-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SL7eMhoU+OFMA5GaxPLxKlVRXq7UykLvA8aDNsMvitLo/7nEZHer1yLVRd8Qp/yV 0iL3BmzioJVEF6YgDesGAw== 0000927356-98-001039.txt : 19980630 0000927356-98-001039.hdr.sgml : 19980630 ACCESSION NUMBER: 0000927356-98-001039 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980629 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: FRONTIER AIRLINES INC /CO/ CENTRAL INDEX KEY: 0000921929 STANDARD INDUSTRIAL CLASSIFICATION: AIR TRANSPORTATION, SCHEDULED [4512] IRS NUMBER: 841256945 STATE OF INCORPORATION: CO FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 000-24126 FILM NUMBER: 98656807 BUSINESS ADDRESS: STREET 1: 12015 EAST 46TH AVE CITY: DENVER STATE: CO ZIP: 80239 BUSINESS PHONE: 3033717400 10-K405 1 FORM 10-K405 FORM 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended March 31, 1998 [ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number: 0-24126 FRONTIER AIRLINES, INC. ------------------------------------------------------ (Exact name of registrant as specified in its charter) Colorado 84-1256945 ------------------------------- ------------------------------------ (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporated or organization) 12015 E. 46th Avenue, Denver, CO 80239 - ---------------------------------------- ---------- (Address of principal executive offices) (Zip Code) Registrant's telephone number including area code: (303) 371-7400 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, No Par Value -------------------------- Title of Class Indicate by check mark whether the Registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K or any amendment to this Form 10-K. [X] Aggregate Market Value of Stock held by Non-Affiliates of the Company as of June 23, 1998: $31,076,647, based on a closing average bid and asked price on that date of $3.44 per share. The number of shares of the Company's Common Stock outstanding as of June 24, 1998 is 13,616,564. Documents incorporated by reference - Part III is incorporated by reference to the company's 1998 Proxy Statement. TABLE OF CONTENTS
Page ---- PART I Item 1: Description of Business........................................ 1 Item 2: Description of Property........................................ 9 Item 3: Legal Proceedings.............................................. 9 Item 4: Submission of Matters to a Vote of Security Holders............ 10 PART II Item 5: Market for Common Equity and Related Stockholder Matters....... 10 Item 6: Selected Financial Data........................................ 13 Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations.......................................... 14 Item 8: Financial Statements........................................... 28 Item 9: Changes in and Disagreements with Accountants on Accounting and Financial Disclosure........................................... 28 PART III Item 10: Directors and Executive Officers of the Registrant............. 28 Item 11: Executive Compensation......................................... 28 Item 12: Security Ownership of Certain Beneficial Owners and Management. 28 Item 13: Certain Relationships and Related Transactions................. 28 PART IV Item 14: Exhibits, Financial Statement Schedules and Reports on Form 8-K....................................................... 29
PART I This report contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 that describe the business and prospects of Frontier Airlines, Inc. (the "Company") and the expectations of the Company and management. When used in this document, the words "estimate," "anticipate," "project" and similar expressions are intended to identify forward-looking statements. These statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those set forth. These risks and uncertainties include, but are not limited to: the timing of, and expense associated with, expansion and modification of the Company's operations in accordance with its business strategy or in response to competitive pressures or other factors such as the Company's commencement of passenger service and ground handling operations at several airports and assumption of maintenance and ground handling operations at DIA with its own employees; general economic factors and behavior of the fare-paying public and the federal government, such as the crash in May 1996 of another low-fare carrier's aircraft that resulted in a federal investigation of the carrier, suspension of the carrier's operations and increased federal scrutiny of low- fare carriers generally that may increase the Company's operating costs or otherwise adversely affect the Company; actions of competing airlines, such as increasing capacity and pricing actions of United Airlines and other competitors; the current limited supply of Boeing 737 aircraft and the higher lease and maintenance costs associated with such aircraft, which may inhibit the Company's ability to achieve operating economies and implement its business strategy; recent changes to the former air transportation excise tax of 10% to a combination of a percentage tax and flight segment fee; and uncertainties regarding aviation fuel prices. Because the Company's business, like that of the airline industry generally, is characterized by high fixed costs relative to revenues, small fluctuations in the Company's yield per RPM or expense per ASM can significantly affect operating results. ITEM 1: DESCRIPTION OF BUSINESS GENERAL The Company is a low-fare, full-service commercial airline based in Denver, Colorado. The Company currently operates routes linking its Denver hub to 14 cities in 12 states spanning the nation from coast to coast. The Company's current route system extends from Denver to Los Angeles and San Francisco, California; Chicago and Bloomington/Normal, Illinois; Boston, Massachusetts; Baltimore, Maryland; Seattle/Tacoma, Washington; Phoenix, Arizona; Minneapolis/St. Paul, Minnesota; Salt Lake City, Utah; Omaha, Nebraska; Albuquerque, New Mexico, New York (LaGuardia), New York; and El Paso, Texas. The Company has announced plans to additionally serve San Diego, California, starting July 23, 1998. At present, the Company utilizes four gates at Denver International Airport ("DIA") for approximately 60 daily flight departures and arrivals. Organized in February 1994, the Company commenced flight operations in July 1994 with two leased Boeing 737-200 jet aircraft. It has since expanded its fleet to 14 leased jets, including seven Boeing 737-200s and seven larger Boeing 737-300s. The Company's senior management team includes executives with substantial experience in the airline industry, including persons who occupied similar positions at a former airline called Frontier Airlines that served regional routes to Denver from 1950 to 1986. From time to time, the former Frontier Airlines served most of the Company's current and intended markets with jet equipment from its Denver hub. TERMINATED MERGER WITH WESTERN PACIFIC AIRLINES On June 30, 1997, the Company signed an Agreement and Plan of Merger ("the Merger Agreement") providing for the merger (the "Merger") of the Company with Western Pacific Airlines ("Western Pacific"), a low-fare airline that had previously used Colorado Springs, Colorado as its base of flight operations. The Merger Agreement was signed following Western Pacific's shift of a portion of its flight operations to DIA, and its announced intent to further expand its operations at DIA. Pursuant to the Merger Agreement, a "code share" marketing alliance between the Company and Western Pacific went into effect on August 1, 1997, in effect integrating the route networks of the two airlines. -1- On September 29, 1997, both companies mutually agreed to terminate the Merger Agreement and the code-share arrangement. The separation of the two carriers required the Company to implement a costly restructuring of its flight schedule and route system to support a stand-alone operation competing against both Western Pacific and United Airlines, the dominant air carrier at DIA. On October 5, 1997, Western Pacific filed for protection under Chapter 11 of the U.S. Bankruptcy Code. Western Pacific ceased operations on February 4, 1998 and is in the process of liquidating its business. BUSINESS STRATEGY AND MARKETS The Company's business strategy is to provide service at low fares to high volume markets from its Denver hub. The strategy is based on the following: * Filling gaps in flight frequencies in high volume Denver markets. * Stimulating demand by offering a combination of low fares, quality service and frequent flyer credits in Continental Airlines' OnePass program. * Expanding its Denver hub operation and increasing its connecting traffic through the addition of service to other high volume markets. The Company's initial service pattern in 1994 was designed to fill flight voids on routes to eight relatively small cities in North Dakota and Montana where there was little or no jet competition to Denver after Continental's flight terminations. The Company has since refocused its marketing priorities on more heavily traveled routes -typically markets dominated by one or more major airlines and characterized by high fares due to the lack of low-fare competition prior to the Company's entry. In line with its revised marketing strategy, the Company in 1995 and 1996 suspended service in all eight of its original markets, and redeployed the aircraft used on these routes to a number of Denver's largest markets. -2- The following table sets forth the Company's service commencements and suspensions for the four-year period from its initiation of flight operations in July 1994 through June 1998.
Service Service Denver Market Commenced Suspended - ------------- --------- --------- Bismarck, ND July 1994 September 1996 Fargo, ND July 1994 September 1996 Grand Forks, ND July 1994 January 1995 Minot, ND July 1994 January 1995 Bozeman, MT August 1994 September 1995 Missoula, MT August 1994 September 1995 Billings, MT September 1994 September 1995 Great Falls, MT September 1994 September 1995 Tucson, AZ October 1994 April 1995 Albuquerque, NM October 1994 El Paso, TX October 1994 Omaha, NE January 1995 Las Vegas, NV January 1995 August 1997 Phoenix, AZ September 1995 Chicago (Midway), IL September 1995 Los Angeles, CA November 1995 Minneapolis, MN November 1995 Salt Lake City, UT November 1995 San Francisco, CA November 1995 Seattle, WA May 1996 St. Louis, MO June 1996 November 1997 San Diego, CA June 1996 November 1997(a) Bloomington,/Normal, IL(b) January 1997 Boston, MA September 1997 Baltimore, MD November 1997 New York (LaGuardia), NY December 1997
(a) Flights are scheduled to resume on July 23, 1998 (b) Flights are operated on Denver-Omaha-Bloomington/Normal routings. The Company plans to introduce low-fare service in additional high volume markets. Management believes that potential markets for its planned route expansions can support greater flight capacity than is now provided by the incumbent carriers and that passengers would welcome the restoration of additional capacity, particularly at the low fares offered by the Company. MARKETING The Company's sales efforts are targeted to price-sensitive passengers in both the leisure and corporate travel markets. In the leisure market, the Company offers deeply discounted fares marketed through newspaper, radio and television advertising along with special promotions throughout its route system. -3- To balance the seasonal changes in demand in the leisure market, the Company in late 1996 introduced a number of programs designed to capture a larger share of the less seasonally affected corporate market. These programs include negotiated fares for large companies that sign contracts for a specified volume of travel, future travel credits for small and medium size businesses contracting with Frontier, and special discounts for members of trade and nonprofit associations. The Company also pursues sales opportunities with meeting and convention arrangers, government travel offices and vacation clubs. Personal sales calls, direct mail and telemarketing are the primary tools in attracting this business. The Company offers air/ground vacation packages to many destinations on its route system under contract with a tour operator. An important marketing tool in today's airline environment is the frequent flyer program. The Company joined Continental's OnePass program in January 1995. The selection of OnePass was based on the established membership base in the cities served by the Company and the consistent high marks that the program has received when compared with other programs. The Company has implemented marketing strategies to maintain relationships with travel agencies throughout its route system. The Company communicates with the travel agents through personal visits by Company executives and sales managers, mailings of sales literature, telemarketing and advertising in the travel agents' trade publications. The Company participates in the four major computer reservation systems used by the travel agents to make airline reservations. The Company also maintains a reservations center in Denver, operated by its own personnel, and an "overflow" center located in Miami, Florida, staffed by contract personnel, which assists the Denver center during peak booking periods. In addition, the Company maintains a booking capability on its Internet site, and makes limited numbers of seats available to several travel consolidators specializing in very-low- price bookings. Since early 1997 the Company has been making increasingly greater use of electronic or "paperless" ticketing, a lower cost alternative to ticketing passengers on relatively expensive ticket stock. To gain connecting traffic from other carriers, the Company has negotiated various types of interline agreements with approximately 95 domestic and international airlines serving cities on the Company's route system. Generally, the agreements include joint ticketing and baggage services and other conveniences designed to expedite the connecting process. The Company has a code share agreement with Aspen Mountain Air with respect to Aspen Mountain Air's routes between DIA and Aspen, Colorado; Bozeman, Montana; and Sioux City, Iowa. Among various sales benefits, these agreements provide prominent listings of the carriers' connecting flights in the travel industry's computer reservations systems. PRODUCT PRICING The Company offers all of its seats at various discount fares, which it believes reduces the cost of travel in markets it enters by as much as 60 percent. Seat inventories on each flight are managed through a yield management system. The Company generally offers discounts with three levels of advance purchase requirements. In contrast to most carriers, the Company generally does not require travelers to have a Saturday overnight stay to take advantage of these discount rates. Unlike most other carriers, the Company does not charge a premium for one-way fares. Competition The Airline Deregulation Act of 1978 (the "Deregulation Act") produced a highly competitive airline industry, freed of certain government regulations that for 40 years prior to the Deregulation Act had dictated where domestic airlines could fly and how much they could charge for their services. Since then small carriers such as the Company have entered markets long dominated by large airlines with substantially greater resources such as United Airlines, American Airlines, Northwest Airlines and Delta Air Lines. -4- As shown in the following chart, as of June 1998, the Company competes principally with United Airlines, the dominant carrier at DIA with a market share of approximately 70%. This gives United a significant competitive advantage compared to the Company and other carriers serving DIA.
NONSTOP ROUTES FROM DENVER TO: COMPETING AIRLINES DAILY ROUND TRIPS - ------------------------------ ------------------ ----------------- Competing Frontier Airlines -------- --------- San Francisco, California United Airlines 3 17 Minneapolis, Minnesota United Airlines, Northwest Airlines 2 12 Salt Lake City, Utah United Airlines, Delta Air Lines 2 15 Los Angeles, California United Airlines 3 19 Phoenix, Arizona United Airlines, America West Airlines 3 19 Chicago (Midway), Illinois American Trans Air 3 2 Omaha, Nebraska United Airlines 3 5 Albuquerque, New Mexico United Airlines 2 8 El Paso, Texas Southwest Airlines and Delta Air Lines 2* 6 (to and from Albuquerque) Seattle, Washington United Airlines 2 11 Bloomington/Normal, Illinois 1** 0 Boston, Massachusetts United Airlines 1 6 Baltimore, Maryland United Airlines 1 5 New York (LaGuardia), New York United Airlines 2 6
* Operated via Albuquerque, New Mexico ** Operated via Omaha, Nebraska While United Airlines' competitive reaction to the Company's market entries had generally been limited to matching its lowest fares on a capacity controlled basis, the Company believes that United began engaging in a number of predatory practices in the fall of 1996, following the Company's report of its second quarterly profit. In a written complaint submitted to the U.S. Department of Justice ("DOJ") in February 1997, the Company requested the DOJ to investigate eight separate counts of potential antitrust violations. These include "capacity dumping" (adding an excessive volume of flight capacity in several of the Company's key markets), alleged pricing abuses, "exclusive dealing" with corporate customers, and other tactics. See "Legal Proceedings." In a related matter, the U.S. Department of Transportation ("DOT"), in response to complaints by the Company and other smaller airlines, in April 1998 published a number of proposed guidelines designed to identify predatory practices in the airline industry, along with enforcement policies. These issues are also currently addressed at a series of ongoing hearings being held before transportation committees of the U.S. Senate and the U.S. House of Representatives. The Company is unable to predict what actions, if any, will be taken either by the DOT or by Congress with respect to these issues. -5- AIRCRAFT As of June 1998, the Company operates 14 leased Boeing 737 twinjet aircraft in all-coach seating configurations. The age of these aircraft, their passenger capacities and their lease expirations are shown in the following table:
Aircraft No. of Year of Passenger Lease Model Aircraft Manufacture Seats Expiration - ------------------ ------------------ ------------------ ------------------ --------------------- B-737-200 5 1968-1969 108 July-October 1999 B-737-200A 2 1981 119 2001(1), 2002(1) B-737-300 7 1985, 1986, 136(5), 2000(2), 1991, 1997(3), 1998 138(2) 2004(2), 2005(3)
The Company's aircraft fleet is currently in compliance with Stage 3 noise level requirements. See "Description of Business - Government Regulation." However, 75% of the Company's fleet must be in compliance by January 1, 1999 and 100% must be in compliance by January 1, 2000. If the Company is unable to secure three additional Stage 3 aircraft by December 31, 1998, it will be required to remove two of its non-Stage 3 Boeing 737-200 aircraft from its certificate or retrofit an existing Stage 2 aircraft to Stage 3 compliance in order to remain in compliance with the Stage 3 noise level requirements. The demand for Boeing 737 aircraft has increased markedly in recent years. The Company is seeking to lease additional aircraft in order to expand its service and route system. However, there can be no assurance that additional suitable aircraft will be available to the Company at favorable lease rates and terms, or at the times needed for implementation of the Company's plan of operation. See "Management's Discussion and Analysis of Financial Condition and Results of Operations-Liquidity and Capital Resources." MAINTENANCE AND REPAIRS All aircraft maintenance and repairs are accomplished in accordance with the Company's maintenance program approved by the United States Federal Aviation Administration ("FAA"). Spare or replacement parts are maintained by the Company primarily in Denver. Certain of these parts are supplied through a contractual arrangement with a major airline, with others purchased or leased from other airline or vendor sources. There are two categories of aircraft maintenance and repair: routine servicing and checks accomplished on a daily or weekly schedule, and major maintenance. Routine maintenance is performed principally by the Company's mechanics at its own maintenance facilities in Denver, Colorado, and El Paso, Texas. The Company's major maintenance has been principally performed by Tramco, a subsidiary of B.F. Goodrich. The Company terminated a contract with Continental Airlines for routine maintenance at Denver in August 1996. Since that time the Company has trained, staffed and supervised its own maintenance work force at Denver. The Company leases a portion of Continental Airlines' hangar at DIA where it presently performs its own maintenance through the "B" check level. Major maintenance continues to be performed by outside FAA approved contractors. Under its aircraft lease agreements, the Company pays all expenses relating to the maintenance and operation of the Company's aircraft, and the Company is required under its lease agreements to pay monthly maintenance reserve deposits to the lessors based on usage. Maintenance reserve deposits are applied against the cost of major maintenance. Major maintenance has occurred or will occur for two of the Company's aircraft in the fiscal year ending March 31, 1999. To the extent not used for major maintenance during the lease terms, maintenance reserve deposits remain with the aircraft lessors upon redelivery of the aircraft. The Company's monthly completion factors for its years ending March 31, 1998, 1997 and 1996 ranged from 92.8% to 99.9%, from 94% to 99.8%, and from 95% to 99%, respectively. The completion factor is the percentage -6- of the Company's scheduled flights that were operated by the Company (i.e., not canceled). Flights not completed were canceled principally as a result of mechanical problems, and to a lesser extent, weather. There can be no assurance that the Company's aircraft will continue to be sufficiently reliable over longer periods of time. FUEL During the years ending March 31, 1998, 1997 and 1996, jet fuel accounted for 14.1%, 16.6% and 15.4%, respectively, of the Company's operating expenses. The Company has arrangements with major fuel suppliers for substantial portions of its fuel requirements, and management believes that such arrangements assure an adequate supply of fuel for current and anticipated future operations. However, the Company has not entered into any agreements that fix the price of fuel over any period of time. Jet fuel costs are subject to wide fluctuations as a result of sudden disruptions in supply beyond the Company's control. Therefore, the future availability and cost of jet fuel cannot be predicted with any degree of certainty. The Company's average fuel price per gallon including taxes and into-plane fees was 70.5c for the year ended March 31, 1998, with the monthly average price per gallon during the same period ranging from a low of 61.7c to a high of 82.7c. As of June 5, 1998, the price per gallon was 58.3c. Newer aircraft are more fuel efficient than the Company's Boeing 737-200 aircraft due to improved aircraft airframe design and engine technology. Significant increases in the price of jet fuel would result in a higher increase in the Company's overall total costs than those of competitors whose entire fleet consists of more fuel efficient aircraft such as the Company's Boeing 737- 300 aircraft. Increases in fuel prices or a shortage of supply could have a material adverse affect on the Company's operations and financial results. The Company's ability to pass on increased fuel costs to passengers through price increases or fuel surcharges may be limited, particularly given the Company's low fare strategy. INSURANCE The Company carries $600 million per aircraft per occurrence in property damage and passenger and third-party liability insurance, and insurance for aircraft loss or damage as required by its aircraft lease agreements, and customary coverage for other business insurance. While the Company believes such insurance is adequate, there can be no assurance that such coverage will fully protect it against all losses which it might sustain. Moreover, the Company's insurance for aircraft loss or damage carries a deductible requiring the Company to pay up to the first $500,000 of loss or damage unless the aircraft is determined to be a total loss. The Company's property damage and passenger and third-party liability insurance coverage exceeds the minimum amounts required by the DOT regulations. EMPLOYEES As of June 15, 1998, the Company had 942 employees, including 828 full-time and 114 part-time personnel. The Company's employees included 128 pilots, 178 flight attendants, 266 customer service agents, 115 reservations agents, 77 mechanics and related personnel, 140 general management personnel, and 38 personnel performing other miscellaneous functions. The Company considers its relations with its employees to be good. The Company believes it operates with lower personnel costs than many established airlines, principally due to lower base salaries and greater flexibility in the utilization of personnel. There can be no assurance that the Company will continue to realize these advantages over established or other air carriers for any extended period of time. None of the Company's employees is represented by a labor union, although labor unions have approached certain of the Company's employees concerning potential representation. If unionization of the Company's employees occurs, the Company's labor costs could materially increase. Training, both initial and recurring, is required for many employees. Pilots, flight attendants, ground service personnel, reservationists and mechanics are trained by the Company. FAA regulations require pilots to be licensed as commercial pilots, with specific ratings for aircraft to be flown and to be medically certified as physically fit. Licenses and medical certification are subject to periodic continuation requirements including recurrent training and recent flying experience. Mechanics, quality control inspectors and flight dispatchers must be licensed and qualified for specific aircraft. Flight attendants must have initial and periodic competency fitness training and certification. -7- Training programs are subject to approval and monitoring by the FAA. Management personnel directly involved in the supervision of flight operations, training, maintenance and aircraft inspection must meet experience standards prescribed by FAA regulations. Employees performing safety-sensitive functions are subject to pre-employment and subsequent random drug and alcohol testing. GOVERNMENT REGULATION All interstate air carriers are subject to regulation by the DOT and the FAA under the Federal Aviation Act. The DOT's jurisdiction extends primarily to the economic aspects of air transportation, while the FAA's regulatory authority relates primarily to air safety, including aircraft certification and operations, crew licensing and training and maintenance standards. In general, regulation of interstate air carriers in terms of market entry and exit, pricing and inter-carrier agreements has been greatly reduced subsequent to enactment of the Deregulation Act. As a result, the level of regulation to which the Company and other airlines is subject has been greatly reduced. By the same token, the availability to the Company of regulatory protection from competition has been virtually eliminated. U.S. Department of Transportation. The Company holds a Certificate of Public Convenience and Necessity ("DOT Certificate") issued by the DOT which allows the Company to engage in air transportation. Pursuant to law and DOT regulation, each United States carrier must qualify as a United States citizen, which requires that its President and at least two-thirds of its Board of Directors and other managing officers be comprised of United States citizens; that not more than 25% of its voting stock may be owned by foreign nationals, and that the carrier not be otherwise subject to foreign control. U.S. Federal Aviation Administration. The Company also holds an operating certificate ("FAA Certificate") issued by the FAA pursuant to Part 121 of the Federal Aviation Regulations. The FAA has jurisdiction over the regulation of flight operations generally, including the licensing of pilots and maintenance personnel, the establishment of minimum standards for training and maintenance, and technical standards for flight, communications and ground equipment. The Company must have and maintains FAA certificates of airworthiness for all of its aircraft. The Company's flight personnel, flight and emergency procedures, aircraft and maintenance facilities are subject to periodic inspections and tests by the FAA. In May 1996, a relatively new domestic airline, as is the Company, sustained an accident in which one of its aircraft was destroyed and all persons on board were fatally injured. In June 1996, that airline agreed at the FAA's request to cease all of its flight operations for an indefinite period of time. Although the FAA has subsequently, after an intensive and lengthy investigation, allowed the new domestic airline to resume its operations, should the Company experience a similar accident, it is probable that there would be a material adverse effect on the Company's business. The DOT and FAA also have authority under the Aviation Safety and Noise Abatement Act of 1979, the Airport Noise and Capacity Act of 1990 ("ANCA") and Clean Air Act of 1963 to monitor and regulate aircraft engine noise and exhaust emissions. The Company is required to comply with all applicable FAA noise control regulations and with current exhaust emissions standards. According to FAA rules, each new entrant airline such as the Company must presently have at least 50% of its fleet in compliance with the FAA's Stage 3 noise level requirements. The balance of each airlines' fleet must be brought into compliance with Stage 3 in phases, with 75% compliance by January 1999 and full compliance by January 2000. The Company's aircraft fleet is currently in compliance with Stage 3 noise level requirements. See "Description of Business-Aircraft." As a result of litigation and pressure from airport area residents, airport operators have taken local actions over the years to reduce aircraft noise. These actions have included regulations requiring aircraft to meet prescribed decibel limits by designated dates, curfews during night time hours, restrictions on frequency of aircraft operations and various operational procedures for noise abatement. ANCA recognizes the right of airport operators with special noise problems to implement local noise abatement procedures as long as such procedures do not interfere unreasonably with the interstate and foreign commerce of the national air transportation system. ANCA generally requires FAA approval of local noise restrictions on Stage 3 aircraft and establishes a regulatory notice and review -8- process for local restrictions on Stage 2 aircraft. An agreement between the City and County of Denver and another city adjacent to DIA precludes the use of Stage 2 aircraft, such as certain of the Company's Boeing 737-200 aircraft, on one of DIA's runways. On occasion, this results in longer taxi times for the Company's aircraft than would otherwise be the case. However, this has not had a material adverse effect on the Company's operations. The Company's operations could be adversely affected if additional restrictions are imposed at DIA or if locally-imposed regulations become restrictive at any other cities on the Company's routes. Miscellaneous. All air carriers are also subject to certain provisions of the Communications Act of 1934 because of their extensive use of radio and other communication facilities, and are required to obtain an aeronautical radio license from the Federal Communications Commission ("FCC"). To the extent that the Company is subject to FCC requirements, it takes all necessary steps to comply with those requirements. The Company's operations may become subject to additional federal regulatory requirements in the future under certain circumstances. For example, if the Company's employees were to unionize, the Company's labor relations would be covered under Title II of the Railway Labor Act of 1926 and would be subject to the jurisdiction of the National Mediation Board. During a period of past fuel scarcity, air carrier access to jet fuel was subject to allocation regulations promulgated by the Department of Energy. To the extent that the Company seeks to provide international air transportation in the future, it will be required to obtain additional authority from the DOT and become subject to other regulatory requirements imposed by affected foreign jurisdictions. ITEM 2: DESCRIPTION OF PROPERTY The Company has leased approximately 28,000 square feet of office space in Denver with terms ending August 1999 and 2001 at a current annual cost of approximately $453,000 for the year ending March 31, 1999. This facility provides space for the Company's reservations center together with space for administrative activities including senior management, purchasing, accounting, sales, marketing, advertising and human resources. Each airport location requires leased space associated with gate operations, ticketing and baggage operations. The ticket counters, gates and airport office facilities at each of the airports the Company serves are leased from the appropriate airport authority or subleased from other airlines. The Company has entered into an airport lease and facilities agreement with the City and County of Denver at DIA that expires in 2005. The Company subleases ticket counter space and four gates at DIA from Continental Airlines until March 1, 2000 and a portion of Continental Airline's hangar at DIA until September 30, 1998. See "Management's Discussion and Analysis of Financial Condition and Results of Operations-Liquidity and Capital Resources." ITEM 3: LEGAL PROCEEDINGS In February 1997, the Company filed a complaint with the DOJ alleging that United Airlines has engaged in predatory, anticompetitive and monopolistic practices at DIA. The complaint asks the agency to investigate eight separate counts of potential antitrust violations. The eight counts range from "capacity dumping" in markets served by competitors to alleged abuses relating to United's pricing practices, "exclusive dealing" with corporate customers and commuter carriers, and other tactics used by United to allegedly drive competitors from its markets. In early 1998 the Company received and answered a DOJ Civil Investigative Demand which requested information and documents in the Company's possession relating to possible violations of the federal antitrust laws concerning monopolization or attempts to monopolize air transportation in certain markets, including certain Denver city-pair markets. The Company is unable to predict what action, if any, the DOJ will take in response to the Company's complaint. In December 1997, the DOT awarded the Company three take-off and three landing slots at New York City's LaGuardia airport, a slot controlled airport to and from which operations are not permitted absent the grant of such slots. The Company as of June 1998 provides two daily round-trip flights in the Denver- LaGuardia market by virtue of the award of these slots by the DOT. In December 1997, the City of New York filed a petition against the DOT and the Company in the United States Court of Appeals for the Second Circuit alleging that the DOT's award -9- of these slots to the Company was unlawful. The appellate court heard oral arguments on this case in late June 1998 but has not issued a decision in the case. A final adverse ruling could result in the Company's inability to continue to serve New York City's LaGuardia Airport. From time to time, the Company is engaged in routine litigation incidental to its business. Except as may be otherwise specifically discussed in this section, management believes there are no legal proceedings pending in which the Company is a party or of which any of the Company's property is the subject that are not adequately covered by insurance maintained by the Company, or which if adversely decided, would have a material adverse effect on the Company's business or financial condition. ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS During the fourth quarter of the year covered by this report, no matter was submitted to a vote of security holders of the Company through the solicitation of proxies or otherwise. PART II ITEM 5: MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS PRICE RANGE OF COMMON STOCK The Company's Common Stock is traded on the Nasdaq SmallCap Market ("Nasdaq") under the symbol "FRNT." The following table sets forth the range of high and low bid prices per share for the Common Stock for the periods indicated as reported by Nasdaq. Market quotations represent prices between dealers and do not reflect retail mark-ups, mark-downs or commissions. As of June 24, there were 541 holders of record of the Common Stock.
Price Range of Common Stock ------------ Quarter Ended High Low ------------- ---- --- June 30, 1996 $ 10 5/16 $ 4 11/16 September 30, 1996 9 3/4 6 3/4 December 31, 1996 6 29/32 3 1/4 March 31, 1997 4 2 5/8 June 30, 1997 4 5/8 3 1/32 September 30, 1997 3 15/16 2 5/8 December 31, 1997 3 5/32 1 29/32 March 31, 1998 3 7/8 1 3/4 June 30, 1998 (through June 24, 1998) 3 15/16 2 7/8
RECENT SALES OF UNREGISTERED SECURITIES In February 1998, in connection with a $5,000,000 loan to the Company, the Company issued a warrant to the Company's lender to purchase 1,750,000 shares of the Company's Common Stock at a purchase price of $3.00 per share, which warrant expires in December 2001. In April 1998, in connection with a private placement of 4,363,001 shares of its Common Stock, the Company issued a warrant to an institutional investor to purchase 716,929 shares of the Common Stock of the Company at a purchase price of $3.75 per share, which warrant expires in April 2002. In May 1998, the Company issued a warrant to its financial advisor in connection with debt and equity financings a warrant to purchase 548,000 shares of the Company's Common Stock at a purchase price of $3.00 per share, which warrant expires in May 2003. Each of these transactions was made under an exemption from registration under the Securities Act of 1933 pursuant to Sections 4(2) or 4(6) thereof. -10- As of June 15, 1998, the Company has granted stock options to employees and Directors of the Company to purchase up to 1,931,250 shares of Common Stock, 409,188 of which options have been previously exercised and 1,445,394 of which are currently exercisable at exercise prices ranging from $1.00 to $3.75 per share. DIVIDEND POLICY Except for the Rights Dividend Distribution described below, the Company has not declared or paid dividends on its Common Stock. The Company currently intends to retain any future earnings to fund operations and the continued development of its business, and, thus, does not expect to pay any cash dividends on its Common Stock in the foreseeable future. Future cash dividends, if any, will be determined by the Board of Directors and will be based upon the Company's earnings, capital requirements, financial condition and other factors deemed relevant by the Board of Directors. RIGHTS DIVIDEND DISTRIBUTION In February 1997, the Company's Board of Directors declared a dividend distribution of one right (a "Right") for each outstanding share of the Company's no par value common stock ("Common Stock") to shareholders of record at the close of business on March 15, 1997. Except as described below, each Right, when exercisable, entitles the registered holder to purchase from the Company one share of the Company's Common Stock, at a purchase price of $17.50 per share (the "Purchase Price"), subject to adjustment. The Rights expire at the close of business on February 20, 2007, unless earlier redeemed or exchanged by the Company as described below. The description and terms of the Rights are set forth in a Rights Agreement, as amended by amendments, dated June 30, 1997 and December 5, 1997 (as so amended, the "Rights Agreement"). The Rights are exercisable upon the earlier of (i) 10 days following a public announcement that a person or group of affiliated or associated persons other than the Company, its subsidiaries or any person receiving newly-issued shares of Common Stock directly from the Company or indirectly via an underwriter in connection with a public offering by the Company (an "Acquiring Person") has acquired, or obtained the right to acquire, beneficial ownership of 20% or more of the outstanding shares of Common Stock (the "Stock Acquisition Date"), or (ii) 10 business days following the commencement of a tender offer or exchange offer that would result in a person or group beneficially owning 20% or more of such outstanding shares of Common Stock. If any person becomes an Acquiring Person other than pursuant to a Qualifying Offer (as defined below), each holder of a Right has the right to receive, upon exercise, Common Stock (or, in certain circumstances, cash, property or other securities of the Company) having a value equal to two times the exercise price of the Right. Notwithstanding any of the foregoing, all Rights that are beneficially owned by any Acquiring Person will be null and void. However, Rights are not exercisable in any event until such time as the Rights are no longer redeemable by the Company as set forth below. A "Qualifying Offer" means a tender offer or exchange offer for, or merger proposal involving, all outstanding shares of Common Stock at a price and on terms determined by at least a majority of the Board of Directors who are not officers or employees of the Company and who are not related to the Person making such offer, to be fair to and in the best interests of the Company and its shareholders. If after the Stock Acquisition Date the Company is acquired in a merger or other business combination transaction in which the Common Stock is changed or exchanged or in which the Company is not the surviving corporation (other than a merger that follows a Qualifying Offer) or 50% or more of the Company's assets or earning power is sold or transferred, each holder of a Right shall have the right to receive, upon exercise, common stock of the acquiring company having a value equal to two times the exercise price of the Right. The Purchase Price payable, and the number of shares of Common Stock or other securities or property issuable, upon exercise of the Rights are subject to adjustment from time to time to prevent dilution (i) in the event of a stock dividend on, or a subdivision, combination or reclassification of, the Common Stock, (ii) if holders of the Common Stock are granted certain rights or warrants to subscribe for Common Stock or convertible securities at -11- less than the current market price of the Common Stock, or (iii) upon the distribution to holders of the Common Stock of evidences of indebtedness or assets or of subscription rights or warrants. At any time until ten days following the Stock Acquisition Date, the Company may redeem the Rights in whole at a price of $.01 per Right. Upon the action of the Board of Directors ordering redemption of the Rights, the Rights will terminate and the only right of the holders of Rights will be to receive the $.01 redemption price. While the distribution, if any, of the Rights will not be taxable to shareholders or to the Company, shareholders may, depending upon the circumstances, recognize taxable income if the Rights become exercisable for Common Stock (or other consideration) of the Company or for common stock of the acquiring company. -12- ITEM 6: SELECTED FINANCIAL DATA The following selected financial data as of and for each of the years ended March 31, 1998, 1997, 1996, 1995 and 1994 are derived from the audited financial statements of the Company. This data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations," and the financial statements and the related notes thereto included elsewhere in this Report.
Year Ended March 31, 1998 1997 1996 1995 1994 ---------------------------------------------------------------------- (in thousands, except for per share data and selected operating statistics) STATEMENT OF OPERATIONS DATA: Total operating revenues $ 147,142 $ 116,501 $ 70,393 $ 24,595 - Total operating expenses 165,697 129,662 76,325 32,692 124 Operating loss (18,554) (13,161) (5,933) (8,122) (124) Net loss (17,746) (12,186) (5,582) (7,999) (124) Net loss per share basic and diluted (1.95) (1.49) (1.23) (2.56) (0.15) BALANCE SHEET DATA: Cash and cash equivalents $ 3,641 $ 10,286 $ 6,359 $ 3,835 $ 415 Short-term investments - - 1,168 - - Current assets 33,999 31,470 25,797 8,270 425 Total assets 50,598 44,093 30,990 13,746 486 Current liabilities 50,324 32,745 25,844 9,529 94 Long-term debt 3,468 56 92 147 - Total liabilities 56,272 34,210 26,289 12,104 94 Stockholders' equity (5,673) 9,883 4,701 1,642 392 (deficit) Working capital (16,325) (1,275) (47) (1,259) 331 (deficit) SELECTED OPERATING DATA: Passenger revenue $ 135,244 $ 109,088 $ 66,634 $ 23,620 - Revenue passengers carried 1,356 1,180 758 269 - Revenue passenger miles (RPMs)(1) 1,119,378 839,939 479,887 147,215 - Available seat miles (ASMs)(2) 1,996,185 1,419,720 844,161 357,089 - Passenger load factor(3) 56.1% 59.2% 56.8% 41.2% - Break-even load factor(4) 63.4% 65.8% 61.6% 55.2% - Block hours (5) 42,767 32,459 20,783 9,719 - Average daily block hour utilization (6) 9.5 10.3 9.9 8.7 - Yield per RPM (7)(cents) 12.08 12.99 13.89 16.04 - Yield per ASM (8)(cents) 6.78 7.68 7.89 6.61 - Expense per ASM (cents) 8.30 9.13 9.04 9.16 - Passenger revenue per block hour $ 3,162.34 $ 3,360.79 $3,206.18 $2,430.29 - Average fare (9) $ 100 $ 92 $ 88 $ 88 - Average aircraft in service 12.3 9.6 5.7 4.1 -
Note: The Company did not begin flight operations until July 1994 (during the fiscal year ended March 31, 1995). -13- (1) "Revenue passenger miles," or RPMs, are determined by multiplying the number of fare-paying passengers carried by the distance flown. (2) "Available seat miles," or ASMs, are determined by multiplying the number of seats available for passengers by the number of miles flown. (3) "Passenger load factor" is determined by dividing revenue passenger miles by available seat miles. (4) "Break-even load factor" is the passenger load factor that will result in operating revenues being equal to operating expenses, assuming constant revenue per passenger mile and expenses (5) "Block hours" represent the time between aircraft gate departure and aircraft gate arrival. (6) "Average daily block hour utilization" represents the total block hours divided by the weighted average number of aircraft days in service. (7) "Yield per RPM" is determined by dividing passenger revenues by revenue passenger miles. (8) "Yield per ASM" is determined by dividing passenger revenues by available seat miles. (9) "Average fare" excludes revenue included in passenger revenue for non- revenue passengers, administrative fees, and revenue recognized for unused tickets that are greater than one year from issuance date. ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS SELECTED OPERATING STATISTICS The following table provides operating revenues and expenses for the Company expressed as cents per total available seat miles ("ASM") and as a percentage of total operating revenues, as rounded, for the years ended March 31, 1998, 1997 and 1996.
1998 1997 1996 ---------------------- ---------------------- -------------------- Per % Per % Per % total of total of total of ASM Revenue ASM Revenue ASM Revenue --------- ------- --------- ------- ------- -------- Revenues: Passenger 7.11 96.5% 8.01 97.6% 8.12 97.4% Cargo 0.15 2.0% 0.14 1.7% 0.14 1.6% Other 0.11 1.4% 0.06 0.7% 0.08 1.0% --------- ------- --------- ------- ------- -------- Total revenues 7.37 100.0% 8.21 100.0% 8.34 100.0% Operating expenses: Flight operations 3.32 45.1% 3.71 45.2% 3.32 39.8% Aircraft and traffic servicing 1.54 20.9% 1.75 21.3% 2.19 26.3% Maintenance 1.59 21.6% 1.76 21.4% 1.39 16.7% Promotion and sales 1.47 19.9% 1.52 18.5% 1.68 20.2% General and administrative 0.32 4.3% 0.33 4.0% 0.39 4.7% Depreciation and amortization 0.06 0.9% 0.08 0.9% 0.06 0.8% --------- ------- --------- ------- ------- -------- Total operating expenses 8.30 112.6% 9.13 111.3% 9.04 108.4% ========= ======= ========= ======= ======= ======== Total ASMs (000s) 1,996,185 1,419,720 844,161
Results of Operations - Year Ended March 31, 1998 Compared to Year Ended March 31, 1997 GENERAL During the year ended March 31, 1998, the Company added four new Boeing 737- 300 aircraft to its fleet. As a result of these new aircraft fleet additions, the Company added service to Boston, Massachusetts in September 1997, Baltimore, Maryland in November 1997 and New York (LaGuardia), New York in December 1997. The Company terminated service to Las Vegas, Nevada in August 1997 and San Diego, California and St. Louis, Missouri in November 1997. In June 1997, the Company signed an Agreement and Plan of Merger (the "Merger Agreement") providing for the merger of the Company with Western Pacific. In September 1997, the Company and Western Pacific mutually agreed to terminate the Merger Agreement. On October 5, 1997, Western Pacific filed for protection under -14- Chapter 11 of the U.S. Bankruptcy Code. Western Pacific, which originally began service to and from Colorado Springs, Colorado, commenced service from DIA on June 29, 1997. On February 4, 1998, Western Pacific ceased flight operations and has since been engaged in liquidating its business. Small fluctuations in the Company's yield per RPM or expense per ASM can significantly affect operating results because the Company, like other airlines, has high fixed costs in relation to revenues. Airline operations are highly sensitive to various factors, including the actions of competing airlines and general economic factors, which can adversely affect the Company's liquidity, cash flows and results of operations. As a result of its expansion of operations during the year ended March 31, 1998, the Company's results of operations are not necessarily indicative of future operating results or comparable to the prior year ended March 31, 1997. RESULTS OF OPERATIONS The Company incurred a net loss of $17,746,000 or $1.95 per share for the year ended March 31, 1998 as compared to a net loss of $12,186,000 or $1.49 per share for the year ended March 31, 1997. Management believes that the Company's operating results were adversely affected during the year ended March 31, 1998 by a code share agreement with Western Pacific which, in connection with the proposed merger with Western Pacific, was effective August 1, 1997. The code share was designed to coordinate the Company's schedule with Western Pacific's schedule at DIA. The code share agreement was terminated effective November 15, 1997 as a part of the mutual termination of the Merger Agreement. As a result of the schedule implemented under the code share agreement, the Company had flights scheduled in certain markets that were not at peak travel times. This arrangement did not benefit the Company as an independent airline. As a result of the termination of the Merger Agreement and code share agreement, the Company introduced a new, independent schedule, terminated service to San Diego, California and St. Louis, Missouri, and added routes to Baltimore, Maryland and to New York City's La Guardia Airport in November and December 1997. Competition from Western Pacific on several of the Company's routes adversely affected the Company's yields and load factors. Additionally, during the year ended March 31, 1998 as compared to the prior comparable period, the Company experienced higher average aircraft lease expenses on its newer aircraft, higher maintenance expenses associated with its in-house maintenance operation which began in September 1996, and unusual general and administrative expenses associated with the Western Pacific merger. REVENUES General. Airline revenues are primarily a function of the number of passengers carried and fares charged by the airline. The Company believes that revenues will gradually increase in a new market over a 60 to 120 day period as market penetration is achieved. The Company added three new markets during the year ended March 31, 1998 and four new markets during the year ended March 31, 1997. The Company's results are highly sensitive to changes in fare levels. Fare pricing policies have a significant impact on the Company's revenues. Given the elasticity of passenger demand, the Company believes that increases in fares will result in a decrease in passenger demand in many markets. The Company cannot completely predict future fare levels, which depend to a substantial degree on actions of competitors. When sale prices or other price changes are initiated by competitors in the Company's markets, the Company believes that it must, in most cases, match those competitive fares in order to maintain its market share. Passenger revenues are seasonal in leisure travel markets depending on the markets' locations and when they are most frequently patronized. -15- During the years ended March 31, 1998 and 1997, the Company faced significant competitive actions by two airlines that maintained hubs at DIA. During the year ended March 31, 1997, the Company competed with United Airlines with respect to fare and other competitive actions. During the year ended March 31, 1998, the Company, as well as competing with United Airlines for passenger traffic and on fares, also was forced to compete with Western Pacific in six of the Company's markets where Western Pacific was offering extremely low fares in an effort the Company believes was targeted toward increasing load factor and revenues. The effect upon the Company of this competition during the year ended March 31, 1997 was a low average fare and, to a lesser degree, fewer passengers carried, and during the year ended March 31, 1998 fewer passengers carried and with a slight downward effect on the average fare. Western Pacific discontinued all flight operations on February 4, 1998 and has since been engaged in liquidating its business. The Company's average fares for the years ended March 31, 1998 and 1997 were $100 and $92, respectively. Management believes that the increase in the average fare during the year ended March 31, 1998 over the prior comparable period was largely a result of the Company's focus on increasing business travelers, an increase in the average length of haul and stage length, and reduced fare competition from United Airlines, offset by low pricing by Western Pacific. Effective October 1, 1997, the U.S. Congress reduced the 10% excise tax to 9%, but added a per-flight-segment fee of $1 on domestic flights. The tax decreases to 8% October 1, 1998 and to 7.5% on October 1, 1999. The per- flight-segment fee increases to $2 effective October 1, 1998, $2.25 effective October 1, 1999 and thereafter increases in annual amounts of 25 cents until it reaches $3 effective October 1, 2002. Passenger Revenue. Passenger revenues totaled $142,018,000 for the year ended March 31, 1998 compared to $113,758,000 for the year ended March 31, 1997, or an increase of 24.8%. Competition increased dramatically during the months of July through January 1998 when Western Pacific began operations at DIA and even more significantly during the months of October through January 1998 once the Company's merger and code share agreements with Western Pacific were terminated. This increased competition had a negative impact on the number of revenue passengers carried. The number of revenue passengers carried was 1,356,000 for the year ended March 31, 1998 compared to 1,181,000 for the year ended March 31, 1997 or an increase of 14.9%. The Company had an average of 12.3 aircraft in service during the year ended March 31, 1998 compared to an average of 9.6 aircraft in service during the year ended March 31, 1997 resulted in an increase in ASMs of 576,465,000 or 40.6%. An airline's break-even load factor is the passenger load factor that will result in operating revenues being equal to operating expenses, assuming constant revenue per passenger mile and expenses. For the year ended March 31, 1998, the Company's break-even load factor was 63.4% compared to a passenger load factor of 56.1%. For the year ended March 31, 1997, the Company's break- even load factor was 65.8% compared to a passenger load factor of 59.2%. The Company's break-even load factor decreased from the prior comparable period largely as a result of an increase in its average fare to $100 during the year ended March 31, 1998 from $92 during the year ended March 31, 1997. The Company's load factor decreased to 56.1% for the year ended March 31, 1998 from 59.2% the prior comparable period. Management believes that its load factor for the year ended March 31, 1998 was adversely affected by increased competition from Western Pacific and the ramp-up effect from new routes the Company added during September, November and December 1997. The Company's load factors increased to 57.1% during the three months ended March 31, 1998 from 49.4% during the three months ended December 31, 1997. Management believes this was principally a result of Western Pacific's termination of all air service effective February 4, 1998. Cargo revenues, consisting of revenues from freight and mail service, totaled $3,009,000 and $1,956,000 for the years ended March 31, 1998 and 1997, representing 2.1% and 1.7% of total operating revenues, respectively. This adjunct to the passenger business is highly competitive and depends heavily on aircraft scheduling, alternate competitive means of same day delivery service and schedule reliability. Other revenues, comprised principally of interline handling fees, liquor sales and excess baggage fees, totaled $2,115,000 and $786,000 or 1.4% and .7% of total operating revenues for the years ended March 31, 1998 and 1997, respectively. The increase for the year ended March 31, 1998 over the prior comparable period is due to the increase in ticket handling fees associated with the code share agreement with Western Pacific. Ticket handling fees -16- are earned by the ticketing airline to offset ticketing costs incurred on segments ticketed on the flight operated by the Company's code share partner. The Company recognized approximately $1,007,000 in ticket handling fees associated with its code share agreement with Western Pacific during the year ended March 31, 1998. The costs which offset this revenue are included in sales and promotion expenses. OPERATING EXPENSES Operating expenses include those related to flight operations, aircraft and traffic servicing, maintenance, promotion and sales, general and administrative and depreciation and amortization. Total operating expenses increased to 112.6% of revenue for the year ended March 31, 1998 compared to 111.3% of revenue for the year ended March 31, 1997. Operating expenses increased as a percentage of revenue as the Company's revenue was adversely effected by lower load factors caused by increased competition and the Company also experienced higher average aircraft lease expenses on its newer larger aircraft, higher maintenance expenses associated with its in-house maintenance operation which began in September 1996, and unusual general and administrative expenses associated with the Western Pacific merger. Flight Operations. Flight operations expenses include all expenses related directly to the operation of the aircraft including fuel, lease and insurance expenses, pilot and flight attendant compensation, in flight catering, crew overnight expenses, flight dispatch and flight operations administrative expenses. Flight operations expenses of $66,288,000 and $52,650,000 were 45.1% and 45.2% of total revenue for years ended March 31, 1998 and 1997, respectively, or an increase of 25.9%. Aircraft fuel expenses include both the direct cost of fuel including taxes as well as the cost of delivering fuel into the aircraft. Aircraft fuel costs of $23,332,000 for 33,098,000 gallons used and $21,551,000 for 25,926,000 gallons used resulted in an average fuel cost of 70.5c and 83.1c per gallon and represented 35.2% and 40.9% of total flight operations expenses for the years ended March 31, 1998 and 1997, respectively. The average fuel cost per gallon decreased for the year ended March 31, 1998 from the comparable prior period due to an overall decrease in the cost of fuel. Fuel prices are subject to change weekly as the Company does not purchase supplies in advance for inventory. Fuel consumption for the years ended March 31, 1998 and 1997 averaged 774 and 799 gallons per block hour, respectively. Fuel consumption per block hour decreased as a result of more fuel efficient aircraft and an increase in the average length of haul. Aircraft lease expenses, excluding short-term aircraft lease expenses, totaled $24,330,000 (16.5% of total revenue) and $16,704,000 (14.3% of total revenue) for the years ended March 31, 1998 and 1997, respectively, or an increase of 45.7%. The increase is partially attributable to the increase in the average number of aircraft in service to 12.3 from 9.6, or 28.1%, for the years ended March 31, 1998 and 1997, respectively, and largely due to higher lease expenses for larger and newer Boeing 737-300 aircraft added to the fleet. In August 1996, the Company entered into short-term lease agreements in order to add a partial spare to its fleet to improve the Company's on-time performance and completion factors and to substitute for aircraft in the Company's fleet that were out of service for scheduled maintenance. Total expenses associated with the short-term lease agreements totaled $3,359,000 for the months of August 1996 through March 1997 and none during the year ended March 31, 1998. Because of the increase in the Company's fleet size, the Company at certain times uses one of its aircraft as a spare and schedules most of its major maintenance cycles to coincide with lesser traveled months. Aircraft insurance expenses totaled $2,989,000 (2.0% of total revenue) and $2,638,000 (2.3% of total revenue) for the years ended March 31, 1998 and 1997, respectively, or an increase of 13.3%. Aircraft insurance expenses decreased as a percentage of revenue as a result of competitive pricing in the aircraft insurance industry, the Company's favorable experience rating since it began flight operations in July 1994 and economies of scale due to the increase in fleet size. Pilot and flight attendant salaries totaled $8,708,000 and $6,671,000 or 5.9% and 5.7% of passenger revenue for the years ended March 31, 1998 and 1997, respectively, or an increase of 30.5%. Pilot and flight attendant compensation increased principally as a result of a 28.1% increase in the average number of aircraft in service and an increase of 31.8% in block hours. During the years ended March 31, 1998, the Company added four leased aircraft to its fleet and during the year ended March 31, 1997, the Company added three leased aircraft to its fleet. -17- The Company pays pilot and flight attendant salaries for training, consisting of approximately six and three weeks, respectively, prior to scheduled increases in service, causing the compensation expense for the years ended March 31, 1998 and 1997 to appear high in relationship to the average number of aircraft in service. When the Company is not in the process of adding aircraft to its system, it expects that pilot and flight attendant expense per aircraft will normalize. With a scheduled passenger operation, and with salaried rather than hourly crew compensation, the Company's expenses for flight operations are largely fixed, with flight catering and fuel expenses the principal exception. Aircraft and Traffic Servicing. Aircraft and traffic servicing expenses were $30,685,000 and $24,849,000 for the years ended March 31, 1998 and 1997, respectively, and represented 20.9% and 21.3% of total revenue. These include all expenses incurred at airports served by the Company, as well as station operations administration and flight operations ground equipment maintenance. Station expenses include landing fees, facilities rental, station labor and ground handling expenses. Station expenses as a percentage of revenue decreased during the year ended March 31, 1998 over the year ended March 31, 1997 as a result of the Company's rental costs (in particular, gate rentals at DIA), which are largely fixed costs, remaining relatively constant as compared to the increase in revenue and more of its "above wing" (including passenger check-in at ticket counters, concourse gate operations and cabin cleaning) operations being performed by Company personnel rather than by third party suppliers. The Company began its own "above wing" operations at Los Angeles International Airport in June 1996, Chicago (Midway) in July 1996, Seattle- Tacoma in August 1996, and El Paso, Texas effective October 1996. Aircraft and traffic servicing expenses will increase with the addition of new cities; however, the increased existing gate utilization at DIA is expected to reduce per unit expenses. Maintenance. Maintenance expenses of $31,791,000 and $24,946,000 were 21.6% and 21.4% of total revenue for the years ended March 31, 1998 and 1997, respectively. These include all maintenance, labor, parts and supplies expenses related to the upkeep of the aircraft. Routine maintenance is charged to maintenance expense as incurred while major engine overhauls and heavy maintenance checks are accrued each quarter. Maintenance cost per block hour was $743.34 and $768.52 for the years ended March 31, 1998 and 1997, respectively. Maintenance costs per block hour decreased as a result of lower maintenance costs associated with the four new aircraft the Company added to its fleet this year. Continental Airlines had been