMPANY" means Western Pacific Airlines, Inc., a Delaware
corporation.
(h) "CONSULTANT" means any person, including an advisor, engaged by
the Company or a Parent or Subsidiary to render services and who is compensated
for such services, provided that the term "Consultant" shall not include
Directors who are paid only a director's fee by the Company or who are not
compensated by the Company for their services as Directors.
(i) "CONTINUOUS STATUS AS AN EMPLOYEE OR CONSULTANT" means the
employment or consulting relationship is not interrupted or terminated by the
Company, any Parent or Subsidiary. Continuous Status as an Employee or
Consultant shall not be considered interrupted
<PAGE>
in the case of: (i) any leave of absence approved by the Board, including
sick leave, military leave, or any other personal leave; provided, however,
that for purposes of Incentive Stock Options, any such leave may not exceed
ninety (90) days, unless reemployment upon the expiration of such leave is
guaranteed by contract (including certain Company policies) or statute; or
(ii) transfers between locations of the Company or between the Company, its
Parent, its Subsidiaries or its successor.
(j) "DIRECTOR" means a member of the Board.
(k) "DISABILITY" means total and permanent disability as defined in
Section 22(e)(3) of the Code.
(l) "DISINTERESTED PERSON" means a Director who either (i) was not
during the one year prior to service as an administrator of the Plan granted or
awarded equity securities pursuant to the Plan or any other plan of the Company
or any of its affiliates entitling the participants therein to acquire
securities of the Company or any of its affiliates except as permitted by Rule
16b-3 (c) (2) (i), or (ii) is otherwise considered to be a "disinterested
person" in accordance with Rule 16b-3(c)(2)(i), or any other applicable rules,
regulations or interpretations of the Securities and Exchange Commission.
(m) "EMPLOYEE" means any person, including Officers and Directors,
employed by the Company or any Parent or Subsidiary of the Company. Neither
service as a Director nor payment of a director's fee by the Company shall be
sufficient to constitute "employment" by the Company.
(n) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(o) "FAIR MARKET VALUE" means, as of any date, the value of Common
Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the National
Market System of the National Association of Securities Dealers, Inc.
Automated Quotation ("Nasdaq") System, the Fair Market Value of a Share of
Common Stock shall be the closing sales price for such stock (or the closing
bid, if no sales were reported) as quoted on such system or exchange (or the
exchange with the greatest volume of trading in Common Stock) on the last
market trading day prior to the day of determination, as reported in the Wall
Street Journal or such other source as the Administrator deems reliable;
(ii) If the Common Stock is quoted on the Nasdaq System (but not
on the National Market System thereof) or is regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market Value of
a Share of Common Stock shall be the mean between the high bid and high asked
prices for the Common Stock on the last market trading day prior to the day of
determination, as reported in the Wall Street Journal or such other source as
the Administrator deems reliable;
<PAGE>
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value shall be determined in good faith by the
Administrator.
(p) "INCENTIVE STOCK OPTION" means an Option intended to qualify as
an incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.
(q) "NONSTATUTORY STOCK OPTION" means an Option not intended to
qualify as an Incentive Stock Option.
(r) "NOTICE OF GRANT" means a written, notice evidencing certain
terms and conditions of an individual Option. The Notice of Grant is part of
the Option Agreement.
(s) "OFFICER" means a person who is an officer of the Company within
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(t) "OPTION" means a stock option granted pursuant to the Plan.
(u) "OPTION AGREEMENT" means a written agreement between the Company
and an Optionee evidencing the terms and conditions of an individual Option
grant. The Option Agreement is subject to the terms and conditions of the
Plan.
(v) "OPTIONED STOCK" means the Common Stock subject to an Option.
(w) "OPTIONEE" means an Employee or Consultant who holds an
outstanding Option.
(x) "PARENT" means a "parent corporation", whether now or hereafter
existing, as defined in Section 424(e) of the Code.
(y) "PLAN" means this 1994 Stock Option Plan.
(z) "RULE 16b-3" means Rule 16b-3 of the Exchange Act or any
successor to Rule 16b-3, as in effect when discretion is being exercised with
respect to the Plan.
(aa) "SHARE" means a share of the Common Stock, as adjusted in
accordance with Section 12 of the Plan.
(bb) "SUBSIDIARY" means a "subsidiary corporation", whether now or
hereafter existing, as defined in Section 424(f) of the Code.
3. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Section 12
of the Plan, the maximum aggregate number of Shares which may be optioned and
sold under the Plan is Two
<PAGE>
Million Six Hundred Thousand (2,600,000) Shares of Common Stock. The Shares
may be authorized, but unissued, or reacquired Common Stock. However, should
the Company reacquire Shares which were issued pursuant to the exercise of an
Option, such Shares shall not become available for future grant under the
Plan.
If an Option expires or becomes unexercisable without having been
exercised in full, the unpurchased Shares which were subject thereto shall
become available for future grant under the Plan (unless the Plan has
terminated).
4. ADMINISTRATION OF THE PLAN. The Plan shall be administered by the
Board, unless and until a Committee is designated by the Board to administer
the Plan, which Committee shall be constituted of such number of Disinterested
Persons so as to comply with the rules governing a plan intended to qualify as
a discretionary plan under Rule 16b-3. Once appointed, such Committee shall
continue to serve in its designated capacity until otherwise directed by the
Board. From time to time the Board may increase the size of the Committee and
appoint additional members, remove members (with or without cause) and
substitute new members, fill vacancies (however caused), and remove all members
of the Committee and thereafter directly administer the Plan, all to the extent
permitted by the rules governing a plan intended to qualify as a discretionary
plan under Rule 16b-3. Any requirement that an administrator of the Plan be a
Disinterested Person shall not apply (i) prior to the date of the first
registration of any equity security of the Company under Section 12 of the
Exchange Act, or (ii) if the Board or Committee expressly declares that such
requirement shall not apply. Any Disinterested Person shall otherwise comply
with the requirements of Rule 16b-3.
(a) POWERS OF THE ADMINISTRATOR. Subject to the provisions of the
Plan, and in the case of a Committee, subject to the specific duties delegated
by the Board to such Committee, the Administrator shall have the authority, in
its discretion:
(i) to determine the Fair Market Value of the Common Stock, in
accordance with Section 2(n) of the Plan;
(ii) to select the Consultants and Employees to whom Options may
be granted hereunder;
(iii) to determine whether and to what extent Options or any
combination thereof, are granted hereunder;
(iv) to determine the number of Shares of Common Stock to be
covered by each Option granted hereunder;
(v) to approve forms of agreement for use under the Plan;
(vi) to determine the terms and conditions, not inconsistent
with the terms of the Plan, of any award granted hereunder. Such terms and
conditions include, but are not limited to, the exercise price, the time or
times when Options may be exercised (which may
<PAGE>
be based on performance criteria), and any restriction or limitation, or any
vesting acceleration or waiver of forfeiture restrictions regarding any
Option or the Shares of Common Stock relating thereto, based in each case on
such factors as the Administrator, in its sole discretion, shall determine;
(vii) to determine whether, to what extent and under what
circumstances Common Stock and other amounts payable with respect to an award
under this Plan shall be deferred either automatically or at the election of
the participant (including providing for and determining the amount (if any) of
any deemed earnings on any deferred amount during any deferral period);
(viii) to reduce the exercise price of any Option to the then
current Fair Market Value if the Fair Market Value of the Common Stock covered
by such Option shall have declined since the date the Option was granted;
(ix) to construe and interpret the terms of the Plan;
(x) to prescribe, amend and rescind rules and regulations
relating to the Plan;
(xi) to modify or amend each Option (subject to Section 14 (c)
of the Plan);
(xii) provide for conditions and assurances deemed necessary
or advisable to protect the interests of the Company; and
(xiii) to make all other determinations deemed necessary or
advisable for administering the Plan.
(b) LIABILITY; EFFECT OF ADMINISTRATOR'S DECISION. No person
serving as Administrator shall be liable for any action or determination made
in good faith. The determinations, interpretations and other actions of the
Administrator pursuant to the provisions of the Plan shall be binding and
conclusive for all purposes and on all persons.
5. ELIGIBILITY. Nonstatutory Stock Options may be granted to Employees
and Consultants. Incentive Stock Options may be granted only to Employees. If
otherwise eligible, an Employee or Consultant who has been granted an Option
may be granted additional Options.
A Director shall in no event be eligible for the benefits of the Plan
unless at the time discretion is exercised in the selection of the Director as
a person to whom Options may be granted, or in the determination of the number
of Shares which may be covered by Options granted to the Director: (i) the
Board has delegated its discretionary authority over the Plan to a Committee
which consists solely of Disinterested Persons; or (ii) the Plan otherwise
complies with the requirements of Rule 16b-3. The Board shall otherwise comply
with the requirements of
<PAGE>
Rule 16b-3. The foregoing sentence shall not apply prior to the date of the
first registration of an equity security of the Company under Section 12 of
the Exchange Act.
