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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(b) OR 12(g) OF
THE SECURITIES EXCHANGE ACT OF 1934
AIR SOUTH AIRLINES, INC.
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(Exact Name of Registrant as Specified in Its Charter)
Delaware 36-3889681
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1800 St. Julian Place, 4th Floor, Columbia, South Carolina 29204
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (803) 822-0502
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Securities to be registered pursuant to Section 12(b) of the Act:
None
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(Title of Class)
Securities to be registered pursuant to Section 12(g) of the Act:
Common Stock par value $0.001 per share
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(Title of class)
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ITEM 1. BUSINESS.
A glossary of certain terms used in this Form 10 appears following Item
14. Air South Airlines, Inc., a Delaware corporation (the "Company" or "Air
South") seeks to provide low-cost, low-fare scheduled airline service to
passengers in the Southeastern, Eastern seaboard and Midwestern regions of the
United States. The Company began flight operations within the Southeast on
August 22, 1994 with two and currently has seven Boeing 737-200 aircraft. All
aircraft used by the Company are leased. In the first quarter of 1996 the
Company began implementing a linear, point-to-point route strategy. The
Company will provide passengers with non-stop and other direct flights from
cities in the Southeast to the high-density, high-volume markets in the
Northeast, Midwest and Florida, presently New York, Chicago and Miami. Cities
currently served are Jacksonville and Miami, Florida; Atlanta and Savannah,
Georgia; Chicago, Illinois; New York, New York; Charleston, Columbia,
Greenville/Spartanburg and Myrtle Beach, South Carolina; and Norfolk, Virginia.
Although all cities served by the Company can be reached from any other city
served, the Company does not schedule flights between certain cities.
BUSINESS STRATEGY
The Company's business strategy is focused on providing low-cost,
low-fare, profitable jet air service from the Southeastern and Eastern seaboard
regions to high population areas of the Northeast, Midwest and Florida, and is
based on the following key elements.
The Company believes its route structure provides air travelers to and
from the Southeast with an attractive alternative to the inconvenient, time
consuming hub-and-spoke system of air travel offered by the national full-fare
airlines. According to the latest data available from the Department of
Transportation ("DOT"), the Southeast currently is the largest and fastest
growing air travel market in the United States. There are a large number of
cities in the Southeast and along the Eastern seaboard that have little or no
direct airline service to the high-density, high-volume markets of the
Northeast, the Midwest, and Florida. Historically, the Southeastern and
Eastern seaboard regions were served by airlines such as Piedmont Airlines and
National Airlines which successfully provided direct air service within these
markets. In 1979, National was acquired by Pan American and in 1987 Piedmont
was acquired by USAir. Subsequently, direct air service was terminated in
favor of adopting the hub-and-spoke strategies of these acquirors. When People
Express Airlines initiated service to these markets in the mid-1980's, there
was a significant increase in traffic as more air travelers took advantage of
its low fares and direct jet service. With the acquisition of People Express
by Continental Air Lines and the further expansion of hub-and-spoke systems,
convenient and frequent direct jet service to these markets was once again
significantly reduced and for many cities eliminated.
The Company believes the resulting market environment is one of
consumer frustration because many Southeastern air travelers are forced to
endure added time and inconvenient connections at the busy Atlanta, Georgia and
Charlotte, North Carolina hubs instead of being able to fly directly to their
destinations. The Company views the markets that form the spokes of the
hub-and-spoke route system designed by the national full-fare carriers as key
cities for its strategy. Based on historical passenger traffic data, past
successes of other direct and low-fare airlines, and the dissatisfaction of air
travelers in the region, the Company believes the opportunity exists to provide
profitable air service which bypasses the hub-and-spoke system of the national
full-fare carriers.
The Company's policy is to offer fares which are at or below those
of other low-fare airlines in the region. These low fares are intended to
attract both value-conscious businesses and leisure travelers from competing
airlines, to increase the efficiency of travel and to stimulate demand by those
who might otherwise have used ground transportation or not traveled at all.
For example, the Company's 14-day advance, and walk-up one-way fares on its
Columbia to New York route are $59 and $149, respectively.
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The Company believes it can achieve and sustain a low operating cost
structure through lower labor costs, a highly productive work force, quick
turnaround times, efficient facilities utilization, and high utilization of its
aircraft. Additionally, through growth and greater market concentration, the
Company expects to experience significant economies in costs. Moreover, the
Company believes that by operating a single aircraft type, reductions in costs
can be achieved through commonality of training, maintenance and inventory.
This low operating cost structure is expected to be one of the Company's
principal competitive advantages. For the immediate future, the Company intends
to utilize only Boeing 737-200 aircraft. The Company is determined to maintain
the highest level of safety, productivity, and utilization with a low unit
cost.
The Company believes its highly trained and motivated non-union work
force is one of its competitive advantages. The Company seeks to select and
train only the most enthusiastic, polite, pleasant and professional employees
in order to provide its passengers with friendly southern hospitality in the
air. Management believes its employees generally have enthusiastically
embraced the lean, flat, friendly, entrepreneurial culture at the Company. In
addition, approximately 50% of its employees are stockholders in the Company.
Management believes the Company's payroll costs are considerably less per
comparable employee than the national full-fare carriers. The Company's flat
organization structure allows rapid decision making at all levels.
SOUTHEAST MARKET
Air travel in the Southeast primarily flows through two major hubs:
Atlanta, Georgia and Charlotte, North Carolina. Airline service to spoke
cities in this region has deteriorated as airlines have either merged with
larger carriers or have gone out of business. In addition, many of the major
carriers have withdrawn, reduced or eliminated non-stop and direct service, or
offered high-priced propeller-only service through affiliated commuter
airlines. The resulting market environment is one of frustrated passengers
without alternatives to the time-consuming, inconvenient hub connections and
high fares of the national full-fare carriers.
The Southeast region experienced the fastest economic growth among
major regions in the United States in 1995, and published accounts of
economists have forecasted that economic growth in the region can be expected
to continue during their forecast periods. According to statistics provided by
the DOT, the Southeast currently is the largest and fastest growing air
travel market in the nation. The aggressive economic development activities
undertaken by many Southeastern states have resulted in a significant number of
foreign and domestic companies relocating to and establishing new plants and
businesses within the region. Management believes this economic growth will
produce increased demand for the Company's service.
FARE STRUCTURE
The Company's low-fare service is designed to meet the needs of, and
stimulate increased demand among, leisure travelers and value-conscious
business travelers.
The Company also offers a tiered fare structure with discounts for
14-day and 7-day advance purchase as well as a peak/off peak structure. All
advanced purchase fares are non-refundable and have a change fee. The Company
does not require a Saturday night stay or any other timing restrictions on any
of its tickets. All of the Company's published fares are sold and paid for by
the customer within 24 hours of the time when the reservation is made.
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ROUTE SYSTEM AND SCHEDULING
The Company's schedule presently provides for up to four round-trip
flights per day in markets that the Company serves. The Company's objective is
to provide sufficient capacity in each market to satisfy demand for the
Company's low-fare service, while maintaining above break-even load factors.
The relatively small size of the Company's aircraft fleet (see
"AIRCRAFT," below) and the Company's objective of maintaining high utilization
of its aircraft, present challenges in scheduling convenient service on its
routes. The Company schedules its flights to facilitate non-stop and direct
service between city pairs to take advantage of connecting and segment
traveling passengers. It may be necessary in some cases to schedule departures
in certain markets at times that may not be considered optimal from the
perspective of travelers. The Company's operating experience to date
indicates, however, that travelers are often willing to forego a more desirable
departure time in exchange for low fares and the convenience of the Company's
air service.
The Company operated with only six of its seven aircraft for
substantially all of the period from September 1995, until June 1996. One of
the seven aircraft has been unavailable since the beginning of September 1995
as each aircraft in the fleet rotated through a Federal Aviation
Administration ("FAA") mandatory heavy "C-Check" inspection and maintenance.
The result has been an infrastructure and a route structure designed for high
utilization of seven or more aircraft while the Company has been able to
operate only six. Beginning in August 1996, the Company began operating only
five of its seven aircraft to improve schedule reliability and on-time
performance. The Company expects to operate six and seven aircraft in
April and May 1997, respectively and continues to explore the possibility of
acquiring one or more additional aircraft.
Typically, airlines experience reduced demand for services at various
times during the fall and winter. During these periods, an airline may
experience variations in passenger demand based on its particular routes and
passenger demographics. Due to the Company's limited history and the
implementation of the Company's linear, point-to-point strategy, the Company is
unable to predict whether, or to what extent, seasonal variations in its
operations will differ from those of the airline industry generally. If the
Company's demand patterns are similar to those of the airline industry
generally, the Company would experience reduced demand during the fall and
winter with adverse effects on revenues, operating results, and cash flow.
RESERVATIONS AND OTHER SYSTEMS
The Company operates local and wide area networks supporting a
computerized reservations system, a financial accounting system, and an airline
dispatch and crew scheduling/tracking system. The reservations system ("Open
Res") is in use at several airlines around the world, and provides the ability
to communicate with and accept reservations from other major airlines
computerized reservations systems ("CRS"). Approximately 45% of the Company's
reservations are booked by travel agents through these CRS's. The system also
allows the Company to provide "ticketless" travel for passengers booking their
reservations directly with Air South. Open Res is a relational database which
provides manangement with real time information on a wide range of financial
and traffic indices.
The Company has a reservations center in Columbia, South Carolina
where it accepts nationwide calls from travel agents and passengers over its
toll free number (1-800-AIR SOUTH).
SALES AND MARKETING
The primary objectives of the Company's marketing activities are to
create product awareness and brand recognition, and to develop first time
customers and customer loyalty. Marketing is targeted at the general traveling
public, both leisure and value-conscious business travelers, and the travel
industry intermediaries, including travel agents, corporate travel arrangers,
and meeting planners in the Southeastern region, where the Company is portrayed
as an aggressive, innovative provider of high quality air transportation
services. The Company has applied to the Department of Defense to become
an approved carrier for official government travel.
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The Company markets its services through CRSs, mass media,
advertising, public relations, direct sales, and regional and local promotions.
In addition, the Company has significantly benefitted from generally positive
regional coverage of its growth among the South Carolina general and business
media.
Computer Reservations Systems. The Company participates in the
airline industry's CRSs. The Company's flight schedules and inventory of seats
and fares are displayed prominently in every CRS. Passengers and travel agents
have instant and complete access to the Company's flight schedules,
availability and fares, including any special promotions. The Company has
installed a ticketless reservation system which reduces the cost of revenue
accounting functions and the direct and indirect costs of handling tickets.
Management believes its participation in the CRSs, the travel industry and
travel agent norm for making reservations, gives it a competitive advantage
over low-fare or charter airlines which do not participate in such systems.
Travel Agents. The Company markets its services to travel agents, who
account for approximately 45% of its passenger bookings, through direct sales
and promotion, and through CRSs. In addition to providing easy access to the
selling of the Company's flights through the industry CRSs, the Company
maintains a special toll-free number for travel agent use. The Company pays
travel agents a commission of 10% of the fare booked.
Advertising. Management is aware of the critical importance to a
start-up airline of the need to advertise and promote its service and create
brand awareness. Unfortunately, because of capital limitations, all elements
of marketing -- sales, advertising and promotion -- frequently have been scaled
back to barely a whisper. The Company believes that recent infusions of
capital will permit it to promote more aggressively its new routes and
attractive fares. The Company's advertising typically emphasizes the Company's
low fares, destinations served on a non-stop or one-stop basis, simplified fare
structure, and product features that distinguish the Company as a smart
low-fare choice. The Company's advertising consists of radio, newspaper,
magazine, billboards, and television.
Promotions. The Company augments its advertising and public relations
effort with innovative promotions that are fun, high profile, and newsworthy.
Radio promotions throughout the system are conducted on an ongoing basis, and
the Company reaches out to the communities it serves by participating in local,
civic, special interest, educational, and other non-profit events to gain
identity and support.
Frequent Flyer Program. The Company offers its customers the
opportunity to participate in a segment-based Frequent Flyer Program which is
simple to administer. A free trip is awarded to travelers who fly eight round
trips or the equivalent on Air South. Frequent Flyers receive additional
inducement to use the Company's service, including pre-boarding, drink
certificates and special fare promotions.
AIRCRAFT
The Company's fleet currently consists of seven Boeing 737-200 jet
aircraft. The Company's Boeing 737-200 aircraft are all twin-engine, two-pilot
crew, jet aircraft equipped with Pratt & Whitney JT8D engines. The Boeing 737-
200 aircraft is widely used throughout the world on medium-haul flights similar
to those flown by the Company. All of the Company's aircraft provide 122
passenger seats configured for all-coach service. The Company believes that
the use of a single-type of modern aircraft reduces the cost of personnel
training and maintenance services, and contributes to its low-cost operating
structure. The Company intends, for the immediate future to use only Boeing
737-200 aircraft. The Company leases all of its aircraft under operating
leases with remaining terms from approximately one and one-half to three years.
Five of the Company's aircraft are leased from various owners through their
agent, GE Capital Aviation Services, Inc. and two are leased through Mimi
Leasing Corp.
The Company's additional growth is dependent upon its ability to
purchase or lease additional aircraft and spare engines. Depending on market
conditions, the Company intends to continue seeking aircraft to meet its
additional capacity needs. The demand for, and lease prices of, used aircraft
has increased over the past 18 months, and may increase further in the future.
The Company cannot predict how long suitable aircraft will continue to be
available, whether it can lease such aircraft on satisfactory terms, or whether
such aircraft can be delivered on a timely basis. Furthermore, because the
precise timing of the acquisition and delivery of
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additional aircraft in the future is uncertain, the Company may take delivery
of additional planes but be unable to put them into service until it hires and
trains additional personnel, acquires gate facilities, and completes the other
matters necessary to begin operating new routes. The Company also believes
that, as it expands its fleet of aircraft, it will require additional aircraft
engines, which are becoming increasingly difficult to obtain on favorable
economic terms. The Company currently has no spare engines, and there can be
no assurance that the Company will be able to obtain a sufficient number of
aircraft engines in the future on satisfactory terms.
AIRPORT OPERATIONS
The Company provides its own passenger service personnel at all
airports served other than Chicago Midway where it contracts such services to
another airline. Ramp service operations, including marshaling aircraft into
the gate, baggage and cargo loading and unloading, aircraft cleaning, and
lavatory and water servicing, are handled by Company employees at Jacksonville
and Miami, Florida, Atlanta, Georgia, and Columbia and Myrtle Beach, South
Carolina. At other airports served, certain of these services are provided by
fixed-base operators under contract with the Company. De-icing services are
contracted to fixed-base operators or other air carriers at all locations
except Columbia, South Carolina, where de-icing is accomplished by Company
personnel. No de-icing is required at Miami, Florida. Such ground handling,
de-icing and other contracts are terminable by either party; however, other
providers of such services are available at each location.
Ticket counters, gates, and airport office facilities at each of the
airports the Company serves are leased from the airport authority or subleased
from other airlines. In all cases, airport use fee agreements for landing fees
and other airport use related charges exist with airports the Company
serves. The Company has signatory agreements with the airport authorities
located in Columbia and Charleston, South Carolina. Signatory agreements offer
the Company various financial advantages in exchange for a long-term commitment
to maintain airport leaseholds. These leaseholds may be sublet to another
airline with the consent of the airport if the Company should reduce or
eliminate service at those locations in the future; however, there is no
assurance that a suitable subtenant can be found.
MAINTENANCE AND REPAIR
The Company's fleet consists of seven Boeing 737-200 jet aircraft
manufactured between 1968 and 1979. In general, the cost to maintain older
aircraft exceeds the cost to maintain newer aircraft. The FAA has promulgated
Airworthiness Directives ("ADs") with respect to aging aircraft, and there are
pending regulations that would require certain additional maintenance checks
and other maintenance requirements for aircraft operating beyond certain
operational limits. From time to time, the FAA also develops new requirements
which apply to all aircraft and which may require significant and costly
modifications or additions to the aircraft. It is likely that the ADs, pending
regulations, and required aircraft modifications will apply to all of the
Company's aircraft. The Company anticipates that it may be required to comply
with modifications to the tail section of its Boeing 737-200 aircraft; such
modifications would be required of all Boeing 737-200 aircraft. The Company
does not now know the extent of such modifications.
The Company provides its own routine and daily aircraft maintenance
repair and checks at its Columbia, South Carolina airport facility, or in other
cities, as needed, by an FAA-approved independent contractor, often another
airline. Major scheduled maintenance, including C-checks, component
overhaul/repair services and engine overhaul services are performed under
contract at maintenance bases of other airlines or at various independent
maintenance or overhaul providers.
The Company does not own or lease a spare engine. The Company
has an agreement with an independent spare parts inventory supplier to provide
spare parts inventory purchasing and financing services for a fee.
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EMPLOYEES
At December 31, 1996, the Company had 540 full-time equivalent
employees.
Training, both initial and recurrent, is required for all flight
operations, maintenance, reservations and customer service personnel. The
average training period for all new employees is approximately four weeks,
although the Company's cockpit crews undergo approximately eight weeks of
training. Both pilot training on 737-200 aircraft simulators and mechanic
training for the 737-200 is provided by contractors, which include other
airlines. The Company entered into an agreement with the State of South
Carolina providing for payment by the State for the initial training for all
South Carolina based flight crews, mechanics, reservations agents, and airport
service agents up to a total of 1,004 employees. Recurrent training of pilots
and flight attendants is done by qualified in-house instructors. Recurrent
737-200 simulator time for pilots is paid for by the Company.
FAA regulations require pilots to be licensed as commercial pilots
with specific ratings for each aircraft to be flown and to be medically
certified as physically fit. Licenses and medical certification are subject to
periodic re-evaluation requirements, including recurrent training and recent
flying experience. Mechanics, quality-control inspectors, and flight
dispatchers must be licensed and qualified for specific aircraft. Flight
attendants must have initial and periodic competency fitness training and FAA
certification, and must be qualified for specific aircraft. Training programs
are subject to approval and monitoring by the FAA. Management personnel
directly involved in the supervision of flight operations, training,
maintenance and aircraft inspection must meet experience standards prescribed
by FAA regulations. All of these employees are subject to background checks
and pre-employment and subsequent drug testing.
Management believes that the current conditions in the airline
industry have created a sufficient pool of qualified pilots, dispatchers, and
mechanics to satisfy the Company's current and foreseeable future needs in the
flight operations, maintenance, and quality control areas and that the Company
should have no difficulty hiring and continuing to employ the required
personnel. The Company is presently considering what changes are appropriate
in its overall employee benefits and compensation programs.
While the Company believes that its per employee labor cost is lower
than those of its competitors, this cost may increase in the future. None of
the Company's employees are represented by a labor union. The Company is
unable to predict whether any of its employees will elect to be represented by
a labor union or other collective bargaining unit in the future. The Company
considers its relationship with its employees to be very good.
FUEL
The cost of jet fuel is one of the Company's largest operating
expenses. Fuel costs represent approximately 21.1% of revenue and 17.1% of
operating costs for the twelve-month period ended December 31, 1995 and 23.3%
and 16.0% respectively for the nine-month period ended September 30, 1996.
Fuel costs have increased signficantly recently. Any additional significant
increase in fuel costs would materially affect the Company's operating results.
A significant increase in fuel costs would also result in a disproportionately
higher increase in the Company's fuel expense compared to many of its
competitors whose average aircraft is newer and thus more fuel efficient. Both
the cost and availability of fuel are subject to many economic and political
factors and events occurring throughout the world which the Company can neither
control nor accurately predict. In the event of a fuel shortage resulting from
a disruption of oil imports or otherwise, higher fuel prices or curtailment of
scheduled service could result. The Company has no agreement assuring the
availability and price stability of fuel over any period of time because such
agreements are generally not available, and to date has not used forward
purchases as a hedging technique to minimize fuel price fluctuations.
Therefore, an increase in the cost of jet fuel will be immediately passed
through to the Company by suppliers. The Company has not in the past been able
to pass along increases in fuel costs to its customers.
The Company cannot predict the future cost and availability of fuel.
Substantial price increases or the unavailability of adequate suppliers could
have a material adverse effect on the Company's business, financial condition,
or results of operations. Airlines that are larger and better capitalized than
the Company, or which
The Company uses an outside fuel management organization to assist it
in the management of its fuel purchases and related airport fuel storage
arrangements.
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have successfully applied hedging techniques, may be able to better absorb
increases in fuel prices than the Company.
COMPETITION
Under the Deregulation Act, domestic certificated airlines are free to
enter and exit domestic routes and to set fares without regulatory approval,
and all city-pair domestic airline markets are generally open to any domestic
certificated airline. As a consequence, the airline industry is intensely
competitive.
Airlines compete primarily with respect to fares, scheduling
(frequency and flight time), destinations, frequent flyer programs, and types
(jet or propeller) and size of aircraft. The Company competes with other
airlines on its routes and expects to compete with other airlines on any future
routes. Many of these airlines are larger and have greater name recognition
and greater financial resources than the Company.
In the Southeast market, two major carriers, Delta Air Lines (and its
commuter affiliate Comair) and USAir, and one low-fare carrier, ValuJet
Airlines, are the principal competition for the Company. In addition,
Continental Airlines introduced service between Newark and Charleston, Columbia
and Myrtle Beach, South Carolina in May and June, 1996. The Delta commuter
affiliate, Comair, recently introduced 50-seat jet service between New York
LaGuardia and Charleston and Columbia, South Carolina. Delta's and Comair's
average fares are generally more than twice the Company's average fares on the
same routes. USAir provides only connecting service through its hub in
Charlotte at fares generally more than double the Company's fares on the same
routes. Although the major carriers sometimes offer low competing fares, such
fares usually are subject to restrictions and are available only on a limited
number of seats. All of the major carriers (including Delta's commuter
affiliate, Comair) have far greater resources than the Company and have
established reputations and name recognition. As a result, all provide
formidable competition.
Delta has established a low-fare subsidiary, Delta Express, to compete
with low-fare carriers such as the Company. Delta Express is based in Orlando,
Florida, but does not now compete in the Company's markets.
Southwest Airlines introduced service in the Southeast, mainly in
Florida, beginning in January, 1996. Southwest does not now serve any of the
same markets as the Company; Southwest does, however, fly between Jacksonville
and Fort Lauderdale, Florida which could be considered competitive with the
Company's Jacksonville and Miami, Florida service.
Airtran Airways, Inc. has recently announced that it will begin
service from three of the Company's cities to Orlando, Florida, a city not
served by the Company.
There can be no assurance that Delta Express, Southwest or Airtran
will not directly compete with the Company in the future. If such competition
does occur, the Company would need to rely on greater stimulation of traffic
and its low-fare structure to be successful.
In the future, competing airlines may set their prices at or below the
Company's fares or introduce new non-stop service between cities served by the
Company in attempts to prevent the Company from achieving or maintaining
profitable operations. The Company may face competition not only from existing
airlines which may begin servicing markets the Company serves, but also from new
low-cost airlines that may be formed to compete in the low-fare market
(including any airlines that may be formed by major airlines) and from ground
transportation alternatives. For example, Jet Express, a public-charter
airline, has provided seasonal scheduled jet airline service with discounted air
fares from Myrtle Beach, South Carolina to Chicago, Illinois, Boston,
Massachusetts, Detroit, Michigan, Newark, New Jersey, Long Island, New York,
and Philadelphia, Pennsylvania. In addition to traditional competition among
the scheduled domestic carriers, the industry may be subject to new forms of
competition in the future, such as video teleconferencing and other methods of
electronic communication, that may add a new dimension of competition to the
industry as businesses seek lower cost substitutes for air travel. The Company
recognizes that recurrent travelers have developed loyalties to existing
airlines or may desire benefits (such as numerous destinations and a choice in
class of service) that only major airlines currently provide. Many business
travelers are able to obtain reimbursement for their travel expenses and
therefore may be unwilling to give up the perceived benefits of their national
full-fare airlines simply to obtain the Company's lower fares. In addition,
the Company anticipates that attracting customers from established airlines to
the Company's new routes will be even more difficult than attracting customers
to the Company's existing routes. The Company has previously experienced a
poor record of on time performance and passenger service, and has had an above
average number of cancelled flights. The Company has taken steps which have
alleviated much of this problem; however, this may continue to hamper
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passenger acceptance in the future. The Company believes that these problems
have been greatly alleviated as a result of reductions in its schedule, better
training and better management of personnel, facilities and equipment. The
Company's decision to discontinue service to certain cities may also have
created dissatisfaction among passengers expecting to fly these routes and may
also negatively affect passenger acceptance. In addition, all low-fare
start-up airlines experienced a decline in the acceptance level of the flying
public as a result of the publicity and criticism of ValuJet Airlines following
the May 11, 1996 aircraft crash and the June 18, 1996 grounding of all ValuJet
aircraft.
GOVERNMENT REGULATION
General. All interstate air carriers are subject to regulation of the
DOT and the FAA under the Aviation Act. The DOT's jurisdiction extends
primarily to the economic aspects of air transportation, while the FAA's
regulatory authority relates primarily to air safety, including aircraft
certification and operations, crew licensing and training, and maintenance
standards. The Company has obtained a Certificate of Public Convenience and
Necessity issued by the DOT and a Part 121 Operating Certificate issued by the
FAA. The Certificates remain in effect until revoked by administrative action.
In general, the amount of economic regulation over interstate air carriers in
terms of market entry, exit, pricing, and inter-carrier acquisitions and
agreements has been greatly reduced subsequent to enactment of the Deregulation
Act.
The FAA has jurisdiction over, and imposes requirements concerning,
flight operations generally, including the licensing of pilots, maintenance and
flight dispatch personnel, the establishment of standards and requirements with
respect to training, maintenance and flight operations, including standards
applicable to cabin crews, communications and air and ground equipment, among
other things. The Company must obtain and maintain FAA certificates of
airworthiness for all of its aircraft. The Company's flight personnel, flight
and emergency procedures, aircraft and maintenance facilities are subject to
periodic inspections and tests by the FAA.
Slots. Presently, four airports, Chicago O'Hare, New York LaGuardia,
New York Kennedy and Washington National, are regulated by means of "slot"
allocations, which represent governmental authorizations to take off or land at
a particular airport within a specified time period. The DOT regulations
currently permit the buying, selling, trading or leasing of slots. Slot values
depend on several factors, including the airport, time of day covered, the
availability of slots, and the class of aircraft. FAA regulations require the
use of each slot at least 80% of the time and provide for forfeiture of slots
in certain circumstances without compensation. The DOT may require forfeiture
of slots without compensation if it determines slots are needed to meet
operational needs of international or essential air transportation.
The FAA recently conducted a review of slot regulation and determined
that the present structure of the slot system should not be changed. The
Company's ability to gain access to these four airports is affected by the
number of slots available to it for takeoffs and landings.
The Company currently leases six slots at New York Kennedy for use
during the slot controlled hours of 3:00 pm to 8:00 pm daily. These leases
expire April 29, 1997. The Company is aggressively pursuing slot leases from
carriers who own slots at New York Kennedy for use beyond April 29, 1997.
Should these efforts not be successful, and if the DOT does not agree to
provide slots for the Company's temporary use authority, the Company will only
maintain flight operations at New York Kennedy outside the slot controlled
hours.
Other. All air carriers are also subject to certain provisions of the
Communications Act of 1934, as amended, because of their extensive use of radio
and other communication facilities, and are required to obtain an aeronautical
radio license from the Federal Communications Commission ("FCC"). To the
extent the
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Company is subject to FCC requirements, it has taken, and will continue to
take, all necessary steps to comply with those requirements.
The Company's operations may become subject to additional federal
regulatory requirements in the future under certain circumstances. For
example, the Company's labor relations are covered under Title 11 of the
Railway Labor Act of 1926, as amended, and are subject to the jurisdiction of
the National Mediation Board. During a period of past fuel scarcity, air
carrier access to jet fuel was subject to allocation regulations promulgated by
the Department of Energy. The Company is also subject to state and local laws
and regulations at locations where it operates and the regulations of various
local authorities that operate the airports it serves.
Recently, the FAA escalated air carrier inspections involving carriers
of all sizes. Several recent inspections have resulted in the suspension of
service by the subject airlines. The Company was recently inspected as part of
that program; only immaterial penalties have been issued against the Company
resulting from FAA inspections; there can be no assurance as to future
inspections that material penalties will not be assessed. Following the
explosion of TransWorld Airlines Flight 800 off Long Island, New York in July
1996 a White House Commission (the "Commission") was established to develop
various aviation safety proposals. The Commission is expected to release its
report in the near future. The Company understands that one of the
Commission's proposals will be the redeployment of FAA inspectors to focus more
effort on supervising new, low-cost carriers. The Company cannot predict how
or when such proposal will be implemented or how it may affect the Company.
The Company believes that low-fare and start-up airlines already may be being
subjected to regulation at a level of scrutiny greater than that applicable to
larger, more established airlines.
INSURANCE
The Company carries the types and amounts of insurance that are
required by the DOT and that the Company believes are customary for airlines
similar to the Company. These coverages include: Aircraft Third Party
Liability Insurance; and All Risk Aircraft Hull Insurance and War Risk and
Allied Perils Insurance; these coverages have a $500,000,000 Combined Single
Limit limit of liability and include within them Baggage Liability and Cargo
Legal Liability coverages. The Company also carries $3,000,000 of All Risk
Spare Parts Insurance, as well as workers' compensation insurance. While the
Company believes such insurance will be adequate as to amounts and risks
covered, there can be no assurance that such coverage will continue to be
available or that it will fully protect the Company against all material losses
which it might sustain.
ENVIRONMENTAL MATTERS
The DOT and FAA have authority under the Aviation Safety and Noise Abatement
Act of 1979, as amended, under the Airport Noise and Capacity Act of
1990 and, along with the Environmental Protection Agency, under the Clean Air
Act, as amended, to monitor and regulate aircraft engine noise and exhaust
emissions. The Company believes it is operating its aircraft in compliance
with all applicable FAA noise control regulations and with current emissions
standards.
The Company does not believe that compliance with federal, state and
local provisions which have been enacted or adopted regulating the discharge of
materials into the environment, or otherwise relating to protection of the
environment will have any material adverse effect upon the capital
expenditures, earnings or competitive position of the Company. The Company
does not expect to make any material environmentally related capital
expenditures in the forseeable future. However, if the Company increases its
fleet from the current seven aircraft, the Company may have to comply with
federal noise control regulations which could cause it to incur material
capital expenses.
BUSINESS COMMUNITY, STATE, COUNTY AND CITY SUPPORT
The Company was initially financed with a combination of equity
capital from local businesses and loans and grants from state and municipal
governments, totaling more than $17,000,000. Business and government leaders in
South Carolina arranged this financing to attract a jet airline to the State in
order to stimulate tourism and aid the State's future economic growth and
development. The business community throughout the State as well as State and
local government officials have been very cooperative and supportive of the
Company's efforts to provide low-fare jet service to South Carolina cities, and
other cities in the Southeast.
In late 1993 and early 1994, Patrick J. O'Shea and other founders of
the Company met frequently with South Carolina development officials about
locating the headquarters of the proposed, low-cost, low-fare regional airline
in Columbia, South Carolina, and establishing flight service from Columbia and
other South Carolina cities.
Early cooperative efforts between the State of South Carolina,
Richland and Lexington Counties, South Carolina and the City of Columbia, South
Carolina resulted in an innovative package of financing and benefits as an
inducement for the Company to bring a low-fare jet airline to South Carolina
and to locate its corporate headquarters in the South Carolina midlands. This
financing and benefits package included:
- a $12,000,000 State arranged loan guaranteed by the Department of
Housing and Urban Development (the "State Loan").
- $3,000,000 of non-reimbursable grants from the City of Columbia
and Richland and Lexington Counties to be used for personnel
relocation, advertising, the cost of the Company's headquarters,
reservation center and other facilities in the Columbia area, and
working capital.
10
<PAGE> 11
- $1,137,000 of training grants for pre-employment training for
pilots, mechanics, flight attendants, reservations personnel and
others.
The State Loan provides for a deferred, low-interest rate (4%, with
interest payments beginning in February 1996); deferred principal repayment
(principal payments beginning in September 1997); and an interest rate
adjustment at five years after the beginning of flight operations. The State
Loan also limits the ability of the Company to move its headquarters or its
principal operational base from Columbia without the written consent of the
City of Columbia.
As part of the cooperative effort of the business community and
government authorities to provide capital, in May 1994, the Company raised
$1,022,000 through the sale of Common Stock in a private offering to South
Carolina accredited investors (the "South Carolina Offering"). In connection
with the final draw on the State Loan, the Company raised an additional
$828,000 in a rights offering of Common Stock to certain of its stockholders,
including those who purchased stock in the South Carolina Offering.
The Company believes that the support, cooperation, and confidence
shown by the various individuals and governmental entities has been a
significant factor in its progress. However, there can be no assurance that
the Company will continue to experience a supportive and cooperative
environment in its governmental relations and with the communities in which it
is located.
ITEM 2. FINANCIAL INFORMATION.
(a) SELECTED FINANCIAL AND OPERATING DATA
The selected Statement of Operations and Balance Sheet data as of and
for each of the years ended August 31, 1994 and 1995, have been derived from
the audited financial statements of the Company. The selected data as of and
for the nine-month periods ended September 30, 1995 and 1996 and the year ended
December 31, 1995 have been derived from financial statements of the Company
which are unaudited but which, in the opinion of management, have been prepared
on the same basis as the audited financial statements and include all
adjustments necessary (consisting of normal recurring adjustments) for a fair
presentation of the results for the unaudited period. The selected financial
data is qualified by, and should be read in conjunction with, "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS"
elsewhere in this ITEM 2 and with the Company's financial statements and the
related notes thereto included elsewhere in this Form 10.
11
<PAGE> 12
<TABLE>
<CAPTION>
Year Ended(1) Year Ended(1) Nine Months Ended
August 31, December 31, September 30,
--------------------- ------------- --------------------
1994 1995 1995(1) 1995 1996
-------- -------- ------------- ------- --------
Statement of Selected
Financial Data
- - --------------------------------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total operating revenues . . . . . . $ 132 $ 45,130 $ 58,368 $ 43,114 $ 41,020
Operating expenses:
Salaries, wages and benefits . . . . 1,083 13,254 15,153 10,429 12,138
Aircraft fuel and oil . . . . . . . . 100 10,172 12,308 9,135 9,550
Aircraft leases . . . . . . . . . . . 156 4,924 6,038 4,461 5,828
Maintenance materials and repairs . . 146 7,573 9,625 6,650 6,499
Agency commissions . . . . . . . . . 6 2,512 3,544 2,467 2,448
Other rentals, landing and ground
handling fees . . . . . . . . . . . 105 4,619 5,690 4,147 4,413
Advertising . . . . . . . . . . . . . 323 2,393 1,978 1,544 3,115
Depreciation and amortization . . . . 29 350 442 326 457
Other operating expenses(2) . . . . . 1,038 16,120 17,241 13,633 15,182
------- -------- -------- -------- --------
Total operating expenses . . . . . . 2,986 61,917 72,019 52,792 59,630
------- -------- -------- -------- --------
Operating loss . . . . . . . . . . . (2,854) (16,787) (13,651) (9,678) (18,610)
Interest expense (net) . . . . . . . 6 332 393 325 516
Grants . . . . . . . . . . . . . . . 1,045 1,256 407 197 355
------- -------- -------- -------- --------
Net loss . . . . . . . . . . . . . . $(1,815) $(15,863) $(13,637) $ (9,806) $(18,771)
======= ======== ======== ======== ========
Net loss per share . . . . . . . . . $ (0.72) $ (3.18) $ (1.79) $ (1.68) $ (2.75)
Weighted average common shares
outstanding (000) . . . . . . . . . 2.523 4,987 7,624 5,830 6,827
Dividends per share . . . . . . . . . $ -0- $ -0- $ -0-
SELECTED OPERATING AND OTHER DATA:(3)
Revenue passengers enplaned (000) . . 3 788 996 743 535
Revenue passenger miles (RPMs) (000). 1,104 273,965 351,239 259,685 252,755
Available seat miles (ASMs) (000) . . 6,149 583,126 712,017 541,907 477,478
Load factor . . . . . . . . . . . . . 18.0% 47.0% 49.3% 47.9% 52.9%
Operating break-even load factor . . 406.1% 64.5% 60.9% 58.7% 77.0%
Average fare . . . . . . . . . . . . $ 44.00 $ 57.27 $ 58.60 $ 58.03 $ 76.67
Passenger yield per RPM (cents) . . . 11.96 16.47 16.62 16.60 16.23
Total revenue per ASM (cents) . . . . 2.15 7.74 8.20 7.96 8.59
Operating cost per ASM (cents)(4) . . 48.56 10.62 10.11 9.74 12.45
Block hours flown . . . . . . . . . . 197 18,434 22,307 17,016 13,928
Average flight segment (miles) . . . 255 255 262 259 331
Operating cost per block hour . . . . $15,157 $ 3,229 $ 3,195 $ 3,102 $ 4,281
BALANCE SHEET DATA:
Cash and cash equivalents . . . . . . $ 3,552 $ 1,054 $ 2,370 $ 200 $ 502
Working capital (deficiency) . . . . 2,833 (6,934) (8,546) (10,381) (23,572)
Property and equipment, net . . . . . 1,061 2,238 2,595 2,518 2,872
Total assets . . . . . . . . . . . . 6,359 10,676 11,617 11,788 11,843
Total long-term debt . . . . . . . . 5,000 12,000 12,000 12,000 12,000
Total stockholders' equity
(deficiency) . . . . . . . . . . . $ 2 $(13,986) $(16,347) $(14,072) $(30,596)
</TABLE>
- - --------------------
(1) The Company's fiscal year was changed from August 31, to December 31,
effective for the year ended December 31, 1995.
(2) Other operating expenses include communications and utilities,
professional and technical fees, postage, freight and supplies, all
insurance (except workers' compensation coverage), credit card processing
and computerized reservation systems fees, flight crew hotel and per diem
costs, other outside services, equipment rental, passenger food and
interrupted trip expense, and substitute aircraft service costs.
(3) See "GLOSSARY" following ITEM 14 for definitions of certain terms.
(4) From September through December 1996, the number of aircraft in service
was reduced by one aircraft due to scheduled heavy maintenance inspections
on the fleet required by FAA regulations. During such period operating
cost per ASM was adversely affected because the Company's cost
infrastructure and overhead remained unchanged while the number of
ASMs were reduced.
12
<PAGE> 13
(b) MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
OVERVIEW
The Company was incorporated on January 14, 1993. Until commencement of
flight operations on August 22, 1994, the Company raised capital, obtained
certification from the FAA and the DOT, recruited key personnel, negotiated
facility and aircraft leases, contracted ground handling and maintenance
services, trained flight personnel, and selected and installed a reservation
system.
The Company began flight operations with two Boeing 737-200 aircraft and
initially provided service to Columbia, South Carolina, Atlanta, Georgia, St.
Petersburg, Florida, and Miami, Florida. Service was later expanded to other
Southern cities, some of which have since been dropped. Beginning in the first
calendar quarter of 1996, following a change in management, the Company began a
linear, point-to-point strategy designed to provide passengers with non-stop
and direct jet air service from cities in the Southeast to selected
high-density, high-volume markets in the Northeast, Midwest, and Florida.
The Company's revenues are derived principally from the sale of airline
services to passengers and are recognized when transportation is provided.
Revenues are primarily a function of fare levels and the number of seats sold
per flight. The Company's business is characterized, as is true for the
airline industry generally, by high fixed costs relative to revenues, and low
profit margins. Management's principal business strategy is to expand airline
service where there is sufficient customer demand and the Company's operating
costs permit profitable operations.
The Company expects its future revenues to be affected by its ability to
offer and maintain competitive fares, the reaction of existing competitors to
the Company's service, the possible entry of national and other low-fare
airlines into the Company's current or future markets, the effectiveness of the
Company's marketing efforts, and general economic conditions. The Company's
costs may be affected by increases in the price of jet fuel, scheduled and
unscheduled aircraft maintenance expenses, labor costs, fees charged by
independent contractors for various services, and rent for gates and other
facilities.
The Company expects to compete with new or existing competitors on future
routes. Competing airlines may set prices at or below the Company's fares or
introduce new, competing service. Competitors have responded to the Company's
addition of routes to New York by providing new service and reduced fares.
Typically, airlines experience reduced demand for services at various
times during the fall and winter. During these periods, an airline may
experience variations in passenger demand based on its particular routes and
passenger demographics. Due to the Company's limited history and the
implementation of the Company's linear, point-to-point strategy, the Company is
unable to predict whether, or to what extent, seasonal variations in its
operations will differ from those of the airline industry generally. If the
Company's demand patterns are similar to those of the airline industry
generally, the Company would experience reduced demand during the fall and
winter with adverse effects on revenues, operating results, and cash flow.
The Company has a limited history of operations, and since its inception
has experienced significant losses. As of December 31, 1995, the Company had
an accumulated deficit of $23.2 million and negative stockholders' equity of
$16.3 million; as of September 30, 1996 such accumulated deficit and negative
stockholders' equity were $41.9 million and $30.6 million, respectively.
13
<PAGE> 14
RESULTS OF OPERATIONS
The Company began flight operations on August 22, 1994, operating only ten
days for the fiscal year ended August 31, 1994. In 1995, the Company changed
from a fiscal year ended August 31, to a calendar year ended December 31, 1995.
The following table sets forth selected financial data of the Company for the
twelve months ended December 31, 1995 and the nine months ended September 30,
1995 and September 30, 1996 and the three months ended September 30, 1995 and
1996 and the three months ended December 31, 1995 and 1994:
<TABLE>
<CAPTION>
Nine Months Ended
Year Ended -----------------
---------- September 30
December 31, 1995 1995 1996
----------------- ----------------- ------------------
Percent Percent Percent
Amount of Amount of Amount of
Operating Operating Operating
(000) Revenues (000) Revenues (000) Revenues
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total Operating Revenues $ 58,368 100.0% $ 43,114 100.0% $ 41,020 100.0%
Operating Expenses
Salaries, Wages & Benefits 15,153 26.0% 10,429 24.2% 12,138 29.6%
Aircraft Fuel & Oil 12,308 21.1% 9,135 21.2% 9,550 23.3%
Aircraft Leases 6,038 10.3% 4,461 10.3% 5,828 14.2%
Maintenance Materials and Repairs 9,625 16.5% 6,650 15.4% 6,449 15.8%
Agency Commissions 3,544 6.1% 2,467 5.7% 2,448 6.0%
Other Rentals, Landing & Ground Handling Fees 5,690 9.7% 4,147 9.6% 4,413 10.8%
Advertising 1,978 3.4% 1,544 3.6% 3,115 7.6%
Depreciation & Amortization 442 0.8% 326 0.8% 457 1.1%
Other Operating Expenses 17,241 29.5% 13,633 31.6% 15,182 37.0%
-------- -------- ------ ------- ------
Total Operating Expenses 72,019 123.4% 52,792 122.4% 59,630 145.4%
-------- -------- ------ ------- ------
Operating Loss (13,651) 9,678 184,610
Interest Expense (net) 393 325 516
Grants/Other 407 197 355
-------- -------- -------
Net Loss $ (13,637) $ (9,806) $(18,771)
======== ======== =======
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
September 30
-----------------------------------------------------------
1995 Percent 1996 Percent
Amount of Amount of
(000) Operating (000) Operating
Revenues Revenues
-----------------------------------------------------------
<S> <C> <C> <C> <C>
Total Operating Revenues $16,542 100.0% $13,038 100.0%
-----------------------------------------------------------
Operating Expenses
- - ------------------
Salaries, Wages & Benefits 3,243 19.6% 4,225 32.4%
Aircraft Fuel & Oil 2,961 17.9% 3,229 24.7%
Aircraft Leases 1,586 9.6% 2,252 17.3%
Maintenance Materials and Repairs 2,379 14.4% 2,424 18.6%
Agency Commissions 953 5.8% 734 5.6%
Other Rentals, Landing and Ground Handling Fees 1,493 9.0% 1,305 10.0%
Advertising 497 3.0% 1,276 9.7%
Depreciation & Amortization 199 1.2% 152 1.2%
Other Operating Expenses 5,235 31.6% 5,880 45.1%
------ ------ ------ ------
Total Operating Expenses 18,546 112.1% 21,477 164.7%
------ ------ ------ ------
Net Operating Income\(Loss) (2,004) (8,439)
NON OPERATING ITEMS:
Interest Expense (net) (93) 155
Grants/Other (102) (17)
-------- -------
Net Nonoperating (195) 172
Net Loss ($2,199) ($8,611)
======== ========
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
December 31
----------------------------------------------------------
1994 Percent 1995 Percent
Amount Of Amount Of
(000) Operating (000) Operating
Revenues Revenues
----------------------------------------------------------
<S> <C> <C> <C> <C>
Total Operating Revenues $ 5,799 100.0% $15,087 100.0%
----------------------------------------------------------
OPERATING EXPENSES
- - ------------------
Salaries, Wages & Benefits 2,465 42.5% 4,032 26.7%
Aircraft, Fuel & Oil 1,614 27.8% 3,168 21.0%
Aircraft Leases 833 14.4% 1,572 10.4%
Maintenance Materials and Repairs 1,325 22.8% 3,052 20.2%
Agency Commissions 346 6.0% 1,078 7.2%
Other Rentals, Landing and Ground Handling Fees 800 13.8% 1,482 9.8%
Advertising 973 16.8% 407 2.7%
Depreciation & Amortization 62 1.1% 132 0.9%
Other Operating Expenses 3,700 63.8% 4,223 28.0%
------- ----- ------- -----
Total Operating Expenses 12,118 209.0% 19,146 126.9%
------- ----- ------- -----
Net Operating Income\(Loss) (6,319) (4,059)
NON OPERATING ITEMS:
Interest Expenses (net) (33) (69)
Grant/Other 609 46
------- -------
Net Nonoperating 576 (23)
Net Loss $(5,743) $(4,082)
======== ========
</TABLE>
COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
Operating Revenues
Total operating revenues were 4.9% lower for the nine months ended
September 30,1996 compared to the nine months ended September 30, 1995. At
September 30, 1995 the Company operated 71 daily flights with seven aircraft
and provided service to 8 cities. At September 30, 1996 the Company operated
43 daily flights utilizing five of its seven aircraft and provided service to
11 cities.
The Company reduced the number of daily flights beginning in March
1996 in order to facilitate the addition of new cities and other changes in its
schedule. From January through July 24, 1996 the number of aircraft in service
was reduced by one aircraft due to scheduled C-check inspections. From July
25, 1996 through the present, the Company has operated five aircraft. Total
available seat miles(1) decreased from approximately 541.9 million during the
nine months ended September 30, 1995 to approximately 477.5 million during the
nine months ended September 30, 1996. Revenue passenger miles decreased from
approximately 259.7 million during the nine months ended September 30, 1995 to
approximately 252.8 million during the nine months ended September 30, 1996.
The decrease in available seat miles was primarily attributable to the decrease
in the average number of daily flights, and the decrease in RPMs was primarily
attributable to reduced capacity.
The Company's load factor increased from 47.9% for the nine months
ended September 30, 1995, to 52.9% for the nine months ended September 30,
1996. This increase was primarily the result of increased awareness of the
Company's service, adjustments in capacity to meet market demand, an increased
number of city pairs, and adjustments in flight departure times to meet
passenger preferences.
Passenger yield decreased 2.3%, from 16.60 cents per revenue passenger
mile for the nine months ended September 30, 1995, to 16.23 cents per RPM for
the nine months ended September 30, 1996. The decrease in passenger yield was
the result of an increased number of fares sold at initial promotional levels,
the introduction of advance reservation requirements to attain the lowest fares,
and increases in the distance flown by travelers.
The Company's operating break-even load factor increased from 58.7%
during the nine months ended September 30, 1995, to 77.0% during the nine-month
period ended September 30, 1996. The Company's high operating break-even load
factor during the 1996 period was the result of (i) certain non-recurring
maintenance and repair expenses and (ii) the impact of spreading the cost of
the Company's corporate infrastructure over a smaller number of total available
seat miles resulting from the Company's operating six or fewer of the seven
leased aircraft. The non recurring maintenance expenses were related to
repairs needed as a result of inspections made during scheduled "C" Checks.
These inspections were required for older aircraft and were done for the first
time on some of the Company's aircraft. When these repairs were made they are
not likely to reoccur. The magnitude of some of these repairs nearly doubled
normal "C" Check costs.
The absolute cost of maintenance did decrease for the nine months ended
September 30, 1996 compared to 1995. The decrease was 2.3% however, flying
levels decreased even more, causing the break-even load factor to increase.
Block hours decreased 18.2% and ASMs decreased 11.9%. The cost per ASM which
is used to calculate break-even load factors increased from $.01227 to $.01361
or 10.9%.
The Company's break-even load factor should decrease as it generates
incremental passenger revenue with the expansion of its new routes and addition
of aircraft to the Company's fleet. There can be no assurance, however, that
any such incremental passenger revenue will be sufficient to cover the
incremental costs of expansion or that, ultimately, as a result of these or
other factors, the Company's operating break-even load factor will decrease.
Operating Expenses
Operating expenses reflect costs for salaries, wages and benefits,
aircraft fuel and oil, aircraft leases, maintenance materials and repairs,
agency commissions, other rental, landing, and ground handling fees,
advertising, depreciation and amortization, and other operating expenses.
Salaries, wages and benefits reflect compensation earned by all
employees of the Company. Fees paid to independent contractors are included in
other operating expenses. The Company's employees are not unionized and when
practicable, part-time employees are used.
Salaries, wages, and benefits increased 16.4% for the nine months ended
September 30, 1996 compared to the same nine months periods in 1995. The
increase was the primary result of a charge for the amortization of stock
compensation in the amount of $370,565, made in the nine month period ended
September 30, 1996. There was no similar charge in the nine month period ended
September 30, 1995. Except for this stock compensation costs, salaries, wages
and benefits remained relatively flat. Salaries, wages, and benefits accounted
for 19.8% of operating expense and 24.2% of operating revenue for the nine
months ended September 30, 1995. By contrast, salaries, wages, and benefits
accounted for 20.4% of operating expenses and 29.6% of operating revenue for
the nine
- - ----------------------
(1) For a definition of certain terms see the Glossary following Item
14.
14
<PAGE> 15
months ended September 30, 1996. The above salary adjustment resulted in
salaries, wages and benefits being increased as a percent of operating
expenses and percentage of operating revenues.
Aircraft fuel and oil expenses include the cost of fuel, oil, and
taxes, as well as the cost of pumping the fuel into the aircraft. Aircraft
fuel and oil expenses increased 4.5% for the nine months ended September 30,
1996. Fuel expense accounted for 17.3% of operating expenses and 21.2% of
operating revenues for the nine months ended September 30, 1995. By contrast
fuel accounted for 16.0% of operating expenses and 23.3% of operating revenues
for the nine months ended September 30, 1996. The increase was attributable to
exceptionally high fuel prices (up to $.83 per gallon from $.66 per gallon),
plus increased consumption per block hour as a result of heavier loads. The
Company will likely absorb moderate increases in fuel costs, which would reduce
profits or increase losses for the period affected. The Company would seek to
offset significant longer term increases in fuel costs with increases in ticket
prices. However, because of the Company's low-fare policy, its ability to pass
on the additional costs may be limited. The Company's aircraft are relatively
fuel inefficient compared to newer aircraft. An increase in the price of fuel
could, therefore, result in a disproportionately higher increase in the
Company's expense as compared with many of its competitors.
The Company leases seven Boeing 737-200 aircraft on operating leases
with terms between approximately one and one-half and three years.
At January 1, 1997, at least three of the Company's seven aircraft were
required to meet federal Stage III noise requirements; only two of the aircraft
currently meet the Stage III requirements. The Company has concluded
arrangements to have a third aircraft modified to meet Stage III requirements;
the third aircraft meeting such requirements will be available for service in
February, 1997. Until then, the Company will meet such requirements because of
aircraft being out of service.
Aircraft lease expenses increased 30.6%, from $4.46 million for the
nine months ended September 30, 1995, to $5.83 million for the nine months
ended September 30, 1996. The increase was primarily attributable to an
increase in the number of aircraft in the fleet to seven in March 1995, the
average monthly lease cost increase for all but two aircraft starting in May
1996 as a result of renegotiated leases. Aircraft lease expense accounted for
8.5% of operating expenses and 10.3% of operating revenue for the nine months
ended September 30, 1995. By contrast, aircraft lease expense accounted for
9.8% of operating expenses and 14.2% of operating revenue for the nine months
ended September 30, 1996.
Maintenance, materials, and repairs expense includes all the costs
incurred by the Company for maintenance services and related parts and
supplies, but excludes wages paid to the Company's maintenance employees.
Currently, the Company uses its employees to perform minor maintenance at
several of the airports it serves. At some locations, and whenever required,
the Company uses qualified contractors to perform maintenance on a contract
basis. Heavy maintenance, such as major engine repairs and major airframe
checks, are performed by third parties at their locations. The Company accrues
for C-check inspections at $125 per block hour, or $375,000 per aircraft.
Maintenance, materials, and repairs expense decreased 2.3% for the nine
months ended September 30, 1996. Maintenance, materials and repairs expense
accounted for 12.6% of operating expenses and 15.4% of operating revenue for
the nine months ended September 30, 1995. By contrast, maintenance, materials
and repairs expense accounted for 10.9% of operating expenses and 15.8% of
operating revenue for the nine months ended September 30, 1996. The Company's
fleet consists of aircraft manufactured between 1968 and 1979. In general, the
costs to maintain older aircraft exceeds the cost to maintain newer aircraft.
Modifications or additions may also be required to these older aircraft to meet
regulations which may be issued from time to time by the FAA. Included in
maintenance, materials, and repair expense are reserves paid to the lessors,
based on hours flown and for scheduled overhauls, primarily of engines. Major
engine repairs are capitalized and amortized over the period to the next
scheduled overhaul.
Agency commissions expense reflects fees paid to travel agents. For
the nine months ended September 30, 1996, these commissions were paid at 10.0%
on the net fare paid at the time of the sale. Agency commissions expense is
recognized in the same period as the revenue is recognized. Approximately 45%
of the company's bookings are made through travel agents.
Agency commissions expense decreased 0.8%, from $2.47 million for the
nine months ended September 30, 1995, to $2.45 million for the nine months ended
September 30, 1996. The decrease was primarily attributable to lower revenues
offset by a higher percentage of bookings made through travel agents. Agency
commissions expense accounted for 4.7% of operating expenses and 5.7% of
operating revenue for the nine months ended September 30, 1995. Agency
commissions expense accounted for 4.1% of operating expenses but 6.0% of
operating revenue for the nine months ended September 30, 1996.
Other rental, landing, and ground handling fees include costs incurred
by the Company for rental of airport facilities, reservations, and
administrative offices. Landing fees are fees assessed by each airport for
each landing. Ground handling fees
15
<PAGE> 16
reflect the costs incurred by the Company for use of airport facilities for
baggage claim and security and passenger holding areas, as well as fees under
contract with a third party for handling and cleaning the aircraft at certain
locations.
Other rental, landing, and ground handling fees expenses increased
6.4%, from $4.15 million for the nine months ended September 30, 1995 to $4.41
million for the nine months ended September 30, 1996. The increase was
primarily attributable to higher fees at New York and Chicago. Other rental,
landing, and ground handling fees represented 7.9% of operating expenses and
9.6% of operating revenues for the nine months ended September 30, 1995. By
contrast, these expenses represented 7.4% of operating expenses and 10.8% of
operating revenues for the nine months ended September 30, 1996.
Advertising expense includes all external costs associated with the
production and distribution of advertisements and promotional materials and
sponsorship of various promotional events. Advertising costs increased from
$1.5 million for the nine months ended September 30, 1995, to $3.1 million for
the nine months ended September 30, 1996. The increase was primarily
attributable to increased advertising associated with implementing the new
route structure and the higher costs in New York and Chicago.
Depreciation and amortization expense includes leasehold improvements
on facilities and equipment, spare parts, and ground equipment. The Company
recognizes such expenses on a straight line basis over the estimated useful
lives of the Company's assets. Depreciation and amortization expenses
increased to $457,000 or by 40% for the nine months ended September 30, 1996.
The increase was due to the increase in ground handling equipment.
Other operating expenses include communications and utilities,
professional and technical fees, postage, freight and supplies, all insurance
(except workers compensation coverage), credit card processing and computerized
reservation systems fees, flight crew hotel and per diem costs, other outside
services, equipment rental, passenger food, interrupted trip expense, and
substitute aircraft service costs. Other expenses increased 11.3%, from $13.6
million for the nine months ended September 30, 1995, to $15.2 million for the
nine months ended September 30, 1996. The increase in other expenses is
primarily attributable to the increase in flight crews, in the number of
aircraft in the fleet and the number of passengers served and the changes in
the operating costs and frequencies of cities served in one period compared to
the other.
COMPARISON OF THE THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
Operating Revenues
Total operating revenues were 21.2% lower for the three months ended
September 30, 1996 compared to the three months ended September 30, 1995. At
September 30, 1995 the Company operated 64 daily flights with six aircraft and
provided service to 8 cities. At September 30, 1996 the Company operated 43
daily flights utilizing five of its seven aircraft and provided service to 11
cities.
The Company reduced the number of daily flights beginning on July 25,
1996 in an effort to serve longer haul markets with greater market potential,
decrease the frequency of some flights and reduce the number of aircraft in
service. The number of aircraft in service was reduced to five aircraft.
Total available seat miles(1) decreased from approximately 188.2 million during
the three months ended September 30, 1995 to approximately 171.2 million during
the three months ended September 30, 1996. Revenue passenger miles increased
from approximately 92.8 million during the three months ended September 30,
1995 to approximately 98.0 million during the three months ended September 30,
1996. The decrease in available seat miles was primarily attributable to the
decrease in the average number of daily flights, and the increase in RPMs was
primarily attributable to serving cities in need of low cost air
transportation.
The Company's load factor increased from 49.3% for the three months
ended September 30, 1995, to 57.3% for the three months ended September 30,
1996. This increase was primarily the result of increased awareness of the
Company's service, adjustments in capacity to meet market demand, an increased
number of city pairs, and adjustments in flight departure times to meet
passenger preferences.
Passenger yield decreased 25.3%, from 17.82 cents per revenue passenger
mile for the three months ended September 30, 1995, to 13.30 cents per RPM for
the three months ended September 30, 1996. The decrease in passenger yield was
the result of increases in fares from initial promotional levels, the
introduction of advance reservation requirements to attain the lowest fares,
and increases in the distance flown by travelers.
________________________
(1) For a definition of certain terms see the Glossary Following Item 14.
16
<PAGE> 17
The Company's operating break-even load factor increased from 55.3%
during the three-months ended September 30, 1995, to 94.3% during the
three-month period ended September 30, 1996. The Company's high operating
break-even load factor during the 1996 period was the result of (i) certain
non-recurring maintenance and repair expenses and (ii) the impact of spreading
the cost of the Company's corporate infrastructure over a smaller number of
total available seat miles resulting from the Company operating only five of
the seven leased aircraft. The Company's break-even load factor should
decrease as it generates incremental passenger revenue with the expansion of
its new routes and addition of aircraft to the Company's fleet. There can be
no assurance, however, that any such incremental passenger revenue will be
sufficient to cover the incremental costs of expansion or that, ultimately, as
a result of these or other factors, the Company's operating break-even load
factor will decrease.
Operating Expenses
Salaries, wages, and benefits increased 30.3% for the three months
ended September 30, 1996 compared to the same three months period in 1995.
Salaries, wages, and benefits accounted for 17.5% of operating expense and
19.6% of operating revenue for the three months ended September 30, 1995. By
contrast, salaries, wages, and benefits accounted for 19.7% of operating
expenses and 32.4% of operating revenue for the three months ended September
30, 1996. The increased level of costs is a result of staff reductions and the
associated severance and other costs. The increase as a percent of operating
expense is a result of a decrease in other variable operating expenses, while
salaries, wages and benefits increased. The increase as a percent of
operating revenue is a result of a decrease in operating revenue combined with
an increase in salaries, wages and benefits.
Aircraft fuel costs increased 9.0% for the three months ended September
30, 1996 compared to the same period in 1995. The increase was attributable to
an increase in the average price per gallon from $0.62 to $0.84. Fuel costs
accounted for 16.0% of operating expense and 17.9% of operating revenues for
the three months ended September 30, 1995. By contrast, it accounted for 15.0%
of operating expense and 24.7% of operating revenue for the same period of 1996.
Aircraft lease expenses increased 42.0%, from $1.6 million for the three
months ended September 30, 1995, to $2.3 million for the three months ended
September 30, 1996. The increase was primarily attributable to an increase in
the average monthly lease cost increased for all but two aircraft starting in
May 1996 as a result of renegotiated leases. Aircraft lease expense accounted
for 8.6% of operating expenses and 9.6% of operating revenue for the three
months ended September 30, 1995. By contrast, aircraft lease expense accounted
for 10.5% of operating expenses and 17.3% of operating revenue for the three
months ended September 30, 1996.
Maintenance, materials, and repairs expense increased 1.9% for the three
months ended September 30, 1996. Maintenance, materials and repairs expense
accounted for 12.8% of operating expenses and 14.4% of operating revenue for
the three months ended September 30, 1995. By contrast, maintenance, materials
and repairs expense accounted for 11.3% of operating expenses and 18.6% of
operating revenue for the three months ended September 30, 1996.
17
<PAGE> 18
Agency commissions expense decreased 23.0%, from $.95 million for the
three months ended September 30, 1995, to $.73 million for the three months
ended September 30, 1996. The decrease was a result of lower sales by travel
agents and lower operating revenues. Agency commissions expense accounted for
5.1% of operating expenses and 5.8% of operating revenue for the three months
ended September 30, 1995. Agency commissions expense accounted for 4.0% of
operating expenses but 5.6% of operating revenue for the three months ended
September 30, 1996.
Other rental, landing, and ground handling fees expenses decreased 12.6%,
from $1.5 million for the three months ended September 30, 1995, to $1.3
million for the three months ended September 30, 1996. Other rental, landing,
and ground handling fees represented 8.1% of operating expenses and 9.0% of
operating revenues for the three months ended September 30, 1995. By contrast,
these expenses represented 6.1% of operating expenses and 10.0% of operating
revenues for the three months ended September 30, 1996.
Advertising costs increased from $.5 million for the three months ended
September 30, 1995, to $1.3 million for the three months ended September 30,
1996. The increase was primarily attributable to increased advertising
associated with implementing the new route structure and the higher costs in
New York and Chicago.
Depreciation and amortization expenses decreased to $152,000 or by 24% for
the three months ended September 30, 1996.
Other expenses increased 14.2%, from $5.2 million for the three months
ended September 30, 1995, to $5.9 million for the three months ended September
30, 1996. The increase in other expenses is primarily attributable to the
increase of the cost of flight cancellations and the re-accommodation of
passengers affected by changes in cities being served.
COMPARISON OF THREE MONTHS ENDED DECEMBER 31, 1995 AND 1994
Operating Revenues
Total operating revenues were 160% higher for the three months ended
December 31, 1995 compared to the three months ended December 31, 1994. The
Company operated two aircraft in September and October 1994, four in November
1994 and by December 31, 1994 five aircraft and provided service to 8 cities.
At December 31, 1995 the Company operated five of its seven aircraft and
provided service to 8 cities.
Total available seat miles(1) increased from approximately 81.7 million
during the three months ended December 31, 1994 to approximately 170.1 million
during the three months ended December 31, 1995. Revenue passenger miles
decreased from approximately 36.0 million during the three months ended
December 31, 1994 to approximately 91.6 million during the three months ended
December 31, 1995. The increase in available seat miles was primarily
attributable to the increase in the average number of aircraft being flown, and
the increase in RPMs was primarily attributable to increased acceptance by the
traveling public and the increase in capacity.
The Company's load factor increased from 44.1% for the three months ended
December 31, 1994, to 53.8% for the three months ended December 31, 1995. This
increase was primarily the result of increased awareness of the Company's
service.
Passenger yield increased 2.4%, from 16.09 cents per revenue passenger mile
for the three months ended December 31, 1994, to 16.48 cents per RPM for the
three months ended December 31, 1995. The increase in passenger yield was the
result of increases in fares from initial promotional levels.
The Company's operating break-even load factor decreased from 92.2% during
the three months ended December 31, 1994, to 68.3% during the three-month
period ended December 31,1995. The abnormally high operating break-even load
factor during the 1994 period was the result of (i) the Company operating
fewer aircraft (two aircraft in October 1994, four in November 1994 and, by
December 31, 1994, five aircraft) and spreading the cost of the Company's
corporate infrastructure over a small number of total available seat miles.
Operating Expenses
Salaries, wages, and benefits increased 63.6% for the three months ended
December 31, 1995 compared to the same three months period in 1994. The
increase primarily was the result of staffing increases during the transition
from a startup airline. Salaries, wages, and benefits accounted for 20.3% of
operating expense and 42.5% of operating revenue for the three months ended
December 31, 1994. By contrast, salaries, wages, and benefits accounted for
21.1% of operating expenses and 26.7% of operating revenues for the three
months ended December 31, 1995.
Aircraft fuel and oil expenses increased 96.3% for the three months ended
December 31, 1995. The increase was attributable to a 98.2% increase in hours
flown.
_____________________
(1) For a definition of certain terms see the Glossary following Item
(14).
18
<PAGE> 19
Aircraft lease expenses increased 88.7%, from $0.8 million for the
three months ended December 31, 1994, to $1.6 million for the three months
ended December 31, 1995. The increase was primarily attributable to an increase
in the number of aircraft in the fleet from five at December 31, 1994 to seven
in April 1995. Aircraft lease expense accounted for 6.9% of operating expenses
and 14.4% of operating revenues for the three months ended December 31, 1994.
By contrast, aircraft lease expense accounted for 8.2% of operating expenses
and 10.4% of operating revenue for the three months ended December 31, 1995.
Maintenance materials, and repairs expense decreased 130.3% for the
three months ended December 31, 1995. Maintenance, materials and repairs
expense accounted for 10.9% of operating expenses and 22.8% of operating
revenue for the three months ended December 31, 1994. By contrast,
maintenance, materials and repairs expense accounted for 15.9% of operating
expenses and 20.2% of operating revenue for the three months ended December 31,
1995. The increase was a result of increased flying and higher than normal
expenses during the three months ended December 31, 1995.
Agency commissions expense increased 211.6%, from $.3 million for the
three months ended December 31, 1994, to $1.1 million for the three months
ended September 30, 1995. The increase was primarily attributable to a higher
percentage of bookings made through travel agents and higher than normal
commission rate in late 1995 (11%). Agency commissions expense accounted for
2.9% of operating expenses and 6.0% of operating revenue for the three months
ended December 31, 1994. Agency commissions expense accounted for 5.6% of
operating expenses but 7.2% of operating revenue for the three months ended
December 31, 1995.
Other rental, landing, and ground handling fees expenses increased
85.3%, from .$8 million for the three months ended December 31, 1994, to $1.5
million for the three months ended December 31, 1995. Other rental, landing,
and ground handling fees represented 6.6% of operating expenses and 13.8% of
operating revenues for the three months ended December 31, 1994. By contrast,
these expenses represented 7.7% of operating expenses and 9.8% of operating
revenues for the three months ended December 31, 1995.
Advertising costs decreased from $1.0 million for the three months
ended December 31, 1994, to $.4 million for the three months ended December 31,
1995. The decrease was primarily attributable to reduced advertising in all
markets.
Depreciation and amortization expenses increased to $132,000 or by
112.9% for the three months ended December 31, 1995. The increase was due to
the increase in ground handling equipment.
Other expenses increased 14.1%, from $3.7 million for the three months
ended December 31, 1994, to $4.2 million for the three months ended December
31, 1995. The increase in other expenses is primarily attributable to the
increase in flight crews, in the number of aircrafts in the fleet and the number
of passengers served and the changes in the operating costs and frequencies of
cities served in one period compared to the other.
LIQUIDITY AND CAPITAL RESOURCES
From the Company's inception on January 14, 1993, through September
30, 1996, the Company's pre-operating and development costs, as well
as its operating costs since it commenced flight operations, have been funded
with capital comprised of a series of loans, grants, and reimbursements of
expenses provided by the State of South Carolina, the County of Lexington, and
the City of Columbia, South Carolina, including: (i) a $12 million State Loan
guaranteed by the Department of Housing and Urban Development, (ii) $3 million
of grants from the City of Columbia and Richland and Lexington Counties, to be
used for personnel relocation, advertising, cost of Company headquarters, the
reservation center, and working capital, and (iii) $1.1 million of training
grants for pre-employment training for pilots, mechanics, flight attendants,
reservation personnel, and others. As of September 30, 1996, the Company had
$968,075 of unused grants available for rent subsidy for the Company's
reservations facility. In September 1996, the terms of the State Loan were
modified to provide (i) for four percent (4%) fixed interest rate through
August 31, 2004; beginning September 1, 2004 the interest rate may be
increased, not to exceed prevailing commercial loan rates, based on the
Company's net operating income, (ii) that interest due for September 1, 1996
through August 1, 1997 is deferred until August 1, 1997, (iii) that the loan is
to be repaid in 143 equal installments based on 204 months amortization with a
balloon payment one month after the last (final) installment; (iv) that the
outstanding principal balance is based on the size of an initial public
offering with principal repayment not to exceed $6 million of the net proceeds
of a public offering greater than $20 million. The Company does not now have
any plans for an initial public offering.
The Company also raised $11.72 million through bank loans and private
equity securities sales during the nine months ended September 30, 1996. The
Company used the proceeds from these sales for general operating purposes.
From October 1996 through the date hereof, the Company borrowed
$10,800,000 from Accredited Investors pursuant to demand promissory notes;
$2,300,000 has been repaid. It is anticipated that the remainder of these
notes will be exchanged for convertible debt securities.
Early in 1996 the Company commenced new routes; thereafter, its load
factors and yields were below prior levels, and the Company's advertising and
other promotional costs were higher, which resulted in significant start-up
losses on the new routes. In addition, significant cash was required to fund
increases in accounts receivable and prepaid expenses. The effects of the
expansion described above has caused the Company to have substantial cash
requirements.
When passengers purchase tickets using a credit card, the credit card
company generally requires that the payment be held in reserve until the
passenger actually flies. Approximately 85% of the Company's ticket sales are
credit card sales made for future travel. These payments are unavailable for
the immediate cash needs of the Company. The Company has entered into an
agreement where a letter of credit provided by Hambrecht & Quish California
allows cash to be obtained more promptly from credit card receivables.
In January 1996 a 10% federal excise tax on air fares expired. It was
reinstated in August 1996. The Company reflected such reinstatement in its
fare structure, thereby avoiding any adverse effect on the Company. On
January 1, 1997 that excise tax again expired and it is expected that the same
methods will be used upon its being reinstated.
On April 8, 1996 the Company ceased scheduled service to the Tampa
International Airport in order to improve the deployment of its aircraft.
Hillsborough County Aviation Authority, which operates the Tampa airport, has
sued the Company for breach of contract. See Item 8 LEGAL PROCEEDINGS.
During the period from inception through September 30, 1996, the
Company's pre-operating and operating activities resulted in a deficit in cash
flow of $30.0 million. This cash flow deficit was funded primarily with the
proceeds from private securities sales, bank loans, the State Loan, and certain
vendors. At September 30, 1996, the Company had cash and cash equivalents of
$.5 million. The working capital deficit at September 30, 1996 was
approximately $23.6 million.
19
<PAGE> 20
The Company expects to incur approximately $1.0 million for capital
expenditures over the next twelve months to lease additional aircraft, engines
and related spare parts.
In March 1996, the Company entered into an agreement with a bank for a
revolving line of credit which provided the Company with additional working
capital; $500,000 has been advanced under this agreement and no further
advances are expected. The principal of this Loan is payable on March 29, 1997
with interest at one percent above the bank's prime rate, payable monthly. In
April 1996, the Company obtained a $2.0 million bank loan all of which has been
funded. Hambrecht & Quist Group, L.L.C. ("H&Q Group") was granted a warrant to
purchase 400,000 shares of Air South Common Stock at a price of $2.00 per share
as consideration for guaranteeing such loan; in May 1996, the purchase price
per share was changed to $0.50 per share as additional consideration for H&Q Air
South Investors, L.P. ("H&Q"), purchasing $2.5 million of Series B Preferred
Stock. The principal of this loan was payable on December 1, 1996 with interest
at one percent above the bank's prime rate, payable monthly. The maturity date
of this loan has been extended to June 1, 1998. A letter of credit provided by
an affiliate of H&Q Group has been substituted for the guarantee by H&Q Group
of such loan; such affiliate has been granted a warrant to purchase 8,000,000
shares of Air South Common Stock at a price of $0.25 per share, subject to
adjustment if shares of Common Stock or equivalents are later sold at a lower
price. The Company may from time-to-time enter into other short-term borrowing
arrangements for additional working capital. However, there can be no assurance
that additional loans or lines of credit will be available in the future.
As of September 30, 1996, the Company had seven aircraft under operating
leases with terms from approximately one and one-half to three years. Rent
expense under these leases is recognized on a straight-line basis over the
lease terms. The amount charged to aircraft lease expense was approximately
$5.6 million for the nine months ended September 30, 1996. The Company
continues to investigate the acquisition of up to two additional 737-200 jets
by the end of the second quarter of 1997. The Company expects the two proposed
leases to be similar to existing leases in that they will require monthly
maintenance reserve payments based on usage. The new leases, however, are
expected to include lease payment terms which are less favorable than existing
leases due to increasing prices for used aircraft.
The Company's over 60-day payables as of September 30, 1996 were and as
of the date hereof are approximately $4.8 million. The Company currently has
agreements with certain of its creditors to make payments in excess of $4.0
million of payables over periods ranging up to one year.
The Company's operations have not generated positive cash flow since
August 1995. However, the Company plans to raise sufficient additional capital
(including an additional $4,000,000 of capital raised in January 1997) through
private sales of securities to meet its obligations and its liquidity and
capital needs for a period of at least six months from December 31, 1996.
Additionally, the Company will continue to make use of lease financing,
especially for aircraft acquisitions. The Company also intends to
raise capital by selling certain of its fixed assets and aircraft parts.
ITEM 3. PROPERTIES.
The Company's operations in Columbia, South Carolina include a downtown
office which houses reservations, an office near the airport which houses
accounting and customer relations, and a facility at the Columbia Municipal
Airport that houses executive offices and other administrative and operations
functions. The downtown facility comprises approximately 16,200 square feet.
The offices near the airport comprise 4,000 square feet. The airport facility
comprises approximately 8,400 square feet of office space surrounding a 13,400
square foot hangar. The downtown facility is under a four year lease, entered
into on May 9, 1994. The offices near the airport are leased on a
month-to-month basis. The office/hangar complex at the airport is under lease
for a five-year period from February 1996.
The Company also maintains leased ticketing and boarding facilities, and
office and storage space at airports in the cities it serves. Such facilities
are leased from the airport owner or subleased from other carriers at such
airports.
The Company believes its properties are suitable for their intended
purposes and are adequate for the Company's needs at present. Although the
properties of the Company are essentially fully utilized, the Company believes
that there is room for any anticipated expansion in the near term. If further
expansion is required, the Company believes that adequate properties suitable
for its needs will be available in the locations concerned which can be
obtained on an economically feasible basis.
20
<PAGE> 21
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth beneficial ownership of the shares of
Common Stock as of the date hereof by (i) each stockholder known by the Company
to be the beneficial owner of more than 5% of Common Stock, (ii) each director
of the Company, (iii) each Named Executive Officer, and (iv) all directors and
Executive Officers of the Company as a group. Unless otherwise indicated, all
shares are owned directly and the indicated owner has sole voting and
dispositive power with respect thereto.
<TABLE>
<CAPTION>
Shares Beneficially Owned(1)
----------------------------
Amount and
----------
Nature of
---------
Beneficial
----------
Name of Beneficial Owner Ownership(2) Percent of Class(2)
------------------------ ------------ -------------------
<S> <C> <C>
H&Q Air South Investors, L.P.(3). . . . . 26,878,378* 55.1
William R. Hambrecht(3) . . . . . . . . . 26,878,378** 55.1
Fil-Fiber Manufacturing, Inc. Ltd.(4) . . 4,377,778* 9.0
Donald P. Duncan(4) . . . . . . . . . . . 4,377,778** 9.0
W.J. Flynn & Associates, Inc.(5). . . . . 2,188,889* 4.5
The Pointe Group L.L.C.(6). . . . . . . . 2,923,553** 6.0
Clifton E. Haley(7) . . . . . . . . . . . 942,500* ** 1.9
Patrick J. O'Shea(8) . . . . . . . . . . 628,450* **
Donald Baker(9) . . . . . . . . . . . . 320,500* ** 0.7
William K. Flynn(5) . . . . . . . . . . . 2,188,889** 4.5
Paul T. Gillcrist(10) . . . . . . . . . . 967,900* 2.0
Harold Stowe(11) . . . . . . . . . . . . 102,800* 0.2
John P. Tague(6) . . . . . . . . . . . . 2,923,553** 6.0
All Directors and Executive Officers as a
group (14 persons) . . . . . . . . 34,632,460
</TABLE>
----------------------------
* Direct Ownership
** Indirect Ownership
(1) Pursuant to the regulations of the Securities and Exchange
Commission, shares are deemed to be "beneficially owned" by
a person if such person directly or indirectly has or shares the
power to vote or dispose of such shares, whether or not such person
has any pecuniary interest in such shares, or the right to acquire
the power to vote or dispose of such shares within 60 days,
including any right to acquire shares through the exercise of any
option, warrant or right.
(2) The Company has sold $5.2 million of convertible debentures which
are convertible into shares of preferred stock which, in turn, are
convertible into Common Stock. At the time of each such sale, the
Company did not, and does not now, have sufficient authorized
shares of preferred stock or Common Stock to effect the conversion
of such debentures, which fact is recognized in the debentures and
related debenture purchase agreement. The Company expects that
within 90 days from the date hereof sufficient preferred stock and
Common Stock will have been authorized to effect the conversion of
such debentures to shares of preferred stock and that such
debentures will be converted. Accordingly, all calculations with
respect to beneficial ownership of the Company have assumed
authorization of such preferred stock and Common Stock.
21
<PAGE> 22
(3) Includes: (a) 1,250,000 shares of Series A Preferred Stock
("Series A Preferred") held by H&Q AirSouth Investors
L.P. ("H&Q") convertible at $2.00 per share into 1,250,000 shares
of Common Stock; (b) 625,000 shares of Series B Preferred Stock
("Series B Preferred") held by H&Q convertible at $0.50 per share
into 5,000,000 shares of Common Stock; (c) $4,000,000 of
Convertible Debentures held by H&Q which are convertible into
16,000,000 shares of Series D Preferred Stock ("Series D
Preferred") when Series D Preferred shares are authorized which,
in turn, are convertible at $0.25 per share into 16,000,000 shares
of Common Stock; and (d) warrants to purchase 400,000 shares of
Common Stock at $0.50 per share issued to H&Q Group, an affiliate
of H&Q; and (e) warrants to purchase 8,000,000 issued to H & Q
Group shares of Common Stock at $0.25 per share issued to an
affiliate of H&Q and H & Q Group (such warrants and the warrants
described at "(d)," herein being collectively called the "H & Q
Warrrants"). The shares of Series A Preferred, Series B Preferred,
Series D" Preferred and the H&Q Warrants all have broad
anti-dilution provisions which, upon the issuance of certain other
equity securities, would act to increase the conversion ratios.
The application of such anti-dilution provisions and the
conversion of such preferred stock and the exercise of the H&Q
Warrant have been assumed in all calculations with respect to
beneficial ownership of the Company. William R. Hambrecht, a
director of the Company, is Chairman of H&Q Group. Mr. Hambrecht
disclaims beneficial ownership of the shares held by H&Q Group and
H&Q except to the extent of his proportionate beneficial interest
therein. The address of H&Q, H&Q Group and Mr. Hambrecht is One
Bush Street, San Francisco, California 94104.
(4) Includes: (a) 80,000 shares of Series C Preferred Stock
("Series C Preferred") which are convertible at $0.50 per share
into 2,000,000 shares of Common Stock; and (b) $400,000 of
Convertible Debentures which are convertible into 1,600,000 shares
of Series D Preferred when Series D Preferred shares are
authorized which, in turn, are convertible at $0.25 per share into
1,600,000 shares of Common Stock. The shares of Series C
Preferred and Series D Preferred have broad anti-dilution
provisions which, upon the issuance of certain other equity
securities, would act to increase the conversion ratios. The
application of such anti-dilution provisions and the conversion of
the Series C and D Preferred have been assumed in all calculations
with respect to beneficial ownership of the Company. Donald P.
Duncan was elected a director of the Company pursuant to a
contractual right of Fil-Fiber Manufacturing, Inc. Ltd. ("Fil
Fiber") to nominate one director of the Company. Mr. Duncan
disclaims beneficial ownership of the shares held by Fil-Fiber.
The address of Fil-Fiber Manufacturing, Inc. Ltd. is Murray Hill
Plaza, 2H, 244 Madison Avenue, New York, New York 10016.
(5) Includes: (a) 40,000 shares of Series C Preferred which are
convertible at $0.50 per share into 1,000,000 shares of Common
Stock; and (b) $200,000 of Convertible Debentures which are
convertible into 800,000 shares of Series D Preferred when Series
D Preferred shares are authorized which, in turn, are convertible
at $0.25 per share into 800,000 shares of Common Stock. The shares
of Series C Preferred and Series D Preferred have broad
anti-dilution provisions which, upon the issuance of certain other
equity securities, would act to increase the conversion ratios.
The application of such anti-dilution provisions and the
conversion of the Series C and D Preferred have been assumed in
all calculations with respect to beneficial ownership of the
Company. W.K. Flynn, a director of the Company, is President of
W.J. Flynn & Associates, Inc. Mr. Flynn disclaims beneficial
ownership of the shares held by W.J. Flynn & Associates, Inc.
except to the extent of his proportionate beneficial interest
therein.
(6) Includes approximately 2,923,553 shares of Common Stock which are
expected to be issued to The Point Group, L.L.C. ("TPG"), an
aviation and transportation consulting firm, pursuant to a
consulting agreement between TPG and the Company. The substantive
terms of such consulting agreement have been approved by the
Company's Board but a definitive agreement has not yet been
executed by the Company or TPG. Issuance of these shares has
been assumed in all calculations with respect to beneficial
ownership of the Company. John P. Tague, Chairman of the Board,
President and Chief Executive Officer of the Company and John
Affeltranger, Senior Vice President and Chief Operating Officer of
the Company are each a principal of TPG. Mr. Tague and Mr.
Affeltranger disclaim beneficial ownership of such shares except
to the extent of their proportionate beneficial interests in TPG.
The address of TPG is 866 United Nations Plaza, Suite 451, New
York, New York, 10017.
22
<PAGE> 23
(7) Includes 725,000 shares subject to options exercisable
immediately, and 217,500 shares held of record by the Clifton E.
Haley Trust dated September 27, 1988. Exercise of options has
been assumed in all calculations with respect to beneficial
ownership.
(8) Includes 522,650 shares held of record jointly by Mr. O'Shea and
his spouse, 75,000 shares subject to options to be exercised at the
time of a public offering of Common Stock by the Company,
20,000 shares which Mr. O'Shea holds the right to vote pursuant to
irrevocable proxies and 10,800 shares held by Mr. O'Shea's
daughter; Mr. O'Shea disclaims beneficial ownership of the shares
owned by his daughter. Exercise of options has been assumed in all
calculations with respect to beneficial ownership.
(9) Includes 270,500 shares held of record by Mr. Baker, 10,000 shares
held by Mr. Baker as Trustee for Andrew C. Baker, and 40,000
shares subject to options immediately exercisable.
(10) Includes 447,900 shares of Common Stock, options to purchase 36,000
shares of Common Stock and $130,000 of Convertible Debentures which
are convertible into 520,000 shares of Series E Preferred when
Series E Preferred shares are authorized which, in turn, are
convertible at $0.25 per share into 520,000 shares of Common
Stock. Conversion of the Series E Preferred and exercise of
options has been assumed in all calculations with respect to
beneficial ownership of the Company. Mr. Gillcrist's address is
210 Upper East Coast Road, Eastern Lagoon, II, Singapore 1541.
(11) Includes 102,800 shares of Common Stock held by CSI Group, Inc. of
which Mr. Stowe is an affiliate.
23
<PAGE> 24
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS
On August 16, 1996, H&Q purchased $4 million of Convertible Debentures
due August 16, 1999 from the Company. In connection with the purchase of such
debentures: (1) all directors except Messrs. Clifton E. Haley, William R.
Hambrecht and Robert B. Spane were asked to submit their resignations as
directors; all of such directors except Messrs. Donald Baker and Patrick J.
O'Shea have resigned; (2) Mr. Roden A. Brandt was removed as President and
Chief Executive Officer; and (3) Mr. John P. Tague was elected Chairman of the
Board, President and Chief Executive Officer and Mr. John Affeltranger was
elected Senior Vice President; subsequent to the foregoing changes there have
been numerous changes in management at all levels. H & Q currently holds in
excess of 50% of the voting shares of the Company.
The Company's Executive Officers and Directors are now as follows:
<TABLE>
<CAPTION>
Name Age Position
- - ---- --- --------
<S> <C> <C>
John P. Tague 34 Chairman of the Board, President, and Chief Executive Officer
John Affeltranger 40 Senior Vice President
Dennis B. Crosby 51 Vice President
Thomas J. Volz 53 Vice President
David Y. Monteith 61 General Counsel and Secretary
Donald Baker(1) 67 Director
Donald P. Duncan 49 Director
William K. Flynn 40 Director
Paul Gillcrist 42 Director
Clifton E. Haley(2) 65 Director
William R. Hambrecht 60 Director
Patrick J. O'Shea(1) 58 Director
Robert B. Spane 56 Director
Harold Stowe 49 Director
</TABLE>
Mssrs. Hambrecht and Spane are directors pursuant to agreements entered
into in connection with the purchase by H & Q of shares of Series A and Series B
Preferred. Mssrs. Duncan and Flynn are directors pursuant to agreements entered
into in connection with the purchase by Fil-Fiber Manufacturing, Inc. Ltd. and
W.J. Flynn & Associates of Series C Preferred.
John P. Tague joined the Company in July 1996 as President and Chief
Executive Officer and a director; in September 1996 he became Chairman of the
Board. Mr. Tague has also served since November 1996 as Chairman of the Board,
President and Chief Executive Officer of Vanguard Airlines, Inc. Previously,
since 1995, he was and remains a principal of The Pointe Group, L.L.C. ("TPG")
and its Co-Chairman and Chief Executive Officer. TPG is an aviation and
transportation consulting firm. Prior to that, for more than five years, he
was with American Trans Air, Inc., the United States' 10th largest airline, most
recently as President and Chief Operating Officer.
John Affeltranger joined the Company in July 1996. Previously, since
1995 he was and remains a principal of and an Executive Vice President of TPG.
Prior to that, for more than five years he was with American Trans Air, Inc.,
most recently as a Vice President and Assistant to the Chief Executive Officer
with responsibilities for among other things corporate and fleet develpment,
and with World Airways, an airline.
Dennis B. Crosby has been a Vice President of the Company since
December 1994. A thirty-year veteran of the airline industry, including
President of an American Airlines subsidiary and Senior Vice President at World
Airways, he was most recently Executive Vice President and Chief Operating
Officer of The California Kamchatka Companies from 1992 to 1994 and Executive
Vice President and Chief Operating Officer of Monevest Holdings b.v. from 1990
- - - 1992.
____________________________
(1) Messrs. Baker and O'Shea have entered into agreements with the Company that
they will not stand for election as directors at the next meeting of
stockholders.
(2) Effective September 15, 1996, Mr. Haley resigned as Chairman of the Board
of Directors and Mr. Tague assumed that office. Mr. Haley will continue
as a director.
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<PAGE> 25
Thomas J. Volz has been a Vice President of the Company since May 1993.
Mr. Volz was a director of the Company until July 1996. Previously, for more
than five years, he was a self-employed marketing consultant. Mr. Volz was
Vice President - Marketing for Southwest Airlines from 1978 to 1984. Mr. Volz
also worked as a marketing executive for Continental Airlines and Braniff, Inc.
David Y. Monteith has been General Counsel and Secretary of the Company
since October 1995. Since 1964 until 1990 Mr. Monteith was engaged in the
practice of corporate, securities, and commercial law in New York City. For
more than five years he has practiced corporate, securities and commercial law
in Columbia, South Carolina, most recently in his own office and previously as
a partner in Nelson Mullins Riley & Scarborough, L.L.P.
Donald P. Duncan became a director of the Company in January 1997. Mr.
Duncan is a Vice President of AT&T Data Network Services and has for more than
20 years served in various capacities with various units of American Telephone
& Telegraph Company.
Donald Baker served as General Counsel and Secretary of the Company
from early 1994 until October 1995 and has been a director of the Company since
early 1994. Previously, for more than five years he practiced law in Chicago
as a partner in Baker & McKenzie.
William K. Flynn became a director of the Company in October 1996. For
more than five years he has been President of W. J. Flynn & Associates, Inc.,
an investment and venture capital firm. Previously he was a certified public
accountant with Arthur Andersen & Company.
Paul Gillcrist became a director of the Company in 1993 and has been a
Boeing 747-400 Senior Captain for Singapore Airlines for more than the past
five years. He formerly was Vice President - Flight Operations at Southern Air
Transport, Inc. and Airborne Freight Corporation, which owns and operates
Airborne Express.
Clifton E. Haley served as a non-executive Chairman of the Board from
January 1994 to September 1996 and served as Interim Chief Executive Officer
from October 1995 until March 1996. Previously for more than five years, Mr.
Haley was the Chairman, President, and Chief Executive Officer of Budget
Rent-a-Car Corporation.
William R. Hambrecht has served as a director of the Company since
December 1995. For more than five years he has been with Hambrecht & Quist
Group, L.L.C., an investment banking firm specializing in emerging growth
companies, of which Mr. Hambrecht is a co-founder and Chairman. Mr. Hambrecht
is also a director of Adobe Systems, Inc., a software development company.
Patrick J. O'Shea is the founder of the Company and was Chief Executive
Officer of the Company from its inception until February 1995. As such he was
instrumental in the conception, planning, and implementation of the Company and
the successful beginning of its operations. Prior to that he was a Senior Vice
President of AMADEUS Group, an airline CRS.
Robert B. Spane was elected a director in July 1996. Admiral Spane is
retired from the United States Navy and for more than five years has been
engaged as a consultant in various aspects of military and civil aviation.
Admiral Spane is also a director of Vanguard Airlines, Inc.
Harold C. Stowe became a director of the Company in 1995 and has been
Co-President of Canal Industries, Inc., of Conway, South Carolina, for more
than the past five years. Mr. Stowe is also a director of Home State Holdings,
Inc., the holding company for Home State Insurance Company, Inc.
ITEM 6. EXECUTIVE COMPENSATION
Summary Compensation of Executive Officers. The following table sets
forth a summary of the compensation paid by the Company to (a) its former
Chairman of the Board and former Interim Chief Executive Officer and (b) its
former President and Chief Executive Officer, and former Vice Chairman of the
Board (the "Named Executive Officers"). No executive officer of the Company
received total annual compensation for services rendered to the Company during
the fiscal year ended December 31, 1995, in excess of $100,000 except for
Patrick J. O'Shea, who received compensation pursuant to an agreement regarding
the termination of his employment.
25
<PAGE> 26
<TABLE>
<CAPTION>
Annual Compensation All Other
------------------- ---------
Name and Principal Position Year Salary Bonus Compensation
- - --------------------------- ---- ------ ----- ------------
<S> <C> <C> <C> <C>
Clifton E. Haley(1) . . . . . . . . . . . . . . . 1995 $ -0- $ -0- $ -0-
Chairman of the Board and Interim Chief
Executive Officer
Patrick J. O'Shea(2) . . . . . . . . . . . . . . 1995 $126,562 $ -0- $ -0-
Vice Chairman of the Board and
Chief Executive Officer
</TABLE>
____________________________
(1) Mr. Haley received no salary or other cash payments for his services.
Mr. Haley was appointed Interim Chief Executive Officer of the Company
on October 25, 1995 (formerly, as non-executive Chairman of the Board,
at the request of the Board of Directors, he had performed the function
of Interim Chief Executive Officer), and on that date Mr. Haley was
awarded options to purchase 750,000 shares at an exercise price of
$1.00 per share. The options were to vest: (a) with respect to 250,000
shares on October 25, 1995; (b) with respect to 250,000 shares on
January 1, 1997; and (c) with respect to 250,000 shares on January 1,
1998. Under the options, 250,000 shares may vest earlier upon the
Board of Directors' determination that there has been an orderly
management succession plan implemented; and an additional 250,000 shall
vest earlier upon the earlier closing of the sale by the Company of
equity securities aggregating $4,000,000. All options have vested.
Mr. Haley resigned as Interim Chief Executive Officer on April 23, 1996
and as Chairman of the Board on September 15, 1996.
(2) Mr. O'Shea resigned as the Company's Chief Executive Officer in
February 1995 and as Vice Chairman in March 1995 and entered into a
severance agreement with the Company on March 16, 1995; Mr. O'Shea
remains a director of the Company. Pursuant to an agreement with the
Company, Mr. O'Shea has agreed not to stand for election as a director
at the next annual meeting of stockholders.
Aggregated Option Exercises and Year End Option Values. The following
table sets forth information concerning option exercises by each of the Named
Executive Officers during the year ended December 31, 1995 and the nine months
ended September 30, 1996, and information concerning the value of unexercised
options held by each of the Named Executive Officers as of September 30, 1996.
<TABLE>
<CAPTION>
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options/SARs on Options/SARs
September 30, on September 30,
1996 (#) 1996 ($)
Shares Acquired Value Exercisable/ Exercisable/
Name on Exercise (#) Realized ($) Unexercisable Unexercisable
---- ----------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
Clifton E. Haley . . . . . . . . . . . -- -- 725,000/-0- -0-/-0-
Patrick J. O'Shea . . . . . . . . . . . -- -- -0-/75,000 -0-/-0-
</TABLE>
The value of the shares underlying the above options is the spread between the
fair market value of the Common Stock at September 30, 1996 and the exercise
price. The fair market value on September 30, 1996 was estimated to be $0.25
per share based upon the conversion rate for certain convertible debentures
sold by the Company in an arms-length transaction on August 16, 1996.
26
<PAGE> 27
Employment Agreements and Other Arrangements. Mr. John P. Tague became
President and Chief Executive Officer and a director of the Company on July 25,
1996; on September 15, 1996 he became Chairman of the Board. Mr. Tague will
serve pursuant to an agreement (the "TPG Agreement") with TPG. The substantive
terms of the TPG Agreement have been approved by the Company's Board of
Directors, but a definitive agreement has not been executed by the Company or
TPG. The TPG Agreement will provide, among other things that: TPG will cause
Messrs. Tague and John Affeltranger, and one other person to perform consulting
services including serving as officers of the Company for $425,000 annually for
two years. The TPG Agreement also provides for the sale to TPG of 6% of the
Common Stock of the Company, approximately 2,923,553 shares, for a purchase
price of $0.02 per share. Upon termination of the contract with TPG, it is
anticipated that the Company will either renew the contract or enter into an
employment contract with Mr. Tague for continued service. Under such contract,
Mr. Tague will be granted an option to purchase Common Stock on a fully-diluted
basis equal to 5% of the Company's Common Stock at a price per share equal to
the then fair market value of the Company's Common Stock.
On October 31, 1996, with the endorsement of the Company's Board,
of Directors, Mr. Tague became Chairman of the Board, President and Chief
Executive Officer of Vanguard Airlines, Inc., an airline serving the Midwest
and West Coast. The Company's agreement with TPG will provide that if Mr.
Tague devotes less than his full time to rendering services to the Company, the
cash compensation of TPG will be reduced to $325,000. It is expected that Mr.
Tague will spend up to one-half his time rendering services to Vanguard.
On November 9, 1995, the Company employed Mr. Roden A. Brandt as
President and Chief Operating Officer. Mr. Brandt was to receive a minimum
gross annual salary of $135,000 per year. His minimum gross annual salary was
increased to $160,000 per year on June 1, 1996. He received performance bonuses
equal to 50% of base salary based on achievement of specific agreed objectives,
paid one-half on February 1, 1996, and one-half on June 1, 1996. He was to
receive an additional bonus following the year-end audit in early 1997 equal to
50% of base salary based on specific objectives with primary emphasis on the
Company's profit plan. Mr. Brandt became eligible to purchase, and purchased,
100,000 shares of Common Stock at $0.50 per share immediately upon acceptance
of employment; 50% of the purchase price was paid immediately and the balance
was paid in July 1996. He was awarded options to purchase 250,000 shares of
Common Stock at $1.00 per share, with 50,000 shares vesting immediately upon
employment, 100,000 shares vesting on June 1, 1996, and 100,000 shares vesting
on January 1, 1997. Upon the change in control, mentioned above, non-vested
shares became vested immediately. The terms of Mr. Brandt's employment
included a term of three years and a $250,000 severance payment if terminated
for reasons other than cause. Mr. Brandt's employment with the Company was
terminated on July 25, 1996. The Company has entered into an agreement with Mr.
Brandt which provides for settlement of claims by Mr. Brandt, including claims
for severance and moving expenses, for $290,000 plus interest at 8.5% payable
over 15 months.
Pursuant to employment agreements with each of its Vice Presidents
(other than Mr. Affeltranger), the Company has agreed to pay six months
severance to any Vice President whose employment with the Company terminates;
three Vice Presidents have been terminated and have agreed to receive an
aggregate of $146,250 payable over six-month periods; Mr. Haley is not and has
not been a salaried employee of the Company and has no contract with the
Company regarding his service as a director or his prior service as Chairman of
the Board and interim Chief Executive Officer.
On March 16, 1995, the Company entered into a termination agreement
with Patrick J. O'Shea (the "O'Shea Agreement"), the former Vice Chairman of
the Board, President, and Chief Executive Officer of the Company, providing for
severance payments totaling $130,000 payable in 15 equal monthly installments
with the first installment on April 10, 1995 (the "Termination Payments"). The
O'Shea Agreement also provides that Mr. O'Shea's option to purchase 75,000
shares of Common Stock at $1.00 per share awarded to him on August 23, 1994,
became fully vested and becomes exercisable on the earlier of 30 days prior to
the date the Company announces its initial public offering or March 16, 2000.
On December 22, 1995, the Company and Mr. O'Shea amended the O'Shea Agreement
(the "O'Shea Amendment") to, among other things, provide for the payment of the
Termination Payments as a lump sum rather than periodically and for the
27
<PAGE> 28
redemption by the Company for $2.00 per share of up to 250,000 shares of Common
Stock owned by Mr. O'Shea or specified persons designated by him. The Company
redeemed 150,000 shares of Common Stock held by Mr. O'Shea and 100,000 shares
of Common Stock held by persons designated by him. Pursuant to the O'Shea
Amendment, Mr. O'Shea agreed not to stand for election as a director of the
Company.
On December 22, 1995, the Company entered into a termination agreement
with Donald Baker, a former director and former Vice President, General
Counsel, and Secretary of the Company. This agreement provides for, among
other things, the payment in a lump sum of the remainder of the $48,750 in the
aggregate of periodic severance payments provided for by Mr. Baker's employment
agreement and termination agreement, and immediate vesting of stock options
previously granted to him. The Company redeemed 20,000 shares of Mr. Baker's
Common Stock at $2.00 per share as a designee of Mr. O'Shea under the O'Shea
Amendment. Pursuant to such termination agreement, Mr. Baker agreed not to
stand for election as a director of the Company.
Stock Option Plans. 1993 Incentive Stock Option Plan. In January
1994, the Board of Directors adopted and the Company's stockholders approved
the 1993 Incentive Stock Option Plan (the "1993 Stock Option Plan") under which
500,000 shares of Common Stock were available to be granted to key officers and
employees of the Company. Options for 350,000 of such shares have been
granted. Options granted under the 1993 Stock Option Plan are intended to be
incentive stock options as defined in Section 422 of the Internal Revenue Code
of 1986, as amended (the "Code"), which permits the deferral of taxable income
related to the exercise of such options. Options granted under the 1993 Stock
Option Plan have an exercise price equal to the fair market value at the date
of the option grant. Generally, the options are nontransferable and become
void unless the optionee remains continuously employed by the Company for at
least six months following the date of grant. In addition, the 1993 Stock
Option Plan requires each optionee to agree in writing not to sell or otherwise
transfer any shares acquired by exercise of an option under the plan until two
years after the date of grant and one year after the date of exercise thereof.
It is not contemplated that any additional options will be granted under the
1993 Stock Option Plan. The 1993 Stock Option Plan is administered by the
Company's Compensation Committee. See ITEM 6, EXECUTIVE COMPENSATION -
Committees of the Board.
1994-1995 Incentive and Non-Qualified Stock Option Plan. In August
1994, the Board of Directors adopted the 1994-1995 Stock Option Plan (the
"1994-1995 Stock Option Plan") under which 750,000 shares of Common Stock were
available to be granted to officers and employees of the Company, as well as
nonemployee directors, consultants, and others who have a relationship with the
Company. The 1994-1995 Stock Option Plan was approved by the Company's
stockholders in January 1995. In March 1996 the Board of Directors adopted the
Amended 1994-1995 Stock Option Plan (the "Amended Plan") which, among other
things, increased the number of shares available for grant to 2,500,000. In
the discretion of the Board of Directors, the Amended Plan may be submitted to
the stockholders for approval. The Company may award either incentive stock
options or non-qualified stock options under the Amended Plan. However, until
stockholder approval is obtained, options granted will not qualify as incentive
options under applicable state and federal tax laws. However, because of major
changes and proposed changes to the capitalization of the Company, the Company
does not (a) plan to submit the Amended Plan to its shareholders for approval
or (b) anticipate that any additional options will be granted under the Amended
Plan. To date, options for 1,946,000 of such shares have been granted under
the Amended Plan.
Options under the Amended Plan may become exercisable with respect to
not more than one-third of the total number of shares granted thereby during
each twelve-month period during which the optionee remains continually an
employee, director, or consultant of the Company, commencing twelve months from
the date of grant. The Amended Plan is administered by the Company's
Compensation Committee.
Directors' Compensation. The Company's Directors receive no pay for
service as such; they are, however, reimbursed for their out-of-pocket expenses
of traveling to and attending meetings of the Board of Directors.
Organization and Compensation Committee. During the year ended
December 31, 1995 and until July 25, 1996, the Company's Organization and
Compensation Committee (the "Committee") consisted of Clifton E. Haley, Paul
Gillcrist, Harold Stowe and Suzy Van Huss. Other than Mr. Haley, none of the
members of the committee was employed by or served as an officer of the
Company; from October 25, 1995 until April 23, 1996 Mr. Haley served as Chief
Executive Officer of the Company. During the year ended December 31, 1995 and
until September 15, 1996, Mr. Haley was Chairman of the Board of the Company.
The committee acted formally once during the year ended December 31, 1995; the
action was the recommendation of the grant of certain options to the Chief
Executive Officer, who received no additional compensation. On July 25, 1996
Mssrs. Gillchrist and Stowe, and Dr. Van huss resigned as Director; the
Committee has not been reconstituted. The Committee did not hold any meetings
or take any formal actions during the period January 1, 1996 through July 25,
1996, the date of its de facto dissolution; in particular no policies have been
adopted relating to the Company's executive officers. Actions on executive
compensation since July 25, 1996 were made on the recommendation of the
Chairman of the Board and adopted by the Board.
On July 25, 1996 John P. Tague was elected President and Chief
Executive Officer of the Company. The principal factor considered by the Board
in electing Mr. Tague and establishing his compensation was his successful
experience in operating an airline and causing its significant growth.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
On March 16, 1995, the Company entered into the O'Shea Agreement. On
December 22, 1995, the Company entered into an agreement supplemental to the
O'Shea Agreement. See ITEM 6. EXECUTIVE COMPENSATION.
28
<PAGE> 29
The Company has had the following transactions with H&Q and certain of
its affiliates of which William R. Hambrecht, a director of the Company, is
also an affiliate: (a) the sale to H&Q on December 29, 1995 of $2.5 million of
Series A Preferred; (b) the sale to H&Q on May 24, 1996 of $2.5 million of
Series B Preferred; (c) the sale to H&Q on August 16, 1996 of $4 million of
convertible debentures; and (d) the delivery to H&Q and certain of its
affiliates from September 1996 through the date hereof of Promissory Notes
reflecting loans to the Company aggregating $10,800,000 of which $2,300,000 has
been repaid. (e) an affiliate of H&Q has provided a letter of credit as
security for the early payment of credit card receivables of the Company; the
Company has issued to such affiliate a warrant to purchase 8,000,000 shares of
the Company's common stock for $0.25 per share, subject to adjustment if Common
Stock or equivalents are later sold at a lower price; and (f) an affiliate of
H&Q has provided a letter of credit in exchange for the guaranty by another
affiliate of H&Q of a $2,000,000 bank loan to the Company; as consideration for
providing such letter of credit, such subsidiary has been granted a warrant to
purchase 8,000,000 shares of the Company's Common Stock for $0.25 per share,
subject to adjustment if the Common Stock or equivalents are later sold at a
lower price. The Company has issued to H&Q Group a warrant to purchase
400,000 shares of Common Stock for $0.50 per share as consideration for its
guarantee of a $2 million bank loan. See ITEM 4. SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
During the year ended December 31, 1995 the Company paid CEH Inc.
$96,270 for air travel on Company business by its Chairman of the Board,
Clifton E. Haley, between Columbia, S.C. and various places. CEH Inc. is owned
by Mr. Haley.
ITEM 8. LEGAL PROCEEDINGS.
The Company is a party to a lawsuit which if decided adversely to
the Company might be considered a material lawsuit. In Hillsborough County
Aviation Authority v. Air South Airlines, Inc., the Hillsborough County
Aviation Authority seeks damages from the Company arising out of the Company's
alleged breach of four contracts relating to the use by the Company of Tampa
International Airport. This suit was instituted in April, 1996 in the Circuit
Court of the Thirteenth Judicial Circuit in and for Hillsborough County, State
of Florida, Civil Division. The suit seeks approximately $472,000 in damages
plus interest, costs and attorneys' fees. An accrual reflecting management's
estimate of the amount required to settle this suit has been recorded as of
June 30, 1996.
ITEM 9. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS.
(a) Market Information.
There is no established trading market for any securities of the
Company. The Company takes the position that all its issued and outstanding
securites issued by it to date are "restricted securities" as defined in Rule
144(a)(3) promulgated under the Securities Act and cannot be sold or otherwise
transferred unless registered or sold or transferred pursuant to an applicable
exemption. On the date hereof: (i) there are outstanding options or warrants to
purchase 10,384,833 shares of Common Stock; (ii) there are outstanding shares
of preferred stock and convertible debentures which are convertible into
38,367,598 shares of Common Stock; and there are no shares of common equity
which could be sold pursuant to Rule 144. The Company has agreed under certain
circumstances to register under the Securities Act of 1933, as amended (the
"Securities Act"), for sale by certain security holders up to 38,382,598 shares
of Common Stock; and (iii) the Company is not presently proposing to publicly
offer any of its common equity.
(b) Holders.
On the date hereof there are 899 holders of record of shares of Common
Stock.
(c) Dividends.
The Company has never declared or paid dividends on its capital stock.
The Company currently intends to retain any available earnings for use in the
operation and expansion of its business. Therefore, the Company does not
expect to pay any cash dividends on the Common Stock in the foreseeable future.
Any payments of dividends by the Company in the future will be at the
discretion of the Board of Directors and will depend upon the Company's
earnings, capital requirements, financial condition, and any other factors
deemed relevant by the Board of Directors. In addition, the Company is
prohibited from making any cash distribution in respect of its Common Stock
pursuant to restrictive covenants in various agreements with banks and others,
including the State Loan agreement.
29
<PAGE> 30
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES.
Since the Company's inception, the registrant has sold and issued or
otherwise issued the following unregistered securities; all transactions
described below have been adjusted to reflect a two-for-one split of the shares
of Common Stock effective in September, 1993:
(1) Between April 1993 and September 1993, the Company sold
2,097,334 shares of Common Stock to the founding stockholders and original
directors and officers of the Company for cash, services rendered, or a
combination of cash and services rendered, based on $0.23 to $0.83 per share.
(2) (a) In September 1993 the Company sold 30,000 shares of Common
Stock to a consultant to the Company in exchange for consulting services on the
basis of $0.50 per share; (b) in January, 1994 the Company 56,000 shares in the
aggregate to four directors of the Company in exchange for service as a
director and consulting services on the basis of $0.50 per share; (c) in April
1994 the Company sold 80,000 shares to its chief pilot and 35,000 shares to its
chief financial officer, in each case for $0.50 per share.
(3) In June 1994, the Company sold 1,022,000 shares of Common Stock
to South Carolina accredited investors for $1.00 and 235,000 shares of Common
Stock to certain of its founding stockholders for $0.50 per share.
(4) In July 1994, the Company sold 436,200 shares of Common Stock to
certain of its founding stockholders, officers, directors and certain
executive employees for $0.50 per share.
(5) In January 1995, the Company issued an aggregate of 32,775
shares of Common Stock to substantially all employees of the Company as holiday
gifts. The number of shares issued to each employee was based upon months of
service. Half of such shares were donated by Patrick J. O'Shea, the then
Chairman of the Board, President and Chief Executive Officer, and a founder of
the Company.
(6) In May 1995 the Company sold 122,400 shares of Common Stock to a
consultant for consulting services on the basis of $0.50 per share.
(7) In April 1995, the Company sold 1,836,560 shares of Common Stock
pursuant to the Company's Employee Stock Purchase Plan for $0.50 per share.
(8) In April 1995, the Company sold 1,181,040 shares of Common Stock
pursuant to a rights offering to existing stockholders (other than employee
stockholders who had received shares as 1994 holiday gifts or who had purchased
shares pursuant to the Employees Stock Purchase Plan) for $0.50 per share.
(9) In August 1995, the Company issued an aggregate of 129,590 shares
of Common Stock to substantially all employees of the Company as gifts on the
occasion of the Company's first anniversary of flight operations. The number
of shares issued to each employee was based upon months of service.
(10) In November 1995, the Company sold 100,000 shares of Common Stock
to an officer and director for $0.50 per share in connection with his
employment by the Company.
(11) In December 1995, the Company sold 1,250,000 shares of Series A
Preferred to H&Q Group for $2.00 per share.
(12) In April 1996, the Company borrowed $2 million from a bank.
H&Q Group guaranteed the loan in exchange for a warrant to purchase
400,000 shares of Common Stock at $2.00 per share; that price has subsequently
been reduced to $.50 per share.
(13) On May 24, 1996, the Company sold $2 million of shares of Series B
Preferred to H&Q.
(14) In June 1996, the Company sold $1.5 million of shares of Series C
Preferred. $1 million was sold to a corporation of British Virgin Islands
registry and $500,000 to a New York corporation.
(15) On August 16, 1996, the Company sold $4 million of Convertible
Debentures to H&Q.
(16) On September 4, 1996 the Company sold $500,000 of Convertible
Debentures to a North Carolina corporation.
30
<PAGE> 31
(17) On September 30, 1996, the Company sold $400,000 and $200,000,
respectively, of Convertible Debentures to the two investors referred to in
"(13)", above.
(18) In October 1996, the Company sold $120,000 of Convertible
Debentures to a present stockholder and director of the Company resident in
Singapore.
(19) As of September 30, 1996, the Company had granted stock options
to employees, officers and directors and certain suppliers covering an
aggregate of 10,384,833 shares of Common Stock exercisable at $.50 per share.
None of these options have been exercised except for 3,333 shares by one
person leaving the employment of the Company.
(20) From September 20, 1996 through the date hereof the Company has
borrowed $10,800,000 from Accredited Investors pursuant to demand promissory
notes; $2,300,000 has been repaid
The sales and issuance of securities in the transactions described in
paragraph "(7)", above, were deemed to be exempt from registration under the
Securities Act by virtue of Rule 701 promulgated thereunder in that they were
offered and sold pursuant to a written contract relating to compensation. With
respect to (a) the grant of stock options described in paragraph "(19)" and (b)
the issuances referred to in paragraphs "(5)" and "(9)", above, an exemption
from registration under the Securities Act was unnecessary in that the issuance
of the securities did not involve a sale of securities as such term is used in
Section 2(3) of the Securities Act. The sales and issuances of securities in
the transactions described in all other paragraphs above were deemed to be
exempt from registration under the Securities Act by virtue of Section 4(2) and
Regulation D promulgated thereunder.
Except for certain shares issued prior to May 1994, appropriate legends
are affixed to the stock certificates for all shares issued by the Company and
investment representations were obtained from the purchasers. All purchasers
of securities either received adequate written information about the Company or
had access, through employment or other relationships, to such information.
The Company considers all securities issued by it to date to be "restricted
securities" as defined in Rule 144(a)(3) promulgated under the Securities Act.
ITEM 11. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED.
The authorized capital stock of the Company consists of 18,000,000
shares of Common Stock, par value $0.001 per share, and 2,000,000 shares of
Preferred Stock, par value $0.001 par value per share (the "Preferred Stock").
COMMON STOCK
As of the date hereof, there are 6,917,182 shares of Common Stock
outstanding, held of record by 899 stockholders. Options and warrants to
purchase 10,384,833 shares of Common Stock have been issued. If all
convertible securities were converted and all options and warrants were
exercised, there would be 41,219,858 shares of Common Stock outstanding, held
of record by approximately 925 stockholders.
Holders of Common Stock are entitled to one vote for each share held
and have no preemptive or other subscription rights, and there are no
conversion rights or redemption or sinking fund provisions with respect to
Common Stock. There is cumulative voting for the election of directors.
Holders of Common Stock are entitled to such dividends as may be declared by
the Board of Directors out of funds legally available therefor, subject to
preferential dividend rights of any outstanding series of Preferred Stock, if
any. Upon the liquidation, dissolution, or winding up of the Company, the
holders of Common Stock are entitled to receive pro rata the net assets of the
Company remaining after the payment of all creditors and any Preferred Stock or
other liquidation preferences. The outstanding shares of Common Stock are
fully paid and nonassessable.
PREFERRED STOCK
As of the date hereof, there was an aggregate of 1,955,000 shares of
Preferred Stock outstanding, which shares were issued in series, to the
number of holders of record indicated, and with rights of conversion into the
number of shares of Common Stock as follows:
31
<PAGE> 32
<TABLE>
<CAPTION>
Name of Series and Number of Shares
Number of Shares Number of of Common Stock Issuable
Outstanding Holders Upon Conversion
---------------------- ----------- ---------------------------
<S> <C> <C>
Series A 1
1,250,000 shares 1,250,000 shares
Series B 1
625,000 shares 5,000,000 shares
Series C 2
120,000 shares 3,000,000 shares
</TABLE>
Series A
The Series A Preferred Stock (the "Series A") shall be entitled to
receive non-cumulative dividends at the rate of $0.16 per share per annum. No
cash dividend shall be paid on the Common Stock in any year unless an equal
dividend is paid on each outstanding share of Series A on an as-if-converted
basis. In the event of liquidation, the holders of the Series A shall be
entitled to receive, pari passu with the shares of Series B Preferred Stock
("Series B") and Series C Preferred Stock ("Series C") in preference to the
Common Stock, $2.00 per share. After payment of such preferential amount, the
remaining assets shall be distributed ratably among the holders of Series A,
Series B, Series C and Common Stock in proportion to the shares held. Each
share of Series A is convertible at any time into one share of Common Stock.
The holders of Series A have the right to vote with the holders of Common Stock
as a single class upon the election of directors and upon any other matter
submitted to the stockholders. Each share of Preferred Stock has the same
voting rights and number of votes as the shares of Common Stock into which it is
convertible. In addition, the vote of a majority of the Series A shares shall
be necessary to adopt certain fundamental changes in the Company, including any
change to the Certificate of Incorporation or Bylaws of the Company, liquidation
of the Company, change in the principal business of the Company or certain
securities repurchases by the Company. So long as at least 50% of the Series A
remains outstanding, the holders of Series A voting as a class shall be entitled
to elect one member to the Board of Directors. The Series A holders' rights
with respect to preferences upon liquidation, conversion into Common Stock, and
voting with the holders of Common Stock as a class on certain matters are
protected by broad anti-dilution provisions.
Series B
The Series B Preferred Stock (the "Series B") shall be entitled to
receive non-cumulative dividends at the rate of $0.32 per share per annum. No
cash dividend shall be paid on the Common Stock in any year unless an equal
dividend is paid on each outstanding share of Series B on an as-if-converted
basis. In the event of liquidation, the holders of the Series B shall be
entitled to receive, pari passu with Series A and Series C, in preference to the
Common Stock, $4.00 per share. After payment of such preferential amount, the
remaining assets shall be distributed ratably among the holders of Series A,
Series B, Series C and Common Stock in proportion to the shares held. Each
share of Series B is convertible at any time into eight shares of Common Stock.
The holders of Series B have the right to vote with the holders of Common Stock
as a single class upon the election of directors and upon any other matter
submitted to the stockholders. Each share of Preferred Stock has the same
voting rights and number of votes as the shares of Common Stock into which it is
convertible. In addition, the vote of a majority of the Series B shares shall
be necessary to adopt certain fundamental changes in the Company, including any
change to the Certificate of Incorporation or Bylaws of the Company, liquidation
of the Company, change in the principal business of the Company or certain
securities repurchases by the Company. So long as at least 50% of the Series B
remains outstanding, the holders of Series B voting as a class shall be entitled
to elect one member to the Board of Directors. The Series B holders' rights
with respect to preferences upon liquidation, conversion into Common Stock, and
voting with the holders of Common Stock as a class on certain matters are
protected by broad anti-dilution provisions.
Series C
The Series C Preferred Stock (the "Series C") shall be entitled to
receive non-cumulative dividends at the rate of $1.00 per share per annum. No
cash dividend shall be paid on the Common Stock in any year
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<PAGE> 33
unless an equal dividend is paid on each outstanding share of Series C on an
as-if-converted basis. In the event of liquidation, the holders of the Series
C shall be entitled to receive, pari passu with Series A and Series B, in
preference to the Common Stock, $12.50 per share. After payment of such
preferential amount, the remaining assets shall be distributed ratably among
the holders of Series A, Series B, Series C and Common Stock in proportion to
the shares held. Each share of Series C is convertible at any time into 25
shares of Common Stock. The holders of Series C have the right to vote with
the holders of Common Stock as a single class upon the election of directors
and upon any other matter submitted to the stockholders. Each share of
Preferred Stock has the same voting rights and number of votes as the shares of
Common Stock into which it is convertible. In addition, the vote of a majority
of the Series C shares shall be necessary to adopt certain fundamental changes
in the Company, including any change to the Certificate of Incorporation or
Bylaws of the Company, liquidation of the Company, change in the principal
business of the Company or certain securities repurchases by the Company. So
long as at least 50% of the Series C remains outstanding, the holders of Series
C voting as a class shall be entitled to elect one member to the Board of
Directors. The Series C holders' rights with respect to preferences upon
liquidation, conversion into Common Stock, and voting with the holders of
Common Stock as a class on certain matters are protected by broad anti-dilution
provisions.
SERIES D AND E
The Company has sold $4,600,000 of Convertible Debentures which are
convertible to Series D Preferred Stock which is, in turn, convertible into
Common Stock; and $620,000 of Convertible Debentures which are convertible into
Series E Preferred Stock. The Company does not now have sufficient authorized
preferred or common stock for the conversion of such debentures and preferred
stock. It is anticipated that the shareholders of the Company will approve
such additional authorized capital stock at the next annual meeting of
stockholders. It is also anticipated that the terms of such Series D and
Series E Preferred Stock will be substantially similar to those of the Series
A, Series B and Series C Preferred Stock except that Series D and Series E
Preferred will be convertible at $0.25 per share.
ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
(a) The Delaware General Corporation Law ("DGCL") (Section 145) (i)
gives Delaware corporations broad powers to indemnify their present and former
directors, officers, employees or agents and those directors, officers,
employees or agents of certain other entities who serve as such for such
entities at the request of a Delaware corporation against expenses incurred in
the defense of any lawsuit to which they are made parties by reason of being
or having been such directors, officers, employees or agents, subject to
specified conditions and exclusions, (ii) gives a director or officer who
successfully defends an action the right to be so indemnified, and (iii)
authorizes the Company to buy directors' and officers' liability insurance.
Such indemnification is not exclusive of any other rights to which those
indemnified may be entitled under any bylaws, agreement, vote of stockholders
or otherwise.
(b) The Company's Certificate of Incorporation provides that the
Company shall indemnify officers, directors, employees or agents of the
Company to the fullest extent permitted by the DGCL.
(c) In accordance with Section 102(b)(7) of the DGCL, the Company's
Certificate of Incorporation provides that directors shall not be personally
liable for monetary damages for breaches of their fiduciary duty as directors
except for (i) breaches of their duty of loyalty to the Company or its
stockholders, (ii) acts or omissions not in good faith or which involve
intentional misconduct or knowing violations of law, (iii) breaches of Section
174 of the DGCL (unlawful payment of dividends), or (iv) transactions from which
a director derives an improper personal benefit.
ITEM 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Financial Statements required by this ITEM 13 are set forth in pages
F-1 through F-19 of this Registration Statement. No supplementary financial
information is required by Item 302 of Regulation S-K.
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
During the registrant's two most recent fiscal years or any subsequent
interim period, no independent accountant who was previously engaged as the
principal accountant to audit the registrant's financial statements, or an
independent accountant who was previously engaged to audit a significant
subsidiary and on whom the
33
<PAGE> 34
principal accountant expressed reliance in its report, has resigned (or
indicated it has declined to stand for re-election after the completion of the
current audit) or was dismissed.
GLOSSARY
"Available seat miles" or "ASMs" represents the number of seats available for
passengers on scheduled service flights multiplied by the number of miles those
seats are flown.
"Aviation Act" means the Federal Aviation Act of 1958.
"Average fare" means operating revenues divided by enplaned passengers.
"Average flight length" represents total aircraft miles flown divided by the
number of departures.
"Average segment fare" means operating revenue divided by onboard passengers.
"Block hours flown" represents the time between aircraft gate departure and
aircraft gate arrival.
"Break-even load factor" represents the percentage of RPMs that must be flown
for the airline to break even after operating and interest expenses.
Break-even load factor is calculated by taking total expenses, minus
non-passenger revenue, divided by ASMs, divided by passenger yields per RPM.
"CRS" means Computer Reservation Systems used extensively by travel agents in
the airline industry to book reservations.
"C-check" means scheduled heavy maintenance required by FAA regulations to be
performed on aircraft every 3,000 hours of flight time.
"Deregulation Act" means the Airline Deregulation Act of 1978.
"DOT" means the United States Department of Transportation.
"FAA" means the Federal Aviation Administration.
"Grants" means the approximately $4.0 million of grants to the Company by South
Carolina State and local governments for relocation, training, facility, and
advertising reimbursement.
"Load" means the percentage of available seats occupied.
"Load Factor" represents revenue passenger miles divided by available seat
miles.
"Operating Cost per total ASM" for any period represents the amount determined
by dividing total operating expenses for each period by total ASMs for each
such period.
"Passenger yield per RPM" represents the total passenger revenue divided by
RPMs.
"Revenue Passenger Miles" or "RPMs" represents the total number of miles flown
by passengers on scheduled service flights.
"State Loan" means a $12 million loan to the Company arranged by the State of
South Carolina from Lexington County, South Carolina guaranteed and sold by the
Department of Housing and Urban Development.
"Total Revenue per ASM" represents total revenues divided by total available
seat miles.
"Working Capital" means the excess of current assets over current liabilities.
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS.
FINANCIAL STATEMENTS
(a) Independent Auditors' Report
Balance Sheets at August 31, 1994 and 1995, December 31, 1995
(audited) and September 30, 1995 and 1996 (unaudited)
Statements of Operations for the years ended August 31, 1994 and
1995, and the four months ended December 31, 1995 (audited) and
the nine months ended September 30, 1996 and 1995 (unaudited).
Statements of Stockholders' Equity (Deficiency) for the years
ended August 31, 1994 and 1995, the four months ended December
31, 1995 (audited), and the nine months ended September 30, 1996
(unaudited)
Statements of Cash Flows for the years ended August 31, 1994 and
1995 and the four months ended December 31, 1995 (audited) and
the nine months ended September 30, 1995 and 1996 (unaudited)
Notes to Financial Statements.
(b) EXHIBIT INDEX
<TABLE>
<CAPTION>
Sequential
Exhibit Page
Number Description Number
- - ------- ----------- ----------
<S> <C> <C> <C>
2.1 -- Agreement of Merger dated December 29, 1995
between Air South Airlines, Inc. and Air South,
Inc.
3.1 -- Certificate of Incorporation of Registrant and
Certificates of Designation as to Series B and C
Preferred Stock.
3.2 -- Bylaws of Registrant.
4.1 -- Article 4 of Registrant's Articles of Incorporation
(included in Exhibit 3.1).
4.2 -- Articles VI and VII of Registrant's Bylaws
(included in Exhibit 3.2).
4.3 -- HUD Section 108 Program Loan Agreement between
Lexington County South Carolina and the Registrant
and the related Grant Agreement between the City
of Columbia and the Regisrtant, in each case dated
July 15, 1994.
4.4 -- Specimen Common Stock Certificate.
4.5 -- Series A Preferred Stock Purchase Agreement and
the related Investors' Rights Agreement dated
December 29, 1995 between the Company and
Hambrecht and Quist Group, L.L.C.
4.6 -- Loan Agreement and certain related documents
dated March 29, 1996 between NationsBank, N.A.
and the Company.
4.7 -- Loan Agreement and certain related documents
dated April 26, 1996 between The National Bank of
South Carolina and the Company.
4.8 -- Option Purchase Agreement and certain related
documents dated April 26, 1996 between the
Company and Hambrecht & Quist Group, L.L.C.
4.9 -- Series B Preferred Stock Purchase Agreement and
the related Investors' Rights Agreement dated May
24, 1996 between the Company and H&Q Air South
Investors, L.P. ("H&Q").
4.10 -- Series C Preferred Stock Purchase Agreement and
the related Investor Rights Agreement dated June
14, 1996 between the Company and W.J. Flynn &
Associates, Inc. ("Flynn").
</TABLE>
34
<PAGE> 35
<TABLE>
<S> <C> <C> <C>
4.11 -- Series C Preferred Stock Purchase Agreement and
the related Investors' Rights Agreement dated June
24, 1996 between the Company and Fil-Fiber
Manufacturing, Inc., Ltd. ("Fil-Fiber").
4.12 -- Convertible Debenture Purchase Agreement and the
related Investors' Rights Agreement dated August
16, 1996 between the Company and H&Q.
4.13 -- Convertible Debenture Purchase Agreement and the
related Investors' Rights Agreement dated
September 4, 1996 between the Company and
Godley Group Ltd.
4.14 -- Convertible Debenture Purchase Agreement and the
related Investors' Rights Agreement dated
September 30, 1996 between the Company and Flynn.
4.15 -- Convertible Debenture Purchase Agreement and the
related Investors' Rights Agreement dated
September 30, 1996 between the Company and
Fil-Fiber.
10.1 -- 1993 Incentive Stock Option Plan.
10.2 -- 1994-1995 Incentive and Non-Qualified Stock
Option Plan.
10.3 -- 1994-1995 Amended Incentive and Non-Qualified
Stock Option Plan.
10.4 -- Employee Stock Purchase Plan.
10.5 -- (Intentionally omitted.)
10.6 -- Common stock purchase warrant for 725,000 shares
issued January 11, 1996 to Clifton E. Haley by Air
South Airlines, Inc.
10.7 -- Common stock purchase warrant for 10,000 shares
issued October 25, 1995 to David Y. Monteith by
Air South Airlines, Inc.
10.8 -- Common stock purchase warrant for 250,000 shares
issued November 8, 1995 to Roden A. Brandt by
Air South, Inc.
10.9 -- Incentive Stock Option Agreement dated November
12, 1994 between Air South, Inc. and Dennis
Crosby for the purchase of up to 80,000 shares of
common stock.
</TABLE>
35
<PAGE> 36
<TABLE>
<S> <C> <C> <C>
10.10 -- Incentive Stock Option Agreement dated August 23,
1994 between Air South, Inc. and Donald Baker for
the purchase of up to 40,000 shares of common
stock.
10.11 -- Incentive Stock Option Agreement dated August 23,
1994 between Air South, Inc. and Thomas Volz for
the purchase of up to 50,000 shares of common
stock.
10.12 -- Incentive Stock Option Agreement dated June 23,
1995 between Company and Paul Gillcrist for the
purchase of up to 36,000 shares of common stock.
10.13 -- Incentive Stock Option Agreement dated June 23,
1995 between Company and Harold Stowe for the
purchase of up to 36,000 shares of common stock.
10.14 -- Letter from Air South, Inc. to Roden A. Brandt,
dated October 20, 1995.
10.15 -- Employment agreement between Air South, Inc.
and Tom Volz, dated December 8, 1993.
10.16 -- Employment agreement between Air South, Inc.
and Dennis Crosby dated November 12, 1994.
10.17 -- Lease dated ____________, 199_ between
Jacksonville Port Authority and Air South, Inc.
10.18 -- Lease between Dade County, Florida and Air
South, Inc. dated ____________, 199_.
10.19 -- Lease between Air South, Inc. and Horry County
dated February 20, 1995
10.20 -- Lease between Air South, Inc. and the City of
Atlanta dated ____________, 199_.
10.21 -- Aircraft Use and Lease Agreement between Air
South, Inc. and Richland-Lexington Airport
District dated August 15, 1994.
10.22 -- Airline Operating Agreement between Savannah
Airport Commission and Air South dated April 10,
1996.
10.23 -- Non-Signatory Airlines Tenant Agreement between
Greenville-Spartanburg Airport District dated
June 20, 1996.
10.24 -- Airport Use Agreement between Norfolk Airport
Authority and Air South, Inc. dated May 2, 1996.
</TABLE>
36
<PAGE> 37
<TABLE>
<S> <C> <C>
10.25 -- Agreement and Lease between Charleston County
Aviation Authority and Air South, Inc. dated the __
day of ______, 1996.
10.26 -- Airport License and Agreement between the City of
Chicago and Air South Airlines, Inc.
10.27 -- (Intentionally omitted.)
10.28 -- (Intentionally omitted.)
10.29 -- Airport Use and Lease Agreement between
Richland-Lexington Airport District and Air South, Inc.
dated August 1, 1994
10.30 -- Lease Agreement between Richland-Lexington
Airport District and Air South, Inc. dated
December 12, 1995.
10.31 -- Lease between Polaris Aircraft Leasing K.B. and
Air South Airlines, Inc. dated April 29, 1996 for
Boeing 737-2P6 Ft. Advanced Aircraft Serial
Number 21612.
10.32 -- Lease between Polaris Aircraft Leasing K.B. and
Air South Airlines, Inc. dated April 29, 1996
for Boeing 737-200 Ft. Advanced Aircraft Serial
Number 21356.
10.33 -- Lease between Polaris Holding Co. and Air South
Airlines, Inc. dated April 29, 1996 for Boeing 737-
242 Advanced Aircraft Serial Number 21186.
10.34 -- Lease between Polaris Aircraft Leasing K.B. and
Air South Airlines, Inc. dated April 29, 1996 for
Boeing 737-2P6 Advanced Aircraft Serial Number
21677.
10.35 -- Lease between Polaris Aircraft Leasing K.B. and
Air South Airlines, Inc. dated April 29, 1996 for
Boeing 737-2P6 Advanced Aircraft Serial Number
21733.
10.36 -- Lease between Air South, Inc. and MIMI Leasing
Corp. dated October 31, 1994 for the lease of
Boeing 737 S/N 19612.
10.37 -- Lease between Air South, Inc. and MIMI Leasing
Corp. dated October 31, 1994 for the lease of
Boeing 737 S/N 19607.
</TABLE>
37
<PAGE> 38
<TABLE>
<S> <C> <C> <C>
27.1 -- Financial Data Schedule for the four months ended December
31, 1995 - (for SEC use only)
27.2 -- Financial Data Schedule for the six months ended June 30,
1996 - (for SEC use only)
</TABLE>
38
<PAGE> 39
<PAGE> 40
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the registrant has duly caused this registration statement to be signed
on its behalf by the undersigned, thereunto duly authorized.
AIR SOUTH AIRLINES, INC.
February 7, 1997
By: /s/ John P. Tague
------------------------------------------
John P. Tague, Chairman of the Board,
President and Chief Executive Officer
39
<PAGE> 41
AIR SOUTH AIRLINES, INC.
(FORMERLY AIR SOUTH, INC.)
INDEX TO FINANCIAL STATEMENTS
- - ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAGE
<S> <C>
INDEPENDENT AUDITORS' REPORT F-2
BALANCE SHEETS F-3
STATEMENTS OF OPERATIONS F-4
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY) F-5
STATEMENTS OF CASH FLOWS F-6
NOTES TO FINANCIAL STATEMENTS F-9
</TABLE>
F-1
<PAGE> 42
INDEPENDENT AUDITORS' REPORT
Board of Directors
Air South Airlines, Inc.
(formerly Air South, Inc.):
We have audited the accompanying balance sheets of Air South Airlines, Inc.
(the "Company") as of August 31, 1994 and 1995, and December 31, 1995, and the
related statements of operations, stockholders' equity (deficiency), and cash
flows for each of the two years in the period ended August 31, 1995 and the
four-month period ended December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company at August 31, 1994 and 1995,
and December 31, 1995, and the results of its operations and its cash flows for
each of the two years in the period ended August 31, 1995 and the four-month
period ended December 31, 1995 in conformity with generally accepted accounting
principles.
Management's plans concerning operating and financing matters are discussed in
Note 1.
November 8, 1996
/s/ Deloitte & Touche LLP
Columbia, South Carolina
<PAGE> 43
AIR SOUTH AIRLINES, INC.
(FORMERLY AIR SOUTH, INC.)
BALANCE SHEETS
AUGUST 31, 1994 AND 1995, DECEMBER 31, 1995 AND SEPTEMBER 30, 1996
- - -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AUGUST 31,
----------------------------- DECEMBER 31, SEPTEMBER 30,
ASSETS (NOTE 3) 1994 1995 1995 1996
(UNAUDITED)
<S> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents (Notes 1 and 3) $ 3,551,974 $ 1,053,648 $ 2,369,614 $ 501,721
Investments (Notes 1 and 3) 104,972 694,430 1,367,267
Air Traffic receivables 167,012 3,671,558 2,419,171 3,363,410
Grants Receivable (Notes 1 and 6) 323,373
Prepaid expenses and other current assets 148,306 898,164 1,435,438 1,458,760
------------ ------------ ------------ ------------
Total current assets 4,190,665 5,728,342 6,918,653 6,691,158
INVESTMENTS (Notes 1 and 3) 100,000 755,000
DEPOSITS (Note 5) 853,387 1,170,000 1,170,000 1,170,000
PROPERTY AND EQUIPMENT, NET (Notes 1 and 2) 1,060,543 2,237,930 2,594,600 2,872,155
DEBT ISSUE COSTS (net of accumulated amortization
of $645, $18,806, $23,573 and $30,723, respectively)
(Note 1) 154,862 271,024 262,424 315,633
OTHER 513,697 671,786 794,237
------------ ------------ ------------ ------------
Total assets $ 6,359,457 $ 10,675,993 $ 11,617,463 $ 11,843,183
============ ============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES:
Accounts payable $ 972,530 $ 3,884,984 $ 6,077,084 $ 10,321,201
Accrued expenses (Note 1) 357,671 5,372,233 6,357,336 7,339,679
Air traffic liability (Note 1) 27,000 3,245,276 2,933,101 3,872,276
Short-term borrowings (Note 3) 8,777,359
Current portion of long-term debt (Note 3) 159,942 96,789 128,185
------------ ------------ ------------ ------------
Total current liabilities 1,357,201 12,662,435 15,464,310 30,438,700
------------ ------------ ------------ ------------
LONG-TERM DEBT (Note 3) 5,000,000 12,000,000 12,000,000 12,000,000
------------ ------------ ------------ ------------
COMMITMENTS AND CONTINGENCIES
(Notes 1, 5 and 11)
REDEEMABLE COMMON STOCK (Note 10) - $.001
par value, 250,000 shares issued and outstanding at
December 31, 1995 (redeemed in 1996) 500,000
STOCKHOLDERS' EQUITY (DEFICIENCY) (Notes 1,
3 and 4):
Convertible preferred stock, $.001 par value, 2,000,000
shares authorized, 1,250,000 at December 31, 1995 and
1,995,000 at September 30, 1996, shares outstanding
liquidation preference $6,500,000 (Notes 1 and 4) 1,250 1,995
Common stock, $.001 par value, 18,000,000 shares
authorized; shares issued and outstanding: August 31,
1994 - 3,668,534; August 31, 1995 - 7,018,119;
December 31, 1995 - 6,818,019 and September 30, 1996 -
6,828,852 (Notes 1, 4 and 10) 3,669 7,018 6,818 6,829
Additional capital 2,150,689 4,061,272 7,263,606 11,333,183
Accumulated deficit (2,152,102) (18,015,283) (23,166,328) (41,937,524)
Unearned compensation (Note 4) (39,449) (452,193)
---------- ------------ ------------ ------------
Total stockholders' equity (deficiency) 2,256 (13,986,442) (16,346,847) (30,595,517)
---------- ------------ ------------ ------------
Total liabilities and stockholders' equity
(deficiency) $ 6,359,457 $ 10,675,993 $ 11,617,463 $ 11,843,183
============ ============ ============ ============
</TABLE>
See notes to financial statements.
F-3
<PAGE> 44
AIR SOUTH AIRLINES, INC.
(FORMERLY AIR SOUTH, INC.)
STATEMENTS OF OPERATIONS
YEARS ENDED AUGUST 31, 1994 AND 1995, THE FOUR-MONTH PERIOD ENDED DECEMBER 31,
1995 (AUDITED) AND NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 (UNAUDITED)
- - ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOUR NINE MONTHS ENDED
AUGUST 31, MONTHS ENDED SEPTEMBER 30,
--------------------------- DECEMBER 31, -------------------------------
1994 1995 1995 1995 1996
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING REVENUES:
Passenger (Note 1) $ 132,181 $ 44,465,530 $ 19,463,505 $ 42,558,179 $ 39,551,123
Other 664,170 394,626 525,987 1,469,361
------------ ------------- ------------- ------------- -------------
132,181 45,129,700 19,858,131 43,114,166 41,020,484
------------ ------------- ------------- ------------- -------------
OPERATING EXPENSES:
Salaries, wages and benefits 1,083,381 13,253,773 5,165,701 10,428,720 12,138,499
Aircraft fuel and oil 100,000 10,172,353 4,120,382 9,135,213 9,549,546
Aircraft leases 155,820 4,924,358 2,088,116 4,461,475 5,828,423
Maintenance materials and repairs (Note 1) 146,477 7,572,728 3,670,797 6,650,303 6,498,535
Agency commissions 6,000 2,511,632 1,379,132 2,466,655 2,447,855
Other rentals, landing and ground handling fees 104,911 4,619,166 1,990,312 4,146,626 4,412,984
Advertising 323,518 2,392,574 595,516 1,543,941 3,115,380
Depreciation and amortization 28,694 350,447 174,864 325,565 456,921
Other operating expenses (Note 9) 1,037,543 16,120,423 5,481,611 13,633,486 15,182,123
------------ ------------- ------------- ------------- -------------
Total operating expenses 2,986,344 61,917,454 24,666,431 52,791,984 59,630,266
------------ ------------- ------------- ------------- -------------
OPERATING LOSS (2,854,163) (16,787,754) (4,808,300) (9,677,818) (18,609,782)
------------ ------------- ------------- ------------- -------------
NONOPERATING (EXPENSE) AND INCOME:
Grants (Notes 1 and 6) 1,261,198 1,316,811 88,493 176,518 168,925
Interest expense (21,375) (514,171) (164,764) (489,495) (646,183)
Interest income 14,950 182,476 65,152 164,827 130,045
Other income (expense) (215,873) (60,543) (6,876) 20,000 185,799
------------ ------------- ------------- ------------- -------------
Total nonoperating expense, net 1,038,900 924,573 (17,995) (128,150) (161,414)
------------ ------------- ------------- ------------- -------------
NET LOSS $ (1,815,263) $ (15,863,181) $ (4,826,295) $ (9,805,968) $ (18,771,196)
============ ============= ============= ============= =============
NET LOSS PER SHARE (Note 1) $ (.72) $ (3.18) $ (.69) $ (1.68) $ (2.75)
============ ============= ============= ============= =============
WEIGHTED AVERAGE COMMON SHARES (000's) 2,523 4,987 6,981 5,830 6,827
============ ============= ============= ============= =============
</TABLE>
See notes to financial statements.
F-4
<PAGE> 45
AIR SOUTH AIRLINES, INC.
(FORMERLY AIR SOUTH, INC.)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
YEARS ENDED AUGUST 31, 1994 AND 1995, THE FOUR-MONTH PERIOD ENDED DECEMBER 31,
1995 (AUDITED) AND NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 (UNAUDITED)
- - -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
PREFERRED PREFERRED COMMON COMMON ADDITIONAL
SHARES STOCK SHARES STOCK CAPITAL
<S> <C> <C> <C> <C> <C>
BALANCE, SEPTEMBER 1, 1993 2,097,334 $ 2,098 $ 709,877
Issuance of shares of common stock 1,571,200 1,571 1,440,812
Net loss
--------- -------- -----------
BALANCE, AUGUST 31, 1994 3,668,534 3,669 2,150,689
Issuance of shares of common stock 3,187,055 3,187 1,598,025
Issuance of stock options, warrants
and stock bonus 162,530 162 312,558
Amortization of unearned compensation
Net loss
--------- -------- -----------
BALANCE, AUGUST 31, 1995 7,018,119 7,018 4,061,272
Issuance of shares of common stock 49,900 50 82,784
Issuance of stock options 795,800
Amortization of unearned compensation
Issuance of preferred stock 1,250,000 $ 1,250 2,498,750
Transfer of redeemable common stock (250,000) (250) (175,000)
Net loss
--------- --------- --------- -------- -----------
BALANCE, DECEMBER 31, 1995 1,250,000 1,250 6,818,019 6,818 7,263,606
Issuance of shares of common stock 10,833 11 18,322
Issuance of shares of preferred stock - Series B 625,000 625 2,499,375
Issuance of shares of preferred stock - Series C 120,000 120 1,499,880
Amortization of unearned compensation
Issuance of warrants 5,200
Net loss
--------- --------- --------- -------- -----------
BALANCE, SEPTEMBER 30, 1996 (UNAUDITED) 1,995,000 $ 1,995 6,828,852 $ 6,829 $11,333,183
========= ========= ========= ======== ===========
<CAPTION>
TOTAL
STOCKHOLDER'S
ACCUMULATED UNEARNED EQUITY
DEFICIT COMPENSATION (DEFICIENCY)
<S> <C> <C> <C>
BALANCE, SEPTEMBER 1, 1993 $ (336,839) $ 375,136
Issuance of shares of common stock 1,442,383
Net loss (1,815,263) (1,815,263)
------------- -------------
BALANCE, AUGUST 31, 1994 (2,152,102) 2,256
Issuance of shares of common stock 1,601,212
Issuance of stock options, warrants
and stock bonus $ (66,240) 246,480
Amortization of unearned compensation 26,791 26,791
Net loss (15,863,181) (15,863,181)
------------- ------------- -------------
BALANCE, AUGUST 31, 1995
Issuance of shares of common stock (18,015,283) (39,449) (13,986,442)
Issuance of stock options 82,834
Amortization of unearned compensation (795,800)
Issuance of preferred stock 383,056 383,056
Transfer of redeemable common stock 2,500,000
Net loss (324,750) (500,000)
(4,826,295) (4,826,295)
------------- ------------- -------------
BALANCE, DECEMBER 31, 1995 (23,166,328) (452,193) (16,346,847)
Issuance of shares of common stock - Unaudited 18,333
Issuance of shares of preferred stock - Series B 2,500,000
Issuance of shares of preferred stock - Series C 1,500,000
Amortization of unearned compensation 452,193 452,193
Issuance of warrants 52,000
Net loss (18,771,196) (18,771,196)
------------- ------------- -------------
BALANCE, SEPTEMBER 30, 1996 (UNAUDITED) $ (41,937,524) $ 0 $ (30,595,517)
============= ============= =============
</TABLE>
See notes to financial statements.
F-5
<PAGE> 46
AIR SOUTH AIRLINES, INC.
(FORMERLY AIR SOUTH, INC.)
STATEMENTS OF CASH FLOWS
YEARS ENDED AUGUST 31, 1994 AND 1995, THE FOUR-MONTH PERIOD ENDED DECEMBER 31,
1995 (AUDITED) AND NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 (UNAUDITED)
- - ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
AUGUST 31,
--------------------------------
1994 1995
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (1,815,263) $ (15,863,181)
Adjustments to reconcile net loss to net cash used by
operating activities:
Grants (1,261,198) (1,316,811)
Stock compensation 295,866
Loss (gain) on disposal of equipment
Depreciation and amortization 28,694 350,447
Changes in assets and liabilities:
(Increase) decrease in receivables (490,385) (3,181,173)
(Increase) in prepaid expenses and other current assets (148,306) (749,858)
(Increase) in deposits (853,387) (316,613)
Increase in other assets (513,697)
Increase in accounts payable 972,530 2,912,454
Increase (decrease) in accrued liabilities 357,671 5,014,562
Increase (decrease) in air traffic liability 27,000 3,218,276
------------ --------------
Net cash used by operating activities (3,182,644) (10,149,728)
------------ --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for purchase of property and equipment (1,089,237) (1,509,028)
Proceeds on sale of property
(Increase) decrease in investments (100,000) (759,972)
------------ --------------
Net cash used by investing activities (1,189,237) (2,269,000)
------------ ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from grants 1,261,198 1,316,811
Proceeds from short-term borrowings
Payments of long-term debt (500,000) (1,038,877)
Proceeds from issuance of long-term debt 5,500,000 8,198,819
Proceeds from issuance of common stock 1,442,383 1,578,617
Proceeds from issuance of preferred stock
Common stock redemption
Debt issue costs (154,862) (134,968)
------------- --------------
Net cash provided by financing activities 7,548,719 9,920,402
------------- --------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 3,176,838 (2,498,326)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 375,136 3,551,974
------------- --------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 3,551,974 $ 1,053,648
============= ==============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION -
Cash paid during the period for interest $ 9,040 $ 217,988
============= ==============
<CAPTION>
FOUR NINE MONTHS ENDED
MONTHS ENDED SEPTEMBER 30,
DECEMBER 31, ----------------------------------
1995 1995 1996
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (4,826,295) $ (9,805,968) $(18,771,196)
Adjustments to reconcile net loss to net cash used by
operating activities:
Grants (88,493) (176,517) (168,925)
Stock compensation 465,890 44,381 519,193
Loss (gain) on disposal of equipment 6,876 (185,799)
Depreciation and amortization 174,864 325,565 456,921
Changes in assets and liabilities:
(Increase) decrease in receivables 1,252,387 (2,699,147) (944,239)
(Increase) in prepaid expenses and other current assets (537,274) (1,046,146) (23,322)
(Increase) in deposits (285,000)
Increase in other assets (158,089) (463,391) (122,451)
Increase in accounts payable 2,192,100 2,921,060 4,244,117
Increase in accrued liabilities 985,102 3,220,022 982,343
Increase (decrease) in air traffic liability (312,175) 4,167,056 939,175
------------ ------------ ------------
Net cash used by operating activities (845,107) (3,798,085) (13,074,183)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for purchase of property and equipment (549,809) (1,011,034) (1,152,674)
Proceeds on sale of property 20,000 614,721
(Increase) decrease in investments 165,542 (894,420) (672,837)
------------ ------------ ------------
Net cash used by investing activities (364,267) (1,905,454) (1,210,790)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from grants 88,493 176,517 168,925
Proceeds from short-term borrowings 3,677,359
Payments of long-term debt (63,153) (44,428) (74,419)
Proceeds from issuance of long-term debt 2,137,557 5,205,815
Proceeds from issuance of common stock 1,947,682 3,333
Proceeds from issuance of preferred stock 2,500,000 4,000,000
Common stock redemption (500,000)
Debt issue costs (63,933)
------------ ------------ ------------
Net cash provided by financing activities 2,525,340 4,217,328 12,417,080
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,315,966 (1,486,211) (1,867,893)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,053,648 1,686,054 2,369,614
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 2,369,614 $ 199,843 $ 501,721
============ ============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION -
Cash paid during the period for interest $ 415 $ 288,751 $ 576,187
============ ============ ============
</TABLE>
See notes to financial statements.
F-6
<PAGE> 47
AIR SOUTH AIRLINES, INC.
(FORMERLY AIR SOUTH, INC.)
STATEMENTS OF CASH FLOWS
YEARS ENDED AUGUST 31, 1994 AND 1995, THE FOUR-MONTH PERIOD ENDED DECEMBER 31,
1995 (AUDITED) AND NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 (UNAUDITED)
- - ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOUR MONTHS ENDED NINE MONTHS ENDED
AUGUST 31, DECEMBER 31, SEPTEMBER 30,
---------------------------- ----------------------------- -----------------------
1994 1995 1994 1995 1995 1996
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTIONS:
Stock bonus $ 183,831
Unearned compensation 66,240 $ 795,800
Stock and warrants issued to vendors 135,544 82,834 $ 67,000
See notes to financial statements.
</TABLE>
F-7
<PAGE> 48
AIR SOUTH AIRLINES, INC.
(FORMERLY AIR SOUTH, INC.)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED AUGUST 31, 1994 AND 1995, THE FOUR-MONTH PERIOD
ENDED DECEMBER 31, 1995 (AUDITED) AND NINE MONTHS ENDED
SEPTEMBER 30, 1995 AND 1996 (UNAUDITED)
- - ------------------------------------------------------------------------------
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION - Air South Airlines, Inc. (the "Company") was incorporated in
Illinois on January 14, 1993 as Travel Management Industry Services, Inc.
for the purposes of providing consulting services regarding travel industry
marketing. On January 26, 1994, an amendment to the Articles of
Incorporation was filed which changed the name of the Company to Air South,
Inc. and the stated purpose to operation of an airline and related services.
The Company commenced airline operations on August 22, 1994. Prior to
commencement of airline operations, the Company was essentially a
development stage enterprise with activities consisting of organizational
and pre-operating activities. The Company's management primarily spent the
pre-operating period and the initial phase of operations recruiting key
personnel, developing strategies, obtaining Federal Aviation Administration
and Department of Transportation certification and negotiating aircraft
leases, debt agreements and grant agreements. During the period ended
August 31, 1993, the Company produced no revenues and incurred development
stage losses of approximately $300,000. The Company is a passenger airline
providing all jet service primarily in the Southeastern and Eastern seaboard
regions of the United States. Services are provided with a fleet of seven
leased Boeing 737-200 aircraft.
On December 29, 1995, the Company:
_ was reincorporated in Delaware;
_ changed its name from Air South, Inc. to Air South Airlines, Inc.;
_ changed its common shares authorized from 10 million to 18 million and
from no par value shares to $.001 par value shares; and
_ authorized 2 million shares of preferred stock with a $.001 par value.
The Company also changed its year end for financial reporting purposes from
August 31 to December 31.
The airline industry is intensely competitive. Domestic certificated airlines
are free to enter and exit domestic markets and to set fares without
regulatory approval. Any significant fare reductions or introduction of
directly competing routes by other airlines could have a material adverse
effect on the Company's results of operations and financial condition.
The Company cannot predict the future cost and availability of fuel for
flight operations. Substantial price increases or the unavailability of
adequate suppliers could have a material adverse effect on the Company's
financial position or results of operations.
F-8
<PAGE> 49
CONTINUITY OF OPERATIONS - The Company has incurred significant operating
losses since inception, and at June 30, 1996, has a deficiency in working
capital of $15,190,000 and a stockholders' deficiency of $22,066,000. The
Company continues to experience negative cash flows and payments to certain
trade creditors are past due. Operating revenues have not yet exceeded a
breakeven threshold. In addition, loan covenant violations on $12,000,000
of indebtedness have been waived through July 1, 1997, but there is no
assurance that waivers can be obtained for any future violations subsequent
to that date.
The financial statements have been prepared on a going concern basis which
contemplates the realization of assets and the liquidation of liabilities in
the ordinary course of business. The continuance of the Company as a going
concern is dependent, among other things, upon obtaining sufficient
additional financing to fulfill cash flow requirements, growth in the
Company's revenue base and, ultimately, the attainment of profitable
operations. The financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
Management's plans to mitigate the uncertainty as to continuity of
operations include the following:
1. The Company has employed new managerial personnel, including a
chief executive officer who has significant experience in airline
management.
2. Under the new management team, the Company has realigned its flight
schedules in order to improve on-time performance and reduce flight
cancellations. In addition, the Company plans to implement a new
reservations and yield management system, which should help it maximize
revenues on individual flight segments. Management is also taking
steps to control the operating cost structure, including reducing
flight crew and maintenance expenses.
3. The Company hopes to add two additional 737-200 jets by the end of the
first quarter 1997.
4. During 1996, the Company has raised approximately $15 million of
additional funds through debt and equity transactions. A substantial
portion of these funds have been received from H&Q Air South Investors,
L.P. ("H&Q"), an affiliate of Hambrecht & Quist, L.L.C., an investment
banking firm. The Company, along with H&Q, plans to raise an
additional $3 million through the sale of private securities between
November 11, 1996 and February 1, 1997. H&Q has also guaranteed a $2
million bank loan for the Company and now has in excess of 50% voting
control of the Company.
CASH EQUIVALENTS - For purposes of the statement of cash flows, the Company
considers certificates of deposit with an original maturity of three months
or less to be cash equivalents.
INVESTMENTS - Current and long-term investments consist of certificates of
deposit which are stated at cost.
PROPERTY AND EQUIPMENT - Property and equipment are carried at cost. Major
additions, betterments and renewals are capitalized. Depreciation to
estimated residual values is computed on the straight-line basis over the
estimated useful lives of the related assets, which are seven years for all
flight equipment and five years for other property and equipment. Leasehold
improvements are amortized on a straight-line basis over the five year term
of the leases.
DEBT ISSUE COSTS - Debt issuance costs are amortized over the term of the
related debt.
F-9
<PAGE> 50
ACCRUED EXPENSES - Included in accrued expenses are federal excise taxes
payable of $1,205,181, and $795,140 and accrued maintenance reserves of
$1,097,206, and $790,170 at August 31, 1995, and December 31, 1995
respectively, accrued aircraft rent of $1,035,025 at December 31, 1995 and
accrued salaries and wages of $246,767 at August 31, 1994.
FREQUENT FLYER AWARDS - The Company accrues the estimated incremental cost
of providing free travel awards earned under its frequent flyer program at
the time of travel by participating passengers.
AIRCRAFT AND ENGINE MAINTENANCE - The Company accounts for airframe overhaul
costs using the accrual method. The accrual method provides for accruing
the estimated cost of the next overhaul based on cycles or flight hours.
For airframe overhauls, the actual cost of an overhaul is charged to the
accrual, with any deficiency or excess charged or credited to expense. For
engine overhauls, the Company accounts for overhaul costs using the deferral
method. Costs of engine overhauls are capitalized and amortized to the next
overhaul. The cost of routine maintenance is charged to expense as
incurred.
PASSENGER REVENUES - Passenger ticket sales are recognized as earned revenue
when the transportation is provided. Air traffic liability represents
passenger ticket sales for which transportation has not been provided.
GRANTS - Grants from governmental entities are restricted for specified
purposes and are recognized when an expenditure for which the grant provides
reimbursement is incurred. Grants related to expenses are recognized as
nonoperating income, while grants relating to property and equipment or to
intangible assets reduce their recorded cost.
INCOME TAXES - The Company accounts for income taxes under Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes.
Accordingly, deferred tax assets and liabilities are recorded for temporary
differences in the book and tax basis of assets and liabilities and for tax
loss and credit carryforwards. Deferred tax assets, which are not
considered more likely than not to be realized, are offset by a valuation
allowance.
PREOPERATING COSTS - All preoperating costs incurred during the development
stage were charged to expense as incurred.
RETIREMENT PLAN - The Company has a contributory 401(k) plan covering
substantially all employees. The Company may make matching and
discretionary contributions to the plan at the determination of the
Company's Board of Directors. The Company has made no contributions to the
plan.
ADVERTISING - The cost of advertising is expensed as incurred.
USE OF ESTIMATES - Preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the recorded 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
these estimates.
F-10
<PAGE> 51
IMPAIRMENT OF LONG-LIVED ASSETS - Effective September 1, 1995, the Company
adopted the provisions of Statement of Financial Accounting Standards No.
121, Accounting for the Impairment of Long-lived Assets and Assets to be
Disposed Of. This Statement requires assessment of impairment of long-lived
assets whenever factors, events or changes in circumstances indicate the
carrying amount of certain long-lived assets to be held and used may not be
recoverable. Assessment of impairment is based on the expected undiscounted
cash flows of the assets. If an asset is determined to be impaired, an
impairment loss is recognized to the extent the carrying amount of the
impaired asset exceeds fair value. Adoption of this Statement did not
materially affect the Company's financial position or results of operations.
LOSS PER COMMON SHARE - The net loss per common share is calculated by
dividing the net loss by the weighted average common shares and common share
equivalents outstanding. Fully diluted earnings per share are equal to
primary earnings in all periods presented. The effect of common stock
equivalents is antidilutive in all periods presented.
UNAUDITED INTERIM FINANCIAL STATEMENTS - The consolidated financial
statements as of September 30, 1996 and for the nine months ended September
30, 1995 and 1996 include all adjustments, consisting only of normal
recurring adjustments, considered necessary by management for a fair
presentation of the financial position and results of operations for these
periods. Operating results for the nine months ended September 30, 1996 are
not necessarily indicative of the results that may be expected for the
entire year.
2. PROPERTY AND EQUIPMENT
Property and equipment, as of August 31, 1994 and 1995, and December 31, 1995
consists of the following:
<TABLE>
<CAPTION>
AUGUST 31,
----------------------------- DECEMBER 31,
1994 1995 1995
<S> <C> <C> <C>
Flight equipment $ 272,897 $ 1,229,739 $ 1,545,825
Computer equipment 406,516 673,233 844,240
Ground property and equipment 263,291 469,190 474,877
Office furniture, fixtures and
equipment 130,671 195,229 221,889
Leasehold improvements 15,862 33,395 33,395
-------------- ------------- -------------
Total 1,089,237 2,600,786 3,120,226
Less accumulated depreciation (28,694) (362,856) (525,626)
-------------- ------------- -------------
Property and equipment, net $ 1,060,543 $ 2,237,930 $ 2,594,600
============== ============= =============
</TABLE>
3. DEBT
Short-term borrowings outstanding at September 30, 1996 includes a
$2,000,000 loan from a bank, bearing interest at prime (8.25% at June 30,
1996) plus 2.0%, payment of interest only monthly, with a final payment of
principal and accrued interest at December 31, 1996. This note is
unconditionally guaranteed by H&Q.
F-11
<PAGE> 52
LINE OF CREDIT - On March 12, 1996, the Company entered into an agreement to
obtain a one year, $500,000 line of credit from a bank. Subject to the
bank's discretion, and subject to such additional terms, conditions and
provisions as the bank considers necessary, an additional $500,000 may be
provided under the agreement. The line of credit is collateralized by a
first lien on substantially all the Company's assets and bears interest at
the rate of prime plus 1%.
As consideration for this line of credit, the Company issued 7,500 shares of
common stock to the bank. Subject to funding of the additional $500,000,
the Company will issue an additional 15,000 shares of common stock to the
bank. Such shares are required to be registered in any subsequent equity
offering.
Long-term debt outstanding as of August 31, 1994 and 1995, and December 31,
1995 consists of the following:
<TABLE>
AUGUST 31,
---------------------------- DECEMBER 31,
1994 1995 1995
<S> <C> <C> <C>
Loan from Lexington County,
South Carolina (the "county
loan"), see below $ 4,000,000 $ 12,000,000 $ 12,000,000
Uncollateralized loan at 4%
paid in 1995 500,000
Loan paid in 1995 500,000
------------ ------------ ------------
Long-term debt $ 5,000,000 $ 12,000,000 $ 12,000,000
============ ============ ============
</TABLE>
The county loan originally permitted borrowings of up to $12,000,000;
payment over 240 months; interest at 4% through the first 36 months and at a
rate indexed to allow the State to recoup its interest and other costs
beginning in the 37th month; interest and principal payments due monthly
beginning in the 19th and 37th months, respectively. In September 1996, the
terms of the State Loan were modified to provide (i) for 4% fixed interest
rate through August 31, 2004; beginning September 1, 2004 the interest rate
may be increased, not to exceed prevailing commercial loan rates, based on
the Company's net operating income, (ii) that interest due for June 1, 1996
through August 1, 1997 is deferred until August 1, 1997, (iii) that the loan
is to be repaid in 143 equal installments based on 204 months amortization
with a balloon payment one month after the last (final) installment and (iv)
that the outstanding principal balance is based on the size of an initial
public offering with principal repayment not to exceed $6 million of the net
proceeds of a public offering greater than $20 million. Substantially all
of the Company's assets serve as collateral for this loan, subordinate to
the interests of the lines of credit described below. The Company has also
agreed to use the proceeds of any initial public stock offering to repay up
to one half of the loan's outstanding balance. The loan was funded through
the issuance of Lexington County, South Carolina general revenue bonds and
was guaranteed by the United States Department of Housing and Urban
Development.
The loan agreement relating to the county loan contains, among other things,
provisions which limit payment of dividends, salary increases and other
financial restrictions and requires the Company to maintain certain
financial ratios (working capital, tangible net worth, and other financial
ratios). Dividend payments are prohibited until one-half of the loan is
paid. As of December 31, 1995, the Company was not in compliance with the
above described financial covenants as well as certain other provisions of
the loan agreement; however, on November 8, 1996, the South Carolina Jobs -
Economic Development Authority, the Servicing Agent, waived compliance with
those provisions until July 1, 1997.
In August and September of 1996, the Company issued $4,600,000 of
convertible debentures to H&Q. These securities are convertible into
16,000,000 shares of Series D Preferred Stock, which in turn are convertible
at $.25 per share into shares of common stock.
In September and October of 1996 the Company issued $620,000 of
Convertible Debentures. These securities are convertible into 480,000
shares of Series E Preferred Stock, which in turn are convertible at $.25
per share into common stock.
The provisions of Series D and E preferred stock (other than conversion
provisions) are substantially the same as the previously issued Series C
Preferred Stock. The Convertible Debentures bear interest at 6% per annum.
Interest is deferred and added to the principal balance. Principal is due
at August 16, 1999.
F-12
<PAGE> 53
Additionally, the Company has standby letters of credit totaling
$638,650 and $1,360,650 at December 31, 1995 and June 30, 1996,
respectively, with two banks. As of December 31, 1995, $638,650 of
investments were pledged as collateral for these letters of credit.
Principal payments on debt are due as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1995
<S> <C>
Fiscal year:
1997 $ 222,220
1998 666,667
1999 666,667
2000 666,667
2001 666,667
Thereafter 9,111,112
-----------
Total $12,000,000
===========
</TABLE>
4. SHAREHOLDERS' EQUITY
CONVERTIBLE PREFERRED STOCK - Convertible preferred stock at September
30, 1996 consists of 1,250,000 shares designated as Series A Preferred Stock,
625,000 shares designated as Series B Preferred Stock and 120,000 shares
designated as Series C Preferred Stock.
Significant terms of these Convertible Preferred Stocks are as follows:
_ Each share is convertible at the option of the holder into one
share of common stock for Series A, eight shares of common stock for
Series B and 25 shares of common stock of Series C, subject to
adjustment for events of dilution. Shares will automatically be
converted upon an initial public offering of common stock meeting
specified criteria or upon written consent of the holder of a specified
percentage of the outstanding shares of each respective series of
preferred stock.
_ Each share has the same voting rights and number of votes as shares
of common stock into which it is convertible.
_ Dividends are at the discretion of the Board of Directors and are
noncumulative. Each share is entitled to a per share dividend of $.16
per share of Series A, $.32 of Series B and $1.00 for Series C per
annum before any dividend is paid to common shareholders. All series
participate with the Company common stock on an as-if-converted basis
with respect to any other dividends that may be paid on the Company's
common stock.
_ In the event of liquidation, the preferred shareholders are
entitled to receive $2.00 per share for Series A, $4.00 per share for
Series B and $12.50 per share for Series C plus any declared but unpaid
dividends, prior to any distribution to the common shareholders.
_ The holders of the preferred shares have certain piggyback and demand
registration rights with respect to the underlying shares of Common
Stock into which the preferred shares are convertible.
F-13
<PAGE> 54
WARRANTS - Warrants to purchase 25,000 shares of the Company's common stock
were issued to an aircraft lessor in November 1994. Warrants to purchase
200,000 shares of common stock were issued to a leasing agent on April 1995.
The value of these warrants has been treated as deferred lease expense and
is being amortized over the life of the related leases. The warrants have
an exercise price of $1.00 and expire October 31, 2005. In April 1996
warrants to purchase preferred stock were issued to Hambrecht & Quist Group
L.L.C. as consideration for guaranteeing the $2,000,000 revolving line of
credit. These warrants have an exercise price of $.50 and expire in April
2006.
STOCK OPTION PLANS - The Company has adopted the 1993 Stock Option Plan and
the 1994-1995 Stock Option Plan. These plans (the "Plans") provide for
grants of both incentive stock options (ISO's) and non-qualified options.
Under the Plans, ISO's may be granted to employees and non-qualified options
may be granted to employees, directors, consultants and other advisors.
Shares subject to incentive stock options generally vest over a three year
period. Although vesting may vary, no options have vesting periods in
excess of three years. Certain options provide for acceleration of vesting
upon occurrence of specified events. Options expire over varying periods
from five to ten years after the date of grant.
ISO's shall be granted at a price at least equal to the fair market value at
the time of issuance as determined by the Board of Directors. Non-qualified
options may have an exercise price of less than fair market value. At the
March 18, 1996 board meeting, directors voted to increase the number of
authorized shares under the 1994-1995 Stock Option Plan to 2,500,000. On
May 18th, the board voted to reduce the exercise price for outstanding
options to purchase common stock by current employees, officers, and
directors to $.50 per share. No future grants will be made under the 1993
Stock Option Plan.
<TABLE>
<CAPTION>
NUMBER OF EXERCISE PRICE
OPTIONS PER SHARE
--------- --------------
<S> <C> <C>
Activity under the Plans is summarized as follows:
Outstanding at September 1, 1993
Granted 350,000 $0.50
---------
Outstanding at August 31, 1994 350,000
Granted 939,100 $0.50
Forfeited (62,000)
---------
Outstanding at August 31, 1995 1,227,000
Granted 1,030,000 $0.50
---------
Outstanding at December 31, 1995 2,257,100 $0.50
Options exercisable at December 31, 1995 978,424 $0.50
=========
</TABLE>
UNEARNED STOCK COMPENSATION - In connection with the grant of certain
stock options to employees, the Company recorded unearned stock compensation
for the difference between the deemed fair value for accounting purposes
based on independent appraisals and the option price as determined by the
Board of Directors at the date of grant. Deferred compensation of $452,193
has been recorded as a reduction in stockholders' equity at December 31,
1995. Such amounts are being recognized over the vesting period of the
related stock options.
F-14
<PAGE> 55
STOCK BONUSES - On January 24, 1995 and August 22, 1995 the Company awarded
stock bonuses to all employees. The fair value of the stock issued to
employees of $183,831 has been treated as compensation expense for the year
ended August 31, 1995.
5. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES - The Company leases aircraft, its principal facilities,
including airport and terminal facilities, sales offices and general
offices. These operating leases are generally on a long-term net rent basis
whereby the Company pays taxes, maintenance, insurance and certain other
operating expenses applicable to the leased premises. Management expects
that, in the normal course of business, leases that expire will be renewed
or replaced by other leases.
At December 31, 1995, approximate minimum lease payments under leases
expiring after December 31, 1995 were as follows:
<TABLE>
<S> <C>
Calendar year:
1996 $ 7,169,000
1997 6,729,000
1998 4,267,000
1999 4,100,000
2000 3,365,000
Thereafter 5,890,000
-----------
Total minimum lease payments $31,520,000
===========
</TABLE>
Total rental expense for all operating leases was approximately $11,825,000
and $141,000 for the years 1995 and 1994, respectively, of which
approximately $4,342,000 and $57,000 represented contingent rentals.
Comparable amounts for the four months ended December 31, 1995 were
$4,882,000 and $1,742,000 for contingent rentals. Contingent rentals are
based on flight hours for aircraft and enplaned passengers (as defined) or
usage (as defined) for terminal space.
In April 1996, the Company renegotiated certain of its aircraft lease
agreements. Under these agreements, the Company would be required to make
an additional payment of up to $3 million to the lessor upon completion of a
successful initial public offering meeting specified criteria.
Noncurrent deposits include $853,000, $1,170,000, and $1,170,000 at
August 31, 1994, August 31, 1995, and December 31, 1995 respectively, for
leased aircraft.
CONCENTRATIONS OF CREDIT RISK - Although the Company does not believe it is
subject to significant concentrations of credit risk, recovery of deposits
for supplemental payments for maintenance reserves to aircraft lessors is
dependent on the continued financial stability of the Company's lessors. In
addition, approximately 60% of receivables represents amounts due from one
credit card servicing bank for sales of tickets to individual passengers.
These receivables are settled following usage of the related ticket by
passengers.
F-15
<PAGE> 56
STOCK REGISTRATION - The Company sold shares in the year ended August 31,
1995 and the period ended December 31, 1995 which may have violated the
Securities Act or other applicable state securities laws. The shares
were not registered under the securities laws, and exemptions from
registration provided by such securities laws may not have been available
or may not have been perfected, and, in some cases, sales of the shares may
have been made by unregistered persons with the result that the Company may
be deemed to have violated the registration requirements of the securities
laws. The Company does not believe the possible violations of securities
laws will have a material impact on the Company's financial position or
future results of operations.
LITIGATION - The Hillsborough County Aviation Authority is seeking
damages arising out of the Company's alleged breach of four contracts
relating to the use by the Company of Tampa International Airport. An
accrual of approximately $650,000 reflecting management's estimate of the
amount required to settle this litigation has been recorded. The Company
does not believe the ultimate settlement of this litigation will have a
material impact on the Company's financial position or results of operation.
A former employee is also seeking damages from the Company and H&Q alleging
breach of his employment relationship and violation of certain South
Carolina laws with regard to the payment of wages.
6. GRANTS
Certain governmental entities committed to provide the Company reimbursement
for certain types of expenditures or to provide services free of charge. A
detail of such grant commitments available is as follows:
<TABLE>
DECEMBER 31,
1995
<S> <C>
Grants for relocation expense, facilities and working capital -
City of Columbia, South Carolina $ 450,140
Commitment to provide training services free of charge by the
South Carolina State Board for Technical and Comprehensive
Education 630,485
----------
Total $1,080,625
==========
</TABLE>
Grants totaling $3,000,000 are repayable on a pro-rata basis, with interest
at 4% per annum, to the governmental entities should the Company, within
five years of commencement of operations, relocate its operations and
headquarters away from the Columbia, South Carolina metropolitan area.
F-16
<PAGE> 57
7. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts and estimated fair values of the Company's financial
instruments at December 31, 1995 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1995
----------------------------
ESTIMATED
CARRYING FAIR
AMOUNT VALUE
<S> <C> <C>
Assets:
Cash and cash equivalents $ 2,369,614 $2,369,614
Investments 668,622 653,334
Liabilities:
Long-term debt 12,000,000 9,970,542
</TABLE>
The information presented herein is based on information available to the
Company as of December 31, 1995. Although the Company is not aware of any
factors that would significantly affect the estimated fair value amounts,
such financial instruments have not been comprehensively revalued since
December 31, 1995, and the current estimated fair value may differ
significantly from the estimated fair value at that date.
The following methods and assumptions were used to estimate the fair value
of the above classes of financial instruments:
Cash and cash equivalents are valued at their carrying amount.
Fair values of investments and long-term debt are based on net present value
calculations as quoted market prices for the instruments or similar
instruments are not available. Settlement of long-term debt may not be
possible or may not be a prudent management decision. Potential taxes and
other expenses that would be incurred in an actual sale or settlement have
not been taken into consideration.
8. INCOME TAXES
The provision for income taxes is as follows:
<TABLE>
<CAPTION>
AUGUST 31,
------------------------ DECEMBER 31,
1994 1995 1995
<S> <C> <C> <C>
Deferred tax benefit $ 471,171 $ 5,850,889 $ 1,858,595
Valuation allowance (471,171) (5,850,889) (1,858,595)
--------- ----------- ----------
Provision for income taxes $ 0 $ 0 $ 0
========= =========== ==========
</TABLE>
F-17
<PAGE> 58
The components of deferred taxes are:
<TABLE>
<CAPTION>
AUGUST 31,
-------------------------- DECEMBER 31,
1994 1995 1995
<S> <C> <C> <C>
Depreciation $ (8,514) $ (98,156) $ 11,839
Vacation and other reserves 433,775 938,869 748,052
Net operating loss
carryforwards 45,910 5,481,347 7,420,764
--------- ----------- ------------
Gross deferred tax assets 471,171 6,322,060 8,180,655
Valuation allowance (471,171) (6,322,060) (8,180,655)
--------- ----------- ------------
Net deferred tax assets $ 0 $ 0 $ 0
========= =========== ============
</TABLE>
As of December 31, 1995 the Company had available net operating loss
carryforwards of approximately $19,000,000. These carryforwards expire
beginning in 2008, if unused. The Company has experienced a change in
ownership. The ownership change may limit the utilization of these
carryforwards in the future.
The Company has recorded a valuation allowance for the total amount of the
gross deferred tax asset in all years presented. The amount of deferred tax
asset considered realizable, however, could be increased in the near term if
estimates of future taxable income during the carryforward period are
increased.
9. OTHER OPERATING EXPENSES
Other operating expenses consist of the following:
<TABLE>
<CAPTION>
AUGUST 31, AUGUST 31, DECEMBER 31,
1994 1995 1995
<S> <C> <C> <C>
Travel, lodging and meals $ 118,333 $ 1,042,240 $ 255,611
Communications 74,632 1,638,396 551,594
Useage fees - reservations 26,104 1,502,235 662,307
Purchased services, including
security and skycap
fees 185,100 1,546,173 853,351
Equipment rentals 648,991 210,192
Aircraft charters 1,290,373
Insurance 115,872 2,861,286 1,167,823
Taxes and licenses 13,304 465,682 89,101
Passenger food and drink 31,219 324,343 137,892
Credit card fees 1,100,276 500,979
Corporate and fiscal 140,516 169,231 59,584
Other 332,463 3,531,197 993,177
---------- ----------- ----------
Total $1,037,543 $16,120,423 $5,481,611
========== =========== ==========
</TABLE>
F-18
<PAGE> 59
10. REDEEMABLE COMMON STOCK
On December 22, 1995 the Company entered into an agreement with a former
officer of the Company to repurchase for $2.00 a share, 250,000 shares of
the Company's common stock from the former officer or designated
individuals. On January 3, 1996, the Company repurchased the shares of
common stock under the terms of this agreement.
11. SUBSEQUENT EVENTS (Unaudited)
_ On July 12, 1996, the then Chairman of the Board of Directors of the
Company paid approximately $280,000 directly to vendor for payment of
certain payables of the Company. As of September 30, 1996,
approximately $280,000 is payable to the former Chairman of the Board.
_ On December 3, 1996 the Company issued warrants to purchase
16,000,000 shares of Common Stock at an exercise price of $.25 per
share to H&Q. The warrants were issued as consideration for a $4
Million letter of credit provided by H&Q which allows the Company to
obtain cash more promptly from certain credit card receivables.
_ In October 1996, the Company issued $120,000 of Convertible
Debentures. These securities are convertible into 480,000 shares of
Series E Preferred Stock, which in turn are convertible at $.25 per
share of 480,000 shares of common stock.
_ In September through December 1996 and January of 1997, the Company
issued $8,300,000 of demand notes to H&Q bearing an interest rate of
8%; $2,300,000 of such Notes has been repaid.
_ On December 10, 1996, the Company reached a settlement of the claim by
a former employee for approximately $290,000 plus interest at 8.5%
payable over fifteen months. The amount of the settlement has been
accrued at September 30, 1996.
_ On December 21, 1996, the Company entered into an agreement to sell
certain of its flight equipment to a vendor for approximately $250,000.
The Company also reached an agreement with this vendor to convert
accounts payable of approximately $700,000 into a note payable over
one year with interest at 12%.
_ The Company extended maturity of the $2,000,000 bank line of credit to
January 31, 1997 and, subject to provision of a letter of credit in
substitution for the existing loan guaranty, until September 1, 1998.
On February 6, 1997 the South Carolina Jobs - Economic
Development Authority extended its waiver of certain provisions of the
$12,000,000 County Loan through December 31, 1997.
* * * * * * * * *
F-19
<PAGE> 1
EXHIBIT 2.1
PAGE 1
STATE OF DELAWARE
OFFICE OF THE SECRETARY OF STATE
--------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
AGREEMENT OF MERGER, WHICH MERGES:
"AIR SOUTH, INC.", A ILLINOIS CORPORATION,
WITH AND INTO "AIR SOUTH AIRLINES, INC." UNDER THE NAME OF "AIR SOUTH
AIRLINES, INC.", A CORPORATION ORGANIZED AND EXISTING UNDER THE LAWS OF THE
STATE OF DELAWARE, AS RECEIVED AND FILED IN THIS OFFICE THE TWENTY-NINTH DAY
OF DECEMBER, A.D. 1995, AT 4:01 O'CLOCK P.M.
A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW
CASTLE COUNTY RECORDER OF DEEDS FOR RECORDING.
/s/ Edward J. Freel
[SEAL] -----------------------------------
Edward J. Freel, Secretary of State
AUTHENTICATION:
2564178 8100M 7775511
DATE:
960000002: 01-03-96
<PAGE> 2
AGREEMENT OF MERGER
AGREEMENT OF MERGER, dated this 29th day of December, 1995, pursuant to
Section 252 of the General Corporation Law of the State of Delaware, between
Air South Airlines, Inc., a Delaware corporation and Air South, Inc., an
Illinois corporation.
WITNESSETH that:
WHEREAS, the constituent corporations desire to merge into a single corporation.
NOW, THEREFORE, the corporations, parties to this Agreement, in consideration
of the mutual covenants, agreements and provisions hereinafter contained, do
hereby prescribe the terms and conditions of said merger and mode of carrying
the same into effect as follows:
FIRST: Air South Airlines, Inc., hereby merges into itself Air South,
Inc., said Air South, Inc., shall be and hereby is merged into Air South
Airlines, Inc., which shall be the surviving corporations.
SECOND: The Certificate of Incorporation of Air South Airlines, Inc.,
and as in effect on the date of merger provided for in this Agreement, shall
continue in full force and effect as the Certificate of Incorporation of the
corporation surviving this merger.
THIRD: The manner of converting the outstanding shares of the capital
stock of each of the constituent corporations into the shares or other
securities of the surviving corporation shall be as follows:
(a) Each share of common stock of the surviving corporation, which
shall be issued and outstanding on the effective date of this Agreement and
owned by the merged corporation shall be canceled without any payment of
consideration therefor.
(b) Each share of common stock of the merged corporation which shall
be outstanding on the effective date of this Agreement, and all rights in
respect thereto shall forthwith be changed and converted into one (1) share
of common stock of the surviving corporation.
(c) After the effective date of this Agreement, each holder of an
outstanding certificate representing shares of common stock of the merged
corporation shall at the written request of the
<PAGE> 3
and directors of the merged corporation and the proper officers and directors
of the surviving corporation are fully authorized the name of the merged
corporation or otherwise to take any and all such action.
FIFTH: Anything herein or elsewhere to the contrary notwithstanding,
this Agreement may be terminated and abandoned by the Board of Directors of
either constituent corporation at any time prior to the date of filing this
Agreement with the Secretary of State. This Agreement may be amended by the
board of Directors of its constituent corporations at any time prior to the
date of filing this Agreement with the Secretary of State, provided that an
amendment made subsequent to the adoption of the Agreement by the stockholders
of any constituent corporation shall not (1) alter or change the amount or kind
of shares, securities, cash, property and/or rights to be received in exchange
for or on conversion of all or any of the shares of any class or series thereof
of such constituent corporation, (2) alter or change any term of the
Certificate of Incorporation of the surviving corporation to be effected by the
merger, or (3) alter or change any of the terms and conditions of the Agreement
if such alteration or change would adversely affect the holders of any class or
series thereof of such constituent corporation.
IN WITNESS WHEREOF, the parties to this Agreement, pursuant to the
approval and authority duly given by resolution by their respective Boards of
Directors have caused these presents to be executed by the Chairman of the
Board and Chief Executive Officer of the surviving corporation and the
President and Chief Operating Officer of the merged corporation as the
respective act, deed and agreement of said corporations on this 29th day of
December, 1995.
Air South Airlines, Inc.
By: /s/ Clifton E. Haley
------------------------------------------
Clifton E. Haley,
Chairman of the Board and Chief Executive
Officer
Air South, Inc.
By: /s/ Roden Brandt
------------------------------------------
Roden Brandt, President and
Chief Operating Officer
<PAGE> 4
I, David Y. Monteith, Secretary of Air South Airlines, Inc., a
corporation organized and existing under the laws of the State of Delaware,
hereby certify, as such Secretary, that the Agreement of Merger to which this
Certificate is attached, after having been first duly signed on behalf of the
said corporation and having been signed on behalf of Air South, Inc., a
corporation of the State of Illinois, was duly adopted pursuant to Section 228
of Title 8 of the Delaware Code by the unanimous written consent of the
stockholders holding one hundred (100) shares of the capital stock of the
corporation, same being all of the shares issued and outstanding having voting
power, which Agreement of Merger was thereby adopted as the act of the
stockholders of said Air South Airlines, Inc., and the duly adopted agreement
and act of the said corporation.
WITNESS my hand on this 29th day of December, 1995
/s/ D.Y. Monteith
---------------------------------
Secretary
<PAGE> 1
EXHIBIT 3.1
PAGE 1
State of Delaware
Office of the Secretary of State
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
INCORPORATION OF "AIR SOUTH AIRLINES, INC.", FILED IN THIS OFFICE ON THE
TWENTY-NINTH DAY OF DECEMBER, A.D. 1995, AT 4 O'CLOCK P.M.
A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW
CASTLE COUNTY RECORDER OF DEEDS FOR RECORDING.
/s/ EDWARD J. FREEL
----------------------------------
Edward J. Freel, Secretary of State
AUTHENTICATION:
2564178 8100 7775501
DATE:
960000001 01-03-96
<PAGE> 2
CERTIFICATE OF INCORPORATION
OF
AIR SOUTH AIRLINES, INC.
* * * * *
1. The name of the corporation is Air South Airlines, Inc..
2. The address of its registered office in the State of Delaware is Corporation
Trust Center, 1209 Orange Street, in the City of Wilmington, County of New
Castle. The name of its registered agent at such address is The Corporation
Trust Company.
3. The nature of the business or purposes to be conducted or promoted is:
To engage in any lawful act or activity for which corporations may be
organized under the General Corporation Law of Delaware.
The business and purposes specified in the foregoing clause shall,
except where otherwise expressed, be in nowise limited or restricted by
reference to, or inference from, the terms of any other clause in this
Certificate of Incorporation.
At all elections of directors of the Corporation, each stockholder
shall be entitled to as many votes as shall equal the number of votes which
(except for such provision as to cumulative voting) he would be entitled to
cast for the election of directors with respect to his shares of stock
multiplied by the number of directors to be elected by him, and he may cast all
of such votes for a single director or may distribute them among the number to
be voted for, or for any two or more of them as he may see fit.
1
<PAGE> 3
4. (a) The authorized capital stock of the Corporation shall consist
of 20,000,000 shares, 18,000,000 of which shares shall be common stock par value
$0.001 per share with full voting rights ("Common Stock") and 2,000,000 of
which shares shall be preferred stock par value $0.001 per share.
(b) The Board of Directors is hereby expressly vested with
authority to provide for the issue of shares of preferred stock in addition to
the Series A Preferred Stock in one or more classes or one or more series, with
such voting powers, full or limited, or no voting powers, and with such other
powers, designations, preferences and relative, participating, optional or
other special rights, if any, and such qualifications, limitations or
restrictions thereof, if any, as shall be stated and expressed in the
resolution or resolutions provided by law, the holders of preferred stock shall
only have such voting rights as provided for or expressed in the resolutions of
the Board of Directors relating to such preferred stock adopted pursuant to
the authority contained in this Certificate of Incorporation.
(c) The Corporation shall have a class of preferred stock which
shall be designated Air South Airlines, Inc. 6 Series A Preferred stock.
Air South Airlines, Inc. Series A Preferred Stock
Section 1. Class of Preferred Stock. The Air South Airlines Series A
Preferred Stock shall have such voting powers, and such other powers,
designations, preferences and other special rights set out below.
Section 2. Dividends. The holders of outstanding shares of Series A Preferred
Stock shall be entitled to receive dividends at the rate of $0.16 per share (as
adjusted for any stock dividends, combinations or splits with respect to such
shares) per annum, when, if and as declared by the Board of Directors, out of
funds legally available therefor. The right to such dividends on the Series A
Preferred Stock shall not be cumulative. No cash dividend shall be paid on the
Common Stock in any year unless an equal dividend is paid with respect to all
outstanding shares of Series A Preferred Stock in an amount for each such share
2
<PAGE> 4
to a holder of the number of shares of Common Stock into which such share of
Series A Preferred Stock could then be converted.
Section 3. Liquidation Rights.
a. In the event of any liquidation, dissolution or winding up of
the Corporation, either voluntary or involuntary, the holders of the Series A
Preferred Stock shall be entitled to receive, prior and in preference to any
distribution of any of the assets or surplus funds of the Corporation to the
holders of the Common Stock, the amount of two dollars ($2.00) per share (the
"Original Issue Price") (as adjusted for any stock dividends, combinations or
splits with respect to such shares) plus all accrued or declared but unpaid
dividends on each share of Series A Preferred Stock held by such holders (the
"Preferential Amount"). If upon the occurrence of any liquidation, dissolution
or winding up of the Corporation, either voluntary or involuntary, the assets
and funds to be distributed among the holders of Series A Preferred Stock shall
be insufficient to permit the payment to such holders of the full Preferential
Amount, the entire assets and funds of the Corporation legally available for
distribution shall be distributed ratably among the holders of the Series A
Preferred Stock in proportion to the Preferential Amount each such holder is
otherwise entitled to receive.
b. After payment to the holders of the Series A Preferred Stock
of the Preferential Amount, the entire remaining assets and funds of the
Corporation legally available for distribution, if any, shall be distributed
ratably among the holders of Series A Preferred Stock and the Common Stock in
proportion to the shares of Series A Preferred Stock and Common Stock then held
by such holders.
c. For purposes of this Section 3, (i) a merger or consolidation
of the Corporation into or with another corporation (other than with a wholly
owned subsidiary of this Corporation), or any other corporate reorganization in
which the stockholders of the Corporation will not own a majority of the
outstanding shares of the surviving entity of such merger, consolidation or
reorganization, or (ii) a sale, transfer or other disposition of all or
substantially all of the assets of the Corporation, shall be deemed to be a
liquidation, dissolution or winding up of the Corporation.
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<PAGE> 5
Section 4. Conversion.
a. Right to Convert. Each share of Series A Preferred Stock
shall initially be convertible, at the option of the holder, at any time after
the date of issuance of such share, at the office of the Corporation or any
transfer agent for the Series A Preferred Stock, into one fully paid and
nonassessable share of Common Stock (subject to adjustment as set forth
herein). The number of shares of Common Stock into which one share of Series A
Preferred Stock may be converted hereinafter is referred to as the "Series A
Conversion Rate". The price at which shares of Common Stock shall be
deliverable upon conversion of shares of Series A Preferred shall initially be
$2.00 per share of Common Stock (the "Series A Conversion Price"). Such
initial Series A Conversion Price shall be subject to adjustment from time to
time, as hereinafter provided.
b. Automatic Conversion. Each share of Series A Preferred Stock
shall automatically be converted into shares of Common Stock at the then
effective Series A Conversion Rate upon the earlier of (i) the closing of a
firmly underwritten public offering of the Corporation's Common Stock on a Form
S-1 Registration Statement at an aggregate public offering price (after
underwriting discounts and commission) of at least $10,000,000 and a per share
price equal to or greater than $4.00 (as appropriately adjusted for stock
splits and the like) (an "Initial Public Offering"); (ii) the vote or written
consent of the holders of at least 50% of the then outstanding shares of Series
A Preferred Stock; or (iii) the date as of which less than 20% of the shares of
Series A Preferred Stock issued on December 29, 1995 remain outstanding (the
"Automatic Conversion Event").
c. Mechanics of Conversion. Before any holder of Series A
Preferred Stock shall be entitled to convert the same into shares of Common
Stock, such holder shall surrender the certificate or certificates for such
shares, duly endorsed, at the office of the Corporation or of any transfer
agent for the series A Preferred Stock, or notify the Corporation or its
transfer agent that such Series A Preferred Stock certificates have been lost,
stolen or destroyed and execute an agreement satisfactory to the Corporation to
indemnify the Corporation from any loss incurred by it in connection with such
certificates, and shall give written notice to the Corporation at such office
that such holder elects to convert the same and shall state in the notice the
name or names in which such holder wishes the certificate or certificates for
shares of Common Stock to be issued. The Corporation shall then, as soon as is
practicable, issue
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<PAGE> 6
and deliver at such office to such holder of Series A Preferred Stock, or to
such holder's nominee or nominees, a certificate or certificates for the number
of shares of Common Stock to which such holder shall be entitled. Such
conversion shall be deemed to have been made immediately prior to the close of
business on the date of surrender of the shares of Series A Preferred Stock to
be converted, and the person or persons entitled to receive the shares of
Common Stock issuable upon such conversion shall be treated for all purposes as
the record holder or holders of such shares of Common Stock on such date;
provided, however, that in the event of automatic conversion pursuant to
Section 4(b), such conversion shall be deemed to have been made upon the
occurrence of the Automatic Conversion Event triggering such conversion without
any further action by the holders of shares of Series A Preferred Stock,
although the Corporation shall not be obligated to issue certificates
evidencing the shares of Common Stock issuable upon such automatic conversion
unless the certificates evidencing such shares of Series A Preferred Stock are
delivered to the Corporation or its transfer agent as provided above, or the
holder notifies the Corporation or its transfer agent that such Series A
Preferred Stock certificates have been lost, stolen or destroyed and executes
an agreement satisfactory to the Corporation to indemnify the Corporation from
any loss incurred by it in connection with such certificates. If the
conversion is in connection with an underwritten offering of securities
pursuant to the Securities Act, the conversion may, at the option of any holder
tendering shares of Series A Preferred Stock for conversion, be conditioned
upon the closing with the underwriters of the sale of securities pursuant to
such offering, in which event the person(s) entitled to receive the Common
Stock upon conversion of Series A Preferred Stock shall not be deemed to have
converted such Series A Preferred Stock until immediately prior to the closing
of such sale of securities.
d. Adjustments to the Series A Conversion Price for Certain
Diluting Issues.
(i) Special Definitions. For purposes of this Section
4(d), the following definitions apply:
(1) "Option" shall mean rights, options, or
warrants to subscribe for, purchase or otherwise acquire either Common Stock or
Convertible Securities (defined below).
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<PAGE> 7
(2) "Original Issue Date" shall mean the date on which a share of
Series A Preferred Stock was first issued.
(3) "Convertible Securities" shall mean any evidences of
indebtedness, shares (other than Common Stock and Series A Preferred Stock) or
other securities convertible into or exchangeable for Common Stock.
(4) "Additional Shares of Common Stock" shall mean all shares of
Common Stock issued (or, pursuant to Section (4)(iii), deemed to be issued) by
the Corporation after the Original Issue date, other than shares of Common
Stock issued or issuable:
(A) upon conversion of shares of Series A Preferred
Stock;
(B) to officers, directors or employees of, or
consultants to, the Corporation pursuant to stock option or stock purchase
plans or agreements on terms approved by the Board of Directors;
(C) as a dividend or distribution on Series A Preferred
Stock;
(D) for which adjustment of the Series A Conversion Price
is made pursuant to Section 4(e);
(E) upon the closing of an Initial Public Offering;
or
(F) in connection with an acquisition of another company
on terms approved by the Board of Directors.
(ii) No Adjustment of the Series A Conversion Price. Any
provision herein to the contrary notwithstanding, no adjustment in the Series A
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<PAGE> 8
(F) in connection with an acquisition of another company
on terms approved by the Board of Directors.
(ii) No Adjustment of the Series A Conversion Price. Any provision
herein to the contrary notwithstanding, no adjustment in the Series A
Conversion Price shall be made in respect of the issuance of Additional Shares
of Common Stock unless the consideration per share (determined pursuant to
Section 4(d)(v) hereof) for an Additional Share of Common Stock issued or
deemed to be issued by the Corporation is less than the Series A Conversion
Price in effect on the date of, and immediately prior to, such issue.
(iii) Deemed Issue of Additional Shares of Common Stock. In the
event the Corporation at any time or from time to time after the Original Issue
Date shall issue any Options or Convertible Securities or shall fix a record
date for the determination of holders of any class of securities then entitled
to receive any such Options or Convertible Securities, then the maximum number
of shares (as set forth in the instrument relating thereto without regard to
any provisions contained therein designed to protect against dilution) of
Common Stock issuable upon the exercise of such Options or, in the case of
Convertible Securities and options therefor, the conversion or exchange of such
Convertible Securities and Options therefor, the conversion or exchange of such
Convertible Securities, shall be deemed to be additional Shares of Common Stock
issued as of the time of such issue or, in case such a record date shall have
been fixed, as of the close of business on such record date, provided that in
any such case in which Additional Shares of Common stock are deemed to be
issued:
(1) no further adjustments in the Series A Conversion
Price shall be made upon the subsequent issue of Convertible
Securities or shares of Common stock upon the exercise of such Options
or conversion or exchange of such Convertible Securities;
(2) if such Options or Convertible Securities by their
terms provide, with the passage of time or otherwise, for any increase
or decrease in the consideration payable to the Corporation, or
decrease or increase in the number of shares of Common Stock issuable,
upon the exercise, conversion or exchange thereof, the Series A
Conversion Price computed upon the original issue thereof (or upon the
occurrence of a record date with respect thereto), and any subsequent
adjustments based
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<PAGE> 9
thereon, shall, upon any such increase or decrease becoming
effective, be recomputed to reflect such increase or decrease
insofar as it affects such Options or the rights of conversion or
exchange under such Convertible Securities (provided, however, that
no such adjustment of the Series A Conversion Price shall affect
Common Stock previously issued upon conversion of the Series A
Preferred);
(3) upon the expiration of any such Options or any rights
of conversion or exchange under such Convertible Securities which
shall not have been exercised, the Series A Conversion Price
computed upon the original issue thereof (or upon the occurrence of
a record date with respect thereto), and any subsequent adjustments
based thereon, shall, upon such expiration, be recomputed as if:
(A) in the case of Convertible Securities or
Options for Common Stock, the only Additional Shares of Common Stock issued were
the shares of Common Stock, if any, actually issued upon the exercise of such
Options or the conversion or exchange of such Convertible Securities and the
consideration received therefor was the consideration actually received by the
Corporation for the issue of all such Options, whether or not exercised, plus
the consideration actually received by the Corporation upon such exercise, or
for the issue of all such Convertible Securities as the additional
consideration, if any, actually received by the Corporation upon such
conversion or exchange; and
(B) in the case of Options for Convertible
Securities, only the Convertible Securities, if any, actually issued upon the
exercise thereof were issued at the time of issue of such Options, and the
consideration received by the Corporation for the Additional Shares of Common
Stock deemed to have been then issued was the consideration actually received
by the Corporation for the issue of all such Options, whether or not exercised,
plus the consideration deemed to have been received by the Corporation
(determined pursuant to Section 4(d) upon the issue of the Convertible
Securities with respect to which such Options were actually exercised;
(4) no readjustment pursuant to clause (2) or (3) above
shall have the effect of increasing the Series A Conversion Price to an amount
which exceeds the lower of (a) the Series A conversion Price on the original
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<PAGE> 10
adjustment date, or (b) the Series A Conversion Price that would have resulted
from any issuance of Additional Shares of Common Stock between the original
adjustment date and such readjustment date;
(5) in the case of any Options which expire by
their terms not more than 30 days after the date of issue thereof, no
adjustment of the Series A Conversion Price shall be made until the expiration
or exercise of all such Options whereupon such adjustment shall be made in the
same manner provided in clause (3) above.
(iv) Adjustment of Conversion Price Upon Issuance of
Additional Shares of Common Stock. In the event this Corporation, at any time
after the Original Issue Date, shall issue Additional Shares of Common Stock
(including Additional Shares of Common Stock deemed to be issued pursuant to
Section 4 without consideration or for a consideration per share less than the
Series A Conversion Price in effect on the date of and immediately prior to
such issue, then and in such event, the Series A Conversion Price shall be
reduced, concurrently with such issue, to a price (calculated to the nearest
cent) determined by multiplying the Series A Conversion Price by a fraction,
the numerator of which shall be the number of shares of Common Stock
outstanding immediately prior to such issue plus the number of shares of Common
Stock which the aggregate consideration received by the Corporation for the
total number of Additional Shares of Common Stock so issued would purchase at
such Series A Conversion Price in effect immediately prior to such issuance,
and the denominator of which shall be the number of shares of Common Stock
outstanding immediately prior to such issue plus the number of such Additional
Shares of Common Stock so issued. For the purpose of the above calculation,
the number of shares of Common Stock outstanding immediately prior to such
issue shall be calculated on a fully diluted basis, as if all shares of Series
A Preferred and all Convertible Securities had been fully converted into share
of Common Stock immediately prior to such issuance and any outstanding Options
bad been fully exercised immediately prior to such issuance (and the resulting
securities fully converted into shares of Common Stock, if so convertible) as
of such date, but not including in such calculation any additional shares of
Common Stock issuable with respect to shares of Series A Preferred, Convertible
Securities, or outstanding Options, solely as a result of the
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<PAGE> 11
adjustment of the Series A Conversion Price (or other conversion ratio)
resulting from the issuance of the Additional Shares of Common Stock causing
the adjustment in question.
(v) Determination of Consideration. For purpose of this Section
4(d), the consideration received by the Corporation for the issuance of any
Additional Shares of Common Stock shall be computed as follows:
(1) Cash and Property. Such consideration shall:
(A) Insofar as it consists of cash, be computed
at the aggregate amount of cash received by the Corporation excluding amounts
paid or payable for accrued interest or accrued dividends;
(B) insofar as it consists of property other than
cash, be computed at the fair value thereof at the time of such issue, as
determined in good faith by the Board of Directors; and
(C) in the event Additional Shares of Common
Stock are issued together with other stock or securities or other assets of the
Corporation for consideration which covers both, be the proportion of such
consideration so received, computed as provided in clauses (A) and (B) above,
as determined in good faith by the Board of Directors.
(2) Options and Convertible Securities. The
consideration per share received by the Corporation for Additional Shares of
Common Stock deemed to have been issued pursuant to Section 4(d)(iii),
relating to Options and Convertible Securities shall be determined by dividing:
(A) the total amount, if any, received or
receivable by the Corporation as consideration for the issue of such Options
or Convertible Securities, plus the minimum aggregate amount of additional
consideration (as set forth in the instruments relating thereto, without
regard to any provision contained therein designed to protect against
dilution) payable to the Corporation upon the exercise of such Options or
the conversion or exchange of such Convertible Securities, or in the case of
Options for
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<PAGE> 12
exchange of such Convertible Securities, or in the case of Options for
Convertible Securities, the exercise of such Options for Convertible Securities
and the conversion or exchange of such Convertible Securities by
(B) the maximum number of shares of
Common Stock (as set forth in the instruments relating thereto, without regard
to any provision contained therein designed to protect against the dilution)
issuable upon the exercise of such Options or conversion or exchange of such
Convertible Securities.
e. Adjustment to Series A Conversion Price for Stock Dividends
and for Combinations or Subdivisions of Common Stock. In the event that this
Corporation at any time or from time to time after the Original Issue Date
shall declare or pay, without consideration, any dividend on the Common Stock
payable in Common Stock or in any right to acquire Common Stock for no
consideration, or shall effect a subdivision of the outstanding shares of
Common Stock into a greater number of shares of Common Stock (by stock split,
reclassification or otherwise than by payment of a dividend in Common Stock or
in any right to acquire Common Stock), or in the event the outstanding shares
of Common Stock shall be combined or consolidated, by reclassification or
otherwise, into a lesser number of shares of Common Stock, then the series A
Conversion Price in effect immediately prior to such event shall, concurrently
with the effectiveness of such event, be proportionately decreased or
increased, as appropriate. In the event that this Corporation shall declare or
pay, without consideration, any dividend on the Common Stock payable in any
right to acquire Common Stock for no consideration, then the Corporation shall
be deemed to have made a dividend payable in Common Stock in an amount of
shares equal to the maximum number of shares issuable upon exercise of such
rights to acquire Common Stock.
f. Adjustments for Reclassification and Reorganization. If the
Common Stock issuable upon conversion of Series A Preferred Stock shall be
changed into the same or a different number of shares of any other class or
classes of shares, whether by capital reorganization, reclassification or
otherwise (other than a subdivision or combination of shares provided for in
Section 4(e) above or a merger or other reorganization referred to in Section 3
(c) above), the Series A Conversion Price then in effect shall, concurrently
with the
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<PAGE> 13
effectiveness of such reorganization or reclassification, be proportionately
adjusted so that the Series A Preferred shall be convertible into, in lieu of
the number of shares of Common Stock which the holders would otherwise have
been entitled to receive, a number of shares of such other class or classes of
stock equivalent to the number of shares of Common Stock that would have been
subject to receipt by the holders upon conversion of the Series A Preferred
Stock immediately before that change.
g. Other Distributions. In the event the Corporation shall at
any time or from time to time make or issue, or fix a record date for the
determination of holders of Common Stock entitled to receive, a dividend or
other distribution payable in securities (including evidences of indebtedness)
of the Corporation other than Common Stock, then in each such event provision
shall be made so that the holders of Series A Preferred Stock shall receive,
upon the conversion thereof, the securities of the Corporation which they would
have received had their Series A Preferred Stock been converted into Common
Stock on the date of such event.
h. No Impairment. The Corporation will not, be amendment of its
Certificate of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any
of the terms to be observed or performed hereunder by the Corporation, but will
at all times in good faith assist in the carrying out of all the provisions of
this Section 4 and in the taking of all such action as may be necessary or
appropriate to protect the holders of the Series A Preferred Stock against
impairment of the rights afforded them by this Section A.
i. Certificates as to Adjustments. Upon the occurrence of each
adjustment or readjustment pursuant to Section 4 (d) of the Series A Conversion
Rate or in the other securities or property (including cash) deliverable upon
the conversion of the shares of Series A Preferred Stock, the Corporation, at
its expense, shall promptly compute such adjustment or readjustment in
accordance with the terms thereof, and cause independent certified public
accountants selected by the Corporation to verify such computation and prepare
and furnish
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<PAGE> 14
to each holder of Series A Preferred Stock a certificate setting forth such
adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based.
j. Notices of Record Date. In the event of any taking by the
Corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, any security or
right convertible into or entitling the holder thereof to receive shares of
Common Stock, or any right to subscribe for, purchase or otherwise acquire any
shares of stock of any class or any other securities or property, the
Corporation shall cause to be mailed by first class mail to each holder of
Series A Preferred Stock, at least twenty (20) days prior to the applicable
record date, a notice specifying the date on which any such record was to be
taken for the purpose of such dividend, distribution, security or right, and
the amount and character of such dividend, distribution, security or right.
k. Issue Taxes. The Corporation shall pay any and all issue and
other taxes that may be payable in respect of any issue of delivery of shares
of Common Stock on conversion of shares of Series A Preferred Stock pursuant
hereto.
l. Reservation of Stock Issuable Upon Conversion.
The Corporation shall take such corporate action as may be necessary, in the
opinion of its counsel, to increase its authorized but unissued shares of
Common Stock to such number of shares as shall be sufficient to effect the
conversion of all the outstanding shares of Series A Preferred Stock into
shares of Common Stock at such time as the Corporation elects to effect such
conversion, including, without limitation, using its best efforts to obtain the
requisite stockholder approval of any necessary amendment to its Certificate of
Incorporation.
m. Fractional Shares. No fractional share shall be issued upon
the conversion of any share of Series A Preferred Stock. All shares of Common
Stock (including fractions thereof) issuable upon conversion of more than on
share of Series A Preferred Stock by a holder thereof shall be aggregated for
purposes of determining whether the conversion would result in the issuance of
any fractional share. If, after the aforementioned aggregation, the conversion
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<PAGE> 15
should result in the issuance of a fraction of a share of Common Stock, the
Corporation shall, in lieu of issuing any fractional share, pay the holder
otherwise entitled to such fraction a sum in cash equal to such fraction
multiplied by the Series A Conversion Price then in effect.
n. Notices. Any notice required by the provisions of this
Section A to be given to the holders of shares of Series A Preferred Stock
shall be deemed given if deposited in the United States mail, postage prepaid
and addressed to each holder of record at such holder's address appearing on
the books of the Corporation.
Section 5. Amendment. Any term relating to the Series A Preferred Stock
may be amended only with the vote or written consent of holders of at least a
majority of all shares of Series A Preferred Stock then outstanding. Any such
amendment shall be binding upon the Corporation and any holder of Series A
Preferred Stock.
Section 6. Voting Rights. Except as otherwise provided herein or as
required by law, the holders of Series A Preferred Stock shall be entitled to
notice of any stockholders' meeting and to vote together with the holders of
Common Stock as single class of capital stock upon the election of directors
and upon any other matter submitted to the stockholders for a vote, on the
following basis:
a. Holders of Common Stock shall have one (1) vote per
share; and
b. Holders of Series A Preferred Stock shall have the
number of votes per share as is equal to the number of full shares of Common
Stock into which each such share of Series A Preferred Stock held by such
holder is convertible at the record date for the determination of the
stockholders entitled to vote on such matters or, if no such record date is
established, at the date such vote is taken or any written consent to
stockholders is solicited.
c. In addition to any other vote or consent required
herein or by law, the vote or written consent of the holders of at least a
majority of the outstanding shares of Series A Preferred Stock shall be
necessary:
(i) for any amendment, alteration, or repeal of any
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<PAGE> 16
provision of the Certificate of Incorporation or Bylaws of the
Corporation (including any filing of a Certificate of Designation);
(ii) for any action that results in any liquidation,
acquisition, merger or sale of the Corporation or all or
substantially all of its assets;
(iii) for any action that results in any change in the
principal business of the Corporation;
(iv) for any action that results in the repurchase of
equity securities of the Corporation (other that the repurchase of
stock from employees of the Corporation at original cost or pursuant
to a Board approved incentive stock option plan).
d. So long as at least 50% of the Series A Preferred
Stock remains outstanding, the holders of Series A Preferred Stock, voting
together as a class, shall be entitled to elect one member to the Board of
Directors.
5. The name and mailing address of each incorporator is as follows:
NAME MAILING ADDRESS
- - ---- ----------------
[S] [C]
M. A. Brzoska 1209 Orange Street, Wilmington, Delaware 19801
6. The Corporation is to have perpetual existence.
7. In furtherance and not in limitation of the powers conferred by
statute, the board of directors is expressly authorized:
To make, alter or repeal the by-laws of the Corporation.
To authorize and cause to be executed mortgages and liens upon the
real and personal property of the Corporation.
To set apart out of any of the funds of the Corporation available for
dividends a reserve or reserves for any proper purpose and to abolish any such
reserve in the manner in which it was created.
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<PAGE> 17
8. Elections of directors need not be by written ballot unless the
by-laws of the Corporation shall so provide.
Meetings of stockholders may be held within or without the State of
Delaware, as the by-laws may provide. The books of the Corporation may be kept
(subject to any provision contained in the statutes) outside the State of
Delaware at such place or places as may be designated from time to time by the
board of directors or in the by-laws of the corporation.
Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this Corporation under
the provisions of Section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers
appointed for this Corporation under the provisions of Section 279 of Title 8
of the Delaware Code order a meeting of the creditors or class of creditors,
and/or of the stockholders or class of stockholders of this Corporation, as the
case may be, to be summoned in such maimer as the said court directs. If a
majority in number representing three-fourths in value of the creditors or
class of creditors, and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this Corporation as consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of this Corporation, as the case may be,
and also on this Corporation.
9. The Corporation shall indemnify its officers, directors, employees and
agents to the extent permitted by the General Corporation Law of Delaware.
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<PAGE> 18
10. A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the Delaware General
Corporation Law, or (iv) for any transaction from which the director derived
any improper personal benefit.
11. Except as provided herein, the Corporation reserves the right to
amend, alter, change or repeal any provision contained in this Certificate of
Incorporation, in the manner now or hereafter prescribed by statute, and all
rights conferred upon stockholders are granted subject to this reservation.
12. The initial director of the corporation will be David Y. Monteith.
WE, THE UNDERSIGNED, being each of the incorporators hereinbefore
named, for the purpose of forming a corporation pursuant to the General
Corporation Law of the State of Delaware, do make this Certificate, hereby
declaring and certifying that this is our act and deed and the facts herein
stated are true, and accordingly have hereunto set our hands this Twenty-ninth
day of December, 1995.
/s/ M.A. BRZOSKA
---------------------------
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PAGE 1
State of Delaware
Office of the Secretary of State
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
DESIGNATION OF "AIR SOUTH AIRLINES, INC.", FILED IN THIS OFFICE ON THE
TWENTY-FOURTH DAY OF MAY, A.D. 1996, AT 2 O'CLOCK P.M.
/s/ EDWARD J. FREEL
-----------------------------------
Edward J. Freel, Secretary of State
AUTHENTICATION:
2564178 8100 7975721
DATE:
960165120 06-06-96
<PAGE> 20
CERTIFICATE OF DESIGNATIONS, PREFERENCES
AND RIGHTS OF SERIES B PREFERRED STOCK
OF
AIR SOUTH AIRLINES, INC.
a corporation organized and existing under the General Corporation Law of the
State of Delaware,
DOES HEREBY CERTIFY
That, pursuant to authority conferred upon the Board of Directors by
the Certificate of Incorporation of said corporation, and pursuant to the
provisions of Section 151 of Title 8 of the Delaware Code of 1953, said Board
of Directors has established a class of preferred stock of this Corporation
designated Series B Preferred Stock ("Series B Preferred") consisting of Six
Hundred Twenty Five Thousand (625,000) shares of such Series B Preferred. Such
Series B Preferred was established with the powers, designations, preferences
and relative participating optional or other rights contained in Exhibit I
attached hereto.
IN WITNESS WHEREOF, said Air South Airlines, Inc. has caused this
Certificate to be signed by Roden A. Brandt, its President and Chief Executive
Officer, this 24th day of May, 1996,
By: /S/ RODEN A. BRANDT
--------------------------
Roden A. Brandt
President and Chief
Executive Officer
<PAGE> 21
EXHIBIT 1
Air South Airlines, Inc. Series B Preferred Stock
Section 1. Class of Preferred Stock. The Air South Airlines Series B Preferred
Stock shall have such voting powers, and such other powers, designations,
preferences and other special rights set out below.
Section 2. Dividends. The holders of outstanding shares of Series B Preferred
Stock shall be entitled to receive dividends at the rate of $0.32 per share (as
adjusted for any stock dividends, combinations or splits with respect to such
shares) per annum, when, if and as declared by the Board of Directors, out of
funds legally available therefor. The right to such dividends on the Series B
Preferred Stock shall not be cumulative. No cash dividend shall be paid on the
Common Stock in any year unless an equal dividend is paid with respect to all
outstanding shares of Series B Preferred Stock in an amount for each such share
to a holder of the number of shares of Common Stock into which such share of
Series B Preferred Stock could then be converted.
Section 3. Liquidation Rights.
a. In the event of any liquidation, dissolution or winding up of
the Corporation, either voluntary or involuntary, the holders of the Series B
Preferred Stock shall be entitled to receive, prior and in preference to any
distribution of any of the assets or surplus funds of the Corporation to the
holders of the Common Stock, the amount of four dollars ($4.00) per share (the
"Original Issue Price")(as adjusted for any stock dividends, combinations or
splits with respect to such shares) plus all accrued or declared but unpaid
dividends on each share of Series B Preferred Stock held by such holders (the
"Preferential Amount"). If upon the occurrence of any liquidation, dissolution
or winding up of the Corporation, either voluntary or involuntary, the assets
and funds to be distributed among the holders of Series B Preferred Stock shall
be insufficient to permit the payment to such holders of the full Preferential
Amount, the entire assets and funds of the Corporation legally available for
distribution shall be distributed ratably among the holders of the Series B
Preferred Stock in proportion to the Preferential Amount each such holder is
otherwise entitled to receive.
b. After payment to the holders of the Series B Preferred Stock
of the Preferential Amount, the entire remaining assets and funds of the
Corporation legally available for distribution, if any, shall be distributed
ratably among the holders of Series B Preferred Stock and the Common Stock in
proportion to the shares of Series B Preferred Stock and Common Stock then held
by such holders.
c. For purposes of this Section 3, (i) a merger or consolidation
of the Corporation into or with another corporation (other than with a wholly
owned subsidiary of this Corporation), or any other corporate reorganization in
which the stockholders of the Corporation will not own a majority of the
outstanding shares of the surviving entity of such merger, consolidation or
1.
<PAGE> 22
reorganization, or (ii) a sale, transfer or other disposition of all or
substantially all of the assets of the Corporation, shall be deemed to be a
liquidation, dissolution or winding up of the Corporation.
Section 4. Conversion.
a. Right to Convert. Each share of Series B Preferred Stock
shall initially be convertible, at the option of the holder, at any time after
the date of issuance of such share, at the office of the Corporation or any
transfer agent for the Series B Preferred Stock, into eight (8) fully paid and
nonassessable shares of Common Stock (subject to adjustment as set forth
herein). The number of shares of Common Stock into which one share of Series B
Preferred Stock may be converted hereinafter is referred to as the "Series B
Conversion Rate". The price at which shares of Common Stock shall be
deliverable upon conversion of shares of Series B Preferred shall initially be
$.50 per share of Common Stock (the "Series B Conversion Price"). Such initial
Series B Conversion Price shall be subject to adjustment from time to time, as
hereinafter provided.
b. Automatic Conversion. Each share of Series B Preferred Stock
shall automatically be converted into shares of Common Stock at the then
effective Series B Conversion Rate upon the earlier of (i) the closing of a
firmly underwritten public offering of the Corporation's Common Stock on a
Form S-1 Registration Statement at an aggregate public offering price (after
underwriting discounts and commission) of at least $10,000,000 and a per share
price equal to or greater than $4.00 (as appropriately adjusted for stock
splits and the like)(an "Initial Public Offering"); (ii) the vote or written
consent of the holders of at least 50% of the then outstanding shares of Series
B Preferred Stock; or (iii) the date as of which less than 20% of the shares
of Series B Preferred Stock issued on May 24, 1996 remain outstanding (the
"Automatic Conversion Event").
c. Mechanics of Conversion. Before any holder of Series B
Preferred Stock shall be entitled to convert the same into shares of Common
Stock, such holder shall surrender the certificate or certificates for such
shares, duly endorsed, at the office of the Corporation or of any transfer
agent for the Series B Preferred Stock, or notify the Corporation or its
transfer agent that such Series B Preferred Stock certificates have been lost,
stolen or destroyed and execute an agreement satisfactory to the Corporation to
indemnify the Corporation from any loss incurred by it in connection with such
certificates, and shall give written notice to the Corporation at such office
that such holder elects to convert the same and shall state in the notice the
name or names in which such holder wishes the certificate or certificates for
shares of Common Stock to be issued. The Corporation shall then, as soon as is
practicable, issue and deliver at such office to such holder of Series B
Preferred Stock, or to such holder's nominee or nominees, a certificate or
certificates for the number of shares of Common Stock to which such holder
shall be entitled. Such conversion shall be deemed to have been made
immediately prior to the close of business on the date of surrender of the
shares of Series B Preferred Stock to be converted, and the person or persons
entitled to receive the shares of Common Stock issuable upon such conversion
shall be treated for all purposes as the record holder or holders of such
shares of Common stock on such date; provided, however, that in the event of
automatic
2.
<PAGE> 23
conversion pursuant to Section 4(b), such conversion shall be deemed to have
been made upon the occurrence of the Automatic Conversion Event triggering such
conversion without any further action by the holders of shares of Series B
Preferred Stock, although the Corporation shall not be obligated to issue
certificates evidencing the shares of Common Stock issuable upon such automatic
conversion unless the certificates evidencing such shares of Series B Preferred
Stock are delivered to the Corporation or its transfer agent as provided above,
or the holder notifies the Corporation or its transfer agent that such Series B
Preferred Stock certificates have been lost, stolen or destroyed and executes
an agreement satisfactory to the Corporation to indemnify the Corporation from
any loss incurred by it in connection with such certificates. If the conversion
is in connection with an underwritten offering of securities pursuant to the
Securities Act, the conversion may, at the option of any holder tendering
shares of Series B Preferred Stock for conversion, be conditioned upon the
closing with the underwriters of the sale of securities pursuant to such
offering, in which event the person(s) entitled to receive the Common Stock
upon conversion of Series B Preferred Stock shall not be deemed to have
converted such Series B Preferred Stock until immediately prior to the closing
of such sale of securities.
d. Adjustments to the Series B Conversion Price for Certain
Diluting Issues.
(i) Special Definitions. For purposes of this Section
4(d), the following definitions apply:
(1) "Option' shall mean rights, options, or
warrants to subscribe for, purchase or
otherwise acquire either Common Stock or
Convertible Securities (defined below).
(2) "Original Issue Date" shall mean the date on
which a shares of Series B Preferred Stock was first issued.
(3) "Convertible Securities" shall mean any
evidences of indebtedness, shares (other than Common Stock and Series B
Preferred Stock) or other securities convertible into or exchangeable for
Common Stock.
(4) "Additional Shares of Common Stock" shall
mean all shares of Common Stock issued (or, pursuant to Section (4)(iii), deemed
to be issued) by the Corporation after the Original Issue date, other than
shares of Common Stock issued or issuable:
(A) upon conversion of shares of Series B
Preferred Stock;
(B) to officers, directors or employees of, or
consultants to, the Corporation pursuant to stock option or stock purchase
plans or agreements on terms approved by the Board of Directors;
(C) as a dividend or distribution on Series A
Preferred Stock or Series B Preferred Stock;
3.
<PAGE> 24
(D) for which adjustment of the Series A
Preferred Stock or Series B Conversion Price is made pursuant to Section 4(e);
(E) upon the closing of an Initial Public Offering;
or
(F) in connection with an acquisition of
another company on terms approved by the Board of Directors.
(ii) No Adjustment of the Series B Conversion Price. Any
provisions herein to the contrary notwithstanding, no adjustment in the Series
B Conversion Price shall be made in respect of the issuance of Additional
Shares of Common Stock unless the consideration per share (determined pursuant
to Section 4(d)(v) hereof) for an Additional Share, of Common Stock issued or
deemed to be issued by the Corporation is less than the Series B Conversion
Price in effect on the date of, and immediately prior to, such issue.
(ii) Deemed Issue of Additional Shares of Common Stock.
In the event the Corporation at any time or from time to time after the
Original Issue Date shall issue any Options or Convertible Securities or shall
fix a record date for the determination of holders of any class of securities
then entitled to receive any such Options or Convertible Securities, then the
maximum number of shares (as set forth in the instrument relating thereto
without regard to any provisions contained therein designed to protect against
dilution) of Common Stock issuable upon the exercise of such Options or, in the
case of Convertible Securities and Options therefor, the conversion or exchange
of such Convertible Securities, shall be deemed to be additional Shares of
Common Stock issued as of the time of such issue or, in case such a record date
shall have been fixed, as of the close of business on such record date,
provided that in any such case in which Additional Shares of Common stock are
deemed to be issued:
(1) no further adjustments in the Series B
Conversion Price shall be made upon the subsequent issue of Convertible
Securities or shares of Common Stock upon the exercise of such Options or
conversion or exchange of such Convertible Securities;
(2) if such Options or Convertible Securities by
their terms provide, with the passage of time or otherwise, for any increase or
decrease in the consideration payable to the Corporation, or decrease or
increase in the number of shares of Common Stock issuable, upon the exercise,
conversion or exchange thereof, the Series B Conversion Price computed upon the
original issue thereof (or upon the occurrence of a record date with respect
thereto), and any subsequent adjustments based thereon, shall, upon any such
increase or decrease becoming effective, be recomputed to reflect such increase
or decrease insofar as it affects such Options or the rights of conversion or
exchange under such Convertible Securities (provided, however, that no such
adjustment of the Series B Conversion Price shall affect Common Stock
previously issued upon conversion of the Series B Preferred);
4.
<PAGE> 25
(3) upon the expiration of any such Options or any rights
of conversion or exchange under such Conversion Securities which shall not have
been exercised, the Series B Conversion Price computed upon the original issue
thereof (or upon the occurrence of a record date with respect thereto), and any
subsequent adjustments based thereon, shall, upon such expiration, be
recomputed as if:
(A) in the case of Convertible Securities or
Options for Common Stock, the only Additional Shares of Common Stock issued
were the shares of Common Stock, if any, actually issued upon the exercise of
such Options or the conversion or exchange of such Convertible Securities and
the consideration received therefor was the consideration actually received by
the Corporation for the issue of all such Options, whether or not exercised,
plus the consideration actually received by the Corporation upon such exercise,
or for the issue of all such Convertible Securities as the additional
consideration, if any, actually received by the Corporation upon such
conversion or exchange; and
(B) in the case of Options for Convertible
Securities, only the Convertible Securities, if any, actually issued upon the
exercise thereof were issued at the time of issue of such Options, and the
consideration received by the Corporation for the Additional Shares of Common
Stock deemed to have been then issued was the consideration actually received
by the Corporation for the issue of all such Options, whether or not exercised,
plus the consideration deemed to have been received by the Corporation
(determined pursuant to Section 4(d) upon the issue of the Convertible
Securities with respect to which such Options were actually exercised;
(4) no readjustment pursuant to clause (2) or (3)
above shall have the effect of increasing the Series B Conversion Price to an
amount which exceeds the lower of (a) the Series B conversion Price on the
original adjustment date, or (b) the Series B Conversion Price that would have
resulted from any issuance of Additional Shares of Common Stock between the
original adjustment date and such readjustment date;
(5) in the case of any Options which expire by
their terms not more than 30 days after the date of issue thereof, no
adjustment of the Series B Conversion Price shall be made until the expiration
or exercise of all such Options whereupon such adjustment shall be made in the
same manner provided in clause (3) above.
iv) Adjustment of Conversion Price Upon Issuance of
Additional Shares of Common Stock. In the event this Corporation, at any time
after the Original Issue Date, shall issue Additional Shares of Common Stock
(including Additional Shares of Common Stock deemed to be issued pursuant to
Section 4 without consideration or for a consideration per share less than the
Series B Conversion Price in effect on the date of and immediately prior to
such issue, then and in such event, the Series B Conversion Price shall be
reduced, concurrently with such issue, to a price (calculated to the nearest
cent) determined by multiplying the Series B Conversion price by a fraction,
the numerator of which shall be the number of shares of Common Stock outstanding
immediately prior to such issue plus the number of shares of Common Stock which
the aggregate, consideration received by the Corporation for the total
5.
<PAGE> 26
number of Additional Shares of Common Stock so issued would purchase at such
Series B Conversion Price in effect immediately prior to such issuance, and the
denominator of which shall be the number of shares of Common Stock outstanding
immediately prior to such issue plus the number of such Additional Shares of
Common Stock so issued. For the purpose of the above calculation, the number
of shares of Common Stock outstanding immediately prior to such issue shall be
calculated on a fully diluted basis, as if all shares of Series B Preferred and
all Convertible Securities had been fully converted into share of Common Stock
immediately prior to such issuance and any outstanding Options had been fully
exercised immediately prior to such issuance (and the resulting securities
fully converted into shares of Common Stock, if so convertible) as of such
date, but not including in such calculation any additional shares of Common
Stock issuable with respect to shares of Series B Preferred, Convertible
Securities, or outstanding Options, solely as a result of the adjustment of the
Series B Conversion Price (or other conversion ratio) resulting from the
issuance of the Additional Shares of Common Stock causing the adjustment in
question.
(v) Determination of Consideration. For purpose of this
Section 4(d), the consideration received by the Corporation for the issuance of
any Additional Shares of Common Stock shall be computed as follows:
(1) Cash and Property. Such consideration shall;
(A) Insofar as it consists of cash, be
computed at the aggregate amount of cash received by the Corporation excluding
amounts paid or payable for accrued interest or accrued dividends;
(B) insofar as if consists of property
other than cash, be computed at the fair value thereof at the time of such
issue, as determined in good faith by the Board of Directors; and
(C) in the event Additional Shares of
Common Stock are issued together with other stock or securities or other assets
of the Corporation for consideration which convert both, be the proportion of
such consideration so received, computed as provided in clauses (A) and (B)
above, as determined in good faith by the Board of Directors.
(2) Options and Convertible Securities. The
consideration per share received by the Corporation for Additional Shares of
Common Stock deemed to have been issued pursuant to Section 4(d)(iii), relating
to Options and Convertible Securities shall be determined by dividing:
(A) the total amount, if any, received
or receivable by the Corporation as consideration for the issue of such Options
or Convertible Securities, plus the minimum aggregate amount of additional
consideration (as set forth in the instruments relating thereto, without regard
to any provision contained therein designed to protect against dilution)
payable to the Corporation upon the exercise of such Options or the conversion
or exchange of such Convertible Securities, or in the case of Options for
exchange of such Convertible
6.
<PAGE> 27
Securities, or in the case of Options for Convertible Securities, the exercise
of such Options for Convertible Securities and the conversion or exchange of
such Convertible Securities by
(B) the maximum number of shares of Common
Stock (as set forth in the instruments relating hereto, without regard to any
provision contained therein designed to protect against the dilution) issuable
upon the exercise of such Options or conversion or exchange of such Convertible
Securities.
e. Adjustment to Series B Conversion Price for Stock Dividends
and for Combinations or Subdivisions of Common Stock. In the event that this
Corporation at any time or from time to time after the Original Issue Date
shall declare or pay, without consideration, any dividend on the Common Stock
payable in Common Stock or in any right to acquire Common Stock for no
consideration, or shall effect a subdivision of the outstanding shares of
Common Stock into a greater number of shares of Common Stock (by stock split,
reclassification or otherwise than by payment of a dividend in Common Stock or
in any right to acquire Common Stock), or in the event the outstanding shares
of Common Stock shall be combined or consolidated, by reclassification or
otherwise, into a lesser number of shares of Common Stock, then the Series B
Conversion Price in effect immediately prior to such event shall, concurrently
with the effectiveness of such event, be proportionately decreased or
increased, as appropriate. In the event that this Corporation shall declare or
pay, without consideration, any dividend on the Common Stock payable in any
right to acquire Common Stock for no consideration, then the Corporation shall
be deemed to have made a dividend payable in Common Stock in an amount of
shares equal to the maximum number of shares issuable upon exercise of such
rights to acquire Common Stock.
f. Adjustments for Reclassification and Reorganization. If the
Common Stock issuable upon conversion of Series B Preferred Stock shall be
changed into the same or a different number of shares of any other class or
classes of shares, whether by capital reorganization, reclassification or
otherwise (other than a subdivision or combination of shares provided for in
Section 4(e) above or a merger or other reorganization referred to in Section 3
(c) above), the Series B Conversion Price then in effect shall, concurrently
with the effectiveness of such reorganization or reclassification, be
proportionately adjusted so that the Series B Preferred shall be convertible
into, in lieu of the number of shares of Common Stock which the holders would
otherwise have been entitled to receive, a number of shares of such other class
or classes of stock equivalent to the number of shares of Common Stock that
would have been subject to receipt by the holders upon conversion of the Series
B Preferred Stock immediately before that change.
g. Other Distributions. In the event the Corporation shall at
any time or from time to time make or issue, or fix a record date for the
determination of holders of Common Stock entitled to receive, a dividend or
other distribution payable in securities (including evidences of indebtedness)
of the Corporation other than Common Stock, then in each such event provision
shall be made so that the holders of Series B Preferred Stock shall receive,
upon the conversion thereof, the securities of the Corporation which they would
have received had their Series B Preferred Stock been converted into Common
Stock on the date of such event.
7.
<PAGE> 28
h. No Impairment. The Corporation will not, be amendment of its
Certificate of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any
of the terms to be observed or performed hereunder by the Corporation, but will
at all times in good faith assist in the carrying out of all the provisions of
this Section 4 and in the taking of all such action as may be necessary or
appropriate to protect the holders of the Series B Preferred Stock against
impairment of the rights afforded them by this Section A.
i. Certificates as to Adjustments. Upon the occurrence of each
adjustment or readjustment pursuant to Section 4(d) of the Series B Conversion
Rate or in the other securities or property (including cash) deliverable upon
the conversion of the shares of Series B Preferred Stock, the Corporation, at
its expense, shall promptly compute to such adjustment or readjustment in
accordance with the terms thereof, and cause independent certified public
accountants selected by the Corporation to verify such computation and prepare
and furnish to each holder of Series B Preferred Stock a certificate setting
forth such adjustment or readjustment and showing in detail the facts upon
which such adjustment or readjustment is based.
j . Notices of Record Date. In the event of any taking by the
Corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, any security or
right convertible into or entitling the bolder thereof to receive shares of
Common Stock, or any right to subscribe for, purchase or otherwise acquire any
shares of stock of any class or any other securities or property, the
Corporation shall cause to be mailed by first class mail to each holder of
Series B Preferred Stock, at least twenty (20) days prior to the applicable
record date, a notice specifying the date on which any such record was to be
taken for the purpose of such dividend, distribution, security or right, and
the amount and character of such dividend, distribution, security or right.
k. Issue Taxes. The Corporation shall pay any and all issue and
other taxes that may be payable in respect of any issue of delivery of shares
of Common Stock on conversion of shares of Series B Preferred Stock pursuant
hereto.
l. Reservation of Stock Issuable Upon Conversion. The
Corporation shall take such corporate action as may be necessary, in the
opinion of its counsel, to increase its authorized but unissued shares of
Common Stock to such number of shares as shall be sufficient to effect the
conversion of all the outstanding shares of Series B Preferred Stock into
shares of Common Stock at such time as the Corporation elects to effect such
conversion, including, without limitation, using its best efforts to obtain
the requisite stockholder approval of any necessary amendment to its
Certificate of Incorporation.
m. Fractional Shares. No fractional share shall be issued upon
the conversion of any share of Series B Preferred Stock. All shares of Common
Stock (including fractions thereof) issuable upon conversion of more than on
share of Series B Preferred Stock by a holder thereof shall be aggregated for
purposes of determining whether the conversion would result in
8.
<PAGE> 29
the issuance of any fractional shall. If, after the aforementioned aggregation,
the conversion should result in the issuance of a fraction of a share of Common
Stock, the Corporations shall, in lieu of issuing any fractional share, pay the
holder otherwise entitled to such fraction a sum in cash equal to such fraction
multiplied by the Series B Conversion Price then in effect.
n. Notices. Any notice required by the provisions of this
Section B to be given to the holders of shares of Series B Preferred Stock
shall be deemed given if deposited in the United States mail, postage prepaid
and addressed to each holder of record at such holder's address appearing on
the books of the Corporation.
Section 5. Amendment. Any term relating to the Series B Preferred Stock
may be amended only with the vote or written consent of holders of at least a
majority of all shares of Series B Preferred Stock then outstanding. Any such
amendment shall be binding upon the Corporation and any holder of Series B
Preferred Stock.
Section 6. Voting Rights. Except as otherwise provided herein or as
required by law, the holders of Series B Preferred Stock shall be entitled to
notice of any stockholders' meeting and to vote together with the holders of
Common Stock as single class of capital stock upon the election of directors
and upon any other matter submitted to the stockholders for a vote, on the
following basis:
a. Holders of Common Stock shall have one (1) vote per
share;
and
b. Holders of Series B Preferred Stock shall have the
number of votes per share as is equal to the number of full shares of Common
Stock into which each such share of Series B Preferred Stock held by such
holder is convertible at the record date for the determination of the
stockholders entitled to vote on such matters or, if no such record date is
established, at the date such vote is taken or any written consent to
stockholders is solicited.
c. In addition to any other vote or consent required
herein or by law, the vote or written consent of the holders of at least a
majority of the outstanding shares of Series B Preferred Stock shall be
necessary:
(i) for any amendment, alteration, or repeal of
any provision of the Certificate of Incorporation or Bylaws of the Corporation
(including any filing of a Certificate of Designation);
(ii) for any action that results in any
liquidation, acquisition, merger or sale of the Corporation or all or
substantially all of its assets;
(iii) for any action that results in any change in
the principal business of the Corporation;
9.
<PAGE> 30
(iv) for any action that results in the repurchase of
equity securities of the Corporation (other that the repurchase of stock from
employees of the Corporation at original cost or pursuant to a Board approved
incentive stock option plan).
d. So long as at least 50% of the Series B Preferred Stock
remains outstanding, the holders of Series B Preferred Stock, voting together
as a class, shall be entitled to elect one member to the Board of Directors.
10.
<PAGE> 31
PAGE 1
State of Delaware
Office of the Secretary of State
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
DESIGNATION OF "AIR SOUTH AIRLINES, INC.", FILED IN THIS OFFICE ON THE
FOURTEENTH DAY OF JUNE, A.D. 1996, AT 8:30 O'CLOCK A.M.
A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW
CASTLE COUNTY RECORDER OF DEEDS FOR RECORDING.
/s/ Edward J. Freel
---------------------------------------
Edward J. Freel, Secretary of State
AUTHENTICATION:
2564178 8100 7986429
DATE:
960173452 06-14-96
<PAGE> 32
CERTIFICATE OF DESIGNATIONS, PREFERENCES
AND RIGHTS OF SERIES C PREFERRED STOCK
OF
AIR SOUTH AIRLINES, INC.
a corporation organized and existing under the General Corporation Law of
the State of Delaware,
DOES HEREBY CERTIFY
That, pursuant to authority conferred upon the Board of Directors by the
Certificate of Incorporation of said corporation, and pursuant to the
provisions of Section 151 of Title 8 of the Delaware Code of 1953, said Board
of Directors has established a class of preferred stock of this Corporation
designated Series C Preferred ("Series Securities C Preferred") consisting of
One Hundred Twenty Thousand (120,000) shares of such Series C Preferred. Such
Series C Preferred was established with the powers, designations, preferences
and relative participating optional or other rights contained in Exhibit I
attached hereto.
IN WITNESS WHEREOF, said Air South Airlines, Inc. has caused this
Certificate to be signed by Roden A. Brandt, its President and Chief Executive
Officer, this 13th day of June, 1996.
By: /s/ Roden A. Brandt
----------------------------
Roden A. Brandt
<PAGE> 33
EXHIBIT I
Air South Airlines, Inc. Series C Preferred Stock
Section 1. Class of Preferred Stock. The Air South Airlines Series C Preferred
Stock shall have such voting powers, and such other powers, designations,
preferences and other special rights set out below.
Section 2. Dividends. The holders of outstanding shares of Series C Preferred
Stock shall be entitled to receive dividends at the rate of $1.00 per share (as
adjusted for any stock dividends, combinations or splits with respect to such
shares) per annum, when, if and as declared by the Board of Directors, out of
funds legally available therefor. The right to such dividends on the Series C
Preferred Stock shall not be cumulative. No cash dividend shall be paid on the
Common Stock in any year unless an equal dividend is paid with respect to all
outstanding shares of Series C Preferred Stock in an amount for each such share
to a holder of the number of shares of Common Stock into which such share of
Series C Preferred Stock could then be converted.
Section 3. Liquidation Rights.
a. In the event of any liquidation, dissolution or winding up of
the Corporation, either voluntary or involuntary, the holders of the Series C
Preferred Stock shall be entitled to receive, prior and in preference to any
distribution of any of the assets or surplus funds of the Corporation to the
holders of the Common Stock, the amount of twelve and 50/100 dollars ($12.50)
per share (the "Original Issue Price")(as adjusted for any stock dividends,
combinations or splits with respect to such shares) plus all accrued or
declared but unpaid dividends on each share of Series C Preferred Stock held by
such holders (the "Preferential Amount"). The right of the holders of Shares of
Series C Preferred Stock to a preference in such a liquidation, dissolution or
winding up shall in all respects be subordinate to any preferential or other
right of the holders of shares of Series A and Series B Preferred Stock. If
upon the occurrence of any liquidation, dissolution or winding up of the
Corporation, either voluntary or involuntary, the assets and funds to be
distributed among the holders of Series C Preferred Stock shall be insufficient
to permit the payment to such holders of the full Preferential Amount, the
entire assets and funds of the Corporation legally available for distribution
shall be distributed ratably among the holders of the Series C Preferred Stock
in proportion to the Preferential Amount each such holder is otherwise entitled
to receive.
b. After payment to the holders of the Series C Preferred Stock
of the Preferential Amount, the entire remaining assets and funds of the
Corporation legally available for distribution, if any, shall be distributed
ratably among the holders of Series C Preferred Stock and the Common Stock in
proportion to the shares of Series C Preferred Stock and Common Stock then held
by such holders.
c. For purposes of this Section 3, (i) a merger or consolidation
of the Corporation into or with another corporation (other than with a wholly
owned subsidiary of this Corporation), or any other corporate reorganization in
which the stockholders of the Corporation will not own a majority of the
outstanding shares of the surviving entity of such merger, consolidation or
reorganization, or (ii) a sale, transfer or other disposition of all or
substantially all of the assets of the Corporation, shall be deemed to be a
liquidation, dissolution or winding up of the Corporation.
1.
<PAGE> 34
Section 4. Conversion.
a. Right to Convert. Each share of Series C Preferred Stock
shall initially be convertible, at the option of the holder, at any time after
the date of issuance of such share, at the office of the Corporation or any
transfer agent for the Series C Preferred Stock, into 20-5 (25) fully paid and
nonassessable shares of Common Stock (subject to adjustment as set forth
herein). The number of shares of Common Stock into which one share of Series C
Preferred Stock may be converted hereinafter is referred to as the "Series C
Conversion Rate". The price at which shares of Common Stock shall be
deliverable upon conversion of shares of Series C Preferred shall initially be
50/100 dollars (S.50) per share of Common Stock (the "Series C Conversion
Price"). Such initial Series C Conversion Price shall be subject to adjustment
from time to time, as hereinafter provided.
b. Automatic Conversion. Each share of Series C Preferred Stock
shall automatically be converted into shares of Common Stock at the then
effective Series C Conversion Rate upon the earlier of (i) the closing of a
firmly underwritten public offering of the Corporation's Common Stock on a Form
S-1 Registration Statement at an aggregate public offering price (after
underwriting discounts and commission) of at least $10,000,000 and a per share
price equal to or greater than $4.00 (as appropriately adjusted for stock
splits and the like)("an Initial Public Offering"), (ii) the vote or written
consent of the holders of at least 50% of the then outstanding shares of Series
C Preferred Stock; or (iii) the date as of which less than 20% of the shares of
Series C Preferred Stock remain outstanding (the "Automatic Conversion Event").
c. Mechanics of Conversion. Before any holder of Series C
Preferred Stock shall be entitled to convert the same into shares of Common
Stock, such holder shall surrender the certificate or certificates for such
shares, duly endorsed, at the office of the Corporation or of any transfer
agent for the Series C Preferred Stock, or notify the Corporation or its
transfer agent that such Series C Preferred Stock certificates have been lost,
stolen or destroyed and execute an agreement satisfactory to the Corporation to
indemnify the Corporation from any loss incurred by it in connection with such
certificates, and shall give written notice to the Corporation at such office
that such holder elects to convert the same and shall state in the notice the
name or names in which such holder wishes the certificate or certificates for
shares of Common Stock to be issued. The Corporation shall then, as soon as is
practicable, issue and deliver at such office to such holder of Series C
Preferred Stock, or to such holder's nominee or nominees, a certificate or
certificates for the number of shares of Common Stock to which such holder
shall be entitled. Such conversion shall be deemed to have been made
immediately prior to the close of business on the date of surrender of the
shares of Series C Preferred Stock to be converted, and the person or persons
entitled to receive the shares of Common Stock issuable upon such conversion
shall be treated for all purposes as the record holder or holders of such
shares of Common stock on such date; provided, however, that in the event of
automatic conversion pursuant to Section 4(b), such conversion shall be deemed
to have been made upon the occurrence of the Automatic Conversion Event
triggering such conversion without any further action by the holders of shares
of Series C Preferred Stock, although the Corporation shall not be obligated to
issue certificates evidencing the shares of Common Stock issuable upon such
automatic conversion unless the certificates evidencing such shares of Series C
Preferred Stock are delivered to the Corporation or its transfer agent as
provided above, or the holder notifies the Corporation or its transfer agent
that such Series C Preferred Stock certificates have been lost, stolen or
destroyed and executes an agreement satisfactory to the Corporation to
indemnify the Corporation from any loss incurred by it in connection with such
certificates. If the conversion is in connection with an underwritten offering
of securities pursuant to the Securities Act, the conversion may, at the option
of any holder tendering shares of Series C Preferred Stock for conversion, be
conditioned upon the closing with the underwriters of the sale of securities
pursuant to such offering, in which event the person(s) entitled to receive the
Common Stock upon conversion of Series C Preferred Stock shall not be deemed to
have converted such Series C Preferred Stock until immediately prior to the
closing of such sale of securities
2.
<PAGE> 35
d. Adjustments to the Series C Conversion Price for Certain
Diluting Issues.
(i) Special Definitions. For purposes of this Section
4(d), the following definitions apply.
(1) "Option" shall mean rights, options, or
warrants to subscribe for, purchase or otherwise acquire either Common Stock or
Convertible Securities (defined below).
(2) "Original Issue Date" shall mean the date on
which a share of Series C Preferred Stock was first issued.
(3) "Convertible Securities" shall mean any
evidences of indebtedness, shares (other than Common Stock and Series C
Preferred Stock) or other securities convertible into or exchangeable for
Common Stock.
(4) "Additional Shares of Common Stock" shall
mean all shares of Common Stock issued (or, pursuant to Section (4)(iii),
deemed to be issued) by the Corporation after the Original Issue date, other
than shares of Common Stock issued or issuable:
(A) upon conversion of shares of Series
C Preferred Stock;
(B) to officers, directors or employees
of, or consultants to, the Corporation pursuant to stock option or stock
purchase plans or agreements on terms approved by the Board of Directors;
(C) as a dividend or distribution on
Series A Preferred Stock, Series B Preferred Stock or Series C Preferred Stock;
(D) for which adjustment of the Series A
Preferred Stock or Series B Conversion Price is made pursuant to Section 4(e);
(E) upon the closing of an Initial
Public Offering;
or
(F) in connection with an acquisition of
another company on terms approved by the Board of Directors.
(ii) No Adjustment of the Series C Conversion Price. Any
provisions herein to the contrary notwithstanding, no adjustment in the Series
C Conversion Price shall be made in respect of the issuance of Additional
Shares of Common Stock unless the consideration per share (determined pursuant
to Section 4(d)(v) hereof) for an Additional Share of Common Stock issued or
deemed to be issued by the Corporation is less than the Series C Conversion
Price in effect on the date of, and immediately prior to, such issue.
(iii) Deemed Issue of Additional Shares for Common Stock.
In the event the Corporation at any time or from time to time after the
Original Issue Date shall issue any Options or Convertible
3.
<PAGE> 36
Securities or shall fix a record date for the determination of holders of any
class of securities then entitled to receive any such Options or Convertible
Securities, then the maximum number of shares (as set forth in the instrument
relating thereto without regard to any provisions contained therein designed to
protect against dilution) of Common Stock issuable upon the exercise of such
Options or, in the case of Convertible Securities and Options therefor, the
conversion or exchange of such Convertible Securities, shall be deemed to be
Additional Shares of Common Stock issued as of the time of such issue or, in
case such a record date shall have been fixed, as of the close of business on
such record date, provided that in any such case in which Additional Shares of
Common stock are deemed to be issued:
(1) no further adjustments in the Series C Conversion
Price shall be made upon the subsequent issue of Convertible Securities or
shares of Common Stock upon the exercise of such Options or conversion or
exchange of such Convertible Securities;
(2) if such Options or Convertible Securities by their
terms provide, with the passage of time or otherwise, for any increase or
decrease in the consideration payable to the Corporation, or decrease or
increase in the number of shares of Common Stock issuable, upon the exercise,
conversion or exchange thereof, the Series C Conversion Price computed upon the
original issue thereof (or upon the occurrence of a record date with respect
thereto), and any subsequent adjustments based thereon, shall, upon any such
increase or decrease becoming effective, be recomputed to reflect such increase
or decrease insofar as it affects such Options or the rights of conversion or
exchange under such Convertible Securities (provided, however, that no such
adjustment of the Series C Conversion Price shall affect Common Stock
previously issued upon conversion of the Series C Preferred);
(3) upon the expiration of any such Options or any rights
of conversion or exchange under such Convertible Securities which shall not
have been exercised, the Series C Conversion Price computed upon the original
issue thereof (or upon the occurrence of a record date with respect thereto),
and any subsequent adjustments based thereon, shall, upon such expiration, be
recomputed as if:
(A) in the case of Convertible Securities or
Options for Common Stock, the only Additional Shares of Common Stork issued
were the shares of Common Stock, if any, actually issued upon the exercise of
such Options or the conversion or exchange of such Convertible Securities and
the consideration received therefor was the consideration actually received by
the Corporation for the issue of all such Options, whether or not exercised,
plus the consideration actually received by the Corporation upon such exercise,
or for the issue of all such Convertible Securities as the additional
consideration, if any, actually received by the Corporation upon such
conversion or exchange; and
(B) in the case of Options for Convertible
Securities, only the Convertible Securities, if any, actually issued upon the
exercise thereof were issued at the time of issue of such Options, and the
consideration received by the Corporation for the Additional Shares of Common
Stock deemed to have been then issued was the consideration actually received
by the Corporation for the issue of all such Options, whether or not exercised,
plus the consideration deemed to have been received by the Corporation
(determined pursuant to Section 4(d) upon the issue of the Convertible
Securities with respect to which such Options were actually exercised;
(4) no readjustment pursuant to clause (2) or (3) above
shall have the effect of increasing the Series C Conversion Price to an amount
which exceeds the lower of (a) the Series C conversion Price on the original
adjustment date, or (b) the Series C Conversion Price that would have
4.
<PAGE> 37
resulted from any issuance of Additional Shares of Common Stock between the
original adjustment date and such readjustment date;
(5) in the case of any Options which expire by their
terms not more than 30 days after the date of issue thereof, no adjustment of
the Series C Conversion Price shall be made until the expiration or exercise of
all such Options whereupon such adjustment shall be made in the same manner
provided in clause (3) above.
(iv) Adjustment of Conversion Price Upon Issuance of Additional
Shares of Common Stock. In the event this Corporation, at any time after the
Original Issue Date, shall issue Additional Shares of Common Stock (including
Additional Shares of Common Stock deemed to be issued pursuant to Section 4
without consideration or for a consideration per share less than the Series C
Conversion Price in effect on the date of and immediately prior to such issue,
then and in such event, the Series C Conversion Price shall be reduced,
concurrently with such issue, to a price (calculated to the nearest cent)
determined by multiplying the Series C Conversion price by a fraction, the
numerator of which shall be the number of shares of Common Stock outstanding
immediately prior to such issue plus the number of shares of Common Stock which
the aggregate consideration received by the Corporation for the total number of
Additional Shares of Common Stock so issued would purchase at such Series C
Conversion Price in effect immediately prior to such issuance, and the
denominator of which shall be the number of shares of Common Stock outstanding
immediately prior to such issue plus the number of such Additional Shares of
Common Stock so issued. For the purpose of the above calculation, the number
of shares of Common Stock outstanding immediately prior to such issue shall be
calculated on a fully diluted basis, as if all shares of Series C Preferred and
all Convertible Securities had been fully converted into share of Common Stock
immediately prior to such issuance and any outstanding Options had been fully
exercised immediately prior to such issuance (and the resulting securities
fully converted into shares of Common Stock, if so convertible) as of such
date, but not including in such calculation any additional shares of Common
Stock issuable with respect to shares of Series C Preferred, Convertible
Securities, or outstanding Options, solely as a result of the adjustment of the
Series C Conversion Price (or other conversion ratio) resulting from the
issuance of the Additional Shares of Common Stock causing the adjustment in
question.
(v) Determination of Consideration. For purpose of this
Section 4(d), the consideration received by the Corporation for the issuance of
any Additional Shares of Common Stock shall be computed as follows:
(1) Cash and Property. Such consideration shall:
(A) Insofar as it consists of cash, be
computed at the aggregate amount of cash received by the Corporation excluding
amounts paid or payable for accrued interest or accrued dividends;
(B) insofar as if consists of property
other than cash, be computed at the fair value thereof at the time of such
issue, as determined in good faith by the Board of Directors; and
(C) in the event Additional Shares of
Common Stock are issued together with other stock or securities or other assets
of the Corporation for consideration which convert both, be the proportion of
such consideration so received, computed as provided in clauses (A) and (B)
above, as determined in good faith by the Board of Directors.
(2) Options and Convertible Securities. The
consideration per share received by the Corporation for Additional Shares of
Common Stock deemed to have been issued
5.
<PAGE> 38
pursuant to Section 4(d)(iii), relating to Options and Convertible Securities
shall be determined by dividing:
(A) the total amount, if any, received or receivable by
the Corporation as consideration for the issue of such Options or Convertible
Securities, plus the minimum aggregate amount of additional consideration (as
set forth in the instruments relating thereto, without regard to any, provision
contained therein designed to protect against dilution) payable to the
Corporation upon the exercise of such Options or the conversion or exchange of
such Convertible Securities, or in the case of Options for exchange of such
Convertible Securities, or in the case of Options for Convertible Securities,
the exercise of such Options for Convertible Securities and the conversion or
exchange of such Convertible Securities by
(B) the maximum number of shares of Common Stock (as set
forth in the instruments relating hereto, without regard to any provision
contained therein designed to protect against the dilution) issuable upon the
exercise of such Options or conversion or exchange of such Convertible
Securities.
e. Adjustment to Series C Conversion Price for Stock Dividends
and for Combinations or Subdivisions of Common Stock. In the event that this
Corporation at any time or from time to time after the Original Issue Date
shall declare or pay, without consideration, any dividend on the Common Stock
payable in Common Stock or in any right to acquire Common Stock for no
consideration, or shall effect a subdivision of the outstanding shares of
Common Stock into a greater number of shares of Common Stock (by stock split,
reclassification or otherwise than by payment of a dividend in Common Stock or
in any right to acquire Common Stock), or in the event the outstanding shares
of Common Stock shall be combined or consolidated, by reclassification or
otherwise, into a lesser number of shares of Common Stock, then the Series C
Conversion Price in effect immediately prior to such event shall, concurrently
with the effectiveness of such event, be proportionately decreased or
increased, as appropriate. In the event that this Corporation shall declare or
pay, without consideration, any dividend on the Common Stock payable in any
right to acquire Common Stock for no consideration, then the Corporation shall
be deemed to have made a dividend payable in Common Stock in an amount of
shares equal to the maximum number of shares issuable upon exercise of such
rights to acquire Common Stock.
f. Adjustments for Reclassification and Reorganization. If the
Common Stock issuable upon conversion of Series C Preferred Stock shall be
changed into the same or a different number of shares of any other class or
classes of shares, whether by capital reorganization, reclassification or
otherwise (other than a subdivision or combination of shares provided for in
Section 4(e) above or a merger or other reorganization referred to in Section 3
(c) above), the Series C Conversion Price then in effect shall, concurrently
with the effectiveness of such reorganization or reclassification, be
proportionately adjusted so that the Series C Preferred shall be convertible
into, in lieu of the number of shares of Common Stock which the holders would
otherwise have been entitled to receive, a number of shares of such other class
or classes of stock equivalent to the number of shares of Common Stock that
would have been subject to receipt by the holders upon conversion of the Series
C Preferred Stock immediately before that change.
g. Other Distributions. In the event the Corporation shall at
any time or from time to time make or issue, or fix a record date for the
determination of holders of Common Stock entitled to receive, a dividend or
other distribution payable in securities (including evidences of indebtedness)
of the Corporation other than Common Stock, then in each such event provision
shall be made so that the holders of Series C Preferred Stock shall receive,
upon the conversion thereof, the securities of the Corporation which they would
have received had their Series C Preferred Stock been converted into Common
Stock on the date of such event.
6.
<PAGE> 39
h. No Impairment. The Corporation will not, by amendment of its
Certificate of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any
of the terms to be observed or performed hereunder by the Corporation, but will
at all times in good faith assist in the carrying out of all the provisions of
this Section 4 and in the taking of all such action as may be necessary or
appropriate to protect the holders of the Series C Preferred Stock against
impairment of the rights afforded them by this Section A.
i. Certificates as to Adjustments. Upon the occurrence of each
adjustment or readjustment pursuant to Section 4(d) of the Series C Conversion
Rate or in the other securities or property (including cash) deliverable upon
the conversion of the shares of Series C Preferred Stock, the Corporation, at
its expense, shall promptly compute such adjustment or readjustment in
accordance with the terms thereof, and cause independent certified public
accountants selected by the Corporation to verify such computation and prepare
and furnish to each holder of Series C Preferred Stock a certificate setting
forth such adjustment or readjustment and showing in detail the facts upon
which such adjustment or readjustment is based.
j. Notices of Record Date. In the event of any taking by the
Corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, any security or
right convertible into or entitling the holder thereof to receive shares of
Common Stock, or any right to subscribe for, purchase or otherwise acquire any
shares of stock of any class or any other securities or property, the
Corporation shall cause to be mailed by first class mail to each holder of
Series C Preferred Stock, at least twenty (20) days prior to the applicable
record date, a notice specifying the date on which any such record was to be
taken for the purpose of such dividend, distribution, security or right, and
the amount and character of such dividend, distribution, security or right,
k. Issue Taxes. The Corporation shall pay any and all issue and
other taxes that may be payable in respect of any issue of delivery of shares
of Common Stock on conversion of shares of Series C Preferred Stock pursuant
hereto.
1. Reservation of Stock Issuable Upon Conversion. The
Corporation shall take such corporate action as may be necessary, in the
opinion of its counsel, to increase its authorized but unissued shares of
Common Stock to such number of shares as shall be sufficient to effect the
conversion of all the outstanding shares of Series C Preferred Stock into
shares of Common Stock at such time as the Corporation elects to effect such
conversion, including, without limitation, using its best efforts to obtain the
requisite stockholder approval of any necessary amendment to its Certificate of
Incorporation.
m. Fractional Shares. No fractfional share shall be issued upon
the conversion of any share of Series C Preferred Stock. All shares of Common
Stock (including fractions thereof) issuable upon conversion of more than on
share of Series C Preferred Stock by a bolder thereof shall be aggregated for
purposes of determining whether the conversion would result in the issuance of
any fractional share. If, after the aforementioned aggregation, the conversion
should result in the issuance of a fraction of a share of Common Stock, the
Corporations shall, in lieu of issuing any fractional share, pay the holder
otherwise entitled to such fraction a sum in cash equal to such fraction
multiplied by the Series C Conversion Price then in effect.
n. Notices. Any notice required by the provisions of this
Section C to be given to the holders of shares of Series C Preferred Stock
shall be deemed given if deposited in the United States mail, postage
7.
<PAGE> 40
prepaid and addressed to each holder of record at such holder's address
appearing on the books of the Corporation.
Section 5. Amendment. Any term relating to the Series C Preferred Stock may
be amended only with the vote or written consent of holders of at least a
majority of all shares of Series C Preferred Stock then outstanding. Any such
amendment shall be binding upon the Corporation and any holder of Series C
Preferred Stock.
Section 6. Voting Rights. Except as otherwise provided herein or as required
by law, the holders of Series C Preferred Stock shall be entitled to notice of
any stockholders' meeting and to vote together with the holders of Common Stock
as single class of capital stock upon the election of directors and upon any
other matter submitted to the stockholders for a vote, on the following basis:
a. Holders of Common Stock shall have one (1) vote per
share;
and
b. Holders of Series C Preferred Stock shall have the
number of votes per share as is equal to the number of full shares of Common
Stock into which each such share of Series C Preferred Stock held by such
holder is convertible at the record date for the determination of the
stockholders entitled to vote on such matters or, if no such record date is
established, at the date such vote is taken or any written consent to
stockholders is solicited.
c. In addition to any other vote or consent required
herein or by law, the vote or written consent of the holders of at least a
majority of the outstanding shares of Series C Preferred Stock shall be
necessary:
(i) for any amendment, alteration, or repeal of
any provision of the Certificate of Incorporation or Bylaws of the Corporation
(including any filing of a Certificate of Designation);
(ii) for any action that results in any
liquidation, acquisition, merger or sale of the Corporation or all or
substantially all of its assets;
(iii) for any action that results in any change in
the principal business of the Corporation;
(iv) for any action that results in the repurchase
of equity securities of the Corporation (other that the repurchase of stock
from employees of the Corporation at original cost or pursuant to a Board
approved incentive stock option plan).
8.
<PAGE> 1
EXHIBIT 3.2
AIR SOUTH AIRLINES, INC.
* * * * *
B Y - L A W S
* * * * *
ARTICLE I
OFFICES
Section 1. The registered office shall be in the City of Wilmington,
County of New Castle, State of Delaware.
Section 2. The corporation may also have offices at such other places
both within and without the State of Delaware as the board of directors may from
time to time determine or the business of the corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. All meetings of the stockholders for the election of
directors shall be held in such place within or without Delaware as the Board of
Directors may designate, at such place as may be fixed from time to time by the
board of directors, or at such other place either within or without the State of
Delaware as shall be designated from time to time by the board of directors and
stated in the notice of the meeting. Meetings of stockholders for any other
purpose may be held at such time and place, within or without the State of
Delaware, as shall be stated in the notice of the meeting or in a duly executed
waiver of notice thereof.
<PAGE> 2
Section 2. Annual meetings of stockholders, commencing with the year
1996, shall be held on the first Tuesday in April if not a legal holiday, and if
a legal holiday, then on the next secular day following, at 10:00 A.M., or at
such other date and time as shall be designated from time to time by the board
of directors and stated in the notice of the meeting, at which they shall elect
by a plurality vote a board of directors, and transact such other business as
may properly be brought before the meeting.
Section 3. Written notice of the annual meeting stating the place, date
and hour of the meeting shall be given to each stockholder entitled to vote at
such meeting not less than 10 nor more than 60 days before the date of the
meeting.
Section 4. The officer who has charge of the stock ledger of the
corporation shall prepare and make, at least ten days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during
<PAGE> 3
the whole time thereof, and may be inspected by any stockholder who is present.
Section 5. Special meetings of the stockholders, for any purpose or
purposes, unless otherwise prescribed by statute or by the certificate of
incorporation, may be called by the president and shall be called by the
president or secretary at the request in writing of a majority of the board of
directors, or at the request in writing of stockholders owning a majority in
amount of the entire capital stock of the corporation issued and outstanding and
entitled to vote. Such request shall state the purpose or purposes of the
proposed meeting.
Section 6. Written notice of a special meeting stating the place, date
and hour of the meeting and the purpose or purposes for which the meeting is
called, shall be given not less than one day before the date of the meeting, to
each stockholder entitled to vote at such meeting.
Section 7. Business transacted at any special meeting of stockholders
shall be limited to the purposes stated in the notice.
Section 8. The holders of a majority of the stock issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business except as otherwise provided by statute or by the
certificate of incorporation. If, however, such quorum shall not be present or
represented at any meeting of the stockholders, the stockholders entitled to
vote thereat,
<PAGE> 4
present in person or represented by proxy, shall have power to adjourn the
meeting from time to time, without notice other than announcement at the
meeting, until a quorum shall be present or represented. At such adjourned
meeting at which a quorum shall be present or represented any business may be
transacted which might have been transacted at the meeting as originally
notified. If the adjournment is for more than thirty days, or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each stockholder of record entitled to
vote at the meeting.
Section 9. When a quorum is present at any meeting, the vote of the
holders of a majority of the votes cast shall decide any question brought before
such meeting, unless the question is one upon which by express provision of the
statutes or of the certificate of incorporation, a different vote is required in
which case such express provision shall govern and control the decision of such
question.
Section 10. Unless otherwise provided in the certificate of
incorporation each stockholder shall at every meeting of the stockholders be
entitled to one vote in person or by proxy for each share of the capital stock
having voting power held by such stockholder, but no proxy shall be voted on
after three years from its date, unless the proxy provides for a longer period.