providing routine aircraft maintenance services for the Company at Denver but discontinued this service in September 1996. As a result, the Company hired its own aircraft mechanics to perform routine maintenance and subleased a portion of a hangar from Continental at DIA in which to perform this work. The performance of this work by the Company, together with the cost of leasing adequate hangar space, initially increased the Company's maintenance cost per block hour. Management believes that these costs will continue to normalize as it adds additional aircraft to its fleet. During the years ended March 31, 1998 and 1997, the Company revised the timing of its scheduled maintenance and related estimates for its engine maintenance reserves. The revised estimate resulted in an additional reserve accrual of approximately $1,034,000 and $765,000, respectively, which approximates $24.17 and $23.57 of the total maintenance cost per block hour of $743.34 and $768.52 for the years ended March 31, 1998 and 1997, respectively. Promotion and Sales. Promotion and sales expenses totaled $29,329,000 and $21,526,000 and were 20.7% and 18.5% of passenger revenue for the years ended March 31, 1998 and 1997, respectively. These include advertising expenses, telecommunications expenses, wages and benefits for reservationists and reservations supervision as well as marketing management and sales personnel. Credit card fees, travel agency commissions and computer reservations costs are included in these costs. The promotion and sales expenses per passenger were $21.63 and $18.24 for the years ended March 31, 1998 and 1997, respectively. The Company's promotion and sales expenses per passenger increased largely as a result of the code share agreement with Western Pacific, under which the Company incurred additional communications, computer reservation, credit card and interline handling fees, and increased advertising expenses. These expenses were offset, in part, by interline handling fees earned which are included in other revenues. The Company offers mileage credits on Continental Airlines OnePass mileage program. The Company's expense associated with the OnePass program has increased from $317,000 or 27c per passenger for the year ended March 31, 1997 to $584,000 or 43c per passenger for the year ended March 31, 1998. The Company's OnePass expense has increased as it has become more mature and more passengers have become aware of the Company's participation in the OnePass program. Additionally, the increase in business -18- travelers, who generally participate in mileage programs more than leisure travelers, has also caused an increase in the OnePass expense. Advertising expenses of $3,048,000 and $2,482,000 were 2.2% of passenger revenue for the year ended March 31, 1998 and 1997, respectively. General and Administrative. General and administrative expenses for the years ended March 31, 1998 and 1997 totaling $6,353,000 and $4,618,000 were 4.3% and 4.0% of total revenue, respectively. These expenses include the wages and benefits for the Company's executive officers and various other administrative personnel. Legal and accounting expenses, supplies and other miscellaneous expenses are also included in this category. Included in general and administrative expenses during the year ended March 31, 1998 are unusual expenses of approximately $513,000 associated with the terminated merger agreement with Western Pacific. Depreciation and Amortization. Depreciation and amortization expense of $1,251,000 and $1,072,000 were approximately .9% of total revenue for each of the years ended March 31, 1998 and 1997, respectively. These expenses include depreciation of office equipment, ground station equipment, and other fixed assets of the Company. Amortization of start-up and route development costs are not included as these expenses have been expensed as incurred. Nonoperating Income (Expenses). Total net nonoperating income totaled $808,000 for the year ended March 31, 1998 compared to $975,000 for the year ended March 31, 1997, or a decrease of 17.1%. Interest income decreased from $1,034,000 to $722,000 from the prior comparable period as a result of a decrease in cash associated with the net loss incurred during the year ended March 31, 1998. In December 1997, the Company's sold $5,000,000 of 10% senior notes. In connection with this transaction, the Company issued warrants to purchase 1,750,000 shares of its Common Stock. Total interest expense paid in cash and the accretion of the warrants and deferred loan expenses totaled $263,000 during the year ended March 31, 1998. The Company had $410,000 of other net income for the year ended March 31, 1998 which was comprised principally of $484,000 in insurance claims for the Company's telephone switch which was subject to an electrical fire in October 1997, offset by other miscellaneous expenses. Expenses per ASM. The Company's expenses per ASM for the years ended March 31, 1998 and 1997 were 8.30c and 9.13c, respectively, or a decrease of 9.1%. Expenses per ASM decreased from the prior comparable period as a result of the economies of scale as the fixed costs were spread across a larger base of operations and the average ASMs per aircraft have increased as the Company adds planes with more seating capacity as compared to its earlier fleet additions. Expenses per ASM are influenced to some degree by the utilization of aircraft and by the seating configuration that each airline employs. For example, with the 108 seat all coach seating configuration selected by the Company on its first five Boeing 737-200 aircraft, the expenses per ASM of the Company are higher by 11% when compared with the 120 seat alternative used by many carriers. The Company's average seats per aircraft for the year ended March 31, 1998 were 122 as compared to 118 seats per aircraft for the year ended March 31, 1997. RESULTS OF OPERATIONS - YEAR ENDED MARCH 31, 1997 COMPARED TO YEAR ENDED MARCH 31, 1996 GENERAL The Company's flight operations began on July 5, 1994 with two Boeing 737-200 aircraft operating eight daily flights between Denver, Colorado and four North Dakota cities. Since that time, the Company has increased the number of markets it serves and the number of flights offered. The Company placed three additional Boeing 737-200 aircraft in service in 1994 and added four cities in Montana to its route system. In October 1995, the Company leased two Boeing 737- 300 aircraft which were placed in service during November 1995 in conjunction with adding four new, high volume routes linking Denver to Los Angeles and San Francisco, California, Minneapolis-St. Paul, Minnesota, and Salt Lake City, Utah. The Company significantly rescheduled its flights during the year ended March 31, 1996 through the elimination of Minot and Grand Forks, North Dakota and all four of its Montana destinations, and the addition of Omaha, Nebraska, Las Vegas, Nevada, Chicago (Midway), Illinois and Phoenix, Arizona to its schedule. During the year ended March 31, 1997, the Company added two Boeing 737- -19- 200 aircraft and one Boeing 737-300 aircraft to its fleet and added flights to Seattle/Tacoma, Washington, in May 1996, flights to San Diego, California and St. Louis, Missouri in June 1996, and flights to Bloomington-Normal, Illinois, in January 1997, as an extension of its service between Denver and Omaha, Nebraska. Flights to Bismarck and Fargo, North Dakota, the last two of the Company's eight original markets, were suspended in September 1996. The Company modified its initial operating plan and expanded operations during the fiscal years ended March 31, 1996 and March 31, 1997. Therefore, the Company's results of operations for the fiscal years ended March 31, 1996 and 1997 are not necessarily comparable or indicative of future operating results. Effective in September 1996, the Company began performing scheduled maintenance on its aircraft using its own mechanics, with the exception of major maintenance cycles which continue to be performed by FAA approved contractors. RESULTS OF OPERATIONS The Company incurred a net loss of $12,186,000 or $1.49 per share for the year ended March 31, 1997 as compared to a net loss of $5,582,000 or $1.23 per share for the year ended March 31, 1996. The increase in net loss was attributable to the increase in operating expenses exceeding the increase in revenues, discussed below. During the year ended March 31, 1996, the Company modified its initial operating strategy from serving "local" passengers (those either beginning or ending their trips in Denver) and interline "connecting" passengers (those transferring to and from other airline flights at Denver for travel to destinations beyond Denver) to developing its own connecting hub at Denver and to providing service to Denver's largest markets that are more dependent on local traffic and less dependent on connecting traffic. The Company began the implementation of its new business strategy in late September 1995. As a result of the completion of the first phase of its new business and marketing strategy, the Company had its first profitable quarter during the quarter ended March 31, 1996 with net income of $816,000 and its second profitable quarter during the quarter ended June 30, 1996 with net income of $1,336,000. Beginning in August 1996, the Company experienced higher fuel costs, short-term lease expenses for aircraft to replace its aircraft during scheduled maintenance cycles, intensive increased competition from DIA's dominant carrier, United Airlines, increased maintenance expenses as it commenced in-house maintenance operations in September 1996, and the return of the 10% passenger excise tax in late August 1996. Because of United Airlines' competitive activity, the Company was unable to adjust its fares to permit recovery of these increased expenses. Management believes alleged anticompetitive practices by United in the Denver market have had, and, to the extent they continue, will have a material adverse effect on the Company's revenues and results of operations. (See Part I, Item 3: Legal Proceedings.) Small fluctuations in the Company's yield per RPM or expense per ASM can significantly affect operating results because the Company, like other airlines, has high fixed costs and low operating margins in relation to revenues. Airline operations are highly sensitive to various factors, including the actions of competing airlines and general economic factors, which can adversely affect the Company's liquidity, cash flows and results of operations. REVENUES General. Airline revenues are primarily a function of the number of passengers carried and fares charged by the airline. The Company believes that revenues will gradually increase in a new market over a 60 to 120 day period as market penetration is achieved. This occurred during the year ended March 31, 1996 in January, September and November 1995 when the Company commenced service between Denver and Omaha, Nebraska, Las Vegas, Nevada, Chicago (Midway), Illinois, Phoenix, Arizona, Los Angeles and San Francisco, California, Minneapolis-St. Paul, Minnesota and Salt Lake City, Utah. During the year ended March 31, 1997, the Company commenced service between Denver and Seattle/Tacoma, San Diego and St. Louis in May and June, 1996, and between Denver and Bloomington, Illinois via Omaha in January 1997. -20- The Company's results are highly sensitive to changes in fare levels. Fare pricing policies have a significant impact on the Company's revenues. Following is a table of the Company's average fares:
Quarter Ended Average Fare ------------- ------------ June 30, 1995 $96 September 30, 1995 $85 December 31, 1995 $80 March 31, 1996 $93 June 30, 1996 $98 September 30, 1996 $92 December 31,1996 $86 March 31, 1997 $94
In connection with the modification in the Company's strategy, the Company reduced fares to maximize traffic and revenue. During the quarter ended September 30, 1995, the Company reduced its fares system-wide in order to "stimulate" markets and match competitors' fares. During the quarter ended December 31, 1995, the Company's average fare decreased to $80 as a result of introductory fares for its two new markets added in late September 1995 and the four new markets added during the month of November 1995. The Company's average fare for the quarters ended March 31, 1996 and June 30, 1996 increased to $93 and $98, respectively, largely as a result of the Company's new yield management system, the elimination of introductory fares, and the expiration of excise taxes on air transportation effective January 1, 1996. On August 27, 1996, the 10% excise tax on air transportation was reinstated through December 31, 1996. The decrease in the average fare of $98 for the quarter ended June 30, 1996 to $92 for the quarter ended September 30, 1996 and to $86 for the quarter ended December 31, 1996 was largely due to alleged anticompetitive activity by United Airlines in the Denver market which precluded the Company from adjusting fares to recover increased costs, including the reinstatement of the 10% excise tax. The excise tax expired again on December 31, 1996, was subsequently reinstated on March 7, 1997 and is scheduled to expire again on September 30, 1997. Management believes that the excise tax or some other type of tax will be reinstated immediately upon expiration of the present tax and may be as high as 10% of the fare. Given the elasticity of passenger demand, the Company believes that increases in fares will result in a decrease in passenger demand. To maintain passenger traffic in the face of an excise tax increase may require some downward adjustment in net fares realized by the Company. The Company cannot completely predict future fare levels, which depend to a substantial degree on actions of competitors. When sale prices or other price changes are made by competitors in the Company's markets, the Company believes that it must, in most cases, match these competitive fares in order to maintain its market share. Passenger revenues are seasonal in each market. Passenger Revenue. Passenger revenues totaled $113,758,000 for the year ended March 31, 1997 compared to $68,530,000 for the year ended March 31, 1996, or an increase of 66%. The number of revenue passengers carried was 1,180,000 for the year ended March 31, 1997 compared to 758,000 for the year ended March 31, 1997 or an increase of 56%. The average fare for the year ended March 31, 1997 was $93 compared to the average fare for the year ended March 31, 1996 of $88. The Company had an average of 9.6 aircraft in service during the year ended March 31, 1997 compared to an average of 5.7 aircraft during the year ended March 31, 1996 for an increase in ASMs of 575,559,000 or 68%. An airline's break-even load factor is the passenger load factor that will result in operating revenues being equal to operating expenses, assuming constant revenue per passenger mile and expenses. For the year ended March 31, 1997, the Company's break-even load factor was 66% compared to a passenger load factor of 59.2%. For the year ended March 31, 1996 the Company's break-even load factor was 61.8% compared to a passenger load factor of 56.9%. The Company's break-even load factor increased over the prior comparable period as increased price competition kept the Company from increasing fares to compensate for the higher fuel prices, short term aircraft lease expenses, and increased maintenance expenses associated with the Company's maintenance facility which began operations in September 1996. The increase in these expenses began during August 1996, which increased the break-even load factor from 58.3% for the quarter ended June 30, 1996 to 66% for the quarter ended September 30, 1996. The Company experienced the full impact of these increased expenses in the quarter ended -21- December 31, 1996, as the break-even load factor increased to 73.1%. The break- even load factor decreased to 68.1% for the quarter ended March 31, 1997 largely as a result in the increase in the average fare from $86 to $94 during the quarter ended March 31, 1997. The improvement in the Company's load factor from 56.9% to 59.2% for year ended March 31, 1997 over the prior comparable period reflects the result of the Company's change in business strategy to provide service to higher volume markets. However, management believes that its load factor for the year ended March 31, 1997 could have been higher but was adversely affected by increased competitive fare pricing and by the public's initial reaction to two significant airline accidents which occurred during the year ended March 31, 1997. One of the accidents involved a low fare carrier and the other involved a major national airline. In both accidents the aircraft was destroyed and all passengers and crew were killed. Cargo revenues, consisting of revenues from freight and mail service, totaled $1,956,000 and $1,148,000 for the years ended March 31, 1997 and 1996, representing 1.7% and 1.6% of total operating revenues, respectively. This adjunct to the passenger business is highly competitive and depends heavily on aircraft scheduling, alternate competitive means of same day delivery service and schedule reliability. Other revenues, comprised principally of liquor sales and excess baggage fees, totaled $787,000 and $714,000 or less than 1% of total operating revenues for each of the years ended March 31, 1997 and 1996. OPERATING EXPENSES Operating expenses include those related to flight operations, aircraft and traffic servicing, maintenance, promotion and sales, general and administrative and depreciation and amortization. Total operating expenses increased to 111.3% of revenue for the year ended March 31, 1997 compared to 108.4% of revenue for the year ended March 31, 1996. Operating expenses increased as a percentage of revenue largely as result of an increase in flight operations expenses. Flight operations expenses were impacted by increased fuel prices, short-term lease expenses to replace aircraft undergoing scheduled maintenance and an increase in maintenance expenses as a result of the Company's commencement of its own maintenance facility to perform routine maintenance at Denver. As a result, total operating expenses for the year ended March 31, 1997 increased 70% over the prior comparable period. Flight Operations. Flight operations expenses of $52,650,000 and $28,019,000 were 45.2% and 39.8% of total revenue for the years ended March 31, 1997 and 1996, respectively. Flight operations expenses include all expenses related directly to the operation of the aircraft including fuel, lease and insurance expenses, pilot and flight attendant compensation, flight catering, crew overnight expenses, flight dispatch and flight operations administrative expenses. Aircraft fuel expenses include both the direct cost of fuel including taxes as well as the cost of delivering fuel into the aircraft. Aircraft fuel costs of $21,551,000 for 25,926,000 gallons used and $11,775,000 for 16,706,000 gallons used resulted in an average fuel cost of 83.1c and 70.5c per gallon and represented 40.9% and 42.0% of total flight operations expenses for the years ended March 31, 1997 and 1996, respectively. The average fuel cost per gallon increased for the year ended March 31, 1997 over the comparable prior period due to an overall increase in the cost of fuel and the loss of the fuel tax exemption for the calendar year ended December 31,1997. In 1993, the United States increased taxes on domestic fuel, including aviation fuel, by 4.3 cents per gallon. This tax increase was first imposed on the Company and other airlines effective October 1, 1995. Fuel prices are subject to change weekly as the Company does not purchase supplies in advance for inventory. Fuel consumption for the years ended March 31, 1997 and 1996 averaged 799 and 804 gallons per block hour, respectively. Fuel consumption per block hour decreased as a result of more fuel efficient aircraft and an increase in the average length of haul. Aircraft lease and insurance expenses, excluding short-term aircraft lease expenses, totaled $15,983,000 (13.7% of total revenue) and $7,980,000 (11.3% of total revenue) for the years ended March 31, 1997 and 1996, respectively, or an increase of 100.3%. The increase is partially attributable to the increase in the average number of aircraft in service to 9.6 from 5.7 for the years ended March 31, 1997 and 1996, respectively, and partially due to higher lease expenses on larger and newer aircraft added to the fleet. Beginning August 1996 and November 1995, -22- the Company entered into short-term aircraft lease agreements in order to add a partial spare aircraft to its fleet to improve the Company's on-time performance and completion factors for the year ended March 31, 1997, and to substitute for aircraft in the Company's fleet which were out of service for scheduled maintenance during a portion of the years ended March 31, 1997 and 1996. The final short-term aircraft lease agreement terminated March 31, 1997. Aggregate expenses associated with the short-term aircraft lease agreements totaled $3,359,000 during the months of August through December 1996 and $526,000 for the months of November 1995 through December 1995. The Company paid a premium for short-term lease agreements and does not anticipate future short-term agreements due to the addition of aircraft to its fleet. Pilot and flight attendant compensation totaled $6,671,000 and $4,025,000 or 5.7% for each of the years ended March 31, 1997 and 1996, or an increase of 65.8%. Pilot and flight attendant compensation increased principally as a result of a 68.4% increase in the average number of aircraft in service and an increase of 56.1% in block hours. During the year ended March 31, 1997, the Company added two leased aircraft to its fleet in June 1996 and December 1996. During the year ended March 31, 1996 the Company added two leased aircraft to its fleet in October 1995. The Company pays pilot and flight attendant salaries for training consisting of approximately six and three weeks, respectively, prior to scheduled increases in service, causing the compensation expense for the years ended March 31, 1997 and 1996 to appear high in relationship to the average number of aircraft in service. When the Company is not in the process of adding aircraft to its system, it expects that pilot and flight attendant expense per aircraft will normalize. With a scheduled passenger operation, and with salaried rather than hourly crew compensation, the Company's expenses for flight operations are largely fixed, with flight catering and fuel expenses the principal exception. Aircraft and Traffic Servicing. Aircraft and traffic servicing expenses were $24,849,000 and $18,487,000 for the years ended March 31, 1997 and 1996, respectively, and represented 21.3% and 26.3% of total revenue. These include all expenses incurred at airports served by the Company, as well as station operations administration and flight operations ground equipment maintenance. Station expenses include landing fees, facilities rental, station labor and ground handling expenses. Station expenses as a percentage of revenue decreased during the year ended March 31, 1997 over the year ended March 31, 1996 as a result of the Company's rental costs (in particular, the gate rentals at DIA) which are largely fixed costs, remaining relatively constant as compared to the increase in revenue. Additionally, the Company began its own "above wing" operations at DIA (including passenger check-in at ticket counters, concourse gate operations and cabin cleaning) effective April 1996, Los Angeles International Airport in June 1996, Chicago (Midway) in July 1996, Seattle- Tacoma in August 1996, and El Paso, Texas effective October 1996 rather than contracting these services through a third party supplier. Aircraft and traffic servicing expenses will increase with the addition of new cities; however, the increased existing gate utilization at DIA is expected to reduce per unit expenses. Maintenance. Maintenance expenses of $24,946,000 and $11,732,000 were 21.4% and 16.7% of total revenue for the years ended March 31, 1997 and 1996, respectively. These include all maintenance, labor, parts and supplies expenses related to the upkeep of the aircraft. Routine maintenance is charged to maintenance expense as incurred while major engine overhauls and heavy maintenance checks are accrued each quarter. Maintenance cost per block hour was $769 and $565 per block hour for the years ended March 31, 1997 and 1996, respectively. Continental Airlines had been providing routine aircraft maintenance services for the Company at Denver but discontinued this service in September 1996. As a result, the Company hired its own aircraft mechanics to perform routine maintenance and subleased a portion of a hangar from Continental at DIA in which to perform this work. The performance of this work by the Company, together with the cost of leasing adequate hangar space, increased the Company's maintenance cost per block hour. Management believes that these costs will normalize as it adds additional aircraft to its fleet. During the year ended March 31, 1997, the Company revised the timing of its scheduled maintenance and related estimates for its engine maintenance reserves. The revised estimate resulted in an additional reserve accrual of approximately $765,000 which approximates $23 of the total maintenance cost per block hour of $768 for the year ended March 31, 1997. Promotion and Sales. Promotion and sales expenses totaled $21,526,000 and $14,219,000 and were 18.5% and 20.2% of passenger revenue for the years ended March 31, 1997 and 1996, respectively. These include -23- advertising expenses, telecommunications expenses, wages and benefits for reservationists and reservations supervision as well as marketing management and sales personnel. Credit card fees, travel agency commissions and computer reservations costs are included in these costs. The promotion and sales expenses per passenger were $18.24 and $18.75 for the years ended March 31, 1997 and 1996, respectively. The 51c reduction is largely a result of a decrease in interline service charges and communication expenses. The Company's interline service charges decreased as a result of a 2.8% reduction in the percentage of interline revenue to total revenues. Interline revenue is for travel on the Company's flights ticketed by another airline on connecting traffic. The decrease in interline revenue as a percentage of total revenues is a result of route reductions in regional markets. Advertising expenses of $2,482,000 were 2.2% of passenger revenues for the year ended March 31, 1997, compared to approximately $1,619,000 or 2.4% of passenger revenues for the year ended March 31, 1996. As new cities are added to the Company's flight schedule, advertising and marketing promotions are designed and implemented to increase awareness of the Company's new service, name and brand awareness. Advertising expenses decreased as a percentage of passenger revenues as the Company entered four new markets during the year ended March 31, 1997 compared to six new markets during the year ended March 31, 1996, offset by an increase in advertising expenses during the year ended March 31, 1997 as a result of increased fare competition by United Airlines. General and Administrative. General and administrative expenses for the years ended March 31, 1997 and 1996 totaling $4,618,000 and $3,321,000 were 4.0% and 4.7% of total revenue, respectively. These expenses include the wages and benefits for the Company's executive officers and various other administrative personnel. Legal and accounting expenses, supplies and other miscellaneous expenses are also included in this category. The overall increase in general and administrative expenses is largely a result of an increase in employee benefits and office rent with the increase in the number of full and part-time employees from 533 in March 1996 to 738 in March 1997 and an increase in revenue accounting fees as a result of a 55.6% increase in revenue passengers carried. Depreciation and Amortization. Depreciation and amortization expense of $1,072,000 and $547,000 were approximately one percent of total revenue for each of the years ended March 31, 1997 and 1996. These expenses include depreciation of office equipment, ground station equipment, and other fixed assets of the Company. Amortization of start-up and route development costs are not included as these expenses have been expensed as incurred. Nonoperating Income (Expenses). Total net nonoperating income totaled $975,000 for the year ended March 31, 1997 compared to $351,000 for the year ended March 31, 1996, or an increase of 178% principally a result of an increase in interest income of 146%. Interest income increased over the prior comparable period as a result of increases in cash which occurred during the first quarter of the year ended March 31, 1997 as a result of profitable operations during that quarter, a private placement of the Company's Common Stock in April 1996, and capital raised from the exercise of the Company's warrants. Expenses per ASM. The Company's expenses per ASM for the years ended March 31, 1997 and 1996 were 9.13c and 9.04c, respectively, or an increase of 1%. Expenses per ASM increased over the comparable period as a result of increased flight operation expenses resulting from an increase in short-term aircraft lease and fuel expenses and increased maintenance expenses largely as a result of the Company's commencement of its own maintenance facility, offset by economies of scale as the fixed costs were spread across a larger base of operations. Expenses per ASM are influenced to some degree by the utilization of aircraft and by the seating configuration that each airline employs. For example, with the 108 seat all coach seating configuration selected by the Company on five of its Boeing 737-200 aircraft, the expenses per ASM of the Company are higher by 11% when compared with the 120 seat alternative used by many carriers. -24- Liquidity and Capital Resources The Company's balance sheet reflected cash and cash equivalents of $3,641,000 at March 31, 1998 and $10,286,000 at March 31, 1997. At March 31, 1998, total current assets were $33,999,000 as compared to $50,324,000 of total current liabilities, resulting in a working capital deficit of $16,325,000. At March 31, 1997, total current assets were $31,470,000 as compared to $32,745,000 of total current liabilities, resulting in a working capital deficit of $1,275,000. The $15,050,000 increase in the working capital deficit is primarily a result of the Company's operating losses during the year ended March 31, 1998. Cash used by operating activities for the year ended March 31, 1998 was $8,168,000. This is largely attributable to the Company's net loss for the period, an increase in restricted investments, trade receivables, security, maintenance and other deposits, and prepaid expenses and other assets, offset by increases in accounts payable, air traffic liability, other accrued expenses and accrued maintenance expenses. Cash used by operating activities for the year ended March 31, 1997 was $6,469,000. This is attributed primarily to the Company's net loss for the period, increases in trade receivables, maintenance deposits, prepaid expenses and other assets and inventories offset by increases in accounts payable, air traffic liability, other accrued expenses and accrued maintenance expenses. Cash used in investing activities for the year ended March 31, 1998 was $3,863,000, largely a result of capital expenditures for rotable aircraft components and aircraft leasehold costs and improvements for the aircraft delivered in May, August, and September 1997 and February 1998. Additionally, the Company secured lease obligations for the aircraft delivered in August 1997 and February 1998 with letters of credit totaling $1,500,000. In turn, the Company received $650,000 during the year ended March 31, 1998 from the aircraft lessor that was previously on deposit to secure lease obligations for these aircraft. The Company's restricted investments increased $1,500,000 to collateralize the letter of credit. Cash used in investing activities for the year ended March 31, 1997 was $5,549,000. Restricted cash increased $600,000 for collateral for a letter of credit provided an aircraft lessor in lieu of a cash security deposit for the Boeing 737-300 aircraft leased in November 1996. The Company expended $2,682,000 for initial lease acquisition security deposits for two Boeing 737-200 aircraft and partial security deposits for four Boeing 737-300 aircraft leased during the year ended March 31, 1997, all with delivery dates during the year ended March 31, 1998. The Company made capital expenditures totaling $3,435,000 for equipment, a spare engine, aircraft parts, and aircraft improvements, maintenance equipment for its maintenance facility which began operations in September 1996, ground equipment, computer equipment, and leasehold improvements. Cash provided by financing activities for the years ended March 31, 1998 and 1997 was $5,386,000 and $15,944,000, respectively. During the year ended March 31, 1998, the Company received $435,000 from the exercise of stock options. In December 1997, the Company sold $5,000,000 of 10% senior secured notes. In connection with this transaction, the Company issued warrants to purchase 1,750,000 shares of Common Stock at $3.00 per share. During the year ended March 31, 1997, the Company completed a private placement of its Common Stock that resulted in net proceeds of approximately $2,721,000 in April 1996. In May 1996, the Company notified existing warrant holders of the Company's intent to exercise its redemption rights with respect to such warrants not exercised on or before June 28, 1996. The Company received net proceeds from the exercise of these warrants of approximately $13,278,000. In April 1998, the Company sold 4,363,001 shares of its common stock, no par value, through a private placement to an institutional investor. Gross proceeds to the Company from the transaction was approximately $14,180,000 of which the Company received net proceeds of approximately $13,850,000. The Company issued a warrant to this investor to purchase 716,929 shares of common stock of the Company at a purchase price of $3.75 per share, which warrant expires in April 2002. Five of the Company's Boeing 737-200 aircraft are leased under operating leases which originally expired in 1997. The leases provide for up to two renewal terms of two years each with no increase in basic rent. The Company renewed the leases for the first two-year renewal period and these leases now expire in 1999. Under these leases, the Company was required to make security deposits and makes deposits for maintenance of these leased aircraft. Security and maintenance deposits totaled $625,000 and $2,392,000, respectively, at March 31, 1998. -25- The Company in November 1995 leased two Boeing 737-300 aircraft under operating leases which expire in 2000. The Company was required to make security deposits and makes deposits for maintenance of these leased aircraft. Security and maintenance deposits for these aircraft totaled $1,505,000 and $3,207,000, respectively, at March 31, 1998. These aircraft are compliant with FAA Stage 3 noise regulations. The Company has issued to each of the two Boeing 737-300 aircraft lessors a warrant to purchase 100,000 shares of the Company's Common Stock at an aggregate purchase price of $500,000. These warrants, to the extent not earlier exercised, expire upon the expiration dates of the aircraft leases. In June 1996, the Company leased two additional Boeing 737-200 aircraft under operating leases which expire in 2001. In November 1997, the Company renegotiated one of these leases extending the lease term by one year to 2002 in return for a slight reduction in the monthly rental payment. The Company was required to make security deposits for these aircraft totaling $858,000. Commencing July 1996, the Company was required to make monthly deposits for maintenance of these leased aircraft. At March 31, 1998, these deposits totaled $2,190,000. These aircraft were "hush-kitted" by the lessor at its expense during 1996 making them compliant with FAA Stage 3 noise regulations. The Company has issued to the aircraft lessor two warrants, each of which entitles the lessor to purchase 70,000 shares of the Company's Common Stock at an aggregate purchase price of $503,300 per warrant. In November 1996, the Company took delivery of a leased Boeing 737-300 aircraft which it placed in scheduled service in December 1996. The lease term for this aircraft is eight years from date of delivery. The Company was required to secure the aircraft lease with a letter of credit totaling $600,000. The Company is also required to make monthly cash deposits for maintenance of this aircraft. As of March 31, 1998, the Company had made maintenance deposits associated with this leased aircraft totaling $1,324,000. During the year ended March 31, 1997, the Company entered into four operating lease agreements for four additional new Boeing 737-300 aircraft with scheduled deliveries during the Company's year ended March 31, 1998. The Company took delivery of these aircraft in May, August, and September 1997 and in February 1998. In connection with the Boeing 737-300 aircraft delivered in September 1997, the Company has issued to the lessor a warrant to purchase 55,000 shares of Common Stock at an aggregate purchase price of $385,000. As of March 31, 1998, the Company had made cash security deposits totaling $1,616,000 with respect to these aircraft. During the year ended March 31, 1998, the Company secured lease obligations for two of these aircraft with letters of credit totaling $1,500,000 and, in turn, $650,000 of cash security deposits was returned to the Company. The Company's restricted cash increased by $1,500,000 to collateralize the letters of credit. Two each of the four lease agreements have seven and eight year terms from date of delivery, respectively. Two of the four leases have up to two one year renewal terms and a third may be renewed for up to three one year terms. The Company is required to pay monthly cash deposits to each aircraft lessor based on flight hours and cycles operated to provide funding of future scheduled maintenance costs. As of March 31, 1998, the Company had maintenance deposits associated with these aircraft totaling $2,092,000. Management is continuing to take steps designed to improve the Company's operating performance. Effective January 28, 1997, the Company introduced electronic ticketing. Passengers who call the Company directly are given the option of receiving a paper ticket or a confirmation number in lieu of a paper ticket. Electronic ticketing decreases certain costs including postage and handling costs, ticket stock, and reduced revenue accounting fees because the accounting for electronic ticketing is automated. The Company also has implemented and maintains a booking capability on its Internet site. The Company has announced its intention to perform its own ground handling operations at DIA effective September 1, 1998, a function which is currently being provided by an independent contractor. The Company is in the process of acquiring certain ground handling equipment with total capital expenditures estimated to be $850,000. The Company is seeking financing for these expenditures but there can be no assurance that it will be successful in obtaining the necessary financing. The Company is exploring various means to increase revenues and reduce expenses. The Company is considering revenue enhancement initiatives which may include the introduction of a premium class passenger service, development of new marketing alliances, and ad hoc charters. Expense reduction programs include the -26- installation of an upgraded flight operations, maintenance, and parts inventory management information system which will be installed during the first six months of fiscal year ending March 31, 1999. Other potential cost savings programs include an in-house revenue accounting system, and conducting certain heavy maintenance checks in-house. These programs would require capital expenditures and will be implemented if the Company is able to increase its capital resources. The Company believes that it can reduce its airport operating expenses at certain cities by performing its own ground handling operations rather than continuing to contract out these services. Since April 1996, conversions to the Company's own ground handling operations occurred at nine of the Company's 14 stations. The Company has a contract with a credit card processor that requires the Company to provide a letter of credit to match the total amount of air traffic liability associated with credit card customers if the Company does not meet certain financial covenants and if the credit card processor requests that the collateral be increased. As of September 30, 1997, the Company was in default with respect to these financial covenants. In November 1997, the credit card processor required an increase in the collateral amount from its present level of $2,000,000 to $4,000,000, which increased the Company's current restricted investment balance accordingly. As of June 16, 1998, the Company could be required to increase the collateral amount to $6,600,000. Most of the Company's suppliers currently provide goods, services and operating equipment on open credit terms. If such terms were modified to require immediate cash payments, the Company's cash position would be materially and adversely affected. The Company's goal is to lease a number of additional aircraft to serve additional cities from Denver. The Company believes that such a route system would facilitate a greater volume of connecting traffic as well as a stable base of local traffic and offset the impact of higher DIA-related operating costs through more efficient gate utilization. The expansion of the Company's operations will entail the hiring of additional employees to staff flight and ground operations in its new markets and significant initial costs such as deposits for airport and aircraft leases. Because of the expansion of the Company's business, and competition within the airline industry, which often requires quick reaction by management to changes in market conditions, the Company likely will require additional capital to maintain or further expand its business. Effective February 11, 1997, United Airlines commenced service using its low fare United "Shuttle" between Denver and Phoenix, Arizona, and on October 31, 1997 such service to Salt Lake City was added by United. These are both markets in which the Company provides service, in addition to other markets where United Airlines provides flights. This additional competition, as well as other competitive activities by United and other carriers, have had and could continue to have a material adverse effect on the Company's revenues and results of operations. The Company has incurred substantial operating losses in 1998 and 1997 and has a working capital deficit at March 31, 1998. In addition, the Company has substantial contractual commitments for leasing and maintaining aircraft. The Company believes that its existing cash balances coupled with improved operating results projected for fiscal 1999 will be adequate to fund the Company's operations at least through March 31, 1999. There can be no assurances however, that the Company will be successful in improving its operating results in fiscal 1999. If its operating results do not improve, the Company anticipates that it would be required to obtain additional capital or other financing to fund its operations. YEAR 2000 COMPLIANCE The Company uses information systems in managing and conducting certain aspects of its business. The Company's systems are currently not Year 2000 compliant, and the Company is in the process of ascertaining the modifications that will be necessary for its systems to attain Year 2000 compliance. The Company is taking measures to address this problem and has created a Year 2000 committee, headed by an officer of the Company, to manage and coordinate the Company's efforts to identify and fix critical date-sensitive systems. While the Company believes it will be able to perform or obtain the necessary modifications on a timely basis, the Company has not determined the costs that will be necessary for attaining compliance, and there is no assurance that such costs will not be significant. Failure by the Company and its key business partners (e.g., the FAA, DOT, airport -27- authorities, suppliers, and data providers) to achieve Year 2000 compliance on a timely basis could have a significant adverse impact on the Company's business, financial condition and operating results. ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Note applicable. ITEM 8: FINANCIAL STATEMENTS The Company's financial statements are filed as a part of this report immediately following the signature page. ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. The Company has not, during the past three years and through the date of this report, had a change in its independent certified public accountants or had a disagreement with such accountants on any matter of accounting principles, practices or financial statement disclosure. PART III ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. The information required by this Item is incorporated herein by reference to the data under the heading "Election of Directors" in the Proxy Statement to be used in connection with the solicitation of proxies for the Company's annual meeting of shareholders to be held on September 10, 1998, which definitive Proxy Statement is to be filed with the Commission on or before July 29, 1998. Item 11. Executive Compensation. The information required by this Item is incorporated herein by reference to the data under the heading "Executive Compensation" in the Proxy Statement to be used in connection with the solicitation of proxies for the Company's annual meeting of shareholders to be held on September 10, 1998, which definitive Proxy Statement is to be filed with the Commission on or before July 29, 1998. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The information required by this Item is incorporated herein by reference to the data under the heading "Voting Securities and Principal Holders Thereof" in the Proxy Statement to be used in connection with the solicitation of proxies for the Company's annual meeting of shareholders to be held on September 10, 1998, which definitive Proxy Statement is to be filed with the Commission on or before July 29, 1998. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The information required by this Item is incorporated herein by reference to the data under the heading "Related Transactions" in the Proxy Statement to be used in connection with the solicitation of proxies for the Company's annual meeting of shareholders to be held on September 10, 1998, which definitive Proxy Statement is to be filed with the Commission on or before July 29, 1998. -28- PART IV ITEM 14(A): EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. Exhibit Numbers Description of Exhibits - ------- ----------------------- 3.1 Amended and Restated Articles of Incorporation of the Company. (10) 3.2 Amended Bylaws of the Company (June 9, 1997). (5) 4.1 Specimen Common Stock certificate of the Company. (1) 4.2 The Amended and Restated Articles of Incorporation and Amended Bylaws of the Company are included as Exhibits 3.1 and 3.2. 4.3 Form of Warrant. (1) 4.4 Rights Agreement, dated as of February 20, 1997, between Frontier Airlines, Inc. and American Securities Transfer & Trust, Inc, including the form of Rights Certificate and the Summary of Rights attached thereto as Exhibits A and B, respectively, incorporated by reference to Frontier Airlines, Inc. Registration Statement on Form 8- A dated March 11, 1997. (6) 4.4(a) Amendment to Rights Agreement dated June 30, 1997. (5) 10.1 Office Lease. (1) 10.2 Office Lease Supplements and Amendments. (5) 10.2(a) Addendum to Office Lease (10) 10.3 1994 Stock Option Plan. (1) 10.4 Amendment No. 1 to 1994 Stock Option Plan. (2) 10.4(a) Amendment No. 2 to 1994 Stock Option Plan (5) 10.5 Registration Rights Agreement. (1) 10.6 Sales Agreement. (1) 10.7 Airport Use and Facilities Agreement, Denver International Airport (2) 10.8 Aircraft Lease Agreement dated as of July 26, 1994. (2) 10.8(a) Assignment and Assumption Agreements dated as of March 28, 1997 and March 20, 1997 between USAirways, Inc. and First Security Bank, National Association ("Trustee") and Frontier Airlines, Inc. (5) 10.8(b) Amendment No. 1, dated June 5, 1997, to Lease Agreement dated as of July 26, 1994 between Frontier Airlines, Inc. and First Security Bank, National Association. (5) 10.9 Code Sharing Agreement. (5) -29- 10.10 Aircraft Lease Agreement dated as of October 20, 1995 (MSN 23177). (3) 10.11 Aircraft Lease Agreement dated as of October 20, 1995 (MSN 23257). (3) 10.12 Aircraft Lease Agreement dated as of May 1, 1996. (3) 10.13 Aircraft Lease Agreement dated as of June 3, 1996. (3) 10.13(a) Amendment No. 1 to Aircraft Lease Agreement dated as of June 3, 1996.(10) 10.14 Aircraft Lease Agreement dated as of June 12, 1996. Portions of this Exhibit have been excluded from the publicly available document and an order granting confidential treatment of the excluded material has been received. (3) 10.15 Operating Lease Agreement dated November 1, 1996 between the Company and First Security Bank, National Association. Portions of this Exhibit have been excluded from the publicly available document and an order granting confidential treatment of the excluded material has been received. (4) 10.16 Aircraft Lease Agreement (MSN 28760) dated as of December 12, 1996 between the Company and Boullion Aircraft Holding Company, Inc. Portions of this Exhibit have been excluded from the publicly available document and an order granting confidential treatment of the excluded material has been received. (4) 10.16(a) Amendment No. 1 to Aircraft Lease Agreement (MSN 28760) dated May 20, 1997. Portions of this Exhibit have been excluded from the publicly available document and an application for an order granting confidential treatment of the excluded material has been made. (5) 10.17 Aircraft Lease Agreement (MSN 28662) dated as of December 12, 1996 between the Company and Boullion Aircraft Holding Company, Inc. Portions of this Exhibit have been excluded from the publicly available document and an order granting confidential treatment of the excluded material has been received. (4) 10.17(a) Amendment No. 1 to Aircraft Lease Agreement (MSN 28662) dated May 20, 1997. Portions of this Exhibit have been excluded from the publicly available document and an application for an order granting confidential treatment of the excluded material has been made. (5) 10.18 Aircraft Lease Agreement (MSN 28563) dated as of March 25, 1997 between the Company and General Electric Capital Corporation. Portions of this Exhibit have been excluded from the publicly available document and an application for an order granting confidential treatment of the excluded material has been made. (5) 10.19 Space and Use Agreement with Continental Airlines, as amended. Portions of this Exhibit have been excluded from the publicly available document and an application for an order granting confidential treatment of the excluded material has been made. (5) 10.20 Letter of Understanding with Continental Airlines dated August 16,1996. Portions of this Exhibit have been excluded from the publicly available document and an application for an order granting confidential treatment of the excluded material has been made. (5) 10.21 Service Agreement between Frontier Airlines, Inc. and Greenwich Air Services, Inc. dated May 19, 1997. Portions of this Exhibit have been excluded from the publicly available document and an application for an order granting confidential treatment of the excluded material has been made. (5) -30- 10.22 Agreement between Frontier Airlines, Inc. and Dallas Aerospace, Inc. dated April 17, 1997. Portions of this Exhibit have been excluded from the publicly available document and an application for an order granting confidential treatment of the excluded material has been made. (5) 10.23 General Services Agreement between Frontier Airlines, Inc. and Tramco, Inc. dated as of August 6, 1996. (5) 10.24 General Terms Engine Lease Agreement between Frontier Airlines, Inc. and Terandon Leasing Corporation dated as of August 15, 1996, as assigned to U.S. Bancorp Leasing and Financial on February 19, 1997. Portions of this Exhibit have been excluded from the publicly available document and an application for an order granting confidential treatment of the excluded material has been made. (5) 10.25 Lease Agreement between Frontier Airlines, Inc. and Aircraft Instrument and Radio Company, Inc. dated December 11, 1995. Portions of this Exhibit have been excluded from the publicly available document and an application for an order granting confidential treatment of the excluded material has been made. (5) 10.26 Agreement and Plan of Merger between Western dated June 30, 1997. (5) Pacific Airlines, Inc. and Frontier Airlines, Inc. 10.26(a)Agreement dated as of September 29, 1997 between Airlines, Inc. (7) Western Pacific Airlines, Inc. and Frontier 10.27 Security Agreement with Wexford Management LLC dated December 2, 1997. (8) 10.28 Amended and Restated Warrant Agreement with Wexford Management LLC dated as of February 27, 1998. (10) 10.29 Amended and Restated Registration Rights Agreement with Wexford Management LLC dated asof February 27, 1998. (10) 10.30 Securties Purchase Agreement with B III Capital Partners, L.P. dated as of April 24, 1998. (9) 10.31 Registration Rights Agreement with B III Capital Partners, L.P. dated as of April 24, 1998. (10) 10.32 Warrant Agreement with The Seabury Group, LLC dated as of may 26, 1998. (10) 10.33 Registration rights Agreement with The Seabury Group, LLC dated as of May 26, 1998. (10) 23.1 Consent of KPMG Peat Marwick LLP (10) 27.1 Financial Data Schedule (10) - --------------------------- (1) Incorporated by reference from the Company's Registration Statement on Form SB-2, Commission File No. 33-77790-D, declared effective May 20, 1994. (2) Incorporated by reference from the Company's Annual Report on Form 10-KSB, Commission File No. 0-4877, filed on June 29, 1995. (3) Incorporated by reference from the Company's Annual Report on Form 10-KSB, Commission File No. 0-4877, filed on June 24, 1996. (4) Incorporated by reference from the Company's Quarterly Report on Form 10- QSB, Commission File No. 0-4877, filed on February 13, 1997. (5) Incorporated by reference from the Company's Annual Report on Form 10-KSB, Commission File No. 0-24126, filed July 14, 1997. -31- (6) Incorporated by reference from the Company's Report on Form 8-K filed on March 12, 1997. (7) Incorporated by reference from the Company's Report on Form 8-K filed on October 1, 1997. (8) Incorporated by reference from the Company's Report on Form 8-K filed on December 12, 1997. (9) Incorporated by reference from the Company's Report on Form 8-K filed on May 4, 1998. (10) Filed herewith. ITEM 14(b): REPORTS ON FORM 8-K. No reports on Form 8-K were filed during the quarter ended March 31, 1998. -32- SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. FRONTIER AIRLINES, INC. Date: June 26, 1998 By: /s/ Samuel D. Addoms --------------------- Samuel D. Addoms, Principal Executive Officer and Principal Financial Officer Date: June 26, 1998 By: /s/ Elissa A. Potucek ---------------------- Elissa A. Potucek, Vice President, Controller, Treasurer and Principal Accounting Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Date: June 26, 1998 /s/ Samuel D. Addoms, Director ------------------------------- Samuel D. Addoms, Director Date: June 26, 1998 /s/ William B. McNamara, Director ---------------------------------- William B. McNamara, Director Date: June 26, 1998 /s/ Paul Stephen Dempsey, Director ----------------------------------- Paul Stephen Dempsey, Director Date: June 26, 1998 /s/ B. LaRae Orullian, Director -------------------------------- B. LaRae Orullian, Director Date: June 26, 1998 /s/ D. Dale Browning, Director -------------------------------- D. Dale Browning, Director Date: June 26, 1998 /s/ Arthur H. Amron, Director ------------------------------- Arthur H. Amron, Director Date: June 26, 1998 /s/ John E. Luth, Director ---------------------------- John E. Luth, Director Date: June 26, 1998 /s/ B. Ben Baldanza, Director ------------------------------- B. Ben Baldanza, Director Independent Auditors' Report ---------------------------- THE BOARD OF DIRECTORS AND STOCKHOLDERS FRONTIER AIRLINES, INC.: We have audited the accompanying balance sheets of Frontier Airlines, Inc. as of March 31, 1998 and 1997, and the related statements of operations, stockholders' equity, and cash flows for each of the years in the three-year period ended March 31, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Frontier Airlines, Inc., as of March 31, 1998 and 1997, and the results of its operations and its cash flows for each of the years in the three-year period ended March 31, 1998, in conformity with generally accepted accounting principles. KPMG PEAT MARWICK LLP Denver, Colorado June 16, 1998 F-1 FRONTIER AIRLINES, INC. BALANCE SHEETS MARCH 31, 1998 AND 1997
- --------------------------------------------------------------------------------------------------------- MARCH 31, March 31, 1998 1997 ------------- ------------ Assets - ------ Current assets: Cash and cash equivalents $ 3,641,395 $ 10,286,453 Restricted investments 4,000,000 2,000,000 Trade receivables, net of allowance for doubtful accounts of $139,096 and $71,713 at March 31, 1998 and 1997 11,661,323 7,451,342 Maintenance deposits (note 3) 9,307,723 6,968,379 Prepaid expenses 3,843,694 3,449,871 Inventories 1,164,310 997,102 Deferred lease and other expenses 380,975 289,579 Note receivable - current portion - 27,288 ------------ ------------ Total current assets 33,999,420 31,470,014 Security, maintenance and other deposits (note 3) 7,633,143 6,596,660 Property and equipment, net (note 2) 5,579,019 4,340,982 Note receivable - long-term portion - 31,762 Deferred lease and other expenses 780,429 918,994 Restricted investments 2,606,459 734,133 ------------ ------------ $ 50,598,470 $ 44,092,545 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY - ------------------------------------ Current liabilities: Accounts payable $ 13,664,750 $8,045,533 Air traffic liability 18,910,441 13,058,632 Other accrued expenses 5,157,640 3,318,043 Accrued maintenance expense (note 3) 12,537,228 8,277,115 Note payable - 9,812 Current portion of obligations under capital leases (note 3) 54,346 35,700 ----------- ------------ Total current liabilities 50,324,405 32,744,835 Senior secured notes payable (note 4) 3,468,138 - Accrued maintenance expense (note 3) 2,381,354 1,408,363 Obligations under capital leases, excluding current portion (note 3) 97,757 56,444 ----------- ------------ Total liabilities 56,271,654 34,209,642 ----------- ----------- Stockholders' (deficit) equity Preferred stock, no par value, authorized 1,000,000 shares; none issued and outstanding - - Common stock, no par value, stated value of $.001 per share, authorized 20,000,000 shares; 9,253,563 and 8,844,375 shares issued and outstanding at March 31, 1998 and 1997 9,253 8,844 Additional paid-in capital 37,954,584 35,764,710 Accumulated deficit (43,637,021) (25,890,651) ----------- ------------ Total stockholders' (deficit) equity (5,673,184) 9,882,903 ----------- ------------ Commitments and contingencies (notes 3,6,10 and 11) $ 50,598,470 $ 44,092,545 ============ ============ See accompanying notes to financial statements.
F-2 FRONTIER AIRLINES, INC. STATEMENTS OF OPERATIONS YEARS ENDED MARCH 31, 1998, 1997 AND 1996 - --------------------------------------------------------------------------------
1998 1997 1996 ---- ---- ---- Revenues: Passenger $ 142,018,392 $ 113,758,027 $ 68,530,051 Cargo 3,008,919 1,956,150 1,148,357 Other 2,115,326 786,457 714,167 ------------- -------------- ------------- Total revenues 147,142,637 116,500,634 70,392,575 ------------- -------------- ------------- Operating expenses: Flight operations 66,288,125 52,650,575 28,019,390 Aircraft and traffic servicing 30,684,992 24,849,388 18,486,719 Maintenance 31,790,600 24,945,636 11,732,102 Promotion and sales 29,328,970 21,526,345 14,218,814 General and administrative 6,352,977 4,617,982 3,320,700 Depreciation and amortization 1,251,364 1,072,160 547,514 ------------- -------------- ------------- Total operating expenses 165,697,028 129,662,086 76,325,239 ------------- -------------- ------------- Operating loss (18,554,391) (13,161,452) (5,932,664) ------------- -------------- ------------- Nonoperating income: Interest income 722,380 1,033,508 419,756 Interest expense (324,167) (20,435) (22,671) Other, net 409,808 (37,953) (46,103) ------------- -------------- ------------- Total nonoperating income, net 808,021 975,120 350,982 ------------- -------------- ------------- Net loss $ (17,746,370) $ (12,186,332) $ (5,581,682) ============== ============== ============= Basic and diluted loss per common share $(1.95) $(1.49) $(1.23) ============== ============== ============= Weight average shares outstanding 9,095,220 8,156,302 4,536,914 ============== ============== =============
See accompanying notes to financial statements. F-3 FRONTIER AIRLINES, INC. STATEMENTS OF STOCKHOLDERS' EQUITY YEARS ENDED MARCH 31, 1998, 1997 AND 1996 - -------------------------------------------------------------------------------
COMMON STOCK ----------------------- ADDITIONAL TOTAL STATED PAID-IN ACCUMULATED stockholders' SHARES VALUE CAPITAL DEFICIT (DEFICIT) EQUITY ------------ -------- ---------- ----------- ---------------- BALANCES, MARCH 31, 1995 3,443,300 $3,443 9,761,686 (8,122,637) 1,642,492 Contribution of common stock to employee stock ownership plan 137,340 - 721,000 - 721,000 Issuance of compensatory common stock options - - 60,500 - 60,500 Sale of common stock and warrants, net of offering costs of $1,230,000 1,840,000 1,978 7,279,532 - 7,281,510 Issuance of warrants 577,200 577,200 Net loss - - - (5,581,682) (5,581,682) ------------- --------- ---------- ----------- ---------------- BALANCES, MARCH 31, 1996 5,420,640 5,421 18,399,918 (13,704,319) 4,701,020 Sale of common stock, net of offering costs of $279,385 678,733 679 2,720,615 2,721,294 Exercise of common stock warrants, net of issuance costs of $55,518 2,666,133 2,666 13,275,145 13,277,811 Contribution of common stock to employee stock ownership plan 78,869 78 499,922 500,000 Issuance of warrants 869,110 869,110 Net loss (12,186,332) (12,186,332) ------------- --------- ---------- ----------- ---------------- BALANCES, MARCH 31, 1997 8,844,375 8,844 35,764,710 (25,890,651) 9,882,903 Exercise of common stock options 409,188 409 434,948 435,357 Warrants issued in conjunction - with debt 1,754,926 1,754,926 Net loss (17,746,370) (17,746,370) ------------- --------- ---------- ----------- ---------------- BALANCES, MARCH 31, 1998 9,253,563 $9,253 37,954,584 (43,637,021) (5,673,184) ============= ========= ========== =========== ================ See accompanying notes to financial statements
F-4 FRONTIER AIRLINES, INC. Statements of Cash Flows Years Ended March 31, 1998, 1997 and 1996 - --------------------------------------------------------------------------------
1998 1997 1996 ---- ---- ---- Cash flows from operating activities: Net loss $(17,746,370) $(12,186,332) $(5,581,682) Adjustments to reconcile net loss to net cash used by operating activities: Employee stock ownership plan compensation expense - 500,000 721,000 Issuance of compensatory common stock options - - 60,500 Depreciation and amortization 1,749,097 1,322,916 603,014 Loss on sale of equipment 10,334 4,708 62,940 Changes in operating assets and liabilities: Restricted investments (2,372,326) 82,458 (842,574) Trade receivables (4,209,981) (1,579,184) (2,289,183) Security, maintenance and other deposits (3,583,327) (1,608,524) (5,149,965) Prepaid expenses (393,823) (562,954) (2,269,203) Inventories (167,208) (427,926) (362,581) Note receivable 11,740 10,950 - Accounts payable 5,619,217 3,643,071 1,590,072 Air traffic liability 5,851,809 1,858,072 7,384,114 Other accrued expenses 1,839,597 1,323,037 (337,294) Accrued maintenance expense 5,233,104 1,151,443 5,572,559 ------------- ------------- ------------ Net cash used in operating activities (8,158,137) (6,468,265) (838,283) ------------- ------------- ------------ Cash flows used by investing activities: Decrease (increase) in short-term investments - 1,168,200 (1,168,200) Aircraft lease deposits 207,500 (2,682,250) (1,661,250) Increase in restricted investments (1,500,000) (600,000) - Capital expenditures (2,355,266) (3,434,789) (1,097,788) Proceeds from sale of property and equipment - - 32,440 ------------- ------------- ------------ Net cash used in investing activities (3,647,766) (5,548,839) (3,894,798) ------------- ------------- ------------ Cash flows from financing activities: Net proceeds from issuance of common stock and warrants 435,357 15,999,455 7,281,510 Proceeds from sale of senior secured notes including warrants 5,000,000 - - Cash payments for debt issuance costs (227,500) Proceeds from short-term borrowings 202,810 95,911 101,496 Principal payments on short-term borrowings (212,622) (96,540) (91,055) Principal payments on obligations under capital leases (37,200) (54,523) (34,357) ------------- ------------- ------------ Net cash provided by financing activities 5,160,845 15,944,303 7,257,594 ------------- ------------- ------------ Net (decrease) increase in cash and cash equivalents (6,645,058) 3,927,199 2,524,513 Cash and cash equivalents, beginning of year 10,286,453 6,359,254 3,834,741 ------------- ------------- ------------ Cash and cash equivalents, end of year $3,641,395 $10,286,453 $6,359,254 ============= ============= ============ See accompanying notes to financial statements.