6. LIMITATIONS.
(a) Each Option shall be designated in the Notice of Grant as
either an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designations, to the extent that the aggregate Fair
Market Value: (i) of Shares subject to an Optionee's incentive stock options
granted by the Company, any Parent or Subsidiary, which (ii) become
exercisable for the first time during any calendar year (under all plans of
the Company or any Parent or Subsidiary) exceeds $100,000, such excess
Options shall be treated as Nonstatutory Stock Options. For purposes of this
Section 6 (a), incentive stock options shall be taken into account in the
order in which they were granted, and the Fair Market Value of the Shares
shall be determined as of the time of grant.
(b) Neither the Plan nor any Option shall confer upon an Optionee
any right with respect to continuing the Optionee's employment or consulting
relationship with the Company, nor shall they interfere in any way with the
Optionee's right or the Company's right to terminate such employment or
consulting relationship at any time, with or without cause.
7. TERM OF PLAN. Subject to Section 18 of the Plan, the Plan shall
become effective upon the earlier to occur of its adoption by the Board or its
approval by the shareholders of the Company as described in Section 18 of the
Plan. It shall continue in effect for a term of ten (10) years unless
terminated earlier under Section 14 of the Plan.
8. TERM OF OPTION. The term of each Option shall be stated in the
Notice of Grant; provided, however, that in the case of an Incentive Stock
Option, the term shall be ten (10) years from the date of grant or such shorter
term as may be provided in the Notice of Grant. However, in the case of an
Option granted to an Optionee who, at the time the Option is granted, owns
stock representing more than ten percent (10%) of the voting power of all
classes of stock of the Company or any Parent or Subsidiary, the term of the
Option shall be five (5) years from the date of grant or such shorter term as
may be provided in the Notice of Grant.
9. OPTION EXERCISE PRICE AND CONSIDERATION.
(a) EXERCISE PRICE. The per Share exercise price for the Shares to
be issued pursuant to exercise of an Option shall be determined by the
Administrator, subject to the following:
(i) In the case of an Incentive Stock Option:
(A) granted to an Employee who, at the time the Incentive
Stock Option is granted, owns stock representing more than ten percent (10%) of
the voting power of all classes of stock of the Company or any Parent or
Subsidiary, the per Share exercise price shall be no less than 110% of the Fair
Market Value per Share on the date of grant; or
<PAGE>
(B) granted to any Employee, the per Share exercise price
shall be no less than 100% of the Fair Market Value per Share on the date of
grant.
(ii) In the case of a Nonstatutory Stock Option, the per Share
exercise price shall be no less than 85% of the Fair Market Value per Share on
the date of grant.
(b) WAITING PERIOD AND EXERCISE DATES. At the time an Option is
granted, the Administrator shall fix the period within which the Option may be
exercised and shall determine any conditions which must be satisfied before the
Option may be exercised. In so doing, the Administrator may specify that an
Option may not be exercised until the completion of a service period.
(c) FORM OF CONSIDERATION. The Administrator shall determine the
acceptable form of consideration for exercising an Option, including the method
of payment. In the case of an Incentive Stock Option, the Administrator shall
determine the acceptable form of consideration at the time of grant. Such
consideration may consist entirely of:
(i) cash,
(ii) check,
(iii) promissory note,
(iv) other Shares which (A) in the case of Shares acquired upon
exercise of an Option, have been owned by the Optionee for more than six months
on the date of surrender, and (B) have a Fair Market Value on the date of
surrender equal to the aggregate exercise price of the Shares as to which said
Option shall be exercised,
(v) delivery of a properly executed exercise notice together
with irrevocable instructions to a broker to promptly deliver to the Company
the amount of sale or loan proceeds required to pay the exercise price,
(vi) any combination of the foregoing methods of payment, or
(vii) such other consideration and method of payment for the
issuance of Shares to the extent permitted by Applicable Laws.
10. EXERCISE OF OPTION.
(a) PROCEDURE FOR EXERCISE; RIGHTS AS A SHAREHOLDER. Any Option
granted hereunder shall be exercisable according to the terms of the Plan and
at such times and under such conditions as determined by the Administrator and
set forth in the Option Agreement.
An Option may not be exercised for a fraction of a Share.
<PAGE>
An Option shall be deemed exercised when the Company receives: (i)
written notice of exercise (in accordance with the Option Agreement) from the
person entitled to exercise the Option, and (ii) full payment for the Shares
with respect to which the Option is exercised. Shares issued upon exercise of
an Option shall be issued in the name of the Optionee or, if requested by the
Optionee, in the name of the Optionee and his or her spouse. Until the stock
certificate evidencing such Shares is issued (as evidenced by the appropriate
entry on the books of the Company or of a duly authorized transfer agent of the
Company), no right to vote or receive dividends or any other rights as a
shareholder shall exist with respect to the Optioned Stock, notwithstanding the
exercise of the Option. The Company shall issue (or cause to be issued) such
stock certificate promptly after the Option is exercised. No adjustment will
be made for a dividend or other right for which the record date is prior to the
date the stock certificate is issued, except as provided in Section 12 of the
Plan.
Exercising an Option in any manner shall decrease the number of Shares
thereafter available, both for purposes of the Plan and for sale under the
Option, by the number of Shares as to which the Option is exercised.
(b) TERMINATION OF EMPLOYMENT OR CONSULTING RELATIONSHIP. In the
event an Optionee's Continuous Status as an Employee or Consultant terminates
(other than upon the Optionee's death or Disability or Cause (as defined in (e)
below)), the Optionee may exercise his or her Option, but only within such
period of time as is determined by the Administrator, and, unless the
Administrator determines otherwise at such termination, only to the extent that
the Optionee was entitled to exercise at the date of termination (but in no
event later than the expiration of the term of such Option as set forth in the
Notice of Grant). In the case of an Incentive Stock Option, the Administrator
shall determine such period of time (in no event to exceed ninety (90) days
from the date of termination) when the Option is granted. If, at the date of
termination, the Optionee is not entitled to exercise his or her entire Option,
the Shares covered by the unexercisable portion of the Option shall revert to
the Plan. If, after termination, the Optionee does not exercise his or her
Option within the time specified by the Administrator, the Option shall
terminate, and the Shares covered by such Option shall revert to the Plan.
(c) DISABILITY OF OPTIONEE. In the event an Optionee's Continuous
Status as an Employee or Consultant terminates as a result of the Optionee's
Disability, the Optionee may exercise his or her Option, but only within twelve
(12) months from the date of such termination, and only to the extent that the
Optionee was entitled to exercise it at the date of such termination (but in no
event later than the expiration of the term of such Option as set forth in the
Notice of Grant). If, at the date of termination, the Optionee is not entitled
to exercise his or her entire Option, the Shares covered by the unexercisable
portion of the Option shall revert to the Plan. If, after termination, the
Optionee does not exercise his or her Option within the time specified herein,
the Option shall terminate, and the Shares covered by such Option shall revert
to the Plan.
(d) DEATH OF OPTIONEE. In the event of the death of an Optionee,
the Option may be exercised, at any time within twelve (12) months following
the date of death (but in no event later than the expiration of the term of
such Option as set forth in the Notice of Grant), by
<PAGE>
the Optionee's estate or by a person who acquired the right to exercise the
Option by bequest or inheritance, but only to the extent the Optionee was
entitled to exercise the Option at the date of death. If, at the time of
death, the Optionee was not entitled to exercise his or her entire Option,
the Shares covered by the unexercisable portion of the Option shall revert to
the Plan. If, after death, the Optionee's estate or a person who acquired
the right to exercise the Option by bequest or inheritance does not exercise
the Option within the time specified herein, the Option shall terminate, and
the Shares covered by such Option shall revert to the Plan.
(e) SUSPENSION OR TERMINATION OF OPTION. The President of the
Company or his designee may suspend or terminate the Optionee's right to
exercise any Option if such Optionee's Continuous Status as an Employee or
Consultant is terminated for "cause." For purposes only of this Section 10(e)
"cause" means a judicial determination that an Optionee has committed an act of
embezzlement, intentional misrepresentation, misappropriation or conversion of
assets of the Company or any Parent or Subsidiary.
11. NON-TRANSFERABILITY OF OPTIONS. An Option may not be sold, pledged,
assigned, hypothecated, transferred, or disposed of in any manner other than by
will or by the laws of descent or distribution or, with respect to a
Nonstatutory Stock Option, pursuant to a qualified domestic relations order as
defined in the Code and may be exercised, during the lifetime of the Optionee,
only by the Optionee or someone designated in the qualified domestic relations
order.
12. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, DISSOLUTION, MERGER,
ASSET SALE OR CHANGE OF CONTROL.
(a) CHANGES IN CAPITALIZATION. If the Company shall at any time
change the number of issued Shares without new consideration to the Company
(such as by stock dividend, stock split, recapitalization, reorganization,
exchange of shares, liquidation, combination or other change in corporate
structure affecting the Shares) or make a distribution of cash or property
which has a substantial impact on the value of issued Shares, an adjustment
shall be made in the number and class of Shares which may be delivered under
the Plan (including individual limits), and in the number and class of and/or
price of Shares subject to outstanding Options granted under the Plan, as may
be determined to be appropriate and equitable by the Committee, in its sole
discretion, to prevent dilution or enlargement of rights. Except as expressly
provided herein, no issuance by the Company of Shares of stock of any class, or
securities convertible into Shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or price
of Shares subject to an Option.
(b) DISSOLUTION OR LIQUIDATION. In the event of the proposed
dissolution or liquidation of the Company, to the extent that an Option has not
been previously exercised, it will terminate immediately prior to the
consummation of such proposed action. The Board may, in the exercise of its
sole discretion in such instances, declare that any Option shall terminate as
of a date fixed by the Board and give each Optionee the right to exercise his
or her Option as to all or any part of the Optioned Stock, including Shares as
to which the Option, would not otherwise be exercisable.
<PAGE>
(c) MERGER OR ASSET SALE. Subject to the provisions of paragraph
(d) hereof, in the event of a merger of the Company with or into another
corporation, or the sale of substantially all of the assets of the Company,
each outstanding Option shall be assumed or an equivalent Option or right shall
be substituted by the successor corporation or a Parent or Subsidiary of the
successor corporation. In the event that the successor corporation does not
agree to assume the Option or to substitute an equivalent Option or right, the
Administrator shall, in lieu of such assumption or substitution, provide for
the Optionee to have the right to exercise the Option as to all of the Optioned
Stock, including Shares as to which it would not otherwise be exercisable. If
the Administrator makes an Option fully exercisable in lieu of assumption or
substitution in the event of a merger or sale of assets, the Administrator
shall notify the Optionee that the Option shall be fully exercisable for a
period of fifteen (15) days from the date of such notice, and the Option will
terminate upon the expiration of such period. For the purposes of this
paragraph, the Option shall be considered assumed if, following the merger or
sale of assets, the Option or right confers the right to purchase, for each
Share of Optioned Stock subject to the Option immediately prior to the merger
or sale of assets, the consideration (whether stock, cash, or other securities
or property) received in the merger or sale of assets by holders of Common
Stock for each Share held on the effective date of the transaction (and if
holders were offered a choice of consideration, the type of consideration
chosen by the holders of a majority of the outstanding Shares); provided,
however, that if such consideration received in the merger or sale of assets
was not solely common stock of the successor corporation or its Parent, the
Administrator may, with the consent of the successor corporation and the
participant, provide for the consideration to be received upon the exercise of
the Option, for each Share of Optioned Stock subject to the Option, to be
solely common stock of the successor corporation or its Parent equal in Fair
Market Value to the per share consideration received by holders of Common Stock
in the merger or sale of assets.
(d) CHANGE OF CONTROL. In the event of a "Change in Control" of the
Company, as defined in paragraph (e) below, unless otherwise determined by the
Board prior to the occurrence of such Change in Control, the following
acceleration and valuation provisions shall apply:
(i) Any Options outstanding as of the date such Change in
Control is determined to have occurred that are not yet exercisable and vested
on such date shall become fully exercisable and vested;
(ii) To the extent they are exercisable and vested, the value of
all outstanding Options, unless otherwise determined by the Board at or after
grant, shall be cashed out at the Change in Control Price, reduced by the
exercise price applicable to such Options. The cash out proceeds shall be paid
to the Optionee or, in the event of death of an Optionee prior to payment, to
the estate of the Optionee or to a person who acquired the right to exercise
the Option by bequest or inheritance.
(e) DEFINITION OF "CHANGE IN CONTROL". For purposes of this Section
12, a "Change in Control" means the happening of any of the following after the
registration by the Company of a class of securities of the Company under the
Exchange Act:
<PAGE>
(i) When any "person," as such term is used in Sections 13(d)
and 14(d) of the Securities Exchange Act (other than the Company, a Subsidiary
or a Company employee benefit plan, including any trustee of such plan acting
as trustee) is or becomes the "beneficial owner" (as defined in Rule 13d-3
under the Exchange Act), directly or indirectly, of securities of the Company
representing twenty percent (20%) or more of the combined voting power in the
election of directors of the Company's then outstanding securities; or
(ii) At any time during any period of three consecutive
years or less, individuals who at the beginning of such period constitute the
Board (and any new Director whose election by the Board or whose nomination for
election by the Company's shareholders was approved by a vote of at least two-
thirds of the Directors then still in office who either were Directors at the
beginning of such period or whose election or nomination for election was
previously so approved) cease for any reason to constitute a majority thereof;
or
(iii) A tender offer or exchange offer to acquire securities
of the Company (other than such an offer made by the Company or any Subsidiary),
whether or not such offer is approved or opposed by the Board is made to
acquire securities of the Company entitling the holders thereof to 20% or more
of the voting power in the election of directors of the Company; or
(iv) The stockholders of the Company shall approve a merger,
consolidation, share exchange, division or sale or other disposition of assets
of the Company as a result of which the stockholders of the Company immediately
prior to such transaction shall not hold, directly or indirectly, immediately
following such transaction a majority of the voting power in the election of
directors of (i) in the case of a merger or consolidation, the surviving or
resulting corporation, (ii) in the case of a share exchange, the acquiring
corporation or (iii) in the case of a division or a sale or other disposition
of assets, each surviving, resulting or acquiring corporation which,
immediately following the transaction, holds more than 10% of the consolidated
assets of the Company immediately prior to the transaction; provided, however,
that (i) if securities beneficially owned by an Optionee are included in
determining the beneficial ownership of a Person referred to in clause (i),
(ii) an Optionee is required to be named pursuant to Item 2 of the Schedule 14D-
1 (or any similar successor filing requirement) required to be filed by the
bidder making a tender offer referred to in clause (iii), then no Change of
Control with respect to such Optionee shall be deemed to have occurred by
reason of such event
(f) CHANGE IN CONTROL PRICE. For purposes of this Section 12,
"Change in Control Price" shall be, as determined by the Board, (i) the highest
closing sale price of a Share of Common Stock as reported by the Nasdaq
National Market System and as appearing in the Wall Street Journal (or, in the
event the Common Stock is listed on a stock exchange, the highest closing price
as reported in the Wall Street Journal or such other source of composite
quotations as the Board deems reliable), at any time within the 60-day period
immediately preceding the date of determination of the Change in Control Price
by the Board (the "60-Day Period"), or (ii) the highest price paid or offered,
as determined by the Board, in any bona fide transaction or bona fide offer
related to the Change in Control of the Company, at any time within the 60-Day
<PAGE>
Period, or (iii) some lower price as the Board, in its discretion, determines
to be a reasonable estimate of the fair market value of a Share of Common
Stock.
13. DATE OF GRANT. The date of grant of an Option shall be, for all
purposes, the date on which the Administrator makes the determination granting
such Option, or such other later date as is determined by the Administrator.
Notice of the determination shall be provided to each Optionee within a
reasonable time after the date of such grant.
14. AMENDMENT AND TERMINATION OF THE PLAN.
(a) AMENDMENT AND TERMINATION. The Board may at any time amend,
modify, suspend or terminate the Plan.
(b) SHAREHOLDER APPROVAL. The Company shall obtain shareholder
approval of any Plan amendment to the extent necessary and desirable to comply
with Rule 16b-3 or with Section 422 of the Code (or any successor rule or
statute or other applicable law, rule or regulation, including the requirements
of any exchange or quotation system on which the Common Stock is listed or
quoted) Such shareholder approval, if required, shall be obtained in such a
manner and to such a degree as is required by the applicable law, rule or
regulation.
(c) EFFECT OF AMENDMENT OR TERMINATION. No amendment, alteration,
suspension or termination of the Plan shall impair the rights of any Optionee,
unless mutually agreed otherwise between the Optionee and the Administrator,
which agreement must be in writing and signed by the Optionee and the Company.