At all elections of directors of the corporation each
<PAGE> 5
stockholder having voting power shall be entitled to exercise the right of
cumulative voting as provided in the certificate of incorporation.
Section 11. Unless otherwise provided in the certificate of
incorporation, any action required to be taken at any annual or special meeting
of stockholders of the corporation, or any action which may be taken at any
annual or special meeting of such stockholders, may be taken without a meeting,
without prior notice and without a vote, if a consent in writing, setting forth
the action so taken, shall be signed by the holders of outstanding stock having
not less than the minimum number of votes that would be necessary to authorize
or take such action at a meeting at which all shares entitled to vote thereon
were present and voted. Prompt notice of the taking of the corporate action
without a meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing.
ARTICLE III
DIRECTORS
Section 1. The number of directors which shall constitute the whole
board shall be one unless there is more than one stockholder of record, in which
case there shall be not less than 3 nor more than 15 and the first board
thereafter shall consist of 10 directors. Thereafter, within the limits above
specified, the number of directors shall be determined by resolution of the
board of directors or by the stockholders at
<PAGE> 6
the annual meeting. The directors shall be elected at the annual meeting of the
stockholders, except as provided in Section 2 of this Article, and each director
elected shall hold office until his successor is elected and qualified.
Directors need not be stockholders.
Section 2. Vacancies and newly created directorships resulting from any
increase in the authorized number of directors may be filled by a majority of
the directors then in office, thouqh less than a quorum, or by a sole remaining
director, and the directors so chosen shall hold office until the next annual
election and until their successors are duly elected and shall qualify, unless
sooner displaced. If there are no directors in office, then an election of
directors may be held in the manner provided by statute. If, at the time of
filling any vacancy or any newly created directorship, the directors then in
office shall constitute less than a majority of the whole board (as constituted
immediately prior to any such increase), the Court of Chancery may, upon
application of any stockholder or stockholders holding at least ten percent of
the total number of the shares at the time outstanding having the right to vote
for such directors, summarily order an election to be held to fill any such
vacancies or newly created directorships, or to replace the directors chosen by
the directors then in office.
Section 3. The business of the corporation shall be managed by or under
the direction of its board of directors which may exercise all such powers of
the corporation and do
<PAGE> 7
all such lawful acts and things as are not by statute or by the certificate of
incorporation or by these by-laws directed or required to be exercised or done
by the stockholders.
MEETINGS OF THE BOARD OF DIRECTORS
Section 4. The board of directors of the corporation may hold meetings,
both regular and special, either within or without the State of Delaware.
Section 5. The first meeting of each newly elected board of directors
shall be held (a) immediately after the annual meeting at the same place as such
annual meeting or (b) such time and place as shall be fixed by the chairman of
the board at the annual meeting and no notice of such meeting shall be
necessary, provided a quorum shall be present.
Section 6. Regular meetings of the board of directors may be held
without notice at such time and at such place as shall from time to time be
determined by the board.
Section 7. Special meetings of the board may be called by the chairman
of the board or the President on 24 hour notice to each director, either
personally or by courier, mail, telecopier or telegram; special meetings shall
be called by the chairman of the board or the president in like manner and on
like notice on the written request of two directors unless the board consists
of only one director, in which case special meetings shall be called by the
chairman of the board or the president in like manner and on like notice on the
written request of the sole director.
<PAGE> 8
Section 8. At all meetings of the board a majority of directors shall
constitute a quorum for the transaction of business and the act of a majority of
the directors present at any meeting at which there is a quorum shall be the act
of the board of directors, except as may be otherwise specifically provided by
statute or by the certificate of incorporation. If a quorum shall not be present
at any meeting of the board of directors the directors present thereat may
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until a quorum shall be present.
Section 9. Unless otherwise restricted by the certificate of
incorporation or these by-laws, any action required or permitted to be taken at
any meeting of the board of directors or of any committee thereof may be taken
without a meeting, if all members of the board or committee, as the case may be,
consent thereto in writing, and the writing or writings are filed with the
minutes of proceedings of the board or committee.
Section 10. Unless otherwise restricted by the certificate of
incorporation or these by-laws, members of the board of directors, or any
committee designated by the board of directors, may participate in a meeting of
the board of directors, or any committee, by means of conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other, and such participation in a meeting shall
constitute presence in person at the meeting.
<PAGE> 9
COMMITTEES OF DIRECTORS
Section 11. The board of directors may, by resolution passed by a
majority of the whole board, designate one or more committees, each committee to
consist of one or more of the directors of the corporation. The board may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee.
In the absence or disqualification of a member of a committee, the
member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the board of directors to act at the meeting in the place of
any such absent or disqualified member.
Any such committee, to the extent provided in the resolution of the
board of directors, shall have and may exercise all the powers and authority of
the board of directors in the management of the business and affairs of the
corporation, and may authorize the seal of the corporation to be affixed to
all papers which may require it; but no such committee shall have the power or
authority in reference to amending the certificate of incorporation, (except
that a committee may, to the extent authorized in the resolution or resolutions
providing for the issuance of shares of stock adopted by the board of directors
as provided in Section 151 (a) fix any of the preferences or rights of such
shares relating to dividends, redemption, dissolution, any distribution of
assets
<PAGE> 10
of the corporation or the conversion into, or the exchange of such shares for,
shares of any other class or classes or any other series of the same or any
other class or classes of stock of the corporation) adopting an agreement of
merger or consolidation, recommending to the stockholders the sale, lease or
exchange of all or substantially all of the corporation's property and assets,
recommending to the stockholders a dissolution of the corporation or a
revocation of a dissolution, or amending the by-laws of the corporation; and,
unless the resolution or the certificate of incorporation expressly so provide,
no such committee shall have the power or authority to declare a dividend or to
authorize the issuance of stock or to adopt a certificate of ownership and
merger. Such committee or committees shall have such name or names as may be
determined from time to time by resolution adopted by the board of directors.
Section 12. Each committee shall keep regular minutes of its meetings
and report the same to the board of directors when required.
COMPENSATION OF DIRECTORS
Section 13. Unless otherwise restricted by the certificate of
incorporation or these by-laws, the board of directors shall have the authority
to fix the compensation of directors. The directors may be paid their expenses,
if any, of attendance at each meeting of the board of directors and may be paid
a fixed sum for attendance at each meeting of the board
<PAGE> 11
of directors or a stated salary as director. No such payment shall preclude any
director from serving the corporation in any other capacity and receiving
compensation therefor. Members of special or standing committees may be allowed
like compensation for attending committee meetings.
REMOVAL OF DIRECTORS
Section 14. Unless otherwise restricted by the certificate of
incorporation or by law, any director or the entire board of directors may be
removed, with or without cause, by the holders of a majority of shares entitled
to vote at an election of directors.
ARTICLE IV
NOTICES
Section 1. Whenever, under the provisions of the statutes or of the
certificate of incorporation or of these by-laws, notice is required to be given
to any director or stockholder, it shall not be construed to mean personal
notice, but such notice may be given in writing, by mail, addressed to such
director or stockholder, at his address as it appears on the records of the
corporation with postage thereon prepaid, and such notice shall be deemed to be
given at the time when the same shall be deposited in the United States mail.
Notice to directors may also be given by telegram.
Section 2. Whenever any notice is required to be given under the
provisions of the statutes or of the certi-
<PAGE> 12
ficate of incorporation or of these by-laws, a waiver thereof in writing, signed
by the person or persons entitled to said notice, whether before or after the
time stated therein, shall be deemed equivalent thereto.
ARTICLE V
OFFICERS
Section 1. The officers of the corporation shall be chosen by the board
of directors and shall be a president, a vice-president, a secretary, a
treasurer, chairman of the board, chief executive officer, chief financial
officer, chief operating officer and general counsel. The board of directors may
also choose additional vice-presidents, and one or more assistant secretaries
and assistant treasurers. Any number of offices may be held by the same person,
unless the certificate of incorporation or these by-laws otherwise provide.
Section 2. The board of directors at its first meeting after each
annual meeting of stockholders shall choose the officers to serve until the next
annual meeting.
Section 3. The board of directors may appoint such other officers and
agents as it shall deem necessary who shall hold their offices for such terms
and shall exercise such powers and perform such duties as shall be determined
from time to time by the board.
Section 4. The salaries of all officers of the corporation shall be
fixed by the board of directors.
<PAGE> 13
Section 5. The officers of the corporation shall hold office until
their successors are chosen and qualify. Any officer elected or appointed by the
board of directors may be removed at any time by the affirmative vote of a
majority of the board of directors. Any vacancy occurring in any office of the
corporation shall be filled by the board of directors.
THE CHAIRMAN OF BOARD
Section 6. The chairman of the board shall preside at all meetings of
the board of directors and stockholders and shall be the chief executive officer
of the corporation.
THE PRESIDENT
Section 7. The president shall be the chief operating officer of the
corporation. In the absence of the chairman of the board or his inability or
refusal to act the president shall perform those duties of the chairman of the
board.
THE VICE-PRESIDENTS
Section 8. In the absence of the chairman of the board or the president
or in the event of their inability or refusal to act, the vice-president (or in
the event there be more than one vice-president, the vice-presidents in the
order designated by the directors, or in the absence of any designation, then in
the order of their election) shall perform the duties of the chairman of the
board or the president, and
<PAGE> 14
when so acting, shall have all the powers of and be subject to all the
restrictions upon those officers. The vice-presidents shall perform such other
duties and have such other powers as the board of directors may from time to
time prescribe.
THE SECRETARY AND ASSISTANT SECRETARY
Section 9. The secretary shall attend all meetings of the board of
directors and all meetings of the stockholders and record all the proceedings
of the meetings of the corporation and of the board of directors in a book to
be kept for that purpose and shall perform like duties for the standing
committees when required. He shall give, or cause to be given, notice of all
meetings of the stockholders and special meetings of the board of directors,
and shall perform such other duties as may be prescribed by the board of
directors or president, under whose supervision he shall be. He shall have
custody of the corporate seal of the corporation and he, or an assistant
secretary, shall have authority to affix the same to any instrument requiring
it and when so affixed, it may be attested by his signature or by the signature
of such assistant secretary. The board of directors may give general authority
to any other officer to affix the seal of the corporation and to attest the
affixing by his signature.
Section 10. The assistant secretary, or if there be more than one, the
assistant secretaries in the order determined by the board of directors (or if
there be no such determination, then in the order of their election) shall, in
<PAGE> 15
the absence of the secretary or in the event of his inability or refusal to
act, perform the duties and exercise the powers of the secretary and shall
perform such other duties and have such other powers as the board of directors
may from time to time prescribe.
THE TREASURER AND ASSISTANT TREASURERS
Section 11. The treasurer shall have the custody of the corporate funds
and securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the corporation and shall deposit all moneys
and other valuable effects in the name and to the credit of the corporation in
such depositories as may be designated by the board of directors.
Section 12. He shall disburse the funds of the corporation as may be
ordered by the board of directors, taking proper vouchers for such
disbursements, and shall render to the president and the board of directors, at
its regular meetings, or when the board of directors so requires, an account of
all his transactions as treasurer and of the financial condition of the
corporation.
Section 13. If required by the board of directors, he shall give the
corporation a bond (which shall be renewed every six years) in such sum and with
such surety or sureties as shall be satisfactory to the board of directors for
the faithful performance of the duties of his office and for the restoration to
the corporation, in case of his death,
<PAGE> 16
resignation, retirement or removal from office, of all books, papers, vouchers,
money and other property of whatever kind in his possession or under his control
belonging to the corporation.
Section 14. The assistant treasurer, or if there shall be more than
one, the assistant treasurers in the order determined by the board of directors
(or if there be no such determination, then in the order of their election)
shall, in the absence of the treasurer or in the event of his inability or
refusal to act, perform the duties and exercise the powers of the treasurer and
shall perform such other duties and have such other powers as the board of
directors may from time to time prescribe.
ARTICLE VI
CERTIFICATES FOR SHARES
Section 1. The shares of the corporation shall be represented by a
certificate or shall be uncertificated. Certificates shall be signed by, or in
the name of the corporation by, the chairman or vice-chairman of the board of
directors, or the president or a vice-president, and by the treasurer or an
assistant treasurer, or the secretary or an assistant secretary of the
corporation.
Upon the face or back of each stock certificate issued to represent any
partly paid shares, or upon the books and records of the corporation in the case
of uncertificated partly paid shares, shall be set forth the total amount of the
<PAGE> 17
consideration to be paid therefor and the amount paid thereon shall be stated.
If the corporation shall be authorized to issue more than one class of
stock or more than one series of any class, the powers designations,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualification, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate which the corporation shall
issue to represent such class or series of stock, provided that, except as
otherwise provided in section 202 of the General Corporation Law of Delaware, in
lieu of the foregoing requirements, there may be set forth on the face or back
of the certificate which the corporation shall issue to represent such class or
series of stock, a statement that the corporation will furnish without charge to
each stockholder who so requests the powers, designations, preferences and
relative, participating, optional or other special rights of each class of stock
or series thereof and the qualifications, limitations or restrictions of such
preferences and/or rights.
Within a reasonable time after the issuance or transfer of
uncertificated stock, the corporation shall send to the registered owner thereof
a written notice containing the information required to be set forth or stated
on certificates pursuant to Sections 151, 156, 202(a) or 218(a) or a statement
that the corporation will furnish without charge to each
<PAGE> 18
stockholder who so requests the powers, designations, preferences and relative
participating, optional or other special rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of such preferences
and/or rights.
Section 2. Any of or all the signatures on a certificate may be
facsimile. In case any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent or registrar before such certificate is
issued, it may be issued by the corporation with the same effect as if he were
such officer, transfer agent or registrar at the date of issue.
LOST CERTIFICATES
Section 3. The board of directors may direct a new certificate or
certificates or uncertificated shares to be issued in place of any certificate
or certificates theretofore issued by the corporation alleged to have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the
person claiming the certificate of stock to be lost, stolen or destroyed. When
authorizing such issue of a new certificate or certificates or uncertificated
shares, the board of directors may, in its discretion and as a condition
precedent to the issuance thereof, require the owner of such lost, stolen or
destroyed certificate or certificates, or his legal representative, to advertise
the same in such manner as it
<PAGE> 19
shall require and/or to give the corporation a bond in such sum as it may direct
as indemnity against any claim that may be made against the corporation with
respect to the certificate alleged to have been lost, stolen or destroyed.
TRANSFER OF STOCK
Section 4. Upon surrender to the corporation or the transfer agent of
the corporation of a certificate for shares duly endorsed or accompanied by
proper evidence of succession, assignation or authority to transfer, it shall
be the duty of the corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.
Upon receipt of proper transfer instructions from the registered owner of
uncertificated shares such uncertificated shares shall be cancelled and issuance
of new equivalent uncertificated shares or certificated shares shall be made to
the person entitled thereto and the transaction shall be recorded upon the books
of the corporation.
FIXING RECORD LATE
Section 5. In order that the corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to
<PAGE> 20
exercise any rights in respect of any change, conversion or exchange of stock or
for the purpose of any other lawful action, the board of directors may fix, in
advance, a record date, which shall not be more than sixty nor less than ten
days before the date of such meeting, nor more than sixty days prior to any
other action. A determination of stockholders of record entitled to notice of or
to vote at a meeting of stockholders shall apply to any adjournment of the
meeting: provided, however, that the board of directors may fix a new record
date for the adjourned meeting.
REGISTERED STOCKHOLDERS
Section 6. The corporation shall be entitled to recognize the exclusive
right of a person registered on its books as the owner of shares to receive
dividends, and to vote as such owner, and shall not be bound to recognize any
equitable or other claim to or interest in such share or shares on the part of
any other person, whether or not it shall have express or other notice thereof,
except as otherwise provided by the laws of Delaware.
ARTICLE VII
GENERAL PROVISIONS
DIVIDENDS
Section 1. Dividends upon the capital stock of the corporation, subject
to the provisions of the certificate of incorporation, if any, may be declared
by the board of
<PAGE> 21
directors at any regular or special meeting, pursuant to law. Dividends may be
paid in cash, in property, or in shares of the capital stock, subject to the
provisions of the certificate of incorporation.
Section 2. Before payment of any dividend, there may be set aside out
of any funds of the corporation available for dividends such sum or sums as the
directors from time to time, in their absolute discretion, think proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the corporation, or for such other
purpose as the directors shall think conducive to the interest of the
corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.
ANNUAL STATEMENT
Section 3. The board of directors shall present at each annual
meeting, and at any special meeting of the stockholders when called for by
vote of the stockholders, a full and clear statement of the business and
condition of the corporation.
CHECKS
Section 4. All checks or demands for money and notes of the corporation
shall be signed by such officer or officers or such other person or persons as
the board of directors may from time to time designate.
<PAGE> 22
FISCAL YEAR
Section 5. The fiscal year of the corporation shall be fixed by
resolution of the board of directors.
SEAL
Section 6. The corporate seal shall have inscribed thereon the name of
the corporation, the year of its organization and the words "Corporate Seal,
Delaware". The seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise.
INDEMNIFICATION
Section 7. The corporation shall indemnify its officers, directors,
employees and agents to the extent permitted by the General Corporation Law of
Delaware.
ARTICLE VIII
AMENDMENTS
Section 1. These by-laws may be altered, amended or repealed or new
by-laws may be adopted by the stockholders or by the board of directors, when
such power is conferred upon the board of directors by the certificate of
incorporation at any regular meeting of the stockholders or of the board of
directors or at any special meeting of the stockholders or of the board of
directors if notice of such alteration, amendment, repeal or adoption of new
by-laws be contained in the notice of such special meeting. If the power to
adopt, amend or repeal
<PAGE> 23
by-laws is conferred upon the board of directors by the certificate of
incorporation it shall not divest or limit the power of the stockholders to
adopt, amend or repeal by-laws.
<PAGE> 1
EXHIBIT 4.3
COUNTY OF LEXINGTON
LENDER
AND
AIR SOUTH, INC.
BORROWER
---------------
LOAN AGREEMENT AND THE RELATED GRANT
AGREEMENT WITH THE CITY OF COLUMBIA.
DATED AS OF JULY 15, 1994
---------------
$12,000,000 MAXIMUM PRINCIPAL AMOUNT SECTION 108 LOAN
<PAGE> 2
TABLE OF CONTENTS
INTRODUCTION
ARTICLE I
DEFINITIONS
<TABLE>
<S> <C> <C>
SECTION 1. Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
SECTION 2. Term Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
SECTION 3. Terms of Note . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
SECTION 4. Payments by Borrower and Security for Obligations of Borrower. . . . . . . . . . 5
SECTION 5. Establishment of Funds and Accounts and Reservation of Lending Capacity for
Registered Creditors . . . . . . . . . . . . . . . . . . . . . . . . . 8
SECTION 6. Obligations Absolute . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
SECTION 7. Conditions Precedent to Disbursement of Loan . . . . . . . . . . . . . . . . . . 11
SECTION 8. Representation and Warranties of Borrower . . . . . . . . . . . . . . . . . . . 14
SECTION 9. Regulatory Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
SECTION 10. Maintenance of Corporate Existence; Continuation of Air South Operations
in Midlands Area . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
SECTION 11. Managerial Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
SECTION 12. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
SECTION 13. Damage, Destruction and Condemnation . . . . . . . . . . . . . . . . . . . . . . 22
SECTION 14. Maintenance of Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
SECTION 15. Unencumbered Title and First Priority Lien . . . . . . . . . . . . . . . . . . . 23
SECTION 16. Additional Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
SECTION 17. Record Keeping and Reporting Requirements . . . . . . . . . . . . . . . . . . . 33
SECTION 18. Inspection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
SECTION 19. Reliance upon Advisors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
SECTION 20. Event of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
SECTION 21. Remedies of the County . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
SECTION 22. Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
SECTION 23. Release and Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . 40
SECTION 24. Continuing Obligation; No Assignment by
Borrower . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
SECTION 25. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
SECTION 26. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
EXHIBIT A DEFINITIONS
EXHIBIT B FORM OF NOTE
EXHIBIT C OPINION - COUNSEL FOR BORROWER
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
EXHIBIT D REQUISITION
EXHIBIT E INDEBTEDNESS OF THE BORROWER
EXHIBIT F PERMITTED ENCUMBRANCES
EXHIBIT G LOCATIONS OF BORROWER'S ASSETS
EXHIBIT H INDEBTEDNESS AND LIENS PERMITTED OF BORROWER
EXHIBIT I GUARANTEES BY THE BORROWER
EXHIBIT J CONTROLLING OWNERS OF BORROWER
EXHIBIT K EXECUTIVE COMPENSATION PLAN
</TABLE>
<PAGE> 4
THIS LOAN AGREEMENT dated as of July 15, 1994, (the "Agreement") by
and between the County of Lexington, a body corporate and politic and a
political subdivision of the State of South Carolina, (the "County") and Air
South, Inc., a corporation organized and existing under the laws of the State
of Illinois (the "Borrower").
W I T N E S S E T H:
WHEREAS, the State of South Carolina (the "State") and the Borrower
entered into that certain Memorandum of Understanding dated March 25, 1994 (the
"State Memorandum") and the County, the Borrower, the City of Columbia, South
Carolina (the "City") and Richland County, South Carolina ("Richland County")
entered into that certain Memorandum of Understanding dated March 15, 1994 (the
"Local Memorandum"), pursuant to which memoranda the Borrower agreed, inter
alia, to establish a low fare, high frequency, jet aircraft airline with its
principal operational base (including all pilots and flight attendants) at the
Columbia Metropolitan Airport and its corporate headquarters and primary
reservation center in the City (the "Air South Operations") in exchange for
certain grants to be made by the County, the City and Richland County and a
certain loan to be made by Lexington County, all as described more particularly
therein, and
WHEREAS, in accordance with the provisions of the State Memorandum,
the County has agreed that, upon receipt by the County of funding under the
County's application to the Department of Housing and Urban Development ("HUD")
for a loan guarantee under Section 108 of the Housing and Community Development
Act of 1974, as amended, (the "Federal Act"), as administered by HUD pursuant
to the Federal Act and by the County pursuant to Section 6-1-30, Code of Laws
of South Carolina, 1976, as amended, (the "State Act") (the loan guarantee
program so authorized and administered hereinafter referred to as the "Section
108 Program") and subject to the terms and conditions set forth herein, the
County shall provide financing assistance to the Borrower under the terms and
subject to the conditions of this Agreement, applicable laws, regulations and
all other federal and State requirements now or hereafter in effect, including
without limitation the Federal Act and the regulations promulgated thereunder
(the "Federal Regulations") and that certain Ordinance enacted by the County
Council of the County on July 11, 1994; and
WHEREAS, the State, acting through the South Carolina Jobs-Economic
Development Authority ("JEDA"), the County and the Secretary of Housing and
Urban Development (the "Secretary") intend to enter into that certain CONTRACT
FOR LOAN GUARANTEE ASSISTANCE UNDER SECTION 108 OF THE HOUSING AND COMMUNITY
DEVELOPMENT ACT OF 1974, AS AMENDED, 42 U.S.C. SECTION 5308 (the "HUD
Contract"), pursuant to which the County will obtain funds for the purpose of
providing assistance to the Borrower under the Section 108 Program; and
WHEREAS, under the Section 108 Program, HUD provides a guarantee (the
"HUD Guarantee") with respect to non-recourse notes issued by units of local
government such as the County, enabling them to sell their HUD-Guaranteed Notes
to lending institutions or to the
<PAGE> 5
public through underwritten public offerings, and the units of local government
may then loan or grant the proceeds obtained from the sale of the
HUD-Guaranteed Notes to business enterprises that meet job creation and other
requirements under the Section 108 Program; and
WHEREAS, in certain cases states may participate in the Section 108
Program, in order to: (1) assist the units of local government with their
applications to the Secretary for the HUD Guarantees; (2) help them carry out
certain of their responsibilities with respect to compliance with the Section
108 Program regulations; and (3) disburse, service and collect the payments
from the business enterprises, and under the Section 108 Program as
administered by the State, each loan from a unit of local government to a
business enterprise is to be evidenced by a promissory note or notes from such
business in favor of the unit of local government and secured by such liens or
encumbrances on property of the business enterprise as may be required by the
State, and the proceeds of said note and of any collateral securing same are to
be used to service the HUD-Guaranteed Notes, with such proceeds being paid over
to a fiscal agent (the "Fiscal Agent") acting for the holders of the
HUD-Guaranteed Notes under and pursuant to the terms of a certain Fiscal Agency
Agreement to be entered into by the County and the Fiscal Agent or to reimburse
the County or the State, as the case may be, for such payments; and
WHEREAS, as security for any HUD-Guaranteed Notes issued by the
County, federal law requires that the County and the State pledge to the
Secretary their respective entitlements to certain Community Development Block
Grant ("CDBG") monies (the "CDBG Pledge") to provide funds with which to
reimburse the Secretary if the HUD Guarantee is paid on account of a default by
the County under any HUD-Guaranteed Note; and
WHEREAS, under the terms of the HUD Contract, HUD will agree to
provide a HUD-Guarantee of one or more HUD-Guaranteed Notes issued by the
County (individually, a HUD-Guaranteed Note and, collectively, if more than
one, the "Air South HUD-Guaranteed Note") with the proceeds of which the County
will fund pursuant hereto a $12,000,000.00 maximum principal amount loan to the
Borrower for purposes of paying the costs of certain capital expenditures,
providing working capital and paying certain other costs in connection with the
establishment and operation of the Air South Operations, all as specified more
fully herein (the "Loan"), and in consideration for such HUD Guarantee the
County and the State must give their respective CDBG Pledges in respect to the
Air South HUD-Guaranteed Note (collectively, the "Air South CDBG Pledge"); and
WHEREAS, as a condition to and as consideration for its assistance in
obtaining the HUD Guarantee of the Air South HUD-Guaranteed Note, for the Air
South CDBG Pledge and for making the Loan to the Borrower, the County requires
the Borrower to make certain representations and warranties and to enter into
certain covenants with respect to job creation and other federal requirements
under the Section 108 Program and with respect to the other terms and
conditions upon which the Loan will be made, all as set forth herein,
NOT THEREFORE, in consideration of the premises and other good and
valuable consideration the receipt and sufficiency of which are hereby
acknowledged, the parties aforesaid
2
<PAGE> 6
agree to the following terms and conditions:
Section 1. Defined Terms. Capitalized terms used herein, not
otherwise defined herein, shall have the meanings ascribed to them in EXHIBIT A
hereto.
Section 2. Term Loan. The loan shall be in the maximum principal
amount of TWELVE MILLION DOLLARS ($12,000,000) and, subject to the terms and
conditions hereof, including without limitation the conditions specified in
Section 5 and 7 hereof, the Servicing Agent shall advance funds under the Loan
on behalf of the County, and shall disburse such funds to the Borrower, from
time to time for the purposes specified in this Section 2; provided, however,
that the County's obligation to advance and disburse funds hereunder shall
expire at close of business on the Cutoff Date. The proceeds of the Loan shall
be used by the Borrower (i) to pay interest on the Note during the period
commencing September 1, 1994 and ending February 1, 1996; (ii) in an amount not
to exceed $1,500,000, unless otherwise approved in writing by JEDA in its
capacity as Assignee, to pay the cost of constructing and acquiring certain
land, a building or buildings and other improvements thereon for use as its
Principal Operational Base at the Columbia Metropolitan Airport; (iii) in an
amount not to exceed $1,000,000 unless otherwise approved in writing by JEDA in
its capacity as Assignee, to pay for the cost of acquiring certain ground
equipment; (iv) to pay the cost of certain other capital expenditures of the
Borrower as approved from time to time by JEDA in its capacity as Assignee; (v)
in an amount not to exceed $1,000,000, unless otherwise approved in writing by
JEDA in its capacity as Assignee, to fund the Emergency Cash Reserve Account
established pursuant to Section 5(b) hereof, which account shall be drawn upon
to pay the cost of certain unanticipated costs as set forth in Section 5(b)
hereof; (vi) to fund anticipated Cash Flow Shortfalls, including without
limitation payments not to exceed $2,000,000, unless otherwise approved in
writing by JEDA in its capacity as Assignee, to or for the benefit of
Registered Creditors as provided in Section 5(c) hereof; (vii) to pay certain
expenses under the HUD Documents and the Loan Documents; and (viii) for such
other purposes as may be approved in writing by JEDA in its capacity as
Assignee; provided, however that no Loan proceeds shall be used for the items
permitted to be paid from the grant provided by the City under that certain
Grant Agreement dated as of July 15, 1994 and provided further that, except for
amounts disbursed as provided in Section 5(c) hereof to or for the benefit of
Registered Creditors or out of the Emergency Cash Reserve Account, the
aggregate amounts disbursed from time to time hereunder shall be limited as to
dates and amounts to Scheduled Draws as provided in Section 7(d) hereof, unless
otherwise approved in writing by JEDA in its capacity as Assignee.
The Borrower shall not be entitled to disbursements hereunder of more
than $10,000,000 in the aggregate (amounts reserved for Registered Creditors
pursuant to Section 5(c) hereof being considered to be disbursed hereunder for
such purpose) until the Borrower has provided evidence satisfactory to the
Servicing Agent that it has used its best efforts to obtain total Equity
Contributions aggregating not less $4,000,000 in a manner which allows the
Controlling Owners to maintain at least fifty-one percent (51%) of the voting
stock in the Borrower, which shall be deemed to include stock which is then
issued and outstanding and registered in the names of such Controlling Owners
or which is beneficially owned by such Controlling Owners through stock
3
<PAGE> 7
option agreements or otherwise. The good faith effort of the Borrower shall be
evidenced in such manner as may be approved by the Assignee, which approval
shall not be unreasonably withheld. The Borrower hereby represents that its
current capital structure does not preclude raising such additional Equity
Contributions as described in this paragraph. Any excess of Equity
Contributions over $2,000,000 shall reduce, dollar for dollar, the maximum
principal amount of the Loan to as low as $10,000,000.
Pursuant to the Assignment and Servicing Agreement, the County will
contemporaneously herewith assign its rights with respect to the Loan to JEDA
in its capacity as Assignee in consideration for the Air South CDBG Pledge by
the JEDA acting on behalf of the State. The County also hereby appoints JEDA
as Servicing Agent with respect to the Loan, with responsibility for, inter
alia, making advances under the Loan and disbursements of the proceeds of the
Loan to the Borrower in accordance with the terms hereof and of the Assignment
and Servicing Agreement. The Servicing Agent will disburse amounts to the
Borrower at its offices by check or such other method of payment as may be
acceptable to the Servicing Agent and the Borrower.
Section 3. Terms of Note. The Loan shall be evidenced by a
promissory note substantially in the form attached as EXHIBIT B (the "note),
the terms of which are herein incorporated by reference as if fully set forth
in this Agreement. The Note shall bear interest at the rates described
hereinbelow on the principal amount outstanding thereunder from time to time
from the date of the initial advance thereunder until payment in full.
Advances shall be deemed to have been made under the Note on the dates and in
amounts corresponding to advances under the Air South HUD-Guaranteed Note
regardless of whether disbursed to the Borrower on such date.
Interest shall be payable on the first day of each month commencing
February 1, 1996 through the date of maturity on August 1, 2014 or earlier
prepayment. The Note shall initially bear interest at the rate per annum equal
to four percent (4%) through July 31, 1997. Effective August 1, 1997 and as of
any Public Offering Date after August 1, 1997, the interest rate on the Note
shall be adjusted to the rate or rates per annum sufficient to enable JEDA and
the County to recoup interest and other reasonable costs associated with the
Air South HUD-Guaranteed Note. Principal on the Note shall be payable on the
first day of each month commencing September 1, 1997, in equal installments
sufficient to pay the then outstanding principal balance of the Note over the
remaining term of the Note. There shall be due and owing by the Borrower a
late charge of five percent (5%) of any monthly payment on any such payment
which is fifteen (15) days or more past due. Upon an Event of Default
hereunder followed by a declaration of acceleration of amounts due with respect
to the Note, the interest rate on the Note shall be increased to the Default
Rate. The note shall be subject to the other terms and conditions as provided
in the Note.
The Borrower may prepay the Note in whole or in part at a price equal
to the principal amount thereof to be prepaid together with interest thereon to
the date of prepayment at any time. The Note shall be subject to mandatory
prepayment of one-half of the then outstanding
4
<PAGE> 8
principal balance thereof to the extent that funds are available from the net
proceeds of any public offering of stock by the Borrower within ten (10) days
following receipt of such proceeds. The Note is also subject to mandatory
prepayment on the Cutoff Date from amounts then remaining on deposit in the
Emergency Cash Reserve Account or any remaining other funds escrowed herewith,
including without limitation funds escrowed for the benefit of any Registered
Creditor. To the extent not reflected in the interest rate applicable to the
Note at the time of any prepayment, any such prepayment shall be accompanied by
payment of amounts sufficient to enable the county and JEDA to recoup interest
and other reasonable costs associated with the Air South HUD-Guaranteed Note.
The interest rate payable with respect to the Note shall also be
subject to modification at the end of five years from the Start-up Date to the
extend that JEDA, in its capacity as Assignee, in its sole discretion
determines that the Borrower's net operating income has progressed to a level
which no longer justifies below-market financing or continuation of public
subsidy. The Servicing Agent shall, in its sole discretion, determine the new
interest rate, if any, applicable to the Note, which shall be that rate per
annum determined by the Servicing Agent as appropriate based upon the
creditworthiness of the Borrower at that time, which rate shall not exceed the
then prevailing commercial loan rates for similar credits. JEDA shall instruct
the Servicing Agent to calculate, and notify the Borrower of, such rate
modification within one year following the fifth anniversary of the Start-up
Date, and such modified rate shall be effective for the next monthly
installment which falls due not less than fifteen (15) days following the date
of Servicing Agent sends notice thereof to the Borrower.
All calculations of interest hereunder shall be made by the Servicing
Agent based upon the amount of principal outstanding under the Note from time
to time on a daily basis and on the basis of a 360-day year and actual days
elapsed. The Servicing Agent shall calculate any interest rate adjustment
within fifteen (15) days following the later of the effective date thereof or
receipt by the Servicing Agent of information from the Fiscal Agent upon which
to base such calculation, and the Servicing Agent shall also calculate or
recalculate the schedule of principal installments within fifteen (15) days
following any of the Cutoff Date or any prepayment. Absent patent error, the
Servicing Agent's calculations shall be conclusive for all purposes of the
Note, this Agreement and any other Loan Document, and the Borrower shall,
within ten (10) days following written request by the Servicing Agent executive
and deliver to the County a new note or notes reflecting such modification,
calculation or recalculation.
Section 4. Payments by Borrower and Security for Obligations of
Borrower. (a) the Borrower hereby agrees to pay to the Servicing Agent for
the account of the County:
(i) on each date on which a principal payment is due
under the Note, the amount of principal then due and owing, together with any
interest payable under the Note and any fees and expenses then due and owing to
the County or the Servicing Agent hereunder or under any other Loan Document;
(ii) on each date on which interest is due under the Note,
the amount
5
<PAGE> 9
of interest then due and owing, together with any fees and expenses then due
and owing to the County or the Servicing Agent hereunder or under any other
Loan Document;
(iii) on the date disbursement under the Loan, a sum equal
to such amount as shall be necessary to cover the costs of transferring funds,
including without limitation any charges of the Fiscal Agent in connection with
such disbursement, and such amounts as are then required to be paid by the
County under the HUD Documents, including without limitation the cost of
establishing accounts thereunder and marketing the Air South HUD-Guaranteed
Note on any Public Offering Date;
(iv) on demand, any amount that is paid by or on behalf of
the County under or in connection with this Agreement including without
limitation amounts payable pursuant to Sections 21 and 22 of this Agreement;
(v) on the first Business Day of each month, the
servicing fee due to the Servicing Agent pursuant to the Assignment and
Servicing Agreement;
(vi) on demand, any and all reasonable charges and
expenses incurred by or on behalf of the County or the Servicing Agent in
enforcing any rights under this Agreement following the Occurrence of a
Default; and
(vii) on demand, interest on any and all amounts remaining
unpaid by the Borrower under paragraphs (iii) through (vi) of this Section 4 at
any time from the date such amounts become due and payable (regardless of any
grace period permitted under Section 20 hereof) until payment in full, at a
rate per annum equal to the interest rate then applicable to the Note; and
(b) All payments made by the Borrower under this Agreement shall
be made free and clear of, and without reduction for or on account of, any
present or future taxes, levies, imposts, duties, charges, fees, deductions,
withholdings, restrictions or conditions of any nature whatsoever now or
hereafter imposed, levied, collected, withheld or assessed by any country (or by
any political subdivision or taxing authority thereof or therein). All payments
by the Borrower to the County pursuant to any provision of this Agreement shall
be made in lawful currency of the United States and in immediately available
funds to the Servicing Agent for the benefit of the County at 1201 Main Street,
Suite 1750, Columbia, South Carolina 29201, Attention: Executive Director, or
at such other place as the Servicing Agent may designate by written notice to
the Borrower.
All amounts received upon payment of the Note, whether upon the due
date thereof, prepayment or acceleration, shall be applied by the Servicing
Agent first, to pay any reasonable outstanding fees and expenses of the County,
JEDA or the Servicing Agent; second, to the interest on the Note; and the
balance to the principal of the Note.
(c) Upon any payment by or on behalf of the County pursuant to
subparagraph
6
<PAGE> 10
(b)(iv) of this Section 4, the County shall be subrogated to, and otherwise
acquire and retain the rights of, the persons to and on behalf-of whom such
payment is made, and the Borrower will take such action as the County may
request to assure and confirm to the County such subrogation and such rights,
including the rights, if any, of the Persons to and on behalf of whom such
payment is made in any properties or assets of any person under or in respect
of this Agreement, the Air South HUD-Guaranteed Notes, or any other present or
future agreement or instrument which relates to any of the foregoing, each as
in effect immediately prior to such payment.
(d) As security for its obligations under the Note and
this Agreement, and for any other loans, advances, credits, indebtedness,
obligations and liabilities of any kind of Borrower to the County, now or
hereafter existing, whether absolute or contingent, due or to become due,
direct or indirect, liquidated or unliquidated and however incurred or arising,
the Borrower shall contemporaneously herewith pursuant to the terms and
conditions of the Security Agreement grant to the County a security interest in
all assets of the Borrower, as more particularly described in the Security
Agreement (hereinafter the "Collateral"), including but not limited to the
assets defined in paragraph 2 of said Security Agreement.
(e) The Borrower shall deliver to the Servicing Agent for
the benefit of the County from time to time such additional mortgages, fee or
leasehold; assignments of leases and rents; security agreements; financing
statements; certificates of title and other insurance; and other documents,
instruments and other Security Documents as may be necessary to effect and/or
perfect the pledge of all assets of the Borrower to the County, which
instruments and agreements shall be satisfactory to the Servicing Agent and its
counsel as to form and content and which shall be accompanied by an Opinion of
Counsel for the Borrower from an attorney or firm of attorneys reasonably
acceptable to the Servicing Agent regarding such matters of due authorization,
execution and delivery, validity and enforceability, creation, priority and
perfection of security interests and such other matters as the Servicing Agent
shall reasonably require. Such requirements for delivery of additional
instruments shall include without limitation, delivery prior to entering into
any construction contract with respect to facilities housing the Borrower's
Principal Operational Base, of a mortgage, assignment of construction contract
and, if applicable, an assignment of ground lease respecting such facilities.
The Borrower shall provide the Servicing Agent with copies of all proposed
aircraft leases, ground leases, any purchase contracts or leases of real
property not less than fifteen (15) days prior to execution and delivery
thereof by the Borrower and shall provide the Servicing Agent with a title
search respecting each aircraft prior to purchasing such aircraft or entering
into a lease with respect thereto.
(f) The security interest granted pursuant to the Security
Agreement or any other Loan Document shall constitute a first lien on the
Collateral, subject only to liens and other encumbrances permitted under
Section 16(h) of this Agreement.
7
<PAGE> 11
Section 5. Establishment of Funds and Accounts and Reservation of
Lending Capacity for Registered Creditors.
(a) There is hereby authorized and directed to be established
an account to be designated "Air South, Inc./Lexington County, South Carolina
Project Account" (the "Project Account"), which shall be established in the
joint names of the Borrower and the Servicing Agent, as agent for the County.
Except as set forth in paragraphs (b) and (c) of this Section 5, all
disbursements to the Borrower under the Note, net of the costs associated
therewith as provided in Section 4(a)(iii) hereof, shall be deposited in the
Project Account and held until needed by the Borrower for the purposes for
which drawn. All funds held in the Project Account shall be subject to
withdrawal by the Borrower as long as no Event of Default exists hereunder, in
which case, the Servicing Agent shall have the right to withdraw all funds from
the Project Account for application as provided in Section 4(b) hereof.
(b) There is hereby authorized and directed to be established
an account to be designated "Air South, Inc./Lexington County, South Carolina
Emergency Cash Reserve Account" (the "Emergency Cash Reserve Account"), which
shall be established in the name of the Servicing Agent, as agent for the
County. An amount equal to $1,000,000 from the initial advance under the Note
shall be deposited by the Servicing Agent into the Emergency Cash Reserve
Account automatically without requisition, notice or any further instruction.
As long as no event of Default exists hereunder, the Servicing
Agent may disburse the moneys therein to or to the order of the Borrower upon
written request of the Borrower, which request shall (i) state that such funds
are required on an emergency basis to pay significant and unforeseeable costs;
(ii) specify the nature of such costs, the reasons why such costs were
unforeseeable and the reasons funds are immediately required; (ii) certify that
there are not available to the Borrower in timely fashion sufficient
unrestricted operating revenues, equity funds, commercial loan funds, grant
funds or any other available funds with which to pay such costs without
reducing the Ending Cash Balance below the Operating Reserve Amount; and (iii)
there does not exist any Event of Default hereunder, nor any event which, with
notice or lapse of time or both would constitute an Event of Default hereunder.
Upon an Event of Default hereunder, the Servicing Agent shall have the right to
withdraw all funds from the Emergency Cash Reserve Account for application as
provided in Section 4(b) hereof.
Insurance proceeds received in respect of any emergency which
occasioned a disbursement from the Emergency Cash Reserve Account, up to an
amount sufficient to bring the balance in such account up to $500,000 plus any
lost earnings on amounts withdrawn for the period between the date of
disbursement and prior to reimbursement as calculated by the Servicing Agent
based upon an assumed yield equal to the yield in effect for such account on
the date of disbursement, shall be deposited by the Borrower to such Account
immediately upon receipt thereof. The Borrower may requisition additional
funds under the Note sufficient to replenish such account upon provision to the
Servicing Agent of evidence satisfactory to the Servicing Agent that insurance
proceeds are not anticipated to be sufficient for such purposes and that there
are not available to the Borrower in timely fashion sufficient unrestricted
operating revenues, equity funds, commercial loan funds, grant funds or any
other available funds with which to effect such replenishment without reducing
the Ending Cash Balance below the Operating Reserve Amount.
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<PAGE> 12
The Borrower may requisition amounts on deposit in the
Emergency Cash Reserve Account as a Scheduled Draw pursuant to Section 7(d)
hereof upon a showing that, and to the extent that, there are not sufficient
Loan funds remaining unadvanced to fund fully a Scheduled Draw. Any funds
remaining in the Emergency Cash Reserve Account on the Cutoff Date shall be
applied by the Servicing Agent to prepayment of the Note.
(c) The Servicing Agent is hereby authorized, in its sole
discretion, to enter into agreements with one or more Registered Creditors upon
reasonable notice from the Borrower to the Servicing Agent, delivery to the
Servicing Agent of agreements and instruments sufficient, in the sole
discretion of the Servicing Agent, to delineate the respective rights of the
Servicing Agent, the County, the Borrower and any Registered Creditor and
provision of indemnity and rights of subrogation adequate, in the sole
discretion of the Servicing Agent, to protect the interests of the County and
the Servicing Agent. The Servicing Agent and the Borrower may agree with such
Registered Creditors to reserve up to $2,000,000 in the aggregate under the
Note for payment solely to or for the benefit of such Registered Creditors. In
lieu of agreements directly with any such Registered Creditor, the Servicing
Agent and the Borrower may enter into an agreement with one or more financial
institutions (who shall also be deemed to be a Registered Creditor), which in
turn guarantee payment to another Registered Creditor for the account of the
Borrower through insurance of a letter of credit, a line of credit or similar
arrangement acceptable to the servicing Agent.
As long as any Registered Creditor Agreement remains in
effect, but in no event beyond the Cutoff Date, the Servicing Agent may
disburse up to $2,000,000 under the Note for payment directly to a Registered
Creditor for the purposes, and in accordance with the terms and conditions of,
the agreement with such Registered Creditor, regardless of whether there shall
then exist an Event of Default hereunder. Upon any disbursement of funds under
the Note pursuant to this Section 5(c), there shall be no further disbursements
by the Servicing Agent of any kind under the Note or any account established
hereunder, except for disbursements to other Registered Creditors from amounts
remaining reserved therefor, until there is delivered to the Servicing Agent
evidence satisfactory to the Servicing Agent that the Borrower has brought
current its accounts with such Registered Creditor and that it is not in
default in respect of any other Indebtedness. Upon an Event of Default
hereunder, the Servicing Agent shall have the right to terminate any agreement
with any Registered Creditor upon ten (10) days prior written notice to such
Registered Creditor and to decline to fund any supplies or services provided to
Borrower more than 24 hours after delivering to such Registered Creditor notice
of termination.
The Borrower may requisition amounts reserved for Registered
Creditors in accordance with the provisions of Section 7(c) to the extent that
termination of any Registered Creditor Agreement has removed all restrictions
on such funds or to the extend agreed to by the Servicing Agent for deposit
into an escrow account established for the benefit of one or more Registered
Creditors. Any such escrow arrangement shall be subject to an escrow agreement
acceptable to the Servicing Agent as to form and substance. Any funds
remaining in such escrow account on the Cutoff Date shall be applied by the
Servicing Agent to the prepayment of the Note.
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<PAGE> 13
(d) All accounts established hereunder shall be separate,
interest-bearing custodial accounts with a financial institution whose deposits
or accounts are federally insured and who shall be acceptable to the Servicing
Agent in its sole discretion. The balance of deposited funds exceeding such
insurance coverage shall be fully (100%) and continuously collateralized by
Government Obligations. Such collateral shall be pledged under a written
security agreement, in a form acceptable to the Servicing Agent, and shall be
held in a separate custodial account on behalf of the account parties for the
full term of deposit. Funds in the Project Account may be invested at the
written direction of the Borrower (as long as no Event of Default exists
hereunder, in which case the Servicing Agent shall direct such investments) in
Investments permitted under subparagraphs (i) through (vi) of Section 16(i)
hereof. Funds in the Emergency Cash Reserve Account may be invested at the
written direction of the Servicing Agent in overnight Investments of the type
permitted under subparagraphs (i) through (vi) of Section 16(i) hereof, and all
earnings credited to such account shall be the property of the County. Funds
in any escrow account established for the benefit of the Registered Creditors
may be invested at the written direction of the Servicing Agent in overnight
Investments of the type permitted under subparagraphs (i) through (vi) of
Section 16(i) hereof, and all earnings credited to such account shall be the
property of the County.
The Servicing Agent shall have no liability for any losses on
Investments held in any account established hereunder or for any failure to
invest the monies contained herein.
(e) The Borrower shall promptly deliver to the Servicing
Agent an assignment to the County, in form acceptable to the Servicing Agent,
of its interest in each account established hereunder, duly acknowledged by the
depositary institution. Upon any Event of Default hereunder, all right, title
and interest of the Borrower in and to the monies in any account established
hereunder shall immediately vest in the County.
Section 6. Obligations Absolute. Except to the extent prohibited by
applicable law which cannot be waived, the obligations of the Borrower under
this Agreement shall be absolute, unconditional and irrevocable and shall be
paid strictly in accordance with the terms of this Agreement under all
circumstances whatsoever, including without limitation the following
circumstances:
(a) any waiver of or any consent to departure from all or
any of the Loan Documents;
(b) the existence of any claim, set-off, defense or other
rights which the Borrower or any guarantor of any obligations of the Borrower
to the County may have at any time against the County, JEDA, the state, the
Servicing Agent, any holder of any Air South HUD-Guaranteed Note or any other
person or entity, whether in connection with this Agreement, any other Loan
Document or any unrelated transaction or matter;
(c) any statement or any other document pertaining to the
Air South HUD-Guaranteed Note, the CDBG Pledge of the County or the State, the
HUD Contract, any
10
<PAGE> 14
document or agreement or the transactions contemplated hereby and thereby
proving to be invalid or insufficient in any respect or any statement herein or
therein being untrue or inaccurate in any respect whatsoever; or
(d) any disbursement by the Servicing Agent to or for the
account of the Borrower under the terms hereof not complying with the terms
hereof.
(e) any other circumstance or happening whatsoever,
whether or not similar to any of the foregoing.
Section 7. Conditions Precedent to Disbursement of Loan. (a) Prior
to the initial disbursement under the Loan, the Servicing Agent shall have
received the following in form and substance satisfactory to the Servicing
Agent and its counsel:
(i) copies of the resolutions adopted by the
board of directors of the borrower authorizing the execution, delivery and
performance of each of the Loan Documents certified by the secretary or any
assistant secretary of the Borrower (which certificate shall state that such
votes re in full force and effect);
(ii) a copy of the articles of incorporation of
the Borrower, as amended, certified by the Secretary of State of the State of
Illinois;
(iii) a copy of the by-laws of the Borrower, as
amended, certified by the secretary or any assistant secretary of the Borrower;
(iv) a good standing certificate with respect to
the Borrower issued as of a recent date by the Secretary of State of the State
of Illinois;
(v) a certificate of existence with respect to
the borrower's authorization to do business as a foreign corporation in the
State issued as of a recent date by the Secretary of State of the State
together with a certificate as to the payment of all fees and taxes issued as
of a recent date by the South Carolina Department of Revenue;
(vi) a certificate of the secretary or any
assistant secretary of the Borrower certifying the names and true signatures of
the officers of the Borrower authorized to sign the Loan Documents and the
requisitions for disbursement of the Loan and the other documents to be
delivered by the Borrower hereunder;
(vii) true and correct copies of all governmental
approvals, if any, necessary for the Borrower to enter into the Loan Documents
and carry out the transactions contemplated thereby, including without
limitation the Borrower's Section 401 Certificate from DOT, the FAA Part 121
Operating Certificate and such other permits, consents and authorizations as
may be required to initiate and maintain the Air South Operations as
contemplated by the Business Plan and by this Agreement;
11
<PAGE> 15
(viii) evidence satisfactory to the Servicing
Agent that the insurance required by Section 12 of this Agreement is in effect;
(ix) evidence satisfactory to the Servicing
Agent that the Borrower has Equity Contributions of not less than $2,000,000;
(x) evidence satisfactory to the Servicing Agent
that the Borrower has expended all available grant moneys provided or to be
provided by the County or Richland County to the extend not restricted under
the terms of the Local Memorandum;
(xi) the original Note and a fully executed
copy of each of the Loan Agreement; the Security Agreement; the Assignment and
Servicing Agreement; the Business Plan, which shall be satisfactory to the
Servicing Agent as to form and substance; the Aircraft Lease Agreement between
the Borrower and Polaris Aircraft Leasing K.B. ("Polaris") (together with, if
requested by the county a letter agreement between the County and Polaris
regarding the release of Polaris' security interest in removed parts), which
shall be satisfactory to the Servicing Agent as to form and substance; the HUD
Contract; the Fiscal Agency Agreement; and such other documents and agreements
as the county may reasonably require;
(xii) a favorable opinion of David Monteith,
Esquire, counsel for the Borrower, in the form attached hereto as EXHIBIT C;
(xiii) evidence of due authorization by the
Governor of the state to JEDA to undertake the transactions contemplated by the
HUD Contract and this Agreement;
(xiv) copies of the resolutions adopted by JEDA's
board of directors authorizing execution and delivery of the HUD Contract and
the Assignment and Servicing Agreement of even date herewith among the County,
JEDA and the Borrower and the transactions contemplated thereunder;
(xv) Opinions of Counsel in the form required by
HUD; and
(xvi) such other documents, instruments, approvals
or opinions as the Servicing Agent or its counsel may reasonably request.
If the Servicing Agent does not receive the items listed in this paragraph (a)
on or before August 31, 1994, this Agreement shall be null and void.
(b) The Servicing Agent shall automatically without
requisition, notice or any further instruction, charge as an advance under the
Note amounts sufficient to pay when due interest on the Air South
HUD-Guaranteed Note prior to the Public Offering Date with respect thereto.
(c) Except as specified in Section 7(b) hereof and
subject to the other
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<PAGE> 16
provisions of this Section, all disbursements of the Loan to or to the order of
the Borrower, including the initial disbursement, shall be made not more
frequently than bi-monthly by the Servicing Agent on behalf of the County for
the purposes specified in Section 2 of this Agreement and upon the occurrence
of the following:
(i) receipt by the Servicing Agent not less than
20 days prior to the date when the funds are requested to be paid of a
requisition in the form attached as EXHIBIT D signed by the President or Chief
Financial Officer of the Borrower certifying, inter alia, that Loan proceeds
are required (A) to purchase property, real or personal, authorized pursuant to
Section 2: (B) to remedy a Cash Flow Shortfall as of the end of the immediately
preceding calendar month, specifying the amount of such Cash Flow Shortfall,
which amount shall be the amount the Borrower is entitled to draw for such
purpose; or (C) to cover an emergency cash requirement as described in Section
5(b) hereof, accompanied by documentation acceptable to the Servicing Agent
verifying such matters; provided, however, that requisitions from the Emergency
Cash Reserve account may be paid by the Servicing Agent promptly upon receipt
thereof with back-up documentation to be provided by the borrower within five
(5) Business Days after the date of such requisition;
(ii) there shall not be available to the Borrower
in a timely fashion sufficient unrestricted operating revenues, equity funds,
commercial loan funds, grant funds or any other funds with which to pay such
purchase price, remedy such Cash Flow Shortfall or meet such emergency cash
requirements under the terms and conditions specified in Section 5(b) hereof,
as the case may be;
(iii) determination by the Servicing Agent that the
use intended by the Borrower of the proceeds of the Loan is eligible for
financing under the Section 108 Program and this Agreement;
(iv) there shall exist no Event of Default
hereunder, nor any circumstance which, with notice or lapse of time or both,
would constitute such an Event of Default;
(v) the Servicing Agent shall have received on
behalf of the County such additional Loan Documents and Opinions of County as
the Servicing Agent shall reasonably require; and
(vi) the County shall have received adequate
funding under the Air South HUD-Guaranteed Note.
(d) Notwithstanding anything herein to the contrary, the
Borrower shall not, during any draw period set forth below, be entitled to
aggregate disbursements ("Scheduled Draws") in excess of an amount equal to
125% of the aggregate Cash Flow Shortfall projected for such period and all
preceding periods, amounts deposited to the Emergency Cash Account as
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<PAGE> 17
provided in Section 5(b) and amounts reserved under the Note for Registered
Creditors as provided in Section 5(c) hereof being considered to have been
disbursed to the Borrower under the Loan for this purpose, to wit:
<TABLE>
<CAPTION>
Draw Period Amount Disburseable
----------- -------------------
<S> <C>
August 15, 1994-October 14, 1994 $4,000,000
October 15, 1994-December 31, 1994 2,000,000
January 15, 1995-July 14, 1995 2,000,000
July 15, 1995-October 14, 1995 2,000,000
October 15, 1995-March 31, 1996 1,000,000
April 1, 1996 1,000,000
</TABLE>
(e) Notwithstanding anything herein or in any other
instrument or agreement to the contrary, neither the County nor the Servicing
Agent shall have any obligation to advance any moneys to the Borrower under the
Loan except from the proceeds of the Air South HUD-Guaranteed Note, and the
provisions of the Federal Act, the Federal Regulations and, to the extent not
inconsistent therewith, the provision of all other applicable federal, State or
County laws, regulations or requirements shall govern the award and
administration of the Loan. The County makes no warranty that funds will be
made available from time to time under the HUD contract or that funds will be
received at the times anticipated by the Borrower.
(f) Upon any disbursement of funds under the Note in
accordance with this Section 7, the Servicing Agent shall record the date and
amount of such disbursement on the Record of Advances attached to the Note,
and, absent patent error, such record shall be conclusive as to such matters
for all purposes of this agreement.
Section 8. Representations and Warranties of Borrower. In addition
to the Covenants, Warranties and Representations made by the Debtor in the
Security Agreement, the terms of which are incorporated by reference, the
Borrower represents and warrants as follows:
(a) The Borrower is a corporation duly organized, validly
existing and in good standing under the laws of the State of Illinois, with
corporate powers adequate for the carrying on of the business now conducted and
proposed in the Business Plan to be conducted by it, and is duly qualified as a
foreign corporation in, and is in good standing in, the state and in each other
jurisdiction in which its conduct of business or ownership of property makes
such qualification necessary. The Borrower's corporate Headquarters are
located at 1800 St. Julian Place, 4th Floor, Columbia, South Carolina 20205;
its Principal Operational Base is located at the Columbia Metropolitan Airport,
and none of the Borrower's books or records are maintained at any other
location. The Borrower shall give the County and the Servicing Agent not less
than thirty (30) days prior written notice of any change in the location of the
Borrower's books and records.
(b) The execution, delivery and performance of this
Agreement, the Note and each of the other Loan Documents are within the
Borrower's power and authority, and the
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Borrower has duly authorized the execution and delivery hereon and thereof and
the taking of all action necessary to carry out and give effect to the
transaction contemplated hereby and thereby.
(c) No consent of any person and no authorization or
approval or other action by, and no notice to or filing with, any governmental
authority or regulatory body is required for the due execution, delivery and
performance by the Borrower of this Agreement, the Note or any other Loan
Document, except such as have been obtained, including without limitation,
approval of the shareholders or the trustees or holders of any indebtedness of
Borrower;
(d) Each of this Agreement, the Note and each other Loan
Document is a legally valid and binding obligation of the Borrower, enforceable
against the Borrower in accordance with its terms.
(e) There is no pending action or proceeding before any
court, governmental agency or arbitrator against or directly involving the
Borrower, and there is no threatened action or proceeding affecting the
Borrower before any court, governmental agency or arbitrator which, in any
case, may materially and adversely affect the financial condition, operations
or business prospects of the Borrower or which questions the validity of any
Loan Document or any action taken or to be taken pursuant thereto.
(f) Neither the execution and delivery of this Loan, the
Note or any of the other Loan Documents, the consummation of the transactions
contemplated hereby and thereby, nor the fulfillment of or compliance with the
terms and conditions of this Agreement, the Note or any other Loan Document,
contravene any material provision of law, judgment, decree, order, franchise or
permit applicable to Borrower or its properties or by which the borrower or any
of its property is bound or conflict with or result in a material breach in the
terms, conditions or provision thereof or constitute a violation of the by-laws
or articles of Borrower, or constitute a default, or result in the creation of
a lien, under any agreement or instrument to which the Borrower is a party or
by which any of its property is bound.
(g) All tax returns and reports of the Borrower require
by law to be filed have been duly filed and all taxes, assessments, fees and
other governmental charges upon the Borrower or upon any of its respective
properties, assets, income or franchises which are due and payable pursuant to
such returns and reports, or pursuant to any assessment received by the
Borrower have been paid, other than those which may be presently payable
without penalty or interest (except to the extent that any such tax or
assessment is being contested in good faith and as to which adequate reserves
have been set aside in conformity with Generally Accepted Accounting
Principles).
(h) The Borrower is not in default under its corporate
organizational documents or under any statute, license, rule or regulation,
under any order, writ, injunction, award or decree of which it has notice of
any court, arbitrator, administrative agency or other governmental authority
binding upon or affecting it or by which any of its properties is bound
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or under any indenture, mortgage, contract, agreement or other undertaking or
instrument to which it is a party or by which it or its property is bound, and
the borrower has no knowledge of any event which, with notice or lapse of time
or both, would constitute such a default; nothing has occurred which would
materially adversely affect the ability of the Borrower to carry on its
business as now conducted or proposed to be conducted or perform its
obligations under any of the foregoing.
(i) The Borrower has no Subsidiaries.
(j) The Borrower possesses, or will possess prior to the
date of initial disbursement hereunder, all types certificates, documentation
and supplements thereto, franchises, patents, patent applications, patent
licenses, certificates, copyrights, trademarks, service marks, tradenames,
tradename rights, licenses and permits, and rights in respect of the foregoing,
necessary for the conduct of its business substantially as now conducted and
presently planned to be conducted without any known conflict with any rights of
others, including without limitation a Section 401 Certificate from DOT and
such other permits, landing rights and other authorizations as may be required
to initiate and maintain the Air South Operations as contemplated by the
Business Plan and by this Agreement.
(k) The Borrower is not subject to any corporate or other
legal restriction, or any judgment, decree, order, rule or regulation which in
the judgment of the Borrower has or is expected in the future to have a
materially adverse effect on the business, assets, financial condition or
business prospects of the Borrower as a whole the Borrower is not a party to
any contract or agreement which in the judgment of the Borrower has or is
expected to have any materially adverse effect on the business of the Borrower
as a whole, except as otherwise reflected in adequate reserves.
(l) The Borrower does not maintain any Guaranteed Pension
Plan.
(m) All outstanding capital stock of the Borrower is
owned of record; the Borrower currently has Equity Contributions of not less
than $2,000,000; and the Controlling owners currently own seventy-two and
sixty-seven one-hundredths percent (72.67%) of the voting stock of the
Borrower.
(n) EXHIBIT E contains a complete and correct listing, as
of the date of this Agreement, of (i) all Indebtedness of the Borrower for
money borrowed (excluding purchase money Indebtedness of less than $50,000 in
respect of individual items, provided that the aggregate amount of such
Indebtedness does not exceed $250,000) and (ii) all Guarantees of the Borrower.
(o) The Borrower has, or will have, title to all the
Collateral whenever acquired or arising free and clear of all liens and claims,
encumbrances, set-offs, defenses and counterclaims, except those stated in
EXHIBIT F attached hereto, and has not made and will not make any assignment,
pledge, mortgage, hypothecation or transfer (other than sales or leases
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in the ordinary course of business) of any such Collateral or the proceeds
thereof.
(p) EXHIBIT G hereto contains an accurate and complete
description of the tangible assets currently owned by the Borrower and all real
property leased by the Borrower together with the location thereon.
(q) There has been no material adverse change in the
aggregate assets or aggregate liabilities or in the condition or business,
financial or otherwise, of the Borrower from that set forth in the financial
statements delivered to the County by the Borrower in connection with the Loan.
(r) All statements, representations and warranties made
by the Borrower and any materials furnished in support of the request for the
Loan are true, accurate and complete; it is specifically understood by the
Borrower that all such statements, representations and warranties shall be
deemed to have been relied upon by the County and JEDA as an inducement to make
the Loan and to provide the CDBG Pledge.
(s) The Borrower represents to the county that it has at
all times pertinent to this Agreement been represented by advisors of its own
selection, including but not limited to attorneys-at-law and/or certified
public accountants that it has not relied upon any statement, representation,
warranty, agreement or information provided by the County, its employees,
agents or attorneys; that it acknowledges that it is informed by its advisors
of its respective rights, duties, and obligation with respect to the Loan under
all applicable laws, that it has no set-offs, defenses or counterclaims against
the County with respect to the Loan, and that it is indebted to the County for
the amounts stated in this Agreement and the Note.
(t) The borrower further acknowledges and agrees that
neither the County, JEDA nor the State has made any statements,
representations, warranties, agreements or provided information to it regarding
the Section 108 Program in order to induce the execution and delivery of this
Agreement; the Borrower further acknowledges and agrees that all agreements of
the parties regarding the Loan are set forth in this Agreement and in the other
Loan Documents executed by Borrower prior to or on even date hereof.
If during any time the Loan remains outstanding, the Borrower
becomes aware of any facts, occurrences, information, statements, or events
that render any of the foregoing representations or warranties herein made
untrue or materially misleading or incomplete, Borrower shall immediately
notify the Servicing Agent in writing of such facts, occurrences, information,
statements or events.
Section 9. Regulatory Compliance.
(a) General. The Borrower shall comply with all
applicable laws, regulations, ordinances, executive orders, air worthiness
directives, notices to airmen, manuals and government instructions from
governmental authorities of competent federal, state and local
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jurisdictions. The Borrower shall obtain and maintain all approvals,
certificates, licenses, and permits for operations of the Air South Operations
as proposed in the Business Plan, including without limitation all those
approvals necessary by state, local and federal governments, including the FAA
and DOT, necessary for, and shall comply with all the laws and regulations
applicable to, the certification, registration, operation, maintenance of the
aircraft and air carrier operating certificate, repair station certificate and
other permits and licenses issued to Borrower and any of its affiliates or
subsidiary companies, and the Borrower shall take no action nor suffer any
action to be taken which impairs, suspends, cancels, restricts, revokes, or
materially adversely modifies such certificates, license, permits or
registrations without the prior written consent of the JEDA in its capacity as
Assignee.
(b) Low-to-Moderate Income Hiring. The Borrower agrees
to comply with all HUD requirements regarding hiring for the Air South
Operations. In this connection, the Borrower agrees to create not less than
200 jobs at its corporate headquarters and central reservation center in the
City (the "Corporate Headquarters") and 420 jobs at the Columbia Metropolitan
Airport within two years following the Start-up Date. Of the total number of
jobs created at each of the Corporate Headquarters and the Columbia
Metropolitan Airport (even if in excess of 200 and 420, respectively), not less
than 51% shall be taken by persons from low and moderate income families, all
as determined in accordance with the Federal Regulations (calculated separately
for the Corporate Headquarters and Columbia Metropolitan Airport). The
Borrower agrees to maintain records adequate to document compliance with this
Section 9(b) and, until such time as the Borrower has fulfilled the
requirements of the proceeding provisions of this Section 9(b), to provide to
the Servicing Agent within 30 days following the end of each calendar quarter
with written evidence satisfactory to the Servicing Agent as to the number of
jobs created at each of the Corporate Headquarters and the Columbia
Metropolitan Airport and the number of such jobs which has been taken by
persons of low or moderate income.
In the case of a violation of hiring level low-to-moderate-income
hiring requirements specified in this Section 9(b), the Servicing Agent may, in
its sole discretion, require repayment of all of the Loan, together with
interest thereon at the rate per annum equal to the higher of (i) the interest
then or most recently applicable to the note or (ii) the highest rate
applicable to any of the Air South HUD-Guaranteed notes plus five percent (5%)
computed on the basis of a 360 day year and the actual number of days elapsed
from the date of each advance of Loan moneys to the Borrower. The obligation
to pay such modified interest rate shall survive prepayment of the Note, unless
the Servicing Agent received evidence satisfactory to it that the Borrower has
met its employment level and low-to-moderate income hiring requirements, in
which case such obligation terminates.
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(c) Other Section 108 Program Requirements.
Notwithstanding any other provision hereof or of any other instrument or
agreement to the contrary, the provision of the Federal Act, the Federal
Regulations and, to the extent not inconsistent therewith, the Provisions of
all other applicable federal, State or County laws, regulations or requirements
shall govern the award and administration of the Loan, and the Borrower agrees
to comply with, any and requirements and to cooperate fully with the County
with respect thereto. Such agreement on the part of the Borrower shall
include, but shall not be limited to the following federal laws to the extent
applicable to the Borrower's operations at its Principal Operational Base, and
such laws are incorporated here by reference:
(i) Equal Employment Opportunity: In accordance
with the applicable Federal and State laws, Executive Orders and regulations,
the Borrower cannot discriminate on the basis of race, color, religion, sex,
national origin, familial status, or disability in its employment practices.
(ii) Non-Discrimination Under Title VI of the
Civil Rights Act of 1964: T this Agreement is subject to the requirements of
Title VI of the Civil Rights Act of 1964 (P.L. 88-352) and HUD regulations with
respect thereto including the regulations under 24 CFR Part I.
(iii) MBE Obligation: The Borrower agrees to
ensure that minority business enterprises (MBE), as defined in 49 CFR Part 23,
have the maximum opportunity to participate in the performance of contracts and
subcontracts financed in whole or in part with Federal funds provided under
this Agreement.
(d) Additional FAA Matters. The Borrower at all times
will be a "Citizen of the United States" as defined in Section 101(16) of the
Federal Aviation Act. Any aircraft to be operated by Borrower shall be duly
registered in the name of the Borrower in accordance with the Federal Aviation
Act, pursuant to an FAA AC Form 8050-1 Aircraft Registration Application, which
shall be in due form and duly filed with the FAA Aircraft Registry; such
aircraft at no time will be registered under the laws of any other country. An
FAA Standard Airworthiness Certificate shall be duly issued under the Federal
Aviation Act for each such aircraft and shall be duly issued under the Federal
Aviation Act for each such aircraft and shall be in full force and effect while
listed on the operating certificate of the Borrower by the FAA.
(e) Equal Opportunity Hiring. At all times prior to the
repayment in full of the Loan, the Borrower shall comply with the Equal
Employment Opportunity Requirement of 42 U.S.C., Section 200(e) et seq. and the
specific requirements set forth in Section 301 of executive Order No. 1246, as
amended, relating to discrimination provisions in federally assisted contracts.
In addition, the Borrower shall utilize its best efforts to insure that the
Borrower and any contractors or subcontractors employed by it maximize the
employment and the utilization of minorities and other persons residing within
the State, shall, upon demand by the Servicing Agent, deliver any documentation
required by the Servicing Agent to demonstrate compliance with all statutes,
rules or regulations of the State and/or the United States
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Department of Housing & Urban Development pertaining to equal employment
opportunities and/or minority business enterprises.
Section 10. Maintenance of Corporate Existence; Continuation of Air
South Operations in Midlands Area. The Borrower shall maintain its existence
and continue as a corporation either organized under the laws of, or duly
qualified to business as a corporation in, the State, shall preserve and
maintain its rights and privileges to conduct business in each jurisdiction
material to the Air South Operations and shall operate and maintain the Air
South Operations substantially as proposed in the Business Plan. The Borrower
shall not, as long as the Loan remains outstanding, without the prior written
consent of the County:
(a) assign or transfer the whole or any part of its
interest in this Agreement;
(b) sell, lease, convey, assign, transfer or otherwise
dispose of all or substantially all of its assets or consolidate with or merge
into another entity or permit one or more other entities to consolidate with or
merge into it;
(c) sell, lease, convey, assign, transfer or otherwise
dispose of any interest in its assets or operating rights (including without
limitation operating or landing rights, type certificates, operating
certificate, licenses, regulatory approvals, leasehold or contact rights,
tradenames or trademarks or other right in tangible or intangible property)
material to the Air South Operations as proposed in the Business Plan or
otherwise act to disrupt the continued viability of the Air South Operations as
then conducted; provided, however, that a sale or other disposition shall be
permitted hereunder to the extent that the Borrower retains its interest in and
operating control over not less than fifty-one percent (51%) of the ten
existing assets of the Borrower, tangible and intangible, including without
limitation, operating rights, routes, gate leases, equipment leases, good will,
trademarks, tradenames and every other asset of the Borrower, (based on market
value rather than book value) and provided further that the proceeds form any
such sale shall be used to obtain assets or operations of similar value and
utility to the Air South Operations or to prepay the Note;
(d) permit the sale, assignment, transfer or other
disposition of the stock of the Borrower to a third person or group of persons
with the result that the Controlling Owners relinquish control over more than
forth-nine percent (49%) of the voting stock of the Borrower which is then
issued and outstanding;
(e) relocate its Principal Operational Base to a location
other than the Columbia Metropolitan Airport or its Corporate Headquarters from
within the city limits of the City.
The Borrower shall give the County and the Servicing Agent not less
than thirty (30) days' prior written notice of any change in its name, the
location of its books and records or of any substantial change in the nature of
the operations conducted at such locations or of any
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substantial reduction in the level of employment at such locations.
To the extent economically feasible, the Borrower shall provide air
service to and from the City, and each of the Cities of Charleston,
Greenville/Spartanburg and Myrtle Beach within the State.
Section 11. Managerial Control. The Borrower shall not, without the
express prior written consent of JEDA in its capacity as Assignee, make
material or substantial changes in the present management or operating control
of the Borrower, including without limitation those positions mandated to be
filled with qualified personnel under Part 121 of the Federal Aviation
Regulations, nor shall the Borrower permit the bulk transfer of assets,
acquisition, merger, reorganization, consolidation, dissolution or liquidation
of the air South Operations other than as permitted herein or the suspension,
revocation or cancellation of its operating certificate of authority.
Section 12. Insurance. In addition to any insurance requirement
contained in any mortgage or security agreement constituting a Loan Document,
the Borrower agrees to maintain insurance with responsible and reputable
insurance companies or associations acceptable to the Servicing Agent, naming
the County and the Servicing Agent as mortgagees or loss payees and additional
insureds as their respective interests may appear on such policies as the
Servicing Agent may specify, in such amounts and covering substantially such
hazards and risks as are usually carried by companies engaged in similar
businesses and owning or operating properties similar to those operated by the
Borrower. Such policies shall include (a) public liability; (b) full extended
coverage fire, theft and hazard insurance on all assets owned by it or used in
connection with its business; (c) worker;s compensation insurance or similar
insurance that may be required under laws applicable to Borrower; (d) business
interruption insurance, to the extent required by the Servicing Agent; (e)
title insurance with respect to any real property owned by the Borrower; and
(f) decreasing term life insurance policies on the lives of Patrick O'Shea,
Thomas Volz or any other person currently filling a position with the Borrower
which is required to be filled with qualified personnel under Part 121 of the
Federal Aviation Regulations, in the amount of $1,000,000 for Patrick O'Shea
and $500,000 on each of the other insureds.
In furtherance and not in limitation of the foregoing insurance
requirements, the Borrower agrees that it will at all times carry and maintain
on each of the aircraft, engines and propellers used in the Air South
Operations, at its own cost and expense, public liability, property damage and,
as required for the carriage of passengers, passenger legal liability
insurance, and aircraft ground and flight all-risk hull insurance (which shall
include a standard 90-day mysterious disappearance clause and, to the extent
available, coverage against loss by reason of strikes, riots, civil commotion
or labor disturbance, malicious act or act of sabotage, unlawful seizure or
wrongful exercise of control of the aircraft in flight by any person on board
the aircraft acting without the consent of the insured, and governmental
confiscation and expropriation), war risk insurance, as well as fire and
extended coverage insurance on engines, propellers, rotables, consummables and
other equipment while removed from the aircraft or if maintained by the
Borrower on other aircraft utilized in commercial scheduled operations
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operated by the Borrower in the same areas.
Such policies shall contain a provision that such policy may not be
canceled or materially altered except upon at least fifteen (15) days written
notice to the Servicing Agent and shall not contain a provision for deductible
amounts greater than $500,000. In the event of loss or damage to any portion
of the Collateral constituting tangible property, the proceeds of any insurance
shall be deposited with the Servicing Agent and applied as set forth in Section
13 of this Agreement. Payments under any key man life insurance policy shall
be applied to prepay the Note unless JEDA in its capacity as Assignee shall
agree otherwise on behalf of the County. At least ten (10) days prior to the
expiration of any such policy the Borrower shall furnish evidence satisfactory
to the Servicing Agent that such policy has been renewed or replaced or is no
longer required by this Agreement.
At all times during the term of this Agreement, the Borrower shall
comply with the laws of south Carolina relating to worker's compensation
insurance.
Section 13. Damage, Destruction and Condemnation.
(a) If that portion of the Collateral consisting of tangible
property shall be damaged or either partially or totally destroyed or if title
to or temporary use of the whole or any part of such tangible property shall be
taken or condemned by a competent authority for any public use or purpose,
there shall be no abatement or reduction in the amounts payable by the Borrower
under this Agreement or under the Note.
(b) In the event of any damage, destruction, taking, or
condemnation, the proceeds from any insurance or condemnation award shall be
deposited with the Servicing Agent and applied to the payment of any amounts
due on the Loan, unless the Borrower and JEDA shall agree to apply the proceeds
to the repair, reconstruction, replacement or relocation of such Collateral.
Section 14. Maintenance of Properties.
(a) The Borrower shall cause all of its properties used or
useful in the conduct of its business to be maintained and kept in good
condition, repair and working order and supplied with all necessary equipment,
will cause to be made all necessary repairs, renewals, replacements,
betterments and improvements thereof, all as in the judgment of the Borrower
may be necessary so that the business carried on in connection therewith maybe
properly and advantageously conducted at all times and will comply at all times
in all material respects with the provisions of all material leases and other
material agreements to which it is a party so as to prevent any loss or
forfeiture thereof or thereunder unless compliance therewith is being at the
time contested in good faith by appropriate proceedings.
(b) In furtherance and not in limitation of the above
requirement of this Section 14, the Borrower will maintain all tangible
property used in the Air South Operations,
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including without limitation all aircraft, engines, propellers, auxiliary power
units, ground support equipment, shop machinery and tools, supplies, buildings
and other realty and personalty, in good condition and repair (normal wear and
tear accepted) and in accordance with applicable contracts, leases, federal and
state, and local laws, regulations and ordinances, will pay or discharge or
cause to be paid or discharged when due the cost of repairs or maintenance of
the same and will pay or caused to be paid all rental, lease or mortgage
payments due with respect to the same. The Borrower, at its own cost and
expense, shall service and maintain such property, repairing or overhauling
same as may be required by the FAA, including without limitation its aircraft,
engines, propellers, appliances, accessories, appurtenances, parts (defined as
"rotables, components, instruments and consummables") inventory other than
parts, shop equipment, ground support equipment and machinery; shall, at its
own cost and expense, according to FAA regulations, promptly install
replacement or substitute parts, engine, propellers, equipment, appurtenances,
accessories, appliances, inventory other than parts with all such replacements
and substitutions to be free and clear of all liens, encumbrances and rights of
others and which shall be in as good operating condition as, and shall have a
value and utility at least equal to, the items replaced or for which
substitution is made and meeting the standards of the FAA or other governmental
authority having jurisdiction over such activity so as to keep such property in
such operating condition as may be required by law, regulation or contract to
permit the property to be utilized by a licensed air carrier operating in
scheduled commercial operations in the United States; and shall maintain all
records, logs and other materials which may be required for such property to be
so utilized.
Section 15. Unencumbered Title and First Priority Lien. The Borrower
at all times shall have and maintain good and marketable title to the
Collateral, whether now owned or hereafter acquired, free and clear of all
claims, interests, mortgages, deeds of trust, liens, security interests and
other charges or encumbrances, except as specified in Section 16(h), any any
such mortgage shall, except as otherwise provided in Section 16(h) hereof,
constitute a first priority mortgage on and security interest in any such
Collateral duly securing the obligations of the Borrower under the Note, this
Agreement and any other Loan Document constituting collateral security
instruments executed and delivered to County herewith.
The Borrower agrees that it will at all times keep accurate and
complete records with respect to the Collateral and shall provide the Servicing
Agent with copies of all such records as the Servicing Agent shall request.
The Borrower will, not less than quarterly, provide the Servicing Agent with a
report as to any changes and additions to the information specified in EXHIBIT
G hereto and will not remove its assets from the locations listed in EXHIBIT G,
except in the normal course of business without the express prior consent of
the Servicing Agent, and the Borrower will join the County or the Servicing
Agent in executing, filing and doing whatever may be necessary under applicable
law, to perfect and continue the County's security interest in the Collateral
at Borrower's expense.
Section 16. Additional Covenants. The Borrower shall comply with the
following covenants for as long as the Loan is outstanding.
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(a) Payment of Debts, Taxes and Charges. The Borrower
shall pay, or cause to be paid, all of its debts and perform, or cause to be
performed, all of its obligations promptly and in accordance with the
respective terms thereof, and shall promptly pay and discharge, or cause to be
paid and discharged, all taxes, assessments and governmental charges or levies
imposed upon it, upon its income or receipts or upon any of its assets or
properties before the same shall become in default, as well as pay all lawful
claims for labor, materials and supplies or otherwise that, if not so paid,
could or would result in the imposition of a Lien upon such assets or
properties or any part thereof; provided, however, that it shall not constitute
an Event of Default under this paragraph (a) if (i) the Borrower fails to
perform any such obligation or to pay any such debt (except for any
Indebtedness owing under or in respect of any Loan Document), tax, assessment,
or governmental or other charge, levy or claim if the validity or amount
thereof is at the time being contested by the Borrower in good faith by
appropriate proceedings diligently pursued, and if the Borrower has obtained
therefor an adequate bond or adequate insurance or established therefor a
reserve of an adequate amount on its books, or (ii) any Lien described in
Section 16(h)(vi) on the Borrower's assets or properties is discharged within
30 days of the attachment thereof; provided further, that the Borrower will pay
all such taxes, assessments, charges,levies, or claims forthwith upon the
commencement of proceedings to foreclose any Lien which may have attached as
security therefor.
(b) Conduct of Business. The Borrower shall continue to
engage primarily in the air South Operations substantially as proposed in the
Business Plan and in related businesses. Except as shown in the Business Plan
or otherwise approved by JEDA as Assignee, the Borrower shall not, prior to the
Cutoff Date, (i) incur capital expenditures in excess of $100,000 for any
single item of property or $00,000 in the aggregate during any fiscal year or
(ii) undertake any discretionary expenditures substantially in excess of
expenditures budgeted in the Business Plan.
(c) Certain Financial Covenants.
(i) Throughout the term of the Loan, Borrower
shall maintain a debt to tangible net worth ratio (defined to mean the ratio of
debt to tangible net worth as determined in accordance with generally accepted
accounting principles consistently applied) of not greater than 4.0 to 1.0 for
each fiscal quarter of 1995, 2.0 to 1.0 for each fiscal quarter of 1996, and
1.5 to 1.0 for each fiscal quarter of 1997 and thereafter.
(ii) Throughout the term of the Loan, Borrower
shall maintain a current ratio as defined below of not less than 4.0 to 1.0 for
each fiscal quarter of 1995, 3.5 to 1.0 for each fiscal quarter of 1996, and
3.0 to 1.0 for each fiscal quarter of 1997 and thereafter. Current ratio is
defined as:
current assets/current liabilities
(iii) Throughout the term of the Loan, Borrower
shall maintain a minimum interest coverage ratio as defined below of not less
than 6.2 to 1.0 for each fiscal
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quarter of 1996, and 9.2 to 1.0 for each fiscal quarter of 1997 and thereafter.
Interest coverage ratio is defined as:
net income (before taxes and interest) interest
(iv) Throughout the term of the Loan, Borrower
shall maintain an operating ratio as defined below of not less than .27 to 1.0
for each fiscal quarter of 1995, .36 to 1.0 for each fiscal quarter of 1996,
and .45 to 1.0 for each fiscal quarter of 1997 and thereafter. Operating ratio
is defined as:
profits before taxes/tangible net worth
(v) Throughout the term of the Loan, Borrower
shall maintain a sales to receivables ratio of not less than 15.0 to 1.0 for
each fiscal quarter of 1995, 17.0 to 1.0 for each fiscal quarter of 1996, and
19.0 to 1.0 for each fiscal quarter of 1997 and thereafter.
(vi) Throughout the term of the Loan, Borrower
shall maintain a net sales to total assets ratio of not less than 2.8 to 1.0
for each fiscal quarter of 1995, 1996, 1997 and thereafter.
(d) Cash Flow. The Borrower shall not permit its
Adjusted Pre-Tax Income; determined as at the end of each fiscal quarter,
commencing with the fiscal quarter ending September 30, 1994, for the quarter
then ended, to be less than Debt Service for such quarter; nor shall the
Borrower permit its Ending Cash Balance to fall below seventy-five percent
(75%) of the Operating Reserve Amount.
(e) Distributions. The Borrower shall not, directly or
indirectly, declare or make or incur any liability to make any Distribution
until the principal balance of the Loan as of the Cutoff Date has been paid
down by one-half, nor thereafter unless and only as long as (i) at the time of
the declaration and payment thereof and immediately after giving effect
thereto, no Event of Default or Default shall exist, (ii) the total
Indebtedness of the Borrower outstanding at the time of such declaration and
payment and immediately after giving effect thereto will not exceed 125% of the
Borrower's Tangible Net Worth as at the end of the fiscal quarter most recently
ended, and (iii) the Borrower's Adjusted Pre-Tax Income for the period of the
four consecutive fiscal quarters most recently ended preceding such declaration
and payment was not less than 200% of the Borrower's Debt Service for such
period and, at the time of such declaration or payment and immediately after
giving effect thereto, such Adjusted Pre-Tax Income will not be less than 200%
of the Borrower's Pro Forma Debt Service for the one year period immediately
following the end of the fiscal quarter most recently ended.
(f) Tangible Net Worth. The Borrower shall at all times
during the periods set forth below maintain Tangible Net Worth in the
respective amounts set forth below:
(i) during the period commencing 90 days after
the inauguration of air
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service with the third aircraft and for as long as the Borrower's service is
limited to less than six (6) aircraft, the sum of <2,000,000>;
(ii) during the period commencing 90 days after
the inauguration of air service with the sixth aircraft and for as long as the
Borrower's service is limited to less than nine (9) aircraft, the sum of
<2,400,000>;
(iii) during the period commencing 90 days after the
inauguration of air service with the ninth aircraft and for as long as the
Borrower's service is limited to less than twelve (12) aircraft, the sum of
<1,300,000>;
(iv) during the period commencing 90 days after
the inauguration of air service with the twelfth aircraft and for as long as
the Borrower's service is limited to less than fifteen (15) aircraft, the sum
of $1,600,000;
(v) during the period commencing 90 days after
the inauguration of air service with the fifteenth aircraft and for as long as
the Borrower's service is limited to less than eighteen (18) aircraft, the sum
of $4,900,000;
(vi) during the period commencing 90 days after
the inauguration of air service with the eighteenth aircraft and for as long as
the Borrower's service is limited to less twenty-one (21) aircraft, the sum of
$10,000,000;
(g) Restrictions on Indebtedness. The Borrower shall not
create, incur, assume, guarantee or be or remain liable, contingently or
otherwise, with respect to any Indebtedness other than:
(i) Indebtedness hereunder or under the Loan
Documents;
(ii) Current Liabilities, other than for money
borrowed or for the deferred purchase price of property (other than the
deferred purchase price of fixed assets, the payment of which must be made
within 90 days after the purchase thereof), incurred in the ordinary course of
business;
(iii) Indebtedness in respect of taxes, assessments,
governmental charges or levies and claims for labor, materials and supplies to
the extent that payment thereof shall not at the time be required to be made in
accordance with the provisions of Section 16(a) hereof and Indebtedness secured
by liens of carriers, warehousemen, mechanics and materialmen permitted by
Section 16(h)(vi) hereof;
(iv) Indebtedness not in excess of $100,000, in
the aggregate at any one time outstanding in respect of judgments or awards not
covered by insurance (A) which have been in force for less than the applicable
appeal period so long as execution is not levied thereunder or (B) in respect
of which the Borrower shall at the time in good faith be prosecuting
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an appeal or proceedings for review and in respect of which a stay of execution
shall have been obtained pending such appeal or review;
(v) Indebtedness of the Borrower in respect of
the aircraft leases and pooling of parts as authorized in the Security
Agreement and listed in Exhibit H hereto;
(vi) Indebtedness of the Borrower (a) in respect
of Capitalized Lease Obligations and (b) secured by purchase money Liens, in
each case to the extent permitted by Section 16(h)(iii) hereof; provided,
however, that the aggregate principal amount of all such Indebtedness permitted
by this subparagraph (vi) (and excluding indebtedness permitted under
subparagraph (v)) shall not exceed an aggregate of $500,000 in the case of
Capitalized Lease Obligations, and an aggregate of $500,000 in the case of
Indebtedness secured by purchase money Liens;
(vii) Indebtedness of the Borrower outstanding on
the date hereof and listed in EXHIBIT E hereto.; and
(viii) After the date when the principal balance of
the Loan as of the Cutoff Date has been paid down by one-half, any other
Indebtedness if and only so long as (A) at the time of the creation or
incurrence of such Indebtedness and immediately after giving effect thereto, no
Event o Default or Default shall exist, (B) the total Indebtedness of the
borrower outstanding at the time of the creation or incurrence of such
Indebtedness and immediately after giving effect thereto (less any amounts of
such Indebtedness to be applied to the contemporaneous prepayment of existing
Indebtedness) will not exceed 125% of the Borrower's Tangible Net Worth as at
the end of the fiscal quarter most recently ended, and (C) the Borrower's
Adjusted Pre-Tax Income for the period of the four consecutive fiscal quarters
most recently ended preceding the creation or incurrence of such Indebtedness
was not less than 200% of the Borrower's Debt Service for such period and, at
the time of the creation or incurrence of such Indebtedness and immediately
after giving effect thereto, such Adjusted Pre-Tax Income will not be less than
200% of the Borrower's Pro Forma Debt Service for the one year period
immediately following the end of the fiscal quarter most recently ended.
(h) Restrictions on Liens. The Borrower shall not
create or incur or suffer to be created or incurred or to resist any
encumbrance, mortgage, pledge, lien, charge, restriction or other security
interest of any kind upon any of its property or assets of any character
whether now owned or hereafter acquire,d or upon the income or profits
therefrom; or transfer any of such property or assets or the income or profits
therefrom for the purpose of subjecting the same to the payment of Indebtedness
or performance of any other obligation in priority to payment of its general
creditors; or acquire, or agree to have an option to acquire, any property or
assets upon conditional sale or other title retention or purchase money
security agreement, device or arrangement; or suffer to exist for a period of
more than 30 days after the same shall have been incurred any Indebtedness or
claim or demand against it which if unpaid might by law or upon bankruptcy or
insolvency, or otherwise, be given any priority whatsoever over its general
creditors; or sell, assign, pledge or otherwise transfer any accounts, contract
rights, general
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intangibles or chattel paper, with or without recourse (all of the foregoing
items and actions being sometimes herein referred to as "Liens"); provided,
however, that the Borrower may create or incur or suffer to be created or
incurred or to exist:
(i) Liens to secure taxes, assessments and other
governmental charges to the extent that payment thereof shall not at the time
be required to be made in accordance with Section 16(a) hereof;
(ii) The Lien of this Agreement or any other Loan
Document;
(iii) Purchase money Liens (including mortgages,
conditional sales, Capitalized Lease Obligations and any other title retention
or deferred purchase devices) in real or tangible personal property of the
Borrower existing or created at the time of acquisition thereof, and the
renewal, extension and refunding of any such Lien in an amount not exceeding
the amount thereof remaining unpaid immediately prior to such renewal,
extension or refunding; provided, however, that the principal amount of
Indebtedness (including Indebtedness in respect of Capitalized Lease
Obligations) secured by each such Lien in each item of property shall not
exceed 100% of the cost to the Borrower (including all such Indebtedness
secured thereby, whether or not assumed) of the item subject thereto and such
Lien shall have attached solely to the particular item of property so acquired;
and provided, further, that the aggregate principal amount of all such
Indebtedness shall not exceed the amounts specified in Section 16(g)(vi)
hereof;
(iv) Deposits or pledges made in connection with,
or to secure payment of, worker's compensation, unemployment insurance, old age
pensions or other social security obligations (but only to the extent that such
Lien does not attach to any of the Collateral;
(v) Liens in respect of judgments or awards, the
payment of which has been stayed pending appeal, but only to the extend that
such judgments or awards are permitted as Indebtedness by Section 16(g)(iv);
(vi) Liens of carriers, warehousemen, mechanics,
materialmen, and other like liens to the extent that payment of the
Indebtedness secured thereby shall not at the time be required to be made in
accordance with the provisions of Section 16(a) hereof;
(vii) Encumbrances consisting of easements, rights
of way, zoning restrictions, restrictions on the use of real property and
defects and irregularities in the title thereto, security deposits and
landlord's or lessor's liens under leases to which the Borrower is a party, and
other similar encumbrances, none of which materially detract from the value of
such property or impair the use thereof in the business of the Borrower;
(viii) Liens securing Indebtedness permitted by
Section 16(g)(v);
(ix) Liens and mortgages upon property or assets
of the borrower listed
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on EXHIBIT F hereto; and
(x) after the date when the principal balance of
the Loan as of the Cutoff Date has been paid down by one-half, any other Lien
on property of the Borrower not subject to, or intended to be subject to, the
Security Interest if and only so long as (A) at the time of the creation or
incurrence of such Lien and immediately after giving effect thereto, no Event
of Default or Default shall exist, (B) the total Indebtedness of the borrower
outstanding at the time of the creation or incurrence of such Lien and
immediately after giving effect thereto will not exceed 125% of the Borrower's
Tangible Net Worth as at the end of the fiscal quarter most recently ended, and
(C) the Borrower's Adjusted Pre-Tax Income for the period of the four
consecutive fiscal quarters most recently ended preceding the creation or
incurrence of such Lien was not less than 200% of the Borrower's Debt Service
for such period an, at the time of the creation or incurrence of such Lien and
immediately after giving effect thereto, such Adjusted Pre-Tax Income will not
be less than 200% of the Borrower's Pro Forma Debt Service for the one year
period immediately following the end of the fiscal quarter most recently ended.
(i) Investments. The Borrower shall not make or
permit to exist any Investments other than:
(i) Investments in direct obligations of the
United States Government and obligations guaranteed by the United States
Government, which obligations mature in not more than one year;
(ii) Investments in certificates of deposit,
banker's acceptances or similar obligations issued by a bank or a bank holding
company having capital and surplus of not less than Five Hundred Million
dollars ($500,000,000) and long-term debt ratings of AA or better, which
obligations mature in not more than one year;
(iii) Investments in commercial or finance company
paper which at the time of purchase has been rated not less than "A-1" if rated
by Standard & Poor's Corporation or "P-1" if rated by Moody's Investors
Service, Inc., or tax-exempt commercial paper or bonds with a rating of "Mig-1"
or "A-1+," which obligations mature in not more than one year;
(iv) Any direct obligation of the Unites Dates of
American or any agency, political subdivision or instrumentality thereof, which
has a remaining maturity at the time of purchase of not more than two years,
and which are rated in one of the two highest categories (without regard to
pluses or minuses) for securities by Moody's or S&P;
(v) Shares of any open-end diversified investment
company registered under the Investment Company Act of 1940, as amended, or any
other so-called "money market fund" which, in either case, maintains a constant
net assets value per share in accordance with the regulations of the Securities
and Exchange Commission; has aggregated net assets of not less than $50 million
on the date of purchase; and to the extent practicable and in accordance with
its investment guidelines invests 85% of its assets in investments of the types
described either
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in clauses (i), (ii) and (iii) above or in investments of the types described
in clause (iv) above;
(vi) Obligations of any other entity substantially
all of the assets of which consist of Investments described in clauses (i),
(ii), (iii) and (iv) above;
(vii) Guarantees permitted by Section 16(j) hereof;
(viii) Any other Investment if and only so long as
(i) at the time of the making of such Investment and immediately after giving
effect thereto, no Event of Default or Default shall exist, (ii) the total
Indebtedness of the Borrower outstanding at the time of the making of such
Investment and immediately after giving effect thereto will not exceed 125% of
the Borrower's Tangible Net worth as at the end of the fiscal quarter most
recently ended, and (iii) the Borrower's Adjusted Pre-Tax Income for the period
of the four consecutive fiscal quarters most recently ended preceding the
making of such Investment was not less than 200% of the Borrower's Debt Service
for such period and, at the time of the making of such Investment and
immediately after giving effect thereto, such Adjusted Pre-Tax Income will not
be less than 200% of the Borrower's Pro Forma Debt Service for the one year
period immediately following the end of the fiscal quarter most recently ended;
provided, however, that notwithstanding the foregoing, the Borrower shall not
make an Investment in any Subsidiary without the prior written consent of the
Servicing Agent.
(j) Restrictions on Guarantees. The Borrower shall
not become or remain liable with respect to any Guarantee of any obligation of
any other Person except the following:
(i) Guarantees by the Borrower outstanding on the
date of this Agreement and listed in EXHIBIT I hereto;
(ii) Endorsements for collection or deposit in the
ordinary course of business;
(iii) Guarantees which individually do not exceed
$10,000 and collectively do not exceed $100,000; and
(iv) After the date when the principal balance of
the Loan as of the Cutoff Date has been paid down by one-half, any other
Guarantee if and only so long as (A) at the time of the creation or incurrence
of such Guarantee and immediately after giving effect thereto, no Event of
Default or Default shall exist, (B) the Total Indebtedness of the Borrower
outstanding at the time of the creation or incurrence of such Guarantee and
immediately after giving effect thereto will not exceed 125% of the Borrower's
Tangible Net worth as at the end of the fiscal quarter most recently ended, and
(C) the Borrower's Adjusted Pre-Tax Income for the period of the four
consecutive fiscal quarters most recently ended preceding the creation or
incurrence of such Guarantee was not less than 200% of the Borrower's Debt
Service for such period and, at the time of the creation or incurrence of such
Guarantee and immediately after giving effect thereto, such Adjusted Pre-Tax
Income will not be less than 200% of the
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Borrower's Pro Forma Debt Service for the one year period immediately following
the end of the fiscal quarter most recently ended.
(k) No Leasebacks. The Borrower shall not directly or
indirectly become liable, as lessee or guarantor or other surety, with respect
to any lease of real or personal property, whether now owned or hereafter
acquired which is to be sold or transferred by the Borrower to any Person or
which the Borrower intends to use for substantially the same purpose as any
other property which has been or is to be sold or transferred by the Borrower
to any Person in connection with such lease; provided, however, that the
prohibition contained in this paragraph shall not apply to any sale and
leaseback by the Borrower of any asset not subject to, or intended to be
subject to, the Security Interest after the date when the principal balance of
the Loan as of the cutoff date has been paid down by one-half, if and only so
long as (A) at the time of such transaction and immediately after giving effect
thereto, no Event of Default or Default shall exist, (B) the total Indebtedness
of the Borrower outstanding at the time of such transaction and immediately
after giving effect thereto will not exceed 125% of the Borrower's Tangible Net
Worth as at the end of the fiscal quarter most recently ended, and (C) the
Borrower's Adjusted Pre-Tax Income for the period of the four consecutive
fiscal quarters most recently ended preceding such transaction was not less
than 200% of the Borrower's Debt Service for such period and, at the time of
transaction and immediately after giving effect thereto, such Adjusted Pre-Tax
Income will not be less than 200% of the Borrower's Pro Forma Debt Service for
the one year period immediately following the end of the fiscal quarter most
recently ended.
(l) Pension Plans. The Borrower shall give the County
and the Servicing Agent ten (10) days written notice prior to the institution
by it of a Guaranteed Pension Plan subsequent to the date hereof. The Borrower
covenants as follows with respect to any Guaranteed Pension Plan hereafter
created:
(i) Funding of Pension Plans. The Borrower will
fund any Guaranteed Pension Plan as required by the provisions of Section 302
of ERISA and Section 412 of the Internal Revenue Code of 1986, as amended. The
Borrower will deliver to the Servicing Agent copies of any request for waiver
from the funding standards or extension of the amortization periods required by
Sections 303 and 304 of ERISA or Section 412 of the Internal Revenue Code of
1954, as amended, promptly following the date on which the request is submitted
to the Department of Labor or the Internal Revenue Service.
(ii) Copies of Pension Plan Reports. The Borrower
will send to the Servicing Agent copies of all Forms 5500 and/or Forms 5500C
relating to a Guaranteed Pension Plan together with all attachments thereto,
including any actuarial statement required to be made under Section 103(d) of
ERISA, promptly following the date on which any such form is filed with the
Department of Labor, except, in the case of any multi-employer plans, the
Borrower will cause such Forms and all such attachments thereto to be sent to
the Servicing Agent within a reasonable time after such Forms are filed with
the Department of Labor.
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(iii) Notice of Termination. The Borrower will
furnish to the Servicing Agent forthwith copies of (A) any notice sent by the
Borrower of a Guaranteed Pension Plan termination to the Pension Benefit
Guaranty Corporation under Section 404a(a) of ERISA, or (B) any notice, report,
or demand sent or received by the Borrower under Sections 4041, 4041, 4043,
4063, 4065, 4066 or 4068 of ERISA.
(iv) Payment of Pension Benefits. the Borrower
shall cause any Guaranteed Pension Plan to pay all benefits guaranteed by the
Pension Benefit Guaranty Corporation when due, except where the obligation to
pay such benefits is being contested in good faith by the Borrower.
(v) Terminate Pension Plan. The Borrower will
not terminate, withdraw from, or permit termination of any Guaranteed Pension
Plan if the aggregate asset value of all such Plans is more than $250,000 less
than the value of the benefits guaranteed by the Pension Benefit Guaranty
Corporation.
(vi) Pension Plan Distribution. The Borrower will
not permit any distribution described in Section 4043(b)(7) of ERISA to be made
from any Guaranteed Pension Plan of the Borrower.
(m) Maintenance of Capital. The Borrower will not make
any loan or transfer of assets to any parent, subsidiary or affiliate nor to
any officer, shareholder, director, or employee of the Borrower or to any other
Person, except for temporary advances in the ordinary course of business and
except upon such terms and conditions as may be approved in writing by the
JEDA, and the Borrower shall not purchase its own stock for value.
The Borrower shall not, without the prior written consent of the
Assignee, increase the aggregate compensation of those managers who are a part
of the Borrower's executive compensation plan (Exhibit K) from the current
amount of $1,165,000 to an amount which exceeds the lesser of (i) 10% of the
previous year's aggregate or (ii) an amount which will result in ratios of
aggregate executive salaries (Exhibit K) to sales which are no greater than
.014:1 in 1995; .016:1 in 1996 and .018:1 in 1997 and in each year thereafter;
provided however, that in no event shall overall compensation to management,
including without limitation salaries, bonuses, stock options and other
employee benefits and incentives, exceed industry average for similarly
situation regional air carriers. The compensation shall be set by the
compensation committee of the board of directors, whose membership shall have
two outside board members and one board member from management.
Except to the extent required to prepay the Note, all proceeds from
any public offering of stock of the Borrower within five years following the
Start-up Date shall be paid in as a capital contribution to the Borrower.
(n) Further Assurances. The Borrower shall execute and
deliver to the County or the Servicing Agent such further instruments, provide
it with such further data and information and take such further action as the
Servicing Agent may reasonably request or as
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may be necessary further to effect the purposes of the Loan Documents.
Section 17. Record Keeping and Reporting Requirements.
(a) The Borrower agrees to keep true records and books of
account in which entries will be made in accordance with Generally Accepted
Accounting Principles for the airlines industry as set forth in applicable
guidelines of the Financial Standards Board ("FASB") consistently applied and
will maintain accounts and reserves adequate in the opinion of the management
of the Borrower, for all taxes (including income taxes), all depreciation,
depletion, obsolescence and amortization of its properties, all other
contingencies, and all other proper reserves.
(b) The Borrower shall furnish to the Servicing Agent:
(i) within 120 days of the end of each fiscal
year (commencing with the fiscal year ended August 31, 1995) the balance sheet
of the Borrower, as at the end of such fiscal year and the related statements
of income, stockholders' equity and changes in financial position of each of
the Borrower as at the end of such fiscal year, accompanied in each case by the
report or audit of Deloitte & Touche or, if they cease to be the auditors of
the Borrower, other independent certified public accountants of recognized
national standing, together with a certification of such accountants to the
effect that such financial statements have been prepared in accordance with
Generally Accepted Accounting Principles and FASB guidelines applied on a basis
consistent with prior years (except as to changes described therein with which
such accountants concur) and fairly present the respective financial conditions
of the Borrower at the dates thereof and the results of its operations and
changes in financial position for the periods covered thereby. In addition,
such financial statements of the Borrower shall be accompanied by (A) the
statement of such accountants that they have caused the provisions of this
Agreement and the other Loan Documents to be reviewed and that in the course of
their audit of the Borrower nothing has come to their attention to lead them to
believe that any Default hereunder exists and in particular that they have no
knowledge of any Default under the provisions of Sections 16(c), (d) or (f)
hereof, or, if such is not the case, specifying such Default or possible
Default and the nature thereof, it being understood that the examination of
such accountants cannot be relied upon to give them knowledge of any such
Default except as it relates to accounting or auditing matters, (B)
computations by the Borrower demonstrating, as of the close of such fiscal
year, compliance with Sections 16(c), (d) or (f) hereof, and (C) the
certificate of the President, Chief Financial Officer or other officer approved
in advance by the Servicing Agent of the Borrower,that such officer has caused
the provisions of this Agreement to be reviewed and has no knowledge of any
Default, or if any such officer has such knowledge, specifying such Default,
and the nature thereof, and what action the Borrower has taken, is taking or
proposes to take with respect thereto;
(ii) within 45 days after the end of the first
three fiscal quarters of each fiscal year of the Borrower, the balance sheet of
the Borrower as of the end of such quarter and the related statements of Net
Income, stockholders' equity and changes in financial position for
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the portion of the fiscal year of the Borrower then ended, certified by the
President or Chief Financial Officer or other officer approved in advance by
the Servicing Agent of the Borrower as having been properly prepared in
accordance with Generally Accepted Accounting Principles and FASB guidelines
consistently applied and as fairly presenting the financial position of the
Borrower at the dates thereof and the results of its operations and changes in
financial position for the periods covered thereby, subject only to normal
year-end audit adjustments, together with (A) computations by the Borrower
demonstrating, as of the close of such fiscal quarter, compliance with Sections
16(c), (d) and (f), and if applicable, compliance with Sections 16(e),
16(g)(viii), 16(h)(x), 16(i)(viii), 16(j)(iv), and 16(k), as the case may be,
and (B) a written certificate of such officer that no Default exists as of the
balance sheet date or the date of such certificate or, if any such Default
exists, specifying the same and the actions being taken by the Borrower with
respect thereto;
(iii) by noon on Wednesday of each week, an
operational report for the preceding Monday through Sunday, which shall include
the Borrower's management report, which shall include without limitation the
information specified in Section 4(n) and such other information reflecting the
operations and maintenance performance of the Borrower as the Servicing Agent
shall request from time to time;
(iv) within seven days of becoming aware of the
existence of (A) any condition or event which constitutes an Event of Default
or a default under any other agreement in respect of Indebtedness for borrowed
money or any event which, with notice or lapse of time or both, would
constitute such an Event of Default or default or (B) any threatened or pending
litigation or administrative proceedings which, if adversely determined, could
have a material adverse effect on the business or financial condition of the
Borrower, written notice to the Servicing Agent specifying the nature thereof
and, with respect to (A), the duration thereof and the action proposed to be
taken with respect thereto;
(v) within thirty (30) days of its occurrence,
information with respect to any action, claim or other event involving the
Borrower that could be reasonably expected to result in a loss that would have
a material adverse effect on the business or financial condition of the
Borrower; and
(vi) from time to time such other financial data
and information concerning the Borrower or any Affiliate thereof as the County
or the Servicing Agent may request.
(c) All financial statements delivered and to be
delivered to the Servicing Agent or the County by or on behalf of the Borrower
in connection with this Agreement shall fairly and accurately show the present
and projected financial condition and the income of the Borrower, prepared in
accordance with Generally Accepted Accounting Principles.
Section 18. Inspection. The Borrower, at its own expense, will
permit any authorized agents and representatives of the County or the Servicing
Agent, at any reasonable time and
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from time to time upon reasonable notice to examine and make copies of and
abstracts from the records and books of account of, and visit the properties
of, the Borrower and discuss the general business affairs, assets, liabilities,
financial condition, results of operations and business prospects of the
Borrower with its officers and independent accountants.
Section 19. Reliance upon Advisors. The County and the Servicing
Agent shall have the right from time to time and at any time to request advice
from such attorneys, accountants, appraiser,s engineers, consultants and other
advisors of its choosing and shall have the right to obtain an independent
appraisal of the market value of any Machinery and Equipment and/or Real
Property included in the Financial Covenants, which shall be determined by
appraisers selected by or acceptable to the Servicing Agent. The Borrower
shall be responsible for all reasonable fees and expenses associated therewith.
Section 20. Events of Default. Any one or more of the following
events shall constitute an event of default of the Borrower hereunder (an
"Event of Default"):
(a) if any representation or warranty made herein or in
any report, certificate, financial statement or other instrument furnished in
connection with this Agreement shall prove to be false or misleading in any
material respect;
(b) default in the payment of any installment of the
principal of or interest on the Note and such default shall continue unremedied
for two (2) business days;
(c) the Borrower relocates contrary to the covenants
contained herein, or the Borrower shall cease to be a commercial airline, or
the franchises, concessions, permits, rights or privileges required for the
conduct of the business and operations f the Borrower shall be revoked,
canceled or otherwise terminated or the free and continued use and exercise
thereof curtailed or prevented, and as a result thereof the preponderant
business activity of the Borrower shall cease to be that of a commercial
airline;
(d) failure of the Borrower to observe and perform any
covenant, condition or agreement hereunder on its part to be performed (except
obligations referred to in (b) (c) above) and continuance of such failure for a
period of thirty (30) days after receipt by the Borrower of written notice from
the Servicing Agent or the County, specifying the nature of such failure and
requesting that it be remedied; provided, however, that if, by reason of the
nature of such failure, the same cannot be remedied within the said 30 days and
the Borrower proceeds with reasonable diligence after receipt of said notice to
cure same, such period may be extended upon the prior written consent of the
Servicing Agent;
(e) any document or instrument required to be filed or
recorded on a public registry or record shall not be duly filed, recorded on
such date and time and in such place or places as shall be required to perfect
or continue the perfection of the security interest of the County in and to the
Collateral or of the lien and security interest of any aircraft chattel
mortgage or security agreement constituting a Loan Document;
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(f) any default occurs under the provisions of any other
Loan Document;
(g) any obligation of the Borrower for the payment of
borrowed money (with respect to either principal or interest), shall not be
paid when the same becomes due whether by acceleration or otherwise after the
expiration of any applicable grace period, or shall be declared due and payable
prior to the maturity thereof; or the Borrower shall default in the performance
of any other term, agreement or condition contained in any agreement or
instrument under or by which any such obligation created, evidence or secured,
if the effect of such default is to cause, or permit the holder or holders of
such obligation (or a trustee on behalf of such holder or holders) to cause,
such obligation to become due prior to its stated maturity;
(h) the Borrower shall consent to the appointment of a
receiver, trustee or liquidator of itself for of a substantial part of its
property, or shall admit in writing its inability to pay its debts generally as
they come due, or shall make a general assignment for the benefit of creditors;
(i) the Borrower shall file a voluntary petition in
bankruptcy or a voluntary petition or an answer seeking reorganization in a
proceeding under any bankruptcy laws (as now or hereafter in effect) or an
answer admitting the material allegations or a petition filed against it in any
such proceeding, or it shall, by voluntary petition, answer or consent, seek
relief under the provision of any other now existing or future bankruptcy or
other similar law providing for the reorganization or winding-up of
corporations, or providing for an agreement, composition. extension or
adjustment with its creditors;
(j) an order, judgment or decree shall be entered in any
proceeding by any court of competent jurisdiction appointing, without the
consent of the Borrower, a receiver, trustee or liquidator of the Borrower or
of any substantial part of its property, or sequestering any substantial part
of its property, and any such order, judgment or decree of appointment or
sequestration shall remain in force undismissed, unstayed or unvacated for a
period of 90 days after the date of entry thereof;
(k) a petition against the Borrower in a proceeding under
applicable bankruptcy laws or other insolvency laws as now or hereafter in
effect, shall be filed and shall not be withdrawn or dismissed within 30 days
thereafter, or if, under the provisions of any law providing for reorganization
or winding-up of corporations which may apply to the Borrower, any court of
competent jurisdiction shall assume jurisdiction, custody or control of it or
of any substantial part of its property and such jurisdiction, custody or
control shall remain in force unrelinquished, unstayed or unterminated for a
period of 30 days; or
(l) final judgment for the payment of money in excess of
$100,000 shall be rendered against the Borrower and shall remain undischarged
for a period of 30 days during which execution of such judgment shall not be
effectively stayed.
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Section 21. Remedies of the County.
(a) If any Event of Default shall occur and be
continuing, then the County, through the Servicing Agent or in its own right,
may, forthwith and,to the extent permitted by law, without notice of any kind
to the Borrower exercise any of the following remedies:
(i) declare the entire principal amount of the
Note to be due and payable forthwith, whereupon the Note shall become
forthwith, due and payable, both as to principal and interest, without
presentment, demand, protest or other notice of any kind, all of which are
hereby expressly waived, anything contained herein or in the Note to the
contrary notwithstanding;
(ii) take any action at law or in equity to
collect the payments than due and thereafter to become due under the Note or to
enforce performance and observance of any obligation, agreement or covenant of
the Borrower under this Agreement or any other Loan Document;
(iii) exercise all the rights and remedies upon
default, in foreclosure and otherwise, available under any of the Loan
Documents or available to mortgagees or secured parties under the provision of
applicable law, including without limitation all the rights and remedies under
Article 9 of the Uniform Commercial Code of the State;
(iv) institute legal proceedings to foreclose upon
and against the lien and security interest granted by any Loan Document to
recover judgment for all amounts then due and owing as obligations secured
hereby, and to collect the same out of any or all of the Collateral or the
proceeds of any sale thereof;
(v) sell, or to the extent required by applicable
law, institute legal proceedings for the sale, under the judgment or decree of
any court of competent jurisdiction, or any or all of the Collateral;
(vi) without regard to the adequacy of the value
of the Collateral used as security for the obligations of the Borrower
hereunder the other Loan Documents or to the solvency of the borrower,
institute legal proceedings for the appointment of a receiver or receivers;
(vii) personally or by agents or attorneys, and with
or, to the extent permitted by applicable law, without further notice or legal
process, enter upon any premises part thereof, including all records relating
to the Collateral, without being responsible for loss or damage to any
Collateral as to which the county or the Servicing Agent has taken possession,
hold, remove, store, and keep idle, or lease, operate, or otherwise use or
permit the use of, the Collateral or any part thereof, for such time and upon
such terms as the County or the Servicing Agent, as the case may be, may in its
sole and complete discretion deem to be in the County's own best interest, and
demand, collect, and retain all rents, earnings, and other sums due and to
become due in respect of the same from any party whomsoever, accounting only
for net
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<PAGE> 41
earnings, if any, arising from such use and charging against all receipts from
the use of the same or from the sale thereof, by court subsection (b) below,
all other costs, expenses, charges, damages, and other losses resulting from
such use.
(b) If the County or the Servicing Agent should elect to
foreclose upon and against the lien and security interest created in and by any
Loan Document or take possession of the Collateral thereunder,the Borrower
shall, upon demand of the county or the servicing Agent, deliver to the County
or the servicing Agent, all or any part of the Collateral at such time or times
and place or places as the County or the Servicing Agent may specify.
(c) At any sale pursuant to this section, whether under
the power of sale or by virtue of judicial proceedings, it shall not be
necessary for the County, the Servicing Agent or a public officer under order
of a court to have present physical or constructive possession of the
Collateral to be sold. the recitals contained in any conveyances and receipts
made and given by the County or such public officer to any purchaser at any
sale pursuant to any Loan Document shall, to the extent permitted by applicable
law, conclusively establish the truth and accuracy of the matters therein
stated (including, without limiting the generality of the forgoing, the
obligations of the Borrower hereunder, under the Loan Documents and the accrual
and nonpayment thereof and advertisement and conduct of such sale in the manner
provided herein and by applicable law); and all prerequisites to such sale
shall be presumed to have been satisfied and performed. Upon any sale
hereunder or under any Loan Document of any or all of the Collateral of any
interest therein, the receipt of the officer making such sale upon judicial
proceedings or of the county or the servicing Agent shall be sufficient
discharge to the application thereof. Any sale hereunder of any or all of the
Collateral or any interest therein shall forever by a perpetual bar against the
Borrower with respect to such Collateral or interest therein, as the case may
be.
Upon any such sale or other disposition, the Borrower
shall then be liable for the difference between the loan payments and other
amounts due under this Agreement and the Note and amounts received pursuant to
such assignment or contract of sale or lease or other disposition of the
Borrower's interest in the Collateral, and the amount of such difference shall
then be immediately due and payable. The Borrower also agrees that in the
event the County or the Servicing Agent does take possession of the Collateral
as provided herein, the obligation of the Borrower to pay such loan payments
due or to become due under this Agreement and Note shall survive such
repossession.
The County, acting in its own or through the
Servicing Agent, may sell, lease and dispose of, or cause to be sold, leased
and disposed of all or any part of the Collateral at one or more public or
private sales, leasing or other dispositions, at such places and times, and on
such terms and conditions as the County or the Servicing Agent, as the case may
be, may deem fit, with or without any previous demand or notice to the Borrower
or advertisement of any such sale, lease or other disposal to the fullest
extent permitted by law; and for the aforesaid purpose all notices of sale,
lease or other disposition, and advertisement, and other notice or
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demand, any right or equity of redemption, and any obligation of a prospective
purchaser or lessee to inquire as to the power and authority of the County to
sell, lease or otherwise dispose of the Collateral or as to the application by
the County or the Servicing Agent, as the case may be, of the proceeds of sale,
lease or otherwise, which would otherwise be required by, or available to the
borrower under, applicable law are hereby expressly waived by the Borrower to
the fullest extent permitted by such Law. In the event that any mandatory
requirement of applicable law shall obligate the County or the Servicing Agent,
as the case may be, to give prior notice to the Borrower of any of the
foregoing acts, the Borrower hereby agrees that a written notice sent to it so
as reasonably to be expected to be delivered to the Borrower at least five (5)
business days before the date of any such act as its address specified for the
Borrower in any Loan Document, shall be deemed to be reasonable notice of such
act and, specifically, reasonable notification of the time after which any
private sale, lease or other disposition intended to be made hereunder is to be
made.
(d) If the County or the Servicing Agent shall have
proceeded to enforce the rights of the County under this Agreement and such
proceedings shall have been discontinued or abandoned for any reason or shall
have been determined adversely to the county, then the Borrower and the County
shall be restored respectively to their several positions and rights hereunder,
and all rights, remedies and powers of the Borrower and the County shall
continue as though no such proceedings had taken place.
(e) No remedy herein conferred or reserved to the County
is intended to be exclusive of any other available remedy or remedies, but each
and every such remedy shall be cumulative and shall be in addition to every
other remedy given under this Agreement or now or hereafter existing at law or
in equity or by statute. No delay or omission to exercise any right or power
accruing upon any default shall impair any such right or power or shall be
construed to be a waiver thereof; nor shall any single or partial exercise of
any right hereunder preclude any other or further exercise thereof or the
exercise of any other right. The remedies herein provided are cumulative and
not exclusive of any remedies provided by law, and any such right and power may
be exercised from time to time and as often as may be deemed expedient. In
order to entitle the County to exercise any remedy reserved to it in this
Section, it shall not be necessary to give notice other than such notice as may
be required in this Section.
(f) In addition to the above remedies, if the Borrower
commits a breach, or threatens to commit a breach of this Agreement, the
County, in its own right or acting through the Servicing Agent, shall have the
right and remedy, without posting bond or other security, to have the
provisions of this Agreement specifically enforced by any court having equity
jurisdiction, it being acknowledged and agreed that any such breach or
threatened breach will cause irreparable injury to the County and that money
damages will not provide an adequate remedy therefor.
(g) In the event the Borrower shall default under any of
the provisions of this Agreement and the County or the Servicing Agent shall
require and employ attorneys or incur other expenses for the collection of
payments due or to become due for the enforcement
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or performance or observance of any obligation or agreement on the part of the
Borrower herein contained, the Borrower shall on demand therefor pay to the
County and the Servicing Agent, the reasonable fees of such attorneys and other
expenses so incurred by the County and/or the Servicing agent.
(h) Neither the County nor the Servicing Agent shall be
required to do any act whatsoever or exercise any diligence whatsoever to
mitigate the damages to the Borrower if an Event of Default shall occur
hereunder.
Section 22. Expenses. The Borrower agrees to pay on demand all
reasonable costs and expenses in connection with the review, preparation,
execution, delivery, and administration of this Agreement, the other Loan
Documents, the HUD Contract, the Fiscal Agency Agreement, the Air South
HUD-Guaranteed Note and any other documents which may be delivered in
connection herewith and therewith, including without limitation the reasonable
fees and out-of-pocket expenses of counsel for the County, JEDA and the
Servicing Agent with respect thereto and with respect to advising the County,
JEDA and the Servicing Agent as to their respective rights and responsibilities
under this Agreement and any such other document, and all costs and expenses,
if any, in connection with the enforcement of this Agreement, the other Loan
Documents and such other documents which may be delivered in connection
herewith and therewith. In addition, the Borrower shall pay any and all stamp
and other taxes and fees payable or determined to be payable in connection with
the execution, delivery, filing and recording of this Agreement, the other Loan
Documents and such other documents and agrees to save the County, JEDA and the
Servicing Agent harmless from and against any and all liabilities with respect
to or resulting from any delay in paying or omission to pay such taxes and
fees.
Upon the failure of the Borrower to pay any such fees,expenses
or costs to be paid by the Borrower, the Servicing Agent may, in its sole
discretion and without notice to any person, disburse moneys under the Loan on
behalf of the County to pay the same.
Section 23. Release and Indemnification. The Borrower hereby
releases the County, JEDA, the State and the Servicing Agent from, and agrees
that the County, JEDA, the State and the Servicing Agent, and their respective
officers, directors, members, employees, attorneys and agents shall not be
liable for, and agrees to indemnify and hold harmless the County, JEDA, the
State and the Servicing Agent and their respective officers, directors,
members, employees, attorneys and agents against:
(a) any liability, cost or expense in the
administration of the HUD Contract, the Air South HUD-Guaranteed Note,the Loan,
this Agreement and the other Loan Documents (hereinafter collectively referred
to as the "HUD Documents") and the obligations imposed on the County, JEDA, the
State and the Servicing Agent hereby and thereby;
(b) any or all liability or loss, cost or
expense, including reasonable attorneys' fees, resulting from or arising out of
any loss or damage to property or any injury to
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or death or any person occurring in connection with or on or about the
Corporate Headquarters or the Sir South Operations or resulting from any defect
in the fixtures, machinery, equipment or other property used in connection with
the Corporate Headquarters or the Air South Operations or arising out of,
pertaining to, or having any connection with, the Corporate Headquarters or the
Air South Operations or the financing thereof (whether or not arising out of
acts, omissions or negligence of the Borrower or any of its agents,
contractors, servants, employees, licensees, lessees or assignees);
(c) any or all liabilities or loss, cost or
expense including attorneys' fees, arising out of or in connection with or
pertaining to the issuance, sale or delivery of the Air South HUD-Guaranteed
Note including, but not limited to, liabilities arising under the Securities
Act of 1933, the Securities Exchange Act of 1934 or any applicable state
securities laws, but such indemnity for securities liabilities shall be subject
to the limitation that the Borrower shall not be liable for any representations
made with respect to the county, JEDA, the State or the Servicing Agent; and
(d) any or all liability or loss, cost or
expense, including attorneys' fees, arising out of or in connection with or
pertaining to the transactions contemplated under this Agreement, the other
Loan Documents or the HUD Documents, including without limitation any
liability, loss, cost or expense arising under the environmental laws of any
jurisdiction.
Notwithstanding the fact that it is in the intention of the parties
hereto that neither the County, JEDA, the State, the Servicing Agent nor their
respective officers, directors, members, employees, attorneys and agent shall
incur any pecuniary liability by reason of the terms of this Agreement or other
Section 108 Documents, or the undertakings required of the County, JEDA, the
State and the Servicing Agent hereunder and thereunder, by reason of the
issuance and sale of the Air South HUD-Guaranteed Note, the execution of the
Section 108 Documents or the performance of any act requested of the County,
JEDA, the State or the Servicing Agent by the Borrower, including all claims,
liabilities or losses arising in connection with the violation of any statues
or regulations pertaining to the foregoing, nevertheless, if the County, JEDA,
the State or the Servicing Agent, or any of their respective officers,
directors, members, employees, attorneys or agents should incur any such
pecuniary liability, then in such event, the Borrower shall indemnify and hold
the County, JEDA, the State and the Servicing Agent, and their respective
officers, directors, members, employees, attorneys and agents harmless against
all claims by or on behalf of any person, firm or corporation or other legal
entity arising out of the same and all costs and expenses incurred in
connection with any such claim or in connection with any action or proceeding
brought thereon. Upon notice from the County, JEDA, the State or the Servicing
Agent, the Borrower shall defend the County, JEDA, the State, the Servicing
Agent and their respective officer, directors, members, employees, attorneys
and agents in any such action or proceeding. If called upon to provide
indemnity under this Section 23, the Borrower shall be subrogated to the rights
of the indemnified party.
Section 24. Continuing Obligation: No Assignment by Borrower. All
covenants, agreements, representations and warranties made or incorporated
herein and in certificates delivered pursuant hereto shall be deemed to have
been material and relied on by the County,
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notwithstanding any investigation made by the County or on its behalf, and
shall survive the execution and delivery hereof and thereof. This Agreement is
a continuing obligation and shall (a) be binding upon the parties and their
respective successors and assigns and (b) inure to the benefit of and be
enforceable by the parties and their respective successors, transferees and
assigns; provided, that the Borrower may not assign all or any part of this
Agreement without the prior written consent of JEDA as Assignee.
Section 25. Notices. Any notices required to be sent under this
Agreement shall be sent to the following addresses, unless any party shall have
provided the other parties with written notice to the contrary:
(1) The County at: 217 South Lake Drive
Lexington, SC 29072
(2) JEDA at: 1201 Main Street, Suite 1750
Columbia, SC 29201
(3) The Borrower at: 1800 St. Julian Place, 4th Floor
Columbia, SC 29204
Section 26. Miscellaneous.
(a) This Agreement and the Loan Documents constitute the
entire agreement as to the Loan, and supersede all prior agreements and
understandings, both written and oral among the parties with respect to the
subject matter hereof and may be executed simultaneously in several
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same instrument.
(b) Modifications or waivers of any provisions of this
Agreement or the Note must be in writing.
(c) The execution, delivery and performance of this
Agreement shall not be deemed a waiver of any deferral of sovereign immunity
which may otherwise be available to a governmental body or entity of South
Carolina.
(d) In the event any provision of this Agreement shall be
held invalid or unenforceable by any court of competent jurisdiction, such
holding shall not invalidate or render unenforceable any other provision
thereof.
(e) This Agreement shall become effective upon its
execution and delivery by the parties hereto, shall remain in full force from
the date hereof and, subject to the provisions hereof, shall expire on such
date as the Note and the interest thereon and all other expenses or sums to
which the County and the Servicing Agent are entitled, have been fully paid and
retired; provided, however, that the obligation of the Borrower to pay
additional interest with respect
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to the Note in the event it fails to comply with the low to moderate income
hiring requirement, shall survive payment of the Note, and this Agreement shall
not expire until such obligation is satisfied.
(f) This Agreement shall inure to the benefit of and be
binding upon the successors and assigns of the County and the Borrower.
(g) This Agreement shall be construed and enforced under
the laws of the State of South Carolina. Be executing this Loan, the Borrower
agrees to submit to the jurisdiction in the courts of the State of south
Carolina or the appropriate federal courts for all matters arising or to arise
hereunder.
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IN WITNESS WHEREOF, the County and the Borrower have caused
this Agreement to be executed in their respective names by their manual
signatures as of the date first above written.
COUNTY OF LEXINGTON
By: /s/ Bruce E. Rucker
----------------------
Bruce E. Rucker
Council Chairman
(SEAL)
ATTEST:
By: /s/ Dot Black
------------------------
Dot Black
Clerk to Council
AIR SOUTH, INC.
By: /s/ Patrick O'Shea
-------------------
Patrick O'Shea
President
(SEAL)
ATTEST:
By: /s/ Donald Baker
------------------------
Donald Baker, Secretary
<PAGE> 48
EXHIBIT A
Definitions
The following terms as used in the Agreement and any certificate or document
executed in connection therewith shall have the following meanings (or are
defined elsewhere in this Agreement as indicated below) unless the context
otherwise indicates:
"Account Debtor" means a person who is obligated on a Receivable.
"Adjusted Pre-Tax Income", for any period, means the sum of (a) Net
Income for such period plus (b) all amounts in respect of federal and state
income taxes deducted in determining such Net Income, plus (c) all amounts
deducted in calculating such Net Income in respect of depreciation,
amortization, interest expense (including payments in the nature of interest
under Capitalized Leases).
"Affiliate" means any Person directly or indirectly controlling,
controlled by or under direct or indirect common control with the Borrower and
shall include without limitation (i) each Person who is an officer or director
of the Borrower or members of their immediate families (whether or not living
under the same roof), or any direct or indirect beneficial holder of at least
5% of the outstanding equity securities of the Borrower having the general
power to vote and (ii) any Person of which the Borrower or an Affiliate (as
defined in clause (i) above) of the Borrower shall, directly or indirectly,
either beneficially own at least 5% of the outstanding equity securities having
the general power to vote or constitute at least a 5% participant.
"Agreement" means this Loan Agreement dated as of July 15, 1994,
between the County and the Borrower, as amended from time to time pursuant to
the terms hereof.
"Air South HUD-Guaranteed Note" - see recitals.
"Air South Operations" means the air carrier services and related
business of the Borrower, which shall be conducted substantially in accordance
with the Business Plan.
"Assignee" means JEDA, as assignee of the County's right, title and
interest in and to the Note, the Collateral and under this Agreement and the
other Loan Documents, all in accordance with the Assignment and Servicing
Agreement, and its successors and assigns.
"Assignment and Servicing Agreement" means the Assignment and
Servicing Agreement of even date with the Agreement among the County, JEDA and
the Borrower, as amended from time to time pursuant to the terms thereof.
"Borrower" means Air South, Inc., a corporation organized and existing
under the laws of the State of Illinois, and its permitted successors and
assigns.
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<PAGE> 49
"Business Day" means any Monday through Friday except a day on which
federal or state offices are authorized to be closed or banks operating in the
state are authorized to be closed.
"Business Plan" means the Business Plan of the Borrower dated February
17, 1994, as the same may be amended from time to time by the Borrower with the
prior written consent of JEDA in its capacity as Assignee.
"Capitalized Lease" means any lease which is or should be capitalized
on the balance sheet of the lessee in accordance with generally accepted
accounting principles and Statement No. 13 of the Financial Accounting
Standards Board.
"Capitalized Lease Obligations" means the amount of the liability
reflecting the aggregate discounted amount of future payments under all
Capitalized Leases calculated in accordance with generally accepted accounting
principles and Statement No. 13 of the Financial Accounting Standards Board.
"Cash Flow Shortfall" means, as of the date of any calculation, the
excess of the Operating Reserve Amount over the Ending Cash Balance.
"Charter" shall include the articles or certificate of incorporation,
statue, constitution, joint venture or partnership agreement or articles or
other charter of any Person other than an individual, each as from time to time
amended or modified.
"City" means the City of Columbia, South Carolina.
"Collateral" means all assets of the Borrower (see Section 4(d)).
"Controlling Owners" means those shareholders of the Borrower shown on
EXHIBIT J attached hereto and their respective successors and assigns.
"Corporate Headquarters" means Borrower's corporate headquarters and
central reservation center in the City.
"CDBG Pledge" means the pledge of the County and State's entitlements
to Community Development Block Grant monies to the Secretary with respect to
the Air South HUD-Guaranteed Note.
"County" means the County of Lexington, a body corporate and politic,
and a political subdivision of the State, and its successors and assigns.
"Current Liabilities" means all liabilities of the indicated Person
maturing on demand or within one year from the date as of which current
liabilities are to be determined and such other liabilities (including taxes
accrued or estimated and amounts owed which have accelerated) as may properly
be classified as current liabilities on a balance sheet in accordance with
Generally
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<PAGE> 50
Accepted Accounting Principles.
"Cutoff Date" means the earlier of april 1, 1996 or the date of an
initial public offering of stock in the Borrower.
"Debt Service" means, for any period for which the amount thereof
shall be determined, the aggregate amount of all interest and of all mandatory
payments, prepayments and sinking fund payments of principal (including
payments in the nature of principal and interest under Capitalized Leases)
required to be accrued or paid by the Borrower on all Indebtedness of the
Borrower for borrowed money or in respect of Capitalized Leases or secured by
purchase money Liens, including, without limitation, all Indebtedness of the
Borrower under this Agreement and any other Loan Document, all as determined in
accordance with Generally Accepted Accounting Principles.
"Default" means any Event of Default or any event, circumstance or
condition which, with the giving of notice or the passage of time or both,
would constitute an Event of Default.
"Default Rate" means, upon the time of any determination thereof, the
rate of interest per annum then applicable to the Note plus two percent (2%).
"Distribution" means the declaration or payment of any dividend on or
in respect of any shares of any class of capital stock of the Borrower, other
than dividends payable solely in shares of capital stock of the Borrower; the
purchase of other retirement of any shares of any class of capital stock of the
Borrower, directly or indirectly; or any other distribution on or in respect of
any shares of any class of capital stock of the Borrower.
"Emergency Cash Reserve Account" means the account of such name
established jointly by the Servicing Agent and the Borrower pursuant to the
provisions of Section 5(b) of this Agreement.
"Ending Cash Balance" shall mean the actual ending cash balance of the
Borrower as of the end of any reporting period, calculated in accordance with
generally accepted accounting practices applied consistently.
"Equity Contributions" means paid in contributions to capital and
shall include an amount representing in-kind contributions of not more than
$250,000, but shall exclude any contributions made with funds borrowed from the
Borrower and amount equal to any grants from the State or from the City, the
County, Richland County or any other governmental or quasi-governmental entity.
"ERISA" means the Employees Retirement Income Security Act of 1974, as
amended from time to time.
"Event of Default" - See Section 20.
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"FAA" means the Federal Aviation Administration.
"Federal Act" means Section 108 of the Housing and Community
Development Act of 1974, as amended.
"Federal Regulations" means the regulations promulgated under the
Federal Act and other federal regulations applicable to the transactions
contemplated hereby.
"Financing statements" means any financing statements required to be
filed under the uniform commercial code as in effect in any state where such a
financing statement is required to be filed with respect to the Security
Interest.
"Fiscal Agency Agreement" means the fiscal Agency Agreement to be
entered into between the Fiscal Agent and the County pursuant to the HUD
Contract, as from time to time in effect.
"Fiscal Agent" means Chemical Bank or such other fiscal agent as may
be appointed from time to time pursuant to the fiscal Agency Agreement.
"Generally Accepted Accounting Principles" means generally accepted
accounting principles as defined by the financial Accounting Standards Board as
from time to time in effect that are consistently applied.
"Government Obligations" means direct obligations of, or any
obligation for which the full and timely payment of principal and interest is
guaranteed by, the United States of America, including but not limited to,
United States Treasury Certificates of Indebtedness, Notes and Bonds - State
and Local Government Series, or certificates of ownership of the principal of
or interest on direct obligations of, or obligations unconditionally guaranteed
by, the United States of America, which obligations are held in trust by a
commercial bank which is a member of the Federal Reserve System and has capital
and surplus (exclusive of undivided profits) in excess of $100,000,000.
"Guarantee" means (a) any guarantee of the payment or performance of
any Indebtedness or other obligation of any obligor, and (b) any other
arrangement whereby credit is extended to one obligor on the basis of any
promise or undertaking of another Person, whether that promise or undertaking
is expressed in terms of any obligation to pay the Indebtedness of such
obligor, or to purchase or lease assets under circumstances that would enable
such obligor to discharge one or more of its obligations or to maintain the
capital, working capital, solvency or general financial condition of such
obligor, whether or not such arrangement is disclosed in the balance sheet of
such other person or is a footnote thereto.
"Guaranteed Pension Plan" means any pension plan maintained by the
Borrower or to which it contributes, the benefits under which are guaranteed in
whole or in part by the Pension Benefit Guaranty Corporation, or any profit
sharing plan maintained by the Borrower pursuant
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<PAGE> 52
to the business Plan.
"HUD" means the United States Department of Housing and Urban
Development.
"HUD Contract" means that certain Contract for Loan Guarantee
Assistance under Section 108 of the Housing and Urban Development Act of 1974,
as amended, 42 U.S.C. Section 5308 to be entered into by the County, JEDA and
HUD.
"HUD Documents" means the HUD Contract, the HUD Guarantee, the Fiscal
Agency Agreement and the Air South HUD-Guaranteed Note.
"HUD Guarantee" means the guarantee provided by HUD under Section 108
of the Federal Act.
"HUD-Guaranteed Notes" means those notes guaranteed by HUD under the
Federal Act.
"Indebtedness" means all obligations, contingent and otherwise, which
in accordance with Generally Accepted Accounting Principles should be
classified upon the balance sheet of the obligor as liabilities, but in any
event including liabilities secured by any mortgage, pledge, security interest,
lien, charge or other encumbrance existing on property owned or secured of the
obligor, whether or not the liability secured thereby shall have been assumed,
obligations under leases which are capitalized on the balance sheet of the
obligor in accordance with Generally Accepted Accounting Principles
consistently followed, and all obligations on account of Guarantees in respect
to the Indebtedness of others and obligations to reimburse the issuer of a
letter of credit, whether or not reflected on such balance sheet or in a
footnote thereto.
"Investments" means the aggregate of all expenditures made and all
liabilities incurred (contingently or otherwise) for the acquisition of stock
or Indebtedness of, or for loans, advances, capital contributions or transfer
of property to, or in respect of any guarantees (or other commitments as
described under Indebtedness) or obligations of any Person, except transfer of
property to, or in respect of any guarantees (or other commitments as described
under Indebtedness) or obligations of any Person, except transfers or
deliveries made against receipt of full value in cash or made in the ordinary
course of business. In determining the aggregate amount of Investments
outstanding at any particular time (a) the amount of any Investment represented
by a guarantee shall be taken at not less than the principal amount of the
obligations guaranteed and still outstanding: (b) there shall be included as an
Investment all interest accrued with respect to Indebtedness constituting an
Investment unless and until such interest is paid; (c) there shall be deducted
in respect of each such Investment any amount received as a return of capital
(but only by repurchase, redemption, retirement, repayment, liquidating
dividend or liquidating distribution); (d) there shall not be deducted in
respect of any Investment any amount received as earnings on such Investment,
the foregoing clause (b) may be deducted when paid; and (e) there shall not be
deducted from the aggregate amount of Investments any decrease in the value
thereof.
"JEDA" means the South Carolina Jobs-Economic Development Authority,
and its
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successors and assigns.
"Lien" - See Section 16(h).
"Loan" - See Section 2(a).
"Loan Documents" means the Agreement, the Note, the Security
Agreement, the Assignment and Servicing Agreement, any Security Document, any
Financing Statements and any other document, instrument or agreement
hereinafter entered into in connection with the transactions contemplated by
the Agreement.
"Local Memorandum" means the Memorandum of Understanding among the
County, Richland County, the City and the Borrower dated March 15, 1994.
"Machinery and Equipment", with respect to any Person, includes, in
each case whether now or hereafter existing or now owned or hereafter acquired
by such Person and wherever located, all goods, as defined in Article 9 of the
Uniform Commercial Code, and all replacements and substitutions therefor and
all accessions thereto and proceeds thereof, which good shall include but not
limited to all machinery, equipment and fixtures but shall exclude any goods
that constitute inventory.
"Net Income," for any period, means the net after-tax income of the
indicated Person for such period determined in accordance with Generally
Accepted Accounting Principles after eliminating all intercompany items and
after deducting portions of net income properly attributable to minority
interest, if any, in Subsidiaries, provided, however that there shall be
excluded for net income: (i) the income (or deficit) of any Person accrued
prior to the date it becomes a Subsidiary or is merged into or consolidated
with the Borrower or a Subsidiary, (ii) the income (or deficit) of any Person
(other than a Subsidiary) in which the Borrower or any Subsidiary except to
the extent that any such income has actually been received by the Borrower or
such Subsidiary in the form of cash dividends or similar distribution, all
computed net of taxes attributable to such excluded or included income, (iii)
any income resulting from any write-up of any asset, (iv) any restoration of
any contingency reserve, except to the extent that provision for such reserve
was made out of income during such period, (v) any net gain arising from the
collection of the proceeds of any insurance policy, and (vi) any net gains or
losses during such period arising from extraordinary or nonrecurring
transaction (net of any tax effect).
"Note" means the note from Borrower to the County executed in the form
attached as Exhibit B.
"Operating Reserve Amount" means, as of the end of any reporting
period, the amount specified as the ending cash balance in the Borrower's pro
forma cash flow statement as set forth in the Business Plan.
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"Opinion of Counsel" means an opinion of an attorney or firm of
attorneys, reasonably acceptable to the Servicing Agent, and acceptable to the
Servicing Agent as to form and substance.
"Pension Benefit Guaranty Corporation" means the Pension Benefit
Guaranty Corporation created by Section 4002 of ERISA and any successor entity
having similar responsibilities.
"Person" means a corporation, association, partnership, joint venture,
trust, organization, business, individual or government of any governmental
agency or political subdivision thereof.
"Principal Operating Base" means the principal operating base of the
Borrower at Columbia Metropolitan Airport at which shall be headquartered all
pilots and flight attendants.
"Pro Forma Debt Service" shall mean, at any time, the aggregate amount
of (i) all interest and all amortization of debt discount and expense
(including the imputed interest portions of rentals under Capitalized Leases)
and (ii) all mandatory payments, prepayments and sinking fund payments of
principal (including the imputed principal portion of rentals under any
Capitalized Leases) which will be accrued on a pro forma basis by the Borrower
on all Indebtedness of the Borrower for borrowed money or in respect of
Capitalized Leases or secured by purchase money Liens, in each case for the
period of one year next following the date as of which such determination is
made assuming that all such Indebtedness remains outstanding for the entire
period (subject to scheduled reductions), all as reflected in the Business
Plan. When the interest on any such Indebtedness varies with or depends on a
floating rate of interest, the rate in effect on the date of determination will
be assumed to remain constant during the entire period for which Pro Forma Debt
Service is being computed.
"Project Account" means the account established pursuant to Section
5(a) hereof.
"Public Offering Date" means the public offering date as described in
the Air South HUD-Guaranteed Note.
"Real Property" means the real property and improvements and fixtures
located thereon that are subject to the Security Interest and all other such
property now owned or hereafter acquired by the Borrower or in which the
Borrower now has or hereafter acquires an interest, wherever located.
"Registered Creditors" means those suppliers or service providers
identified by the Borrower as critical to its operations and as to which the
Servicing Agent has entered into an agreement on behalf of the County as
provided in Section 5(c) hereof.
"Scheduled Draw" means the anticipated disbursements described in
Section (7d) hereof.
"Secretary" means the Secretary of HUD.
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"Security Agreement" means that certain Security Agreement and Chattel
Mortgage of even date with the Agreement between the County and the Borrower,
as amended from time to time pursuant to the terms thereof.
"Security Document" means any mortgage, security agreement, assignment
or other agreement or instrument creating or affecting a conveyance, fee, lien
or other security interest in favor of or for the benefit of the County as
security for the obligations of the Borrower under this Agreement, as from time
to time in effect.
"Security Interest" means the mortgages, pledges and assignments to
the County of, the continuing interest of the County in, and the continuing
lien of the County upon, the Collateral provided or contemplated by the terms
of the Agreement and the other Loan Documents.
"Servicing Agent" means JEDA, acting in such capacity pursuant hereto
and to the Assignment and Service Agreement, and its successors and assigns.
"Start-up Date" means the date the Borrower initiates regularly
scheduled passenger service from the Columbia Metropolitan Airport.
"State" means the State of South Carolina.
"State Act" means Section 6-1-30 of the Code of Laws of South
Carolina, 1976, as amended.
"State Memorandum" means the Memorandum of Understanding between the
Borrower and the State dated March 25, 1994.
"Subsidiary" means any Person of which the Borrower or other specified
Person shall at the time own, directly or indirectly through a Subsidiary,
sufficient voting stock or voting rights to entitle it to elect at least a
majority of board of directors or similar managing body.
"Tangible Net Worth" means the aggregate of the capital stock (but
excluding treasury stock and capital stock subscribed and unissued) and surplus
(including earned surplus, capital surplus and the balance of the current
profit and loss account not transferred to surplus) of the Borrower as the same
properly appears on a consolidated balance sheet of the Borrower prepared in
accordance with Generally Accepted Accounting Principles, less the sum of
(a) the total book value of all assets of the Borrower which
would be treated as intangibles under Generally Accepted Accounting Principles
including, without limitation, such items as good will, trademarks, trade
names, service marks, brand names, copyrights, patents and licenses, and rights
with respect to the foregoing, and
(b) all amounts representing any write-up in the book value of
any assets of the
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Borrower resulting from a revaluation thereof subsequent to March 31, 1994.
"Total Indebtedness" means all Indebtedness (a) for money borrowed,
(b) in respect of Capitalized Lease Obligations, and (c) secured by purchase
money Liens, and all Guarantees of any Indebtedness of the types described in
clauses (a), (b) and (c).
"Uniform Commercial Code" means the Uniform Commercial Code as in
effect from time to time in the State of South Carolina.
Any reference in the Agreement to Borrower, JEDA, the Assignee, the
Servicing Agent or the County shall include those which succeed to heir
functions, duties or responsibilities pursuant to or by operation of law or who
are lawfully performing their functions. Any reference in this Agreement to
any statute or law or chapter or section thereof shall include all amendments,
supplements or successor provisions thereto.
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EXHIBIT B
[FORM OF NOTE]
PROMISSORY NOTE
Dated: August ___, 1994 $12,000,000
AIR SOUTH, INC. (the "Borrower"), a corporation organized and
existing under the laws of the State of Illinois, acknowledges itself indebted
and for value received hereby promises to pay to the order of LEXINGTON COUNTY,
SOUTH CAROLINA (the "County") and its successors and assigns, the principal sum
of TWELVE MILLION DOLLARS ($12,000,000), or so much thereof as has been
advanced hereunder from time to time as shown on the Schedule of Advances
attached hereto until the close of business on April 1, 1996 (the "Cutoff
Date"), together with interest at the rate or rates hereinafter provided on the
unpaid principal balance hereof from the date of the initial advance to the
Borrower hereunder until the Borrower's obligations with respect to the payment
of such sums shall be discharged. Interest charges shall be computed hereunder
on the basis of a 360 day year, counting the actual number of days elapsed.
This Note is issued to evidence the obligation of the Borrower
under and pursuant to, and shall be governed by and construed in accordance
with the terms and conditions of the Loan Agreement (the "Agreement") between
the County and the Borrower dated as of July 15, 1994 for the repayment of the
loan made by the County to the Borrower thereunder and payment of interest
hereon. Capitalized terms used herein not otherwise defined herein have the
meanings specified in the Agreement. This Note is secured, inter alia, by a
Security Agreement and Chattel Mortgage dated as of July 15, 1994 executed by
the Borrower as Debtor and delivered to the County as Secured Party on all
assets of the Borrower except certain assets expressly excluded thereunder.
This Note will be serviced by the Servicing Agent designated in the Assignment
and Servicing Agreement by and among the County, the Borrower and JEDA (the
"Servicing Agreement").
The initial interest rate on this Note shall be a rate per
annum equal to four percent (4%) through July 31, 1997. Effective August 1,
1997 and as of any public offering date as described in the Air South
HUD-Guaranteed Note after August 1, 1997, the interest rate shall be adjusted
to the rate per annum sufficient to enable the County and JEDA to recoup
interest and other reasonable costs associated with the Air South
HUD-Guaranteed Note. The interest rate payable with respect to the Note also
shall be subject to modification at the end of five years from the Start-up
Date to the extent that JEDA, in its capacity as Assignee, in its sole
discretion determines that the Borrower's net operating income has progressed
to a level which no longer justifies below-market financing or continuation of
public subsidy. The Servicing Agent shall, in its sole discretion, determine
the new interest rate, if any, applicable to this Note, which shall be that
rate per annum determined by the Servicing Agent as appropriate based
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upon the creditworthiness of the Borrower at that time, which rate shall not
exceed the then prevailing commercial loan rates for similar credits. JEDA
shall instruct the Servicing Agent to calculate, and notify the Borrower of,
such rate modification within one year following the fifth anniversary of the
Start-up Date, and such modified rate shall be effective for the next monthly
installment which falls due not less than fifteen (15) days following the date
the Servicing Agent sends notice thereof to the Borrower.
Interest charges shall be computed hereunder on the basis of a
360 day year, counting the actual number of days elapsed. The Servicing Agent
shall calculate any interest rate adjustment within fifteen (15) days following
the effective date thereof or receipt by the Servicing Agent of information
from the Fiscal Agent upon which to base such calculation, and the Servicing
Agent shall also calculate or recalculate the principal amortization schedule
within fifteen (15) days following the Cutoff Date or any prepayment.
For purposes of calculating accrued interest hereon, the
amount of principal advanced hereunder and for all other purposes of this Note,
the date and amount of any advance to the County under that certain Air South
HUD-Guaranteed Note shall result in a corresponding advance hereunder.
Interest only on this Note at the rates as provided herein
shall be payable on the first day of each month commencing February 1, 1996
through and including August 1, 1997. Thereafter, commencing September 1,
1997, equal consecutive monthly installments of principal in an amount to fully
repay this Note over seventeen (17) years plus interest at the rates as
provided herein are payable in Two-Hundred Four (204) consecutive monthly
installments on the first day of each month and terminating, if not sooner
paid, as herein provided on September 1, 2014. Such installments shall be
applied, first, to pay any reasonable outstanding fees and expenses of the
County, JEDA or the Servicing Agent; second, to payment of interest then due on
the unpaid principal amount and the remaining balance of each such installment
to be applied to the payment and reduction of the unpaid principal amount of
this Note. The amount payable as the final installment may be such greater or
lesser amount as shall be equal to the actual principal amount of this Note
remaining unpaid, together with interest thereon then due and unpaid.
Payments hereon are to be made in lawful money of the United
States of America to the South Carolina Jobs-Economic Development Authority,
1201 Main Street, Suite 1750, Columbia, South Carolina 29201, Attention: Senior
Loan Officer, or such other place as the County or the Servicing Agreement may
designate, on each due date provided above, in an amount which will equal the
amount payable on this Note.
The Borrower agrees to make the payments on this Note on the
dates and in the amounts specified herein and in the Agreement and in addition
agrees to make such other payments as are required pursuant to the Agreement
and the Servicing Agreement. A late charge of five percent (5%) of the monthly
payment shall be due and payable on any monthly payment past due fifteen (15)
days or more.
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The Borrower may prepay this Note in whole or in part at a
price equal to the principal amount thereof to be prepaid together with
interest thereon to the date of prepayment at any time. This Note shall be
subject to mandatory prepayment of one-half of the then outstanding principal
balance thereof to the extent that funds are available from the net proceeds of
any public offering of stock by the Borrower within ten (10) days following
receipt of such proceeds. This Note is also subject to mandatory prepayment on
the Cutoff Date from amounts remaining on deposit in the Emergency Cash Reserve
Account or any other funds escrowed under the Loan Agreement as provided
therein. To the extent not reflected in the interest rate applicable to this
Note at the time of any prepayment, any such prepayment shall be accompanied by
payment of amounts sufficient to enable the County and JEDA to recoup interest
and other reasonable costs associated with the Air South HUD-Guaranteed Note.
A default under this Note shall occur upon the failure by the
Borrower to pay when due principal or interest on this Note or upon any other
default described in the Agreement. In the event of default in the Agreement,
the principal of and interest on this Note may be declared immediately due and
payable as provided in the Agreement. Upon a default followed by a declaration
of acceleration of the payments due hereunder, the rate of interest payable
hereunder shall be the rate per annum equal to the rate per annum applicable to
the Note immediately prior thereto plus two percent (2%). This Note may be
canceled, amended or supplemented as provided in the Agreement.
The final payment on this Note shall be a sum sufficient,
together with other funds deposited with the County and available for such
purpose, to redeem all of this Note then outstanding at the principal amount
thereof plus accrued interest to the date of payment and to pay all reasonable
and necessary fees and expenses of the County, JEDA and the Servicing Agent
accrued and to accrue through final payment for this Note. At the
acceleration, termination or expiration of the term of this Note and following
full payment of this Note and all other fees and charges in accordance with the
provisions of the Agreement, the County shall deliver to the Borrower any
documents and take such actions as may be necessary to effectuate the
cancellation of this Note and evidence the termination of the Agreement.
IN WITNESS WHEREOF, AIR SOUTH, INC. has caused this Note to be
executed in its name and on its behalf by its authorized officers by their
manual signatures as of this ____ day of August, 1994.
[SEAL] AIR SOUTH, INC.
ATTEST:
By: __________________________________ By: _______________________
Donald Baker Patrick O'Shea
Secretary President
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RECORDS OF ADVANCES
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</TABLE>
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EXHIBIT C
[FORM OF BORROWER'S COUNSEL OPINION]
August ___, 1994
Lexington County, South Carolina
212 South Lake Drive
Lexington, South Carolina 29072
South Carolina Jobs-Economic Development Authority
1201 Gervais Street, Suite 1750
Columbia, South Carolina 29201
RE: $12,000,000 Loan from Lexington County,
South Carolina to Air South Inc.
Ladies and Gentlemen:
I am special counsel to Air South, Inc., an Illinois corporation, (the
"Borrower") and have acted as such in connection with the execution and
delivery of this opinion letter pursuant to Section 7.(xiii) of that certain
Loan Agreement, dated as of July 15, 1994 (the "Loan Agreement") between the
County of Lexington, South Carolina (the "County") and the Borrower, pursuant
to which the County will make available funds to the Borrower from time-to-time
in amounts aggregating up to $12,000,000 (the "Loan").
I refer to the following:
a. the Note, dated August 8, 1994 from the Borrower to
the County (the "Note") evidencing the Loan;
b. the Security Agreement and Chattel Mortgage, dated
July 15, 1994 between the county and the Borrower (the "Security Agreement")
securing among other things the repayment of the Loan; and,
c. the Assignment and Servicing Agreement, dated July
15, 1994 by and among the South Carolina Jobs - Economic Development Authority
("JEDA"), the County and the Borrower (the "Assignment");
The Loan Agreement, the Security Agreement, the Note, and the Assignment are
hereinafter
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collectively referred to as the "Loan Documents."
"Collateral" shall mean the assets of the Borrower, including but not limited
to (a) the assets (the "U.C.C. Assets") which are of a type which are subject
to Article 9 of the Uniform Commercial Codes of Florida, Georgia and South
Carolina (collectively the "U.C.C.s") and which are described in section 2. of
the Security Agreement which will be an exhibit to the Financing Statements (as
defined below) to be filed under the U.C.C.s in effect in the States of
Florida, Georgia, and South Carolina in connection with the transactions
contemplated by the Loan Documents and (b) the assets which are described in
section 2. of the Security Agreement.
Capitalized terms used in this opinion letter which are not otherwise defined
herein shall have the meanings ascribed to them in the Loan Agreement.
I have examined the Loan Documents, and such other documents relating to the
Loan and the Loan Documents as I have deemed appropriate in the circumstances.
I have reviewed, to the extent I have deemed appropriate, the corporate
proceedings and records of the Borrower. I have examined, also to the extent I
have deemed appropriate, proceedings of various governmental entities and
agencies involved in the Loan, I have also examined, or caused to be examined
and reported upon, various public registries including, but not limited to,
certain public records of the States of Georgia, Florida, Illinois and South
Carolina, Fulton County, Georgia, Dade and Pinellas Counties, Florida, Cook
County, Illinois, and Lexington and Richland Counties, South Carolina.
I have also examined: (a) those certain reports of CT System, as to (i) U.C.C.
financing statements covering the U.C.C. Assets naming the Borrower as debtor
(ii) federal tax and state tax liens against the Borrower and (iii) judgment
liens against the Borrower, in each case on file in various state and county
filing offices in the States of Florida, Georgia, Illinois, and South Carolina.
Those reports were searched through the respective dates (collectively, the
"Ending Dates") given below: Dade County, Florida - _______ ___, 1994; Fulton
County, Georgia - _______ ___, 1994; Florida Secretary of State - _______ ___,
1994; Dade County, Florida - _______ ___, 1994; Pinellas County, Florida -
______ ___, 1994; Illinois Secretary of State - _______ ___, 1994; Cook County,
Illinois - _______ ___, 1994 (as to U.C.C. filing statements); Cook County,
Illinois - _______ ___, 1994 (with respect to federal and state tax liens, and
judgment liens); South Carolina Secretary of State - _______ ___, 1994;
Lexington County, South Carolina - _______ ___, 1994; and Richland County,
South Carolina - _______ ___, 1994 (such reports being collectively, the
"U.C.C. Search Reports"); and (b) the originals or copies of Form U.C.C. 1
Financing Statements which will be filed with the appropriate state and county
filing offices in each of Florida, Georgia and South Carolina (the "Financing
Statements").
I have also examined Reports on Title Search of Morgan Aircraft Title Services,
Inc. (The "Aircraft Registry Search Reports"), each dated _______ ___, ____
3:15 p.m. (CDT) (collectively, the "Aircraft Ending Dates"), which report the
results of searches of the records of the Aircraft Registry of the Federal
Aviation Administration of the United States in Oklahoma City,
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Oklahoma (the "Aircraft Registry") covering the following aircraft: Boeing
737-2P6, serial number 21612 and Boeing 737-2P6, serial number 21356 (the
"Aircraft").
In rendering this opinion, as to certain matters of fact, I have relied upon
representations, warranties and covenants made by the various parties to the
Loan Documents, certificates of officers of the Borrower, certificates of
public officials and oral interviews of various officers, agents and attorneys
of the Borrower.
I have assumed the genuineness of all signatures (except those of persons
signing on behalf of the Borrower) to, and the authenticity of, all documents
submitted to me as originals and the conformity with originals of all documents
submitted to me as copies.
I am also assuming that all parties to the Loan Documents, other than the
Borrower, have all requisite power and authority and have taken all necessary
actions to enter into any Loan Document to which they are a party and to effect
any transactions contemplated thereby. Finally, I have made such other
investigations of law and fact as in my judgment permits me to render an
informed opinion on the matters set forth below.
Based upon the foregoing, it is my opinion that:
1. The Borrower is a corporation duly organized, validly existing
and in good standing under the laws of the State of Illinois, with corporate
powers adequate to own its property, to carry on its business as now conducted
and as proposed in the Business Plan to be conducted and to perform its
obligations under the Loan Documents. The Borrower is duly qualified as a
foreign corporation and is in good standing in the States of Georgia and South
Carolina; in no other jurisdiction except Florida does its conduct of business
or ownership of property make such qualification necessary.
2. The execution, delivery and performance by the Borrower of
each of the Loan Documents are within the Borrower's power and authority. The
Borrower has duly authorized the execution and delivery of the Loan Documents
and the taking of all action necessary to carry out and give effect to the
transactions contemplated thereby.
3. Neither the execution and delivery of any of the Loan
Documents, nor the consummation by the Borrower of the transactions therein
contemplated, nor fulfillment of or compliance with the provisions thereof,
will: (i) violate or contravene any of the provisions of the Articles of
Incorporation, as amended, or the Bylaws of the Borrower; (ii) violate or
contravene any of the provisions of any law, governmental rule, regulation,
judgment, decree, writ, injunction, demand, order, franchise or permit binding
on the Borrower or its properties; (iii) conflict with or result in a breach
of, or constitute a default under (nor is there any waiver in effect which, if
not in effect, would result in any of the foregoing), any of the provisions of
any indenture, mortgage, contract or other instrument to which the Borrower is
a party of by which it or its property is bound; (iv) result in the creation or
imposition of any lien, charge or encumbrance upon any property of the Borrower
pursuant to the terms of any such indenture,
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mortgage, contract or other instrument, except for any liens created by or
pursuant to the Loan Documents; or (v) result in an occurrence of an event for
which any holder or holders of indebtedness may declare the same due and
payable.
4. Each of the Loan Documents has been duly executed and
delivered by the Borrower. Assuming the due execution and delivery thereof by
the other parties thereto, each Loan Document constitutes a legal, valid and
binding instrument enforceable against the Borrower in accordance with its
terms, except as enforceability may be limited by general equitable principles
and applicable bankruptcy, reorganization, insolvency, moratorium or similar
laws affecting the enforceability of creditors' rights generally.
5. To the best of my knowledge, after due inquiry, there is no
pending or threatened action or proceeding before any court, governmental
agency or arbitrator against or directly involving the Borrower which if
decided adversely to the Borrower might (a) materially and adversely affect the
financial condition, operations, or business prospects of the Borrower or (b)
affect the validity of any Loan Document or any actions taken or to be taken
pursuant thereto.
6. No consent of any person and no authorization or approval or
other action by, and no notice to or filing with, any governmental authority or
regulatory body or other person is required with regard to the Borrower for the
due execution, delivery and performance by the Borrower of the Loan Documents,
except such as have been obtained; no approval of the shareholders, or the
trustee or any holder of any indebtedness of the Borrower is required.
7. It is not necessary under the circumstances contemplated in
the Loan Documents to register any Loan Document under the securities laws of
any jurisdiction.
8. No taxes, fees or other charges are payable by the Borrower to
any government or governmental authority in connection with the execution and
delivery by the Borrower of the Loan Documents or the consummation by the
Borrower of the transactions therein contemplated, except: (a) recording and
filing taxes or fees payable in connection with the recording of (i) the
Financing Statements; (ii) any filings upon the Aircraft Registry; (iii) any
transfers of personal or real property to, or by, the Borrower, and (iv)
perfecting security interests of the Borrower in real estate or fixtures; and
(b) any local, state or federal income or other taxes arising out of the
operations of the Borrower; (c) any property taxes on the assets of the
Borrower; and (d) any sales or compensating use taxes on assets or services
hereafter purchased or sold by the Borrower.
9. There is no fact known to me which materially and adversely
affects, or which in the future may (so far as can now reasonably be foreseen)
materially and adversely affect, the business, properties operations or
condition, financial or otherwise, of the Borrower.
10. The Security Agreement creates valid security in favor of the
County in the Collateral, including, but not limited to, the U.C.C. Assets,
subject to no prior lien or encumbrance, except as identified on Exhibit F to
the Loan Agreement, which is perfected by
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filing or recording and provided that as to the U.C.C. Assets such opinion is
as of the Ending Dates. The Financing Statements have been filed with the
County and Richland County, South Carolina, the Secretary of State of South
Carolina, and the appropriate state and county filing offices in the States of
Florida and Georgia to perfect the security interest of the County in the
U.C.C. Assets in each of such states. To the best of my knowledge, after due
inquiry, the Borrower does not own assets located in other than the States of
South Carolina, Georgia and Florida. Copies of the Security Agreement and the
Assignment have been filed upon the Aircraft Registry to perfect the Security
interest in favor of the County, and JEDA as assignee thereof, in those assets
of the Borrower covered by the Security Agreement which are of a type as to
which a security interest may be perfected by such filing upon the Aircraft
Registry. As of the Aircraft Ending Dates, there were no liens on the Aircraft
recorded on the Aircraft Registry. To the best of my knowledge, after due
inquiry, the Borrower has no assets, other than assets covered by Article 9 of
the U.C.C. or as to which a filing on the Aircraft Registry may be made, in
which a security interest must be perfected by filing in any public registry.
No opinion is expressed herein as to whether a security interest is created in
any property which is the subject of any leasehold or other rights to assets in
the possession of but not owned by the Borrower, provided, however, that this
exception to my opinion does not extend to such leasehold or other rights. No
filing, registration or recordation other than those referred to above are
required to perfect, protect and preserve the liens created by the Security
Agreement and the Assignment.
11. No usury laws in effect in the State of South Carolina,
adversely affect the enforceability of the Loan Documents.
The portion of my security interest opinion in paragraph 10 relating to the
U.C.C. Assets is limited (other than as provided therein) to Article 9 of the
Uniform Commercial Codes of Florida, Georgia and South Carolina and does not
address: (i) laws of jurisdictions other than those states, and of those states
except for Article 9 of their respective U.C.C.s; (ii) security interests in
assets included in the Collateral which are of a type not subject to Article 9
of the U.C.C.s of those states; and (iii) under section 9-103(3) of each such
U.C.C., what law among Florida, Georgia and South Carolina governs perfection
of the security interests granted in the U.C.C. Assets. I express no opinion
as to perfection of the security interests about any portion of the Collateral
as to which the perfection of a security interest therein is obtained only by
possession. As to the States of Georgia and Florida, my examination of law for
purposes of giving this opinion has been limited to the U.C.C. of each of those
states as it appears in a recognized reporting service; this opinion is
accordingly limited as to its scope. To the extent that the opinion in
paragraph 10 above, addresses the transactions between the County and JEDA
contemplated by the Assignment, I call your attention to the fact that among
the Borrower, the County and JEDA, I am counsel only to the Borrower.
I express no opinion as to whether the Borrower may waive the pleading of the
statute of limitations to any demand for performance of any obligations under
any of the Loan Documents.
This opinion letter is not intended to address whether the Borrower has good
and marketable title
C-5
<PAGE> 66
to any of the Collateral, but after due inquiry of the president, general
counsel and chief financial officer of the Borrower, I have no reason to
believe that the Borrower does not own the assets it purports to own. To the
extent that the Borrower does not have good and marketable title to any assets
included in the definition of Collateral, the opinions herein as to the
creation, perfection and priority of security interests in such assets is
appropriately qualified. Except as disclosed in the U.C.C. Search Reports or
the Aircraft Registry Search Reports this opinion does not address whether any
mechanics', artisans' or materialmens' liens may have attached by means other
than filing or recordation to any of the U.C.C. Assets, the Aircraft, or any
engines, components thereof and Parts which are used by the Borrower in its
business.
Although I am representing the Borrower as special counsel for purposes of this
opinion letter, I have not previously represented the Borrower on other
matters. In particular, I have not participated in any material way in
structuring the Loan and related transactions or the negotiation and drafting
of the Loan Documents.
I am an attorney at law admitted to practice in the State of South Carolina.
As such I express no opinion on other than the internal laws of the State of
South Carolina and the federal laws of the United States of America, except:
(1) my opinions contained in the first sentences of paragraphs 1 and 2 of this
opinion letter are given in reliance on an opinion letter of even date herewith
of Donald Baker, Esquire of the Bar of the State of Illinois, an executed
counterpart of which is being delivered with this opinion letter and upon which
you may rely; and (2) as to the law of the states of Florida and Georgia
contained in paragraph 10 of this opinion letter, as qualified in the paragraph
immediately following paragraph 11.
This opinion is solely for the benefit of the addressees hereof and may not be
relied upon in any manner by any other person or entity.
Very truly yours,
David Y. Monteith
C-6
<PAGE> 67
EXHIBIT D
REQUISITION FORM
No. __________
To: South Carolina Jobs-Economic Development Authority
Columbia, South Carolina
THIS IS TO CERTIFY:
1. With regard to the Loan Agreement dated as of July 15, 1994
(the "Loan Agreement"), between Lexington County, South Carolina, and Air
South, Inc. (the "Borrower") authorizing a $12,000,000 maximum principal amount
Section 108 HUD Loan (the "Loan") to the Borrower, the Loan proceeds are
required [Check appropriate box]:
_____ a. to purchase real property and/or construct
improvements thereon, to purchase personal property,
to fund other capital expenditures or for such other
purposes not specifically set forth in (b) or (c)
below, all as authorized pursuant to Section 2 of the
Loan Agreement;
_____ b. to remedy or prevent a Cash Flow Shortfall (as
defined in the Loan Agreement) as of the end of the
immediately preceding calendar month in the amount of
$________ (which amount shall be the amount the
Borrower is entitled to draw for such purpose); or
_____ c. to cover an emergency cash requirement as described
in Section 5(b) of the Loan Agreement.
2. Documentation verifying the amount eligible to be drawn under
the Loan Agreement is attached hereto.
3. The nature and purpose of the obligation for which such payment
is requested: _____________________
4. The name and address of the person, firm or corporation to
whom payment is due (if other than the Project Account (as defined in the Loan
Agreement)): ____
5. Amount to be disbursed: $______________________
D-1
<PAGE> 68
6. The disbursement herein requested is for obligations properly
incurred, constitutes an authorized charge under the Note (as defined in the
Loan Agreement) and has not been the basis of any previous withdrawal.
7. No written notice of any lien, right to lien or attachment
upon, or claim affecting the right to receive payment of, any of the moneys
payable under this requisition to any of the persons, firms or corporations
named herein has been received which would result in a breach of the Loan
Agreement. If any notice of any such lien, attachment or claim has been
received, such lien, attachment or claim has been or will be released or
discharged of record simultaneously with disbursement by payment, deposit,
bond, order of a court of competent jurisdiction or otherwise.
8. No Event of Default (as defined in the Loan Agreement) nor any
event which with the passage of time, the giving of notice or both would
constitute such an Event of Default has occurred and is continuing; all
representations of the Borrower in the Loan Agreement are true and correct as
of the date of this requisition.
9. As to any disbursement for the purchase and/or construction of
improvements on real property, the Borrower has delivered to the Servicing
Agent (as defined in the Loan Agreement) all mortgages, assignments, security
agreements, consents, copies of leases and/or deeds, opinions of counsel and
other such documents required by the Servicing Agent, including those specified
in the Loan Agreement, the Security Agreement (as defined in the Loan
Agreement) or other Loan Documents (as defined in this Loan Agreement) and a
title insurance policy insuring the County's lien on the Borrower's interests
in such property, in form and substance and with only such exceptions
acceptable to the Servicing Agent. As to each disbursement after the issuance
of the policy, Borrower shall deliver to the Servicing Agent an endorsement to
the title policy acceptable to the Servicing Agent, indicating that since the
last preceding disbursement, there has been no change in the state of title and
no survey or other exceptions not theretofore approved by the Servicing Agent,
including exceptions for mechanics and materialmen's liens and which
endorsement increases the coverage of such title policy by an amount equal to
the disbursement requested hereby, so that the total amount insured equals the
total amount of all disbursements made by the Servicing Agent therefor and
changing the effective date of such title policy to the date of the
disbursement requested hereby.
10. In conjunction with a disbursement for the construction of
improvements on real property, Borrower also has provided the Servicing Agent
with such other documents typically required by construction lenders, all as
may be required and approved by the Servicing Agent, such as a survey, deeds
and/or leases, as applicable, a flood zone certification, flood insurance, if
applicable, copies of the plans and specifications for the construction
project, all construction and architect contracts and assignments of the same,
payment and performance bonds, subordinations, building permits, environmental
reports, soil reports, evidences of utility availability and access, insurance
policies, evidence of zoning compliance and the like.
D-2
<PAGE> 69
11. For any draws for construction, renovation or supplies,
attached hereto are the mechanics' and materialmen's lien waivers, affidavits
or releases for all work done or all material supplied as required by the
Servicing Agent, together with such other documents required by the Servicing
Agent and/or the title company insurance issuing the title policy referred to
above, all as approved by the Servicing Agent, including invoices, tax
receipts, updated surveys and reports, evidence of governmental compliance,
including compliance with legal requirements regarding access for handicapped
or disabled persons, and such certificates and/or affidavits from contractors,
architects or others as required by Servicing Agent.
12. As to any disbursements pertaining to the acquisition of
aircraft through purchase or lease, all evidence of title and all opinions of
counsel and other documents required by the Loan Agreement or the Security
Agreement have been delivered to the Servicing Agent.
AIR SOUTH, INC.
By_________________________________
President or Chief Financial Officer
Dated: _______ ___, 199___
D-3
<PAGE> 70
EXHIBIT E
INDEBTEDNESS OF THE BORROWER
CDC DUE SEPTEMBER 1994 $500,000
JEDA DUE DECEMBER 1994 $500,000
E-1
<PAGE> 71
EXHIBIT F
PERMITTED ENCUMBRANCES
None
F-1
<PAGE> 72
EXHIBIT G
LOCATIONS OF BORROWER'S ASSETS
ADMINISTRATIVE AND RESERVATIONS OFFICES
1800 St. Julian Place, 4th Floor
Columbia, SC 29204
[furniture, fixtures, computer equipment, computer
software and other office facilities and furnishings]
COLUMBIA AIRPORT
3038 Aviation Way
W. Columbia, SC 29170
[ground equipment, maintenance equipment and spare parts]
ATLANTA AIRPORT
Atlanta Hartsfield International Airport
North Terminal Parkway
Atlanta, GA 30320
[ground equipment]
ST. PETERSBURG/CLEARWATER INTERNATIONAL AIRPORT
Administrative Building, Suite 235
Clearwater, FL 34622
[ground equipment]
MIAMI INTERNATIONAL AIRPORT
Room C1704
Miami, FL 33159
[ground equipment]
G-1
<PAGE> 73
EXHIBIT H
INDEBTEDNESS OF BORROWER UNDER AIRCRAFT LEASES
1. Aircraft Lease Agreement dated as of July 22, 1994, between Polaris
Aircraft Leasing K.B. ("Polaris") and Air South, Inc. ("Air South"),
regarding aircraft number one, Boeing 737-2P6 Advanced Aircraft,
Serial Number 21612, Registration No A40-BH, place of registration
Ireland (Irish Aviation Authorities);
2. Aircraft Lease Agreement between Polaris and Air South to be dated
date of delivery of aircraft number two, Boeing 737-2P6 Advanced
Aircraft, Serial Number 21356, Registration No. A40-BD, place of
registration Ireland (Irish Aviation Authorities); and
H-1
<PAGE> 74
EXHIBIT I
[GUARANTEES BY THE BORROWER]
None
H-2
<PAGE> 75
EXHIBIT J
CONTROLLING OWNERS OF BORROWER
<TABLE>
<CAPTION>
Controlling Owners Shares
<S> <C> <C>
Patrick O'Shea 680,000
George Bentley 260,000
Donald Baker 160,000
Clif Haley 140,000
Rod Marlin 152,000
Paul Gillcrist 152,000
John Kamburoff 120,000
William Danko 100,000
Tom Volz 120,550
Joseph Ferreira 80,000
Patricia Trowbridge 80,000
Gerald Cook 80,000
Meg Jacobson 60,000
Mitchell Hall 60,000
Michael Peterson 70,450
Dennis Gabriel 100,000
Daniel Donovan 43,334
Bill Franklin 12,000
Lendon Tootle 30,000
Bob Beaumont 30,000
Steve Shataka 30,000
Gary Stacy 30,000
Mike Stokes 30,000
Pete Ordal 30,000
Charlie Creech 30,000
Mike Weber 30,000
Kurt Brujes 10,000
Tamra Behles 10,000
TOTAL 2,730,334
</TABLE>
J-1
<PAGE> 76
EXHIBIT K
Executive Compensation Plan
The executive compensation plan constitutes all Officers and Directors of Air
South, Inc. The following is a current list of Managers and Directors who are
included in Air South, Inc.'s compensation plan.
Patrick O'Shea, CEO & President
Dennis Gabriel, CFO & VP of Finance
Gerald Cook, VP of Operations
Tom Volz, VP of Marketing
Don Baker, General Counsel
Charlie Creech, Director of Sales
Pete Ordal, Director of Marketing
Len Tootle, Director of Flight Operations
Steve Shataka, Director of Quality Assurance
Robert Beaumont, Director of Maintenance
Mike Stokes, Chief Pilot
Mike Peterson, Director of Information Systems
Mike Weber, Manager of Ground Operations
Gary Stacy, Controller
K-1
<PAGE> 77
GRANT AGREEMENT
This GRANT AGREEMENT, dated as of the 15th day of July, 1994 (the
"Agreement") between the City of Columbia, a body corporate and politic and a
political subdivision of the State of South Carolina, (the "City") and Air
South, Inc., an Illinois corporation qualified to do business in the State of
South Carolina (the "Grantee"),
WITNESSETH:
WHEREAS, the City, the Grantee, Lexington County, South Carolina
("Lexington County") and Richland County, South Carolina ("Richland County")
entered into that certain Memorandum of Understanding dated March 15, 1994 (the
"Local Memorandum") and the Grantee and the State of South Carolina (the
"State") entered into that certain Memorandum of Understanding dated March 25,
1994 (the "State Memorandum"), pursuant to which memoranda the Grantee agreed,
inter alia, to establish a regional passenger airline with its principal
operational base at the Columbia Metropolitan Airport and its corporate
headquarters and primary reservation center in the downtown area of the City
(the "Air South Operations") in exchange for certain grants to be made by the
City, Lexington County and Richland County and a certain loan to be made by
Lexington County (the "Term Loan"), all as described more particularly therein;
and
WHEREAS, in furtherance of its agreements under the Local Memorandum,
the City has agreed that, upon receipt by the City of funding under the City's
application to the Department of Housing and Urban Development ("HUD") for a
loan guarantee under Section 108 of the Housing and Community Development Act
of 1974, as amended, (the "Federal Act") as administered by HUD pursuant to the
Federal Act and by the City pursuant to Section 6-1-30, Code of Laws of South
Carolina, 1976, as amended, (the "State Act") (the loan guarantee program so
authorized and administered hereinafter referred to as the "Section 108
Program") and subject to the terms and conditions set forth herein, the City
shall provide financing assistance to the Grantee under the terms and subject
to the conditions of this Agreement, applicable laws, regulations and all other
federal and State requirements now or hereafter in effect, including without
limitation the Federal Act and the regulations promulgated thereunder (the
"Federal Regulations"), which transaction the City has authorized pursuant to
that certain Ordinance enacted by the City Council of the City on July 13,
1994; and
WHEREAS, the City and the Secretary of Housing and Urban Development
(the "Secretary") are, contemporaneously herewith, entering into that certain
CONTRACT FOR LOAN GUARANTEE ASSISTANCE UNDER SECTION 108 OF THE HOUSING AND
<PAGE> 78
COMMUNITY DEVELOPMENT ACT OF 1974, AS AMENDED, 42 U.S.C. Section 5308 (the "HUD
Contract"), pursuant to which the City will obtain funds for the purpose of
providing assistance to the Grantee under the Section 108 Program; and
WHEREAS, under the Section 108 Program, HUD provides a guarantee (the
"HUD Guarantee") with respect to non-recourse notes issued by units of local
government such as the City, enabling them to sell their HUD-Guaranteed Notes
to lending institutions or to the public through underwritten public offerings,
and the units of local government may then loan or grant the proceeds obtained
from the sale of the HUD-Guaranteed Notes to business enterprises that meet job
creation and other requirements under the Section 108 Program; and
WHEREAS, as security for any HUD-Guaranteed Notes issued by the City,
federal law requires that the City pledge to the Secretary its entitlement to
certain Community Development Block Grant ("CDBG") monies (the "CDBG Pledge")
to provide funds with which to reimburse the Secretary if the HUD Guarantee is
paid on account of a default by the City under any HUD-Guaranteed Notes; and
WHEREAS, under the terms of the HUD Contract HUD has agreed to provide a
HUD-Guarantee of one or more HUD-Guaranteed Notes issued by the City
(collectively, if more than one, the "Air South HUD-Guaranteed Note") with the
proceeds of which the City will fund pursuant hereto a $1,500,000.00 grant to
Grantee for purposes of providing space for the corporate and operational
headquarters of Grantee and for relocation expenses and costs of advertising in
establishing the Air South Operations (the "Grant") and up to $15,000 of the
expenses of such transaction as set forth hereinbelow, and in consideration for
such HUD Guarantee the City has agreed to give its City Pledge in respect to
the Air South HUD-Guaranteed Note (the "Air South City Pledge"); and
WHEREAS, as a condition to and as consideration for its assistance in
obtaining the HUD Guarantee of the Air South HUD-Guaranteed Note, for the Air
South City Pledge and for making the Grant to the Grantee, the City requires
the Grantee to make certain representations and warranties and to enter into
certain covenants with respect to job creation and other federal requirements
under the Section 108 Program and with respect to the other terms and
conditions upon which the Grant will be made, all as set forth herein,
NOW THEREFORE, in consideration of the premises and other good and
valuable consideration the receipt and sufficiency of which are hereby
acknowledged, the parties aforesaid agree to the following terms and
conditions:
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<PAGE> 79
ARTICLE 1. TERMS AND CONDITIONS OF GRANT
Section 1.1. Amount of Grant: The Grant shall not exceed the maximum
principal amount of One Million Five Hundred Thousand and 00/100 Dollars
($1,500,000.00) and shall, subject to the provisions of Sections 1.7 and
Article IV hereof, be funded from time to time as needed for the purposes set
forth in Section 1.2 hereof and in accordance with the terms and conditions set
forth in Article III hereof. The City's obligation to make disbursements of
funds under the Grant shall expire on June 30, 1995 or such later date as the
City, in its sole discretion, shall determine (the "Cutoff Date").
Section 1.2. Purpose: The Grant assistance provided herein shall be
used solely for the following purposes:
(a) Up to $750,000 of the Grant shall be used to make lease
payments with respect to the office space at the location
heretofore approved by the City Manager at 1800 St. Julian
Place, 4th Floor, Columbia, S.C. 29204, to be used by Grantee
for its corporate headquarters and central reservation center
for the Air South Operations ("Corporate Headquarters"), such
payments to be made in accordance with that certain Lease
Agreement dated May 9, 1994 between Nepotes Limited
Partnership (the "Lessor") and the Grantee (the "Lease"); and
(b) Up to $750,000 of the Grant shall be used for payment of
relocation expenses and costs of advertising for the Air South
Operations.
Section 1.3. Expenses: Grantee shall pay, from sources other than the
Grant or the Term Loan, all fees, expenses and other costs related to the
making or securing of this Grant, excluding only the payment of legal and
financial fees payable to HUD pursuant to the HUD Contract which HUD charges
the City shall fund in part with up to $15,000 from the proceeds of the Air
South HUB-Guaranteed Note; provided, however, that upon failure on the part of
the Grantee to pay any such fees, expenses or costs to be paid by the Grantee,
the City may, in its sole discretion, pay the same and deduct the amount so
paid from the amount of the Grant to be disbursed to the Grantee hereunder.
Section 1.4. Low-to-Moderate Income Hiring: The Grantee agrees to
create not less than 200 full time equivalent jobs at its Corporate
Headquarters within two years following the date of initial air carrier service
by the Grantee (the "Start-up Date"). Of the total number of jobs created at
the Corporate Headquarters, not less than 51% shall be filled by persons from
low and moderate income families, all as determined in accordance with current
HUD Income Guidelines and other the Federal Regulations. The Grantee agrees to
maintain records adequate to document compliance with this Section 1.4 and,
until such time as the Grantee has fulfilled the requirements of the preceding
sentences of this Section 1.4, to provide the City within 30 days following the
end of each calendar quarter with written evidence satisfactory to the City as
to the number of jobs created at the Corporate
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<PAGE> 80
Headquarters and the number of such jobs which have been made available to
persons of low to moderate income.
Section 1.5. Regulatory Compliance Required under Section
108 Program: Notwithstanding any other provision hereof or of any other
instrument or agreement to the contrary, the provisions of the Federal Act, the
Federal Regulations and, to the extent not inconsistent therewith, the
provisions of all other applicable federal, State or City laws, regulations or
requirements shall govern the award and administration of the Grant, and the
Grantee agrees to comply with, and be bound by, such laws and requirements and
to cooperate fully with the City with respect thereto. Such agreement on the
part of the Grantee shall include, but shall not be limited to the following
federal laws to the extent applicable to the Grantee's operations at the
Corporate Headquarters and such laws are incorporated herein by reference:
(a) Davis-Bacon Act (40 USC 276a to a7);
(b) Certification Regarding Lobbying and Drug Free
Workplace Act (Appendix D);
(c) Policy Prohibiting Use of Excessive Force, 1990 HUD
Appropriations Act (P.L. 101-144) (Appendix E);
(d) Drug Free Workplace Act of 1988 (Appendix D);
(e) American Disabilities Act of 1990;
(f) Age Discrimination Act of 1975;
(g) Section 504 of the Rehabilitation Act of 197;
(h) Program Income (24 CFR 570.503 and 570.504);
(i) Programmatic and Budget Changes;
(j) Civil Rights and Fair Housing; Employment and
Contracting Opportunities (570.601, 570.607);
(k) Labor Standards (24 CFR 570.603);
(l) Environmental Requirements (25 CFR 570.604);
(m) Historic Preservation;
(n) National Flood Insurance Program (24 CFR 570.605);
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<PAGE> 81
(o) Relocation, Real Property Acquisition and One-for-One
Housing Replacement (24 CFR 570.606);
(p) Lead-based Paint (24 CFR 570.608);
(r) Political Activity (24 CFR 570.207(a)(3));
(s) Conflict of Interest (24 CFR 570.611);
(t) Program Monitoring (24 CFR 570.5014(b), 24 CFR 85.40(a)
and (e), and OMB Circular A-110, Attachment H,
Paragraph (2));
(u) Suspension and Termination (24 CFR 570.503(b)(7),
24 CFR 85.43 and 44);
(v) Resident Aliens (24 CFR 570.613).
Section 1.6. Grantee to Obtain Authorization to Initiate and Maintain
Air South Operations: As a condition of making the initial disbursement under
the Grant, the Grantee shall provide the City with written evidence
satisfactory to the City that the Grantee has obtained and maintained a
Section 401 Certificate from the U.S. Department of Transportation ("DOT") and
such other permits, consents and authorizations as may be required to initiate
and maintain the Air South Operations as contemplated by the Business Plan of
the Borrower dated February 17, 1994 with respect to the Air South
Operations, as amended from time to time with the prior written consent of the
City, (the "Business Plan") and by this Agreement and that all conditions
precedent to initial funding under the Term Loan have been met.
Section 1.7. No Warranty by City: The City's obligations hereunder are
limited to making a good faith effort to process requests for advances under
the Air South HUD-Guaranteed Note in order to obtain funds with which to fund
the Grant from time to time and to forwarding to the Grantee the proceeds of
the Air South HUD-Guaranteed Note, net of expenses, upon receipt thereof by the
City. The City makes no warranty that funds will be made available from time
to time under the HUD Contract or that funds will be received at the times
anticipated by the Borrower. Neither the City nor any of its officers,
employees or agents shall be liable for any action or failure to act hereunder
taken in good faith.
Section 1.8. Additional Documentation : The Grantee shall
contemporaneously herewith, execute and deliver to the City the following:
(a) An opinion of counsel acceptable to the City in the form
attached hereto as Exhibit A; and
(b) Such other certificates and instruments as the City shall
reasonably
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<PAGE> 82
require.
Upon request, the Grantee shall deliver to the City an assignment
of leasehold interest, acceptable to the City as to form and substance, which
has been duly executed by the Grantee and accepted by the Lessor and recorded
in the Office of the Register of Mesne Conveyances for Richland County and such
other places as may be required to preserve and protect the City's interest
thereunder.
The Grantee agrees that it will, at its own expense, maintain
hazard, public liability and key-man life insurance in such amounts and against
such risks as are customarily insured against by businesses of like size and
type and as is otherwise required by the provisions of the Term Loan and will
simultaneously with the execution and delivery of this Agreement and on each
anniversary hereof provide the City with certificates evidencing such insurance
coverages in form acceptable to the City.
ARTICLE II. GRANTEE'S REPRESENTATIONS AND WARRANTIES AND COVENANTS
Section 2.1. Representations, Warranties and Covenants by the
Grantee: The Grantee hereby makes the following representations and warranties
and acknowledges and agrees that each and every such representation and
warranty has been material to the City's determination to make the Grant shall
be true, accurate and complete as of the date of any disbursement of the Grant:
(a) The Grantee has been duly organized and validly exists as a
corporation under the laws of the State of Illinois, has power
to enter into this Agreement and to carry out and give effect
to the transactions contemplated by this Agreement to be
performed by the Borrower, including without limitation the
establishment and operation of the Air South Operations, and
has authorized the taking of all action necessary to enter
into this Agreement and carry out such transactions.
(b) There is no action or proceeding pending or threatened against
the Grantee before any court or administrative agency that
might adversely affect the ability of the Grantee to perform
its obligations under this Agreement, including without
limitation the establishment and operation of the Air South
Operations, and all authorizations, consents and approvals of
governmental bodies or agencies, required in connection with
the performance of the Grantee's obligations hereunder,
including without limitation the establishment and operation
of the Air South Operations, have been obtained and will be
obtained whenever required hereunder or by law.
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(c) Neither the execution and delivery of this Agreement, the
consummation of the transactions contemplated hereby,
including without limitation the establishment and operation
of the Air South Operations, nor the fulfillment of or
compliance with the terms and conditions of this Agreement is
prevented, limited by, or conflicts with or results in a
breach of, the terms, conditions, or provisions of any
corporate restrictions or any evidence of indebtedness,
agreement or instrument of whatever nature to which the
Grantee is now a party or by which it or its property is
bound, or constitutes a default under any of the foregoing.
(d) The Grantee has received paid in capital contributions
aggregating not less than $1,000,000 (excluding from such
calculation any shares purchased with money borrowed from the
Grantee).
(e) The Grantee acknowledges that the City is making the Grant in
reliance upon the Business Plan, a copy of which has
been provided to the City by the Grantee, and the Grantee
represents and warrants that such Business Plan is true,
accurate and complete as of the date hereof and will be true,
accurate and complete in all material respects as of the date
of each draw under the Grant pursuant to Article III hereof
and that its Section 401 Certificate is in full force and
effect and will be in full force and effect as of the date of
each draw under the Grant pursuant to Article III hereof.
(f) The Grantee's Corporate Headquarters is located at 1800 St.
Julian Place, 4th Floor, Columbia, South Carolina
29204; the Grantee shall give the City not less than thirty
(30) days prior written notice of any change in the location
of the Grantee's Corporate Headquarters or base of operations
or of any substantial change in the nature of the operations
conducted at such locations or of any substantial reduction in
the level of employment at such locations which occur during
the five year period following the Start-up Date.
(g) Grantee represents to the City that it has at all times
pertinent to this Agreement been represented by
advisors of its own selection, including but not limited to
attorneys-at-law and/or certified public accountants; that it
has not relied upon any statement, representation, warranty,
agreement or information provided by the City, its employees,
agents or attorneys; that it acknowledges that it is informed
by its advisors of its respective rights, duties, and
obligations with respect to the Grant under all applicable
laws.
(h) The Grantee agrees to comply with all applicable DOT
requirements and all other governmental requirements as may
be necessary to operate the
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Air South Operations as contemplated by the Business Plan and
this Agreement.
(i) If any time during the period ending five years from the
Start-up Date, the Grantee becomes aware of any facts,
occurrences, information, statements, or events that render
any of the foregoing representations or warranties herein made
untrue or materially misleading or incomplete, Grantee shall
immediately notify the City in writing of such facts,
occurrences, information, statements or events.
Section 2.2. No Assignment by Grantee: The Grantee may not assign or
transfer the whole or any part of this Agreement, and any such assignment by
the Grantee without the prior written consent of the City shall render this
Agreement null and void.
Section 2.3. Maintenance of Air South Operations in Current Location:
Except as set forth in this Section 2.3, the Grantee, for a period of not less
than five years from the Start-up Date shall maintain its existence and
continue as a corporation either organized under the laws of, or duly qualified
to do business as a corporation in, the State, and the Grantee shall not during
such five year period, without the prior written consent of the City:
(a) sell, lease, convey, assign, transfer or otherwise dispose of
all or substantially all of its assets or consolidate with or
merge into another entity or assign, convey or dispose of any
interest in its assets or operating rights (including without
limitation operating or landing rights, type certificates,
operating certificates, licenses, regulatory approvals,
leasehold or contract rights, tradenames or trademarks or
other rights in tangible or intangible property) or permit the
sale of stock to a third person or group of persons so that
current management relinquishes control over more than
one-half of either of the assets, operations or voting rights
with respect to the stock of the Grantee; or
(b) relocate its principal operational base to a location other
than the Columbia Metropolitan Airport or its Corporate
Headquarters from its current location.
The Grantee need not comply with the provisions of paragraph (a) of this
Section 2.3 if the successor corporation or person or group succeeding to
control of the Grantee, as the case may be, agrees to comply with the
provisions of this Agreement by delivery to the City of a written assumption
agreement which shall be satisfactory to the City as to form and content. The
Grantee need not comply with the provisions of paragraphs (a) or (b) of this
Section 2.3 if there is paid to the City liquidated damages in an amount equal
to $3,000,000 (or such lesser amount as has been advanced to the Grantee by the
City, Lexington County and Richland County under their respective grants),
together with interest thereon at the rate
8
<PAGE> 85
per annum equal to 4% from the date of the respective advances under such
grants. Such liquidated damages represent a return of the respective grants
made by the City, Lexington County and Richland County in the amounts of
$1,500,000, $750,000 and $750,000, respectively, and the City shall receive the
liquidated damages attributable to the respective amounts advanced by Lexington
and Richland Counties on behalf of such Counties and shall pay over such
amounts to the respective County. Each of Lexington and Richland Counties
shall be deemed to be a third party beneficiary of this Grant Agreement for
purposes of this Section 2.3. The amount of liquidated damages shall be reduced
by twenty percent (20%) at the end of each year after the Start-up Date, and
the provisions of this Section 2.3 shall terminate at the end of the fifth year
following the Start-up Date.
Section 2.4. Financial Statements and Other Information: During the
five-year period following the Start-up Date, the Grantee shall furnish to the
City copies of all financial information provided to Lexington County or the
South Carolina Jobs-Economic Development Authority ("JEDA") in connection with
the Term Loan, which financial information shall include, at minimum, the
following:
(a) within 90 days following the end of each fiscal year, annual
audited financial statements for the Grantee prepared by an
independent accountant acceptable to the City;
(b) such other information as the City shall reasonably request
regarding the Grantee's employment levels, including without
limitation all such information as may be required to
determine compliance with Section 1.4 hereof; and
(c) such other information as the City shall reasonably request
regarding the making and administration of the Grant.
ARTICLE III. DISBURSEMENTS OF GRANT MONIES
Section 3.1. Procedures: The City shall disburse that portion of the
Grant to be used to pay the cost of providing office space for the Corporate
Headquarters monthly in installments of $15,625 each directly to Lessor for
application to the Basic Rent then due and owing by the Grantee under the Lease
or in such other manner as may be agreed to between the City and Lessor.
That portion of the Grant to be used for advertising purposes shall be
disbursed not more frequently than twice monthly by JEDA as agent for the City
in accordance with the terms and conditions set forth in the Grant
Administration Agreement of even date herewith between the City and JEDA and
upon the occurrence of the following:
(a) receipt by JEDA not less than twenty (20) days prior to the
date when
9
<PAGE> 86
the funds are requested to be paid of a requisition in
the standard form used by JEDA signed by the President or
Chief Financial Officer of the Grantee stating the name of
the person, firm or corporation to whom payment is to be
made or has been made and the amount to be paid or which has
been paid or for which reimbursement is sought, accompanied
by invoices or other documentation acceptable to JEDA
verifying such expenses;
(b) determination by JEDA that the use intended by the Grantee
of the proceeds of the Grant is eligible for financing under
the Section 108 Program and this Agreement;
(c) there shall exist no event of default hereunder, and JEDA
shall have received a written certificate to such effect
executed by the President or Chief Financial Officer of the
Grantee in the form attached hereto as EXHIBIT B.
Such disbursements by JEDA shall be subject to receipt of adequate funding
under the Air South HUD-Guaranteed Note and to the further terms and conditions
specified in that certain Grant Administration Agreement of even date herewith
among the City, the Grantee and JEDA. JEDA shall deduct from each disbursement
its administration fee as specified in the above-mentioned Grant Administration
Agreement. The City reserves the right to designate from time to time other
agents or subcontractors to administer the Grant or perform any of its
obligations hereunder.
The Grantee acknowledges that the City must submit each request for
funds under the Grant to HUD and agrees that neither the City nor JEDA shall be
liable for any delays in processing any requisition submitted hereunder. The
City shall use, and shall require JEDA to use, their respective best efforts to
submit to HUD a request for payment with respect to each acceptable requisition
within ten (10) days following receipt thereof.
Notwithstanding anything herein to the contrary, no disbursement shall
be made under the Grant until such time as the Grantee has paid, from sources
other than Grant funds or other Section 108 Program funds, all amounts due and
owing under the interim loan by the Columbia Development Corporation described
in the Local Memorandum.
Section 3.2. Suspension of Disbursements: Notwithstanding anything
herein to the contrary, the City shall not be obligated to disburse any monies
under the Grant after the Cutoff Date, and no disbursements shall be made under
the Grant for any purpose without the written consent of the City Manager
during any period as to which an event of default hereunder shall exist nor
during any period as to which either Lexington County, JEDA or any agency of
the State shall have notified the Grantee that disbursements under the Term
Loan have been terminated or suspended. It shall be within the sole discretion
of the City to determine whether an event of default hereunder or a cessation
of disbursements
10
<PAGE> 87
under the Term Loan will give rise to termination of this Agreement or whether
the City will resume advances hereunder.
ARTICLE IV. AGREEMENT NON-RECOURSE TO CITY
Section 4.1. Release and Indemnification of City: The Grantee hereby
releases the City from, and agrees that the City and JEDA and their respective
officers, directors, members, employees, attorneys and agents shall not be
liable for, and agrees to indemnify and hold harmless the City and JEDA and
their respective officers, directors, members, employees, attorneys and agents
against:
(a) any liability, cost or expense, including without limitation
reasonable attorneys' fees in the administration of the HUD
Contract, the Air South HUD-Guaranteed Note, the Grant and
this Agreement (hereinafter collectively referred to as the
"Section 108 Documents") and the obligations imposed on the
City and JEDA thereby and hereby (except as expressly set
forth otherwise in Section 1.3 hereof);
(b) any or all liability or loss, cost or expense, including
without limitation reasonable attorneys' fees, resulting from
or arising out of any loss or damage to property or any injury
to or death of any person occurring in connection with or on
or about the Corporate Headquarters or the Air South
Operations or resulting from any defect in the fixtures,
machinery, equipment or other property used in connection with
the Corporate Headquarters or the Air South Operations or
arising out of, pertaining to, or having any connection with,
the Corporate Headquarters or the Air South Operations or the
financing thereof (whether or not arising out of acts,
omissions or negligence of the Grantee or any of its agents,
contractors, servants, employees, licensees, lessees or
assignees);
(c) any or all liability or loss, cost or expense, including
without limitation reasonable attorneys' fees, arising out of
or in connection with or pertaining to the issuance, sale or
delivery of the Air South HUD-Guaranteed Note, including, but
not limited to, liabilities arising under the Securities Act
of 1933, the Securities Exchange Act of 1934 or any applicable
state securities laws, but such indemnity for securities
liabilities shall be subject to the limitation that the
Grantee shall not be liable for any representations made with
respect to the City; and
(d) any or all liability or loss, cost or expense, including
without limitation reasonable attorneys' fees, arising out of
or in connection with or pertaining to the transactions
contemplated under this Agreement and the other Section 108
Documents, including without limitation any
11
<PAGE> 88
liability, loss, cost or expense arising under the
environmental laws of any jurisdiction.
Notwithstanding the fact that it is in the intention of the parties
hereto that neither the City, JEDA, nor their respective officers, directors,
members, employees, attorneys and agent shall incur any pecuniary liability by
reason of the terms of this Agreement or of any other Section 108 Document, or
the undertakings required of the City and JEDA hereunder and thereunder, by
reason of the issuance and sale of the Air South HUD-Guaranteed Note, the
execution of the Section 108 Documents or the performance of any act requested
of the City or JEDA by the Grantee, including all claims, liabilities or losses
arising in connection with the violation of any statutes or regulations
pertaining to the foregoing; nevertheless, if the City or JEDA or any of their
respective officers, directors, members, employees, attorneys or agents should
incur any such pecuniary liability, then in such event the Grantee shall
indemnify and hold the City or JEDA and their respective officers, directors,
members, employees, attorneys and agents harmless against all claims by or on
behalf of any person, firm or corporation or other legal entity arising out of
the same and all costs and expenses incurred in connection with any such claim
or in connection with any action or proceeding brought thereon. Upon notice
from the City or JEDA, the Grantee shall defend the City and JEDA and their
respective officers, directors, members, employees, attorneys and agents in any
such action or proceeding. If called upon to provide indemnity under this
Section 4.1, the Grantee shall be subrogated to the rights of the indemnified
party.
Section 4.2. Limited Liability of City: No breach by the City of this
Agreement or of any provision or condition hereof shall result in the
imposition of any pecuniary liability upon the City or any charge upon the
general credit or taxing power of the City. The liability of the City under
this Agreement and any provision or condition hereof or for any breach or
default by the City of any of the foregoing shall be limited solely and
exclusively to the proceeds of the Air South HUD-Guaranteed Note received by
the City pursuant to the HUD Contract. The City shall not be required to
execute or perform any of its duties, obligations, powers or covenants
hereunder except to the extent said proceeds are available therefor.
No covenant, agreement or obligation contained herein shall be deemed
to be a covenant, agreement or obligation of any present or future director,
member, officer, employee or agent of the City in his individual capacity, and
neither the members of the City Council of the City nor any officer thereof
executing this Agreement shall be liable personally under this Agreement. No
officer, director, member, employee or agent of the City shall incur any
personal liability with respect to any other action taken, or not taken, by him
Pursuant to this Agreement, provided he does not act with malicious intent.
The provisions of this Section 4.2 shall control every other provision
of this Agreement, anything in such other provisions to the contrary
notwithstanding.
12
<PAGE> 89
ARTICLE V. EVENTS OF DEFAULT
Section 5.1. Events of Default: The following shall constitute events
of default by the Grantee under this Agreement:
(a) Any material representation or warranty of the Grantee shall
have been false, inaccurate or misleading when made;
(b) The Grantee shall have breached its covenant in Section 2.3
hereof;
(c) The Grantee shall default in any of its covenants and
agreements hereunder other than those specified in paragraph
(b) hereof, and such default shall not have been cured within
thirty (30) days following the occurrence thereof; or
(d) The Grantee shall be in default under the Term Loan.
Section 5.2. Remedies: If Grantee does not comply with the provisions of
this Agreement, the City may in its sole discretion take any and/or all of the
following actions:
(a) In the case of a violation of the low-to-moderate-income
hiring requirement specified at Section 1.4 hereof, require
repayment of all of the Grant, together with interest thereon
at the rate per annum equal to the federal debt collection
rate in effect on the first business day following expiration
of the two year period specified in Section 1.4 above as
documented by the South Carolina Governor's Office and
computed on the basis of a 360 day year and the actual number
of days elapsed from the date of each advance of Grant monies
to the Grantee;
(b) In the case of a violation of its covenants in Section 2.3,
require the Grantee to pay the liquidated damages specified in
Section 2.3 hereof;
(c) Require the Grantee to take corrective actions to comply with
this Agreement;
(d) Cancel, terminate or suspend in whole or in part funding under
this Agreement or refrain from extending further assistance to
the Grantee until such time as Grantee is in full compliance;
or
(e) Take such other action at law or in equity as may be necessary
to protect its rights and interests hereunder, including
without limitation a suit for specific performance.
13
<PAGE> 90
ARTICLE VI. MISCELLANEOUS
Section 6.1. Severability: Any provision of this Agreement which is or
becomes illegal, invalid or unenforceable in any respect shall not in any way
affect or impair the legality, validity and enforceability of the other
provisions of this Agreement.
Section 6.2. Notices: Notices hereunder shall be sent by first class
mail or facsimile transmission as follows:
If to the City:
City of Columbia
City Hall
1737 Main Street
Columbia, SC 29201
Attention: City Manager
Fax # (803) 733-8317
If to the Grantee:
Air South, Inc.
1800 St. Julian Place, 4th Floor
Columbia, South Carolina 29204
Attention: Chief Financial Officer
Fax # (803) 771-9067
The parties may by notice given hereunder designate changes of address
for purposes of this Agreement.
Section 6.3. Governing Laws: In addition to the federal laws and
regulations cited herein, this Agreement is made under and shall be construed
in accordance with the laws, regulations and ordinances of the State of South
Carolina and the City. By executing this Grant, the Grantee agrees to submit
to the jurisdiction in the courts of the State of South Carolina or the
appropriate federal courts for all matters arising or to arise hereunder.
Section 6.4. Effective Date: This Agreement is effective as of the date
of initial funding to the Grantee in accordance with the provisions of Article
III hereof.
14
<PAGE> 91
IN WITNESS WHEREOF, this Agreement has been executed as of the 15th day of
JULY, 1994.
CITY OF COLUMBIA SOUTH CAROLINA
By: /s/ Robert Coble
----------------
ATTEST: Robert Coble
Its: Mayor
By: /s/ Zenda Leaks
----------------------
Zenda Leaks
Clerk to the City
GRANTEE:
AIR SOUTH, INC.
By: /s/
---------------------
Its: CFO
15
<PAGE> 92
EXHIBIT A
[DRAFT OF GRANTEE'S COUNSEL OPINION]
September __, 1994
City of Columbia, South Carolina
City Hall
1737 Main Street
Columbia, South Carolina 29201
South Carolina Jobs-Economic Development Authority
1201 Gervais Street, Ste. 1701
Columbia, South Carolina 29201
McNair & Sanford, P.A.
NationsBank Tower
1301 Gervais Street
Columbia, South Carolina 29201
RE: $1,500,000 Maximum Amount Section 108 Grant from the City
of Columbia, South Carolina to Air South, Inc.
Ladies and Gentlemen:
I am general counsel to Air South, Inc. (the "Grantee") and have acted
as such in connection with the execution and delivery of a Grant Agreement
dated as of July 15, 1994 (the "Grant Agreement") between the City of Columbia,
South Carolina (the "City") and the Grantee, pursuant to which the City will
make available funds to the Grantee from time to time in amounts aggregating up
to $12,000,000 (the "Grant"). In connection with the execution and delivery of
the Grant Agreement, the City and the Secretary of Housing and Urban
Development ("HUD") will enter into that certain CONTRACT FOR Grant GUARANTEE
ASSISTANCE UNDER SECTION 108 OF THE HOUSING AND COMMUNITY DEVELOPMENT ACT OF
1974, AS AMENDED, 42 U.S.C. Section 5308 (the "HUD Contract"), pursuant to
which the City will issue certain notes to be guaranteed by HUD in order to
obtain the funds with which to make the Grant. In exchange for the HUD
guarantee of the City's notes, the City has pledged to HUD
<PAGE> 93
certain community development block grant funds to which the City is or may
become entitled as security for repayment of the notes (the "CDBG Pledge").
As a condition to and as consideration for its assistance in obtaining the
HUD guarantee of the City's notes, for the CDBG Pledge and for making the Grant
to the Grantee, the City has required the Grantee to make certain
representations and warranties and to enter into and perform certain covenants
with respect to job creation and other federal requirements in connection with
HUD's guarantee and with respect to the other terms and conditions upon which
the Grant will be made, all as set forth in the Grant Agreement. Disbursement
of a portion of the Grant shall be made in accordance with the Grant Agreement
and with that certain Grant Administration Agreement dated as of July 15, 1994
among the City, the South Carolina Jobs-Economic Development Authority and the
Grantee (the "Grant Administration Agreement").
The Grant Agreement and the Grant Administration Agreement are hereinafter
collectively referred to as the "Grant Documents". Capitalized terms utilized
herein and not otherwise defined herein shall have the meanings ascribed to
them in the Grant Agreement.
Please be advised that I have examined the Grant Documents and such
corporate proceedings and records of the Grantee and public registries and have
made investigation of such other matters as in my judgment permits me to render
an informed opinion on the matters set forth herein. I am a member of the Bar
of the State of Illinois and have assumed for purposes of this opinion that the
law of the State of South Carolina, where controlling as to the matters set
forth herein, is the same as the law of Illinois. Based upon the foregoing, it
is my opinion that:
1. The Grantee is a corporation duly organized, validly existing and
in good standing under the laws of the State of Illinois, with corporate powers
adequate to own its property, to carry on its business as now conducted and as
proposed in the Business Plan and the Grant Documents to be conducted and to
perform its obligations under the Grant Documents. The Grantee is duly
qualified as a foreign corporation and is in good standing in the State of
South Carolina and in each other jurisdiction in which its conduct of business
or ownership of property makes such qualification necessary.
2. The execution, delivery and performance by the Grantee of each of
the Grant Documents are within the Grantee's power and authority, and the
Grantee has duly authorized the execution and delivery thereof and the taking
of all action necessary to carry out and give effect to the transactions
contemplated thereby.
<PAGE> 94
3. Neither the execution and delivery of any of the Grant Documents
nor the consummation of the transactions therein contemplated, nor fulfillment
of or compliance with the provisions thereof, will (i) violate or contravene
any of the provisions of the charter, by-laws, articles of incorporation or
other governing documents of the Grantee; (ii) violate or contravene any of the
provisions of any law, governmental rule, regulation, judgment, decree, writ,
injunction, demand, order, franchise or permit binding on the Grantee or its
properties; (iii) conflict with or result in a breach of, or constitute a
default under (nor is there any waiver in effect which, if not in effect, would
result in any of the foregoing), any of the provisions of any mortgage,
contract or other instrument to which the Grantee is a party or by which it or
its property is bound; (iv) result in the creation or imposition of any lien,
charge or encumbrance upon any property of the Grantee pursuant to the terms of
any such indenture, mortgage, contract or other instrument except the lien
created by the Grant Documents; or (v) result in an occurrence of an event or
which any holder or holders of indebtedness may declare the same due and
payable.
4. Each of the Grant Documents has been duly executed and delivered by
the Grantee. Assuming the due execution and delivery thereof by the other
parties thereto, each Grant Document constitutes a legal, valid and binding
instrument enforceable in accordance with its terms.
5. There is no pending action or proceeding before any court,
governmental agency or arbitrator against or directly involving the Grantee,
and, to the best of my knowledge after diligent inquiry, there is no threatened
action, law suit or proceeding or any basis therefor affecting the Grantee
before any court, governmental agency or arbitrator which, in any case, may
materially and adversely affect the financial condition, operations or business
prospects of the Grantee or which affects the validity of any Grant Document or
any action taken or to be taken pursuant thereto.
6. No consent of any person and no authorization or approval or other
action by, and no notice to or filing with, any governmental authority or
regulatory body or other person is required for the due execution, delivery and
performance by the Grantee of the Grant Documents, except such as have been
obtained, including without limitation, approval of the shareholders or the
trustees or holders of any indebtedness of the Grantee.
Sincerely,
Donald Baker, General Counsel
<PAGE> 95
EXHIBIT B
CERTIFICATE AS TO NO DEFAULT
The undersigned, the duly appointed ____________ of Air South, Inc. (the
Grantee"), hereby certifies as follows:
(1) all of the representations and warranties of the Grantee in the Grant
Agreement dated as of July 15, 1994 (the "Grant Agreement") are
true, accurate and complete in all material respects as of the date
hereof as if made on the date hereof;
(2) no events of default exist under the terms of the Grant Agreement;
(3) the Grantee has complied with all covenants and agreements to be
performed on its part under the Grant Agreement; and
(4) the Grantee currently maintains in effect all insurance required to be
maintained under the terms of the Grant Agreement.
IN WITNESS WHEREOF, the undersigned has caused this certificate to be
executed and delivered this ___ day of _______, 199__.
By: /s/ Dennis E. Gabriel
----------------------------
Air South, Inc.
16
<PAGE> 1
EXHIBIT 4.4
NUMBER SHARES
CO
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
AIR SOUTH AIRLINES, INC.
TOTAL AUTHORIZED ISSUE See Reverse
18,000,000 SHARES PAR VALUE $.001 EACH Certain Definitions
COMMON STOCK
SPECIMEN
This is to Certify that ______________________________________ is the owner of
______________________________________________________________________________
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK OF
AIR SOUTH AIRLINES, INC.
transferable on the books of the Corporation by the holder hereof in person or
by duly authorized Attorney upon surrender of this Certificate properly
endorsed. Witness, the seal of the Corporation and the signatures of this duly
authorized officers.
Dated
______________________________ ____________________________
SECRETARY PRESIDENT
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT - . . . . Custodian . . . . . . .
(Cust) (Minor)
TEN ENT - as tenants by the entireties
under Uniform Gifts to Minors
JT TEN - as joint tenants with right of Act . . . . . . . . . . . . .
survivorship and not as tenants (State)
in common
Additional abbreviations may also be used though not in the above list
</TABLE>
For value received __________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
/ /
______________________________________________________________________________
______________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING POSTAL ZIP CODE OF
ASSIGNEE)
______________________________________________________________________________
______________________________________________________________________________
_______________________________________________________________________ Shares
represented by the within Certificate, and do hereby irrevocably constitute and
appoint __________________________________________________________ Attorney to
transfer the said Shares on the books of the within named Corporation with full
power of substitution in the premises.
Dated ______________________ 19__________
In presence of
______________________________
__________________________________
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME
AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.
<PAGE> 1
EXHIBIT 4.5
AIR SOUTH AIRLINES, INC.
SERIES A PREFERRED STOCK
PURCHASE AGREEMENT
<PAGE> 2
TABLE OF CONTENTS
Page
1. AGREEMENT TO SELL AND PURCHASE .................................... 1.
1.1 Authorization of Shares ..................................... 1.
1.2 Sale and Purchase ........................................... 1.
2. CLOSING, DELIVERY AND PAYMENT ..................................... 1.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY ..................... 2.
3.1 Organization, Good Standing and Qualification ............... 2.
3.2 Capitalization .............................................. 2.
3.3 Authorization; Binding Obligations .......................... 2.
3.4 Financial Statements ........................................ 3.
3.5 Contracts and Other Commitments ............................. 3.
3.6 No Obligations to Related Parties ........................... 3.
3.7 Trademarks .................................................. 4.
3.8 Compliance with Other Instruments ........................... 4.
3.9 Title to Properties and Assets; Liens, Etc. ................. 4.
3.10 Litigation .................................................. 4.
3.11 Permits, Licenses ........................................... 5.
3.12 Enviromental and Safety Laws ................................ 5.
3.13 Changes ..................................................... 5.
3.14 Tax Returns and Payments .................................... 6.
3.15 Insurance ................................................... 6.
3.16 Employees ................................................... 6.
3.17 Registration Rights ......................................... 6.
3.18 Offering Valid .............................................. 6.
3.19 Full Disclosure ............................................. 6.
3.20 Real Property Holding Corporation ........................... 7.
4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER ................... 7.
4.1 Requisite Power and Authority ............................... 7.
4.2 Consents .................................................... 7.
4.3 Investment Representations .................................. 7.
5. CONDITIONS TO CLOSING ............................................. 8.
5.1 Conditions to Purchaser's Obligations at the Closing ........ 8.
5.2 Conditions to Obligations of the Company .................... 9.
6. AFFIRMATIVE COVENANTS OF THE COMPANY ............................. 10.
6.1 Election of Directors ...................................... 10.
6.2 Board of Directors Meetings ................................ 10.
6.3 Qualified Small Business Stock ............................. 10.
6.4 Board of Director Approval ................................. 10.
6.5 Approval of Series A Preferred Stock ....................... 11.
7. MISCELLANEOUS .................................................... 11.
ii
<PAGE> 3
TABLE OF CONTENTS
(continued)
Page
7.1 Governing Law .................................................... 11.
7.2 Survival ......................................................... 11.
7.3 Successors and Assigns ........................................... 11.
7.4 Entire Agreement ................................................. 11.
7.5 Separability ..................................................... 12.
7.6 Amendment and Waiver ............................................. 12.
7.7 Delays or Omissions .............................................. 12.
7.8 Notices .......................................................... 12.
7.9 Expenses ......................................................... 12.
7.10 Attorneys' Fees .................................................. 12.
7.11 Titles and Subtitles ............................................. 12.
7.12 Counterparts ..................................................... 13.
7.13 Broker's Fees .................................................... 13.
LIST OF EXHIBITS
Certificate of Incorporation ...................................... Exhibit A
Investor's Rights Agreement ....................................... Exhibit B
Stockholder List .................................................. Exhibit C
Schedule of Exceptions ............................................ Exhibit D
Certificate of Merger ............................................. Exhibit E
Bylaws ............................................................ Exhibit F
Opinion ........................................................... Exhibit G
ii.
<PAGE> 4
AIR SOUTH AIRLINES, INC.
SERIES A PREFERRED STOCK PURCHASE AGREEMENT
THIS SERIES A PREFERRED STOCK PURCHASE AGREEMENT (the "Agreement") is
entered into as of December 29, 1995 by and among AIR SOUTH AIRLINES, INC., a
Delaware corporation (the "Company") and HAMBRECHT & QUIST GROUP, L.L.C.
("Purchaser").
RECITALS
WHEREAS, the Company has authorized the sale and issuance of an
aggregate of 1,250,000 shares of its Series A Preferred Stock (the "Shares");
WHEREAS, Purchaser desire to purchase the Shares on the terms and
conditions set forth herein; and
WHEREAS, the Company desires to issue and sell the Shares to Purchaser
on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual promises hereinafter set forth, the parties hereto agree as follows:
1. AGREEMENT TO SELL AND PURCHASE.
1.1 AUTHORIZATION OF SHARES. On or prior to the Closing (as
defined in Section 2 below), the Company shall have authorized the sale and
issuance to the Purchaser of the Shares having the rights, preferences,
privileges and restrictions set forth in the Certificate of Incorporation of
the Company in the form attached hereto as Exhibit A (the "Certificate of
Incorporation"). The Company has, or prior to the Closing will have, adopted
and filed the Certificate of Incorporation with the Secretary of State of the
State of Delaware.
1.2 SALE AND PURCHASE.
(A) Subject to the terms and conditions hereof, at the
Closing (as hereinafter defined) the Company hereby agrees to issue and sell to
the Purchaser and the Purchaser agrees to purchase from the Company 1,250,000
Shares at a purchase price of two dollars ($2.00) per share.
2. CLOSING, DELIVERY AND PAYMENT.
(A) The closing of the sale and purchase of the Shares
under this Agreement (the "Closing") shall take place at 4:00 p.m. on December
29, 1995, at the offices of Cooley Godward Castro Huddleson & Tatum, 5 Palo
Alto Square, Palo Alto, California 94306, or at such other time or place as the
Company and the Purchaser may mutually agree (such date is hereinafter referred
to as the "Closing Date").
(B) At the Closing, subject to the terms and conditions
hereof, the Company Will deliver to the Purchaser a certificate representing
the number of Shares to be purchased at the Closing
1.
<PAGE> 5
by the Purchaser, against payment of the purchase price therefor by a check or
wire transfer made payable to the order of the Company.
3. REPRESENTATION AND WARRANTS OF THE COMPANY.
The Company hereby represents and warrants to the Purchaser as
follows:
3.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION. The Company is
a corporation duty organized, validly existing, and in good standing under the
laws of the State of Delaware. The Company has full power and authority to own
and operate its properties and assets, and to carry on its business as
presently conducted and as presently proposed to be conducted. The Company is
duly qualified and is authorized to do business and is in good standing as a
foreign corporation in all jurisdictions in which the nature of its activities
and of its properties (both owned and leased) makes such qualification
necessary, except for those jurisdictions in which failure to do so would not
have a material adverse effect on the Company or its business. The Company has
no subsidiaries and owns no equity securities of any other corporation, limited
partnership or similar entity.
3.2 CAPITALIZATION. The authorized capital stock of the Company,
immediately prior to the Closing, consists of eighteen million (18,000,000)
shares of Common Stock, seven million one hundred fifty-six thousand two
hundred sixty-four (7,156,264) shares of which are issued and outstanding; and
two million (2,000,000) shares of Preferred Stock, one million two hundred
fifty thousand (1,250,000) of which are designated Series A Preferred Stock,
none of which are issued and outstanding. All shares of the Company's Common
Stock (i) have been duly authorized and validly issued, and (ii) are fully paid
and nonassessable. The rights, preferences, privileges and restrictions of the
Shares are as stated in the Certificate of Incorporation. The shares of Common
Stock issuable upon the conversion of the Shares (the "Conversion Shares") have
been duly and validly reserved for issuance and, when issued in accordance with
the Certificate of Incorporation, will be validly issued, fully paid and
nonassessable. The Company has reserved 1,250,000 shares of Common Stock under
the Company's 1993 Incentive Stock Option Plan and 1994-1995 Incentive and Non-
Qualified Stock Option Plan (together, the "Stock Option Plans"). The Company
has outstanding: (i) options to purchase 1,852,666 shares of Common Stock
granted under the Stock Option Plans to the Company's employees and granted
outside the Stock Option Plans to employees, directors and consultants of the
Company; and (ii) warrants to purchase 260,000 shares of Common Stock issued to
a supplier, former employee and consultants of the Company. Other than as set
forth above and except as may be granted pursuant to that certain Investor's
Rights Agreement in the form attached hereto as Exhibit B (the "Investor's
Rights Agreement") there are no outstanding options, warrants, rights
(including conversion or preemptive rights), proxy or stockholder agreements,
or agreements of any kind for the purchase or acquisition from the Company of
any of its securities. A true and correct list of the Company's stockholders
as of the date hereof is attached hereto as Exhibit C.
3.3 AUTHORIZATION; BINDING OBLIGATIONS. All corporate action on
the part of the Company, its officers, directors and stockholders necessary for
the authorization, sale and issuance of the Shares pursuant hereto and the
Conversion Shares pursuant to the Certificate of Incorporation and for the
performance of the Company's obligations hereunder and under the Investor's
Rights Agreement has been taken or will be taken prior to the Closing. The
Agreement and the Investor's Rights Agreement when executed and delivered, will
be valid and binding obligations of the Company enforceable in accordance with
their terms, except (i) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application affecting
enforcement of creditors' rights; (ii) general principles of equity that
restrict the availability of equitable remedies; and (iii) to the extent that
the enforceability of
2.
<PAGE> 6
the indemnification provisions in Section 2.8 of the Investor's Rights
Agreement may be limited by applicable laws. The sale of the Shares and the
subsequent conversion of Shares into Conversion Shares are not and will not be
subject to any preemptive rights or rights of first refusal that have not been
properly waived or complied with. When issued in compliance with the
provisions of this Agreement and the Certificate of Incorporation, the Shares
and the Conversion Shares will be validly issued, fully paid and nonassessable,
and will be free of any liens or encumbrances; provided, however, that the
Shares and the Conversion Shares may be subject to restrictions on transfer
under state and/or federal securities laws as set forth herein. or as otherwise
required by such laws at the time a transfer is proposed.
3.4 FINANCIAL STATEMENTS. The Company has delivered to the
Purchaser its audited financial statements (balance sheet, statement of income,
statement of stockholders' equity and statement of cash flows, including notes
thereto) at August 31, 1994 and for the fiscal year then ended and its
unaudited financial statements (balance sheet and statement of income) as at
August 31, 1995 and for the fiscal year then ended and for the three months
ended November 30, 1995 (collectively, the "Financial Statements"). The
Financial Statements are complete and correct in all material respects and have
been prepared in accordance with generally accepted accounting principles
applied on a consistent basis throughout the periods indicated, except that
unaudited Financial Statements may not contain all footnotes required by
generally accepted accounting principles. The Financial Statements fairly
present the financial condition and position of the Company as of as of the
dates and for the periods indicated therein. Except as set forth in the
Financial Statements or Exhibit D hereto, the Company has no material
liabilities, contingent or otherwise, other then (1) liabilities incurred in
the ordinary course of business subsequent to November 30, 1995 and (ii)
obligations under contracts and commitments incurred in the ordinary course of
business and not required under generally accepted accounting principles to be
reflected in the Financial Statements, which in both cases, individually or in
the aggregate, are not material to the financial condition or operating results
of the Company.
3.5 CONTRACTS AND OTHER COMMITMENTS.
(A) Except as set forth in Exhibit D hereto, the Company
does not have any contracts, agreements, lease or other commitment, written or
oral, absolute or contingent, other than (i) contracts for the purchase of
supplies and services that were entered into in the ordinary and usual course
of business and that do not involve more than $100,000 and that do not extend
for more than one year beyond the date hereof and (ii) contracts terminable at
will by the Company on no more than 30 days notice without cost or liability to
the Company and are not material to the conduct of the Company's business.
(B) Except as set forth in Exhibit D hereto, the Company
has not (i) declared or paid any dividends, or authorized or made any
distribution upon or with respect to any class or series of its capital stock,
(ii) redeemed, directly or indirectly, any shares of its capital stock or
otherwise purchased shares of its capital stock, or (iii) made any loans or
advances to any person, or (iv) sold, exchanged or otherwise disposed of any of
its assets or rights.
3.6 NO OBLIGATIONS TO RELATED PARTIES. Except as set forth in
Exhibit D hereto, there are no obligations of the Company to current or former
officers, directors, stockholders, or employees of the Company.
3.7 TRADEMARKS. The Company has sufficient trade names, trade
secrets, information, proprietary title and ownership of all trademarks,
service marks, rights and processes necessary for its business as currently
conducted and as proposed to be conducted, without any conflict with or
3.
<PAGE> 7
infringement of the rights of others. There are no outstanding options,
licenses, or agreements of any kind relating to the foregoing, nor is the
Company bound by or a party to any options, licenses or agreements of any kind
with respect to the trademarks, service marks, trade names, trade secrets,
licenses, proprietary rights and processes of any other person or entity. The
Company is not aware that any of its employees is obligated under any contract
(including licenses, covenants or commitments of any nature) or other
agreement, or subject to any judgment, decree or order of any court or
administrative agency, that would interfere with their duties to the Company or
that would conflict with the Company's business as currently conducted and as
proposed to be conducted. Neither the execution nor delivery of this Agreement
or the Investor's Rights Agreement, nor the carrying on of the Company's
business by the employees of the Company, nor the conduct of the Company's
business as currently conducted and as proposed, will, to the Company's
knowledge, conflict with or result in a breach of the terms, conditions or
provisions of, or constitute a default under, any contract, covenant or
instrument under which any employee is now obligated. The Company does not
believe it is or will be necessary to utilize any inventions of any of its
employees made prior to their employment by the Company. The Company is not
aware of any violation by a third party of any of the Company's trademarks,
service marks, trade names, trade secrets or other proprietary rights.
3.8 COMPLIANCE WITH OTHER INSTRUMENTS. The Company is not in
violation of any term of its Certificate of Incorporation or bylaws, as set
forth in Exhibit F hereto (the "Bylaws"), or any term contained in any material
instrument or contract to which it is a party, and, to the best of its
knowledge, is not in violation of any statute, rule, or regulation applicable
to the Company which violation would have a material adverse effect on the
Company's business, condition (financial or otherwise), properties, prospects
or results of operations. No event or failure of performance has occurred
which, with the passage of time or the giving of notice or both, would
constitute such a violation. The execution, delivery, and performance of and
compliance with this Agreement and the Investor's Rights Agreement and the
issuance and sale of the Shares pursuant hereto and of the Conversion Shares
pursuant to the Certificate of Incorporation, will not result in any such
violation, or be in conflict with or constitute a default under any such term,
or result in the creation of any mortgage, pledge, lien, encumbrance, or charge
upon any of the properties or assets of the Company. No governmental orders,
permissions, consents, approvals or authorizations are required to be obtained
and no registrations or declarations are required to be filed in connection
with the execution and delivery of this Agreement, or the Investor's Rights
Agreement, and the issuance of the Shares or the Conversion Shares, except such
as has been duly and validly obtained or filed, or with respect to any filings
that must be made after the Closing, as will be filed in a timely manner.
3.9 TITLE TO PROPERTIES AND ASSETS; LIENS, ETC. The Company has
good and marketable title to all of its properties and assets it purports to
own, in each case subject to no mortgage, pledge, lien, lease, security
interest, encumbrance or charge, other then (i) liens for current taxes not yet
due and payable, and (i) liens and encumbrances which do not in any case
materially detract from the value of the property subject thereto or materially
impair the operations of the Company, and which have not arisen other then in
the ordinary course of business.
3.10 LITIGATION. There is no action, suit, proceeding or
investigation pending or threatened against the Company which questions the
validity of this Agreement, or the Investor's Rights Agreement, or the right of
the Company to enter into either of them, or to consummate the transactions
contemplated hereby and thereby, or which might result, either individually or
in the aggregate, in any material adverse changes in the business, condition
(financial or otherwise), properties, prospects or results of operations of the
Company, or any change in the current equity ownership of the Company. The
Company is not a party or subject to the provisions of any order, writ,
injunction, judgment or decree of any court or
4.
<PAGE> 8
government agency or instrumentality. Mere is no action, suit, proceeding or
investigation by the Company currently pending or which the Company intends to
initiate.
3.11 PERMITS, LICENSES. The Company has all federal, state and
local governmental permits, licenses, certificates of authority any similar
authority necessary for the conduct of its business as now being conducted and
as proposed to be conducted. The Company is not in default in any material
respect under any such permit, license, certificate of authority or other
similar authority.
3.12 ENVIRONMENTAL AND SAFETY LAWS. To the best of its knowledge,
the Company is not in violation of any applicable statute, law or regulation
relating to the environment or occupational health and safety, and to the best
of its knowledge, no material expenditures are or will be required in order to
comply with any such existing statute, law or regulation.
3.13 CHANGES. Except as listed on Exhibit D, since November 30,
1995 there has not been:
(A) any change in the assets, liabilities, financial
condition or operating results of the Company from that reflected in the
Financial Statements, except changes in the ordinary course of business that
have not been, in the aggregate, materially adverse;
(B) any damage, destruction or loss, whether or not
covered by insurance which materially and adversely affects the business,
condition (financial or otherwise), properties, prospects or results of
operations of the Company;
(C) any satisfaction or discharge of any lien, claim or
encumbrance or payment of any obligation by the Company, except in the ordinary
course of business and that is not material to the business, condition
(financial or otherwise), properties, prospects or results of operations of the
Company;
(D) any mortgage, pledge, transfer of a security interest
in, or lien, created by the Company, with respect to any of its material
properties or assets, except liens for taxes not yet due and payable;
(E) any loans or guarantees made by the Company to or for
the benefit of its employees, officers or directors, or any member of their
immediate families, other than advances in the ordinary course of business;
(F) to the best of the Company's knowledge, any other
event or condition of any character that might materially and adversely affect
the business, condition (financial or otherwise), properties, prospects or
results of operations of the Company; or
(G) any agreement or commitment by the Company to do any
of the things described in this Section 3.13.
3.14 TAX RETURNS AND PAYMENTS. The Company has filed all tax
returns (federal, state and local) required to be filed by it. All taxes shown
to be due and payable on such returns, any assessment imposed, and all other
taxes due and payable by the Company on or before the Closing have been paid or
will be paid prior to the time they become delinquent.
5.
<PAGE> 9
3.15 INSURANCE. The Company has in full force and effect fire and
casualty insurance, with extended coverage, aircraft hull insurance and
liability and errors and omissions insurance in amounts customary for
commercial passenger airlines.
3.16 EMPLOYEES. Except as disclosed on Exhibit D hereto, the
Company has no employment contract with any officer or employee or other
consultant or person which is not terminable by it at will without liability,
except as the Company's right to terminate its employees at will may be limited
by applicable law. To the Company's knowledge, no employee of the Company, nor
any consultant with whom the Company has contracted, is in violation of any
term of any employment contract or any other agreement relating to the right of
any such individual to be employed by, or to contract with, the Company
because of the nature of the business to be conducted by the Company; and to
the Company's knowledge, the continued employment by the Company of its
present employees, and the performance of the Company's contracts with its
independent contractors, will not result in any such violation. There are no
controversies or labor trouble or union organization activities pending or, to
the knowledge of the Company, threatened between it and its employees. None of
the Company's employees belongs to any union or collective bargaining unit. To
the best of its knowledge, the Company has complied with all applicable state
and federal equal employment opportunity laws and other laws related to
employment in which the failure to so comply might have a material adverse
effect on the business, condition (financial or otherwise), properties,
properties, prospects or results of operations of the Company. The Company is
not aware that any officer or key employee, or that any group of key employees,
intends to terminate his, her or their employment with the Company, nor does
the Company have a present intention to terminate the employment of any officer
or key employee.
3.17 REGISTRATION RIGHTS. Except as set forth in Exhibit D hereto
and except as required pursuant to the Investor's Rights Agreement, the Company
is presently not under any obligation, and has not granted any rights, to
register (as defined in Section 1.1 of the Investor's Rights Agreement) any of
the Company's presently outstanding securities or any of its securities that
may hereafter be issued.
3.18 OFFERING VALID. Assuming the accuracy of the representations
and warranties of the Purchaser contained in Section 4.3 hereof, the offer,
sale and issuance of the Shares and the Conversion Shares will be exempt from
the registration requirements of the Securities Act of 1933, as amended (the
"Securities Act") and will have been registered or qualified (or are exempt
from registration and qualification) under the registration, permit or
qualification requirements of any applicable state securities laws. Neither
the Company nor any agent on its behalf has solicited or will solicit any
offers to sell or has offered to sell or will offer to sell all or any part of
the Shares to any person or persons so as to bring the sale of such Shares by
the Company within the registration provisions of the Securities Act.
3.19 FULL DISCLOSURE. This Agreement, the Exhibits hereto and all
other documents delivered by the Company to the Purchaser or Purchaser's
attorneys or agents in connection herewith or therewith or with the
transactions contemplated hereby or thereby, do not contain any untrue
statement of a material fact nor, to the Company's knowledge, omit to state a
material fact necessary in order to make the statements contained herein or
therein not misleading.
3.20 REAL PROPERTY HOLDING CORPORATION. The Company is not a real
property holding corporation within the meaning of Internal Revenue Code
Section 897(c)(2) and any regulations promulgated thereunder.
6.
<PAGE> 10
4. REPRESENTATIONS AND WARRANTS OF THE PURCHASER. Purchaser hereby
represents and warrants to the Company as follows (such representations and
warranties do not lessen or obviate the representations and warranties of the
Company set forth in this Agreement):
4.1 REQUISITE POWER AND AUTHORITY. Purchaser has all necessary
power and authority under all applicable provisions of law to execute and
deliver this Agreement and the Investor's Rights Agreement and to carry out the
provisions of this Agreement and the Investor's Rights Agreement. All action
on Purchaser's part required for the lawful execution and delivery of this
Agreement and the Investor's Rights Agreement have been or will be effectively
taken prior to the Closing. Upon their execution and delivery this Agreement
and the Investor's Rights Agreement will be valid and binding obligations of
Purchaser, enforceable in accordance with their terms, except (i) as limited by
applicable bankruptcy, insolvency, reorganization, moratorium, or other laws of
general application affecting enforcement of creditors' rights; (ii) general
principles of equity that restrict the availability of equitable remedies; and
(iii) to the extent that the enforceability of the indemnification provisions
of Section 2.8 of the Investor's Rights Agreement may be limited by applicable
laws.
4.2 CONSENTS. All consents, approvals, orders, authorizations,
registrations, qualifications, designations, declarations or filings with any
governmental or banking authority on the part of Purchaser required in
connection with the consummation of the transactions contemplated in this
Agreement and the Investor's Rights Agreement have been or shall have been
obtained prior to and be effective as of the Closing.
4.3 INVESTMENT REPRESENTATIONS. Purchaser understands that
neither the Shares nor the Conversion Shares have been registered under the
Securities Act. Purchaser also understands that the Shares are being offered
and sold pursuant to an exemption from registration contained in the Securities
Act based in part upon Purchaser's representations contained in the Agreement.
Purchaser hereby represents and warrants as follows:
(A) PURCHASER BEARS ECONOMIC RISK. Purchaser has
substantial experience in evaluating and investing in private placement
transactions of securities in companies similar to the Company so that it is
capable of evaluating the merits and risks of its investment in the Company and
has the capacity to protect its own interests. Purchaser must bear the
economic risk of this investment indefinitely unless the Shares (or the
Conversion Shares) are registered pursuant to the Securities Act, or an
exemption from registration is available. Purchaser understands that there is
no assurance that any exemption from registration under the Securities Act will
be available and that, even if available, such exemption may not allow
Purchaser to transfer all or any portion of the Shares or the Conversion Shares
under the circumstances, in the amounts or at the times Purchaser might
propose.
(B) ACQUISITION FOR OWN ACCOUNT. Purchaser is acquiring
the Shares and the Conversion Shares for Purchaser's own account for investment
only, and not with a view towards their distribution; provided, however, that
Purchaser will transfer the Shares to H & Q Air South Investors, L.P. ("H & Q,
L. P.") immediately upon its formation. Purchaser represents that each and
every partner in H & Q, L.P. will be an "accredited investor" as defined in
Rule 501 of Regulation D under the Securities Act.
(C) PURCHASER CAN PROTECT ITS INTEREST. Purchaser
represents that by reason of its management's, business or financial
experience, Purchaser has the capacity to protect its own interests in
connection with the transactions contemplated in this Agreement and the
Investor's Rights Agreement.
7.
<PAGE> 11
Further, Purchaser is aware of no publication of any advertisement in
connection with the transactions contemplated in this Agreement.
(D) COMPANY INFORMATION. Purchaser has received and read
the Financial Statements and has had an opportunity to discuss the Company's
business, management and financial affairs with directors, officers and
management of the Company and has had the opportunity to review the Company's
operations and facilities. Purchaser has also had the opportunity to ask
questions of and receive answers from, the Company and its management regarding
the terms and conditions of this investment.
5. CONDITIONS TO CLOSING.
5.1 CONDITIONS TO PURCHASER'S OBLIGATIONS AT THE CLOSING.
Purchaser's obligations to purchase the Shares at the Closing are subject to
the satisfaction, at or prior to the Closing, of the following conditions:
(A) REPRESENTATIONS AND WARRANTIES TRUE; PERFORMANCE OF
OBLIGATIONS. The representations and warranties made by the Company in Section
3 hereof shall be true and correct in all material respects as of the Closing
Date with the same force and effect as if they had been made as of the Closing
Date, and the Company shall have performed all obligations and conditions
herein required to be performed or observed by it on or prior to the Closing.
(B) THIRD PARTY CONSENTS, PERMITS, AND WAIVERS. The
Company shall have obtained any and all consents, permits, and waivers
necessary or appropriate for consummation of the transactions contemplated by
this Agreement and the Investor's Rights Agreement.
(C) CORPORATE DOCUMENTS. The Company shall have
delivered to the Purchaser or its counsel copies of all corporate documents of
the Company as the Purchaser shall reasonably request.
(D) RESERVATION OF CONVERSION SHARES. The Conversion
Shares issuable upon conversion of the Shares shall have been duly authorized
and reserved for issuance upon such conversion.
(E) REINCORPORATION. The Company shall have
reincorporated in Delaware pursuant to the Certificate of Merger attached
hereto as Exhibit E.
(F) FILING OF CERTIFICATE OF INCORPORATION. The
Certificate of Incorporation shall have been filed with the Secretary of State
of the State of Delaware.
(G) ADOPTION OF BYLAWS. The Company shall have adopted
the Bylaws.
(H) COMPLIANCE CERTIFICATE. The Company shall have
delivered to the Purchaser a Compliance Certificate, executed by the Chairman
of the Board of the Company, dated the Closing Date, to the effect that the
conditions specified in subsections (a) through (g) of this Section 5.1 have
been satisfied.
(I) INVESTOR'S RIGHTS AGREEMENT. An Investor's Rights
Agreement substantially in the form attached hereto as Exhibit B shall have
been executed and delivered by the Company.
8.
<PAGE> 12
(J) PROCEEDINGS AND DOCUMENTS. At the Closing all
corporate and other proceedings in connection with the transactions
contemplated at the Closing hereby and all documents and instruments incident
to such transactions shall be reasonably satisfactory in substance and form to
the Purchaser and its counsel, and the Purchaser and its counsel shall have
received all such counterpart originals or certified or other copies of such
documents as they may reasonably request.
(K) OPINION. Purchaser shall have received from David Y.
Monteith, counsel to the Company, an opinion letter substantially in the form
attached hereto as Exhibit G, addressed to Purchaser as of the date of the
Closing.
(L) QUALIFICATIONS. All authorizations, approvals or
permits, if any, of any governmental authority or regulatory body of the United
States or of any state that are required in connection with the lawful sale and
issuance of the Shares pursuant to this Agreement shall have duly obtained and
shall be effective as of the Closing. No stop order or other order enjoining
the sale of the Shares or the proposed issuance of the Conversion Shares shall
have been issued and no proceedings for such purpose shall be pending or, to
the knowledge of the Company, threatened by the Securities and Exchange
Commission or any commissioner or corporations or similar officer of any state
having jurisdiction over this transaction. At the time of Closing, the sale
and issuance of the Shares and the proposed issuance of the Conversion Shares
shall be legally permitted by all laws and regulations to which the Purchaser
and the Company are subject.
5.2 CONDITIONS TO OBLIGATIONS OF THE COMPANY. The Company's
obligation to issue and sell the Shares at the Closing is subject to the
satisfaction, on or prior to the Closing, of the following conditions:
(A) REPRESENTATIONS AND WARRANTIES TRUE; PERFORMANCE OF
OBLIGATIONS. The representations and warranties made by the Purchaser in
Section 4 hereof shall be true and correct in all material respects at the date
of the Closing Date, with the same force and effect as if they had been made on
and as of said date, and the Purchaser shall have performed and complied with
all agreements and conditions herein required to be performed or complied with
by it on or before the Closing.
(B) THIRD PARTY CONSENTS, PERMITS AND WAIVERS. The
Company shall have obtained any and all consents, permits, and waivers
necessary or appropriate for consummation of the transactions contemplated by
this Agreement and the Investor's Rights Agreement.
(C) REINCORPORATION. The Company shall have
reincorporated in Delaware pursuant to the Certificate of Merger attached
hereto as Exhibit E.
(D) FILING OF CERTIFICATE OF INCORPORATION. The
Certificate of Incorporation shall have been filed with the Secretary of State
of the State of Delaware.
(E) ADOPTION OF BYLAWS. The Company shall have adopted
the Bylaws set forth in Exhibit F attached hereto.
(F) INVESTOR'S RIGHTS AGREEMENT. An Investor's Rights
Agreement substantially in the form attached hereto as Exhibit B shall have
been executed and delivered by the Purchaser.
(G) QUALIFICATIONS. All authorizations, approvals or
permits, if any, of any governmental authority or regulatory body of the United
States or of any state that are required in
9.
<PAGE> 13
connection with the lawful sale and issuance of the Shares pursuant to this
Agreement shall have been duly obtained and shall be effective as of the
Closing. No stop order or other order enjoining the sale of the Shares or the
proposed issuance of the Conversion Shares shall have been issued and no
proceedings for such purpose shall be pending or, to the knowledge of the
Company, threatened by the Securities and Exchange Commission or any
commissioner or corporations or similar officer of any state having
jurisdiction over this transaction. At the time of Closing, the sale and
issuance of the Shares and the proposed issuance of the Conversion Shares shall
be legally permitted by all laws and regulations to which the Purchaser and the
Company are subject.
6. AFFIRMATIVE COVENANTS OF THE COMPANY.
6.1 ELECTION OF DIRECTORS. The Company agrees that at the next
annual meeting of stockholders of the Company to be held no later than January
31, 1996, Clifton Haley, Harold Stowe, Susie VanHuss and William Hambrecht,
plus two directors nominated by the nominating committee of the Board of
Directors and reasonably acceptable to Purchaser, will be nominated as
directors of the Company to serve until their respective successors are duly
elected and have qualified.
6.2 BOARD OF DIRECTORS MEETINGS. For as long as any shares of
Series A Preferred Stock of the Company remain outstanding, the Company agrees
that it shall hold meetings of the Board of Directors no less frequently than
once per calendar quarter.
6.3 QUALIFIED SMALL BUSINESS STOCK. The Company covenants that so
long as any of the Shares, or Conversion Shares, are held by Purchaser (or a
transferee in whose hands such Shares or Conversion Shares are eligible to
qualify as Qualified Small Business Stock as defined in Section 1202(c) of the
Internal Revenue Code of 1986, as amended), it will use its reasonable efforts
to cause the Shares, or the Conversion Shares, to qualify as Qualified Small
Business Stock; provided, however, that "reasonable efforts" as used in this
Section 6.3 shall not be construed to require the Company to operate its
business in a manner which would adversely affect its business, limit its
future prospects or alter the timing or resource allocation related to its
planned operations or financing activities.
6.4 BOARD OF DIRECTOR APPROVAL. The Company covenants that so
long as any shares of Series A Preferred Stock remain outstanding, the approval
of the Board of Directors of the Company shall be obtained prior to taking any
of the following actions:
(A) The hiring of any officer of the Company;
(B) The adoption of any compensation program, including
base salaries and bonus programs for officers and key employees of the Company;
(C) The adoption of any stock option plan and the
issuance of any stock and stock options;
(D) The adoption of an annual budget, business or
financial plan;
(E) The purchase or lease of any real estate, fixed asset
or aircraft lease in excess of $500,000;
10.
<PAGE> 14
(F) The approval by the Company of any obligation or
commitment, including capital equipment leases or purchases, with a value in
excess of $500,000 or which are outside the most recent business plan or budget
approved by the Board of Directors; and
(G) Transfers by stockholders of more than 10,000 shares
of the Company's stock; provided, however, that this Section 6.4(vii) shall
expire on an initial public offering of the Company's Common Stock resulting in
aggregate proceeds (net of underwriting discounts and commissions) to the
Company of at least $10,000,000 at a minimum price of $4.00 per share; and
provided further, that the provisions of this Section 6.4(vii) shall not apply
to transfers by a stockholder to such stockholder's partners, family members
and affiliates.
6.5 APPROVAL OF SERIES A PREFERRED STOCK. For so long as any of
the shares of Series A Preferred Stock remain outstanding, the Company agrees
not to allow the transfer of more than 100,000 shares of the Company's Common
Stock by any stockholder in any 12 month period without the prior approval of
at least a majority of the shares of Series A Preferred Stock then outstanding.
7. MISCELLANEOUS.
7.1 GOVERNING LAW. This Agreement shall be governed in all
respects by the laws of the State of California as such laws are applied to
agreements between California residents entered into and performed entirely in
California.
7.2 SURVIVAL. The representations, warranties, covenants, and
agreements made herein shall survive any investigation made by the Purchaser
and the closing of the transactions contemplated hereby. All statements as to
factual matters contained in any certificate or other instrument delivered by
or on behalf of the Company pursuant hereto in connection with the transactions
contemplated hereby shall be deemed to be representations and warranties by the
Company hereunder solely as of the date of such certificate or instrument.
7.3 SUCCESSORS AND ASSIGNS. Except as otherwise expressly
provided herein, the provisions hereof shall inure to the benefit of, and be
binding upon, the successors, assigns, heirs, executors, and administrators of
the parties hereto and shall inure to the benefit of and be enforceable by each
person who shall be a holder of the Shares from time to time.
7.4 ENTIRE AGREEMENT. This Agreement, the Exhibits and Schedules
hereto, the Investor's Rights Agreement, and the other documents delivered
pursuant hereto constitute the full and entire understanding and agreement
between the parties with regard to the subjects hereof and no party shall be
liable or bound to any other in any manner by any representations, warranties,
covenants, and agreements except as specifically set forth herein and therein.
7.5 SEPARABILITY. In case any provision of the Agreement shall be
invalid, illegal, or unenforceable, the validity, legality, and enforceability
of the remaining provisions shall not in any way be affected or impaired
thereby.
7.6 AMENDMENT AND WAIVER.
(A) This Agreement may be amended or modified only upon
the written consent of the Company and holders of more than fifty percent (50%)
of the Shares (treated as if converted and including any Conversion Shares that
have not been sold to the public).
11.
<PAGE> 15
(B) The obligations of the Company and the rights of the
holders of the Shares and the Conversion Shares under this Agreement may be
waived only with the written consent of the holders of more than fifty percent
(50%) of the Shares (treated as if converted and including any Conversion
Shares that have not been sold to the public).
7.7 DELAYS OR OMISSIONS. It is agreed that no delay or omission
to exercise any right, power, or remedy accruing to the Purchaser, upon any
breach, default or noncompliance of the Company under this Agreement, the
Investor's Rights Agreement, or the Certificate of Incorporation, shall impair
any such right, power, or remedy, nor shall it be construed to be a waiver of
any such breach, default or noncompliance, or any acquiescence therein, or of
or in any similar breach, default or noncompliance thereafter occurring. It is
further agreed that any waiver, permit, consent, or approval of any kind or
character on Purchaser's part of any breach, default or noncompliance under
this Agreement or under the Certificate of Incorporation or any waiver on
Purchaser's part of any provisions or conditions of the Agreement must be in
writing and shall be effective only to the extent specifically set forth in
such writing. All remedies, either under this Agreement, the Certificate of
Incorporation, Bylaws, or otherwise afforded to Purchaser, shall be cumulative
and not alternative.
7.8 NOTICES. All notices required or permitted hereunder shall be
in writing and shall be deemed effectively given: (i) upon personal delivery to
the party to be notified; (ii) upon receipt at the address on the signature
page hereto after having been sent by registered or certified mail, return
receipt requested, postage prepaid; or (iii) one (1) day after deposit with a
nationally recognized overnight courier, specifying next day delivery, with
written verification of receipt. All communications shall be sent to the party
to be notified at the address as set forth on the signature page hereof or at
such other address as such party may designate by ten (10) days advance written
notice to the other party hereto.
7.9 EXPENSES. The Company shall pay all costs and expenses that
it incurs with respect to the negotiation, execution, delivery and performance
of this Agreement. The Company shall, at the Closing, reimburse the reasonable
fees, not to exceed $15,000, and reasonable expenses of Cooley Godward Castro
Huddleson & Tatum, counsel for the Purchaser.
7.10 ATTORNEYS' FEES. If legal action is brought to enforce or
interpret this Agreement, the prevailing party shall be entitled to recover its
reasonable attorneys' fees and legal costs in connection therewith.
7.11 TITLES AND SUBTITLES. The titles of the sections and
subsections of the Agreement are for convenience of reference only and are not
to be considered in construing this Agreement.
7.12 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
7.13 BROKER'S FEES. Each party hereto represents and warrants that
no agent, broker, investment banker, person or firm acting on behalf of or
under the authority of such party hereto is or will be entitled to any broker's
or finder's fee or any other commission directly or indirectly in connection
with the transactions contemplated herein. Each party hereto further agrees to
indemnify each other party for any claims, losses or expenses incurred by such
other party as a result of the representation in this Section 7.13 being
untrue.
12.
<PAGE> 16
IN WITNESS WHEREOF, the parties hereto have executed the Agreement as of
the date set forth in the first paragraph hereof.
AIR SOUTH AIRLINES, INC.
By: /s/ Clifton E. Haley
--------------------------------
Clifton E. Haley
Chairman of the Board and
Chief Executive Officer
Address: 101 Trade Zone Drive
West Columbia, SC 29170
HAMBRECHT & QUIST GROUP, L.L.C.
By: /s/ William R. Hambrecht
-------------------------------
William R. Hambrecht
Chairman
Address: One Bush Street
San Francisco, CA 94104
13.
<PAGE> 17
AIR SOUTH AIRLINES, INC.
INVESTOR'S RIGHTS AGREEMENT
<PAGE> 18
TABLE OF CONTENTS
Page
I. General ......................................................... 1
1.1 Definitions .............................................. 1
II. Restrictions On Transfer; Registration .......................... 2
2.1 Restrictions on Transfer ................................. 2
2.2 Demand Registration ...................................... 3
2.3 Piggyback Registrations ................................. 4
2.4 Form S-3 Registration .................................... 6
2.5 Obligations of the Company ............................... 6
2.6 Furnish Information ...................................... 7
2.7 Delay of Registration .................................... 8
2.8 Indemnification .......................................... 8
2.9 Assignment of Registration Rights ........................ 10
2.10 Amendment of Registration Rights ......................... 10
2.11 "Market Stand-Off" Agreement ............................. 10
III. Covenants Of The Company ........................................ 10
3.1 Basic Financial Information and Reporting ................ 10
3.2 Inspection Rights ........................................ 11
3.3 Confidentiality of Records ............................... 11
3.4 Reservation of Common Stock .............................. 12
IV. Rights Of First Refusal ......................................... 12
4.1 Subsequent Offerings ..................................... 12
4.2 Exercise of Rights ....................................... 12
4.3 Issuance of Equity Securities to Other Persons ........... 12
4.4 Termination of Rights of First Refusal ................... 12
4.5 Transfer of Rights of First Refusal ...................... 12
4.6 Excluded Securities ...................................... 12
V. Miscellaneous ................................................... 13
5.1 Governing Law ............................................ 13
5.2 Survival ................................................. 13
5.3 Successors and Assigns ................................... 13
5.4 Separability ............................................. 14
5.5 Amendment and Waiver ..................................... 14
5.6 Delays or Omissions ...................................... 14
5.7 Notices .................................................. 14
5.8 Attorneys' Fees .......................................... 14
5.9 Titles and Subtitles ..................................... 14
5.10 Counterparts ............................................. 14
i.
<PAGE> 19
INVESTOR'S RIGHTS AGREEMENT
THIS INVESTOR'S RIGHTS AGREEMENT (the "Agreement") is entered into as
of the 29th day of December 1995, by and among AIR SOUTH AIRLINES, INC., a
Delaware corporation (the "Company") and HAMBRECHT & QUIST GROUP,
L.L.C.("Purchaser").
RECITALS
WHEREAS, the Company proposes to sell and issue one million two
hundred fifty thousand (1,250,000) shares of its Series A Preferred Stock
("Series A Preferred Stock") pursuant to the Series A Preferred Stock Purchase
Agreement of even date herewith between the Company and Purchaser (the
"Purchase Agreement"); and,
WHEREAS, as a condition to entering into the Purchase Agreement, the
Purchaser has requested that the Company extend to it registration rights,
information rights and a right of first refusal as set forth herein.
NOW, THEREFORE, in consideration of the mutual promises,
representations, warranties, covenants, and conditions set forth in this
Agreement and in the Purchase Agreement, the parties mutually agree as follows:
1. GENERAL.
1.1 DEFINITIONS. As used in this Agreement the following terms
shall have the following respective meanings:
"1934 ACT" means the Securities Exchange Act of 1934, as amended.
"EQUITY SECURITIES" means (i) any stock or similar security of the
Company, (ii) any security convertible, with or without consideration, into any
stock or similar security (including any option to purchase such a convertible
security), (iii) any security carrying any warrant or right to subscribe to or
purchase any stock or similar security or (iv) any such warrant or right.
"FAMILY MEMBER" means a Holder's spouse, children, stepchildren and
grandchildren.
"FINAL PROSPECTUS" means an amended prospectus filed with the SEC
pursuant to SEC Rule 424(b) of the Securities Act.
"HOLDER" means any person owning of record Registrable Securities.
"INITIAL OFFERING" means the first underwritten public offering of the
Company's securities.
"INITIATING HOLDERS" means the Holder or Holders of at least forty
percent (40%) of the Registrable Securities then outstanding.
1.
<PAGE> 20
"REGISTER," "REGISTERED" AND "REGISTRATION" refer to a registration
effected by preparing and filing a registration statement in compliance with
the Securities Act, and the declaration or ordering of effectiveness by the SEC
of such registration statement or document.
"REGISTRABLE SECURITIES" means (i) the Shares; (ii) Common Stock of
the Company issued or issuable upon conversion of the Shares; and (iii) any
Common Stock of the Company issued as (or issuable upon the conversion or
exercise of any warrant, right or other security which is issued as) a dividend
or other distribution with respect to, or in exchange for or in replacement of,
such above described securities. Notwithstanding the foregoing, Registrable
Securities shall not include any securities sold by a person to the public
either pursuant to a registration statement or Rule 144 or sold in a private
transaction in which the transferror's rights under Article II of this
Agreement are not assigned. Outstanding Shares and warrants, rights and other
securities issued as a dividend or other distribution with respect to
outstanding Shares, or in exchange or replacement of outstanding Shares, shall
be deemed to represent a number of shares of Registrable Securities equal to
the number of shares of Common Stock into which such Shares, warrants, rights
or other securities are convertible as of the time such determination is made.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended.
"SHARES" shall mean the Company's Series A Preferred Stock.
"FORM S-3" means such form under the Securities Act as in effect on
the date hereof or any successor registration form under the Securities Act
subsequently adopted by the SEC which permits inclusion or incorporation of
substantial information by reference to other documents filed by the Company
with the SEC.
"SEC" or "COMMISSION" means the Securities and Exchange Commission.
II. RESTRICTIONS ON TRANSFER; REGISTRATION.
2.1 RESTRICTIONS ON TRANSFER.
(A) Each Holder agrees not to make any disposition of all
or any portion of the Registrable Securities unless and until the transferee
has agreed in writing for the benefit of the Company to be bound by this
Section 2.1, provided and to the extent such Section is then applicable and:
(I) There is then in effect a registration
statement under the Securities Act covering such proposed disposition and such
disposition is made in accordance with such registration statement; or
(II) (A) Such Holder shall have notified the
Company of the proposed disposition and shall have furnished the Company with a
detailed statement of the circumstances surrounding the proposed disposition,
and (B) if reasonably requested by the Company, such Holder shall have
furnished the Company with an opinion of counsel, reasonably satisfactory to
the Company, that such disposition will not require registration of such shares
under the Securities Act.
(III) Notwithstanding the provisions of paragraphs
(i) and (ii) above, no such registration statement or opinion of counsel shall
be necessary for a transfer by a Holder (A) which is a partnership to its
partners in accordance with partnership interests, (B) to the Holder's family
member
2.
<PAGE> 21
or trust for the benefit of an individual Holder or (C) to an affiliate of the
Holder (as that term is defined in Rule 144 (a)(1) of the Securities Act (an
"Affiliate"), provided the transferee will be subject to the terms of this
Section 2.1 to the same extent as if he were an original Holder hereunder.
(B) Each certificate representing Series A Preferred
Stock or Registrable Securities shall (unless otherwise permitted by the
provisions of the Agreement) be stamped or otherwise imprinted with a legend
substantially similar to the following (in addition to any legend required
under applicable state securities laws or as provided elsewhere in this
Agreement):
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE OFFERED, SOLD OR
OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL
REGISTERED UNDER THE ACT OR, IN THE OPINION OF COUNSEL OR BASED ON
OTHER WRITTEN EVIDENCE IN FORM AND SUBSTANCE SATISFACTORY TO THE
ISSUER OF THESE SECURITIES, SUCH OFFER, SALE OR TRANSFER, PLEDGE OR
HYPOTHECATION DOES NOT REQUIRE REGISTRATION.
(C) The Company shall be obligated to reissue promptly
unlegended certificates at the request of any holder thereof if the holder
shall have obtained an opinion of counsel (which counsel may be counsel to the
Company) reasonably acceptable to the Company to the effect that the securities
proposed to be disposed of may lawfully be so disposed of without registration,
qualification or legend.
(D) Any legend endorsed on an instrument pursuant to
applicable state securities laws and the stop-transfer instructions with
respect to such securities shall be removed upon receipt by the Company of an
order of the appropriate blue sky authority authorizing such removal.
2.2 DEMAND REGISTRATION.
(A) Subject to The conditions of this Section 2.2, if the
Company shall receive at any time after the later of December 31, 1996 and one
hundred twenty (120) days after the closing of the Initial Offering, a written
request from the Initiating Holders that the Company file a registration
statement under the Securities Act covering the registration of at least 25% of
the Registrable Securities held by such Initiating Holders, then the Company
shall, within thirty (30) days of the receipt thereof, give written notice of
such request to all Holders, and subject to the limitations of Section 2.2(b),
effect, as soon as practicable, the registration under the Securities Act;
provided, however, that the Initiating Holders may request registration of less
than 25% of such Registrable Securities if the anticipated aggregate offering
price, net of underwriting discounts and commissions, exceeds $5,000,000.
(B) If the Initiating Holders intend to distribute the
Registrable Securities covered by their request by means of an underwriting,
they shall so advise the Company as a part of their request made pursuant to
this Section 2.2 and the Company shall include such information in the written
notice referred to in Section 2.2(a). In such event, the right of any Holder to
include such Holder's Registrable Securities in such registration shall be
conditioned upon such Holder's participation in such underwriting and the
inclusion of such Holder's Registrable Securities in the underwriting (unless
otherwise mutually agreed by a majority in interest of the Initiating Holders
and such Holder) to the extent provided herein. All Holders proposing to
distribute their securities through such underwriting shall enter into an
underwriting agreement in customary form with the underwriter or underwriters
selected for such underwriting by a majority in interest of the Initiating
Holders (which underwriter or underwriters shall
3.
<PAGE> 22
be reasonably acceptable to the Company). Notwithstanding any other provision
of this Section 2.2, if the underwriter advises the Company in writing that
marketing factors require a limitation of the number of securities to be
underwritten (including Registrable Securities) then the Company shall so
advise all Holders of Registrable Securities which would otherwise be
underwritten pursuant hereto, and the number of shares that may be included in
the underwriting shall be allocated to the Holders of such Registrable
Securities on a pro rata basis based on the number of Registrable Securities
held by all such Holders (including the Initiating Holders). Any Registrable
Securities excluded or withdrawn from such underwriting shall be withdrawn from
the registration.
(C) The Company shall not be obligated to effect more
than two (2) registrations pursuant to this Section 2.2.
(D) Notwithstanding the foregoing, if the Company shall
furnish to Holders requesting a registration statement pursuant to this Section
2.2, a certificate signed by the Chairman of the Board stating that in the good
faith judgment of the Board of Directors of the Company, it would be seriously
detrimental to the Company and its stockholders for such registration statement
to be filed and it is therefore essential to defer the filing of such
registration statement, the Company shall have the right to defer such filing
for a period of not more than thirty (30) days after receipt of the request of
the Initiating Holders; provided that such right to delay a request shall be
exercised by the Company no more than once in any one-year period.
