Frontier Airlines 2006 Annual Report Download - page 23

The Delta Code-Share Agreements
As of December 31, 2006, we operated 15 ERJ-135 aircraft, 24 ERJ-145 aircraft, including two spares, and 16 ERJ-170 aircraft for
Delta under fixed-fee code-share agreements. As of December 31, 2006, we provided 330 flights per day as Delta Connection between
Cincinnati, Columbus and Atlanta and designated outlying cities. In connection with a marketing agreement among Delta, Continental
and Northwest Airlines, certain of the routes that we fly using Delta's and Continental’s flight designator codes are also flown under
Northwest's designator code.
The code-share agreements for the ERJ-135/145 and ERJ-170 regional jets terminate in May 2016 and January 2019, respectively.
Delta may terminate the code-share agreements at any time, with or without cause, if it provides us 180 days written notice, provided
that such notice shall not be given prior to 2009 for the ERJ-135/145 regional jet agreement and 2013 for the ERJ-170 regional jet
agreement.
On March 13, 2007, we and Delta amended our code-share agreements. The amendments, if approved by the bankruptcy court, provide for early removal of
all 15 ERJ-135 aircraft between September 2008 and April 2009 at a rate of 2 aircraft per month, and an approximate 3% reduction in the reimbursement rates on
our ERJ-145/170 aircraft for the remaining term of the agreements. In return for these amended terms, Delta has agreed that we will have a negotiated
pre-petition claim in the amount of $91 million, and Delta will surrender all of its warrants on approximately 3.4 million shares of our common stock.
Certain of our operating costs are considered "pass through" costs, whereby Delta has agreed to reimburse us the actual amount of
costs we incur for these items. Fuel, engine maintenance expenses, landing fees, passenger liability insurance, hull insurance, war risk
insurance, de-icing costs, and aircraft property taxes are some of the pass through costs. Aircraft rent/ownership expenses are also
considered a pass through cost, but the reimbursement is limited to specified amounts for certain aircraft.
For each additional aircraft put into service for Delta beyond the initial 22, Delta receives a warrant to purchase 60,000 shares of our
common stock. In accordance with this provision, on February 3, 2003 we granted Delta a warrant to purchase 720,000 shares of
common stock, on October 1, 2003 we granted Delta a warrant to purchase an additional 300,000 shares of common stock and on
March 10, 2004 we granted Delta a warrant to purchase an additional 480,000 shares of common stock. In December 2004, the parties
agreed to reduce the amount of such warrants by 45%. In addition, in December 2004, we issued Delta a warrant for 960,000 shares in
connection with Delta entering into an ERJ-170 code-share agreement with us.
For illustrative purposes only, we estimate that, should Delta acquire all of the common stock they are entitled to acquire under their
warrants and assuming the warrant shares are 100% vested, Delta will own approximately 7.4% of our common stock.
The initial term of the ERJ-135/145 code-share agreement is until May 31, 2016. At the end of the term, Delta has the right to extend
the agreement for an additional five years on the same terms and conditions. If either we or Chautauqua enter into a merger where we
are not the surviving entity or the ultimate beneficial ownership of the surviving entity following a merger is not substantially similar
(i.e., at least 75% common ownership) to the ultimate beneficial ownership of us or Chautauqua prior to the merger (which we refer to
as a merger), or if a party acquires more than 49% of our voting power or outstanding common stock or that of Chautauqua (with
limited exceptions) (which we refer to as a change in control), Delta shall have the right to extend the term of the code-share
agreement for an additional ten years beyond the applicable termination date of the agreement.
The agreement may be subject to early termination under various circumstances including:
• if either Delta or we file for bankruptcy, reorganization or similar action (or if any such action is imminent) or if either
Delta or we make an assignment for the benefit of creditors;
• if either Delta or we commit a material breach of the code-share agreement, subject to 30 days notice and cure rights; or
• upon the occurrence of an event of force majeure that continues for a period of two or more consecutive months, subject to
30 days prior written notice to the party affected by the force majeure event.
In addition, Delta may immediately terminate the code-share agreement upon the occurrence of one or more of the following events:
• if there is a change in control of us;
• if there is a merger involving us;
Source: REPUBLIC AIRWAYS HOLDINGS INC, 10-K, March 15, 2007 Powered by Morningstar® Document Research℠