15. CONDITIONS UPON ISSUANCE OF SHARES.
(a) LEGAL COMPLIANCE. Shares shall not be issued pursuant to the
exercise of an Option unless the exercise of such Option and the issuance and
delivery of such Shares shall comply with all relevant provisions of law,
including, without limitation, the Securities Act of 1933, as amended, the
Exchange Act, the rules and regulations promulgated thereunder, and the
requirements of any stock exchange or quotation system upon which the Shares
may then be listed or quoted, and shall be further subject to the approval of
counsel for the Company with respect to such compliance.
(b) INVESTMENT REPRESENTATIONS. As a condition to the exercise of
an Option, the Company may require the person exercising such Option to
represent and warrant at the time of any such exercise that the Shares are
being purchased only for investment and without any present intention to sell
or distribute such Shares if, in the opinion of counsel for the Company, such a
representation is required.
(c) OPTION AGREEMENT. As a condition to the grant of an Option, the
Administrator may require the Optionee to enter into an Option Agreement in the
form determined by the Administrator.
<PAGE>
16. LIABILITY OF COMPANY.
(a) INABILITY TO OBTAIN AUTHORITY. The inability of the Company to
obtain authority from any regulatory body having jurisdiction, which authority
is deemed by the Company's counsel to be necessary to the lawful issuance and
sale of any Shares hereunder, shall relieve the Company of any liability in
respect of the failure to issue or sell such Shares as to which such requisite
authority shall not have been obtained.
(b) GRANTS EXCEEDING ALLOTTED SHARES. If the Optioned Stock covered
by an Option exceeds, as of the date of grant, the number of Shares which may
be issued under the Plan without additional shareholder approval, such Option
or Stock Purchase shall be void with respect to such excess Optioned Stock,
unless shareholder approval of an amendment sufficiently increasing the number
of Shares subject to the Plan is timely obtained in accordance with Section
14(b) of the Plan.
17. RESERVATION OF SHARES. The Company, during the term of this Plan,
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
18. SHAREHOLDER APPROVAL. Continuance of the Plan shall be subject to
approval by the shareholders of the Company within twelve (12) months before or
after the date the Plan is adopted. Such shareholder approval shall be obtained
in the manner and to the degree required under applicable federal and state law.
19. INFORMATION TO OPTIONEES. The Company shall provide each Optionee,
while such Optionee has one or more Options outstanding, with copies of all
annual reports and other information which are provided to all shareholders of
the Company. The Company shall not be required to provide such information if
the issuance of Options under the Plan is limited to key Employees whose duties
in connection with the Company assure their access to equivalent information.
20. WITHHOLDING OF TAX. To the extent required by applicable federal,
state or local law and regulation, each Non-Employee Director shall make
arrangement satisfactory to the Company for the satisfaction of any withholding
tax obligations that arise by reason of an Option exercise or sale of Shares.
The Company shall have no obligation to issue Shares until such obligations are
satisfied. The Administrator may require these obligations to be satisfied by
having the Company withhold a portion of the Shares of Common Stock otherwise
issuable upon exercise of the Option, or to the extent permitted, by tendering
shares previously acquired.
21. FEDERAL SECURITIES LAW REQUIREMENTS. With respect to persons subject
to Section 16 of the Exchange Act, transactions under the Plan are intended to
comply with all applicable conditions of Rule 16b-3 or its successors under the
Exchange Act. To the extent any provision of the Plan or action by the Board
or any committee thereof fails to so comply, it shall be deemed null and void,
to the extent permitted by law and deemed advisable by the Board or any
committee thereof.
<PAGE>
WESTERN PACIFIC AIRLINES, INC.
AMENDED AND RESTATED 1995 DIRECTORS' OPTION PLAN
(as amended through April 19, 1996)
1. PURPOSES OF THE PLAN. The purposes of this Amended and Restated 1995
Directors' Option Plan (the "Plan") are to attract and retain qualified
personnel for service as Directors of the Company, to provide additional
incentive to the Outside Directors of the Company to serve as Directors, and to
encourage their continued service on the Board.
All options granted hereunder shall be "non-statutory stock options".
2. DEFINITIONS. As used herein, the following definitions shall apply:
(a) "BOARD" means the Board of Directors of the Company.
(b) "CODE" means the Internal Revenue Code of 1986, as amended.
(c) "COMMON STOCK" means the common stock, $.001 par value per
share, of the Company.
(d) "COMPANY" means Western Pacific Airlines, Inc., a Delaware
corporation.
(e) "CONTINUOUS STATUS AS A DIRECTOR" means the absence of any
interruption or termination of service as a Director.
(f) "DIRECTOR" means a member of the Board.
(g) "EMPLOYEE" means any person who is an employee of the Company
or any Parent or Subsidiary of the Company. The payment of a Director's fee by
the Company shall not be sufficient in and of itself to constitute "employment"
by the Company.
(h) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(i) "FAIR MARKET VALUE" means, as of any date, the value of Common
Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the National
Market System of the National Association of Securities Dealers, Inc.
Automated Quotation ("Nasdaq") System, the Fair Market Value of a Share of
Common Stock shall be the closing sales price for such stock (or the closing
bid, if no sales were reported, as quoted on such system or exchange (or the
exchange with the greatest volume of trading in Common Stock) on the last
market trading day prior to the day of determination) as reported in the Wall
Street Journal or such other source as the Board deems reliable;
<PAGE>
(ii) If the Common Stock is quoted on the Nasdaq System (but not
on the National Market System thereof) or regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market Value of
a Share of Common Stock shall be the mean between the high and low asked prices
for the Common Stock on the last market trading day prior to the date of
determination, as reported in the Wall Street Journal or such other source as
the Board deems reliable, or;
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Board.
(j) "OPTION" means a stock option granted pursuant to the Plan.
(k) "OPTIONED STOCK" means the Common Stock subject to an option.
(l) "OPTIONEE" means an Outside Director who receives an option.
(m) "OUTSIDE DIRECTOR" means a Director who is not an Employee.
(n) "PARENT" means a "parent corporation", whether now or hereafter
existing, as defined in Section 425(e) of the Internal Revenue Code of 1986.
(o) "PLAN" means this 1995 Directors' Option Plan.
(p) "SHARE" means a share of the Common Stock, as adjusted in
accordance with Section 10 of the Plan.
(q) "SUBSIDIARY" means a "subsidiary corporation", whether now or
hereafter existing, as defined in Section 425(f) of the Internal Revenue Code
of 1986.
3. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Section 10
of the Plan, the maximum aggregate number of Shares which may be optioned and
sold under the Plan is 300,000 Shares (the "Pool") of Common Stock. The Shares
may be authorized, but unissued, or reacquired Common Stock.
If an Option should expire or become unexercisable for any reason without
having been exercised in full, the unpurchased Shares which were subject
thereto shall, unless the Plan shall have been terminated, become available for
future grant under the Plan.
4. ADMINISTRATION OF AND GRANTS OF OPTIONS UNDER THE PLAN.
(a) ADMINISTRATOR. The Plan shall be administered by the Board
unless (i) the board delegates its authority to an appropriate committee of
directors or other persons; or (ii) unless otherwise required for compliance
with Rule 16b-3 under the Exchange Act (the "Administrator").
<PAGE>
(b) PROCEDURE FOR GRANTS. All grants of Options hereunder shall be
automatic and non-discretionary and shall be made strictly in accordance with
the following provisions:
(i) No person shall have any discretion to select which Outside
Directors shall be granted Options or to determine the number of Shares to be
covered by Options granted to Outside Directors.
(ii) Each Outside Director shall be automatically granted a
"nonstatutory stock option" (i.e. a stock option which does not qualify under
sections 422 or 423 of the Code) to purchase 25,000 Shares upon the date (on or
after the effective date of this Plan) on which such person first becomes a
Director, whether through election by the shareholders of the Company or
appointment by the Board to fill a vacancy.
(iii) The terms of each Option granted hereunder shall be as
follows:
(A) the term of the Option shall be five (5) years.
(B) the Option shall be exercisable only while the Outside
Director remains a Director of the Company, except as set forth in Section 8
hereof.
(C) the exercise price per Share shall be 100% of the Fair
Market Value per Share on the date of grant of the Option.
(D) the Option shall become exercisable in installments as
to (i) forty percent (40%) of the Optioned Stock on the date of grant; (ii),
thirty percent (30%) of the Optioned Stock on the first anniversary of the date
of grant of the Option; and (iii), thirty percent (30%) of the Optioned Stock
on the second anniversary of the date of grant of the Option.
(iv) In the event that any Option granted under the Plan
would cause the number of Shares subject to outstanding Options plus the number
of Shares previously purchased upon exercise of Options to exceed the Pool,
then each such automatic grant shall be for that number of whole shares
determined by dividing the total number of Shares remaining available for grant
by the number of Outside Directors on the automatic grant date. No further
grants shall be made until such time, if any, as additional Shares become
available for grant under the Plan through action of the shareholders to
increase the number of Shares which may be issued under the Plan or through
cancellation or expiration of Options previously granted hereunder.
