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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X]ANNUAL REPORT UNDER SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1999
[_]TRANSITION REPORT PURSUANT TO SECTION 13 or
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 000-21749
ADVANCED AERODYNAMICS & STRUCTURES, INC.
(Name of Small Business Issue as specified in its charter)
Delaware 95-4257380
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
3205 Lakewood Boulevard, Long Beach, California 90808
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(562) 938-8618
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE
Securities registered under Section 12(b) of the Exchange Act:
None
Securities registered under Section 12(g) of the Exchange Act:
Units
Class A Common Stock, par value $.0001 per share
Class A Warrants and the underlying Class A Common Stock,
par value $.0001 per share, and Class B Warrants
Class B Warrants and the underlying Class A Common Stock,
par value $.0001 per share
Check whether the Registrant: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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 [_]
No [X].
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosures will be
contained, to the best of the Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K-
SB or any amendment to this Form 10-K-SB [X]
The Registrant generated no operating revenues for the fiscal year ended
December 31, 1999.
The aggregate market value of the voting stock held by non-affiliates of
the Registrant based upon the closing sales price of its common stock as of
February 3, 2000 on the Nasdaq National Market was $27,123,745. For purposes of
this computation, it has been assumed that the shares beneficially held by
directors and officers of Registrant were "held by affiliates;" this assumption
is not to be deemed to be an admission by such persons that they are affiliates
of Registrant.
As of February 3, 2000, the registrant had outstanding 6,999,676 shares of
Class A Common Stock, 1,900,324 shares of Class B Common Stock, 4,000,000 shares
of Class E-1 Common Stock and 4,000,000 shares of Class E-2 Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Registrant's Proxy Statement relating to its 2000 Annual
Meeting of Shareholders are incorporated by reference in Part III of this
report.
Specified exhibits listed in Part III of this report are incorporated by
reference to the Registrant's previously filed Registration Statement on Form
SB-2 (333-12273).
Transitional Small Business Disclosure Format: Yes [_] No [X]
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ADVANCED AERODYNAMICS & STRUCTURES, INC.
CROSS-REFERENCE SHEET
The following items in Part III of Registrant's Annual Report on Form 10-
KSB for its fiscal year ended December 31, 1999 are incorporated herein by
reference to Registrant's Proxy Statement and appear therein under the section
headings indicated below:
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Item Form Heading Section Heading
- ------------ ----------------------------------------- -----------------------------------------
<S> <C> <C>
9. Directors, Executive Officers Promoters Proxy Statement - Election of Directors -
and Control Persons; Compliance with Information with respect to Nominees,
Section 16(a) of the Exchange Act Directors and Executive Officers
10. Executive Compensation Proxy Statement - Management - Compensation
of Executive Officers
11. Security Ownership of Certain Beneficial Proxy Statement - Principal Stockholders
Owners and Management
12. Certain Relationships and Related Proxy Statement - Management - Certain
Transactions Relationships and Related Transactions
</TABLE>
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Certain statements contained in this report, including, but not limited to,
statements concerning the Company's future cash and financing requirements, the
Company's ability to raise additional capital, the Company's ability to obtain
market acceptance of its aircraft, the Company's ability to obtain regulatory
approval for its aircraft, and the competitive market for sales of small
business aircraft and other statements contained herein regarding matters that
are not historical facts, are forward looking statements: actual results may
differ materially from those set forth in the forward looking statements, which
statements involve risks and uncertainties, including without limitation those
risks and uncertainties set forth in the Company's Registration Statement on
Form SB-2 (333-12273) under the heading "Risk Factors."
PART I
ITEM 1. BUSINESS.
OVERVIEW
The Company is a development stage enterprise organized in 1990 to design,
develop, manufacture and market propjet and jet aircraft intended primarily for
business use. The Company has obtained a type certificate ("Type Certificate")
from the Federal Aviation Administration ("FAA") with respect to a non-
pressurized, single-engine aircraft powered by a Pratt & Whitney propjet engine
(the "JETCRUZER 450"). The Company is modifying the JETCRUZER 450 to develop a
six-seat (including pilot), pressurized version of such aircraft for commercial
sale (the "JETCRUZER (TM)500") which, the Company anticipates, will takeoff and
land in less than 2,000 feet, be able to fly at 30,000 feet above sea level, and
have a high cruise speed of approximately 345 mph and a capability of flying
from Los Angeles to New York with only one stop.
The Company began development of the JETCRUZER 450 in 1990 and obtained the
FAA Type Certificate approval in 1994. Throughout this period, the Company
engaged in design and engineering of the aircraft, as well as production of the
jigs, forms, tools, dies and molds necessary to manufacture the aircraft. The
first FAA conformed JETCRUZER 450 was completed in 1992. This aircraft was used
by the Company and the FAA to perform static (non-flight) testing. In late 1992
and 1993, two flight test aircraft were completed. These aircraft were flight
tested by the Company and the FAA from 1992 through 1994. The Company received
the FAA Type Certificate for the JETCRUZER 450 on June 14, 1994.
Although the Company received preliminary written indications of interest
to purchase the aircraft, the Company decided that it would not obtain a
production certificate with regard to the JETCRUZER 450 or otherwise pursue
commercialization of that aircraft in part because the Type Certificate is
subject to certain limitations, which the Company believes reduce the commercial
viability of the JETCRUZER 450. Instead, the Company decided to amend the Type
Certificate to develop the JETCRUZER 500 for commercial sale. The JETCRUZER 500
is a modified version of the JETCRUZER 450 that the Company anticipates will not
be subject to the limitations imposed by the existing Type Certificate.
The Company has FAA approval to amend its Type Certificate, rather than
obtain a new Type Certificate. The Company currently anticipates that it can
obtain an amendment to its Type Certificate during the last half of 2000 and
commence commercial production of such aircraft within the same time frame.
There can be no assurance, however, that obtaining the amendment will not take
longer than anticipated or that the Company will not experience unforeseen
expense or delay in certifying and commercializing its proposed aircraft.
The Company has not generated any operating revenues to date and has
incurred losses from its operating activities including program development
costs of $5.6 million and $6.5 million in 1999 and 1998, respectively. The
Company believes it will continue to experience losses until such time as it
commences the sale of aircraft on a commercial scale. Research and development
expenses have consisted primarily of the costs of personnel, facilities,
materials and equipment required to conduct the Company's development
activities. Such expenses aggregated $31,527,000 from inception through December
31, 1999. Such expenses were incurred to develop the JETCRUZER 450, to obtain a
Type Certificate with respect thereto, and to begin the design of the JETCRUZER
500 and the STRATOCRUZER 1250 "See Other Aircraft".
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INDUSTRY BACKGROUND
The general aviation industry comprises essentially all nonmilitary
aviation activity other than scheduled and commercial airlines licensed by the
FAA and the Department of Transportation. General aviation aircraft are
frequently classified by their type and number of engines and include aircraft
with fewer than 20 seats. There are three different types of engines: piston,
propjet and turbofan (jet). Piston aircraft use an internal combustion engine to
drive a propeller and there may be one or two engines and propellers. Propjet
aircraft combine a jet turbine powerplant with a propeller geared to the main
shaft of the turbine and there may be one or two engines and propellers.
Turbofan aircraft use jet propulsion to power the aircraft. Although there are
usually two engines on general aviation turbofan aircraft, there may also be one
or three.
Purchasers of general aviation aircraft include corporations, governments,
the military, the general public and fractional interest entities. A corporation
may purchase a general aviation aircraft for transporting its employees and
property. Many companies use an aircraft in their line of business, including
on-demand air taxi services, air ambulance services and freight and delivery
services. Governments and military organizations may purchase an aircraft for
the transportation of personnel, freight and equipment. Members of the general
public may purchase an aircraft for personal and/or business transportation,
freight, equipment and pleasure use. Fractional interest entities purchase one
or more aircraft and then sell interests in each aircraft to several persons or
entities. Each entity pays for its share of maintenance and operating costs and
its access to and use of the aircraft. Increased corporate earnings may
encourage corporations to acquire an aircraft. An aircraft must qualify under
FAA regulations in order to be used for certain purposes, and the ability of an
aircraft to so qualify will have a material affect on the potential market for
such aircraft.
Currently, there are fewer than ten major manufacturers of general aviation
aircraft based in the United States. Piston aircraft make up the numerical
majority of aircraft delivered by these manufacturers, whereas propjets and jet
aircraft account for the majority of billings. Aircraft deliveries by United
States manufacturers have increased consistently with sales generating
approximately $3.1 billion in 1996, $4.8 billion in 1997, $5.9 billion in 1998
and $7.9 billion in 1999.
STRATEGY
The Company's objective is to become a worldwide market leader in the sale
and manufacture of small business aircraft. To achieve this objective, the
Company intends to focus on the performance, efficiency and safety of its
proposed aircraft, which will differentiate its aircraft from its competition.
The Company's strategy is to capitalize on a perceived lack of low-priced, high-
performance aircraft in the marketplace. The Company believes that its ability
to offer an aircraft which out performs competitive aircraft at a reduced cost
will enable the Company to penetrate the world business, private and government
aircraft markets. Additionally, the Company intends to expend substantial
resources on a worldwide sales and marketing program to position itself with
potential customers.
The Company believes that aircraft sales are heavily dependent on the
quality and safety of a company's products. Accordingly, the Company intends to
maintain high quality and safety standards in all aspects of the design and
manufacture of its proposed aircraft. For example, the Company believes that
certain design features of the JETCRUZER 500, such as the canard wing, will make
the aircraft spin resistant and that the absence of wing flaps will make the
operation of the aircraft less susceptible to pilot error. In addition, the
Company believes that the reliability of the Company's component suppliers, such
as Pratt & Whitney, the engine manufacturer, will be viewed favorably by
potential customers.
The Company believes that it will be able to offer aircraft at a
comparatively low price by containing the costs of obtaining FAA certification
and amendments to such certification as well as the costs of manufacturing. The
Company believes that it was able to obtain its Type Certificate for the
JETCRUZER 450 at a significantly lower cost than its competitors, with regard to
comparable aircraft, due, in part, to the Company's smaller size as compared to
its competitors, resulting in the Company's ability to contain administrative
costs and the overhead expenses allocable to the development process.
Additionally, the Company's Southern California location is home to a number of
workers from recently downsized aerospace and defense companies who the Company
was able to hire to assist in the certification of the JETCRUZER 450. These
employees provided the Company with an expertise in testing, certifying, tool
and jig manufacturing and other aspects of the certification process that would
not otherwise have been available to the Company.
The Company believes that it will be able to control manufacturing costs by
producing most of the tooling, jigs, dies and molds in-house required for the
manufacture of its aircraft. Also, because the Company produces the airframe and
most
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of the associated components of its aircraft in-house, it will have greater
control over the production process; and the Company believes that this control
will also help keep construction and certification costs at reduced levels.
AIRCRAFT
General. The Company's aircraft are based on a canard wing design in which
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a smaller wing (the "canard") is installed in front of the aircraft's main wing.
The Company believes that this design provides for improved safety margins and
performance, including spin resistance and increased lift, and increased ride
comfort as compared to more conventional aircraft designs.
The Company believes that the JETCRUZER 500 provides increased safety
margins, in part, because it will be certified under the latest safety
regulations adopted by the FAA. Additionally, the canard design, which provides
dual lifting surfaces, makes the JETCRUZER 500 resistant to spins. An airplane
may enter a spin when one main wing stalls (i.e. stops producing lift) before
the other. On the JETCRUZER 500, the canard wing will stall before the main rear
wing, thereby automatically lowering the aircraft's nose and increasing its
airspeed, thus preventing a stall of either of the main wings. Since the main
wing of the JETCRUZER 500 does not stall, it does not lose lift on one side
before the other and thus, in part, the aircraft is resistant to spins. The
JETCRUZER 500 has increased lift in part because the graphite composite fuselage
of the JETCRUZER 500 is lighter than a fuselage made of aluminum, used by most
of the Company's competitors, and the canard wing design provides an additional
lifting surface as compared to conventional aircraft. Generally, lighter weight
and additional lifting surfaces result in greater lifting capacity.
Management also believes that the Company's aircraft will provide
performance advantages over competitors' models, including better handling
characteristics and increased speed. Based on the reports of its test pilots,
the Company also believes that the JETCRUZER 500 provides increased ride
comfort, and a quieter ride, than aircraft of a conventional design. The
JETCRUZER 500 will not require pilot licensing beyond that required for other
single-engine propjet aircraft.
The fuselage of each aircraft is made of an advanced graphite
composite/nomex honeycomb sandwich with embedded aluminum and copper screen mesh
for lightning protection, which is processed in the Company's nitrogen-
pressurized autoclave. The canard wing on the JETCRUZER 500 is constructed of
aircraft aluminum. The main rear wing and the ailerons of all of the aircraft
are constructed of aircraft aluminum skin and spar and rib construction. Flaps
are not required on the JETCRUZER 500 because of the design and high lift
capabilities of the canard and the main wing. The engine and propeller of the
Company's JETCRUZER 500 aircraft are located at the rear of the fuselage, thus
providing passengers with a quieter ride.
JETCRUZER500. The JETCRUZER 500 is a six-seat (including pilot), high
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performance single engine propjet with conventionally constructed wings made
from aluminum attached to a fuselage formed from a high-strength graphite nomex
honeycomb composite material. The aircraft has a canard configuration with two
lift-producing surfaces and no conventional wing flaps. The JETCRUZER 500 is
powered by a Pratt & Whitney PT6A-66A propjet engine located at the rear of the
aircraft. The JETCRUZER 500 is a modified version of the JETCRUZER 450.
In June 1994, the FAA awarded the Company a Type Certificate for the
JETCRUZER 450, which is a non-pressurized propjet aircraft powered by a smaller
Pratt & Whitney engine. However, the Type Certificate is subject to a number of
FAA limitations that were imposed as a result of the aircraft's early stage of
development. For example, the maximum number of occupants was limited to five,
as compared to the six passenger (including pilot) design configuration of the
JETCRUZER 500, and the maximum operating speed was limited to 178 mph, as
compared to the approximately 345 mph design speed of the JETCRUZER 500. The
Company is amending the Type Certificate to remove these limitations in the
certification of the JETCRUZER 500.
In order to amend the Type Certificate to include the JETCRUZER 500,
additional work is being performed on the aircraft by the Company, including
adding a larger fuselage, pressurization, environmental systems, de-icing
capability, and autopilot certification, all of which will be necessary to
produce the JETCRUZER 500 for commercial sale. Two model 500's have already been
produced and flown with the third anticipated to be completed in the second
quarter of 2000. The entire JETCRUZER program has almost a thousand hours of
flight testing. Several hundred additional hours of testing will be required to
obtain the amendment of the Type Certificate. The Company anticipates the
certification amendment will be received in the second half of 2000. There can
be no assurance, however, that obtaining the amendment will not take longer than
anticipated.
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Although no assurance can be given as to the performance characteristics of
any aircraft in its design phase, based on the performance of the JETCRUZER 450,
the Company believes that the JETCRUZER 500 will carry six passengers (including
pilot) and have a cruise speed of approximately 345 mph. The Company also
believes that the aircraft should be able to climb at approximately 2,600 feet
per minute, cruise at an altitude of 30,000 feet above sea level and travel from
Los Angeles to New York with only one stop. The interior of the aircraft will be
built either to a customer's specifications or in accordance with one of the
Company's standard configurations. These statistics reflect the overall
anticipated performance of the JETCRUZER 500. However, interior configuration,
optional equipment, weather conditions and flying weight will affect the
performance of an individual aircraft. The JETCRUZER 500 currently is available
for commercial sale at a base price of $1,495,000.
OTHER AIRCRAFT
STRATOCRUZER(R)1250. The Company currently intends to further develop a
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twin engine jet aircraft called the STRATOCRUZER 1250. The STRATOCRUZER 1250,
will be a canard aircraft with three flying surfaces powered by two
Williams/Rolls Royce FJ44-2 fan jets. It will seat up to 12 passengers, plus the
pilot. Based on its design and preliminary testing, it is anticipated that the
STRATOCRUZER 1250 will have a maximum cruise speed of approximately 500 mph, a
range of approximately 3,700 miles and a pressurized ceiling of 41,000 feet. The
STRATOCRUZER 1250 will be able to takeoff in less than 3,200 feet and land in
less than 3,000 feet. The instrumentation of the STRATOCRUZER 1250 will consist
of digital electronic avionics, including EFIS (an Electronic Flight
Instrumentation System, which includes color monitors on which flight instrument
data, weather radar, maps and other navigation information are available) and
GPS (Global Positioning System) navigation. The aircraft will be of lightweight
construction. The Company believes that the STRATOCRUZER 1250's comparatively
light weight, combined with, among other things, its additional lifting
surfaces, fuel efficient engines and aerodynamic design, will give the
STRATOCRUZER 1250 superior range and fuel efficiency compared to other twin
jets. The Company will be required to obtain a new FAA type certificate for the
STRATOCRUZER 1250.
The STRATOCRUZER 1250 is in a very early stage of development, and the
completion of such development will also require substantial capital resources
beyond those which the Company currently possesses. Therefore, there can be no
assurance that the Company will obtain the capital resources necessary to
continue the development of the STRATOCRUZER 1250 or, if such resources are
obtained, successfully develop and certify the STRATOCRUZER 1250. Accordingly,
the Company cannot predict when, if ever, the STRATOCRUZER 1250 will be
available for commercial sale.
MANUFACTURING
The Company has designed, produced or procured most of the equipment
necessary for production of the JETCRUZER 450 and has used that equipment to
certify the aircraft. The Company is in the process of obtaining and producing
additional sets of the equipment necessary for production of the JETCRUZER 500.
The Company will produce, in-house, substantially all of the tooling necessary
for the production of its aircraft, from master models to major jigs and
fixtures. The Company believes it has achieved, and will continue to achieve,
cost savings by manufacturing tooling in-house. Additionally, nearly all
airframe assemblies and parts are intended to be produced in-house, except for
special tasks such as spar milling and painting. The manufacturing process for
the Company's aircraft is highly technical and requires skilled assembly
technicians. The Company believes that a number of such skilled individuals are
available in Southern California in general, and in Long Beach in particular.
However, no assurance can be given that these individuals will in fact be
available to the Company.
The equipment and procedures used by the Company for manufacturing must be
certified, and are subject to inspection and continuing oversight, by the FAA.
The Company has a complete in-house computer design system, with
interactive, computer-aided design ("CAD") capabilities. The Company maintains
an Aircraft Quality Control System ("AQCS") designed to meet the requirements of
the military, the National Aeronautics and Space Administration ("NASA") and the
FAA. An AQCS is a system mandated and approved by the FAA to assure the
integrity and traceability of aircraft components, parts, and systems. It is
required as a condition to obtaining a type certificate and a production
certificate. All of the Company's precision tools and gauges are certified by
the National Bureau of Standards.
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The Company will manufacture the advanced graphite composite fuselage
structure used in the construction of its aircraft in its own computer-
controlled, nitrogen-pressurized autoclave. The autoclave was purchased new in
1990 and was used in the construction of the certification aircraft. It can
achieve temperatures of up to 650 degrees Fahrenheit and pressure of 150 pounds
per square inch. The graphite material is very strong and lightweight. In the
course of certifying the JETCRUZER 450, the Company believes it has demonstrated
to the FAA that the graphite material meets or exceeds all standards set by the
FAA for aircraft construction material. Use of the graphite composite material
simplifies the manufacturing process because, unlike metal construction, it
eliminates most riveting, which is a labor intensive, time consuming process.
The graphite sections are bonded together through a process which provides
strength equal to or greater than riveting. The metal wings of the aircraft are
attached to the composite portions of the airframe through a manufacturing
technique developed by the Company.
MARKETING, DISTRIBUTION AND SERVICE
The Company has developed an in-house sales and marketing organization and
is marketing its aircraft in the United States and abroad through trade
publications, news releases, attendance at aircraft trade shows, and independent
distributors and agents.
The Company's marketing and sales efforts to date have emphasized aircraft
trade shows, from which a significant amount of new aircraft orders have been
generated. The Company participates in numerous air shows, including the Paris
Air Show, the National Business Aircraft Association USA Show and the Singapore
Aerospace Show. Management believes that, in addition to sales generated
directly from such events, participation in trade shows introduces the Company's
aircraft to potential purchasers and increases overall awareness of the
Company's products. The Company also promotes general knowledge of the Company's
products by issuing press releases to aviation magazines and newspapers. The
Company also uses paid advertising in trade magazines, general interest flying
magazines and international business magazines to promote its products.
Management anticipates that most of the Company's aircraft will be sold to
corporations for transportation of their personnel, guests and company property.
The Company has developed direct marketing programs to target such corporations.
The Company believes that its aircraft will also be attractive to customers
other than corporations and is addressing these markets as well. These markets
include current owners of single and twin engine aircraft who operate their own
aircraft for business purposes, governmental entities that use aircraft for
transportation, surveillance, mapping photography, forest fire detection, and
fractional use entities who purchase one or more aircraft and sell interests in
each aircraft to several persons or entities. The Company believes that the
relatively low purchase price, performance, safety and cost of operating its
aircraft will make them attractive to such purchasers. Other potential specialty
markets may include air freight and delivery services, on-demand air taxi
services and/or charter and air ambulance use.
Pursuant to FAA regulations effective as of May 4, 1998, single-engine
aircraft may be used for commercial passenger revenue-paying flights (whether
on-demand charter or scheduled) in Instrument Flight Rules (IFR) conditions,
provided the pilot and the aircraft meet certain FAA certification, proficiency,
maintenance and additional equipment and airworthiness requirements. The Company
believes that the affect of this FAA resolution will be to open up new markets
for the JETCRUZER 500.
The Company intends to provide referral assistance to customers who require
financing to complete the purchase of an aircraft from the Company. Overseas
sales may be financed through the United States Export/Import Bank ("EXIM"),
which may provide loans to qualified overseas customers, and through several
domestic banks. Additionally, EXIM may provide low-cost working capital loans to
the Company upon the receipt of evidence of export sales commitments.
SERVICE. The Company's aircraft will be serviced primarily by fixed base
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operations ("FBOs") authorized by the Company. FBOs are established aircraft
maintenance companies located at airports throughout the world which service
general aviation aircraft produced by virtually all major aircraft
manufacturers. If and when customers in a particular region or country begin to
acquire aircraft manufactured by the Company, an appropriate FBO for that area
will be identified and authorized by the Company after consultation with the
agent and/or distributor for that area. The Company will provide training and a
service manual to the employees of its authorized FBO's. Required parts and
repair materials will be air freighted to the FBO's as required. Maintenance and
repair of major systems included in the Company's aircraft, such as engines and
avionics, will be provided by the manufacturers of those systems.
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SUPPLIERS
The Company relies on various suppliers of materials and components which
are necessary to manufacture its aircraft. In particular, the engines and the
avionics are provided by outside manufacturers. These suppliers also produce
equipment for aircraft manufacturers other than the Company. Engines for the
JETCRUZER 500 are manufactured by Pratt & Whitney. Engines for the STRATOCRUZER
1250, if developed, will be manufactured by Williams/Rolls Royce. The Company
has contractual rights to engines from Pratt & Whitney. The failure of suppliers
or subcontractors to meet the Company's performance specifications, quality
standards or delivery standards or schedules could have a material adverse
effect on the Company's operations. Moreover, the Company's ability to
significantly increase its production rate following the introduction of the
JETCRUZER 500 could be limited by the ability or willingness of its key
suppliers to increase their delivery rates.
COMPETITION
The JETCRUZER 500 will compete against several other types of aircraft,
including new and used single and multi-engine propjets and high-end piston
powered aircraft. Management believes its aircraft will be differentiated from
its competition based primarily on the aircraft's price and performance. Single
engine propjets have only recently come into use in the general aviation
industry, and there are not many competitors in this category. Twin engine
propjets are far more common and vary significantly in size.
Single engine propjet competition for the JETCRUZER consists of just three
aircraft. The Cessna Caravan is all metal and sells for $1.4 million and has a
high speed of 160 kts, a landing gear that does not retract, no pressurization
and is designed basically for freight use. Cessna delivered 700 Caravans in 7
years and received an order for 100 aircraft from one customer. The Company also
expects competition from the TBM 700. Made in France from metal, it has a
similar passenger capacity and performance to the JETCRUZER, but its $2.6
million price tag is almost double that of the JETCRUZER. The last competitor is
the Pilatus PC-12. Made in Switzerland from metal, it has a lower airspeed of
270 kts and sells for almost double the price of the JETCRUZER at $2.4 million.
All competitive aircraft are based on conventional designs, which are more than
30 years old, and are made from metal. JETCRUZER's prime advantage is its
design, lightweight graphite composites, high performance and is one of the
lowest priced propjets in the world.
An additional competitor to the JETCRUZER 500 could be the Malibu Mirage.
The Malibu Mirage is a single engine piston powered aircraft, rather than a
propjet. It is manufactured in the United States by The New Piper Aircraft Corp.
It has an airspeed of 267 miles per hour and a range of approximately 1,200
miles. The Company believes that piston aircraft such as the Mirage, and propjet
aircraft such as the JETCRUZER 500 compete for different customers based on
performance, speed and reliability. However, the price differential may induce
certain purchasers to select the lower-priced piston aircraft.
The Company believes that the JETCRUZER 500 may compete with and compare
favorably to various twin engine propjets, such as the King Air C-90B, in
airspeed and passenger seating at a significantly lower purchase price and
operating cost. The King Air C-90B is a twin engine propjet of conventional
design which is manufactured in the United States by Raytheon Aircraft Co.
(Beechcraft). It has an airspeed of approximately 284 miles per hour and has
seven seats. Its approximate base price is $2,488,000. However, certain
customers may be reluctant to purchase a single-engine aircraft such as the
JETCRUZER 500 due to the perception of additional safety associated with twin-
engine aircraft.
Most of the Company's competitors are substantially larger in size and have
far greater financial, technical, marketing, and other resources than the
Company. Certain of the Company's actual and potential competitors may have
technological capabilities or other resources that would allow them to modify
existing aircraft or develop alternative new aircraft which could compete with
the Company's aircraft. Therefore, there can be no assurance that future
technological changes or marketing initiatives on the part of its competitors
will not have a material adverse effect on the Company's ability to market its
aircraft.
Additionally, indirect competition and potential sales will come from the
used aircraft market, both propjets and jets, which have sales prices near that
anticipated for the JETCRUZER 500. As the prices of new aircraft have increased,
buyers have turned in greater numbers to the used aircraft market. The Company,
however, believes that it may be able to attract
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purchasers who might otherwise acquire a used aircraft by emphasizing the price,
performance and technology, of the Company's aircraft.
PRODUCT LIABILITY AND INSURANCE. The failure of an aircraft manufactured by
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the Company or any other mishap involving such an aircraft may result in
physical injury or death to the occupants of the aircraft or others, and
therefore, the Company could be subject to lawsuits involving product liability
claims. The Company intends to obtain product liability insurance for aircraft
purchased by customers before the delivery of the first customer's aircraft.
However, such insurance is expensive, subject to various exclusions and,
although the product liability insurance for manufacturers of general aviation
aircraft has become somewhat more available and less costly over the last two
years, there can be no assurance that such coverage will be available to the
Company on acceptable terms or at all. Further, should the Company become
involved in product liability litigation, the expenses and damages awarded could
be large and the scope of any coverage may be inadequate. The Company has
obtained other insurance as needed, including flight test insurance for its
pilots and aircraft used during the FAA certification process.
GOVERNMENT REGULATION
The manufacture of aircraft is subject to extensive regulation by the FAA.
Both the finished product and the process of manufacturing itself must be
certified by the FAA, as must the type design. Failure to obtain or maintain all
required FAA certifications would have a material adverse effect on the
Company's operations.
CERTIFICATION. On June 14, 1994, the Company obtained a Type Certificate
-------------
from the FAA for the JETCRUZER 450. For an aircraft model to be manufactured for
sale, the FAA must issue a type certificate and production certificate for that
model; for an individual aircraft to be operated, the FAA must issue an
airworthiness certificate for that aircraft. Type certificates are issued by the
FAA when an aircraft model is determined to meet applicable performance, safety,
environmental, and other technical criteria. In the case of aircraft such as the
Company's which have one or more unconventional design characteristics for which
there are no applicable criteria, such criteria are developed and applied in the
course of the type certification process. More stringent airworthiness criteria
and additional equipment requirements become applicable if the aircraft will be
used in commercial passenger operations, whether on-demand charter or scheduled.
Production certificates are issued by the FAA after it determines that the type
certificate holder (or its licensee) has the facilities and quality control
capability to manufacture aircraft that will meet the design provisions of the
applicable type certificate. An airworthiness certificate is issued by the FAA
for a particular aircraft when it is certified to have been built in accordance
with specifications approved under the type certificate for that model; the
airworthiness certificate remains in effect so long as required maintenance,
repairs and upkeep are performed.
The Company is in the process of amending its Type Certificate with respect
to the JETCRUZER 450 to include the JETCRUZER 500. The Company will be required
to obtain a new type certificate if and when it proceeds with development of the
STRATOCRUZER 1250.
Obtaining an amended FAA type certificate can be difficult, costly, and
time consuming. To date, the Company has accomplished, among other things, (a)
the filing of an appropriate application with the FAA, (b) development and
submission to the FAA of an appropriate design and substantiating data and
receipt of FAA approval that such design and data comply with applicable FAA
airworthiness standards, (c) development and receipt of FAA approval of a flight
test plan, and (d) construction of an initial prototype JETCRUZER 500 for use in
flight testing and construction of a flight test Jetcruzer 500, currently in
flight testing. The Company must accomplish the following before receiving an
amendment to its Type Certificate for the JETCRUZER 500: (a) successful
completion of conformity inspections requested by the FAA from time to time to
ensure compliance of the aircraft with the type design, (b) completion of the
JETCRUZER 500 fuselage for static tests and the completion of the JETCRUZER 500
for flight tests, (c) completion of Company flight tests and receipt of
precertification approval from the FAA, (d) completion of additional flight
tests under FAA supervision, (e) development and receipt of FAA approval of an
airplane flight manual, and (f) development and receipt of FAA approval of
maintenance and inspection requirements for the aircraft. Although the time
required to obtain an amended type certificate may vary, the Company believes
that it can obtain an amended certificate for the JETCRUZER 500 during the last
half of 2000.
The Company intends to obtain a FAA production certificate for the
commercial production of its aircraft. In order to obtain a production
certificate, the Company must commence production of an aircraft and make
application for the certificate. The FAA will regularly inspect the Company's
facilities and procedures during the production process.
When the initial aircraft is nearly complete, the Company must have
submitted all required materials, including a copy of the applicable quality
assurance manual. The FAA will then review the materials submitted and the
results of its
9
<PAGE>
inspections and will either issue the production certificate or require that the
Company modify its quality assurance manual or the manufacturing process, or
both. While production will not necessarily stop during the review process, a
failure to receive a production certificate would likely delay the manufacturing
process. The time required to obtain a production certificate is identical to
and concurrent with the time required to manufacture the first commercially-
produced applicable aircraft; which the Company believes will be five to six
months in the case of the JETCRUZER 500. The Company expects to obtain the
production certificate during the last half of 2000.
There can be no assurance that the Company will not encounter a delay in
obtaining a production certificate for its planned aircraft models or
airworthiness certificates for individual aircraft.