F-5 FRONTIER AIRLINES, INC. NOTES TO FINANCIAL STATEMENTS MARCH 31, 1998 - ------------------------------------------------------------------------------- (1) NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES NATURE OF BUSINESS AND INDUSTRY RISKS Frontier Airlines, Inc. (the "Company") was incorporated in the State of Colorado on February 8, 1994 and is a low-fare full service commercial airline based in Denver, Colorado which currently serves cities on the west and east coasts, as well as intermediate cities in relatively close proximity to Denver. The Company commenced airline operations on July 5, 1994. The airline industry is highly competitive primarily due to the effects of the Airline Deregulation Act of 1978, which has substantially eliminated government authority to regulate domestic routes and fares and has increased the ability of airlines to compete with respect to flight frequencies and fares. The Company's results are highly sensitive to changes in fare levels. The Company cannot predict future fare levels, which can change rapidly, and are subject to actions by the Company's competitors. The airline industry is also characterized by fixed costs that are high in relation to revenues. Accordingly, a shortfall from expected revenue levels can have a material adverse effect on profitability and liquidity, including those of the Company's. The Company's connecting hub is located at Denver International Airport (DIA). DIA opened in March 1995. Financed through revenue bonds, DIA depends on landing fees, gate rentals and other income from airlines, the traveling public and others to pay debt service and support operations. Management believes that the Company's operating costs at DIA will continue to substantially exceed those that other airlines incur at hub airports in other cities. The airline industry is significantly affected by general economic conditions. Because a substantial portion of business and personal airline travel is discretionary, the industry tends to experience severe adverse financial results during general economic downturns. The Company's business also is seasonal, which affects the Company's results of operations from quarter to quarter. Fuel is a major component of operating expense for all airlines. Both the cost and availability of fuel are subject to many economic and political factors and events occurring throughout the world. The future cost and availability of fuel to the Company cannot be predicted, and substantial price increases or the unavailability of adequate fuel supplies could have a material adverse effect on the Company's operations and profitability. F-6 FRONTIER AIRLINES, INC. NOTES TO FINANCIAL STATEMENTS, CONTINUED - ------------------------------------------------------------------------------- (1) NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) PREPARATION OF FINANCIAL STATEMENTS The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. CASH AND CASH EQUIVALENTS For financial statement purposes, the Company considers cash and short- term investments with an original maturity of three months or less to be cash equivalents. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Noncash Financing and Investment Activities: During the year ended March 31, 1998, the Company issued warrants to its lender in connection with its $5,000,000 senior secured notes with an estimated fair market value totaling $1,645,434, and issued warrants to its financial advisor in connection with debt and equity financing with an estimated fair market value totaling $109,492. Also during the year ended March 31, 1998, the Company entered into capital lease agreements totaling $97,000, and exchanged a note receivable for certain property and equipment totaling $47,000. In the years ended March 31, 1997 and 1996, the Company issued warrants to aircraft lessors with an estimated fair market value totaling $869,110 and $577,200, respectively. The unamortized portion of deferred lease expense totaled $850,125 and $1,139,703 at March 31, 1998 and 1997. In the year ended March 31, 1996, the Company sold equipment and accepted a promissory note in lieu of cash for $70,000. Interest and Taxes Paid During the Year: Cash paid for interest totaled $184,999, $20,435, and $22,671, for the years ended March 31, 1998, 1997 and 1996, respectively. No income taxes were paid during the years ended March 31, 1998, 1997, and 1996. F-7 FRONTIER AIRLINES, INC. NOTES TO FINANCIAL STATEMENTS, CONTINUED - ------------------------------------------------------------------------------- (1) NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) RESTRICTED INVESTMENTS Restricted investments include certificates of deposit which secure certain letters of credit issued primarily to companies which process credit card sale transactions, certain airport authorities and aircraft lessors. Restricted investments are carried at cost, which management believes approximates market value. Maturities are for one year or less and the Company intends to hold restricted investments until maturity. VALULATION AND QUALIFYING ACCOUNTS The allowance for doubtful accounts was $139,096 and $72,713 at March 31, 1998 and 1997. Provisions for bad debts net of recoveries totaled $267,000, $160,000, and $222,000 for the years ended March 31, 1998, 1997 and 1996. Deductions from the reserve totaled $200,000, $120,000, and $190,000 for the years ended March 31, 1998, 1997, and 1996. INVENTORIES Inventories consist of expendable parts, supplies and aircraft fuel and are stated at the lower of cost or market. Inventories are accounted for on a first-in, first-out basis and are charged to expense as they are used. The Company has two aircraft parts agreements for the Company's 14 Boeing 737 aircraft discussed in note 3, one with another air carrier and another with an aircraft parts supplier. The Company is required to pay a monthly consignment fee to each of these lessors, based on the value of the consigned parts, and to replenish any such parts when used with a like part. At March 31, 1998 and 1997, the Company held consigned parts and supplies in the amount of approximately $8,161,000 and $7,105,944, which are not included in the Company's balance sheet. PROPERTY AND EQUIPMENT Property and equipment are carried at cost. Major additions, betterments and renewals are capitalized. Depreciation and amortization is provided for on a straight-line basis to estimated residual values over estimated depreciable lives as follows: Flight equipment 5-20 years Improvements to leased aircraft Life of improvements or term of lease, whichever is less Ground property, equipment, and leasehold improvements 3-5 years or term of lease F-8 FRONTIER AIRLINES, INC. NOTES TO FINANCIAL STATEMENTS, CONTINUED - ------------------------------------------------------------------------------- (1) NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Assets utilized under capital leases are amortized over the lesser of the lease term or the estimated useful life of the asset using the straight- line method. Amortization of capital leases is included in depreciation expense. MAINTENANCE Routine maintenance and repairs are charged to operations as incurred. Under the terms of its aircraft lease agreements, the Company is required to make monthly maintenance deposits based on usage; such deposits are applied against the cost of major airframe maintenance checks, landing gear and engine overhauls. These deposits are expensed in the month the usage was incurred and a liability for accrued maintenance is established. Deposit balances remaining at lease termination remain with the lessor and any remaining liability for maintenance checks is reversed against the deposit balance. Additionally, a provision is made for the estimated costs of scheduled major overhauls required to be performed on leased aircraft and components under the provisions of the aircraft lease agreements if the required monthly deposit amounts are not adequate to cover the entire cost of the scheduled maintenance. Accrued maintenance expense expected to be incurred beyond one year is classified as long-term. REVENUE RECOGNITION Passenger, cargo, and other revenues are recognized when the transportation is provided or after the tickets expire, and are net of excise taxes. Revenues which have been deferred are included in the accompanying balance sheet as air traffic liability. PASSENGER TRAFFIC COMMISSIONS AND RELATED EXPENSES Passenger traffic commissions and related expenses are expensed when the transportation is provided and the related revenue is recognized. Passenger traffic commissions and related expenses not yet recognized are included as a prepaid expense. FREQUENT FLYER AWARDS The Company had maintained a frequent travel award program that provided awards to program members based on accumulated segments flown, which was discontinued effective September 11, 1996. The Company allows its passengers to accumulate mileage on Continental Airlines' OnePass frequent flyer program. The cost of providing mileage on the OnePass program is based on an agreed upon rate per mileage credit, which is paid to Continental Airlines on a monthly basis. F-9 FRONTIER AIRLINES, INC. NOTES TO FINANCIAL STATEMENTS, CONTINUED - ------------------------------------------------------------------------------- (1) NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) LOSS PER COMMON SHARE In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, Earnings Per Share (SFAS No. 128). This statement replaces the presentation of primary earnings per share (EPS) and fully diluted EPS with a presentation of basic EPS and diluted EPS, respectively. Basic EPS excludes dilution and is computed by dividing earnings (loss) available to common stockholders by the weighted- average number of common shares outstanding for the period. Similar to fully diluted EPS, diluted EPS reflects the potential dilution of securities that could share in earnings. This statement has been adopted in the accompanying financial statements. Common stock equivalents are excluded from the computation of diluted loss per share as their effect would have been anti-dilutive. INCOME TAXES The Company accounts for income taxes using the asset and liability method prescribed by Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes. Under the asset and liability method, deferred income taxes are recognized for the tax consequences of "temporary differences" by applying enacted statutory tax rates applicable to future years to differences between the financial statement carrying amounts and tax bases of the existing assets and liabilities. A valuation allowance for net deferred tax assets is provided unless realizability is judged by management to be more likely than not. The effect on deferred taxes from a change in tax rates is recognized in income in the period that includes the enactment date. FAIR VALUE OF FINANCIAL INSTRUMENTS The Company estimates the fair value of its monetary assets and liabilities based upon existing interest rates related to such assets and liabilities compared to current rates of interest for instruments with a similar nature and degree of risk. The Company estimates that the carrying value of all of its monetary assets and liabilities approximates fair value as of March 31, 1998. F-10 FRONTIER AIRLINES, INC. Notes to Financial Statements, continued - -------------------------------------------------------------------------------- (1) NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) STOCK BASED COMPENSATION The Company follows Accounting Principles Board Opinion No. 25 Accounting for Stock Issued to Employees ("APB 25") and related Interpretations in accounting for its employee stock options and follows the disclosure provisions of Statement of financial Accounting Standards No. 123 (SFAS No. 123). Under APB 25, because the exercise price of the Company's employee stock options equals the market price of the underlying stock on the date of grant, no compensation expense is recognized. The Company has included the pro forma disclosures required by SFAS No. 123 in Note 7. IMPAIRMENT OF LONG-LIVED ASSETS The Company records impairment losses on long-lived assets used in operations when indicators of impairment are present and either the undiscounted future cash flows estimated to be generated by those assets or the fair market value are less than the assets' carrying amount. RECLASSFICATIONS Certain prior year amounts have been reclassified to conform to the current year presentation. (2) PROPERTY AND EQUIPMENT, NET As of March 31, 1998 and 1997 property and equipment consisted of the following: 1998 1997 ---------- ---------- Flight equipment and improvements to leased aircraft $4,932,024 $3,251,284 Ground property, equipment and leasehold improvements 3,673,363 2,923,658 ---------- ---------- 8,605,387 6,174,942 Less accumulated depreciation and amortization 3,026,368 1,833,960 ---------- ---------- Property and equipment, net $5,579,019 $4,340,982 ========== ========== Property and equipment includes certain office equipment under capital leases. At March 31, 1998 and 1997, office equipment recorded under capital leases was $280,857 and $183,698 and accumulated amortization was $113,364 and $104,479. F-11 FRONTIER AIRLINES, INC. NOTES TO FINANCIAL STATEMENTS, CONTINUED - -------------------------------------------------------------------------------- (3) LEASE COMMITMENTS AIRCRAFT LEASES At March 31, 1998, the Company operated 14 aircraft which are accounted for under operating lease agreements with initial terms ranging from 2 to 8 years with certain leases that allow for renewal options. Security deposits related to leased aircraft at March 31, 1998 and 1997 totaled $4,604,750 and $4,812,250 and are included in security, maintenance and other deposits on the balance sheet. Letters of credits issued to certain aircraft lessors in lieu of cash deposits and related restricted investments to secure these letters of credits at March 31, 1998 and 1997 totaled $2,100,000 and $1,500,000. In addition to scheduled future minimum lease payments, the Company is required to pay to each aircraft lessor monthly cash deposits based on flight hours and cycles operated to provide funding for certain scheduled maintenance costs of leased aircraft. The lease agreements provide that the Company shall pay taxes, maintenance, insurance, and other operating expenses applicable to the leased property. At March 31, 1998 and 1997, aircraft maintenance deposits totaled $11,466,033 and $8,142,176 and are reported as a component of security, maintenance and other deposits on the balance sheet. Any cash deposits paid to aircraft lessors for future scheduled maintenance costs to the extent not used during the lease term remain with the lessors, and any remaining liability for maintenance checks is reversed against the deposit balance. Maintenance deposits are unsecured and may be subject to the risk of loss in the event the lessors are not able to satisfy their obligations under the lease agreements. OTHER LEASES The Company leases a office and hangar space, a spare engine and office equipment for its headquarters, airport facilities, and certain ground equipment. The Company also leases certain airport gate facilities on a month-to-month basis. At March 31, 1998, commitments under capital and noncancelable operating leases (excluding maintenance deposit requirements) with terms in excess of one year were as follows: F-12 FRONTIER AIRLINES, INC. NOTES TO FINANCIAL STATEMENTS, CONTINUED - -------------------------------------------------------------------------------- (3) LEASE COMMITMENTS (CONTINUED) Capital Operating Leases Leases -------- ------------ Year ended March 31: 1999 $ 69,069 $ 35,944,976 2000 43,167 32,112,675 2001 24,636 22,715,742 2002 24,636 18,688,397 2003 24,636 17,773,916 Thereafter - 32,987,326 -------- ------------ Total minimum lease payments 186,144 160,223,032 ============ Less amount representing interest (34,041) -------- Present value of obligations under capital leases 152,103 Less current portion of obligations under capital leases 54,346 -------- Obligations under capital leases, excluding current portion $ 97,757 ======== The obligations under capital leases have been discounted at imputed interest rates ranging from 10.5% to 12.2%. Rental expense under operating leases, including month-to-month leases, for the years ended March 31, 1998, 1997 and 1996 was $36,573,509, $25,336,749 and $12,625,175, respectively. F-13 FRONTIER AIRLINES, INC. NOTES TO FINANCIAL STATEMENTS, CONTINUED - -------------------------------------------------------------------------------- (4) SENIOR SECURED NOTES In December 1997, the Company sold $5,000,000 of 10% senior secured notes to Wexford Management LLC ("Wexford"). The notes are due and payable in full on December 15, 2001 with interest payable quarterly in arrears. The notes are secured by substantially all of the assets of the company. The Wexford agreement contains restrictions primarily related to liens on assets and requires prior written consent for expenditures outside the ordinary course of business. In connection with this transaction, the Company issued Wexford warrants to purchase 1,750,000 shares of Common Stock at $3.00 per share. The Company determined the value of the warrants to be $1,645,434 and recorded the value as equity in additional paid-in capital. The balance of the notes will be accreted to its face value over the term of the notes and included as interest expense. The effective interest rate on the notes is approximately 22.5% including the value of the warrants. (5) INCOME TAXES The Company has not recognized any income tax benefit related to net operating losses incurred for the years ended March 31, 1998, 1997 and 1996 because the benefit of the net operating losses were offset by an increase in the valuation allowance for net deferred tax assets. The differences between the Company's provision for income taxes and such provisions (benefit) for income taxes computed at the federal statutory rate is comprised of the items shown in the following table:
1998 1997 1996 ---- ---- ---- Income tax benefit at the statutory rate 34% 34% 34% Net operating loss producing no current benefit (34%) (34%) (34%) ---------------------------------------- - - - ========================================
F-14 FRONTIER AIRLINES, INC. NOTES TO FINANCIAL STATEMENTS, CONTINUED - -------------------------------------------------------------------------------- (5) INCOME TAXES, CONTINUED The tax effects of temporary differences that give rise to significant portions of the deferred tax assets at March 31, 1998 are presented below:
1998 1997 --------------- --------------- Deferred tax assets: Net operating loss carryforwards $ 13,434,000 $ 7,603,000 Start-up cost deferred for tax purposes 108,000 198,000 Accrued maintenance not deductible for tax purposes 899,000 717,000 Accrued vacation and health insurance liability not deductible for tax purposes 527,000 395,000 Other 110,000 117,000 --------------------------------- Total gross deferred tax assets 15,078,000 9,030,000 Less valuation allowance (14,832,000) (8,934,000) --------------------------------- 246,000 96,000 --------------------------------- Deferred tax liabilities: Equipment depreciation and amortization (246,000) (96,000) --------------------------------- Net deferred taxes - - =================================
The valuation allowance is provided since it is uncertain that the deferred tax assets will be realized. The Company established the valuation allowance based principally on its historical financial results from operations. Additionally, the utilization of these carryforwards may be limited due to the ownership change provisions as enacted by the Tax Reform Act of 1986 and subsequent legislation. The valuation allowance for deferred tax assets as of March 31, 1997 was $8,934,000. The increase in the valuation allowance for the year ended March 31, 1998 was $5,989,000. At March 31, 1998, the Company had net operating loss carryforwards of approximately $36,015,000, which expire in the years 2010 to 2013. F-15 FRONTIER AIRLINES, INC. NOTES TO FINANCIAL STATEMENTS, CONTINUED - -------------------------------------------------------------------------------- (6) WARRANTS The Company issued 2,670,000 warrants to purchase common stock in conjunction with a private placement and its initial public offering. Each warrant entitled the warrant holder to purchase one share of common stock for $5.00. These warrants were subject to redemption at $.05 per warrant by the Company on 45 days written notice if certain conditions were met. The Company met these conditions in May 1996 and on May 14, 1996, the Company notified the warrant holders of the Company's intent to exercise its redemption rights with respect to the warrants not exercised on or before June 28, 1996. 2,666,133 warrants were exercised with net proceeds to the Company totaling $13,275,000. At completion of the Company's initial public offering in 1994, an underwriter acquired options to purchase up to 110,000 shares of common stock exercisable at a price equal to $5.525 per share. Additionally, the underwriter was granted up to 110,000 warrants to purchase common stock at a price equal to $.325 per warrant and $5.00 per share of common stock. The underwriters in a secondary public offering by the Company in 1995 received a warrant to purchase 168,500 shares of common stock at $5.55 per share. The options and warrants issued to underwriters in connection with the initial and secondary public offerings expire, respectively, on May 20, 1999 and September 18, 2000. In October 1995, the Company issued to each of two of its Boeing 737-300 aircraft lessors a warrant to purchase 100,000 shares of Common Stock for an aggregate purchase price of $500,000. In June 1996, the Company issued two warrants to a Boeing 737-200 lessor, each warrant entitling the lessor to purchase 70,000 shares of common stock at an aggregate exercise price of $503,300 per warrant. In connection with a Boeing 737-300 aircraft to be delivered in August 1997, the Company has issued to the lessor a warrant to purchase 55,000 shares of Common Stock at an aggregate purchase price of $385,000. Warrants issued to aircraft lessors, to the extent not earlier exercised, expire upon expiration of the aircraft leases in March 2000, May and June 2001, and September 2005. In February 1998, in connection with the $5,000,000 senior notes as discussed in note 4, the Company issued a warrant to the lender to purchase 1,750,000 shares of the Company's Common Stock at a purchase price of $3.00 per share, which warrant expires in December 2001. In May 1998, the Company issued a warrant to its financial advisor, in connection with debt and equity financings, a warrant to purchase 548,000 shares of the Company's Common Stock at a purchase price of $3.00 per share, which warrant expires in May 2003. Of the 548,000 shares, 116,450 were recognized as of March 31, 1998 as part of the sale of the senior secured notes discussed in note 4. The Company recorded a value of $109,492 for these shares and recorded the value as equity in additional paid in capital and deferred loan expenses. The value will be amortized over the life of the notes. F-16 FRONTIER AIRLINES, INC. NOTES TO FINANCIAL STATEMENTS, CONTINUED - -------------------------------------------------------------------------------- (7) STOCK OPTION PLAN The Company has a stock option plan whereby the Board of Directors or its Compensation Committee may issue options to purchase shares of the Company's common stock to employees, officers, and directors of the Company. Under the plan, the Company has reserved an aggregate of 2,250,000 shares of common stock for issuance pursuant to the exercise of options. With certain exceptions, options issued through March 31, 1998 generally vest one year from the date of grant and expire from March 9, 1999 to December 11, 2007. At March 31, 1998, 308,750 options are available for grant under the plan. A summary of the Plan's stock option activity and related information for the years ended March 31, 1998, 1997 and 1996 are as follows:
1998 1997 1996 ------------------------------------------------------------------------ Weighted- Weighted- Weighted- Average Average Average Exercise Exercise Exercise Options Price Options Price Options Price ------------------------------------------------------------------------ Outstanding-beginning of year 1,911,250 $1.85 1,731,250 $1.27 1,631,250 $1.17 Granted 30,000 2.77 180,000 7.40 100,000 3.07 Exercised (409,188) 1.06 Surrendered (180,000) 7.40 Re-issued 180,000 3.00 ------------------------------------------------------------------------ 1,532,062 $1.56 1,911,250 $1.85 1,731,250 $1.27 ======================================================================== Exercisable at end of year 1,445,394 $1.48 1,761,250 $1.39 1,671,250 $1.20
Exercise prices for options outstanding under the plan as of March 31, 1998 ranged from $1.00 to $3.75 per option share. The weighted-average remaining contractual life of those options is 5.6 years. A summary of the outstanding and exercisable options at March 31, 1998, segregated by exercise price ranges, is as follows:
Weighted- Average Weighted- Remaining Weighted- Exercise Price Options Average Contractual Exercisable Average Range Outstanding Exercise Price Life (in years) Options Exercise Price --------------------------------------------------------------------------------------------- $1.00 - $ 2.75 1,200,812 $1.11 5.0 1,200,812 $1.11 $3.00 - $ 3.75 331,250 3.19 7.8 244,582 3.26 ----------------------------------------------------------------------------- 1,532,062 $1.56 5.6 1,445,394 $1.48 =============================================================================
F-17 FRONTIER AIRLINES, INC. Notes to Financial Statements, continued - -------------------------------------------------------------------------------- (7) STOCK OPTION PLAN, CONTINUED Pro forma information regarding net income and earnings per share is required by SFAS No. 123, which also requires that the information be determined as if the Company has accounted for its employee stock options granted subsequent to March 31, 1995 under the fair value method of that Statement. The fair value for these options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions for 1998, 1997 and 1996, respectively: risk- free interest rates of 6.42%, 6.55% and 6.08%, dividend yields of 0%, 0% and 0%; volatility factors of the expected market price of the Company's common stock of 64.33%, 58.78% and 60.86%, and a weighted-average expected life of the options of 7 years for each year. The Company applies APB Opinion 25 and related Interpretations in accounting for its plans. Accordingly, no compensation cost is recognized for options granted at a price equal to the fair market value of the common stock. Had compensation cost for the Company's stock-based compensation plan been determined using the fair value of the options at the grant date, the Company's net loss for the years ended March 31, 1998, 1997 and 1996, would have been $17,843,000, $12,367,000 and $5,628,000, and loss per common share would have been $1.96, $1.52 and $1.24 per share. (8) EMPLOYEE STOCK OWNERSHIP PLAN The Company has established an Employee Stock Ownership Plan (ESOP) which inures to the benefit of each permanent employee of the Company, except those employees covered by a collective bargaining agreement that does not provide for participation in the ESOP. Company contributions to the ESOP are discretionary and vary from year to year. In order for an employee to receive an allocation of company common stock from the ESOP, the employee must be employed on the last day of the ESOP's plan year, with certain exceptions. The Company's annual contribution to the ESOP, if any, will be allocated among the eligible employees of the Company as of the end of each plan year in proportion to the relative compensation (as defined in the ESOP) earned that plan year by each of the eligible employees. The ESOP does not provide for contributions by participating employees. Employees will vest in contributions made to the ESOP based upon their years of service with the Company. A year of service is an ESOP plan year during which an employee has at least 1,000 hours of service. Vesting generally occurs at the rate of 20% per year, beginning after the first year of service, so that a participating employee will be fully vested after five years of service. Distributions from the ESOP will not be made to employees during employment. However, upon termination of employment with the Company, each employee will be entitled to receive the vested portion of his or her account balance. F-18 FRONTIER AIRLINES, INC. Notes to Financial Statements, continued - -------------------------------------------------------------------------------- (8) EMPLOYEE STOCK OWNERSHIP PLAN, CONTINUED The initial Company contribution to the ESOP was made on June 22, 1995 and consisted of 137,340 shares of Common Stock, of which 27,468 shares relate to the plan year ended March 31, 1995 and 109,872 shares relate to the period from April 1, 1995 to December 31, 1995. During the years ended March 31, 1997, the Company contributed 78,869 shares to the plan and none during the year ended March 31, 1998. The Company recognized compensation expense during the year ended March 31, 1997 and 1996 of $500,000 and $721,000 related to its contribution to the ESOP and none during the year ended March 31, 1998. (9) CONCENTRATION OF CREDIT RISK The Company does not believe it is subject to any significant concentration of credit risk relating to trade receivables. At March 31, 1998 and 1997, 60% and 75% of the Company's trade receivables relate to tickets sold to individual passengers through the use of major credit cards, travel agencies approved by the Airlines Reporting Corporation, tickets sold by other airlines and used by passengers on Company flights, or the United States Postal Service. These receivables are short-term, generally being settled shortly after sale or in the month following ticket usage. (10) CONTINGENCIES The Company is party to legal proceedings and claims which arise during the ordinary course of business. In the opinion of management, the ultimate outcome of these matters will not have a material adverse effect upon the Company's financial position or results of operations. (11) SUBSEQUENT EVENTS In April 1998, the Company sold 4,363,001 shares of its common stock, no par value, through a private placement to an institutional investor. Gross proceeds to the Company from the transaction was $14,179,753, of which the Company received net proceeds of approximately $13,850,000. The Company issued a warrant to this investor to purchase 716,929 shares of common stock of the Company at a purchase price of $3.75 per share, which warrant expires in April 2002. F-19 EX-3.1 2 ARTICLES OF INCORPORATION EXHIBIT 3.1 AMENDED AND RESTATED ARTICLES OF INCORPORATION OF FRONTIER AIRLINES, INC. Pursuant to the provisions of the Colorado Business Corporation Act, Frontier Airlines, Inc. (the "Corporation") adopts the following Amended and Restated Articles of Incorporation. These articles correctly set forth the provisions of the Articles of Incorporation, as amended, and supersede the original Articles of Incorporation and all amendments thereto. ARTICLE 1 Name The name of the Corporation is Frontier Airlines, Inc. ARTICLE 2 Capital; Shareholders Section 2.1 Authorized Capital. The total number of shares that the ------------------ Corporation will have authority to issue is forty-one million (41,000,000), of which forty million (40,000,000) shares will be common stock, without par value and one million (1,000,000) shares will be preferred stock without par value. Section 2.2 Common Stock. Each holder of common stock is entitled to ------------ one vote for each share of common stock held on all matters as to which holders of common stock are entitled to vote. Except for and subject to those preferences, rights, and privileges expressly granted to the holders of preferred stock, and except as may be provided by the laws of the State of Colorado, the holders of common stock have exclusively all other rights of stockholders of the Corporation, including, but not by way of limitation, (i) the right to receive dividends, when, as and if declared by the board of directors out of assets lawfully available therefor, and (ii), in the event of any distribution of assets upon the dissolution and liquidation of the Corporation, the right to receive ratably and equally all of the assets of the Corporation remaining after the payment to the holders of preferred stock of the specific amounts, if any, which they are entitled to receive as may be provided herein or pursuant hereto. Section 2.3 Preferred Stock. The board of directors of the Corporation --------------- is authorized to provide by resolution or resolutions for the issuance of the shares of preferred stock as a class or in a series and to establish from time to time the number of shares to be included in each such series, and to fix the designation, powers, preferences, and rights of the shares of the class or of each such series and the qualifications, limitations and restrictions thereof. The authority of the board of directors with respect to the class or each series includes, but is not limited to, determination of the following: (i) The number of shares constituting any series and the distinctive designation of that series; (ii) The dividend rate on the shares of the class or of any series, whether dividends shall be cumulative and, if so, from which date or dates, and the relative rights of priority, if any, of payment of dividends on shares of the class or of that series; (iii) Whether the class or any series shall have voting rights, in addition to the voting rights provided by law and, if so, the terms of such voting rights; (iv) Whether the class or any series shall have conversion privileges and, if so, the terms and conditions of such conversion, including provisions for adjustment of the conversion rate in such events as the board of directors shall determine; (v) Whether or not the shares of the class or of any series shall be redeemable and, if so, the terms and conditions of such redemption, including the date or dates upon or after which they shall be redeemable and the amount per share payable in case of redemption, which amount may vary under different conditions and at different redemption dates; (vi) Whether the class or any series shall have a sinking fund for the redemption or purchase of shares of the class or that series and, if so, the terms and amount of such sinking fund; (vii) The rights of the shares of the class or of any series in the event of voluntary or involuntary dissolution or winding up of the Corporation and the relative rights of priority, if any, of payment of shares of the class or of that series; and (viii) Any other powers, preferences, rights, qualifications, limitations, and restrictions of the class or of any series. Section 2.4 Quorum; Manner of Acting. At all meetings of shareholders, ------------------------ a majority of the shares entitled to vote at such meeting represented in person or by proxy, shall constitute a quorum. At any meeting at which a quorum is present the affirmative vote of a majority of the shares represented at such meeting and entitled to vote on the subject matter shall be the act of the shareholders, unless the vote of a greater proportion or number is required by the laws of Colorado and except that in each case where the Colorado Corporation Code requires a two-thirds vote of all of the outstanding shares of the Corporation entitled to vote, and such required vote is hereby reduced, as permitted by such vote, to a majority of all of the outstanding shares of the Corporation entitled to vote on the subject matter thereof. -2- ARTICLE 3 Preemptive Rights No shareholder of the Corporation shall have any preemptive or similar right to acquire or subscribe for any additional unissued or treasury shares of stock, or other securities of any class, or rights, warrants or options to purchase stock or scrip, or securities of any kind convertible into stock or carrying stock purchase warrants or privileges. ARTICLE 4 Board of Directors Section 4.1 Initial Board. The initial board of directors of the ------------- Corporation shall consist of three persons and the names and addresses of such persons, who are to serve as directors until the first annual meeting of the shareholders or until their successors are elected and shall qualify, are as follows: M. C. Lund Hanger 9, Box B-5 7375 South Peoria Street Englewood, Colorado 80112 Samuel D. Addoms Hanger 9, Box B-5 7375 South Peoria Street Englewood, Colorado 80112 Arthur T. Voss Hanger 9, Box B-5 7375 South Peoria Street Englewood, Colorado 80012 Section 4.2 Number of Directors. The number of directors of the ------------------- Corporation shall be fixed and may be altered from time to time as provided in the bylaws of the Corporation. ARTICLE 5 Limitation on Liability To the fullest extent permitted by the Colorado Corporation Code, as the same exists or may hereafter be amended, a director of the Corporation shall not be liable to the Corporation or its shareholders for monetary damages for breach of fiduciary duty as a director. Any repeal or modification of the Article by the shareholders of the Corporation shall be prospective only and shall not adversely affect any right or protection of a director of the Corporation existing at the time of such repeal or modification. -3- ARTICLE 6 Offices Section 6.1 Registered Agent. The address of the initial registered ---------------- office of the Corporation is 1400 Glenarm Place, Denver, Colorado 80202. The name of its initial registered agent at such address is The Prentice-Hall Corporation. Section 6.2 Principal Office. The address of the Corporation's initial ---------------- principal office is 12015 East 46th Avenue, Denver, Colorado 80239. ARTICLE 7 Incorporator The name and address of the incorporator is: Nancy M. Garrett 1700 Lincoln Street, Suite 4100 Denver, Colorado 80203 FRONTIER AIRLINES, INC. By: /s/ Arthur T. Voss ------------------------ Its: Secretary ----------------------- -4- EX-10.2(A) 3 ADDENDUM TO LEASE AGREEMENT EXHIBIT 10.2(a) EXHIBIT D ADDENDUM TO LEASE AGREEMENT This Addendum is attached to and made part of a certain agreement made as of 15 March 1994 between prior building owners ORIAM LIMITED LIABILITY CO. (prior "Landlord") and Frontier Airlines ("Tenant") (the "Leasee"), with the new building owner and "Landlord" now being Pacific Rim Investments. 1. Basic Lease Term Sheets 1. Term Sheet drawn for suite #110 with a Lease Commencement Date of October 1st, 1997, and a Termination Date of 8/31/99. 2. Term Sheet drawn for suite #200 with a Lease Commencement Date of September 1st, 1994, and a Termination Date of 8/31/99. 3. Term Sheet drawn for suite #350 with a Lease Commencement Date of November 1st, 1997, and a Termination Date of 8/31/99. 4. Term Sheet drawn for suite #500 with a Lease Commencement Date of February 1st, 1996, and a Termination Date of 1/31/2001. 5. Term Sheet drawn for suite #605 with a Lease Commencement Date of November 1st, 1997, and a Termination Date of 8/31/99. 6. Term Sheet drawn for suite #'s 610, 615, 620, with a Lease Commencement Date of November 1st, 1997, and a Termination Date of 8/31/99. Executed this 12th day of March, 1998. PACIFIC RIM INVESTMENTS, LLP FRONTIER AIRLINES LANDLORD TENANT By___________________________ By___________________________ Title _______________________ Title________________________ OFFICE LEASE ------------ LEASE TERM SHEET ---------------- BUILDING: AIRPORT PLAZA LEASE DATE: NOV 1, 1997 LANDLORD: PACIFIC RIM INVESTMENTS, A COLORADO LIMITED LIABILITY PARTNERSHIP Address: 12015 E. 46TH AVE. SUITE #115 DENVER, COLORADO 80239 TENANT: Name: FRONTIER AIRLINES Address: 12015 E. 46TH AVENUE, SUITE 200 DENVER, COLORADO 80239 --------------------------------------------------------------- (Address for Notice if different than above) BROKER OF RECORD: NA TENANT'S BROKER (if any) NA LEASED PREMISES: Suite Number: #110 Floor: 1st floor Address: 12015 E. 46TH AVENUE-DENVER, COLORADO 80239 Tenant's Rentable Area: 926 RSF (rentable square feet) LEASE TERM: Lease Commencement Date: NOVEMBER 1, 1997 Lease Expiration Date: AUGUST 31, 1999 Lease Period: 1 year(s), plus 10 month(s)with 1 option for tenant to renew -- -- for a period of six to twelve months at tenants election and at current rental rate. An annual rental rate of $12,038.04 divided into 12 (twelve) equal monthly installments of $1,003.17 per month, due and payable on the first day of each month. "BUILDING OPERATING COST" REFERENCE (ARTICLE 5): BASE YEAR: Calendar Year 1997 or EXPENSE STOP: $5.00 per square foot. TENANT'S PRO RATA SHARE (OF BUILDING FOR BUILDING OPERATING COSTS): 926/63,226 SECURITY DEPOSIT: (EQUIVALENT TO FIRST AND LAST MONTHS RENT) PERMITTED USE: General Office PARKING: Number of parking Spaces: N/A LOCATION OF PARKING SPACES: ADJACENT TO OFFICE BUILDING PACIFIC RIM INVESTMENTS FRONTIER AIRLINES LANDLORD TENANT ______________________________ ______________________________ OFFICE LEASE ------------ LEASE TERM SHEET ---------------- BUILDING: AIRPORT PLAZA LEASE DATE: NOV 1, 1997 LANDLORD: PACIFIC RIM INVESTMENTS, A COLORADO LIMITED LIABILITY PARTNERSHIP Address: 12015 E. 46TH AVE. SUITE #115 DENVER, COLORADO 80239 TENANT: Name: FRONTIER AIRLINES Address: 12015 E. 46/TH/ AVENUE. SUITE 200 DENVER, COLORADO 80239 --------------------------------------------------------- (Address for Notice if different than above) BROKER OF RECORD: NA TENANT'S BROKER(IF ANY) NA LEASED PREMISES: Suite Numbers: 200 Floor: 2/nd/ floor Address: 12015 E. 46/TH/ AVENUE-DENVER, COLORADO 80239 Tenant's Rentable Area: 10,571 RSF (rentable square feet) LEASE TERM: Lease Commencement Date: SEPTEMBER 1, 1994 Lease Expiration Date: AUGUST 31, 1999 Lease Period: 5 year(s), plus 0 month(s) with 1 option for tenant to renew -- - for a period of six to twelve months at tenants election and at current rental rate. An annual rental rate of $ 73,997.00 divided into 12 (twelve) equal monthly installments of $6,166.42 per month through August 31/st/, 1998, and an annual rental rate of $ 95,139.00 divided into 12 (twelve) equal monthly installments of $7,928.25 through August 31/st/, 1999, due and payable on the first day of each month. "BUILDING OPERATING COST" REFERENCE (ARTICLE 5.02): BASE YEAR: Calendar Year 1997, or EXPENSE STOP: $5.00 per square foot. TENANT'S PRO RATA SHARE (OF BUILDING FOR BUILDING OPERATING COSTS): 10,571 /63,226 SECURITY DEPOSIT: (EQUIVALENT TO FIRST AND LAST MONTHS RENT) PERMITTED USE: General Office PARKING: Number of parking Spaces: N/A LOCATION OF PARKING SPACES: ADJACENT TO OFFICE BUILDING PACIFIC RIM INVESTMENTS FRONTIER AIRLINES LANDLORD TENANT ______________________________ ______________________________ OFFICE LEASE ------------ LEASE TERM SHEET ---------------- BUILDING: AIRPORT PLAZA ------------- LEASE DATE: NOV 1, 1997 ----------- LANDLORD: PACIFIC RIM INVESTMENTS, A COLORADO LIMITED LIABILITY PARTNERSHIP ----------------------------------------------------------------- Address: 12015 E. 46/TH /AVENUE, SUITE #115 ---------------------------------- DENVER, COLORADO 80239 ---------------------- TENANT: Name: FRONTIER AIRLINES ----------------- Address: 12015 E. 46TH AVENUE, SUITE #350 DENVER, COLORADO 80239 -------------------------------------------------------------- _______________ (Address for Notice if different than above): BROKER OF RECORD: NA TENANT'S BROKER (if any): NA LEASED PREMISES: Suite Number: 350 Floor: 3rd floor ---------- Address: 12015 E. 46TH AVENUE-DENVER, COLORADO 80239 ------------------------------------------- Tenants Rentable Area: 640 RSF (rentable square feet) --- LEASE TERM: Lease Commencement Date: NOVEMBER 1, 1997 ---------------- Lease Expiration Date: AUGUST 31. 1999 --------------- Lease Period: 1 year(s), plus 10 month(s) with 1 ------ ---- ------ Option for tenant to renew for a period of six to twelve months at tenants election and at current rental rate. BASE RENT: $ 17,365.26 total aggregate Base Rent, payable in monthly ---------- installments as follows: An annual rental rate of $ 9,471.96 divided into 12 (twelve) equal monthly ---------- installments of $ 789.33 per month, due and payable on the first day of --------- each month. "BUILDING OPERATING COST" REFERENCE (ARTICLE 5): BASE YEAR: Calendar Year 1997 or -- EXPENSE STOP: $5.00 per square foot TENANT'S PRO RATA SHARE (OF BUILDING HR BUILDING OPERATING COSTS): 640/63226 --------- SECURITY DEPOSIT: (EQUIVALENT TO FIRST AND LAST MONTHS RENT) -- PERMITTED USE: GENERAL OFFICE -------------- PARKING: Number of Parking Spaces: N/A --- Location of Parking Spaces: Adjacent to office building --------------------------- PACIFIC RIM INVESTMENTS FRONTIER AIRLINES LANDLORD TENANT TENANT ______________________________ ______________________________ OFFICE LEASE ------------ LEASE TERM SHEET ---------------- BUILDING: AIRPORT PLAZA LEASE DATE: NOV 1, 1997 LANDLORD: PACIFIC RIM INVESTMENTS, A COLORADO LIMITED LIABILITY PARTNERSHIP Address: 12015 E. 46/TH/ AVE. SUITE #115 DENVER, CO 80239 TENANT: Name: FRONTIER AIRLINES Address: 12015 E. 46/TH/ AVENUE, SUITE 200 DENVER, COLORADO 80239 --------------------------------------------------------- Address for Notice if different than above) BROKER OF RECORD: NA TENANT'S BROKER(if any) NA LEASED PREMISES: Suite Numbers: 500 Floor 5th floor Address: 12015 E. 46TH AVENUE-DENVER, COLORADO 80239 Tenant's Rentable Area: 10,571 RSF (rentable square feet) LEASE TERM: Lease Commencement Date: FEBRUARY 1, 1996 Lease Expiration Date: JANUARY 31, 2001 Lease Period: 5 year(s), plus 0 month(s) with 1 option for tenant to -- --- renew for a period of twelve to twenty four months at tenants election and at current rental rate. An annual rental rate of $ 126,852 divided into 12 (twelve) equal monthly installments of $10,571.00 per month, due and payable on the first day of each month. "BUILDING OPERATING COST" REFERENCE (ARTICLE 5): BASE YEAR: Calendar Year 1997, or EXPENSE STOP: $5.00 per square foot. TENANT'S PRO RATA SHARE (OF BUILDING FOR BUILDING OPERATING COSTS): 10,571/63,226 SECURITY DEPOSIT: (EQUIVALENT TO FIRST AND LAST MONTHS RENT) PERMITTED USE: General Office PARKING: Number of parking Spaces: N/A LOCATION OF PARKING SPACES: ADJACENT TO OFFICE BUILDING PACIFIC RIM INVESTMENTS FRONTIER AIRLINES LANDLORD TENANT ______________________________ ______________________________ OFFICE LEASE ------------ LEASE TERM SHEET ---------------- BUILDING: AIRPORT PLAZA LEASE DATE: NOV 1, 1997 LANDLORD: PACIFIC RIM INVESTMENTS, A COLORADO LIMITED LIABILITY PARTNERSHIP Address: 12015 E. 46TH AVE. SUITE #115 DENVER, COLORADO 80239 TENANT: Name: FRONTIER AIRLINES Address: 12015 E. 46/TH/ AVENUE. SUITE 200 DENVER. COLORADO 80239 ------------------------------------------------------------- (Address for Notice if different than above) BROKER OF RECORD: NA TENANT'S BROKER(if any) NA LEASED PREMISES: Suite Numbers: 610, 615, 620 Floor: 6th floor Address: 12015 E. 46/TH/ AVENUE-DENVER, COLORADO 80239 Tenant's Rentable Area: 5285.50 RSF (rentable square feet) ------- LEASE TERM: Lease Commencement Date: NOVEMBER 1,1997 Lease Expiration Date: AUGUST 31, 1999 Lease Period: 1 year(s), plus 10 month(s) with 1 option for tenant to --- ---- renew for a period of six to twelve months at tenants election and at current rental rate. An annual rental rate of $ 78,225.40 divided into 12 (twelve) equal monthly installments of $6,518.78 per month, due and payable on the first day of each month. "BUILDING OPERATING COST" REFERENCE (ARTICLE 5) BASE YEAR: Calendar Year 1997 or EXPENSE STOP: $5.00 per square foot. TENANT'S PRO RATA SHARE (OF BUILDING FOR BUILDING OPERATING COSTS): 5,285/63,226 SECURITY DEPOSIT: (EQUIVALENT TO FIRST AND LAST MONTHS RENT) PERMITTED USE: General Office PARKING: Number of parking Spaces: N/A LOCATION OF PARKING SPACES: ADJACENT TO OFFICE BUILDING PACIFIC RIM INVESTMENTS FRONTIER AIRLINES LANDLORD TENANT ______________________________ ______________________________ OFFICE LEASE ------------ LEASE TERM SHEET ---------------- BUILDING: AIRPORT PLAZA ------------- LEASE DATE: NOV 1, 1997 ----------- LANDLORD: PACIFIC RIM INVESTMENTS, A COLORADO LIMITED LIABILITY PARTNERSHIP ----------------------------------------------------------------- Address: 12015 E. 46TH AVE. SUITE #115 DENVER. COLORADO 80239 ----------------------------------------------------- TENANT: Name: FRONTIER AIRLINES ----------------- Address: 12015 E. 46TH AVENUE, SUITE 200 DENVER. COLORADO 80239 ---------------------------------------------------------- - --------------- (Address for Notice if different than above): BROKER OF RECORD: NA TENANT'S BROKER (if any): NA LEASED PREMISES: Suite Number: 605 Floor: 6th floor ---------- Address: 12015 E.46TH AVENUE - DENVER. COLORADO 80239 -------------------------------------------- Tenant's Rentable Area: 238 RSF (rentable square feet) --- LEASE TERM: Lease Commencement Date: NOVEMBER 1.1997 ---------------- Lease Expiration Date: AUGUST 31. 1999 ---------------- Lease Period: 1 year(s), plus 10 month(s) with 1 option for -- ---- - tenant to renew for a period of six to twelve months at tenants election and at current rental rate. BASE RENT: $6,457.66 total aggregate Base Rent, payable in monthly --------- installments as follows: An annual rental rate of $ 3522.40 divided into 12 (twelve) equal --------- monthly installments of $ 293.53 per month, due and payable on the first -------- day of each month. "BUILDING OPERATING COST" REFERENCE (ARTICLE 5): BASE YEAR: Calendar Year 1997 or -- EXPENSE STOP: $ 5.00 per square foot TENANT'S PRO RATA SHARE (OF BUILDING FOR BUILDING OPERATING COSTS): 238/63226 --------- SECURITY DEPOSIT: na (EQUIVALENT TO FIRST AND LAD MONTHS RENT) -------- PERMITTED USE: General Office ---------------- PARKING: Number of Parking Spaces: N/A --- Location of Parking Spaces: Adjacent to office building --------------------------- PACIFIC RIM INVESTMENTS FRONTIER AIRLINES LANDLORD TENANT ______________________________ ______________________________ OFFICE LEASE ------------ LEASE TERM SHEET ---------------- BUILDING: AIRPORT PLAZA LEASE DATE: MAY 1/ST/, 1998 LANDLORD: PACIFIC RIM INVESTMENTS, A COLORADO LIMITED LIABILITY PARTNERSHIP Address: 12015 E. 46/TH/ AVE. SUITE #115 DENVER, COLORADO 80239 TENANT: Name: FRONTIER AIRLINES Address: 12015 E. 46/TH/ AVENUE, SUITE 200 DENVER. COLORADO 80239 ------------------------------------------------------------- (Address for Notice if different than above) BROKER OF RECORD: NA TENANT'S BROKER(if any) NA LEASED PREMISES: Suite Numbers: roof Floor: roof space ---------- Address: 12015 E. 46/TH/ AVENUE-DENVER, COLORADO 80239 Tenant's Rentable Area: 433 RSF (rentable square feet) --- LEASE TERM: Lease Commencement Date: MAY 1/ST/, 1998 Lease Expiration Date: AUGUST 31, 1999 Lease Period: l year(s), plus 4 month(s) with 1 Option(s) To ---- - Renew for a period of six to twelve months at tenants election and at current rental rate. A monthly rental rate of $100.00 per month, due and payable on the first day of each month, and a no charge cost commencing Sept. 1, 1998 through August 31, 1999, whereby Antenna will be allowed to stand as is. "BUILDING OPERATING COST" REFERENCE (ARTICLE 5): BASE YEAR: na EXPENSE STOP: na TENANT'S PRO RATA SHARE (OF BUILDING FOR BUILDING OPERATING COSTS): NA SECURITY DEPOSIT: na (EQUIVALENT TO FIRST AND LAST MONTHS RENT) PERMITTED USE: Satellite antenna PARKING: Number of parking Spaces: N/A LOCATION OF PARKING SPACES: ADJACENT TO OFFICE BUILDING GUARANTOR: Name: Address: As per our agreement, we will waive all roof charges and other accrued charges, i.e. conference room for the $1,600.00 trade for tickets. PACIFIC RIM INVESTMENTS FRONTIER AIRLINES LANDLORD TENANT ______________________________ ______________________________ EX-10.13(A) 4 AMENDMENT #1 TO AIRCRAFT LEASE AGREEMENT EXHIBIT 10.13(a) ________________________________ AMENDMENT NO. 1 dated as of November 17, 1997 to AIRCRAFT LEASE AGREEMENT dated as of June 3, 1996 BETWEEN POLARIS HOLDING COMPANY as Lessor AND FRONTIER AIRLINES, INC. as Lessee ________________________________ One Boeing Model 737-2L9 Aircraft Manufacturer's Serial No. 22734 U.S. Registration No. N271FL AMENDMENT NO. 1 to Aircraft Lease Agreement THIS AMENDMENT NO. 1 dated as of November 17, 1997 to the Aircraft Lease Agreement dated as of June 3, 1996 (the "Lease Agreement") between Polaris Holding Company ("Lessor"), and Frontier Airlines, Inc. ("Lessee"). WHEREAS, the Lease Agreement as supplemented by Lease Supplement No. 1 dated June 26, 1996 ("Lease Supplement No. 1") was recorded by the Federal Aviation Administration (the "FAA") on August 7, 1996, as Conveyance No. X129854 (the Lease Agreement as so supplemented is hereinafter referred to as the "Lease"): WHEREAS, the Lease is in respect of one Boeing Model 737-2L9 Aircraft bearing manufacturer's serial number 22734 and U.S. Registration No. N271FL, and certain related equipment (the "Aircraft"), and WHEREAS, Lessee and Lessor desire to amend the Lease to extend the Term by an additional twelve months, and to make certain other changes therein, and WHEREAS, capitalized terms used and not otherwise defined herein shall have the meanings ascribed to them in the Lease. NOW THEREFORE, in consideration of the mutual covenants and agreements contained herein, the parties hereto agree as follows: 1. Amendments to the Lease. The definition of Expiry Date in Clause 1.1 of the Lease is revised in its entirety to read: EXPIRY DATE: the day preceding the day which is the 72nd monthly anniversary of the Delivery Date or if earlier the date on which: (a) the date Lessor, acting in accordance with the terms of this Agreement terminates the leasing of the Aircraft to Lessee under this Agreement; or (b) Lessor receives the Agreed Value together with any other amounts then due and unpaid by Lessee following an Event of Loss. 1 2. Ratification. ------------ Except as expressly provided herein, Lessee acknowledges that nothing contained in this Amendment is intended to discharge, amend or otherwise modify its obligations under the Lease The Lease is hereby ratified and confirmed, but only as amended, in all respects. 3. Representations and Warranties of Lessee. ---------------------------------------- Lessee represents and warrants to Lessor that: (a) Lessee has full corporate power, authority and legal right to own its property and to carry on its business as now being conducted and is duly authorized to execute and deliver this Amendment, and to perform its obligations hereunder and thereunder; (b) This Amendment has been duly authorized, executed and delivered by Lessee and constitutes the legal, valid and binding obligation of Lessee enforceable in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, moratorium or other similar laws affecting creditors' rights generally and subject to principles of equity; (c) The execution and delivery by Lessee of this Amendment will not conflict with or result in any breach of, constitute any default under, or result in the creation of any lien, charge or encumbrance pursuant to, any applicable law, any term or provision of Lessee's articles of incorporation or by-laws or any judgment, order, writ, injunction, or decree of any court, omission, board or Governmental Entity, or contravene any indenture, mortgage, credit agreement, lease, license, contract or other agreement to which Lessee is a party or by which it is bound; and (d) All consents or approvals required of Lessee by any Governmental Entity or other Person in connection with the execution and delivery of this Amendment and the consummation by Lessee of the transactions contemplated hereby have been duly obtained or waived. 4. Representations and Warranties of Lessor. ---------------------------------------- Lessor represents and warrants to Lessee that: (a) Lessor has full corporate power, authority and legal right to own its property and to carry on its business as now being conducted and is duly authorized to execute and deliver this Amendment and to perform its obligations hereunder; (b) this Amendment has been duly authorized, executed and delivered by Lessor and constitutes the legal, valid and binding obligation of Lessor enforceable in accordance with its 2 terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, moratorium or other similar laws affecting creditors' rights generally and subject to principles of equity; (c) The execution and delivery by Lessor of this Amendment will not conflict with or result in any breach of, constitute any default under, or result in the creation of any lien, charge or encumbrance pursuant to, any applicable law, any term or provision of or Lessor's articles of incorporation or by-laws or any judgment, order, writ, injunction, or decree of any court, commission, board of Governmental Entity, or contravene any indenture, mortgage, credit agreement, lease, license, contract or other agreement to which Lessor is a party or by which it is bound; and (d) Any consents or approvals required of Lessor by any Governmental Entity in connection with the execution and delivery of this Amendment and the consummation by Lessor of the transactions contemplated hereby have been duly obtained or waived. 5. Miscellaneous. ------------- (a) Amendment. No amendment, modification or waiver of any provision of --------- this Amendment shall in any event be effective unless the same shall be in writing and signed by the parties hereto or, in the case of a waiver, by the party waiving compliance, and then such waiver shall be effective only in the specific instance and for the specific purpose for which given. (b) Notices. Any notices, requests, demands or other communications ------- required or permitted to be made hereunder shall be in writing and shall be addressed provided in Clause 16 11 of the Lease. (c) Governing Law. THIS AMENDMENT, SHALL IN ALL RESPECTS BE GOVERNED BY, ------------- AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF CALIFORNIA. (d) Severability. If any one or more of the provisions contained in this ------------ Amendment or any document executed in connection herewith shall be invalid, illegal or unenforceable in any respect under any law, the validity, legality and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired. (e) Counterparts. This Amendment may be executed in counterparts and any ------------ single counterpart or set of counterparts signed in either case, by all of the parties hereto shall for all purposes be deemed to be an original, and all such counterparts when taken together shall constitute one and the same instrument. A facsimile signature on any counterpart hereto will be deemed an original for all purposes. (f) Entire Agreement. The terms and conditions contained in the Lease, ---------------- this 3 Amendment and the other documents and instruments executed in connection therewith or herewith constitute the entire agreement among the parities pertaining to the subject matter thereof and hereof and supersede all prior agreements, understandings, negotiations and discussions, whether oral or written, of the parties. (g) Headings. The headings in this Amendment are for reference only, and -------- do not form part of and are not to be used to interpret this Agreement. (h) Further Assurances. Each party shall cooperate with the other and ------------------ execute and deliver such instruments and other documents as my be necessary to effectuate and carry out the provisions of this Amendment. (i) Successors and Assigns. This Amendment shall insure to the benefit ---------------------- of, and be binding upon, the parties hereto and their respective successors and assigns. IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 1 to be duly executed by their respective officers thereunto duly authorized as of the day and year first above written. LESSOR: POLARIS HOLDING COMPANY By: /s/ Henry A. Hubschman -------------------------------- Name: Henry A. Hubschman ------------------------------ Title: President ----------------------------- LESSEE: FRONTIER AIRLINES, INC. By: /s/ William B. Durlin -------------------------------- Name: William B. Durlin ------------------------------ Title: Vice President ----------------------------- 4 EX-10.28 5 AMENDED WARRANT AGREEMENT EXHIBIT 10.28 ================================================================ AMENDED AND RESTATED WARRANT AGREEMENT Between FRONTIER AIRLINES, INC. and WEXFORD MANAGEMENT LLC, as AGENT Dated as of February 27, 1998 ================================================================ (i) TABLE OF CONTENTS Page ---- SECTION 1. Definitions; Accounting Terms and Determinations...................1 1.01 Definitions.........................................................1 1.02 Accounting Terms and Determinations.................................7 SECTION 2. Purchase and Sale of Warrant.......................................8 2.01 Authorization and Issuance of Original Warrant......................8 2.02 Issuance of the Original Warrant....................................8 2.03 Authorization and Issuance of Replacement Warrant...................8 2.04 Issuance of the Replacement Warrant.................................8 2.05 Securities Act Compliance; Brokers..................................8 SECTION 3. Representations and Warranties.....................................9 3.01 Existence; Qualification............................................9 3.02 No Breach...........................................................9 3.03 Corporate Action....................................................9 3.04 Approvals..........................................................10 3.05 Investment Company Act.............................................10 3.06 Capitalization.....................................................10 3.07 Private Offering...................................................11 3.08 Litigation.........................................................11 3.09 Rights Agreement...................................................11 3.10 Brokers............................................................11 SECTION 4. Restrictions on Transferability...................................11 4.01 Transfers Generally................................................11 4.02 Transfers of Restricted Securities Pursuant to Registration Statements, Rule 144 and Rule 144A...............................12 4.03 Restrictive Legends................................................12 4.04 Termination of Restrictions........................................12 SECTION 5. Dispositions of Securities........................................12 5.01 Dispositions of Securities.........................................12 SECTION 6. Adjustments of Warrant Stock Issuable Upon Exercise...............13 6.01 Number of Shares; Exercise Price...................................13 6.02 Adjustment of Exercise Price.......................................13 6.03 Treatment of Options and Convertible Securities....................15 6.04 Treatment of Stock Dividends, etc. ................................17 (ii) Page ---- 6.05 Computation of Consideration.......................................17 6.06 Adjustments for Combinations, Subdivisions, etc. ..................19 6.07 Dilution in Case of Other Securities...............................19 6.08 Consolidation, Merger, Sale of Assets, Reorganization etc. ........19 6.09 Other Dilutive Events..............................................21 6.10 No Dilution or Impairment..........................................21 6.11 Accountants' Report as to Adjustments..............................21 6.12 Notices of Corporate Action........................................22 SECTION 7. Holders' Rights...................................................23 7.01 Delivery Expenses..................................................23 7.02 Taxes..............................................................23 7.03 Replacement of Instruments.........................................23 7.04 Indemnification....................................................23 7.05 Inspection Rights..................................................24 SECTION 8. Other Covenants of Company........................................24 8.01 Availability of Information........................................24 8.02 Repurchases and Redemption.........................................25 8.03 Transactions with Affiliates.......................................25 8.04 Restrictions on Performance........................................25 8.05 Modification of Other Equity Documents.............................25 8.06 Ownership of Subsidiaries..........................................26 8.07 Reservation of Stock. etc. ........................................26 8.08 Listing on Securities Exchanges....................................26 SECTION 9. Miscellaneous....................................................26 9.01 Waiver.............................................................26 9.02 Notices............................................................26 9.03 Expenses, Etc. ....................................................27 9.04 Amendments, Etc. ..................................................28 9.05 Successors and Assigns.............................................28 9.06 Survival...........................................................28 9.07 Specific Performance...............................................28 9.08 WAIVER OF JURY TRIAL...............................................28 9.09 Consent to Jurisdiction and Service of Process. ...................29 9.10 Limitation of Liability............................................29 9.11 Captions...........................................................29 9.12 Counterparts.......................................................29 9.13 Governing Law......................................................29 9.14 Severability.......................................................29 9.15 Entire Agreement...................................................30 (iii) Page ---- ANNEX 1 - FORM OF ASSIGNMENT ANNEX 2 - REPURCHASES FROM MANAGEMENT AMENDED AND RESTATED WARRANT AGREEMENT dated as of February 27, 1998 between FRONTIER AIRLINES, INC., a Colorado corporation (the "Company"), and ------- WEXFORD MANAGEMENT LLC, a Connecticut limited liability company, as Agent (the "Investor"). - --------- WHEREAS, in connection with (i) the issuance on December 2, 1997 by the Company of a Senior Secured Promissory Note (the "Senior Secured Note") in ------------------- the amount of $5,000,000 to the Investor and (ii) the proposed delivery by the Investor of a commitment letter with respect to additional financial accommodations in favor of the Company aggregating up to $10,000,000 (the "Additional Financing"), as more fully described in that certain letter - --------------------- agreement, dated December 2, 1997, between the Company and the Investor (the "Letter Agreement"), on December 2, 1997, the Company issued to the Investor a - ----------------- warrant to purchase 3,000,000 shares of Common Stock, a copy of which is attached hereto as Exhibit A and entered into a Warrant Agreement dated as of --------- December 17, 1997 (the "Original Agreement"); WHEREAS, pursuant to a letter agreement dated February 27, 1998 (the "March Letter Agreement"), the parties have agreed, among other things, to terminate the Letter Agreement and to amend and restate the Original Agreement; and WHEREAS, in consideration of the extension of credit evidenced by the Senior Secured Note and the March Letter Agreement, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties have agreed, pursuant to the March Letter Agreement, to enter into this Amended and Restated Warrant Agreement. NOW, THEREFORE, the parties hereto agree as follows: SECTION 1. Definitions; Accounting Terms and Determinations. ------------------------------------------------ 1.01 Definitions. As used herein, the following terms shall have the ----------- following meanings (all terms defined in this Section 1 or in other provisions of this Agreement in the singular to have the same meanings when used in the plural and vice versa): "Acquiring Person" shall mean the continuing or surviving corporation ---------------- of a consolidation or merger with the Company (if other than the Company), the transferee of substantially all of the properties and assets of the Company, the corporation consolidating with or merging into the Company in a consolidation or merger in connection with which the Common Stock is changed into or exchanged for stock or other securities of any other Person or cash or any other property, or, in the case of a capital reorganization or reclassification, the Company. "Acquisition Price" shall mean, as applied to the Common Stock, with ----------------- respect to any transaction to which Section 6.08 applies, (a) the price per share equal to the greater of the following, determined in each case as of the date immediately preceding the date of consummation of such transaction: (i) the Market Price of the Common Stock and (ii) the highest amount of Warrant Agreement ----------------- 2 cash plus the Fair Value of the highest amount of securities or other property which a Holder of Warrants would have been entitled as a shareholder to receive upon such consummation if such Holder had exercised its Warrants immediately prior thereto, or (b) if a purchase, tender or an exchange offer is made by the Acquiring Person (or by any of its affiliates) to the holders of the Common Stock and such offer is accepted by the holders of more than 50% of the outstanding shares of Common Stock, the greater of (i) the price determined in accordance with the foregoing subdivision (a) and (ii) the price per share equal to the greater of the following, determined in each case as of the date immediately preceding the acceptance of such offer by the holders of more than 50% of the outstanding shares of Common Stock: (x) the Market Price of the Common Stock and (y) the highest amount of cash plus the Fair Value of the highest amount of securities or other property which a Holder of Warrants would have been entitled as a shareholder to receive pursuant to such offer if such Holder had exercised its Warrants immediately prior to the expiration of such offer and accepted the same. "Additional Shares of Common Stock" shall mean all shares (including --------------------------------- treasury shares) of Common Stock issued or sold (or, pursuant to Section 6.03 or 6.04, deemed to be issued) by the Company after the Initial Date hereof, whether or not subsequently reacquired or retired by the Company other than (a) shares of Common Stock issued upon the exercise of Warrants, (b) shares of Common Stock issued or authorized prior to December 2, 1997 under the Option Plan and (c) shares of Common Stock issuable on conversion or exercise of the Convertible Securities or Options set forth in Schedule 3.06 attached hereto. ------------- "Affiliate" shall mean, with respect to a specified Person, another --------- Person that directly, or indirectly through one or more intermediaries, Controls or is Controlled by or is under common Control with the Person specified. "Base Price" shall mean, on any date specified herein, the greater of ---------- (i) the Current Market Price and (ii) the Exercise Price. "Business Day" shall mean any day that is not a Saturday, Sunday or ------------ other day on which commercial banks in New York City are authorized or required by law to remain closed. "Commission" shall mean the Securities and Exchange Commission or any ---------- other similar or successor agency of the federal government administering the Securities Act and/or the Exchange Act. "Common Stock" shall mean the Common Stock of the Company, no par ------------ value per share, or any other common stock or other securities receivable thereon, or into which the Common Stock is convertible or exchangeable, as a result of any recapitalization, reclassification, merger or consolidation of, or disposition of assets by, the Company. Warrant Agreement ----------------- 3 "Company" shall have the meaning assigned to such term in the preamble ------- of this Agreement. "Control" shall mean the possession, directly or indirectly, of the ------- power to direct or cause the direction of the management or policies of a Person, whether through the ability to exercise voting power, by contract or otherwise. "Controlling" and "Controlled" shall have meanings correlative ----------- ---------- thereto. "Convertible Securities" shall mean evidences of indebtedness, ---------------------- interests or other securities or rights which are exchangeable for or exercisable or convertible into Additional Shares of Common Stock other than the Warrants. "Current Market Price" shall mean, on any date specified herein, (a) -------------------- with respect to Common Stock or to Voting Common Stock (or equivalent equity interests) of an Acquiring Person or its Parent, (i) the average daily Market Price during the period of the most recent 20 consecutive Business Days ending on such date, or (ii) if shares of Common Stock or such Voting Common Stock (or equivalent equity interests), as the case may be, are not then listed or admitted to trading on any national securities exchange and if the closing bid and asked prices thereof are not then quoted or published in the over-the- counter market, the Market Price on such date; and (b) with respect to any other securities, the Market Price on such date. "Exchange Act" shall mean the Securities Exchange Act of 1934, as ------------ amended, or any similar federal statute, and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. "Exercise Notice" shall have the meaning assigned to such term in --------------- Warrant No. Wex-2, a copy of which is attached as Exhibit B hereto. --------- "Exercise Price" shall have the meaning assigned to such term in -------------- Section 6.01 hereof. "Expiration Date" shall have the meaning assigned to such term in --------------- Warrant No. Wex-2, a copy of which is attached hereto as Exhibit B. --------- "Fair Value" shall mean, with respect to any securities or other ---------- property, the fair value thereof as of a date which is within 15 days of the date as of which the determination is to be made (a) determined by the Board of Directors of the Company or (b), if the Requisite Holders of Warrants shall object in writing to such determination within ten Business Days after notice of such determination, as determined by an agreement between the Company and the Requisite Holders of Warrants or (c) if the Company and the Requisite Holders of Warrants fail to agree, determined jointly by an independent investment banking firm retained by the Company and by an independent investment banking firm retained by the Requisite Holders of Warrants, either of Warrant Agreement ----------------- 4 which firms may be an independent investment banking firm regularly retained by the Company or any such holder or (d) if the Company or such holders shall fail so to retain an independent investment banking firm within five Business Days of the retention of such firm by such holders or the Company, as the case may be, determined solely by the firm so retained or (e) if the firms so retained by the Company and by such holders shall be unable to reach a joint determination within 15 Business Days of the retention of the last firm so retained, determined by another independent investment banking firm (whose fees shall be paid equally by such holders, on the one hand, and the Company, on the other) which is not a regular investment banking firm of the Company or any such holder chosen by the first two such firms. "GAAP" shall mean generally accepted accounting principles, ---- consistently applied throughout the specified period. "Governmental Authority" shall mean the government of the United ---------------------- States of America, any other nation or any political subdivision thereof, whether state or local, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory, monetary or administrative powers or functions of or pertaining to government. "Holder" shall mean any Person who acquires Warrants or Warrant Stock ------ pursuant to the provisions of this Agreement, including any transferees of Warrants or Warrant Stock; provided, however, that a holder of Warrant Stock -------- ------- purchased pursuant to an effective registration statement or pursuant to Rule 144 shall not be deemed a Holder. "include" and "including" shall be construed as if followed by the ------- --------- phrase "without being limited to". "Initial Date" shall have the meaning assigned in such term in Section ------------ 6.02 hereof. "Investor" shall have the meaning assigned to such term in the -------- preamble of this Agreement. "Letter Agreement" shall have the meaning assigned to such term in the ---------------- preamble of this Agreement. "Lien" shall mean, with respect to any asset, any mortgage, lien, ---- pledge, charge, security interest or encumbrance of any kind in respect of such asset. For purposes of this Agree ment, a Person shall be deemed to own subject to a Lien any asset which it has acquired or holds subject to the interest of a vendor or lessor under any conditional sale agreement, capital lease or other title retention agreement relating to such asset. Warrant Agreement ----------------- 5 "Market Price" shall mean, on any date specified herein, (a) with ------------ respect to Common Stock or Voting Common Stock (or equivalent equity interests) of an Acquiring Person or its Parent, the amount per share equal to (i) the last sale price of shares of such security, regular way, on such date or, if no such sale takes place on such date, the average of the closing bid and asked prices thereof on such date, in each case as officially reported on the principal national securities exchange on which the same are then listed or admitted to trading, or (ii) if no shares of such security are then listed or admitted to trading on any national securities exchange, the last reported sale price as officially reported by the Nasdaq National Market System or, (iii) if not quoted on the Nasdaq National Market System, the average closing bid and asked prices as furnished by the NASD through the Nasdaq National Market System or similar organization if the NASDAQ is no longer reporting such information, or (iv) if no closing bid and asked prices thereof are then so quoted or published in the over-the-counter market, the Fair Value thereof as of a date which is within 15 days of the date as of which the determination is to be made; and (b) with respect to any other securities, the Fair Value thereof as of a date which is within 15 days of the date as of which the determination is to be made. "NASD" shall mean the National Association of Securities Dealers. ---- "NASDAQ" shall mean the National Association of Securities Dealers ------ automated quotation system. "Option Plan" shall mean the Company's 1994 Stock Option Plan. ----------- "Options" shall mean all rights, options or warrants to subscribe for, ------- purchase or otherwise acquire either Additional Shares of Common Stock or Convertible Securities. "Original Warrant" shall mean the Warrant evidenced by Warrant ---------------- Certificate No. Wex-1, a copy of which is attached hereto as Exhibit A; --------- "Other Equity Documents" shall mean the Option Plan, the certificate ---------------------- of incorporation of the Company, the by-laws of the Company, the Rights Agreement and any other instrument or document of organization or governance of the Company. "Other Securities" shall mean any stock (other than Common Stock) and ---------------- other securities of the Company or any other Person (corporate or otherwise) which the holders of the Warrants at any time shall be entitled to receive, or shall have received, upon the exercise of the Warrants, in lieu of or in addition to Common Stock, or which at any time shall be issuable or shall have been issued in exchange for or in replacement of Common Stock or Other Securities pursuant to Section 6.08 or otherwise. "Parent" as to any Acquiring Person, any corporation which (a) ------ controls the Acquiring Person directly or indirectly through one or more intermediaries, (b) is required to Warrant Agreement ----------------- 6 include the Acquiring Person in its consolidated financial statements under GAAP and (c) is not itself included in the consolidated financial statements of any other Person (other than its consolidated subsidiaries). "Person" shall mean any natural person, corporation, limited liability ------ company, trust, joint venture, association, company, partnership, Governmental Authority or other entity. "Registration Rights Agreement" shall mean the Registration Rights ----------------------------- Agreement dated as of December 17, 1997, between the Company and the Investor. "Requisite Holders of Warrants" shall mean the holders of at least a ----------------------------- majority of all the Warrants at the time outstanding determined on the basis of the number of shares of Warrant Stock or Other Securities deliverable upon exercise thereof; provided, that Warrants held by the Company or any of its -------- Subsidiaries shall be excluded from both the numerator and denominator of any calculation of the Requisite Holders of Warrants. "Restricted Certificate" shall mean a certificate for Warrant Stock or ---------------------- Warrants bearing or required to bear the restrictive legend set forth in Section 4.03. "Restricted Securities" shall mean Restricted Warrant Stock and --------------------- Restricted Warrants. "Restricted Warrant Stock" shall mean Warrant Stock evidenced by a ------------------------ Restricted Certificate. "Restricted Warrants" shall mean Warrants evidenced by a Restricted ------------------- Certificate. "Rights Agreement" shall mean the Rights Agreement dated as of ---------------- February 20, 1997 between the Company and American Securities Transfer & Trust, Inc., as amended. "Rule 144" shall mean Rule 144 promulgated by the Commission under the -------- Securities Act (or any successor or similar rule then in force). "Rule 144A" shall mean Rule 144A promulgated by the Commission under --------- the Securities Act (or any successor or similar rule then in force). "Securities Act" shall mean the Securities Act of 1933, as amended, or -------------- any similar federal statute, and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. "Senior Secured Note" shall have the meaning assigned to such term in ------------------- the preamble of this Agreement. Warrant Agreement ----------------- 7 "Shareholder" shall mean any Person who directly or indirectly owns ----------- any shares of Common Stock (including Warrant Stock). "Subsidiary" of a Person means (a) any corporation more than 50% of ---------- the outstanding securities having ordinary voting power of which shall at the time be owned or controlled, directly or indirectly, by such Person or by one or more of its Subsidiaries or by such Person and one or more of its Subsidiaries, or (b) any company, partnership, association, joint venture or similar business organization more than 50% of the ownership interests having ordinary voting power of which shall at the time be so owned or controlled. Unless otherwise expressly provided, all references herein to a "Subsidiary" shall mean a direct or indirect Subsidiary of the Company. "Voting Common Stock" shall mean, with respect to any corporation, ------------------- association or other business entity, stock of any class or classes (or equivalent interest), if the holders of the stock of such class or classes (or equivalent interests) are ordinarily, in the absence of contingencies, entitled to vote for the election of a majority of the directors (or persons performing similar functions) of such corporation, association or business entity, even if the right so to vote has been suspended by the happening of such a contingency. "Warrant Stock" shall mean all shares of Common Stock issuable from ------------- time to time upon exercise of the Warrant. "Warrant," "Warrants" and "Replacement Warrant" and "Replacement ------- -------- --------------------- ------------ Warrants" shall mean Warrant No. Wex-2 issued by the Company to the Investor on - --------- the date hereof, a copy of which is attached hereto as Exhibit B, evidencing rights to purchase up to an aggregate of 1,750,000 shares of Warrant Stock and other securities, cash or other property as shall result from the adjustment specified in Section 6, and all Warrants issued upon transfer, division or combination of, or in substitution for, any thereof. 