(v) No Option shall be issued under the Plan or become
exercisable until shareholder approval of the Plan has been obtained in
accordance with Section 16 hereof.
(c) ADMINISTRATION. The Administrator shall have full authority to
administer the Plan, including authority: (i) to construe and interpret the
terms of the Plan; (ii) to prescribe, amend and rescind rules and regulations
relating to the Plan, (iii) to provide for conditions and
<PAGE>
assurances deemed necessary or advisable to protect the interests of the
Company; and (iv) to make all other determinations deemed necessary or
advisable for the administration of the Plan but only to the extent not
contrary to the express provisions of the Plan. Notwithstanding the
foregoing, the Administrator shall have no authority, discretion or power
with respect to the selection of Outside Directors to whom Options are to be
granted, the timing of such grants, the number of Shares of Optioned Stock,
the exercise price of any Option, the periods during which any Option may be
exercised and the term of any Option, all of which shall be as provided in
this Plan and the Administrator shall have no discretion as to such matters.
No person serving as Administrator shall be liable for any action or
determination made in good faith.
(d) EFFECT OF ADMINISTRATOR'S DECISION. The determinations,
interpretations and other actions of the Administrator pursuant to the
provisions of the Plan shall be binding and conclusive for all purposes and on
all persons.
(e) TERMINATION OF OPTION. All Options of an Outside Director shall
automatically terminate as of the date he removed for cause. For purposes only
of this Section 4(e) "cause" means any judicial determination that a Director
has committed an act of fraud or intentional misrepresentation or embezzlement,
or misappropriation or conversion of assets of the Company or any Parent or
Subsidiary.
5. ELIGIBILITY. Only Outside Directors are eligible for grants of
Options. All Options shall be automatically granted in accordance with the
terms set forth in Section 4(b) hereof. An Outside Director who has been
granted an Option shall, if he is otherwise eligible, be granted an additional
Option or Options in accordance with such provisions.
The Plan shall not confer upon any Optionee any right with respect to
continuation of service as a Director or nomination to serve as a Director, nor
shall it interfere in any way with any rights which the Director or the Company
may have to terminate his directorship at any time.
6. TERM OF PLAN. The Plan shall become effective upon the earlier to
occur of its adoption by the Board or its approval by the shareholders of the
Company as described in Section 16 of the Plan. It shall continue in effect
for a term of ten (10) years unless sooner terminated under Section 12 of the
Plan.
7. EXERCISE PRICE AND CONSIDERATION.
(a) EXERCISE PRICE. The per Share exercise price for Optioned Stock
shall be 100% of the Fair Market Value per Share on the date of grant of the
Option.
(b) FORM OF CONSIDERATION. The exercise price shall be paid in full
at the time of exercise. The consideration to be paid for the Shares to be
issued upon exercise of an Option, may consist of (i) cash, (ii) check, (iii)
promissory note, (iv) other Shares which (x) if acquired from the Company or
its Subsidiaries have been owned by the Optionee for more than six (6) months
on the date of surrender and (y) have a Fair Market Value on the date of
surrender equal
<PAGE>
to the aggregate exercise price of the Shares as to which said Option shall
be exercised, (v) authorization from the Company to retain from the total
number of Shares as to which the Option is exercised that number of Shares
having a Fair Market Value on the date of exercise equal to the exercise
price for the total number of Shares as to which the Option is exercised,
(vi) delivery of a properly executed exercise notice together with
irrevocable instructions to a broker to promptly deliver to the Company the
amount of sale or loan proceeds required to pay the exercise price, or (vii)
any combination of the foregoing methods of payment.
8. EXERCISE OF OPTION.
(a) PROCEDURE FOR EXERCISE; RIGHTS AS A SHAREHOLDER. Any Option
granted hereunder shall be exercisable at such times as are set forth in
Section 4(b) hereof; provided, however, that no Options shall be exercisable
until shareholder approval of the Plan in accordance with Section 16 hereof has
been obtained.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of such
exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and full payment for the
Shares with respect to which the Option is exercised has been received by the
Company. Until the issuance (as evidenced by the appropriate entry on the
books of the Company or of a duly authorized transfer agent of the Company) of
the stock certificate evidencing such Shares, no right to vote or receive
dividends or any other rights as a shareholder shall exist with respect to the
Optioned Stock, notwithstanding the exercise of the Option. A share
certificate for the number of Shares so acquired shall be issued to the
Optionee as soon as practicable after exercise of the Option. No adjustment
will be made for a dividend or other right for which the record date is prior
to the date the stock certificate is issued, except as provided in Section 10
of the Plan.
Exercise of an Option in any manner shall result in a decrease in the
number of Shares which thereafter may be available, both for purposes of the
Plan and for exercise under the Option, by the number of Shares as to which the
Option is exercised.
(b) RULE 16b-3. Options granted to Outside Directors must comply
with the applicable provisions of Rule 16b-3 promulgated under the Exchange Act
or any successor thereto and shall contain such additional conditions or
restrictions as may be required thereunder to qualify for the maximum exemption
from Section 16 of the Exchange Act with respect to Plan transactions.
(c) TERMINATION OF STATUS AS A DIRECTOR. Subject to the provisions
of Section 4(e), if an Outside Director ceases to serve as a Director, he may,
but only within three (3) months after the date he ceases to be a Director of
the Company, exercise his Option to the extent that he was entitled to exercise
it at the date of such termination. Notwithstanding the foregoing, in no event
may the Option be exercised after its five (5) year term has expired. To the
extent that he was not entitled to exercise an Option at the date of such
termination, or if he does not
<PAGE>
exercise such Option (which he was entitled to exercise) within the time
specified herein, the Option shall terminate.
(d) DISABILITY OF OPTIONEE. Notwithstanding the provisions of
Section 8(c) above (but subject to the provisions of Section 4(e),) in the
event an Optionee is unable to continue his service as a Director as a result
of his total and permanent disability (as defined in Section 22(e)(3) of the
Code), he may, but only within six (6) months from the date of termination,
exercise his Option to the extent he was entitled to exercise it at the date of
such termination. Notwithstanding the foregoing, in no event may the Option be
exercised after its five (5) year term has expired. To the extent that he was
not entitled to exercise the Option at the date of termination, or if he does
not exercise such Option (which he was entitled to exercise) within the time
specified herein, the Option shall terminate.
(e) DEATH OF OPTIONEE. In the event of the death of an Optionee,
the Option may be exercised, at any time within six (6) months following the
date of death, by the Optionee's estate or by a person who acquired the right
to exercise the Option by bequest or inheritance, but only to the extent of the
right to exercise that had accrued at the date of death. Notwithstanding the
foregoing, in no event may the Option be exercised after its five (5) year term
has expired.
9. NON-TRANSFERABILITY OF OPTIONS. The Option may not be sold, pledged,
assigned, hypothecated, transferred, or disposed of in any manner other than by
will or by the laws of descent or distribution and may be exercised, during the
lifetime of the Optionee, only by the Optionee.
10. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION OR MERGER.
(a) If the Company shall at any time change the number of issued
Shares without new consideration to the Company (such as by stock dividend,
stock split, recapitalization, reorganization, exchange of shares, liquidation,
combination or other change in corporate structure affecting the Shares) or
make a distribution of cash or property which has a substantial impact on the
value of issued Shares, then, in order to prevent the dilution or enlargement
of rights of Optionees that would otherwise result from any such transaction,
the total number of Shares reserved for issuance under the Plan shall be
appropriately adjusted and the number of Shares covered by each outstanding
Option and the purchase price per Share under each outstanding Option shall be
adjusted so that the aggregate consideration payable to the Company and the
value of each such Option shall not be changed. Except as expressly provided
herein, no issuance by the Company of Shares of stock of any class, or
securities convertible into Shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or price
of Shares subject to an Option.
(b) If the outstanding Shares of Common Stock shall be changed into
or exchangeable for a different number or kind of shares of stock or other
securities of the Company or another corporation, whether through
reorganization, reclassification, recapitalization, stock split-up, combination
of shares, merger or consolidation, then there shall be substituted for each
<PAGE>
Share of Common Stock set forth in Section 4, for each Share of Common Stock
subject to any then outstanding Option and for each Share of Common Stock which
may be issued under the Plan but which is not then subject to any outstanding
Option, the number and kind of shares of stock or other securities into which
each outstanding Share of Common Stock shall be so changed or for which each
such share shall be exchangeable.
(c) In the event of a proposed dissolution or liquidation of the
Company, all outstanding options will terminate immediately prior to such
transaction.