The Company will also be subject to the risk of modification, suspension or
revocation of any FAA certificate it holds. Such modification, suspension, or
revocation could occur if, in the FAA's judgement, compliance with airworthiness
or safety standards by the Company is in doubt. If the FAA were to suspend or
revoke the Company's type or production certificates for an aircraft model,
sales of that model would be adversely affected or terminated. If, in the FAA's
judgement, an unsafe condition developed or was discovered after one or more of
the Company's aircraft had entered service, the FAA could issue an
"Airworthiness Directive," which could result in a regulatory obligation upon
the Company to develop appropriate design changes. Foreign authorities could
impose similar obligations upon the Company as to aircraft within their
jurisdiction. Any or all of the above occurrences could expose the Company to
substantial additional costs and/or liability.
PRODUCT LIABILITY. In 1994, the United States Congress passed and the
-----------------
President signed the General Aviation Revitalization Act of 1994 ("GARA"). GARA
provides protection for manufacturers of general aviation aircraft against
certain lawsuits for wrongful death or injuries resulting from an aircraft
accident. Except as set forth in GARA, and provided a period of 18 years has
passed from the date of delivery of the aircraft to the original purchaser or
retailer, no claim for damages resulting from personal injury or wrongful death
may be brought against the manufacturer of a general aviation aircraft. Although
GARA will not directly affect the Company until eighteen years from the date it
delivers its first aircraft, management believes that GARA will indirectly
benefit the Company immediately, in that it may encourage increased
manufacturing and sales of general aviation aircraft and this increased activity
may in turn result in an increased number of licensed pilots. Management
believes that a greater number of licensed pilots may provide an increased
market for the Company's aircraft. However, there can be no assurance that
Management's view of GARA's effects will prove to be correct.
FOREIGN CERTIFICATION. In order for the Company to sell its aircraft in
---------------------
foreign countries, it must comply with each country's aircraft certification
process. Certain countries will accept as adequate the certification issued by
the FAA, while others impose additional requirements. In countries which do
require additional certification, the FAA certification often provides a
starting point from which such country begins its certification process. The
Company intends to begin certification processes in a foreign country once it
has received the amendment to the Type Certificate for the JETCRUZER 500 and has
finalized a sale or distributorship in that country. The Company has not yet
determined which foreign markets it will first address. Priorities in this area
will be established by the levels of interest in the Company's products of
dealers and distributors in the various foreign markets.
EMPLOYEES
As of March 9, 2000 the Company had ninety-four full time employees. The
Company believes that its relations with its employees are good. The Company is
not a party to any collective bargaining agreement.
ITEM 2. PROPERTIES.
The Company leases approximately 10 acres of land located on the Long Beach
Airport in Long Beach, California. The lease commenced on January 14, 1998 and
has a term of 30 years with an option to renew for an additional 10 year term.
The lease also contains options to lease other airport properties. The current
monthly rent under the lease is $7,400. The lease contains incremental
increases which escalate the monthly rent to approximately $15,600 after 5
years.
The Company contracted Commercial Developments International/West
(Design/Builder) to design and build their approximately 200,000 square foot
manufacturing and headquarters facility (the "New Facility") on the above
mentioned leased property. The facility was substantially completed during 1998,
and on November 16, 1998, the Company moved into
10
<PAGE>
the New Facility. The total cost for the New Facility, including its design,
construction, licenses, fees and change orders was approximately $9,700,000. The
Company believes the new facility will provide adequate capacity for the
foreseeable future.
In June, 1999, the Company sold its 200,000 square-foot building and leased
it back. The sales price of the building was $9,800,000 and the term of the
lease is eighteen years plus an option to extend the lease for an additional ten
years.
Monthly payments under the terms of the leaseback are approximately
$106,000 and will be adjusted annually, after the first year, for changes in the
Consumer Price Index, not to exceed 3% per annum. The rent for periods after the
eighteenth year will be at fair market rental value.
ITEM 3. LEGAL PROCEEDINGS.
As of March 15, 2000, there were no material pending legal proceedings to
which the Company was a party or to which any of its properties were subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the security holders of the Company
during the fourth quarter of 1999.
11
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Class A Common Stock is listed for trading on the Nasdaq
National Market under the symbol "AASI". The following table sets forth the
range of high and low last sale prices per share for the Class A Common Stock as
quoted on the Nasdaq National Market, for the periods indicated.
Year Ended December 31, 1998 High Low
---------------------------- --------------------------------
First Quarter 5.250 2.563
Second Quarter 7.000 4.000
Third Quarter 5.563 2.313
Fourth Quarter 4.375 2.500
Year Ended December 31, 1999
----------------------------
First Quarter 4.625 2.875
Second Quarter 4.000 2.750
Third Quarter 3.313 2.000
Fourth Quarter 3.875 1.531
At March 15, 2000, there were approximately 40 holders of record of the
Company's Class A Common Stock, 3 holders of record of the Company's Class B
Common Stock and 4 holders of record of the Company's Class E-1 Common Stock and
5 holders of record of the Company's Class E-2 Common Stock. The Company
believes that there are significant number of beneficial owners of its Class A
Common Stock whose shares are held in "street name."
The Company has not paid cash dividends on its Common Stock and does not
anticipate that it will do so in the near future. The present policy of the
Company is to retain earnings to finance the development of its operations.
12
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS
Certain statements concerning the Company's future cash and financing
requirements, the Company's ability to raise additional capital, the Company's
ability to obtain market acceptance of its aircraft, the Company's ability to
obtain regulatory approval for its aircraft, and the competitive market for
sales of small business aircraft and other statements contained herein regarding
matters that are not historical facts, are forward looking statements; actual
results may differ materially from those set forth in the forward looking
statements, which statements involve risks and uncertainties, including without
limitation those risks and uncertainties set forth in the Company's Registration
Statement on Form SB-2 (333-12273) under the heading "Risk Factors."
PLAN OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the financial statements and notes thereto appearing elsewhere in this report.
GENERAL
The Company is a development stage enterprise organized to design, develop,
manufacture and market propjet and jet aircraft intended primarily for business,
corporate and government use and has been engaged principally in research and
development of its proposed aircraft. At inception in January 1990, the Company
acquired the assets of Aerodynamics & Structures, Inc. ("ASI"), a New Jersey
corporation engaged in the design of an aircraft prototype, in exchange for
139,407 shares of Class B Common Stock, 278,815 shares of Class E-1 Common
Stock, and 278,815 shares of Class E-2 Common Stock. In connection with this
exchange, the Company assumed liabilities of ASI in the amount of approximately
$400,000. In March 1990, the Company made application to the FAA for a Type
Certificate for the JETCRUZER 450, which Certificate was ultimately granted in
June 1994. The Company decided to amend the Type Certificate and is in the
process of developing the JETCRUZER 500 for commercial sale, which is a modified
version of the JETCRUZER 450, that the Company anticipates will not be subject
to the limitations imposed by the existing Type Certificate.
The Company has not generated any operating revenues to date and has
incurred losses from its operating activities including program development
costs of $5.6 million and $6.5 million in 1999 and 1998, respectively. The
Company believes it will continue to experience losses until such time as it
commences the sale of aircraft on a commercial scale.
Prior to commencing commercial deliveries, the Company will need to, among
other things, complete the development of the JETCRUZER 500, obtain the
requisite regulatory approvals, hire additional engineering and manufacturing
personnel and expand its sales and marketing efforts. The Company estimates that
the cost to complete development of the JETCRUZER 500 and obtain an amendment of
its FAA Type Certificate will be approximately $5,000,000. This amount includes
the cost of equipment and tooling, static and flight-testing of the aircraft,
and the employment of the necessary personnel to build and test the aircraft.
There can be no assurances, however, that the Company's cost to complete
development of the JETCRUZER 500 will not exceed $5,000,000.
At such time, if ever, as the Company commences the commercial sale of its
aircraft, the Company will derive a substantial portion of its revenues from the
sale of a relatively small number of aircraft. As a result, a small reduction in
the number of aircraft shipped in a quarter could have a material adverse effect
on the Company's financial position and results of operations for that quarter.
The Company's policy is to collect progress payments during the construction of
aircraft and final payments upon the delivery of aircraft. Construction or
delivery delays near the end of a particular quarter, due to, for example,
shipment rescheduling, delays in the delivery of component parts or unexpected
manufacturing difficulties experienced by the Company, could cause the financial
results of the quarter to fall significantly below the Company's expectations
and could materially and adversely affect the Company's financial position and
results of operations for the quarter.
During 2000 the Company intends to focus its efforts on the following
events:
- Passing the FAA pressurization test. One of the major differences
between the JETCRUZER 500 and the JETCRUZER 450 is that the JETCRUZER
500 is pressurized. After the JETCRUZER 500 passes the pressurization
test, the Company believes that the remaining tests are tests that have
previously been performed
13
<PAGE>
on the JETCRUZER 450 and, therefore, are more likely to be successful.
While there can be no assurance, the Company believes that the
pressurization test can be successfully completed in the first quarter
of the year 2000.
- Completing Company high-speed cruise flight-testing to assure customers
of the JETCRUZER 500's speed.
- The commencement of JETCRUZER 500 production. Upon the successful
completion of the pressurization and Company speed tests, the Company
immediately will commence production of the first JETCRUZER 500 planes.
The Company anticipates that production will start in lots of 4 planes
per month.
- The start of progress payment collections. As the Company starts the
production process, each customer whose plane is being built will be
requested to make an initial progress payment, as specified in the
customer's purchase contract. The Company believes that this event will
be the start of positive cash flow.
- Obtaining Type Inspection Authorization (TIA). This event marks the end
of Company flight tests and means that the FAA will test the plane,
using its pilots. The Company believes that this event will occur
around the middle of year 2000.
- Obtaining an amended Type Certificate (TC) for the Jetcruzer 500 from
the FAA. This means that the Company may deliver planes to its
customers. The Company believes that this event will occur toward the
end of year 2000.
- Delivering the first JETCRUZER 500. With the delivery of its first
plane, the Company will record its first sales revenue and cost of
goods sold.
- Obtaining a production certificate from the FAA. This will allow use of
the Company's specified inspectors during the production and delivery
processes of the JETCRUZER 500. This certification should quickly
follow the receipt of the TC.
The Company entered into a subscription agreement for the sale of up to
$10,000,000 of 5% Cumulative Convertible Series A Preferred Stock, of which the
Company received net proceeds of $4,550,000. Additionally, the Company signed a
letter of intent to sell and leaseback manufacturing equipment. This transaction
will generate an additional $1,000,000.
The Company's management believes that its current working capital with
the additional funding obtained in March 2000 will be sufficient to finance its
plan of operations through the end of the third quarter, at which time positive
cash flow from customer progress payments is expected to have commenced as well
as receipt of the remaining $5,000,000 of the Preferred Stock funding will have
occurred. However, there can be no assurances that the current timetable for
completion of the development and certification of the aircraft will not be
delayed beyond the current fiscal year. If the Company's estimates prove to be
incorrect, or additional sources of financing prove to be unavailable, if
needed, the Company will have to curtail its development plans.
14
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain
operating amounts and results.
<TABLE>
<CAPTION>
Period from January 26, 1990
Years Ended December 31 (inception) to December 31,
--------------------------- ---------------------------
1998 1999 1999
---------------------------------------------------------
<S> <C> <C> <C>
Interest and other income $ 1,374,000 $ 433,000 $ 4,065,000
Research and development, general and
Administrative expenses 11,127,000 8,752,000 49,405,000
Interest expense 352,000 992,000 3,345,000
Loss on disposal of assets 13,000 -- 755,000
Realized Loss on sale of investments -- 30,000 30,000
Extraordinary Loss -- -- 942,000
---------------------------------------------------------
Net Loss ($ 10,118,000) ($9,341,000) ($50,412,000)
=========================================================
</TABLE>
The Company has not generated any revenues from operations.. The Company's
losses have resulted primarily from expenditures made in connection with the
research and development of the Company's proposed aircraft and general and
administrative activities. During 1996 the Company incurred an extraordinary
loss of $942,000, resulting from the retirement of debt at the time of its
December 1996 IPO.
Interest income consisted primarily of earnings derived from the unused
proceeds of the 1999 sale and leaseback of the Company's 200,000 square foot
building. Interest income aggregated $2,743,000 from inception through December
31, 1999, $927,000 and $373,000 of which was earned in 1998 and 1999,
respectively.
Research and development expenses have consisted primarily of the costs of
personnel, facilities, materials and equipment required to conduct the Company's
development activities. Such expenses aggregated $31,527,000 from inception
through December 31, 1999. Such expenses were incurred to develop the JETCRUZER
450, to obtain a Type Certificate with respect thereto, and to begin the design
of the JETCRUZER 500, and the STRATOCRUZER 1250.
General and administrative expenses have consisted primarily of
administrative salaries and benefits, rent, marketing expenses, insurance and
other administrative costs. Such expenses aggregated $17,878,000 from inception
through December 31, 1999, $4,658,000 and $3,186,000 of which were incurred in
1998 and 1999, respectively. General and administrative expenses have increased
since 1997 primarily due to the addition of personnel and other resources needed
to support increased administrative, marketing, and development activities.
Interest expense has consisted primarily of interest expended by the
Company for bank and private financing. Interest expense aggregated $3,345,000
from inception through December 31, 1999, $352,000 and $992,000 of which were
incurred in 1998 and 1999, respectively.
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes." The
Company has incurred net losses in each year since its inception and
consequently has paid no federal or state income taxes.
At December 31, 1999, the Company has a United States federal and
California state tax net operating loss carryforwards of approximately
$47,900,000 and $15,200,000, respectively, which, if unused, will expire in
varying amounts in the years 1999 through 2018.
At December 31, 1999, the Company had federal and state research and
development ("R&D") credit carryforwards of approximately $ 1,356,000 and
$542,000, respectively. The federal R&D credit carryforwards will expire in the
years 2004 through 2009. The state R&D credit carryforwards can be carried
forward indefinitely. See Note 5 of Notes to Financial Statements.
15
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1999, the Company had working capital of $1,731,000 and
stockholders' equity of $1,604,000. Since its inception in January 1990, the
Company has experienced continuing negative cash flow from operations, which,
prior to the December 1996 IPO, resulted in the Company's inability to pay
certain existing liabilities in a timely manner. The Company has financed its
operations through private funding of equity and debt and through the proceeds
generated from its December 1996 initial public offering.
The Company expects to continue to incur losses until such time, if ever,
as it obtains regulatory approval for the JETCRUZER 500 and related production
processes and market acceptance for its proposed aircraft at selling prices and
volumes which provide adequate gross profit to cover operating costs and
generate positive cash flow. The Company's working capital requirements will
depend upon numerous factors, including the level of resources devoted by the
Company to the scale-up of manufacturing and the establishment of sales and
marketing capabilities and the progress of the Company's research and
development program for the JETCRUZER 500 and other proposed aircraft.
The Company's management team has developed a financial plan to address its
working capital requirements. The Company entered into a subscription agreement
for the sale of up to $10,000,000 of 5% Cumulative Convertible Series A
Preferred Stock, of which the Company received net proceeds of $4,550,000.
Additionally, the Company signed a letter of intent to sell and leaseback
manufacturing equipment. This transaction will generate an additional
$1,000,000.
The remaining $5,000,000 in Preferred Stock funding will not occur until
certain criteria have been met, including passing the pressurization test for
the fuselage structure and completion of the registration of 200% of the Common
Stock underlying the convertible Preferred Stock subscription. It is anticipated
that the remaining proceeds will be received in two installments; $2 million in
the second quarter and the final $3 million in the third quarter, upon the
commencement of production of the aircraft.
While there is no assurance that additional financing will be available,
the Company's management believes that it has developed a financial plan that,
if executed successfully, will substantially improve the Company's ability to
meet its working capital requirements. This financial plan includes the
commencement of production and the collection of progress payments to assist
with the working capital requirements. However, there can be no assurances that
the current timetable for completion of the development and certification of the
aircraft and commencement of production will not be delayed beyond the current
fiscal year. If the Company's estimates prove to be incorrect, or additional
sources of financing prove to be unavailable, if needed, the Company will have
to curtail its development plans.
In November 1998 the Company moved into its manufacturing and headquarters
facility. The primary financing for this project was the Company's obligation
under a loan agreement related to proceeds received from $8,500,000 in the
issuance of Industrial Development Bonds (IDB) by the California Economic
Development Financing Authority (the "Authority"). The Company was required to
provide cash collateral to The Sumitomo Bank, Limited (the "Bank") in the amount
of $8,500,000 for a stand-by letter of credit in favor of the holders of the
IDBs which was to expire on August 5, 2002, if not terminated earlier by the
Company or the Bank. The IDBs were retired in 1999 and the stand-by letter of
credit in favor of the holders of the IDBs was terminated by the Company.
In June, 1999, the Company sold its 200,000 square-foot building to The
Abbey Company and leases it back. The purchase price of the building was
$9,800,000 and the term of the lease is eighteen years plus an option to extend
the lease for an additional ten years. Monthly payments under the terms of the
leaseback are approximately $106,000 and will be adjusted annually, after the
first year, for changes in the Consumer Price Index, not to exceed 3% per annum.
The rent for periods after the eighteenth year would be at fair market rental
value.
The Company leases approximately 10 acres of land located on the Long Beach
Airport in Long Beach, California. The lease commenced on January 14, 1999 and
has a term of 30 years with an option to renew for an additional 10 years. The
lease also contains options to lease other airport properties. An escalation
clause in the lease increases the monthly rent to $7,400 beginning July 1999.
The lease contains incremental increases that escalate the monthly rent to
approximately $15,600 after 5 years.
16
<PAGE>
The Company had no material capital commitments at December 31, 1999, other
than discussed elsewhere in this report. The Company intends to hire a number of
additional employees, which will require substantial capital resources. The
Company anticipates that it will hire up to 200 employees over the next twelve
months, including engineers and manufacturing technicians necessary to produce
its aircraft.
SEASONALITY
The Company believes its business is not seasonal.
IMPACT OF YEAR 2000
In prior years, the Company discussed the nature and progress of its plans to
become Year 2000 ready. In late 1999, the Company completed it remediation and
testing of systems. As a result of those planning and implementation efforts,
the Company experienced no significant disruptions in mission critical
information technology and non-information technology systems and believes those
systems successfully responded to the Year 2000 date change. Amounts expensed by
the Company during 1999 in connection with remediating its systems were
immaterial. The Company is not aware of any material problems resulting from
Year 2000 issues, either with its products, its internal systems, or the
products and services of third parties. The Company will continue to monitor its
mission critical computer applications and those of its suppliers and vendors
throughout the year 2000 to ensure that any latent Year 2000 matters that may
arise are addressed promptly.
CONVERSION OF PERFORMANCE SHARES
In the event the Company attains certain earnings thresholds or the
Company's Class A Common Stock meets certain minimum bid price levels, the Class
E Common Stock will be converted into Class B Common Stock. In the event any
such converted Class E Common Stock is held by officers, directors, employees or
consultants, the maximum compensation expense recorded for financial reporting
purposes will be an amount equal to the fair value of the shares converted at
the time of such conversion which value cannot be predicted at this time.
Therefore, in the event the Company attains such earnings thresholds or stock
price levels, the Company will recognize a substantial charge to earnings during
the period in which such conversion occurs, which would have the effect of
increasing the Company's loss or reducing or eliminating its earnings, if any,
at that time. In the event the Company does not attain these earnings thresholds
or minimum bid price levels, and no conversion occurs, no compensation expense
will be recorded for financial reporting purposes.
17
<PAGE>
ITEM 7. FINANCIAL STATEMENTS.
ADVANCED AERODYNAMICS & STRUCTURES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
INDEX TO FINANCIAL STATEMENTS
Page
Number
------
Report of Independent Auditors 18
Balance Sheet 19
Statement of Operations 20
Statement of Stockholders' Equity 21
Statement of Cash Flows 23
Notes to Financial Statements 25
18
<PAGE>
To the Board of Directors
Advanced Aerodynamics & Structures, Inc.
We have audited the accompanying balance sheet of Advanced Aerodynamics &
Structures, Inc. (a development stage enterprise) as of December 31, 1999, and
the related statements of operations, stockholders' equity, and cash flows for
the two years then ended, and for the period from January 26, 1990 (inception)
through December 31, 1999. 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 auditing standards generally
accepted in the United States. 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 Advanced Aerodynamics &
Structures, Inc., at December 31, 1999, and the results of its operations and
its cash flows for each of the two years then ended and the period from January
26, 1990 (inception) through December 31, 1999, in conformity with accounting
principles generally accepted in the United States.
The accompanying financial statements have been prepared assuming Advanced
Aerodynamics & Structures, Inc. will continue as a going concern. As more fully
described in Note 2, the Company has incurred recurring losses and its working
capital at December 31, 1999 has been substantially depleted. These conditions
raise substantial doubt about the Company's ability to continue as a going
concern. Management's plans in regard to these matters are also described in
Note 2. The financial statements do not include any adjustments to reflect the
possible future effects on the recoverability and classification of assets or
the amounts and classification of liabilities that may result from the outcome
of this uncertainty.
Ernst & Young LLP
Long Beach, California
March 6, 2000
19
<PAGE>
ADVANCED AERODYNAMICS & STRUCTURES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEET
<TABLE>
<CAPTION>
December 31,1999
----------------
ASSETS
<S> <C>
Current Assets:
Cash and cash equivalents $ 498,000
Short term investments 2,328,000
Prepaid expenses and other current assets 76,000
------------
Total current assets 2,902,000
Property, Plant and equipment, net 11,035,000
Other assets 194,000
------------
Total assets $ 14,131,000
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 391,000
Capital lease obligation, current portion 241,000
Other accrued liabilities 539,000
------------
Total current liabilities 1,171,000
Capital lease obligation, long term 9,629,000
Deferred revenue 1,727,000
Stockholders' equity
Preferred Stock, par value $.0001 per share; 5,000,000 shares authorized; no --
shares issued and outstanding
Class A common, par value $.0001 per share; 60,000,000 shares authorized; 1,000
6,999,676 shares issued and outstanding
Class B Common Stock, par value $.0001 per share; 10,000,000 shares authorized; --
1,900,324 shares issued and outstanding
Class E-1 Common Stock; par value $.0001 per share; 4,000,000 shares --
authorized; 4,000,000 shares issued and outstanding
Class E-2 Common Stock; par value $.0001 per share; 4,000,000 shares --
authorized; 4,000,000 shares issued and outstanding
Warrants to purchase common stock --
Public Warrants 473,000
Class A Warrants 11,290,000
Class B Warrants 4,632,000
Additional paid-in capital 35,652,000
Accumulated other comprehensive loss (32,000)
------------
Deficit accumulated during the development stage (50,412,000)
------------
Total stockholders' equity 1,604,000
------------
Total liabilities and stockholders' equity $ 14,131,000
============
</TABLE>
See accompanying notes to financial statements
20
<PAGE>
ADVANCED AERODYNAMICS & STRUCTURES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Period from
January 26,
1990
Year Ended (inception) to
December 31, December 31,
---------------------------
1998 1999 1999
--------------------------- ------------
<S> <C> <C> <C>
Interest income $ 927,000 $ 373,000 $ 2,743,000
Other income 447,000 60,000 1,322,000
------------
1,374,000 433,000 4,065,000
Cost and expenses:
Research and development costs 6,469,000 5,566,000 30,766,000
General and administrative expenses 4,658,000 3,186,000 17,878,000
Loss on disposal of assets 13,000 - 755,000
Realized loss on sale of investments - 30,000 30,000
Interest expense 352,000 992,000 3,345,000
In-process research and development acquired -- -- 761,000
--------------------------- ------------
11,492,000 9,774,000 53,535,000
--------------------------- ------------
Loss before extraordinary item (10,118,000) (9,341,000) (49,470,000)
Extraordinary loss on retirement of Bridge Notes -- -- (942,000)
------------
Net loss $(10,118,000) $(9,341,000) $(50,412,000)
=========================== ============
Net loss per share $ (1.14) $ (1.05)
===========================
Weighted average number of shares outstanding 8,900,000 8,900,000
===========================
</TABLE>
See accompanying notes to financial statements.
21
<PAGE>
ADVANCED AERODYNAMICS & STRUCTURES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
Statement of Stockholders' Equity
<TABLE>
<CAPTION>
Preferred Stock Class A Class B Class E-1
Shares Amount Shares Amount Shares Amount Shares Amount
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Common stock issued $ -- $ -- 418,094 $ -- 836,189 $ --
Common stock issued in exchange
for in-process research and
development 201,494 -- 402,988 --
Imputed interest on advances
from stockholder
Conversion of stockholder
advances 598,011 -- 1,196,021 --
Conversion of officer loans 187,118 -- 374,236 --
Stock issued in consideration
for services in 1994, 1995,
and 1996 595,283 -- 1,190,566 --
Imputed interest on advances
from stockholder
Net proceeds from initial
public offering of Units 6,000,000 1,000
Net proceeds from exercise of
over- allotment option 900,000 --
Warrants issued in connection
with issuance of Bridge Notes
Net loss from inception to
December 31, 1996
- ------------------------------- ------ ------ --------- ------- --------- ------ --------- ------
Balance at December 31, 1996 -- -- 6,900,000 1,000 2,000,000 -- 4,000,000 --
Adjustment to proceeds from
initial public offering and
exercise of overallotment
option
Net Loss
- ------------------------------- ------ ------ --------- ------- --------- ------ --------- ------
Balance at December 31, 1997 -- 6,900,000 1,000 2,000,000 -- 4,000,000 --
Conversion of Class B to A
Common Stock 99,676 (99,676)
Net Loss
- ------------------------------- ------ ------ --------- ------- --------- ------ --------- ------
Balance at December 31, 1998 -- $ -- 6,999,676 $ 1,000 1,900,324 -- 4,000,000 --
Net Loss
Unrealized loss on investments
Comprehensive Loss
- ------------------------------- ------ ------ --------- ------- --------- ------ --------- ------
Balance at December 31, 1999 -- $ -- 6,999,676 $ 1,000 1,900,324 -- 4,000,000 --
=============================== ====== ====== ========= ======= ========= ====== ========= ======
<CAPTION>
Accumulated
Common Stock Additional Other
Class E-2 Public Class A Class B Paid-In Comprehensive
Shares Amount Warrants Warrants Warrants Capital Losses
<S> <C> <C> <C> <C> <C> <C> <C>
Common stock issued 836,189 $ -- $ -- $ -- $ -- $ 7,500,000 $ --
Common stock issued in exchange
for in-process research and
development 402,988 -- 361,000
Imputed interest on advances
from stockholder 799,000
Conversion of stockholder
advances 1,196,021 -- 10,728,000
Conversion of officer loans 374,236 -- 336,000
Stock issued in consideration
for services in 1994, 1995,
and 1996 1,190,566 -- 1,507,000
Imputed interest on advances
from stockholder 11,000
Net proceeds from initial
public offering of Units 9,583,000 4,166,000 12,566,000
Net proceeds from exercise of
over- allotment option 1,707,000 466,000 1,922,000
Warrants issued in connection
with issuance of Bridge Notes 473,000
Net loss from inception to
December 31, 1996
- ------------------------------- --------- ------ -------- ----------- ---------- ----------- --------
Balance at December 31, 1996 4,000,000 -- 473,000 11,290,000 4,632,000 35,730,000 --
Adjustment to proceeds from
initial public offering and
exercise of overallotment
option (78,000)
Net Loss
- ------------------------------- --------- ------ -------- ----------- ---------- ----------- --------
Balance at December 31, 1997 4,000,000 -- 473,000 11,290,000 4,632,000 35,652,000 --
Conversion of Class B to A
Common Stock
Net Loss
- ------------------------------- --------- ------ -------- ----------- ---------- ----------- --------
Balance at December 31, 1998 4,000,000 -- 473,000 11,290,000 4,632,000 35,652,000 --
Net Loss
Unrealized loss on investments (32,000)
Comprehensive Loss
- ------------------------------- --------- ------ -------- ----------- ---------- ----------- --------
Balance at December 31, 1999 4,000,000 -- $473,000 $11,290,000 $4,632,000 $35,652,000 $(32,000)
=============================== ========= ====== ======== =========== ========== =========== ========
<CAPTION>
Deficit Accumulated
During the
Development Stage Total
<S> <C> <C>
Common stock issued $ -- $ 7,500,000
Common stock issued in exchange
for in-process research and
development 361,000
Imputed interest on advances
from stockholder 799,000
Conversion of stockholder
advances 10,728,000
Conversion of officer loans 336,000
Stock issued in consideration
for services in 1994, 1995,
and 1996 1,507,000
Imputed interest on advances
from stockholder 11,000
Net proceeds from initial
public offering of Units 26,316,000
Net proceeds from exercise of
over- allotment option 4,095,000
Warrants issued in connection
with issuance of Bridge Notes 473,000
Net loss from inception to
December 31, 1996 24,328,000 24,328,000
- ------------------------------- ------------ ------------
Balance at December 31, 1996 (24,328,000) 27,798,000
Adjustment to proceeds from
initial public offering and
exercise of overallotment
option (78,000)
Net Loss (6,625,000) (6,625,000)
- ------------------------------- ------------ ------------
Balance at December 31, 1997 (30,953,000) 21,095,000
Conversion of Class B to A
Common Stock
Net Loss (10,118,000) (10,118,000)
- ------------------------------- ------------ ------------
Balance at December 31, 1998 (41,072,000) 10,977,000
Net Loss (9,341,000) (9,341,000)
Unrealized loss on investments (32,000)
------------
Comprehensive Loss (9,373,000)
- ------------------------------- ------------ ------------
Balance at December 31, 1999 $(50,412,000) $ 1,604,000
============================================================================
</TABLE>
22
<PAGE>
ADVANCED AERODYNAMICS & STRUCTURES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 26
1990
(INCEPTION)
TO DECEMBER 31,
YEAR ENDED DECEMBER 31,
------------------------------------------------
1998 1999 1999
------------------------------------------------
OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net loss $(10,118,000) $ (9,341,000) $(50,412,000)
Adjustments to reconcile net loss to net cash used in operating activities:
Noncash stock compensation expense - - 1,207,000
Noncash interest expense - - 336,000
Cost of in-process research and development acquired - - 761,000
Imputed interest on advances from stockholder 810,000
Interest income from restricted cash invested (328,000) (10,000) (474,000)
Extraordinary loss on retirement of Bridge Notes - - 942,000
Depreciation and amortization 440,000 985,000 3,625,000
Loss on disposal of assets 13,000 755,000
Realized Loss on sale of investments 30,000 30,000
Changes in operating assets and liabilities:
Increase in prepaid expenses and other current assets 344,000 12,000 97,000
Increase (decrease) in other assets 230,000 (7,000) (194,000)
Decrease in accounts payable (272,000) (1,260,000) (997,000)
Increase (decrease) in accrued liabilities 1,996,000 (515,000) 1,646,000
Increase in deferred revenue 910,000 150,000 1,490,000
-----------------------------------------------
Net cash used in operating activities (6,785,000) (9,956,000) (40,378,000)
INVESTING ACTIVITIES:
Increase in construction in progress - - (446,000)
Proceeds from insurance claims upon loss of aircraft - - 30,000
Proceeds from sales of assets - 9,800,000 9,803,000
Capital expenditures (1,081,000) (111,000) (5,843,000)
Purchase of certificate of deposit (1,049,000) - (1,061,000)
Proceeds from redemption of certificate of deposit 1,061,000 - 1,061,000
Purchase of investments (3,021,000) (22,062,000) (33,720,000)
Proceeds from maturities of investments in bonds - 828,000 828,000
Proceeds from sale of investments 6,706,000 19,672,000 30,502,000
Restricted cash from long term debt - - (8,500,000)
Decrease in restricted cash - 405,000 405,000
-----------------------------------------------
Net cash provided by (used in) investing activities 3,665,000 8,532,000 (6,941,000)
FINANCING ACTIVITIES:
Adjustment to net proceeds from initial public offering and exercise of
over allotment option (78,000)
Proceeds from long term debt - (8,500,000) -
Restricted cash collateral for long term debt - 8,500,000 -
Advances from stockholder - - 10,728,000
Proceeds from issuance of common stock prior to initial public offering - - 7,500,000
Net proceeds from initial public offering and exercise of over-allotment option - - 30,411,000
Net proceeds from bridge financing - - 6,195,000
Net proceeds from loans from officers - - 336,000
Payments on capital lease obligations (4,000) (231,000) (275,000)
Repayment of bridge financing - - (7,000,000)
----------------------------------------------
Net cash (used in) provided by financing activities (4,000) (231,000) 47,817,000
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (3,124,000) (1,655,000) 2,153,000
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 5,277,000 2,153,000 -
-----------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,153,000 $ 498,000 $ 498,000
===============================================
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest $ 316,000 $ 805,000 $ 1,976,000
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Stockholder advances converted to common stock $ 10,728,000
</TABLE>
23
<PAGE>
<TABLE>
<S> <C> <C> <C>
Loans from officer converted to common stock $ 36,000
Common stock issued for noncash consideration and compensation $ 1,507,000
Liabilities assumed from ASI $ 400,000
Common stock issued for in-process research and development acquired $ 361,000
Equipment acquired under capital leases $ 9,854,000 $ 9,894,000
Deposit surrendered as payment for rents due $ 80,000
Construction in progress acquired with restricted cash $ 7,845,000 $ 287,000 $ 8,578,000
</TABLE>
24
<PAGE>
ADVANCED AERODYNAMICS & STRUCTURES, INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
1. THE COMPANY
Advanced Aerodynamics & Structures, Inc. (the "Company" or "AASI") was
incorporated in California on January 26, 1990. In July 1996, the Company
reincorporated by merging into a newly formed corporation in Delaware. The
Company is in the development stage of designing a multi-purpose light
aircraft. The present design of the aircraft is based on Pratt & Whitney-
designed engines. Since its inception, the Company has been engaged primarily
in research and development of its proposed aircraft the JETCRUZER 500, for
commercial sale. The Company is in the process of obtaining its Federal
Aviation Administration ("FAA") Type Certificate for technical revisions to
its aircraft for commercial sale.