1.02 Accounting Terms and Determinations. Except as otherwise may be ----------------------------------- expressly provided herein, all accounting terms used herein shall be interpreted, and all financial statements and certificates and reports as to financial matters required to be delivered to any Holder of Warrant shall be prepared, in accordance with GAAP. All calculations made for the purposes of determining compliance with the terms of this Agreement shall (except as otherwise may be expressly provided herein) be made by application of GAAP. SECTION 2. Purchase and Sale of Warrant. ---------------------------- 2.01 Authorization and Issuance of Original Warrant. On or prior to ---------------------------------------------- December 2, 1997, the Company authorized: (a) the issuance of the Original Warrant evidenced by Warrant Certificate No. Wex-1, a copy of which is attached hereto as Exhibit A; and (b) the issuance of --------- Warrant Agreement ----------------- 8 such number of shares of Common Stock as shall be necessary to permit the Company to comply with its obligations to issue shares of Warrant Stock pursuant to the Original Warrant. 2.02 Issuance of the Original Warrant. (a) On December 2, 1997, in -------------------------------- consideration of the purchase by the Investor of the Senior Secured Note and the Additional Financing, the Company delivered to the Investor Warrant Certificate No. Wex-1, registered in the name of the Investor. 2.03 Authorization and Issuance of Replacement Warrant. On or prior ------------------------------------------------- to February 27, 1998, the Company authorized the issuance of the Replacement Warrant evidenced by Warrant Certificate No. Wex-2, a copy of which is attached hereto as Exhibit B. --------- 2.04 Issuance of the Replacement Warrant. (a) On the date hereof, ----------------------------------- in consideration of the purchase by the Investor of the Senior Secured Note and the March Letter Agreement, the Company delivered to the Investor Warrant Certificate No. Wex-2, registered in the name of the Investor. 2.05 Securities Act Compliance; Brokers. (a) The Investor ---------------------------------- understands that the Company has not registered the Warrant or the Warrant Stock under the Securities Act or applicable state securities laws, and the Investor agrees that neither the Warrant nor the Warrant Stock shall be sold or transferred or offered for sale or transfer without registration or qualification under the Securities Act or applicable state securities laws or the availability of an exemption therefrom, all as more fully provided in Section 4. (b) The Investor purchased the Warrant for its own account for investment and not with a view to the distribution of the Warrant or any part thereof, it being understood that the right to dispose of the Warrant shall be entirely within the discretion of the Investor. Nothing in this paragraph (b) is meant to limit or restrict the rights granted to the Investor under the Registration Rights Agreement. (c) The Investor is an "accredited investor" within the meaning of Regulation D promulgated under the Securities Act. (d) All negotiations relative to this Agreement and the transactions contemplated hereby have been carried out by the Investor directly with the Company without the intervention of any Person on behalf of the Investor in such manner as to give rise to any valid claim by any Person against the Company for a finder's fee, brokerage commission or similar payment. SECTION 3. Representations and Warranties. The Company represents ------------------------------ and warrants as follows: Warrant Agreement ----------------- 9 3.01 Existence; Qualification. The Company is duly organized, ------------------------ validly existing and in good standing under the laws of the State of Colorado. The Company is duly qualified, licensed or admitted to do business and is in good standing as a foreign corporation in every jurisdiction in which the nature of the business conducted by it makes such qualification necessary, except where the failure to be so qualified would not have a material adverse effect on the Company, and has all requisite corporate power and authority to transact its business as now conducted in all such jurisdictions. 3.02 No Breach. The execution, delivery and performance of this --------- Agreement, the Warrant and the Registration Rights Agreement by the Company and the consummation by it of the transactions contemplated hereby and thereby will not (a) violate the articles of incorporation or by-laws or any other instrument or document of organization or governance of the Company, (b) violate, or result in a breach of or default under, any other material instrument or agreement to which the Company is a party or is bound, (c) violate any judgment, order, injunction, decree or award against or binding upon the Company, (d) result in the creation of any material Lien upon any of the properties or assets of the Company (other than as contemplated by the Senior Secured Note or the Additional Financing), or (e) violate any law, rule or regulation applicable to the Company. 3.03 Corporate Action. The Company has all necessary corporate power ---------------- and authority to execute, deliver and perform its obligations under this Agreement, the Warrant and the Registration Rights Agreement; the execution, delivery and performance by the Company of this Agreement, the Warrant and the Registration Rights Agreement have been duly authorized by all necessary action (including all Shareholder action) on the part of the Company; this Agreement, the Warrant and the Registration Rights Agreement have been duly executed and delivered by the Company and constitute the legal, valid and binding obligations of the Company, enforceable against the Company in accordance with their respective terms; the shares of Warrant Stock covered by the Warrant have been duly and validly authorized and reserved for issuance and shall, when paid for, issued and delivered in accordance with the Warrant, be duly and validly issued, fully paid and nonassessable and free and clear of any Liens; and none of the Warrant Stock issued pursuant to the terms hereof will be in violation of any preemptive rights of any Shareholder. 3.04 Approvals. Except in connection with the registration rights --------- provided for pursuant to the terms of the Registration Rights Agreement, no authorizations, approvals or consents of, and no filings or registrations with, any Governmental Authority or any other Person are necessary for the execution, delivery or performance by the Company of this Agreement, the Warrant or the Registration Rights Agreement or for the validity or enforceability hereof or thereof. Any such action required to be taken as a condition to the execution and delivery of this Agreement or the Registration Rights Agreement, or the execution, issuance and delivery of the Warrant, has been duly taken by all such Governmental Authorities or other Persons, as the case may be. Warrant Agreement ----------------- 10 3.05 Investment Company Act. The Company is not an "investment ---------------------- company", or a company "controlled by" an "investment company", within the meaning of the Investment Company Act of 1940, as amended. 3.06 Capitalization. -------------- (a) On the date hereof, the total number of shares of Common Stock that the Company has authority to issue is 40,000,000 of which 9,233,563 are outstanding. Upon the issuance of the Warrant under this Agreement, other than the Warrant, and other than as set forth in Schedule 3.06 attached hereto, the ------------- Company shall not have outstanding any Convertible Securities or Options exercisable or convertible into or exchangeable for any interests or other equity rights of the Company, nor shall it have outstanding any agreements providing for the issuance (contingent or otherwise) of, or any calls, commitments or claims of any character relating to, any interests or equity rights of the Company or Convertible Securities exercisable or convertible into or exchangeable for any interests or equity rights of the Company. (b) Except as set forth in Schedule 3.06 attached hereto, other than ------------- this Agreement and the Registration Rights Agreement, there is not in effect on the date hereof any agreement by the Company pursuant to which any holders of securities of the Company have a right to cause the Company to register such securities under the Securities Act or any agreement to which the Company or (to its knowledge) any of its Shareholders is a party relating to the voting, transfer or sale of such securities. (c) There is not in effect on the date hereof any agreement by the Company or any of its Shareholders which (i) restricts the transferability of the Warrant and/or the Warrant Stock (whether or not in connection with a transfer of the Senior Secured Note or any note or other instrument issued in connection with the Additional Financing), except as provided in Sections 4 and 5, (ii) restricts the transferability of the right of the Holder in this Agreement to any transferee of all or a portion of the Holder's Warrant and/or Warrant Stock, or (iii) requires any consent or other approval of any Person to the exercise of the Warrant by the Holder or the issuance of Warrant Stock upon such exercise. 3.07 Private Offering. ---------------- (a) Based on the representations of the Investor in Sections 2.03(a)- ---------------- (c) hereof, the issuance and sale of the Warrant to the Investor hereunder were - --- exempt from the registration and prospectus delivery requirements of the Securities Act. (b) All equity interests of the Company heretofore issued and sold by the Company were issued and sold in accordance with, or were exempt from, the registration and prospectus delivery requirements of the Securities Act. Warrant Agreement ----------------- 11 3.08 Litigation. ---------- There is no action, suit, proceeding or investigation pending or, to the best of the Company's knowledge after due inquiry, threatened against the Company before any Governmental Authority seeking to enjoin the transactions contemplated by this Agreement or the Warrant. 3.09 Rights Agreement. Neither the ownership nor exercise of the ---------------- Warrant or any portion thereof by the Investor or any Holder will result in a "Distribution Date" or a "Triggering Event" (as defined in the Rights Agreement), or in the Investor or such Holder being deemed an "Acquiring Person" under the Rights Agreement. 3.10 Brokers. All negotiations relative to this Agreement and the ------- transactions contemplated hereby have been carried out by the Company directly with the Investor without the intervention of any Person on behalf of the Company in such manner as to give rise to any valid claim by any Person against the Investor or the Holder for a finder's fee, brokerage commission or similar payment. SECTION 4. Restrictions on Transferability. ------------------------------- 4.01 Transfers Generally. Except as otherwise provided in Section 5, ------------------- the Restricted Securities shall be transferable only upon the conditions specified in this Section 4 and in the Registration Rights Agreement, which conditions are intended to ensure compliance with the provisions of the Securities Act and applicable state securities laws in respect of the transfer of any Restricted Securities. 4.02 Transfers of Restricted Securities Pursuant to Registration ----------------------------------------------------------- Statements, Rule 144 and Rule 144A. The Restricted Securities may be offered or - ---------------------------------- sold by the Holder thereof pursuant to (a) an effective registration statement under the Securities Act, (b) to the extent applicable, Rule 144 or Rule 144A or (c) any other legally available means of transfer; provided, that the Holder -------- receives an opinion of counsel to the effect that the proposed transfer may legally be effected without registration of such Registrable Securities under the Securities Act. 4.03 Restrictive Legends. Unless and until otherwise permitted by ------------------- this Section 4, each certificate for any Warrants issued to any subsequent transferee of Warrant Certificate No. Wex-1, each certificate for any Warrant Stock issued upon exercise of any Warrant and each certificate for any Warrant Stock issued to any subsequent transferee of any such certificate, shall be stamped or otherwise imprinted with a legend in substantially the following form: "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS, AND ACCORDINGLY, SUCH Warrant Agreement ----------------- 12 SECURITIES MAY NOT BE TRANSFERRED, SOLD OR OTHERWISE DISPOSED OF EXCEPT IN COMPLIANCE WITH THE REGISTRATION OR QUALIFICATION PROVISIONS OF APPLICABLE FEDERAL AND STATE SECURITIES LAWS OR APPLICABLE EXEMPTIONS THEREFROM. 4.04 Termination of Restrictions. All of the restrictions imposed by --------------------------- this Section 4 upon the transferability of the Restricted Securities shall cease and terminate as to any par ticular Restricted Security when such Restricted Security shall have been effectively registered under the Securities Act and applicable state securities laws and sold by the Holder thereof in accordance with such registration or sold under and pursuant to Rule 144 or is eligible to be sold under and pursuant to paragraph (k) of Rule 144. Whenever the restrictions imposed by this Section 4 shall terminate as to any Restricted Security as hereinabove provided, the Holder thereof shall be entitled to receive from the Company, without expense, a new certificate evidencing such Restricted Security not bearing the restrictive legend otherwise required to be borne by a certificate evidencing such Restricted Security. SECTION 5. Dispositions of Securities. -------------------------- 5.01 Dispositions of Securities. -------------------------- (a) Notwithstanding anything herein in this Agreement or the Warrant to the contrary, but subject to compliance with the Securities Act, applicable state securities laws and the requirement as to placement of a legend on certificates for Restricted Securities specified in Section 4.03, the Warrant and all rights thereunder are transferable (subject to any restrictive legends thereon), in whole or in part, upon surrender of the Warrant to the Company, together with a written assignment of the Warrant duly executed by the Holder thereof or such Holder's agent or attorney. Such written assignment shall be in the form of the Assignment Form attached as Annex 1 hereto. Upon such ------- surrender, the Company shall execute and deliver a new Warrant or Warrants in the name of the assignee or assignees and in the denominations specified in such instrument of assignment, and the original Warrant shall promptly be canceled. (b) The Warrant may be exchanged for other Warrants of the same series upon presentation to the Company, together with a written notice specifying the denominations in which new Warrants are to be issued, signed by the Holder thereof. The Company shall execute and deliver a new Warrant or Warrants to the Holder in exchange for the Warrant or Warrants to be divided or combined in accordance with such notice. The Company shall pay all expenses, taxes (including transfer taxes) and other charges payable in connection with the preparation, issuance and delivery of the Warrants, including any transfer or exchange thereof. (c) The Company shall maintain books for the registration and transfer of the Warrants, and shall allow each Holder of Warrants to inspect such books at such reasonable times as such Holder shall request. Warrant Agreement ----------------- 13 SECTION 6. Adjustments of Warrant Stock Issuable Upon Exercise. --------------------------------------------------- 6.01 Number of Shares; Exercise Price. The number of shares of -------------------------------- Warrant Stock which a Holder of Warrants shall be entitled to receive upon each exercise thereof shall be determined by multiplying the number of shares of Warrant Stock which would otherwise (but for the provisions of this Section 6) be issuable upon such exercise, as designated by the Holder thereof in its Exercise Notice, by a fraction of which (i) the numerator is $3.00 and (ii) the denominator is the Exercise Price in effect on the date of such exercise. The "Exercise Price" shall initially be $3.00 per share, shall be adjusted and readjusted from time to time as provided in this Section 6 and, as so adjusted or readjusted, shall remain in effect until a further adjustment or readjustment thereof is required by this Section 6. 6.02 Adjustment of Exercise Price. ---------------------------- (a) Issuance of Additional Shares of Common Stock. In case the --------------------------------------------- Company, at any time or from time to time after December 2, 1997 (the "Initial ------- Date"), shall issue or sell Additional Shares of Common Stock (including - ---- Additional Shares of Common Stock deemed to be issued pursuant to Section 6.03 or 6.04) without consideration or for a consideration per share less than the Base Price in effect, in each case, on the date of and immediately prior to such issue or sale, then, and in each such case, (i) in the event that the number of shares to be so issued or sold, together with all other Additional Shares of Common Stock issued or sold or deemed issued by the Company subsequent to the Initial Date for a consideration per share less than the Base Price (collectively, the "Below Base Price Shares") ----------------------- is less than 250,000, such Exercise Price shall be reduced, concurrently with such issue or sale, to a price (calculated to the nearest .001 of a cent) determined by multiplying such Exercise Price by a fraction, (A) the numerator of which shall be (x) the number of shares of Common Stock outstanding immediately prior to such issue or sale plus (y) the number of shares of Common Stock which the aggregate consideration received by the Company for the total number of such Additional Shares of Common Stock so issued or sold would purchase at the Base Price, and (B) the denominator of which shall be the number of shares of Common Stock outstanding immediately after such issue or sale, and (ii) in the event that the number of Below Base Price Shares issued or sold or deemed issued by the Company subsequent to the Initial Date is equal to or greater than 250,000, the Exercise Price shall be reduced to an amount equal to the lowest consideration per share (as determined under Section 6.05) received by the Company for any such issue or sale, Warrant Agreement ----------------- 14 provided that, for the purposes of this Section 6.02(a), immediately after any - -------- Additional Shares of Common Stock are deemed to have been issued pursuant to Section 6.03 or 6.04, such Additional Shares shall be deemed to be outstanding, and treasury shares shall not be deemed to be outstanding. (b) Dividends and Distributions. In case the Company at any time or --------------------------- from time to time after the Initial Date shall declare, order, pay or make a dividend or other distribution (including, without limitation, any distribution of other or additional stock or other securities or property or Options by way of dividend or spin-off, reclassification, recapitalization or similar corporate rearrangement) on any Common Stock, other than a dividend payable in Additional Shares of Common Stock or in Options for Common Stock, then, unless the Company permits the Holders to participate in such dividend or distribution based on the number of shares of Warrant Stock then underlying each Warrant, the Exercise Price in effect immediately prior to the close of business on the record date fixed for the determination of holders of any class of securities entitled to receive such dividend or distribution shall be reduced, effective as of the close of business on such record date, to a price (calculated to the nearest .001 of a cent) determined by multiplying such Exercise Price by a fraction, (A) the numerator of which shall be the Current Market Price in effect on such record date or, if the Common Stock trades on an ex-dividend basis, on the date prior to the commencement of ex-dividend trading, less the value of such dividend or distribution applicable to one share of Common Stock, and (B) the denominator of which shall be such Current Market Price. 6.03 Treatment of Options and Convertible Securities. In case the ----------------------------------------------- Company at any time or from time to time after the Initial Date shall issue, sell, grant or assume, or shall fix a record date for the determination of holders of any class of securities entitled to receive, any Options or Convertible Securities, then, and in each such case, the maximum number of Additional Shares of Common Stock (as set forth in the instrument relating thereto, without regard to any provisions contained therein for a subsequent adjustment of such number) issuable upon the exercise of such Options or, in the case of Convertible Securities and Options therefor, the conversion or exchange of such Convertible Securities, shall be deemed to be issued for purposes of Section 6.02 as of the time of such issue, sale, grant or assumption or, in case such a record date shall have been fixed, as of the close of business on such record date (or, if the Common Stock trades on an ex-dividend basis, on the date prior to the commencement of ex-dividend trading), provided that such Additional -------- Shares of Common Stock shall not be deemed to have been issued unless the consideration per share (determined pursuant to Section 6.05) of such shares would be less than the Base Price in effect, in each case, on the date of and immediately prior to such issue, sale, grant or assumption or immediately prior to the close of business on such record date (or, if the Common Stock trades on an ex-dividend basis, on the date prior to the Warrant Agreement ------------------ 15 commencement of ex-dividend trading), as the case may be, and provided, further, -------- ------- that in any such case in which Additional Shares of Common Stock are deemed to be issued, (a) no further adjustment of the Exercise Price shall be made upon the subsequent issue or sale of Additional Shares of Common Stock or Convertible Securities upon the exercise of such Options or the conversion or exchange of such Convertible Securities; (b) if such Options or Convertible Securities by their terms provide, with the passage of time or otherwise, for any increase or decrease in the consideration payable to the Company, or increase or decrease in the number of Additional Shares of Common Stock issuable, upon the exercise, conversion or exchange thereof (by change of rate or otherwise), the Exercise Price computed upon the original issue, sale, grant or assumption thereof (or upon the occurrence of the record date, or date prior to the commencement of ex-dividend trading, as the case may be, with respect thereto), and any subsequent adjustments based thereon, shall, upon any such increase or decrease becoming effective, be recomputed to reflect such increase or decrease insofar as it affects such Options, or the rights of conversion or exchange under such Convertible Securities, which are outstanding at such time; (c) upon the expiration of any such Options or of the rights of conversion or exchange under any such Convertible Securities which shall not have been exercised (or upon purchase by the Company and cancellation or retirement of any such Options which shall not have been exercised or of any such Convertible Securities the rights of conversion or exchange under which shall not have been exercised), the Exercise Price computed upon the original issue, sale, grant or assumption thereof (or upon the occurrence of the record date, or date prior to the commencement of ex-dividend trading, as the case may be, with respect thereto), and any subsequent adjustments based thereon, shall, upon such expiration (or such cancellation or retirement, as the case may be), be recomputed as if: (i) in the case of Options for Common Stock or of Convertible Securities, the only Additional Shares of Common Stock issued or sold were the Additional Shares of Common Stock, if any, actually issued or sold upon the exercise of such Options or the conversion or exchange of such Convertible Securities and the consideration received therefor was (x) an amount equal to (1) the consideration actually received by the Company for the issue, sale, grant or assumption of all such Options, whether or not exercised, plus (2) the consideration actually received by the Company upon such exercise, minus (3) the consideration paid by the Company for any purchase of such Options which were not exercised, or (y) an amount equal to (1) the consideration actually received by the Company for the issue, sale, grant or assumption of all such Convertible Warrant Agreement ----------------- 16 Securities which were actually converted or exchanged, plus (2) the additional consideration, if any, actually received by the Company upon such conversion or exchange, minus (3) the consideration paid by the Company for any purchase of such Convertible Securities the rights of conversion or exchange under which were not exercised, and (ii) in the case of Options for Convertible Securities, only the Convertible Securities, if any, actually issued or sold upon the exercise of such Options were issued at the time of the issue, sale, grant or assumption of such Options, and the consideration received by the Company for the Additional Shares of Common Stock deemed to have then been issued was an amount equal to (x) the consideration actually received by the Company for the issue, sale, grant or assumption of all such Options, whether or not exercised, plus (y) the consideration deemed to have been received by the Company (pursuant to Section 6.05) upon the issue or sale of the Convertible Securities with respect to which such Options were actually exercised, minus (z) the consideration paid by the Company for any purchase of such Options which were not exercised; (d) no readjustment pursuant to subdivision (b) or (c) above shall have the effect of increasing the Exercise Price by an amount in excess of the amount of the adjustment thereof originally made in respect of the issue, sale, grant or assumption of such Options or Convertible Securities; and (e) in the case of any such Options which expire by their terms not more than 30 days after the date of issue, sale, grant or assumption thereof, no adjustment of the Exercise Price shall be made until the expiration or exercise of all such Options, whereupon such adjustment shall be made in the manner provided in subdivision (c) above. In case at any time after the Initial Date the Company shall be required to increase the number of Additional Shares of Common Stock subject to any Option or into which any Convertible Securities are convertible or exchangeable pursuant to the operation of anti-dilution provisions applicable thereto, such Additional Shares shall be deemed to be issued for purposes of Section 6.02 as of the time of such increase. 6.04 Treatment of Stock Dividends, etc. In case the Company at any ---------------------------------- time or from time to time after the Initial Date shall declare or pay any dividend or other distribution on any class of stock of the Company payable in Common Stock, then, and in each such case, Additional Shares of Common Stock shall be deemed to have been issued immediately after the close of business on the record date for the determination of holders of any class of securities entitled to receive such dividend; provided, however, that no Additional Shares -------- ------- of Common Stock shall be deemed to have been issued in the case of any such dividend if the Company shall have declared Warrant Agreement ----------------- 17 such dividend payable, and paid such dividend, with respect to all shares of Warrant Stock then underlying the Warrants. 6.05 Computation of Consideration. For the purposes of this Section 6: ---------------------------- (a) The consideration for the issue or sale of any Additional Shares of Common Stock or for the issue, sale, grant or assumption of any Options or Convertible Securities, irrespective of the accounting treatment of such consideration, shall (i) insofar as it consists of cash, be computed at the amount of cash received by the Company, after deducting any expenses paid or incurred by the Company or any commissions or compensation paid or concessions or discounts allowed to underwriters, dealers or others performing similar services and any accrued interest or dividends in connection with such issue or sale, (ii) insofar as it consists of consideration (including securities) other than cash, be computed at the Fair Value thereof at the time of such issue or sale, after deducting any expenses paid or incurred by the Company for any commissions or compensation paid or concessions or discounts allowed to underwriters, dealers or others performing similar services and any accrued interest or dividends in connection with such issue or sale, and (iii) in case Additional Shares of Common Stock are issued or sold or Convertible Securities are issued, sold, granted or assumed together with other stock or securities or other assets of the Company for a consideration which covers both, be the proportion of such consideration so received, computed as provided in subdivisions (i) and (ii) above, allocable to such Additional Shares of Common Stock or Convertible Securities, as the case may be. (b) Subject to the proviso contained in Section 6.04, all Additional Shares of Common Stock, Options or Convertible Securities issued in payment of any dividend or other distribution on any class of stock of the Company shall be deemed to have been issued without consideration. (c) Additional Shares of Common Stock deemed to have been issued for consideration pursuant to Section 6.03, relating to Options and Convertible Securities, shall be deemed to have been issued for a consideration per share determined by dividing (i) the total amount, if any, received and receivable by the Company as consideration for the issue, sale, grant or assumption of the Options or Convertible Securities in question, plus the minimum aggregate amount of additional consideration (as set forth in the instruments relating thereto, without regard to Warrant Agreement ----------------- 18 any provision contained therein for a subsequent adjustment of such consideration) payable to the Company upon the exercise in full of such Options or the conversion or exchange of such Convertible Securities or, in the case of Options for Convertible Securities, the exercise of such Options for Convertible Securities and the conversion or exchange of such Convertible Securities, in each case computing such consideration as provided in the foregoing subdivision (a), by (ii) the maximum number of shares of Common Stock (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such number) issuable upon the exercise of such Options or the conversion or exchange of such Convertible Securities. (d) Additional Shares of Common Stock issued or deemed to have been issued pursuant to the operation of anti-dilution provisions applicable to Convertible Securities, Options or other securities of the Company (either as a result of the adjustments provided for by the Warrants or otherwise) shall be deemed to have been issued without consideration. 6.06 Adjustments for Combinations, Subdivisions, etc. In case the ------------------------------------------------ outstanding shares of Common Stock shall be combined or consolidated into a lesser number of shares of Common Stock (by reclassification or otherwise) or shall be subdivided into a greater number of shares of Common Stock (by reclassification or otherwise than by payment of a dividend in Common Stock), the Exercise Price in effect immediately prior to such combination or consolidation or subdivision shall, concurrently with the effectiveness of such combination or consolidation or subdivision, be proportionately increased or decreased, as the case may be. 6.07 Dilution in Case of Other Securities. In case any Other ------------------------------------ Securities shall be issued or sold or shall become subject to issue or sale upon the conversion or exchange of any stock (or Other Securities) of the Company (or any issuer of Other Securities or any other Person referred to in Section 6.08) or to subscription, purchase or other acquisition pursuant to any Options issued or granted by the Company (or any such other issuer or Person) for a consideration such as to dilute, on a basis consistent with the standards established in the other provisions of this Section 6, the purchase rights granted by the Warrants, then, and in each such case, the computations, adjustments and readjustments provided for in this Section 6 with respect to the Exercise Price shall be made as nearly as possible in the manner so provided and applied to determine the amount of Other Securities from time to time receivable upon the exercise of the Warrants, so as to protect the holders of the Warrants against the effect of such dilution. 6.08 Consolidation, Merger, Sale of Assets, Reorganization etc. (a) ---------------------------------------------------------- General Provisions. In case the Company, after the Initial Date, (i) shall - ------------------ consolidate with or merge into any other Person and shall not be the continuing or surviving corporation of such consolidation or merger, or (ii) shall permit any other Person to consolidate with or merge into the Company and Warrant Agreement ----------------- 19 the Company shall be the continuing or surviving Person but, in connection with such consolidation or merger, Common Stock or Other Securities shall be changed into or exchanged for cash, stock or other securities of any Person or any other property, or (iii) shall transfer all or substantially all of its properties and assets to any other Person, or (iv) shall effect a capital reorganization or reclassification of Common Stock or Other Securities (other than a capital reorganization or reclassification resulting in the issue of Additional Shares of Common Stock for which adjustment in the Exercise Price is provided in Section 6.02(a) or 6.02(b)), then, and in the case of each such transaction, the Company shall give written notice thereof to each Holder of Warrants not less than 45 days prior to the consummation thereof and proper provision shall be made so that, upon the basis and the terms and in the manner provided in this Section 6.08, each Holder of Warrants, upon the exercise thereof at any time after the consummation of such transaction, shall be entitled to receive, at the aggregate Exercise Price in effect at the time of such consummation for all Common Stock (or Other Securities) issuable upon such exercise immediately prior to such consummation, in lieu of the Common Stock (or Other Securities) issuable upon such exercise prior to such consummation, the following: the highest amount of cash, securities or other property to which such Holder would actually have been entitled as a shareholder upon such consummation if such Holder had exercised such Warrants immediately prior thereto, subject to adjustments (subsequent to such consummation) as nearly equivalent as possible to the adjustments provided for in this Section 6, provided that if a purchase, tender or exchange offer shall have been made -------- to and accepted by the holders of Common Stock under circumstances in which, upon completion of such purchase, tender or exchange offer, the maker thereof, together with members of any group (within the meaning of Rule 13d-5(b)(l) under the Exchange Act) of which such maker is a part, and together with any affiliate or associate of such maker (within the meaning of Rule 12b-2 under the Exchange Act) and any members of any such group of which any such affiliate or associate is a part, own beneficially (within the meaning of Rule 13d-3 under the Exchange Act) more than 50% of the outstanding shares of Common Stock, and if any Holder of Warrants so designates in such notice given to the Company, such Holder shall be entitled to receive the highest amount of cash, securities or other property to which such Holder would actually have been entitled as a shareholder if such Holder had exercised its Warrants prior to the expiration of such purchase, tender or exchange offer, accepted such offer and all of the Common Stock held by such Holder had been purchased pursuant to such purchase, tender or exchange offer, subject to adjustments (from and after the consummation of such purchase, tender or exchange offer) as nearly equivalent as possible to the adjustments provided for in this Section 6; provided that, if any of the transactions described in -------- subdivisions (i) through (iv) of this Section 6.08(a) involve the issuance of Voting Common Stock, the Company shall not effect any of such transactions unless, immediately after the date of the consummation of such transaction, the Acquiring Person or its Parent is required to file, by virtue of having an outstanding class of Voting Common Stock (or equivalent equity interests), reports with the Commission pursuant to section 13 or section 15(d) of the Exchange Act, and such Warrant Agreement ----------------- Voting Stock (or equivalent equity interest) is listed or admitted to trading on a national securities exchange or is included for trading on the NASDAQ National Market or Small Cap Market. (b) Assumption of Obligations. Notwithstanding anything contained in ------------------------- this Agreement to the contrary, the Company will not effect any of the transactions described in subdivisions (i) through (iv) of Section 6.08(a) unless, prior to the consummation thereof, each Person (other than the Company) which may be required to deliver any cash, stock or other securities or other property upon the exercise of any Warrants as provided herein shall assume, by written instrument delivered to, and reasonably satisfactory to, the Holder of such Warrants, (i) the obligations of the Company under this Agreement (and if the Company shall survive the consummation of such transaction, such assumption shall be in addition to, and shall not release the Company from, any continuing obligations of the Company under this Agreement) and (ii) the obligation to deliver to such holder such cash, stock or other securities or other property as, in accordance with the foregoing provisions of this Section 6.08, such Holder may be entitled to receive. 6.09 Other Dilutive Events. In case any event shall occur as to --------------------- which the provisions of this Section 6 is not strictly applicable but the failure to make any adjustment would not fairly protect the purchase rights represented by the Warrants in accordance with the essential intent and principles of this Section 6, then, in each such case, an adjustment on a basis consistent with the essential intent and principles established in this Section 6, necessary to preserve, without dilution, the purchase rights represented by the Warrants shall be made. 6.10 No Dilution or Impairment. The Company will not, by amendment ------------------------- of its articles of incorporation or through any consolidation, merger, reorganization, transfer of assets, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Agreement, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the holders of Warrants against dilution or other impairment. Without limiting the generality of the foregoing, the Company (a) will not permit the par value of any shares of stock receivable upon the exercise of Warrants to exceed the amount payable therefor upon such exercise, and, if the Exercise Price in effect at any time shall be reduced to such par value, the Company will promptly cause the par value of such shares to be reduced to $0.01, (b) will take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable shares of stock upon the exercise of all of the Warrants from time to time outstanding, (c) will not take any action which results in any adjustment of the Exercise Price if the total number of shares of Common Stock (or Other Securities) issuable after the action upon the exercise of all of the Warrants would exceed the total number of shares of Common Stock (or Other Securities) then authorized by the Company's certificate of incorporation and available for the purpose of issue upon such exercise, (d) will not issue any capital stock of any class which has the right to more than one vote per Warrant Agreement ----------------- 21 share and (e) will not issue any security other than Common Stock unless the rights of the holders thereof shall be limited to a fixed sum or percentage of par value or a sum determined by reference to a formula based on a published index of interest rates, an interest rate publicly announced by a financial institution or a similar indicator of interest rates in respect of interest or participation in dividends and to a fixed sum or percentage of par value as principal or in any distribution of assets. 6.11 Accountants' Report as to Adjustments. In each case of any ------------------------------------- adjustment or readjustment in the shares of Warrant Stock (or Other Securities) issuable upon the exercise of the Warrants, the Company at its expense will promptly compute such adjustment or readjustment in accordance with the terms of the Warrants and cause independent public accountants of recognized national standing selected by the Company (which may be the regular auditors of the Company) to verify such computation and prepare a report setting forth such adjustment or readjustment and showing in reasonable detail the method of calculation thereof and the facts upon which such adjustment or readjustment is based, including without limitation a statement of (a) the consideration received or to be received by the Company for any Additional Shares of Common Stock issued or sold or deemed to have been issued, (b) the number of shares of Common Stock outstanding or deemed to be outstanding, and (c) the Exercise Price in effect immediately prior to such issue or sale and as adjusted and readjusted on account thereof. The Company will forthwith mail a copy of each such report to each holder of a Warrant and will, upon the written request at any time of any Holder of a Warrant, furnish to such Holder a like report setting forth the Exercise Price at the time in effect and showing in reasonable detail how it was calculated. The Company will also keep copies of all such reports at its principal office and will cause the same to be available for inspection at such office during normal business hours by any Holder of a Warrant or any prospective purchaser of a Warrant designated by the Holder thereof. 6.12 Notices of Corporate Action. In the event of --------------------------- (a) any taking by the Company of a record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend or other distribution, or any right to subscribe for, purchase or otherwise acquire any shares of stock of any class or any other securities or property, or to receive any other right, or (b) any capital reorganization of the Company, any reclassification or recapitalization of the capital stock of the Company or any consolidation or merger involving the Company and any other Person or any transfer of all or substantially all the assets of the Company to any other Person, or (c) any voluntary or involuntary dissolution, liquidation or winding- up of the Company, Warrant Agreement ----------------- 22 the Company will mail to each Holder of a Warrant a notice specifying (i) the date or expected date on which any such record is to be taken for the purpose of such dividend, distribution or right, and the amount and character of such dividend, distribution or right, and (ii) the date or expected date on which any such reorganization, reclassification, recapitalization, consolidation, merger, transfer, dissolution, liquidation or winding-up is to take place and the time, if any such time is to be fixed, as of which the holders of record of Common Stock (or Other Securities) shall be entitled to exchange their shares of Common Stock (or Other Securities) for the securities or other property deliverable upon such reorganization, reclassification, recapitalization, consolidation, merger, transfer, dissolution, liquidation or winding-up. Such notice shall be mailed at least 20 days prior to the date therein specified, in the case of any date referred to in the foregoing subdivision (i), and at least 45 days prior to the date therein specified, in the case of the date referred to in the foregoing subdivision (ii). SECTION 7. Holders' Rights. --------------- 7.01 Delivery Expenses. If any Holder surrenders any certificate for ----------------- Warrants or Warrant Stock to the Company or a transfer agent of the Company for exchange for instruments of other denominations or registered in another name or names, the Company shall cause such new instruments to be issued and shall pay the cost of delivering to or from the office of such Holder from or to the Company or its transfer agent, duly insured, the surrendered instrument and any new instruments issued in substitution or replacement for the surrendered instrument. 7.02 Taxes. The Company shall pay all taxes (other than federal, ----- state or local income taxes) which may be payable in connection with the execution and delivery of this Agreement or the issuance of the Warrants and Warrant Stock hereunder or in connection with any modification of this Agreement or the Warrants and shall hold each Holder harmless without limitation as to time against any and all liabilities with respect to all such taxes. The obligations of the Company under this Section 7.02 shall survive any redemption, repurchase or acquisition of Warrants or Warrant Stock by the Company, any termination of this Agreement, and any cancellation or termination of the Warrants. 7.03 Replacement of Instruments. Upon receipt by the Company of -------------------------- evidence reasonably satisfactory to it of the ownership of and the loss, theft, destruction or mutilation of any certificate or instrument evidencing any Warrants or Warrant Stock, and (a) in the case of loss, theft or destruction, of indemnity reasonably satisfactory to it (provided that, if the Company's Common Stock is not at -------- the time publicly traded and the owner of the same is Investor or an institutional lender or investor, its own agreement of indemnity shall be deemed to be satisfactory), or (b) in the case of mutilation, upon surrender or cancellation thereof, Warrant Agreement ----------------- 23 the Company, at its expense, shall execute, register and deliver, in lieu thereof, a new certificate or instrument for (or covering the purchase of) an equal number of Warrants or Warrant Stock. 7.04 Indemnification. The Company shall indemnify and hold harmless --------------- each of the Investor and the Holders and each of their respective directors, officers, employees, shareholders, members, Affiliates and agents (each, an "indemnified person") on demand from and against any and all losses, claims, - ------------------- damages, liabilities (or actions or other proceedings commenced or threatened in respect thereof) and expenses that arise out of, result from, or in any way relate to, this Agreement or the Warrants or Warrant Stock, or in connection with the other transactions contemplated hereby and thereby, other than such losses, claims, damages, liabilities and expenses relating to the value of the Warrants or Warrant Stock or other securities issued to the Investor or the Holders in connection with this Agreement, the Warrants or the Warrant Stock or the other transactions contemplated hereby or thereby unless such losses, claims, damages, liabilities, and expenses are directly related to a breach by the Company of this Agreement or other agreements entered into in connection with the other transactions contemplated hereby or thereby, and to reimburse each indemnified person, upon its demand, for any legal or other expenses incurred in connection with investigating, defending or participating in the defense of any such loss, claim, damage, liability, action or other proceeding (whether or not such indemnified person is a party to any action or proceeding out of which any such expenses arise), other than any of the foregoing claimed by any indemnified person to the extent there has been a final judicial determination not subject to appeal that it was incurred by reason of the gross negligence or willful misconduct of such indemnified person. No indemnified person shall be responsible or liable to either the Company or any other Person for any damages which may be alleged as a result of or relating to this Agreement or the Warrants or Warrant Stock (other than in connection with a breach of this Agreement), or in connection with the other transactions contemplated hereby and thereby other than any of the foregoing claimed by any indemnified person to the extent there has been a final judicial determination not subject to appeal that it was incurred by reason of the gross negligence or willful misconduct of such indemnified person. 7.05 Inspection Rights. From and after the date hereof, the Company ----------------- shall afford any Holder or its authorized agents, access, at reasonable times, upon reasonable prior notice, (i) to inspect the books and records of the Company, (ii) to discuss with management of the Company the business and affairs of the Company and (iii) to inspect the properties of the Company. SECTION 8. Other Covenants of Company. The Company agrees with each -------------------------- Holder that, so long as any of the Warrants and/or Warrant Stock shall be outstanding: 8.01 Availability of Information. The Company will cooperate with --------------------------- each holder of any Restricted Securities in supplying such information as may be necessary for such holder to complete and file any information reporting forms presently or hereafter required by the Commission as a condition to the availability of an exemption from the Securities Act for the sale Warrant Agreement ----------------- 24 of any Restricted Securities. The Company will furnish to each holder of any Warrants, promptly upon their becoming available, copies of all financial statements, reports, notices and proxy statements sent or made available generally by the Company to its stockholders, and copies of all regular and periodic reports and all registration statements and prospectuses filed by the Company with the NASD, any securities exchange or with the Commission. 8.02 Repurchases and Redemption. Except as otherwise specifically -------------------------- provided herein, and other than repurchases or redemptions of shares of Common Stock from management pursuant to the terms set forth in Annex 2 hereto, the ------- Company shall not effect any repurchase or redemption of shares of Common Stock, or Options or Convertible Securities (other than pursuant to their respective terms), and shall cause its Subsidiaries not to effect any repurchase or redemption of shares of Common Stock, or Options or Convertible Securities (other than pursuant to their respective terms), from any Shareholder or holder of Options or Convertible Securities, without the prior written consent of the Requisite Holders of Warrants. 8.03 Transactions with Affiliates. Except as expressly permitted by ---------------------------- this Agreement, the Company shall not, nor shall it permit its Subsidiaries to, directly or indirectly, sell, lease or otherwise transfer any property or assets to, or purchase, lease or otherwise acquire any property or assets from, or otherwise engage in any other transactions with or for the benefit of, any of its Affiliates, except (a) in the ordinary course of business at prices and on terms and conditions not less favorable to the Company or such Subsidiary than could be obtained on an arm's-length basis from unrelated third parties, (b) transactions between or among the Company and its wholly-owned Subsidiaries not involving any other Affiliate and (c) any transactions or arrangements existing on the date hereof. 8.04 Restrictions on Performance. The Company shall not at any time --------------------------- after the Initial Date enter into an agreement or other instrument limiting in any manner its ability to perform its obligations under this Agreement or the Warrants, or making such performance or the issuance of Warrant Stock upon the exercise of any Warrant a default under any such agreement or instrument other than the Senior Secured Note or any other instrument issued by the Company in the Additional Financing. 8.05 Modification of Other Equity Documents. The Company shall not -------------------------------------- amend or consent to any modification, supplement or waiver of any provision of any Other Equity Documents in any manner which would have an adverse effect on the Holders, in each case without the prior written consent of the Requisite Holders of Warrants. Without limiting the generality of the foregoing, the Company shall not amend, or consent to any modification, supplement or waiver of any provision of any Other Equity Documents in a way which would (i) restrict the transferability of the Warrants and the Warrant Stock, (ii) restrict the transferability of the rights of any Holder in this Agreement to any transferee of all or a portion of such Holder's Warrants and/or Warrant Stock or (iii) require any consent or other approval of any Person to the exercise of the Warrants by any Holder, the issuance of Warrant Stock upon such exercise or the Warrant Agreement ----------------- 25 admission of such Holder as a member of the Company upon such exercise. Anything in the Rights Agreement to the contrary notwithstanding, on issuance of shares of Common Stock on exercise of Warrants prior to the redemption or exercise of Rights (as defined in the Rights Agreement), the Company shall issue Rights, or after the Distribution Date (as therein) Rights Certificates, in connection with such exercise. 8.06 Ownership of Subsidiaries. The Company will, and will cause ------------------------- each of its Subsidiaries to take such action as will be necessary from time to time to ensure that the Company or a Subsidiary owns 100% of each class of capital stock of each Subsidiary. 8.07 Reservation of Stock. etc. The Company will at all times -------------------------- reserve and keep available, solely for issuance and delivery upon exercise of the Warrants, the number of shares of Warrant Stock (or Other Securities) from time to time issuable upon exercise of all Warrants at the time outstanding. All shares of Common Stock (or Other Securities) shall be duly authorized and, when issued upon such exercise, shall be validly issued and, in the case of shares, fully paid and nonassessable with no liability on the part of the holders thereof. 8.08 Listing on Securities Exchanges. The Company will list on each ------------------------------- national securities exchange on which any Common Stock may at any time be listed, subject to official notice of issuance upon exercise of the Warrants, and will maintain such listing of, all shares of Warrant Stock from time to time issuable upon exercise of the Warrants. The Company will also so list on each national securities exchange, and will maintain such listing of, any Other Securities if at the time any securities of the same class shall be listed on such national securities exchange by the Company. SECTION 9. Miscellaneous. ------------- 9.01 Waiver. No failure on the part of any Holder to exercise and no ------ delay in exercising, and no course of dealing with respect to, any right, power or privilege under this Agreement or the Warrants shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or privilege under this Agreement or the Warrant preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The remedies provided herein are cumulative and not exclusive of any remedies provided by law. 9.02 Notices. ------- (a) All notices, requests and other communications provided for herein and the Warrants (including any waivers or consents under this Agreement and the Warrants) shall be given or made in writing, (i) if to the Company: Warrant Agreement ----------------- 26 Frontier Airlines, Inc. 12015 East 46th Avenue Denver, Colorado 80239 Attention: Arthur T. Voss, General Counsel Telephone No.: (303) 371-7400 Fax No.: (303) 371-9669 (ii) if to the Investor: Wexford Management LLC 411 West Putnam Avenue Greenwich, Connecticut 06830 Attention: Joseph Jacobs, President Telephone No.: (203) 862-7020 Fax No.: (203) 862-7320 and Attention: Arthur Amron, General Counsel Telephone No.: (203) 862-7012 Fax No.: (203) 862-7312 (iii) if to any other Person who is the registered Holder of any Warrants or Warrant Stock, to the address for such Holder as it appears in the stock or warrant ledger of the Company; or, in the case of any Holder, at such other address as shall be designated by such party in a notice to the Company; or, in the case of the Company, at such other address as the Company may designate in a notice to the Investor and all other Holders. (b) All such notices, requests and other communications shall be: (i) personally delivered, sent by courier guaranteeing overnight delivery or sent by registered or certified mail, return receipt requested, postage prepaid, in each case given or addressed as aforesaid; and (ii) effective upon receipt. 9.03 Expenses, Etc. The Company agrees to pay or reimburse the -------------- Investor and, if applicable, the Holders for: (a) all reasonable out-of-pocket costs and expenses of the Investor and the Holders incurred in connection with the negotiation, preparation, execution and delivery of this Agreement and the issuance of Warrants hereunder in accordance with the terms of paragraph 8 of the Senior Secured Note; and (b) all reasonable costs and expenses of the Investor Warrant Agreement ----------------- 27 and the Holders (including reasonable legal fees and expenses) in connection with (i) any default by the Company hereunder or under the Warrants or any enforcement proceedings resulting therefrom, and (ii) the enforcement of this Section 9.03. 9.04 Amendments, Etc. Except as otherwise expressly provided in this ---------------- Agreement, any provision of this Agreement may be amended or modified only by an instrument in writing signed by the Company and the Requisite Holders of Warrants and, to the extent any such amendment or modification could have an adverse effect on the rights hereunder of the holders of Warrant Stock, a majority of such holders; provided, however, that no such amendment or waiver -------- ------- shall, without the written consent of all Holders of Warrants and Warrant Stock, amend this Section 9.04 or the definition of "Requisite Holders of Warrants". 9.05 Successors and Assigns. This Agreement shall be binding upon ---------------------- and inure to the benefit of the parties hereto and their respective successors and permitted assigns including, without limitation, all Holders of Warrants. 9.06 Survival. All representations and warranties made by the -------- Company herein or in any certificate or other instrument delivered by it or on its behalf under this Agreement shall be considered to have been relied upon by the Investor and shall survive the issuance of the Warrants or the Warrant Stock regardless of any investigation made by or on behalf of the Investor. All statements in any such certificate or other instrument so delivered shall constitute representations and warranties by the Company hereunder. All representations and warranties made by the Investor herein shall be considered to have been relied upon by the Company and shall survive the issuance to the Investor of the Warrants or the Warrant Stock regardless of any investigation made by the Company or on its behalf. 9.07 Specific Performance. Damages in the event of breach of this -------------------- Agreement by a Holder or the Company would be difficult, if not impossible, to ascertain, and it is therefore agreed that each Holder and the Company, in addition to and without limiting any other remedy or right it may have, will have the right to an injunction or other equitable relief in any court of competent jurisdiction, enjoining any such breach, and enforcing specifically the terms and provisions hereof, and each Holder and the Company hereby waives any and all defenses it may have on the ground of lack of jurisdiction or competence of the court to grant such an injunction or other equitable relief. The existence of this right will not preclude the Holders or the Company from pursuing any other rights and remedies at law or in equity which the Holders or the Company may have. 9.08 WAIVER OF JURY TRIAL. THE COMPANY AND THE INVESTOR HEREBY -------------------- KNOWINGLY, VOLUNTARILY, AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF , UNDER, OR IN CONNECTION WITH, THIS AGREEMENT, THE WARRANTS OR ANY OTHER DOCUMENT DELIVERED IN Warrant Agreement ----------------- 28 CONNECTION HEREWITH, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN), OR ACTIONS OF THE COMPANY OR THE INVESTOR RELATING HERETO. 9.09 Consent to Jurisdiction and Service of Process. Each party ---------------------------------------------- hereby irrevocably submits to the exclusive jurisdiction of the United States District Court for the Southern District of New York or any court of the State of New York located in the Borough of Manhattan in the City of New York in any action, suit or proceeding arising out of or relating to this Agreement or the Warrants or any of the transactions contemplated hereby, and agrees that any such action, suit or proceeding shall be brought only in such court, provided, -------- however, that such consent to jurisdiction is solely for the purpose referred to - ------- in this Section and shall not be deemed to be a general submission to the jurisdiction of said courts or in the State of New York other than for such purpose. Each party hereby irrevocably waives, to the fullest extent permitted by Law, any objection that it may now or hereafter have to the laying of the venue of any such action, suit or proceeding brought in such a court and any claim that any such action, suit or proceeding brought in such a court has been brought in an inconvenient forum. 9.10 Limitation of Liability. No provision hereof, in the absence of ----------------------- affirmative action by any Holder to purchase shares of Common Stock, and no mere enumeration herein of the rights or privileges of the Holder, shall give rise to any liability of the Holder for the Exercise Price or as a shareholder of the Company, whether such liability is asserted by the Company, by any creditor of the Company or any other Person. 9.11 Captions. The captions and section headings appearing herein -------- are included solely for convenience of reference and are not intended to affect the interpretation of any provi sion of this Agreement. 9.12 Counterparts. This Agreement may be executed in any number of ------------ counterparts, all of which taken together shall constitute one and the same instrument and any of the parties hereto may execute this Agreement by signing any such counterpart signature page or counterpart. 9.13 Governing Law. This Agreement shall be governed by, and ------------- construed in accordance with, the law of the State of New York without giving effect to the conflicts of law principles thereof. 9.14 Severability. If any provision of this Agreement is held to be ------------ illegal, invalid or unenforceable under any present or future law, and if the rights or obligations of any party hereto under this Agreement will not be materially and adversely affected thereby, (a) such provision will be fully severable, (b) this Agreement will be construed and enforced as if such illegal, invalid or unenforceable provision had never comprised a part hereof, (c) the remaining provisions of this Agreement will remain in full force and effect and will not be affected by the Warrent Agreement ----------------- illegal, invalid or unenforceable provision or by its severance herefrom and (d) in lieu of such illegal, invalid or unenforceable provision, there will be added automatically as a part of this Agreement a legal, valid and enforceable provision as similar in terms to such illegal, invalid or unenforceable provision as may be possible. 