Frontier Airlines 2004 Annual Report Download - page 63

Stock Options
In connection with employment agreements for certain key employees, Republic granted options to purchase shares of Republic's common stock. The stock options vest ratably over the
term of the employment agreements (generally 48 months) and are exercisable for five years following the vesting dates. Generally, stock options are granted with exercise prices equal to market
prices on the grant date. Because stock options granted in August 2001 had an exercise price below market price, compensation expense of $214, $214 and $213 was recorded for the years
ended December 31, 2004, 2003 and 2002, respectively. In addition, stock options were granted in May 2004 to certain employees and non - employee directors, and additional shares were
issued in December 2004 in connections with employment contract amendments. The options granted during 2004 vest ratably over periods ranging from 8 months to 48 months, and the options
are exercisable until 10 years from the date of grant. The following is a summary of stock option activity for stock options outstanding at the end of the respective years:
The weighted average grant date fair value of options granted in 2004 was $3.32. No options were granted during the years ended December 2003 and 2002. The following represents
options outstanding and exercisable as of December 31, 2004 by range of exercise prices:
Warrants
In connection with the Delta code - share agreement, the Company has issued warrants to purchase shares of its common stock related to the Chautauqua code - share agreement
beginning in June 2002 and the Republic Airline code - share agreement beginning in December 2004. The warrants, net of amounts surrendered in December 2004, are fully vested and
exercisable as follows:
(1) The exercise price is subject to downward adjustment, if we issue additional shares of our common stock in certain instances.
In December 2004, the Company and Delta agreed to reduce the amounts of all warrants issued pursuant to the Chautauqua code - share agreement by 45%, which reduced deferred
warrant charges and warrant equity by $6,756. Amortization of deferred warrant charges were $800, $359 and $9 for the years ended December 31, 2004, 2003 and 2002, respectively.
The Company records deferred warrant charges on the measurement date based upon an option pricing model that considered continuous compounding of dividends and dilution using
an estimated fair value of the Company ’ s common stock on the grant date, an estimated dividend yield, a risk - free interest rate commensurate with the warrant term, volatility of 40% and an
expected life of 10 years.
December 31,
2004
December 31,
2003
December 31,
2002
Options
Weighted
Average
Exercise
Price
Options
Weighted
Average
Exercise
Price
Options
Weighted
Average
Exercise
Price
Outstanding, beginning of year
1,920,000
$
2.11
1,920,000
$
2.13
2,040,000
$
2.11
Granted
1,420,620
13.00
Forfeited
120,000
1.75
Exercised
558,756
1.75
Outstanding, end of year
2,781,864
$
7.76
1,920,000
$
2.13
1,920,000
$
2.13
Weighted average remaining contractual life
in years
6.3
2.7
3.7
Options exercisable, end of year
1,409,892
$
2.72
1,872,500
$
1.99
1,594,583
$
1.91
Options Outstanding
Options Exercisab le
Range of Exercise Prices
Number
Average
Remaining
Contractual Life
Weighted -
Average
Exercise Price
Number
Weighted -
Average
Exercise Price
$1.75
1,241,244
2.3
$
1.75
1,241,244
$
1.75
$7.83
120,000
3.7
$
7.83
101,417
$
7.83
$13.00
1,420,620
10.0
$
13.00
67,231
$
13.00
2,781,864
$
7.76
1,409,892
$
2.72
Issued
Number
of Shares
Exercise
Price
Vesting
Exercise Period
June 2002
825,000
$
12.50 (1
)
Fully Vested
Through June 2012
June 2004
825,000
12.35 (1
)
Fully Vested
Through May 2014
February 2003
396,000
13.00
Fully Vested
Through February
2013
October 2003
165,000
12.35
Fully Vested
Through October
2013
March 2004
264,000
12.35
Fully Vested
Through March
2014
December 2004
960,000
11.60
Fully Vested
Through December
2014
3,435,000
53