During 1996 the Company successfully completed its initial public offering
of 6,900,000 units, including the exercise of the overallotment option. Each
unit sold is composed on one share of Class A common stock one class A
warrant and one class B warrant. The net proceeds of the offering of
$30,411,000 were used to finance the continued development, manufacture and
marketing of its product to achieve commercial viability.
2. FINANCIAL RESULTS AND LIQUIDITY
The Company is currently in the process of developing their product and
obtaining appropriate certification from the Federal Aviation
Administration. To date, the Company has generated no sales revenue and none
is projected until the Company can begin commercial production of their
product and. the certification process is complete Prior to commencing
commercial sales, the Company will need to, among other things, complete the
development of the JETCRUZER 500 and obtain the requisite regulatory
approvals. The Company incurred program development costs to date of
approximately $30,000,000 and has recorded a cumulative net loss of
$50,412,000. Based upon the Company's current development spending levels,
current working capital is insufficient to meet the Company's needs over the
current year.
The Company's management team has been developing a financial plan to address
its working capital requirements. As discussed in Note 4, the Company entered
into a subscription agreement for the sale of up to $10,000,000 of 5%
Cumulative Convertible Series A Preferred Stock, of which the Company
received net proceeds of $4,550,000. Additionally, The Company signed a
letter of intent to sell and leaseback manufacturing equipment. This
transaction will generate an additional $1,000,000.
Going forward, however, significant amounts of additional cash will be needed
to continue the Company's development activities and ultimately production.
The remaining $5,000,000 in Preferred Stock funding will not occur until
certain criteria have been met, including passing the pressurization test for
the fuselage structure and completion of the registration of 200% of the
Common Stock underlying the Convertible Preferred Stock. It is anticipated
that the remaining proceeds will be received in two installments; $2 million
in the second quarter and the final $3 million in the third quarter.
Additionally, the commencement of production and the collection of progress
payments starting in the third quarter is imperative to the success of
managements' financial plan to meet its working capital requirements.
There can be no assurances that the current timetable for completion of the
development and certification of the aircraft will not be delayed beyond the
current fiscal year.
While there is no assurance that additional financing will be available, the
Company's management believes that it has developed a financial plan that, if
executed successfully, will substantially improve the Company's ability to
meet its working capital requirements and ultimate production.
The Company's Independent Auditors have included a "going concern" emphasis
paragraph in their audit report accompanying the 1999 financial statements.
The paragraph states that the recurring losses and working capital depletion
of Advanced Aerodynamics & Structures, Inc. raises substantial doubt about
the Company's ability to continue as a going concern and cautions that the
financial statements do not include any adjustments that might result from
the outcome of this uncertainty.
25
<PAGE>
ADVANCED AERODYNAMICS & STRUCTURES, INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS (Continued)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
RESEARCH AND DEVELOPMENT COSTS
All costs incurred in the design, testing, and certification of aircraft
being developed by the Company (including cost of in-process research and
development acquired) are expensed as incurred.
PREOPERATING COSTS
Preoperating costs are expensed as incurred.
ADVERTISING EXPENSE
Advertising costs are expensed as incurred. Advertising expense was $97,000
and $75,000 for the years ended December 31, 1999 and 1998, respectively.
CASH EQUIVALENTS
Cash equivalents represent short-term, highly liquid instruments that have
original maturities of three months or less and are readily convertible to
cash. Such investments consist primarily of a money market account, short
term government funds, and short term commercial paper. The cost of such
investments approximates fair value at December 31, 1999.
CONCENTRATION OF CREDIT RISK
Financial instruments, which potentially subject the Company to
concentrations of credit risk, consist principally of cash, cash equivalents
and short term investments. The Company maintains its financial instruments
with major financial institutions. At times, cash balances held by financial
institutions were in excess of federal limits. The Company by policy, limits
the amount of credit exposure to anyone financial institution, and does not
consider itself to have any significant concentrations of credit risk.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of substantially all financial instruments of the Company
approximates their carrying value in the aggregate due to their short-term
maturity and/or prevailing market interest rates.
SHORT TERM INVESTMENTS
The Company's investment strategies consider safety of principal,
availability of funds and maximum return on investment.
Management determines the appropriate classification of debt securities at
the time of purchase and reevaluates such designation as of each balance
sheet date. Debt securities are classified as held-to-maturity when the
Company has the positive intent and ability to hold the securities to
maturity. Held-to-maturity securities are stated at amortized cost, adjusted
for amortization of premiums and accretion of discounts to maturity. Such
amortization is included in investment income. Interest on securities
classified as held-to-maturity is included in investment income.
Debt securities for which the Company does not have the intent or ability to
hold to maturity are classified as "available for sale" and are reported at
their fair market value as determined by the quoted market price. During the
year ended December 31, 1999, the Company incurred $32,000 in gross
unrealized losses on debt securities classified as "available for sale",
which has been reported as comprehensive loss in the statement of
shareholders' equity. The tax effect of these losses is immaterial to the
financial statements.
26
<PAGE>
ADVANCED AERODYNAMICS & STRUCTURES, INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS (Continued)
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost and are depreciated using
the straight-line method over their estimated useful lives of 5-10 years for
machinery and equipment, 3-5 years for office furniture and equipment and 18
years for the building acquired under a capital lease. Leasehold improvements
are amortized over the shorter of their estimated useful lives or the term of
the lease. Included in depreciation expense is the amortization of assets
acquired under capital leases.
INCOME TAXES
Income taxes are accounted for under an asset and liability approach that
requires the recognition of deferred tax assets and liabilities for the
expected future tax consequences of events that have been recognized in the
Company's financial statements or tax returns. A valuation allowance is
established to reduce deferred tax assets if it is more likely than not that
all or some portion of such deferred tax assets will not be realized.
STOCK BASED COMPENSATION
The Company grants stock options with an exercise price equal to at least the
fair value of the stock at the date of grant as determined by the Board of
Directors.
The Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB 25) and related
Interpretations in accounting for its employee stock based compensation plans
which is an inhinsic value based method. Under APB 25, because the exercise
price of the Company's employee stock options equals or exceeds the market
price of the underlying stock on the date of grant, no compensation expense
is recognized.
ACCOUNTING ESTIMATES
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.
ACCOUNTING PRONOUNCEMENTS
In the current year, the Company adopted the provisions of Statement of
Position (SOP) 98-1, Accounting For the Costs of Computer Software Developed
For or Obtained For Internal Use. SOP 98-1 requires the capitalization and
amortization of qualified computer software for internal use. There has been
no impact to the Company's earnings or financial position due to adoption of
SOP 98-1.
In April 1999, the AICPA issued SOP 98-5, "Reporting on the Costs of Start-
up Activities," which is effective for fiscal years beginning after December
15, 1999. SOP 98-5 provides guidance on the financial reporting of start-up
cost and organization costs and require such costs to be expensed as
incurred. Management believes that the adoption of SOP 98-5 will not have a
material effect on the Company's financial statements.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities ."As amended, SFAS No. 133 establishes
accounting and reporting standards for derivative instruments. The effective
date of the pronouncement was delayed to fiscal years beginning after June
18, 2000 and is effective for interim periods in the year of adoption. The
statement requires that every derivative instrument be recorded in the
balance sheet as either an asset or liability measured at its fair value, and
that changes in the derivative's fair value be recognized currently in
earnings unless specific hedge accounting criteria are met. Management
believes that the adoption of SFAS No. 133 will not have
27
<PAGE>
ADVANCED AERODYNAMICS & STRUCTURES, INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS (Continued)
a material effect on the Company's financial statements, because the Company
does not have any derivative instruments as of December 31, 1999.
4. PREFERRED STOCK SUBSCRIPTION
On March 6, 2000, the Company received $4,550,000 in net proceeds related to
an agreement to issue up to 100,000 shares of 5% Cumulative Convertible
Series A Preferred Stock with a par value of $.0001 for the aggregated
purchase price of $10 million and Common Stock Purchase Warrants to purchase
Class A Common Stock at an above market price. For consideration received in
the initial funding, the Company issued 50,000 shares of Preferred stock and
650,000 Warrants and paid $450,000 in commissions and legal fees.
Additionally, as consideration for the transaction a Special Warrant to
purchase up to 25,000 shares Class A Common Stock was issued. The remaining
$5,000,000 in funding will not occur until certain criteria have been met,
including passing the pressurization test for the fuselage structure and
completion of the registration of 200% of the Common Stock underlying the
Convertible Preferred Stock. Terms for the Special Warrant are similar to the
terms of the Warrants issued with the Preferred Stock.
Holders of the Preferred Stock are entitled to receive cash dividends,
payable quarterly and have preferential liquidation rights above all other
issuances of common stock for an amount equal to the stated value. The
Preferred stock and unpaid dividends are convertible into shares of Common
stock equal to an amount determined by the market value at the date of close
of the common stock, adjusted for changes in the market price prior to the
conversion. The Preferred stockholders do not have voting rights. The
Warrants are callable in installments after the registration is effective.
The Company has reserved 4,000,000 of its Class A Common Stock for the
conversion of the Preferred Stock.
5. PROPERTY, PLANT AND EQUIPMENT
Property and equipment consist of the following:
Building $ 9,800,000
Office furniture and equipment 1,158,000
Machinery and equipment 2,756,000
-----------
Gross property and equipment 13,714,000
Accumulated depreciation and amortization (2,679,000)
-----------
Property, Plant, and equipment $11,035,000
===========
As described in note 13, the building is held under a capital lease. In
addition, included in office furniture and equipment and machinery and
equipment are assets acquired under capital leases in the amount of $272,000
and $33,000 respectively.
6 INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial
statements purposes and the amounts used for income tax purposes. Significant
components of the Company's deferred tax liabilities and assets as of
December 31, 1999 are as follows:
28
<PAGE>
ADVANCED AERODYNAMICS & STRUCTURES, INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS (Continued)
Deferred tax assets:
Federal net operating loss $ 15,901,000
State net operating loss 1,411,000
Research & development credits 1,898,000
Other 90,000
------------
Total deferred tax assets 19,300,000
Deferred tax liabilities:
Tax over book depreciation (105,000)
------------
Total net deferred tax assets 19,195,000
Valuation allowance (19,195 000)
------------
$ -0-
============
At December 31, 1999, the Company had U.S. Federal and California state net
operating loss ("NOL") carryforwards of approximately $47,900,000 and
$15,200,000, respectively, Federal NOLs could, if unused, expire in varying
amounts in the years 2006 through 2018. California NOLs, if unused, could
expire in varying amounts from 2000 through 2004.
At December 31, 1999, the Company had Federal and California research and
development ("R&D") credit carryforwards of approximately $1,356,000 and
$542,000, respectively. The Federal R&D credit carryforwards will expire in
the years 2004 through 2009. The California R&D credit carryforwards can be
carried forward indefinitely.
The provision for income taxes is as follows:
December 31, December 31,
1998 1999
---- ----
Deferred:
Federal (3,380,000) $(3,505,000)
State (378,000) (444,000)
---------- -----------
Total deferred (3,758,000) (3,949,000)
Increase in valuation allowance 3,758,000 3,949,0000
---------- -----------
$ -- $ --
========== ===========
Utilization of the net operating loss and tax credit carryforwards may be
subject to an annual limitation if a change in the Company's ownership should
occur as defined by Section 382 and Section 383 of the Internal Revenue Code.
As a result of the Company's operating losses, no income tax provision has
been recorded in 1998 and 1999.
29
<PAGE>
ADVANCED AERODYNAMICS & STRUCTURES, INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS (Continued)
7 INVESTMENTS
At December 31, 1999 the following marketable securities were classified as
available for sale:
<TABLE>
<CAPTION>
Amortized Gross
Cost or Unrealized Fair
Cost Losses Value
----------------------------------------
<S> <C> <C> <C>
Money Market Funds 52,000 - 52,000
US Government 433,000 (2,000) 431,000
Corporate Bonds 707,000 (9,000) 698,000
Mortgage-backed securities 1,167,000 (21,000) 1,146,000
----------------------------------------
Total Marketable Securities 2,359,000 (32,000) 2,327,000
========================================
</TABLE>
The contractual maturities of debt securities at December 31, 1999 are as
follows:
Amortized Fair
Cost Value
--------------------------
Due in one year or less 205,000 205,000
Due after one through five years 1,455,000 1,437,000
Due five through 10 years 116,000 113,000
Due after 10 years 531,000 520,000
--------------------------
2,307,000 2,275,000
==========================
8. RELATED PARTY TRANSACTIONS
In 1995 and through August 1996, an officer of the Company made loans to
the Company in the aggregate principal amount of $562,000 bearing interest
at 12% per annum. In May 1996, $336,000 of such loans were converted into
187,118 shares of Class B Common Stock and 374,236 shares each of Class E-1
and Class E-2 Common Stock. The remaining $226,000 principal amount of
these loans, together with accrued interest of $36,000, was repaid with the
proceeds of bridge notes.
On December 23, 1993, the Company entered into an agreement with a
stockholder to convert advances from such stockholder aggregating
$10,478,000 at that date into 584,074 shares of Class B Common Stock, and
1,168,148 shares each of Class E-1 and Class E-2 Common Stock. The Company
issued these shares in June 1996. Interest expense was not recorded on
these advances subsequent to December 23, 1993 due to the intent to convert
the advances into stockholders' equity. In 1994, the stockholder provided
additional advances aggregating $250,000, which were converted into 13,937
shares of Class B Common Stock and 27,873 shares each of Class E-1 and
Class E-2 Common Stock in June 1996. Based on prevailing market rates,
imputed interest of $11,000 in 1996, and $810,000 for the period from
January 26, 1990 (inception) to December 31, 1996 on the advances was
charged to expense and credited to additional paid-in capital.
In May 1996, the Company entered into an employment agreement with the
Company's President, which extends to April 30, 2004 and provides for an
annual salary of $200,000. If the employment agreement is terminated by the
Company without cause, the President may be entitled to receive up to
eighteen months' salary as severance payment. In consideration of the
termination of a previous employment agreement the Company issued 577,823,
1,155,647 and 1,155,647 shares of Class B, Class E-1 and Class E-2 common
stock, respectively, to the Company's President.
Also in May 1996, an officer of the Company was awarded 17,460 shares of
Class B Common Stock and 34,919 shares each of Class E-1 and Class E-2
Common Stock for services rendered. Compensation cost of $31,000 was
charged to expense in 1996 based on the fair value of the stock awarded by
reference to an independent appraisal.
30
<PAGE>
ADVANCED AERODYNAMICS & STRUCTURES, INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS (Continued)
9. COMMITMENTS AND CONTINGENCIES
In the ordinary course of business, the Company is generally subject to
claims, complaints, and legal actions. At December 31, 1999, the Company is
not a party to any action which would have a material impact on its,
financial condition, operations, or cash flows.
The Company leases approximately 10 acres of land located on the Long Beach
Airport in Long Beach, California. The lease commenced on January 14, 1998
and has a term of 30 years with an option to renew for an additional 10
year term. The lease also contains options to lease other airport
properties. The current monthly rent under the lease is $7,400. The lease
contains incremental increases which escalate the monthly rent to
approximately $15,600 after 5 years. The aggregate minimum payments under
the lease have been included in the table below.
In addition, as described in Note 13; in May 1999 the Company entered into
an agreement with a third party to sell its manufacturing and
administrative facility and lease it back under a capital lease. The lease
term is for 18 years plus an option to extend the lease for an additional
10 years. Monthly payments under this lease are approximately $106,000 and
will be adjusted annually, after the first year, for changes in the
Consumer Price Index, subject to a maximum of 3%.
Future minimum lease payments applicable to non-cancelable operating leases
and capital leases as of December 31, 1999, are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------------------------------
<S> <C> <C>
2000 1,359,000 94,000
2001 1,359,000 115,000
2002 1,353,000 189,000
2003 1,345,000 190,000
2004 1,277,000 190,000
Thereafter 15,796,000 4,321,000
----------- ----------
Net future minimum lease payments 22,489,000 $5,099,000
----------- ==========
12,619,000
Amount representing interest -----------
$ 9,870,000
Present value of minimum lease payments ===========
</TABLE>
The Company incurred rent expense of $175,000 and $383,000, and for the
years ended December 31, 1999 and 1998, respectively.
10. STOCKHOLDERS' EQUITY
Upon formation of AASI, an aircraft prototype and related proprietary
technology were contributed by Aerodynamics and Structures, Inc. ("ASI") in
exchange for 2,500,764 AASI common shares with a fair value of $250,000. In
connection with this exchange, the Company also assumed ASI's liabilities
of approximately $400,000. Three other individuals contributed technical
information in exchange for 1,113,740 AASI common shares with a fair value
of $111,000. Such technology and prototype acquired were immediately
expensed as in- process research and development. Finally, certain
investors contributed $7,500,000 in cash in exchange for 7,500,000 shares
of convertible preferred stock of AASI. ASI was subsequently liquidated and
its sole asset, investment in AASI common shares, was distributed to ASI's
stockholders. Upon reincorporation of the Company, the Company's
aforementioned common and preferred shares were converted into
approximately 619,588, 1,239,177 and 1,239,177 shares, respectively, of
Class B, Class E-1 and Class E-2 Common Stock.
The rights and privileges of holders of Class A, Class B, Class E-1 and
Class E-2 Common Stock are substantially the same on a share-for-share
basis, except that: (i) the holder of each outstanding share of Class A
Common Stock is entitled to one vote and the holder of each outstanding
share of Class B, Class E-1 and Class E-2 Common Stock is entitled to five
votes;
31
<PAGE>
ADVANCED AERODYNAMICS & STRUCTURES, INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS (Continued)
and (ii) Class B Common Stock cannot be transferred or sold for thirteen
months following the effective date of the initial public offering, after
which time the Class B Common Stock may be converted at any time at the
option of the holder into one share of Class A Common Stock.
In February of 1998 a shareholder of the Company converted 99,676 shares of
Class B common Stock to 99,676 shares of Class A Common Stock. The
conversion resulted in an increase in Class A Common Stock to 6,999,676 and
a decrease in the number of outstanding shares of Class B Common Stock to
1,900,324. This transaction had no impact on losses per common share as
both classes of shares are included in the calculation of weighted average
number of common stock outstanding.
All shares of Class E-1 and Class E-2 Common Stock ("Performance Shares")
are not transferable or assignable and may be converted into shares of
Class B Common Stock in the event income before provision for income taxes,
exclusive of any extraordinary earnings or losses, reaches certain targets
over the next seven years, or if the market price of the Class A Common
Stock reaches specified levels over the next three years. With respect to
targeted earnings, Class E-1 Common Stock shares may be converted if pretax
income $28.5 million in 2000, $36.0 million in 2001, $45.00 million in 2002
and $56.0 million in 2003. Class E-2 Common Stock shares may be converted
if pretax income exceeds, $35.6million in 2000, $45.0 million in 2001, $563
million in 2002 or $69.5 million in 2003. With respect to market price
levels, the Class E-1 Common Stock shares may be converted if, commencing
18 months after December 3, 1996 and ending 36 months thereafter, the bid
price of the Company's Class A Common Stock averages $18.50 per share for
30 consecutive business days. Class E-2 Common Stock shares may be
converted if commencing 18 months after December 3, 1996 and ending 36
months thereafter, the bid price of the Company's Class A Common Stock
averages in excess of $23.00 for 30 consecutive business days. All
Performance Shares that have not been converted by March 31, 2004 may be
redeemed by the Company for $.01 per share. For accounting purposes, the
Performance Shares are treated in a manner similar to a variable stock
option award. As a consequence, a compensation charge will be recorded in
an amount equal to the then fair value of any Performance Shares that are
ultimately converted into Class B Common Stock.
Upon the closing of the Initial Public Offering, the Company granted to the
Underwriter Unit Purchase Option to purchase up to 600,000 Units. The Units
issuable upon exercise of the Unit Purchase Option will, when so issued, be
identical to the Units. The Unit Purchase Option cannot be transferred,
sold, assigned or hypothecated for three years, except to any officer of
the Underwriter or member of the selling group or their officers. The Unit
Purchase Option is exercisable during the two-year period commencing three
years from December 6, 1996 at an exercise price of $6.50 per Unit (130% of
the initial public offering price) subject to adjustment under certain
circumstances. The holders of the Unit Purchase Option have certain demand
and piggyback registration rights.
The Company has reserved approximately 39,400,000 shares of Class A Common
Stock for future issuance for the following conversions: 1,900,000 shares
issuable upon the conversion of Class B common stock currently outstanding;
8,000,000 shares issuable upon the conversion of Class B common stock
should the 4,000,000 shares of Class E-1 and E-2 common stock, respectively
be converted into shares of Class B common stock; 27,700,000 shares
issuable upon the exercise of purchase warrants; and 1,800,000 shares
issuable upon the exercise of a 600,000 unit purchase option by the
Company's underwriter. In addition, the Company has reserved 8,000,000
shares of Class B common stock for future issuance upon the conversion of
4,000,000 shares of Class E-1 and E-2 common stock respectively.
32
<PAGE>
ADVANCED AERODYNAMICS & STRUCTURES, INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS (Continued)
11. WARRANTS
The Class A Warrants entitle the holder to purchase one share of Class A
Common Stock and one Class B Warrant. Each Class B Warrant entitles the
holder to purchase one share of Class A Common Stock. Class A Warrants and
Class B Warrants may be exercised at an exercise price of $6.50 and $8.75,
respectively, at anytime until December 3, 2001. Currently Class A Warrants
are subject to redemption by the Company, upon 30 days written notice, at a
price of $.05 per Warrant, if the average closing bid price of the Class A
Common Stock for any 30 consecutive trading days ending within 15 days of
the date on which the notice of redemption is given shall have exceeded
$12.00 per share. Currently Class B Warrants are subject to redemption by
the Company upon 30 days written notice, at a price of $.05 per Warrant, if
the average closing bid price of the Class A Common Stock for any 30
consecutive trading days ending within 15 days of the date on which the
notice of redemption
Upon closing of the public offering previously issued bridge warrants were
converted into one Class A Warrant ("Public Warrant") which is identical in
all respects to the Class A Warrant. The fair value of the Bridge Warrants
($473,000), together with the cost of issuance (approximately $805,000),
has been treated as additional interest expense over the term of the Bridge
Notes.
12. STOCK OPTIONS
In July 1996, the Company's Board of Directors approved the Stock Option
Plan (the "Plan"). The Plan provides for the grant of incentive and non-
qualified stock options to certain employees, officers, directors,
consultants, and agents of the Company. In March 1998, the Board of
Directors amended the Plan by authorizing the Company the ability to grant
additional options for up to 500,000 shares of Class A Common Stock. Under
the Plan, the Company may grant options with respect to a total of
1,000,000 shares of the Class A Common Stock. The options are to be granted
at not less than fair market value, vest in equal annual installments over
five years and may be exercised for a period of one to ten years as
determined by the Board of Directors.
Had the Company accounted for stock options granted in 1998 and 1999 using
the fair value method at the date of grant as prescribed by Statement of
financial Accounting Standards No. 123, additional compensation expense
would have been recorded and the pro form effects would have been as
follows:
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------
1998 1999
---- ----
<S> <C> <C>
Pro forma net loss $ (10,356,000) $ (9,712,000)
Pro forma net loss per share: $ (1.16) $ (1.09)
</TABLE>
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: risk-free interest rates of 5.02% and 6.81% for 1998 and 1999,
respectively; dividend yields of 0% for 1998 and 1999; volatility factors
of the expected market price of the Company's common stock of .878 and .863
for 1998 and 1999, respectively; and a weighted average expected life of
the option of 10 years for both 1998 and 1999, respectively.
33
<PAGE>
ADVANCED AERODYNAMICS & STRUCTURES, INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS (Continued)
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option valuation
models require the input of highly subjective assumptions including the
expected stock price volatility. Because the Company's employee stock
options have characteristics significantly different from those of traded
options, and because changes in the subjective input assumptions can
materially affect the fair value estimate, in management's opinion, the
existing models do not necessarily provide a reliable single measure of the
fair value of employee stock options.
The weighted average fair value of options granted during 1998 and 1999 was
$.73 and $2.22, per option, respectively. The weighted average exercise
price for 1997 and 1999 was $5.00. The weighted average remaining
contractual life of options outstanding is 8.75 years and 8.06 years for
1998 and 1999, respectively.
At December 31, 1999, options to purchase 175,000 shares of Class A Common
Stock were available for future grants and 588,000 shares of Class A Common
Stock were reserved for the exercise of options. Transactions under the
Plan during the year ended December 31, 1998 and 1999 are summarized as
follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE EXERCISE
SHARES PRICE
------- -----
<S> <C> <C>
Outstanding at December 31, 1997 420,000 $5.00
Granted 268,000 $5.00
Exercised -- --
Canceled (95,000) $5.00
Outstanding at December 31, 1998 593,000 $5.00
Granted 132,000 $5.00
Exercised -- --
Canceled (137,000) $5.00
Outstanding at December 31, 1999 588,000 $5.00
</TABLE>
As of December 31, 1998 and 1999 87,000 and 185,800 options, respectively,
were exercisable at a weighted average exercise price of $5.00 per option.
13. INDUSTRIAL DEVELOPMENT BONDS
On August 5, 1997, the Company entered into a loan agreement in connection
with industrial development bonds (IDB) issued by the California Economic
Development financing Authority. The Company has established in the
trustee's favor a bank letter of credit for the principle amount of
$8,500,000 plus 45 days accrued interest on the bonds, which is secured by
$8,500,000 of Company restricted cash. The bonds mature August 1, 2027 at
which time all outstanding amounts become due and payable. The Company has
used the proceeds for the IDBs to finance the construction and installation
of the 200,000 square foot manufacturing facility and related manufacturing
equipment which the Company moved into on November 16, 1998. On June 1,
1999, the Company retired all the industrial development bonds using the
restricted cash previously held as security for the IDB.
34
<PAGE>
ADVANCED AERODYNAMICS & STRUCTURES, INC.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS (Continued)
14. SALE AND LEASEBACK TRANSACTION
Pursuant to an Agreement dated May 19, 1999, the Company sold to AP-Long
Beach Airport LLC its leasehold interest in real property located at 3205
Lakewood Boulevard, Long Beach, California, together with the manufacturing
hangar facility (approximately 205,000 square feet) and finished office
space (approximately 22,000 square feet) owned by the company
(collectively, the "Property". The cash sales price was $9,800,000.
As part of this transaction, the Company and AP-Long Beach Airport LLC
entered into an agreement to sublease the land to the Company subject to
the terms at the original land lease agreement which was assigned to AP
Long Beach Airport LLC, and lease the manufacturing hangar facility and
finished office space to the Company for term of 18 years. The $246,000
deferred gain on the sale of the facility is being amortized over the 18
year lease term.
15. BENEFIT PLAN
The Company has a 401(k) savings plan and a profit sharing plan, covering
substantially all full time employees. The Company may make discretionary
contributions, under the profit sharing plan, as authorized by the Board of
Directors. The Company has not made any profit sharing contributions to the
Plan.
16. PER SHARE INFORMATION
In February 1997, the FASB issued Statement 128, talks "Earnings per
Share", It replaces the presentation of primary Earnings per share with a
presentation of basic earnings per share which excludes any dilutive
effects of options, warrants and convertible securities, and is computed by
dividing income available to common stockholders by the weighted-average
number of common shares outstanding for the period. The statement is
effective for financial statements issued for periods ending after December
15, 1997. Previously reported net losses per share were reported based on
weighted average common stock outstanding and therefore the amounts are the
same as under FAS No. 128.
The following table sets forth the computation of basic loss per share:
<TABLE>
<CAPTION>
1998 1999
-------------------------------
<S> <C> <C>
Numerator
Loss before extraordinary item $(10,118,000) $(9,341,000)
-------------------------------
Denominator
Weighted average shares of Class B Shares 1,924,629 1,900,324
Weighted average shares of Class A Shares 6,975,371 6,999,676
-------------------------------
Denominator for basic loss per share-weighted
average shares 8,900,000 8,900,000
-------------------------------
Basic loss per share $ (1.14) $ (1.05)
===============================
</TABLE>
35
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
NONE
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Information regarding directors and executive officers of the Company will
appear in the Proxy Statement of the Annual Meeting of Stockholders and is
incorporated herein by this reference. The Proxy Statement will be filed
with the SEC within 120 days following December 31, 1999.