(d) In the event of a "Change in Control" of the Company, as
defined in paragraph (g) below all outstanding Options as of the date such
Change in Control that are not yet exercisable and vested on such date shall
become immediately and fully exercisable and vested.
(e) No adjustment or substitution provided for in this Section shall
require the Company to issue or sell a fraction of a share or other security.
Accordingly, all fractional shares or other securities which result from any
such adjustment or substitution shall be eliminated and not carried forward to
any subsequent adjustment or substitution.
(f) Except as provided in this Section, an Optionee shall have no
rights by reason of any issue by the Company of stock of any class or
securities convertible into stock of any class, any subdivision or
consolidation of shares of stock of any class, the payment of any stock
dividend or any other increase or decrease in the number of shares of stock of
any class.
(g) DEFINITION OF "CHANGE IN CONTROL". For purposes of this Section
10, a "Change in Control" means the happening of any of the following:
(i) When any "person," as such term is used in Sections 13(d)
and 14(d) of the Securities Exchange Act (other than the Company, a Subsidiary
or a Company employee benefit plan, including any trustee of such plan acting
as trustee) is or becomes the "beneficial owner" (as defined in Rule 13d-3
under the Exchange Act), directly or indirectly, of securities of the Company
representing twenty percent (20%) or more of the combined voting power in the
election of directors of the Company's then outstanding securities;
(ii) At any time during any period of three consecutive
years or less, individuals who at the beginning of such period constitute the
Board (and any new director whose election by the Board or whose nomination for
election by the Company's stockholders was approved by a vote of at least two-
thirds of the directors then still in office who either were directors at the
beginning of such period or whose election or nomination for election was
previously so approved) cease for any reason to constitute a majority thereof;
(iii) A tender offer or exchange offer to acquire
securities of the Company (other than such an offer made by the Company or any
Subsidiary), whether or not such offer is approved or opposed by the Board is
made to acquire securities of the Company
<PAGE>
entitling the holders thereof to 20% or more of the voting power in the
election of directors of the Company; or
(iv) The stockholders of the Company shall approve a merger,
consolidation, share exchange, division or sale or other disposition of assets
of the Company as a result of which the stockholders of the Company immediately
prior to such transaction shall not hold, directly or indirectly, immediately
following such transaction a majority of the voting power in the election of
directors of (i) in the case of a merger or consolidation, the surviving or
resulting corporation, (ii) in the case of a share exchange, the acquiring
corporation or (iii) in the case of a division or a sale or other disposition
of assets, each surviving, resulting or acquiring corporation which,
immediately following the transaction, holds more than 10% of the consolidated
assets of the Company immediately prior to the transaction; provided, however,
that (i) if securities beneficially owned by an Optionee are included in
determining the beneficial ownership of a Person referred to in clause (i),
(ii) an Optionee is required to be named pursuant to Item 2 of the Schedule
14D-1 (or any similar successor filing requirement) required to be filed by the
bidder making a tender offer referred to in clause (iii), then no Change of
Control with respect to such Optionee shall be deemed to have occurred by
reason of such event.
11. AMENDMENT AND TERMINATION OF THE PLAN.
(a) AMENDMENT AND TERMINATION. Subject in all respects to the
restrictions set forth in Section 11(c) of the Plan, provisions the Board may
at any time amend, alter, suspend, or discontinue the Plan, but no amendment,
alteration, suspension, or discontinuation shall be made which would impair the
rights of any Optionee under any grant theretofore made, without his consent.
In addition, to the extent necessary and desirable to comply with Rule 16b-3
under the Exchange Act (or any other applicable law or regulation), the Company
shall obtain shareholder approval of any Plan amendment in such a manner and to
such a degree as required.
(b) EFFECT OF AMENDMENT OR TERMINATION. Any such amendment or
termination of the Plan shall not affect Options already granted and such
Options shall remain in full force and effect as if this Plan had not been
amended or terminated.
(c) COMPLIANCE RULE 16b-3. The Plan may not be amended (i) more
that once every six months with respect to any provision of the Plan effecting
the awards hereunder, eligibility or conveying a material right, including, but
not limited to the amount or price of securities, the categories or
qualifications of eligible participants, the timing of awards or exercisability
of awards except for amendments to comport with changes in the Code or in the
Employee Retirement Income Security Act; or (ii) in any manner that would cause
the Plan to fail to comply with Rule 16b-3.
12. TIME OF GRANTING OPTIONS. The date of grant of an Option shall, for
all purposes of the Plan, be the date determined in accordance with Section
4(b) hereof. Notice of the determination shall be given to each Outside
Director to whom an Option is so granted within a reasonable time after the
date of such grant.
<PAGE>
13. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued
pursuant to the exercise of an Option unless the exercise of such Option and
the issuance and delivery of such Shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, the Securities Act
of 1933, as amended, the Exchange Act, the rules and regulations promulgated
thereunder, state securities laws, and the requirements of any stock exchange
upon which the Shares may then be listed, and shall be further subject to the
approval of counsel for the Company with respect to such compliance.
As a condition to the exercise of an Option, the Company may require
the person exercising such Option to represent and warrant at the time of any
such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares, if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned relevant provisions of law.
Inability of the Company to obtain authority from any regulatory body
having jurisdiction, which authority is deemed by the Company's counsel to be
necessary to the lawful issuance and sale of any Shares hereunder, shall
relieve the Company of any liability in respect of the failure to issue or sell
such Shares as to which such requisite authority shall not have been obtained.
14. RESERVATION OF SHARES. The Company, during the term of this Plan,
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
15. OPTION AGREEMENT. Options shall be evidenced by written option
agreements in such form as the Board shall approve.
16. SHAREHOLDER APPROVAL. Continuance of the Plan shall be subject to
approval by the shareholders of the Company at or prior to the first annual
meeting of shareholders held subsequent to the granting of an Option hereunder.
Such shareholder approval shall be obtained in the degree and manner required
under applicable state and federal law.
17. WITHHOLDING OF TAX. To the extent required by applicable federal,
state or local law and regulation, each Outside Director shall make
arrangement satisfactory to the Company for the satisfaction of any withholding
tax obligations that arise by reason of an Option exercise or sale of Shares.
The Company shall have no obligation to issue Shares until such obligations are
satisfied. The Administrator may require these obligations to be satisfied by
having the Company withhold a portion of the Shares of Common Stock otherwise
issuable upon exercise of the Option, or to the extent permitted, by tendering
shares previously acquired.
18. FEDERAL SECURITIES LAW REQUIREMENTS. With respect to persons subject
to Section 16 of the Exchange Act, transactions under the Plan are intended to
comply with all applicable conditions of Rule 16b-3 or its successors under the
Exchange Act. To the extent any provision of the Plan or action by the Board
or any committee thereof fails to so comply, it shall
<PAGE>
be deemed null and void, to the extent permitted by law and deemed advisable
by the or any committee thereof.
<PAGE>
WESTERN PACIFIC AIRLINES, INC.
1996 RESTRICTED STOCK PLAN FOR NON-EMPLOYEE DIRECTORS
SECTION 1
1.1 PURPOSES. The purposes of the Western Pacific Airlines, Inc.
1996 Restricted Stock Plan for Non-Employee Directors (the "Plan") are to
enable the Company to attract and retain qualified persons for service as
members of the Board of Directors, to encourage ownership in the Company by
such directors and align their interests more directly with the long-term
growth and profitability of the Company.
SECTION 2
DEFINITIONS
2.1 DEFINITIONS. The following terms shall have the meanings set
forth below:
(a) "Annual Retainer" means the annual retainer paid by the
Company to each Non-Employee Director, which retainer may be modified from year
to year.
(b) "Board" means the Board of Directors of the Company.
(c) "Code" means the Internal Revenue Code of 1986, as it maybe
amended from time to time.
(d) "Committee" means a committee consisting of members of the
Board who are empowered hereunder to take actions in the administration of the
Plan. The Committee shall be so constituted at all times as to permit the Plan
to comply with Rule 16b-3. Members of the Committee shall be appointed from
time to time by the Board, shall serve at the pleasure of the Board and may
resign at any time upon written notice to the Board.
(e) "Company" means Western Pacific Airlines, Inc., a Delaware
corporation.
(f) "Common Stock" means the $.001 par value common stock of
the Company.