(E) All expenses incurred in connection with a
registration pursuant to this Section 2.2 (excluding underwriters'
discounts and commissions, which shall be paid by the selling Holders pro rata
with respect to their included shares), including without limitation all
registration, filing, qualification, printers' and accounting fees, fees and
disbursements of counsel for the Company, and the reasonable fees and
disbursements of a single counsel for the selling Holders, shall be borne by
the Company; provided, however, that the Company shall not be required to pay
for any expenses of any registration proceeding begun pursuant to Section 2.2
if the registration request is subsequently withdrawn, unless the withdrawal of
the registration request results from either (a) intentional actions by the
Company outside the normal course of business that materially reduce the
feasibility of the registration proceeding, or (b) the discovery of information
about the Company that was not known at the time of the Initiating Holders'
request made pursuant to Section 2.2(a), and such information materially
reduces the feasibility of the registration proceeding. If the Company is
required to pay the registration expenses pursuant to this Section 2.2(e), then
the Holders shall not forfeit their rights pursuant to this Section 2.2 to a
demand registration.
2.3 PIGGYBACK REGISTRATIONS.
(A) The Company shall notify all Holders in writing at
least thirty (30) days prior to the filing of any registration statement under
the Securities Act for purposes of a public offering of securities of the
Company (including, but not limited to, registration statements relating to
secondary offerings of securities of the Company, but excluding registration
statements relating to the Initial Offering, employee benefit plans and
corporate reorganizations) and will afford each such Holder who would have been
unable to sell all of such Registrable Securities on an unrestricted basis
pursuant to Rule 144 promulgated under the Securities Act, during the four-week
period immediately preceding the effective date of the registration statement,
an opportunity to include in such registration statement all or part of such
Registrable Securities held by such Holder. Each Holder desiring to include in
any such registration statement all or any part of the Registrable Securities
held by it shall, within twenty (20) days after receipt of the above-described
notice from the Company, so notify the Company in writing. Such
4.
<PAGE> 23
notice shall state the intended method of disposition of the Registrable
Securities by such Holder. If a Holder decides not to include all of its
Registrable Securities in any registration statement thereafter filed by the
Company, such Holder shall nevertheless continue to have the right to include
any Registrable Securities in any subsequent registration statement or
registration statements as may be filed by the Company with respect to
offerings of its securities, all upon the terms and conditions set forth
herein. Notwithstanding anything to the contrary, the foregoing shall not
apply to any registrations occurring on or after the fifth anniversary of the
Initial Offering.
(B) If the registration statement under which the Company
gives notice under this Section 2.3 is for an underwritten offering, the
Company shall so advise the Holders. In such event, the right of any such
Holder to be included in a registration pursuant to this Section 2.3 shall be
conditioned upon such Holder's participation in such underwriting and the
inclusion of such Holder's Registrable Securities in the underwriting to the
extent provided herein. All Holders proposing to distribute their Registrable
Securities through such underwriting shall enter into an underwriting agreement
in customary form with the underwriter or underwriters selected for such
underwriting. Notwithstanding any other provision of the Agreement, if the
underwriter determines in good faith that marketing factors require a
limitation of the number of shares to be underwritten, the number of shares
that may be included in the underwriting shall be allocated, first, to the
Company; second, to the Holders on a pro rata basis based on the total number
of Registrable Securities held by the Holders; and third, to any stockholder of
the Company (other than a Holder) on a pro rata basis. No such reduction shall
reduce the securities being offered by the Company for its own account to be
included in the registration and underwriting, except that in no event shall
the amount of securities of the selling Holders included in the registration
be reduced below twenty percent (20%) of the total amount of securities
included in such registration, unless such offering is the Initial Offering and
such registration does not include shares of any other selling stockholders, in
which event any or all of the Registrable Securities of the Holders may be
excluded in accordance with the immediately preceding sentence. In no event
will shares of any other selling stockholder be included in such registration
which would reduce the number of shares which may be included by Holders
without the written consent of Holders of not less than fifty percent (50%) of
the Registrable Securities proposed to be sold in the offering.
(C) The Company shall bear all fees and expenses incurred
in connection with any registration under this Section 2.3 (excluding
underwriters' discounts and commissions, which shall be paid by the selling
Holders pro rata with respect to their included shares), including without
limitation all registration, filing, qualification, printers' and accounting
fees, fees and disbursements of counsel to the Company, and the reasonable fees
and disbursements of a single counsel to the selling Holders (which counsel
shall also be counsel to the Company unless counsel to the Company has a
conflict of interest with respect to the representation of any selling Holder
or the underwriters object to the selling Holders representation by Company
counsel).
2.4 FORM S-3 REGISTRATION. In case the Company shall receive from
the Holders at least ten percent (10%) of the Registrable Securities a written
request or requests that the Company effect a registration on Form S-3 and any
related qualification or compliance with respect to all or a part of the
Registrable Securities owned by such Holder or Holders, the Company will:
(A) promptly give written notice of the proposed
registration, and any related qualification or compliance, to all other Holders
of Registrable Securities; and
(B) as soon as practicable, effect such registration and
all such qualifications and compliances as may be so requested and as would
permit or facilitate the sale and distribution of all or
5.
<PAGE> 24
such portion of such Holder's or Holders' Registrable Securities as are
specified in such request, together with all or such portion of the Registrable
Securities of any other Holder or Holders joining in such request as are
specified in a written request given within fifteen (15) days after receipt of
written notice from the Company pursuant to Section 2.4(a); provided, however,
that the Company shall not be obligated to effect any such registration,
qualification or compliance pursuant to this Section 2.4: (i) if Form S-3 is
not available under the Securities Act or rules or regulations promulgated
thereunder for such offering by the Holders; (ii) if the Holders, together with
the holders of any other securities of the Company entitled to inclusion in
such registration, propose to sell Registrable Securities and such other
securities (if any) at an aggregate price to the public of less than $500,000;
(iii) if the Company shall furnish to the Holders a certificate signed by the
Chairman of the Board of Directors of the Company stating that in the good
faith judgment of the Board of Directors of the Company, it would be seriously
detrimental to the Company and its stockholders for such Form S-3 Registration
to be effected at such time, in which event the Company shall have the right to
defer the filing of the Form S-3 registration statement for a period of not
more than thirty (30) days after receipt of the request of the Holder or
Holders under this Section 2.4, provided that, such right to defer the filing
may be exercised by the Company no more than once in any one-year period; (iv)
if the Company has, within the twelve (12) month period preceding the date of
such request, already effected two (2) registrations on Form S-3 for the
Holders pursuant to this Section 2.4; or (v) in any particular jurisdiction in
which the Company would be required to qualify to do business or to execute a
general consent to service of process in effecting such registration,
qualification or compliance.
(C) Subject to the foregoing, the Company shall file a
Form S-3 registration statement covering the Registrable Securities and other
securities so requested to be registered as soon as practicable after receipt
of the request or requests of the Holders. All such expenses incurred in
connection with registrations requested pursuant to this Section 2.4 shall be
paid by the selling Holders (and any other selling stockholders pro rata with
respect to their included shares, including without limitation all
registration, filing, qualification, printers' and accounting fees, fees and
disbursements of counsel for the Company, and the reasonable fees and
disbursements of a single counsel for the selling Holder or Holders.
2.5 OBLIGATIONS OF THE COMPANY. Whenever required to effect the
registration of any Registrable Securities, the Company shall, as expeditiously
as reasonably possible:
(A) Prepare and file with the SEC a registration
statement with respect to such Registrable Securities and use its best efforts
to cause such registration statement to become effective, and, upon the request
of the Holders of a majority of the Registrable Securities registered
thereunder, keep such registration statement effective for up to ninety (90)
days.
(B) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in
connection with such registration statement as may be necessary to comply with
the provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement.
(C) Furnish to the Holders such number of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as they may
reasonably request in order to facilitate the disposition of Registrable
Securities owned by them.
6.
<PAGE> 25
(D) Use its best efforts to register and qualify the
securities covered by such registration statement under such other securities
or state blue sky laws of such jurisdictions as shall be reasonably requested
by the Holders, provided that the Company shall not be required in connection
therewith or as a condition thereto to qualify to do business or to file a
general consent to service of process in any such states or jurisdictions.
(E) In the event of any underwritten public offering,
enter into and perform its obligations under an underwriting agreement, in
usual and customary form, with the managing underwriter(s) of such offering.
Each Holder participating in such underwriting shall also enter into and
perform its obligations under such an agreement.
(F) Notify each Holder of Registrable Securities covered
by such registration statement at any time when a prospectus relating thereto
is required to be delivered under the Securities Act of the happening of any
event as a result of which the prospectus included 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 the light of the circumstances
then existing.
(G) Furnish, at the request of a majority of the Holders
participating in the registration, on the date that such Registrable Securities
are delivered to the underwriters for sale, if such securities are being sold
through underwriters, or, if such securities are not being sold through
underwriters, on the date that the registration statement with respect to such
securities becomes effective, (i) an opinion, dated as of such date, of the
counsel representing the Company for the purposes of such registration, in form
and substance as is customarily given to underwriters in an underwritten public
offering and reasonably satisfactory to a majority in interest of the Holders
requesting registration, addressed to the underwriters, if any, and to the
Holders requesting registration of Registrable Securities and (ii) a letter
dated as of such date, from the independent certified public accountants of the
Company, in form and substance as is customarily given by independent certified
public accountants to underwriters in an underwritten public offering and
reasonably satisfactory to a majority in interest of the Holders requesting
registration, addressed to the underwriters, if any, and to the Holders
requesting registration of Registrable Securities.
2.6 FURNISH INFORMATION. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to Sections 2.2, 2.3 or
2.4 that the selling Holders shall furnish to the Company such information
regarding themselves, the Registrable Securities held by them, and the intended
method of disposition of such securities as shall be required to effect the
registration of their Registrable Securities.
2.7 DELAY OF REGISTRATION. No Holder shall have any right to
obtain or seek an injunction restraining or otherwise delaying any such
registration as the result of any controversy that might arise with respect to
the interpretation or implementation of this Article II.
2.8 INDEMNIFICATION. In the event any Registrable Securities are
included in a registration statement under Sections 2.2, 2.3 or 2.4:
(A) To the extent permitted by law, the Company will
indemnify and hold harmless each Holder, the partners, officers and directors
of each Holder, any underwriter (as defined in the Securities Act) for such
Holder and each person, if any, who controls such Holder or underwriter within
the meaning of the Securities Act or the 1934 Act, against any losses, claims,
damages, or liabilities (joint
7.
<PAGE> 26
or several) to which they may become subject under the Securities Act, the 1934
Act or other federal or state law, insofar as such losses, claims, damages, or
liabilities (or actions in respect thereof) arise out of or are based upon any
of the following statements, omissions or violations (collectively a
"Violation") by the Company: (i) any untrue statement or alleged untrue
statement of a material fact contained in such registration statement,
including any preliminary prospectus or final prospectus contained therein or
any amendments or supplements thereto, (ii) 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 (iii) any violation or alleged
violation by the Company of the Securities Act, the 1934 Act, any state
securities law or any rule or regulation promulgated under the Securities Act,
the 1934 Act or any state securities law in connection with the offering
covered by such registration statement; and the Company will reimburse each
such Holder, partner, officer or director, underwriter or 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 indemnity agreement contained in this Section 2.8(a)
shall not apply to amounts paid in settlement of any such loss, claim, damage,
liability or action if such settlement is effected without the consent of the
Company (which consent shall not be unreasonably withheld), nor shall the
Company be liable in any such case for any such loss, claim, damage, liability
or action to the extent that it arises out of or is based upon a Violation
which occurs in reliance upon and in conformity with written information
furnished to the Company expressly for use in connection with such registration
by such Holder, partner, officer, director, underwriter or controlling person
of such Holder.
(B) To the extent permitted by law, each selling Holder
will indemnify and hold harmless the Company, each of its directors, each of
its officers, each person, if any, who controls the Company within the meaning
of the Securities Act, any underwriter and any other Holder selling securities
under such registration statement or any of such other Holder's partners,
directors or officers or any person who controls such Holder, against any
losses, claims, damages or liabilities (joint or several) to which the Company
or any such director, officer, controlling person, underwriter or other such
Holder, or partner, director, officer or controlling person of such other
Holder may become subject under the Securities Act, the 1934 Act or other
federal or state law, insofar as such losses, claims, damages or liabilities
(or actions in respect thereto) arise out of or are based upon any Violation,
in each case to the extent (and only to the extent) that such Violation occurs
in reliance upon and in conformity with written information furnished to the
Company by such Holder expressly for use in connection with such registration;
and each such Holder will reimburse any legal or other expenses reasonably
incurred by the Company or any such director, officer, controlling person,
underwriter or other Holder, or partner, officer, director or controlling
person of such other Holder in connection with investigating or defending any
such loss, claim, damage, liability or action if it is judicially determined
that there was such a Violation; provided, however, that the indemnity
agreement contained in this Section 2.8(b) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Holder, which consent shall
not be unreasonably withheld; provided further, that in no event shall any
indemnity under this Section 2.8 exceed the proceeds from the offering received
by such Holder.
(C) Promptly after receipt by an indemnified party under
this Section 2.8 of notice of the commencement of any action (including any
governmental action) as to which indemnity may be sought, such indemnified
party will, if a claim in respect thereof is to be made against any
indemnifying party under this Section 2.8, deliver to the indemnifying party a
written notice of the commencement thereof and the indemnifying party shall
have the right to participate in, and, to the extent the indemnifying party so
desires, jointly with any other indemnifying party similarly noticed, to assume
the defense thereof with counsel mutually satisfactory to the parties;
provided, however, that an indemnified
8.
<PAGE> 27
party shall have the right to retain its own counsel, with the fees and
expenses to be paid by the indemnifying party, if representation of such
indemnified party by the counsel retained by the indemnifying party would be
inappropriate due to actual or potential differing interests between such
indemnified party and any other party represented by such counsel in such
proceeding. The failure to deliver written notice to the indemnifying party
within a reasonable time of the commencement of any such action, if materially
prejudicial to its ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this Section
2.8, but the omission so to deliver written notice to the indemnifying party
will not relieve it of any liability that it may have to any indemnified party
otherwise than under this Section 2.8.
(D) If the indemnification provided for in this Section
2.8 is held by a court of competent jurisdiction to be unavailable to an
indemnified party with respect to any losses, claims, damages or liabilities
referred to herein, the indemnifying party, in lieu of indemnifying such
indemnified party thereunder, shall to the extent permitted by applicable law
contribute to the amount paid or payable by such indemnified party as a result
of such loss, claim, damage or liability in such proportion as is appropriate
to reflect the relative fault of the indemnifying party on the one hand and of
the indemnified party on the other in connection with the Violation(s) that
resulted in such loss, claim, damage or liability, as well as any other
relevant equitable considerations. The relative fault of the indemnifying
party and of the indemnified party shall be determined by a court of law by
reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission to state a material fact relates
to information supplied by the indemnifying party or by the indemnified party
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission; provided that, in
no event shall any contribution by a Holder hereunder exceed the proceeds from
the offering received by such Holder.
(E) The foregoing indemnity agreements of the Company and
Holders are subject to the condition that, insofar as they relate to any
Violation made in a preliminary prospectus but eliminated or remedied in the
amended prospectus on file with the SEC at the time the registration statement
in question becomes effective or the Final Prospectus, such indemnity agreement
shall not inure to the benefit of any person obligated under the Securities Act
to furnish to the person asserting the loss, liability, claim or damage a copy
of the Final Prospectus if a copy of the Final Prospectus was furnished to the
indemnified party and was not furnished to the person asserting the loss,
liability, claim or damage at or prior to the time such action is required by
the Securities Act.
(F) The obligations of the Company and Holders under this
Section 2.8 shall survive the completion of any offering of Registrable
Securities pursuant to a registration statement, or otherwise.
2.9 ASSIGNMENT OF REGISTRATION RIGHTS. The rights to cause the
Company to register Registrable Securities pursuant to this Article II may be
assigned by a Holder to a transferee or assignee of Registrable Securities;
provided, however, that no such transferee or assignee shall be entitled to
registration rights under Sections 2.2, 2.3 or 2.4 hereof unless such
transferee or assignee: (i) is a Holder; (ii) holds after such transfer or
assignment at least one hundred thousand (100,000) shares of Registrable
Securities (as adjusted for stock dividends, splits and combinations); or (iii)
is a Family Member or a subsidiary, parent, general partner, Affiliate, or
limited partner of a Holder. In each such case, the Company shall, within
twenty (20) days after such transfer, be furnished with written notice of the
name and address of such transferee or assignee and the securities with respect
to which such registration rights are being assigned.
9.
<PAGE> 28
2.10 AMENDMENT OF REGISTRATION RIGHTS. Any provision of this
Article II may be amended and the observance thereof may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the Holders of
more than fifty percent (50%) of the Registrable Securities. Any amendment or
waiver effected in accordance with this Section 2.10 shall be binding upon each
Holder and the Company. By acceptance of any benefits under this Article II,
each Holder hereby agrees to be bound by the provisions hereunder.
2.11 "MARKET STAND-OFF" AGREEMENT. If requested by the Company and
an underwriter of Common Stock (or other securities) of the Company, the
Purchaser shall not sell or otherwise transfer or dispose of any Common Stock
(or other securities) of the Company held by such stockholder (other than those
included in the registration) for a period specified by the underwriters not to
exceed one hundred eighty (180) days following the effective date of a
registration statement of the Company filed under the Securities Act, provided
that all officers and directors of the Company and all holders of at least one
percent (1%) of the Company's voting securities enter into similar agreements.
The obligations described in this Section 2.11 shall not apply to a
registration relating solely to employee benefit plans on Form S-1 or Form S-8
or similar forms that may be promulgated in the future, or a registration
relating solely to a Commission Rule 145 transaction on Form S-4 or similar
forms that may be promulgated in the future. The Company may impose stop-
transfer instructions with respect to the shares (or securities) subject to the
foregoing restriction until the end of said one hundred eighty (180) day
period.
III. COVENANTS OF THE COMPANY.
3.1 BASIC FINANCIAL INFORMATION AND REPORTING.
(A) The Company will maintain true books and records of
account in which full and correct entries will be made of all its business
transactions pursuant to a system of accounting established and administered in
accordance with generally accepted accounting principles consistently applied,
and will set aside on its books all such proper accruals and reserves as shall
be required under generally accepted accounting principles consistently
applied.
(B) As soon as practicable after the end of each fiscal
year of the Company, and in any event within 90 days thereafter or, after the
Initial Offering, simultaneously with the filing of the Company's annual report
on Form 10-K with the SEC), the Company will furnish each Holder a consolidated
balance sheet of the Company, as at the end of such fiscal year, and a
consolidated statement of income and a consolidated statement of cash flows of
the Company for such year, all prepared in accordance with generally accepted
accounting principles and setting forth in each case in comparative form the
figures for the previous fiscal year, all in reasonable detail. Such financial
statements shall be accompanied by a report and opinion thereon by independent
public accountants of national standing selected by the Company's Board of
Directors.
(C) As soon as practicable after the end of each fiscal
quarter of the Company, and in any event within thirty days thereafter or,
after the Initial Offering, simultaneously with the filing of the Company's
reports on Form 10-Q with the SEC), the Company will furnish each Holder a
consolidated balance sheet of the Company, as at the end of such fiscal
quarter, and a consolidated statement of income and a consolidated statement of
cash flows of the Company for such quarter, prepared and presented in a manner
consistent with the financial statements described in Section 3.1(b). Such
statement shall be accompanied by a certificate signed by the Chairman of the
Board and Chief
10.
<PAGE> 29
Financial Officer of the Company stating that the preparation and presentation
of such statements is consistent with the financial statements described in
Section 3.1(b).
(D) So long as a Holder (with its Affiliates) shall own not
less than one hundred thousand (100,000) shares of Registrable Securities, the
Company will furnish such Holder a consolidated balance sheet of the Company,
as at the end of each calendar month, and a consolidated statement of income
and a consolidated statement of cash flows of the Company for such month,
prepared and presented in a manner consistent with the financial statements
described in Section 3.1(b). Such statements shall be furnished as soon as
practicable after the end of each month and in any event within ten days
thereafter and shall be accompanied by a certificate signed by the Chairman of
the Board and Chief Financial Officer of the Company stating that the
preparation and presentation of such statements is consistent with the
financial statements described in Section 3.1(b). Prior to January 1st of each
year, the Company shall furnish such Holders an annual budget for the Company
for the following twelve month period, broken down by month. The Company's
obligations under this Section 3.1(d) shall terminate upon the Initial
Offering.
3.2 INSPECTION RIGHTS. So long as a Holder (with its affiliates)
shall own not less than one hundred thousand (100,000) shares of Registrable
Securities, each such Holder shall have the right to visit and inspect any of
the properties of the Company or any of its subsidiaries, and to discuss the
affairs, finances and accounts of the Company or any of its subsidiaries with
its officers, all at such reasonable times and as often as may be reasonably
requested; provided, however, that the Company shall not be obligated under
this Section 3.2 with respect to a competitor of the Company or with respect to
information which the Board of Directors determines in good faith is
confidential and should not, therefore, be disclosed.
3.3 CONFIDENTIALITY OF RECORDS. Each Holder agrees to use, and to
use its best efforts to insure that its authorized representatives use, the
same degree of care as such Holder uses to protect its own confidential
information to keep confidential any information furnished to it which the
Company identifies as being confidential or proprietary (so long as such
information is not in the public domain), except that such Holder may
disclose such proprietary or confidential information to any partner,
subsidiary, Affiliate or parent of such Holder for the purpose of evaluating
its investment in the Company as long as such partner, subsidiary or parent is
advised of the confidentiality provisions of this Section 3.3.
3.4 RESERVATION OF COMMON STOCK. The Company will at all times
reserve and keep available, solely for issuance and delivery upon the
conversion of the Series A Preferred Stock, all Common Stock issuable from time
to time upon such conversion.
IV. RIGHTS OF FIRST REFUSAL.
4.1 SUBSEQUENT OFFERINGS. Each Holder shall have a right of first
refusal to purchase its pro rata share of all Equity Securities that the
Company may from time to time, propose to sell and issue after the date of this
Agreement, other than the Equity Securities excluded by Section 4.6 hereof.
Each Holder's pro rata share is equal to the ratio of the number of shares of
Common Stock, assuming full conversion of all shares of Registrable Securities
owned by such Holder, held by such Holder immediately prior to the issuance of
such Equity Securities to the total number of shares of the Company's
outstanding Common Stock (including all shares of Common Stock issuable upon
conversion of the Registrable Securities).
11.
<PAGE> 30
4.2 EXERCISE OF RIGHTS. If the Company proposes to issue any
Equity Securities, it shall give each Holder written notice of its intention,
describing the Equity Securities, the price, and the terms and conditions upon
which the Company proposes to issue the same. Each Holder shall have fifteen
(15) days from the receipt of such notice to agree to purchase its pro rata
share of the Equity Securities for the price and upon the terms and conditions
specified in the notice by giving written notice to the Company and stating
therein the quantity of Equity Securities to be purchased. Notwithstanding the
foregoing, the Company shall not be required to offer or sell such Equity
Securities to any Holder who would cause the Company to be in violation of
applicable federal securities laws by virtue of such offer or sale.
4.3 ISSUANCE OF EQUITY SECURITIES TO OTHER PERSONS. If the
Holders fail to exercise in full the rights of first refusal, the Company shall
have ninety (90) days thereafter to sell the Equity Securities in respect of
which the Holders' rights were not exercised, at a price and upon terms and
conditions no more favorable to the purchaser thereof than specified in the
Company's notice to the Holders pursuant to Section 4.2 hereof. If the Company
has not sold such Equity Securities within such ninety (90) days, the Company
shall not thereafter issue or sell any Equity Securities, without first
offering such securities to the Holders in the manner provided above.
4.4 TERMINATION OF RIGHTS OF FIRST REFUSAL. The rights of first
refusal established by this Article IV shall terminate upon the closing of the
Initial Offering.
4.5 TRANSFER OF RIGHTS OF FIRST REFUSAL. The rights of first
refusal of each Holder under this Article IV may be transferred to any
subsidiary or parent of such Holder, to any successor in interest to all or
substantially all the assets of such Holder, or to an assignee or transferee
who acquires Registrable Securities.
4.6 EXCLUDED SECURITIES. The rights of first refusal established
by this Article IV shall have no application to any of the following Equity
Securities:
(A) shares of Common Stock (and/or options, warrants or
other Common Stock purchase rights issued pursuant to such options, warrants or
other rights) issued or to be issued to employees, officers or directors of, or
consultants or advisors to, the Company, pursuant to stock purchase or stock
option plans or other arrangements that are approved by the Board of Directors
of the Company;
(B) stock issued pursuant to any rights, options and
warrants granted after the date of this Agreement, provided that the rights of
first refusal established by this Article IV applied with respect to the
initial sale or grant by the Company of such rights, options or warrants;
(C) any Equity Securities issued for consideration other
than cash pursuant to a merger, consolidation, acquisition or similar business
combination;
(D) any Equity Securities that are issued by the Company
as part of the Initial Offering referred to in Section 4.4 hereof;
(E) shares of Common Stock issued in connection with any
stock split, stock dividend or recapitalization by the Company;
(F) shares of Common Stock issued upon conversion of the
Company's Preferred Stock; and
12.
<PAGE> 31
(G) any Equity Securities issued pursuant to any
equipment leasing arrangement or commercial bank financing approved by the
Company's Board of Directors.
V. MISCELLANEOUS.
5.1 GOVERNING LAW. This Agreement shall be governed by and
construed under the laws of the State of California as applied to agreements
among California residents entered into and to be performed entirely within
California.
5.2 SURVIVAL. The representations, warranties, covenants, and
agreements made herein shall survive any investigation made by any Holder and
the closing of the transactions contemplated hereby. All statements as to
factual matters contained in any or other instrument delivered by or on behalf
of the Company pursuant hereto in connection with the transactions contemplated
hereby shall be deemed to be representations and warranties by the Company
hereunder solely as of the date of such certificate or instrument.
5.3 SUCCESSORS AND ASSIGNS. Except as otherwise expressly
provided herein, the provisions hereof shall inure to the benefit of, and be
binding upon, the successors, assigns, heirs, executors, and administrators of
the parties hereto and shall inure to the benefit of and be enforceable by each
person who shall be a holder of Registrable Securities from time to time;
provided, however, that prior to the receipt by the Company of adequate
written notice of the transfer of any Registrable Securities specifying the
full name and address of the transferee, the Company may deem and treat the
person listed as the holder of such shares in its records as the absolute owner
and holder of such shares for all purposes, including the payment of dividends
or any redemption price.
5.4 SEPARABILITY. In case any provision of the Agreement shall be
invalid, illegal, or unenforceable, the validity, legality, and enforceability
of the remaining provisions shall not in any way be affected or impaired
thereby.
5.5 AMENDMENT AND WAIVER.
(A) Except as otherwise expressly provided, this
Agreement may be amended or modified only upon the written consent of the
Company and the holders of more than fifty percent (50%) of the Registrable
Securities.
(B) Except as otherwise expressly provided, the
obligations of the Company and the rights of the Holders under this Agreement
may be waived only with the written consent of the holders of more than fifty
percent (50%) of the Registrable Securities.
5.6 DELAYS OR OMISSIONS. It is agreed that no delay or omission
to exercise any right, power, or remedy accruing to any Holder, upon any
breach, default or noncompliance of the Company under this Agreement shall
impair any such right, power, or remedy, nor shall it be construed to be a
waiver of any such breach, default or noncompliance, or any acquiescence
therein, or of any similar breach, default or noncompliance thereafter
occurring. It is further agreed that any waiver, permit, consent, or approval
of any kind or character on any Holder's part of any breach, default or
noncompliance under this Agreement or any waiver on such Holder's part of any
provisions or conditions of this Agreement must be in writing and shall be
effective only to the extent specifically set forth in such writing. All
13.
<PAGE> 32
remedies, either under this Agreement, by law, or otherwise afforded to
Holders, shall be cumulative and not alternative.
5.7 NOTICES. All notices required or permitted hereunder shall be
in writing and shall be deemed effectively given: (i) upon personal delivery to
the party to be notified; (ii) upon receipt at the address on the signature
page hereto after having been sent by registered or certified mail, return
receipt requested, postage prepaid; or (iii) one (1) day after deposit with a
nationally recognized overnight courier, specifying next day delivery, with
written verification of receipt. All communications shall be sent to the party
to be notified at the address as set forth on the signature page hereof or at
such other address as such party may designate by ten (10) days advance written
notice to the other party hereto.
5.8 ATTORNEYS' FEES. If legal action is brought to enforce or
interpret this Agreement, the prevailing Company shall be entitled to recover
its reasonable attorneys' fees and legal costs in connection therewith.
5.9 TITLES AND SUBTITLES. The titles of the sections and
subsections of this Agreement are for convenience of reference only and are not
to be considered in construing this Agreement.
5.10 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
14.
<PAGE> 33
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date set forth in the first paragraph hereof.
AIR SOUTH AIRLINES, INC. HAMBRECHT & QUIST GROUP, L.L.C.
By: /s/ Clifton E. Haley By:
-------------------------------- --------------------------------
Clifton E. Haley William R. Hambrecht
Chairman of the Board Chairman
Chief Executive Officer
Address: Address:
101 Trade Zone Drive One Bush Street
West Columbia, SC 29170 San Francisco, CA 94104
<PAGE> 1
EXHIBIT 4.6
NATIONSBANK, N.A.
LOAN AGREEMENT
THIS AGREEMENT IS SUBJECT TO ARBITRATION PURSUANT TO THE UNIFORM ARBITRATION
ACT, SECTION 15-48-10, ET SEQ., CODE OF LAWS OF SOUTH, CAROLINA 1976 AS
AMENDED
This Loan Agreement (the "Agreement") dated as of March 29, 1996, by
and between NationsBank, N.A., a national banking association ("Bank") and the
Borrower described below.
In consideration of the Loan or Loans described below and the mutual
covenants and agreements contained herein, and intending to be legally bound
hereby, Bank and Borrower agree as follows:
1. DEFINITIONS AND REFERENCE TERMS. In addition to any other
terms defined herein, the following terms shall have the meaning set forth with
respect thereto:
A. Accounts. Accounts means all accounts, accounts receivable,
contract rights, notes, bills, acceptances, chattel paper, instruments,
documents and other forms of obligations at such time owing to Borrower, the
proceeds thereof and all such rights with respect thereto together with all
customer lists, books and records, ledgers and account cards, computer tapes,
software, disks, printouts and records, whether now in existence or hereafter
created.
B. Accounting Terms. All accounting terms not specifically
defined or specified herein shall have the meanings generally attributed to
such terms under generally accepted accounting principles ("GAAP"), as in
effect from time to time, consistently applied, with respect to the financial
statements referenced in Section 3.H. hereof.
C. Borrower: Air South Airlines, Inc., a Delaware corporation.
D. Borrower's Address:
Post Office Box 11129 (29211)
1800 St. Julian Place - 4th Floor
Columbia, South Carolina (29204)
E. Current Assets. Current Assets means the aggregate amount of
all of Borrower's assets which would, in accordance with GAAP, properly be
defined as current assets.
F. Current Liabilities. Current Liabilities means the aggregate
amount of all current liabilities as determined in accordance with GAAP, but in
any event shall include all liabilities except those having a maturity date
which is more than one year from the date as of which such computation is being
made.
<PAGE> 2
G. Eligible Accounts. Eligible Accounts shall mean the gross
amount of Accounts of the Borrower in which Bank shall have a first priority,
perfected security interest arising out of goods or licenses sold or services
provided by Borrower to independent and unaffiliated persons or entities
located in the United States of America which are less than sixty (60) days
past due and which otherwise are deemed "eligible" by Bank in its sole
discretion.
H. Hazardous Materials. Hazardous Materials include all
materials defined as hazardous materials or substances under any local, state
or federal environmental laws, rules or regulations, and petroleum, petroleum
products, oil and asbestos.
I. Loan. Any loan described in Section 2 hereof and any
subsequent loan which states that it is subject to this Loan Agreement.
J. Loan Documents. Loan Documents means this Loan Agreement and
any and all promissory notes executed by Borrower in favor of Bank and all
other documents, instruments, guarantees, certificates and agreements executed
and/or delivered by Borrower, any guarantor or third party in connection with
any Loan.
K. Tangible Net Worth. Tangible Net Worth means the amount by
which total assets exceed total liabilities in accordance with GAAP, less
assets capitalized organization and development costs, capitalized interest,
debt discount and expense, goodwill, patents, trademarks, copyrights,
franchises, licenses, amounts due from officers, directors and stockholders and
affiliates and such assets as are properly classified "intangible assets" under
GAAP.
2. LOANS.
A. Loan. Bank hereby agrees to extend a revolving credit
facility to Borrower in the aggregate principal face amount of up to
$1,000,000.00. The obligation to repay the Loan is evidenced by a promissory
note dated of even date (the promissory note together with any and all
renewals, extensions or rearrangements thereof being hereafter collectively
referred to as the "Note") having a maturity date, repayment terms and interest
rate as set forth in the Note. Borrower may from time to time, borrow, repay
and re-borrow proceeds of the Loan. Borrower shall maintain a zero balance on
the Loan for a period of at least 30 consecutive days during the term of the
Loan.
B. Availability of Proceeds of the Loan. Except as provided
below, the maximum principal balance outstanding under the Loan shall be
limited to $500,000.00 in the aggregate at any one time. The remaining
$500,000.00 availability (the "Additional $500,000.00") under the Loan may be
drawn and utilized by Borrower only upon the approval and consent of Bank,
which may be given or withheld by Bank in its sole discretion. If Bank
approves the use by Borrower of the Additional $500,000.00 Bank reserves the
right to establish, in its sole discretion, additional terms, conditions and
provisions with respect to the Loan and the use and availability of the
Additional $500,000.00. The provisions with respect to the Additional
$500,000.00 shall not be construed as a commitment by Bank to allow Borrower to
use such funds. The principal balance outstanding under the Loan further shall
be
2
<PAGE> 3
limited, at all times, to an amount not to exceed fifty percent (50%) of the
value of Eligible Accounts, as reflected on the financial statements delivered
by Borrower to Bank pursuant to Section 4.B.(ii) of this Loan Agreement. In
addition to all other obligations, Borrower, upon demand, must repay principal
in the amount necessary such that all requirements of this Section 2.B. are
satisfied.
C. Requirements and Procedures For Advance. Advances shall be
made under the Loan by Bank in its discretion upon receipt and approval of a
draw request and other information acceptable to Bank related to such request,
and, upon such approval by Bank, Bank will disburse proceeds under the Loan
within three (3) business days after receipt of such request and under
requirements and procedures customarily established by Bank for loans of this
type.
D. Fees and Additional Requirements. Contemporaneously with the
execution of this Agreement, the Note and the Loan Documents, Borrower has
issued 7,500 shares (the "Initial Shares") of its common stock par value $0.001
per share ("Common Stock") to the Bank or such other person or entity as Bank
shall designate in writing (the "Bank's Designee"). The Initial Shares will be
issued pursuant to an exemption from registration under the Securities Act of
1933, as amended and any applicable state securities laws. Borrower will use
it best efforts to have the Initial Shares registered and sold in any firmly
underwritten initial public offering of Common Stock by the Borrower (an
"IPO"). If an IPO is closed, and the underwriter of the IPO refuses to
register and sell all or part of the Initial Shares, then, immediately
following such closing, the Bank may tender any Initial Shares not registered
and sold in the IPO to Borrower and Borrower immediately will purchase such
Initial Shares with cash or certified funds at the offering price (before
underwriting discounts and commissions, and related expenses) at which other
shares of Common Stock were sold in the IPO. In connection with such
registration and sale in the IPO, Bank will execute and deliver such powers of
attorney, custody agreements, certificates, and other documents and agreements
as the underwriters and the Borrower may reasonably request and the Bank may
approve, such agreements to be substantially the same as those obtained from
other shareholders of the Borrower who are selling Common Stock in the IPO.
Further, if Bank, upon the request of Borrower, allows Borrower to utilize all
or a portion of the Additional $500,000.00 prior to the closing of the IPO,
Borrower, prior to using any such portion of the Additional $500,000.00 and as
an additional non-refundable fee, shall issue to Bank, or Bank's Designee,
without charge, 15,000 shares of Common Stock (the "Additional Shares") and
provide Bank, or Bank's Designee, "piggy back" registration rights in form and
content and containing such conditions acceptable to Bank in its sole
discretion. Borrower and Bank shall execute such documents and instruments as
deemed necessary in connection with the foregoing, and Borrower shall pay for
all costs and expenses (including underwriter's discounts and commissions) with
respect to any registration and sale of the Initial Shares or the Additional
Shares.
E. Indemnity With Respect to IPO. The Borrower will indemnify
Bank, Bank's Designee, each of Bank's and Bank's Designee's officers and
directors, and each person controlling Bank or Bank's Designee with respect to
the IPO, against all claims, losses, damages and liabilities (or action in
respect thereto) arising out of or based on any untrue statement (or alleged
untrue statement) of a material fact contained in any prospectus, offering
circular or
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<PAGE> 4
other document (including any related registration statement, notification or
the like) incident to any such IPO or based on any 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 any violation by
the Borrower of any rule or regulation promulgated under the 1933 Act
applicable to the Borrower and relating to action or inaction required of the
Borrower in connection with the IPO, and will reimburse Bank, Bank's Designee,
each of Bank's and Bank's Designee's officers and directors, and each person
controlling Bank or Bank's Designee, for any legal and any other expenses
reasonably incurred in connection with investigating or defending any such
claim, loss, damage, liability or action, provided that the Borrower will not
be liable in any such case to the extent that any such claim, loss, damage or
liability arises out of or is based on any untrue statement or omission based
upon information furnished to the Borrower by Bank or Bank's Designee in
writing.
3. REPRESENTATIONS AND WARRANTIES. Borrower hereby represents and
warrants to Bank as follows:
A. Good Standing. Borrower is a corporation, duly organized,
validly existing and in good standing under the laws of Delaware and has the
power and authority to own its property and to carry on its business in each
jurisdiction in which Borrower does business.
B. Authority and Compliance. Borrower has full power and
authority to execute and deliver the Loan Documents and to incur and perform
the obligations provided for therein, all of which have been duly authorized by
all proper and necessary action of the appropriate governing body of Borrower.
No consent or approval of any public authority or other third party which has
not been obtained is required as a condition to the validity of any Loan
Document, and Borrower is in material compliance with all laws and regulatory
requirements to which it is subject.
C. Binding Agreement. This Agreement and the other Loan
Documents executed by Borrower constitute valid and legally binding obligations
of Borrower, enforceable in accordance with their terms.
D. Litigation. There is no material proceeding involving
Borrower pending or, to the knowledge of Borrower, threatened before any court
or governmental authority, agency or arbitration authority, except as disclosed
to Bank in writing and acknowledged by Bank prior to the date of this
Agreement.
E. No Conflicting Agreements. There is no charter, bylaw, stock
provision, partnership agreement or other document pertaining to the
organization, power or authority of Borrower and no provision of any existing
agreement, mortgage, indenture or contract binding on Borrower or affecting its
property, which would conflict with or in any way prevent the execution,
delivery or carrying out of the terms of this Agreement and the other Loan
Documents other than those to which consent to such conflict has been obtained.
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<PAGE> 5
F. Ownership of Assets. Borrower has good title to its assets,
and its assets are free and clear of liens, except those granted to Bank and as
disclosed to Bank in writing prior to the date of this Agreement.
G. Taxes. All taxes and assessments due and payable by Borrower
have been paid or are being contested in good faith by appropriate proceedings
and the Borrower has filed all tax returns which it is required to file.
H. Financial Statements. The financial statements of Borrower
heretofore delivered to Bank have been prepared in accordance with GAAP applied
on a consistent basis throughout the period involved and fairly present
Borrower's financial condition as of the date or dates thereof, and there has
been no material adverse change in Borrower's financial condition or operations
since January 31, 1996. All factual information furnished by Borrower to Bank
in connection with this Agreement and the other Loan Documents is and will be
accurate and complete on the date as of which such information is delivered to
Bank and is not and will not be incomplete by the omission of any material fact
necessary to make such information not misleading.
I. PLACE OF BUSINESS. Borrower's chief executive office is
located at
1800 St. Julian Place - 4th Floor
Columbia, South Carolina 29204
J. Environmental. The conduct of Borrower's business operations
and the condition of Borrower's property does not and will not violate any
federal laws, rules or ordinances for environmental protection, regulations of
the Environmental Protection Agency, any applicable local or state law, rule,
regulation or rule of common law or any judicial interpretation thereof
relating primarily to the environment or Hazardous Materials.
K. Continuation of Representations and Warranties. All
representations and warranties made under this Agreement shall be deemed to be
made at and as of the date hereof and at and as of the date of any advance
under any Loan.
4. AFFIRMATIVE COVENANTS. Until full payment and performance of all
obligations of Borrower under the Loan Documents, Borrower will, unless Bank
consents otherwise in writing (and without limiting any requirement of any
other Loan Document):
A. Financial Condition. Maintain Borrower's financial condition
as follows, determined in accordance with GAAP applied on a consistent basis
throughout the period involved except to the extent modified by the following
definitions:
i. Maintain a ratio of Current Assets (meaning the
aggregate amount of all of Borrower's assets which would, in accordance with
GAAP, properly be defined as current assets) to Current Liabilities (meaning
the aggregate amount of all current liabilities as determined in accordance
with GAAP, but in any event shall include all
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<PAGE> 6
liabilities except those having a maturity date which is more than one
year from the date as of which such computation is being made) of not less
than 1.50 to 1.0 upon the completion of an IPO and at all times thereafter;
ii. Maintain a Net Worth (meaning the amount by which
total assets exceed total liabilities in accordance with GAAP) of equal to
and not less than a negative $21,000,000 as of the date hereof and at all
times prior to an IPO; and equal to or greater than $10,500,000 at all
times after an IPO; and
iii. Maintain a ratio of total indebtedness (meaning total
liabilities) to Net Worth of not more than negative 1.70 to 1.0 prior to an
IPO; provided, however, upon the completion of an IPO and at all times
thereafter the ratio must not be greater than 2.20 to 1.0.
B. Financial Statements and Other Information. Maintain a system
of accounting satisfactory to Bank and in accordance with GAAP applied on a
consistent basis throughout the period involved, permit Bank's officers or
authorized representatives to visit and inspect Borrower's books of account and
other records at such reasonable times and as often as Bank may desire, and pay
the reasonable fees and disbursements of any accountants or other agents of
Bank selected by Bank for the foregoing purposes. Unless written notice of
another location is given to Bank, Borrower's books and records will be located
at Borrower's chief executive office set forth above. All financial statements
called for below shall be prepared in form and content acceptable to Bank and
by independent certified public accountants acceptable to Bank. The accounting
firm of Deloitte and Touche will be acceptable to Bank.
In addition, Borrower will:
i. Furnish to Bank annual, audited financial statements
of Borrower for each fiscal year of Borrower, within 150 days after the close
of each such fiscal year.
ii. Furnish to Bank monthly, internally prepared
financial statements (including a balance sheet and profit and loss statement
and a detailed listing of Accounts) of Borrower for each calendar month within
45 days after the end of each month.
iii. Furnish to Bank a compliance certificate for (and
executed by an authorized representative of) Borrower concurrently with and
dated as of the date of delivery of each of the financial statements as
required in paragraphs i and ii above, containing (a) a certification that the
financial statements of even date are true and correct and that the Borrower is
not in default under the terms of this Agreement, and (b) computations and
conclusions, in such detail as Bank may request, with respect to compliance
with this Agreement, and the other Loan Documents, including computations of
all quantitative covenants.
iv. Furnish to Bank promptly such additional information,
reports and statements respecting the business operations and financial
condition of Borrower, from time to time, as Bank may reasonably request.
6
<PAGE> 7
7
<PAGE> 8
any of Borrower's places of business or any other property of Borrower at any
reasonable times upon three (3) days prior notice for the purposes of
conducting an environmental investigation and audit (including taking physical
samples) to insure that Borrower is complying with this covenant and Borrower
shall reimburse Bank on demand for the costs of any such environmental
investigation and audit. Borrower shall provide Bank, its agents, contractors,
employees and representatives with access to and copies of any and all data and
documents relating to or dealing with any Hazardous Materials used, generated,
manufactured, stored or disposed of by Borrower's business operations within
five (5) days of the request therefore.
I. Initial Public Offering. Continuously use its good
faith best efforts and take all necessary or appropriate actions to close, or
cause the closing of, the IPO.
J. Additional Compliance. Comply with all terms and
conditions of (i) any lease agreements related to any aircraft used in
connection with Borrower's business, and (ii) all loan agreements, notes and
other documents related to that certain loan in the original principal amount
of $12,000,000.00 (the "JEDA Loan") extended to Borrower by the South Carolina
Jobs-Economic Development Authority ("JEDA"), as assignee of Lexington County,
South Carolina.
K. Aircraft Equipment. Provide Bank prior written
notice of any purchases by Borrower of aircraft, parts or equipment and
undertake any action and execute any documents which are necessary to perfect
Bank's security interest in such aircraft, parts or equipment.
5. NEGATIVE COVENANTS. Until full payment and performance of all
obligations of Borrower under the Loan Documents, Borrower will not, without
the prior written consent of Bank (and without limiting any requirement of any
other Loan Documents):
A. Transfer of Assets or Control. Sell, lease, assign
or otherwise dispose of or transfer any assets, except in the normal course of
its business, or enter into any merger or consolidation, or transfer control or
ownership of the Borrower or form or acquire any subsidiary.
B. Liens. (i) Grant, suffer or permit any contractual or
noncontractual lien on or security interest in its assets, except in favor of
Bank or purchase money liens, or (ii) fail to promptly pay when due all lawful
claims, whether for labor, materials or otherwise, except for claims contested
in good faith and for which Borrower has established adequate reserves to pay.
C. Extensions of Credit. Make or permit any subsidiary
to make, any loan or advance to any person or entity, or purchase or otherwise
acquire, or permit any subsidiary to purchase or other wise acquire, any
capital stock, assets, obligations, or other securities of , make any capital
contribution to, or otherwise invest in or acquire any interest in any entity,
or participate as a partner or joint venturer with any person or entity, except
for the purchase of direct obligations of the United States or any agency
thereof, stocks of subsidiaries and other "investment grade" instruments and
securities.
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<PAGE> 9
D. Borrowings. Create, incur, assume or become liable
in any manner for any indebtedness (for borrowed money, deferred payment for
the purchase of assets, lease payments, as surety or guarantor for the debt for
another, or otherwise) in excess of $500,000 prior to the consummation of the
IPO other than to Bank, except for normal trade debts incurred in the ordinary
course of Borrower's business, and except for existing indebtedness reflected
in the latest balance sheet of Borrower provided to the Bank.
E. Dividends and Distributions. Make any distribution
(other than dividends payable in capital stock of Borrower) on any shares of
any class of its capital stock or apply any of its property or assets to the
purchase, redemption or other retirement of any shares of any class of capital
stock of Borrower.
F. Character of Business. Change the general character
of business as conducted at the date hereof, or engage in any type of business
not reasonably related to its business as presently conducted.
G. Management Change. Make any change in its present
executive officers, including the Chairman of the Board.
6. DEFAULT. Borrower shall be in default under this Agreement
and under each of the other Loan Documents if it shall default in the payment
of any amounts due and owing under the Loan or the JEDA Loan or should it fail
to timely and properly observe, keep or perform any term, covenant, agreement
or condition in any Loan Document or in any document executed in connection
with the JEDA Loan or in any other loan agreement, promissory note, security
agreement, deed of trust, deed to secure debt, mortgage, assignment or other
contract securing or evidencing payment of any indebtedness of Borrower to Bank
or any affiliate or subsidiary of NationsBank Corporation.
7. REMEDIES UPON DEFAULT. If an event of default shall occur,
Bank shall have all rights, powers and remedies available under each of the
Loan Documents as well as all rights and remedies available at law or in
equity.
8. NOTICES. All notices, requests or demands which any party is
required or may desire to give to any other party under any provision of this
Agreement must be in writing delivered to the other party at the following
address:
Borrower: Air South Airlines, Inc.
P.O. Box 11129 (29211)
1800 St. Julian Place - 4th Floor
Columbia, SC (29204)
Bank: NationsBank, N.A.
Troy R. Weaver
Assistant Vice President
NationsBank, N.A.
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<PAGE> 10
1901 Main Street, 3rd Floor
Columbia, South Carolina 20201
Fax No. (803) 733-9663
or to such other address as any party may designate by written notice to the
other party. Each such notice, request and demand shall be deemed given or
made as follows:
A. If sent by mail, upon the earlier of the date of
receipt or five (5) days after deposit in the U.S. Mail, first class postage
prepaid;
B. If sent by any other means, upon receipted delivery.
9. COSTS, EXPENSES AND ATTORNEYS' FEES. Borrower shall pay to
Bank immediately upon demand the full amount of all costs and expenses,
including reasonable attorneys' fees (to include outside counsel fees and all
allocated costs of Bank's in-house counsel if permitted by applicable law),
incurred by Bank in connection with (a) negotiation and preparation of this
Agreement and each of the Loan Documents, and (b) all other costs and
attorneys' fees incurred by Bank for which Borrower is obligated to reimburse
Bank in accordance with the Terms of the Loan Documents.
10. MISCELLANEOUS. Borrower and Bank further covenant and agree
as follows, without limiting any requirement of any other Loan Document:
A. Cumulative Rights and No Waiver. Each and every
right granted to Bank under any Loan Document, or allowed it by law or equity
shall be cumulative of each other and may be exercised in addition to any and
all other rights of Bank, and no delay in exercising any right shall operate as
a waiver thereof, nor shall any single or partial exercise by Bank of any right
preclude any other or future exercise thereof or the exercise of any other
right. Borrower expressly waives any presentment, demand, protest or other
notice of any kind, including but not limited to notice of intent to accelerate
and notice of acceleration. No notice to or demand on Borrower in any case
shall, of itself, entitle Borrower to any other or future notice or demand in
similar or other circumstances.
B. Applicable Law. This Loan Agreement and the rights
and obligations of the parties hereunder shall be governed by and interpreted
in accordance with the laws of South Carolina and applicable United States
federal law.
C. Amendment. No modification, consent, amendment or
waiver of any provision of this Loan Agreement, nor consent to any departure by
Borrower therefrom, shall be effective unless the same shall be in writing and
signed by an officer of Bank, and then shall be effective only in the specified
instance and for the purpose for which given. This Loan Agreement is binding
upon Borrower, its successors and assigns, and inures to the benefit of Bank,
its successors and assigns; however, no assignment or other transfer of
Borrower's rights or obligations hereunder shall be made or be effective
without Bank's prior written consent, nor
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<PAGE> 11
shall it relieve Borrower of any obligations hereunder. There is no third
party beneficiary of this Loan Agreement.
D. Documents. All documents, certificates and other
items required under this Loan Agreement to be executed and/or delivered to
Bank shall be in form and content satisfactory to Bank and its counsel.
E. Partial Invalidity. The unenforceability or
invalidity of any provision of this Loan Agreement shall not affect the
enforceability or validity of any other provision herein and the invalidity or
unenforceability of any provision of any Loan Document to any person or
circumstance shall not affect the enforceability or validity of such provision
as it may apply to other persons or circumstances.
F. Indemnification. Notwithstanding anything to the
contrary contained in Section 10(G), Borrower shall indemnify, defend and hold
Bank and its successors and assigns harmless from and against any and all
claims, demands, suits, losses, damages, assessments, fines, penalties, costs
or other expenses (including reasonable attorneys' fees and court costs)
arising from or in any way related to any of the transactions contemplated
hereby, including but not limited to actual or threatened damage to the
environment, agency costs of investigation, personal injury or death, or
property damage, due to a release or alleged release of Hazardous Materials,
arising from Borrower's business operations, any other property owned by
Borrower or in the surface or ground water arising from Borrower's business
operations, or gaseous emissions arising from Borrower's business operations or
any other condition existing or arising from Borrower's business operations
resulting from the use or existence of Hazardous Materials, whether such claim
proves to be true or false. Borrower further agrees that its indemnity
obligations shall include, but are not limited to, liability for damages
resulting from the personal injury or death of an employee of the Borrower,
regardless of whether the Borrower has paid the employee under the workmen's
compensation laws of any state or other similar federal or state legislation
for the protection of employees. The term "property damage" as used in this
paragraph includes, but is not limited to, damage to any real or personal
property of the Borrower, the Bank, and of any third parties. The Borrower's
obligations under this paragraph shall survive the repayment of the Loan and
any deed in lieu of foreclosure or foreclosure of any Deed to Secure Debt, Deed
of Trust, Security Agreement or Mortgage securing the Loan.
G. Survivability. All covenants, agreements,
representations and warranties made herein or in the other Loan Documents shall
survive the making of the Loan and shall continue in full force and effect so
long as the Loan is outstanding or the obligation of the Bank to make any
advances under the Line shall not have expired.
11. ARBITRATION. ANY CONTROVERSY OR CLAIM BETWEEN OR AMONG THE
PARTIES HERETO INCLUDING BUT NOT LIMITED TO THOSE ARISING OUT OF OR RELATING TO
THE LOAN DOCUMENTS OR ANY RELATED INSTRUMENTS, AGREEMENTS OR DOCUMENTS,
INCLUDING ANY CLAIM BASED ON OR ARISING FROM AN ALLEGED TORT, SHALL BE
DETERMINED BY BINDING ARBITRATION IN ACCORDANCE WITH THE FEDERAL ARBITRATION
ACT (OR IF
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<PAGE> 12
NOT APPLICABLE, THE APPLICABLE STATE LAW), THE RULES OF PRACTICE AND PROCEDURE
FOR THE ARBITRATION OF COMMERCIAL DISPUTES OF J.A.M.S./ENDISPUTE OR ANY
SUCCESSOR THEREOF ("J.A.M.S."), AND THE "SPECIAL RULES" SET FORTH BELOW. IN
THE EVENT OF ANY INCONSISTENCY, THE SPECIAL RULES SHALL CONTROL. JUDGMENT UPON
ANY ARBITRATION AWARD MAY BE ENTERED IN ANY COURT HAVING JURISDICTION. ANY
PARTY TO TIES AGREEMENT MAY BRING AN ACTION, INCLUDING A SUMMARY OR EXPEDITED
PROCEEDING, TO COMPEL ARBITRATION OF ANY CONTROVERSY OR CLAIM TO WHICH THIS
AGREEMENT APPLIES IN ANY COURT HAVING JURISDICTION OVER SUCH ACTION.
A. SPECIAL RULES. THE ARBITRATION SHALL BE CONDUCTED IN
THE CITY OF THE BORROWER'S DOMICILE AT TIME OF THE EXECUTION OF THIS
INSTRUMENT, AGREEMENT OR DOCUMENT AND ADMINISTERED BY J.A.M.S. WHO WILL APPOINT
AN ARBITRATOR; IF J.A.M.S. IS UNABLE OR LEGALLY PRECLUDED FROM ADMINISTERING
THE ARBITRATION, THEN THE AMERICAN ARBITRATION ASSOCIATION WILL SERVE. ALL
ARBITRATION HEARINGS WILL BE COMMENCED WITHIN 90 DAYS OF THE DEMAND FOR
ARBITRATION; FURTHER, THE ARBITRATOR SHALL ONLY, UPON A SHOWING OF CAUSE, BE
PERMITTED TO EXTEND THE COMMENCEMENT OF SUCH HEARING FOR UP TO AN ADDITIONAL 60
DAYS.
B. RESERVATION OF RIGHTS. NOTHING IN THIS ARBITRATION
PROVISION SHALL BE DEEMED TO (I) LIMIT THE APPLICABILITY OF ANY OTHERWISE
APPLICABLE STATUTES OF LIMITATION OR REPOSE AND ANY WAIVERS CONTAINED IN THIS
ARBITRATION PROVISION; OR (II) BE A WAIVER BY THE BANK OF THE PROTECTION
AFFORDED TO IT BY 12 U.S.C. SEC. 91 OR ANY SUBSTANTIALLY EQUIVALENT STATE LAW;
OR (III) LIMIT THE RIGHT OF THE BANK HERETO (A) TO EXERCISE SELF HELP REMEDIES
SUCH AS (BUT NOT LIMITED TO) SETOFF, OR (B) TO FORECLOSE AGAINST ANY REAL OR
PERSONAL PROPERTY COLLATERAL, OR (C) TO OBTAIN FROM A COURT PROVISIONAL OR
ANCILLARY REMEDIES SUCH AS (BUT NOT LIMITED TO) INJUNCTIVE RELIEF, WRIT OF
POSSESSION OR THE APPOINTMENT OF A RECEIVER. THE BANK MAY EXERCISE SUCH SELF
HELP RIGHTS, FORECLOSE UPON SUCH PROPERTY, OR OBTAIN SUCH PROVISIONAL OR
ANCILLARY REMEDIES BEFORE, DURING OR AFTER THE PENDENCY OF ANY ARBITRATION
PROCEEDING BROUGHT PURSUANT TO THIS INSTRUMENT, AGREEMENT OR DOCUMENT. NEITHER
THIS EXERCISE OF SELF HELP REMEDIES NOR THE INSTITUTION OR MAINTENANCE OF AN
ACTION FOR FORECLOSURE OR PROVISIONAL OR ANCILLARY REMEDIES SHALL CONSTITUTE A
WAIVER OF THE RIGHT OF ANY PARTY, INCLUDING THE CLAIMANT IN ANY SUCH ACTION,
TO ARBITRATE THE MERITS OF THE CONTROVERSY OR CLAIM OCCASIONING RESORT TO SUCH
REMEDIES.
12. NO ORAL AGREEMENT. THIS WRITTEN LOAN AGREEMENT AND THE
OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN
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THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS
OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.
13
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed under seal by their duly authorized representatives as of the
date first above written.
BORROWER: BANK:
AIR SOUTH AIRLINES, INC. NATIONSBANK, N.A.
By:/s/ Clifton E. Haley (Seal) By: /s/ Troy R. Weaver
-------------------------- -------------------------------
Name: Clifton E. Haley Name: Troy R. Weaver
Title: Chairman of the Board and Title: Assistant Vice President
Chief Executive Officer
[Corporate Seal]
Attest: /s/ David Y. Monteith(Seal)
---------------------
Name: David Y. Monteith
Title: Secretary
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<TABLE>
<CAPTION>
[NATIONSBANK LOGO] Of South Carolina, N.A. shall be deemed to be
NationsBank of South Carolina, N.A. references to "NationsBank, N.A."
SECURITY AGREEMENT
===================================================================================================================================
NOTICE: THIS SECURITY AGREEMENT IS SUBJECT TO MANDATORY ARBITRATION PURSUANT Date March 29, 1996
TO SOUTH CAROLINA AND PURSUANT TO THE FEDERAL ARBITRATION ACT. ------------------
<S> <C>
Between and
- - -----------------------------------------------------------------------------------------------------------------------------------
BANK: (SECURED PARTY) DEBTOR/PLEDGOR:
NationsBank of south Carolina, N.A. Air South Airlines, Inc.
Banking Center: Central Commercial Post Office Box 11129
1901 Main Street Columbia, South Carolina 29201
Columbia, South Carolina 29201
1800 St. Julian Place - 4th Floor
Columbia, South Carolina 29204
(address including county) Richland (Name and address including county) Richland
- - ------------------------------------------------------------------------------------------------------------------------------------
Debtor/Pledgor is: [ ] Individual [X] Corporation [ ] Partnership [ ] Other
- - ------------------------------------------------------------------------------------------------------------------------------------
Address is Debtor's: [ ] Residence [ ] Place of Business [X] Chief Executive Office if more than one place of business.
- - ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(THIS AGREEMENT CONTAINS SOME PROVISIONS PRECEDED BY BOXES. MARK ONLY THESE
BOXES BESIDE PROVISIONS WHICH WILL BE APPLICABLE TO THIS TRANSACTION. A BOX
WHICH IS NOT MARKED MEANS THAT THE PROVISION BESIDE IT IS NOT APPLICABLE TO
THIS TRANSACTION.)
A. SECURITY INTEREST. For good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged and subject to the applicable terms
of this agreement, Debtor/Pledgor (hereinafter referred to as Debtor) assigns
and grants to Bank (also known as Secured Party), a security interest and lien
in the Collateral to secure the payment and the performance of the Obligation.
D. COLLATERAL. The security interest is granted in the following
("Collateral") (Check as applicable)
1.
[X]ACCOUNTS. Any and all accounts, accounts receivable, receivables, contract
rights, book debts, checks, notes, drafts, instruments, chattel paper,
acceptances, choses in action, any and all amounts due to Debtor from a
factor or other forms of obligations and receivables now existing or
hereafter arising out of the business of the Debtor, as well as any and
all returned, refused and repossessed goods, and the cash or non-cash
proceeds resulting therefrom.
[X]INVENTORY. Any and all of Debtor's Inventory, including without
limitation any and all goods held for sale or lease or being processed
for sale or lease in Debtor's business as now or hereafter conducted, whether
now owned or hereinafter acquired, including all materials, goods and work in
process, finished goods, and other tangible property held for sale or lease
or furnished or to be furnished under contracts of service or used or
consumed in Debtor's business, along with all documents (including documents
of title) covering inventory, all cash and non-cash proceeds from the sale of
inventory including proceeds from insurance and specifically including but
not limited to (attach Schedule if necessary):
N/A
[X]EQUIPMENT. Any and all of Debtor's furnishings, mixtures and equipment,
wherever located, whether now owned or hereafter acquired, together with all
increases, parts, fittings, accessories, equipment, and special tools now or
hereafter affixed to any part thereof or used in connection therewith, and
all products, additions, substitutions, accessions, and all cash and
non-cash proceeds, including proceeds from insurance thereof and thereto,
including without limitation the following (attach Schedule if necessary):
engines, propellers and any other parts or replacement
parts for aircraft owned or leased by Debtor.
[X]FIXTURES. All of Debtor's fixtures now existing or hereafter acquired,
together with all substitutes and replacements therefor, all accessions and
attachments thereto, and all tools, parts and equipment now or hereafter
added to or used in connection therewith. These goods are or will become
fixtures on the following described real estate in _________________
County, _________________ (State), owned by: __________________ [name of
owner] more particularly described as follows: See Schedule A attached hereto
and incorporated herein by reference. _________________________________
[insert legal description (or attach Exhibit) of property, not street
address], including without limitation the following (attach schedule if
necessary):_____________________________________________________________
[X]INSTRUMENTS AND/OR INVESTMENT DOCUMENTS. The following described instruments
and documents including, without limitation, negotiable instruments,
promissory notes, and documents or title owned or to be owned by Debtor,
certificates of deposit, and all liens, security agreements, leases and other
contracts securing or otherwise relating to any of said instruments or
documents, and all cash and non-cash proceeds and products thereof and such
additional property receivable or distributed in respect of or in exchange
for all or any of such instruments or documents (attach Schedule if
necessary): N/A
[X]GENERAL INTANGIBLES. All patents, trademarks, service marks, trade secrets,
copyrights and exclusive licenses (whether issued or pending) and all
documents, applications, materials and other matters related thereto, all
inventions, and all manufacturing, engineering and production plans,
drawings, specifications, processes and systems, all trade names, computer
programs, data bases, systems and software (including source and object
codes), goodwill, choses in action and all other general intangibles of
Debtor whether now owned or hereafter acquired and all cash and non-cash
proceeds thereof, including without limitation the following described in
intangible personal property, and all chattel paper, documents and
instruments relating to such intangibles, including without limitation
(attach schedule if necessary): credit card receivables
[ ]TIMBER. All of Debtor's uncut timber growing or to be grown on the following
described property, and cash and non-cash proceeds including proceeds from
insurance, and all products thereof (complete legal description of real
property required) (attach Exhibit if necessary):__________________________
[ ]OTHER:_____________________________________________________________________
_________________ (hereinafter referred to as "Goods" and all proceeds thereof).
2. All substitutes and replacements for, accessions, attachments and other
additions to, tools, parts and equipment used in connection with, and proceeds
and products of, the above Collateral (including all income and benefits
resulting from any of the above, such as dividends payable or distributable in
cash, property or stock; interest, premium and principal payments; redemption
proceeds and subscription rights; all certificates of title, manufacturer's
statements of origin, other documents, accounts and chattel paper arising from
or related to the above Collateral, and returned or repossessed Collateral, any
of which, if received by Debtor, upon request shall be delivered immediately to
Bank.
<PAGE> 16
H. GENERAL
1. PARTIES BOUND. Bank's rights here under shall inure to the benefit of its
successors and assigns, and in the event of any assignment or transfer of any
of the Obligation, or the Collateral, Bank thereafter shall be fully discharged
from any responsibility with respect to the Collateral so assigned or
transferred, but Bank shall retain all rights and powers hereby given with
respect to any of the Obligation or Collateral not so assigned or transferred.
All representations, warranties and agreements of Debtor if more than one are
joint and several and all shall be binding upon the personal representatives,
heirs, successors and assigns of Debtor.
2. WAIVER. No delay of Bank in exercising any power or right shall operate as a
waiver thereof, nor shall any single or partial exercise of any power or right
preclude other or further exercise thereof or the exercise of any other power
or right. No waiver by Bank of any right hereunder or of any default by Debtor
shall be binding upon Bank unless in writing, and no failure by Bank to
exercise any power or right hereunder or waiver of any default by Debtor shall
operate as a waiver of any other or further exercise of such right or power or
of any further default. Each right, power and remedy of the Bank as provided
for in any of the loan documents, or which shall now or hereafter exist at law
or in equity or by statute or otherwise, shall be cumulative and concurrent and
shall be in addition to every other such right, power or remedy. The exercise
or beginning of the exercise by the Bank of any one or more or such rights,
powers or remedies shall not preclude the simultaneous or later exercise by the
Bank of any or all other such rights, powers or remedies.
3. AGREEMENT CONTINUING. This agreement shall constitute a continuing
agreement, applying to all future as well as existing transactions, whether or
not of the character contemplated at the date of this agreement, and if all
transactions between Bank and Debtor shall be closed at any time, shall be
equally applicable to any new transactions thereafter. Provisions of this
agreement, unless by their terms exclusive, shall be in addition to other
agreements between the parties. Time is of the essence of this agreement.
4. DEFINITIONS. Unless the context indicates otherwise, definitions in the UCC
apply to words and phrases in this agreement; if UCC definitions conflict,
Article 9 definitions apply.
5. Notice. Notices shall be delivered in accordance with Section 8 of that
certain Loan Agreement dated of even date by and between Debtor and Bank.
6. MODIFICATIONS. No provision hereof shall be modified or limited except by a
written agreement expressly referring hereto and to the provisions so modified
or limited and signed by the Debtor and Bank, nor by course of conduct, usage
of trade.
7. PARTIAL INVALIDITY. The unenforceability or invalidity of any provision of
this security agreement shall not affect the enforceability or validity of any
other provision herein and the invalidity or unenforceability of any provision
of any loan document to any person or circumstance shall not affect the
enforceability or validity of such provision as it may apply to other persons
or circumstances.
8. GENDER AND NUMBER. Where appropriate, the use of one gender shall be
construed to include the others or any of them; and the singular number shall
be construed to include the plural, and vice versa.
9. APPLICABLE LOW AND VENUE. This agreement has been delivered in the State of
South Carolina and shall be construed in accordance with the laws of that
State. It is performable by Debtor in the county or city of Bank's address set
out above and Debtor expressly waives any objection as to venue in any such
location. Wherever possible each provision of this agreement shall be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this agreement shall be prohibited by or invalid under
applicable law, such provision shall be ineffective to the extent of such
prohibition or invalidity, without invalidating the remainder of such
provisions or the remaining provisions of this agreement.
10. FINANCING STATEMENT. To the extent permitted by applicable law, a carbon,
photographic or other reproduction of this security agreement or any financing
statement covering the Collateral shall be sufficient as a Financing statement.
11. COUNTERPARTS. This agreement may be executed in any number of counterparts,
each of which shall be considered to be an original, but all of which shall
constitute one in the same instrument. As used herein "this agreement" shall
include all attachments and addenda.
12. ARBITRATION. ANY CONTROVERSY OR CLAIM BETWEEN OR AMONG THE PARTIES HERETO
INCLUDING BUT NOT LIMITED TO THOSE ARISING OUT OF OR RELATING TO THIS AGREEMENT
OR ANY RELATED AGREEMENTS OR INSTRUMENTS, INCLUDING ANY CLAIM BASED ON OR
ARISING FROM AN ALLEGED TORT, SHALL BE DETERMINED BY BINDING ARBITRATION IN
ACCORDANCE WITH THE FEDERAL ARBITRATION ACT (OR IF NOT APPLICABLE, THE
APPLICABLE STATE LAW), THE RULES OF PRACTICE AND PROCEDURE FOR THE ARBITRATION
OF COMMERCIAL DISPUTES OF JUDICIAL ARBITRATION AND MEDIATION SERVICES, INC.
(J.A M.S.) AND THE "SPECIAL RULES" SET FORTH BELOW. IN THE EVENT OF ANY
INCONSISTENCY, THE SPECIAL RULES SHALL CONTROL. JUDGMENT UPON ANY ARBITRATION
AWARD MAY BE ENTERED IN ANY COURT HAVING JURISDICTION. ANY PARTY TO THIS
AGREEMENT MAY BRING AN ACTION, INCLUDING A SUMMARY OR EXPEDITED PROCEEDING, TO
COMPEL ARBITRATION OF ANY CONTROVERSY OR CLAIM TO WHICH THIS AGREEMENT APPLIES
IN ANY COURT HAVING JURISDICTION OVER SUCH ACTION.
A. SPECIAL RULES. THE ARBITRATION SHALL BE CONDUCTED IN THE CITY OF THE
BORROWER'S DOMICILE AT THE TIME OF THIS AGREEMENT'S EXECUTION AND ADMINISTERED
BY J.A.M.S. WHO WILL APPOINT AN ARBITRATOR; IF J.A.M.S. IS UNABLE OR LEGALLY
PRECLUDED FROM ADMINISTERING THE ARBITRATION, THEN THE AMERICAN ARBITRATION
ASSOCIATION WILL SERVE. ALL ARBITRATION HEARINGS WILL BE COMMENCED WITHIN 90
DAYS OF THE DEMAND FOR ARBITRATION; FURTHER, THE ARBITRATOR SHALL ONLY, UPON A
SHOWING OF CAUSE, BE PERMITTED TO EXTEND THE COMMENCEMENT OF SUCH HEARING FOR
UP TO AN ADDITIONAL 60 DAYS.
B. RESERVATIONS OF RIGHTS. NOTHING IN THIS AGREEMENT SHALL BE DEEMED TO (I)
LIMIT THE APPLICABILITY OF ANY OTHERWISE APPLICABLE STATUTES OF LIMITATION OR
REPOSE AND ANY WAIVERS CONTAINED IN THIS AGREEMENT; OR (II) BE A WAIVER BY THE
BANK OF THE PROTECTION AFFORDED TO IT BY 12 U.S.C. SEC. 91 OR ANY SUBSTANTIALLY
EQUIVALENT STATE LAW; OR (III) LIMIT THE RIGHT OF THE BANK HERETO (A) TO
EXERCISE SELF HELP REMEDIES SUCH AS (BUT NOT LIMITED TO) SETOFF, OR (B) TO
FORECLOSE AGAINST ANY REAL OR PERSONAL PROPERTY COLLATERAL, OR (C) TO OBTAIN
FROM A COURT PROVISIONAL OR ANCILLARY REMEDIES SUCH AS (BUT NOT LIMITED TO)
INJUNCTIVE RELIEF, WRIT OF POSSESSION OR THE APPOINTMENT OF A RECEIVER. THE
BANK MAY EXERCISE SUCH SELF HELP RIGHTS, FORECLOSE UPON SUCH PROPERTY, OR
OBTAIN SUCH PROVISIONAL OR ANCILLARY REMEDIES BEFORE, DURING OR AFTER THE
PENDENCY OF ANY ARBITRATION PROCEEDING BROUGHT PURSUANT TO THIS AGREEMENT. AT
BANK'S OPTION, FORECLOSURE UNDER A DEED OF TRUST OR MORTGAGE MAY BE
ACCOMPLISHED BY ANY OF THE FOLLOWING: THE EXERCISE OF A POWER OF SALE UNDER THE
DEED OF TRUST OR MORTGAGE, OR BY JUDICIAL SALE UNDER THE DEED OF TRUST OR
MORTGAGE, OR BY JUDICIAL FORECLOSURE. NEITHER THIS EXERCISE OR SELF HELP
REMEDIES NOR THE INSTITUTION OR MAINTENANCE OF AN ACTION FOR FORECLOSURE OR
PROVISIONAL OR ANCILLARY REMEDIES SHALL CONSTITUTE A WAIVER OF THE RIGHT OF ANY
PARTY, INCLUDING THE CLAIMANT IN ANY SUCH ACTION, TO ARBITRATE THE MERITS OF
THE CONTROVERSY OR CLAIM OCCASIONING RESORT TO SUCH REMEDIES. DEBTOR AGREES
THAT BANK AT ITS SOLE OPTION MAY CHOOSE MEDIATION, AND/OR BINDING ARBITRATION
PROCEDURES PERTAINING TO ANY CONTROVERSY(IES) OR DISPUTE(S) ARISING BETWEEN
DEBTOR AND BANK. DEBTOR AGREES TO ABIDE BY THE SELECTION THAT BANK MAKES TO
RESOLVE ANY CONFLICTS OR DISPUTES BETWEEN DEBTOR AND BANK AND TO PARTICIPATE IN
THE MEDIATION AND/OR BINDING ARBITRATION PROCESS IF SELECTED. DEBTOR AND BANK
AGREE THAT EACH WILL BEAR THEIR PORTION OF EXPENSES RELATED TO MEDIATION AND/OR
BINDING ARBITRATION.
13. NOTICE OF FINAL AGREEMENT. THIS WRITTEN AGREEMENT AND THE OTHER LOAN
DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN OR ORAL AGREEMENTS BETWEEN
THE PARTIES.
IN WITNESS WHEREOF, the parties hereto have caused this agreement to be duly
executed under seal by their duly authorized representatives as of the date
first above written.
<TABLE>
<S> <C>
BANK/SECURED PARTY: Debtor/Pledgor:
NATIONSBANK OF SOUTH CAROLINA, N.A.
By: /S/ Troy R. Weaver (Seal)
----------------------------------------------------------- --------------------------------------------------
Print Individual's Name:
Name: Troy R. Weaver (Seal)
--------------------------------------------------------- ---------------------------------------------
Title: Assistant Vice President
-------------------------------------------------------- ---------------------------------------------------
Print Individual's Name:
(Seal)
---------------------------------------------
Corporate Borrower or Partnership: AIR SOUTH AIRLINES, INC.
---------------------------------------------------
(Name of Corporation, Partnership, etc)
Attest (If Applicable) By: /s/ Clifton E. Haley (Seal)
----------------------------------------------
/s/David Y. Monteith Clifton E. Haley, Chairman of the Board and
- - ------------------------------------------------------------- ---------------------------------------------------
David Y. Monteith Print Name and Title: Chief Executive Officer
Secretary
(Corporate Seal) By:
------------------------------------------------
---------------------------------------------------
Print Name and Title:
</TABLE>
<PAGE> 17
3. The balance of every deposit account of Debtor under control of Bank and any
other claim of Debtor against Bank, now or hereafter existing, liquidated or
unliquidated, and all money, instruments, securities, documents, chattel paper,
credits, claims, demands, income, and any other property, rights and interests
of Debtor which at any time shall come into the possession or custody or under
the control of Bank or any of its agents, affiliates or correspondents, for any
purpose, and the proceeds or any thereof. Bank shall be deemed to have
possession of any of the Collateral in transit to or set apart for it or any of
its agents, affiliates or correspondents.
C. OBLIGATION.
1. DESCRIPTION OF OBLIGATION. The following obligations ("Obligation") are
secured by this agreement: (a) All debts, obligations, liabilities and
agreements of Debtor to Bank, now or hereafter existing, arising directly or
indirectly between Debtor and Bank whether absolute or contingent, joint or
several, secured or unsecured, due or not due, contractual or tortious,
liquidated or unliquidated, arising by operation of law or otherwise, and all
renewals, extensions or rearrangement of any of the above; (b) Bank's
participation in any loan or other debt of Debtor to another person; (c) All
costs incurred by Bank to obtain, preserve, perfect and enforce this agreement
and maintain, preserve, collect and enforce the Collateral; (d) Interest on the
above amounts as agreed between Bank and Debtor; (e) All debt, obligations and
liabilities of
N/A
(if the preceding space is completed, such party, together with the Debtor
named above, is hereinafter referred to collectively as "Debtor") to Bank of
the kinds described in this Item C, now existing or hereafter arising; (1) All
expenses of the Bank, including fees and expenses of the Bank's counsel,
incident to the enforcement of payment of all obligations of the Debtor by any
action or participation in, or in connection with a case or proceeding under
the Bankruptcy Code, or any successor statute thereto; (g) If the Debtor is not
the obligor of any of the Obligations, and in the event any amount paid to the
Bank on any Obligation is subsequently recovered from the Bank in or as a
result of any bankruptcy, insolvency or fraudulent conveyance proceeding, the
Debtor shall be liable to the Bank for the amounts so recovered up to the fair
market value of the Collateral whether or not the Collateral has been released
or the security interest terminated. In the event the Collateral has been
released or the security interest terminated, the fair market value of the
Collateral shall be determined, at the Bank's option, as of the date the
Collateral was released, the security interest terminated, or said amounts were
recovered; and (h) All amounts which may be owed to Bank pursuant to all other
loan documents executed between Bank and any other Debtor.
Notwithstanding the foregoing, if the Collateral is personal property used as a
principal residence (such as a mobile home or a houseboat) or "household goods"
(as that term is defined at 12 C.F.R. Section 227.12, as it may be amended from
time to time) which are not in the Bank's possession and which are not
fixtures, such Collateral shall not secure any liability contracted for
personal family or household purposes between the Debtor or an obligor and the
Bank already in existence on the date hereof that arises hereafter, unless the
Debtor otherwise expressly agrees.
D. DEBTOR'S WARRANTIES. Debtor hereby represents and warrants to Bank as
follows:
1. FINANCING STATEMENTS. Except as may be noted by schedule attached hereto and
incorporated herein by reference, no financing statement covering the
Collateral is or will be on file in any public office, except the financing
statements relating to this security interest, and no Security interest, other
than the one herein created, has attached or been perfected in the Collateral
or any part thereof.
2. OWNERSHIP. Debtor owns, or will use the proceeds of any loans by Bank to
become the owner of, the Collateral free from any setoff, claim, restriction,
lien, security interest or encumbrance except liens for taxes not yet due and
the security interest hereunder.
3. FIXTURES AND ACCESSIONS. None of the Collateral is affixed to real estate or
is an accession to any goods, or will become a fixture or accession, except as
expressly set out herein.
4. CLAIMS OF DEBTORS AN COLLATERAL. All account debtors and other obligors
whose debts or obligations are part of the Collateral have no right to setoffs,
counterclaims or adjustments, and no defenses in connection therewith.
5. POWER AND AUTHORITY. Debtor has full power and authority to make this
agreement.
E. DEBTOR'S COVENANTS. Until full payment and performance of all Obligations
and termination or expiration of any obligation or commitment of Bank to make
advances or loans to Debtor, unless Bank otherwise consents in writing:
1. OBLIGATION AND THIS AGREEMENT. Debtor shall perform all of its agreements
herein and in any other agreements between it and Bank.
2. OWNERSHIP OF COLLATERAL. Debtor shall defend the Collateral against all
claims and demands of all persons at any time claiming any interest therein
adverse to Bank. Debtor shall keep the Collateral free from all liens and
security interests except those for taxes not yet due and the security interest
hereby created.
3. INSURANCE. Debtor shall insure the Collateral with companies acceptable to
Bank. Such insurance shall be in an amount not less than the fair market value
of the Collateral and shall be against such casualties, with such deductible
amounts as Bank shall approve. All insurance policies shall be written for the
benefit of Debtor and Bank as their interests may appear, payable to Bank as
loss payee, or in other form satisfactory to Bank, and such policies or
certificates evidencing the same shall be furnished to Bank. All policies of
insurance shall provide for written notice to Bank at least 10 days prior to
cancellation. Risk of loss or damage is Debtor's to the extent of any
deficiency in any effective insurance coverage.
4. MAINTENANCE. Debtor shall keep all tangible Collateral in good condition.
5. BANK'S COSTS. Debtor shall pay all costs necessary to obtain, preserve,
perfect, defend and enforce this security interest, collect the Obligation, and
preserve, defend, enforce and collect the Collateral including but not limited
to taxes, assessments, insurance premiums, repairs, reasonable attorney's fees
and legal expenses, feed, rent, storage costs and expenses of sales. Whether
Collateral is or is not in Bank's possession, and without any obligation to do
so and without waiving Debtor's default for failure to make any such payment,
Bank at its option may pay any such costs and expenses, discharge encumbrances
on Collateral, and pay for insurance of Collateral, and such payment shall be a
part of the Obligation and bear interest at the rate set out in the Obligation.
Debtor agrees to reimburse Bank on demand for any costs so incurred.
6. INFORMATION AND INSPECTION. Debtor shall (i) promptly furnish Bank any
information with respect to Collateral requested by Bank; (ii) allow Bank or
its representatives to inspect the Collateral, at any time and wherever
located, and to inspect and copy, or furnish Bank or its representatives with
copies of, all records relating to the Collateral and the Obligation; (iii)
furnish Bank or its representatives such information as Bank may request to
identify Collateral, at the time and in the form requested by Bank; and iv)
deliver upon request to Bank shipping and delivery receipts evidencing the
shipment of goods and invoices evidencing the receipt of, and the payment for,
Collateral.
7. ADDITIONAL DOCUMENTS. Debtor shall sign and deliver any papers furnished by
Bank which are necessary or desirable in the judgment of Bank to obtain,
maintain and perfect the security interest hereunder and to enable Bank to
comply with the Federal Assignment of Claims Act or any other federal or state
law in order to obtain or perfect Bank's interest in Collateral or to obtain
proceeds of Collateral.
13. PARTIES LIABLE ON COLLATERAL. Debtor will preserve the liability of all
obligors on any Collateral, will preserve the priority of all security
therefor, and will deliver to Bank the original certificates of title on all
motor vehicles or other titled vehicles constituting the Collateral. Bank
shall have no duty to preserve such liability or security, but may do so at the
expense of Debtor, without waiving Debtor's default.
9. RIGHT OF BANK TO NOTIFY DEBTORS. At any time, whether Debtor is or is not in
default hereunder, Bank may notify persons obligated on any Collateral to make
payments directly to Bank and Bank may take control of all proceeds of any
Collateral. Until Bank elects to exercise such rights, Debtor, as agent of
Bank, shall collect and enforce all payments owed on Collateral.
10. RECORDS OF COLLATERAL. Debtor at all times will maintain accurate books and
records covering the Collateral. Debtor immediately will mark all books and
records with an entry showing the absolute assignment of all Collateral to Bank
and Bank is hereby given the right to audit the books and records of Debtor
relating to Collateral at any time and from time to time. The amounts shown as
owed to Debtor on Debtor's books and on any assignment schedule will be the
undisputed amounts owing and unpaid.
11. DISPOSITION OF COLLATERAL. If disposition of any Collateral gives rise to
an account, chattel paper or instrument, Debtor immediately shall notify Bank,
and upon request of Bank shall assign or endorse the same to Bank. No
Collateral may be sold, leased, manufactured, processed or otherwise disposed
of by Debtor in any manner without the prior written consent of Bank, except
Collateral sold, leased, manufactured, processed or consumed in the ordinary
course of business.
12. ACCOUNTS. Each account held as Collateral will represent the valid and
legally enforceable obligation of third parties, and shall not be evidenced by
any instrument or chattel paper.
13. LOCATION OF COLLATERAL. Debtor shall give Bank written notice of each
office of Debtor in which records of Debtor pertaining to accounts held as
Collateral are kept, and each location at which Collateral is or will be kept,
and of any change of any such location. If no such notice is given, all
records of Debtor pertaining to Collateral are and shall be kept at Debtor's
address shown above. All Collateral or Debtor will be kept at Debtor's address
shown above unless otherwise noted as follows: See those locations described
on Schedule A attached hereto and incorporated herein by reference.
14. NOTICE OF CHANGES. Debtor will notify Bank immediately of any material
change in the Collateral, of a change in Debtor's residence or location, of a
change in any matter Warranted or represented by Debtor in this agreement or
furnished to Bank, and of any event of default.
15. USE AND REMOVAL OF COLLATERAL. Debtor will not use the Collateral illegally
nor, unless previously indicated as a fixture, permit the Collateral to be
affixed to real or personal property without the prior written consent of Bank.
Debtor will not permit any or the Collateral to be removed from the locations
specified herein without the prior written consent of Bank, except for the sale
of inventory in the ordinary course of business.
<PAGE> 18
16. POSSESSION OF COLLATERAL. Debtor will deliver all other instruments,
documents and chattel paper which are part or the Collateral and in Debtor's
possession to the Bank immediately, or if hereafter acquired, immediately
following acquisition, appropriately endorsed to Bank's order, or with
appropriate, executed powers. Debtor waives presentment, notice of
acceleration, demand, notice of dishonor, protest, and all other notices with
respect thereto.
17. CONSUMER CREDIT. If any Collateral or proceeds includes obligations of
third parties to Debtor, the transactions giving rise to the Collateral shall
conform in all respects to the applicable state or federal law including but
not limited to consumer credit law. Debtor shall hold harmless and indemnify
Bank against any cost, loss or expense arising from Debtor's breach of this
covenant.
18. CHANGE OF NAME/STATUS. Without the written consent of Bank, Debtor shall
not change its name, change its corporate status, use any trade name or engage
in any business in which it was not engaged on the date or this agreement.
19. POWER OF ATTORNEY. Debtor appoints Bank as Debtor's attorney-in-fact with
full power in Debtor's name and behalf to do every act which Debtor is
obligated to do or may be required to do hereunder; however, nothing in this
paragraph shall be construed to obligate Bank to take any action hereunder nor
shall Bank be liable to Debtor for failure to take any action hereunder. This
appointment shall be deemed a power coupled with an interest and shall not be
terminable as long as the Obligations are outstanding and shall not terminate
on the disability or incompetence of the Debtor.
20. WAIVERS BY DEBTOR. Debtor waives notice of the creation, advance, increase,
existence, extension or renewal of, and of any indulgence with respect to, the
Obligation; waives presentment, demand, notice of dishonor, and protest; waives
notice of the amount of the Obligation outstanding at any time, notice of any
change in financial condition or any person liable for the Obligation or any
part thereof, notice of any event of default, and all other notices respecting
the Obligation; and agrees that maturity of the Obligation and any part
thereof may be accelerated, extended or renewed one or more times by Bank in
its discretion, without notice to Debtor. Debtor waives any right to require
that any action be brought against any other person or to require that resort
be had to any other security or to any balance of any deposit account. The
Debtor further waives any right of subrogation or to enforce any right of
action against any other Debtor until the Obligation is paid in full.
21. OTHER PARTIES AND OTHER COLLATERAL. No renewal or extension of or any other
indulgence with respect to the Obligation or any part thereof, no release of
any security, no release of any person (including any maker, endorser,
guarantor or surety) liable on the Obligation, no delay in enforcement of
payment, and no delay or omission or lack of diligence or care in exercising
any right or power with respect to the Obligation or any security therefor or
guaranty thereof or under this agreement shall in any manner impair or affect
the rights of Bank under the law, hereunder, or under any other agreement
pertaining to the Collateral. Bank need not file suit or assert a claim for
personal judgment against any person for any part of the Obligation or seek to
realize upon any other security for the Obligation, before foreclosing or
otherwise realizing upon the Collateral for the purpose of paying the
Obligation. Debtor waives any right to the benefit of or to require or control
application of any other security or proceeds thereof, and agrees that Bank
shall have no duty or obligation to Debtor to apply to the Obligation any such
other security or proceeds thereof.
22. COLLECTION AND SEGREGATION OF ACCOUNTS. The Bank hereby authorizes the
Debtor to collect the Collateral, subject to the direction and control of the
Bank, but the Bank may, without cause or notice, curtail or terminate said
authority at any time. Upon notice by the Bank, whether oral or in writing, to
the Debtor, the Debtor shall forthwith upon receipt of all checks, drafts,
cash, and other remittances in payment of or on account of the Collateral,
deposit the same in one or more special accounts maintained with the Bank over
which the Bank alone shall have the power of withdrawal. The remittance of the
proceeds of such Collateral shall not, however, constitute payment or
liquidation of such Collateral until the Bank shall receive good funds for such
proceeds. Funds placed in such special accounts shall be held by the Bank as
security for all Obligations secured hereunder. These proceeds shall be
deposited in precisely the form received, except for the indorsement of the
Debtor where necessary to permit collection of items, which endorsement the
Debtor agrees to make, and which indorsement the Bank is also hereby
authorized, as attorney-in-fact, to make an behalf of the Debtor. In the event
the Bank has notified the Debtor to make deposits to a special account, pending
such deposit, the Debtor agrees that it will not commingle any such checks,
drafts, cash or other remittances with any funds or other property of the
Debtor, but will hold them separate and apart therefrom, and upon an express
trust for the Bank until deposit thereof is made in the special account. The
Bank will, from time to time, apply the whole or any part of the Collateral
funds on deposit in this special account against such Obligations as are
secured hereby as the Bank may in its sole discretion elect. At the sole
election of the Bank, any portion of said funds on deposit in the special
account which the Bank shall elect not to apply to the Obligations, may be paid
over by the Bank to the Debtor.
23. COMPLIANCE WITH STATE AND FEDERAL LAWS. Debtor will comply with all State
and Federal laws and regulations applicable to its business, whether now in
effect or hereafter enacted including but not limited to the wage and hours
laws and relating to the use or disposal of hazardous materials and wastes.
F. RIGHTS AND POWERS OF BANK
1. GENERAL. Bank, before or after default, without liability to Debtor may:
obtain from any person information regarding Debtor or Debtor's business, which
information any such person also may furnish without liability to Debtor;
require Debtor to give possession or control of any Collateral to Bank; indorse
as Debtor's agent any instruments, documents or chattel paper in Collateral or
representing proceeds of Collateral; contact account debtors directly to verify
information furnished by Debtor; take control of proceeds, including stock
received as dividends or by reason of stock splits; release Collateral in its
possession to any Debtor, temporarily or otherwise; require additional
Collateral; reject as unsatisfactory any property hereafter offered by Debtor
as Collateral; set standards from time to time to govern what may be used as
after acquired Collateral; designate, from time to time, a certain percent of
the Collateral as the loan value and require Debtor to maintain the Obligation
at or below such figure; take control of funds generated by the Collateral,
such as cash dividends, interest and proceeds or refunds from insurance, and
use same to reduce any part of the Obligation and exercise all other rights
which an owner of such Collateral may exercise, except the right to vote or
dispose of Collateral before an event of default; at any time transfer any of
the Collateral or evidence thereof into its own name or that of its nominee; and
demand, collect, convert, redeem, receipt for, settle, compromise, adjust, sue
for, foreclose or realize upon Collateral, in its own name or in the name of
Debtor, as Bank may determine. Bank shall not be liable for failure to collect
any account or instruments, or for any act or omission on the part of the Bank,
its officers, agents or employees, except willful misconduct and gross
negligence. The foregoing rights and powers of Bank will be in addition to,
and not a limitation upon, any rights and powers of Bank given by law,
elsewhere in this agreement, or otherwise. If Debtor fails to maintain any
required insurance, to the extent permitted by applicable law Bank may (but is
not obligated to) purchase single interest insurance coverage for the
Collateral which insurance may at Bank's option 6) protect only Bank and not
provide any remuneration or protection for Debtor directly and (II) provide
coverage only after the Obligation has been declared due as herein provided.
The premiums for any such insurance purchased by Bank shall be a part of the
Obligation and shall bear interest as provided in B. 1. d. hereof.
2. CONVERTIBLE COLLATERAL. Bank, may present for conversion any Collateral
which is convertible into any other instrument or investment security or a
combination thereof with cash, but Bank shall not have any duty to present for
conversion any Collateral unless it shall have received from Debtor detailed
written instructions to that effect at a time reasonably far in advance of the
final conversion date to make such conversion possible.
G. DEFAULT
1. EVENT OF DEFAULT. An event of default shall occur if: (i) there is a loss,
theft, damage or destruction of any material portion of the Collateral for
which there is no insurance coverage or for which, in the opinion of the Bank
there is insufficient insurance coverage; or (ii) if Debtor or any other
obligor on the Obligation shall fail to timely and properly pay or observe,
keep or perform any term, covenant, agreement or condition in this agreement or
in any other agreement between Debtor and any other obligor on the Obligation,
including in any other note or instrument, loan agreement, security agreement,
deed of trust, mortgage, promissory note, assignment or other agreement or
instrument concerning the Obligation.
2. RIGHTS AND REMEDIES. If any Event of Default shall occur, then, in each and
every such case, the Bank may, without presentment, demand, or protest; notice
of default, dishonor, demand, non-payment, or protest; notice of intent to
accelerate all or any part of the Obligation; notice of acceleration of all or
any part of the Obligation; or notice of any other kind, all of which Debtor
hereby expressly waives, (except for any notice required under this agreement,
any other loan document or applicable law); at any time thereafter exercise
and/or enforce any of the following rights and remedies:
A) POSSESSION AND COLLECTION OF COLLATERAL. At its option: (i) take
possession or control of, store, lease, operate, manage, sell or otherwise
dispose of, all or any part of the Collateral; (ii) notify all parties under
any account or contract right forming all or any part of the Collateral to make
any payments otherwise due to the Debtor directly to the Bank; (iii) in the
Bank's own name, or in the name of the Debtor, demand, collect, receive, sue
for, and give receipts and releases for, any and all amounts due under such
accounts and contract rights; iv) indorse as the agent of the Debtor any check,
note, chattel paper, documents, or instruments forming all or any part of the
Collateral; (v) make formal application for transfer to the Bank (or to any
assignee of the Bank to any purchaser of any of the Collateral) of all of the
Debtor's permits, licenses, approvals, agreements, and the like relating to the
Collateral or to the Debtor's business; (vi) take any other action which the
Bank deems necessary or desirable to protect and realize upon its security
interest in the Collateral; and (vii) in addition to the foregoing, and not in
substitution therefor, exercise any one or more of the rights and remedies
exercisable by the Bank under any other provision of this agreement, under any
of the other loan documents, or as provided by applicable law (including,
without limitation, the Uniform Commercial Code as in effect in South Carolina
(hereinafter referred to as the "UCC")). In taking possession of the
Collateral the Bank may enter the Debtor's premises and otherwise proceed
without legal process, if this can be done without breach of the peace. The
Debtor shall, upon the Bank's demand, promptly make the Collateral or other
security available to the Bank at a place designated by the Bank, which place
shall be reasonably convenient to both parties.
The Bank shall not be liable for, nor be prejudiced by, any loss, depreciation
or other damages to the Collateral, unless caused by the Bank's willful and
malicious act. The Bank shall have no duty to take any action to preserve or
collect the Collateral.
B) RECEIVER. Obtain the appointment of a receiver for all or any of the
Collateral, the Debtor hereby consenting to the appointment of such a receiver
and agreeing not to oppose any such appointment.
C) RIGHT OF SET OFF. Without notice or demand to the Debtor, set off and apply
against any and all of the Obligations any and all deposits (general or
special, time or demand, provisional or final) and any other indebtedness, at
any time held or owing by the Bank to or for the credit of the account of the
Debtor.
Bank shall be entitled to immediate possession of all books and records
evidencing any Collateral or pertaining to chattel paper covered by this
agreement and it or its representatives shall have the authority to enter upon
any premises upon which any of the same, or any Collateral, may be situated and
remove the same therefrom without liability. Bank may surrender any insurance
policies in Collateral and receive the unearned premium thereon. Debtor shall
be entitled to any surplus and shall be liable to Bank for any deficiency. The
proceeds of any disposition after default available to satisfy the Obligation
shall be applied to the Obligation in such order and in such manner as Bank in
its discretion shall decide.
<PAGE> 19
INTERCREDITOR AND SUBORDINATION AGREEMENT
THIS INTERCREDITOR AND SUBORDINATION AGREEMENT (this "Agreement") is
made as of March 29, 1996, by and between NATIONSBANK, N.A., a national banking
association ("NationsBank"), and SOUTH CAROLINA JOBS-ECONOMIC DEVELOPMENT
AUTHORITY ("JEDA").
WITNESSETH
WHEREAS, JEDA as assignee of the County of Lexington, South Carolina
(the "County") and AIR SOUTH AIRLINES, INC., a Delaware corporation, as
successor to Air South, Inc., an Illinois corporation ("Debtor") are parties to
a certain Loan Agreement dated as of July 15, 1994 (hereinafter referred to,
together with all amendments and modifications thereto as, the "108 Loan
Agreement"), pursuant to which JEDA extended a loan to Debtor in the principal
amount of $12,000,000; and
WHEREAS, all obligations and rights of the County under the 108 Loan
Agreement and other notes, documents and agreements executed in connection
therewith (collectively, the "JEDA Loan Documents") were assigned to JEDA
pursuant to that certain Assignment and Servicing Agreement dated as of July
15, 1994 by and between the County and JEDA; and
WHEREAS, to secure all indebtedness, liabilities and obligations
owning by Debtor to JEDA under the JEDA Loan Documents, Debtor has granted to
JEDA a lien upon and security interest in all of Debtor's personal property,
including, without limitation, all accounts, inventory, equipment, fixtures,
general intangibles, instruments, documents and chattel paper, whether now
owned or hereafter acquired; and
WHEREAS, NationsBank and Debtor are parties to a certain Loan
Agreement dated as of even date, (hereinafter referred to, together with all
amendments and modifications thereto as, the "NationsBank Loan Agreement"),
pursuant to which NationsBank has agreed to make a revolving credit facility
available to Debtor; and
WHEREAS, to secure all indebtedness, liabilities and obligations owing
by Debtor to NationsBank under the NationsBank Loan Agreement and any notes,
documents and agreements executed in connection therewith (collectively, the
"NationsBank Loan Documents"), Debtor has granted to NationsBank a lien upon and
security interest in all of Debtor's personal property, including, without
limitation, all accounts, inventory, equipment, fixtures, general intangibles,
instruments, documents and chattel paper, whether now owned or hereafter
acquired; and
WHEREAS, the parties hereto desire to enter into this Agreement for
the purpose of establishing the priorities of their respective liens and
security interests in the assets of the Debtor and setting forth certain other
agreements between them with respect to the Debtor;
NOW, THEREFORE, for Ten Dollars ($10.00) in hand paid and in
consideration of the foregoing premises, the mutual covenants and conditions
herein contained and for other good and valuable consideration, the receipt and
sufficiency of which are hereby expressly acknowledged, the parties hereto,
intending to be bound hereby, agree as follows:
<PAGE> 20
1. CERTAIN DEFINITIONS. In addition to the terms defined in the
recitals hereto, as used in this Agreement, the following terms shall have the
following meanings for the purposes of this Agreement:
"Bankruptcy Case" shall mean any case hereafter commenced by or
against Debtor under any chapter of the Bankruptcy Code.
"Collateral" shall mean and collectively include all personal
property of Borrower which is pledged to secure the JEDA Obligations
and the NationsBank Obligations.
"Collection Remedy" shall mean any remedy available to
NationsBank under any of the NationsBank Loan Documents or under
applicable law to enforce collection of any of the NationsBank
Obligations following the occurrence of an Event of Default, and any
remedy available to JEDA under any of the JEDA Loan Documents or under
applicable law to enforce collection of any of the JEDA Obligations
following the occurrence of an Event of Default, including, but not
limited to, in the case of NationsBank, any acceleration of the
maturity or demand for payment of any of the NationsBank Obligations
and any suit to collect any of the NationsBank Obligations; in the
case of JEDA, any acceleration of the maturity or demand for payment
of any of the JEDA Obligations and any suit to collect any of the JEDA
Obligations; and any attachment or garnishment of, or judicial or
nonjudicial repossession or foreclosure upon, any of the Collateral by
either NationsBank or JEDA.
"Event of Default" shall mean an event or condition that
constitutes a default or event of default under the JEDA Loan
Documents or the NationsBank Loan Documents.
"JEDA Loan Documents" shall mean and include the 108 Loan
Agreement, that certain Promissory Note dated August 8, 1994 executed
by Debtor in favor of the County and assigned to JEDA, that certain
Security Agreement and Chattel Mortgage executed by Borrower dated
July 15, 1994 and all other instruments or agreements now or hereafter
evidencing or securing the payment of the whole or any part of the
JEDA Obligations.
"JEDA Obligations" shall mean and include all indebtedness,
liabilities and obligations of Debtor to JEDA, whether now or
hereafter created, incurred or arising, and whether direct or
indirect, absolute or contingent, primary or secondary, due or to
become due, joint or several, including, without limitation, all
liabilities now or at any time or times hereafter owing to JEDA under
any of the JEDA Loan Documents.
"NationsBank Loan Documents" shall mean and include the
NationsBank Loan Agreement, that certain Promissory Note, made by
Debtor to the order of NationsBank, in the principal amount of
$1,000,000, that certain Security Agreement executed by Debtor in
favor or Bank and all other instruments or agreements now or hereafter
evidencing or securing the payment of the whole or any part of the
NationsBank Obligations.
2
<PAGE> 21
"NationsBank Obligations" shall mean and include all
indebtedness, liabilities and obligations of Debtor to NationsBank,
now or at any time or times hereafter owing to NationsBank under any
of the NationsBank Loan Documents in the amount not to exceed
$1,000,000.00 in principal, plus all accrued interest on such
principal sum plus all expenses (including reasonable legal fees and
other professional fees and expenses) related thereto or incurred in
connection with or under the NationsBank Loan Documents including
expenses related to modifications, negotiations or collections of the
NationsBank Obligations.
2. CONSENT TO SECURITY INTEREST. JEDA hereby consents to any
security interest or lien granted or conveyed by Debtor to NationsBank in any
of the Collateral.
3. PRIORITY OF LIENS AND SECURITY INTERESTS. JEDA and
NationsBank agree at all times, whether before, after or during the pendency of
any Bankruptcy Case, reorganization or other insolvency proceeding and
notwithstanding the priorities which would ordinarily result from the order of
granting of any security interests or liens, or the order of filing or
recording of any financing statements or mortgages in respect of any of the
Collateral:
3.1 Superiority of NationsBank's Liens and Security
Interests. NationsBank's liens and security interests in the
Collateral shall constitute first priority liens and security
interests in the Collateral to secure the NationsBank Obligations and
shall be superior to any interest of JEDA in the Collateral arising
pursuant to the JEDA Loan Documents or otherwise; and JEDA's security
interests and liens therein shall be subordinate to the security
interests and liens of NationsBank therein. NationsBank specifically
acknowledges that the priority of NationsBank's lien shall secure, at
the time of realization on any of the Collateral an amount not in
excess of the amount of the NationsBank Obligations.
4. NOTICE OF DEFAULT. Each party hereto agrees to give to the
other copies of any written notices of default which such party hereafter may
give to Debtor, concurrently with, or as soon as practicable after, the giving
of such notice to Debtor and provide such other party thirty (30) days from the
delivery of such notice to cure any default. No failure of any party to give a
copy of such notice as provided herein shall in any event affect the relative
priorities of the security interests and liens established in Section 3 hereof
or other rights provided herein.
5. EXERCISE OF REMEDIES. In the event of the commencement of
foreclosure, liquidation or similar actions with respect to the Collateral by
either party to this Agreement with respect to the Collateral, the parties
shall cooperate with each other and act reasonably and in good faith in
connection with such foreclosure, liquidation or similar action.
6. RECEIPT OF MONIES BY JEDA. JEDA agrees that if JEDA receives
any money from the sale, liquidation, casualty or other disposition of, or as a
result of its security interest in or lien upon any of the Collateral at any
time prior to payment in full of all the NationsBank Obligations, JEDA will
(unless otherwise restricted by law) hold the same in trust for NationsBank and
promptly pay over the same to NationsBank for application to the
3
<PAGE> 22
NationsBank Obligations. NationsBank acknowledges that the terms of this
provision of Section 6 do not apply to moneys received by JEDA in the ordinary
course of the payment of the JEDA Obligations by Debtor which (i) are received
by JEDA so long as Debtor is paying NationsBank as agreed under the NationsBank
Obligations; (ii) are not paid with the proceeds of the sale of Collateral
outside of the ordinary course of Debtor's business; or (iii) are not paid with
insurance proceeds.
7. CERTAIN BANKRUPTCY MATTERS. If in any Bankruptcy Case
NationsBank returns, refunds or repays to Debtor or any trustee or committee
appointed in the Bankruptcy Case any payment or proceeds of the Collateral in
connection with any action, suit or proceeding alleging that NationsBank's
receipt of such payments or proceeds was a transfer voidable under state or
federal law, then NationsBank shall not be deemed ever to have received such
proceeds for purposes of this Agreement in determining whether and when all of
the NationsBank Obligations have been paid in full.
8. AGREEMENT TO RELEASE. JEDA agrees that it will (if requested
to do so by NationsBank after and during the continuance of an Event of
Default) release, upon the consummation of the sale of any portion of the
Collateral, its security interest and lien in such Collateral in connection
with and in order to facilitate any orderly liquidation sale of such Collateral
by Debtor or any bankruptcy trustee or receiver for Debtor. JEDA will, in
connection with the sale, execute and deliver such documents, instruments and
agreements as are necessary to effectuate such release and to evidence such
release in the appropriate public records.
9. WAIVER OF MARSHALLING; APPLICATION OF PAYMENTS, COLLECTIONS
AND PROCEEDS. JEDA hereby waives any right to require NationsBank to marshall
any of the Collateral or otherwise to compel NationsBank to seek recourse
against or satisfaction of the NationsBank Obligations from one source before
seeking recourse or satisfaction from another source. NationsBank shall be
authorized to apply any and all payments, collections and proceeds of
Collateral received by it to such portion of the NationsBank Obligations as
NationsBank may lawfully elect consistent with the provisions of the
NationsBank Loan Documents.
10. PROVISIONS CONCERNING INSURANCE. Proceeds of the Collateral
include insurance proceeds, and therefore the priorities set forth in Section 3
hereof govern the ultimate disposition of casualty insurance proceeds.
NationsBank shall, subject to NationsBank's rights under its agreement with
Debtor, have the right after good faith consultations and negotiations with
JEDA and JEDA's agreement, which agreement will not unreasonably be withheld or
delayed to adjust settlement of insurance claims in the event of any covered
loss, theft or destruction of such Collateral. All proceeds of such insurance
shall inure to NationsBank to the extent of the NationsBank Obligations and to
JEDA to the extent of JEDA obligations, in that order, and NationsBank and JEDA
shall cooperate in a reasonable manner in effecting the payment of insurance
proceeds as specified to NationsBank. NationsBank shall have the right after
good faith consultations and negotiations with JEDA and JEDA's agreement, which
agreement will not unreasonably be withheld or delayed to determine whether
such proceeds will be applied to the NationsBank Obligations or used to
rebuild, replace or repair the affected Collateral. If such proceeds are
applied to the NationsBank Obligations, any proceeds
4
<PAGE> 23
remaining after payment of the NationsBank Obligations shall be promptly
remitted to JEDA. The proceeds of business interruption insurance shall be
deemed to be proceeds of the Collateral and shall be dealt with as set forth in
this Section 10. To the extent that the proceeds of any insurance do not
relate to any specific items or Collateral, such proceeds shall be dealt with
as set forth in this Section 10.
11. NOTICES. All notices, requests and demands to or upon a party
hereto shall be in writing and shall be delivered by hand, sent by certified or
registered mail, return receipt requested or by telecopier and shall be deemed
to have been validly served, given or delivered when delivered against receipt
or two business days after deposit in the mail, postage prepaid, or, in the
case of telecopy notice, when received at the office of the noticed party, in
each case addressed as follows:
(A) If to JEDA: 1201 Main Street, Suite 1750
Columbia, South Carolina 29201
Attn: Charlton Whipple
(B) If to NationsBank: NationsBank, N.A.
1901 Main Street, 3rd Floor
Post Office Box 448 (29202)
Columbia, SC 29201
Location Code: SC 3 240-03-07
Attn: Troy R. Weaver
or to such other address as each party may designate for itself by Re notice
given in accordance with this Section 12.
12. RELATIONSHIP OF PARTIES. This Agreement is entered into
solely for the purposes set forth herein, and, except as is expressly provided
otherwise herein, neither party assumes any responsibility to the other party
to advise such other party of information known to such party regarding the
financial condition of Debtor or regarding the Collateral, or of any other
circumstances bearing upon the risk of nonpayment of the obligations of Debtor
under the NationsBank Loan Documents or the JEDA Loan documents. Each party
shall be responsible for managing its relationship with Debtor and neither
party shall be deemed the agent of the other for any purpose. NationsBank and
JEDA each may alter, amend, supplement, release, discharge or otherwise modify
any terms of the NationsBank Loan Documents or of the JEDA Loan Documents,
respectively, without the consent of the other.
13. SPECIFIC ENFORCEMENT. If either party fails to comply with any
provision of this Agreement that is applicable to such party, the other party
may demand specific performances of this Agreement and may exercise any other
remedy available at law or equity.
14. NO ADDITIONAL RIGHTS OF DEBTOR HEREUNDER. Nothing herein
shall be construed to confer additional rights upon Debtor. Without limiting
the generality of the foregoing, if any party hereto shall enforce its rights
or remedies in violation of this Agreement, Debtor shall not be authorized to
use such violation as a defense to the Collection Remedy exercised by such
party, nor assert such violation as a counterclaim or basis of setoff
5
<PAGE> 24
or recoupment against such party, unless the other party hereto consents in
writing and itself asserts that the exercise of Collection Remedy is in
violation of this Agreement.
15. INDEPENDENT CREDIT INVESTIGATIONS. Neither the parties hereto
nor any of their respective directors, officers, agents or employees shall be
responsible to the others or to any other person, firm or corporation, for
Debtor's solvency, financial condition or ability to repay any of the
NationsBank Obligations or any of the JEDA Obligations, or for statements of
Debtor, oral or written, or for the validity, sufficiency or enforceability of
any of the NationsBank Loan Documents or any of the JEDA Loan Documents, or the
validity or priority of any liens or security interests granted by Debtor to
either party in connection with any of the NationsBank Loan Documents or any of
the JEDA Loan Documents. Each party hereto has entered into its agreements
with Debtor based upon its own independent investigation, and makes no warranty
or representation to the other party nor does it rely upon any representation
of the other party with respect to matters identified or referred to in this
paragraph.
16. TERM OF AGREEMENT. This Agreement shall continue in full
force and effect and shall be irrevocable by any party hereto until the
earliest to occur of the following: (i) the parties hereto in writing mutually
agree to terminate this Agreement; (ii) the NationsBank Obligations are fully
paid and discharged and the NationsBank Loan Documents are terminated; or (iii)
the JEDA Obligations are fully paid and discharged and the JEDA Loan Documents
are terminated.
17. GOVERNING LAW. This Agreement shall be interpreted, and the
rights and obligations of the parties hereto determined, in accordance with the
internal laws of the State of South Carolina.
18. NO THIRD PARTY BENEFICIARIES. Nothing contained in this
Agreement shall be deemed to indicate that this Agreement has been entered into
for the benefit of any person other than the parties hereto.
19. CONFLICT WITH LOAN DOCUMENTS. The provisions of this
Agreement are intended by the parties to control any conflicting provisions in
the JEDA Loan Documents or the NationsBank Loan Documents.
20. SECTION TITLES. The section titles contained in this Agreement
are and shall be deemed to be without substantive meaning or content of any
kind whatsoever and are not a part of the Agreement between the parties hereto.
21. COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each of
which when so executed and delivered shall be deemed to be an original and all
of which counterparts taken together shall constitute but one and the same
instrument. In proving this Agreement in any judicial proceeding, it shall not
be necessary to produce or account for more than one such counterpart signed by
the party against whom such enforcement is sought.
22. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon
and shall inure to the benefit of the parties hereto and their respective
successors and assigns. In no
6
<PAGE> 25
event, however, shall either party hereto transfer or assign any security
interest or lien that it may have in any of the Collateral to any other person
or entity unless the transferee or assignee thereof shall first agree to be
bound by the terms of this Agreement the same as if an original signatory
hereto.
23. FURTHER ASSURANCES. JEDA hereto agrees to execute such other
documents as may be necessary to reflect of record the existence of this
Agreement and the relative priorities established pursuant to Section 3 hereof;
provided such acknowledgement is required in connection with any judicial
proceeding at law or in bankruptcy involving the Collateral.
24. ENTIRE AGREEMENT; AMENDMENTS. This Agreement expresses the
entire understanding and agreement of the parties hereto with respect to the
subject matter hereof and thereof and supersede all prior understandings and
agreements of the parties regarding the same subject matter. This Agreement may
not be amended or modified except by a writing signed by the parties hereto.
25. SEVERABILITY. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid
under applicable law, but if any provisions of this Agreement shall be
prohibited by or invalid under applicable law, such provision shall be
ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of
this Agreement.
26. JURY TRIAL WAIVER. JEDA AND NATIONSBANK EACH HEREBY WAIVES
ALL RIGHTS TO TRIAL BY JURY IN CONNECTION WITH ANY ACTION, SUIT OR OTHER
PROCEEDING ARISING OUT OF OR RELATED TO THIS AGREEMENT.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
NATIONSBANK, N.A. SOUTH CAROLINA JOBS-ECONOMIC
DEVELOPMENT AUTHORITY
By: /s/ By: /s/
----------------------------- ------------------------------
Its: Asst. Vice President Its: CEO
-------------------------- ---------------------------
7
<PAGE> 26
ACKNOWLEDGEMENT AND AGREEMENT
The undersigned hereby accepts and acknowledges receipt of a copy of
the foregoing Intercreditor and Subordination Agreement and consents to and
agrees to be bound by all provisions thereof, including, without limitation,
the agreements between NationsBank and JEDA with respect to the payment by.
each to the other of certain proceeds derived from the liquidation of the
Collateral. The undersigned further acknowledges and understands that the
Intercreditor and Subordination Agreement may be modified or amended at any
time or times without notice to or the consent of the undersigned. The
undersigned accepts and agrees to be bound by the provisions of Section 14 of
the Intercreditor and Subordination Agreement.
Capitalized terms used in this Acknowledgment and Agreement without
definition have the meanings specified in the foregoing Intercreditor and
Subordination Agreement unless the context otherwise requires.
As of March ___, 1996.
AIR SOUTH AIRLINES, INC.
By: /s/
-----------------------------
Title:
--------------------------
<PAGE> 27
INVESTMENT REPRESENTATION
and
REGISTRATION RIGHTS
AGREEMENT
This Investment Representation and Registration Rights Agreement
("Agreement") is made between Air South Airlines, Inc., a Delaware corporation
(the "Issuer") and Atlantic Equity Corporation, (the "Holder"), as of the 29th
day of March, 1996.
WITNESSETH
WHEREAS, the Issuer has on even date herewith issued to the Holder
certificate number C-16 for 7,500 shares (the "Shares") of Common Stock par
value $0.001 of the Issuer ("Common Stock");
WHEREAS, under certain circumstances, the Issuer may issue to the
Holder an additional 15,000 shares of Common Stock (the "Additional Shares");
WHEREAS, the Issuer and the Holder wish to take certain actions to
establish the availability of exemptions from registration under various state
and federal securities laws of the Shares and, when issued, the Additional
Shares (collectively, the "Securities;")
WHEREAS, the Issuer wishes to provide certain rights to the Holder for
the registration of the Additional Shares under the Securities Act of 1933, as
amended (the "Securities Act") under certain circumstances and the Holder
wishes to have such registration rights.
NOW THEREFORE, in consideration of the premises and the mutual
promises and covenants contained herein, the parties hereto agree as follows:
(1) The Holder represents, understands and agrees: (a) that it is
taking or will take the Securities for investment and not with a view to a
distribution other than a distribution which is in compliance with applicable
federal and state law; (b) that an investment in the Securities involves a high
degree of risk; and (c) that the Securities are restricted securities and may
not be sold or otherwise transferred unless registered under any applicable
state and federal securities laws or an exemption from such registration is
available.
(2) The Holder shall have "piggy-back" registration rights for the
Additional Shares as follows:
<PAGE> 28
(a) The Issuer shall notify the Holder in writing 10 days
prior to the filing of any registration statement under the Securities Act for
purposes of a firmly underwritten public offering of any equity securities of
the Issuer (but excluding a registration statement relating to the initial
public offering of equity securities of the Issuer, employee benefit plans and
corporate reorganizations) such notice to include to the extent then known by
the Issuer (i) name of the underwriter(s); (ii) proposed filing dates (iii)
estimate of range of prices and (iv) number of shares to be offered. The
Issuer will afford Holder an opportunity to include in such registration
statement all of the Additional Shares. If the Holder desires to include in any
such registration statement all of the Additional Shares it shall within five
business days after receipt of the above-described notice from the Issuer, so
notify the Issuer in writing.
(b) The right of the Holder to be included in a
registration shall be conditioned upon the Holder's participation in such
underwriting and the inclusion of the Additional Shares in the underwriting to
the extent provided herein. The Holder shall enter into an underwriting
agreement in customary form with the underwriter or underwriters selected for
such underwriting. If the underwriter determines in good faith that marketing
factors require a limitation of the number of shares to be underwritten, the
number of shares that may be included in the underwriting shall be allocated,
first, to the Issuer; second, to Hambrecht & Quist, L.L.C.; and third, any
other selling stockholders of the Issuer on a pro-rata basis.
(c) The Issuer shall bear all fees and expenses incurred
in connection with any registration provided for in this Agreement, including
without limitation, underwriters' discounts and commissions related to the
Additional Shares all state and federal registration, filing, qualification,
printers' and accounting fees, fees and disbursements of counsel to the Issuer,
and the reasonable fees and disbursements of a single counsel to any selling
shareholders (which counsel shall also be counsel to the Issuer unless counsel
to the Issuer has a conflict of interest with respect to the representation of
any selling shareholders or the underwriters object to the selling shareholders
representation by Issuer counsel).
(3) The issuer will indemnify Holder, each of Holder's officers
and directors, and each person controlling Holder with respect to any such
registration contemplated hereby, against all claims, losses, damages and
liabilities (or action in respect thereto) arising out of or based on any
untrue statement (or alleged untrue statement) of a material fact contained in
any prospectus offering circular or other document (including any related
registration statement, notification or the like) incident to any such
registration or based on any 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 any violation by the Issuer of any rule or
regulation promulgated under the 1933 Act applicable to the Issuer and relating
to action or inaction required of the Issuer in connection with any such
registration, and will reimburse Holder, each of Holder's officers and
directors, and each person controlling Holder, for any legal and any other
expenses reasonably incurred in connection with investigating or defending any
such claim, loss, damage, liability or action, provided that the Issuer will
not be liable in any such case to the extent that any such claim, loss, damage
or liability arises out of or is based on any untrue statement or omission
based upon information furnished to the Issuer by Holder in writing,
<PAGE> 29
IN WITNESS WHEREOF the undersigned have executed this Agreement as of
the day and year first above mentioned.
AIR SOUTH AIRLINES, INC.
By: /s/ Clifton E. Haley
-------------------------------------
Clifton E. Haley
Chairman of the Board and
Chief Executive Officer
NATIONSBANK, N.A.
By /s/ Troy R. Weaver
-------------------------------------
Name /s/ Troy R. Weaver
----------------------------
Title Assistant Vice President
---------------------------
<PAGE> 1
EXHIBIT 4.7
LOAN AGREEMENT
This Loan Agreement is entered into this 26 day of April, 1996
by and between THE NATIONAL BANK OF SOUTH CAROLINA ("Bank") and AIR SOUTH
AIRLINES, INC., a Delaware corporation ("Borrower").
In consideration of Bank making a loan of Two Million and
00/100 ($2,000,000.00) Dollars (the "Loan"), which is evidenced by that certain
Note of even date herewith, together with all renewals, extensions, or
modifications thereof (the "Note"), and secured by the unconditional guaranty
of payment of Hambrecht & Quist Group, Inc. ("Guarantor"), Borrower agrees as
follows:
1. REPRESENTATIONS AND WARRANTIES. To induce the Bank
to make the Loan, Borrower (and Guarantor, where indicated) makes the following
representations and warranties, which shall survive the execution and delivery
of the Note, provided however, that Borrower makes no representations as to
Guarantor and Guarantor makes no representations as to Borrower:
(a) The financial information furnished to Bank by Borrower
("Borrower's Financial Information") and Guarantor ("Guarantor's Financial
Information") in connection with Borrower's application for the Loan and in the
financial statements submitted to Bank presents fairly the financial position
of Borrower or Guarantor, as the case may be, as of the respective dates
thereof, and Borrower and Guarantor have no material undisclosed direct or
contingent liabilities.
(b) Borrower is duly organized, existing and in good standing
under the laws of the State of Delaware, is authorized to transact business in
South Carolina and all other jurisdictions in which it is required to be so
qualified, has corporate power to carry on the business in which it is engaged,
and the obtaining and performance of the Loan have been duly authorized by all
necessary action of the board of directors of the corporation under applicable
law, and do not and will not (i) violate any provision of law or any of its
organizational or other organic documents, or (ii) result in a breach of,
constitute a default under, require any consent under, or result in the
creation of any lien, charge, or encumbrance upon any property of Borrower
pursuant to any instrument, order, or other agreement to which Borrower is a
party or by which Borrower, any of its officers as such, or any of its property
is bound.
(c) There are no material judgments, liens, encumbrances, or
other security interests outstanding against Borrower or Guarantor other than
those disclosed to Bank in Borrower's Financial Information, Guarantor's
Financial Information or otherwise in writing in connection with Borrower's
request for the Loan, and which in the case of Guarantor would have a material
adverse effect on Bank's ability to enforce the guaranty made by Guarantor in
favor of Bank.
(d) Borrower and Guarantor have not incurred any debts,
liabilities, or obligations and have not committed to incur any debts,
liabilities, or obligations other than those disclosed to Bank in Borrower's
Financial Information or otherwise in writing in connection with Borrower's
request for the Loan, and which in the case of Guarantor would have a material
adverse effect on Bank's ability to enforce the guaranty made by Guarantor in
favor of Bank.
2. USE OF LOAN PROCEEDS. The proceeds of the Loan will
be used only for the purpose of providing working capital for Borrower's
business including the reduction of existing debt and the payment of existing
accounts payable.
3. STATEMENT OF ACCOUNT. Bank shall maintain, in
accordance with its customary procedures, a loan account in the name of the
Borrower in which shall be recorded the date and amount of each advance made by
Bank and the date and amount of each payment in respect thereof; provided,
however, the failure by Bank to record the date and amount of any advance shall
not adversely affect Bank. The records of Bank with
<PAGE> 2
respect to the loan account shall be prima facie evidence of the amounts of
advances and other changes thereto and of payments applicable thereto.
4. ADDITIONAL PAYMENTS. Any sum expended by Bank under
this Agreement or any other document due to the Borrower's failure to perform
or comply with its obligations under this Agreement or any other document may
be charged to the Borrower's account as an advance.
5. AFFIRMATIVE COVENANTS. Borrower will:
(a) Reserve and keep in force all licenses, permits, and
franchises necessary for the proper conduct of its business and duly pay and
discharge all taxes, assessments, and governmental charges upon Borrower or
against Borrower's property before the date on which penalties attached
thereto, unless and to the extent only that the same shall be contested in good
faith and by appropriate proceedings.
(b) Permit any representative or agent of Bank to examine and
audit any or all of Borrower's books and records when requested by Bank at
Borrower's expense.
(c) Inform Bank immediately of any material adverse change in
the financial condition of Borrower. Borrower will also promptly inform Bank
of any litigation or threatened litigation which might materially adversely
affect Borrower's financial condition.
6. NEGATIVE COVENANTS. Borrower will not, without prior
written consent of Bank, which consent shall not be unreasonably withheld:
(a) Guarantee, endorse, or otherwise become surety for or
upon the obligation of any person, firm, or corporation.
(b) Lend money or credit to or make or permit to be
outstanding loans or advances to any person, firm, or corporation.
(c) Enter into any merger or consolidation, or sell, lease,
transfer, or otherwise dispose of all or any substantial part of its assets
(except in the ordinary course of business), whether now owned or hereafter
acquired.
(d) Change its name or any name in which it does business, or
move its principal place of business without giving written notice thereof to
Bank at least thirty (30) days prior thereto.
7. EVENTS OF DEFAULT. The Bank shall have the option to
declare the entire unpaid amount of the Loan and accrued interest immediately
due and payable, without presentment, demand, or notice of any kind, it any of
the following events occurs before the Loan is fully repaid.
(a) Any payment of principal or interest on the Loan is past
due more than one business day after Bank has notified Borrower that such
default has occurred.
(b) Any provision of this Agreement is breached or proves to
be untrue or misleading in any material respect.
(c) Any warranty, representation, or statement made or
furnished the Bank by Borrower in connection with the Loan and this Agreement
(including any warranty, representation, or statement in the Borrower's
financial statements) or to induce the Bank to make the Loan, is untrue or
misleading in any material respect.
2
<PAGE> 3
(d) Any default occurs under any agreement with another
financial institution, which default is not corrected within the cure period
provided in such agreement, if any.
(e) Any voluntary or involuntary bankruptcy, reorganization,
insolvency, arrangement, receivership, or similar proceeding is commenced by or
against Borrower under any federal or state law, or Borrower makes any
assignment for the benefit of creditors.
(f) Any material part of the inventory, equipment, or other
property of the Borrower, real or personal, tangible or intangible, is damaged
or destroyed and the damage or destruction is not covered by collectible
insurance.
In the case of each of each of subsections 8(b) through 8(d)
above, Bank shall give notice of such default to Borrower and, if such default
is curable, allow Borrower ten days in which to cure such default.
8. REMEDIES UPON DEFAULT. Without in any way limiting
the generality of the foregoing, Bank shall also have the following specific
rights and remedies:
(a) To exercise any and all rights of set-off which Bank may
have against any account, fund, or property of any kind, tangible or
intangible, belonging to Borrower which shall be in Bank's possession or under
its control.
(b) To cure such defaults, with the result that all costs and
expenses incurred or paid by Bank in effecting such cure shall be additional
charges on the Loan which bear interest at the interest rate of the Loan and
are payable upon demand.
The proceeds from any exercise of the foregoing rights shall
be used to satisfy the following items in the order they are listed:
(a) The reasonable expenses of exercise the foregoing rights,
including any legal costs and attorney's fees. If the Note is referred to an
attorney for collection, Borrower and all others liable for the Loan jointly
and severally agree to pay reasonable attorneys' fees.
(b) The expense of liquidating or satisfying any liens,
security interests, or encumbrances on the collateral which may be prior to the
obligations of the Borrower to the Bank.
(c) Any unpaid fees, accrued interest, and then the unpaid
principal amount of the Loan.
(d) Any other indebtedness of Borrower to Bank.
9. WAIVER. No failure or delay on the part of Bank in
exercising any power or right hereunder, and no failure of Bank to give
Borrower notice of a default hereunder, shall operate as a waiver thereof, nor
shall any single or partial exercise of any such right or power preclude any
other or further exercise thereof or the exercise of any other right or power
hereunder. No modification or waiver of any provision of this Agreement or any
instrument executed pursuant hereto or consent to any departure by Borrower
from this Agreement or such instrument shall in any event be effective unless
the same shall be in writing, and such waiver or consent shall be effective
only in the specific instance and for the particular purpose for which given.
10. BENEFIT. This Agreement shall be binding upon and
shall inure to the benefit of Borrower and Bank and their respective successors
and assigns. Bank may assign this Agreement in whole or in part with any
assignment of the Loan. Borrower may not assign this Agreement or its
obligations under the Loan without Bank's written consent.
3
<PAGE> 4
11. Governing Law and Jurisdiction. This Agreement and
the other documents pertaining to the Loan, unless otherwise specifically
provided therein, and all matters relating therein shall be governed by and
construed and interpreted in accordance with the laws of the State of South
Carolina. The Borrower hereby submits to the jurisdiction of the state and
federal courts located in that state and agree that the Bank may, at its option,
enforce its rights under the documents pertaining to the Loan in such courts or
in any other jurisdiction in which the Bank is located or in which the Borrower
may be located.
12. Assignment. Bank may assign this Agreement and any
other document pertaining to the Loan, in whole or in part, to any other person
or entity provided that, in the event of such assignment, the Bank shall
thereafter be relieved of all liability hereunder. Borrower hereby authorizes
Bank to disclose all information (including financial) provided to Bank by
Borrower in connection with the Loan to any actual or prospective assignee of
all or part of the Loan.
13. Severability. Invalidity of any one or more of the
provisions of this Agreement shall in no way affect any one of the other
provisions hereof, which shall pertain in full force and effect.
AIR SOUTH AIRLINES, INC.
/s/ By: /s/
- - ------------------------------------ -------------------------------------
Its Authorized Officer
/s/
- - ------------------------------------
THE NATIONAL BANK OF SOUTH CAROLINA
/s/ By: /s/
- - ------------------------------------ -------------------------------------
Its Authorized Officer
/s/
- - ------------------------------------
ACKNOWLEDGEMENT BY GUARANTOR
Guarantor hereby executes this instrument for the purposes of
acknowledging the foregoing terms and conditions agreed to by Borrower and
confirming all representations and warranties of Guarantor stated herein.
Guarantor has been represented by Conley Godward Castro Huddleston & Tatum
(Palo Alto, California) in connection with the registration and consummation of
its guaranty of the Loan.
HAMBRECHT & QUIST GROUP, INC.
By: /s/
-------------------------------------
Its Authorized Signatory
4
<PAGE> 5
AIR SOUTH, INC.
1800 ST JULIAN PL SUITE 400
COLUMBIA, SC 29204-2412
BORROWER'S NAME AND ADDRESS
"I" includes each borrower above, joint and severally.
- - --------------------------------------------------------------------------------
National Bank of South Carolina
1241 MAIN STREET
COLUMBIA SC 29201
LENDER'S NAME AND ADDRESS
"You" means the lender, its successors and assigns.
- - --------------------------------------------------------------------------------
Loan Number 313056450 - 00001
Date April 26, 1996
*Maturity Date December 01, 1996
Loan Amount $2,000,000.00
Renewal Of _________________________________
- - --------------------------------------------------------------------------------
For value received, I promise to pay to you, or your order, at your address
listed above the PRINCIPAL sum of **TWO MILLION DOLLARS AND ZERO CENTS**
Dollars $2,000,000.00
[ ] Single Advance: I will receive all of this principal sum on ______________.
No additional advances are contemplated under this note.
[X] Multiple Advance: The principal sum shown above is the maximum amount of
principal I can borrow under this note. On 04/26/1996 I will receive the
amount of $____________ and future principal advances are contemplated.
Conditions: The conditions for future advances are _______________________
__________________________________________________________________________
__________________________________________________________________________
[X] Open End Credit: You and I agree that I may borrow up to the maximum
amount of principal more than one time. This feature is subject to
all other conditions and expires on 12/01/1996.
[ ] Closed End Credit: You and I agree that I may borrow up to the maximum
only one time (and subject to all other conditions).
INTEREST: I agree to pay interest on the outstanding principal balance from
04/26/1996 at the rate of 10.250% per year until the next change in the
index rate, if any.
[X] Variable Rate: This rate may then change as stated below.
[X] Index Rate: The future rate will be BASED ON the following index rate:
NBSC PRIME RATE PLUS 2.00%
[ ] No Index: The future rate will not be subject to any internal or
external index. It will be entirely in your control.
[X] Frequency and Timing: The rate on this note may change as often as
NBSC PRIME RATE CHANGES. A change in the interest rate will take
effect _____________________________________________________________.
[ ] Limitations: During the term of this loan, the applicable annual
interest rate will not be more than _________% or less than________%.
Effect of Variable Rate: A change in the interest rate will have the
following effect on the payments:
[X] The amount of each scheduled payment will change.
[ ] The amount of the final payment will change.
[ ] __________________________________________.
ACCRUAL METHOD: Interest will be calculated on a ACT/ACT basis.
POST MATURITY RATE: I agree to pay interest on the unpaid balance of this note
owing after maturity, and until paid in full, as stated below:
[X] on the same fixed or variable rate basis in effect before maturity (as
indicated above).
[ ] at a rate equal to __________________________________________________.
[X] LATE CHARGE: If a payment is made more than 10 days after it is due, I
agree to pay a late charge of the lesser of 5% of the payment or $50.
[ ] ADDITIONAL CHARGES: In addition to interest, I agree to pay the following
charges which [ ] are [ ] are not included in the principal amount above:
_________________________________________________________________________.
PAYMENTS: I agree to pay this note as follows:
[X] Interest: I agree to pay accrued interest in 7 payment(s) MONTHLY STARTING
June 01, 1996
*[X] Principal: I agree to pay the principal in 1 payment(s) in the amount of
2,000,000.00 AT MATURITY December 01, 1996
[ ] Installments: I agree to pay this note in ____ payments. The first payment
will be in the amount of $____________ and will be due __________________.
A payment of $____________ will be due ___________________________________
thereafter. The final payment of the entire unpaid balance of principal
and interest will be due _____________________.
ADDITIONAL TERMS:
A FINAL PAYMENT EQUAL TO THE OUTSTANDING BALANCE OF PRINCIPAL AND
* ACCRUED INTEREST SHALL BE DUE UPON THE EARLIER OF DECEMBER 1, 1996, OR
THE DATE OF DISTRIBUTION TO THE BORROWER OF THE NET PROCEEDS OF THE
PROPOSED SALE OF UP TO 3,400,000 SHARES OF THE BORROWER'S COMMON STOCK
PURPOSE: The purpose of this loan is SIGNATURES: I AGREE TO THE TERMS OF THIS
WORKING CAPITAL NOTE (INCLUDING THOSE ON PAGE 2). I
- - ------------------------------------. have received a copy on today's date.
Signature for Lender /s/ Clifton E. Haley
----------------------------------------
CLIFTON E. HALEY CHAIRMAN
/s/ for Fred Green
- - ------------------------------------- ----------------------------------------
FLG FREDERICK GREEN, III
- - ------------------------------------- ----------------------------------------
----------------------------------------
(page 1 of 2)
<PAGE> 6
APPLICABLE LAW: The law of the state in which you are located will govern this
note. Any term of this note which is contrary to applicable law will not be
effective, unless the law permits you and me to agree to such a variation. If
any provision of this agreement cannot be enforced according to its terms, this
fact will not affect the enforceability of the remainder of this agreement. No
modification of this agreement may be made without your express written consent.
Time is of the essence in this agreement.
PAYMENTS: Each payment I make on this note will first reduce the amount I owe
you for charges which are neither interest nor principal. The remainder of each
payment will then reduce accrued unpaid interest, and then unpaid principal.
If you and I agree to a different application of payments, we will describe our
agreement on this note. I may prepay a part of, or the entire balance of this
loan without penalty, unless we specify to the contrary on this note. Any
partial prepayment will not excuse or reduce any later scheduled payment until
this note is paid in full (unless, when I make the prepayment, you and I agree
in writing to the contrary).
INTEREST: If I receive the principal in more than one advance, each advance will
start to earn interest only when I receive the advance. The interest rate in
effect on this note at any given time will apply to the entire principal
advanced at that time. Notwithstanding anything to the contrary, I do not agree
to pay and you do not intend to charge any rate of interest that is higher than
the maximum rate of interest you could charge under applicable law for the
extension of credit that is agreed to here (either before or after maturity).
If any notice of interest accrual is sent and is in error, we mutually agree to
correct it, and if you actually collect more interest than allowed by law and
this agreement, you agree to refund it to me.
INDEX RATE: The index will serve only as a device for setting the rate on this
note. You do not guarantee by selecting this index, or the margin, that the
rate on this note will be the same rate you charge on any other loans or class
of loans to me or other borrowers.
ACCRUAL METHOD: The amount of interest that I will pay on this loan will be
calculated using the interest rate and accrual method stated on page 1 of this
note. For the purpose of interest calculation, the accrual method will
determine the number of days in a "year." If no accrual method is stated, then
you may use any reasonable accrual method for calculating interest.
POST MATURITY RATE: For purposes of deciding when the "Post Maturity Rate"
(shown on page 1) applies, the term "maturity" means the date of the last
schedule payment indicated on page 1 of this note or the date you accelerate
payment on the note, whichever is earlier.
SINGLE ADVANCE LOANS: If this is a single advance loan, you and I expect that
you will make only one advance of principal. However, you may add other amounts
to the principal if you make any payments described in the "PAYMENTS BY LENDER"
paragraph below.
MULTIPLE ADVANCE LOANS: If this is a multiple advance loan, you and I expect
that you will make more than one advance of principal. If this is closed end
credit, repaying a part of the principal will not entitle me to additional
credit.
PAYMENTS BY LENDER: If you are authorized to pay, on my behalf, charges I am
obligated to pay (such as property insurance premiums), then you may treat those
payments made by you as advances and add them to the unpaid principal under this
note, or you may demand immediate payment of the charges.
SET-OFF: I agree that you may set off any amount due and payable under this note
against any right I have to receive money from you.
"Right to receive money from you" means:
(1) any deposit account balance I have with you;
(2) any money owed to me on an item presented to you or in your
possession for collection or exchange; and
(3) any repurchase agreement or other nondeposit obligation.
"Any amount due and payable under this note" means the total amount of
which you are entitled to demand payment under the terms of this note at the
time you set off. This total includes any balance the due date for which you
properly accelerate under this note.
If my right to receive money from you is also owned by someone who has
not agreed to pay this note, your right to set-off will apply to my interest in
the obligation and to any other amounts I could withdraw on my sole request or
endorsement. Your right of set-off does not apply to an account or other
obligation where my rights are only as a representative. It also does not apply
to any Individual Retirement Account or other tax-deferred retirement account.
You will not be liable for the dishonor of any check when the dishonor
occurs because you set off this debt against any of my accounts. I agree to
hold you harmless from any such claims arising as a result of your exercise of
your right of set-off.
REAL ESTATE OR RESIDENCE SECURITY: If this note is secured by real estate or a
residence that is personal property, the existence of a default and your
remedies for such a default will be determined by applicable law, by the terms
of any separate instrument creating the security interest and, to the extent not
prohibited by law and not contrary to the terms of the separate security
instrument, by the "Default" and "Remedies" paragraphs herein.
DEFAULT: I will be in default if any one or more of the following occur: (1) I
fail to make a payment on time or in the amount due; (2) I fail to keep the
property insured, if required; (3) I fail to pay, or keep any promise, on any
debt or agreement I have with you; (4) any other creditor of mine attempts to
collect any debt I owe him through court proceedings; (5) I die, am declared
incompetent, make an assignment for the benefit of creditors, or become
insolvent (either because my liabilities exceed my assets or I am unable to pay
my debts as they become due); (6) I make any written statement or provide any
financial information that is untrue or inaccurate at the time it was provided;
(7) I do or fail to do something which causes you to believe that you will have
difficulty collecting the amount I owe you; (8) any collateral securing this
note is used in a manner or for a purpose which threatens confiscation by a
legal authority; (9) I change my name or assume an additional name without first
notifying you before making such a change; (10) I fail to plant, cultivate and
harvest crops in due season if I am a producer of crops; (11) any loan proceeds
are used for a purpose that will contribute to excessive erosion of highly
erodible land or to the conversion of wetlands to produce an agricultural
commodity, as further explained in 7 C.F.R. Part 1940, Subpart G, Exhibit M.
REMEDIES: If I am in default on this note you have, but are not limited to, the
following remedies:
(1) You may demand immediate payment of all I owe you under this note
(principal, accrued unpaid interest and other accrued charges).
(2) You may set off this debt against any right I have to the payment
of money from you, subject to the terms of the "Set-Off" paragraph
herein.
(3) You may demand security, additional security, or additional
parties to be obligated to pay this note as a condition for not
using any other remedy.
(4) You may refuse to make advances to me or allow purchases on credit
by me.
(5) You may use remedy you have under state or federal law.
By selecting any one or more of these remedies you do not give up your right to
later use any other remedy. By waiving your right to declare an event to be a
default, you do not waive your right to later consider the event as a default if
it continues or happens again.
COLLECTION COSTS AND ATTORNEY'S FEES: I agree to pay all costs of collection,
replevin or any other or similar type of cost if I am in default. In addition,
if you hire an attorney to collect this note, I also agree to pay any fee you
incur with such attorney plus court costs (except where prohibited by law). To
the extent permitted by the United States Bankruptcy Code, I also agree to pay
the reasonable attorney's fees and costs you incur to collect this debt as
awarded by any court exercising jurisdiction under the Bankruptcy Code.
WAIVER: I give up my rights to require you to do certain things. I will not
require you to do certain things. I will not require you to:
(1) demand payment of amounts due (presentment);
(2) obtain official certification of nonpayment (protest); or
(3) give notice that amounts due have not been paid (notice of
dishonor).
OBLIGATIONS INDEPENDENT: I understand that I must pay this note even if someone
else has also agreed to pay it (by, for example, signing this form or a separate
guarantee or endorsement). You may sue me alone, or anyone else who is
obligated on this note, or any number of us together, to collect this note. You
may do so without any notice that it has not been paid (notice of dishonor).
You may without notice release any party to this agreement without releasing any
other party. If you give up any of your rights, with or without notice, it will
not affect my duty to pay this note. Any extension of new credit to any of us,
or renewal of this note by all or less than all of us will not release me from
my duty to pay it (Of course, you are entitled to only one payment in full.) I
agree that you may at your option extend this note or the debt represented by
this note, or any portion of the note or debt, from time to time without limit
or notice and for any term without affecting my liability for payment of the
note. I will not assign my obligation under this agreement without your prior
written approval.
CREDIT INFORMATION: I agree and authorize you to obtain credit information about
me from time to time (for example, by requesting a credit report) and to report
to others your credit experience with me (such as a credit reporting agency). I
agree to provide you, upon request, any financial statement or information you
may deem necessary. I warrant that the financial statements and information I
provide to you are or will be accurate, correct and complete.
NOTICE: Unless otherwise required by law, any notice to me shall be given by
delivering it or by mailing it by first class mail addressed to me at my last
known address. My current address is on page 1. I agree to inform you in
writing of any change in my address. I will give any notice to you by mailing
it first class to your address stated on page 1 of this agreement, or to any
other address that you have designated.
<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------------------------------------------------
DATE PRINCIPAL BORROWER'S PRINCIPAL PRINCIPAL INTEREST INTEREST INTEREST
TRANSACTION ADVANCE INITIALS PAYMENTS BALANCE RATE PAYMENTS PAID
(not required) THROUGH
- - --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
/ / $ $ $ % $ / /
- - --------------------------------------------------------------------------------------------------------------------
/ / $ $ $ % $ / /
- - --------------------------------------------------------------------------------------------------------------------
/ / $ $ $ % $ / /
- - --------------------------------------------------------------------------------------------------------------------
/ / $ $ $ % $ / /
- - --------------------------------------------------------------------------------------------------------------------
/ / $ $ $ % $ / /
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/ / $ $ $ % $ / /
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/ / $ $ $ % $ / /
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/ / $ $ $ % $ / /
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/ / $ $ $ % $ / /
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/ / $ $ $ % $ / /
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/ / $ $ $ % $ / /
- - --------------------------------------------------------------------------------------------------------------------
</TABLE>
(page 2 of 2)
<PAGE> 7
GUARANTY
San Francisco CA
----------------------- -------------------
(City) (State)
April 26, 1996
For good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, and to induce National Bank of South Carolina
(herein, with its participants, successors and assigns, called "Lender"), at
its option, at any time or from time to time to make loans or extend other
accommodations to or for the account of Air South Airlines, Inc. (herein called
"Borrower") or to engage in any other transactions with Borrower, the
Undersigned hereby absolutely and unconditionally guarantees to Lender the full
and prompt payment when due, whether at maturity or earlier by reason of
acceleration or otherwise, of the debts, liabilities and obligations described
as follows:
A. If this [X] is checked, the Undersigned guarantees to Lender the
payment and performance of the debt, liability or obligation of Borrower
to Lender evidenced by or arising out of the following: $2,000,000.00
Note dated April _____, 1996 (hereinafter referred to as the
"Indebtedness").
B. If this [ ] is checked, the Undersigned guarantees to Lender the
payment and performance of each and every debt, liability and obligation
of every type and description which Borrower may now or at any time
hereinafter owe to Lender (whether such debt, liability or obligation
now exists or is hereinafter created or incurred, and whether it is or
may be direct or indirect, due or to become due, absolute or contingent,
primary or secondary, liquidated or unliquidated, or joint, several, or
joint and several; all such debts, liabilities and obligations being
hereinafter collectively referred to as the "Indebtedness"). Without
limitation, this guaranty includes the following described debt(s):
ACCT# _________ NOTE#__________________________________________________
The term "Indebtedness" as used in this guaranty shall not include any
obligations entered into between Borrower and Lender after the date hereof
(including any extensions, renewals or replacements of such obligations) for
which Borrower meets the Lender's standard of creditworthiness based on
Borrower's own assets and income without the addition of a guaranty, or for
which a guaranty is required but Borrower chooses someone other than the
joint Undersigned to guaranty the obligation.
The Undersigned further acknowledges and agrees with Lender that:
1. No act or thing need occur to establish the liability of the Undersigned
hereunder, and no act or thing, except full payment and discharge of all
indebtedness, shall in any way exonerate the Undersigned or modify, reduce,
limit or release the liability of the Undersigned hereunder.
2. This is an absolute, unconditional and continuing guaranty of payment of
the Indebtedness and shall continue to be in force and be binding upon the
Undersigned, whether or not all indebtedness is paid in full, until this
guaranty is revoked by written notice actually received by the Lender, and such
revocation shall not be effective as to indebtedness existing or committed for
at the time of actual receipt of such notice by the Lender, or as to any
renewals, extensions and refinancings thereof. If there be more than one
Undersigned, such revocation shall be effective only as to the one so revoking.
The death or incompetence of the Undersigned shall not revoke this guaranty,
except upon actual receipt of written notice thereof by Lender and then only as
to the decedent or the incompetent and only prospectively, as to future
transactions, as herein set forth.
3. If the Undersigned shall be dissolved, shall die, or shall be or become
insolvent (however defined) or revoke this guaranty, then the Lender shall have
the right to declare immediately due and payable, and the Undersigned will
forthwith pay to the Lender, the full amount of all Indebtedness, whether due
and payable or unmatured. If the Undersigned voluntarily commences or there is
commenced involuntarily against the Undersigned a case under the United States
Bankruptcy Code, the full amount of all Indebtedness, whether due and payable
or unmatured, shall be immediately due and payable without demand or notice
thereof.
4. The liability of the Undersigned hereunder shall be limited to a
principal amount of $2,000,000.00 (if unlimited or if no amount is stated, the
Undersigned shall be liable for all Indebtedness, without any limitation as to
amount), plus accrued interest thereon and all attorneys' fees, collection
costs and enforcement expenses referable thereto. Indebtedness may be created
and continued in any amount, whether or not in excess of such principal amount,
without affecting or impairing the liability of the Undersigned hereunder. The
Lender may apply any sums received by or available to Lender on account of the
Indebtedness from Borrower or any other person (except the Undersigned), from
their properties, or of any collateral security or from any other source to
payment of the excess. Such application of receipts shall not reduce, affect
or impair the liability of the Undersigned hereunder. If the liability of the
Undersigned is limited to a stated amount pursuant to this paragraph 4, any
payment made by the Undersigned under this guaranty shall be effective to
reduce or discharge such liability only if accompanied by a written transmittal
document received by the Lender, advising the Lender that such payment is made
under this guaranty for such purpose.
5. The Undersigned will pay or reimburse Lender for all costs and expenses
(including reasonable attorneys' fees and legal expenses) incurred by Lender in
connection with the protection, defense or enforcement of this guaranty in any
litigation or bankrupty or insolvency proceedings.
This guaranty includes the additional provisions on page 2, all of which are
made a part hereof.
This guaranty is [X] unsecured; [ ] secured by a mortgage or security agreement
dated _________________; secured by __________________________________________
IN WITNESS WHEREOF, this guaranty has been duly executed by the
Undersigned the day and year first above written.
Hambrecht & Quist Group
BY /s/
------------------------------------
------------------------------------
BY
------------------------------------
------------------------------------
<PAGE> 8
ADDITIONAL PROVISIONS
6. Whether or not any existing relationship between the Undersigned
and Borrower has been changed or ended and whether or not this guaranty has
been revoked, Lender may, but shall not be obligated to, enter into
transactions resulting in the creation or continuance of Indebtedness,
without any consent or approval by the Undersigned and without any notice to
the Undersigned. The liability of the Undersigned shall not be affected or
impaired by any of the following acts or things (which Lender is expressly
authorized to do, omit or suffer from time to time, both before and after
revocation of this guaranty, without notice to or approval by the Undersigned);
(i) any acceptance of collateral security, guarantors, accommodation parties or
sureties for any or all Indebtedness; (ii) any one or more extensions or
renewals of Indebtedness (whether or not for longer than the original period)
or any modification of the interest rates, maturities or other contractual
terms applicable to any indebtedness; (iii) any waiver, adjustment,
forbearance, compromise or indulgence granted to Borrower, any delay or lack of
diligence in the enforcement of indebtedness, or any failure to institute
proceedings, file a claim, give any required notices or otherwise protect any
indebtedness; (iv) any full or partial release of, settlement with, or
agreement not to sue, Borrower or any other guarantor or other person liable in
respect of any Indebtedness; (v) any discharge of any evidence of Indebtedness
or the acceptance of any instrument in renewal thereof or substitution
therefor; (vi) any failure to obtain collateral security (including rights of
setoff) for Indebtedness, or to see to the proper or sufficient
creation and perfection thereof, or to establish the priority thereof, or to
protect, insure, or enforce any collateral security; or any release,
modification, substitution, discharge, impairment, deterioration, waste, or
loss of any collateral security; (vii) any foreclosure or enforcement of any
collateral security; (viii) any transfer of any indebtedness or any evidence
thereof; (ix) any order of application of any payments or credits upon
indebtedness; (x) any election by the Lender under sec. 1717 (b)(2) of the
United States Bankruptcy Code.
7. The Undersigned waives any and all defenses, claims and discharges
of Borrower, or any other obligor, pertaining to indebtedness, except the
defense of discharge by payment in full. Without limiting the generality of
the foregoing, the Undersigned will not assert, plead or enforce against
Lender any defense of waiver, release, statute of limitations, res judicate,
statute of frauds, fraud, incapacity, minority, usury, illegality or
unenforceability which may be available to Borrower or any other person liable
in respect of any indebtedness, or any setoff available against Lender to
Borrower or any such other person, whether or not on account of a related
transaction. The Undersigned expressly agrees that the Undersigned shall be
and remain liable, to the fullest extent permitted by applicable law, for any
deficiency remaining after foreclosure of any mortgage or security interest
securing indebtedness, whether or not the liability of Borrower or any other
obligor for such deficiency is discharged pursuant to statute or judicial
decision. The undersigned shall remain obligated, to the fullest extent
permitted by law, to pay such amounts as though the Borrower's obligations had
not been discharged.
8. The Undersigned further agrees that the Undersigned shall be and
remain obligated to pay Indebtedness even though any other person obligated to
pay Indebtedness, including Borrower, has such obligation discharged in
bankruptcy or otherwise discharged by law. "Indebtedness shall include
post-bankruptcy petition interest and attorneys' fees and any other amounts
which Borrower is discharged from paying or which do not otherwise accrue to
indebtedness due to Borrower's discharge, and the Undersigned shall remain
obligated to pay such amounts as though Borrower's obligations had not been
discharged.
9. If any payment applied by Lender to indebtedness is thereafter set
aside, recovered, rescinded or required to be returned for any reason
(including, without limitation, the bankruptcy, insolvency or reorganization of
Borrower or any other obligor), the Indebtedness to which such payment was
applied shall for the purposes of this guaranty be deemed to have continued in
existence, notwithstanding such application, and this guaranty shall be
enforceable as to such indebtedness as fully as if such application had never
been made.
11. The Undersigned waives presentment, demand for payment, notice of
dishonor or nonpayment, and protest of any instrument evidencing Indebtedness.
Lender shall not be required first to resort for payment of the Indebtedness to
Borrower or other persons or their properties, or first to enforce, realize upon
or exhaust any collateral security for Indebtedness, before enforcing this
guaranty.
12. The liability of the Undersigned under this guaranty is in addition
to and shall be cumulative with all other liabilities of the Undersigned to
Lender as guarantor or otherwise, without any limitation as to amount unless
the instrument or agreement evidencing or creating such other liability
specifically provides to the contrary.
13. This guaranty shall be enforceable against each person signing this
guaranty, even if only one person signs and regardless of any failure of other
persons to sign this guaranty. If there be more than one signer, all agreements
and promises herein shall be construed to be, and are hereby declared to be,
joint and several in each of every particular and shall be fully binding upon
and enforceable against either, any or all the Undersigned. This guaranty
shall be effective upon delivery to Lender, without further act, condition or
acceptance by Lender, shall be binding upon the Undersigned and the heirs,
representatives, successors and assigns of the Undersigned and shall inure to
the benefit of Lender and its participants, successors and assigns. Any
invalidity or unenforceability of any provision or application of this guaranty
shall not affect other lawful provisions and application hereof, and to this
end the provisions of this guaranty are declared to be severable. Except as
authorized by the terms herein, this guaranty may not be waived, modified,
amended, terminated, released or otherwise changed except by a writing signed
by the Undersigned and Lender. This guaranty shall be governed by the laws of
the State of South Carolina. The Undersigned waives notice of Lender's
acceptance hereof.
<PAGE> 9
ADDENDUM TO GUARANTY
This addendum dated as of April 26, 1996 is made a part of that
certain Guaranty dated of even date (the "Guaranty") given by Hambrecht & Quist
Group, Inc. ("Guarantor") to The National Bank of South Carolina ("Lender").
The Lender and Guarantor hereby amend the Guaranty as follows:
1. Notwithstanding any claims, rights or remedies which Guarantor
may have against Borrower or any other person to pay the indebtedness,
including, without limitation, any right of subrogation, contribution,
reimbursement, indemnification or exoneration (the "Reserved Rights"),
Guarantor agrees that it shall not, in any action maintained by Lender against
Guarantor seeking enforcement of the terms hereof, assert or prosecute any
cause of action against Borrower or Lender with respect to the Reserved Rights.
2. In the event the terms of the Guaranty are inconsistent with
the terms of this Addendum, the terms of this Addendum shall control.
HAMBRECHT & QUIST GROUP, INC.
By: /s/ W.R. ?
- - ------------------------------ -------------------------------------
Its Authorized Officer
- - ------------------------------
THE NATIONAL BANK OF SOUTH CAROLINA
By:
- - ------------------------------ -------------------------------------
Its Authorized Officer
- - ------------------------------
<PAGE> 1
EXHIBIT 4.8
AIR SOUTH AIRLINES, INC.
WARRANT PURCHASE AGREEMENT
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
Section 1. Amount and Terms of the Guarantee; Purchase and Sale of Warrant. . . . 1.
1.1 The Guarantee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.
1.2 Issuance of Warrant. . . . . . . . . . . . . . . . . . . . . . . . . . 1.
1.3 Exercise of Warrant. . . . . . . . . . . . . . . . . . . . . . . . . . 1.
Section 2. The Closings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.
2.1 Closing Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.
2.2 Delivery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.
Section 3. Representations and Warranties of the Company. . . . . . . . . . . . . 2.
3.1 Organization, Good Standing, Qualification . . . . . . . . . . . . . . 2.
3.2 Authorization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.
3.3 Material Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . 2.
3.4 Compliance With Other Instruments. . . . . . . . . . . . . . . . . . . 2.
3.5 Governmental Consents. . . . . . . . . . . . . . . . . . . . . . . . . 3.
3.6 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.
3.7 Offering . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.
Section 4. Representations and Warranties of the Purchaser. . . . . . . . . . . . 3.
4.1 Requisite Power and Authority. . . . . . . . . . . . . . . . . . . . . 3.
4.2 Purchase for Own Account . . . . . . . . . . . . . . . . . . . . . . . 3.
4.3 Information and Sophistication . . . . . . . . . . . . . . . . . . . . 4.
4.4 Ability to Bear Economic Risk. . . . . . . . . . . . . . . . . . . . . 4.
4.5 Further Limitations on Disposition . . . . . . . . . . . . . . . . . . 4.
4.6 Experience . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.
Section 5. Registration Rights. . . . . . . . . . . . . . . . . . . . . . . . . . 5.
5.1 Certain defined Terms. . . . . . . . . . . . . . . . . . . . . . . . . 5.
5.2 Demand Registration. . . . . . . . . . . . . . . . . . . . . . . . . . 5.
5.3 Piggyback Registrations. . . . . . . . . . . . . . . . . . . . . . . . 6.
5.4 Form S-3 Registration. . . . . . . . . . . . . . . . . . . . . . . . . 7.
5.5 Obligation of the Company. . . . . . . . . . . . . . . . . . . . . . . 8.
5.6 Furnish Information. . . . . . . . . . . . . . . . . . . . . . . . . . 9.
5.7 Delay of Registration. . . . . . . . . . . . . . . . . . . . . . . . . 10.
5.8 Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.
5.9 Assignment of Registration Rights. . . . . . . . . . . . . . . . . . . 12.
5.10 "Market Stand-Off" Agreement . . . . . . . . . . . . . . . . . . . . . 12.
6. Covenants Of The Company. . . . . . . . . . . . . . . . . . . . . . . . . . 13.
6.1 Basic Financial Information and Reporting. . . . . . . . . . . . . . . 13.
6.2 Inspection Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . 14.
</TABLE>
i.
<PAGE> 3
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
Page
<S> <C> <C>
6.3 Confidentiality of Records. . . . . . . . . . . . 14.
6.4 Reservation of Common Stock . . . . . . . . . . . 14.
Section 7. Miscellaneous . . . . . . . . . . . . . . . . . . 14.
7.1 Amendment to Warrant. . . . . . . . . . . . . . . 14.
7.2 Binding Agreement . . . . . . . . . . . . . . . . 14.
7.3 Governing Law . . . . . . . . . . . . . . . . . . 15.
7.4 Counterparts. . . . . . . . . . . . . . . . . . . 15.
7.5 Titles and Subtitles. . . . . . . . . . . . . . . 15.
7.6 Notices . . . . . . . . . . . . . . . . . . . . . 15.
7.7 Separability. . . . . . . . . . . . . . . . . . . 15.
7.8 Modification; Waiver. . . . . . . . . . . . . . . 15.
7.9 Attorneys' Fees . . . . . . . . . . . . . . . . . 15.
7.10 Delays or Omissions . . . . . . . . . . . . . . . 15.
</TABLE>
ii.
<PAGE> 4
AIR SOUTH AIRLINES, INC.
WARRANT PURCHASE AGREEMENT
THIS WARRANT PURCHASE AGREEMENT ("Agreement"), is entered into as of
April 26, 1996 between AIR SOUTH AIRLINES, INC., a Delaware corporation (the
"Company"), and HAMBRECHT & QUIST GROUP and its permitted successors and
assigns (the "Purchaser").
SECTION 1. AMOUNT AND TERMS OF THE GUARANTEE; PURCHASE AND SALE OF WARRANT
1.1 The Guarantee. Subject to the terms of this Agreement, the
Purchaser shall guarantee and promise to pay to National Bank of South Carolina
("Lender") or its order, the indebtedness of the Company to the Lender in the
amount of, and on the terms and conditions set forth in a limited unconditional
guaranty in the form attached hereto as Exhibit A (the "Guaranty").
1.2 Issuance of Warrant. In consideration of the Guaranty, the
Company will deliver to the Purchaser a warrant to purchase shares of Series A
Preferred Stock, par value $0.001 per share of the Company (the "Series A
Preferred Stock") in the form attached hereto as Exhibit B (the "Warrant"),
which Warrant will be exercisable into four hundred thousand (400,000) shares
of Series A Preferred Stock at a purchase price of $2.00 per share (the
"Exercise Price"). The number of the shares of Series A Preferred Stock (or
other capital stock) issuable upon exercise of the Warrant (collectively, the
"Warrant Shares") and Exercise Price are subject to adjustment as provided in
the Warrant.
1.3 Exercise of Warrant. The Purchaser (or any "Holder" as such
term is defined in the Warrant) may exercise the Warrant in whole or in part,
at any time or from time to time on any business day prior to the Expiration
Time (as defined in the Warrant) in accordance with the Warrant.
SECTION 2. THE CLOSINGS
2.1 Closing Date. The closing (the "Closing") of the delivery of
the Guarantee and the issuance of the Warrant shall be held on April 26, 1996
at 9:00 a.m. at the offices of Cooley Godward Castro Huddleson & Tatum, Five
Palo Alto Square, 3000 El Camino Real, Palo Alto, CA 94306-2155, or at such
other time or place as the Company and the Purchaser shall agree (the "Closing
Date").
2.2 Delivery. At the Closing, the Company shall deliver to the
Purchaser the Warrant duly executed by the Company, and the Purchaser shall
deliver to the Company the Guaranty executed by the Purchaser.
1.
<PAGE> 5
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to and for the benefit of
the Purchaser as follows:
3.1 Organization, Good Standing, Qualification. The Company is a
corporation duly organized, validly existing and in good standing under the
laws of the state of Delaware. The Company has full power and authority to own
and operate its properties and assets, and to carry on its business as
currently conducted and as currently proposed to be conducted. The Company is
duly qualified and is authorized to do business and is in good standing as a
foreign corporation in all jurisdictions in which the nature of its activities
and of its properties (both owned and leased) makes such qualification
necessary, except for those jurisdictions in which failure to do so would not
have a material adverse effect on the Company or its business.
3.2 Authorization. All corporate action on the part of the
Company, its directors and its stockholders necessary for the authorization,
execution, delivery and performance of this Agreement by the Company and the
performance of the Company's obligations hereunder, including the issuance and
delivery of the Warrant has been taken or will be taken prior to the Closing.
This Agreement and the Warrant, when executed and delivered by the Company,
shall constitute valid and binding obligations of the Company enforceable in
accordance with their terms, except as rights to indemnity may be limited by
applicable laws and except as enforcement may be limited by applicable
bankruptcy, insolvency, reorganization, arrangement, moratorium or other
similar laws affecting creditors' rights and subject to general equity
principles and to limitations on availability of equitable relief, including
specific performance. The Series A Preferred Stock issuable upon exercise of
the Warrant, and the Common Stock issuable upon the conversion of the Series A
Preferred Stock has been duly and validly reserved and, when issued in
compliance with the provisions of this Agreement, the Warrant and the
Certificate of Incorporation of the Company (as the same may hereinafter be
amended, the "Certificate of Incorporation"), will be validly issued, fully
paid and nonassessable and free of any liens or encumbrances. Upon a Public
Offering Closing (as defined in Section 7 of this Agreement), the Common Stock
then issuable upon exercise of the Warrant will be duly and validly reserved
and when issued in compliance with the provisions of this Agreement, the
Warrant and the Certificate of Incorporation, will be validly issued, fully
paid and nonassessable and free and clear of any liens or encumbrances.
3.3 Material Contracts. All material contracts, agreements and
instruments to which the Company is a party are in full force and effect in all
material respects, and are valid, binding and enforceable by the Company in
accordance with their respective terms, subject to the effect of applicable
bankruptcy and other similar laws affecting the rights of creditors generally,
and rules of law concerning equitable remedies and no event of default, and no
event which, with the passing of time or the giving of notice, or both, would
constitute an event of default has occurred or is continuing under any such
contract, agreement or instrument.
3.4 Compliance With Other Instruments. The Company is not in
violation of any term of its Certificate of Incorporation, By-Laws or any
statute, rule or regulation applicable to
2.
<PAGE> 6
the Company. The execution, delivery and performance of this Agreement, the
creation and issuance of the Warrant and the issuance of the shares of Series
A Preferred Stock pursuant to an exercise of the Warrant (and any shares of
Common Stock upon either the conversion of the Series A Preferred Stock or an
exercise of the Warrant after a Public Offering Closing) in accordance with
the Certificate of Incorporation will not result in any such violation, or be
in conflict with or constitute a default under any such term, or result in the
creation of any mortgage, pledge, lien, encumbrance, or charge upon any of the
properties or assets of the Company or contravene any provision of, or
constitute a default under, any indenture, mortgage, contract or other
instrument to which it is a party or by which it is bound.
3.5 Governmental Consents. All consents, approvals, orders, or
authorizations of, or registrations, qualifications, designations,
declarations, or filings with, any governmental authority, required on the part
of the Company in accordance with the valid execution and delivery of this
Agreement, the offer, sale or issuance of the Warrant and the capital stock
issuable upon exercise of the Warrant, or the consummation of any other
transaction contemplated have been obtained, except for the filing of notices
pursuant to Regulation D under the Securities Exchange Act of 1933, as amended,
(the "Securities Act"), and any filing required under applicable state
securities laws which will be effective by the time required thereby.
3.6 Litigation. There are no actions, suits, audits,
investigations or proceedings pending or to the knowledge of the Company,
threatened against or affecting the Company in any court or before any
governmental commission, board or authority which, if adversely determined,
will have a material adverse effect on business, financial condition or
prospects of the Company or the ability of the Company to perform its
obligations under this Agreement.
3.7 Offering. Assuming the accuracy of the representations and
warranties of the Purchaser contained in Section 4 hereof, the offer, issue,
and sale of the Warrant are and will be exempt from the registration and
prospectus delivery requirements of the Securities Act, and have been
registered or qualified (or are exempt from registration and qualification)
under the registration, permit, or qualification requirements of all applicable
state securities laws.
SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
4.1 Requisite Power and Authority. The Purchaser has all
necessary power and authority under all applicable provisions of law to execute
and deliver this Agreement and to carry out its provisions. All actions on the
Purchaser's part required for the lawful execution and delivery of this
Agreement has been or will be effectively taken prior to the Closing. Upon
execution and delivery of this Agreement, this Agreement will be a valid and
binding obligation of the Purchaser, enforceable in accordance with its terms,
except (i) as limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other laws of general application affecting enforcement of
creditors' rights and (ii) general principles of equity that restrict the
availability of equitable remedies.
4.2 Purchase for Own Account. The Purchaser represents that it is
acquiring the Warrant and the capital stock issuable upon exercise of the
Warrant (collectively, the
3.
<PAGE> 7
"Securities") solely for its own account and beneficial interest for investment
and not for sale or with a view to distribution of the Securities or any part
thereof, has no present intention of selling (in connection with a distribution
or otherwise), granting any participation in, or otherwise distributing the
same, and does not currently have reason to anticipate a change in such
intention.
4.3 Information and Sophistication. The Purchaser acknowledges
having received all the information that it has requested from the Company and
considers necessary or appropriate for deciding whether to acquire the Warrant.
The Purchaser represents that it has had an opportunity to ask questions and
receive answers from the Company regarding the terms and conditions of the
offering of the Warrant and to obtain any additional information necessary to
verify the accuracy of the information given to the Purchaser. The Purchaser
further represents that it has sufficient knowledge and experience in financial
and business matters so as to be capable of evaluating the merits and risk of
this investment.
4.4 Ability to Bear Economic Risk. The Purchaser acknowledges
that investment in the Warrant involves a high degree of risk, and represents
that it is able, without material impairment of financial condition, to hold
the Securities for an indefinite period of time and to suffer a complete loss
of its investment.
4.5 Further Limitations on Disposition. Without in any way
limiting the representations set forth above, the Purchaser further agrees not
to make any disposition of all or any portion of the Securities unless and
until:
(a) There is then in effect a Registration Statement
under the Securities Act covering such proposed disposition and such
disposition is made in accordance with such Registration Statement; or
(b) (i) The Purchaser shall have notified the Company of
the proposed disposition and shall have furnished the Company with a detailed
statement of the circumstances surrounding the proposed disposition, and (ii)
if reasonably requested by the Company, the Purchaser shall have furnished the
Company with an opinion of counsel, reasonably satisfactory to the Company,
that such disposition will not require registration under the Securities Act.
(c) Notwithstanding the provisions of paragraphs (a) and
(b) above, no such registration statement or opinion of counsel shall be
necessary for a transfer by the Purchaser to (i) an underwriter acceptable to
the Company for immediate exercise by such underwriter in connection with a
fully underwritten public offering of the Company's Common Stock underlying
this Warrant (ii) a partner (or retired partner) or "affiliate" (as defined
under the Securities Exchange Act of 1934) of Purchaser, or (iii) transfers by
gift, will or intestate succession to any spouse or lineal descendants or
ancestors of any such partner, retired partner or affiliate, if all transferees
agree in writing to be subject to the terms hereof to the same extent as if
they were a purchaser hereunder.
4.
<PAGE> 8
4.6 Experience. The Purchaser is an "accredited investor" as such
term is defined in Rule 501 promulgated under the Securities Act.
SECTION 5. REGISTRATION RIGHTS.
5.1 CERTAIN DEFINED TERMS. Certain terms used but not defined in
this Section 5 are defined on Exhibit C to this Agreement.
5.2 Demand Registration.
(a) Subject to the conditions of this Section 5.2, if the
Company shall receive at any time after the later of April 1, 2000 and one
hundred twenty (120) days after the closing of the IPO a written request from
the Initiating Holders that the Company file a registration statement under the
Securities Act covering the registration of at least 50% of the Registrable
Securities held by such Initiating Holders, then the Company shall, within
thirty (30) days of the receipt thereof, give written notice of such request to
all Holders, and subject to the limitations of Section 5.2(b), effect, as soon
as practicable, the registration under the Securities Act.
(b) If the Initiating Holders intend to distribute the
Registrable Securities covered by their request by means of an underwriting,
they shall so advise the Company as a part of their request made pursuant to
this Section 5.2 and the Company shall include such information in the written
notice referred to in Section 5.2(a). In such event, the right of any Holder to
include such Holder's Registrable Securities in such registration shall be
conditioned upon such Holder's participation in such underwriting and the
inclusion of such Holder's Registrable Securities in the underwriting (unless
otherwise mutually agreed by a majority in interest of the Initiating Holders
and such Holder) to the extent provided herein. All Holders proposing to
distribute their securities through such underwriting shall enter into an
underwriting agreement in customary form with the underwriter or underwriters
selected for such underwriting by a majority in interest of the Initiating
Holders (which underwriter or underwriters shall be reasonably acceptable to
the Company). Notwithstanding any other provision of this Section 5.2, if the
underwriter advises the Company in writing that marketing factors require a
limitation of the number of securities to be underwritten (including
Registrable Securities) then the Company shall so advise all Holders of
Registrable Securities which would otherwise be underwritten pursuant hereto,
and the number of shares that may be included in the underwriting shall be
allocated to the Holders of such Registrable Securities on a pro rata basis
based on the number of Registrable Securities held by all such Holders
(including the Initiating Holders). Any Registrable Securities excluded or
withdrawn from such underwriting shall be withdrawn from the registration.
(c) The Company shall not be obligated to effect more
than two (2) registrations pursuant to this Section 5.2.
(d) Notwithstanding the foregoing, if the Company shall
furnish to Holders requesting a registration statement pursuant to this Section
5.2, a certificate signed by the Chairman of the Board stating that in the
good faith judgment of the Board of Directors of the
5.
<PAGE> 9
Company, it would be seriously detrimental to the Company and its stockholders
for such registration statement to be filed and it is therefore essential to
defer the filing of such registration statement, the Company shall have the
right to defer such filing for a period of not more than thirty (30) days after
receipt of the request of the Initiating Holders; provided that such right to
delay a request shall be exercised by the Company no more than once in any one
year period.
(e) All expenses incurred in connection with a
registration pursuant to this Section 5.2 (excluding underwriters' discounts
and commissions and fees for counsel for the Holders, which shall be paid by
the selling Holders pro rata with respect to their included shares), including
without limitation all registration, filing, qualification, printers' and
accounting fees, fees and disbursements of counsel for the Company, shall be
borne by the Company; provided, however, that the Company shall not be required
to pay for any expenses of any registration proceeding begun pursuant to
Section 5.2 if the registration request is subsequently withdrawn, unless the
withdrawal of the registration request results from either (a) intentional
actions by the Company outside the normal course of business that materially
reduce the feasibility of the registration proceeding, or (b) the discovery of
information about the Company that was not known at the time of the Initiating
Holders' request made pursuant to Section 5.2(a), and such information
materially reduces the feasibility of the registration proceeding. If the
Company is required to pay the registration expenses pursuant to this Section
5.2(e), then the Holders shall not forfeit their rights pursuant to this
Section 5.2 to a demand registration.
5.3 PIGGYBACK REGISTRATIONS.
(a) The Company shall notify all Holders in writing at
least thirty (30) days prior to the filing of any registration statement under
the Securities Act for purposes of a public offering of securities of the
Company (including, but not limited to, registration statements relating to
secondary offerings of securities of the Company, but excluding registration
statements relating to the IPO, employee benefit plans and corporate
reorganizations) and will afford each such Holder who would have been unable
to sell all of such Registrable Securities on an unrestricted basis pursuant to
Rule 144 promulgated under the Securities Act, during the four-week period
immediately preceding the effective date of the registration statement, an
opportunity to include in such registration statement all or part of such
Registrable Securities held by such Holder. Each Holder desiring to include in
any such registration statement all or any part of the Registrable Securities
held by it shall, within twenty (20) days after receipt of the above-described
notice from the Company, so notify the Company in writing. Such notice shall
state the intended method of disposition of the Registrable Securities by such
Holder. If a Holder decides not to include all of its Registrable Securities
in any registration statement thereafter filed by the Company, such Holder
shall nevertheless continue to have the right to include any Registrable
Securities in any subsequent registration statement or registration statements
as may be filed by the Company with respect to offerings of its securities, all
upon the terms and conditions set forth herein. Notwithstanding anything to
the contrary, the foregoing shall not apply to any registrations occurring on
or after the fifth anniversary of the IPO
6.
<PAGE> 10
(b) If the registration statement under which the Company
gives notice under this Section 5.3 is for an underwritten offering, the
Company shall so advise the Holders. In such event, the right of any such
Holder to be included in a registration pursuant to this Section 5.3 shall be
conditioned upon such Holder's participation in such underwriting and the
inclusion of such Holder's Registrable Securities in the underwriting to the
extent provided herein. All Holders proposing to distribute their Registrable
Securities through such underwriting shall enter into an underwriting agreement
in customary form with the underwriter or underwriters selected for such
underwriting. Notwithstanding any other provision of the Agreement, if the
underwriter determines in good faith that marketing factors require a
limitation of the number of shares to be underwritten, the number of shares
that may be included in the underwriting shall be allocated, first, to the
Company; second, to the parties to that certain Investor's Rights Agreement, by
and among the Company and Hambrecht & Quist Group, L.L.C. dated as of December
19, 1995 (as such agreement may be amended from time to time); third to the
Holders on a pro rata basis based on the total number of Registrable Securities
held by the Holders; and fourth, to any stockholder of the Company (other than
a Holder) on a pro rata basis. No such reduction shall reduce the securities
being offered by the Company for its own account to be included in the
registration and underwriting, except that in no event shall the amount of
securities of the selling Holders included in the registration be reduced below
twenty percent (20%) of the total amount of securities included in such
registration, unless such offering is the IPO and such registration does not
include shares of any other selling stockholders, in which event any or all of
the Registrable Securities of the Holders may be excluded in accordance with
the immediately preceding sentence. In no event will shares of any other
selling stockholder be included in such registration which would reduce the
number of shares which may be included by Holders without the written consent
of Holders of not less than fifty percent (50%) of the Registrable Securities
proposed to be sold in the offering
(c) The Company shall bear all fees and expenses incurred
in connection with any registration under this Section 5.3 (excluding
underwriters' discounts and commissions and fees for counsel for the Holders,
which shall be paid by the selling Holders pro rata with respect to their
included shares), including without limitation all registration, filing,
qualification, printers' and accounting fees, fees and disbursements of counsel
to the Company, and the reasonable fees and disbursements of a single counsel
to the selling Holders (which counsel shall also be counsel to the Company
unless counsel to the Company has a conflict of interest with respect to the
representation of any selling Holder or the underwriters object to the selling
Holders representation by Company counsel).
5.4 FORM S-3 REGISTRATION. In case the Company shall receive from
the Holders at least ten percent (10%) of the Registrable Securities a written
request or requests that the Company effect a registration on Form S-3 and any
related qualification or compliance with respect to all or a part of the
Registrable Securities owned by such Holder or Holders, the Company will:
(a) promptly give written notice of the proposed
registration, and any related qualification or compliance, to all other Holders
of Registrable Securities, and
7.
<PAGE> 11
(b) If the registration statement under which the Company
gives notice under this Section 5.3 is for an underwritten offering, the Company
shall so advise the Holders. In such event, the right of any such Holder to be
included in a registration pursuant to this Section 5.3 shall be conditioned
upon such Holder's participation in such underwriting and the inclusion of such
Holder's Registrable Securities in the underwriting to the extent provided
herein. All Holders proposing to distribute their Registrable Securities
through such underwriting shall enter into an underwriting agreement in
customary form with the underwriter or underwriters selected for such
underwriting. Notwithstanding any other provision of the Agreement, if the
underwriter determines in good faith that marketing factors require a
limitation of the number of shares to be underwritten, the number of shares
that may be included in the underwriting shall be allocated, first, to the
Company; second, to the parties to that certain Investor's Rights Agreement, by
and among the Company and Hambrecht & Quist Group, L.L.C. dated as of December
19, 1995 (as such agreement may be amended from time to time); third to the
Holder on a pro rata basis based on the total number of Registrable Securities
held by the Holders; and fourth, to any stockholder of the Company (other than
a Holder) on a pro rata basis. No such reduction shall reduce the securities
being offered by the Company for its own account to be included in the
registration and underwriting, except that in no event shall the amount of
securities of the selling Holders included in the registration be reduced below
twenty percent (20%) of the total amount of securities included in such
registration, unless such offering is the IPO and such registration does not
include shares of any other selling stockholders, in which event any or all of
the Registrable Securities of the Holders may be excluded in accordance with
the immediately preceding sentence. In no event will shares of any other
selling stockholder be included in such registration which would reduce the
number of shares which may be included by Holders without the written consent
of Holders of not less than fifty percent (50%) of the Registrable Securities
proposed to be sold in the offering.
(c) The Company shall bear all fees and expenses incurred
in connection with any registration under this Section 5.3 (excluding
underwriters' discounts and commissions and fees for counsel for the Holders,
which shall be paid by the selling Holders pro rata with respect to their
included shares), including without limitation all registration, filing,
qualification, printers' and accounting fees, fees and disbursements of counsel
to the Company, and the reasonable fees and disbursements of a single counsel
to the selling Holders (which counsel shall also be counsel to the Company
unless counsel to the Company has a conflict of interest with respect to the
representation of any selling Holder or the underwriters object to the selling
Holders representation by Company counsel).
5.4 FORM S-3 REGISTRATION. In case the Company shall receive from
the Holders at least ten percent (10%) of the Registrable Securities a written
request or requests that the Company effect a registration on Form S-3 and any
related qualification or compliance with respect to all or a part of the
Registrable Securities owned by such Holder or Holders, the Company will:
(a) promptly give written notice of the proposed
registration, and any related qualification or compliance, to all other Holders
of Registrable Securities; and
7.
<PAGE> 12
(b) as soon as practicable, effect such registration and
all such qualifications and compliances as may be so requested and as would
permit or facilitate the sale and distribution of all or such portion of such
Holder's or Holders' Registrable Securities as are specified in such request,
together with all or such portion of the Registrable Securities of any other
Holder or Holders joining in such request as are specified in a written request
given within fifteen (15) days after receipt of written notice from the Company
pursuant to Section 5.4(a); provided, however, that the Company shall not be
obligated to effect any such registration, qualification or compliance pursuant
to this Section 5.4: (i) if Form S-3 is not available under the Securities Act
or rules or regulations promulgated thereunder for such offering by the
Holders; (ii) if the Holders, together with the holders of any other securities
of the Company entitled to inclusion in such registration, propose to sell
Registrable Securities and such other securities (if any) at an aggregate price
to the public of less than $500,000; (iii) if the Company shall furnish to the
Holders a certificate signed by the Chairman of the Board of Directors of the
Company stating that in the good faith judgment of the Board of Directors of
the Company, it would be seriously detrimental to the Company and its
stockholders for such Form S-3 Registration to be effected at such time, in
which event the Company shall have the right to defer the filing of the Form
S-3 registration statement for a period of not more than thirty (30) days after
receipt of the request of the Holder or Holders under this Section 5.4,
provided that, such right to defer the filing may be exercised by the Company
no more than once in any one year period; (iv) if the Company has, within the
six (6) month period preceding the date of such request, already effected two
(2) registrations on Form S-3 for the Holders pursuant to this Section 5.4; or
(v) in any particular jurisdiction in which the Company would be required to
qualify to do business or to execute a general consent to service of process in
effecting such registration, qualification or compliance.
(c) Subject to the foregoing, the Company shall file a
Form S-3 registration statement covering the Registrable Securities and other
securities so requested to be registered as soon as practicable after receipt
of the request or requests of the Holders. All such expenses incurred in
connection with registrations requested pursuant to this Section 5.4 shall be
paid by the selling Holders (and any other selling stockholders pro rata with
respect to their included shares, including without limitation all
registration, filing, qualification, printers' and accounting fees, fees and
disbursements of counsel for the Company, and the reasonable fees and
disbursements of a single counsel for the selling Holder or Holders.
5.5 OBLIGATIONS OF THE COMPANY. Whenever required to effect the
registration of any Registrable Securities, the Company shall use its best
efforts to:
(a) Prepare and file with the SEC a registration
statement with respect to such Registrable Securities and cause such
registration statement to become effective, and, upon the request of the
Holders of a majority of the Registrable Securities registered thereunder, keep
such registration statement effective for up to one hundred eighty (180) days.
(b) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in
connection with such registration statement as
8.
<PAGE> 13
may be necessary to comply with the provisions of the Securities Act with
respect to the disposition of all securities covered by such registration
statement.
(c) Furnish to the Holders such number of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as they may
reasonably request in order to facilitate the disposition of Registrable
Securities owned by them.
(d) Register and qualify the securities covered by such
registration statement under such other securities or state blue sky laws of
such jurisdictions as shall be reasonably requested by the Holders, provided
that the Company shall not be required in connection therewith or as a
condition thereto to qualify to do business or to file a general consent to
service of process in any such states or jurisdictions.
(e) In the event of any underwritten public offering,
enter into and perform its obligations under an underwriting agreement, in
usual and customary form, with the managing underwriter of such offering.
Each Holder participating in such underwriting shall also enter into and
perform its obligations under such an agreement.
(f) Notify each Holder of Registrable Securities covered
by such registration statement at any time when a prospectus relating thereto
is required to be delivered under the Securities Act of the happening of any
event as a result of which the prospectus included 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 the light of the circumstances
then existing.
(g) Furnish, at the request of a majority of the Holders
participating in the registration, on the date that such Registrable Securities
are delivered to the underwriters for sale, if such securities are being sold
through underwriters, or, if such securities are not being sold through
underwriters, on the date that the registration statement with respect to such
securities becomes effective, (i) an opinion, dated as of such date, of the
counsel representing the Company for the purposes of such registration, in
form and substance as is customarily given to underwriters in an
underwritten public offering and reasonably satisfactory to a majority in
interest of the Holders requesting registration, addressed to the underwriters,
if any, and to the Holders requesting registration of Registrable Securities
and (ii) a letter dated as of such date, from the independent certified public
accountants of the Company, in form and substance as is customarily given by
independent certified public accountants to underwriters in an underwritten
public offering and reasonably satisfactory to a majority in interest of the
Holders requesting registration, addressed to the underwriters, if any, and to
the Holders requesting registration of Registrable Securities.
5.6 FURNISH INFORMATION. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to Sections 5.2, 5.3 or
5.4 that the selling Holders shall furnish to the Company such information
regarding themselves, the Registrable Securities held
9.
<PAGE> 14
by them, and the intended method of disposition of such securities as shall be
required to effect the registration of their Registrable Securities.
5.7 DELAY OF REGISTRATION. No Holder shall have an right to
obtain or seek an injunction restraining or otherwise delaying any such
registration as the result of any controversy that might arise with respect to
the interpretation or implementation of this Section 5.
5.8 INDEMNIFICATION. In the event any Registrable Securities are
included in a registration statement under Sections 5.2, 5.3 or 5.4:
(a) To the extent permitted by law, the Company will
indemnify and hold harmless each Holder, the partners, officers and directors
of each Holder, any underwriter (as defined in the Securities Act) for such
Holder and each person, if any, who controls such Holder or underwriter within
the meaning of the Securities Act or the 1934 Act, against any losses, claims,
damages, or liabilities (joint or several) to which they may become subject
under the Securities Act, the 1934 Act or other federal or state law, insofar
as such losses, claims, damages, or liabilities (or actions in respect thereof)
arise out of or are based upon any of the following statements, omissions or
violations (collectively a "Violation") by the Company: (i) any untrue
statement or alleged untrue statement of a material fact contained in such
registration statement, including any preliminary prospectus or final
prospectus contained therein or any amendments or supplements thereto, (ii) 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
(iii) any violation or alleged violation by the Company of the Securities Act,
the 1934 Act, any state securities law or any rule or regulation promulgated
under the Securities Act, the 1934 Act or any state securities law in
connection with the offering covered by such registration statement; and the
Company will reimburse each such Holder, partner, officer or director,
underwriter or 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 indemnity
agreement contained in this Section 5.8(a) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Company (which consent shall
not be unreasonably withheld), nor shall the Company be liable in any such case
for any such loss, claim, damage, liability or action to the extent that it
arises out of or is based upon a Violation which occurs in reliance upon and in
conformity with written information furnished to the Company expressly for use
in connection with such registration by such Holder, partner, officer,
director, underwriter or controlling person of such Holder.
(b) To the extent permitted by law, each selling Holder
will indemnify and hold harmless the Company, each of its directors, each of
its officers, each person, if any, who controls the Company within the meaning
of the Securities Act, any underwriter and any other Holder selling securities
under such registration statement or any of such other Holder's partners,
directors or officers or any person who controls such Holder, against any
losses, claims, damages or liabilities (joint or several) to which the Company
or any such director, officer, controlling person, underwriter or other such
Holder, or partner, director, officer or controlling person of such other
Holder may become subject under the Securities Act, the 1934
10.
<PAGE> 15
Act or other federal or state law, insofar as such losses, claims, damages or
liabilities (or actions in respect thereto) arise out of or are based upon any
Violation, in each case to the extent (and only to the extent) that such
Violation occurs in reliance upon and in conformity with written information
furnished to the Company by such Holder expressly for use in connection with
such registration; and each such Holder will reimburse any legal or other
expenses reasonably incurred by the Company or any such director, officer,
controlling person, underwriter or other Holder, or partner, officer,
director or controlling person of such other Holder in connection with
investigating or defending any such loss, claim, damage, liability or action if
it is judicially determined that there was such a Violation; provided, however,
that the indemnity agreement contained in this Section 5.8(b) shall not apply
to amounts paid in settlement of any such loss, claim, damage, liability or
action if such settlement is effected without the consent of the Holder, which
consent shall not be unreasonably withheld; provided further, that in no event
shall any indemnity under this Section 5.8 exceed the proceeds from the
offering received by such Holder.
(c) Promptly after receipt by an indemnified party under
this Section 5.8 of notice of the commencement of any action (including any
governmental action) as to which indemnity may be sought, such indemnified
party will, if a claim in respect thereof is to be made against any
indemnifying party under this Section 5.8, deliver to the indemnifying party a
written notice of the commencement thereof and the indemnifying party shall
have the right to participate in, and, to the extent the indemnifying party so
desires, jointly with any other indemnifying party similarly noticed, to assume
the defense thereof with counsel mutually satisfactory to the parties;
provided, however, that an indemnified party shall have the right to retain its
own counsel, with the fees and expenses to be paid by the indemnifying party,
if representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential differing
interests between such indemnified party and any other party represented by
such counsel in such proceeding. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action, if materially prejudicial to its ability to defend such action, shall
relieve such indemnifying party of any liability to the indemnified party under
this Section 5.8, but the omission so to deliver written notice to the
indemnifying party will not relieve it of any liability that it may have to any
indemnified party otherwise than under this Section 5.8.
(d) If the indemnification provided for in this Section
5.8 is held by a court of competent jurisdiction to be unavailable to an
indemnified party with respect to any losses, claims, damages or liabilities
referred to herein, the indemnifying party, in lieu of indemnifying such
indemnified party thereunder, shall to the extent permitted by applicable law
contribute to the amount paid or payable by such indemnified party as a result
of such loss, claim, damage or liability in such proportion as is appropriate
to reflect the relative fault of the indemnifying party on the one hand and of
the indemnified party on the other in connection with the Violation(s) that
resulted in such loss, claim, damage or liability, as well as any other
relevant equitable considerations. The relative fault of the indemnifying
party and of the indemnified party shall be determined by a court of law by
reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission to state a material fact relates
to information supplied by the indemnifying party or by the indemnified party
and the
11.
<PAGE> 16
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission; provided that, in no event shall
any contribution by a Holder hereunder exceed the proceeds from the offering
received by such Holder.
(e) The foregoing indemnity agreements of the Company and
Holders are subject to the condition that, insofar as they relate to any
Violation made in a preliminary prospectus but eliminated or remedied in the
amended prospectus on file with the SEC at the time the registration statement
in question becomes effective or the Final Prospectus, such indemnity agreement
shall not inure to the benefit of any person obligated under the Securities Act
to furnish to the person asserting the loss, liability, claim or damage a copy
of the Final Prospectus if a copy of the Final Prospectus was furnished to the
indemnified party and was not furnished to the person asserting the loss,
liability, claim or damage at or prior to the time such action is required by
the Securities Act.
(f) The obligations of the Company and Holders under this
Section 5.8 shall survive the completion of any offering of Registrable
Securities pursuant to a registration statement, or otherwise.
5.9 ASSIGNMENT OF REGISTRATION RIGHTS. The rights to cause the
Company to register Registrable Securities pursuant to this Section 5 may be
assigned by a Holder to a transferee or assignee of Registrable Securities;
provided, however, that no such transferee or assignee shall be entitled to
registration rights under Sections 5.2, 5.3 or 5.4 hereof unless such
transferee or assignee: (i) is a Holder; (ii) holds after such transfer or
assignment at least one hundred thousand (100,000) shares of Registrable
Securities (as adjusted for stock dividends, splits and combinations); or (iii)
is a Family Member or a subsidiary, parent, general partner, Affiliate, or
limited partner of a Holder. In each such case, the Company shall, within
twenty (20) days after such transfer, be furnished with written notice of the
name and address of such transferee or assignee and the securities with respect
to which such registration rights are being assigned.
5.10 "MARKET STAND-OFF" AGREEMENT. If requested by the Company and
an underwriter of Common Stock (or other securities) of the Company, each
Holder shall agree not to sell or otherwise transfer or dispose of any Common
Stock (or other securities) of the Company held by such Holder (other than
those included in the registration) for a period specified by the underwriters
not to exceed one hundred eighty (180) days following the effective date of a
registration statement of the Company filed under the Securities Act, provided
that all officers and directors of the Company and all holders of at least one
percent (1%) of the Company's voting securities enter into similar agreements.
The obligations described in this Section 5.11 shall not apply to a
registration relating solely to employee benefit plans on Form S-1 or Form S-8
or similar forms that may be promulgated in the future, or a registration
relating solely to a Commission Rule 145 transaction on Form S-4 or similar
forms that may be promulgated in the future. The Company may impose
stop-transfer instructions with respect to the shares (or securities) subject
to the foregoing restriction until the end of said one hundred eighty (180) day
period.
12.
<PAGE> 17
6. COVENANTS OF THE COMPANY.
6.1 BASIC FINANCIAL INFORMATION AND REPORTING.
(a) The Company will maintain true books and records of
account in which full and correct entries will be made of all its business
transactions pursuant to a system of accounting established and administered
in accordance with generally accepted accounting principles consistently
applied, and will set aside on its books all such proper accruals and reserves
as shall be required under generally accepted accounting principles
consistently applied.
(b) As soon as practicable after the end of each fiscal
year of the Company, and in any event within 90 days thereafter or, after the
IPO, simultaneously with the filing of the Company's annual report on Form 10-K
with the SEC), the Company will furnish each Holder a consolidated balance
sheet of the Company, as at the end of such fiscal year, and a consolidated
statement of income and a consolidated statement of cash flows of the Company
for such year, all prepared in accordance with generally accepted accounting
principles and setting forth in each case in comparative form the figures for
the previous fiscal year, all in reasonable detail. Such financial statements
shall be accompanied by a report and opinion thereon by independent public
accountants of national standing selected by the Company's Board of Directors.
(c) As soon as practicable after the end of each fiscal
quarter of the Company, and in any event within forty five days thereafter or,
after the IPO, simultaneously with the filing of the Company's reports on Form
10-Q with the SEC), the Company will furnish each Holder a consolidated
balance sheet of the Company, as at the end of such fiscal quarter, and a
consolidated statement of income and a consolidated statement of cash flows of
the Company for such quarter, prepared and presented in a manner consistent
with the financial statements described in Section 6.1 (b). Such statement
shall be accompanied by a certificate signed by the Chairman of the Board and
Chief Financial Officer of the Company stating that the preparation and
presentation of such statements is consistent with the financial statements
described in Section 6.1(b).
(d) So long as a Holder (with its affiliates) shall own
not less than one hundred thousand (100,000) shares of Registrable Securities,
the Company will furnish such Holder a consolidated balance sheet of the
Company, as at the end of each calendar month, and a consolidated statement of
income and a consolidated statement of cash flows of the Company for such
month, prepared and presented in a manner consistent with the financial
statements described in Section 6.1(b). Such statements shall be furnished as
soon as practicable after the end of each month and in any event within ten
days thereafter and shall be accompanied by a certificate signed by the
Chairman of the Board and Chief Financial Officer of the Company stating that
the preparation and presentation of such statements is consistent with the
financial statements described in Section 6.1(b). Prior to January lst of each
year, the Company shall furnish such Holders an annual budget for the Company
for the following twelve month period, broken down by month. The Company's
obligations under this Section 6.l(d) shall terminate upon the IPO.
13.
<PAGE> 18
6.2 INSPECTION RIGHTS. So long as a Holder (with its affiliates)
shall own not less than one hundred thousand (100,000) shares of Registrable
Securities, each such Holder shall have the right to visit and inspect any of
the properties of the Company or any of its subsidiaries, and to discuss the
affairs, finances and accounts of the Company or any of its subsidiaries with
its officers, all at such reasonable times and as often as may be reasonably
requested; provided, however, that the Company shall not be obligated under
this Section 6.2 with respect to a competitor of the Company or with respect to
information which the Board of Directors determines in good faith is
confidential and should not, therefore, be disclosed.
6.3 CONFIDENTIALITY OF RECORDS. Each Holder agrees to use, and to
use its best efforts to insure that its authorized representatives use, the
same degree of care as such Holder uses to protect its own confidential
information to keep confidential any information furnished to it which the
Company identifies as being confidential or proprietary (so long as such
information is not in the public domain), except that such Holder may disclose
such proprietary or confidential information to any partner, subsidiary,
Affiliate or parent of such Holder for the purpose of evaluating its investment
in the Company as long as such partner, subsidiary or parent is advised of the
confidentiality provisions of this Section 6.3.
6.4 RESERVATION OF COMMON STOCK. The Company will at all times
reserve and keep available, solely for issuance and delivery upon the
conversion of the Series A Preferred Stock, all Common Stock issuable from time
to time upon such conversion.
SECTION 7. MISCELLANEOUS
7.1 AMENDMENT TO WARRANT. The Purchaser hereby agrees that upon
the closing of an underwritten public offering, pursuant to which the Company
sells capital stock (a "Public Offering"), the Warrant will automatically be
amended to be exercisable into the number of shares of Common Stock of the
Company equal to the number of shares of Series A Preferred Stock that the
Warrant was exercisable into immediately prior to the closing of the Public
Offering (the "Public Offering Closing"). At the Public Offering Closing the
Purchaser agrees to deliver to the Company the Warrant held by the Purchaser in
exchange for a new warrant exercisable into shares of Common Stock ("Common
Stock Warrant"), reflecting the amendment referred to in the immediately
preceding sentence. The Purchaser instructs the Company to cancel the Warrant
and issue Common Stock Warrant exercisable into the appropriate number of
shares of Common Stock. Whether or not the Purchaser surrenders its Warrant
for exchange with Common Stock Warrant, the outstanding Warrant shall
automatically be converted into a Common Stock Warrant without any further
action by the Purchaser.
7.2 BINDING AGREEMENT. The terms and conditions of this Agreement
shall inure to the benefit of and be binding upon the respective successors and
assigns of the parties. Nothing in this Agreement, express or implied, is
intended to coffer upon any third party any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.
14.
<PAGE> 19
7.3 GOVERNING LAW. This Agreement shall be construed in
accordance with and governed by and under the laws of the State of California
as applied to contracts made and to be performed entirely within the State of
California.
7.4 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
7.5 TITLES AND SUBTITLES. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
7.6 NOTICES. Any notice required or permitted under this
Agreement shall be given in writing and shall be deemed effectively given upon
personal delivery or upon deposit with the United States Post Office, postage
prepaid, addressed to the Company at 101 Trade Zone Drive, West Columbia, South
Carolina 29170 or the Purchaser at One Bush Street, San Francisco, California,
94104, Attention: David Golden, or at such other address as such party may
designate by ten (10) days advance written notice to the other party.
7.7 SEPARABILITY. In case any provision of the Agreement shall be
invalid, illegal, or unenforceable, the validity, legality, and enforceability
of the remaining provisions shall not in any way be affected or impaired
thereby.
7.8 MODIFICATION; WAIVER. Except as provided in this Agreement or
the Warrant, no modification or waiver of any provision of this Agreement or
consent to departure therefrom shall be effective unless in writing and
approved by the Company and the holders of the right to acquire not less than
fifty percent (50%) of the shares of Series A Preferred Stock or Common Stock,
as applicable, underlying the Warrant.
7.9 ATTORNEYS' FEES. If legal action is brought to enforce or
interpret this Agreement, the prevailing party shall be entitled to recover its
reasonable attorneys' fees and legal costs in connection therewith.
7.10 DELAYS OR OMISSIONS. It is agreed that no delay or omission
to exercise any right, power, or remedy accruing to any Holder, upon any
breach, default or noncompliance of the Company under this Agreement shall
impair any such right, power, or remedy, nor shall it be construed to be a
waiver of any such breach, default or noncompliance, or any acquiescence
therein, or of any similar breach, default or noncompliance thereafter
occurring. It is further agreed that any waiver, permit, consent, or approval
of any kind or character on any Holder's part of any breach, default or
noncompliance under this Agreement or any waiver on such Holder's part of any
provisions or conditions of this Agreement must be in writing and shall be
effective only to the extent specifically set forth in such writing. All
remedies, either under this Agreement, by law, or otherwise afforded to
Holders, shall be cumulative and not alternative.
15.
<PAGE> 20
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date set forth on the first paragraph hereof.
AIR SOUTH AIRLINES, INC. HAMBRECHT & QUIST GROUP, INC.
By: /s/ Clifton E. Haley By:
------------------------------ -----------------------------
Clifton E. Haley
Chairman of the Board Print Name:
---------------------
Title:
---------------------
<PAGE> 21
EXHIBIT A
FORM OF GUARANTEE
17.
<PAGE> 22
GUARANTY
San Francisco , CA
----------------- --------------
(City) (State)
April 26, 1996
-------------------------------
For good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, and to induce National Bank of South Carolina
(herein, with its participants, successors and assigns, called "Lender"), at
its option, at any time or from time to time to make loans or extend other
accommodations to or for the account of Air South Airlines, Inc. (herein
called "Borrower") or to engage in any other transactions with Borrower, the
Undersigned hereby absolutely and unconditionally guarantees to Lender the full
and prompt payment when due, whether at maturity or earlier by reason of
acceleration or otherwise, of the debts, liabilities and obligations described
as follows:
A. If this [x] is checked, the Undersigned guarantees to Lender the
payment and performance of the debt, liability or obligation of
Borrower to Lender evidenced by or arising out of the following:
$2,000,000.00 Note dated April ___, 1996 (hereinafter referred to
as the "Indebtedness").
B. If this [] is checked, the Undersigned guarantees to Lender the
payment and performance of each and every debt, liability and
obligation of every type and description which Borrower may now or
at any time hereafter owe to Lender (whether such debt, liability
or obligation now exists or is hereafter created or incurred, and
whether it is or may be direct or indirect, due or to become due,
absolute or contingent, primary or secondary, liquidated or
unliquidated, or joint, several, or joint and several; all such
debts, liabilities and obligations being hereinafter collectively
referred to as the "Indebtedness"). Without limitation, this
guaranty includes the following described debt(s): Acct# Note#.
The term "Indebtedness" as used in this guaranty shall not include any
obligations entered into between Borrower and Lender after the date hereof
(including any extensions, renewals or replacements of such obligations) for
which Borrower meets the Lender's standard of creditworthiness based on
Borrower's own assets and income without the addition of a guaranty, or for
which a guaranty is required but Borrower chooses someone other than the joint
Undersigned to guaranty the obligation.
The Undersigned further acknowledges and agrees with Lender that:
1. No act or thing need occur to establish the liability of the
Undersigned hereunder, and no act or thing, except full payment and discharge
of all indebtedness, shall in any way exonerate the Undersigned or modify,
reduce, limit or release the liability of the Undersigned hereunder.
2. This is an absolute, unconditional and continuing guaranty of
payment of the Indebtedness and shall continue to be in force and be binding
upon the Undersigned, whether or not all Indebtedness is paid in full, until
this guaranty is revoked by written notice actually received by the Lender, and
such revocation shall not be effective as to Indebtedness existing or committed
for at the time of actual receipt of such notice by the Lender, or as to any
renewals, extensions and refinancings thereof. If there be more than one
Undersigned, such revocation shall be effective only as to the one so revoking.
The death or incompetence of the Undersigned shall not revoke this guaranty,
except upon actual receipt of written notice thereof by Lender and then only as
to the decedent or the incompetent and only prospectively, as to future
transactions, as herein set forth.
3. If the Undersigned shall be dissolved, shall die, or shall be or
become insolvent (however defined) or revoke this guaranty, then the Lender
shall have the right to declare immediately due and payable, and the
Undersigned will forthwith pay to the Lender, the full amount of all
Indebtedness, whether due and payable or unmatured. If the Undersigned
voluntarily commences or there is commenced involuntarily against the
Undersigned a case under the United States Bankruptcy Code, the full amount of
all Indebtedness, whether due and payable or unmatured, shall be immediately
due and payable without demand or notice thereof.
4. The liability of the Undersigned hereunder shall be limited to a
principal amount of $2,000,000.00 (if unlimited or if no amount is stated, the
Undersigned shall be liable for all Indebtedness, without any limitation as to
amount), plus accrued interest thereon and all attorneys' fees, collection
costs and enforcement expenses referable thereto. Indebtedness may be created
and continued in any amount, whether or not in excess of such principal amount,
without affecting or impairing the liability of the Undersigned hereunder. The
Lender may apply any sums received by or available to Lender on account of the
Indebtedness from Borrower or any other person (except the Undersigned), from
their properties, out of any collateral security or from any other source to
payment of the excess. Such application of receipts shall not reduce, affect or
impair the liability of the Undersigned hereunder. If the liability of the
Undersigned is limited to a stated amount pursuant to this paragraph 4, any
payment made by the Undersigned under this guaranty shall be effective to
reduce or discharge such liability only if accompanied by a written transmittal
document, received by the Lender, advising the Lender that such payment is made
under this guaranty for such purpose.
5. The Undersigned will pay or reimburse Lender for all costs and
expenses (including reasonably attorneys' fees and legal expenses) incurred by
Lender in connection with the protection, defense or enforcement of this
guaranty in any litigation or bankruptcy or insolvency proceedings.
This guaranty includes the additional provisions on page 2, all of which
are made a part hereof.
This guaranty is [x] unsecured; [ ] secured by a mortgage or security
agreement dated____________ [ ] secured by ___________________________
IN WITNESS WHEREOF, this guaranty has been duly executed by the Undersigned
the day and year written.
Hambrecht & Quist Group
By
------------------------------
------------------------------
By
------------------------------
------------------------------
<PAGE> 23
ADDITIONAL PROVISIONS
6. Whether or not any existing relationship between the Undersigned and
Borrower has been changed or ended and whether or not this guaranty has been
revoked, Lender may, but shall not be obligated to, enter into transactions
resulting in the creation or continuance of Indebtedness, without any consent or
approval by the Undersigned and without any notice to the Undersigned. The
liability of the Undersigned shall not be affected or impaired by any of the
following acts or things (which Lender is expressly authorized to do, omit or
suffer from time to time, both before and after revocation of this guaranty,
without notice to or approval by the Undersigned): (i) any acceptance of
collateral security, guarantors, accommodation parties or sureties for any or
all Indebtedness; (ii) any one or more extensions or renewals of Indebtedness
(whether or not for longer than the original period) or any modification of the
interest rates, maturities or other contractual terms applicable to any
Indebtedness; (iii) any waiver, adjustment, forbearance, compromise or
indulgence granted to Borrower, any delay or lack of diligence in the
enforcement of Indebtedness, or any failure to institute proceedings, file a
claim, give any required notices or otherwise protect any Indebtedness; (iv) any
full or partial release of, settlement with, or agreement not to sue, Borrower
or any other guarantor or other person liable in respect of any Indebtedness;
(v) any discharge of any evidence of Indebtedness or the acceptance of any
instrument in renewal thereof or substitution therefor; (vi) any failure to
obtain collateral security (including rights of setoff) for Indebtedness, or to
see to the proper or sufficient creation and perfection thereof, or to establish
the priority thereof, or to protect, insure, or enforce any collateral security;
or any release, modification, substitution, discharge, impairment,
deterioration, waste, or loss of any collateral security; (vii) any foreclosure
or enforcement of any collateral security; (viii) any transfer of any
Indebtedness or any evidence thereof; (ix) any order of application of any
payments or credits upon Indebtedness; (x) any election by the Lender under
Section 1111 (b)(2) of the United States Bankruptcy Code.
7. The Undersigned waives any and all defenses, claims and discharges
of Borrower, or any other obligor, pertaining to Indebtedness, except the
defense of discharge by payment in full. Without limiting the generality of the
foregoing, the Undersigned will not assert, plead or enforce against Lender any
defense of waiver, release, statute of limitations, res judicata, statute of
frauds, fraud, incapacity, minority, usury, illegality or unenforceability which
may be available to Borrower or any other person liable in respect of any
Indebtedness, or any setoff available against Lender to Borrower or any such
other person, whether or not on account of a related transaction. The
Undersigned expressly agrees that the Undersigned shall be and remain liable, to
the fullest extent permitted by applicable law, for any deficiency remaining
after foreclosure of any mortgage or security interest securing Indebtedness,
whether or not the liability of Borrower or any other obligor for such
deficiency is discharged pursuant to statute or judicial decision. The
undersigned shall remain obligated, to the fullest extent permitted by law, to
pay such amounts as though the Borrower's obligations had not been discharged.
8. The Undersigned further agrees that the Undersigned shall be and
remain obligated to pay Indebtedness even though any other person obligated to
pay Indebtedness, including Borrower, has such obligation discharged in
bankruptcy or otherwise discharged by law. "Indebtedness" shall include
post-bankruptcy petition interest and attorneys' fees and any other amounts
which Borrower is discharged from paying or which do not otherwise accrue to
Indebtedness due to Borrower's discharge, and the Undersigned shall remain
obligated to pay such amounts as though Borrower's obligations had not been
discharged.
9. If any payment applied by Lender to Indebtedness is thereafter set
aside, recovered, rescinded or required to be returned for any reason
(including, without limitation, the bankruptcy, insolvency or reorganization of
Borrower or any other obligor), the Indebtedness to which such payment was
applied shall for the purposes of this guaranty be deemed to have continued in
existence, notwithstanding such application, and this guaranty shall be
enforceable as to such Indebtedness as full as if such application had never
been made.
11. The Undersigned waives presentment, demand for payment, notice of
dishonor or nonpayment, and protest of any instrument evidencing Indebtedness.
Lender shall not be required first to resort for payment of the Indebtedness to
Borrower or other persons or their properties, or first to enforce, realize upon
or exhaust any collateral security for Indebtedness, before enforcing this
guaranty.
12. The liability of the Undersigned under this guaranty is in addition
to and shall be cumulative with all other liabilities of the Undersigned to
Lender as guarantor or otherwise, without any limitation as to amount, unless
the instrument or agreement evidencing or creating such other liability
specifically provides to the contrary.
13. This guaranty shall be enforceable against each person signing this
guaranty, even if only one person signs and regardless of any failure of other
persons to sign this guaranty. If there be more than one signer, all agreements
and promises herein shall be construed to be, and are hereby declared to be,
joint and several in each of every particular and shall be fully binding upon
and enforceable against either, any or all the Undersigned. This guaranty shall
be effective upon delivery to Lender, without further act, condition or
acceptance by Lender, shall be binding upon the Undersigned and the heirs,
representatives, successors and assigns of the Undersigned and shall inure to
the benefit of Lender and its participants, successors and assigns. Any
invalidity or unenforceability of any provision or application of this guaranty
shall not affect other lawful provisions and application hereof, and to this end
the provisions of this guaranty are declared to be severable. Except as
authorized by the terms herein, this guaranty may not be waived, modified,
amended, terminated, released or otherwise changed except by a writing
signed by the Undersigned and Lender. This guaranty shall be governed by the
laws of the State of South Carolina. The Undersigned waives notice of Lender's
acceptance hereof.
(page 2 of 21)
<PAGE> 24
EXHIBIT B
FORM OF WARRANT
18.
<PAGE> 25
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE SECURITIES LAWS OF ANY STATE.
ANY TRANSFER OF SUCH SECURITIES WILL BE INVALID UNLESS A REGISTRATION STATEMENT
UNDER THE ACT AND AS REQUIRED BY BLUE SKY LAWS IS IN EFFECT AS TO SUCH TRANSFER
OR IN THE OPINION OF COUNSEL SATISFACTORY TO THE COMPANY SUCH REGISTRATION IS
UNNECESSARY IN ORDER FOR SUCH TRANSFER TO COMPLY WITH THE ACT AND BLUE SKY
LAWS.
AIR SOUTH AIRLINES, INC.
WARRANT FOR THE PURCHASE
OF SHARES OF SERIES A PREFERRED STOCK
No. PAW-1 April 26, 1996
AIR SOUTH AIRLINES, INC., a Delaware corporation (the "Company"), hereby
certifies that, for value received, HAMBRECHT & QUIST GROUP or any transferee
who has received this warrant (the "Warrant") in compliance with applicable law
and the terms hereof (the "Holder"), is entitled, on the terms set forth below,
to purchase from the Company, on or before the Expiration Time (as defined in
Section 18 below) four hundred thousand (400,000) shares of Series A Preferred
Stock of the Company (or such portion thereof which has been transferred in
accordance with Section 19 of this Warrant) at a price of two dollars ($2.00)
per share, subject to adjustment as provided below (the "Exercise Price").
1. WARRANT PURCHASE AGREEMENT. This Warrant is the "Warrant"
referred to in that certain Warrant Purchase Agreement dated as of April 26,
1996 between the Company and Hambrecht & Quist Group (the "Warrant Purchase
Agreement"). This Warrant and any Holder is and shall be subject to all of the
obligations and restrictions and entitled to all of the rights benefits set
forth in the Warrant Purchase Agreement (subject to the limitations on
transferability contained in this Warrant and the Warrant Purchase Agreement).
2. EXERCISE OF WARRANT.
a. GENERAL. The Holder may exercise this Warrant, in
whole or in part, at any time or from time to time on any business day prior to
the Expiration Date.
The Holder may exercise any shares then exercisable by
surrendering this Warrant to the Company at its principal office, with a duty
executed Subscription Form (in substantially the form attached hereto),
together with payment of the sum obtained by multiplying the number of shares
of Series A Preferred Stock to be purchased by the Exercise Price then in
effect.
1.
<PAGE> 26
Promptly after such exercise, the Company shall issue and deliver to or upon
the order of the Holder a certificate or certificates for the number of shares
of Series A Preferred Stock issuable upon such exercise, and the Company will
pay all issue or transfer taxes in connection with the issue thereof. To the
extent permitted by law, this Warrant shall be deemed to have been exercised
immediately prior to the close of business on the date of its surrender for
exercise as provided herein, even if the Company's stock transfer books are at
that time closed, and the Holder shall be treated for all purposes as the
holder of record of the Series A Preferred Stock to be issued upon such
exercise as of the close of business on such date. Upon any partial exercise,
the Company will issue to or upon the order of the Holder a new Warrant for the
number of shares of Series A Preferred Stock as to which this Warrant has not
been exercised.
b. NET ISSUE EXERCISE. Notwithstanding any provisions
herein to the contrary, if the fair market value of one share of the Series A
Preferred Stock subject to this Warrant is greater than the Exercise Price (at
the Date of Determination, as defined 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 canceled) by
surrender of this Warrant at the principal office of the Company together with
the properly endorsed Form of Subscription and notice of such election (the
date of such delivery being referred to herein as the "Date of Determination")
in which event the Company shall issue to the Holder a number of shares of
Series A Preferred Stock computed using the following formula:
X = Y (A-B)
-------
A
Where X = the number of shares of Series A Preferred Stock to be
issued to the Holder
Y = the number of shares of Series A Preferred Stock
purchasable under the Warrant or, if only a portion of the
Warrant is being exercised, the portion of the Warrant
being canceled (at the Date of Determination)
A = the fair market value of one share of the Series A
Preferred Stock (at the Date of Determination)
B = Exercise Price (as adjusted to the Date of Determination)
For purposes of the above calculation, fair market value of one share of Series
A Preferred Stock shall be determined by the Company's Board of Directors in
good faith as of the Date of Determination; provided, however, when there is a
public market for the Company's Common Stock, the fair market value per share
shall be the product of (i) the average of the closing prices of the Company's
Common Stock quoted on the Nasdaq National Market or on the primary securities
exchange on which the Common Stock is then listed, whichever is applicable, as
published in the Wall Street Journal for the ten (10) trading days prior to the
Date of
2.
<PAGE> 27
Determination and (ii) the number of shares of Common Stock into which each
share of Series A Preferred Stock is convertible at the Date of Determination.
3. Adjustment of Exercise Price and Number of Warrant Shares.
The Exercise Price and the number of shares of Series A Preferred Stock subject
to this Warrant shall be subject to adjustment from time to time as follows:
a. ADJUSTMENT FOR CHANGE IN CAPITAL STOCK. If at any
time the Company:
i. pays a dividend or makes a distribution on
its Series A Preferred Stock in shares of its
Series A Preferred Stock;
ii. subdivides its outstanding shares of Series A
Preferred Stock into a greater number of
shares;
iii. combines its outstanding shares of Series A
Preferred Stock into a smaller number of
shares;
iv. makes a distribution on its Series A
Preferred Stock in shares of its capital
stock other than Series A Preferred Stock; or
v. issues by reclassification of its Series A
Preferred Stock any shares of its capital
stock;
then the Exercise Price in effect immediately prior to such action shall be
adjusted so that the Holder may receive upon exercise of the Warrant and
payment of the same aggregate consideration the number of shares of capital
stock of the Company which the Holder would have owned immediately following
such action if the Holder had exercised the Warrant immediately prior to such
action.
The adjustment shall become effective immediately after the record date
in the case of a dividend or distribution and immediately after the effective
date in the case of a subdivision, combination or reclassification.
b. Reorganization, Consolidation or Merger. In the event of any
consolidation or merger of the Company with or into another corporation (other
than a merger in which merger the Company is the continuing corporation and
that does not result in any reclassification, capital reorganization or other
change of outstanding shares of Series A Preferred Stock issuable upon exercise
of this Warrant) or in the event of any sale, lease, transfer or conveyance to
another corporation of the property and assets of the Company as an entirety or
substantially as an entirety, the Company shall cause effective provisions to
be made so that the Holder shall have the right thereafter, by exercising this
Warrant, to purchase the kind and amount of shares of stock and other
securities and property (including cash) receivable upon such capital
reorganization and other change, consolidation, merger, sale, lease, transfer
or conveyance by a holder of the number of shares of Series A Preferred Stock
that might have been received upon
3.
<PAGE> 28
exercise of this Warrant immediately prior to such capital reorganization,
change, consolidation, merger, sale, lease, transfer or conveyance. Any such
provision shall include provisions for adjustments in respect of such shares of
stock and other securities and property that shall be as nearly equivalent as
may be practicable to the adjustments provided for in this Warrant. The
foregoing provisions of this Section 3(b) shall similarly apply to successive
capital reorganizations and changes of shares of Series A Preferred Stock and
to successive consolidations, mergers, sales, leases, transfers or conveyances.
In the event that in connection with any such capital reorganization, or
change, consolidation, merger, sale, lease, transfer or conveyance, additional
shares of Series A Preferred Stock shall be issued in exchange, conversion,
substitution or payment, in whole or in part, for, or of, a security of the
Company other than Series A Preferred Stock, any such issue shall be treated
as an issue of Series A Preferred Stock covered by the provisions of Section
3(a).
c. MINIMAL ADJUSTMENTS. No adjustment in the Exercise
Price and/or the number of shares of Common Stock subject to this Warrant need
be made if such adjustment would result in a change in the Exercise Price of
less than five cents ($0.05) (the "Adjustment Threshold Amount") or a change in
the number of subject shares of less than one (1) share. Any adjustment which
is less than the Adjustment Threshold Amount and not made shall be carried
forward and shall be made, together with any subsequent adjustments, at the
time when (a) the aggregate amount of all such adjustments is equal to at least
the Adjustment Threshold Amount or (b) the Warrant is exercised.
d. DEFERRAL OF ISSUANCE OR PAYMENT. In any case in
which an event covered by this Section 3 shall require that an adjustment in
the Exercise Price be made effective as of a record date, the Company may elect
to defer until the occurrence of such event (i) issuing to the Holder, if this
Warrant is exercised after such record date, the shares of Common Stock and
other capital stock of the Company, if any, issuable upon such exercise over
and above the shares of Common Stock or other capital stock of the Company, if
any, issuable upon such exercise on the basis of the Exercise Price in effect
prior to such adjustment, and (ii) paying to the Holder by check any amount in
lieu of the issuance of fractional shares pursuant to Section 7.
e. WHEN NO ADJUSTMENT REQUIRED. No adjustment need be
made for a change in the par value or no par value of the Series A Preferred
Stock. To the extent the Warrants become exercisable into cash, no adjustment
need be made thereafter as to the cash, and interest will not accrue on the
cash.
f. CERTIFICATE AS TO ADJUSTMENTS. Upon the occurrence
of each adjustment or readjustment of the Exercise Price pursuant to this
Section 3, the Company, at its expense, shall promptly compute such adjustment
or readjustment in accordance with the terms hereof and prepare and furnish to
the Holder a certificate setting forth such adjustment or readjustment and
showing the facts upon which such adjustment or readjustment is based. The
Company shall, upon written request at any time of the Holder, furnish or cause
to be furnished to the Holder a like certificate setting forth (a) such
adjustments and readjustments, (b) the then effective Exercise Price and number
of shares of Series A Preferred Stock subject to the Warrant, and
4.
<PAGE> 29
(c) the then effective amount of securities (other than Series A Preferred
Stock) and other property, if any, which would be received upon exercise of the
Warrant.
4. REGISTRATION RIGHTS. Subject to the restrictions on the
transferability of registration rights set forth in Section 5 of the Warrant
Purchase Agreement, shares of Series A Preferred Stock underlying this Warrant
and any of the Company's Common Stock issued or issuable pursuant to the
conversion of such Series A Preferred Stock shall be deemed to be "Registrable
Securities" for purposes of Section 5 of the Warrant Purchase Agreement.
Certain permitted transferee (as set forth in Section 5.9 of the Warrant
Purchase Agreement) shall have all of the rights and benefits, subject to all
of the obligations and restrictions, of a holder of Registrable Securities
pursuant to said Section 5, and shall be treated for all purposes as a holder
of Registrable Securities under and subject to the terms of said Section 5.
5. RIGHTS OF THE HOLDER. The Holder shall not, by virtue hereof,
be entitled to any rights of a stockholder in the Company, either at law or
equity, and the rights of the Holder are entitled to those expressed in this
Warrant and the Warrant Purchase Agreement. Nothing contained in this Warrant
shall be construed as conferring upon the Holder hereof the right to vote or to
consent or to receive notice as a stockholder of the Company on any matters or
with respect to any rights whatsoever as a stockholder of the Company. No
dividends or interest shall be payable or accrued in respect of this Warrant or
the interest represented hereby or the shares of Series A Preferred Stock
purchasable hereunder until, and only to the extent that, this Warrant shall
have been exercised in accordance with its terms.
6. NO IMPAIRMENT. The Company will not, by any voluntary action,
avoid or seek to avoid the observance or performance of any of the terms of
this Warrant, but will at all times in good faith assist in the carrying out of
all such terms and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the Holder against dilution or
other impairment.
7. NO FRACTIONAL SHARES. No fractional share shall be issued
upon exercise of this Warrant. The Company shall, in lieu of issuing any
fractional share, pay the Holder entitled to such fraction a sum in cash equal
to the fair market value of such fraction on the date of exercise (as
determined in good faith by the Board of Directors of the Company). The fair
market value of a fraction of a share is determined by multiplying the fair
market price of a full share by the fraction of a share, rounded to the nearest
cent.
8. RESERVATION OF STOCK ISSUABLE ON EXERCISE OF WARRANT. The
Company will at all times reserve and keep available, solely for issuance and
delivery upon the exercise of this Warrant, all such shares of Series A
Preferred Stock or other shares of capital stock, from time to time issuable
upon the exercise of this Warrant and shares of Common Stock issuable upon
conversion of the Series A Preferred Stock. If at any time the number of
authorized but unissued shares of Series A Preferred Stock shall not be
sufficient to effect the exercise of this Warrant, the Company will use its
best efforts to take such corporate action as may, in the opinion of its
counsel, be necessary to increase its authorized but unissued shares of Series
A Preferred Stock to such number of shares as shall be sufficient for such
purposes. All shares
5.
<PAGE> 30
that may be issued upon exercise of the rights represented by this Warrant and
payment of the Exercise Price, all as set forth herein, will be free from all
taxes, liens and chances in respect of the issue of such shares (other than
taxes in respect of any transfer occurring contemporaneously with such exercise
and payment or otherwise specified herein). All such shares shall be duly
authorized and when issued, sold and delivered in accordance with the terms of
the Warrant for the consideration expressed herein, will be duly and validly
issued, fully paid and nonassessable, and will be free of restrictions on
transfer other than restrictions on transfer set forth in this Warrant, the
Warrant Purchase Agreement and applicable state and federal securities laws.
9. AMENDMENTS TO SERIES A PREFERRED STOCK; ETC.
a. AMENDMENTS; ETC. Notwithstanding Section 6 hereof,
while this Warrant, or any portion thereof, remains outstanding, the Company
shall not, without the prior written approval of the Holder, amend or repeal or
waive any provision of the Company's Certificate of Incorporation ("the
Certificate") relating to the rights preferences and privileges of the Series A
Preferred Stock.
b. ADJUSTMENTS TO CONVERSION PRICE. The Holder shall
have the benefit of any adjustments to the Series A Conversion Price pursuant
to the Certificate.
10. NOTICES OF RECORD DATE. Upon (a) any taking by the Company of
a record of the holders of any class of securities for the purpose of
determining the holders thereof who are entitled to receive any dividend or
other distribution or (b) any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the Company, any
merger or consolidation of the Company with or into any other corporation, or
any transfer of all or substantially all the assets of the Company to any other
person, or any voluntary or involuntary dissolution, liquidation or winding up
of the Company, the Company shall mail to each Holder at least twenty (20)
days, or such longer period as is required by law, prior to the record date, a
notice specifying (i) the date on which any such record is to be taken for the
purpose of such dividend or distribution and a description of such dividend or
distribution, (ii) the date on which any such reorganization, reclassification,
transfer, consolidation, merger, dissolution, liquidation or winding up is
expected to become effective, and (iii) the date, if any, that is to be fixed
as to when the holders of record of Series A Preferred Stock (or other capital
stock at that time receivable upon exercise of the Warrant) shall be entitled
to exchange their shares of Series A Preferred Stock (or such other stock or
securities) for securities or other property deliverable upon such
reorganization, reclassification, transfer, consolidation, merger, dissolution,
liquidation or winding up.
11. EXCHANGES OF WARRANT. Upon surrender for exchange of this
Warrant (in negotiable form, if not surrendered by the Holder named on the face
hereof) to the Company at its principal office, the Company, at its expense,
will issue and deliver a new Warrant or Warrants calling in the aggregate for
the same number of shares of Series A Preferred Stock, in the denomination or
denominations requested, to or on the order of such Holder upon
6.
<PAGE> 31
payment by such Holder of any applicable transfer taxes; provided that any
transfer of the Warrant shall be subject to the conditions on transfer set
forth herein.
12. REPLACEMENT OF WARRANT. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant, and (in the case of loss, theft or destruction) upon delivery of
an indemnity agreement in such reasonable amount as the Company may determine,
or (in the case of mutilation) upon surrender and cancellation hereof, the
Company, at its expense, shall issue a replacement.
13. NOTICES. Any notice required or permitted under this
Agreement shall be given in writing and shall be deemed effectively given upon
personal delivery or upon deposit with the United States Post Office, postage
prepaid, addressed to the Company at 101 Trade Zone Drive, West Columbia, South
Carolina 29170 or to the Holder at One Bush Street, San Francisco, California
94104, Attention: David Golden, or at such other address as the Company or any
Holder may designate by ten (10) days advance written notice to the other
party.
14. Amendment to Warrant. Upon the closing of an underwritten
public offering, pursuant to which the Company sells capital stock (a "Public
Offering"), this Warrant will automatically be amended to be exercisable into
the number of shares of Common Stock of the Company equal to the number of
shares of Series A Preferred Stock that the Warrant was exercisable into
immediately prior to the closing of the Public Offering (the "Public Offering
Closing"). At the Public Offering Closing the Holder shall deliver to the
Company the Warrant held by the Holder in exchange for a new warrant
exercisable into shares of Common Stock ("Common Stock Warrant"), reflecting
the amendment referred to in the immediately preceding sentence. The Company
shall cancel this Warrant and issue Common Stock Warrant exercisable into the
appropriate number of shares of Common Stock. Whether or not the Holder
surrenders its Warrant for exchange with Common Stock Warrant, this Warrant
shall automatically be converted into a Common Stock Warrant without any
further action by the Holder.
15. MODIFICATION; WAIVER. Except as provided in this Warrant or
the Warrant Purchase Agreement, no modification or waiver of any provision of
this Warrant or consent to departure therefrom shall be effective unless in
writing and approved by the Company and the holders of the right to acquire not
less than fifty percent (50%) of the shares of Series A Preferred Stock or
Common Stock, as applicable, pursuant to this Warrant.
16. TITLES AND SUBTITLES. The titles and subtitles used in this
Warrant are used for convenience only and are not to be considered in
construing or interpreting this Warrant.
17. GOVERNING LAW. This Warrant shall be construed in accordance
with and governed by and under the laws of the State of California as applied
to contracts made and to be performed entirely within the State of California.
18. EXPIRATION TIME. This Warrant will be wholly void and of no
effect after 5:00 p.m. (San Francisco time) April 26, 2006 (the "Expiration
Time").
7.
<PAGE> 32
furnished the Company with an opinion of counsel, reasonably satisfactory to
the Company, that such disposition will not require registration under the
Securities Act.
iii. Notwithstanding the provisions of paragraphs (i) and
(ii) above, no such registration statement or opinion of counsel shall be
necessary for a transfer by the Holder to (i) an underwriter acceptable to the
Company for immediate exercise by such underwriter in connection with a fully
underwritten public offering of the Company's Common Stock underlying this
Warrant (ii) a partner (or retired partner) or "affiliate" (as defined under
the Securities Exchange Act of 1934) of Hambrecht & Quist Group or (iii)
transfers by gift, will or intestate succession to any spouse or lineal
descendants or ancestors of any such partner, retired partner or affiliate, if
all transferee agree in writing to be subject to the terms hereof to the same
extent as if they were a purchaser hereunder.
9.
<PAGE> 33
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed and delivered on the date first set forth above.
AIR SOUTH AIRLINES, INC.
By: /s/ Clifton E. Haley
----------------------------
Clifton E. Haley
Chairman of the Board
WARRANT
<PAGE> 34
SUBSCRIPTION FORM
-----------------
[To be executed if holder desires to exercise the Warrant]
The undersigned, holder of this Warrant, (1) hereby irrevocably elects
to exercise the right of purchase represented by this Warrant for, and to
purchase thereunder, ____________ full shares of the Series A Preferred Stock
of South Air, Inc. provided for therein, (2) makes payment in full (as
permitted in Section 2 of the Warrant) of the purchase price of such shares,
(3) requests that certificates for such shares be issued in the name of
---------------------------------------------------------------
(Please print name and address)
---------------------------------------------------------------
(Please insert social security or other identifying number)
and (4) if said number of shares shall not be all the shares purchasable
thereunder, requests that a new Warrant for the unexercised portion of this
Warrant be issued in the name of and delivered to:
---------------------------------------------------------------
---------------------------------------------------------------
(Please print name and address)
Dated:
------------------------- -------------------------------
By:
----------------------------
-------------------------------
Title
<PAGE> 35
EXHIBIT C
CERTAIN DEFINED TERMS
As used in this Agreement the following terms shall have the following
respective meanings:
"1934 Act" means the Securities Exchange Act of 1934, as amended.
"Equity Securities" means (i) any stock or similar security of the
Company, (ii) any security convertible, with or without consideration, into any
stock or similar security (including any option to purchase such a convertible
security), (iii) any security carrying any warrant or right to subscribe to or
purchase any stock or similar security or (iv) any such warrant or right.
"Family Member" means a Holder's spouse, children, stepchildren and
grandchildren.
"Final Prospectus" means an amended prospectus filed with the SEC
pursuant to SEC Rule 424(b) of the Securities Act.
"Holder" means any person with the right to acquire pursuant to the
Warrant or owning of record Registrable Securities.
"Initiating Holders" means the Holder or Holders of at least fifty
percent (50%) of the Registrable Securities then outstanding.
"IPO" means the first underwritten public offering of the Company's
securities.
"Register," "registered," and "registration" refer to a registration
effected by preparing and filing a registration statement in compliance with
the Securities Act, and the declaration or ordering of effectiveness by the
SEC of such registration statement or document.
"Registrable Securities" means (i) the Shares; (ii) Common Stock of the
Company issued or issuable upon conversion of the Shares; and (iii) any Shares
or Common Stock of the Company issuable upon the conversion or exercise of any
warrant, right or other security which is issued as a dividend or other
distribution with respect to, or in exchange for or in replacement of, such
above-described securities. Notwithstanding the foregoing, Registrable
Securities shall not include any securities sold by a person to the public
either pursuant to a registration statement or Rule 144 or sold in a private
transaction in which the transferror's rights under Section 5 of this Agreement
are not assigned. Outstanding Shares and warrants, rights and other securities
issued as a dividend or other distribution with respect to outstanding Shares,
or in exchange or replacement of outstanding Shares, shall be deemed to
represent a number of shares of Registrable Securities equal to the number of
shares of Common Stock into which such Shares, warrants, rights or other
securities are convertible as of the time such determination is made.
19.
<PAGE> 36
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Shares" shall mean the Company's Series A Preferred Stock issuable
upon conversion of the Warrant.
"Form S-3" means such form under the Securities Act as in effect on the
date hereof or any successor registration form under the Securities Act
subsequently adopted by the SEC which permits inclusion or incorporation of
substantial information by reference to other documents filed by the Company
with the SEC.
"SEC" or "Commission" means the Securities and Exchange Commission.
20.
<PAGE> 1
EXHIBIT 4.9
AIR SOUTH AIRLINES, INC.
SERIES B PREFERRED STOCK
PURCHASE AGREEMENT
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
1. AGREEMENT TO SELL AND PURCHASE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Authorization of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Sale and Purchase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. CLOSING, DELIVERY AND PAYMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . 2
3.1 Organization, Good Standing and Qualification . . . . . . . . . . . . . . . . . . . 2
3.2 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
3.3 Authorization; Binding Obligations . . . . . . . . . . . . . . . . . . . . . . . . . 2
3.4 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
3.5 Contracts and Other Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . 3
3.6 No Obligations to Related Parties . . . . . . . . . . . . . . . . . . . . . . . . . 3
3.7 Trademarks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3.8 Compliance with Other Instruments . . . . . . . . . . . . . . . . . . . . . . . . . 4
3.9 Title to Properties and Assets; Liens, Etc. . . . . . . . . . . . . . . . . . . . . . 4
3.10 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3.11 Permits, Licenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.12 Environmental and Safety Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.13 Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.14 Tax Returns and Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.15 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.16 Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.17 Registration Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.18 Offering Valid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.19 Full Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.20 Real Property Holding Corporation . . . . . . . . . . . . . . . . . . . . . . . . . 6
4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER . . . . . . . . . . . . . . . . . . . . . . . . 7
4.1 Requisite Power and Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
4.2 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
4.3 Investment Representations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
5. CONDITIONS TO CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5.1 Conditions to Purchaser's Obligations at the Closing . . . . . . . . . . . . . . . . 8
5.2 Conditions to Obligations of the Company . . . . . . . . . . . . . . . . . . . . . . 9
6. AFFIRMATIVE COVENANTS OF THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
6.1 Election of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
6.2 Board of Directors Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
6.3 Qualified Small Business Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
6.4 Board of Director Approval . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
6.5 Approval of Series B Preferred Stock . . . . . . . . . . . . . . . . . . . . . . . . 10
</TABLE>
i
<PAGE> 3
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
PAGE
<S> <C>
7.1 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
7.2 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
7.3 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
7.4 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
7.5 Separability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
7.6 Amendment and Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
7.7 Delays or Omissions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
7.8 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
7.9 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
7.10 Attorneys' Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
7.11 Titles and Subtitles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
7.12 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
7.13 Broker's Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
LIST OF EXHIBITS
Certificate of Designations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Exhibit A
Investor's Rights Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Exhibit B
Stockholder List . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Exhibit C
Schedule of Exceptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Exhibit D
Certificate of Incorporation and Bylaws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Exhibit E
Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Exhibit F
</TABLE>
ii
<PAGE> 4
AIR SOUTH AIRLINES, INC.
SERIES B PREFERRED STOCK PURCHASE AGREEMENT
THIS SERIES B PREFERRED STOCK PURCHASE AGREEMENT (the "Agreement") is
entered into as of May 24, 1996 by and among AIR SOUTH AIRLINES, INC., a
Delaware corporation (the "Company") and H&Q AIR SOUTH INVESTORS, L.P.
("Purchaser").
RECITALS
WHEREAS, the Company has authorized the sale and issuance of an
aggregate of 625,000 shares of its Series B Preferred Stock (the "Shares");
WHEREAS, Purchaser desire to purchase the Shares on the terms and
conditions set forth herein; and
WHEREAS, the Company desires to issue and sell the Shares to Purchaser
on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual promises hereinafter set forth, the parties hereto agree as follows:
1. AGREEMENT TO SELL AND PURCHASE.
1.1 AUTHORIZATION OF SHARES. On or prior to the Closing (as
defined in Section 2 below), the Company shall have authorized the sale and
issuance to the Purchaser of the Shares having the rights, preferences,
privileges and restrictions set forth in the Certificate of Designations in the
form attached hereto as Exhibit A (the "Certificate of Designations"). The
Company has, or prior to the Closing will have, adopted and filed the
Certificate of Designations with the Secretary of State of the State of
Delaware.
1.2 SALE AND PURCHASE.
(A) Subject to the terms and conditions hereof, at the
Closing (as hereinafter defined) the Company hereby agrees to issue and sell to
the Purchaser and the Purchaser agrees to purchase from the Company 625,000
Shares at a purchase price of four dollars ($4.00) per share.
2. CLOSING, DELIVERY AND PAYMENT.
(A) The closing of the sale and purchase of the Shares
under this Agreement (the "Closing") shall take place at 4:00 p.m. on May 24,
1996, at the offices of Cooley Godward Castro Huddleson & Tatum, 5 Palo Alto
Square, Palo Alto, California 94306, or at such other time or place as the
Company and the Purchaser may mutually agree (such date is hereinafter referred
to as the "Closing Date").
(B) At the Closing, subject to the terms and conditions
hereof, the Company will deliver to the Purchaser a certificate representing
the number of Shares to be purchased at the Closing
1.
<PAGE> 5
by the Purchaser, against payment of the purchase price therefor by a check or
wire transfer made payable to the order of the Company.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company hereby represents and warrants to the Purchaser as
follows:
3.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION. The Company is
a corporation duly organized, validly existing, and in good standing under the
laws of the State of Delaware. The Company has full power and authority to own
and operate its properties and assets, and to carry on its business as
presently conducted and as presently proposed to be conducted. The Company is
duly qualified and is authorized to do business and is in good standing as a
foreign corporation in all jurisdictions in which the nature of its activities
and of its properties (both owned and leased) makes such qualification
necessary, except for those jurisdictions in which failure to do so would not
have a material adverse effect on the Company or its business. The Company has
no subsidiaries and owns no equity securities of any other corporation, limited
partnership or similar entity.
3.2 CAPITALIZATION. The authorized capital stock of the Company,
immediately prior to the Closing, consists of eighteen million (18,000,000)
shares of Common Stock, seven million one hundred fifty-six thousand two
hundred sixty-four (7,156,264) shares of which are issued and outstanding; and
two million (2,000,000) shares of Preferred Stock, one million two hundred
fifty thousand (1,250,000) of which are designated Series A Preferred Stock,
all of which are issued and outstanding and six hundred twenty-five thousand
(625,000) of which are designated Series B Preferred Stock, all of which will
be issued and outstanding upon the Closing. All shares of the Company's Common
Stock (i) have been duly authorized and validly issued, and (ii) are fully paid
and nonassessable. The rights, preferences, privileges and restrictions of the
Shares are as stated in the Certificate of Designation filed with the Secretary
of State of Delaware. The shares of Common Stock issuable upon the conversion
of the Shares (the "Conversion Shares") have been duly and validly reserved for
issuance and, when issued in accordance with the Certificate of Incorporation,
will be validly issued, fully paid and nonassessable. The Company has reserved
7,384,833 shares of Common Stock for issuance upon the exercise of: (i) options
to purchase shares of Common Stock pursuant to its various Stock Option Plans
for directors, officers and employees; (ii) warrants to purchase shares of
Common Stock which have been issued to a supplier, former employees,
consultants to the Company and an Affiliate of Purchaser in connection with the
guarantee of certain bank debt of the Company; and (iii) conversion rights of
the Company's Series A Preferred Stock and Series B Preferred Stock. Other
than as set forth above and except as may be granted pursuant to the Investor's
Rights Agreements (defined below) there are no outstanding options, warrants,
rights (including conversion or preemptive rights), proxy or stockholder
agreements, or agreements of any kind for the purchase or acquisition from the
Company of any of its securities. Investor's Rights Agreements (the
"Investor's Rights Agreements") shall mean those certain investor's rights
agreements entered into by the Company in connection with the issuance of the
Series A Preferred Stock and the Series B Preferred Stock. A true and correct
list of the Company's stockholders as of the date hereof is attached hereto as
Exhibit C.
3.3 AUTHORIZATION; BINDING OBLIGATIONS. All corporate action on
the part of the Company, its officers, directors and stockholders necessary
for the authorization, sale and issuance of the Shares pursuant hereto and the
Conversion Shares pursuant to the Certificate of Incorporation and for the
performance of the Company's obligations hereunder and under the Investor's
Rights Agreement has been taken or will be taken prior to the Closing. The
Agreement and the Investor's Rights Agreement when
2.
<PAGE> 6
executed and delivered, will be valid and binding obligations of the Company
enforceable in accordance with their terms, except (i) as limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other laws of general
application affecting enforcement of creditors' rights; (ii) general principles
of equity that restrict the availability of equitable remedies; and (iii) to
the extent that the enforceability of the indemnification provisions in Section
2.8 of the Investor's Rights Agreement may be limited by applicable laws. The
sale of the Shares and the subsequent conversion of Shares into Conversion
Shares are not and will not be subject to any preemptive rights or rights of
first refusal that have not been properly waived or complied with. When issued
in compliance with the provisions of this Agreement and the Certificate of
Incorporation, the Shares and the Conversion Shares will be validly issued,
fully paid and nonassessable, and will be free of any liens or encumbrances;
provided, however, that the Shares and the Conversion Shares may be subject to
restrictions on transfer under state and/or federal securities laws as set
forth herein or as otherwise required by such laws at the time a transfer is
proposed.
3.4 FINANCIAL STATEMENTS. The Company has delivered to the
Purchaser its audited financial statements (balance sheet, statement of income,
statement of stockholders' equity and statement of cash flows, including notes
thereto) at August 31, 1995 and for the fiscal year then ended and its
unaudited financial statements (balance sheet and statement of income) for the
three months ended [February 29, 1996] (collectively, the "Financial
Statements"). The Financial Statements are complete and correct in all
material respects and have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis throughout the periods
indicated, except that unaudited Financial Statements may not contain all
footnotes required by generally accepted accounting principles. The Financial
Statements fairly present the financial condition and position of the Company
as of as of the dates and for the periods indicated therein. Except as set
forth in the Financial Statements or Exhibit D hereto, the Company has no
material liabilities, contingent or otherwise, other then (i) liabilities
incurred in the ordinary course of business subsequent to February 29, 1996 and
(ii) obligations under contracts and commitments incurred in the ordinary
course of business and not required under generally accepted accounting
principles to be reflected in the Financial Statements, which in both cases,
individually or in the aggregate, are not material to the financial condition
or operating results of the Company.
3.5 Contracts and Other Commitments.
(A) Except as set forth in Exhibit D hereto, the Company
does not have any contracts, agreements, lease or other commitment, written or
oral, absolute or contingent, other than (i) contracts for the purchase of
supplies and services that were entered into in the ordinary and usual course of
business and that do not involve more than $100,000 and that do not extend for
more than one year beyond the date hereof and (ii) contracts terminable at will
by the Company on no more than 30 days notice without cost or liability to the
Company and are not material to the conduct of the Company's business.
(B) Except as set forth in Exhibit D hereto, the Company
has not (i) declared or paid any dividends, or authorized or made any
distribution upon or with respect to any class or series of its capital stock,
(ii) redeemed, directly or indirectly, any shares of its capital stock or
otherwise purchased shares of its capital stock, or (iii) made any loans or
advances to any person, or (iv) sold, exchanged or otherwise disposed of any of
its assets or rights.
3.6 NO OBLIGATIONS TO RELATED PARTIES. Except as set forth in
Exhibit D hereto, there are no obligations of the Company to current or former
officers, directors, stockholders, or employees of the Company.
3.
<PAGE> 7
3.7 TRADEMARKS. The Company has sufficient trade names, trade
secrets, information, proprietary title and ownership of all trademarks,
service marks, rights and processes necessary for its business as currently
conducted and as proposed to be conducted, without any conflict with or
infringement of the rights of others. There are no outstanding options,
licenses, or agreements of any kind relating to the foregoing, nor is the
Company bound by or a party to any options, licenses or agreements of any kind
with respect to the trademarks, service marks, trade names, trade secrets,
licenses, proprietary rights and processes of any other person or entity. The
Company is not aware that any of its employees is obligated under any contract
(including licenses, covenants or commitments of any nature) or other
agreement, or subject to any judgment, decree or order of any court or
administrative agency, that would interfere with their duties to the Company or
that would conflict with the Company's business as currently conducted and as
proposed to be conducted. Neither the execution nor delivery of this Agreement
or the Investor's Rights Agreement, nor the carrying on of the Company's
business by the employees of the Company, nor the conduct of the Company's
business as currently conducted and as proposed, will, to the Company's
knowledge, conflict with or result in a breach of the terms, conditions or
provisions of, or constitute a default under, any contract, covenant or
instrument under which any employee is now obligated. The Company does not
believe it is or will be necessary to utilize any inventions of any of its
employees made prior to their employment by the Company. The Company is not
aware of any violation by a third party of any of the Company's trademarks,
service marks, trade names, trade secrets or other proprietary rights.
3.8 COMPLIANCE WITH OTHER INSTRUMENTS. The Company is not in
violation of any term of its Certificate of Incorporation or bylaws, as set
forth in Exhibit E hereto (the "Bylaws"), or any term contained in any material
instrument or contract to which it is a party, and, to the best of its
knowledge, is not in violation of any statute, rule, or regulation applicable
to the Company which violation would have a material adverse effect on the
Company's business, condition (financial or otherwise), properties, prospects
or results of operations. No event or failure of performance has occurred
which, with the passage of time or the giving of notice or both, would
constitute such a violation. The execution, delivery, and performance of and
compliance with this Agreement and the Investor's Rights Agreement and the
issuance and sale of the Shares pursuant hereto and of the Conversion Shares
pursuant to the Certificate of Incorporation, will not result in any such
violation, or be in conflict with or constitute a default under any such term,
or result in the creation of any mortgage, pledge, lien, encumbrance, or charge
upon any of the properties or assets of the Company. No governmental orders,
permissions, consents, approvals or authorizations are required to be obtained
and no registrations or declarations are required to be filed in connection
with the execution and delivery of this Agreement, or the Investor's Rights
Agreement, and the issuance of the Shares or the Conversion Shares, except such
as has been duly and validly obtained or filed, or with respect to any filings
that must be made after the Closing, as will be filed in a timely manner.
3.9 TITLE TO PROPERTIES AND ASSETS; LIENS, ETC. The Company has
good and marketable title to all of its properties and assets it purports to
own, in each case subject to no mortgage, pledge, lien, lease, security
interest, encumbrance or charge, other then (i) liens for current taxes not yet
due and payable, and (ii) liens and encumbrances which do not in any case
materially detract from the value of the property subject thereto or materially
impair the operations of the Company, and which have not arisen other then in
the ordinary course of business.
3.10 LITIGATION. There is no action, suit, proceeding or
investigation pending or threatened against the Company which questions the
validity of this Agreement, or the Investor's Rights Agreement, or the right
of the Company to enter into either of them, or to consummate the transactions
contemplated hereby and thereby, or which might result, either individually or
in the aggregate, in any material adverse
4.
<PAGE> 8
changes in the business, condition (financial or otherwise), properties,
prospects or results of operations of the Company, or any change in the current
equity ownership of the Company. The Company is not a party or subject to the
provisions of any order, writ, injunction, judgment or decree of any court or
government agency or instrumentality. There is no action, suit, proceeding or
investigation by the Company currently pending or which the Company intends to
initiate.
3.11 PERMITS, LICENSES. The Company has all federal, state and
local governmental permits, licenses, certificates of authority any similar
authority necessary for the conduct of its business as now being conducted and
as proposed to be conducted. The Company is not in default in any material
respect under any such permit, license, certificate of authority or other
similar authority.
3.12 ENVIRONMENTAL AND SAFETY LAWS. To the best of its knowledge,
the Company is not in violation of any applicable statute, law or regulation
relating to the environment or occupational health and safety, and to the best
of its knowledge, no material expenditures are or will be required in order to
comply with any such existing statute, law or regulation.
3.13 CHANGES. Except as listed on Exhibit D, since February 26,
1996 there has not been:
(A) any change in the assets, liabilities, financial
condition or operating results of the Company from that reflected in the
Financial Statements, except changes in the ordinary course of business that
have not been, in the aggregate, materially adverse;
(B) any damage, destruction or loss, whether or not
covered by insurance which materially and adversely affects the business,
condition (financial or otherwise), properties, prospects or results of
operations of the Company;
(C) any satisfaction or discharge of any lien, claim or
encumbrance or payment of any obligation by the Company, except in the ordinary
course of business and that is not material to the business, condition
(financial or otherwise), properties, prospects or results of operations of the
Company;
(D) any mortgage, pledge, transfer of a security interest
in, or lien, created by the Company, with respect to any of its material
properties or assets, except liens for taxes not yet due and payable;
(E) any loans or guarantees made by the Company to or for
the benefit of its employees, officers or directors, or any member of their
immediate families, other than advances in the ordinary course of business;
(F) to the best of the Company's knowledge, any other
event or condition of any character that might materially and adversely affect
the business, condition (financial or otherwise), properties, prospects or
results of operations of the Company; or
(G) any agreement or commitment by the Company to do any
of the things described in this Section 3.13.
3.14 TAX RETURNS AND PAYMENTS. The Company has filed all tax
returns (federal, state and local) required to be filed by it. All taxes shown
to be due and payable on such returns, any assessments imposed, and all other
taxes due and payable by the Company on or before the Closing have been paid or
will be paid prior to the time they become delinquent.
5.
<PAGE> 9
3.15 INSURANCE. The Company has in full force and effect fire and
casualty insurance, with extended coverage, aircraft hull insurance and
liability and errors and omissions insurance in amounts customary for
commercial passenger airlines.
3.16 EMPLOYEES. Except as disclosed on Exhibit D hereto, the
Company has no employment contract with any officer or employee or other
consultant or person which is not terminable by it at will without liability,
except as the Company's right to terminate its employees at will may be limited
by applicable law. To the Company's knowledge, no employee of the Company, nor
any consultant with whom the Company has contracted, is in violation of any
term of any employment contract or any other agreement relating to the right of
any such individual to be employed by, or to contract with, the Company because
of the nature of the business to be conducted by the Company; and to the
Company's knowledge, the continued employment by the Company of its present
employees, and the performance of the Company's contracts with its independent
contractors, will not result in any such violation. There are no controversies
or labor trouble or union organization activities pending or, to the knowledge
of the Company, threatened between it and its employees. None of the Company's
employees belongs to any union or collective bargaining unit. To the best of
its knowledge, the Company has complied with all applicable state and federal
equal employment opportunity laws and other laws related to employment in which
the failure to so comply might have a material adverse effect on the business,
condition (financial or otherwise), properties, properties, prospects or
results of operations of the Company. The Company is not aware that any
officer or key employee, or that any group of key employees, intends to
terminate his, her or their employment with the Company, nor does the Company
have a present intention to terminate the employment of any officer or key
employee.
3.17 REGISTRATION RIGHTS. Except as set forth in Exhibit D hereto
and except as required pursuant to the Investor's Rights Agreement, the Company
is presently not under any obligation, and has not granted any rights, to
register (as defined in Section 1.1 of the Investor's Rights Agreement) any of
the Company's presently outstanding securities or any of its securities that
may hereafter be issued.
3.18 OFFERING VALID. Assuming the accuracy of the representations
and warranties of the Purchaser contained in Section 4.3 hereof, the offer,
sale and issuance of the Shares and the Conversion Shares will be exempt from
the registration requirements of the Securities Act of 1933, as amended (the
"Securities Act") and will have been registered or qualified (or are exempt
from registration and qualification) under the registration, permit or
qualification requirements of any applicable state securities laws. Neither
the Company nor any agent on its behalf has solicited or will solicit any
offers to sell or has offered to sell or will offer to sell all or any part of
the Shares to any person or persons so as to bring the sale of such Shares by
the Company within the registration provisions of the Securities Act.
3.19 FULL DISCLOSURE. This Agreement, the Exhibits hereto and all
other documents delivered by the Company to the Purchaser or Purchaser's
attorneys or agents in connection herewith or therewith or with the
transactions contemplated hereby or thereby, do not contain any untrue
statement of a material fact nor, to the Company's knowledge, omit to state a
material fact necessary in order to make the statements contained herein or
therein not misleading.
3.20 REAL PROPERTY HOLDING CORPORATION. The Company is not a real
property holding corporation within the meaning of Internal Revenue Code
Section 897(c)(2) and any regulations promulgated thereunder.
6.
<PAGE> 10
4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. Purchaser hereby
represents and warrants to the Company as follows (such representations and
warranties do not lessen or obviate the representations and warranties of the
Company set forth in this Agreement):
4.1 REQUISITE POWER AND AUTHORITY. Purchaser has all necessary
power and authority under all applicable provisions of law to execute and
deliver this Agreement and the Investor's Rights Agreement and to carry out the
provisions of this Agreement and the Investor's Rights Agreement. All action
on Purchaser's part required for the law execution and delivery of this
Agreement and the Investor's Rights Agreement have been or will be effectively
taken prior to the Closing. Upon their execution and delivery this Agreement
and the Investor's Rights Agreement will be valid and binding obligations of
Purchaser, enforceable in accordance with their terms, except (i) as limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other laws of
general application affecting enforcement of creditors' rights; (ii) general
principles of equity that restrict the availability of equitable remedies; and
(iii) to the extent that the enforceability of the indemnification provisions
of Section 2.8 of the Investor's Rights Agreement may be limited by applicable
laws.
4.2 CONSENTS. All consents, approvals, orders, authorizations,
registrations, qualifications, designations, declarations or filings with any
governmental or banking authority on the part of Purchaser required in
connection with the consummation of the transactions contemplated in this
Agreement and the Investor's Rights Agreement have been or shall have been
obtained prior to and be effective as of the Closing.
4.3 INVESTMENT REPRESENTATIONS. Purchaser understands that
neither the Shares nor the Conversion Shares have been registered under the
Securities Act. Purchaser also understands that the Shares are being offered
and sold pursuant to an exemption from registration contained in the Securities
Act based in part upon Purchaser's representations contained in the Agreement.
Purchaser hereby represents and warrants as follows:
(A) PURCHASER BEARS ECONOMIC RISK. Purchaser has
substantial experience in evaluating and investing in private placement
transactions of securities in companies similar to the Company so that it is
capable of evaluating the merits and risks of its investment in the Company and
has the capacity to protect its own interests. Purchaser must bear the
economic risk of this investment indefinitely unless the Shares (or the
Conversion Shares) are registered pursuant to the Securities Act, or an
exemption from registration is available. Purchaser understands that there is
no assurance that any exemption from registration under the Securities Act will
be available and that, even if available, such exemption may not allow
Purchaser to transfer all or any portion of the Shares or the Conversion Shares
under the circumstances, in the amounts or at the times Purchaser might
propose.
(B) ACQUISITION FOR OWN ACCOUNT. Purchaser is acquiring
the Shares and the Conversion Shares for Purchaser's own account for investment
only, and not with a view towards their distribution. Purchaser represents
that each and every partner in it is an "accredited investor" as defined in
Rule 501 of Regulation D under the Securities Act.
(C) PURCHASER CAN PROTECT ITS INTEREST. Purchaser
represents that by reason of its management's, business or financial
experience, Purchaser has the capacity to protect its own interests in
connection with the transactions contemplated in this Agreement and the
Investor's Rights Agreement. Further, Purchaser is aware of no publication of
any advertisement in connection with the transactions contemplated in this
Agreement.
7.
<PAGE> 11
(D) COMPANY INFORMATION. Purchaser has received and read
the Financial Statements and has had an opportunity to discuss the Company's
business, management and financial affairs with directors, officers and
management of the Company and has had the opportunity to review the Company's
operations and facilities. Purchaser has also had the opportunity to ask
questions of and receive answers from, the Company and its management regarding
the terms and conditions of this investment.
5. CONDITIONS TO CLOSING.
5.1 CONDITIONS TO PURCHASER'S OBLIGATIONS AT THE CLOSING.
Purchaser's obligations to purchase the Shares at the Closing are subject to
the satisfaction, at or prior to the Closing, of the following conditions:
(A) REPRESENTATIONS AND WARRANTIES TRUE; PERFORMANCE OF
OBLIGATIONS. The representations and warranties made by the Company in Section
3 hereof shall be true and correct in all material respects as of the Closing
Date with the same force and effect as if they had been made as of the Closing
Date, and the Company shall have performed all obligations and conditions
herein required to be performed or observed by it on or prior to the Closing.
(B) THIRD PARTY CONSENTS, PERMITS, AND WAIVERS. The
Company shall have obtained any and all consents, permits, and waivers
necessary or appropriate for consummation of the transactions contemplated by
this Agreement and the Investor's Rights Agreement.
(C) CORPORATE DOCUMENTS. The Company shall have
delivered to the Purchaser or its counsel copies of all corporate documents of
the Company as the Purchaser shall reasonably request.
(D) RESERVATION OF CONVERSION SHARES. The Conversion
Shares issuable upon conversion of the Shares shall have been duly authorized
and reserved for issuance upon such conversion.
(E) FILING OF CERTIFICATE OF DESIGNATIONS. The
Certificate of Designations shall have been filed with the Secretary of State
of the State of Delaware.
(F) COMPLIANCE CERTIFICATE. The Company shall have
delivered to the Purchaser a Compliance Certificate, executed by the Chairman
of the Board of the Company, dated the Closing Date, to the effect that the
conditions specified in subsections (a) through (e) of this Section 5.1 have
been satisfied.
(G) INVESTOR'S RIGHTS AGREEMENT. An Investor's Rights
Agreement substantially in the form attached hereto as Exhibit B shall have
been executed and delivered by the Company.
(H) PROCEEDINGS AND DOCUMENTS. At the Closing all
corporate and other proceedings in connection with the transactions
contemplated at the Closing hereby and all documents and instruments incident
to such transactions shall be reasonably satisfactory in substance and form to
the Purchaser and its counsel, and the Purchaser and its counsel shall have
received all such counterpart originals or certified or other copies of such
documents as they may reasonably request.
(I) OPINION. Purchaser shall have received from David Y.
Monteith, counsel to the Company, an opinion letter substantially in the form
attached hereto as Exhibit F, addressed to Purchaser as of the date of the
Closing.
8.
<PAGE> 12
(J) QUALIFICATIONS. All authorizations, approvals or
permits, if any, of any governmental authority or regulatory body of the
United States or of any state that are required in connection with the lawful
sale and issuance of the Shares pursuant to this Agreement shall have been duly
obtained and shall be effective as of the Closing. No stop order or other
order enjoining the sale of the Shares or the proposed issuance of the
Conversion Shares shall have been issued and no proceedings for such purpose
shall be pending or, to the knowledge of the Company, threatened by the
Securities and Exchange Commission or any commissioner or corporations or
similar officer of any state having jurisdiction over this transaction. At the
time of Closing, the sale and issuance of the Shares and the proposed issuance
of the Conversion Shares shall be legally permitted by all laws and regulations
to which the Purchaser and the Company are subject.
5.2 CONDITIONS TO OBLIGATIONS OF THE COMPANY. The Company's
obligation to issue and sell the Shares at the Closing is subject to the
satisfaction, on or prior to the Closing, of the following conditions:
(A) REPRESENTATIONS AND WARRANTIES TRUE; PERFORMANCE OF
OBLIGATIONS. The representations and warranties made by the Purchaser in
Section 4 hereof shall be true and correct in all material respects at the date
of the Closing Date, with the same force and effect as if they had been made on
and as of said date, and the Purchaser shall have performed and complied with
all agreements and conditions herein required to be performed or complied with
by it on or before the Closing.
(B) THIRD PARTY CONSENTS, PERMITS, AND WAIVERS. The
Company shall have obtained any and all consents, permits, and waivers
necessary or appropriate for consummation of the transactions contemplated by
this Agreement and the Investor's Rights Agreement.
(C) FILING OF CERTIFICATE OF DESIGNATIONS. The
Certificate of Designations shall have been filed with the Secretary of State
of the State of Delaware.
(D) INVESTOR'S RIGHTS AGREEMENT. An Investor's Rights
Agreement substantially in the form attached hereto as Exhibit B shall have
been executed and delivered by the Purchaser.
(E) QUALIFICATIONS. All authorizations, approvals or
permits, if any, of any governmental authority or regulatory body of the United
States or of any state that are required in connection with the lawful sale and
issuance of the Shares pursuant to this Agreement shall have been duly obtained
and shall be effective as of the Closing. No stop order or other order
enjoining the sale of the Shares or the proposed issuance of the Conversion
Shares shall have been issued and no proceedings for such purpose shall be
pending or, to the knowledge of the Company, threatened by the Securities and
Exchange Commission or any commissioner or corporations or similar officer of
any state having jurisdiction over this transaction. At the time of Closing,
the sale and issuance of the Shares and the proposed issuance of the Conversion
Shares shall be legally permitted by all laws and regulations to which the
Purchaser and the Company are subject.
6. AFFIRMATIVE COVENANTS OF THE COMPANY.
6.1 ELECTION OF DIRECTORS. The Company agrees that at the next
annual meeting of stockholders of the Company to be held no later than January
31, 1997, three directors selected by the Purchaser, plus two directors
nominated by the nominating committee of the Board of Directors and reasonably
acceptable to Purchaser, will be nominated as directors of the Company to serve
until their respective successors are duly elected and have qualified.
9.
<PAGE> 13
6.2 BOARD OF DIRECTORS MEETINGS. For as long as any shares of
Series B Preferred Stock of the Company remain outstanding, the Company agrees
that it shall hold meetings of the Board of Directors no less frequently than
once per calendar quarter.
6.3 QUALIFIED SMALL BUSINESS STOCK. The Company covenants that so
long as any of the Shares, or Conversion Shares, are held by Purchaser (or a
transferee in whose hands such Shares or Conversion Shares are eligible to
qualify as Qualified Small Business Stock as defined in Section 1202(c) of the
Internal Revenue Code of 1986, as amended), it will use its reasonable efforts
to cause the Shares, or the Conversion Shares, to qualify as Qualified Small
Business Stock; provided, however, that "reasonable efforts" as used in this
Section 6.3 shall not be construed to require the Company to operate its
business in a manner which would adversely affect its business, limit its
future prospects or alter the timing or resource allocation related to its
planned operations or financing activities.