ITEM 10. EXECUTIVE COMPENSATION
Information regarding executive compensation will appear in the Proxy
Statement for the Annual Meeting of Stockholders and is incorporated herein
by this reference.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information regarding security ownership of certain beneficial owners and
management will appear in the Proxy Statement for the Annual Meeting of
Stockholders and is incorporated herein by this reference.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding certain relationships and related transactions will
appear in the Proxy Statement for the Annual Meeting of Stockholders and is
incorporated herein by this reference.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit No. Description
----------- -----------
* 3.1 Certificate of Incorporation
** 3.2 Bylaws
* 3.3 Amendment to Certificate of Incorporation
* 4.1 Specimen Certificate of Class A Common Stock
* 4.2 Warrant Agreement (including form of Class A and
Class B Warrant Certificates
* 4.3 Form of Underwriter's Unit Purchase Option
4.4 Form of Subscription Agreement between the
Registrant and the Series A 5% Cumulative
Convertible Preferred Stock Subscribers
4.5 Form of Common Stock Purchase Warrant to be issued
to the Series A 5% Cumulative Convertible Preferred
Stock Subscribers and Placement Agents
4.6 Form of Special Common Stock Purchase Warrant to be
issued to the Series A 5% Cumulative Convertible
Preferred Placement Agent
4.7 Form of Funds Escrow Agreement
* 10.1 Form of Indemnification Agreement
** 10.2 Amended 1996 Stock Option File
36
<PAGE>
* 10.3 Employment Agreement dated as of May 1, 1996 between
the Company and Dr. Carl L. Chen
* 10.4 Agreement of Merger dated July 16, 1996 between
Advanced Aerodynamics and Structures, Inc., California
corporation, and Advanced Aerodynamics & Structures,
Inc., a Delaware corporation
** 10.5 Lease dated December 19, 1996 between Olen Properties
Corp., a Florida corporation, and the Company
*** 10.6 Standard Sublease dated June 27, 1997 with Budget Rent-
a-Car of Southern California
*** 10.7 Standard Sublease dated July 16, 1997 with Budget Rent-
a-Car of Southern California
*** 10.8 Standard Industrial/Commercial Multi-Tenant Lease-Gross
dated March 12, 1997 with the Golgolab Family Trust
***** 10.9 Loan Agreement dated as of August 1, 1997 between the
Company and the California Economic Development
Authority
***** 10.10 Indenture of Trust dated as of August 1, 1997 between
the Company and the California Economic Development
Authority and First Trust of California, National
Association
**** 10.11 Official Statement dated August 5, 1997
***** 10.12 Letter of Credit issued by The Sumitomo Bank, Limited
***** 10.13 Reimbursement Agreement dated as of August 1, 1997
between the Company and the Sumitomo Bank, Limited
***** 10.14 Purchase Contract dated August 1, 1997 by and among
Rauscher Pierce Refnes, Inc., the California Economic
Development Authority and the Treasurer of the State of
California, and approved by the Company
***** 10.15 Remarketing Agreement dated as of August 1, 1997
between the Company and Rauscher Pierce Refnes, Inc.
***** 10.16 Blanket Letters of Representations of the California
Economic Development Authority and First Trust of
California, National Association
***** 10.17 Tax Regulatory Agreement dated as of August 1, 1997 by
and among the California Economic Development
Authority, the Company and First Trust of California,
National Association
***** 10.18 Custody, Pledge and Security Agreement dated as of
August 1, 1997 between the Company and The Sumitomo
Bank, Limited
***** 10.19 Investment Agreement dated August 5, 1997 by and
between the Company and the Sumitomo Bank, Limited
***** 10.20 Specimen Direct Obligation Note between the Company and
the Sumitomo Bank, Limited
**** 10.21 Lease Agreement dated October 17, 1997 between the
Company and the City of Long Beach
**** 10.22 Construction Agreement dated October 29, 1997 between
the Company and Commercial Developments
International/West
27. Financial Data Schedule
37
<PAGE>
* Incorporated by reference to the Company's Registration Statement on Form
SB-2 (333-12273) declared effective by the Securities and Exchange
Commission on December 3, 1996.
** Incorporated by reference to the Company's Report on Form 10-KSB filed
with the Securities and Exchange Commission on March 31, 1997.
*** Incorporated by reference by the Company's Post-Effective Amendment No. 1
to Form SB-2 Registration Statement filed with the Securities and Exchange
Commission on August 5, 1997.
**** Filed by paper pursuant to the Company's request for a temporary hardship
exemption relating to this report.
***** Incorporated by reference to the Company's Report on Form 10-QSB filed
with the Securities and Exchange Commission on November 14, 1997
Reports on Form 8-K:
During the quarter ended December 31, 1999, the Company did not file any
reports on Form 8-K.
38
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: March 29, 2000 ADVANCED AERODYNAMICS & STRUCTURES, INC.
By: /s/ Carl L. Chen
--------------------------
Carl L. Chen, President
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ CARL L. CHEN President, Chief Executive March 29, 2000
- ---------------------- Officer, and Chairman of the
Carl L. Chen Board
/s/ GENE COMFORT Executive Vice President, March 29, 2000
- ---------------------- Secretary and Director
Gene Comfort
/s/ DAVID M. TURNER Vice President - Finance and March 29, 2000
- ---------------------- Chief Financial Officer
Dave Turner
/s/ C.M. CHENG Director March 29, 2000
- ----------------------
C.M. Cheng
/s/ STEVE GORLIN Director March 29, 2000
- ----------------------
Steve Gorlin
/s/ JIM LOVELL Director March 29, 2000
- ----------------------
Jim Lovell
/s/ S.B. LAI Director March 29, 2000
- ----------------------
S.B. Lai
39
<PAGE>
EXHIBIT 4.4
SUBSCRIPTION AGREEMENT
----------------------
Dear Subscriber:
You (the "Subscriber") hereby agree to purchase, and Advanced Aerodynamics
& Structures, Inc., a Delaware corporation (the "Company") hereby agrees to
issue and to sell to the Subscriber, the number of shares of Series A 5%
Cumulative Convertible Preferred Stock, $.0001 par value (the "Preferred Stock")
convertible in accordance with the terms thereof into shares of the Company's
$.0001 par value Class A common stock (the "Company Shares") and Common Stock
Purchase Warrants ("Warrants") as set forth on the signature page hereof for the
aggregate consideration as set forth on the signature page hereof ("Purchase
Price"). The Certificate to Set Forth Designations, Voting Powers, Preferences,
Limitations, Restrictions, and Relative Rights of Series A 5% Cumulative
Convertible Preferred Stock, $.0001 Par Value Per Share is annexed hereto as
Exhibit A ("Certificate of Designation"). (The Company Shares are sometimes
referred to herein as the "Shares" or "Common Stock"). (The Preferred Stock,
the Company Shares, Warrants, and Common Stock Purchase Warrants issuable to the
Placement Agents ("Placement Warrants"), identified on Schedule B hereto, and
the Common Stock issuable upon exercise of the Warrants and Placement Warrants
are collectively referred to herein as, the "Securities"). Upon acceptance of
this Agreement by the Subscriber, the Company shall issue and deliver to the
Subscriber the Preferred Stock and Warrants against payment, by federal funds
(U.S.) wire transfer of the Purchase Price. This Subscription Agreement and
other similar Subscription Agreements and the Subscription Agreements relating
to Series A Preferred Stock to be issued in connection with the Put described in
Section 11 hereof relate to the offering of a maximum of 100,000shares of
Preferred Stock for the aggregate Purchase Price of $10,000,000.
The following terms and conditions shall apply to this subscription.
1. Subscriber's Representations and Warranties. The Subscriber
-------------------------------------------
hereby represents and warrants to and agrees with the Company that:
(a) Information on Company. The Subscriber has been furnished
----------------------
with and has read the Company's Form 10KSB for the year ended December 31, 1998
and subsequently filed Forms 10-QSB, each as filed with the U.S. Securities and
Exchange Commission (the "Commission") (collectively, with exhibits thereto,
hereinafter referred to as the "Reports"). In addition, the Subscriber has
received from the Company such other information concerning its operations,
financial condition and other matters as the Subscriber has requested, and
considered all factors the Subscriber deems material in deciding on the
advisability of investing in the Securities (such information in writing is
collectively, the "Other Written Information").
(b) Information on Subscriber. The Subscriber is an "accredited
-------------------------
investor", as such term is defined in Regulation D promulgated by the Commission
under the Securities Act of 1933, as amended, is experienced in investments and
business matters, has made investments of a speculative nature and has purchased
securities of United States publicly-owned companies in private placements in
the past and, with its representatives, has such knowledge and
<PAGE>
experience in financial, tax and other business matters as to enable the
Subscriber to utilize the information made available by the Company to evaluate
the merits and risks of and to make an informed investment decision with respect
to the proposed purchase, which represents a speculative investment. The
Subscriber has the authority and is duly and legally qualified to purchase and
own the Securities. The Subscriber is able to bear the risk of such investment
for an indefinite period and to afford a complete loss thereof.
(c) Purchase of Company Shares. On the Closing Date, the Subscriber
--------------------------
will purchase the Preferred Stock and Warrants for its own account and not with
a view to any distribution thereof.
(d) Compliance with Securities Act. The Subscriber understands and
------------------------------
agrees that the Securities have not been registered under the Securities Act of
1933, as amended (the "1933 Act") by reason of their issuance in a transaction
that does not require registration under the 1933 Act, and that such Securities
must be held unless a subsequent disposition is registered under the 1933 Act or
is exempt from such registration.
(e) Preferred Stock and Company Shares Legend. The Preferred Stock,
-----------------------------------------
Company Shares, and the shares of Common Stock issuable upon the exercise of the
Warrants and Placement Warrants shall bear the following legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THESE
SHARES MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED
IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT OR AN
OPINION OF COUNSEL REASONABLY SATISFACTORY TO ADVANCED
AERODYNAMICS & STRUCTURES, INC. THAT SUCH REGISTRATION IS NOT
REQUIRED."
(f) Warrants Legend. The Warrants and Placement Warrants shall
---------------
bear the following legend:
"THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF
THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THIS
WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS
WARRANT MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT AS TO THIS WARRANT UNDER SAID ACT AND APPLICABLE STATE
SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY
TO ADVANCED
2
<PAGE>
AERODYNAMICS & STRUCTURES, INC. THAT SUCH REGISTRATION IS NOT
REQUIRED."
(g) Communication of Offer. The offer to sell the Securities was
----------------------
directly communicated to the Subscriber. At no time was the Subscriber
presented with or solicited by any leaflet, newspaper or magazine article, radio
or television advertisement, or any other form of general advertising or
solicited or invited to attend a promotional meeting otherwise than in
connection and concurrently with such communicated offer.
(h) Correctness of Representations. The Subscriber represents that
------------------------------
the foregoing representations and warranties are true and correct as of the date
hereof and, unless the Subscriber otherwise notifies the Company prior to the
Closing Date (as hereinafter defined), shall be true and correct as of the
Closing Date. The foregoing representations and warranties shall survive the
Closing Date.
2. Company Representations and Warranties. Except as disclosed in
--------------------------------------
the Disclosure Schedule annexed hereto, the Company represents and warrants to
and agrees with the Subscriber that:
(a) Due Incorporation. Each of the Company and each of its
-----------------
subsidiaries is a corporation duly organized, and validly existing under the
laws of the state of its incorporation and has the requisite corporate power to
own its properties and to carry on its business as now being conducted. The
Company and each of its subsidiaries is duly qualified as a foreign corporation
to do business and is in good standing in each jurisdiction where the nature of
the business conducted or property owned by it makes such qualification
necessary, other than those jurisdictions in which the failure to so qualify
would not have a material adverse effect on the business, operations or
prospects or condition (financial or otherwise) of the Company.
(b) Outstanding Stock. All issued and outstanding shares of capital
-----------------
stock of the Company and each of its subsidiaries has been duly authorized and
validly issued and are fully paid and non-assessable.
(c) Authority; Enforceability. This Agreement has been duly
-------------------------
authorized, executed and delivered by the Company and is a valid and binding
agreement enforceable in accordance with its terms, subject to bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and similar laws of
general applicability relating to or affecting creditors' rights generally and
to general principles of equity; and the Company has full corporate power and
authority necessary to enter into this Agreement and to perform its obligations
hereunder and all other agreements entered into by the Company relating hereto.
(d) Additional Issuances. There are no outstanding agreements or
--------------------
preemptive or similar rights affecting the Company's common stock and no
outstanding rights, warrants or options to acquire, or instruments convertible
into or exchangeable for, or agreements or understandings with respect to the
sale or issuance of any shares of common stock or equity of
3
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the Company or other equity interest in any of the subsidiaries of the Company,
except as described in the Reports or Other Written Information.
(e) Consents. No consent, approval, authorization or order of any
--------
court, governmental agency or body or arbitrator having jurisdiction over the
Company, or any of its affiliates or NASDAQ or the Company's Shareholders is
required for execution of this Agreement, and all other agreements entered into
by the Company relating hereto, including, without limitation issuance and sale
of the Securities, and the performance of the Company's obligations hereunder.
(f) No Violation or Conflict. Assuming the representations and
------------------------
warranties of the Subscriber in Paragraph 1 are true and correct and the
Subscriber complies with its obligations under this Agreement, neither the
issuance and sale of the Securities nor the performance of its obligations under
this Agreement and all other agreements entered into by the Company relating
thereto by the Company will:
(i) violate, conflict with, result in a breach of, or constitute
a default (or an event which with the giving of notice or the lapse of time or
both would be reasonably likely to constitute a default) under (A) the articles
of incorporation, charter or bylaws of the Company, or any of its affiliates,
(B) to the Company's knowledge, any decree, judgment, order, law, treaty, rule,
regulation or determination applicable to the Company, or any of its affiliates
of any court, governmental agency or body, or arbitrator having jurisdiction
over the Company, or any of its affiliates or over the properties or assets of
the Company, or any of its affiliates, (C) the terms of any bond, debenture,
note or any other evidence of indebtedness, or any agreement, stock option or
other similar plan, indenture, lease, mortgage, deed of trust or other
instrument to which the Company, or any of its affiliates is a party, by which
the Company, or any of its affiliates is bound, or to which any of the
properties of the Company, or any of its affiliates is subject, or (D) the terms
of any "lock-up" or similar provision of any underwriting or similar agreement
to which the Company, or any of its affiliates is a party; or
(ii) result in the creation or imposition of any lien, charge or
encumbrance upon the Securities or any of the assets of the Company, or any of
its affiliates.
(g) The Securities. The Securities upon issuance:
--------------
(i) are, or will be, free and clear of any security interests,
liens, claims or other encumbrances, subject to restrictions upon transfer under
the 1933 Act and State laws;
(ii) have been, or will be, duly and validly authorized and on the
date of issuance and on the Closing Date, as hereinafter defined, and the date
the Preferred Stock is converted, and the Warrants and Placement Warrants are
exercised, the Securities will be duly and validly issued, fully paid and
nonassessable (and if registered pursuant to the 1933 Act, and resold pursuant
to an effective registration statement will be free trading and unrestricted
provided the Subscriber complies with the Prospectus delivery requirements);
4
<PAGE>
(iii) will not have been issued or sold in violation of any
preemptive or other similar rights of the holders of any securities of the
Company;
(iv) will not subject the holders thereof to personal
liability by reason of being such holders; and
(h) Litigation. There is no pending or, to the best knowledge of the
----------
Company, threatened action, suit, proceeding or investigation before any court,
governmental agency or body, or arbitrator having jurisdiction over the Company,
or any of its affiliates that would affect the execution by the Company or the
performance by the Company of its obligations under this Agreement, and all
other agreements entered into by the Company relating hereto.
(i) Reporting Company. The Company is a publicly-held company whose
-----------------
common stock is (and has been for the past 90 days) registered pursuant to
Section 12(g) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). The Company's Common Stock is listed for trading on the NASDAQ National
Market. Pursuant to the provisions of the Exchange Act, the Company has timely
filed all reports and other materials required to be filed thereunder with the
Securities and Exchange Commission during the preceding twelve months.
(j) No Market Manipulation. The Company has not taken, and will not
----------------------
take, directly or indirectly, any action designed to, or that might reasonably
be expected to, cause or result in stabilization or manipulation of the price of
the common stock of the Company to facilitate the sale or resale of the
Securities or affect the price at which the Securities may be issued.
(k) Information Concerning Company. The Reports and Other Written
------------------------------
Information contain all material information relating to the Company and its
operations and financial condition as of their respective dates which
information is required to be disclosed therein. Since the date of the most
recent financial statements included in the Reports, and except as modified in
the Other Written Information, there has been no material adverse change in the
Company's business, financial condition or affairs not disclosed in the Reports.
The Reports and Other Written Information do not contain any 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 not misleading.
(l) Dilution. The number of Shares issuable upon Conversion of the
--------
Preferred Stock (as defined in the Certificate of Designation) may increase
substantially in certain circumstances, including, but not necessarily limited
to, the circumstance wherein the trading price of the Common Stock declines
prior to conversion of the Preferred Stock. The Company's executive officers
and directors have studied and fully understand the nature of the Securities
being sold hereby and recognize that they have a potential dilutive effect. The
board of directors of the Company has concluded, in its good faith business
judgment, that such issuance is in the best interests of the Company. The
Company specifically acknowledges that its obligation to issue the Shares upon
conversion of the Preferred Stock and exercise of the Warrants and Placement
Warrants is binding upon the Company and enforceable, except as otherwise
described in this Subscription Agreement, regardless of the dilution such
issuance may have on the ownership interests of other shareholders of the
Company.
5
<PAGE>
(m) Stop Transfer. The Securities are restricted securities as of the
-------------
date of this Agreement. The Company will not issue any stop transfer order or
other order impeding the sale and delivery of the Securities at such time as the
Securities are registered for public sale or an exemption from registration is
available.
(n) Defaults. Neither the Company nor any of its subsidiaries is in
--------
violation of its Articles of Incorporation or Bylaws. Neither the Company nor
any of its subsidiaries is (i) in default under or in violation of any other
material agreement or instrument to which it is a party or by which it or any of
its properties are bound or affected, which default or violation would have a
material adverse effect on the Company, (ii) in default with respect to any
order of any court, arbitrator or governmental body or subject to or party to
any order of any court or governmental authority arising out of any action, suit
or proceeding under any statute or other law respecting antitrust, monopoly,
restraint of trade, unfair competition or similar matters, or (iii) to its
knowledge in violation of any statute, rule or regulation of any governmental
authority material to its business.
(o) No Integrated Offering. Neither the Company, nor any of its
----------------------
affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales of any security or solicited any offers to
buy any security under circumstances that would cause the offering of the
Securities pursuant to this Agreement to be integrated with prior offerings by
the Company for purposes of the 1933 Act or any applicable stockholder approval
provisions, including, without limitation, under the rules and regulations of
The NASDAQ National Market ("NASDAQ National Market"), as applicable, nor will
the Company or any of its affiliates or subsidiaries take any action or steps
that would cause the offering of the Securities to be integrated with other
offerings. The Company has not conducted and will not conduct any offering
other than the transactions contemplated hereby that will be integrated with the
issuance of the Securities for purposes of Rule 4460(i) of the NASDAQ Stock
Market, Inc.'s Marketplace Rules.
(p) No General Solicitation. Neither the Company, nor any of its
-----------------------
affiliates, nor to its knowledge, any person acting on its or their behalf, has
engaged in any form of general solicitation or general advertising (within the
meaning of Regulation D under the Act) in connection with the offer or sale of
the Securities.
(q) Listing. The Company's common stock is quoted on, and listed for
-------
trading on NASDAQ National Market. The Company has not received any oral or
written notice from NASDAQ that its Common Stock will be delisted from NASDAQ or
that the Common Stock does not meet all requirements for the continuation of
such listing.
(r) Correctness of Representations. The Company represents that the
------------------------------
foregoing representations and warranties are true and correct as of the date
hereof in all material respects and, unless the Company otherwise notifies the
Subscriber prior to the Closing Date, shall be true and correct in all material
respects as of the Closing Date. The foregoing representations and warranties
shall survive the Closing Date.
3. Regulation D Offering. This Offering is being made pursuant to the
---------------------
exemption from the registration provisions of the Securities Act of 1933, as
amended, afforded by
6
<PAGE>
Rule 506 of Regulation D promulgated thereunder. On the Closing Date, the
Company will provide an opinion acceptable to Subscriber from the Company's
legal counsel opining on the availability of the Regulation D exemption as it
relates to the offer and issuance of the Securities. A form of the legal opinion
is annexed hereto as Exhibit C. The Company will provide, at the Company's
expense, such other legal opinions in the future as are reasonably necessary for
the conversion of the Preferred Stock, Warrants and Placement Warrants.
4. Reissuance of Securities. The Company agrees to reissue
------------------------
certificates representing the Securities without the legends set forth in
Sections 1(e) and 1(f) above at such time as (a) the holder thereof is permitted
to dispose of such Securities pursuant to Rule 144(k) under the Act, or (b) upon
resale subject to an effective registration statement after the Securities are
registered under the Act. The Company agrees to cooperate with the Subscriber
in connection with all resales pursuant to Rule 144(d) and Rule 144(k) and
provide legal opinions necessary to allow such resales provided the Company and
its counsel receive reasonably requested representations from the Subscriber and
selling broker, if any.
5. Redemption. The Company may not redeem the Securities without
----------
the consent of the holder of the Securities, except as described in the
Certificate of Designation.
6. Commissions/Fees. The Company will pay a cash commission of
----------------
nine percent (9%) of the Purchase Price designated on the signature page hereto
to certain Placement Agents identified on Schedule B hereto. The cash
commissions will be payable out of funds held pursuant to a Funds Escrow
Agreement to be entered into by the Company, Subscriber and an Escrow Agent. The
Company will also issue and deliver to the Placement Agents as additional
compensation Placement Warrants designated on Schedule B hereto. The Commissions
and Placement Warrants will be issued to the Placement Agents only when, as, and
if the corresponding subscription amount is released from escrow to the Company.
All the representations, covenants, warranties and undertakings, including but
not limited to registration rights made or granted to or for the benefit of the
Subscriber and the terms described in Sections 9.2, 9.3, 9.4 and 9.5 hereof are
hereby also made and granted to the Placement Agents in respect of the Placement
Warrants and Company Shares issuable upon exercise of the Placement Warrants.
The Company will pay a fee to the Escrow Agent of $10,000 in connection with
aggregate $10,000,000 of subscriber funds to which this Subscription Agreement
relates.
7.1. Covenants of the Company. The Company covenants and agrees with
------------------------
the Subscriber as follows:
(a) The Company will advise the Subscriber, promptly after it
receives notice of issuance by the Securities and Exchange Commission, any state
securities commission or any other regulatory authority of any stop order or of
any order preventing or suspending any offering of any securities of the
Company, or of the suspension of the qualification of the common stock of the
Company for offering or sale in any jurisdiction, or the initiation of any
proceeding for any such purpose.
7
<PAGE>
(b) The Company shall promptly secure the listing of the Company
Shares, and Common Stock issuable upon the exercise of the Warrants and
Placement Warrants upon each national securities exchange, or automated
quotation system, if any, upon which shares of common stock are then listed
(subject to official notice of issuance) and shall maintain such listing so long
as any other shares of common stock of the Company shall be so listed. The
Company will use its best efforts to maintain the listing and trading of its
Common Stock on NASDAQ National Market, and will comply in all respects with the
Company's reporting, filing and other obligations under the bylaws or rules of
the National Association of Securities Dealers ("NASD") and such exchanges, as
applicable. The Company will provide the Subscriber copies of all notices it
receives notifying the Company of the actual delisting of the Common Stock on
any exchange or quotation system on which the Common Stock is listed.
(c) The Company shall notify the SEC, NASD and applicable state
authorities, in accordance with their requirements, of the transactions
contemplated by this Agreement, and shall take all other necessary action and
proceedings as may be required and permitted by applicable law, rule and
regulation, for the legal and valid issuance of the Securities to the Subscriber
and Placement Agents and promptly provide copies thereof to Subscriber.
(d) Until at least two (2) years after the effectiveness of the
Registration Statement on Form SB-2 or such other Registration Statement
described in Section 10.1(iv) hereof, the Company will (i) cause its Common
Stock to continue to be registered under Sections 12(b) or 12(g) of the Exchange
Act, (ii) comply in all respects with its reporting and filing obligations under
the Exchange Act, (iii) comply with all reporting requirements that is
applicable to an issuer with a class of Shares registered pursuant to Section
12(g) of the Exchange Act, and (iv) comply with all requirements related to any
registration statement filed pursuant to this Agreement. The Company will not
take any action or file any document (whether or not permitted by the Act or the
Exchange Act or the rules thereunder) to terminate or suspend such registration
or to terminate or suspend its reporting and filing obligations under said Acts
until the later of (y) two (2) years after the effective date of the
Registration Statement on Form SB-2 or such other Registration Statement
described in Section 10.1(iv) hereof, or (z) the sale by the Subscribers and
Placement Agents of all the Company Shares issuable by the Company pursuant to
this Agreement. Until at least two (2) years after the Warrants and Placement
Warrants have been exercised, the Company will use its commercial best efforts
to continue the listing or trading of its Common Stock on NASDAQ National Market
and will comply in all respects with the Company's reporting, filing and other
obligations under the bylaws or rules of the NASD and NASDAQ.
(e) The Company and Subscriber agree that until the Company either
obtains shareholder approval of the issuance of the Securities and Put
Securities (as defined herein), or an exemption from NASDAQ's corporate
governance rules as they may apply to the Securities and Put Securities, and an
opinion of counsel reasonably acceptable to Subscriber that NASDAQ's corporate
governance rules do not conflict with nor may result in a delisting of the
Company's common stock from the NASDAQ National Market upon the conversion of
the Preferred Stock and exercise of the Warrants and Placement Warrants and
Conversion of the Put Stock and exercise of the Put Warrants and Put Placement
Warrants (the "Approval"), the Subscriber may not receive upon conversion of the
Preferred Stock and exercise of the Warrants nor may the Placement Agents
8
<PAGE>
receive upon exercise of the Placement Warrants more than the number of Company
Shares designated on the signature page hereof and on Schedule B hereof
("Section 7.1(e) Shares") upon conversion of the Preferred Stock and/or exercise
of the Warrants and Placement Warrants. The Company represents that this number
together with the aggregate of such amounts designated for all investors in the
initial $5,000,000 offering to which this Subscription Agreement relates, and
Common Stock issuable upon exercise of the Warrants and Placement Warrants is
not greater than 19.9% of the shares of Company's common stock outstanding on
the Closing Date. The Company covenants to obtain the Approval required
pursuant to the NASDAQ's corporate governance to allow conversion of all the
Preferred Stock and dividends thereon and exercise of all the Warrants and
Placement Warrants. The Company further covenants to file the preliminary proxy
statement relating to the Approval with the Commission on or before forty-five
days after the Closing Date ("Proxy Filing Date"). The Company further
covenants to obtain the Approval no later than ninety days after the Closing
Date ("Approval Date"). The Company's failure to file the proxy on or before
the Proxy Filing Date or the Company's failure to obtain the Approval on or
before the Approval Date (either being an "Approval Default") shall be deemed an
Event of Default pursuant to Section 8 of the Certificate of Designation, but
only to the extent the Preferred Stock, and dividends thereon that may not be
converted due to the Company's failure to obtain such Approval.
(f) The Company undertakes to use the proceeds of the
Subscriber's funds for working capital purposes and expenses of this offering.
7.2. Covenant of the Subscriber. The Subscriber covenants that the
--------------------------
Subscriber nor any of its affiliates will not engage in short sales of the
common stock of the Company at a time when the last reported bid of the common
stock as reported by NASDAQ National Market is less than $7.00 per share.
8. Covenants of the Company and Subscriber Regarding
-------------------------------------------------
Idemnifications.
----------------
(a) The Company agrees to indemnify, hold harmless, reimburse and
defend Subscriber against any claim, cost, expense, liability, obligation, loss
or damage (including reasonable legal fees) of any nature, incurred by or
imposed upon Subscriber which results, arises out of or is based upon (i) any
misrepresentation by Company or breach of any warranty by Company in this
Agreement or in any Exhibits or Schedules attached hereto, or Reports or other
Written Information; or (ii) any breach or default in performance by Company of
any covenant or undertaking to be performed by Company hereunder, or any other
agreement entered into by the Company and Subscribers relating hereto.
(b) Subscriber agrees to indemnify, hold harmless, reimburse and
defend the Company at all times against any claim, cost, expense, liability,
obligation, loss or damage (including reasonable legal fees) of any nature,
incurred by or imposed upon the Company which results, arises out of or is based
upon (a) any misrepresentation by Subscriber in this Agreement or in any
Exhibits or Schedules attached hereto; or (b) any breach or default in
performance by Subscriber of any covenant or undertaking to be performed by
Subscriber hereunder, or any other agreement entered into by the Company and
Subscribers relating hereto.
9
<PAGE>
(c) The procedures set forth in Section 10.6 shall apply to the
indemnifications set forth in Sections 8(a) and 8(b) above.
9.1. Conversion/Liquidated Damages.
-----------------------------
(a) The Preferred Stock and accrued dividends will be convertible
according to the procedure set forth in the Certificate of Designation.
(b) The Company understands that a delay in the delivery of the
Company Shares after Conversion, and delivery of Preferred Stock certificates
representing the unconverted balance of a Preferred Stock certificate tendered
for conversion beyond the date described for such delivery set forth in the
Certificate of Designation, or late delivery of a Mandatory Redemption Payment
(as defined herein), as the case may be, (each of the foregoing a "Delivery
Date") could result in economic loss to the Subscriber. As compensation to the
Subscriber for such loss, the Company agrees to pay late payments to the
Subscriber for late delivery of Shares upon Conversion and late delivery of a
Preferred Stock certificate for the unconverted portion of Preferred Stock or
late delivery of a Mandatory Redemption Payment, in the amount of $100 per
business day after the Delivery Date for each $10,000 of Stated Value of
Preferred Stock being converted and Preferred Stock certificate remaining
undelivered or Mandatory Redemption Payment not paid. The Company shall pay any
payments incurred under this Section in immediately available funds upon demand.
Furthermore, in addition to any other remedies which may be available to the
Subscriber, in the event that the Company fails for any reason to effect
delivery of the Shares within three business days after the Delivery Date, the
Subscriber will be entitled to revoke the relevant Notice of Conversion by
delivery of a notice of revocation to the Company whereupon the Company and the
Subscriber shall each be restored to their respective positions immediately
prior to the delivery of such notice of revocation, except that late payment
charges described above shall be payable through the date notice of revocation
is given to the Company.
(c) Nothing contained herein or in any document referred to
herein or delivered in connection herewith shall be deemed to establish or
require the payment of a rate of interest or other charges in excess of the
maximum permitted by applicable law. In the event that the rate of interest or
dividends required to be paid or other charges hereunder exceed the maximum
permitted by such law, any payments in excess of such maximum shall be credited
against amounts owed by the Company to the Subscriber and thus refunded to the
Company.
