March 10, 1999
Xxxxxx X. Xxxxxx
0000 Xxxxxxx Xxxxxx
Xxxxxx, XX 00000
RE: Severance Agreement
Dear Xxx:
Frontier Airlines, Inc. (the "Company") considers it essential
to the best interests of its shareholders to xxxxxx the continuous employment of
key management personnel. In order to induce you to remain in the employ of the
Company and in consideration of your agreement set forth in Section 3 hereto,
the Company agrees that you shall receive the severance benefits set forth in
this letter agreement ("Agreement") in the event your employment with the
Company is terminated as set forth below.
1. Term of Agreement. This Agreement shall commence on the date hereof and shall
continue in effect until all payments and deliveries required hereunder are made
or are no longer applicable.
2. Compensation Upon Termination. If your employment as Chief Executive Officer
of the Company is terminated (i) involuntarily, except in circumstances where
such termination is due to your willful misconduct or gross neglect of duty,
(ii) by your resignation with the prior consent of the Company's Board of
Directors (the "Board"), (iii) by your disability, or (iv) by your death (each a
"Termination"), then you shall be entitled to the benefits provided below:
(A) For each of the two years following a Termination, the Company shall
pay to you (or your estate), in equal monthly installments, your then
current annual base salary.
(B) For the period commencing two years following a Termination and ending
on your 65th birthday (or in the event you die prior to such date, the
date on which you would have become 65 years old), the Company shall
pay to you (or your estate), in equal monthly installments, $50,000
per year.
(C) On the date of a Termination, the Company shall issue to you (or your
estate) a stock option or warrant to purchase 100,000 shares of the
Company's Common Stock with an exercise price equal to the market
price of such Common Stock as of the date of the Termination. The
stock option or warrant shall be exercisable for a period of five
years.
(D) The Company shall provide to you and your spouse free lifetime
positive space air transportation on the Company's airline and shall
ensure that any successor airline to the Company provides such air
transportation.
(E) The Company shall provide to you and your eligible dependents group
health, life insurance and any other benefits as are provided from
time-to-time by the Company to its officers and at rates to you as are
charged to such officers.
(F) The Company shall also pay to you all legal fees and expenses incurred
by you in successfully obtaining or enforcing any right or benefit
provided by this Agreement or in connection with any tax audit or
proceeding to the extent attributable to the application of Section
4999 of the Internal Revenue Code of 1986, as amended (the "Code") to
any payment or benefit provided hereunder.
(G) In the event that you become entitled to the payments (the "Severance
Payments") provided under paragraphs (A), (B), (C), (D), (E) and (F)
above and if any of the Severance Payments will be subject to the tax
(the "Excise Tax") imposed by Section 4999 of the Code, the Company
shall pay to you upon demand, an additional amount (the "Gross-Up
Payment") such that the net amount retained by you, after deduction of
any Excise Tax on the Severance Payments and any federal income tax
and Excise Tax upon the Gross-Up Payment, shall be equal to the
Severance Payments. For purposes of determining whether any of the
Severance Payments will be subject to the Excise Tax and the amount of
such Excise Tax, (i) the Severance Payments shall be treated as
"parachute payments" within the meaning of Section 280G(b)(2) of the
Code, and all "excess parachute payments within the meaning of Section
280G(b)(2) of the Code, and all Excess parachute payments" within the
meaning of Section 280G(b)(1) shall be treated as subject to the
Excise Tax, unless in the opinion of tax counsel selected by the
Company's independent auditors and acceptable to you such other
payments or benefits (in whole or in part) do not constitute parachute
payments, or such excess parachute payments (in whole or in part)
represent reasonable compensation for services actually rendered
within the meaning of Section 280G(b)(4) of the Code in excess of the
base amount within the meaning of Section 280G(b)(3) of the Code, or
are otherwise not subject to the Excise Tax, (ii) the amount of the
Severance Payments which shall be treated as subject to the Excise Tax
shall be equal to the lesser of (A) the total amount of the Severance
Payments or (B) the amount of excess parachute payments within the
meaning of Section 280G(b)(1) (after applying clause (i), above), and
(iii) the value of any non-cash benefits or any deferred payment or
benefit shall be determined by the Company's independent auditors in
accordance with the principles of Sections 280G(d)(3) and (4) of the
Code. For purposes of determining the amount of the Gross-Up Payment,
you shall be deemed to pay federal income taxes at the highest
marginal rate of federal income taxation in the calendar year in which
the Gross-Up Payment is to be made. In the even that the Excise Tax is
subsequently determined to be less than the amount taken into account
hereunder at the time of termination of your employment, you shall
repay to the Company at the time that the amount of such reduction in
Excise Tax is finally determined the portion of the Gross-Up Payment
attributable to such reduction (plus the portion of the Gross-Up
Payment attributable to the Excise Tax and federal income tax imposed
on the Gross-Up Payment being repaid by you if such repayment results
in a reduction in Excise Tax and/or a federal income tax deduction)
plus interest on the amount of such repayment at the rate provided in
Section 1274(b)(2)(B) of the Code. In the event that the Excise Tax is
determined to exceed the amount taken into account hereunder at the
time of the termination of your employment (including by reason of any
payment the existence or amount of which cannot be determined at the
time of the Gross-Up Payment), the Company shall make an additional
gross-up payment in respect of such excess (plus any interest payable
with respect to such excess) at the time that the amount of such
excess is finally determined.