6.4 BOARD OF DIRECTOR APPROVAL. The Company covenants that so
long as any shares of Series A Preferred Stock remain outstanding, the approval
of the Board of Directors of the Company shall be obtained prior to taking any
of the following actions:
(A) The hiring of any officer of the Company;
(B) The adoption of any compensation program, including
base salaries and bonus programs for officers and key employees of the Company;
(C) The adoption of any stock option plan and the
issuance of any stock and stock options;
(D) The adoption of an annual budget, business or
financial plan;
(E) The purchase or lease of any real estate, fixed asset
or aircraft lease in excess of $500,000;
(F) The approval by the Company of any obligation or
commitment, including capital equipment leases or purchases, with a value in
excess of $500,000 or which are outside the most recent business plan or budget
approved by the Board of Directors; and
(G) Transfers by stockholders of more than 10,000 shares
of the Company's stock; provided, however, that this Section 6.4(vii) shall
expire on an initial public offering of the Company's Common Stock resulting in
aggregate proceeds (net of underwriting discounts and commissions) to the
Company of at least $10,000,000 at a minimum price of $4.00 per share; and
provided further, that the provisions of this Section 6.4(vii) shall not apply
to transfers by a stockholder to such stockholder's partners, family members
and affiliates.
6.5 APPROVAL OF SERIES B PREFERRED STOCK. For so long as any of
the shares of Series B Preferred Stock remain outstanding, the Company agrees
not to allow the transfer of more than 100,000 shares of the Company's Common
Stock by any stockholder in any 12 month period without the prior approval of
at least a majority of the shares of Series B Preferred Stock then outstanding.
10.
<PAGE> 14
7. MISCELLANEOUS.
7.1 GOVERNING LAW. This Agreement shall be governed in all
respects by the laws of the State of California as such laws are applied to
agreements between California residents entered into and performed entirely in
California.
7.2 SURVIVAL. The representations, warranties, covenants, and
agreements made herein shall survive any investigation made by the Purchaser
and the closing of the transactions contemplated hereby. All statements as to
factual matters contained in any certificate or other instrument delivered by
or on behalf of the Company pursuant hereto in connection with the transactions
contemplated hereby shall be deemed to be representations and warranties by
the Company hereunder solely as of the date of such certificate or instrument.
7.3 SUCCESSORS AND ASSIGNS. Except as otherwise expressly
provided herein, the provisions hereof shall inure to the benefit of, and be
binding upon, the successors, assigns, heirs, executors, and administrators of
the parties hereto and shall inure to the benefit of and be enforceable by each
person who shall be a holder of the Shares from time to time.
7.4 ENTIRE AGREEMENT. This Agreement, the Exhibits and Schedules
hereto, the Investor's Rights Agreement, and the other documents delivered
pursuant hereto constitute the full and entire understanding and agreement
between the parties with regard to the subjects hereof and no party shall be
liable or bound to any other in any manner by any representations, warranties,
covenants, and agreements except as specifically set forth herein and therein.
7.5 SEPARABILITY. In case any provision of the Agreement shall be
invalid, illegal, or unenforceable, the validity, legality, and enforceability
of the remaining provisions shall not in any way be affected or impaired
thereby.
7.6 AMENDMENT AND WAIVER.
(A) This Agreement may be amended or modified only upon
the written consent of the Company and holders of more than fifty percent (50%)
of the Shares (treated as if converted and including any Conversion Shares that
have not been sold to the public).
(B) The obligations of the Company and the rights of the
holders of the Shares and the Conversion Shares under this Agreement may be
waived only with the written consent of the holders of more than fifty percent
(50%) of the Shares (treated as if converted and including any Conversion
Shares that have not been sold to the public).
7.7 DELAYS OR OMISSIONS. It is agreed that no delay or omission
to exercise any right, power, or remedy accruing to the Purchaser, upon any
breach, default or noncompliance of the Company under this Agreement, the
Investor's Rights Agreement, or the Certificate of Incorporation, shall impair
any such right, power, or remedy, nor shall it be construed to be a waiver of
any such breach, default or noncompliance, or any acquiescence therein, or of
or in any similar breach, default or noncompliance thereafter occurring. It
is further agreed that any waiver, permit, consent, or approval of any kind or
character on Purchaser's part of any breach, default or noncompliance under
this Agreement or under the Certificate of Incorporation or any waiver on
Purchaser's part of any provisions or conditions of the Agreement must be in
writing and shall be effective only to the extent specifically set forth in
such
11.
<PAGE> 15
writing. All remedies, either under this Agreement, the Certificate of
Incorporation, Bylaws, or otherwise afforded to Purchaser, shall be cumulative
and not alternative.
7.8 NOTICES. All notices required or permitted hereunder shall be
in writing and shall be deemed effectively given: (i) upon personal delivery to
the party to be notified; (ii) upon receipt at the address on the signature
page hereto after having been sent by registered or certified mail, return
receipt requested, postage prepaid; or (iii) one (1) day after deposit with a
nationally recognized overnight courier, specifying next day delivery, with
written verification of receipt. All communications shall be sent to the party
to be notified at the address as set forth on the signature page hereof or at
such other address as such party may designate by ten (10) days advance written
notice to the other party hereto.
7.9 EXPENSES. The Company shall pay all costs and expenses that
it incurs with respect to the negotiation, execution, delivery and performance
of this Agreement. The Company shall, at the Closing, reimburse the reasonable
fees, not to exceed $15,000, and reasonable expenses of Cooley Godward Castro
Huddleson & Tatum, counsel for the Purchaser.
7.10 ATTORNEYS' FEES. If legal action is brought to enforce or
interpret this Agreement, the prevailing party shall be entitled to recover its
reasonable attorneys' fees and legal costs in connection therewith.
7.11 TITLES AND SUBTITLES. The titles of the sections and
subsections of the Agreement are for convenience of reference only and are not
to be considered in construing this Agreement.
7.12 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
7.13 BROKER'S FEES. Each party hereto represents and warrants that
no agent, broker, investment banker, person or firm acting on behalf of or
under the authority of such party hereto is or will be entitled to any broker's
or finder's fee or any other commission directly or indirectly in connection
with the transactions contemplated herein. Each party hereto further agrees to
indemnify each other party for any claims, losses or expenses incurred by such
other party as a result of the representation in this Section 7.13 being
untrue.
12.
<PAGE> 16
IN WITNESS WHEREOF, the parties hereto have executed the Agreement as
of the date set forth in the first paragraph hereof.
AIR SOUTH AIRLINES, INC.
BY: /s/ Roden A. Brandt
-------------------------------
Roden A. Brandt, President
and Chief Executive Officer
ADDRESS:
1800 St. Julian Place
Columbia, SC 29204
BY:
-------------------------------
ADDRESS: One Bush Street
San Francisco, CA 94140
13.
<PAGE> 17
IN WITNESS WHEREOF, the parties hereto have executed the Agreement as
of the date set forth in the first paragraph hereof.
AIR SOUTH AIRLINES, INC.
By:
------------------------------
Its:
------------------------------
Address: 101 Trade Zone Drive
West Columbia, SC 29170
H&Q AIR SOUTH INVESTORS, L.P.
By: /s/
------------------------------
Its:
------------------------------
Address: One Bush Street
San Francisco, CA 94104
<PAGE> 18
AIR SOUTH AIRLINES, INC.
INVESTOR'S RIGHTS AGREEMENT
<PAGE> 19
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
I. General . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . 1
II. Restrictions On Transfer; Registration . . . . . . . . . . . . . 2
2.1 Restrictions on Transfer . . . . . . . . . . . . . . . . . 2
2.2 Demand Registration . . . . . . . . . . . . . . . . . . . . 3
2.3 Piggyback Registrations . . . . . . . . . . . . . . . . . . 4
2.4 Form S-3 Registration . . . . . . . . . . . . . . . . . . . 5
2.5 Obligations of the Company . . . . . . . . . . . . . . . . 6
2.6 Furnish Information . . . . . . . . . . . . . . . . . . . . 7
2.7 Delay of Registration . . . . . . . . . . . . . . . . . . . 7
2.8 Indemnification . . . . . . . . . . . . . . . . . . . . . . 7
2.9 Assignment of Registration Rights . . . . . . . . . . . . . 9
2.10 Amendment of Registration Rights . . . . . . . . . . . . . 10
2.11 "Market Stand-Off" Agreement . . . . . . . . . . . . . . . 10
III. Covenants Of The Company . . . . . . . . . . . . . . . . . . . . 10
3.1 Basic Financial Information and Reporting . . . . . . . . . 10
3.2 Inspection Rights . . . . . . . . . . . . . . . . . . . . . 11
3.3 Confidentiality of Records . . . . . . . . . . . . . . . . 11
3.4 Reservation of Common Stock . . . . . . . . . . . . . . . . 11
IV. Rights Of First Refusal . . . . . . . . . . . . . . . . . . . . . 11
4.1 Subsequent Offerings . . . . . . . . . . . . . . . . . . . 11
4.2 Exercise of Rights . . . . . . . . . . . . . . . . . . . . 12
4.3 Issuance of Equity Securities to Other Persons . . . . . . 12
4.4 Termination of Rights of First Refusal . . . . . . . . . . 12
4.5 Transfer of Rights of First Refusal . . . . . . . . . . . . 12
4.6 Excluded Securities . . . . . . . . . . . . . . . . . . . . 12
V. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.1 Governing Law . . . . . . . . . . . . . . . . . . . . . . . 13
5.2 Survival . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.3 Successors and Assigns . . . . . . . . . . . . . . . . . . 13
5.4 Separability . . . . . . . . . . . . . . . . . . . . . . . 13
5.5 Amendment and Waiver . . . . . . . . . . . . . . . . . . . 13
5.6 Delays or Omissions . . . . . . . . . . . . . . . . . . . . 13
5.7 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.8 Attorneys' Fees . . . . . . . . . . . . . . . . . . . . . . 14
5.9 Titles and Subtitles . . . . . . . . . . . . . . . . . . . 14
5.10 Counterparts . . . . . . . . . . . . . . . . . . . . . . . 14
</TABLE>
i.
<PAGE> 20
INVESTOR'S RIGHTS AGREEMENT
THIS INVESTOR'S RIGHTS AGREEMENT (the "Agreement") is entered into as of
the 24th day of May 1996, by and among AIR SOUTH AIRLINES, INC., a Delaware
corporation (the "Company") and H&Q AIR SOUTH INVESTORS, L.P. ("Purchaser").
RECITALS
WHEREAS, the Company proposes to sell and issue six hundred twenty-five
thousand (625,000) shares of its Series B Preferred Stock ("Series B Preferred
Stock") pursuant to the Series B Preferred Stock Purchase Agreement of even
date herewith between the Company and Purchaser (the "Purchase Agreement"); and
WHEREAS, as a condition to entering into the Purchase Agreement, the
Purchaser has requested that the Company extend to it registration rights,
information rights and a right of first refusal as set forth herein.
NOW, THEREFORE, in consideration of the mutual promises, representations,
warranties, covenants, and conditions set forth in this Agreement and in the
Purchase Agreement, the parties mutually agree as follows:
1. GENERAL.
1.1 DEFINITIONS. As used in this Agreement the following terms shall
have the following respective meanings:
"1934 ACT" means the Securities Exchange Act of 1934, as amended.
"EQUITY SECURITIES" means (i) any stock or similar security of the
Company, (ii) any security convertible, with or without consideration, into any
stock or similar security (including any option to purchase such a convertible
security), (iii) any security carrying any warrant or right to subscribe to or
purchase any stock or similar security or (iv) any such warrant or right.
"FAMILY MEMBER" means a Holder's spouse, children, stepchildren and
grandchildren.
"FINAL PROSPECTUS" means an amended prospectus filed with the SEC
pursuant to SEC Rule 424(b) of the Securities Act.
"HOLDER" means any person owning of record Registrable Securities.
"INITIAL OFFERING" means the first underwritten public offering of the
Company's securities.
"INITIATING HOLDERS" means the Holder or Holders of at least forty
percent (40%) of the Registrable Securities then outstanding.
1.
<PAGE> 21
"REGISTER," "REGISTERED," and "REGISTRATION" refer to a registration
effected by preparing and filing a registration statement in compliance with
the Securities Act, and the declaration or ordering of effectiveness by the SEC
of such registration statement or document.
"REGISTRABLE SECURITIES" means (i) the Shares; (ii) Common Stock of the
Company issued or issuable upon conversion of the Shares; and (iii) any Common
Stock of the Company issued as (or issuable upon the conversion or exercise of
any warrant, right or other security which is issued as) a dividend or other
distribution with respect to, or in exchange for or in replacement of, such
above-described securities. Notwithstanding the foregoing, Registrable
Securities shall not include any securities sold by a person to the public
either pursuant to a registration statement or Rule 144 or sold in a private
transaction in which the transferror's rights under Article II of this
Agreement are not assigned. Outstanding Shares and warrants, rights and other
securities issued as a dividend or other distribution with respect to
outstanding Shares, or in exchange or replacement of outstanding Shares, shall
be deemed to represent a number of shares of Registrable Securities equal to
the number of shares of Common Stock into which such Shares, warrants, rights
or other securities are convertible as of the time such determination is made.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended.
"SHARES" shall mean the Company's Series B Preferred Stock.
"FORM S-3" means such form under the Securities Act as in effect on the
date hereof or any successor registration form under the Securities Act
subsequently adopted by the SEC which permits inclusion or incorporation of
substantial information by reference to other documents filed by the Company
with the SEC.
"SEC" or "COMMISSION" means the Securities and Exchange Commission.
II. RESTRICTIONS ON TRANSFER; REGISTRATION.
2.1 RESTRICTIONS ON TRANSFER.
(A) Each Holder agrees not to make any disposition of all or any
portion of the Registrable Securities unless and until the transferee has
agreed in writing for the benefit of the Company to be bound by this Section 2.
1, provided and to the extent such Section is then applicable and:
(i) There is then in effect a registration statement
under the Securities Act covering such proposed disposition and such
disposition is made in accordance with such registration statement; or
(ii) Such Holder shall have notified the Company of the
proposed disposition and shall have furnished the Company with a detailed
statement of the circumstances surrounding the proposed disposition, and (B) if
reasonably requested by the Company, such Holder shall have furnished the
Company with an opinion of counsel, reasonably satisfactory to the Company,
that such disposition will not require registration of such shares under the
Securities Act.
(iii) Notwithstanding the provisions of paragraphs (i) and
(ii) above, no such registration statement or opinion of counsel shall be
necessary for a transfer by a Holder (A) which is a partnership to its partners
in accordance with partnership interests, (B) to the Holder's family member
2.
<PAGE> 22
or trust for the benefit of an individual Holder or (C) to an affiliate of the
Holder (as that term is defined in Rule 144 (a)(1) of the Securities Act (an
"Affiliate"), provided the transferee will be subject to the terms of this
Section 2.1 to the same extent as if he were an original Holder hereunder.
(B) Each certificate representing Series B Preferred Stock or
Registrable Securities shall (unless otherwise permitted by the provisions of
the Agreement) be stamped or otherwise imprinted with a legend substantially
similar to the following (in addition to any legend required under applicable
state securities laws or as provided elsewhere in this Agreement):
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE OFFERED, SOLD OR
OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL
REGISTERED UNDER THE ACT OR, IN THE OPINION OF COUNSEL OR BASED ON OTHER
WRITTEN EVIDENCE IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER OF
THESE SECURITIES, SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION
DOES NOT REQUIRE REGISTRATION.
(C) The Company shall be obligated to reissue promptly
unlegended certificates at the request of any holder thereof if the holder
shall have obtained an opinion of counsel (which counsel may be counsel to the
Company) reasonably acceptable to the Company to the effect that the securities
proposed to be disposed of may lawfully be so disposed of without registration,
qualification or legend.
(D) Any legend endorsed on an instrument pursuant to applicable
state securities laws and the stop-transfer instructions with respect to such
securities shall be removed upon receipt by the Company of an order of the
appropriate blue sky authority authorizing such removal.
2.2 DEMAND REGISTRATION.
(A) Subject to the conditions of this Section 2.2, if the
Company shall receive at any time after the later of June 1, 1997 and one
hundred twenty (120) days after the closing of the Initial Offering, a written
request from the Initiating Holders that the Company file a registration
statement under the Securities Act covering the registration of at least 25% of
the Registrable Securities held by such Initiating Holders, then the Company
shall, within thirty (30) days of the receipt thereof, give written notice of
such request to all Holders, and subject to the limitations of Section 2.2(b),
effect, as soon as practicable, the registration under the Securities Act;
provided, however, that the Initiating Holders may request registration of less
than 25% of such Registrable Securities if the anticipated aggregate offering
price, net of underwriting discounts and commissions, exceeds $5,000,000.
(B) If the Initiating Holders intend to distribute the
Registrable Securities covered by their request by means of an underwriting,
they shall so advise the Company as a part of their request made pursuant to
this Section 2.2 and the Company shall include such information in the written
notice referred to in Section 2.2(a). In such event, the right of any Holder to
include such Holder's Registrable Securities in such registration shall be
conditioned upon such Holder's participation in such underwriting and the
inclusion of such Holder's Registrable Securities in the underwriting (unless
otherwise mutually agreed by a majority in interest of the Initiating Holders
and such Holder) to the extent provided herein. All Holders proposing to
distribute their securities through such underwriting shall enter into an
underwriting agreement in customary form with the underwriter or underwriters
selected for such underwriting by a majority in interest of the Initiating
Holders (which underwriter or underwriters shall
3.
<PAGE> 23
be reasonably acceptable to the Company). Notwithstanding any other provision
of this Section 2.2, if the underwriter advises the Company in writing that
marketing factors require a limitation of the number of securities to be
underwritten (including Registrable Securities) then the Company shall so
advise all Holders of Registrable Securities which would otherwise be
underwritten pursuant hereto, and the number of shares that may be included in
the underwriting shall be allocated to the Holders of such Registrable
Securities on a pro rata basis based on the number of Registrable Securities
held by all such Holders (including the Initiating Holders). Any Registrable
Securities excluded or withdrawn from such underwriting shall be withdrawn
from the registration.
(C) The Company shall not be obligated to effect more than two
(2) registrations pursuant to this Section 2.2.
(D) Notwithstanding the foregoing, if the Company shall furnish
to Holders requesting registration statement pursuant to this Section 2.2, a
certificate signed by the Chairman of the Board stating that in the good faith
judgment of the Board of Directors of the Company, it would be seriously
detrimental to the Company and its stockholders for such registration statement
to be filed and it is therefore essential to defer the filing of such
registration statement, the Company shall have the right to defer such filing
for a period of not more than thirty (30) days after receipt of the request of
the Initiating Holders; provided that such right to delay a request shall be
exercised by the Company no more than once in any one-year period.
(E) All expenses incurred in connection with a registration
pursuant to this Section 2.2 (excluding underwriters' discounts and
commissions, which shall be paid by the selling Holders pro rata with respect
to their included shares), including without limitation all registration,
filing, qualification, printers' and accounting fees, fees and disbursements of
counsel for the Company, and the reasonable fees and disbursements of a single
counsel for the selling Holders, shall be borne by the Company; provided,
however, that the Company shall not be required to pay for any expenses of any
registration proceeding begun pursuant to Section 2.2 if the registration
request is subsequently withdrawn, unless the withdrawal of the registration
request results from either (a) intentional actions by the Company outside the
normal course of business that materially reduce the feasibility of the
registration proceeding, or (b) the discovery of information about the Company
that was not known at the time of the Initiating Holders' request made pursuant
to Section 2.2(a), and such information materially reduces the feasibility of
the registration proceeding. If the Company is required to pay the
registration expenses pursuant to this Section 2.2(e), then the Holders shall
not forfeit their rights pursuant to this Section 2.2 to a demand registration.
2.3 PIGGYBACK REGISTRATIONS.
(A) The Company shall notify all Holders in writing at least
thirty (30) days prior to the filing of any registration statement under the
Securities Act for purposes of a public offering of securities of the Company
(including, but not limited to, registration statements relating to secondary
offerings of securities of the Company, but excluding registration statements
relating to the Initial Offering, employee benefit plans and corporate
reorganizations) and will afford each such Holder who would have been unable to
sell all of such Registrable Securities on an unrestricted basis pursuant to
Rule 144 promulgated under the Securities Act, during the four-week period
immediately preceding the effective date of the registration statement, an
opportunity to include in such registration statement all or part of such
Registrable Securities held by such Holder. Each Holder desiring to include in
any such registration statement all or any part of the Registrable Securities
held by it shall, within twenty (20) days after receipt of the above-described
notice from the Company, so notify the Company in writing. Such
4.
<PAGE> 24
notice shall state the intended method of disposition of the Registrable
Securities by such Holder. If a Holder decides not to include all of its
Registrable Securities in any registration statement thereafter filed by the
Company, such Holder shall nevertheless continue to have the right to include
any Registrable Securities in any subsequent registration statement or
registration statements as may be filed by the Company with respect to
offerings of its securities, all upon the terms and conditions set forth
herein. Notwithstanding anything to the contrary, the foregoing shall not
apply to any registrations occurring on or after the fifth anniversary of the
Initial Offering
(B) If the registration statement under which the Company gives
notice under this Section 2.3 is for an underwritten offering, the Company
shall so advise the Holders. In such event, the right of any such Holder to be
included in a registration pursuant to this Section 2.3 shall be conditioned
upon such Holder's participation in such underwriting and the inclusion of such
Holder's Registrable Securities in the underwriting to the extent provided
herein. All Holders proposing to distribute their Registrable Securities
through such underwriting shall enter into an underwriting agreement in
customary form with the underwriter or underwriters selected for such
underwriting. Notwithstanding any other provision of the Agreement, if the
underwriter determines in good faith that marketing factors require a
limitation of the number of shares to be underwritten, the number of shares
that may be included in the underwriting shall be allocated, first, to the
Company; second, to the Holders on a pro rata basis based on the total number
of Registrable Securities held by the Holders; and third, to any stockholder of
the Company (other than a Holder) on a pro rata basis. No such reduction shall
reduce the securities being offered by the Company for its own account to be
included in the registration and underwriting, except that in no event shall
the amount of securities of the selling Holders included in the registration be
reduced below twenty percent (20%) of the total amount of securities included
in such registration, unless such offering is the Initial Offering and such
registration does not include shares of any other selling stockholders, in
which event any or all of the Registrable Securities of the Holders may be
excluded in accordance with the immediately preceding sentence. In no event
will shares of any other selling stockholder be included in such registration
which would reduce the number of shares which may be included by Holders
without the written consent of Holders of not less than fifty percent (50%) of
the Registrable Securities proposed to be sold in the offering.
(C) The Company shall bear all fees and expenses incurred in
connection with any registration under this Section 2.3 (excluding
underwriters' discounts and commissions, which shall be paid by the selling
Holders pro rata with respect to their included shares), including without
limitation all registration, filing, qualification, printers' and accounting
fees, fees and disbursements of counsel to the Company, and the reasonable fees
and disbursements of a single counsel to the selling Holders (which counsel
shall also be counsel to the Company unless counsel to the Company has a
conflict of interest with respect to the representation of any selling Holder
or the underwriters object to the selling Holders representation by Company
counsel).
2.4 FORM S-3 REGISTRATION. In case the Company shall receive from the
Holders at least ten percent (10%) of the Registrable Securities a written
request or requests that the Company effect a registration on Form S-3 and any
related qualification or compliance with respect to all or a part of the
Registrable Securities owned by such Holder or Holders, the Company will:
(A) promptly give written notice of the proposed registration,
and any related qualification or compliance, to all other Holders of
Registrable Securities; and
(B) as soon as practicable, effect such registration and all
such qualifications and compliances as may be so requested and as would permit
or facilitate the sale and distribution of all or
5.
<PAGE> 25
such portion of such Holder's or Holders' Registrable Securities as are
specified in such request, together with all or such portion of the Registrable
Securities of any other Holder or Holders joining in such request as are
specified in a written request given within fifteen (15) days after receipt of
written notice from the Company pursuant to Section 2.4(a); provided, however,
that the Company shall not be obligated to effect any such registration,
qualification or compliance pursuant to this Section 2.4: (i) if Form S-3 is
not available under the Securities Act or rules or regulations promulgated
thereunder for such offering by the Holders; (ii) if the Holders, together
with the holders of any other securities of the Company entitled to inclusion
in such registration, propose to sell Registrable Securities and such other
securities (if any) at an aggregate price to the public of less than $500,000;
(iii) if the Company shall furnish to the Holders a certificate signed by the
Chairman of the Board of Directors of the Company stating that in the good
faith judgment of the Board of Directors of the Company, it would be seriously
detrimental to the Company and its stockholders for such Form S-3 Registration
to be effected at such time, in which event the Company shall have the right to
defer the filing of the Form S-3 registration statement for a period of not
more than thirty (30) days after receipt of the request of the Holder or
Holders under this Section 2.4, provided that, such right to defer the filing
may be exercised by the Company no more than once in any one-year period; (iv)
if the Company has, within the twelve (12) month period preceding the date of
such request, already effected two (2) registrations on Form S-3 for the
Holders pursuant to this Section 2.4; or (v) in any particular jurisdiction in
which the Company would be required to qualify to do business or to execute a
general consent to service of process in effecting such registration,
qualification or compliance.
(C) Subject to the foregoing, the Company shall file a Form S-3
registration statement covering the Registrable Securities and other securities
so requested to be registered as soon as practicable after receipt of the
request or requests of the Holders. All such expenses incurred in connection
with registrations requested pursuant to this Section 2.4 shall be paid by the
selling Holders (and any other selling stockholders pro rata with respect to
their included shares, including without limitation all registration, filing,
qualification, printers' and accounting fees, fees and disbursements of counsel
for the Company, and the reasonable fees and disbursements of a single counsel
for the selling Holder or Holders.
2.5 OBLIGATIONS OF THE COMPANY. Whenever required to effect the
registration of any Registrable Securities, the Company shall, as expeditiously
as reasonably possible:
(A) Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use its best efforts to cause such
registration statement to become effective, and, upon the request of the
Holders of a majority of the Registrable Securities registered thereunder, keep
such registration statement effective for up to ninety (90) days.
(B) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in
connection with such registration statement as may be necessary to comply with
the provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement.
(C) Furnish to the Holders such number of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as they may
reasonably request in order to facilitate the disposition of Registrable
Securities owned by them.
6.
<PAGE> 26
(D) Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or state
blue sky laws of such jurisdictions as shall be reasonably requested by the
Holders, provided that the Company shall not be required in connection
therewith or as a condition thereto to qualify to do business or to file a
general consent to service of process in any such states or jurisdictions.
(E) In the event of any underwritten public offering, enter into
and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter(s) of such offering. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
(F) Notify each Holder of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any event
as a result of which the prospectus included 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 the light of the circumstances then
existing.
(G) Furnish, at the request of a majority of the Holders
participating in the registration, on the date that such Registrable Securities
are delivered to the underwriters for sale, if such securities are being sold
through underwriters, or, if such securities are not being sold through
underwriters, on the date that the registration statement with respect to such
securities becomes effective, (i) an opinion, dated as of such date, of the
counsel representing the Company for the purposes of such registration, in form
and substance as is customarily given to underwriters in an underwritten public
offering and reasonably satisfactory to a majority in interest of the Holders
requesting registration, addressed to the underwriters, if any, and to the
Holders requesting registration of Registrable Securities and (ii) a letter
dated as of such date, from the independent certified public accountants of the
Company, in form and substance as is customarily given by independent certified
public accountants to underwriters in an underwritten public offering and
reasonably satisfactory to a majority in interest of the Holders requesting
registration, addressed to the underwriters, if any, and to the Holders
requesting registration of Registrable Securities.
2.6 FURNISH INFORMATION. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to Sections 2.2, 2.3 or
2.4 that the selling Holders shall furnish to the Company such information
regarding themselves, the Registrable Securities held by them, and the intended
method of disposition of such securities as shall be required to effect the
registration of their Registrable Securities.
2.7 DELAY OF REGISTRATION. No Holder shall have any right to obtain or
seek an injunction restraining or otherwise delaying any such registration as
the result of any controversy that might arise with respect to the
interpretation or implementation of this Article II.
2.8 INDEMNIFICATION. In the event any Registrable Securities are
included in a registration statement under Sections 2.2, 2.3 or 2.4:
(A) To the extent permitted by law, the Company will indemnify
and hold harmless each Holder, the partners, officers and directors of each
Holder, any underwriter (as defined in the Securities Act) for such Holder and
each person, if any, who controls such Holder or underwriter within the meaning
of the Securities Act or the 1934 Act, against any losses, claims, damages, or
liabilities joint
7.
<PAGE> 27
or several) to which they may become subject under the Securities Act, the 1934
Act or other federal or state law, insofar as such losses, claims, damages, or
liabilities (or actions in respect thereof) arise out of or are based upon any
of the following statements, omissions or violations (collectively a
"Violation") by the Company: (i) any untrue statement or alleged untrue
statement of a material fact contained in such registration statement,
including any preliminary prospectus or final prospectus contained therein or
any amendments or supplements thereto, (ii) 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 (iii) any violation or alleged
violation by the Company of the Securities Act, the 1934 Act, any state
securities law or any rule or regulation promulgated under the Securities Act,
the 1934 Act or any state securities law in connection with the offering
covered by such registration statement; and the Company will reimburse each
such Holder, partner, officer or director, underwriter or 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 indemnity agreement contained in this Section 2.8(a)
shall not apply to amounts paid in settlement of any such loss, claim, damage,
liability or action if such settlement is effected without the consent of the
Company (which consent shall not be unreasonably withheld), nor shall the
Company be liable in any such case for any such loss, claim, damage, liability
or action to the extent that it arises out of or is based upon a Violation
which occurs in reliance upon and in conformity with written information
furnished to the Company expressly for use in connection with such registration
by such Holder, partner, officer, director, underwriter or controlling person
of such Holder.
(B) To the extent permitted by law, each selling Holder
will indemnify and hold harmless the Company, each of its directors, each of
its officers, each person, if any, who controls the Company within the meaning
of the Securities Act, any underwriter and any other Holder selling securities
under such registration statement or any of such other Holder's partners,
directors or officers or any person who controls such Holder, against any
losses, claims, damages or liabilities (joint or several) to which the Company
or any such director, officer, controlling person, underwriter or other such
Holder, or partner, director, officer or controlling person of such other
Holder may become subject under the Securities Act, the 1934 Act or other
federal or state law, insofar as such losses, claims, damages or liabilities
(or actions in respect thereto) arise out of or are based upon any Violation,
in each case to the extent (and only to the extent) that such Violation occurs
in reliance upon and in conformity with written information furnished to the
Company by such Holder expressly for use in connection with such registration;
and each such Holder will reimburse any legal or other expenses reasonably
incurred by the Company or any such director, officer, controlling person,
underwriter or other Holder, or partner, officer, director or controlling
person of such other Holder in connection with investigating or defending any
such loss, claim, damage, liability or action if it is judicially determined
that there was such a Violation; provided, however, that the indemnity
agreement contained in this Section 2.8(b) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Holder, which consent shall
not be unreasonably withheld; provided further, that in no event shall any
indemnity under this Section 2.8 exceed the proceeds from the offering received
by such Holder.
(C) Promptly after receipt by an indemnified party under
this Section 2.8 of notice of the commencement of any action (including any
governmental action) as to which indemnity may be sought, such indemnified
party will, if a claim in respect thereof is to be made against any
indemnifying party under this Section 2.8, deliver to the indemnifying party a
written notice of the commencement thereof and the indemnifying party shall
have the right to participate in, and, to the extent the indemnifying party so
desires, jointly with any other indemnifying party similarly noticed, to
assume the defense thereof with counsel mutually satisfactory to the parties;
provided, however, that an indemnified
8.
<PAGE> 28
party shall have the right to retain its own counsel, with the fees and
expenses to be paid by the indemnifying party, if representation of such
indemnified party by the counsel retained by the indemnifying party would be
inappropriate due to actual or potential differing interests between such
indemnified party and any other party represented by such counsel in such
proceeding. The failure to deliver written notice to the indemnifying party
within a reasonable time of the commencement of any such action, if materially
prejudicial to its ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this Section
2.8, but the omission so to deliver written notice to the indemnifying party
will not relieve it of any liability that it may have to any indemnified party
otherwise than under this Section 2.8.
(D) If the indemnification provided for in this Section
2.8 is held by a court of competent jurisdiction to be unavailable to an
indemnified party with respect to any losses, claims, damages or liabilities
referred to herein, the indemnifying party, in lieu of indemnifying such
indemnified party thereunder, shall to the extent permitted by applicable law
contribute to the amount paid or payable by such indemnified party as a result
of such loss, claim, damage or liability in such proportion as is appropriate
to reflect the relative fault of the indemnifying party on the one hand and of
the indemnified party on the other in connection with the Violation(s) that
resulted in such loss, claim, damage or liability, as well as any other
relevant equitable considerations. The relative fault of the indemnifying
party and of the indemnified party shall be determined by a court of law by
reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission to state a material fact relates
to information supplied by the indemnifying party or by the indemnified party
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission; provided that, in
no event shall any contribution by a Holder hereunder exceed the proceeds from
the offering received by such Holder.
(E) The foregoing indemnity agreements of the Company and
Holders are subject to the condition that, insofar as they relate to any
Violation made in a preliminary prospectus but eliminated or remedied in the
amended prospectus on file with the SEC at the time the registration statement
in question becomes effective or the Final Prospectus, such indemnity agreement
shall not inure to the benefit of any person obligated under the Securities Act
to furnish to the person asserting the loss, liability, claim or damage a copy
of the Final Prospectus if a copy of the Final Prospectus was furnished to the
indemnified party and was not furnished to the person asserting the loss,
liability, claim or damage at or prior to the time such action is required by
the Securities Act.
(F) The obligations of the Company and Holders under this
Section 2.8 shall survive the completion of any offering of Registrable
Securities pursuant to a registration statement, or otherwise.
2.9 ASSIGNMENT OF REGISTRATION RIGHTS. The rights to cause the
Company to register Registrable Securities pursuant to this Article II may be
assigned by a Holder to a transferee or assignee of Registrable Securities;
provided, however, that no such transferee or assignee shall be entitled to
registration rights under Sections 2.2, 2.3 or 2.4 hereof unless such
transferee or assignee: (i) is a Holder; (ii) holds after such transfer or
assignment at least one hundred thousand (100,000) shares of Registrable
Securities (as adjusted for stock dividends, splits and combinations); or (iii)
is a Family Member or a subsidiary, parent, general partner, Affiliate, or
limited partner of a Holder. In each such case, the Company shall, within
twenty (20) days after such transfer, be furnished with written notice of the
name and address of such transferee or assignee and the securities with respect
to which such registration rights are being assigned.
9.
<PAGE> 29
2.10 AMENDMENT OF REGISTRATION RIGHTS. Any provision of this
Article II may be amended and the observance thereof may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the Holders of
more than fifty percent (50%) of the Registrable Securities. Any amendment or
waiver effected in accordance with this Section 2.10 shall be binding upon each
Holder and the Company. By acceptance of any benefits under this Article II,
each Holder hereby agrees to be bound by the provisions hereunder.
2.11 "MARKET STAND-OFF" AGREEMENT. If requested by the Company and
an underwriter of Common Stock (or other securities) of the Company, the
Purchaser shall not sell or otherwise transfer or dispose of any Common Stock
(or other securities) of the Company held by such stockholder (other than those
included in the registration) for a period specified by the underwriters not to
exceed one hundred eighty (180) days following the effective date of a
registration statement of the Company filed under the Securities Act, provided
that all officers and directors of the Company and all holders of at least one
percent (1%) of the Company's voting securities enter into similar agreements.
The obligations described in this Section 2.11 shall not apply to a
registration relating solely to employee benefit plans on Form S-I or Form S-8
or similar forms that may be promulgated in the future, or a registration
relating solely to a Commission Rule 145 transaction on Form S-4 or similar
forms that may be promulgated in the future. The Company may impose stop-
transfer instructions with respect to the shares (or securities) subject to the
foregoing restriction until the end of said one hundred eighty (180) day
period.
III. COVENANTS OF THE COMPANY.
3.1 BASIC FINANCIAL INFORMATION AND REPORTING.
(A) The Company will maintain true books and records of
account in which full and correct entries will be made of all its business
transactions pursuant to a system of accounting established and administered in
accordance with generally accepted accounting principles consistently applied,
and will set aside on its books all such proper accruals and reserves as shall
be required under generally accepted accounting principles consistently
applied.
(B) As soon as practicable after the end of each fiscal
year of the Company, and in any event within 90 days thereafter or, after the
Initial Offering, simultaneously with the filing of the Company's annual report
on Form 10-K with the SEC, the Company will furnish each Holder a consolidated
balance sheet of the Company, as at the end of such fiscal year, and a
consolidated statement of income and a consolidated statement of cash flows of
the Company for such year, all prepared in accordance with generally accepted
accounting principles and setting forth in each case in comparative form the
figures for the previous fiscal year, all in reasonable detail. Such financial
statements shall be accompanied by a report and opinion thereon by independent
public accountants of national standing selected by the Company's Board of
Directors.
(C) As soon as practicable after the end of each fiscal
quarter of the Company, and in any event within thirty days thereafter or,
after the Initial Offering, simultaneously with the filing of the Company's
reports on Form 10-Q with the SEC, the Company will furnish each Holder a
consolidated balance sheet of the Company, as at the end of such fiscal
quarter, and a consolidated statement of income and a consolidated statement of
cash flows of the Company for such quarter, prepared and presented in a manner
consistent with the financial statements described in Section 3.1(b). Such
statement shall be accompanied by a certificate signed by the Chairman of the
Board and Chief
10.
<PAGE> 30
Financial Officer of the Company stating that the preparation and presentation
of such statements is consistent with the financial statements described in
Section 3.1(b).
(D) So long as a Holder (with its Affiliates) shall own
not less than one hundred thousand (100,000) shares of Registrable Securities,
the Company will furnish such Holder a consolidated balance sheet of the
Company, as at the end of each calendar month, and a consolidated statement of
income and a consolidated statement of cash flows of the Company for such
month, prepared and presented in a manner consistent with the financial
statements described in Section 3.1(b). Such statements shall be furnished as
soon as practicable after the end of each month and in any event within ten
days thereafter and shall be accompanied by a certificate signed by the
Chairman of the Board and Chief Financial Officer of the Company stating that
the preparation and presentation of such statements is consistent with the
financial statements described in Section 3.1(b). Prior to January 1st of each
year, the Company shall furnish such Holders an annual budget for the Company
for the following twelve month period, broken down by month. The Company's
obligations under this Section 3.1(d) shall terminate upon the Initial
Offering.
3.2 INSPECTION RIGHTS. So long as a Holder (with its affiliates)
shall own not less than one hundred thousand (100,000) shares of Registrable
Securities, each such Holder shall have the right to visit and inspect any of
the properties of the Company or any of its subsidiaries, and to discuss the
affairs, finances and accounts of the Company or any of its subsidiaries with
its officers, all at such reasonable times and as often as may be reasonably
requested; provided, however, that the Company shall not be obligated under
this Section 3.2 with respect to a competitor of the Company or with respect to
information which the Board of Directors determines in good faith is
confidential and should not, therefore, be disclosed.
3.3 CONFIDENTIALITY OF RECORDS. Each Holder agrees to use, and to
use its best efforts to insure that its authorized representatives use, the
same degree of care as such Holder uses to protect its own confidential
information to keep confidential any information furnished to it which the
Company identifies as being confidential or proprietary (so long as such
information is not in the public domain), except that such Holder may disclose
such proprietary or confidential information to any partner, subsidiary,
Affiliate or parent of such Holder for the purpose of evaluating its investment
in the Company as long as such partner, subsidiary or parent is advised of the
confidentiality provisions of this Section 3.3.
3.4 RESERVATION OF COMMON STOCK. The Company will at all times
reserve and keep available, solely for issuance and delivery upon the
conversion of the Series B Preferred Stock, all Common Stock issuable from time
to time upon such conversion.
IV. RIGHTS OF FIRST REFUSAL.
4.1 SUBSEQUENT OFFERINGS. Each Holder shall have a right of first
refusal to purchase its pro rata share of all Equity Securities that the
Company may, from time to time, propose to sell and issue after the date of
this Agreement, other than the Equity Securities excluded by Section 4.6
hereof. Each Holder's pro rata share is equal to the ratio of the number of
shares of Common Stock, assuming full conversion of all shares of Registrable
Securities owned by such Holder, held by such Holder immediately prior to the
issuance of such Equity Securities to the total number of shares of the
Company's outstanding Common Stock (including all shares of Common Stock
issuable upon conversion of the Registrable Securities).
11.
<PAGE> 31
4.2 EXERCISE OF RIGHTS. If the Company proposes to issue any
Equity Securities, it shall give each Holder written notice of its intention,
describing the Equity Securities, the price, and the terms and conditions upon
which the Company proposes to issue the same. Each Holder shall have fifteen
(15) days from the receipt of such notice to agree to purchase its pro rata
share of the Equity Securities for the price and upon the terms and conditions
specified in the notice by giving written notice to the Company and stating
therein the quantity of Equity Securities to be purchased. Notwithstanding the
foregoing, the Company shall not be required to offer or sell such Equity
Securities to any Holder who would cause the Company to be in violation of
applicable federal securities laws by virtue of such offer or sale.
4.3 ISSUANCE OF EQUITY SECURITIES TO OTHER PERSONS. If the
Holders fail to exercise in full the rights of first refusal, the Company shall
have ninety (90) days thereafter to sell the Equity Securities in respect of
which the Holders' rights were not exercised, at a price and upon terms and
conditions no more favorable to the purchaser thereof than specified in the
Company's notice to the Holders pursuant to Section 4.2 hereof. If the Company
has not sold such Equity Securities within such ninety (90) days, the Company
shall not thereafter issue or sell any Equity Securities, without first
offering such securities to the Holders in the manner provided above.
4.4 TERMINATION OF RIGHTS OF FIRST REFUSAL. The rights of first
refusal established by this Article IV shall terminate upon the closing of the
Initial Offering.
4.5 TRANSFER OF RIGHTS OF FIRST REFUSAL. The rights of first
refusal of each Holder under this Article IV may be transferred to any
subsidiary or parent of such Holder, to any successor in interest to all or
substantially all the assets of such Holder, or to an assignee or transferee
who acquires Registrable Securities.
4.6 EXCLUDED SECURITIES. The rights of first refusal established
by this Article IV shall have no application to any of the following Equity
Securities:
(A) shares of Common Stock (and/or options, warrants or
other Common Stock purchase rights issued pursuant to such options, warrants or
other rights) issued or to be issued to employees, officers or directors of, or
consultants or advisors to, the Company, pursuant to stock purchase or stock
option plans or other arrangements that are approved by the Board of Directors
of the Company;
(B) stock issued pursuant to any rights, options and
warrants granted after the date of this Agreement, provided that the rights of
first refusal established by this Article IV applied with respect to the
initial sale or grant by the Company of such rights, options or warrants;
(C) any Equity Securities issued for consideration other
than cash pursuant to a merger, consolidation, acquisition or similar business
combination;
(D) any Equity Securities that are issued by the Company
as part of the Initial Offering referred to in Section 4.4 hereof,
(E) shares of Common Stock issued in connection with any
stock split, stock dividend or recapitalization by the Company;
(F) shares of Common Stock issued upon conversion of the
Company's Preferred Stock; and
12.
<PAGE> 32
(G) any Equity Securities issued pursuant to any
equipment leasing arrangement or commercial bank financing approved by the
Company's Board of Directors.
V. MISCELLANEOUS.
5.1 GOVERNING LAW. This Agreement shall be governed by and
construed under the laws of the State of California as applied to agreements
among California residents entered into and to be performed entirely within
California.
5.2 SURVIVAL. The representations, warranties, covenants, and
agreements made herein shall survive any investigation made by any Holder and
the closing of the transactions contemplated hereby. All statements as to
factual matters contained in any certificate or other instrument delivered by
or on behalf of the Company pursuant hereto in connection with the transactions
contemplated hereby shall be deemed to be representations and warranties by the
Company hereunder solely as of the date of such certificate or instrument.
5.3 SUCCESSORS AND ASSIGNS. Except as otherwise expressly
provided herein, the provisions hereof shall inure to the benefit of, and be
binding upon, the successors, assigns, heirs, executors, and administrators of
the parties hereto and shall inure to the benefit of and be enforceable by each
person who shall be a holder of Registrable Securities from time to time;
provided, however, that prior to the receipt by the Company of adequate written
notice of the transfer of any Registrable Securities specifying the full name
and address of the transferee, the Company may deem and treat the person listed
as the holder of such shares in its records as the absolute owner and holder of
such shares for all purposes, including the payment of dividends or any
redemption price.
5.4 SEPARABILITY. In case any provision of the Agreement shall be
invalid, illegal, or unenforceable, the validity, legality, and enforceability
of the remaining provisions shall not in any way be affected or impaired
thereby.
5.5 AMENDMENT AND WAIVER.
(A) Except as otherwise expressly provided, this
Agreement may be amended or modified only upon the written consent of the
Company and the holders of more than fifty percent (50%) of the Registrable
Securities.
(B) Except as otherwise expressly provided, the
obligations of the Company and the rights of the Holders under this Agreement
may be waived only with the written consent of the holders of more than fifty
percent (50%) of the Registrable Securities.
5.6 DELAYS OR OMISSIONS. It is agreed that no delay or omission
to exercise any right, power, or remedy accruing to any Holder, upon any
breach, default or noncompliance of the Company under this Agreement shall
impair any such right, power, or remedy, nor shall it be construed to be a
waiver of any such breach, default or noncompliance, or any acquiescence
therein, or of any similar breach, default or noncompliance thereafter
occurring. It is further agreed that any waiver, permit, consent, or approval
of any kind or character on any Holder's part of any breach, default or
noncompliance under this Agreement or any waiver on such Holder's part of any
provisions or conditions of this Agreement must be in writing and shall be
effective only to the extent specifically set forth in such writing. All
13.
<PAGE> 33
remedies, either under this Agreement, by law, or otherwise afforded to
Holders, shall be cumulative and not alternative.
5.7 NOTICES. All notices required or permitted hereunder shall be
in writing and shall be deemed effectively given: (i) upon personal delivery to
the party to be notified; (ii) upon receipt at the address on the signature
page hereto after having been sent by registered or certified mail, return
receipt requested, postage prepaid, or (iii) one (1) day after deposit with a
nationally recognized overnight courier, specifying next day delivery, with
written verification of receipt. All communications shall be sent to the party
to be notified at the address as set forth on the signature page hereof or at
such other address as such party may designate by ten (10) days advance written
notice to the other party hereto.
5.8 ATTORNEYS' FEES. If legal action is brought to enforce or
interpret this Agreement, the prevailing party shall be entitled to recover its
reasonable attorneys' fees and legal costs in connection therewith.
5.9 TITLES AND SUBTITLES. The titles of the sections and
subsections of this Agreement are for convenience of reference only and are not
to be considered in construing this Agreement.
5.10 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
14.
<PAGE> 34
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date set forth in the first paragraph hereof.
AIR SOUTH AIRLINES, INC.
By: /s/ Roden A. Brandt By:
-------------------------------------- -------------------------------
Roden A. Brandt, President
and Chief Executive Officer
Address: Address:
1800 St. Julian Place One Bush Street
Columbia, SC 29204 San Francisco, CA 94104
<PAGE> 35
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date set forth in the first paragraph hereof.
AIR SOUTH AIRLINES, INC. H&Q AIR SOUTH INVESTORS, L.P.
By: By: /s/
-------------------------------- --------------------------------
Its: Its:
-------------------------------- --------------------------------
Address: Address:
101 Trade Zone Drive One Bush Street
West Columbia, SC 29170 San Francisco, CA 94104
<PAGE> 1
EXHIBIT 4.10
AIR SOUTH AIRLINES, INC.
SERIES C PREFERRED STOCK PURCHASE AGREEMENT
THIS SERIES C PREFERRED STOCK PURCHASE AGREEMENT (the "Agreement") is
entered into as of June 14, 1996 by and among AIR SOUTH AIRLINES, INC., a
Delaware corporation (the "Company") and W. J. FLYNN & ASSOCIATES, INC.
("Purchaser").
RECITALS
WHEREAS, the Company has authorized the sale and issuance of an aggregate
of 120,000 shares of its Series C Preferred Stock par value $0.001 per share
(the "Preferred Stock");
WHEREAS, Purchaser desire to purchase 40,000 shares of the Preferred Stock
(the "Shares") on the terms and conditions set forth herein; and
WHEREAS, the Company desires to issue and sell the Shares to Purchaser on
the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the foregoing recitals and the mutual
promises hereinafter set forth, the parties hereto agree as follows:
1. AGREEMENT TO SELL AND PURCHASE.
1.1 Authorization of Shares. On or prior to the Closing (as
defined in Section 2 below), the Company shall have authorized the sale and
issuance to the Purchaser of the Shares having the rights, preferences,
privileges and restrictions set forth in the Certificate of Designations in the
form attached hereto as Exhibit A (the "Certificate of Designations"). The
Company has, or prior to the Closing will have, adopted and filed the
Certificate of Designations with the Secretary of State of the State of
Delaware.
1.2 Sale and Purchase.
(a) Subject to the terms and conditions hereof, at the Closing (as
hereinafter defined) the Company hereby agrees to issue and sell to the
Purchaser and the Purchaser agrees to purchase from the Company 40,000 Shares at
a purchase price of twelve and 50/100 dollars ($12.50) per share.
2. CLOSING DELIVERY AND PAYMENT.
(a) The closing of the sale and purchase of the Shares under this
Agreement (the "Closing") shall take place at 10:00 a.m. on June 14, 1996 (the
"Closing"), at the offices of the Company at 2625 Airport Boulevard, West
Columbia, South Carolina 29170, or at such other time or place as the Company
and the Purchaser may mutually agree.
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<PAGE> 2
(b) At the Closing, subject to the terms and conditions hereof, the
Company will deliver to the Purchaser a certificate representing the number of
Shares to be purchased at the Closing by the Purchaser, against payment of the
purchase price therefor by a check or wire transfer made payable to the order of
the Company.
3. REPRESENTATIONS AND WARRANTEES OF THE COMPANY.
The Company hereby represents and warrants to the Purchaser as follows:
3.1 Organization, Good Standing and Qualification. The Company is a
corporation duly organized, validly existing, and in good standing under the
laws of the State of Delaware. The Company has full power and authority to own
and operate its properties and assets, and to carry on its business as
presently conducted and as presently proposed to be conducted. The Company is
duly qualified and is authorized to do business and is in good standing as a
foreign corporation in all jurisdictions in which the nature of its activities
and of its properties (both owned and leased) makes such qualification
necessary, except for those jurisdictions in which failure to do so would not
have a material adverse effect on the Company or its business. The Company has
no subsidiaries and owns no equity securities of any other corporation, limited
partnership or similar entity.
3.2 Capitalization. The authorized capital stock of the Company,
immediately prior to the Closing, consists of eighteen million (18,000,000)
shares of Common Stock par value $0.001 per share ("Common Stock"), six million
nine hundred seventeen thousand one hundred eighty-two (6,917,182) shares of
which are issued and outstanding; and two million (2,000,000) shares of
Preferred Stock par value $0.001 per share, one million two hundred fifty
thousand (1,250,000) of which are designated Series A Preferred Stock, all of
which are issued and outstanding, six hundred twenty-five thousand (625,000) of
which are designated Series B Preferred Stock, all of which are issued and
outstanding and one hundred twenty thousand (120,000) of which are designated
Series C Preferred Stock, none of which are issued and outstanding . All shares
of the Company's Common Stock (i) have been duly authorized and validly issued,
and (ii) are fully paid and nonassessable. The rights, preferences, privileges
and restrictions of the Shares shall be as stated in the Certificate of
Incorporation. The shares of Common Stock issuable upon the conversion of the
Shares (the "Conversion Shares") have been duly and validly reserved for
issuance and, when issued in accordance with the Certificate of Incorporation,
will be validly issued, fully paid and nonassessable. The Company has reserved
2,501,333 shares of Common Stock for issuance upon the exercise of: (i) options
to purchase shares of Common Stock pursuant to its various stock option plans
for directors, officers and employees; and (ii) warrants to purchase shares of
Common Stock which have been issued to a supplier, former employees,
consultants to the Company, a bank lender to the Company and the guarantor of
certain bank debt of the Company. Other than as set forth above and except as
may be granted pursuant to the Investor's Rights Agreement (defined below),
there are no outstanding options, warrants, rights (including conversion or
preemptive rights), proxy or stockholder agreements, or agreements of any kind
for the purchase or acquisition from the Company of any of its securities.
Other than as set forth above and except as may be granted pursuant to that
certain Investor's Rights Agreement in the form attached hereto as Exhibit B
(the "Investor's Rights Agreement") there are no outstanding options, warrants,
rights (including conversion or preemptive rights), proxy or stockholder
agreements, or agreements of any kind for the purchase or acquisition from the
Company of any of its
2
<PAGE> 3
securities. A true and correct list of the Company's stockholders as of the
date hereof is attached hereto as Exhibit C
3.3 Authorization; Binding Obligations. All corporate action on the part
of the Company, its officers, directors and stockholders necessary for the
authorization, sale and issuance of the Shares pursuant hereto and the
Conversion Shares pursuant to the Certificate of Incorporation and for the
performance of the Company's obligations hereunder and under the Investor's
Rights Agreement has been taken or will be taken prior to the Closing. The
Agreement and the Investor's Rights Agreement when executed and delivered, will
be valid and binding obligations of the Company enforceable in accordance with
their terms, except (i) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application affecting
enforcement of creditors' rights; (ii) general principles of equity that
restrict the availability of equitable remedies; and (iii) to the extent that
the enforceability of the indemnification provisions in Section 2.8 of the
Investor's Rights Agreement may be limited by applicable laws. The sale of the
Shares and the subsequent conversion of Shares into Conversion Shares are not
and will not be subject to any preemptive rights or rights of first refusal
that have not been properly waived or complied with. When issued in compliance
with the provisions of this Agreement and the Certificate of Incorporation, the
Shares and the Conversion Shares will be validly issued, fully paid and
nonassessable, and will be free of any liens or encumbrances; provided,
however, that the Shares and the Conversion Shares may be subject to
restrictions on transfer under state and/or federal securities laws as set
forth herein or as otherwise required by such laws at the time a transfer is
proposed.
3.4 Financial Statements. The Company has delivered to the Purchaser its
financial statements (balance sheet, statement of income, statement of
stockholders' equity and statement of cash flows, including notes thereto) at
December 31, 1995 and for the year then ended (the "Financial Statements").
The Financial Statements are complete and correct in all material respects and
have been prepared in accordance with generally accepted accounting principles
applied on a consistent basis throughout the periods indicated. The Financial
Statements fairly present the financial condition and position of the Company
as of the date and for the period indicated therein. Except as set forth in
the Financial Statements or Exhibit D hereto, the Company has no material
liabilities, contingent or otherwise, other than (i) liabilities incurred in
the ordinary course of business subsequent to December 31, 1995 and (ii)
obligations under contracts and commitments incurred in the ordinary course of
business and not required under generally accepted accounting principles to be
reflected in the Financial Statements, which in both cases, individually or in
the aggregate, are not material to the financial condition or operating results
of the Company.
3.5 Contracts and Other Commitments.
(a) Except as set forth in Exhibit D hereto, the Company does not
have any contracts, agreements, lease or other commitment, written or oral,
absolute or contingent, other than (i) contracts for the purchase of supplies
and services that were entered into in the ordinary and usual course of business
and that do not involve more than $100,000 and that do not extend for more than
one year beyond the date hereof and (ii) contracts terminable at will by the
Company on no more than 30 days notice without cost or liability to the Company
and are not material to the conduct of the Company's business.
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<PAGE> 4
(b) Except as set forth in Exhibit D hereto, the Company has not (i)
declared or paid any dividends, or authorized or made any distribution upon or
with respect to any class or series of its capital stock, (ii) redeemed,
directly or indirectly, any shares of its capital stock or otherwise purchased
shares of its capital stock, or (iii) made any loans or advances to any person,
or (iv) sold, exchanged or otherwise disposed of any of its assets or rights.
3.6 No Obligations to Related Parties. Except as set forth in Exhibit D
hereto, there are no obligations of the Company to current or former officers,
directors, stockholders, or employees of the Company.
3.7 Trademarks. The Company has sufficient trade names, trade secrets,
information, proprietary title and ownership of all trademarks, service marks,
rights and processes necessary for its business as currently conducted and as
proposed to be conducted, without any conflict with or infringement of the
rights of others. There are no outstanding options, licenses, or agreements of
any kind relating to the foregoing, nor is the Company bound by or a party to
any options, licenses or agreements of any kind with respect to the trademarks,
service marks, trade names, trade secrets, licenses, proprietary rights and
processes of any other person or entity. The Company is not aware that any of
its employees is obligated under any contract (including licenses, covenants or
commitments of any nature) or other agreement, or subject to any judgment,
decree or order of any court or administrative agency, that would interfere
with their duties to the Company or that would conflict with the Company's
business as currently conducted and as proposed to be conducted. Neither the
execution nor delivery of this Agreement or the Investor's Rights Agreement,
nor the carrying on of the Company's business by the employees of the Company,
nor the conduct of the Company's business as currently conducted and as
proposed, will, to the Company's knowledge, conflict with or result in a breach
of the terms, conditions or provisions of, or constitute a default under, any
contract, covenant or instrument under which any employee is now obligated.
The Company does not believe it is or will be necessary to utilize any
inventions of any of its employees made prior to their employment by the
Company. The Company is not aware of any violation by a third party of any of
the Company's trademarks, service marks, trade names, trade secrets or other
proprietary rights.
3.8 Compliance with Other Instruments. The Company is not in violation of
any term of its Certificate of Incorporation or bylaws, as set forth in Exhibit
E hereto (the "Bylaws"), or any term contained in any material instrument or
contract to which it is a party, and, to the best of its knowledge, is not in
violation of any statute, rule, or regulation applicable to the Company which
violation would have a material adverse effect on the Company's business,
condition (financial or otherwise), properties, prospects or results of
operations. No event or failure of performance has occurred which, with the
passage of time or the giving of notice or both, would constitute such a
violation. The execution, delivery, and performance of and compliance with
this Agreement and the Investor's Rights Agreement and the issuance and sale of
the Shares pursuant hereto and of the Conversion Shares pursuant to the
Certificate of Incorporation, will not result in any such violation, or be in
conflict with or constitute a default under any such term, or result in the
creation of any mortgage, pledge, lien, encumbrance, or charge upon any of the
properties or assets of the Company. No governmental orders, permissions,
consents, approvals or authorizations are required to be obtained and no
registrations or declarations are required to be filed in connection with the
execution and delivery of this Agreement, or the Investor's Rights Agreement,
and the issuance of the Shares or
4
<PAGE> 5
the Conversion Shares, except such as has been duly and validly obtained or
filed, or with respect to any filings that must be made after the Closing, as
will be filed in a timely manner.
3.9 Title to Properties and Assets; Liens, Etc. The Company has good and
marketable title to all of its properties and assets it purports to own, in
each case subject to no mortgage, pledge, lien, lease, security interest,
encumbrance or charge, other then (i) liens for current taxes not yet due and
payable, and (ii) liens and encumbrances which do not in any case materially
detract from the value of the property subject thereto or materially impair the
operations of the Company, and which have not arisen other then in the ordinary
course of business.
3.10 Litigation. There is no action, suit, proceeding or investigation
pending or threatened against the Company which questions the validity of this
Agreement, or the Investor's Rights Agreement, or the right of the Company to
enter into either of them, or to consummate the transactions contemplated
hereby and thereby, or which might result, either individually or in the
aggregate, in any material adverse changes in the business, condition
(financial or otherwise), properties, prospects or results of operations of the
Company, or any change in the current equity ownership of the Company. The
Company is not a party or subject to the provisions of any order, writ,
injunction, judgment or decree of any court or government agency or
instrumentality. There is no action, suit, proceeding or investigation by the
Company currently pending or which the Company intends to initiate.
3.11 Permits, Licenses. The Company has all federal, state and local
governmental permits, licenses, certificates of authority any similar authority
necessary for the conduct of its business as now being conducted and as
proposed to be conducted. The Company is not in default in any material
respect under any such permit, license, certificate of authority or other
similar authority.
3.12 Environmental and Safety Laws. To the best of its knowledge, the
Company is not in violation of any applicable statute, law or regulation
relating to the environment or occupational health and safety, and to the best
of its knowledge, no material expenditures are or will be required in order to
comply with any such existing statute, law or regulation.
3.13 Changes. Except as listed on Exhibit D, since December 31, 1995
there has not been:
(a) any change in the assets, liabilities, financial condition or
operating results of the Company from that reflected in the Financial
Statements, except changes in the ordinary course of business that have not
been, in the aggregate, materially adverse;
(b) any damage, destruction or loss, whether or not covered by
insurance which materially and adversely affects the business, condition
(financial or otherwise), properties, prospects or results of operations of the
Company;
(c) any satisfaction or discharge of any lien, claim or encumbrance
or payment of any obligation by the Company, except in the ordinary course of
business and that is not material to the business, condition (financial or
otherwise), properties, prospects or results of operations of the Company;
5
<PAGE> 6
(d) any mortgage, pledge, transfer of a security interest in, or
lien, created by the Company, with respect to any of its material properties or
assets, except liens for taxes not yet due and payable;
(e) any loans or guarantees made by the Company to or for the
benefit of it employees, officers or directors, or any member of their immediate
families, other than advances in the ordinary course of business;
(f) to the best of the Company's knowledge, any other event or
condition of any character that might materially and adversely affect the
business, condition (financial or otherwise) properties, prospects or results of
operations of the Company; or
(g) any agreement or commitment by the Company to do any of the
things described in this Section 3.13.
3.14 Tax Returns and Payments. The Company has filed all tax returns
(federal, state and local) required to be filed by it. All taxes shown to be
due and payable on such returns, any assessments imposed, and all other taxes
due and payable by the Company on or before the Closing have been paid or will
be paid prior to the time they become delinquent.
3.15 Insurance. The Company has in full force and effect fire and
casualty insurance, with extended coverage, aircraft hull insurance and
liability and errors and omissions insurance in amounts customary for
commercial passenger airlines.
3.16 Employees. Except as disclosed on Exhibit D hereto, the Company has
no employment contract with any officer or employee or other consultant or
person which is not terminable by it at will without liability, except as the
Company's right to terminate its employees at will may be limited by applicable
law. To the Company's knowledge, no employee of the Company, nor any
consultant with whom the Company has contracted, is in violation of any term of
any employment contract or any other agreement relating to the right of any
such individual to be employed by, or to contract with, the Company because of
the nature of the business to be conducted by the Company; and to the Company's
knowledge, the continued employment by the Company of its present employees,
and the performance of the Company's contracts with its independent
contractors, will not result in any such violation. There are no controversies
or labor trouble or union organization activities pending or, to the knowledge
of the Company, threatened between it and its employees. None of the Company's
employees belongs to any union or collective bargaining unit. To the best of
its knowledge, the Company has complied with all applicable state and federal
equal employment opportunity laws and other laws related to employment in which
the failure to so comply might have a material adverse effect on the business,
condition (financial or otherwise), properties, properties, prospects or
results of operations of the Company. The Company is not aware that any
officer or key employee, or that any group of key employees, intends to
terminate his, her or their employment with the Company, nor does the Company
have a present intention to terminate the employment of any officer or key
employee.
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3.17 Registration Rights. Except as set forth in Exhibit D hereto and
except as required pursuant to the Investor's Rights Agreement, the Company is
presently not under any obligation, and has not granted any rights, to register
(as defined in Section 1.1 of the Investor's Rights Agreement) any of the
Company's presently outstanding securities or any of its securities that may
hereafter be issued.
3.18 Offering Valid. Assuming the accuracy of the representations and
warranties of the Purchaser contained in Section 4.3 hereof, the offer, sale
and issuance of the Shares and the Conversion Shares will be exempt from the
registration requirements of the Securities Act of 1933, as amended (the
"Securities Act") and will have been registered or qualified (or are exempt
from registration and qualification) under the registration, permit or
qualification requirements of any applicable state securities laws. Neither
the Company nor any agent on its behalf has solicited or will solicit any
offers to sell or has offered to sell or will offer to sell all or any part of
the Shares to any person or persons so as to bring the sale of such Shares by
the Company within the registration provisions of the Securities Act.
3.19 Full Disclosure. This Agreement, the Exhibits hereto and all other
documents delivered by the Company to the Purchaser or Purchaser's attorneys or
agents in connection herewith or therewith or with the transactions
contemplated hereby or thereby, do not contain any untrue statement of a
material fact nor, to the Company's knowledge, omit to state a material fact
necessary in order to make the statements contained herein or therein not
misleading.
3.20 Real Property Holding Corporation. The Company is not a real
property holding corporation within the meaning of Internal Revenue Code
Section 897(c)(2) and any regulations promulgated thereunder.
4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. Purchaser hereby
represents and warrants to the Company as follows (such representations and
warranties do not lessen or obviate the representations and warranties of the
Company set forth in this Agreement):
4.1 Requisite Power and Authority. Purchaser has all necessary power and
authority under all applicable provisions of law to execute and deliver this
Agreement and the Investor's Rights Agreement and to carry out the provisions
of this Agreement and the Investor's Rights Agreement. All action on
Purchaser's part required for the lawful execution and delivery of this
Agreement and the Investor's Rights Agreement have been or will be effectively
taken prior to the Closing. Upon their execution and delivery this Agreement
and the Investor's Rights Agreement will be valid and binding obligations of
Purchaser, enforceable in accordance with their terms, except (i) as limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other laws of
general application affecting enforcement of creditors' rights; (ii) general
principles of equity that restrict the availability of equitable remedies; and
(iii) to the extent that the enforceability of the indemnification provisions
of Section 2.8 of the Investor's Rights Agreement may be limited by applicable
laws.
4.2 Consents. All consents, approvals, orders, authorizations,
registrations, qualifications, designations, declarations or filings with any
governmental or banking authority on the part of Purchaser required in
connection with the consummation of the transactions contemplated in
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this Agreement and the Investor's Rights Agreement have been or shall have been
obtained prior to and be effective as of the Closing.
4.3 Investment Representations. Purchaser understands that neither the
Shares nor the Conversion Shares have been registered under the Securities Act.
Purchaser also understands that the Shares are being offered and sold pursuant
to an exemption from registration contained in the Securities Act based in part
upon Purchaser's representations contained in the Agreement. Purchaser hereby
represents and warrants as follows:
(a) Purchaser Bears Economic Risk. Purchaser has substantial
experience in evaluating and investing in private placement transactions of
securities in companies similar to the Company so that it is capable of
evaluating the merits and risks of its investment in the Company and has the
capacity to protect its own interests. Purchaser must bear the economic risk of
this investment indefinitely unless the Shares (or the Conversion Shares) are
registered pursuant to the Securities Act, or an exemption from registration is
available. Purchaser understands that there is no assurance that any exemption
from registration under the Securities Act will be available and that, even if
available, such exemption may not allow Purchaser to transfer all or any portion
of the Shares or the Conversion Shares under the circumstances, in the amounts
or at the times Purchaser might propose.
(b) Acquisition for Own Account. Purchaser is acquiring the Shares
and the Conversion Shares for Purchaser's own account for investment only, and
not with a view towards their distribution. If the Purchaser is other than a
natural person, Purchaser represents that each and every shareholder, partner,
member, beneficiary, or other owner thereof is or will be an "Accredited
Investor" as defined in Rule 501 of Regulation D under the Securities Act.
(c) Purchaser Can Protect Its Interest. Purchaser represents that by
reason of its management's, business or financial experience, Purchaser has the
capacity to protect its own interests in connection with the transactions
contemplated in this Agreement and the Investor's Rights Agreement. Further,
Purchaser is aware of no publication of any advertisement in connection with the
transactions contemplated in this Agreement.
(d) Company Information. Purchaser has received and read the
Financial Statements has received other written materials about the Company and
has had an opportunity to discuss the Company's business, management and
financial affairs with directors, officers and management of the Company and has
had the opportunity to review the Company's operations and facilities. Purchaser
has also had the opportunity to ask questions of and receive answers from, the
Company and its management regarding the terms and conditions of this
investment.
5. CONDITIONS TO CLOSING.
5.1 Conditions to Purchaser's Obligations at the Closing. Purchaser's
obligations to purchase the Shares at the Closing are subject to the
satisfaction, at or prior to the Closing, of the following conditions:
(a) Representations and Warranties True; Performance of Obligations.
The representations and warranties made by the Company in Section 3 hereof shall
be true and correct in
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all material respects as of the Closing Date with the same force and effect as
if they had been made as of the Closing Date, and the Company shall have
performed all obligations and conditions herein required to be performed or
observed by it on or prior to the Closing.
(b) Third Party Consents, Permits, and Waivers. The Company shall
have obtained any and all consents, permits, and waivers necessary or
appropriate for consummation of the transactions contemplated by this Agreement
and the Investor's Rights Agreement.
(c) Corporate Documents. The Company shall have delivered to the
Purchaser or its counsel copies of all corporate documents of the Company as the
Purchaser shall reasonably request.
(d) Reservation of Conversion Shares. The Conversion Shares issuable
upon conversion of the Shares shall have been duly authorized and reserved for
issuance upon such conversion.
(e) Filing of Certificate of Designations. The Certificate of
Designations shall have been filed with the Secretary of State of the State of
Delaware.
(f) Compliance Certificate. The Company shall have delivered to the
Purchaser a Compliance Certificate, executed by the President and Chief
Executive Officer of the Company, dated the Closing Date, to the effect that the
conditions specified in subsections (a) through (e) of this Section 5.1 have
been satisfied.
(g) Investor's Rights Agreement. An Investor's Rights Agreement
substantially in the form attached hereto as Exhibit B shall have been executed
and delivered by the Company.
(h) Proceedings and Documents. At the Closing all corporate and
other proceedings in connection with the transactions contemplated at the
Closing hereby and all documents and instruments incident to such transactions
shall be reasonably satisfactory in substance and form to the Purchaser and its
counsel, and the Purchaser and its counsel shall have received all such
counterpart originals or certified or other copies of such documents as they may
reasonably request.
(i) Opinion. Purchaser shall have received from David Y. Monteith of
the Bars of New York and South Carolina, General Counsel to the Company, an
opinion letter substantially in the form attached hereto as Exhibit F, addressed
to Purchaser as of the date of the Closing.
(j) Qualifications. All authorizations, approvals or permits, if
any, of any governmental authority or regulatory body of the United States or
of any state that are required in connection with the lawful sale and issuance
of the Shares pursuant to this Agreement shall have been duly obtained and
shall be effective as of the Closing. No stop order or other order enjoining
the sale of the Shares or the proposed issuance of the Conversion Shares shall
have been issued and no proceedings for such purpose shall be pending or, to
the knowledge of the Company, threatened by the Securities and Exchange
Commission or any commissioner or corporations or similar officer of any state
having jurisdiction over this transaction. At the time of Closing, the sale and
issuance of the
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Shares and the proposed issuance of the Conversion Shares shall be legally
permitted by all laws and regulations to which the Purchaser and the Company
are subject.
5.2 Conditions to Obligations of the Company. The Company's obligation to
issue and sell the Shares at the Closing is subject to the satisfaction, on or
prior to the Closing, of the following conditions:
(a) Representations and Warranties True; Performance of Obligations.
The representations and warranties made by the Purchaser in Section 4 hereof
shall be true and correct in all material respects at the date of the Closing
Date, with the same force and effect as if they had been made on and as of said
date, and the Purchaser shall have performed and complied with all agreements
and conditions herein required to be performed or complied with by it on or
before the Closing.
(b) Third Party Consents, Permits, and Waivers. The Company shall
have obtained any and all consents, permits, and waivers necessary or
appropriate for consummation of the transactions contemplated by this Agreement
and the Investor's Rights Agreement.
(c) Filing of Certificate of Designations. The Certificate of
Designations shall have been filed with the Secretary of State of the State of
Delaware.
(d) Investor's Rights Agreement. An Investor's Rights Agreement
substantially in the form attached hereto as Exhibit B shall have been executed
and delivered by the Purchaser.
(e) Qualifications. All authorizations, approvals or permits, if
any, of any governmental authority or regulatory body of the United States or of
any state that are required in connection with the lawful sale and issuance of
the Shares pursuant to this Agreement shall have been duly obtained and shall be
effective as of the Closing. No stop order or other order enjoining the sale of
the Shares or the proposed issuance of the Conversion Shares shall have been
issued and no proceedings for such purpose shall be pending or, to the knowledge
of the Company, threatened by the Securities and Exchange Commission or any
commissioner or corporations or similar officer of any state having jurisdiction
over this transaction. At the time of Closing, the sale and issuance of the
Shares and the proposed issuance of the Conversion Shares shall be legally
permitted by all laws and regulations to which the Purchaser and the Company are
subject.
6. AFFIRMATIVE COVENANTS OF THE COMPANY.
6.1 Board of Directors Meetings. For as long as any shares of Series C
Preferred remain outstanding, the Company agrees that it shall hold meetings of
the Board of Directors no less frequently than once per calendar quarter.
6.2 Qualified Small Business Stock. The Company covenants that so long as
any of the Shares, or Conversion Shares, are held by Purchaser (or a transferee
in whose hands such Shares or Conversion Shares are eligible to qualify as
Qualified Small Business Stock as defined in Section 1202(c) of the Internal
Revenue Code of 1986, as amended), it will use its reasonable efforts to cause
the Shares, or the Conversion Shares, to qualify as Qualified Small Business
Stock; provided, however, that "reasonable efforts" as used in this Section 6.3
shall not be construed to require the
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Company to operate its business in a manner which would adversely affect its
business, limit its future prospects or alter the timing or resource allocation
related to its planned operations or financing activities.
6.3 Board of Director Approval. The Company covenants that so long as any
shares of Series A Preferred Stock remain outstanding, the approval of the
Board of Directors of the Company shall be obtained prior to taking any of the
following actions:
(a) The hiring of any officer of the Company;
(b) The adoption of any compensation program, including base
salaries and bonus programs for officers and key employees of the Company;
(c) The adoption of any stock option plan and the issuance of any
stock and stock options;
(d) The adoption of an annual budget, business or financial plan;
(e) The purchase or lease of any real estate, fixed asset or
aircraft lease in excess of $500,000;
(f) The approval by the Company of any obligation or commitment,
including capital equipment leases or purchases, with a value in excess of
$500,000 or which are outside the most recent business plan or budget approved
by the Board of Directors; and
(g) Transfers by stockholders of more than 10,000 shares of the
Company's stock; provided, however, that this Section 6.4(vii) shall expire on
an initial public offering of the Company's Common Stock resulting in aggregate
proceeds (net of underwriting discounts and commissions) to the Company of at
least $10,000,000 at a minimum price of $4.00 per share; and provided further,
that the provisions of this Section 6.4(vii) shall not apply to transfers by a
stockholder to such stockholder's partners, family members and affiliates.
7. MISCELLANEOUS.
7.1 Governing Law. This Agreement shall be governed in all respects by
the laws of the State of New York.
7.2 Survival. The representations, warranties, covenants, and agreements
made herein shall survive any investigation made by the Purchaser and the
closing of the transactions contemplated hereby. All statements as to factual
matters contained in any certificate or other instrument delivered by or on
behalf of the Company pursuant hereto in connection with the transactions
contemplated hereby shall be deemed to be representations and warranties by the
Company hereunder solely as of the date of such certificate or instrument.
7.3 Successors and Assigns. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs,
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executors, and administrators of the parties hereto and shall inure to the
benefit of and be enforceable by each person who shall be a holder of the
Shares from time to time.
7.4 Entire Agreement. This Agreement, the Exhibits and Schedules hereto,
the Investor's Rights Agreement, and the other documents delivered pursuant
hereto constitute the full and entire understanding and agreement between the
parties with regard to the subjects hereof and no party shall be liable or
bound to any other in any manner by any representations, warranties, covenants,
and agreements except as specifically set forth herein and therein.
7.5 Separability. In case any provision of the Agreement shall be
invalid, illegal, or unenforceable, the validity, legality, and enforceability
of the remaining provisions shall not in any way be affected or impaired
thereby.
7.6 Amendment and Waiver. This Agreement may be amended or modified only
upon the written consent of the Company and holders of more than fifty percent
(50%) of the Shares.
7.7 Delays or Omissions. It is agreed that no delay or omission to
exercise any right, power, or remedy accruing to the Purchaser, upon any
breach, default or noncompliance of the Company under this Agreement, the
Investor's Rights Agreement, or the Certificate of Incorporation, shall impair
any such right, power, or remedy, nor shall it be construed to be a waiver of
any such breach, default or noncompliance, or any acquiescence therein, or of
or in any similar breach, default or noncompliance thereafter occurring. It is
further agreed that any waiver, permit, consent, or approval of any kind or
character on Purchaser's part of any breach, default or noncompliance under
this Agreement or under the Certificate of Incorporation or any waiver on
Purchaser's part of any provisions or conditions of the Agreement must be in
writing and shall be effective only to the extent specifically set forth in
such writing. All remedies, either under this Agreement, the Certificate of
Incorporation, Bylaws, or otherwise afforded to Purchaser, shall be cumulative
and not alternative.
7.8 Notices. All notices required or permitted hereunder shall be in
writing and shall be deemed effectively given: (i) upon personal delivery to
the party to be notified; (ii) upon receipt after having been sent by
registered or certified mail, return receipt requested, postage prepaid; or
(iii) upon receipt after deposit with a nationally recognized overnight
courier, with written verification of receipt. All communications shall be
sent to the party to be notified at the address as set forth below or at such
other address such party may designate by advance written notice to the other
party hereto given in the manner set forth above.
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If to the Company: With a copy to:
Air South Airlines, Inc. David Y. Monteith, Esquire
2625 Airport Boulevard Monteith Law Firm
West Columbia, SC 29170 2805 Millwood Avenue
Attention: President; Columbia, SC 29205
If to the Purchaser With a copy to:
W. J. Flynn & Associates, Inc. Dolgewos Newman & Cronin LLP
320 Park Avenue 96 Spring Street
New York, NY 10022 New York, NY 10012
7.9 Expenses. The Company shall pay all costs and expenses that it incurs
with respect to the negotiation, execution, delivery and performance of this
Agreement.
7.10 Attorneys' Fees. If legal action is brought to enforce or interpret
this Agreement, the prevailing party shall be entitled to recover its
reasonable attorneys' fees and legal costs in connection therewith.
7.11 Titles and Subtitles. The titles of the sections and subsections of
the Agreement are for convenience of reference only and are not to be
considered in construing this Agreement.
7.12 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
7.13 Broker's Fees. Each party hereto represents and warrants that no
agent, broker, investment banker, person or firm acting on behalf of or under
the authority of such party hereto is or will be entitled to any broker's or
finder's fee or any other commission directly or indirectly in connection with
the transactions contemplated herein. Each party hereto further agrees to
indemnify each other party for any claims, losses or expenses incurred by such
other party as a result of the representation in this Section 7.13 being
untrue.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date set forth in the first paragraph hereof.
AIR SOUTH AIRLINES, INC. W.J. Flynn & Associates, Inc.
By: /s/ Roden A. Brandt By: /s/ William K. Flynn
--------------------- --------------------------
Roden A. Brandt William K. Flynn
President and Chief Executive Officer Its: President
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INVESTOR'S RIGHTS AGREEMENT
THIS INVESTOR'S RIGHTS AGREEMENT (the "Agreement") is entered into as of
the 14th day of June 1996, by and among AIR SOUTH AIRLINES, INC., a Delaware
corporation (the "Company") and W. J. Flynn & Associates, Inc. ("Purchaser").
RECITALS
WHEREAS, the Company proposes to sell and issue Forty Thousand (40,000)
shares of its Series C Preferred Stock ("Series C Preferred") pursuant to the
Series C Preferred Stock Purchase Agreement of even date herewith between the
Company and Purchaser (the "Purchase Agreement"); and
WHEREAS, as a condition to entering into the Purchase Agreement, the
Purchaser has requested that the Company extend to it registration rights,
information rights and certain other rights as set forth herein.
NOW, THEREFORE, in consideration of the mutual promises, representations,
warranties, covenants, and conditions set forth in this Agreement and in the
Purchase Agreement, the parties mutually agree as follows:
1. GENERAL.
1.1 Definitions. As used in this Agreement the following terms shall have
the following respective meanings:
"1934 Act" means the Securities Exchange Act of 1934, as amended.
"Equity Securities" means (i) any stock or similar security of the
Company, (ii) any security convertible, with or without consideration, into any
stock or similar security (including any option to purchase such a convertible
security), (iii) any security carrying any warrant or right to subscribe to or
purchase any stock or similar security or (iv) any such warrant or right.
"Family Member" means a Holder's spouse, children, stepchildren and
grandchildren.
"Final Prospectus" means an amended prospectus filed with the SEC pursuant
to SEC Rule 424(b) of the Securities Act.
"Form S-3" means such form under the Securities Act as in effect on the
date hereof or any successor registration form under the Securities Act
subsequently adopted by the SEC which permits inclusion or incorporation of
substantial information by reference to other documents filed by the Company
with the SEC.
"Holder" means any person owning of record Registrable Securities.
"Initial Offering" means the first underwritten public offering of the
Company's securities.
"Initiating Holders" means the Holder or Holders of at least forty
percent (40%) of the Registrable Securities then outstanding.
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"Register," "registered," and "registration" refer to a registration
effected by preparing and filing a registration statement in compliance with
the Securities Act, and the declaration or ordering of effectiveness by the SEC
of such registration statement or document.
"Registrable Securities" means (i) the Shares; (ii) Common Stock of the
Company issued or issuable upon conversion of the Shares; and (iii) any Common
Stock of the Company issued as (or issuable upon the conversion or exercise of
any warrant, right or other security which is issued as) a dividend or other
distribution with respect to, or in exchange for or in replacement of, such
above-described securities. Notwithstanding the foregoing, Registrable
Securities shall not include any securities sold by a person to the public
either pursuant to a registration statement or Rule 144 or sold in a private
transaction in which the transferors rights under Article II of this Agreement
are not assigned. Outstanding Shares and warrants, rights and other securities
issued as a dividend or other distribution with respect to outstanding Shares,
or in exchange or replacement of outstanding Shares, shall be deemed to
represent a number of shares of Registrable Securities equal to the number of
shares of Common Stock into which such Shares, warrants, rights or other
securities are convertible as of the time such determination is made.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Shares" shall mean the shares held by the Holders of Company's Series C
Preferred Stock.
"SEC" or "Commission" means the Securities and Exchange Commission.
2. RESTRICTIONS ON TRANSFER; REGISTRATION.
2.1 Restrictions on Transfer.
(a) Each Holder agrees not to make any disposition of all or any
portion of the Registrable Securities unless and until the transferee has agreed
in writing for the benefit of the Company to be bound by this Section 2.1,
provided and to the extent such Section is then applicable and either:
(i) There is then in effect a registration statement under the
Securities Act covering such proposed disposition and such disposition is made
in accordance with such registration statement; or
(ii) (A) Such Holder shall have notified the Company of the proposed
disposition and shall have furnished the Company with a detailed statement of
the circumstances surrounding the proposed disposition, and (B) if reasonably
requested by the Company, such Holder shall have furnished the Company with an
opinion of counsel, reasonably satisfactory to the Company, that such
disposition will not require registration of such shares under the Securities
Act.
(b) Notwithstanding the provisions of paragraphs (i) and (ii) above,
no such registration statement or opinion of counsel shall be necessary for a
transfer by a Holder (A) which is a partnership to its partners in accordance
with partnership interests, (B) to the Holder's Family Member or trust for the
benefit of an individual Holder or (C) to an affiliate of the Holder (as that
term is defined in Rule 144 (a)(1) of the Securities Act (an "Affiliate"),
provided the transferee will be subject to the terms of this Section 2.1 to the
same extent as if he were an original Holder hereunder.
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Each certificate representing Series C Preferred Stock or Registrable
Securities shall (unless otherwise permitted by the provisions of the
Agreement) be stamped or otherwise imprinted with a legend substantially
similar to the following (in addition to any legend required under applicable
state securities laws or as provided elsewhere in this Agreement):
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE OFFERED, SOLD OR
OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL
REGISTERED UNDER THE ACT OR, IN THE OPINION OF COUNSEL OR BASED ON OTHER
WRITTEN EVIDENCE IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER OF
THESE SECURITIES, SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION
DOES NOT REQUIRE REGISTRATION.
(c) The Company shall be obligated to reissue promptly unlegended
certificates at the request of any holder thereof if the holder shall have
obtained an opinion of counsel (which counsel may be counsel to the Company)
reasonably acceptable to the Company to the effect that the securities proposed
to be disposed of may lawfully be so disposed of without registration,
qualification or legend.
(d) Any legend endorsed on an instrument pursuant to applicable
state securities laws and the stop-transfer instructions with respect to such
securities shall be removed upon receipt by the Company of an order of the
appropriate blue sky authority authorizing such removal.
2.2 Demand Registrations and Form S-3 Registration
(a) The Purchaser shall have no right to demand that the Company
shall register all or any part of any Registrable Securities.
(b) If holders of shares of the Company's Series A Preferred Stock
or Series B Preferred Stock (collectively, "A and B Preferred") shall exercise
their right to demand that the Company shall register any registrable
securities, as such term is defined in the investors rights agreements (the
"Applicable Agreements") relating to the A and B Preferred, then the Company
shall also allow the Purchaser to register Registrable Securities on a pro-rata
basis to the number of registrable securities being registered by holders of A
and B Preferred, based on the ratio of the total number of shares of Common
Stock into which the Series A Preferred Stock or Series B Preferred Stock, as
the case may be, are convertible to the total number of shares of Common Stock
into which the Series C Preferred Stock are convertible. If Registrable
Securities are so included in a demand registration, the holders of such
included securities shall be subject to the terms and conditions, and
obligations regarding such registration contained in the Applicable Agreements.
(c) If the holders of A and B Preferred shall exercise their right
to a Form S-3 Registration under the Applicable Agreements then the Company
shall also allow the Purchaser to register Registrable Securities on Form S-3 on
a pro-rata basis to the number of registrable securities being registered by
holders of A and B Preferred, based on the ratio of the total number of shares
of Common Stock into which the Series A Preferred Stock or Series B Preferred
Stock, as the case may be, are convertible to the number of shares of Common
Stock into which the Series C Preferred Stock. If Registrable Securities are so
included in a Form S-3 registration, the holders of such included securities
shall be subject to the terms and conditions, and obligations regarding such
registration contained in the Applicable Agreements.
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2.3 Piggyback Registrations.
(a) The Company shall notify all Holders in writing at least thirty
(30) days prior to the filing of any registration statement under the Securities
Act for purposes of a public offering of securities of the Company (including,
but not limited to, registration statements relating to secondary offerings of
securities of the Company, but excluding registration statements relating to the
Initial Offering, employee benefit plans and corporate reorganizations) and will
afford each such Holder who would have been unable to sell all of such
Registrable Securities on an unrestricted basis pursuant to Rule 144 promulgated
under the Securities Act, during the four-week period immediately preceding the
effective date of the registration statement, an opportunity to include in such
registration statement all or part of such Registrable Securities held by such
Holder. Each Holder desiring to include in any such registration statement all
or any part of the Registrable Securities held by it shall, within twenty (20)
days after receipt of the above-described notice from the Company, so notify the
Company in writing. Such notice shall state the intended method of disposition
of the Registrable Securities by such Holder. If a Holder decides not to include
all of its Registrable Securities in any registration statement thereafter filed
by the Company, such Holder shall nevertheless continue to have the right to
include any Registrable Securities in any subsequent registration statement or
registration statements as may be filed by the Company with respect to offerings
of its securities, all upon the terms and conditions set forth herein.
Notwithstanding anything to the contrary, the foregoing shall not apply to any
registrations occurring on or after the fifth anniversary of the Initial
Offering
(b) If the registration statement under which the Company gives
notice under this Section 2.3 is for an underwritten offering, the Company shall
so advise the Holders. In such event, the right of any such Holder to be
included in a registration pursuant to this Section 2.3 shall be conditioned
upon such Holder's participation in such underwriting and the inclusion of such
Holder's Registrable Securities in the underwriting to the extent provided
herein. All Holders proposing to distribute their Registrable Securities through
such underwriting shall enter into an underwriting agreement in customary form
with the underwriter or underwriters selected for such underwriting.
Notwithstanding any other provision of the Agreement, if the underwriter
determines in good faith that marketing factors require a limitation of the
number of shares to be underwritten, the number of shares that may be included
in the underwriting shall be allocated, first, to the Company; second, to the
holders of shares of the Company's Series A, Series B and Series C Preferred
Stock allocated pro rata on the basis of the total number of shares of Common
Stock into which the Series A, Series B and Series C Preferred Stock are
convertible; third to the 7,500 shares of Common Stock par value $0.001 per
share held by a designee of NationsBank, N.A.; and fourth to any stockholder of
the Company (other than a Holder) on a pro rata basis. No such reduction shall
reduce the securities being offered by the Company for its own account to be
included in the registration and underwriting.
(c) The Company shall bear all fees and expenses incurred in
connection with any registration under this Section 2.3 (excluding underwriters'
discounts and commissions, which shall be paid by the selling Holders pro rata
with respect to their included shares), including without limitation all
registration, filing, qualification, printers' and accounting fees, fees and
disbursements of counsel to the Company, and the reasonable fees and
disbursements of a single counsel to the selling Holders (which counsel shall
also be counsel to the Company unless counsel to the Company has a conflict of
interest with respect to the representation of any selling Holder or the
underwriters object to the selling Holders representation by Company counsel).
2.4 Furnish Information. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to Sections 2.3, that
the selling Holders shall furnish to the Company such information regarding
themselves, the
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<PAGE> 19
Registrable Securities held by them, and the intended method of disposition of
such securities as shall be required to effect the registration of their
Registrable Securities.
2.5 Delay of Registration. No Holder shall have any right to obtain or
seek an injunction restraining or otherwise delaying any such registration as
the result of any controversy that might arise with respect to the
interpretation or implementation of this Article II.
2.6 Indemnification. In the event any Registrable Securities are included
in a registration statement under Section 2.3:
(a) To the extent permitted by law, the Company will indemnify and
hold harmless each Holder, the partners, officers and directors of each Holder,
any underwriter (as defined in the Securities Act) for such Holder and each
person, if any, who controls such Holder or underwriter within the meaning of
the Securities Act or the 1934 Act, against any losses, claims, damages, or
liabilities (joint or several) to which they may become subject under the
Securities Act, the 1934 Act or other federal or state law, insofar as such
losses, claims, damages, or liabilities (or actions in respect thereof) arise
out of or are based upon any of the following statements, omissions or
violations (collectively a "Violation") by the Company: (i) any untrue statement
or alleged untrue statement of a material fact contained in such registration
statement, including any preliminary prospectus or final prospectus contained
therein or any amendments or supplements thereto, (ii) 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 (iii) any violation
or alleged violation by the Company of the Securities Act, the 1934 Act, any
state securities law or any rule or regulation promulgated under the Securities
Act, the 1934 Act or any state securities law in connection with the offering
covered by such registration statement; and the Company will reimburse each such
Holder, partner, officer or director, underwriter or 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 indemnity agreement contained in this Section 2.6(a)
shall not apply to amounts paid in settlement of any such loss, claim, damage,
liability or action if such settlement is effected without the consent of the
Company (which consent shall not be unreasonably withheld), nor shall the
Company be liable in any such case for any such loss, claim, damage, liability
or action to the extent that it arises out of or is based upon a Violation which
occurs in reliance upon and in conformity with written information furnished to
the Company expressly for use in connection with such registration by such
Holder, partner, officer, director, underwriter or controlling person of such
Holder.
(b) To the extent permitted by law, each selling Holder will
indemnify and hold harmless the Company, each of its directors, each of its
officers, each person, if any, who controls the Company within the meaning of
the Securities Act, any underwriter and any other Holder selling securities
under such registration statement or any of such other Holder's partners,
directors or officers or any person who controls such Holder, against any
losses, claims, damages or liabilities (joint or several) to which the Company
or any such director, officer, controlling person, underwriter or other such
Holder, or partner, director, officer or controlling person of such other Holder
may become subject under the Securities Act, the 1934 Act or other federal or
state law, insofar as such losses, claims, damages or liabilities (or actions in
respect thereto) arise out of or are based upon any Violation, in each case to
the extent (and only to the extent) that such Violation occurs in reliance upon
and in conformity with written information furnished to the Company by such
Holder expressly for use in connection with such registration; and each such
Holder will reimburse any legal or other expenses reasonably incurred by the
Company or any such director, officer, controlling person, underwriter or other
Holder, or partner, officer, director or controlling person of such other Holder
in connection with investigating or defending any such loss, claim, damage,
liability or action if it is judicially
5
<PAGE> 20
determined that there was such a Violation; provided, however, that the
indemnity agreement contained in this Section 2.5(b) shall not apply to amounts
paid in settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Holder, which consent shall
not be unreasonably withheld; provided further, that in no event shall any
indemnity under this Section 2.6 exceed the proceeds from the offering received
by such Holder.
(c) Promptly after receipt by an indemnified party under this
Section 2.5 of notice of the commencement of any action (including any
governmental action) as to which indemnity may be sought, such indemnified party
will, if a claim in respect thereof is to be made against any indemnifying party
under this Section 2.6, deliver to the indemnifying party a written notice of
the commencement thereof and the indemnifying party shall have the right to
participate in, and, to the extent the indemnifying party so desires, jointly
with any other indemnifying party similarly noticed, to assume the defense
thereof with counsel mutually satisfactory to the parties; provided, however,
that an indemnified party shall have the right to retain its own counsel, with
the fees and expenses to be paid by the indemnifying party, if representation of
such indemnified party by the counsel retained by the indemnifying party would
be inappropriate due to actual or potential differing interests between such
indemnified party and any other party represented by such counsel in such
proceeding. The failure to deliver written notice to the indemnifying party
within a reasonable time of the commencement of any such action, if materially
prejudicial to its ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this Section
2.6, but the omission so to deliver written notice to the indemnifying party
will not relieve it of any liability that it may have to any indemnified party
otherwise than under this Section 2.6.
(d) If the indemnification provided for in this Section 2.6 is held
by a court of competent jurisdiction to be unavailable to an indemnified party
with respect to any losses, claims, damages or liabilities referred to herein,
the indemnifying party, in lieu of indemnifying such indemnified party
thereunder, shall to the extent permitted by applicable law contribute to the
amount paid or payable by such indemnified party as a result of such loss,
claim, damage or liability in such proportion as is appropriate to reflect the
relative fault of the indemnifying party on the one hand and of the indemnified
party on the other in connection with the Violation(s) that resulted in such
loss, claim, damage or liability, as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and of the
indemnified party shall be determined by a court of law by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission; provided that, in no event shall any contribution by a
Holder hereunder exceed the proceeds from the offering received by such Holder.
(e) The foregoing indemnity agreements of the Company and Holders
are subject to the condition that, insofar as they relate to any Violation made
in a preliminary prospectus but eliminated or remedied in the amended prospectus
on file with the SEC at the time the registration statement in question becomes
effective or the Final Prospectus, such indemnity agreement shall not inure to
the benefit of any person obligated under the Securities Act to furnish to the
person asserting the loss, liability, claim or damage a copy of the Final
Prospectus if a copy of the Final Prospectus was furnished to the indemnified
party and was not furnished to the person asserting the loss, liability, claim
or damage at or prior to the time such action is required by the Securities Act.
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<PAGE> 21
(f) The obligations of the Company and Holders under this Section
2.5 shall survive the completion of any offering of Registrable Securities
pursuant to a registration statement, or otherwise.
2.7 Assignment of Registration Rights. The rights to cause the Company to
register Registrable Securities pursuant to this Article II may be assigned by
a Holder to a transferee or assignee of Registrable Securities; provided,
however, that no such transferee or assignee shall be entitled to registration
rights under Section 2.3, hereof unless such transferee or assignee: (i) is a
Holder; (ii) holds after such transfer or assignment at least one hundred
thousand (100,000) shares of Registrable Securities (as adjusted for stock
dividends, splits and combinations); or (iii) is a Family Member or a
subsidiary, parent, general partner, Affiliate, or limited partner of a Holder.
In each such case, the Company shall, within twenty (20) days after such
transfer, be furnished with written notice of the name and address of such
transferee or assignee and the securities with respect to which such
registration rights are being assigned.
2.8 Amendment of Registration Rights. Any provision of this Article II
may be amended and the observance thereof may be waived (either generally or in
a particular instance and either retroactively or prospectively), only with the
written consent of the Company and the Holders of more than fifty percent (50%)
of the Registrable Securities. Any amendment or waiver effected in accordance
with this Section 2.8 shall be binding upon each Holder and the Company. By
acceptance of any benefits under this Article II, each Holder hereby agrees to
be bound by the provisions hereunder.
2.9 "Market Stand-Off" Agreement. If requested by the Company and an
underwriter of Common Stock (or other securities) of the Company, the Purchaser
shall not sell or otherwise transfer or dispose of any Common Stock (or other
securities) of the Company held by such stockholder (other than those included
in the registration) for a period specified by the underwriters not to exceed
one hundred eighty (180) days following the effective date of a registration
statement of the Company filed under the Securities Act, provided that all
officers and directors of the Company and all holders of at least one percent
(1%) of the Company's voting securities enter into similar agreements. The
obligations described in this Section 2.9 shall not apply to a registration
relating solely to employee benefit plans on Form S-1 or Form S-8 or similar
forms that may be promulgated in the future, or a registration relating solely
to a Commission Rule 145 transaction on Form S-4 or similar forms that may be
promulgated in the future. The Company may impose stop-transfer instructions
with respect to the shares (or securities) subject to the foregoing restriction
until the end of said one hundred eighty (180) day period.
3. COVENANTS OF THE Company.
3.1 Basic Financial Information and Reporting.
(a) The Company will maintain true books and records of account in
which full and correct entries will be made of all its business transactions
pursuant to a system of accounting established and administered in accordance
with generally accepted accounting principles consistently applied, and will set
aside on its books all such proper accruals and reserves as shall be required
under generally accepted accounting principles consistently applied.
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<PAGE> 22
(b) As soon as practicable after the end of each fiscal year of the
Company, and in any event within 90 days thereafter or, after the Initial
Offering, simultaneously with the filing of the Company's annual report on Form
10-K with the SEC), the Company will furnish each Holder a consolidated balance
sheet of the Company, as at the end of such fiscal year, and a consolidated
statement of income and a consolidated statement of cash flows of the Company
for such year, all prepared in accordance with generally accepted accounting
principles and setting forth in each case in comparative form the figures for
the previous fiscal year, all in reasonable detail. Such financial statements
shall be accompanied by a report and opinion thereon by independent public
accountants of national standing selected by the Company's Board of Directors.
(c) As soon as practicable after the end of each fiscal quarter of
the Company, and in any event within thirty days thereafter or, after the
Initial Offering, simultaneously with the filing of the Company's reports on
Form 10-Q with the SEC), the Company will furnish each Holder a consolidated
balance sheet of the Company, as at the end of such fiscal quarter, and a
consolidated statement of income and a consolidated statement of cash flows of
the Company for such quarter, prepared and presented in a manner consistent with
the financial statements described in Section 3.l(b). Such statement shall be
accompanied by a certificate signed by the Chairman of the Board and Chief
Financial Officer of the Company stating that the preparation and presentation
of such statements is consistent with the financial statements described in
Section 3.1(b).
(d) So long as a Holder (with its Affiliates) shall own not less
than one hundred thousand (100,000) shares of Registrable Securities, the
Company will furnish such Holder a consolidated balance sheet of the Company, as
at the end of each calendar month, and a consolidated statement of income and a
consolidated statement of cash flows of the Company for such month, prepared and
presented in a manner consistent with the financial statements described in
Section 3.1(b). Such statements shall be furnished as soon as practicable
after the end of each month and in any event within ten days thereafter and
shall be accompanied by a certificate signed by the Chairman of the Board and
Chief Financial Officer of the Company stating that the preparation and
presentation of such statements is consistent with the financial statements
described in Section 3.1(b). Prior to January 1st of each year, the Company
shall furnish such Holders an annual budget for the Company for the following
twelve month period, broken down by month. The Company's obligations under this
Section 3.l(d) shall terminate upon the Initial Offering.
3.2 Inspection Rights. So long as a Holder (with its affiliates) shall
own not less than one hundred thousand (100,000) shares of Registrable
Securities, each such Holder shall have the right to visit and inspect any of
the properties of the Company or any of its subsidiaries, and to discuss the
affairs, finances and accounts of the Company or any of its subsidiaries with
its officers, all at such reasonable times and as often as may be reasonably
requested; provided, however, that the Company shall not be obligated under
this Section 3.2 with respect to a competitor of the Company or with respect to
information which the Board of Directors determines in good faith is
confidential and should not, therefore, be disclosed.
3.3 Confidentiality of Records. Each Holder agrees to use, and to use its
best efforts to insure that its authorized representatives use, the same degree
of care as such Holder uses to protect its own confidential information to keep
confidential any information furnished to it which the Company identifies as
being confidential or proprietary (so long as such information is not in the
public domain), except that such Holder may disclose such proprietary or
confidential information to any partner, subsidiary, Affiliate or parent of
such Holder for the purpose of evaluating its investment in the Company as long
as such partner, subsidiary or parent is advised of the confidentiality
provisions of this Section 3.3.
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<PAGE> 23
3.4 Reservation of Common Stock. The Company will at all times reserve
and keep available, solely for issuance and delivery upon the conversion of the
Series C Preferred Stock, all Common Stock issuable from time to time upon such
conversion.
3.5 Election of Director. The Company agrees that at the next annual
meeting of stockholders of the Company a director designated by the Purchaser
and nominated by the nominating committee of the Board of Directors will be
nominated as a director of the Company to serve until his or her successor is
duly elected and shall have qualified.
4. RIGHTS OF FIRST REFUSAL.
4.1 Subsequent Offerings. Each Holder shall have a right of first refusal
to purchase its pro rata share of all Equity Securities that the Company may,
from time to time, propose to sell and issue after the date of this Agreement,
other than the Equity Securities excluded by Section 4.6 hereof. Each Holder's
pro rata share is equal to the ratio of the number of shares of Common Stock,
assuming full conversion of all shares of Registrable Securities owned by such
Holder, held by such Holder immediately prior to the issuance of such Equity
Securities to the total number of shares of the Company's outstanding Common
Stock (including all shares of Common Stock issuable upon conversion of the
Registrable Securities).
4.2 Exercise of Rights. If the Company proposes to issue any Equity
Securities, it shall give each Holder written notice of its intention,
describing the Equity Securities, the price, and the terms and conditions upon
which the Company proposes to issue the same. Each Holder shall have fifteen
(15) days from the receipt of such notice to agree to purchase its pro rata
share of the Equity Securities for the price and upon the terms and conditions
specified in the notice by giving written notice to the Company and stating
therein the quantity of Equity Securities to be purchased. Notwithstanding the
foregoing, the Company shall not be required to offer or sell such Equity
Securities to any Holder who would cause the Company to be in violation of
applicable federal securities laws by virtue of such offer or sale.
4.3 Issuance of Equity Securities to Other Persons. If the Holders fail
to exercise in full the rights of first refusal, the Company shall have ninety
(90) days thereafter to sell the Equity Securities in respect of which the
Holders' rights were not exercised, at a price and upon terms and conditions no
more favorable to the purchaser thereof than specified in the Company's notice
to the Holders pursuant to Section 4.2 hereof. If the Company has not sold
such Equity Securities within such ninety (90) days, the company shall not
thereafter issue or sell any Equity Securities, without first offering such
securities to the Holders in the manner provided above.
4.4 Termination of Rights of First Refusal. The rights of first refusal
established by this Article IV shall terminate upon the closing of the Initial
Offering.
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<PAGE> 24
4.5 Transfer of Rights of First Refusal. The rights of first refusal of
each Holder under this Article IV may be transferred to any subsidiary or
parent of such Holder, to any successor in interest to all or substantially all
the assets of such Holder, or to an assignee or transferee who acquires
Registrable Securities.
4.6 Excluded Securities. The rights of first refusal established by this
Article IV shall have no application to any of the following Equity Securities:
(a) shares of Common Stock (and/or options, warrants or other common
Stock purchase rights issued pursuant to such options, warrants or other rights)
issued or to be issued to employees, officers or directors of, or consultants or
advisors to, the Company, pursuant to stock purchase or stock option plans or
other compensation arrangements that are approved by the Board of Directors of
the Company;
(b) stock issued pursuant to any rights, options and warrants
granted after the date of this Agreement, provided that the rights of first
refusal established by this Article IV applied with respect to the initial sale
or grant by the Company of such rights, options or warrants;
(c) Any Equity Securities issued for consideration other than cash
pursuant to a merger, consolidation, acquisition or similar business
combination;
(d) any Equity Securities that are issued by the Company as part of
the Initial Offering referred to in Section 4.4 hereof;
(e) shares of Common Stock issued in connection with any stock
split, stock dividend or recapitalization by the Company;
(f) shares of Common Stock issued upon conversion of the Company's
Preferred Stock; and
(g) any Equity Securities issued pursuant to any equipment leasing
arrangement or commercial bank financing approved by the Company's Board of
Directors.
4.7 Other Rights of First Refusal. The Company has granted to the Holders
of its outstanding Series A and Series B Preferred Stock rights of first
refusal similar to the rights of first refusal granted by this Article IV. The
Company has obtained an agreement between the Company, and the holders of
Series A, Series B and Series C Preferred Stock that the Rights of the
Purchaser shall rank pari passu with each other based upon the relative number
of shares of Common Stock into which the Series A, Series B and Series C are
convertible.
5. MISCELLANEOUS.
5.1 Governing Law. This Agreement shall be governed by and construed
under the laws of the State of New York.
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<PAGE> 25
5.2 Survival. The representations, warranties, covenants, and agreements
made herein shall survive any investigation made by any Holder and the closing
of the transactions contemplated hereby. All statements as to factual matters
contained in any certificate or other instrument delivered by or on behalf of
the Company pursuant hereto in connection with the transactions contemplated
hereby shall be deemed to be representations and warranties by the Company
hereunder solely as of the date of such certificate or instrument.
5.3 Successors and Assigns. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors, and administrators of the
parties hereto and shall inure to the benefit of and be enforceable by each
person who shall be a holder of Registrable Securities from time to time;
provided, however, that prior to the receipt by the Company of adequate written
notice of the transfer of any Registrable Securities specifying the full name
and address of the transferee, the Company may deem and treat the person listed
as the holder of such shares in its records as the absolute owner and holder of
such shares for all purposes, including the payment of dividends or any
redemption price.
5.4 Separability. In case any provision of the Agreement shall be
invalid, illegal, or unenforceable, the validity, legality, and enforceability
of the remaining provisions shall not in any way be affected or impaired
thereby.
5.5 Amendment and Waiver.
(a) Except as otherwise expressly provided, this Agreement may be
amended or modified only upon the written consent of the Company and the holders
of more than fifty percent (50%) of the Registrable Securities.
(b) Except as otherwise expressly provided, the obligations of the
Company and the rights of the Holders under this Agreement may be waived only
with the written consent of the holders of more than fifty percent (50%) of the
Registrable Securities.
5.6 Delays or Omissions. It is agreed that no delay or omission to
exercise any right, power, or remedy accruing to any Holder, upon any breach,
default or noncompliance of the Company under this Agreement shall impair any
such right, power, or remedy, nor shall it be construed to be a waiver of any
such breach, default or noncompliance, or any acquiescence therein, or of any
similar breach, default or noncompliance thereafter occurring. It is further
agreed that any waiver, permit, consent, or approval of any kind or character
on any Holder's part of any breach, default or noncompliance under this
Agreement or any waiver on such Holder's part of any provisions or conditions
of this Agreement must be in writing and shall be effective only to the extent
specifically set forth in such writing. All remedies, either under this
Agreement, by law, or otherwise afforded to Holders, shall be cumulative and
not alternative.
5.7 Notices. All notices required or permitted hereunder shall be in
writing and shall be deemed effectively given: (i) upon personal delivery to
the party to be notified; (ii) upon receipt after having been sent by
registered or certified mail, return receipt requested, postage prepaid; or
(iii) upon receipt after deposit with a nationally recognized overnight
courier, specifying next day delivery, with written verification of receipt.
All communications shall be sent to the party to be notified at the address as
set forth below or at such other address as such party may designate by ten
(10) days advance written notice to the other party hereto in the manner
provided above.
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<PAGE> 26
If to the Company: With a copy to:
Air South Airlines, Inc. David Y. Monteith, Esquire
2625 Airport Boulevard Monteith Law Offices
West Columbia, SC 29170 2805 Millwood Avenue
Attention: President; Columbia, SC 29205
If to the Purchaser With a copy to:
W. J. Flynn & Associates, Inc. Dolgenos Newman & Cronin L.L.P.
320 Park Avenue 96 Spring Street
New York, New York 10022 New York, NY 10012
5.8 Attorneys' Fees. If legal action is brought to enforce or interpret
this Agreement, the prevailing party shall be entitled to recover its
reasonable attorneys' fees and legal costs in connection therewith.
5.9 Titles and Subtitles. The titles of the sections and subsections
of this Agreement are for convenience of reference only and are not to be
considered in construing this Agreement.
5.10 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
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<PAGE> 27
IN WITNESS WHEREOF, the parties hereto have executed the Agreement as of
the date set forth in the first paragraph hereof.
AIR SOUTH AIRLINES, INC.
By: /s/ Roden A. Brandt
------------------------------------
Roden A. Brandt
President and Chief Executive Officer
W.J. Flynn & Associates, Inc.
By: /s/ William K. Flynn
-------------------------------------
Name William K. Flynn
Title: President
14
<PAGE> 1
EXHIBIT 4.11
AIR SOUTH AIRLINES, INC.
SERIES C PREFERRED STOCK
PURCHASE AGREEMENT
BETWEEN
AIR SOUTH AIRLINES, INC.
AND
FIL-FIBER MANUFACTURING INC., LTD.
JUNE 26, 1996
<PAGE> 2
AIR SOUTH AIRLINES, INC.
SERIES C PREFERRED STOCK PURCHASE AGREEMENT
THIS SERIES C PREFERRED STOCK PURCHASE AGREEMENT (the "Agreement") is
entered into as of June 26, 1996 by and among AIR SOUTH AIRLINES, INC., a
Delaware corporation (the "Company") and Fil-Fibers Manufacturing Inc. Ltd., a
company of British Virgin Islands registry (the "Purchaser").
RECITALS
WHEREAS, the Company has authorized the sale and issuance of an
aggregate of 120,000 shares of its Series C Preferred Stock par value $0.001
per share (the "Preferred Stock");
WHEREAS, Purchaser desire to purchase 80,000 shares of the Preferred
Stock (the "Shares") on the terms and conditions set forth herein; and
WHEREAS, the Company desires to issue and sell the Shares to Purchaser
on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual promises hereinafter set forth, the parties hereto agree as follows:
1. AGREEMENT TO SELL AND PURCHASE.
1.1 AUTHORIZATION OF SHARES. On or prior to the Closing
(as defined in Section 2 below), the Company shall have authorized the sale and
issuance to the Purchaser of the Shares having the rights, preferences,
privileges and restrictions set forth in the Certificate of Designations (the
"Certificate of Designations"), which the Company has adopted and filed with
the Secretary of State of the State of Delaware.
1.2 SALE AND PURCHASE.
(A) Subject to the terms and conditions hereof, at the
Closing (as hereinafter defined) the Company hereby agrees to issue and sell to
the Purchaser and the Purchaser agrees to purchase from the Company 80,000
Shares at a purchase price of twelve and 50/100 dollars ($12.50) per share.
2. CLOSING, DELIVERY AND PAYMENT.
(A) The closing of the sale and purchase of the Shares
under this Agreement (the "Closing") shall take place at 10:00 a.m. on June 26,
1996 (the "Closing"), at the offices of the Purchaser at 244 Madison Avenue,
Suite 2H, New York, New York 10016, or at such other time or place as the
Company and the Purchaser may mutually agree.
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<PAGE> 3
(B) At the Closing, subject to the terms and conditions
hereof, the Company will deliver to the Purchaser a certificate representing
the number of Shares to be purchased at the Closing by the Purchaser, against
payment of the purchase price therefor by a wire transfer made payable to the
order of the Company.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company hereby represents and warrants to the Purchaser as
follows:
3.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION. The
Company is a corporation duly organized, validly existing, and in good standing
under the laws of the State of Delaware. The Company has full power and
authority to own and operate its properties and assets, and to carry on its
business as presently conducted and as presently proposed to be conducted. The
Company is duly qualified and is authorized to do business and is in good
standing as a foreign corporation in all jurisdictions in which the nature of
its activities and of its properties (both owned and leased) makes such
qualification necessary, except for those jurisdictions in which failure to do
so would not have a material adverse effect on the Company or its business. The
Company has no subsidiaries and owns no equity securities of any other
corporation, limited partnership or similar entity.
3.2 CAPITALIZATION. The authorized capital stock of the
Company, immediately prior to the Closing, consists of eighteen million
(18,000,000) shares of Common Stock par value $0.001 per share ("Common
Stock"), six million nine hundred seventeen thousand one hundred eighty-two
(6,917,182) shares of which are issued and outstanding; ad two million
(2,000,000) shares of Preferred Stock par value $0.001 per share, one million
two hundred fifty thousand (1,250,000) of which are designated Series A
Preferred Stock, all of which are issued and outstanding, six hundred
twenty-five thousand (625,000) of which are designated Series B Preferred
Stock, all of which are issued and outstanding and one hundred twenty thousand
(120,000) of which are designated Series C Preferred Stock, 40,000 of which are
issued and outstanding. All shares of the Company's Common Stock (i) have been
duly authorized and validly issued, and (ii) are fully paid and nonassessable.
The rights, preferences, privileges and restrictions of the Shares shall be as
stated in the Certificate of Incorporation. The shares of Common Stock issuable
upon the conversion of the Shares (the "Conversion Shares") have been duly and
validly reserved for issuance and, when issued in accordance with the
Certificate of Incorporation, will be validly issued, fully paid and
nonassessable. The Company has reserved 10,384,833 shares of Common Stock for
issuance upon the exercise of: (I) options to purchase shares of Common Stock
pursuant to its various stock option plans for directors, officers and
employees; (ii) warrants to purchase shares of Common Stock which have been
issued to a supplier, former employees, consultants to the Company, a bank
lender to the Company and the guarantor of certain bank debt of the Company;
and (iii) conversion rights of the outstanding Company's Series A Preferred
Stock, Series B Preferred Stock and Series C Preferred Stock. Other than as set
forth above and except as may be granted pursuant to the Investor's Rights
Agreements (defined below), there are no outstanding options, warrants, rights
(including conversion or preemptive rights), proxy or stockholder agreements,
or agreements of any kind for the purchase or acquisition from the Company of
any of its securities. Investor's Rights Agreements (the "Investor's Rights
Agreements") shall mean those certain investor's rights agreements entered into
by the Company in connection with the issuance of the Series A, Series B, and
Series C Preferred Stock, and in
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connection with the issuance to the Purchaser of shares of Series C Preferred
Stock (the Purchaser's Agreement). A true and correct list of the Company's
stockholders as of the date hereof has been delivered to the Purchaser.
3.3 AUTHORIZATION; BINDING OBLIGATIONS. All corporate
action on the part of the Company, its officers, directors and stockholders
necessary for the authorization, sale and issuance of the Shares pursuant
hereto and the Conversion Shares pursuant to the Certificate of Incorporation
and for the performance of the Company's obligations hereunder and under the
Purchaser's Agreement has been taken or will be taken prior to the Closing. The
Agreement and the Investor's Rights Agreement when executed and delivered, will
be valid and binding obligations of the Company enforceable in accordance with
their terms, except (i) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application affecting
enforcement of creditors' rights; (ii) general principles of equity that
restrict the availability of equitable remedies; and (iii) to the extent that
the enforceability of the indemnification provisions in Section 2.6 of the
Purchaser's Agreement may be limited by applicable laws. The sale of the Shares
and the subsequent conversion of Shares into Conversion Shares are not and will
not be subject to any preemptive rights or rights of first refusal that have
not been properly waived or complied with. When issued in compliance with the
provisions of this Agreement and the Certificate of Incorporation, the Shares
and the Conversion Shares will be validly issued, fully paid and nonassessable
and will be free of any liens or encumbrances; provided, however, that the
Shares and the Conversion Shares may be subject to restrictions on transfer
under state and/or federal securities laws as set forth herein or as otherwise
required by such laws at the time a transfer is proposed.
3.4 FINANCIAL STATEMENTS. The Company has delivered to
the Purchaser its unaudited financial statements (balance sheet, statement of
income, statement of stockholders' equity and statement of cash flows,
including notes thereto) at December 31, 1995 and for the year then ended (the
"Financial Statements"). The Financial Statements are complete and correct in
all material respects and have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis throughout the
periods indicated. The Financial Statements fairly present the financial
condition and position of the Company as of the date and for the period
indicated therein. Except as set forth in the Financial Statements or Exhibit D
hereto, the Company has no material liabilities, contingent or otherwise, other
than (I) liabilities incurred in the ordinary course of business subsequent to
December 31, 1995 and (ii) obligations under contracts and commitments incurred
in the ordinary course of business and not required under generally accepted
accounting principles to be reflected in the Financial Statements, which in
both cases, individually or in the aggregate, are not material to the financial
condition or operating results of the Company.
3.5 CONTRACTS AND OTHER COMMITMENTS.
(A) Except as set forth in Exhibit A hereto, the Company
does not have any contracts, agreements, lease or other commitment, written or
oral, absolute or contingent, other than (i) contracts for the purchase of
supplies and services that were entered into in the ordinary and usual course
of business and that do not involve more than $100,000 and that do not extend
for more than one year beyond the date hereof and (ii) contracts terminable at
will by the Company on no more than 30 days notice without cost or liability to
the Company and are not material to the conduct of the Company's business.
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(B) Except as set forth in Exhibit D hereto, the Company
has not (i) declared or paid any dividends, or authorized or made any
distribution upon or with respect to any class or series of its capital stock,
(ii) redeemed, directly or indirectly, any shares of its capital stock or
otherwise purchased shares of its capital stock, or (iii) made any loans or
advances to any person, or (iv) sold, exchanged or otherwise disposed of any of
its assets or rights.
3.6 NO OBLIGATIONS TO RELATED PARTIES. Except as set
forth in Exhibit D hereto, there are no obligations of the Company to current
or former officers, directors, stockholders, or employees of the Company.
3.7 TRADEMARKS. The Company has sufficient trade names,
trade secrets, information, proprietary title and ownership of all trademarks,
service marks, rights and processes necessary for its business as currently
conducted and as proposed to be conducted, without any conflict with or
infringement of the rights of others. There are no outstanding options,
licenses, or agreements of any kind relating to the foregoing, nor is the
Company bound by or a party to any options, licenses or agreements of any kind
with respect to the trademarks, service marks, trade names, trade secrets,
licenses, proprietary rights and processes of any other person or entity. The
Company is not aware that any of its employees is obligated under any contract
(including licenses, covenants or commitments of any nature) or other
agreement, or subject to any judgment, decree or order of any court or
administrative agency, that would interfere with their duties to the Company or
that would conflict with the Company's business as currently conducted and as
proposed to be conducted. Neither the execution nor delivery of this Agreement
or the Investor's Rights Agreement, nor the carrying on of the Company's
business by the employees of the Company, nor the conduct of the Company's
business as currently conducted and as proposed, will, to the Company's
knowledge, conflict with or result in a breach of the terms, conditions or
provisions of , or constitute a default under, any contract, covenant or
instrument under which any employee is now obligated. The Company does not
believe it is or will be necessary to utilize any inventions of any of its
employees made prior to their employment by the Company. The Company is not
aware of any violation by a third party of any of the Company's trademarks,
service marks, trade names, trade secrets or other proprietary rights.
3.8 COMPLIANCE WITH OTHER INSTRUMENTS. The Company is not
in violation of any term of its Certificate of Incorporation of By Laws, or any
term contained in any material instrument or contract to which it is a party,
and, to the best of its knowledge, is not in violation of any statute, rule, or
regulation applicable to the Company which violation would have a material
adverse effect on the Company's business, condition (financial or otherwise),
properties, prospects or results of operations. No event or failure of
performance has occurred which, with the passage of time or the giving of
notice or both, would constitute such a violation. The execution, delivery, and
performance of and compliance with this Agreement and the Purchaser's Agreement
and the issuance and sale of the Shares pursuant hereto and of the Conversion
Shares pursuant to the Certificate of Incorporation, will not result in any
such violation, or be in conflict with or constitute a default under any such
term, or result in the creation of any mortgage, pledge, lien, encumbrance, or
charge upon any of the properties or assets of the Company. No governmental
orders, permissions, consents, approvals or authorizations are required to be
obtained and no registrations or declarations are required to be filed in
connection with the execution and delivery of this Agreement, or the Investor's
Rights Agreement, and the issuance of the Shares or the Conversion Shares,
except such as has been duly and validly obtained or
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filed, or with respect to any filings that must be made after the Closing, as
will be filed in a timely manner.
3.9 TITLE TO PROPERTIES AND ASSERTS; LIENS, ETC. The
Company has good and marketable title to all of its properties and assets it
purports to own, in each case subject to no mortgage, pledge, lien, lease,
security interest, encumbrance or charge, other than (i) liens for current
taxes not yet due and payable, and (ii) liens and encumbrances which do not in
any case materially detract from the value of the property subject thereto or
materially impair the operations of the Company, and which have not arisen
other than in the ordinary course of business.
3.10 LITIGATION. There is no action, suit, proceeding or
investigation pending or threatened against the Company which questions the
validity of this Agreement, or the Investor's Rights Agreement, or the right of
the Company to enter into either of them, or to consummate the transaction s
contemplated hereby and thereby, or which might result, either individually or
in the aggregate, in any material adverse changes in the business, condition
(financial otherwise), properties, prospects or results of operations of the
Company, or any change in the current equity ownership of the Company. The
Company is not a party or subject to the provisions of any order, writ,
injunction, judgment or decree of any court or government agency or
instrumentality. There is no action, suit, proceeding or investigation by the
Company currently pending or which the Company intends to initiate.
3.11 PERMITS, LICENSES. The Company has all federal, state
and local governmental permits. licenses, certificates of authority any similar
authority necessary for the conduct of its business as now being conducted and
as proposed to be conducted. The Company is not in default in any material
respect under any such permit, license, certificate of authority or other
similar authority.
3.12 ENVIRONMENTAL AND SAFETY LAWS. To the best of its
knowledge, the Company is not in violation of any applicable statute, law or
regulation relating to the environment or occupational health and safety, and
to the best of its knowledge, no material expenditures are or will be required
in order to comply with any such existing statute, law or regulation.
3.13 CHANGES. Except as listed on Exhibit A, since
December 31, 1995 there has not been:
(A) any change in the assets, liabilities, financial
condition or operating results of the Company from that reflected in the
Financial Statements, except changes in the ordinary course of business that
have not been, in the aggregate, materially adverse;
(B) any damage, destruction or loss, whether or not
covered by insurance which materially and adversely affects the business,
condition (financial or otherwise), properties, prospects or results of
operations of the Company;
(C) any satisfaction or discharge of any lien, claim or
encumbrance or payment of any obligation by the Company, except in the ordinary
course of business and that is not material to the business, condition
(financial or otherwise), properties, prospects or results of operations of the
Company;
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(D) any mortgage, pledge, transfer of a security interest
in , or lien, created by the Company, with respect to any of its material
properties or assets, except liens for taxes not yet due and payable;
(E) any loans or guarantees made by the Company to or for
the benefit of its employees, officers or directors, or any member of their
immediate families, other than advances in the ordinary course of business;
(F) to the best of the Company's knowledge, any other
event or condition of any character that might materially and adversely affect
the business, condition (financial or otherwise), properties, prospects or
results of operations of the Company; or
(G) any agreement or commitment by the Company to do any
of the things described in this Section 3.13.
3.14 TAX RETURNS AND PAYMENTS. The Company has filed all
tax returns (federal, state and local) required to filed by it. All taxes shown
to be due and payable on such returns, any assessments imposed, and all other
taxes due and payable by the Company on or before the Closing have been paid or
will be paid prior to the time they become delinquent.
3.15 INSURANCE. The Company has in full force and effect
fire and casualty insurance, with extended coverage, aircraft hull insurance
and liability and errors and omissions insurance in amounts customary for
commercial passenger airlines.
3.16 EMPLOYEES. Except as disclosed on Exhibit A hereto,
the Company has no employment contract with any officer or employee or other
consultant or person which is not terminable by it at will without liability,
except as the Company's right to terminate its employees at will may be limited
by applicable law. To the Company's knowledge, no employee of the Company, nor
any consultant with whom the Company has contracted, is in violation of any
term of any employment contract or any other agreement relating to the right of
any such individual to be employed by, or to contract with, the Company because
of the nature of the business to be conducted by the Company; and to the
Company's knowledge, the continued employment by the Company of its present
employees, and the performance of the Company's contracts with its independent
contractors, will not result in any such violation. There are no controversies
or labor trouble or union organization activities pending or, to the knowledge
of the Company, threatened between it and its employees. None of the Company's
employees belongs to any union or collective bargaining unit. To the best of
its knowledge, the Company has complied with all applicable state and federal
equal employment opportunity laws and other laws related to employment in which
the failure to so comply might have a material adverse effect on the business,
condition (financial or otherwise), properties, prospects or results of
operations of the Company. The Company is not aware that any officer or key
employee, or that any group of key employees, intends to terminate his, her or
their employment with the Company, nor does the Company have a present
intention to terminate the employment of any officer or key employee.
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3.17 REGISTRATION RIGHTS. Except as set forth in Exhibit D
hereto and except as required pursuant to the Investor's Rights Agreement, the
Company is presently not under any obligation, and has not granted any rights,
to register (as defined in Section 1.1 of the Investor's Rights Agreements) any
of the Company's presently outstanding securities or any of its securities that
may hereafter by issued.
3.18 OFFERING VALID. Assuming the accuracy of the
representations and warranties of the Purchaser contained in Section 4.3
hereof, the offer, sale and issuance of the Shares and the Conversion Shares
will be exempt from the registration requirements of the Securities Act of
1933, as amended (the "Securities Act") and will have been registered or
qualified (or are exempt from registration and qualification) under the
registration, permit or qualification requirements of any applicable state
securities laws. Neither the Company nor any agent on its behalf has solicited
or will solicit any offers to sell or has offered to sell or will offer to sell
all or any part of the Shares to any person or persons so as to bring the sale
of such Shares by the Company within the registration provisions of the
Securities Act.
3.19 FULL DISCLOSURE. This Agreement, the Exhibits hereto
and all other documents delivered by the Company to the Purchaser or
Purchaser's attorneys or agents in connection herewith or therewith or with the
transactions contemplated hereby or thereby, do not contain any untrue
statement of a material fact nor, to the Company's knowledge, omit to state a
material fact necessary in order to make the statements contained herein or
therein not misleading.
3.20 REAL PROPERTY HOLDING CORPORATION. The Company is
not a real property holding corporation within the meaning of Internal Revenue
Code Section 897(c)(2) and nay regulations promulgated thereunder.
4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. Purchaser hereby
represents and warrants to the Company as follows (such representations and
warranties do not lessen or obviate the representations and warranties of the
Company set forth in this Agreement):
4.1 REQUISITE POWER AND AUTHORITY. Purchaser has all
necessary power and authority under all applicable provisions of law to execute
and deliver this Agreement and the Investor's Rights Agreement and to carry out
the provisions of this Agreement and the Investor's Rights Agreement. All
action on Purchaser's part required for the lawful execution and delivery of
this Agreement and the Investor's Rights Agreement have been or will be
effectively taken prior to the Closing. Upon their execution and delivery this
Agreement and the Investor's Rights Agreement will be valid and binding
obligations of Purchaser, enforceable in accordance with their terms, except
(i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium
or other laws of general application affecting enforcement of creditor's
rights; (ii) general principles of equity that restrict the availability of
equitable remedies; and (iii) to the extent that the enforceability of the
indemnification provisions of Section 2.8 of the Investor's Rights Agreement
may be limited by applicable laws.
4.2 CONSENTS. All consents, approvals, orders,
authorizations, registrations, qualifications, designations, declarations or
filings with any governmental or banking authority on the part of Purchaser
required in connection with the consummation of the transactions contemplated
in
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this Agreement and the Purchaser's Agreement have been or shall have been
obtained prior to and be effective as of the Closing.
4.3 INVESTMENT REPRESENTATIONS. Purchaser understands
that neither the Shares nor the Conversion Shares have been registered under
the Securities Act. Purchaser also understands that the Shares are being
offered and sold pursuant to an exemption from registration contained in the
Securities Act based in part upon Purchaser's representations contained in the
Agreement. Purchaser hereby represents and warrants as follows:
(A) PURCHASER BEARS ECONOMIC RISK. Purchaser has
substantial experience in evaluating and investing in private placement
transactions of securities in companies similar to the Company so that it is
capable of evaluating the merits and risks of its investment in the Company and
has the capacity to protect its own interests. Purchaser must bear the
economic risk of this investment indefinitely unless the Shares (or the
Conversion Shares) are registered pursuant to the Securities Act, or an
exemption from registration is available. Purchaser understands that there is
no assurance that there is no assurance that any exemption from registration
under the Securities Act will be available and that, even if available, such
exemption may not allow Purchaser to transfer all or any portion of the Shares
or the Conversion Shares under the circumstances, in the amounts or at the
times Purchaser might propose.
(B) ACQUISITION FOR OWN ACCOUNT. Purchaser is acquiring
the Shares and the Conversion Shares for Purchaser's own account for investment
only, and not with a view towards their distribution. If the Purchaser is
other than a natural person, Purchaser represents that each and every
shareholder, partner, member, beneficiary, or other owner thereof is or will be
an "Accredited Investor" as defined in Rule 501 of Regulation D under the
Securities Act.
(C) PURCHASER CAN PROTECT ITS INTEREST. Purchaser
represents that by reason of its management's, business or financial
experience, Purchaser has the capacity to protect its own interests in
connection with the transactions contemplated in this Agreement and the
Investor's Rights Agreement. Further, Purchaser is aware of no publication of
any advertisement in connection with the transactions contemplated in this
Agreement.
(D) COMPANY INFORMATION. Purchaser has received and read
the Financial Statements has received other written materials about the Company
and has had an opportunity to discuss the Company's business, management and
financial affairs with directors, officers and management of the Company and
has had the opportunity to review the Company's operations and facilities.
Purchaser has also had the opportunity to ask questions of and receive answers
from, the Company and its management regarding the terms and conditions of this
investment.
5. CONDITIONS TO CLOSING.
5.1 CONDITIONS TO PURCHASER'S OBLIGATIONS AT THE CLOSING.
Purchaser's obligations to purchase the Shares at the Closing are subject to
the satisfaction, at or prior to the Closing, of the following conditions:
(A) REPRESENTATIONS AND WARRANTIES TRUE; PERFORMANCE OF
OBLIGATIONS. The representations and warranties made by the Company in Section
3 hereof shall be true and correct in
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all material respects as of the Closing Date with the same force and effect as
if they had been made as of the Closing Date, and the Company shall have
performed all obligations and conditions herein required to be performed or
observed by it on or prior to the Closing.
(B) THIRD PARTY CONSENTS, PERMITS, AND WAIVERS. The
Company shall have obtained any and all consents, permits, and waivers
necessary or appropriate for consummation of the transactions contemplated by
this Agreement and the Investor's Rights Agreement.
(C) CORPORATE DOCUMENTS. The Company shall have
delivered to the Purchaser or its counsel copies of all corporate documents of
the Company as the Purchaser shall reasonably request.
(D) RESERVATION OF CONVERSION SHARES. The Conversion
Shares issuable upon conversion of the Shares shall have been duly authorized
and reserved for issuance upon such conversion.
(E) FILING OF CERTIFICATE OF DESIGNATIONS. The
Certificate of Designations shall have been filed with the Secretary of State
of the State of Delaware.
(F) COMPLIANCE CERTIFICATE. The Company shall have
delivered to the Purchaser a Compliance Certificate, executed by the President
and Chief Executive Officer of the Company, dated the Closing Date, to the
effect that the conditions specified in subsections (a) through (e) of this
Section 5.1 have been satisfied.
(G) INVESTOR'S RIGHTS AGREEMENT. The Purchaser's
Agreement in form and substance reasonably satisfactory to Purchaser and its
counsel shall have been executed and delivered by the Company.
(H) PROCEEDINGS AND DOCUMENTS. At the Closing all
corporate and other proceedings in connection with the transactions
contemplated at the Closing hereby and all documents and instruments incident
to such transactions shall be reasonably satisfactory in substance and form to
the Purchaser and its counsel, and the Purchaser and its counsel shall have
received all such counterpart originals or certified or other copies of such
documents as they may reasonably request.
(I) OPINION. Purchaser shall have received from David Y.
Monteith of the Bars of New York and South Carolina, General Counsel to the
Company, an opinion letter in form and substance reasonably satisfactory to
Purchaser and its counsel.
(J) QUALIFICATIONS. All authorizations, approvals or
permits, if any, of any governmental authority or regulatory body of the United
States or of any state that are required in connection with the lawful sale and
issuance of the Shares pursuant to this Agreement shall have been duly obtained
and shall be effective as of the Closing. No stop order or other order
enjoining the sale of the Shares or the proposed issuance of the Conversion
Shares shall have been issued and no proceedings for such purpose shall be
pending or, to the knowledge of the Company, threatened by the Securities and
Exchange Commission or any commissioner or corporations or similar officer of
any state having jurisdiction over this transaction. At the time of Closing,
the sale and issuance of the
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Shares and the proposed issuance of the Conversion Shares shall be legally
permitted by all laws and regulations to which the Purchaser and the Company
are subject.
5.2 CONDITIONS TO OBLIGATIONS OF THE COMPANY. The
Company's obligation to issue and sell the Shares at the Closing is subject to
the satisfaction, on or prior to the Closing, of the following conditions:
(A) REPRESENTATIONS AND WARRANTIES TRUE; PERFORMANCE OF
OBLIGATIONS. The representations and warranties made by the Purchaser in
Section 4 hereof shall be true and correct in all material respects at the date
of the Closing Date, with the same force and effect as if they had been made on
and as of said date, and the Purchaser shall have performed and complied with
all agreements and conditions herein required to be performed or complied with
by it on or before the Closing.
(B) THIRD PARTY CONSENTS, PERMITS, AND WAIVERS. The
Company shall have obtained any and all consents, permits, and waivers
necessary or appropriate for consummation of the transactions contemplated by
this Agreement and the Investor's Rights Agreement.
(C) FILING OF CERTIFICATE OF DESIGNATIONS. The
Certificate of Designations shall have been filed with the Secretary of State
of the State of Delaware.
(D) INVESTOR'S RIGHTS AGREEMENT. The Purchaser's
Agreement shall have been executed and delivered by the Purchaser.
(E) QUALIFICATIONS. All authorizations, approvals or
permits, if any, of any governmental authority or regulatory body of the United
States or of any state that are required in connection with the lawful sale and
issuance of the Shares pursuant to this Agreement shall have been duly obtained
and shall be effective as of the Closing. No stop order or other order
enjoining the sale of the Shares or the proposed issuance of the Conversion
Shares shall have been issued and no proceedings for such purpose shall be
pending or, to the knowledge of the Company, threatened by the Securities and
Exchange Commission or any commissioner or corporations or similar officer of
any state having jurisdiction over this transaction. At the time of Closing,
the sale and issuance of the Shares and the proposed issuance of the Conversion
Shares shall be legally permitted by all laws and regulations to which the
Purchaser and the Company are subject.
6. AFFIRMATIVE COVENANTS OF THE COMPANY.
6.1 BOARD OF DIRECTORS MEETINGS. For as long as any
shares of Series C Preferred remain outstanding, the Company agrees that it
shall hold meetings of the Board of Directors no less frequently than once per
calendar quarter.
6.2 QUALIFIED SMALL BUSINESS STOCK. The Company
covenants that so long as any of the Shares, or Conversion Shares, are held by
Purchaser (or a transferee in whose hands such Shares or Conversion Shares are
eligible to qualify as Qualified Small Business Stock as defined in Section
1202(c) of the Internal Revenue Code of 1986, as amended), it will use its
reasonable efforts to cause the Shares, or the Conversion Shares, to qualify as
Qualified Small Business Stock; provided, however, that "reasonable efforts" as
used in this Section 6.3 shall not be construed to require the
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Company to operate its business in a manner which would adversely affect its
business, limit its future prospects or alter the timing or resource allocation
related to its planned operations or financing activities.
6.3 BOARD OF DIRECTOR APPROVAL. The Company covenants
that so long as any shares of Series C Preferred Stock remain outstanding, the
approval of the Board of Directors of the Company shall be obtained prior to
taking any of the following actions:
(A) The hiring of any officer of the Company;
(B) The adoption of any compensation program, including
base salaries and bonus programs for officers and key employees of the Company;
(C) The adoption of any stock option plan and the
issuance of any stock and stock options;
(D) The adoption of an annual budget, business or
financial plan;
(E) The purchase or lease of any real estate, fixed asset
or aircraft lease in excess of $500,000;
(F) The approval by the Company of any obligation or
commitment, including capital equipment leases or purchases, with a value in
excess of $500,000 or which are outside the most recent business plan or budget
approved by the Board of Directors; and
(G) Transfers by stockholders of more than 10,000 shares
of the Company's stock; provided, however, that this Section 6.3(g) shall
expire on an initial public offering of the Company's Common Stock resulting in
aggregate proceeds (net of underwriting discounts and commissions) to the
Company of at least $10,000,000 at a minimum price of $4.00 per share; and
provided further, that the provisions of this Section 6.3(g) shall not apply to
transfers by a stockholder to such stockholder's partners, family members and
affiliates.
7. MISCELLANEOUS.
7.1 GOVERNING LAW. This Agreement shall be governed in
all respects by the laws of the State of New York.
7.2 SURVIVAL. The representations, warranties,
covenants, and agreements made herein shall survive any investigation made by
the Purchaser and the closing of the transactions contemplated hereby. All
statements as to factual matters contained in any certificate or other
instrument delivered by or on behalf of the Company pursuant hereto in
connection with the transactions contemplated hereby shall be deemed to be
representations and warranties by the Company hereunder solely as of the date
of such certificate or instrument.
7.3 SUCCESSORS AND ASSIGNS. Except as otherwise
expressly provided herein, the provisions hereof shall inure to the benefit of,
and be binding upon, the successors, assigns, heirs,
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executors, and administrators of the parties hereto and shall inure to the
benefit of and be enforceable by each person who shall be a holder of the
Shares from time to time.
7.4 ENTIRE AGREEMENT. This Agreement, the Exhibits and
Schedules hereto, the Purchaser's Agreement, and the other documents delivered
pursuant hereto constitute the full and entire understanding and agreement
between the parties with regard to the subjects hereof and no party shall be
liable or bound to any other in any manner by any representations, warranties,
covenants, and agreements except as specifically set forth herein and therein.
7.5 SEPARABILITY. In case any provision of the Agreement
shall be invalid, illegal, or unenforceable, the validity, legality, and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
7.6. AMENDMENT AND WAIVER.
This Agreement may be amended or modified only upon the
written consent of the Company and holders of more than fifty percent (50%) of
the Shares.
7.7 DELAYS OR OMISSIONS. It is agreed that no delay or
omission to exercise any right, power, or remedy accruing to the Purchaser,
upon any breach, default or noncompliance of the Company under this Agreement,
the Purchaser's Agreement, or the Certificate of Incorporation, shall impair
any such right, power, or remedy, nor shall it be construed to be a waiver of
any such breach, default or noncompliance, or any acquiescence therein, or of
or in any similar breach, default or noncompliance thereafter occurring. It is
further agreed that any waiver, permit, consent, or approval of any kind or
character on Purchaser's part of any breach, default or noncompliance under
this Agreement or under the Certificate of Incorporation or any waiver on
Purchaser's part of any provisions or conditions of the Agreement must be in
writing and shall be effective only to the extent specifically set forth in
such writing. All remedies, either under this Agreement, the Certificate of
Incorporation, Bylaws, or otherwise afforded to Purchaser, shall be cumulative
and not alternative.
7.8 NOTICES. All notices required or permitted hereunder
shall be in writing and shall be deemed effectively given: (i) upon personal
delivery to the party to be notified; (ii) upon receipt after having been sent
by registered or certified mail, return receipt requested, postage prepaid; or
(iii) upon receipt after deposit with a nationally recognized overnight
courier, with written verification of receipt. All communications shall be sent
to the party to be notified at the address as set forth below or at such other
address such party may designate by advance written notice to the other party
hereto given in the manner set forth above.
12
<PAGE> 14
<TABLE>
<S> <C>
IF TO THE COMPANY: WITH A COPY TO:
Air South Airlines, Inc. David Y. Monteith, Esquire
2625 Airport Boulevard Monteith Law Offices
West Columbia, SC 29170 2805 Millwood Avenue
Attention: President; Columbia, SC 29205
IF TO THE PURCHASER: WITH A COPY TO:
Fil-Fibers Manufacturing Inc. Kantor Davidoff Wolfe Mandelker & Kass
c/o Anthony Hwang 51 East 42nd Street
244 Madison Avenue, Suite 2H New York, New York 10017
New York, New York 10016 Attention: William A. Kass, Esquire
</TABLE>
7.9 EXPENSES. The Company shall pay all costs and
expenses that it incurs with respect to the negotiation, execution, delivery
and performance of this Agreement. The Company shall, at the Closing, reimburse
the reasonable fees, not to exceed $7,500, and reasonable expenses of Kantor
Davidoff Wolfe Mandelker & Kass, Counsel for the Purchaser.
7.10 ATTORNEYS' FEES. If legal action is brought to
enforce or interpret this Agreement, the prevailing party shall be entitled to
recover its reasonable attorneys' fees and legal costs in connection therewith.
7.11 TITLES AND SUBTITLES. The titles of the sections and
subsections of the Agreement are for convenience of reference only and are not
to be considered in construing this Agreement.
7.12 COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which shall be an original, but all of which
together shall constitute one instrument.
7.13 BROKER'S FEES. Each party hereto represents and
warrants that no agent, broker, investment banker, person or firm acting on
behalf of or under the authority of such party hereto is or will be entitled to
any broker's or finder's fee or any other commission directly or indirectly in
connection with the transactions contemplated herein. Each party hereto further
agrees to indemnify each other party for any claims, losses or expenses
incurred by such other party as a result of the representation in this Section
7.13 being untrue.
13
<PAGE> 15
IN WITNESS WHEREOF, the parties hereto have executed the Agreement as
of the date set forth in the first paragraph hereof.
AIR SOUTH AIRLINES, INC.
By: /s/ Roden A. Brandt
-------------------------------------
Roden A. Brandt
President and Chief Executive Officer
FIL FIBER MANUFACTURING INC., LTD.
BY: /s/ Anthony E. Hwang
-------------------------------------
NAME: Anthony E. Hwang
TITLE: Attorney-In-Fact
14
<PAGE> 16
SCHEDULE OF EXCEPTIONS
TO
AIR SOUTH AIRLINES, INC.
SERIES C PREFERRED STOCK
PURCHASE AGREEMENT
The Company makes the following exceptions to representations and
warranties made by the Company in this Series C Preferred Stock Purchase
Agreement.
(a) Section 3.5 (a). The Company has the contracts and agreements
listed on Exhibit I hereto.
(b) Section 3.5 (a). The Company has leases on the following
properties:
(i) 1800 St. Julian Place-4th Floor, Columbia, South
Carolina;
(ii) 101 Trade Zone Drive, West Columbia, South
Carolina; and
(iii) 2625 Airport Boulevard, West Columbia, South Carolina
(c) Section 3.5 (b). (i) The Company on January 2, 1996 redeemed
250,000 shares of its Common Stock, par value $0.001 per share held by
Patrick J. O'Shea, the former President of the Company, and certain other
persons designated by him for $2.00 per share.
(ii) The Company has made loans to its President and Vice
President-Marketing in the amounts of $25,000 each for the purchase of shares
of Common Stock of the Company.
(iii) In May 1996 the Company sold a substantial portion of
its aircraft parts inventory to its supplier of aircraft parts as satisfaction
of approximately $615,000 of indebtedness to such supplier.
(d) Section 3.6. The Company has entered into agreements with
Patrick J. O'Shea and Donald Baker, the former General Counsel of the Company,
relative to the termination of their service as employees and as directors of
the Company (the "O'Shea/Baker Agreements").
(e) Section 3.8. (i) The Company is in violation of certain
covenants contained in its Loan Agreement entered into in connection with its
$12,000,000 HUD Section 108 program Loan (the "HUD Loan"); it has been informed
by the Administrator of such loan that it does not consider such violations to
be material.
(ii) The Company has past due indebtedness arising out of
various contracts with others of approximately $5,000,000. It has been sued in
various courts for collection of approximately $635,000 of such indebtedness.
<PAGE> 17
(f) Section 3.9. The Company has incurred a lien on
substantially all its properties pursuant to (i) the HUD Loan; and
(ii) a $1,000,000 line of credit from NationsBank, N.A.
(g) Section 3.10. See the exception, above, relating to
Section 3.8.
(h) Section 3.13 (c). See the exception, above, relating to
Section 3.5 (b).
Section 3.13 (d). See the exception, above, relating to
Section 3.9.
(i) Section 3.16. The Company has employment agreements with
the President and all but one of its Vice Presidents. The agreements with the
Vice Presidents are at will employment contracts with 6 months of salary
severance payments upon dismissal.
(j) Section 3.17. The O'Shea/Baker Agreements provide that they
will be accorded "Piggy-Back" rights on substantially the same basis that such
rights are provided to Hambrecht & Quist Group pursuant to an investor's right
agreement executed in connection with the issuance of its Series A Preferred
Stock.
The Company has granted registration rights in connection with: (i)
the issuance of 1,250,000 shares of Series A Preferred Stock; 625,000 shares of
Series B Preferred Stock ad 40,000 shares of Series C Preferred Stock (ii) the
issuance of 7,500 shares of Common Stock in connection with a $1,000,000
revolving line of credit, and (iii) the issuance of a warrant to purchase
400,000 shares of Common Stock.
Certain warrants (copies of which have been provided to counsel for
the Purchaser) have been issued which contain registration rights which may be
in conflict with the Investor's Rights Agreement.
<PAGE> 18
EXHIBIT I
AIR SOUTH CONTRACTUAL AGREEMENTS
AIRPORT AGREEMENTS
ATLANTA
Agreement with City of Atlanta, Department of Aviation.
Covers all airport related charges.
CHARLESTON
Agreement with Charleston County Aviation Authority covers all airport related
services.
Agreement with Hawthorne Aviation Services covers ground handling.
COLUMBIA
Agreement with Richland-Lexington Airport District.
Covers all airport related charges. Separate agreement covers use of cargo
facility used for parts storage and ground equipment maintenance.
GREENVILLE-SPARTANBURG
Airport Use Agreement with the Greenville-Spartanburg Airport Commission.
Covers all airport related services.
Aircraft Ground Handling Agreement Intex Aviation Services, Inc.
JACKSONVILLE
Agreement with Jacksonville Port authority.
Covers all airport related charges.
JOHN F. KENNEDY
Agreement with the Port Authority of New York and New Jersey covers all airport
related services.
Agreement with American Airlines covers gate and ticket counter, passenger
services and ground handling.
<PAGE> 19
MIAMI
Agreement with Metro Dade Aviation Authority.
Covers all airport related charges (landing fees, terminal rents, and facility
use charges including utilities other than telephones/computer systems(/
MIDWAY (CHICAGO)
Agreement with Chicago Department of airports covers all airport related
services.
Agreement with Airport Technical Service Corp. covers ground handling.
MYRTLE BEACH
Agreement with Horry County Aviation Authority.
Covers all airport related charges. Separate agreement covers all aircraft ramp
handling.
NEWARK
Agreement with the Port Authority of New York and New Jersey covers all airport
related services. Agreement with Ogden Aviation covers ground handling.
Agreement with Ariana Airlines covers ticket counter facilities.
NORFOLK
Airport Use Agreement with Norfolk Airport Authority.
Covers all airport related services.
SAVANNAH
Agreement with Savannah Airport Commission.
Covers all airport related services.
Agreement with American Airlines covers ground handling.
AIRCRAFT LEASES
GENERAL ELECTRIC CAPITAL AVIATION SERVICES (GECAS)
Covers leases on the following five Boeing 737-200 aircraft:
Serial Numbers 21186, 21356, 21612, 21677, 21733.
MIMI LEASING CORP.
Covers leasing on S/N 19607, S/N 19612.
<PAGE> 20
COMPUTER SYSTEMS
SABRE DECISION TECHNOLOGIES (AMR CORP. SUBSIDIARY)
Host Reservation Computer System (software 7 operating system license &
operating support).
ENGINE LEASES
THE AGES GROUP, L.L.P.
Covers one JT8D-9A jet engine.
AMTEC JET, INC.
Covers two JT8D-9A jet engine.
DALLAS AEROSPACE, INC.
Covers one JT8D-9A jet engine.
PEGASUS LEASING
Covers two JT8D-9A jet engines.
PIEDMONT AVIATION, INC.
Covers lease of one APU.
MAINTENANCE AGREEMENTS
US AIR, INC.*
Covers scheduled C-Check aircraft maintenance.
PSA, INC.
Covers scheduled C-Check aircraft maintenance.
AIRKAMAN, INC.
Covers on-call maintenance-Jacksonville.
AMERICAN AIRLINES, INC.
Covers on-call maintenance and general support.
OGDEN GROUND SERVICES, INC.
Covers on-call maintenance-Atlanta.
CONTINENTAL AIRLINES, INC.
Covers on-call maintenance-Atlanta, Miami and general support.
ALLIED SIGNAL AEROSPACE, INC.
Covers wheel and brake repair and overhaul.
THE AGES GROUP, L.L.P.
Covers engine maintenance.
- - -----------------------------
*Non exclusive contract
<PAGE> 21
AIRCRAFT SPARE PARTS
AVIATION SALES COMPANY
Covers agreement for all rotable spare parts inventory.
AVIATION FUEL
WORLD FUEL SERVICES, INC.
Covers all jet fuel purchase requirements.
<PAGE> 22
INVESTOR'S RIGHTS AGREEMENT
BETWEEN
AIR SOUTH AIRLINES, INC.
AND
FIL-FIBER MANUFACTURING, INC. LTD.
JUNE 26, 1996
<PAGE> 23
INVESTOR'S RIGHTS AGREEMENT
THIS INVESTOR'S RIGHTS AGREEMENT (the "Agreement") is entered into as
of the 26th day of June 1996, by and among AIR SOUTH AIRLINES, INC., a Delaware
corporation (the "Company") and Fil-Fiber Manufacturing, Inc. Ltd., a company
of British Virgin Islands registry ("Purchaser").
RECITALS
WHEREAS, the Company proposes to sell and issue Eighty Thousand
(80,000) shares of its Series C Preferred Stock ("Series C Preferred) pursuant
to the Series C Preferred Stock Purchase Agreement of even date herewith
between the Company and Purchaser (the "Purchase Agreement"); and
WHEREAS, as a condition to entering into the Purchase Agreement, the
Purchaser has requested that the Company extend to it registration rights,
information rights and certain other rights as set forth herein.
NOW, THEREFORE, in consideration of the mutual promises,
representations, warranties, covenants, and conditions set forth in this
Agreement and in the Purchase Agreement, the parties mutually agree as follows:
1. GENERAL.
1.1 DEFINITIONS. As used in this Agreement the following
terms shall have the following respective meanings:
"1934 ACT" means the Securities Exchange Act of 1934, as amended.
"EQUITY SECURITIES" means (i) any stock or similar security of the
Company, (ii) any security convertible, with or without consideration, into any
stock or similar security (including any option to purchase such a convertible
security), (iii) any security carrying any warrant or right to subscribe to or
purchase any stock or similar security or (iv) any such warrant or right.
"FAMILY MEMBER" means a Holder's spouse, children, stepchildren and
grandchildren.
"FINAL PROSPECTUS" means an amended prospectus filed with the SEC
pursuant to SEC Rule 424(b) of the Securities Act.
"FORM S-3" means such form under the Securities Act as in effect on
the date hereof or any successor registration form under the Securities Act
subsequently adopted by the SEC which permits inclusion of incorporation of
substantial information by reference to other documents filed by the Company
with the SEC.
"HOLDER" means any person owning of record Registrable Securities.
"INITIAL OFFERING" means the first underwritten public offering of the
Company's securities.
"INITIATING HOLDERS" means the Holder or Holders of at least forty
percent (40%) of the Registrable Securities then outstanding.
1
<PAGE> 24
"REGISTER," "REGISTERED," and "REGISTRATION" refer to a registration
effected by preparing and filing a registration statement in compliance with
the Securities Act, and the declaration or ordering of effectiveness by the SEC
of such registration statement or document.
"REGISTRABLE SECURITIES" means (i) the Shares; (ii) Common Stock of
the Company issued or issuable upon conversion of the Shares; and (iii) any
Common Stock of the Company issued as (or issuable upon the conversion or
exercise of any warrant, right or other security which is issued as) a dividend
or other distribution with respect to, or in exchange for or in replacement of,
such above-described securities. Notwithstanding the foregoing, Registrable
Securities shall not include any securities sold by a person to the public
either pursuant to a registration statement or Rule 144 or sold in a private
transaction in which the transferors rights under Article II of this Agreement
are not assigned. Outstanding Shares and warrants, rights and other securities
issued as a dividend or other distribution with respect to outstanding Shares,
or in exchange or replacement of outstanding Shares, shall be deemed to
represent a number of shares of Registrable Securities equal to the number of
shares of Common Stock into which such Shares, warrants, rights or other
securities are convertible as of the time such determination is made.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended.
"SHARES" shall mean the shares held by the Holders of Company's Series
C Preferred Stock.
"SEC" or "COMMISSION" means the Securities and Exchange Commission.
2. RESTRICTIONS ON TRANSFER; REGISTRATION.
2.1 RESTRICTIONS ON TRANSFER.
(A) Each Holder agrees not to make any disposition of all
or any portion of the Registrable Securities unless and until the transferee
has agreed n writing for the benefit of the Company to be bound by this Section
2.1, provided and to the extent such Section is then applicable and either:
(I) There is then in effect a registration
statement under the Securities Act covering such proposed disposition and such
disposition is made in accordance with such registration statement; or
(II) (A) Such Holder shall have notified the
Company of the proposed disposition and shall have furnished the Company with a
detailed statement of the circumstances surrounding the proposed disposition,
and (B) if reasonably requested by the Company, such Holder shall have
furnished the Company with an opinion of counsel, reasonably satisfactory to
the Company, that such disposition will not require registration of such shares
under the Securities Act.
(B) Notwithstanding the provisions of paragraphs (i) and
(ii) above, no such registration statement or opinion of counsel shall be
necessary for a transfer by a Holder (A) which is a partnership to its partners
in accordance with partnership interests, (B) to the Holder's Family Member or
trust for the benefit of an individual Holder or (C) to an affiliate of the
Holder (as that term is defined in Rule 144 (a)(1) of the Securities Act (an
"Affiliate"), provided the transferee will be subject to the terms of this
Section 2.1 to the same extent as if he were an original Holder hereunder.
2
<PAGE> 25
Each certificate representing Series C Preferred Stock or Registrable
Securities shall (unless otherwise permitted by the provisions of the
Agreement) be stamped or otherwise imprinted with a legend substantially
similar to the following (in addition to any legend required under applicable
state securities laws or as provided elsewhere in this Agreement):
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE OFFERED, SOLD OR
OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL
REGISTERED UNDER THE ACT OR, IN THE OPINION OF COUNSEL OR BASED ON
OTHER WRITTEN EVIDENCE IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER
OF THESE SECURITIES, SUCH OFFER, SALE OR TRANSFER, PLEDGE OR
HYPOTHECATION DOES NOT REQUIRE REGISTRATION.
(C) The Company shall be obligated to reissue promptly
unlegended certificates at the request of any holder thereof if the holder
shall have obtained an opinion of counsel (which counsel may be counsel to the
Company) reasonably acceptable to the Company to the effect that the securities
proposed to be disposed of may lawfully be so disposed of without registration,
qualification or legend.
(D) Any legend endorsed on an instrument pursuant to
applicable state securities laws and the stop-transfer instructions with
respect to such securities shall be removed upon receipt by the Company of an
order of the appropriate blue sky authority authorizing such removal.
2.2 DEMAND REGISTRATIONS AND FORM S-3 REGISTRATION
(A) The Purchaser shall have no right to demand that the
Company shall register all or any part of any Registrable Securities.
(B) If holders of shares of the Company's Series A
Preferred Stock or Series B Preferred Stock (collectively, "A and B Preferred")
shall exercise their right to demand that the Company shall register any
registrable securities, as such term is defined in the investors rights
agreements (the "Applicable Agreements") relating to the A and B Preferred,
then the Company shall also allow the Purchaser to register Registrable
Securities on a pro-rata basis to the number of registrable securities being
registered by holders of A and B Preferred, based on the ratio of the total
number of shares of Common Stock into which the Series A Preferred Stock or
Series B Preferred Stock, as the case may be, are convertible to the total
number of shares of Common Stock into which the Series C Preferred Stock are
convertible. If Registrable Securities are so included in a demand
registration, the holders of such included securities shall be subject to the
terms and conditions, and obligations regarding such registration contained in
the Applicable Agreements.
(C) If the holders of A and B Preferred shall exercise
their right to a Form S-3 Registration under the Applicable Agreements then the
Company shall also allow the Purchaser to register Registrable Securities on
Form S-3 on a pro-rata basis to the number of registrable securities being
registered by holders of A and B Preferred, based on the ratio of the total
number of shares of Common Stock into which the Series A Preferred Stock or
Series B Preferred Stock, as the case may be, are convertible to the number of
shares of Common Stock into which the Series C Preferred Stock. If Registrable
Securities are so included in a Form S-3 registration, the holders of such
included securities shall be subject to the terms and conditions, and
obligations regarding such registration contained in the Applicable Agreements.
3
<PAGE> 26
2.3 PIGGYBACK REGISTRATIONS.
(A) The Company shall notify all Holders in writing at
least thirty (30) days prior to the filing of any registration statement under
the Securities Act for purposes of a public offering of securities of the
Company (including, but not limited to, registration statements relating to
secondary offerings of securities of the Company, but excluding registration
statements relating to the Initial Offering, employee benefit plans and
corporate reorganizations) and will afford each such Holder who would have been
unable to sell all of such Registrable Securities on an unrestricted basis
pursuant to Rule 144 promulgated under the Securities Act, during the four-week
period immediately preceding the effective date of the registration statement,
an opportunity to include n such registration statement all or part of such
Registrable Securities held by such Holder. Each Holder desiring to include in
any such registration statement all or any part of the Registrable Securities
held by it shall, within twenty (20) days after receipt of the above-described
notice from the Company, so notify the Company in writing. Such notice shall
state the intended method of disposition of the Registrable Securities by such
Holder. If a Holder decides not to include all of its Registrable Securities in
any registration statement thereafter filed by the Company, such Holder shall
nevertheless continue to have the right to include any Registrable Securities
in any subsequent registration statement or registration statements as may be
filed by the Company with respect to offerings of its securities, all upon the
terms and conditions set forth herein. Notwithstanding anything to the
contrary, the foregoing shall not apply to any registrations occurring on or
after the fifth anniversary of the Initial Offering.
(B) If the registration statement under which the Company
gives notice under this Section 2.3 is for an underwritten offering, the
Company shall so advise the Holders. In such event, the right of any such
Holder to be included in a registration pursuant to this Section 2.3 shall be
conditioned upon such Holder's participation in such underwriting and the
inclusion of such Holder's Registrable Securities in the underwriting to the
extent provided herein. All Holders proposing to distribute their Registrable
Securities through such underwriting shall enter into an underwriting agreement
in customary form with the underwriter or underwriters selected for such
underwriting. Notwithstanding any other provisions of the Agreement, if the
underwriter determines in good faith that marketing factors require a
limitation of the number of shares to be underwritten, the number of shares
that may be included in the underwriting shall be allocated, first, to the
Company; second, to the holders of shares of the Company's Series A, Series B
and Series C Preferred Stock allocated pro rata on the basis of the total
number of shares of Common Stock into which the Series A, Series B and Series C
Preferred Stock are convertible; third to the 7,500 shares of Common Stock par
value $0.001 per share held by a designee of NationsBank, N.A.; and fourth to
any stockholder of the Company (other than a Holder) on a pro rata basis. No
such reduction shall reduce the securities being offered by the Company for its
own account to be included in the registration and underwriting.
(C) The Company shall bear all fees and expenses incurred
in connection with any registration under this Section 2.3 (excluding
underwriters' discounts and commissions, which shall be paid by the selling
Holders pro rata with respect to their included shares), including without
limitation all registration, filing, qualification, printers' and accounting
fees, fees and disbursements of counsel to the Company, and the reasonable fees
and disbursements of a single counsel to the selling Holders (which counsel
shall also be counsel to the Company unless counsel to the Company has a
conflict of interest with respect to the representation of any selling Holder
or the underwriters object to the selling Holders representation by Company
counsel).
2.4 FURNISH INFORMATION. It shall be a condition
precedent to the obligations of the Company to take any action pursuant to
Sections 2.3, that the selling Holders shall furnish to the Company such
information regarding themselves, the
4
<PAGE> 27
Registrable Securities held by them, and the intended method of disposition of
such securities as shall be required to effect the registration of their
Registrable Securities.
2.5 DELAY OF REGISTRATION. No Holder shall have any right
to obtain or seek an injunction restraining or otherwise delaying any such
registration as the result of any controversy that might arise with respect to
the interpretation or implementation of this Article II.
2.6 INDEMNIFICATION. In the event any Registrable
Securities are included in a registration statement under Section 2.3:
(A) To the extent permitted by law, the Company will
indemnify and hold harmless each Holder, the partners, officers and directors
of each Holder, any underwriter (as defined in the Securities Act) for such
Holder and each person, if any, who controls such Holder or underwriter within
the meaning of the Securities Act or the 1934 Act, against any losses, claims,
damages, or liabilities (joint or several) to which they may be become subject
under the Securities Act, the 1934 Act or other federal or state law, insofar
as such losses, claims, damages, or liabilities (or actions in respect thereof)
arise out of or are based upon any of the following statements, omissions or
violations (collectively a "Violation") by the Company: (i) any untrue
statement or alleged untrue statement of a material fact contained in such
registration statement, including any preliminary prospectus or final
prospectus contained therein or any amendments or supplements thereto, (ii) the
omission of alleged omission to state therein a material fact required to be
stated therein, or necessary to make the statements therein not misleading, or
(iii) any violation or alleged violation by the Company of the Securities Act,
the 1934 Act, any state securities law or any rule or regulation promulgated
under the Securities Act, the 1934 Act or any state securities law in
connection with the offering covered by such registration statement; and the
Company will reimburse each such Holder, partner, officer or director,
underwriter or 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 indemnity
agreement contained in this Section 2.6(a) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Company (which consent shall
not be unreasonably withheld), nor shall the Company be liable in any such case
for any such loss, claim, damage, liability or action to the extent that it
arises out of or is based upon a Violation which occurs in reliance upon and in
conformity with written information furnished to the Company expressly for use
in connection with such registration by such Holder, partner, officer,
director, underwriter or controlling person of such Holder.
(B) To the extent permitted by law, each selling Holder
will indemnify and hold harmless the Company, each of its directors, each of
its officers, each person, if any, who controls the Company within the meaning
of the Securities Act, any underwriter and any other Holder selling securities
under such registration statement or any of such other Holder's partners,
directors or officers or any person who controls such Holder, against any
losses, claims, damages or liabilities (joint or several) to which the Company
or any such director, officer, controlling person, underwriter or other such
Holder, or partner, director, officer of controlling person of such other
Holder may become subject under the Securities Act, the 1934 Act or other
federal or state law, insofar as such losses, claims, damages or liabilities
(or actions in respect thereto) arise out of or are based upon any Violation,
in each case to the extent (and only to the extent) that such Violation occurs
in reliance upon and in conformity with written information furnished to the
Company by such Holder expressly for use in connection with such registration;
and each such Holder will reimburse any legal or other expenses reasonably
incurred by the Company or any such director, officer, controlling person,
underwriter or other Holder, or partner, officer, director or controlling
person of such other Holder in connection with investigating or defending any
such loss, claim, damage, liability or action if it is judicially
5
<PAGE> 28
determined that there was such a Violation; provided, however, that the
indemnity agreement contained in this Section 2.5(b) shall not apply to amounts
paid in settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Holder, which consent shall
not be unreasonably withheld; provided further, that in no event shall any
indemnity under this Section 2.6 exceed the proceeds from the offering received
by such Holder.
(C) Promptly after receipt by an indemnified party under
this Section 2.5 of notice of the commencement of any action (including any
governmental action) as to which indemnity may be sought, such indemnified
party will, if a claim in respect thereof is to be made against any
indemnifying party under this Section 2.6, deliver to the indemnifying party a
written notice of the commencement thereof and the indemnifying party shall
have the right to participate in, and, to the extent the indemnifying party so
desires, jointly with any other indemnifying party similarly noticed, to assume
the defense thereof with counsel mutually satisfactory to the parties;
provided, however, that an indemnified party shall have the right to retain its
own counsel, with the fees and expenses to be paid by the indemnifying party,
if representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential differing
interests between such indemnified party and any other party represented by
such counsel in such proceeding. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action, if materially prejudicial to its ability to defend such action, shall
relieve such indemnifying party of any liability to the indemnified party under
this Section 2.6, but the omission so to deliver written notice to the
indemnifying party will not relieve it of any liability that it may have to any
indemnified party otherwise than under this Section 2.6.
(D) If the indemnification provided for in this Section
2.6 is held by a court of competent jurisdiction to be unavailable to an
indemnified party with respect to any losses, claims, damages or liabilities
referred to herein, the indemnifying party, in lieu of indemnifying such
indemnified party thereunder, shall to the extent permitted by applicable law
contribute to the amount paid or payable by such indemnified party as a result
of such loss, claim, damage or liability in such proportion as is appropriate
to reflect the relative fault of the indemnifying party on the one hand and of
the indemnified party on the other in connection with the Violation(s) that
resulted in such loss, claim, damage or liability, as well as any other
relevant equitable considerations. The relative fault of the indemnifying party
and of the indemnified party shall be determined by a court of law by reference
to, among other things, whether the untrue or alleged untrue statement of a
material fact or the omission to state a material fact relates to information
supplied by the indemnifying party or by the indemnified party and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission; provided that, in no event shall any
contribution by a Holder hereunder exceed the proceeds from the offering
received by such Holder.
(E) The foregoing indemnity agreements of the Company and
Holders are subject to the condition that, insofar as they relate to any
Violation made in a preliminary prospectus but eliminated or remedied in the
amended prospectus on file with the SEC at the time the registration statement
in question becomes effective or the Final Prospectus, such indemnity agreement
shall not inure to the benefit of any person obligated under the Securities Act
to furnish to the person asserting the loss, liability, claim or damage a copy
of the Final Prospectus if a copy of the Final Prospectus was furnished to the
indemnified party and was not furnished to the person asserting the loss,
liability, claim or damage at or prior to the time such action is required by
the Securities Act.
6
<PAGE> 29
(F) The obligations of the Company and Holders under this
Section 2.5 shall survive the completion of any offering of Registrable
Securities pursuant to a registration statement, or otherwise.
2.7 ASSIGNMENT OF REGISTRATION RIGHTS. The rights to
cause the Company to register Registrable Securities pursuant to this Article
II may be assigned by a Holder to a transferee or assignee of Registrable
Securities; provided, however, that no such transferee or assignee shall be
entitled to registration rights under Section 2.3, hereof unless such
transferee or assignee: (i) is a Holder; (ii) holds after such transfer or
assignment at least one hundred thousand (100,000) shares of Registrable
Securities (as adjusted for stock dividends, splits and combinations); or (iii)
is a Family Member or a subsidiary, parent, general partner, Affiliate, or
limited partner of a Holder. In each such case, the Company shall, within
twenty (20) days after such transfer, be furnished with written notice of the
name and address of such transferee or assignee and the securities with respect
to which such registration rights are being assigned.
2.8 AMENDMENT OF REGISTRATION RIGHTS. Any provision of
this Article II may be amended and the observance thereof may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the Holders of
more than fifty percent (50%) of the Registrable Securities. Any amendment or
waiver effected in accordance with this Section 2.8 shall be binding upon each
Holder and the Company. By acceptance of any benefits under this Article II,
each Holder hereby agrees to be bound by the provisions hereunder.
2.9 "MARKET STAND-OFF" AGREEMENT. If requested by the
Company and an underwriter of Common Stock (or other securities) of the
Company, the Purchaser shall not sell or otherwise transfer or dispose of any
Common Stock (or other securities) of the Company held by such stockholder
(other than those included in the registration) for a period specified by the
underwriters not to exceed one hundred eighty (180) days following the
effective date of a registration statement of the Company filed under the
Securities Act, provided that all officers and directors of the Company and all
holders of at least one percent (1%) of the Company's voting securities enter
into similar agreements. The obligations described in this Section 2.9 shall
not apply to a registration relating solely to employee benefit plans on Form
S-1 or Form S-8 or similar forms that may be promulgated in the future, or a
registration relating solely to a Commission Rule 145 transaction on Form S-4
or similar forms that may be promulgated n the future. The Company may impose
stop-transfer instructions with respect to the shares (or securities) subject
to the foregoing restriction until the end of said one hundred eighty (180) day
period.
3. COVENANTS OF THE COMPANY.
3.1 BASIC FINANCIAL INFORMATION AND REPORTING.
(A) The Company will maintain true books and records of
account in which full and correct entries will be made of all its business
transactions pursuant to a system of accounting established and administered in
accordance with generally accepted accounting principles consistently applied,
and will set aside on its books all such proper accruals and reserves as shall
be required under generally accepted accounting principles consistently
applied.
7
<PAGE> 30
(B) As soon as practicable after the end of each fiscal
year of the Company, and in any event within 90 days thereafter or, after the
Initial Offering, simultaneously with the filing of the Company's annual report
on Form 10-K with the SEC, the Company will furnish each Holder a consolidated
balance sheet of the Company, as at the end of such fiscal year, and a
consolidated statement of income and a consolidated statement of cash flows of
the Company for such year, all prepared in accordance with generally accepted
accounting principles and setting forth in each case in comparative form the
figures for the previous fiscal year, all in reasonable detail. Such financial
statements shall be accompanied by a report and opinion thereon by independent
public accountants of national standing selected by the Company's Board of
Directors.
(C) As soon as practicable after the end of each fiscal
quarter of the Company, and in any event within thirty days thereafter or,
after the Initial Offering, simultaneously with the filing of the Company's
reports on Form 10-Q with the SEC, the Company will furnish each Holder a
consolidated balance sheet of the Company, as at the end of such fiscal
quarter, and a consolidated statement of income and a consolidated statement of
cash flows of the Company for such quarter, prepared and presented in a manner
consistent with the financial statements described in Section 3.1(b). Such
statement shall be accompanied by a certificate signed by the Chairman of the
Board and Chief Financial Officer of the Company stating that the preparation
and presentation of such statements is consistent with the financial statements
described in Section 3.1(b).
(D) So long as a Holder (with its Affiliates) shall own
not less than one hundred thousand (100,000) shares of Registrable Securities,
the Company will furnish such Holder a consolidated balance sheet of the
Company, as at the end of each calendar month, and a consolidated statement of
income and a consolidated statement of cash flows of the Company for such
month, prepared and presented in a manner consistent with the financial
statements described in Section 3.1(b). Such statements shall be furnished as
soon as practicable after the end of each month and in any event within ten
days thereafter and shall be accompanied by a certificate signed by the
Chairman of the Board and Chief Financial Officer of the Company stating that
the preparation and presentation of such statements is consistent with the
financial statements described in Section 3.1(b). Prior to January 1st of each
year, the Company shall furnish such Holders an annual budget for the Company
for the following twelve month period, broken down by month. The Company's
obligations under this Section 3.1(d) shall terminate upon the Initial
Offering.
3.2 INSPECTION RIGHTS. So long as a Holder (with its
affiliates) shall own not less than one hundred thousand (100,000) shares of
Registrable Securities, each such Holder shall have the right to visit and
inspect any of the properties of the Company or any of its subsidiaries, and to
discuss the affairs, finances and accounts of the Company or any of its
subsidiaries with its officers, all at such reasonable times and as often as
may be reasonably requested; provided, however, that the Company shall not be
obligated under this Section 3.2 with respect to a competitor of the Company or
with respect to information which the Board of Directors determines in good
faith is confidential and should not, therefore, be disclosed.
3.3 CONFIDENTIALITY OF RECORDS. Each Holder agrees to
use, and to use its best efforts to insure that its authorized representatives
use the same degree of care as such Holder uses to protect its own confidential
information to keep confidential any information furnished to it which the
Company identifies as being confidential or proprietary (so long as such
information is not in the public domain), except that such Holder may disclose
such proprietary or confidential information to any partner, subsidiary,
Affiliate or parent of such Holder for the purpose of evaluating its investment
in the Company as long as such partner, subsidiary or parent is advised of the
confidentiality provisions of this Section 3.3.
8
<PAGE> 31
3.4 RESERVATION OF COMMON STOCK. The Company will at all
times reserve and keep available, solely for issuance and delivery upon the
conversion of the Series C Preferred Stock, all Common Stock issuable from time
to time upon such conversion.
3.5 ELECTION OF DIRECTOR. The Company agrees that at the
next annual meeting of stockholders of the Company a director designated by the
Purchaser and nominated by the nominating committee of the Board of Directors
will be nominated as a director of the Company to serve until his or her
successor duly elected and shall have qualified.
4. RIGHTS OF FIRST REFUSAL.
4.1 SUBSEQUENT OFFERINGS. Each Holder shall have a right
of first refusal to purchase its pro rata share of all Equity Securities that
the Company may, from time to time, propose to sell and issue after the date of
this Agreement, other than the Equity Securities excluded by Section 4.6
hereof. Each Holder's pro rata share is equal to the ratio of the number of
shares of Common Stock, assuming full conversion of all shares of Registrable
Securities owned by such Holder, held by such Holder immediately prior to the
issuance of such Equity Securities to the total number of shares of the
Company's outstanding Common Stock (including all shares of Common Stock
issuable upon conversion of the Registrable Securities).
4.2 EXERCISE OF RIGHTS. If the Company proposes to issue
any Equity Securities, it shall give each Holder written notice of its
intention, describing the Equity Securities, the price, and the terms and
conditions upon which the Company proposes to issue the same. Each Holder shall
have fifteen (15) days from the receipt of such notice to agree to purchase its
pro rata share of the Equity Securities for the price and upon the terms and
conditions specified in the notice by giving written notice to the Company and
stating therein the quantity of Equity Securities to be purchased.
Notwithstanding the foregoing, the Company shall not be required to offer or
sell such Equity Securities to any Holder who would cause the Company to be in
violation of applicable federal securities laws by virtue of such offer or
sale.
4.3 ISSUANCE OF EQUITY SECURITIES TO OTHER PERSONS. If
the Holders fail to exercise in full the rights of first refusal, the Company
shall have ninety (90) days thereafter to sell the Equity Securities in respect
of which the Holders' rights were not exercised, at a price and upon terms and
conditions no more favorable to the purchaser thereof than specified in the
Company's notice to the Holders pursuant to Section 4.2 hereof. If the Company
has not sold such Equity Securities within such ninety (90) days, the Company
shall not thereafter issue or sell any Equity Securities, without first
offering such securities to the Holders in the manner provided above.
4.4 TERMINATION OF RIGHTS OF FIRST REFUSAL. The rights of
first refusal established by this Article IV shall terminate upon the closing
of the Initial Offering.
9
<PAGE> 32
4.5 TRANSFER OF RIGHTS OF FIRST REFUSAL. The rights of
first refusal of each Holder under this Article IV may be transferred to any
subsidiary or parent of such Holder, to any successor in interest to all or
substantially all the assets of such Holder, or to an assignee or transferee
who acquires Registrable Securities.
4.6 EXCLUDED SECURITIES. The rights of first refusal
established by this Article IV shall have no application to any of the
following Equity Securities:
(A) shares of Common Stock (and/or options, warrants or
other common Stock purchase rights issued pursuant to such options, warrants or
other rights) issued or to be issued to employees, officers or directors of ,
or consultants or advisors to , the Company, pursuant to stock purchase or
stock option plans or other compensation arrangements that are approved by the
Board of Directors of the Company;
(B) stock issued pursuant to any rights, options and
warrants granted after the date of this Agreement, provided that the rights of
first refusal established by this Article IV applied with respect to the
initial sale or grant by the Company of such rights, options or warrants;
(C) any Equity Securities issued for consideration other
than cash pursuant to a merger, consolidation, acquisition or similar business
combination;
(D) any Equity Securities that are issued by the Company
as part of the Initial Offering referred to in Section 4.4 hereof;
(E) shares of Common Stock issued in connection with any
stock split, stock dividend or recapitalization by the Company;
(F) shares of Common Stock issued upon conversion of the
Company's Preferred Stock; and
(G) any Equity Securities issued pursuant to any
equipment leasing arrangement or commercial bank financing approved by the
Company's Board of Directors.
4.7 OTHER RIGHTS OF FIRST REFUSAL. The Company has
granted to the Holders of its outstanding Series A and Series B Preferred Stock
rights of first refusal similar to the rights of first refusal granted by this
Article IV. The Company has obtained an agreement between the Company, and the
holders of Series A, Series B and Series C Preferred Stock that the Rights of
the Purchaser shall rank pari passu with each other based upon the relative
number of shares of Common Stock into which the Series A, Series B and Series C
are convertible.
5. MISCELLANEOUS.
5.1 GOVERNING LAW. This Agreement shall be governed by
and construed under the laws of the State of New York.
10
<PAGE> 33
5.2 SURVIVAL. The representations, warranties, covenants,
and agreements made herein shall survive any investigation made by any Holder
and the closing of the transactions contemplated hereby. All statements as to
factual matters contained in any certificate or other instrument delivered by
or on behalf of the Company pursuant hereto in connection with the transactions
contemplated hereby shall be deemed to be representations and warranties by the
Company hereunder solely as of the date of such certificate or instrument.
5.3 SUCCESSORS AND ASSIGNS. Except as otherwise expressly
provided herein, the provisions hereof shall inure to the benefit of, and be
binding upon, the successors, assigns, heirs, executors, and administrators of
the parties hereto and shall inure to the benefit of and be enforceable by each
person who shall be a holder of Registrable Securities from time to time;
provided, however, that prior to the receipt by the Company of adequate written
notice of the transfer of any Registrable Securities specifying the full name
and address of the transferee, the Company may deem and treat the person listed
as the holder of such shares in its records as the absolute owner and holder of
such shares for all purposes, including the payment of dividends or any
redemption price.
5.4 SEPARABILITY. In case any provision of the Agreement
shall be invalid, illegal, or unenforceable, the validity, legality, and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
5.5 AMENDMENT AND WAIVER.
(A) Except as otherwise expressly provided, this
Agreement may be amended or modified only upon the written consent of the
Company and the holders of more than fifty percent (50%) of the Registrable
Securities.
(B) Except as otherwise expressly provided, the
obligations of the Company and the rights of the Holders under this Agreement
may be waived only with the written consent of the holders of more than fifty
percent (50%) of the Registrable Securities.
5.6 DELAYS OR OMISSIONS. It is agreed that no delay or
omission to exercise any right, power, or remedy accruing to any Holder, upon
any breach, default or noncompliance of the Company under this Agreement shall
impair any such right, power, or remedy, nor shall it be construed to be a
waiver of any such breach, default or noncompliance, or any acquiescence
therein, or of any similar breach, default or noncompliance thereafter
occurring. It is further agreed that any waiver, permit, consent, or approval
of any kind or character on any Holder's part of any breach, default or
noncompliance under this Agreement or any waiver on such Holder's part of any
provisions or conditions of this Agreement must be in writing and shall be
effective only to the extent specifically set forth in such writing. All
remedies, either under this Agreement, by law, or otherwise afforded to
Holders, shall be cumulative and not alternative.
5.7 NOTICES. All notices required or permitted hereunder
shall be in writing and shall be deemed effectively given: (i) upon personal
delivery to the party to be notified; (ii) upon receipt after having been sent
by registered or certified mail, return receipt requested, postage prepaid; or
(iii) upon receipt after deposit with a nationally recognized overnight
courier, specifying next day delivery, with written verification of receipt.
All communications shall be sent to the party to be notified at the address set
forth below or at such other address as such party may designate by ten (10)
days advance written notice to the other party hereto in the manner provided
above.
11
<PAGE> 34
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IF TO THE COMPANY: WITH A COPY TO:
Air South Airlines, Inc. David Y. Monteith, Esquire
2625 Airport Boulevard Monteith Law Offices
West Columbia, SC 29170 2805 Millwood Avenue
Attention: President: Columbia, SC 29205
IF TO THE PURCHASER: WITH A COPY TO:
Fil-Fibers Manufacturing Inc. Ltd. Kantor Davidoff Wolfe Mandelker & Kass
c/o Anthony Hwang 51 East 42nd Street
244 Madison Avenue, Suite 2H New York, New York 10017
New York, New York 10016 Attention: William A. Kass, Esquire
</TABLE>
5.8 ATTORNEYS' FEES. If legal action is brought to
enforce or interpret this Agreement, the prevailing party shall be entitled to
recover its reasonable attorneys' fees and legal costs in connection therewith.
5.9 TITLES AND SUBTITLES. The titles of the sections and
subsections of this Agreement are for convenience of reference only and are not
to be considered in construing this Agreement.
5.10 COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which shall be an original, but all of which
together shall constitute one instrument.
12
<PAGE> 35
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date set forth in the first paragraph hereof.
AIR SOUTH AIRLINES, INC. FIL-FIBER MANUFACTURING, INC. LTD.
By: /s/ Roden A. Brandt By: /s/ Anthony E. Hwang
---------------------------- -----------------------------
Roden A Brandt Name: Anthony E. Hwang
President and Chief Executive Officer Title: Attorney-In-Fact
13
<PAGE> 36
H&Q AIR SOUTH INVESTORS LP
HAMBRECHT & QUIST GROUP
ONE BUSH STREET
SAN FRANCISCO, CA 94104
June 26, 1996
Roden A. Brandt
President and Chief Executive Officer
Air South Airlines, Inc.
P.O. Box 11129
Columbia, SC 29211
Fil-Fiber Manufacturing, Inc. Ltd.
c/o Anthony Hwang
244 Madison Avenue, Suite 2H
New York, NY 10016
W. K. Flynn & Associates, Inc.
320 Park Avenue
New York, NY 10022
Attention: W. K. Flynn
Air South Airlines, Inc.
Re: Series C Preferred Stock
Gentlemen:
We refer to the following:
(a) 1,250,000 shares of Air South Airlines, Inc. (the "Company")
Series A Preferred Stock (the "Series A Preferred") held by H&Q Air South
Investors LP ("H&Q");
(b) 625,000 shares of Series B Preferred Stock of the Company (the
"Series B Preferred") held by H&Q;
(c) 40,000 shares of Series C Preferred Stock of the Company (the
"Series C Preferred") held by W. K. Flynn & Associates, Inc. ("Flynn");
(d) 80,000 shares of Series C Preferred proposed to be sold and
issued to Fil-Fiber Manufacturing, Inc. Ltd. ("Fil-Fiber"); and
(e) the Certificate of Designations, Preferences and Rights of
Series C Preferred Stock filed with the office of the Secretary of State of
Delaware on June 14, 1996 (the "Series C Certificate") which provides, among
other things, as follows:
<PAGE> 37
(i) in Section 2, that dividends may not be paid on the
Common Stock of the Company unless an equal dividend is paid
with respect to all outstanding shares of Series C Preferred,
but makes no similar limiting provision as to dividends
payable on Series A Preferred and Series B Preferred; and
(ii) in Section 3. a. that the right of holders to a
preference in a liquidation dissolution or winding up shall in
all respects be subordinate to any preferential or other
rights of the holders of shares of Series A Preferred and
Series B Preferred.
We understand that as a condition to the issuance of Series C
Preferred to Fil-Fiber, Fil-Fiber requires that the shares of Series C
Preferred be treated on a pari passu basis with the Series A Preferred and
Series B Preferred as to dividends and liquidation rights. We also understand
that the Company desires that Flynn, the only other holder of Series C
Preferred, shall be treated equally in such respects.
In connection with the foregoing, H&Q, the sole holder of shares of
Series A Preferred and Series B Preferred, the Company, Fil-Fiber and Flynn
agree as follows:
(A) As regards the payment of dividends, the Company shall not
declare dividends in any amount on the shares of either the Series A
Preferred, Series B Preferred of Series C Preferred unless it also
declares a dividend upon the shares of each of the other classes of
preferred stock; provided, however, that if a dividend is paid on a
class of preferred stock in an amount more or less than the dividend
provided for in the terms of such class, the dividend payable to the
other classes shall be more or less than the dividend provided for
such classes in a proportionate amount.
(B) As regards the preferences upon distribution of any of the
assets or surplus of the Company in any liquidation, dissolution or
winding up of the Company, H&Q agrees that the Series A Preferred,
Series B Preferred and Series C Preferred shall participate in any
such distribution on a pari passu basis without regard to the
subordination of the Series C Preferred provided for in Section 3. a.
of the Series C Certificate. For purposes of this agreement, pari
passu shall mean that the dissolution preferences of the Series A,
Series B and Series C Preferred shall be the Amounts stated in the
designations (the "designated Preferences") for each such class which
are, respectively $2.00 per share, $4.00 per share and $12.50 per
share (in each case as adjusted for stock dividends, combinations or
splits with respect to such shares) or, a total of Designated
Preferences of $6,500,000 on all outstanding shares of preferred stock
after issuance of the shares of Series C Preferred to Fil-Fiber. If
the value of the cash and other assets available for distribution (the
"Distributable Assets") is less than $6,500,000 the dividend per share
payable to each class of preferred stock shall be an amount equal to
the product obtained by multiplying the Designated Preference by a
fraction, the numerator of which shall be the Distributable Assets and
the denominator of which shall be $6,500,000.
After payment to the holders of the Series A, Series B and
Series C Preferred Stock of the aggregate Preferential Amount for such
classes, the entire remaining assets and funds of the Corporation
legally available for distribution, if any, shall be distributed
ratably among the holders of Series A, Series B and Series C Preferred
Stock on the one hand and the holders of Common Stock on the other in
proportion to the shares of Common Stock into which the Series A,
Series B and Series C Preferred Stock may be converted on the one hand
and the outstanding shares of Common Stock on the other.
<PAGE> 38
In connection with the sale to Fil-Fiber of shares of Series C
Preferred, the Company has entered into an Investor's Rights Agreement with
Fil-Fiber (the "Fil-Fiber Agreement") of even date herewith which, among other
things, provides for certain registration rights and rights of first refusal
for holders of shares of Series C Preferred, some of which are in conflict with
certain rights of the holders of Series A Preferred and Series B Preferred
provided in investors rights agreements related to such classes of preferred
stock.
H&Q has reviewed the Fil-Fiber Agreement and agrees to honor the
commitments made therein by the Company to Fil-Fiber.
H&Q understands that (i) the company has entered into an Investors
Rights Agreement with Flynn (the "Flynn Agreement") which has different
registration rights and no rights of first refusal and (ii) the Company and
Flynn wish to amend the Flynn Agreement to make it conform to the Fil-Fiber
Agreement. H&Q hereby agrees that it will interpose no objection to such
amendment and will honor the commitments made by the Company to Flynn in the
amended Flynn Agreement.
H&Q, Fil-Fiber, Flynn and the Company hereby agree that subsequent to
the execution and delivery of this agreement, they will cooperate in doing all
things and executing all documents necessary to carry out the intent of this
Agreement; and if ambiguities or inconsistencies in this Agreement are
discovered or differences of interpretation of this Agreement arise among any
of the parties that they will negotiate in good faith to resolve such matters.
[This space left intentionally blank]
<PAGE> 39
If the foregoing correctly states our agreements, please sign the
agreement in the place provided.
Very truly yours,
H&Q Air South Investors, LP
by
H&Q Management Corporation
its general partner
By: /s/ Jackie Berterretche
-------------------------
Name: Jackie Berterretche
Title: Attorney-in-Fact
ACCEPTED and AGREED
Air South Airlines, Inc.
By: /s/ Roden A. Brandt
---------------------------------------
Roden A. Brandt
President and Chief Executive Officer
Fil-Fiber Manufacturing Inc., Ltd.
By: /s/ Anthony E. Hwang
---------------------------------------
Name: Anthony E. Hwang
Title: Attorney-in-Fact
W. K. Flynn & Associates, Inc.
By: /s/ William K. Flynn
---------------------------------------
W. K. Flynn
President
<PAGE> 1
EXHIBIT 4.12
CONVERTIBLE DEBENTURE PURCHASE AGREEMENT
BETWEEN
AIR SOUTH AIRLINES, INC.
AND
H&Q AIR SOUTH INVESTORS, L.P.
DATED AS OF AUGUST 16, 1996
<PAGE> 2
TABLE OF CONTENTS
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ARTICLE I DEFINITIONS
SECTION 1.01. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II PURCHASE AND SALE OF CONVERTIBLE DEBENTURES
SECTION 2.01. ISSUANCE, SALE AND DELIVERY OF THE CONVERTIBLE
DEBENTURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
SECTION 2.02. CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
ARTICLE III CONVERSION
SECTION 3.01. CONVERSION; NUMBER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
SECTION 3.02. CONVERSION PROCEDURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
SECTION 3.03. REPRESENTATIONS, WARRANTIES, COVENANTS, NO
DEFAULT; CONDITIONS PRECEDENT TO CONVERSION . . . . . . . . . . . . . . . . . . . . . . . . 7
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE COMPANY
SECTION 4.01. ORGANIZATION, QUALIFICATIONS AND CORPORATE
POWER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
SECTION 4.02. AUTHORIZATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
SECTION 4.03. VALIDITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
SECTION 4.04. CAPITALIZATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
SECTION 4.05. FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
SECTION 4.06. EVENTS SUBSEQUENT TO THE DATE OF THE BALANCE
SHEET . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
SECTION 4.07. COMPLIANCE WITH INSTRUMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
SECTION 4.08. LITIGATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
SECTION 4.09. COMPLIANCE WITH LAW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
SECTION 4.10. TITLE TO PROPERTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
SECTION 4.11. LEASEHOLD INTERESTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
SECTION 4.12. TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
SECTION 4.13. PATENTS, TRADEMARKS, ETC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
SECTION 4.14. OUTSTANDING DEBT; LOANS AND ADVANCES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
SECTION 4.15. GUARANTEES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
SECTION 4.16. GOVERNMENTAL APPROVALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
SECTION 4.17. DISCLOSURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
SECTION 4.18. BROKERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
SECTION 4.19. SECURITIES ACT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
SECTION 4.20. MARGIN REGULATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
SECTION 4.21. INSURANCE COVERAGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
SECTION 4.22. ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
</TABLE>
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SECTION 4.23. ENVIRONMENTAL COMPLIANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
SECTION 4.24. PERMITS AND LICENSES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
SECTION 4.25. BOARD COMPOSITION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
SECTION 5.01. REPRESENTATIONS AND WARRANTIES OF THE
PURCHASER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
ARTICLE VI CONDITIONS TO THE OBLIGATIONS OF THE PURCHASER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
SECTION 6.01. CONDITIONS TO THE OBLIGATION OF THE PURCHASER . . . . . . . . . . . . . . . . . . . . . . . 16
ARTICLE VII CONDITIONS TO THE OBLIGATIONS OF THE COMPANY
SECTION 7.01. CONDITIONS TO THE OBLIGATIONS OF THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . 18
ARTICLE VIII COVENANTS OF THE COMPANY
SECTION 8.01. FINANCIAL STATEMENTS AND REPORTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
SECTION 8.02. CORPORATE EXISTENCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
SECTION 8.03. MAINTENANCE OF PROPERTIES AND INSURANCE . . . . . . . . . . . . . . . . . . . . . . . . . . 21
SECTION 8.04. INSPECTION, CONSULTATION AND ADVICE . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
SECTION 8.05. RESTRICTIVE AGREEMENTS PROHIBITED . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
SECTION 8.06. TRANSACTIONS WITH AFFILIATES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
SECTION 8.07. USE OF PROCEEDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
SECTION 8.08. SUBSIDIARIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
SECTION 8.09. COMPLIANCE WITH LAWS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
SECTION 8.10. KEEPING OF RECORDS AND BOOKS OF ACCOUNT . . . . . . . . . . . . . . . . . . . . . . . . . . 22
SECTION 8.11. OBLIGATIONS AND TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
SECTION 8.12. TRANSFER AND EXCHANGE OF CONVERTIBLE
DEBENTURES; LOST CONVERTIBLE DEBENTURES . . . . . . . . . . . . . . . . . . . . . . . . . . 23
SECTION 8.13. LIMITATION ON DEBT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
SECTION 8.14. LIMITATION ON LIENS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
SECTION 8.15. LIMITATION ON RESTRICTED PAYMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
SECTION 8.16. COVENANT REGARDING STOCKHOLDER VOTE AND
FILING OF CERTIFICATE OF DESIGNATION . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
SECTION 8.17. BOARD NOMINEES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
ARTICLE IX EVENTS OF DEFAULT
SECTION 9.01. ACCELERATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
SECTION 9.02. RESCISSION OF ACCELERATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
SECTION 9.03. NOTICE OF ACCELERATION OR RESCISSION . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
SECTION 9.04. OTHER REMEDIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
ARTICLE X MISCELLANEOUS
SECTION 10.01. PAYMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
SECTION 10.02. EXPENSES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
</TABLE>
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<TABLE>
<S> <C> <C>
SECTION 10.03. CONSENT TO AMENDMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
SECTION 10.04. PERSONS DEEMED OWNERS; PARTICIPATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
SECTION 10.05. SURVIVAL OF REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . . . . . 30
SECTION 10.06. BROKERAGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
SECTION 10.07. PARTIES IN INTEREST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
SECTION 10.09. NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
SECTION 10.09. ENTIRE AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
SECTION 10.10. COUNTERPARTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
SECTION 10.11. SEVERABILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
SECTION 10.12. DESCRIPTIVE HEADINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
SECTION 10.13. GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
SECTION 10.14. Gender; Plurals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
EXHIBITS
EXHIBIT A Form of Convertible Debenture
EXHIBIT B Form of Certificate of Designation
EXHIBIT C Certificate of Incorporation
EXHIBIT D Form of Investors Rights Agreement
EXHIBIT E Form of Opinion of General Counsel
(Series D Preferred Stock)
EXHIBIT F Form of Opinion of General Counsel
(Convertible Debentures)
SCHEDULES
SCHEDULE 4.04 Outstanding Options, Warrants, Etc.
SCHEDULE 4.06 Events Subsequent to Balance Sheet
SCHEDULE 4.07 Violations, Defaults
SCHEDULE 4.08 Defaults
SCHEDULE 4.10 Title to Properties
SCHEDULE 4.11 Leasehold Interests
SCHEDULE 4.14 Existing Debt
</TABLE>
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<PAGE> 5
CONVERTIBLE DEBENTURE PURCHASE AGREEMENT
CONVERTIBLE DEBENTURE PURCHASE AGREEMENT ("Agreement"), dated as of
August 16, 1996, between AIR SOUTH AIRLINES, INC., a Delaware corporation (the
"Company"), and H&Q AIR SOUTH INVESTORS, L.P., a Delaware limited partnership
(the "Purchaser").
RECITALS
WHEREAS, the Company wishes to issue and sell to the Purchaser its
convertible debentures (herein, together with any such convertible debentures
which may be issued pursuant to any provision of this Agreement, and any such
convertible debentures which may be used in substitution or exchange thereon,
collectively called the "Convertible Debentures" and individually called a
"Convertible Debenture") in the original aggregate principal amount of
$4,000,000, to be dated the date of issue, to mature August 16, 1999, to bear
interest on the unpaid balances thereof from the date thereof until the
principal shall have become due and payable at the rate of 6% per annum, which
interest shall be deferred and added to the outstanding principal balance of
the Convertible Debentures, and to be substantially in the form of Exhibit A
attached hereto; and
WHEREAS, the Purchaser wishes to purchase the Convertible Debenture on
the terms and subject to the conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the above recitals, the mutual
promises contained herein and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto do
hereby agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. DEFINITIONS. As used herein, unless the context
otherwise requires, the following terms have the following meanings specified
with respect thereto below:
"Agreement" shall mean this Convertible Debenture Purchase Agreement,
as the same may be amended or supplemented and in effect from time to time.
"Amendment" shall have the meaning ascribed thereto in Section 8.16.
<PAGE> 6
"BALANCE SHEET" shall have the meaning ascribed thereto in Section
4.05.
"BANKRUPTCY LAW" shall have the meaning ascribed thereto in Section
9.01.
"BLANK CHECK PREFERRED STOCK" shall have the meaning ascribed thereto
in Section 4.04.
"BUSINESS DAY" shall mean any day which is not a Saturday or Sunday or
a national banking holiday.
"BY-LAWs" shall mean the By-laws of the Company, as amended.
"CERTIFICATE OF DESIGNATION" shall mean the Certificate of Designation
of the Company to be substantially in the form of Exhibit B attached hereto.
"CERTIFICATE OF INCORPORATION" shall mean the Certificate of
Incorporation of the Company, including all amendments thereto through the date
hereof, including any amendments effected by means of a certificate of
designation, a copy of which is attached hereto as Exhibit C.
"CLOSING" shall have the meaning ascribed thereto in Section 2.02.
"CLOSING DATE" shall have the meaning ascribed thereto in Section
2.02.
"CODE" shall mean the Internal Revenue Code of 1986, as amended.
"COMMISSION" shall mean the Securities and Exchange Commission or any
other federal agency at the time administering the Securities Act.
"COMMON CONVERSION SHARES" shall mean the shares of Common Stock
issuable upon conversion of the Preferred Conversion Shares.
"COMMON STOCK" shall mean the Common Stock, par value $0.001 per
share, of the Company.
"COMPANY" shall have the meaning ascribed thereto in the preamble.
"CONVERTIBLE DEBENTURE" shall have the meaning ascribed thereto in the
preamble.
"CONVERSION" shall have the meaning ascribed thereto in Section 3.01.
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<PAGE> 7
"CONVERSION NOTICE" shall mean the notice of conversion in the form
attached to the Convertible Debenture, which notice shall set forth the name of
the registered owner of the Convertible Debenture being converted and the
principal balance, or portion thereof, being converted.
"CURRENT DEBT" shall mean, with respect to any Person, all
Indebtedness of such Person for borrowed money which by its terms or by the
terms of any instrument or agreement relating thereto matures on demand or
within one year from the date of the creation thereof and is not directly or
indirectly renewable or extendible at the option of the debtor to a date more
than one year from the date of the creation thereof.
"DEBT" shall mean Current Debt and Funded Debt.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.
"ERISA AFFILIATE" shall mean any corporation which is a member of the
same controlled group of corporations as the Company within the meaning of
Section 414(b) of the Code, or any trade or business which is under common
control with the Company within the meaning of Section 414(c) of the Code, or
any other entity which is considered to be a single employer with the Company
pursuant to Sections 414(m), (n) or (o) of the Code.
"EVENT OF DEFAULT" shall mean any of the events specified in Section
9.01 provided that there has been satisfied any requirement in connection with
such event for the giving of notice, or the lapse of time, or the happening of
any further condition, event or act, and "DEFAULT" shall mean any of such
events, whether or not any such requirement has been satisfied.
"EXISTING DEBT" shall have the meaning ascribed thereto in Section
4.14.
"FUNDED DEBT" shall mean, with respect to any Person, all Indebtedness
of such Person which by its terms or by the terms of any instrument or
agreement relating thereto matures, or which is otherwise payable or unpaid,
more than one year from, or is directly or indirectly renewable or extendible
at the option of the debtor to a date more than one year from, the date of the
creation thereof.
"GUARANTEE" shall mean, with respect to any Person, any direct or
indirect liability, contingent or otherwise, of such Person with respect to any
indebtedness, lease, dividend or other obligation of another, including,
without limitation, any such obligation directly or indirectly guaranteed,
endorsed (otherwise than for collection or deposit in the ordinary course of
business) or discounted or sold with
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recourse by such Person, or in respect of which such Person is otherwise
directly or indirectly liable, including, without limitation, any such
obligation in effect guaranteed by such Person through any agreement
(contingent or otherwise) to purchase, repurchase or otherwise acquire such
obligation or any security therefor, or to provide funds for the payment or
discharge of such obligation (whether in the form of loans, advances, stock
purchases, capital contributions or otherwise), or to maintain the solvency or
any balance sheet or other financial condition of the obligor of such
obligation, or to make payment for any products, materials or supplies or for
any transportation or services regardless of the non-delivery or non-furnishing
thereof, in any such case if the purpose or intent of such agreement is to
provide assurance that such obligation will be paid or discharged, or that any
agreements relating thereto will be complied with, or that the holders of such
obligation will be protected against loss in respect thereof.
"HUD LOAN" shall mean that certain loan to the Company by Lexington
County, South Carolina pursuant to the United States Department of Housing and
Urban Development Section 108 Loan Program.
"INDEBTEDNESS" shall mean, with respect to any Person, without
duplication, (i) all items which in accordance with generally accepted
accounting principles would be included in determining total liabilities as
shown on the liability side of a balance sheet of such Person as of the date on
which Indebtedness is to be determined, (ii) all indebtedness secured by any
Lien on any property or asset owned or held by such Person subject thereto,
whether or not the indebtedness secured thereby shall have been assumed, and
(iii) all indebtedness of others with respect to which such Person has become
liable by way of a Guarantee.
"INTELLECTUAL PROPERTY" shall have the meaning ascribed thereto in
Section 4.13.
"INVESTOR'S RIGHT AGREEMENT" shall mean the Investor's Right
Agreement, dated the date hereof, between the Company and the Purchaser, a copy
of which is attached hereto as Exhibit D.
"LIEN" shall mean any mortgage, pledge, priority, security interest,
encumbrance, lien (statutory or otherwise) or charge of any kind (including any
agreement to give any of the foregoing, any conditional sale or other title
retention agreement, any lease in the nature thereof, and the filing of or
agreement to give any financing statement under the Uniform Commercial Code of
any jurisdiction) or any other type of preferential arrangement for the
purpose, or having the effect, of protecting a creditor against loss or
securing the payment or performance of an obligation.
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"MATERIAL ADVERSE EFFECT" shall mean a material adverse effect on the
assets, business, operations or financial condition of the Company.
"MULTIEMPLOYER PLAN" shall mean any Plan which is a "multiemployer
plan" (as such term is defined in Section 4001(a)(3) of ERISA).
"OFFICER'S CERTIFICATE" shall mean a certificate signed in the name of
the Company by its Chief Executive Officer, President, Chief Financial Officer
or one of its Vice Presidents.
"PBGC" shall mean the Pension Benefit Guaranty Corporation or any
successor entity.
"PERSON" shall mean a corporation, an association, a partnership, an
organization, a business, an individual, a governmental or political
subdivision thereof or a governmental agency.
"PLAN" shall mean any "employee pension benefit plan" (as such term is
defined in Section 3(2) of ERISA) which is or has been established or
maintained, or to which contributions are or have been made, by the Company or
any ERISA Affiliate.
"PREFERRED CONVERSION SHARES" shall mean the shares of Series D
Preferred Stock issuable upon conversion of the Convertible Debentures as set
forth in Article III hereof.
"PREFERRED STOCK" shall mean all classes or series of preferred stock,
par value $0.001 per share, of the Company.
"PURCHASER" shall have the meaning ascribed thereto in the preamble.
"REQUIRED HOLDER(S)" shall mean the holder or holders of at least 51%
of the aggregate principal amount of the Convertible Debentures from time to
time outstanding.
"RESTRICTED PAYMENT" shall mean (i) the declaration, payment or
setting apart of any sum for payment of dividend (including a dividend payable
in capital stock of the Company) on, or any distribution (including a
distribution in capital stock of the Company) in respect of, any shares of
capital stock of the Company or any warrants, rights or options to purchase any
shares of capital stock of the Company or (ii) the redemption, repurchase,
retirement or other acquisition of (or the setting apart of any sum in respect
of any of the foregoing actions) any shares
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<PAGE> 10
of capital stock of the Company or any warrants, rights or options to
purchase or acquire any shares of capital stock.
"SECURITIES" shall have the meaning ascribed thereto in Section 4.19.
"SECURITIES ACT" shall have the meaning ascribed thereto in Section
4.19.
"SERIES D PREFERRED STOCK" shall mean shares of Series D Preferred
Stock of the Company.
"STOCKHOLDER APPROVAL" shall have the meaning ascribed thereto in
Section 8.16.
"Subsidiary" shall mean, as to the Company, any corporation of which
more than 50% of the outstanding stock having ordinary voting power to
elect a majority of the Board of Directors of such corporation
(irrespective of whether or not at the time stock of any other class or
classes shall have or might have voting power by reason of the happening
of any contingency) is at the time directly or indirectly owned by the
Company, or by one or more of its subsidiaries.
"Transferee" shall mean any direct or indirect transferee of all or
any part of any Convertible Debenture purchased by the Purchaser under
this Agreement.
ARTICLE II
PURCHASE AND SALE OF CONVERTIBLE DEBENTURES
SECTION 2.01. ISSUANCE, SALE AND DELIVERY OF THE CONVERTIBLE DEBENTURES.
The Company agrees to issue and sell to the Purchaser and the Purchaser hereby
agrees to purchase from the Company, the Convertible Debentures in the
aggregate principal amount of $4,000,000 at 100% of such aggregate principal
amount.
SECTION 2.02. CLOSING. The closing shall take place at the offices of
Cooley Godward Castro Huddleson & Tatum, Palo Alto, CA, at 2 p.m., Pacific
time, on August 16, 1996, or at such other location, date and time as may be
agreed upon between the Purchaser and the Company (such closing being called
the "Closing" and such date and time being called the "Closing Date"). At the
Closing, the Company shall issue and deliver to the Purchaser one or more
Convertible Debentures, registered in the name of such Purchaser, evidencing
the aggregate principal amount of Convertible Debentures to be purchased by the
Purchaser at the Closing, and in the denomination or denominations specified in
writing by the Purchaser. As payment in full for the Convertible Debentures
being purchased by the Purchaser under this Agreement, on the Closing Date the
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<PAGE> 11
Purchaser shall deliver to the Company a check payable to the order of the
Company, in the amount of the purchase price or shall transfer such sum to the
account of the Company by wire transfer, or shall deliver to the Company notes
evidencing indebtedness of the Company for cancellation thereof, or any
combination of the foregoing.
ARTICLE III
CONVERSION
SECTION 3.01. CONVERSION; NUMBER. The holder of any Convertible
Debenture, at its option, will be entitled at any time commencing three (3)
Business Days after Stockholder Approval and ending on the close of business on
the final maturity date of the Convertible Debentures to convert any
Convertible Debentures, or portions thereof, into shares of Series D Preferred
Stock. The Convertible Debenture will automatically be converted into shares
of Series D Preferred Stock upon the closing of a firmly underwritten public
offering of Common Stock on a Form S-1 Registration Statement at an aggregate
public offering price (after underwriting discounts and commissions) of at
least $10,000,000 and a per share price equal to or greater than $4.00 (as
appropriately adjusted for stock splits and the like). In either case (each of
which is sometimes hereinafter referred to as a "Conversion"), the number of
shares of Series D Preferred Stock to be issued upon such Conversion shall be
determined by dividing the aggregate principal balance of the Convertible
Debenture to then be converted by twenty-five hundredths (0.25). The Company is
not required to issue fractional shares of Series D Preferred Stock upon
conversion of any Convertible Debenture and, in lieu thereof, will pay a cash
adjustment.
SECTION 3.02. CONVERSION PROCEDURE. If the holder elects to convert any
Convertible Debenture such holder may do so by delivering the Convertible
Debenture at the specified office of the Company, accompanied by a duly signed
and completed Conversion Notice. The date of the Conversion shall be the date
on which the Convertible Debenture and the duly signed and completed Conversion
Notice are received by the Company. A holder delivering a Convertible
Debenture for conversion will not be required to pay any taxes or duties
payable with respect to the issue or delivery of Series D Preferred Stock on
Conversion and any such taxes or duties shall be paid by the Company.
SECTION 3.03. REPRESENTATIONS, WARRANTIES, COVENANTS, NO DEFAULT;
CONDITIONS PRECEDENT TO CONVERSION.
(a) On and as of the date of each Conversion, (i) the Company shall
be deemed to have (A) remade, ratified and confirmed all
representations and warranties of the Company contained in Article IV
of this Agreement, (B) certified compliance with all covenants
contained in Article VIII of this Agreement and (C)
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<PAGE> 12
certified that no Event of Default or Default exists and is
continuing, and (ii) the Company shall deliver an Officer's
Certificate to the effects set forth in (A), (B) and (C) above.
(b) In addition to the provisions of Section 3.03(a) above, on
and as of the date of each Conversion, the Company shall have caused
to be delivered to the Purchaser an opinion of the General Counsel of
the Company, substantially in the form of Exhibit E attached hereto.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Purchaser that:
SECTION 4.01. ORGANIZATION, QUALIFICATIONS AND CORPORATE POWER.
(a) The Company is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of
Delaware and is duly qualified to transact business as a foreign
corporation and is in good standing in each jurisdiction in which the
nature of the business transacted by it or the character of the
properties owned or leased by it requires such qualification, except
where the failure to be so qualified would not have a Material Adverse
Effect. The Company has the corporate power and authority to own and
hold its properties and to carry on its business as now conducted and
as proposed to be conducted, to execute, deliver and perform its
obligations under this Agreement, to issue, sell and deliver the
Convertible Debentures and, subject to approval by the stockholders of
the Company of an amendment to the Certificate of Incorporation, to
increase the authorized number of shares of Common Stock and Preferred
Stock, to issue and deliver the Preferred Conversion Shares and the
Common Conversion Shares.
(b) The Company has no Subsidiaries. The Company does not (i)
own of record or beneficially, directly or indirectly (A) any shares of
capital stock or securities convertible into capital stock of any other
corporation or (B) any participating interest in any partnership, joint
venture or other non-corporate business enterprise or (ii) control,
directly or indirectly, any other entity.
SECTION 4.02. AUTHORIZATION. The execution and delivery by the Company
of this Agreement, the performance by the Company of its obligations hereunder,
the issuance, sale and delivery of the Convertible Debentures and, subject to
approval by the stockholders of the Company of an amendment to the Certificate
of Incorporation to increase the authorized number of shares of Common Stock
and Preferred Stock, the
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issuance and delivery of the Preferred Conversion Shares and the Common
Conversion Shares have been duly authorized by all requisite corporate action
and will not violate any provision of law, any order of any court or other
agency of government, the Certificate of Incorporation or the By-laws, or any
provision of any indenture, agreement or other instrument to which the Company,
any of its subsidiaries or any of their respective properties or assets is
bound, or conflict with, result in a breach of or constitute (with due notice
or lapse of time or both) a default under any such indenture agreement or other
instrument, or result in the creation or imposition of any lien, charge,
restriction, claim or encumbrance of any nature whatsoever upon any of the
properties or assets of the Company or any of its subsidiaries.
SECTION 4.03. VALIDITY. This Agreement has been duly executed and
delivered by the Company and constitutes the legal, valid and binding
obligation of the Company, enforceable in accordance with its terms.
SECTION 4.04. CAPITALIZATION. The authorized capital stock of the
Company consists of (i) 18,000,000 shares of Common Stock, par value $0.001 per
share; (ii) 1,250,000 shares of Series A Preferred Stock, par value $0.001 per
share; (iii) 625,000 shares of Series B Preferred Stock, par value $0.001 per
share; (iv) 120,000 shares of Series C Preferred Stock, par value $0.001 per
share; and (v) 5,000 shares of one or more series of Preferred Stock (the
"Blank Check Preferred Stock"). Immediately prior to the Closing, 6,917,182
shares of Common Stock, 1,250,000 shares of Series A Preferred Stock, 625,000
shares of Series B Preferred Stock and 120,000 shares of Series C Preferred
Stock were outstanding and have been validly issued and are fully paid and
nonassessable with no personal liability attaching to the ownership thereof.
The designations, powers, preferences, rights, qualifications, limitations and
restrictions in respect of each class and series of authorized capital stock of
the Company are as set forth in the Certificate of Incorporation, and all such
designations, powers, preferences, rights, qualifications, limitations and
restrictions are valid, binding and enforceable and in accordance with all
applicable laws. Except as set forth on Schedule 4.04, there are no
outstanding options, preemptive or other rights, warrants, agreements, voting
trusts, proxies, contracts, calls, commitments or demands of any character
relating to any shares of capital stock, or any other securities of the
Company, whether or not issued, including, but not limited to, securities
convertible into or evidencing the right to purchase any capital stock or other
securities of the Company. Except as set forth on Schedule 4.04, the Company
has no obligation (contingent or other) to purchase, redeem or otherwise
acquire any of its equity securities or any interest therein or to pay any
dividend or make any other distribution in respect thereof. There are no
voting trusts or agreements, stockholders' agreements, pledge agreements,
buy-sell agreements, rights of first refusal, preemptive rights or proxies
relating to any securities of the Company or any of its subsidiaries (whether
or not the Company or any of its subsidiaries is a party thereto). All of the
outstanding securities of the Company were issued in compliance with all
applicable federal and state securities laws.
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SECTION 4.05. FINANCIAL STATEMENTS. The Company has furnished to the
Purchaser the consolidated balance sheet of the Company as of December 31, 1995
(the "Balance Sheet"), and the related statements of income, stockholders'
equity and cash flows of the Company for the year ended December 31, 1995. All
such financial statements have been prepared in accordance with generally
accepted accounting principles consistently applied and fairly present the
financial position of the Company as of December 31, 1995, and the results of
operations and cash flows of the Company for the year ended December 31, 1995.
Since the date of the Balance Sheet, (i) there has been no change in the
assets, liabilities or financial condition of the Company (on a consolidated
basis) from that reflected in the Balance Sheet, except for changes in the
ordinary course of business which in the aggregate have not been materially
adverse, and (ii) none of the business, prospects, financial condition,
operations, property or affairs of the Company (on a consolidated basis) has
been materially adversely affected by any occurrence or development,
individually or in the aggregate, whether or not insured against.
SECTION 4.06. EVENTS SUBSEQUENT TO THE DATE OF THE BALANCE SHEET. Since
the date of the Balance Sheet, the Company has not, except as set forth on
Schedule 4.06, (i) issued any stock, bond or other corporate security, (ii)
borrowed any amount or incurred or become subject to any liability (absolute,
accrued or contingent), except current liabilities incurred and liabilities
under contracts entered into in the ordinary course of business, (iii)
discharged or satisfied any lien or encumbrance or incurred or paid any
obligation or liability (absolute, accrued or contingent) other than current
liabilities shown on the Balance Sheet and current liabilities incurred since
the date of the Balance Sheet in the ordinary course of business, (iv) declared
or made any payment or distribution to stockholders or purchased or redeemed
any share of its capital stock or other security, (v) mortgaged, pledged or
subjected to lien any of its assets, tangible or intangible, other than liens
of current real property taxes not yet due and payable, (vi) sold, assigned or
transferred any of its tangible assets except in the ordinary course of
business, or canceled any debt or claim, (vii) sold, assigned, transferred or
granted any exclusive license with respect to any patent, trademark, trade
name, service mark, copyright, trade secret or other intangible asset, (viii)
suffered any loss of property or waived any right of substantial value whether
or not in the ordinary course of business, (ix) made any change in officer
compensation except in the ordinary course of business and consistent with past
practice, (x) made any material change in the manner of business or operations
of the Company, (xi) entered into any transaction except in the ordinary course
of business or as otherwise contemplated hereby or (xii) entered into any
commitment (contingent or otherwise) to do any of the foregoing.
SECTION 4.07. COMPLIANCE WITH INSTRUMENTS. The Company is not in
violation of any term of its Certificate of Incorporation or By-laws, or any
statute, rule or regulation applicable to the Company. Except as set forth on
Schedule 4.07, the Company is not in violation or in default of any term
contained in any instrument or contract to which it is a party. Except as set
forth on Schedule 4.07, no event or failure
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of performance has occurred which, with the passage of time or the giving of
notice or both, would constitute such a violation. None of the violations set
forth on Schedule 4.07 will have a Material Adverse Effect.
SECTION 4.08. LITIGATION. Except as set forth on Schedule 4.08, there
are no (i) actions, suits, claims, proceedings or investigations pending or, to
the best of the Company's knowledge, threatened against or affecting the
Company, at law or in equity, or before or by any federal, state, municipal or
other governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, (ii) arbitration proceedings relating to
the Company pending under collective bargaining agreements or otherwise or
(iii) governmental inquiries pending or, to the best of the Company's
knowledge, threatened against or affecting the Company (including without
limitation any inquiry as to the qualification of the Company to hold or
receive any license or permit), and the Company is not aware of any basis for
any of the foregoing. None of the actions, suits, claims, proceedings, or
investigations set forth on Schedule 4.08 will have a Material Adverse Effect.
The Company is not in default with respect to any order, writ, injunction or
decree known to or served upon the Company of any court or of any federal,
state, municipal or other governmental department, commission, board, bureau,
agency or instrumentality, domestic or foreign.
SECTION 4.09. COMPLIANCE WITH LAW. The Company has complied with all
laws, rules, regulations and orders applicable to its business, operations,
properties, assets, products and services, and the Company has all necessary
permits, licenses and other authorizations required to conduct its business as
conducted and as proposed to be conducted to the extent failure to do so would
have a material adverse effect on the business of the Company. There is no
existing law, rule, regulation or order, and the Company is not aware of any
proposed law, rule, regulation or order, whether federal or state, which would
prohibit or restrict the Company from, or otherwise materially adversely affect
the Company in, conducting its business in any jurisdiction in which it is now
conducting business or in which it proposes to conduct business.
SECTION 4.10. TITLE TO PROPERTIES. The Company has good and marketable
title to its properties and assets reflected on the Balance Sheet or acquired
by it since the date of the Balance Sheet (other than properties and assets
disposed of in the ordinary course of business since the date of the Balance
Sheet), and all such properties and assets are free and clear of mortgages,
pledges, security interests, liens, charges, claims, restrictions and other
encumbrances, except (i) for Liens set forth on Schedule 4.10, (ii) for Liens
for taxes not yet due and payable and minor imperfections of title, if any, not
material in nature or amount and (iii) for Liens not materially detracting from
the value or impairing the use of the property subject thereto or impairing the
operations or proposed operations of the Company.
SECTION 4.11. LEASEHOLD INTERESTS. Each lease or agreement to which the
Company is a party under which it is a lessee of any property, real or
personal, is a valid
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and subsisting agreement without any default of the Company thereunder, except
as set forth on Schedule 4.11, and, to the best of the Company's knowledge,
without any default thereunder of any other party thereto. No event has
occurred and is continuing which, with due notice or lapse of time or both,
would constitute a default or event of default by the Company under any such
lease or agreement or, to the best of the Company's knowledge, by any other
party thereto. The Company's possession of such property has not been
disturbed and, to the best of the Company's knowledge, no claim has been
asserted against the Company adverse to its rights in such leasehold interests.
SECTION 4.12. TAXES. The Company has filed all tax returns, federal,
state, county and local, required to be filed by it, and the Company has paid
all taxes shown to be due by such returns as well as all other taxes,
assessments and governmental charges which have become due or payable,
including without limitation all taxes which the Company is obligated to
withhold from amounts owing to employees, creditors and third parties. All
such taxes with respect to which the Company has become obligated pursuant to
elections made by the Company in accordance with generally accepted practice
have been paid and adequate reserves have been established for all taxes
accrued but not yet payable. The Federal income tax returns of the Company
have never been audited by the Internal Revenue Service. No deficiency
assessment with respect to or proposed adjustment of the Company's Federal,
state, county or local taxes is pending or, to the best of the Company's
knowledge, threatened. There is no tax lien, whether imposed by any federal,
state, county or local taxing authority, outstanding against the assets,
properties or business of the Company.
SECTION 4.13. PATENTS, TRADEMARKS, ETC. The Company owns or possesses
adequate licenses or other rights to use all trademarks, trademark
applications, service marks, service mark applications, trade names,
copyrights, manufacturing processes, formulae, trade secrets and know how, and
all patents and patent applications known to the Company (collectively,
"Intellectual Property"), necessary to the conduct of its business as conducted
and as proposed to be conducted, and no claim is pending or, to the best of the
Company's knowledge, threatened to the effect that the operations of the
Company infringe upon or conflict with the asserted rights of any other person
under any Intellectual Property, and there is no known basis for any such claim
(whether or not pending or threatened). No claim is pending or threatened to
the effect that any such Intellectual Property owned or licensed by the
Company, or which the Company otherwise has the right to use, is invalid or
unenforceable by the Company, and there is no basis known to the Company for
any such claim (whether or not pending or threatened). To the best of the
Company's knowledge, all technical information developed by and belonging to
the Company which has not been patented has been kept confidential. Except as
set forth on Schedule 4.13, the Company has not granted or assigned to any
other person or entity any right to manufacture, have manufactured, assemble or
sell the products or proposed products or to provide the services or proposed
services of the Company.
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SECTION 4.14. OUTSTANDING DEBT; LOANS AND ADVANCES.
(a) All of the outstanding Debt of the Company is set
forth on Schedule 4.14 ("Existing Debt"). Except as set forth on
Schedule 4.14, there exists no default under the provisions of any
instrument evidencing such Existing Debt or of any agreement
relating thereto.
(b) The Company does not have any outstanding loans or
advances to any person and is not obligated to make any such
loans or advances, except, in each case, for advances to employees
of the Company in respect of reimbursable business expenses
anticipated to be incurred by them in connection with their
performance of services for the Company.
SECTION 4.15. GUARANTEES. The Company is not a party to any
Guarantee.
SECTION 4.16. GOVERNMEENTAL APPROVALS. No registration or filing
with, or consent or approval of or other action by, any federal, state or other
governmental agency or instrumentality is or will be necessary for the valid
execution, delivery and performance by the Company of this Agreement, the
issuance, sale and delivery of the Convertible Debentures, the issuance and
delivery of the Preferred Conversion Shares upon the conversion of the
Convertible Debentures, or the issuance and delivery of the Common Conversion
Shares upon conversion of the Preferred Conversion Shares, other than the
approval by the stockholders of the Company of an amendment to the Certificate
of Incorporation to increase the authorized number of shares of Common Stock
and Preferred Stock.
SECTION 4.17. DISCLOSURE. Neither this Agreement, nor any
Schedule or Exhibit to this Agreement contains an untrue statement of a
material fact or omits a material fact necessary to make the statements
contained herein or therein not misleading. None of the statements, documents,
certificates or other items prepared or supplied by the Company with respect
to the transactions contemplated hereby contains an untrue statement of a
material fact or omits a material fact necessary to make the statements
contained therein not misleading. There is no fact which the Company has not
disclosed to the Purchaser and its counsel in writing and of which the Company
is aware which materially and adversely affects or could materially and
adversely affect the business, prospects, financial condition, operations,
property or affairs of the Company or any of its subsidiaries.
SECTION 4.18. BROKERS. The Company has no contract, arrangement or
understanding with any broker, finder or similar agent with respect to the
transactions contemplated by this Agreement.
SECTION 4.19. SECURITIES ACT. The offer, sale and issuance of
the Convertible Debentures, the Preferred Conversion Shares and the Common
Conversion Shares
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(collectively, the "Securities") will be exempt from the registration
requirements of the Securities Act of 1933, as amended (the "Securities Act"),
and will have been registered or qualified (or are exempt from registration and
qualification) under the registration, permit or qualification requirements of
any applicable state securities laws. Neither the Company nor any agent on its
behalf has solicited or will solicit any offers to sell or has offered to sell
or will offer to sell all or any part of the Securities to any Person so as to
bring the sale of such Securities by the Company within the registration
provisions of the Securities Act.
SECTION 4.20. MARGIN REGULATIONS. The Company will not, directly or
indirectly, use any of the proceeds of the Securities for the purpose, whether
immediate, incidental or ultimate, of maintaining, purchasing or carrying any
stock that is currently a "margin stock" within the meaning of Regulation G of
the Board of Governors of the Federal Reserve System (12 C.F.R. 207, as
amended) or Regulation U of such Board (12 C.F.R. 221, as amended), or
otherwise take or permit to be taken any action which would result in the
carrying out of any of the other transactions contemplated hereby or thereby
being violative of such Regulation G or Regulation U, or of Regulation T (12
C.F.R. 220, as amended), Regulation X (12 C.F.R. 224, as amended) or any other
regulation of such Board. The Company and its Subsidiaries do not own or
intend to acquire any "margin stock" within the meaning of such Regulation G or
such Regulation U.
SECTION 4.21. INSURANCE COVERAGE. Each property of the Company is
insured for the benefit of the Company in amounts deemed adequate by the
Company's management against risks usually insured against by persons operating
businesses similar to those of the Company in the localities where such
properties are located.
SECTION 4.22. ERISA. No accumulated funding deficiency (as defined in
Section 302 of ERISA and Section 412 of the Code), whether or not waived,
exists with respect to any Plan (other than a Multiemployer Plan). No
liability to the PBGC has been or is expected by the Company or any ERISA
Affiliate to be incurred with respect to any Plan (other than a Multiemployer
Plan) by the Company or any ERISA Affiliate which would have a Material
Adverse Effect. Neither the Company nor any ERISA Affiliate is a participant
in any Multiemployer Plan. The execution and delivery of this Agreement and
the issuance and sale of the Convertible Debentures will be exempt from, or
will not involve any transaction which is subject to, the prohibitions of
Section 406 of ERISA and will not involve any transaction in connection with
which a penalty could be imposed under Section 502(i) of ERISA or a tax could
be imposed pursuant to Section 4975 of the Code. The Company and its ERISA
Affiliates do not provide any benefits to former employees except as may be
required by COBRA (Section 4980B of the Code and Sections 601 et seq. of
ERISA). Neither the Company nor any ERISA Affiliate is a party to a collective
bargaining agreement or is required to bargain with any collective bargaining
unit.
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SECTION 4.23. ENVIRONMENTAL COMPLIANCE. The Company and its properties
and facilities have complied at all times and in all respects with all federal,
state, local and regional statutes, laws, ordinances and judicial or
administrative orders, judgments, rulings and regulations relating to
protection of the environment except, in any such case, where failure to comply
would not have a Material Adverse Effect.
SECTION 4.24. PERMITS AND LICENSES. The Company has all federal, state
and local governmental permits, licenses, certificates of authority any similar
authority necessary for the conduct of its business as now being conducted and
as proposed to be conducted. The Company is not in default in any material
respect under any such permit, license, certificate of authority or other
similar authority.
SECTION 4.25. BOARD COMPOSITION. Article III, Section 1 of the By-laws
provides that the number of directors which shall constitute the whole Board of
Directors of the Company (the "Board") shall be not less that three (3) nor
more than fifteen (15), with the specific number determined by a resolution of
the Board, or by the shareholders of the Company at the annual meeting.
Effective immediately upon the Closing, the current Board members will be
Donald Baker, Roden A. Brandt, Clifton E. Haley, William B. Hambrecht, Patrick
J. O'Shea, Robert J. Spane and John Tague.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
SECTION 5.01. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. The
Purchaser represents and warrants to the Company that:
(a) the Convertible Debentures being purchased by it are being
acquired for its own account for the purpose of investment and not with
a view to or for sale in connection with any distribution thereof;
(b) it has not employed any broker or finder in connection
with the transactions contemplated by this Agreement; and
(c) the execution, delivery and performance by it of this
Agreement have been duly authorized by all requisite action by it and
this Agreement constitutes the valid and binding obligation of it,
enforceable in accordance with its terms.
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ARTICLE VI
CONDITIONS TO THE OBLIGATIONS
OF THE PURCHASER
SECTION 6.01. CONDITIONS TO THE OBLIGATION OF THE PURCHASER. The
obligation of the Purchaser to purchase and pay for the Convertible Debentures
being purchased by it on the Closing Date is, at its option, subject to the
satisfaction, on or before the Closing Date, of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES TO BE TRUE AND CORRECT. The
representations and warranties of the Company contained in Article IV
shall be true, complete and correct on and as of the Closing Date with
the same effect as though such representations and warranties had been
made on and as of such date.
(b) PERFORMANCE. The Company shall have performed and complied
with all agreements contained herein required to be performed or
complied with by it prior to or at the Closing Date.
(c) OFFICER'S CERTIFICATE. The Company shall have executed and
delivered to the Purchaser an Officer's Certificate to the effects set
forth in (a) and (b) above.
(d) INVESTOR'S RIGHTS AGREEMENT. The Company shall have executed
and delivered the Investor's Rights Agreement to the Purchaser.
(e) OPINION OF COUNSEL. The Purchaser shall have received an
opinion of the General Counsel of the Company, such opinion to be
substantially in the form of Exhibit F attached hereto.
(f) ALL PROCEEDINGS TO BE SATISFACTORY. All corporate and other
proceedings to be taken by the Company in connection with the
transactions contemplated hereby and all documents incident thereto shall
be satisfactory in form and substance to the Purchaser and its counsel,
and the Purchaser and its counsel shall have received all such
counterpart originals or certified or other copies of such documents as
they reasonably may request.
(g) SUPPORTING DOCUMENTS. The Purchaser and its counsel shall
have received copies of the following documents:
(i) (A) the Certificate of Incorporation (other than the
Certificate of Designation), certified as of a recent date by
the Secretary of State of the State of Delaware, and (B) a
certificate of said Secretary dated as of a recent date as to the
due incorporation and good standing of the Company;
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(ii) a certificate of the Secretary or an Assistant
Secretary of the Company dated the Closing Date and certifying:
(A) that attached thereto is a true and complete copy of the
By-laws of the Company as in effect on the date of such
certification; (B) that attached thereto is a true and complete
copy of all resolutions adopted by the Board of Directors or the
stockholders of the Company authorizing the execution, delivery and
performance of this Agreement, and the issuance, sale and delivery
of the Convertible Debentures and that all such resolutions are in
full force and effect and are all the resolutions adopted in
connection with the transactions contemplated by this Agreement;
(C) that the Certificate of Incorporation has not been amended
since the date of the last amendment referred to in the certificate
delivered pursuant to clause (i)(A) above; and (D) to the
incumbency and specimen signature of each officer of the Company
executing this Agreement, the Convertible Debentures and any
certificate or instrument furnished pursuant hereto, and a
certification by another officer of the Company as to the
incumbency and signature of the officer signing the certificate
referred to in this clause (ii); and
(iii) such additional supporting documents and other
information with respect to the operations and affairs of the
Company as the Purchaser or its counsel reasonably may request.
(h) THIRD PARTY CONSENTS, PERMITS AND WAIVERS. The Company shall
have obtained any and all consents, permits and waivers necessary or
appropriate for the consummation of the transactions contemplated by this
Agreement.
(i) NO INJUNCTIONS OR RESTRAINTS. There shall be no action, suit,
investigation or proceeding pending, or, to the best of the Company's
knowledge, threatened, against or affecting the Company, any of the
Company's properties or rights, or any of the Company's officers or
directors, before any court, arbitrator or administrative or governmental
body which (i) seeks to restrain, enjoin, or prevent the consummation of
the transactions contemplated by this Agreement or (ii) questions the
validity or legality of any such transactions or seeks to recover damages
or to obtain other relief in connection with any such transactions and, to
the best of the Company's knowledge, there shall be no valid basis for any
such action, proceeding or investigation.
All such documents shall be satisfactory in form and substance to the Purchaser
and its counsel.
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ARTICLE VII
CONDITIONS TO THE OBLIGATIONS OF THE COMPANY
SECTION 7.01. CONDITIONS TO THE OBLIGATIONS OF THE COMPANY. The
obligation of the Company to issue and sell the Convertible Debentures on the
Closing Date is, at its option, subject to the satisfaction, on or before the
Closing Date, of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES TO BE TRUE AND CORRECT. The
representations and warranties of the Purchaser contained in Article V
shall be true, complete and correct on and as of the Closing Date with
the same effect as though such representations and warranties had been
made on and as of such date.
(b) PERFORMANCE. The Purchaser shall have performed and complied
with all agreements contained herein required to be performed or
complied with by it prior to or at the Closing Date.
(c) OFFICER'S CERTIFICATE. The Purchaser shall have delivered to
the Company a certificate of an officer of the Purchaser to the effects
set forth in (a) and (b) above.
(d) ALL PROCEEDINGS TO BE SATISFACTORY. All corporate and other
proceedings to be taken by the Purchaser in connection with the
transactions contemplated hereby and all documents incident thereto
shall be satisfactory in form and substance to the Company and its
counsel, and the Company and its counsel shall have received all such
counterpart originals or certified or other copies of such documents as
they reasonably may request.
(e) NO INJUNCTIONS OR RESTRAINTS. There shall be no action, suit,
investigation or proceeding pending, or, to the best of the Company's
knowledge, threatened, against or affecting the Company, any of the
Company's properties or rights, or any of the Company's officers or
directors, before any court, arbitrator or administrative or
governmental body which (i) seeks to restrain, enjoin, or prevent the
consummation of the transactions contemplated by this Agreement or (ii)
questions the validity or legality of any such transactions or seeks to
recover damages or to obtain other relief in connection with any such
transactions and, to the best of the Company's knowledge, there shall be
no valid basis for any such action, proceeding or investigation.
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ARTICLE VIII
COVENANTS OF THE COMPANY
The Company covenants and agrees with the Purchaser that so long as any
Convertible Debenture is outstanding:
SECTION 8.01. FINANCIAL STATEMENTS AND REPORTS. The Company shall
furnish to each holder of a Convertible Debenture:
(a) as soon as practicable, and in any event at least 30 days prior
to the beginning of each fiscal year of the Company, consolidated
statements of forecasted income and cash flow and consolidated
forecasted balance sheet of the Company for each month and each fiscal
quarter in such fiscal year and for the period from the beginning of
such fiscal year to the end of each such month and end of each such
fiscal quarter, in each case as at the end of each such month and fiscal
quarter;
(b) as soon as practicable after the end of each month in each
fiscal year (other than the last month in each fiscal year), and in any
event within 30 days thereafter, consolidated statements of income and
cash flow of the Company for such month and for the period from the
beginning of the current fiscal year to the end of such month and a
consolidated balance sheet of the Company as at the end of such month,
and setting forth, in each case, in comparative form, figures for the
corresponding months in the preceding fiscal year (other than any such
corresponding months ended prior to the Closing) and figures in the
Company's budget for the corresponding months in the current fiscal
year;
(c) as soon as practicable after the end of each fiscal quarter of
the Company in each fiscal year (other than the last fiscal quarter in
each fiscal year), and in any event within forty-five (45) days
thereafter, a consolidated balance sheet of the Company and the related
consolidated statements of income, stockholders' equity and cash flows,
unaudited but prepared in accordance with generally accepted accounting
principles and certified by the Chief Financial Officer of the Company,
such consolidated balance sheet to be as of the end of such fiscal
quarter and such consolidated statements of income, stockholders' equity
and cash flows to be for such fiscal quarter and for the period from the
beginning of the fiscal year to the end of such fiscal quarter, in each
case with comparative statements for the corresponding period in the
prior fiscal year;
(d) as soon as practicable after the end of each fiscal year of the
Company, and in any event within ninety (90) days thereafter, a
consolidated balance sheet of the Company as of the end of such fiscal
year and the related consolidated statements of income, stockholders'
equity and cash flows for the
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fiscal year then ended, prepared in accordance with generally accepted
accounting principles and certified by a firm of independent public
accountants of recognized national standing selected by the Board of
Directors of the Company;
(e) promptly upon transmission thereof, copies of all such
financial statements, proxy statements, notices and reports as it shall
send to its stockholders and copies of all registration statements
(without exhibits) and all reports which it files with the Commission;
(f) promptly upon sending, all press releases that the Company
disseminates;
(g) promptly upon receipt thereof, a copy of each other report
submitted to the Company or any subsidiary by independent accountants
in connection with any annual, interim or special audit made by them of
the books of the Company or any subsidiary;
(h) as soon as practicable and in any event within five days after
any officer of the Company obtaining knowledge (i) of any condition or
event which, in the opinion of management of the Company, would have a
Material Adverse Effect (ii) that any Person has given any notice from
any Person to the Company or taken any other action with respect to a
claimed default or event or condition of the type referred to in Section
9.01(ii), (iii) of the institution of any litigation involving claims
against the Company equal to or greater than $100,000 with respect to
any single cause of action or of any adverse determination in any court
proceeding in any litigation involving a potential liability to the
Company equal to or greater than $100,000 with respect to any single
cause of action which makes the likelihood of an adverse determination
in such litigation against the Company substantially more probable, or
(iv) of any regulatory proceeding which may have a Material Adverse
Effect on the Company, an Officer's Certificate specifying the nature
and period of existence of any such condition or event, or specifying
the notice given or action taken by such Person and the nature of any
such claimed default, event or condition, or specifying the details of
such proceeding, litigation or dispute and what action the Company has
taken, is taking or proposes to take with respect thereto;
(i) promptly after the filing or receiving thereof, copies of all
reports and notices which the Company files under ERISA with the
Internal Revenue Service or the PBGC or the U.S. Department of Labor or
which the Company receives from such corporation; and
(j) with reasonable promptness, such other information respecting
the condition or operations, financial or otherwise, of the Company as
such holder may reasonably request.
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Together with each delivery of financial statements required by clauses (c) and
(d) above, the Company will deliver to each holder of a Convertible Debenture
an Officer's Certificate stating that there exists no Event of Default or
Default, or, if any Event of Default or Default exists, specifying the nature
and period of existence thereof and what action the Company proposes to take
with respect thereto. Together with each delivery of financial statements
required by clause (d) above, the Company will deliver to each holder of a
Convertible Debenture a certificate of such accountants stating that, in making
the audit necessary for their report on such financial statements, they have
obtained no knowledge of any Event of Default or Default, or, if they have
obtained knowledge of any Event of Default or Default, specifying the nature
and period of existence thereof.
The Company also covenants that immediately after any officer obtains
knowledge of an Event of Default or Default, it will deliver to each holder of
a Convertible Debenture an Officer's Certificate specifying the nature and
period of existence thereof and what action the Company proposes to take with
respect thereto.
SECTION 8.02. CORPORATE EXISTENCE. The Company shall maintain its
corporate existence, rights and franchises in full force and effect.
SECTION 8.03. MAINTENANCE OF PROPERTIES AND INSURANCE. The Company will
maintain or cause to be maintained in good repair, working order and condition
all properties used or useful in the business of the Company and from time to
time will make or cause to be made appropriate repairs, renewals and
replacements thereof. The Company shall maintain its properties and business,
with financially sound and reputable insurers, insurance against such
casualties and contingencies and of such types and in such amounts as is
customary for companies similarly situated, including but not limited to fire
and other risks insured against by extended coverage, product liability
insurance and public liability insurance against claims for personal injury or
death or property damage occurring upon, in, about or in connection with the
use of any properties owned, occupied or controlled by the Company, which
insurance shall be deemed by the Company to be sufficient; and maintain
workers' compensation insurance and such other insurance as may be required by
law.
SECTION 8.04. INSPECTION, CONSULTATION AND ADVICE. The Company shall
permit any holder of a Convertible Debenture to visit and inspect any of the
properties of the Company, examine its books and take copies and extracts
therefrom, discuss the affairs, finances and accounts of the Company with its
officers, employees and public accountants (and the Company hereby authorizes
said accountants to discuss with any holder of a Convertible Debenture such
affairs, finances and accounts), and consult with and advise the management of
the Company as to its affairs, finances and accounts, all at reasonable times
and upon reasonable notice.
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SECTION 8.05. RESTRICTIVE AGREEMENTS PROHIBITED. The Company shall not
become a party to any agreement which by its terms restricts the Company's
performance of this Agreement.
SECTION 8.06. TRANSACTIONS WITH AFFILIATES. Except for transactions
contemplated by this Agreement, the Company shall not enter into any
transaction with any director, officer, employee or holder of more than 5% of
the outstanding capital stock of any class or series of capital stock of the
Company, member of the family of any such person, or any corporation,
partnership, trust or other entity in which any such person, or member of the
family of any such person is a director, officer, trustee, partner or holder of
more than 5% of the outstanding capital stock thereof.
SECTION 8.07. USE OF PROCEEDS. The Company shall use the proceeds from
the sale of the Convertible Debentures solely for working capital or other such
uses as may be authorized by the Board of Directors.
SECTION 8.08. SUBSIDIARIES. The Company shall not create or have any
Subsidiaries.
SECTION 8.09. COMPLIANCE WITH LAWS. The Company shall comply with all
applicable laws, rules, regulations and orders, noncompliance with which could
have a Material Adverse Effect.
SECTION 8.10. KEEPING OF RECORDS AND BOOKS OF ACCOUNT. The Company
shall keep true records and books of account, in which full and complete
entries will be made in accordance with generally accepted accounting
principles consistently applied, reflecting all financial and business
transactions of the Company, and in which, for each fiscal year, all proper
accruals and reserves for depreciation, depletion, obsolescence, amortization,
taxes, bad debts and other purposes in connection with its business shall be
made as shall be required under generally accepted accounting principles
consistently applied.
SECTION 8.11. OBLIGATIONS AND TAXES. The Company shall pay all of its
indebtedness and obligations promptly and in accordance with their terms and
pay and discharge promptly all taxes, assessments and governmental charges or
levies imposed upon it or its income or profits or in respect of its property,
before the same shall become in default, as well as all lawful claims for labor
and supplies or otherwise which, if unpaid, might become a lien or charge upon
such properties or any part thereof; provided, however, that the Company shall
not be required to pay and discharge or to cause to be paid and discharged any
tax, assessment, charge, levy or claim so long as the validity or amount
thereof shall be contested in good faith by appropriate proceedings and the
Company shall set aside on its books such reserves as are required by generally
accepted accounting principles with respect to any such tax, assessment,
charge, levy or claim so contested.
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SECTION 8.12. TRANSFER AND EXCHANGE OF CONVERTIBLE DEBENTURES; LOST
CONVERTIBLE DEBENTURES. Upon surrender for registration of transfer of any
Convertible Debenture at the principal office of the Company, the Company
shall, at its expense, execute and deliver one or more new Convertible
Debentures of like tenor and of a like aggregate principal amount, registered
in the name of such transferee or transferees. At the option of the holder of
any Convertible Debenture, such Convertible Debenture may be exchanged for
other Convertible Debentures of like tenor and of any authorized denominations,
of a like aggregate principal amount, upon surrender of the Convertible
Debenture to be exchanged at the principal office of the Company. Whenever any
Convertible Debentures are so surrendered for exchange, the Company shall, at
its expense, execute and deliver the Convertible Debentures which the holder
making the exchange is entitled to receive. Every Convertible Debenture
surrendered for registration of transfer or exchange shall be duly endorsed, or
be accompanied by a written instrument of transfer duly executed, by the holder
of such Convertible Debenture or such holder's attorney duly authorized in
writing. Any Convertible Debenture or Convertible Debentures issued in
exchange for any Convertible Debenture or upon transfer thereof shall carry the
rights to unpaid interest and interest to accrue which were carried by the
Convertible Debenture so exchanged or transferred, so that neither gain nor
loss of interest shall result from any such transfer or exchange. Upon receipt
of written notice from the holder of any Convertible Debenture of the loss,
theft, destruction or mutilation of such Convertible Debenture and, in the case
of any such loss, theft or destruction, upon receipt of such holder's unsecured
indemnity agreement, or in the case of any such mutilation upon surrender and
cancellation of such Convertible Debenture, the Company will make and deliver a
new Convertible Debenture, of like tenor, in lieu of the lost, stolen,
destroyed or mutilated Convertible Debenture. The Purchaser's own agreement of
indemnity shall constitute indemnity satisfactory to the Company for purposes
of this Section 8.12.
SECTION 8.13. LIMITATION ON DEBT. The Company will not create, incur,
assume or otherwise become or be liable with respect to any Debt except (i)
Debt represented by the Convertible Debentures; (ii) Existing Debt of the
Company; and (iii) Debt of the Company aggregating not more than $500,000 in
unpaid principal amount at any time outstanding.
SECTION 8.14. LIMITATION ON LIENS. The Company will not create,
assume or suffer to exist any Lien upon any of its properties or assets,
whether now owned or hereafter acquired and whether or not provision is made by
equally and ratably securing the Convertible Debentures; provided, however,
that the foregoing restriction and limitation shall not apply to the following
Liens:
(i) Liens for taxes, assessments or governmental charges
or levies not yet delinquent or which are being contested in good
faith by appropriate proceedings;
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(ii) other Liens incidental to the conduct of their
business or the ownership of their properties and assets which were
not incurred in connection with the borrowing of money or the
obtaining of advances or credit, and which do not in the aggregate
materially detract from the value of their properties or assets, or
materially impair the use thereof in the operation of their business;
and
(iii) any Lien existing at the time of acquisition upon any
real or personal property acquired by the Company through purchase,
merger or consolidation or otherwise, whether or not assumed by the
Company, or placed upon real or personal property being acquired by
the Company (within six months of such acquisition) to secure all or a
portion of the purchase price thereof or any Debt incurred to finance
all or any portion of such purchase price; provided, however, that (x)
such property is not and shall not thereby become encumbered in an
amount in excess of the lesser of the cost thereof or fair value
thereof (as determined in good faith by the Company), and (y) any such
Lien shall not encumber any other property of the Company;
and provided, further, that the aggregate amount at any time of all
such Debt secured under this subparagraph (iii) shall be permitted by
Section 8.13 (and any Lien renewing, extending or refunding any Lien
permitted by this clause (iii), provided that the principal amount
secured it not increased, the Lien is not extended to other property
and the Debt secured thereby would be permitted under the provisions
of Section 8.13).
SECTION 8.15. LIMITATION ON RESTRICTED PAYMENTS. The Company will not
directly or indirectly make any Restricted Payments.
SECTION 8.16. COVENANT REGARDING STOCKHOLDER VOTE AND FILING OF
CERTIFICATE OF DESIGNATION.
(a) On or prior to February 1, 1997 the Company will have
solicited and obtained the requisite approval of its stockholders (the
"Stockholder Approval") to an amendment to the Certificate of
Incorporation (the "Amendment") to increase (i) the number of
authorized shares of Common Stock by at least 20 million shares and
(ii) the number of authorized shares of Preferred Stock by at least 18
million shares.
(b) Within two (2) Business Days after obtaining the
Stockholder Approval, the Company shall (i) file the Amendment and the
Certificate of Designation with the Secretary of State of the State of
Delaware, and (ii) take such other action as may be necessary to
enable the Purchaser, in its sole discretion, to convert any
Convertible Debenture into Series D Preferred Stock at any time
thereafter and from time to time.
(c) After giving effect to Sections 8.16(a) and (b)
above, upon the conversion of any Convertible Debenture, the Preferred
Conversion Shares and,
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upon conversion of the Preferred Conversion Shares, the Common
Conversion Shares, will have been duly authorized and will be validly
issued, fully paid and nonassessable with no personal liability
attaching to the ownership thereof and will be free and clear of all
Liens imposed by or through the Company. In addition, after giving
effect to Sections 8.16(a) and (b), the Preferred Conversion Shares
and the Common Conversion Shares will have been duly reserved for
issuance upon conversion of the Convertible Debenture or conversion of
the Preferred Conversion Shares, respectively. Neither the issuance,
sale or delivery of the Preferred Conversion Shares or the Common
Conversion Shares will be subject to any preemptive right of
stockholders of the Company or to any right of first refusal or other
right in favor of any person.
SECTION 8.17. BOARD NOMINEES. On the Closing Date, the Board will
adopt a resolution fixing the number of members of the Board at seven. Subject
to the right of the holders of Preferred Stock, the Company will only nominate
for election as directors of the Company persons approved in advance and in
writing by the Purchaser.
ARTICLE IX
EVENTS OF DEFAULT
SECTION 9.01. ACCELERATION. If any of the following events shall
occur and be continuing for any reason whatsoever (and whether such occurrence
shall be voluntary or involuntary or come about or be effected by operation of
law or otherwise):
(i) the Company defaults in the payment of any principal
of or interest on any Convertible Debenture when the same shall become
due, either by the terms thereof or otherwise as herein provided; or
(ii) the Company defaults (whether as primary obligor or
as guarantor or other surety) in any payment of principal of or
interest on any other obligation for money borrowed beyond any period
of grace provided with respect thereto, or the Company fails to
perform or observe any other agreement, term or condition contained in
any agreement under which any such obligation is created (or if any
other event thereunder or under any such agreement shall occur and be
continuing) and the effect of such failure or other event is to cause,
or to permit the holder or holders of such obligation (or a trustee on
behalf of such holder or holders) to cause, such obligation to become
due (or to be repurchased by the Company) prior to any stated
maturity; or
(iii) any representation or warranty made by the Company
herein or by the Company or any of its officers in any writing
furnished in connection with or
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pursuant to this Agreement shall be false in any material respect on
the date as of which made; or
(iv) the Company fails to perform or observe (A) any term,
covenant or agreement contained in Sections 8.01(h)(i), 8.02, 8.04,
8.08, 8.09, 8.11, 8.13, 8.14, 8.15, 8.16 or 8.17, or (B) any other
agreement, covenant, term or condition contained herein and such
failure shall not be remedied within 30 days after any officer obtains
actual knowledge thereof; or
(v) a majority of the members of the Board of Directors
shall be persons nominated by a person or entity other than the
Company; or
(vi) the Company makes an assignment for the benefit of
creditors or is generally not paying its debts as such debts become
due; or
(vii) any decree or order for relief in respect of the
Company is entered under any bankruptcy reorganization, compromise,
arrangement, insolvency, readjustment of debt, dissolution or
liquidation or similar law, whether now or hereafter in effect (the
"Bankruptcy Law"), of any jurisdiction; or
(viii) the Company petitions or applies to any tribunal for,
or consents to, the appointment of, or taking possession by, a
trustee, receiver, custodian, liquidator or similar official of the
Company, or of any substantial part of the assets of the Company, or
commences a voluntary case under the Bankruptcy Law of the United
States or any proceedings relating to the Company under the Bankruptcy
Law of any other jurisdiction; or
(ix) any such petition or application is filed, or any
such proceedings are commenced, against the Company and the Company by
any act indicates its approval thereof, consent thereto or
acquiescence therein, or an order, judgment or decree is entered
appointing any such trustee, receiver, custodian, liquidator or
similar official, or approving the petition in any such proceedings,
and such order, judgment or decree remains unstayed and in effect for
more than 30 days; or
(x) any order, judgment or decree is entered in any
proceedings against the Company decreeing the dissolution of the
Company and such order, judgment or decree remains unstayed and in
effect for more than 60 days; or
(xi) any order, judgment or decree is entered in any
proceedings against the Company decreeing a split-up of the Company
which requires the divestiture of assets representing a substantial
part of the consolidated assets of the Company (determined in
accordance with generally accepted accounting principles) for any of
the three fiscal years then most recently ended, and such order,
judgment or decree remains unstayed and in effect for more than 60
days; or
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(xii) any judgment or order, or series of judgments or
orders, is rendered against the Company and either (A) enforcement
proceedings have been commenced by any creditor upon such judgment or
order or (B) within 60 days after entry thereof, such judgment is not
discharged or execution thereof stayed pending appeal, or within 60
days after the expiration of any such stay, such judgment is not
discharged;
then (a) if such event is an Event of Default specified in clause (i) of this
Section 9.01 the holder of any Convertible Debenture (other than the Company or
affiliates) may at its option, by notice in writing to the Company, declare
such Convertible Debenture to be, and such Convertible Debenture shall
thereupon be and become, immediately due and payable at par together with
interest accrued thereon, without presentment, demand, protest or other notice
of any kind, all of which are hereby waived by the Company, (b) if such event
is an Event of Default specified in clause (vi), (vii), (viii) or (ix) of
this Section 9.01 with respect to the Company, all of the Convertible
Debentures at the time outstanding shall automatically become immediately due
and payable at par together with interest accrued thereon, without presentment,
demand, protest or notice of any kind, all of which are hereby waived by the
Company, and (c) if such event is not an Event of Default specified in clause
(vi), (vii), (viii) or (ix) of this Section 9.01 with respect to the Company,
the Required Holder(s) may at its or their option, by notice in writing to the
Company, declare all of the Convertible Debentures to be, and all of the
Convertible Debentures shall thereupon be and become, immediately due and
payable together with interest accrued thereon with respect to each Convertible
Debenture, without presentment, demand, protest or other notice of any kind,
all of which are hereby waived by the Company.
SECTION 9.02. RESCISSION OF ACCELERATION. At any time after any or
all of the Convertible Debentures shall have been declared immediately due and
payable pursuant to Section 9.01, the Required Holder(s) may, by notice in
writing to the Company, rescind and annul such declaration and its consequences
if (i) the Company shall have paid all overdue interest on the Convertible
Debentures, the principal payable with respect to any Convertible Debentures
which have become due otherwise than by reason of such declaration, and
interest on such overdue interest and overdue principal at the rate specified
in the Convertible Debentures, (ii) the Company shall not have paid any amounts
which have become due solely by reason of such declaration, (iii) all Events of
Default and Defaults, other than non-payment of amounts which have become due
solely by reason of such declaration, shall have been cured or waived pursuant
to Section 10.03, and (iv) no judgment or decree shall have been entered for
the payment of any amounts due pursuant to the Convertible Debentures or this
Agreement. No such rescission or annulment shall extend to or affect any
subsequent Event of Default or Default or impair any right arising therefrom.
SECTION 9.03. NOTICE OF ACCELERATION OR RESCISSION. Whenever any
Convertible Debenture shall be declared immediately due and payable pursuant to
Section
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9.01 or any such declaration shall be rescinded and annulled pursuant to
Section 9.02, the Company shall forthwith give written notice thereof to the
holder of each Convertible Debenture at the time outstanding.
SECTION 9.04. OTHER REMEDIES. If any Event of Default or Default
shall occur and be continuing, the holder of any Convertible Debenture may
proceed to protect and enforce its rights under this Agreement and such
Convertible Debenture by exercising such remedies as are available to such
holder in respect thereof under applicable law, either by suit in equity or by
action at law, or both, whether for specific performance of any covenant or
other agreement contained in this Agreement or in aid of the exercise of any
power granted in this Agreement. No remedy conferred in this Agreement upon
the holder of any Convertible Debenture is intended to be exclusive of any
other remedy, and each and every such remedy shall be cumulative and shall be
in addition to every other remedy conferred herein or now or hereafter existing
at law or in equity or by statute or otherwise.
ARTICLE X
MISCELLANEOUS
SECTION 10.01. PAYMENTS. The Company will make payments of principal
of and interest on any Convertible Debenture by wire transfer of immediately
available funds for credit (not later than 12:00 noon, New York City time, on
the date due) (i) in the case of the Purchaser to the account or accounts as
specified by the Purchaser in writing and (ii) in the case of any other holder
of a Convertible Debenture pursuant to the payments instructions provided by
such holder. The Purchaser agrees that, before disposing of any Convertible
Debenture, the Purchaser will make a notation thereon (or on a schedule
attached thereto) of all principal payments previously made thereon and of the
date to which interest thereon has been paid. Anything in this Agreement or in
the Convertible Debenture to the contrary notwithstanding, any payment in
respect of the Convertible Debenture that is due on a date other than a
Business Day shall be made on the next succeeding Business Day. If the date
for any payment is extended to the next succeeding Business Day by reason of
the preceding sentence, the period of such extension shall be included on the
computation of the amount payable on such Business Day. The Company agrees to
afford the benefits of this Section 10.01 to any Transferee which shall have
made the same agreement as the Purchaser has made in this Section 10.01.
SECTION 10.02. EXPENSES. The Company agrees, whether or not the
transactions contemplated hereby shall be consummated, to pay, and save you and
any Transferee harmless against liability for the payment of, all out-of-pocket
expenses arising in connection with such transactions, including (i) all
document production and duplication charges and the fees and expenses of any
special counsel engaged by you or
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<PAGE> 33
such Transferee in connection with this Agreement, the transactions
contemplated hereby and any subsequent proposed modification of, or proposed
consent under, this Agreement, whether or not such proposed modification shall
be effected or proposed consent granted, and (ii) the costs and expenses,
including attorneys' fees, incurred by you or such Transferee in enforcing (or
determining whether or how to enforce) any rights under this Agreement or the
Convertible Debentures or in responding to any subpoena or other legal process
or informal investigative demand issued in connection with this Agreement or
the transactions contemplated hereby or by reason of your or such Transferee's
having acquired any Convertible Debenture, including without limitation costs
and expenses incurred in any bankruptcy case. The obligations of the Company
under this Section 10.02 shall survive the transfer of any Convertible
Debenture or portion thereof or interest therein by you or any Transferee and
the payment of any Convertible Debenture.
SECTION 10.03. CONSENT TO AMENDMENTS. This Agreement may be amended,
and the Company may take any action herein prohibited, or omit to perform any
act herein required to be performed by it, if the Company shall obtain the
written consent to such amendment, action or omission to act, of the Required
Holder(s) except that, without the written consent of the holder or holders of
all Convertible Debentures at the time outstanding, no amendment to this
Agreement shall change the maturity of any Convertible Debenture, or change the
principal of, or the rate or time of payment of interest on any Convertible
Debenture, or change the proportion of the principal amount of the Convertible
Debentures required with respect to any consent, amendment, waiver or
declaration. Each holder of any Convertible Debenture at the time or
thereafter outstanding shall be bound by any consent authorized by this Section
10.03, whether or not such Convertible Debenture shall have been marked to
indicate such consent, but any Convertible Debentures issued thereafter may
bear a notation referring to any such consent. No course of dealing between
the Company and the holder of any Convertible Debenture nor any delay in
exercising any rights hereunder or under any Convertible Debenture shall
operate as a waiver of any rights of any holder of such Convertible Debenture.
SECTION 10.04. PERSONS DEEMED OWNERS; PARTICIPATIONS. Prior to due
presentment for registration of transfer, the Company may treat the Person in
whose name any Convertible Debenture is registered as the owner and holder of
such Convertible Debenture for the purpose of receiving payment of principal
of, interest on such Convertible Debenture and for all other purposes
whatsoever, whether or not such Convertible Debenture shall be overdue, and the
Company shall not be affected by notice to the contrary. Subject to the
preceding sentence, the holder of any Convertible Debenture may from time to
time grant participations in such Convertible Debenture to any Person on such
terms and conditions as may be determined by such holder in its sole and
absolute discretion.
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<PAGE> 34
SECTION 10.05. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All
representations and warranties made herein or any certificate or instrument
delivered by the parties pursuant to or in connection with this Agreement shall
survive the execution and delivery of this Agreement, the issuance, sale and
delivery of the Convertible Debenture, the transfer by the Purchaser of any
Convertible Debenture or portion thereof or interest therein and the payment of
any Convertible Debenture, and may be relied upon by any Transferee, regardless
of any investigation made at any time by or on behalf of you or any Transferee.
SECTION 10.06. BROKERAGE. Each party hereto will indemnify and hold
harmless the others against and in respect of any claim for brokerage or other
commissions relative to this Agreement or the transactions contemplated hereby,
based in any way on agreements, arrangements or understandings made or claimed
to have been made by such party with any third party.
SECTION 10.07. PARTIES IN INTEREST. All representations, covenants
and agreements contained in this Agreement by or on behalf of any of the
parties hereto shall bind and inure to the benefit of the respective successors
and assigns of the parties hereto whether so expressed or not. Without
limiting the generality of the foregoing but subject to the proviso contained
therein, all representations, covenants and agreements benefiting the Purchaser
shall inure to the benefit of any Transferee.
SECTION 10.09. NOTICES. All notices, requests, consents and other
communications hereunder shall be in writing and shall be deemed effectively
given: (i) upon personal delivery to the party to be notified; (ii) upon
receipt at the address specified below after having been sent by certified or
registered mail, return receipt requested, postage prepaid; or (iii) one (1)
day after deposit with a nationally recognized overnight courier, specifying
next day delivery, with written verification of receipt. All communications
shall be sent to the party to be notified at the address set forth below:
(a) if to the Purchaser, to
H&Q Air South Investors, L.P.
One Bush Street
San Francisco, California 94104
with a copy to
Patrick A. Pohlen, Esq.
Cooley Godward Castro Huddleson & Tatum
Five Palo Alto Square
3000 El Camino Real
Palo Alto, California 94306-2155
(415) 843-5000
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<PAGE> 35
(415) 857-0663 (fax)
(b) if to the Company, to
Air South Airlines, Inc.
2625 Airport Boulevard
West Columbia, South Carolina 29170
with a copy to
David Y. Monteith, Esq.
Monteith Law Offices
2805 Millwood Avenue
Columbia, South Carolina 29205
(c) if to any holder of any Convertible Debenture
(other than the Purchaser), at such addresses
as shall have been furnished in writing to
the Company;
or, in any such case, at such other address or addresses as shall have been
furnished in writing by such party to the others.