9.2. Mandatory Redemption. In the event the Company may not issue
--------------------
Shares on a Delivery Date because such issuance and delivery would be contrary
to NASDAQ's Corporate Governance Rules, or after the occurrence and during the
pendency of an Approval Default, or for any other reason (except in relation to
the Shares not deliverable pursuant to Section 9.3 of this Subscription
Agreement), then at the Subscriber's election, the Company must pay to the
Subscriber on the Delivery Date a sum of money determined by the greater of (i)
multiplying the Stated Value of Preferred Stock not convertible by 110% together
with accrued but unpaid dividends thereon; or (ii) the closing bid price of the
common stock as reported by the NASDAQ National Market or the principal exchange
or market where traded for the Delivery Date multiplied by the amount of Shares
not deliverable, together with accrued but unpaid dividends thereon, ("Mandatory
Redemption
10
<PAGE>
Payment"). The Mandatory Redemption Payment must be received by the Subscriber
on the same date as the Company Shares otherwise deliverable. Upon receipt of
the Mandatory Redemption Payment, the corresponding Preferred Stock will be
cancelled and no longer outstanding, and if the Holder is in possession of the
corresponding Preferred Stock, same will be returned to the Company.
9.3. Maximum Conversion. The Company and Subscriber shall not be
------------------
entitled to convert on a Conversion Date of that amount of the Preferred Stock
in connection with that number of shares of Common Stock which would be in
excess of the sum of (i) the number of shares of Common Stock beneficially owned
by the Subscriber and its affiliates on a Conversion Date, and (ii) the number
of shares of Common Stock issuable upon the conversion of the Preferred Stock
with respect to which the determination of this proviso is being made on a
Conversion Date, which would result in beneficial ownership by the Subscriber
and its affiliates of more than 9.99% of the outstanding shares of Common Stock
of the Company. For the purposes of the proviso to the immediately preceding
sentence, beneficial ownership shall be determined in accordance with Section
13(d) of the Securities Exchange Act of 1934, as amended, and Regulation 13d-3
thereunder, except as otherwise provided in clause (i) of such proviso. The
Subscriber may revoke the restriction described in this paragraph upon 75 days
prior notice to the Company. The Subscriber may allocate which of the equity of
the Company deemed beneficially owned by the Subscriber shall be included in the
9.9% amount described above and which shall be allocated to the excess above
9.99%.
9.4. Injunction - Posting of Bond. In the event a Subscriber shall
----------------------------
elect to convert Preferred Stock and/or accrued dividends, the Company may not
refuse conversion based on any claim that such Subscriber or any one associated
or affiliated with such Subscriber has been engaged in any violation of law, or
for any other reason unless, an injunction from a court, on notice, restraining
and or enjoining conversion of all or part of said Preferred Stock and/or
dividends shall have been sought and obtained and the Company posts a surety
bond for the benefit of such Subscriber in the amount of 150% of the amount of
the stated value of the Preferred Stock which is subject to the injunction,
which bond shall remain in effect until the completion of arbitration/litigation
of the dispute and the proceeds of which shall be payable to such Subscriber to
the extent it obtains judgment.
9.5. Buy-In. In addition to any other rights available to the
------
Subscriber, if the Company fails to deliver to the Subscriber Company Shares
issuable upon conversion of Preferred Stock and/or dividends by the Delivery
Date and if after the Delivery Date the Subscriber purchases (in an open market
transaction or otherwise) shares of common stock to deliver in satisfaction of a
sale by such Subscriber of the Company Shares which the Subscriber anticipated
receiving upon such conversion (a "Buy-In"), then the Company shall pay in cash
to the Subscriber (in addition to any remedies available to or elected by the
Subscriber) the amount by which (A) the Subscriber's total purchase price
(including brokerage commissions, if any) for the shares of common stock so
purchased exceeds (B) the aggregate stated value of the Preferred Stock for
which such conversion was not timely honored, together with interest thereon at
a rate of 15% per annum, accruing until such amount and any accrued interest
thereon is paid in full (which amount shall be paid as liquidated damages and
not as a penalty). For example, if the Subscriber purchases shares of common
stock having a total purchase price of $11,000 to cover a Buy-In with respect to
an attempted conversion of $10,000 of stated value of Preferred Stock and/or
dividends, the Company
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<PAGE>
shall be required to pay the Subscriber $1,000, plus interest. The Subscriber
shall provide the Company written notice indicating the amounts payable to the
Subscriber in respect of the Buy-In.
10.1. Registration Rights. The Company hereby grants the following
-------------------
registration rights to holders of the Securities.
(i) On one occasion, for a period commencing 61 days after the
Closing Date, but not later than three years after the Closing Date, the
Company, upon a written request therefor from any record holder or holders of
more than 50% of the aggregate of the Company's Shares issued and issuable upon
Conversion of the Preferred Stock issued in the Company's offering of up to
$5,000,000 of stated value of Preferred Stock on the same terms and conditions
as in this Subscription Agreement (the Securities and securities issued or
issuable by virtue of ownership of the Securities, including the Put Securities,
are the "Registrable Securities"), shall prepare and file with the SEC a
registration statement under the Act covering the Registrable Securities which
are the subject of such request, unless such Registrable Securities are the
subject of an effective registration statement. In addition, upon the receipt of
such request, the Company shall promptly give written notice to all other record
holders of the Registrable Securities that such registration statement is to be
filed and shall include in such registration statement Registrable Securities
for which it has received written requests within 10 days after the Company
gives such written notice. Such other requesting record holders shall be deemed
to have exercised their demand registration right under this Section 10.1(i). As
a condition precedent to the inclusion of Registrable Securities, the holder
thereof shall provide the Company with such information as the Company
reasonably requests. The obligation of the Company under this Section 10.1(i)
shall be limited to one registration statement.
(ii) If the Company at any time proposes to register any of its
securities under the Act for sale to the public, whether for its own account or
for the account of other security holders or both, except with respect to
registration statements on Forms S-4, S-8 or another form not available for
registering the Registrable Securities for sale to the public, provided the
Registrable Securities are not otherwise registered for resale by the Subscriber
or Holder pursuant to an effective registration statement, each such time it
will give at least 30 days' prior written notice to the record holder of the
Registrable Securities of its intention so to do. Upon the written request of
the holder, received by the Company within 30 days after the giving of any such
notice by the Company, to register any of the Registrable Securities, the
Company will cause such Registrable Securities as to which registration shall
have been so requested to be included with the securities to be covered by the
registration statement proposed to be filed by the Company, all to the extent
required to permit the sale or other disposition of the Registrable Securities
so registered by the holder of such Registrable Securities (the "Seller"). In
the event that any registration pursuant to this Section 10.1(ii) shall be, in
whole or in part, an underwritten public offering of common stock of the
Company, (i) Seller shall enter into the underwriting agreement with the
underwriter, and (ii) the number of shares of Registrable Securities to be
included in such an underwriting may be reduced by the managing underwriter if
and to the extent that the Company and the underwriter shall reasonably be of
the opinion that such inclusion would adversely affect the marketing of the
securities to be sold by the Company therein; provided, however, that the
Company shall notify the Seller in writing of any such reduction.
Notwithstanding the forgoing provisions, the Company may
12
<PAGE>
withdraw any registration statement referred to in this Section 10.1(ii) without
thereby incurring any liability to the Seller.
(iii) If, at the time any written request for registration is
received by the Company pursuant to Section 10.1(i), the Company has determined
to proceed with the actual preparation and filing of a registration statement
under the 1933 Act in connection with the proposed offer and sale for cash of
any of its securities for the Company's own account, such written request shall
be deemed to have been given pursuant to Section 10.1(ii) rather than Section
10.1(i), and the rights of the holders of Registrable Securities covered by such
written request shall be governed by Section 10.1(ii) except that the Company or
underwriter, if any, may not withdraw such registration or limit the amount of
Registrable Securities included in such registration.
(iv) The Company shall file with the Commission within 60 days of the
Closing Date (the "Filing Date"), and use its reasonable commercial efforts to
cause to be declared effective a Form SB-2 registration statement (or such other
form that it is eligible to use) within 90 days of the Closing Date in order to
register the Registrable Securities for resale and distribution under the Act.
The registration statement described in this paragraph must be declared
effective by the Commission within 120 days of the Closing Date (as defined
herein) ("Effective Date"). The Company will register not less than a number of
shares of Common Stock in the aforedescribed registration statement that is
equal to 200% of the Company Shares issuable at the Conversion Price that would
be in effect on the Closing Date or the date of filing of such registration
statement, whichever is greater, assuming the conversion of all the Preferred
Stock and Put Stock set forth in the signature page hereto, and one share of
common stock for each common share issuable upon exercise of the Warrants,
Placement Warrants, Put Warrants and Put Commission Warrants. The Registrable
Securities shall be reserved and set aside exclusively for the benefit of the
Subscriber and Placement Agents, as the case may be, and not issued, employed or
reserved for anyone other than the Subscriber and Placement Agents. Such
registration statement will be promptly amended or additional registration
statements will be promptly filed by the Company as necessary to register
additional Company Shares to allow the public resale of all Common Stock
included in and issuable by virtue of the Registrable Securities. No securities
of the Company other than the Registrable Securities will be included in the
registration statement described in this Section 10.1(iv).
10.2. Registration Procedures. If and whenever the Company is
-----------------------
required by the provisions hereof to effect the registration of any shares of
Registrable Securities under the Act, the Company will, as expeditiously as
possible:
(a) prepare and file with the Commission a registration
statement with respect to such securities and use its best efforts to cause such
registration statement to become and remain effective for the period of the
distribution contemplated thereby (determined as herein provided), and promptly
provide to the holders of Registrable Securities copies of all filings and
Commission letters of comment;
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective
until the latest of: (i) six months after the exercise period of the Warrants
and Placement Warrants; or (ii) two years after the Closing Date, and
13
<PAGE>
comply with the provisions of the Act with respect to the disposition of all of
the Registrable Securities covered by such registration statement in accordance
with the Seller's intended method of disposition set forth in such registration
statement for such period;
(c) furnish to the Seller, and to each underwriter if any, such
number of copies of the registration statement and the prospectus included
therein (including each preliminary prospectus) as such persons reasonably may
request in order to facilitate the public sale or their disposition of the
securities covered by such registration statement;
(d) use its best efforts to register or qualify the Seller's
Registrable Securities covered by such registration statement under the
securities or "blue sky" laws of such jurisdictions as the Seller and in the
case of an underwritten public offering, the managing underwriter shall
reasonably request, provided, however, that the Company shall not for any such
purpose be required to qualify generally to transact business as a foreign
corporation in any jurisdiction where it is not so qualified or to consent to
general service of process in any such jurisdiction;
(e) list the Registrable Securities covered by such
registration statement with any securities exchange on which the Common Stock of
the Company is then listed;
(f) immediately notify the Seller and each underwriter under
such registration statement at any time when a prospectus relating thereto is
required to be delivered under the Act, of the happening of any event of which
the Company has knowledge as a result of which the prospectus contained in such
registration statement, as then in effect, includes an untrue statement of a
material fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in light of the
circumstances then existing;
(g) make available for inspection by the Seller, any
underwriter participating in any distribution pursuant to such registration
statement, and any attorney, accountant or other agent retained by the Seller or
underwriter, all publicly available, non-confidential financial and other
records, pertinent corporate documents and properties of the Company, and cause
the Company's officers, directors and employees to supply all publicly
available, non-confidential information reasonably requested by the seller,
underwriter, attorney, accountant or agent in connection with such registration
statement.
10.3. Provision of Documents.
----------------------
(a) At the request of the Seller, provided a demand for
registration has been made pursuant to Section 10.1(i) or a request for
registration has been made pursuant to Section 10.1(ii), the Registrable
Securities will be included in a registration statement filed pursuant to this
Section 10.
(b) In connection with each registration hereunder, the
Seller will furnish to the Company in writing such information and
representation letters with respect to itself and the proposed distribution by
it as reasonably shall be necessary in order to assure compliance with federal
and applicable state securities laws. In connection with each registration
pursuant to Section
14
<PAGE>
10.1(i) or 10.1(ii) covering an underwritten public offering, the Company and
the Seller agree to enter into a written agreement with the managing underwriter
in such form and containing such provisions as are customary in the securities
business for such an arrangement between such underwriter and companies of the
Company's size and investment stature.
10.4. Non-Registration Events. The Company and the Subscriber agree
-----------------------
that the Seller will suffer damages if any registration statement required under
Section 10.1(i) or 10.1(ii) above is not filed within 60 days after request by
the Holder and not declared effective by the Commission within 120 days after
such request [or the Filing Date and Effective Date, respectively, in reference
to the Registration Statement on Form SB-2 or such other form described in
Section 10.1(iv)], and maintained in the manner and within the time periods
contemplated by Section 10 hereof, and it would not be feasible to ascertain the
extent of such damages with precision. Accordingly, if (i) the Registration
Statement described in Sections 10.1(i) or 10.1(ii) is not filed within 60 days
of such request, or is not declared effective by the Commission on or prior to
the date that is 120 days after such request, or (ii) the registration statement
on Form SB-2 or such other form described in Section 10.1(iv) is not filed on or
before the Filing Date or not declared effective on or before the sooner of the
Effective Date, or within five days of receipt by the Company of a communication
from the Commission that the registration statement described in Section
10.1(iv) will not be reviewed, or (iii) any registration statement described in
Sections 10.1(i), 10.1(ii) or 10.1(iv) is filed and declared effective but shall
thereafter cease to be effective (without being succeeded immediately by an
additional registration statement filed and declared effective) for a period of
time which shall exceed 30 days in the aggregate per year but not more than 20
consecutive calendar days (defined as a period of 365 days commencing on the
date the Registration Statement is declared effective) (each such event referred
to in clauses (i), (ii) and (iii) of this Section 10.4 is referred to herein as
a "Non-Registration Event"), then, for so long as such Non-Registration Event
shall continue, the Company shall pay in cash as Liquidated Damages to each
holder of any Registrable Securities an amount equal to two (2%) percent per
month or part thereof after the first thirty days, of the pendency of such Non-
Registration Event, of the stated value of the Preferred Stock, whether or not
converted, and of the aggregate amount of the exercise prices of the Warrants
and Placement Warrants, whether or not exercised, then owned of record by such
holder as of the occurrence of such Non-Registration Event. Payments to be made
pursuant to this Section 10.4 shall be due and payable immediately upon demand
in immediately available funds. In the event a Mandatory Redemption payment is
demanded from the Company by the Holder of Preferred Stock, pursuant to Section
9.2 of this Subscription Agreement, then the Liquidated Damages described in
this Section 10.4 shall no longer accrue on the portion of the Purchase Price
underlying the Mandatory Redemption Payment, from and after the date the Holder
receives the Mandatory Redemption Payment. It shall be deemed a Non-
Registration Event to the extent that any Shares into which Preferred Stock and
Put Stock (if issued) are convertible, assuming complete conversion of all
Preferred Stock, and Put Stock (if issued) and dividends thereon, are not
included in an effective registration statement as of and after the Effective
Date at the Conversion Price in effect from and after the Effective Date.
10.5. Expenses. All expenses incurred by the Company in complying
--------
with Section 10, including, without limitation, all registration and filing
fees, printing expenses, fees and disbursements of counsel and independent
public accountants for the Company, fees and expenses
15
<PAGE>
(including reasonable counsel fees) incurred in connection with complying with
state securities or "blue sky" laws, fees of the National Association of
Securities Dealers, Inc., transfer taxes, fees of transfer agents and
registrars, and costs of insurance are called "Registration Expenses". All
underwriting discounts and selling commissions applicable to the sale of
Registrable Securities, including any fees and disbursements of any special
counsel to the Seller, are called "Selling Expenses". The Seller shall pay the
fees of its own additional counsel, if any.
The Company will pay all Registration Expenses in connection
with the registration statement under Section 10. All Selling Expenses in
connection with each registration statement under Section 10 shall be borne by
the Seller and may be apportioned among the Sellers in proportion to the number
of shares sold by the Seller relative to the number of shares sold under such
registration statement or as all Sellers thereunder may agree.
10.6. Indemnification and Contribution.
--------------------------------
(a) In the event of a registration of any Registrable
Securities under the Act pursuant to Section 10, the Company will indemnify and
hold harmless the Seller, each officer of the Seller, each director of the
Seller, each underwriter of such Registrable Securities thereunder and each
other person, if any, who controls such Seller or underwriter within the meaning
of the 1933 Act, against any losses, claims, damages or liabilities, joint or
several, to which the Seller, or such underwriter or controlling person may
become subject under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of any material fact
contained in any registration statement under which such Registrable Securities
was registered under the Act pursuant to Section 10, any preliminary prospectus
or final prospectus contained therein, or any amendment or supplement thereof,
or arise out of or are based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, and will reimburse the Seller, each such
underwriter and each such controlling person for any legal or other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, damage, liability or action; provided, however, that the
Company will not be liable in any such case if and to the extent that any such
loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission so made in
conformity with information furnished by any such Seller, the underwriter or any
such controlling person in writing specifically for use in such registration
statement or prospectus.
(b) In the event of a registration of any of the Registrable
Securities under the Act pursuant to Section 10, the Seller will indemnify and
hold harmless the Company, and each person, if any, who controls the Company
within the meaning of the Act, each officer of the Company who signs the
registration statement, each director of the Company, each underwriter and each
person who controls any underwriter within the meaning of the Act, against all
losses, claims, damages or liabilities, joint or several, to which the Company
or such officer, director, underwriter or controlling person may become subject
under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
the registration statement
16
<PAGE>
under which such Registrable Securities were registered under the Act pursuant
to Section 10, any preliminary prospectus or final prospectus contained therein,
or any amendment or supplement thereof, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, or
the Seller's failure to comply with prospectus delivery requirements, and will
reimburse the Company and each such officer, director, underwriter and
controlling person for any legal or other expenses reasonably incurred by them
in connection with investigating or defending any such loss, claim, damage,
liability or action, provided, however, that the Seller will be liable hereunder
in any such case if and only to the extent that any such loss, claim, damage or
liability arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in reliance upon and in
conformity with information pertaining to such Seller, as such, furnished in
writing to the Company by such Seller specifically for use in such registration
statement or prospectus, and provided, further, however, that the liability of
the Seller hereunder shall be limited to the proportion of any such loss, claim,
damage, liability or expense which is equal to the proportion that the public
offering price of the Registrable Securities sold by the Seller under such
registration statement bears to the total public offering price of all
securities sold thereunder, but not in any event to exceed the gross proceeds
received by the Seller from the sale of Registrable Securities covered by such
registration statement.
(c) Promptly after receipt by an indemnified party hereunder of
notice of the commencement of any action, such indemnified party shall, if a
claim in respect thereof is to be made against the indemnifying party hereunder,
notify the indemnifying party in writing thereof, but the omission so to notify
the indemnifying party shall not relieve it from any liability which it may have
to such indemnified party other than under this Section 10.6(c) and shall only
relieve it from any liability which it may have to such indemnified party under
this Section 10.6(c) if and to the extent the indemnifying party is prejudiced
by such omission. In case any such action shall be brought against any
indemnified party and it shall notify the indemnifying party of the commencement
thereof, the indemnifying party shall be entitled to participate in and, to the
extent it shall wish, to assume and undertake the defense thereof with counsel
satisfactory to such indemnified party, and, after notice from the indemnifying
party to such indemnified party of its election so to assume and undertake the
defense thereof, the indemnifying party shall not be liable to such indemnified
party under this Section 10.6(c) for any legal expenses subsequently incurred by
such indemnified party in connection with the defense thereof other than
reasonable costs of investigation and of liaison with counsel so selected,
provided, however, that, if the defendants in any such action include both the
indemnified party and the indemnifying party and the indemnified party shall
have reasonably concluded that there may be reasonable defenses available to it
which are different from or additional to those available to the indemnifying
party or if the interests of the indemnified party reasonably may be deemed to
conflict with the interests of the indemnifying party, the indemnified parties
shall have the right to select one separate counsel and to assume such legal
defenses and otherwise to participate in the defense of such action, with the
reasonable expenses and fees of such separate counsel and other expenses related
to such participation to be reimbursed by the indemnifying party as incurred.
The indemnifying party shall not be liable for amounts paid in settlement by the
indemnified party unless the indemnifying party has consented to the settlement,
which consent shall not be unreasonably withheld.
17
<PAGE>
(d) In order to provide for just and equitable contribution
in the event of joint liability under the Act in any case in which either (i)
the Seller, or any controlling person of the Seller, makes a claim for
indemnification pursuant to this Section 10.6 but it is judicially determined
(by the entry of a final judgment or decree by a court of competent jurisdiction
and the expiration of time to appeal or the denial of the last right of appeal)
that such indemnification may not be enforced in such case notwithstanding the
fact that this Section 10.6 provides for indemnification in such case, or (ii)
contribution under the Act may be required on the part of the Seller or
controlling person of the Seller in circumstances for which indemnification is
provided under this Section 10.6; then, and in each such case, the Company and
the Seller will contribute to the aggregate losses, claims, damages or
liabilities to which they may be subject (after contribution from others) in
such proportion so that the Seller is responsible only for the portion
represented by the percentage that the public offering price of its securities
offered by the registration statement bears to the public offering price of all
securities offered by such registration statement, provided, however, that, in
any such case, (A) the Seller will not be required to contribute any amount in
excess of the public offering price of all such securities offered by it
pursuant to such registration statement; and (B) no person or entity guilty of
fraudulent misrepresentation (within the meaning of Section 10(f) of the Act)
will be entitled to contribution from any person or entity who was not guilty of
such fraudulent misrepresentation.
11.1. Obligation To Purchase.
----------------------
(a) The Subscriber agrees to purchase from the Company
Preferred Stock ("Put Stock") and common stock purchase warrants ("Put
Warrants") in the amounts set forth on the signature page hereof for up to the
aggregate amount of Put Purchase Price designated on the signature page hereof
(the "Put"). Collectively the Put Stock, Put Warrants and Put Placement Warrants
and Common Stock issuable upon conversion of the Put Stock, Put Warrants and Put
Placement Warrants are referred to as the "Put Securities".) The Holders of the
Put Securities are granted all the rights, undertakings, remedies, liquidated
damages and indemnification granted to the Subscriber and Placement Agents in
connection with the Securities, including but not limited to, the rights and
procedures set forth in Sections 9.1, 9.2, 9.3, 9.4, 9.5, and the registration
rights described in Section 10 hereof.
(b) The agreement to purchase the Put Securities is
contingent on the following, as of the Put Date and Put Closing Date, any, some
or all of which may be waived by the Subscriber:
(i) The failure to obtain the Approval as described in
Section 7.1(e) above.
(ii) The non-occurrence of a Non-Registration Event.
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<PAGE>
(iii) The non-occurrence (whether or not continuing) of an Event
of Default as described in the Certificate of Designation.
(iv) As of a Put Date and Put Closing Date, the Company will be
a full reporting company with the class of Shares registered pursuant to Section
12(g) of the Exchange Act of 1934, and the Company will be in compliance with
all such reporting obligations applicable to an issuer with a class of Shares
registered pursuant to Section 12(g) of the Exchange Act.
(v) No material adverse change in the Company's business or
business prospects shall have occurred after the date of the most recent
financial statements included in the Reports. Material adverse change is defined
as any effect on the business, operations, properties, prospects, or financial
condition of the Company that is material and adverse to the Company and its
subsidiaries and affiliates, taken as a whole, and/or any condition,
circumstance, or situation that would prohibit or otherwise interfere with the
ability of the Company to enter into and perform any of its obligations under
this Agreement, or any other agreement entered into or to be entered into in
connection herewith, in any material respect.
(vi) The execution and delivery to the Subscriber of a
certificate signed by the Company's chief executive officer representing the
truth and accuracy of all the Company's representations and warranties contained
in this Subscription Agreement as of the Put Date, and Put Closing Date and
confirming the covenants and undertakings contained herein, and representing the
satisfaction of all contingencies and conditions required for the exercise of
the Put.
(vii) The Company's continued listing on and compliance at all
times after the date hereof with the listing requirements of the NASDAQ National
Market.
(viii) The Company's not having received notice from the NASDAQ
National Market (or any principal market on which the Company's common stock is
listed for trading) that the Company is not in compliance with the requirements
for continued listing.
(ix) The execution by the Company and delivery to the
Subscriber of all documents reasonably necessary to memorialize the rights and
obligations of each of the parties in relation to the Put.
(x) The Company's model "500" aircraft successfully passing
the fuselage structure pressurization test and receipt of a Form 8110-3 from the
Federal Aviation Administration certifying such tests results.
(xi) The average closing bid price of the Common Stock as
reported by NASDAQ National Market for the three trading days preceding a Put
Date is not less than 150% of the average closing bid price of the Common Stock
as reported by the NASDAQ National Market
19
<PAGE>
for the three trading days preceding the Closing Date, provided that this
condition shall apply only to the portion of the Put Purchase Price payable up
to 90 days after the Actual Effective Date.
11.2. Exercise of Put.
---------------
(a) The Company's right to exercise the Put commences on the
actual effective date of the registration statement described Section 10.1(iv)
hereof in relation to all the Securities and Put Securities ("Actual Effective
Date") and expires fifteen (15) business days thereafter ("Put Exercise
Period").
(b) The Put may be exercised by the Company by the giving to
the Subscriber of a written notice of exercise ("Put Notice") during the Put
Exercise Period in relation to the subject Put Securities. The date a Put Notice
is given is a Put Date. Each Put Notice must be accompanied by the (i) officer's
certificate described in Section 11.1(b)(vi) above; (ii) the original legal
opinion described in Section 7.1(e); (iii) a legal opinion relating to the Put
Securities in form reasonably acceptable to Subscriber; and (iv) proof of
effectiveness of the registration statement in which the Securities and Put
Securities are registered together with five copies of the prospectus relating
to the Securities and Put Securities.
(c) Unless otherwise agreed to by the Subscribers, Put Notices
must be given to all Subscribers in proportion to the amounts agreed to be
purchased by all Subscribers undertaking to purchase Put Shares in the initial
$5,000,000 installment of the aggregate $10,000,000 offering to which this and
other Subscription Agreements relate. The aggregate amount of all Put Notices
may not exceed $5,000,000. In the event the Company does not exercise the Put
during the Put Exercise Period for the entire Put amount, then the Subscriber
may exercise the Put on behalf of the Company in relation only to such
Subscriber, by giving notice to the Company of such exercise during the seven
(7) business days following the Put Exercise Period.
(d) After receipt by Subscriber of a Put Notice and the items
set forth in Section 11.2(b) above the Subscriber must pay an amount equal to
40% of the Purchase Price set forth on the signature page hereto within thirty
days after the Actual Effective Date, and an amount equal to 60% of the Purchase
Price within ninety (90) days after the Actual Effective Date. Payment will be
made against delivery to the Subscriber or an escrow agent to be agreed upon by
the Company and Subscriber, of the Put Securities, and delivery to the Placement
Agents of the Put Placement Warrants and Put Commissions set forth on Schedule B
hereto.
(e) Maximum Put Exercise. The Company may not give the
--------------------
Subscriber a Put Notice in connection with that amount of Put Securities which
could be converted as of the Put Date into a number of shares of Common Stock
which would be in excess of the sum of (i) the number of shares of Common Stock
beneficially owned by the Subscriber and its affiliates on such Put Date, and
(ii) the number of shares of Common Stock issuable upon the conversion of the
Put Stock and exercise of the Put Warrants with respect to which the
determination of this proviso is
20
<PAGE>
being made on a Put Date, which would result in beneficial ownership by the
Subscriber and its affiliates of more than 9.99% of the outstanding shares of
Common Stock of the Company on such Put Date. For the purposes of the proviso to
the immediately preceding sentence, beneficial ownership shall be determined in
accordance with Section 13(d) of the Securities Exchange Act of 1934, as
amended, and Regulation 13d-3 thereunder.
11.3. Put Commission. The Placement Agents identified on Schedule B
--------------
hereto shall receive aggregate finder's fees in connection with the closing of
the Put of cash equal to nine (9%) percent of the Put Purchase Price and Put
Commission Warrants as set forth on Schedule B hereto. Collectively, the
foregoing are referred to as Put Commissions. Put Commissions shall be payable
only in connection with the Put Purchase Price actually paid by a Subscriber.
12. Reset. In the event the average closing bid price of the
-----
Company Shares as reported by the NASDAQ National Market or such other principal
exchange where the Company Shares are listed for trading ("Closing Bid Price")
for the three trading days preceding the first anniversary of the Closing Date
("Initial Price") is less than 200% of the Closing Bid Price for the three
trading days prior to the issue date of Preferred Stock who receive Preferred
Stock in the Company's initial offering of Preferred Stock, then the Company
will issue to the Subscriber within ten business days after the first
anniversary of the Closing Date the number of Company Shares determined by
subtracting (the Purchase Price divided by the Initial Price) from (the Purchase
Price divided by 90% of the Initial Price) ("Additional Shares"). The Subscriber
is granted the demand and piggy-back registration rights described in Section
10.1(i) and 10.1(ii) hereof in relation to the Additional Shares. The holding
period of the Additional Shares for purposes of Rule 144 of the Securities Act
of 1933 shall be deemed to have begun on the Closing Date. Failure to timely
deliver the Additional Shares shall be deemed an Event of Default pursuant to
Section 8 of the Certificate of Designation.
13. Offering Restrictions. Until 120 days after the Actual
---------------------
Effective Date, the Company agrees not to issue any equity, convertible debt or
other securities at a per common share equivalent price less than the Closing
Ask price of the Company's common stock in effect as of the date of such
issuance as reported by NASDAQ National Market or such other principal market or
exchange where the Company's common stock is listed for trading. The restriction
described in this Section 13 shall not apply if the Subscriber fails to timely
pay to the Company funds payable in connection with a Put exercise.
14. Miscellaneous.
-------------
(a) Notices. All notices or other communications given or made
-------
hereunder shall be in writing and shall be personally delivered or deemed
delivered the first business day after being telecopied (provided that a copy is
delivered by first class mail) to the party to receive the same at its address
set forth below or to such other address as either party shall hereafter give to
the other by notice duly made under this Section: (i) if to the Company, to
Advanced Aerodynamics & Structures, Inc., 3205 Lakewood Boulevard, Long Beach
Airport, CA 90808,
21
<PAGE>
telecopier number: (562) 938-8620, with a copy by telecopier only to Luce,
Forward, Hamilton & Scripps, LLP, 600 West Broadway, Suite 2600, San Diego, CA
92101, Attn: Otto Sorensen, Esq., telecopier number: (619) 645-5324, and (ii) if
to the Subscriber, to the name, address and telecopy number set forth on the
signature page hereto, with a copy by telecopier only to Grushko & Mittman, 277
Broadway, Suite 801, New York, New York 10007, telecopier number: (212) 227-
5865. Any notice that may be given pursuant to this Agreement, or any document
delivered in connection with the foregoing may be given by the Subscriber on the
first business day after the observance dates in the United States of America by
Orthodox Jewry of Rosh Hashanah, Yom Kippur, the first two days of the Feast of
Tabernacles, Shemini Atzeret Simchat Torah, the first two and final two days of
Passover and Pentecost, with such notice to be deemed given and effective, at
the election of the Subscriber on a holiday date that precedes such notice. Any
notice received by the Subscriber on any of the aforedescribed holidays may be
deemed by the Subscriber to be received and effective as if such notice had been
received on the first business day after the holiday.
(b) Closing. The consummation of the transactions contemplated herein
-------
shall take place at the offices of Grushko & Mittman, 277 Broadway, Suite 801,
New York, New York 10007, upon the satisfaction of all conditions to Closing set
forth in this Agreement. The closing date shall be the date that subscriber
funds representing the net amount due the Company from the Purchase Price are
transmitted by wire transfer to the Company (the "Closing Date"). The closing
date for the Put shall be the date on which Subscriber funds representing the
net amount due the Company from the Put Purchase Price is transmitted to or on
behalf of the Company ("Put Closing Date").