(ii) You shall not be required to mitigate the amount of any payment
provided for in this Section 2 by seeking other employment or
otherwise, nor shall the amount of any payment or benefit
provided for in this Section 2 be reduced by any compensation
earned by you as the result of employment by another employer, by
retirement benefits, by offset against any amount claimed to be
owed by you to the Company, or otherwise.
(iii)In addition to all other amounts payable to you under this
Section 2, you shall be entitled to receive all benefits payable
to you under any other plan or agreement relating to retirement
benefits.
3. Consulting; Non-Competition.
(i) During the period beginning on the date of your Termination and
ending on your 65th birthday (or such earlier date on which you
die or become disabled), you shall remain reasonably available to
provide consulting services to the Company.
(ii) During the period beginning on the date of your Termination and
ending on your 65th birthday, you shall not become employed by,
or provide consulting services to, any air carrier that competes
with the Company without the Company's prior written permission.
Should you provide such consulting services without the Company's
prior written permission, all Severance Payments shall thereupon
immediately terminate.
4. Successors: Binding Agreement.
(i) This Agreement shall be binding against any successor (whether
direct or indirect, by purchase, merger, consolidation,
reorganization or otherwise) to all or substantially all of the
business and/or assets of the Company.
(ii) This Agreement shall inure to the benefit of and be enforceable
by your personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and
legatees. If you should die while any amount would still be
payable to you hereunder if you had continued to live, all such
amounts, unless otherwise provided herein, shall be paid in
accordance with the terms of this Agreement to your devises,
legatee or other designee or, if there is no such designee, to
your estate.
5. Notices. For the purpose of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, addressed to the
respective addresses set forth on the first page of this Agreement, provided
that all notices to the Company shall be directed to the attention of the Board
with a copy to the Secretary of the Company, or to such other address as either
party may have furnished to the other in writing in accordance herewith, except
that notice of change of address shall be effective only upon receipt.
6. Miscellaneous. No provision of this Agreement may be modified, waived or
discharged unless such waiver, modification or discharge is agreed to in writing
and signed by you and such officer as may be specifically designated by the
Board. No waiver by either party hereto at any time of any breach by the other
party hereto of, or compliance with, any condition or provision of this
Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time. No agreements or representations, oral or otherwise, express or
implied, with respect to the subject matter hereof have been made by either
party which are not expressly set forth in this Agreement. The validity,
interpretation, construction and performance of this Agreement shall be governed
by the laws of the State of Colorado. All references to Sections of the Code
shall be deemed also to refer to any successor provisions to such Sections. Any
payments provided for hereunder shall be paid net of any applicable withholding
required under federal, state or local law.
7. Validity. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement, which shall remain in full force and effect.
8. Counterparts. This Agreement may be executed in several counterparts, each of
which shall be deemed to be an original, but all of which together will
constitute one and the same instrument.
If this letter sets forth our agreement on the subject matter
hereof, kindly sign and return to the Company the enclosed copy of this letter
which will then constitute our agreement on this subject.
Sincerely yours,
FRONTIER AIRLINES, INC.
By:
B. XxXxx Xxxxxxxx
Chair of the Board
By:
Xxxxxx X. Xxxx
Vice President and
General Counsel
ACCEPTED AND AGREED TO as of this, the 10th day of March, 1999
Xxxxxx X. Xxxxxx