SECTION 10.09. ENTIRE AGREEMENT. This Agreement, including the
Schedules and Exhibits hereto, constitutes the sole and entire agreement of the
parties with respect to the subject matter hereof. All Schedules and Exhibits
hereto are hereby incorporated herein by reference.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
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SECTION 10.10. COUNTERPARTS. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
SECTION 10.11. SEVERABILITY. If any provision of this Agreement shall
be declared void or unenforceable by any judicial or administrative authority,
the validity of any other provision and of the entire Agreement shall not be
affected thereby.
SECTION 10.12. DESCRIPTIVE HEADINGS. The descriptive headings of the
several sections and paragraphs of this Agreement are inserted for reference
only and shall not limit or otherwise affect the meaning hereof.
SECTION 10. 13. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE.
SECTION 10.14. GENDER; PLURALS. Words of the masculine gender shall
be deemed and construed to include correlative words of the feminine and neuter
genders. Words importing the singular number shall include the plural number
and vice versa.
IN WITNESS WHEREOF, the Company and the Purchaser have executed this
Agreement as of the day and year first above written.
AIR SOUTH AIRLINES INC.
By: /s/ Clifton E. Haley
----------------------------------
Name: Clifton E. Haley
Title: Chairman
H&Q AIR SOUTH AIRLINES, L.P.
By: /s/ Jackie Berterretche
----------------------------------
Name: Jackie Berterretche
Title: Attorney-in-Fact
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<PAGE> 37
EXHIBIT A
<PAGE> 38
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE OFFERED, SOLD OR
OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL
REGISTERED UNDER THE ACT OR, IN THE OPINION OF COUNSEL OR BASED ON
OTHER WRITTEN EVIDENCE IN FORM AND SUBSTANCE SATISFACTORY TO THE
ISSUER OF THESE SECURITIES, SUCH OFFER, SALE OR TRANSFER, PLEDGE OR
HYPOTHECATION DOES NOT REQUIRE REGISTRATION.
EXHIBIT A
FORM OF CONVERTIBLE DEBENTURE
AIR SOUTH AIRLINES, INC.
6% CONVERTIBLE DEBENTURE DUE AUGUST __, 1999
No. _____________ August __, 1996
$________________
FOR VALUE RECEIVED, the undersigned, AIR SOUTH AIRLINES, INC. (the
"Company"), a corporation organized and existing under the laws of the State of
Delaware, hereby promises to pay ________________________________, or
registered assigns, the principal sum of _________________________________
DOLLARS (together with all additional sums of deferred interest, if any, added
to the principal balance of this Convertible Debenture as provided below) on
August __, 1999, (the "Maturity Date") with interest (computed on the basis of
a 360-day year of 12 30-day months) (a) on the unpaid balance thereof at the
rate of 6% per annum from the date hereof, payable quarterly on the last day of
March, June, September and December in each year, commencing with the March 31,
June 30, September 30 or December 31 next succeeding the date hereof, until
the principal hereof shall have become due and payable, and (b) on any overdue
payment of principal or any overdue payment of interest, payable quarterly as
aforesaid (or, at the option of the registered holder hereof, on demand), at a
rate per annum from time to time equal to the greater of (i) 8% or (ii) 2.0%
over the rate of interest publicly announced by Morgan Guaranty Trust Company
of New York from time to time in New York City as its Prime Rate; but in no
event shall the rate of interest exceed the maximum rate of nonusurious
interest permitted by law to be paid by the Company (and to the extent
permitted by law, interest on any overdue principal or interest thereon).
<PAGE> 39
This convertible debenture is one of a series of convertible
debentures (the "Convertible Debentures") issued pursuant to a Convertible
Debenture Purchase Agreement, dated as of August __, 1996 (the "Agreement"),
between the Company and H&Q Air South Investors, L.P. and is entitled to the
benefits thereof. Capitalized terms used herein and not otherwise defined
shall have the meaning ascribed thereto in the Agreement.
Interest accruing on this Convertible Debenture and remaining unpaid
on the last day of March, June, September and December in each year, commencing
with the March 31, June 30, September 30 or December 31 next succeeding the
date hereof and extending through the Maturity Date, shall be added to the
outstanding principal balance of this Convertible Debenture with effect as of
such date and any interest thereafter shall be due and payable in cash
according with the terms hereof.
Payments of principal of and interest on this Convertible Debenture
are to be made at H&Q Air South Investors, L.P., One Bush Street, San
Francisco, California, 94104, or at such other place as the holder hereof shall
designate to the Company in writing, in lawful money of the United States of
America. All payments made hereunder, whether at maturity or as a result of
acceleration, shall be allocated first to costs and expenses of the holder
resulting from collection efforts with respect to this Convertible Debenture,
second to accrued but unpaid interest, and third to principal.
This Convertible Debenture is a registered Convertible Debenture and,
as provided in the Agreement, upon surrender of this Convertible Debenture for
registration of transfer, duly endorsed, or accompanied by a written instrument
of transfer duly executed, by the registered holder hereof or such holder's
attorney duly authorized in writing, a new Convertible Debenture for a like
principal amount will be issued to, and registered in the name of, the
transferee. Prior to due presentment for registration of transfer, the Company
may treat the person in whose name this Convertible Debenture is registered as
the owner hereof for the purpose of receiving payment and for all other
purposes, and the Company shall not be affected by any notice to the contrary.
This Convertible Debenture may be prepaid, in whole or in part from
time to time, without penalty.
The outstanding principal balance and accrued interest on this
Convertible Debenture may be converted in whole or in part at any time or from
time to time at the option of the holder or may automatically be converted into
shares of Series D Preferred Stock, all as set forth in the Agreement.
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<PAGE> 40
If an Event of Default, as defined in the Agreement, shall occur and
be continuing, the principal of this Convertible Debenture may be declared or
otherwise become due and payable in the manner and with the effect provided in
the Agreement.
THIS CONVERTIBLE DEBENTURE IS INTENDED TO BE PERFORMED IN THE STATE OF
DELAWARE AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAW OF SUCH
STATE.
AIR SOUTH AIRLINES, INC.
By:
----------------------------------
Name: Clifton E. Haley
Title: Chairman of the Board
3
<PAGE> 41
FORM OF
NOTICE OF CONVERSION
TO BE EXECUTED IF HOLDER DESIRES TO CONVERT
THIS CONVERTIBLE DEBENTURE)
TO: AIR SOUTH AIRLINES, INC.
The undersigned hereby irrevocably elects to convert the principal
balance, or portion thereof specified below, of this Convertible Debenture into
the number of shares of Series D Preferred Stock of the Company determined in
accordance with and under the Agreement and requests that certificates for the
shares of Series D Preferred Stock to be issued upon such conversion be issued
in the name of:
----------------------------------
(Please Print Name)
Address (print):
----------------------------------
----------------------------------
----------------------------------
Social Security Number
----------------------------------
(Please print principal balance of
this Convertible Debenture being
converted)
----------------------------------
Signature
(Signature must conform in all respects to name of holder as
specified on the face of this Convertible Debenture.)
4
<PAGE> 42
EXHIBIT B
<PAGE> 43
EXHIBIT B
CERTIFICATE OF DESIGNATION, PREFERENCES
AND RIGHTS OF SERIES D PREFERRED STOCK
OF
AIR SOUTH AIRLINES, INC
a corporation organized and existing under the General Corporation Law of the
State of Delaware.
DOES HEREBY CERTIFY
That, pursuant to authority conferred upon the Board of Directors by
the Certificate of Incorporation of said corporation, and pursuant to the
provisions of Section 151 of Title 8 of the Delaware Code of 1953, said Board
of Directors has established a class of preferred stock of this Corporation
designated Series D Preferred Stock ("Series D Preferred") consisting of
Eighteen Million (18,000,000) shares of such Series D Preferred. Such Series D
Preferred was established with the powers, designations, preferences and
relative participating optional or other rights contained in Exhibit I attached
hereto.
IN WITNESS WHEREOF, said Air South Airlines, Inc. has caused this
Certificate to be signed by ______________, its President and Chief Executive
Officer, this ______ day of August, 1996.
By:
----------------------------------
<PAGE> 44
EXHIBIT I
AIR SOUTH AIRLINES, INC. SERIES D PREFERRED STOCK
SECTION 1. CLASS OF PREFERRED STOCK. The Air South Airlines Series D
Preferred Stock shall have such voting powers, and such other powers,
designations, preferences and other special rights set out below.
SECTION 2. DIVIDENDS. The holders of outstanding shares of Series D
Preferred stock shall be entitled to receive dividends at the rate of two cents
($0.02) per share (as adjusted for any stock dividends, combinations or splits
with respect to such shares) per annum, when, if and as declared by the Board
of Directors, out of funds legally available therefor. The right to such
dividends on the Series D Preferred Stock shall not be cumulative. No cash
dividend shall be paid on the Common Stock in any year unless an equal dividend
is paid with respect to all outstanding shares of Series D Preferred Stock in
an amount for each such share to a holder of the number of shares of Common
Stock into which such share of Series D Preferred Stock could then be
converted.
SECTION 3. LIQUIDATION RIGHTS.
a. In the event of any liquidation, dissolution or
winding up of the Corporation, either voluntary or involuntary, the holders of
the Series D Preferred Stock shall be entitled to receive, prior and in
preference to any distribution of any of the assets or surplus funds of the
Corporation to the holders of the Common Stock, the amount of twenty-five cents
($0.25) per share (the "Original Issue Price") (as adjusted for any stock
dividends, combinations or splits with respect to such shares) plus all accrued
or declared but unpaid dividends on each share of Series D Preferred Stock held
by such holders (the "Preferential Amount"). The right of the holders of
Shares of Series D Preferred Stock to a preference in such a liquidation
dissolution or winding up shall in all respects be pari passu with the rights
of the holders of shares of Series A Preferred Stock, Series B-Preferred Stock
and Series C Preferred Stock. If upon the occurrence of any liquidation,
dissolution or winding up of the Corporation, either voluntary or involuntary,
the assets and funds to be distributed among the holders of Series D Preferred
Stock shall be insufficient to permit the payment to such holders of the full
Preferential Amount, the entire assets and funds of the Corporation legally
available for distribution shall be distributed ratably among the holders of
the Series D Preferred Stock in proportion to the Preferential Amount each such
holder is otherwise entitled to receive.
b. After payment to the holders of the Series D
Preferred Stock of the Preferential Amount, the entire remaining assets and
funds of the Corporation legally available for distribution, if any, shall be
distributed ratably among the holders of Series D Preferred Stock and the
Common Stock in proportion to the shares of Series D Preferred Stock and Common
Stock then held by such holders.
c. For purposes of this Section 3, (i) a merger or
consolidation of the Corporation into or with another corporation (other than
with a wholly owned subsidiary of this
I-1
<PAGE> 45
Corporation), or any other corporate reorganization in which the stockholders
of the Corporation will not own a majority of the outstanding shares of the
surviving entity of such merger, consolidation or reorganization, or (ii) a
sale, transfer or other disposition of all or substantially all of the assets
of the Corporation, shall be deemed to be a liquidation, dissolution or winding
up of the Corporation.
SECTION 4. CONVERSION.
a. Right to Convert. Each share of Series D Preferred
Stock shall initially be convertible, at the option of the holder, at any time
after the date of issuance of such share, at the office of the Corporation or
any transfer agent for the Series D Preferred Stock, into one (1) fully paid
and nonassessable shares of Common Stock (subject to adjustment as set forth
herein). The number of shares of Common Stock into which one share of Series D
Preferred Stock may be converted hereinafter is referred to as the "Series D
Conversion Rate". The price at which shares of Common Stock shall be
deliverable upon conversion of shares of Series D Preferred shall initially be
twenty-five cents ($0.25) per share of Common Stock (the "Series D Conversion
Price"). Such initial Series D Conversion Price shall be subject to adjustment
from time to time, as hereinafter provided.
b. Automatic Conversion. Each share of Series D
Preferred Stock shall automatically be converted into shares of Common Stock at
the then effective Series D Conversion Rate upon the earlier of (i) the closing
of a firmly underwritten public offering of the Corporation's Common Stock on a
Form S-1 Registration Statement at an aggregate public offering price (after
underwriting discounts and commission) of at least $10,000,000 and a per share
price equal to or greater than fifty cents ($0.50) (as appropriately adjusted
for stock splits and the like) (an "Initial Public Offering"); (ii) the vote or
written consent of the holders of at least 50% of the then outstanding shares
of Series D Preferred Stock; or (iii) the date as of which less than 20% of the
maximum number of shares of Series D Preferred Stock issued by the Company (or
issuable upon conversion or exchange of securities of the Company) prior to
such date remain outstanding (the "Automatic Conversion Event").
c. Mechanics of Conversion. Before any holder of Series
D Preferred Stock shall be entitled to convert the same into shares of Common
Stock, such holder shall surrender the certificate or certificates for such
shares, duly endorsed, at the office of the Corporation or of any transfer
agent for the Series D Preferred Stock, or notify the Corporation or its
transfer agent that such Series D Preferred Stock certificates have been lost,
stolen or destroyed and execute an agreement satisfactory to the Corporation to
indemnify the Corporation from any loss incurred by it in connection with such
certificates, and shall give written notice to the Corporation at such office
that such holder elects to convert the same and shall state in the notice the
name or names in which such holder wishes the certificate or certificates for
shares of Common Stock to be issued. The Corporation shall then, as soon as is
practicable, issue and deliver at such office to such holder of Series D
Preferred Stock, or to such holder's nominee or nominees, a certificate or
certificates for the number of shares of Common Stock to which such holder
shall be entitled. Such conversion shall be deemed to have been made
immediately prior to the close of business on the date of surrender of the
shares of Series D Preferred Stock
I-2
<PAGE> 46
to be converted, and the person or persons entitled to receive the shares of
Common Stock issuable upon such conversion shall be treated for all purposes as
the record holder or holders of such shares of Common Stock on such date;
provided, however, that in the event of automatic conversion pursuant to
Section 4(b), such conversion shall be deemed to have been made upon the
occurrence of the Automatic Conversion Event triggering such conversion without
any further action by the holders of shares of Series D Preferred Stock,
although the Corporation shall not be obligated to issue certificates
evidencing the shares of Common Stock issuable upon such automatic conversion
unless the certificates evidencing such shares of Series D Preferred Stock are
delivered to the Corporation or its transfer agent as provided above, or the
holder notifies the Corporation or its transfer agent that such Series D
Preferred Stock certificates have been lost, stolen or destroyed and executes
an agreement satisfactory to the Corporation to indemnify the Corporation from
any loss incurred by it in connection with such certificates. If the
conversion is in connection with an underwritten offering of securities
pursuant to the Securities Act, the conversion may, at the option of any holder
tendering shares of Series D Preferred Stock for conversion, be conditioned
upon the closing with the underwriters of the sale of securities pursuant to
such offering, in which event the person(s) entitled to receive the Common
Stock upon conversion of Series D Preferred Stock shall not be deemed to have
converted such Series D Preferred Stock until immediately prior to the closing
of such sale of securities.
D. ADJUSTMENTS TO THE SERIES D CONVERSION PRICE FOR
CERTAIN DILUTING ISSUES.
(i) SPECIAL DEFINITIONS. For purposes of this
Section 4(d), the following definitions apply:
(1) "Option" shall mean rights, options,
or warrants to subscribe for, purchase or otherwise acquire either Common Stock
or Convertible Securities (defined below).
(2) "Original Issue Date" shall mean the
date on which a share of Series D Preferred Stock was first issued or
securities convertible or exchangeable for Series D Preferred Stock were first
issued.
(3) "Convertible Securities" shall mean
any evidences of indebtedness, shares or other securities directly or
indirectly convertible into or exchangeable for Common Stock.
(4) "Additional Shares of Common Stock"
shall mean all shares of Common Stock issued (or, pursuant to Section
(4)(d)(iii), deemed to be issued) by the Corporation after the Original Issue
Date, other than shares of Common Stock issued or issuable:
(A) upon conversion of shares of
Series D Preferred Stock;
I-3
<PAGE> 47
(B) to officers, directors or
employees of, or consultants to, the Corporation pursuant to stock option or
stock purchase plans or agreements on terms approved by the Board of Directors;
(C) as a dividend or distribution
on Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock
or Series D Preferred Stock;
(D) for which adjustment of the
Series D Conversion Price is made pursuant to Section 4(e) or for which
adjustment of the Series A Conversion Price, Series B Conversion Price or
Series C Conversion Price is made pursuant to the counterpart of Section 4(e)
in the charter documents of the Company;
(E) upon the closing of an
Initial Public Offering;
(F) upon conversion of up to an
aggregate of $4.0 million in convertible notes originally issued to Hambrecht
& Quist Group and its affiliates; or
(G) in connection with an
acquisition of another company on terms approved by the Board of Directors.
(ii) NO ADJUSTMENT OF THE SERIES D CONVERSION
PRICE. Any provisions herein to the contrary notwithstanding, no adjustment in
the Series D Conversion Price shall be made in respect of the issuance of
Additional Shares of Common Stock unless the consideration per share
(determined pursuant to Section 4(d)(v) hereof) for an Additional Share of
Common Stock issued or deemed to be issued by the Corporation is less than the
Series D Conversion Price in effect on the date of, and immediately prior to,
such issue.
(iii) DEEMED ISSUE OF ADDITIONAL SHARES OF COMMON
STOCK. In the event the Corporation at any time or from time to time after the
Original Issue Date shall issue any Options or Convertible Securities or shall
fix a record date for the determination of holders of any class of securities
then entitled to receive any such Options or Convertible Securities, then the
maximum number of shares (as set forth in the instrument relating thereto
without regard to any provisions contained therein designed to protect against
dilution) of Common Stock issuable upon the exercise of such Options or, in the
case of Convertible Securities and Options therefor, the conversion or exchange
of such Convertible Securities, shall be deemed to be additional Shares of
Common Stock issued as of the time of such issue or, in case such a record date
shall have been fixed, as of the close of business on such record date,
provided that in any such case in which Additional Shares of Common Stock are
deemed to be issued:
(1) no further adjustment in the Series
D Conversion Price shall be made upon the upon the exercise of such Options or
conversion or exchange of such Convertible Securities to the extent that
adjustment had been previously made pursuant to this Section 4(d);
I-4
<PAGE> 48
(2) If such Options or Convertible
Securities by their terms provide, with the passage of time or otherwise, for
any increase or decrease in the consideration payable to the Corporation, or
decrease or increase in the number of shares of Common Stock issuable, upon the
exercise, conversion or exchange thereof, the Series D Conversion Price
computed upon the original issue thereof (or upon the occurrence of a record
date with respect thereto), and any subsequent adjustments based thereon,
shall, upon any such increase or decrease becoming effective, be recomputed to
reflect such increase or decrease insofar as it affects such Options or the
rights of conversion or exchange under such Convertible Securities (provided,
however, that no such adjustment of the Series D Conversion Price shall affect
Common Stock previously issued upon conversion of the Series D Preferred);
(3) upon the expiration of any such
Options or any rights of conversion or exchange under such Conversion
Securities which shall not have been exercised, the Series D Conversion Price
computed upon the original issue thereof (or upon the occurrence of a record
date with respect thereto), and any subsequent adjustments based thereon,
shall, upon such expiration, be recomputed as if:
(A) in the case of Convertible
Securities or Options for Common Stock, the only Additional Shares of Common
Stock issued were the shares of Common Stock, if any, actually issued upon the
exercise of such Options or the conversion or exchange of such Convertible
Securities and the consideration received therefor was the consideration
actually received by the Corporation for the issue of all such Options, whether
or not exercised, plus the consideration actually received by the Corporation
upon such exercise, or for the issue of all such Convertible Securities and the
additional consideration, if any, actually received by the Corporation upon
such conversion or exchange; and
(B) in the case of Options for
Convertible Securities, only the Convertible Securities, if any, actually
issued upon the exercise thereof were issued at the time of issue of such
Options, and the consideration received by the Corporation for the Additional
Shares of Common Stock deemed to have been then issued was the consideration
actually received by the Corporation for the issue of all such Options, whether
or not exercised, plus the consideration deemed to have been received by the
Corporation (determined pursuant to Section 4(d) upon the issue of the
Convertible Securities with respect to which such Options were actually
exercised;
(4) no readjustment pursuant to clause
(2) or (3) above shall have the effect of increasing the Series D Conversion
Price to an amount which exceeds the lower of (a) the Series D Conversion Price
on the original adjustment date, or (b) the Series D Conversion Price that
would have resulted from any issuance of Additional Shares of Common Stock
between the original adjustment date and such adjustment date;
(5) in the case of any Options which
expire by their terms not more than 30 days after the date of issue thereof, no
adjustment of the Series D Conversion Price shall be made until the expiration
or exercise of all such Options whereupon such adjustment shall be made in the
same manner provided in clause (3) above.
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<PAGE> 49
(iv) ADJUSTMENT OF CONVERSION PRICE UPON ISSUANCE
OF ADDITIONAL SHARES OF COMMON STOCK. In the event this Corporation, at any
time after the Original Issue Date, shall issue Additional Shares of Common
Stock (including Additional Shares of Common Stock deemed to be issued pursuant
to Section 4 without consideration or for a consideration per share less than
the Series D Conversion Price in effect on the date of and immediately prior to
such issue, then and in such event, the Series D Conversion Price shall be
reduced, concurrently with such issue, to a price (calculated to the nearest
cent) determined by multiplying the Series D Conversion Price by a fraction,
the numerator of which shall be the number of shares of Common Stock
outstanding immediately prior to such issue plus the number of shares of Common
Stock which the aggregate consideration received by the Corporation for the
total number of Additional Shares of Common Stock so issued would purchase at
such Series D Conversion Price in effect immediately prior to such issuance,
and the denominator of which shall be the number of shares of Common Stock
outstanding immediately prior to such issue plus the number of such Additional
Shares of Common Stock so issued. For the purpose of the above calculation,
the number of shares of Common Stock outstanding immediately prior to such
issue shall be calculated on a fully diluted basis, as if all shares of Series
D Preferred and all Convertible Securities had been fully converted into shares
of Common Stock immediately prior to such issuance and any outstanding Options
had been fully exercised immediately prior to such issuance (and the resulting
securities fully converted into shares of Common Stock, if so convertible) as
of such date, but not including in such calculation any additional shares of
Common Stock issuable with respect to shares of Series D Preferred, Convertible
Securities, or outstanding Options, solely as a result of the adjustment of the
Series D Conversion Price (or other conversion ratio) resulting from the
issuance of the Additional Shares of Common Stock causing the adjustment in
question.
(v) DETERMINATION OF CONSIDERATION. For purpose
of this Section 4(d), the consideration received by the Corporation for the
issuance of any Additional Shares of Common Stock shall be computed as follows:
(1) CASH AND PROPERTY. Such
consideration shall:
(A) insofar as it consists of
cash, be computed at the aggregate amount of cash received by the Corporation
excluding amounts paid or payable for accrued interest or accrued dividends;
(B) insofar as if consists of
property other than cash, be computed as the fair value thereof at the time of
such issue, as determined in good faith by the Board of Directors; and
(C) in the event Additional
Shares of Common Stock are issued together with other stock or securities or
other assets of the Corporation for consideration which covers both, be the
proportion of such consideration so received, computed as provided in clause
(A) and (B) above, as determined in good faith by the Board of Directors.
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<PAGE> 50
(2) OPTIONS AND CONVERTIBLE SECURITIES.
The consideration per share received by the Corporation for Additional Shares
of Common Stock deemed to have been issued pursuant to Section 4(d)(iii),
relating to Options and Convertible Securities shall be determined by dividing:
(A) the total amount, if any,
received or receivable by the Corporation as consideration for the issue of
such Options or Convertible Securities, plus the minimum aggregate amount of
additional consideration (as set forth in the instruments relating thereto,
without regard to any provision contained therein designed to protect against
dilution) payable to the Corporation upon the exercise of such Options or the
conversion or exchange of such Convertible Securities, or in the case of
Options for exchange of such Convertible Securities, or in the case of Options
for Convertible Securities, the exercise of such Options for Convertible
Securities and the conversion or exchange of such Convertible Securities by
(B) the maximum number of
shares of Common Stock (as set forth in the instruments relating hereto,
without regard to any provision contained therein designed to protect against
the dilution), issuable upon the exercise of such Options or conversion or
exchange of such Convertible Securities.
E. ADJUSTMENT TO SERIES D CONVERSION PRICE FOR STOCK
DIVIDENDS AND FOR COMBINATIONS OR SUBDIVISIONS OF COMMON STOCK. In the event
that this Corporation at any time or from time to time after the Original Issue
Date shall declare or pay, without consideration, any dividend on the Common
Stock payable in Common Stock or in any right to acquire Common Stock for no
consideration, or shall effect a subdivision of the outstanding shares of
Common Stock into a greater number of shares of Common Stock (by stock split,
reclassification or otherwise than by payment of a dividend in Common Stock or
in any right to acquire Common Stock), or in the event the outstanding shares
of Common Stock shall be combined or consolidated, by reclassification or
otherwise, into a lesser number of shares of Common Stock, then the Series D
Conversion Price in effect immediately prior to such event shall, concurrently
with the effectiveness of such event, be proportionately decreased or
increased, as appropriate. In the event that this Corporation shall declare or
pay, without consideration, any dividend on the Common Stock payable in any
right to acquire Common Stock for no consideration, then the Corporation shall
be deemed to have made a dividend payable in Common Stock in an amount of
shares equal to the maximum number of shares issuable upon exercise of such
rights to acquire Common Stock.
F. ADJUSTMENTS FOR RECLASSIFICATION AND REORGANIZATION.
If the Common Stock issuable upon conversion of Series D Preferred Stock shall
be changed into the same or a different number of shares of any other class or
classes of shares, whether by capital reorganization, reclassification or
otherwise (other than a subdivision or combination of shares provided for in
Section 4(e) above or a merger or other reorganization referred to in Section 3
(c) above), the Series D Conversion Price than in affect shall, concurrently
with the effectiveness of such reorganization or reclassification, be
proportionately adjusted so that the Series D Preferred shall be convertible
into, in lieu of the number of shares of Common Stock which the
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<PAGE> 51
holders would otherwise have been entitled to receive, a number of shares of
such other class or classes of stock equivalent to the number of shares of
Common Stock that would have been subject to receipt by the holders upon
conversion of the Series D Preferred Stock immediately before that change.
G. OTHER DISTRIBUTIONS. In the event the Corporation
shall at anytime or from time to time make or issue, or fix a record date for
the determination of holders of Common Stock entitled to receive, a dividend or
other distribution payable in securities (including evidences of indebtedness)
of the Corporation other than Common Stock, then in each such event provision
shall be made so that the holders of Series D Preferred Stock shall receive,
upon the conversion thereof, the securities of the Corporation which they would
have received had their Series D Preferred Stock been converted into Common
Stock on the date of such event.
H. NO IMPAIRMENT. The Corporation will not, by
amendment of its Certificate of Incorporation or through any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms to be observed or performed hereunder by the
Corporation, but will at all times in good faith assist in the carrying out of
all the provisions of this Section 4 and in the taking of all such action as
may be necessary or appropriate to protect the holders of the Series D
Preferred Stock against impairment of the rights afforded them by this Section
A.
I. CERTIFICATES AS TO ADJUSTMENTS. Upon the occurrence
of each adjustment or readjustment pursuant to Section 4(d) of the Series D
Conversion Rate or in the other securities or property (including cash)
deliverable upon the conversion of the shares of Series D Preferred Stock, the
Corporation, at its expense, shall promptly compute such adjustment or
readjustment in accordance with the terms thereof, and cause independent
certified public accountants selected by the Corporation to verify such
computation and prepare and furnish to each holder of Series D Preferred Stock
a certificate setting forth such adjustment or readjustment and showing in
detail the facts upon which such adjustment or readjustment is based.
J. NOTICES OF RECORD DATE. In the event of any taking
by the Corporation of a record of the holders of any class of securities for
the purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, any security
or right convertible into or entitling the holder thereof to receive shares of
Common Stock, or any right to subscribe for, purchase or otherwise acquire any
shares of stock of any class or any other securities or property, the
Corporation shall cause to be mailed by first class mail to each holder of
Series D Preferred Stock, at least twenty (20) days prior to the applicable
record date, a notice specifying the date on which any such record was to be
taken for the purpose of such dividend, distribution, security or right, and
the amount and character of such dividend, distribution, security or right.
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<PAGE> 52
K. ISSUE TAXES. The Corporation shall pay any and all
issue and other taxes that may be payable in respect of any issue of delivery
of shares of Common Stock on conversion of shares of Series D Preferred Stock
pursuant hereto.
L. RESERVATION OF STOCK ISSUABLE UPON CONVERSION. The
Corporation shall take such corporate action as may be necessary, in the
opinion of its counsel, to increase its authorized but unissued shares of
Common Stock to such number of shares as shall be sufficient to effect the
conversion of all the outstanding shares of Series D Preferred Stock into
shares of Common Stock at such time as the Corporation elects to effect such
conversion, including, without limitation, using its best efforts to obtain the
requisite stockholder approval of any necessary amendment to its Certificate
of Incorporation.
M. FRACTIONAL SHARES. No fractional share shall be
issued upon the conversion of any share of Series D Preferred Stock. All
shares of Common Stock (including fractions thereof) issuable upon conversion
of more than one share of Series D Preferred Stock by a holder thereof shall be
aggregated for purposes of determining whether the conversion would result in
the issuance of any fractional share. If, after the aforementioned
aggregation, the conversion should result in the issuance of a fraction of a
share of Common Stock, the Corporation shall, in lieu of issuing any fractional
share, pay the holder otherwise entitled to such fraction a sum in cash equal
to such fraction multiplied by the Series D Conversion Price then in effect.
N. NOTICES. Any notice required by the provisions of
this Section C to be given to the holders of shares of Series D Preferred Stock
shall be deemed given if deposited in the United States mail, postage prepaid
and addressed to each holder of record at such holder's address appearing on
the books of the Corporation.
SECTION 5. AMENDMENT. Any term relating to the Series D
Preferred Stock may be amended only with the vote or written consent of holders
of at least a majority of all shares of Series D Preferred Stock then
outstanding. Any such amendment shall be binding upon the Corporation and any
holder of Series D Preferred Stock.
SECTION 6. VOTING RIGHTS. Except as otherwise provided herein or
as required by law, the holders of Series D Preferred Stock shall be entitled
to notice of any stockholders' meeting and to vote together with the holders of
Common Stock as single class of capital stock upon the election of directors
and upon any other matter submitted to the stockholders for a vote, on the
following basis:
a. Holders of Common Stock shall have one (1) vote per
share; and
b. Holders of Series D Preferred Stock shall have the
number of votes per share as is equal to the number of full shares of Common
Stock into which each such share of Series D Preferred Stock held by such
holder is convertible at the record date for the determination of the
stockholders entitled to vote on such matters or, if no such record date is
established, at the date such vote is taken or any written consent to
stockholders is solicited.
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<PAGE> 53
c. In addition to any other vote or consent required
herein or by law, the vote or written consent of the holders of at least a
majority of the outstanding shares of Series D Preferred Stock shall be
necessary:
(i) for any amendment, alteration, or repeal of
any provision of the Certificate of Incorporation (including any Certificates
of Designation of Preferred Stock) or Bylaws of the Corporation (including any
filing of a Certificate of Designation);
(ii) to alter or change the rights, preferences or
privileges of the Series D Preferred Stock;
(ii) to create any new series of Preferred Stock
having preferences over the Series D Preferred Stock;
(iv) to increase the authorized number of shares
of Series D Preferred Stock;
(v) for any action that results in any
liquidation, acquisition, merger or sale of the Corporation or all or
substantially all of its assets;
(vi) for any action that results in any change in
the principal business of the Corporation; or
(vii) for any action that results in the repurchase
of equity securities of the Corporation (other than the repurchase of stock
from employees of the Corporation at original cost or pursuant to a Board
approved incentive stock option plan).
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<PAGE> 54
EXHIBIT C
<PAGE> 55
SEE TAB 5
<PAGE> 56
EXHIBIT D
<PAGE> 57
EXHIBIT D
AIR SOUTH AIRLINES, INC.
INVESTOR'S RIGHTS AGREEMENT
<PAGE> 58
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
I. General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
II. Restrictions On Transfer; Registration . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.1 Restrictions on Transfer . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.2 Demand Registration . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.3 Piggyback Registrations . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.4 Form S-3 Registration . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.5 Obligations of the Company . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.6 Furnish Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.7 Delay of Registration . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.8 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.9 Assignment of Registration Rights . . . . . . . . . . . . . . . . . . . . . 9
2.10 Amendment of Registration Rights . . . . . . . . . . . . . . . . . . . . . . 10
2.11 "Market Stand-Off" Agreement . . . . . . . . . . . . . . . . . . . . . . . . 10
III. Covenants Of The Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.1 Basic Financial Information and Reporting . . . . . . . . . . . . . . . . . 10
3.2 Inspection Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.3 Confidentiality of Records . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.4 Reservation of Series D, Preferred Stock . . . . . . . . . . . . . . . . . . 11
3.5 Reservation of Common Stock . . . . . . . . . . . . . . . . . . . . . . . . 11
IV. Rights Of First Refusal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
4.1 Subsequent Offerings . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
4.2 Exercise of Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
4.3 Issuance of Equity Securities to Other Persons . . . . . . . . . . . . . . . 12
4.4 Termination of Rights of First Refusal . . . . . . . . . . . . . . . . . . . 12
4.5 Transfer of Rights of First Refusal . . . . . . . . . . . . . . . . . . . . 12
4.6 Excluded Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
V. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.1 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.2 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.3 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.4 Separability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.5 Amendment and Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.6 Delays or Omissions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.7 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.8 Attorneys' Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.9 Titles and Subtitles . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.10 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
</TABLE>
<PAGE> 59
INVESTOR'S RIGHTS AGREEMENT
THIS INVESTOR'S RIGHTS AGREEMENT (the "Agreement") is entered into as
of the 16th day of August 1996, by and among AIR SOUTH AIRLINES, INC., a
Delaware corporation (the "Company") and H&Q AIR SOUTH INVESTORS, L.P.
("Purchaser").
RECITALS
WHEREAS, the Company proposes to sell and issue an aggregate of
$4,000,000 principal amount of convertible debentures (the "Convertible
Debentures") pursuant to that certain Convertible Debenture Purchase Agreement
(the "Purchase Agreement") of even date herewith between the Company and
Purchaser (the "Purchase Agreement"); and
WHEREAS, as a condition to entering into the Purchase Agreement, the
Purchaser has requested that the Company extend to it registration rights,
information rights and a right of first refusal as set forth herein.
Now, THEREFORE, in consideration of the mutual promises,
representations, warranties, covenants, and conditions set forth in this
Agreement and in the Purchase Agreement, the parties mutually agree as follows:
1. GENERAL.
1.1 Definitions. As used in this Agreement the following terms
shall have the following respective meanings:
"1934 Act" means the Securities Exchange Act of 1934.
"Equity Securities" means (i) any stock or similar security of the
Company, (ii) any security convertible, with or without consideration, into any
stock or similar security (including any option to purchase such a convertible
security), (iii) any security carrying any warrant or right to subscribe to or
purchase any stock or similar security or (iv) any such warrant or right.
"Family Member" means a Holder's spouse, children, stepchildren and
grandchildren.
"Final Prospectus" means an amended prospectus filed with the SEC
pursuant to SEC Rule 424(b) of the Securities Act.
"Holder" means any person owning of record Registrable Securities.
"Initial Offering" means the first underwritten public offering of the
Company's securities.
"Initiating Holders" means the Holder or Holders of at least forty
percent (40%) of the Registrable Securities then outstanding.
<PAGE> 60
"Register," "registered," and "registration" refer to a registration
effected by preparing and filing a registration statement in compliance with
the Securities Act, and the declaration or ordering of effectiveness by the SEC
of such registration statement or document.
"Registrable Securities" means (i) the Shares; (ii) Common Stock of
the Company issued or issuable upon conversion of the Shares; and (iii) any
Common Stock of the Company issued as (or issuable upon the conversion or
exercise of any warrant, right or other security which is issued as) a dividend
or other distribution with respect to, or in exchange for or in replacement of,
such above-described securities. Notwithstanding the foregoing, Registrable
Securities shall not include any securities sold by a person to the public
either pursuant to a registration statement or Rule 144 or sold in a private
transaction in which the transferror's rights under Article II of this
Agreement are not assigned. Outstanding Shares and warrants, rights and other
securities issued as a dividend or other distribution with respect to
outstanding Shares, or in exchange or replacement of outstanding Shares, shall
be deemed to represent a number of shares of Registrable Securities equal to
the number of shares of Common Stock into which such Shares, warrants, rights
or other securities are convertible as of the time such determination is made.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Shares" shall mean the Company's Series D Preferred Stock issuable
assuming the conversion of the Convertible Debentures.
"Form S-3" means such form under the Securities Act as in effect on
the date hereof or any successor registration form under the Securities Act
subsequently adopted by the SEC which permits inclusion or incorporation of
substantial information by reference to other documents filed by the Company
with the SEC.
"SEC" or "Commission" means the Securities and Exchange Commission.
II. RESTRICTIONS ON TRANSFER; REGISTRATION.
2.1 Restrictions on Transfer.
(a) Each Holder agrees not to make any disposition of all
or any portion of the Registrable Securities unless and until the transferee
has agreed in writing for the benefit of the Company to be bound by this
Section 2.1, provided and to the extent such Section is then applicable and:
(i) There is then in effect a registration
statement under the Securities Act covering such proposed disposition and such
disposition is made in accordance with such registration statement; or
(ii) (A) Such Holder shall have notified the
Company of the proposed disposition and shall have furnished the Company with a
detailed statement of the circumstances surrounding the proposed disposition,
and (B) if reasonably requested by the Company, such Holder shall have
furnished the Company with an opinion of counsel, reasonably satisfactory to
the Company, that such disposition will not require registration of such shares
under the Securities Act.
(iii) Notwithstanding the provisions of paragraphs
(i) and (ii) above, no such registration statement or opinion of counsel shall
be necessary for a transfer by a Holder (A) which is
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a partnership to its partners in accordance with partnership interests, (B) to
the Holder's family member or trust for the benefit of an individual Holder or
(C) to an affiliate of the Holder (as that term is defined in Rule 144 (a)(1)
of the Securities Act (an "Affiliate"), provided the transferee will be subject
to the terms of this Section 2.1 to the same extent as if he were an original
Holder hereunder.
(b) Each certificate representing Series B Preferred
Stock or Registrable Securities shall (unless otherwise permitted by the
provisions of the Agreement) be stamped or otherwise imprinted with a legend
substantially similar to the following (in addition to any legend required
under applicable state securities laws or as provided elsewhere in this
Agreement):
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE OFFERED, SOLD OR
OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL
REGISTERED UNDER THE ACT OR, IN THE OPINION OF COUNSEL OR BASED ON
OTHER WRITTEN EVIDENCE IN FORM AND SUBSTANCE SATISFACTORY TO THE
ISSUER OF THESE SECURITIES, SUCH OFFER, SALE OR TRANSFER, PLEDGE OR
HYPOTHECATION DOES NOT REQUIRE REGISTRATION.
(c) The Company shall be obligated to reissue promptly
unlegended certificates at the request of any holder thereof if the holder
shall have obtained an opinion of counsel (which counsel may be counsel to the
Company) reasonably acceptable to the Company to the effect that the securities
proposed to be disposed of may lawfully be so disposed of without registration,
qualification or legend.
(d) Any legend endorsed on an instrument pursuant to
applicable state securities laws and the stop-transfer instructions with
respect to such securities shall be removed upon receipt by the Company of an
order of the appropriate blue sky authority authorizing such removal.
2.2 Demand Registration.
(a) Subject to the conditions of this Section 2.2, if the
Company shall receive at any time after the later of December 31, 1996 or one
hundred twenty (120) days after the closing of the Initial Offering, a written
request from the Initiating Holders that the Company file a registration
statement under the Securities Act covering the registration of (i) at least
25% of the Registrable Securities held by such Initiating Holders or (ii) any
lesser number of shares if the anticipated aggregate offering price of such
shares, net of underwriting discounts and commissions, would exceed
$5,000,000), then the Company shall, within thirty (30) days of the receipt
thereof, give written notice of such request to all Holders, and subject to the
limitations of Section 2.2(b), effect, as soon as practicable, the registration
under the Securities Act; provided, however, that the Initiating Holders may
request registration of less than 25% of such Registrable Securities if the
anticipated aggregate offering price, net of underwriting discounts and
commissions, exceeds $5,000,000.
(b) If the Initiating Holders intend to distribute the
Registrable Securities covered by their request by means of an underwriting,
they shall so advise the Company as a part of their request made pursuant to
this Section 2.2 and the Company shall include such information in the written
notice referred to in Section 2.2(a). In such event, the right of any Holder to
include such Holder's Registrable Securities in such registration shall be
conditioned upon such Holder's participation in such underwriting and the
inclusion of such Holder's Registrable Securities in the underwriting (unless
otherwise mutually agreed by a majority in interest of the Initiating Holders
and such Holder) to the extent provided herein.
<PAGE> 62
All Holders proposing to distribute their securities through such underwriting
shall enter into an underwriting agreement in customary form with the
underwriter or underwriters selected for such underwriting by a majority in
interest of the Initiating Holders (which underwriter or underwriters shall be
reasonably acceptable to the Company). Notwithstanding any other provision of
this Section 2.2, if the underwriter advises the Company in writing that
marketing factors require a limitation of the number of securities to be
underwritten (including Registrable Securities) then the Company shall so
advise all Holders of Registrable Securities which would otherwise be
underwritten pursuant hereto, and the number of shares that may be included in
the underwriting shall be allocated to the Holders of such Registrable
Securities on a pro rata basis based on the number of Registrable Securities
held by all such Holders (including the Initiating Holders). Any Registrable
Securities excluded or withdrawn from such underwriting shall be withdrawn from
the registration.
(c) The Company shall not be obligated to effect more
than two (2) registrations pursuant to this Section 2.2.
(d) Notwithstanding the foregoing, if the Company shall
furnish to Holders requesting a registration statement pursuant to this Section
2.2, a certificate signed by the Chairman of the Board stating that in the good
faith judgment of the Board of Directors of the Company, it would be seriously
detrimental to the Company and its stockholders for such registration statement
to be filed and it is therefore essential to defer the filing of such
registration statement, the Company shall have the right to defer such filing
for a period of not more than thirty (30) days after receipt of the request of
the Initiating Holders; provided that such right to delay a request shall be
exercised by the Company no more than once in any one-year period.
(e) All expenses incurred in connection with a
registration pursuant to this Section 2.2 (excluding underwriters' discounts
and commissions, which shall be paid by the selling Holders pro rata with
respect to their included shares), including without limitation all
registration, filing, qualification, printers' and accounting fees, fees and
disbursements of counsel for the Company, and the reasonable fees and
disbursements of a single counsel for the selling Holders, shall be borne by
the Company; provided, however, that the Company shall not be required to pay
for any expenses of any registration proceeding begun pursuant to Section 2.2
if the registration request is subsequently withdrawn, unless the withdrawal of
the registration request results from either (a) intentional actions by the
Company outside the normal course of business that materially reduce the
feasibility of the registration proceeding, or (b) the discovery of information
about the Company that was not known at the time of the Initiating Holders'
request made pursuant to Section 2.2(a), and such information materially
reduces the feasibility of the registration proceeding. If the Company is
required to pay the registration expenses pursuant to this Section 2.2(e), then
the Holders shall not forfeit their rights pursuant to this Section 2.2 to a
demand registration.
2.3 Piggyback Registrations.
(a) The Company shall notify all Holders in writing at
least thirty (30) days prior to the filing of any registration statement under
the Securities Act for purposes of a public offering of securities of the
Company (including, but not limited to, registration statements relating to
secondary offerings of securities of the Company, but excluding registration
statements relating to the Initial Offering, employee benefit plans and
corporate reorganizations) and will afford each such Holder who would have been
unable to sell all of such Registrable Securities on an unrestricted basis
pursuant to Rule 144 promulgated under the Securities Act, during the four-week
period immediately preceding the effective date of the registration statement,
an opportunity to include in such registration statement all or
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<PAGE> 63
part of such Registrable Securities held by such Holder. Each Holder desiring
to include in any such registration statement all or any part of the
Registrable Securities held by it shall, within twenty (20) days after receipt
of the above-described notice from the Company, so notify the Company in
writing. Such notice shall state the intended method of disposition of the
Registrable Securities by such Holder. If a Holder decides not to include all
of its Registrable Securities in any registration statement thereafter filed by
the Company, such Holder shall nevertheless continue to have the right to
include any Registrable Securities in any subsequent registration statement or
registration statements as may be filed by the Company with respect to
offerings of its securities, all upon the terms and conditions set forth
herein. Notwithstanding anything to the contrary, the foregoing shall not
apply to any registrations occurring on or after the fifth anniversary of the
Initial Offering
(b) If the registration statement under which the Company
gives notice under this Section 2.3 is for an underwritten offering, the
Company shall so advise the Holders. In such event, the right of any such
Holder to be included in a registration pursuant to this Section 2.3 shall be
conditioned upon such Holder's participation in such underwriting and the
inclusion of such Holder's Registrable Securities in the underwriting to the
extent provided herein. All Holders proposing to distribute their Registrable
Securities through such underwriting shall enter into an underwriting agreement
in customary form with the underwriter or underwriters selected for such
underwriting. Notwithstanding any other provision of the Agreement, if the
underwriter determines in good faith that marketing factors require a
limitation of the number of shares to be underwritten, the number of shares
that may be included in the underwriting shall be allocated, first, to the
Company; second, to the Holders on a pro rata basis based on the total number
of Registrable Securities held by the Holders; and third, to any stockholder of
the Company (other than a Holder) on a pro rata basis. No such reduction shall
reduce the securities being offered by the Company for its own account to be
included in the registration and underwriting, except that in no event shall
the amount of securities of the selling Holders included in the registration be
reduced below twenty percent (20%) of the total amount of securities included
in such registration, unless such offering is the Initial Offering and such
registration does not include shares of any other selling stockholders, in
which event any or all of the Registrable Securities of the Holders may be
excluded in accordance with the immediately preceding sentence. In no event
will shares of any other selling stockholder be included in such registration
which would reduce the number of shares which may be included by Holders
without the written consent of Holders of not less than fifty percent (50%) of
the Registrable Securities proposed to be sold in the offering.
(c) The Company shall bear all fees and expenses incurred
in connection with any registration under this Section 2.3 (excluding
underwriters' discounts and commissions, which shall be paid by the selling
Holders pro rata with respect to their included shares), including without
limitation all registration, filing, qualification, printers' and accounting
fees, fees and disbursements of counsel to the Company, and the reasonable fees
and disbursements of a single counsel to the selling Holders (which counsel
shall also be counsel to the Company unless counsel to the Company has a
conflict of interest with respect to the representation of any selling Holder
or the underwriters object to the selling Holders representation by Company
counsel).
2.4 Form S-3 Registration. In case the Company shall receive from
the Holders at least ten percent (10%) of the Registrable Securities a written
request or requests that the Company effect a registration on Form S-3 and any
related qualification or compliance with respect to all or a part of the
Registrable Securities owned by such Holder or Holders, the Company will:
(a) promptly give written notice of the proposed
registration, and any related qualification or compliance, to all other Holders
of Registrable Securities; and
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<PAGE> 64
(b) as soon as practicable, effect such registration and
all such qualifications and compliances as may be so requested and as would
permit or facilitate the sale and distribution of all or such portion of such
Holder's or Holders' Registrable Securities as are specified in such request,
together with all or such portion of the Registrable Securities of any other
Holder or Holders joining in such request as are specified in a written request
given within fifteen (15) days after receipt of written notice from the Company
pursuant to Section 2.4(a); provided, however, that the Company shall not be
obligated to effect any such registration, qualification or compliance pursuant
to this Section 2.4: (i) if Form S-3 is not available under the Securities Act
or rules or regulations promulgated thereunder for such offering by the
Holders; (ii) if the Holders, together with the holders of any other securities
of the Company entitled to inclusion in such registration, propose to sell
Registrable Securities and such other securities (if any) at an aggregate price
to the public of less than $500,000; (iii) if the Company shall furnish to the
Holders a certificate signed by the Chairman of the Board of Directors of the
Company stating that in the good faith judgment of the Board of Directors of
the Company, it would be seriously detrimental to the Company and its
stockholders for such Form S-3 Registration to be effected at such time, in
which event the Company shall have the right to defer the filing of the Form
S-3 registration statement for a period of not more than thirty (30) days after
receipt of the request of the Holder or Holders under this Section 2.4,
provided that, such right to defer the filing may be exercised by the Company
no more than once in any one-year period; (iv) if the Company has, within the
six (6) month period preceding the date of such request, already effected one
(1) registrations on Form S-3 for the Holders pursuant to this Section 2.4; or
(v) in any particular jurisdiction in which the Company would be required to
qualify to do business or to execute a general consent to service of process in
effecting such registration, qualification or compliance.
(c) Subject to the foregoing, the Company shall file a
Form S-3 registration statement covering the Registrable Securities and other
securities so requested to be registered as soon as practicable after receipt
of the request or requests of the Holders. All such expenses incurred in
connection with registrations requested pursuant to this Section 2.4 shall be
paid by the selling Holders (and any other selling stockholders pro rata with
respect to their included shares, including without limitation all
registration, filing, qualification, printers' and accounting fees, fees and
disbursements of counsel for the Company, and the reasonable fees and
disbursements of a single counsel for the selling Holder or Holders.
2.5 Obligations of the Company. Whenever required to effect the
registration of any Registrable Securities, the Company shall, as expeditiously
as reasonably possible:
(a) Prepare and file with the SEC a registration
statement with respect to such Registrable Securities and use its best efforts
to cause such registration statement to become effective, and, upon the request
of the Holders of a majority of the Registrable Securities registered
thereunder, keep such registration statement effective for up to ninety (90)
days.
(b) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in
connection with such registration statement as may be necessary to comply with
the provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement.
(c) Furnish to the Holders such number of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as they may
reasonably request in order to facilitate the disposition of Registrable
Securities owned by them.
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<PAGE> 65
(d) Use its best efforts to register and qualify the
securities covered by such registration statement under such other securities
or state blue sky laws of such jurisdictions as shall be reasonably requested
by the Holders, provided that the Company shall not be required in connection
therewith or as a condition thereto to qualify to do business or to file a
general consent to service of process in any such states or jurisdictions.
(e) In the event of any underwritten public offering,
enter into and perform its obligations under an underwriting agreement, in
usual and customary form, with the managing underwriter(s) of such offering.
Each Holder participating in such underwriting shall also enter into and
perform its obligations under such an agreement.
(f) Notify each Holder of Registrable Securities covered
by such registration statement at any time when a prospectus relating thereto
is required to be delivered under the Securities Act of the happening of any
event as a result of which the prospectus included 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 the light of the circumstances
then existing.
(g) Furnish, at the request of a majority of the Holders
participating in the registration, on the date that such Registrable Securities
are delivered to the underwriters for sale, if such securities are being sold
through underwriters, or, if such securities are not being sold through
underwriters, on the date that the registration statement with respect to such
securities becomes effective, (i) an opinion, dated as of such date, of the
counsel representing the Company for the purposes of such registration, in form
and substance as is customarily given to underwriters in an underwritten public
offering and reasonably satisfactory to a majority in interest of the Holders
requesting registration, addressed to the underwriters, if any, and to the
Holders requesting registration of Registrable Securities and (ii) a letter
dated as of such date, from the independent certified public accountants of the
Company, in form and substance as is customarily given by independent certified
public accountants to underwriters in an underwritten public offering and
reasonably satisfactory to a majority in interest of the Holders requesting
registration, addressed to the underwriters, if any, and to the Holders
requesting registration of Registrable Securities.
2.6 Furnish Information. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to Sections 2.2, 2.3 or
2.4 that the selling Holders shall furnish to the Company such information
regarding themselves, the Registrable Securities held by them, and the intended
method of disposition of such securities as shall be required to effect the
registration of their Registrable Securities.
2.7 Delay of Registration. No Holder shall have any right to
obtain or seek an injunction restraining or otherwise delaying any such
registration as the result of any controversy that might arise with respect to
the interpretation or implementation of this Article II.
2.8 Indemnification. In the event any Registrable Securities are
included in a registration statement under Sections 2.2, 2.3 or 2.4:
(a) To the extent permitted by law, the Company will
indemnify and hold harmless each Holder, the partners, officers and directors
of each Holder, any underwriter (as defined in the Securities Act) for such
Holder and each person, if any, who controls such Holder or underwriter within
the meaning of the Securities Act or the 1934 Act, against any losses, claims,
damages, or liabilities (joint
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<PAGE> 66
or several) to which they may become subject under the Securities Act, the 1934
Act or other federal or state law, insofar as such losses, claims, damages, or
liabilities (or actions in respect thereof) arise out of or are based upon any
of the following statements, omissions or violations (collectively a
"Violation") by the Company: (i) any untrue statement or alleged untrue
statement of a material fact contained in such registration statement,
including any preliminary prospectus or final prospectus contained therein or
any amendments or supplements thereto, (ii) 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 (iii) any violation or alleged
violation by the Company of the Securities Act, the 1934 Act, any state
securities law or any rule or regulation promulgated under the Securities Act,
the 1934 Act or any state securities law in connection with the offering
covered by such registration statement; and the Company will reimburse each
such Holder, partner, officer or director, underwriter or 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 indemnity agreement contained in this Section 2.8(a)
shall not apply to amounts paid in settlement of any such loss, claim, damage,
liability or action if such settlement is effected without the consent of the
Company (which consent shall not be unreasonably withheld), nor shall the
Company be liable in any such case for any such loss, claim, damage, liability
or action to the extent that it arises out of or is based upon a Violation
which occurs in reliance upon and in conformity with written information
furnished to the Company expressly for use in connection with such registration
by such Holder, partner, officer, director, underwriter or controlling person
of such Holder.
(b) To the extent permitted by law, each selling Holder
will indemnify and hold harmless the Company, each of its directors, each of
its officers, each person, if any, who controls the Company within the meaning
of the Securities Act, any underwriter and any other Holder selling securities
under such registration statement or any of such other Holder's partners,
directors or officers or any person who controls such Holder, against any
losses, claims, damages or liabilities (joint or several) to which the Company
or any such director, officer, controlling person, underwriter or other such
Holder, or partner, director, officer or controlling person of such other
Holder may become subject under the Securities Act, the 1934 Act or other
federal or state law, insofar as such losses, claims, damages or liabilities
(or actions in respect thereto) arise out of or are based upon any Violation,
in each case to the extent (and only to the extent) that such Violation occurs
in reliance upon and in conformity with written information furnished to the
Company by such Holder expressly for use in connection with such registration;
and each such Holder will reimburse any legal or other expenses reasonably
incurred by the Company or any such director, officer, controlling person,
underwriter or other Holder, or partner, officer, director or controlling
person of such other Holder in connection with investigating or defending any
such loss, claim, damage, liability or action if it is judicially determined
that there was such a Violation; provided, however, that the indemnity
agreement contained in this Section 2.8(b) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Holder, which consent shall
not be unreasonably withheld; provided further, that in no event shall any
indemnity under this Section 2.8 exceed the proceeds from the offering received
by such Holder.
(c) Promptly after receipt by an indemnified party under
this Section 2.8 of notice of the commencement of any action (including any
governmental action) as to which indemnity may be sought, such indemnified
party will, if a claim in respect thereof is to be made against any
indemnifying party under this Section 2.8, deliver to the indemnifying party a
written notice of the commencement thereof and the indemnifying party shall
have the right to participate in, and, to the extent the indemnifying party so
desires, jointly with any other indemnifying party similarly noticed, to assume
the defense thereof with counsel mutually satisfactory to the parties;
provided, however, that an indemnified
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<PAGE> 67
party shall have the right to retain its own counsel, with the fees and
expenses to be paid by the indemnifying party, if representation of such
indemnified party by the counsel retained by the indemnifying party would be
inappropriate due to actual or potential differing interests between such
indemnified party and any other party represented by such counsel in such
proceeding. The failure to deliver written notice to the indemnifying party
within a reasonable time of the commencement of any such action, if materially
prejudicial to its ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this Section
2.8, but the omission so to deliver written notice to the indemnifying party
will not relieve it of any liability that it may have to any indemnified party
otherwise than under this Section 2.8.
(d) If the indemnification provided for in this Section
2.8 is held by a court of competent jurisdiction to be unavailable to an
indemnified party with respect to any losses, claims, damages or liabilities
referred to herein, the indemnifying party, in lieu of indemnifying such
indemnified party thereunder, shall to the extent permitted by applicable law
contribute to the amount paid or payable by such indemnified party as a result
of such loss, claim, damage or liability in such proportion as is appropriate
to reflect the relative fault of the indemnifying party on the one hand and of
the indemnified party on the other in connection with the Violation(s) that
resulted in such loss, claim, damage or liability, as well as any other
relevant equitable considerations. The relative fault of the indemnifying
party and of the indemnified party shall be determined by a court of law by
reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission to state a material fact relates
to information supplied by the indemnifying party or by the indemnified party
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission; provided that, in
no event shall any contribution by a Holder hereunder exceed the proceeds from
the offering received by such Holder.
(e) The foregoing indemnity agreements of the Company and
Holders are subject to the condition that, insofar as they relate to any
Violation made in a preliminary prospectus but eliminated or remedied in the
amended prospectus on file with the SEC at the time the registration statement
in question becomes effective or the Final Prospectus, such indemnity agreement
shall not inure to the benefit of any person obligated under the Securities Act
to furnish to the person asserting the loss, liability, claim or damage a copy
of the Final Prospectus if a copy of the Final Prospectus was furnished to the
indemnified party and was not furnished to the person asserting the loss,
liability, claim or damage at or prior to the time such action is required by
the Securities Act.
(f) The obligations of the Company and Holders under this
Section 2.8 shall survive the completion of any offering of Registrable
Securities pursuant to a registration statement, or otherwise.
2.9 Assignment of Registration Rights. The rights to cause the
Company to register Registrable Securities pursuant to this Article II may be
assigned by a Holder to a transferee or assignee of Registrable Securities;
provided, however, that no such transferee or assignee shall be entitled to
registration rights under Sections 2.2, 2.3 or 2.4 hereof unless such
transferee or assignee: (i) is a Holder; (ii) holds after such transfer or
assignment at least five hundred thousand (500,000) shares of Registrable
Securities (as adjusted for stock dividends, splits and combinations); or (iii)
is a Family Member or a subsidiary, parent, general partner, Affiliate, or
limited partner of a Holder. In each such case, the Company shall, within
twenty (20) days after such transfer, be furnished with written notice of the
name and address of such transferee or assignee and the securities with respect
to which such registration rights are being assigned.
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2.10 Amendment of Registration Rights. Any provision of this
Article II may be amended and the observance thereof may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the Holders of
more than fifty percent (50%) of the Registrable Securities. Any amendment or
waiver effected in accordance with this Section 2.10 shall be binding upon each
Holder and the Company. By acceptance of any benefits under this Article II,
each Holder hereby agrees to be bound by the provisions hereunder.
2.11 "Market Stand-Off" Agreement. If requested by the Company and
an underwriter of Common Stock (or other securities) of the Company, the
Purchaser shall not sell or otherwise transfer or dispose of any Common Stock
(or other securities) of the Company held by such stockholder (other than those
included in the registration) for a period specified by the underwriters not to
exceed one hundred eighty (180) days following the effective date of a
registration statement of the Company filed under the Securities Act, provided
that all officers and directors of the Company and all holders of at least one
percent (1%) of the Company's voting securities enter into similar agreements.
The obligations described in this Section 2.11 shall not apply to a
registration relating solely to employee benefit plans on Form S-1 or Form S-8
or similar forms that may be promulgated in the future, or a registration
relating solely to a Commission Rule 145 transaction on Form S-4 or similar
forms that may be promulgated in the future. The Company may impose stop-
transfer instructions with respect to the shares (or securities) subject to the
foregoing restriction until the end of said one hundred eighty (180) day
period.
III. COVENANTS OF THE COMPANY.
3.1 Basic Financial Information and Reporting.
(a) The Company will maintain true books and records of
account in which full and correct entries will be made of all its business
transactions pursuant to a system of accounting established and administered in
accordance with generally accepted accounting principles consistently applied,
and will set aside on its books all such proper accruals and reserves as shall
be required under generally accepted accounting principles consistently
applied.
(b) As soon as practicable after the end of each fiscal
year of the Company, and in any event within 90 days thereafter or, after the
Initial Offering, simultaneously with the filing of the Company's annual report
on Form 10-K with the SEC, the Company will furnish each Holder a consolidated
balance sheet of the Company, as at the end of such fiscal year, and a
consolidated statement of income and a consolidated statement of cash flows of
the Company for such year, all prepared in accordance with generally accepted
accounting principles and setting forth in each case in comparative form the
figures for the previous fiscal year, all in reasonable detail. Such financial
statements shall be accompanied by a report and opinion thereon by independent
public accountants of national standing selected by the Company's Board of
Directors.
(c) As soon as practicable after the end of each fiscal
quarter of the Company, and in any event within thirty days thereafter or,
after the Initial Offering, simultaneously with the filing of the Company's
reports on Form 10-Q with the SEC, the Company will furnish each Holder a
consolidated balance sheet of the Company, as at the end of such fiscal
quarter, and a consolidated statement of income and a consolidated statement of
cash flows of the Company for such quarter, prepared and presented in a manner
consistent with the financial statements described in Section 3.1(b). Such
statement shall be accompanied by a certificate signed by the Chairman of the
Board and Chief
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Financial Officer of the Company stating that the preparation and presentation
of such statements is consistent with the financial statements described in
Section 3.1(b).
(d) So long as a Holder (with its Affiliates) shall own
not less than one million (1,000,000) shares of Registrable Securities, the
Company will furnish such Holder a consolidated balance sheet of the Company,
as at the end of each calendar month, and a consolidated statement of income
and a consolidated statement of cash flows of the Company for such month,
prepared and presented in a manner consistent with the financial statements
described in Section 3.1(b). Such statements shall be furnished as soon as
practicable after the end of each month and in any event within ten days
thereafter and shall be accompanied by a certificate signed by the Chairman of
the Board and Chief Financial Officer of the Company stating that the
preparation and presentation of such statements is consistent with the
financial statements described in Section 3.1(b). Prior to January 1st of
each year, the Company shall furnish such Holders an annual budget for the
Company for the following twelve month period, broken down by month. The
Company's obligations under this Section 3.1(d) shall terminate upon the
Initial Offering.
3.2 Inspection Rights. So long as a Holder (with its affiliates)
shall own not less than one hundred thousand (100,000) shares of Registrable
Securities, each such Holder shall have the right to visit and inspect any of
the properties of the Company or any of its subsidiaries, and to discuss the
affairs, finances and accounts of the Company or any of its subsidiaries with
its officers, all at such reasonable times and as often as may be reasonably
requested; provided, however, that the Company shall not be obligated under
this Section 3.2 with respect to a competitor of the Company or with respect to
information which the Board of Directors determines in good faith is
confidential and should not, therefore, be disclosed.
3.3 Confidentiality of Records. Each Holder agrees to use, and to
use its best efforts to insure that its authorized representatives use, the
same degree of care as such Holder uses to protect its own confidential
information to keep confidential any information furnished to it which the
Company identifies as being confidential or proprietary (so long as such
information is not in the public domain), except that such Holder may disclose
such proprietary or confidential information to any partner, subsidiary,
Affiliate or parent of such Holder for the purpose of evaluating its investment
in the Company as long as such partner, subsidiary or parent is advised of the
confidentiality provisions of this Section 3.3.
3.4 Reservation of Series D Preferred Stock. Upon filing by the
Company of the Certificate of Designation (as defined in the Purchase
Agreement) with the Secretary of State of the State of Delaware and at all
times thereafter, the Company will reserve and keep available, solely for
issuance and delivery upon the conversion of the Convertible Debentures, all
Series D Preferred Stock issuable from time to time upon such conversion.
3.5 Reservation of Common Stock. Upon filing by the Company of
the Certificate of Designation (as defined in the Purchase Agreement) with the
Secretary of State of the State of Delaware and at all times thereafter, the
Company will reserve and keep available, solely for issuance and delivery upon
the conversion of the Series D Preferred Stock issuable upon conversion of the
Convertible Debentures, all Common Stock issuable from time to time upon such
conversion.
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IV. RIGHTS OF FIRST REFUSAL.
4.1 Subsequent Offerings. Each Holder shall have right of first
refusal to purchase its pro rata share of all Equity Securities that the
Company may, from time to time, propose to sell and issue after the date of
this Agreement, other than the Equity Securities excluded by Section 4.6
hereof. Each Holder's pro rata share is equal to the ratio of the number of
shares of Common Stock, assuming full conversion of all Convertible Debentures
and Registrable Securities owned by such Holder, held by such Holder
immediately prior to the issuance of such Equity Securities to the total number
of shares of the Company's outstanding Common Stock (including all shares of
Common Stock issuable upon conversion of the Convertible Debentures and
Registrable Securities).
4.2 Exercise of Rights. If the Company proposes to issue any
Equity Securities, it shall give each Holder written notice of its intention,
describing the Equity Securities, the price, and the terms and conditions upon
which the Company proposes to issue the same. Each Holder shall have fifteen
(15) days from the receipt of such notice to agree to purchase its pro rata
share of the Equity Securities for the price and upon the terms and conditions
specified in the notice by giving written notice to the Company and stating
therein the quantity of Equity Securities to be purchased. Notwithstanding the
foregoing, the Company shall not be required to offer or sell such Equity
Securities to any Holder who would cause the Company to be in violation of
applicable federal securities laws by virtue of such offer or sale.
4.3 Issuance of Equity Securities to Other Persons. If the Holders
fail to exercise in full the rights of first refusal, the Company shall have
ninety (90) days thereafter to sell the Equity Securities in respect of which
the Holders' rights were not exercised, at a price and upon terms and
conditions no more favorable to the purchaser thereof than specified in the
Company's notice to the Holders pursuant to Section 4.2 hereof. If the Company
has not sold such Equity Securities within such ninety (90) days, the Company
shall not thereafter issue or sell any Equity Securities, without first
offering such securities to the Holders in the manner provided above.
4.4 Termination of Rights of First Refusal. The rights of first
refusal established by this Article IV shall terminate upon the closing of the
Initial Offering.
4.5 Transfer or Rights of First Refusal. The rights of first
refusal of each Holder under this Article IV may be transferred to any
subsidiary or parent of such Holder, to any successor in interest to all or
substantially all the assets of such Holder, or to an assignee or transferee
who acquires Registrable Securities.
4.6 Excluded Securities. The rights of first refusal established
by this Article IV shall have no application to any of the following Equity
Securities:
(a) shares of Common stock (and/or options, warrants or
other Common Stock purchase rights issued pursuant to such options, warrants or
other rights) issued or to be issued to employees, officers or directors of, or
consultants or advisors to, the Company, pursuant to stock purchase or stock
option plans or other arrangements that are approved by the Board of Directors
of the Company;
(b) stock issued pursuant to any rights, options and
warrants granted after the date of this Agreement, provided that the rights of
first refusal established by this Article IV applied with respect to the initial
sale or grant by the Company of such rights, options or warrants;
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<PAGE> 71
(c) any Equity Securities issued for consideration other
than cash pursuant to a merger, consolidation, acquisition or similar business
combination;
(d) any Equity Securities that are issued by the Company
as part of the Initial Offering referred to in Section 4.4 hereof;
(e) shares of Common Stock issued in connection with any
stock split, stock dividend or recapitalization by the Company;
(f) shares of Common Stock issued upon conversion of the
Company's Preferred Stock; and
(g) shares of Series D Preferred Stock or Common Stock
issued upon conversion of the Convertible Debentures; and
(h) any Equity Securities issued pursuant to any
equipment leasing arrangement or commercial bank financing approved by the
Company's Board of Directors.
V. MISCELLANEOUS.
5.1 Governing Law. This Agreement shall be governed by and
construed under the laws of the State of California as applied to agreements
among California residents entered into and to be performed entirely within
California.
5.2 Survival. The representations, warranties, covenants, and
agreements made herein shall survive any investigation made by any Holder and
the closing of the transactions contemplated hereby. All statements as to
factual matters contained in any certificate or other instrument delivered by
or on behalf of the Company pursuant hereto in connection with the transactions
contemplated hereby shall be deemed to be representations and warranties by the
Company hereunder solely as of the date of such certificate or instrument.
5.3 Successors and Assigns. Except as otherwise expressly
provided herein, the provisions hereof shall inure to the benefit of, and be
binding upon, the successors, assigns, heirs, executors, and administrators of
the parties hereto and shall inure to the benefit of and be enforceable by each
person who shall be a holder of Registrable Securities from time to time;
provided, however, that prior to the receipt by the Company of adequate written
notice of the transfer of any Registrable Securities specifying the full name
and address of the transferee, the Company may deem and treat the person listed
as the holder of such shares in its records as the absolute owner and holder of
such shares for all purposes, including the payment of dividends or any
redemption price.
5.4 Separability. In case any provision of the Agreement shall be
invalid, illegal, or unenforceable, the validity, legality, and enforceability
of the remaining provisions shall not in any way be affected or impaired
thereby.
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5.5 Amendment and Waiver.
(a) Except as otherwise expressly provided, this
Agreement may be amended or modified only upon the written consent of the
Company and the holders of more than fifty percent (50%) of the Registrable
Securities.
(b) Except as otherwise expressly provided, the
obligations of the Company and the rights of the Holders under this Agreement
may be waived only with the written consent of the holders of more than fifty
percent (50%) of the Registrable Securities.
5.6 Delays or Omissions. It is agreed that no delay or omission
to exercise any right, power, or remedy accruing to any Holder, upon any
breach, default or noncompliance of the Company under this Agreement shall
impair any such right, power, or remedy, nor shall it be construed to be a
waiver of any such breach, default or noncompliance, or any acquiescence
therein, or of any similar breach, default or noncompliance thereafter
occurring. It is further agreed that any waiver, permit, consent, or approval
of any kind or character on any Holder's part of any breach, default or
noncompliance under this Agreement or any waiver on such Holder's part of any
provisions or conditions of this Agreement must be in writing and shall be
effective only to the extent specifically set forth in such writing. All
remedies, either under this Agreement, by law, or otherwise afforded to
Holders, shall be cumulative and not alternative.
5.7 Notices. All notices required or permitted hereunder shall be
in writing and shall be deemed effectively given: (i) upon personal delivery to
the party to be notified; (ii) upon receipt at the address on the signature page
hereto after having been sent by registered or certified mail, return receipt
requested, postage prepaid; or (iii) one (1) day after deposit with a
nationally recognized overnight courier, specifying next day delivery, with
written verification of receipt. All communications shall be sent to the party
to be notified at the address as set forth on the signature page hereof or at
such other address as such party may designate by ten (10) days advance written
notice to the other party hereto.
5.8 Attorneys' Fees. If legal action is brought to enforce or
interpret this Agreement, the prevailing party shall be entitled to recover its
reasonable attorneys' fees and legal costs in connection therewith.
5.9 Titles and Subtitles. The titles of the sections and
subsections of this Agreement are for convenience of reference only and are not
to be considered in construing this Agreement.
5.10 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
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<PAGE> 73
IN WITNESS WHEREOF, the parties hereto have executed this Investor's
Rights Agreement as of the date set forth in the first paragraph hereof.
AIR SOUTH AIRLINES, INC. H&Q AIR SOUTH INVESTORS, L.P.
By: /s/ By: /s/
--------------------------------- -----------------------------
Its: Chairman Its: Attorney-in-fact
-------------------------------- ----------------------------
Address: Address:
2625 Airport Blvd. One Bush Street
West Columbia, SC 29170 San Francisco, CA 94104
<PAGE> 74
EXHIBIT E
<PAGE> 75
EXHIBIT E
FORM OF OPINION
1. The Company has been duly incorporated and is a validly
existing corporation in good standing under the laws of the State of Delaware.
2. The Company has the requisite corporate power to own its
property and assets and to conduct its business as it is currently being
conducted and is qualified as a foreign corporation to do business and is in
good standing in each jurisdiction in the United States in which the ownership
of its property or the conduct of its business requires such qualification and
where the failure to so qualify would have a material adverse effect on the
Company, its assets, financial condition or operations.
3. The Company's authorized capital stock consists of (a)
___________ (__________) shares of Common Stock, $.001 par value, of which
___________ (___________) shares are issued and outstanding, and (b) Two
Million (2,000,000) shares of Preferred Stock, $.001 par value, of which (i)
One Million Two Hundred Fifty Thousand (1,250,000) shares have been designated
Series A Preferred Stock having a liquidation preference of Two Dollars ($2.00)
per share all of which shares are issued and outstanding; (ii) Six Hundred
Twenty-Five Thousand (625,000) shares have been designated Series B Preferred
Stock having a liquidation preference of Four Dollars ($4.00) per share all of
which shares are issued and outstanding; (iii) One Hundred Twenty Thousand
(120,000) shares have been designated Series C Preferred Stock having a
liquidation preference of Twelve Dollars and Fifty Cents ($12.50) per share all
of which shares are issued and outstanding; and (iv) Sixteen Million
(16,000,000) shares have been designated Series D Preferred Stock having a
liquidation preference of Twenty-Five Cents ($0.25) per share _________ of
which shares are issued and outstanding. The outstanding shares of Common
Stock and Preferred Stock have been duly authorized and validly issued and are
fully paid and nonassessable. The rights, preferences and privileges of the
Series A Preferred Stock are as stated in the Certificate of Incorporation.
The rights, preferences and privileges of the Series B Preferred Stock, Series
C Preferred Stock and Series D Preferred Stock are each set forth in their
respective Certificate of Designation filed by the Company with the Secretary
of State of Delaware. The shares of Common Stock issuable upon conversion of
the Preferred Stock have been duly authorized and reserved. To our knowledge,
there are no preemptive rights, rights of first refusal or rights of co-sale
which exist with respect to the issuance and sale of the Debentures that have
not been waived.
The Company has reserved _________ shares of Common Stock for issuance
upon the exercise of: (i) options to purchase shares of Common Stock pursuant
to its various stock option plans for directors, officers and employees; (ii)
and warrants to purchase shares of Common Stock which have been issued to a
supplier, former employees, consultants to the Company, a bank lender to the
Company and the guarantor of certain bank debt of the Company. Other than as
set forth above and except as may be granted pursuant to (i) that certain
Investor's Rights Agreement entered into as of December 29, 1995 between the
Company and purchasers of the Company's Series B Preferred Stock; (ii) that
certain Investor's Rights Agreement entered into as of May 24, 1996 between the
Company and purchasers of the Company's Series B Preferred Stock; (iii) that
certain Investor's Rights Agreement entered into as of June __, 1996 between
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<PAGE> 76
the Company and purchasers of the Company's Series C Preferred Stock and (iv)
that certain Investor's Rights Agreement entered into as of July __, 1996
between the Company and purchasers of the Company's Convertible Debentures,
there are no outstanding options, warrants, rights (including conversion or
preemptive rights), proxy or stockholder agreements, or agreements of any kind
for the purchase or acquisition from the Company of any of it securities.
4. To the best of such counsel's knowledge, there is no action,
proceeding or investigation pending or overtly threatened against the Company
before any court or administrative agency that questions the validity of the
shares of Series D Preferred Stock issuable upon conversion of the Convertible
Debentures (the "Shares") or that might result, either individually or in the
aggregate, in any material adverse change in the business, condition (financial
or otherwise), properties or results of operations of the Company.
5. All consents, approvals, authorizations, or orders of, and
filings, registrations, and qualifications with any regulatory authority or
governmental body in the United States required for the issuance of the Shares
have been made or obtained.
6. The issuance of the Shares is exempt from the registration
requirements of the Securities Act of 1933, as amended.
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<PAGE> 77
EXHIBIT F
<PAGE> 78
EXHIBIT F
FORM OF OPINION
1. The Company has been duly incorporated and is a validly
existing corporation in good standing under the laws of the State of Delaware.
2. The Company has the requisite corporate power to own its
property and assets and to conduct its business as it is currently being
conducted and is qualified as a foreign corporation to do business and is in
good standing in each jurisdiction in the United States in which the ownership
of its property or the conduct of its business requires such qualification and
where the failure to so qualify would have a material adverse effect on the
Company, its assets, financial condition or operations.
3. The Convertible Debenture Purchase Agreement (the "Purchase
Agreement") and the Investor's Rights Agreement (the "Rights Agreement") have
been duly and validly authorized, executed and delivered by the Company and
constitute valid and binding agreements of the Company enforceable against the
Company in accordance with their terms, except as rights to indemnity under
Section 2.8 of the Rights Agreement may be limited by applicable laws and
except as enforcement of such agreements may be limited by applicable
bankruptcy, insolvency, reorganization, arrangement, moratorium or other
similar laws affecting creditor's rights, and subject to general equity
principles and to limitations on availability of equitable relief, including
specific performance.
4. The Convertible Debentures have been duly and validly
authorized, executed and delivered by the Company and constitute valid and
binding agreements of the Company enforceable against the Company in accordance
with their terms, except as enforcement of the Debentures may be limited by
applicable bankruptcy, insolvency, reorganization, arrangement, moratorium or
other similar laws affecting creditor's rights, and subject to general equity
principles and to limitations on availability of equitable relief, including
specific performance.
5. The Company's authorized capital stock consists of (a)
Eighteen Million (18,000,000) shares of Common Stock, $.001 par value, of
which _________ (_________) shares are issued and outstanding, and (b) Two
Million (2,000,000) shares of Preferred Stock, $.001 par value, of which (i)
One Million Two Hundred Fifty Thousand (1,250,000) shares have been designated
Series A Preferred Stock having a liquidation preference of Two Dollars ($2.00)
per share all of which shares are issued and outstanding; (ii) Six Hundred
Twenty-Five Thousand (625,000) shares have been designated Series B Preferred
Stock having a liquidation preference of Four Dollars ($4.00) per share all of
which shares are issued and outstanding; and (iii) One Hundred Twenty Thousand
(120,000) shares have been designated Series C Preferred Stock having a
liquidation preference of Twelve Dollars and Fifty Cents ($12.50) per share all
of which shares are issued and outstanding. The outstanding shares of Common
Stock and Preferred Stock have been duly authorized and validly issued and are
fully paid and nonassessable. The rights, preferences and privileges of the
Series A Preferred Stock are as stated in the Certificate of Incorporation.
The rights, preferences and privileges of the Series B Preferred Stock are as
set forth in a Certificate of Designation filed by the Company with the
Secretary of State of Delaware. The rights, preferences and privileges of the
Series C Preferred
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Stock are as set forth in a Certificate of Designation filed by the Company
with the Secretary of State of Delaware. The shares of Common Stock issuable
upon conversion of the Preferred Stock have been duly authorized and reserved.
To our knowledge, there are no preemptive rights, rights of first refusal or
rights of co-sale which exist with respect to the issuance and sale of the
Debentures that have not been waived.
The Company has reserved _________ shares of Common Stock (the
"Reserved Shares") for issuance upon the exercise of: (i) options to purchase
shares of Common Stock pursuant to its various stock option plans for
directors, officers and employees; and (ii) warrants and options to purchase
shares of Common Stock which have been issued to a supplier, former employees,
consultants to the Company and the guarantor of certain bank debt of the
Company. To the best of such counsel's knowledge, after inquiry, other than
(a) rights to convert issued and outstanding shares of Preferred Stock, (b) the
options and warrants related to the Reserved Shares and (c) as may be granted
that certain Investor's Rights Agreement entered into as of December 29, 1995
between the Company and purchasers of the Company's Series B Preferred Stock;
(ii) that certain Investor's Rights Agreement entered into as of May 24, 1996
between the Company and purchasers of the Company's Series B Preferred Stock
and (iii) those certain Investor's Rights Agreement entered into as of June 14,
1996 and June 28, 1996 between the Company and purchasers of the Company's
Series C Preferred Stock, there are no outstanding options, warrants, rights
(including conversion or preemptive rights), proxy or stockholder agreements,
or agreements of any kind for the purchase or acquisition from the Company of
any of it securities.
6. The execution and delivery of the Purchase Agreement and the
Rights Agreement by the Company and the consummation of the transactions
contemplated thereby do not violate any provisions of the Company's Certificate
of Incorporation or By-Laws, and do not constitute a material default under the
provisions of any material agreement known to such counsel to which the Company
is a party or by which it is bound, and do not violate or contravene (a) any
governmental statute, rule or regulation applicable to the Company or (b) any
order, writ, judgment, injunction, decree, determination or award which has
been entered against the Company and of which such counsel is aware, the
violation or contravention of which would have a Material Adverse Effect (as
defined in the Purchase Agreement).
7. To the best of such counsel's knowledge, there is no action,
proceeding or investigation pending or overtly threatened against the Company
before any court or administrative agency that questions the validity of the
Convertible Debentures, the Purchase Agreement or the Rights Agreement or that
might result, either individually or in the aggregate, in any Material Adverse
Effect.
8. All consents, approvals, authorizations, or orders of, and
filings, registrations, and qualifications with any regulatory authority or
governmental body in the United States required for the consummation by the
Company of the transactions contemplated by the Purchase Agreement, have been
made or obtained, except for the filing of a Notice of Transaction pursuant to
Section 25102(f) of the California Corporate Securities Law of 1968.
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9. The offer and sale of the Convertible Debentures is exempt
from the registration requirements of the Securities Act of 1933, as amended.
The qualification of an indenture in respect of the Convertible Debentures
under the Trust Indenture Act of 1939, as amended, is not required in
connection with the offer, issue, sale and delivery of the Convertible
Debentures.
10. The issue and sale of the Convertible Debentures and the
carrying out of any of the other transactions contemplated in the Purchase
Agreement will not violate Regulation G of the Board of Governors of the
Federal Reserve System (12 C.F.R. 207, as amended) or Regulation U (12 C.F.R.
221, as amended), Regulation T (12 C.F.R. 220, as amended) or Regulation X (12
C.F.R. 224, as amended) or any other regulation of such Board.
F-3
<PAGE> 81
CONVERTIBLE DEBENTURE PURCHASE AGREEMENT
SCHEDULE 4.04
(1) The Company's Series A, Series B and Series C Preferred Stock
have: (a) rights to convert their shares to shares of Common Stock par value
$0.001 per share ("Common Stock") of the Company; (b) a right of first refusal
as to any additional issues of equity securities of the Company; and (c)
anti-dilution rights in the event of certain issuances of equity securities.
(2) The Company has reserved 10,384,833 shares of Common Stock
pursuant to (i) its various stock option plans for directors, officers and
employees; (ii) warrants to purchase shares of Common Stock which have been
issued to a supplier, certain former employees, consultants to the Company,
and the guarantor of certain bank debt of the Company; and (iii) conversion
rights of the Company's Series A Preferred Stock, Series B Preferred Stock and
Series C Preferred Stock.
(3) The Company believes that certain of its shareholders may hold
proxies from family members and others to whom they have transferred shares of
Common Stock; however, the Company does not believe that such proxies cover
more than an insubstantial number of shares.
(4) The Company believes that substantially all of its outstanding
securities were issued in compliance with all applicable federal and state
securities laws; however, as to an insubstantial number of shares of Common
Stock, the Company does not have sufficient knowledge of the circumstances of
their issuance to make an informed judgment as to their having been issued in
compliance with such laws.
<PAGE> 82
CONVERTIBLE DEBENTURE PURCHASE AGREEMENT
SCHEDULE 4.06
(i) Issuances of Stocks, Bonds or Other Corporate Securities
(a) On May 24, 1996 the Company issued 625,000 shares of its
Series B Preferred Stock
(b) On June 14, 1996 the Company issued 40,000 shares of its
Series C Preferred Stock.
(c) On June 26, 1996 the Company issued 80,000 shares of its
Series C Preferred Stock.
(d) On July 17, 1996 the Company issued 100,000 shares of Common
Stock par value $0.001 per share to its Chief Executive
Officer in fulfillment of an incentive to his employment.
(e) On April 26, 1996 the Company issued to H&Q Group a warrant
exercisable for 400,000 shares of Series A Preferred Stock.
(ii) Incurrence of Liabilities
(a) On March 29, 1996 the Company entered into a $1 Million
Revolving Line of Credit (the "NationsBank Line") with
NationsBank, N.A. $500,000 has been drawn against such line
of credit.
(b) On April 26, 1996 the Company closed a $2 Million loan with
National Bank of South Carolina guaranteed by Hambrecht &
Quist Group.
(c) On May 17, 1996, the Company entered into a $1 Million demand
loan with H&Q. This loan was repaid with proceeds from the
Series B Preferred Stock financing.
(d) On July 17 and July 18, 1996, the Company entered into demand
loans with H&Q for $250,000 and $800,000, respectively.
(e) On August 1 and August 8, 1996, the Company entered into
demand loans with H&Q for $1,000,000 and $250,000,
respectively.
(f) On August 13, 1996, the Company entered into a demand loan
with H&Q for $250,000.
<PAGE> 83
(g) On August 15, 1996, the Company entered into a demand loan
with H&Q for $250,000.
(iii) Mortgages, Pledges and Creation of Liens
In connection with the NationsBank Line the Company granted a first
lien on substantially all its assets.
(iv) Sale of Assets
On April 26, 1996 the Company sold $441,400 of its aircraft parts
inventory under an agreement by which it would repurchase certain of
such parts from time-to-time on an as needed basis.
(v) Change in Business Operations
Beginning on March 14, 1996 the Company changed its business plan from
being a Southeastern regional airline to one providing service from
underserved cities in the Southeast to high population density areas
of the Northeast and Midwest.
(vi) Redemptions
On January 2, 1996, the Company redeemed 250,000 shares of its Common
Stock, par value $0.001 per share held by Patrick J. O'Shea, the
former President of the Company, and certain other persons designated
by him for $2.00 per share.
<PAGE> 84
CONVERTIBLE DEBENTURE PURCHASE AGREEMENT
SCHEDULE 4.07
The Company is in violation of the following instruments or contracts as to
which it is a party.
(a) Air South, Inc. (now Air South Airlines, Inc.) HUD Section 108
Loan Program.
(b) Revolving Credit Facility with NationsBank, N.A.
(c) Loan Agreement with the National Bank of South Carolina.
(d) Aircraft leases on five Boeing 737 aircraft leased through GE
Capital Aviation Services, Inc.
<PAGE> 85
CONVERTIBLE DEBENTURE PURCHASE AGREEMENT
SCHEDULE 4.08
The Company is the subject of an inquiry from the United States Department of
Transportation (the "DOT") with regard to its fitness to be a certificated air
carrier. The inquiry stated that it arose as a result of publicity concerning
a dispute between the Company and the Hillsborough County Aviation Authority
over the Company's cessation of operations at and non payment of rent for Tampa
International Airport, Florida. The Company has responded to the inquiry.
Through its counsel, Bageles, Silverberg & Goldman of Washington, D.C., the
Company has received additional inquiries from the DOT. A copy of the
Memorandum dated August 7, 1996 from such counsel to the Company describing
such inquiries has been delivered to Cooley Godward Castro Huddleson & Tatum,
counsel to the Purchaser.
<PAGE> 86
CONVERTIBLE DEBENTURE PURCHASE AGREEMENT
SCHEDULE 4.10
All of the properties and assets of the Company are subject to security
interests created by:
(a) the HUD Loan; and
(b) that certain loan from NationsBank, N.A. to the Company made
March 29, 1996.
<PAGE> 87
CONVERTIBLE DEBENTURE PURCHASE AGREEMENT
SCHEDULE 4.11
The Company is in default in one or more respects, including the making of
lease payments thereon as to the following leases of property, real or
personal:
(a) Aircraft Lease Agreement for five Boeing 737 aircraft arranged
through GE Capital Aviation Services, Inc.
(b) Terminated lease and other agreements with Hillsborough County
Aviation Authority relating to the Company's operations
(discontinued since April 5, 1996) at Tampa International
Airport, Florida.
<PAGE> 88
CONVERTIBLE DEBENTURE PURCHASE AGREEMENT
SCHEDULE 4.14
The outstanding Debt of the Company consists of:
(a) debt incurred pursuant to the HUD Loan of which $12 million is
outstanding on the date hereof;
(b) debt incurred pursuant to a loan from NationsBank N.A. to the
Company, of which $500,000 is outstanding on the date hereof;
(c) debt incurred pursuant to a loan from the National Bank of
South Carolina to the Company of which $2 million is
outstanding on the date hereof; and
(d) debt incurred on July 17 and July 18, 1996 pursuant to demand
notes from H&Q for $250,000 and $800,000, respectively.
(e) debt incurred on August 1 and August 8, 1996 pursuant to
demand notes from H&Q for $1,000,000 and $250,000,
respectively.
(f) debt incurred on August 13, 1996 pursuant to a demand note
from H&Q for $250,000.
(g) debt incurred on August 15, 1996 pursuant to a demand note
from H&Q for $250,000.
<PAGE> 1
EXHIBIT 4.13
CONVERTIBLE DEBENTURE PURCHASE AGREEMENT
BETWEEN
AIR SOUTH AIRLINES, INC.
AND
GODLEY GROUP LTD.
DATED AS OF SEPTEMBER 4, 1996
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I DEFINITIONS
SECTION 1.01. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II PURCHASE AND SALE OF CONVERTIBLE DEBENTURES
SECTION 2.01. ISSUANCE, SALE AND DELIVERY OF THE CONVERTIBLE
DEBENTURES . . . . . . . . . . . . . . . . . . . . . . . . . . 6
SECTION 2.02. CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
ARTICLE III CONVERSION
SECTION 3.01. CONVERSION; NUMBER . . . . . . . . . . . . . . . . . . . . . . 7
SECTION 3.02. CONVERSION PROCEDURE . . . . . . . . . . . . . . . . . . . . . 7
SECTION 3.03. REPRESENTATIONS, WARRANTIES, COVENANTS, NO
DEFAULT; CONDITIONS PRECEDENT TO CONVERSION . . . . . . . . . . 7
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE COMPANY
SECTION 4.01. ORGANIZATION, QUALIFICATIONS AND CORPORATE
POWER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
SECTION 4.02. AUTHORIZATION . . . . . . . . . . . . . . . . . . . . . . . . . 8
SECTION 4.03. VALIDITY . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
SECTION 4.04. CAPITALIZATION . . . . . . . . . . . . . . . . . . . . . . . . 9
SECTION 4.05. FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . 10
SECTION 4.06. EVENTS SUBSEQUENT TO THE DATE OF THE BALANCE
SHEET . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
SECTION 4.07. COMPLIANCE WITH INSTRUMENTS . . . . . . . . . . . . . . . . . . 10
SECTION 4.08. LITIGATION . . . . . . . . . . . . . . . . . . . . . . . . . . 11
SECTION 4.09. COMPLIANCE WITH LAW . . . . . . . . . . . . . . . . . . . . . . 11
SECTION 4.10. TITLE TO PROPERTIES . . . . . . . . . . . . . . . . . . . . . . 11
SECTION 4.11. LEASEHOLD INTERESTS . . . . . . . . . . . . . . . . . . . . . . 11
SECTION 4.12. TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
SECTION 4.13. PATENTS, TRADEMARKS, ETC. . . . . . . . . . . . . . . . . . . . 12
SECTION 4.14. OUTSTANDING DEBT; LOANS AND ADVANCES . . . . . . . . . . . . . 13
SECTION 4.15. GUARANTEES . . . . . . . . . . . . . . . . . . . . . . . . . . 13
SECTION 4.16. GOVERNMENTAL APPROVALS . . . . . . . . . . . . . . . . . . . . 13
SECTION 4.17. DISCLOSURE . . . . . . . . . . . . . . . . . . . . . . . . . . 13
SECTION 4.18. BROKERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
SECTION 4.19. SECURITIES ACT . . . . . . . . . . . . . . . . . . . . . . . . 13
SECTION 4.20. MARGIN REGULATIONS . . . . . . . . . . . . . . . . . . . . . . 14
SECTION 4.21. INSURANCE COVERAGE . . . . . . . . . . . . . . . . . . . . . . 14
SECTION 4.22. ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
SECTION 4.23. ENVIRONMENTAL COMPLIANCE . . . . . . . . . . . . . . . . . . . 15
SECTION 4.24. PERMITS AND LICENSES . . . . . . . . . . . . . . . . . . . . . 15
SECTION 4.25 BOARD COMPOSITION . . . . . . . . . . . . . . . . . . . . . . . 15
ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
SECTION 5.01. REPRESENTATIONS AND WARRANTIES OF THE
PURCHASER . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
ARTICLE VI CONDITIONS TO THE OBLIGATIONS OF THE PURCHASER . . . . . . . . . . . . . . . . . 16
SECTION 6.01. CONDITIONS TO THE OBLIGATION OF THE PURCHASER . . . . . . . . . 16
ARTICLE VII CONDITIONS TO THE OBLIGATIONS OF THE COMPANY
SECTION 7.01. CONDITIONS TO THE OBLIGATIONS OF THE COMPANY . . . . . . . . . 18
ARTICLE VIII COVENANTS OF THE COMPANY
SECTION 8.01. FINANCIAL STATEMENTS AND REPORTS . . . . . . . . . . . . . . . 19
SECTION 8.02. CORPORATE EXISTENCE . . . . . . . . . . . . . . . . . . . . . . 21
SECTION 8.03. MAINTENANCE OF PROPERTIES AND INSURANCE . . . . . . . . . . . . 21
SECTION 8.04. INSPECTION, CONSULTATION AND ADVICE . . . . . . . . . . . . . . 21
SECTION 8.05. RESTRICTIVE AGREEMENTS PROHIBITED . . . . . . . . . . . . . . . 22
SECTION 8.06. TRANSACTIONS WITH AFFILIATES . . . . . . . . . . . . . . . . . 22
SECTION 8.07. USE OF PROCEEDS . . . . . . . . . . . . . . . . . . . . . . . . 22
SECTION 8.08 SUBSIDIARIES . . . . . . . . . . . . . . . . . . . . . . . . . 22
SECTION 8.09. COMPLIANCE WITH LAWS . . . . . . . . . . . . . . . . . . . . . 22
SECTION 8.10. KEEPING OF RECORDS AND BOOKS OF ACCOUNT . . . . . . . . . . . . 22
SECTION 8.11. OBLIGATIONS AND TAXES . . . . . . . . . . . . . . . . . . . . . 22
SECTION 8.12. TRANSFER AND EXCHANGE OF CONVERTIBLE
DEBENTURES; LOST CONVERTIBLE DEBENTURES . . . . . . . . . . . . 23
SECTION 8.13. LIMITATION ON DEBT . . . . . . . . . . . . . . . . . . . . . . 23
SECTION 8.14. LIMITATION ON LIENS . . . . . . . . . . . . . . . . . . . . . . 23
SECTION 8.15. LIMITATION ON RESTRICTED PAYMENTS . . . . . . . . . . . . . . . 24
SECTION 8.16 COVENANT REGARDING STOCKHOLDER VOTE AND
FILING OF CERTIFICATE OF DESIGNATION . . . . . . . . . . . . . 24
ARTICLE IX EVENTS OF DEFAULT
SECTION 9.01. ACCELERATION . . . . . . . . . . . . . . . . . . . . . . . . . 25
SECTION 9.02. RESCISSION OF ACCELERATION . . . . . . . . . . . . . . . . . . 27
SECTION 9.03. NOTICE OF ACCELERATION OR RESCISSION . . . . . . . . . . . . . 27
SECTION 9.04. OTHER REMEDIES . . . . . . . . . . . . . . . . . . . . . . . . 28
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C>
ARTICLE X MISCELLANEOUS
SECTION 10.01. PAYMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
SECTION 10.02. EXPENSES . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
SECTION 10.03. CONSENT TO AMENDMENTS . . . . . . . . . . . . . . . . . . . . . 29
SECTION 10.04. PERSONS DEEMED OWNERS; PARTICIPATIONS . . . . . . . . . . . . . 29
SECTION 10.05. SURVIVAL OF REPRESENTATIONS AND WARRANTIES . . . . . . . . . . 30
SECTION 10.06. BROKERAGE . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
SECTION 10.07. PARTIES IN INTEREST . . . . . . . . . . . . . . . . . . . . . . 30
SECTION 10.09 NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
SECTION 10.09 ENTIRE AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . 31
SECTION 10.10. COUNTERPARTS . . . . . . . . . . . . . . . . . . . . . . . . . 32
SECTION 10.11. SEVERABILITY . . . . . . . . . . . . . . . . . . . . . . . . . 32
SECTION 10.12. DESCRIPTIVE HEADINGS . . . . . . . . . . . . . . . . . . . . . 32
SECTION 10.13. GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . . . . . 32
SECTION 10.14. Gender; Plurals . . . . . . . . . . . . . . . . . . . . . . . . 32
EXHIBITS
EXHIBIT A Form of Convertible Debenture
EXHIBIT B Form of Certificate of Designation
EXHIBIT C Certificate of Incorporation
EXHIBIT D Form of Investors Rights Agreement
EXHIBIT E Form of Opinion of General Counsel
SCHEDULES
SCHEDULE 4.04 Outstanding Options, Warrants, Etc.
SCHEDULE 4.06 Events Subsequent to Balance Sheet
SCHEDULE 4.07 Violations, Defaults
SCHEDULE 4.08 Defaults
SCHEDULE 4.11 Leasehold Interests
SCHEDULE 4.14 Existing Debt
</TABLE>
iii
<PAGE> 5
CONVERTIBLE DEBENTURE PURCHASE AGREEMENT
CONVERTIBLE DEBENTURE PURCHASE AGREEMENT ("Agreement"), dated as of
September 4, 1996, between AIR SOUTH AIRLINES, INC., a Delaware corporation
(the "Company"), and GODLEY GROUP, LTD., a North Carolina corporation (the
"Purchaser").
RECITALS
WHEREAS, the Company wishes to issues and sell to the Purchaser its
convertible debenture (herein, together with any such convertible debentures
which may be issued pursuant to any provision of this Agreement, and any such
convertible debentures which may be used in substitution or exchange thereon,
collectively called the "Convertible Debentures" and individually called a
"Convertible Debenture") in the original aggregate principal amount of
$500,000, to be dated the date of issue, to mature August 16, 1999, to bear
interest on the unpaid balances thereof from the date thereof until the
principal shall have become due and payable at the rate of 6% per annum, which
interest shall be deferred and added to the outstanding principal balance of
the Convertible Debentures, and to be substantially in the form of Exhibit A
attached hereto; and such Convertible Debenture will be a part of up to
$4,000,000 of convertible debentures having identical terms (other than as to
the purchaser, date and amount) which the Company may sell pursuant to a
convertible debenture purchase agreement and an investor's rights agreement
having the same terms as this Agreement and the Investor's Rights Agreement.
WHEREAS, the Purchaser wishes to purchase the Convertible Debenture on
the terms and subject to the conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the above recitals, the mutual
promises contained herein and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto do
hereby agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. DEFINITIONS. As used herein, unless the context
otherwise requires, the following terms have the following meanings
specified with respect thereto below:
"AGREEMENT" shall mean this Convertible Debenture Purchase
Agreement, as the same may be amended or supplemented and in effect
from time to time.
1
<PAGE> 6
"AMENDMENT" shall have the meaning ascribed thereto in Section
8.16.
"BALANCE SHEET" shall have the meaning ascribed thereto in
Section 4.05.
"BANKRUPTCY LAW" shall have the meaning ascribed thereto in
Section 9.01.
"BLANK CHECK PREFERRED STOCK" shall have the meaning ascribed
thereto in Section 4.04.
"BUSINESS DAY" shall mean any day which is not a Saturday or
Sunday or a national banking holiday.
"BY-LAWS" shall mean the By-laws of the Company, as amended.
"CERTIFICATE OF DESIGNATION" shall mean the Certificate of
Designation of the Company to be substantially in the form of Exhibit B
attached hereto.
"CERTIFICATE OF INCORPORATION" shall mean the Certificate of
Incorporation of the Company, including all amendments thereto through
the date hereof, including any amendments effected by means of a
certificate of designation, a copy of which is attached hereto as
Exhibit C.
"CLOSING" shall have the meaning ascribed thereto in Section
2.02.
"CLOSING DATE" shall have the meaning ascribed thereto in
Section 2.02.
"CODE" shall mean the Internal Revenue Code of 1986, as
amended.
"COMMISSION" shall mean the Securities and Exchange
Commissions or any other federal agency at the time administering the
Securities Act.
"COMMON CONVERSION SHARES" shall mean the shares of Common
Stock issuable upon conversion of the Preferred Conversion Shares.
"COMMON STOCK" shall mean the Common Stock, par value $0.001
per share, of the Company.
"COMPANY" shall have the meaning ascribed thereto in the
preamble.
"CONVERTIBLE DEBENTURE" shall have the meaning ascribed
thereto in the preamble.
2
<PAGE> 7
"CONVERSION" shall have the meaning ascribed thereto in
Section 3.01.
"CONVERSION NOTICE" shall mean the notice of conversion in the
form attached to the Convertible Debenture, which notice shall set
forth the name of the registered owner of the Convertible Debenture
being converted and the principal balance, or portion thereof, being
converted.
"CURRENT DEBT" shall mean, with respect to any Person, all
Indebtedness of such Person for borrowed money which by its terms or
by the terms of any instrument or agreement relating thereto matures
on demand or within one year from the date of the creation thereof and
is not directly or indirectly renewable or extendible at the option of
the debtor to a date more than one year from the date of the creation
thereof.
"DEBT" shall mean Current Debt and Funded Debt.
"ERISA" shall mean the Employee retirement Income Security Act
of 1974, as amended.
"ERISA AFFILIATE" shall mean any corporation which is a member
of the same controlled group of corporations as the Company within the
meaning of Section 414(b) of the Code, or any trade of business which
is under common control with the Company withing the meaning of
Section 414(C) of the Code, or any other entity which is considered to
be a single employer with the Company pursuant to Sections 414(m), (n)
or (o) of the Code.
"EVENT OF DEFAULT" shall mean any of the events specified in
Section 9.01 provided that there has been satisfied any requirement in
connection with such event for the giving of notice, or the lapse of
time, or the happening of any further condition, event or act, and
"DEFAULT" shall mean any of such events, whether or not any such
requirement has been satisfied.
"EXISTING DEBT" shall have the meaning ascribed thereto in
Section 4.14.
"FUNDED DEBT" shall mean, with respect to any Person, all
Indebtedness of such Person which by its terms or by the terms of any
instrument or agreement relating thereto matures, or which is
otherwise payable or unpaid, more than one year from, or is directly
or indirectly renewable or extendible at the option of the debtor to a
date more than one year from, the date of the creation thereof.
"GUARANTEE" shall mean, with respect to any Person, any direct
or indirect liability, contingent or otherwise, of such Person with
respect to any indebtedness, lease, dividend or other obligation of
another, including, without limitation, any such
3
<PAGE> 8
obligation directly or indirectly guaranteed, endorsed (otherwise than
for collection or deposit in the ordinary course of business) or
discounted or sold with recourse by such Person, or in respect of which
such Person is otherwise directly or indirectly liable, including,
without limitation, any such obligation in effect guaranteed by such
Person through any agreement (contingent or otherwise) to purchase,
repurchase or otherwise acquire such obligation or any security
therefor, or to provide funds for the payment of discharge of such
obligation (whether in the form of loans, advances, stock purchases,
capital contributions or otherwise), or to maintain the solvency or any
balance sheet or other financial condition of the obligor of such
obligation, or to make payment for any products, materials or supplies
or for any transportation or services regardless of the non-delivery or
non-furnishing thereof, in any such case if the purpose or intent of
such agreement is to provide assurance that such obligation will be
paid or discharged, or that any agreements relating thereto will be
complied with, or that the holders or such obligation will be
protected against loss in respect thereof.
"HUD LOAN" shall mean that certain loan to the Company by
Lexington County, South Carolina pursuant to the United States
Department of Housing and Urban Development Section 108 Loan Program.
"INDEBTEDNESS" shall mean, with respect to any Person, without
duplication, (I) all items which in accordance with generally accepted
accounting principles would be included in determining total
liabilities as shown on the liability side of a balance sheet of such
Person as of the date on which Indebtedness is to be determined, (ii)
all indebtedness secured by any Lien on any property or asset owned or
held by such Person subject thereto, whether or not the indebtedness
secured thereby shall have been assumed, and (iii) all indebtedness of
others with respect to which such Person has become liable by way of a
Guarantee.
"INTELLECTUAL PROPERTY" shall have the meaning ascribed
thereto in Section 4.13.
"INVESTOR'S RIGHT AGREEMENT" shall mean the Investor's Right
Agreement, dated the date hereof, between the Company and the
Purchaser, a copy of which is attached hereto as Exhibit D.
"LIEN" shall mean any mortgage, pledge, priority, security
interest, encumbrance, lien (statutory or otherwise) or charge of any
kind (including any agreement to give any of the foregoing, any
conditional sale or other title retention agreement, any lease in the
nature thereof, and the filing of or agreement to give any financing
statement under the Uniform Commercial Code of any jurisdiction) or
any other type of preferential arrangement for the purpose, or having
the effect, of protecting a creditor against loss or securing the
payment or performance of an obligation.
4
<PAGE> 9
"MATERIAL ADVERSE EFFECT" shall mean a material adverse effect
on the assets, business, operations or financial condition of the
Company.
"MULTIEMPLOYER PLAN" shall mean any Plan which is a
"multiemployer plan" (as such term is defined in Section 4001(a)(3) of
ERISA).
"OFFICER'S CERTIFICATE" shall mean a certificate signed in the
name of the Company by its Chairman of the Board, President and Chief
Executive Officer, Chief Financial Officer, one of its Vice Presidents
or its General Counsel and Secretary.
"PBGC" shall mean the Pension Benefit Guaranty Corporation or
any successor entity.
"PERSON" shall mean a corporation, an association, a
partnership, an organization, a business, an individual, a
governmental or political subdivision thereof or a governmental agency.
"PLAN" shall mean any "employee pension benefit plan" (as such
term is defined in Section 3(2) of ERISA) which is or has been
established or maintained, or to which contributions are or have been
made, by the Company or any ERISA Affiliate.
"PREFERRED CONVERSION SHARES" shall mean the shares of Series
E Preferred Stock issuable upon conversion of the Convertible
Debentures as set forth in Article III hereof.
"PREFERRED STOCK" shall mean all classes or series of
preferred stock, par value $0.001 per share, of the Company.
"PURCHASER" shall have the meaning ascribed thereto in the
preamble.
"RESTRICTED PAYMENT" shall mean (I) the declaration, payment
or setting apart of any sum for payment of dividend (including a
dividend payable in capital stock of the Company) on, or any
distribution (including a distribution in capital stock of the
Company) in respect of, any shares of capital stock of the Company or
any warrants, rights or options to purchase any shares of capital
stock of the Company or (ii) the redemption, repurchase, retirement or
other acquisition of (or the setting apart of any sum in respect of
any of the foregoing actions) any shares of capital stock of the
Company or any warrants, rights or options to purchase or acquire any
shares of capital stock.
5
<PAGE> 10
"SECURITIES" shall have the meaning ascribed
thereto in Section 4.19.
"SECURITIES ACT" shall have the meaning ascribed thereto in
Section 4.19.
"SERIES E PREFERRED STOCK" shall mean shares of Series E
Preferred Stock of the Company.
"Stockholder Approval" shall have the meaning ascribed
thereto in Section 8.16.
"SUBSIDIARY" shall mean, as to the Company, any corporation of
which more than 50% of the outstanding stock having ordinary voting
power to elect a majority of the Board of Directors of such
corporation (irrespective of whether or not at the time stock of any
other class or classes shall have or might have voting power by reason
of the happening of any contingency) is at the time directly or
indirectly owned by the Company, or by one or more of its
subsidiaries.
"TRANSFEREE" shall mean any direct or indirect transferee of
all or any part of any Convertible Debenture purchased by the
Purchaser under this Agreement.
ARTICLE II
PURCHASE AND SALE OF CONVERTIBLE DEBENTURES
SECTION 2.01. ISSUANCE, SALE AND DELIVERY OF THE CONVERTIBLE
DEBENTURES. The Company agrees to issue and sell to Purchaser and the
Purchaser hereby agrees to purchase from the Company, the Convertible
Debentures in the aggregate principal amount of $500,000 at 100% of such
aggregate principal amount.
SECTION 2.02. CLOSING. The closing shall take place at the offices
of Air South Airlines, Inc., 2625 Airport Boulevard, West Columbia, SC 29170 at
12:30 o'clock p.m. Eastern Daylight Savings Time, on September 4, 1996, or at
such other location, date and time as may be agreed upon between the Purchaser
and the Company (such closing being called the "Closing" and such date and time
being called the "Closing Date"). At the Closing, the Company shall issue and
deliver to the Purchaser one or more Convertible Debentures, registered in the
name of such Purchaser, evidencing the aggregate principal amount of
Convertible Debentures to be purchased by the Purchaser at the Closing, and in
the denomination or denominations specified in writing by the Purchaser. As
payment in full for the Convertible Debentures being purchased by the Purchaser
under this Agreement, on the Closing Date the Purchaser shall deliver to the
Company a check payable to the order of the Company, in the amount of the
purchase price or shall transfer such sum to the account of the Company by wire
transfer, or shall deliver to the Company
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notes evidencing indebtedness of the Company for cancellation thereof, or any
combination of the foregoing.
ARTICLE III
CONVERSION
SECTION 3.01. CONVERSION; NUMBER. The holder of any Convertible
Debenture, at its option, will be entitled at any time commencing three (3)
Business Days after Stockholder Approval and ending on the close of business on
the final maturity date of the Convertible Debentures to convert any
Convertible debentures, or portions thereof, into shares of Series E Preferred
Stock. The Convertible Debenture will automatically be converted into shares
of Series E Preferred Stock upon the closing of a firmly underwritten public
offering of Common Stock on a Form S-1 Registration Statement at an Aggregate
public offering price (after underwriting discounts and commissions) of at
least $10,000,000 and a per share price equal to or greater than $4.00 (as
appropriately adjusted for stock splits and the like). In either case (each of
which is sometimes hereinafter referred to as a "Conversion"), the number of
shares of Series E Preferred Stock to be issued upon such Conversion shall be
determined by dividing the aggregate principal balance of the Convertible
Debenture to then be converted by twenty-five hundredths (0.25). The Company
is not required to issued fractional shares of Series E Preferred Stock upon
conversion of any Convertible Debenture and, in lieu thereof, will pay a cash
adjustment.
SECTION 3.02. CONVERSION PROCEDURE. If the holder elects to
convert any Convertible Debenture such holder may do so by delivering the
Convertible Debenture at the specified office of the Company, accompanied by a
duly signed and completed Conversion Notice. The date of the Conversion shall
be the date on which the Convertible Debenture and the duly signed and
completed Conversion Notice are received by the Company. A holder delivering a
Convertible Debenture for conversion will not be required to pay any taxes or
duties payable with respect to the issue or delivery of Series E Preferred
Stock on Conversion and any such taxes or duties shall be paid by the Company.
SECTION 3.03. REPRESENTATIONS, WARRANTIES, COVENANTS, NO DEFAULT;
CONDITIONS PRECEDENT TO CONVERSION.
(a) On and as of the date of each Conversion, (i) the
Company shall be deemed to have (A) remade, ratified and confirmed all
representations and warranties of the Company contained in Article IV
of this Agreement, (B) certified compliance with all covenants
contained in Article VIII of this Agreement and (c) certified that no
Event of Default or Default exists and is continuing, and (ii) the
Company shall deliver an Officer's Certificate to the effects set
forth in (A), (B) and (C) above.
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(b) In addition to the provisions of Section 3.03(a)
above, on and as of the date of each Conversion, the Company shall
have caused to be delivered to the Purchaser an opinion of the General
Counsel of the Company, substantially in the form of Exhibit E
attached hereto.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Purchaser that:
SECTION 4.01. ORGANIZATION, QUALIFICATIONS AND CORPORATE POWER.
(a) The Company is a corporation duly incorporated,
validly existing and in good standing under the laws of the State of
Delaware and is duly qualified to transact business as a foreign
corporation and is in good standing in each jurisdiction in which the
nature of the business transacted by it or the character of the
properties owned or leased by it requires such qualification, except
where the failure to be so qualified would to have a Material Adverse
Effect. The Company has the corporate power and authority to own and
hold its properties and to carry on its business as now conducted and
as proposed to be conducted, to execute, deliver and perform its
obligations under this Agreement, to issue, sell and deliver the
convertible Debentures and, subject to approval by the stockholders of
the Company of an amendment to the Certificate of Incorporation, to
increase the authorized number of shares of Common Stock and Preferred
Stock, to issue and deliver the Preferred Conversion Shares and the
Common Conversion Shares.
(b) The Company has no Subsidiaries. The Company does
not (i) own of record or beneficially, directly or indirectly (A) any
shares of capital stock or securities convertible into capital stock
of any other corporation or (B) any participating interest in any
partnership, joint venture or other non-corporate business enterprise
or (ii) control, directly or indirectly, any other entity.
SECTION 4.02. AUTHORIZATION. The execution and delivery by the
Company of this Agreement, the performance by the Company of its obligations
hereunder, the issuance, sale and delivery of the Convertible Debentures and,
subject to approval by the stockholders of the Company of an amendment to the
Certificate of Incorporation to increase the authorized number of shares of
Common Stock and Preferred Stock, the issuance and delivery of the Preferred
Conversion Shares and the Common Conversion Shares have been duly authorized by
all requisite corporate action and will not violate any provision of law, any
order of any court or other agency of government, the Certificate of
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Incorporation or the By-laws, or any provision of any indenture, agreement or
other instrument to which the Company, any of its subsidiaries or any of their
respective properties or assets is bound, or conflict with, result in a breach
of or constitute (with due notice or lapse of time or both) a default under any
such indenture agreement or other instrument, or result in the creation or
imposition of any lien, charge, restriction, claim or encumbrance of any nature
whatsoever upon any of the properties or assets of the Company or any of its
subsidiaries.
SECTION 4.03. VALIDITY. This Agreement has been duly executed and
delivered by the Company and constitutes the legal, valid and binding
obligation of the Company, enforceable in accordance with its terms.
SECTION 4.04. CAPITALIZATION. The authorized capital stock of the
Company consists of (i) 18,000,000 shares of Common Stock, par value $0.001 per
share; (ii) 1,250,000 shares of Series A Preferred Stock, par value $0.001 per
share; (iii) 625,000 shares of Series B Preferred Stock, par value $0.001 per
share; (iv) 120,000 shares of Series C Preferred Stock, par value $0.001 per
share; and (v) 5,000 shares of one or more series of Preferred Stock (the
"Blank Check Preferred Stock"). Immediately prior to the Closing, 6,917,182
shares of Common Stock, 1,250,000 shares of Series A preferred Stock, 625,000
shares of Series B Preferred Stock and 120,000 shares of Series C Preferred
Stock were outstanding and have been validly issued and are fully paid and
nonassessable with no personal liability attaching to the ownership thereof.
The Company has sold $4,000,000 of convertible debentures due August 16,1999.
Such convertible debentures are convertible into 16,000,000 shares of Series D
Preferred Stock which, when authorized and issued, will in turn, be convertible
into 16,000,000 shares of Common Stock. The convertible debentures are part of
up to an additional $3,000,000 of convertible debentures due August 16, 1999
authorized to be issued on or prior to September 30, 1996; such additional
convertible debentures shall be convertible into a number of shares of Series E
preferred Stock determined by dividing the aggregate principal balance of the
convertible debentures to then be converted by twenty five hundredths (.025).
Such shares of Series E Preferred Stock are in turn each convertible into one
share of Common Stock. The designations, powers, preferences, rights,
qualifications, limitations and restrictions in respect of each class and
series of authorized capital stock of the Company are as set forth in the
Certificate of Incorporation, and all such designations, powers, preferences,
rights, qualifications, limitations and restrictions are valid, binding and
enforceable and in accordance with all applicable laws. Except as set forth on
Schedule 4.04, there are no outstanding options, preemptive or other rights,
warrants, agreements, voting trusts, proxies, contracts, calls, commitments or
demands of any character relating to any shares of capital stock, or any other
securities of the Company, whether or not issued, including, but not limited
to, securities convertible into or evidencing the right to purchase any capital
stock or other securities of the Company. Except as set forth on Schedule
4.04, the Company has no obligation (contingent or other)
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to purchase, redeem or otherwise acquire any of its equity securities or any
interest therein or to pay any dividend or make any other distribution in
respect thereof. Except as set forth on Schedule 4.04, there are no voting
trusts or agreements, stockholders' agreements, pledge agreements, buy-sell
agreements, rights of first refusal, preemptive rights or proxies relating to
any securities of the Company or any of its subsidiaries (whether or not the
Company or any of its subsidiaries is a party thereto). All of the outstanding
securities of the Company were issued in compliance with all applicable federal
and state securities laws.
SECTION 4.05. FINANCIAL STATEMENTS. The Company has furnished to
the Purchaser the consolidated balance sheet of the Company as of December 31,
1995 (the "Balance Sheet"), and the related statements of income, stockholders'
equity and cash flows of the Company for the year ended December 31, 1995. All
such financial statements have been prepared in accordance with generally
accepted accounting principles consistently applied and fairly present the
financial position of the Company as of December 31, 1995, and the results of
operations and cash flows of the Company for the year ended December 31, 1995.
Since the date of the Balance Sheet, (i) there has been no change in the
assets, liabilities or financial condition of the Company (on a consolidated
basis) from that reflected in the Balance Sheet, except for changes in the
ordinary course of business which in the aggregate have not been materially
adverse, and (ii) non of the business, prospects, financial condition,
operations, property or affairs of the Company (on a consolidated basis) has
been materially adversely affected by any occurrence or development,
individually or in the aggregate, whether or not insured against.
SECTION 4.06. EVENTS SUBSEQUENT TO THE DATE OF THE BALANCE SHEET.
Since the date of the Balance Sheet, the Company has not, except as set forth
on Schedule 4.06, (i) issued any stock, bond or other corporate security, (ii)
borrowed any amount or incurred or become subject to any liability (absolute,
accrued or contingent), except current liabilities incurred and liabilities
under contracts entered into in the ordinary course of business, (iii)
discharged or satisfied any lien or encumbrance or incurred or paid any
obligation or liability (absolute, accrued or contingent) other than current
liabilities shown on the Balance Sheet and current liabilities incurred since
the date of the Balance Sheet in the ordinary course of business, (iv) declared
or made any payment or distribution to stockholders or purchased or redeemed
any share of its capital stock or other security, (v) mortgaged, pledged or
subjected to lien any of its assets, tangible or intangible, other than liens
of current real property taxes not yet due and payable, (vi) sold, assigned or
transferred any of its tangible assets except in the ordinary course of
business, or canceled any debt or claim, (vii) sold, assigned, transferred or
granted any exclusive license with respect to any patent, trademark, trade
name, service mark, copyright, trade secret or other intangible asset, (viii)
suffered any loss of property or waived any right of substantial value whether
or not in the ordinary course of business, (ix) made any change in officer
compensation except in the ordinary course of business and consistent with past
practice, (x) made any material change in the manner of business or operations
of the Company, (xi) entered into any transaction except in the ordinary course
of business or as otherwise
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contemplated hereby or (xii) entered into any commitment (contingent or
otherwise) to do any of the foregoing.
SECTION 4.07. COMPLIANCE WITH INSTRUMENTS. The Company is not in
violation of any term of its Certificate of Incorporation or By-laws, or any
statue, rule or regulation applicable to the Company. Except as set forth on
Schedule 4.07, the Company is not in violation or in default of any term
contained in any instrument or contract to which it is a party. Except as set
form on Schedule 4.07, no event or failure of performance has occurred which,
with the passage of time or the giving of notice or both, would constitute such
a violation. None of the violations set forth on Schedule 4.07 will have a
Material Adverse Effect.
SECTION 4.08 LITIGATION. Except as set forth on Schedule 4.08.
There are no (i) actions, suits, claims, proceedings or investigations pending
or, to the best of the Company's knowledge, threatened against or affecting the
Company, at law or in equity, or before or by and federal, state, municipal or
other governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, (ii) arbitration proceedings relating to
the Company pending under collective bargaining agreements or otherwise or
(iii) governmental inquiries pending or, to the best of the Company's
knowledge, threatened against or affecting the Company (including without
limitation any inquiry as to the qualification of the Company to hold or
receive any license or permit), and the Company is not aware of any basis for
any of the foregoing. None of the actions, suits, claims, proceedings, or
investigations set forth on Schedule 4.08 will have a Material Adverse Effect.
The Company is not in default with respect to any order, writ, injunction or
decree known to or served upon the Company of any court or of any federal,
state, municipal or other governmental department, commission, board, bureau,
agency or instrumentality, domestic or foreign.
SECTION 4.09. COMPLIANCE WITH LAW. The Company has complied with
all laws, rules, regulations and orders applicable to its business, operations,
properties, assets, products and services, and the Company has all necessary
permits, licenses and other authorizations required to conduct its business as
conducted and as proposed to be conducted to the extent failure to do so would
have a material adverse effect on the business of the Company. There is no
existing law, rule, regulation or order, and the Company is not aware of any
proposed law, rule, regulation or order, whether federal or state, which would
prohibit or restrict the Company from, or otherwise materially adversely affect
the Company in, conducting its business in any jurisdiction in which it is now
conducting business or in which it proposes to conduct business.
SECTION 4.10. TITLE TO PROPERTIES. The Company has good and
marketable title to its properties and assets reflected on the Balance Sheet or
acquired by it since the date of the Balance Sheet (other than properties and
assets disposed of in the ordinary course of business since the date of the
Balance Sheet), and all such properties and assets
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are free and clear of mortgages, pledges, security interests, liens, charges,
claims restrictions and other encumbrances, except (i) for Liens set forth on
Schedule 4.10, (ii) for Liens for taxes not yet due and payable and minor
imperfections of title, if any, not material in nature or amount and (iii) for
Liens not materially detracting from the value or impairing the use of the
property subject thereto or impairing the operations or proposed operations of
the Company.
SECTION 4.11. LEASEHOLD INTERESTS. Each lease or agreement to
which the Company is a party under which it is a lessee of any property, real
or personal, is a valid and subsisting agreement without any default of the
Company thereunder, except as set forth on Schedule 4.11, and, to the best of
the Company's knowledge, without any default thereunder of any other party
thereto. No event has occurred and is continuing which, with due notice or
lapse of time or both, would constitute a default or event of default by the
Company under any such lease or agreement or, to the best of the Company's
knowledge, by any other party thereto. The Company's possession of such
property has not been disturbed and, to the best of the Company's knowledge, no
claim has been asserted against the Company adverse to its rights in such
leasehold interests.
SECTION 4.12. TAXES. The Company has filed all tax returns,
federal, state, county and local, required to be filed by it, and the Company
has paid all taxes shown to be due by such returns as well as all other taxes,
assessments and governmental charges which have become due or payable,
including without limitation all taxes which the Company is obligated to
withhold from amounts owing to employees, creditors and third parties. All
such taxes with respect to which the Company has become obligated pursuant to
elections made by the Company in accordance with generally accepted practice
have been paid and adequate reserves have been established for all taxes
accrued but not yet payable. The Federal income tax returns of the Company
have never been audited by the Internal Revenue Service. No deficiency
assessment with respect to or proposed adjustment of the Company's Federal,
state, county or local taxes is pending or, to the best of the Company's
knowledge, threatened. There is no tax lien, whether imposed by any federal,
state, county or local taxing authority, outstanding against the assets,
properties or business of the Company.
SECTION 4.13. PATENTS, TRADEMARKS, ETC. The Company owns or
possesses adequate licenses or other rights to use all trademarks, trademark
applications, service marks, service mark applications, trade names,
copyrights, manufacturing processes, formulae, trade secrets and know how, and
all patents and patent applications known to the Company (collectively,
"Intellectual Property"), necessary to the conduct of its business as conducted
and as proposed to be conducted, and no claim is pending or, to the best of the
Company's knowledge, threatened to the effect that the operations of the
Company infringe upon or conflict with the asserted rights of any other person
under any Intellectual Property, and there is no known basis for any such claim
(whether or not pending or threatened). No claim is pending or threatened to
the effect that any such Intellectual Property owned or
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licensed by the Company, or which the Company otherwise has the right to use,
is invalid or unenforceable by the Company, and there is no basis known to the
Company for any such claim (whether or not pending or threatened). To the best
of the Company's knowledge, all technical information developed by and belonging
to the Company which has not been patented has been kept confidential. Except
as set forth on Schedule 4.13, the Company has not granted or assigned to any
other person or entity any right to manufacture, have manufactured, assemble or
sell the products or proposed products or to provide the services or proposed
services of the Company.
SECTION 4.14. OUTSTANDING DEBT; LOANS AND ADVANCES.
(a) All of the outstanding Debt of the Company is set
forth on Schedule 4.14 ("Existing Debt"). Except as set forth on
Schedule 4.07, there exists no default under the provisions of any
instrument evidencing such Existing Debt or of any agreement relating
thereto.
(b) The Company does not have any outstanding loans or
advances to any person and is not obligated to make any such loans or
advances, except, in each case, for advances to employees of the
Company in respect of reimbursable business expenses anticipated to be
incurred by them in connection with their performance of services for
the Company.
SECTION 4.15. GUARANTEES. The Company is not a party to any
Guarantee by it of obligations of any other party.
SECTION 4.16. GOVERNMENTAL APPROVALS. No registration or filing
with, or consent or approval of or other action by, any federal, state or other
governmental agency or instrumentality is or will be necessary for the valid
execution, delivery and performance by the Company of this Agreement, the
issuance, sale and delivery of the Convertible Debentures, the issuance and
delivery of the Preferred Conversion Shares upon the conversion of the
Convertible Debentures, or the issuance and delivery of the Common Conversion
Shares upon conversion of the Preferred Conversion Shares, other than the
approval by the stockholders of the Company of an amendment to the Certificate
of Incorporation to increase the authorized number of shares of Common Stock
and Preferred Stock.
SECTION 4.17. DISCLOSURE. Neither this Agreement, nor any Schedule
or Exhibit to this Agreement contains an untrue statement of a material fact or
omits a material fact necessary to make the statement contained herein or
therein not misleading. None of the statements, documents, certificates or
other items prepared or supplied by the Company with respect to the
transactions contemplated hereby contains an untrue statement of a material
fact or omits a material fact necessary to make the statements contained
therein not misleading. There is no fact which the Company has not disclosed
to the Purchaser and of
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which the Company is aware which materially and adversely affects or could
materially and adversely affect the business, prospects, financial condition,
operations, property or affairs of the Company or any of its subsidiaries.
SECTION 4.18. BROKERS. The Company has no contract, arrangement or
understanding with any broker, finder or similar agent with respect to the
transactions contemplated by this Agreement.
SECTION 4.19. SECURITIES ACT. The offer, sale and issuance of the
Convertible Debentures, the Preferred Conversion Shares and the Common
Conversion Shares (collectively, the "Securities") will be exempt from the
registration requirements of the Securities Act of 1933, as amended (the
"Securities Act"), and will have been registered or qualified (or are exempt
from registration and qualification) under the registration, permit
qualification requirements of any applicable state securities laws. Neither
the Company nor any agent on its behalf has solicited or will solicit any
offers to sell or has offered to sell or will offer to sell all or any part of
the Securities to any Person so as to bring the bring the sale of such
Securities by the Company within the registration provisions of the Securities
Act.
SECTION 4.20. MARGIN REGULATIONS. The Company will not, directly
or indirectly, use any of the proceeds of the Securities for the purpose,
whether immediate, incidental or ultimate, of maintaining, purchasing or
carrying any stock that is currently a "margin stock" within the meaning of
Regulation G of the Board of Governors of the Federal Reserve System (12 C.F.R
207, as amended) or Regulation U of such Board (12 C.F.R. 221, as amended), or
otherwise take or permit to be taken any action which would result in the
carrying out of any of the other transactions contemplated hereby or thereby
being violative of such Regulation G or Regulation U, or of Regulation T (12
C.F.R. 220, as amended), Regulation X (12 C.F.R. 224, as amended) or any other
regulation of such Board. The Company and its Subsidiaries do not own or
intend to acquire any "margin stock" within the meaning of such Regulation G or
such Regulation U.
SECTION 4.21. INSURANCE COVERAGE. Each property of the Company is
insured for the benefit of the Company in amounts deemed adequate by the
Company's management against risks usually insured against by persons operating
businesses similar to those of the Company in the localities where such
properties are located.
SECTION 4.22. ERISA. No accumulated funding deficiency (as defined
in Section 302 of ERISA and Section 412 of the Code), whether or not waived,
exists with respect to any Plan (other than a Multiemployer Plan). No
liability to the PBGC has been or is expected by the Company or any ERISA
Affiliate to be incurred with respect to any Plan (other than a Multiemployer
Plan) by the Company or any ERISA Affiliate which would have a Material Adverse
Effect. Neither the Company nor any ERISA Affiliate is a participant in any
Multiemployer Plan. The execution and delivery of this Agreement and the
issuance and sale of the Convertible Debentures will be exempt from, or will
not
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involve any transaction which is subject to, the prohibitions of Section 406 of
ERISA and will not involve any transaction in connection with which a penalty
could be imposed under Section 502(i) of ERISA or a tax could be imposed
pursuant to Section 4975 of the Code. The Company and its ERISA Affiliates do
not provide any benefits to former employees except as may be required by COBRA
(Section 4980B of the Code and Sections 601 et seq. Of ERISA). Neither the
Company nor any ERISA Affiliate is a party to a collective bargaining agreement
or is required to bargain with any collective bargaining unit.
SECTION 4.23. ENVIRONMENTAL COMPLIANCE. The Company and its
properties and facilities have complied at all times and in all respects with
all federal, state, local and regional statutes, laws, ordinances and judicial
or administrative orders, judgments, rulings and regulations relating to
protection of the environment except, in any such case, where failure to comply
would not have a Material Adverse Effect.
SECTION 4.24. PERMITS AND LICENSES. The Company has all federal,
state and local governmental permits, licenses, certificates of authority any
similar authority necessary for the conduct of its business as now being
conducted and as proposed to be conducted. The Company is not in default in
any material respect under any such permit, license, certificate of authority
or other similar authority.
SECTION 4.25. BOARD COMPOSITION. Article III, Section 1 of the
By-laws provides that the number of directors which shall constitute the whole
Board of Directors of the Company (the "Board") shall be not less than three
(3) nor more than fifteen (15), with the specific number determined by a
resolution of the Board, or by the shareholders of the Company at the annual
meeting. Effective immediately upon the Closing, the current Board members
will be Donald Baker, Roden A. Brandt, Clifton E. Haley, William B. Hambrecht,
Patrick J. O'Shea, Robert J. Spane and John Tague.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
SECTION 5.01. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. The
Purchaser represents and warrants to the Company that:
(a) the Convertible Debentures being purchased by it are
being acquired for its own account for the purpose of investment and
not with a view to or for sale in connection with any distribution
thereof;
(b) it understands that: (i) there is not now any market
for the Convertible Debentures, the Series E Preferred Stock or the
Common Stock (collectively, the "Securities") and that it is possible
that no market may develop in the foreseeable
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future; (ii) that the Securities when issued will have been
issued in transactions which are exempt from registration under the
federal securities laws and any applicable state securities laws (the
"Securities Laws"); (iii) will be "restricted securities" in the
context of the Securities Laws; and, this, (iv) will not be
transferable unless registered or an exemption from registration is
available.
(c) it understands that an investment in the Securities
involves a high degree of risk and that there is a significant risk of
losing the investment in its entirety;
(d) if the investor is a natural person he or she is
either (i) a person who has an individual net worth, or joint net
worth with that person's spouse, on the date hereof of $1,000,000 or
(ii) a person who had an individual income of $200,000 in each of the
two most recent years of joint income with that person's spouse of
$300,000 in each of those years and has a reasonable expectation of
reaching the same income level in the current year.
(e) it has not employed any broker or finder in
connection with the transactions contemplated by this Agreement; and
(f) the execution, delivery and performance by it of this
Agreement have been duly authorized by all requisite action by it and
this Agreement constitutes the valid and binding obligation of it,
enforceable in accordance with its terms.
ARTICLE VI
CONDITION TO THE OBLIGATIONS
OF THE PURCHASER
SECTION 6.01. CONDITIONS TO THE OBLIGATION OF THE PURCHASER. The
obligation of the Purchaser to purchase and pay for the Convertible Debentures
being purchased by it on the Closing Date is, at its option, subject to the
satisfaction, on or before the Closing Date, of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES TO BE TRUE AND
CORRECT. The representations and warranties of the Company contained
in Article IV shall be true, complete and correct on and as of the
Closing Date with the same effect as though such representations and
warranties had been mad eon and as of such date.
(b) PERFORMANCE. The Company shall have performed and
complied with all agreements contained herein required to be performed
or complied with by it prior to or at the Closing Date.
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(c) OFFICER'S CERTIFICATE. The Company shall have
executed and delivered to the Purchaser an Officer's Certificate to
the effects set forth in (a) and (b) above.
(d) INVESTOR'S RIGHTS AGREEMENT. The Company shall have
executed and delivered the Investor's Rights Agreement to the
Purchaser.
(e) OPINION OF COUNSEL. The Purchaser shall have
received an opinion of the General Counsel of the Company, such
opinion to be substantially in the form of Exhibit F attached hereto.
(f) ALL PROCEEDINGS TO BE SATISFACTORY. All corporate
and other proceedings to be taken by the Company in connection with
the transactions contemplated hereby and all documents incident
thereto shall be satisfactory in form and substance to the Purchaser
and its counsel, and the Purchaser and its counsel shall have received
all such counterpart originals or certified or other copies of such
documents as they reasonably may request.
(g) SUPPORTING DOCUMENTS. The Purchaser and its counsel
shall have received copies of the following documents:
(i) a certificate of the Secretary of State of
the State of Delaware, dated as of a recent date as to the due
incorporation and good standing of the Company;
(ii) a certificate of the Secretary or an
Assistant Secretary of the Company dated the Closing Date and
certifying: (A) that the Certificate of Incorporation attached
to this Agreement is a true and complete copy of the
Certificate of Incorporation of the Company; (B) that the
Certificate of Incorporation has not been amended since the
date of the last amendment referred to in the certificate
delivered pursuant to clause (ii)(A) above;(c) that attached
thereto is a true and complete copy of the By-laws of the
Company as in effect on the date of such certification; (D)
that attached thereto is a true and complete copy of all
resolutions adopted by the Board of Directors or the
stockholders of the Company authorizing the execution,
delivery and performance of this Agreement, and the issuance,
sale and delivery of the Convertible Debentures and that all
such resolutions are in full force and effect and are all the
resolutions adopted in connection with the transactions
contemplated by this Agreement; and (E) to the incumbency and
specimen signature of each officer of the Company executing
this Agreement, the Convertible Debentures and any certificate
or instrument furnished pursuant hereto, and a certification
by another officer of the Company as to
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the incumbency and signature of the officer signing the certificate referred
to in this subparagraph 6.01 (g) (ii); and
(iii) such additional supporting documents and
other information with respect to the operations and affairs
of the Company as the Purchaser or its counsel reasonable may
request.
(h) THIRD PARTY CONSENTS, PERMITS AND WAIVERS. The
Company shall have obtained any and all consents, permits and waivers
necessary or appropriate for the consummation of the transactions
contemplated by this Agreement.
(i) NO INJUNCTIONS OR RESTRAINTS. There shall be no
action, suit, investigation or proceeding pending, or, to the best of
the Company's knowledge, threatened, against or affecting the Company,
any of the Company's properties or rights, or any of the Company's
officers or directors, before any court, arbitrator or administrative
or governmental body which (i) seeks to restrain, enjoin, or prevent
the consummation of the transactions contemplated by this Agreement or
(ii) questions the validity or legality of any such transactions or
seeks to recover damages or to obtain other relief in connection with
any such transactions and, to the best of the Company's knowledge,
there shall be no valid basis for any such action, proceeding or
investigation.
All such documents shall be satisfactory in form and substance to the Purchaser
and its counsel.
ARTICLE VII
CONDITIONS TO THE OBLIGATIONS OF THE COMPANY
SECTION 7.01. CONDITIONS TO THE OBLIGATIONS OF THE COMPANY. The
obligation of the Company to issue and sell the Convertible Debentures on the
Closing Date is, at its option, subject to the satisfaction, on or before the
Closing Date, of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES TO BE TRUE AND
CORRECT. The representations and warranties of the Purchaser
contained in Article 5 shall be true, complete and correct on and as
of the Closing Date with the same effect as though such
representations and warranties had been made on and as of such date.
(b) PERFORMANCE. The Purchaser shall have performed and
complied with all agreements contained herein required to be performed
or complied with by it prior to or at the Closing Date.
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(c) OFFICER'S CERTIFICATE. The Purchaser shall have
delivered to the Company a certificate of an officer of the Purchaser
to the effects set forth in (a) and (b) above.
(d) ALL PROCEEDINGS TO BE SATISFACTORY. All corporate
and other proceedings to be taken by the Purchaser in connection with
the transactions contemplated hereby and all documents incident
thereto shall be satisfactory in form and substance to the Company and
its counsel, and the Company and its counsel shall have received all
such counterpart originals or certified or other copies of such
documents as they reasonably may request.
(e) NO INJUNCTIONS OR RESTRAINTS. There shall be no
action, suite, investigation or proceeding pending, or, to the best of
the Company's knowledge, threatened, against or affecting the Company,
any of the Company's properties or rights, or any of the Company's
officers or directors, before any court, arbitrator or administrative
or governmental body which (i) seeks to restrain, enjoin, or prevent
the consummation of the transactions contemplated by this Agreement or
(ii) questions the validity or legality of any such transactions or
seeks to recover damages or to obtain other relief in connection with
any such transactions and, to the best of the Company's knowledge,
there shall be no valid basis for any such action, proceeding or
investigation.
ARTICLE VIII
COVENANTS OF THE COMPANY
The Company covenants and agrees with the Purchaser that so long as
any Convertible Debenture is outstanding:
SECTION 8.01. FINANCIAL STATEMENTS AND REPORTS. The Company shall
furnish to the Purchaser:
(a) as soon as practicable, and in any event at least 30
days prior to the beginning of each fiscal year of the Company,
consolidated statements of forecasted income and cash flow and
consolidated forecasted balance sheet of the Company for each month
and each fiscal quarter in such fiscal year and for the period from
the beginning of such fiscal year to the end of each such month and
end of each such fiscal quarter, in each case as at the end of each
such month and fiscal quarter;
(b) as soon as practicable after the end of each month in
each fiscal year (other than the last month in each fiscal year), and
in any event within 30 days
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thereafter, consolidated statements of income and cash flow of the Company for
such month and for the period from the beginning of the current fiscal year to
the end of such month and a consolidated balance sheet of the Company as at the
end of such month, and setting forth, in each case, in comparative form,
figures for the corresponding months in the preceding fiscal year (other than
any such corresponding months ended prior to the Closing) and figures in the
Company's budget for the corresponding months in the current fiscal year;
(c) as soon as practicable after the end of each fiscal
quarter of the Company in each fiscal year (other than the last fiscal
quarter in each fiscal year), and in any event within forty-five (45)
days thereafter, a consolidated balance sheet of the Company and the
related consolidated statements of income, stockholders' equity and
cash flows, unaudited but prepared in accordance with generally
accepted accounting principles and certified by the Chief Financial
Officer of the Company, such consolidated balance sheet to be as of
the end of such fiscal quarter and such consolidated statements of
income, stockholders' equity and cash flows to be for such fiscal
quarter and for the period from the beginning of the fiscal year to
the end of such fiscal quarter, in each case with comparative
statements for the corresponding period in the prior fiscal year;
(d) as soon as practicable after the end of each fiscal
year of the Company, and in any event within ninety (90) days
thereafter, a consolidated balance sheet of the Company as of the end
of such fiscal year and the related consolidated statements of income,
stockholders' equity and cash flows for the fiscal year then ended,
prepared in accordance with generally accepted accounting principles
and certified by a firm of independent public accountants of recognized
national standing selected by the Board of Directors of the Company;
(e) promptly upon transmission thereof, copies of all
such financial statements, proxy statements, notices and reports as it
shall send to its stockholders and copies of all registration
statements (without exhibits) and all reports which it files with the
Commission;
(f) promptly upon sending, all press releases that the
Company disseminates;
(g) promptly upon receipt thereof, a copy of each other
report submitted to the Company or any Subsidiary by independent
accountants in connection with any annual, interim or special audit
made by them of the books of the Company or any Subsidiary;
(h) as soon as practicable and in any event within five
days after any officer of the Company obtaining knowledge (i) of any
condition or event which, in
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the opinion of management of the Company, would have a Material Adverse
Effect (ii) that any Person have given any notice from any Person to
the Company or taken any other action with respect to a claimed default
or event or condition of the type referred to in Section 9.01(ii),
(iii) of the institution of any litigation involving claims against the
Company equal to or greater than $100,000 with respect to any single
cause of action or of any adverse determination in any court proceeding
in any litigation involving a potential liability to the Company equal
to or greater than $100,000 with respect to any single cause of action
which makes the likelihood of an adverse determination in such
litigation against the Company substantially more probable, or (iv) of
any regulatory proceeding which may have a Material Adverse Effect on
the Company, an Officer's Certificate specifying the nature and period
of existence of any such condition or event, or specifying the notice
given or action taken by such Person and the nature of any such claimed
default, event or condition, or specifying the details of such
proceeding, litigation or dispute and what action the Company has
taken, is taking or proposes to take with respect thereto;
(i) promptly after the filing or receiving thereof,
copies of all reports and notices which the Company files under ERISA
with the Internal Revenue Service or the PBGC or the U.S. Department
of Labor or which the Company receives from such corporation; and
(j) with reasonable promptness, such other information
respecting the condition or operations, financial or otherwise, of the
Company as the Purchaser may reasonably request.
Together with each delivery of financial statements required by clauses (c) and
(d) above, the Company will deliver to the Purchaser an Officer's Certificate
stating that there exists no Event of Default or Default, or, if any Event of
Default or Default exists, specifying the nature and period of existence
thereof and what action the Company proposes to take with respect thereto.
Together with each delivery of financial statements required by clause (d)
above, the Company will deliver to the Purchaser a certificate of such
accountants stating that, in making the audit necessary for their report on
such financial statements, they have obtained no knowledge of any Event of
Default or Default, or, if they have obtained knowledge of any Event of Default
or Default, specifying the nature and period of existence thereof.
The Company also covenants that immediately after any officer obtains
knowledge of an Event of Default or Default, it will deliver to the Purchaser
an Officer's Certificate specifying the nature and period of existence thereof
and what action the Company proposes to take with respect thereto.
SECTION 8.02. CORPORATE EXISTENCE. The Company shall maintain its
corporate existence, rights and franchises in full force and effect.
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SECTION 8.03. MAINTENANCE OF PROPERTIES AND INSURANCE. The Company
will maintain or cause to be maintained in good repair, working order and
condition all properties used or useful in the business of the Company and from
time to time will make or cause to be made appropriate repairs, renewals and
replacements thereof. The Company shall maintain its properties and business,
with financially sound and reputable insurers, insurance against such casualties
and contingencies and of such types and in such amounts as is customary for
companies similarly situated, including but not limited to fire and other risks
insured against by extended coverage, product liability insurance and public
liability insurance against claims for personal injury or death or property
damage occurring upon, in, about or in connection with the use of any properties
owned, occupied or controlled by the Company, which insurance shall be deemed by
the Company to be sufficient; and maintain workers' compensation insurance and
such other insurance as may be required by law.
SECTION 8.04. INSPECTION, CONSULTATION AND ADVICE. The Company
shall permit the Purchaser to visit and inspect any of the properties of the
Company, examine its books and take copies and extracts therefrom, discuss the
affairs, finances and accounts of the Company with its officers, employees and
public accountants (and the Company hereby authorizes said accountants to
discuss with the Purchaser such affairs, finances and accounts), and consult
with and advise the management of the Company as to its affairs, finances and
accounts, all at reasonable times and upon reasonable notice.
SECTION 8.05. RESTRICTIVE AGREEMENTS PROHIBITED. The Company shall
not become a party to any agreement which by its terms restricts the Company's
performance of this Agreement.
SECTION 8.06. TRANSACTIONS WITH AFFILIATES. Except for
transactions contemplated by this Agreement, the Company shall not enter into
any transaction with any director, officer, employee or holder of more than 5%
of the outstanding capital stock of any class or series of capital stock of the
Company, member of the family of any such person, or any corporation,
partnership, trust or other entity in which any such person, or member of the
family of any such person is a director, officer, trustee, partner or holder of
more than 5% of the outstanding capital stock thereof.
SECTION 8.07. USE OF PROCEEDS. The Company shall use the proceeds
from the sale of the Convertible Debentures solely for working capital or other
such uses as may be authorized by the Board of Directors.
SECTION 8.08. SUBSIDIARIES. The Company shall not create or have
any Subsidiaries.
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SECTION 8.09. COMPLIANCE WITH LAWS. The Company shall comply with
all applicable laws, rules, regulations and orders, noncompliance with which
could have a Material Adverse Effect.
SECTION 8.10. KEEPING OF RECORDS AND BOOKS OF ACCOUNT. The Company
shall keep true records and books of account, in which full and complete
entries will be made in accordance with generally accepted accounting
principles consistently applied, reflecting all financial and business
transactions of the Company, and in which, for each fiscal year, all proper
accruals and reserves for depreciation, depletion, obsolescence, amortization,
taxes, bad debts and other purposes in connection with its business shall be
made as shall be required under generally accepted accounting principles
consistently applied.
SECTION 8.11. OBLIGATIONS AND TAXES. The Company shall pay all of
its indebtedness and obligations promptly and in accordance with their terms
and pay and discharge promptly all taxes, assessments and governmental charges
or levies imposed upon it or its income or profits or in respect of its
property, before the same shall become in default, as well as all lawful claims
for labor and supplies or otherwise which, if unpaid, might become a lien or
charge upon such properties of any part thereof; provided, however, that the
Company shall not be required to pay and discharge or to cause to be paid and
discharged any tax, assessment, charge, levy or claim so long as the validity
or amount thereof shall be contested in good faith by appropriate proceedings
and the Company shall set aside on its books such reserves as are required by
generally accepted accounting principles with respect to any such tax,
assessment, charge, levy or claim so contested.
SECTION 8.12. TRANSFER AND EXCHANGE OF CONVERTIBLE DEBENTURES; LOST
CONVERTIBLE DEBENTURES. Upon surrender for registration or transfer of any
Convertible Debenture at the principal office of the Company, the Company
shall, at its expense, execute and deliver one or more new Convertible
Debentures of like tenor and of a like aggregate principal amount, registered
int he name of such transferee or transferees. At the option of the Purchaser,
such Convertible Debenture may be exchanged for other Convertible Debentures of
like tenor and of any authorized denominations, of a like aggregate principal
amount, upon surrender of the Convertible Debenture to be exchanged at the
principal office of the Company. Whenever any Convertible Debentures are so
surrendered for exchange, the Company shall, at its expense, execute and
deliver the Convertible Debentures which the Purchaser making the exchange is
entitled to receive. Every Convertible Debenture surrendered for registration
of transfer or exchange shall be duly endorsed, or be accompanied by a written
instrument of transfer duly executed, by the Purchaser of such Convertible
Debenture or the Purchaser's attorney duly authorized in writing. Any
Convertible Debenture or Convertible Debentures issued in exchange for any
interest to accrue which were carried by the Convertible Debenture so exchanged
or transferred, so that neither gain nor loss of interest shall result from any
such transfer or
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exchange. Upon receipt of written notice from the Purchaser of the loss,
theft, destruction or mutilation of such Convertible Debenture and, in the case
of any such loss, theft or destruction, upon receipt of the Purchaser's
unsecured indemnity agreement, or in the case of any such mutilation upon
surrender and cancellation of such Convertible Debenture, the Company will make
and deliver a new Convertible Debenture, of like tenor, in lieu of the lost,
stolen, destroyed or mutilated Convertible Debenture. The Purchaser's own
agreement of indemnity shall constitute indemnity satisfactory to the Company
for purposes of this Section 8.12.
SECTION 8.13. LIMITATION ON DEBT. The Company will not create,
incur, assume or otherwise become or be liable with respect to any Debt except
(i) Debt represented by the Convertible Debentures; (ii) Existing Debt of the
Company; and (iii) Debt of the Company aggregating not more than $500,000 in
unpaid principal amount at any time outstanding.
SECTION 8.14. LIMITATION ON LIENS. The Company will not create,
assume or suffer to exist any Lien upon any of its properties or assets,
whether now owned or hereafter acquired and whether or not provision is made by
equally and ratably securing the Convertible Debentures; provided, however,
that the foregoing restriction and limitation shall not apply to the following
Liens:
(a) Liens for taxes, assessments or governmental charges
or levies not yet delinquent or which are being contested in good
faith by appropriate proceedings;
(b) other Liens incidental to the conduct of their
business or the ownership of their properties and assets which were
not incurred in connection with the borrowing of money or the
obtaining of advances or credit, and which do not in the aggregate
materially detract from the value of their properties or assets, or
materially impair the use thereof in the operation of their business;
and
(c) any Lien existing at the time of acquisition upon any
real or personal property acquired by the Company through purchase,
merger or consolidation or otherwise, whether or not assumed by the
Company, or placed upon real or personal property being acquired by
the Company (within six months of such acquisition) to secure all or a
portion of the purchase price thereof or any Debt incurred to finance
all or any portion of such purchase price; provided, however, that (A)
such property is not and shall not thereby become encumbered in an
amount in excess of the lesser of the cost thereof or fair value
thereof (as determined in good faith by the Company, and (B) any such
Lien shall not encumber any other property of the Company; and
provided, further, that the aggregate amount at any time of all such
Debt secured under this subparagraph (iii) shall be permitted by
Section 8.13 (and any Lien renewing, extending or refunding any Lien
permitted by this subparagraph 8.14 (c) (iii), provided that the
principal amount secured is not increased, the Lien is
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not extended to other property and the Debt secured thereby
would be permitted under the provisions of Section 8.13).
SECTION 8.15. LIMITATION ON RESTRICTED PAYMENTS. The Company will
not directly or indirectly make any Restricted Payments.
SECTION 8.16. COVENANT REGARDING STOCKHOLDER VOTE AND FILING OF
CERTIFICATE OF DESIGNATION.
(a) On or prior to February 1, 1997 the Company will have
solicited and obtained the requisite approval of its stockholders (the
"Stockholder Approval") to an amendment to the Certificate of
Incorporation (the "Amendment") to increase (i) the number of
authorized shares of Preferred Stock by a sufficient number of shares
to allow all securities of the Company which are convertible into
Preferred Stock to be converted and (ii) the number of authorized
shares of Common Stock by a sufficient number of shares to allow (A)
all securities of the Company which are convertible either directly or
indirectly into Common Stock to be converted and (B) the exercise of
all options, warrants and any other rights to purchase Common Stock to
be exercised.
(b) Within two (2) Business Days after obtaining the
Stockholder Approval, the Company shall (i) file the Amendment and the
Certificate of Designation with the Secretary of State of the State of
Delaware, and (ii) take such other action as may be necessary to
enable the Purchaser, in its sole discretion, to convert any
Convertible Debenture into Series E Preferred Stock at any time
thereafter and from time to time.
(c) After giving effect to Sections 8.16(a) and (b)
above, upon the conversion of any Convertible Debenture, the Preferred
Conversion Shares and, upon conversion of the Preferred Conversion
Shares, the Common Conversion Shares, will have been duly authorized
and will be validly issued, fully paid and nonassessable with no
personal liability attaching to the ownership thereof and will be free
and clear of all Liens imposed by or through the Company. In
addition, after giving effect to Sections 8.16(a) and (b), the
Preferred Conversion Shares and the Common Conversion Shares will have
been duly reserved for issuance upon conversion of the Convertible
Debenture or conversion of the Preferred Conversion Shares,
respectively. Neither the issuance, sale or delivery of the Preferred
Conversion Shares or the Common Conversion Shares will be subject to
any preemptive right of stockholders of the Company or to any right of
first refusal or other right in favor of any person.
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ARTICLE IX
EVENTS OF DEFAULT
SECTION 9.01. ACCELERATION. If any of the following events shall
occur and be continuing for any reason whatsoever (and whether such occurrence
shall be voluntary or involuntary or come about or be effected by operation of
law or otherwise):
(i) the Company defaults in the payment of any principal
of or interest on any Convertible Debenture when the same shall become
due, either by the terms thereof or otherwise as herein provided; or
(ii) the Company defaults (whether as primary obligor or
as guarantor or other surety) in any payment of principal of or
interest on any other obligation for money borrowed beyond any period
of grace provided with respect thereto, or the Company fails to
perform or observe any other agreement, term or condition contained in
any agreement under which any such obligation is created (or if any
other event thereunder or under any such agreement shall occur and be
continuing) and the effect of such failure or other event is to cause,
or to permit the holder or holders of such obligation (or a trustee on
behalf of such holder or holders) to cause, such obligation to become
due (or to be repurchased by the Company) prior to any stated
maturity; or
(iii) any representation or warranty made by the Company
herein or by the Company or any of its officers in any writing
furnished in connection with or pursuant to this Agreement shall be
false in any material respect on the date as of which made; or
(iv) the Company fails to perform or observe (A) any term,
covenant or agreement contained in Sections 8.01(h)(i), 8.02, 8.04,
8.08, 8.09, 8.11, 8.13, 8.14, 8.15, 8.16 or 8.17, or (B) any other
agreement, covenant, term or condition contained herein and such
failure shall not be remedied within 30 days after any officer obtains
actual knowledge thereof; or
(v) a majority of the members of the Board of Directors
shall be persons nominated by a person or entity other than the
Company; or
(vi) the Company makes an assignment for the benefit of
creditors or is generally not paying its debts as such debts become
due; or
(vii) any decree or order for relief in respect of the
Company is entered under any bankruptcy reorganization, compromise,
arrangement, insolvency, readjustment of debt, dissolution or
liquidation or similar law, whether now or hereafter in effect (the
"Bankruptcy Law"), of any jurisdiction; or
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(viii) the Company petitions or applies to any tribunal for,
or consents to, the appointment of, or taking possession by, a
trustee, receiver, custodian, liquidator or similar official of the
Company, or of any substantial part of the assets of the Company, or
commences a voluntary case under the Bankruptcy Law of the United
States or any proceedings relating to the Company under the Bankruptcy
Law of any other jurisdiction; or
(ix) any such petition or application is filed, or any
such proceedings are commenced, against the Company and the Company by
any act indicates its approval thereof, consent thereto or
acquiescence therein, or an order, judgment or decree is entered
appointing any such trustee, receiver, custodian, liquidator or
similar official, or approving the petition in any such proceedings,
and such order, judgment or decree remains unstayed and in effect for
more than 30 days; or
(x) any order, judgment or decree is entered in any
proceedings against the Company decreeing the dissolution of the
Company and such order, judgment or decree remains unstayed and in
effect for more than 60 days; or
(xi) any order, judgment or decree is entered in any
proceedings against the Company decreeing a split-up of the Company
which requires the divestiture of assets representing a substantial
part of the consolidated assets of the Company (determined in
accordance with generally accepted accounting principles) for any of
the three fiscal years then most recently ended, and such order,
judgment or decree remains unstayed and in effect for more than 60
days; or
(xii) any judgment or order, or series of judgments or
orders, is rendered against the Company and either (A) enforcement
proceedings have been commenced by any creditor upon such judgment or
order or (B) within 60 days after entry thereof, such judgment is not
discharged or execution thereof stayed pending appeal, or within 60
days after the expiration of any such stay, such judgment is not
discharged:
then (a) if such event is an Event of Default specified in clause (i) of this
Section 9.01 the Purchaser may at its option, by notice in writing to the
Company, declare such Convertible Debenture to be, and such Convertible
Debenture shall thereupon be and become, immediately due and payable at par
together with interest accrued thereon, without presentment, demand, protest or
other notice of any kind, all of which are hereby waived by the Company, (b) if
such event is an Event of Default specified in clause (vi), (vii), (viii) or
(ix) of this Section 9.01 with respect to the Company, all of the Convertible
Debentures at the time outstanding shall automatically become immediately due
and payable at par together with interest accrued thereon, without presentment,
demand, protest or notice of any kind, all of which are hereby waived by the
Company, and (c) if such event is not an
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Event of Default specified in clause (vi), (vii), (viii) or (ix) of this
Section 9.01 with respect to the Company, the Purchaser may, by notice in
writing to the Company, declare all of the Convertible Debentures to be, and
all of the Convertible Debentures shall thereupon be and become, immediately
due and payable together with interest accrued thereon with respect to each
Convertible Debenture, without presentment, demand, protest or other notice of
any kind, all of which are hereby waived by the Company.
SECTION 9.02. RESCISSION OF ACCELERATION. At any time after any or
all of the Convertible Debentures shall have been declared immediately due and
payable pursuant to Section 9.01, the Purchaser may, by notice in writing to
the Company, rescind and annul such declaration and its consequences if (i) the
Company shall have paid all overdue interest on the Convertible Debentures, the
principal payable with respect to any Convertible Debentures which have become
due otherwise than by reason of such declaration, and interest on such overdue
interest and overdue principal at the rate specified in the Convertible
Debentures, (ii) the Company shall not have paid any amounts which have become
due solely by reason of such declaration, (iii) all Events of Default and
Defaults, other than non-payment of amounts which have become due solely by
reason of such declaration, shall have been cured or waived pursuant to Section
10.03, and (iv) no judgment or decree shall have been entered for the payment
of any amounts due pursuant to the Convertible Debentures or this Agreement.
No such rescission or annulment shall extend to or affect any subsequent Event
of Default of Default or impair any right arising therefrom.
SECTION 9.03. OTHER REMEDIES. If any Event of Default or Default
shall occur and be continuing, the Purchaser may proceed to protect and enforce
its rights under this Agreement and such Convertible Debenture by exercising
such remedies as are available to such holder in respect thereof under
applicable law, either by suit in equity or by action at law, or both, whether
for specific performance of any covenant or other agreement contained in this
Agreement or in aid of the exercise of any power granted in this Agreement. No
remedy conferred in this Agreement upon the Purchaser is intended to be
exclusive of any other remedy, and each and every such remedy shall be
cumulative and shall be in addition to every other remedy conferred herein or
now or hereafter existing at law or in equity or by statue or otherwise.
ARTICLE X
MISCELLANEOUS
SECTION 10.01. PAYMENTS. The Company will make payments of principal
of and interest on any Convertible Debenture by wire transfer of immediately
available funds for credit (not later than 12:00 noon, New York City time, on
the date due) to the account or accounts as specified by the Purchaser in
writing. The Purchaser agrees that, before
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disposing of any Convertible Debenture, the Purchaser will make a notation
thereon (or on a schedule attached thereto) of all principal payments
previously made thereon and of the date to which interest thereon has been
paid. Anything in this Agreement or in the Convertible Debenture to the
contrary notwithstanding, any payment in respect of the Convertible Debenture
that is due on a date other than a Business Day shall be made on the next
succeeding Business Day. If the date for any payment is extended to the next
succeeding Business Day by reason of the preceding sentence, the period of such
extension shall be included on the computation of the amount payable on such
Business Day.
SECTION 10.02. EXPENSES. The Company agrees, whether or not the
transactions contemplated hereby shall be consummated, to pay, and save the
Purchaser harmless against liability for the payment of, all out-of-pocket
expenses arising in connection with such transactions, including (i) all
document production and duplication charges and the fees and expenses of any
special counsel engaged by the Purchaser in connection with this Agreement, the
transactions contemplated hereby and any subsequent proposed modification of,
or proposed consent under, this Agreement, whether or not such proposed
modification shall be effected or proposed consent granted, and (ii) the costs
and expenses, including attorneys' fees, incurred by you or such Transferee in
enforcing (or determining whether or how to enforce) any rights under this
Agreement or the Convertible Debentures or in responding to any subpoena or
other legal process or informal investigative demand issued in connection with
this Agreement or the transactions contemplated hereby, including without
limitation costs and expenses incurred in any bankruptcy case.
SECTION 10.03. CONSENT TO AMENDMENTS. This Agreement may be amended,
and the Company may take any action herein prohibited, or omit to perform any
act herein required to be performed by it, if the Company shall obtain the
written consent to such amendment, action or omission to act, of the Purchaser.
No course of dealing between the Company and the Purchaser nor any delay in
exercising any rights hereunder or under the Convertible Debenture shall
operate as a waiver of any rights of any holder of the Purchaser.
SECTION 10.04. PERSONS DEEMED OWNERS; PARTICIPATIONS. Prior to due
presentment for registration of transfer, the Company may treat the Person in
whose name any Convertible Debenture is registered as the owner and holder of
such Convertible Debenture for the purpose of receiving payment of principal
of, interest on such Convertible Debenture and for all other purposes
whatsoever, whether or not such Convertible Debenture shall be overdue, and the
Company shall not be affected by notice to the contrary.
SECTION 10.05. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All
representations and warranties made herein or any certificate or instrument
delivered by the parties pursuant to or in connection with this Agreement shall
survive the execution and delivery of this Agreement, the issuance, sale and
delivery of the Convertible Debenture, the transfer by the Purchaser of any
Convertible Debenture
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or portion thereof or interest therein and the payment of any Convertible
Debenture.
SECTION 10.06. BROKERAGE. Each party hereto will indemnify and hold
harmless the others against and in respect of any claim for brokerage or other
commissions relative to this Agreement or the transactions contemplated hereby,
based in any way on agreements, arrangements or understandings made or claimed
to have been made by such party with any third party.
SECTION 10.07. PARTIES IN INTEREST. All representations, covenants
and agreements contained in this Agreement by on or behalf of any of the
parties hereto shall bind and inure of the benefit of the respective permitted
successors and assigns of the parties hereto whether so expressed or not.
SECTION 10.09. NOTICES. All notices, requests, consents and other
communications hereunder shall be in writing and shall be deemed effectively
given: (i) upon receipt at the address specified below after having been sent
by certified or registered mail, return receipt requested, postage prepaid; or
(ii) upon receipt at the address specified below after deposit with a
nationally recognized overnight courier, specifying next day delivery, with
written verification of receipt. All communications shall be sent to the party
to be notified at the address set forth below:
(a) if to the Purchaser, to
Godley Group Ltd.
140 Parkridge Dr.
Columbia, SC 29212
(b) if to the Company, to
Air South Airlines, Inc.
2625 Airport Boulevard
West Columbia, South Carolina 29170
Attention: President
with a copy (which shall not constitute notice) to
David Y. Monteith, Esq.
Monteith Law Offices
2805 Millwood Avenue
Columbia, South Carolina 29205
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or, in any such case, at such other address or addresses as shall have been
furnished in writing by such party to the others.
SECTION 10.09. ENTIRE AGREEMENT. This Agreement, including the
Schedules and Exhibits hereto, constitutes the sole and entire agreement of the
parties with respect to the subject matter hereof. All Schedules and Exhibits
hereto are hereby incorporated herein by reference.
SECTION 10.10. COUNTERPARTS. This Agreement may be executed in two
or more counterparts, each of which shall be deemed an original but all of
which together shall constitute one and the same instrument.
SECTION 10.11. SEVERABILITY. If any provision of this Agreement
shall be declared void or unenforceable by any judicial or administrative
authority, the validity of any other provision and of the entire Agreement
shall not be affected thereby.
SECTION 10.12. DESCRIPTIVE HEADINGS. The descriptive headings of the
several sections and paragraphs of this Agreement are inserted for reference
only and shall not limit or otherwise affect the meaning hereof.
SECTION 10.13. GOVERNING LAW. This agreement shall be governed by
and construed in accordance with the laws of the State of Delaware.
SECTION 10.14. GENDER; PLURALS. Words of the masculine gender shall
be deemed and construed to include correlative words of the feminine and neuter
genders. Words importing the singular number shall include the plural number
and vice versa.
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<PAGE> 36
IN WITNESS WHEREOF, the Company and the Purchaser have executed this
Agreement as of the day and year first above written.
AIR SOUTH AIRLINES, INC.
By:/s/ John P. Tague
-------------------------
John P. Tague
President
GODLEY GROUP LTD.
By:/s/ Johnny C. Godley
-------------------------
Johnny C. Godley
Title: President
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<PAGE> 37
INVESTOR'S RIGHTS AGREEMENT
BETWEEN
AIR SOUTH AIRLINES, INC.
AND
GODLEY GROUP LTD.
SEPTEMBER 4, 1996
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<PAGE> 38
INVESTOR'S RIGHTS AGREEMENT
THIS INVESTOR'S RIGHTS AGREEMENT (the "Agreement") is entered into as
of the 4th day of September 1996, by and among AIR SOUTH AIRLINES, INC., a
Delaware corporation (the "Company") and GODLEY GROUP LTD., a North Carolina
corporation ("Purchaser").
RECITALS
WHEREAS, the Company proposes to sell and issue up to an aggregate of
$300,000 of convertible debentures (the "Debentures")and Purchaser propose to
purchase $500,000 of Debentures pursuant to the Convertible Debenture Purchase
Agreement even date herewith between the Company and Purchaser (the "Purchase
Agreement"); and
WHEREAS, as a condition to entering into the Purchase Agreement, the
Purchaser has requested that the Company extent to it registration rights,
information rights and a right of first refusal as set forth herein.
NOW, THEREFORE, in consideration of the mutual promises,
representations, warranties, covenants, and conditions set forth in this
Agreement and in the Purchase Agreement, the parties mutually agree as follows:
1. GENERAL.
1.1 DEFINITIONS. As used in this Agreement the following
terms shall have the following respective meanings:
"1934 ACT" means the Securities Exchange Act of 1934.
"EQUITY SECURITIES" means (i) any stock or similar security of the
Company, (ii) any security convertible, with or without consideration, into any
stock or similar security (including any option to purchase such a convertible
security), (iii) any security carrying any warrant or right to subscribe to or
purchase any stock or similar security or (iv) any such warrant or right.
"FAMILY MEMBER" means a Holder's spouse, children, stepchildren and
grandchildren.
"FINAL PROSPECTUS" means an amended prospectus filed with the SEC
pursuant to SEC Rule 424(b) of the Securities Act.
"Form S-3" means such form under the Securities Act as in effect on
the date hereof or any successor registration form under the Securities Act
subsequently adopted by the SEC which permits inclusion or incorporation of
substantial information by reference to other documents filed by the Company
with the SEC.
"HOLDER" means any person owning of record Registrable Securities.
"INITIAL OFFERING" means the first underwritten public offering of the
Company's securities.
"INITIATING HOLDERS" means the Holder of Holders of at least forty
percent (40%) of the Registrable Securities then outstanding.
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<PAGE> 39
"REGISTER," "REGISTERED," and "REGISTRATION" refer to a registration
effected by preparing and filing a registration statement in compliance with
the Securities Act, and the declaration or ordering of effectiveness by the SEC
of such registration statement or document.
"REGISTRABLE SECURITIES" means (i) the Shares; (ii) Common Stock of
the Company issued or issuable upon conversion of the Shares; and (iii) any
Common Stock of the Company issued as (or issuable upon the conversion or
exerciseof any warrant, right or other security which is issued as) a dividend
or other distribution with respect to, or in exchange for or in replacement of,
such above-described securities. Notwithstanding the foregoing, Registrable
Securities shall not include any securities sold by a person to the public
either pursuant to a registration statement or Rule 144 or sold in a private
transaction in which the transferor's rights under Article 2 of this Agreement
are not assigned. Outstanding Shares and warrants, rights and other securities
issued as a dividend or other distribution with respect to outstanding Shares,
or in exchange or replacement of outstanding Shares, shall be deemed to
represent a number of shares of Registrable Securities equal to the number of
shares of Common Stock into which such Shares, warrants, rights or other
securities are convertible as of the time such determination is made.
"SECURITIES ACT" shall be the Securities Act of 1933, as amended.
"SHARES" shall mean the Company's Series D Preferred Stock issuable
assuming the conversion of the Convertible Debentures.
"SEC" or "COMMISSION" means the Securities and Exchange Commission.
2. RESTRICTIONS ON TRANSFER; REGISTRATION.
2.1 RESTRICTIONS ON TRANSFER.
(a) Each Holder agrees not to make any disposition of all
or any portion of the Registrable Securities unless and until the transferee
has agreed in writing for the benefit of the Company to be bound by this
Section 2.1, provided and to the extent such Section is then applicable and
either:
(i) there is then in effect a registration
statement under the Securities Act covering such proposed disposition and such
disposition is made in accordance with such registration statement; or
(ii) (A) such Holder shall have notified the
Company of the proposed disposition and shall have furnished the Company with a
detailed statement of the circumstances surrounding the proposed disposition,
and (B) if reasonably requested by the Company, such Holder shall have
furnished the Company with an opinion of counsel, reasonably satisfactory to
the Company, that such disposition will not require registration of such shares
under the Securities Act.
(b) Notwithstanding the provisions of subparagraphs
2.1(a) (i) and (ii) above, no such registration statement or opinion of counsel
shall be necessary for a transfer by a Holder (A) which is a partnership to its
partners in accordance with partnership interests, (B) to the Holder's Family
Member or trust for the benefit of an individual Holder of (C) to an affiliate
(as that term is defined in Rule 144 (a)(1) of the Securities Act) of the
Holder (an "Affiliate"), provided the transferee will be subject to the terms
of this Section 2.1 to the same extent as if he were an original Holder
hereunder.
(c) Each certificate representing Registrable Securities
shall (unless otherwise
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<PAGE> 40
permitted by the provisions of the Agreement) be stamped or otherwise imprinted
with a legend substantially similar to the following (in addition to any legend
required under applicable state securities laws or as provided elsewhere in
this Agreement):
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE OFFERED, SOLD OR
OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL
REGISTERED UNDER THE ACT OR, IN THE OPINION OF COUNSEL OR BASED ON
OTHER WRITTEN EVIDENCE IN FORM AND SUBSTANCE SATISFACTORY TO THE
ISSUER OF THESE SECURITIES, SUCH OFFER, SALE OR TRANSFER, PLEDGE OR
HYPOTHECATION DOES NOT REQUIRE REGISTRATION.
(d) The Company shall be obligated to reissue promptly
unlegended certificates at the request of any holder thereof if the holder
shall have obtained an opinion of counsel (which counsel may be counsel to the
Company) reasonably acceptable to the Company to the effect that the securities
proposed to be disposed of may lawfully be so disposed of without registration,
qualification or legend.
(e) Any legend endorsed on an instrument pursuant to
applicable state securities laws and the stop-transfer instructions with
respect to such securities shall be removed upon receipt by the Company of an
order of the appropriate blue sky authority authorizing such removal.
2.2 DEMAND REGISTRATION
(a) The Purchaser shall have no right to demand that the
Company shall register all or any part of any Registrable Securities.
(b) If holders of shares of the Company's Series A
Preferred Stock or Series B Preferred Stock or when authorized and issued
Series D Preferred Stock (collectively, "A, B and D Preferred") shall exercise
their right to demand that the Company shall register any registrable
securities, as such term is defined in the investors rights agreements (the
"Applicable Agreements") relating to the A, B and D Preferred, then the Company
shall also allow the Purchaser to register Registrable Securities on a pro-rata
basis to the number of registrable securities being registered by holders of A,
B and D Preferred, based on the ratio of the total number of shares of Common
Stock into which the Series A, B and D Preferred, as the case may be, are
convertible to the total number of shares of Common Stock into which shares of
the Series E Preferred Stock are convertible. If Registrable Securities are so
included in a demand registration, the holders of such included securities
shall be subject to the terms and conditions, and obligation regarding such
registration contained in the Applicable Agreements.
(c) If the holders of A, B and D Preferred shall exercise
their right to a Form S-3 Registration under the Applicable Agreements then the
Company shall also allow the Purchaser to register Registrable Securities on
Form S-3 on a pro-rata basis to the number of registrable securities being
registered by holders of A, B and D Preferred, based on the ratio of the total
number of shares of Common Stock into which the A, B, and D Preferred, as the
case may be, are convertible to the number of shares of Common Stock into which
the Series E Preferred Stock is convertible. If Registrable Securities are so
included in a Form S-3 registration, the holders of such included securities
shall be subject to the terms and conditions, and obligations regarding such
registration contained in the Applicable
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<PAGE> 41
Agreements.
(d) The Company has issued and outstanding a class of
preferred stock known as Series C Preferred Stock which is entitled to
registration rights which are substantially the same as those contained in
subsections 2.2 (b) and (c), above. Series C Preferred Stock avail themselves
of such registration rights than the pro-rata registration rights provided in
subsections 2.2 (b) and (c), above will be based on the ratio of the total
number of shares of Common Stock into which the A, B and D Preferred, as the
case may be, are convertible to the total number of shares of Common Stock into
which the shares of Series C Preferred Stock and Series E Preferred Stock are
convertible.
2.3 PIGGYBACK REGISTRATIONS.
(a) The Company shall notify all Holders in writing at
least thirty (30) days prior to the filing of any registration statement under
the Securities Act for purposes of a public offering of securities of the
Company (including, but not limited to, registration statements relating to
secondary offerings of securities of the Company, but excluding registration
statements relating to the Initial Offering, employee benefit plans and
corporate reorganizations) and will afford each such Holder who would have been
unable to sell all of such Registrable Securities on an unrestricted basis
pursuant to Rule 144 promulgated under the Securities Act, during the four-week
period immediately preceding the effective date of the registration statement,
an opportunity to include in such registration statement all or part of such
Registrable Securities held by such Holder. Each Holder desiring to include in
any such registration statement all or any part of the Registrable Securities
held by it shall, within twenty (20) days after receipt of the above-described
notice from the Company, so notify the Company in writing. Such notice shall
state the intended method of disposition of the Registrable Securities by such
Holder. If a Holder decides not to include all of its Registrable Securities
in any registration statement thereafter filed by the Company, such Holder
shall nevertheless continue to have the right to include any Registrable
Securities in any subsequent registration statement or registration statements
as may be filed by the Company with respect to offerings of its securities, all
upon the terms and conditions set forth herein. Notwithstanding anything to
the contrary, the foregoing shall not apply to any registrations occurring on
or after the fifth anniversary of the Initial Offering.
(b) If the registration statement under which the Company
gives notice under this Section 2.3 is for an underwritten offering, the
Company shall so advise the Holders. In such event, the right of any such
Holder to be included in a registration pursuant to this Section 2.3 shall be
conditioned upon such Holder's participation in such underwriting and the
inclusion of such Holder's Registrable Securities in the underwriting to the
extent provided herein. All Holders proposing to distribute their Registrable
Securities through such underwriting shall enter into an underwriting agreement
in customary form with the underwriter or underwriters selected for such
underwriting. Notwithstanding any other provision of the Agreement, if the
underwriter determines in good faith that marketing factors require a
limitation of the number of shares to be underwritten, the number of shares
that may be included in the underwriting shall be allocated, first, to the
Company; second, to the holders of shares of the Company's Series A, Series B,
Series C, Series D and Series E Preferred stock allocated pro rata on the
basis of the total number of shares of Common Stock into which the shares of
Series A, Series B, Series C, Series D and Series E Preferred Stock are
convertible; third to the 7,500 shares of Common Stock par value $0.001 per
share held by a designee of NationsBank, N.A.; and fourth to any stockholder of
the Company (other than a
4
<PAGE> 42
Holder) on a pro rata basis. No such reduction shall reduce the securities
being offered by the Company for its own account to be included in the
registration and underwriting.
(c) The Company shall bear all fees and expenses incurred
in connection with any registration under this Section 2.3 (excluding
underwriters' discounts and commissions, which shall be paid by the selling
Holders pro rata with respect to their included shares), including without
limitation all registration, filing, qualification, printers' and accounting
fees, fees and disbursements of counsel to the Company, and the reasonable fees
and disbursements of a single counsel to the selling Holders (which counsel
shall also be counsel to the Company unless counsel to the Company has a
conflict of interest with respect to the representation of any selling Holder
or the underwriters object to the selling Holders representation by Company
counsel).
2.4 FURNISH INFORMATION. It shall be a condition
precedent to the obligations of the Company to take any action pursuant to
Section 2.3, that the selling Holders shall furnish to the Company such
information regarding themselves, the Registrable Securities held by them, and
the intended method of disposition of such securities as shall be required to
effect the registration of their Registrable Securities.
2.5 DELAY OF REGISTRATION. No Holder shall have any
right to obtain or seek an injunction restraining or otherwise delaying any
such registration as the result of any controversy that might arise with
respect to the interpretation or implementation of this Article 2.
2.6 INDEMNIFICATION. In the event any Registrable
Securities are included in a registration statement under Sections 2.2 or 2.3:
(a) To the extent permitted by law, the Company will
indemnify and hold harmless each Holder, the partners, officers and directors
of each Holder, any underwriter (as defined in the Securities Act) for such
Holder and each person, if any, who controls such Holder or underwriter within
the meaning of the Securities Act or the 1934 Act, against any losses, claims,
damages, or liabilities (joint or several) to which they may become subject
under the Securities Act, the 1934 Act or other federal or state law, insofar
as such losses, claims, damages, or liabilities (or actions in respect thereof)
arise out of or are based upon any of the following statements, omissions or
violations (collectively a "Violation") by the Company: (i) any untrue
statement or alleged untrue statement of a material fact contained in such
registration statement, including any preliminary prospectus or final
prospectus contained therein or any amendments or supplements thereto, (ii) 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
(iii) any violation or alleged violation by the Company of the Securities Act,
the 1934 Act, any state securities law or any rule or regulation promulgated
under the Securities Act, the 1934 Act or any state securities law in
connection with the offering covered by such registration statement; and the
Company will reimburse each such Holder, partner, officer or director,
underwriter or 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 indemnity
agreement contained in this Section 2.6(a) shall not apply to amounts paid in
settlement of anysuch loss, claim, damage, liability or action if such
settlement is effected without the consent of the Company (which consent shall
not be unreasonably withheld), nor shall the Company be liable in any such case
for any such loss, claim, damage, liability or action to the extent that it
arises out of or is based upon a Violation which occurs in reliance upon and in
conformity with
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<PAGE> 43
written information furnished to the Company expressly for use in connection
with such registration by such Holder, partner, officer, director, underwriter
or controlling person of such Holder.
(b) To the extent permitted by law, each selling Holder
will indemnify and hold harmless the Company, each of its directors, each of
its officers, each person, if any, who controls the Company within the meaning
of the Securities Act, any underwriter and any other Holder selling securities
under such registration statement or any of such other Holder's partners,
directors or officers or any person who controls such Holder, against any
losses, claims, damages or liabilities (joint or several) to which the Company
or any such director, officer, controlling person, underwriter or other such
Holder, or partner, director, officer or controlling person of such other
Holder may become subject under the Securities Act, the 1934 Act or other
federal of state law, insofar as such losses, claims, damages or liabilities
(or actions in respect thereto) arise out of or are based upon any Violation,
in each case to the extent (and only to the extent) that such Violation occurs
in reliance upon and in conformity with written information furnished to the
Company by such Holder expressly for use in connection with such registration;
and each such Holder will reimburse any legal or other expenses reasonably
incurred by the Company or any such director, officer, controlling person,
underwriter or other Holder, or partner, officer, director or controlling
person of such other Holder in connection with investigating or defending any
such loss, claim, damage, liability or action if it is judicially determined
that there was such a Violation; provided, however, that the indemnity
agreement contained in this Section 2.5(b) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Holder, which consent shall
not be unreasonably withheld; provided further, that in no event shall any
indemnity under this Section 2.6 exceeds the proceeds from the offering
received by such Holder.
(c) Promptly after receipt by an indemnified party under
this Section 2.5 of notice of the commencement of any action (including any
governmental action) as to which indemnity may be sought, such indemnified
party will, if a claim in respect thereof is to be made against any
indemnifying party under this Section 2.6, deliver to the indemnifying party a
written notice of the commencement thereof and the indemnifying party shall
have the right to participate in, and, to the extent the indemnifying party so
desires, jointly with any other indemnifying party similarly noticed, to assume
the defense thereof with counsel mutually satisfactory to the parties;
provided, however, that an indemnified party shall have the right to retain its
own counsel, with the fees and expenses to be paid by the indemnifying party,
if representation of such indemnified party of the counsel retained by the
indemnifying party would be inappropriate due to the actual or potential
differing interests between such indemnified party and any other party
represented by such counsel in such proceeding. The failure to deliver written
notice to the indemnifying party within a reasonable time of the commencement
of any such action, if materially prejudicial to its ability to defend such
action, shall relieve such indemnifying party of any liability to the
indemnified party under this Section 2.6, but the omission so to deliver
written notice to the indemnifying party will not relieve it of any liability
that it may have to any indemnified party otherwise than under this Section
2.6.
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(d) If the indemnification provided for this Section 2.6
is held by a court of competent jurisdiction to be unavailable to an
indemnified party with respect to any losses, claims, damages or liabilities
referred to herein, the indemnifying party, in lieu of indemnifying such
indemnified party thereunder, shall to the extent permitted by applicable law
contribute to the amount paid or payable by such indemnified party as a result
of such loss, claim, damage or liability in such proportion as is appropriate
to reflect the relative fault of the indemnifying party on the one hand and of
the indemnified party on the other in connection with the Violation(s) that
resulted in such loss, claim, damage or liability, as well as any other
relevant equitable considerations. The relative fault of the indemnifying
party and of the indemnified party shall be determined by a court of law by
reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission to state a material fact relates
to information supplied by the indemnifying party or by the indemnified party
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission; provided that, in
no event shall any contribution by a Holder hereunder exceed the proceeds from
the offering received by such Holder.
(e) The foregoing indemnity agreements of the Company and
Holders are subject to the condition that, insofar as they relate to any
Violation made in a preliminary prospectus but eliminated or remedied in the
amended prospectus on file with the SEC at the time the registration statement
in question becomes effective or the Final Prospectus, such indemnity agreement
shall not inure to the benefit of any person obligated under the Securities Act
to furnish to the person asserting the loss, liability, claim or damage a copy
of the Final Prospectus if a copy of the Final Prospectus was furnished to the
indemnified party and was not furnished to the person asserting the loss,
liability, claim or damage at or prior to the time such action is required by
the Securities Act.
(f) The obligations of the Company and Holders under this
Section 2.5 shall survive the completion of any offering of Registrable
Securities pursuant to a registration statement, or otherwise.
2.7 ASSIGNMENT OF REGISTRATION RIGHTS. The rights to
cause the Company to register Registrable Securities pursuant to this Article 2
may be assigned by a Holder to a transferee or assignee of Registrable
Securities; provided, however, that no such transferee or assignee shall be
entitled to registration rights under Sections 2.2 and 2.3, hereof unless such
transferee or assignee: (i) is a Holder; (ii) holds after such transfer or
assignment at least one hundred thousand (100,00) shares of Registrable
Securities (as adjusted for stock dividends, splits and combinations); or (iii)
is a Family Member or a subsidiary, parent, general partner, Affiliate, or
limited partner of a Holder. In each such case, the Company shall, within
twenty (20) days after such transfer, be furnished with written notice of the
name and address of such transferee or assignee and the securities with respect
to which such registration rights are being assigned.
2.8 AMENDMENT OF REGISTRATION RIGHTS. Any provision of
this Article 2 may be amended and the observance thereof may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the company and the Holders of
more than fifty percent (50%) of the Registrable Securities. Any amendment or
waiver effected in accordance with this Section 2.8 shall be binding upon each
Holder and the Company. By acceptance of any benefits under this Article 2,
each Holder hereby agrees to be bound by the provisions hereunder.
2.9 "MARKET STAND-OFF" AGREEMENT. If requested by the
Company and an underwriter of Common Stock (or other securities) of the
Company, the Purchaser shall not sell or otherwise transfer or dispose of any
Common Stock (or other securities) of the Company held by such stockholder
(other than those included in the registration) for a period
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<PAGE> 45
specified by the underwriters not to exceed one hundred eighty (180) days
following the effective date of a registration statement of the Company filed
under the Securities Act, provided that all officers and directors of the
Company and all holders of at least one percent (1%) of the Company's voting
securities enter into similar agreements. The obligations described in this
Section 2.9 shall not apply to a registration relating solely to employee
benefit plans on Form S-1 or Form S-8 or similar forms that may be promulgated
in the future, or a registration relating solely to a Commission Rule 145
transaction on Form S-4 or similar forms that may be promulgated in the future.
The Company may impose stop-transfer instructions with respect to the shares
(or securities) subject to the foregoing restriction until the end of said one
hundred eighty (180) days period.
3. COVENANTS OF THE COMPANY.
3.1 BASIC FINANCIAL INFORMATION AND REPORTING.
(a) The Company will maintain true books and records of
account in which full and correct entries will be made of all its business
transactions pursuant to a system of accounting established and administered in
accordance with generally accepted accounting principles consistently applied,
and will set aside on its books all such proper accruals and reserves as shall
be required under generally accepted accounting principles consistently
applied.
(b) As soon as practicable after the end of each fiscal
year of the Company, and in any event within 90 days thereafter or, after the
Initial Offering, simultaneously with the filing of the Company's annual report
on Form 10-K with the SEC, the Company will furnish each Holder a consolidated
balance sheet of the Company, as at the end of such fiscal year, and a
consolidated statement of income and a consolidated statement of cash flows of
the Company for such year, all prepared in accordance with generally accepted
accounting principles and setting forth in each case in comparative form the
figures for the previous fiscal year, all in reasonable detail. Such financial
statements shall be accompanied by a report and opinion thereon by independent
public accounts of national standing selected by the Company's Board of
Directors.
(c) As soon as practicable after the end of each fiscal
quarter of the Company, and in any event within thirty days thereafter or,
after the Initial Offering, simultaneously with the filing of the Company's
reports on Form 10-Q with the SEC, the Company will furnish each Holder a
consolidated balance sheet of the Company, as at the end of such fiscal
quarter, and a consolidated statement of income and a consolidated statement of
cash flows of the Company for such quarter, prepared and presented in a manner
consistent with the financial statements described in Section 3.1(b). Such
statement shall be accompanied by a certificate signed by the Chairman of the
Board and Chief Financial Officer of the Company stating that the preparation
and presentation of such statements is consistent with the financial statements
described in Section 3.1(b).
(d) So long as a Holder (with its Affiliates) shall own
not less than one thousand (100,000) shares of Registrable Securities, the
Company will furnish such Holder a consolidated balance sheet of the Company,
as at the end of each calendar month, and a consolidated statement of income
and a consolidated statement of cash flows of the Company for such month,
prepared and presented in a manner consistent with the financial statements
described in Section 3.1(b). Such statements shall be furnished as soon as
practicable after the end of each month and in any event within ten days
thereafter and shall be accompanied by a certificate signed by the Chairman of
the Board and Chief Financial Officer of the Company stating that the
preparation and presentation of such
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<PAGE> 46
statements is consistent with the financial statements described in Section
3.1(b). Prior to January 1st of each year, the Company shall furnish such
Holders an annual budget for the Company for the following twelve month period,
broken down by month. The Company's obligations under this Section 3.1(d)
shall terminate upon the Initial Offering.
3.2 INSPECTION RIGHTS. So long as a Holder (with its
affiliates) shall own not less than one hundred thousand (100,00) shares of
Registrable Securities, each such Holder shall have the right to visit and
inspect any of the properties of the Company or any of its subsidiaries, and to
discuss the affairs, finances and accounts of the Company or any of its
subsidiaries with its officers, all at such reasonable times and as often as
may be reasonably requested; provided, however, that the Company shall not be
obligated under this Section 3.2 with respect to a competitor of the Company or
with respect to information which the Board of Directors determines in good
faith is confidential and should not, therefore, be disclosed.
3.3 CONFIDENTIALITY OF RECORDS. Each Holder agrees to
use, and to use its best efforts to insure that its authorized representatives
use, the same degree of care as such Holder uses to protect its own
confidential information to keep confidential any information furnished to it
which the Company identifies as being confidential or proprietary (so long as
such information is not in the public domain), except that such Holder may
disclose such proprietary or confidential information to any partner,
subsidiary, Affiliate or parent of such Holder for the purpose of evaluating
its investment in the Company as long as such partner, subsidiary or parent is
advised of the confidentiality provisions of this Section 3.3.
3.4 RESERVATION OF SERIES E PREFERRED STOCK. Upon filing
by the Company of the Certificate of Designation (as defined in the Purchase
Agreement) with the Secretary of State of the State of Delaware and at all
times thereafter, the Company will reserve and keep available, solely for
issuance and delivery upon the conversion of the Convertible Debentures, all
Series E Preferred Stock issuable from time to time upon such conversion.
3.5 RESERVATION OF COMMON STOCK. Upon filing by the
Company of the Certificate of Designation (as defined in the Purchase
Agreement) with the Secretary of State of the State of Delaware and at all
times thereafter, the Company will reserve and keep available, solely for
issuance and delivery upon the conversion of the Series E Preferred Stock
issuable upon conversion of the Convertible Debentures, all Common Stock
issuable from time to time upon such conversion.
4. RIGHTS OF FIRST REFUSAL.
4.1. SUBSEQUENT OFFERINGS. Each Holder shall have a right
of first refusal to purchase its pro rata share of all Equity Securities that
the Company may, from time to time, propose to sell and issue after the date of
this Agreement, other than the Equity Securities excluded by Section 4.6
hereof. Each Holder's pro rata share is equal to the ratio of the number of
shares of Common Stock, assuming full conversion of all Convertible Debentures
and Registrable Securities owned by such Holder, held by such Holder
immediately prior to the issuance of such Equity Securities to the total number
of shares of the Company's outstanding Common Stock (including all shares of
Common Stock issuable upon conversion of the Convertible Debentures and
Registrable Securities).
4.2 EXERCISE OF RIGHTS. If the Company proposes to issue any
Equity
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<PAGE> 47
Securities, it shall give each Holder written notice of its intention,
describing the Equity Securities, the price, and the terms and conditions upon
which the Company proposes to issue the same. Each Holder shall have fifteen
(15) days from the receipt of such notice to agree to purchase its pro rata
share of the Equity Securities for the price and upon the terms and conditions
specified in the notice by giving written notice to the Company and stating
therein the quantity of Equity Securities to be purchased. Notwithstanding the
foregoing, the Company shall not be required to offer or sell such Equity
Securities to any Holder who would cause the Company to be in violation of
applicable federal securities laws by virtue of such offer or sale.
4.3 ISSUANCE OF EQUITY SECURITIES TO OTHER PERSONS. If
the Holders fail to exercise in full the rights of first refusal, the Company
shall have ninety (90) days thereafter to sell the Equity Securities in respect
of which the Holders' rights were not exercised, at a price and upon terms and
conditions no more favorable to the purchaser thereof than specified in the
Company's notice to the Holders pursuant to Section 4.2 hereof. If the Company
has not sold such Equity Securities within such ninety (90) days, the Company
shall not thereafter issue or sell any Equity Securities, without first
offering such securities to the Holders in the manner provided above.
4.4 TERMINATION OF RIGHTS OF FIRST REFUSAL. The rights
of first refusal established by this Article 4 shall terminate upon the closing
of the Initial Offering.
4.5 TRANSFER OF RIGHTS OF FIRST REFUSAL. The rights of
first refusal of each Holder under this Article IV may be transferred to any
subsidiary or parent of such Holder, to any successor in interest to all or
substantially all the assets of such Holder, or to an assignee or transferee
who acquires Registrable Securities.
4.6 EXCLUDED SECURITIES. The rights of first refusal
established by this Article IV shall have no application to any of the
following Equity Securities:
(a) shares of Common Stock (and/or options, warrants or
other Common Stock purchase rights issued pursuant to such options, warrants or
other rights) issued or to be issued to employees, officers or directors of, or
consultants or advisors to, the Company, pursuant to stock purchase or stock
option plans or other arrangements that are approved by the Board of Directors
of the Company;
(b) stock issued pursuant to any rights, options and
warrants granted after the date of this Agreement, provided that the rights of
first refusal established by this Article IV are applied with respect to the
initial sale or grant by the Company of such rights, options or warrants;
(c) any Equity Securities issued for consideration other
than cash pursuant to a merger, consolidation, acquisition or similar business
combinations;
(d) any Equity Securities that are issued by the Company
as part of the Initial Offering referred to in Section 4.4 hereof;
(e) shares of Common Stock issued in connection with any
stock split, stock dividend or recapitalization by the Company;
10
<PAGE> 48
(f) shares of Common Stock issued upon conversion of the
Company's Preferred Stock; and
(g) shares of Series E Preferred Stock issued upon
conversion of the Convertible Debentures; and
(h) any Equity Securities issued pursuant to any
equipment leasing arrangement or commercial bank financing approved by the
Company's Board of Directors.
V. MISCELLANEOUS
5.1 GOVERNING LAW. This Agreement shall be governed by
and construed under the laws of the State of New York.
5.2 SURVIVAL. The representations, warranties,
covenants, and agreements made herein shall survive any investigation made by
any Holder and the closing of the transactions contemplated hereby. All
statements as to factual matters contained in any certificate or other
instrument delivered by or on behalf of the Company pursuant hereto in
connection with the transactions contemplated hereby shall be deemed to be
representations and warranties by the Company hereunder solely as of the date
of such certificate or instrument.
5.3 SUCCESSORS AND ASSIGNS. Except as otherwise
expressly provided herein, the provisions hereof shall inure to the benefit of,
and be binding upon, the successors, assigns, heirs, executors, and
administrators of the parties hereto and shall inure to the benefit of and be
enforceable by each person who shall be a holder of Registrable Securities from
time to time; provided, however, that prior to the receipt by the Company of
adequate written notice of the transfer of any registrable Securities
specifying the full name and address of the transferee, the Company may deem
and treat the person listed as the holder of such shares in its records as the
absolute owner and holder of such shares for all purposes, including the
payment of dividends or any redemption price.
5.4 SEPARABILITY. In case any provision of the Agreement
shall be invalid, illegal, or unenforceable, the validity, legality, and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
5.5 AMENDMENT AND WAIVER.
Except as otherwise expressly provided, this Agreement may be amended
or modified
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<PAGE> 49
only upon the written consent of the Company and the holders of more than fifty
percent (50%) of the Registrable Securities.
Except as otherwise expressly provided, the obligations of the Company
and the rights of the Holders under this Agreement may be waived only with the
written consent of the holders of more than fifty percent (50%) of the
Registrable Securities.
5.6 DELAYS OR OMISSIONS. It is agreed that no delay or
omission to exercise any right, power, or remedy accruing to any Holder, upon
any breach, default or noncompliance of the Company under this Agreement shall
impair any such right, power, or remedy, nor shall it be construed to be a
waiver of any such breach, default or noncompliance, or any acquiescence
therein, or of any similar breach, default or noncompliance thereafter
occurring. It is further agreed that any waiver, permit, consent, or approval
of any kind or character on any Holder's part of any breach, default or
noncompliance under this Agreement or any waiver on such Holder's part of any
provisions or conditions of this Agreement must be in writing and shall be
effective only to the extent specifically set forth in such writing. All
remedies, either under this Agreement, by law, or otherwise afforded to
Holders, shall be cumulative and not alternative.
5.7 NOTICES. All notices required or permitted hereunder
shall be in writing and shall be deemed effectively given: (i) upon personal
delivery to the party to be notified; (ii) upon receipt after having been sent
by registered or certified mail, return receipt requested, postage prepaid; or
(iii) upon receipt after deposit with a nationally recognized overnight
courier, specifying next day delivery, with written verification of receipt.
All communications shall be sent to the party to be notified at the address as
set forth below or at such other address as such party may designate by ten
(10) days advance written notice to the other party hereto.
IF TO THE COMPANY: WITH A COPY TO:
Air South Airlines, Inc. David Y. Monteith, Esquire
2625 Airport Boulevard Monteith Law Offices
West Columbia, SC 29170 2805 Millwood Avenue
Attention: President; Columbia, SC 29205
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<PAGE> 50
IF TO THE PURCHASER
Godley Group Ltd.
517 South Governor Williams Highway
Darlington, SC 28532
5.8 ATTORNEYS' FEES. If legal action is brought to
enforce or interpret this Agreement, the prevailing party shall be entitled to
recover its reasonable attorneys' fees and legal costs in connection therewith.
5.9 TITLES AND SUBTITLES. The titles of the sections and
subsections of this Agreement are for convenience of reference only and are not
to be considered in construing this Agreement.
5.10 COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which shall be an original, but all of which
together shall constitute one instrument.
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<PAGE> 51
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date set forth in the first paragraph hereof.
AIR SOUTH AIRLINES, INC. GODLEY GROUP LTD.
By: By:
---------------------------- ----------------------------
John P. Tague Johnny C. Godley
President and Chief Executive Officer Title:
----------------------
14
<PAGE> 1
EXHIBIT 4.14
CONVERTIBLE DEBENTURE PURCHASE AGREEMENT
BETWEEN
AIR SOUTH AIRLINES, INC.
AND
W. J. FLYNN & ASSOCIATES, INC.
DATED AS OF SEPTEMBER 30, 1996
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TABLE OF CONTENTS
<TABLE>
<S> <C>
Page
ARTICLE I DEFINITIONS
SECTION 1.01. DEFINITIONS........................... 1
ARTICLE II PURCHASE AND SALE OF CONVERTIBLE DEBENTURES
SECTION 2.01. ISSUANCE, SALE AND DELIVERY
OF THE CONVERTIBLE DEBENTURES......... 6
SECTION 2.02. CLOSING............................... 6
ARTICLE III CONVERSION
SECTION 3.01. CONVERSION, NUMBER.................... 7
SECTION 3.02. CONVERSION PROCEDURE.................. 7
SECTION 3.03. REPRESENTATIONS, WARRANTIES,
COVENANTS, NO DEFAULT,
CONDITIONS PRECEDENT TO CONVERSION.... 7
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE COMPANY
SECTION 4.01. ORGANIZATION, QUALIFICATION AND
CORPORATE POWER....................... 8
SECTION 4.02. AUTHORIZATION......................... 8
SECTION 4.03. VALIDITY.............................. 9
SECTION 4.04. CAPITALIZATION........................ 9
SECTION 4.05. FINANCIAL STATEMENTS.................. 10
SECTION 4.06. EVENTS SUBSEQUENT TO THE DATE
OF THE BALANCE SHEET.................. 10
SECTION 4.07. COMPLIANCE WITH INSTRUMENTS........... 10
SECTION 4.08. LITIGATION............................ 11
SECTION 4.09. COMPLIANCE WITH LAW................... 11
SECTION 4.10. TITLE TO PROPERTIES................... 11
SECTION 4.11. LEASEHOLD INTERESTS................... 11
SECTION 4.12. TAXES................................. 12
SECTION 4.13. PATENTS, TRADEMARKS, ETC.............. 12
SECTION 4.14. OUTSTANDING DEBT; LOANS
AND ADVANCES.......................... 13
SECTION 4.15. GUARANTEES............................ 13
SECTION 4.16. GOVERNMENTAL APPROVALS................ 13
SECTION 4.17. DISCLOSURE............................ 13
SECTION 4.18. BROKERS............................... 13
SECTION 4.19. SECURITIES ACT........................ 13
</TABLE>
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<TABLE>
<S> <C>
SECTION 4.20. MARGIN REGULATIONS.................... 14
SECTION 4.21. INSURANCE COVERAGE.................... 14
SECTION 4.22. ERISA................................. 14
SECTION 4.23. ENVIRONMENTAL COMPLIANCE.............. 15
SECTION 4.24. PERMITS AND LICENSES.................. 15
SECTION 4.25. BOARD COMPOSITION..................... 15
ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
SECTION 5.01. REPRESENTATIONS AND WARRANTIES
OF THE PURCHASER...................... 15
ARTICLE VI CONDITIONS TO THE OBLIGATION
OF THE PURCHASER......................16
SECTION 6.01. CONDITIONS TO THE OBLIGATIONS
OF THE PURCHASER...................... 16
ARTICLE VII CONDITIONS TO THE OBLIGATIONS OF THE COMPANY
SECTION 7.01. CONDITIONS TO THE OBLIGATIONS
OF THE COMPANY........................ 18
ARTICLE VIII COVENANTS OF THE COMPANY
SECTION 8.01. FINANCIAL STATEMENTS AND REPORTS...... 19
SECTION 8.02. CORPORATE EXISTENCE................... 21
SECTION 8.03. MAINTENANCE OF PROPERTIES
AND INSURANCE......................... 21
SECTION 8.04. INSPECTION, CONSULTATION
AND ADVICE............................ 21
SECTION 8.05. RESTRICTIVE AGREEMENTS PROHIBITED..... 22
SECTION 8.06. TRANSACTIONS WITH AFFILIATES.......... 22
SECTION 8.07. USE OF PROCEEDS....................... 22
SECTION 8.08. SUBSIDIARIES.......................... 22
SECTION 8.09. COMPLIANCE WITH LAWS.................. 22
SECTION 8.10. KEEPING OF RECORDS AND BOOKS
OF ACCOUNT............................ 22
SECTION 8.11. OBLIGATIONS AND TAXES................. 22
SECTION 8.12. TRANSFER AND EXCHANGE OF
CONVERTIBLE DEBENTURES; LOST
CONVERTIBLE DEBENTURES................ 23
SECTION 8.13. LIMITATION ON DEBT.................... 23
SECTION 8.14. LIMITATION ON LIENS................... 23
SECTION 8.15. LIMITATION ON RESTRICTED PAYMENTS..... 24
SECTION 8.16. COVENANT REGARDING STOCKHOLDER
VOTE AND FILING OF CERTIFICATE
OF DESIGNATION........................ 24
ARTICLE IX EVENTS OF DEFAULT
SECTION 9.01. ACCELERATION.......................... 25
SECTION 9.02. RESCISSION OF ACCELERATION............ 27
SECTION 9.03. NOTICE OF ACCELERATION OR
RESCISSION............................ 27
</TABLE>
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<TABLE>
<S> <C> <C>
SECTION 9.04. OTHER REMEDIES........................ 28
ARTICLE X MISCELLANEOUS
SECTION 10.01. PAYMENTS.............................. 28
SECTION 10.01. EXPENSES.............................. 28
SECTION 10.03. CONSENT TO AMENDMENTS................. 29
SECTION 10.04. PERSONS DEEMED OWNERS,
PARTICIPATIONS........................ 29
SECTION 10.05. SURVIVAL OF REPRESENTATIONS
AND WARRANTIES........................ 30
SECTION 10.06. BROKERAGE............................. 30
SECTION 10.07. PARTIES IN INTEREST................... 30
SECTION 10.09. NOTICES............................... 30
SECTION 10.09. ENTIRE AGREEMENT...................... 31
SECTION 10.10. COUNTERPARTS.......................... 32
SECTION 10.11. SEVERABILITY.......................... 32
SECTION 10.12. DESCRIPTIVE HEADINGS.................. 32
SECTION 10.13. GOVERNING LAW......................... 32
SECTION 10.14. Gender, Plurals....................... 32
</TABLE>
EXHIBITS
EXHIBIT A Form of Convertible Debenture
EXHIBIT B Form of Certificate of Designation
EXHIBIT C Certificate of Incorporation
EXHIBIT D Form of Investors Rights Agreement
EXHIBIT E Form of Opinion of General Counsel (Series D Preferred
Stock)
EXHIBIT F Form of Opinion of General Counsel
Counsel (Convertible Debentures)
SCHEDULES
SCHEDULE 4.04. Outstanding Options, Warrants, Etc.
SCHEDULE 4.06. Events Subsequent to Balance Sheet
SCHEDULE 4.07. Violations, Defaults
SCHEDULE 4.08. Defaults
SCHEDULE 4.11. Leasehold Interests
SCHEDULE 4.14. Existing Debt
iii
<PAGE> 5
CONVERTIBLE DEBENTURE PURCHASE AGREEMENT
CONVERTIBLE DEBENTURE PURCHASE AGREEMENT ("Agreement"), dated as of
September ______, 1996, between AIR SOUTH AIRLINES, INC., a Delaware
corporation (the "Company"), and W. J. FLYNN & ASSOCIATES, INC., a New York
Corporation (the "Purchaser").
RECITALS
WHEREAS, the Company on August 16, 1996 sold to H&Q Air South
Investors, L.P. certain convertible debentures due August 16, 1999 (the "H&Q
Debentures").
WHEREAS, the Company wishes to issue and sell to the Purchaser its
convertible debenture (Herein, together with any such convertible debentures
which may be issued pursuant to any provision of this Agreement, and any such
convertible debentures which may be used in substitution or exchange thereof,
collectively called the "Convertible Debentures" and individually called a
"Convertible Debenture"), such convertible Debenture to be on substantially the
same terms and conditions as the H&A Debentures in the original aggregate
principal amount of $200,000, to be dated the date of issue, to mature August
16, 1999, to become due and payable at the rate of 6% per annum, which interest
shall be deferred and added to the outstanding principal balance of the
Convertible Debentures, and to be substantially in the form of Exhibit A
attached hereto; and such Convertible Debenture will be a part of up to
$4,000,000 of 6% convertible debentures authorized to be issued by the
Company's Board of Directors (the "Board").
WHEREAS, the Purchaser wishes to purchase the Convertible Debenture on
the terms and subject to the conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the above recitals, the mutual
promises contained herein and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto do
hereby agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. DEFINITIONS. As used herein, unless the context
otherwise requires, the following terms have the following meanings specified
with respect thereto below:
<PAGE> 6
"AGREEMENT" shall mean this Convertible Debenture Purchase Agreement,
as the same may be amended or supplemented and in effect from time to time.
"AMENDMENT" shall have the meaning ascribed thereto in Section 8.16.
"BALANCE SHEET" shall have the meaning ascribed thereto in Section
4.05.
"BANKRUPTCY LAW" shall have the meaning ascribed thereto in Section
9.01.
"BLANK CHECK PREFERRED STOCK" shall have the meaning ascribed thereto
in Section 4.04.
"BUSINESS DAY" shall mean any day which is not a Saturday or Sunday or
a national banking holiday.
"BY-LAWS" shall mean the By-laws of the Company, as amended.
"CERTIFICATE OF DESIGNATION" shall mean the Certificate of Designation
of the Company to be substantially in the form of Exhibit B attached hereto.
"CERTIFICATE OF INCORPORATION" shall mean the Certificate of
Incorporation of the Company, including all amendments thereto through the date
hereof, including any amendments effected by means of a certificate of
designation, a copy of which is attached hereto as Exhibit C.
"CLOSING" shall have the meaning ascribed thereto in section 2.02.
"CLOSING DATE" shall have the meaning ascribed thereto in Section
2.02.
"CODE" shall mean the Internal Revenue Code of 1986, as amended.
"COMMISSION" shall mean the Securities and Exchange Commission or any
other federal agency at the time administering the Securities Act.
"COMMON CONVERSION SHARE" shall mean the share of Common Stock
issuable upon conversion of the Preferred Conversion Share.
"COMMON STOCK" shall mean the Common Stock, par value $0.001 per
share, of the Company.
2
<PAGE> 7
"COMPANY" shall have the mean ascribed thereto in the preamble.
"CONVERTIBLE DEBENTURE" shall have the meaning ascribed thereto in the
recitals.
"CONVERSION" shall have the meaning ascribed thereto in Section 3.01.
"CONVERSION NOTICE" shall mean the notice of conversion in the form
attached to the Convertible Debenture, which notice shall set forth the name of
the registered owner of the Convertible Debenture being converted and the
principal balance, or portion thereof, being converted.
"CURRENT DEBT" shall mean, with respect to any Person, all
Indebtedness of such Person for borrowed money which by its terms or by the
terms of any instrument or agreement relating thereto matures on demand or
within one year from the date of the creation thereof and is not directly or
indirectly renewable to extendible at the option of the debtor to a date more
than one year from the date of the creation thereof.
"DEBT" shall mean Current Debt and Funded Debt.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.
"ERISA AFFILIATE" shall mean any corporation which is a member of the
same controlled group of corporations as the Company within the mean of Section
414(b) of the Code, or any trade or business which is under common control with
the Company within the mean of Section 414(c) of the Code, or any other entity
which is considered to be a single employer with the Company pursuant to
Sections 414(m), (n) or (o) of the Code.
"EVENT OF DEFAULT" shall mean any of the events specified in Section
9.01 provided that there has been satisfied any requirement in connection with
such event for the giving of notice, or the lapse of time or the happening of
any further condition, event or act, and "DEFAULT" shall mean any of such
events, whether or not any such requirement has been satisfied.
"EXISTING DEBT" shall have the meaning ascribed thereto in Section
4.14.
"FUNDED DEBT" shall mean, with respect to any Person, all Indebtedness
of such Person which by its terms or by the terms of any instrument or
agreement relating thereto matures, or which is otherwise payable or unpaid,
more than one year from, or
3
<PAGE> 8
is directly or indirectly renewable to extendible at the option of the debtor
to a date more than one year from, the date of the creation thereof.
"GUARANTEE" shall mean, with respect to any Person, any direct or
indirect liability, contingent or otherwise, of such Person with respect to any
indebtedness, lease, dividend or other obligation of another, including,
without limitation, any such obligation directly or indirectly guaranteed,
endorsed (otherwise than for collection or deposit in the ordinary course of
business) or discounted or sold with recourse by such Person, or in respect of
which such Person is otherwise directly or indirectly liable, including,
without limitation, any such obligation in effect guaranteed by such Person
through any agreement (contingent or otherwise) to purchase, repurchase or
otherwise acquire such obligation or any security therefore, or to provide
funds for the payment or discharge of such obligation (whether in the form of
loans, advances, stock purchases, capital contributions or otherwise), or to
maintain the solvency or any balance sheet or other financial condition of the
obligor of such obligation, or to make payment for any products, materials or
supplies or for any transportation or services regardless of the non-delivery
or non-furnishing thereof, in any such case if the purpose or intent of such
agreement is to provide assurance that such obligation will be paid or
discharged, or that any agreements relating thereto will be complied with, or
that the holders of such obligation will be protected against loss in respect
thereof.
"HUD LOAN" shall mean that certain loan to the Company by Lexington
County, South Carolina pursuant to the United States Department of Housing and
Urban Development Section 108 Loan Program.
"INDEBTEDNESS" shall mean, with respect to any Person, without
duplication, (i) all items which in accordance with generally accepted
accounting principles would be included in determining total liabilities as
shown on the liability side of a balance sheet of such Person as of the date on
which Indebtedness is to be determined, (ii) all indebtedness secured by any
Lien on any property or asset owned or held by such Person subject thereto,
whether or not the indebtedness secured thereby shall have been assumed, and
(iii) all indebtedness of others with respect to which such Person has become
liable by way of a Guarantee.
"INTELLECTUAL PROPERTY" shall have the meaning ascribed thereto in
Section 4.13.
"INVESTOR'S RIGHT AGREEMENT" shall mean the Investor's Right
Agreement, dated the date hereof, between the Company and the Purchase of a
copy of which is attached hereto as Exhibit D.
4
<PAGE> 9
"LIEN" shall mean any mortgage, pledge, priority, security interest,
encumbrance, lien (statutory or otherwise) or charge of any kind (including any
agreement to give any of the foregoing, any conditional sale or other title
retention agreement, any lease in the nature thereof, and the filing of or
agreement to give any financing statement under the Uniform Commercial Code of
any jurisdiction) or any other type of preferential arrangement for the
purpose, or have the effect, of protecting a creditor against loss or securing
the payment or performance of an obligation.
"MATERIAL ADVERSE EFFECT" shall mean a material adverse effect on the
assets, business, operations or financial condition of the Company
"MULTIEMPLOYER PLAN" shall mean any Plan which is a "multiemployer
plan" (as such term is defined in Section 4001(a)(3) of ERISA).
"OFFICER'S CERTIFICATE" shall mean a certificate signed in the name of
the Company by its Chairman of the Board, President and Chief Executive
Officer, Chief Financial Officer, one of its Vice Presidents or its General
Counsel and Secretary.
"PBGC" shall mean the Pension Benefit Guaranty Corporation or any
successor entity.
"PERSON" shall mean a corporation, an association, a partnership, an
organization a business, an individual, a governmental or political subdivision
thereof or a governmental agency.
"PLAN" shall mean any "employee pension benefit plan" (as such term is
defined in Section 3(2) of ERISA) which is or has been established or
maintained, or to which contributions are or have been made, by the Company or
any ERISA Affiliate.
"PREFERRED CONVERSION SHARES" shall mean the share of Series D
Preferred Stock issuable upon conversion of the Convertible Debentures as set
forth in Article III hereof.
"PREFERRED STOCK" shall mean all classes or series of preferred stock,
par value $0.001 per share, of the Company.
"PURCHASER" shall have the meaning ascribed thereto in the preamble.
"RESTRICTED PAYMENT" shall mean (i) the declaration, payment or
setting apart of any sum for payment of dividend (including a dividend payable
in capital stock of the Company) on, or any distribution (including a
distribution in capital stock of the
5
<PAGE> 10
Company) in respect of, any share of capital stock of the Company or any
warrants, rights or options to purchase any shares of capital stock of the
Company or (ii) the redemption, repurchase, retirement or other acquisition of
(or the setting apart of any sum in respect of any of the foregoing actions)
any shares of capital stock of the Company or any warrants, rights or options
to purchase or acquire any share of capital stock.
"SECURITIES" shall have the meaning ascribed thereto in Section 4.19.
"SECURITIES ACT" shall have the meaning ascribed thereto in Section
4.19.
"SERIES D PREFERRED STOCK" shall mean share of Series D Preferred
Stock of the Company.
"STOCKHOLDER APPROVAL" shall have the meaning ascribed thereto in
Section 8.16.
"SUBSIDIARY" shall mean, as to the Company, any corporation of which
more than 50% of the outstanding stock having ordinary voting power to elect a
majority of the Board of Directors of such corporation (irrespective of whether
or not at the time stock of any other class or classes shall have or might have
voting power by reason of the happening of any contingency) is at the time
directly or indirectly owned by the Company, or by one or more of its
subsidiaries.
"TRANSFEREE" shall mean any direct or indirect transferee of all or
any part of any Convertible Debenture purchased by the Purchaser under this
Agreement.
ARTICLE II
PURCHASE AND SALE OF CONVERTIBLE DEBENTURES
SECTION 2.01. ISSUANCE, SALE AND DELIVERY OF THE CONVERTIBLE
DEBENTURES. The Company agrees to issue and sell to the Purchaser and the
Purchaser hereby agrees to purchase from the Company, the Convertible
Debentures in the aggregate principal amount of $200,000 at 100% of such
aggregate principal amount.
SECTION 2.02. CLOSING. The closing shall take place at the office of
W. J. Flynn & Associates, Inc., 320 Park Avenue, New York, New York 10022 on
such date and time or at such other location as may be agreed upon between the
Purchaser and the Company (such closing being called the "Closing" and such
date and time being called the "Closing Date").
6
<PAGE> 11
At the Closing, the Company shall issue and deliver to the Purchaser a
Convertible Debenture, registered in the name of such Purchaser, evidencing the
principal amount of the Convertible Debenture to be purchased by the Purchaser
of the Closing, and in the denomination or denominations specified in writing
by the Purchaser. As payment in full for the Convertible Debenture being
purchased by the Purchaser under this Agreement, on the Closing Date the
Purchaser shall transfer such sum to the account of the Company by wire
transfer.
ARTICLE III
CONVERSION
SECTION 3.01. CONVERSION; NUMBER. The holder of any Convertible
Debenture, at its option, will be entitled at any time commencing three (3)
Business Days after Stockholder Approval and ending on the close of business on
the final maturity date of the Convertible Debentures to convert any
Convertible Debentures, or portions thereof, into shares of Series D Preferred
Stock. The Convertible Debenture will automatically be converted into share of
Series D Preferred Stock upon the closing of a firmly underwritten public
offering of Common Stock on a Form S-1 Registration Statement at an aggregate
public offering price (after underwriting discounts and commissions) of at
least $10,000,000 and a per share price equal to or greater than $4.00 (as
appropriately adjusted for stock splits and the like). In either case (each of
which is sometimes hereinafter referred to as a "Conversion"), the number of
shares of Series D Preferred Stock to be issued upon such Conversion shall be
determined by dividing the aggregate principal balance of the Convertible
Debenture to then be converted by twenty-five hundredths (0.25). The Company
is not required to issue fractional shares of Series D Preferred Stock upon
conversion of any Convertible Debenture and, in lieu thereof, will pay a cash
adjustment.
SECTION 3.02. CONVERSION PROCEDURE. If the holder elects to convert
any Convertible Debenture such holder may do so by delivering the Convertible
Debenture at the specified office of the Company, accompanied by a duly signed
and completed Conversion Notice. The date of the Conversion shall be the date
on which the Convertible Debenture and the duly signed and completed Conversion
Notice are received by the Company. A holder delivering a Convertible
Debenture for conversion will not be required to pay any taxes or duties
payable with respect to the issue or delivery of Series D Preferred Stock on
Conversion and any such taxes or duties shall be paid by the Company.
SECTION 3.03. REPRESENTATIONS, WARRANTIES, COVENANTS, NO DEFAULT;
CONDITIONS PRECEDENT TO CONVERSION.
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(a) On and as of the date of each Conversion, (i) the
Company shall be deemed to have (A) remade, ratified and confirmed all
representations and warranties of the Company contained in Article IV of this
Agreement, (B) certified compliance with all covenants contained in Article
VIII of this Agreement and (C) certified that no Event of Default or Default
exists and is continuing, and (ii) the Company shall deliver an Officer's
Certificate to the effects et for the in (A), (B), (C), above.
(b) In addition to the provisions of Section 3.03(a)
above, on and as of the date of each Conversion, the Company shall have caused
to be delivered to the purchaser an opinion of the General Counsel of the
Company, substantially in the form of Exhibit E attached hereto.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Purchaser that:
SECTION 4.01. ORGANIZATION, QUALIFICATIONS AND CORPORATE POWER.
(a) The Company is a corporation duly incorporated,
validly existing and in good standing under the laws of the State of Delaware
and is duly qualified to transact business as a foreign corporation and is in
good standing in each jurisdiction in which the nature of the business
transacted by it to the character of the properties owned or leased by it
requires such qualification, except where the failure to be so qualified would
not have a Material Adverse Effect. The Company has the corporate power and
authority own and hold its properties and to carry on its business as now
conducted and as proposed to be conducted, to execute, deliver and perform its
obligations under this Agreement, to use, sell and deliver the Convertible
Debentures and, subject to approval by the stockholders of the Company of an
amendment to the Certificate of Incorporation, to increase the authorized
number of shares of Common Stock and Preferred Stock, to issue and deliver the
Preferred Conversion Shares and the Common Conversion Shares.
(b) The Company has no Subsidiaries. The Company does
not (i) own of record or beneficially directly or indirectly (A) any share of
capital stock or securities convertible into capital stock of any other
corporation or (B) any participating interest in any partnership, joint venture
or other non-corporate business enterprise of (ii) control, directly or
indirectly, any other entity.
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SECTION 4.02. AUTHORIZATION. The execution and delivery by
the Company of this Agreement, the performance by the Company of its obligations
hereunder, the issuance, sale and delivery of the Convertible Debenture and,
subject to approval by the stockholders of the Company of an amendment to the
Certificate of Incorporation to increase the authorized number of shares of
Common Stock and Preferred Stock, the issuance and delivery of the Preferred
Conversion Shares and the Common Conversion Shares have been duly authorized by
all requisite corporate action and will not violate any provision of law, any
order of any court or other agency of government, the Certificate of
Incorporation or the By-laws, or any provision of any indenture, agreement or
other instrument to which the Company, any of its subsidiaries or any of their
respective properties or assets is bound, or conflict with, result in a breach
of or constitute (with due notice of lapse of time or both) a default under any
such indenture agreement or other instrument, or result in the creation or
imposition of any lien, charge restriction, claim or encumbrance of any nature
whatsoever upon any of the properties or assets of the Company or any of its
subsidiaries.
SECTION 4.03. VALIDITY. This Agreement has been duly executed and
delivered by the Company and constitutes the legal, valid and binding
obligation of the Company, enforceable in accordance with its terms.
SECTION 4.04. CAPITALIZATION. The authorized capital stock of the
Company consists of (i) 18,000,000 shares of Common Stock, par value $0.001 per
share; (ii) 1,250,000 shares of Series A Preferred Stock, par value $0.001 per
share, (iii) 625,000 share of Series B Preferred Stock, par value $0.001 per
share; (iv) 120,000 shares of Series C Preferred Stock, par value $0.001 per
share; and (v) 5,000 shares of one or more series of Preferred Stock (the
"Blank Check Preferred Stock"). Immediately prior to the Closing, 6,917,182
shares of Common Stock, 1,250,000 shares of Series A Preferred Stock, 625,000
shares of Series B Preferred Stock and 120,000 shares of Series C Preferred
Stock were outstanding and have been validly issued and are fully paid and
nonassessable with no personal liability attaching to the ownership thereof.
The Company has sold $4,000,000 of convertible debentures due August 16, 1999.
Such convertible debentures initially are convertible into 16,000,000 shares of
Series D Preferred Stock which, when authorized and issued, will in turn, be
convertible into 16,000,000 shares of Common Stock. The Company has sold
$500,000 of 6% convertible debentures due August 16, 1999; these convertible
Debentures are part of up to an additional $4,000,000 of convertible debentures
due August 16, 1999 authorized to be issued by the Board; such additional
convertible debentures shall be convertible into 2,000,000 shares of Series E
Preferred Stock which, when authorized and issued will in turn be convertible
into 2,000,000 shares of Common Stock. The designations, powers, preferences,
rights, qualifications,
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limitations and restrictions in respect of each class and series of authorized
capital stock of the Company are as set forth in the Certificate of
Incorporation, and all such designations, powers, preferences, rights,
qualifications, limitations and restrictions are valid, binding and enforceable
and in accordance with all applicable laws. Except as set forth on Schedule
4.04, there are no outstanding options, preemptive or other rights, warrants,
agreements, voting trusts, proxies, contracts, calls, commitments or demands of
any character relating to any share of capital stock, or any other securities
of the Company, whether or not issued, including, but not limited to,
securities convertible into or evidencing the right to purchase any capital
stock or other securities of the Company. Except as set forth on Schedule
4.04, the Company has no obligation (contingent or other) to purchase, redeem
or otherwise acquire any of its equity securities or any interest therein or to
pay an dividend or make any other distribution in respect thereof. Except as
set forth on Schedule 4.04, there are no voting trusts or agreements,
stockholders' agreements, pledge agreements, buy-sell agreements, rights of
first refusal, preemptive right or proxies relating to any securities of the
Company or any of its subsidiaries (whether or not the Company or any of its
subsidiaries is a party thereto). All of the outstanding securities of the
Company were issued in compliance with all applicable federal and state
securities laws.
SECTION 4.05. FINANCIAL STATEMENTS. The Company has furnished to the
Purchaser the consolidated balance sheet of the Company as of June 30, 1996
(the "Unaudited Balance Sheet"), and the related statements of income,
stockholders' equity and cash flows of the Company for the year ended unaudited
June 30, 1996. All such financial statements have been prepared in accordance
with generally accepted accounting principles consistently applied and fairly
present the financial position of the Company as of June 30, 1996, and the
results of operations and cash flows of the Company for the year ended June 30,
1996. Since the date of the Balance Sheet, (i) there has been no change in the
assets, liabilities of financial condition of the Company (on a consolidated
basis) from that reflected in the Balance Sheet, except for changes in the
ordinary course of business which in the aggregate have not been materially
adverse, and (ii) none of the business, prospects, financial condition,
operations, property or affairs of the Company (on a consolidated basis) has
been materially adversely affected by any occurrence or development,
individually or in the aggregate, whether or not insured against.
SECTION 4.06. EVENTS SUBSEQUENT TO THE DATE OF THE BALANCE SHEET.
Since the date of the Balance Sheet, the Company has not, except as set forth
on Schedule 4.06, (i) issued any stock, bond or other corporate security, (ii)
borrowed any amount or incurred or become subject to any liability (absolute,
accrued or contingent), except current liabilities incurred and liabilities
under contracts entered into in the ordinary course of business, (iii)
discharged or satisfied any lien or encumbrance or incurred or paid any
obligation or liability (absolute, accrued or contingent) other than current
liabilities shown on the Balance Sheet and current liabilities incurred since
the date of the Balance Sheet in ordinary course of business, (iv) declared or
made any payment or distribution to stockholders or purchased or redeemed any
share of its capital stock or other security, (v) mortgaged, pledged or
subjected to lien any of its assets, tangible or intangible, other than liens
of current
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real property taxes not yet due and payable, (vi) sold, assigned or transferred
any of its tangible assets except in the ordinary course of business, or
canceled any debt or claim, (vii) sold, assigned, transferred or granted any
exclusive license with respect to any patent, trademark, trade name, service
mark, copyright, trade secret or other intangible asset, (viii) suffered any
loss of property or waived any right of substantial value whether or not in the
ordinary course of business, (ix) made any change in officer compensation
except in the ordinary course of business and consistent with past practice,
(x) made any material change in the manner of business or operations of the
Company, (xi) entered into any transaction except in the ordinary course of
business or as otherwise contemplated hereby or (xii) entered into any
commitment (contingent or otherwise) to do any of the foregoing.
SECTION 4.07. COMPLIANCE WITH INSTRUMENTS. The Company is not in
violation of any term of its Certificate of Incorporation or By-laws, or any
statute, rule or regulation applicable to the Company. Except as set forth on
Schedule 4.07, the Company is not in violation or in default of any term
contained in any instrument or contract to which it is a party. Except as set
forth on Schedule 4.07, no event or failure of performance has occurred which,
with the passage of time or the giving of notice or both, would constitute such
a violation. None of the violations set forth on Schedule 4.07 will have a
Material Adverse Effect.
SECTION 4.08. LITIGATION. Except as set forth on Schedule 4.08,
there are no (i) actions, suits, claims, proceedings or investigations pending
or, to the best of the Company's knowledge, threatened against or affecting the
Company, at law or in equity, or before or by any federal state, municipal or
other governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, (ii) arbitration proceedings relating to
the Company pending under collective bargaining agreements or otherwise or
(iii) governmental inquiries pending or, to the best of the Company's
knowledge, threatened against or affecting the Company (including without
limitation any inquiry as to the qualification of the Company to hold or
receive any license or permit), and the Company is not aware of any basis for
any of the foregoing. None of the actions, suits, claims, proceedings, or
investigations set forth on Schedule 4.08 will have a Material Adverse Effect.
The Company is not in default with respect to any order, writ, injunction or
decree known to or served upon the Company of any court or of any federal
state, municipal or other governmental department, commission, board, bureau,
agency or instrumentality, domestic or foreign.
SECTION 4.09. COMPLIANCE WITH LAW. The Company has complied with all
laws, rules, regulations and orders applicable to its business, operations,
properties, assets, products and services, and the Company has all necessary
permits, licenses and other authorizations required to conduct its business as
conducted and as proposed to be conducted to the extent failure to do so would
have a material adverse effect on the business of the Company. There is no
existing law, rule, regulation or order, and the Company is not aware of any
proposed
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law, rule regulation or order, whether federal or state, which would prohibit
or restrict the Company from, or otherwise materially adversely affect the
Company in, conducting its business in any jurisdiction in which it is now
conducting business or in which it proposes to conduct business.
SECTION 4.10. TITLE TO PROPERTIES. The Company has good and
marketable title to its properties and assets reflected on the Balance Sheet or
acquired by it since the date of the Balance Sheet (other than properties and
assets disposed of in the ordinary course of business since the date of the
Balance Sheet), and all such properties and assets are free and clear of
mortgages, pledges, security interests, liens, charges, claims restrictions and
other encumbrances, except (i) for Liens set forth on Schedule 4.10, (ii) for
Liens for taxes not yet due and payable and minor imperfections of title, if
any, not material in nature or amount and (iii) for Liens not materially
detracting from the value or impairing the use of the property subject thereto
or impairing the operations or proposed operations of the Company.
SECTION 4.11. LEASEHOLD INTERESTS. Each lease or agreement to which
the Company is a party under which it is a lessee of any property, real or
personal, is a valid and subsisting agreement without any default of the
Company thereunder, except as set forth on Schedule 4.11, and, to the best of
the Company's knowledge, without any default thereunder of any other party
thereto. No event has occurred and is continuing which, with due notice of
lapse of time or both, would constitute a default to event of default by the
Company under any such lease or agreement or, to the best of the Company's
knowledge, by any other part thereto. The Company's possession of such
property has not been disturbed and, to the best of the Company's knowledge, no
claim has been asserted against the Company adverse to its rights in such
leasehold interests.
SECTION 4.12. TAXES. The Company has filed all tax returns, federal,
state, county and local, required to be filed by it, and the Company has paid
all taxes shown to be due by such returns as well as all other taxes,
assessments and governmental charges which have become due or payable,
including without limitation all taxes which the Company is obligated to
withhold from amounts owing to employees, creditors and third parties. All
such taxes with respect to which the Company has become obligated pursuant to
elections made by the Company in accordance with generally accepted practice
have been paid and adequate reserves have been established for all taxes
accrued but not yet payable. The Federal income tax returns of the Company
have never been audited by the Internal Revenue Service. No deficiency
assessment with respect to or proposed adjustment of the Company's Federal,
state, county or local taxes is pending or, to the best of the Company's
knowledge, threatened. There is no tax lien, whether imposed by any federal
state, county or local taxing authority, outstanding against the assets,
properties, or business of the Company.
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SECTION 4.13. PATENTS, TRADEMARKS, ETC. The Company owns or
possesses adequate licenses or other rights to use all trademarks, trademark
applications, service marks, service mark applications, trade names,
copyrights, manufacturing processes, formulae, trade secrets and know how, and
all patents and patent applications known to the Company (collectively,
"Intellectual Property"), necessary to the conduct of its business as conducted
and as proposed to be conducted, and no claim is pending or, to the best of
the Company's knowledge, threatened to the effect that the operations of the
Company infringe upon or conflict with the asserted rights of any other person
under any Intellectual Property, and there is no known basis for any such claim
(whether or not pending or threatened). No claim is pending or threatened to
the effect that any such Intellectual Property owned or licensed by the
Company, or which the Company otherwise has the right to use, is invalid or
unenforceable by the Company, and there is no basis known to the Company for
any such claim (whether or not pending or threatened). To the best of the
Company's knowledge, all technical information developed by and belonging to
the Company which has not been patented has been kept confidential. Except as
set forth on Schedule 4.13, the Company has not granted or assigned to any
other person or entity any right to manufacture, have manufactured, assemble or
sell the products or proposed products or to provide the services or proposed
services of the Company.
SECTION 4.14. OUTSTANDING DEBT; LOANS AND ADVANCES.
(a) All of the outstanding Debt of the Company is set
forth on Schedule 4.14 ("Existing Debt"). Except as set forth on
Schedule 4.07, there exists no default under the provisions of any
instrument evidencing such Existing Debt or of any agreement relating
thereto.
(b) The Company does not have any outstanding loans or
advances to any person and is not obligated to make any such loans or
advances, except, in each case, for advances to employees of the
Company in respect of reimbursable business expenses anticipated to be
incurred by them in connection with their performance of services for
the Company.
SECTION 4.15. GUARANTEES. The Company is not a part to any
Guarantee.
SECTION 4.16. GOVERNMENTAL APPROVALS. No registration or filing
with, or consent or approval of or other action by, any federal, state or other
governmental agency or instrumentality is or will be necessary for the valid
execution, delivery and performance by the Company of this Agreement, the
issuance, sale and delivery of the Convertible Debentures, the issuance and
delivery of the Preferred Conversion Shares upon the conversion of the
Convertible Debentures, or the issuance and delivery of the Common Conversion
Shares upon conversion of the Preferred Conversion Shares, other than the
approval by the stockholders of
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the Company of an amendment to the Certificate of Incorporation to increase the
authorized number of shares of Common Stock and Preferred Stock.
SECTION 4.17. DISCLOSURE. Neither this Agreement, nor any Schedule
or Exhibit to this Agreement contains an untrue statement of a material fact or
omits a material fact necessary to make the statements contained herein or
therein not misleading. None of the statements, documents, certificates or
other items prepared or supplied by the Company with respect to the
transactions contemplated hereby contains an untrue statement of a material
fact or omits a material fact necessary to make the statements contained
therein not misleading. There is no fact which the Company has not disclosed
to the Purchaser and of which the Company is aware which materially and
adversely affects or could materially and adversely affect the business,
prospects, financial condition, operations, property or affairs of the Company
or any of its subsidiaries.
SECTION 4.18. BROKERS. The Company has no contract, arrangements or
understanding with any broker, finder or similar agent with respect to the
transactions contemplated by this Agreement.
SECTION 4.19. SECURITIES ACT. The offer, sale and issuance of the
Convertible Debentures, the Preferred Conversion Shares and the Common
Conversion Shares (collectively, the "Securities") will be exempt from the
registration requirements of the Securities Act of 1933, as amended (the
"Securities Act"), and will have been registered or qualified (or are exempt
from registration and qualification) under the registration, permit or
qualification requirements of any applicable state securities laws. Neither
the Company nor any agent on its behalf has solicited or will solicit any
offers to sell or has offered to sell or will offer to sell all or any part of
the Securities to any Person so as to being the sale of such Securities by the
Company within the registration provisions of the Securities Act.
SECTION 4.20. MARGIN REGULATIONS. The Company will not, directly or
indirectly, use any of the proceeds of the Securities for the purpose, whether
immediate, incidental or ultimate, of maintaining, purchasing or carrying any
stock that is currently a "margin stock" within the meaning of Regulation G of
the Board of Governors of the Federal Reserve System (12 C.F.R. 207, as
amended) or Regulation U of such Board (12 C.F.R. 221, as amended), or
otherwise take or permit to be taken any action which would result in the
carrying out of any of the other transactions contemplated hereby or thereby
being violative of such Regulation G or Regulation U or of Regulation T (12
C.F.R. 200, as amended), Regulation X (12 C.F.R. 224, as amended) or any other
regulation of such Board. The Company and its Subsidiaries do not own or
intend to acquire any "margin stock" within the meaning of such Regulation G or
such Regulation U.
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SECTION 4.21. INSURANCE COVERAGE. Each property of the Company is
insured for the benefit of the Company in amounts deemed adequate by the
Company's management against risks usually insured against by persons operating
businesses similar to those of the Company in the localities where such
properties are located.
SECTION 4.22. ERISA. No accumulated funding deficiency (as defined in
Section 302 of ERISA and Section 412 of the Code), whether or not waived,
exists with respect to any Plan (other than a Multiemployer Plan). No
liability to the PBGC has been or is expected by the Company or any ERISA
Affiliate to be incurred with respect to any Plan (other than a Multiemployer
Plan) by the Company or and ERISA Affiliate which would have a Material Adverse
Effect. Neither the Company nor any ERISA Affiliate is a participant in any
Multiemployer Plan. The execution and delivery of this Agreement and the
issuance and sale of the Convertible Debentures will be exempt from, or will
not involve any transaction which is subject to, the prohibitions of Section
406 of ERISA and will not involve any transaction in connection with which a
penalty could be imposed under Section 502(i) of ERISA or a tax could be
imposed pursuant to Section 4975 of the Code. The Company and its ERISA
Affiliates do not provide any benefits to former employees except as may be
required by COBRA (Section 4980B of the Code and Sections 601 et seq. of
ERISA). Neither the Company nor any ERISA Affiliate is a party to a collective
bargaining agreement or is required to bargain with any collective bargaining
unit.
SECTION 4.23. ENVIRONMENTAL COMPLIANCE. The Company and its
properties and facilities have complied at all times and in all respects with
all federal, state, local and regional statutes, laws, ordinances and judicial
or administrative orders, judgments, rulings and regulations relating to
protection of the environment except, in any such case, where failure to comply
would not have a Material Adverse Effect.
SECTION 4.24. PERMITS AND LICENSES. The Company has all federal,
state and local governmental permits, licenses, certificates of authority any
similar authority necessary for the conduct of its business as now being
conducted and as proposed to be conducted. The Company is not in default in
any material respect under any such permit, license, certificate of authority
or other similar authority.
SECTION 4.25. BOARD COMPOSITION. Article III, Section 1 of the
By-laws provides that the number of directors which shall constitute the whole
Board of Directors of the Company (the "Board") shall be not less that three
(3) nor more than fifteen (15), with the specific number determined by a
resolution of the Board, or by the shareholders of the Company at the annual
meeting. The current Board is fixed at seven directors. The current Board
members are Donald Baker, Clifton E. Haley, William B. Hambrecht, Patrick J.
O'Shea, Robert J. Spane and John P. Tague.
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ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
SECTION 5.01. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. The
Purchaser represents and warrants to the Company that:
(a) the Convertible Debentures being purchased by it are
being acquired for its own account for the purpose of investment not
with a view to or for sale in connection with any distribution
thereof;
(b) it has not employed any broker or finder in
connection with the transactions contemplated by this Agreement; and
(c) the execution, delivery and performance by it of this
Agreement have been duly authorized by all requisite action by it and
this Agreement constitutes the valid and binding obligation of it,
enforceable in accordance with its terms.
ARTICLE VI
CONDITIONS TO THE OBLIGATIONS
OF THE PURCHASER
SECTION 6.01. CONDITIONS TO THE OBLIGATION OF THE PURCHASER. The
obligation of the Purchaser to purchase and pay for the Convertible Debentures
being purchased by it on the Closing Date is, at its option, subject to the
satisfaction, on or before the Closing Date, of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES TO BE TRUE AND
CORRECT. The representations and warranties of the Company contained
in Article IV shall be true, complete and correct on and as of the
Closing Date with the same effect as though such representations and
warranties had been made on and as of such date.
(b) PERFORMANCE. The Company shall have performed and
complied with all agreements contained herein required to be performed
or complied with by it prior to or at the Closing Date.
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(c) OFFICER'S CERTIFICATE. The Company shall have
executed and delivered to the Purchaser an Officer's Certificate to
the effects set forth in (a) and (b) above.
(d) INVESTOR'S RIGHTS AGREEMENT. The Company shall have
executed and delivered the Investor's Rights Agreement to the
Purchaser.
(e) OPINION OF COUNSEL. The Purchaser shall have
received an opinion of the General Counsel of the Company, such
opinion to be substantially in the form of Exhibit F attached hereto.
(f) ALL PROCEEDINGS TO BE SATISFACTORY. All corporate
and other proceedings to be taken by the Company in connection with
the transactions contemplated hereby and all documents incident
thereto shall be satisfactory in form and substance to the Purchaser
and its counsel, and the Purchaser and its counsel shall have received
all such counterpart originals or certified or other copies of such
documents as they reasonably may request.
(g) SUPPORTING DOCUMENTS. The Purchaser and its counsel
shall have received copies of the following documents:
(i) a certificate of the Secretary of State of
State of Delaware, dated as of a recent date as to the due
incorporation and good standing of the Company;
(ii) a certificate of the Secretary or an
Assistant Secretary of the Company dated the Closing Date and
certifying: (A) that the Certificate of Incorporation
attached to this Agreement is a true and complete copy of the
Certificate of Incorporation of the Company; (B) that the
Certificate of Incorporation has not been amended since the
date of the last amendment referred to in the certificate
delivered pursuant to clause (ii)(A) above; (C) that attached
thereto is a true and complete copy of the By-laws of the
Company as in effect on the date of such certification; (D)
that attached thereto is a true and complete copy of all
resolutions adopted by the Board of Directors or the
stockholders of the Company authorizing the execution,
delivery and performance of this Agreement, and the issuance,
sale and delivery of the Convertible Debentures and that all
such resolutions are in full force and effect and are all the
resolutions adopted in connection with the transactions
contemplated by this Agreements; and (E) to the incumbency and
specimen signature of each officer of the Company executing
this Agreement, the Convertible Debentures and any certificate
or instrument furnished pursuant hereto, and a certification
by another officer of the Company as to the
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incumbency and signature of the officer signing the
certificate referred to in this subparagraph 6.01 (g)(ii); and
(iii) such additional supporting documents and
other information with respect to the operations and affairs
of the Company as the Purchaser or its counsel reasonably may
request.
(h) THIRD PARTY CONSENTS, PERMITS AND WAIVERS. The
Company shall have obtained any and all consents, permits and waivers
necessary or appropriate for the consummation of the transactions
contemplated by this Agreement.
(i) NO INJUNCTIONS OR RESTRAINTS. There shall be no
action, suit, investigation or proceeding pending, or, to the best of
the Company's knowledge, threatened, against or affecting the Company,
any of the Company's properties or rights, or any of the Company's
officers or directors, before any court, arbitrator or administrative
or governmental body which (i) seeks to restrain, enjoin, or prevent
the consummation of the transactions contemplated by this Agreement or
(ii) questions the validity or legality of any such transactions or
seeks to recover damages or to obtain other relief in connection with
any such transactions and, to the best of the Company's knowledge,
there shall be no valid basis for any such action, proceeding or
investigation.
All such documents shall be satisfactory in form and substance to the Purchaser
and its counsel.
ARTICLE VII
CONDITIONS TO THE OBLIGATIONS OF THE COMPANY
SECTION 7.01. CONDITIONS TO THE OBLIGATIONS OF THE COMPANY. The
obligation of the Company to issue and sell the Convertible Debentures on the
Closing Date is, at its option, subject to the satisfaction, on or before the
Closing Date, of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES TO BE TRUE AND
CORRECT. The representations and warranties of the purchaser
contained in Article 5 shall be true, complete and correct on and as
of the Closing Date with the same effect as though such
representations and warranties had been made on and as of such date.
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(b) PERFORMANCE. The Purchaser shall have performed and
complied with all agreements contained herein required to be performed
or complied with by it prior to or at the Closing Date.
(c) ALL PROCEEDINGS TO BE SATISFACTORY. All corporate
and other proceedings to be taken by the Purchaser in connection with
the transactions contemplated hereby and all documents incident
thereto shall be satisfactory in form and substance to the Company and
its counsel, and the Company and its counsel shall have received all
such counterpart originals or certified or other copies of such
documents as they reasonably may request.
(d) NO INJUNCTIONS OR RESTRAINTS. There shall be no
action, suit, investigation or proceeding pending, or, to the best of
the Company's knowledge, threatened, against or affecting the Company,
and of the Company's properties or rights, or any of the Company's
officers od directors, before any court, arbitrator or administrative
or governmental body which (i) seeks to restrain, enjoin, or prevent
the consummation of the transactions contemplated by this Agreement or
(ii) questions the validity or legality of any such transactions or
seeks to recover damages or to obtain other relief in connection with
any such transactions and, to the best of the Company's knowledge,
there shall be no valid basis for any such action, proceeding or
investigation.
ARTICLE VIII
COVENANTS OF THE COMPANY
The Company covenants and agrees with the Purchaser that so long as
any Convertible Debenture is outstanding:
SECTION 8.01. FINANCIAL STATEMENTS AND REPORTS. The Company shall
furnish to the Purchaser:
(a) as soon as practicable, and in any event at least 30
days prior to the beginning of each fiscal year of the Company,
consolidated statements of forecasted income and cash flow and
consolidated forecasted balance sheet of the Company for each month
and each fiscal quarter in such fiscal year and for the period from
the beginning of such fiscal year to the end of each such month and
end of each such fiscal quarter, in each case as at the end of each
such month and fiscal quarter;
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(b) as soon as practical after the end of each month in
each fiscal year (other than the last month in each fiscal year), and
in any event within 30 days thereafter, consolidated statements of
income and cash flow of the Company for such month and for the period
from the beginning of the current fiscal year to the end of such month
and a consolidated balance sheet of the Company as at the end of such
month, and setting forth, in each case, in comparative form, figures
for the corresponding months in the preceding fiscal year (other than
any such corresponding months ended prior to the Closing) and figures
in the Company's budget for the corresponding months in the current
fiscal year;
(c) as soon as practicable after the end of each fiscal
quarter of the Company in each fiscal year (other than the last fiscal
quarter in each fiscal year), and in any event within forty-five (45)
days thereafter, a consolidated balance sheet of the Company and the
related consolidated statements of income, stockholders' equity and
cash flows, unaudited but prepared in accordance with generally
accepted accounting principles and certified by the Chief Financial
Officer of the Company, such consolidated balance sheet to be as of
the end of such fiscal quarter and such consolidated statements of
income, stockholders' equity and cash flows to be for such fiscal
quarter and for the period from the beginning of the fiscal year to
the end of such fiscal quarter, in each case with comparative
statements for the corresponding period in the prior fiscal year;
(d) as soon as practical after the end of each fiscal
year of the Company, and in any event within ninety (90) days
thereafter, a consolidated balance sheet of the Company as of the end
of such fiscal year and the related consolidated statements of income,
stockholders' equity and cash flows for the fiscal year then ended,
prepared in accordance with generally accepted accounting principles
and certified by a firm of independent public accountants of
recognized national standing selected by the Board of Directors of the
Company;
(e) promptly upon transmission thereof, copies of all
such financial statements, proxy statements, notices and reports as it
shall send to its stockholders and copies of all registration
statements (without exhibits) and all reports which it files with the
Commission;
(f) promptly upon sending, all press releases that the
Company disseminates;
(g) promptly upon receipt thereof, a copy of each other
report submitted to the Company or any Subsidiary by independent
accountants in connection with any
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annual, interim or special audit made by them of the books of the
Company or any Subsidiary;
(h) as soon as practicable and in any event within five
days after any officer of the Company obtaining knowledge (i) of any
condition or event which, in the opinion of management of the Company,
would have a Material Adverse Effect (ii) that any Person has given
any notice from any Person to the Company or taken any other action
with respect to a claimed default or event or condition of the type
referred to in Section 9.01(ii), (iii) of the institution of any
litigation involving claims against the Company equal to or greater
than $100,000 with respect to any single cause of action or of any
adverse determination in any court proceeding in any litigation
involving a potential liability to the Company equal to or greater
than $100,000 with respect to any single cause of action which makes
the likelihood of an adverse determination in such litigation against
the Company substantially more probably, or (iv) of any regulatory
proceeding which may have a Material Adverse Effect on the Company, an
Officer's Certificate specifying the nature and period of existence of
any such condition or event, or specifying the nature and period of
existence of any such condition or event, or specifying the notice
given or action taken by such Person and the nature of any such
claimed default, event or condition, or specifying the details of such
proceeding, litigation or dispute and what action the Company has
taken, is taking or proposes to take with respect thereto;
(i) promptly after the filing or receiving thereof,
copies of all reports and notices which the Company files under ERISA
with the Internal Revenue Service or the PBGC or the U.S. Department
of Labor or which the Company received from such corporations; and
(j) with reasonable promptness, such other information
respecting the condition or operations, financial or otherwise, of the
Company as the Purchaser may reasonably request.
Together with each delivery of financial statements required by clauses (c) and
(d) above, the Company will deliver to the Purchaser an Officer's Certificate
stating that there exists no Event of Default or Default, or, if any Event of
Default or Default exists, specifying the nature and period of existence
thereof and what action the Company proposes to take with respect thereto.
Together with each delivery of financial statements required by clause (d)
above, the Company will deliver to the Purchaser a certificate of such
accountants stating that, in making the audit necessary for their report on
such financial statements, they have obtained no knowledge of any Event of
Default or Default, or, if they have obtained knowledge of any Event of Default
or Default, specifying the nature and period of existence thereof.
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The Company also covenants that immediately after any officer obtains
knowledge of an Event of Default or Default, it will deliver to the Purchaser
an Officer's Certificate specifying the nature and period of existence thereof
and what action the Company proposes to take with respect thereto.
SECTION 8.02. CORPORATE EXISTENCE. The Company shall maintain its
corporate existence, rights and franchises in full force and effect.
SECTION 8.03. MAINTENANCE OF PROPERTIES AND INSURANCE. The Company
will maintain or cause to be maintained in good repair, working order and
condition all properties used or useful in the business of the Company and from
time to time will make or cause to be made appropriate repairs, renewals and
replacements thereof. The Company shall maintain its properties and business,
with financially sound and reputable insurers, insurance against such
casualties and contingencies and of such typed and in such amounts as is
customary for companies similarly situated, including but not limited to fire
and other risks insured against by extended coverage, product liability
insurance and public liability insurance against claims for personal injury or
death or property damage occurring upon, in, about or in connection with the
use of any properties owned, occupied or controlled by the Company, with
insurance shall be deemed by the Company to be sufficient; and maintain
workers' compensation insurance and such other insurance as may be required by
law.
SECTION 8.04. INSPECTION, CONSULTATION AND ADVICE. The Company shall
permit the Purchaser to visit and inspect any of the properties of the Company,
examine its books and take copies and extracts therefrom, discus the affairs,
finances and accounts of the Company with its officers, employees and public
accountants (and the Company hereby authorizes said accountants to discuss with
the Purchaser such affairs, finances and accounts), and consult with and advise
the management of the Company as to its affairs, finances and accounts, all at
reasonable times and upon reasonable notice.
SECTION 8.05. RESTRICTIVE AGREEMENTS PROHIBITED. The Company shall
not become a party to any agreement which by its terms restricts the Company's
performance of this Agreement.
SECTION 8.06. TRANSACTIONS WITH AFFILIATES. Except for transactions
contemplated by this Agreement, the Company shall not enter into any
transaction with any director, officer, employee or holder of more than 5% of
the outstanding capital stock of any class or series of capital stock of the
Company, member of the family of any such person, or any corporation,
partnership, trust or other entity in which any such person or member of the
family of any such person is a director, officer, trustee, partner or holder of
more than 5% of the outstanding capital stock thereof.
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SECTION 8.07. USE OF PROCEEDS. The Company shall use the proceeds
from the sale of the Convertible Debentures solely for working capital or other
such uses as may be authorized by the Board of Directors.
SECTION 8.08. SUBSIDIARIES. The Company shall not create or have any
Subsidiaries.
SECTION 8.09. COMPLIANCE WITH LAWS. The Company shall comply with
all applicable laws, rules, regulations and orders, noncompliance with which
could have a Material Adverse Effect.
SECTION 8.10. KEEPING OF RECORDS AND BOOKS OF ACCOUNT. The Company
shall keep true records and books of account, in which full and complete
entries will be made in accordance with generally accepted accounting
principles consistently applied, reflecting all financial and business
transactions of the Company, and in which, for each fiscal year, all proper
accruals and reserves for depreciation, depletion, obsolescence, amortization,
taxes, bad debts and other purposes in connection with its business shall be
made as shall be required under generally accepted accounting principles
consistently applied.
SECTION 8.11. OBLIGATIONS AND TAXES. The Company shall pay all of
its indebtedness and obligations promptly and in accordance with their terms
and pay and discharge promptly all taxes, assessments and governmental charges
or levies imposed upon it or its income or profits or in respect of its
property, before the same shall become in default, as well as all lawful claims
for labor and supplies or otherwise which, if unpaid, might become a lien or
charge upon such properties or any part thereof, provided, however, that the
Company shall not be required to pay and discharge or to cause to be paid and
discharged any tax, assessment, charge, levy or claim so long as the validity
or amount thereof shall be contested in good faith by appropriate proceedings
and the Company shall set aside on its books such reserves as are required by
generally accepted accounting principles with respect to any such tax,
assessment, charge, levy or claim so contested.
SECTION 8.12. TRANSFER AND EXCHANGE OF CONVERTIBLE DEBENTURES; LOST
CONVERTIBLE DEBENTURES. Upon surrender for registration or transfer of any
Convertible Debenture at the principal office of the Company, the Company
shall, at its expense, execute and deliver one or more new Convertible
Debentures of like tenor and of a like aggregate principal amount, registered
in the name of such transferee or transferees. At the option of the Purchaser,
such Convertible Debenture may be exchanged for other Convertible Debentures of
like tenor and of any authorized denominations, of a like aggregate principal
amount, upon surrender of the Convertible Debenture to be exchanged at the
principal office of the Company. Whenever any Convertible Debentures are so
surrendered for exchange, the Company shall, at its expense, execute and
deliver the Convertible Debentures which the
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Purchaser making the exchange is entitled to receive. Every Convertible
Debenture surrendered for registration of transfer or exchange shall be duly
endorsed, or be accompanied by a written instrument of transfer duly executed,
by the Purchaser of such Convertible Debenture of the Purchaser's attorney duly
authorized in writing. Any Convertible Debenture or Convertible Debentures
issued in exchange for any Convertible Debenture or upon transfer thereof shall
carry the rights to unpaid interest and interest to accrue which were carried
by the Convertible Debenture so exchanged or transferred, so that neither gain
nor loss of interest shall result from any such transfer or exchange. Upon
receipt of written notice from the Purchaser of the loss, theft, destruction or
mutilation of such Convertible Debenture and, in the case of any such loss,
theft or destruction, upon receipt of the Purchaser's unsecured indemnity
agreement, or in the case of any such mutilation upon surrender and
cancellation of such Convertible Debenture, the Company will make and deliver a
new Convertible Debenture, of like tenor, in lieu of the lost, stolen,
destroyed or mutilated Convertible Debenture. The Purchaser's own agreement of
indemnity shall constitute indemnity satisfactory to the Company for purposes
of this Section 8.12.
SECTION 8.13. LIMITATION ON DEBT. The Company will not create, incur
assume or otherwise become or be liable with respect to any Debt except (i)
Debt represented by the Convertible Debentures; (ii) Existing Debt of the
Company, and (iii) Debt of the Company aggregating not more than $500,00 in
unpaid principal amount at any time outstanding.
SECTION 8.14. LIMITATION ON LIENS. The Company will not create,
assume or suffer to exist any Lien upon any of its properties or assets,
whether now owned or hereafter acquired and whether or not provision is made by
equally and ratably securing the Convertible Debentures; provided, however,
that the foregoing restriction and limitation shall not apply to the following
Liens:
(a) Liens for taxes, assessments or governmental charges
or levies not yet delinquent or which are being contested in good
faith by appropriate proceedings;
(b) other Liens incidental to the conduct of their
business or the ownership of their properties and assets which were
not incurred in connection with the borrowing of money or the
obtaining of advances or credit, and which do not in the aggregate
materially detract from the value of their properties or assets, or
materially impair the use thereof in the operation of their business;
and
(c) any Lien existing at the time of acquisition upon any
real or personal property acquired by the Company through purchase,
merger or consolidation or otherwise, whether or not assumed by the
Company, or placed upon real or personal property being acquired by
the Company (within six months of such acquisition) to secure all or a
portion of the purchase price thereof or any Debt incurred to finance
all
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or any portion of such purchase price; provided, however, that (A)
such property is not and shall not thereby become encumbered in an
amount in excess of the lesser of the cost thereof or fair value
thereof (as determined in good faith by the Company), and (B) any such
Lien shall not encumber any other property of the Company; and
provided, further, that the aggregate amount at any time of all such
Debt secured under this subparagraph (iii) shall be permitted by
Section 8.13 (and any Lien renewing, extending or refunding any Lien
permitted by this subparagraph 8.14 (c)(iii), provided that the
principal amount secured it not increased, the Lien is not extended to
other property and the Debt secured thereby would be permitted under
the provisions of Section 8.13).
SECTION 8.15. LIMITATION ON RESTRICTED PAYMENTS. The Company will
not directly or indirectly make any Restricted Payments.
SECTION 8.16. COVENANT REGARDING STOCKHOLDER VOTE AND FILING OF
CERTIFICATE OF DESIGNATION.
(a) On or prior to February 1, 1997 the Company will have
solicited and obtained the requisite approval of its stockholders (the
"Stockholder Approval") to an amendment to the Certificate of
Incorporation (the "Amendment") to increase (i) the number of
authorized shares of Preferred Stock by a sufficient number of shares
to allow all securities of the Company which are convertible into
Preferred Stock to be converted and (ii) the number of authorized
shares of Common Stock by a sufficient number of shares to allow (A)
all securities of the Company which are convertible either directly or
indirectly into Common Stock to be converted and (B) the exercise of
all options, warrants and any other rights to purchase Common Stock to
be exercised.
(b) Within two (2) Business Days after obtaining the
Stockholder Approval, the Company shall (i) file the Amendment and the
Certificate of Designation with the Secretary of State of the State of
Delaware, and (ii) take such other action as may be necessary to
enable the Purchaser, in its sole discretion, to convert any
Convertible Debenture into Series E Preferred Stock at any time
thereafter and from time to time.
(c) After giving effect to Sections 8.16(a) and (b)
above, upon the conversion of any Convertible Debenture, the Preferred
Conversion Shares and, upon conversion of the Preferred Conversion
Shares, the Common Conversion Shares, will have been duly authorized
and will be validly issued, fully paid and nonassessable with no
personal liability attaching to the ownership thereof and will be free
and clear of all Liens imposed by or through the Company. In
addition, after giving effect to Sections 8.16(a) and (b), the
Preferred Conversion Shares and the Common Conversion Shares will have
been duly reserved for issuance upon conversion of the Convertible
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Debenture or conversion of the Preferred Conversion Shares,
respectively. Neither the issuance, sale or delivery of the Preferred
Conversion Shares or the Common Conversion Shares will be subject to
any preemptive right of stockholders of the Company or to any right of
first refusal or other right in favor any person.
SECTION 8.17. BOARD NOMINEES. Subject to the right of the holders of
Preferred Stock, the Company will only nominate for election as directors of
the Company persons approved in advance and in writing by the Purchaser.
ARTICLE IX
EVENTS OF DEFAULT
SECTION 9.01. ACCELERATION. If any of the following events shall
occur and be continuing for any reason whatsoever (and whether such occurrence
shall be voluntary or involuntary or come about or be effected by operation of
law or otherwise):
(i) the Company defaults in the payment of any principal
of or interest on any Convertible Debenture when the same shall become
due, either by the terms thereof or otherwise as herein provided; or
(ii) the Company defaults (whether as primary obligor or
as guarantor or other surety) in any payment of principal of or
interest on any other obligation for money borrowed beyond any period
of grace provided with respect thereto, or the Company fails to
perform or observe any other agreement, term or condition contained in
any agreement under which any such obligation is created (or if any
other event thereunder or under any such agreement, shall occur and be
continuing) and the effect of such failure or other event is to cause,
or to permit the holder or holders of such obligation (or a trustee on
behalf of such holder or holders) to cause, such obligation to become
due (or to be repurchased by the Company) prior to any stated
maturity; or
(iii) any representation or warranty made by the Company
herein or by the Company or any of its officers in any writing
furnished in connection with or pursuant to this Agreement shall be
false in any material respect on the date as of which made; or
(iv) the Company fails to perform or observe (A) any term,
covenant or agreement contained in Sections 8.01(h)(i), 8.02, 8.04,
8.08, 8.09, 8.11, 8.13, 8.14, 8.15, 8.16 or 8.17, or (B) any other
agreement, covenant, term or condition contained herein and such
failure shall not be remedied within 30 days after any officer obtains
actual knowledge thereof; or
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(v) a majority of the members of the Board of Directors
shall be persons nominated by a person or entity other than the
Company; or
(vi) the Company makes an assignment for the benefit of
creditors or is generally not paying its debts as such debts become
due; or
(vii) any decree or order for relief in respect of the
Company is entered under any bankruptcy reorganization, compromise,
arrangement, insolvency, readjustment of debt, dissolution or
liquidation or similar law, whether now or hereafter in effect (the
"Bankruptcy Law"), of any jurisdiction; or
(viii) the Company petitions or applies to any tribunal for,
or consents to, the appointment of, or taking possession by, a
trustee, receiver, custodian, liquidator or similar official of the
Company, or of any substantial part of the assets of the Company, or
commences a voluntary case under the Bankruptcy Law of the United
States or any proceedings relating to the Company under the Bankruptcy
Law of any other jurisdiction; or
(ix) any such petition or application is filed, or any
such proceedings are commenced, against the Company and the Company by
any act indicates its approval thereof, consent thereto or
acquiescence therein, or an order, judgment or decree it entered
appointing any such trustee, receiver, custodian, liquidator or
similar official, or approving the petition in any such proceedings,
and such order, judgment or decree remains unstayed and in effect for
more than 60 days; or
(xi) any order, judgment or decree is entered in any
proceedings against the Company decreeing a split-up of the Company
which requires the divestiture of assets representing a substantial
part of the consolidated assets of the Company (determined in
accordance with generally accepted accounting principles) for any of
the three fiscal years then most recently ended, and such order,
judgment or decree remains unstayed and in effect for more than 60
days; or
(xii) any judgment or order, or series of judgments or
orders, is rendered against the Company and either (A) enforcement
proceedings have been commenced by any creditor upon such judgment or
order or (B) within 60 days after entry thereof,
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such judgment is not discharged or execution thereof stayed pending
appeal, or within 60 days after the expiration of any such stay, such
judgment is not discharged;
then (a) if such event is an Event of Default specified in clause (i) of this
Section 9.01 the Purchaser may at its option, by notice in writing to the
Company, declare such Convertible Debenture to be, and such Convertible
Debenture shall thereupon be and become, immediately due and payable at par
together with interest accrued thereon, without presentment, demand, protest or
other notice of any kind, all of which are hereby waived by the Company, (b) if
such event is an Event of Default specified in clause (vi), (vii), (viii) or
(ix) of this Section 9.01 with respect to the Company, all of the Convertible
Debentures at the time outstanding shall automatically become immediately due
and payable at par together with interest accrued thereon, without presentment,
demand, protest or notice of any kind, all of which are hereby waived by the
Company, and (c) if such event is not an Event of Default specified in clause
(vi), (vii, (viii) or (ix) of this Section 9.01 with respect to the Company,
the Purchaser may, by notice in writing to the Company, declare all of the
Convertible Debentures to be, and all of the Convertible Debentures shall
thereupon be and become, immediately due and payable together with interest
accrued thereon with respect to each Convertible Debenture, without
presentment, demand, protest or other notice of any kind, all of which are
hereby waived by the Company.