(c) Entire Agreement; Assignment. This Agreement represents the
----------------------------
entire agreement between the parties hereto with respect to the subject matter
hereof and may be amended only by a writing executed by both parties. No right
or obligation of either party shall be assigned by that party without prior
notice to and the written consent of the other party.
(d) Execution. This Agreement may be executed by facsimile
---------
transmission, and in counterparts, each of which will be deemed an original.
(e) Law Governing this Agreement. This Agreement shall be governed by
----------------------------
and construed in accordance with the laws of the State of New York without
regard to principles of conflicts of laws. Any action brought by either party
against the other concerning the transactions contemplated by this Agreement
shall be brought only in the state courts of New York or in the federal courts
located in the state of New York. Both parties and the individuals executing
this Agreement and other agreements on behalf of the Company agree to submit to
the jurisdiction of such courts and waive trial by jury. The prevailing party
shall be entitled to recover from the other party its reasonable attorney's fees
and costs. In the event that any provision of this Agreement or any other
agreement delivered in connection herewith is invalid or unenforceable under any
applicable statute or rule of law, then such provision shall be deemed
inoperative to the extent that it may conflict therewith and shall be deemed
modified to conform with such statute or rule of law.
22
<PAGE>
Any such provision which may prove invalid or unenforceable under any law shall
not affect the validity or enforceability of any other provision of any
agreement.
(f) Specific Enforcement, Consent to Jurisdiction. The Company and
---------------------------------------------
Subscriber acknowledge and agree that irreparable damage would occur in the
event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injuction or
injunctions to prevent or cure breaches of the provisions of this Agreement and
to enforce specifically the terms and provisions hereof or thereof, this being
in addition to any other remedy to which any of them may be entitled by law or
equity. Subject to Section 12(e) hereof, each of the Company and Subscriber
hereby waives, and agrees not to assert in any such suit, action or proceeding,
any claim that it is not personally subject to the jurisdiction of such court,
that the suit, action or proceeding is brought in an inconvenient forum or that
the venue of the suit, action or proceeding is improper. Nothing in this
Section shall affect or limit any right to serve process in any other manner
permitted by law.
(g) Automatic Termination. This Agreement shall automatically
---------------------
terminate without any further action of either party hereto if the Closing shall
not have occurred by the tenth (10th) business day following the date this
Agreement is accepted by the Subscriber.
[THIS SPACE INTENTIONALLY LEFT BLANK]
23
<PAGE>
Please acknowledge your acceptance of the foregoing Subscription Agreement
by signing and returning a copy to the undersigned whereupon it shall become a
binding agreement between us.
ADVANCED AERODYNAMICS & STRUCTURES, INC.
By:____________________________________
Name:
Title:
Dated: March _____, 2000
Purchase Price: $1,000,000
----------
Preferred Shares Purchased: 10,000 (at $100 per share)
------
Common Stock Purchase Warrants:130,000
-------
Section 7.1(e) Shares: 672,620
-------
ACCEPTED: Dated as of March _____, 2000
PUT
- ---
Put Stock: 10,000 Preferred Shares
------
Put Warrants: 130,000
-------
Put Purchase Price: $1,000,000
----------
AUSTINVEST ANSTALT BALZERS - Subscriber
9494 Furstentums
Balzers, Liechtenstein
Fax: 011-534-534100
By:________________________________
Name:
Title:
<PAGE>
Please acknowledge your acceptance of the foregoing Subscription Agreement
by signing and returning a copy to the undersigned whereupon it shall become a
binding agreement between us.
ADVANCED AERODYNAMICS & STRUCTURES, INC.
By:____________________________________
Name:
Title:
Dated: March _____, 2000
Purchase Price: $1,000,000
----------
Preferred Shares Purchased: 10,000 (at $100 per share)
------
Common Stock Purchase Warrants: 130,000
-------
Section 7.1(e) Shares: 672,620
-------
ACCEPTED: Dated as of March _____, 2000
PUT
- ---
Put Stock: 10,000 Preferred Shares
------
Put Warrants: 130,000
-------
Put Purchase Price: $1,000,000
----------
ESQUIRE TRADE & FINANCE INC. - Subscriber
Trident Chambers
P.O. Box 146
Road Town, Tortola, B.V.I.
Fax: 011-41-41-760-1031
By:________________________________
Name:
Title:
<PAGE>
Please acknowledge your acceptance of the foregoing Subscription Agreement
by signing and returning a copy to the undersigned whereupon it shall become a
binding agreement between us.
ADVANCED AERODYNAMICS & STRUCTURES, INC.
By:____________________________________
Name:
Title:
Dated: March _____, 2000
Purchase Price: $750,000
--------
Preferred Shares Purchased: 7,500 (at $100 per share)
-----
Common Stock Purchase Warrants: 97,500
------
Section 7.1(e) Shares: 504,465
-------
ACCEPTED: Dated as of March _____, 2000
PUT
- ---
Put Stock: 7,500 Preferred Shares
-----
Put Warrants: 97,500
------
Put Purchase Price: $504,465
--------
AMRO INTERNATIONAL, S.A. - Subscriber
c/o Ultra Finanz
Grossmuenster Platz 26
P.O. Box 4401
Zurich, Switzerland CH8011
Fax: 011-411-262-5512
By:________________________________
Name:
Title:
<PAGE>
Please acknowledge your acceptance of the foregoing Subscription Agreement
by signing and returning a copy to the undersigned whereupon it shall become a
binding agreement between us.
ADVANCED AERODYNAMICS & STRUCTURES, INC.
By:____________________________________
Name:
Title:
Dated: March _____, 2000
Purchase Price: $500,000
--------
Preferred Shares Purchased: 5,000 (at $100 per share)
-----
Common Stock Purchase Warrants: 65,000
------
Section 7.1(e) Shares: 336,310
-------
ACCEPTED: Dated as of March _____, 2000
PUT
- ---
Put Stock: 5,000 Preferred Shares
-----
Put Warrants: 65,000
------
Put Purchase Price: $500,000
--------
THE SHAAR FUND LTD. - Subscriber
c/o Levinson Capital Management
2 World Trade Center, Suite 1820
New York, New York 10048
Fax: 212-432-7771
By:________________________________
Name:
Title:
<PAGE>
Please acknowledge your acceptance of the foregoing Subscription Agreement
by signing and returning a copy to the undersigned whereupon it shall become a
binding agreement between us.
ADVANCED AERODYNAMICS & STRUCTURES, INC.
By:____________________________________
Name:
Title:
Dated: March _____, 2000
Purchase Price: $200,000
--------
Preferred Shares Purchased: 2,000 (at $100 per share)
-----
Common Stock Purchase Warrants: 26,000
------
Section 7.1(e) Shares: 134,524
-------
ACCEPTED: Dated as of March _____, 2000
PUT
- ---
Put Stock: 2,000 Preferred Shares
-----
Put Warrants: 26,000
------
Put Purchase Price: $200,000
--------
GROSS FOUNDATION, INC. - Subscriber
1660 49th Street
Brooklyn, New York
Fax: 718-851-3511
By:________________________________
Name:
Title:
<PAGE>
Please acknowledge your acceptance of the foregoing Subscription Agreement
by signing and returning a copy to the undersigned whereupon it shall become a
binding agreement between us.
ADVANCED AERODYNAMICS & STRUCTURES, INC.
By:____________________________________
Name:
Title:
Dated: March _____, 2000
Purchase Price: $50,000
-------
Preferred Shares Purchased: 500 (at $100 per share)
---
Common Stock Purchase Warrants: 6,500
-----
Section 7.1(e) Shares: 33,631
------
ACCEPTED: Dated as of March _____, 2000
PUT
- ---
Put Stock: 500 Preferred Shares
---
Put Warrants: 6,500
-----
Put Purchase Price: $50,000
-------
THE HEWLETT FUND, INC. - Subscriber
1615 Avenue I, #201
Brooklyn, New York 11230
Fax: 201-363-0450
By:________________________________
Name:
Title:
<PAGE>
Please acknowledge your acceptance of the foregoing Subscription Agreement
by signing and returning a copy to the undersigned whereupon it shall become a
binding agreement between us.
ADVANCED AERODYNAMICS & STRUCTURES, INC.
By:____________________________________
Name:
Title:
Dated: March _____, 2000
Purchase Price: $100,000
--------
Preferred Shares Purchased: 1,000 (at $100 per share)
-----
Common Stock Purchase Warrants: 13,000
------
Section 7.1(e) Shares: 67,262
------
ACCEPTED: Dated as of March _____, 2000
PUT
- ---
Put Stock: 1,000 Preferred Shares
-----
Put Warrants: 13,000
------
Put Purchase Price: $100,000
--------
LEVAL TRADING, INC. - Subscriber
c/o Thierry Ulmann
14 rue du Conseil-General
CH-1205, Geneva, Switzerland
Fax: 011-41-22-321-0807
By:________________________________
Name:
Title:
<PAGE>
Please acknowledge your acceptance of the foregoing Subscription Agreement
by signing and returning a copy to the undersigned whereupon it shall become a
binding agreement between us.
ADVANCED AERODYNAMICS & STRUCTURES, INC.
By:____________________________________
Name:
Title:
Dated: March _____, 2000
Purchase Price: $250,000
--------
Preferred Shares Purchased: 2,500 (at $100 per share)
-----
Common Stock Purchase Warrants: 32,500
------
Section 7.1(e) Shares: 168,155
-------
ACCEPTED: Dated as of March _____, 2000
PUT
- ---
Put Stock: 2,500 Preferred Shares
-----
Put Warrants: 32,500
------
Put Purchase Price: $250,000
--------
BRETTON HILL FUNDING, LLC - Subscriber
4706 18th Avenue
Brooklyn, New York 11204
Fax: 718-633-3891
By:________________________________
Name:
Title:
<PAGE>
Please acknowledge your acceptance of the foregoing Subscription Agreement
by signing and returning a copy to the undersigned whereupon it shall become a
binding agreement between us.
ADVANCED AERODYNAMICS & STRUCTURES, INC.
By:____________________________________
Name:
Title:
Dated: March _____, 2000
Purchase Price: $150,000
--------
Preferred Shares Purchased: 1,500 (at $100 per share)
-----
Common Stock Purchase Warrants: 19,500
------
Section 7.1(e) Shares: 100,893
-------
ACCEPTED: Dated as of March _____, 2000
PUT
- ---
Put Stock: 1,500 Preferred Shares
-----
Put Warrants: 19,500
------
Put Purchase Price: $150,000
--------
TALBIYA B. INVESTMENTS LTD.
Ragnall House
18 Peel Road
Douglas, Isle of Man
1M1 4L2, United Kingdom
Fax: 011-972-36120639
By:________________________________
Name:
Title:
32
<PAGE>
Please acknowledge your acceptance of the foregoing Subscription Agreement
by signing and returning a copy to the undersigned whereupon it shall become a
binding agreement between us.
ADVANCED AERODYNAMICS & STRUCTURES, INC.
By:____________________________________
Name:
Title:
Dated: March _____, 2000
Purchase Price: $100,000
--------
Preferred Shares Purchased: 1,000 (at $100 per share)
-----
Common Stock Purchase Warrants: 13,000
------
Section 7.1(e) Shares: 67,262
------
ACCEPTED: Dated as of March _____, 2000
PUT
- ---
Put Stock: 1,000 Preferred Shares
-----
Put Warrants: 13,000
------
Put Purchase Price: $100,000
--------
NESHER LTD. - Subscriber
Ragnall House
18 Peel Road
Douglas, Isle of Man
1M1 4L2, United Kingdom
Fax: 011-972-36120639
By:________________________________
Name:
Title:
33
<PAGE>
Please acknowledge your acceptance of the foregoing Subscription Agreement
by signing and returning a copy to the undersigned whereupon it shall become a
binding agreement between us.
ADVANCED AERODYNAMICS & STRUCTURES, INC.
By:____________________________________
Name:
Title:
Dated: March _____, 2000
Purchase Price: $225,000
--------
Preferred Shares Purchased: 2,250 (at $100 per share)
-----
Common Stock Purchase Warrants: 29,250
------
Section 7.1(e) Shares: 151,340
-------
ACCEPTED: Dated as of March _____, 2000
PUT
- ---
Put Stock: 2,250 Preferred Shares
-----
Put Warrants: 29,250
------
Put Purchase Price: $225,000
--------
KESHET L.P. - Subscriber
Ragnall House
18 Peel Road
Douglas, Isle of Man
1M1 4L2, United Kingdom
Fax: 011-972-36120639
By:________________________________
Name:
Title:
34
<PAGE>
Please acknowledge your acceptance of the foregoing Subscription Agreement
by signing and returning a copy to the undersigned whereupon it shall become a
binding agreement between us.
ADVANCED AERODYNAMICS & STRUCTURES, INC.
By:____________________________________
Name:
Title:
Dated: March _____, 2000
Purchase Price: $175,000
--------
Preferred Shares Purchased: 1,750 (at $100 per share)
-----
Common Stock Purchase Warrants: 22,750
------
Section 7.1(e) Shares: 117,708
-------
ACCEPTED: Dated as of March _____, 2000
PUT
- ---
Put Stock: 1,750 Preferred Shares
-----
Put Warrants: 22,750
------
Put Purchase Price: $175,000
--------
THE KESHET FUND, L.P. - Subscriber
Ragnall House
18 Peel Road
Douglas, Isle of Man
1M1 4L2, United Kingdom
Fax: 011-972-36120639
By:________________________________
Name:
Title:
35
<PAGE>
Please acknowledge your acceptance of the foregoing Subscription Agreement
by signing and returning a copy to the undersigned whereupon it shall become a
binding agreement between us.
ADVANCED AERODYNAMICS & STRUCTURES, INC.
By:____________________________________
Name:
Title:
Dated: March _____, 2000
Purchase Price: $500,000
--------
Preferred Shares Purchased: 5,000 (at $100 per share)
-----
Common Stock Purchase Warrants: 65,000
------
Section 7.1(e) Shares: 336,310
-------
ACCEPTED: Dated as of March _____, 2000
PUT
- ---
Put Stock: 5,000 Preferred Shares
-----
Put Warrants: 65,000
------
Put Purchase Price: $500,000
--------
THE ENDEAVOUR CAPITAL FUND, S.A. - Subscriber
The Maduro Building, P.O. Box 662
Wickhams Cay, Road Town
Tortola, British Virgin Islands
Fax: 1-284-494-3917
By:________________________________
Name:
Title:
36
<PAGE>
SCHEDULE B TO SUBSCRIPTION AGREEMENT
------------------------------------
(AGGREGATE $5,000,000 OF SUBSCRIBER FUNDS)
------------------------------------------
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
CASH PLACEMENT
PLACEMENT AGENT COMMISSION* WARRANTS
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
SARAH LIEBERMAN $ 85,000.00 -0-
38 Blauvelt Road
Monsey, NY 10952
Fax: 718-853-4788
- ---------------------------------------------------------------------------------------------
TALBIYA B. INVESTMENTS LTD. $185,300.00 257,000
Ragnall House
18 Peel Road
Douglas, Isle of Man
1M1 4L2, United Kingdom
Fax: 011-972-36120639
- ---------------------------------------------------------------------------------------------
LIBRA FINANCE, S.A. $ 90,760.00 205,000
P.O. Box 4603
Zurich, Switzerland
Fax: 011-411-201-6262
- ---------------------------------------------------------------------------------------------
AMRO INTERNATIONAL, S.A. $ 14,170.00 -0-
c/o Ultra Finanz
Grossmuenster Platz 26
P.O. Box 4401
Zurich, Switzerland CH8011
Fax: 011-411-262-5512
- ---------------------------------------------------------------------------------------------
GARDNER RESOURCE LTD. $ 20,300.00 -0-
244 Route 306
Monsey, New York 10952
Fax: 914-425-8865
- ---------------------------------------------------------------------------------------------
ELLIS ENTERPRISES LTD. $ 14,170.00 -0-
42A Waterloo Road
London, England, NW2, 7UF
Fax: 011-441-014509004
- ---------------------------------------------------------------------------------------------
NESHER LTD. $ 6,800.00 -0-
Ragnall House, 18 Peel Road
Douglas, Isle of Man
1M1 4L2, United Kingdom
Fax: 011-972-36120639
- ---------------------------------------------------------------------------------------------
ENDEAVOUR MANAGEMENT INC. $ 8,500.00 -0-
The Maduro Building, P.O. Box 662
Wickhams Cay, Road Town
Tortola, British Virgin Islands
Fax: 1-284-494-3917
- ---------------------------------------------------------------------------------------------
TOTALS $425,000.00 462,000
- ---------------------------------------------------------------------------------------------
</TABLE>
* The Escrow Agent will deduct $25,000 proportionately from the Cash Commissions
set forth above, in relation to the $5,000,000 aggregate Purchase Price and pay
said $25,000 to counsel to the Subscribers.
37
<PAGE>
PUT
---
(AGGREGATE $5,000,000 OF SUBSCRIBER PUT FUNDS)
----------------------------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
CASH PLACEMENT
PLACEMENT AGENT COMMISSION* WARRANTS
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
SARAH LIEBERMAN $ 90,000.00 -0-
38 Blauvelt Road
Monsey, NY 10952
Fax: 718-853-4788
- ------------------------------------------------------------------------------------------------------
TALBIYA B. INVESTMENTS LTD. $196,200.00 257,000
Ragnall House
18 Peel Road
Douglas, Isle of Man
1M1 4L2, United Kingdom
Fax: 011-972-36120639
- ------------------------------------------------------------------------------------------------------
LIBRA FINANCE, S.A. $ 96,100.00 205,000
P.O. Box 4603
Zurich, Switzerland
Fax: 011-411-201-6262
- ------------------------------------------------------------------------------------------------------
AMRO INTERNATIONAL, S.A. $ 15,000.00 -0-
c/o Ultra Finanz
Grossmuenster Platz 26
P.O. Box 4401
Zurich, Switzerland CH8011
Fax: 011-411-262-5512
- ------------------------------------------------------------------------------------------------------
GARDNER RESOURCE LTD. $ 21,500.00 -0-
244 Route 306
Monsey, New York 10952
Fax: 914-425-8865
- ------------------------------------------------------------------------------------------------------
ELLIS ENTERPRISES LTD. $ 15,000.00 -0-
42A Waterloo Road
London, England, NW2, 7UF
Fax: 011-441-014509004
- ------------------------------------------------------------------------------------------------------
NESHER LTD. $ 7,200.00 -0-
Ragnall House, 18 Peel Road
Douglas, Isle of Man
1M1 4L2, United Kingdom
Fax: 011-972-36120639
- ------------------------------------------------------------------------------------------------------
ENDEAVOUR MANAGEMENT INC. $ 9,000.00 -0-
The Maduro Building, P.O. Box 662
Wickhams Cay, Road Town
Tortola, British Virgin Islands
Fax: 1-284-494-3917
- ------------------------------------------------------------------------------------------------------
TOTALS $450,000.00 462,000
- ------------------------------------------------------------------------------------------------------
</TABLE>
* The Escrow Agent will deduct $15,000 proportionately from the Cash
Commissions set forth above, in relation to the $5,000,000 aggregate Purchase
Price and pay said $15,000 to counsel to the Subscribers.
38
<PAGE>
EXHIBIT 4.5
THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE
STATE SECURITIES LAWS. THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE
OF THIS WARRANT MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN
THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS WARRANT UNDER SAID
ACT AND APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO ADVANCED AERODYNAMICS & STRUCTURES, INC. THAT SUCH REGISTRATION
IS NOT REQUIRED.
Right to Purchase 130,000 Shares of Common Stock of
Advanced Aerodynamics & Structures, Inc. (subject to
adjustment as provided herein)
COMMON STOCK PURCHASE WARRANT
No. 1 March 6, 2000
ADVANCED AERODYNAMICS & STRUCTURES, INC., a corporation organized under the
laws of Delaware (the "Company"), hereby certifies that, for value received,
AUSTINVEST ANSTALT BALZERS, or assigns, is entitled, subject to the terms set
forth below, to purchase from the Company after March 6, 2000 at any time or
from time to time before 5:00 p.m., New York time, on March 6, 2003 (the
"Expiration Date"), up to 130,000 fully paid and nonassessable shares of Common
Stock (as hereinafter defined), $.0001 par value per share, of the Company. The
first 25% of the shares of Common Stock purchasable hereunder shall have a per
share purchase price of $3.87 per share of Common Stock. The second 25% of the
shares of Common Stock purchasable hereunder shall have a per share purchase
price of $4.24 per share of Common Stock. The third 25% of the shares of Common
Stock purchasable hereunder shall have a per share purchase price of $4.79 per
share of Common Stock. The final 25% of the shares of Common Stock purchasable
hereunder shall have a per share purchase price of $5.16 per share of Common
Stock. The aforedescribed purchase prices per share as adjusted from time to
time as herein provided is referred to herein as the "Purchase Price". The
number and character of such shares of Common Stock and the Purchase Price are
subject to adjustment as provided herein.
As used herein the following terms, unless the context otherwise requires,
have the following respective meanings:
(a) The term Company shall include Advanced Aerodynamics & Structures, Inc.
and any corporation which shall succeed or assume the obligations of Advanced
Aerodynamics & Structures, Inc. hereunder.
1
<PAGE>
(b) The term "Common Stock" includes (a) the Company's Class A Common
Stock, $.0001 par value per share, as authorized on the date of the Agreement,
(b) any other capital stock of any class or classes (however designated) of the
Company, authorized on or after such date in lieu of Class A Common Stock, the
holders of which shall have the right, without limitation as to amount, either
to all or to a share of the balance of current dividends and liquidating
dividends after the payment of dividends and distributions on any shares
entitled to preference, and the holders of which shall ordinarily, in the
absence of contingencies, be entitled to vote for the election of a majority of
directors of the Company (even if the right so to vote has been suspended by the
happening of such a contingency) and (c) any other securities into which or for
which any of the securities described in (a) or (b) may be converted or
exchanged pursuant to a plan of recapitalization, reorganization, merger, sale
of assets or otherwise.
(c) The term "Other Securities" refers to any stock (other than Common
Stock) and other securities of the Company or any other person (corporate or
otherwise) which the holder of the Warrant at any time shall be entitled to
receive, or shall have received, on the exercise of the Warrant, 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 4 or otherwise.
1. Exercise of Warrant.
-------------------
1.1. Number of Shares Issuable upon Exercise. From and after the
---------------------------------------
date hereof through and including the Expiration Date, the holder hereof shall
be entitled to receive, upon exercise of this Warrant in whole in accordance
with the terms of subsection 1.2 or upon exercise of this Warrant in part in
accordance with subsection 1.3, shares of Common Stock of the Company, subject
to adjustment pursuant to Section 4.
1.2. Full Exercise. This Warrant may be exercised in full by the
-------------
holder hereof by surrender of this Warrant, with the form of subscription
attached as Exhibit A hereto (the Subscription Form") duly executed by such
holder, to the Company at its principal office or at the office of its Warrant
agent (as provided in Section 12), accompanied by payment, in cash or by
certified or official bank check payable to the order of the Company, in the
amount obtained by multiplying the number of shares of Common Stock for which
this Warrant is then exercisable by the Purchase Price (as hereinafter defined)
then in effect.
1.3. Partial Exercise. This Warrant may be exercised in part (but
----------------
not for a fractional share) by surrender of this Warrant in the manner and at
the place provided in subsection 1.2 except that the amount payable by the
holder on such partial exercise shall be the amount obtained by multiplying (a)
the number of shares of Common Stock designated by the holder in the
Subscription Form by (b) the Purchase Price then in effect. On any such partial
exercise, the Company, at its expense, will forthwith issue and deliver to or
upon the order of the holder hereof a new Warrant of like tenor, in the name of
the holder hereof or as such holder (upon payment by such holder of any
applicable transfer taxes), may request, the number of shares of Common Stock
2
<PAGE>
for which such Warrant may still be exercised.
1.4. Fair Market Value. Fair Market Value of a share of Common Stock
-----------------
as of a particular date (the "Determination Date") shall mean the Fair Market
Value of a share of the Company's Common Stock. Fair Market Value of a share of
Common Stock as of a Determination Date shall mean:
(a) If the Company's Common Stock is traded on an exchange or is
quoted on the National Association of Securities Dealers, Inc. Automated
Quotation ("NASDAQ") National Market System or the NASDAQ SmallCap Market, then
the closing or last sale price, respectively, reported for the last business day
immediately preceding the Determination Date.
(b) If the Company's Common Stock is not traded on an exchange or
on the NASDAQ National Market System or the NASDAQ SmallCap Market but is traded
in the over-the-counter market, then the mean of the closing bid and asked
prices reported for the last business day immediately preceding the
Determination Date.
(c) Except as provided in clause (d) below, if the Company's
Common Stock is not publicly traded, then as the Holder and the Company agree or
in the absence of agreement by arbitration in accordance with the rules then
standing of the American Arbitration Association, before a single arbitrator to
be chosen from a panel of persons qualified by education and training to pass on
the matter to be decided.
(d) If the Determination Date is the date of a liquidation,
dissolution or winding up, or any event deemed to be a liquidation, dissolution
or winding up pursuant to the Company's charter, then all amounts to be payable
per share to holders of the Common Stock pursuant to the charter in the event of
such liquidation, dissolution or winding up, plus all other amounts to be
payable per share in respect of the Common Stock in liquidation under the
charter, assuming for the purposes of this clause (d) that all of the shares of
Common Stock then issuable upon exercise of all of the Warrants are outstanding
at the Determination Date.
1.5. Company Acknowledgment. The Company will, at the time of the
----------------------
exercise of the Warrant, upon the request of the holder hereof acknowledge in
writing its continuing obligation to afford to such holder any rights to which
such holder shall continue to be entitled after such exercise in accordance with
the provisions of this Warrant. If the holder shall fail to make any such
request, such failure shall not affect the continuing obligation of the Company
to afford to such holder any such rights.
1.6. Trustee for Warrant Holders. In the event that a bank or trust
---------------------------
company shall have been appointed as trustee for the holders of the Warrants
pursuant to Subsection 3.2, such bank or trust company shall have all the powers
and duties of a warrant agent appointed pursuant to Section 12 and shall accept,
in its own name for the account of the Company or such successor person as may
be entitled thereto, all amounts otherwise payable to the Company or such
successor,
3
<PAGE>
as the case may be, on exercise of this Warrant pursuant to this Section 1.
1.7. Exercise by Telecopier. The exercise date of this Warrant will
----------------------
be deemed to be the date the form of subscription attached as Exhibit A is
delivered by telecopier to the Company at its principal office or at the office
of its Warrant Agent (as provided in Section 12) provided that the original form
of subscription and payment are delivered within five business days of
telecopier delivery of the form of subscription.
2.1. Delivery of Stock Certificates, etc. on Exercise. The Company agrees
------------------------------------------------
that the shares of Common Stock purchased upon exercise of this Warrant shall be
deemed to be issued to the holder hereof as the record owner of such shares as
of the close of business on the date on which this Warrant shall have been
surrendered and payment made for such shares as aforesaid. As soon as
practicable after the exercise of this Warrant in full or in part, and in any
event within three business days thereafter, the Company at its expense
(including the payment by it of any applicable issue taxes) will cause to be
issued in the name of and delivered to the holder hereof, or as such holder
(upon payment by such holder of any applicable transfer taxes) may direct in
compliance with applicable Securities Laws, a certificate or certificates for
the number of duly and validly issued, fully paid and nonassessable shares of
Common Stock (or Other Securities) to which such holder shall be entitled on
such exercise, plus, in lieu of any fractional share to which such holder would
otherwise be entitled, cash equal to such fraction multiplied by the then Fair
Market Value of one full share, together with any other stock or other
securities and property (including cash, where applicable) to which such holder
is entitled upon such exercise pursuant to Section 1 or otherwise.
2.2. Cashless Exercise.
------------------
(a) Payment may be made either in (a) cash or by certified or official
bank check or checks payable to the order of the Company equal to the applicable
aggregate Purchase Price, (ii) by delivery of Warrants, Common Stock and/or
Common Stock receivable upon exercise of the Warrants in accordance with Section
(b) below, or (iii) by a combination of any of the foregoing methods) for the
number of Common Shares specified in such form (as such exercise number shall be
adjusted to reflect any adjustment in the total number of shares of Common Stock
issuable to the holder per the terms of this Warrant) and the holder shall
thereupon be entitled to receive the number of duly authorized, validly issued,
fully-paid and non-assessable shares of Common Stock (or Other Securities)
determined as provided herein.
(b) Notwithstanding any provisions herein to the contrary, if the Fair
Market Value of one share of Common Stock is greater than the Purchase Price (at
the date of calculation as set forth below), in lieu of exercising this Warrant
for cash the holder may elect to receive shares equal to the value (as
determined below) of this Warrant (or the portion thereof being cancelled) by
surrender of this Warrant at the principal office of the Company together with
the properly endorsed Subscription Form in which event the Company shall issue
to the holder a number of shares of Common Stock computed using the following
formula:
4
<PAGE>
X=Y (A-B)
---
A
-------
Where X= the number of shares of Common Stock to be issued to the
holder
Y= the number of shares of Common Stock purchasable under the
Warrant or, if only a portion of the Warrant is being
exercised, the portion of the Warrant being exercised (at the
date of such calculation)
A= the Fair Market Value of one share of the Company's Common
Stock (at the date of such calculation)
B= Purchase Price (as adjusted to the date of such calculation)
3. Adjustment for Reorganization, Consolidation, Merger, etc.
---------------------------------------------------------
3.1. Reorganization, Consolidation, Merger, etc. In case at any time
------------------------------------------
or from time to time, the Company shall (a) effect a reorganization, (b)
consolidate with or merge into any other person, or (c) transfer all or
substantially all of its properties or assets to any other person under any plan
or arrangement contemplating the dissolution of the Company, then, in each such
case, as a condition to the consummation of such a transaction, proper and
adequate provision shall be made by the Company whereby the holder of this
Warrant, on the exercise hereof as provided in Section 1 at any time after the
consummation of such reorganization, consolidation or merger or the effective
date of such dissolution, as the case may be, shall receive, in lieu of the
Common Stock (or Other Securities) issuable on such exercise prior to such
consummation or such effective date, the stock and other securities and property
(including cash) to which such holder would have been entitled upon such
consummation or in connection with such dissolution, as the case may be, if such
holder had so exercised this Warrant, immediately prior thereto, all subject to
further adjustment thereafter as provided in Section 4.
3.2. Dissolution. In the event of any dissolution of the Company
-----------
following the transfer of all or substantially all of its properties or assets,
the Company, prior to such dissolution, shall at its expense deliver or cause to
be delivered the stock and other securities and property (including cash, where
applicable) receivable by the holders of the Warrants after the effective date
of such dissolution pursuant to this Section 3 to a bank or trust company having
its principal office in New York, NY, as trustee for the holder or holders of
the Warrants.