(g) "Fair Market Value" means, as of any date, the value of
Common Stock determined as follows: (x) if the Common Stock is listed on any
established stock
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<PAGE>
exchange or a national market system, including without limitation the
National Market System of the National Association of Securities Dealers,
Inc. Automated Quotation ("Nasdaq") System, the Fair Market Value of a Share
of Common Stock shall be the closing sales price for such stock (or the
closing bid, if no sales were reported, as quoted on such system or exchange
(or the exchange with the greatest volume of trading in Common Stock) on the
last market trading day prior to the day of determination) as reported in the
Wall Street Journal or such other source as the Board deems reliable; or (y)
if the Common Stock is quoted on the Nasdaq System (but not on the National
Market System thereof) or regularly quoted by a recognized securities dealer
but selling prices are not reported, the Fair Market Value of a Share of
Common Stock shall be the mean between the high and low asked prices for the
Common Stock on the last market trading day prior to the date of
determination, as reported in the Wall Street Journal or such other source as
the Board deems reliable; or (z) in the absence of an established market for
the Common Stock, the Fair Market Value thereof shall be determined in good
faith by the Board.
(h) "Non-Employee Director" means a member of the Board who is
not an employee of the Company or any parent or subsidiary of the Company. The
payment of a director's fee by the Company shall not be sufficient in and of
itself to constitute "employment" by the Company.
(i) "Restricted Stock Award" means an award of Common Stock
granted to a Director pursuant to Section 6 that is subject to certain
restrictions imposed in accordance with the provisions of the Plan.
2.2 GENDER AND NUMBER. Except when otherwise indicated by the
context, the masculine gender shall also include the feminine gender, and the
definition of any term herein in the singular shall also include the plural.
SECTION 3
PLAN ADMINISTRATION
The Committee shall be responsible for the administration of the Plan. However,
the Committee shall have no authority, discretion or power to select the Non-
Employee Directors who will receive Restricted Stock Awards, determine the
Restricted Stock Awards to be granted pursuant to the Plan, the number of
shares of Common Stock to be issued thereunder or the time at which such
Restricted Stock Awards are to be granted, establish the duration and nature of
restricted Common Stock Awards or alter any other terms or conditions specified
in the Plan, except in the sense of administering the Plan subject to the
provisions of the Plan. Subject to the foregoing limitations, the Committee is
authorized to construe and interpret the terms of the Plan, prescribe, amend
and rescind rules and regulations relating to the Plan, provide for conditions
and assurances deemed necessary or advisable to protect the interests of the
Company and make all other determinations necessary or advisable for the
administration of the Plan, but only to the extent not contrary to the express
provisions of the Plan. No member of the Committee shall be
-2-
<PAGE>
liable for any action or determination made in good faith. The
determinations, interpretations and other actions of the Committee pursuant
to the provisions of the Plan shall be binding and conclusive for all
purposes and on all persons.
SECTION 4
STOCK SUBJECT TO THE PLAN
4.1 NUMBER OF SHARES. One hundred thousand (100,000) shares of
Common Stock are authorized for issuance under the Plan in accordance with the
provisions of the Plan and subject to such restrictions or other provisions as
the Committee may from time to time deem necessary. Shares of Common Stock
which are issued as Restricted Stock Awards shall be applied to reduce the
maximum number of shares of Common Stock remaining available for use under the
Plan. The Company shall at all times during the term of the Plan retain as
authorized and unissued Common Stock at least the number of shares from time to
time required under the provisions of the Plan, or otherwise assure itself of
its ability to perform its obligations hereunder.
4.2 ADJUSTMENTS FOR COMMON STOCK SPLIT, COMMON STOCK DIVIDEND, ETC.
If the Company shall at any time change the number of issued shares of Common
Stock without new consideration to the Company (such as by stock dividend,
stock split, recapitalization, reorganization, exchange of shares, liquidation,
combination or other change in corporate structure affecting the shares) or
make a distribution of cash or property which has a substantial impact on the
value of issued shares of Common Stock, then the total number of shares of
Common Stock reserved for issuance under the Plan shall be appropriately
adjusted. Except as expressly provided herein, no issuance by the Company of
shares of stock of any class, or securities convertible into shares of stock of
any class, shall affect, and no adjustment by reason thereof shall be made with
respect to, the number of shares of Common Stock reserved for issuance under
the Plan.
SECTION 5
PARTICIPATION
Each Non-Employee Director shall receive Restricted Stock Awards on the terms
and conditions set forth under the Plan. Each Non-Employee Director shall, if
required by the Committee, enter into an agreement with the Company, in such
form as the Committee shall determine and which is consistent with the
provisions of the Plan, regarding the terms and conditions of the Restricted
Stock. In the event of any inconsistency between the provisions of the Plan and
any such agreement entered into hereunder, the provisions of the Plan shall
govern.
SECTION 6
RESTRICTED STOCK AWARDS
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<PAGE>
6.1 GRANT OF RESTRICTED STOCK. Each Non-Employee Director elected
at an annual meeting of stockholders shall receive fifty percent of the value
of the Annual Retainer in the form of a Restricted Stock Award. Such awards
shall be made annually beginning on July 1, 1996 and each July 1 thereafter.
The total number of shares of Common Stock included in each such Restricted
Stock Award shall be determined by dividing one-half of the amount of the
Annual Retainer by the Fair Market Value of a share of Common Stock on the date
of grant. Each Non-Employee Director elected to the Board after July 1 but
before October 31 shall receive one-half of the value of the Annual Retainer in
the form of a Restricted Stock Award multiplied by a fraction, the numerator of
which shall be the number of days between the date of such election and July 1
of the following year and the denominator of which shall be 365. Such Awards
shall be made on the date of election as a Non-Employee Director. In no event
shall the Company be required to issue fractional shares. Whenever under the
terms of this Section 6 a fractional share of Common Stock would otherwise be
required to be issued, an amount in lieu thereof shall be paid in cash based
upon the Fair Market Value of such fractional share.
6.2 ISSUANCE OF COMMON STOCK. After a grant of restricted stock,
pursuant to this Section, the applicable shares of Common Stock shall be duly
issued or transferred forthwith, and a certificate or certificates for such
shares shall be issued in the Non-Employee Director's name. The Non-Employee
Director shall be a stockholder with respect to all such Common Stock
represented by such certificate or certificates, including the right to vote
such shares and to receive all dividends and other distributions (subject to
the provisions of Section 6.2(b) hereof) paid with respect to such shares.
6.3 VESTING; RESTRICTIONS. All Restricted Stock Awards made to Non-
Employee Directors will be fully vested upon the date of grant, subject to the
restrictions in Section 6.4. Except as otherwise provided in the Plan, shares
of Common Stock received pursuant to a Restricted Stock Award may not be sold,
assigned, pledged, hypothecated, transferred or otherwise disposed of until the
restrictions applicable to such Common Stock have lapsed pursuant to Section
6.4.
6.4 LAPSE OF RESTRICTIONS. All restrictions on Common Stock covered
by a Restricted Stock Award shall lapse on the later of the May 1 or the date
that is two business days after the release of the Company's results of
operations for the fiscal quarter ended March 31, following the date of the
Restricted Stock Award; provided, however, that the shares may not be sold
until at least six months after the date of grant of the Common Stock.
6.5 ENFORCEMENT OF RESTRICTIONS. The Committee shall cause a legend
to be placed on the Common Stock certificates issued pursuant to each
Restricted Stock Award referring to the restrictions imposed in the Plan and,
in addition, may in its sole discretion require one or more of the following
methods of enforcing such restrictions:
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<PAGE>
(a) Requiring the Non-Employee Director to keep the Common
Stock certificates, duly endorsed, in the custody of the Company while the
restrictions remain in effect; or
(b) Requiring that the Common Stock certificates, duly
endorsed, be held in the custody of a third party while the restrictions remain
in effect.
SECTION 7
REORGANIZATION OR CHANGE OF CONTROL
7.1 REORGANIZATION. In the event that the Company is merged or
consolidated with another corporation (other than a merger or consolidation in
which the Company is the continuing corporation and which does not result in
any reclassification or change of outstanding stock), or if all or
substantially all of the assets of the Company are acquired by any other
corporation, business entity or person (other than a sale or conveyance in
which the Company continues as a holding company of an entity or entities that
conduct the business or businesses formerly conducted by the Company), or in
case of a reorganization (other than a reorganization under the United States
Bankruptcy Code) or liquidation of the Company, the Committee, or the board of
directors of any corporation assuming the obligations of the Company, shall, as
to the Plan and outstanding Restricted Stock Awards, either (i) make
appropriate provision for the adoption and continuation of the Plan by the
acquiring or successor corporation and for the protection of any such
outstanding Restricted Stock Awards by the substitution on an equitable basis
of appropriate stock of the Company or of the merged, consolidated or otherwise
reorganized corporation which will be issuable with respect to the Common
Stock, provided that no additional benefits shall be conferred upon the Non-
Employee Directors holding such Restricted Stock Awards as a result of such
substitution, or (ii) accelerate the restriction period for any outstanding
Restricted Stock Awards so that all restrictions applicable to Restricted Stock
Awards shall lapse prior to any such event.