SECTION 9.02. RESCISSION OF ACCELERATION. At any time after any or
all of the Convertible Debentures shall have been declared immediately due and
payable pursuant to Section 9.01, the Purchaser may, by notice in writing to
the Company, rescind and annul such declaration and its consequences if (i) the
Company shall have paid all overdue interest on the Convertible Debentures, the
principal payable with respect to any Convertible Debentures which have become
due otherwise than by reason of such declaration, and interest on such overdue
interest and overdue principal at the rate specified in the Convertible
Debentures, (ii) the Company shall not have paid any amounts which have become
due solely by reason of such declaration, (iii) all Events of Default and
Defaults, other than non-payment of amounts which have become due solely by
reason of such declaration, shall have been cured or waived pursuant to Section
10.03, and (iv) no judgment or decree shall have been entered for the payment
of any amounts due pursuant to the Convertible Debentures or this Agreement.
No such rescission or annulment shall extend to or affect any subsequent Event
of Default or Default or impair any right arising therefrom.
SECTION 9.03. NOTICE OF ACCELERATION OR RESCISSION. Whenever any
Convertible Debenture shall be declared immediately due and payable pursuant to
Section 9.01 or any such declaration shall be rescinded and annulled pursuant
to Section 9.02, the Company shall forthwith give written notice thereof to the
holder of each Convertible Debenture at the time outstanding.
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SECTION 9.04. OTHER REMEDIES. If any Event of Default or Default
shall occur and be continuing, the Purchaser may proceed to protect and enforce
its rights under this Agreement and such Convertible Debenture by exercising
such remedies as are available to such holder in respect thereof under
applicable law, either by suit in equity or by action at law, or both, whether
for specific performance of any covenant or other agreement contained in this
Agreement or in aid of the exercise of any power granted in this Agreement. No
remedy conferred in this Agreement upon the Purchaser is intended to be
exclusive of any other remedy, and each and every such remedy shall be
cumulative and shall be in addition to every other remedy conferred herein or
now or hereafter existing at law or in equity or by statute or otherwise.
ARTICLE X
MISCELLANEOUS
SECTION 10.01. PAYMENTS. The Company will make payments of principal
of and interest on any Convertible Debenture by wire transfer of immediately
available funds for credit (not later than 12:00 noon, New York City time, on
the date due) (i) in the case of the Purchaser to the account or accounts as
specified by the Purchaser in writing and (ii) in the case of any other holder
of a Convertible Debenture pursuant to the payments instructions provided by
such holder The Purchaser agrees that, before disposing of any Convertible
Debenture, the Purchaser will make a notation thereon (or on a schedule
attached thereto) of all principal payments previously made thereon and of the
date to which interest thereon has been paid. Anything in this Agreement or in
the Convertible Debenture to the contrary notwithstanding, any payment in
respect of the Convertible Debenture that is due on a date other than a
Business Day shall be made on the next succeeding Business Day. If the date
for any payment is extended to the next succeeding Business Day by reason of
the preceding sentence, the period of such extension shall be included on the
computation of the amount payable on such Business Day.
SECTION 10.02. EXPENSES. The Company agrees, whether or not the
transactions contemplated hereby shall be consummated, to pay, and save the
Purchaser harmless against liability for the payment of, all out-of-pocket
expenses arising in connection with such transactions, including (i) all
document product and duplication charges and the fees and expenses of any
special counsel engaged by the Purchaser in connection with this Agreement, the
transactions contemplated hereby and any subsequent proposed modification of,
or proposed consent under, this Agreement, whether or not such proposed
modification shall be effected or proposed consent granted, and (ii) the costs
and expenses, including attorney's fees, incurred by you or such Transferee in
enforcing (or determining whether or hot to enforce) any rights under this
Agreement or the Convertible Debentures or in responding to
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any subpoena or other legal process or informal investigative demand issued in
connection with this Agreement or the transactions contemplated hereby,
including without limitation costs and expenses incurred in any bankruptcy
case.
SECTION 10.03. CONSENT TO AMENDMENTS. This Agreement may be amended,
and the Company may the any action herein prohibited, or omit to perform any
act herein required to be performed by it, if the Company shall obtain the
written consent to such amendment, action or omission to act, of the Required
Holder(s) except that, without the written consent of the holder or holders of
all Convertible Debentures at the time outstanding, no amendment to this
Agreement shall change the maturity of any Convertible Debenture, or change the
principal of, or the rate or time of payment of interest on any Convertible
Debenture, or change the proportion of the principal amount of the Convertible
Debentures required with respect to any consent, amendment, waiver or
declaration. Each holder of any Convertible Debenture at the time or
thereafter outstanding shall be bound by any consent authorized by this Section
10.03, whether or not such Convertible Debenture shall have been marked to
indicate such consent, but any Convertible Debentures issued thereafter may
bear a notation referring to any such consent. No course of dealing between
the Company and the holder of any Convertible Debenture nor any delay in
exercising any rights hereunder or under any Convertible Debenture shall
operate as a waiver of any rights of any holder of such Convertible Debenture.
SECTION 10.04. PERSONS DEEMED OWNERS; PARTICIPATIONS. Prior to due
presentment for registration of transfer, the Company may treat the Person in
whose name any Convertible Debenture is registered as the owner and holder of
such Convertible Debenture for the purpose of receiving payment of principal
of, interest on such Convertible Debenture and for all other purposes
whatsoever, whether or not such Convertible Debenture shall be overdue, and the
Company shall not be affected by notice to the contrary. Subject to the
preceding sentence, the holder of any Convertible Debenture may from time to
time grant participations in such Convertible Debenture to any Person on such
terms and conditions as may be determined by such holder in its sole and
absolute discretion.
SECTION 10.05. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All
representations and warranties made herein or any certificate or instrument
deliver by the parties pursuant to or in connection with this Agreement shall
survive the execution and delivery of this Agreement, the issuance, sale and
delivery of the Convertible Debenture, the transfer by the Purchaser of any
Convertible Debenture or portion thereof or interest therein and the payment of
any Convertible Debenture, and may be relied upon by any Transferee, regardless
of any investigation made at any time by or on behalf of you or any Transferee.
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SECTION 10.06. BROKERAGE. Each party hereto will indemnify and hold
harmless the others against and in respect of any claim for brokerage or other
commissions relative to this Agreement or the transactions contemplated hereby,
based in any way on agreements, arrangements or understandings made or claimed
to have been made by such party with any third party.
SECTION 10.07. PARTIES IN INTEREST. All representations, covenants
and agreements contained in this Agreement by or on behalf of any of the
parties hereto shall bind and inure to the benefit of the respective permitted
successors and assigns of the parties hereto whether or expressed or not.
Without limiting the generality of the foregoing but subject to the proviso
contained therein, all representations, covenants and agreements benefiting the
Purchaser shall inure to the benefit of any Transferee.
SECTION 10.09. NOTICES. All notices, requests, consents and other
communications hereunder shall be in writing and shall be deemed effectively
given: (a) upon receipt at the address specified below after having been sent
by (i) certified or registered mail, return receipt requested, postage prepaid;
or (b) upon receipt at the address specified below after deposit by a
nationally recognized overnight courier, specifying next day delivery, with
written verification of receipt. All communications shall be sent to the part
to be notified at the address set forth below:
(a) if to the Purchaser, to
W. J. Flynn & Associates, Inc.
320 Park Avenue
New York, New York 10022
Attention: W. K. Flynn
with a copy (which shall not constitute notice) to
Dolgenos, Newman & Cronin. L.L.P.
96 Spring Street
New York, New York 10012
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(b) if to the Company, to
Air South Airlines, Inc.
2625 Airport Boulevard
West Columbia, South Carolina 29170
Attention: President
with a copy (which shall not constitute notice) to
David Y. Monteith, Esquire
Monteith Law Offices
2805 Millwood Avenue
Columbia, South Carolina 29205
or, in any such case, at such other address or addresses as shall have been
furnished in writing by such party to the others.
SECTION 10.09. ENTIRE AGREEMENT. This Agreement, including the
Schedules and Exhibits hereto, constitutes the sole and entire agreement of the
parties with respect to the subject matter hereof. All Scheduled and Exhibits
hereto are hereby incorporated herein by reference.
SECTION 10.10. COUNTERPARTS. This Agreement may be executed in two
or more counterparts, each of which shall be deemed an original but all of
which together shall constitute one and the same instrument.
SECTION 10.11. SEVERABILITY. If any provision of this Agreement
shall be declared void or unenforceable by any judicial or administrative
authority, the validity of any other provision and of the entire Agreement
shall not be affected thereby.
SECTION 10.12 DESCRIPTIVE HEADINGS. The descriptive headings of the
several sections and paragraphs of this Agreement are inserted for reference
only and shall not limit or otherwise affect the meaning hereof.
SECTION 10.13. GOVERNING LAW. This agreement shall be governed by
and construed in accordance with the laws of the State of Delaware.
SECTION 10.14. GENDER; PLURALS. Words of the masculine gender shall
be deemed and construed to include correlative words of the feminine and neuter
genders. Words importing the singular number shall include the plural number
and vice versa.
32
<PAGE> 37
IN WITNESS WHEREOF, the Company and the Purchaser have executed this
Agreement as of the day and year first above written.
AIR SOUTH AIRLINES, INC.
By: /s/
-------------------------
John P. Tague
President and Chief
Executive Officer
W. J. FLYNN & ASSOCIATES, INC.
By: /s/
-------------------------
W. K. Flynn
33
<PAGE> 38
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE"ACT") AND MAY NOT BE OFFERED, SOLD OR
OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL
REGISTERED UNDER THE ACT OR, IN THE OPINION OF COUNSEL OR BASED ON
OTHER WRITTEN EVIDENCE IN FORM AND SUBSTANCE SATISFACTORY TO THE
ISSUER OF THESE SECURITIES, SUCH OFFER, SALE OR TRANSFER, PLEDGE OR
HYPOTHECATION DOES NOT REQUIRE REGISTRATION.
EXHIBIT A
FORM OF CONVERTIBLE DEBENTURE
AIR SOUTH AIRLINES, INC.
6% CONVERTIBLE DEBENTURE DUE AUGUST 16, 1999
No.CD 1996-3 September ______, 1996
$200,000
FOR VALUE RECEIVED, the undersigned, AIR SOUTH AIRLINES, INC. (the
"Company"), a corporation organized and existing under the laws of the State of
Delaware, hereby promises to pay W. J. Flynn & Associates, Inc., or registered
assigns, the principal sum of TWO HUNDRED THOUSAND DOLLARS (together with all
additional sums of deferred interest, if any, added to the principal balance of
this Convertible Debenture as provided below) on September 16, 1999, (the
"Maturity Date") with interest (computed on the basis of a 360-day year of
twelve 30-day months) (a) on the unpaid balance thereof at the rate of 6% per
annum from the date hereof, payable quarterly on the last day of March, June,
September and December in each year, commencing with the March 31, June 30,
September 30 or December 31 next succeeding the date hereof, until the
principal hereof shall have become due and payable, and (b) on any overdue
payment of principal or any overdue payment of interest accruing after the
Maturity Date or the acceleration hereof, payable quarterly (or, at the option
of the registered holder hereof, on demand), at a rate per annum from time to
time equal to the greater of (i) 8% or (ii) 2.0% over the rate of interest
publicly announced by Morgan Guaranty Trust Company of New York from time to
time in New York City as its Prime Rate; but in no event shall the rate of
interest exceed the maximum rate of nonusurious interest permitted by law to be
paid by the Company (and to the extend permitted by law, interest on any
overdue principal or interest thereon).
<PAGE> 39
This convertible debenture (the "Convertible Debenture") is issued
pursuant to a Convertible Debenture Purchase Agreement, dated of even date
herewith (the "Agreement"), between the Company and W. J. Flynn & Associates,
Inc. and is entitled to the benefits thereof. Capitalized terms used herein
and not otherwise defined shall have the meaning ascribed thereto in the
Agreement.
Interest accruing on this Convertible Debenture and remaining unpaid
on the last day of March, June, September and December in each year, commencing
with the March 31, June 30, September 30 or December 31 next succeeding the
date hereof and extending through the Maturity Date, shall be added to the
outstanding principal balance of this Convertible Debenture with effect as of
such date and any interest thereafter shall be due and payable in cash
according with the terms hereof.
Payments of principal of and interest on this Convertible Debenture
are to be made at W. J. Flynn & Associates, Inc., 320 Park Avenue, New York,
New York 10022, or at such other place as the holder hereof shall designate to
the Company in writing, in lawful money of the United States of America. All
payments made hereunder, whether at maturity or as a result of acceleration
shall be allocated first to costs and expenses of the holder resulting from
collection efforts with respect to this Convertible Debenture, second to
accrued but unpaid interest, and third to principal.
This Convertible Debenture is a registered Convertible Debenture and,
as provided in the Agreement, and subject to compliance with federal and any
applicable state securities laws upon surrender of this Convertible Debenture
for registration of transfer, duly endorsed, or accompanied by a written
instrument of transfer duly executed, by the registered holder hereof or such
holder's attorney duly authorized in writing, a new Convertible Debenture for a
like principal amount will be issued to, and registered in the name of, the
transferee. Prior to due presentment for registration of transfer, the Company
may treat the person in whose name this Convertible Debenture is registered as
the owner hereof for the purpose of receiving payment and for all other
purposes, and the Company shall not be affected by any notice to the contrary.
This Convertible Debenture may be prepaid, in whole or in part from
time to time, without penalty.
The outstanding principal balance and accrued interest on this
Convertible Debenture may be converted in whole or in part at any time or from
time to time at the option of the holder or amy automatically be converted into
shares of Series D Preferred Stock, all as set forth in the Agreement.
<PAGE> 40
If an Event of Default, as defined in the Agreement, shall occur and
be continuing, the principal of this Convertible Debenture may be declared or
otherwise become due and payable in the manner and with the effect provided in
the Agreement.
THIS CONVERTIBLE DEBENTURE IS INTENDED TO BE PERFORMED IN THE STATE OF
DELAWARE AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAW OF SUCH
STATE.
IN WITNESS WHEREOF, the Company has issued this Convertible Debenture
as of the _______ day of September, 1996.
AIR SOUTH AIRLINES, INC.
SEAL
Attest:
By:
--------------------------
John P. Tague
Chairman of the Board,
President and Chief
Executive Officer
- - -------------------------
David Y. Monteith
Secretary
3
<PAGE> 41
FORM OF
NOTICE OF CONVERSION
(TO BE EXECUTED IF HOLDER DESIRES TO CONVERT
THIS CONVERTIBLE DEBENTURE)
TO: AIR SOUTH AIRLINES, INC.
The undersigned hereby irrevocably elects to convert the principal
balance, or portion thereof specified below, of this Convertible Debenture into
the number of shares of Series D Preferred Stock of the Company determined in
accordance with and under the Agreement and requests that certificates for the
shares of Series D Preferred Stock to be issued upon such conversion be issued
in the name of:
______________________________
(Please Print Name)
Address (print):
______________________________
______________________________
______________________________
Social Security Number
______________________________
(Please print principal balance
of this Convertible Debenture
being converted)
______________________________
Signature
(Signature must conform in all respects to name of holder
as specified on the face of this Convertible Debenture.)
4
<PAGE> 42
EXHIBIT B
CERTIFICATE OF DESIGNATION, PREFERENCES
AND RIGHTS OF SERIES D PREFERRED STOCK
OF
AIR SOUTH AIRLINES, INC.
a corporation organized and existing under the General Corporation Law of the
State of Delaware.
DOES HEREBY CERTIFY
That, pursuant to authority conferred upon the Board of Directors by
the Certificate of Incorporation of said corporation, and pursuant to the
provisions of Section 151 of Title 8 of the Delaware Code of 1953, said Board
of Directors has established a class of preferred stock of this Corporation
designated Series D Preferred Stock ("Series D Preferred") consisting of
Eighteen million Four Hundred Thousand (18,400,000) shares of such Series D
Preferred. Such Series D Preferred was established with the powers,
designations, preferences and relative participating optional or other rights
contained in Exhibit I attached hereto.
IN WITNESS WHEREOF, said Air South Airlines, Inc. has caused this
Certificate to be signed by __________________, its Chairman of the Board,
President and Chief Executive Officer, this ______ day of _______________, 1997.
By: __________________________
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<PAGE> 43
EXHIBIT I
AIR SOUTH AIRLINES, INC. SERIES D PREFERRED STOCK
SECTION 1. CLASS OF PREFERRED STOCK. The Air South Airlines
Series D Preferred Stock shall have such voting powers, and such other powers,
designations, preferences and other special rights set out below.
SECTION 2. DIVIDENDS. The holders of outstanding shares of
Series D Preferred stock shall be entitled to receive dividends at the rate of
two cent ($0.02) per share (as adjusted for any stock dividends, combinations
or splits with respect to such shares) per annum, when, if and as declared by
the Board of Directors, out of funds legally available therefore. The right to
such dividends on the Series D Preferred Stock shall not be cumulative. No
cash dividend shall be paid on the Common Stock in any year unless an equal
dividend is paid with respect to all outstanding shares of Series D Preferred
Stock in an amount for each such share to a holer of the number of shares of
Common Stock into which such share of Series D Preferred Stock could then be
converted.
SECTION 3. LIQUIDATION RIGHTS.
a. In the event of any liquidation, dissolution
or winding up of the Corporation, either voluntary or involuntary, the holders
of the Series D Preferred Stock shall be entitled to receive, prior and in
preference to any distribution of any of the assets or surplus funds of the
Corporation to the holders of the Common Stock, the amount of twenty-five
center ($0.25) per share (the "Original Issue Price") (as adjusted for any
stock dividends, combinations or splits with respect to such shares) plus all
accrued or declared but unpaid dividends on each share of Series D Preferred
Stock held by such holders (the "Preferential Amount"). The right of the
holders of Shares of Series D Preferred Stock to a preference in such a
liquidation dissolution or winding up shall in all respects be pari passu with
the rights of the holders of shares of Series A Preferred Stock, Series B
Preferred Stock and Series C Preferred Stock. If upon the occurrence of any
liquidation, dissolution or winding up of the Corporation, either voluntary or
involuntary, the assets and funds to be distributed among the holders of Series
D Preferred Stock shall be insufficient to permit the payment to such holders
of the full Preferential Amount, the entire assets and funds of the Corporation
legally available for distribution shall be distributed ratably among the
holders of the Series D Preferred Stock in proportion to the Preferential
Amount each such holder is otherwise entitled to receive.
b. After payment to the holders of the Series D
Preferred Stock of the Preferential Amount, the entire remaining assets and
funds of the Corporation legally available for distribution if any, shall be
distributed ratably among the holders of Series D Preferred Stock and the
Common Stock in proportion to the shares of Series D Preferred Stock and Common
Stock then held by such holders.
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<PAGE> 44
c. For purposes of this Section 3, (i) a merger or
consolidation of the Corporation into or with another corporation (other than
with a wholly owned subsidiary of this Corporation), or any other corporate
reorganization in which the stockholders of the Corporation will not own a
majority of the outstanding shares of the surviving entity of such merger,
consolidated or reorganization, or (ii) a sale, transfer or other disposition
of all or substantially all of the assets of the Corporation, shall be deemed
to be a liquidation, dissolution or winding up of the Corporation.
SECTION 4. CONVERSION
a. RIGHT TO CONVERT. Each share of Series D Preferred
Stock shall initially be convertible, at the option of the holder, at any time
after the date of issuance of such share, at the office of the Corporation or
any transfer agent for the Series D Preferred Stock, into one (1) fully paid
and nonassessable shares of Common Stock (subject to adjustment as set forth
herein). The number of shares of Common Stock into which one share of Series D
Preferred Stock may be converted hereinafter is referred to as the "Series D
Conversion Rate". The price at which shares of Common Stock shall be
deliverable upon conversion of shares of Series D Preferred shall initially be
twenty- five cents ($0.25) per share of Common Stock (the "Series D Conversion
Price"). Such initial Series D Conversion Price shall be subject to adjustment
from time to time, as hereinafter provided.
b. AUTOMATIC CONVERSION. Each share of Series D
Preferred Stock shall automatically be converted into shares of Common Stock at
the then effective Series D Conversion Rate upon the earlier of (i) the closing
of a firmly underwritten public offering of the Corporation's Common Stock on a
Form S-1 Registration Statement at an aggregate public offering price (after
underwriting discounts and commission) of at least $10,000,000 and a per share
price equal to or greater than fifty cents ($.50) (as appropriately adjusted
for stock splits and the like) (an "Initial Public Offering"); (ii) the vote or
written consent of the holders of at least 50% of the then outstanding shares
of Series D Preferred Stock; or (iii) the date as of which less than 20% of the
maximum number of shares of Series D Preferred Stock issued by the Company (or
issuable upon conversion or exchange of securities of the Company) prior to
such date remain outstanding (the "Automatic Conversion Event").
c. MECHANICS OF CONVERSION. Before any holder of Series
D Preferred Stock shall be entitled to convert the same into shares of Common
Stock, such holder shall surrender the certificate or certificates for such
shares, duly endorsed, at the office of the Corporation or of any transfer
agent for the Series D Preferred Stock, or notify the Corporation or its
transfer agent that such Series D Preferred Stock certificates have been lost,
stolen or destroyed and execute an agreement satisfactory to the Corporation to
indemnify the Corporation from any loss incurred by it in connection with such
certificates, and shall give written notice to the Corporation at such office
that such holder elects to convert the same and shall state in the notice the
name or names in which such holder wishes the certificate or certificates for
share of Common Stock to be issued. The Corporation shall then, as soon as is
practicable, issue and deliver at such office to such holder of
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<PAGE> 45
Series D Preferred Stock, or to such holder's nominee or nominees, a
certificate or certificates for the number of shares of Common Stock to which
such holder shall be entitled. Such conversion shall be deemed to have been
made immediately prior to the close of business on the date of surrender of the
shares of Series D Preferred Stock to be converted, and the person or persons
entitled to receive the shares of Common Stock issuable upon such conversion
shall be treated for all purposes as the record holder or holders of such
shares of Common Stock on such dates; provided, however, that in the event of
automatic conversion pursuant to Section 4(b), such conversion shall be deemed
to have been made upon the occurrence of the Automatic Conversion Event
triggering such conversion without any further action by the holders of shares
of Series D Preferred Stock, although the Corporation shall not be obligated to
issue certificates evidencing the shares of Common Stock issuable upon such
automatic conversion unless the certificates evidencing such shares of Series D
Preferred Stock are delivered to the Corporation or its transfer agent as
provided above, or the holder notifies the Corporation or its transfer agent
that such Series D Preferred Stock certificates have been lost, stolen or
destroyed and executes and agreement satisfactory to the Corporation to
indemnify the Corporation from any loss incurred by it in connection with such
certificates. If the conversion is in connection with an underwritten offering
of securities pursuant to the Securities Act, the conversion may, at the option
of any holder tendering shares of Series D Preferred Stock for conversion, be
conditioned upon the closing with the underwriters of the sale of securities
pursuant to such offering, in which event the person(s) entitled to receive the
Common Stock upon conversion of Series D Preferred Stock shall not be deemed to
have converted such Series D Preferred Stock until immediately prior to the
closing of such sale of securities.
d. ADJUSTMENTS TO THE SERIES D CONVERSION PRICE FOR
CERTAIN DILUTING ISSUES.
(i) SPECIAL DEFINITIONS. For purposes of this
Section 4(d), the following definitions apply:
(1) "Option" shall mean rights, options,
or warrants to subscribe for, purchase or otherwise acquire either Common Stock
or Convertible Securities (defined below).
(2) "Original Issue Date" shall mean the
date on which a share of Series D Preferred Stock was fir issued or securities
convertible or exchangeable for Series D Preferred Stock were first issued.
(3) "Convertible Securities" shall mean
any evidences of indebtedness, shares or other securities directly or
indirectly convertible into or exchangeable for Common Stock.
(4) "Additional Shares of Common Stock"
shall mean all shares of Common Stock issued (or, pursuant to Section
(4)(d)(iii), deemed to be issued) by the Corporation after the Original Issue
Date, other than shares of Common Stock issued or issuable:
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<PAGE> 46
(A) upon conversion of shares of
Series D Preferred Stock:
(B) to officers, directors or
employees of, or consultants to, the Corporation pursuant to stock option or
stock purchase plans or agreements on terms approved by the Board of Directors;
(C) as a dividend or distribution
on Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock
or Series D Preferred Stock;
(D) for which adjustment of the
Series D Conversion Price is made pursuant to Section 4(e) or for which
adjustment of the Series A Conversion Price, Series B Conversion Price or
Series C Conversion Price is made pursuant to the counterpart of Section 4(e)
in the charter documents of the Company;
(E) upon the closing of an Initial
Public Offering;
(F) upon conversion of up to an
aggregate of $4.0 million in convertible notes originally issued to Hambrecht &
Quist Group and its affiliates; or
(G) in connection with an
acquisition of another company on terms approved by the Board of Directors.
(ii) NO ADJUSTMENT OF THE SERIES D CONVERSION
PRICE. Any provisions herein to the contrary notwithstanding, no adjustment in
the Series D Conversion Price shall be made in respect of the issuance of
Additional Shares of Common Stock unless the consideration per share
(determined pursuant to Section 4(d)(v) hereof) for an Additional Share of
Common Stock issued or deemed to be issued by the Corporation is less than the
Series D Conversion Price in effect on the date of, and immediately prior to,
such issue.
(iii) DEEMED ISSUE OF ADDITIONAL SHARES OF COMMON
STOCK. In the event the Corporation at any time or from time to time after the
Original Issue Date shall issue any Options or Convertible Securities or shall
fix a record date for the determination of holders of any class of securities
then entitled to receive any such Options or Convertible Securities, then the
maximum number of shares (as set forth in the instrument relating thereto
without regard to any provisions contained therein designed to protect against
dilution) of Common Stock issuable upon the exercise of such Options or, in the
case of Convertible Securities and Options therefore, the conversion or
exchange of such Convertible Securities, shall be deemed to be additional
Shares of Common Stock issued as of the time of such issue or, in case such a
record date shall have been fixed, as of the close of business on such record
date, provided that in any such case in which Additional Shares of Common Stock
are deemed to be issued:
I-4
<PAGE> 47
(1) no further adjustment in the Series
D Conversion Price shall be made upon the exercise of such Options or
conversion or exchange of such Convertible Securities to the extent that
adjustment had been previously made pursuant to this Section 4(d);
(2) If such Options or Convertible
Securities by their terms provide, with the passage of time or otherwise, for
any increase or decrease in the consideration payable to the Corporation, or
decrease or increase in the number of shares of Common Stock issuable, upon the
exercise, conversion or exchange thereof, the Series D Conversion Price
computed upon the original issue thereof (or upon the occurrence of a record
date with respect thereto), and any subsequent adjustments based thereon,
shall, upon any such increase or decrease becoming effective, be recomputed to
reflect such increase or decrease insofar as it affects such Options or the
rights of conversion or exchange under such Convertible Securities (provided,
however, that no such adjustment of the Series D Conversion Price shall affect
Common Stock previously issued upon conversion of the Series D Preferred);
(3) upon the expiration of any such
Options or any rights of conversion or exchange under such Conversion
Securities which shall not have been exercised, the Series D Conversion Price
computed upon the original issue thereof (or upon the occurrence of a record
date with respect thereto), and any subsequent adjustments based thereon, shall
upon such expiration, be recomputed as if:
(A) in the case of Convertible
Securities or Options for Common Stock, the only Additional Shares of Common
Stock issued were the shares of Common Stock, if any, actually issued upon the
exercise of such Options or the conversion or exchange of such Convertible
Securities and the consideration received therefore was the consideration
actually received by the Corporation for the issue of all such Options, whether
or not exercised, plus the consideration actually received by the Corporation
upon such exercise, or for the issue of all such Convertible Securities and the
additional consideration, if any, actually received by the Corporation upon
such conversion or exchange; and
(B) in the case of Options for
Convertible Securities, only the Convertible Securities, if any, actually
issued upon the exercise thereof were issued at the time of issue of such
Options, and the consideration received by the Corporation for the Additional
Shares of Common Stock deemed to have been then issued was the consideration
actually received by the Corporation for the issue of all such Options, whether
or not exercised, plus the consideration deemed to have been received by the
Corporation (determined pursuant to Section 4(d) upon the issue of the
Convertible Securities with respect to which such Options were actually
exercised;
(4) no readjustment pursuant to clause
(2) or (3) above shall have the effect of increasing the Series D Conversion
Price to an amount which exceeds the lower of (a) the Series D Conversion Price
on the original adjustment date, or (b) the Series D
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<PAGE> 48
Conversion Price that would have resulted from any issuance of Additional
Share of Common Stock between the original adjustment date and such adjustment
date;
(5) in the case of any Options which
expire by their terms not more than 30 days after the date of issue thereof, no
adjustment of the Series D Conversion Price shall be made until the expiration
or exercise of all such Options whereupon such adjustment shall be made in the
same manner provided in clause (3) above.
(iv) ADJUSTMENT OF CONVERSION PRICE UPON ISSUANCE
OF ADDITIONAL SHARES OF COMMON STOCK. In the event this Corporation, at any
time after the Original Issue Date, shall issue Additional Shares of Common
Stock (including Additional Shares of Common Stock deemed to be issued pursuant
to Section 4 without consideration or for a consideration per share less than
the Series D Conversion Price in effect on the date of and immediately prior to
such issue, then and in such event, the Series D Conversion Price shall be
reduced, concurrently with such issue, to a price (calculated to the nearest
cent) determined by multiplying the Series D Conversion Price by a fraction,
the numerator of which shall be the number of shares of Common Stock
outstanding immediately prior to such issue plus the number of shares of Common
Stock which the aggregate consideration received by the Corporation for the
total number of Additional Share of Common Stock so issued would purchase at
such Series D Conversion Price in effect immediately prior to such issuance,
and the denominator of which shall be the number of shares of Common Stock
outstanding immediately prior to such issue plus the number of such Additional
Share of Common Stock so issued. For the purpose of the above calculation, the
number of shares of Common Stock outstanding immediately prior to such issue
shall be calculated on a fully diluted basis, as if all shares of Series D
Preferred and all Convertible Securities had been fully converted into shares
of Common Stock immediately prior to such issuance and any outstanding Options
had been fully exercised immediately prior to such issuance (and the resulting
securities fully converted into shares of Common Stock, of so convertible) as
of such date, but not including in such calculation any additional shares of
Common Stock issuable with respect to shares of Series D Preferred, Convertible
Securities, or outstanding Options, solely as a result of the adjustment of the
Series D Conversion Price (or other conversion ratio) resulting from the
issuance of the Additional Shares of Common Stock causing the adjustment in
questions.
(v) DETERMINATION OF CONSIDERATION. For purpose
of this Section 4(d), the consideration received by the Corporation for the
issuance of any Additional Shares of Common Stock shall be computed as follows:
(1) CASH AND PROPERTY. Such
consideration shall:
(A) insofar as it consists of cash,
be computed at the aggregate amount of cash received by the Corporation
excluding amounts paid or payable for accrued interest or accrued dividends;
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<PAGE> 49
(B) insofar as if consists of
property other than cash, be computed as the fair value thereof at the time of
such issue, as determined in good faith by the Board of Directors; and
(C) in the event Additional Shares
of Common Stock are issued together with other stock or securities or other
assets of the Corporation for consideration which covers both, be the
proportion of such consideration so received, computed as provided in clause
(A) and (B) above, as determined in good faith by the Board of Directors.
(2) OPTIONS AND CONVERTIBLE SECURITIES.
The consideration per share received by the Corporation for Additional Shares
of Common Stock deemed to have been issued pursuant to Section 4(d)(iii),
relating to Options and Convertible Securities shall be determined by dividing:
(A) the total amount, if any,
received or receivable by the Corporation as consideration for the issue of
such Options or Convertible Securities, plus the minimum aggregate amount of
additional consideration (as set forth in the instruments relating thereto,
without regard to any provision contained therein designed to protect against
dilution) payable to the Corporation upon the exercise of such Options or the
conversion or exchange of such Convertible Securities, or in the case of
Options for exchange of such Convertible Securities, or in the case of Options
for Convertible Securities, the exercise of such Options for Convertible
Securities and the conversion or exchange of such Convertible Security by
(B) the maximum number of shares
of Common Stock (as set forth in the instruments relating hereto, without
regard to any provision contained therein designed to protect against the
dilution), issuable upon the exercise of such Options or conversion or
exchange of such Convertible Securities.
e. ADJUSTMENT TO SERIES D CONVERSION PRICE FOR STOCK
DIVIDENDS AND FOR COMBINATIONS OR SUBDIVISIONS OF COMMON STOCK. In the event
that this Corporation at any time or from time to time after the Original Issue
Date shall declare or pay, without consideration, any dividend on the Common
Stock payable in Common Stock or in any right to acquire Common Stock for no
consideration, or shall effect a subdivision of the outstanding shares of
Common Stock into a greater number of shares of Common Stock (by stock split,
reclassification or otherwise than by payment of a dividend in Common Stock or
in any right to acquire Common Stock), or in the event the outstanding shares
of Common Stock shall be combined or consolidated, by reclassification or
otherwise, into a lesser number of shares of Common Stock, then the Series D
Conversion Price in effect immediately prior to such event shall, concurrently
with the effectiveness of such event, be proportionately decreased or
increased, as appropriate. In the event that this Corporation shall declare or
pay, without consideration, any dividend on the Common Stock payable in any
right to acquire Common Stock for no consideration, then the Corporation shall
be deemed to have made a dividend payable in Common Stock in an amount of
shares equal to the maximum number of shares issuable upon exercise of such
rights to acquire Common Stock.
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<PAGE> 50
f. ADJUSTMENTS FOR RECLASSIFICATION AND REORGANIZATION.
If the Common Stock issuable upon conversion of Series D Preferred Stock shall
be changed into the same or a different number of shares of any other class or
classes of shares, whether by capital reorganization, reclassification or
otherwise (other than a subdivision or combination of shares provided for in
Section 4(e) above or a merger or other reorganization referred to in Section
3(c) above), the Series D Conversion Price than in affect shall, concurrently
with the effectiveness of such reorganization or reclassification, be
proportionately adjusted so that the Series D Preferred shall be convertible
into, in lieu of the number of shares of Common Stock which the holders would
otherwise have been entitled to receive, a number of shares of such other class
or classes of stock equivalent to the number of shares of Common Stock that
would have been subject to receipt by the holders upon conversion of the Series
D Preferred Stock immediately before that change.
g. OTHER DISTRIBUTIONS. In the event the Corporation
shall at anytime or from time to time make or issue, or fix a record date for
the determination of holders of Common Stock entitled to receive, a dividend or
other distribution payable in securities (including evidences of indebtedness)
of the Corporation other than Common Stock, then in each such event provision
shall be made so that the holders of Series D Preferred Stock shall receive,
upon the conversion thereof, the securities of the Corporation which they would
have received had their Series D Preferred Stock been converted into Common
Stock on the date of such event.
h. NO IMPAIRMENT. The Corporation will not, by
amendment of its Certificate of Incorporation or through any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms to be observed or performed hereunder by the
Corporation, but will at all times in good faith assist in the carrying out of
all the provisions of this Section 4 and in the taking of all such action as
may be necessary or appropriate to protect the holders of the Series D
Preferred Stock against impairment of the rights afforded them by this Section
A.
i. CERTIFICATES AS TO ADJUSTMENTS. Upon the occurrence
of each adjustment or readjustment pursuant to Section 4(d) of the Series D
Conversion Rate or in the other securities or property (including cash)
deliverable upon the conversion of the shares of Series D Preferred Stock, the
Corporation, at its expense, shall promptly compute such adjustment or
readjustment in accordance with the terms thereof, and cause independent
certified public accountants selected by the Corporation to verify such
computation and prepare and furnish to each holder of Series D Preferred Stock
a certificate setting forth such adjustment or readjustment and showing in
detail the facts upon which such adjustment or readjustment is based.
j. NOTICES OF RECORD DATE. In the event of any taking
by the Corporation of a record of the holders of any class of securities for
the purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, any security or
right convertible into or entitling the holder thereof to receive shares of
Common Stock,
I-8
<PAGE> 51
or any right to subscribe for, purchase or otherwise acquire any share of stock
of any class or any other securities or property, the Corporation shall cause
to be mailed by first class mail to each holder of Series D Preferred Stock, at
least twenty (20) days prior to the applicable record date, a notice specifying
the date on which any such record was to be taken for the purpose of such
dividend, distribution, security or right, and the amount and character of such
dividend, distribution, security or right.
k. ISSUE TAXES. The Corporation shall pay any and
all issue and other taxes that may be payable in respect of any issue of
delivery of shares of Common Stock on conversion of shares of Series D
Preferred Stock pursuant hereto.
l. RESERVATION OF STOCK ISSUABLE UPON CONVERSION.
The Corporation shall take such corporate action as may be necessary, in the
opinion of its counsel, to increase its authorized but unissued shares of
Common Stock to such number of shares as shall be sufficient to effect the
conversion of all the outstanding shares of Series D Preferred Stock into
shares of Common Stock at such time as the Corporation elects to effect such
conversion, including, without limitation, using its best efforts to obtain the
requisite stockholder approval of any necessary amendment to its Certificate of
Incorporation.
m. FRACTIONAL SHARES. No fractional share shall be
issued upon the conversion of any share of Series D Preferred Stock. All
shares of Common Stock (including fractions thereof) issuable upon conversion
of more than one share of Series D Preferred Stock by a holder thereof shall be
aggregated for the purposes of determining whether the conversion would result
in the issuance of any fractional share. If, after the aforementioned
aggregation, the conversion should result in the issuance of a fraction of a
share of Common Stock, the Corporation shall, in lieu of issuing any fractional
share, pay the holder otherwise entitled to such fraction a sum in cash equal
to such fraction multiplied by the Series D Conversion Price then in effect.
n. NOTICES. Any notice required by the
provisions of this Section C to be given to the holders of shares of Series D
Preferred Stock shall be deemed given if deposited in the United States mail,
postage prepaid and addressed to each holder of record at such holder's address
appearing on the books of the Corporation.
SECTION 5. AMENDMENT. Any term relating to the Series D
Preferred Stock may be amended only with the vote or written consent of holder
of at least a majority of all shares of Series D Preferred Stock then
outstanding. Any such amendment shall be binding upon the Corporation and any
holder of Series D Preferred Stock.
SECTION 6. VOTING RIGHTS. Except as otherwise provided herein
or as required by law, the holders of Series D Preferred Stock shall be
entitled to notice of any stockholders' meeting and to vote together with the
holders of Common Stock as single class of capital sock upon the election of
directors and upon any other matter submitted to the stockholders for a vote,
on the following basis:
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<PAGE> 52
a. Holders of Common Stock shall have one (1) vote per
share; and
b. Holders of Series D Preferred Stock shall have the
number of votes per share as is equal to the number of full shares of Common
Stock into which each such share of Series D Preferred Stock held by such
holder is convertible at the record date is established, at the date such vote
is taken or any written consent to stockholders is solicited.
c. In addition to any other vote or consent required
herein or by law, the vote or written consent of the holders of at least a
majority of the outstanding shares of Series D Preferred Stock shall be
necessary:
(i) for any amendment, alteration, or repeal of
any provision of the Certificate of Incorporation (including any Certificates
of Designation of Preferred Stock) or Bylaws to eh Corporation (including any
filing of a Certificate of Designation);
(ii) to alter or change the rights, preferences or
privileges of the Series D Preferred Stock;
(iii) to create any new series of Preferred Stock
having preferences over the Series D Preferred Stock;
(iv) to increase the authorized number of shares
of Series D Preferred Stock;
(v) for any action that results in any
liquidation, acquisition, merger to sale of the Corporation or all or
substantially all of its assets;
(vi) for any action that results in any change in
the principal business of the Corporation; or
(vii) for any action that results in the repurchase
of equity securities of the Corporation (other than the repurchase of stock
from employees of the Corporation at original cost or pursuant to a Board
approved incentive stock option plan).
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<PAGE> 53
EXHIBIT D
INVESTOR'S RIGHTS AGREEMENT
BETWEEN
AIR SOUTH AIRLINES, INC.
AND
W. J. FLYNN & ASSOCIATES, INC.
DATED AS OF SEPTEMBER 30, 1996
<PAGE> 54
TABLE OF CONTENTS
PAGE
<TABLE>
<S> <C> <C>
I. General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
II. Restrictions On Transfer; Registration . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.1 Restrictions on Transfer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.2 Demand Registration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.3 Piggyback Registrations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.4 Form S-3 Registration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.5 Obligations of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.6 Furnish Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.7 Delay of Registration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.8 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.9 Assignment of Registration Rights . . . . . . . . . . . . . . . . . . . . . . . . 9
2.10 Amendment of Registration Rights . . . . . . . . . . . . . . . . . . . . . . . . 10
2.11 "Market Stand-Off" Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . 10
III. Covenants Of The Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.1 Basic Financial Information and Reporting . . . . . . . . . . . . . . . . . . . 10
3.2 Inspection Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.3 Confidentiality of Records . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.4 Reservation of Series D Preferred Stock . . . . . . . . . . . . . . . . . . . . 11
3.5 Reservation of Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . 11
IV. Rights Of First Refusal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
4.1 Subsequent Offerings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
4.2 Exercise of Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
4.3 Issuance of Equity Securities to Other Persons . . . . . . . . . . . . . . . . . 12
4.4 Termination of Rights of First Refusal . . . . . . . . . . . . . . . . . . . . . 12
4.5 Transfer of Rights of First Refusal . . . . . . . . . . . . . . . . . . . . . . 12
4.6 Excluded Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
V. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.1 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.2 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.3 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.4 Separability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.5 Amendment and Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.6 Delays or Omissions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.7 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.8 Attorneys' Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.9 Titles and Subtitles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.10 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
</TABLE>
i
<PAGE> 55
INVESTOR'S RIGHTS AGREEMENT
THIS INVESTOR'S RIGHTS AGREEMENT (the "Agreement") is entered into as
of the ___th day of September 1996, by and among AIR SOUTH AIRLINES, INC., a
Delaware corporation (the "Company") and W. J. FLYNN & ASSOCIATES, INC., a New
York corporation ("Purchaser").
RECITALS
WHEREAS, the Company proposes to sell and issue an aggregate of
$200,000 principal amount of convertible debentures (the "Convertible
Debentures") pursuant to that certain Convertible Debenture Purchase Agreement
(the "Purchase Agreement") of even date herewith between the Company and
Purchaser (the "Purchase Agreement"); and
WHEREAS, as a condition to entering into the Purchase Agreement, the
Purchaser has requested that the Company extend to it registration rights,
information rights and a right of first refusal as set forth herein.
NOW, THEREFORE, in consideration of the mutual promises,
representations, warranties, covenants, and conditions set forth in this
Agreement and in the Purchase Agreement, the parties mutually agree as follows:
I. GENERAL.
1.1 DEFINITIONS. As used in this Agreement the following terms
shall have the following respective meanings:
"1934 ACT" means the Securities Exchange Act of 1934.
"EQUITY SECURITIES" means (i) any stock or similar security of the
Company, (ii) any security convertible, with or without consideration, into any
stock or similar security (including any option to purchase such a convertible
security), (iii) any security carrying any warrant or right to subscribe to or
purchase any stock or similar security or (iv) any such warrant or right.
"FAMILY MEMBER" means a Holder's spouse, children, stepchildren and
grandchildren.
"FINAL PROSPECTUS" means an amended prospectus filed with the SEC
pursuant to SEC Rule 424(b) of the Securities Act.
"HOLDER" means any person owning of record Registrable Securities.
"INITIAL OFFERING" means the first underwritten public offering of the
Company's securities.
"INITIATING HOLDERS" means the Holder of Holders of at least forty
percent (40%) of the Registrable Securities then outstanding.
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<PAGE> 56
"REGISTER," "REGISTERED," and "REGISTRATION" refer to a registration
effected by preparing and filing a registration statement in compliance with
the Securities Act, and the declaration or ordering of effectiveness by the SEC
of such registration statement or document.
"REGISTRABLE SECURITIES" means (i) the Shares; (ii) Common Stock of
the Company issued or issuable upon conversion of the Shares; and (iii) any
Common Stock of the Company issued as (or issuable upon the conversion or
exercise of any warrant, right or other security which is issued as) a dividend
or other distribution with respect to, or in exchange for or in replacement of,
such above-described securities. Notwithstanding the foregoing, Registrable
Securities shall not include any securities sold by a person to the public
either pursuant to a registration statement or Rule 144 or sold in a private
transaction in which the transferror's rights under Article II of this
Agreement are not assigned. Outstanding Shares and warrants, rights and other
securities issued as a dividend or other distribution with respect to
outstanding Shares, or in exchange or replacement of outstanding Shares, shall
be deemed to represent a number of shares of Registrable Securities equal to
the number of shares of Common Stock into which such Shares, warrants, rights
or other securities are convertible as of the time such determination is made.
"SECURITIES ACT" shall be the Securities Act of 1933, as amended.
"SHARES" shall mean the Company's Series D Preferred Stock issuable
assuming the conversion of the Convertible Debentures.
"FORM S-3" means such form under the Securities Act as in effect on
the date hereof or any successor registration form under the Securities Act
subsequently adopted by the SEC which permits inclusion or incorporation of
substantial information by reference to other documents filed by the Company
with the SEC.
"SEC" or "COMMISSION" means the Securities and Exchange Commission.
II. RESTRICTIONS ON TRANSFER; REGISTRATION.
() 2.1 RESTRICTIONS ON TRANSFER.
(a) Each Holder agrees not to make any disposition of all
or any portion of the Registrable Securities unless and until the transferee
has agreed in writing for the benefit of the Company to be bound by this
Section 2.1, provided and to the extent such Section is then applicable and:
(i) There is then in effect a registration
statement under the Securities Act covering such proposed disposition and such
disposition is made in accordance with such registration statement; or
(ii) (A) Such Holder shall have notified the
Company of the proposed disposition and shall have furnished the Company with a
detailed statement of the circumstances surrounding the proposed disposition,
and (B) if reasonably requested by the Company, such Holder shall have
furnished the Company with an opinion of counsel, reasonably satisfactory to
the Company, that such disposition will not require registration of such shares
under the Securities Act.
(iii) Notwithstanding the provisions of paragraphs
(i) and (ii) above, no such registration statement or opinion of counsel shall
be necessary for a transfer by a Holder (A) which is a partnership to its
partners in accordance with partnership interest, (B) to the Holder's family
member or
2
<PAGE> 57
trust for the benefit of an individual Holder of (C) to an affiliate of the
Holder (as that term is defined in Rule 144 (a)(1) of the Securities Act (an
"Affiliate"), provided the transferee will be subject to the terms of this
Section 2.1 to the same extent as if he were an original Holder hereunder.
(b) Each certificate representing Series D Preferred
Stock or Registrable Securities shall (unless otherwise permitted by the
provisions of the Agreement) be stamped or otherwise imprinted with a legend
substantially similar to the following (in addition to any legend required
under applicable state securities laws or as provided elsewhere in this
Agreement):
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE OFFERED, SOLD OR
OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL
REGISTERED UNDER THE ACT OR, IN THE OPINION OF COUNSEL OR BASED ON
OTHER WRITTEN EVIDENCE IN FORM AND SUBSTANCE SATISFACTORY TO THE
ISSUER OF THESE SECURITIES, SUCH OFFER, SALE OR TRANSFER, PLEDGE OR
HYPOTHECATION DOES NOT REQUIRE REGISTRATION.
(c) The Company shall be obligated to reissue promptly
unlegended certificates at the request of any holder thereof if the holder
shall have obtained an opinion of counsel (which counsel may be counsel to the
Company) reasonably acceptable to the Company to the effect that the securities
proposed to be disposed of may lawfully be so disposed of without registration,
qualification or legend.
(d) Any legend endorsed on an instrument pursuant to
applicable state securities laws and the stop-transfer instructions with
respect to such securities shall be removed upon receipt by the Company of an
order of the appropriate blue sky authority authorizing such removal.
2.2 DEMAND REGISTRATION
(a) Subject to the conditions of this Section 2.2, if the
Company shall receive at any time after the later of December 31, 1996 or one
hundred twenty (120) days after the closing of the Initial Offering, a written
request from the Initiating Holders that the Company file a registration
statement under the Securities Act covering the registration of (i) at least
25% of the Registrable Securities held by such Initiating Holders or (ii) any
lesser number of shares if the anticipated aggregate offering price of such
shares, net of underwriting discounts and commissions, would exceed
$5,000,000), then the Company shall, within thirty (30) days of the receipt
thereof, give written notice of such request to all Holders, and subject to the
limitations of Section 2.2(b), effect, as soon as practicable, the registration
under the Securities Act; provided, however, that the Initiating Holders may
request registration of less than 25% of such Registrable Securities if the
anticipated aggregate offering price, net of underwriting discounts and
commissions, exceeds $5,000,000.
(b) If the Initiating Holders intend to distribute the
Registrable Securities covered by their request by means of an underwriting,
they shall so advise the Company as a part of their request made pursuant to
this Section 2.2 and the Company shall include such information in the written
notice referred to in Section 2.2(a). In such event, the right of any Holder
to include such Holder's Registrable Securities in such registration shall be
conditioned upon such
3
<PAGE> 58
Holder's participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting (unless otherwise mutually agreed by
a majority in interest of the Initiating Holders and such Holder) to the extent
provided herein. All Holders proposing to distribute their securities through
such underwriting shall enter into an underwriting agreement in customary form
with the underwriter or underwriters selected for such underwriting by a
majority in interest of the Initiating Holders (which underwriter or
underwriters shall be reasonably acceptable to the Company). Notwithstanding
any other provision of this Section 2.2, if the underwriter advises the Company
in writing that marketing factors require a limitation of the number of
securities to be underwritten (including Registrable Securities) then the
Company shall so advise all Holders of Registrable Securities which would
otherwise be underwritten pursuant hereto, and the number of shares that may be
included in the underwriting shall be allocated to the Holders of such
Registrable Securities on a pro rata basis based on the number of Registrable
Securities held by all such Holders (including the Initiating Holders). Any
Registrable Securities excluded or withdrawn from such underwriting shall be
withdrawn from the registration.
(c) The Company shall not be obligated to effect more
than two (2) registrations pursuant to this Section 2.2.
(d) Notwithstanding the foregoing, if the Company shall
furnish to Holders requesting a registration statement pursuant to this Section
2.2, a certificate signed by the Chairman of the Board stating that in the good
faith judgment of the Board of Directors of the Company, it would be seriously
detrimental to the Company and its stockholders for such registration statement
to be filed and it is therefore essential to defer the filing of such
registration statement, the Company shall have the right to defer such filing
for a period of not more than thirty (30) days after receipt of the request of
the Initiating Holders; provided that such right to delay a request shall be
exercised by the Company no more than once in any one-year period.
(e) All expenses incurred in connection with a
registration pursuant to this Section 2.2 (excluding underwriters' discounts
and commissions, which shall be paid by the selling Holders pro rate with
respect to their included shares), including without limitation all
registration, filing, qualification, printers' and accounting fees, fees and
disbursements of counsel for the Company, and the reasonable fees and
disbursements of a single counsel for the selling Holders, shall be borne by
the Company; provided, however, that the Company shall not be required to pay
for any expenses of any registration proceeding begun pursuant to Section 2.2
if the registration request is subsequently withdrawn, unless the withdrawal of
the registration request results from either (a) intentional actions by the
Company outside the normal course of business that materially reduce the
feasibility of the registration proceeding, or (b) the discovery of information
about the Company that was not known at the time of the Initiating Holders'
request made pursuant to Section 2.2(a), and such information materially
reduces the feasibility of the registration proceeding. If the Company is
required to pay the registration expenses pursuant to this Section 2.2(e), then
the Holders shall not forfeit their rights pursuant to this Section 2.2 to a
demand registration.
2.3 PIGGYBACK REGISTRATIONS.
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<PAGE> 59
(a) The Company shall notify all Holders in writing at
least thirty (30) days prior to the filing of any registration statement under
the Securities Act for purposes of a public offering of securities of the
Company (including, but not limited to, registration statements relating to
secondary offerings of securities of the Company, but excluding registration
statements relating to the Initial Offering, employee benefit plans and
corporate reorganizations) and will afford each such Holder who would have been
unable to sell all of such Registrable Securities on an unrestricted basis
pursuant to Rule 144 promulgated under the Securities Act, during the four-week
period immediately preceding the effective date of the registration statement,
an opportunity to include in such registration statement all or part of such
Registrable Securities held by such Holder. Each Holder desiring to include in
any such registration statement all or any part of the Registrable Securities
held by it shall, within twenty (20) days after receipt of the above-described
notice from the Company, so notify the Company in writing. Such notice shall
state the intended method of disposition of the Registrable Securities by such
Holder. If a Holder decides not to include all of its Registrable Securities
in any registration statement thereafter filed by the Company, such Holder
shall nevertheless continue to have the right to include any Registrable
Securities in any subsequent registration statement or registration statements
as may be filed by the Company with respect to offerings of its securities, all
upon the terms and conditions set forth herein. Notwithstanding anything to
the contrary, the foregoing shall not apply to any registrations occurring on
or after the fifth anniversary of the Initial Offering.
(b) If the registration statement under which the Company
gives notice under this Section 2.3 is for an underwritten offering, the
Company shall so advise the Holders. In such event, the right of any such
Holder to be included in a registration pursuant to this Section 2.3 shall be
conditioned upon such Holder's participation in such underwriting and the
inclusion of such Holder's Registrable Securities in the underwriting to the
extent provided herein. All Holders proposing to distribute their Registrable
Securities through such underwriting shall enter into an underwriting agreement
in customary form with the underwriter or underwriters selected for such
underwriting. Notwithstanding any other provision of the Agreement, if the
underwriter determines in good faith that marketing factors require a
limitation of the number of shares to be underwritten, the number of shares
that may be included in the underwriting shall be allocated, first, to the
Company; second, to the Holders on a pro rata basis based on the total number
of Registrable Securities held by the Holders; and third, to any stockholder of
the Company (other than a Holder) on a pro rata basis. No such reduction shall
reduce the securities being offered by the Company for its own account to be
included in the registration and underwriting, except that in no event shall
the amount of securities of the selling Holders included in the registration be
reduced below twenty percent (20%) of the total amount of securities included
in such registration, unless such offering is the Initial Offering and such
registration does not include shares of any other selling stockholders, in
which event any or all of the Registrable Securities of the Holders may be
excluded in accordance with the immediately preceding sentence. In no event
will shares of any other selling stockholder be included in such registration
which would reduce the number of shares which may be included by Holders
without the written consent of Holders of not less than fifty percent (50%) of
the Registrable Securities proposed to be sold in the offering.
(c) The Company shall bear all fees and expenses incurred
in connection with any registration under this Section 2.3 (excluding
underwriters' discounts and commissions, which
5
<PAGE> 60
shall be paid by the selling Holders pro rata with respect to their included
shares), including without limitation all registration, filing, qualification,
printers' and accounting fees, fees and disbursements of counsel to the
Company, and the reasonable fees and disbursements of a single counsel to the
selling Holders (which counsel shall also be counsel to the Company unless
counsel to the Company has a conflict of interest with respect to the
representation of any selling Holder or the underwriters object to the selling
Holders representation by Company counsel).
2.4 FORM S-3 REGISTRATION. In case the Company shall receive from
the Holders at least ten percent (10%) of the Registrable Securities a written
request or requests that the Company effect a registration on Form S-3 and any
related qualification or compliance with respect to all or a part of the
Registrable Securities owned by such Holder or Holders, the Company will:
(a) promptly give written notice of the proposed
registration, and any related qualification or compliance, to all other Holders
of Registrable Securities; and
(b) as soon as practicable, effect such registration and
all such qualifications and compliances as may be so requested and as would
permit or facilitate the sale and distribution of all or such portion of such
Holder's or Holders' Registrable Securities as are specified in such request,
together with all or such portion of the Registrable Securities of any other
Holder or Holders joining in such request as are specified in a written request
given within fifteen (15) days after receipt of written notice from the Company
pursuant to Section 2.4(a); provided, however, that the Company shall not be
obligated to effect any such registration, qualification or compliance pursuant
to this Section 2.4: (i) if Form S-3 is not available under the Securities Act
or rules or regulations promulgated thereunder for such offering by the
Holders; (ii) if the Holders, together with the holders of any other securities
of the Company entitled to inclusion in such registration, propose to sell
Registrable Securities and such other securities (if any) at an aggregate price
to the public of less than $500,000; (iii) if the Company shall furnish to the
Holders a certificate signed by the Chairman of the Board of Directors of the
Company stating that in the good faith judgment of the Board of Directors of
the Company, it would be seriously detrimental to the Company and its
stockholders for such Form S-3 Registration to be effected at such time, in
which event the Company shall have the right to defer the filing of the Form
S-3 registration statement for a period of not more than thirty (30) days after
receipt of the request of the Holder or Holders under this Section 2.4,
provided that, such right to defer the filing may be exercised by the Company
no more than once in any one-period; (iv) if the Company has, within the six
(6) month period preceding the date of such request, already effected one (1)
registrations on Form S-3 for the Holders pursuant to this Section 2.4; or (v)
in any particular jurisdiction in which the Company would be required to
qualify to do business or to execute a general consent to service of process in
effecting such registration, qualification or compliance.
(c) Subject to the foregoing, the Company shall file a
Form S-3 registration statement covering the Registrable Securities and other
securities so requested to be registered as soon as practicable after receipt
of the request or requests of the Holders. All such expenses incurred in
connection with registrations requested pursuant to this Section 2.4 shall be
paid by the selling Holders (and any other selling stockholders pro rata with
respect to their included
6
<PAGE> 61
shares, including without limitation all registration, filing, qualification,
printers' and accounting fees, fees and disbursements of counsel for the
Company, and the reasonable fees and disbursements of a single counsel for the
selling Holder or Holders.
2.5 OBLIGATIONS OF THE COMPANY. Whenever required to effect the
registration of any Registrable Securities, the Company shall, as expeditiously
as reasonably possible:
(a) Prepare and file with the SEC a registration
statement with respect to such Registrable Securities and use its best efforts
to cause such registration statement to become effective, and, upon the request
of the Holders of a majority of the Registrable Securities registered
thereunder, keep such registration statement effective for up to ninety (90)
days.
(b) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in
connection with such registration statement as may be necessary to comply with
the provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement.
(c) Furnish to the Holders such number of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as they may
reasonably request in order to facilitate the disposition of Registrable
Securities owned by them.
(d) Use its best efforts to register and qualify the
securities covered by such registration statement under such other securities
or state blue sky laws of such jurisdictions as shall be reasonably requested
by the Holders, provided that the Company shall not be required in connection
therewith or as a condition thereto to qualify to do business or to file a
general consent to service of process in any such states or jurisdictions.
(e) In the event of any underwritten public offering,
enter into and perform its obligations under an underwriting agreement, in
usual and customary form, with the managing underwriter(s) of such offering.
Each Holder participating in such underwriting shall also enter into and
perform its obligations under such an agreement.
(f) Notify each Holder of Registrable Securities covered
by such registration statement at any time when a prospectus relating thereto
is required to be delivered under the Securities Act of the happening of any
event as a result of which the prospectus included 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 the light of the circumstances
then existing.
(g) Furnish, at the request of a majority of the Holders
participating in the registration, on the date that such Registrable Securities
are delivered to the underwriters for sale, if such securities are being sold
through underwriters, or, if such securities are not being sold through
underwriters, on the date that the registration statement with respect to such
securities becomes effective, (i) an opinion, dated as of such date, of the
counsel representing the Company
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for the purposes of such registration, in form and substance as is customarily
given to underwriters in an underwritten public offering and reasonably
satisfactory to a majority in interest of the Holders requesting registration,
addressed to the underwriters, if any, and to the Holders requesting
registration of Registrable Securities and (ii) a letter dated as of such date,
from the independent certified public accountants of the Company, in form and
substance as is customarily given by independent certified public accountants
to underwriters in an underwritten public offering and reasonably satisfactory
to a majority in interest of the Holders requesting registration, addressed to
the underwriters, if any, and to the Holders requesting registration of
Registrable Securities.
2.6 FURNISH INFORMATION. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to Sections 2.2, 2.3 or
2.4 that the selling Holders shall furnish to the Company such information
regarding themselves, the Registrable Securities held by them, and the intended
method of disposition of such securities as shall be required to effect the
registration of their Registrable Securities.
2.7 DELAY OF REGISTRATION. No Holder shall have any right to
obtain or seek an injunction restraining or otherwise delaying any such
registration as the result of any controversy that might arise with respect to
the interpretation or implementation of this Article II.
2.8 INDEMNIFICATION. In the event any Registrable Securities are
included in a registration statement under Sections 2.2, 2.3 or 2.4:
(a) To the extent permitted by law, the Company will
indemnify and hold harmless each Holder, the partners, officers and directors
of each Holder, any underwriter (as defined in the Securities Act) for such
Holder and each person, if any, who controls such Holder or underwriter within
the meaning of the Securities Act or the 1934 Act, against any losses, claims,
damages, or liabilities (joint or several) to which they may become subject
under the Securities Act, the 1934 Act or other federal or state law, insofar
as such losses, claims, damages, or liabilities (or actions in respect thereof)
arise out of or are based upon any of the following statements, omissions or
violations (collectively a "Violation") by the Company: (i) any untrue
statement or alleged untrue statement of a material fact contained in such
registration statement, including any preliminary prospectus or final
prospectus contained therein or any amendments or supplements thereto, (ii) 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
(iii) any violation or alleged violation by the Company of the Securities Act,
the 1934 Act, any state securities law or any rule or regulation promulgated
under the Securities Act, the 1934 Act or any state securities law in
connection with the offering covered by such registration statement; and the
Company will reimburse each such Holder, partner, officer or director,
underwriter or 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 indemnity
agreement contained in this Section 2.8(a) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Company (which consent shall
not be unreasonably withheld), nor shall the Company be liable in any such case
for any such loss, claim, damage, liability or action to the
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extent that it arises out of or is based upon a Violation which occurs in
reliance upon and in conformity with written information furnished to the
Company expressly for use in connection with such registration by such Holder,
partner, officer, director, underwriter or controlling person of such Holder.
(b) To the extent permitted by law, each selling Holder
will indemnify and hold harmless the Company, each of its directors, each of
its officers, each person, if any, who controls the Company within the meaning
of the Securities Act, any underwriter and any other Holder selling securities
under such registration statement or any of such other Holder's partners,
directors or officers or any person who controls such Holder, against any
losses, claims, damages or liabilities (joint or several) to which the Company
or any such director, officer, controlling person, underwriter or other such
Holder, or partner, director, officer or controlling person of such other
Holder may become subject under the Securities Act, the 1934 Act or other
federal or state law, insofar as such losses, claims, damages or liabilities
(or actions in respect thereto) arise out of or are based upon any Violation,
in each case to the extent (and only to the extent) that such Violation occurs
in reliance upon and in conformity with written information furnished to the
Company by such Holder expressly for use in connection with such registration;
and each such Holder will reimburse any legal or other expenses reasonably
incurred by the Company or any such director, officer, controlling person,
underwriter or other Holder, or partner, officer, director or controlling
person of such other Holder in connection with investigating or defending any
such loss, claim, damage, liability or action if it is judicially determined
that there was such a Violation; provided, however, that the indemnity
agreement contained in this Section 2.8(b) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Holder, which consent shall
not be unreasonably withheld; provided further, that in no event shall any
indemnity under this Section 2.8 exceed the proceeds from the offering
received by such Holder.
(c) Promptly after receipt by an indemnified party under
this Section 2.8 of notice of the commencement of any action (including any
governmental action) as to which indemnity may be sought, such indemnified
party will, if a claim in respect thereof is to be made against any
indemnifying party under this Section 2.8, deliver to the indemnifying party a
written notice of the commencement thereof and the indemnifying party shall
have the right to participate in, and, to the extent the indemnifying party so
desires, jointly with any other indemnifying party similarly noticed, to assume
the defense thereof with counsel mutually satisfactory to the parties;
provided, however, that an indemnified party shall have the right to retain its
own counsel, with the fees and expenses to be paid by the indemnifying party,
if representation of such indemnified party of the counsel retained by the
indemnifying party would be inappropriate due to the actual or potential
differing interests between such indemnified party and any other party
represented by such counsel in such proceeding. The failure to deliver written
notice to the indemnifying party within a reasonable time of the commencement
of any such action, if materially prejudicial to its ability to defend such
action, shall relieve such indemnifying party of any liability to the
indemnified party under this Section 2.8, but the omission so to deliver
written notice to the indemnifying party will not relieve it of any liability
that it may have to any indemnified party otherwise than under this Section
2.8.
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(d) If the indemnification provided for in this Section
2.8 is held by a court of competent jurisdiction to be unavailable to an
indemnified party with respect to any losses, claims, damages or liabilities
referred to herein, the indemnifying party, in lieu of indemnifying such
indemnified party thereunder, shall to the extent permitted by applicable law
contribute to the amount paid or payable by such indemnified party as a result
of such loss, claim, damage or liability in such proportion as is appropriate
to reflect the relative fault of the indemnifying party on the one hand and of
the indemnified party on the other in connection with the Violation(s) that
resulted in such loss, claim, damage or liability, as well as any other
relevant equitable considerations. The relative fault of the indemnifying
party and of the indemnified party shall be determined by a court of law by
reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission to state a material fact relates
to information supplied by the indemnifying party or by the indemnified party
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission; provided that, in
no event shall any contribution by a Holder hereunder exceed the proceeds from
the offering received by such Holder.
(e) The foregoing indemnity agreements of the Company and
Holders are subject to the condition that, insofar as they relate to any
Violation made in a preliminary prospectus but eliminated or remedied in the
amended prospectus on file with the SEC at the time the registration statement
in question becomes effective or the Final Prospectus, such indemnity agreement
shall not inure to the benefit of any person obligated under the Securities Act
to furnish to the person asserting the loss, liability, claim or damage a copy
of the Final Prospectus if a copy of the Final Prospectus was furnished to the
indemnified party and was not furnished to the person asserting the loss,
liability, claim or damage at or prior to the time such action is required by
the Securities Act.
(f) The obligations of the Company and Holders under this
Section 2.8 shall survive the completion of any offering of Registrable
Securities pursuant to a registration statement, or otherwise.
2.9 ASSIGNMENT OF REGISTRATION RIGHTS. The rights to cause the
Company to register Registrable Securities pursuant to this Article II may be
assigned by a Holder to a transferee or assignee of Registrable Securities;
provided, however, that no such transferee or assignee shall be entitled to
registration rights under Sections 2.2, 2.3 or 2.4 hereof unless such
transferee or assignee: (i) is a Holder; (ii) holds after such transfer or
assignment at least five hundred thousand (500,000) shares of Registrable
Securities (as adjusted for stock dividends, splits and combinations); or (iii)
is a Family Member or a subsidiary, parent, general partner, Affiliate, or
limited partner of a Holder. In each such case, the Company shall, within
twenty (20) days after such transfer, be furnished with written notice of the
name and address of such transferee or assignee and the securities with respect
to which such registration rights are being assigned.
2.10 AMENDMENT OF REGISTRATION RIGHTS. Any provision of this
Article II may be amended and the observance thereof may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the Holders of
more than fifty percent (50%) of the Registrable Securities. Any amendment or
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waiver effected in accordance with this Section 2.10 shall be binding upon each
Holder and the Company. By acceptance of any benefits under this Article II,
each Holder hereby agrees to be bound by the provisions hereunder.
2.11 "MARKET STAND-OFF" AGREEMENT. If requested by the Company and
an underwriter of Common Stock (or other securities) of the Company, the
Purchaser shall not sell or otherwise transfer or dispose of any Common Stock
(or other securities) of the Company held by such stockholder (other than those
included in the registration) for a period specified by the underwriters not to
exceed one hundred eighty (180) days following the effective date of a
registration statement of the Company filed under the Securities Act, provided
that all officers and directors of the Company and all holders of at least one
percent (1%) of the Company's voting securities enter into similar agreements.
The obligations described in this Section 2.11 shall not apply to a
registration relating solely to employee benefit plans on Form S-1 or Form S-8
or similar forms that may be promulgated in the future, or a registration
relating solely to a Commission Rule 145 transaction on Form S-4 or similar
forms that may be promulgated in the future. The Company may impose stop-
transfer instructions with respect to the shares (or securities) subject to the
foregoing restriction until the end of said one hundred eighty (180) day
period.
III. COVENANTS OF THE COMPANY.
3.1 BASIC FINANCIAL INFORMATION AND REPORTING.
(a) The Company will maintain true books and records of
account in which full and correct entries will be made of all its business
transactions pursuant to a system of accounting established and administered in
accordance with generally accepted accounting principles consistently applied,
and will set aside on its books all such proper accruals and reserves as shall
be required under generally accepted accounting principles consistently
applied.
(b) As soon as practicable after the end of each fiscal
year of the Company, and in any event within 90 days thereafter or, after the
Initial Offering, simultaneously with the filing of the Company's annual report
on Form 10-K with the SEC, the Company will furnish each Holder a consolidated
balance sheet of the Company, as at the end of such fiscal year, and a
consolidated statement of income and a consolidated statement of cash flows of
the Company for such year, all prepared in accordance with generally accepted
accounting principles and setting forth in each case in comparative form the
figures for the previous fiscal year, all in reasonable detail. Such financial
statements shall be accompanied by a report and opinion thereon by independent
public accounts of national standing selected by the Company's Board of
Directors.
(c) As soon as practicable after the end of each fiscal
quarter of the Company, and in any event within thirty days thereafter or,
after the Initial Offering, simultaneously with the filing of the Company's
reports on Form 10-Q with the SEC, the Company will furnish each Holder a
consolidated balance sheet of the Company, as at the end of such fiscal
quarter, and a consolidated statement of income and a consolidated statement of
cash flows of the Company for
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such quarter, prepared and presented in a manner consistent with the financial
statements described in Section 3.1(b). Such statement shall be accompanied by
a certificate signed by the Chairman of the Board and Chief Financial Officer
of the Company stating that the preparation and presentation of such statements
is consistent with the financial statements described in Section 3.1(b).
(d) So long as a Holder (with its Affiliates) shall own
not less than one million (1,000,000) shares of Registrable Securities, the
Company will furnish such Holder a consolidated balance sheet of the Company,
as at the end of each calendar month, and a consolidated statement of income
and a consolidated statement of cash flows of the Company for such month,
prepared and presented in a manner consistent with the financial statements
described in Section 3.1(b). Such statements shall be furnished as soon as
practicable after the end of each month and in any event within ten days
thereafter and shall be accompanied by a certificate signed by the Chairman of
the Board and Chief Financial Officer of the Company stating that the
preparation and presentation of such statements is consistent with the
financial statements described in Section 3.1(b). Prior to January 1st of each
year, the Company shall furnish such Holders an annual budget for the Company
for the following twelve month period, broken down by month. The Company's
obligations under this Section 3.1(d) shall terminate upon the Initial
Offering.
3.2 INSPECTION RIGHTS. So long as a Holder (with its affiliates)
shall own not less than one hundred thousand (100,000) shares of Registrable
Securities, each such Holder shall have the right to visit and inspect any of
the properties of the Company or any of its subsidiaries, and to discuss the
affairs, finances and accounts of the Company or any of its subsidiaries with
its officers, all at such reasonable times and as often as may be reasonably
requested; provided, however, that the Company shall not be obligated under
this Section 3.2 with respect to a competitor of the Company or with respect to
information which the Board of Directors determines in good faith is
confidential and should not, therefore, be disclosed.
3.3 CONFIDENTIALITY OF RECORDS. Each Holder agrees to use, and to
use its best efforts to insure that its authorized representatives use, the
same degree of care as such Holder uses to protect its own confidential
information to keep confidential any information furnished to it which the
Company identifies as being confidential or proprietary (so long as such
information is not in the public domain), except that such Holder may disclose
such proprietary or confidential information to any partner, subsidiary,
Affiliate or parent of such Holder for the purpose of evaluating its investment
in the Company as long as such partner, subsidiary or parent is advised of the
confidentiality provisions of this Section 3.3.
3.4 RESERVATION OF SERIES D PREFERRED STOCK. Upon filing by the
Company of the Certificate of Designation (as defined in the Purchase
Agreement) with the Secretary of State of the State of Delaware and at all
times thereafter, the Company will reserve and keep available, solely for
issuance and delivery upon the conversion of the Convertible Debentures, all
Series D Preferred Stock issuable from time to time upon such conversion.
3.5 RESERVATION OF COMMON STOCK. Upon filing by the Company of
the Certificate of Designation (as defined in the Purchase Agreement) with the
Secretary of State of the State of
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Delaware and at all times thereafter, the Company will reserve and keep
available, solely for issuance and delivery upon the conversion of the Series D
Preferred Stock issuable upon conversion of the Convertible Debentures, all
Common Stock issuable from time to time upon such conversion.
IV. RIGHTS OF FIRST REFUSAL.
4.1. SUBSEQUENT OFFERINGS. Each Holder shall have a right of first
refusal to purchase its pro rata share of all Equity Securities that the
Company may, from time to time, propose to sell and issue after the date of
this Agreement, other than the Equity Securities excluded by Section 4.6
hereof. Each Holder's pro rata share is equal to the ratio of the number of
shares of Common Stock, assuming full conversion of all Convertible Debentures
and Registrable Securities owned by such Holder, held by such Holder
immediately prior to the issuance of such Equity Securities to the total number
of shares of the Company's outstanding Common Stock (including all shares of
Common Stock issuable upon conversion of the Convertible Debentures and
Registrable Securities).
4.2 EXERCISE OF RIGHTS. If the Company proposes to issue any
Equity Securities, it shall give each Holder written notice of its intention,
describing the Equity Securities, the price, and the terms and conditions upon
which the Company proposes to issue the same. Each Holder shall have fifteen
(15) days from the receipt of such notice to agree to purchase its pro rata
share of the Equity Securities for the price and upon the terms and conditions
specified in the notice by giving written notice to the Company and stating
therein the quantity of Equity Securities to be purchased. Notwithstanding the
foregoing, the Company shall not be required to offer or sell such Equity
Securities to any Holder who would cause the Company to be in violation of
applicable federal securities laws by virtue of such offer or sale.
4.3 ISSUANCE OF EQUITY SECURITIES TO OTHER PERSONS. If the
Holders fail to exercise in full the rights of first refusal, the Company shall
have ninety (90) days thereafter to sell the Equity Securities in respect of
which the Holders' rights were not exercised, at a price and upon terms and
conditions no more favorable to the purchaser thereof than specified in the
Company's notice to the Holders pursuant to Section 4.2 hereof. If the Company
has not sold such Equity Securities within such ninety (90) days, the Company
shall not thereafter issue or sell any Equity Securities, without first
offering such securities to the Holders in the manner provided above.
4.4 TERMINATION OF RIGHTS OF FIRST REFUSAL. The rights of first
refusal established by this Article IV shall terminate upon the closing of the
Initial Offering.
4.5 TRANSFER OF RIGHTS OF FIRST REFUSAL. The rights of first
refusal of each Holder under this Article IV may be transferred to any
subsidiary or parent of such Holder, to any successor in interest to all or
substantially all the assets of such Holder, or to an assignee or transferee
who acquires Registrable Securities.
4.6 EXCLUDED SECURITIES. The rights of first refusal established
by this Article IV shall have no application to any of the following Equity
Securities:
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(a) shares of Common Stock (and/or options, warrants or
other Common Stock purchase rights issued pursuant to such options, warrants or
other rights) issued or to be issued to employees, officers or directors of, or
consultants or advisors to, the Company, pursuant to stock purchase or stock
option plans or other arrangements that are approved by the Board of Directors
of the Company;
(b) stock issued pursuant to any rights, options and
warrants granted after the date of this Agreement, provided that the rights of
first refusal established by this Article IV are applied with respect to the
initial sale or grant by the Company of such rights, options or warrants;
(c) any Equity Securities issued for consideration other
than cash pursuant to a merger, consolidation, acquisition or similar business
combination;
(d) any Equity Securities that are issued by the Company
as part of the Initial Offering referred to in Section 4.4 hereof;
(e) shares of Common Stock issued in connection with any
stock split, stock dividend or recapitalization by the Company;
(f) shares of Common Stock issued upon conversion of the
Company's Preferred Stock; and
(g) shares of Series D Preferred Stock or Common Stock
issued upon conversion of the Convertible Debentures; and
(h) any Equity Securities issued pursuant to any
equipment leasing arrangement or commercial bank financing approved by the
Company's Board of Directors.
V. MISCELLANEOUS
5.1 GOVERNING LAW. This Agreement shall be governed by and
construed under the laws of the State of New York.
5.2 SURVIVAL. The representations, warranties, covenants, and
agreements made herein shall survive any investigation made by any Holder and
the closing of the transactions contemplated hereby. All statements as to
factual matters contained in any certificate or other instrument delivered by
or on behalf of the Company pursuant hereto in connection with the transactions
contemplated hereby shall be deemed to be representations and warranties by the
Company hereunder solely as of the date of such certificate or instrument.
5.3 SUCCESSORS AND ASSIGNS. Except as otherwise expressly
provided herein, the provisions hereof shall inure to the benefit of, and be
binding upon, the successors, assigns, heirs,
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executors, and administrators of the parties hereto and shall inure to the
benefit of and be enforceable by each person who shall be a holder of
Registrable Securities from time to time; provided, however, that prior to the
receipt by the Company of adequate written notice of the transfer of any
Registrable Securities specifying the full name and address of the transferee,
the Company may deem and treat the person listed as the holder of such shares
in its records as the absolute owner and holder of such shares for all
purposes, including the payment of dividends or any redemption price.
5.4 SEPARABILITY. In case any provision of the Agreement shall be
invalid, illegal, or unenforceable, the validity, legality, and enforceability
of the remaining provisions shall not in any way be affected or impaired
thereby.
5.5 AMENDMENT AND WAIVER.
(a) Except as otherwise expressly provided, this
Agreement may be amended or modified only upon the written consent of the
Company and the holders of more than fifty percent (50%) of the Registrable
Securities.
(b) Except as otherwise expressly provided, the
obligations of the Company and the rights of the Holders under this Agreement
may be waived only with the written consent of the holders of more than fifty
percent (50%) of the Registrable Securities.
5.6 DELAYS OR OMISSIONS. It is agreed that no delay or omission
to exercise any right, power, or remedy accruing to any Holder, upon any
breach, default or noncompliance of the Company under this Agreement shall
impair any such right, power, or remedy, nor shall it be construed to be a
waiver of any such breach, default or noncompliance, or any acquiescence
therein, or of any similar breach, default or noncompliance thereafter
occurring. It is further agreed that any waiver, permit, consent, or approval
of any kind or character on any Holder's part of any breach, default or
noncompliance under this Agreement or any waiver on such Holder's part of any
provisions or conditions of this Agreement must be in writing and shall be
effective only to the extent specifically set forth in such writing. All
remedies, either under this Agreement, by law, or otherwise afforded to
Holders, shall be cumulative and not alternative.
5.7 NOTICES. All notices required or permitted hereunder shall be
in writing and shall be deemed effectively given: (i) upon personal delivery to
the party to be notified; (ii) upon receipt at the address on the signature
page hereto after having been sent by registered or certified mail, return
receipt requested, postage prepaid; or (iii) one (1) day after deposit with a
nationally recognized overnight courier, specifying next day delivery, with
written verification of receipt. All communications shall be sent to the party
to be notified at the address as set forth on the signature page hereof or at
such other address as such party may designate by ten (10) days advance written
notice to the other party hereto.
5.8 ATTORNEYS' FEES. If legal action is brought to enforce or
interpret this Agreement, the prevailing party shall be entitled to recover its
reasonable attorneys' fees and legal costs in connection therewith.
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5.9 TITLES AND SUBTITLES. The titles of the sections and
subsections of this Agreement are for convenience of reference only and are not
to be considered in construing this Agreement.
5.10 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
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IN WITNESS WHEREOF, the parties hereto have executed this Investor's
Rights Agreement as of the date set forth in the first paragraph hereof.
AIR SOUTH AIRLINES, INC. W. J. FLYNN & ASSOCIATES, INC.
By: ________________________ By: ________________________
John P. Tague William K. Flynn
President President
Address: Address:
2625 Airport Blvd. 320 Park Avenue
West Columbia, SC 29170 New York, New York 10022
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EXHIBIT E
FORM OF OPINION
1. The Company has been duly incorporated and is a validly
existing corporation in good standing under the laws of the State of Delaware.
2. The Company has the requisite corporate power to own its
property and assets and to conduct its business as it is currently being
conducted and is qualified as a foreign corporation to do business and is in
good standing in each jurisdiction in the United States in which the ownership
of its property or the conduct of its business requires such qualification and
where the failure to so qualify would have a material adverse effect on the
Company, its assets, financial condition or operations.
3. The Company's authorized capital stock consists of (a) _____
(_____) shares of Common Stock, $.001 par value, of which _____ (_____) shares
are issued and outstanding, and (b) _____ (_____) shares of Preferred Stock,
$.001 par value, of which (i) One Million Two Hundred Fifty Thousand
(1,250,000) shares have been designated Series A Preferred Stock having a
liquidation preference of Two Dollars ($2.00) per share all of which shares are
issued and outstanding; (ii) Six Hundred Twenty-Five Thousand (625,000) shares
have been designated Series B Preferred Stock having a liquidation preference
of Four Dollars ($4.00) per share all of which shares are issued and
outstanding; (iii) One Hundred Twenty Thousand (120,000) shares have been
designated Series C Preferred Stock having a liquidation preference of Twelve
Dollars and Fifty Cents ($12.50) per share all of which shares are issued and
outstanding; and (iv) Sixteen Million (16,000,000) shares have been designated
Series D Preferred Stock having a liquidation preference of Twenty-Five Cents
($0.25) per share none of which shares are issued and outstanding and _____
shares of Series E Preferred Stock, none of which are issued and outstanding.
The outstanding shares of Common Stock and Preferred Stock have been duly
authorized and validly issued and are fully paid and nonassessable. The
rights, preferences and privileges of the Series A Preferred Stock are as
stated in the Certificate of Incorporation. The rights, preferences and
privileges of the Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock and Series E Preferred Stock are each set forth in their
respective Certificate of Designation filed by the Company with the Secretary
of State of Delaware. The shares of Common Stock issuable upon conversion of
the Preferred Stock have been duly authorized and reserved. To my knowledge,
there are no redemptive rights, rights of first refusal or rights of co-sale
which exist with respect to the issuance and sale of the Debentures that have
not been waived.
The Company has reserved _____ shares of Common Stock for issuance
upon the exercise of: (i) options to purchase shares of Common Stock pursuant
to its various stock option plans for directors, officers and employees; (ii)
and warrants to purchase shares of Common Stock which have been issued to a
supplier, former employees, consultants to the Company, a bank lender to the
Company and the guarantor of certain bank debt of the Company. Other than as
set forth above and except as may be granted pursuant to (i) that certain
Investor's Rights Agreement entered into as of December 29, 1995 between the
Company and purchasers of the Company's
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Series B Preferred Stock; (ii) that certain Investor's Rights Agreement entered
into as of May 24, 1996 between the Company and purchasers of the Company's
Series B Preferred Stock; (iii) those certain Investor's Rights Agreement
entered into as of June 14, 1996 and June 26, 1996 between the Company and
purchasers of the Company's Series C Preferred Stock; (iv) that certain
Investor's Rights Agreement entered into as of August 16, 1996 between the
Company and purchasers of $4 million of the Company's convertible debentures on
August 16, 1996, there are no outstanding options, warrants, rights (including
conversion or preemptive rights), proxy or stockholder agreements, or agreements
of any kind for the purchase or acquisition from the Company of any of its
securities.
4. To the best of such counsel's knowledge, there is no action,
proceeding or investigation pending or overtly threatened against the Company
before any court or administrative agency that questions the validity of the
shares of Series E Preferred Stock issuable upon conversion of the Convertible
Debentures (the "Shares") or that might result, either individually or in the
aggregate, in any material adverse change in the business, condition (financial
or otherwise), properties or results of operations of the Company.
5. All consents, approvals, authorization, or orders of, and
filings, registrations, and qualifications with any regulatory authority or
governmental body in the United States required for the issuance of the Shares
have been made or obtained.
6. The issuance of the Shares is exempt from the registration
requirements of the Securities Act of 1933, as amended.
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EXHIBIT F
September 10, 1996
W. J. Flynn & Associates, Inc.
320 Park Avenue
New York, NY 10036
Re: $200,000.00
Air South Airlines, Inc.
Convertible Debentures
Gentlemen:
I refer to: (a) the proposed transaction in which Air South Airlines,
Inc., a Delaware corporation (the "Company"), will sell to W. J. Flynn &
Associates, Inc. (the "Purchaser") $200,000.00 of its Convertible Debentures
(the "Debenture"); (b) that certain Convertible Debenture Purchase Agreement
dated of even date herewith between the Company and the Purchaser (the
"Purchase Agreement"); and (c) that certain Investor's Rights Agreement dated
even date herewith between the Company and the Purchaser (the "Rights
Agreement").
I have examined the Purchase Agreement, the Rights Agreement, the
Debenture, the form of a Certificate of Designation for the Series D Preferred
stock into which the Debentures will be convertible and such other documents
relating to the sale of the Debenture as I have deemed appropriate in the
circumstances. I have reviewed, to the extent I have deemed appropriate, the
corporate proceedings and records of the Company. I have examined, also to the
extent I have deemed appropriate, proceedings of various governmental entities
and agencies involved in the business and affairs of the Company.
In rendering this opinion, as to certain matters of fact, I have
relied upon representations, warranties and covenants made by the parties to
the Purchase Agreement, certificates of officers of the Company, certificates
of public officials and oral interviews of various officers, agents and
attorneys of the Company.
I have assumed the genuineness of all signatures (except those of
persons signing the Purchase Agreement, Rights Agreement and other documents
and instruments on behalf of the Company) to, and the authenticity of, all
documents submitted to me as originals and the conformity with originals of all
documents submitted to me as copies.
I am also assuming that the Purchaser has all requisite power and
authority and has taken all necessary actions to enter into the Purchase
Agreement and the Rights Agreement and to effect any transactions contemplated
thereby. Finally, I have made or caused to be made such other investigations
of law and fact as in my judgment permits me to render an informed opinion on
the matters set forth below.
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W.J. Flynn & Associates, Inc.
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investigations of law and fact as in my judgment permits me to render an
informed opinion on the matters set forth below.
Capitalized terms used but not defined herein shall have the meanings
given them in the Purchase Agreement.
Based upon and subject to the foregoing, it is my opinion that:
1. The Company has been duly incorporated and is validly existing
corporation in good standing under the laws of the State of Delaware.
2. The Company has the requisite corporate power to own its
property and assets and to conduct its business as it is currently being
conducted and is qualified as a foreign corporation to do business and is in
good standing in each jurisdiction in the United States in which the ownership
of its property or the conduct of its business requires such qualification and
where the failure to so qualify would have a material adverse effect on the
Company, its assets, financial condition or operations.
3. The Purchase Agreement and the Rights Agreement have been duly
and validly authorized, executed and delivered by the Company and constitute
valid and binding agreements of the Company enforceable against the Company in
accordance with their terms, except as rights to indemnity under section 2.8 of
the Rights Agreement may be limited by applicable laws and except as
enforcement may be limited by applicable bankruptcy, insolvency,
reorganization, arrangement, moratorium or other similar laws affecting
creditors' rights, and subject to general equity principles and to limitations
on availability of equitable relief, including specific performance.
4. The Debenture has been duly and validly authorized, executed
and delivered by the Company and constitutes a valid and binding agreement of
the Company enforceable against the Company in accordance with its terms,
except as enforcement of the Debenture may be limited by applicable bankruptcy,
insolvency, reorganization, arrangement, moratorium or other similar laws
affecting creditor's rights, and subject to general equity principles and to
limitations on availability of equitable relief, including specific
performance.
5. The opinions stated in paragraphs 3. and 4., above are
qualified by the following: (a) the Company does not have sufficient authorized
Preferred Stock to allow the conversion of the Debenture into Series D
Preferred Stock; (b) the Company does not have sufficient authorized Common
Stock to allow the conversion of the Series D Preferred Stock into Common
Stock.
6. The Company's authorized capital stock consists of (a)
Eighteen Million (18,000,000) shares of Common Stock, $0.001 par value ("Common
Stock"), of which Six Million Nine Hundred Seventeen Thousand One Hundred
Eighty-Two (6,917,182) shares are issued and outstanding, and (b) Two Million
(2,000,000) shares of Preferred Stock, $0.001 par value (the "Preferred
Stock"), of which: (i) One Million Two Hundred Fifty Thousand (1,250,000)
shares have been designated Series A Preferred Stock having a liquidation
preference of Two Dollars ($2.00) per share all of which shares are issued and
outstanding; (ii) Six Hundred Twenty-Five Thousand (625,000) shares have been
designated Series B Preferred Stock having a liquidation preference of Four
Dollars ($4.00) per share all of which shares are issued and outstanding; and
(iii) One Hundred Twenty Thousand (120,000) shares have been designated Series
C Preferred Stock having a liquidation preference of Twelve and 50/100 dollars
($12.50) per share, all of
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W.J. Flynn & Associates, Inc. 3-
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which shares are issued and outstanding. The outstanding shares of Common
Stock and Preferred Stock have been duly authorized and validly issued and are
fully paid and nonassessable. The rights, preferences and privileges of the
Series A Preferred Stock are as stated in the Certificate of Incorporation.
The rights, preferences and privileges of the Series B Preferred Stock are set
forth in a Certificate of Designation filed by company with the Secretary of
State of Delaware. The rights preferences and privileges of the Series C
preferred Stock are set forth in a Certificate of Designation filed by the
Company with the Secretary of State of Delaware. The 9,250,000 shares of
Common Stock issuable upon conversion of the issued and outstanding shares of
Preferred Stock have been duly authorized and reserved. To the best of my
knowledge, there are no preemptive rights, rights of first refusal or rights of
co-sale which exist with respect to the issuance and sale of the Debentures
which have not been waived.
The Company has reserved 10,384,833 shares of Common Stock (the
"Reserved Shares") for issuance upon the: (a) exercise of options to purchase
shares of Common Stock pursuant to its stock option plans for directors,
officers and employees; (b) the exercise of warrants and options to purchase
shares of Common Stock which have been issued to a supplier, former employees,
consultants to the Company and the guarantor of certain bank debt of the
Company. To the best of my knowledge, after inquiry, other than (a) rights to
convert issued and outstanding shares of Preferred Stock and (b) the options
and warrants related to the Reserved Shares as set forth above and except as
may be granted pursuant to (i) that certain Investor's Rights Agreement entered
into December 29, 1995 between the Company and purchasers of the Company's
Series A Preferred Stock, (ii) that certain Investor's Rights Agreement entered
into May 24, 1996 between the Company and purchasers of the Company's Series B
Preferred Stock, (iii) those certain Investor's Rights Agreements entered into
as of June 14, 1996 and June 28, 1996 between the Company and purchasers of the
Company's Series C Preferred Stock, (iv) that certain Investor's Rights
Agreement entered into August 16, 1996 between the Company and the purchaser of
$4,000,000 of the Company's Convertible Debentures which will be convertible
into the Company's Series D Preferred Stock (when such preferred stock has been
authorized) and (v) that certain Investor's Rights Agreement entered into as of
September 4, 1996, between the Company and the Purchaser of $500,000 of the
Company's Convertible Debentures which will be convertible into the Company's
Series E Preferred Stock (when such preferred stock has been authorized), there
are no outstanding options, warrants, rights (including conversion or
preemptive rights), proxy or stockholder agreements, or agreements of any kind
for the purchase or acquisition from the Company of any of its securities.
7. The execution and delivery of the Purchase Agreement and the
Rights Agreement by the Company and the issuance of the Debenture pursuant
thereto do not violate any provisions of the Company's Certificate of
Incorporation or By-Laws, and do not constitute a material default (which has
not been consented to or waived) under the provisions of any material agreement
known to me to which the Company is a party or by which it is bound, and do not
violate or contravene (A) any governmental statue, rule or regulation
applicable to the Company or (B) any order, writ, judgment, injunction, decree,
determination or award which has been entered against the Company and of which
I am aware, the violation or contravention of which would have a Material
Adverse Effect.
8. To the best of my knowledge, there is no action, proceeding or
investigation pending or overtly threatened against the Company before any
court or administrative agency that questions the validity of the Debentures,
the Purchase Agreement or the Rights Agreement or might result, either
individually or in the aggregate, in a Material Adverse Effect. I call to your
attention
<PAGE> 77
W.J. Flynn & Associates, Inc. 4-
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the inquiry of the United States Department of Transportation (the "DOT") which
is described in Schedule 4.08 of the Purchase Agreement. Although I do not
believe it is likely, such inquiry could lead to actions by the DOT which could
have a Material Adverse Effect. I also call your attention to the civil
lawsuits referred to in Schedule 4.8 of the Purchase Agreement in which the
Company is a defendant. If the plaintiffs were to prevail in such lawsuits in
a manner in which none of the Company's defenses (both as to liability and
damages) such Lawsuits could be deemed to have caused a Material Adverse
Effect.
9. All consents, approvals, authorizations, or orders of, and
filings, registrations, and qualifications with any regulatory authority or
governmental body in the United States required for the consummation by the
Company of the transactions contemplated by the Purchase Agreement, have been
made or obtained.
10. The offer and sale of the Debenture is exempt from the
registration requirements of the Securities Act of 1933, as amended. The
qualification of an indenture with respect to the Debentures under the Trust
Indenture Act of 1939, as amended, is not required in connection with the
offer, issue, sale and delivery of the Debentures.
11. The issue and sale of the Debentures and the carrying out of
any of the other transactions contemplated in the Purchase Agreement will not
violate Regulation G of the Board of Governors of the Federal Reserve System
(12.C.F.R. 207, as amended) or Regulation U (12.C.F.R. 221, as amended),
Regulation T (12.C.F.R. 220, as amended) or Regulation X (12.C.F.R. 224, as
amended) or any other regulation of such Board.
This opinion is being furnished to you solely in connection with the
transaction referred to above and is not to be relied upon by any other person.
The opinions expressed herein are rendered and speak only as of the date
hereof, and I specifically disclaim any undertaking to update such opinion or
to advise you of subsequent legal or factual developments affecting the same
that hereafter may come to my attention.
Sincerely,
David Y. Monteith
DYM/akd
<PAGE> 78
CONVERTIBLE DEBENTURE PURCHASE AGREEMENT
SCHEDULE 4.04
(1) The Company's Series A, Series B and Series C Preferred Stock
have: (a) rights to convert their shares to shares of Common Stock par value
$0.001 per share ("Common Stock") of the Company; (b) a right of first refusal
as to any additional issues of equity securities of the Company; and (c)
anti-dilution rights in the event of certain issuances of equity securities.
(2) On August 16, 1996 the Company sold $4,000,000 of Convertible
Debentures due August 16, 1999. The holders of such debentures have: (a)
rights to convert their debentures to shares of Series D Convertible Preferred
Stock par value $0.001 per share which, in turn are convertible into shares of
Common Stock; and (b) a right of first refusal as to any equity securities of
the Company; on September 4, 1996 the Company sold $500,000 of Convertible
Debentures due August 16, 1999. The holders of said debentures have: (a)
rights to convert their debentures to shares of Series E Preferred Stock par
value $0.001 per share which, in turn are convertible into shares of Common
Stock; (b) a right of first refusal as to certain equity securities; and (c)
anti-dilution rights as to certain issuance of equity securities.
(3) The Company has reserved 10,384,833 shares of Common Stock
pursuant to (i) its various stock option plans for directors, officers and
employees; (ii) warrants to purchase shares of Common Stock which have been
issued to a supplier, certain former employees, consultants to the Company, and
the guarantor of certain bank debt of the Company; and (iii) conversion rights
of the Company's Series A Preferred Stock, Series B Preferred Stock and Series
C Preferred Stock. Up to an additional 32,000,000 shares of Preferred Stock
and 32,000,000 shares of Common Stock will be required to be authorized and
reserved for conversion of the Company's convertible debentures and Series D
and Series E Preferred Stock if the maximum number of debentures convertible
into Series E Preferred authorized by the Board are sold.
(4) The Company believes that certain of its shareholders may hold
proxies from family members and others to whom they have transferred shares of
Common Stock; however, the Company does not believe that such proxies cover
more than an insubstantial number of shares.
(5) The Company believes that substantially all of its outstanding
securities were issued in compliance with all applicable federal and state
securities laws; however, as to an insubstantial number of shares of Common
Stock, the Company does not have sufficient knowledge of the circumstances of
their issuance to make an informed judgment as to their having been issued in
compliance with such laws.
<PAGE> 79
CONVERTIBLE DEBENTURE PURCHASE AGREEMENT
SCHEDULE 4.06
(i) Issuance of Stocks, Bonds or Other Corporate Securities
(a) On May 24, 1996 the Company issued 625,000 shares of
its Series B Preferred Stock.
(b) On June 14, 1996 the Company issued 40,000 shares of
its Series C Preferred Stock.
(c) On June 26, 1996 the Company issued 80,000 shares of
its Series C Preferred Stock.
(d) On July 17, 1996 the Company issued 100,000 shares of
Common Stock par value $0.001 per share to its Chief
Executive Officer in fulfillment of an incentive to
his employment.
(e) On April 26, 1996 the Company issued to H&Q Group a
warrant exercisable for 400,000 shares of Series A
Preferred Stock.
(f) On August 16, 1996 the Company sold $4,000,000 of
convertible debentures due August 16, 1999.
(g) On September 4, 1996 the Company sold $500,000 of
convertible debentures due August 16, 1999; these
debentures are part of the $4,000,000 of such
debentures of which the Debentures are a part.
(ii) Incurrence of Liabilities
(a) On March 29, 1996 the Company entered into a $1
Million Revolving Line of Credit (the "NationsBank
Line") with NationsBank, N.A. $500,000 has been drawn
against such line of credit.
(b) On April 26, 1996 the Company closed a $2 Million
loan with National Bank of South Carolina guaranteed
by Hambrecht & Quist Group.
(c) On May 17, 1996, the Company entered into a $1
Million demand loan with H&Q Air South Investors,
L.P. ("H&Q"). This loan was repaid with proceeds
from the Series B Preferred Stock financing referred
to in (i) "(a)" above.
<PAGE> 80
(d) On July 17 and July 18, 1996, the Company entered
into demand loans with H&Q for $250,000 and $800,000,
respectively.*
(e) On August 1 and August 8, 1996, the Company entered
into demand loans with H&Q for $1,000,000 and
$250,000, respectively.*
(f) On August 13, 1996, the Company entered into a demand
loan with H&Q for $250,000.*
(g) On August 15, 1996, the Company entered into a demand
loan with H&Q for $250,000.*
(iii) Mortgages, Pledges and Creation of Liens
In connection with the NationsBank Line the Company granted a
first lien on substantially all its assets.
(iv) Sale of Assets
On April 26, 1996 the Company sold $441,400 of its aircraft
parts inventory under an agreement by which it would
repurchase certain of such parts from time-to-time on an as
needed basis.
(v) Change in Business Operations
Beginning on March 14, 1996 the Company changed its business
plan from being a Southeastern regional airline to one
providing service from underserved cities in the Southeast to
high population density areas of the Northeast and Midwest.
(vi) Redemptions
On January 2, 1996, the Company redeemed 250,000 shares of its
Common Stock, par value $0.001 per share held by Patrick J.
O'Shea, the former President of the Company, and certain other
persons designated by him for $2.00 per share.
(vii) Changes in Officer Compensation
On August 25, 1996 the Company elected a new President and
Chief Executive Officer whose aggregate compensation is
significantly higher than its former President and Chief
Executive Officer.
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*Each of these demand loans was satisfied out of the proceeds of the
transaction referred to in (i)(f), above
<PAGE> 81
CONVERTIBLE DEBENTURE PURCHASE AGREEMENT
SCHEDULE 4.07
The Company is in violation or in default of the following instruments or
contracts as to which it is a party.
(a) Air South, Inc. (Now Air South Airlines, Inc.) HUD Section
108 Loan Program.
(b) Revolving Credit Facility with NationsBank, N.A.
(c) Loan Agreement with the National Bank of South Carolina.
(d) Aircraft leases on five Boeing 737 aircraft leased through GE
Capital Aviation Services, Inc.
The Company may be in violation of other instruments or contracts to which it
is a party; however, the Company believes that any such violations either
individually or in the aggregate will not result in a Material Adverse Effect.
<PAGE> 82
CONVERTIBLE DEBENTURE PURCHASE AGREEMENT
SCHEDULE 4.08
The Company is the subject of an inquiry from the United States Department of
Transportation (the "DOT") with regard to its fitness to be a certificated air
carrier. The inquiry stated that it arose as a result of publicity concerning
a dispute between the Company and the Hillsborough County Aviation Authority
over the Company's cessation of operations at and non-payment of rent for Tampa
International Airport, Florida. The Company has responded to the inquiry.
Through its counsel, Bagileo, Silverberg & Goldman of Washington, D.C., the
Company has received additional inquiries from the DOT; the Company is
preparing its response to such additional inquiries. The Company is the
defendant in a lawsuit arising out of its contracts with the Hillsborough
County Aviation Authority relating to its use of Tampa International Airport.
The Company has been sued by a former president and chief executive officer of
the Company seeking damages incurred because of an alleged breach of the terms
of his employment by the Company.
<PAGE> 83
CONVERTIBLE DEBENTURE PURCHASE AGREEMENT
SCHEDULE 4.10
All of the properties and assets of the Company are subject to security
interests created by:
(a) the HUD Loan; and
(b) that certain loan from NationsBank, N.A. to the Company made
March 29, 1996.
<PAGE> 84
CONVERTIBLE DEBENTURE PURCHASE AGREEMENT
SCHEDULE 4.11
The Company is in default in one or more respects, including the making of
lease payments thereon as to the following leases of property, real or
personal:
(a) Aircraft Lease Agreement for five Boeing 737 aircraft arranged
through GE Capital Aviation Services, Inc.
(b) Terminated lease and other agreements with Hillsborough County
Aviation Authority relating to the Company's operations
(discontinued since April 5, 1996) at Tampa International
Airport, Florida.
<PAGE> 85
CONVERTIBLE DEBENTURE PURCHASE AGREEMENT
SCHEDULE 4.14
The outstanding Debt of the Company consists of:
(a) debt incurred pursuant to the HUD Loan of which $12 million is
outstanding on the date hereof;
(b) debt incurred pursuant to a loan from NationsBank N.A. to the
Company, of which $500,000 is outstanding on the date hereof;
(c) debt incurred pursuant to a loan from The National Bank of
South Carolina to the Company of which $2 million is
outstanding on the date hereof; and
(d) debt incurred pursuant to the issuance of $4,000,000 of
convertible debentures due August 16, 1996; and
(e) debt incurred pursuant to the issuance of $500,000 of
convertible debentures on September 4, 1996.
<PAGE> 1
EXHIBIT 4.15
CONVERTIBLE DEBENTURE PURCHASE AGREEMENT
between
AIR SOUTH AIRLINES, INC.
and
FIL-FIBER MANUFACTURING, INC. LTD
Dated as of September 30, 1996
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TABLE OF CONTENTS
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ARTICLE I DEFINITIONS
SECTION 1.01. DEFINITIONS.................................................................. 1
ARTICLE II PURCHASE AND SALE OF CONVERTIBLE DEBENTURES
SECTION 2.01. ISSUANCE, SALE AND DELIVERY OF THE CONVERTIBLE
DEBENTURES................................................................... 6
SECTION 2.02. CLOSING...................................................................... 6
ARTICLE III CONVERSION
SECTION 3.01. CONVERSION; NUMBER........................................................... 7
SECTION 3.02. CONVERSION PROCEDURE......................................................... 7
SECTION 3.03. REPRESENTATIONS, WARRANTIES, COVENANTS, NO
DEFAULT, CONDITIONS PRECEDENT TO CONVERSION.................................. 7
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE COMPANY
SECTION 4.01. ORGANIZATION, QUALIFICATIONS AND CORPORATE
POWER........................................................................ 8
SECTION 4.02. AUTHORIZATION................................................................ 8
SECTION 4.03. VALIDITY..................................................................... 9
SECTION 4.04. CAPITALIZATION............................................................... 9
SECTION 4.05. FINANCIAL STATEMENTS......................................................... 10
SECTION 4.06. EVENTS SUBSEQUENT TO THE DATE OF THE BALANCE
SHEET........................................................................ 10
SECTION 4.07. COMPLIANCE WITH INSTRUMENTS.................................................. 10
SECTION 4.08. LITIGATION................................................................... 11
SECTION 4.09. COMPLIANCE WITH LAW.......................................................... 11
SECTION 4.10. TITLE TO PROPERTIES.......................................................... 11
SECTION 4.11. LEASEHOLD INTERESTS.......................................................... 11
SECTION 4.12. TAXES........................................................................ 12
SECTION 4.13. PATENTS, TRADEMARKS, ETC..................................................... 12
SECTION 4.14. OUTSTANDING DEBT; LOANS AND ADVANCES......................................... 13
SECTION 4.15. GUARANTEES................................................................... 13
SECTION 4.16. GOVERNMENTAL APPROVALS....................................................... 13
SECTION 4.17. DISCLOSURE................................................................... 13
SECTION 4.18. BROKERS...................................................................... 13
SECTION 4.19. SECURITIES ACT............................................................... 13
</TABLE>
i
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SECTION 4.20. MARGIN REGULATIONS........................................................... 14
SECTION 4.21. INSURANCE COVERAGE........................................................... 14
SECTION 4.22. ERISA........................................................................ 14
SECTION 4.23. ENVIRONMENTAL COMPLIANCE..................................................... 15
SECTION 4.24. PERMITS AND LICENSES......................................................... 15
SECTION 4.25. BOARD COMPOSITION............................................................ 15
ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
SECTION 5.01. REPRESENTATIONS AND WARRANTIES OF THE
PURCHASER.................................................................... 15
ARTICLE VI CONDITIONS TO THE OBLIGATIONS OF THE PURCHASER........................................ 16
SECTION 6.01. CONDITIONS TO THE OBLIGATION OF THE PURCHASER................................ 16
ARTICLE VII CONDITIONS TO THE OBLIGATIONS OF THE COMPANY
SECTION 7.01. CONDITIONS TO THE OBLIGATION OF THE COMPANY.................................. 18
ARTICLE VIII COVENANTS OF THE COMPANY
SECTION 8.01. FINANCIAL STATEMENTS AND REPORTS............................................. 19
SECTION 8.02. CORPORATE EXISTENCE.......................................................... 21
SECTION 8.03. MAINTENANCE OF PROPERTIES AND INSURANCE...................................... 21
SECTION 8.04. INSPECTION, CONSULTATION AND ADVICE.......................................... 21
SECTION 8.05. RESTRICTIVE AGREEMENTS PROHIBITED............................................ 22
SECTION 8.06. TRANSACTIONS WITH AFFILIATES................................................. 22
SECTION 8.07. USE OF PROCEEDS.............................................................. 22
SECTION 8.08. SUBSIDIARIES................................................................. 22
SECTION 8.09. COMPLIANCE WITH LAWS......................................................... 22
SECTION 8.10. KEEPING OF RECORDS AND BOOKS OF ACCOUNT...................................... 22
SECTION 8.11. OBLIGATIONS AND TAXES........................................................ 22
SECTION 8.12. TRANSFER AND EXCHANGE OF CONVERTIBLE
DEBENTURES; LOST CONVERTIBLE DEBENTURES...................................... 23
SECTION 8.13. LIMITATION ON DEBT........................................................... 23
SECTION 8.14. LIMITATION ON LIENS.......................................................... 23
SECTION 8.15. LIMITATION ON RESTRICTED PAYMENTS............................................ 24
SECTION 8.16. COVENANT REGARDING STOCKHOLDER VOTE AND
FILING OF CERTIFICATE OF DESIGNATION......................................... 24
ARTICLE IX EVENTS OF DEFAULT
SECTION 9.01. ACCELERATION................................................................. 25
SECTION 9.02. RESCISSION OF ACCELERATION................................................... 27
SECTION 9.03. NOTICE OF ACCELERATION OR RESCISSION......................................... 27
</TABLE>
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SECTION 9.04. OTHER REMEDIES............................................................... 28
ARTICLE X MISCELLANEOUS
SECTION 10.01. PAYMENTS..................................................................... 28
SECTION 10.02. EXPENSES..................................................................... 28
SECTION 10.03. CONSENT TO AMENDMENTS........................................................ 29
SECTION 10.04. PERSONS DEEMED OWNERS; PARTICIPATIONS........................................ 29
SECTION 10.05. SURVIVAL OF REPRESENTATIONS AND WARRANTIES................................... 30
SECTION 10.06. BROKERAGE.................................................................... 30
SECTION 10.07. PARTIES IN INTEREST.......................................................... 30
SECTION 10.09. NOTICES...................................................................... 30
SECTION 10.09. ENTIRE AGREEMENT............................................................. 31
SECTION 10.10. COUNTERPARTS................................................................. 32
SECTION 10.11. SEVERABILITY................................................................. 32
SECTION 10.12. DESCRIPTIVE HEADINGS......................................................... 32
SECTION 10.13. GOVERNING LAW................................................................ 32
Section 10.14. Gender; Plurals.............................................................. 32
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EXHIBITS
EXHIBIT A Form of Convertible Debenture
EXHIBIT B Form of Certificate of Designation
EXHIBIT C Certificate of Incorporation
EXHIBIT D Form of Investors Rights Agreement
EXHIBIT E Form of Opinion of General Counsel (Series D Preferred Stock)
EXHIBIT F Form of Opinion of General Counsel (Convertible Debentures)
SCHEDULES
SCHEDULE 4.04 Outstanding Options, Warrants, Etc.
SCHEDULE 4.06 Events Subsequent to Balance Sheet
SCHEDULE 4.07 Violations, Defaults
SCHEDULE 4.08 Defaults
SCHEDULE 4.11 Leasehold Interests
SCHEDULE 4.14 Existing Debt
iii
<PAGE> 5
CONVERTIBLE DEBENTURE PURCHASE AGREEMENT
CONVERTIBLE DEBENTURE PURCHASE AGREEMENT ("Agreement"), dated as of
September 30, 1996, between AIR SOUTH AIRLINES, INC., a Delaware corporation
(the "Company"), and FIL-FIBER MANUFACTURING, INC., LTD., a company of British
Virgin Islands registry (the "Purchaser").
RECITALS
WHEREAS, the Company wishes to issue and sell to the Purchaser its
convertible debenture (herein, together with any such convertible debentures
which may be issued pursuant to any provision of this Agreement, and any such
convertible debentures which may be used in substitution or exchange thereon,
collectively called the "Convertible Debentures" and individually called a
"Convertible Debenture") in the original aggregate principal amount of
$400,000, to be dated the date of issue, to mature August 16, 1999, to bear
interest on the unpaid balances thereof from the date thereof until the
principal shall have become due and payable at the rate of 6% per annum, which
interest shall be deferred and added to the outstanding principal balance of
the Convertible Debentures, and to be substantially in the form of Exhibit A
attached hereto; and such Convertible Debenture will be a part of up to
$4,000,000 of 6% convertible debentures authorized to be issued by the
Company's Board of Directors (the "Board").
WHEREAS, the Purchaser wishes to purchase the Convertible Debenture on the
terms and subject to the conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the above recitals, the mutual
promises contained herein and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto do
hereby agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. DEFINITIONS. As used herein, unless the context otherwise
requires, the following terms have the following meanings specified with
respect thereto below:
"AGREEMENT shall mean this Convertible Debenture Purchase Agreement,
as the same may be amended or supplemented and in effect from time to
time.
"AMENDMENT" shall have the meaning ascribed thereto in Section 8.16.
<PAGE> 6
"BALANCE SHEET" shall have the meaning ascribed thereto in Section
4.05.
"BANKRUPTCY LAW" shall have the meaning ascribed thereto in Section
9.01.
"BLANK CHECK PREFERRED STOCK" shall have the meaning ascribed thereto
in Section 4.04.
"BUSINESS DAY" shall mean any day which is not a Saturday or Sunday
or a national banking holiday.
"BY-LAWS" shall mean the By-laws of the Company, as amended.
"CERTIFICATE OF DESIGNATION" shall mean the Certificate of
Designation of the Company to be substantially in the form of Exhibit B
attached hereto.
"CERTIFICATE OF INCORPORATION" shall mean the Certificate of
Incorporation of the Company, including all amendments thereto through the
date hereof, including any amendments effected by means of a certificate
of designation, a copy of which is attached hereto as Exhibit C.
"CLOSING" shall have the meaning ascribed thereto in Section 2.02.
"CLOSING DATE" shall have the meaning ascribed thereto in Section
2.02.
"CODE" shall mean the Internal Revenue code of 1986, as amended.
"COMMISSION" shall mean the Securities and Exchange Commission or any
other federal agency at the time administering the Securities Act.
"COMMON CONVERSION SHARES" shall mean the shares of Common Stock
issuable upon conversion of the Preferred Conversion Shares.
"COMMON STOCK" shall mean the Common Stock, per value $0.001 per
share, of the Company.
"COMPANY" shall have the meaning ascribed thereto in the preamble.
"CONVERTIBLE DEBENTURE" shall have the meaning ascribed thereto in
the recitals.
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"CONVERSION" shall have the meaning ascribed thereto in Section 3.01.
"CONVERSION NOTICE" shall mean the notice of conversion in the form
attached to the Convertible Debenture, which notice shall set forth the
name of the registered owner of the Convertible Debenture being converted
and the principal balance, or portion thereof, being converted.
"CURRENT DEBT" shall mean, with respect to any Person, all
Indebtedness of such Person for borrowed money which by its terms or by
the terms of any instrument or agreement relating thereto matures on
demand or within one year from the date of the creation thereof and is not
directly or indirectly renewable or extendible at the option of the debtor
to a date more than one year from the date of the creation thereof.
"DEBT" shall mean Current Debt and Funded Debt.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.
"ERISA AFFILIATE" shall mean any corporation which is a member of the
same controlled group of corporations as the Company within the meaning of
Section 414(b) of the Code, or any trade or business which is under common
control with the Company within the meaning of Section 414(c) of the Code,
or any other entity which is considered to be a single employer with the
Company pursuant to Sections 414(m), (n) or (o) of the Code. "Event of
Default" shall mean any of the events specified in Section 9.01 provided
that there has been satisfied any requirement in connection with such
event for the giving of notice, or the lapse of time, or the happening of
any further condition, event or act, and "Default" shall mean any of such
events, whether or not any such requirement has been satisfied.
"EXISTING DEBT" shall have the meaning ascribed thereto in Section
4.14.
"FUNDED DEBT" shall mean, with respect to any Person, all
Indebtedness of such Person which by its terms or by the terms of any
instrument or agreement relating thereto matures, or which is otherwise
payable or unpaid, more than one year from, or is directly or indirectly
renewable or extendible at the option of the debtor to a date more than
one year from, the date of the creation thereof.
"GUARANTEE" shall mean, with respect to any Person, any direct or
indirect liability, contingent or otherwise, of such Person with respect
to any indebtedness,
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lease, dividend or other obligation of another, including, without
limitation, any such obligation directly or indirectly guaranteed, endorsed
(otherwise than for collection or deposit in the ordinary course of
business) or discounted or sold with recourse by such Person, or in respect
of which such Person is otherwise directly or indirectly liable, including
without limitation, any such obligation in effect guaranteed by such Person
through any agreement (contingent or otherwise) to purchase, repurchase or
otherwise acquire such obligation or any security therefor, or to provide
funds for the payment or discharge of such obligation (whether in the form
of loans, advances, stock purchases, capital contributions or otherwise), or
to maintain the solvency or any balance sheet or other financial condition
of the obligor of such obligation, or to make payment for any products,
materials or supplies or for any transportation or services regardless of
the non-delivery or non-furnishing thereof, in any such case if the purpose
or intent such agreement is to provide assurance that such obligation will
be paid or discharged, or that any agreements relating thereto will be
complied with, or that the holders of such obligation will be protected
against loss in respect thereof.
"HUD LOAN" shall mean that certain loan to the Company by Lexington
County, South Carolina pursuant to the United States Department of Housing
and Urban Development Section 108 Loan Program.
"INDEBTEDNESS" shall mean, with respect to any Person, without
duplication, (i) all items which in accordance with generally accepted
accounting principles would be included in determining total liabilities
as shown on the liability side of a balance sheet of such Person as of the
date on which Indebtedness is to be determined, (ii) all indebtedness
secured by any Lien on any property or asset owned or held by such Person
subject thereto, whether or not the indebtedness secured thereby shall
have been assumed, and (iii) all indebtedness of others with respect to
which such Person has become liable by way of a Guarantee.
"INTELLECTUAL PROPERTY" shall have the meaning ascribed thereto in
Section 4.13.
"INVESTOR'S RIGHT AGREEMENT" shall mean the Investor's Right
Agreement, dated the date hereof, between the Company and the Purchaser, a
copy of which is attached hereto as Exhibit D.
"LIEN" shall mean any mortgage, pledge, priority, security interest,
encumbrance, lien (statutory or otherwise) or charge of any kind
(including any agreement to give any of the foregoing, any conditional
sale or other title retention agreement, any lease in nature thereof, and
the filing of or agreement to give any financing statement under the
Uniform Commercial Code of any jurisdiction) or any other type
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of preferential arrangement for the purpose, or having the effect, of
protecting a creditor against loss or securing the payment or performance
of an obligation.
"MATERIAL ADVERSE EFFECT" shall mean a material adverse effect on the
assets, business, operations or financial condition of the Company.
"MULTIEMPLOYER PLAN" shall mean any Plan which is a "multiemployer
plan" (as such term is defined in Section 4001(a)(3) of ERISA).
"OFFICER'S CERTIFICATE" shall mean a certificate signed in the name
of the Company by its Chairman of the Board, President and Chief Executive
Officer, Chief Financial Officer, one of its Vice Presidents or its
General Counsel and Secretary.
"PBGC" shall mean the Pension Benefit Guaranty Corporation or any
successor entity.
"PERSON" shall mean a corporation, an association, a partnership, an
organization, a business, an individual, a governmental or political
subdivision thereof or a governmental agency.
"PLAN" shall mean any "employee pension benefit plan" (as such term
is defined in Section 3(2) of ERISA) which is or has been established or
maintained, or to which contributions are or have been made, by the
Company or any ERISA Affiliate.
"PREFERRED CONVERSION SHARES" shall mean the shares of Series D
Preferred Stock issuable upon conversion of the Convertible Debentures as
set forth in Article III hereof.
"PREFERRED STOCK" shall mean all classes or series of preferred
stock, per value $0.001 per share, of the Company.
"PURCHASER" shall have the meaning ascribed thereto in the preamble.
"RESTRICTED PAYMENT" shall mean (i) the declaration, payment or
setting apart of any sum for payment of dividend (including a dividend
payable in capital stock of the Company) on, or any distribution
(including a distribution in capital stock of the Company) in respect of,
any shares of capital stock of the Company or any warrants, rights or
options to purchase any shares of capital stock of the Company or (ii) the
redemption, repurchase, retirement or other acquisition of (or the setting
apart of any sum in respect of any of the foregoing actions) any shares of
capital stock of the
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Company or any warrants, rights or options to purchase or acquire any
shares of capital stock.
"SECURITIES" shall have the meaning ascribed thereto in Section 4.19.
"SECURITIES ACT" shall have the meaning ascribed thereto in Section
4.19.
"SERIES D PREFERRED STOCK" shall mean shares of Series D Preferred
Stock of the Company.
"STOCKHOLDER APPROVAL" shall have the meaning ascribed thereto in
Section 8.16.
"SUBSIDIARY" shall mean, as to the Company, any corporation of which
more than 50% of the outstanding stock have ordinary voting power to elect
a majority of the Board of Directors of such corporation (irrespective of
whether or not at the time stock of any other class or classes shall have
or might have voting power by reason of the happening of any contingency)
is at the time directly or indirectly owned by the Company, or by one or
more of its subsidiaries.
"TRANSFEREE" shall mean any direct or indirect transferee of all or
any part of any Convertible Debenture purchased by the Purchaser under
this Agreement.
ARTICLE II
PURCHASE AND SALE OF CONVERTIBLE DEBENTURES
SECTION 2.01. ISSUANCE, SALE AND DELIVERY OF THE CONVERTIBLE DEBENTURES.
The Company agrees to issue and sell to the Purchaser and the Purchaser hereby
agrees to purchase from the Company, the Convertible Debentures in the
aggregate principal amount of $400,000 at 100% of such aggregate principal
amount.
SECTION 2.02. CLOSING. The closing shall take place at the offices of
Kantor, Davidoff, Wolfe, Mandelker & Kass, P.C., 51 East 42nd Street, New
York, New York 10017-5497 at such date and time, or at such other location,
date and time as may be agreed upon between the Purchaser and the Company
(such closing being called the "Closing" and such date and time being
called the "Closing Date"). At the Closing, the Company shall issue and
deliver to the Purchaser a Convertible Debenture, registered in the name of
such Purchaser, evidencing the principal amount of the Convertible Debenture
to be purchased by the Purchaser at the Closing, and in the denomination or
denominations specified in writing
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by the Purchaser. As payment in full for the Convertible Debenture being
purchased by the Purchaser under this Agreement, on the Closing Date the
Purchaser shall transfer such sum to the account of the Company by wire
transfer.
ARTICLE III
CONVERSION
SECTION 3.01. CONVERSION; NUMBER. The holder of any Convertible Debenture,
at its option, will be entitled at any time commencing three (3) Business Days
after Stockholder Approval and ending on the close of business on the final
maturity date of the Convertible Debentures to convert any Convertible
Debentures, or portions thereof, into shares of Series D Preferred Stock. The
Convertible Debenture will automatically be converted into shares of Series D
Preferred Stock upon the closing of a firmly underwritten public offering of
Common Stock on a Form S-1 Registration Statement at an aggregate public
offering price (after underwriting discounts and commissions) of at least
$10,000,000 and a per share price equal to or greater than $4.00 (as
appropriately adjusted for stock splits and the like). In either case (each of
which is sometimes hereinafter referred to as a "Conversion"), the number of
shares of Series D Preferred Stock to be issued upon such Conversion shall be
determined by dividing the aggregate principal balance of the Convertible
Debenture to then be converted by twenty-five hundredths (0.25). The Company is
not required to issue fractional shares of Series D Preferred Stock upon
conversion of any Convertible Debenture and, in lieu thereof, will pay a cash
adjustment.
SECTION 3.02. CONVERSION PROCEDURE. If the holder elects to convert any
Convertible Debenture such holder may do so by delivering the Convertible
Debenture at the specified office of the Company, accompanied by a duly signed
and completed Conversion Notice. The date of the Conversion shall be the date
on which the Convertible Debenture and the duly signed and completed Conversion
Notice are received by the Company. A holder delivering a Convertible Debenture
for conversion will not be required to pay any taxes or duties payable with
respect to the issue or delivery of Series D Preferred Stock on Conversion and
any such taxes or duties shall be paid by the Company.
SECTION 3.03. REPRESENTATIONS, WARRANTIES, COVENANTS, NO DEFAULT;
CONDITIONS PRECEDENT TO CONVERSION.
(a) On and as of the date of each Conversion, (i) the Company shall
be deemed to have (A) remade, ratified and confirmed all representations
and warranties of the Company contained in Article IV of this Agreement,
(B) certified compliance with all covenants contained in Article VIII of
this Agreement and (C) certified that no
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Event or Default or Default exists and is continuing, and (ii) the Company
shall deliver an Officer's Certificate to the effects set forth in (A),
(B) and (C) above.
(b) In addition to the provisions of Section 3.03(a) above, on and as
of the date of each Conversion, the Company shall have caused to be
delivered to the Purchaser an opinion of the General Counsel of the
Company, substantially in the form of Exhibit E attached hereto.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Purchaser that:
SECTION 4.01. ORGANIZATION, QUALIFICATIONS AND CORPORATE POWER
(a) The Company is a corporation duly incorporated,
validly existing and in good standing under the laws of the State of
Delaware and is duly qualified to transact business as a foreign
corporation and is in good standing in each jurisdiction in which
the nature of the business transacted by it or the character of the
properties owned or leased by it requires such qualification,
except where the failure to be so qualified would not have a Material
Adverse Effect. The Company has the corporate power and authority
to own and hold its properties and to carry on its business as now
conducted and as proposed to be conducted, to execute, deliver and
perform its obligations under this Agreement, to issue, sell and
deliver the Convertible Debentures and, subject to approval by the
stockholders of the Company of an amendment to the Certificate of
Incorporation, to increase the authorized number of shares of Common
Stock and Preferred Stock, to issue and deliver the Preferred
Conversion Shares and the Common Conversion Shares.
(b) The Company has no Subsidiaries. The Company does not
(i) own of record or beneficially, directly or indirectly (A) any
shares of capital stock or securities convertible into capital stock
of any other corporation or (B) any participating interest in any
partnership, joint venture or other non-corporate business
enterprise or (ii) control, directly or indirectly, any other entity.
SECTION 4.02. AUTHORIZATION. The execution and delivery by the Company
of this Agreement, the performance by the Company of its obligations hereunder,
the issuance, sale and delivery of the Convertible Debenture and, subject to
approval by the stockholders of the Company of an amendment to the Certificate
of Incorporation to increase the authorized
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number of shares of Common Stock and Preferred Stock, the issuance and delivery
of the Preferred Conversion Shares and the Common Conversion Shares have been
duly authorized by all requisite corporate action and will not violate any
provision of law, any order of any court or other agency of government, the
Certificate of Incorporation or the By-laws, or any provision of any indenture,
agreement or other instrument to which the Company, any of its subsidiaries or
any of their respective properties or assets is bound, or conflict with, result
in a breach of or constitute (with due notice or lapse of time or both) a
default under any such indenture agreement or other instrument, or result in the
creation or imposition of any lien, charge, restriction, claim or encumbrance of
any nature whatsoever upon any of the properties or assets of the Company or any
of its subsidiaries.
SECTION 4.03. VALIDITY. This Agreement has been duly executed and
delivered by the Company and constitutes the legal, valid and binding
obligation of the Company, enforceable in accordance with its terms.
SECTION 4.04. CAPITALIZATION. The authorized capital stock of the Company
consists of (i) 18,000,000 shares of Common Stock, per value $0.001 per share;
(ii) 1,250,000 shares of Series A Preferred Stock, par value $0.001 per share;
(iii) 625,000 shares of Series B Preferred Stock, par value $0.001 per share;
(iv) 120,000 shares of Series C Preferred Stock, par value $0.001 per share;
and (v) 5,000 shares of one or more series of Preferred Stock (the "Blank Check
Preferred Stock"). Immediately prior to the Closing, 6,917,182 shares of Common
Stock, 1,250,000 shares of Series A Preferred Stock, 625,000 shares of Series B
Preferred Stock and 120,000 shares of Series C Preferred Stock were outstanding
and have been validly issued and are fully paid and nonassessable with no
personal liability attaching to the ownership thereof. The Company has sold
$4,000,000 of convertible debentures due August 16, 1999. Such convertible
debentures initially are convertible into 16,000,000 shares of Series D
Preferred Stock which, when authorized and issued, will in turn, be convertible
into 16,000,000 shares of Common Stock. The Company has sold $500,000 of 6%
convertible debentures due August 16, 1996; these convertible Debentures are
part of up to an additional $4,000,000 of convertible debentures due August 16,
1999 authorized to be issued by the Board; such additional convertible
debentures shall be convertible into 2,000,000 shares of Series E Preferred
Stock which, when authorized and issued will in turn be convertible into
2,000,000 shares of Common Stock. The designations, powers, preferences,
rights, qualifications, limitations and restrictions in respect of each class
and series of authorized capital stock of the Company are as set forth in the
Certificate of Incorporation, and all such designations, powers, preferences,
rights, qualifications, limitations and restrictions are valid, binding and
enforceable and in accordance with all applicable laws. Except as set forth on
Schedule 4.04, there are no outstanding options, preemptive or other rights,
warrants, agreements, voting trusts, proxies, contracts, calls, commitments or
demands of any character relating to any shares of capital stock, or any other
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securities of the Company, whether or not issued, including, but not limited
to, securities convertible into or evidencing the right to purchase any capital
stock or other securities of the Company. Except as set forth on Schedule 4.04,
the Company has no obligation (contingent or other) to purchase, redeem or
otherwise acquire any of its equity securities or any interest therein or to
pay any dividend or make any other distribution in respect thereof. Except as
set forth on Schedule 4.04, there are no voting trusts or agreements,
stockholders' agreements, pledge agreements, buy-sell agreements, rights of
first refusal, preemptive rights or proxies relating to any securities of the
Company or any of its subsidiaries (whether or not the Company or any of its
subsidiaries is a party thereto). All of the outstanding securities of the
Company were issued in compliance with all applicable federal and state
securities laws.
SECTION 4.05. FINANCIAL STATEMENTS. The Company has furnished to the
Purchaser the consolidated balance sheet of the Company as of June 30, 1996
(the "Unaudited Balance Sheet"), and the related statements of income,
stockholders' equity and cash flows of the Company for the year ended unaudited
June 30, 1996. All such financial statements have been prepared in accordance
with generally accepted accounting principles consistently applied and fairly
present the financial position of the Company as of June 30, 1996, and the
results of operations and cash flows of the Company for the year ended June 30,
1996. Since the date of the Balance Sheet, (i) there has been no change in the
assets, liabilities or financial condition of the Company (on a consolidated
basis) from that reflected in the Balance Sheet, except for changes in the
ordinary course of business which in the aggregate have not been materially
adverse, and (ii) none of the business, prospects, financial condition,
operations, property or affairs of the Company (on a consolidated basis) has
been materially adversely affected by any occurrence or development,
individually or in the aggregate, whether or not insured against.
SECTION 4.06. EVENTS SUBSEQUENT TO THE DATE OF THE BALANCE SHEET. Since
the date of the Balance Sheet, the Company has not, except as set forth on
Schedule 4.06, (i) issued any stock, bond or other corporate security, (ii)
borrowed any amount or incurred or become subject to any liability (absolute,
accrued or contingent), except current liabilities incurred and liabilities
under contracts entered into in the ordinary course of business, (iii)
discharged or satisfied any lien or encumbrance or incurred or paid any
obligation or liability (absolute, accrued or contingent) other than current
liabilities shown on the Balance Sheet and current liabilities incurred since
the date of the Balance Sheet in the ordinary course of business, (iv) declared
or made any payment or distribution to stockholders or purchased or redeemed
any share of its capital stock or other security, (v) mortgaged, pledged or
subjected to lien any of its assets, tangible or intangible, other than liens
of current real property taxes not yet due and payable, (vi) sold, assigned or
transferred any of its tangible assets except in the ordinary course of
business, or canceled any debt or claim, (vii) sold, assigned, transferred or
granted any exclusive license with respect to any patent, trademark, trade
name, service mark, copyright, trade secret or other intangible asset, (viii)
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suffered any loss of property or waived any right of substantial value whether
or not in the ordinary course of business, (ix) made any change in officer
compensation except in the ordinary course of business and consistent with past
practice, (x) made any material change in the manner of business or operations
of the Company, (xi) entered into any transaction except in the ordinary course
of business or as otherwise contemplated hereby or (xii) entered into any
commitment (contingent or otherwise) to do any of the foregoing.
SECTION 4.07. COMPLIANCE WITH INSTRUMENTS. The Company is not in violation
of any term of its Certificate of Incorporation or By-laws, or any statute,
rule or regulation applicable to the Company. Except as set forth on Schedule
4.07, the Company is not in violation or in default of any term contained in
any instrument or contract to which it is a party. Except as set forth on
Schedule 4.07, no event or failure of performance has occurred which, with the
passage of time or the giving of notice or both, would constitute such a
violation. None of the violations set forth on Schedule 4.07 will have a
Material Adverse Effect.
SECTION 4.08. LITIGATION. Except as set forth on Schedule 4.08, there are
no (i) actions, suits, claims, proceedings or investigations pending or, to the
best of the Company's knowledge, threatened against or affecting the Company,
at law or in equity, or before or by any federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign, (ii) arbitration proceedings relating to the Company
pending under collective bargaining agreements or otherwise or (iii)
governmental inquiries pending or, to the best of the Company's knowledge,
threatened against or affecting the Company (including without limitation any
inquiry as to the qualification of the Company to hold or receive any license
or permit), and the Company is not aware of any basis for any of the foregoing.
None of the actions, suits, claims, proceedings, or investigations set forth on
Schedule 4.08 will have a Material Adverse Effect. The Company is not in
default with respect to any order, writ, injunction or decree known to or
served upon the Company of any court or of any federal, state, municipal or
other governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign.
SECTION 4.09. COMPLIANCE WITH LAW. The Company has complied with all laws,
rules, regulations and orders applicable to its business, operations,
properties, assets, products and services, and the Company has all necessary
permits, licenses and other authorizations required to conduct its business as
conducted and as proposed to be conducted to the extent failure to do so would
have a material adverse effect on the business of the Company. There is no
existing law, rule, regulation or order, and the Company is not aware of any
proposed law, rule, regulation or order, whether federal or state, which would
prohibit or restrict the Company from, or otherwise materially adversely affect
the Company in, conducting its business in any jurisdiction in which it is now
conducting business or in which it proposes to conduct business.
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SECTION 4.10. TITLE TO PROPERTIES. The Company has good and marketable
title to its properties and assets reflected on the Balance Sheet or acquired
by it since the date of the Balance Sheet (other than properties and assets
disposed of in the ordinary course of business since the date of the Balance
Sheet), and all such properties and assets are free and clear of mortgages,
pledges, security interests, liens, charges, claims, restrictions and other
encumbrances, except (i) for Liens set forth on Schedule 4.10, (ii) for Liens
for taxes not yet due and payable and minor imperfections of title, if any, not
material in nature or amount and (iii) for Liens not materially detracting from
the value or impairing the use of the property subject thereto or impairing the
operations or proposed operations of the Company.
SECTION 4.11. LEASEHOLD INTERESTS. Each lease or agreement to which the
Company is a party under which it is a lessee of any property, real or
personal, is a valid and subsisting agreement without any default of the
Company thereunder, except as set forth on Schedule 4.11, and, to the best of
the Company's knowledge, without any default thereunder of any other party
thereto. No event has occurred and is continuing which, with due notice or
lapse of time or both, would constitute a default or event of default by the
Company under any such lease or agreement or, to the best of the Company's
knowledge, by any other party thereto. The Company's possession of such
property has not been disturbed and, to the best of the Company's knowledge, no
claim has been asserted against the Company adverse to its rights in such
leasehold interests.
SECTION 4.12. TAXES. The Company has filed all tax returns, federal,
state, county and local, required to be filed by it, and the Company has paid
all taxes shown to be due by such returns as well as all other taxes,
assessments and governmental charges which have become due or payable,
including without limitation all taxes which the Company is obligated to
withhold from amounts owing to employees, creditors and third parties. All such
taxes with respect to which the Company has become obligated pursuant to
elections made by the Company in accordance with generally accepted practice
have been paid and adequate reserves have been established for all taxes
accrued but not yet payable. The Federal income tax returns of the Company have
never been audited by the Internal Revenue Service. No deficiency assessment
with respect to or proposed adjustment of the Company's Federal, state, county
or local taxes is pending or, to the best of the Company's knowledge,
threatened. There is no tax lien, whether imposed by any federal, state, county
or local taxing authority, outstanding against the assets, properties or
business of the Company.
SECTION 4.13. PATENTS, TRADEMARKS, ETC. The Company owns or possesses
adequate licenses or other rights to use all trademarks, trademark
applications, service marks, service mark applications, trade names,
copyrights, manufacturing processes, formulae, trade secrets and know how, and
all patents and patent applications known to the Company (collectively,
"Intellectual Property"), necessary to the conduct of its business as conducted
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and as proposed to be conducted, and no claim is pending or, to the best of the
Company's knowledge, threatened to the effect that the operations of the
Company infringe upon or conflict with the asserted rights of any other person
under any Intellectual Property, and there is no known basis for any such claim
(whether or not pending or threatened). No claim is pending or threatened to
the effect that any such Intellectual Property owned or licensed by the
Company, or which the Company otherwise has the right to use, is invalid or
unenforceable by the Company, and there is no basis known to the Company for
any such claim (whether or not pending or threatened). To the best of the
Company's knowledge, all technical information developed by and belonging to
the Company which has not been patented has been kept confidential. Except as
set forth on Schedule 4.13, the Company has not granted or assigned to any
other person or entity any right to manufacture, have manufactured, assemble or
sell the products or proposed products or to provide the services or proposed
services of the Company.
SECTION 4.14. OUTSTANDING DEBT; LOANS AND ADVANCES
(a) All of the outstanding Debt of the Company is set forth on
Schedule 4.14 ("Existing Debt"). Except as set forth on Schedule 4.07,
there exists no default under the provisions of any instrument evidencing
such Existing Debt or of any agreement relating thereto.
(b) The Company does not have any outstanding loans or advances to
any person and is not obligated to make any such loans or advances,
except, in each case, for advances to employees of the Company in respect
of reimbursable business expenses anticipated to be incurred by them in
connection with their performance of services for the Company.
SECTION 4.15. GUARANTEES. The Company is not a party to any Guarantee.
SECTION 4.16. GOVERNMENTAL APPROVALS. No registration or filing with, or
consent or approval of or other action by, any federal, state or other
governmental agency or instrumentality is or will be necessary for the valid
execution, delivery and performance by the Company of this Agreement, the
issuance, sale and delivery of the Convertible Debentures, the issuance and
delivery of the Preferred Conversion Shares upon the conversion of the
Convertible Debentures, or the issuance and delivery of the Common Conversion
Shares upon conversion of the Preferred Conversion Shares, other than the
approval by the stockholders of the Company of an amendment to the Certificate
of Incorporation to increase the authorized number of shares of Common Stock
and Preferred Stock.
SECTION 4.17. DISCLOSURE. Neither this Agreement, nor any Schedule
or Exhibit to this Agreement contains an untrue statement of a material fact
or omits a material fact
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necessary to make the statements contained herein or therein not misleading.
None of the statements, documents, certificates or other items prepared or
supplied by the Company with respect to the transactions contemplated hereby
contains an untrue statement of a material fact or omits a material fact
necessary to make the statements contained therein not misleading. There is no
fact which the Company has not disclosed to the Purchaser and of which the
Company is aware which materially and adversely affects or could materially and
adversely affect the business, prospects, financial condition, operations,
property or affairs of the Company or any of its subsidiaries.
SECTION 4.18. BROKERS. The Company has no contract, arrangement or
understanding with any broker, finder or similar agent with respect to the
transactions contemplated by this Agreement.
SECTION 4.19. SECURITIES ACT. The offer, sale and issuance of the
Convertible Debentures, the Preferred Conversion Shares and the Common
Conversion Shares (collectively, the "Securities") will be exempt from the
registration requirements of the Securities Act of 1933, as amended (the
"Securities Act"), and will have been registered or qualified (or are exempt
from registration and qualification) under the registration, permit or
qualification requirements of any applicable state securities laws. Neither the
Company nor any agent on its behalf has solicited or will solicit any offers to
sell or has offered to sell or will offer to sell all or any part of the
Securities to any Person so as to bring the sale of such Securities by the
Company within the registration provisions of the Securities Act.
SECTION 4.20. MARGIN REGULATIONS. The Company will not, directly or
indirectly, use any of the proceeds of the Securities for the purpose, whether
immediate, incidental or ultimate, of maintaining, purchasing or carrying any
stock that is currently a "margin stock" within the meaning of Regulation G of
the Board of Governors of the Federal Reserve System (12 C.F.R. 207, as
amended) or Regulation U of such Board (12 C.F.R. 221, as amended), or
otherwise take or permit to be taken any action which would result in the
carrying out of any of the other transactions contemplated hereby or thereby
being violative of such Regulation G or Regulation U, or of Regulation T (12,
C.F.R. 220, as amended), Regulation X (12 C.F.R. 224, as amended) or any other
regulation of such Board. The Company and its Subsidiaries do not own or
intend to acquire any "margin stock" within the meaning of such Regulation G or
such Regulation U.
SECTION 4.21. INSURANCE COVERAGE. Each property of the Company is insured
for the benefit of the Company in amounts deemed adequate by the Company's
management against risks usually insured against by persons operating
businesses similar to those of the Company in the localities where such
properties are located.
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SECTION 4.22. ERISA. No accumulated funding deficiency (as defined in
Section 302 of ERISA and Section 412 of the Code), whether or not waived,
exists with respect to any Plan (other than a Multiemployer Plan). No liability
to the PBGC has been or is expected by the Company or any ERISA Affiliate to be
incurred with respect to any Plan (other than a Multiemployer Plan) by the
Company or any ERISA Affiliate which would have a Material Adverse Effect.
Neither the Company nor any ERISA Affiliate is a participant in any
Multiemployer Plan. The execution and delivery of this Agreement and the
issuance and sale of the Convertible Debentures will be exempt from, or will
not involve any transaction which is subject to, the prohibitions of Section
406 of ERISA and will not involve any transaction in connection with which a
penalty could be imposed under Section 502(i) of ERISA or a tax could be
imposed pursuant to Section 4975 of the Code. The Company and its ERISA
Affiliates do not provide any benefits to former employees except as may be
required by COBRA (Section 4980B of the Code and Sections 601 et seq. of
ERISA). Neither the Company nor any ERISA Affiliate is a party to a collective
bargaining agreement or is required to bargain with any collective bargaining
unit.
SECTION 4.23. ENVIRONMENTAL COMPLIANCE. The Company and its properties and
facilities have complied at all times and in all respects with all federal,
state, local and regional statutes, laws, ordinances and judicial or
administrative orders, judgments, rulings and regulations relating to
protection of the environment except, in any such case, where failure to comply
would not have a Material Adverse Effect.
SECTION 4.24. PERMITS AND LICENSES. The Company has all federal, state and
local governmental permits, licenses, certificates of authority any similar
authority necessary for the conduct of its business as now being conducted and
as proposed to be conducted. The Company is not in default in any material
respect under any such permit, license, certificate of authority or other
similar authority.
SECTION 4.25. BOARD COMPOSITION. Article III, Section 1 of the By-laws
provides that the number of directors which shall constitute the whole Board of
Directors of the Company (the "Board") shall be not less that three (3) nor
more than fifteen (15), with the specific number determined by a resolution of
the Board, or by the shareholders of the Company at the annual meeting. The
current Board consists of seven directors. The current Board members are Donald
Baker, Roden A. Brandt, Clifton E. Haley, William B. Hambrecht, Patrick J.
O'Shea, Robert J. Spane and John Tague.
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ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
SECTION 5.01. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. The
Purchaser represents and warrants to the Company that:
(a) the Convertible Debentures being purchased by it are being
acquired for its own account for the purpose of investment and not with a
view to or for sale in connection with any distribution thereof.
(b) it has not employed any broker or finder in connection with the
transactions contemplated by this Agreement; and
(c) the execution, delivery and performance by it of this Agreement
have been duly authorized by all requisite action by it and this Agreement
constitutes the valid and binding obligation of it, enforceable in
accordance with its terms.
ARTICLE VI
CONDITIONS TO THE OBLIGATIONS
OF THE PURCHASER
SECTION 6.01. CONDITIONS TO THE OBLIGATION OF THE PURCHASER. The
obligation of the Purchaser to purchase and pay for the Convertible Debentures
being purchased by it on the Closing Date is, at its option, subject to the
satisfaction, on or before the Closing Date, of the following conditions:
(a) Representations and Warranties to be True and Correct. The
representations and warranties of the Company contained in Article IV
shall be true, complete and correct on and as of the Closing Date with the
same effect as though such representations and warranties had been made on
and as of such date.
(b) Performance. The Company shall have performed and complied with
all agreements contained herein required to be performed or complied with
by it prior to or at the Closing Date.
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(c) Officer's Certificate. The Company shall have executed and
delivered to the Purchaser an Officer's Certificate to the effects set
forth in (a) and (b) above.
(d) Investor's Rights Agreement. The Company shall have executed and
delivered the Investor's Rights Agreement to the Purchaser.
(e) Opinion of Counsel. The Purchaser shall have received an opinion
of the General Counsel of the Company, such opinion to be substantially in
the form of Exhibit F attached hereto.
(f) All Proceedings to be Satisfactory. All corporate and other
proceedings to be taken by the Company in connection with the transactions
contemplated hereby and all documents incident thereto shall be
satisfactory in form and substance to the Purchaser and its counsel, and
the Purchaser and its counsel shall have received all such counterpart
originals or certified or other copies of such documents as they
reasonably may request.
(g) Supporting Documents. The Purchaser and its counsel shall have
received copies of the following documents:
(i) a certificate of the Secretary of State of the State of
Delaware, dated as of a recent date as to the due incorporation and
good standing of the Company;
(ii) a certificate of the Secretary or an Assistant Secretary of
the Company dated the Closing Date and certifying: (A) that the
Certificate of Incorporation attached to this Agreement is a true and
complete copy of the Certificate of Incorporation of the Company; (B)
that the Certificate of Incorporation has not been amended since the
date of the last amendment referred to in the certificate delivered
pursuant to clause (ii)(A) above; (C) that attached thereto is a true
and complete copy of the By-laws of the Company as in effect on the
date of such certification; (D) that attached thereto is a true and
complete copy of all resolutions adopted by the Board of Directors or
the stockholders of the Company authorizing the execution, delivery
and performance of this Agreement, and the issuance, sale and
delivery of the Convertible Debentures and that all such resolutions
are in full force and effect and are all the resolutions adopted in
connection with the transactions contemplated by this Agreement; and
(E) to the incumbency and specimen signature of each officer of the
Company executing this Agreement, the Convertible Debentures and any
certificate or instrument furnished pursuant hereto, and a
certification by another officer of the Company as to the
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incumbency and signature of the officer signing the certificate
referred to in this subparagraph 6.01 (g) (ii); and
(iii) such additional supporting documents and other information
with respect to the operations and affairs of the Company as the
Purchaser or its counsel reasonably may request.
(h) Third Party Consents, Permits and Waivers. The Company shall have
obtained any and all consents, permits and waivers necessary or
appropriate for the consummation of the transactions contemplated by this
Agreement.
(i) No Injunctions or Restraints. There shall be no action, suit,
investigation or proceeding pending, or, to the best of the Company's
knowledge, threatened, against or affecting the Company, any of the
Company's properties or rights, or any of the Company's officers or
directors, before any court, arbitrator or administrative or governmental
body which (i) seeks to restrain, enjoin, or prevent the consummation of
the transactions contemplated by this Agreement or (ii) questions the
validity or legality of any such transactions or seeks to recover damages
or to obtain other relief in connection with any such transactions and, to
the best of the Company's knowledge, there shall be no valid basis for any
such action, proceeding or investigation.
All such documents shall be satisfactory in form and substance to the
Purchaser and its counsel.
ARTICLE VII
CONDITIONS TO THE OBLIGATIONS OF THE COMPANY
SECTION 7.01. CONDITIONS TO THE OBLIGATIONS OF THE COMPANY. The obligation
of the Company to issue and sell the Convertible Debentures on the Closing Date
is, at its option, subject to the satisfaction, on or before the Closing Date,
of the following conditions:
(a) Representations and Warranties to be True and Correct. The
representations and warranties of the Purchaser contained in Article 5
shall be true, complete and correct on and as of the Closing Date with the
same effect as though such representations and warranties had been made on
and as of such date.
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(b) Performance. The Purchaser shall have performed and complied with
all agreements contained herein required to be performed or complied with
by it prior to or at the Closing Date.
(c) All Proceedings to be Satisfactory. All corporate and other
proceedings to be taken by the Purchaser in connection with the
transactions contemplated hereby and all documents incident thereto shall
be satisfactory in form and substance to the Company and its counsel, and
the Company and its counsel shall have received all such counterpart
originals or certified or other copies of such documents as they
reasonably may request.
(d) No Injunctions or Restraints. There shall be no action, suit,
investigation or proceeding pending, or, to the best of the Company's
knowledge, threatened, against or affecting the Company, any of the
Company's properties or rights, or any of the Company's officers or
directors, before any court, arbitrator or administrative or governmental
body which (i) seeks to restrain, enjoin, or prevent the consummation of
the transactions contemplated by this Agreement or (ii) questions the
validity or legality of any such transactions or seeks to recover damages
or to obtain other relief in connection with any such transactions and, to
the best of the Company's knowledge, there shall be no valid basis for any
such action, proceeding or investigation.
ARTICLE VIII
COVENANTS OF THE COMPANY
The Company covenants and agrees with the Purchaser that so long as any
Convertible Debenture is outstanding:
SECTION 8.01. FINANCIAL STATEMENTS AND REPORTS. The Company shall furnish
to the Purchaser:
(a) as soon as practicable, and in any event at least 30 days prior
to the beginning of each fiscal year of the Company, consolidated
statements of forecasted income and cash flow and consolidated forecasted
balance sheet of the Company for each month and each fiscal quarter in
such fiscal year and for the period from the beginning of such fiscal year
to the end of each such month and end of each such fiscal quarter, in each
case as at the end of each such month and fiscal quarter;
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(b) as soon as practicable after the end of each month in each fiscal
year (other than the last month in each fiscal year), and in any event
within 30 days thereafter, consolidated statements of income and cash flow
of the Company for such month and for the period from the beginning of the
current fiscal year to the end of such month and a consolidated balance
sheet of the Company as at the end of such month, and setting forth, in
each case, in comparative form, figures for the corresponding months in
the preceding fiscal year (other than any such corresponding months ended
prior to the Closing) and figures in the Company's budget for the
corresponding months in the current fiscal year;
(c) as soon as practicable after the end of each fiscal quarter of
the Company in each fiscal year (other than the last fiscal quarter in
each fiscal year), and in any event within forty-five (45) days
thereafter, a consolidated balance sheet of the Company and the related
consolidated statements of income, stockholders' equity and cash flows,
unaudited but prepared in accordance with generally accepted accounting
principles and certified by the Chief Financial Officer of the Company,
such consolidated balance sheet to be as of the end of such fiscal quarter
and such consolidated statements of income, stockholders' equity and cash
flows to be for such fiscal quarter and for the period from the beginning
of the fiscal year to the end of such fiscal quarter, in each case with
comparative statements for the corresponding period in the prior fiscal
year;
(d) as soon as practicable after the end of each fiscal year of the
Company, and in any event within ninety (90) days thereafter, a
consolidated balance sheet of the Company as of the end of such fiscal
year and the related consolidated statements of income, stockholders'
equity and cash flows for the fiscal year then ended, prepared in
accordance with generally accepted accounting principles and certified by
a firm of independent public accountants of recognized national standing
selected by the Board of Directors of the Company;
(e) promptly upon transmission thereof, copies of all such financial
statements, proxy statements, notices and reports as it shall send to its
stockholders and copies of all registration statements (without exhibits)
and all reports which it files with the Commission;
(f) promptly upon sending, all press releases that the Company
disseminates;
(g) promptly upon receipt thereof, a copy of each other report
submitted to the Company or any Subsidiary by independent accountants in
connection with any
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annual, interim or special audit made by them of the books of the Company
or any Subsidiary;
(h) as soon as practicable and in any event within five days after
any officer of the Company obtaining knowledge (i) of any condition or
event which, in the opinion of management of the Company, would have a
Material Adverse Effect (ii) that any Person has given any notice from any
Person to the Company or taken any other action with respect to a claimed
default or event or condition of the type referred to in Section 9.01(ii,
(iii) of the institution of any litigation involving claims against the
Company equal to or greater than $100,000 with respect to any single cause
of action or of any adverse determination in any court proceeding in any
litigation involving a potential liability to the Company equal to or
greater than $100,000 with respect to any single cause of action which
makes the likelihood of an adverse determination in such litigation
against the Company substantially more probable, or (iv) of any regulatory
proceeding which may have a Material Adverse Effect on the Company, an
Officer's Certificate specifying the nature and period of existence of any
such condition or event, or specifying the notice given or action taken by
such Person and the nature of any such claimed default, event or
condition, or specifying the details of such proceeding, litigation or
dispute and what action the Company has taken, is taking or proposes to
take with respect thereto;
(i) promptly after the filing or receiving thereof, copies of all
reports and notices which the Company files under ERISA with the Internal
Revenue Service or the PBGC or the U.S. Department of Labor or which the
Company receives from such corporation; and
(j) with reasonable promptness, such other information respecting the
condition or operations, financial or otherwise, of the Company as the
Purchaser may reasonably request.
Together with each delivery of financial statements required by clauses
(c) and (d) above, the Company will deliver to the Purchaser an Officer's
Certificate stating that there exists no Event of Default or Default, or, if
any Event of Default or Default exists, specifying the nature and period of
existence thereof and what action the Company proposes to take with respect
thereto. Together with each delivery of financial statements required by clause
(d) above, the Company will deliver to the Purchaser a certificate of such
accountants stating that, in making the audit necessary for their report on
such financial statements, they have obtained no knowledge of any Event of
Default or Default, or, if they have obtained knowledge of any Event of Default
or Default, specifying the nature and period of existence thereof.
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The Company also covenants that immediately after any officer obtains
knowledge of an Event of Default or Default, it will deliver to the Purchaser
an Officer's Certificate specifying the nature and period of existence thereof
and what action the Company proposes to take with respect thereto.
SECTION 8.02. CORPORATE EXISTENCE. The Company shall maintain its
corporate existence, rights and franchises in full force and effect.
SECTION 8.03. MAINTENANCE OF PROPERTIES AND INSURANCE. The Company will
maintain or cause to be maintained in good repair, working order and condition
all properties used or useful in the business of the Company and from time to
time will make or cause to be made appropriate repairs, renewals and
replacements thereof. The Company shall maintain its properties and business,
with financially sound and reputable insurers, insurance against such
casualties and contingencies and of such types and in such amounts as is
customary for companies similarly situated, including but not limited to fire
and other risks insured against by extended coverage, product liability
insurance and public liability insurance against claims for personal injury or
death or property damage occurring upon, in, about or in connection with the
use of any properties owned, occupied or controlled by the Company; which
insurance shall be deemed by the Company to be sufficient; and maintain
workers' compensation insurance and such other insurance as may be required by
law.
SECTION 8.04. INSPECTION, CONSULTATION AND ADVICE. The Company shall
permit the Purchaser to visit and inspect any of the properties of the Company,
examine its books and take copies and extracts therefrom, discuss the affairs,
finances and accounts of the Company with its officers, employees and public
accountants (and the Company hereby authorizes said accountants to discuss with
the Purchaser such affairs, finances and accounts), and consult with and advise
the management of the Company as to its affairs, finances and accounts, all at
reasonable times and upon reasonable notice.
SECTION 8.05. RESTRICTIVE AGREEMENTS PROHIBITED. The Company shall not
become a party to any agreement which by its terms restricts the Company's
performance of this Agreement.
SECTION 8.06. TRANSACTIONS WITH AFFILIATES. Except for transactions
contemplated by this Agreement, the Company shall not enter into any
transaction with any director, officer, employee or holder of more than 5% of
the outstanding capital stock of any class or series of capital stock of the
Company, member of the family of any such person, or any corporation,
partnership, trust or other entity in which any such person, or member of the
family of any such person is a director, officer, trustee, partner or holder of
more than 5% of the outstanding capital stock thereof.
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SECTION 8.07. USE OF PROCEEDS. The Company shall use the proceeds from the
sale of the Convertible Debentures solely for working capital or other such
uses as may be authorized by the Board of Directors.
SECTION 8.08. SUBSIDIARIES. The Company shall not create or have any
Subsidiaries.
SECTION 8.09. COMPLIANCE WITH LAWS. The Company shall comply with all
applicable laws, rules, regulations and orders, noncompliance with which could
have a Material Adverse Effect.
SECTION 8.10. KEEPING OF RECORDS AND BOOKS OF ACCOUNT. The Company shall
keep true records and books of account, in which full and complete entries will
be made in accordance with generally accepted accounting principles
consistently applied, reflecting all financial and business transactions of the
Company, and in which, for each fiscal year, all proper accruals and reserves
for depreciation, depletion, obsolescence, amortization, taxes, bad debts and
other purposes in connection with its business shall be made as shall be
required under generally accepted accounting principles consistently applied.
SECTION 8.11. OBLIGATIONS AND TAXES. The Company shall pay all of its
indebtedness and obligations promptly and in accordance with their terms and
pay and discharge promptly all taxes, assessments and governmental charges or
levies imposed upon it or its income or profits or in respect of its property,
before the same shall become in default, as well as all lawful claims for labor
and supplies or otherwise which, if unpaid, might become a lien or charge upon
such properties or any part thereof; provided, however, that the Company shall
not be required to pay and discharge or to cause to be paid and discharged any
tax, assessment, charge, levy or claim so long as the validity or amount
thereof shall be contested in good faith by appropriate proceedings and the
Company shall set aside on its books such reserves as are required by generally
accepted accounting principles with respect to any such tax, assessment,
charge, levy or claim so contested.
SECTION 8.12. TRANSFER AND EXCHANGE OF CONVERTIBLE DEBENTURES; LOST
CONVERTIBLE DEBENTURES. Upon surrender for registration or transfer of any
Convertible Debenture at the principal office of the Company, the Company
shall, at its expense, execute and deliver one or more new Convertible
Debentures of like tenor and of a like aggregate principal amount, registered
in the name of such transferee or transferees. At the option of the Purchaser,
such Convertible Debenture may be exchanged for other Convertible Debentures of
like tenor and of any authorized denominations, of a like aggregate principal
amount, upon surrender of the Convertible Debenture to be exchanged at the
principal office of the Company. Whenever any Convertible Debentures are so
surrendered for exchange, the Company shall, at its expense, execute and
deliver the Convertible Debentures which the
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Purchaser making the exchange is entitled to receive. Every Convertible
Debenture surrendered for registration of transfer or exchange shall be duly
endorsed, or be accompanied by a written instrument of transfer duly executed,
by the Purchaser of such Convertible Debenture or the Purchaser's attorney duly
authorized in writing. Any Convertible Debenture or Convertible Debentures
issued in exchange for any Convertible Debenture or upon transfer thereof shall
carry the rights to unpaid interest and interest to accrue which were carried by
the Convertible Debenture so exchanged or transferred, so that neither gain nor
loss of interest shall result from any such transfer or exchange. Upon receipt
of written notice from the Purchaser of the loss, theft, destruction or
mutilation of such Convertible Debenture and, in the case of any such loss,
theft or destruction, upon receipt of the Purchaser's unsecured indemnity
agreement, or in the case of any such mutilation upon surrender and cancellation
of such Convertible Debenture, the Company will make and deliver a new
Convertible Debenture, of like tenor, in lieu of the lost, stolen, destroyed or
mutilated Convertible Debenture. The Purchaser's own agreement of indemnity
shall constitute indemnity satisfactory to the Company for purposes of this
Section 8.12.
SECTION 8.13. LIMITATION ON DEBT. The Company will not create, incur,
assume or otherwise become or be liable with respect to any Debt except (i)
Debt represented by the Convertible Debentures; (ii) Existing Debt of the
Company, and (iii) Debt of the Company aggregating not more than $500,000 in
unpaid principal amount at any time outstanding.
SECTION 8.14. LIMITATION ON LIENS. The Company will not create, assume or
suffer to exist any Lien upon any of its properties or assets, whether now
owned or hereafter acquired and whether or not provision is made by equally and
ratably securing the Convertible Debentures; provided, however, that the
foregoing restriction and limitation shall not apply to the following Liens:
(a) Liens for taxes, assessments or governmental charges or levies
not yet delinquent or which are being contested in good faith by
appropriate proceedings;
(b) other Liens incidental to the conduct of their business or the
ownership of their properties and assets which were not incurred in
connection with the borrowing of money or the obtaining of advances or
credit, and which do not in the aggregate materially detract from the
value of their properties or assets, or materially impair the use thereof
in the operation of their business; and
(c) any Lien existing at the time of acquisition upon any real or
personal property acquired by the Company through purchase, merger or
consolidation or otherwise, whether or not assumed by the Company, or
placed upon real or personal property being acquired by the Company
(within six months of such acquisition) to secure all or a portion of the
purchase price thereof or any Debt incurred to finance all
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or any portion of such purchase price; provided, however, that (A) such
property is not and shall not thereby become encumbered in an amount in
excess of the lesser of the cost thereof or fair value thereof (as
determined in good faith by the Company), and (B) any such Lien shall not
encumber any other property of the Company; and provided, further, that the
aggregate amount at any time of all such Debt secured under this
subparagraph (iii) shall be permitted by Section 8.13 (and any Lien
renewing, extending or refunding any Lien permitted by this subparagraph
8.14 (c) (iii), provided that the principal amount secured it not increased,
the Lien is not extended to other property and the Debt secured thereby
would be permitted under the provisions of Section 8.13).
SECTION 8.15. LIMITATION ON RESTRICTED PAYMENTS. The Company will not
directly or indirectly make any Restricted Payments.
SECTION 8.16. COVENANT REGARDING STOCKHOLDER VOTE AND FILING OF
CERTIFICATE OF DESIGNATION.
(a) On or prior to February 1, 1997 the Company will have solicited
and obtained the requisite approval of its stockholders (the "Stockholder
Approval") to an amendment to the Certificate of Incorporation (the
"Amendment") to increase (i) the number of authorized shares of Preferred
Stock by a sufficient number of shares to allow all securities of the
Company which are convertible into Preferred Stock to be converted and
(ii) the number of authorized shares of Common Stock by a sufficient
number of shares to allow (A) all securities of the Company which are
convertible either directly or indirectly into Common Stock to be
converted and (B) the exercise of all options, warrants and any other
rights to purchase Common Stock to be exercised.
(b) Within two (2) Business Days after obtaining the Stockholder
Approval, the Company shall (i) file the Amendment and the Certificate of
Designation with the Secretary of State of the State of Delaware, and (ii)
take such other action as may be necessary to enable the Purchaser, in its
sole discretion, to convert any Convertible Debenture into Series D
Preferred Stock at any time thereafter and from time to time.
(c) After giving effect to Sections 8.16(a) and (b) above, upon the
conversion of any Convertible Debenture, the Preferred Conversion Shares
and, upon conversion of the Preferred Conversion Shares, the Common
Conversion Shares, will have been duly authorized and will be validly
issued, fully paid and nonassessable with no personal liability attaching
to the ownership thereof and will be free and clear of all Liens imposed
by or through the Company. In addition, after giving effect to Sections
8.16(a) and (b), the Preferred Conversion Shares and the Common Conversion
Shares will have been duly reserved for issuance upon conversion of the
Convertible
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Debenture or conversion of the Preferred Conversion Shares,
respectively. Neither the issuance, sale or delivery of the Preferred
Conversion shares or the Common Conversion Shares will be subject to any
preemptive right of stockholders of the Company or to any right of first
refusal or other right in favor of any person.
SECTION 8.17. BOARD NOMINEES. On the Closing Date, the Board will adopt a
resolution fixing the number of members of the Board at seven. Subject to the
right of the holders of Preferred Stock, the Company will only nominate for
election as directors of the Company persons approved in advance and in writing
by the Purchaser.
ARTICLE IX
EVENTS OF DEFAULT
SECTION 9.01. ACCELERATION. If any of the following events shall
occur and be continuing for any reason whatsoever (and whether such occurrence
shall be voluntary or involuntary or come about or be effected by operation of
law or otherwise):
(i) the Company defaults in the payment of any principal of or
interest on any Convertible Debenture when the same shall become due,
either by the terms thereof or otherwise as herein provided; or
(ii) the Company defaults (whether as primary obligor or as
guarantor or other surety) in any payment of principal or of interest on
any other obligation for money borrowed beyond any period of grace provided
with respect thereto, or the Company fails to perform or observe any other
agreement, term or condition contained in any agreement under which any such
obligation is created (or if any other event thereunder or under any such
agreement shall occur and be continuing) and the effect of such failure or
other event is to cause, or to permit the holder or holders of such
obligation (or a trustee on behalf of such holder or holders) to cause, such
obligation to become due (or to be repurchased by the Company) prior to any
stated maturity; or
(iii) any representation or warranty made by the Company herein or by
the Company or any of its officers in any writing furnished in connection
with or pursuant to this Agreement shall be false in any material respect
on the date as of which made; or
(iv) the Company fails to perform or observe (A) any term, covenant
or agreement contained in Sections 8.01(h)(i), 8.02, 8.04, 8.08, 8.09,
8.11, 8.13, 8.14, 8.15, 8.16 or 8.17, or (B) any other agreement,
covenant, term or condition contained herein and such failure shall not be
remedied within 30 days after any officer obtains actual knowledge
thereof; or
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(v) a majority of the members of the Board of Directors shall be
persons nominated by a person or entity other than the Company; or
(vi) the Company makes an assignment for the benefit of creditors or
is generally not paying its debts as such debts become due; or (vii) any
decree or order for relief in respect of the Company is entered under any
bankruptcy reorganization, compromise, arrangement, insolvency,
readjustment of debt, dissolution or liquidation or similar law, whether
now or hereafter in effect (the "Bankruptcy Law"), of any jurisdiction; or
(viii) the Company petitions or applies to any tribunal for, or
consents to, the appointment of, or taking possession by, a trustee,
receiver, custodian, liquidator or similar official of the Company, or of
any substantial part of the assets of the Company, or commences a
voluntary case under the Bankruptcy Law of the United States or any
proceedings relating to the Company under the Bankruptcy Law of any other
jurisdiction; or
(ix) any such petition or application is filed, or any such
proceedings are commenced, against the Company and the Company by any act
indicates its approval thereof, consent thereto or acquiescence therein,
or an order, judgment or decree is entered appointing any such trustee,
receiver, custodian, liquidator or similar official, or approving the
petition in any such proceedings, and such order, judgment or decree
remains unstayed and in effect for more than 30 days; or
(x) any order, judgment or decree is entered in any proceedings
against the Company decreeing the dissolution of the Company and such
order, judgment or decree remains unstayed and in effect for more than 60
days; or
(xi) any order, judgment or decree is entered in any proceedings
against the Company decreeing a split-up of the Company which requires the
divestiture of assets representing a substantial part of the consolidated
assets of the Company (determined in accordance with generally accepted
accounting principles) for any of the three fiscal years then most
recently ended, and such order, judgment or decree remains unstayed and in
effect for more than 60 days; or
(xii) any judgment or order, or series of judgments or orders, is
rendered against the Company and either (A) enforcement proceedings have
been commenced by any creditor upon such judgment or order or (B) within
60 days after entry thereof,
27
<PAGE> 32
such judgment is not discharged or execution thereof stayed pending
appeal, or within 60 days after the expiration of any such stay, such
judgment is not discharged;
then (a) if such event is an Event of Default specified in clause (i) of
this Section 9.01 the Purchaser may at its option, by notice in writing to the
Company, declare such Convertible Debenture to be, and such Convertible
Debenture shall thereupon be and become, immediately due and payable at par
together with interest accrued thereon, without presentment, demand, protect or
other notice of any kind, all of which are hereby waived by the Company, (b) if
such event is an Event of Default specified in clause (vi), (vii), (viii) or
(ix) of this Section 9.01 with respect to the Company, the Purchaser may, by
notice in writing to the Company, declare all of the Convertible Debentures to
be, and all of the Convertible Debentures shall thereupon be and become,
immediately due and payable together with interest accrued thereon with respect
to each Convertible Debenture, without presentment, demand, protect or other
notice of any kind, all of which are hereby waived by the Company.
SECTION 9.02. RECISSION OF ACCELERATION. At any time after any or all of
the Convertible Debentures shall have been declared immediately due and payable
pursuant to Section 9.01, the Purchaser may, by notice in writing to the
Company, rescind and annul such declaration and its consequences if (i) the
Company shall have paid all overdue interest on the Convertible Debentures, the
principal payable with respect to any Convertible Debentures which have become
due otherwise than by reason of such declaration, and interest on such overdue
interest and overdue principal at the rate specified in the Convertible
Debentures, (ii) the Company shall not have paid any amounts which have become
due solely by reason of such declaration, (iii) all Events of Default and
Defaults, other than non-payment of amounts which have become due solely by
reason of such declaration, shall have been cured or waived pursuant to Section
10.03, and (iv) no judgment or decree shall have been entered for the payment
of any amounts due pursuant to the Convertible Debentures or this Agreement. No
such recission or annulment shall extend to or affect any subsequent Event of
Default or Default or impair any right arising therefrom.
SECTION 9.03. NOTICE OF ACCELERATION OR RESCISSION. Whenever any
Convertible Debenture shall be declared immediately due and payable pursuant to
Section 9.01 or any such declaration shall be rescinded and annulled pursuant
to Section 9.02, the Company shall forthwith give written notice thereof to the
holder of each Convertible Debenture at the time outstanding.
28
<PAGE> 33
SECTION 9.04. OTHER REMEDIES. If any Event of Default or Default shall
occur and be continuing, the Purchaser may proceed to protect and enforce its
rights under this Agreement and such Convertible Debenture by exercising such
remedies as are available to such holder in respect thereof under applicable
law, either by suit in equity or by action at law, or both, whether for
specific performance of any covenant or other agreement contained in this
Agreement or in aid of the exercise of any power granted in this Agreement. No
remedy conferred in this Agreement upon the Purchaser is intended to be
exclusive of any other remedy, and each and every such remedy shall be
cumulative and shall be in addition to every other remedy conferred herein or
now or hereafter existing at law or in equity or by statute or otherwise.
ARTICLE X
MISCELLANEOUS
SECTION 10.01 PAYMENTS. The Company will make payments of principal of and
interest on any Convertible Debenture by wire transfer of immediately available
funds for credit (not later than 12:00 noon, New York City tie, on the date
due) (i) in the case of the Purchaser to the account or accounts as specified
by the Purchaser in writing and (ii) in the case of any other holder of a
Convertible Debenture pursuant to the payments instructions provided by such
holder. The Purchaser agrees that, before disposing of any Convertible
Debenture, the Purchaser will make a notation thereon (or on a schedule
attached thereto) of all principal payments previously made thereon and of the
date to which interest thereon has been paid. Anything in this Agreement or in
the Convertible Debenture to the contrary notwithstanding, any payment in
respect of the Convertible Debenture that is due on a date other than a
Business Day shall be made on the next succeeding Business Day. If the date for
any payment is extended to the next succeeding Business Day by reason of the
preceding sentence, the period of such extension shall be included on the
computation of the amount payable on such Business Day.
SECTION 10.02. EXPENSES. The Company agrees, whether or not the
transactions contemplated hereby shall be consummated, to pay, and save the
Purchaser harmless against liability for the payment of, all out-of-pocket
expenses arising in connection with such transactions, including (i) all
document production and duplication charges and the fees and expenses of any
special counsel engaged by the Purchaser in connection with this Agreement, the
transactions contemplated hereby and any subsequent proposed modification of,
or proposed consent under, this Agreement, whether or not such proposed
modification shall be effected or proposed consent granted, and (ii) the costs
and expenses, including attorneys' fees, incurred by you or such Transferee in
enforcing (or determining whether or how to enforce) any rights under this
Agreement or the Convertible Debentures or in responding to
29
<PAGE> 34
any subpoena or other legal process or informal investigative demand issued in
connection with this Agreement or the transactions contemplated hereby,
including without limitation costs and expenses incurred in any bankruptcy case.
SECTION 10.03. CONSENT TO AMENDMENTS. This Agreement may be amended, and
the Company may take any action herein prohibited, or omit to perform any act
herein required to be performed by it, if the Company shall obtain the written
consent to such amendment, action or omission to act, of the Required Holder(s)
except that, without the written consent of the holder or holders of all
Convertible Debentures at the time outstanding, no amendment to this Agreement
shall change the maturity of any Convertible Debenture, or change the principal
of, or the rate or time of payment of interest on any Convertible Debenture, or
change the proportion of the principal amount of the Convertible Debentures
required with respect to any consent, amendment, waiver or declaration. Each
holder of any Convertible Debenture at the time or thereafter outstanding shall
be bound by any consent authorized by this Section 10.03, whether or not such
Convertible Debentures issued thereafter may bear a notation referring to any
such consent. No course of dealing between the Company and the holder of any
Convertible Debenture nor any delay in exercising any rights hereunder or under
any Convertible Debenture shall operate as a waiver of any rights of any holder
of such Convertible Debenture.
SECTION 10.04. PERSONS DEEMED OWNERS; PARTICIPATIONS. Prior to due
presentment for registration of transfer, the Company may treat the Person in
whose name any Convertible Debenture is registered as the owner and holder of
such Convertible Debenture for the purpose of receiving payment of principal
of, interest on such Convertible Debenture and for all other purposes
whatsoever, whether or not such Convertible Debenture shall be overdue, and the
Company shall not be affected by notice to the contrary. Subject to the
preceding sentence, the holder of any Convertible Debenture may from time to
time grant participations in such Convertible Debenture to any Person on such
terms and conditions as may be determined by such holder in its sole and
absolute discretion.
SECTION 10.05. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All
representations and warranties made herein or any certificate or instrument
delivered by the parties pursuant to or in connection with this Agreement shall
survive the execution and delivery of this Agreement, the issuance, sale and
delivery of the Convertible Debenture, the transfer by the Purchaser of any
Convertible Debenture or portion thereof or interest therein and the payment of
any Convertible Debenture, and may be relied upon by any Transferee, regardless
of any investigation made at any time by or on behalf of you or any Transferee.
30
<PAGE> 35
SECTION 10.06. BROKERAGE. Each party hereto will indemnify and hold
harmless the others against and in respect of any claim for brokerage or other
commissions relative to this Agreement or the transactions contemplated hereby,
based in any way on agreements, arrangements or understandings made or claimed
to have been made by such party with any third party.
SECTION 10.07. PARTIES IN INTEREST. All representations, covenants and
agreements contained in this Agreement by or on behalf of any of the parties
hereto shall bind and inure to the benefit of the respective permitted
successors and assigns of the parties hereto whether so expressed or not.
Without limiting the generality of the foregoing but subject to the proviso
contained therein, all representations, covenants and agreements benefiting the
Purchaser shall inure to the benefit of any Transferee.
SECTION 10.09. NOTICES. All notices, requests, consents and other
communications hereunder shall be in writing and shall be deemed effectively
given: (a) upon receipt at the address specified below after having been sent
by (i) certified or registered mail, return receipt requested, postage prepaid;
or (b) upon receipt at the address specified below after deposit by a
nationally recognized overnight courier, specifying next day delivery, with
written verification of receipt. All communications shall be sent to the party
to be notified at the address set forth below:
(a) if to the Purchaser, to
Fil-Fiber Manufacturing Inc., Ltd.
c/o A&E Group
Murray Hill Plaza, 2H
244 Madison Avenue
New York, New York 10016
Attention: Anthony E. Hwang
with a copy (which shall not constitute notice) to
Kantor, Davidoff, Wolfe, Mandelker & Kass, P.C.
51 East 42nd Street
New York, New York 10017-5479
Attention: William A. Kass, Esquire
(b) if to the Company, to
Air South Airlines, Inc.
31
<PAGE> 36
2625 Airport Boulevard
West Columbia, South Carolina 29170
Attention: President
with a copy (which shall not constitute notice) to
David Y. Monteith, Esquire
Monteith Law Offices
2805 Millwood Avenue
Columbia, South Carolina 29205
or, in any such case, at such other address or addresses as shall have
been furnished in writing by such party to the others.
SECTION 10.09. ENTIRE AGREEMENT. This Agreement, including the Schedules
and Exhibits hereto, constitutes the sole and entire agreement of the parties
with respect to the subject matter hereof. All Schedules and Exhibits hereto
are hereby incorporated herein by reference.
SECTION 10.10. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
SECTION 10.11. SEVERABILITY. If any provision of this Agreement shall be
declared void or unenforceable by any judicial or administrative authority, the
validity of any other provision and of the entire Agreement shall not be
affected thereby.
SECTION 10.12. DESCRIPTIVE HEADINGS. The descriptive headings of the
several sections and paragraphs of this Agreement are inserted for reference
only and shall not limit or otherwise affect the meaning hereof.
SECTION 10.13. GOVERNING LAW. This agreement shall be governed by and
construed in accordance with the laws of the State of Delaware.
SECTION 10.14. GENDER; PLURALS. Words of the masculine gender shall be
deemed and construed to include correlative words of the feminine and neuter
genders. Words importing the singular number shall include the plural number
and vice versa.
32
<PAGE> 37
IN WITNESS WHEREOF, the Company and the Purchaser have executed this
Agreement as of the day and year first above written.
AIR SOUTH AIRLINES, INC.
By: /s/ John P. Tague
------------------------------
John P. Tague
President and Chief Executive
Officer
FIL-FIBER MANUFACTURING, INC. LTD.
By: /s/ Anthony E. Hwang
------------------------------
Anthony E. Hwang
33
<PAGE> 38
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE OFFERED, SOLD OR
OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL
REGISTERED UNDER THE ACT OR, IN THE OPINION OF COUNSEL OR BASED ON
OTHER WRITTEN EVIDENCE IN FORM AND SUBSTANCE SATISFACTORY TO THE
ISSUER OF THESE SECURITIES, SUCH OFFER, SALE OR TRANSFER, PLEDGE OR
HYPOTHECATION DOES NOT REQUIRE REGISTRATION.
Exhibit A
FORM OF CONVERTIBLE DEBENTURE
AIR SOUTH AIRLINES, INC.
6% CONVERTIBLE DEBENTURE DUE AUGUST 16, 1999
No. CD 1996-4 September ____, 1996
$400,000
FOR VALUE RECEIVED, the undersigned, AIR SOUTH AIRLINES, INC. (the
"Company"), a corporation organized and existing under the laws of the State of
Delaware, hereby promises to pay Fil-Fiber Manufacturing, Inc. Ltd, or
registered assigns, the principal sum of FOUR HUNDRED THOUSAND DOLLARS
(together with all additional sums of deferred interest, if any, added to the
principal balance of this Convertible Debenture as provided below) on September
16, 1999, (the "Maturity Date") with interest (computed on the basis of a
360-day year of twelve 30-day months) (a) on the unpaid balance thereof at the
rate of 6% per annum from the date hereof, payable quarterly on the last day of
March, June, September and December in each year, commencing with the March 31,
June 30, September 30 or December 31 next succeeding the date hereof, until the
principal hereof shall have become due and payable, and (b) on any overdue
payment of principal or any overdue payment of interest accruing after the
Maturity Date or the acceleration hereof, payable quarterly (or, at the option
of the registered holder hereof, on demand), at a rate per annum from time to
time equal to the greater of (i) 8% or (ii) 2.0% over the rate of interest
publicly announced by Morgan Guaranty Trust Company of New York from time to
time in New York City as its Prime Rate; but in no event shall the rate of
interest exceed the maximum rate of nonusurious interest permitted by law to be
paid by the Company (and to the extent permitted by law, interest on any
overdue principal or interest thereon).
<PAGE> 39
This convertible debenture (the "Convertible Debenture") is issued
pursuant to a Convertible Debenture Purchase Agreement, dated of even date
herewith (the "Agreement"), between the Company and Fil-Fiber Manufacturing,
Inc. Ltd. and is entitled to the benefits thereof. Capitalized terms used
herein and not otherwise defined shall have the meaning ascribed thereto in the
Agreement.
Interest accruing on this Convertible Debenture and remaining unpaid on
the last day of March, June, September and December in each year, commencing
with the March 31, June 30, September 30, December 31 next succeeding the date
hereof and extending through the Maturity Date, shall be added to the
outstanding principal balance of this Convertible Debenture with effect as of
such date and any interest thereafter shall be due and payable in cash
according with the terms hereof.
Payments of principal of and interest on this Convertible Debenture are to
be made at Fil-Fiber Manufacturing, Inc. Ltd., c/o A & E Group, Murray Hill
Plaza, 2H, 244 Madison Avenue, New York, New York 10016, or at such other place
as the holder thereof shall designate to the Company in writing, in lawful
money of the United States of America. All payments made hereunder, whether at
maturity or as a result of acceleration, shall be allocated first to costs and
expenses of the holder resulting from collection efforts with respect to this
Convertible Debenture, second to accrued but unpaid interest, and third to
principal.
This Convertible Debenture is a registered Convertible Debenture and, as
provided in the Agreement, and subject to compliance with federal and any
applicable state securities laws upon surrender of this Convertible Debenture
for registration of transfer, duly endorsed, or accompanied by a written
instrument of transfer duly executed, by the registered holder hereof or such
holder's attorney duly authorized in writing, a new Convertible Debenture for a
like principal amount will be issued to, and registered in the name of, the
transferee. Prior to due presentment for registration of transfer, the Company
may treat the person in whose name this Convertible Debenture is registered as
the owner hereof for the purpose of receiving payment and for all other
purposes, and the Company shall not be affected by any notice to the contrary.
This Convertible Debenture may be prepaid, in whole or in part from time
to time, without penalty.
The outstanding principal balance and accrued interest on this Convertible
Debenture may be converted in whole or in part at any time or from time to time
at the option of the holder or may automatically be converted into shares of
Series D Preferred Stock, all as set forth in the Agreement.
<PAGE> 40
If an Event of Default, as defined in the Agreement, shall occur and be
continuing, the principal of this Convertible Debenture may be declared or
otherwise become due and payable in the manner and with the effect provided in
the Agreement.
THIS CONVERTIBLE DEBENTURE IS INTENDED TO BE PERFORMED IN THE STATE OF
DELAWARE AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAW OF SUCH
STATE.
IN WITNESS WHEREOF, the Company has issued this Convertible Debenture as
of the _____ day of September, 1996.
AIR SOUTH AIRLINES, INC.
SEAL
Attest:
By:
------------------------------
John P. Tague
Chairman of the Board, President
Chief Executive Officer
- - -------------------------
David Y. Monteith
Secretary
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<PAGE> 41
FORM OF
NOTICE OF CONVERSION
To be executed if holder desires to convert
this Convertible Debenture)
TO: AIR SOUTH AIRLINES, INC.
The undersigned hereby irrevocably elects to convert the principal
balance, or portion thereof specified below, of this Convertible Debenture into
the number of shares of Series E Preferred Stock of the Company determined in
accordance with and under the Agreement and requests that certificates for the
shares of Series E Preferred Stock to be issued upon such conversion be issued
in the name of:
------------------------------
(Please Print Name)
Address (print):
------------------------------
------------------------------
Social Security Number
------------------------------
(Please print principal balance of this
Convertible Debenture being converted)
------------------------------
Signature
(Signature must conform in all respects to name of holder as specified on
the face of this Convertible Debenture.)
4
<PAGE> 42
EXHIBIT B
CERTIFICATE OF DESIGNATION, PREFERENCES
AND RIGHTS OF SERIES E PREFERRED STOCK
OF
AIR SOUTH AIRLINES, INC.
a corporation organized and existing under the General Corporation Law of the
State of Delaware.
DOES HEREBY CERTIFY
That, pursuant to authority conferred upon the Board of Directors by the
Certificate of Incorporation of said corporation, and pursuant to the
provisions of Section 151 of Title 8 of the Delaware Code of 1953, said Board
of Directors has established a class of preferred stock of this Corporation
designated Series D Preferred Stock ("Series D Preferred") consisting of
Eighteen million Four Hundred Thousand (18,400,000) shares of such Series D
Preferred. Such Series D Preferred was established with the powers,
designations, preferences and relative participating optional or other rights
contained in Exhibit I attached hereto.
IN WITNESS WHEREOF, said Air South Airlines, Inc. has caused this
Certificate to be signed by _______________, its Chairman of the Board,
President and Chief Executive Officer, this _____ day of _______________, 1997.
By:
---------------------------
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<PAGE> 43
EXHIBIT I
AIR SOUTH AIRLINES, INC. SERIES D PREFERRED STOCK
Section 1. CLASS OF PREFERRED STOCK. The Air South Airlines Series D
Preferred Stock shall have such voting powers, and such other powers,
designations, preferences and other special rights set out below.
Section 2. DIVIDENDS. The holders of outstanding shares of Series D
Preferred stock shall be entitled to receive dividends at the rate of two cents
($0.02) per share (as adjusted for any stock dividends, combinations or splits
with respect to such shares) per annum, when, if and as declared by the Board
of Directors, out of funds legally available therefor. The right to such
dividends on the Series D Preferred Stock shall not be cumulative. No cash
dividend shall be paid on the Common Stock in any year unless an equal dividend
is paid with respect to all outstanding shares of Series D Preferred Stock in
an amount for each such share to a holder of the number of shares of Common
Stock into which such share of Series D Preferred Stock could then be
converted.
Section 3. LIQUIDATION RIGHTS.
a. In the event of any liquidation, dissolution or winding up of
the Corporation, either voluntary or involuntary, the holders of the Series D
Preferred Stock shall be entitled to receive, prior and in preference to any
distribution of any of the assets or surplus funds of the Corporation to the
holders of the Common Stock, the amount of twenty-five cents ($0.25) per share
(the "Original Issue Price") (as adjusted for any stock dividends, combinations
or splits with respect to such shares) plus all accrued or declared but unpaid
dividends on each share of Series D Preferred Stock held by such holders (the
"Preferential Amount"). The right of the holders of Shares of Series D
Preferred Stock to a preference in such a liquidation dissolution or winding up
shall in all respects be pari passu with the rights of the holders of shares of
Series A Preferred Stock, Series B Preferred Stock and Series C Preferred
Stock. If upon the occurrence of any liquidation, dissolution or winding up of
the Corporation, either voluntary or involuntary, the assets and funds to be
distributed among the holders of the Series D Preferred Stock in proportion to
the Preferential Amount each such holder is otherwise entitled to receive.
b. After payment to the holders of the Series D Preferred Stock of
the Preferential Amount, the entire remaining assets and funds of the
Corporation legally available for distribution, if any, shall be distributed
ratably among the holders of Series D Preferred Stock and the Common Stock in
proportion to the shares of Series D Preferred Stock and Common Stock then held
by such holders.
I-1
<PAGE> 44
c. For purposes of this Section 3, (i) a merger or consolidation
of the Corporation into or with another corporation (other than a wholly owned
subsidiary of this Corporation), or any other corporate reorganization in which
the stockholders of the Corporation will not own a majority of the outstanding
shares of the surviving entity of such merger, consolidation or reorganization,
or (ii) a sale, transfer or other disposition of all or substantially all of
the assets of the Corporation, shall be deemed to be a liquidation, dissolution
or winding up of the Corporation.
Section 4. CONVERSION.
a. Right to Convert. Each share of Series D Preferred Stock shall
initially be convertible, at the option of the holder, at any time after the
date of issuance of such share, at the office of the Corporation or any
transfer agent for the Series D Preferred Stock, into one (1) fully paid and
nonassessable shares of Common Stock (subject to adjustment as set forth
herein). The number of shares of Common Stock into which one share of Series D
Preferred Stock may be converted hereinafter is referred to as the "Series D
Conversion Rate". The price at which shares of Common Stock shall be
deliverable upon conversion of shares of Series D Preferred shall initially be
twenty-five cents ($0.25) per share of Common Stock (the "Series D Conversion
Price"). Such initial Series D Conversion Price shall be subject to adjustment
from time to time, as hereinafter provided.
b. Automatic Conversion. Each share of Series D Preferred Stock
shall automatically be converted into shares of Common Stock at the then
effective Series D Conversion Rate upon the earlier of (i) the closing of a
firmly underwritten public offering of the Corporation's Common Stock on a Form
S-1 Registration Statement at an aggregate public offering price (after
underwriting discounts and commission) of at least $10,000,000 and a per share
price equal to or greater than fifty cents ($0.50) (as appropriately adjusted
for stock splits and the like) (an "Initial Public Offering"); (ii) the vote or
written consent of the holders of at least 50% of the then outstanding shares
of Series D Preferred Stock; or (iii) the date as of which less than 20% of the
maximum number of shares of Series D Preferred Stock issued by the Company (or
issuable upon conversion or exchange of securities of the Company) prior to
such date remain outstanding (the "Automatic Conversion Event").
c. Mechanics of Conversion. Before any holder of Series D
Preferred Stock shall be entitled to convert the same into shares of Common
Stock, such holder shall surrender the certificate or certificates for such
shares, duly endorsed, at the office of the Corporation or of any transfer
agent for the Series D Preferred Stock, or notify the Corporation or its
transfer agent that such Series D Preferred Stock certificates have been lost,
stolen or destroyed and execute an agreement satisfactory to the Corporation to
indemnify the Corporation from any loss incurred by it in connection with such
certificates, and shall give written notice to the Corporation at such office
that such holder elects to convert the same and shall state in the notice the
name or names in which such holder wishes the certificate or certificates for
shares of Common Stock to be issued. The Corporation shall then, as soon as is
practicable, issue and deliver at such office to such holder of
I-2
<PAGE> 45
Series D Preferred Stock, or to such holder's nominee or nominees, a certificate
or certificates for the number of shares of Common Stock to which such holder
shall be entitled. Such conversion shall be deemed to have been made immediately
prior to the close of business on the date of surrender of the shares of Series
D Preferred Stock to be converted, and the person or persons entitled to receive
the shares of Common Stock issuable upon such conversion shall be treated for
all purposes as the record holder or holders of such shares of Common Stock on
such date; provided, however, that in the event of automatic conversion pursuant
to Section 4(b), such conversion shall be deemed to have been made upon the
occurrence of the Automatic Conversion Event triggering such conversion without
any further action by the holders of shares of Series D Preferred Stock,
although the Corporation shall not be obligated to issue certificates evidencing
the shares of Common Stock issuable upon such automatic conversion unless the
certificates evidencing such shares of Series D Preferred Stock are delivered to
the Corporation or its transfer agent as provided above, or the holder notifies
the Corporation or its transfer agent that such Series D Preferred Stock
certificates have been lost, stolen or destroyed and executes an agreement
satisfactory to the Corporation to indemnify the Corporation from any loss
incurred by it in connection with such certificates. If the conversion is in
connection with an underwritten offering of securities pursuant to the
Securities Act, the conversion may, at the option of any holder tendering shares
of Series D Preferred Stock for conversion, be conditioned upon the closing with
the underwriters of the sale of securities pursuant to such offering, in which
event the person(s) entitled to receive the Common Stock upon conversion of
Series D Preferred Stock shall not be deemed to have converted such Series D
Preferred Stock until immediately prior to the closing of such sale of
securities.
d. Adjustments to the Series D Conversion Price for Certain
Diluting Issues.
(i) Special Definitions. For purposes of this Section 4(d),
the following definitions apply:
(1) "Option" shall mean rights, options, or warrants to
subscribe for, purchase or otherwise acquire either Common Stock or Convertible
Securities (defined below).
(2) "Original Issue Date" shall mean the date on which
a share of Series D Preferred Stock was first issued or securities convertible
or exchangeable for Series D Preferred Stock were first issued.
(3) "Convertible Securities" shall mean any evidences
of indebtedness, shares or other securities directly or indirectly convertible
into or exchangeable for Common Stock.
(4) "Additional Shares of Common Stock" shall mean all
shares of Common Stock issued (or, pursuant to Section (4)(d)(iii), deemed to
be issued) by the Corporation after the Original Issue Date, other than shares
of Common Stock issued or issuable:
I-3
<PAGE> 46
(A) upon conversion of shares of Series D
Preferred Stock;
(B) to officers, directors or employees of, or
consultants to, the Corporation pursuant to stock option or stock purchase
plans or agreements on terms approved by the Board of Directors;
(C) as a dividend or distribution on Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock or Series D
Preferred Stock;
(D) for which adjustment of the Series D
Conversion Price is made pursuant to Section 4(e) or for which adjustment of
the Series A Conversion Price, Series B Conversion Price or Series C Conversion
Price is made pursuant to the counterpart of Section 4(e) in the charter
documents of the Company;
(E) upon the closing of an Initial Public
Offering;
(F) upon conversion of up to an aggregate of
$4.0 million in convertible notes originally issued to Hambrecht & Quist Group
and its affiliates; or
(G) in connection with an acquisition of another
company on terms approved by the Board of Directors.
(ii) No Adjustment of the Series D Conversion Price. Any
provisions herein to the contrary notwithstanding, no adjustment in the Series
D Conversion Price shall be made in respect of the issuance of Additional
Shares of Common Stock unless the consideration per share (determined pursuant
to Section 4(d)(v) hereof) for an Additional Share of Common Stock issued or
deemed to be issued by the Corporation is less than the Series D Conversion
Price in effect on the date of, and immediately prior to, such issue.
(iii) Deemed Issue of Additional Shares of Common
Stock. In the event the Corporation at any time or from time to time after the
Original Issue Date shall issue any Options or Convertible Securities or shall
fix a record date for the determination of holders of any class of securities
then entitled to receive any such Options or Convertible Securities, then the
maximum number of shares (as set forth in the instrument relating thereto
without regard to any provisions contained therein designed to protect against
dilution) of Common Stock issuable upon the exercise of such Options or, in the
case of Convertible Securities, shall be deemed to be additional Shares of
Common Stock issued as of the time of such issue or, in case such a record date
shall have been fixed, as of the close of business on such record date,
provided that in any such case in which Additional Shares of Common Stock are
deemed to be issued:
I-4
<PAGE> 47
(1) no further adjustment in the Series D Conversion
Price shall be made upon the upon the exercise of such Options or conversion or
exchange of such Convertible Securities to the extend that adjustment had been
previously made pursuant to this Section 4(d);
(2) If such Options or Convertible Securities by
their terms provide, with the passage of time or otherwise, for any increase or
decrease in the consideration payable to the Corporation, or decrease or
increase in the number of shares of Common Stock issuable, upon the exercise,
conversion or exchange thereof, the Series D Conversion Price computed upon the
original issue thereof (or upon the occurrence of a record date with respect
thereto), and any subsequent adjustments based thereon, shall, upon any such
increase or decrease becoming effective, be recomputed to reflect such increase
or decrease insofar as it affects such Options or the rights of conversion or
exchange under such Convertible Securities (provided, however, that no such
adjustment of the Series D Conversion Price shall affect Common Stock
previously issued upon conversion of the Series D Preferred);
(3) upon the expiration of any such Options or any
rights of conversion or exchange under such Conversion Securities which shall
not have been exercised, the Series D Conversion Price computed upon the
original issue thereof (or upon the occurrence of a record date with respect
thereto), and any subsequent adjustments based thereon, shall, upon such
expiration, be recomputed as if:
(A) in the case of Convertible Securities or
Options for Common Stock, the only Additional Shares of Common Stock issued
were the shares of Common Stock, if any, actually issued upon the exercise of
such Options or the conversion or exchange of such Convertible Securities and
the consideration received therefor was the consideration actually received by
the Corporation for the issue of all such Options, whether or not exercised,
plus the consideration actually received by the Corporation upon such exercise,
or for the issue of all such Convertible Securities and the additional
consideration, if any, actually received by the Corporation upon such
conversion or exchange; and
(B) in the case of Options for Convertible
Securities, only the Convertible Securities, if any, actually issued upon the
exercise thereof were issued at the time of issue of such Options, and the
consideration received by the Corporation for the Additional Shares of Common
Stock deemed to have been then issued was the consideration actually received
by the Corporation for the issue of all such Options, whether or not exercised,
plus the consideration deemed to have been received by the Corporation
(determined pursuant to Section 4(d) upon the issue of the Convertible
Securities with respect to which such Options were actually exercised;
(4) no readjustment pursuant to clause (2) or (3)
above shall have the effect of increasing the Series D Conversion Price to an
amount which exceeds the lower of (a) the Series D Conversion Price on the
original adjustment date, or (b) the Series D
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<PAGE> 48
Conversion Price that would have resulted from any issuance of Additional Shares
of Common Stock between the original adjustment date and such adjustment date;
(5) in the case of any Options which expire by their
terms not more than 30 days after the date of issuance thereof, no adjustment
of the Series D Conversion Price shall be made until the expiration or exercise
of all such Options whereupon such adjustment shall be made in the same manner
provided in clause (3) above.
(iv) Adjustment of Conversion Price Upon Issuance of
Additional Shares of Common Stock. In the event this Corporation, at any time
after the Original Issue Date, shall issue Additional Shares of Common Stock
(including Additional Shares of Common Stock deemed to be issued pursuant to
Section 4 without consideration or for a consideration per share less than the
Series D Conversion Price in effect on the date of and immediately prior to
such issue, then and in such event, the Series D Conversion Price shall be
reduced, concurrently with such issue, to a price (calculated to the nearest
cent) determined by multiplying the Series D Conversion Price by a fraction,
the numerator of which shall be the number of shares of Common Stock
outstanding immediately prior to such issue plus the number of shares of Common
Stock which the aggregate consideration received by the Corporation for the
total number of Additional Shares of Common Stock so issued would purchase at
such Series D Conversion Price in effect immediately prior to such issuance,
and the denominator of which shall be the number of such Additional Shares of
Common Stock so issued. For the purpose of the above calculation, the number of
shares of Common Stock outstanding immediately prior to such issue shall be
calculated on a fully diluted basis, as if all shares of Series D Preferred and
all Convertible Securities had been fully converted into shares of Common
Stock, if so convertible) as of such date, but not including in such
calculation any additional shares of Common Stock issuable with respect to
shares of Series D Preferred, Convertible Securities, or outstanding Options,
solely as a result of the adjustment of the Series D Conversion Price (or other
conversion ratio) resulting from the issuance of the Additional Shares of
Common Stock causing the adjustment in question.
(v) Determination of Consideration. For purpose of
this Section 4(d), the consideration received by the Corporation for the
issuance of any Additional Shares of Common Stock shall be computed as follows:
(1) Cash and Property. Such consideration shall:
(A) insofar as it consists of cash, be
computed at the aggregate amount of cash received by the Corporation excluding
amounts paid or payable for accrued interest or accrued dividends;
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<PAGE> 49
(B) insofar as if consists of property other
than cash, be computed as the fair value thereof at the time of such issue, as
determined in good faith by the Board of Directors; and
(C) in the event Additional Shares of Common
Stock are issued together with other stock or securities or other assets of the
Corporation for consideration which covers both, be the proportion of such
consideration so received, computed as provided in clause (A) and (B) above, as
determined in good faith by the Board of Directors.
(2) Options and Convertible Securities. The
consideration per share received by the Corporation for Additional Shares of
Common Stock deemed to have been issued pursuant to Section 4(d)(iii), relating
to Options and Convertible Securities shall be determined by dividing:
(A) the total amount, if any, received or
receivable by the Corporation as consideration for the issue of such Options or
Convertible Securities, plus the minimum aggregate amount of additional
consideration (as set forth in the instruments relating thereto, without regard
to any provision contained therein designed to protect against dilution)
payable to the Corporation upon the exercise of such Options or the conversion
or exchange of such Convertible Securities, or in the case of Options for
exchange of such Convertible Securities, or in the case of Options for
Convertible Securities, the exercise of such Options for Convertible Securities
and the conversion or exchange of such Convertible Securities by
(B) the maximum number of shares of Common
Stock (as set forth in the instruments relating hereto, without regard to any
provision contained therein designed to protect against the dilution), issuable
upon the exercise of such Options or conversion or exchange of such Convertible
Securities.
e. Adjustment to Series D Conversion Price for Stock
Dividends and for Combinations or Subdivisions of Common Stock. In the event
that this Corporation at any time or from time to time after the Original Issue
Date shall declare or pay, without consideration, any dividend on the Common
Stock payable in Common Stock or in any right to acquire Common Stock for no
consideration, or shall effect a subdivision of the outstanding shares of
Common Stock into a greater number of shares of Common Stock (by stock split,
reclassification or otherwise than by payment of a dividend in Common Stock or
in any right to acquire Common Stock), or in the event the outstanding shares
of Common Stock shall be combined or consolidated, by reclassification or
otherwise, into a lesser number of shares of Common Stock, then the Series D
Conversion Price in effect immediately prior to such event shall, concurrently
with the effectiveness of such event, be proportionately decreased or
increased, as appropriate. In the event that this Corporation shall declare or
pay, without consideration, any dividend on the Common Stock payable in any
right to acquire Common Stock for no consideration, then the Corporation shall
be deemed to have made a dividend payable in Common Stock in an amount of
shares equal to the maximum number of shares issuable upon exercise of such
rights to acquire Common Stock.
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<PAGE> 50
f. Adjustments for Reclassification and Reorganization. If
the Common Stock issuable upon conversion of Series D Preferred Stock shall be
changed into the same or a different number of shares of any other class or
classes of shares, whether by capital reorganization, reclassification or
otherwise (other than a subdivision or combination of shares provided for in
Section 4(e) above or a merger or other reorganization referred to in Section 3
(c) above), the Series D Conversion Price than in affect shall, concurrently
with the effectiveness of such reorganization or reclassification, be
proportionately adjusted so that the Series D Preferred shall be convertible
into, in lieu of the number of shares of Common Stock which the holders would
otherwise have been entitled to receive, a number of shares of such other class
or classes of stock equivalent to the number of shares of Common Stock that
would have been subject to receipt by the holders upon conversion of the Series
D Preferred Stock immediately before that change.
g. Other Distributions. In the event the Corporation shall
at anytime or from time to time make or issue, or fix a record date for the
determination of holders of Common Stock entitled to receive, a dividend or
other distribution payable in securities (including evidences of indebtedness)
of the Corporation other than Common Stock, then in each such event provision
shall be made so that the holders of Series D Preferred Stock shall receive,
upon the conversion thereof, the securities of the Corporation which they would
have received had their Series D Preferred Stock been converted into Common
Stock on the date of such event.
h. No impairment. The Corporation will not, by amendment
of its Certificate of Incorporation or through any reorganization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities or any
other voluntary action, avoid or seek to avoid the observance or performance of
any of the terms to be observed or performed hereunder by the Corporation, but
will at all times in good faith assist in the carrying out of all the
provisions of this Section 4 and in the taking of all such action as may be
necessary or appropriate to protect the holders of the Series D Preferred Stock
against impairment of the rights afforded them by this Section A.
i. Certificates as to Adjustments. Upon the occurrence of
each adjustment or readjustment pursuant to Section 4(d) of the Series D
Conversion Rate or in the other securities or property (including cash)
deliverable upon the conversion of the shares of Series D Preferred Stock, the
Corporation, at its expense, shall promptly compute such adjustment or
readjustment in accordance with the terms thereof, and cause independent
certified public accountants selected by the Corporation to verify such
computation and prepare and furnish to each holder of Series D Preferred Stock
a certificate setting forth such adjustment or readjustment and showing in
detail the facts upon which such adjustment or readjustment is based.
j. Notices of Record Date. In the event of any taking by
the Corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, any security or
right convertible into or entitling the holder thereof to receive shares of
Common Stock,
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<PAGE> 51
or any right to subscribe for, purchase or otherwise acquire any shares of stock
of any class or any other securities or property, the Corporation shall cause to
be mailed by first class mail to each holder of Series D Preferred Stock, at
least twenty (20) days prior to the applicable record date, a notice specifying
the date on which any such record was to be taken for the purpose of such
dividend, distribution, security or right, and the amount and character of such
dividend, distribution, security or right.
k. Issue Taxes. The Corporation shall pay any and all issue
and other taxes that may be payable in respect of any issue of delivery of
shares of Common Stock on conversion of shares of Series D Preferred Stock
pursuant hereto.
l. Reservation of Stock Issuable Upon Conversion. T0he
Corporation shall take such corporate action as may be necessary, in the
opinion of its counsel, to increase its authorized but unissued shares of
Common Stock to such number of shares as shall be sufficient to effect the
conversion of all the outstanding shares of Series D Preferred Stock into
shares of Common Stock at such time as the Corporation elects to effect such
conversion, including, without limitation, using its best efforts to obtain the
requisite stockholder approval of any necessary amendment to its Certificate of
Incorporation.
m. Fractional Shares. No fractional share shall be issued
upon the conversion of any share of Series D Preferred Stock. All shares of
Common Stock (including fractions thereof) issuable upon conversion of more
than one share of Series D Preferred Stock by a holder thereof shall be
aggregated for purposes of determining whether the conversion would result in
the issuance of any fractional share. If, after the aforementioned aggregation,
the conversion should result in the issuance of a fraction of a share of Common
Stock, the Corporation shall, in lieu of issuing any fractional share, pay the
holder otherwise entitled to such fraction a sum in cash equal to such fraction
multiplied by the Series D Conversion Price then in effect.
n. Notices. Any notice required by the provisions of this
Section C to be given to the holders of shares of Series D Preferred Stock
shall be deemed given if deposited in the United States mail, postage prepaid
and addressed to each holder of record at such holder's address appearing on
the books of the Corporation.
Section 5. AMENDMENT. Any term relating to the Series D Preferred Stock
may be amended only with the vote or written consent of holders of at least a
majority of all shares of Series D Preferred Stock then outstanding. Any such
amendment shall be binding upon the Corporation and any holder of Series D
Preferred Stock.
Section 6. VOTING RIGHTS. Except as otherwise provided herein or as
required by law, the holders of Series D Preferred Stock shall be entitled to
notice of any stockholders' meeting and to vote together with the holders of
Common Stock as single class of capital stock upon the election of directors
and upon any other matter submitted to the stockholders for a vote, on the
following basis:
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<PAGE> 52
a. Holders of Common Stock shall have one (1) vote per share;
and
b. Holders of Series D Preferred Stock shall have the
number of votes per share as is equal to the number of full shares of Common
Stock into which each such share of Series D Preferred Stock held by such
holder is convertible at the record date for the determination of the
stockholders entitled to vote on such matters or, if no such record date is
established, at the date such vote is taken or any written consent to
stockholders is solicited.
c. In addition to any other vote or consent required herein
or by law, the vote or written consent of the holders at least a majority of
the outstanding shares of Series D Preferred Stock shall be necessary:
(i) for any amendment, alteration, or repeal of
any provision of the Certificate of Incorporation (including any Certificates
of Designation of Preferred Stock) or Bylaws of the Corporation (including any
filing of a Certificate of Designation);
(ii) to alter or change the rights, preferences
or privileges of the Series D Preferred Stock;
(iii) to create any new series of Preferred Stock
having preferences over the Series D Preferred Stock;
(iv) to increase the authorized number of shares
of Series D Preferred Stock;
(v) for any action that results in any
liquidation, acquisition, merger or sale of the Corporation or all or
substantially all of its assets;
(vi) for any action that results in any change
in the principal business of the Corporation; or
(vii) for any action that results in the
repurchase of equity securities of the Corporation (other than the repurchase
of stock from employees of the Corporation at original cost or pursuant to a
Board approved incentive stock option plan).
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<PAGE> 53
EXHIBIT D
INVESTOR'S RIGHTS AGREEMENT
BETWEEN
AIR SOUTH AIRLINES, INC.
AND
FIL-FIBER MANUFACTURING, INC. LTD
DATED AS OF SEPTEMBER _____, 1996
<PAGE> 54
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
I. General .......................................................................................1
1.1 Definitions............................................................................1
II. Restrictions On Transfer; Registration..........................................................2
2.1 Restrictions on Transfer...............................................................2
2.2 Demand Registration....................................................................3
2.3 Piggyback Registrations................................................................4
2.4 Form S-3 Registration..................................................................5
2.5 Obligations of the Company.............................................................6
2.6 Furnish Information....................................................................7
2.7 Delay of Registration..................................................................7
2.8 Indemnification........................................................................7
2.9 Assignment of Registration Rights......................................................9
2.10 Amendment of Registration Rights......................................................10
2.11 "Market Stand-Off" Agreement..........................................................10
III. Covenants Of The Company.......................................................................10
3.1 Basic Financial Information and Reporting.............................................10
3.2 Inspection Rights.....................................................................11
3.3 Confidentiality of Records............................................................11
3.4 Reservation of Series D Preferred Stock...............................................11
3.5 Reservation of Common Stock...........................................................11
IV. Rights Of First Refusal........................................................................12
4.1 Subsequent Offerings..................................................................12
4.2 Exercise of Rights....................................................................12
4.3 Issuance of Equity Securities to Other Persons........................................12
4.4 Termination of Rights of First Refusal................................................12
4.5 Transfer of Rights of First Refusal...................................................12
4.6 Excluded Securities...................................................................12
V. Miscellaneous .............................................................................13
5.1 Governing Law.........................................................................13
5.2 Survival ............................................................................ 13
5.3 Successors and Assigns................................................................13
5.4 Separability..........................................................................13
5.5 Amendment and Waiver..................................................................14
5.6 Delays or Omissions...................................................................14
5.7 Notices .............................................................................14
5.8 Attorney's Fees.......................................................................14
5.9 Titles and Subtitles..................................................................14
5.10 Counterparts..........................................................................14
</TABLE>
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<PAGE> 55
INVESTOR'S RIGHTS AGREEMENT
THIS INVESTOR'S RIGHTS AGREEMENT (the "Agreement") is entered into as of
the ____th day of September 1996, by and among AIR SOUTH AIRLINES, INC., a
Delaware corporation (the "Company") and FIL-FIBER MANUFACTURING, INC. LTD, a
company of British Virgin Island registry. ("Purchaser").
RECITALS
WHEREAS, the Company proposes to sell and issue an aggregate of $400,000
principal amount of convertible debentures (the "Convertible Debentures")
pursuant to that certain Convertible Debenture Purchase Agreement (the
"Purchase Agreement") of even date herewith between the Company and Purchaser
(the "Purchase Agreement"); and
WHEREAS, as a condition to entering into the Purchase Agreement, the
Purchaser has requested that the Company extend to it registration rights,
information rights and a right of first refusal as set forth herein.
NOW, THEREFORE, in consideration of the mutual promises, representations,
warranties, covenants, and conditions set forth in this Agreement and in the
Purchase Agreement, the parties mutually agree as follows:
I. GENERAL.
1.1 Definitions. As used in this Agreement the following terms shall have
the following respective meanings:
"1934 Act" means the Securities Exchange Act of 1934.
"Equity Securities" means (i) any stock or similar security of the
Company, (ii) any security convertible, with or without consideration, into any
stock or similar security (including any option to purchase such a convertible
security), (iii) any security carrying any warrant or right to subscribe to or
purchase any stock or similar security or (iv) any such warrant or right.
"Family Member" means a Holder's spouse, children, stepchildren and
grandchildren.
"Final Prospectus" means an amended prospectus filed with the SEC pursuant
to SEC Rule 424(b) of the Securities Act.
"Holder" means any person owning of record Registrable Securities.
"Initial Offering" means the first underwritten public offering of the
Company's securities.
"Initiating Holders" means the Holder or Holders of at least forty percent
(40%) of the Registrable Securities then outstanding.
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<PAGE> 56
"Register," "registered," and "registration" refer to a registration
effected by preparing and filing a registration statement in compliance with
the Securities Act, and the declaration or ordering of effectiveness by the SEC
of such registration statement or document.
"Registrable Securities" means (i) the Shares; (ii) Common Stock of the
Company issued or issuable upon conversion of the Shares; and (iii) any Common
Stock of the Company issued as (or issuable upon the conversion or exercise of
any warrant, right or other security which is issued as) a dividend or other
distribution with respect to, or in exchange for or in replacement of, such
above-described securities. Notwithstanding the foregoing, Registrable
Securities shall not include any securities sold by a person to the public
either pursuant to a registration statement or Rule 144 or sold in a private
transaction in which the transferor's rights under Article II of this Agreement
are not assigned. Outstanding Shares and warrants, rights and other securities
issued as a dividend or other distribution with respect to outstanding Shares,
or in exchange or replacement of outstanding Shares, shall be deemed to
represent a number of shares of Registrable Securities equal to the number of
shares of Common Stock into which such Shares, warrants, rights or other
securities are convertible as of the time such determination is made.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Shares" shall mean the Company's Series D Preferred Stock issuable
assuming the conversion of the Convertible Debentures.
"Form S-3" means such form under the Securities Act as in effect on the
date hereof or any successor registration form under the Securities Act
subsequently adopted by the SEC which permits inclusion or incorporation of
substantial information by reference to other documents filed by the Company
with the SEC.
"SEC" or "Commission" means the Securities and Exchange Commission.
II. RESTRICTIONS ON TRANSFER; REGISTRATION.
2.1 Restrictions on Transfer
(a) Each Holder agrees not to make any disposition of all or any portion
of the Registrable Securities unless and until the transferee has agreed in
writing for the benefit of the Company to be bound by this Section 2.1,
provided and to the extent such Section is then applicable and:
(i) There is then in effect a registration statement under the
Securities Act covering such proposed disposition and such disposition is made
in accordance with such registration statement; or
(ii) (A) Such Holder shall have notified the Company of the proposed
disposition and shall have furnished the Company with a detailed statement of
the circumstances surrounding the proposed disposition, and (B) if reasonably
requested by the Company, such Holder shall have furnished the Company with an
opinion of counsel, reasonably satisfactory to the Company, that such
disposition will not require registration of such shares under the Securities
Act.
(iii) Notwithstanding the provisions of paragraphs (i) and (ii) above,
no such registration statement or opinion of counsel shall be necessary for a
transfer by a Holder (A) which is a partnership to its partners in accordance
with partnership interests, (B) to the Holder's family member or
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<PAGE> 57
trust for the benefit of an individual Holder or (C) to an affiliate of the
Holder (as that term is defined in Rule 144(a)(1) of the Securities Act (an
"Affiliate"), provided the transferee will be subject to the terms of this
Section 2.1 to the same extent as if he were an original Holder hereunder.
(b) Each certificate representing Series D Preferred Stock or
Registrable Securities shall (unless otherwise permitted by the provisions of
the Agreement) be stamped or otherwise imprinted with a legend substantially
similar to the following (in addition to any legend required under applicable
state securities laws or as provided elsewhere in this Agreement):
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE OFFERED, SOLD OR
OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL
REGISTERED UNDER THE ACT OR,IN THE OPINION OF COUNSEL OR BASED ON
OTHER WRITTEN EVIDENCE IN FORM AND SUBSTANCE SATISFACTORY TO THE
ISSUER OF THESE SECURITIES, SUCH OFFER, SALE OR TRANSFER, PLEDGE OR
HYPOTHECATION DOES NOT REQUIRE REGISTRATION.
(c) The Company shall be obligated to reissue promptly unlegended
certificates at the request of any holder thereof if the holder shall have
obtained an opinion of counsel (which counsel may be counsel to the Company)
reasonably acceptable to the Company to the effect that the securities proposed
to be disposed of may lawfully be so disposed of without registration,
qualification or legend.
(d) Any legend endorsed on an instrument pursuant to applicable state
securities laws and the stop-transfer instructions with respect to such
securities shall be removed upon receipt by the Company of an order of the
appropriate blue sky authority authorizing such removal.
2.2 Demand Registration.
(a) Subject to the conditions of this Section 2.2, if the Company
shall receive at any time after the later of December 31, 1996 or one hundred
twenty (120) days after the closing of the Initial Offering, a written request
from the Initiating Holders that the Company file a registration statement
under the Securities Act covering the registration of (i) at least 25% of the
Registrable Securities held by such Initiating Holders or (ii) any lesser
number of shares if the anticipated aggregate offering price of such shares,
net of underwriting discounts and commissions, would exceed $5,000,000), then
the Company shall, within thirty (30) days of the receipt thereof, give written
notice of such request to all Holders, and subject to the limitations of
Section 2.2(b), effect, as soon as practicable, the registration under the
Securities Act; provided, however, that the Initiating Holders may request
registration of less than 25% of such Registrable Securities if the anticipated
aggregate offering price, net of underwriting discounts and commissions,
exceeds $5,000,000.
(b) If the Initiating Holders intend to distribute the Registrable
Securities covered by their request by means of an underwriting, they shall so
advise the Company as a part of their request made pursuant to this Section 2.2
and the Company shall include such information in the written notice referred
to in Section 2.2(a). In such event, the right of any Holder to include such
Holder's Registrable Securities in such registration shall be conditioned upon
such
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<PAGE> 58
Holder's participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting (unless otherwise mutually agreed by
a majority in interest of the Initiating Holders and such Holder) to the extent
provided herein. All Holders proposing to distribute their securities through
such underwriting shall enter into an underwriting agreement in customary form
with the underwriter or underwriters selected for such underwriting by a
majority in interest of the Initiating Holders (which underwriter or
underwriters shall be reasonably acceptable to the Company). Notwithstanding any
other provision of this Section 2.2, if the underwriter advises the Company in
writing that marketing factors require a limitation of the number of securities
to be underwritten (including Registrable Securities) then the Company shall so
advise all Holders of Registrable Securities which would otherwise be
underwritten pursuant hereto, and the number of shares that may be included in
the underwriting shall be allocated to the Holders of such Registrable
Securities on a pro rata basis based on the number of Registrable Securities
held by all such Holders (including the Initiating Holders). Any Registrable
Securities excluded or withdrawn from such underwriting shall be withdrawn from
the registration.
(c) The Company shall not be obligated to effect more than two (2)
registrations pursuant to this Section 2.2
(d) Notwithstanding the foregoing, if the Company shall furnish to
Holders requesting a registration statement pursuant to this Section 2.2, a
certificate signed by the Chairman of the Board stating that in the good faith
judgment of the Board of Directors of the Company, it would be seriously
detrimental to the Company and its stockholders for such registration statement
to be filed and it is therefore essential to defer the filing of such
registration statement, the Company shall have the right to defer such filing
for a period of not more than thirty (30) days after receipt of the request of
the Initiating Holders; provided that such right to thirty (30) days after
receipt of the request of the Initiating Holders; provided that such right to
delay a request shall be exercised by the Company no more than once in any
one-year period.
(e) All expenses incurred in connection with a registration pursuant
to this Section 2.2 (excluding underwriters' discounts and commissions, which
shall be paid by the selling Holders pro rata with respect to their included
shares), including without limitation all registration, filing, qualification,
printers' and accounting fees, fees and disbursements of counsel for the
Company, and the reasonable fees and disbursements of a single counsel for the
selling Holders, pro rata with respect to their included shares), including
without limitation all registration, filing, qualification, printers' and
accounting fees, fees and disbursements of counsel for the Company, and the
reasonable fees and disbursements of a single counsel for the selling Holders,
shall be borne by the Company; provided, however, that the Company shall not be
required to pay for any expenses of any registration proceeding begun pursuant
to Section 2.2 if the registration request is subsequently withdrawn, unless
the withdrawal of the registration request results from either (a) intentional
actions by the Company outside the normal course of business that materially
reduce the feasibility of the registration proceeding, or (b) the discovery of
information about the Company that was not known at the time of the Initiating
Holders' request made pursuant to Section 2.2(a), and such information
materially reduces the feasibility of the registration proceeding. If the
Company is required to pay the registration expenses pursuant to this Section
2.2(e), then the Holders shall not forfeit their rights pursuant to this
Section 2.2 to a demand registration.
2.3 Piggyback Registrations.
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<PAGE> 59
(a) The Company shall notify all Holders in writing at least thirty
(30) days prior to the filing of any registration statement under the
Securities Act for purposes of a public offering of securities of the Company
(including, but not limited to, registration statements relating to secondary
offerings of securities of the Company, but excluding registration statements
relating to the Initial Offering, employee benefit plans and corporate
reorganizations) and will afford each such Holder who would have been unable to
sell all of such Registrable Securities on an unrestricted basis pursuant to
Rule 144 promulgated under the Securities Act, during the four-week period
immediately preceding the effective date of the registration statement, an
opportunity to include in such registration statement all or part of such
Registrable Securities held by such Holder. Each Holder desiring to include in
any such registration statement all or any part of the Registrable Securities
held by it shall, within twenty (20) days after receipt of the above-described
notice from the Company, so notify the Company in writing. Such notice shall
state the intended method of disposition of the Registrable Securities by such
Holder. If Holder decides not to include all of its Registrable Securities in
any registration statement thereafter filed by the Company, such Holder shall
nevertheless continue to have the right to include any Registrable Securities
in any subsequent registration statement or registration statements as may be
filed by the Company with respect to offerings of its securities, all upon the
terms and conditions set forth herein. Notwithstanding anything to the
contrary, the foregoing shall not apply to any registrations occurring on or
after the fifth anniversary of the Initial Offering.
(b) If the registration statement under which the Company gives
notice under this Section 2.3 is for an underwritten offering, the Company
shall so advise the Holders. In such event, the right of any such Holder to be
included in a registration pursuant to this Section 2.3 shall be conditioned
upon such Holder's participation in such underwriting and the inclusion of such
Holder's Registrable Securities in the underwriting to the extent provided
herein. All Holders proposing to distribute their Registrable Securities
through such underwriting shall enter into an underwriting agreement in
customary form with the underwriter or underwriters selected for such
underwriting. Notwithstanding any other provision of the Agreement, if the
underwriter determines in good faith that marketing factors require a
limitation of the number of shares to be underwritten, the number of shares
that may be included in the underwriting shall be allocated, first, to the
Company; second, to the Holders on a pro rata basis based on the total number
of Registrable Securities held by the Holders; and third, to any stockholder of
the Company (other than a Holder) on a pro rata basis. No such reduction shall
reduce the securities being offered by the Company for its own account to be
included in the registration and underwriting, except that in no event shall
the amount of securities of the selling Holders included in the registration be
reduced below twenty percent (20%) of the total amount of securities included
in such registration, unless such offering is the Initial Offering and such
registration does not include shares of any other selling stockholders, in
which event any or all of the Registrable Securities of the Holders may be
excluded in accordance with the immediately preceding sentence. In no event
will shares of any other selling stockholders, in which event any or all of the
Registrable Securities of the Holders may be excluded in accordance with the
immediately preceding sentence. In no event will shares of any other selling
stockholder be included in such registration which would reduce the number of
shares which may be included by Holders without the written consent of Holders
of not less than fifty percent (50%) of the Registrable Securities proposed to
be sold in the offering.
(c) The Company shall bear all fees and expenses incurred in
connection with any registration under this Section 2.3 (excluding
underwriters' discounts and commissions, which
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shall be paid by the selling Holders pro rata with respect to their included
shares), including without limitation all registration, filing, qualification,
printers' and accounting fees, fees and disbursements of counsel to the Company,
and the reasonable fees and disbursements of a single counsel to the selling
Holders (which counsel shall also be counsel to the Company unless counsel to
the Company has a conflict of interest with respect to the representation of any
selling Holder or the underwriters object to the selling Holders representation
by Company counsel).
2.4 Form S-3 Registration. In case the Company shall receive from the
Holders of at least ten percent (10%) of the Registrable Securities a written
request or requests that the Company effect a registration on Form S-3 and any
related qualification or compliance with respect to all or a part of the
Registrable Securities owned by such Holder or Holders, the Company will:
(a) promptly give written notice of the proposed registration,
and any related qualification or compliance, to all other Holders of
Registrable Securities; and
(b) as soon as practicable, effect such registration and all such
qualifications and compliances as may be so requested and as would permit or
facilitate the sale and distribution of all or such portion of such Holder's or
Holders' Registrable Securities as are specified in such request, together with
all or such portion of the Registrable Securities of any other Holder or
Holders joining in such request as are specified in a written request given
within fifteen (15) days after receipt of written notice from the Company
pursuant to Section 2.4(a); provided, however, that the Company shall not be
obligated to effect any such registration, qualification or compliance pursuant
to this Section 2.4: (i) if Form S-3 is not available under the Securities Act
or rules or regulations promulgated thereunder for such offering by the
Holders; (ii) if the Holders, together with the holders of any other securities
of the Company entitled to inclusion in such registration, propose to sell
Registrable Securities and such other securities (if any) at an aggregate price
to the public of less than $500,000; (iii) if the Company shall furnish to the
Holders a certificate signed by the Chairman of the Board of Directors of the
Company stating that in the good faith judgment of the Board of Directors of
the Company, it would be seriously detrimental to the Company and its
stockholders for such Form S-3 Registration to be effected at such time, in
which event the Company shall have the right to defer the filing of the Form
S-3 registration statement for a period of not more than thirty (30) days after
receipt of the request of the Holder or Holders under this Section 2.4,
provided that, such right to defer the filing may be exercised by the Company
no more than once in any one-year period; (iv) if the Company has, within the
six (6) month period preceding the date of such request, already effected one
(1) registrations on Form S-3 for the Holders pursuant to this Section 2.4; or
(v) in any particular jurisdiction in which the Company would be required to
qualify to do business or to execute a general consent to service of process in
effecting such registration, qualification or compliance.
(c) Subject to the foregoing, the Company shall file a Form S-3
registration statement covering the Registrable Securities and other securities
so requested to be registered as soon as practicable after receipt of the
request or requests of the Holders. All such expenses incurred in connection
with registrations requested pursuant to this Section 2.4 shall be paid by the
selling Holders (and any other selling stockholders pro rata with respect to
their included
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shares, including without limitation all registration, filing, qualification,
printers' and accounting fees, fees and disbursements of counsel for the
Company, and the reasonable fees and disbursements of a single counsel for the
selling Holder or Holders.
2.5 Obligations of the Company. Whenever required to effect the
registration of any Registrable Securities, the Company shall, as expeditiously
as reasonably possible:
(a) Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use its best efforts to cause such
registration statement to become effective, and, upon the request of the
Holders of a majority of the Registrable Securities registered thereunder, keep
such registration statement effective for up to ninety (90) days.
(b) Prepare and file with the SEC such amendments and supplements
to such registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
Securities Act with respect to the disposition of all securities covered by
such registration statement.
(c) Furnish to the Holders such number of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements of the
Securities Act, and each other documents as they may reasonably request in
order to facilitate the disposition of Registrable Securities owned by them.
(d) Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or state
blue sky laws of such jurisdictions as shall be reasonably requested by the
Holders, provided that the Company shall not be required in connection
therewith or as a condition thereto to qualify to do business or to file a
general consent to service of process in any such states or jurisdictions.
(e) In the event of any underwritten public offering, enter into
and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter(s) of such offering. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
(f) Notify each Holder of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any event
as a result of which the prospectus included 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 the light of the circumstances then
existing.
(g) Furnish, at the request of a majority of the Holders
participating in the registration, on the date that such Registrable Securities
are delivered to the underwriters for sale, if such securities are being sold
through underwriters, or, if such securities are not being sold through
underwriters, on the date that the registration statement with respect to such
securities becomes effective, (i) an opinion, dated as of such date, of the
counsel representing the Company
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for the purposes of such registration, in form and substance as is customarily
given to underwriters in an underwritten public offering and reasonably
satisfactory to a majority in interest of the Holders requesting registration,
addressed to the underwriters, if any, and to the Holders requesting
registration of Registrable Securities and (ii) a letter dated as of such date,
from the independent certified public accountants of the Company, in form and
substance as is customarily given by independent certified public accountants to
underwriters in an underwritten public offering and reasonably satisfactory to a
majority in interest of the Holders requesting registration, addressed to the
underwriters, if any, and to the Holders requesting registration of Registrable
Securities.
2.6 Furnish Information. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to Sections 2.2, 2.3 or
2.4 that the selling Holders shall furnish to the company such information
regarding themselves, the Registrable Securities held by them, and the intended
method of disposition of such securities as shall be required to effect the
registration of their Registrable Securities.
2.7 Delay of Registration. No Holder shall have any right to obtain or
seek an injunction restraining or otherwise delaying any such registration as
the result of any controversy that might arise with respect to the
interpretation or implementation of this Article II.
2.8 Indemnification. In the event any Registrable Securities are included
in a registration statement under Sections 2.2, 2.3 or 2.4:
(a) To the extent permitted by law, the Company will indemnify and
hold harmless each Holder, the partners, officers and directors of each Holder,
any underwriter (as defined in the Securities Act) for such Holder and each
person, if any, who controls such Holder or underwriter within the meaning of
the Securities Act or the 1934 Act, against any losses, claims, damages, or
liabilities (joint or several) to which they may become subject under the
Securities Act, the 9134 Act or other federal or state law, insofar as such
losses, claims, damages, or liabilities (or actions in respect thereof) arise
out of or are based upon any of the following statements, omissions or
violations (collectively a "Violation") by the Company: (i) any untrue
statement or alleged untrue statement of a material fact contained in such
registration statement, including any preliminary prospectus or final
prospectus contained therein or any amendments or supplements thereto, (ii) 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
(iii) any violation or alleged violation by the Company of the Securities Act,
the 1934 Act, any state securities law in connection with the offering covered
by such registration statement; and the Company will reimburse each such
Holder, partner, officer or director, underwriter or 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 indemnity agreement contained in this Section 2.8(a)
shall not apply to amounts paid in settlement of any such loss, claim, damage,
liability or action if such settlement is effected without the consent of the
Company (which consent shall not be unreasonably withheld), nor shall the
Company be liable in any such case for any such loss, claim, damage, liability
or action to the
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extent that it arises out of or is based upon a Violation which occurs in
reliance upon and in conformity with written information furnished to the
Company expressly for use in connection with such registration by such Holder,
partner, officer, director, underwriter or controlling person of such Holder.
(b) To the extent permitted by law, each selling Holder will indemnify
and hold harmless the Company, each of its directors, each of its officers,
each person, if any, who controls the Company within the meaning of the
Securities Act, any underwriter and any other Holder selling securities under
such registration statement or any of such other Holder's partners, directors
or officers or any person who controls such Holder, against any losses, claims,
damages or liabilities (joint or several) to which the Company or any such
director, officer, controlling person, underwriter or other such Holder, or
partner, director, officer or controlling person of such other Holder may
become subject under the Securities Act, the 1934 Act or other federal or state
law, insofar as such losses, claims, damages or liabilities (or actions in
respect thereto) arise out of or are based upon any Violation, in each case to
the extent (and only to the extent) that such Violation occurs in reliance upon
and in conformity with written information furnished to the Company by such
Holder expressly for use in connection with such registration; and each such
Holder will reimburse any legal or other expenses reasonably incurred by the
Company or any such director, officer, controlling person, underwriter or other
Holder, or partner, officer, director or controlling person of such other
Holder in connection with investigating or defending any such loss, claim,
damage, liability or action if it is judicially determined that there was such
a Violation; provided, however, that the indemnity agreement contained in this
Section 2.8(b) shall not apply to amounts paid in settlement of any such loss,
claim, damage, liability or action if such settlement is effected without the
consent of the Holder, which consent shall not be unreasonably withheld;
provided further, that in no event shall any indemnity under this Section 2.8
exceed the proceeds from the offering received by such Holder.
(c) Promptly after receipt by an indemnified party under this Section
2.8 of notice of the commencement of any action (including any governmental
action) as to which indemnity may be sought, such indemnified party will, if a
claim in respect thereof is to be made against any indemnifying party under
this Section 2.8, deliver to the indemnifying party a written notice of the
commencement thereof and the indemnifying party shall have the right to
participate in, and, to the extent the indemnifying party so desires, jointly
with any other indemnifying party similarly noticed, to assume the defense
thereof with counsel mutually satisfactory to the parties; provided, however,
that an indemnified party shall have the right to retain its own counsel, with
the fees and expenses to be paid by the indemnifying party, if representation
of such indemnified party by the counsel retained by the indemnifying party
would be inappropriate due to actual or potential differing interests between
such indemnified party and any other party represented by such counsel in such
proceeding. The failure to deliver written notice to the indemnifying party
within a reasonable time of the commencement of any such action, if materially
prejudicial to its ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this Section
2.8, but the omission so to deliver written notice to the indemnifying party
will not relieve it of any liability that it may have to any indemnified party
otherwise than under this Section 2.8.
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(d) If the indemnification provided for in this Section 2.8 is held by
a court of competent jurisdiction to be unavailable to an indemnified party
with respect to any losses, claims, damages or liabilities referred to herein,
the indemnifying party, in lieu of indemnifying such indemnified party
thereunder, shall to the extent permitted by applicable law contribute to the
amount paid or payable by such indemnified party as a result of such loss,
claim, damage or liability in such proportion as is appropriate to reflect the
relative fault of the indemnifying party on the one hand and of the indemnified
party on the other in connection with the Violation(s) that resulted in such
loss, claim, damage or liability, as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and of the
indemnified party shall be determined by a court of law by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission; provided that, in no event shall any contribution
by a Holder hereunder exceed the proceeds from the offering received by such
Holder.
(e) The foregoing indemnity agreements of the Company and Holders are
subject to the condition that, insofar as they relate to any Violation made in
a preliminary prospectus but eliminated or remedied it he amended prospectus on
file with the SEC at the time the registration statement in question becomes
effective or the Final Prospectus, such indemnity agreement shall not inure to
the benefit of any person obligated under the Securities Act to furnish to the
person asserting the loss, liability, claim or damage a copy of the Final
Prospectus if a copy of the Final Prospectus was furnished to the indemnified
party and was not furnished to the person asserting the loss, liability, claim
or damage at or prior to the time such action is required by the Securities
Act.
(f) The obligations of the Company and Holders under this Section 2.8
shall survive the completion of any offering of Registrable Securities pursuant
to a registration statement, or otherwise.
2.9 Assignment of Registration Rights. The rights to cause the Company
to register Registrable Securities pursuant to this Article II may be assigned
by a Holder to a transferee or assignee of Registrable Securities; provided,
however, that no such transferee or assignee shall be entitled to registration
rights under Sections 2.2, 2.3 or 2.4 hereof unless such transferee or assignee:
(i) is a Holder; (ii) holds after such transfer or assignment at least five
hundred thousand (500,000) shares of Registrable Securities (as adjusted for
stock dividends, splits and combinations); or (iii) is a Family Member or a
subsidiary, parent, general partner, Affiliate, or limited partner of a Holder.
In each such case, the Company shall, within twenty (20) days after such
transfer, be furnished with written notice of the name and address of such
transferee or assignee and the securities with respect to which such
registration rights are being assigned.
2.10 Amendment of Registration Rights. Any provision of this Article
II may be amended and the observance thereof may be waived (either generally or
in a particular instance and either retroactively or prospectively), only with
the written consent of the Company and the Holders of more than fifty percent
(50%) of the Registrable Securities. Any amendment or
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waiver effected in accordance with this Section 2.10 shall be binding upon each
Holder and the Company. By acceptance of any benefits under this Article II,
each Holder hereby agrees to be bound by the provisions hereunder.
2.11 "Market Stand-Off" Agreement. If requested by the Company and an
underwriter of Common Stock (or other securities) of the Company, the Purchaser
shall not sell or otherwise transfer or dispose of any Common Stock (or other
securities) of the Company held by such stockholder (other than those included
in the registration) for a period specified by the underwriters not to exceed
one hundred eighty (180) days following the effective date of a registration
statement of the Company filed under the Securities Act, provided that all
officers and directors of the Company and all holders of at least one percent
(1%) of the Company's voting securities enter into similar agreements. The
obligations described in this Section 2.11 shall not apply to a registration
relating solely to employee benefit plans on Form S-1 or Form S-8 or similar
forms that may be promulgated in the future, or a registration relating solely
to a Commission Rule 145 transaction on Form S-4 or similar forms that may be
promulgated in the future. The Company may impose stop-transfer instructions
with respect to the shares (or securities) subject to the foregoing restriction
until the end of said one hundred eighty (180) day period.
III. Covenants Of The Company.
3.1 Basic Financial Information and Reporting.
(a) The Company will maintain true books and records of account in
which full and correct entries will be made of all its business transactions
pursuant to a system of accounting established and administered in accordance
with generally accepted accounting principles consistently applied, and will
set aside on its books all such proper accruals and reserves as shall be
required under generally accepted accounting principles consistently applied.
(b) As soon as practicable after the end of each fiscal year of the
Company, and in any event within 90 days thereafter or, after the Initial
Offering, simultaneously with the filing of the Company's annual report on Form
10-K with the SEC, the Company will furnish each Holder a consolidated balance
sheet of the Company, as at the end of such fiscal year, and a consolidated
statement of income and a consolidated statement of cash flows of the Company
for such year, all prepared in accordance with generally accepted accounting
principles and setting forth in each case in comparative form the figures for
the previous fiscal year, all in reasonable detail. Such financial statements
shall be accompanied by a report and opinion thereon by independent public
accountants of national standing selected by the Company's Board of Directors.
(c) As soon as practicable after the end of each fiscal quarter of the
Company, and in any event within thirty days thereafter or, after the Initial
Offering, simultaneously with the filing of the Company's reports on Form 10-Q
with the SEC, the Company will furnish each Holder a consolidated balance sheet
of the Company, as at the end of such fiscal quarter, and a consolidated
statement of income and a consolidated statement of cash flows of the Company
for
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such quarter, prepared and presented in a manner consistent with the financial
statements described in Section 3.1 (b). Such statement shall be accompanied by
a certificate signed by the Chairman of the Board and Chief Financial Officer of
the Company stating that the preparation and presentation of such statements is
consistent with the financial statements described in Section 3.1 (b).
(d) So long as a Holder (with its Affiliates) shall own not less than
one million (1,000,000) shares of Registrable Securities, the Company will
furnish such Holder a consolidated balance sheet of the Company, as at the end
of each calendar month, and a consolidated statement of income and a
consolidated statement of cash flows of the Company for such month, prepared
and presented in a manner consistent with the financial statements described n
Section 3.1 (b). Such statements shall be furnished as soon as practicable
after the end of each month and in any event within ten days thereafter and
shall be accompanied by a certificate signed by the Chairman of the Board and
Chief Financial Officer of the Company stating that the preparation and
presentation of such statements is consistent with the financial statements
described in Section 3.1 (b). Prior to January 1st of each year, the Company
shall furnish such Holders an annual budget for the Company for the following
twelve month period, broken down by month. The Company's obligations under this
Section 3.1 (d) shall terminate upon the Initial Offering.
3.2 Inspection Rights. So long as a Holder (with its affiliates) shall
own not less than one hundred thousand (100,000) shares of Registrable
Securities, each such Holder shall have the right to visit and inspect any of
the properties of the Company or any of its subsidiaries, and to discuss the
affairs, finances and accounts of the Company or any of its subsidiaries with
its officers, all at such reasonable times and as often as may be reasonably
requested; provided, however, that the Company shall not be obligated under
this Section 3.2 with respect to a competitor of the Company or with respect
to information which the Board of Directors determines in good faith is
confidential and should not, therefore, be disclosed.
3.3 Confidentiality of Records. Each Holder agrees to use, and to use
its best efforts to insure that its authorized representatives use, the
same degree of care as such Holder uses to protect its own confidential
information to keep confidential any information furnished to it which
the Company identifies as being confidential or proprietary (so long as such
information is not in the public domain), except that such Holder may disclose
such proprietary or confidential information to any partner, subsidiary,
Affiliate or parent of such Holder for the purpose of evaluating its
investment in the Company as long as such partner, subsidiary or parent
is advised of the confidentiality provisions of this Section 3.3.
3.4 Reservation of Series D Preferred Stock. Upon filing by the Company of
the Certificate of Designation (as defined in the Purchase Agreement) with
the Secretary of State of the State of Delaware and at all times thereafter,
the Company will reserve and keep available, solely for issuance and delivery
upon the conversion of the Convertible Debentures, all Series D Preferred
Stock issuable from time to time upon such conversion.
3.5 Reservation of Common Stock. Upon filing by the Company of the
Certificate of Designation (as defined in the Purchase Agreement) with the
Secretary of State of the State of
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Delaware and at all times thereafter, the Company will reserve and keep
available, solely for issuance and delivery upon the conversion of the Series D
Preferred Stock issuable upon conversion of the Convertible Debentures, all
Common Stock issuable from time to time upon such conversion.
IV. Rights Of First Refusal.
4.1 Subsequent Offerings. Each Holder shall have a right of first
refusal to purchase its pro rata share of all Equity Securities that the
Company may, from time to time, propose to sell and issue after the
date of this Agreement, other than the Equity Securities excluded by Section
4.6 hereof. Each Holder's pro rata share is equal to the ratio of the number
of shares of Common Stock, assuming full conversion of all Convertible
Debentures and Registrable Securities owned by such Holder, held by such
Holder immediately prior to the issuance of such Equity Securities to the
total number of shares of the Company's outstanding Common Stock (including
all shares of Common Stock issuable upon conversion of the Convertible
Debentures and Registrable Securities).
4.2 Exercise of Rights. If the Company proposes to issue any Equity
Securities; it shall give each Holder written notice of its intention,
describing the Equity Securities, the price; and the terms and conditions
upon which the Company proposes to issue the same. Each Holder shall have
fifteen (15) days from the receipt of such notice to agree to purchase its
pro rata share of the Equity Securities for the price and upon the terms and
conditions specified in the notice by giving written notice to the Company
and stating therein the quantity of Equity Securities to be purchased.
Notwithstanding the foregoing, the Company shall not be required to offer
or sell such Equity Securities to any Holder who would cause the Company
to be in violation of applicable federal securities laws by virtue of such
offer or sale.
4.3 Issuance of Equity Securities to Other Persons. If the Holders fail to
exercise in full the rights of first refusal, the Company shall have ninety
(90) days thereafter to sell the Equity Securities in respect of which
the Holders' rights were not exercised, at a price and upon terms and
conditions no more favorable to the purchaser thereof than specified in the
Company's notice to the Holders pursuant to Section 4.2 hereof. If the
Company has not sold such Equity Securities within such ninety (90) days, the
Company shall not thereafter issue or sell any Equity Securities, without
first offering such securities to the Holders in the manner provided above.
4.4 Termination of Rights of First Refusal. The rights of first refusal
established by this Article IV shall terminate upon the closing of the Initial
Offering.
4.5 Transfer of Rights of First Refusal. The rights of first refusal of
each Holder under this Article IV may be transferred to any subsidiary or
parent of such Holder, to any successor in interest to all or substantially
all the assets of such Holder, or to an assignee or transferee who acquires
Registrable Securities.
4.6 Excluded Securities. The rights of first refusal established by this
Article IV shall have no application to any of the following Equity Securities:
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(a) shares of Common Stock (and/or options, warrants or other Common
Stock purchase rights issued pursuant to such options, warrants or other
rights) issued or to be issued to employees, officers or directors of, or
consultants or advisors to, the Company, pursuant to stock purchase or stock
option plans or other arrangements that are approved by the Board of Directors
of the Company;
(b) stock issued pursuant to any rights, options and warrants granted
after the date of this Agreement, provided that the rights of first refusal
established by this Article IV are applied with respect to the initial sale or
grant by the Company of such rights, options or warrants;
(c) any Equity Securities issued for consideration other than cash
pursuant to a merger, consolidation, acquisition or similar business
combination;
(d) any Equity Securities that are issued by the Company as part of
the Initial Offering referred to in Section 4.4 hereof:
(e) shares of Common Stock issued in connection with any stock split,
stock dividend or recapitalization by the Company;
(f) shares of Common Stock issued upon conversion of the Company's
Preferred Stock; and
(g) shares of Series D Preferred Stock or Common Stock issued upon
conversion of the Convertible Debentures; and
(h) any Equity Securities issued pursuant to any equipment leasing
arrangement or commercial bank financing approved by the Company's Board of
Directors.
V. MISCELLANEOUS.
5.1 Governing Law. This Agreement shall be governed by and construed
under the laws of the State of New York.
5.2 Survival. The representations, warranties, covenants, and
agreements made herein shall survive any investigation made by any Holder and
the closing of the transactions contemplated hereby. All statements as to
factual matters contained in any certificate or other instrument delivered by
or on behalf of the Company pursuant hereto in connection with the transactions
contemplated hereby shall be deemed to be representations and warranties by the
Company hereunder solely as of the date of such certificate or instrument.
5.3 Successors and Assigns. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs,
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executors, and administrators of the parties hereto and shall inure to the
benefit of and be enforceable by each person who shall be a holder of
Registrable Securities from time to time, provided, however, that prior to the
receipt by the Company of adequate written notice of the transfer of any
Registrable Securities specifying the full name and address of the transferee,
the Company may deem and treat the person listed as the holder of such shares in
its records as the absolute owner and holder of such shares for all purposes,
including the payment of dividends or any redemption price.
5.4 Separability. In case any provision of the Agreement shall be
invalid, illegal, or unenforceable, the validity, legality, and enforceability
of the remaining provisions shall not in any way be affected or impaired
thereby.
5.5 Amendment and Waiver.
(a) Except as otherwise expressly provided, this Agreement may be
amended or modified only upon the written consent of the Company and the
holders of more than fifty percent (50%) of the Registrable Securities.
(b) Except as otherwise expressly provided, the obligations of the
Company and the rights of the Holders under this Agreement may be waived only
with the written consent of the holders of more than fifty percent (50%) of the
Registrable Securities.
5.6 Delays or Omissions. It is agreed that no delay or omission to
exercise any right, power, or remedy accruing to any Holder, upon any breach,
default or noncompliance of the Company under this Agreement shall impair any
such right, power, or remedy, nor shall it be construed to be a waiver of any
such breach, default or noncompliance, or any acquiescence therein, or of any
similar breach, default or noncompliance thereafter occurring. It is further
agreed that any waiver, permit, consent or approval of any kind or character on
any Holder's part of any breach, default or noncompliance under this Agreement
or any waiver on such Holder's part of any provisions or conditions of this
Agreement must be in writing and shall be effective only to the extent
specifically set forth in such writing. All remedies, either under this
Agreement, by law, or otherwise afforded to Holders, shall be cumulative and
not alternative.
5.7 Notices. All notices required or permitted hereunder shall be in
writing and shall be deemed effectively given: (i) upon personal delivery to
the party to be notified; (ii) upon receipt at the address on the signature
page hereto after having been sent by registered or certified mail, return
receipt requested, postage prepaid; or (iii) one (1) day after deposit with a
nationally recognized overnight courier, specifying next day delivery, with
written verification of receipt. All communications shall be sent to the party
to be notified at the address as set forth on the signature page hereof or at
such other address as such party may designate by ten (10) days advance written
notice to the other party hereto.
5.8 Attorneys' Fees. If legal action is brought to enforce or
interpret this Agreement, the prevailing party shall be entitled to recover its
reasonable attorneys' fees and legal costs in connection therewith.
15
<PAGE> 70
5.9 Titles and Subtitles. The titles of the sections and subsections
of this Agreement are for convenience of reference only and are not to be
considered in construing this Agreement.
5.10 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
16
<PAGE> 71
IN WITNESS WHEREOF, the parties hereto have executed this Investor's
Rights Agreement as of the date set forth in the first paragraph hereof.
AIR SOUTH AIRLINES, INC. FIL-FIBER MANUFACTURING, INC. LTD
By: By:
--------------------------- -----------------------------
John P. Tague Anthony E. Hwang
President Attorney-in-Fact
Address: Address:
2625 Airport Blvd. c/o A & E Group
West Columbia, SC 29170 Murray Hill Plaza, 2H
244 Madison Avenue
New York, New York 10016
17
<PAGE> 72
EXHIBIT E
FORM OF OPINION
1. The Company has been duly incorporated and is a validly existing
corporation in good standing under the laws of the State of Delaware.
2. The Company has the requisite corporate power to own its property
and assets and to conduct its business as it is currently being conducted and
is qualified as a foreign corporation to do business and is in good standing in
each jurisdiction in the United States in which the ownership of its property
or the conducts of its business requires such qualification and where the
failure to so qualify would have a material adverse effect on the Company, its
assets, financial condition or operations.
3. The Company's authorized capital stock consists of (a) __________
(__________) shares of Common Stock, $.001 par value, of which __________
(__________) shares are issued and outstanding, and (b) __________ (__________)
shares of Preferred Stock, $.001 par value, of which (i) One Million Two
Hundred Fifty Thousand (1,250,000) shares have been designated Series A
Preferred Stock having a liquidation preference of Two Dollars ($2.00) per
share all of which shares are issued and outstanding; (ii) Six Hundred
Twenty-Five Thousand (625,000) shares have been designated Series B Preferred
Stock having a liquidation preference of Four Dollars ($4.00) per share all of
which shares are issued and outstanding; (iii) One Hundred Twenty Thousand
(120,000) shares have been designated Series C Preferred Stock having a
liquidation preference of Twelve Dollars and Fifty Cents ($12.50) per share all
of which shares are issued and outstanding; and (iv) Sixteen Million
(16,000,000) shares have been designated Series D Preferred Stock having a
liquidation preference of Twenty-Five Cents ($0.25) per share none of which
shares are issued and outstanding and __________ shares of Series E Preferred
Stock, none of which are issued and outstanding. The outstanding shares of
Common Stock and Preferred Stock have been duly authorized and validly issued
and are fully paid and nonassessable. The rights, preferences and privileges of
the Series A Preferred Stock are as stated in the Certificate of Incorporation.
The rights, preferences and privileges of the Series B Preferred Stock, Series
C Preferred Stock, Series D Preferred Stock and Series E Preferred Stock are
each set forth in their respective Certificate of Designation filed by the
Company with the Secretary of State of Delaware. The shares of Common Stock
issuable upon conversion of the Preferred Stock have been duly authorized and
reserved. To my knowledge, there are no preemptive rights, rights of first
refusal or rights of co-sale which exist with respect to the issuance and sale
of the Debentures that have not been waived.
The Company has reserved __________ shares of Common Stock for
issuance upon the exercise of: (i) options to purchase shares of Common Stock
pursuant to its various stock option plans for directors, officers and
employees; (ii) and warrants to purchase shares of Common Stock which have been
issued to a supplier, former employees, consultants to the Company, a bank
lender to the Company and the guarantor of certain bank debt of the Company.
Other than as set forth above and except as may be granted pursuant to (i) that
certain Investor's Rights Agreement entered into as of December 29, 1995
between the Company and purchasers of the Company's Series B Preferred Stock;
(ii) that certain Investor's Rights Agreement entered into as of May 24, 1996
between the Company and purchasers of the Company's
E-1
<PAGE> 73
Series B Preferred Stock; (iii) those certain Investor's Rights Agreement
entered into as of June 14, 1996 and June 26, 1996 between the Company and
purchasers of the Company's Series C Preferred Stock; (iv) that certain
Investor's Rights Agreement entered into as of August 16, 1996 between the
Company and purchasers of $4 million of the Company's convertible debentures on
August 16, 1996, there are no outstanding options, warrants, rights (including
conversion or preemptive rights),proxy or stockholder agreements, or agreements
of any kind for the purchase or acquisition from the Company of any of its
securities.
4. To the best of such counsel's knowledge, there is no action,
proceeding or investigation pending or overtly threatened against the Company
before any court or administrative agency that questions the validity of the
shares of Series E Preferred Stock issuable upon conversion of the Convertible
Debentures (the "Shares") or that might result, either individually or in the
aggregate, in any material adverse change in the business, condition (financial
or otherwise), properties or results of operations of the Company.
5. All consents, approvals, authorizations, or orders of, and filings,
registrations, and qualifications with any regulatory authority or governmental
body in the United States required for the issuance of the Shares have been
made or obtained.
6. The issuance of the Shares is exempt from the registration
requirements of the Securities Act of 1933, as amended.
E-2
<PAGE> 74
AIR SOUTH, INC. [LETTERHEAD]
EXHIBIT F
September _____ 1996
Fil-Fiber Manufacturing, Inc. Ltd.
c/o A & E Group
Murray Hill Plaza, 2H
244 Madison Avenue
New York, NY 10016
Re: $400,000.00
Air South Airlines, Inc.
Convertible Debentures
Gentlemen:
I refer to: (a) the proposed transaction in which Air South Airlines,
Inc., a Delaware corporation (the "Company"), will sell to Fil-Fiber
Manufacturing inc., Ltd. (the "Purchaser") $400,000.00 of its Convertible
Debentures (the "Debenture"); (b) that certain Convertible Debenture Purchase
Agreement dated even date herewith between the Company and the Purchaser (the
"Purchase Agreement"); and (c) that certain Investor's Rights Agreement dated
even date herewith between the Company and the Purchaser (the "Rights
Agreement").
I have examined the Purchase Agreement, the Rights Agreement, the
Debenture, the form of a Certificate of Designation for the Series D Preferred
stock into which the Debenture will be convertible and such other documents
relating to the sale of the Debenture as I have deemed appropriate in the
circumstances. I have reviewed, to the extent I have deemed appropriate, the
corporate proceedings and records of the Company. I have examined, also to the
extent I have deemed appropriate, proceedings of various governmental entities
and agencies involved in the business and affairs of the Company.
In rendering this opinion, as to certain matters of fact, I have
relied upon representations, warranties and covenants made by the parties to
the Purchase Agreement, certificates of officers of the Company, certificates
of public officials and oral interviews of various officers, agents and
attorneys of the Company.
I have assumed the genuineness of all signatures (except those of
persons signing the Purchase Agreement, Rights Agreement and other documents
and instruments on behalf of the Company) to, and the authenticity of, all
documents submitted to me as originals and the conformity with originals of all
documents submitted to me as copies.
<PAGE> 75
Fil-Fiber Manufacturing, Inc. Ltd. - 2 -
- - --------------------------------------------------------------------------------
I am also assuming that the Purchaser has all requisite power and
authority and has taken all necessary actions to enter into the Purchase
Agreement and the Rights Agreement and to effect any transactions contemplated
thereby. Finally, I have made or caused to be made such other investigations of
law and fact as in my judgment permits me to render an informed opinion on the
matters set forth below.
Capitalized terms used but not defined herein shall have the meanings
given them in the Purchase Agreement.
Based upon and subject to the foregoing, it is my opinion that:
1. The Company has been duly incorporated and is a validly existing
corporation in good standing under the laws of the State of Delaware.
2. The Company has the requisite corporate power to own its property
and assets and to conduct its business as it is currently being conducted and
is qualified as a foreign corporation to do business and is in good standing in
each jurisdiction in the United States in which the ownership of its property
or the conduct of its business requires such qualification and where the
failure to so qualify would have a material adverse effect on the Company, its
assets, financial condition or operations.
3. The Purchase Agreement and the Rights Agreement have been duly and
validly authorized, executed and delivered by the Company and constitute valid
and binding agreements of the Company enforceable against the Company in
accordance with their terms, except as rights to indemnity under section 2.8 of
the Rights Agreement may be limited by applicable laws and except as
enforcement may be limited by applicable bankruptcy, insolvency,
reorganization, arrangement, moratorium or other similar laws affecting
creditors' rights, and subject to general equity principles and to limitations
on availability of equitable relief, including specific performance.
4. The Debenture has been duly and validly authorized, executed and
delivered by the Company and constitutes a valid and binding agreement of the
Company enforceable against the Company in accordance with its terms, except as
enforcement of the Debenture may be limited by applicable bankruptcy,
insolvency, reorganization, arrangement, moratorium or other similar laws
affecting creditor's rights, and subject to general equity principles and to
limitations on availability of equitable relief, including specific
performance.
5. The opinions stated in paragraphs 3. and 4., above are qualified by
the following: (a) the Company does not have sufficient authorized Preferred
Stock to allow the conversion of the Debenture into Series D Preferred Stock;
(b) the Company does not have sufficient authorized Common Stock to allow the
conversion of the Series D Preferred Stock into Common Stock.
6. The Company's authorized capital stock consists of (a) Eighteen
Million (18,000,000) shares of Common Stock, $0.001 par value ("Common Stock")
, of which Six Million Nine Hundred Seventeen Thousand One Hundred Eighty-Two
(6,917,182) shares are issued and outstanding, and (b) Two Million (2,000,000)
shares of Preferred Stock, $0.001 par value (the "Preferred Stock"), of which:
(i) One Million Two Hundred Fifty Thousand (1,250,000) shares have been
designated Series A Preferred Stock having a liquidation preference of Two
Dollars ($2.00) per share all of which shares are issued and outstanding; (ii)
Six Hundred Twenty-Five Thousand (625,000) shares have been designated Series B
Preferred Stock having a liquidation
<PAGE> 76
Fil-Fiber Manufacturing, Inc. Ltd. - 3 -
- - --------------------------------------------------------------------------------
preference of Four Dollars ($4.00) per share all of which shares are issued and
outstanding; and (iii) One Hundred Twenty Thousand (120,000) shares have been
designated Series C Preferred Stock having a liquidation preference of Twelve
and 50/100 dollars ($12.50) per share, all of which shares are issued and
outstanding. The outstanding shares of Common Stock and Preferred Stock have
been duly authorized and validly issued and are fully paid and nonassessable.
The rights, preferences and privileges of the Series A Preferred Stock are as
stated in the Certificate of Incorporation. The rights, preferences and
privileges of the Series B Preferred Stock are set forth in a Certificate of
Designation filed by Company with the Secretary of State of Delaware. The rights
preferences and privileges of the Series C Preferred Stock are set forth in a
Certificate of Designation filed by the Company with the Secretary of State of
Delaware. The 9,250,000 shares of Common Stock issuable upon conversion of the
issued and outstanding shares of Preferred Stock have been duly authorized and
reserved. To the best of my knowledge, there are no preemptive rights, rights of
first refusal or rights of co-sale which exist with respect to the issuance and
sale of the Debentures which have not been waived.
The Company has reserved 10,384,833 shares of Common Stock (the
"Reserved Shares") for issuance upon the: (a) exercise of options to purchase
shares of Common Stock pursuant to its stock option plans for directors,
officers and employees; (b) the exercise of warrants and options to purchase
shares of Common Stock which have been issued to a supplier, former employees,
consultants to the Company and the guarantor of certain bank debt of the
Company. To the best of my knowledge, after inquiry, other than (a) rights to
convert issued and outstanding shares of Preferred Stock and (b) the options
and warrants related to the Reserved Shares as set forth above and except as
may be granted pursuant to (i) that certain Investor's Rights Agreement entered
into December 29, 1995 between the Company and purchasers of the Company's
Series A Preferred Stock, (ii) that certain Investor's Rights Agreement entered
into May 24, 1996 between the Company and purchasers of the Company's Series B
Preferred Stock, (iii) those certain Investor's Rights Agreements entered into
as of June 14, 1996 and June 28, 1996 between the Company and purchasers of the
Company's Series C Preferred Stock, will be (iv) that certain Investor's Rights
Agreement entered into August 16, 1996 between the Company and the purchaser of
$4,000,000 of the Company's Convertible Debentures which will be convertible
into the Company's Series D Preferred Stock (when such preferred stock has been
authorized) and (v) that certain Investor's Rights Agreement entered into as of
September 4, 1996, between the Company and the Purchaser of $500,000 of the
Company's Convertible Debentures which will be convertible into the Company's
Series E Preferred Stock (when such preferred stock has been authorized) there
are no outstanding options, warrants, rights (including conversion or
preemptive rights), proxy or stockholder agreements, or agreements of any kind
for the purchase or acquisition from the Company of any of its securities.
7. The execution and delivery of the Purchase Agreement and the Rights
Agreement by the Company and the issuance of the Debenture pursuant thereto do
not violate any provisions of the Company's Certificate of Incorporation or
By-Laws, and to not constitute a material default (which has not been consented
to or waived) under the provisions of any material agreement known to me which
the Company is a party or by which it is bound, and do not violate or
contravene (A) any governmental statute, rule or regulation applicable to the
Company or (B) any order, writ, judgment, injunction, decree, determination or
award which has been entered against the Company and of which I am aware, the
violation or contravention of which would have a Material Adverse Effect.
<PAGE> 77
Fil-Fiber Manufacturing, Inc. Ltd. - 4 -
- - --------------------------------------------------------------------------------
8. To the best of my knowledge, there is not action, proceeding or
investigation pending or overtly threatened against the Company before any
court or administrative agency that questions the validity of the Debenture,
the Purchase Agreement or the Rights Agreement or might result, either
individually or in the aggregate, in a Material Adverse Effect. I call to your
attention the inquiry of the United States Department of Transportation (the
"DOT") which is described in Schedule 4.08 of the Purchase Agreement. Although
I do not believe it is likely, such inquiry could lead to actions by the DOT
which could have a Material Adverse Effect. I also call your attention to the
civil lawsuits referred to in Schedule 4.8 of the Purchase Agreement in which
the Company is a defendant. It the plaintiffs were to prevail in such lawsuits
in a manner in which none of the Company's defenses (both as to liability and
damages) such lawsuits could be deemed to have caused a material adverse
effect.
9. All consents, approvals, authorizations, or orders of, and filings,
registrations, and qualifications with any regulatory authority or governmental
body in the United States required for the consummation by the Company of the
transactions contemplated by the Purchase Agreement, have been made or
obtained.
10. The offer and sale of the Debenture is exempt from the
registration requirements of the Securities Act of 1933, as amended. The
qualification of an indenture with respect to the Debentures under the Trust
Indenture Act of 1939, as amended, is not required in connection with the
offer, issue, sale and delivery of the Debentures.
11. The issue and sale of the Debentures and the carrying out of any
of the other transactions contemplated in the Purchase Agreement will not
violate Regulation G of the Board of Governors of the Federal Reserve System
(12.C.F.R. 207, as amended) or Regulation U (12.C.F.R. 221, as amended),
Regulation T (12.C.F.R. 220, as amended) or Regulation X (12.C.F.R. 224, as
amended) or any other regulation of such Board.
This opinion is being furnished to you solely in connection with the
transaction referred to above and is not to be relied upon by any other person.
The opinions expressed herein are rendered and speak only as of the date
hereof, and I specifically disclaim any undertaking to update such opinion or
to advise you of subsequent legal or factual developments affecting the same
that hereafter may come to my attention.
Sincerely,
/s/ David Y. Monteith
---------------------
David Y. Monteith
DYM/akd
<PAGE> 78
CONVERTIBLE DEBENTURE PURCHASE AGREEMENT
SCHEDULE 4.04
(1) The Company's Series A, Series B and Series C Preferred Stock
have: (a) rights to convert their shares to shares of Common Stock par value
$0.001 per share ("Common Stock") of the Company; (b) a right of first refusal
as to any additional issues of equity securities of the Company; and (c)
anti-dilution rights in the event of certain issuances of equity securities.