3.3. Continuation of Terms. Upon any reorganization, consolidation,
---------------------
merger or transfer (and any dissolution following any transfer) referred to in
this Section 3.3, this Warrant shall continue in full force and effect and the
terms hereof shall be applicable to the shares of stock and other securities and
property receivable on the exercise of this Warrant after the consummation of
such reorganization, consolidation or merger or the effective date of
dissolution following any such
5
<PAGE>
transfer, as the case may be, and shall be binding upon the issuer of any such
stock or other securities, including, in the case of any such transfer, the
person acquiring all or substantially all of the properties or assets of the
Company, whether or not such person shall have expressly assumed the terms of
this Warrant as provided in Section 4. In the event this Warrant does not
continue in full force and effect after the consummation of the transaction
described in this Section 3.3, then only in such event will the Company's
securities and property (including cash, where applicable) receivable by the
holders of the Warrants be delivered to the Trustee as contemplated by Section
3.2.
4. Extraordinary Events Regarding Common Stock. In the event that the
-------------------------------------------
Company shall (a) issue additional shares of the Common Stock as a dividend or
other distribution on outstanding Common Stock, (b) subdivide its outstanding
shares of Common Stock, or (c) combine its outstanding shares of the Common
Stock into a smaller number of shares of the Common Stock, then, in each such
event, the Purchase Price shall, simultaneously with the happening of such
event, be adjusted by multiplying the then Purchase Price by a fraction, the
numerator of which shall be the number of shares of Common Stock outstanding
immediately prior to such event and the denominator of which shall be the number
of shares of Common Stock outstanding immediately after such event, and the
product so obtained shall thereafter be the Purchase Price then in effect. The
Purchase Price, as so adjusted, shall be readjusted in the same manner upon the
happening of any successive event or events described herein in this Section 4.
The number of shares of Common Stock that the holder of this Warrant shall
thereafter, on the exercise hereof as provided in Section 1, be entitled to
receive shall be increased to a number determined by multiplying the number of
shares of Common Stock that would otherwise (but for the provisions of this
Section 4) be issuable on such exercise by a fraction of which (a) the numerator
is the Purchase Price that would otherwise (but for the provisions of this
Section 4) be in effect, and (b) the denominator is the Purchase Price in effect
on the date of such exercise.
5. Certificate as to Adjustments. In each case of any adjustment or
-----------------------------
readjustment in the shares of Common Stock (or Other Securities) issuable on the
exercise of the Warrants, the Company at its expense will promptly cause its
Chief Financial Officer or other appropriate designee to compute such adjustment
or readjustment in accordance with the terms of the Warrant and prepare a
certificate setting forth such adjustment or readjustment and showing in detail
the facts upon which such adjustment or readjustment is based, including a
statement of (a) the consideration received or receivable by the Company for any
additional shares of Common Stock (or Other Securities) issued or sold or deemed
to have been issued or sold, (b) the number of shares of Common Stock (or Other
Securities) outstanding or deemed to be outstanding, and (c) the Purchase Price
and the number of shares of Common Stock to be received upon exercise of this
Warrant, in effect immediately prior to such adjustment or readjustment and as
adjusted or readjusted as provided in this Warrant. The Company will forthwith
mail a copy of each such certificate to the holder of the Warrant and any
Warrant agent of the Company (appointed pursuant to Section 10 hereof).
6. Reservation of Stock, etc. Issuable on Exercise of Warrant; Financial
---------------------------------------------------------------------
Statements. The Company will at all times reserve and keep available, solely for
- ----------
issuance and delivery on the exercise of the Warrants, all shares of Common
Stock (or Other Securities) from time to time issuable on the
6
<PAGE>
exercise of the Warrant. This Warrant entitles the holder hereof to receive
copies of all financial and other information distributed or required to be
distributed to the holders of the Company's Common Stock.
7. Assignment; Exchange of Warrant. Subject to compliance with applicable
-------------------------------
Securities laws, this Warrant, and the rights evidenced hereby, may be
transferred by any registered holder hereof (a "Transferor") with respect to any
or all of the Shares. On the surrender for exchange of this Warrant, with the
Transferor's endorsement in the form of Exhibit B attached hereto (the
Transferor Endorsement Form") and together with evidence reasonably satisfactory
to the Company demonstrating compliance with applicable Securities Laws, the
Company at its expense but with payment by the Transferor of any applicable
transfer taxes) will issue and deliver to or on the order of the Transferor
thereof a new Warrant or Warrants of like tenor, in the name of the Transferor
and/or the transferee(s) specified in such Transferor Endorsement Form (each a
"Transferee"), calling in the aggregate on the face or faces thereof for the
number of shares of Common Stock called for on the face or faces of the Warrant
so surrendered by the Transferor.
8. Replacement of Warrant. On receipt of evidence reasonably satisfactory
----------------------
to the Company of the loss, theft, destruction or mutilation of this Warrant
and, in the case of any such loss, theft or destruction of this Warrant, on
delivery of an indemnity agreement or security reasonably satisfactory in form
and amount to the Company or, in the case of any such mutilation, on surrender
and cancellation of this Warrant, the Company at its expense will execute and
deliver, in lieu thereof, a new Warrant of like tenor.
9. Registration Rights/ Shareholder Approval. The holder of this Warrant
-----------------------------------------
has been granted certain registration rights by the Company. These registration
rights are set forth in a Subscription Agreement entered into by the Company and
Subscribers of the Company's Series A 5% Preferred Stock at or prior to the
issue date of this Warrant. The terms of the Subscription Agreement are
incorporated herein by this reference. The holder of this Warrant may not
exercise his rights hereunder to purchase some or all of the Common Stock
issuable upon exercise of this Warrant until the Company obtains the Approval,
as defined in the Subscription Agreement. Upon (i) after the occurrence and
during the pendency of a Non-Registration Event as described in the Subscription
Agreement, from and after the Effective Date (as defined in the Subscription
Agreement); or (ii) after the occurrence and during the pendency of an Approval
Default, then, within five days after written demand to the Company from the
Holder, the Company will pay to the Holder of this Warrant, in lieu of
delivering Common Stock, a sum equal to the closing ask price of the Company's
Common Stock on the NASDAQ National Market or such other principal trading
market for the Company's Common Stock on the trading date immediately preceding
the date notice is given by the Holder, less the Purchase Price of this Warrant,
for each share of Common Stock designated in such notice from the Holder.
10. Call Option. The Company shall have the option to "call" the Warrants
-----------
(the "Warrant Call"), in accordance with and governed by the following:
7
<PAGE>
(a) The Company shall exercise the Warrant Call by giving to each
Warrant Holder a written notice of call (the "Call Notice") during the period in
which the Warrant Call may be exercised.
(b) The Company's right to exercise the Warrant Call shall commence
with the Actual Effective Date, as defined in Section 11.2(a) of the
Subscription Agreement and thereafter, shall be coterminous with the exercise
period of the Warrants for a maximum of 50% of the Common Stock issuable upon
the exercise of this Warrant (the "Warrant Shares"), provided, that the
registration statement is effective at the date the Call Notice is given and
through the period ending 14 business days thereafter. In no event may the
Company exercise the Warrant Call at any time unless the Warrant Shares to be
delivered upon exercise of the Warrant, will be upon delivery, immediately
resalable, without restrictive legend and upon such resale freely transferable
on the transfer books of the Company.
(c) Unless otherwise agreed to by the Warrant Holder, the Call Notices
must be given to all Warrant Holders who receive Warrants similar to this
Warrant on or about the same issue date as this Warrant in proportion to the
amounts of Common Stock which can be purchased by the respective Warrant Holders
in accordance with the respective Warrant held by each.
(d) The Company may give a Call Notice in connection with up to 25% of
the Common Stock issuable upon exercise of this Warrant provided the closing bid
price of the Common Stock as reported by the NASDAQ National Market for each of
the thirty days prior to the giving of the Call Notice ("Lookback Period") is
200% of the Purchase Price and the average daily trading volume of the Common
Stock during the Lookback Period is not less than 150,000 Common Shares. A Call
Notice may be given for an additional 25% of the Common Stock issuable upon
exercise of this Warrant provided the average daily trading volume during the
Lookback Period is at least 250,000 Common Shares.
(e) The respective Warrant Holders shall exercise their Warrant rights
and purchase the appropriate Warrant Shares and pay for same within 14 business
days of the date of the Call Notice. If the Warrant Holder fails to timely pay
the funds required by the Warrant Call, the Company may elect to cancel a
corresponding amount of this Warrant.
(f) The Company may not exercise the right to Call this Warrant or any
part of it after the occurrence of a Non-Registration Event or Approval Default,
as defined in the Subscription Agreement, unless same were subject to cure and
cured during the stated cure period.
11. Maximum Exercise. The Holder shall not be entitled to exercise, on an
----------------
exercise date, this Warrant in connection with that number of shares of Common
Stock which would be in excess of the sum of (i) the number of shares of Common
Stock beneficially owned by the Holder and its affiliates on an exercise date,
and (ii) the number of shares of Common Stock issuable upon the exercise of this
Warrant with respect to which the determination of this proviso is being made on
an exercise date, which would result in beneficial ownership by the Holder and
its affiliates of more
8
<PAGE>
than 9.99% of the outstanding shares of Common Stock of the Company on such
exercise date. For the purposes of the proviso to the immediately preceding
sentence, beneficial ownership shall be determined in accordance with Section
13(d) of the Securities Exchange Act of 1934, as amended, and Regulation 13d-3
thereunder. Subject to the foregoing, the Holder shall not be limited to
aggregate exercises which would result in the issuance of more than 9.99%. The
restriction described in this paragraph may be revoked upon 75 days prior notice
from the Holder to the Company. The Holder may allocate which of the equity of
the Company deemed beneficially owned by the Holder shall be included in the
9.9% amount described above and which shall be allocated to the excess above
9.99%.
12. Warrant Agent. The Company may, by written notice to the each holder
-------------
of the Warrant, appoint an agent for the purpose of issuing Common Stock (or
Other Securities) on the exercise of this Warrant pursuant to Section 1,
exchanging this Warrant pursuant to Section 7, and replacing this Warrant
pursuant to Section 8, or any of the foregoing, and thereafter any such
issuance, exchange or replacement, as the case may be, shall be made at such
office by such agent.
13. Transfer on the Company's Books. Until this Warrant is transferred on
-------------------------------
the books of the Company, the Company may treat the registered holder hereof as
the absolute owner hereof for all purposes, notwithstanding any notice to the
contrary.
14. Notices, etc. All notices and other communications from the Company
------------
to the holder of this Warrant shall be mailed by first class registered or
certified mail, postage prepaid, at such address as may have been furnished to
the Company in writing by such holder or, until any such holder furnishes to the
Company an address, then to, and at the address of, the last holder of this
Warrant who has so furnished an address to the Company.
15. Miscellaneous. This Warrant and any term hereof may be changed,
-------------
waived, discharged or terminated only by an instrument in writing signed by the
party against which enforcement of such change, waiver, discharge or termination
is sought. This Warrant shall be construed and enforced in accordance with and
governed by the laws of New York. Any dispute relating to this Warrant shall be
adjudicated in New York State. The headings in this Warrant are for purposes of
reference only, and shall not limit or otherwise affect any of the terms hereof.
The invalidity or unenforceability of any provision hereof shall in no way
affect the validity or enforceability of any other provision.
[THIS SPACE INTENTIONALLY LEFT BLANK]
9
<PAGE>
IN WITNESS WHEREOF, the Company has executed this Warrant under seal as of
the date first written above.
ADVANCED AERODYNAMICS & STRUCTURES, INC.
By:_____________________________________
Witness:
______________________________
10
<PAGE>
Exhibit A
FORM OF SUBSCRIPTION
(To be signed only on exercise of Warrant)
TO: Advanced Aerodynamics & Structures, Inc.
The undersigned, pursuant to the provisions set forth in the attached Warrant
(No.____), hereby irrevocably elects to purchase (check applicable box):
___ ________ shares of the Common Stock covered by such Warrant; or
___ the maximum number of shares of Common Stock covered by such Warrant
pursuant to the cashless exercise procedure set forth in Section 2.
The undersigned herewith makes payment of the full purchase price for such
shares at the price per share provided for in such Warrant, which is
$___________. Such payment takes the form of (check applicable box or boxes):
___ $__________ in lawful money of the United States; and/or
___ the cancellation of such portion of the attached Warrant as is exercisable
for a total of _______ shares of Common Stock (using a Fair Market Value of
$_______ per share for purposes of this calculation); and/or
___ the cancellation of such number of shares of Common Stock as is necessary,
in accordance with the formula set forth in Section 2, to exercise this Warrant
with respect to the maximum number of shares of Common Stock purchaseable
pursuant to the cashless exercise procedure set forth in Section 2.
The undersigned requests that the certificates for such shares be issued in the
name of, and delivered to ___________________ whose address is _________________
____________________________________________________.
The undersigned represents and warrants that all offers and sales by the
undersigned of the securities issuable upon exercise of the within Warrant shall
be made pursuant to registration of the Common Stock under the Securities Act of
1933, as amended (the "Securities Act") or pursuant to an exemption from
registration under the Securities Act.
Dated:___________________ _____________________________________
(Signature must conform to name of holder as
specified on the face of the Warrant)
_____________________________________
(Address)
11
<PAGE>
Exhibit B
FORM OF TRANSFEROR ENDORSEMENT
(To be signed only on transfer of Warrant)
For value received, the undersigned hereby sells, assigns, and
transfers unto the person(s) named below under the heading "Transferees" the
right represented by the within Warrant to purchase the percentage and number of
shares of Common Stock of Advanced Aerodynamics & Structures, Inc. to which the
within Warrant relates specified under the headings "Percentage Transferred" and
"Number Transferred," respectively, opposite the name(s) of such person(s) and
appoints each such person Attorney to transfer its respective right on the books
of Advanced Aerodynamics & Structures, Inc. with full power of substitution in
the premises.
Percentage Number
Transferees Transferred Transferred
----------- ----------- -----------
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
=========================================================================
Dated: _______________ _________________________________
(Signature must conform to name of holder as
specified on the face of the warrant)
Signed in the presence of:
_____________________________ ________________________________
(Name) (address)
______________________________
ACCEPTED AND AGREED: (address)
[TRANSFEREE]
_____________________________
(Name)
12
<PAGE>
EXHIBIT 4.6
THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE
STATE SECURITIES LAWS. THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE
OF THIS WARRANT MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN
THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS WARRANT UNDER SAID
ACT AND APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO ADVANCED AERODYNAMICS & STRUCTURES, INC. THAT SUCH REGISTRATION
IS NOT REQUIRED.
Right to Purchase 25,000 Shares of Common Stock of
Advanced Aerodynamics & Structures, Inc. (subject to
adjustment as provided herein)
COMMON STOCK PURCHASE WARRANT
No. 13 March 6, 2000
ADVANCED AERODYNAMICS & STRUCTURES, INC., a corporation organized under the
laws of Delaware (the "Company"), hereby certifies that, for value received,
SARAH LIEBERMAN, or assigns, is entitled, subject to the terms set forth below,
to purchase from the Company after March 6, 2000 at any time or from time to
time before 5:00 p.m., New York time, on March 6, 2003 (the "Expiration Date"),
up to 25,000 fully paid and nonassessable shares of Common Stock (as hereinafter
defined), $.0001 par value per share, of the Company at a purchase price of
$4.425 per share of Common Stock. The aforedescribed purchase prices per share
as adjusted from time to time as herein provided is referred to herein as the
"Purchase Price". The number and character of such shares of Common Stock and
the Purchase Price are subject to adjustment as provided herein.
As used herein the following terms, unless the context otherwise requires,
have the following respective meanings:
(a) The term Company shall include Advanced Aerodynamics & Structures, Inc.
and any corporation which shall succeed or assume the obligations of Advanced
Aerodynamics & Structures, Inc. hereunder.
1
<PAGE>
(b) The term "Common Stock" includes (a) the Company's Class A Common
Stock, $.0001 par value per share, as authorized on the date of the Agreement,
(b) any other capital stock of any class or classes (however designated) of the
Company, authorized on or after such date in lieu of Class A Common Stock, the
holders of which shall have the right, without limitation as to amount, either
to all or to a share of the balance of current dividends and liquidating
dividends after the payment of dividends and distributions on any shares
entitled to preference, and the holders of which shall ordinarily, in the
absence of contingencies, be entitled to vote for the election of a majority of
directors of the Company (even if the right so to vote has been suspended by the
happening of such a contingency) and (c) any other securities into which or for
which any of the securities described in (a) or (b) may be converted or
exchanged pursuant to a plan of recapitalization, reorganization, merger, sale
of assets or otherwise.
(c) The term "Other Securities" refers to any stock (other than Common
Stock) and other securities of the Company or any other person (corporate or
otherwise) which the holder of the Warrant at any time shall be entitled to
receive, or shall have received, on the exercise of the Warrant, 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 4 or otherwise.
1. Exercise of Warrant.
-------------------
1.1. Number of Shares Issuable upon Exercise. From and after the
---------------------------------------
date hereof through and including the Expiration Date, the holder hereof shall
be entitled to receive, upon exercise of this Warrant in whole in accordance
with the terms of subsection 1.2 or upon exercise of this Warrant in part in
accordance with subsection 1.3, shares of Common Stock of the Company, subject
to adjustment pursuant to Section 4.
1.2. Full Exercise. This Warrant may be exercised in full by the
-------------
holder hereof by surrender of this Warrant, with the form of subscription
attached as Exhibit A hereto (the Subscription Form") duly executed by such
holder, to the Company at its principal office or at the office of its Warrant
agent (as provided in Section 12), accompanied by payment, in cash or by
certified or official bank check payable to the order of the Company, in the
amount obtained by multiplying the number of shares of Common Stock for which
this Warrant is then exercisable by the Purchase Price (as hereinafter defined)
then in effect.
1.3. Partial Exercise. This Warrant may be exercised in part (but
----------------
not for a fractional share) by surrender of this Warrant in the manner and at
the place provided in subsection 1.2 except that the amount payable by the
holder on such partial exercise shall be the amount obtained by multiplying (a)
the number of shares of Common Stock designated by the holder in the
Subscription Form by (b) the Purchase Price then in effect. On any such partial
exercise, the Company, at its expense, will forthwith issue and deliver to or
upon the order of the holder hereof a new Warrant of like tenor, in the name of
the holder hereof or as such holder (upon payment by such holder of any
applicable transfer taxes), may request, the number of shares of Common Stock
2
<PAGE>
for which such Warrant may still be exercised.
1.4. Fair Market Value. Fair Market Value of a share of Common Stock
-----------------
as of a particular date (the "Determination Date") shall mean the Fair Market
Value of a share of the Company's Common Stock. Fair Market Value of a share of
Common Stock as of a Determination Date shall mean:
(a) If the Company's Common Stock is traded on an exchange or is
quoted on the National Association of Securities Dealers, Inc. Automated
Quotation ("NASDAQ") National Market System or the NASDAQ SmallCap Market, then
the closing or last sale price, respectively, reported for the last business day
immediately preceding the Determination Date.
(b) If the Company's Common Stock is not traded on an exchange or
on the NASDAQ National Market System or the NASDAQ SmallCap Market but is traded
in the over-the-counter market, then the mean of the closing bid and asked
prices reported for the last business day immediately preceding the
Determination Date.
(c) Except as provided in clause (d) below, if the Company's
Common Stock is not publicly traded, then as the Holder and the Company agree or
in the absence of agreement by arbitration in accordance with the rules then
standing of the American Arbitration Association, before a single arbitrator to
be chosen from a panel of persons qualified by education and training to pass on
the matter to be decided.
(d) If the Determination Date is the date of a liquidation,
dissolution or winding up, or any event deemed to be a liquidation, dissolution
or winding up pursuant to the Company's charter, then all amounts to be payable
per share to holders of the Common Stock pursuant to the charter in the event of
such liquidation, dissolution or winding up, plus all other amounts to be
payable per share in respect of the Common Stock in liquidation under the
charter, assuming for the purposes of this clause (d) that all of the shares of
Common Stock then issuable upon exercise of all of the Warrants are outstanding
at the Determination Date.
1.5. Company Acknowledgment. The Company will, at the time of the
----------------------
exercise of the Warrant, upon the request of the holder hereof acknowledge in
writing its continuing obligation to afford to such holder any rights to which
such holder shall continue to be entitled after such exercise in accordance with
the provisions of this Warrant. If the holder shall fail to make any such
request, such failure shall not affect the continuing obligation of the Company
to afford to such holder any such rights.
1.6. Trustee for Warrant Holders. In the event that a bank or trust
---------------------------
company shall have been appointed as trustee for the holders of the Warrants
pursuant to Subsection 3.2, such bank or trust company shall have all the powers
and duties of a warrant agent appointed pursuant to Section 12 and shall accept,
in its own name for the account of the Company or such successor person as may
be entitled thereto, all amounts otherwise payable to the Company or such
successor,
3
<PAGE>
as the case may be, on exercise of this Warrant pursuant to this Section 1.
1.7. Exercise by Telecopier. The exercise date of this Warrant will
----------------------
be deemed to be the date the form of subscription attached as Exhibit A is
delivered by telecopier to the Company at its principal office or at the office
of its Warrant Agent (as provided in Section 12) provided that the original form
of subscription and payment are delivered within five business days of
telecopier delivery of the form of subscription.
2.1. Delivery of Stock Certificates, etc. on Exercise. The Company agrees
------------------------------------------------
that the shares of Common Stock purchased upon exercise of this Warrant shall be
deemed to be issued to the holder hereof as the record owner of such shares as
of the close of business on the date on which this Warrant shall have been
surrendered and payment made for such shares as aforesaid. As soon as
practicable after the exercise of this Warrant in full or in part, and in any
event within three business days thereafter, the Company at its expense
(including the payment by it of any applicable issue taxes) will cause to be
issued in the name of and delivered to the holder hereof, or as such holder
(upon payment by such holder of any applicable transfer taxes) may direct in
compliance with applicable Securities Laws, a certificate or certificates for
the number of duly and validly issued, fully paid and nonassessable shares of
Common Stock (or Other Securities) to which such holder shall be entitled on
such exercise, plus, in lieu of any fractional share to which such holder would
otherwise be entitled, cash equal to such fraction multiplied by the then Fair
Market Value of one full share, together with any other stock or other
securities and property (including cash, where applicable) to which such holder
is entitled upon such exercise pursuant to Section 1 or otherwise.
2.2. Cashless Exercise.
------------------
(a) Payment may be made either in (a) cash or by certified or
official bank check or checks payable to the order of the Company equal to the
applicable aggregate Purchase Price, (ii) by delivery of Warrants, Common Stock
and/or Common Stock receivable upon exercise of the Warrants in accordance with
Section (b) below, or (iii) by a combination of any of the foregoing methods)
for the number of Common Shares specified in such form (as such exercise number
shall be adjusted to reflect any adjustment in the total number of shares of
Common Stock issuable to the holder per the terms of this Warrant) and the
holder shall thereupon be entitled to receive the number of duly authorized,
validly issued, fully-paid and non-assessable shares of Common Stock (or Other
Securities) determined as provided herein.
(b) Notwithstanding any provisions herein to the contrary, if the
Fair Market Value of one share of Common Stock is greater than the Purchase
Price (at the date of calculation as set forth below), in lieu of exercising
this Warrant for cash the holder may elect to receive shares equal to the value
(as determined below) of this Warrant (or the portion thereof being cancelled)
by surrender of this Warrant at the principal office of the Company together
with the properly endorsed Subscription Form in which event the Company shall
issue to the holder a number of shares of Common Stock computed using the
following formula:
4
<PAGE>
X=Y (A-B)
---
A
-------
Where X= the number of shares of Common Stock to be issued to the
holder
Y= the number of shares of Common Stock purchasable under the
Warrant or, if only a portion of the Warrant is being
exercised, the portion of the Warrant being exercised (at the
date of such calculation)
A= the Fair Market Value of one share of the Company's Common
Stock (at the date of such calculation)
B= Purchase Price (as adjusted to the date of such calculation)
3. Adjustment for Reorganization, Consolidation, Merger, etc.
---------------------------------------------------------
3.1. Reorganization, Consolidation, Merger, etc. In case at any time
------------------------------------------
or from time to time, the Company shall (a) effect a reorganization, (b)
consolidate with or merge into any other person, or (c) transfer all or
substantially all of its properties or assets to any other person under any plan
or arrangement contemplating the dissolution of the Company, then, in each such
case, as a condition to the consummation of such a transaction, proper and
adequate provision shall be made by the Company whereby the holder of this
Warrant, on the exercise hereof as provided in Section 1 at any time after the
consummation of such reorganization, consolidation or merger or the effective
date of such dissolution, as the case may be, shall receive, in lieu of the
Common Stock (or Other Securities) issuable on such exercise prior to such
consummation or such effective date, the stock and other securities and property
(including cash) to which such holder would have been entitled upon such
consummation or in connection with such dissolution, as the case may be, if such
holder had so exercised this Warrant, immediately prior thereto, all subject to
further adjustment thereafter as provided in Section 4.
3.2. Dissolution. In the event of any dissolution of the Company
-----------
following the transfer of all or substantially all of its properties or assets,
the Company, prior to such dissolution, shall at its expense deliver or cause to
be delivered the stock and other securities and property (including cash, where
applicable) receivable by the holders of the Warrants after the effective date
of such dissolution pursuant to this Section 3 to a bank or trust company having
its principal office in New York, NY, as trustee for the holder or holders of
the Warrants.
3.3. Continuation of Terms. Upon any reorganization, consolidation,
---------------------
merger or transfer (and any dissolution following any transfer) referred to in
this Section 3.3, this Warrant shall continue in full force and effect and the
terms hereof shall be applicable to the shares of stock and other securities and
property receivable on the exercise of this Warrant after the consummation of
such reorganization, consolidation or merger or the effective date of
dissolution following any such
5
<PAGE>
transfer, as the case may be, and shall be binding upon the issuer of any such
stock or other securities, including, in the case of any such transfer, the
person acquiring all or substantially all of the properties or assets of the
Company, whether or not such person shall have expressly assumed the terms of
this Warrant as provided in Section 4. In the event this Warrant does not
continue in full force and effect after the consummation of the transaction
described in this Section 3.3, then only in such event will the Company's
securities and property (including cash, where applicable) receivable by the
holders of the Warrants be delivered to the Trustee as contemplated by Section
3.2.
4. Extraordinary Events Regarding Common Stock. In the event that the
-------------------------------------------
Company shall (a) issue additional shares of the Common Stock as a dividend or
other distribution on outstanding Common Stock, (b) subdivide its outstanding
shares of Common Stock, or (c) combine its outstanding shares of the Common
Stock into a smaller number of shares of the Common Stock, then, in each such
event, the Purchase Price shall, simultaneously with the happening of such
event, be adjusted by multiplying the then Purchase Price by a fraction, the
numerator of which shall be the number of shares of Common Stock outstanding
immediately prior to such event and the denominator of which shall be the number
of shares of Common Stock outstanding immediately after such event, and the
product so obtained shall thereafter be the Purchase Price then in effect. The
Purchase Price, as so adjusted, shall be readjusted in the same manner upon the
happening of any successive event or events described herein in this Section 4.
The number of shares of Common Stock that the holder of this Warrant shall
thereafter, on the exercise hereof as provided in Section 1, be entitled to
receive shall be increased to a number determined by multiplying the number of
shares of Common Stock that would otherwise (but for the provisions of this
Section 4) be issuable on such exercise by a fraction of which (a) the numerator
is the Purchase Price that would otherwise (but for the provisions of this
Section 4) be in effect, and (b) the denominator is the Purchase Price in effect
on the date of such exercise.
5. Certificate as to Adjustments. In each case of any adjustment or
-----------------------------
readjustment in the shares of Common Stock (or Other Securities) issuable on the
exercise of the Warrants, the Company at its expense will promptly cause its
Chief Financial Officer or other appropriate designee to compute such adjustment
or readjustment in accordance with the terms of the Warrant and prepare a
certificate setting forth such adjustment or readjustment and showing in detail
the facts upon which such adjustment or readjustment is based, including a
statement of (a) the consideration received or receivable by the Company for any
additional shares of Common Stock (or Other Securities) issued or sold or deemed
to have been issued or sold, (b) the number of shares of Common Stock (or Other
Securities) outstanding or deemed to be outstanding, and (c) the Purchase Price
and the number of shares of Common Stock to be received upon exercise of this
Warrant, in effect immediately prior to such adjustment or readjustment and as
adjusted or readjusted as provided in this Warrant. The Company will forthwith
mail a copy of each such certificate to the holder of the Warrant and any
Warrant agent of the Company (appointed pursuant to Section 10 hereof).
6. Reservation of Stock, etc. Issuable on Exercise of Warrant; Financial
---------------------------------------------------------------------
Statements. The Company will at all times reserve and keep available, solely for
- ----------
issuance and delivery on the exercise of the Warrants, all shares of Common
Stock (or Other Securities) from time to time issuable on the
6
<PAGE>
exercise of the Warrant. This Warrant entitles the holder hereof to receive
copies of all financial and other information distributed or required to be
distributed to the holders of the Company's Common Stock.
7. Assignment; Exchange of Warrant. Subject to compliance with applicable
-------------------------------
Securities laws, this Warrant, and the rights evidenced hereby, may be
transferred by any registered holder hereof (a "Transferor") with respect to any
or all of the Shares. On the surrender for exchange of this Warrant, with the
Transferor's endorsement in the form of Exhibit B attached hereto (the
Transferor Endorsement Form") and together with evidence reasonably satisfactory
to the Company demonstrating compliance with applicable Securities Laws, the
Company at its expense but with payment by the Transferor of any applicable
transfer taxes) will issue and deliver to or on the order of the Transferor
thereof a new Warrant or Warrants of like tenor, in the name of the Transferor
and/or the transferee(s) specified in such Transferor Endorsement Form (each a
"Transferee"), calling in the aggregate on the face or faces thereof for the
number of shares of Common Stock called for on the face or faces of the Warrant
so surrendered by the Transferor.
8. Replacement of Warrant. On receipt of evidence reasonably satisfactory
----------------------
to the Company of the loss, theft, destruction or mutilation of this Warrant
and, in the case of any such loss, theft or destruction of this Warrant, on
delivery of an indemnity agreement or security reasonably satisfactory in form
and amount to the Company or, in the case of any such mutilation, on surrender
and cancellation of this Warrant, the Company at its expense will execute and
deliver, in lieu thereof, a new Warrant of like tenor.
9. Registration Rights/ Shareholder Approval. The holder of this Warrant
-----------------------------------------
has been granted certain registration rights by the Company. These registration
rights are set forth in a Subscription Agreement entered into by the Company and
Subscribers of the Company's Series A 5% Preferred Stock at or prior to the
issue date of this Warrant. The terms of the Subscription Agreement are
incorporated herein by this reference. The holder of this Warrant may not
exercise his rights hereunder to purchase some or all of the Common Stock
issuable upon exercise of this Warrant until the Company obtains the Approval,
as defined in the Subscription Agreement. Upon (i) after the occurrence and
during the pendency of a Non-Registration Event as described in the Subscription
Agreement, from and after the Effective Date (as defined in the Subscription
Agreement); or (ii) after the occurrence and during the pendency of an Approval
Default, then, within five days after written demand to the Company from the
Holder, the Company will pay to the Holder of this Warrant, in lieu of
delivering Common Stock, a sum equal to the closing ask price of the Company's
Common Stock on the NASDAQ National Market or such other principal trading
market for the Company's Common Stock on the trading date immediately preceding
the date notice is given by the Holder, less the Purchase Price of this Warrant,
for each share of Common Stock designated in such notice from the Holder.