9.15 Entire Agreement. This Agreement supersedes all prior ---------------- discussions and agreements between the parties with respect to the subject matter hereof, and together with the Warrant and the Registration Rights Agreement contains the sole and entire agreement between the parties hereto with respect to the subject matter hereof. IN WITNESS WHEREOF, the parties hereto have duly executed this Warrant Agreement as of the date first above written. FRONTIER AIRLINES, INC. By ____________________ Name: Title: WEXFORD MANAGEMENT LLC By _____________________ Name: Title: Warrant Agreement ----------------- Annex 1 to Warrant Agreement FORM OF ASSIGNMENT ------------------ (To be executed by the registered holder hereof) FOR VALUE RECEIVED the undersigned registered owner of this Warrant hereby sells, assigns and transfers unto the assignee named below all the rights of the undersigned under this Warrant with respect to the number of shares of Warrant Stock covered thereby set forth hereinbelow unto: Number of Shares Name of Assignee Address of Common Stock - -------------------------------------------------------------------------------- Dated:__________________ ________________________________ Signature of Registered Holder ________________________________ Name of Registered Holder (Please Print) Witness: ______________________ EXHIBIT A WARRANT THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS, AND ACCORDINGLY, SUCH SECURITIES MAY NOT BE TRANSFERRED, SOLD OR OTHERWISE DISPOSED OF EXCEPT IN COMPLIANCE WITH THE REGISTRATION OR QUALIFICATION PROVISIONS OF APPLICABLE FEDERAL AND STATE SECURITIES LAWS OR APPLICABLE EXEMPTIONS THEREFROM. No. of Shares of Common Stock: 3,000,000 Warrant No. Wex-1 WARRANT to Purchase Common Stock of FRONTIER AIRLINES, INC. THIS IS TO CERTIFY THAT WEXFORD MANAGEMENT LLC, as Agent ("Wexford"), ------- or its registered assigns (the "Holder"), is entitled to purchase in whole or in ------ part from FRONTIER AIRLINES, INC., a Colorado corporation (the "Company"), at ------- any time and from time to time on or after the date hereof with respect to 1,000,000 warrants and on or after December 17, 1997 with respect to the remaining 2,000,000 warrants, subject to cutback as provided in Exhibit A (as defined below), but not later than 5:00 p.m., New York City time, on December 15, 2001 (the "Expiration Date"), three million shares of common stock of the --------------- Company (the "Common Stock") at a purchase price of $3.00 per share (the "Exercise Price"), subject to the terms and conditions set forth herein and in - --------------- the Warrant Agreement to be entered into between the Company and Wexford (the "Warrant Agreement") and prior to the execution and delivery thereof, subject to - ------------------ the terms and conditions set forth on Exhibit A to the Letter Agreement entered into between the Company and Wexford ("Exhibit A"), each such purchase of Common --------- Stock to be made, and to be deemed effective for the purpose of determining the date of exercise, only upon surrender of this Warrant to the Company at 12015 East 46th Avenue, Denver, Colorado 80239, with the Form of Exercise attached hereto, or a reasonable facsimile thereof (the "Exercise Notice"), duly --------------- completed and signed, and upon payment in full to the Company of the Exercise Price by one or more of the following: (i) in cash or (ii) by certified or official bank check to the order of the Company or (iii) by wire transfer of immediately available funds to an account designated by the Company, or (iv) by tender of unpaid principal and interest thereon owing under the Senior Secured Note and any New Senior Secured Notes, or (v) in the event the then Current Market Price is greater than $5.00, by delivery of this Warrant Certificate to the Company for cancellation in accordance with the following formula: in exchange for each share of Common Stock issuable on exercise of each Warrant represented by this Warrant Certificate that is being exercised, such holder shall receive such number of shares of Common Stock as is equal to the product of (x) the number of shares of Common Stock issuable upon exercise of the Warrants being exercised at such time multiplied by (y) a fraction, the numerator of which is the Current Market Price per share of Common Stock at such time minus the Exercise Price per share of Common Stock at such time, and the denominator of which is the Current Market Price per share of Common Stock at such time. For purposes of this Warrant, "Current Market Price", shall mean, with respect to a share of -------------------- Common Stock as of any date, the average of the daily market prices for each day during the 20 consecutive trading days commencing 30 Business Days before such date as of which such a price can be established in the manner set forth below. The market price for each such Business Day shall be the last sale price on such day as reported in the Consolidated Last Sale Reporting System or as quoted in the National Association of Securities Dealers Automated Quotation System, or if such last sale price is not available, the average of the closing bid and asked prices as reported in either such system, or in any other case the higher bid price quoted for such day as reported by The Wall Street Journal and the National Quotation Bureau pink sheets. Upon receipt thereof, the Company shall, as promptly as practicable and in any event within five Business Days thereafter, execute or cause to be executed and deliver or cause to be delivered to the Holder a stock certificate or certificates representing the aggregate number of shares of Common Stock issuable upon such exercise ("Warrant Stock") and any other property to which ------------- such Holder is entitled. The stock certificate or certificates for Warrant Stock so delivered shall be in such denominations as may be specified in the Exercise Notice and shall be registered in the name of the Holder or such other name or names as shall be designated in such Exercise Notice. Such stock certificate or certificates shall be deemed to have been issued and the Holder or any other Person so designated to be named therein shall be deemed to have become a holder of record of such shares, including, to the extent permitted by law and to the extent such shares represent voting stock of the Company, the right to vote such shares or to consent or to receive notice as a shareholder, as of the date on which the last of the Exercise Notice, payment of the Exercise Price and this Warrant is received by the Company as aforesaid. If this Warrant shall have been exercised only in part, the Company shall, at the time of delivery of the certificate or certificates representing Warrant Stock and other securities, execute and deliver to the Holder a new Warrant evidencing the rights of the Holder to purchase the unpurchased Common Stock called for by this Warrant, which new Warrant shall in all other respects be identical with this Warrant, or, at the request of the Holder, appropriate notation may be made on this Warrant and the same returned to the Holder. All shares of Common Stock issuable upon the exercise of this Warrant shall, upon payment therefor in accordance herewith, be duly and validly issued, fully paid and nonassessable and free and clear of any liens, charges or other encumbrances of any nature. Upon the execution and delivery of the Warrant Agreement, this Warrant shall be exchanged at the office of the Company referred to above for new Warrants in substantially the form hereof and representing the same aggregate number of Warrants evidenced by this Warrant. This Warrant is issued in accordance with Exhibit A and is subject to the terms and provisions of Exhibit A, which terms and provisions are hereby incorporated by reference herein and made a part hereof. Every holder of this Warrant consents to all of the terms contained in Exhibit A by acceptance hereof. The Exercise Price and the number of shares of Common Stock issuable upon exercise of this Warrant are subject to adjustment in certain events as provided in Exhibit A and as to be provided in the Warrant Agreement. The Company shall not be required to issue a fractional share of Common Stock upon exercise of this Warrant. As to any fraction of a share which the Holder hereof would otherwise be entitled to purchase upon such exercise, the Company shall pay a cash adjustment in respect of such final fraction in an amount equal to the same fraction of the Current Market Price per share of Common Stock on the date of exercise. The Warrants and the Warrant Stock shall be transferable on or after December 17, 1997 subject only to applicable securities laws. Upon any such transfer a new Warrant or new Warrants of different denominations, representing in the aggregate a like number of Warrants, will be issued to the transferee. Every Holder hereof, by accepting this Warrant, consents and agrees with the Company and with every subsequent Holder of this Warrant that until due presentation for the registration of transfer of this Warrant on the Warrant register maintained by the Company, the Company may deem and treat the Person in whose name this Warrant is registered as the absolute and lawful owner for all purposes whatsoever and the Company shall not be affected by any notice to the contrary. The Company agrees to provide registration rights on the terms contained in Exhibit A. Nothing contained in the Warrant Agreement or in this Warrant shall be construed as conferring on the holder of any Warrants or his or her transferee any rights whatsoever as a shareholder of the Company. No provision hereof, in the absence of affirmative action by the Holder hereof to purchase shares of Common Stock, and no mere enumeration herein of the rights or privileges of such Holder, shall give rise to any liability of such Holder for the Exercise Price or as a shareholder of the Company, whether such liability is asserted by the Company, by any creditor of the Company or any other Person. Any notices and other communications pursuant to the provisions hereof shall be sent in accordance with Paragraph 10 of the Senior Secured Note of the Company dated the date hereof in favor of Wexford (the "Senior Secured Note"). This Warrant shall be deemed a contract made under the laws of the State of New York and for all purposes shall be construed in accordance with the laws of the State of New York without giving effect to the principles of conflicts of laws thereof. Each term used herein without definition shall have the meaning assigned thereto in the Senior Secured Note. IN WITNESS WHEREOF, the Company has duly executed this Warrant. Dated: December 2, 1997 FRONTIER AIRLINES, INC. By___________________________ Name: Samuel D. Addoms Title: President Annex A to Warrant FORM OF EXERCISE ---------------- (To be executed by the registered holder hereof) The undersigned registered owner of this Warrant irrevocably exercises this Warrant for the purchase of Common Stock of Frontier Airlines, Inc., and herewith makes payment therefor, all at the price and on the terms and conditions specified in this Warrant, and requests that (i) certificates and/or other instrument covering such Common Stock be issued in accordance with the instructions given below and (ii) if such Common Stock shall not include all of the Common Stock to which the Holder is entitled under this Warrant, that a new Warrant of like tenor and date for the unpurchased balance of the Common Stock issuable hereunder be delivered to the undersigned. Dated: _________________ ________________________________ (Signature of Registered Holder) Instructions for issuance and registration of Common Stock: _____________________________ Name of Registered Holder (please print) Social Security or Other Identifying Number:_____________________________ Please deliver certificate to the following address: _____________________________________ Street _____________________________________ City, State and Zip Code EXHIBIT B WARRANT THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS, AND ACCORDINGLY, SUCH SECURITIES MAY NOT BE TRANSFERRED, SOLD OR OTHERWISE DISPOSED OF EXCEPT IN COMPLIANCE WITH THE REGISTRATION OR QUALIFICATION PROVISIONS OF APPLICABLE FEDERAL AND STATE SECURITIES LAWS OR APPLICABLE EXEMPTIONS THEREFROM. No. of Shares of Common Stock: 1,750,000 Warrant No. Wex-2 WARRANT to Purchase Common Stock of FRONTIER AIRLINES, INC. THIS IS TO CERTIFY THAT WEXFORD MANAGEMENT LLC, as Agent ("Wexford"), ------- or its registered assigns (the "Holder"), is entitled to purchase in whole or in ------ part from FRONTIER AIRLINES, INC., a Colorado corporation (the "Company"), at ------- any time and from time to time on or after the date hereof, but not later than 5:00 p.m., New York City time, on December 15, 2001 (the "Expiration Date"), --------------- 1,750,000 shares of common stock of the Company (the "Common Stock") at a purchase price of $3.00 per share (the "Exercise Price"), subject to the terms -------------- and conditions set forth herein and in the Amended and Restated Warrant Agreement dated as of February 27, 1998 between the Company and Wexford (the "Warrant Agreement"), each such purchase of Common Stock to be made, and to be - ------------------ deemed effective for the purpose of determining the date of exercise, only upon surrender of this Warrant to the Company at 12015 East 46th Avenue, Denver, Colorado 80239, with the Form of Exercise attached hereto, or a reasonable facsimile thereof (the "Exercise Notice"), duly completed and signed, and upon --------------- payment in full to the Company of the Exercise Price by one or more of the following: (i) in cash or (ii) by certified or official bank check to the order of the Company or (iii) by wire transfer of immediately available funds to an account designated by the Company, or (iv) by tender of unpaid principal and interest thereon owing under the Senior Secured Note, or (v) in the event the then Current Market Price is greater than $5.00, by delivery of this Warrant Certificate to the Company for cancellation in accordance with the following formula: in exchange for each share of Common Stock issuable on exercise of each Warrant represented by this Warrant Certificate that is being exercised, such holder shall receive such number of shares of Common Stock as is equal to the product of (x) the number of shares of Common Stock issuable upon exercise of the Warrants being exercised at such time multiplied by (y) a fraction, the numerator of which is the Current Market Price per share of Common Stock at such time minus the Exercise Price per share of Common Stock at such time, and the denominator of which is the Current Market Price per share of Common Stock at such time. For purposes of this Warrant, "Current Market Price", shall mean, -------------------- with respect to a share of Common Stock as of any date, the average of the daily market prices for each day during the 20 consecutive trading days commencing 30 Business Days before such date as of which such a price can be established in the manner set forth below. The market price for each such Business Day shall be the last sale price on such day as reported in the Consolidated Last Sale Reporting System or as quoted in the National Association of Securities Dealers Automated Quotation System, or if such last sale price is not available, the average of the closing bid and asked prices as reported in either such system, or in any other case the higher bid price quoted for such day as reported by The Wall Street Journal and the National Quotation Bureau pink sheets. Upon receipt thereof, the Company shall, as promptly as practicable and in any event within five Business Days thereafter, execute or cause to be executed and deliver or cause to be delivered to the Holder a stock certificate or certificates representing the aggregate number of shares of Common Stock issuable upon such exercise ("Warrant Stock") and any other property to which ------------- such Holder is entitled. The stock certificate or certificates for Warrant Stock so delivered shall be in such denominations as may be specified in the Exercise Notice and shall be registered in the name of the Holder or such other name or names as shall be designated in such Exercise Notice. Such stock certificate or certificates shall be deemed to have been issued and the Holder or any other Person so designated to be named therein shall be deemed to have become a holder of record of such shares, including, to the extent permitted by law and to the extent such shares represent voting stock of the Company, the right to vote such shares or to consent or to receive notice as a shareholder, as of the date on which the last of the Exercise Notice, payment of the Exercise Price and this Warrant is received by the Company as aforesaid. If this Warrant shall have been exercised only in part, the Company shall, at the time of delivery of the certificate or certificates representing Warrant Stock and other securities, execute and deliver to the Holder a new Warrant evidencing the rights of the Holder to purchase the unpurchased Common Stock called for by this Warrant, which new Warrant shall in all other respects be identical with this Warrant, or, at the request of the Holder, appropriate notation may be made on this Warrant and the same returned to the Holder. All shares of Common Stock issuable upon the exercise of this Warrant shall, upon payment therefor in accordance herewith, be duly and validly issued, fully paid and nonassessable and free and clear of any liens, charges or other encumbrances of any nature. The Exercise Price and the number of shares of Common Stock issuable upon exercise of this Warrant are subject to adjustment in certain events as provided in the Warrant Agreement. The Company shall not be required to issue a fractional share of Common Stock upon exercise of this Warrant. As to any fraction of a share which the Holder hereof would otherwise be entitled to purchase upon such exercise, the Company shall pay a cash adjustment in respect of such final fraction in an amount equal to the same fraction of the Current Market Price per share of Common Stock on the date of exercise. The Warrants and the Warrant Stock are transferable subject only to applicable securities laws. Upon any such transfer a new Warrant or new Warrants of different denominations, representing in the aggregate a like number of Warrants, will be issued to the transferee. Every Holder hereof, by accepting this Warrant, consents and agrees with the Company and with every subsequent Holder of this Warrant that until due presentation for the registration of transfer of this Warrant on the Warrant register maintained by the Company, the Company may deem and treat the Person in whose name this Warrant is registered as the absolute and lawful owner for all purposes whatsoever and the Company shall not be affected by any notice to the contrary. The Warrants and the Warrant Stock are subject to registration rights under the Registration Rights Agreement dated as of December 17, 1997 between the Company and Wexford. Nothing contained in the Warrant Agreement or in this Warrant shall be construed as conferring on the holder of any Warrants or his or her transferee any rights whatsoever as a shareholder of the Company. No provision hereof, in the absence of affirmative action by the Holder hereof to purchase shares of Common Stock, and no mere enumeration herein of the rights or privileges of such Holder, shall give rise to any liability of such Holder for the Exercise Price or as a shareholder of the Company, whether such liability is asserted by the Company, by any creditor of the Company or any other Person. Any notices and other communications pursuant to the provisions hereof shall be sent in accordance with Paragraph 10 of the Senior Secured Note of the Company dated the date hereof in favor of Wexford (the "Senior Secured Note"). This Warrant shall be deemed a contract made under the laws of the State of New York and for all purposes shall be construed in accordance with the laws of the State of New York without giving effect to the principles of conflicts of laws thereof. Each term used herein without definition shall have the meaning assigned thereto in the Senior Secured Note. IN WITNESS WHEREOF, the Company has duly executed this Warrant. Dated: February 27, 1998 FRONTIER AIRLINES, INC. By___________________________ Name: Samuel D. Addoms Title: President Annex A to Warrant FORM OF EXERCISE ---------------- (To be executed by the registered holder hereof) The undersigned registered owner of this Warrant irrevocably exercises this Warrant for the purchase of Common Stock of Frontier Airlines, Inc., and herewith makes payment therefor, all at the price and on the terms and conditions specified in this Warrant, and requests that (i) certificates and/or other instrument covering such Common Stock be issued in accordance with the instructions given below and (ii) if such Common Stock shall not include all of the Common Stock to which the Holder is entitled under this Warrant, that a new Warrant of like tenor and date for the unpurchased balance of the Common Stock issuable hereunder be delivered to the undersigned. Dated: _________________ ________________________________ (Signature of Registered Holder) Instructions for issuance and registration of Common Stock: _____________________________ Name of Registered Holder (please print) Social Security or Other Identifying Number:_____________________________ Please deliver certificate to the following address: _____________________________________ Street _____________________________________ City, State and Zip Code EX-10.29 6 AMENDED REGISTRATION RIGHTS AGREEMENT EXHIBIT 10.29 FRONTIER AIRLINES, INC. AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT Dated as of February 27, 1997 TABLE OF CONTENTS ----------------- THIS TABLE OF CONTENTS IS NOT PART OF THE AGREEMENT TO WHICH IT IS ATTACHED BUT IS INSERTED FOR CONVENIENCE ONLY. Page No. ---- 1. Requested Registrations................................................ 1 (a) Registration Requests....................................... 1 (b) Limitations on Requested Registrations...................... 2 (c) Registration Statement Form................................. 2 (d) Registration Expenses....................................... 2 (e) Priority in Cutback Registrations........................... 2 2. Piggyback Registrations................................................ 3 (a) Right to Include Registrable Securities..................... 3 (b) Registration Expenses....................................... 3 (c) Priority in Cutback Registrations........................... 3 3. Registration Procedures................................................ 4 4. Underwritten Offerings................................................. 8 (a) Underwritten Requested Offerings............................ 8 (b) Underwritten Piggyback Offerings............................ 8 5. Indemnification........................................................ 9 (a) Indemnification by the Company.............................. 9 (b) Indemnification by the Sellers.............................. 10 (c) Notices of Claims, etc...................................... 10 (d) Contribution................................................ 11 (e) Other Indemnification....................................... 12 (f) Indemnification Payments.................................... 12 6. Covenants Relating to Rule 144......................................... 12 7. Other Registration Rights.............................................. 12 (a) No Existing Agreements...................................... 12 (b) Future Agreements........................................... 12 8. Definitions............................................................ 13 9. Miscellaneous......................................................... 16 (a) Notices..................................................... 16 (b) Entire Agreement............................................ 17 (c) Amendment................................................... 17 (d) Waiver...................................................... 17 (e) Consents and Waivers by Holders of Registrable Securities... 18 (f) No Third Party Beneficiary.................................. 18 (g) Successors and Assigns...................................... 18 (h) Headings.................................................... 18 (i) Invalid Provisions.......................................... 18 (j) Remedies.................................................... 18 (k) Governing Law............................................... 19 (l) Counterparts................................................ 19 -ii- FRONTIER AIRLINES, INC. AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT ----------------------------- This AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT dated as of February 27, 1998 is made and entered into by and between Wexford Management LLC, a Connecticut limited liability company, as Agent (the "Investor"), and -------- Frontier Airlines, Inc., a Colorado corporation (the "Company"). Capitalized ------- terms not otherwise defined herein have the meanings set forth in Section 8. --------- WHEREAS, in connection with (i) the issuance on December 2, 1997 by the Company of a Senior Secured Promissory Note (the "Senior Secured Note") in ------------------- the amount of $5,000,000 to the Investor and (ii) the proposed delivery by the Investor of a commitment letter with respect to additional financial accommodations in favor of the Company aggregating up to $10,000,000 (the "Additional Financing"), as more fully described in that certain letter - --------------------- agreement, dated December 2, 1997, between the Company and the Investor (the "Letter Agreement"), on December 2, 1997, the Company issued to the Investor - ----------------- warrants to purchase 3,000,000 shares of Common Stock (the "Original Warrants"), ----------------- entered into a Warrant Agreement dated as of December 17, 1997 (the "Original -------- Warrant Agreement"), and entered into a Registration Rights Agreement with the - ----------------- Investor dated as of December 17, 1997 (the "Original Registration Rights ---------------------------- Agreement") pursuant to which the Company granted to the Investor certain - --------- registration rights with respect to the Original Warrants, the Common Stock underlying the Original Warrants (the "Original Warrant Stock"), the Senior ---------------------- Secured Note and certain other securities; WHEREAS, pursuant to a letter agreement dated February 27, 1998 (the "February Letter Agreement"), the parties have agreed, among other things, to terminate the Letter Agreement, to exchange warrants to purchase 1,750,000 shares of Common Stock (the "New Warrants") for the Original Warrants, and to amend and restate the Original Warrant Agreement (the "Amended Warrant --------------- Agreement") and the Original Registration Rights Agreement; and WHEREAS, the parties have agreed, pursuant to the February Letter Agreement, to enter into this Amended and Restated Registration Rights Agreement. NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth in this Agreement, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. Requested Registrations. (a) Registration Requests. At any ----------------------- --------------------- time after March 17, 1998, upon the written request of the Investor (either on its own behalf or on behalf of any holder of Registrable Securities) requesting that the Company effect the registration under the Securities Act of all or part of the Investor's (or any such holder's) Registrable Securities and specifying the number of Registrable Securities to be registered and the intended method of disposition thereof, the Company will promptly, and in no event more than 10 Business Days after receipt of such request, give written notice (a "Notice of --------- Requested Registration") of such request - ---------------------- to all other holders of Registrable Securities, and thereupon will use its best efforts to effect the registration under the Securities Act of (*THIS DOES NOT FOLLOW THE FAXED DRAFT) (i) the Registrable Securities which the Company has been so requested to register by the Investor, and (ii) all other Registrable Securities the holders of which have made written requests to the Company for registration thereof within 15 days after the giving of the Notice of Requested Registration (which requests shall specify the intended method of disposition thereof), all to the extent requisite to permit the disposition (in accordance with the intended methods thereof) of the Registrable Securities so to be registered in accordance with Section 3. If requested by the Investor, the method of --------- disposition of all Registrable Securities included in such registration shall be an underwritten offering effected in accordance with Section 4(a). Neither the ------------ Company nor any of its securityholders shall have the right to include any of the Company's securities (other than Registrable Securities) in a registration statement to be filed as part of a Requested Registration. (b) Limitations on Requested Registrations. Notwithstanding anything -------------------------------------- herein to the contrary, the Company shall not be required to honor a request for a Requested Registration if, in the case of a Long-Form Registration, the Company has previously effected one Effective Long-Form Registration; provided -------- that there shall be no limit on the number of registrations effected as Short- Form Registrations, subject to the other provisions of this Section 1(b). ------------ (c) Registration Statement Form. Subject to Section 1(b), requested --------------------------- Registrations shall be on such appropriate registration form promulgated by the Commission as shall be selected by the Company, and shall be reasonably acceptable to the Investor, and shall permit the disposition of such Registrable Securities in accordance with the intended method or methods specified in their request for such registration, but the Company may not effect a Long-Form Registration without the Investor's consent. Notwithstanding the foregoing, if in the case of an underwritten offering on Form S-3 the Managing Underwriter notifies the Company that in its judgment the inclusion of more detailed information of the type required in Form S-1 is of material importance to such offering, the Company shall include in the Registration Statement such information. (d) Registration Expenses. The Company will pay all Registration --------------------- Expenses incurred in connection with any Requested Registration. (e) Priority in Cutback Registrations. If a Requested Registration --------------------------------- becomes a Cutback Registration, the Company will include in any such registration to the extent of the number which the Managing Underwriter advises the Company can be sold in such offering Registrable Securities requested to be included in such registration by the Initiating Holders, pro rata on the basis --- ---- of the number of Registrable Securities requested to be included by such holders. -2- 2. Piggyback Registrations. (a) Right to Include Registrable ----------------------- ---------------------------- Securities. Notwithstanding any limitation contained in Section 1, if the - ---------- --------- Company at any time proposes after the date hereof to effect a Piggyback Registration, it will each such time give written notice (a "Notice of Piggyback ------------------- Registration"), at least 30 days prior to the anticipated filing date, to all - ------------ holders of Registrable Securities of its intention to do so and of such holders' rights under this Section 2, which Notice of Piggyback Registration shall --------- include a description of the intended method of disposition of such securities. Upon the written request of any such holder made within 20 days after receipt of a Notice of Piggyback Registration (which request shall specify the Registrable Securities intended to be disposed of by such holder) , the Company will, subject to the other provisions of this Agreement, include in the registration statement relating to such Piggyback Registration all Registrable Securities which the Company has been so requested to register, all to the extent requisite to permit the disposition of such Registrable Securities in accordance with the intended method of disposition set forth in the Notice of Piggyback Registration. Notwithstanding the foregoing, if, at any time after giving a Notice of Piggyback Registration and prior to the effective date of the registration statement filed in connection with such registration, the Company shall determine for any reason not to register or to delay registration of such securities, the Company may, at its election, give written notice of such determination to each holder of Registrable Securities and, thereupon, (i) in the case of a determination not to register, shall be relieved of its obligation to register any Registrable Securities in connection with such registration (but not from its obligation to pay the Registration Expenses in connection therewith) without prejudice, however, to the rights of any Requesting Holder entitled to do so to request that such registration be effected as a Requested Registration under Section 1, and (ii) in the case of a determination to delay --------- registering, shall be permitted to delay registering any Registrable Securities for the same period as the delay in registering such other securities. No registration effected under this Section 2 shall relieve the Company of its --------- obligations to effect a Requested Registration under Section 1 with respect to --------- Registrable Securities that are not registered and sold thereunder. (b) Registration Expenses. The Company will pay all Registration --------------------- Expenses incurred in connection with each Piggyback Registration. (c) Priority in Cutback Registrations. If a Piggyback Registration --------------------------------- becomes a Cutback Registration, the Company will include in such registration to the extent of the amount of the securities which the Managing Underwriter advises the Company can be sold in such offering: (i) if such Piggyback Registration as initially proposed by the Company was solely a primary registration of its securities, (x) first, the ----- securities proposed by the Company to be sold for its own account, and (y) second, (A) if no other holders of securities of the Company have requested ------ registration of their securities in such registration, any Registrable Securities requested to be included in such registration by Requesting Holders, pro rata on the basis of the number of Registrable Securities --- ---- requested to be included by such holders or (B) if other holders of securities of the Company have requested registration of their securities in such registration, such securities of such holders and any Registrable Securities requested to be included in such registration by Requesting Holders, on a pari passu basis; and -3- (ii) if such Piggyback Registration as initially proposed by the Company was in whole or in part requested by holders of securities of the Company, other than holders of Registrable Securities in their capacities as such, pursuant to demand registration rights, such securities held by the holders initiating such registration and any Registrable Securities requested to be included in such registration by Requesting Holders, on a pari passu basis; and any securities so excluded shall be withdrawn from and shall not be included in such Piggyback Registration. 3. Registration Procedures. If and whenever the Company is required ----------------------- to effect the registration of any Registrable Securities under the Securities Act pursuant to Section 1 or Section 2, the Company will use its best efforts to --------- --------- effect the registration and sale of such Registrable Securities in accordance with the intended method of disposition thereof. Without limiting the foregoing, the Company in each such case will, as expeditiously as possible, use its best efforts: (a) to prepare and file with the Commission (in the case of a Requested Registration, not later than 20 days after the filing by the Company with the Commission of its next required report on Form 10-K or Form 10-Q, as the case may be, under the Exchange Act, or as soon thereafter as possible) the requisite registration statement to effect such registration and to cause such registration statement to become effective, provided that the Company may defer filing a registration statement for up to 90 days after the filing would otherwise be required to be made pursuant to this section if and so long as, in the reasonable judgment of the Company's Board of Directors, the filing of such registration statement within the period otherwise required by this Section 3(a) would compel the ------------ Company to disclose material nonpublic information the disclosure of which would be materially detrimental to the Company or would materially interfere with any material financing, acquisition, corporate reorganization, or merger involving the Company. (b) as far in advance as practical before filing such registration statement or any amendment thereto, to furnish to the Requesting Holders copies of reasonably complete drafts of all such documents proposed to be filed (including exhibits), and any such holder shall have the opportunity to object to any information pertaining solely to such holder that is contained therein and the Company will make the corrections reasonably requested by such holder with respect to such information prior to filing any such registration statement or amendment; (c) to prepare and file with the Commission such amendments and supplements to such registration statement and any prospectus used in connection therewith as may be necessary to maintain the effectiveness of such registration statement and to comply with the provisions of the Securities Act with respect to the disposition of all Registrable Securities covered by such registration statement, in accordance with the intended methods of disposition thereof, until such time as all of such securities have been disposed of in accordance with the intended methods of disposition by the seller or sellers thereof set forth in such registration statement; -4- (d) to promptly notify each Requesting Holder and the underwriter or underwriters, if any: (i) when such registration statement or any prospectus used in connection therewith, or any amendment or supplement thereto, has been filed and, with respect to such registration statement or any post- effective amendment thereto, when the same has become effective; (ii) of any written comments from the Commission with respect to any filing referred to in clause (i) and of any written request by the Commission for amendments or supplements to such registration statement or prospectus; (iii) of the notification to the Company by the Commission of its initiation of any proceeding with respect to the issuance by the Commission of, or of the issuance by the Commission of, any stop order suspending the effectiveness of such registration statement; and (iv) of the receipt by the Company of any notification with respect to the suspension of the qualification of any Registrable Securities for sale under the applicable securities or blue sky laws of any jurisdiction; (e) to furnish to each seller of Registrable Securities covered by such registration statement such number of conformed copies of such registration statement and of each amendment and supplement thereto (in each case including all exhibits and documents incorporated by reference), such number of copies of the prospectus contained in such registration statement (including each preliminary prospectus and any summary prospectus) and any other prospectus filed under Rule 424 promulgated under the Securities Act relating to such holder's Registrable Securities, and such other documents, as such seller may reasonably request to facilitate the disposition of its Registrable Securities; (f) to register or qualify all Registrable Securities covered by such registration statement under such other securities or blue sky laws of such jurisdictions as each holder thereof shall reasonably request, to keep such registration or qualification in effect for so long as such registration statement remains in effect, and take any other action which may be reasonably necessary or advisable to enable such holder to consummate the disposition in such jurisdictions of the Registrable Securities owned by such holder, except that the Company shall not for any such purpose be required (i) to qualify generally to do business as a foreign corporation in any jurisdiction wherein it would not but for the requirements of this paragraph (f) be obligated to be so qualified, (ii) to subject itself to ------------- taxation in any such jurisdiction or (iii) to consent to general service of process in any jurisdiction; (g) to cause all Registrable Securities covered by such registration statement to be registered with or approved by such other governmental agencies or authorities as may be -5- necessary to enable each holder thereof to consummate the disposition of such Registrable Securities; (h) to furnish to each Requesting Holder a signed counterpart, addressed to such holder (and the underwriters, if any), of (i) an opinion of counsel for the Company, dated the effective date of such registration statement (or, if such registration includes an underwritten Public Offering, dated the date of any closing under the underwriting agreement), reasonably satisfactory in form and substance to such holder, and (ii) a "comfort" letter, dated the effective date of such registration statement (and, if such registration includes an underwritten Public Offering, dated the date of any closing under the underwriting agreement), signed by the independent public accountants who have certified the Company's financial statements included in such registration statement, in each case covering substantially the same matters with respect to such registration statement (and the prospectus included therein) and, in the case of the accountants' letter, with respect to events subsequent to the date of such financial statements, as are customarily covered in opinions of issuer's counsel and in accountants' letters delivered to the underwriters in underwritten Public Offerings of securities and, in the case of the accountants' letter, such other financial matters, as such holder (or the underwriters, if any) may reasonably request; (i) to notify each holder of Registrable Securities covered by such registration statement, at any time when a prospectus relating thereto is required to be delivered under the Securities Act, of the happening of any event as a result of which any prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, and at the request of any such holder promptly prepare and furnish to such holder a reasonable number of copies of a supplement to or an amendment of such prospectus as may be necessary so that, as thereafter delivered to the purchasers of such securities, such prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; (j) to otherwise use its best efforts to comply with all applicable rules and regulations of the Commission, and make available to its securityholders, as soon as reasonably practicable, an earnings statement covering the period of at least twelve months, but not more than eighteen months, beginning with the first full calendar month after the effective date of such registration statement, which earnings statement shall satisfy the provisions of Section 11(a) of the Securities Act and Rule 158 promulgated thereunder; -6- (k) to make available for inspection by any Requesting Holder, any underwriter participating in any disposition pursuant to such registration statement and any attorney, accountant or other agent retained by any such seller or underwriter (collectively, the "Inspectors"), all financial and ---------- other records, pertinent corporate documents and properties of the Company (collectively, the "Records") as shall be reasonably necessary to enable ------- them to exercise their due diligence responsibility, and cause the Company's officers, directors and employees to supply all information reasonably requested by any such Inspector in connection with such registration statement, and permit the Inspectors to participate in the preparation of such registration statement and any prospectus contained therein and any amendment or supplement thereto. Records which the Company determines, in good faith, to be confidential and which it notifies the Inspectors are confidential shall not be disclosed by the Inspectors unless (i) the disclosure of such Records is necessary to avoid or correct a misstatement or omission in the registration statement, (ii) the release of such Records is ordered pursuant to a subpoena or other order from a court of competent jurisdiction or (iii) the information in such Records has been made generally available to the public. The seller of Registrable Securities agrees by acquisition of such Registrable Securities that it will, upon learning that disclosure of such Records is sought in a court of competent jurisdiction, give notice to the Company and allow the Company, at the Company's expense, to undertake appropriate action to prevent disclosure of the Records deemed confidential; (l) to provide a transfer agent and registrar for all Registrable Securities covered by such registration statement not later than the effective date of such registration statement; and (m) to cause all Registrable Securities covered by such registration statement to be listed, upon official notice of issuance, on any securities exchange on which any of the securities of the same class as the Registrable Securities are then listed. The Company may require each holder of Registrable Securities as to which any registration is being effected to, and each such holder, as a condition to including Registrable Securities in such registration, shall, furnish the Company with such information and affidavits regarding such holder and the distribution of such securities as the Company may from time to time reasonably request in writing in connection with such registration. Each holder of Registrable Securities agrees by acquisition of such Registrable Securities that upon receipt of any notice from the Company of the happening of any event of the kind described in paragraph (h), such holder will ------------- forthwith discontinue such holder's disposition of Registrable Securities pursuant to the registration statement relating to such Registrable Securities until such holder's receipt of the copies of the supplemented or amended prospectus contemplated by paragraph (h) and, if so directed by the Company, ------------- will deliver to the Company (at the Company's expense) all copies, other than permanent file copies, then in such holder's possession of the prospectus relating to such Registrable Securities current at the time of receipt of such notice. -7- 4. Underwritten Offerings. ---------------------- (a) Underwritten Requested Offerings. In the case of any -------------------------------- underwritten Public Offering being effected pursuant to a Requested Registration, the Managing Underwriter and any other underwriter or underwriters with respect to such offering shall be selected, after consultation with the Company, by the holders of a majority of the Registrable Securities to be included in such underwritten offering with the consent of the Company, which consent shall not be unreasonably withheld. The Company shall enter into an underwriting agreement in customary form with such underwriter or underwriters, which shall include, among other provisions, indemnities to the effect and to the extent provided in Section 5. The holders of Registrable Securities to be --------- distributed by such underwriters shall be parties to such underwriting agreement and may, at their option, require that any or all of the representations and warranties by, and the other agreements on the part of, the Company to and for the benefit of such underwriters also be made to and for their benefit and that any or all of the conditions precedent to the obligations of such underwriters under such underwriting agreement also be conditions precedent to their obligations. No holder of Registrable Securities shall be required to make any representations or warranties to or agreements with the Company or the underwriters other than representations, warranties or agreements regarding such holder and its ownership of the securities being registered on its behalf and such holder's intended method of distribution and any other representation required by law. No Requesting Holder may participate in such underwritten offering unless such holder agrees to sell its Registrable Securities on the basis provided in such underwriting agreement and completes and executes all questionnaires, powers of attorney, indemnities and other documents reasonably required under the terms of such underwriting agreement. If any Requesting Holder disapproves of the terms of an underwriting, such holder may elect to withdraw therefrom and from such registration by notice to the Company and the Managing Underwriter, and each of the remaining Requesting Holders shall be entitled to increase the number of Registrable Securities being registered to the extent of the Registrable Securities so withdrawn in the proportion which the number of Registrable Securities being registered by such remaining Requesting Holder bears to the total number of Registrable Securities being registered by all such remaining Requesting Holders. (b) Underwritten Piggyback Offerings. If the Company at any time -------------------------------- proposes to register any of its securities in a Piggyback Registration and such securities are to be distributed by or through one or more underwriters, the Company will, subject to the provisions of Section 2(c), use its best efforts to ------------ arrange for such underwriters to include the Registrable Securities to be offered and sold by Requesting Holders among the securities to be distributed by such underwriters. The holders of Registrable Securities to be distributed by such underwriters shall be parties to the underwriting agreement between the Company and such underwriter or underwriters and may, at their option, require that any or all of the representations and warranties by, and the other agreements on the part of, the Company to and for the benefit of such underwriters also be made to and for their benefit and that any or all of the conditions precedent to the obligations of such underwriters under such underwriting agreement also be conditions precedent to their obligations. No holder of Registrable Securities shall be required to make any representations or warranties to or agreements with the Company or the underwriters other than representations, warranties or agreements regarding such holder and its ownership of the securities being registered -8- on its behalf and any other representation required by law. No Requesting Holder may participate in such underwritten offering unless such holder agrees to sell its Registrable Securities on the basis provided in such underwriting agreement and completes and executes all questionnaires, powers of attorney, indemnities and other documents reasonably required under the terms of such underwriting agreement. If any Requesting Holder disapproves of the terms of an underwriting, such holder may elect to withdraw therefrom and from such registration by notice to the Company and the Managing Underwriter, and each of the remaining Requesting Holders shall be entitled to increase the number of Registrable Securities being registered to the extent of the Registrable Securities so withdrawn in the proportion which the number of Registrable Securities being registered by such remaining Requesting Holder bears to the total number of Registrable Securities being registered by all such remaining Requesting Holders. 5. Indemnification. (a) Indemnification by the Company. The --------------- ------------------------------ Company shall, to the full extent permitted by law, indemnify and hold harmless each seller of Registrable Securities included in any registration statement filed in connection with a Requested Registration or a Piggyback Registration, its directors and officers, and each other Person, if any, who controls any such seller within the meaning of the Securities Act, against any Losses, claims, damages, expenses or liabilities, joint or several (together, "Losses"), to ------ which such seller or any such director or officer or controlling Person may become subject under the Securities Act or otherwise, insofar as such Losses (or actions or proceedings, whether commenced or threatened, in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in any such registration statement, any preliminary prospectus, final prospectus or summary prospectus contained therein, or any amendment or supplement thereto, or any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein (in the case of a prospectus, in the light of the circumstances under which they were made) not misleading, and the Company will reimburse such seller and each such director, officer and controlling Person for any legal or any other expenses reasonably incurred by them in connection with investigating or defending any such Loss (or action or proceeding in respect thereof); provided that the Company shall not be liable in -------- any such case to the extent that any such Loss (or action or proceeding in respect thereof) arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in any such registration statement, preliminary prospectus, final prospectus, summary prospectus, amendment or supplement in reliance upon and in conformity with written information furnished to the Company through an instrument duly executed by such seller specifically stating that it is for use in the preparation thereof. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of such seller or any such director, officer or controlling Person, and shall survive the transfer of such securities by such seller. The Company shall also indemnify each other Person who participates (including as an underwriter) in the offering or sale of Registrable Securities, their officers and directors and each other Person, if any, who controls any such participating Person within the meaning of the Securities Act to the same extent as provided above with respect to sellers of Registrable Securities. (b) Indemnification by the Sellers. Each holder of Registrable ------------------------------ Securities which are included or are to be included in any registration statement filed in connection with a Requested -9- Registration or a Piggyback Registration, as a condition to including Registrable Securities in such registration statement, shall, to the full extent permitted by law, indemnify and hold harmless the Company, its directors and officers, and each other Person, if any, who controls the Company within the meaning of the Securities Act, against any Losses to which the Company or any such director or officer or controlling Person may become subject under the Securities Act or otherwise, insofar as such Losses (or actions or proceedings, whether commenced or threatened, in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in any such registration statement, any preliminary prospectus, final prospectus or summary prospectus contained therein, or any amendment or supplement thereto, or any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein (in the case of a prospectus, in the light of the circumstances under which they were made) not misleading, if such untrue statement or alleged untrue statement or omission or alleged omission was made in reliance upon and in conformity with written information furnished to the Company through an instrument duly executed by such seller specifically stating that it is for use in the preparation of such registration statement, preliminary prospectus, final prospectus, summary prospectus, amendment or supplement; provided, however, that -------- ------- the obligation to provide indemnification pursuant to this Section 5(b) shall be ------------ several, and not joint and several, among such Indemnifying Parties on the basis of the number of Registrable Securities included in such registration statement and the aggregate amount which may be recovered from any holder of Registrable Securities pursuant to the indemnification provided for in this Section 5(b) in ------------ connection with any registration and sale of Registrable Securities shall be limited to the total proceeds received by such holder from the sale of such Registrable Securities. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of the Company or any such director, officer or controlling Person and shall survive the transfer of such securities by such seller. Such holders shall also indemnify each other Person who participates (including as an underwriter) in the offering or sale of Registrable Securities, their officers and directors and each other Person, if any, who controls any such participating Person within the meaning of the Securities Act to the same extent as provided above with respect to the Company. (c) Notices of Claims, etc. Promptly after receipt by an Indemnified ----------------------- Party of notice of the commencement of any action or proceeding involving a claim referred to in the preceding paragraph (a) or (b) of this Section 5, such -------------------- --------- Indemnified Party will, if a claim in respect thereof is to be made against an Indemnifying Party pursuant to such paragraphs, give written notice to the latter of the commencement of such action, provided that the failure of any -------- Indemnified Party to give notice as provided herein shall not relieve the Indemnifying Party of its obligations under the preceding paragraphs of this Section 5, except to the extent that the Indemnifying Party is actually - --------- prejudiced by such failure to give notice. In case any such action is brought against an Indemnified Party, the Indemnifying Party shall be entitled to participate in and, unless, in the judgment of any Indemnified Party, a conflict of interest between such Indemnified Party and any Indemnifying Party exists with respect to such claim, to assume the defense thereof, jointly with any other Indemnifying Party similarly notified to the extent that it may wish, with counsel reasonably satisfactory to such Indemnified Party, and after notice from the Indemnifying Party to such Indemnified Party of its election so to assume the defense thereof, the Indemnifying Party shall not be liable to such -10- Indemnified Party for any legal or other expenses subsequently incurred by the latter in connection with the defense thereof other than reasonable costs of investigation; provided that the Indemnified Party may participate in such -------- defense at the Indemnified Party's expense; and provided further that the -------- ------- Indemnified Party or Indemnified Parties shall have the right to employ one counsel to represent it or them if, in the reasonable judgment of the Indemnified Party or Indemnified Parties, it is advisable for it or them to be represented by separate counsel by reason of having legal defenses which are different from or in addition to those available to the Indemnifying Party, and in that event the reasonable fees and expenses of such one counsel shall be paid by the Indemnifying Party. If the Indemnifying Party is not entitled to, or elects not to, assume the defense of a claim, it will not be obligated to pay the fees and expenses of more than one counsel for the Indemnified Parties with respect to such claim, unless in the reasonable judgment of any Indemnified Party a conflict of interest may exist between such Indemnified Party and any other Indemnified Parties with respect to such claim, in which event the Indemnifying Party shall be obligated to pay the fees and expenses of such additional counsel for the Indemnified Parties or counsels. No Indemnifying Party shall consent to entry of any judgment or enter into any settlement without the consent of the Indemnified Party which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party of a release from all liability in respect to such claim or litigation. No Indemnifying Party shall be subject to any liability for any settlement made without its consent, which consent shall not be unreasonably withheld. (d) Contribution. If the indemnity and reimbursement obligation ------------ provided for in any paragraph of this Section 5 is unavailable or insufficient --------- to hold harmless an Indemnified Party in respect of any Losses (or actions or proceedings in respect thereof) referred to therein, then the Indemnifying Party shall contribute to the amount paid or payable by the Indemnified Party as a result of such Losses (or actions or proceedings in respect thereof) in such proportion as is appropriate to reflect the relative fault of the Indemnifying Party on the one hand and the Indemnified Party on the other hand in connection with statements or omissions which resulted in such Losses, as well as any other relevant equitable considerations. The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Indemnifying Party or the Indemnified Party and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such untrue statement or omission. The parties hereto agree that it would not be just and equitable if contributions pursuant to this paragraph were to be determined by pro rata allocation or by --- ---- any other method of allocation which does not take account of the equitable considerations referred to in the first sentence of this paragraph. The amount paid by an Indemnified Party as a result of the Losses referred to in the first sentence of this paragraph shall be deemed to include any legal and other expenses reasonably incurred by such Indemnified Party in connection with investigating or defending any Loss which is the subject of this paragraph. No Indemnified Party guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from the Indemnifying Party if the Indemnifying Party was not guilty of such fraudulent misrepresentation. -11- (e) Other Indemnification. Indemnification similar to that specified --------------------- in the preceding paragraphs of this Section 5 (with appropriate modifications) --------- shall be given by the Company and each seller of Registrable Securities with respect to any required registration or other qualification of securities under any federal or state law or regulation of any governmental authority other than the Securities Act. The provisions of this Section 5 shall be in addition to --------- any other rights to indemnification or contribution which an Indemnified Party may have pursuant to law, equity, contract or otherwise. (f) Indemnification Payments. The indemnification required by this ------------------------ Section 5 shall be made by periodic payments of the amount thereof during the - --------- course of the investigation or defense, as and when bills are received or Losses are incurred. 6. Covenants Relating to Rule 144. The Company will file reports in ------------------------------ compliance with the Exchange Act, will comply with all rules and regulations of the Commission applicable in connection with the use of Rule 144 and take such other actions and furnish such holder with such other information as such holder may request in order to avail itself of such rule or any other rule or regulation of the Commission allowing such holder to sell any Registrable Securities without registration. If at any time the Company is not required to file reports in compliance with either Section 13 or Section 15(d) of the Exchange Act, the Company at its expense will, forthwith upon the written request of the holder of any Registrable Securities, make available adequate current public information with respect to the Company within the meaning of paragraph (c)(2) of Rule 144. 7. Other Registration Rights. ------------------------- (a) No Existing Agreements. The Company represents and warrants to ---------------------- the Investor that there is not in effect on the date hereof any agreement by the Company (other than this Agreement and as set forth in Schedule 3.06 to the ------------- Warrant Agreement) pursuant to which any holders of securities of the Company have a right to cause the Company to register or qualify such securities under the Securities Act. (b) Future Agreements. The Company shall not hereafter agree with the ----------------- holders of any securities issued or to be issued by the Company to register or qualify such securities under the Securities Act unless such agreement specifically provides that (i) the holder of such securities may not participate in any Requested Registration except as provided in Section 1 and (ii) the --------- holder of such securities may not participate in any Piggyback Registration except as provided in Section 2. --------- 8. Definitions. ----------- (a) Except as otherwise specifically indicated, the following terms will have the following meanings for all purposes of this Agreement: -12- "Agreement" means this Amended and Restated Registration Rights --------- Agreement, as the same shall be amended from time to time. "Amended Warrant Agreement" has the meaning ascribed to it in the ------------------------- preamble. "Business Day" means a day other than Saturday, Sunday or any other ------------ day on which banks located in the State of New York are authorized or obligated to close. "Commission" means the United States Securities and Exchange ---------- Commission, or any successor governmental agency or authority. "Common Stock" means shares of Common Stock, no par value per share, ------------ of the Company, as constituted on the date hereof, and any stock into which such Common Stock shall have been changed or any stock resulting from any reclassification of such Common Stock. "Company" has the meaning ascribed to it in the preamble. ------- "Cutback Registration" means any Requested Registration or Piggyback -------------------- Registration to be effected as an underwritten Public Offering in which the Managing Underwriter with respect thereto advises the Company and the Requesting Holders in writing that, in its opinion, the number of securities requested to be included in such registration (including securities of the Company which are not Registrable Securities) exceed the number which can be sold in such offering without a material reduction in the selling price anticipated to be received for the securities to be sold in such Public Offering. "Effective Long-Form Registration" means a Long-Form Registration that -------------------------------- results in an Effective Registration. "Effective Registration" means a Requested Registration which (a) has ---------------------- been declared or ordered effective in accordance with the rules of the Commission and (b) has been kept effective for the period of time contemplated by Section 3(b). ------------ "Effective Short-Form Registration" means a Short-Form Registration --------------------------------- that results in an Effective Registration. "Exchange Act" means the Securities Exchange Act of 1934, as amended, ------------ and the rules and regulations promulgated thereunder. "February Letter Agreement" has the meaning ascribed to it in the ------------------------- preamble. "Form S-1" means Form S-1 promulgated by the Commission under the -------- Securities Act, or any successor or similar long-form registration statement. -13- "Form S-2" means Form S-2 promulgated by the Commission under the -------- Securities Act, or any successor or similar short-form registration statement. "Form S-3" means Form S-3 promulgated by the Commission under the -------- Securities Act, or any successor or similar short-form registration statement. "Indemnified Party" means a party entitled to indemnity in accordance ----------------- with Section 5. --------- "Indemnifying Party" means a party obligated to provide indemnity in ------------------ accordance with Section 5. --------- "Initiating Holders" means the Investor and any holder of Registrable ------------------ Securities with respect to which the Investor has made a written request pursuant to Section 1 for the registration of Registrable Securities. --------- "Inspectors" has the meaning ascribed to it in Section 3(i). ---------- ------------ "Letter Agreement" has the meaning ascribed to it in the preamble. ---------------- "Long-Form Registration" means a Requested Registration effected by ---------------------- the filing of a registration statement on Form S-1 with the Commission. "Losses" has the meaning ascribed to it in Section 5(a). ------ ------------ "Managing Underwriter" means, with respect to any Public Offering, the -------------------- underwriter or underwriters managing such Public Offering. "NASD" means the National Association of Securities Dealers. ---- "New Warrants" has the meaning ascribed to it in the preamble. ------------ "Notice of Piggyback Registration" has the meaning ascribed to it in -------------------------------- Section 2(a). - ------------ "Notice of Requested Registration" has the meaning ascribed to it in -------------------------------- Section 1(a). - ------------ "Original Registration Rights Agreement" has the meaning ascribed to -------------------------------------- it in the preamble. "Original Warrant Agreement" has the meaning described to it in the -------------------------- preamble. "Original Warrant Stock" has the meaning ascribed to it in the ---------------------- preamble. "Original Warrants" has the meaning ascribed to it in the preamble. ----------------- -14- "Person" means any natural person, corporation, general partnership, ------ limited partnership, limited liability company, proprietorship, other business organization, trust, union or association. "Piggyback Registration" means any registration of securities of the ---------------------- Company of the same class as any of the Registrable Securities under the Securities Act (other than a registration in respect of a dividend reinvestment or similar plan for shareholders of the Company or on Form S-4 or Form S-8 promulgated by the Commission, or any successor or similar forms thereto), whether for sale for the account of the Company or for the account of any holder of securities of the Company (other than Registrable Securities. "Public Offering" means any offering of Common Stock to the public, --------------- either on behalf of the Company or any of its securityholders, pursuant to an effective registration statement under the Securities Act (other than a registration in respect of a dividend reinvestment or similar plan for shareholders of the Company or on Form S-4 or Form S-8 promulgated by the Commission, or any successor or similar forms thereto). "Records" has the meaning ascribed to it in Section 3(i). ------- ------------ "Registrable Securities" means (i) the New Warrants, shares of Warrant ---------------------- Stock, the Senior Secured Note, and (ii) any additional shares of Common Stock or other securities issued or distributed by way of a dividend, stock split or other distribution in respect of the any of the securities referred to in clause (i), or acquired by way of any rights offering or similar offering made in respect of such securities. As to any particular Registrable Securities, once issued such securities shall cease to be Registrable Securities when (i) a registration statement with respect to the sale of such securities shall have become effective under the Securities Act and such securities shall have been disposed of in accordance with such registration statement, (ii) they shall have been sold to the public pursuant to Rule 144, or (iii) they shall have ceased to be outstanding. "Registration Expenses" means all expenses incident to the Company's --------------------- performance of or compliance with its obligations under this Agreement to effect the registration of Registrable Securities in a Requested Registration or a Piggyback Registration, including, without limitation, all registration, filing, securities exchange listing and NASD fees, all registration, filing, qualification and other fees and expenses of complying with securities or blue sky laws, all word processing, duplicating and printing expenses, messenger and delivery expenses, the fees and disbursements of counsel for the Company and of its independent public accountants, including the expenses of any special audits or "cold comfort" letters required by or incident to such performance and compliance, the reasonable fees and disbursements of a single counsel, premiums and other costs of policies of insurance purchased by the Company against liabilities arising out of the Public Offering of the Registrable Securities being registered and any fees and disbursements of underwriters customarily paid by issuers or sellers of securities if the offering is an underwritten offering initiated by the Company, but excluding underwriting discounts and commissions and transfer taxes, if any, in respect of Registrable Securities and fees and disbursements of underwriters if the offering is an -15- underwritten offering initiated by the Investor or the Requesting Holders, which shall be payable by each holder thereof. "Requesting Holders" means, with respect to any Requested Registration ------------------ or Piggyback Registration, the holders of Registrable Securities requesting to have Registrable Securities included in such registration in accordance with this Agreement. "Requested Registration" means any registration of Registrable ---------------------- Securities under the Securities Act effected in accordance with Section 1. --------- "Rule 144" means Rule 144 promulgated by the Commission under the -------- Securities Act, and any successor provision thereto. "Securities Act" means the Securities Act of 1933, as amended, and the -------------- rules and regulations promulgated thereunder. "Senior Secured Note" has the meaning ascribed to it in the preamble. ------------------- "Short-Form Registration" means a Requested Registration effected by ----------------------- the filing of a registration statement on Form S-2 or Form S-3 with the Commission. "Warrant Stock" means the Common Stock underlying the New Warrants. ------------- (b) Unless the context of this Agreement otherwise requires, (i) words of any gender include each other gender; (ii) words using the singular or plural number also include the plural or singular number, respectively; (iii) the terms "hereof," "herein," "hereby" and derivative or similar words refer to this entire Agreement; and (iv) the term "Section" refers to the specified Section of this Agreement. Whenever this Agreement refers to a number of days, such number shall refer to calendar days unless Business Days are specified. 