(2) On August 16, 1996 the Company sold $4,000,000 of Convertible
Debentures due August 16, 1999. The holders of such debentures have: (a) rights
to convert their debentures to shares of Series D Convertible Preferred Stock
par value $0.001 per share which, in turn are convertible into shares of Common
Stock; and (b) a right of first refusal as to any equity securities of the
Company; on September 4, 1996 the Company sold $500,000 of Convertible
Debentures due August 16, 1999. The holders of said debentures have: (a) rights
to convert their debentures to shares of Series E Preferred Stock par value
$0.001 per share which, in turn are convertible into shares of Common Stock;
(b) a right of first refusal as to certain equity securities; and (c)
anti-dilution rights as to certain issuances of equity securities.
(3) The Company has reserved 10,384,833 shares of Common Stock
pursuant to (i) its various stock option plans for directors, officers and
employees; (ii) warrants to purchase shares of Common Stock which have been
issued to a supplier, certain former employees, consultants to the Company, and
the guarantor of certain bank debt of the Company; and (iii) conversion rights
of the Company's Series A Preferred Stock, Series B Preferred Stock and Series
C Preferred Stock. Up to an additional 32,000,000 shares of Preferred Stock and
32,000,000 shares of Common Stock will be required to authorized and reserved
for conversion of the Company's convertible debentures and Series D and Series
E Preferred Stock if the maximum number of debentures convertible into Series E
Preferred authorized by the Board are sold.
(4) The Company believes that certain of its shareholders may hold
proxies from family members and others to whom they transferred shares of
Common Stock; however, the Company does not believe that such proxies cover
more than an insubstantial number of shares.
(5) The Company believes that substantially all of its outstanding
securities were issued in compliance with all applicable federal and state
securities laws; however, as to an insubstantial number of shares of Common
Stock, the Company does not have sufficient knowledge of the circumstances of
their issuance to make an informed judgment as to their having been issued in
compliance with such laws.
<PAGE> 79
CONVERTIBLE DEBENTURE PURCHASE AGREEMENT
SCHEDULE 4.06
(i) Issuances of Stocks, Bonds or Other Corporate Securities
(a) On May 24, 1996 the Company issued 625,000 shares of its
Series B Preferred Stock.
(b) On June 14, 1996 the Company issued 40,000 shares of its
Series C Preferred Stock.
(c) On June 26, 1996 the Company issued 80,000 shares of its
Series C Preferred Stock.
(d) On July 17, 1996 the Company issued 100,000 shares of Common
Stock par value $0.001 per share to its Chief Executive
Officer in fulfillment of an incentive to his employment.
(e) On April 26, 1996 the Company issued to H&Q Group a warrant
exercisable for 400,000 shares of Series A Preferred Stock.
(f) On August 16, 1996 the Company sold $4,000,000 of convertible
debentures due August 16, 1999.
(g) On September 4, 1996 the Company sold $500,000 of convertible
debentures due August 16, 1999; these debentures are part of
the $4,000,000 of such debentures of which the Debentures are
a part.
(ii) Incurrence of Liabilities
(a) On March 29, 1996 the Company entered into a $1 Million
Revolving Line of Credit (the "NationsBank Line") with
NationsBank, N.A. $500,000 has been drawn against such line
of credit.
(b) On April 26, 1996 the Company closed a $2 Million loan with
National Bank of South Carolina guaranteed by Hambrecht &
Quist Group.
(C) On May 17, 1996, the Company entered into a $1 Million demand
loan with H&Q Air South Investors, L.P. ("H&Q"). This loan
was repaid with proceeds from the Series B Preferred Stock
financing referred to in (i) "(a)" above.
<PAGE> 80
(d) On July 17 and July 18, 1996, the Company entered into demand
loans with H&Q for $250,000 and $800,000, respectively.*
(e) On August 1 and August 8, 1996, the Company entered into
demand loans with H&Q for $1,000,000 and $250,000,
respectively.*
(f) On August 13, 1996, the Company entered into a demand loan
with H&Q for $250,000.*
(g) On August 15, 1996, the Company entered into a demand loan
with H&Q for $250,000.*
(iii) Mortgages, Pledges and Creation of Liens
In connection with the NationsBank Line the Company granted a first
lien on substantially all its assets.
(iv) Sale of Assets
On April 26, 1996 the Company sold $441,400 of its aircraft parts
inventory under an agreement by which it would repurchase certain of
such parts from time-to-time on an as needed basis.
(v) Change in Business Operations
Beginning on March 14, 1996 the Company changed its business plan from
being a Southeastern regional airline to one providing service from
underserved cities in the Southeast to high population density areas
of the Northeast and Midwest.
(vi) Redemptions
On January 2, 1996, the Company redeemed 250,000 shares of its Common
Stock, par value $0.001 per share held by Patrick J. O'Shea, the
former President of the Company, and certain other persons designated
by him for $2.00 per share.
(vii) Changes in Officer Compensation
On August 25, 1996 the Company elected a new President and Chief
Executive Officer whose aggregate compensation is significantly higher
than its former President and Chief Executive Officer.
- - ---------------
* Each of these demand loans was satisfied out of the proceeds of the
transaction referred to in (i)(f), above
<PAGE> 81
CONVERTIBLE DEBENTURE PURCHASE AGREEMENT
SCHEDULE 4.07
The Company is in violation or in default of the following instruments or
contracts as to which it is a party.
(a) Air South, Inc. (now Air South Airlines, Inc.) HUD Section
108 Loan Program.
(b) Revolving Credit Facility with NationsBank, N.A.
(c) Loan Agreement with the National Bank of South Carolina.
(d) Aircraft leases on five Boeing 737 aircraft leased through GE
Capital Aviation Services, Inc.
The Company may be in violation of other instruments or contracts to which it
is a party; however, the Company believes that any such violations either
individually or in the aggregate will not result in a Material Adverse Effect.
<PAGE> 82
CONVERTIBLE DEBENTURE PURCHASE AGREEMENT
SCHEDULE 4.08
The Company is the subject of an inquiry from the United States Department
of Transportation (the "DOT") with regard to its fitness to be a certificated
air carrier. The inquiry stated that it arose as a result of publicity
concerning a dispute between the Company and the Hillsborough County Aviation
Authority over the Company's cessation of operations at and non-payment
of rent for Tampa International Airport, Florida. The Company has
responded to the inquiry. Through its counsel, Bagileo, Silverberg &
Goldman of Washington, D.C., the Company has received additional inquiries
from the DOT; the Company is preparing its response to such additional
inquiries. The Company is the defendant in a lawsuit arising out of its
contracts with the Hillsborough County Aviation Authority relating to its
use of Tampa International Airport. The Company has been sued by a former
president and chief executive officer of the Company seeking damaged
incurred because of an alleged breach of the terms of his employment by
the Company.
<PAGE> 83
CONVERTIBLE DEBENTURE PURCHASE AGREEMENT
SCHEDULE 4.10
All of the properties and assets of the Company are subject to security
interests created by:
(a) the HUD Loan; and
(b) that certain loan from NationsBank, N.A. to the Company made
March 29, 1996.
<PAGE> 84
CONVERTIBLE DEBENTURE PURCHASE AGREEMENT
SCHEDULE 4.11
The Company is in default in one or more respects, including the making of
lease payments thereon as to the following leases of property, real or
personal:
(a) Aircraft Lease Agreement for five Boeing 737 aircraft
arranged through GE Capital Aviation Services, Inc.
(b) Terminated lease and other agreements with Hillsborough
County Aviation Authority relating to the Company's
operations (discontinued since April 5, 1996) at Tampa
International Airport, Florida.
<PAGE> 85
CONVERTIBLE DEBENTURE PURCHASE AGREEMENT
SCHEDULE 4.14
The outstanding Debt of the Company consists of:
(a) debt incurred pursuant to the HUD Loan of which $12 million
is outstanding on the date hereof;
(b) debt incurred pursuant to a loan from NationsBank N.A. to the
Company, of which $500,000 is outstanding on the date hereof;
(C) debt incurred pursuant to a loan from The National Bank of
South Carolina to the Company of which $2 million is
outstanding on the date hereof; and
(d) debt incurred pursuant to the issuance of $4,000,000 of
convertible debentures due August 16, 1996; and
(e) debt incurred pursuant to the issuance of $500,000 of
convertible debentures on September 4, 1996.
<PAGE> 1
EXHIBIT 10.1
1993
INCENTIVE STOCK OPTION PLAN
FOR
AIR SOUTH, INC.
1. PURPOSE
This Incentive Stock Option plan (the "Plan") is intended as an incentive and
to encourage stock ownership by all key officers and employees of Air South,
Inc. (the "Corporation") or of any subsidiary corporations, as that term is
defined in Article 3 below (the "Subsidiaries"), so that they may acquire or
increase their proprietary interest in the success of the Corporation and the
Subsidiaries, and to encourage them to remain in the employ of the Corporation
or the Subsidiaries. It is further intended that options issued pursuant to
this Plan shall constitute "incentive stock options" within the meaning of
Section 422A of the Internal Revenue Code of 1986, as amended (the "Code").
2. ADMINISTRATION
The Plan shall be administered by the Board of Directors or, if appointed, by a
committee appointed by the Board of Directors of the Corporation (the
"Committee"). Such Committee shall consist of not less than three members of
the Corporation's Board of Directors. The Board of Directors may from time to
time remove members from, or add members to, the Committee. Vacancies on the
Committee, howsoever caused, shall be filled by the Board of Directors. The
Committee shall select one of its members as Chairman, and shall hold meetings
at such times and places as it
<PAGE> 2
-2-
may determine. A majority of the Committee at which a quorum is present, or
acts reduced to or approved in writing by a majority of the members of the
Committee, shall be the valid acts of the Committee. No director while a member
of the Committee shall be eligible to receive an option under the Plan. The
Committee shall from time to time at its discretion make recommendations to the
Board of Directors with respect to all officers and key employees who shall be
granted options and the amount of stock to be optioned to each.
The interpretation and construction by the Committee of any provisions of the
Plan or of any option granted under it shall be final unless otherwise
determined by the Board of Directors. No member of the Board of Directors or
the Committee shall be liable for any action or determination made in good
faith with respect to the Plan or any option granted under it.
3. ELIGIBILITY
The persons who shall be eligible to receive options shall be such key officers
and employees (whether or not they are directors) of the Corporation or its
Subsidiaries (as such term is defined in Section 425 of the Code) as the Board
of Directors shall select from time to time from among those nominated by the
Committee. An optionee may hold more than one option, but only on the terms and
subject to the restrictions hereafter set forth.
<PAGE> 3
-3-
No personal shall be eligible to receive an option for a larger number of
shares than is recommended for his (her) by the Committee.
4. STOCK
The stock subject to the options to be granted hereunder shall be an aggregate
of 500,000 shares of the Corporation's authorized but unissued or reacquired no
par value common stock, hereafter sometimes called "Common Stock."
In the event any outstanding option under the Plan for any reason expires,
lapses or is otherwise terminated, or if any shares transferred pursuant to any
exercise of options are subsequently repurchased by the corporation pursuant to
Section 5(e) of the Plan, those shares of Common Stock or those shares
allocable to such unexercised options may again become the subject of an option
granted under the Plan.
5. TERMS AND CONDITIONS OF OPTIONS
Stock options granted pursuant to the Plan shall be authorized by the Board of
Directors and shall be evidenced by agreements in such form as the Committee
shall from time to time recommend and the Board of Directors shall from time to
time approve, which agreements shall comply with and be subject to the
following terms and conditions:
(a) Optionee's Agreement and Eligibility.
<PAGE> 4
-4-
Each optionee shall express his (her) intent to remain in the employ
of and to render to the Corporation of the Subsidiaries services for a
period of five years, but nothing in this Plan shall impose upon the
Corporation or Subsidiaries any obligation to retain the optionee in
their employ for any period. Each optionee shall agree in writing not
to sell, assign or transfer any shares acquired by exercise of an
option under the Plan (and all stock certificates issued pursuant to
exercise of options granted hereunder shall bear a legend prohibiting
sale, assignment or transfer) until two years after the date of grant
thereof and one year after the date of exercise thereof. Options
granted hereunder shall become null and void unless the optionee
remains continuously an employee of the Corporation or Subsidiary for
a period of six (6) months following the date of grant thereof. Upon
exercise of any option granted hereunder, the optionee shall agree in
writing that he (she) is acquiring the securities being issued
pursuant to exercise of the option for investment for his (her) own
account and not with a view to the resale or distribution thereof.
(b) Number of Shares.
Each option shall state the total number of shares to which it
pertains.
<PAGE> 5
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(c) Option Price.
Each option shall state the option price, which shall be not less than
100% of the fair market value of the shares of Common Stock of the
Corporation on the date of the grant of the option.
Notwithstanding the preceding paragraph, in the case of an individual,
who immediately before the grant of an option, owns [including
constructive ownership pursuant to Section 425(d) of the Code] more
than ten percent (10%) of the total combined voting power of all
classes of stock of the Corporation or its parent (if any) or any of
the subsidiaries, the purchase price per share of Common Stock under
each such option shall not be less than 110 percent of the fair market
value per share of stock at the time of the grant of the option. At or
prior to the time an option is granted to such an individual, the
Committee shall fix the term of such option which, notwithstanding
Section 5 (e) of the Plan, shall not be more than five years from the
date of the grant of the option. In the event that the Committee takes
no action to fix the term of an option granted to such an individual,
such option shall contain a provision that it shall expire five years
from the date of grant. For purposes of this paragraph, the parent of
the Corporation shall be any corporation, which, with respect to the
Corporation, is a parent corporation pursuant to Section
<PAGE> 6
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425(e) of the Code; and the Subsidiaries of the Corporation shall be
all corporations which, with respect to the Corporation, are
subsidiary corporations pursuant to Section 425(f) of the Code.
During such time as such stock is not listed on an established stock
exchange, the fair market value per share shall be the price half-way
between the dealer "bid" and "ask" prices of the Common Stock in the
over-the-counter market on the day on which the option is granted, as
reported by the National Association of Securities Dealers, Inc. If
the stock is listed upon an established stock exchange or exchanges,
such fair market value shall be deemed to be the highest closing price
of the Common Stock on such stock exchange or exchanges on the day on
which the option is granted or, if no sale of the Corporation's Common
Stock shall have been made on any stock exchange on that day, on the
next preceding day on which there was a sale of such stock. If there
is no established market for the stock, the fair market value shall be
determined by the most recent prior private sale price of the Common
Stock. Subject to the foregoing, the Board of Directors and the
committee in fixing the option price shall have full authority and
discretion and shall be fully protected in doing so.
<PAGE> 7
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(d) Medium and Time of Payment.
The option price shall be payable in United States dollars upon the
exercise of the option and may be paid in cash or by check. At the
agreement of the Board of Directors and the optionee, the option price
may be paid in shares of Common Stock of the Corporation, taken at
fair market value.
(e) Term and Exercise of Options (Vesting).
No option shall be exercisable after the expiration of ten years from
the date it is granted or three months after termination of
employment, except as provided for herein in the event of death or
total disability of the optionee. During the lifetime of the optionee,
the option shall be exercisable only by him (her) and shall not be
assignable or transferable by him (her), and no other person shall
acquire any rights therein. Options granted hereunder shall be
transferable by will or by the laws of descent and distribution. The
minimum number of shares exercisable at any single time shall be one
hundred (100) shares, unless the total number of shares subject to
exercise hereunder amount to fewer than one hundred (100) shares.
(f) Prior Outstanding options.
An option (for purposes of this Article 5(f) called a "New Option")
may be exercised, to the extent then exercisable, even though there
may be outstanding prior incentive stock options, whether exercisable
or not, which were granted
<PAGE> 8
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before the granting of the New Option, to the person to whom the New
Option is granted, to purchase stock in the Corporation or the
Subsidiaries or in a corporation which, at the time the New Option is
granted, is a parent or subsidiary corporation (as those terms are
defined in Section 425 of the Code) of the Corporation, of is a
predecessor corporation of the corporation or such parent or
subsidiary corporation.
(g) Termination of Employment Other Than By Death.
In the event that an optionee shall cease to be employed by the
Corporation or the Subsidiaries for any reason other than his (her)
death, such optionee shall have the right to exercise the option at
any time within three months after such termination of any employment
(twelve months in the case of the total disability of the optionee) to
the extent that his (her) right, to exercise such option had accrued
pursuant to Article 5(e) of the Plan and had not previously been
exercised at the date of such termination. Whether authorized leave of
absence or absence for military or governmental service shall
constitute termination of employment, for the purposes of the Plan,
shall be determined by the Committee, which determination, unless
overruled by the Board of Directors, shall be final and conclusive.
<PAGE> 9
-9-
(h) Death of Optionee and Transfer of option.
If the optionee shall die while in the employment of the Corporation
or any of the Subsidiaries or within a period of three months after
the termination of his (her) employment with the Corporation or any of
the Subsidiaries, an option may be exercised at any time within one
year after the optionee's death, by the executors or administrators of
the optionee or other person acquiring such option by bequest or
inheritance.
(i) Recapitalization.
Subject to any required action by the stockholders, the number of
shares of Common Stock covered by each outstanding option, and the
price per share thereof in each such option, shall be proportionately
adjusted for any increase or decrease in the number of issued shares
of Common Stock of the Corporation resulting from a subdivision or
consolidation of shares or the payment of a stock dividend (but only
on the Common Stock) or any other increase or decrease in the number
of such shares effected without receipt of consideration by the
Corporation.
Subject to any required action by the stockholders, if the Corporation
shall be the surviving corporation in any merger or consolidation,
each outstanding option shall pertain to and apply to the securities
to which a holder of the number of shares of Common Stock subject to
the option would have
<PAGE> 10
-10-
been entitled. A dissolution or liquidation of the Corporation or a
merger, consolidation or acquisition in which the Corporation is not
the surviving corporation, shall cause each outstanding option to
terminate, providing each optionee shall, in such event, have the
right, immediately prior to such dissolution or liquidation, or
merger, consolidation of acquisition in which the Corporation is not
the surviving corporation, to exercise her (her) option in whole or in
part.
In the event of a change in the Common Stock of the Corporation as
presently constituted, which is limited to a change of all of its
authorized shares with par value into the same number of shares with a
different par value or without par value, the shares resulting from
any such change shall be deemed to be the Common Stock within the
meaning of the Plan.
To the extent that the foregoing adjustments relate to stock or
securities of the Corporation, such adjustments shall be made by the
Committee, whose determination in that respect shall be final, binding
and conclusive, provided that each option granted pursuant to this
Plan shall not be adjusted in a manner that causes the option to fall
to continue to qualify as an incentive stock option within the meaning
of Section 422A of the Code.
<PAGE> 11
-11-
The grant of an option pursuant to the Plan shall not affect in any
way the right or power of the Corporation to make adjustments,
reclassifications, reorganizations or changes of its capital or
business structure or to merge or to consolidate or to dissolve,
liquidate or sell, or transfer all of any part of its business or
assets.
(j) Rights as a Stockholder.
An optionee or a transferee of an option shall have no rights as
stockholder with respect to any shares covered by his (her) option
until the date of the issuance of a stock certificate to him (her) for
such shares. No adjustment shall be made for dividends (ordinary or
extraordinary, whether in cash, securities or other property) or
distributions or other rights for which the record date is prior to
the date on which such stock certificate is issued, except as provided
in Article 5(i) hereof.
(k) Modification, Extension and Renewal of Options.
Subject to the terms and conditions and within the limitations of the
Plan, the Board of Directors may modify, extend or renew outstanding
options (to the extent not theretofore exercised) and authorize the
granting of new options in substitution therefor (to the extent not
theretofore exercised). Notwithstanding the foregoing, however, no
modification of any option shall, without the consent of the optionee,
alter or impair any rights or
<PAGE> 12
-12-
obligations under any option theretofore granted under the Plan.
(l) Investment Purpose and Qualification of Shares.
Each option under the Plan shall be granted on the condition
that the purchases of stock thereunder shall be for investment
purposes only, and not with a view to resale or distribution. If the
stock subject to such option is registered under the Securities Act of
1933, as amended, or a resale of such stock without such registration
would otherwise be permissible, such stock may be sold by the
optionee if, in the opinion of counsel for the Corporation, such a
sale would be permitted under the Securities Act of 1933 or any other
applicable law, regulation, or rule of any governmental agency. The
Corporation shall seek such authority, as may lawfully be required for
the optionee to offer and sell the shares covered by an option in the
jurisdiction in which the optionee resides. However, nothing herein
shall require the Corporation to register under the Securities Act of
1933 either the Plan, options granted thereunder, or any securities
issued or issuable pursuant to any option granted under the Plan. If
such authority is not obtained for any reason, the Corporation shall
not be obligated (and shall be relieved of any liability for failure)
to register the transfer of any stock
<PAGE> 13
-13-
issued pursuant to an option granted hereunder until and unless such
authority is granted.
(m) Other Provisions.
The option agreements authorized under the Plan shall from time to
time and from option to option contain such other provisions,
including, without limitation, restrictions on the exercise of the
option, as the Committee and the Board of Directors of the Corporation
shall deem advisable in each case. Any such option agreement shall
contain such limitations and restrictions upon the exercise of the
option as shall be necessary in order that such option will be an
"incentive stock option" as defined in Section 422A of the Code or to
inform to any change in the law.
6. CORPORATION LOANS
The corporation may, but need not, make nonrecourse, collateralized loans to
employees for the purpose of exercising options, with such loans secured by the
shares being purchased. Such loans shall, however, terminate and be due and
payable (including interest) thirty days after the last day of the employment
of any employee or, if earlier, upon the disposition by the employee of the
shares purchased with the proceeds of such loans.
<PAGE> 14
-14-
7. TERM OF PLAN
Options may be granted pursuant to the Plan from time to time within a period
of ten years from the date the Plan is adopted, or the date the Plan is
approved by the Stockholders, whichever is earlier.
8. INDEMNIFICATION OF COMMITTEE
In addition to such other rights of indemnification as they may have as
directors or as members of the Committee, the members of the Committee shall be
indemnified by the Corporation against the reasonable expenses, including
attorneys' fees actually and necessarily incurred in connection with the
defense of any action, suit or proceeding, or in connection with any appeal
therein, to which they or any of them may be a party by reason of any action
taken or failure to act under or in connection with the Plan or any option
granted thereunder, and against all amounts paid by them in settlement thereof
(provided such settlement is approved by independent legal counsel selected by
the Corporation) or paid by them in satisfaction of a judgment in any such
action, suit or proceeding, except in relation to matters as to which it shall
be adjudged in such action, suit or proceeding that such Committee member is
liable for negligence or misconduct in the performance of his duties; provided
that, within sixty days after the institution of any such action, suit or
proceeding, the Committee member shall in writing offer to the
<PAGE> 15
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Corporation the opportunity, at its own expense, to handle and defend the same.
9. AMENDMENT OF THE PLAN
The Board of Directors of the Corporation may, insofar as permitted by law,
from time to time, with respect to any shares at the time not subject to
options, suspend or discontinue the Plan or revise or amend it in any respect
whatsoever except that, without the approval of the stockholders, no such
revision or amendment shall change the number of the shares subject to the
Plan, change the designation of the class of the individuals eligible to
receive options, decrease the price at which options may be granted, remove the
administration of the Plan from the Committee, or render any member of the
committee eligible to receive an option under the Plan while serving thereon.
Furthermore, the Plan may not, without the approval of the stockholders, be
amended in any manner that will cause options issued under it to fail to meet
the requirements of "incentive stock options" as defined in Section 422A of the
Code.
10. NO OBLIGATION TO EXERCISE OPTION
The granting of an option shall impose no obligation upon the optionee to
exercise such option.
11. APPROVAL OF STOCKHOLDERS
The Plan is subject to approval by the holders of a majority of the outstanding
shares of Common Stock of the Corporation, which
<PAGE> 1
EXHIBIT 10.2
AIR SOUTH, INC.
1994-1995 INCENTIVE AND NON-QUALIFIED STOCK OPTION PLAN
1. PURPOSE
This Incentive and Non-Qualified Stock Option Plan (the "Plan") is
intended to encourage stock ownership of AIR SOUTH, INC., an Illinois
corporation by officers, directors, consultants and employees of the Corporation
and any subsidiary corporations (collectively the Corporation") as defined in
Section 424(f) of the Internal Revenue Code of 1986, as amended (the "Code"), so
that they may acquire or increase their ownership position and consequent
interest in the success of the Corporation, and to encourage them to remain in
the employ of, or maintain their relationship with, the Corporation. It is
further intended that options issued pursuant to this Plan shall constitute
either "incentive stock options" within the meaning of Section 422 of the Code
("Incentive Stock Options") or non-qualified stock options, the tax consequences
of which are governed by Section 83 of the Code ("Non-Qualified Stock Options"),
as designated at the time of grant. Any option granted pursuant to this Plan
which for any reason fails to qualify as an Incentive Stock Option shall be
deemed to have been granted as an option not qualified under Section 422 of the
Code. This Plan will govern the issuance of Non-Qualified Stock Options, with
terms similar in most respects to Incentive Stock Options. The Compensation
Committee may vary the terms of Non-Qualified Stock Options issued without
regard to the limits and restrictions set forth herein. The provisions of this
Plan will apply to Non-Qualified Stock Options only in default of the
establishment of different terms by the Committee.
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<PAGE> 2
2. ADMINISTRATION
The Plan shall be administered by a Compensation Committee appointed by
the Board of Directors of the Corporation (the "Committee"). The Committee shall
from time to time at its discretion determine (i) those officers, directors,
consultants and employees (including key and non-key) who shall be granted
options; (ii) the number of shares of stock to be optioned to each; and (iii)
subject to the express provisions of the Plan, the terms of all options so
granted.
The interpretation and construction by the Committee of any provisions
of the Plan or of any option granted under it shall be final unless otherwise
determined by the Board of Directors. No member of the Board of Directors or the
Committee shall be liable for any action or determination made in good faith
with respect to the Plan or any option granted under it.
If at any time no Committee shall be in office, the Board shall perform
the functions of the Committee.
3. ELIGIBILITY
The persons who shall be eligible to receive Incentive Stock Options
shall be such officers and employees (whether or not they are directors) of the
Corporation as the Committee shall select from time to time. Non-employee
directors, consultants and others, who have a relationship with the Corporation
which the Committee considers beneficial to the Corporation shall receive
Non-Qualified Stock Options. Officers and employees may also receive
Non-Qualified Stock Options. An optionee may hold more than one option, but only
on the terms and subject to the restrictions hereafter set forth.
4. STOCK
2
<PAGE> 3
The stock subject to the options to be granted hereunder shall be an
aggregate of 750,000 shares of the Corporation's authorized but unissued or
reacquired common stock, hereafter sometimes called "Common Stock". The
aggregate fair market value (determined at the time the option is granted) of
the Common Stock with respect to which Incentive Stock Options are exercisable
for the first time in any calendar year by an optionee under this Plan or any
other plan of the Corporation, shall not exceed $100,000 (or such other amount
as may then be permissible under Section 422 of the Code). Any option granted
and exercisable in excess of such amount shall be treated as a Non-Qualified
Stock Option with respect to such excess. For the purpose of the immediately
preceding sentence, options that are not qualified as Incentive Stock Options by
reason of such excess shall be deemed to relate first to the most recently
granted options. The limitations established by each of the preceding sentences
shall be subject to adjustment as provided in Article 5(g) of the Plan.
In the event any outstanding option under the Plan for any reason
expires, lapses or is otherwise terminated, the shares of Common Stock allocable
to the unexercised portion of such option may again become the subject of an
option granted under the Plan.
5. TERMS AND CONDITIONS OF OPTIONS
Options granted pursuant to the Plan shall be authorized by the
Committee and shall be evidenced by agreements in such form as the Committee
shall from time to time approve, which agreements shall comply with and be
subject to the following terms and conditions:
Each option shall state the total number of shares to which it
pertains.
(b) Option Price.
3
<PAGE> 4
Each option shall state the option price, which, in the case of
Non-Qualified stock options need not be related to the market price. Incentive
Stock Options, shall be granted at a price no less than 100% of the fair market
value of the shares of Common Stock of the Corporation on the date of the
granting of the option or in the case of an individual who immediately before
the grant of an option owns (including constructive ownership pursuant to
Section 424(d) of the Code) more than ten percent (10%) of the total combined
voting power of all classes of stock of the Corporation, a purchase price no
less than 110% of the fair market value per share of stock at the time of the
grant of the option. At or prior to the time an option is granted, the Committee
shall fix the term of such option which shall be not more than ten years from
the date of the grant (five years from the date of grant of Incentive Stock
Options for 10% Stockholders). In the event that the Committee takes no action
to fix the term of an option granted to such an individual, such option shall
expire ten years from the date of grant.
During such time as the Common Stock is not listed on an established
stock exchange, the fair market value per share shall be the mean between the
closing "bid" and "ask" prices of the Common Stock in the New York
over-the-counter market on the day the option is granted, as reported by the
National Association of Securities Dealers, Inc. If the stock is listed on an
established stock exchange or exchanges such fair market value shall be deemed
to be the highest closing price of the common stock on such stock exchange on
the day the option is granted or if no sale of the Corporation's Common Stock
shall have been made on any stock exchange that day, on the next preceding day
on which there was a sale of such stock. If there is no established market for
the stock, the fair market value shall be determined by the most recent prior
private
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<PAGE> 5
sale price of the Common Stock. Subject to the foregoing the Committee in fixing
the option price shall have full authority and discretion so long as they shall
act in good faith.
(c) Medium and Time of Payment
The option price shall be payable in United States dollars upon the
exercise of the option and may be paid in cash, check or in shares of Common
Stock of the Corporation, based upon the fair market value of those shares as
determined under Article 5(b) of the Plan.
(d) Term, Exercise and Vesting of Options.
No Incentive Stock Option shall be exercisable either in whole or in
part prior to twelve months from the date it is granted. Each option shall be
exercisable (vest) as to not more than one-third (1/3) of the total number of
shares granted thereby during each twelve-month period during which the optionee
remains continuously an employee, director or consultant of the Corporation,
commencing twelve months from the date of the granting of the option. No option
shall be exercisable after the expiration of ten years from the date it is
granted or three months after termination of employment, except as provided for
herein in the event of death or permanent and total disability (as defined
below) of the optionee. Upon exercise, the option must be exercised for a
minimum number of one hundred (100) shares, unless the number of shares for
which the option is exercisable at such time shall be less than one hundred
(100) shares in which case the minimum number of shares exercisable shall be the
total amount for which the option is exercisable.
(e) Termination of Employment Except Death.
In the event that an optionee who is an employee of the Corporation
shall cease to be employed by the Corporation for any reason other than his
death and shall be no longer in the
5
<PAGE> 6
employ of the Corporation, such optionee must exercise any vested options within
three months (twelve months in the case of the "permanent and total disability"
of the optionee as defined in Section 22(e) (3) of the Code) after such
termination of employment. If not exercised within such three month period
(twelve months-disability), any unexercised options shall terminate. Subject to
Treasury Regulation 1.421-7, whether authorized leave of absence for military or
governmental service shall constitute termination of employment, for the
purposes of the Plan, shall be determined by the Committee, which determination,
unless overruled by the Board of Directors, shall be final and conclusive. (As
used in this Plan, the terms "employ" and "employment" shall be deemed to refer
to employment as an employee in any such capacity, and "termination of
employment" shall be deemed to mean termination of employment as an employee in
all of such capacities and continuation of employment as an employee in none of
such capacities. With respect to Non-Qualified Stock Options issued to
directors, consultants and others who are not employees, the option term shall
be that fixed by the Committee with respect to such director, consultant or
other person, or ten years in default of such determination, and the provisions
of article 5(e) shall not apply and the option shall continue to be exerciseable
for its term, notwithstanding that the optionee may cease to be a director or
consultant with the Corporation.
(f) Death of Optionee and Transfer of Option.
During the lifetime of the optionee, the option shall be exercisable
only by him and shall not be assignable or transferable by him, and no other
person shall acquire any rights therein. Options granted hereunder shall not be
transferable except by will or by the laws of descent and distribution. In the
event of the death of an employee-optionee, no option shall be exercised
6
<PAGE> 7
unless such optionee had been an employee of the Corporation for a period of six
(6) months following the date of grant thereof. If the optionee shall die while
in the employ of the Corporation or within a period of three months after the
termination of his employment with the Corporation any vested options must be
exercised within one year after the optionee's death by the executors or
administrators of the optionee or by any person or persons who shall have
acquired the option directly from the optionee by bequest or inheritance. If not
exercised within such period any unexercised options shall terminate.
(g) Changes in Capitalization.
Subject to any required action by the stockholders, the number of shares
of Common Stock covered by each outstanding option, and the price per share
thereof set forth in each such option, shall be proportionately adjusted for any
increase or decrease in the number of issued shares of Common Stock of the
Corporation by reason of any stock dividend, stock split, reverse stock split,
recapitalization, the issuance of stock rights, merger, consolidation,
combination, exchange of shares, spin-off, distribution of assets to
stockholders change in par value, or other similar corporate change. In any
merger or consolidation, each outstanding option shall pertain to and apply to
the securities of the continuing corporation to which a holder of the number of
shares of Common Stock subject to the option would have been entitled under the
terms of such merger or consolidation. A dissolution or liquidation of the
Corporation shall cause each unvested outstanding option to vest thirty days
prior to such liquidation or dissolution and any such option may thereafter be
exercised prior to, or cotermmous with such liquidation or dissolution.
7
<PAGE> 8
Any adjustments required to be made as a result of a merger shall be
made by the Committee, whose determination in that respect shall be final,
binding and conclusive. The grant of an option pursuant to the Plan shall not
affect in any way the right or power of the Corporation to make adjustments,
reclassifications, reorganizations or changes of its capital of business
structure or to merge or to consolidate or to dissolve, liquidate or sell, or
transfer all or any part of its business or assets.
(h) Rights as a Stockholder or Employee.
An optionee or a transferee of an option shall have no rights as a
stockholder with respect to any shares covered by his option until the date of
the issuance of a stock certificate to him for such shares. No adjustment shall
be made for dividends (ordinary or extraordinary, whether in cash, securities or
other property) or distributions or other rights for which the record date is
prior to the date such stock certificate is issued, except as provided in
Article 5(g) hereof. The Plan is not a contract of employment, and the terms of
employment of any optionee or the relationship of any non-employee consultant
with the Corporation shall not be affected in any way by the Plan or related
instruments except as specifically provided therein. The establishment of the
Plan shall not be construed as conferring any legal rights upon any optionee for
a continuation of employment, nor shall it interfere with the right of the
Corporation to discharge any optionee and to treat him without regard to the
effect which such treatment might have upon him as an optionee. If the employee
is discharged he or she shall not be entitled to any compensation whatsoever
with respect to stock option rights which have not yet vested.
(i) Modification, Extension and Renewal of Options.
8
<PAGE> 9
Subject to the terms and conditions and within the limitations of the
Plan, including but limited to Article 5(d), the Committee may modify, extend or
renew outstanding options granted under the Plan or accept the surrender of
outstanding options (to the extent not theretofore exercised) and authorize the
granting of the new options in substitution therefor (to the extent not
theretofore exercised). The Committee shall not, however, modify any outstanding
Incentive Stock Options so as to specify a lower price. Notwithstanding the
foregoing, however, no modification of an option shall, without the consent of
the optionee, alter or impair any rights or obligations under any option
theretofore granted under the Plan.
(j) Investment Purpose and Qualification of Shares.
Each option under the Plan shall be granted on the condition that the
purchases of stock thereunder shall be for investment purposes, and not with a
view to resale or distribution except that in the event the stock subject to
such option is registered under the Securities Act of 1933, as amended, or in
the event a resale of such stock without such registration would otherwise be
permissible, such condition shall be inoperative if in the opinion of counsel
for the Corporation such condition is not required under the Securities Act of
1933 or any other applicable law, regulation, or rule of any governmental
agency.
The Corporation shall seek such authority as may lawfully be required
to offer and sell the shares covered by an option in each jurisdiction in which
an optionee resides. However, nothing herein shall require the Corporation to
register under the Securities Act of 1933 either the Plan, options granted
thereunder or any securities issued or issuable pursuant to any option granted
under the Plan.
(k) Other Provisions.
9
<PAGE> 10
The option agreements authorized under the Plan shall from time to time
and from option to option contain such other provisions, including, without
limitation, restrictions upon the exercise or vesting of the option, as the
Committee shall deem advisable in each case. Any such option agreement shall
contain such limitations and restrictions upon the exercise of the option as
shall be necessary, in the case of Incentive Stock Options, in order that such
option will be an Incentive Stock Option or to conform to any change in the law.
6. CORPORATION LOANS
The Corporation may make nonrecourse, collateralized loans to employees
for the purpose of exercising options, secured with the stock purchased, with
interest at a rate to be determined by the Committee, but in no event at a rate
of interest less than that specified by Section 7872 of the Code. Such loans
shall, however, terminate and be due and payable (including interest) thirty
days after the last day of the employment of any employee or, if earlier, upon
the disposition by the employee of the shares purchased with the proceeds of
such loans.
7. RELOAD OPTIONS.
Without in any way limiting the authority of the Committee to make
grants hereunder, and in order to induce officers and other key employees to
retain ownership of shares of stock in the Company, the Committee shall have the
authority (but not an obligation) to include within any option agreement a
provision entitling the optionee to a further option (a "Reload Option") in the
event the optionee exercises the option evidenced by the option agreement, in
whole or in part, by surrendering other shares of stock of the Company in
accordance with this Plan and the terms and conditions of the option agreement.
Any such Reload Option shall be for a number of shares of stock equal to the
number of surrendered shares of stock, and shall become exercisable in the
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<PAGE> 11
event the purchased shares of stock are held for a minimum period of time
established by the Committee, and shall be subject to such other terms and
conditions as the Committee may determine.
8. TERM OF PLAN
Options may be granted pursuant to the Plan from time to time within a
period of ten years from the date the Plan is adopted, or the date the Plan is
approved by the stockholders, whichever is earlier.
9. INDEMNIFICATION OF COMMITTEE
In addition to such other rights of indemnification as they may have as
directors or as members of the Committee, the members of the Committee shall be
indemnified by the Corporation against the reasonable expenses, including
attorneys' fees, actually and necessarily incurred in connection with the
defense of any action, suit or proceeding, or in connection with any appeal
therein, to which they or any of them may be a party by reason of any action
taken or failure to act under or in connection with the plan or any option
granted thereunder, and against all amounts paid by them in settlement thereof
(provided such settlement is approved by independent legal counsel selected by
the Corporation) or paid by them in satisfaction of a judgment in any such
action, suit or proceeding; provided that within 60 days after institution of
any such action, suit or proceeding, a Committee member shall in writing offer
the Corporation the opportunity, at its own expense, to handle and defend the
same. The foregoing right of indemnification shall not be exclusive and shall be
independent of any other rights of indemnification to which such persons may be
entitled under the Corporation's Articles of Incorporation or By-Laws, by
contract, as a matter of law, or otherwise.
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10. AMENDMENT OF THE PLAN
The Board of Directors or Compensation Committee of the Corporation
may, amend, suspend or terminate the Plan at any time. Any such amendment will
not, however, change any rights or entitlements of existing option holders
without the consent of such optionees.
The Plan, as to Incentive Stock Options, may not, without approval of
the stockholders, be amended in any manner that will cause such options issued
under it to fail to meet the requirements of Incentive Stock Options as defined
in Section 422 of the Code.
11. APPROVAL OF STOCKHOLDERS
This Plan, with respect to Incentive Stock Options, is subject to
approval by the holders of a majority of the outstanding shares of Common Stock
of the Corporation, voting by person or proxy at a meeting of shareholders in
which there is a quorum, which approval must occur within the period beginning
twelve months before or ending twelve months after the date the Plan is adopted
by the Board of Directors. In the period following the adoption of this Plan by
the Board of Directors but prior to obtaining approval by the stockholders, the
Committee may grant options hereunder, subject to obtaining stockholder approval
of the Plan.
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<PAGE> 13
1994-1995 INCENTIVE AND NON-QUALIFIED STOCK OPTION PLAN
1. PURPOSE
This Incentive and Non-Qualified Stock Option Plan (the "Plan") is
intended to encourage stock ownership of AIR SOUTH INC., an Illinois,
corporation (the "Corporation") by officers, directors, consultants and
employees of the Corporation and any subsidiary corporations (the
"Subsidiaries"), as defined in Section 424(f) of the Internal Revenue Code of
1986, as amended (the "Code"), so that they may acquire or increase their
proprietary interest in the success of the Corporation and Subsidiaries, and to
encourage them to remain in the employ of, or maintain their relationship with,
the Corporation and/or the Subsidiaries. It is further intended that options
issued pursuant to this Plan shall constitute either "incentive stock options"
within the meaning of Section 422 of the Code ("Incentive Stock Options") or
nonqualified stock options, the tax consequences of which are governed by
Section 83 of the Code ("Non-Qualified Stock Options"), as designated at the
time of grant. Any option granted pursuant to this Plan which for any reason
fails to qualify as an Incentive Stock Option shall be deemed to have been
granted as an option not qualified under Section 422 of the Code. The
Corporation intends this Plan to enable it to issue Non-Qualified Stock Options,
with terms similar in most respects to Incentive Stock Options. Non-Qualified
Stock Options may be granted independently of Incentive Stock Options.
<PAGE> 14
2. ADMINISTRATION
The Plan shall be administered by a Compensation Committee appointed
by the Board of Directors of the Corporation (the "Committee"). Such Committee
shall consist of not less than two members of the Corporation's Board of
Directors. The Committee shall from time to time at its discretion determine
(i) those officers, directors, consultants and employees (including key and
non-key) who shall be granted options; (ii) the number of shares of stock to be
optioned to each; and (iii) subject to the express provisions of the Plan, the
terms of all options so granted.
The interpretation and construction by the Committee of any provisions
of the Plan or of any option granted under it shall be
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<PAGE> 15
final unless otherwise determined by the Board of Directors. No member of the
Board of Directors or the Committee shall be liable for any action or
determination made in good faith with respect to the Plan or any option granted
under it.
If at any time no Committee shall be in office, the Board shall perform
the functions of the Committee.
3. ELIGIBILITY
The persons who shall be eligible to receive Incentive Stock Options
shall be such officers and employees (whether or not they are directors) of the
Corporation or its Subsidiaries as the Committee shall select from time to time.
Non-employee directors, consultants and others, who have a relationship with the
Corporation or its Subsidiaries which the Committee considers beneficial to the
Corporation may only receive Non-Qualified Stock Options. Officers and employees
may also receive Non-Qualified Stock Options. An optionee may hold more than one
option, but only on the terms and subject to the restrictions hereafter set
forth.
4. STOCK
The stock subject to the options to be granted hereunder shall be an
aggregate of 750,000 shares of the Corporation's authorized but unissued or
reacquired common stock, hereafter
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<PAGE> 16
sometimes called "Common Stock". The aggregate fair market value (determined at
the time the option is granted) of the Common Stock with respect to which
Incentive Stock options are exercisable for the first time in any calendar year
by an optionee under this Plan or any other plan of the Corporation, a parent of
the Corporation (if any) or Subsidiaries, shall not exceed $100,000 (or such
other amount as may then be permissible under Section 422 of the Code). Any
option granted and exercisable in excess of such amount shall be treated as a
Non-Qualified Stock Option with respect to such excess. For the purpose of the
immediately preceding sentence, options that are not qualified as Incentive
Stock Options by reason of such excess shall be deemed to relate first to the
most recently granted options. The limitations established by each of the
preceding sentences shall be subject to adjustment as provided in Article 5(g)
of the Plan.
In the event any outstanding option under the Plan for any reason
expires, lapses or is otherwise terminated, the shares of Common Stock allocable
to the unexercised portion of such option may again become the subject of an
option granted under the Plan.
5. TERMS AND CONDITIONS OF OPTIONS
Options granted pursuant to the Plan shall be authorized by the
Committee and shall be evidenced by agreements in such form as the Committee
shall from time to time approve, which agreements shall comply with and be
subject to the following terms and conditions:
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<PAGE> 17
(a) Number of Shares.
Each option shall state the total number of shares to which it
pertains.
(b) Option Price.
Each option shall state the option price, which, in the case of an
Incentive Stock option, shall be not less than 100% of the fair market value of
the shares of Common Stock of the Corporation on the date of the granting of the
option. Notwithstanding the preceding sentence, in the case of an individual,
who immediately before the grant of an option, owns (including constructive
ownership pursuant to Section 424(d) of the Code) more than ten percent (10%) of
the total combined voting power of all classes of stock of the Corporation or
its parent (if any) or any of the Subsidiaries ("10% Stockholder"), the purchase
price per share of Common Stock under each such option shall not be less than
110% of the fair market value per share of stock at the time of the grant of the
option. At or prior to the time an option is granted, the Committee shall fix
the term of such option which, notwithstanding Section 5(d) of the Plan, shall
not be more than ten years from the date of the grant of the option in the case
of persons other than 10% Stockholders, and five years from the date of grant of
the option for 10% Stockholders. The foregoing restrictions shall not apply to
grants of Non-Qualified Stock Options. In the event that the Committee takes no
action to fix the term of an option granted to such an individual, such option
shall contain a provision that
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<PAGE> 18
it shall expire ten years from the date of grant. For purposes of this
paragraph, the parent of the Corporation shall be any corporation, which with
respect to the Corporation, is a parent corporation pursuant to Section 424(e)
of the Code; and the Subsidiaries of the Corporation shall be all corporations
which, with respect to the Corporation, are subsidiary corporations pursuant to
Section 424(f) of the Code. During such time as the Common Stock is not listed
upon an established stock exchange the fair market value per share shall be the
mean between the closing "bid" and "ask" prices of the Common Stock in the New
York over-the-counter market on the day the option is granted, as reported by
the National Association of Securities Dealers, Inc. If the stock is listed
upon an established stock exchange or exchanges, such fair market value shall
be deemed to be the highest closing price of the Common Stock on such stock
exchange or exchanges on the day the option is granted or if no sale of the
Corporation's Common Stock shall have been made on any stock exchange that day,
on the next preceding day on which there was a sale of such stock. If there is
no established market for the stock, the fair market value shall be determined
by the most recent prior private sale price of the Common Stock. Subject to the
foregoing the Committee in fixing the option price shall have full authority and
discretion so long as they shall act in good faith.
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<PAGE> 19
(c) Medium and Time of Payment.
The option price shall be payable in United States dollars upon the
exercise of the option and may be paid in cash, check or in shares of Common
Stock of the Corporation, based upon the fair market value of those shares as
determined under Article 5(b) of the Plan.
(d) Term and Exercise of Options.
No Incentive Stock Option shall be exercisable either in whole or in
part prior to twelve months from the date it is granted. Subject to the right of
cumulation provided for in this subdivision, each option shall be exercisable
as to not more than one-third of the total number of shares granted thereby
during each twelve-month period during which the optionee remains continuously
an employee, director or consultant of the Corporation, commencing twelve months
from the date of the granting of the option. Notwithstanding the limitations
of the first two sentences of this subparagraph, the Committee, in its
discretion, may waive such vesting requirements, and each option shall also be
otherwise exercisable pursuant to the terms of each option agreement as
determined by the Committee. To the extent that the option is not exercised in
any period, the number of shares as to which the option is exercisable shall
accumulate and be exercisable, in whole or in part, in any subsequent period
but not later than ten years (or five (5) years in the case of a 10%
Stockholder) from the date the option is granted. No option shall
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<PAGE> 20
be exercisable after the expiration of ten years (or five (5) years in the case
of a 10% Stockholder) from the date it is granted or three months after
termination of employment, except as provided for herein in the event of death
or permanent and total disability (as defined below) of the optionee. Upon
exercise, the option must be exercised for a minimum number of one hundred (100)
shares, unless the number of shares for which the option is exercisable at such
time shall be less than one hundred (100) shares in which case the minimum
number of shares exercisable shall be the total amount for which the option is
exercisable.
(e) Termination of Employment Except Death.
In the event that an optionee shall cease to be employed by the
Corporation or Subsidiaries for any reason other than his death and shall be no
longer in the employ of any of them, subject to the condition that no option
shall be exercisable after the expiration of ten years (or five (5) years in the
case of a 10% Stockholder) from the date it is granted, such optionee shall have
the right to exercise the option at any time within three months (twelve months
in the case of the "permanent and total disability" of the optionee as defined
in Section 22(e)(3) of the Code) after such termination of employment to the
extent his right to exercise such option had accrued pursuant to Article 5(d) of
the Plan and had not previously been exercised at the date of such termination.
Subject to Treasury Regulation 1.421-7, whether authorized leave of absence for
military or governmental service shall constitute termination
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<PAGE> 21
of employment, for the purposes of the Plan, shall be determined by the
Committee, which determination, unless overruled by the Board of Directors,
shall be final and conclusive. (As used in this Plan, the terms "employ" and
"employment" shall be deemed to refer to employment as an employee in any such
capacity, and "termination of employment" shall be deemed to mean termination of
employment as an employee in all of such capacities and continuation of
employment as an employee in none of such capacities. Solely with respect to
Non-Qualified Stock Options, the terms "employ" and "employment" shall also be
deemed to refer to service as a consultant, director and/or officer of the
Corporation and/or a Subsidiary, whether or not the optionee is otherwise an
employee, and "termination of employment" shall be deemed to mean the
termination of such service in all of such capacities and the termination of all
employment of the optionee by the Corporation and any of its Subsidiaries and
the continuation of such service and/or employment in none of such capacities.)
(f) Death of Optionee and Transfer of Option.
During the lifetime of the optionee, the option shall be exercisable
only by him and shall not be assignable or transferable by him, and no other
person shall acquire any rights therein. Options granted hereunder shall not be
transferable except by will or by the laws of descent and distribution. In the
event of the death of an optionee, no option shall be exercised unless such
optionee had been an employee of the Corporation or any Subsidiary
9
<PAGE> 22
for a period of six (6) months following the date of grant thereof. If the
optionee shall die while in the employ of the Corporation or a Subsidiary or
within a period of three months after the termination of his employment with the
Corporation or any Subsidiary and shall not have fully exercised the option, an
option may be exercised, subject to the condition that no option shall be
exercisable after the expiration of ten years from the date it is granted, to
the extent that the optionee's right to exercise such option had accrued
pursuant to Article 5(d) of the Plan at the time of his death and had not
previously been exercised, at any time within one year after the optionee's
death, by the executors or administrators of the optionee or by any person or
persons who shall have acquired the option directly from the optionee by bequest
or inheritance.
(g) Changes in Capitalization.
Subject to any required action by the stockholders, the number of
shares of Common Stock covered by each outstanding option, and the price per
share thereof set forth in each such option, shall be proportionately adjusted
for any increase or decrease in the number of issued shares of Common Stock of
the Corporation by reason of any Common Stock dividend or Common Stock split or
reverse stock split, recapitalization (including, without limitation, the
payment of an extraordinary cash dividend), the issuance of stock rights,
merger, consolidation, combination, exchange of shares, spin-off, distribution
of assets to stockholders, or other similar corporate
10
<PAGE> 23
change. In its discretion, the Committee may also adjust the number of shares of
Common Stock covered by each outstanding option in the event of the sale or
other disposition or distribution by the corporation of all or a portion of its
assets.
Subject to any required actions by the stockholders, if the Corporation
shall be the surviving corporation in any merger or consolidation, each
outstanding option shall pertain to and apply to the securities to which a
holder of the number of shares of Common Stock subject to the option would have
been entitled. A dissolution or liquidation of the Corporation or a merger or
consolidation in which the Corporation is not the surviving corporation, shall
cause each outstanding option to terminate, provided that each optionee shall,
in such event, have the right immediately prior to such dissolution or
liquidation, or merger or consolidation in which the Corporation is not the
surviving corporation, to exercise his option in whole or in part without regard
to the installment provisions of Article 5(d) of the Plan.
In the event of a change in the Common Stock of the Corporation as
currently constituted, which is limited to a change of all of its authorized
shares with par value into the same number of shares with a different par value
or without par value, the shares resulting from any such change shall be deemed
to be the Common Stock within the meaning of the Plan.
To the extent that the foregoing adjustments relate to stock or
securities of the Corporation, such adjustments shall be made by
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<PAGE> 24
the Committee, whose determination in that respect shall be final, binding and
conclusive, provided that each Incentive Stock Option granted pursuant to this
Plan shall not be adjusted in a manner that causes such option to fail to
continue to qualify as an Incentive Stock Option within the meaning of Section
422 of the Code.
Except as hereinbefore expressly provided in this Article 5(g), the
optionee shall have no rights by reason of any subdivision or consolidation of
shares of stock of any class or the payment of any stock dividend or any other
increase or decrease in the number of shares of stock of any class or by reason
of any dissolution, liquidation, merger or consolidation or spin-off of assets
or stock of any class, or securities convertible into shares of stock of any
class, and no adjustment by reason thereof shall be made with respect to, the
number or price of shares of Common Stock subject to the option.
The grant of an option pursuant to the Plan shall not affect in any way
the right or power of the Corporation to make adjustments, reclassifications,
reorganizations or changes of its capital or business structure or to merge or
to consolidate or to dissolve, liquidate or sell, or transfer all or any part of
its business or assets.
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<PAGE> 25
(h) Rights as a Stockholder or Employee.
An optionee or a transferee of an option shall have no rights as a
stockholder with respect to any shares covered by his option until the date of
the issuance of a stock certificate to him for such shares. No adjustment shall
be made for dividends (ordinary or extraordinary, whether in cash, securities or
other property) or distributions or other rights for which the record date is
prior to the date such stock certificate is issued, except as provided in
Article 5(g) hereof. The Plan is not a contract of employment, and the terms of
employment of any optionee or the relationship of any non-employee consultant
with the Corporation shall not be affected in any way by the Plan or related
instruments except as specifically provided therein. The establishment of the
Plan shall not be construed as conferring any legal rights upon any optionee for
a continuation of employment, nor shall it interfere with the right of the
Corporation or any Subsidiary to discharge any optionee and to treat him without
regard to the effect which such treatment might have upon him as an optionee.
(i) Modification, Extension and Renewal Of Options.
Subject to the terms and conditions and within the limitations of the
Plan, including but limited to article 5(d), the Committee may modify, extend or
renew outstanding options granted under the Plan or accept the surrender of
outstanding options (to the extent not theretofore exercised) and authorize the
granting of the new options in substitution therefor (to the extent not
theretofore
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<PAGE> 26
exercised). The Committee shall not, however, modify any outstanding options so
as to specify a lower price. Notwithstanding the foregoing, however, no
modification of an option shall, without the consent of the optionee, alter or
impair any rights or obligations under any option theretofore granted under the
Plan.
(j) Investment Purpose and Qualification of Shares.
Each option under the Plan shall be granted on the condition that the
purchases of stock thereunder shall be for investment purposes, and not with a
view to resale or distribution except that in the event the stock subject to
such option is registered under the Securities Act of 1933, as amended, or in
the event a resale of such stock without such registration would otherwise be
permissible, such condition shall be inoperative if in the opinion of counsel
for the Corporation such condition is not required under the Securities Act of
1933 or any other applicable law, regulation, or rule of any governmental
agency.
The Corporation shall seek such authority as may lawfully be required
to offer and sell the shares covered by an option in each jurisdiction in which
an optionee resides. However, nothing herein shall require the Corporation to
register under the Securities Act of 1933 either the Plan, options granted
thereunder or any securities issued or issuable pursuant to any option granted
under the Plan. If such authority is not obtained for any reason, the
Corporation shall not be obligated (and shall be relieved of any
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<PAGE> 27
liability for failure) to issue and sell any securities which may be exercisable
pursuant to any option granted hereunder until and unless such authority is
obtained.
15
<PAGE> 28
(k) Other Provisions.
The option agreements authorized under the Plan shall from time to time
and from option to option contain such other provisions, including, without
limitation, restrictions upon the exercise of the option, as the Committee shall
deem advisable in each case. Any such option agreement shall contain such
limitations and restriction upon the exercise of the option as shall be
necessary, in the case of Incentive Stock Options, in order that such option
will be an Incentive Stock Option or to conform to any change in the law.
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<PAGE> 29
6. CORPORATION LOANS
The Corporation may make nonrecourse, collateralized loans to employees
for the purpose of exercising options, with such loans to be made to employees
of the Corporation or the Subsidiaries who are then and who remain in good
standing, said loans bearing interest at a rate to be determined by the
Committee, but in no event at a rate of interest less than the Federal interest
rate applicable under Section 7872 of the Code. Such loans shall be in such
amounts as may from time to time be required to enable said employees to
exercise options granted under the Plan, to the extent that such loans are
permitted by law and to the extent that such options are then exercisable, and
shall be secured by the shares being purchased. Such loans shall, however,
terminate and be due and payable (including interest) thirty days after the last
day of the employment of any employee or, if earlier, upon the disposition by
the employee of the shares purchased with the proceeds of such loans.
7. RELOAD OPTIONS
Without in any way limiting the authority of the Committee to make
grants hereunder, and in order to induce officers and other key employees to
retain ownership of shares of stock in the Company, the Committee shall have the
authority (but not an obligation) to include within any option agreement a
provision entitling the optionee to a further option (a "Reload Option") in the
event the optionee exercises the option evidenced by the option
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<PAGE> 30
agreement, in whole or in part, by surrendering other shares of stock of the
Company in accordance with this Plan and the terms and conditions of the option
agreement. Any such Reload Option shall be for a number of shares of stock equal
to the number of surrendered shares of stock, shall become exercisable in the
event the purchased shares of stock are held for a minimum period of time
established by the Committee, and shall be subject to such other terms and
conditions as the Committee may determine.
8. TERM OF PLAN
Options may be granted pursuant to the Plan from time to time within a
period of ten years from the date the Plan is adopted, or the date the Plan is
approved by the stockholders, whichever is earlier.
9. INDEMNIFICATION OF COMMITTEE
In addition to such other rights of indemnification as they may have as
directors or as members of the Committee, the members of the Committee shall be
indemnified by the Corporation against the reasonable expenses, including
attorneys' fees, actually and
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<PAGE> 31
necessarily incurred in connection with the defense of any action, suit or
proceeding, or in connection with any appeal therein, to which they or any of
them may be a party by reason of any action taken or failure to act under or in
connection with the Plan or any option granted thereunder, and against all
amounts paid by them in settlement thereof (provided such settlement is approved
by independent legal counsel selected by the Corporation) or paid by them in
satisfaction of a judgment in any such action, suit or proceeding; provided that
within 60 days after institution of any such action, suit or proceeding a
Committee member shall in writing offer the Corporation the opportunity, at its
own expense, to handle and defend the same. The foregoing right of
indemnification shall not be exclusive and shall be independent of any other
rights of indemnification to which such persons may be entitled under the
Corporation's Articles of Incorporation or By-Laws, by contract, as a matter of
law, or otherwise.
10. AMENDMENT OF THE PLAN
The Board of Directors or Compensation Committee of the Corporation
may, insofar as permitted by law, from time to time, with respect to any shares
at the time not subject to options, suspend or discontinue the Plan or revise or
amend it in any respect whatsoever except that, without approval of the
stockholders, no such revision or amendment shall change the number of shares
subject to the Plan, change the designation of the class of employees eligible
to receive options, decrease the price at which options may be granted, remove
the
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<PAGE> 32
administration of the Plan from the Committee, or render any member of the
Committee eligible to receive an option under the Plan, other than Formula
Options, while serving thereon. Furthermore, the Plan, as to Incentive Stock
Options, may not, without approval of the stockholders, be amended in any manner
that will cause such options issued under it to fail to meet the requirements of
Incentive Stock Options as defined in Section 422 of the Code, and further
provided that neither the Board of Directors nor the Committee may amend,
suspend, modify, or terminate the Plan so as to alter or impair any grantee's
rights under any option theretofore granted under the Plan.
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<PAGE> 33
11. APPROVAL OF STOCKHOLDERS
This Plan is subject to approval by the holders of a majority of
outstanding shares of Common Stock of the Corporation voting by person or proxy
at a meeting of shareholders in which there is a quorum, which approval must
occur within the period beginning twelve months before or ending twelve months
after the date the Plan is adopted by the Board of Directors. In the period
following the adoption of this Plan by the Board of Directors but prior to
obtaining approval by the stockholders, the Committee may grant options
hereunder, subject to obtaining stockholder approval of the Plan.
21
<PAGE> 1
EXHIBIT 10.3
AIR SOUTH AIRLINES, INC.
AMENDED 1994-1995 INCENTIVE AND NON-QUALIFIED STOCK OPTION PLAN
1. PURPOSE
This Amended 1994-1995 Incentive and Non-qualified Stock Option Plan
(the "Plan") is intended to modify the terms of the 1994-1995 Incentive and
Non-qualified Stock Option Plan (the "Original Plan") of Air South, Inc., an
Illinois corporation to which Air South Airlines, Inc., a Delaware corporation
(the "Corporation") is the successor by merger.. Such modifications may be
effective, in the discretion of the Committee (as defined below), retroactively
to options granted after the date of adoption of the Original Plan. This Plan
is intended to encourage ownership of the Corporation's stock by directors,
officers, employees, consultants and advisors (provided that bona fide services
shall be rendered by consultants and advisors and such services must not be in
connection with the offer or sale of securities in a capital raising
transaction) of the Corporation and any subsidiary corporations (collectively
the "Corporation") as defined in Section 424(f) of the Internal Revenue Code of
1986, as amended (the "Code") so that they may acquire or increase an ownership
position and consequent interest in the success of the Corporation, and to
encourage them to remain in the employ of, or maintain their relationship with,
the Corporation. It is further intended that options issued pursuant to this
Plan shall constitute either "incentive stock options" with the meaning of
Section 422 of the Code ("Incentive Stock Options") or Non-qualified Stock
Options the tax consequences of which are governed by Section 83 of the Code
("Non-qualified Stock Options"), as designated at the time of grant. Any option
granted pursuant to this plan which for any reason fails to qualify as an
Incentive Stock Option shall be deemed to have been granted as an option not
qualified under
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<PAGE> 2
Section 422 of the Code. This Plan will govern the issuance of Non-qualified
Stock Options, with terms similar in most respects to Incentive Stock Options.
The Compensation Committee may vary the terms of Non-qualified Stock Options
issued without regard to the limits and restrictions set forth herein. The
provisions of the Plan will apply to Non-qualified Stock Options only in
default of the establishment of different terms by the Committee.
2. ADMINISTRATION
The Plan shall be administered by a Compensation Committee appointed
by the Board of Directors of the Corporation (the "Committee"). The Committee
shall from time-to-time at its discretion determine: (i) those directors,
officers, employees, and consultants and advisors who are eligible to be
granted options and who shall from time-to-time be granted options; (ii) the
number of shares of stock to be optioned to each; and (iii) subject to express
provisions of the Plan, the terms of all options so granted.
The interpretation and construction by the Committee of any provisions
of the Plan or of any option granted under it shall be final unless otherwise
determined by the Board of Directors. no member of the Board of Directors or
the Committee shall be liable for any action or determination made in good
faith with respect to the Plan or any option granted under it.
If at any time no Committee shall be in office, the Board shall
perform the functions of the Committee.
3. STOCK
The stock subject to the options to be granted hereunder shall be an
aggregate of 2,500,000 shares of the Corporation's authorized but unissued
Common Stock par value $0.001 per share ("Common Stock").
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<PAGE> 3
In the event any outstanding option under the Plan for any reason
expires, lapses or is otherwise terminated, the shares of Common Stock
allocable to the unexercised portion of such option shall again be able to be
the subject of an option granted under the Plan.
4. TERMS AND CONDITIONS OF OPTIONS
Options granted pursuant to the Plan shall be authorized by the
Committee and shall be evidenced by agreements in such form as the Committee
shall from time to time approve, which agreements shall comply with and be
subject to the following terms and conditions:
(a) Number of Shares.
Each option shall state the total number of shares to which it
pertains.
(b) Option Price.
Incentive Stock Options shall be granted at a price no less than 100%
of the Fair Market Value (as defined below) of the shares of Common Stock of
the Corporation on the date of the granting of the option. Each option shall
state the option price, which, in the case of Nonqualified Stock Options shall
need not be related to the Fair Market Value. "Fair Market Value" shall mean
the value per share of Common Stock determined in the good-faith judgment of the
Committee and may be based on (a) the price at which Common Stock is traded on
stock exchanges or in other public securities markets, (b) recent sales of
Common Stock of which the Committee is aware, (c) the value of the Corporation
based on its assets and operations, (d) any other facts which the Committee
determines are appropriate or (e) in cases where "(a)", above is not available,
a combination of "(b)" through "(d)", above.
(c) Medium and Time of Payment
The option price shall be payable in United States dollars upon the
exercise of the option and may be paid by a check, money order or draft payable
to the order of the Corporation or
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<PAGE> 4
through delivery to the Corporation of certificates for shares of Common Stock
of the Corporation, based upon the Fair Market Value of those shares.
The Committee may also, from time-to-time (i) determine to issue
options which provide that a portion of the shares covered by the option may be
surrendered in payment of the exercise price and (ii) establish other cashless
exercise programs as it deems appropriate including, but not limited to, the
provision to optionees of secured loans from the Corporation.
(d) Term, Exercise and Vesting of Options
No Incentive Stock Option shall be exercisable either in whole or in
part prior to twelve months from the date it is granted. Each option shall be
exercisable as to such number of shares and at such times as the Committee
shall determine. No option shall be exercisable after the expiration of ten
years from the date it is granted or three months after termination of
employment or other relationship with the Corporation, except as provided for
herein in the event of death or Permanent and Total Disability (as defined
below) of the optionee. Upon exercise, an option must be exercised for a
minimum number of 100 shares, unless the number of shares for which the option
is exercisable at such time shall be less than 100 shares in which case the
minimum number of shares exercisable shall be the total number of shares as to
which the option is exercisable.
(e) Termination of Employment Except Death.
If an optionee shall terminate his employment or other relationship
with the Corporation for any reason other than his death, such optionee must
exercise any vested options within three months (twelve months in the case of
the "Permanent and Total Disability" of the optionee as defined in Section
22(e)(3) of the Code) after such termination of employment. If not exercised
within such period, any unexercised options shall terminate. Subject to
Treasury Regulation 1.421-7, whether authorized leave of absence for military
or governmental service shall constitute termination of employment, for the
purposes of the Plan, shall be determined by the Committee,
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<PAGE> 5
which determination, unless overruled by the Board of Directors shall be final
and conclusive. With respect to a Non-qualified Stock Options in the
discretion of the Committee, the provisions of this subparagraph 4(e) shall not
apply and the option may continue to be exercisable for its term,
notwithstanding that the optionee has terminated his employment by or other
relationship with the Corporation.
(f) Death of Optionee and Transfer of Option.
During the lifetime of the optionee Incentive Stock Options shall be
exercisable only by the optionee, shall not be assignable or transferable, and
no other person shall acquire any rights therein. The Committee in its
discretion may provide for Non-qualified Stock Options which may, in whole or
in part, be assignable or transferable by the optionee. Options granted
hereunder may be transferable by will or by the laws of descent and
distribution. In the event of the death of an optionee, no option shall be
exercised unless the employment or other relationship of the optionee with the
Corporation has existed for a period of six months following the date of grant
thereof. If the optionee shall die while in an employment or other
relationship with the Corporation or within a period of three months after the
termination of his employment or other relationship with the Corporation any
options must, to the extent exercisable, be exercised within one year after the
optionee's death by the executors or administrators of the optionee by bequest
or inheritance. If not exercised within such period any unexercised options
shall terminate.
(g) Changes in Capitalization
Subject to any required action by the stockholders, the number of
shares of Common Stock covered by each outstanding option, and the price per
share thereof set forth in each such options, shall be proportionately adjusted
for any increase or decrease in the number of issued shares of Common Stock of
the Corporation by reason of any stock dividend, stock split, reverse stock
split, recapitalization, the issuance of stock rights, merger, consolidation,
combination,
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<PAGE> 6
exchange of shares, spin-off, distribution of assets to stockholders change in
par value, or other similar corporate change. In any merger or consolidation,
each outstanding option shall pertain to and apply to the securities of
the continuing corporation to which a holder of the number of shares of Common
Stock subject to the option would have been entitled under the terms of such
merger or consolidation. A dissolution or liquidation of the Corporation shall
cause each unvested outstanding option to vest 30 days prior to such
liquidation or dissolution and any such option may thereafter be exercised
prior to or coterminous with such liquidation or dissolution.
Any adjustments required to be made as a result of any of the
foregoing shall be made by the Board of Directors. The grant of an option
pursuant to the Plan shall not affect in any way the right or power of the
Corporation to make adjustments, reclassifications, reorganizations or changes
of its capital of business structure or to merge or to consolidate or to
dissolve, liquidate or sell, or transfer all or any part of its business or
assets.
(h) Rights as a Stockholder or Employee
An optionee or a transferee of any option shall have no rights as a
stockholder with respect to any shares covered by his option until the date of
the issuance of a stock certificate for such shares. No adjustment shall be
made for dividends (ordinary or extraordinary, whether in cash, securities or
other property) or distributions or other rights for which the record date is
prior to the date such stock certificate is issued. The Plan is not a contract
of employment, and the terms of employment of any optionee or the relationship
of any other person with the Corporation shall not be affected in any way by
the Plan or related instruments except as specifically provided therein. The
establishment of the Plan shall not be construed as conferring any legal rights
upon an optionee for a continuation of employment or any other relationship
with the Company, nor shall it interfere with the right of the Corporation to
discharge any optionee and to treat him without regard to the effect which such
treatment might have upon him as an
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<PAGE> 7
optionee. If an optionee is discharged as an employee or his relationship with
the Company is otherwise terminated, the optionee shall not be entitled to any
compensation whatsoever with respect to stock option rights which have not yet
vested.
(i) Modifications, Extensions and Renewal of Options.
Subject to the terms and conditions and within the limitations of the
Plan, including but limited to Subsection 4(d), the Committee may modify,
extend or renew outstanding options granted under the Plan or accept the
surrender of outstanding options (to the extent not theretofore exercised) and
authorize the granting of the new options in substitution therefor (to the
extent not theretofore exercised). The Committee shall not, however, modify
any outstanding options so as to specify a longer term, lower price or a
greater number of shares. Notwithstanding the foregoing, however, no
modification of an option shall, without the consent of the optionee,
materially and adversely alter or impair any rights or obligations under any
option theretofore granted to the optionee under the Plan.
Each option under the Plan shall be granted on the condition that,
unless the shares covered by the option are registered under the Securities Act
of 1933, as amended (the "1933 Act"), the purchases of stock thereunder shall be
for investment purposes, and not with a view to resale or distribution. If the
stock subject to an option are not registered under the 1933 Act, the Committee
may place restrictions on the resale or other transfer of shares issued
pursuant to an option.
Nothing herein shall require the Corporation to register under the
1933 Act either the Plan, the options granted thereunder or any Common Stock
issued or issuable pursuant to any option granted under the Plan.
(j) Investment Purpose and Qualification of Shares.
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<PAGE> 8
Each option under the Plan shall be granted on the condition that,
unless the shares covered by the option are registered under the Securities Act
of 1933, as amended (the "1933 Act"), the purchases of stock thereunder shall
be for investment purposes, and not with a view to resale or distribution. If
the stock subject to such option is not registered under the 1933 Act, as
amended the Committee may establish restrictions on the transfer of stock
issued pursuant to options.
Nothing herein shall require the Corporation to register under the
1933 Act either the Plan, the options granted thereunder or any Common Stock
issued or issuable pursuant to any option granted under the Plan.
(k) Other Provisions.
The option agreements authorized under the Plan shall from
time-to-time and from option-to-option contain such other provisions,
including, without limitation, restrictions upon the exercise or vesting of the
option, as the Committee shall deem advisable in each case. Any such option
agreement shall contain such terms, conditions, limitations and restrictions as
are necessary, in the case of Incentive Stock Options, in order that such
option will be an Incentive Stock Option or to conform to any change in the
law.
5. RELOAD OPTIONS.
Without in any way limiting the authority of the Committee to make
grants hereunder, and in order to induce directors, officers, employees,
consultants and advisors to retain ownership of Common Stock, the Committee
shall have the authority (but not an obligation) to include within any option
agreement a provision entitling the optionee to a further option (a "Reload
Option") in the event the optionee exercises the option, in whole or in part, by
surrendering certificates for other shares of Common Stock in accordance with
the Plan and the terms and conditions of the option agreement. Any such Reload
Option shall be for a number of shares of stock equal to the
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<PAGE> 9
number of surrendered shares of stock, and shall become exercisable in the
event the purchased shares of stock are held for a minimum period of time
established by the Committee, and shall be subject to such other terms and
conditions as the Committee may determine.
6. TERM OF PLAN.
Options may be granted pursuant to the Plan from time-to-time within a
period of ten years from the date the Original Plan was adopted.
7. INDEMNIFICATION OF COMMITTEE.
In addition to such other rights of indemnification as they may have
as directors or as members of the Committee, the members of the Committee shall
be indemnified by the Corporation against the reasonable expenses, including
attorneys' fees, actually and necessarily incurred in connection with the
defense of any action, suit or proceeding, or in connection with any appeal
therein, to which they or any of them may be a party by reason of any action
taken or failure to act under or in connection with the plan or any option
granted thereunder, and against all amounts paid by them in settlement thereof
(provided such settlement is approved by independent legal counsel selected by
the Corporation) or paid by them in satisfaction of a judgment in any such
action, suit or proceeding; provided that upon the institution of any such
action, suit or proceeding, a Committee member shall promptly in writing offer
the Corporation the opportunity, at its own expense, to handle and defend the
same. The foregoing right of indemnification shall not be exclusive and shall
be independent of any other rights of indemnification to which such persons may
be entitled under the Corporation's Articles of Incorporation or By-Laws, by
contract, as a matter of law, or otherwise.
8. AMENDMENT OF THE PLAN.
The Board of Directors or Compensation Committee of the Corporation
may amend, suspend or terminate the Plan at any time. Any such amendment,
suspension or termination will
9
<PAGE> 1
EXHIBIT 10.4
THE SECURITIES OFFERED BY THIS MEMORANDUM INVOLVE
A HIGH DEGREE OF RISK
OFFERING MEMORANDUM ("MEMORANDUM")
1,000,000 Shares
AIR SOUTH, INC.
Common Stock (no par value)
issued pursuant to the
AIR SOUTH, INC.
EMPLOYEES STOCK PURCHASE PLAN
This Offering Terminates on March 31, 1995
(unless extended)
Air South, Inc., an Illinois corporation ("Air South" or the "Company") is a
newly organized regional passenger airline headquartered in Columbia, South
Carolina which presently conducts scheduled flights between eight cities in
Florida, Georgia, North Carolina and South Carolina.
This offering (the "Offering") is being made to employees of Air South pursuant
to the Air South, Inc. Employees Stock Purchase Plan (the "Plan"). The purpose
of the Offering is to allow the employees of Air South to obtain an equity
interest in Air South on a favorable basis; the proceeds will be used to
finance continued airline operations of Air South.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES REGULATORY AUTHORITY NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES REGULATORY AUTHORITY
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS MEMORANDUM. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
There is no minimum number of subscriptions for shares of Common Stock no par
value of Air South which must be received before the offering is closed,
although Air South reserves the right to terminate the offering without
accepting all or any portion of the subscriptions received.
<TABLE>
<CAPTION>
Proceeds to
Selling Price Commissions Air South(1)
- - -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per share offered $ .50 $ - $ .50
- - -----------------------------------------------------------------------------------------
Total Offering (1,000,000 shares) $ 500,000.00 $ - $500,000.00
=========================================================================================
</TABLE>
THIS OFFERING INVOLVES MATERIAL RISK FACTORS, INCLUDING:
(i) Air South has only conducted scheduled flight operations since August,
1994.
(ii) The proceeds of the Offering and other securities offerings
contemplated by Air South may not be sufficient to meet the Air South's
objectives.
(iii) Airline operations, particularly for a small start-up stage enterprise,
involve significant operational, marketing, mechanical and regulatory
problems.
(iv) The airline industry is intensely competitive.
THESE ARE NOT THE ONLY RISK FACTORS; SEE "RISK FACTORS"
The date of this Memorandum is March 8, 1995
- - -----------------------
(1) Has not been reduced by legal, accounting, printing, and other offering
expenses; see Use of Proceeds.
<PAGE> 2
CONTENTS
Page
Summary of Offering ....................................................... 5
Risk Factors .............................................................. 7
Introduction .............................................................. 10
The Company ............................................................... 11
Certain Information ....................................................... 13
South Carolina Public and Private Financing ............................... 13
Government Regulation ..................................................... 14
Management ................................................................ 15
Principal Shareholders .................................................... 19
Use of Proceeds ........................................................... 19
The Offering .............................................................. 20
Description of Securities ................................................. 20
Capitalization ............................................................ 21
Dilution .................................................................. 22
Available Information ..................................................... 22
Exhibit A - Air South, Inc. Employees' Stock Purchase Plan ................
Exhibit B - Air South, Inc. Audited Financial Statements ..................
Exhibit C - Various Schedules..............................................
2
<PAGE> 3
IN MAKING AN INVESTMENT DECISION INVESTORS MUST RELY ON THEIR OWN
EXAMINATION OF THE ENTITY CREATING THE SECURITIES AND THE TERMS OF THE
OFFERING, INCLUDING THE MERITS AND RISKS INVOLVED.
THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND
RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER
APPLICABLE FEDERAL AND STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR
EXEMPTION THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY WILL BE REQUIRED TO
BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME.
THE DELIVERY OF THIS MEMORANDUM AT ANY TIME DOES NOT IMPLY THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
SHOWN ON THE COVER PAGE HEREOF.
THIS MEMORANDUM DOES NOT CONSTITUTE AN OFFER OR SOLICITATION TO ANYONE
IN ANY STATE OR IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT
AUTHORIZED. THE COMPANY RESERVES THE RIGHT TO WITHDRAW OR MODIFY THIS OFFERING
AND TO ACCEPT OR REJECT ANY SUBSCRIPTION OFFER IN WHOLE OR IN PART FOR ANY
REASON OR NO REASON.
PROSPECTIVE INVESTORS ARE NOT TO CONSTRUE THE CONTENTS OF THIS
MEMORANDUM AS LEGAL OR TAX ADVICE. EACH PROSPECTIVE INVESTOR SHOULD CONSULT HIS
PERSONAL COUNSEL, ACCOUNTANT AND OTHER ADVISORS AS TO THE LEGAL, TAX, ECONOMIC,
AND RELATED ASPECTS OF THE INVESTMENT DESCRIBED IN THIS MEMORANDUM AND ITS
SUITABILITY FOR THE INVESTOR.
NO OFFERING LITERATURE OR ADVERTISING IN WHATEVER FORM SHALL BE
EMPLOYED IN THIS OFFERING, EXCEPT THE INFORMATION CONTAINED IN THIS MEMORANDUM.
NO PERSON HAS BEEN AUTHORIZED TO MAKE REPRESENTATIONS, OR TO GIVE ANY
INFORMATION NOT CONTAINED IN THIS MEMORANDUM.
THIS MEMORANDUM CONTAINS A SUMMARY OF PROVISIONS OF CERTAIN DOCUMENTS
RELATING TO THE COMPANY'S OPERATIONS AS WELL AS SUMMARIES OF VARIOUS PROVISIONS
OF RELEVANT STATUTES AND THE APPLICABLE REGULATIONS THEREUNDER. THE SUMMARIES
DO NOT PURPORT TO BE COMPLETE AND ARE QUALIFIED IN THEIR ENTIRETY BY REFERENCE
TO THE TEXTS OF THE ORIGINAL DOCUMENTS, STATUTES, AND REGULATIONS. A COPY OF
EACH DOCUMENT SUMMARIZED IN THIS MEMORANDUM IS AVAILABLE FOR INSPECTION BY
PROSPECTIVE INVESTORS EITHER ALONE OR TOGETHER WITH ONE OR MORE OF THEIR OR
OTHER ADVISORS AT THE PRINCIPAL PLACE OF BUSINESS OF THE COMPANY.
FOR FLORIDA RESIDENTS ONLY:
THE SECURITIES REFERRED TO IN THIS CONFIDENTIAL MEMORANDUM HAVE NOT
BEEN REGISTERED WITH THE STATE OF FLORIDA. A FLORIDA RESIDENT WHO SUBSCRIBES
FOR THESE SECURITIES IS ENTITLED TO WITHDRAW HIS SUBSCRIPTION FOR THESE
SECURITIES WITHIN THREE BUSINESS DAYS AFTER THE DATE PAYMENT IS MADE FOR THE
SECURITIES OR THE DATE THE AVAILABILITY OF THAT PRIVILEGE IS COMMUNICATED TO
THE INVESTOR, WHICHEVER IS LATER, WITHOUT ANY FURTHER
3
<PAGE> 4
LIABILITY TO THAT PERSON. TO ACCOMPLISH THIS WITHDRAWAL, THE INVESTOR MUST SEND
A LETTER OR TELEGRAM TO THE COMPANY INDICATING THE INVESTOR'S INTENTION TO
WITHDRAW. SUCH LETTER OR TELEGRAM SHOULD BE SENT AND POSTMARKED PRIOR TO THE
END OF THE AFOREMENTIONED THIRD BUSINESS DAY. IF A LETTER IS SENT, IT SHOULD BE
SENT BY CERTIFIED MAIL, RETURN RECEIPT REQUESTED, TO INSURE THAT IT IS RECEIVED
AND ALSO TO EVIDENCE THE TIME IT WAS MAILED.
FOR GEORGIA RESIDENTS ONLY:
THE SECURITIES REFERRED TO IN THIS CONFIDENTIAL MEMORANDUM WILL BE
ISSUED OR SOLD IN RELIANCE ON RULE 570-4-5-.03 PROMULGATED UNDER THE GEORGIA
SECURITIES ACT OF 1973, AND MAY NOT BE SOLD OR TRANSFERRED EXCEPT IN A
TRANSACTION WHICH IS EXEMPT UNDER SUCH ACT OR PURSUANT TO AN EFFECTIVE
REGISTRATION UNDER SUCH ACT. EACH INVESTOR WHO IS A GEORGIA RESIDENT REPRESENTS
AND WARRANTS TO, AND AGREES WITH, THE COMPANY THAT THE INVESTOR WILL NOT, FOR A
PERIOD OF ONE YEAR FROM THE DATE THE SECURITIES ARE SOLD OR ISSUED TO THE
INVESTOR, SELL OR TRANSFER THE SECURITIES.
FOR NORTH CAROLINA RESIDENTS ONLY:
THE SECURITIES REFERRED TO IN THIS CONFIDENTIAL MEMORANDUM ARE OFFERED
PURSUANT TO A CLAIM OF EXEMPTION UNDER THE NORTH CAROLINA SECURITIES ACT. THE
NORTH CAROLINA SECURITIES ADMINISTRATOR NEITHER RECOMMENDS NOR ENDORSES THE
PURCHASE OF ANY SECURITY, NOR HAS THE ADMINISTRATION PASSED UPON THE ACCURACY
OR ADEQUACY OF THE INFORMATION PROVIDED HEREIN. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
FOR SOUTH CAROLINA RESIDENTS ONLY:
THE SECURITIES REFERRED TO IN THIS CONFIDENTIAL MEMORANDUM ARE OFFERED
PURSUANT TO A CLAIM OF EXEMPTION UNDER THE SOUTH CAROLINA UNIFORM SECURITIES
ACT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS NOT BEEN FILED
WITH THE SOUTH CAROLINA SECURITIES COMMISSIONER. THE COMMISSIONER DOES NOT
RECOMMEND OR ENDORSE THE PURCHASE OF ANY SECURITIES, NOR DOES IT PASS UPON THE
ACCURACY OR COMPLETENESS OF THIS CONFIDENTIAL MEMORANDUM. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
4
<PAGE> 5
SUMMARY OF THE OFFERING
THE FOLLOWING SUMMARY OF CERTAIN PROVISIONS OF THIS MEMORANDUM IS
INTENDED FOR QUICK REFERENCE ONLY AND SHOULD NOT BE RELIED UPON AS A COMPLETE
AND EXACT DESCRIPTION OF THE OFFERING. THE MEMORANDUM DESCRIBES THE ASPECTS OF
THIS INVESTMENT WHICH ARE DEEMED TO BE MATERIAL TO PROSPECTIVE INVESTORS.
THIS ENTIRE MEMORANDUM, ITS EXHIBITS AND THE ACCOMPANYING SUBSCRIPTION
PACKET DOCUMENTS SHOULD BE READ THOROUGHLY AND UNDERSTOOD BY PROSPECTIVE
INVESTORS.
THE COMPANY Air South, Inc.,
(an Illinois corporation)
1800 St. Julian Place, Fourth Floor
Columbia, South Carolina 29204
(803) 771-0038
The Company was incorporated under the
laws of the state of Illinois on
January 14, 1993.
Prospective investors should view the
Company as a start-up stage enterprise
with all the inherent risks of a
business with limited operating history.
See, RISK FACTORS.
The Company's primary purpose is to
operate a regularly scheduled, short
haul, low cost airline initially within
the states of Florida, Georgia, North
Carolina and South Carolina and then to
expand with flights to and among cities
in Maryland, Tennessee, Ohio, Virginia
and Pennsylvania and possibly other
states. In August 1994, Air South began
flight operations between Columbia,
South Carolina, Atlanta, Miami and St.
Petersburg, using two Boeing 737
aircraft. On November 15, 1994, service
was expanded to include Jacksonville,
Raleigh-Durham, Baltimore (later
temporarily suspended), Tallahassee and,
recently, Myrtle Beach, South Carolina
using three additional Boeing 737
aircraft. Delivery of two more aircraft
is expected to occur the first quarter
of 1995 bringing the fleet to a total of
seven.
The purpose of this offering (the
"Employee Offering") is to provide an
opportunity for employees of Air South
to obtain an equity interest in the
Company, thereby offering them an
increased incentive to contribute to the
success of Air South. The proceeds will
be used to finance continued airline
operations of Air South. A loan
agreement ("Loan Agreement") between Air
South and the County of Lexington,
South Carolina (the "County")
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<PAGE> 6
provides for a dollar-for-dollar
matching by the County of equity funds
raised by Air South in this offering or
other equity offerings up to an
additional $2 million of indebtedness
to the County. See, RISK FACTORS,
SOUTH CAROLINA FINANCING
OFFERING OF SHARES: This offering is for 1,000,000 shares
of its common stock no par value
("Common Stock"), at a price of $.50
per share
The Company has announced plans to offer
to its existing shareholders up to two
million shares of Common Stock at a
purchase price of $.50 per share (the
"Shareholder Offering"). The funds
raised in the Shareholder Offering will
also be used to finance continued
airline operations by Air South.
This Offering is being made only to
Eligible Employees of Air South.
Basically, an Eligible Employee is an
employee who was a full-time permanent
employee of Air South on March 8, 1995.
Each Eligible Employee will receive the
right to subscribe for up to 1756 shares
(the "Basic Subscription") for $879.00.
Employees who wish to subscribe for less
than the Basic Subscription may do so in
increments of 100 shares.
Any additional shares remaining after
the Basic Subscription will be made
available for purchase by Eligible
Employees who have subscribed for all of
their Basic Subscription. The offering
of these shares (the "Second Round")
will be made pro-rata on the basis of
the base salaries of those wishing to
purchase in the Second Round.
The Subscriptions are payable in cash.
The Subscriber's check should be made
payable to "Air South, Inc.". The check
must accompany the executed Subscription
Agreement and related documents in the
Subscription Packet accompanying this
Memorandum.
There is no minimum number of
subscriptions for shares ("Shares") of
common stock without par value of Air
South which must be received before the
offering is closed, although Air South
reserves the right to terminate the
offering without accepting all or
any portion of the subscriptions
received.
Prior to the closing of the offering and
issuance of certificates for shares of
Common Stock subscribed for,
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<PAGE> 7
Air South will commingle the proceeds of
such subscriptions with the general
funds of Air South.
Air South may reject any subscription
for any reason or no reason. All
Subscriptions are irrevocable by
Subscribers.
If the Company rejects a subscription,
the full amount of the subscription will
be returned to the subscriber and
neither party will have any liability to
the other thereafter.
NO MARKET FOR RESTRICTED These securities should not be purchased
COMMON STOCK: by anyone who has a need for liquidity
in his or her investments. No public
market exists for the Company's Common
Stock and a public market is not likely
to develop for some time. The securities
offered under this Memorandum are
restricted from being offered, sold or
transferred.
DIVIDENDS: The Company has never paid, and does
not anticipate paying, dividends on the
shares offered hereby. Earnings will be
retained to finance continued operations
of the Company.
RISK FACTORS
ANY INVESTMENT IN THE COMMON STOCK OFFERED HEREBY WILL INVOLVE A HIGH
DEGREE OF RISK AND MAY RESULT IN THE LOSS OF THE ENTIRE AMOUNT INVESTED.
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE RISKS AND THE SPECULATIVE
FACTORS INHERENT IN AND AFFECTING THE COMPANY'S BUSINESS DESCRIBED BELOW AND
THROUGHOUT THIS MEMORANDUM.
RISKS RELATED TO THE COMPANY
1. ASSUMPTIONS. The Company's plans for the financing and development
of its business are based on the experience, judgment and certain assumptions
of its Management, and upon its experience in its markets to date. Such
assumptions may not be correct. The Company's plans are also based on the
premise that existing market conditions for airline service will continue, and
that the Company will be successful in dealing with the risks described herein.
There is no assurance that the Company will ever become profitable.
2. COMPETITION. The airline industry is highly competitive, due to the
effects of the Airline Deregulation Act of 1978 (the "Deregulation Act"), which
has eliminated government authority to regulate domestic routes and fares, and
has permitted airlines to compete with respect to destinations served, flight
frequencies and fares. The Company competes with airlines which presently serve
the Company's routes which are larger and have greater resources than the
Company. The Company is now facing, and will
7
<PAGE> 8
increasingly face, competition from other "no frills" airlines such as ValuJet,
Kiwi, Midway or Continental's CALite that serve or may begin serving North and
South Carolina, Georgia or Florida or any of the other markets which the
Company plans to serve.
3. COMPETITIVE REACTION. Although the Company offers competitive fares
on its routes, other airlines in many cases now meet and may in the future even
attempt to undercut the Company's fares or introduce new services, to prevent
the Company from attaining a share of the passenger traffic necessary to
achieve profitable operation. There is a risk that competitors, perceiving the
Company to lack capital resources, may undercut the Company's fares or increase
their service on its routes which could result in the Company going out of
business
4. LIMITED HISTORICAL BASIS FOR MANAGEMENT'S OPINION. Although the
Company's managerial and supervisory personnel have had substantial airline
industry experience, the operating history of only seven months of actual
airline operations is perhaps not sufficient time to determine whether the
group will be successful. Accordingly, there is a limited basis, other than the
seven month's experience in its market, on which to estimate the volume of
passenger traffic or the amount of revenues the Company's planned operations
will generate. See, MANAGEMENT.
5. FAILURE TO ATTAIN ORIGINAL BUSINESS PLAN. The Company's original
February 1994 business plan (the "Original Business Plan") proposed a somewhat
ambitious schedule pursuant to which aircraft would be leased and placed in
service at the approximate rate of one per month, resulting in a steady and
orderly growth in revenues and expense. Management was unable to meet those
projections for a variety of reasons, most of which are traceable to late
delivery or the failure by lessors to deliver aircraft. The late delivery
coupled with the fixed overhead required to become certified and operate an
airline on the Company's route structure generated losses in excess of those
contemplated by the Original Business Plan. In addition, the inadequate number
of aircraft available for the expanded route structure instituted in November
1994 resulted in a deterioration of on-time performance which, in turn,
generated a drop-off in bookings, particularly from travel agencies. The
delayed delivery of aircraft was caused by a general tightening of the market
in 1994 which required the Company to accept previously foreign operated
aircraft and to lease, in part, from less than prime lessors.
6. ADEQUACY OF FINANCING. Additional financing beyond that
contemplated by management in this Employee Offering and the proposed
Shareholder Offering could be required to enable the Company to move into a
positive cash flow position and eventually to expand airline operations. The
Company has announced that it anticipates making an additional material
offering of securities at some time after the completion of this Employee
Offering and the Shareholder Offering. The failure to obtain additional
financing which might be required could have a material adverse effect on the
Company and could result in the failure of the Company. There is no assurance
that any additional financing will be available if and when required, or, even
if available, that such financing would not materially dilute the ownership of
the then existing shareholders, including investors in this Offering.
7. START-UP STAGE COMPANY. The Company is in the start-up stage and
will require the proceeds from the sale of the shares of Common Stock offered
hereby and by the Shareholder Offering, together with matching funds available
under the State Loan in order to continue its airline flight operations. Even
though the Company is generating operating revenues, it is likely to experience
a negative cash flow for an indeterminate period. In addition to all of the
risks associated with the creation of any new business, the Company will be
subject to certain risk factors affecting the airline industry generally, such
as competition among airlines, fluctuations in the availability and price of
fuel and general economic conditions. See, RISK FACTORS -Risks Related To The
Airline Industry Generally.
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<PAGE> 9
8. DEPENDENCE ON MANAGEMENT. The Company is dependent on the active
participation of its management personnel. The loss of the services of key
management would materially and adversely affect the business of the Company
and its future prospects. The Company recently lost the services of its
President and Chief Executive Officer and its Chief Financial Officer (who has
been replaced). The Company's Chairman of the Board (not a member of
management) is providing leadership and guidance to the Company. An active
search is being conducted to locate an experienced airline executive to be
President and Chief Executive Officer.
9. LIMITED NUMBER OF AIRCRAFT. The Company presently intends to
continue its flight operations with its present fleet of 7 aircraft. Decisions
on whether and when to add additional aircraft will be made only at an
indefinite time in the future based on operational results.
10. EMPLOYEE RELATIONS. The Company operates with lower personnel
costs than many established airlines, principally due to lower base salaries
and greater flexibility in the utilization of personnel. There can be no
assurance that the Company will continue to realize these advantages over
established air carriers or that, if realized, these advantages would exist for
any extended period of time. Many airline industry employees are represented by
labor unions. If unionization of all or any part of the Company's employees
occurs, the Company's costs will increase, probably materially.
11. EFFECT OF OPERATING AND FINANCIAL LEVERAGE. Generally, the
airline industry is capital intensive due to the high costs associated with the
acquisition of aircraft. Air South, however, has elected to lease rather than
purchase aircraft. The Company had long term debt of $10,060,759 as of December
31, 1994, $10 million of which represents funds received from the State of
South Carolina at a concessionary interest rate. Although the revenues
generated by a flight are determined by the number of passengers, the expenses
of each flight do not vary significantly with the number of passengers carried.
Accordingly, the Company may, in the future, be vulnerable to decreases in load
factors and/or increases in operating expenses. Investors should consider the
foregoing in light of the volatility regularly experienced in the airline
industry.
12. NON-RELIANCE ON CONNECTING TRAFFIC AND INTERLINE ARRANGEMENTS WITH
OTHER AIR CARRIERS. The adequacy of the Company's revenues is dependent on a
sufficient volume of passengers originating and terminating at the points on
the Company's routes. Such revenues are not based upon so-called feeder traffic
- - - i.e., passengers connecting at points on the Company's routes from other
coordinated flights. The Company does not have the benefit of reciprocal
ticketing and baggage-transfer arrangements with other air carriers (interline
agreements) and will not seek to conclude such arrangements in the foreseeable
future. There can be no assurance that the Company's reliance on origin and
destination traffic will be sufficient to meet the projections as set forth in
this Memorandum.
RISKS RELATED TO THIS OFFERING
13. NO PUBLIC TRADING MARKET. There has been no public trading market
for the Company's securities and none may be created in the near future. The
shares have not been registered under any federal securities laws or those of
any state, and must be held indefinitely, unless subsequently so registered or
an exemption from such registration is available.
14. ARBITRARY DETERMINATION OF OFFERING PRICE. The offering price of
the Common Stock of $.50 per share was arbitrarily determined by the Company.
There is no certain relationship between the offering price of the Common Stock
and the Company's assets, earnings, book value, past investment or any other
objective criteria of value.
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<PAGE> 10
RISKS RELATED TO THE AIRLINE INDUSTRY GENERALLY
15. LOW MARGIN BUSINESS. The airline industry is characterized by low
gross profit margins, with cash expenditures that are high in relation to
revenues. Accordingly, a relatively minor shortfall from expected revenue
levels or relatively minor increase in the expense level could have a
materially adverse affect on the Company's growth or its viability.
16. CYCLICAL NATURE OF AIRLINE INDUSTRY. The airline industry is
highly sensitive to general economic conditions. Because a substantial portion
of airline travel (both business and personal) is discretionary, the industry
tends to experience severe adverse financial results during general economic
down turns and annually in the off-seasons. Any prolonged general reduction in
airline passenger traffic is highly likely to adversely affect the Company.
17. FUEL. Both the cost and availability of fuel are subject to many
economic and political factors and events occurring throughout the world.
Accordingly, the future cost and availability of fuel to the Company cannot be
predicted, and substantial price increases or the unavailability of adequate
supplies is highly likely to have a material adverse affect on the Company's
operations and results.
18. AIRCRAFT ACCIDENTS, INSURANCE COVERAGE. Airlines are vulnerable to
potential losses which may be incurred in the event of an aircraft accident;
this is particularly true in the early stages of operation when passenger
acceptance of the Company will be in its formative phase. Any such accident
could involve not only repair or replacement of damaged aircraft and its
consequent temporary or permanent loss from service, but also potential claims
of injured passengers and others and general loss of credibility of the Company
in the marketplace. The Company carries insurance coverage in amounts which it
believes are consistent with that carried by other similarly situated airlines.
However, there can be no assurance the Company will not be forced to bear
substantial losses from accidents. Substantial claims and adverse publicity
resulting from an accident or incident involving the Company could have a
material, adverse effect on the business, financial condition, and results of
operations of the Company may seriously inhibit passenger acceptance of the
Company's services, and may cause the Company to cease operations.
19. FEDERAL REGULATION. Under the Federal Aviation Act of 1958 (the
"Aviation Act"), the Federal Aviation Administration (the "FAA") has
jurisdiction over the safety of flight operations generally, including flight
equipment, flight personnel and their training, certain ground facilities,
maintenance programs, communications and other matters. The FAA at any time
could issue a directive or other order grounding all Boeing 737 aircraft or
just certain of the aircraft being flown by the Company for any number of
reasons. See, GOVERNMENT REGULATION
20. STRIKES, LABOR ACTIONS. Strikes by key groups of aviation industry
employees (such as the air traffic controllers strike in 1981) could have a
material adverse effect on the Company's operations.
INTRODUCTION
This Memorandum provides certain information concerning the offering
of up to one million shares of its Common Stock. The proceeds of this Offering
and a planned later offering by Air South of two million shares of Common Stock
to certain of its shareholders, together with certain financing from the State
of South Carolina, will be used to finance Air South, Inc.'s continued airline
operations.
This offering is being made pursuant to the Air South, Inc. Employees
Stock Purchase Plan (the "Plan"), a copy of which is attached hereto as Exhibit
A.
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<PAGE> 11
The Offering will terminate on March 31, 1995, subject to an extension
of up to 90 days, in the sole discretion of the Company.
Prospective investors should read this Memorandum carefully before
deciding whether to purchase shares of Common Stock, and should pay particular
attention to the information under the headings "RISK FACTORS".
THE COMPANY
PURPOSE
The Company's primary purpose is to operate a regularly scheduled,
short haul, low cost airline initially within the states of Florida, Georgia,
North Carolina and South Carolina and then to expand with flights to and among
cities in Maryland, Tennessee, Ohio, Virginia and Pennsylvania and possibly
other states. In August 1994, Air South began flight operations between
Columbia, South Carolina, Atlanta, Miami and St. Petersburg, using two Boeing
737 aircraft. In November, 1994, service was expanded to include Jacksonville,
Raleigh-Durham, Baltimore (later temporarily suspended), Tallahassee and,
recently, Myrtle Beach, South Carolina using three additional Boeing 737
aircraft. Delivery of two more aircraft is expected to occur within the next
two months bringing the fleet to a total of seven.
LOW COST STRUCTURE
Air South plans to operate with a cost structure that will be well
below that of most competing carriers, particularly the "majors" and their
associated turboprop commuter affiliates, once the Company is able to spread
its costs over a sufficient number of aircraft. It believes, but cannot assure
investors, that lower operating costs will be achieved through labor costs
substantially below the majors, minimal management overhead and lack of
restrictive union work rules.
HIGH-VALUE SERVICE OFFERINGS
Air South intends to provide better quality, lower cost service than
currently available in the region. Key components include: a low fare structure
well below current market prices with as few restrictions as possible in a
competitive environment; high frequency, and convenient schedule times; and jet
aircraft service. Air South intends to expand its position in the markets it
serves and extend its routes to additional cities in the Southeast as it is
able, although such cannot be assured, and the expansion of its markets will
occur only when the Company's operational results are such that additional
aircraft can be leased.
ATTRACTIVE, UNDERSERVED MARKET AREA
Air South chose the southeastern United States, specifically Florida,
Georgia, and North and South Carolina as the most favorable location to start a
regional airline. These states offer thriving business communities, excellent
infrastructures and populations with incomes growing faster than the national
rate.
Despite its attractiveness, the Southeast has been poorly served since
the demise of Peoples Express and the development of hubs in Atlanta by Delta,
in Raleigh-Durham by American and in Charlotte, North Carolina by USAir.
Florida has been poorly served since the demise or acquisition of Eastern,
Midway and Piedmont Airlines. Most service within Florida is provided by
regional carriers, e.g., United Express and American Eagle, which offer
turboprop service, at high prices. South Carolina is served by high priced,
inconvenient schedules of Delta, USAir and American. United has recently
11
<PAGE> 12
withdrawn from Columbia and Continental is showing signs of faltering in its
"CALite" service in Greenville/Spartanburg. American announced that it intends
to reduce service from its hub in Raleigh-Durham by June 15 to only 40 flights
per day to be partly replaced by Midway Airlines which will increase its daily
departures from Raleigh-Durham to 22.
COMPETITION
The airline industry is highly competitive. Domestic airlines are free
to establish fares and domestic airline markets have been subject to open-entry
competition, subject to Department of Transportation ("DOT") and FAA
certification requirements, since the Deregulation Act was passed by Congress
in 1978. A number of airlines have established service in the Company's service
area, all of which airlines are larger and have greater resources than the
Company. These competitors include major airlines such as American Airlines,
Delta Airlines, USAir and United Airlines; in addition, lower-cost competitors
such as Continental, Southwest and newer "no frills" start-ups such as ValuJet,
Kiwi and Midway now (or in the future may) compete with the Company.
Air South believes it is possible for it to establish a strong
competitive position in its intended markets. Certain of the major carriers
have stated publicly that they intend to reduce direct operations in their
respective short-haul markets. The Departments of Transportation and Justice
have indicated that they will support the growth of new carriers against
predatory anti-competitive behavior by established carriers. Major airlines
such as United, Continental and Delta are developing low-cost subsidiaries
("CALite", "United Shuttle", etc.) to compete with Southwest and with low cost
start-ups operating in the short haul markets. It remains to be seen whether
the major airlines will be able to escape the effects of their high overhead
and restrictive work rules in connection with such low-cost subsidiaries.
Va1uJet Airlines, which commenced operations in November of 1993, operates from
Atlanta and serves some common cities with the Company. ValuJet operates a
hub-and-spoke system and, unlike the Company, is predominately a "long-haul"
carrier. It is, however, a low-cost and efficient competitor and could begin to
move more heavily into Air South's intended markets. Kiwi and ATA, two other
low cost carriers operating from the Midwest and Northeast through Atlanta and
into Florida, are almost exclusively medium or long-haul carriers. Midway, as
mentioned above, is moving strongly into Raleigh-Durham with flights to various
eastern cities.
RESULTS OF SIMILAR AIRLINES
Carriers that have pursued a similar strategy to that of Air South,
such as ValuJet, Kiwi, ATA and the new Midway, and, in particular, the model
for most low-cost carriers, Southwest Airlines, have generally met with success
in the marketplace. Major airlines pursuing a low-cost strategy (CALite, United
Shuttle) have had greater difficulty.
OPERATING EXPERIENCE
Air South is fully certified and has been operating for seven months,
expanding from two to five aircraft with two more expected within the next two
months and to over 500 employees. The Company's service with the first two
aircraft met good acceptance among travel agencies and the traveling public.
The load factor rose week by week to a high of 52.3% occupancy in October.
After a dip resulting from the expansion from two to five aircraft and
expansion of the route structure, the load factor has again moved back up.
Management expects that the load factor will be in excess of 50% by the end of
March 1995 compared to approximately 46.6% in February 1995, although such
cannot be assured.
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<PAGE> 13
Although the expansion on November 15 from the original four cities
with two aircraft to seven cities and five aircraft was not well executed,
resulting in a substantial drop in load factor, on-time performance and trust
of Air South's customers, the Company believes that the problems have largely
been eliminated.
There are four major statistics by which airline performance is often
judged: load factor; cost per available seat mile; yield (available seat miles
flown divided into revenues); and on-time performance.
In February 1995 Air South's load factor in February was 46.6% versus
the 68% to 70% industry average; its cost per available seat mile was 9.3 cents
as compared to under 7 cents for ValuJet and 9 to 10 cents average for the
major airlines. Air South's yield was 15.2 cents per available mile for
February 1995 compared to an industry average of 12.9 cents for domestic
majors. Air South's on-time performance over the last four months was
approximately 65% versus the industry average of 85%. Failure to improve Air
South's performance in these areas will adversely affect its results of
operations.
CERTAIN INFORMATION
FINANCIAL STATEMENTS
Attached as Exhibit B are unaudited financial statements as of
December 31, 1994. Attached as Exhibit C are Schedules showing Weekly Revenue
and Passenger Miles, Weekly Revenue and Monthly Call Volume.
SOUTH CAROLINA PUBLIC AND PRIVATE FINANCING
The Governor of the State of South Carolina in February 1994 committed
the State and local sources to provide loan and grant financing to Air South
totaling $16,137,000. The State, the City of Columbia, Richland and Lexington
Counties and Air South subsequently signed Memoranda of Understanding and
definitive financing agreements pursuant to which approximately $13 million of
the $16 million has been advanced. A summary of the public finance commitments
is as follows:
CITY/COUNTY GRANTS. The City of Columbia and the Counties of Richland
and Lexington committed to provide Air South with non-reimbursable grants of $3
million ($1.5 from Columbia and $750,000 each from Richland and Lexington
counties) to be used by Air South for relocation of personnel, advertising,
working capital and for the cost of the Company headquarters, reservation
center and other facilities in the Greater Columbia area. All of the county
funds and $900,000 of the $1.5 million city funds had been used as of January
25, 1995.
STATE LOAN AGREEMENT. The State of South Carolina committed to secure
a $12 million guarantee from the federal government under the Section 108 Loan
Guarantee Program of the Department of Housing and Urban Development, ("HUD")
on behalf of Air South. The HUD guarantee took the form of a guarantee of notes
or bonds issued by Lexington County and sold by HUD. Lexington County, as the
agent for the State, entered into a Loan Agreement with Air South dated July
15, 1994 (hereinafter referred to as the "State Loan"). Pursuant to the State
Loan, Lexington County agreed to lend Air South $12 million, with interest at
4% per annum payable beginning April, 1996, with principal payments beginning
April, 1997; interest is adjustable five years after start-up. In broad terms
Air South is required by the State Loan to meet numerous conditions relating to
the location of its headquarters, operations and personnel and attain various
operating, financial and financing levels and goals in order to retain the Loan
proceeds. The State Loan requires Air South to repay the State Loan and the
grants if Air South or a
13
<PAGE> 14
successor to its business were to move a major portion of its operations from
Columbia. In general, the $16 million in State and local grants and the State
Loan are closely monitored by the State to make sure that the State's
objectives of creating and maintaining a locally-based airline are attained and
continued. A total of $10 million of funds available under the State Loan have
been drawn down and used in Air South's operations. Although Air South had been
in technical default under certain provisions of the Loan Agreement, the
defaults have been waived by the State.
Although Air South's management is determined to comply with the
letter and the spirit of the Loan Agreement, Air South may, for reasons beyond
its control fail to meet one or more of such conditions. In such event, unless
such conditions were waived or extended, the State financing could be reduced
or withdrawn, jeopardizing Air South's financial viability.
TRAINING GRANTS. The State Board for Training and Comprehensive
Education has committed to reimburse the Company for the cost of pre-employment
training of pilots, mechanics, cabin attendants, reservations personnel and
other employees up to a total of $1,137,000. A total of $400,000 of these funds
have been used by Air South to date.
SOUTH CAROLINA EQUITY FINANCING. The South Carolina financing package
required Air South to raise $1 million in equity investment from South Carolina
sources. A $1 million private offering completed in April of 1994 at a price of
$1.00 per share fulfilled the Governor's interest in having a portion of Air
South's equity held by South Carolina investors.
ADDITIONAL EQUITY FINANCING. The State Loan provides that the Company
may not draw down the final $2 million of the $12 million loan until the
Company has provided evidence that the Company has used its best efforts to
increase its private placement investment from the present $2 million to at
least $4 million i.e., raised an additional $2 million in equity. It is
expected, although such cannot be assured, that this Offering along with the $1
million Shareholders' Offering (if successful) will cause the State to release
the final $2 million draw under the Loan Agreement.
GOVERNMENT REGULATION
U.S. DEPARTMENT OF TRANSPORTATION.
All interstate air carriers are subject to regulation by the United
States Department of Transportation (the "DOT") and the United States Federal
Aviation Administration (the "FAA") under the Aviation Act. The DOT's
jurisdiction extends primarily to the economic aspects of air transportation,
while the FAA's regulatory authority relates primarily to air safety, including
aircraft certification and operations, crew licensing and training and
maintenance standards.
In general, the amount of economic regulation over air carriers in
terms of market entry and exit, pricing and inter-carrier acquisitions and
agreements has been greatly reduced subsequent to enactment of the Deregulation
Act. As a result of that change in the regulatory structure, the Company's
entry into the domestic air transportation business has been greatly
simplified, and the level of post-entry regulation to which it will be subject
has been greatly reduced. By the same token, the availability to the Company of
regulatory protection from competition has been substantially reduced.
It was necessary for the Company to obtain from the DOT a Certificate
of Public Convenience and Necessity before it inaugurated scheduled air
service. This certificate was granted on August 22, 1994.
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<PAGE> 15
OFFICERS
PRESIDENT AND CHIEF EXECUTIVE OFFICER
OPEN(1)
VICE PRESIDENT AND CHIEF MARKETING OFFICER, DIRECTOR, THOMAS VOLZ - Former
Chief Marketing Officer, Southwest Airlines, Frontier Airlines and Braniff
International and Vice President, Continental Airlines.
SECRETARY AND GENERAL COUNSEL, DIRECTOR, DONALD BAKER - Retired Senior Partner
- - - Baker & McKenzie, Chicago Office. Opened first international office in 1956,
a former member of the Executive and Policy Committees. Extensive experience
with start-up companies, on Boards of various companies.
VICE PRESIDENT OF AIRLINE OPERATIONS, DENNIS CROSBY - Twenty-five year veteran
with American Airlines. President of a subsidiary of American Airlines, Senior
V.P. World Airways. Chief Operating Officer of US-Russian aviation joint
venture.
VICE PRESIDENT OF FLIGHT OPERATIONS, LENDON TOOTLE - Former Chief Pilot for Air
South. Instrumental in start-up. Formerly Chief Pilot-Director Operations
Florida Air. V.P. Flight Operations Southern Air Transport.
VICE PRESIDENT AND CHIEF FINANCIAL OFFICER, GEORGE MCCONNAUGHEY(2) -
Twenty-five year veteran of the airline industry. Held the position of top
financial officer at U.S. Africa Airways, Air American, Sunworld, World
Airways, Evergreen and Flying Tigers.
DIRECTORS
CLIF HALEY, CHAIRMAN, BOARD OF DIRECTORS - Chairman, Cadmus Corporation, an
importer of training aircraft. Former Chairman and Chief Executive Officer,
Budget Rent a Car. A licensed pilot and attorney.
PATRICK J. O'SHEA, VICE CHAIRMAN, BOARD OF DIRECTORS - Founder of Air South and
its former President and Chief Executive Officer. Former Senior Vice President,
Amadeus Group (an Iberia, Lufthansa, S.A.S., Air France joint venture).
President, Associated Travel Network and US Travel Affiliates. Vice President
Eastern Airlines and Budget Rent a Car.
ROD MARLIN - Advisor, Thomas Cook Group (Canada) Ltd. Former Chairman and CEO,
Marlin Travel (Canada's largest travel agency chain), recently sold to Thomas
Cook.
PAUL GILLCRIST - Captain, Boeing 747-400, Singapore Airlines. Former Head of
Operations and Flight Operations, Southern Air Transport and Airborne Express.
Chief Pilot, Air Florida, Inc.
- - ----------------------
(1) The founder of Air South and former President and Chief Executive Officer,
resigned from those positions on February 22, 1995 to assume the position of
Vice Chairman. A committee of outside members of the Board has been appointed
to conduct a search for an experienced airline executive to fill the position
of President and Chief Executive Officer. Clif Haley, the Chairman of the
Board, is providing leadership and guidance to the Company during the interim.
(2) Mr. McConnaughey is serving as Chief Financial Officer of the Company on an
interim basis under a 90 day consulting agreement prior to joining the Company
on a permanent basis.
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<PAGE> 16
HAROLD STOWE -Executive Vice President CSI Group, Inc., Conway, S.C. Former
Executive Vice President the Springs Company, Lancaster, S.C. Vice President
NCNB, Charlotte, N.C. Director of numerous companies and civic organizations.
SUSIE VANHUSS - Professor, College of Business Administration, University of
South Carolina,. Prolific author and recipient of the Gold Book award for the
sale of one million copies of a leading textbook and other awards. Director of
various companies and civic organizations.
REMUNERATION OF OFFICERS
The following table shows the current compensation of the Company's
officers and directors. Stock and stock options exercisable at $1.00 per share
which were issued to officers in the amounts listed below for their assistance
in launching the Company and as an incentive for performance pursuant to the
Company's Stock Option Plans.
<TABLE>
<CAPTION>
STOCK
ANNUAL OPTIONS
NAME OF INDIVIDUAL CAPACITY IN WHICH SERVED COMPENSATION NO. SHARES
------------------ ------------------------ ------------ ----------
<S> <C> <C> <C>
Patrick J. O'Shea Vice Chairman of the Board of Directors $ 130,000.00 75,000
Dennis B. Crosby Vice President of Airline Operations $ 97,500.00 80,000
Donald Baker Secretary, General Counsel & Director $ 97,500.00 40,000
Thomas J. Volz Vice President/Marketing and Sales & Director $ 97,500.00 50,000
George McConnaughey Chief Financial Officer(1) $ 80,000.00 -
Lendon Tootle Vice President of Flight Operations $ 97,500.00 15,000
</TABLE>
EMPLOYEE PROFIT SHARINE PLAN.
The Company anticipates that it will institute an employee profit
sharing plan pursuant to which some portion of the Company's profits, possibly
up to fifteen percent, will be allocated to employee accounts in a qualified
retirement profit sharing plan or distributed in cash, or some combination
thereof. The purpose of such a plan would be to solidify employee loyalties and
encourage cooperative behavior.
STOCK OPTIONS.
The Board of Directors has adopted an employee incentive stock option
plan pursuant to which options to purchase up to 750,000 shares of Common Stock
of the Company may be awarded to officers and key employees of the Company by
the Board as an incentive for performance. As of March 8, 1995 the Company has
granted options on 510,000 shares to officers and other management members
including the options on 260,000 shares listed above. The options are
exercisable at $1.00 per share. In all cases the options vest in equal portions
over a three year period of service with the Company. The first options are
exercisable on August 23, 1995.
- - ----------------------
(1) Serving on an interim basis until the President/CEO is identified; salary
and options to be finalized at a later date.
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<PAGE> 17
EMPLOYEE STOCK PURCHASE PLAN
In March 1995 the Board of Directors adopted an Employee Stock
Purchase Plan. Under the Plan the Board may from time-to-time make shares of
Common Stock available to Eligible Employees for purchase at prices (in the
judgment of the Board of Directors) less than their fair market value and on
such other terms and conditions as the Board of Directors shall determine. The
shares being offered hereby are being offered pursuant to such Plan.
LIMITATION ON LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's by-laws provide that the corporation shall, to the
fullest extent to which it is empowered to do so by the Illinois Business
Corporation Act of 1983 or any other applicable law, as may from time to time
be in effect, indemnify any person who was or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative, by reason of the fact that he
is or was serving as a director or officer of the Company or at the request of
the Company as a director or officer of another corporation, partnership, joint
venture, trust or other enterprise, against all expenses (including attorney's
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933, as amended (the "Act") may be permitted to directors,
officers or persons controlling the registrant pursuant to the foregoing
provisions, the Company understands that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is therefore unenforceable.
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<PAGE> 18
PRINCIPAL SHAREHOLDERS
The following table sets forth, as of the date of this Memorandum, and
as adjusted for the sale of the Common Stock offered hereby certain information
with respect to the Company's Common Stock owned of record or beneficially by:
(i) the Chief Executive Officer and the four the highest paid officers of the
Company; (ii) each of the directors of the Company; (iii) all officers and
directors as a group and (iv) each person who owns is known by the Company to
be the beneficial owner of five percent or more of the Company's outstanding
Common Stock including those shares subject to outstanding options.
<TABLE>
<CAPTION>
AMOUNT PERCENT OWNERSHIP
BENEFICIALLY PRIOR TO UPON COMPLETION
NAME AND ADDRESS OF BENEFICIAL OWNED OFFERING OF OFFERING(1)
- - ------------------------------ ----- -------- ---------------
OWNER
- - -----
<S> <C> <C> <C>
Patrick J. O'Shea(2) 629,400 17.3 13.6
Donald Baker(3) 160,000 4.4% 3.4%
Paul Gillcrist 157,000 4.3% 3.4%
Rodney Marlin(4) 152,000 4.2% 3.3%
Clif Haley(5) 140,000 4.0% 3.0%
Thomas Volz 113,050 3.1% 2.4%
Len Tootle 40,000 0.1% 0.1%
All officers and directors as a group 1,591,450 37.4 29.2
</TABLE>
USE OF PROCEEDS
The net proceeds from the sale of the Common Stock offered hereby and,
if completed the Shareholder Offering (after deduction of expenses of this
Offering and the Shareholder Offering, estimated to be less than $25,000) will
be used together with the final $2 million draw on the State Loan to continue
airline operations.
Management believes that the net proceeds of the sale of the Common
Stock in this Offering and the Shareholder Offering, together with proceeds
from the final draw on the State Loan will fund the Company's cash needs until
break-even operations are achieved, although such cannot be assured. The
Company's belief and its ability to apply successfully the net proceeds as
indicated above are, however, subject to a number of uncertainties. See, RISK
FACTORS.
- - ---------------------
(1) Assumes sale of 1 million shares of Common Stock. Following this Offering,
the Company expects to offer in the Shareholder Offering 2 million shares of
Common Stock to its shareholders (other than employees who purchase in this
offering and employees who received shares of Common Stock as a year-end bonus)
at the same price and on substantially the same terms as this Offering. This
table does not assume that any of the listed persons will purchase any Common
Stock in this Offering.
(2) 21,600 shares are owned by Mr. O'Shea's daughters. Mr. O'Shea has voting
power over 671,000 shares.
(3) Held in an individual retirement account
(4) Held, through a family corporation
(5) Held through a family trust
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<PAGE> 19
Pending the application of the net proceeds of this Offering as set
forth above, those proceeds may be invested temporarily in interest-bearing
accounts, money market funds, commercial paper, United States government
securities, certificates of deposit with commercial banks or other short-term
high quality interest-bearing investments.
THE OFFERING
The shares of Common Stock being offered hereby are being offered
pursuant to the Air South Employees Stock Purchase Plan which was adopted by
the Air South Board of Directors on March 7, 1995; a copy of the Plan is
attached as Exhibit A.
Pursuant to a resolution of the Board of Directors of Air South, the
Company will offer 1,000,000 shares of its Common Stock to Eligible Employees
under the Plan; basically an Eligible Employee is an employee who was a
permanent full-time employee on March 8, 1995.
Initially Air South will offer each Eligible Employee the right to
subscribe for 1756 shares (the "Basic Subscription"). Employees who wish to
subscribe for less than the Basic Subscription may do so in increments of 100
shares.
Eligible Employees who have subscribed for all of their Basic
Subscription may subscribe for any portion of the aggregate Basic Subscriptions
not subscribed for. The offering of these Second Round shares will be made pro
rata on the basis of the base salary of those wishing to purchase in the Second
Round.
Employees should not feel any pressure to subscribe to purchase
shares. Supervisors will not be informed of whether their employees have or
have not subscribed and have been instructed not to put any pressure on
employees to do so.
DESCRIPTION OF SECURITIES
GENERAL
The following description of the capital stock of the Company is
qualified by and subject to the Illinois Business Corporation Act, the
Company's Articles of Incorporation, as amended, and By-Laws. Copies of such
Articles of Incorporation and By-Laws are available for inspection at the
Company's offices.
The authorized capital stock of the Company consists of 10,000,000
shares of Common Stock, no par value. As of the date of this Memorandum,
3,643,784 shares of Common Stock are issued and outstanding.
The holders of the Common Stock are entitled to receive dividends when
and as declared by the Board of Directors, out of funds legally available
therefor. The Company has not paid cash dividends in the past and does not
expect to pay any within the foreseeable future since any earnings are expected
to be reinvested.
Each outstanding share of the Common Stock is entitled to equal voting
rights, consisting of one vote per share. In the event of liquidation,
dissolution or winding up of the Company, either voluntarily or involuntarily,
each outstanding share of the Common Stock is entitled to share equally. No
share of the Common Stock of the Company, if fully paid, is liable to calls or
assessment by the Company.
20
<PAGE> 20
TRANSFER AGENT
The Company acts as its own transfer agent for its Common Stock. The
certificates for the Company's Common Stock will bear a restrictive legend on
transfer and may not be sold without federal and state registration unless such
sale is made pursuant to an exemption from the applicable federal or state
securities laws. The Company may require persons wishing to sell shares of
Common Stock to provide it with an opinion of counsel satisfactory to the
Company that such sale is exempt from registration.
This Offering is being carried out by mailing this Memorandum, a
Subscription Agreement and certain other Offering materials to each Eligible
Employee at the address shown on the records of the Company. No broker
- - -dealers, investment bankers or others will be used to assist the Company in
completing this Offering.
Employees wishing to subscribe for shares of Common Stock should
complete the subscription agreement as described in the instructions
accompanying it. If there are questions regarding this offering, employees may
call Tamra Behles at 822-0502, ext. 3140
CAPITALIZATION
The following table sets forth the Company's capitalization as of
December 31, 1994 as adjusted to reflect the sale of all of the Common Stock
being offered hereby:
<TABLE>
<CAPTION>
Amount Outstanding ('000s)
-----------------------------
As Of
12-31-94 As adjusted(1)
---------- --------------
<S> <C> <C>
Debt:
Short-term debt $ 3,961 $ 3,961
Long-term debt $ 10,061 $ 10,061
Total Debt $ 14,022 $ 14,022
Equity:
Common stock (2), Contributions to capital $ 2,123 $ 2,623
Retained earning (deficit) ($7,437) ($7,437)
Total stockholders equity (deficit) ($5,314) ($4,814)
Total Capitalization $ 8,709 $ 9,209
</TABLE>
(1) This assumes purchase of the entire Offering of 1,000,000 shares at $.50
per share contemplated by this Memorandum; does not take into account the sale
of 2,000,000 shares at $.50 per share which the Company hopes to sell in the
near future to its shareholders.
(2) Number of common shares authorized: 10,000,000 shares no par value
21
<PAGE> 21
DILUTION
The shares of Common Stock being offered hereby are being offered at
prices significantly higher than prices previously paid by certain officers,
directors, promoters and affiliated persons prior to this Offering. In that
connection 3,643,784 shares were issued at prices from $0.23(1) to $1.00 and
at a weighted average price of $0.57.
In May 1994 the Company offered and sold one million shares of its
Common Stock at a purchase price of $1.00 per share, double the price of the
shares of Common Stock being offered hereby.
The net tangible book value of the Company's shares of Common Stock is
the difference between the Company's assets and its liabilities, divided by the
number of shares of Common Stock outstanding. For investors in shares of Common
Stock, dilution is the per share difference between the offering price of the
shares of Common Stock offered hereby and the net tangible book value of common
stock immediately after completing the offering.
On December 31, 1994, the Company's net book tangible value was a
negative $5,313,857 and the per share net tangible book value for the presently
outstanding 3,643,784 shares of Common Stock was approximately negative $1.46.
After giving effect to the sale in the Offering of one million shares
of Common Stock at $.50 per share, the proforma net tangible book value at
December 31, 1994 for 4,643,784 outstanding shares of Common Stock would be
negative $1.14 and the per share net tangible book value would be negative
$4,813,857. This does not take into account the sale of an additional two
million shares of Common Stock in the Shareholder Offering at $0.50 per share.
AVAILABLE INFORMATION
The Company intends to furnish shareholders with annual reports
containing audited financial statements examined and reported on by an
independent certified public accounting firm, and will distribute interim
reports to its shareholders containing unaudited quarterly financial
statements.
(1) Includes allowed value of services.
22
<PAGE> 22
EXHIBIT A
AIR SOUTH, INC.
EMPLOYEE STOCK PURCHASE PLAN
This EMPLOYEE STOCK PURCHASE PLAN has been adopted by the Board of
Directors of AIR SOUTH, INC., an Illinois corporation ("Air South").
WITNESSETH
WHEREAS, the success of Air South is dependent upon the efforts of its
employees;
WHEREAS, Air South wishes to encourage its employees to give their
utmost effort in performing their duties;
WHEREAS, Air South wishes to provide its employees with incentives to
do so and to compensate its employees for having done so; and
WHEREAS, this Plan is intended to be a "compensatory benefits plan" as
contemplated by Rule 701 promulgated under the Securities Act of 1933, as
amended.
NOW THEREFORE, this Plan is available for the offering and sale of
shares of Air South Common Stock, no par value ("Common Stock") to employees,
subject to the following terms and conditions:
1. Purpose. The purpose of the Plan is to compensate employees for
their efforts by making available to them shares of Common Stock on favorable
terms and at prices less than their fair market value and to encourage eligible
employees to become owners of Common Stock of Air South, thereby giving them a
greater interest in the growth and success of Air South.
2. Definitions. The following definitions are used in the Plan.
(a) "Air South" means Air South, Inc., an Illinois corporation.
(b) "Board of Directors" means the Board of Directors of Air South.
(c) "Committee" means the Organization and Compensation Committee of
the Board of Directors. If, at any time, there is no acting Organization and
Compensation Committee, the term "Committee" shall mean the Board of Directors.
(d) "Common Stock" means the common stock, no par value, of Air
South.
(e) "Employee" means a permanent, full-time employee of Air South.
<PAGE> 23
(f) "Fair Market Value" means the value of a share of Common Stock
as of any date, as determined by the Committee.
(g) "Participant" means an Eligible Employee (as defined in section
2., below) who elects to participate in a Stock Offering.
(h) "Plan" means the Air South, Inc. Employee Stock Purchase Plan,
as amended from time-to-time.
(i) "Stock Offering" means an offering of Common Stock to Eligible
Employees on terms and conditions and at prices determined from time-to-time by
the Committee.
3. Eligibility. Except as otherwise determined by the Committee, each
Employee who is actively employed by Air South on the beginning date of a Stock
Offering shall be eligible to participate in that Stock Offering (an "Eligible
Employee"); provided, however, that no employee who is represented by a union
or other organization pursuant to a collective bargaining agreement with Air
South shall be an Eligible Employee.
4. Participation in Stock Offerings. The Committee shall from
time-to-time determine whether to make a Stock Offering and shall, in its
discretion determine, among other things:
(a) the number of shares of Common Stock to be issued in the Stock
Offering;
(b) the price at which shares of Common Stock will be sold; provided,
however, the price shall be at least five percent less than the Fair Market
Value, as determined by the Committee;
(c) the objective formula for determining the number of shares of
Common Stock to be offered to each individual Eligible Employee;
(d) whether certain categories of otherwise Eligible Employees should
be excluded from a Stock Offering by reason of their status (i) as directors,
officers, and management of Air South or (ii) as significant holders of shares
of Common Stock, among other reasons;
(e) the termination date of the Stock Offering;
(f) an alternative method (such as a payroll deduction plan or a
deferred payment plan), if any, by which the Participants may pay for such
shares; and
(g) whether to provide any mechanism for the redemption of the shares
<PAGE> 24
issued to in the event of the later termination of the employment of the
Employee.
Air South shall inform the Employees in writing of the decision of the
Committee to make a Stock Offering and shall deliver to each Eligible Employee
such information as it deems appropriate to the Stock Offering, such as an
offering memorandum, a subscription agreement and a transmittal letter.
In order to participate in a Stock Offering, an Eligible Employee
shall review the information provided, complete and sign the subscription
agreement, complete the payroll deduction form (if applicable) and transmittal
letter and return them, along with a check for any payment required, in the
envelope provided.
5. Distribution of Common Stock. As soon as practicable after the
termination of each Stock Offering Air South will deliver to each Participant a
certificate for the shares of Common Stock purchased by such Participant; such
certificate will have upon it any restrictive legends required by law or Air
South.
6. Effective Date. This Plan shall not be effective as to employees in
any state until Air South has determined that the state securities laws of that
state have been complied with.
7. Miscellaneous.
(a) Nothing in the Plan shall confer upon any Employee the right to
continue in the employ of Air South or shall limit or restrict the right of Air
South to terminate the employment of any Employee at any time with or without
cause.
(b) No right or benefit under the Plan shall be subject to
anticipation, alienation, sale, assignment, pledge, encumbrance or charge, and
any attempt to anticipate, alienate, sell, assign, pledge, encumber or charge
such right or benefit shall be void. No such right or benefit shall in any
manner be liable for or subject to the debts, liabilities or torts of an
Eligible Employee or a Participant.
(c) The Plan may be amended or terminated by the Board of Directors
at any time.
(d) If any federal, state and local income and employment taxes are
required to be withheld by Air South as a result of an Employee's participation
in the Plan they shall be deducted and withheld from the Employee's
compensation.
(e) Air South shall be under no obligation to sell, issue and
deliver certificates for shares of Common Stock pursuant to the Plan if such
sale, issuance and delivery would, in the opinion of the Committee, cause Air
South to violate any provision of federal or state securities laws or any state
corporation law. In such case, Air South will
<PAGE> 25
return to the Participants any consideration paid for shares of Common Stock.
Air South will use its best efforts to comply with the applicable provisions of
such laws but will not be liable for any failure to comply.
(f) If any provision in the Plan is held by a court of competent
jurisdiction to be invalid, void, or unenforceable, the remaining provisions
shall nevertheless continue to full force and effect without being impaired or
invalidated in any way; provided, however, that the Board of Directors may in
such case terminate any remaining portion of the Plan which, in its sole
discretion, it deems appropriate.
(g) The Plan shall be construed and governed in accordance
with the internal laws of the State of South Carolina.
Executed at Columbia, South Carolina this 7th day of March, 1995.
AIR SOUTH, INC.
By: /s/ Donald Baker
-----------------------
Don Baker
Secretary
<PAGE> 26
EXHIBIT B
AIR SOUTH, INC.
DECEMBER 31, 1994
BALANCE SHEET
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS
CASH $ 65,861
SHORT TERM INVESTMENTS $ 3,298,080
ACCOUNTS RECEIVABLE $ 1,807,469
DEPOSITS $ 417,883
TOTAL CURRENT ASSETS $ $ 5,589,293
PROPERTY & EQUIPMENT
FLIGHT EQUIPMENT $ 1,099,136
GROUND EQUIPMENT $ 801,184
COMPUTER EQUIPMENT $ 591,100
FURNITURE & FIXTURES $ 46,287
LEASEHOLD IMPROVEMENTS $ 54,430
DEPRECIATION $ (108,028)
CONTRA F/A ACCOUNT $ (344,675)
TOTAL PROPERTY & EQUIPMENT $ 2,139,435
AIRCRAFT DEPOSITS $ 945,000
OTHER ASSETS $ 34,917
TOTAL OTHER ASSETS $ 979,917
TOTAL ASSETS $ 8,708,644
LIABILITIES & EQUITY
CURRENT LIABILITIES
ACCOUNTS PAYABLE $ 1,815,403
AIR TRAFFIC LIABILITY $ 500,554
ACCRUED EXPENSES $ 1,645,785
TOTAL CURRENT LIABILITIES $ 3,961,742
LONG TERM DEBT $ 10,060,759
TOTAL LIABILITIES $ 14,022,501
STOCKHOLDERS' EQUITY
COMMON STOCK $ 1,835,883
OTHER CONTRIBUTED CAPITAL $ 286,975
ACCUMULATED DEFICIT - PRIOR YEAR $ (2,152,102)
ACCUMULATED DEFICIT - CURRENT YEAR $ (5,284,613)
TOTAL STOCKHOLDERS' EQUITY $ (5,313,857)
TOTAL LIABILITIES & EQUITY $ 8,708,644
</TABLE>
<PAGE> 27
EXHIBIT B
AIR SOUTH, INC.
INCOME STATEMENT
4 MONTH PERIOD
SEPTEMBER 1, 1994 THRU DECEMBER 31, 1994
UNAUDITED
4 MONTH
AMOUNT
<TABLE>
<CAPTION>
<S> <C>
OPERATING INCOME
PASSENGER REVENUE $ 6,619,697
TOTAL 6,619,697
OPERATING EXPENSES
SALARIES & BENEFITS $ 3,178,784
FUEL & OIL 1,849,537
AIRCRAFT LEASES 894,235
AIRCRAFT SUBSERVICE RENT 990,000
AIRCRAFT MAINTENANCE RESERVE 690,928
AIRCRAFT MAINTENANCE & REPAIRS 329,690
AGENCY COMMISSIONS 346,498
CREDIT CARD FEES 113,630
LANDING FEES 323,847
GROUND RENTS 694,074
ADVERTISING & MARKETING 1,148,791
INSURANCE 505,119
OTHER 2,097,218
DETAIL OF OTHER
FLIGHT CREW $ 139,528
RESERVATION 296,409
INFLIGHT EXPENSE 115,817
TELECOMMUNICATIONS 218,580
OUTSIDE SERVICES 174,377
TRAVEL & ENTERTAINMENT 102,302
TRAINING 227,695
UNIFORMS 60,900
POSTAGE, FREIGHT, PRINTING, & SUPPLIES 310,169
MISCELLANEOUS 451,441
TOTAL 2,097,218
TOTAL OPERATING EXPENSE 13,162,351
NET OPERATING LOSS $ (6,542,654.00)
NET INTEREST INCOME/(EXPENSE) (38,390)
TRAINING REIMBURSEMENT 254,249
GRANT REVENUE 1,251,412
AGENTS COMMISSION AIRCRAFT (50,000)
LEGAL FEES FOR STATE LOAN (76,000)
DEPRECIATION & AMORTIZATION (83,230)
NET INCOME/(LOSS) (5,284,613)
</TABLE>
<PAGE> 28
EXHIBIT C
[GRAPH]
<PAGE> 29
EXHIBIT C
[GRAPH]
<PAGE> 30
EXHIBIT C
[GRAPH]
<PAGE> 1
EXHIBIT 10.6
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE SOLD, ASSIGNED
OR TRANSFERRED UNLESS SUCH SALE OR TRANSFER IS IN ACCORDANCE WITH THE
REGISTRATION REQUIREMENTS OF SUCH ACT AND APPLICABLE LAWS OR AN APPLICABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT AND APPLICABLE LAWS IS
AVAILABLE WITH RESPECT THERETO.
COMMON STOCK PURCHASE WARRANT
Warrant No. 004
AIR SOUTH AIRLINES, INC.
VOID AFTER OCTOBER 24, 2005
1. Issuance. This Warrant is issued to Clifton E. Haley by Air South
Airlines Inc., a Delaware corporation (hereinafter with its successors, the
"Company") and is issued pursuant to the surrender by the Holder of Warrant No.
001.
2. Purchase Price; Number of Shares. Subject to the terms and conditions
hereinafter set forth, the holder of this Warrant (the "Holder"), is entitled
upon surrender of this Warrant with the subscription form annexed hereto duly
executed, at the office of the Company, 1800 St. Julian Place - 4th Floor,
Columbia, South Carolina 29204, Attention: Secretary, or such other office as
the Company shall notify the Holder of in writing, to purchase from the Company
at a price per share (the "Purchase Price") of One ($1.00) Dollar, Seven
Hundred Twenty-five Thousand (725,000) fully paid and nonassessable shares of
Common Stock, par value $.001 per share, of the Company ("Common Stock").
Until such time as this Warrant is exercised in full or expires, the Purchase
Price and the securities issuable upon exercise of this Warrant are subject to
adjustment as hereinafter provided.
3. Vesting. This Warrant shall be exercisable: (a) from and after
October 25, 1995 as to 225,000 shares; (b) from and after June 1, 1996 as to
250,000 shares if the Board of Directors of the Company has determined that an
orderly transition to a new Chief Executive Officer has been accomplished by
such date; and (c) on the date of the closing of a sale by the Company of at
least $4,000,000 of equity securities of the Company as to 250,000 shares; this
Warrant may not be exercised after October 24, 2005.
4. Fair Market Value. "Fair Market Value" of Common Stock shall mean
either:
(a) if Common Stock is traded on a national securities exchange or
transactions in Common Stock are quoted by a nationally recognized market
quotation system, the average of the high and low prices for the Common Stock
on the trading day prior to the date on which the Company receives for exercise
this Warrant and the related duly executed subscription form; or
1
<PAGE> 2
(b) if Common Stock is not traded as described in subparagraph
4(a), above, a price per share determined in good faith by the Board of
Directors of the Company.
5. Payment of Purchase Price. The Purchase Price may be paid (i) in cash
or by check payable to the order of the Company, (ii) through delivery by the
Holder to the Company of certificates for shares of Common Stock issued with
such shares of Common Stock being credited against the Purchase Price in an
amount equal to the Fair Market Value thereof, or (iii) by any combination of
the foregoing. If Common is not publicly traded as described in paragraph
4(a), above, the Board shall promptly respond in writing to an inquiry by the
Holder as to the Fair Market Value of one share of the Common Stock; provided,
however, the Board shall not be required to so respond sooner than the second
Business Day (as defined below) after its next meeting.
6. Net Issue Election. The Holder may elect to receive, without the
payment by the Holder of any additional consideration, shares equal to the
value of this Warrant or any portion hereof by the surrender of this Warrant or
such portion to the Company, with the net issue election notice annexed hereto
duly executed, at the office of the Company. Thereupon, the Company shall
issue to the Holder such number of fully paid and nonassessable shares of
Common Stock as is computed using the following formula:
X = Y (A-B)
-------
A
where X = the number of shares to be issued to the Holder pursuant to
this Section 4;
Y = the number of shares covered by this Warrant in respect of
which the net issue election is made pursuant to this
paragraph 6;
A = the Fair Market Value of one share of Common Stock, as at the
time the net issue election is made pursuant to this paragraph
6; and
B = the Purchase Price in effect under this Warrant at the time
the net issue election is made pursuant to this paragraph 6.
If Common Stock is not publicly traded as described in paragraph 4(a), above,
the Board shall promptly respond in writing to an inquiry by the Holder as to
the Fair Market Value of one share of the Common Stock; provided, however, the
Board shall not be required to so respond sooner than the second Business Day
(as defined below) after its next meeting.
7. Partial Exercise. This Warrant may be exercised in part in even
increments of 100 shares, and the Holder shall be entitled to receive a new
warrant, which shall be dated as of the date of this Warrant, covering the
number of shares in respect of which this Warrant shall not have been
exercised.
2
<PAGE> 3
8. Issuance Date. The person or persons in whose name or names any
certificate representing shares of Common Stock is issued hereunder shall be
deemed to have become the holder of record of the shares represented thereby as
at the close of business on the date this Warrant is exercised with respect to
such shares, whether or not the transfer books of the Company shall be closed.
9. Reserved Shares, Valid Issuance. The Company covenants that it will
at all times from and after the date this Warrant becomes exercisable reserve
and keep available such number of its authorized shares of Common Stock, as
will be sufficient to permit the exercise of this Warrant in full. The Company
further covenants that such shares as may be issued pursuant to the exercise of
this Warrant will, upon issuance, be duly authorized, validly issued, fully
paid and nonassessable and free from all taxes, liens and charges with respect
to the issuance thereof.
10. Stock Splits and Dividends. If after the date hereof the Company
shall subdivide the Common Stock, by split or otherwise, or issue additional
shares of Common Stock in payment of a stock dividend, the number of shares
issuable on the exercise of this Warrant shall forthwith be proportionately
increased in the case of a subdivision or stock dividend. In the event that
the shares of Common Stock of the Company from time to time issued and
outstanding are reduced by a combination of shares, recapitalization,
reclassification or other change in the capital structure of the Company, the
number of shares of Common Stock covered by the Option granted hereunder shall
be reduced proportionately and the Purchase Price shall forthwith be
proportionately increased. All such adjustments shall be made by the Board,
whose determination upon the same shall be final and binding upon the Holder.
11. Fractional Shares. In no event shall any fractional share of Common
Stock be issued upon any exercise of this warrant. If, upon exercise of this
Warrant as an entirety, the Holder would, except as provided in this paragraph
11, be entitled to receive a fractional share of Common Stock, then the Company
shall issue the next lower number of full shares of Common Stock.
12. Certificate of Adjustment. Whenever the Purchase Price is adjusted,
as herein provided, the Company shall in due course deliver to the Holder a
notice setting forth the Purchase Price determined by the Board after such
adjustment and setting forth a brief statement of the facts requiring such
adjustment.
13. Lost or Destroyed Warrant. In case this Warrant shall be mutilated,
lost, stolen or destroyed, the Company shall issue a new warrant of like tenor
and denomination and deliver the same (i) in exchange and substitution for and
upon surrender and cancellation of any mutilated Warrant, or (ii) in lieu of
any Warrant lost, stolen or destroyed, upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft or destruction of such Warrant
(including a reasonably detailed affidavit with respect to the circumstances of
any loss, theft or destruction) and, if required by the Company, of indemnity
reasonably satisfactory to the Company.
3
<PAGE> 4
14. Assignment. The right to purchase all or part of the shares of Common
Stock pursuant to this Warrant shall be assignable by the Holder only with the
prior written consent of the Company, which consent may be withheld for any
reason or no reason.
15. Compliance with Securities Laws. The shares of Common Stock issuable
pursuant to this Warrant will be "restricted securities" and will be subject to
significant restrictions on transfer. The issuance of such shares is
conditional upon the Holder entering into such investment letters and other
agreements as are deemed necessary or desirable to insure compliance with any
applicable securities laws in the reasonable judgment of counsel for this
Company.
16. Governing Law. The provisions and terms of this Warrant shall be
governed by and construed in accordance with the internal laws of the State of
Delaware but shall be enforceable by legal or equitable action only in the
courts of the State of South Carolina.
17. Business Days. If the last or appointed day for the taking of any
action required or the expiration of any right granted herein shall be a
Saturday or Sunday or a legal holiday in Columbia, South Carolina, then such
action may be taken or right may be exercised on the next succeeding day which
is not a Saturday or Sunday or such a legal holiday (a "Business Day").
Dated as of the 11th day of January, 1996
AIR SOUTH AIRLINES, INC.
By:
------------------------------------
Roden A. Brandt
President and Chief Operating Officer
4
<PAGE> 5
Subscription
To: Air South Airlines, Inc. Date:
The undersigned hereby subscribes for _____ shares of Common Stock of
Air South Airlines, Inc. covered by that certain Common Stock Purchase Warrant
dated January 11, 1996 (the "Warrant"). The certificate for such shares shall
be issued in the name of the undersigned. Either:
A. Payment is enclosed as follows:
/ / a check in the amount of $_______ payable to Air South Airlines,
Inc.
/ / _____ shares of Common Stock having a value of $______ per share.
B. / / The undersigned hereby elects under Section 6 of such Common Stock
Purchase Warrant to surrender the right to purchase a portion of the shares of
Common Stock purchasable pursuant to such Warrant. The certificate(s) for the
shares issuable upon such net issue election shall be issued in the name of the
undersigned.
----------------------------------
Signature
----------------------------------
Name
----------------------------------
Mailing Address
----------------------------------
----------------------------------
5
<PAGE> 6
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE SOLD,
ASSIGNED OR TRANSFERRED UNLESS SUCH SALE OR TRANSFER IS IN ACCORDANCE WITH THE
REGISTRATION REQUIREMENTS OF SUCH ACT AND APPLICABLE LAWS OR AN APPLICABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT AND APPLICABLE LAWS IS
AVAILABLE WITH RESPECT THERETO.
COMMON STOCK PURCHASE WARRANT
Warrant No. 005
AIR SOUTH AIRLINES, INC.
VOID AFTER OCTOBER 24, 2005
1. Issuance. This Warrant is issued to Marshall Bailey by Air South
Airlines, Inc., a Delaware corporation (hereinafter its successors, the
"Company") pursuant to an assignment to him of Warrants for shares originally
issued to Clifton E. Haley as Warrant No. 001.
2. Purchase Price, Number of Shares. Subject to the terms and conditions
hereinafter set forth, the holder of this Warrant (the "Holder"), is entitled
upon surrender of this Warrant with the subscription form annexed hereto duly
executed, at the office of the Company, 1800 St. Julian Place - 4th Floor,
Columbia, South Carolina 29204, Attention: Secretary, or such other office as
the Company shall notify the Holder of in writing, to purchase from the Company
at a price per share (the "Purchase Price") of One ($1.00) Dollar, Twenty-five
Thousand (25,000) fully paid and nonassessable shares of Common Stock, par
value $.001 per share, of the Company ("Common Stock"). Until such time as
this Warrant is exercised in full or expires, the Purchase Price and the
securities issuable upon exercise of this Warrant are subject to adjustment as
hereinafter provided.
3. Vesting. This Warrant shall be exercisable from January 11, 1996
through October 24, 2005.
4. Fair Market Value. "Fair Market Value" of Common Stock shall mean
either:
(a) if Common Stock is traded on a national securities exchange or
transactions in Common Stock are quoted by a nationally recognized market
quotation system, the average of the high and low prices for the Common Stock
on the trading day prior to the date on which the Company receives for exercise
this Warrant and the related duly executed subscription form; or
(b) if Common Stock is not traded as described in subparagraph
4(a), above, a price per share determined in good faith by the Board of
Directors of the Company.
5. Payment of Purchase Price. The Purchase Price may be paid (i) in cash
or by check payable to the order of the Company, (ii) through delivery by the
Holder to the Company of
1
<PAGE> 7
certificates for shares of Common Stock issued with such shares of Common Stock
being credited against the Purchase Price in an amount equal to the Fair Market
Value thereof, or (iii) by any combination of the foregoing. If Common is not
publicly traded as described in paragraph 4(a), above, the Board shall promptly
respond in writing to an inquiry by the Holder as to the Fair Market Value of
one share of the Common Stock; provided, however, the Board shall not be
required to so respond sooner than the second Business Day (as defined below)
after its next meeting.
6. Net Issue Election. The Holder may elect to receive, without the
payment by the Holder of any additional consideration, shares equal to the
value of this Warrant or any portion hereof by the surrender of this Warrant or
such portion to the Company, with the net issue election notice annexed hereto
duly executed, at the office of the Company. Thereupon, the Company shall
issue to the Holder such number of fully paid and nonassessable shares of
Common Stock as is computed using the following formula:
X = Y (A-B)
-------
A
where X = the number of shares to be issued to the Holder
pursuant to this Section 4;
Y = the number of shares covered by this Warrant in
respect of which the net issue election is made
pursuant to this paragraph 6;
A = the Fair Market Value of one share of Common Stock,
as at the time the net issue election is made
pursuant to this paragraph 6; and
B = the Purchase Price in effect under this Warrant at
the time the net issue election is made pursuant to
this paragraph 6.
If Common Stock is not publicly traded as described in paragraph 4(a), above,
the Board shall promptly respond in writing to an inquiry by the Holder as to
the Fair Market Value of one share of the Common Stock; provided, however, the
Board shall not be required to so respond sooner than the second Business Day
(as defined below) after its next meeting.
7. Partial Exercise. This Warrant may be exercised in part in even
increments of 100 shares, and the Holder shall be entitled to receive a new
warrant, which shall be dated as of the date of this Warrant, covering the
number of shares in respect of which this Warrant shall not have been
exercised.
8. Issuance Date. The person or persons in whose name or names any
certificate representing shares of Common Stock is issued hereunder shall be
deemed to have become the holder of record of the shares represented thereby as
at the close of business on the date this Warrant is exercised with respect to
such shares, whether or not the transfer books of the Company shall be closed.
2
<PAGE> 8
9. Reserved Shares, Valid Issuance. The Company covenants that it will
at all times from and after the date this Warrant becomes exercisable reserve
and keep available such number of its authorized shares of Common Stock, as
will be sufficient to permit the exercise of this Warrant in full. The Company
further covenants that such shares as may be issued pursuant to the exercise of
this Warrant will, upon issuance, be duly authorized, validly issued, fully
paid and nonassessable and free from all taxes, liens and charges with respect
to the issuance thereof.
10. Stock Splits and Dividends. If after the date hereof the Company
shall subdivide the Common Stock, by split or otherwise, or issue additional
shares of Common Stock in payment of a stock dividend, the number of shares
issuable on the exercise of this Warrant shall forthwith be proportionately
increased in the case of a subdivision or stock dividend. In the event that
the shares of Common Stock of the Company from time to time issued and
outstanding are reduced by a combination of shares, recapitalization,
reclassification or other change in the capital structure of the Company, the
number of shares of Common Stock covered by the Option granted hereunder shall
be reduced proportionately and the Purchase Price shall forthwith be
proportionately increased. All such adjustments shall be made by the Board,
whose determination upon the same shall be final and binding upon the Holder.
11. Fractional Shares. In no event shall any fractional share of Common
Stock be issued upon any exercise of this warrant. If, upon exercise of this
Warrant as an entirety, the Holder would, except as provided in this paragraph
11, be entitled to receive a fractional share of Common Stock, then the
Company shall issue the next lower number of full shares of Common Stock.
12. Certificate of Adjustment. Whenever the Purchase Price is adjusted,
as herein provided, the Company shall in due course deliver to the Holder a
notice setting forth the Purchase Price determined by the Board after such
adjustment and setting forth a brief statement of the facts requiring such
adjustment.
13. Lost or Destroyed Warrant. In case this Warrant shall be mutilated,
lost, stolen or destroyed, the Company shall issue a new warrant of like tenor
and denomination and deliver the same (i) in exchange and substitution for and
upon surrender and cancellation of any mutilated Warrant, or (ii) in lieu of
any Warrant lost, stolen or destroyed, upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft or destruction of such Warrant
(including a reasonably detailed affidavit with respect to the circumstances of
any loss, theft or destruction) and, if required by the Company, of indemnity
reasonably satisfactory to the Company.
14. Assignment. The right to purchase all or part of the shares of Common
Stock pursuant to this Warrant shall be assignable by the Holder only with the
prior written consent of the Company, which consent may be withheld for any
reason or no reason.
15. Compliance with Securities Laws. The shares of Common Stock issuable
pursuant to this Warrant will be "restricted securities" and will be subject to
significant restrictions on transfer. The issuance of such shares is
conditional upon the Holder entering into such investment letters
3
<PAGE> 9
and other agreements as are deemed necessary or desirable to insure compliance
with any applicable securities laws in the reasonable judgment of counsel for
this Company.
16. Governing Law. The provisions and terms of this Warrant shall be
governed by and construed in accordance with the internal laws of the State
of Delaware but shall be enforceable by legal or equitable action only in the
courts of the State of South Carolina.
17. Business Days. If the last or appointed day for the taking of any
action required or the expiration of any right granted herein shall be a
Saturday or Sunday or a legal holiday in Columbia, South Carolina, then such
action may be taken or right may be exercised on the next succeeding day which
is not a Saturday or Sunday or such a legal holiday (a "Business Day").
Dated as of the 11th day of January, 1996
AIR SOUTH AIRLINES, INC.
By:
------------------------------------
Roden A. Brandt
President and Chief Operating Officer
4
<PAGE> 10
Subscription
To: Air South Airlines, Inc. Date:
The undersigned hereby subscribes for shares of Common Stock of Air
South Airlines, Inc. covered by that certain Common Stock Purchase Warrant
dated January 11, 1996 (the "Warrant"). The certificate for such shares shall
be issued in the name of the undersigned. Either:
A. Payment is enclosed as follows:
/ / a check in the amount of $________ payable to Air South Airlines, Inc.
/ / _______ shares of Common Stock having a value of $ _______ per share.
B. / / The undersigned hereby elects under Section 6 of such Common Stock
Purchase Warrant to surrender the right to purchase a portion of the shares of
Common Stock purchasable pursuant to such Warrant. The certificate(s) for the
shares issuable upon such net issue election shall be issued in the name of the
undersigned.
----------------------------
Signature
----------------------------
Name
----------------------------
Mailing Address
----------------------------
----------------------------
5
<PAGE> 11
ASSIGNMENT
The undersigned, Clifton E. Haley, being the Holder of that certain
Common Stock Purchase Warrant No. 001 of Air South, Inc. hereby assigns to
Marshall Bailey as a gift the right to purchase 25,000 shares of the Air South
Airlines, Inc. Common Stock which are exercisable from and after October 25,
1995.
January 11, 1996 /s/ Clifton E. Haley
--------------------
Clifton E. Haley
CONSENTED TO:
AIR SOUTH AIRLINES, INC.
By: /s/ Roden A. Brandt
-------------------
Roden A. Brandt
President and Chief Operating Officer
<PAGE> 1
EXHIBIT 10.7
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE SOLD,
ASSIGNED OR TRANSFERRED UNLESS SUCH SALE OR TRANSFER IS IN ACCORDANCE WITH THE
REGISTRATION REQUIREMENTS OF SUCH ACT AND APPLICABLE LAWS OR AN APPLICABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT AND APPLICABLE LAWS IS
AVAILABLE WITH RESPECT THERETO.
COMMON STOCK PURCHASE WARRANT
Warrant No. 003
AIR SOUTH, INC.
VOID AFTER OCTOBER 24,1995
1. Issuance. This Warrant is issued to David Y. Monteith by Air South,
Inc., an Illinois corporation (hereinafter with its successors, the "Company").
2. Purchase Price; Number of Shares. Subject to the terms and conditions
hereinafter set forth, the holder of this Warrant (the "Holder"), is entitled
upon surrender of this Warrant with the subscription form annexed hereto duly
executed, at the office of the Company, 1800 St. Julian Place - 4th Floor,
Columbia, South Carolina 29204, Attention: Secretary, or such other office as
the Company shall notify the Holder of in writing, to purchase from the Company
at a price per share (the "Purchase Price") of One ($1.00) Dollar, Ten Thousand
(10,000) fully paid and nonassessable shares of Common Stock, par value $.001
per share, of the Company ("Common Stock"). Until such time as this Warrant is
exercised in full or expires, the Purchase Price and the securities issuable
upon exercise of this Warrant are subject to adjustment as hereinafter
provided.
3 . Vesting. This Warrant shall be exercisable from October 25, 1995 through
October 24, 2005.
4. Fair Market Value. "Fair Market Value" of Common Stock shall mean
either:
(a) if Common Stock is traded on a national securities exchange or
transactions in Common Stock are quoted by a nationally recognized market
quotation system, the average of the high and low prices for the Common Stock
on the trading day prior to the date on which the Company receives for exercise
this Warrant and the related duly executed subscription form; or
(b) if Common Stock is not traded as described in subparagraph
4(a), above, a price per share determined in good faith by the Board of
Directors of the Company.
5. Payment of Purchase Price. The Purchase Price may be paid (i) in cash
or by check payable to the order of the Company, (ii) through delivery by the
Holder to the Company of certificates for shares of Common Stock issued with
such shares of Common Stock being credited
1
<PAGE> 2
against the Purchase Price in an amount equal to the Fair Market Value thereof,
or (iii) by any combination of the foregoing. If Common is not publicly traded
as described in paragraph 4(a), above, the Board shall promptly respond in
writing to an inquiry by the Holder as to the Fair Market Value of one share of
the Common Stock; provided, however, the Board shall not be required to so
respond sooner than the second Business Day (as defined below) after its next
meeting.
6. Net Issue Election. The Holder may elect to receive, without the
payment by the Holder of any additional consideration, shares equal to the
value of this Warrant or any portion hereof by the surrender of this Warrant or
such portion to the Company, with the net issue election notice annexed hereto
duly executed, at the office of the Company. Thereupon, the Company shall
issue to the Holder such number of fully paid and nonassessable shares of
Common Stock as is computed using the following formula:
X = Y (A-B)
------
A
where X = the number of shares to be issued to the Holder pursuant to this
Section 4;
Y = the number of shares covered by this Warrant in respect of which
the net issue election is made pursuant 0to this paragraph 6;
A = the Fair Market Value of one share of Common Stock, as at the
time the net issue election is made pursuant to this paragraph
6; and
B = the Purchase Price in effect under this Warrant at the time the
net issue election is made pursuant to this paragraph 6.
If Common Stock is not publicly traded as described in paragraph 4(a), above,
the Board shall promptly respond in writing to an inquiry by the Holder as to
the Fair Market Value of one share of the Common Stock; provided, however, the
Board shall not be required to so respond sooner than the second Business Day
(as defined below) after its next meeting.
7. Partial Exercise. This Warrant may be exercised in part in even
increments of 100 shares, and the Holder shall be entitled to receive a new
warrant, which shall be dated as of the date of this Warrant, covering the
number of shares in respect of which this Warrant shall not have been
exercised.
8. Issuance Date. The person or persons in whose name or names any
certificate representing shares of Common Stock is issued hereunder shall be
deemed to have become the holder of record of the shares represented thereby as
at the close of business on the date this Warrant is exercised with respect to
such shares, whether or not the transfer books of the Company shall be closed.
2
<PAGE> 3
9. Reserved Shares, Valid Issuance. The Company covenants that it will
at all times from and after the date this Warrant becomes exercisable reserve
and keep available such number of its authorized shares of Common Stock, as
will be sufficient to permit the exercise of this Warrant in full. The
Company further covenants that such shares as may be issued pursuant to the
exercise of this Warrant will, upon issuance, be duly authorized, validly
issued, fully paid and nonassessable and free from all taxes, liens and
charges with respect to the issuance thereof
10. Stock Splits and Dividends. If after the date hereof the Company
shall subdivide the Common Stock, by split or otherwise, or issue additional
shares of Common Stock in payment of a stock dividend, the number of shares
issuable on the exercise of this Warrant shall forthwith be proportionately
increased in the case of a subdivision or stock dividend. In the event that
the shares of Common Stock of the Company from time to time issued and
outstanding are reduced by a combination of shares, recapitalization,
reclassification or other change in the capital structure of the Company, the
number of shares of Common Stock covered by the Option granted hereunder
shall be reduced proportionately and the Purchase Price shall forthwith be
proportionately increased. All such adjustments shall be made by the Board,
whose determination upon the same shall be final and binding upon the Holder.
11. Fractional Shares. In no event shall any fractional share of Common
Stock be issued upon any exercise of this warrant. If, upon exercise of this
Warrant as an entirety, the Holder would, except as provided in this
paragraph 11, be entitled to receive a fractional share of Common Stock,
then the Company shall issue the next lower number of full shares of Common
Stock.
12. Certificate of Adjustment. Whenever the Purchase Price is adjusted,
as herein provided, the Company shall in due course deliver to the Holder a
notice setting forth the Purchase Price determined by the Board after such
adjustment and setting forth a brief statement of the facts requiring such
adjustment.
13. Lost or Destroyed Warrant. In case this Warrant shall be mutilated,
lost, stolen or destroyed, the Company shall issue a new warrant of like
tenor and denomination and deliver the same (i) in exchange and substitution
for and upon surrender and cancellation of any mutilated Warrant, or (ii) in
lieu of any Warrant lost, stolen or destroyed, upon receipt of evidence
reasonably satisfactory to the Company of the loss, theft or destruction of
such Warrant (including a reasonably detailed affidavit with respect to the
circumstances of any loss, theft or destruction) and, if required by the
Company, of indemnity reasonably satisfactory to the Company.
14. Assignment. The right to purchase all or part of the shares of Common
Stock pursuant to this Warrant shall be assignable by the Holder only with
the prior written consent of the Company, which consent may be withheld for
any reason or no reason.
15. Compliance with Securities Laws. The shares of Common Stock issuable
pursuant to this Warrant will be "restricted securities" and will be subject
to significant restrictions on transfer. The issuance of such shares is
conditional upon the Holder entering into such investment letters
3
<PAGE> 4
and other agreements as are deemed necessary or desirable to insure compliance
with any applicable securities laws in the reasonable judgment of counsel for
this Company.
16. Governing Law. The provisions and terms of this Warrant shall be
governed by and construed in accordance with the internal laws of the State of
Delaware but shall be enforceable by legal or equitable action only in the
courts of the State of South Carolina.
17. Business Days. If the last or appointed day for the taking of any
action required or the expiration of any right granted herein shall be a
Saturday or Sunday or a legal holiday in Columbia, South Carolina, then such
action may be taken or right may be exercised on the next succeeding day which
is not a Saturday or Sunday or such a legal holiday (a "Business Day").
Dated as of the 25th day of October, 1995
AIR SOUTH, INC.
By:
--------------------------
Clifton E. Haley
Chairman of the Board and
Chief Executive Officer
4
<PAGE> 5
Subscription
To: Air South, Inc. Date:
_____________________
The undersigned hereby subscribes for _________ shares of Common Stock of
Air South, Inc. covered by that certain Common Stock Purchase Warrant dated
October 25, 1995 (the "Warrant"). The certificate for such shares shall be
issued in the name of the undersigned. Either:
A. Payment is enclosed as follows:
[ ] a check in the amount of $_________ payable to Air South, Inc.
[ ] _______ shares of Common Stock having a value of $_________per
share.
B. [ ] The undersigned hereby elects under Section 6 of such Common Stock
Purchase Warrant to surrender the right to purchase a portion of the shares of
Common Stock purchasable pursuant to such Warrant. The certificate(s) for the
shares issuable upon such net issue election shall be issued in the name of the
undersigned.
________________________________
Signature
________________________________
Name
________________________________
Mailing Address
________________________________
________________________________
5
<PAGE> 1
EXHIBIT 10.8
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE SOLD,
ASSIGNED OR TRANSFERRED UNLESS SUCH SALE OR TRANSFER IS IN ACCORDANCE WITH THE
REGISTRATION REQUIREMENTS OF SUCH ACT AND APPLICABLE LAWS OR AN APPLICABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT AND APPLICABLE LAWS IS
AVAILABLE WITH RESPECT THERETO.
COMMON STOCK PURCHASE WARRANT
Warrant No. 002
AIR SOUTH, INC.
VOID AFTER NOVEMBER 7, 2005
1 . Issuance. This Warrant is issued to Roden A. Brandt by Air South, Inc., an
Illinois corporation (hereinafter with its successors, the "Company").
2. Purchase Price: Number of Shares. Subject to the terms and conditions
hereinafter set forth, the holder of this Warrant (the "Holder"), is entitled
upon surrender of this Warrant with the subscription form annexed hereto duly
executed, at the office of the Company, 1800 St. Julian Place - 4th Floor,
Columbia, South Carolina 29204, Attention: Secretary, or such other office as
the Company shall notify the Holder of in writing, to purchase from the Company
at a price per share (the "Purchase Price") of One ($1.00) Dollar, Two Hundred
Fifty Thousand (250,000) fully paid and nonassessable shares of Common Stock,
par value $.001 per share, of the Company ("Common Stock"). Until such time as
this Warrant is exercised in full or expires, the Purchase Price and the
securities issuable upon exercise of this Warrant are subject to adjustment as
hereinafter provided.
3 . Vesting. This Warrant shall be exercisable from and after November 8, 1995
as to 50,000 shares, June 1, 1996 as to 100,000 shares and January 1, 1997 as
to 100,000 shares; this Warrant may not be exercised after November 7, 2005.
4. Fair Market Value. "Fair Market Value" of Common Stock shall mean
either:
(a) if Common Stock is traded on a national securities exchange or
transactions in Common Stock are quoted by a nationally recognized market
quotation system, the average of the high and low prices for the Common Stock
on the trading day prior to the date on which the Company receives for exercise
this Warrant and the related duly executed subscription form; or
(b) if Common Stock is not traded as described in subparagraph 4(a),
above, a price per share determined in good faith by the Board of Directors of
the Company.
5. Payment of Purchase Price. The Purchase Price may be paid (i) in cash
or by check payable to the order of the Company, (ii) through delivery by the
Holder to the Company of certificates for shares of Common Stock issued with
such shares of Common Stock being credited
1
<PAGE> 2
against the Purchase Price in an amount equal to the Fair Market Value thereof,
or (iii) by any combination of the foregoing. If Common is not publicly traded
as described in paragraph 4(a), above, the Board shall promptly respond in
writing to an inquiry by the Holder as to the Fair Market Value of one share of
the Common Stock- provided, however, the Board shall not be required to so
respond sooner than the second Business Day (as defined below) after its next
meeting.
6. Net Issue Election. The Holder may elect to receive, without the
payment by the Holder of any additional consideration, shares equal to the
value of this Warrant or any portion hereof by the surrender of this Warrant or
such portion to the Company, with the net issue election notice annexed hereto
duly executed, at the office of the Company. Thereupon, the Company shall
issue to the Holder such number of fully paid and nonassessable shares of
Common Stock as is computed using the following formula:
X = Y (A-B)
------
A
where X = the number of shares to be issued to the Holder pursuant to this
Section 4;
Y = the number of shares covered by this Warrant in respect of which
the net issue election is made pursuant to this paragraph 6;
A = the Fair Market Value of one share of Common Stock, as at the
time the net issue election is made pursuant to this paragraph
6; and
B = the Purchase Price in effect under this Warrant at the time the
net issue election is made pursuant to this paragraph 6.
If Common Stock is not publicly traded as described in paragraph 4(a), above,
the Board shall promptly respond in writing to an inquiry by the Holder as to
the Fair Market Value of one share of the Common Stock; provided, however, the
Board shall not be required to so respond sooner than the second Business Day
(as defined below) after its next meeting.
7. Partial Exercise. This Warrant may be exercised in part in even
increments of 100 shares, and the Holder shall be entitled to receive a new
warrant, which shall be dated as of the date of this Warrant, covering the
number of shares in respect of which this Warrant shall not have been
exercised.
8. Issuance Date. The person or persons in whose name or names any
certificate representing shares of Common Stock is issued hereunder shall be
deemed to have become the holder of record of the shares represented thereby as
at the close of business on the date this Warrant is exercised with respect to
such shares, whether or not the transfer books of the Company shall be closed.
9. Reserved Shares: Valid Issuance. The Company covenants that it will
at all times from and after the date this Warrant becomes exercisable reserve
and keep available such number of its
2
<PAGE> 3
authorized shares of Common Stock, as will be sufficient to permit the exercise
of this Warrant in full. The Company further covenants that such shares as may
be issued pursuant to the exercise of this Warrant will, upon issuance, be duly
authorized, validly issued, fully paid and nonassessable and free from all
taxes, liens and charges with respect to the issuance thereof
10. Stock Splits and Dividends. If after the date hereof the Company
shall subdivide the Common Stock, by split or otherwise, or issue additional
shares of Common Stock in payment of a stock dividend, the number of shares
issuable on the exercise of this Warrant shall forthwith be proportionately
increased in the case of a subdivision or stock dividend. In the event that
the shares of Common Stock of the Company from time to time issued and
outstanding are reduced by a combination of shares, recapitalization,
reclassification or other change in the capital structure of the Company, the
number of shares of Common Stock covered by the Option granted hereunder shall
be reduced proportionately and the Purchase Price shall forthwith be
proportionately increased. All such adjustments shall be made by the Board,
whose determination upon the same shall be final and binding upon the Holder.
11. Fractional Shares. In no event shall any fractional share of Common
Stock be issued upon any exercise of this warrant. If, upon exercise of this
Warrant as an entirety, the Holder would, except as provided in this paragraph
11, be entitled to receive a fractional share of Common Stock, then the
Company shall issue the next lower number of full shares of Common Stock.
12. Certificate of Adjustment. Whenever the Purchase Price is adjusted,
as herein provided, the Company shall in due course deliver to the Holder a
notice setting forth the Purchase Price determined by the Board after such
adjustment and setting forth a brief statement of the facts requiring such
adjustment.
13. Lost or Destroyed Warrant. In case this Warrant shall be mutilated,
lost, stolen or destroyed, the Company shall issue a new warrant of like tenor
and denomination and deliver the same (i) in exchange and substitution for and
upon surrender and cancellation of any mutilated Warrant, or (ii) in lieu of
any Warrant lost, stolen or destroyed, upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft or destruction of such Warrant
(including a reasonably detailed affidavit with respect to the circumstances of
any loss, theft or destruction) and, if required by the Company, of indemnity
reasonably satisfactory to the Company.
14. Assignment. The right to purchase all or part of the shares of Common
Stock pursuant to this Warrant shall be assignable by the Holder only with the
prior written consent of the Company, which consent may be withheld for any
reason or no reason.
15. Compliance with Securities Laws. The shares of Common Stock issuable
pursuant to this Warrant will be "restricted securities" and will be subject to
significant restrictions on transfer. The issuance of such shares is
conditional upon the Holder entering into such investment letters and other
agreements as are deemed necessary or desirable to insure compliance with any
applicable securities laws in the reasonable judgment of counsel for this
Company.
3
<PAGE> 4
16. Governing Law. The provisions and terms of this Warrant shall be
governed by and construed in accordance with the internal laws of the State of
Delaware but shall be enforceable by legal or equitable action only in the
courts of the State of South Carolina.
17. Business Days. If the last or appointed day for the taking of any
action required or the expiration of any right granted herein shall be a
Saturday or Sunday or a legal holiday in Columbia, South Carolina, then such
action may be taken or right may be exercised on the next succeeding day which
is not a Saturday or Sunday or such a legal holiday (a "Business Day").
Dated as of the 8th day of November, 1995
AIR SOUTH, INC.
By:
------------------------
Clifton E. Haley
Chairman of the Board and
Chief Executive Officer
4
<PAGE> 5
Subscription
To: Air South, Inc. Date:
_______________________
The undersigned hereby subscribes for _________ shares of Common Stock of Air
South, Inc. covered by that certain Common Stock Purchase Warrant dated
November 8, 1995 (the "Warrant"). The certificate for such shares shall be
issued in the name of the undersigned. Either:
A. Payment is enclosed as follows:
[ ] a check in the amount of $ ________ payable to Air South, Inc.
[ ] shares of Common Stock having a value of $ __________ per share.
B. [ ] The undersigned hereby elects under Section 6 of such Common
Stock Purchase Warrant to surrender the right to purchase a portion of the
shares of Common Stock purchasable pursuant to such Warrant. The
certificate(s) for the shares issuable upon such net issue election shall be
issued in the name of the undersigned.
___________________________
Signature
___________________________
Name
___________________________
Mailing Address
___________________________
___________________________
5
<PAGE> 1
EXHIBIT 10.9
OPTION NO. 35
AIR SOUTH, INC.
INCENTIVE STOCK OPTION AGREEMENT
This Agreement is made as of November 12, 1994 and between AIR SOUTH,
INC., an Illinois corporation (the "Company") and Dennis Crosby (the
"Optionee").
WHEREAS, the Board of Directors of the Company (the "Board") has
determined that the Optionee is a full or part time employee of the Company or
a subsidiary; and
WHEREAS, the Board considers it desirable and in the Company's best
interests that the Optionee be given, as an incentive to contribute to its
success and prosperity, and to encourage the Optionee to remain in its employ,
an option to purchase shares of the Common Stock of the Company in accordance
with the Company's Incentive Stock Option Plan (the "Plan");
NOW, THEREFORE, it is agreed between the parties as follows:
1. Option Grant. The Company hereby grants to the Optionee the right,
privilege and option to purchase up to 80,000 shares of its Common Stock at a
purchase price of One Dollar ($1.00) per share, in the manner and subject to
the conditions provided herein (the "Option"). This option shall expire on
November 12, 2004 (the "Expiration Date").
2. Vesting. Subject to earlier termination as provided herein,
the extent to which the Option shall be exercisable shall be as follows:
[X] 33.33% of the total number of shares for each year of a three year
period following the date hereof throughout which the Optionee
serves the Company as an officer or employee, as follows:
[X] 26,666 shares after November 12, 1995
<PAGE> 2
[X] 26,667 shares after November 12, 1996
[X] 26,667 shares after November 12, 1997
[X] -0- shares after November 12, 1998
[X] -0- shares after November 12, 1999
To the extent not exercised, the number of shares as to which the Option
is exercisable shall accumulate and be exercisable, in whole or in part, until
the termination of the Option as set forth in Section 4 hereof, but in no event
later than ten (10) years from the date of this Agreement.
3. Exercise. The Option shall be exercisable upon delivery of written
notice, in the form attached hereto as Exhibit A, to the Board at the Company's
principal place of business, specifying the number of shares of Common Stock to
be purchased and the amount to be paid therefor, and accompanied by cash or
check payable to the order of the Company in an amount equal to the purchase
price of the shares. The Company shall thereafter immediately make delivery of
such shares, bearing the legend set forth hereafter in section 8.
4. Exercise Period. The exercise period of Options granted
hereunder shall terminate upon the first to occur of the following events:
(a) Three (3) months after voluntary or involuntary
termination of employment of the Optionee by the Company other than by reason
of death, total disability or approved leave of absence;
(b) twelve (12) months following the death of the Optionee while
an employee;
(c) twelve (12) months following the termination of services by
the Optionee in the event of disability of the Optionee within the meaning of
Section 22(e)(3) of the Internal Revenue Code of 1954, as amended; or
2
<PAGE> 3
(d) the Expiration Date set forth in Section 1 of this Agreement;
(e) ten (10) years from the date of this Agreement.
5. Stock Dividends, Splits. In the event that additional shares of
Common Stock are issued pursuant to a stock split, stock dividend,
recapitalization, reclassification or other change in the capital structure of
the Company, the number of shares of Common Stock covered by the Option granted
hereunder shall be increased proportionately, with no increase in the total
purchase price of the shares then so covered. In the event that the shares of
Common Stock of the Company from time to time issued and outstanding are
reduced by a combination of shares, recapitalization, reclassification or other
change in the capital structure of the Company, the number of shares of Common
Stock covered by the Option granted hereunder shall be reduced proportionately,
with no reduction in the total price of the shares then so covered. All such
adjustments shall be made by the Board, whose determination upon the same shall
be final and binding upon the Optionee. No fractional shares shall be issued,
and any fractional shares resulting from such computations shall be eliminated
from the adjusted Option. No adjustment shall be made for cash dividends or
the issuance to stockholders of rights to subscribe for additional Common Stock
or other securities.
6. Non-Transferable. This Agreement, and the Option rights and
privileges conferred hereunder, shall not be transferred, assigned, pledged,
hypothecated in any way (whether by operation of law or otherwise), or
otherwise disposed of, except by will and the laws of descent and distribution,
shall not be subject to execution, attachment or similar process, and shall be
exercisable, during his lifetime, only by the Optionee.
7. Investment Purposes Only. All shares acquired by the Optionee
pursuant to this Agreement shall be acquired for investment purposes only for
the account of the Optionee and not
3
<PAGE> 4
with any intention or purpose of resale or further distribution thereof by the
Optionee. Such shares may not be resold except in compliance with the
Securities Act of 1933 or an exemption therefrom. Nothing contained herein
shall require the Company to register under the Securities Act of 1933 either
the Plan, this option or any securities issued or issuable pursuant to this
option.
8. Legend. All share certificates transferred to the Optionee pursuant
to an exercise of the option granted hereunder shall bear on their face the
following legend:
The transfer and sale of these shares is governed by the terms of the
Air South Incentive Stock Option Agreement between the Company and the
Shareholder and the Air South Incentive Stock Option Plan, copies of
which are on file with the Secretary of the Company.
and such other legends as the Company deems appropriate.
9. Transferees. This Agreement shall inure to the benefit of and
be binding upon the parties hereto and their respective heirs, executors,
administrators, permitted successors and permitted assigns.
10. No Employment Contract. Neither the execution of this Agreement
nor the issuance of shares pursuant to the exercise of any Option granted
hereunder shall be construed as giving the Optionee any legal or equitable
right against the Company or its subsidiaries except as specifically provided
for herein, or the right to be retained in employment, service or as a member
of the Board, and the Optionee shall remain subject to discharge or removal to
the same extent as if this Agreement had not been executed by the parties.
11. Governing Law. This Agreement shall be construed and interpreted,
and its validity, effect and rights hereunder shall be determined at all times
in accordance with the laws of the State of South Carolina.
12. Plan Controls. The Optionee, for himself, his heirs, executors,
administrators, permitted successors and permitted assigns, administrators,
permitted successors and permitted
4
<PAGE> 5
assigns, acknowledges and agrees that (i) he has received a copy of the Plan,
and (ii) he has read and understands fully the Plan and that, in the event of
any inconsistency between the terms of this Agreement and the Plan the
provisions of the Plan shall control.
AIR SOUTH, INC.
By:
----------------------------------
Donald Baker
Title: Secretary
OPTIONEE
Signed:
------------------------------
Dennis Crosby
I understand and accept this option as replacement for option #35 originally
issued effective August 23, 1994 which date was incorrect. This option
reflects the correct effective date of November 12, 1994
- - --------------------------
Dennis Crosby
5
<PAGE> 6
NOTICE OF EXERCISE
INCENTIVE STOCK OPTION PLAN
AIR SOUTH, INC.
The undersigned Optionee hereby exercises Option No. 35, granted on
November 12, 1994 ("Date of Grant"), to purchase __________ shares of Common
Stock (no par value) of Air South, Inc. (the "Company") at a price of $1.00 per
share under the Company's Incentive Stock Option Plan (the "Plan") and herewith
encloses check in the amount of $ ___________ payable to Air South, Inc. in
full payment therefor.
The undersigned Optionee hereby represents and certifies that _____ is
purchasing these securities for ______ own account for investment and not with
a view to the resale or distribution thereof.
Date _______________________, 199 ____ Signed: ___________________________
Print Name: _______________________
6
<PAGE> 1
EXHIBIT 10.10
OPTION NO. 13
AIR SOUTH, INC.
INCENTIVE STOCK OPTION AGREEMENT
This Agreement is made as of August 23, 1994 and between AIR SOUTH,
INC., an Illinois corporation (the "Company") and Donald Baker (the
"Optionee").
WHEREAS, the Board of Directors of the Company (the "Board") has been
determined that the Optionee is a full or part time employee of the Company or
a subsidiary; and
WHEREAS, the Board considers it desirable and in the Company's best
interests that the Optionee be given, as an incentive to contribute to its
success and prosperity, and to encourage the Optionee to remain in its employ,
an option to purchase shares of the Common Stock of the Company in accordance
with the Company's Incentive Stock Option Plan (the "Plan");
NOW, THEREFORE, it is agreed between the parties as follows:
1. Option Grant. The Company hereby grants to the Optionee the right,
privilege and option to purchase up to 40,000 shares of its Common Stock at a
purchase price of One Dollar ($1.00) per share, in the manner and subject to
the conditions provided herein (the "Option"). This option shall expire on
August 23, 2004 (the "Expiration Date").
2. Vesting. Subject to earlier termination as provided herein, the
extent to which the Option shall be exercisable shall be as follows:
[X] 33.33% of the total number of shares for each year of a three year
period following the date hereof throughout which the Optionee
serves the Company as an officer or employee, as follows:
[X] 13,333 shares after August 23, 1995
<PAGE> 2
[X] 13,333 shares after August 23, 1996
[X] 13,334 shares after August 23, 1997
[X] -0- shares after August 23, 1998
[X] -0- shares after August 23, 1999
To the extent not exercised, the number of shares as to which the Option
is exercisable shall accumulate and be exercisable, in whole or in part, until
the termination of the Option as set forth in Section 4 hereof, but in no event
later than ten (10) years from the date of this Agreement.
3. Exercise. The Option shall be exercisable upon delivery of
written notice, in the form attached hereto as Exhibit A, to the Board at the
Company's principal place of business, specifying the number of shares of
Common Stock to be purchased and the amount to be paid therefor, and
accompanied by cash or check payable to the order of the Company in an amount
equal to the purchase price of the shares. The Company shall thereafter
immediately make delivery of such shares, bearing the legend set forth
hereafter in section 8.
4. Exercise Period. The exercise period of Options granted hereunder
shall terminate upon the first to occur of the following events:
(a) Three (3) months after voluntary or involuntary termination
of employment of the Optionee by the Company other than by reason of death,
total disability or approved leave of absence;
(b) twelve (12) months following the death of the Optionee while
an employee;
(c) twelve (12) months following the termination of services by
the Optionee in the event of disability of the Optionee within the meaning of
Section 22(e)(3) of the Internal Revenue Code of 1954, as amended; or
2
<PAGE> 3
(d) the Expiration Date set forth in Section 1 of this Agreement;
(e) ten (10) years from the date of this Agreement.
5. Stock Dividends, Splits. In the event that additional shares
of Common Stock are issued pursuant to a stock split, stock dividend,
recapitalization, reclassification or other change in the capital structure of
the Company, the number of shares of Common Stock covered by the Option granted
hereunder shall be increased proportionately, with no increase in the total
purchase price of the shares then so covered. In the event that the shares of
Common Stock of the Company from time to time issued and outstanding are
reduced by a combination of shares, recapitalization, reclassification or other
change in the capital structure of the Company, the number of shares of Common
Stock covered by the Option granted hereunder shall be reduced proportionately,
with no reduction in the total price of the shares then so covered. All such
adjustments shall be made by the Board, whose determination upon the same shall
be final and binding upon the Optionee. No fractional shares shall be issued,
and any fractional shares resulting from such computations shall be eliminated
from the adjusted Option. No adjustment shall be made for cash dividends or
the issuance to stockholders of rights to subscribe for additional Common Stock
or other securities.
6. Non-Transferable. This Agreement, and the Option rights and
privileges conferred hereunder, shall not be transferred, assigned, pledged,
hypothecated in any way (whether by operation of law or otherwise), or
otherwise disposed of, except by will and the laws of descent and distribution,
shall not be subject to execution, attachment or similar process, and shall be
exercisable, during his lifetime, only by the Optionee.
7. Investment Purposes Only. All shares acquired by the
Optionee pursuant to this Agreement shall be acquired for investment purposes
only for the account of the Optionee and not
3
<PAGE> 4
with any intention or purpose of resale or further distribution thereof by the
Optionee. Such shares may not be resold except in compliance with the
Securities Act of 1933 or an exemption therefrom. Nothing contained herein
shall require the Company to register under the Securities Act of 1933 either
the Plan, this option or any securities issued or issuable pursuant to this
option.
8. Legend. All share certificates transferred to the Optionee
pursuant to an exercise of the option granted hereunder shall bear on their
face the following legend:
The transfer and sale of these shares is governed by the terms of the
Air South Incentive Stock Option Agreement between the Company and the
Shareholder and the Air South Incentive Stock Option Plan, copies of
which are on file with the Secretary of the Company.
and such other legends as the Company deems appropriate.
9. Transferees. This Agreement shall inure to the benefit of and
be binding upon the parties hereto and their respective heirs, executors,
administrators, permitted successors and permitted assigns.
10. No Employment Contract. Neither the execution of this
Agreement nor the issuance of shares pursuant to the exercise of any Option
granted hereunder shall be construed as giving the Optionee any legal or
equitable right against the Company or its subsidiaries except as specifically
provided for herein, or the right to be retained in employment, service or as a
member of the Board, and the Optionee shall remain subject to discharge or
removal to the same extent as if this Agreement had not been executed by the
parties.
11. Governing Law. This Agreement shall be construed and
interpreted, and its validity, effect and rights hereunder shall be determined
at all times in accordance with the laws of the State of South Carolina.
12. Plan Controls. The Optionee, for himself, his heirs,
executors, administrators, permitted successors and permitted assigns,
administrators, permitted successors and permitted
4
<PAGE> 5
assigns, acknowledges and agrees that (i) he has received a copy of the Plan,
and (ii) he has read and understands fully the Plan and that, in the event of
any inconsistency between the terms of this Agreement and the Plan the
provisions of the Plan shall control.
AIR SOUTH, INC.
By:
-----------------------------------------
Patrick J. O'Shea
Title: President & Chief Executive Officer
OPTIONEE
Signed:
-----------------------------------
Donald Baker
5
<PAGE> 6
NOTICE OF EXERCISE
INCENTIVE STOCK OPTION PLAN
AIR SOUTH, INC.
The undersigned Optionee hereby exercises Option No. 13, granted on
August 23, 1994 ("Date of Grant"), to purchase ___________ shares of Common
Stock (no par value) of Air South, Inc. (the "Company") at a price of $1.00 per
share under the Company's Incentive Stock Option Plan (the "Plan") and herewith
encloses _______ check in the amount of $__________ payable to Air South, Inc.
in full payment therefor.
The undersigned Optionee hereby represents and certifies that ________ is
purchasing these securities for ________ own account for investment and not
with a view to the resale or distribution thereof.
Date ________________________, 199___ Signed:____________________________
Print Name:________________________
6
<PAGE> 1
EXHIBIT 10.11
OPTION NO. 14
AIR SOUTH, INC.
INCENTIVE STOCK OPTION AGREEMENT
This Agreement is made as of August 23, 1994 and between AIR SOUTH,
INC., an Illinois corporation (the "Company") and Thomas J. Volz (the
"Optionee").
WHEREAS, the Board of Directors of the Company (the "Board") has been
determined that the Optionee is a full or part time employee of the Company or
a subsidiary; and
WHEREAS, the Board considers it desirable and in the Company's best
interests that the Optionee be given, as an incentive to contribute to its
success and prosperity, and to encourage the Optionee to remain in its employ,
an option to purchase shares of the Common Stock of the Company in accordance
with the Company's Incentive Stock Option Plan (the "Plan");
NOW, THEREFORE, it is agreed between the parties as follows:
1. Option Grant. The Company hereby grants to the Optionee the
fight, privilege and option to purchase up to 50,000 shares of its Common Stock
at a purchase price of One Dollar ($1.00) per share, in the manner and subject
to the conditions provided herein (the "Option"). This option shall expire on
August 23, 2004 (the "Expiration Date").
2. Vesting. Subject to earlier termination as provided herein, the
extent to which the Option shall be exercisable shall be as follows:
[X] 33.33% of the total number of shares for each year of a three year
period following the date hereof throughout which the Optionee
serves the Company as an officer or employee, as follows:
[X] 16,667 shares after August 23, 1995
<PAGE> 2
[X] 16,667 Shares after August 23, 1996
[X] 16,666 shares after August 23, 1997
[X] -0- shares after August 23, 1998
[X] -0- shares after August 23, 1999
To the extent not exercised, the number of shares as to which the Option
is exercisable shall accumulate and be exercisable, in whole or in part, until
the termination of the Option as set forth in Section 4 hereof, but in no event
later than ten (10) years from the date of this Agreement.
3. Exercise. The Option shall be exercisable upon delivery of
written notice, in the form attached hereto as Exhibit A, to the Board at the
Company's principal place of business, specifying the number of shares of
Common Stock to be purchased and the amount to be paid therefor, and
accompanied by cash or check payable to the order of the Company in an amount
equal to the purchase price of the shares. The Company shall thereafter
immediately make delivery of such shares, bearing the legend set forth
hereafter in section 8.
4. Exercise Period. The exercise period of Options granted hereunder
shall terminate upon the first to occur of the following events:
(a) Three (3) months after voluntary or involuntary
termination of employment of the Optionee by the Company other than by reason
of death, total disability or approved leave of absence;
(b) twelve (12) months following the death of the Optionee
while an employee;
(c) twelve (12) months following the termination of services
by the Optionee in the event of disability of the Optionee within the meaning
of Section 22(e)(3) of the Internal Revenue Code of 1954, as amended; or
2
<PAGE> 3
(d) the Expiration Date set forth in Section 1 of this
Agreement;
(e) ten (10) years from the date of this Agreement.
5. Stock Dividends, Splits. In the event that additional shares of
Common Stock are issued pursuant to a stock split, stock dividend,
recapitalization, reclassification or other change in the capital structure of
the Company, the number of shares of Common Stock covered by the Option granted
hereunder shall be increased proportionately, with no increase in the total
purchase price of the shares then so covered. In the event that the shares of
Common Stock of the Company from time to time issued and outstanding are
reduced by a combination of shares, recapitalization, reclassification or other
change in the capital structure of the Company, the number of shares of Common
Stock covered by the Option granted hereunder shall be reduced proportionately,
with no reduction in the total price of the shares then so covered. All such
adjustments shall be made by the Board, whose determination upon the same shall
be final and binding upon the Optionee. No fractional shares shall be issued,
and any fractional shares resulting from such computations shall be eliminated
from the adjusted Option. No adjustment shall be made for cash dividends or
the issuance to stockholders of rights to subscribe for additional Common Stock
or other securities.
6. Non-Transferable. This Agreement, and the Option rights and
privileges conferred hereunder, shall not be transferred, assigned, pledged,
hypothecated in any way (whether by operation of law or otherwise), or
otherwise disposed of, except by will and the laws of descent and distribution,
shall not be subject to execution, attachment or similar process, and shall be
exercisable, during his lifetime, only by the Optionee.
7. Investment Purposes Only. All shares acquired by the Optionee
pursuant to this Agreement shall be acquired for investment purposes only for
the account of the Optionee and not
3
<PAGE> 4
with any intention or purpose of resale or further distribution thereof by the
Optionee. Such shares may not be resold except in compliance with the
Securities Act of 1933 or an exemption therefrom. Nothing contained herein
shall require the Company to register under the Securities Act of 1933 either
the Plan, this option or any securities issued or issuable pursuant to this
option.
8. Legend. All share certificates transferred to the Optionee
pursuant to an exercise of the option granted hereunder shall bear on their
face the following legend:
The transfer and sale of these shares is governed by the terms of the
Air South Incentive Stock Option Agreement between the Company and the
Shareholder and the Air South Incentive Stock Option Plan, copies of
which are on file with the Secretary of the Company.
and such other legends as the Company deems appropriate.
9. Transferees. This Agreement shall inure to the benefit of and
be binding upon the parties hereto and their respective heirs, executors,
administrators, permitted successors and permitted assigns.
10. No Employment Contract. Neither the execution of this
Agreement nor the issuance of shares pursuant to the exercise of any Option
granted hereunder shall be construed as giving the Optionee any legal or
equitable right against the Company or its subsidiaries except as specifically
provided for herein, or the right to be retained in employment, service or as a
member of the Board, and the Optionee shall remain subject to discharge or
removal to the same extent as if this Agreement had not been executed by the
parties.
11. Governing Law. This Agreement shall be construed and
interpreted, and its validity, effect and rights hereunder shall be determined
at all times in accordance with the laws of the State of South Carolina.
12. Plan Controls. The Optionee, for himself, his heirs,
executors, administrators, permitted successors and permitted assigns,
administrators, permitted successors and permitted
4
<PAGE> 5
assigns, acknowledges and agrees that (i) he has received a copy of the Plan,
and (ii) he has read and understands fully the Plan and that, in the event of
any inconsistency between the terms of this Agreement and the Plan the
provisions of the Plan shall control.
AIR SOUTH, INC.
By:
-------------------------------------
Patrick J. O'Shea
Title: President & Chief Executive Officer
OPTIONEE
Signed:
-------------------------------------
Thomas J. Volz
5
<PAGE> 6
NOTICE OF EXERCISE
INCENTIVE STOCK OPTION PLAN
AIR SOUTH, INC.
The undersigned Optionee hereby exercises Option No. 14, granted on
August 23, 1994 ("Date of Grant"), to purchase ______________ shares of Common
Stock (no par value) of Air South, Inc. (the "Company") at a price of $1.00
per share under the Company's Incentive Stock Option Plan (the "Plan") and
herewith encloses ___________ check in the amount of $______________ payable
to Air South, Inc. in full payment therefor.
The undersigned Optionee hereby represents and certifies that ________ is
purchasing these securities for _________ own account for investment and not
with a view to the resale or distribution thereof
Date Signed:
_______________________, 199__ ____________________________
Print Name:
________________________
6
<PAGE> 1
EXHIBIT 10.12
OPTION NO. 53
AIR SOUTH, INC.
INCENTIVE STOCK OPTION AGREEMENT
This Agreement is made as of June 23, 1995 and between AIR SOUTH,
INC., an Illinois corporation (the "Company") and Paul Gillcrist (the
"Optionee").
WHEREAS, the Board of Directors of the Company (the "Board") has
determined that the Optionee is a director of the Company or a subsidiary; and
WHEREAS, the Board considers it desirable and in the Company's best
interests that the Optionee be given, as an incentive to contribute to its
success and prosperity an option to purchase shares of the Common Stock of the
Company in accordance with the Company's Incentive Stock Option Plan (the
"Plan");
NOW, THEREFORE, it is agreed between the parties as follows:
1. Option Grant. The Company hereby grants to the Optionee the
right, privilege and option to purchase up to 36,000 shares of its Common Stock
at a purchase price of Fifty Cents ($.50) per share, in the manner and subject
to the conditions provided herein (the "Option"). This option shall expire on
June 23, 2005 (the "Expiration Date").
2. Vesting. Subject to earlier termination as provided herein,
the extent to which the Option shall be exercisable shall be as follows:
[X] 12,000 shares after June 23, 1995
[X] 12,000 shares after January 1, 1996
[X] 12,000 shares after January 1, 1997
To the extent not exercised, the number of shares as to which the
Option is exercisable shall accumulate and be exercisable, in whole or in part,
until the termination of the Option as set
<PAGE> 2
forth in Section 4 hereof, but in no event later than ten (10) years from the
date of this Agreement.
3. Exercise. The Option shall be exercisable upon delivery of
written notice, in the form attached hereto as Exhibit A, to the Board at the
Company's principal place of business, specifying the number of shares of
Common Stock to be purchased and the amount to be paid therefor, and
accompanied by cash or check payable to the order of the Company in an amount
equal to the purchase price of the shares. The Company shall thereafter
immediately make delivery of such shares, bearing the legend set forth
hereafter in section 8.
4. Stock Dividends, Splits. In the event that additional shares
of Common Stock are issued pursuant to a stock split, stock dividend,
recapitalization, reclassification or other change in the capital structure of
the Company, the number of shares of Common Stock covered by the Option granted
hereunder shall be increased proportionately, with no increase in the total
purchase price of the shares then so covered. In the event that the shares of
Common Stock of the Company from time to time issued and outstanding are
reduced by a combination of shares, recapitalization, reclassification or other
change in the capital structure of the Company, the number of shares of Common
Stock covered by the Option granted hereunder shall be reduced proportionately,
with no reduction in the total price of the shares then so covered. All such
adjustments shall be made by the Board, whose determination upon the same shall
be final and binding upon the Optionee. No fractional shares shall be issued,
and any fractional shares resulting from such computations shall be eliminated
from the adjusted Option. No adjustment shall be made for cash dividends or
the issuance to stockholders of rights to subscribe for additional Common Stock
or other securities.
2
<PAGE> 3
5. Non-Transferable. This Agreement, and the Option rights and
privileges conferred hereunder, shall not be transferred, assigned, pledged,
hypothecated in any way (whether by operation of law or otherwise), or
otherwise disposed of, except by will and the laws of descent and distribution,
shall not be subject to execution, attachment or similar process, and shall be
exercisable, during his lifetime, only by the Optionee.
6. Investment Purposes Only. All shares acquired by the Optionee
pursuant to this Agreement shall be acquired for investment purposes only for
the account of the Optionee and not with any intention or purpose of resale or
further distribution thereof by the Optionee. Such shares may not be resold
except in compliance with the Securities Act of 1933 or an exemption therefrom.
Nothing contained herein shall require the Company to register under the
Securities Act of 1933 either the Plan, this option or any securities issued or
issuable pursuant to this option.
7. Legend. All share certificates transferred to the Optionee
pursuant to an exercise of the option granted hereunder shall bear on their
face the following legend:
The transfer and sale of these shares is governed by the terms of the
Air South Incentive Stock Option Agreement between the Company and the
Shareholder and the Air South Incentive Stock Option Plan, copies of
which are on file with the Secretary of the Company.
and such other legends as the Company deems appropriate.
8. Transferees. This Agreement shall inure to the benefit of and
be binding upon the parties hereto and their respective heirs, executors,
administrators, permitted successors and permitted assigns.
9. Governing Law. This Agreement shall be construed and
interpreted, and its validity, effect and rights hereunder shall be determined
at all times in accordance with the laws of the State of South Carolina.
3
<PAGE> 4
10. Plan Controls. The Optionee, for himself, his heirs,
executors, administrators, permitted successors and permitted assigns,
administrators, permitted successors and permitted assigns, acknowledges and
agrees that (i) he has received a copy of the Plan, and (ii) he has read and
understands fully the Plan and that, in the event of any inconsistency between
the terms of this Agreement and the Plan the provisions of the Plan shall
control.
AIR SOUTH, INC.
By: /s/ Donald Baker
--------------------------------------
Donald Baker
Title: Secretary
OPTIONEE
Signed: /s/ Paul Gillcrist
--------------------------------------
Paul Gillcrist
4
<PAGE> 5
NOTICE OF EXERCISE
INCENTIVE STOCK OPTION PLAN
AIR SOUTH, INC.
The undersigned Optionee hereby exercises Option No. 53, granted on
June 23, 1995 ("Date of Grant"), to purchase _____________ shares of Common
Stock (no par value) of Air South, Inc. (the "Company") at a price of $.50 per
share under the Company's Incentive Stock Option Plan (the "Plan") and herewith
encloses his check in the amount of $____________ payable to Air South, Inc. in
full payment therefor.
The undersigned Optionee hereby represents and certifies that he is
purchasing these securities for his own account for investment and not with a
view to the resale or distribution thereof
Date 199 Signed:
---------------------------- - ------------------------------
Print Name:
--------------------------
5
<PAGE> 1
EXHIBIT 10.13
OPTION NO. 56
AIR SOUTH, INC.
INCENTIVE STOCK OPTION AGREEMENT
This Agreement is made as of June 23, 1995 and between AIR SOUTH,
INC., an Illinois corporation (the "Company") and Harold Stowe (the "Optionee").
WHEREAS, the Board of Directors of the Company (the "Board") has
determined that the Optionee is a director of the Company or a subsidiary; and
WHEREAS, the Board considers it desirable and in the Company's best
interests that the Optionee be given, as an incentive to contribute to its
success and prosperity an option to purchase shares of the Common Stock of the
Company in accordance with the Company's Incentive Stock Option Plan (the
"Plan");
NOW, THEREFORE, it is agreed between the parties as follows:
1. Option Grant. The Company hereby grants to the Optionee the
right, privilege and option to purchase up to 36,000 shares of its Common Stock
at a purchase price of Fifty Cents ($.50) per share, in the manner and subject
to the conditions provided herein (the "Option"). This option shall expire on
June 23, 2005 (the "Expiration Date").
2. Vesting. Subject to earlier termination as provided herein,
the extent to which the Option shall be exercisable shall be as follows:
[X] 12,000 shares after June 23, 1995
[X] 12,000 shares after January 1, 1996
[X] 12,000 shares after January 1, 1997
To the extent not exercised, the number of shares as to which the
Option is exercisable shall accumulate and be exercisable, in whole or in part,
until the termination of the Option as set
<PAGE> 2
forth in Section 4 hereof, but in no event later than ten (10) years from the
date of this Agreement.
3. Exercise. The Option shall be exercisable upon delivery of
written notice, in the form attached hereto as Exhibit A, to the Board at the
Company's principal place of business, specifying the number of shares of
Common Stock to be purchased and the amount to be paid therefor, and
accompanied by cash or check payable to the order of the Company in an amount
equal to the purchase price of the shares. The Company shall thereafter
immediately make delivery of such shares, bearing the legend set forth
hereafter in section 8.
4. Stock Dividends, Splits. In the event that additional shares
of Common Stock are issued pursuant to a stock split, stock dividend,
recapitalization, reclassification or other change in the capital structure of
the Company, the number of shares of Common Stock covered by the Option granted
hereunder shall be increased proportionately, with no increase in the total
purchase price of the shares then so covered. In the event that the shares of
Common Stock of the Company from time to time issued and outstanding are
reduced by a combination of shares, recapitalization, reclassification or other
change in the capital structure of the Company, the number of shares of Common
Stock covered by the Option granted hereunder shall be reduced proportionately,
with no reduction in the total price of the shares then so covered. All such
adjustments shall be made by the Board, whose determination upon the same shall
be final and binding upon the Optionee. No fractional shares shall be issued,
and any fractional shares resulting from such computations shall be eliminated
from the adjusted Option. No adjustment shall be made for cash dividends or
the issuance to stockholders of rights to subscribe for additional Common Stock
or other securities.
2
<PAGE> 3
5. Non-Transferable. This Agreement, and the Option rights and
privileges conferred hereunder, shall not be transferred, assigned, pledged,
hypothecated in any way (whether by operation of law or otherwise), or
otherwise disposed of, except by will and the laws of descent and distribution,
shall not be subject to execution, attachment or similar process, and shall be
exercisable, during his lifetime, only by the Optionee.
6. Investment Purposes Only. All shares acquired by the Optionee
pursuant to this Agreement shall be acquired for investment purposes only for
the account of the Optionee and not with any intention or purpose of resale or
further distribution thereof by the Optionee. Such shares may not be resold
except in compliance with the Securities Act of 1933 or an exemption therefrom.
Nothing contained herein shall require the Company to register under the
Securities Act of 1933 either the Plan, this option or any securities issued or
issuable pursuant to this option.
7. Legend. All share certificates transferred to the Optionee
pursuant to an exercise of the option granted hereunder shall bear on their
face the following legend:
The transfer and sale of these shares is governed by the terms of the
Air South Incentive Stock Option Agreement between the Company and the
Shareholder and the Air South Incentive Stock Option Plan, copies of
which are on file with the Secretary of the Company.
and such other legends as the Company deems appropriate.
8. Transferees. This Agreement shall inure to the benefit of and
be binding upon the parties hereto and their respective heirs, executors,
administrators, permitted successors and permitted assigns.
9. Governing Law. This Agreement shall be construed and
interpreted, and its validity, effect and rights hereunder shall be determined
at all times in accordance with the laws of the State of South Carolina.
3
<PAGE> 4
10. Plan Controls. The Optionee, for himself, his heirs,
executors, administrators, permitted successors and permitted assigns,
administrators, permitted successors and permitted assigns, acknowledges and
agrees that (i) he has received a copy of the Plan, and (ii) he has read and
understands fully the Plan and that, in the event of any inconsistency between
the terms of this Agreement and the Plan the provisions of the Plan shall
control.
AIR SOUTH, INC.
By: /s/ Donald Baker
--------------------------------------
Donald Baker
Title: Secretary
OPTIONEE
Signed: /s/ Harold Stowe
--------------------------------------
Harold Stowe
4
<PAGE> 5
NOTICE OF EXERCISE
INCENTIVE STOCK OPTION PLAN
AIR SOUTH, INC.
The undersigned Optionee hereby exercises Option No. 56, granted on
June 23, 1995 ("Date of Grant"), to purchase _______________ shares of Common
Stock (no par value) of Air South, Inc. (the "Company") at a price of $.50 per
share under the Company's Incentive Stock Option Plan (the "Plan") and herewith
encloses his check in the amount of $____________ payable to Air South, Inc. in
full payment therefor.
The undersigned Optionee hereby represents and certifies that he is
purchasing these securities for his own account for investment and not with a
view to the resale or distribution thereof
Date 199 Signed:
---------------------------- - ------------------------------
Print Name:
--------------------------
5
<PAGE> 1
EXHIBIT 10.14
[LOGO]
C.E. Haley
Chairman
October 20, 1995
PERSONAL AND CONFIDENTIAL
Mr. Rod Brandt
R. A. Brandt & Associates, Inc.
Five Constitution Way
Convent Station, New Jersey 07961
Dear Rod:
The following outlines Air South's offer in respect to you joining the Company:
- You will be President and Chief Operating Officer and a member of the
Board of Directors effective November 8, 1995 with the duties and
responsibilities normally associated with that position (At your request
Air South will not issue a public announcement regarding your
appointment as President until November 15, 1995).
- You will assume the additional role of Chief Executive Officer June
1, 1996.
- Your base salary will be $135,000 per annum. When you assume the
added responsibilities of CEO on June 1, 1996, your base salary will
increased to $160,000 per annum.
- You will be eligible to receive a performance bonus of up to 100% of
base salary as follows:
a. A bonus equal to up to 50% of base salary based on achievement
of specific agreed objectives. Bonus to be paid on-half February
1, 1996, and one-half June 1, 1996.
b. A bonus equal to up to 50% of base salary based on specific
objectives with primary emphasis on the Profit Plan Bonus to be
paid following year end audit in early 1997.
<PAGE> 2
Page 2
October 2, 1995
- You will be eligible to purchase 100,000 shares of Air South common
stock at $50 per share. Fifty percent of the cost to be paid
immediately, and the balance to be paid June 1, 1996.
- You will be awarded options to purchase 250,000 shares of Air South
common stock at $1.00 per share. Options will vest as follows:
a. 50,000 shares immediately,
b. 100,000 shares June 1, 1996,
c. 100,000 shares January 1, 1997
d. immediate for any non-vested shares in the event of change
of ownership.
- You and your family will be issued Air South, Inc. annual travel
passes in perpetuity.
- You will be reimbursed for ordinary and necessary relocation
expenses normally provided to a senior executive, including reasonable
commuting and living expenses for family members. Relocation to be
completed within ninety days of CEO appointment.
- You will provided a rent-a-car automobile while you are an officer
of the company.
- You will be provided family health coverage at no premium cost.
- You will receive life insurance in the amount $300,000 at no
premium cost.
- Air South with enter into an Employment Contract with you for a
term of three years which will include $250,000 severance payment if
terminated for reasons other than cause, and reasonable relocation
expenses.
This offer and election as a Director of the Company is subject to the
approval of the Compensation Committee of the Board and the Board of Directors
of Air South.
Please review the above offer and if it is in accord with our discussions
please sign and return a copy of the offer to me.
Rod, we are excited you will be joining the Air South Khaki Blue Team ad are
looking forward to working with you to make Air South one of the countries most
successful airlines.
Best Regards,
/s/ C.E. Haley
- - -----------------------------
C.E. Haley
Chairman
<PAGE> 1
EXHIBIT 10.15
Air South, Inc.
233 East Ontario, Suite 600
Chicago, Illinois 60611
Phone: (311) 787-5678 Fax: (312) 787-8025
Patrick J. O'Shea
President
08 December 1993
Mr. Tom Volz
Dallas Convention & Visitors Bureau
1201 Elm Street, Suite 2000
Dallas, Texas 75243
Private and Confidential
Dear Tom:
As discussed, the following will constitute our understandings as regard
to your employment contract.
You will report directly to me, and will be one of three Vice Presidents
in the Company plus the General Council and Corporate Secretary, Don
Baker. The conditions of employment and compensation are spelled out as
follows:
- Your title is Vice President Marketing and Sales
- The areas identified in the Business Plan under Marketing and
Sales will report to you
- Your starting salary will be $97,500 per annum
- You were awarded stock options to purchase 80,000 shares of Air
South stock at the original incorporation meeting in Chicago on
May 22, 1993. The exercise price of these Investment Stock
Options (ISO) will be $0.3125 per share, and 1/3 will vest
annually on the anniversary of the award. Thus, you could
exercise 1/3 of the shares on May 22, 1994, with an additional
1/3 each on May 22 of 1995 and 1996. The options are valid
through the 10th anniversary of the award.
- You will participate in Executive Compensation Plan, details to
be announced. This will be an incentive plan that will include
(probably), additional cash compensation, additional stock
options, will be tied to managements performance in running the
company and subject to approval annually by the Board of
Directors.
<PAGE> 2
- As all employees, you will participate in the Profit Sharing
Plan, distributed on a quarterly basis and equivalent to 15% of
pre operating profits subject to approval after the next two
steps in capitalization.
- You and your family will be issued Air South annual passes in
perpetuity as a privilege of being one of the founders.
- Your actual costs of relocation to the final headquarters
location of Air South will be paid in its entirety by Air South.
- This employment agreement includes a termination clause as
follows: In the event of death or termination of employment of
yourself, for any reason, including a voluntary termination and
after being employed for at least one year, either you or your
estate will be paid an amount equal to a six month salary.
- A competitive health insurance program will be provided
immediately you join the Company on a full time basis, which is
presumed to be shortly after receipt by the Company of the next
level of capitalization.
Please review this document and advise me of any elements that do not agree
with our verbal understandings. My apologies for the delay in getting this to
you.
Best personal regards,
/s/ Patrick J. O'Shea
- - -------------------------------------------
Patrick J. O'Shea
/s/ Thomas Volz
- - -------------------------------------------
Thomas Volz, Vice President Marketing
Air South
/s/ Patrick J. O'Shea
- - -------------------------------------------
Patrick J. O'Shea, President and CEO
Air South
<PAGE> 1
EXHIBIT 10.16
[AIRSOUTH LETTERHEAD]
November 12, 1994
Mr. Dennis B. Crosby
25785 Carlson Court
Laguna Hills, CA 92653 PRIVATE & CONFIDENTIAL
DELIVERED BY HAND
Dear Dennis:
As discussed, the following will constitute our understandings in regard to your
employment contract which will commence on November 21, 1994.
You will report directly to me, and will be one of four Vice Presidents in the
Company plus the General Council and Corporate Secretary, Don Baker. The
conditions of employment and compensation are spelled out as follows:
* Your title is Vice President Ground Operations
* The areas identified in the Business Plan under Operations will report
to you.
* Your starting salary will be $97,500 per annum.
* You will be awarded options to acquire 80,000 shares of stock at $1.00
per share. The options will be Incentive Stock Options valid for 10
years and will vest at one third per annum on the anniversary of your
first, second, and third years of service. The option price of $1.00
per share is the most recent sale price to South Carolina investors.
* You will participate in the Executive Compensation Plan, details to be
announced. This is an incentive plan that may include additional cash
compensation, additional stock options, and is tied to managements'
performance in running the company and subject to approval annually by
the Board of Directors.
* As with all employees, you will participate in the Profit Sharing
Plan, distributed on a quarterly basis and equivalent to 15% of
pre-operating profits.
* Your actual costs of relocation will be paid by Air South. Air South
will also pay the cost of temporary accommodations and reasonable
commuting costs for a period of up to three months.
<PAGE> 2
Page 2
Air South, Inc.
* You will receive a company paid vehicle in 1994/1995.
* This employment agreement includes a termination clause as follows: In
the event of death or termination of employment of yourself, for any
reason, except voluntary termination, either you or your estate will
be paid an amount equal to the number of months employed up to maximum
of six months at your current base salary level.
* A competitive health insurance program will be provided immediately
after you join the Company on a full time basis.
Please review this document and advise me of any elements that do not agree with
our verbal understandings.
/s/ Patrick J. O'Shea
- - ---------------------------------------
Patrick J. O'Shea
President and Chief Executive Officer
Air South
/s/ Dennis B. Crosby
- - ---------------------------------------
Dennis B. Crosby
Vice President Ground Operations
PJO:mnd
<PAGE> 1
EXHIBIT 10.17
AIR SOUTH, INC.
NON-SIGNATORY AIRLINE
USE AND LEASE AGREEMENT
JACKSONVILLE INTERNATIONAL AIRPORT
PROPERTIES DEPARTMENT
September 7, 1994
<PAGE> 2
AIR SOUTH, INC.
NON-SIGNATORY AIRLINE
USE AND LEASE AGREEMENT
JACKSONVILLE INTERNATIONAL AIRPORT
THIS NON-SIGNATORY AIRLINE USE AND LEASE AGREEMENT ("Agreement") is made
and entered into this _______ day of _______________, 1994, by and between the
Jacksonville Port Authority, a body politic and corporate, existing under the
Laws of the State of Florida, as amended, hereinafter referred to as the
"AUTHORITY" and Air South, Inc., a corporation organized and existing under the
Laws of the State of South Carolina and qualified to do business in the State
of Florida, (d/b/a Air South Airlines, Inc.) hereinafter referred to as
"AIRLINE".
WITNESSETH:
WHEREAS, AUTHORITY is the owner and operator of an airport facility
known as Jacksonville International Airport, located in Duval County, State of
Florida, hereinafter referred to as the "Airport" and
WHEREAS, AIRLINE is engaged in the business of air transportation of
persons, property and mail, and desires to obtain certain rights, services and
privileges in connection with the use of the Airport and its facilities and the
AUTHORITY is willing to grant the same to AIRLINE upon the terms and conditions
hereinafter stated.
NOW, THEREFORE, for and in consideration of these mutual covenants and
agreements herein contained, AUTHORITY and AIRLINE do hereby mutually agree,
each for itself, as follows:
ARTICLE I
DEFINITIONS
The following words, terms and phrases wherever used in this Agreement shall,
for the purposes of this Agreement, have the following meanings:
1.01 AOA - means the Air Operations Area.
1.02 Air Transportation Company - means a company engaged in the business
of scheduled or non-scheduled commercial air transportation of person, property
or mail.
1.03 Air Transportation System - means the system operated by AIRLINE for
the commercial transportation by air of persons, property and mail.
1.04 Aircraft Parking Position - means those parts of the Ramp Area
immediately adjacent to the Terminal that are used for the
1
<PAGE> 3
parking of aircraft and support vehicles and loading and unloading of
passengers and cargo.
1.05 Airport System - means the Airports and all other airport facilities
existing and acquired or constructed in the future by AUTHORITY.
1.06 Commuter Apron - means those parts of the Ramp Area immediately
adjacent to the Commuter Operating Area that are used for the parking of
aircraft and support vehicles, and loading and unloading of passengers and
cargo.
1.07 Commuter Operating Area - means that part of the Terminal that is
designated by the AUTHORITY for use by airlines.
1.08 Deplaned Passenger - means any revenue passenger disembarking at the
Terminal, including any such passenger who subsequently boards another aircraft
of the same or a different Air Transportation Company.
1.09 Director - means the Director of Aviation as appointed by AUTHORITY
and includes such person or persons as may from time to time be authorized in
writing by AUTHORITY or by the Director to act for the Director with respect to
any or all matters pertaining to this Agreement.
1.10 Enplaned Passenger - means any revenue passenger boarding at the
Terminal, including any such passenger that previously disembarked from another
aircraft of the same or a different Air Transportation Company.
1.11 FAA - means the Federal Aviation Administration, or its authorized
successor(s).
1.12 Fiscal Year - means the annual accounting period of AUTHORITY which,
at the time of entering into this Agreement, is the period of twelve
consecutive months ending the last day of September and beginning the 1st day
of October.
1.13 Joint Use Premises - means those Terminal areas which may be assigned
for use to two or more Scheduled Air Carriers.
1.14 Landing Area - means those portions of the Airport provided for the
landing, taking-off and taxiing of aircraft, including without limitation,
approach and turning zones, avigation or other easements, runways, taxiways,
runway and taxiway lights, and other appurtenances in connection therewith.
1.15 Maximum Gross Landing Weight - means the maximum gross certification
landing weight in one thousand pound units as stated in Airline's Flight
Operations Manual at which each aircraft operated at the Airport by AIRLINE is
certified by the FAA.
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<PAGE> 4
1.16 Monthly Activity Report - means the written report to be provided by
the AIRLINE to the AUTHORITY no later than five (5) business days after the end
of each month, on forms provided by AUTHORITY, for activity conducted by
AIRLINE during said month.
1.17 Premises - means those areas assigned to AIRLINE as exclusive use,
preferential use, and joint use premises, as defined herein.
1.18 Non-Revenue Landing - means any aircraft landing by AIRLINE at the
Airport for which Airline receives no revenue, for which said landing was not
published in the Official Airlines Guide. Such non-revenue landings include
irregular and occasional ferry, emergency, test, courtesy, inspection, or
training landings.
1.19 Ramp Area - means the aircraft parking and maneuvering areas adjacent
to the Terminal, and includes within its boundaries all Aircraft Parking
Positions.
1.20 Revenue Landing - means any aircraft landing by AIRLINE at the Airport
for which AIRLINE receives revenue; provided, however, a revenue landing shall
not include any landing of an aircraft which, after having taken off from the
Airport and without making a landing at any other airport, returns to land at
the Airport because of meteorological conditions, mechanical or operating
causes, or any other reason of emergency or precaution.
1.21 Scheduled Air Carrier - means any Air Transportation Company
performing or desiring to perform, pursuant to published schedules,
non-seasonal commercial air transportation services over specified routes to
and from the Airport and holding the necessary AUTHORITY from the appropriate
federal or state agencies to provide such transportation.
1.22 Terminal - means the buildings, structures and facilities for
providing ticketing, dispatching, loading and unloading aircraft of passenger
and cargo.
ARTICLE II
TERM
The term of this Agreement shall commence on October 1, 1994, and continue on a
month to month basis until terminated by either party. Notice of termination
must be given to the other party in writing no less than fifteen (15) days
prior to the end of the calendar month.
3
<PAGE> 5
ARTICLE III
LEASED PREMISES
AIRLINE shall lease areas as defined on Exhibit A, attached hereto and by
reference made a part thereof, hereinafter known as Premises.
ARTICLE IV
FEES AND CHARGES
4.01 Terminal Space
AIRLINE shall be responsible for all airport charges at the nonsignatory rate
as identified on Exhibit B attached hereto and by reference made a part
thereof.
4.02 Additional Fees and Charges
A. Remain Over Night (RON) Fees: AIRLINE shall pay a Remain Over
Night (RON) fee of $50.00 per RON for each aircraft parked over night on ramp
not leased by AIRLINE as preferential space.
B. Utilities: Utility fees, which shall not include any charge or
toll for telephone usage, are included in the rental rate.
C. Taxes and Other Governmental Charges: AIRLINE shall pay all
taxes that may be levied, assessed or charged upon AIRLINE and shall obtain,
maintain and pay for all licenses and permits required by law for the conduct
of its business at the Airport.
AIRLINE and AUTHORITY agree that rentals established herein are rentals and
fees in effect at execution of this Agreement and that charges for other
utilizations and services provided by the Airport will constitute additional
rentals and fees.
4.03 Adjustment of Rates
Airport fees and charges shall be reviewed annually and shall
be subject to change without formal amendment to this Agreement on October 1 of
each calendar year.
ARTICLE V
REPORTING AND PAYMENT
5.01 Reporting
A. AIRLINE shall furnish to the AUTHORITY, within five (5) days
from the end of each month, a Monthly Activity Report on forms provided by the
AUTHORITY for operations conducted by AIRLINE during the preceding month.
4
<PAGE> 6
B. In the event AIRLINE fails to submit its Monthly Activity
Reports as required in Section 5.02, AUTHORITY will estimate the rent, fees and
charges based upon one hundred twenty-five percent (125%) of the highest
monthly activity reported by AIRLINE in the preceding twelve (12) months and
issue an invoice to AIRLINE for same. If no activity data is available,
AUTHORITY will reasonably estimate such activity and invoice AIRLINE for same.
AIRLINE will be liable for any deficiencies in payments based on estimates made
under this provision. If such estimate results in an overpayment by AIRLINE,
AUTHORITY will remit such overpayment to AIRLINE. AIRLINE will further be
liable for all reasonable fees paid by AUTHORITY to audit AIRLINE's books and
to collect fees and charges due AUTHORITY.
5.02 Payment
A. Exclusive Use and Preferential Use: Rentals for AIRLINE'S
Exclusive Use and Preferential Use shall be due in advance, without demand or
invoice, on the first day of each month. Said rentals and charges shall be
deemed delinquent if payment is not received by the fifth working day of the
month.
B. Landing Fees, Joint Use Fees, and Passenger Screening Fees:
Payment for Landing Fees, Joint Use Fees, and Passenger Screening Fees, shall
be due as of the date of AUTHORITY'S invoice and shall be deemed delinquent if
not received within thirty (30) days of the date of such invoice.
C. Passenger Facility Charges (PFC): Payment of PFCs, less
administrative charges, shall be remitted to the AUTHORITY by the last day for
the previous month's PFCs.
D. All Other Charges: All other charges shall be due as of the
date of AUTHORITY'S invoice and shall be deemed delinquent if payment is not
received within thirty (30) days of the date of such invoice.
E. Remittance: Reports and payments shall be remitted to:
Corporate Services
Jacksonville Port Authority
Post Office Box 3005
Jacksonville, Florida 32206
with copy of reports to operations Department.
5.03 General
A. The acceptance by AUTHORITY of total or partial payment by
AIRLINE will not preclude AUTHORITY from reviewing the accuracy of AIRLINE'S
reports submitted to AUTHORITY and performing appropriate changes to previous
invoices.
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<PAGE> 7
B. AUTHORITY will provide timely notice of any and all payment
delinquencies; provided, however, interest at the rate of one and one-half
percent (1-1/2%) per month shall accrue against any and all delinquent payments
from the date due until the date payments are received by AUTHORITY. However,
this provision does not preclude AUTHORITY from terminating this Agreement as
provided for herein for default in the payment of rentals, fees or charges, or
from enforcing any other provisions contained herein or provided by law.
C. In the event AIRLINE'S obligations with respect to the
Agreement commence or terminate on any date other than the first or last day of
the month, AIRLINE'S rentals, fees, and charges will be prorated on the basis
of the number of days such premises, facilities, rights, licensees, services,
or privileges were enjoyed during that month.
ARTICLE VI
PERFORMANCE BOND
AIRLINE shall, upon execution of this Agreement, deliver to the AUTHORITY
a Performance Bond in the form of a Surety Bond, a Certificate of Deposit, a
non-cancelable certified check or cashier's check, in the amount of
$150,000.00, to serve as a guarantee and security for the performance by the
AIRLINE of all terms, conditions, covenants and agreements herein contained and
to be kept and performed by AIRLINE as well as security for fees and charges;
to indemnify the AUTHORITY against any damages to the said premises both real
and personal sustained by the AUTHORITY or for any action of breach of default
in the Agreement. The Bond, if not cash deposit, will be issued for the full
term of this Agreement by a company licensed to do business in the State of
Florida, with an A.M. Best rating of A+ or better and in such form as is
acceptable to AUTHORITY.
ARTICLE VII
INDEMNIFICATION AND INSURANCE
7.01 Indemnification
A. AIRLINE shall indemnify, hold harmless and defend AUTHORITY,
its officials, agents and employees, its successors and assigns, individually
or collectively, from and against any claims, action, loss, damage, injury,
liability, cost and expense whatsoever, of any kind or nature (including, but
not limited to, attorneys' fees, court costs, and expert fees) based upon
injury to persons, including death, or damage to property arising out of,
resulting from, or incident to this Agreement, and/or in conjunction with
AIRLINE'S use and occupancy of the Premises or use of the Airport, unless
occasioned by the sole negligence of AUTHORITY. No member, officer, agent,
director, or employee of AUTHORITY/AIRLINE shall be charged personally or held
contractually
6
<PAGE> 8
liable by or to the other party under the terms or provisions of this Agreement
or because of any breach thereof or because of its or their execution or
attempted execution.
B. AIRLINE shall indemnify, save, hold harmless and defend
AUTHORITY, its agents and employees, its successors and assigns, individually
or collectively, from and against any liability for any claims and actions and
all expenses incidental to the investigation and defense thereof, in any way
arising from or based upon the violation of any federal, state, or municipal
laws, statutes, ordinances, or regulations, by AIRLINE, its agents, employees,
licensees, successors and assigns, or those under its control.
7.02 Insurance
A. Without limiting AIRLINE'S obligation to indemnify AUTHORITY,
as provided under this Article, AIRLINE shall provide, pay for and maintain in
force at all times during the term of this Agreement, a policy of Comprehensive
General Liability Insurance to protect against bodily injury liability and
property damage to include fire, in an aggregate amount of not less than One
Hundred Million Dollars and No/100 ($100,000,000.00); Statutory Worker's
Compensation Insurance; and any other policies of insurance required by
AUTHORITY.
B. AIRLINE must name and endorse the AUTHORITY as an
additional insured on the above policies. A certificate or certificates
evidencing all such insurance must be provided to the AUTHORITY upon
commencement of this Agreement. All insurance must be carried with companies
authorized to transact business in the State of Florida, and which are approved
by the AUTHORITY. If, at any time, any of the carriers issuing such insurance
become disqualified to operate in the State of Florida, the AIRLINE must
promptly obtain a satisfactory policy in replacement. Such insurance shall not
be changed or canceled without thirty (30) days prior written notice to
AUTHORITY.
C. Protection against loss by any casualty to the equipment or
property of AIRLINE shall not at any time be an obligation to the AUTHORITY.
D. The insurance specified above shall, either by provisions in
the policies, or by special endorsements attached thereto, insure AUTHORITY
against the risks to which it is exposed as the owner of the premises, and
except for Worker's Compensation and Employer's Liability coverage, shall
include AUTHORITY and all of its officers, employees and agents as stipulated
that no insurance held by AUTHORITY will be called on to contribute to a loss
of coverage thereunder. AUTHORITY has no liability for any premiums charged
for such coverage, and the inclusion of AUTHORITY as an additional insured is
not intended to, and shall not make AUTHORITY a partner or joint venturer with
AIRLINE in AIRLINE'S services at the Airport. Such policies, subject to
approval by AUTHORITY, shall also insure AIRLINE against the risks to which it
is exposed
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as the AIRLINE authorized under this Agreement, and shall be for full coverage
without any deductibles and/or retentions and shall contain provisions on the
part of the respective insurers waiving the right of such insurers to
subrogation.
E. AUTHORITY reserves the right to review the insurance provision
stated herein as to the amount of coverage, new types of insurance and new
terms (such as combined single limit coverage). If such review indicates that
AIRLINE'S insurance coverage is below the recommended minimums of the Airport
Association Council International (AACI), or the American Association of
Airport Executives (AAAE), the AUTHORITY reserves the right to unilaterally
modify the insurance coverage required under this contract.
ARTICLE VIII
ENVIRONMENTAL COMPLIANCE
8.01 Compliance with the Law
AIRLINE shall comply with and shall cause its officers, employees
and any other persons over whom it has control to comply with any and all
municipal, state and federal laws, ordinances, and rules and regulations,
including but not limited to those adopted, implemented or enforced by the
Occupational Safety and Health Administration, Environmental Protection Agency,
Department of Environmental Regulation, Department of Natural Resources,
Department of Transportation, Department of Agriculture, and U.S. Customs; and
AIRLINE will be held responsible for any violation of same.
8.02 Responsibility for Environmental Damage
AIRLINE'S responsibilities shall include, but not be limited to,
investigative, cleanup or restoration costs of any spill or leakage of any
substance used or handled by AIRLINE in its operation on the Premises.
8.03 Permits and Licenses
AIRLINE shall be responsible for obtaining all permits and/or
licenses from any of the above described agencies as may be necessary for it to
perform the operation contemplated herein, and maintain said permits and/or
licenses throughout the entire term of this Agreement.
8.04 Fines or Penalties
AIRLINE shall hold harmless and reimburse AUTHORITY for any fine or
penalty imposed as a result of AIRLINE'S failure to comply with any law,
ordinance, rule or regulation.
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<PAGE> 10
ARTICLE IX
USE OF THE AIRPORT AND RELATED FACILITIES
9.01 Airline's Rights and Privileges
In addition to all rights granted elsewhere in this Agreement, AIRLINE has the
right to use, in common with others so authorized, areas, facilities, equipment
and improvements of the Airport for the operation of AIRLINE'S operation and
all activities reasonably necessary to such operations, including but not
limited to:
A. The landing, taking off, flying over, taxiing, towing,
parking, loading and unloading, conditioning and servicing of AIRLINE'S
aircraft and, in areas designated by AUTHORITY, the extended parking,
servicing, loading or unloading, storage or maintenance of AIRLINE'S aircraft
and support equipment.
B. Ingress to and egress from the Airport for passengers, guests,
employees, patrons, invitees, suppliers of materials, furnishers of services,
aircraft, equipment, vehicles, machinery and other property. Such right of
ingress and egress shall include access to non-public roadways on the Airport
that are necessary to the operation of AIRLINE'S air transportation system,
for AIRLINE'S employees, suppliers of materials, and furnishers of services.
However, the use of such non-public roadways is subject to the rules and
regulations established by AUTHORITY.
9.02 Airline's Obligations
A. AIRLINE must maintain operation areas in a safe and neat
condition at all times and shall not permit the accumulation of any trash,
garbage or debris in operation areas or around any building and shall provide
proper containers for disposal of trash and garbage.
B. Should AIRLINE fail to keep its cleaning and maintenance
obligations hereunder and such failure continues for more than ten (10) days
after receipt of written notice from AUTHORITY to AIRLINE, AUTHORITY shall
have the right to perform such cleaning and maintenance activities. If such
right is exercised, AIRLINE shall pay to AUTHORITY, upon receipt of invoice,
the cost of such services plus twenty-five percent (25%) overhead.
C. AIRLINE is be responsible for the removal to the extent
reasonably practicable, of any accumulation of oil and grease on the aircraft
apron and parking positions caused by AIRLINE'S business.
D. AIRLINE may not store any flammable material, such as
gasoline, paint solvents, degreasing and/or similar combustibles on the
operation areas.
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E. AIRLINE shall accept Premises "as is" except as noted and
approved by AUTHORITY during a pre-rental inspection. AIRLINE shall accept
responsibility for general cleanup, painting, etc., as per AIRLINE'S personal
specifications.
F. AIRLINE shall provide and maintain, at its expense, fire
extinguishers in such locations in or on the Premises as required by the City
of Jacksonville.
9.03 Authority's Obligations
A. AUTHORITY shall use its best efforts to keep the Airport and
its aerial approaches free from obstruction and interference for the safe and
proper use thereof by AIRLINE.
B. AUTHORITY shall develop, maintain and operate the Airport in
all respects in the manner comparable to United States airports of
substantially similar size, use and activity.
C. AUTHORITY shall not be liable to AIRLINE for temporary failure
to furnish any services to be provided in accordance with this Agreement when
due to mechanical breakdown or any other cause beyond the reasonable control of
AUTHORITY.
9.04 Exclusions and Reservations
A. AUTHORITY may prohibit the use of the landing area by any
aircraft operated or controlled by AIRLINE which exceeds the design strength or
capability of the landing area as described in the current FAA-approved Airport
Layout Plan (ALP) or other engineering evaluations performed subsequent to the
then current ALP.
B. Training and testing shall be incidental to the use of the
Airport in the operations by AIRLINE and shall not unreasonably hamper or
interfere with the use of the Airport and its facilities by others entitled to
use of the same.
C. AIRLINE shall promptly remove any of its disabled aircraft
from the landing area and ramp area, shall place any such disabled aircraft
only in such storage areas as may be designated by the DIRECTOR and may store
such disabled aircraft only upon such terms and conditions as may be
established by AUTHORITY. In the event AIRLINE shall fail to remove any of its
disabled aircraft as expeditiously as possible, AUTHORITY may, but shall not be
obligated to, cause the removal of such disabled aircraft and shall charge
AIRLINE the costs incurred in such removal plus 25% overhead.
D. No services will be permitted by AIRLINE in the ramp loading
and unloading area, other than those incidental to the immediate preparation of
aircraft for departure and after arrival, such services to include: loading and
unloading of passengers, baggage and supplies, fueling, inspection and interior
cleaning. Minor and emergency maintenance service may be performed only when
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it can be performed within the time permitted by the rules and regulations of
AUTHORITY relating to the use of ramp loading and unloading areas.
E. AIRLINE shall not interfere or permit interference with the
effectiveness or accessibility of the drainage, sewerage, water,
communications, or fire protection systems or any other part of the utility,
electrical, or other systems installed or located from time to time at the
Airport.
F. AIRLINE shall not knowingly do or permit to be done anything,
either by act or failure to act, that shall cause the cancellation or violation
of the provisions, or any part thereof, of any policy of insurance for the
Airport, or that shall cause a hazardous condition so as to increase the risks
normally attendant upon operations permitted by this Agreement. If such
AIRLINE acts or failure to act shall cause cancellation of any policy, then
AIRLINE shall immediately, upon written notification by AUTHORITY, do whatever
shall be reasonably necessary to cause reinstatement of said insurance.
Furthermore, if AIRLINE shall do or permit to be done any act not permitted
under this Agreement or fail to do any act required under this Agreement which
causes an increase in the insurance premiums, AIRLINE shall immediately, upon
notice from AUTHORITY, remedy such actions and pay the increase in premiums.
G. AIRLINE shall not be permitted to erect, construct or attach
company logo, or emblem, or sign of any type or nature in the passenger loading
gate and waiting area, or aircraft operations ramp without first obtaining the
written permission of the Director.
H. The rights and privileges granted pursuant to this Article IX
are subject to any and all reasonable rules and regulations established by
AUTHORITY. AUTHORITY reserves the right to change any rules or regulations for
any persons or companies conducting a business at the Airport.
I. AUTHORITY reserves the right to establish rules and
regulations governing access of the general public, including AIRLINE's
customers, to public areas in the Terminal.
J. AUTHORITY reserves the right, from time to time, temporarily
or permanently, to restrict the use of any roadway and other areas at the
Airport. In the event of such restrictions, AUTHORITY shall ensure the
availability of a reasonably equivalent means of ingress and egress.
K. The rights and privileges granted pursuant to this Article
VIII shall not be exercised in such a way as to interfere with or adversely
affect the use, operation, maintenance or development of the Airport.
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L. Any and all rights and privileges not specifically granted to
AIRLINE pursuant to this Agreement are hereby reserved for and to AUTHORITY.
ARTICLE X
ASSIGNMENT, SUBLETTING AND HANDLING AGREEMENTS
10.01 Assignment and Subletting by Airline.
AIRLINE shall not Assign or transfer any of the rights granted in this
Agreement nor shall AIRLINE sublet or otherwise transfer any interest in or to
the Premises without the written consent of the AUTHORITY; provided, however,
that AIRLINE shall first offer such Premises intended for sublet or transfer to
the AUTHORITY for its use or reassignment to others.
10.02 Handling Agreement
A. In the event AIRLINE desires to handle operation of another
air transportation company, AIRLINE shall submit details of the proposed
agreement to the AUTHORITY and obtain written approval from the AUTHORITY prior
to execution of said agreement.
B. In the event that AIRLINE desires to contract with independent
companies to perform various specified services for AIRLINE's operation on
Airport property, AIRLINE shall submit details of proposed operations to
AUTHORITY prior to initiation of such operations. AUTHORITY will then prepare
an operating agreement between AUTHORITY and subcontractor.
C. If AIRLINE subcontracts without prior approval of AUTHORITY,
AIRLINE shall be held responsible for any reports and corresponding fees due
AUTHORITY from subcontractor. The imposing
of responsibility on AIRLINE in no way signifies approval of subcontractor by
AUTHORITY.
ARTICLE XI
SECURITY
11.01 AIRLINE, its employees, agents and representatives shall comply with
security measures contained in the Airport Master Security Plan as approved by
the FAA and the requirements of FAA, Vol. VI, Part 107, as amended. If
AIRLINE, its employees, agents and representatives fail or refuse to comply
with said measures and such non-compliance results in a monetary penalty being
assessed against AUTHORITY, AIRLINE shall be held responsible and shall
reimburse AUTHORITY in the full amount of any such monetary penalty.
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11.02 Each employee of AIRLINE shall purchase an identification card issued
by AUTHORITY. Identification cards must be worn at all times by the employees
while they are in the Air Operations Area.
ARTICLE XII
SURRENDER OF AIRLINE'S PREMISES
12.01 Surrender and Delivery
Upon termination of this Agreement by lapse of time or otherwise, as
provided herein, or as otherwise agreed to by AUTHORITY and AIRLINE, AIRLINE
shall restore its premises to as good and fit condition and promptly and
peaceably surrender to AUTHORITY its premises and all improvements thereon to
which AUTHORITY is entitled.
12.02 Removal of Property
AIRLINE has the right at any time during the term of this Agreement to
remove from the Airport AIRLINE's tools, equipment, trade fixtures, and other
personal property, title to which shall remain with AIRLINE, unless otherwise
set forth in this Agreement, and shall remove such tools, equipment, trade
fixtures, and other personal property within f if teen (15) days following
termination of this Agreement, whether by expiration of time or otherwise, as
provided herein, subject to any valid lien which AUTHORITY may have thereon for
unpaid fees and charges. AIRLINE shall not abandon any portion of its property
without the written consent of AUTHORITY. Any and all property not removed by
AIRLINE within fifteen (15) days following the date of termination of this
Agreement shall, at the option of AUTHORITY, become the property of AUTHORITY
at no cost to AUTHORITY. Except as may be agreed to otherwise by AUTHORITY and
AIRLINE, all AUTHORITY property damaged by or as a result of the removal of
AIRLINE's property shall be restored by AIRLINE to the condition existing
before such damage at AIRLINE's expense.
ARTICLE XIII
RELOCATION AND IMPROVEMENTS OF FACILITIES
13.01 Relocation
AUTHORITY reserves the right, at any time during the term of this Agreement, to
designate, assign or relocate AIRLINE to another location or to a facility that
may be constructed or remodeled to serve the same activity.
13.02 Access to Premises
AUTHORITY may, at any time, close, relocate, reconstruct, change, alter or
modify all presently designated means of access, either temporarily or
permanently; provided, however, that reasonably
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convenient and adequate alternative means of access is made available to
AIRLINE.
ARTICLE XIV
STRUCTURAL ALTERATIONS AND IMPROVEMENTS
14.01 AIRLINE may construct and install, at its sole expense, improvements
in its exclusive leased areas, provided, however, that the plans and
specifications, location and construction schedule for such improvements shall
be approved by the Director prior to commencement of any construction.
14.02 AIRLINE shall not install permanent fixtures or construct in the
Premises without first obtaining the written approval of AUTHORITY.
14.03 Prior to the commencement of any such improvements, AIRLINE shall
obtain (1) a contract surety bond in a sum equal to the full amount of the
construction contract awarded by AIRLINE for the improvements. Said bond shall
be drawn in a form and from such company as approved by AUTHORITY, shall
guarantee the faithful performance of necessary construction and completion of
improvements in accordance with approved final plans and detailed
specifications, and shall protect AUTHORITY against any losses and liability,
damages, expenses, claims and judgments caused by or resulting from any failure
of AIRLINE to perform completely the work described as herein provided; and (2)
a payment bond with AIRLINE's contractor or contractors as principal, in a sum
equal to the full amount of the construction contract awarded by AIRLINE for
the improvements. Said bond shall guarantee payment of all wages for labor and
services engaged, and of all bills for materials, supplies and equipment used
in the performance of said construction contract. Any work associated with
such construction or installation shall not interfere with the operation of the
terminal or ramp area, or otherwise unreasonably interfere with the permitted
activities of other Airport tenants and users.
14.04 AIRLINE shall require contractors to furnish satisfactory evidence of
statutory worker's compensation insurance, comprehensive automobile insurance
and physical damage insurance, on a builder's risk form with the interest of
AUTHORITY endorsed thereon, in such amounts and in such manner as AUTHORITY may
reasonably require. AUTHORITY may require additional insurance for any.
alterations or improvements approved hereunder, in such limits as AUTHORITY
reasonably determines to be necessary.
14.05 Upon completion of approved construction and within sixty (60) days of
AIRLINE's receipt of a certificate of occupancy, a complete set of as built
drawings shall be delivered to the Director for the permanent record of
AUTHORITY.
14.06 All improvements made to Leased Premises and additions and alterations
thereto made by AIRLINE shall be and remain the
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property of AIRLINE so long as this Agreement is in effect. Upon termination
or cancellation of this Agreement, said additions and alterations shall become
the property of AUTHORITY, excluding however, any trade fixtures, signs and
other personal property of AIRLINE not permanently affixed to Leased Premises
and such shall remain the property of AIRLINE.
14.07 Upon removal of any trade fixtures, signs and other personal property,
AIRLINE must repair any damage to the premises caused by removal thereof.
ARTICLE XV
DAMAGE OR DESTRUCTION
15.01 Damage and Destruction of Improvements
A. The damage, destruction, or partial destruction of any
building or other improvement which is a part of the Leased Premises shall not
release AIRLINE from any obligation hereunder, except as hereinafter expressly
provided, and in case of damage to or destruction of any such building or
improvement, AIRLINE shall at its own cost and expense to condition as good or
better than that which existed prior to such damage or destruction. Without
limiting such obligations of AIRLINE, it is agreed that the proceeds of any
insurance covering such damages or destruction shall be made available to
AIRLINE for such repair or replacement.
B. Notwithstanding anything to the contrary in the immediate
proceeding paragraph, in case of destruction of the Leased Premises or damage
thereto from any cause so as to make it untenantable occurring during the last
five (5) years of the term hereof, AIRLINE, if not in default hereunder, may
elect to terminate this lease by written notice served on AUTHORITY within
thirty (30) days after the occurrence of such damage or destruction. In the
event of such termination, there shall be no obligation on the part of AIRLINE
to repair or restore the Leased Premises nor any right on the part-of AIRLINE
to receive any proceeds collected under any insurance policies covering the
Leased Premises or any part thereof.
C. If in the event such destruction or damage occurs during the
last five (5) years of the term hereof, and AIRLINE does not elect to terminate
this Lease Agreement, the proceeds from all insurance covering such damages or
destruction shall be made available to AIRLINE and AIRLINE shall be obligated
to repair or rebuild the Leased Premises.
D. In addition to AIRLINE's rights under S.4.9(B) and (C) hereof,
in the event of extensive damage or total destruction at any time during the
term of this Agreement or an extension thereof, AIRLINE shall have the right to
terminate this Agreement without
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penalty provided AIRLINE 1) pays off all outstanding principal and 2) pays to
demolish the facility and restore
15.02 Authority's Inspection Rights
The duly authorized representative of the AUTHORITY after proper notification
to AIRLINE shall have the right to enter the Leased Premises to inspect the
areas at reasonable intervals during AIRLINE's regular business hours, or at
any time in case of emergency, to determine whether AIRLINE has complied with
and is complying with the terms and conditions of the Lease Agreement.
15.03 Authority's Obligation, Damage and Destruction
If it is determined that the damage, destruction, or partial destruction of any
building or other improvement is caused by the sole negligence of AUTHORITY,
its agents and employees, then the cost of replacement or repair will be borne
by AUTHORITY.
15.04 Removal and Demolition
AIRLINE shall not remove or demolish, in whole or in part, any leasehold
improvements placed upon the Leased Premises without the prior written consent
of the AUTHORITY, who may at its discretion, condition such consent upon the
obligation of AIRLINE to replace the same by an improvement specified in such
consent.
15.05 Surrender of Leased Premises
Subject to the provisions of Section 4.10(D) and Section 4.11 hereof, AIRLINE
agrees to surrender and deliver the Leased Premises and leasehold improvements
at the termination of this Agreement in as good order and condition as the same
existed at the termination of all leasehold improvements, reasonable wear and
tear excepted.
ARTICLE XVI
DEFAULT AND REMEDIES
16.01 Breach by Airline
In addition to all other remedies available to the AUTHORITY provided
herein or at law, AUTHORITY may cancel this Agreement should any one of the of
the following events occur:
A. The breach by the AIRLINE in the - performance of any covenant
required to be performed by AIRLINE and the failure of the AIRLINE to commence
to remedy such breach for a period of thirty (30) days after notice of breach
by AUTHORITY.
B. Abandonment by the AIRLINE of the premises or discontinuance
of operations at the Airport for any period of time exceeding thirty (30) days
consecutive calendar days except as previously approved by the AUTHORITY.
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C. AIRLINE fails to pay rent when due and the default continues
for thirty (30) days after delivery of written demand by the AUTHORITY for the
payment of rent. AIRLINE agrees that late charges as prescribed in Article V
5.03 (B) shall be considered rent.
16.02 Breach by Authority
AIRLINE may cancel this Agreement at any time that AIRLINE is not in
default to AUTHORITY by giving AUTHORITY thirty (30) days written notice, upon
the happening of any one of the following events:
A. The permanent abandonment of the Airport as an air terminal.
B. The default by the AUTHORITY in the performance of any
covenant or agreement, contained herein and the failure of the AUTHORITY to
commence to remedy such default within thirty (30) days after receipt by
AUTHORITY of written notice of such default.
16.03 Remedies on Breach
Upon default of AIRLINE, AUTHORITY may, at its discretion, take any
one or more of the following remedial steps against AIRLINE:
A. After ten (10) days written notice to AIRLINE, AUTHORITY may
declare all rental payments payable under Articles II and III of this Agreement
for the remainder of the term of this Agreement to be immediately due and
payable.
B. The AUTHORITY may reenter and take possession of the interest
of AIRLINE without terminating this Agreement and sublease the interest of the
AIRLINE to any party, or operate the same on behalf of the AIRLINE, in either
case holding the AIRLINE liable for the difference, if any, between the rents
and other amounts payable by AIRLINE hereunder and the rents and other amounts
payable by such subleasing.
C. After ten (10) days written notice to AIRLINE, the AUTHORITY
may terminate this Agreement, exclude the AIRLINE from possession of the Leased
Premises, and use the best effort to lease AIRLINE's interest therein to
another party for the account of AIRLINE, holding AIRLINE liable for all rents
and other amounts due under this Agreement and not paid by such other party.
D. The AUTHORITY may take whatever other action at law or in
equity that may appear necessary or desirable to collect any amounts then due
and thereafter to become due from AIRLINE, or to enforce performance and
observance of any obligation, agreement or covenant of AIRLINE under this
Agreement.
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EXHIBIT 10.17
that interfere with such purchases.
F. The servicing by AIRLINE or its suppliers, of aircraft and other
equipment being utilized at the Airport by AIRLINE on AIRLINE's Aircraft
Parking Positions or such other locations as may be designated by the Director.
G. The loading and unloading of persons, property and mail by motor
vehicles or other means of conveyance an AIRLINE's Aircraft Parking Positions
or such other locations as may be designated by the Director.
H. The provision, either alone or in conjunction with other Scheduled Air
Carriers or through a nominee, of porter/skycap service for the convenience of
the public, at no cost to AUTHORITY.
I. The installation and maintenance, at AIRLINE's sole cost and expense,
of identifying signs in AIRLINE's Exclusive Use Premises subject to the prior
written approval of the Director. The general type and design of such signs
shall be harmonious and in keeping with the pattern and decor of the Terminal
areas. AUTHORITY shall permit AIRLINE to install on the walls behind ticket
counters and ticket lift counters in holdrooms, and on AIRLINE's loading
bridges, if any, identifying and company logo signs customarily installed by
AIRLINE in such areas at comparable airport facilities.
J. The installation, maintenance and operation, at no cost to AUTHORITY,
of such radio communication, computer, meteorological and aerial navigation
equipment and facilities on AIRLINE's Exclusive Use Premises as may be
necessary or convenient for the operation of its Air Transportation System;
provided, however, that such
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national origin shall be excluded from participation in, denied benefits of or
be otherwise subjected to discrimination, and (iii) AIRLINE shall use the
premises in compliance with all other requirements imposed by or pursuant to
Title 49, Code of Federal Regulations, Department of Transportation, Subtitle
A, Office of the Secretary, Part 21, Non-Discrimination in Federally Assisted
Programs of the Department of Transportation - Effectuation of Title VI of the
Civil Rights Act of 1964 or as said regulations may be amended.
B. AIRLINE acknowledges that the provisions of 49 CFR, Part 23,
Minority Business Enterprises (MBE) and 14 CFR, Part 152, Affirmative Action
Employment Programs, may be applicable to the activities of AIRLINE under the
terms of this Agreement, unless exempted by said regulations, and hereby
agrees, if such provisions are applicable, to comply with all requirements of
AUTHORITY, the Federal Aviation Administration, and the U.S. Department of
Transportation, in reference thereto.
C. In the event of breach of any of the above nondiscrimination
covenants, AUTHORITY shall have the right to take such action as the United
States Government may direct to enforce this covenant.
ARTICLE XVIII
GENERAL PROVISIONS
18.01 Non-waiver
No waiver of default by either party of any of the terms, covenants,
or conditions of this agreement to be performed, kept and observed by the other
party shall be construed to be or act as a waiver of any subsequent default of
any of the terms, covenants and conditions to be performed, kept and observed
by the other party and shall not be deemed a waiver of any right on the part of
the other party to cancel this Agreement for failure by the other to do,
perform, keep or observe any of the terms or conditions of this Agreement.
18.02 Rights Non-Exclusive
Notwithstanding anything herein contained that may be or appear to the
contrary, the rights, privileges and licenses granted under this Agreement, are
"non-exclusive" and AUTHORITY reserves the right to grant similar privileges
to other AIRLINES.
18.03 Covenant of Good Conduct
Consistent with the nature of AIRLINE's business, AIRLINE agrees that
occupancy of its premises will be lawful and quiet and that it will not use or
permit the use of premises in any way that will tend to create a nuisance or
tend to disturb other tenants or the general public. AIRLINE shall be
responsible for the activity
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of its agents and employees with respect to the restriction and further that
the officers, agents and employees of AIRLINE shall not loiter or congregate in
the public areas of the Airport that are designed primarily for the use of the
traveling public.
18.04 Performance
The parties expressly agree that time is of the essence in this
Agreement and failure by a party to complete performance within the time
specified, or within a reasonable time if no time is specified herein, shall,
at the option of the other party without liability, in addition to any other
rights or remedies, relieve the other party of any obligation to accept such
performance.
18.05 Rules and Regulations.
A. AIRLINE shall observe and obey all the laws, ordinances,
regulations, directives, orders, and rules of the federal, state, County and
Municipal Governments which may be applicable to its operations at the Airport.
B. AUTHORITY may from time to time adopt, amend or revise
reasonable rules and regulations for the conduct and operations of the Airport,
the Terminal, the landing area, the ramp area, auto parking areas, and other
Airport buildings and property, for reasons of safety, health, preservation of
the property or for the maintenance of the good and orderly appearance of the
Airport. AIRLINE, its employees, agents and representatives shall faithfully
comply with and observe such rules and regulations of which it receives notice,
except as they may conflict with regulations of another appropriate
governmental AUTHORITY or as such rule or regulation would deprive AIRLINE of
any of the rights hereunder. Further, AIRLINE and its employees, agents and
representatives shall comply with all reasonable requests of the Director in
accordance with this Article.
18.06 Permits and Licenses
AIRLINE shall, at its sole cost and expense, be strictly liable and
responsible for obtaining, paying for, maintaining current, and fully complying
with, any and all permits, licensees, and other governmental authorizations,
however designated, as may be required at any time throughout the entire term
of this Agreement by any federal, state, or local governmental entity or any
court of law having jurisdiction over AIRLINE or AIRLINE's operations and
activities, for any activity of AIRLINE conducted in or on Airport premises,
and for all operations conducted by AIRLINE including ensuring that all legal
requirements, permits, and licenses necessary for or resulting, directly or
indirectly, from AIRLINE's operations and activities in or on Airport premises
have been obtained and are in full legal compliance. Upon the written request
of AUTHORITY, AIRLINE shall provide to AUTHORITY copies of any and all permits
and licenses which AUTHORITY may request.
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18.07 Safety
AIRLINE shall conduct its operations and activities under this
Agreement in a safe manner, shall comply with all safety regulations of the
AUTHORITY and with safety standards imposed by applicable federal, state, and
local laws and regulations, and shall require the observance thereof by all
employees, contractors, business invitees, and all other persons transacting
business with or for AIRLINE resulting from, or in any way related to, the
conduct of AIRLINE's business in or on airport premises. AIRLINE shall procure
and maintain such fire prevention and extinguishing devices as required by
AUTHORITY and shall at all times be familiar and comply with the fire
regulations and orders of AUTHORITY and the fire control agency with
jurisdiction at the airport, as same may now exist or hereafter come into
being. AIRLINE agrees, for itself and any employee, contractor, or other person
working for or on behalf of AIRLINE, to observe due care at all times as
required by its knowledge herein and of circumstances.
Neither AIRLINE, nor any employee or contractor or any person working
for or on behalf of AIRLINE, shall require any personnel engaged in the
performance of AIRLINE's operations to work in surroundings or under working
conditions which are unsanitary, hazardous, or dangerous to his or her health
or safety, as determined by standards adopted pursuant to the Occupational
Safety and Health Act of 1970, as same may be amended from time to time, as
well as all applicable state and local laws, regulations, and orders relative
to occupational safety and health.
18.08 Inspection
AIRLINE shall allow AUTHORITY's authorized representatives access to
Leased Premises at all reasonable hours upon reasonable notice for the purpose
of examining and inspecting' said premises, for purposes necessary, incidental
to or connected with the performance of its obligations under this Agreement or
in the exercise of its governmental functions. The notice requirement is
hereby waived by AIRLINE in the event of any emergency or drill by AUTHORITY's
Public Safety Department.
18.09 No Individual Liability
No member, officer, agent, director, or employee of AUTHORITY or
AIRLINE shall be charged personally or held contractually liable by or to the
other party under the terms or provisions of this Agreement or because of any
breach thereof or because of its or their execution or attempted execution.
18.10 Aviation Rights
AUTHORITY reserves unto itself, its successors, and assigns for the
use and benefit of the public, a right. of flight for the passage of aircraft
in the airspace above the surface of the Airport, including Leased Premises,
for navigation or flight in the
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said airspace for landing on, taking off from, or operating at the Airport.
18.11 Relationship of Parties
Nothing contained herein shall be deemed or construed by the parties
hereto, or by any third party, as creating the relationship of principal and
agent, partners, joint venturers, or any other similar such relationship
between the parties hereto. It is understood and agreed that neither the
method of computation of fees and charges, nor any other provisions contained
herein, nor any acts of the parties hereto creates a relationship other than
the relationship of lessor and AIRLINE.
18.12 Capacity to Execute
The individuals executing this Agreement personally warrant that they
have full AUTHORITY to execute this Agreement, including any exhibits or
attachments hereto, and have sought and received whatever competent advice and
counsel was necessary for them to form a full and complete understanding of all
rights and obligations herein. The parties further acknowledge this Agreement
is the result of negotiations between the parties and shall not be construed
against AUTHORITY by reason of the preparation of this Agreement by AUTHORITY.
18.13 Successors and Assigns Bound
This Agreement shall be binding upon and inure to the benefit of the
successors and assigns of the parties hereto.
18.14 Incorporation of Exhibits
All exhibits and attachments referred to in this Agreement are
intended to be and are hereby specifically made a part of this Agreement.
18.15 Title
Paragraph titles are inserted only as a matter of convenience and for
reference, and in no way define, limit or describe the scope of extent of any
provision of this Agreement.
18.16 Severability
In the event any covenant condition or provision of this Agreement is
held to be invalid by any court of competent jurisdiction, the invalidity of
such covenant, condition, or provision shall not materially prejudice either
AUTHORITY or AIRLINE in their respective rights and obligations contained in
the valid covenants, conditions or provisions of this Agreement.
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18.17 Amendments
This Agreement constitutes the entire agreement between the parties.
Except as provided herein, no amendment, modification or alterations of the
terms of this Agreement shall be binding unless the same be in writing, dated
subsequent to the date hereof and duly executed by the parties hereto.
18.18 Approval by Authority
A. Whenever this Agreement calls for approval by AUTHORITY, such
approval shall be evidenced by the written approval of the DIRECTOR.
B. Any approval required by either party to this Agreement shall
not be unreasonably withheld or delayed.
18.19 Notice
Whenever any notice is required by this Agreement to be made, given or
transmitted to the parties hereto, such notice shall be deemed to have been
given if enclosed in an envelope with
sufficient postage attached, and sent by certified mail, to insure delivery,
and deposited in the United States mail addressed to:
AUTHORITY: Director of Aviation Jacksonville Port
Authority Post Office Box 3005 Jacksonville,
Florida 32206
AIRLINE Air South, Inc.
Patrick J. O'Shea, President & CEO
1800 St. Julian Place, 4th Floor
Columbia, SC 29204
or in such other place as either party shall in writing designate in the manner
provided herein.
18.20 Airline's Dealings with Authority
Whenever in this Agreement, AIRLINE is required or permitted to obtain
the approval of, consult with, give notice to, or otherwise deal with
AUTHORITY, AIRLINE shall deal with AUTHORITY's authorized representative; and
unless or until AUTHORITY shall give AIRLINE written notice to the contrary,
AUTHORITY's authorized representative shall be the Director.
18.21 Independent Contractor
The parties hereto agree that AIRLINE is an independent contractor and
no subject to direction or control of AUTHORITY, except as specified in this
Agreement, and except by general rules
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and regulations adopted for the control and regulation of the AUTHORITY and its
facilities.
18.22 Agent for Service
It is expressly understood and agreed that if OPERATOR is not a
resident of the State of Florida, or is an association or partnership without a
member or partner resident of said state, or is a foreign corporation not
licensed to do business in Florida, then in any such event, OPERATOR does
designate the Secretary of State, State of Florida, its agent for the purpose
of service of process in any court action between it and AUTHORITY arising out
of or based upon this Agreement. Such service shall be made as provided by the
Laws of the State of Florida for service of process. If not possible, as an
alternative method of service of process, OPERATOR may be personally serviced
out of the State of Florida by the registered mailing of such service at the
address set forth in the above section. Any such service shall constitute
valid service upon OPERATOR as of the date of mailing thereof.
18.23 Interpretation
The language of the Agreement shall be construed according to its fair
meaning, and not strictly for or against either AUTHORITY or AIRLINE. The
section headings appearing herein are for the convenience of the parties and
shall not be deemed to govern, limit, modify or in any manner affect the scope,
meaning or intent of provisions of this Agreement. If any provision of this
Agreement is determined to be void by any court of competent jurisdiction, then
such determination shall not affect any other provision of this Agreement and
all such other provisions shall remain in full force and effect; and it is the
intention of the parties hereto that if any provision of this Agreement is
capable of two constructions, one would render the provision void and the
other of which would render the provision valid, then the provision shall have
the meaning which renders it valid.
18.24 Right to Develop Airport
It is further covenanted and agreed that AUTHORITY reserves the right
to further develop or improve the Airport and all landing areas and taxiways as
it may see fit, regardless of the desires or views of AIRLINE and without
interference or hindrance. AIRLINE agrees that it shall have not claim against
AUTHORITY for damages arising out of the development and normal operation
conducted by AUTHORITY at the Airport.
18.25 Radon Gas
Radon is a naturally occurring radioactive gas that, when it has
accumulated in a building in sufficient quantities, may present health risk to
persons who are exposed to it over a period of time. Levels of radon that
exceed federal and state guidelines have been found in buildings in Florida.
Additional information regarding
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radon and radon testing may be obtained from your county public health unit.
18.26 Governing Law
This Agreement is to be read and construed in accordance with the Laws
of the State of Florida and Duval County. The parties hereto agree that any
court of proper jurisdiction presiding in Duval County, Florida shall be the
forum for any actions brought hereunder.
18.27 Attorney Fees
In the event any action or suit or proceeding is brought to collect
rentals, fees or charges or any portion thereof due AUTHORITY and payable by
AIRLINE, to take possession of Premises, to enforce AIRLINE's compliance with
any other provisions of this Agreement or for AIRLINE's failure to observe any
of the covenants of this Agreement, AIRLINE agrees to pay AUTHORITY all
attorney fees incurred in said suit, action or proceeding.
18.28 Force Majeure
Except as herein provided, neither AUTHORITY nor AIRLINE shall be
deemed to be in default hereunder if either party is prevented from performing
any of the obligations other than the payment of fees and charges hereunder by
reason of strikes, boycotts, labor disputes, embargoes, shortages of energy or
materials, acts of God, acts of the public enemy, acts of superior governmental
AUTHORITY, weather conditions, riots, rebellion, or sabotage, or any other
circumstances for which it is not responsible or which are not within its
control. Under no circumstances shall the happening of any event provided for
in this Section excuse AIRLINE from paying the fees and charges due hereunder
and payable to AUTHORITY by AIRLINE during the term of this Agreement.
18.29 Other Agreements
Other than as set forth herein, nothing contained in this Agreement
shall be deemed or construed to nullify, restrict or modify in any manner the
provisions of any other lease or contract between AUTHORITY and AIRLINE
authorizing the use of the Airport, its facilities and appurtenances upon or
payment of fees and charges therein provided, except as this Agreement may
apply to the activities under the restated Agreement.
ARTICLE XIX
ENTIRE AGREEMENT
The parties hereto understand and agree that this instrument contains
the entire agreement between the parties. The parties further understand and
agree that neither party nor its agents have made representation or promises
with respect to this Agreement
25
<PAGE> 27
except as expressly set forth herein; and that no claim or liability shall
arise for any representations or promises not expressly stated in this
Agreement; any other written or oral agreement with AUTHORITY being expressly
waived.
IN WITNESS WHEREOF, AUTHORITY and AIRLINE have executed this Agreement the day
and year first above written.
WITNESS: JACKSONVILLE PORT AUTHORITY
By:
- - ------------------------------ ------------------------------
- - ------------------------------ ----------------------------------
Print Name Title
-----------------------------------
Print Name
WITNESS: AIR SOUTH, INC.