10. Call Option. The Company shall have the option to "call" the Warrants
-----------
(the "Warrant Call"), in accordance with and governed by the following:
7
<PAGE>
(a) The Company shall exercise the Warrant Call by giving to each
Warrant Holder a written notice of call (the "Call Notice") during the period in
which the Warrant Call may be exercised.
(b) The Company's right to exercise the Warrant Call shall commence
with the Actual Effective Date, as defined in Section 11.2(a) of the
Subscription Agreement and thereafter, shall be coterminous with the exercise
period of the Warrants for a maximum of 50% of the Common Stock issuable upon
the exercise of this Warrant (the "Warrant Shares"), provided, that the
registration statement is effective at the date the Call Notice is given and
through the period ending 14 business days thereafter. In no event may the
Company exercise the Warrant Call at any time unless the Warrant Shares to be
delivered upon exercise of the Warrant, will be upon delivery, immediately
resalable, without restrictive legend and upon such resale freely transferable
on the transfer books of the Company.
(c) Unless otherwise agreed to by the Warrant Holder, the Call Notices
must be given to all Warrant Holders who receive Warrants similar to this
Warrant on or about the same issue date as this Warrant in proportion to the
amounts of Common Stock which can be purchased by the respective Warrant Holders
in accordance with the respective Warrant held by each.
(d) The Company may give a Call Notice in connection with up to 25% of
the Common Stock issuable upon exercise of this Warrant provided the closing bid
price of the Common Stock as reported by the NASDAQ National Market for each of
the thirty days prior to the giving of the Call Notice ("Lookback Period") is
200% of the Purchase Price and the average daily trading volume of the Common
Stock during the Lookback Period is not less than 150,000 Common Shares. A Call
Notice may be given for an additional 25% of the Common Stock issuable upon
exercise of this Warrant provided the average daily trading volume during the
Lookback Period is at least 250,000 Common Shares.
(e) The respective Warrant Holders shall exercise their Warrant rights
and purchase the appropriate Warrant Shares and pay for same within 14 business
days of the date of the Call Notice. If the Warrant Holder fails to timely pay
the funds required by the Warrant Call, the Company may elect to cancel a
corresponding amount of this Warrant.
(f) The Company may not exercise the right to Call this Warrant or any
part of it after the occurrence of a Non-Registration Event or Approval Default,
as defined in the Subscription Agreement, unless same were subject to cure and
cured during the stated cure period.
11. Maximum Exercise. The Holder shall not be entitled to exercise, on an
----------------
exercise date, this Warrant in connection with that number of shares of Common
Stock which would be in excess of the sum of (i) the number of shares of Common
Stock beneficially owned by the Holder and its affiliates on an exercise date,
and (ii) the number of shares of Common Stock issuable upon the exercise of this
Warrant with respect to which the determination of this proviso is being made on
an exercise date, which would result in beneficial ownership by the Holder and
its affiliates of more
8
<PAGE>
than 9.99% of the outstanding shares of Common Stock of the Company on such
exercise date. For the purposes of the proviso to the immediately preceding
sentence, beneficial ownership shall be determined in accordance with Section
13(d) of the Securities Exchange Act of 1934, as amended, and Regulation 13d-3
thereunder. Subject to the foregoing, the Holder shall not be limited to
aggregate exercises which would result in the issuance of more than 9.99%. The
restriction described in this paragraph may be revoked upon 75 days prior notice
from the Holder to the Company. The Holder may allocate which of the equity of
the Company deemed beneficially owned by the Holder shall be included in the
9.9% amount described above and which shall be allocated to the excess above
9.99%.
12. Warrant Agent. The Company may, by written notice to the each holder
-------------
of the Warrant, appoint an agent for the purpose of issuing Common Stock (or
Other Securities) on the exercise of this Warrant pursuant to Section 1,
exchanging this Warrant pursuant to Section 7, and replacing this Warrant
pursuant to Section 8, or any of the foregoing, and thereafter any such
issuance, exchange or replacement, as the case may be, shall be made at such
office by such agent.
13. Transfer on the Company's Books. Until this Warrant is transferred on
-------------------------------
the books of the Company, the Company may treat the registered holder hereof as
the absolute owner hereof for all purposes, notwithstanding any notice to the
contrary.
14. Notices, etc. All notices and other communications from the Company
------------
to the holder of this Warrant shall be mailed by first class registered or
certified mail, postage prepaid, at such address as may have been furnished to
the Company in writing by such holder or, until any such holder furnishes to the
Company an address, then to, and at the address of, the last holder of this
Warrant who has so furnished an address to the Company.
15. Miscellaneous. This Warrant and any term hereof may be changed,
-------------
waived, discharged or terminated only by an instrument in writing signed by the
party against which enforcement of such change, waiver, discharge or termination
is sought. This Warrant shall be construed and enforced in accordance with and
governed by the laws of New York. Any dispute relating to this Warrant shall be
adjudicated in New York State. The headings in this Warrant are for purposes of
reference only, and shall not limit or otherwise affect any of the terms hereof.
The invalidity or unenforceability of any provision hereof shall in no way
affect the validity or enforceability of any other provision.
[THIS SPACE INTENTIONALLY LEFT BLANK]
9
<PAGE>
IN WITNESS WHEREOF, the Company has executed this Warrant under seal as of
the date first written above.
ADVANCED AERODYNAMICS & STRUCTURES, INC.
By:_____________________________________
Witness:
______________________________
10
<PAGE>
Exhibit A
FORM OF SUBSCRIPTION
(To be signed only on exercise of Warrant)
TO: Advanced Aerodynamics & Structures, Inc.
The undersigned, pursuant to the provisions set forth in the attached Warrant
(No.____), hereby irrevocably elects to purchase (check applicable box):
___ ________ shares of the Common Stock covered by such Warrant; or
___ the maximum number of shares of Common Stock covered by such Warrant
pursuant to the cashless exercise procedure set forth in Section 2.
The undersigned herewith makes payment of the full purchase price for such
shares at the price per share provided for in such Warrant, which is
$___________. Such payment takes the form of (check applicable box or boxes):
___ $__________ in lawful money of the United States; and/or
___ the cancellation of such portion of the attached Warrant as is exercisable
for a total of _______ shares of Common Stock (using a Fair Market Value of
$_______ per share for purposes of this calculation); and/or
___ the cancellation of such number of shares of Common Stock as is necessary,
in accordance with the formula set forth in Section 2, to exercise this Warrant
with respect to the maximum number of shares of Common Stock purchaseable
pursuant to the cashless exercise procedure set forth in Section 2.
The undersigned requests that the certificates for such shares be issued in the
name of, and delivered to ___________________ whose address is _________________
____________________________________________________.
The undersigned represents and warrants that all offers and sales by the
undersigned of the securities issuable upon exercise of the within Warrant shall
be made pursuant to registration of the Common Stock under the Securities Act of
1933, as amended (the "Securities Act") or pursuant to an exemption from
registration under the Securities Act.
Dated:___________________ _____________________________________
(Signature must conform to name of holder as
specified on the face of the Warrant)
_____________________________________
(Address)
11
<PAGE>
Exhibit B
FORM OF TRANSFEROR ENDORSEMENT
(To be signed only on transfer of Warrant)
For value received, the undersigned hereby sells, assigns, and
transfers unto the person(s) named below under the heading "Transferees" the
right represented by the within Warrant to purchase the percentage and number of
shares of Common Stock of Advanced Aerodynamics & Structures, Inc. to which the
within Warrant relates specified under the headings "Percentage Transferred" and
"Number Transferred," respectively, opposite the name(s) of such person(s) and
appoints each such person Attorney to transfer its respective right on the books
of Advanced Aerodynamics & Structures, Inc. with full power of substitution in
the premises.
================================================================================
Percentage Number
Transferees Transferred Transferred
----------- ----------- -----------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
================================================================================
Dated: _____________ _____________________________________
(Signature must conform to name of holder as
specified on the face of the warrant)
Signed in the presence of:
_____________________________ ________________________________
(Name) (address)
________________________________
ACCEPTED AND AGREED: (address)
[TRANSFEREE]
_____________________________
(Name)
12
<PAGE>
EXHIBIT 4.7
FUNDS ESCROW AGREEMENT
----------------------
This Agreement is dated as of the 6th day of March, 2000 among Advanced
Aerodynamics & Structures, Inc., a Delaware corporation (the "Company"), the
Subscribers identified on Schedule A hereto ("Subscriber" or "Subscribers"), and
Grushko & Mittman (the "Escrow Agent"):
W I T N E S S E T H:
WHEREAS, the Company and Subscriber have entered into a Subscription
Agreement ("Subscription Agreement") calling for the sale by the Company to the
Subscribers of Series A 5% Convertible Preferred Stock ("Preferred Stock") and
common stock purchase warrants ("Warrants") of the Company in the aggregate
principal amounts, in the denominations set forth on Schedule A hereto, against
payment therefor; and
WHEREAS, the parties hereto require the Company to deliver the Preferred
Stock, Warrants and other items against payment therefor, with such Preferred
Stock, Warrants, other items and payment to be delivered to the Escrow Agent to
be held in escrow and released by the Escrow Agent in accordance with the terms
and conditions of this Agreement; and
WHEREAS, the Escrow Agent is willing to serve as escrow agent pursuant to
the terms and conditions of this Agreement;
NOW THEREFORE, the parties agree as follows:
ARTICLE I
INTERPRETATION
1.1. Definitions. Whenever used in this Agreement, the following terms
shall have the following respective meanings:
(a) "Agreement" means this Agreement and all amendments made hereto
and thereto by written agreement between the parties;
(b) "Preferred Stock" means Series A 5% Convertible Preferred Stock
of the Company issued to the Subscribers in the aggregate amount of up to
$5,000,000 pursuant to the Subscription Agreement.
(c) "Warrants" means the common stock purchase warrants of the
Company described in the Subscription Agreement.
(d) "Escrowed Payment" means the sums set forth on Schedule A hereto.
1
<PAGE>
(e) "Subscription Agreement" means the Subscription Agreement to be
entered into by the parties in reference to the Preferred Stock, Warrants and
the exhibits thereto.
(f) "Legal Opinion" means the original signed legal opinion referred
to in Section 3 of the Subscription Agreement.
(g) "Placement Warrants" means the common stock purchase warrants to
be issued to the Placement Agents as described in the Subscription Agreement.
(h) "Commissions" means the fees to be paid to the Placement Agents as
described in Section 6 of the Subscription Agreement.
(i) "Irrevocable Instruction Letter" means five copies each of the
letters addressed to the Company's transfer agent, a form of which is annexed
hereto.
(j) Collectively, this Agreement, Preferred Stock, Warrants,
Subscription Agreement, Legal Opinion, Placement Warrants, and Commissions are
referred to as "Company Documents."
(k) Collectively, this Agreement, Escrowed Payment and Subscription
Agreement without exhibits thereto are referred to as "Subscriber Documents."
1.2. Entire Agreement. This Agreement constitutes the entire agreement
----------------
between the parties hereto pertaining to the Company Documents and Subscriber
Documents and supersedes all prior agreements, understandings, negotiations and
discussions, whether oral or written, of the parties. There are no warranties,
representations and other agreements made by the parties in connection with the
subject matter hereof except as specifically set forth in this Agreement.
1.3. Extended Meanings. In this Agreement words importing the singular
-----------------
number include the plural and vice versa; words importing the masculine gender
include the feminine and neuter genders. The word "person" includes an
individual, body corporate, partnership, trustee or trust or unincorporated
association, executor, administrator or legal representative.
1.4. Waivers and Amendments. This Agreement may be amended, modified,
----------------------
superseded, cancelled, renewed or extended, and the terms and conditions hereof
may be waived, only by a written instrument signed by all parties, or, in the
case of a waiver, by the party waiving compliance. Except as expressly stated
herein, no delay on the part of any party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof, nor shall any waiver on
the part of any party of any right, power or privilege hereunder preclude any
other or future exercise of any other right, power or privilege hereunder.
1.5. Headings. The division of this Agreement into articles, sections,
--------
subsections and
2
<PAGE>
paragraphs and the insertion of headings are for convenience of reference only
and shall not affect the construction or interpretation of this Agreement.
1.6. Law Governing this Agreement. This Agreement shall be governed by
----------------------------
and construed in accordance with the laws of the State of New York without
regard to principles of conflicts of laws. Any action brought by either party
against the other concerning the transactions contemplated by this Agreement
shall be brought only in the state courts of New York or in the federal courts
located in the state of New York. Both parties and the individuals executing
this Agreement and other agreements on behalf of the Company agree to submit to
the jurisdiction of such courts and waive trial by jury. The prevailing party
shall be entitled to recover from the other party its reasonable attorney's fees
and costs. In the event that any provision of this Agreement or any other
agreement delivered in connection herewith is invalid or unenforceable under any
applicable statute or rule of law, then such provision shall be deemed
inoperative to the extent that it may conflict therewith and shall be deemed
modified to conform with such statute or rule of law. Any such provision which
may prove invalid or unenforceable under any law shall not affect the validity
or enforceability of any other provision of any agreement.
1.7. Specific Enforcement, Consent to Jurisdiction. The Company and
---------------------------------------------
Subscriber acknowledge and agree that irreparable damage would occur in the
event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent or cure breaches of the provisions of this Agreement and
to enforce specifically the terms and provisions hereof or thereof, this being
in addition to any other remedy to which any of them may be entitled by law or
equity. Subject to Section 1.6 hereof, each of the Company and Subscriber
hereby waives, and agrees not to assert in any such suit, action or proceeding,
any claim that it is not personally subject to the jurisdiction of such court,
that the suit, action or proceeding is brought in an inconvenient forum or that
the venue of the suit, action or proceeding is improper. Nothing in this
Section shall affect or limit any right to serve process in any other manner
permitted by law.
1.8. Fees. Conditioned upon release of a portion of the Escrowed Payment
----
or part thereof to the Company, the Company shall pay the Escrow Agent in direct
proportion to the amount of Escrowed Payment released to the Company the $10,000
fee described in Section 6 of the Subscription Agreement which will satisfy the
Company's obligation thereunder. This fee shall be payable by proportionate
deduction from the Escrowed Payment, but only if the corresponding balance of
the Escrowed Payment is to be released to or on behalf of the Company pursuant
to this Agreement.
ARTICLE II
DELIVERIES TO THE ESCROW AGENT
2.1. Delivery of Company Documents to Escrow Agent. On or about the date
---------------------------------------------
hereof, the Company shall deliver to the Escrow Agent the Company Documents.
3
<PAGE>
2.2 Delivery of Subscriber Documents to Escrow Agent. On or about the
------------------------------------------------
date hereof, the Subscriber shall deliver to the Escrow Agent the Subscriber
Documents. The Escrowed Payment will be delivered pursuant to the following
wire transfer instructions:
Citibank, N.A.
250 Broadway
New York, New York 10007, USA
ABA Number: 0210-00089
For Credit to: Grushko & Mittman
IOLA Trust Account
Account Number: 037-45208884
2.3. Intention to Create Escrow Over Company Documents and Subscriber
----------------------------------------------------------------
Documents. The Subscriber and Company intend that the Company Documents and
- ---------
Subscriber Documents shall be held in escrow by the Escrow Agent pursuant to
this Agreement for their benefit as set forth herein.
2.4. Escrow Agent to Deliver Company Documents and Subscriber Documents.
------------------------------------------------------------------
The Escrow Agent shall hold and release the Company Documents and Subscriber
Documents only in accordance with the terms and conditions of this Agreement.
ARTICLE III
RELEASE OF ESCROWED DOCUMENTS AND ESCROWED PAYMENT
3.1. Release of Escrow. Subject to the provisions of Section 4.2, the
-----------------
Escrow Agent shall release the Company Documents and Subscriber Documents as
follows:
(a) Upon receipt by the Escrow Agent of the Company Documents and the
corresponding Subscriber Documents, the Escrow Agent will simultaneously release
the Company Documents to the Subscribers and release the corresponding
Subscriber Documents to the Company except that the Placement Warrants and Cash
Commissions will be delivered to the Placement Agents. The Company will provide
written facsimile or original instructions to the Escrow Agent as to the
disposition of all funds releasable to the Company.
(b) In the event the Escrow Agent does not receive Company Documents
and the corresponding Subscriber Documents prior to March 15, 2000, then the
Escrow Agent will promptly return the Company Documents to the Company, and
promptly return the Subscriber Documents to the Subscribers.
(c) Upon receipt by the Escrow Agent of joint written instructions
("Joint Instructions") signed by the Company and the Subscriber, it shall
deliver the Company Documents and Subscriber Documents in accordance with the
terms of the Joint Instructions.
4
<PAGE>
(d) Upon receipt by the Escrow Agent of a final and non-appealable
judgment, order, decree or award of a court of competent jurisdiction (a "Court
Order"), the Escrow Agent shall deliver the Company Documents and Subscriber
Documents in accordance with the Court Order. Any Court Order shall be
accompanied by an opinion of counsel for the party presenting the Court Order to
the Escrow Agent (which opinion shall be satisfactory to the Escrow Agent) to
the effect that the court issuing the Court Order has competent jurisdiction and
that the Court Order is final and non-appealable.
3.2. Acknowledgement of Company and Subscriber; Disputes. The Company and
the Subscriber acknowledge that the only terms and conditions upon which the
Company Documents and Subscriber Documents are to be released are set forth in
Sections 3 and 4 of this Agreement. The Company and the Subscriber reaffirm
their agreement to abide by the terms and conditions of this Agreement with
respect to the release of the Company Documents and Subscriber Documents. Any
dispute with respect to the release of the Company Documents and Subscriber
Documents shall be resolved pursuant to Section 4.2 or by agreement between the
Company and Subscriber.
ARTICLE IV
CONCERNING THE ESCROW AGENT
4.1. Duties and Responsibilities of the Escrow Agent. The Escrow Agent's
-----------------------------------------------
duties and responsibilities shall be subject to the following terms and
conditions:
(a) The Subscriber and Company acknowledge and agree that the Escrow
Agent (i) shall not be responsible for or bound by, and shall not be required to
inquire into whether either the Subscriber or Company is entitled to receipt of
the Company Documents and Subscriber Documents pursuant to, any other agreement
or otherwise; (ii) shall be obligated only for the performance of such duties as
are specifically assumed by the Escrow Agent pursuant to this Agreement; (iii)
may rely on and shall be protected in acting or refraining from acting upon any
written notice, instruction, instrument, statement, request or document
furnished to it hereunder and believed by the Escrow Agent in good faith to be
genuine and to have been signed or presented by the proper person or party,
without being required to determine the authenticity or correctness of any fact
stated therein or the propriety or validity or the service thereof; (iv) may
assume that any person purporting to give notice or make any statement or
execute any document in connection with the provisions hereof has been duly
authorized to do so; (v) shall not be under any duty to give the property held
by Escrow Agent hereunder any greater degree of care than Escrow Agent gives its
own similar property; and (vi) may consult counsel satisfactory to Escrow Agent,
the opinion of such counsel to be full and complete authorization and protection
in respect of any action taken, suffered or omitted by Escrow Agent hereunder in
good faith and in accordance with the opinion of such counsel.
(b) The Subscriber and Company acknowledge that the Escrow Agent is
acting
5
<PAGE>
solely as a stakeholder at their request and that the Escrow Agent shall not be
liable for any action taken by Escrow Agent in good faith and believed by Escrow
Agent to be authorized or within the rights or powers conferred upon Escrow
Agent by this Agreement. The Subscriber and Company, jointly and severally,
agree to indemnify and hold harmless the Escrow Agent and any of Escrow Agent's
partners, employees, agents and representatives for any action taken or omitted
to be taken by Escrow Agent or any of them hereunder, including the fees of
outside counsel and other costs and expenses of defending itself against any
claim or liability under this Agreement, except in the case of gross negligence
or willful misconduct on Escrow Agent's part committed in its capacity as Escrow
Agent under this Agreement. The Escrow Agent shall owe a duty only to the
Subscriber and Company under this Agreement and to no other person.
(c) The Subscriber and Company jointly and severally agree to
reimburse the Escrow Agent for its reasonable out-of-pocket expenses (including
counsel fees) incurred in connection with the performance of its duties and
responsibilities hereunder.
(d) The Escrow Agent may at any time resign as Escrow Agent hereunder
by giving five (5) days prior written notice of resignation to the Subscriber
and the Company. Prior to the effective date of the resignation as specified in
such notice, the Subscriber and Company will issue to the Escrow Agent a Joint
Instruction authorizing delivery of the Notes and Escrowed Payment to a
substitute Escrow Agent selected by the Subscriber and Company. If no successor
Escrow Agent is named by the Subscriber and Company, the Escrow Agent may apply
to a court of competent jurisdiction in the State of New York for appointment of
a successor Escrow Agent, and to deposit the Notes and Escrowed Payment with the
clerk of any such court.
(e) The Escrow Agent does not have and will not have any interest in
the Company Documents and Subscriber Documents, but is serving only as escrow
Subscriber, having only possession thereof. The Escrow Agent shall not be
liable for any loss resulting from the making or retention of any investment in
accordance with this Escrow Agreement.
(f) This Agreement sets forth exclusively the duties of the Escrow
Agent with respect to any and all matters pertinent thereto and no implied
duties or obligations shall be read into this Agreement.
(g) The Escrow Agent shall be permitted to act as counsel for the
Subscriber or the Company, as the case may be, in any dispute as to the
disposition of the Company Documents and Subscriber Documents, in any other
dispute between the Subscriber and Company, whether or not the Escrow Agent is
then holding the Company Documents and Subscriber Documents and continues to act
as the Escrow Agent hereunder.
(h) The provisions of this Section 4.1 shall survive the resignation
of the Escrow Agent or the termination of this Agreement.
4.2. Dispute Resolution: Judgments. Resolution of disputes arising under
-----------------------------
this Agreement
6
<PAGE>
shall be subject to the following terms and conditions:
(a) If any dispute shall arise with respect to the delivery,
ownership, right of possession or disposition of the Company Documents and
Subscriber Documents, or if the Escrow Agent shall in good faith be uncertain as
to its duties or rights hereunder, the Escrow Agent shall be authorized, without
liability to anyone, to (i) refrain from taking any action other than to
continue to hold the Company Documents and Subscriber Documents pending receipt
of a Joint Instruction from the Subscriber and Company, or (ii) deposit the
Company Documents and Subscriber Documents with any court of competent
jurisdiction in the State of New York, in which event the Escrow Agent shall
give written notice thereof to the Subscriber and the Company and shall
thereupon be relieved and discharged from all further obligations pursuant to
this Agreement. The Escrow Agent may, but shall be under no duty to, institute
or defend any legal proceedings which relate to the Company Documents and
Subscriber Documents. The Escrow Agent shall have the right to retain counsel
if it becomes involved in any disagreement, dispute or litigation on account of
this Agreement or otherwise determines that it is necessary to consult counsel.
(b) The Escrow Agent is hereby expressly authorized to comply with and
obey any Court Order. In case the Escrow Agent obeys or complies with a Court
Order, the Escrow Agent shall not be liable to the Subscriber and Company or to
any other person, firm, corporation or entity by reason of such compliance.
ARTICLE V
GENERAL MATTERS
5.1. Termination. This escrow shall terminate upon the release of all of
-----------
the Company Documents and Subscriber Documents or at any time upon the agreement
in writing of the Subscriber and Company.
5.2. Notices. All notices, request, demands and other communications
-------
required or permitted hereunder shall be in writing and shall be deemed to have
been duly given one (1) day after being sent by telecopy (with copy delivered by
overnight courier, regular or certified mail):
(a) If to the Company, to:
Advanced Aerodynamics & Structures, Inc.
3205 Lakewood Boulevard
Long Beach Airport, CA 90808
(562) 938-8620 (Telecopier)
(b) If to the Subscriber, to: the addresses and fax numbers
set forth on Schedule A hereto.
7
<PAGE>
(c) If to the Escrow Agent, to:
Grushko & Mittman
Attorneys at Law
277 Broadway, Suite 801
New York, New York 10007
(212) 227-5865 (telecopier)
or to such other address as any of them shall give to the others by notice made
pursuant to this Section 5.2.
5.3. Interest. The Escrowed Payment shall not be held in an interest
--------
bearing account nor will interest be payable in connection therewith.
5.4. Assignment; Binding Agreement. Neither this Agreement nor any right
-----------------------------
or obligation hereunder shall be assignable by any party without the prior
written consent of the other parties hereto. This Agreement shall enure to the
benefit of and be binding upon the parties hereto and their respective legal
representatives, successors and assigns.
5.5. Invalidity. In the event that any one or more of the provisions
----------
contained herein, or the application thereof in any circumstance, 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 parties
hereto shall be enforceable to the fullest extent permitted by law.
5.6. Counterparts/Execution. This Agreement may be executed in any number
----------------------
of counterparts and by different signatories hereto on separate counterparts,
each of which, when so executed, shall be deemed an original, but all such
counterparts shall constitute but one and the same instrument. This Agreement
may be executed by facsimile transmission.
[THIS SPACE INTENTIONALLY LEFT BLANK]
8
<PAGE>
5.7. Agreement. Each of the undersigned states that he has read the
---------
foregoing Funds Escrow Agreement and understands and agrees to it.
___________________________________
ADVANCED AERODYNAMICS &
STRUCTURES, INC. - "Company"
___________________________________
AUSTINVEST ANSTALT BALZERS - "Subscriber"
___________________________________
ESQUIRE TRADE & FINANCE INC. - "Subscriber"
___________________________________
AMRO INTERNATIONAL, S.A. - "Subscriber"
____________________________________
THE SHAAR FUND LTD. - "Subscriber"
____________________________________
GROSS FOUNDATION, INC. - "Subscriber"
____________________________________
THE HEWLETT FUND, INC. - "Subscriber"
ESCROW AGENT:
___________________________________
GRUSHKO & MITTMAN
9
<PAGE>
5.7. Agreement. Each of the undersigned states that he has read the
---------
foregoing Funds Escrow Agreement and understands and agrees to it.
___________________________________
ADVANCED AERODYNAMICS &
STRUCTURES, INC. - "Company"
___________________________________
LEVAL TRADING, INC. - "Subscriber"
___________________________________
BRETTON HILL FUNDING, LLC - "Subscriber"
____________________________________
THE ENDEAVOUR CAPITAL
FUND, S.A. - "Subscriber"
ESCROW AGENT:
___________________________________
GRUSHKO & MITTMAN
10
<PAGE>
5.7. Agreement. Each of the undersigned states that he has read the
---------
foregoing Funds Escrow Agreement and understands and agrees to it.
___________________________________
ADVANCED AERODYNAMICS &
STRUCTURES, INC. - "Company"
___________________________________
KESHET L.P. - "Subscriber"
___________________________________
THE KESHET FUND, L.P. - "Subscriber"
___________________________________
TALBIYA B. INVESTMENTS LTD. - "Subscriber"
____________________________________
NESHER LTD. - "Subscriber"
ESCROW AGENT:
___________________________________
GRUSHKO & MITTMAN
11
<PAGE>
SCHEDULE A
----------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
SUBSCRIBER PURCHASE PRICE OF SHARES OF
PREFERRED STOCK PREFERRED STOCK WARRANTS
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
AUSTINVEST ANSTALT BALZERS $ 1,000,000 10,000 130,000
Landstrasse 938
9494 Furstentums
Balzers, Liechtenstein
Fax: 011-534-534100
- --------------------------------------------------------------------------------------------------------------
ESQUIRE TRADE & FINANCE, INC. $ 1,000,000 10,000 130,000
Trident Chambers
P.O. Box 146
Road Town, Tortola, B.V.I.
Fax: 011-41-41-760-1031
- --------------------------------------------------------------------------------------------------------------
AMRO INTERNATIONAL, S.A. $ 750,000 7,500 97,500
c/o Ultra Finanz
Grossmuenster Platz 26
P.O. Box 4401
Zurich, Switzerland CH8011
Fax: 011-411-262-5512
- --------------------------------------------------------------------------------------------------------------
THE SHAAR FUND LTD. $ 500,000 5,000 65,000
c/o Levinson Capital Management
2 World Trade Center, Suite 1820
New York, New York 10048
Fax: 212-432-7771
- --------------------------------------------------------------------------------------------------------------
GROSS FOUNDATION, INC. $ 200,000 2,000 26,000
1660 49/th/ Street
Brooklyn, New York
Fax: 718-851-3511
- --------------------------------------------------------------------------------------------------------------
THE HEWLETT FUND, INC. $ 50,000 500 6,500
1615 Avenue I, #201
Brooklyn, New York 11230
Fax: 201-363-0450
- --------------------------------------------------------------------------------------------------------------
LEVAL TRADING, INC. $ 100,000 1,000 13,000
c/o Thierry Ulmann
14 rue du Conseil-General
CH-1205, Geneva, Switzerland
Fax: 011-41-22-321-0807
- --------------------------------------------------------------------------------------------------------------
BRETTON HILL FUNDING, LLC $ 250,000 2,500 32,500
4706 18/th/ Avenue
Brooklyn, New York 11204
- --------------------------------------------------------------------------------------------------------------
</TABLE>
12
<PAGE>
<TABLE>
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fax: 718-633-3891
- --------------------------------------------------------------------------------------------------------------
TALBIYA B. INVESTMENTS LTD. $ 150,000 1,500 19,500
Ragnall House
18 Peel Road
Douglas, Isle of Man
1M1 4L2, United Kingdom
Fax: 011-972-36120639
- --------------------------------------------------------------------------------------------------------------
NESHER LTD. $ 100,000 1,000 13,000
Ragnall House
18 Peel Road
Douglas, Isle of Man
1M1 4L2, United Kingdom
Fax: 011-972-36120639
- --------------------------------------------------------------------------------------------------------------
KESHET L.P. $ 225,000 2,250 -0-
Ragnall House
18 Peel Road
Douglas, Isle of Man
1M1 4L2, United Kingdom
Fax: 011-972-36120639
- --------------------------------------------------------------------------------------------------------------
THE KESHET FUND, L.P. $ 175,000 1,750 -0-
Ragnall House
18 Peel Road
Douglas, Isle of Man
1M1 4L2, United Kingdom
Fax: 011-972-36120639
- --------------------------------------------------------------------------------------------------------------
THE ENDEAVOUR CAPITAL FUND, S.A. $ 500,000 5,000 65,000
The Maduro Building, P.O. Box 662
Wickhams Cay, Road Town
Tortola, British Virgin Islands
Fax: 1-284-494-3917
- --------------------------------------------------------------------------------------------------------------
TOTALS $5,000,000.00 50,000 598,000
- --------------------------------------------------------------------------------------------------------------
</TABLE>
13
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 498,000
<SECURITIES> 2,328,000
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,902,000
<PP&E> 13,714,000
<DEPRECIATION> 2,679,000
<TOTAL-ASSETS> 14,131,000
<CURRENT-LIABILITIES> 1,171,000
<BONDS> 0
0
0
<COMMON> 1,000
<OTHER-SE> 1,604,000
<TOTAL-LIABILITY-AND-EQUITY> 14,131,000
<SALES> 0
<TOTAL-REVENUES> 810,000
<CGS> 0
<TOTAL-COSTS> 10,151,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 992,000
<INCOME-PRETAX> (9,341,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (9,341,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (9,341,000)
<EPS-BASIC> (1.05)
<EPS-DILUTED> (1.05)
</TABLE>