9. Miscellaneous. ------------- (a) Notices. All notices, requests and other communications ------- hereunder must be in writing and will be deemed to have been duly given only if delivered personally or by facsimile transmission or mailed (first class postage prepaid) to the parties at the following addresses or facsimile numbers: -16- If to Investor, to: Wexford Management LLC 411 West Putnam Avenue Greenwich, Connecticut 06830 Attn: Joseph Jacobs, President Facsimile No.: (203) 862-7320 Attn: Arthur Amron, General Counsel Facsimile No.: (203) 862-7312 If to the Company, to: Frontier Airlines, Inc. 12015 East 46th Avenue Denver, Colorado 80239 Attn: Arthur T. Voss, General Counsel Facsimile No.: (303) 371-9669 With respect to any other holder of Registrable Securities, such notices, requests and other communications shall be sent to the addresses set forth in the transfer records regularly maintained by the Company. All such notices, requests and other communications will (i) if delivered personally to the address as provided in this Section, be deemed given upon delivery, (ii) if delivered by facsimile transmission to the facsimile number as provided in this Section, be deemed given upon receipt, and (iii) if delivered by mail in the manner described above to the address as provided in this Section, be deemed given upon receipt (in each case regardless of whether such notice, request or other communication is received by any other Person to whom a copy of such notice is to be delivered pursuant to this Section). Any party from time to time may change its address, facsimile number or other information for the purpose of notices to that party by giving notice specifying such change to the other parties hereto. (b) Entire Agreement. This Agreement supersedes all prior discussions ---------------- and agreements between the parties with respect to the subject matter hereof, and contains the sole and entire agreement between the parties hereto with respect to the subject matter hereof. (c) Amendment. This Agreement may be amended, supplemented or --------- modified only by a written instrument (which may be executed in any number of counterparts) duly executed by or on behalf of each of the Company and the Investor. (d) Waiver. Subject to paragraph (e) of this Section, any term or ------ ------------- condition of this Agreement may be waived at any time by the party that is entitled to the benefit thereof, but no such waiver shall be effective unless set forth in a written instrument duly executed by or on behalf -17- of the party waiving such term or condition. No waiver by any party of any term or condition of this Agreement, in any one or more instances, shall be deemed to be or construed as a waiver of the same term or condition of this Agreement on any future occasion. (e) Consents and Waivers by Holders of Registrable Securities. Any --------------------------------------------------------- consent of the holders of Registrable Securities pursuant to this Agreement, and any waiver by such holders of any provision of this Agreement, shall be in writing (which may be executed in any number of counterparts) and may be given or taken by the Investor, and any such consent or waiver so given or taken will be binding on all the holders of Registrable Securities. (f) No Third Party Beneficiary. The terms and provisions of this -------------------------- Agreement are intended solely for the benefit of each party hereto, their respective successors or permitted assigns and any other holder of Registrable Securities, and it is not the intention of the parties to confer third-party beneficiary rights upon any other Person other than any Person entitled to indemnity under Section 5. --------- (g) Successors and Assigns. This Agreement is binding upon, inures to ---------------------- the benefit of and is enforceable by the parties hereto and their respective successors and assigns. (h) Headings. The headings used in this Agreement have been inserted -------- for convenience of reference only and do not define or limit the provisions hereof. (i) Invalid Provisions. If any provision of this Agreement is held ------------------ to be illegal, invalid or unenforceable under any present or future law, and if the rights or obligations of any party hereto under this Agreement will not be materially and adversely affected thereby, (i) such provision will be fully severable, (ii) this Agreement will be construed and enforced as if such illegal, invalid or unenforceable provision had never comprised a part hereof and (iii) the remaining provisions of this Agreement will remain in full force and effect and will not be affected by the illegal, invalid or unenforceable provision or by its severance herefrom. (j) Remedies. Except as otherwise expressly provided for herein, no -------- remedy conferred by any of the specific provisions of this Agreement is intended to be exclusive of any other remedy, and each and every remedy shall be cumulative and shall be in addition to every other remedy given hereunder or now or hereafter existing at law or in equity or by statute or otherwise. The election of any one or more remedies by any party hereto shall not constitute a waiver by any such party of the right to pursue any other available remedies. Damages in the event of breach of this Agreement by a party hereto or any other holder of Registrable Securities would be difficult, if not impossible, to ascertain, and it is therefore agreed that each such Person, in addition to and without limiting any other remedy or right it may have, will have the right to an injunction or other equitable relief in any court of competent jurisdiction, enjoining any such breach, and enforcing specifically the terms and provisions hereof and the Company and each holder of Registrable Securities, by its acquisition of such Registrable Securities, hereby waives any and all defenses it may have on the ground of lack of jurisdiction or -18- competence of the court to grant such an injunction or other equitable relief. The existence of this right will not preclude any such Person from pursuing any other rights and remedies at law or in equity which such Person may have. (k) Governing Law. This Agreement shall be governed by and construed ------------- in accordance with the laws of the State of New York applicable to a contract executed and performed in such State, without giving effect to the conflicts of laws principles thereof. (l) Counterparts. This Agreement may be executed in any number of ------------ counterparts, each of which will be deemed an original, but all of which together will constitute one and the same instrument. IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the duly authorized officer of each party hereto as of the date first above written. WEXFORD MANAGEMENT LLC By: __________________________ Name: Title: FRONTIER AIRLINES, INC. By: __________________________ Name: Title: -19- EX-10.31 7 REGISTRATION RIGHTS AGREEMENT EXHIBIT 10.31 REGISTRATION RIGHTS AGREEMENT ----------------------------- REGISTRATION RIGHTS AGREEMENT (the "Agreement") dated as of April 24, 1998 by and among Frontier Airlines, Inc., a Colorado corporation (the "Company"), and each Holder (as hereinafter defined) executing a signature page hereto. This Agreement is made pursuant to a certain Stock Purchase Agreement dated as of the date hereof by and among the Company and the purchasers named (the "Purchase Agreement"). In order to induce the purchasers to enter into the Purchase Agreement, the Company has agreed to provide the registration rights set forth in this Agreement. The execution of this Agreement is a condition to the closing of the transactions contemplated by the Purchase Agreement. In consideration of the foregoing, the parties hereby agree as follows: SECTION 1. DEFINITIONS. ----------- As used in this Agreement, the following terms shall have the following meanings: "Advice" has the meaning set forth in Section 5. ------ "Affiliate" means, with respect to any specified Person, any other Person --------- who, directly or indirectly, controls, is controlled by, or is under common control with such specified Person. "Business Day" means any day other than a day on which banks are authorized ------------ or required to be closed in the State of New York. "Commission" means the Securities and Exchange Commission. ---------- "Common Stock" means the common stock, par value $.01 per share, of the ------------ Company. "Company" has the meaning set forth in the preamble and shall include the ------- Company's successors by merger, acquisition, reorganization or otherwise. "Controlling Persons" has the meaning set forth in Section 7(a). ------------------- "Damages" has the meaning set forth in Section 5(a). ------- "Demand Registration Statement" has the meaning set forth in Section 3(a). ----------------------------- "Exchange Act" means the Securities Exchange Act of 1934, as amended from ------------ time to time, or any successor statute, and the rules and regulations of the Commission promulgated thereunder. "Holder" means (i) each Person (other than the Company and its Affiliates) ------ who is a signatory to this Agreement as listed on Schedule 1 hereto and (ii) each Person (other than the Company and its Affiliates) to whom a Holder transfers Securities if such Person acquires such Securities as Registrable Securities. "Holders' Counsel" means Goodwin, Procter & Hoar LLP, special counsel to ---------------- the Holders, or any successor counsel selected by Holders of a majority in interest of the Registrable Securities. "Inspectors" has the meaning set forth in Section 5(m). ---------- "NASD" has the meaning set forth in Section 5(q). ---- "Nasdaq" has the meaning set forth in Section 5(o). ------ "Objection Notice" has the meaning set forth in Section 5(a). ---------------- "Objecting Party" has the meaning set forth in Section 5(a). --------------- "Person" means any individual, corporation, partnership, joint venture, ------ association, joint-stock company, trust, limited liability company, unincorporated organization or government or other agency or political subdivision thereof. "Piggy-Back Registration" has the meaning set forth in Section 4(a). ----------------------- "Prospectus" means the prospectus included in any Registration Statement ---------- (including, without limitation, a prospectus that discloses information previously omitted from a prospectus filed as part of an effective Registration Statement in reliance upon Rule 430A promulgated under the Securities Act), as amended or supplemented by any prospectus supplement, with respect to the terms of the offering of any portion of the Registrable Securities covered by such Registration Statement, and all other amendments and supplements to the prospectus, including post-effective amendments, and all material incorporated by reference or deemed to be incorporated by reference in such prospectus. "Public Offering" means a public offering of Securities registered on Form --------------- S-11 or Form S-3 (or any successor or equivalent forms) under the Securities Act for the Company's own or others' account. "Purchase Agreement" means the Securities Purchase Agreement, dated as of ------------------ the date hereof, between the Company and the Holders pursuant to which the Securities are being issued as amended, modified or supplemented from hereto time, together with any exhibits, schedules or other attachments thereto. "Records" has the meaning set forth in Section 5(m). ------- 2 "Registrable Securities" means the Securities; provided, however, that any ---------------------- -------- ------- Securities shall cease to be Registrable Securities when (i) a Registration Statement covering such Registrable Securities has been declared effective and such Registrable Securities have been disposed of by the holder thereof pursuant to such effective Registration Statement, (ii) such Registrable Securities are transferred by the holder thereof to any Person other than a Holder pursuant to Rule 144 (or any successor rule or similar provision then in effect, but not Rule 144A) under the Securities Act, including a sale pursuant to the provisions of Rule 144(k), or (iii) such Securities shall have ceased to be outstanding. "Registration Expenses" has the meaning set forth in Section 6. --------------------- "Registration Statement" means any registration statement of the Company ---------------------- that covers any of the Registrable Securities pursuant to the provisions of this Agreement (including any Demand Registration Statement and any Shelf Registration Statement), and all amendments and supplements to any such registration statement, including post-effective amendments, in each case including the Prospectus, all exhibits, and all material incorporated by reference or deemed to be incorporated by reference in such registration statement. "Required Filing Date" has the meaning set forth in Section 2(a). -------------------- "Securities" means (i) all shares of Common Stock held by any Holder, (ii) ---------- all shares of Common Stock issued to any Holder upon exercise of any options, warrants or other rights to subscribe for, purchase or otherwise acquire Common Stock and (iii) all shares of Common Stock directly or indirectly issued or issuable in respect of the securities referred to in clauses (i) and (ii) above by way of stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation, or other reorganization. "Securities Act" means the Securities Act of 1933, as amended from time to -------------- time, or any successor statute, and the rules and regulations of the Commission promulgated thereunder. "Shelf Registration Statement" has the meaning set forth in Section 2(a). ---------------------------- "Suspension Notice" has the meaning set forth in Section 5. ----------------- "Suspension Period" has the meaning set forth in Section 5. ----------------- "Target Effective Date" means the date 120 days after the earlier of (i) --------------------- the Required Filing Date or (ii) the date on which the Shelf Registration Statement is actually filed with the Commission. "Target Effective Period" means the period of time between the date on ----------------------- which a Shelf Registration Statement is actually declared effective and the earlier of (i) the date which is four years following the date hereof, and (ii) the date when no Holder holds any Registrable Securities. 3 "Target Filing Date" has the meaning set forth in Section 3(a). ------------------ SECTION 2. SHELF REGISTRATION. ------------------ (a) Filing; Effectiveness. As soon as practicable but not later than --------------------- the July 10, 1998 (the "Required Filing Date"), the Company shall prepare and file with the Commission a "shelf" registration statement (the "Shelf Registration Statement") on the appropriate form for an offering to be made on a continuous basis pursuant to Rule 415 under the Securities Act (or any successor rule or similar provision then in effect) covering all of the Registrable Securities. The Company shall use its best efforts to have the Shelf Registration Statement declared effective on or before the Target Effective Date and to keep such Shelf Registration Statement continuously effective for the Target Effective Period. Any Holder of Registrable Securities shall be permitted to withdraw all or any part of the Registrable Securities from a Shelf Registration Statement at any time prior to the effective date of such Shelf Registration Statement. (b) Supplements; Amendments. The Company agrees, if necessary, to ----------------------- supplement or amend the Shelf Registration Statement, as required by the rules, regulations or instructions applicable to the registration form used by the Company for such Shelf Registration Statement or by the Securities Act or as requested (which request shall result in the filing of a supplement or amendment) by any Holder of Registrable Securities to which such Shelf Registration Statement relates, and the Company agrees to furnish to the Holders, Holders' Counsel and any managing underwriter copies of any such supplement or amendment prior to its being used and/or filed with the Commission. (c) Liquidated Damages. If the Shelf Registration Statement is not ------------------ filed on or before the Required Filing Date, the Company shall pay liquidated damages to each Holder in an amount equal to $10.00 per 1,000 shares of the Registrable Securities per week beginning on the Required Filing Date. If the Shelf Registration Statement is filed, but has not become effective on or before the Target Effective Date, the Company shall pay liquidated damages to each Holder in an amount equal to $10.00 per 1,000 shares of the Registrable Securities per week beginning on the Target Effective Date. The weekly liquidated damages payable by the Company to the Holders as a result of a late filing or a late declaration of effectiveness shall increase by an amount equal to $1.00 per 1,000 shares of the Registrable Securities two weeks after the Required Filing Date or the Target Effective Date, as the case may be, and shall thereafter increase by an amount equal to $1.00 per 1,000 shares of the Registrable Securities at the end of each subsequent two week period for so long as the Shelf Registration Statement is not filed or is not declared effective. If a stop order is imposed or if for any other reason the effectiveness of the Shelf Registration Statement is suspended during the Target Effective Period, then the Company shall pay liquidated damages to each Holder of the Registrable Securities in an amount equal to $10.00 per 1,000 shares of Registrable Securities per week beginning on the date of such stop order or other suspension of effectiveness. The weekly liquidated damages payable by the Company to the Holders as a result of the imposition of a stop order or such other suspension of the effectiveness of the Shelf Registration Statement during the Target Effective Period shall increase by an amount 4 equal to $1.00 per 1,000 shares of the Registrable Securities two weeks after the stop order was imposed or the effectiveness of the Shelf Registration Statement was otherwise suspended and shall thereafter increase by an amount equal to $1.00 per 1,000 shares of the Registrable Securities at the end of each subsequent two week period for so long as such stop order remains in effect or the effectiveness of the Shelf Registration Statement continues to be suspended. For purposes of the two preceding sentences, the Holders will not be entitled to receive liquidated damages under this Agreement during a Suspension Period (as hereinafter defined) except to the extent permitted by Section 5 of this Agreement. The Registrable Securities with respect to which liquidated damages shall accrue and be payable in accordance with this Section 2(c) shall be those Registrable Securities held by the Holders which are included or proposed to be included in the Shelf Registration Statement. The liquidated damages payable by the Company to the Holders pursuant to this Section 2(c) shall be deemed to commence accruing on the day on which the event triggering such liquidated damages occurs. Such liquidated damages shall cease to accrue (i) with respect to the liquidated damages payable as a result of the Company's failure to file the Shelf Registration Statement on or prior to the Required Filing Date, on the day after the Shelf Registration Statement is filed, (ii) with respect to the liquidated damages payable as a result of the Company's failure to have the Shelf Registration Statement declared effective on or prior to the Target Effective Date, on the day after the Shelf Registration Statement is declared effective, or (iii) with respect to the liquidated damages payable as a result of the imposition of a stop order or the suspension for any other reason of the effectiveness of the Shelf Registration Statement, on the day after the stop order is withdrawn or the effectiveness of the Shelf Registration Statement is otherwise reinstated. Notwithstanding the foregoing, if the sole reason why (i) the Company has not filed the Shelf Registration Statement on or before the Required Filing Date and/or (ii) the Shelf Registration Statement has not become effective on or before the Target Effective Date, is because the Holders did not provide the Company with information which is required to be disclosed in the Shelf Registration Statement and which the Company requested the Holders to so provide in writing at least 15 days prior to the Required Filing Date and/or the Target Effective Date, as the case may be, the Company's obligation to pay liquidated damages with respect to such late filing or such late declaration of effectiveness will not begin to accrue until five days after the Holders have provided such information to the Company. The Company shall pay the liquidated damages due with respect to any Registrable Securities at the end of each week during which such liquidated damages accrue and, to the extent such liquidated damages are not paid when due, shall thereafter accrue dividends at a rate equal to the U.S. prime rate plus 5% per annum. Liquidated damages shall be paid to the Holders of Registrable Securities entitled to receive such liquidated damages by wire transfer in immediately available funds to the accounts designated by such Holders. 5 The parties hereto agree that the liquidated damages provided for in this Section 2 constitute a reasonable estimate as of the date hereof of the damages that will be suffered by Holders of Registrable Securities by reason of the failure of the Shelf Registration Statement to be filed, to be declared effective and/or to remain effective, as the case may be, in accordance with this Agreement. However, the right of the Holders to be paid the liquidated damages provided for in this Section 2(c) is not intended to be and shall not be construed or deemed to be an exclusive remedy, it being understood that the Holders shall have the full right to pursue all available remedies at law or in equity for any breach by the Company of any of its obligations under this Agreement. (d) Effective Registration. A registration under this Section 2 will ---------------------- not be deemed to have been effected unless the Shelf Registration Statement with respect thereto has been declared effective by the Commission and the Company has complied in all material respects with its obligations under this Agreement with respect thereto; provided, however, that if, after the Shelf Registration -------- ------- Statement has been declared effective, the offering of Registrable Securities pursuant to such Shelf Registration Statement is interfered with by any stop order, injunction or other order or requirement of the Commission or any other governmental agency or court, such Shelf Registration Statement will be deemed not to have become effective during the period of such interference (and liquidated damages shall accrue and be payable under Section 2(c)) until the offering of Registrable Securities pursuant to such Shelf Registration Statement may legally resume. If a registration requested pursuant to this Section 2 is deemed not to have been effected, then the Company shall continue to be obligated to effect a registration pursuant to this Section 2. (e) Selection of Underwriter. If the Holders of a majority of the ------------------------ Registrable Securities so elect, the offering of Registrable Securities pursuant to a Shelf Registration Statement shall be in the form of an underwritten offering. If they so elect, the Holders participating in such Shelf Registration Statement shall select one or more nationally recognized firms of investment bankers to act as the book-running managing underwriter or underwriters in connection with such offering and shall select any additional investment bankers and managers to be used in connection with the offering; provided, however, that such selection shall be subject to the consent of the - ----------------- Company, which consent shall not be unreasonably withheld. SECTION 3. DEMAND REGISTRATION. ------------------- (a) Request for Registration. At any time following the Required ------------------------ Filing Date when a Shelf Registration Statement is not effective pursuant to Section 2 hereof, the Holders of Registrable Securities constituting at least majority of all Registrable Securities at the time may request, in writing (a "Demand Request"), that the Company prepare and file with the Commission a - --------------- "shelf" registration statement (the "Demand Registration Statement") on the ----------------------------- appropriate form for an offering to be made on a continuous basis pursuant to Rule 415 under the Securities Act (or any successor rule or similar provision then in effect); provided, however, that the Company shall not be required to ----------------- file such Demand Registration Statement unless, in the reasonable opinion of legal counsel to the Holders so requesting, such registration is required in order for such Holders 6 to transfer their Registrable Securities and deliver unlegended certificates to the purchaser(s) thereof; provided, further, that, subject to Section 5(e), the ----------------- Company shall not be required to effect more than two Demand Registration Statements. Each Demand Request so made by a Holder shall specify the number of Registrable Securities proposed to be sold. Subject to Section 3(g), the Company shall file the Demand Registration Statement within 30 days after receiving a Demand Request (the "Target Filing Date") and shall use best efforts to cause ------------------ the same to be declared effective by the Commission as promptly as practicable after such filing and to keep such Demand Registration Statement continuously effective for a period beginning on the date such Demand Registration Statement is declared effective and ending on the earlier of (i) the date which is [twelve] months following such date, or (ii) the date on which all Registrable Securities covered by such Demand Registration Statement have been disposed of pursuant thereto. (b) Supplements; Amendments. The Company agrees, if necessary, to ----------------------- supplement or amend the Demand Registration Statement, as required by the rules, regulations or instructions applicable to the registration form used by the Company for such Demand Registration Statement or by the Securities Act or as requested (which request shall result in the filing of a supplement or amendment) by any Holder of Registrable Securities to which such Demand Registration Statement relates, and the Company agrees to furnish to the Holders, Holders' Counsel and any managing underwriter copies of any such supplement or amendment prior to its being used and/or filed with the Commission. (c) Rights of Nonrequesting Holders. Upon receipt of any Demand ------------------------------- Request, the Company shall promptly (but in any event within 10 days following the receipt thereof) give written notice of such proposed Demand Registration Statement to all other Holders of Registrable Securities. Each of such Holders shall have the right, exercisable by written notice to the Company within 15 days of their receipt of the Company's notice, to elect to include in such Demand Registration Statement such portion of each such Holder's Registrable Securities as each such Holder may request. All Holders requesting to have their Registrable Securities included in a Demand Registration Statement in accordance with the preceding sentence (including the Holder or Holders giving the Demand Request) shall be deemed "Requesting Holders" for purposes of this Section 3. (d) Priority with Respect to Demand Registration Statement. No ------------------------------------------------------ Securities to be sold for the account of any Person (including the Company) other than a Requesting Holder shall be included in a Demand Registration Statement unless the managing underwriter or underwriters, if any, shall advise the Company or the Requesting Holders in writing that the inclusion of such Securities will not materially and adversely affect the price at which the Securities included in such Demand Registration Statement may be sold or the success of the offering (a "Material Adverse Effect"). Furthermore, in the ----------------------- event the managing underwriter or underwriters, if any, shall advise the Company or the Requesting Holders that even after exclusion of all Securities of other Persons pursuant to the immediately preceding sentence, the amount of Registrable Securities proposed to be included in such Demand Registration Statement by Requesting Holders is sufficiently large to cause a Material Adverse Effect, the number of 7 Registrable Securities of the Requesting Holders to be included in such Demand Registration Statement shall equal the number of shares which the Company is so advised can be sold in such offering without a Material Adverse Effect and the number of shares to be excluded from such Demand Registration Statement such shares shall be allocated first to any Requesting Holders who requested inclusion of their Registrable Securities pursuant to Section 3(c) hereof and then, if an additional reduction is required, to all other requesting Holders, in each case pro rata among such Requesting Holders on the basis of the number of shares of Registrable Securities requested to be included in such registration by each such Requesting Holder. (e) Effective Registration. A registration statement will not be ---------------------- deemed to have been effected as a Demand Registration Statement unless such Demand Registration Statement has been declared effective by the Commission and the Company has complied in all material respects with its obligations under this Agreement with respect thereto; provided, however, that if, after a Demand -------- ------- Registration Statement has been declared effective, the offering of Registrable Securities pursuant to such Demand Registration Statement is interfered with by any stop order, injunction or other order or requirement of the Commission or any other governmental agency or court, such Demand Registration Statement will be deemed not to have become effective during the period of such interference until the offering of Registrable Securities pursuant to such Demand Registration Statement may legally resume. If a Demand Registration Statement is deemed not to have been effected, then the Company shall continue to be obligated to effect such Demand Registration Statement pursuant to this Section 3. (f) Selection of Underwriter. If the Holders of a majority of the ------------------------ Registrable Securities requested to be included in such Demand Registration Statement so elect, the offering of Registrable Securities pursuant to such Demand Registration Statement shall be in the form of an underwritten offering. If they so elect, the Holders of a majority of the Registrable Securities requested to be included in such Demand Registration Statement shall select one or more nationally recognized firms of investment bankers to act as the book- running managing underwriter or underwriters in connection with such offering and shall select any additional investment bankers and managers to be used in connection with the offering; provided, however, that such selection shall be ------------------ subject to the consent of the Company, which consent shall not be unreasonably withheld. (g) Deferral of Filing. The Company may defer the filing (but not the ------------------ preparation) of a Demand Registration Statement required by Section 3(a) until a date not later than 30 days after the Target Filing Date (or, if longer, 30 days after the effective date of the registration statement contemplated by clause (ii) below) if (i) at the time the Company receives the Demand Request, the Company or any of its Subsidiaries is engaged in confidential negotiations or other confidential business activities, disclosure of which would be required in such Demand Registration Statement (but would not be required if such Demand Registration Statement were not filed), and the Board of Directors of the Company determines in good faith that such disclosure would be materially detrimental to the Company and its stockholders or would have a material adverse effect on any such confidential negotiations or other confidential business 8 activities, or (ii) prior to receiving the Demand Request, the Board of Directors had determined to effect a registered underwritten public offering of the Company's equity securities for the Company's account and the Company had taken substantial steps (including, but not limited to, selecting a managing underwriter for such offering) and is proceeding with reasonable diligence to effect such offering. A deferral of the filing of a Demand Registration Statement pursuant to this Section 3(g) shall be lifted, and the requested Demand Registration Statement shall be filed forthwith, if, in the case of a deferral pursuant to clause (i) of the preceding sentence, the negotiations or other activities are disclosed or terminated, or, in the case of a deferral pursuant to clause (ii) of the preceding sentence, the proposed registration for the Company's account is abandoned. In order to defer the filing of a Demand Registration Statement pursuant to this Section 3(g), the Company shall promptly (but in any event within 10 days), upon determining to seek such deferral, deliver to each Holder a certificate signed by an executive officer of the Company stating that the Company is deferring such filing pursuant to this Section 3(g) and an approximation of the anticipated delay. The Company may defer the filing of a particular Demand Registration Statement pursuant to this Section 3(g) only once. SECTION 4. PIGGY-BACK REGISTRATION. ----------------------- (a) Request for Registration. Each time the Company proposes to file ------------------------ a registration statement under the Securities Act with respect to an offering by the Company for its own account or for the account of any of its securityholders of any class of equity security (other than (i) a registration statement on Form S-4 or S-8 (or any substitute form that is adopted by the Commission), (ii) a registration statement filed in connection with an exchange offer or the offering of securities solely to the Company's existing securityholders, or (iii) a demand or requested registration statement filed pursuant to the terms of any other registration rights granted by the Company pursuant to an agreement to which the Company is a party prior to the date hereof, which agreement, pursuant to the terms thereof, prohibits or otherwise restricts the inclusion in such demand or requested registration statement the securities of any other securityholder of the Company other than the party making such demand or request), then the Company shall give written notice of such proposed filing to each Holder of Registrable Securities as soon as practicable (but in no event less than 30 days before the anticipated filing date), and such notice shall offer such Holder the opportunity to register such number of shares of Registrable Securities as each such Holder may request (which request must be made in writing and shall specify the Registrable Securities intended to be disposed of by such Holder and the intended method of distribution thereof) (a "Piggy-Back Registration"). The Company shall permit, or, if the offering relating to a Piggy-Back Registration is an underwritten offering, shall use its best efforts to cause the managing underwriter or underwriters of such proposed underwritten offering to permit, the Registrable Securities requested to be included in such Piggy-Back Registration to be included on the same terms and conditions as any similar securities of the Company or any other securityholder included therein and shall permit, or use its best efforts to cause such managing underwriter or underwriters to permit, the sale or other disposition of such Registrable Securities in accordance with such Holder's intended method of distribution thereof. Any Holder shall have the right to withdraw its request for inclusion of its Registrable 9 Securities in any registration statement pursuant to this Section 4 by giving written notice to the Company of such withdrawal. The Company may withdraw a Piggy-Back Registration at any time prior to the time it becomes effective, provided that the Company shall give immediate notice of such withdrawal to the Holders who requested Registrable Securities to be included in such Piggy-Back Registration and shall reimburse such Holders for all reasonable out-of-pocket expenses (including counsel fees and expenses) incurred prior to such withdrawal. (b) Reduction of Offering. In connection with an underwritten offering --------------------- where Holders have requested a Piggy-Back Registration pursuant to Section 3(a), the Company shall use its best efforts to cause all Registrable Securities requested to be included in such Piggy-Back Registration to be included as provided in Section 4(a). If the managing underwriter or underwriters of any such Piggy-Back Registration which is an underwritten offering have informed, in writing, the Holders requesting inclusion of Registrable Securities in such offering that it is their opinion that the total number of shares which the Company, Holders of Registrable Securities and any other Persons participating in such registration intend to include in such offering is such as to materially and adversely affect the success of such offering, then the number of shares to be offered for the account of all Persons (other than the Company) participating in such Piggy-Back Registration shall be reduced or limited (to zero if necessary) pro rata in proportion to the respective number of shares requested --- ---- to be included in such offering by such Persons to the extent necessary to reduce the total number of shares requested to be included in such offering to the number of shares, if any, recommended by such managing underwriter or underwriters. Although the specific shares of Common Stock disposed of pursuant to a Piggy-Back Registration will cease to be Registrable Securities, the mere registration of Registrable Securities under this Section 4 shall not relieve the Company of its obligation to effect or maintain a Shelf Registration Statement pursuant to Section 2 or a Demand Registration Statement pursuant to Section 3. No failure by the Holders to elect a Piggy-Back Registration under this Section 4 or to complete the sale of Registrable Securities pursuant to the registration statement effected in connection therewith, and no withdrawal of Registrable Securities from a Piggy-Back Registration, shall relieve the Company of any other obligation under this Agreement, including without limitation, the Company's obligations under Sections 6 and 7. SECTION 5. REGISTRATION PROCEDURES. ----------------------- In connection with the obligations of the Company to effect or cause the registration of any Registrable Securities pursuant to the terms and conditions of this Agreement, the Company shall use its best efforts to effect the registration and sale of such Registrable Securities in accordance with the intended method of distribution thereof as quickly as practicable, and in connection therewith: (a) The Company shall prepare and file with the Commission a Registration Statement on the appropriate form under the Securities Act, which Registration Statement 10 shall comply as to form in all material respects with the requirements of the applicable form and include all financial statements required by the Commission to be filed therewith, and use its best efforts to cause such Registration Statement to become effective and remain effective in accordance with the provisions of this Agreement; provided, however, that, -------- ------- at least ten Business Days prior to filing a Registration Statement or Prospectus or any amendments or supplements thereto, including documents incorporated by reference after the initial filing of the Registration Statement, the Company shall furnish to the Holders of the Registrable Securities covered by such Registration Statement, Holders' Counsel and the underwriters, if any, draft copies of all such documents proposed to be filed, which documents will be subject to the review of Holders' Counsel and the underwriters, if any, and the Company will not, unless required by law or this Agreement, file any Registration Statement or amendment thereto or any Prospectus or any supplement thereto to which Holders holding a majority in interest of the Registrable Securities covered by such Registration Statement or the underwriters with respect to such Securities, if any, shall object; provided, however, that any such objection to the -------- ------- filing of any Registration Statement or amendment thereto or any Prospectus or supplement thereto shall be made by written notice (the "Objection --------- Notice") delivered to the Company no later than ten Business Days after the ------ party or parties asserting such objection (the "Objecting Party") receives --------------- draft copies of the documents that the Company proposes to file. The Objection Notice shall set forth the objections and the specific areas in the draft documents where such objections arise. The Company shall have five Business Days after receipt of the Objection Notice to correct such deficiencies to the satisfaction of the Objecting Party, and will notify each Holder of any stop order issued or threatened by the Commission in connection therewith and shall use its best efforts to prevent the entry of such stop order or, if entered, to have such stop order withdrawn at the earliest possible moment. (b) The Company shall promptly prepare and file with the Commission such amendments and post-effective amendments to the Registration Statement as may be necessary to keep such Registration Statement effective for as long as the Company is required to keep such Registration Statement effective pursuant to the terms hereof; shall cause the Prospectus to be supplemented by any required Prospectus supplement, and, as so supplemented, to be filed pursuant to Rule 424 under the Securities Act; and shall comply with the provisions of the Securities Act applicable to it with respect to the disposition of all Registrable Securities covered by such Registration Statement during the applicable period in accordance with the intended methods of disposition by the Holders set forth in such Registration Statement or amendment thereto or such Prospectus or supplement thereto; (c) The Company shall promptly furnish to any Holder and the underwriters, if any, without charge, such number of conformed copies of such Registration Statement and any post-effective amendment thereto and such number of copies of the Prospectus (including each preliminary Prospectus) and any amendments or supplements thereto, any documents incorporated by reference therein and such other documents as any such Holder 11 or underwriter may request in order to facilitate the public sale or other disposition of the Registrable Securities being sold by such Holder. (d) The Company shall, on or prior to the date on which a Registration Statement is declared effective, (i) use its best efforts to register or qualify the Registrable Securities covered by such Registration Statement under the securities or "blue sky" laws of each of the 50 states of the United States (or such jurisdictions as any Holder, Holders' counsel or underwriter may request) or obtain appropriate exemptions therefrom; (ii) do any and all other acts and things which may be necessary or advisable to enable the Holders of Registrable Securities included in such Registration Statement to consummate the disposition of such Registrable Securities in accordance with their intended method of distribution thereof; (iii) use its best efforts to keep each such state securities or "blue sky" registration or qualification (or exemption therefrom) effective during the period in which the Company is required to keep the Registration Statement effective; and (iv) do any and all other acts or things which may be necessary or advisable to enable the Holders of Registrable Securities included in such Registration Statement to complete the disposition in such jurisdictions of such Registrable Securities in accordance with their intended method of distribution thereof; provided, however, that the -------- ------- Company shall not be required (A) to qualify to do business in any jurisdiction where it would not otherwise be required to so qualify but for this Section 5(d) or (B) to file any general consent to service of process. (e) The Company shall use its best efforts to cause the Registrable Securities covered by a Registration Statement to be registered with or approved by such other governmental agencies or authorities as may be necessary by virtue of the business and operations of the Company to enable the Holders to consummate the disposition of such Registrable Securities in accordance with their intended method of distribution thereof. (f) The Company shall promptly notify each Holder, Holders' Counsel and any underwriter and (if requested by any such Person) confirm such notice in writing, (i) when a Registration Statement or a Prospectus or any post-effective amendment or any Prospectus supplement has been filed and, with respect to a Registration Statement or any post-effective amendment, when the same has become effective, (ii) of any request by the Commission or any state securities authority for amendments and supplements to a Registration Statement and Prospectus or for additional information after the Registration Statement has become effective, (iii) of the issuance by the Commission of any stop order suspending the effectiveness of a Registration Statement or the initiation or threatening of any proceedings for that purpose, (iv) of the issuance by any state securities commission or other regulatory authority of any order suspending the registration or qualification or exemption from registration or qualification of any of the Registrable Securities under state securities or "blue sky" laws or the initiation of any proceedings for that purpose, (v) if, between the effective date of a Registration Statement and the closing of any sale of Registrable Securities covered thereby, the representations and warranties of the Company 12 contained in any underwriting agreement, securities sales agreement or other similar agreement, if any, relating to the offering of such Registrable Securities cease to be true and correct in all material respects, and (vi) of the happening of any event which makes any statement of a material fact made in a Registration Statement or related Prospectus untrue or which requires the making of any changes in such Registration Statement or Prospectus so that such Registration Statement or Prospectus will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; and, as promptly as practicable thereafter, prepare and file an amendment to such Registration Statement with the Commission and furnish to the Holders and any underwriter a supplement or amendment to such Prospectus so that, as thereafter deliverable to the purchasers of such Registrable Securities, such Prospectus will not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. (g) The Company shall make generally available to the Holders an earnings statement satisfying the provisions of Section 11(a) of the Securities Act no later than 30 days after the end of the 12-month period beginning with the first day of the Company's first fiscal quarter commencing after the effective date of a Registration Statement, which earnings statement shall cover said 12-month period, and which requirement will be deemed to be satisfied if the Company timely files complete and accurate information on Forms 10-Q, 10-K and 8-K under the Exchange Act and otherwise complies with Rule 158 under the Securities Act. (h) The Company shall promptly use its best efforts to prevent the issuance of any order suspending the effectiveness of a Registration Statement, and, if any such order suspending the effectiveness of a Registration Statement is issued, shall promptly use its best efforts to obtain the withdrawal of such order at the earliest possible moment. (i) The Company shall, if requested by the managing underwriter or underwriters, if any, Holders' Counsel, or any Holder promptly incorporate in a Prospectus supplement or post-effective amendment such information as such managing underwriter or underwriters or Holder or Holders' Counsel requests to be included therein, including, without limitation, with respect to the Registrable Securities being sold by such Holder to such underwriter or underwriters, the purchase price being paid therefor by such underwriter or underwriters and any other terms of an underwritten offering of the Registrable Securities to be sold in such offering, and the Company shall promptly make all required filings of such Prospectus supplement or post-effective amendment. (j) The Company shall, as promptly as practicable after the filing with the Commission of any document which is incorporated by reference into a Registration 13 Statement (in the form in which it was incorporated), deliver a copy of each such document to each of the Holders and to Holders' Counsel. (k) The Company shall cooperate with the Holders and the managing underwriter or underwriters, if any, to facilitate the timely preparation and delivery of certificates (which shall not bear any restrictive legends unless required under applicable law) representing Registrable Securities sold under a Registration Statement to the purchasers thereof, and enable such Registrable Securities to be in such denominations and registered in such names as the managing underwriter or underwriters, if any, or such Holders may request and keep available and make available to the Company's transfer agent prior to the effectiveness of such Registration Statement a supply of such certificates. (l) The Company shall enter into such customary agreements (including, if applicable, an underwriting agreement in customary form) and take such other actions as the Holders or the underwriters retained by the Holders participating in an underwritten public offering, if any, may request in order to expedite or facilitate the disposition of Registrable Securities (the Holders may, at their option, require that any or all of the representations, warranties and covenants of the Company to or for the benefit of any underwriters also be made to and for the benefit of the Holders). (m) The Company shall promptly make available to each Holder, any underwriter participating in any disposition of Registrable Securities pursuant to a Registration Statement, and any attorney, accountant or other agent or representative retained by any such Holder or underwriter (collectively, the "Inspectors"), all financial and other records, pertinent corporate documents and properties of the Company (collectively, the "Records"), as shall be reasonably necessary to enable them to exercise their due diligence responsibility, and cause the Company's officers, directors and employees to supply all information requested by any such Inspector in connection with such Registration Statement. (n) The Company shall furnish to each Holder of Registrable Securities included in such offering and to each underwriter, if any, a signed counterpart, addressed to such Holder or underwriter, of (i) an opinion or opinions of counsel to the Company, and (ii) a comfort letter or comfort letters from the Company's independent public accountants, each in customary form and covering matters of the type customarily covered by opinions or comfort letters, as the case may be. (o) The Company shall use its best efforts to cause the Registrable Securities included in a Registration Statement (if the Company and the Registrable Securities so qualify) (i) to be listed on each national securities exchange, if any, on which similar securities issued by the Company are then listed, or (ii) if similar securities of the Company are not then listed, to be authorized for quotation or listing, as applicable, on 14 the New York Stock Exchange or The Nasdaq Stock Market, Inc.'s ("Nasdaq") National Market or Small-Cap Market. (p) The Company shall provide a CUSIP number for all Registrable Securities covered by a Registration Statement not later than the effective date of such Registration Statement. (q) The Company shall cooperate with each Holder and each underwriter participating in the disposition of Registrable Securities and their respective counsel in connection with any filings required to be made with the National Association of Securities Dealers, Inc. ("NASD"). (r) The Company shall, during the period when the Prospectus is required to be delivered under the Securities Act, promptly file all documents required to be filed with the Commission pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act. (s) The Company shall appoint or maintain a transfer agent and registrar for all Registrable Securities covered by a Registration Statement not later than the effective date of such Registration Statement. (t) In connection with an underwritten offering, the Company shall participate, to the extent reasonably requested by the managing underwriter for the offering or the Holders, in customary efforts to sell the securities being offered, including without limitation, participating in "road shows", provided, however, that the selling Holder or Holders shall reimburse the Company for its reasonable out-of-pocket expenses actually incurred at the request of such selling Holder or Holders in connection with such selling efforts. (u) If a Holder proposes to sell a block of Registrable Securities with a value in excess of $20 million, the Company shall make members of the management of the Company available for reasonable selling efforts, including senior management attendance at "road shows", provided, however, that the selling Holder or Holders shall reimburse the Company for its reasonable out-of-pocket expenses actually incurred at the request of such selling Holder or Holders in connection with such selling efforts. (v) If the Registrable Securities are of a class of securities that is listed on a national securities exchange, the Company shall file copies of any Prospectus with such exchange in compliance with Rule 153 under the Securities Act so that the Holders shall benefit from the prospectus delivery procedures described therein. In the case of a Shelf Registration Statement, each Holder, upon receipt of any notice (a "Suspension Notice") from the Company of the happening of any event of the kind described in Section 5(f)(vi), shall forthwith discontinue disposition of the Registrable Securities pursuant to 15 the Shelf Registration Statement covering such Registrable Securities until such Holder's receipt of the copies of the supplemented or amended Prospectus contemplated by Section 5(f) or until such Holder is advised in writing (the "Advice") by the Company that the use of the Prospectus may be resumed, and such Holder has received copies of any additional or supplemental filings which are incorporated by reference in the Prospectus, and, if so directed by the Company, such Holder will, or will request the managing underwriter or underwriters, if any, to, deliver to the Company (at the Company's expense) all copies, other than permanent file copies then in such Holder's possession, of the Prospectus covering such Registrable Securities current at the time of receipt of such notice; provided, however, that the Company shall not give a Suspension Notice -------- ------- until after the Shelf Registration Statement has been declared effective and shall not give more than one Suspension Notice during any period of 12 consecutive months and in no event shall the period from the date on which any Holder receives a Suspension Notice to the date on which any Holder receives either the Advice or copies of the supplemented or amended Prospectus contemplated by Section 5(f) (the "Suspension Period") exceed 30 days. In the event that the Company shall give any Suspension Notice, (i) the Company shall use its best efforts and take such actions as are reasonably necessary to render the Advice and end the Suspension Period as promptly as practicable and (ii) the time periods for which a Shelf Registration Statement is required to be kept effective pursuant to Section 2 hereof shall be extended by the number of days during the Suspension Period. If any Suspension Period exceeds 30 days or more than one Suspension Notice is given during any period of 12 consecutive months, the Company shall pay liquidated damages to each Holder of Registrable Securities in an amount equal to $10.00 per 1,000 shares of the Registrable Securities included in the Shelf Registration Statement per week beginning on the 31st day of such Suspension Period or the date of such additional Suspension Notice, as the case may be. The weekly liquidated damages payable by the Company to the Holders as a result of the continuance of a Suspension Period beyond 30 days or as a result of the giving of more than one Suspension Notice during any 12 consecutive month period shall increase by an amount equal to $1.00 per 1,000 shares of the Registrable Securities two weeks after the event triggering such liquidated damages and shall thereafter increase by an amount equal to $1.00 per 1,000 shares of the Registrable Securities at the end of each subsequent two week period for so long as the event triggering such liquidated damages has not been eliminated. The Company shall pay the liquidated damages due with respect to any Registrable Securities at the end of each week during which such damages accrue. Liquidated damages shall be paid to the Holders of Registrable Securities entitled to receive such liquidated damages by wire transfer in immediately available funds to the accounts designated by such Holders. If any Registration Statement refers to any Holder by name or otherwise as the holder of any securities of the Company, then such Holder shall have the right to require (i) the insertion therein of language, in form and substance reasonably satisfactory to such Holder, to the effect that the holding by such Holder of such securities is not to be construed as a recommendation by such Holder of the investment quality of the Company's securities covered thereby and that such holding does not imply that such Holder will assist in meeting any future financial requirements of the Company, or (ii) in the event that such reference to such Holder by name or otherwise is 16 not required by the Securities Act or any similar Federal or state securities or "blue sky" statute and the rules and regulations thereunder then in force, the deletion of the reference to such Holder. SECTION 6. REGISTRATION EXPENSES. Any and all expenses incident to the --------------------- Company's performance of or compliance with this Agreement, including without limitation, all Commission and securities exchange, Nasdaq or NASD registration, listing and filing fees, all fees and expenses incurred in connection with compliance with state securities or "blue sky" laws (including reasonable fees and disbursements of counsel for any underwriters or Holder in connection with the state securities or "blue sky" qualifications of the Registrable Securities), printing expenses, messenger and delivery expenses, internal expenses (including, without limitation, all salaries and expenses of the Company's officers and employees performing legal or accounting duties), all expenses for word processing, printing and distributing any Registration Statement, any Prospectus, any amendments or supplements thereto, any underwriting agreements, securities sales agreements and other documents relating to the performance of and compliance with this Agreement, the fees and expenses incurred in connection with the listing of the Registrable Securities, the fees and disbursements of counsel for the Company and of the independent certified public accountants of the Company (including the expenses of any comfort letters or costs associated with the delivery by independent certified public accountants of a comfort letter or comfort letter requested pursuant to Section 5(n), Securities Act liability insurance (if the Company elects to obtain such insurance), the reasonable fees and expenses of any special experts or other Persons retained by the Company in connection with any registration, the reasonable fees and disbursements of Holders' Counsel and any reasonable out-of-pocket expenses of the Holders and their agents, including any reasonable travel costs (but excluding underwriting discounts and commissions and transfer taxes, if any, relating to the sale or disposition of Registrable Securities and fees and disbursements of underwriters if any such sale or disposition is effected pursuant to an underwritten offering initiated by the Holders) (all such expenses being herein called "Registration Expenses"), will be borne by the Company whether or not the Shelf Registration Statement or Piggy-Back Registration to which such expenses relate becomes effective. SECTION 7. INDEMNIFICATION AND CONTRIBUTION. -------------------------------- (a) Indemnification by the Company. The Company agrees to indemnify ------------------------------ and hold harmless, to the full extent permitted by law, each Holder, its partners, officers, directors, trustees, stockholders, employees, agents and investment advisers, and each Person who controls such Holder within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act, or is under common control with, or is controlled by, such Holder, together with the partners, officers, directors, trustees, stockholders, employees, agents and investment advisors of such controlling Person (collectively, the "Controlling ----------- Persons"), from and against all losses, claims, damages, liabilities and - ------- expenses (including, without limitation, any legal or other fees and expenses incurred by any Holder or any such Controlling Person in connection with defending or investigating any action or claim in respect thereof) (collectively, the "Damages") to which such Holder, its partners, officers, ------- directors, trustees, stockholders, employees, agents and 17 investment advisers, and any such Controlling Person, may become subject under the Securities Act or otherwise, insofar as such Damages (or proceedings in respect thereof) arise out of or are based upon any untrue or alleged untrue statement of material fact contained in any Registration Statement (or any amendment thereto) pursuant to which Registrable Securities were registered under the Securities Act, including all documents incorporated therein by reference, or are caused by any omission or alleged omission to state therein a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, or arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained in any Prospectus (as amended or supplemented if the Company shall have furnished any amendments or supplements thereto), or are caused by any omission or alleged omission to state therein a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; provided, however, that the Company shall not be liable -------- ------- for Damages to any Holder under this Section 6(a) to the extent that any such Damages (i) arise out of or are based upon any such untrue statement or omission which is based upon information relating to such Holder furnished in writing to the Company by such Holder expressly for use in any such Registration Statement (or any amendment thereto) or Prospectus (or amendment or supplement thereto); or (ii) were caused by the fact that such Holder sold Securities to a Person as to whom it shall be established that there was not sent or given, or deemed sent or given pursuant to Rule 153 under the Securities Act, at the time of or prior to the written confirmation of such sale, a copy of the Prospectus as then amended or supplemented if, and only if, (a) the Company has previously furnished copies of such amended or supplemented Prospectus to such Holder and (b) such Damages were caused by any untrue statement or omission or alleged untrue statement or omission contained in the Prospectus so delivered which was corrected in such amended or supplemented Prospectus. In connection with an underwritten offering, the Company will indemnify the underwriters thereof, their officers and directors and each Person who controls such underwriters (within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act) to the same extent as provided above with respect to the indemnification of the Holders of Registrable Securities except with respect to information provided by the underwriter specifically for inclusion therein. (b) Indemnification by the Holders. Each Holder agrees, severally and ------------------------------ not jointly, to indemnify and hold harmless the Company, its directors and officers and each Person, if any, who controls the Company within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act from and against all Damages to the same extent as the foregoing indemnity from the Company to such Holder, but only to the extent such Damages arise out of or are based upon any untrue statement of a material fact contained in any Registration Statement (or any amendment thereto) or Prospectus (or any amendment or supplement thereto) or are caused by any omission to state therein a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, which untrue statement or omission is based upon information relating to such Holder furnished in writing to the Company by such Holder expressly for use in any such Registration Statement (or any amendment thereto) or any such Prospectus (or any amendment or supplement thereto); provided, however, that such Holder shall not be obligated to provide -------- ------- such indemnity to the extent that such 18 Damages result from the failure of the Company to promptly amend or take action to correct or supplement any such Registration Statement or Prospectus on the basis of corrected or supplemental information furnished in writing to the Company by such Holder expressly for such purpose. In no event shall the liability of any Holder of Registrable Securities hereunder be greater in amount than the amount of the proceeds received by such Holder upon the sale of the Registrable Securities giving rise to such indemnification obligation. (c) Indemnification Procedures. In case any proceeding (including any -------------------------- governmental investigation) shall be instituted involving any Person in respect of which indemnity may be sought pursuant to either paragraph (a) or (b) above, such Person (the "indemnified party") shall promptly notify the Person against whom such indemnity may be sought (the "indemnifying party") in writing and the indemnifying party, upon request of the indemnified party, shall retain counsel reasonably satisfactory to the indemnified party to represent the indemnified party and any others the indemnifying party may designate in such proceedings and shall pay the fees and disbursements of such counsel relating to such proceeding. The failure of an indemnified party to notify the indemnifying party with respect to a particular proceeding shall not relieve the indemnifying party from any obligation or liability (i) which it may have pursuant to this Agreement if the indemnifying party is not materially prejudiced by such failure to so notify it or (ii) which it may otherwise have pursuant to this Agreement. The failure of an indemnified party to notify the indemnifying party with respect to a particular proceeding shall not relieve the indemnifying party from any obligation or liability (i) which it may have pursuant to this Agreement if the indemnifying party is not substantially prejudiced by such failure to so notify it or (ii) which it may have otherwise than pursuant to this Agreement. In any such proceeding, any indemnified party shall have the right to retain its own counsel, but the fees and expenses of such counsel shall be at the expense of such indemnified party unless (i) the indemnifying party and the indemnified party shall have mutually agreed to the retention of such counsel, or (ii) the indemnifying party fails promptly to assume the defense of such proceeding or fails to employ counsel reasonably satisfactory to such indemnified party, or (iii) (A) the named parties to any such proceeding (including any impleaded parties) include both such indemnified party or an Affiliate of such indemnified party and any indemnifying party or an Affiliate of such indemnifying party, (B) there may be one or more defenses available to such indemnified party or any Affiliate of such indemnified party that are different from or additional to those available to any indemnifying party or any Affiliate of any indemnifying party and (C) such indemnified party shall have been advised by such counsel that there may exist a conflict of interest between or among such indemnified party or any Affiliate of such indemnified party and such indemnifying party or any Affiliate of such indemnifying party, in which case, if such indemnified party notifies the indemnifying party in writing that it elects to employ separate counsel of its choice at the expense of the indemnifying party, the indemnifying party shall not have the right to assume the defense thereof and such counsel shall be at the expense of the indemnifying party, it being understood, however, that unless there exists a conflict among indemnified parties, the indemnifying parties shall not, in connection with any one such proceeding or separate but substantially similar or related proceedings in the same jurisdiction, arising out of the same general allegations or circumstances, be liable for the fees and expenses of more than one separate firm 19 of attorneys (together with appropriate local counsel) at any time for such indemnified parties. The indemnifying party shall not be liable for any settlement of any proceeding effected without its written consent but, if settled with such consent or if there be a final judgment for the plaintiff, the indemnifying party agrees to indemnify each indemnified party from and against any loss or liability by reason of such settlement or judgment. No indemnifying party shall, without the prior written consent of each indemnified party, effect any settlement of any pending or threatened proceeding in respect of which such indemnified party is a party, and indemnity could have been sought hereunder by such indemnified party, unless such settlement includes an unconditional release of such indemnified party from all liability on all claims that are the subject matter of such proceeding with no payment by such indemnified party of consideration in connection with such settlement. (d) Contribution. If the indemnification from the indemnifying ------------ party provided for in this Section 7 is found, pursuant to a final judicial determination not subject to appeal, to be unavailable to an indemnified party hereunder or insufficient in respect of any Damages incurred by such indemnified party, then each indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the Damages paid or payable by such indemnified party in such proportion as is appropriate to reflect the relative fault of the indemnifying party and the indemnified parties in connection with the actions or omissions that resulted in such Damages, as well as any other relevant equitable considerations. The relative fault of such indemnifying party and indemnified parties shall be determined by reference to, among other things, whether any action or omission in question, including any untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact, has been made by, or relates to information supplied by, such indemnifying party or indemnified parties, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such action. The amount paid or payable by a party as a result of the Damages referred to above shall be deemed to include, subject to the limitations set forth in Section 7(c), any legal or other expenses reasonably incurred by such party in connection with any investigation or proceeding. The parties hereto agree that it would not be just or equitable if contribution pursuant to this Section 7(d) were determined by pro rata allocation or by any other method of allocation that does not take account of the equitable considerations referred to in the immediately preceding paragraph. Notwithstanding the provisions of this Section 7(d), no underwriter shall be required to contribute any amount in excess of the amount by which the total price at which the Registrable Securities underwritten by it and distributed to the public were offered to the public (less any underwriting discounts or commissions) exceeds the amount of any damages which such underwriter has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission, and no selling Holder shall be required to contribute any amount in excess of the amount by which the total net proceeds received by such selling Holder with respect to Registrable Securities sold by such selling Holder exceeds the amount of any damages which such selling Holder has otherwise been required to pay by reason of such untrue statement or alleged untrue statement or omission or alleged omission. Each Holder's obligation to contribute pursuant to this Section 7(d) is several and not joint and shall be 20 determined by reference to the proportion that the proceeds of the offering received by such Holder bears to the total proceeds of the offering received by all the Holders. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The remedies provided for in this Section 7 are not exclusive and shall not limit any rights or remedies that may otherwise be available to any indemnified party at law or in equity. Notwithstanding the foregoing, if indemnification is available under paragraph (a) or (b) of this Section 7, the indemnifying parties shall indemnify each indemnified party to the full extent provided in such paragraphs without regard to the relative fault of said indemnifying party or indemnified party or any other equitable consideration provided for in this Section 7(d). SECTION 8. RULE 144. The Company covenants that it will file any --------- reports required to be filed by it under the Securities Act and the Exchange Act, and the rules and regulations adopted by the Commission thereunder (or, if the Company is not required to file such reports, it will, upon the request of any Holder, make publicly available other information so long as necessary to permit sales of the Registrable Securities under Rule 144 under the Securities Act), and it will take such further action as any Holder may request, all to the extent required from time to time to enable such Holder to sell Registrable Securities without registration under the Securities Act within the limitation of the exemptions provided by (a) Rule 144 under the Securities Act, as such Rule may be amended from time to time, or (b) any successor rule or similar provision or regulation hereafter adopted by the Commission. Upon the request of any Holder, the Company will deliver to such Holder a written statement as to whether it has complied with such requirements. SECTION 9. MISCELLANEOUS. ------------- (a) No Inconsistent Agreements. The Company has not entered into nor -------------------------- will the Company on or after the date of this Agreement enter into any agreement which is inconsistent with the rights granted to the Holders of Registrable Securities in this Agreement or otherwise conflicts with the provisions hereof. The rights granted to the Holders hereunder do not in any way conflict with and are not inconsistent with the rights granted to the holders of the Company's other issued and outstanding securities under any such agreements. (b) Amendments and Waivers. The provisions of this Agreement, ---------------------- including the provisions of this sentence, may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given unless the Company has obtained the written consent of Holders of at least a majority in interest of the outstanding Registrable Securities affected by such amendment, modification, supplement, waiver or consent; provided, however, that, no amendment, modification, supplement, waiver or - -------- ------- consent to any departure from the provisions of Section 5 hereof (other than any immaterial amendment, 21 modification, supplement, waiver or consent) shall be effective as against any Holder of Registrable Securities unless consented to in writing by such Holder. (c) Notices. All notices and other communications provided for or ------- permitted hereunder shall be in writing and shall be deemed to have been duly given if delivered personally or sent by telecopier, registered or certified mail (return receipt requested), postage prepaid or courier to the parties at their respective addresses set forth on the signature pages hereof (or at such other address for any party as shall be specified by like notice, provided that notices of a change of address shall be effective only upon receipt thereof). All such notices and communications shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; five Business Days after being deposited in the mail, postage prepaid, if mailed; by confirmed receipt of transmission, if telecopied; and on the next Business Day if timely delivered to a courier guaranteeing overnight delivery. (d) Successors and Assigns. This Agreement shall inure to the benefit ---------------------- of and be binding upon the successors, assigns and transferees of each of the parties, including, without limitation and without the need for an express assignment, subsequent Holders. If any transferee of any Holder shall acquire Registrable Securities in any manner, whether by operation of law or otherwise, such Registrable Securities shall be held subject to all of the terms of this Agreement, and by taking and holding such Registrable Securities such person shall be conclusively deemed to have agreed to be bound by and to perform all of the terms and provisions of this Agreement and such person shall be entitled to receive the benefits hereof. (e) Counterparts. This Agreement may be executed in any number of ------------ counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. (f) Headings. The headings in this Agreement are for convenience of -------- reference only and shall not limit or otherwise affect the meaning hereof. (g) Governing Law. This Agreement shall be governed by and construed ------------- in accordance with the laws of the State of Colorado without regard to principles or rules of conflicts of law. (h) Severability. In the event that any one or more of the provisions ------------ contained herein, or the application thereof in any circumstances, is held invalid, illegal or unenforceable in any respect for any reason, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions contained herein shall not be in any way impaired thereby, it being intended that all of the rights and privileges of the Holders shall be enforceable to the fullest extent permitted by law. 22 (i) Entire Agreement. This Agreement is intended by the parties as a ---------------- final expression of their agreement and is intended to be the complete and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein. There are no restrictions, promises, warranties or undertakings, other than those set forth or referred to herein. This Agreement supersedes all prior agreements and understandings between the parties with respect to such subject matter. (j) Attorneys' Fees. In any action or proceeding brought to enforce --------------- any provision of this Agreement or where any provision hereof is validly asserted as a defense, the successful party shall, to the extent permitted by applicable law, be entitled to recover reasonable attorneys' fees in addition to any other available remedy. (k) Further Assurances. Each party shall cooperate and take such ------------------ action as may be reasonably requested by another party in order to carry out the provisions and purposes of this Agreement and the transactions contemplated hereby. (l) Remedies. In the event of a breach or a threatened breach by any -------- party to this Agreement of its obligations under this Agreement, any party injured or to be injured by such breach will be entitled to specific performance of its rights under this Agreement or to injunctive relief, in addition to being entitled to exercise all rights provided in this Agreement and granted by law. The parties agree that the provisions of this Agreement shall be specifically enforceable, it being agreed by the parties that remedies at law for violations hereof, including monetary damages, are inadequate and that the right to object in any action for specific performance or injunctive relief hereunder on the basis that a remedy at law would be adequate is waived. [Remainder of page left intentionally blank] 23 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. FRONTIER AIRLINES, INC., a Colorado corporation By:______________________________________________ Name: Samuel D. Addoms Title: President Notice Information: Frontier Airlines, Inc. 12015 East 46th Ave. Denver, CO 80239 Attn: Arthur T. Voss, Esq. General Counsel Tel. No: (303) 371-7400 Fax No: (303) 371-9669 B III CAPITAL PARTNERS, L.P. By: DDJ Capital III, LLC Its: General Partner By: DDJ Capital Management, LLC Its: Manager By:___________________________________ Its: Notice Information B III Capital Partners, L.P. 141 Linden Street, Suite 4 Wellesley, MA 02181 Attn: Wendy Schnipper Clayton Tel. No: (781) 283-8500 Fax No: (781) 283-8541 24 EX-10.32 8 WARRANT AGREEMENT EXHIBIT 10.32 ================================================================ WARRANT AGREEMENT Between FRONTIER AIRLINES, INC. and THE SEABURY GROUP, LLC Dated as of May 26, 1998 ================================================================ (i) TABLE OF CONTENTS