7.2 CHANGE OF CONTROL. In the event of a change of control of the
Company, as defined below, then all restrictions with respect to outstanding
Restricted Stock Awards shall immediately lapse. For purposes of this
Section, a "Change in Control" means the happening of any of the following
after the registration by the Company of a class of securities of the Company
under the Exchange Act:
(a) When any "person," as such term is used in Sections
13(d) and 14(d) of the Securities Exchange Act (other than the Company, a
Subsidiary or a Company employee benefit plan, including any trustee of such
plan acting as trustee) is or becomes the "beneficial owner" (as defined in
Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of
the Company representing twenty percent (20%) or more of the combined voting
power in the election of directors of the Company's then outstanding
securities; or
-5-
<PAGE>
(b) At any time during any period of three consecutive
years or less, individuals who at the beginning of such period constitute the
Board (and any new Director whose election by the Board or whose nomination for
election by the Company's stockholders was approved by a vote of at least two-
thirds of the Directors then still in office who either were Directors at the
beginning of such period or whose election or nomination for election was
previously so approved) cease for any reason to constitute a majority thereof;
or
(c) A tender offer or exchange offer to acquire
securities of the Company (other than such an offer made by the Company or any
Subsidiary ), whether or not such offer is approved or opposed by the Board is
made to acquire securities of the Company entitling the holders thereof to 20%
or more of the voting power in the election of directors of the Company; or
(d) The stockholders of the Company shall approve a
merger, consolidation, share exchange, division or sale or other disposition of
assets of the Company as a result of which the stockholders of the Company
immediately prior to such transaction shall not hold, directly or indirectly,
immediately following such transaction a majority of the voting power in the
election of directors of (i) in the case of a merger or consolidation, the
surviving or resulting corporation, (ii) in the case of a share exchange, the
acquiring corporation or (iii) in the case of a division or a sale or other
disposition of assets, each surviving, resulting or acquiring corporation
which, immediately following the transaction, holds more than 10% of the
consolidated assets of the Company immediately prior to the transaction;
provided, however, that (i) if securities beneficially owned by a participant
in the Plan are included in determining the beneficial ownership of a Person
referred to in clause (i), (ii) a participant in the Plan is required to be
named pursuant to Item 2 of the Schedule 14D-1 (or any similar successor filing
requirement) required to be filed by the bidder making a tender offer referred
to in clause (iii), then no Change of Control with respect to such participant
shall be deemed to have occurred by reason of such event.
SECTION 8
RIGHTS OF DIRECTORS
8.1 RETENTION AS NON-EMPLOYEE DIRECTOR. Nothing contained in the
Plan or in any Restricted Stock Award granted under the Plan shall interfere
with or limit in any way the right of the stockholders of the Company to
remove any Non-Employee Director from the Board pursuant to the Bylaws of the
Company, nor confer upon any Non-Employee Director any right to continue in
the service of the Company.
8.2 NONTRANSFERABILITY. No right or interest of any Non-Employee
Director in a Restricted Stock Award (prior to the completion of the
restriction period applicable thereto), granted pursuant to the Plan, shall be
assignable or transferable during the lifetime of the Non-Employee Director,
either voluntarily or involuntarily, or subjected to any lien, directly or
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<PAGE>
indirectly, by operation of law, or otherwise, including execution, levy,
garnishment, attachment, pledge or bankruptcy. In the event of a Non-Employee
Director's death, a Non-Employee Director's rights and interests in Restricted
Stock Awards shall, to the extent provided in Section 6, be transferable by
testamentary will or the laws of descent and distribution. If a person
entitled to payments or to exercise rights with respect to the Plan is disabled
from caring for his affairs because of mental condition, physical condition or
age, payment due such person may be made to, and such rights shall be exercised
by, such person's guardian, conservator or other legal personal representative
upon furnishing the Committee with evidence satisfactory to the Committee of
such status.
SECTION 9
GENERAL RESTRICTIONS
9.1 INVESTMENT REPRESENTATIONS. The Company may require any Non-
Employee Director to whom a Restricted Stock Award is granted, as a condition
of receiving such Restricted Stock Award, to give written assurances in
substance and form satisfactory to the Company and its counsel to the effect
that such person is acquiring the Common Stock subject to the Restricted Stock
Award for his own account for investment and not with any present intention of
selling or otherwise distributing the same, and to such other effects as the
Company deems necessary or appropriate in order to comply with Federal and
applicable state securities laws.
9.2 COMPLIANCE WITH SECURITIES LAWS. Each Restricted Stock Award
shall be subject to the requirement that, if at any time counsel to the
Company shall determine that the listing, registration or qualification of
the shares subject to such Restricted Stock Award upon any securities
exchange or under any state or federal law, or the consent or approval of any
governmental or regulatory body, is necessary as a condition of, or in
connection with, the issuance of shares thereunder, such Restricted Stock
Award may not be accepted or exercised in whole or in part unless such
listing, registration, qualification, consent or approval shall have been
effected or obtained on conditions acceptable to the Committee. Nothing
herein shall be deemed to require the Company to apply for or to obtain such
listing, registration or qualification.
9.3 CHANGES IN ACCOUNTING RULES. Notwithstanding any other
provision of the Plan to the contrary, if, during the term of the Plan, any
changes in the financial or tax accounting rules applicable to Restricted
Stock Awards shall occur which, in the sole judgment of the Committee, may
have a material adverse effect on the reported earnings, assets or
liabilities of the Company, the Committee shall have the right and power to
modify as necessary any then outstanding Restricted Stock Awards as to which
the applicable restrictions have not been satisfied.
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<PAGE>
9.4 WITHHOLDING OF TAX. To the extent required by applicable
federal, state or local law and regulation, each Non-Employee Director shall
make arrangement satisfactory to the Company for the satisfaction of any
withholding tax obligations that arise by reason of a Restricted Stock Award.
The Company shall have no obligation to issue shares of Common Stock until such
obligations are satisfied. The Committee may require these obligations to be
satisfied by having the Company withhold a portion of the shares of Common
Stock otherwise issuable upon a Restricted Stock Award, or to the extent
permitted, by tendering shares previously acquired.
SECTION 10
PLAN AMENDMENT, MODIFICATION AND TERMINATION
The Board may at any time terminate, and from time to time may amend or modify
the Plan provided, however, that no amendment or modification may become
effective without approval of the amendment or modification by the stockholders
if stockholder approval is required to enable the Plan to satisfy any
applicable statutory or regulatory requirements, or if the Company, on the
advice of counsel, determines that stockholder approval is otherwise necessary
or desirable and, provided further that no amendment or modification shall be
made to Section 6 more than once every six months, other than to comport with
changes in the Internal Revenue Code, the Employee Retirement Income Security
Act, or the rules promulgated thereunder.
No amendment, modification or termination of the Plan shall in any manner
adversely affect any Restricted Stock Awards theretofore granted under the Plan
without the consent of the Non-Employee Director holding such Restricted Stock
Awards.
SECTION 11
REQUIREMENTS OF LAW
11.1 REQUIREMENTS OF LAW. The issuance of stock and the payment of
cash pursuant to the Plan shall be subject to all applicable laws, rules and
regulations.
11.2 FEDERAL SECURITIES LAW REQUIREMENTS. Awards granted hereunder
shall be subject to all conditions required under Rule 16b-3 to qualify the
Restricted Stock Award for any exception from the provisions of Section 16(b)
of the 1934 Act available under that Rule. Such conditions shall be set forth
in the agreement with the Non-Employee Director which describes the Restricted
Stock Award. With respect to persons subject to Section 16 of the Exchange
Act, transactions under the Plan are intended to comply with all applicable
conditions of Rule 16b-3 or its successors under the Exchange Act. To the extent
any provision of the Plan or action by the Board or any committee thereof fails
to so comply, it shall be deemed null and void, to the extent permitted by law
and deemed advisable by the or any committee thereof.
-8-
<PAGE>
11.3 GOVERNING LAW. The Plan and all agreements hereunder shall be
construed in accordance with and governed by the laws of the State of Delaware.
SECTION 12
EFFECTIVE DATE: DURATION OF THE PLAN
12.1 EFFECTIVE DATE. The Effective Date of the Plan is June 1, 1996.
The Plan and each award granted under the Plan is conditioned on and shall be
of no force or effect until approved by the stockholders of the Company, unless
the Company, on the advice of counsel, determines that stockholder approval is
not necessary.
12.2 DURATION. The Plan shall terminate at such time as may be
determined by the Board of Directors, and no Restricted Stock Award shall be
granted after such termination. Restricted Stock Awards outstanding at the time
of the Plan termination shall become free of restrictions in accordance with
their terms.
-9-
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