Page ---- SECTION 1. Definitions; Accounting Terms and Determinations.............. 1 ------------------------------------------------ 1.01 Definitions................................................... 1 ----------- 1.02 Accounting Terms and Determinations........................... 7 ----------------------------------- Purchase and Sale of Warrant............................................................... 7 - ---------------------------- 2.01 Authorization and Issuance of Warrant......................... 7 ------------------------------------- 2.02 Issuance of the Warrant....................................... 7 ----------------------- 2.03 Securities Act Compliance; Brokers............................ 7 ---------------------------------- SECTION 3. Representations and Warranties................................ 8 ------------------------------ 3.01 Existence; Qualification...................................... 8 ------------------------ 3.02 No Breach..................................................... 8 --------- 3.03 Corporate Action.............................................. 8 ---------------- 3.04 Approvals..................................................... 9 --------- 3.05 Investment Company Act........................................ 9 ---------------------- 3.06 Capitalization................................................ 9 -------------- 3.07 Private Offering.............................................. 10 ---------------- 3.08 Litigation.................................................... 10 ---------- 3.09 Rights Agreement.............................................. 10 ---------------- 3.10 Brokers....................................................... 10 ------- SECTION 4. Restrictions on Transferability............................... 10 ------------------------------- 4.01 Transfers Generally........................................... 10 ------------------- 4.02 Transfers of Restricted Securities Pursuant to Registration ----------------------------------------------------------- Statements, Rule 144 and Rule 144A............................ 11 ---------------------------------- 4.03 Restrictive Legends........................................... 11 ------------------- 4.04 Termination of Restrictions................................... 11 --------------------------- SECTION 5. Dispositions of Securities.................................... 11 -------------------------- 5.01 Dispositions of Securities.................................... 11 -------------------------- SECTION 6. Adjustments of Warrant Stock Issuable Upon Exercise........... 12 --------------------------------------------------- 6.01 Number of Shares; Exercise Price.............................. 12 -------------------------------- 6.02 Adjustment of Exercise Price.................................. 12 ---------------------------- 6.03 Treatment of Options and Convertible Securities............... 14 ----------------------------------------------- 6.04 Treatment of Stock Dividends, etc............................. 16 --------------------------------- 6.05 Computation of Consideration.................................. 16 ---------------------------- 6.06 Adjustments for Combinations, Subdivisions, etc............... 17 ----------------------------------------------- 6.07 Dilution in Case of Other Securities.......................... 18 ------------------------------------
(ii)
Page ---- 6.08 Consolidation, Merger, Sale of Assets, Reorganization etc..... 18 --------------------------------------------------------- 6.09 Other Dilutive Events......................................... 20 --------------------- 6.10 No Dilution or Impairment..................................... 20 ------------------------- 6.11 Accountants' Report as to Adjustments......................... 20 ------------------------------------- 6.12 Notices of Corporate Action................................... 21 --------------------------- SECTION 7. Holders' Rights............................................... 22 --------------- 7.01 Delivery Expenses............................................. 22 ----------------- 7.02 Taxes......................................................... 22 ----- 7.03 Replacement of Instruments.................................... 22 -------------------------- 7.04 Indemnification............................................... 22 --------------- 7.05 Inspection Rights............................................. 23 ----------------- SECTION 8. Other Covenants of Company.................................... 23 -------------------------- 8.01 Availability of Information................................... 23 --------------------------- 8.02 Repurchases and Redemption.................................... 23 -------------------------- 8.03 Transactions with Affiliates.................................. 24 ---------------------------- 8.04 Restrictions on Performance................................... 24 --------------------------- 8.05 Modification of Other Equity Documents........................ 24 -------------------------------------- 8.06 Ownership of Subsidiaries..................................... 24 ------------------------- 8.07 Reservation of Stock. etc..................................... 25 ------------------------- 8.08 Listing on Securities Exchanges............................... 25 ------------------------------- SECTION 9. Miscellaneous................................................. 25 ------------- 9.01 Waiver........................................................ 25 ------ 9.02 Notices....................................................... 25 ------- 9.03 Expenses, Etc................................................. 26 ------------- 9.04 Amendments, Etc............................................... 26 --------------- 9.05 Successors and Assigns........................................ 27 ---------------------- 9.06 Survival...................................................... 27 -------- 9.07 Specific Performance.......................................... 27 -------------------- 9.08 WAIVER OF JURY TRIAL.......................................... 27 -------------------- 9.09 Limitation of Liability....................................... 27 ----------------------- 9.10 Captions...................................................... 28 -------- 9.11 Counterparts.................................................. 28 ------------ 9.12 Governing Law................................................. 28 ------------- 9.13 Severability.................................................. 28 ------------ 9.14 Entire Agreement.............................................. 28 ----------------
ANNEX 1 - FORM OF ASSIGNMENT ANNEX 2 - REPURCHASES FROM MANAGEMENT WARRANT AGREEMENT dated as of May 26, 1998 between FRONTIER AIRLINES, INC., a Colorado corporation (the "Company"), and THE SEABURY GROUP, LLC, a ------- limited liability company ("Seabury"). ------- WHEREAS, Seabury or an affiliate of Seabury has provided financial advisory services to the Company under a Financial Advisory Agreement dated May 26, 1998 (the "Advisory Agreement"). WHEREAS, in consideration of the services provided by Seabury, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties have agreed, pursuant to the Agreement, to enter into this Agreement. NOW, THEREFORE, the parties hereto agree as follows: SECTION 1. Definitions; Accounting Terms and Determinations. ------------------------------------------------ 1.01 Definitions. As used herein, the following terms shall have the ----------- following meanings (all terms defined in this Section 1 or in other provisions of this Agreement in the singular to have the same meanings when used in the plural and vice versa): "Acquiring Person" shall mean the continuing or surviving corporation ---------------- of a consolidation or merger with the Company (if other than the Company), the transferee of substantially all of the properties and assets of the Company, the corporation consolidating with or merging into the Company in a consolidation or merger in connection with which the Common Stock is changed into or exchanged for stock or other securities of any other Person or cash or any other property, or, in the case of a capital reorganization or reclassification, the Company. "Acquisition Price" shall mean, as applied to the Common Stock, with ----------------- respect to any transaction to which Section 6.08 applies, (a) the price per share equal to the greater of the following, determined in each case as of the date immediately preceding the date of consummation of such transaction: (i) the Market Price of the Common Stock and (ii) the highest amount of cash plus the Fair Value of the highest amount of securities or other property which a Holder of Warrants would have been entitled as a shareholder to receive upon such consummation if such Holder had exercised its Warrants immediately prior thereto, or (b) if a purchase, tender or an exchange offer is made by the Acquiring Person (or by any of its affiliates) to the holders of the Common Stock and such offer is accepted by the holders of more than 50% of the outstanding shares of Common Stock, the greater of (i) the price determined in accordance with the foregoing subdivision (a) and (ii) the price per share equal to the greater of the following, determined in each case as of the date immediately preceding the acceptance of such offer by the holders of more than 50% of the outstanding shares of Common Stock: (x) the Market Price of the Common Stock and (y) the highest amount of cash plus the Fair Value of the highest amount of securities or other property which a Holder of Warrants would have been entitled as a shareholder Warrant Agreement ----------------- 2 to receive pursuant to such offer if such Holder had exercised its Warrants immediately prior to the expiration of such offer and accepted the same. "Additional Shares of Common Stock" shall mean all shares (including --------------------------------- treasury shares) of Common Stock issued or sold (or, pursuant to Section 6.03 or 6.04, deemed to be issued) by the Company after the Initial Date hereof, whether or not subsequently reacquired or retired by the Company other than (a) shares of Common Stock issued upon the exercise of Warrants, (b) shares of Common Stock issued or authorized prior to May 26, 1998 under the Option Plan and (c) shares of Common Stock issuable on conversion or exercise of the Convertible Securities or Options set forth in Schedule 3.06 attached hereto. ------------- "Affiliate" shall mean, with respect to a specified Person, another --------- Person that directly, or indirectly through one or more intermediaries, Controls or is Controlled by or is under common Control with the Person specified. "Base Price" shall mean, on any date specified herein, the greater of ---------- (i) the Current Market Price and (ii) the Exercise Price. "Business Day" shall mean any day that is not a Saturday, Sunday or ------------ other day on which commercial banks in New York City are authorized or required by law to remain closed. "Commission" shall mean the Securities and Exchange Commission or any ---------- other similar or successor agency of the federal government administering the Securities Act and/or the Exchange Act. "Common Stock" shall mean the Common Stock of the Company, no par ------------ value per share, or any other common stock or other securities receivable thereon, or into which the Common Stock is convertible or exchangeable, as a result of any recapitalization, reclassification, merger or consolidation of, or disposition of assets by, the Company. "Company" shall have the meaning assigned to such term in the preamble ------- of this Agreement. "Control" shall mean the possession, directly or indirectly, of the ------- power to direct or cause the direction of the management or policies of a Person, whether through the ability to exercise voting power, by contract or otherwise. "Controlling" and "Controlled" shall have meanings correlative ----------- ---------- thereto. "Convertible Securities" shall mean evidences of indebtedness, ---------------------- interests or other securities or rights which are exchangeable for or exercisable or convertible into Additional Shares of Common Stock other than the Warrants. Warrant Agreement ----------------- 3 "Current Market Price" shall mean, on any date specified herein, (a) -------------------- with respect to Common Stock or to Voting Common Stock (or equivalent equity interests) of an Acquiring Person or its Parent, (i) the average daily Market Price during the period of the most recent 20 consecutive Business Days ending on such date, or (ii) if shares of Common Stock or such Voting Common Stock (or equivalent equity interests), as the case may be, are not then listed or admitted to trading on any national securities exchange and if the closing bid and asked prices thereof are not then quoted or published in the over-the- counter market, the Market Price on such date; and (b) with respect to any other securities, the Market Price on such date. "Exchange Act" shall mean the Securities Exchange Act of 1934, as ------------ amended, or any similar federal statute, and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. "Exercise Notice" shall have the meaning assigned to such term in --------------- Warrant No. Sea-1, a copy of which is attached as Exhibit A hereto. --------- "Exercise Price" shall have the meaning assigned to such term in -------------- Section 6.01 hereof. "Expiration Date" shall have the meaning assigned to such term in --------------- Warrant No. Sea-1, a copy of which is attached hereto as Exhibit A. --------- "Fair Value" shall mean, with respect to any securities or other ---------- property, the fair value thereof as of a date which is within 15 days of the date as of which the determination is to be made (a) determined by the Board of Directors of the Company or (b), if the Requisite Holders of Warrants shall object in writing to such determination within ten Business Days after notice of such determination, as determined by an agreement between the Company and the Requisite Holders of Warrants or (c) if the Company and the Requisite Holders of Warrants fail to agree, determined jointly by an independent investment banking firm retained by the Company and by an independent investment banking firm retained by the Requisite Holders of Warrants, either of which firms may be an independent investment banking firm regularly retained by the Company or any such holder or (d) if the Company or such holders shall fail so to retain an independent investment banking firm within five Business Days of the retention of such firm by such holders or the Company, as the case may be, determined solely by the firm so retained or (e) if the firms so retained by the Company and by such holders shall be unable to reach a joint determination within 15 Business Days of the retention of the last firm so retained, determined by another independent investment banking firm (whose fees shall be paid equally by such holders, on the one hand, and the Company, on the other) which is not a regular investment banking firm of the Company or any such holder chosen by the first two such firms. "GAAP" shall mean generally accepted accounting principles, ---- consistently applied throughout the specified period. Warrant Agreement ----------------- 4 "Governmental Authority" shall mean the government of the United ---------------------- States of America, any other nation or any political subdivision thereof, whether state or local, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory, monetary or administrative powers or functions of or pertaining to government. "Holder" shall mean any Person who acquires Warrants or Warrant Stock ------ pursuant to the provisions of this Agreement, including any transferees of Warrants or Warrant Stock; provided, however, that a holder of Warrant Stock -------- ------- purchased pursuant to an effective registration statement or pursuant to Rule 144 shall not be deemed a Holder. "include" and "including" shall be construed as if followed by the ------- --------- phrase "without being limited to". "Initial Date" shall have the meaning assigned in such term in Section ------------ 6.02 hereof. "Letter Agreement" shall have the meaning assigned to such term in the ---------------- preamble of this Agreement. "Lien" shall mean, with respect to any asset, any mortgage, lien, ---- pledge, charge, security interest or encumbrance of any kind in respect of such asset. For purposes of this Agree ment, a Person shall be deemed to own subject to a Lien any asset which it has acquired or holds subject to the interest of a vendor or lessor under any conditional sale agreement, capital lease or other title retention agreement relating to such asset. "Market Price" shall mean, on any date specified herein, (a) with ------------ respect to Common Stock or Voting Common Stock (or equivalent equity interests) of an Acquiring Person or its Parent, the amount per share equal to (i) the last sale price of shares of such security, regular way, on such date or, if no such sale takes place on such date, the average of the closing bid and asked prices thereof on such date, in each case as officially reported on the principal national securities exchange on which the same are then listed or admitted to trading, or (ii) if no shares of such security are then listed or admitted to trading on any national securities exchange, the last reported sale price as officially reported by the Nasdaq National Market System or, (iii) if not quoted on the Nasdaq National Market System, the average closing bid and asked prices as furnished by the NASD through the Nasdaq National Market System or similar organization if the NASDAQ is no longer reporting such information, or (iv) if no closing bid and asked prices thereof are then so quoted or published in the over-the-counter market, the Fair Value thereof as of a date which is within 15 days of the date as of which the determination is to be made; and (b) with respect to any other securities, the Fair Value thereof as of a date which is within 15 days of the date as of which the determination is to be made. "NASD" shall mean the National Association of Securities Dealers. ---- Warrant Agreement ----------------- 5 "NASDAQ" shall mean the National Association of Securities Dealers ------ automated quotation system. "Option Plan" shall mean the Company's 1994 Stock Option Plan. ----------- "Options" shall mean all rights, options or warrants to subscribe for, ------- purchase or otherwise acquire either Additional Shares of Common Stock or Convertible Securities. "Other Equity Documents" shall mean the Option Plan, the certificate ---------------------- of incorporation of the Company, the by-laws of the Company, the Rights Agreement and any other instrument or document of organization or governance of the Company. "Other Securities" shall mean any stock (other than Common Stock) and ---------------- other securities of the Company or any other Person (corporate or otherwise) which the holders of the Warrants at any time shall be entitled to receive, or shall have received, upon the exercise of the Warrants, in lieu of or in addition to Common Stock, or which at any time shall be issuable or shall have been issued in exchange for or in replacement of Common Stock or Other Securities pursuant to Section 6.08 or otherwise. "Parent" as to any Acquiring Person, any corporation which (a) ------ controls the Acquiring Person directly or indirectly through one or more intermediaries, (b) is required to include the Acquiring Person in its consolidated financial statements under GAAP and (c) is not itself included in the consolidated financial statements of any other Person (other than its consolidated subsidiaries). "Person" shall mean any natural person, corporation, limited liability ------ company, trust, joint venture, association, company, partnership, Governmental Authority or other entity. "Registration Rights Agreement" shall mean the Registration Rights ----------------------------- Agreement dated as of May 26, 1998, between the Company and Seabury. "Requisite Holders of Warrants" shall mean the holders of at least a ----------------------------- majority of all the Warrants at the time outstanding determined on the basis of the number of shares of Warrant Stock or Other Securities deliverable upon exercise thereof; provided, that Warrants held by the Company or any of its -------- Subsidiaries shall be excluded from both the numerator and denominator of any calculation of the Requisite Holders of Warrants. "Restricted Certificate" shall mean a certificate for Warrant Stock or ---------------------- Warrants bearing or required to bear the restrictive legend set forth in Section 4.03. "Restricted Securities" shall mean Restricted Warrant Stock and --------------------- Restricted Warrants. Warrant Agreement ----------------- 6 "Restricted Warrant Stock" shall mean Warrant Stock evidenced by a ------------------------ Restricted Certificate. "Restricted Warrants" shall mean Warrants evidenced by a Restricted ------------------- Certificate. "Rights Agreement" shall mean the Rights Agreement dated as of ---------------- February 20, 1997 between the Company and American Securities Transfer & Trust, Inc., as amended. "Rule 144" shall mean Rule 144 promulgated by the Commission under the -------- Securities Act (or any successor or similar rule then in force). "Rule 144A" shall mean Rule 144A promulgated by the Commission under --------- the Securities Act (or any successor or similar rule then in force). "Seabury" shall have the meaning assigned to such term in the preamble ------- of this Agreement. "Securities Act" shall mean the Securities Act of 1933, as amended, or -------------- any similar federal statute, and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. "Shareholder" shall mean any Person who directly or indirectly owns ----------- any shares of Common Stock (including Warrant Stock). "Subsidiary" of a Person means (a) any corporation more than 50% of ---------- the outstanding securities having ordinary voting power of which shall at the time be owned or controlled, directly or indirectly, by such Person or by one or more of its Subsidiaries or by such Person and one or more of its Subsidiaries, or (b) any company, partnership, association, joint venture or similar business organization more than 50% of the ownership interests having ordinary voting power of which shall at the time be so owned or controlled. Unless otherwise expressly provided, all references herein to a "Subsidiary" shall mean a direct or indirect Subsidiary of the Company. "Voting Common Stock" shall mean, with respect to any corporation, ------------------- association or other business entity, stock of any class or classes (or equivalent interest), if the holders of the stock of such class or classes (or equivalent interests) are ordinarily, in the absence of contingencies, entitled to vote for the election of a majority of the directors (or persons performing similar functions) of such corporation, association or business entity, even if the right so to vote has been suspended by the happening of such a contingency. "Warrant Stock" shall mean all shares of Common Stock issuable from ------------- time to time upon exercise of the Warrant. Warrant Agreement ----------------- 7 "Warrant" and "Warrants" shall mean Warrant No. Sea-1 issued by the ------- -------- Company to Seabury on the date hereof, a copy of which is attached hereto as Exhibit A, evidencing rights to purchase up to an aggregate of 548,000 shares of Warrant Stock and other securities, cash or other property as shall result from the adjustment specified in Section 6, and all Warrants issued upon transfer, division or combination of, or in substitution for, any thereof. 1.02 Accounting Terms and Determinations. Except as otherwise may be ----------------------------------- expressly provided herein, all accounting terms used herein shall be interpreted, and all financial statements and certificates and reports as to financial matters required to be delivered to any Holder of Warrant shall be prepared, in accordance with GAAP. All calculations made for the purposes of determining compliance with the terms of this Agreement shall (except as otherwise may be expressly provided herein) be made by application of GAAP. SECTION 2. Purchase and Sale of Warrant. ---------------------------- 2.01 Authorization and Issuance of Warrant. On or prior to the date ------------------------------------- hereof, the Company authorized: (a) the issuance of the Warrant evidenced by Warrant Certificate No. Sea-1, a copy of which is attached hereto as Exhibit A; --------- and (b) the issuance of such number of shares of Common Stock as shall be necessary to permit the Company to comply with its obligations to issue shares of Warrant Stock pursuant to the Warrant. 2.02 Issuance of the Warrant. (a) The Company has delivered to ----------------------- Seabury Warrant Certificate No. Sea-1, registered in the name of Seabury. 2.03 Securities Act Compliance; Brokers. ---------------------------------- (a) Seabury understands that the Company has not registered the Warrant or the Warrant Stock under the Securities Act or applicable state securities laws, and Seabury agrees that neither the Warrant nor the Warrant Stock shall be sold or transferred or offered for sale or transfer without registration or qualification under the Securities Act or applicable state securities laws or the availability of an exemption therefrom, all as more fully provided in Section 4. (b) Seabury purchased the Warrant for its own account for investment and not with a view to the distribution of the Warrant or any part thereof, it being understood that the right to dispose of the Warrant shall be entirely within the discretion of Seabury. Nothing in this paragraph (b) is meant to limit or restrict the rights granted to Seabury under the Registration Rights Agreement. (c) Seabury is an "accredited investor" within the meaning of Regulation D promulgated under the Securities Act. Warrant Agreement ----------------- 8 (d) All negotiations relative to this Agreement and the transactions contemplated hereby have been carried out by Seabury directly with the Company without the intervention of any Person on behalf of Seabury in such manner as to give rise to any valid claim by any Person against the Company for a finder's fee, brokerage commission or similar payment. SECTION 3. Representations and Warranties. The Company represents ------------------------------ and warrants as follows: 3.01 Existence; Qualification. The Company is duly organized, ------------------------ validly existing and in good standing under the laws of the State of Colorado. The Company is duly qualified, licensed or admitted to do business and is in good standing as a foreign corporation in every jurisdiction in which the nature of the business conducted by it makes such qualification necessary, except where the failure to be so qualified would not have a material adverse effect on the Company, and has all requisite corporate power and authority to transact its business as now conducted in all such jurisdictions. 3.02 No Breach. The execution, delivery and performance of this --------- Agreement, the Warrant and the Registration Rights Agreement by the Company and the consummation by it of the transactions contemplated hereby and thereby will not (a) violate the articles of incorporation or by-laws or any other instrument or document of organization or governance of the Company, (b) violate, or result in a breach of or default under, any other material instrument or agreement to which the Company is a party or is bound, (c) violate any judgment, order, injunction, decree or award against or binding upon the Company, (d) result in the creation of any material Lien upon any of the properties or assets of the Company, or (e) violate any law, rule or regulation applicable to the Company. 3.03 Corporate Action. The Company has all necessary corporate power ---------------- and authority to execute, deliver and perform its obligations under this Agreement, the Warrant and the Registration Rights Agreement; the execution, delivery and performance by the Company of this Agreement, the Warrant and the Registration Rights Agreement have been duly authorized by all necessary action (including all Shareholder action) on the part of the Company; this Agreement, the Warrant and the Registration Rights Agreement have been duly executed and delivered by the Company and constitute the legal, valid and binding obligations of the Company, enforceable against the Company in accordance with their respective terms; the shares of Warrant Stock covered by the Warrant have been duly and validly authorized and reserved for issuance and shall, when paid for, issued and delivered in accordance with the Warrant, be duly and validly issued, fully paid and nonassessable and free and clear of any Liens; and none of the Warrant Stock issued pursuant to the terms hereof will be in violation of any preemptive rights of any Shareholder Warrant Agreement ----------------- 9 3.04 Approvals. Except in connection with the registration rights --------- provided for pursuant to the terms of the Registration Rights Agreement, no authorizations, approvals or consents of, and no filings or registrations with, any Governmental Authority or any other Person are necessary for the execution, delivery or performance by the Company of this Agreement, the Warrant or the Registration Rights Agreement or for the validity or enforceability hereof or thereof. Any such action required to be taken as a condition to the execution and delivery of this Agreement or the Registration Rights Agreement, or the execution, issuance and delivery of the Warrant, has been duly taken by all such Governmental Authorities or other Persons, as the case may be. 3.05 Investment Company Act. The Company is not an "investment ---------------------- company", or a company "controlled by" an "investment company", within the meaning of the Investment Company Act of 1940, as amended. 3.06 Capitalization. -------------- (a) On the date hereof, the total number of shares of Common Stock that the Company has authority to issue is 40,000,000 of which 9,233,563 are outstanding. Upon the issuance of the Warrant under this Agreement, other than the Warrant, and other than as set forth in Schedule 3.06 attached hereto, the ------------- Company shall not have outstanding any Convertible Securities or Options exercisable or convertible into or exchangeable for any interests or other equity rights of the Company, nor shall it have outstanding any agreements providing for the issuance (contingent or otherwise) of, or any calls, commitments or claims of any character relating to, any interests or equity rights of the Company or Convertible Securities exercisable or convertible into or exchangeable for any interests or equity rights of the Company. (b) Except as set forth in Schedule 3.06 attached hereto, other than ------------- this Agreement and the Registration Rights Agreement, there is not in effect on the date hereof any agreement by the Company pursuant to which any holders of securities of the Company have a right to cause the Company to register such securities under the Securities Act or any agreement to which the Company or (to its knowledge) any of its Shareholders is a party relating to the voting, transfer or sale of such securities. (c) There is not in effect on the date hereof any agreement by the Company or any of its Shareholders which (i) restricts the transferability of the Warrant and/or the Warrant Stock, except as provided in Sections 4 and 5, (ii) restricts the transferability of the right of the Holder in this Agreement to any transferee of all or a portion of the Holder's Warrant and/or Warrant Stock, or (iii) requires any consent or other approval of any Person to the exercise of the Warrant by the Holder or the issuance of Warrant Stock upon such exercise. 3.07 Private Offering. ---------------- Warrant Agreement ----------------- 10 (a) Based on the representations of Seabury in Sections 2.03(a)-(c) -------------------- hereof, the issuance and sale of the Warrant to Seabury hereunder were exempt from the registration and prospectus delivery requirements of the Securities Act. (b) All equity interests of the Company heretofore issued and sold by the Company were issued and sold in accordance with, or were exempt from, the registration and prospectus delivery requirements of the Securities Act. 3.08 Litigation. ---------- There is no action, suit, proceeding or investigation pending or, to the best of the Company's knowledge after due inquiry, threatened against the Company before any Governmental Authority seeking to enjoin the transactions contemplated by this Agreement or the Warrant. 3.09 Rights Agreement. Neither the ownership nor exercise of the ---------------- Warrant or any portion thereof by Seabury or any Holder will result in a "Distribution Date" or a "Triggering Event" (as defined in the Rights Agreement), or in Seabury or such Holder being deemed an "Acquiring Person" under the Rights Agreement. 3.10 Brokers. All negotiations relative to this Agreement and the ------- transactions contemplated hereby have been carried out by the Company directly with Seabury without the intervention of any Person on behalf of the Company in such manner as to give rise to any valid claim by any Person against Seabury or the Holder for a finder's fee, brokerage commission or similar payment. SECTION 4. Restrictions on Transferability. ------------------------------- 4.01 Transfers Generally. Except as otherwise provided in Section 5, ------------------- the Restricted Securities shall be transferable only upon the conditions specified in this Section 4 and in the Registration Rights Agreement, which conditions are intended to ensure compliance with the provisions of the Securities Act and applicable state securities laws in respect of the transfer of any Restricted Securities. 4.02 Transfers of Restricted Securities Pursuant to Registration ----------------------------------------------------------- Statements, Rule 144 and Rule 144A. The Restricted Securities may be offered or - ---------------------------------- sold by the Holder thereof pursuant to (a) an effective registration statement under the Securities Act, (b) to the extent applicable, Rule 144 or Rule 144A or (c) any other legally available means of transfer; provided, that the Holder -------- receives an opinion of counsel to the effect that the proposed transfer may legally be effected without registration of such Registrable Securities under the Securities Act. Warrant Agreement ----------------- 11 4.03 Restrictive Legends. Unless and until otherwise permitted by ------------------- this Section 4, each certificate for any Warrants issued to any subsequent transferee of Warrant Certificate No. Sea-1, each certificate for any Warrant Stock issued upon exercise of any Warrant and each certificate for any Warrant Stock issued to any subsequent transferee of any such certificate, shall be stamped or otherwise imprinted with a legend in substantially the following form: "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS, AND ACCORDINGLY, SUCH SECURITIES MAY NOT BE TRANSFERRED, SOLD OR OTHERWISE DISPOSED OF EXCEPT IN COMPLIANCE WITH THE REGISTRATION OR QUALIFICATION PROVISIONS OF APPLICABLE FEDERAL AND STATE SECURITIES LAWS OR APPLICABLE EXEMPTIONS THEREFROM. 4.04 Termination of Restrictions. All of the restrictions imposed by --------------------------- this Section 4 upon the transferability of the Restricted Securities shall cease and terminate as to any particular Restricted Security when such Restricted Security shall have been effectively registered under the Securities Act and applicable state securities laws and sold by the Holder thereof in accordance with such registration or sold under and pursuant to Rule 144 or is eligible to be sold under and pursuant to paragraph (k) of Rule 144. Whenever the restrictions imposed by this Section 4 shall terminate as to any Restricted Security as hereinabove provided, the Holder thereof shall be entitled to receive from the Company, without expense, a new certificate evidencing such Restricted Security not bearing the restrictive legend otherwise required to be borne by a certificate evidencing such Restricted Security. SECTION 5. Dispositions of Securities. -------------------------- 5.01 Dispositions of Securities. -------------------------- (a) Notwithstanding anything herein in this Agreement or the Warrant to the contrary, but subject to compliance with the Securities Act, applicable state securities laws and the requirement as to placement of a legend on certificates for Restricted Securities specified in Section 4.03, the Warrant and all rights thereunder are transferable (subject to any restrictive legends thereon), in whole or in part, upon surrender of the Warrant to the Company, together with a written assignment of the Warrant duly executed by the Holder thereof or such Holder's agent or attorney. Such written assignment shall be in the form of the Assignment Form attached as Annex 1 hereto. Upon such ------- surrender, the Company shall execute and deliver a new Warrant or Warrants in the name of the assignee or assignees and in the denominations specified in such instrument of assignment, and the original Warrant shall promptly be canceled. Warrant Agreement ----------------- 12 (b) The Warrant may be exchanged for other Warrants of the same series upon presentation to the Company, together with a written notice specifying the denominations in which new Warrants are to be issued, signed by the Holder thereof. The Company shall execute and deliver a new Warrant or Warrants to the Holder in exchange for the Warrant or Warrants to be divided or combined in accordance with such notice. The Company shall pay all expenses, taxes (including transfer taxes) and other charges payable in connection with the preparation, issuance and delivery of the Warrants, including any transfer or exchange thereof. (c) The Company shall maintain books for the registration and transfer of the Warrants, and shall allow each Holder of Warrants to inspect such books at such reasonable times as such Holder shall request. SECTION 6. Adjustments of Warrant Stock Issuable Upon Exercise. --------------------------------------------------- 6.01 Number of Shares; Exercise Price. The number of shares of -------------------------------- Warrant Stock which a Holder of Warrants shall be entitled to receive upon each exercise thereof shall be determined by multiplying the number of shares of Warrant Stock which would otherwise (but for the provisions of this Section 6) be issuable upon such exercise, as designated by the Holder thereof in its Exercise Notice, by a fraction of which (i) the numerator is $3.00 and (ii) the denominator is the Exercise Price in effect on the date of such exercise. The "Exercise Price" shall initially be $3.00 per share, shall be adjusted and readjusted from time to time as provided in this Section 6 and, as so adjusted or readjusted, shall remain in effect until a further adjustment or readjustment thereof is required by this Section 6. 6.02 Adjustment of Exercise Price. ---------------------------- (a) Issuance of Additional Shares of Common Stock. In case the --------------------------------------------- Company, at any time or from time to time after May 26, 1998 (the "Initial ------- Date"), shall issue or sell Additional Shares of Common Stock (including - ---- Additional Shares of Common Stock deemed to be issued pursuant to Section 6.03 or 6.04) without consideration or for a consideration per share less than the Base Price in effect, in each case, on the date of and immediately prior to such issue or sale, then, and in each such case, (i) in the event that the number of shares to be so issued or sold, together with all other Additional Shares of Common Stock issued or sold or deemed issued by the Company subsequent to the Initial Date for a consideration per share less than the Base Price (collectively, the "Below Base Price Shares") ----------------------- is less than 250,000, such Exercise Price shall be reduced, concurrently with such issue or sale, to a price (calculated to the nearest .001 of a cent) determined by multiplying such Exercise Price by a fraction, Warrant Agreement ----------------- 13 (A) the numerator of which shall be (x) the number of shares of Common Stock outstanding immediately prior to such issue or sale plus (y) the number of shares of Common Stock which the aggregate consideration received by the Company for the total number of such Additional Shares of Common Stock so issued or sold would purchase at the Base Price, and (B) the denominator of which shall be the number of shares of Common Stock outstanding immediately after such issue or sale, and (ii) in the event that the number of Below Base Price Shares issued or sold or deemed issued by the Company subsequent to the Initial Date is equal to or greater than 250,000, the Exercise Price shall be reduced to an amount equal to the lowest consideration per share (as determined under Section 6.05) received by the Company for any such issue or sale, provided that, for the purposes of this Section 6.02(a), immediately after any - -------- Additional Shares of Common Stock are deemed to have been issued pursuant to Section 6.03 or 6.04, such Additional Shares shall be deemed to be outstanding, and treasury shares shall not be deemed to be outstanding. (b) Dividends and Distributions. In case the Company at any time or --------------------------- from time to time after the Initial Date shall declare, order, pay or make a dividend or other distribution (including, without limitation, any distribution of other or additional stock or other securities or property or Options by way of dividend or spin-off, reclassification, recapitalization or similar corporate rearrangement) on any Common Stock, other than a dividend payable in Additional Shares of Common Stock or in Options for Common Stock, then, unless the Company permits the Holders to participate in such dividend or distribution based on the number of shares of Warrant Stock then underlying each Warrant, the Exercise Price in effect immediately prior to the close of business on the record date fixed for the determination of holders of any class of securities entitled to receive such dividend or distribution shall be reduced, effective as of the close of business on such record date, to a price (calculated to the nearest .001 of a cent) determined by multiplying such Exercise Price by a fraction, (A) the numerator of which shall be the Current Market Price in effect on such record date or, if the Common Stock trades on an ex-dividend basis, on the date prior to the commencement of ex-dividend trading, less the value of such dividend or distribution applicable to one share of Common Stock, and (B) the denominator of which shall be such Current Market Price. 6.03 Treatment of Options and Convertible Securities. In case the ----------------------------------------------- Company at any time or from time to time after the Initial Date shall issue, sell, grant or assume, or shall fix a record date for the determination of holders of any class of securities entitled to receive, any Options or Convertible Securities, then, and in each such case, the maximum number of Warrant Agreement ----------------- 14 Additional Shares of Common Stock (as set forth in the instrument relating thereto, without regard to any provisions contained therein for a subsequent adjustment of such number) issuable upon the exercise of such Options or, in the case of Convertible Securities and Options therefor, the conversion or exchange of such Convertible Securities, shall be deemed to be issued for purposes of Section 6.02 as of the time of such issue, sale, grant or assumption or, in case such a record date shall have been fixed, as of the close of business on such record date (or, if the Common Stock trades on an ex-dividend basis, on the date prior to the commencement of ex-dividend trading), provided that such Additional -------- Shares of Common Stock shall not be deemed to have been issued unless the consideration per share (determined pursuant to Section 6.05) of such shares would be less than the Base Price in effect, in each case, on the date of and immediately prior to such issue, sale, grant or assumption or immediately prior to the close of business on such record date (or, if the Common Stock trades on an ex-dividend basis, on the date prior to the commencement of ex-dividend trading), as the case may be, and provided, further, that in any such case in -------- ------- which Additional Shares of Common Stock are deemed to be issued, (a) no further adjustment of the Exercise Price shall be made upon the subsequent issue or sale of Additional Shares of Common Stock or Convertible Securities upon the exercise of such Options or the conversion or exchange of such Convertible Securities; (b) if such Options or Convertible Securities by their terms provide, with the passage of time or otherwise, for any increase or decrease in the consideration payable to the Company, or increase or decrease in the number of Additional Shares of Common Stock issuable, upon the exercise, conversion or exchange thereof (by change of rate or otherwise), the Exercise Price computed upon the original issue, sale, grant or assumption thereof (or upon the occurrence of the record date, or date prior to the commencement of ex-dividend trading, as the case may be, with respect thereto), and any subsequent adjustments based thereon, shall, upon any such increase or decrease becoming effective, be recomputed to reflect such increase or decrease insofar as it affects such Options, or the rights of conversion or exchange under such Convertible Securities, which are outstanding at such time; (c) upon the expiration of any such Options or of the rights of conversion or exchange under any such Convertible Securities which shall not have been exercised (or upon purchase by the Company and cancellation or retirement of any such Options which shall not have been exercised or of any such Convertible Securities the rights of conversion or exchange under which shall not have been exercised), the Exercise Price computed upon the original issue, sale, grant or assumption thereof (or upon the occurrence of the record date, or date prior to the commencement of ex-dividend trading, as the case may be, with respect thereto), and any subsequent adjustments based thereon, shall, upon such expiration (or such cancellation or retirement, as the case may be), be recomputed as if: (i) in the case of Options for Common Stock or of Convertible Securities, the only Additional Shares of Common Stock issued or sold were the Additional Shares of Common Warrant Agreement ----------------- 15 Stock, if any, actually issued or sold upon the exercise of such Options or the conversion or exchange of such Convertible Securities and the consideration received therefor was (x) an amount equal to (1) the consideration actually received by the Company for the issue, sale, grant or assumption of all such Options, whether or not exercised, plus (2) the consideration actually received by the Company upon such exercise, minus (3) the consideration paid by the Company for any purchase of such Options which were not exercised, or (y) an amount equal to (1) the consideration actually received by the Company for the issue, sale, grant or assumption of all such Convertible Securities which were actually converted or exchanged, plus (2) the additional consideration, if any, actually received by the Company upon such conversion or exchange, minus (3) the consideration paid by the Company for any purchase of such Convertible Securities the rights of conversion or exchange under which were not exercised, and (ii) in the case of Options for Convertible Securities, only the Convertible Securities, if any, actually issued or sold upon the exercise of such Options were issued at the time of the issue, sale, grant or assumption of such Options, and the consideration received by the Company for the Additional Shares of Common Stock deemed to have then been issued was an amount equal to (x) the consideration actually received by the Company for the issue, sale, grant or assumption of all such Options, whether or not exercised, plus (y) the consideration deemed to have been received by the Company (pursuant to Section 6.05) upon the issue or sale of the Convertible Securities with respect to which such Options were actually exercised, minus (z) the consideration paid by the Company for any purchase of such Options which were not exercised; (d) no readjustment pursuant to subdivision (b) or (c) above shall have the effect of increasing the Exercise Price by an amount in excess of the amount of the adjustment thereof originally made in respect of the issue, sale, grant or assumption of such Options or Convertible Securities; and (e) in the case of any such Options which expire by their terms not more than 30 days after the date of issue, sale, grant or assumption thereof, no adjustment of the Exercise Price shall be made until the expiration or exercise of all such Options, whereupon such adjustment shall be made in the manner provided in subdivision (c) above. In case at any time after the Initial Date the Company shall be required to increase the number of Additional Shares of Common Stock subject to any Option or into which any Convertible Securities are convertible or exchangeable pursuant to the operation of anti-dilution provisions applicable thereto, such Additional Shares shall be deemed to be issued for purposes of Section 6.02 as of the time of such increase. 6.04 Treatment of Stock Dividends, etc. In case the Company at any ---------------------------------- time or from time to time after the Initial Date shall declare or pay any dividend or other distribution on Warrant Agreement ----------------- 16 any class of stock of the Company payable in Common Stock, then, and in each such case, Additional Shares of Common Stock shall be deemed to have been issued immediately after the close of business on the record date for the determination of holders of any class of securities entitled to receive such dividend; provided, however, that no Additional Shares of Common Stock shall be deemed to - -------- ------- have been issued in the case of any such dividend if the Company shall have declared such dividend payable, and paid such dividend, with respect to all shares of Warrant Stock then underlying the Warrants. 6.05 Computation of Consideration. For the purposes of this Section ---------------------------- 6: (a) The consideration for the issue or sale of any Additional Shares of Common Stock or for the issue, sale, grant or assumption of any Options or Convertible Securities, irrespective of the accounting treatment of such consideration, shall (i) insofar as it consists of cash, be computed at the amount of cash received by the Company, after deducting any expenses paid or incurred by the Company or any commissions or compensation paid or concessions or discounts allowed to underwriters, dealers or others performing similar services and any accrued interest or dividends in connection with such issue or sale, (ii) insofar as it consists of consideration (including securities) other than cash, be computed at the Fair Value thereof at the time of such issue or sale, after deducting any expenses paid or incurred by the Company for any commissions or compensation paid or concessions or discounts allowed to underwriters, dealers or others performing similar services and any accrued interest or dividends in connection with such issue or sale, and (iii) in case Additional Shares of Common Stock are issued or sold or Convertible Securities are issued, sold, granted or assumed together with other stock or securities or other assets of the Company for a consideration which covers both, be the proportion of such consideration so received, computed as provided in subdivisions (i) and (ii) above, allocable to such Additional Shares of Common Stock or Convertible Securities, as the case may be. (b) Subject to the proviso contained in Section 6.04, all Additional Shares of Common Stock, Options or Convertible Securities issued in payment of any dividend or other distribution on any class of stock of the Company shall be deemed to have been issued without consideration. (c) Additional Shares of Common Stock deemed to have been issued for consideration pursuant to Section 6.03, relating to Options and Convertible Securities, shall be deemed to have been issued for a consideration per share determined by dividing Warrant Agreement ----------------- 17 (i) the total amount, if any, received and receivable by the Company as consideration for the issue, sale, grant or assumption of the Options or Convertible Securities in question, plus the minimum aggregate amount of additional consideration (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such consideration) payable to the Company upon the exercise in full of such Options or the conversion or exchange of such Convertible Securities or, in the case of Options for Convertible Securities, the exercise of such Options for Convertible Securities and the conversion or exchange of such Convertible Securities, in each case computing such consideration as provided in the foregoing subdivision (a), by (ii) the maximum number of shares of Common Stock (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such number) issuable upon the exercise of such Options or the conversion or exchange of such Convertible Securities. (d) Additional Shares of Common Stock issued or deemed to have been issued pursuant to the operation of anti-dilution provisions applicable to Convertible Securities, Options or other securities of the Company (either as a result of the adjustments provided for by the Warrants or otherwise) shall be deemed to have been issued without consideration. 6.06 Adjustments for Combinations, Subdivisions, etc. In case the ------------------------------------------------ outstanding shares of Common Stock shall be combined or consolidated into a lesser number of shares of Common Stock (by reclassification or otherwise) or shall be subdivided into a greater number of shares of Common Stock (by reclassification or otherwise than by payment of a dividend in Common Stock), the Exercise Price in effect immediately prior to such combination or consolidation or subdivision shall, concurrently with the effectiveness of such combination or consolidation or subdivision, be proportionately increased or decreased, as the case may be. 6.07 Dilution in Case of Other Securities. In case any Other ------------------------------------ Securities shall be issued or sold or shall become subject to issue or sale upon the conversion or exchange of any stock (or Other Securities) of the Company (or any issuer of Other Securities or any other Person referred to in Section 6.08) or to subscription, purchase or other acquisition pursuant to any Options issued or granted by the Company (or any such other issuer or Person) for a consideration such as to dilute, on a basis consistent with the standards established in the other provisions of this Section 6, the purchase rights granted by the Warrants, then, and in each such case, the computations, adjustments and readjustments provided for in this Section 6 with respect to the Exercise Price shall be made as nearly as possible in the manner so provided and applied to determine the amount of Other Securities from time to time receivable upon the exercise of the Warrants, so as to protect the holders of the Warrants against the effect of such dilution. 6.08 Consolidation, Merger, Sale of Assets, Reorganization etc. ---------------------------------------------------------- Warrant Agreement ----------------- 18 (a) General Provisions. In case the Company, after the Initial Date, ------------------ (i) shall consolidate with or merge into any other Person and shall not be the continuing or surviving corporation of such consolidation or merger, or (ii) shall permit any other Person to consolidate with or merge into the Company and the Company shall be the continuing or surviving Person but, in connection with such consolidation or merger, Common Stock or Other Securities shall be changed into or exchanged for cash, stock or other securities of any Person or any other property, or (iii) shall transfer all or substantially all of its properties and assets to any other Person, or (iv) shall effect a capital reorganization or reclassification of Common Stock or Other Securities (other than a capital reorganization or reclassification resulting in the issue of Additional Shares of Common Stock for which adjustment in the Exercise Price is provided in Section 6.02(a) or 6.02(b)), then, and in the case of each such transaction, the Company shall give written notice thereof to each Holder of Warrants not less than 45 days prior to the consummation thereof and proper provision shall be made so that, upon the basis and the terms and in the manner provided in this Section 6.08, each Holder of Warrants, upon the exercise thereof at any time after the consummation of such transaction, shall be entitled to receive, at the aggregate Exercise Price in effect at the time of such consummation for all Common Stock (or Other Securities) issuable upon such exercise immediately prior to such consummation, in lieu of the Common Stock (or Other Securities) issuable upon such exercise prior to such consummation, the following: the highest amount of cash, securities or other property to which such Holder would actually have been entitled as a shareholder upon such consummation if such Holder had exercised such Warrants immediately prior thereto, subject to adjustments (subsequent to such consummation) as nearly equivalent as possible to the adjustments provided for in this Section 6, provided that if a purchase, tender or exchange offer shall have been made -------- to and accepted by the holders of Common Stock under circumstances in which, upon completion of such purchase, tender or exchange offer, the maker thereof, together with members of any group (within the meaning of Rule 13d-5(b)(l) under the Exchange Act) of which such maker is a part, and together with any affiliate or associate of such maker (within the meaning of Rule 12b-2 under the Exchange Act) and any members of any such group of which any such affiliate or associate is a part, own beneficially (within the meaning of Rule 13d-3 under the Exchange Act) more than 50% of the outstanding shares of Common Stock, and if any Holder of Warrants so designates in such notice given to the Company, such Holder shall be entitled to receive the highest amount of cash, securities or other property to which such Holder would actually have been entitled as a shareholder if such Holder had exercised its Warrants prior to the expiration of such purchase, tender or exchange offer, accepted such offer and all of the Common Stock held by such Holder had been purchased pursuant to such purchase, tender or exchange offer, subject to adjustments (from and after the consummation of such purchase, tender or exchange offer) as nearly equivalent as possible to the adjustments provided for in this Section 6; provided that, if any of the transactions described in -------- subdivisions (i) through (iv) of this Section 6.08(a) involve the issuance of Voting Common Stock, the Company shall not effect any of such transactions unless, immediately after the date of the consummation of such Warrant Agreement ----------------- 19 transaction, the Acquiring Person or its Parent is required to file, by virtue of having an outstanding class of Voting Common Stock (or equivalent equity interests), reports with the Commission pursuant to section 13 or section 15(d) of the Exchange Act, and such Voting Stock (or equivalent equity interest) is listed or admitted to trading on a national securities exchange or is included for trading on the NASDAQ National Market or Small Cap Market. (b) Assumption of Obligations. Notwithstanding anything contained in ------------------------- this Agreement to the contrary, the Company will not effect any of the transactions described in subdivisions (i) through (iv) of Section 6.08(a) unless, prior to the consummation thereof, each Person (other than the Company) which may be required to deliver any cash, stock or other securities or other property upon the exercise of any Warrants as provided herein shall assume, by written instrument delivered to, and reasonably satisfactory to, the Holder of such Warrants, (i) the obligations of the Company under this Agreement (and if the Company shall survive the consummation of such transaction, such assumption shall be in addition to, and shall not release the Company from, any continuing obligations of the Company under this Agreement) and (ii) the obligation to deliver to such holder such cash, stock or other securities or other property as, in accordance with the foregoing provisions of this Section 6.08, such Holder may be entitled to receive. 6.09 Other Dilutive Events. In case any event shall occur as to --------------------- which the provisions of this Section 6 is not strictly applicable but the failure to make any adjustment would not fairly protect the purchase rights represented by the Warrants in accordance with the essential intent and principles of this Section 6, then, in each such case, an adjustment on a basis consistent with the essential intent and principles established in this Section 6, necessary to preserve, without dilution, the purchase rights represented by the Warrants shall be made. 6.10 No Dilution or Impairment. The Company will not, by amendment ------------------------- of its articles of incorporation or through any consolidation, merger, reorganization, transfer of assets, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Agreement, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the holders of Warrants against dilution or other impairment. Without limiting the generality of the foregoing, the Company (a) will not permit the par value of any shares of stock receivable upon the exercise of Warrants to exceed the amount payable therefor upon such exercise, and, if the Exercise Price in effect at any time shall be reduced to such par value, the Company will promptly cause the par value of such shares to be reduced to $0.01, (b) will take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable shares of stock upon the exercise of all of the Warrants from time to time outstanding, (c) will not take any action which Warrant Agreement ----------------- 20 results in any adjustment of the Exercise Price if the total number of shares of Common Stock (or Other Securities) issuable after the action upon the exercise of all of the Warrants would exceed the total number of shares of Common Stock (or Other Securities) then authorized by the Company's certificate of incorporation and available for the purpose of issue upon such exercise, (d) will not issue any capital stock of any class which has the right to more than one vote per share and (e) will not issue any security other than Common Stock unless the rights of the holders thereof shall be limited to a fixed sum or percentage of par value or a sum determined by reference to a formula based on a published index of interest rates, an interest rate publicly announced by a financial institution or a similar indicator of interest rates in respect of interest or participation in dividends and to a fixed sum or percentage of par value as principal or in any distribution of assets. 6.11 Accountants' Report as to Adjustments. In each case of any ------------------------------------- adjustment or readjustment in the shares of Warrant Stock (or Other Securities) issuable upon the exercise of the Warrants, the Company at its expense will promptly compute such adjustment or readjustment in accordance with the terms of the Warrants and cause independent public accountants of recognized national standing selected by the Company (which may be the regular auditors of the Company) to verify such computation and prepare a report setting forth such adjustment or readjustment and showing in reasonable detail the method of calculation thereof and the facts upon which such adjustment or readjustment is based, including without limitation a statement of (a) the consideration received or to be received by the Company for any Additional Shares of Common Stock issued or sold or deemed to have been issued, (b) the number of shares of Common Stock outstanding or deemed to be outstanding, and (c) the Exercise Price in effect immediately prior to such issue or sale and as adjusted and readjusted on account thereof. The Company will forthwith mail a copy of each such report to each holder of a Warrant and will, upon the written request at any time of any Holder of a Warrant, furnish to such Holder a like report setting forth the Exercise Price at the time in effect and showing in reasonable detail how it was calculated. The Company will also keep copies of all such reports at its principal office and will cause the same to be available for inspection at such office during normal business hours by any Holder of a Warrant or any prospective purchaser of a Warrant designated by the Holder thereof. 6.12 Notices of Corporate Action. In the event of --------------------------- (a) any taking by the Company of a record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend or other distribution, or any right to subscribe for, purchase or otherwise acquire any shares of stock of any class or any other securities or property, or to receive any other right, or (b) any capital reorganization of the Company, any reclassification or recapitalization of the capital stock of the Company or any consolidation or merger involving the Warrant Agreement ----------------- 21 Company and any other Person or any transfer of all or substantially all the assets of the Company to any other Person, or (c) any voluntary or involuntary dissolution, liquidation or winding- up of the Company, the Company will mail to each Holder of a Warrant a notice specifying (i) the date or expected date on which any such record is to be taken for the purpose of such dividend, distribution or right, and the amount and character of such dividend, distribution or right, and (ii) the date or expected date on which any such reorganization, reclassification, recapitalization, consolidation, merger, transfer, dissolution, liquidation or winding-up is to take place and the time, if any such time is to be fixed, as of which the holders of record of Common Stock (or Other Securities) shall be entitled to exchange their shares of Common Stock (or Other Securities) for the securities or other property deliverable upon such reorganization, reclassification, recapitalization, consolidation, merger, transfer, dissolution, liquidation or winding-up. Such notice shall be mailed at least 20 days prior to the date therein specified, in the case of any date referred to in the foregoing subdivision (i), and at least 45 days prior to the date therein specified, in the case of the date referred to in the foregoing subdivision (ii). SECTION 7. Holders' Rights. --------------- 7.01 Delivery Expenses. If any Holder surrenders any certificate for ----------------- Warrants or Warrant Stock to the Company or a transfer agent of the Company for exchange for instruments of other denominations or registered in another name or names, the Company shall cause such new instruments to be issued and shall pay the cost of delivering to or from the office of such Holder from or to the Company or its transfer agent, duly insured, the surrendered instrument and any new instruments issued in substitution or replacement for the surrendered instrument. 7.02 Taxes. The Company shall pay all taxes (other than federal, ----- state or local income taxes) which may be payable in connection with the execution and delivery of this Agreement or the issuance of the Warrants and Warrant Stock hereunder or in connection with any modification of this Agreement or the Warrants and shall hold each Holder harmless without limitation as to time against any and all liabilities with respect to all such taxes. The obligations of the Company under this Section 7.02 shall survive any redemption, repurchase or acquisition of Warrants or Warrant Stock by the Company, any termination of this Agreement, and any cancellation or termination of the Warrants. 7.03 Replacement of Instruments. Upon receipt by the Company of -------------------------- evidence reasonably satisfactory to it of the ownership of and the loss, theft, destruction or mutilation of any certificate or instrument evidencing any Warrants or Warrant Stock, and Warrant Agreement ----------------- 22 (a) in the case of loss, theft or destruction, of indemnity reasonably satisfactory to it (provided that, if the Company's Common Stock is not at the -------- time publicly traded and the owner of the same is Seabury or an institutional lender or Seabury, its own agreement of indemnity shall be deemed to be satisfactory), or (b) in the case of mutilation, upon surrender or cancellation thereof, the Company, at its expense, shall execute, register and deliver, in lieu thereof, a new certificate or instrument for (or covering the purchase of) an equal number of Warrants or Warrant Stock. 7.04 Indemnification. The Company shall indemnify and hold harmless --------------- each of Seabury and the Holders and each of their respective directors, officers, employees, shareholders, members, Affiliates and agents (each, an "indemnified person") on demand from and against any and all losses, claims, - ------------------- damages, liabilities (or actions or other proceedings commenced or threatened in respect thereof) and expenses that arise out of, result from, or in any way relate to, this Agreement or the Warrants or Warrant Stock, or in connection with the other transactions contemplated hereby and thereby, other than such losses, claims, damages, liabilities and expenses relating to the value of the Warrants or Warrant Stock or other securities issued to Seabury or the Holders in connection with this Agreement, the Warrants or the Warrant Stock or the other transactions contemplated hereby or thereby unless such losses, claims, damages, liabilities, and expenses are directly related to a breach by the Company of this Agreement or other agreements entered into in connection with the other transactions contemplated hereby or thereby, and to reimburse each indemnified person, upon its demand, for any legal or other expenses incurred in connection with investigating, defending or participating in the defense of any such loss, claim, damage, liability, action or other proceeding (whether or not such indemnified person is a party to any action or proceeding out of which any such expenses arise), other than any of the foregoing claimed by any indemnified person to the extent there has been a final judicial determination not subject to appeal that it was incurred by reason of the gross negligence or willful misconduct of such indemnified person. No indemnified person shall be responsible or liable to either the Company or any other Person for any damages which may be alleged as a result of or relating to this Agreement or the Warrants or Warrant Stock (other than in connection with a breach of this Agreement), or in connection with the other transactions contemplated hereby and thereby other than any of the foregoing claimed by any indemnified person to the extent there has been a final judicial determination not subject to appeal that it was incurred by reason of the gross negligence or willful misconduct of such indemnified person. 7.05 Inspection Rights. From and after the date hereof, the Company ----------------- shall afford any Holder or its authorized agents, access, at reasonable times, upon reasonable prior notice, (i) to inspect the books and records of the Company, (ii) to discuss with management of the Company the business and affairs of the Company and (iii) to inspect the properties of the Company. Warrant Agreement ----------------- 23 SECTION 8. Other Covenants of Company. The Company agrees with -------------------------- each Holder that, so long as any of the Warrants and/or Warrant Stock shall be outstanding: 8.01 Availability of Information. The Company will cooperate with --------------------------- each holder of any Restricted Securities in supplying such information as may be necessary for such holder to complete and file any information reporting forms presently or hereafter required by the Commission as a condition to the availability of an exemption from the Securities Act for the sale of any Restricted Securities. The Company will furnish to each holder of any Warrants, promptly upon their becoming available, copies of all financial statements, reports, notices and proxy statements sent or made available generally by the Company to its stockholders, and copies of all regular and periodic reports and all registration statements and prospectuses filed by the Company with the NASD, any securities exchange or with the Commission. 8.02 Repurchases and Redemption. Except as otherwise specifically -------------------------- provided herein, and other than repurchases or redemptions of shares of Common Stock from management pursuant to the terms set forth in Annex 2 hereto, the ------- Company shall not effect any repurchase or redemption of shares of Common Stock, or Options or Convertible Securities (other than pursuant to their respective terms), and shall cause its Subsidiaries not to effect any repurchase or redemption of shares of Common Stock, or Options or Convertible Securities (other than pursuant to their respective terms), from any Shareholder or holder of Options or Convertible Securities, without the prior written consent of the Requisite Holders of Warrants. 8.03 Transactions with Affiliates. Except as expressly permitted by ---------------------------- this Agreement, the Company shall not, nor shall it permit its Subsidiaries to, directly or indirectly, sell, lease or otherwise transfer any property or assets to, or purchase, lease or otherwise acquire any property or assets from, or otherwise engage in any other transactions with or for the benefit of, any of its Affiliates, except (a) in the ordinary course of business at prices and on terms and conditions not less favorable to the Company or such Subsidiary than could be obtained on an arm's-length basis from unrelated third parties, (b) transactions between or among the Company and its wholly-owned Subsidiaries not involving any other Affiliate and (c) any transactions or arrangements existing on the date hereof. 8.04 Restrictions on Performance. The Company shall not at any time --------------------------- after the Initial Date enter into an agreement or other instrument limiting in any manner its ability to perform its obligations under this Agreement or the Warrants, or making such performance or the issuance of Warrant Stock upon the exercise of any Warrant a default under any such agreement or instrument. 8.05 Modification of Other Equity Documents. The Company shall not -------------------------------------- amend or consent to any modification, supplement or waiver of any provision of any Other Equity Documents in any manner which would have an adverse effect on the Holders, in each case Warrant Agreement ----------------- 24 without the prior written consent of the Requisite Holders of Warrants. Without limiting the generality of the foregoing, the Company shall not amend, or consent to any modification, supplement or waiver of any provision of any Other Equity Documents in a way which would (i) restrict the transferability of the Warrants and the Warrant Stock, (ii) restrict the transferability of the rights of any Holder in this Agreement to any transferee of all or a portion of such Holder's Warrants and/or Warrant Stock or (iii) require any consent or other approval of any Person to the exercise of the Warrants by any Holder, the issuance of Warrant Stock upon such exercise or the admission of such Holder as a member of the Company upon such exercise. Anything in the Rights Agreement to the contrary notwithstanding, on issuance of shares of Common Stock on exercise of Warrants prior to the redemption or exercise of Rights (as defined in the Rights Agreement), the Company shall issue Rights, or after the Distribution Date (as therein) Rights Certificates, in connection with such exercise. 8.06 Ownership of Subsidiaries. The Company will, and will cause ------------------------- each of its Subsidiaries to take such action as will be necessary from time to time to ensure that the Company or a Subsidiary owns 100% of each class of capital stock of each Subsidiary. 8.07 Reservation of Stock. etc. The Company will at all times -------------------------- reserve and keep available, solely for issuance and delivery upon exercise of the Warrants, the number of shares of Warrant Stock (or Other Securities) from time to time issuable upon exercise of all Warrants at the time outstanding. All shares of Common Stock (or Other Securities) shall be duly authorized and, when issued upon such exercise, shall be validly issued and, in the case of shares, fully paid and nonassessable with no liability on the part of the holders thereof. 8.08 Listing on Securities Exchanges. The Company will list on each ------------------------------- national securities exchange on which any Common Stock may at any time be listed, subject to official notice of issuance upon exercise of the Warrants, and will maintain such listing of, all shares of Warrant Stock from time to time issuable upon exercise of the Warrants. The Company will also so list on each national securities exchange, and will maintain such listing of, any Other Securities if at the time any securities of the same class shall be listed on such national securities exchange by the Company. SECTION 9. Miscellaneous. ------------- 9.01 Waiver. No failure on the part of any Holder to exercise and no ------ delay in exercising, and no course of dealing with respect to, any right, power or privilege under this Agreement or the Warrants shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or privilege under this Agreement or the Warrant preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The remedies provided herein are cumulative and not exclusive of any remedies provided by law. 9.02 Notices. ------- Warrant Agreement ----------------- 25 (a) All notices, requests and other communications provided for herein and the Warrants (including any waivers or consents under this Agreement and the Warrants) shall be given or made in writing, (i) if to the Company: Frontier Airlines, Inc. 12015 East 46th Avenue Denver, Colorado 80239 Attention: Arthur T. Voss, General Counsel Telephone No.: (303) 371-7400 Fax No.: (303) 371-9669 (ii) if to Seabury: The Seabury Group, LLC 135 West 50th Street, Suite 1820 New York, New York 10020 Attention: John Luth Telephone No.: (212) 541-7300 Fax No.: (212) 541-6334 (iii) if to any other Person who is the registered Holder of any Warrants or Warrant Stock, to the address for such Holder as it appears in the stock or warrant ledger of the Company; or, in the case of any Holder, at such other address as shall be designated by such party in a notice to the Company; or, in the case of the Company, at such other address as the Company may designate in a notice to Seabury and all other Holders. (b) All such notices, requests and other communications shall be: (i) personally delivered, sent by courier guaranteeing overnight delivery or sent by registered or certified mail, return receipt requested, postage prepaid, in each case given or addressed as aforesaid; and (ii) effective upon receipt. 9.03 Expenses, Etc. The Company agrees to pay or reimburse Seabury -------------- and, if applicable, the Holders for: (a) all reasonable out-of-pocket costs and expenses of Seabury and the Holders incurred in connection with the negotiation, preparation, execution and delivery of this Agreement and the issuance of Warrants hereunder; and (b) all reasonable costs and expenses Warrant Agreement ----------------- 26 of Seabury and the Holders (including reasonable legal fees and expenses) in connection with (i) any default by the Company hereunder or under the Warrants or any enforcement proceedings resulting therefrom, and (ii) the enforcement of this Section 9.03. 9.04 Amendments, Etc. Except as otherwise expressly provided in this ---------------- Agreement, any provision of this Agreement may be amended or modified only by an instrument in writing signed by the Company and the Requisite Holders of Warrants and, to the extent any such amendment or modification could have an adverse effect on the rights hereunder of the holders of Warrant Stock, a majority of such holders; provided, however, that no such amendment or waiver -------- ------- shall, without the written consent of all Holders of Warrants and Warrant Stock, amend this Section 9.04 or the definition of "Requisite Holders of Warrants". 9.05 Successors and Assigns. This Agreement shall be binding upon ---------------------- and inure to the benefit of the parties hereto and their respective successors and permitted assigns including, without limitation, all Holders of Warrants. 9.06 Survival. All representations and warranties made by the -------- Company herein or in any certificate or other instrument delivered by it or on its behalf under this Agreement shall be considered to have been relied upon by Seabury and shall survive the issuance of the Warrants or the Warrant Stock regardless of any investigation made by or on behalf of Seabury. All statements in any such certificate or other instrument so delivered shall constitute representations and warranties by the Company hereunder. All representations and warranties made by Seabury herein shall be considered to have been relied upon by the Company and shall survive the issuance to Seabury of the Warrants or the Warrant Stock regardless of any investigation made by the Company or on its behalf. 9.07 Specific Performance. Damages in the event of breach of this -------------------- Agreement by a Holder or the Company would be difficult, if not impossible, to ascertain, and it is therefore agreed that each Holder and the Company, in addition to and without limiting any other remedy or right it may have, will have the right to an injunction or other equitable relief in any court of competent jurisdiction, enjoining any such breach, and enforcing specifically the terms and provisions hereof, and each Holder and the Company hereby waives any and all defenses it may have on the ground of lack of jurisdiction or competence of the court to grant such an injunction or other equitable relief. The existence of this right will not preclude the Holders or the Company from pursuing any other rights and remedies at law or in equity which the Holders or the Company may have. 9.08 WAIVER OF JURY TRIAL. THE COMPANY AND SEABURY HEREBY KNOWINGLY, -------------------- VOLUNTARILY, AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF , UNDER, OR IN CONNECTION WITH, THIS AGREEMENT, THE WARRANTS OR ANY OTHER DOCUMENT DELIVERED IN Warrant Agreement ----------------- 27 CONNECTION HEREWITH, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN), OR ACTIONS OF THE COMPANY OR SEABURY RELATING HERETO. 9.09 Limitation of Liability. No provision hereof, in the absence of ----------------------- affirmative action by any Holder to purchase shares of Common Stock, and no mere enumeration herein of the rights or privileges of the Holder, shall give rise to any liability of the Holder for the Exercise Price or as a shareholder of the Company, whether such liability is asserted by the Company, by any creditor of the Company or any other Person. 9.10 Captions. The captions and section headings appearing herein -------- are included solely for convenience of reference and are not intended to affect the interpretation of any provision of this Agreement. 9.11 Counterparts. This Agreement may be executed in any number of ------------ counterparts, all of which taken together shall constitute one and the same instrument and any of the parties hereto may execute this Agreement by signing any such counterpart signature page or counterpart. 9.12 Governing Law. This Agreement shall be governed by, and ------------- construed in accordance with, the law of the State of New York without giving effect to the conflicts of law principles thereof. 9.13 Severability. If any provision of this Agreement is held to be ------------ illegal, invalid or unenforceable under any present or future law, and if the rights or obligations of any party hereto under this Agreement will not be materially and adversely affected thereby, (a) such provision will be fully severable, (b) this Agreement will be construed and enforced as if such illegal, invalid or unenforceable provision had never comprised a part hereof, (c) the remaining provisions of this Agreement will remain in full force and effect and will not be affected by the illegal, invalid or unenforceable provision or by its severance herefrom and (d) in lieu of such illegal, invalid or unenforceable provision, there will be added automatically as a part of this Agreement a legal, valid and enforceable provision as similar in terms to such illegal, invalid or unenforceable provision as may be possible. 9.14 Entire Agreement. This Agreement supersedes all prior ---------------- discussions and agreements between the parties with respect to the subject matter hereof, and together with the Warrant and the Registration Rights Agreement contains the sole and entire agreement between the parties hereto with respect to the subject matter hereof. Warrant Agreement ----------------- 28 IN WITNESS WHEREOF, the parties hereto have duly executed this Warrant Agreement as of the date first above written. FRONTIER AIRLINES, INC. By ____________________ Name: Title: THE SEABURY GROUP, LLC By _____________________ Name: Title: Warrant Agreement ----------------- Annex 1 to Warrant Agreement FORM OF ASSIGNMENT ------------------ (To be executed by the registered holder hereof) FOR VALUE RECEIVED the undersigned registered owner of this Warrant hereby sells, assigns and transfers unto the assignee named below all the rights of the undersigned under this Warrant with respect to the number of shares of Warrant Stock covered thereby set forth hereinbelow unto: Number of Shares Name of Assignee Address of Common Stock - -------------------------------------------------------------------------------- Dated:__________________ ________________________________ Signature of Registered Holder ________________________________ Name of Registered Holder (Please Print) Witness: ______________________ Annex 2 to Warrant Agreement REPURCHASE FROM MANAGEMENT -------------------------- SCHEDULE 3.06 ------------- EXHIBIT A WARRANT THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS, AND ACCORDINGLY, SUCH SECURITIES MAY NOT BE TRANSFERRED, SOLD OR OTHERWISE DISPOSED OF EXCEPT IN COMPLIANCE WITH THE REGISTRATION OR QUALIFICATION PROVISIONS OF APPLICABLE FEDERAL AND STATE SECURITIES LAWS OR APPLICABLE EXEMPTIONS THEREFROM. No. of Shares of Common Stock: 548,000 Warrant No. Sea-1 WARRANT to Purchase Common Stock of FRONTIER AIRLINES, INC. THIS IS TO CERTIFY THAT THE SEABURY GROUP, LLC ("Seabury"), or its ------- registered assigns (the "Holder"), is entitled to purchase in whole or in part ------ from FRONTIER AIRLINES, INC., a Colorado corporation (the "Company"), at any ------- time and from time to time on or after the first anniversary of the date hereof, but not later than 5:00 p.m., New York City time, on May 26, 2003 (the "Expiration Date"), 548,000 shares of common stock of the Company (the "Common - ---------------- Stock") at a purchase price of $3.00 per share (the "Exercise Price"), subject -------------- to the terms and conditions set forth herein and in the Warrant Agreement dated as of May 26, 1998 between the Company and Seabury (the "Warrant Agreement"), ----------------- each such purchase of Common Stock to be made, and to be deemed effective for the purpose of determining the date of exercise, only upon surrender of this Warrant to the Company at 12015 East 46th Avenue, Denver, Colorado 80239, with the Form of Exercise attached hereto, or a reasonable facsimile thereof (the "Exercise Notice"), duly completed and signed, and upon payment in full to the - ---------------- Company of the Exercise Price by one or more of the following: (i) in cash or (ii) by certified or official bank check to the order of the Company or (iii) by wire transfer of immediately available funds to an account designated by the Company, or (iv) in the event the then Current Market Price is greater than $5.00, by delivery of this Warrant Certificate to the Company for cancellation in accordance with the following formula: in exchange for each share of Common Stock issuable on exercise of each Warrant represented by this Warrant Certificate that is being exercised, such holder shall receive such number of shares of Common Stock as is equal to the product of (x) the number of shares of Common Stock issuable upon exercise of the Warrants being exercised at such time multiplied by (y) a fraction, the numerator of which is the Current Market Price per share of Common Stock at such time minus the Exercise Price per share of Common Stock at such time, and the denominator of which is the Current Market Price per share of Common Stock at such time. For purposes of this Warrant, "Current Market Price", shall mean, with respect to a share of Common Stock as - --------------------- of any date, the average of the daily market prices for each day during the 20 consecutive trading days commencing 30 Business Days before such date as of which such a price can be established in the manner set forth below. The market price for each such Business Day shall be the last sale price on such day as reported in the Consolidated Last Sale Reporting System or as quoted in the National Association of Securities Dealers Automated Quotation System, or if such last sale price is not available, the average of the closing bid and asked prices as reported in either such system, or in any other case the higher bid price quoted for such day as reported by The Wall Street Journal and the National Quotation Bureau pink sheets. Upon receipt thereof, the Company shall, as promptly as practicable and in any event within five Business Days thereafter, execute or cause to be executed and deliver or cause to be delivered to the Holder a stock certificate or certificates representing the aggregate number of shares of Common Stock issuable upon such exercise ("Warrant Stock") and any other property to which ------------- such Holder is entitled. The stock certificate or certificates for Warrant Stock so delivered shall be in such denominations as may be specified in the Exercise Notice and shall be registered in the name of the Holder or such other name or names as shall be designated in such Exercise Notice. Such stock certificate or certificates shall be deemed to have been issued and the Holder or any other Person so designated to be named therein shall be deemed to have become a holder of record of such shares, including, to the extent permitted by law and to the extent such shares represent voting stock of the Company, the right to vote such shares or to consent or to receive notice as a shareholder, as of the date on which the last of the Exercise Notice, payment of the Exercise Price and this Warrant is received by the Company as aforesaid. If this Warrant shall have been exercised only in part, the Company shall, at the time of delivery of the certificate or certificates representing Warrant Stock and other securities, execute and deliver to the Holder a new Warrant evidencing the rights of the Holder to purchase the unpurchased Common Stock called for by this Warrant, which new Warrant shall in all other respects be identical with this Warrant, or, at the request of the Holder, appropriate notation may be made on this Warrant and the same returned to the Holder. All shares of Common Stock issuable upon the exercise of this Warrant shall, upon payment therefor in accordance herewith, be duly and validly issued, fully paid and nonassessable and free and clear of any liens, charges or other encumbrances of any nature. The Exercise Price and the number of shares of Common Stock issuable upon exercise of this Warrant are subject to adjustment in certain events as provided in the Warrant Agreement. The Company shall not be required to issue a fractional share of Common Stock upon exercise of this Warrant. As to any fraction of a share which the Holder hereof would otherwise be entitled to purchase upon such exercise, the Company shall pay a cash adjustment in respect of such final fraction in an amount equal to the same fraction of the Current Market Price per share of Common Stock on the date of exercise. The Warrants and the Warrant Stock shall be transferable on or after the date hereof subject only to applicable securities laws. Upon any such transfer a new Warrant or new Warrants of different denominations, representing in the aggregate a like number of Warrants, will be issued to the transferee. Every Holder hereof, by accepting this Warrant, consents and agrees with the Company and with every subsequent Holder of this Warrant that until due presentation for the registration of transfer of this Warrant on the Warrant register maintained by the Company, the Company may deem and treat the Person in whose name this Warrant is registered as the absolute and lawful owner for all purposes whatsoever and the Company shall not be affected by any notice to the contrary. Nothing contained in the Warrant Agreement or in this Warrant shall be construed as conferring on the holder of any Warrants or his or her transferee any rights whatsoever as a shareholder of the Company. No provision hereof, in the absence of affirmative action by the Holder hereof to purchase shares of Common Stock, and no mere enumeration herein of the rights or privileges of such Holder, shall give rise to any liability of such Holder for the Exercise Price or as a shareholder of the Company, whether such liability is asserted by the Company, by any creditor of the Company or any other Person. Any notices and other communications pursuant to the provisions hereof shall be sent in accordance with the Warrant Agreement. This Warrant shall be deemed a contract made under the laws of the State of New York and for all purposes shall be construed in accordance with the laws of the State of New York without giving effect to the principles of conflicts of laws thereof. Each term used herein without definition shall have the meaning assigned thereto in the Warrant Agreement. IN WITNESS WHEREOF, the Company has duly executed this Warrant. Dated: May 26, 1998. FRONTIER AIRLINES, INC. By___________________________ Name: Samuel D. Addoms Title: President Annex A to Warrant FORM OF EXERCISE ---------------- (To be executed by the registered holder hereof) The undersigned registered owner of this Warrant irrevocably exercises this Warrant for the purchase of Common Stock of Frontier Airlines, Inc., and herewith makes payment therefor, all at the price and on the terms and conditions specified in this Warrant, and requests that (i) certificates and/or other instrument covering such Common Stock be issued in accordance with the instructions given below and (ii) if such Common Stock shall not include all of the Common Stock to which the Holder is entitled under this Warrant, that a new Warrant of like tenor and date for the unpurchased balance of the Common Stock issuable hereunder be delivered to the undersigned. Dated: _________________ ________________________________ (Signature of Registered Holder) Instructions for issuance and registration of Common Stock: _____________________________ Name of Registered Holder (please print) Social Security or Other Identifying Number:_____________________________ Please deliver certificate to the following address: _____________________________________ Street _____________________________________ City, State and Zip Code EX-10.33 9 REGISTRATION RIGHTS AGREEMENT - 5/26/1998 EXHIBIT 10.33 FRONTIER AIRLINES, INC. REGISTRATION RIGHTS AGREEMENT Dated as of May 26, 1998 TABLE OF CONTENTS ----------------- THIS TABLE OF CONTENTS IS NOT PART OF THE AGREEMENT TO WHICH IT IS ATTACHED BUT IS INSERTED FOR CONVENIENCE ONLY. Page No. ---- 1. Requested Registrations................................................ 1 ----------------------- (a) Registration Requests....................................... 1 --------------------- (b) Limitations on Requested Registrations...................... 2 -------------------------------------- (c) Registration Statement Form................................. 2 --------------------------- (d) Registration Expenses....................................... 2 --------------------- (e) Priority in Cutback Registrations........................... 2 --------------------------------- 2. Piggyback Registrations................................................ 2 ----------------------- (a) Right to Include Registrable Securities..................... 2 --------------------------------------- (b) Registration Expenses....................................... 3 --------------------- (c) Priority in Cutback Registrations........................... 3 --------------------------------- 3. Registration Procedures................................................ 4 ----------------------- 4. Underwritten Offerings................................................. 8 ---------------------- (a) Underwritten Requested Offerings............................ 8 -------------------------------- (b) Underwritten Piggyback Offerings............................ 8 -------------------------------- 5. Indemnification........................................................ 9 --------------- (a) Indemnification by the Company.............................. 9 ------------------------------ (b) Indemnification by the Sellers.............................. 10 ------------------------------ (c) Notices of Claims, etc...................................... 10 ----------------------- (d) Contribution................................................ 11 ------------ (e) Other Indemnification....................................... 12 --------------------- (f) Indemnification Payments.................................... 12 ------------------------ 6. Covenants Relating to Rule 144......................................... 12 ------------------------------ 7. Other Registration Rights.............................................. 12 ------------------------- (a) No Existing Agreements...................................... 12 ---------------------- (b) Future Agreements........................................... 12 ----------------- 8. Definitions............................................................ 13 ----------- 9. Miscellaneous......................................................... 16 ------------- (a) Notices..................................................... 16 ------- (b) Entire Agreement............................................ 17 ---------------- (c) Amendment................................................... 17 --------- (d) Waiver...................................................... 17 ------ (e) Consents and Waivers by Holders of Registrable Securities... 17 ---------------------------------------------------------- (f) No Third Party Beneficiary.................................. 18 -------------------------- (g) Successors and Assigns...................................... 18 ---------------------- (h) Headings.................................................... 18 -------- (i) Invalid Provisions.......................................... 18 ------------------ (j) Remedies.................................................... 18 -------- (k) Governing Law............................................... 18 ------------- (l) Counterparts................................................ 19 ------------ -ii- FRONTIER AIRLINES, INC. REGISTRATION RIGHTS AGREEMENT ----------------------------- This REGISTRATION RIGHTS AGREEMENT dated as of May 26, 1998 is made and entered into by and between The Seabury Group, LLC, a limited liability company ("Seabury"), and Frontier Airlines, Inc., a Colorado corporation (the "Company"). Capitalized terms not otherwise defined herein have the meanings - -------- set forth in Section 8. --------- WHEREAS, Seabury or an affiliate of Seabury has provided financial advisory services to the Company under a Financial Advisory Agreement dated May 26, 1998 (the "Advisory Agreement"). WHEREAS, Seabury and the Company have entered into a Warrant Agreement dated as of May 26, 1998 (the "Warrant Agreement"). WHEREAS, the Warrant Agreement and the Advisory Agreement provide that the Company enter into a registration rights agreement with Seabury pursuant to which the Company will grant to Seabury certain registration rights with respect to the Common Stock underlying the Warrants (the "Warrant Stock"); ------------- NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth in this Agreement, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. Requested Registrations. (a) Registration Requests. At any ----------------------- --------------------- time after the first anniversary of this agreement, upon the written request of Seabury (either on its own behalf or on behalf of any holder of Registrable Securities) requesting that the Company effect the registration under the Securities Act of all or part of Seabury's (or any such holder's) Registrable Securities and specifying the number of Registrable Securities to be registered and the intended method of disposition thereof, the Company will promptly, and in no event more than 10 Business Days after receipt of such request, give written notice (a "Notice of Requested Registration") of such request to all -------------------------------- other holders of Registrable Securities, and thereupon will use its best efforts to effect the registration under the Securities Act of (i) the Registrable Securities which the Company has been so requested to register by Seabury, and (ii) all other Registrable Securities the holders of which have made written requests to the Company for registration thereof within 15 days after the giving of the Notice of Requested Registration (which requests shall specify the intended method of disposition thereof), all to the extent requisite to permit the disposition (in accordance with the intended methods thereof) of the Registrable Securities so to be registered in accordance with Section 3. If requested --------- by Seabury, the method of disposition of all Registrable Securities included in such registration shall be an underwritten offering effected in accordance with Section 4(a). Neither the Company nor any of its securityholders shall have the - ------------ right to include any of the Company's securities (other than Registrable Securities) in a registration statement to be filed as part of a Requested Registration. (b) Limitations on Requested Registrations. Notwithstanding anything -------------------------------------- herein to the contrary, the Company shall not be required to honor a request for a Requested Registration if, in the case of a Long-Form Registration, the Company has previously effected one Effective Long-Form Registration; provided -------- that there shall be no limit on the number of registrations effected as Short- Form Registrations, subject to the other provisions of this Section 1(b). ------------ (c) Registration Statement Form. Subject to Section 1(b), requested --------------------------- Registrations shall be on such appropriate registration form promulgated by the Commission as shall be selected by the Company, and shall be reasonably acceptable to Seabury, and shall permit the disposition of such Registrable Securities in accordance with the intended method or methods specified in their request for such registration, but the Company may not effect a Long-Form Registration without Seabury's consent. Notwithstanding the foregoing, if in the case of an underwritten offering on Form S-3 the Managing Underwriter notifies the Company that in its judgment the inclusion of more detailed information of the type required in Form S-1 is of material importance to such offering, the Company shall include in the Registration Statement such information. (d) Registration Expenses. The Company will pay all Registration --------------------- Expenses incurred in connection with any Requested Registration. (e) Priority in Cutback Registrations. If a Requested Registration --------------------------------- becomes a Cutback Registration, the Company will include in any such registration to the extent of the number which the Managing Underwriter advises the Company can be sold in such offering Registrable Securities requested to be included in such registration by the Initiating Holders, pro rata on the basis --- ---- of the number of Registrable Securities requested to be included by such holders. 2. Piggyback Registrations. (a) Right to Include Registrable ----------------------- ---------------------------- Securities. Notwithstanding any limitation contained in Section 1, if the - ---------- --------- Company at any time proposes after the first anniversary of the date hereof to effect a Piggyback Registration, it will each such time give written notice (a "Notice of Piggyback Registration"), at least 30 days prior to the anticipated - --------------------------------- filing date, to all holders of Registrable Securities of its intention to do so and of such holders' rights under this Section 2, which Notice of Piggyback --------- Registration shall include a description of the intended method of disposition of such securities. Upon the written request of any such holder made within 20 days after receipt of a Notice of Piggyback Registration (which request shall specify the Registrable Securities intended to be disposed of by such holder) , the Company will, subject to the other provisions of this Agreement, include in the registration statement relating to such Piggyback Registration all Registrable Securities which the Company has been so requested to register, all to the extent requisite to permit the disposition of such Registrable Securities in -2- accordance with the intended method of disposition set forth in the Notice of Piggyback Registration. Notwithstanding the foregoing, if, at any time after giving a Notice of Piggyback Registration and prior to the effective date of the registration statement filed in connection with such registration, the Company shall determine for any reason not to register or to delay registration of such securities, the Company may, at its election, give written notice of such determination to each holder of Registrable Securities and, thereupon, (i) in the case of a determination not to register, shall be relieved of its obligation to register any Registrable Securities in connection with such registration (but not from its obligation to pay the Registration Expenses in connection therewith) without prejudice, however, to the rights of any Requesting Holder entitled to do so to request that such registration be effected as a Requested Registration under Section 1, and (ii) in the case of a determination to delay --------- registering, shall be permitted to delay registering any Registrable Securities for the same period as the delay in registering such other securities. No registration effected under this Section 2 shall relieve the Company of its --------- obligations to effect a Requested Registration under Section 1 with respect to --------- Registrable Securities that are not registered and sold thereunder. (b) Registration Expenses. The Company will pay all Registration --------------------- Expenses incurred in connection with each Piggyback Registration. (c) Priority in Cutback Registrations. If a Piggyback Registration --------------------------------- becomes a Cutback Registration, the Company will include in such registration to the extent of the amount of the securities which the Managing Underwriter advises the Company can be sold in such offering: (i) if such Piggyback Registration as initially proposed by the Company was solely a primary registration of its securities, (x) first, the ----- securities proposed by the Company to be sold for its own account, and (y) second, (A) if no other holders of securities of the Company have requested ------ registration of their securities in such registration, any Registrable Securities requested to be included in such registration by Requesting Holders, pro rata on the basis of the number of Registrable Securities --- ---- requested to be included by such holders or (B) if other holders of securities of the Company have requested registration of their securities in such registration, such securities of such holders and any Registrable Securities requested to be included in such registration by Requesting Holders, on a pari passu basis; and (ii) if such Piggyback Registration as initially proposed by the Company was in whole or in part requested by holders of securities of the Company, other than holders of Registrable Securities in their capacities as such, pursuant to demand registration rights, such securities held by the holders initiating such registration and any Registrable Securities requested to be included in such registration by Requesting Holders, on a pari passu basis; and any securities so excluded shall be withdrawn from and shall not be included in such Piggyback Registration. -3- 3. Registration Procedures. If and whenever the Company is required ----------------------- to effect the registration of any Registrable Securities under the Securities Act pursuant to Section 1 or Section 2, the Company will use its best efforts to --------- --------- effect the registration and sale of such Registrable Securities in accordance with the intended method of disposition thereof. Without limiting the foregoing, the Company in each such case will, as expeditiously as possible, use its best efforts: (a) to prepare and file with the Commission (in the case of a Requested Registration, not later than 20 days after the filing by the Company with the Commission of its next required report on Form 10-K or Form 10-Q, as the case may be, under the Exchange Act, or as soon thereafter as possible) the requisite registration statement to effect such registration and to cause such registration statement to become effective, provided that the Company may defer filing a registration statement for up to 90 days after the filing would otherwise be required to be made pursuant to this section if and so long as, in the reasonable judgment of the Company's Board of Directors, the filing of such registration statement within the period otherwise required by this Section 3(a) would compel the ------------ Company to disclose material nonpublic information the disclosure of which would be materially detrimental to the Company or would materially interfere with any material financing, acquisition, corporate reorganization, or merger involving the Company. (b) as far in advance as practical before filing such registration statement or any amendment thereto, to furnish to the Requesting Holders copies of reasonably complete drafts of all such documents proposed to be filed (including exhibits), and any such holder shall have the opportunity to object to any information pertaining solely to such holder that is contained therein and the Company will make the corrections reasonably requested by such holder with respect to such information prior to filing any such registration statement or amendment; (c) to prepare and file with the Commission such amendments and supplements to such registration statement and any prospectus used in connection therewith as may be necessary to maintain the effectiveness of such registration statement and to comply with the provisions of the Securities Act with respect to the disposition of all Registrable Securities covered by such registration statement, in accordance with the intended methods of disposition thereof, until such time as all of such securities have been disposed of in accordance with the intended methods of disposition by the seller or sellers thereof set forth in such registration statement; (d) to promptly notify each Requesting Holder and the underwriter or underwriters, if any: (i) when such registration statement or any prospectus used in connection therewith, or any amendment or supplement thereto, has been filed and, with respect to such registration statement or any post- effective amendment thereto, when the same has become effective; -4- (ii) of any written comments from the Commission with respect to any filing referred to in clause (i) and of any written request by the Commission for amendments or supplements to such registration statement or prospectus; (iii) of the notification to the Company by the Commission of its initiation of any proceeding with respect to the issuance by the Commission of, or of the issuance by the Commission of, any stop order suspending the effectiveness of such registration statement; and (iv) of the receipt by the Company of any notification with respect to the suspension of the qualification of any Registrable Securities for sale under the applicable securities or blue sky laws of any jurisdiction; (e) to furnish to each seller of Registrable Securities covered by such registration statement such number of conformed copies of such registration statement and of each amendment and supplement thereto (in each case including all exhibits and documents incorporated by reference), such number of copies of the prospectus contained in such registration statement (including each preliminary prospectus and any summary prospectus) and any other prospectus filed under Rule 424 promulgated under the Securities Act relating to such holder's Registrable Securities, and such other documents, as such seller may reasonably request to facilitate the disposition of its Registrable Securities; (f) to register or qualify all Registrable Securities covered by such registration statement under such other securities or blue sky laws of such jurisdictions as each holder thereof shall reasonably request, to keep such registration or qualification in effect for so long as such registration statement remains in effect, and take any other action which may be reasonably necessary or advisable to enable such holder to consummate the disposition in such jurisdictions of the Registrable Securities owned by such holder, except that the Company shall not for any such purpose be required (i) to qualify generally to do business as a foreign corporation in any jurisdiction wherein it would not but for the requirements of this paragraph (f) be obligated to be so qualified, (ii) to subject itself to ------------- taxation in any such jurisdiction or (iii) to consent to general service of process in any jurisdiction; (g) to cause all Registrable Securities covered by such registration statement to be registered with or approved by such other governmental agencies or authorities as may be necessary to enable each holder thereof to consummate the disposition of such Registrable Securities; (h) to furnish to each Requesting Holder a signed counterpart, addressed to such holder (and the underwriters, if any), of (i) an opinion of counsel for the Company, dated the effective date of such registration statement (or, if such registration includes an underwritten Public -5- Offering, dated the date of any closing under the underwriting agreement), reasonably satisfactory in form and substance to such holder, and (ii) a "comfort" letter, dated the effective date of such registration statement (and, if such registration includes an underwritten Public Offering, dated the date of any closing under the underwriting agreement), signed by the independent public accountants who have certified the Company's financial statements included in such registration statement, in each case covering substantially the same matters with respect to such registration statement (and the prospectus included therein) and, in the case of the accountants' letter, with respect to events subsequent to the date of such financial statements, as are customarily covered in opinions of issuer's counsel and in accountants' letters delivered to the underwriters in underwritten Public Offerings of securities and, in the case of the accountants' letter, such other financial matters, as such holder (or the underwriters, if any) may reasonably request; (i) to notify each holder of Registrable Securities covered by such registration statement, at any time when a prospectus relating thereto is required to be delivered under the Securities Act, of the happening of any event as a result of which any prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, and at the request of any such holder promptly prepare and furnish to such holder a reasonable number of copies of a supplement to or an amendment of such prospectus as may be necessary so that, as thereafter delivered to the purchasers of such securities, such prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; (j) to otherwise use its best efforts to comply with all applicable rules and regulations of the Commission, and make available to its securityholders, as soon as reasonably practicable, an earnings statement covering the period of at least twelve months, but not more than eighteen months, beginning with the first full calendar month after the effective date of such registration statement, which earnings statement shall satisfy the provisions of Section 11(a) of the Securities Act and Rule 158 promulgated thereunder; (k) to make available for inspection by any Requesting Holder, any underwriter participating in any disposition pursuant to such registration statement and any attorney, accountant or other agent retained by any such seller or underwriter (collectively, the "Inspectors"), all financial and ---------- other records, pertinent corporate documents and properties of the Company (collectively, the "Records") as shall be reasonably necessary to enable ------- them to exercise their due diligence responsibility, and cause the Company's officers, directors and employees to supply all information reasonably requested by any such -6- Inspector in connection with such registration statement, and permit the Inspectors to participate in the preparation of such registration statement and any prospectus contained therein and any amendment or supplement thereto. Records which the Company determines, in good faith, to be confidential and which it notifies the Inspectors are confidential shall not be disclosed by the Inspectors unless (i) the disclosure of such Records is necessary to avoid or correct a misstatement or omission in the registration statement, (ii) the release of such Records is ordered pursuant to a subpoena or other order from a court of competent jurisdiction or (iii) the information in such Records has been made generally available to the public. The seller of Registrable Securities agrees by acquisition of such Registrable Securities that it will, upon learning that disclosure of such Records is sought in a court of competent jurisdiction, give notice to the Company and allow the Company, at the Company's expense, to undertake appropriate action to prevent disclosure of the Records deemed confidential; (l) to provide a transfer agent and registrar for all Registrable Securities covered by such registration statement not later than the effective date of such registration statement; and (m) to cause all Registrable Securities covered by such registration statement to be listed, upon official notice of issuance, on any securities exchange on which any of the securities of the same class as the Registrable Securities are then listed. The Company may require each holder of Registrable Securities as to which any registration is being effected to, and each such holder, as a condition to including Registrable Securities in such registration, shall, furnish the Company with such information and affidavits regarding such holder and the distribution of such securities as the Company may from time to time reasonably request in writing in connection with such registration. Each holder of Registrable Securities agrees by acquisition of such Registrable Securities that upon receipt of any notice from the Company of the happening of any event of the kind described in paragraph (h), such holder will ------------- forthwith discontinue such holder's disposition of Registrable Securities pursuant to the registration statement relating to such Registrable Securities until such holder's receipt of the copies of the supplemented or amended prospectus contemplated by paragraph (h) and, if so directed by the Company, ------------- will deliver to the Company (at the Company's expense) all copies, other than permanent file copies, then in such holder's possession of the prospectus relating to such Registrable Securities current at the time of receipt of such notice. 4. Underwritten Offerings. ---------------------- (a) Underwritten Requested Offerings. In the case of any -------------------------------- underwritten Public Offering being effected pursuant to a Requested Registration, the Managing Underwriter and any other underwriter or underwriters with respect to such offering shall be selected, after consultation with the Company, by the holders of a majority of the Registrable Securities to be included in such underwritten offering with the consent of the Company, which consent shall not be unreasonably -7- withheld. The Company shall enter into an underwriting agreement in customary form with such underwriter or underwriters, which shall include, among other provisions, indemnities to the effect and to the extent provided in Section 5. --------- The holders of Registrable Securities to be distributed by such underwriters shall be parties to such underwriting agreement and may, at their option, require that any or all of the representations and warranties by, and the other agreements on the part of, the Company to and for the benefit of such underwriters also be made to and for their benefit and that any or all of the conditions precedent to the obligations of such underwriters under such underwriting agreement also be conditions precedent to their obligations. No holder of Registrable Securities shall be required to make any representations or warranties to or agreements with the Company or the underwriters other than representations, warranties or agreements regarding such holder and its ownership of the securities being registered on its behalf and such holder's intended method of distribution and any other representation required by law. No Requesting Holder may participate in such underwritten offering unless such holder agrees to sell its Registrable Securities on the basis provided in such underwriting agreement and completes and executes all questionnaires, powers of attorney, indemnities and other documents reasonably required under the terms of such underwriting agreement. If any Requesting Holder disapproves of the terms of an underwriting, such holder may elect to withdraw therefrom and from such registration by notice to the Company and the Managing Underwriter, and each of the remaining Requesting Holders shall be entitled to increase the number of Registrable Securities being registered to the extent of the Registrable Securities so withdrawn in the proportion which the number of Registrable Securities being registered by such remaining Requesting Holder bears to the total number of Registrable Securities being registered by all such remaining Requesting Holders. (b) Underwritten Piggyback Offerings. If the Company at any time -------------------------------- proposes to register any of its securities in a Piggyback Registration and such securities are to be distributed by or through one or more underwriters, the Company will, subject to the provisions of Section 2(c), use its best efforts to ------------ arrange for such underwriters to include the Registrable Securities to be offered and sold by Requesting Holders among the securities to be distributed by such underwriters. The holders of Registrable Securities to be distributed by such underwriters shall be parties to the underwriting agreement between the Company and such underwriter or underwriters and may, at their option, require that any or all of the representations and warranties by, and the other agreements on the part of, the Company to and for the benefit of such underwriters also be made to and for their benefit and that any or all of the conditions precedent to the obligations of such underwriters under such underwriting agreement also be conditions precedent to their obligations. No holder of Registrable Securities shall be required to make any representations or warranties to or agreements with the Company or the underwriters other than representations, warranties or agreements regarding such holder and its ownership of the securities being registered on its behalf and any other representation required by law. No Requesting Holder may participate in such underwritten offering unless such holder agrees to sell its Registrable Securities on the basis provided in such underwriting agreement and completes and executes all questionnaires, powers of attorney, indemnities and other documents reasonably required under the terms of such underwriting agreement. If any Requesting Holder disapproves of the terms of an underwriting, such holder may elect to withdraw therefrom and from such registration by notice to the Company and the Managing Underwriter, and each of the remaining Requesting Holders shall be entitled to -8- increase the number of Registrable Securities being registered to the extent of the Registrable Securities so withdrawn in the proportion which the number of Registrable Securities being registered by such remaining Requesting Holder bears to the total number of Registrable Securities being registered by all such remaining Requesting Holders. 5. Indemnification. (a) Indemnification by the Company. The --------------- ------------------------------ Company shall, to the full extent permitted by law, indemnify and hold harmless each seller of Registrable Securities included in any registration statement filed in connection with a Requested Registration or a Piggyback Registration, its directors and officers, and each other Person, if any, who controls any such seller within the meaning of the Securities Act, against any Losses, claims, damages, expenses or liabilities, joint or several (together, "Losses"), to ------ which such seller or any such director or officer or controlling Person may become subject under the Securities Act or otherwise, insofar as such Losses (or actions or proceedings, whether commenced or threatened, in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in any such registration statement, any preliminary prospectus, final prospectus or summary prospectus contained therein, or any amendment or supplement thereto, or any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein (in the case of a prospectus, in the light of the circumstances under which they were made) not misleading, and the Company will reimburse such seller and each such director, officer and controlling Person for any legal or any other expenses reasonably incurred by them in connection with investigating or defending any such Loss (or action or proceeding in respect thereof); provided that the Company shall not be liable in -------- any such case to the extent that any such Loss (or action or proceeding in respect thereof) arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in any such registration statement, preliminary prospectus, final prospectus, summary prospectus, amendment or supplement in reliance upon and in conformity with written information furnished to the Company through an instrument duly executed by such seller specifically stating that it is for use in the preparation thereof. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of such seller or any such director, officer or controlling Person, and shall survive the transfer of such securities by such seller. The Company shall also indemnify each other Person who participates (including as an underwriter) in the offering or sale of Registrable Securities, their officers and directors and each other Person, if any, who controls any such participating Person within the meaning of the Securities Act to the same extent as provided above with respect to sellers of Registrable Securities. (b) Indemnification by the Sellers. Each holder of Registrable ------------------------------ Securities which are included or are to be included in any registration statement filed in connection with a Requested Registration or a Piggyback Registration, as a condition to including Registrable Securities in such registration statement, shall, to the full extent permitted by law, indemnify and hold harmless the Company, its directors and officers, and each other Person, if any, who controls the Company within the meaning of the Securities Act, against any Losses to which the Company or any such director or officer or controlling Person may become subject under the Securities Act or otherwise, insofar as such Losses (or actions or proceedings, whether commenced or threatened, in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any -9- material fact contained in any such registration statement, any preliminary prospectus, final prospectus or summary prospectus contained therein, or any amendment or supplement thereto, or any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein (in the case of a prospectus, in the light of the circumstances under which they were made) not misleading, if such untrue statement or alleged untrue statement or omission or alleged omission was made in reliance upon and in conformity with written information furnished to the Company through an instrument duly executed by such seller specifically stating that it is for use in the preparation of such registration statement, preliminary prospectus, final prospectus, summary prospectus, amendment or supplement; provided, however, that the obligation to provide indemnification -------- ------- pursuant to this Section 5(b) shall be several, and not joint and several, among ------------ such Indemnifying Parties on the basis of the number of Registrable Securities included in such registration statement and the aggregate amount which may be recovered from any holder of Registrable Securities pursuant to the indemnification provided for in this Section 5(b) in connection with any ------------ registration and sale of Registrable Securities shall be limited to the total proceeds received by such holder from the sale of such Registrable Securities. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of the Company or any such director, officer or controlling Person and shall survive the transfer of such securities by such seller. Such holders shall also indemnify each other Person who participates (including as an underwriter) in the offering or sale of Registrable Securities, their officers and directors and each other Person, if any, who controls any such participating Person within the meaning of the Securities Act to the same extent as provided above with respect to the Company. (c) Notices of Claims, etc. Promptly after receipt by an Indemnified ----------------------- Party of notice of the commencement of any action or proceeding involving a claim referred to in the preceding paragraph (a) or (b) of this Section 5, such -------------------- --------- Indemnified Party will, if a claim in respect thereof is to be made against an Indemnifying Party pursuant to such paragraphs, give written notice to the latter of the commencement of such action, provided that the failure of any -------- Indemnified Party to give notice as provided herein shall not relieve the Indemnifying Party of its obligations under the preceding paragraphs of this Section 5, except to the extent that the Indemnifying Party is actually - --------- prejudiced by such failure to give notice. In case any such action is brought against an Indemnified Party, the Indemnifying Party shall be entitled to participate in and, unless, in the judgment of any Indemnified Party, a conflict of interest between such Indemnified Party and any Indemnifying Party exists with respect to such claim, to assume the defense thereof, jointly with any other Indemnifying Party similarly notified to the extent that it may wish, with counsel reasonably satisfactory to such Indemnified Party, and after notice from the Indemnifying Party to such Indemnified Party of its election so to assume the defense thereof, the Indemnifying Party shall not be liable to such Indemnified Party for any legal or other expenses subsequently incurred by the latter in connection with the defense thereof other than reasonable costs of investigation; provided that the Indemnified Party may participate in such -------- defense at the Indemnified Party's expense; and provided further that the -------- ------- Indemnified Party or Indemnified Parties shall have the right to employ one counsel to represent it or them if, in the reasonable judgment of the Indemnified Party or Indemnified Parties, it is advisable for it or them to be represented by separate counsel by reason of having legal defenses which are different from or in addition to those available to the Indemnifying Party, and in that -10- event the reasonable fees and expenses of such one counsel shall be paid by the Indemnifying Party. If the Indemnifying Party is not entitled to, or elects not to, assume the defense of a claim, it will not be obligated to pay the fees and expenses of more than one counsel for the Indemnified Parties with respect to such claim, unless in the reasonable judgment of any Indemnified Party a conflict of interest may exist between such Indemnified Party and any other Indemnified Parties with respect to such claim, in which event the Indemnifying Party shall be obligated to pay the fees and expenses of such additional counsel for the Indemnified Parties or counsels. No Indemnifying Party shall consent to entry of any judgment or enter into any settlement without the consent of the Indemnified Party which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party of a release from all liability in respect to such claim or litigation. No Indemnifying Party shall be subject to any liability for any settlement made without its consent, which consent shall not be unreasonably withheld. (d) Contribution. If the indemnity and reimbursement obligation ------------ provided for in any paragraph of this Section 5 is unavailable or insufficient --------- to hold harmless an Indemnified Party in respect of any Losses (or actions or proceedings in respect thereof) referred to therein, then the Indemnifying Party shall contribute to the amount paid or payable by the Indemnified Party as a result of such Losses (or actions or proceedings in respect thereof) in such proportion as is appropriate to reflect the relative fault of the Indemnifying Party on the one hand and the Indemnified Party on the other hand in connection with statements or omissions which resulted in such Losses, as well as any other relevant equitable considerations. The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Indemnifying Party or the Indemnified Party and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such untrue statement or omission. The parties hereto agree that it would not be just and equitable if contributions pursuant to this paragraph were to be determined by pro rata allocation or by --- ---- any other method of allocation which does not take account of the equitable considerations referred to in the first sentence of this paragraph. The amount paid by an Indemnified Party as a result of the Losses referred to in the first sentence of this paragraph shall be deemed to include any legal and other expenses reasonably incurred by such Indemnified Party in connection with investigating or defending any Loss which is the subject of this paragraph. No Indemnified Party guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from the Indemnifying Party if the Indemnifying Party was not guilty of such fraudulent misrepresentation. (e) Other Indemnification. Indemnification similar to that specified --------------------- in the preceding paragraphs of this Section 5 (with appropriate modifications) --------- shall be given by the Company and each seller of Registrable Securities with respect to any required registration or other qualification of securities under any federal or state law or regulation of any governmental authority other than the Securities Act. The provisions of this Section 5 shall be in addition to --------- any other rights to indemnification or contribution which an Indemnified Party may have pursuant to law, equity, contract or otherwise. -11- (f) Indemnification Payments. The indemnification required by this ------------------------ Section 5 shall be made by periodic payments of the amount thereof during the - --------- course of the investigation or defense, as and when bills are received or Losses are incurred. 6. Covenants Relating to Rule 144. The Company will file reports in ------------------------------ compliance with the Exchange Act, will comply with all rules and regulations of the Commission applicable in connection with the use of Rule 144 and take such other actions and furnish such holder with such other information as such holder may request in order to avail itself of such rule or any other rule or regulation of the Commission allowing such holder to sell any Registrable Securities without registration. If at any time the Company is not required to file reports in compliance with either Section 13 or Section 15(d) of the Exchange Act, the Company at its expense will, forthwith upon the written request of the holder of any Registrable Securities, make available adequate current public information with respect to the Company within the meaning of paragraph (c)(2) of Rule 144. 7. Other Registration Rights. ------------------------- (a) No Existing Agreements. The Company represents and warrants to ---------------------- Seabury that there is not in effect on the date hereof any agreement by the Company (other than this Agreement and as set forth in Schedule 3.06 to the ------------- Warrant Agreement) pursuant to which any holders of securities of the Company have a right to cause the Company to register or qualify such securities under the Securities Act. (b) Future Agreements. Reference is made to the Amended and Restated ----------------- Registration Rights Agreement dated as of February 27, 1998 between the Company and Wexford Management, LLC (the "Wexford Agreement"), a copy of which has been provided to Seabury. Seabury and the Requesting Holders agree that (i) they may not participate in any Requested Registration except as provided in Section 1 of --------- the Wexford Agreement and (ii) they may not participate in any Piggyback Registration except as provided in Section 2 of the Wexford Agreement. --------- 8. Definitions. ----------- (a) Except as otherwise specifically indicated, the following terms will have the following meanings for all purposes of this Agreement: "Agreement" means this Registration Rights Agreement, as the same --------- shall be amended from time to time. "Business Day" means a day other than Saturday, Sunday or any other ------------ day on which banks located in the State of New York are authorized or obligated to close. "Commission" means the United States Securities and Exchange ---------- Commission, or any successor governmental agency or authority. -12- "Common Stock" means shares of Common Stock, no par value per share, ------------ of the Company, as constituted on the date hereof, and any stock into which such Common Stock shall have been changed or any stock resulting from any reclassification of such Common Stock. "Company" has the meaning ascribed to it in the preamble. ------- "Cutback Registration" means any Requested Registration or Piggyback -------------------- Registration to be effected as an underwritten Public Offering in which the Managing Underwriter with respect thereto advises the Company and the Requesting Holders in writing that, in its opinion, the number of securities requested to be included in such registration (including securities of the Company which are not Registrable Securities) exceed the number which can be sold in such offering without a material reduction in the selling price anticipated to be received for the securities to be sold in such Public Offering. "Effective Long-Form Registration" means a Long-Form Registration that -------------------------------- results in an Effective Registration. "Effective Registration" means a Requested Registration which (a) has ---------------------- been declared or ordered effective in accordance with the rules of the Commission and (b) has been kept effective for the period of time contemplated by Section 3(b). ------------ "Effective Short-Form Registration" means a Short-Form Registration --------------------------------- that results in an Effective Registration. "Exchange Act" means the Securities Exchange Act of 1934, as amended, ------------ and the rules and regulations promulgated thereunder. "Form S-1" means Form S-1 promulgated by the Commission under the -------- Securities Act, or any successor or similar long-form registration statement. "Form S-2" means Form S-2 promulgated by the Commission under the -------- Securities Act, or any successor or similar short-form registration statement. "Form S-3" means Form S-3 promulgated by the Commission under the -------- Securities Act, or any successor or similar short-form registration statement. "Indemnified Party" means a party entitled to indemnity in accordance ----------------- with Section 5. --------- "Indemnifying Party" means a party obligated to provide indemnity in ------------------ accordance with Section 5. --------- -13- "Initiating Holders" means Seabury and any holder of Registrable ------------------ Securities with respect to which Seabury has made a written request pursuant to Section 1 for the registration of Registrable Securities. - --------- "Inspectors" has the meaning ascribed to it in Section 3(i). ---------- ------------ "Letter Agreement" has the meaning ascribed to it in the preamble. ---------------- "Long-Form Registration" means a Requested Registration effected by ---------------------- the filing of a registration statement on Form S-1 with the Commission. "Losses" has the meaning ascribed to it in Section 5(a). ------ ------------ "Managing Underwriter" means, with respect to any Public Offering, the -------------------- underwriter or underwriters managing such Public Offering. "NASD" means the National Association of Securities Dealers. ---- "Notice of Piggyback Registration" has the meaning ascribed to it in -------------------------------- Section 2(a). - ------------ "Notice of Requested Registration" has the meaning ascribed to it in -------------------------------- Section 1(a). - ------------ "Person" means any natural person, corporation, general partnership, ------ limited partnership, limited liability company, proprietorship, other business organization, trust, union or association. "Piggyback Registration" means any registration of securities of the ---------------------- Company of the same class as any of the Registrable Securities under the Securities Act (other than a registration in respect of a dividend reinvestment or similar plan for shareholders of the Company or on Form S-4 or Form S-8 promulgated by the Commission, or any successor or similar forms thereto), whether for sale for the account of the Company or for the account of any holder of securities of the Company (other than Registrable Securities. "Public Offering" means any offering of Common Stock to the public, --------------- either on behalf of the Company or any of its securityholders, pursuant to an effective registration statement under the Securities Act (other than a registration in respect of a dividend reinvestment or similar plan for shareholders of the Company or on Form S-4 or Form S-8 promulgated by the Commission, or any successor or similar forms thereto). "Records" has the meaning ascribed to it in Section 3(i). ------- ------------ "Registrable Securities" means (i) shares of Warrant Stock, and (ii) ---------------------- any additional shares of Common Stock or other securities issued or distributed by way of a dividend, stock split or other distribution in respect of the any of the securities referred to in clause (i), or acquired by -14- way of any rights offering or similar offering made in respect of such securities. As to any particular Registrable Securities, once issued such securities shall cease to be Registrable Securities when (i) a registration statement with respect to the sale of such securities shall have become effective under the Securities Act and such securities shall have been disposed of in accordance with such registration statement, (ii) they shall have been sold to the public pursuant to Rule 144, or (iii) they shall have ceased to be outstanding. "Registration Expenses" means all expenses incident to the Company's --------------------- performance of or compliance with its obligations under this Agreement to effect the registration of Registrable Securities in a Requested Registration or a Piggyback Registration, including, without limitation, all registration, filing, securities exchange listing and NASD fees, all registration, filing, qualification and other fees and expenses of complying with securities or blue sky laws, all word processing, duplicating and printing expenses, messenger and delivery expenses, the fees and disbursements of counsel for the Company and of its independent public accountants, including the expenses of any special audits or "cold comfort" letters required by or incident to such performance and compliance, the reasonable fees and disbursements of a single counsel, premiums and other costs of policies of insurance purchased by the Company against liabilities arising out of the Public Offering of the Registrable Securities being registered and any fees and disbursements of underwriters customarily paid by issuers or sellers of securities if the offering is an underwritten offering initiated by the Company, but excluding underwriting discounts and commissions and transfer taxes, if any, in respect of Registrable Securities and fees and disbursements of underwriters if the offering is an underwritten offering initiated by Seabury or the Requesting Holders, which shall be payable by each holder thereof. "Requesting Holders" means, with respect to any Requested Registration ------------------ or Piggyback Registration, the holders of Registrable Securities requesting to have Registrable Securities included in such registration in accordance with this Agreement. "Requested Registration" means any registration of Registrable ---------------------- Securities under the Securities Act effected in accordance with Section 1. --------- "Rule 144" means Rule 144 promulgated by the Commission under the -------- Securities Act, and any successor provision thereto. "Securities Act" means the Securities Act of 1933, as amended, and the -------------- rules and regulations promulgated thereunder. "Short-Form Registration" means a Requested Registration effected by ----------------------- the filing of a registration statement on Form S-2 or Form S-3 with the Commission. "Warrant Stock" has the meaning ascribed to it in the preamble. ------------- (b) Unless the context of this Agreement otherwise requires, (i) words of any gender include each other gender; (ii) words using the singular or plural number also include the -15- plural or singular number, respectively; (iii) the terms "hereof," "herein," "hereby" and derivative or similar words refer to this entire Agreement; and (iv) the term "Section" refers to the specified Section of this Agreement. Whenever this Agreement refers to a number of days, such number shall refer to calendar days unless Business Days are specified. 9. Miscellaneous. ------------- (a) Notices. All notices, requests and other communications ------- hereunder must be in writing and will be deemed to have been duly given only if delivered personally or by facsimile transmission or mailed (first class postage prepaid) to the parties at the following addresses or facsimile numbers: If to Investor, to: The Seabury Group, LLC 135 West 50th Street, Suite 1820 New York, New York 10020 Attn: John Luth Facsimile No.: (212) 541-6334 If to the Company, to: Frontier Airlines, Inc. 12015 East 46th Avenue Denver, Colorado 80239 Attn: Arthur T. Voss, General Counsel Facsimile No.: (303) 371-9669 With respect to any other holder of Registrable Securities, such notices, requests and other communications shall be sent to the addresses set forth in the transfer records regularly maintained by the Company. All such notices, requests and other communications will (i) if delivered personally to the address as provided in this Section, be deemed given upon delivery, (ii) if delivered by facsimile transmission to the facsimile number as provided in this Section, be deemed given upon receipt, and (iii) if delivered by mail in the manner described above to the address as provided in this Section, be deemed given upon receipt (in each case regardless of whether such notice, request or other communication is received by any other Person to whom a copy of such notice is to be delivered pursuant to this Section). Any party from time to time may change its address, facsimile number or other information for the purpose of notices to that party by giving notice specifying such change to the other parties hereto. -16- (b) Entire Agreement. This Agreement supersedes all prior discussions ---------------- and agreements between the parties with respect to the subject matter hereof, and contains the sole and entire agreement between the parties hereto with respect to the subject matter hereof. (c) Amendment. This Agreement may be amended, supplemented or --------- modified only by a written instrument (which may be executed in any number of counterparts) duly executed by or on behalf of each of the Company and Seabury. (d) Waiver. Subject to paragraph (e) of this Section, any term or ------ ------------- condition of this Agreement may be waived at any time by the party that is entitled to the benefit thereof, but no such waiver shall be effective unless set forth in a written instrument duly executed by or on behalf of the party waiving such term or condition. No waiver by any party of any term or condition of this Agreement, in any one or more instances, shall be deemed to be or construed as a waiver of the same term or condition of this Agreement on any future occasion. (e) Consents and Waivers by Holders of Registrable Securities. Any --------------------------------------------------------- consent of the holders of Registrable Securities pursuant to this Agreement, and any waiver by such holders of any provision of this Agreement, shall be in writing (which may be executed in any number of counterparts) and may be given or taken by Seabury, and any such consent or waiver so given or taken will be binding on all the holders of Registrable Securities. (f) No Third Party Beneficiary. The terms and provisions of this -------------------------- Agreement are intended solely for the benefit of each party hereto, their respective successors or permitted assigns and any other holder of Registrable Securities, and it is not the intention of the parties to confer third-party beneficiary rights upon any other Person other than any Person entitled to indemnity under Section 5. --------- (g) Successors and Assigns. This Agreement is binding upon, inures to ---------------------- the benefit of and is enforceable by the parties hereto and their respective successors and assigns. (h) Headings. The headings used in this Agreement have been inserted -------- for convenience of reference only and do not define or limit the provisions hereof. (i) Invalid Provisions. If any provision of this Agreement is held ------------------ to be illegal, invalid or unenforceable under any present or future law, and if the rights or obligations of any party hereto under this Agreement will not be materially and adversely affected thereby, (i) such provision will be fully severable, (ii) this Agreement will be construed and enforced as if such illegal, invalid or unenforceable provision had never comprised a part hereof and (iii) the remaining provisions of this Agreement will remain in full force and effect and will not be affected by the illegal, invalid or unenforceable provision or by its severance herefrom. (j) Remedies. Except as otherwise expressly provided for herein, no -------- remedy conferred by any of the specific provisions of this Agreement is intended to be exclusive of any other remedy, and each and every remedy shall be cumulative and shall be in addition to every other -17- remedy given hereunder or now or hereafter existing at law or in equity or by statute or otherwise. The election of any one or more remedies by any party hereto shall not constitute a waiver by any such party of the right to pursue any other available remedies. Damages in the event of breach of this Agreement by a party hereto or any other holder of Registrable Securities would be difficult, if not impossible, to ascertain, and it is therefore agreed that each such Person, in addition to and without limiting any other remedy or right it may have, will have the right to an injunction or other equitable relief in any court of competent jurisdiction, enjoining any such breach, and enforcing specifically the terms and provisions hereof and the Company and each holder of Registrable Securities, by its acquisition of such Registrable Securities, hereby waives any and all defenses it may have on the ground of lack of jurisdiction or competence of the court to grant such an injunction or other equitable relief. The existence of this right will not preclude any such Person from pursuing any other rights and remedies at law or in equity which such Person may have. (k) Governing Law. This Agreement shall be governed by and construed ------------- in accordance with the laws of the State of New York applicable to a contract executed and performed in such State, without giving effect to the conflicts of laws principles thereof. (l) Counterparts. This Agreement may be executed in any number of ------------ counterparts, each of which will be deemed an original, but all of which together will constitute one and the same instrument. IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the duly authorized officer of each party hereto as of the date first above written. THE SEABURY GROUP, LLC By: __________________________ Name: Title: FRONTIER AIRLINES, INC. By: __________________________ Name: Title: EX-27 10 FINANCIAL DATA SCHEDULE
5 12-MOS MAR-31-1998 APR-01-1997 MAR-31-1998 3,641,395 0 11,800,419 139,096 1,164,310 33,999,420 8,605,387 3,026,368 50,598,470 50,324,405 0 0 0 9,253 (5,682,437) 50,598,470 147,142,637 147,142,637 0 165,697,028 (1,132,188) 0 324,167 (17,746,370) (17,746,370) (17,746,370) 0 0 0 (17,746,370) 1.95 1.95
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