- - ------------------------------ -----------------------------------
By:
- - ------------------------------ -----------------------------------
Print Name Title
-----------------------------------
Print Name
APPROVED:
- - ------------------------------
Thomas R. Welch.
Counsel for JPA
APPROVED:
- - ----------------------------------
Ray M. VanLandingham
Director, Corporate Services
26
<PAGE> 1
EXHIBIT 10.18
METROPOLITAN DADE COUNTY, FLORIDA
AVIATION DEPARTMENT
P.O. BOX 592075
MIAMI, FLORIDA 33159-2075
(305) 876-7000
SEPTEMBER 9, 1995
Mr. Dennis Gabriel
Chief Finance Officer
Air South, Inc.
1800 Saint Julian Place
Suite 400
Columbia, SC 29204
RE: AIST246D.MTM - Terminal Lease Modification Letter
Dear Mr. Gabriel:
This modification reflects Air South, Inc.'s change in operational
office, locker room, storage and maintenance space to complete the move from
Concourse C to Concourse H at Miami International Airport.
In accordance with Article 1.03 of Terminal Lease Agreement No. X-246,
commencement date of 18 August 1994, covering premises in the Terminal Building
area at Miami International Airport, said lease is hereby modified by copy of
this letter. Enclosed are two copies of this Modification Letter.
I. CHANGES EFFECTIVE AUGUST 10, 1995:
Effective August 10, 1995, the Agreement is modified to add the
following:
483 square feet of air-conditioned operational, Class
III space Exhibit A-4, ID# 3G1890 Dated August 10,
1995
Below, are the modified Articles 1.02 and 3.01 and attached Exhibits A,
A-1, A-2, A-3, B, B-1 and C dated March 26, 1995 and Exhibit A-4 dated August
10, 1995, which are hereby incorporated into and made a part of Lease No. X-246
as of August 10, 1995.
* * *
MIAMI INTERNATIONAL AIRPORT
<PAGE> 2
AIR SOUTH, INC.
AIST246D.MTM
September 9, 1995
Page 2
1.02 Premises: The premises leased herein are located in the Terminal
Building area ("Terminal Building") at Miami International Airport ("Airport"),
and are described as follows and as shown on Exhibits A, A-1, A-2, A-3, B, B-1
and C dated March 26, 1995 and Exhibit A-4 dated August 10, 1995, attached
hereto and made a part hereof ("Premises") and further identified by Dade County
Aviation Department ("Department") identification number(s) ("ID#") as follows:
1. 7,597 square feet of non air-conditioned
baggage make-up, Class IV space
@ 12% utilization
Exhibit A, ID# 4H1380
Dated March 26, 1995
2. 247 square feet of air-conditioned
operational, Class II space
Exhibit A-1, ID# 2H1097
Dated March 26, 1995
3. 175 square feet of non air-conditioned
covered ramp, Class IV space
Exhibit A-2, ID# 4G1437
Dated March 26, 1995
4. 193 square feet of air-conditioned
operational, Class III space
Exhibit A-3, ID# 3H1733
Dated March 26, 1995
5. 483 square feet of air-conditioned
operational, Class III space
Exhibit A-4, ID# 3G1890
Dated August 10, 1995
6. 182 square feet of air-conditioned
ticket counter, Class I space
Exhibit B, ID# 1G2245
Dated March 26, 1995
7. 100 square feet of non air-conditioned
curbside check-in, Class II space
Exhibit B, ID# 2G2020
Dated March 26, 1995
8. 165 square feet of air-conditioned
operational, Class II space
Exhibit B-1, ID# 2H2274
Dated March 26, 1996
<PAGE> 3
AIR SOUTH, INC.
AIST246D.MTM
September 9, 1995
Page 3
9. 341 square feet of air-conditioned
administration, Class II space
Exhibit C, ID# 2G3323
Dated March 26, 1995
* * *
3.01 Monthly Rental: As monthly rental for the lease of the Premises,
the Lessee shall pay to the County, commencing on August 10, 1995, the sum of
$9,184.88 in U.S. funds, on the first day of each and every month, in advance
and without billing, at the offices of the Department as set forth in Article
3.05. Said rental is computed as follows:
<TABLE>
<CAPTION>
DESCRIPTION ANNUAL MONTHLY
----------- ------ -------
<S> <C> <C>
1. 7,597 square feet of non
air-conditioned baggage
makeup, Class IV space
@ 12% utilization @ $19.25 per
square foot per year: $17,549.07 $1,462.42
Exhibit A, ID# 4H1380
Dated March 26, 1995
2. 247 square feet of air-
conditioned operational,
Class II space @ $57.75
per square foot per year: 14,264.25 1,188.69
Exhibit A-1, ID# 2H1097
Dated March 26, 1995
3. 175 square feet of non
air-conditioned covered
ramp, Class IV space
@ $19.25 per square foot
per year: 3,368.75 280.73
Exhibit A-2, ID# 4G1437
Dated March 26, 1995
4. 193 square feet of air-
conditioned operational,
Class III space @ $38.50
per square foot per year: 7,430.50 619.21
Exhibit A-3, ID# 3H1733
Dated March 26, 1995
</TABLE>
<PAGE> 4
AIR SOUTH, INC.
AIST246D.MTM
September 9, 1995
Page 4
<TABLE>
<CAPTION>
DESCRIPTION ANNUAL MONTHLY
----------- ------ -------
<S> <C> <C>
5. 483 square feet of air-
conditioned operational,
Class III space @ $38.50
per square foot per year: 18,595.50 1,549.63
Exhibit A-4, ID# 3G1890
Dated August 10, 1995
6. 182 square feet of air-
conditioned ticket counter,
Class I space @ $77.00
per square foot per year: 14,014.00 1,167.83
Exhibit B, ID# 1G2245
Dated March 26, 1995
7. 100 square feet of non air-
conditioned curbside check-in,
Class II space @ $57.75 5,775.00 481.25
per square foot per year:
Exhibit B, ID# 2G2020
Dated March 26, 1995
8. 165 square feet of air-
conditioned operational,
Class II space @ $57.75
per square foot per year: 9,528.75 794.06
Exhibit B-1, ID# 2H2274
Dated March 26, 1996
9. 341 square feet of air-
conditioned administrative,
Class II space @ $57.75 19,692.75 1,641.06
per square foot per year: ----------- ---------
Exhibit C, ID# 2G3323
Dated March 26, 1995
TOTAL: $110,218.57 $9,184.88
</TABLE>
plus applicable State Sales Taxes, as required by law.
* * *
<PAGE> 5
DADE COUNTY
AVIATION DEPARTMENT
MIAMI INTERNATIONAL AIRPORT
EXHIBIT A
AIRSOUTH
<PAGE> 6
DADE COUNTY
AVIATION DEPARTMENT
MIAMI INTERNATIONAL AIRPORT
EXHIBIT A-1
AIRSOUTH
<PAGE> 7
DADE COUNTY
AVIATION DEPARTMENT
MIAMI INTERNATIONAL AIRPORT
EXHIBIT A-2
AIRSOUTH
<PAGE> 8
DADE COUNTY
AVIATION DEPARTMENT
MIAMI INTERNATIONAL AIRPORT
EXHIBIT A-3
AIRSOUTH
<PAGE> 9
DADE COUNTY
AVIATION DEPARTMENT
MIAMI INTERNATIONAL AIRPORT
EXHIBIT A-4
AIRSOUTH
<PAGE> 10
DADE COUNTY
AVIATION DEPARTMENT
MIAMI INTERNATIONAL AIRPORT
EXHIBIT B
AIRSOUTH
<PAGE> 11
DADE COUNTY
AVIATION DEPARTMENT
MIAMI INTERNATIONAL AIRPORT
EXHIBIT B-1
AIRSOUTH
<PAGE> 12
DADE COUNTY
AVIATION DEPARTMENT
MIAMI INTERNATIONAL AIRPORT
EXHIBIT C
AIRSOUTH
<PAGE> 13
AIR SOUTH, INC.
AIST246D. MTM
September 9, 1995
Page 5
II. CHANGES EFFECTIVE SEPTEMBER 9, 1995:
Effective September 9, 1995, the Agreement is modified to
delete the following:
247 square feet of air-conditioned
operational, Class II space
Exhibit A-1, ID# 2H1097
Dated March 26, 1995
175 square feet of non air-conditioned
covered ramp, Class IV space
Exhibit A-2, ID# 4G1437
Dated March 26, 1995
Effective September 9, 1995, the Agreement is modified to add
the following:
163 square feet of air-conditioned
operational, Class II space
Exhibit B-1, ID# 2H2276
Dated September 9, 1995
163 square feet of air-conditioned
operational, Class II space
Exhibit B-1, ID# 2H2278
Dated September 9, 1995
Below are the modified Articles 1.02 and 3.01 and attached Exhibits A,
A-3, A-4, (A-1 & A-2 not used), B, B-1 and C dated September 9, 1995, which are
hereby incorporated into and made a part of Lease No. X-246 as of September 9,
1995.
* * *
<PAGE> 14
AIR SOUTH, INC.
AIST246D.MTM
September 9, 1995
Page 6
1.02 Premises: The premises leased herein are located in the Terminal
Building area ("Terminal Building") at Miami International Airport ("Airport"),
and are described as follows and as shown on Exhibits A, A-3, A-4, (A-1 & A-2
not used), B, B-1 and C dated September 9, 1995, attached hereto and made a part
hereof ("Premises") and further identified by Dade County Aviation Department
("Department") identification number(s) ("ID#) as follows:
1. 7,597 square feet of non air-conditioned
baggage make-up, Class IV space
@ 12% utilization
Exhibit A, ID# 4H1380
Dated September 9, 1995
2. 193 square feet of air-conditioned
operational, Class III space
Exhibit A-3, ID# 3H1733
Dated September 9, 1995
3. 483 square feet of air-conditioned
operational, Class III space
Exhibit A-4, ID# 3G1890
Dated September 9, 1995
4. 182 square feet of air-conditioned
ticket counter, Class I space
Exhibit B, ID# 1G2245
Dated September 9, 1995
5. 100 square feet of non air-conditioned
curbside check-in, Class II space
Exhibit B, ID# 2G2020
Dated September 9, 1995
6. 165 square feet of air-conditioned
operational, Class II space
Exhibit B-1, ID# 2H2274
Dated September 9, 1995
7. 163 square feet of air-conditioned
operational, Class II space
Exhibit B-1, ID# 2H2276
Dated September 9, 1995
8. 163 square feet of air-conditioned
operational, Class II space
Exhibit B-1, ID# 2H2278
Dated September 9, 1995
<PAGE> 15
AIR SOUTH, INC.
AIST246D.MTM
September 9, 1995
Page 7
9. 341 square feet of air-conditioned
administration, Class II space
Exhibit C, ID# 2G3323
Dated September 9, 1995
* * *
3.01 Monthly Rental: As monthly rental for the lease of the Premises,
the Lessee shall pay to the County, commencing on September 9, 1995, the sum of
$9,284.32 in U.S. funds, on the first day of each and every month, in advance
and without billing, at the offices of the Department as set forth in Article
3.05. Said rental is computed as follows:
<TABLE>
<CAPTION>
DESCRIPTION ANNUAL MONTHLY
----------- ------ -------
<S> <C> <C>
1. 7,597 square feet of non
air-conditioned baggage
makeup, Class IV space
@ 12% utilization @ $19.25 per
square foot per year: $17,549.07 $1,462.42
Exhibit A, ID# 4H1380
Dated September 9, 1995
2. 193 square feet of air-
conditioned operational,
Class III space @ $38.50
per square foot per year: 7,430.50 619.21
Exhibit A-3, ID# 3H1733
Dated September 9, 1995
3. 483 square feet of air-
conditioned operational,
Class III space @ $38.50
per square foot per year: 18,595.50 1,549.63
Exhibit A-4, ID# 3G1890
Dated September 9, 1995
4. 182 square feet of air-
conditioned ticket counter,
Class I space @ $77.00 per
square foot per year: 14,014.00 1,167.83
Exhibit B, ID# 1G2245
Dated September 9, 1995
</TABLE>
<PAGE> 16
AIR SOUTH, INC.
AIST246D.MTM
September 9, 1995
Page 8
<TABLE>
<CAPTION>
DESCRIPTION ANNUAL MONTHLY
----------- ------ -------
<S> <C> <C> <C>
5. 100 square feet of non air-
conditioned curbside check-in,
Class II space @ $57.75 5,775.00 481.25
per square foot per year:
Exhibit B, ID# 2G2020
Dated September 9, 1995
6. 165 square feet of air-
conditioned operational,
Class II space @ $57.75
per square foot per year:
Exhibit B-1, ID# 2H2274
Dated September 9, 1995 9,528.75 794.06
7. 163 square feet of air-
conditioned operational, Class II space
@ $57.75 per square foot per year: 9,413.25 784.43
Exhibit B-1, ID# 2H2276
Dated September 9, 1995
8. 163 square feet of air-
conditioned operational,
Class II space @ $57.75
per square foot per year: 9,413.25 784.43
Exhibit B-1, ID# 2H2278
Dated September 9, 1995
9. 341 square feet of air-conditioned
administrative, Class II space @
$57.75 per square foot per year:
Exhibit C, ID# 2G3323 19,692.75 1,641.06
Dated September 9, 1995 ----------- ---------
TOTAL: $111,412.07 $9,284.32
</TABLE>
plus applicable State Sales Taxes, as required by law.
* * *
<PAGE> 17
AIR SOUTH, INC.
AIST246D.MTM
September 9, 1995
Page 9
3.02 Security Deposit: Based on the above, the Security Deposit
required under Article 3.02 is now $19,371.11. This includes the 6.5% Florida
State Sales Tax on items 2, 3, 6, 7, 8 and 9. Our Accounting Division advises
that Air South currently has $16,818.50 in its ASIT30 Prepaid Fees Account.
Please send a check in the amount of $2,552.61 to cover the Security Deposit
requirement to the Properties Department, attention Don F. Hyman, by October 9,
1995.
All other terms, covenants and conditions contained in Lease # X-246,
not inconsistent herewith, shall remain in full force and effect.
Please acknowledge your concurrence with the above lease modification
by executing one copy of this Modification Letter and returning it along with
your check in the amount of $2,552.61 to the Properties Division, attention Don
Hyman, by October 9, 1995. Failure to respond by this date will be assumed as
Air South's concurrence with this modification.
By copy of this letter to our Accounting Division, billing will be
adjusted accordingly.
If you have any questions please feel free to contact Don Hyman at
(305) 876-0362.
Sincerely,
/s/ Eli D. Mizrahi
-----------------------
Eli D. Mizrahi
Chief, Terminal Properties
and Commercial Operations
AGREED AND ACCEPTED
AIR SOUTH, INC.
By:
--------------------------
Title:
--------------------------
Date:
--------------------------
Attachments
cc: Accounting
Maintenance
Operations
Jack Higgins - Station Manager
<PAGE> 18
DADE COUNTY
AVIATION DEPARTMENT
MIAMI INTERNATIONAL AIRPORT
EXHIBIT A
AIRSOUTH
<PAGE> 19
DADE COUNTY
AVIATION DEPARTMENT
MIAMI INTERNATIONAL AIRPORT
EXHIBIT A-3
AIRSOUTH
<PAGE> 20
DADE COUNTY
AVIATION DEPARTMENT
MIAMI INTERNATIONAL AIRPORT
EXHIBIT A-4
AIRSOUTH
<PAGE> 21
DADE COUNTY
AVIATION DEPARTMENT
MIAMI INTERNATIONAL AIRPORT
EXHIBIT B
AIRSOUTH
<PAGE> 22
DADE COUNTY
AVIATION DEPARTMENT
MIAMI INTERNATIONAL AIRPORT
EXHIBIT B-1
AIRSOUTH
<PAGE> 23
DADE COUNTY
AVIATION DEPARTMENT
MIAMI INTERNATIONAL AIRPORT
EXHIBIT C
AIRSOUTH
<PAGE> 24
NEWTON & ASSOCIATES, INC.
AVIATION INDUSTRY CONSULTANTS
BOSTON . CHARLOTTE . MIAMI
February 15, 1995
Mr. Dennis Crosby
Air South Inc.
101 Trade Zone Drive
Suite 9A
West Columbia, South Carolina 29170
Re: Ramp Handling Agreement; Myrtle Beach Jetport
Dear Mr. Crosby:
I have previously sent you three different agreements concerning Air South's
proposed service at the Myrtle Beach Jetport. Two of them were for execution on
behalf of Air South:
(1) a Non-Signatory Airline Use Permit, and
(2) a Space Permit.
The third was in draft, for Air South's information while the Horry County
Department of Airports (HCDA), the Jetport Operator, was also reviewing it:
(3) a Ramp Handling Agreement.
Now enclosed are three copies of the Ramp Handling Agreement for Air South's
execution. Air South should sign two copies and return them to me for subsequent
execution on behalf of HCDA. After HCDA's execution, I will return one,
fully-executed copy to you for Air South's files. Pending that, you may wish to
retain the third enclosed copy in your files.
Incidentally, since I have not yet received signed copies of either (1) the
Non-Signatory Airline Use Permit or (2) the Space Permit from Air South; and
since the County Attorney has since asked me to make some changes in these
documents, I am also tendering you herewith three copies of each
County-Attorney-approved version of documents (1) and (2) -- for Air South to
sign two and return to me, etc. These versions are intended, of course, to
supplant the versions I sent you previously and so I ask that you destroy those
earlier versions.
Very truly yours,
/s/ Brendan P. Carmody
Brendan P. Carmody
Vice President
cc: C.P. Winters, HCDA
Todd Crawford, HCDA
Emma Ruth Brittain, Esq., HCDA
<PAGE> 25
Lease No. X-246
Cust. No. AIST30
Doc.Name: AIST246.MTL
LEASE AGREEMENT BETWEEN DADE COUNTY,
FLORIDA, AS LESSOR, AND AIR SOUTH, AS
LESSEE, MIAMI INTERNATIONAL AIRPORT
THIS LEASE AGREEMENT, ("Agreement") made and entered into as
of the________day of_______________________19__, by and between
DADE COUNTY, a political subdivision of the State of Florida ("County") and Air
South, (a Illinois corporation, authorized to do business in the State of
Florida) ("Lessee").
W I T N E S S E T H:
FOR, and in consideration of the premises and of the mutual covenants
and agreements herein contained, the parties hereto agree as follows:
ARTICLE 1
Term and Premises
1.01 Term: The County hereby leases to the Lessee, and the Lessee
hereby leases from the County, for a term of month-to-month, commencing on the
18th day of August, 1994, cancellable by either party, at any time, upon not
less than 30 days written notice to the other party, the premises described in
Article 1.02 (Description of Premises) hereof, for the purposes set forth in
Article 2 (Use of Premises) hereof. This Agreement is a tenancy at will,
pursuant to the provisions of Sections 83.02 and 83.03, Florida Statutes.
1.02 Description of Premises: The premises leased herein are located in
the Terminal Building area ("Terminal Building") at Miami International Airport
("Airport"), and are described as follows and as shown on Exhibits A and B dated
August 18, 1994, attached hereto and made a part hereof ("Premises") and further
identified by Dade County Aviation Department ("Department") identification
number(s) ("ID#) as follows:
1. 21,111 square feet of non air-conditioned
baggage make-up, Class IV space
@ 3% utilization
Exhibit A, ID# 4B1111
Dated August 18, 1994
2. 25,080 square feet of non air-conditioned
baggage make-up, Class IV space
Exhibit A, ID# 4C1150
Dated August 18, 1994
<PAGE> 26
3. 1,498 square feet of air-conditioned
baggage make-up support, Class III space
@ 3% utilization
Exhibit A, ID# 3B1497
Dated August 18, 1994
4. 194 square feet of air-conditioned
ticket counter, Class I space
Exhibit B, ID# lC2250
Dated August 18, 1994
5. 936 square feet of air-conditioned
office, Class II space
Exhibit B-1, ID# 2B2420
Dated August 18, 1994
6. 1,167 square feet of air-conditioned
office, Class III space
Exhibit B-2, ID# 3C2711
Dated August 18, 1994
1.03 Relocation of Premises: The Premises are subject to
relocation, modification or deletion, at the sole discretion of the Department,
and this Agreement may be administratively revised to reflect such relocation,
modification, or deletion upon 30 days written notice to the Lessee by the
Department. Relocated space may not be similar in size or configuration to the
Premises leased herein.
ARTICLE 2
Use of Premises
2.01 Use of Premises: The Lessee shall use the Premises for the
following purposes only:
The sale of tickets, check-in and handling of passengers and
their baggage (baggage includes all articles which accompany
passengers), supporting operations, and offices for the
Lessee. Mail and air cargo storage or receiving operations
shall not be conducted within or in connection with the
Premises without the prior written approval of the Department.
The Lessee agrees to make available to contiguous tenants its
ticket counter position(s) on an as needed basis, without
charge, provided use of same does not create conflicts in
usage. The Lessee may use contiguous ticket counter
position(s) provided that use of the position(s) does not
conflict with the operations of the contiguous tenant(s) of
the County.
2
<PAGE> 27
2.02 Installation of Equipment: The Lessee, upon written request,
approved in writing by the Department, shall have the right to install,
maintain, repair, replace and operate, at its sole cost and expense, in and on
the Premises, and between the Premises and other premises leased by the Lessee,
along such rights-of-way as may be approved by the Department, such computer
equipment, communications, meteorological and aerial navigational equipment and
facilities, together with required conduits, tubes and power lines, as may be
necessary and convenient in the opinion of the Lessee for its operations.
The Department shall have the right to require the Lessee to install
removable terminals at certain designated ticket counter positions leased
hereunder in order to accommodate usage of such positions by contiguous tenants
pursuant to Article 2.01 (Use of Premises) hereof.
2.03 Adequate Utilization of Premises: In the event the Premises, or
any part thereof, are not being adequately utilized by the Lessee, as provided
herein, the Department reserves the right, upon written notice, without
liability by the Department to the Lessee, to make available the Premises or any
part thereof to third parties on a joint utilization basis or to terminate this
Agreement. The Department shall notify the Lessee of such action, in writing, no
less than 30 calendar days prior to implementing such joint utilization or
termination. Any monies paid by the third parties shall accrue to the County and
the Lessee shall receive abatement of rentals due, for the applicable Premises,
on a fair and equitable basis. For the purposes of this provision, the Lessee
shall be deemed not to be adequately utilizing the Premises whenever the Lessee
is regularly operating fewer than five departure flights out of the Airport per
week.
The Lessee may, upon no less than 30 calendar days written notice to the
County, resume full utilization of the Premises. Such notice shall contain a
statement that the Lessee will operate at least five departure flights per week
out of the Airport and shall include a planned schedule of such operations. The
written notice shall be signed by an authorized officer of the Lessee.
2.04 Common Use Terminal Equipment: In the event the Department
acquires and installs "common use (computer) terminal equipment" (CUTE) in the
Premises, the Lessee, at its sole cost and expense, shall remove its own
terminal equipment installed in the Premises and thereafter shall pay to the
County such nondiscriminatory fees and charges as shall be established for any
usage of CUTE. Such CUTE shall be so designed and implemented as to insure the
security and confidentiality of proprietary information of the Lessee.
3
<PAGE> 28
ARTICLE 3
Rentals and Payments
3.01 Monthly Rental: As monthly rental for the lease of the
Premises, the Lessee shall pay to the County, commencing on August 18, 1994,
the sum of $10,166.20, in U.S. funds, on the first day of each and every month,
in advance and without billing, at the offices of the Department as set forth
in Article 3.05 (Address for Payments). Said rental is computed as
follows:
<TABLE>
<CAPTION>
DESCRIPTION ANNUAL MONTHLY
----------- ------ -------
<S> <C> <C> <C>
1. 21,111 square feet of non air-
conditioned baggage make-up,
Class IV space @ 3% utilization
@ $16.50 per square foot
per year: $10,449.95 $870.83
Exhibit A, ID# 4B1111
Dated August 18, 1994
2. 25,080 square feet of non air-
conditioned baggage make-up,
Class IV space @ 3% utilization
@ $16.50 per square foot
per year: 12,414.60 1,034.55
Exhibit A, ID# 4C1150
Dated August 18, 1994
3. 1,498 square feet of air-
conditioned baggage make-up
support, Class III space @ 3%
utilization @ $33.00 per
square foot per year: 1,483.02 123.57
Exhibit A, ID# 3B1497
Dated August 18, 1994
4. 194 square feet of air-
conditioned ticket counter,
Class I space @ $66.00 per
square foot per year: 12,804.00 1,067.00
Exhibit B, ID# 1C2250
Dated August 18, 1994
5. 936 square feet of air-
conditioned office, Class II
space @ $49.50 per square
foot per year: 46,332.00 3,861.00
Exhibit B-1, ID# 2B2420
Dated August 18, 1994
</TABLE>
4
<PAGE> 29
<TABLE>
<CAPTION>
ANNUAL MONTHLY
DESCRIPTION ------ -------
-----------
<S> <C> <C>
6. 1,167 square feet of air
conditioned office, Class III
space @ $33.00 per square foot
per year: 38,511.00 3,209.25
Exhibit B-2, ID# 3C2711 --------- --------
Dated August 18, 1994
Total: $21 994.57 $10,166.20
</TABLE>
plus applicable State sales taxes, as required by law.
3.02 Security Deposit: Prior to occupancy of the Premises, the Lessee,
unless exempted under County policy, shall pay to the County an amount equal to
two times the required total monthly rental as determined pursuant to Article
3.01 above, plus applicable State sales tax thereon, as security for the payment
of the Lessee's obligations hereunder. Said deposit shall be in addition to any
rental payments required hereunder, and the Department shall be entitled to
apply such payment to any debt of the Lessee to the Department that may then
exist, as permitted by law, including but not limited to the rentals required
hereunder. In lieu of the security deposit being made in cash, the Department,
in its sole discretion, may authorize the Lessee to provide an irrevocable
Letter of Credit, in a form provided by the Department, in like amount. The
amount of the security deposit is subject to adjustment by the Department at any
time there is a change in the annual or monthly rentals pursuant to the terms of
this Agreement; provided further, that the Department shall have the right to
demand an increase in the security deposit requirement of up to an additional
four months rental to provide the Department with adequate assurance of the
Lessee's payment of its obligations, which assurance is required because of the
Lessee's defaults in the timely payment of rents, fees and charges due
hereunder, or because the Department has reason to believe, based on published
reports, that the Lessee's future ability to pay such rentals, fees and
charges, on a timely basis, is in jeopardy.
3.03 Rental Rate Adjustment: Annually as of October 1 of each year of
the term of this Agreement, the cost based rental rates, pursuant to Article
3.01 (Monthly Rental) above, applicable to the Premises leased hereunder, shall
be subject to recalculation and adjustment in accordance with the policies and
formulae approved in Board of County Commissioners Resolution No. R-1054-90,
adopted on September 27, 1990, as such may be amended from time to time. When
such adjusted rental rates are established, this Agreement shall be considered
and deemed to have been administratively amended to incorporate such rental
rates, effective as of such October 1 date. Such rental rates shall be reflected
herein by letter amendment hereto. Payments for any retroactive rental
adjustments shall be due upon billing by the Department and payable within ten
calendar days of same.
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3.04 Double Rental: In the event that the Lessee remains in possession
of the Premises beyond the expiration or termination of this Agreement, the
Lessee shall be bound by all of the terms and conditions of this Agreement to
the same extent as if this Agreement were in full force and effect during the
time beyond the expiration date of this Agreement. However, during any such
possession of the Premises as a holdover tenant after the Department has
demanded the return of the Premises, the Lessee shall be liable for double
rentals for so long as the Lessee remains in possession after such demand, such
rentals to be based upon the rental rates applicable from time to time, in whole
or in part to the Premises.
3.05 Address for Payments: The Lessee shall pay, by mail, all rentals,
fees and charges required by this Agreement to the following:
Dade County Aviation Department
Accounting Division
P. 0. Box 592616
Miami, Florida 33159
Payments may be made by hand-delivery to the offices of the Department
during normal working hours.
3.06 Late Payment Charge: In the event the Lessee fails to make any
payments, as required to be paid under the provisions of this Agreement, within
ten days after same shall become due, interest at the rates established from
time to time by the Board of County Commissioners of Dade County, Florida
(currently set at l-1/2% per month), shall accrue against the delinquent
payment(s) from the original due date until the Department actually receives
payment. The right of the County to require payment of such interest and the
obligation of the Lessee to pay same shall be in addition to and not in lieu of
the rights of the County to enforce other provisions herein, including
termination of this Agreement, and to pursue other remedies provided by law.
3.07 Dishonored Check or Draft: In the event that the Lessee delivers a
dishonored check or draft to the County in payment of any obligation arising
under this Agreement, the Lessee shall incur and pay a service charge of TWENTY
DOLLARS or five percent of the face amount of such check, whichever is greater.
Further in such event, the Department may require that future payments required
pursuant to this Agreement be made by cashier's checks or other means acceptable
to the Department.
3.08 Other Fees and Charges: The Lessee acknowledges that the Board of
County Commissioners has or will establish or direct the establishment, from
time to time, of various fees and charges for the use of various facilities,
equipment and services provided by the County and not leased to or specifically
provided to the Lessee hereunder, and procedures relating to the payment of
same. The Lessee shall pay, upon billing, for its use of such
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facilities, equipment and services those fees and charges which are billed
monthly. For other fees and charges which are based on usage, the Lessee shall,
unless otherwise directed by the Department in writing, report its uses of
applicable facilities, equipment and services and pay the applicable fees and
charges at the same time and in the same manner it pays landing fees to the
County.
ARTICLE 4
Maintenance and Repair by Lessee
4.01 Cleaning: The Lessee shall, at its sole cost and expense, perform
or cause to be performed, services which will at all times keep the Premises
clean, neat, orderly, sanitary and presentable.
4.02 Removal of Trash: The Lessee shall remove from the Premises, at its
sole cost and expense, all trash and refuse which might accumulate and arise
from its use of the Premises and the business operations of the Lessee under
this Agreement. Such trash and refuse shall be stored temporarily and disposed
of in a manner approved by the Department.
4.03 Maintenance and Repairs: The Lessee shall repair and maintain in
good condition the Premises and all improvements or alterations thereto, except
for those items for which the County is responsible pursuant to Article 5
(Maintenance by County). Such repair and maintenance shall include, but not be
limited to, painting, overhead and personnel doors, windows, pavement (landside
and airside), equipment, protection bumpers attached to building, furnishings,
skylights, fixtures, appurtenances, replacement of light bulbs, ballasts and
tubes and the replacement of all broken glass, and shall at all times be based
on a standard of care reflecting prudent property management. Maintenance and
repairs shall be in quality and class equal to or better than the original work
to preserve the Premises in good order and condition. The Lessee shall repair
all damage caused by the Lessee and its employees, agents, independent
contractors, patrons, servants or invitees. Prior to or at termination of this
Agreement, injury done by the installation or removal of furniture and personal
property of the Lessee shall be repaired so as to restore the Premises to their
original state, except as the Premises may have been altered by the Lessee with
the approval of the Department pursuant to Article 7.01 (Alterations), and to
quit and surrender up the Premises in the same good order and condition as it
was at the commencement of this Agreement, reasonable wear and tear and damage
caused by an Act of God excepted; provided however, that such return of the
Premises under this Article 4.03 shall not relieve the Lessee of its obligations
for damages to the Premises that may be specifically provided elsewhere in this
Agreement.
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4.04 Air-conditioning Maintenance: The Lessee shall have full
responsibility for maintenance of any air-conditioning equipment installed by
the Lessee.
4.05 Inspections: The Department and/or its designated representatives
shall have the right, during normal working hours, to inspect the Premises to
identify those items of maintenance, repair, replacement, modification and
refurbishment required of the Lessee or the County, pursuant to Article 5
Maintenance by County), to keep the Premises in good order and condition. The
Lessee shall perform all corrective work required of it, identified in such
inspection(s) within 30 days of receipt of written notice from the Department.
Trash and debris problems shall be corrected within 24 hours following receipt
of either oral or written notice from the Department.
4.06 Failure to Maintain: If it is determined by the Department that
the Lessee has failed to properly clean, remove trash and refuse, maintain,
repair, replace and refurbish the Premises as required by this Article 4
(Maintenance and Repair by Lessee), the Department shall provide to the Lessee a
list of deficiencies, reflecting the amount of time to be reasonably allowed for
the Lessee to correct same. If the Lessee fails to correct such deficiencies
within the time allowed and has not registered an objection as to its obligation
to do so, the Department, following 10 days further notice to the Lessee, may
enter upon the Premises and perform all work, which, in the judgment of the
Department, may be necessary and the County shall add the cost of such work,
plus 25% for administrative costs, to the rent due hereunder on the first day of
the month following the date of such work, and such cost shall be and constitute
a part of the rent. Subsequent to receipt of the further notice of intent to
perform repairs or cleanup from the Department, the Lessee shall not undertake
performance of such repairs or cleanup without specific prior written
authorization from the Department.
ARTICLE 5
Maintenance by County
5.01 County Maintenance: The County shall clean, maintain and operate
in good condition the Terminal Building, including, but not limited to,
structural and system repairs, maintenance of the walls, ceilings and electrical
and mechanical systems outside the leased Premises, and the roof. The County
shall keep the public areas in the Terminal Building furnished and will provide
therein adequate light, cold water and conditioned air. The County shall be
responsible for the replacement of light bulbs, ballasts and tubes in the ticket
counter space of the Premises. If any of the Terminal facilities are damaged or
destroyed by the operations of the Lessee, the Department shall make the
necessary repairs or replacements and shall bill the Lessee the cost thereof,
plus 25% for administrative costs, in the manner specified in Article 4.05
(Failure to Maintain) hereof.
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5.02 County Maintenance Subject to Certain Conditions: Such maintenance
by the County may be subject to interruption caused by repairs, strikes,
lockouts, labor controversies, inability to obtain, fuel, power or parts,
accidents, breakdowns, catastrophes, national or local emergencies, acts of God,
and other conditions beyond the control of the County. Upon any such happening,
the Lessee shall have no claim for damages for the County's failure to furnish
or to furnish in a timely manner any such maintenance; provided, however, that
the Department, in its sole discretion, may provide a rent abatement for that
portion of the Premises rendered unusable for that period of time that the
County is unable to make repairs required by Article 5.01 (County Maintenance).
The County shall exercise reasonable diligence to remedy and/or cure any such
interruptions, to the extent such interruptions are within the County's control.
ARTICLE 6
Regulations, Licenses and Permits
6.01 Rules and Regulations: The Lessee shall comply with all Ordinances
of the County, including the Rules and Regulations of the Department, Chapter
25, Code of Metropolitan Dade County, Florida, as the same may be amended from
time to time, Operational Directives issued thereunder, all additional laws,
statutes, ordinances, regulations and rules of the Federal, State and County
Governments, and any and all plans and programs developed in compliance
therewith, which may be applicable to its operations or activities under this
Agreement, including specifically, without limiting the generality hereof,
Federal air and safety laws and regulations and Federal, State and County
environmental, hazardous waste and materials and natural resources laws,
regulations and permits.
6.02 Violations of Rules and Regulations: The Lessee agrees to pay on
behalf of the County any penalty, assessment or fine, issued against the County,
or to defend in the name of the County any claim, assessment or civil action,
which may be presented or initiated by any agency or officer of the Federal,
State or County governments, based in whole or substantial part upon a claim or
allegation that the Lessee, its agents, employees or invitees, have violated any
law, ordinance, regulation, rule or directive described in Article 6.01 above or
any plan or program developed in compliance therewith. The Lessee further agrees
that the substance of this Article 6.02 and Article 6.01 above shall be included
in every sublease, contract and other agreement, which the Lessee may enter into
related to its operations and activities under this Agreement and that any such
sublease, contract and other agreement shall specifically provide that "Dade
County, Florida is a third party beneficiary of this and related provisions."
This provision shall not constitute a waiver of any other conditions of this
Agreement prohibiting or limiting assignments, subletting or subcontracting.
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6.03 Permits and Licenses: The Lessee expressly covenants, warrants and
agrees that it shall, at its sole cost and expense, be strictly liable and
responsible for obtaining, paying for, maintaining on a current basis, and fully
complying with, any and all permits, licenses and other governmental
authorizations, however designated, as may be required, at any time throughout
the entire term of this Agreement, by any Federal, State, or County governmental
entity or any judicial body having jurisdiction over the Lessee or the Lessee's
operations and activities, for any activity of the Lessee conducted on the
Premises and for any and all operations conducted by the Lessee, including
ensuring that all legal requirements, permits and licenses necessary for or
resulting, directly or indirectly, from the Lessee's operations and activities
on the Premises have been obtained and are being fully complied with. Upon the
written request of the Department, the Lessee shall provide to the Department
copies of any and all permits and licenses, and applications therefor, which the
Department may request.
6.04 Aircraft Noise Abatement Regulations Compliance: The Lessee hereby
specifically acknowledges its awareness that the noise generated by aircraft,
while on the ground and in flight, may cause annoyance to residential areas in
proximity to the Airport and/or under or near flight corridors serving the
Airport and that the County, as proprietor of the Airport, may, therefore, from
time to time adopt certain lawful policies, procedures and/or regulations, not
inconsistent with the Airport Noise and Capacity Act of 1990, unless otherwise
approved by the Federal Aviation Administration, and not inconsistent with
aircraft safety, intended to abate the effects of aircraft noise. Said policies,
procedures and/or regulations may deal with, but are not necessarily limited to,
nighttime engine run-ups, preferential runway usage, aircraft arrival and
departure patterns, use of displaced runway thresholds, and the like. The Lessee
specifically understands and agrees that a violation of such noise abatement
policies, procedures and/or regulations may result in the arrest or citation of
the offending party, with the imposition of fines, and that a violation of same
shall constitute a material breach hereunder and may result in termination of
this Agreement pursuant to the provisions hereof.
ARTICLE 7
Alteration of Premises and Erection of Signs
7.01 Alteration: The Lessee shall not alter the Premises in any manner
whatsoever without the prior written approval of the Department. In the event
the Lessee is given approval to make alterations to the Premises, the Lessee
shall comply with the terms and conditions of such approval, as contained in the
Department's approval letter, and a failure to do so shall constitute a default
pursuant to Article 12.03 hereof.
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7.02 Signage: The Lessee shall not erect, maintain or display any
identifying signs or any advertising matter, of any type or kind which is
visible to the public, without prior written approval of the Department. In the
event the Department changes the graphics system for the identification of
lessees at the Airport, the Lessee agrees, if required by the Department, to
change, at its sole cost, any of its identification signs necessary to comply
with such graphics system.
ARTICLE 8
Assignment and Subletting
The Lessee shall not assign, transfer or otherwise encumber this
Agreement, nor sublet all or any portion of the Premises, nor allow others to
use the Premises for any commercial purpose.
ARTICLE 9
Indemnification and Hold Harmless
The Lessee shall protect, defend, using attorneys reasonably acceptable
to the County, and hold the County and its officers, agents and employees
completely harmless from and against any and all liabilities, losses, suits,
claims, judgments, fines or demands arising by reason of injury or death of any
person or damage to any property, including the leased Premises, including all
reasonable costs for investigation and defense thereof (including but not
limited to attorney fees, court costs, and expert fees, through all levels of
trial and appellate proceedings), of any nature whatsoever arising out of or
incident to this Agreement and/or the use or occupancy of the leased Premises or
the acts or omissions of officers, agents, employees, contractors,
subcontractors, licensees, or invitees of the Lessee regardless of where the
injury, death, or damage may occur, except to the extent such injury, death or
damage is caused (i) solely by an Act or God, or (ii) by the negligence or
willful misconduct of the County, its officers, employees or agents. The County
shall give the Lessee reasonable notice of any such claims or actions. The
provisions of this section shall survive the expiration or early termination of
this Agreement.
ARTICLE 10
Insurance
10.01 Insurance Required: In addition to such insurance as may be
required by law, the Lessee shall maintain, without lapse or material change,
for so long as it occupies the Premises, the following insurance:
(A) Public Liability Insurance on a comprehensive basis,
including Contractual Liability, to cover the Lessee's
Premises and operations, in an amount not less than
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$5,000,000 combined single limit per occurrence for bodily
injury and property damage. The County must be shown as an
additional insured with respect to this coverage.
Coverages shall be for each occurrence, with either no
aggregate or an annual policy aggregate of no less than twice
the amount of coverage required for each occurrence. In the
event that the Lessee's available coverage falls below the per
occurrence amount shown above, the Lessee shall secure a new
certificate of insurance evidencing the required coverage. The
County reserves the right to not accept policies with
aggregate limits or substantial deductibles.
(B) Automobile Liability Insurance covering all owned, non-owned
and hired vehicles (including ground or mobile equipment) used
by the Lessee in connection with its operations under this
Agreement in an amount not less than:
(1) $5,000,000 combined single limit per occurrence for
bodily injury and property damage covering all
vehicles and ground and mobile equipment used by the
Lessee on the Air Operations Area of the Airport
("AOA");
(2) $300,000 combined single limit per occurrence for
bodily injury and property damage covering such
vehicles and ground and mobile equipment when being
used by the Lessee off of the AOA.
The insurance coverages required shall include those classifications, as
listed in standard liability insurance manuals, which most nearly reflect the
operations of the Lessee under this Agreement. All insurance policies required
pursuant to the terms of this Agreement shall be issued in companies approved to
do business under the laws of the State of Florida. Such companies must be rated
no less than "B" as to management, and no less than "VIII" as to strength in
accordance with the latest edition of "Best's Insurance Guide", published by
A.M. Best Company, Inc., or its equivalent, subject to approval of the County
Risk Management Division.
10.02 Insurance Certificates Required: Prior to the commencement of
operations hereunder and annually thereafter, the Lessee shall furnish or cause
to be furnished certificates of insurance to the Department which certificates
shall clearly indicate that:
(A) The Lessee has obtained insurance in the types, amounts and
classifications as required for strict compliance with this
Article;
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leased to a third party, or which the County has not leased herein.
ARTICLE 12
Termination
12.01 Payment Defaults: Failure of the Lessee to make all payments of
rentals, fees and charges required to be paid herein when due shall constitute a
default, and the County may, at its option, terminate this Agreement after five
calendar days notice in writing to the Lessee unless the default be cured within
the notice period.
12.02 Insurance Defaults: The County shall have the right, upon 5
calendar days written notice to the Lessee, to terminate this Agreement if the
Lessee fails to provide evidence of insurance coverage in strict compliance with
Article 10 (Insurance) hereof prior to commencement of operations, or fails to
provide a renewal of said evidence upon its expiration; provided, however, that
such termination shall not be effective if the Lessee provides the required
evidence of insurance coverage within the notice period.
12.03 Other Defaults: The County shall have the right, upon 30 calendar
days written notice to the Lessee, to terminate this Agreement upon the
occurrence of any one or more of the following, unless the same shall have been
corrected within such period, or if correction cannot reasonably be completed
within such 30 day period, in the sole discretion of the Department, the Lessee
has commenced substantial corrective steps within such 30 day period and
diligently pursues same to completion.
(A) Failure of the Lessee to comply with any covenants of this
Agreement, other than the covenants to pay rentals, fees and
charges when due, and the covenants to provide required
evidence of insurance coverage.
(B) The conduct of any business, the performance of any service,
or the merchandising of any product or service not
specifically authorized herein, by the Lessee.
12.04 Habitual Default: Notwithstanding the foregoing, in the event
that the Lessee has frequently, regularly or repetitively defaulted in the
performance of or breached any of the terms, covenants and conditions required
herein to be kept and performed by the Lessee, in the sole opinion of the County
and regardless of whether the Lessee has cured each individual condition of
breach or default as provided in Articles 12.01 Payment Defaults), 12.02
(Insurance Defaults) and 12.03 (Other Defaults) hereinabove, the Lessee shall be
determined by the Director to be an "habitual violator." At the time that such
determination is made, the Department shall issue to the Lessee a written notice
advising of such determination and citing the
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If the County advises the Lessee that it has reasonable grounds to
believe that any hazardous substance or environmental contaminant has been
released within the Premises or into the ground under the Premises, then the
Lessee at its expense shall retain an approved environmental consultant to
perform whatever environmental assessment may be required to determine the
extent of such release. The Lessee shall comply with the recommendations and
conclusions, contingent upon County approval, of such consultant regarding
environmental clean up efforts that may be required, and shall comply with any
other clean up requirements imposed on the Lessee by Federal, State or County
law, regulations or codes.
Notwithstanding any other provisions of this Agreement, the Lessee shall
have no liability to the County for any violation of environmental law which is
attributable to the acts or omissions of any person other than the Lessee, its
agents, employees, invitees, contractors or trespassers (nor shall such
violations constitute a default or breach of this Agreement). Nothing in this
Agreement shall affect the Lessee's liability for environmental violations as
separately provided for in any Federal, State, or County law, ordinance, rule or
regulation.
12.07 Lien Upon Personal Property: In the event of termination for
default or upon termination of this Agreement by its term the County shall have
a lien upon all personal property of the Lessee to secure the payment of any
unpaid rentals, fees and charges accruing under the terms of this Agreement.
ARTICLE 13
Special Conditions
13.01 Quality of Services: The Lessee shall furnish the services
required and authorized, pursuant to Article 2 (Use of Premises) hereof, on a
good, prompt and efficient basis and on a fair, equal and not unjustly
discriminatory basis to all users thereof.
13.02 Nondiscriminatory Prices: The Lessee shall charge fair,
reasonable, customary and not unjustly discriminatory prices for each unit of
sale or service; provided, however, that the Lessee may make reasonable,
customary and nondiscriminatory discounts, rebates or similar types of price
reductions to volume purchasers of the Lessee's services.
13.03 County's Obligations: The Lessee, in recognition of the County's
obligation, pursuant to Section 22 of Part V of the Federal Aviation
Administration's standard grant assurances, to enforce the provisions of
Articles 13.01 (Quality of Services) and 13.02 (Nondiscriminatory Prices) above,
agrees that the Department may, from time to time, promulgate standards, methods
and procedures for and monitor and test the provision of services hereunder and
may require the Lessee to provide copies of
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schedules of service charges and the bases for discounts, rebates and similar
types of price reductions. Should the Department determine that the Lessee is
not in compliance with the provisions of Articles 13.01 (Quality of Services)
and 13.02 (Nondiscriminatory Prices) above, the first such occurrence shall be
considered a curable default, pursuant to Article 12.03 (Other Defaults)
hereof and subsequent occurrence(s) shall be considered a material breach of
this Agreement, entitling the County to the remedies provided in this
Agreement or by law.
13.04 Porter Service: The Lessee shall provide its passengers with
porter service including, but not limited to, baggage handling and baggage
transportation for arriving, departing and cancelled flights, and wheelchair
assistance. The Lessee shall provide such service using its own employees or
shall contract with a Department-authorized service company to provide such
service.
ARTICLE 14
Nondiscrimination
14.01 Employment Discrimination: The Lessee shall not discriminate
against any employee or applicant for employment with respect to hire, tenure,
terms, conditions, or privileges of employment, or any matter directly or
indirectly related to employment because of age, sex, race, color, religion,
national origin, ancestry or disability. The Lessee shall comply with applicable
provisions of the Americans with Disabilities Act, including, but not limited
to, provisions pertaining to employment.
14.02 Nondiscriminatory Access to Premises and Services: The Lessee,
for itself, its personal representatives, successors in interest, and assigns,
as a part of the consideration hereof, does hereby covenant and agree as a
covenant running with the land that: (1) no person on the grounds of race,
color, sex, national origin or ancestry shall be excluded from participation in,
denied the benefits of, or be otherwise subjected to discrimination in the use
of the Premises; (2) that in the construction of any improvements on, over, or
under such land and the furnishings of services thereon, no person on the
grounds of race, color, sex, national origin or ancestry shall be excluded from
participation in, denied the benefits of, or otherwise be subjected to
discrimination in the use of the improvements; and (3) that the Lessee shall use
the Premises in compliance with all other requirements imposed by or pursuant to
the enforceable regulations of the Department of Transportation as amended from
time to time.
14.03 Breach of Nondiscrimination Covenants: In the event it has been
determined that the Lessee has breached any enforceable nondiscrimination
covenants contained in Articles 14.01 (Employment Discrimination) and 14.02
(Nondiscriminatory
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Access to Premises and Services) above, pursuant to the complaint procedures
contained in the applicable Federal Regulations, and the Lessee fails to comply
with the sanctions and/or remedies which have been prescribed, the County shall
have the right to terminate this Agreement pursuant to Article 12.03 (Other
Defaults) hereof.
14.04 Affirmative Action and Disadvantaged Business Enterprise
Programs: The Lessee agrees that in the event the provisions of 49 CFR Part 23,
Disadvantaged Business Enterprises (DBE) and 14 CFR Part 152, Affirmative Action
Employment Programs, are applicable to the Lessee under this Agreement, it shall
comply with all requirements of the Department, the Federal Aviation
Administration and the U. S. Department of Transportation. These requirements
may include, but be not limited to, the compliance with DBE and/or Employment
Affirmative Action participation goals, keeping of certain records of good faith
compliance efforts, and the submission of various reports, including, if
directed by the Department, the contracting of specified percentages of goods
and services contracts to Disadvantaged Business Enterprises. In the event it
has been determined, in accordance with applicable regulations, that the Lessee
has defaulted in the requirement to comply with this section, and the Lessee
thereafter fails to comply with the sanctions and/or remedies then prescribed,
the County shall have the right, upon written notice to the Lessee to terminate
this Agreement pursuant to Article 12.03 (Other Defaults) hereof.
ARTICLE 15
Security and Special Provisions
15.01 Security: The Lessee acknowledges and accepts full responsibility
for the security and protection of the Premises, any improvements thereon, its
equipment and property on the Airport and control of access to the Air
Operations Area ("AOA") through the Premises by persons and vehicles. The Lessee
fully understands and acknowledges that any security measures deemed necessary
by the Lessee for the protection of said Premises, equipment and property and
access to the AOA through the Premises shall be the sole responsibility of the
Lessee and shall involve no cost to the County. All such security measures by
the Lessee shall be in accordance with FAR 107 and the Airport Security Plan.
15.02 Security Identification Display Areas Access Identification
Badges: The Lessee shall be responsible for requesting the Department to issue
identification ("ID") badges to all employees who are authorized access to
Security Identification Display Areas ("SIDA") on the Airport, designated in the
Airport's security program and shall be further responsible for the immediate
reporting of all lost or stolen ID badges and the immediate return of the ID
badges of all personnel transferred from Airport assignment or terminated from
the employ
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of the Lessee or upon termination of this Agreement. Each employ must complete
the SIDA training program conducted by the Department, before an ID badge is
issued. The Lessee shall pay, or cause to be paid, to the Department such
nondiscriminatory charges, as may be established from time to time, for lost or
stolen ID badges and those not returned to the Department in accordance with
this Article. The Department shall have the right to require the Lessee to
conduct background investigations and to furnish certain data on such employees
before the issuance of such ID badges, which data may include the fingerprinting
of employee applicants for such badges.
15.03 AOA - Driver Training: Before the Lessee shall permit any
employee to operate a motor vehicle of any kind or type on the AOA, the Lessee
shall require such employee to attend and successfully complete the AOA Driver
Training Course conducted from time to time by the Department. The privilege of
a person to operate a motor vehicle on the AOA may be withdrawn by the
Department for any of violation of AOA driving rules. Notwithstanding the above,
the Lessee shall be responsible for ensuring that all such vehicle operators
possess current, valid, appropriate Florida driver's licenses.
15.04 Alcohol and Drug Testing: The Lessee acknowledges that the
County, as a public agency sponsor under the provisions of the Airport and
Airway Improvement Act of 1982, as amended (the "Act"), has the obligation to
establish a drug free workplace and to establish policies and programs to ensure
airport safety and security. The Lessee acknowledges that the Department, on
behalf of the County, has the right to require users of the Airport (Lessees,
Permittees, Licensees, etc.) to establish reasonable programs to further the
achievement of the objectives described herein. Accordingly, the Lessee shall
establish programs for pre-employment alcohol and drug screening for all
candidates for employment at the Airport who will as a part of their duties (a)
be present on the AOA; (b) operate a motor vehicle of any type on the AOA; or
(c) operate any equipment, motorized or not, on the AOA and for the same or
similar screening based upon a reasonable suspicion that an employee, while on
duty on the AOA, may be under the influence of alcohol or drugs. Notwithstanding
the above, the Lessee specifically acknowledges that the County, acting through
the Department, has the right and obligation to deny access to the AOA and to
withdraw AOA driving privileges from any person who it has a reasonable
suspicion to believe is under the influence of alcohol or drugs.
15.05 Drug-Free Workplace Certification: Notwithstanding the provisions
of Article 15.04 (Alcohol and Drug Testing) above and in addition thereto, the
Lessee, in its execution of this Agreement, hereby certifies and agrees,
pursuant to County Ordinance No. 92-15, adopted on March 17, 1992, as such may
be amended from time to time, that it will provide drug-free
19
<PAGE> 42
workplaces for all its employees. In providing such drug-free workplaces, as a
minimum, the Lessee shall do the following:
(A) Provide each employee with a written statement notifying the
employee that the unlawful manufacture, distribution,
dispensation, possession or use of a controlled substance, as
defined in Section 893.02(4), Florida Statutes in the Lessee's
workplaces is prohibited and specifying the actions the Lessee
will take against employees for violation of such prohibition.
Such written statement shall also inform the employee about
the following:
(1) The dangers of alcohol and drug abuse in the workplace.
(2) The Lessee's policy of maintaining a drug-free
environment at all its workplaces, including, but not
limited to, all locations where employees perform any
task relating to its operations under this Agreement.
(3) Any available alcohol and drug counseling,
rehabilitation and employee assistance programs
available to employees with an alcohol or drug problem.
(4) The penalties that may be imposed by the Lessee on
employees for alcohol or drug abuse
violations.
(B) Require each employee to sign a copy of the written statement
required pursuant to Section (A) above to acknowledge the
employee's receipt of same and advice as to the specifics of
such policy. The Lessee shall maintain copies of the
statements signed by its employees. The Lessee shall also post
in prominent places at all of its workplaces a written
statement of its drug-free workplace policy containing at
least all of the elements contained in Paragraphs (1) through
(4) of Section (A) above.
(C) Notify each employee, in the written statement required
pursuant to Section (A) above, that as a condition of
employment, the employee will (i) abide by the Lessee's drug
free workplace policy contained in the written statement; and
(ii) notify the Lessee of any criminal drug statute conviction
for a violation occurring in the workplace no later than five
days after such conviction.
(D) Notify the Department within ten days after receiving notice
under Section (C) above from such employee or otherwise
receiving actual notice of such conviction.
20
<PAGE> 43
(E) Impose appropriate personnel action, up to and including
termination, for any employee convicted for violation of a
criminal drug statute; or, require such employee to
satisfactorily participate in a drug abuse assistance or
rehabilitation program, approved for such purposes by a
Federal, State or local health, law enforcement or other
appropriate agency.
(F) Make a good faith effort to continue to maintain a drug-free
workplace through implementation of Sections
(A) through (E) above.
Annually, as of the annual anniversary date of the effective date of
this Agreement, the Lessee shall provide a certification, in a form to be
prescribed by the County, that it will continue to provide for drug-free
workplace(s) in the same manner as described herein.
This Agreement shall be terminated, upon fifteen days written notice to
the Lessee, and without liability to the County, if the Department or the County
Manager determines any of the following:
(G) That the Lessee has made a false certification in its
execution of this Agreement or in accordance with the annual
re-certification required above;
(H) That the Lessee has violated its original or renewal
certification by failing to carry out any of the requirements
contained in Sections (A), (B), (C), (D), (E) or (F); or
(I) That such a number of employees of the Lessee have been
convicted of violations in workplace(s), as to indicate that
the Lessee has failed to make a good faith effort to provide a
drug-free workplace as required herein.
15.06 Special Programs: The Lessee shall ensure that all employees so
required participate in such safety, security and other training and
instructional programs, as the Department or appropriate Federal agencies may
from time to time require.
15.07 Vehicle Permit and Company Identification: Motor vehicles and
equipment of the Lessee operating on the AOA must have an official motor vehicle
identification permit issued pursuant to Operational Directives of the
Department. In addition, company identification must be conspicuously displayed
thereon.
15.08 Federal Agencies Right to Consent: The Lessee understands and
agrees that all persons entering and working in or around arriving international
aircraft and facilities used by the various Federal Inspection Services agencies
may be subject to
21
<PAGE> 44
the consent and approval of such agencies. Persons not approved or consented to
by the Federal Inspection Services agencies shall not be employed by the Lessee
in areas under the jurisdiction or control of such Federal Inspection agencies.
15.09 AOA - Right to Search: The Lessee agrees that its vehicles,
cargo, goods and other personal property are subject to being searched when
attempting to enter or leave and while on the AOA. The Lessee further agrees
that it shall not authorize any employee or agent to enter the AOA unless and
until such employee or agent has executed a written consent-to-search form
acceptable to the Department. Persons not executing such consent-to-search form
shall not be employed by the Lessee at the Airport, in any job requiring access
to the AOA.
It is further agreed that the Department has the right to prohibit an
individual, agent or employee of the Lessee from entering the AOA based upon
facts which would lead a person of reasonable prudence to believe that such
individual might be inclined to engage in theft, cargo tampering, aircraft
sabotage or other unlawful activities. Any person denied access to the AOA or
whose prior authorization has been revoked or suspended on such grounds shall be
entitled to a hearing before the Director of the Department or his authorized
designee within a reasonable time. Prior to such hearing, the person denied
access to the AOA shall be advised, in writing, of the reasons for such denial.
The Lessee acknowledges and understands that these
provisions are for the protection of all users of the AOA and are intended to
reduce the incidence of thefts, cargo tampering, aircraft sabotage and other
unlawful activities at the Airport.
ARTICLE 16
Employees
16.01 Control of Employees: The Lessee shall properly control the
actions of its employees at all times that said employees are working on the
Airport, ensuring that they present a neat appearance and discharge their duties
in a courteous and efficient manner and that they maintain a high standard of
service to the public.
16.02 Use of Public Facilities: The Lessee acknowledges and agrees that
the County has provided certain facilities, such as Terminal seating areas,
holdrooms, rest rooms and other conveniences for the use of the traveling public
and has also provided special facilities solely for the use of the employees of
Airport tenants and commercial users. The Lessee shall not permit its employees
to use the public areas provided by the County for use by the traveling public,
except those employees normally required to be in contact with the traveling
public, those providing passenger services and those doing so as part of regular
assigned duties.
22
<PAGE> 45
16.03 Employee Covenants Violations: In the event the Lessee is in
default of the covenants in Articles 16.01 (Control of Employees) and 16.02 (Use
of Public Facilities) for failure to properly control its employees or by
permitting its employees to improperly use facilities provided by the County for
the use and convenience of the traveling public, the Department shall have the
right to require the Lessee to remove from employment at the Airport those
employees who individually violated the covenants of Articles 16.01 (Control of
Employees) and 16.02 (Use of Public Facilities).
ARTICLE 17
Civil Actions
17.01 Governing Law; Venue: This Agreement shall be governed and
construed in accordance with the laws of the State of Florida. The venue of any
action on this Agreement shall be laid in Dade County, Florida, and any action
to determine the rights or obligations of the parties hereto shall be brought in
the courts of the State of Florida.
17.02 Notice of Commencement of Civil Action: In the event that the
County or the Lessee commence a civil action where such action is based in whole
or in part on an alleged breach of this Agreement, the County and the Lessee
agree to waive the procedure for initial service of process. The County and the
Lessee agree to submit themselves to the jurisdiction of the court in which the
action has been filed whenever service has been made in the following manner:
(A) Upon the County: by Certified Mail, Return Receipt Requested,
sent to (i) the party indicated in Article 19.07 (Notices) on
behalf of the County and (ii) with a copy to the County
Attorney, Aviation Division, P.O. Box 592075 AMF, Miami, FL
33159.
(B) Upon the Lessee: by personal service or by Certified Mail,
Return Receipt Requested, upon the party indicated in Article
19.07 (Notices) on behalf of the Lessee, with a copy to
whatever attorney the Lessee has designated in writing, if
any.
In the event that the County and/or the Lessee raise an objection to
service of initial pleadings as provided for herein, and the trial court
overrules such objection, the objecting party shall pay liquidated damages
(attorney's fees) in the amount of $250.00 to plaintiff in such action, prior to
answering the complaint.
17.03 Registered Office/Agent; Jurisdiction:
Notwithstanding the provisions of Article 17.02 (Notice of
Commencement of Civil Action), and in addition thereto, the
Lessee, if a corporation, shall designate a registered office and
23
<PAGE> 46
a registered agent, as required by Section 48.091, Florida Statutes, such
designations to be filed with the Florida Department of State in accordance with
Section 607.034, Florida Statutes. If the Lessee is a natural person, he and his
personal representative hereby submit themselves to the jurisdiction of the
Courts of this State for any cause of action based in whole or in part on an
alleged breach of this Agreement.
ARTICLE 18
Trust Agreement and Bond Resolution
18.01 Incorporation of Trust Agreement and Bond Resolution by
Reference: Notwithstanding any of the terms, provisions and conditions of this
Agreement, it is understood and agreed by the parties hereto that the provisions
of the Trust Agreement dated as to the 1st day of October, 1954, as amended, by
and between the County and the Chase Manhattan Bank (now the Chase Manhattan
Bank, National Association) as Trustee and the First National Bank of Miami (now
First Union National Bank of Florida) as Co-Trustee, (the "Trust Agreement") and
Resolution No. R-1654-84 adopted by the County on December 4, 1984, securing
Dade County Aviation Facilities Revenue Bonds (the "Bond Resolution"), which
Trust Agreement and Bond Resolution are incorporated herein by reference
thereto, shall prevail and govern in the event of any conflict or inconsistency
with or ambiguity relating to the terms and conditions of this Agreement,
including the rents, fees or charges required herein, and their modification or
adjustment. Copies of the Trust Agreement and Bond Resolution are available for
inspection in the offices of the Department during normal working hours.
18.02 Adjustment of Terms and Conditions: If, at any time during the
term of this Agreement, a court of competent jurisdiction shall determine that
any of the terms and conditions of this Agreement, including the rentals, fees
and charges required to be paid hereunder to the County by the Lessee or by
other Lessees under other Agreements of the County for the Lease or use of
facilities used for similar purposes, are unjustly discriminatory, the County
shall have the right to modify such terms and conditions and to increase or
otherwise adjust the rentals, fees and charges required to be paid under this
Agreement in such a manner as the County shall determine is necessary and
reasonable so that the rentals, fees and charges payable by the Lessee and
others shall not thereafter be unjustly discriminatory to any user of like
facilities and shall not result in any violation of the Trust Agreement and/or
Bond Resolution or in any deficiency in revenues necessary to comply with the
covenants of the Trust Agreement and/or Bond Resolution. In the event the County
has modified the terms and conditions of this Agreement, including any
adjustment of the rentals, fees and charges required to be paid to the County
pursuant to this provision, this Agreement shall be amended to incorporate such
modification of the terms and conditions including the adjustment
24
<PAGE> 47
damage to the Premises, plus the loss of rentals attributable to the damaged or
destroyed premises.
19.19 Quiet Enjoyment: Subject to the terms of this Agreement,
specifically including, but not limited to, the County's right and obligation to
make certain repairs, alterations, and additions under Articles 5 (Maintenance
by County) and 19.09 (Rights of County at Airport), which, for purposes of this
clause includes any and all demolition, in whole or in part, of buildings and
runways, and roadway systems on or off the Airport, and the reservation of
easement rights to the airspace under Article 15.10 (Right of Flight), all of
which provisions and others in the Agreement the Lessee acknowledges may cause
disruption and disturbance to the Lessee, and upon the observance by the Lessee
of all the terms, provisions, covenants and conditions imposed upon the Lessee
hereunder, the Lessee shall peaceably and quietly hold and enjoy the Premises
for the term of this Agreement; provided, however, that the County shall not be
liable for any violation of this clause or for any disturbance or disruption in
or to the Lessee's business, for acts or omissions of tenants, users of the
Airport, third parties, or when any department or agency of the County is acting
in its governmental capacity, or by Acts of God.
19.20 Interpretation of Agreement: This Agreement is the result of
negotiation between the parties hereto and has been typed/printed by one party
for the convenience of both parties, and the parties covenant that this
Agreement shall not be construed in favor of or against any of the parties
hereto.
19.21 Entirety of Agreement: The parties hereto agree that this
Agreement sets forth the entire agreement between the parties, and there are no
promises or understandings other than those stated herein. None of the
provisions, terms and conditions contained in this Agreement may be added to,
modified, superseded or otherwise altered, except as may be specifically
authorized herein or by written instrument executed by the parties hereto.
29
<PAGE> 48
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their appropriate officials as of the date first above written.
BOARD OF COUNTY COMMISSIONERS
OF DADE COUNTY, FLORIDA
By:
--------------------------------------
County Manager
ATTEST: Harvey Ruvin, Clerk
By:
--------------------------------------
Deputy Clerk
(SEAL)
LESSEE:
By:
--------------------------------------
ATTEST:
-----------------------------------------
Secretary
-----------------------------------------
Print Name
(CORP. SEAL)
30
<PAGE> 49
DADE COUNTY
AVIATION DEPARTMENT
MIAMI INTERNATIONAL AIRPORT
EXHIBIT A
AIR SOUTH
<PAGE> 50
DADE COUNTY
AVIATION DEPARTMENT
MIAMI INTERNATIONAL AIRPORT
EXHIBIT B
AIR SOUTH
<PAGE> 51
DADE COUNTY
AVIATION DEPARTMENT
MIAMI INTERNATIONAL AIRPORT
EXHIBIT B-1
AIR SOUTH
<PAGE> 52
DADE COUNTY
AVIATION DEPARTMENT
MIAMI INTERNATIONAL AIRPORT
EXHIBIT B-2.
AIR SOUTH
<PAGE> 1
EXHIBIT 10.19
TERMINAL BUILDING SPACE LEASE
THIS AGREEMENT is made and entered into as of the 10th day of February
1995, by and between the Horry County Department of Airports, an agency of the
County of Horry, organized under the laws of the state of South Carolina,
hereinafter called "Landlord", and AIR SOUTH, INC. a corporation, hereinafter
called "Permittee".
WITNESSETH:
WHEREAS, Landlord operates the airport known as the Myrtle Beach Jetport,
which is located in the County of Horry, State of South Carolina, which, as it
now exists or as it may be expanded in the future, is hereinafter called
"Airport", and
WHEREAS Permittee desires to use certain premises and facilities at the
Airport,
NOW, THEREFORE, in consideration of the premises and the mutual covenants
hereinafter contained, the parties hereto formally covenant, agree, and bind
themselves as follows:
ARTICLE I - PREMISES
Landlord hereby grants to Permittee the exclusive right to use a room, the total
area of which is approximately 140 square feet, which are located on the first
floor in the temporary holding facility on the south end of the Passenger
Terminal Building, said rooms being sometimes hereinafter referred to as the
"Premises".
ARTICLE II - USE OF PREMISES
Permittee may use the Premises for administrative offices in connection with the
Air South Charter services it is providing at the terminal building, and for no
other purposes.
ARTICLE III - TERM
The term of this Agreement shall be from February 10, 1995 to December 31 of
1995, and it shall continue on a month-to-month basis thereafter until
terminated by either party. Either party shall have the right to terminate this
Agreement and the use of the Premises thereunder, at any time and without cause,
by serving a written Notice of Termination upon the other party not less than
thirty days in advance of its effective date.
<PAGE> 2
ARTICLE IV - RENTAL
Permittee shall pay Landlord a use charge, initially computed at the rate of
$133.70 per month. Said charge shall be payable in advance, without demand,
setoff or deduction, no later than the tenth (10th) day of each month during the
term hereof.
Landlord shall have the right to adjust the use charge from time to time and at
any time by serving a Notice of Adjusted Charges on Permittee.
ARTICLE V - MAINTENANCE
Permittee shall keep the Premises in good, sanitary and neat order, condition
and repair. Landlord shall not be obligated to make any repairs, replacements or
renewals of any kind, nature or description whatsoever, to the Premises except
that repairs to drainage facilities and sewers shall be the responsibility of
Landlord only when damage to such facilities was caused by Landlord's own act
or omission or the act or omission of its contractors or invitees.
ARTICLE VI - UTILITIES
Landlord shall supply electricity, heat and air conditioning to the Premises to
the extent and capacity of the existing mains, lines, transformers and panels,
and without additional charge.
ARTICLE VII - INSURANCE
Permittee shall, at its sole cost, purchase and keep in force at all times
during the term hereof a policy or policies of insurance, issued by an insurance
company of generally recognized responsibility, insuring Permittee against all
liability for property damage and personal injury (including death) arising, or
alleged to arise, out of any activity or failure to act of Permittee on, about
or with respect to the Premises. Said policy or policies shall also contain a
contractual liability endorsement expressly covering the indemnification
provisions of this Agreement.
The combined, single limit of liability of the aforesaid policy or policies
shall be not less than one million United States dollars ($1,000,000).
<PAGE> 3
ARTICLE VIII - INDEMIFICATION
Permittee shall protect, defend, and hold Landlord completely harmless from and
against any and all liabilities, losses, suits, claims, judgements, fines, or
demands arising by reason of injury or death of any person or damage to any
property, (including but not limited to attorney fees, court costs, and expert
fees), of any nature whatsoever arising out of or incidental to this Agreement
or the use or occupancy of the Premises, or the acts or omissions of Lessee's
directors, officers, agents, employees, contractors, sub-contractors, or
licensees: however, the above indemnity shall not apply to any injury, death, or
damage caused by the sole negligence or willfull acts of Landlord, its agents,
servants or employees. Landlord shall give reasonable notice of any such claims
or actions. The provisions of this section shall survive the termination of this
Agreement.
ARTICLE IX
Article IX has been deliberately left blank in this Agreement.
ARTICLE X - REMEDIES UPON DEFAULT
After any Event of Default, Landlord may terminate this Agreement by giving
Permittee written notice of such action not less than twenty-four (24) hours
prior to its effect. Such termination shall be without forfeiture, waiver, or
release of any rights of Landlord to take whatever legal or equitable
proceedings Landlord may deem necessary or desirable to collect any fees or
other charges or to enforce any other obligation or covenant of Permittee under
this Agreement or to exercise any other statutory remedies available to
Landlord.
ARTICLE XI - NOTICES
Any request, demand, authorization, direction, notice, consent or waiver
provided or permitted to be made upon, given by, or furnished to, the Landlord
or Permittee shall be sufficient for every purpose hereunder if in writing and
mailed by certified or registered mail, postage prepaid and addressed as
follows:
A. TO LANDLORD AT:
Horry County Department of Airports
ATTN: Director of Airports
1100 Jetport Road
Myrtle Beach, South Carolina 29577
<PAGE> 4
B. TO PERMITTEE AT:
Air South, Inc.
PO Box 11129
Columbia, SC 29211
Either party may change its address or addressee by mailing a notice meeting the
postal requirements of this Article, to the other party, at the other party's
then current address.
ARTICLE XII
Article XII has been deliberately left blank in this Agreement.
ARTICLE XII - EMPLOYEE PARKING
To the extent they currently exist or may exist in the future, Landlord will
make available to Permittee, for non-exclusive use by Permittee's employees
working at the Airport, automobile parking facilities. Landlord may, at any
time, institute a charge for employee parking based upon Landlord's actual costs
of providing, operating, and maintaining such facilities and any associated
transportation services.
ARTICLE XIV - ALTERATIONS TO PREMISES
Permittee shall make no alterations or additions to the Premises without the
prior written approval of Landlord. Nor shall Permittee erect or paint any sign
on the exterior of the Premises, or display any sign through an exterior window
of the Premises, without first obtaining the written approval of Landlord.
ARTICLE XV
Article XV has been deliberately left blank in this Agreement.
ARTICLE XVI - TAXES
All taxes or government-imposed fees in any way consequent upon this Agreement,
or upon any subsequent modification or extension of this Agreement, or upon any
interest created by this Agreement or a subsequent modification or extension of
this Agreement, regardless of how, by whom and when imposed, shall be borne
solely by Permittee. To the extent Landlord shall be required to pay any such
taxes or fees, Permittee shall promptly reimburse Landlord.
<PAGE> 5
Without limiting the generality of the foregoing paragraph, Permittee shall
absorb all sales taxes, if any, assessed or levied on account of any monies
payable by Permittee to Landlord hereunder.
ARTICLE XVII - NO LIENS
Permittee shall keep the Premises and all personal property therein or thereon
free and clear of liens of any kind and shall defend, indemnify and save
Landlord harmless against all costs expenses, loss, loss of use, and damages
resulting from the attempts to file liens against the Premises or the filing of
liens against any personal property therein by any architect, contractor,
subcontractor, laborer, supplier, vendor, or materialman hired by Permittee.
ARTICLE XVIII - RIGHT TO INSPECTION
Landlord shall have the right to enter upon and inspect the Premises during
normal business hours.
ARTICLE XIX - ASSIGNMENT AND SUBLETTING
Permittee shall not assign or transfer any interest in this Agreement, or any
part thereof, without the prior written consent of the Landlord.
ARTICLE XX - COMPLIANCE WITH LAWS AND REGULATIONS
Permittee shall observe and obey, and shall require its employees, suppliers and
business invitees to observe and obey, all present and future, duly-promulgated
laws, ordinances, enactments, orders, rules and regulations relating to use and
occupancy of the Premises and at the Airport.
Permittee agrees to comply conscientiously with the spirit as well as the
wording of all laws and regulations dealing with protection of the environment
and applicable to its operations at the Airport, and, in such regard, Permittee
agrees to prevent the escape of regulated gases under Permittee's control into
the atmosphere and the entry of oil, fuel, glycol, solvents, heavy metals or
other regulated materials under Permittee's control onto Airport property or
into the drainage system of Airport or the drainage system of the surrounding
communities, unless such gases and materials are first properly treated with
equipment installed with the written approval of Landlord for that purpose or
unless such gases and materials are otherwise well within limits prescribed by
applicable laws and regulations. Permittee agrees to indemnify fully and save
and hold Landlord harmless from any and all penalties, losses, liabilities and
costs, including attorneys fees, arising
<PAGE> 6
from Permittee's failure to comply with the requirements of this paragraph, and
will bear all costs, including remediation costs, related to prohibited entry of
such oil, fuel, glycol, solvent, heavy metal or other regulated materials onto
Airport property or into said drainage systems resulting from Permittee's
conduct.
ARTICLE XXI - SURRENDER OF POSSESSION
Permittee shall yield and deliver possession of the Premises to Landlord at the
termination of this Agreement "broom clean" and in good condition, except for
reasonable wear and tear. Permittee shall have the right at any time during the
term to remove those trade fixtures and equipment which were installed or
placed, at Permittee's expense, in the Premises, so long as no damage is
inflicted on the Permitted Premises. Permittee's right to remove its trade
fixtures and equipment is futher subject to any valid lien which Landlord may
have perfected thereon.
ARTICLE XXII - FORCE MAJEURE
Neither Landlord nor Permittee shall be deemed in violation of this Agreement if
either is prevented from performing any of its obligations hereunder by reasons
of strikes, boycotts, labor disputes, embargoes, shortages of materials, acts of
God, acts of the public enemy, acts of superior governmental authority, weather
conditions, floods, riots, rebellions, acts of sabotage, or other circumstances
over which the party has no control. However, this Article shall in no case be
construed to excuse Permittee from paying Landlord any monies due hereunder.
And, in any case where a party believes this Article applies, such party shall
promptly give the other party written notice of that Force Majeure preventing
performance.
ARTICLE XXIII - GOVERNING LAWS
This Agreement shall be governed by and construed in accordance with the laws of
the State of South Carolina.
ARTICLE XXIV - PRIOR AGREEMENTS SUPERSEDED
Any prior agreements between the parties with respect to the Premises, written
and oral, are superseded by this Agreement and hereby made a nullity. This
Agreement constitutes the entire agreement of the parties with respect to its
subject matter and it may not be modified, amended or extended except by a
subsequent instrument executed with the same formalities as this Agreement.
<PAGE> 7
IN WITNESS WHEREOF, the parties hereto have executed these presents as of the
day and year first above written.
ATTEST: FOR LANDLORD:
HORRY COUNTY DEPARTMENT OF AIRPORTS
- - --------------------- -----------------------------------
COUNTY COUNCIL CHAIRMAN
-----------------------------------
DIRECTOR OF AIRPORTS
-----------------------------------
DATE
ATTEST: FOR PERMITTEE:
AIR SOUTH, INC.
/s/
- - --------------------- -----------------------------------
2/20/95
-----------------------------------
DATE
APPROVAL AS TO FORM:
- - ---------------------
AIRPORT ATTORNEY
<PAGE> 8
MYRTLE BEACH JETPORT
NON-SIGNATORY AIRLINE USE PERMIT
THIS USE PERMIT ("AGREEMENT") is made and entered into this the 20th
day of February, 1995 by and between HORRY COUNTY, a corporate body existing
under the laws of the State of South Carolina ("COUNTY") and AIR SOUTH, INC., a
corporation organized and existing under the laws of the State of Illinois
("AIRLINE"),
WITNESSETH
WHEREAS County is the operator of the public-use airport known as the
Myrtle Beach Jetport ("JETPORT") situated in Myrtle Beach, South Carolina; and
WHEREAS, the County operates the Jetport to facilitate commercial
passenger and cargo aircraft operations and service to the Myrtle Beach, Horry
County and Georgetown County, South Carolina area; and
WHEREAS, Airline is engaged in the business of commercial air
transportation of persons, property, cargo, and mail ("AIR TRANSPORTATION"); and
WHEREAS, Airline wishes to commence or continue operating its Air
Transportation business at the Jetport and, in connection therewith to use the
aeronautical facilities and common-use terminal areas of the Jetport ("JETPORT
PREMISES"); and
WHEREAS County has entered long term use and lease agreements with
other airlines concerning the Jetport Premises which impose certain obligations
and liabilities on and confer certain benefits to these other airlines
("SIGNATORY AIRLINES") and has offered Signatory Airline status to Airline; and
Page 1
<PAGE> 9
WHEREAS Airline does not wish to execute a signatory airline use and
lease agreement and become a Signatory Airline;
NOW, THEREFORE, in consideration of the premises and the mutual
promises hereinafter contained County and Airline agree as follows:
1. Jetport-Use. For so long as Airline shall have a space use and/or
ground handling agreement with another entity or entities, including County,
occupying terminal facilities at the Jetport under lease from or permit by the
County and/or providing ground handling services under authority of the County
("GROUND HANDLERS"), Airline shall have the right to operate its Air
Transportation business at the Jetport including the right to: land and take-off
its aircraft; park its aircraft and load and unload its passengers, baggage,
mail and air cargo at locations provided by its Ground Handlers; and do the
other things usual and necessary in the conduct and operation of an Air
Transportation business. Airline shall not conduct any business or commercial
operation from or on the Jetport that is not part of its Air Transportation
business.
2. Term. This Agreement shall be on a month-to-month basis commencing
on the date this Agreement is executed by both Airline and County. Either party
may terminate this Agreement by serving written notice upon the opposite party
at least fifteen (15) days in advance of the effective date of such termination
notice.
3. Use of Terminal Facilities.
(a) So long as Airline is not in default of any obligation hereunder,
Airline shall have the right, in common with other airlines operating at the
Jetport, to use the common-use facilities of the terminal building. Airline's
use of such common-use areas shall be limited to the enplaning and deplaning of
its air passengers and their baggage in connection with the
Page 2
<PAGE> 10
operation of its Air Transportation business. Airline agrees that its use of the
common-use areas shall be subject to the rules and regulations established from
time-to-time by the Horry County Department of Airports, and to the reasonable
directives of the County's Director of Airports or his designee.
(b) Airline acknowledges that it shall have no exclusive, or
preferential leasehold interest in any aircraft parking positions, passenger
hold rooms or loading bridges at the Jetport but that it shall use the
facilities provided by the Ground Handlers, including ticket counter, gate
position and aircraft parking positions at the terminal building.
4. Rents, Fees and Charges. In consideration of its use of the
facilities of the Jetport and the rights granted hereunder, Lessee shall pay
the following rents, fees and charges:
(a) Terminal Common Area Charges. Airline shall pay no rentals directly
to the County for its use of the terminal facilities leased exclusively or
preferentially to its Ground Handlers. Each month during the term of this
Agreement, Airline shall pay directly to the County a charge for use of those
terminal facilities at the Jetport, such as the baggage claiming facilities,
that were used by Airline in common with the Signatory Airlines and other
airlines that month. Said charge shall be calculated in accordance with the then
effective non-signatory joint use formula and rental rates established by County
for such areas.
(b) Landing Fees. For its use of the runways, taxiways and appurtenant
facilities of the airfield, Airline shall pay a landing fee for each and every
aircraft landed by the Airline at the Jetport. The landing fee shall be
determined by multiplying the then current non-signatory Landing Fee Rate,
established by County from time to time, times each 1,000
Page 3
<PAGE> 11
pounds of the total Certified Maximum Gross Landing Weight of each Aircraft
landed by Airline at the Jetport during the month; provided that the product of
such multiplication is greater in each case than the then effective minimum
landing fee payable for each landing at the Jetport. In every case where the
then effective minimum landing fee is greater, Airline shall pay the minimum
landing fee for said landing. "CERTIFIED MAXIMUM GROSS LANDING WEIGHT." means
the maximum gross landing weight certified by the ("FAA") for each aircraft type
operated by Airline at the Jetport.
(c) Security Fees. Each month during the term of this Agreement,
Airline shall pay County as a "SECURITY FEE" a portion of the County's cost of
complying with Federal Air Regulations ("FARs") 107 and 108 ("COUNTY'S FAR
SECURITY COSTS") at the Jetport. Airline's Security Fees shall be calculated by
applying each month to the County's FAR Security Cost the percentage that
Airline's revenue passengers enplaned at the Jetport bore to the total of all
revenue passengers enplaned at the Jetport during the month covered by the
County's FAR Security Costs.
5. Monthly Activity Report. Airline shall furnish to County on or
before the tenth (10th) day of each month, in a format approved by the Director
of Airports, a true report of Airline's operations at the Jetport during the
preceding month setting forth all data necessary to calculate the common area
fees, Landing Fees, and Security Fees due from Airline and/or its Ground
Handlers under this Agreement. This report shall include, but shall not
necessarily be limited to, Airline's total number of landings for the month by
type of aircraft, the Certified Maximum Gross Landing Weight for each of the
aircraft landed at the Jetport for said month, the total number of revenue and
non-revenue passengers enplaned and deplaned at the Jetport for such month, and
the amount of cargo, freight and mail loaded
Page 4
<PAGE> 12
and unloaded at the Jetport for such month. Failure to timely submit any such
report shall be considered an event of default under this Agreement.
6. Payment of Fees and Charges. Following receipt of the monthly
activity report, County shall transmit to Airline a statement of the fees and
charges incurred by Airline during said month and the same shall be paid by
Airline within fifteen (15) days after the receipt of such statement by Airline.
The acceptance by County of any such payment made by Airline shall not be a
waiver of the total amounts due and shall not preclude County from questioning
the accuracy of Airline's report submitted to County.
7. Maintenance. Airline agrees that it will, at its sole cost, promptly
repair or replace any Jetport Premises and other premises of the Jetport damaged
through or by its operations, using materials and workmanship of original
quality. Further, Airline will, at its sole cost, immediately move any of its
aircraft or ground service vehicles when and as requested by the County. County
agrees to maintain and operate the Jetport Premises in such a manner as to keep
them suitable for Airline's use in its Air Transportation business, but nothing
herein contained shall be construed as increasing the liability of the County
over that imposed upon County by federal law or the laws of the State of South
Carolina.
8. Leased Premises. Airline is not granted any possessory interest
in any premises at the Jetport under this Agreement. Such premises as Airline
may occupy or use on an exclusive or preferential-use basis at the Jetport, if
any, will be demised by and in a separate writing.
9. Rules and Regulations. Airline shall comply with all rules and
regulations of County which are now in effect or may hereafter be enacted;
provided that Airline shall have first been given oral or written notice of such
rules and regulations.
Page 5
<PAGE> 13
10. Indemnification. Airline agrees to protect, defend, indemnify, and
hold County, its commissioners, directors, agents, officers and employees
completely harmless from and against any and all liabilities, losses, suits,
claims, judgements, fines or demands arising by reason of injury or death of any
person or damage to any property (including but not limited to attorney fees,
court costs, and expert fees) of any nature whatsoever arising out of or
incidental to this Agreement or Airline's use of or occupancy of the Jetport
Premises or other premises of the Jetport, or the acts or omissions of Airline's
directors, officers, agents, employees, contractors, subcontractors, or
licensees. County shall give reasonable notice of any such claims or actions.
The provisions of this section shall survive the termination of this Agreement
with respect to claims that accrued prior to the termination of this Agreement.
11. Non-liability of County. County shall not be liable for any acts or
omissions of Airline, or its agents, servants, employees or independent
contractors, or for any conditions resulting from the operations or activities
of Airline's agents, servants, employees or independent contractors, either to
Airline or any other person; nor shall County be liable for any loss or damage
to any personal property or equipment of the Airline; excepting only such loss
or damage arising from the sole negligence or willful misconduct of County, its
Commissioners, employees or agents.
13. Insurance. Airline agrees to carry and keep in force a
policy or policies of public liability insurance, with an insurance company or
companies of recognized responsibility, covering the bodily injury and property
damage liabilities that Airline has agreed by this Agreement to hold the
County, its commissioners, directors, agents, officers, and employees harmless
against and to indemnify. Airline agrees to carry and keep in force
Page 6
<PAGE> 14
such insurance with limits of liability for death, personal injury and property
damage in an aggregate sum equal to not less than fifty million dollars
($50,000,000).
A certificate or certificates evidencing such insurance coverage shall
be filed with the County prior to the date Airline commences service to the
Jetport and said certificate or certificates shall provide that such insurance
coverage will not be canceled, reduced or materially changed without at least
ten (10) days prior written notice to the County. At least thirty (30) days
prior to the expiration of any such policy, a certificate showing that such
insurance coverage has been renewed or extended shall be filed with the County.
If such coverage is canceled, reduced or materially changed, Airline shall,
within ten (10) days after receipt of written notice, file with the County a
certificate or certificates showing that the required insurance has been
reinstated or provided through another insurance company or companies.
13. Delinquent Fees. There shall be added to all sums due to County and
unpaid an interest charge of one and one-half percent (1 1/2%) of the principal
sum for each full calendar month of delinquency or eighteen percent (18%) per
annum, computed as simple interest. The payment of any such interest shall not
cure or excuse any default by Airline under the Agreement.
14. Notice. Whenever any notice is required by this Agreement to be
made, given or transmitted to the parties hereto such Notice shall be deemed to
have been given if enclosed in an envelope with sufficient postage attached, and
sent by certified mail, and deposited in the United States mail addressed to:
Page 7
<PAGE> 15
(a) As to County:
Horry County Department of Airports
1100 Jetport Road
Myrtle Beach SC 29577
ATTN: Director of Airports
(803) 448-1580
(b) As to Airline:
Air South, Inc.
P. 0. Box 11129
Columbia, SC 29211
Attn: President
or at such other place as either party shall give the other Notice of.
15. Non-Discrimination. Airline, for itself, its personal
representatives, successors in interest and assigns, as a part of the
consideration hereof, does hereby covenant and agree that:
(a) No person shall be excluded on the ground of race, color or
national origin from participation in, denied the benefits of,
or otherwise be subjected to discrimination in the use of Jetport
Premises
(b) No person shall be excluded on the grounds of race, color or
national origin from participation in, denied the benefits of or
otherwise be subjected to discrimination in the construction of
any improvements on or at the Jetport and the furnishing of
services thereon;
(c) Airline shall use the Jetport Premises in compliance with all
other requirements imposed by or pursuant to Title 49, Code of
Federal Regulations, Department of Transportation Effectuated by
Title VI of the Civil Rights Act of 1964, and as said Regulations
may be amended. Airline agrees to furnish
Page 8
<PAGE> 16
service on a fair, equal and not unjustly discriminatory basis
to all users thereof and to charge fair, reasonable and not
unjustly discriminatory prices for each unit of service.
(d) Nothing herein contained shall be construed to grant or
authorize the granting of an exclusive right and the County
reserves the right to grant to others the privilege and right
of conducting any and all activity of an aeronautical nature.
16. Termination for Cause. County may immediately terminate this
Agreement for nonpayment of fees due or Airline's failure to provide and
maintain required insurance.
Upon termination of this Agreement, Airline's authority to use the
Jetport Premises and other Jetport facilities and the rights herein granted
shall cease and Airline shall cease its operations at the Jetport.
All fixtures, equipment and other property brought, installed, or
placed by Airline in or on the Jetport under this agreement shall be deemed the
personal property of Airline and Airline shall have the right at any time during
the term of this Agreement, and for one (1) month after termination of this
Agreement to remove any of its personal property from the Jetport; provided that
Airline is not then in default in its payments to County hereunder; and subject
to Airline's obligation to repair all damage resulting from its removal of such
personal property. Any and all property not removed by Airline prior to
expiration or the aforesaid one (1) month period, shall thereupon be deemed
attached to the land upon which it is located and title thereto shall thereupon
vest in County. Airline shall pay County the customary rental for any premises
so occupied by Airline's personal property during the one (1) month or the part
thereof after termination of this Agreement.
Page 9
<PAGE> 17
IN WITNESS WHEREOF, each party hereto has executed this Agreement the day and
year written below with all the formalities required by law.
ATTEST: HORRY COUNTY
/s/ Tammy Baxley By: /s/
- - --------------------------- ------------------------------
Its: Director of Airports
-----------------------------
Date: 2/2/95
----------------------------
ATTEST: AIR SOUTH, INC.
/s/ Sharlon C. O'Neal By: /s/
- - --------------------------- ------------------------------
Its: VP Airline OPS
-----------------------------
Date: 2/20/95
----------------------------
APPROVED AS TO FORM:
- - ---------------------------
County Attorney
Page 10
<PAGE> 18
Myrtle Beach Jetport [HORRY COUNTY S.C. LOGO]
1100 Jetport Road Phone (803) 448-1580
Myrtle Beach, South Carolina 29577
DEPARTMENT OF AIRPORTS
January 17, 1995
Mr. Dennis B. Crosby
Vice-President Airline Operations
Air South, Inc.
PO Box 11129
Columbia, SC 29211
RE: RATES AND CHARGES FOR THE MYRTLE BEACH JETPORT
Dear Mr. Crosby:
Enclosed are the costs of space rental, security, ground handling, landing fees,
and fuel servicing for the Myrtle Beach Jetport. Exclusive use space costs
include the square foot costs of construction and maintenance and take into
account air-conditioned or non air-conditioned space. Allocation of 10% of the
common area is divided among five (5) carriers assuming that the American Eagle
space is sublet.
We need you to select your space required, and inform us in writing immediately
to allow for agreements to be drawn, and modifications to the space be
accomplished prior to start of your operations.
Should you need further information or have any questions, please contact me.
Sincerely,
/s/ C.P. Winters
- - --------------------------------------
C.P. Winters
Director of Airports
cc: Mr. Frank Newton, Newton & Assoc.
TC:tb
<PAGE> 19
TERMINAL SPACE COSTS *
Annual Monthly
1. Eastern Space ------ -------
Bag M-Up 657.22SF @ 17.50 $11,501.35 $ 958.45
Office 209.5 SF @ 18.48 3,871.56 322.63
Ticket Counter 312.32 SF @ 18.48 5,771.67 480.97
TOTAL $21,144.58 $1762.05
2. Vacant Unfinished
Bag M-Up 1265.5SF @ 17.50 $22,146.25 $1845.52
Office 396.5SF @ 18.48 7,327.32 610.61
Counter 224.7SF @ 18.48 4.152.46 346.04
TOTAL $33,626.03 $2802.17
3. American-Flagship
Bag M-Up 380SF @ 17.50 $ 6,651.00 $ 554.25
Office 1050.2SF @ 18.48 19,407.00 1617.25
Counter 446.5SF @ 18.48 8,250.96 687.58
TOTAL $34,308.96 $2859.08
4. Common Areas (10%) divided among US Air-Air South-ASA-Comair-MB Jet Express
Bag Claim $ 5,438.30 $ 453.19
Hold Room 8,236.80 686.40
TOTAL $13,675.10 $1139.59
5. Common Areas (90%) divided equally among airlines based on percentage of
enplanements for the month. The 90% divided by percentage is $30,887.78
monthly.
6. SECURITY FEES
Based on salaries of four law enforcement officers.
$84,906 annual
$7,075.50 monthly
Paid by airlines based on percentage of monthly enplanements
*See enclosed sample allocation cost statement for January 1995.
<PAGE> 20
1/10/95 MYRTLE BEACH JETPORT
PASSENGER TERMINAL BUILDING - ALLOCATION OF RENTALS FOR COMMON USE AREAS
CONTRACT RATES THRU JUNE 30, 1995
<TABLE>
<CAPTION>
TOTAL TOTAL RENTAL
SQ. FEET RATE CHARGES PASSENGER TERMINAL BUILDING
- - ---------- ------ ------- ---------------------------
<S> <C> <C> <C> <C>
6,889 21.212 146,130 BAGGAGE CLAIM
5,465 17.502 95,653 BAGGAGE DROPOFF
30,132 BAGGAGE CONVEYOR
------- $ 271,915 TOTAL BAGGAGE CLAIM AREA
4,029 17.502 70,519 AIRSIDE WALKWAY
15,160 21.212 321,575 DEPARTURE LOUNGES
1,128 17.502 19,743 HOLDROOM STAIRS
------- 411,837 TOTAL HOLD ROOM AREA
---------
$ 683,752 /12 = $56,979 (MONTHLY)
===================================================================================================================================
MONTH OF JANUARY, 1995
PRORATION FORMULA FOR BAGGAGE CLAIM AREA: 10% EQUALLY & 90% ENPLANEMENTS
$271,915 / 12 = $22,659.58
$22,659.58 X 90% = $20,393.62 : $22,659.58 X 10% = $2,265.96
: EQUAL TOTAL
PRIOR MONTH ENPLANEMENTS : MONTHLY MONTH
ENPLANEMENTS % ALLOCATION ALLOCATION ALLOCATION AIRLINE
- - ------------ ------ ---------- ----------- ---------- -------
12,985 74.64 $15,221.80 $ 566.49 $15,788.29 USAIR
879 5.05 1,029.88 566.49 1,596.37 FLAGSHIP
3,436 19.75 4,027.74 566.49 4,594.23 ATL. SOUTHEAST
98 .56 114.20 566.49 680.69 COMAIR
------ ------ ---------- --------- ----------
17,398 100.00 $20,393.62 $2,265.96 $22,659.58
PRORATION FORMULA FOR HOLD ROOM: 10% EQUALLY & 90% ENPLANEMENTS
$411,837 / 12 = $34,319.75
$34,319.75 X 90% = $30,887.78 : $34,319.75 X 10% = $3,431.98
: EQUAL TOTAL
PRIOR MONTH ENPLANEMENTS : MONTHLY MONTH
ENPLANEMENTS % ALLOCATION ALLOCATION ALLOCATION AIRLINE
- - ------------ ------ ---------- --------- ---------- -------
12,985 74.64 $23,054.64 $ 858.00 $23,912.64 USAIR
879 5.05 1,559.83 858.00 2,417.83 FLAGSHIP
3,436 19.75 6,100.34 858.00 6,958.34 ATL. SOUTHEAST
98 56 172.97 858.00 1,030.97 COMAIR
------ ------ ---------- --------- ----------
17,398 100.00 $30,887.78 $3,432.00 $34,319.78
SUMMARY
TOTALS AIRLINE
---------- -------
$39,700.93 USAIR
4,014.20 FLAGSHIP
11,552.57 ATL. SOUTHEAST
1,711.66 COMAIR
----------
$56,979.36
==========
</TABLE>
<PAGE> 21
MYRTLE BEACH JETPORT FUEL SERVICING AGREEMENT
This fuel servicing agreement, made and entered into this_______ day
of____________, 19__ by and between Horry County Department of Airports (HCDA)
of the County of Horry in the state of South Carolina and _____________________
___ with its principal office and place of business in _______________________.
WITNESSETH
WHEREAS, HCDA operates the Myrtle Beach Jetport and through its fixed base
operator (FBO) provides airport related fueling services at Myrtle Beach Jetport
(hereinafter called "Airport") and has the ability to provide the necessary
materials and labor to fully accomplish the services hereinafter described or
referenced; and
WHEREAS,_______________________________ desires to have and is relying upon
HCDA to provide all such services as are enumerated in this agreement, its
appendices which are incorporated herein and attached hereto and, if any,
subsequent amendments; and
WHEREAS,_______________________________ conducts regularly scheduled flights to
or from the airport and desires to obtain services at the airport; and
WHEREAS, HCDA shall in accordance with the provisions of this Agreement provide
all such services as specified by _____________________________ at the airport.
NOW, THEREFORE, for and in consideration of the mutual covenants, agreements and
conditions contained in this Agreement and for other good and valuable
consideration, the parties hereto agree as follows:
ARTICLE I
Term and Termination
Section 1.1 - This agreement shall commence as of ___________________________,
through ________________, and continue thereafter on a month-to-month basis if
desired by both parties.
Section 1.2 - ______________________, reserves the right and may exercise such
right within its discretion to terminate and cancel without prior notice this
Agreement in the event that HCDA, in __________________ opinion, is not or
can not perform to _________________________ satisfaction the services and
obligations required of it pursuant to the terms of this Agreement. It is
understood that the effectiveness of this Agreement, is at all times predicated
on ___________________ continuing authority to operate at the Airport.
<PAGE> 22
ARTICLE II
Scope of Service
Section 2.1 - HCDA shall supply to __________________ the materials and services
necessary to accomplish airport fueling services as specified in Appendix A.
Airport fueling services shall include but not be limited to the fueling of
aircraft, management of fuel inventories, quality control, timely completeion
and submission of related management reports. It is agreed and understood that
such materials and services shall include, but not be limited to, provision of
necessary fuel trucks and fuel storage facilities and their maintenance.
Section 2.2 - HCDA agrees to provide adequate and capable supervisory and
working personnel. HCDA agrees to have its personnel trained by ______________
initially in its proper fueling and reporting operations and to designate a
qualified individual to maintain the level of such training.
Section 2.3 - HCDA services shall be available to __________________ seven (7)
days a week with normal operating hours between 0530 and 2200. In emergency
situations or with prior coordination, services will be provided between 2200
and 0530 with charges as stated in Appendix B. _______:_______ shall provide
to HCDA schedules of its flight operations on a monthly basis and changes to
those schedules as they occur from time to time.
Section 2.4 - The services shall be in accordance with the standards of
________________ as outlined in the _________________ fuel manual.
Section 2.5 - All work performed by HCDA shall be in compliance with all rules
and regulations relating to the implementation and operation of this contract
including, but not limited to those federal, state, county and city governments,
their agencies and departments having jurisdiction.
ARTICLE III
Notices
Section 3.1 - Notices by either party shall be made in writing and delivered by
United States mail or in person to the addressees below. Such notices shall be
deemed valid and effective when received.
HCDA: Horry County Department of Airports
1100 Jetport Road -------------------------
Myrtle Beach, SC 29577 -------------------------
ATTN: C.P. Winters -------------------------
<PAGE> 23
ARTICLE IV
Compensation
Section 4.1 - ____________________ shall pay HCDA on a monthly basis for
services rendered at rates specified in Apeendix B. Invoices shall be prepared
monthly and shall be paid within (10) days after receipt. Invoices are to be
sent to:
ARTICLE V
Assignment
Section 5.1 - The parties agree that neither party may assign its interest under
this Agreement without the prior consent of the other party, except that either
party may assign this Agreement to any affiliated company, or any successor to
its business through merger, consolidation, reorganization or voluntary sale or
transfer of substantially all of its assets.
<PAGE> 24
ARTICLE VI
Interpretations and Enforcement
Section 6.1 - Should the appendices of this Agreement be found to conflict with
the body of the Agreement, the Appendices shall prevail.
Section 6.2 - If one portion of this Agreement shall be found to be
unenforceable for any reason, the remainder of the contract shall remain in full
effect.
Section 6.3 - This Agreement shall constitute the entire understanding between
the parties hereto and there are no agreements or understandings whether
written or oral that are not incorporated herein.
IN WITNESS WHEREOF, the parties hereto have affixed their signature and cause
this Agreement to be duly executed as of the date above written.
Executed in the presence of:
-----------------------------------
By:
- - --------------------------- --------------------------------
Title:
-----------------------------
Horry County Department of Airports
By:
- - --------------------------- --------------------------------
Title:
-----------------------------
<PAGE> 25
APPENDIX A
AIRPORT FUELING SERVICE
All work to be performed will be accomplished according to the__________________
fuel manual. The performance of airport fueling services as wen as quality
control, management reports and other work are outlined as follows:
Into Plane Fueling
HCDA shall dispense into ___________________________ aircraft aviation turbine
fuel- Jet A as scheduled and requested by the airline manager or his designee.
All work must be accomplished in a timely manner in order to support on-time
departure goals.
HCDA shall order, receive and maintain aviation turbine fuel - Jet A inventory
from designated suppliers for _________________ operations requirements.
Sufficient fuel is to be received and stored to ensure uninterrupted flight
operations. Work shall be in accordance with the fuel manual.
Inventory receipts shall be received in gross gallons. Disbursements into
aircraft shall also be in gross gallons. Monthly, an inventory report shall
state the book inventory (gross receipts minus gross issues). The month-ending
physical inventory should be compared to the book inventory figure. The
difference shall not be more than one quarter of one percent (.25%) of the gross
issues. The physical ending inventory shall be the new months' beginning
inventory. If the inventory is commingled, a full statement of all participants
will be made with gains/losses shared proportionately to issues.
Oualitv Control
All work shall be done with the strictest and highest standards as outlined in
the Fuel Manual. Quality control of the fuel products shall not be compromised
in any way.
Inspections can be accomplished by ___________________________ Quality
Assurance personnel as required. Such visits can be both scheduled and
unscheduled. HCDA will upon notification of such inspection make all operating
records, facilities, equipment and such other material as may be requested
available to Quality Assurance personnel and shall cooperate fully with such
inspection.
Related Management Reports
In accordance with the fuel manual, certain reports are required of HCDA
including disbursements by flight and aircraft number, receipts, quality control
and such others as are required by __________________________ from time to time.
Audits can be accomplished as required. Such visits can be both scheduled and
unscheduled. HCDA will upon notification of such audit make all inventory
records and
<PAGE> 26
such other material as be requested available to Audit personnel and
shall cooperate fully with such audit.
Aircraft Sumping
If aircraft sumping is required, fuel tanks will be sumped in accordance with
the fuel manual.
Aircraft Defueling
This shall be accomplished in accordance with the fuel manual.
<PAGE> 27
APPENDIX B
FUEL SERVICING FEES
MYRTLE BEACH JETPORT
For all services as outlined in this Agreement, its amendments and appendices by
reference herein, the following fuel servicing fees will be charged:
INTO-PLANE SERVICE - A minimum fee of $20 will be charged each time company
inventory fuel is delivered to a ________________________ scheduled aircraft.
GALLONS SERVICED MONTHLY INTO AIRCRAFTS
Price per Gallon
----------------
0-25,000 $ .10
25,001-50,000 .05
50,000-+ .03
<TABLE>
<S> <C>
MINIMUM MONTHLY INTO-PLANE FEE - (company must provide and maintain their own
fuel inventory in HCDA fuel farm)
A) Companies providing service with Jet aircraft:
*less than an annual average of one aircraft per day $1,000
*1-3 aircraft flights scheduled per day (annual average) 2,500 minimum
*4 or more aircraft flights scheduled per day (annual average) 3,600 minimum
B) Companies providing service with turboprop aircraft: (gross weight of
12,500 lbs or more)
*1-3 aircraft scheduled per day (annual average) $1,000 minimum
*4 or more aircraft scheduled per day (annual average) 2,500 minimum
C) Companies providing service with turboprop aircraft (gross weight under
12,500 lbs)
*1-2 aircraft scheduled per day (annual average) $ 450
*3 or more aircraft scheduled per day (annual average) 850
D) The minimum monthly fee for _____________ is $________________.
</TABLE>
LATE ARRIVALS OR EARLY DEPARTURES
Flights requiring fueling services between 2200 and 0530 a.m. shall incur an
additional charge of $25.00 per hour surcharge, with a minimum charge of 2
hours.
DEFUEL FEE
$.20 per gallon defueled
<PAGE> 28
7. GROUND HANDLING SERVICE
Cost per flight including baggage handling, parking, aircraft cleaning, lavatory
service, catering (water and ice) and 10 year amortization of ground handling
equipment. 1995 Cost per flight per day = $250.00
8. LANDING FEES
Based on maximum gross landing weight of the aircraft - $1.68 per 1000lbs
737-300 = $191.52
737-400 = 203.28
MD80-82 = 218.40
MD80-83 = 234.36
9. FUEL SERVICE
Into-Plane Service
a. Minimum of $20 per airplane serviced
b. Gallon serviced monthly
0-25,000 gals Price .10gal
25,000 - 50,000 gals Price .05gal
50,000 + Price .03gal
c. Minimum monthly into-plane fee*
*See enclosed fuel servicing agreement
<PAGE> 29
[NEWTON & ASSOCIATES, INC. LETTERHEAD]
February 10, 1995
Mr. Dennis Crosby
Air South Inc.
101 Trade Zone Drive
Suite 9A
West Columbia, South Carolina 29170
Re: Space Use Permit;
Myrtle Beach Jetport
Dear Mr. Crosby:
Enclosed are three copies of a Space Use Permit proposed to cover Air South's
occupancy and use, on an exclusive-use basis, of certain space in the Passenger
Terminal at the Myrtle Beach Jetport (i.e., the space last used by Eastern
Airlines' "Metro" affiliate).
This Space Use Permit complements the Non-Signatory Airline Use Permit
previously transmitted, which was (and is) proposed to cover Air South's use of
the common-use facilities of the Jetport, including common-use space in the
Passenger Terminal.
If the enclosed document is in order, please have two copies duly executed on
behalf of Air South and return them to me for subsequent execution on behalf of
Horry County, the operator of the Jetport.
After County execution, I will return one, fully-executed copy of the Space Use
Permit to you for Air South's files. Pending that, you may wish to keep the
third copy in your files for reference purposes.
Very truly yours,
/s/ Brendan P. Carmody
- - ----------------------------
Brendan P. Carmody
Vice President
cc: C.P. Winters - HCDA
Todd Crawford - HCDA
Emma Ruth Brittain, Esq. - HCDA
<PAGE> 1
EXHIBIT 10.20
AIRPORT USE AGREEMENT
(Consolidated as of February 1, 1991)
Between
The
CITY OF ATLANTA
and
AIR SOUTH, INC.
At
The William B. Hartsfield
Altanta International Airport
Atlanta, Georgia
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ARTICLE TITLE PAGE
- - ------- ----- ----
<S> <C> <C>
I. Definitions 2
II. Term 4
III. City to Maintain and Operate Airport 4
IV. Rights and Privileges 4
V. Right to Purchase Materials and Services 6
VI. Basic Landing Fee 7
VII. Field Improvements Landing Fees 8
VIII. Land Rentals 12
IX. Uniform Application of Landing Fees 14
X. Revised Field Improvements in Basic Landing Fees 15
XI. Rules and Regulations 15
XII. Indemnity 16
XIII. Insurance 16
XIV. Assignment 17
XV. Airport Operation in the Public Interest 18
XVI. Airport Revenues to be used for Airport Purposes 18
XVII. Termination by the City 19
XVIII. Termination by the Airline 20
XIX. Termination Notices 20
XX. Continued Performance not a Waiver 21
XXI. Invalid Provisions 21
XXII. Notices, Consents, and Approvals 22
</TABLE>
<PAGE> 3
TABLE OF CONTENTS continued - Page 2 of 2
ARTICLE TITLE PAGE
- - ------- ----- ----
XXIII. Termination of Other Agreements 23
XXIV. Land Use Plan for Existing Airport Approved 23
XXV. Audits by Airlines 23
XXVI. Security Violations 24
Appendix I Authorizing Resolution (Reference page 2)
Schedule I 1967-72 Airfield Improvements Program
W/Exhibits A, B, and C (Reference page 8)
Schedule II Revised Field Improvements (FY-66 Program)
(Reference page 15)
Addendum To The
Airport Use Agreement Field Improvement Landing Fees
(Reference page 8 & 10)
<PAGE> 4
AIRPORT USE AGREEMENT
GEORGIA. . . . . .FULTON COUNTY
THIS AGREEMENT, made and entered into on the _____ day of
_______________, 1994, by and between the CITY OF ATLANTA, a municipal
corporation of said state and county, hereinafter referred to as the "City,"
and AIR SOUTH, INC., a corporation organized and existing under and by virtue
of the laws of the State of Illinois, hereinafter referred to as the "Airline,"
W I T N E S S E T H T H A T:
WHEREAS, the City owns and operates an airport known as the William B.
Hartsfield Atlanta International Airport ("Airport"), located partially in
Fulton County and partially in Clayton County, Georgia; and
WHEREAS, the Airline is engaged in the business of air transportation
with respect to persons, property, and mail; and
WHEREAS, the Airline desires to conduct its business at the Airport
under an Airport Use Agreement identical to that Agreement now in effect
between the City and the existing Atlanta Airlines dated February 3, 1967, as
amended through Amendment No. 6 dated April 1, 1982, as termed the
"Consolidated Airport Use Agreement", and further amended by Amendment No. 1 to
the Consolidated Airport Use Agreement; and
<PAGE> 5
WHEREAS, this Agreement has been made identical to the said existing
Airport Use Agreements by incorporating into one consolidated document the said
original Airport Use Agreement dated February 3, 1967, and all six amendments
thereto, and Amendment No. 1 to the Consolidated Airport Use Agreement; and
WHEREAS, the execution of this Agreement on the part of the City has
been authorized by the Council of the City by resolution adopted
_______________ and approved _______________________, a copy of same being
attached hereto as Appendix I and made a part hereof by reference.
NOW, THEREFORE, FOR AND IN CONSIDERATION of the premises and mutual
covenants and agreements herein contained, the parties hereto do hereby agree,
each for itself and its successors and assigns, as follows:
I. DEFINITIONS
The phrases set forth below, for the purposes of this Agreement, shall
have the following meanings:
Basic Landing Fee. The basic charge made by the City against each of
the Atlanta Airlines as a landing fee, based upon the rate of Sixteen Cents
($0.16) per 1,000 pounds of the Federal Aviation
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Administration Maximum Certificated Gross Landing Weight of the aircraft at the
Airport.
Initial Field Improvements Landing Fee. The pro-rata annual charge
made by the City against each of the Atlanta Airlines as a Field Improvements
Landing Fee, designed to cover the City's costs of the 1967-72 major airfield
improvements program, approved by a Majority In Interest of the Atlanta
Airlines, and pro-rated among the Atlanta Airlines on the basis of their
respective Basic Landing Fees.
Additional Field Improvements Landing Fee. The pro-rata annual charge
made by the City against each of the Atlanta Airlines as a Field Improvements
Landing Fee, designed to cover the City' costs of all major airfield
improvements, other than the 1967-72 major airfield improvements program,
approved by a majority in interest of the Atlanta Airlines, and pro-rated among
the Atlanta Airlines on the basis of their respective Basic Landing Fees.
Atlanta Airlines. All of the airlines serving the Atlanta Airport now
or in the future who hold certificates from the Civil aeronautics Board, or its
successor, and who have entered into an Airport Use Agreement to transport
passengers, mail, and property to and from the Airport on a regularly scheduled
basis.
Majority In Interest of the Atlanta Airlines. Any four or more of the
Atlanta Airlines which together paid at least ninety percent (90%) of the total
Basic Landing Fees during the preceding twelve (12) month period.
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<PAGE> 7
II. TERM
The rights and privileges granted under this instrument shall be
effective as of the 15th day of August, 1994, and ending on the 21st day of
September, 2010.
III. CITY TO MAINTAIN AND OPERATE AIRPORT
The City shall maintain and keep in good repair the Airport, its
appurtenances, facilities, and services and shall maintain and operate the
Airport in all respects in a manner at least equal to generally accepted
standards for other airports in the United States of similar size and
character.
IV. RIGHTS AND PRIVILEGES
The Airline shall have the right in common with others to use the
Airport and appurtenances, together with all facilities, improvements,
equipment, and services of the Airport, not exclusively leased to others, and
the right of free ingress and egress to, from, and over said Airport, and any
and all roads which the City controls leading thereto and therefrom, which
rights shall be for the benefit of the Airline, its employees, passengers,
suppliers of materials, furnishers of services, patrons, and invitees.
In its use of the Airport, the Airline and its employees may use, in
common with other licensees and lessees at the Airport and their employees, any
vehicular parking spaces which may be designated by Airport management for the
use of such persons; and the
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<PAGE> 8
Airline shall have the right, in any premises leased by it from the City, or
otherwise available for such purposes, in common with others to locate,
maintain, and operate full aircraft servicing facilities, storage space for
aircraft, equipment, machinery, and any and all other materials necessary for
the conduct of its business, repair shops for the repairing and servicing of
its aircraft, engines, run-up stands, instruments, propellers, accessories, and
other machinery, tools, automobiles, trucks, tractors, and any and all other
facilities and equipment as may be needed or used by the Airline in the conduct
of its business, a general office, and any other facilities necessary or
convenient to the operation of an air transport business.
The Airline shall have the right to exchange, dispose of and sell third
parties such of its equipment, machinery, supplies, parts, and any other
materials held or used for purposes of the conduct of its business, when the
same shall not be needed in the operation of that business; provided that such
exchange, sale, or disposition shall not be construed as authorizing the
conduct of a separate business by the Airline. In addition to the servicing of
its own aircraft, the Airline shall have the right to service, handle, or
maintain the aircraft of other regularly scheduled air carriers, when such
servicing, handling, or maintenance shall be performed pursuant to an agreement
between the Airline and such other carrier for a mutual exchange of such
services; but this provision shall not be construed to grant to the Airline any
right or privilege to conduct an independent business in the nature of a fixed
base operator. Further, the Airline shall have the right, consistent with the
public safety, to train its own personnel,
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<PAGE> 9
personnel of other regularly scheduled air carriers, and personnel of the
United States Government.
The privileges granted in the preceding paragraphs are subject to and
contingent upon the existence of adequate and suitable space within the
confines of the Airport, which now or in the future may be available for any
given use. For this purpose, the City shall not maintain an unreasonable or
arbitrary position as to the availability of space for the uses requested.
V. RIGHT TO PURCHASE MATERIALS AND SERVICES
Materials or services may be purchased or otherwise obtained by the
Airline from any person, firm, corporation, or other legal entity, of its
choice, and no charge, fee, or toll, and no unreasonable or discriminatory
limitations or restrictions shall be imposed by the City, directly or
indirectly, against the Airline, its suppliers of materials or furnishers of
services (except business licenses generally imposed by the City for doing
business in the City and charges imposed for direct services furnished by way
of water, sewer, and garbage), for furnishing personal property to the Airline
or for selling personal property or services to the Airline, for purchasing,
using, consuming, or storing personal property for the Airline or for selling
personal property to, or withdrawing, handling, transporting, picking up,
delivering, loading or unloading air freight or any cargo or personal property
for or to the Airline.
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<PAGE> 10
VI. BASIC LANDING FEE
At the inception of this Agreement, the Airline shall pay to the City
each month a Basic Landing Fee computed at the rate of Sixteen Cents ($0.16)
per 1,000 pounds of the Federal Aviation Administration (or its successor
agency) Maximum Certificated Gross Landing Weight of each aircraft scheduled to
land at the Airport during such month as shown in the time tables of the
Airline on file with the Civil Aeronautics Board (or its successor agency) as
of the first day of such month. Cancellations, extra sections, and any other
landings shall not be taken into account when computing the Basic Landing Fee.
In any event, for the purposes of the Basic Landing Fee, the minimum
charge per aircraft landing shall be Six and No/100ths Dollars ($6.00).
The Basic Landing Fee shall be due and payable on or before the 15th
day of the month for which it is due, or within ten (10) days following the
billing by the City, whichever may be later. The Airline will furnish to the
City appropriate data necessary to compute the Basic Landing Fee for the month.
The Basic Landing Fee is now being renegotiated with the Atlanta
Airlines and is subject to change during the remaining period of this
Agreement. The Airline hereby agrees to pay any Basic Landing Fee resulting
from such negotiation beginning on receipt of notice from the City's Aviation
General Manager.
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<PAGE> 11
VII. FIELD IMPROVEMENTS LANDING FEES
With respect to the major airfield improvements which the City
undertook with the approval of a Majority In Interest of the Atlanta Airlines
and substantially completed under the 1967-72 Airfield Improvements Program (a
copy of which is attached hereto as Schedule I), as amended, the City issued
Airport Revenue Bonds and established a Field Improvements Landing Fee which,
from the effective date of said Amendment No. 6, has been designated and shall
continue to be designated hereunder as the annual Initial Field Improvements
Landing Fee. Such annual Initial Field Improvements Landing Fee shall be
determined at all times by use of the following procedure:
(a) Multiply the City's costs of said improvements by the average amount
required for annual principal and interest payments on the said Airport Revenue
Bonds issued in connection with the 1967-72 Airfield Improvements Program; and
(b) Divide the product obtained in (a) above by the principal amount of the
bond issue referred to in (a) above; and
(c) Multiply the quotient obtained in (b) above by one and one-third (1&1/3)
representing the debt service coverage required; and
(d) At the inception of this Agreement, Initial Field Improvement Landing Fees
shall be paid in accordance with the "Addendum To The Airport Use Agreement"
attached hereto and made a part hereof by reference; thereafter, the City shall
allocate annually to the Airline a portion of the product obtained in (c) above
based upon the ratio of the Basic Landing Fees paid by the Airline during the
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<PAGE> 12
twelve (12) month period immediately preceding May 1 of each year to the total
Basic Landing Fees paid by all of the Atlanta Airlines during that period. The
Airline's proportionate share of said annual Initial Field Improvements Landing
Fee shall be paid in equal monthly installments, in advance, during the period
that the City's Airport Revenue Bonds issued to finance the 1967-72 major
airfield improvements remain outstanding, subject to any credits provided for
in said Agreement as amended.
With respect to other major airfield improvements (including
acquisition of land and site preparation thereof for a second air carrier
airport for the Atlanta area), for which annual Additional Field Improvements
Landing Fees are required, the City shall submit to the Atlanta Airlines a
summary of each proposed airfield improvement and justification therefor and, if
a Majority-In-Interest of the Atlanta Airlines approve the proposed
improvement, the City will then undertake to diligently accomplish said
improvement in accordance with said proposal and all terms, conditions, and
provisions attendant thereto. The Airline agrees to pay its proportionate
share of the City's costs of such approved improvement in the form of an annual
Additional Field Improvements Landing Fee. Such annual Additional Field
Improvements Landing Fee shall be determined by use of the following procedure:
(a) Determine the City's net cost of said improvement(s), including
architectural, engineering and inspection fees; amounts paid for materials,
equipment, labor and services; insurance and performance bonds; fees and
expenses associated with the issuance of Airport Revenue Bonds; and any
interest on such bonds which has been capitalized during the period of design
and construction of such
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<PAGE> 13
improvement(s); less credits for interest earned or accrued on the various bond
funds utilized to finance said improvement(s) between the date of delivery of
the bond proceeds and the date of beneficial use of the improvement(s) and any
capitalized interest on the bonds issued to finance said improvement(s) on hand
as of said date; and
(b) The City's said net cost of such improvement(s) shall be recovered by
the City by multiplying such cost by the factor representing (i) the City's
actual average annual interest cost on such bonds and (ii) the repayment of
principal and interest on a level debt basis with monthly payments in advance
over the period commencing as of the date of beneficial use of the
improvement(s) or on the date that the City is required to begin sinking fund
principal payments, whichever is earlier, and ending as of September 20, 2010;
and
(c) Multiply the product obtained in (b) above by 1.20 (120%) representing
the debt service coverage required; and (d) At the inception of this Agreement,
Additional Field Improvement Landing Fees, shall be paid in accordance with the
"Addendum To The Airport Use Agreement" attached hereto and made a part hereof
by reference; thereafter, the City shall allocate, annually, to the Airline a
portion of the product obtained in (c) above based upon the ratio of the Basic
Landing Fees paid by the Airline during the twelve (12) month period
immediately preceding May 1 of each year to the total Basic Landing Fees paid
by all of the Atlanta Airlines during that period.
Said annual Additional Field Improvements Landing Fees shall be paid in
equal monthly installments, in advance, commencing on the date such
improvements are ready for beneficial use or on the date
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on which the City is required to begin sinking fund principal payments,
whichever is earlier, and the City shall give written notice of such date to
the Airline.
The City covenants and agrees to use its best efforts to obtain all
possible financial aid from any and all federal and state sources from which
such aid might be or become available to assist in the financing of
improvements, including land acquisition, provided for hereunder. All
financial aid received by the City, which is based upon and attributable to all
or part of the projects provided for hereunder, shall be held in trust for the
Atlanta Airlines by the City of Atlanta. The Commissioner of Finance, acting
on behalf of the City of Atlanta, shall be authorized to make disbursements in
whole or in part, as requested by the Airline, from the Airline's pro-rata
share of funds held in escrow for the Atlanta Airlines. Disbursement shall be
made by the Commissioner of Finance not later than twenty-one (21) days after
receiving an official written request from the Airline, specifying any of the
following disbursements:
1. Credit toward the payment of Field Improvements Landing Fees;
2. Credit toward construction costs of any project at Hartsfield Atlanta
International Airport; or
3. Direct return to the Airline.
Funds held in escrow shall be pro-rated among the Atlanta Airlines then
serving the Airport in the same pro-ration upon which Additional Field
Improvements Landing Fees are paid in the year in which said aid is received.
Interest shall be computed, as of the end of the last month prior to receiving
said written request, by multiplying the total interest yield, expressed as a
percent, by the
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Airline's pro-rated share of escrowed funds.
Each additional airfield improvement program agreed to hereunder will
include an agreement as to Minority and Female Business Enterprise
participation in such airfield improvement program.
The Field Improvements Landing Fees payable by the Atlanta Airlines shall
be subject to such credits as may be allowable from time to time under the
provisions of this Agreement.
VIII. LAND RENTALS
With respect to land rentals of properties acquired, in the cost of which
the Atlanta Airlines participate as contemplated in Article VII of this
Agreement, where any such property is leased to one of the Atlanta Airlines,
the annual land rental shall be fixed at 8% of the City's average net direct
cost per acre of the property (as that term is hereinafter defined). The term
"the property" as used in this paragraph shall mean all property acquired under
the Airfield Improvements Program which is current on the execution date of the
lease (e.g., for purposes of a lease executed during 1971, reference would be
made to properties acquired under the 1967-72 Airfield Improvements Program).
Such average net direct cost shall be determined on the basis of (a) the price
of the fee simple title, (b) plus the direct expense of acquisition, (c) plus
or minus the cost or credit resulting from the razing of any structures on the
property, (d) less Federal or State Grants, all as finally determined. Pending
such final determination, the land rental shall be an estimated figure
determined by the City upon a reasonable basis. At such time as the said
average net direct cost becomes known, final calculation of the land rental
shall be made; and an immediate
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adjustment between the parties shall be effected so as to accomplish payment of
the proper rental.
Should the City lease any such property to a party other than one of the
Atlanta Airlines, the annual land rental charged shall be not less than the
amount which would be charged to an Atlanta Airline.
The provisions of this Article, with respect to the rental rates to be
charged, shall not be applicable to those circumstances in which areas may be
leased for a period of less than one year, provided there is no option to renew
such lease. It is contemplated that from time to time some party may wish to
have the use of a particular area for a short period and be unwilling to pay
for that short period the minimum rate specified above.
Any and all net rentals received by the City from such properties shall be
credited against the Field Improvements Landing Fees payable by the Atlanta
Airlines under the provisions of Article VII of this Agreement. The total
credit thus developed shall be apportioned among the respective Atlanta
Airlines in the same proportional as the ratio of the Basic Landing Fees paid
by each during the preceding twelve-month period bears to the total of all
Basis Landing Fees paid by the Atlanta Airlines during such period. It is
expressly agreed that all credits based on land rentals of properties acquired
under the 1967-72 Airfield Improvements Program, as amended, shall be applied
against Field Improvements Program Landing Fees during the period that the
City's Airport Revenue Bonds issued to finance the 1967-72 Airfield
Improvements Program remain outstanding or April 30, 1999, whichever is later;
provided, however, that in no event shall such credits for any year exceed the
amount
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of the Field Improvements Landing Fees due for such year.
IX. UNIFORM APPLICATION OF LANDING FEES
The City covenants that, during the term of this Agreement, and to the
extent that it is legally empowered to assess such charges, it will charge
landing fees with respect to all aircraft landing, whether such be scheduled or
non-scheduled, other than those covered by this Agreement and those covered by
similar agreements with other Atlanta Airlines, on a basis similar to that
provided in Article VI of this Agreement, i.e., at a rate not less than Sixteen
Cents ($0.16) per 1,000 pounds of landing weight of the aircraft, which landing
fee rate shall be increased so as to include the rates applicable to such
Initial and Additional Field Improvements Landing Fees as may be payable by the
Atlanta Airlines pursuant to Article VII hereof, and which rate also may be
increased by the City, with a minimum charge in each instance to be set by the
City in an amount of at least Six and no/100ths Dollars ($6.00). The
provisions of this Article shall not be applicable to aircraft operated by the
United States Government or any subdivision thereof.
That portion of the landing fees collected by the City pursuant to this
Article IX attributable to the Initial or Additional Field Improvements Landing
fee rates shall be credited against the Initial and Additional Field
Improvements Landing Fees payable by the Atlanta Airlines under the provisions
of Article VII of this Agreement. The total credit thus developed shall be
apportioned among the Atlanta Airlines in the same proportion that the ratio of
the total Basic Landing Fees paid by each during the preceding twelve-month
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period bears to the total of all Basic Landing Fees paid by all of the Atlanta
Airlines during such period.
X. REVISED FIELD IMPROVEMENTS IN BASIC LANDING FEES
The Atlanta Airlines have approved thirteen (13) specific projects as
described in Schedule II which is attached hereto and made a part hereof, same
being entitled "Revised Field Improvements (Including FY-66 Program)" and
showing the City's total cost of those improvements to be $7,424,480.00. The
Basic Landing Fees set forth in this Agreement include the Airline's
participation in the City's cost of those improvements and no additional
landing fees are to be charged by reason thereof.
XI. RULES AND REGULATIONS
The City may adopt and enforce reasonable rules and regulations, which
the Airline agrees to observe and obey, with respect to the use of the Airport
and appurtenances, together with all facilities, improvements, equipment, and
services of the Airport, not exclusively leased to others, for the purpose of
providing for the safety of those using the same; and the City may adopt
reasonable rules and regulations, which the Airline agrees to observe and obey,
with respect to the use of the other areas and facilities of the Airport, in
the interest of health, safety, sanitation, good order, and preservation of the
same; provided that such rules and regulations shall be consistent with safety
and with rules, regulations, and orders of the Federal Aviation Administration
with respect to
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aircraft operations at the Airport; and provided, further, that such rules and
regulations shall not be inconsistent with the provisions of this Agreement, or
other agreements with the Airline at the Airport, or the procedures prescribed
or approved from time to time by the Federal Aviation Administration with
respect to the operation of the Airline's aircraft at the Airport.
XII. INDEMNITY
The Airline shall indemnify and hold harmless the City against any and
all claims of every kind or character growing out of the negligent acts or
omissions of the Airline, its agents, or employees, in the exercise of the
rights and privileges granted to it hereby, whether such claims shall arise
from or be based upon injuries to persons (including death), or damages to
property; provided that the City shall give the Airline prompt notice of any
claim, damage or loss, or action in respect thereto, and an opportunity to
investigate and defend against any such claim or action.
XIII. INSURANCE
The Airline shall carry public liability insurance with responsible
insurance underwriters, having duly designated agent in agents in Georgia upon
whom process in any suit or action or other proceedings in courts of the State
of Georgia or of the United States may be served, insuring the Airline against
liability for injuries to persons (including wrongful death) and damages to
property caused by the Airline's negligent acts or omissions in the exercise
of the rights and privileges granted hereby, or otherwise
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caused by the negligence of the Airline in or about the said runways and
taxiways, the policy limits thereof to be in the amount of not less than Two
Hundred Thousand Dollars ($200,000.00) for any one person, and in the amount of
not less than One Million Dollars ($1,000,000.00) for any one accident
involving injury (including wrongful death) to more that one person, and in the
amount of not less than Two Hundred Thousand Dollars ($200,000.00) for property
damage resulting from any one accident. The Airline shall furnish the City
with certificates of insurance issued by the insurance underwriters evidencing
the existence of valid policies of insurance as aforesaid. Such certificates
shall state that the coverage will not be amended so as to decrease the
protection below the limits specified therein or be subject to cancellation
without adequate notice to the City.
XIV. ASSIGNMENT
The Airline shall not assign or transfer this Agreement or any right or
interest granted to it by this Agreement without the consent of the City (which
consent may be withheld in the sole discretion of the City); provided, however,
that the Airline may assign and transfer this Agreement, without such consent,
in its entirety to a parent corporation, a subsidiary corporation, or a
successor corporation. As used in this Article XIV "parent corporation" means
a corporation holding 50% or more of the Airline's outstanding voting stock,
"subsidiary corporation" means a corporation of whose outstanding voting stock
the Airline owns 50% or more, and "successor corporation" means a corporation
acquiring substantially
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all of the Airline's assets.
XV. AIRPORT OPERATION IN THE PUBLIC INTEREST
In the exercise and performance of its powers and duties under the
Uniform Airports Law, the City recognizes and declares that the Airport is
being operated and maintained in the public interest, for the public
convenience and necessity, and hereby declares its intention to encourage and
develop air transportation for the citizens of Georgia and in particular for
the citizens of the vicinity of Atlanta, and to that end pledges the
maintenance, use, and operation of the Airport for public, governmental, and
municipal purposes.
XVI. AIRPORT REVENUES TO BE USED FOR AIRPORT PURPOSES
The City agrees that the Fifty Percent (50%) of net Airport revenues
formerly allowed by ordinances to be used for any general City corporate
purpose will during the term hereof be used for the following purposes only:
(a) To pay the principal of and the interest on City of Atlanta
Special Purpose Airport Revenue Bonds dated October 1, 1958, to the extent
permitted or required by the ordinance adopted September 9, 1958, to authorize
their issuance.
(b) To pay the cost of extensions and improvements to or equipment for
airport facilities owned by the City of Atlanta, including special purpose
facilities and facilities to be acquired or constructed at a new or additional
airport or to create a fund for that purpose.
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(c) to pay the principal of and the interest on or to retire any
general obligation bonds, revenue certificates, revenue bonds, or other
obligations issued for airport purposes.
XVII. TERMINATION BY THE CITY
The City, in addition to any right of termination or any other right
herein granted to it or accruing to it by operation of law, may declare this
Agreement terminated in its entirety upon the happening of any one or more of
the following events and may exercise all rights of entry and re-entry upon all
of the premises exclusively leased to the Airline:
1. If the rentals, fees, charges, or other money payments which the
Airline hereto agrees to pay, or any part thereof, shall be unpaid on the date
the same shall become due; or
2. If the Airline shall file a voluntary petition in bankruptcy, or
make a general assignment for the benefit of creditors; or
3. If any act occurs which operates to deprive the Airline
permanently of the rights, power, and privileges necessary for the proper
conduct and operation of its business; or
4. If the Airline abandons service to the Airport for sixty (60)
days or more, except when such abandonment and cessation is due to fire,
earthquake, strike, governmental action, default of the City, or any other cause
beyond its control; or
5. If any of the covenants or agreements contained herein shall be
breached by the Airline.
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XVIII. TERMINATION BY THE AIRLINE
The Airline, in addition to any right of termination or any other right
herein granted to the Airline or accruing to it by operation of law, may
terminate this Agreement in its entirety upon or after the happening of any one
of more of the following events:
1. If any act occurs which operates to deprive the Airline of the
rights, power, and privileges necessary for the proper conduct and operation of
its business; or
2. The breach by the City of any of the covenants or agreements
herein contained; or
3. The continued failure or refusal by the City, after thirty (30)
days prior written notice to the city, to maintain and operate in a reasonably
satisfactory manner the public aircraft facilities at the Airport; or
4. The continued operation at the Airport, after thirty (30) days
prior written notice to the City, of types of air traffic other than commercial
airline traffic to the extent that use of the Airport by commercial airline
traffic is substantially impaired or restricted; or
5. If the Airline abandons service to the Airport for sixty (60) days
or more.
XIX. TERMINATION NOTICES
Notwithstanding anything to the contrary in this Agreement contained, no
termination declared by either party shall by effective unless and until not
less that thirty (30) days shall have
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elapsed after written notice to the other specifying the date upon which such
termination shall take effect and the cause for which it is being terminated
(and, if such termination is by reason of a default under this Agreement,
specifying such default with reasonable certitude); and no such termination
shall be effective if such cause shall have been cured or obviated during such
thirty (30) day period; or, in the event that such cause is a default under this
Agreement which by its nature cannot be cured within such thirty (30) day
period, such termination shall not be effective if the party at fault commences
to correct such default within said thirty (30) day period and corrects the same
as promptly as reasonably practicable.
XX. CONTINUED PERFORMANCE NOT A WAIVER
Continued performance by either party hereto pursuant to the terms of
this Agreement after a default of any of the terms, covenants, or conditions
herein contained to be performed, kept, or observed by the other party hereto
shall not be deemed a waiver of any right to cancel this Agreement for such
default, and no waiver of any such default shall be construed or act as a
waiver of any subsequent default.
XXI. INVALID PROVISIONS
It is understood and agreed by and between the Airline and the City that
if any covenant, condition, or provision contained in this
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Agreement is held to be invalid by any court of competent jurisdiction, or
otherwise appears to the Airline and to the City to be invalid, such invalidity
shall not affect the validity of any other such covenant, condition, or
provision herein contained, provided that the invalidity of any such covenant,
condition, or provision does not materially prejudice either the City or the
Airline in their respective rights and obligations contained in the remaining
valid covenants, conditions, or provisions of this Agreement.
XXII. NOTICES, CONSENTS, AND APPROVALS
All notices, consents, and approvals required or authorized by this
Agreement to be given by or on behalf of either party to the other shall be in
writing and signed by a duly authorized representative of the party by or on
whose behalf they are given.
Notices to the City shall be addressed to it at the Office of the
Aviation General Manager at the Airport and delivered either by hand or by
registered or certified mail, postage prepaid, or at such other place as the
City may hereafter designate by notice to the Airline in writing.
Notices to the Airline shall be addressed to it and delivered at the
following address:
Air South, Inc.
1800 St. Julian Place, Suite 400
Columbia, SC 29204
-22-
<PAGE> 26
either by hand or registered or certified mail, postage prepaid, or at such
other office in the continental United States as it may hereafter designate by
notice to the City in writing.
XXIII. TERMINATION OF OTHER AGREEMENTS
Upon the effective date of this Agreement, any and all other agreements
heretofore entered into by and between the City and the Airline, insofar as the
same relate to the use of the runways and taxiways at the Airport and the tolls
and landing fees to be paid therefor, shall stand terminated and cancelled.
XXIV. LAND USE PLAN FOR EXISTING AIRPORT APPROVED
The parties hereto do hereby agree in principle to the Airport Land Use
Plan as presented by Drawing No. 75100-512-007 of the Atlanta Airport Engineers,
dated July 1978, a copy of which is on file in the office of the City's Aviation
General Manager. Said plan is further acknowledged to be the guide for the City
and the Atlanta Airlines in the proposed development of the existing Airport.
XXV. AUDITS BY AIRLINES
The city shall keep complete and adequate books and records concerning
all matters which are the subject of this Agreement, and
-23-
<PAGE> 27
the Atlanta Airline shall be entitled to audit same, at their expense, and
shall have access during normal working hours to all such books and records
(including, without limitation, accounts, ledgers, and schedules) as are related
to the subject matter of this Agreement (including, without limitation, any
Field Improvement project costs, land rentals, landing fees, grants, fees, and
credits).
XXVI. SECURITY VIOLATIONS
In the event that any violations of Federal regulations, including but
not limited to unauthorized runway crossings, are committed by the Airline's
employees, agents, guests, invitees, or any other person who gains access to
restricted areas of the Airport by means of the Airline's Leased Premises on the
Airport, which violations subject the City to fines imposed by the Federal
Aviation Administration pursuant to such regulations, then in such event Airline
hereby covenants and agrees to reimburse City fully for such fines promptly upon
receipt of demand therefor from the City.
-24-
<PAGE> 28
IN WITNESS WHEREOF, the parties, acting by and through their duly
constituted officials and officers, have caused their respective seals to be
hereunto affixed on the day and year first above written.
ATTEST: CITY OF ATLANTA (SEAL)
by
- - ---------------------- --------------------------------
Municipal Clerk Mayor
ATTEST: AIR SOUTH, INC. (SEAL)
/s/ by /s/
- - ---------------------- --------------------------------
Assistant Secretary President
APPROVED AS TO INTENT:
- - -------------------------
Aviation General Manager
APPROVED AS TO FROM: RECOMMENDED:
- - ------------------------- --------------------------
Assistant City Attorney Chief Operating Officer
-25-
<PAGE> 29
A RESOLUTION
BY TRANSPORTATION AND FINANCE COMMITTEES
A RESOLUTION AUTHORIZING THE MAYOR TO
EXECUTE AN AIRPORT USE AGREEMENT WITH
AIR SOUTH, INC., COVERING THE USE OF
COMMON AREAS AND FACILITIES AT THE
HARTSFIELD ATLANTA INTERNATIONAL AIRPORT.
WHEREAS, Air South, Inc., is planning to provide regularly scheduled
airline service from Atlanta to Columbia, SC, Miami, FL, and St. Petersburg, FL;
and
WHEREAS, Air South, Inc., desires to enter into an Airport Use Agreement
substantially identical to the Use Agreements between the City and other
domestic carriers serving the Airport, as heretofore amended; and
WHEREAS, it is in the best interest of the Airport and the City to enter
into an Airport Use Agreement with Air South, Inc., as hereinafter set forth.
NOW THEREFORE, BE IT RESOLVED BY THE COUNCIL OF THE CITY OF ATLANTA that
the Mayor be and he hereby is authorized to execute on behalf of the City of
Atlanta an Airport Use Agreement with Air South, Inc., which shall contain the
following terms, conditions, and provisions:
1) a term effective as of August 15, 1994 and ending September 21,
2010, so as to expire on the same date as all other Airport Use
Agreements at Hartsfield Atlanta International Airport; and
2) containing substantially the same terms, conditions, and
provisions set forth in an Airport Use Agreement identical to that
Agreement now in effect between the City and the existing Atlanta
Airlines dated February 3, 1967, and amended six times,
heretofore, the last being Amendment No. 6 dated April 1, 1982, as
termed the "Consolidated Airport Use Agreement", and further
amended by Amendment No. 1 to the Consolidated Airport Use
Agreement; and
3) such other terms, conditions, and provisions as may be required by
City ordinances or Federal regulations or as are customarily
included in similar agreements at the Airport.
BE IT FURTHER RESOLVED that the City Attorney be and he hereby is
directed to prepare said Use Agreement for execution by the Mayor, with same to
be approved as to form by the City Attorney.
APPENDIX I
<PAGE> 30
BE IT FINALLY RESOLVED that said Use Agreement shall not become binding
upon the City of Atlanta, and the City of Atlanta shall incur no obligation nor
liability thereunder until the same has been signed by the Mayor and delivered
to Air South, Inc.
APPENDIX I
<PAGE> 31
SCHEDULE I
1967-72
AIRFIELD IMPROVEMENTS PROGRAM
<TABLE>
<CAPTION>
Estimated
Item No. Description and Comments Cost
- - -------- ------------------------ ----------
<S> <C> <C>
1 Land Acquisition - acquire approximately
1,240 acres of land as per the attached
Drawing No. 68066-024 of the Atlanta
Airport Engineers dated March 5, 1969,
titled "Land Acquisition" which is
attached as Exhibit A and made a part
hereof by reference. $47,815,000
2 Accomplish site preparation including the
clearing, grubbing, grading, drainage,
engineering, and other site preparation in
the areas set forth on the attached Drawing
No. 68066-027 of the Atlanta Airport
Engineers dated March 5, 1969, titled
"Site Preparation" which is attached as
Exhibit B and made a part hereof by
reference. 23,375,000
3 Construct roadways, including engineering,
substantially between the points hereinafter
set forth as described on the attached drawing
No. 68066-026 of the Atlanta Airport
Engineers dated March 5, 1969, titled "Airport
Service Roadways" which is attached hereto as
Exhibit C and made a part hereof by reference:
From Point B south and west to Point H
From Point S west to Point T
From Point T north and east to Point R
From Point A east and south to Point B
From Point B west to Point D
From Point H south and west to Point S 6,090,000
4 General architectural and engineering fees
which are incurred by the City as necessary
to determine the maximum feasibility expansion
capabilities of the existing terminal and
terminal-related facilities, which are general
in nature and are not specifically identifiable
to or applicable to improvements or facilities
that will directly benefit any fewer than all of
the Atlanta Airlines.
</TABLE>
Schedule I
Page 1 of 2
<PAGE> 32
<TABLE>
<S> <C> <C>
Also, included in this item are the General
Architectural and Engineering fees which are
necessary for coordination of the projects set
forth above and for Engineering Conferences
with the City, the Airlines and the FAA for
the accomplishment of these projects. 782,000
5 Reconstruction, including engineering, of
existing east-west runway 9L-27R approximately
8,000 feet in length and necessary portions of
parallel taxiway located 400 feet from center
line of runway to center line of taxiway and
parallel to runway 9L-27R. This approval
specifically includes paving, lighting,
underdrains, marking, and any other construction
required to make the runway and associated
taxiway an integral part of the runway and
taxiway system. $ 3,700,000
-----------
TOTAL ESTIMATED COST OF ITEMS 1 - 5 $81,762,000
ESTIMATED UNDERRUN $ 528,000 (1)
-----------
TOTAL ESTIMATED COST OF COMPLETION $82,290,000 (2)
===========
</TABLE>
(1) Majority In Interest of the Atlanta Airlines shall have the right to
expend such funds, if any, for top priority projects at the Airport.
(2) Without approval of a Majority In Interest of the Atlanta Airlines, the
City shall have the right to curtail and revise any or all of the above
items so as to ensure that the total cost of this program does not
exceed $82,290,000.
Schedule I
Page 2 of 2
<PAGE> 33
EXHIBIT A
(MAP)
LAND ACQUISITION
ATLANTA AIRPORT
<PAGE> 34
EXHIBIT B
(MAP)
SITE PREPARATION
ATLANTA AIRPORT
<PAGE> 35
EXHIBIT C
(MAP)
AIRPORT SERVICE ROADWAYS
ATLANTA AIRPORT
<PAGE> 36
SCHEDULE II
REVISED FIELD IMPROVEMENTS
(INCLUDING FY-96 PROGRAM)
<TABLE>
<CAPTION>
Item No. Item Total Cost City's Part
- - -------- -------------------------------- ---------- -----------
<S> <C> <C> <C>
1 Acquiring additional land $1,800,000 $900,000
and property interests to
Runway 9L-27R
2 Acquiring additional land 1,747,900 873,950
and property interests for
approach to Runway 9R-27L
3 Installing I-H lighting system 110,000 32,830
Runway 15-33. Installing
taxiway lights on portions of
Runways 15-33 and 3-21
4 Construct additional aircraft
parking apron 573,000 286,500
5 Fire truck access road 12,000 6,000
6 Construct additional taxiway
from Runway 3 to 9-R 70,000 35,000
7 Construct new fire station on
south side of Airport
Construction cost 142,000 71,000
Equipment cost 120,000 120,000
8 Acquire additional property 2,000,000 1,000,000
interests for Runway 9-R
approach zone
9 Acquire additional property 1,500,000 750,000
interests for sight line from
tower to Runway 9-R
10 Acquire additional property 500,000 250,000
interests for Runway 3
approach zone
11 Additional property interests 4,500,000 2,250,000
for clear zone to Runway 21
</TABLE>
Schedule II
Page 1 of 2
<PAGE> 37
Schedule II - continued
<TABLE>
<CAPTION>
Item No. Item Total Cost City's Part
- - -------- ---------------------------------------- ------------ -------------
<S> <C> <C> <C>
12 Develop first stage of new 1,500,000 750,000
terminal area for the purpose
of creating a sight line to
Runway 9-R
13 Construction of interior airport 200,000 100,000
perimeter road
----------- ----------
TOTAL $14,774,900 $7,424,480
=========== ==========
</TABLE>
Schedule II
Page 2 of 2
<PAGE> 38
ADDENDUM TO THE AIRPORT USE AGREEMENT
(CONSOLIDATED AS OF FEBRUARY 1, 1991)
FIELD IMPROVEMENT LANDING FEES
At the inception of this Agreement and until such time as the Airline has
established the full twelve (12) month period of Basic Landing Fees paid, to
allow inclusion of the Airline in the proration of the annual Field
Improvements Landing Fees to all of the Airlines, pursuant to Article VII, the
Airline will be charged monthly Field Improvement Landing Fees at the per
thousand pound rate in effect for the Atlanta Airlines during such period.
THE INITIAL FIELD IMPROVEMENTS LANDING FEE-AIP #1
This Landing Fee covers the financing of 1967-72 major airfield improvements
and is re-calculated May 1 of each year to allocate a proportionate share of
the annual requirement to amortize the costs to the Atlanta Airlines, based on
each Airline's pro rata share of Basic Landing Fees paid during the preceding
twelve (12) month period.
THE ADDITIONAL FIELD IMPROVEMENTS LANDING FEE-AIP #2
This Landing Fee covers the financing of the construction of the northernmost
runway, or fourth (4th) runway. The annual amount required to amortize the
costs is allocated among the Atlanta Airlines on the same basis as AIP #1,
i.e., based on each Airline's pro rata share of Basic Landing Fees paid during
the preceding twelve
<PAGE> 39
ADDENDUM TO THE AIRPORT USE AGREEMENT
Page 2 of 2
(12) month period, with the exception that AIP #2 Landing Fee has two
calculation dates. A portion of the annual requirement is allocated among the
Airlines January 1 of each year and the remaining portion of the annual
requirement is allocated May 1 of each year.
FUTURE ADDITIONAL FIELD IMPROVEMENTS LANDING FEES
Any future major airfield improvements which the City undertakes with the
approval of a Majority In Interest of the Atlanta Airlines will require an
Additional Field Improvements Landing Fee. Once the annual requirement to
amortize the cost of such improvements is established, the allocation of the
Airline's pro rata share will be made in accordance with the procedure
established for AIP #1 and AIP #2 Landing Fee allocation.
<PAGE> 40
[MAP]
<PAGE> 41
[FLOOR PLAN]
EXHIBIT B
Page 1 of 2
<PAGE> 42
[FLOOR PLAN]
EXHIBIT B
Page 2 of 2
<PAGE> 1
EXHIBIT 10.21
AIRPORT USE AND
LEASE AGREEMENT
RICHLAND-LEXINGTON AIRPORT DISTRICT
and
AIR SOUTH, INC.
<PAGE> 2
RICHLAND-LEXINGTON AIRPORT DISTRICT
and
AIR SOUTH, INC.
Airport Use and Lease Agreement
I N D E X
<TABLE>
<CAPTION>
Page #:
-------
<S> <C> <C>
Article I Term 2
Article II Lessor to Maintain and Operate Airport 2
Article III Rights of Airline 2-5
Article IV Passenger Terminal Building 6-7
Article V Landing Fees and Landing Fee Rate 7-8
Article VI Establishment of Rates and Charges in Future 8-13
Article VII No Other Charges 13-14
Article VIII Quiet Enjoyment 14
Article IX Inspection By Lessor 14
Article X Indemnification and Liability Insurance 14-15
Article XI Letter of Credit 15-16
Article XII Rules and Regulations 16
Article XIII Assignment and Subletting 16
Article XIV Force Majeure 16-17
Article XV Surrender of Possession 17
Article XVI Cancellation By Lessor 17-18
Article XVII Cancellation By Airline 18-19
Article XVIII Damage or Destruction of Leased Premises 19-20
Article XIX Right To Convert Rate Formula 20
Article XX Non-Waiver of Rights 21
Article XXI Invalidity of Clauses 21
Article XXII Approval By Lessor 21
Article XXIII Headings 21
Article XXIV Equal Terms 21
</TABLE>
<PAGE> 3
Table of Contents (continued)
<TABLE>
<CAPTION>
Page #:
-------
<S> <C> <C>
Article XXV Title to Airline Installed Improvements
and Property 22
Article XXVI Alterations and Additions 22
Article XXVII Licenses and Permits 22
Article XXVIII Notices 22
Article XXIX Charges for Late Payment 23
Article XXX Attorneys Fees 23
Exhibit "A"
Exhibit "B" (2 Pages)
Exhibit "C"
Exhibit "D"
Exhibit "E"
Exhibit "F"
Exhibit "G"
</TABLE>
<PAGE> 4
AIRPORT USE AND LEASE AGREEMENT
THIS AGREEMENT, made and entered into as of the 15th day of August 1994
by and between the RICHLAND-LEXINGTON AIRPORT DISTRICT, a public body corporate
organized under the laws of the State of South Carolina, hereinafter called
"Lessor" and AIR SOUTH, INC., a South Carolina based corporation, hereinafter
called "Airline".
W I T N E S S E T H:
WHEREAS, Lessor owns and operates the Airport known as Columbia
Metropolitan Airport, which is depicted on the attached Exhibit A, which as it
now exists, or as it may be changed in the future, is hereinafter called
"Airport"; and
WHEREAS, Lessor has the right to lease property on the Airport together
with the facilities, rights, licenses and privileges hereinafter granted, and
has full power and authority to enter into this Agreement in respect thereof;
and
WHEREAS, Airline has applied for certification to engage in the
business of air transportation by aircraft for carriage of persons, property and
mail, hereinafter called "Air Carrier Service"; and
WHEREAS, Approval by all regulatory authority shall be required prior
to the commencement of service by Airline at Airport; and,
WHEREAS, Airline desires to lease certain premises, facilities, rights
and privileges and to use the Airport in connection with the operation of its
Air Carrier Service and Lessor is willing to lease such premises, facilities,
rights and privileges and to grant the use of the Airport to Airline for such
purposes upon the terms and conditions hereafter stated; and,
WHEREAS, Airport is now operating with all Airlines on a residual cost
rate formula but plans to convert to a modified residual rate formula as early
as practicable so that the revenues received from operating the airfield and the
passenger terminal facilities are allocated in accordance with the cost of the
provision and operation of those facilities;
1
<PAGE> 5
NOW, THEREFORE, for and in consideration of the premises and the mutual
covenants hereinafter contained to be observed and performed, the parties hereto
hereby formally covenant, agree and bind themselves as follows:
ARTICLE I
TERM
The term of this Agreement shall be for a period of 14 years, 4 months
and 16 days, commencing on August 15, 1994 and terminating at the end of
December 31, 2008.
ARTICLE II
LESSOR TO MAINTAIN AND OPERATE AIRPORT
Throughout the term of this Agreement, Lessor shall operate, maintain,
manage and control the Airport in a first class, efficient, economical and
businesslike manner. Such operation, maintenance, management and control shall
comply with all pertinent requirements of the Federal Aviation Administration,
or successor in duties related thereto, and shall include without limitation the
adequate and proper operation and maintenance of the land, runways, taxiways,
navigation aids, lighting, equipment, entrances, exits, roads, parking areas and
all other public facilities and appurtenances within the boundaries of the
Airport.
ARTICLE III
RIGHTS OF AIRLINE
Lessor does hereby grant to Airline the non-exclusive use of the
Airport, in common with other users of the Airport.
In addition, but not as a limitation upon the generality of any other
provision hereof, Airline may use the Airport, excepting those areas exclusively
leased to others, for the following specific purposes:
(a) The operation of its Air Carrier Service;
(b) The landing, taking off, flying over, taxiing, pushing,
towing, parking, loading and unloading of aircraft and other
equipment, including the right to handle all or part of the
operation or services of another airline;
2
<PAGE> 6
(c) The repairing, maintaining, conditioning and servicing of
aircraft and other equipment;
(d) The sale of air transportation tickets and service,
conveniences and facilities related to air travel and the
processing of passengers and their baggage for air travel; the
sale, handling and providing of mail, freight and express
services and conveniences related thereto and the performance
of other activities connected with the operation of its Air
Carrier Service;
(e) The training at the Airport of personnel in the employ of or
to be employed by Airline, and the testing of aircraft and
other equipment owned or operated by Airline such training and
testing to be incidental to the use of the Airport in the
operation by Airline of its Air Carrier Service provided,
however, that such training and testing will not unreasonably
hamper or interfere with the use of the Airport and its
facilities by other users entitled to the use of the same;
(f) The sale, disposal or exchange of Airline's aircraft, engines,
accessories, aviation fuels, ground vehicle fuels, oil,
greases, lubricants, and other materials, supplies and
equipment related to its Air Carrier Service;
(g) The full right to purchase at the Airport, or elsewhere, from
any person, or company, of its choice, its lubricating oil,
greases, and all other materials and supplies and services;
and no charges, fees, licenses, exercise or operating taxes,
tolls, or charges upon any such purchases shall be charged or
collected by Lessor from Airline, or from any other person for
the privilege of, or in connection with the purchasing,
handling, loading, unloading, storing, servicing, using, or
transporting, to, from, or at, the Airport, such materials and
supplies, or other property in connection with Airline's
business;
3
<PAGE> 7
(h) The servicing by Airline, or its suppliers, at appropriate
locations, of aircraft and other equipment, owned, or
operated, by Airline, or its suppliers of materials and
furnishers of services; by truck, or otherwise, with aviation
fuel, ground vehicle fuel, lubricating oil, greases, and all
other materials and supplies and services required by Airline
in the conduct of its Air Carrier Service; such right shall
include, without limiting the generality hereof, the right to
erect, or install and maintain on the Airport, adequate
storage facilities for such aviation fuel, ground vehicle
fuel, lubricating oil, greases and other materials and
supplies, at convenient locations, in accordance with
insurance underwriters' standards, together with the necessary
pipes, pumps, motors, filters and other appurtenances
incidental to the use thereof; such structures and
appurtenances to be and remain the severable property of
Airline.
(i) The loading and unloading of persons, property and mail by
such motor vehicles, or other means of conveyance as Airline
may require in the operation of its Air Carrier Service and
Airline may designate the particular carrier, or carriers,
which may transport Airline's employees, property, mail,
express and freight, to, from and on the Airport;
(j) The right to install and operate identifying signs on the
Airport and the general type, design and location thereof to
be subject to the approval of Lessor;
(k) The right to install, maintain and operate, in, on and about
the Airport, such radio communications, meteorological and
aerial navigation equipment and facilities as may be
necessary, or convenient, for its operation; such equipment
and facilities to be located in areas leased to Airline for
its exclusive use, or on such other portions of the Airport as
may be designated for that purpose by Lessor;
4
<PAGE> 8
(1) Such rights of way as it may require for communications
controls, teletype, telephone, interphone, pneumatic tubes and
power lines, in and between the Passenger Terminal Building
and other points on the Airport, provided, however, that the
location of such rights of way shall be subject to the
approval of Lessor;
(m) The conduct of any other function, or operation, reasonably
necessary to the proper performance and operation by Airline
of its Air Carrier Service;
(n) The full, free and unobstructed ingress to and egress from the
Airport and all premises leased exclusively or preferentially
to it, or in common with others; subject to the provisions of
Article XI herein, which provides for Rules and Regulations of
Lessor; for Airline, its employees, passengers, invitees,
suppliers of materials and furnishers of services; its, or
their, aircraft, equipment, vehicles, or machinery and
furnishers of services; provided, however, that such rights
shall not be construed to prevent Lessor from charging ground
vehicle parking fees to the public in the area designated by
Lessor for public parking. Ground vehicle parking charges to
Airline's employees, if applicable, are covered elsewhere
herein.
(o) Airport reserves the right to charge all users of the Airport,
except Airlines its employees, Airline's suppliers of
materials and furnishers of services, a minimum parking fee
for ground vehicles to enter the Airport.
Nothing herein contained shall be construed to mean that Airline is
authorized to conduct a business of any kind on the Airport except its Air
Carrier Service and nothing herein contained shall be construed as authorizing
Airline, in its conduct of its business, to interfere, unreasonably, with other
persons, or tenants, lawfully using, or leasing, Airport facilities.
5
<PAGE> 9
ARTICLE IV
PASSENGER TERMINAL BUILDING
Lessor hereby leases to Airline the areas in the Passenger Terminal
Building area as set forth on Exhibit B, which is attached hereto; for which
Airline shall pay monthly rentals, in advance, as set forth on Exhibit C which
is attached hereto; for the time periods specified on the said Exhibit C.
Services, Utilities and Maintenance - Lessor and Airline shall each
respectively furnish in the Passenger Terminal Building the services, utilities
and maintenance, and pay the costs and expenses therefor, as indicated on
Exhibit D attached hereto.
Employee Ground Vehicle Parking - Lessor shall make available to
Airline's employees reasonably adequate automobile parking facilities. Lessor
may, at its discretion, charge Airline's employees a parking fee, to recover its
costs and expenses for providing such parking facilities.
Rent for Aircraft Loading Positions - Lessor has the right to include
the charges for the use of the aircraft loading and unloading positions serving
the Passenger Terminal Building, (herein referred to as "Aircraft Loading
Positions" in the singular as well as in the plural form;) in the Landing Fee
Rate, or to negotiate a separate rental, or use charge, therefor, at any time
that the Landing Fee rate is established.
Use of Aircraft Loading Positions and Passenger Hold Rooms - Airline is
granted the preferential use of the Aircraft Loading Position designated on
Exhibit B, which is attached hereto, for loading and unloading aircraft. Lessor
retains the right to permit other authorized airlines to use the Aircraft
Loading Position for loading and unloading aircraft and to use the Passenger
Hold Room related thereto for the processing of passengers, when it is not
required by Airline for such purpose. Airline covenants to use its best efforts
to minimize its time of usage of such facilities and to remove its aircraft
promptly when they are not being loaded, or unloaded, from the Aircraft Loading
Position, and to make available the use of the related Passenger Hold Room
(including any Passenger Loading Bridge which may be attached thereto), whenever
6
<PAGE> 10
Lessor notifies it that the said Aircraft Loading Position and related Passenger
Hold Room, are required for loading, or unloading, aircraft of other authorized
airlines. Whenever such facilities are used by others, Airline has the right to
charge such other users its reasonable costs and expenses related to providing
such facilities. Airline agrees to submit to Lessor a schedule of its charges
for the use of such facilities during the following year. However, Airline shall
not have the right to make a use charge for the Aircraft Loading Position if the
use thereof is included in the Landing Fee Rate and Lessor makes no separate
rental, or use, charge to Airline, therefor.
Flights originating at Airport will not be parked on an Aircraft
Loading Position for a period of time longer than one hour prior to such
flight's scheduled departure, if the Lessor advises that such is required for
loading, or unloading, aircraft of others not having such facilities available
for their use during the time involved.
Whenever Lessor requires Airline to move its aircraft from the Aircraft
Loading Positions, Lessor will provide substitute parking facilities for such
aircraft, of an adequate nature, in the event that Airline does not have space
for such aircraft, on the premises which it leases on the Airport.
If the Airport is required by an agency of the United States government
to modify, or add to, the facilities exclusively or preferentially leased to
Airline herein, or leased in common to Airline and other airlines herein; for
safety, or other reasons; the expense of such, amortized over a reasonable
period of time, will be charged to Airline as additional rental, at the time
that the modifications, or additions, are made ready for beneficial use or
occupancy.
ARTICLE V
LANDING FEES AND LANDING FEE RATE
Charges for the non-exclusive use of facilities, rights, licenses and
privileges at Airport which are granted to Airline herein, except those
expressly set forth herein and in separate lease agreements with Airline, shall
be combined in and represented by Landing Fees which shall be determined by
multiplying the Landing Fee Rate of Forty-Two and 95 Hundredth Cents ($.4295)
per thousand pounds, times the total number of thousands of pounds of maximum
certificated gross landing weight of Airline's aircraft
7
<PAGE> 11
actually landing at the Airport, in revenue service including training flight
landings, during the preceding month; from August 15, 1994 through the end of
December 31, 1994.
Airline shall submit to Lessor not later than the 5th day of each month
during the term hereof, a statement showing the information set forth below
pertaining to Airline's actual landing of revenue and training flights at the
Airport for the preceding month, and the Airline shall pay Landing Fees to
Lessor promptly upon receipt of an invoice for such, as applicable:
1. The number of aircraft actually landing at the Airport in
revenue service and for training purposes, separately stated
by types of aircraft, and whether such are in revenue, or
training service.
2. The number of enplaned passengers and the number of deplaned
passengers, separately stated, and the pounds of enplaned
mail, freight and express separately stated; and if available
the pounds of deplaned mail, freight and express separately
stated.
The term "maximum certificated gross landing weight" of aircraft as
used herein, shall mean the maximum landing weight as published by Airline in
the then current Flight Operations Manual and approved by the Federal Aviation
Administration, or its successor in duties, for landing such aircraft at the
Airport.
ARTICLE VI
ESTABLISHMENT OF RATES AND CHARGES IN FUTURE
During the term hereof, Landing Fees and Terminal Rentals will be
established annually for the ensuing one year period. Prior to the end of each
fiscal year Commission will furnish to Airline a statement of estimated Airport
Revenues and Expenses along with Commission's proposed budget for the following
fiscal year for which new rates and charges are to be adopted. The information
furnished to Airline will include the estimated rates and charges to be payable
by Airline pursuant to the new budget. Also prior to the end of the fiscal year
and prior to the adoption of the estimated rates and charges, Commission's
representatives will meet with Airline and other signatory airlines to discuss
the estimated revenues and expenses for the year
8
<PAGE> 12
ending, and the proposed budget for the new year and the resulting estimated
rates and charges. Airline will have the opportunity to comment on and be heard
with respect to the matters to be discussed at the meeting.
Following such meeting Commission will adopt its new budget and
proposed rates and charges after giving effect to the changes therein, if any,
suggested by/pursuant to Airline's comments. Commission will provide Airline
with a copy of the final budget and the new rates and charges to be effective in
the new fiscal year: Provided, however, that the new rates and charges will not
be finally adopted or placed into effect until after Commission's audited
financial statements from the prior year have been accepted by Commission and
Commission issues its letter to Airline establishing such new final rates and
charges. From the first day of each new fiscal year Airline shall continue to
pay rentals and landing fees at the prior year's rates until notified by
Commission that the final rates are in effect. The final rates shall be
retroactive to the first day of the new fiscal year and Commission will cause
its invoice to Airline to be issued giving effect to such new rates, including a
credit for any overpayment by Airline or an additional charge for any
underpayment by Airline under the new schedule of rates and charges. When
establishing such fees, rentals and charges it is agreed that the following
principles shall be observed:
1. The Airport is operated primarily for the benefit of the users
thereof and in accordance with this premise it is the purpose
of Lessor to establish fair and reasonable Airport rates, fees
and charges for all such users which will return to Lessor,
when added to other Airport income, sufficient revenues which
will enable it to operate the Airport in a competent,
efficient and economical manner, considering the factors set
forth in this Article VI and elsewhere herein.
2. Grants and participating funds from the United States of
America, or an agency thereof, and grants and participating
funds from the State of South Carolina, or an agency thereof,
shall be applied to
9
<PAGE> 13
reduce the costs and expenses of the Airport before computing
Airline's fees, rentals, or charges, hereunder.
3. No depreciation will be charged to land which is considered to
be a non-depreciating asset.
4. Reasonable fees, rentals and charges, as appropriate, will be
charged to all users of the Airport.
5. Lessor agrees to use its best efforts to maximize concession
revenue and ancillary income in order to help defray the
expenses of the Airport.
6. Consistent with good business practices Lessor agrees to use
its best efforts to obtain the maximum amount of grants and
participating funds for the Airport from the United States of
America, or an agency thereof.
7. Payments, coverage requirements, deposits into funds and
accounts as required by future acts authorizing the issuance
of bonds for Airport purposes will be chargeable as Airport
expense following the date hereof, as provided for herein.
8. Sound accounting principles recognizing the particular
requirements of airports, consistently applied, will be used
by Lessor for keeping the books, accounts and records of the
Airport.
9. The overhead and indirect expenses of Lessor will be
determined and allocated equitably to the various cost centers
of the Airport.
10. Deficits or surpluses of the Airport during the preceding rate
period will be carried forward and applied to increase or
reduce, as the case may be, the fees, rentals and charges to
be charged in the following rate period.
11. Forecasted income and expenses for the Airport for the next
ensuing rate period will be taken into consideration.
10
<PAGE> 14
12. Passenger boarding taxes, use fees or similar charges upon
passengers using the Airport will be credited to the costs,
expenses, financing and bond requirements of the Airport.
13. The projects called for in the Airport's Master Plan as
approved by the Federal Aviation Administration, may be
undertaken by Lessor and the amortization of the costs and
expenses related thereto, not covered by grants and
participating funds from the United States of America, or an
agency thereof; will be considered as Airport expense,
including all payments and deposits required by
authorizations for the issuance of bonds, payments to banks
and other lenders and the amortization of Airport funds.
14. Projects required by the Federal Aviation Administration for
safety will be undertaken by Lessor when it is prudent to do
so and the amortization of the costs and expenses related
thereto, not covered by grants and participating funds from
the United States of America, or an agency thereof; or the
State of South Carolina, or an agency thereof; will be
considered as Airport expense, including all payments and
deposits required by authorizations for the issuance of bonds,
payment to banks and other lenders and the amortization of
Airport funds.
15. Payments and deposits required by authorization for the
issuance of bonds, or payments to banks and other lenders,
will not be charged to Airport cost or expense, for projects
that are not included in the then current Master Plan of the
Airport, which has been approved by the Federal Aviation
Administration; or are not required by Federal Aviation
Administration for safety; unless such projects are entirely
self-supporting through lease commitments made by the user or
users, thereof, to make all payments required related thereto;
unless such bonds or borrowing are approved by a
Majority-In-Interest of the Airlines. A Majority-In-Interest
of the
11
<PAGE> 15
Airlines is defined to consist of a least one half in number
of the airlines serving the Airport which have agreements in
effect substantially similar to this one, which collectively
enplaned at least fifty percent of the passengers at the
Airport during the preceding calendar year.
16. Principal and interest on the bonds which fall due as set
forth on the attached Exhibit E will be treated for the
purpose hereof as Airport expense.
17. Lessor will furnish to Airline annually the proposed Airport
budget for the following year as soon as it is available and
in a reasonable time prior to its being adopted by Lessor, in
order to provide Airline with sufficient opportunity to
provide comments and to present objections thereto, if it
desires to do so.
18. Beginning on January 1, 1992 the Airport rate base will be
increased by an amount equal to the discount previously
granted airlines, having agreements substantially similar to
this one with Lessor, serving the Airport, during the period
January 1, 1979 through the end of December 31, 1981, as set
forth on Exhibit F, which is attached hereto. The said
discount will be computed in accordance with the provisions of
Exhibit F and the total amount so computed will be amortized
over a period of ten (10) years, without interest, and will be
deposited in the Capital Fund as set forth in Article V
herein, and will not be treated as surplus income when
establishing rates and charges in the future years as provided
for in this Article.
19. The gross revenues derived from the Airport shall be used
solely for the operation, maintenance, improvement,
acquisition of equipment and supplies, management, expansion
and financing requirements of the Airport.
20. All costs and expenses associated with screening passengers,
other persons, baggage and hand-carried objects, entering the
aircraft
12
<PAGE> 16
boarding areas of the Passenger Terminal Building, pursuant to
applicable Federal Air Regulations; will be paid for by
Airline, on a pro rata basis with other airlines serving the
Airport; which airlines are required to, or actually do, use
the passenger screening facilities.
21. Lessor agrees to exercise prudence in the operation,
maintenance, improvement, expansion, management and financing
of the Airport.
There is currently pending a resolution to a controversy involving
interpretation of the Airport Use and Lease Agreement with Delta Air Lines,
USAir Air Lines, United Air Lines, and American Airlines. Airline agrees that
resolution of that issue may effect signatory rates and charges hereunder and
agrees that it will participate in such additional charges as may be ordered or
agreed to between the parties or receive reductions in signatory airline rates
as may occur.
ARTICLE VII
NO OTHER CHARGES
Lessor agrees that no rents, fees, charges, or tolls, other than those
expressly provided for in this Agreement or other Agreements between Lessor and
Airline; shall be charged or collected by it from Airline, from Airline's
passengers, employees, suppliers of materials, or furnishers of services; for
the use of any of the premises, facilities, licenses and privileges expressed in
or reasonably inferred from these presents, or for any of the services required
to be performed by Lessor; the rents, fees and charges expressly provided
herein, being full and complete consideration and compensation to Lessor for the
use of said premises, facilities, licenses and privileges and the performance of
said services.
Notwithstanding the foregoing, Lessor has the right to make a separate
and additional charge to Airline, for additional facilities leased to it; for
its exclusive use, preferential use or for common use with other airlines, or
other users; not expressly covered herein; provided such is included in a
written agreement.
In the event that the Congress of the United States shall permit, or it
shall otherwise become lawful at any time in the future; to assess and collect a
head tax,
13
<PAGE> 17
passenger boarding tax, use fee, or similar charge upon passengers using the
Airport, or any of its facilities, or services; this provision shall not limit
the right of Lessor to assess and collect such tax, fee or charge.
ARTICLE VIII
QUIET ENJOYMENT
Lessor agrees that on payment of the rents, fees and other charges
provided for herein and the performance of the covenants and agreements on the
part of Airline to be performed hereunder, Airline shall peaceably have and
enjoy the premises, appurtenances, facilities, rights, licenses and privileges
granted herein.
ARTICLE IX
INSPECTION BY LESSOR
Lessor may enter upon any premises which are leased exclusively or
preferentially to Airline, or jointly to Airline and others, at any reasonable
time, for any purpose necessary, incidental to, or connected with, the
performance of its obligations hereunder, or in the exercise of its governmental
functions as it relates to public health, safety and general welfare of the
Airport.
ARTICLE X
INDEMNIFICATION AND LIABILITY INSURANCE
Airline shall protect, defend and hold Lessor completely harmless from
and against any and all liabilities, losses, suits, claims, judgments, fines or
demands arising by reason of injury or death of any person or damage to any
property, (including but not limited to attorney fees, court costs, and expert
fees), of any nature whatsoever arising out of or incidental to this Lease and
the use or occupancy of the Premises or the acts or omissions of Airline's
directors, officers, agents, employees, contractors, subcontractors or
licensees; however, the above indemnity shall not apply to any injury, death or
damage caused by the negligence or wilful misconduct of Lessor, its
commissioners, directors, officers, agents and employees, Lessor shall give
reasonable notice of any such claims or actions. The provisions of this section
shall survive the expiration of early termination of this Lease.
14
<PAGE> 18
Airline agrees to carry and keep in force public liability insurance
with an insurance company of recognized responsibility covering personal injury
and property damage to protect the Lessor, its commissioners, directors, agents,
officers and employees from liability covered by the indemnification provisions
of this Article. Without limiting its liability as aforesaid, Airline agrees to
carry and keep in force such insurance with limits of liability for death,
personal injury and property damage in a sum not less than Fifty Million and
No/100 ($50,000,000.00) Dollars with the Lessor and its commissioners,
directors, officers, agents and employees as additional named insured. The
aforesaid minimum amounts may be reviewed from time-to-time by the parties
hereto and adjusted so as to be adequate after consultation with an insurance
underwriting consultant. Airline will furnish Lessor with proper certification
that such insurance is in force.
ARTICLE XI
LETTER OF CREDIT
Airline covenants and agrees that no later than fourteen (14) calendar
days from the date of Airline's execution of this Agreement, Airline will
provide Airport an irrevocable Letter of Credit in the form of Exhibit G. The
Letter of Credit shall name the Richland-Lexington Airport District as
beneficiary and shall be in a stated amount of not less than three (3) months'
pecuniary obligation calculated by reference to Exhibit C and Article V.
If at any time Airline fails to make timely payment under the terms of
this Agreement, Airport may draw on the Letter of Credit or any portion of it
for payment or to compensate Airport for any damages sustained by Airport
resulting from Airline's default. Airline shall immediately on demand provide
Airport with another irrevocable Letter of Credit equal to that portion of the
Letter of Credit expended or applied by Airport to bring payments current or
cure such default as to maintain an irrevocable Letter of Credit in the sum
initially provided to Airport. Airport's obligations to Airline with respect to
the Letter of Credit are those of a beneficiary and not a creditor or trustee.
15
<PAGE> 19
Airline's failure to provide Airport with a Letter of Credit within the
period stated herein shall be deemed a material default of this Agreement's
terms, covenants, and conditions and upon the happening of same this Agreement
shall be terminated without further notice to Airline.
ARTICLE XII
RULES AND REGULATIONS
Lessor may adopt and enforce reasonable rules and regulations, which
Airline agrees to observe and obey, with respect to the use of the Airport and
appurtenances, together with all facilities, improvements, equipment and
services of the Airport for the purpose of providing for safety, good order,
good conduct, sanitation and preservation of the Airport and its facilities;
provided that such rules and regulations are not inconsistent with the rules,
regulations and orders of the Federal Aviation Administration, or its successor
in duties, with respect to aircraft operations at the Airport; and provided
further that such are not inconsistent with the provisions of this Agreement, or
other agreements with Airline at the Airport; or the procedures prescribed, or
approved, from time-to-time by the Federal Aviation Administration, or its
successor in duties, with respect to the operation of aircraft operated by
Airline at the Airport.
ARTICLE XIII
ASSIGNMENT AND SUBLETTING
Airline shall not assign this Agreement, or any part thereof, without
the prior written approval of Lessor; provided, however, that Airline may,
without such consent, assign this Agreement to any person, firm or corporation
with which Airline may merge, or consolidate, or which may succeed to the
business of Airline.
Airline shall not sublet all or any part of the premises leased
hereunder without the prior written approval of Lessor.
ARTICLE XIV
FORCE MAJEURE
Neither Lessor, nor Airline, shall be deemed in violation of this
Agreement if it is prevented from performing any of its obligations hereunder by
reasons of strikes,
16
<PAGE> 20
boycotts, labor disputes, embargoes, shortages of material, acts of God, acts of
the public enemy, acts of superior governmental authority, weather conditions,
floods, riots, rebellions, acts of sabotage, or any other circumstances for
which it is not responsible, or which are not in its control; provided, however,
that this Article does not apply to failure by Airline to pay the rentals, fees
and charges set forth herein. In any such case, a prompt written notice shall be
given to the other party of the existence of such cause and of readiness to
resume performance upon the removal, or non-existence thereof.
ARTICLE XV
SURRENDER OF POSSESSION
Airline agrees to yield and deliver to Lessor possession of the
premises leased exclusively, preferentially, or in common with others, at the
termination of this Agreement, by expiration or otherwise, or of any renewal or
extension thereof, in good condition in accordance with its express obligations
hereunder, except for reasonable wear and tear, fire or other casualty, and
Airline shall have the right any time during said term, or any renewal or
extension hereof, and for thirty (30) days after the termination hereof, to
remove its trade fixtures and equipment situated on the premises which were
installed, or placed by it, at its expense, in, on, or about, the premises
leased hereunder; subject, however, to any valid lien which Lessor may have
thereon for unpaid rents, fees, or charges.
ARTICLE XVI
CANCELLATION BY LESSOR
Lessor may cancel this Agreement and terminate all of its obligations
hereunder at any time that it is not in default upon or after the happening of
any of the following events:
(a) Airline shall file a voluntary petition in bankruptcy; or
(b) Proceedings in bankruptcy shall be instituted against Airline
and Airline is hereafter adjudicated bankrupt pursuant to such
proceedings; or
17
<PAGE> 21
(c) A court shall take jurisdiction of Airline and its assets
pursuant to proceedings brought under the provisions of any
Federal reorganization act; or
(d) A receiver of Airline's assets shall be appointed; or
(e) Airline shall be lawfully divested of, or prevented by any
final action of any cognizant Federal, or State Authority,
from conducting and operating its Air Carrier Service at the
Airport; or
(f) Airline voluntarily abandons its conduct of its Air Carrier
Service at the Airport for a period of thirty days, except if
such is due to a labor strike, or labor dispute, in which
Airline is involved; or
(g) Any assignment is made by Airline for the benefit of its
creditors; or
(h) The material default by Airline of any of the covenants or
agreements herein contained and the failure of Airline to
remedy such default as hereinafter provided. In the event of
such material default Lessor may give Airline notice in
writing to correct such default and if such default shall
continue for sixty days after the receipt of such notice by
Airline (except where fulfillment of its obligation requires
activity over a period of time and Airline shall commence to
perform whatever may be required for the fulfillment within
forty-five days after the receipt of notice and continues such
performance without interruption, except for causes beyond its
control), Lessor may, after the lapse of said sixty day
period, cancel this Agreement, without forfeiture, waiver, or
release of Lessor's rights to any sum of money due under the
provisions of this Agreement.
ARTICLE XVII
CANCELLATION BY AIRLINE
Airline may cancel this Agreement and terminate all of its obligations
hereunder at any time that Airline is not in default in the payment of any
rentals, fees, or charges,
18
<PAGE> 22
to Lessor hereunder, by giving Lessor twenty (20) days written notice if Airline
shall be prevented from operating its Air Carrier Service to and from the
Airport by reason of its inability to use a substantial part, or all, of the
runways, taxiways and Aircraft Loading Positions; as hereinafter set forth:
(a) For a period of longer than thirty (30) consecutive days,
resulting from any condition of the Airport not due to the
fault of Airline; or
(b) For a period of longer than ninety (90) consecutive days,
resulting from a permanent injunction issued by any court of
competent jurisdiction; or
(c) For a period of longer than ninety (90) consecutive days,
resulting from any order, rule, or regulation, of the Federal
Aviation Administration or any governmental agency having
jurisdiction over the operations of Airline at the time, with
which Airline is unable to comply at reasonable cost, or
expense.
Airline may also cancel this Agreement if any governmental agency
having jurisdiction over the operations of Airline at the time, suspends for a
period of sixty (60) days, or longer; cancels; or terminates Airline's right to
serve the Airport; unless Airline voluntarily sought, or failed to take
reasonable action to prevent, such suspension, cancellation, or termination.
If Lessor shall fail to perform any of its obligations under this
Agreement within thirty (30) days after receipt of notice of default thereunder
from Airline (except where fulfillment of its obligation requires activity over
a period of time and Lessor shall commence to perform whatever may be required
for fulfillment within twenty (20) days after the receipt of notice and
continues such performance without interruption, except for causes beyond its
control) then Airline may terminate this Agreement, such termination to be
effective upon the date set forth in such notice.
ARTICLE XVIII
DAMAGE OR DESTRUCTION OF LEASED PREMISES
If any property, part or all of which is leased to Airline, shall be
partially damaged by fire or other casualty but not rendered untenantable, the
same shall be
19
<PAGE> 23
repaired with due diligence by the Lessor at its own cost and expense, unless
such fire or other casualty was caused by the negligence of Airline; if the
damage shall be so extensive as to render part or all of such premises
untenantable but capable of being repaired in sixty (60) days, the same shall be
repaired with due diligence by the Lessor at its own expense, and the rent
payable hereunder shall be proportionately paid up to the time of such damage
and shall thenceforth cease as to the untenantable premises until such time as
they shall be tenantable; and in case such property, or any part thereof, is
completely destroyed by fire or other casualty or so damaged as to remain
untenantable for more than sixty (60) days, at the option of Airline either (1)
said premises shall be repaired or reconstructed with due diligence by the
Lessor at its own cost and expense and the rent payable hereunder for the
destroyed premises shall be proportionately paid up to the time of such damage
or destruction and shall thenceforth cease until such time as the premises shall
be put in order; or (2) within ninety (90) days after the time of such damage or
destruction and before the said premises shall be put in order and before
contract for repair or reconstruction thereof has been signed, the Airline shall
give Lessor notice of its intention to cancel this Agreement in its entirety, or
the portion thereof relating to such property, shall forthwith cease and
terminate.
ARTICLE XIX
RIGHT TO CONVERT RATE FORMULA
Notwithstanding any other provision in this Agreement, the Airport
reserves the right to convert from its current residual cost rate formula to a
modified residual rate formula which will provide for rates and charges based on
a determination of the cost of provision of and operating the airfield and the
passenger terminal facilities and other facilities used by Airline by allocating
these costs to other airlines and this Airline in proportion to their use of
airfield and passenger terminal facilities at Airport. This modification shall
not take place until sixty (60) days after the Agreement is reached with other
Airlines operating at the Airport to the adoption to the modified residual rate
system or a modification of same.
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<PAGE> 24
ARTICLE XX
NON WAIVER OF RIGHTS
Continued performance by either party hereto pursuant to the terms of
this Agreement after a default of any of the terms, covenants and conditions
herein contained to be performed, kept or observed, by the other party hereto,
shall not be deemed a waiver of any right to cancel this Agreement for any
subsequent default and no waiver of any such default shall be construed or act
as a waiver of any subsequent default.
ARTICLE XXI
INVALIDITY OF CLAUSES
The invalidity of any portion, paragraph, provision, or clause of this
Agreement, shall have no effect upon the validity of any other part, or portion
hereof.
ARTICLE XXII
APPROVAL BY LESSOR
Wherever the approval of Lessor is called for herein it is understood
and agreed that such approval shall be in writing and shall not be unreasonably
withheld.
ARTICLE XXIII
HEADINGS
The Article title shown in this Agreement is inserted only as a matter
of convenience and for reference and in no way define, limit or describe the
scope or intent of any provision of this Agreement.
ARTICLE XXIV
EQUAL TERMS
Lessor covenants and agrees that if it enters into any contract,
agreement, or lease; with any other Airline which offers to the public the same
or substantially the same scheduled daily passenger service at the Airport,
containing more favorable terms than those set forth in this Agreement; or if
Lessor grants to any other such air transportation operator, or Airline; rights,
licenses, or privileges with respect to the Airport; which are more favorable
than those accorded to Airline; then the same terms and conditions will
automatically and concurrently be made available to Airline.
21
<PAGE> 25
ARTICLE XXV
TITLE TO AIRLINE INSTALLED IMPROVEMENTS AND PROPERTY
As to improvements and property installed and paid for by Airline under
the terms of this Agreement, Airline will retain title to all of its trade
fixtures and equipment only, except as may otherwise be provided for in this
Agreement, or other Agreements, between the parties hereto.
ARTICLE XXVI
ALTERATIONS AND ADDITIONS
Airline shall make no alterations, or additions, to its premises leased
hereunder without the prior written approval of Lessor.
ARTICLE XXVII
LICENSES AND PERMITS
It is agreed that any licenses, permits, or documentary stamps required
shall be paid by Airline.
ARTICLE XXVIII
NOTICES
Notices to Lessor provided for herein shall be in writing and shall be
sufficient if sent by registered, or certified, mail, postage prepaid; or by
hand, addressed to and receipted for by Lessor, as follows:
Executive Director
Columbia Metropolitan Airport
P.O. Box 280037
Columbia, South Carolina 29228-0037
and to Airline as follows:
Air South, Inc.
Office of General Counsel
1800 St. Julian Place, Suite 400
Columbia, South Carolina 29204
ARTICLE XXIX
CHARGES FOR LATE PAYMENT
Time is of the essence for the payment of all charges hereunder. Should
Airline fail to make payment on statements so that it is received by Lessor by
no later than
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<PAGE> 26
thirty (30) days of its due date, the sum shall be adjudged to be past due and a
late penalty of one and one-half (1 1/2%) percent shall be due and payable.
Thereafter, a late penalty of 1 1/2% per month shall continue to accrue until
paid.
ARTICLE XXX
ATTORNEY'S FEES
In the event of any action, suit or proceeding brought to collect the
rentals and fees (or any portion thereof) due or to become due hereunder, to
take possession of the demised premises, to enforce compliance with this
Agreement, or for failure to observe any of the covenants of this Agreement,
Airline shall pay Lessor's attorney fees in such sum as the Court may adjudge
reasonable for attorney's fees to be allowed in said suit, action or proceeding.
IN WITNESS WHEREOF, the parties hereto have executed these presents as
of the day and year first above written.
ATTEST: LESSOR:
RICHLAND-LEMNGTONAIRPORTDISTRICT
/s/ BY: /s/ H. Ray Horn
- - ----------------------------------- -------------------------------------
Secretary Chairman
/s/ BY: /s/
- - ----------------------------------- -------------------------------------
Executive Director
ATTEST: AIRLINE:
AIR SOUTH, INC.
/s/ BY: /s/
- - ----------------------------------- -------------------------------------
Title Chief Financial Officer
-----------------------------------
APPROVED AS TO FORM:
/s/
- - -----------------------------------
Attorney for RLAD
August 12, 1994
- - -----------------------------------
Date
23
<PAGE> 27
[ROAD MAP]
<PAGE> 28
<TABLE>
<CAPTION>
AS4
SQUARE 1994 RATE 1994 ANNUAL 1994 MONTHLY
1994 AIR SOUTH RATE FEET PER SQUARE INVOICED INVOICED
SIGNATORY AIRLINE RATES LEASED FOOT CHARGE CHARGE
8/01/94 (PER DRAWING)
- - ---------------------------------------------------------------------------------------
AIR SOUTH
- - ------------
SECOND LEVEL
- - ------------
<S> <C> <C> <C> <C>
TICKET COUNTER 210.00 $33.19 $6,969.90 $580.83
OFFICE 510.00 $24.90 $12,699.00 $1,058.25
BAGGAGE MAKE-UP 277.00 $23.19 $6,423.63 $535.30
CANOPY 980.00 $10.49 $10,280.20 $856.68
------------- ------------------------------
SUB TOTAL 1,977.00 $36,372.73 $3,031.06
------------- ------------------------------
LOWER LEVEL
- - -----------
COMMON BAG CLAIM 482.00 $25.63 $12,353.66 $1,029.47
BAGGAGE OFFICE 0.00 $24.90 $0.00 $0.00
------------- ------------------------------
SUB TOTAL 482.00 $12,353.66 $1.029.47
------------- ------------------------------
EAST CONCOURSE
- - --------------
HOLD ROOM GATE 11 3,853.00 $27.34 $105,341.02 $8,778.42
OPERATIONS 708.00 $20.01 $14,167.08 $1,180.59
RAMP STORAGE 333.00 $16.60 $5,527.80 $460.65
------------- ------------------------------
SUB TOTAL 4,894.00 125,035.90 10,419.66
------------- ------------------------------
TOTALS 7,353.00 173,762.29 14,480.19
============= ==============================
</TABLE>
(Per Article V, Landing Fees For 3 Months Estimated at $22,000)
EXHIBIT C
AUGUST 1, 1994
<PAGE> 29
[TERMINAL BUILDING FLOOR PLAN - MAIN LEVEL]
<PAGE> 30
[TERMINAL BUILDING FLOOR PLAN - CONCOURSE LEVEL]
<PAGE> 31
COLUMBIA METROPOLITAN AIRPORT
Passenger Terminal Space Usage & Services
<TABLE>
<CAPTION>
TERMINAL
Airfine Leased Space S Q U A R E F E E T
- - ------------------------------------------------------------------------------------------------------------------------------------
SECOND LEVEL Delta American USAir United Air South
<S> <C> <C> <C> <C> <C>
Ticket Counter Area 632 158 396 177 210
Offices 1,110 587 963 547 510
Baggage Make Up 1,269 225 883 271 277
Canopy 745 144 279 275 980
TOTAL 3,756 1,114 2,521 1,270 1,977
LOWER LEVEL
Offices 211 527 225 229
Common Bag Claim 4,893.58 1,117.85 2,578.53 1,040.04 482
TOTAL 5,104.58 1,644.85 2,803.53 1,269.04 482
CONCOURSE
Hold Rooms 4,477 2,492 3,156 1,930 3,853
Operations 1,729 643 1,195 141 708
Crown Room 822 -- -- -- --
Maintenance 397 -- -- -- --
Ramp Storage 918 154 58 333 1,463
Employee Lounge 358 -- -- -- --
TOTAL 8,701 3,289 4,409 2,071 4,894
GRAND TOTAL 17,561.58 6,047.85 9,733.53 4,610.04 7,353
<CAPTION>
TERMINAL
SERVICE PROVIDED
Airfine Leased Space A=Airport T=Tenant
- - ------------------------------------------------------------------------------------------------------------------------------
SECOND LEVEL TOTAL Cleaning Electricity Relarnping ACMQ
<S> <C> <C> <C> <C> <C>
Ticket Counter Area 1,573 T A A A
offices 3,717 T A A A
Baggage Make Up 2,925 T A A A
Canopy 2,423
TOTAL 10,638
LOWER LEVEL
Offices 1,192 T A A A
Common Bag Claim 10,112 A A A A
TOTAL 11,304
CONCOURSE
Hold Rooms 15,908 A A A A
Operations 4,416 T A A A
Crown Room 822 T A A A
Maintenance 397 T A A A
Ramp Storage T A A A
Employee Lounge 358 T A A A
TOTAL 23,364
GRAND TOTAL 45,306
</TABLE>
<PAGE> 32
COLOMBIA METROPOLITAN AIRPORT
INCOME REQUIREMENTS - 1979, 1980, 1981
<TABLE>
<CAPTION>
1979 1980 1981
- - ---- ---- ----
<S> <C> <C>
,307,220 $1,436,175 $1,536,708 Maintenance & Operation Costs
734,397 734,397 734,397 Average Bond Debt Service
(See Exhibit E)
- - -189,067 (25.6% off) -269,139 (36.6% off) -344,752 (46.9% off) Total Debt Service
discount = $802,958 to be
added to Landing Fees beginning
Jan. 1, 1992 and amortized over 10
years without interest.
- - -------------------- ------------------------ ----------------
852,550 $1,901,433 $1,926,353
546,320 -$1,546,320 -$1,546,320 Credit Estimated 1978 Income
121,920 -121,920 -121,920 Credit Estimated Interest
Income
- - -------------------- ------------------------ ----------------
668,240 -$1,668,240 -$1,668,240 Total Credit
184,310 $ 233,193 $ 258,113 Added Revenue, over 1978
Estimated Income, required to
break even (Line 4 minus Line 7)
*******************
86,280 $ 86,280 $ 86,280 Credit Budget Forcast of Revenue
increase in 1979 vs. 1978 (See page
3 of Budget)
- 48,883 73,803 Projected Concession Increase over
1979 - airline forecast increase in passenger
@ $1.04 to Airport
51,935 59,935 51,935 Added Rent produced by increased square
footage of bag claim area occupied 10-1-78
at rate of $7.75 per square foot
- - -------------------- ------------------------ ----------------
38,215 $ 187,098 $ 212,018
*******************
34,310 $ 233,193 $ 258,113 Line 8 above
38,215 -187,098 -212,018 Line 12 above
- - -------------------- ------------------------ ----------------
46,095 $ 46,095 $ 46,095 Net added income from Landing Fees
to break even
3.5c 3.5c 3.5c Added Landing Fee Rate required to break
even: 1c = $13,170 of Landing Fee in 1978
80.0c +30.0c +30.0c Landing Fee Rate 1978
- - -------------------- ------------------------ ----------------
83.5c 33.5c 33.5c Total Landing Fee Rate required to break
even.
</TABLE>
(ENCLOSED FOR INFORMATION ONLY) EXHIBIT F
APRIL 28, 1979
<PAGE> 33
EXHIBIT G
IRREVOCABLE LETTER OF CREDIT
Irrevocable Letter of Credit Number: _____________________________
_____________________________
Date:
To: The State of South Carolina
Richland-Lexington Airport District
Post Office Box 280037
Columbia, South Carolina 29228-0037
From: Bank: _________________________________________
Address: _________________________________________
_________________________________________
Authorized _________________________________________
Signature: _________________________________________
Title: _________________________________________
We have established this irrevocable letter of credit solely in favor
of the Richland-Lexington Airport District for drawings up to $________ U.S.
Dollars (Currency and Amount in Words:_____________________ ) and expiring on
close of business on _____________, provided that this letter of credit shall be
deemed automatically extended without amendment for one year from the expiration
date, or any future expiration date, unless sixty (60) days prior to the
expiration date, the advising bank notifies the Richland-Lexington Airport
District that it elects not to consider this letter of credit renewed for such
additional period.
This undertaking is not subject to any condition or qualification. The
obligation of this bank under this letter of credit shall be the individual
obligation of the bank, and no way contingent upon reimbursement with respect
thereto. This letter of credit shall be governed by the laws of South Carolina,
and any legal proceedings initiated with respect to payment of this letter of
credit shall be brought in the State of South Carolina, County of Lexington,
subject to the laws of the State of South Carolina.
- - --------------------------------------------------------------------------------
BANK USE ONLY
Approved:________________ City:______________ Date:__________________
_________________________ Telephone:_________ Fee:___% RC
Account Officer
Second Charge DDA#:_______ Purpose/Collateral Code:__
Level
Approval:________________ Facility ID:_______ Credit Grade:
_________________________ Customer SIC Code:
(Print Name and Title)
Exhibit G
<PAGE> 34
RICHLAND-LEXINGTON AIRPORT DISTRICT
SCHEDULE OF GENERAL LONG-TERM DEBT PROJECTED DEBT SERVICE
Year Ended December 31, 1985
Bond Maturity Schedule
--------------------------------
<TABLE>
<CAPTION>
Year
Ending
December 31 Principal Interest Total
- - ----------- --------- -------- -----
<S> <C> <C> <C>
1985 $ 420,000 $ 154,595 $ 574,595
1986 420,000 132,370 552,370
1987 400,000 109,700 509,700
1988 400,000 88,600 488,600
1989 400,000 67,000 467,000
1990 410,000 45,000 455,000
1991 410,000 22,500 432,000
---------- ---------- ----------
$5,760,000 $2,001,889 $7,761,889
</TABLE>
EXHIBIT E
<PAGE> 1
EXHIBIT 10.22
SAVANNAH INTERNATIONAL AIRPORT
AIR SOUTH
TICKET COUNTER AND ATO
[FLOOR PLAN]
<PAGE> 2
SAVANNAH INTERNATIONAL AIRPORT
AIR SOUTH
HOLD ROOM
[FLOOR PLAN]
<PAGE> 3
SAVANNAH INTERNATIONAL AIRPORT
AIR SOUTH
BAG MAKEUP ROOM (ASBUILT)
[FLOOR PLAN]
<PAGE> 4
EXHIBIT B
Savannah Airport Commission
Savannah International Airport
Airline Operating Agreement
RESPONSIBLITY OF COMMISSION AND AIRLINE FOR MAINTENANCE AND OPERATION OF AIRPORT
(Page 1 of 2)
================================================================================
<TABLE>
<CAPTION>
AIRLINE
PREFERENTIAL
EXCLUSIVE AIRLINE USE JOINT AIRLINE USE USE
---------------------------------------------------------------- ------------------------- ----------------
Upper Level
Ticket and V.I.P. Bag Operations Unenclosed Baggage Tug Aircraft Hold
Counters Ticket Offices Rooms Makeup Areas Areas Security Claim Drives Apron Rooms
-------- -------------- ------ ------ ---------- ---------- -------- ------- ------ -------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1. Air Conditioning
a. Maintenance C C C N/A C N/A C C N/A N/A C
b. Operation C C C N/A C N/A C C N/A N/A C
c. Chilled Air C C C N/A C N/A C C N/A N/A C
Distribution
2. Heating
a. Maintenance C C C N/A C N/A C C N/A N/A C
b. Operation C C C N/A C N/A C C N/A N/A C
c. Warm Air C C C N/A C N/A C C N/A N/A C
Distribution
3. Lighting
a. Bulb and Tube C A A A A A C C C C C
Replacement 1/
b. Maintenance 1/ C A A A A A C C C C C
4. Electrical
Maintenance 2/ C C C C C C C C C C C
5. Water
a. Distribution N/A C C N/A C N/A C C C C N/A
b. Fixtures N/A C C N/A C N/A C C C C N/A
</TABLE>
- - ---------------------
A - Airline
B - Commission
1/ Airline shall be responsible for any light fixtures installed by Airline.
2/ Airline shall be responsible for any electrical fixtures or services
installed by Airline.
NOTE: All areas not part of Airline's Airline Premises shall be Commission's
responsibility; provided, however, Commission shall not be responsible for any
systems or services installed by Airline, or systems and services installed by
Commission, but modified by Airline, unless otherwise agreed to by the parties
hereto.
<PAGE> 5
EXHIBIT B
Savannah Airport Commission
Savannah International Airport
Airline Operating Agreement
<TABLE>
<CAPTION>
RESPONSIBILITY OF COMMISSION AND AIRLINE FOR MAINTENANCE AND OPERATION OF AIRPORT
=======================================================================================================
EXCLUSIVE AIRLINE USE
----------------------------------------------------------------
Upper Level
Ticket and V.I.P. Bag Operations Unenclosed
Counters Ticket Offices Rooms Makeup Areas Areas
-------- --------------- ----- ------ ----- -----
<S> <C> <C> <C> <C> <C> <C>
6. Sewage
a. Distribution N/A C C N/A C N/A
b. Fixtures N/A A A N/A A N/A
7. Maintenance
a. Other than Structure A A A A A A
b. Structure C C C C C C
c. Exterior N/A N/A C C C C
8. Custodial Service A A A A A A
9. Window Cleaning
a. Exterior N/A C C N/A C N/A
b. Interior N/A A A N/A A N/A
<CAPTION>
AIRLINE
PREFERENTIAL
JOINT AIRLINE USE USE
--------------------------- ----------------
Baggage Tug Aircraft Hold
Security Claim Drives Aprons Rooms
-------- ----- ------ ------ -----
6. Sewage
a. Distribution C C C C N/A
b. Fixtures C C C C N/A
7. Maintenance
a. Other than Structure C C C N/A C
b. Structure C C C C C
c. Exterior C C C N/A C
8. Custodial Service C C C A A
9. Window Cleaning
a. Exterior C C C N/A C
b. Interior C C C N/A A
</TABLE>
- - --------------
A - Airline
C - Commission
1/ Airline shall be responsible for any light fixtures installed by Airline.
2/ Airline shall be responsible for any electrical fixtures or services
installed by Airline
NOTE: All areas not part of Airline's Airline Premises shall be Commission's
responsibility; provided, however, Commission shall not be responsible for any
systems or services installed by Airline, or systems and services installed by
Commission, but modified by Airline, unless otherwise agreed to by the parties
hereto.
<PAGE> 1
EXHIBIT 10.23
Exhibit A
[FLOOR PLAN]
<PAGE> 2
Exhibit B
[FLOOR PLAN]
<PAGE> 3
Greenville-Spartanburg Airport Use Agreement
SCHEDULE OF M&O RESPONSIBILITY
<TABLE>
<CAPTION>
Exclusive Space Preferential Space Joint Use Space
------------------------------------------------------------------- ---------------------------- ---------------
Ticket Back BMU Bag Serv. L/Lvl U/Lvl VIP Departure Loading A/C Park Bag Tug
Counter Office Enclosed Office Ops. Space Ofc. Space Rooms Lobbies Bridges Pos. Claim Drives
------- ------ -------- --------- ---------- ---------- ----- --------- ------- -------- ----- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
HVAC
Supply Lessor Lessor Lessor Lessor Lessor Lessor Lessor Lessor NA NA Lessor NA
Maint. Lessor Lessor Lessor Lessor Lessor Lessor Lessor Lessor NA NA Lessor NA
BLDG MAINT.
& REPAIR
Structure
/roof Lessor Lessor Lessor Lessor Lessor Lessor Lessor Lessor Lessor NA Lessor Lessor
Exterior Lessor Lessor Lessor Lessor Lessor Lessor Lessor Lessor Lessor NA Lessor Lessor
Windows NA NA NA Lessor-R Lessor-R Lessor-R Lessor-R Lessor L-R NA Lessor NA
Doors Lessor-R Lessor-R Lessor-R Lessor-R Lessor-R Lessor-R Lessor-R Lessor Lessor-R NA Lessor NA
Interiors Lessee Lessee Lessee Lessee Lessee Lessee Lessee Lessee Lessor-R NA Lessor NA
Plumbing Lessor Lessor Lessor Lessor Lessor Lessor Lessor Lessor NA NA Lessor NA
Sewer Sys. Lessor Lessor Lessor Lessor Lessor Lessor Lessor Lessor NA NA Lessor Lessor
Sewer Chg. Lessor Lessor Lessor Lessor Lessor Lessor Lessor Lessor NA Lessor Lessor Lessor
ELECTRICAL
Relamp &
Bal. Lessor Lessor-R Lessor-R Lessor-R Lessor-R Lessor-R Lessor-R Lessor Lessor-R NA Lessor Lessor
Ceil.Fix
/Recpt. Lessor Lessor-R Lessor-R Lessor-R Lessor-R Lessor-R Lessor-R Lessor Lessor-R NA Lessor Lessor
Other Lessor Lessor-R Lessor-R Lessor-R Lessor-R Lessor-R Lessor-R Lessor Lessor-R NA Lessor Lessor
Consumpt. Lessor Lessor Lessor Lessor Lessor Lessor Lessor Lessor Lessor-R Lessor Lessor Lessor
CONVEYORS Lessor-R NA Lessor-R NA NA NA NA NA NA NA Lessor NA
LDING BRDG
MAINT. PWR NA NA NA NA NA NA NA NA Lessor-R NA NA NA
PAVING
Fuel Spl.
Rec. NA NA NA NA NA NA NA NA NA Lessor-R NA Lessor
Sweep &
Clean NA NA NA NA NA NA NA NA NA Lessee NA Lessor
Snow/Ice
Remove NA NA NA NA NA NA NA NA NA Lessor NA Lessor
Striping NA NA NA NA NA NA NA NA NA Lessor-R NA NA
JANITORIAL Lessee Lessee Lessee Lessee Lessee Lessee Lessee Lessor Lessor Lessee Lessor NA
WINDOW WASHING NA NA NA Lessee Lessee Lessee Lessee Lessor NA NA Lessor NA
TRITURATOR
Maint. NA NA NA NA NA NA NA NA NA Lessor-R NA NA
Opertn. NA NA NA NA NA NA NA NA NA Lessee NA NA
WATER SUPPLY Lessor Lessor Lessor Lessor Lessor Lessor Lessor Lessor NA Lessor Lessor Lessor
WATER CONSUMP. Lessor Lessor Lessor Lessor Lessor Lessor Lessor Lessor NA Lessor Lessor Lessor
STORM SEWER
CONN. NA NA NA NA NA NA NA NA NA Lessor NA NA
STORM SEWER
CHG. NA NA NA NA NA NA NA NA NA Lessor NA NA
</TABLE>
NOTES: Lessor = cost and expense Lessee = cost and expense
to be borne by Lessor and to be borne by Lessee
included in rent.
Lessor-R = cost and expense NA = Not Applicable
to be borne by Lessor and
reimbursed by Lessee.
Exhibit D
M&O Responsibilities
<PAGE> 4
SCHEDULE OF RENTAL RATES
<TABLE>
<S> <C> <C>
EXCLUSIVE AND PREFERENTIAL USE SPACE:
- - -------------------------------------
Ticket Counter $ 44.97 psfpa
---------
Ticket Office $ 44.97 psfpa
---------
Baggage Make Up $ 44.97 psfpa
---------
Passenger Hold Room $ 44.97 psfpa
---------
Bag Service Office N/A psfpa
---------
Operations Office N/A psfpa
---------
Passenger Loading Bridges $ 35,653 per year each
-------------------------
Boarding Bridge Monthly M&O $ 65.00 per month
---------
JOINT USE SPACE:
- - ----------------
Baggage Claim Area $ 22.48 psfpa
---------
Tug Drive $ 22.48 psfpa
---------
Curbside Check-In $4,700.04 per annum
---------
</TABLE>
Exhibit C
<PAGE> 5
Exhibit E
[FLOOR PLAN]
<PAGE> 1
EXHIBIT 10.24
[FLOOR PLAN]
<PAGE> 2
EXHIBIT 10.24
SECTION IX
THE COUNTER FACILITIES
EXHIBIT "G"
<PAGE> 3
EXHIBIT 10.24
Exhibit G
Ticket Counter Facilities
[FLOOR PLAN]
<PAGE> 4
EXHIBIT 10.24
Exhibit G(2)
[FLOOR PLAN]
<PAGE> 5
EXHIBIT 10.24
EXHIBIT A
AMENDMENT #2
[FLOOR PLAN]
<PAGE> 6
EXHIBIT 10.24
NORFOLK INTERNATIONAL AIRPORT
TERMINAL COMPLEX MAINTENANCE
RESPONSIBILITY (including cost) A-Authority; C-Carrier; NA-Not Applicable
<TABLE>
<CAPTION>
A/L TXT. A/L OPNS. A/L OFFICES A/L BAGGAGE A/L BAGGAGE
COUNTER TERMINAL TERMINAL MAKE-UP CLAIM AREA
SPACE BUILDING BUILDING AREA
<S> <C> <C> <C> <C> <C>
1. Building
a. Structural A A A A A
b. Exterior NA NA NA A A
c. Interior
1. Partitioning C C C C A
2. Redecorating C C C C A
3. General C C C C A
Electric Power
a. Delivery System A A A A A
b. Illumination NA NA NA NA A
1. Fixtures C C C C A
2. Re-lamp C C C C A
c. Power (misc.) A A A A A
Plumbing
a. Water A A A A A
b. Water Delivery System A A A A A
c. Fixtures C C C C A
d. Sewerage A A A A A
Environmental
a. Heating Systems A A A A A
b. Cooling Systems A A A A A
c. Tempered Ventilation A A A A A
d. Delivered Air A A A A A
Baggage Devices
a. Claim Systems NA NA NA NA A
b. Make-up Systems (Conveyer) C NA NA A NA
Custodial Cleaning Service
a. Windows Exterior NA C C NA A
b. Windows Interior NA C C NA A
c. Floor Cleaning C C C C A
d. Floor Waxing C C C C A
e. Walls-Ceiling-Fixtures C C C C A
f. Doors C C C C A
g. Trash Removal C C C C A
h. Office Furniture/Equip C C C C A
Exterior Grounds
a. Paving NA NA NA NA NA
b. Landscaping NA NA NA NA NA
c. General Maintenance NA NA NA NA NA
<CAPTION>
A/L SPACE A/L OFFICES A/L HOLD RAMP CART OTHER
1st LEVEL CONCOURSE AREAS AREAS ROUTE AREAS
CONCOURSE CONCOURSE
<S> <C> <C> <C> <C> <C> <C>
1. Building
a. Structural A A A A A A
b. Exterior A A A A A A
c. Interior
1. Partitioning C C C NA A A
2. Redecorating C C C NA A A
3. General C C C NA A A
Electric Power
a. Delivery System A A A A A A
b. Illumination NA NA NA A A A
1. Fixtures C C C A A A
2. Re-lamp C C C A A A
c. Power (misc.) A A A A A A
Plumbing
a. Water A A A C A A
b. Water Delivery System A A A A A A
c. Fixtures C C C C A A
d. Sewerage A A A A A A
Environmental
a. Heating Systems A A A NA A A
b. Cooling Systems A A A NA A A
c. Tempered Ventilation A A A NA A A
d. Delivered Air A A A NA A A
Baggage Devices
a. Claim Systems A NA NA NA A NA
b. Make-up Systems (Conveyer) C NA NA NA NA NA
Custodial Cleaning Service
a. Windows Exterior C C C NA NA A
b. Windows Interior C C C NA NA A
c. Floor Cleaning C C C C A A
d. Floor Waxing C C C NA A A
e. Walls-Ceiling-Fixtures C C C NA A A
f. Doors C C C NA A A
g. Trash Removal C C C C A A
h. Office Furniture/Equip C C C NA NA A
Exterior Grounds
a. Paving NA NA NA A NA A
b. Landscaping NA NA NA NA NA A
c. General Maintenance NA NA NA A NA A
</TABLE>
<PAGE> 7
EXHIBIT 10.24
[FLOOR PLAN]
<PAGE> 8
EXHIBIT 10.24
EXHIBIT B
SEATING UNITS
GATE #20
AIR SOUTH
<PAGE> 9
<TABLE>
<S> <C> <C>
NORFOLK AIRPORT AUTHORITY PURCHASE ORDER NO. 18858
Norfolk International Airport/Norfolk, Va 23518-5897/(804)857-3351 THIS NUMBER MUST
FAX (804) 857-3599 (804) or 857-3265 APPEAR ON ALL INVOICES
PACKAGES, CARTONS, ETC.
ACCOUNTING DEPARTMENT SHIP TO ATTENTION OF:
Chasen's Business Interiors Norfolk Airport Authority
----------------------------------------------------- ------------------------------------------
Attn: George Desgain Robert Bowen
----------------------------------------------------- ------------------------------------------
5365 Robin Hood Road Same as above
----------------------------------------------------- ------------------------------------------
Norfolk, VA 23513
----------------------------------------------------- ------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PURCHASE ORDER DATE ALL SHIPMENTS F.O.B. ORDERED BY REQ. NUMBER
05/06/96 DESTINATION UNLESS SPECIFIED R. BOWEN 17662
- - ------------------------------------------------------------------------------------------------------------------------------------
QTY DESCRIPTION PRICE PER AMOUNT
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
80 KIAA-4-A BL, Kalo modular armchairs, black frame, 305.00 24,400.00
- - ------------------------------------------------------------------------------------------------------------------------------------
black vinyl upholstery. To become 4-seat ganged units,
- - ------------------------------------------------------------------------------------------------------------------------------------
freestanding. Price includes delivery and installation.
- - ------------------------------------------------------------------------------------------------------------------------------------
AIR SOUTH HOLD ROOM - GATE # 20
- - ------------------------------------------------------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------------------------------------------------
RETURN TO R. S. BOWEN FOR MAIL TO ORDER
- - ------------------------------------------------------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------------------------------------------------
10 yrs @ 7.04, $283.30 p.m.
- - ------------------------------------------------------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------------------------------------------------
TAX EXEMPT
- - ------------------------------------------------------------------------------------------------------------------------------------
TOTAL 24,400.00
- - ------------------------------------------------------------------------------------------------------------------------------------
NORFOLK AIRPORT AUTHORITY
By /s/ William A. Jones
--------------------------------------------------------------
</TABLE>
<PAGE> 10
CHASEN'S BUSINESS INTERIORS INVOICE NO. N25277
DIRECT CORRESPONDENCE TO: REMIT TO: INVOICE DATE 06/27/96
2922 WEST MARSHALL STREET CBI, INC. SHIP DATE 06/26/96
RICHMOND, VIRGINIA 23230-4891 DEPT. 78304 TERMS NET 15 DAYS
PHONE 804-355-1768 P.O. BOX 77000
1-800-765-2427 DETROIT, MI 48278
SOLD TO SHIP TO
NORFOLK AIRPORT AUTHORITY NORFOLK AIRPORT AUTHORITY
NORFOLK INTERNATIONAL AIRPORT NORFOLK INTERNATIONAL AIRPORT
NORFOLK, VA 23543 NORFOLK, VA 23513
ATTN: ROBERT BOWEN ATTN: ROBERT BOWEN
NA0819 PHONE: (804) 857-3351
A FINANCE CHARGE OF 1 1/2% PER MONTH WHICH IS AN ANNUAL
PERCENTAGE RATE OF 18% WILL BE CHARGED ON ACCOUNTS PAST DUE 30 DAYS OR MORE.
<TABLE>
<CAPTION>
CUSTOMER PURCHASE ORDER NO. SALES ORD. NO. JOB NO. SALESPERSON
- - -------------------------------------------------------------------------------
18858 N12722 N12722 GEORGE DESGAIN
- - -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
QUANTITY CATALOG NO. DESCRIPTION UNIT PRICE TOTAL
- - -------------------------------------------------------------------------------
PLEASE REFERENCE INVOICE NUM-
BER ON REMITTANCE. DEPOSITS
ARE PRORATED ON APPLICABLE
INVOICES AS INDICATED.
20 KIAA-4-A BL/2VBL KALO "A" BASE 1220.00 24400.00
INTEGRAL ARM CHAIR/BLACK
FRAME & ARM REST/
UPH IN GRADE 2 VINYL-BLACK
#2VBL/4 SEAT UNITS GANGED
1 LOT INSTALLATION .00 .00
BALANCE DUE 24400.00
- - --------------------------------------------------------------------------------
ORIGINAL CUSTOMER INVOICE
</TABLE>
<PAGE> 11
[PARKING LOT]
<PAGE> 1
EXHIBIT 10.25
EXHIBIT A
AIRPORT LAYOUT AND COST CENTER PLAN
CHARLESTON INTERNATIONAL AIRPORT
CHARLESTON SOUTH CAROLINA
PEAT, MARWICK, MITCHELL & CO. DECEMBER 1982
[MAP]
<PAGE> 2
EXHIBIT B
EXISTING TERMINAL BUILDING
CHARLESTON INTERNATIONAL AIRPORT
DECEMBER, 1982
[FLOOR PLAN]
<PAGE> 3
EXHIBIT C - AIR SOUTH, INC.
PREMISES IN NEW TERMINAL BUILDING FOLLOWING DBO
CHARLESTON INTERNATIONAL AIRPORT
CHARLESTON, SOUTH CAROLINA
[FLOOR PLAN]
<PAGE> 4
EXHIBIT D
PREFERENTIAL-USE GATE ASSIGNMENT PLAN
CHARLESTON INTERNATIONAL AIRPORT
CHARLESTON, SOUTH CAROLINA
[FLOOR PLAN]
<PAGE> 1
EXHIBIT 10.26
AIRPORT LICENSE AND AGREEMENT
This Airport License and Agreement ("License") is entered into this
__________ day of _________, 19___, between the City of Chicago, a municipal
corporation and a home rule unit of local government under Sections 1 and
6(a), respectively, of Article VII of the 1970 Constitution of the State of
Illinois ("Licensor"), and _______________________________, a corporation duly
organized and existing under the laws of the State of _____________________
("Licensee").
In consideration of the mutual promises and covenants set forth
herein, Licensor and Licensee agree as follows:
1. Airport Use. Subject to the terms and conditions set forth
herein, Licensor grants to Licensee a nonexclusive right to use
_______________________________________________________________ ("Airport")
solely for the landing, taking off, flying over, taxiing, loading, and
unloading of aircraft operated by Licensee, and any functions incidental
thereto. In furtherance thereof, Licensee may be permitted to use such apron
and ramp areas for loading and unloading as may be designated by the
Commissioner of the Department of Aviation ("Commissioner"). This License shall
not enlarge or diminish Licensee's rights regarding any use of other airport
facilities to which it may be entitled by virtue of other contractual
relationships.
2. Term. The term of the License shall be for one calendar
month, commencing on _______________________________, and continuing for
additional periods of one calendar month each, not to exceed a total of three
years. The License is revocable at will by the Commissioner, with or without
cause, provided the Commissioner first gives Licensee thirty (30) days written
notice in accordance with the terms and conditions hereof. Licensee shall
provide Licensor with written notice no less than thirty (30) days prior to
discontinuance of operations at the Airport.
3. Fees and Charges. In return for the use of the facilities and
for the privileges granted herein, Licensee agrees to pay Licensor the
Signatory, Non Party or such other rate for fees and charges at the Airport,
identified in Paragraph 1 herein, as may be applicable, without need for notice
or demand by Licensor and without deduction or set off.
No additional charges shall be assessed in the event Licensee's
aircraft from the Airport for another destination, and the aircraft, without
making a stop at some other airport, is forced to return to and land at the
Airport because of meteorological conditions, mechanical or operating causes,
or for any similar emergency or precautionary reason.
<PAGE> 2
4. Monthly Activity Report. Licensee shall furnish to Licensor
on or before the 10th day of each month, in such form and detail as may be
requested by the Commissioner, a true and accurate report of Licensee's
operations at the Airport during the preceding month, setting forth all data
necessary to calculate the fees and charges due and owing the City. This
report shall include, but shall not necessarily be limited to, Licensee's total
number of landings for the month by type of aircraft; the maximum gross
certified landing weight of each aircraft; the total number of enplaning and
deplaning passengers; and the amount of cargo, freight, and mail loaded and
unloaded for such month. Licensor shall certify the report and send it to the
Commissioner in care of the Department of Aviation Administrative Office, 20
North Clark, Suite 3000, Chicago, Illinois 60602.
5. Method of Payment of Fees and Charges. Following receipt of
the monthly activity report, Licensor shall transmit to Licensee a statement of
the fees and charges incurred by Licensee during the reported month and the
fees and charges shall be paid by Licensee no more than fifteen (15) days after
the date of the statement. Notwithstanding acceptance by Licensor of any
payment made by Licensee, Licensor shall have the right to question the
accuracy of Licensee's report, and to audit Licensee's records upon which such
reports were based. Licensee agrees to maintain original copies of all such
reports for a minimum of three years from the date of creation and to make
them readily available at the Department of Aviation Administrative Office,
upon reasonable demand therefor by Licensor.
If Licensee fails to furnish Licensor with the monthly activity
report when due, Licensee's landing fee shall be determined by assuming that
the total landing weight for such month was 200% of its total landed weight for
the highest reported month for which such data is available for Licensee. Any
necessary adjustment in such landing fee shall not be calculated by Licensor
until an accurate report is delivered to Licensor by Licensee. Resulting
surpluses or deficits shall be applied as credits or charges to the statement
issued for the next succeeding month.
Licensee shall make all payments when due at the office of the City
Comptroller, Room 501, City Hall, 121 N. LaSalle Street, Chicago, Illinois
60602, or at such other place as may be designated by the Office of the City
Comptroller.
6. Rules and Regulations. Licensee shall comply with all
applicable Federal, State, and local government laws, rules, and regulations,
including without limitation the rules, regulations, and ordinances of
Licensor, which are now or hereafter in effect.
7. Indemnification. Licensee agrees to indemnify, defend, save,
and hold Licensor fully harmless from and against all
-2-
<PAGE> 3
liabilities, losses, suits, claims, judgments, fines, or demands of every kind
and nature (including all reasonable costs for investigation, reasonable
attorneys' fees, court costs, and expert's fees) arising from, related to, or
caused by Licensee's use of, or occupancy of, or operations at the Airport;
provided, however, that Licensee shall not be liable solely and to the extent
any injury, damage or loss is caused by the gross negligence of Licensor, its
agents, officials, or employees.
8. Non-Liability of Licensor. Licensor shall not be liable for
any acts or omissions of Licensee, or its agents, servants, officials,
employees, or independent contractors; or for any conditions resulting from the
operations or activities of Licensee, its agents, servants, employees,
officials, or independent contractors; or for any loss or damage to any
personal property or equipment of Licensee, it agents, servants, employees,
officials, or independent contractors.
9. Insurance. Licensee shall, at its own expense, procure and
keep in force at all times during the term of this License, or any renewal
thereof, with a company acceptable to Licensor, insurance with such coverages
and limits as may be reasonably directed by the Licensor's Risk Manager, but in
no event less than that required by the guidelines issued by the Airport
Operators Council International ("AOCI"). Licensee shall cause Licensor to be
named as an additional insured on all such policies and shall furnish
Licensor's Risk Manager with proper certificate evidencing that such insurance
is in force. At least thirty (30) days notice must be given to Licensor prior
to cancellation of or change in insurance coverage. Licensor reserves the
right to change the insurance requirements during the term of the License.
10. Security. Concurrent with the execution of this License,
Licensee shall deposit with the Comptroller of the City of Chicago
("Comptroller") security in such form and amount as may be reasonably requested
by Licensor to guarantee Licensee's performance of its obligations hereunder.
11. Delinquent Fees. There shall be added to all sums due
Licensor by way of this License an interest charge of 1/2% of the principal sum
for each full calendar month of delinquency, or 18% per annum, computed as
simple interest. No interest shall be charged upon that portion of any debt
which, in good faith, is in dispute. No interest shall be charged upon any
account until payment is thirty (30) days overdue, but interest shall be
computed and assessed as of the original due date.
12. Non-Discrimination Clause. Licensee for itself, its personal
representatives, successors in interest, and assigns, does hereby covenant and
agree:
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(a) That no person on the grounds of race, creed, color,
religion, age, sex, or national origin shall be excluded from
participation in, denied the benefits of, or be otherwise
subjected to discrimination in the use of its facilities.
(b) That in the construction of any improvements on, over, or
under such facilities and the furnishing of services thereon,
no person on the grounds of race, creed, color, religion,
age, sex, or national origin shall be excluded from
participation in, denied the benefits of, or otherwise be
subjected to discrimination.
(c) That Licensee shall use the Airport in compliance with all
other requirements imposed by or pursuant to Title 49, Code
of Federal Regulations, Department of Transportation, Office
of the Secretary, Part 21, Subtitle A, Nondiscrimination in
Federally-assisted programs of the Department of
Transportation, Effectuation of Title VI of the Civil Rights
Act of 1964, as may be amended.
(d) That Licensee shall furnish services on a fair, equal, and
not unjustly discriminatory basis to all users thereof and
shall charge fair, reasonable, and not unjustly
discriminatory prices for each unit of service; provided that
Licensee may be allowed to make reasonable and
nondiscriminatory discounts, rebates, or other similar types
of price reduction to volume purchasers.
13. Not Exclusive Right. It is hereby agreed that nothing herein
contained shall be construed to grant, or authorize the granting of, an
exclusive right prohibited by Section 308 of the Federal Aviation Act of 1958,
as amended, and Licensor reserves the right to grant to others the privilege
and right of conducting any one or all activities of an aeronautical nature.
14. Notices. Notices shall be in writing and shall be delivered
personally or by registered mail, return receipt requested, to the following:
Licensor: Commissioner
Department of Aviation
20 North Clark Street
Suite 3000
Chicago, Illinois 60602
Licensee:
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or such other place as either party shall in writing designate in the manner
provided herein. Notices delivered personally shall be effective upon receipt.
Notices delivered by mail shall be effective upon date of mailing.
15. Operations. Licensee shall be responsible for any and all
charges incurred in connection with its operations under this License.
Licensee shall further restore and replace any property damaged as a result of
Licensee's operations. Licensee shall conduct its operations in a clean,
sanitary, and safe manner, and be responsible for any maintenance which is a
result of Licensee's operations.
16. Not assignable. This License is personal and is granted
solely to the Licensee identified herein and shall not be assigned to or
assumed by any other party.
17. Certifications. Licensee shall provide Licensor with such
proof that Licensor is a validly licensed and certified aircraft operator, that
Licensor is authorized to do business and is in good standing in Illinois, and
that Licensor is fiscally sound, all as may be reasonably requested by
Licensor. Licensee shall further complete such certificates as may be
reasonably be requested by Licensor in connection with the execution of public
contracts or as may be required by law.
18. Authority. Execution by Licensor is authorized by ordinance
passed by the City Council of the City of Chicago on ________________________
(C.J.P., p. _____________ ). Execution by Licensee is authorized
by _____________________________________________________.
19. Applicable Law. This Agreement shall be deemed to have been
made in, and shall be construed in accordance with, the laws of the State of
Illinois.
20. Prior Agreements. This Agreement shall supersede all prior
agreements between Licensor and Licensee.
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IN WITNESS WHEREOF, the parties have caused this License to be
executed on the date first written above.
Approved: CITY
- - -------------------------- ---------------------------------
City Comptroller Commissioner
Department of Aviation
APPROVED AS TO FORM AND LEGALITY:
- - ---------------------------
Corporation Counsel.
AIRLINE
--------------------------------
By:
----------------------------
Title:
-------------------------
Agent in Illinois for Service ATTEST:
of Notice or Process:
---------------------------------
Name: By:
--------------------------- ------------------------------
Title:
--------------------------
Address:
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[MAP OF CHICAGO MIDWAY AIRPORT]
<PAGE> 8
[MAP OF CHICAGO MIDWAY AIRPORT TERMINAL BUILDING]
<PAGE> 9
CHICAGO MIDWAY AIRPORT
FACILITIES LICENSE
FOR THE USE OF CITY-CONTROLLED FACILITIES
This facilities license agreement ("License") is made and entered into
this ________________________ day of ____________________________ ,
____________ , by and between the City of Chicago, acting through its
Department of Aviation ("City"), and ______________________________________, a
________________________________________________________ ("Airline").
RECITALS
WHEREAS, Licensor operates an airport known as Chicago Midway Airport
("Airport"), and possesses the power and authority to lease premises and
facilities and to grant other rights and privileges with respect thereto; and
WHEREAS, Licensee desires to use certain space at the Airport, more
specifically identified on Exhibit 1, attached hereto and incorporated by
reference herein ("Facilities"), in order to conduct operations related to its
air transportation business; and
WHEREAS, Licensor is willing to permit the use of the Facilities,
subject to certain terms and conditions;
NOW, THEREFORE, in consideration of the promises and of the mutual
covenants and agreements herein contained, the parties hereto covenant and
agree as follows:
Article I Incorporation of Recitals
1.01 Incorporation of Recitals
The recitals set forth above are incorporated by reference as if fully
set forth herein.
Article II Facilities
2.01 Use of Facilities
Licensor hereby grants, and Licensee hereby accepts, a License for the
use of the Facilities, subject to the terms and conditions of this License, and
to all applicable Federal, State, and local laws, regulations, rules, codes,
ordinances, and executive orders, solely to conduct operations directly related
to its air transportation business and for no other
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purpose. The use of the Facilities by the Licensee shall be further subject to
those procedures and schedules established by the Commissioner of the
Department of Aviation ("Commissioner") in his sole discretion. This License
shall not be construed to grant Licensee the right to use the Facilities for
any purpose which would have been prohibited under the terms and conditions of
the Chicago Midway Airport Use Agreement and Facilities Lease authorized by
ordinance passed by the City Council of the City of Chicago on August 4, 1993
(C.J.P., p. 36496) ("Use Agreement").
2.02 Access
Licensee shall have ready and convenient access to the Facilities,
subject to the rules and regulations of the Airport, including, but not limited
to, the security and safety rules of the FAA and City. The License is subject
to a reservation of rights by Licensor for access to the Facilities for
maintenance, repair, and inspection. Licensor shall give Licensee reasonable
notice prior to its exercise of such right.
2.03 Relocation
If at any time before the termination, by expiration or otherwise, of
this License, Licensor desires to change the location of the Facilities, such
relocation shall be at the expense of Licensee. Licensor shall give notice to
Licensee of Licensor's intent to relocate Licensee thirty (30) days prior to
the effective date of the relocation. Such notice shall include a description
of the new facilities and the effective date of such relocation. The terms and
conditions of this License shall apply to the new premises under such
relocation and Exhibit 1 hereto may be revised by the Licensor to show the
relocated facilities without need for a formal amendment to this License.
2.04 Present Condition of the Facilities
Licensee, by the execution of this License, accepts the Facilities in
an "as-is" condition. Licensor makes no warranty, either express or implied,
as to the condition of the Facilities or that the Facilities will be suitable
for Licensee's purposes or needs.
2.05 Modifications to Facilities
(a) Subject to the prior written approval of the Commissioner,
Licensee may, from time to time, install equipment and improvements and modify
or expand existing facilities or improvements in the Facilities to which it has
been granted exclusive use if any. Before entering into any contract for such
work, Licensee shall first submit to the Commissioner for prior written
approval a construction application together with complete plans and
specifications of the proposed work. If requested by the Commissioner,
Licensee shall require the contractor to furnish a performance bond and payment
bond, approved as to form and substance by the Commissioner. The approval of
the construction application and plans and specifications shall not be
unreasonably withheld. Licensee shall reimburse the Commissioner for the cost
of any professional services
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needed in connection with the review of the construction plan, promptly upon
demand thereof.
(b) Licensee shall, and shall cause its contractor(s) to,
indemnify, hold harmless, and defend City, its officers, agents, and employees
against losses (except to the extent such losses are caused by City's
negligence), occasioned by death, injury to persons or damage to property,
arising out of or in connection with the performance of construction work,
against the risk of loss or damage to the construction prior to the completion
thereof, and against losses resulting from claims and demands by third persons
arising out of the performance of the construction work. Licensee shall
provide, or shall require its contractor(s) to provide, liability insurance
covering the foregoing, and naming the City as an additional insured. Licensee
shall also include in any construction contract such provisions as may
reasonably be required by the Commissioner relating to the operation of the
contractor at the Airport.
(c) All work performed by Licensee or its contractor(s), including
all workmanship and materials, shall be of acceptable quality and shall be
performed in accordance with the plans and specifications approved by the
Commissioner. Such work may be inspected by the Commissioner, or the
authorized representative of the Commissioner, at any time. Licensee shall
reimburse the Commissioner for the reasonable costs of such inspection,
promptly upon demand therefor.
(d) Licensee shall deliver to the Commissioner "as built" drawings
of the work performed by it and shall keep such drawings current, showing any
changes or modifications made in or to the Facilities.
(e) Licensee shall discharge when due all obligations to
contractors, subcontractors, materialmen, workmen, suppliers, and others for
all work performed and for all materials furnished for or on account of
Licensee.
(f) Licensee shall keep the Facilities and the equipment and
improvements situated thereon free and clear of any and all liens in any way
arising out of the construction, improvement, or use of the Facilities by
Licensee; provided, however, that Licensee may in good faith contest the
validity of any lien.
2.06 Utilities
Licensee shall be responsible for payment of all cost of water,
electricity, natural gas, telephone service, and all other utility services in
connection with its use of the Facilities, whether furnished by Licensor or
purchased by Licensor on behalf of Licensee, or furnished to Licensee by
independent contractors.
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2.07 Taxes, Licenses, and Permits
Licensee shall pay all taxes and obtain all necessary licenses,
inspections, permits, certificates or other authorizations needed in connection
with its use of the Facilities.
2.08 Operations
Licensee shall be responsible for any and all charges incurred in
connection with its operations. Licensee shall further restore and replace any
property damaged as a result of Licensee's operations. Airline shall conduct
its operations in a clean, sanitary, and safe manner, and shall be responsible
for any maintenance which is a result of Licensee's operations.
2.09 Non-assignment
This License is personal and is granted solely to Licensee and solely
for the purposes stated herein. Licensee shall not assign this License to any
other party without the written consent of the Commissioner. Any attempted
assignment without such consent shall be void and without effect as to the
Licensor.
Article III Duration of License
3.01 Duration of License
Licensee understands and agrees that the property interest established
by this License is a license, and not a lease, as that term is defined by
applicable law, and that the License is revocable at will by the Commissioner,
with or without cause, provided the Commissioner first gives Licensee thirty
(30) days written notice in accordance with the terms and conditions hereof. In
the event Licensee no longer possesses the necessary licenses, permits, or other
authorizations in connection with the use of the Facilities, or its air
transportation business, the Commissioner may revoke this License upon
ten (10) days notice. The duration of this License shall not exceed three
years from the date of issuance.
3.02 Vacation of Facilities
In the event Licensee intends to cease operations at the Airport,
Licensee shall provide Licensor with written notice no less than thirty (30)
days prior to its vacation of the Facilities.
3.03 Return of Facilities
(a) Licensee covenants and agrees to yield and deliver peaceably
to Licensor possession of the Facilities on the date of the termination, by
expiration or otherwise, of this License, promptly and in as good condition as
at the issuance of the License,
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reasonable wear and tear excepted or, if improved, in as good condition as of
the completion date of the last improvement made to the Facilities, reasonable
wear and tear excepted.
(b) The personal property owned and placed or installed by
Licensee in or on the Facilities shall remain the property of Licensee and must
be removed on or before the termination, by expiration or otherwise, of the
License, at the Licensee's sole risk and expense. Any damage to the Airport,
the structure, the Facilities, or any fixtures or improvements located therein,
resulting from such removal shall be paid for by Licensee. Upon the
termination, by expiration or otherwise, of this License, Licensee shall have
thirty (30) days during which to remove such property; provided, however,
Licensor shall have the right to assert such lien or liens against said
property as Licensor may by law be permitted. So long as any such property
remains in the Facilities, Licensee's obligation to pay any fees shall continue
with respect to the Facilities.
(c) If Licensee's property is not removed as herein provided,
Licensee shall be deemed to have waived its rights, if any, under the Forcible
Entry and Detainer Act, III. Rev. Stat. Ch. 110, P.9-101, and Licensor may, at
its option, deem such property abandoned and keep such property or, after
written notice to Licensee and at Licensee's sole risk and expense, remove such
property to a public warehouse for deposit, or retain the same in Licensor's
possession and after the expiration of thirty (30) days sell the same, with
notice and in accordance with applicable law, the proceeds of which shall be
applied first to the expenses of such removal and sale, second to any sum owed
by Licensee to Licensor, and any balance remaining shall be paid to Licensee.
Article IV Payment of License Fees
4.01 Basis of Payment
(a) If administrative or ticket counter space, Licensee shall pay
Licensor for the use of the Facilities a fee calculated by multiplying the
amount of square footage comprising the Facilities by 125% of the then current
Terminal Rental rate charged signatories to the Use Agreement. This fee will
be prorated based upon use if the Facilities have been used on a non-exclusive
basis.
(b) Licensee shall pay Licensor for the use of any Airport
equipment on a cost recovery basis.
(c) If gate or jetway facilities are sued, Licensee shall pay
Licensor a fee based on the current "per turn" rate.
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4.02 Place of Payment and Late Fees
(a) All amounts due from Airline hereunder shall be paid to the
City at the Office of the City's Comptroller or at such other place as may be
hereafter designated by the City's Comptroller.
(b) Any amount which is not paid within five (5) days of when due
and, if appropriate, invoiced, shall bear interest from its due date at a rate
10% per month.
(c) Notwithstanding the foregoing, Airline shall not abate,
suspend, postpone, setoff, or discontinue any payments of fees payable
hereunder.
4.03 Security Deposit
Licensee shall provide the City a security deposit equivalent to 60
days of estimated fees.
Article V Indemnity and Insurance
5.01 Indemnity
Licensee agrees to indemnify, defend, save, and hold Licensor fully
harmless from and against all liabilities, losses, suits, claims, judgments,
fines, or demands of every kind and nature (including all reasonable costs for
investigation, reasonable attorneys' fees, court costs, and expert's fees)
arising from, related to, or caused by Licensee's use of, or occupancy of, or
operations at the Airport; provided, however, that Licensee shall not be liable
solely and to the extent any injury, damage or loss is caused by the gross
negligence of Licensor, its agents, officials, or employees.
5.02 Insurance
Licensee agrees to provide insurance coverage equivalent to that
required under Section 13.02 of the Use Agreement.
Article VI Compliance
6.01 Compliance with all Laws
Licensee shall observe and comply with, and shall cause its
contractor(s) to observe and comply with, and pay all taxes and obtain all
licenses, certificates, and other authorizations required by, all applicable
Federal, state, county, and municipal laws, statutes, ordinances, and executive
orders, including, but not limited to, those set forth below. Licensee agrees
to make a part of and incorporate into this License, by reference or by setting
forth at length, at the option of the Licensor, any and all statutes, rules and
regulations required pursuant thereto which may now or hereafter be required by
any
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Federal, state, county, and municipal agency. Further, Licensee shall execute,
and shall cause its contractors to execute, a Contractor's Affidavit in the
form attached hereto as Exhibit 3.
Notwithstanding anything herein to the contrary, references herein to
a statute or law shall be deemed to be a reference to (i) such statute or law
as may be amended from time to time; (ii) all regulations and rules, pertaining
to or promulgated pursuant to such statute or law; and (iii) all future
statutes, laws, regulations, rules, and executive orders pertaining to the same
or similar subject matter.
a. Nondiscrimination
(1) Federal Requirements
This License involves the use of or access to space on, over
or under real property acquired or improved under federal aid
programs of the Federal Aviation Administration, and,
therefore, involves activity which serves the public. The
Licensee, for itself, its personal representative, successors
in interest, and assigns, as part of the consideration hereof,
does hereby covenant and agree that (i) no person on the
grounds of race, creed, color, religion, age, sex or national
origin shall be excluded from participation in, denied the
benefits of, or otherwise be subjected to discrimination in
the use of said facilities; or (ii) that no person on the
ground of race, creed, color, religion, age, sex, or national
origin shall be excluded from participation in, denied the
benefits of, or otherwise be subjected to discrimination in
the construction of improvements on, over, or under such land
and the furnishing of services thereon; and (iii) that
Licensee shall use the Facilities in compliance with all other
requirements imposed by or pursuant to regulations of the
United States Department of Transportation.
The Licensee further agrees to furnish services in the United
States in compliance with Federal law and on a fair and not
unjustly discriminatory basis, including prices for each unit
of service; provided, that the Licensee may be allowed to make
reasonable and nondiscriminatory discounts, rebates, or other
similar types of price reductions.
It shall be an unlawful employment practice for Licensee (i) to
fail or refuse to hire or to discharge any individual, or
otherwise to discriminate against any individual with respect
to his compensation, or the terms, conditions, or privileges of
his employment, because of such individual's race, color,
religion, sex, age, handicap/disability, or national origin; or
(ii) to limit, segregate, or classify his employees or
applicants for employment in any way which would deprive or
tend to deprive any individual of employment opportunities or
otherwise adversely affect his status as an employee,
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because of such individual's race, color, religion,
sex, age, handicap/disability, or national origin.
Licensee shall comply with The Civil Rights Act of
1964, 42 U.S.C. sec. 2000 et seq. (1981), as amended and the
Civil Rights Act of 1991, P.L. 102-166. Attention is called
to: Exec. Order No. 11,246, 30 Fed. Reg. 12,319 (1965),
reprinted in 42 U.S.C. 2000(e) note, as amended by Exec. Order
No. 11,375, 32 Fed. Reg. 14,303 (1967) and by Exec. Order No.
12,086, 43 Fed. Reg. 46,501 (1978); Age Discrimination Act, 42
U.S.C. sec. 6101-6106 (1981); Rehabilitation Act of 1973, 29
U.S.C. sec. 793-794 (1981); Americans with Disabilities Act,
42 U.S.C.; and 41 C.F.R. Part 60 et seq. (1990).
(2) State Requirements
Licensee shall comply with the Illinois Human Rights
Act, 775 ILCS 5/1-101 et seq., as amended and any rules and
regulations promulgated in accordance therewith, including,
but not limited to the Equal Employment Opportunity Clause, 5
Ill. Admin. Code Section 750 Appendix A. Furthermore, Licensee
shall comply with the Discrimination in Public Contracts Act,
775 ILCS 10/0.01 et seq. (1990), as amended.
(3) Municipal Code Requirements
Licensee shall comply with the Chicago Human Rights
Ordinance, ch. 2-160, section 2-160-010 et seq. of the Chicago
Municipal Code (1990), as amended. Further, Licensee shall
furnish and shall cause its contractors to furnish such
reports and information as requested by the Chicago Commission
on Human Relations.
(b) Ethics
Licensee warrants that no officer, agent or employee of Licensor is
employed by Licensee or has a financial interest directly or
indirectly in this License or the compensation to be paid hereunder,
except as may be permitted in writing by the Board of Ethics
established pursuant to be the Municipal Code of Chicago (Chapter
2-156); and that no payment, gratuity or offer of employment shall be
made in connection with this License by or on behalf of any contractor
or anyone associated therewith, as an inducement for the award of a
subcontract or order; and Licensee further acknowledges that any
contract entered into, negotiated, or performed in violation of any of
the provisions of Chapter 2-156 shall be voidable as to the Licensor.
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(c) Ineligibility
Licensee warrants that Licensee and, to the best of its
knowledge, its contractors are not in violation of the provisions of
Section 2-92-320 of Chapter 2-92 of the Municipal Code of Chicago,
and in connection therewith, and additionally in connection with the
Illinois Criminal Code, 720 ILCS 5/33E as amended, and the Illinois
Municipal Code, 65 ILCS 5/11-42.1-1.
(d) Inspector General
Licensee shall cooperate, and shall cause its contractors to
cooperate, with the Inspector General in any investigation or hearing
undertaken pursuant to Chapter 2-56 of the Municipal Code of Chicago.
(e) MacBride Ordinance
Licensor, through the passage of the MacBride Principles Ordinance,
seeks to promote fair and equal employment opportunities and labor
practices for religious minorities in Northern Ireland and provide
a better working environment for all citizens in Northern Ireland.
In accordance with Section 2-92-580 of the Municipal Code of Chicago,
if Licensee conducts any business Operations in Northern Ireland,
it is hereby required that Licensee shall make all reasonable and
good faith efforts to conduct any business operations in Northern
Ireland in accordance with the MacBride Principles for Northern
Ireland as defined in Illinois Public Act 85-1390 (1988 Ill. Laws
3220).
(f) Anti-Scofflaw
(1) In accordance with Section 2-92-380 of the Municipal
Code of Chicago and in addition to any other rights and
remedies (including any of set-off) available to the
Licensor under the License or permitted at law or in
equity, the Licensor shall be entitled to set off a
portion of any amounts due Licensee hereunder in an
amount equal to the amount of the fines and penalties
for each outstanding parking violation complaint and/or
the amount of any debt owed by Licensee to the
Licensor. For purposes of this section, "outstanding
parking violation complaint" means a parking ticket,
notice of parking violation or parking violation
complaint on which no payment has been made or
appearance filed in the Circuit Court of Cook County
within the time specified on the complaint. "Debt"
means a specified sum of money owed to the Licensor for
which the period granted for payment has expired.
(2) Notwithstanding the provisions of subsection 1 above,
no such Debt or outstanding parking violation complaint
shall be offset from the
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compensation hereunder if one or more of the following
conditions are met:
(i) Licensee has entered into an agreement with the
Department of Revenue, or other appropriate
department, for the payment of all outstanding
parking violation complaints and/or debts owed to the
Licensor and Licensee is in compliance with the
agreement; or
(ii) Licensee is contesting liability for or the amount of
the debt in a pending administrative or judicial
proceeding; or
(iii) Licensee has filed a petition in bankruptcy and the
debts owed the Licensor are dischargeable in
bankruptcy.
(g) Security Act
This License is expressly subject to the Aviation Security Improvement
Act of 1990 (P.L. 101-604), the provisions of which are hereby
incorporated by reference, including without limitation Sections 105,
109 and 110, and all rules and regulations promulgated thereunder. In
the event that Licensee, or any individual employed by Licensee, has
(i) unescorted access to aircraft located on or at the Licensor's
airports; (ii) unescorted access to secured areas; or (iii)
capability to allow others to have unescorted access to such aircraft
or secured areas, Licensee shall be subject to, and further shall
conduct with respect to its contractor(s) and the respective employees
of each, such employment investigations, including criminal history
record checks, as the Administrator of the Federal Aviation
Administration and the Licensor may deem necessary. Further, in the
event of any threat to civil aviation, as defined in the Act, Licensee
shall promptly report any information in accordance with those
regulations promulgated by the Secretary of the United States
Department of Transportation and by the Licensor. Finally, in the
event this License involves the construction, reconstruction,
demolition or alteration of facilities to be located at or on the
Licensor's airports, the Licensee shall perform such work in
compliance with those guidelines developed by the Licensor and the
Federal Aviation Administration with the objective of maximum security
enhancement.
6.02 Compliance with all Rules and Regulations
(a) Airline shall obey all Airport rules and regulations governing
the conduct and operations of the Airport, promulgated from time to time by
Licensor, provided, however, that such Airport rules and regulations must not
be inconsistent with the rules and regulations or orders of any Federal or
State agency having jurisdiction over the Airport. Except in cases of
emergency, no such rule or regulation shall be applicable to Licensee unless it
has been given fifteen (15) days prior written notice of the adoption thereof.
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(b) Upon written request of Licensee, Licensor shall supply
Licensee with a copy of Licensor's current Airport rules and regulations.
(c) Nothing herein shall be construed to prevent Licensee from
contesting in good faith any Airport rule or regulation without being in breach
thereof, so long as such contest is diligently commenced and prosecuted by
Licensee.
6.03 Nondisturbance
Any operations by Licensee or its contractor(s) shall be conducted in
an orderly and proper manner and shall not otherwise annoy, disturb, create a
hazard, or be offensive to others at the Airport, or interfere with other
projects on, or the operations of, the Airport, both landside and airside.
Airline shall promptly comply, and shall cause its contractor(s) to comply,
with any request from the Commissioner to correct demeanor or conduct. In the
event Licensee or its contractor(s) fails to so comply, Commissioner shall have
the right to stop any or all operations being performed, until such compliance
is achieved, without terminating this License. Licensor shall not be
responsible for any expense resulting from such stopping.
Article VII Notices
7.01 Notices
Any notice required pursuant to this License shall be mailed, telexed,
telecopied or personally delivered to the respective parties at the following
address:
IF TO LICENSOR:
___________________________
___________________________
___________________________
___________________________
IF TO LICENSEE:
___________________________
___________________________
___________________________
___________________________
Except as otherwise expressly provided hereunder, any notice or
communication under this License shall be deemed to have been given or made:
(a) if a messenger or courier service is used, when delivered to the
addressee; (b) if sent by mail (certified or otherwise), five (5) days after
being deposited in the mails, postage prepaid and properly addressed; and
(c) if sent by telex or telecopy, the earlier of (i) actual receipt by
addressee and (ii) twenty-four (24) hours after confirmation of transmission.
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<PAGE> 20
Article VIII General Conditions
8.01 Applicable Law
This License shall be deemed to have been granted in, and shall be
construed in accordance with, the laws of the State of Illinois.
8.02 Severability
If any provisions of this License shall be held or deemed to be or
shall in fact be inoperative or unenforceable as applied in any particular case
in any jurisdiction or in all cases because it conflicts with any other
provision or provisions hereof or of any constitution, statute, ordinance, rule
of law, or public policy, or for any other reason, such circumstances shall not
have the effect of rendering the provision in question inoperative or
unenforceable in any other case or circumstances, or of rendering any other
provision or provisions herein contained invalid, inoperative, or unenforceable
to any extent whatever. The invalidity of any one or more phrases, sentences,
clauses, or sections contained in this License shall not effect the remaining
portions of this License or any part thereof.
8.03 Amendments
No changes, amendments, modifications, or discharge of this License,
or any part thereof, shall be valid unless in writing and signed by the
authorized agent of Licensee and by the Commissioner or his respective
successors and assigns.
8.04 No Personal Liability
No official, employee, or agent of the City shall be charged
personally by Licensee, its officials, employees, agents, or contractors with
any liability or expenses of defense or be held personally liable to them under
any term or provision of this License, or because of the Licensor's execution
or attempted execution.
8.05 Subordination
This License shall be subordinate to any and all (i) agreements
between the Licensor and the Federal Aviation Administration and (ii) the Use
Agreement. The Licensee agrees that it shall not cause the Licensor to violate
any obligations of the Licensor to the Federal government in connection with
the granting of Federal funds, or in connection with its operation of the
Airport.
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<PAGE> 21
8.06 Entire Agreement
This License, and the exhibits attached hereto and incorporated
hereby, shall constitute the entire agreement between the parties and no other
warranties, inducements, considerations, promises, or interpretations shall be
implied or impressed upon this License that are not expressly addressed herein
and therein.
Article IX Authority
9.01 City's Authority
This License is issued pursuant to Section 5.02 of the Use Agreement.
Nothing contained in this License shall be construed to grant or authorize the
granting of an exclusive right to conduct an Air Transportation Business as
prohibited by Section 308(a) of the Federal Aviation Act of 1958, as amended,
and the City reserves the right to grant others the privileges and rights of
conducting any or all activities of an aeronautical nature.
9.02 Licensee's Authority
Execution of this License by Licensee is authorized by corporate
resolution, and the signature of each person signing on behalf of Licensee have
been made with complete and full authority to commit Licensee to all terms and
conditions of this License, including each and every representation,
certification, and warranty contained herein, attached hereto and collectively
incorporated by reference herein, or as may be required by the terms and
conditions hereof.
9.03 Licensee Airport License and Agreement
Licensee shall execute and comply with an "Airline License and
Agreement," as a condition precedent to the granting of this License.
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<PAGE> 22
IN WITNESS WHEREOF, the parties have caused this License to be
executed on the date first written above.
City: Licensee
- - --------------------------- By:
Commissioner -------------------------
Department of Aviation
Name:
----------------------
Title:
- - --------------------------- ----------------------
Comptroller
Approved as to form and legality: Attest
- - --------------------------- By:
Corporation Counsel -------------------------
Name:
-----------------------
Title:
----------------------
Licensee's Agent for Service of Process:
------------------------------
------------------------------
------------------------------
------------------------------
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<PAGE> 23
LICENSE
This license agreement ("License") is made and entered into this
_____________ day of ___________________, 1995, by and between the City of
Chicago, acting through its Department of Aviation ("City"), and
______________________, a __________________________________________________
__________________________________________________________________ ("Airline").
RECITALS
WHEREAS, City owns and operates an airport known as Chicago Midway
Airport ("Airport"), and possesses the power and authority to lease premises
and facilities and to grant other rights and privileges with respect thereto;
and
WHEREAS, Airline desires to use certain baggage claim devices
("Equipment") and the associated storage areas ("Storage Areas") at the Airport
which are owned by the City, as more specifically identified on Exhibit 1,
which is attached hereto and incorporated by reference herein ("Facilities");
and
WHEREAS, City is willing to permit the use of such Facilities, subject
to certain terms and conditions;
NOW, THEREFORE, in consideration of the promises and of the mutual
covenants and agreements herein contained, the parties hereto covenant and
agree as follows:
Article I Incorporation of Recitals
1.01 Incorporation of Recitals
The recitals set forth above are incorporated by reference as if fully
set forth herein.
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<PAGE> 24
Article II Facilities
2.01 Use of Facilities
a. City hereby grants, and Airline hereby accepts, a License for
the non-exclusive use of the Equipment, subject to the terms and conditions of
this License, and to all applicable Federal, State, and local laws,
regulations, rules, codes, ordinances, and executive orders.
City shall designate the usage of such Equipment and shall resolve all
disputes among the various airlines which concern the usage of such Equipment.
b. City hereby grants, and Airline hereby accepts, a License for
the use of a Storage Area, as designated by the Commissioner of the Department
of Aviation ("Commissioner") subject to the terms and conditions of this
License, and to all applicable Federal, State, and local laws, regulations,
rules, codes, ordinances, and executive orders.
2.02 Access
Airline shall have ready and convenient access to the Facilities,
subject to the rules and regulations of Airport, including, but not limited to,
the security and safety rules of the FAA and City. The License is subject to a
reservation of rights by City for access to the Facilities for maintenance,
repair, and inspection. City shall give Airline reasonable notice prior to its
exercise of such right.
2.03 Present Condition of the Facilities
AIRLINE, BY THE EXECUTION OF THIS LICENSE, ACCEPTS THE FACILITIES IN
AN "AS-IS" CONDITION. CITY MAKES NO WARRANTY, EITHER EXPRESS OR IMPLIED, AS TO
THE CONDITION OF THE FACILITIES OR THAT THE FACILITIES WILL BE SUITABLE FOR
AIRLINE'S PURPOSES OR NEEDS.
2.04 Operations
Airline shall be responsible for any and all charges incurred in
connection with its operations. Airline shall further restore and replace any
property damaged as a result of Airline's operations. Airline shall conduct
its operations in a clean, sanitary, and safe manner, and shall be responsible
for any maintenance which is a result of Airline's operations.
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<PAGE> 25
2.05 Signage
Airline is permitted to post one (1) sign on the wall behind the
Equipment on which it is operating. All signs must be in compliance with any
pertinent standards which have been promulgated by City. Any signs not in
compliance with pertinent standards may be removed by City at the sole expense
of Airline.
2.05 Non-assignment
This License is personal and is granted solely to Airline and solely
for the purposes stated herein. Airline shall not assign this License to any
other party without the written consent of the Commissioner. Any attempted
assignment without such consent shall be void and without effect as to the
City.
Article III Duration of License
3.01 Duration of License
The License is revocable at will by the Commissioner, with or without
cause, provided the Commissioner first gives Airline thirty (30) days written
notice in accordance with the terms and conditions hereof; provided, however,
that the term of this License shall be for no more than three (3) years.
3.02 Cessation of Use
Airline shall provide City with written notice no less than thirty
(30) days prior to its cessation of use of the Facilities.
Article IV Payment of License Fees
4.01 Basis of Payment
Airline shall pay the City an amount as determined by the City using a
joint use formula as follows: 20% of the City's costs of operating such
Equipment shall be shared equally among all airlines using the Equipment and
80% of the City's cost of operating such Equipment shall be divided among all
airlines
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<PAGE> 26
[missing page]????
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<PAGE> 27
related to, or caused by Airline's use of, or occupancy of, or operations at
the Airport; provided, however, that Airline shall not be liable solely and to
the extent any injury, damage or loss is caused by the gross negligence of
City, its agents, officials, or employees.
5.02 Insurance
Airline agrees to provide the insurance coverage as set forth in
Exhibit 2, attached hereto and incorporated by reference herein.
Article VI Compliance
6.01 Compliance with all Laws
Airline shall, and shall cause any contractors to, observe and comply
with, and pay all taxes and obtain all licenses, certificates, and other
authorizations required by, all applicable Federal, state, county, and
municipal laws, statutes, ordinances, and executive orders, including, but not
limited to, those set forth below. Airline agrees to make a part of and
incorporate into this License, by reference or by setting forth at length, at
the option of the City, any and all statutes, rules and regulations required
pursuant thereto which may now or hereafter be required by any Federal, state,
county, and municipal agency. Further, Airline shall execute and shall cause
any contractors to execute, a Contractor's Affidavit in the form attached
hereto as Exhibit 3.
Notwithstanding anything herein to the contrary, references herein to
a statute or law shall be deemed to be a reference to (i) such statute or law
as may be amended from time to time, (ii) all regulations and rules, pertaining
to or promulgated pursuant to such statute or law, and (iii) all future
statutes, laws, regulations, rules, and executive orders pertaining to the same
or similar subject matter.
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<PAGE> 28
a. Nondiscrimination
1. Federal Requirements
It shall be an unlawful employment practice for Airline (1) to fail or
refuse to hire or to discharge any individual, or otherwise to discriminate
against any individual with respect to his compensation, or the terms,
conditions, or privileges of his employment, because of such individual's
race, color, religion, sex, age, handicap\disability or national origin; or
(2) to limit, segregate, or classify his employees or applicants for
employment in any way which would deprive or tend to deprive any individual
of employment opportunities or otherwise adversely affect his status as an
employee, because of such individual's race, color, religion, sex, age,
handicap\disability, or national origin.
Airline shall comply with The Civil Rights Act of 1964, 42 U.S.C. sec.
2000 et seq. (1981), as amended and the Civil Rights Act of 1991,
P.L.102-166. Attention is called to: Exec. Order No. 11,246, 30 Fed. Reg.
12,319 (1965), reprinted in 42 U.S.C. 2000(e) note, as amended by Exec.
Order No. 11,375, 32 Fed. Reg. 14,303 (1967) and by Exec. Order No. 12,086,
43 Fed. Reg. 46,501 (1978); Age Discrimination Act, 42 U.S.C. sec.
6101-6106 (1981); Rehabilitation Act of 1973, 29 U.S.C. sec. 793-794
(1981); Americans with Disabilities Act, 42 U.S.C.; and 41 C.F.R. Part 60
et seq. (1990).
2. State Requirements
Airline shall comply with the Illinois Human Rights Act, 775 ILCS
5/1-101 et seq., as amended and any rules and regulations promulgated in
accordance therewith, including, but not limited to the Equal Employment
Opportunity Clause, 5 Ill. Admin. Code Section 750 Appendix A. Furthermore,
Airline shall comply with the Discrimination in Public Contracts Act, 775
ILCS 10/0.01 et seq. (1990), as amended.
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<PAGE> 29
3. Municipal Code Requirements
Airline shall comply with the Chicago Human Rights ordinance,
ch. 2-160, section 2-160-010 et seq. of the Chicago Municipal Code (1990),
as amended. Further, Airline shall furnish and shall cause each of its
contractor(s) to furnish such reports and information as requested by the
Chicago Commission on Human Relations.
b. Ethics
No officer, agent or employee of City is employed by Airline or has a
financial interest directly or indirectly in this License or the compensation
to be paid hereunder except as may be permitted in writing by the Board of
Ethics established pursuant to the Municipal Code of Chicago (Chapter 2-156);
and that no payment, gratuity or offer of employment shall be made in
connection with this License by or on behalf of any contractors or anyone
associated therewith, as an inducement for the award of a subcontract or order;
and Airline further acknowledges that any License entered into, negotiated or
performed in violation of any of the provisions of Chapter 2-156 shall be
voidable as to the city.
c. Ineligibility
Airline and, to the best of its knowledge, its contractors are not in
violation of the provisions of Section 2-92-320 of Chapter 2-92 of the
Municipal Code of Chicago, and in connection therewith, and additionally in
connection with the Illinois Criminal Code, 720 ILCS 5/33E as amended, and the
Illinois Municipal Code, 65 ILCS 5/11-42.1-1.
d. Inspector General
Airline shall cooperate with the Inspector General in any investigation
or hearing undertaken pursuant to Chapter 2-56 of the Chicago Municipal Code.
Airline understands and will abide by all provisions of Chapter 2-56 of the
Municipal Code of Chicago. All contracts shall inform contractors of
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<PAGE> 30
the provision and require understanding and compliance herewith.
e. MacBride Ordinance
City, through the passage of the MacBride Principles Ordinance, seeks
to promote fair and equal employment opportunities and labor practices for
religious minorities in Northern Ireland and provide a better working
environment for all citizens in Northern Ireland.
In accordance with Section 2-92-580 of the Municipal Code of the City
of Chicago, if Airline conducts any business operations in Northern Ireland, it
is hereby required that Airline shall make all reasonable and good faith
efforts to conduct any business operations in Northern Ireland in accordance
with the MacBride Principles for Northern Ireland as defined in Illinois Public
Act 85-1390 (1988 Ill. Laws 3220).
f. Anti-Scofflaw
1. In accordance with Section 2-92-380 of the Municipal Code of Chicago
and in addition to any other rights and remedies (including any of
set-off) available to the City under the License or permitted at law
or in equity, the City shall be entitled to set off a portion of any
amounts due Airline hereunder in an amount equal to the amount of the
fines and penalties for each outstanding parking violation complaint
and/or the amount of any debt owed by Airline to the City. For
purposes of this section, "outstanding parking violation complaint"
means a parking ticket, notice of parking violation or parking
violation complaint on which no payment has been made or appearance
filed in the Circuit Court of Cook County within the time specified on
the complaint. "Debt" means a specified sum of money owed to the City
for which the period granted for payment has expired.
2. Notwithstanding the provisions of subsection 1 above, no such Debt or
outstanding parking violation complaint
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<PAGE> 31
[missing page]???
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<PAGE> 32
construction reconstruction, demolition or alteration of facilities to
be located at or on the City's airports, Airline shall,
notwithstanding anything contained in the License, at no additional
cost to the City, perform such work in compliance with those
guidelines developed by the City and the Federal Aviation
Administration with the objective of maximum security enhancement.
6.02 Compliance with all Rules and Regulations
(a) Airline shall obey all Airport rules and regulations governing
the conduct and operations of the Airport, promulgated from time to time by
City, provided, however, that such Airport rules and regulations must not be
inconsistent with the rules and regulations or orders of any Federal or State
agency having jurisdiction over the Airport. Except in cases of emergency, no
such rule or regulation shall be applicable to Airline unless it has been given
fifteen (15) days prior written notice of the adoption thereof.
(b) Upon written request of Airline, City shall supply Airline
with a copy of City's current Airport rules and regulations.
(c) Nothing herein shall be construed to prevent Airline from
contesting in good faith any Airport rule or regulation without being in breach
thereof, so long as such contest is diligently commenced and prosecuted by
Airline.
Article VII Notices
7.01 Notices
Any notice required pursuant to this License shall be mailed, telexed,
telecopied or personally delivered to the respective parties at the following
address:
IF TO City:
----------------------------------
----------------------------------
----------------------------------
----------------------------------
----------------------------------
----------------------------------
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<PAGE> 33
IF TO Airline:
----------------------------------
----------------------------------
----------------------------------
----------------------------------
----------------------------------
----------------------------------
Except as otherwise expressly provided hereunder, any notice or
communication under this License shall be deemed to have been given or made:
(a) if a messenger or courier service is used, when delivered to the addressee;
(b) if sent by mail (certified or otherwise), five (5) days after being
deposited in the mails, postage prepaid and properly addressed; and (c) if sent
by telex or telecopy, the earlier of (i) actual receipt by addressee and (ii)
twenty-four (24) hours after confirmation of transmission.
Article VIII General Conditions
8.01 Applicable Law
This License shall be deemed to have been granted in, and shall be
construed in accordance with, the laws of the State of Illinois.
8.02 Severability
If any provisions of this License shall be held or deemed to be or
shall in fact be inoperative or unenforceable as applied in any particular case
in any jurisdiction or in all cases because it conflicts with any other
provision or provisions hereof or of any constitution, statute, ordinance, rule
of law, or public policy, or for any other reason, such circumstances shall not
have the effect of rendering the provision in question inoperative or
unenforceable in any other case or circumstances, or of rendering any other
provision or provisions herein contained invalid, inoperative, or unenforceable
to any extent whatever. The invalidity of any one or more phrases, sentences,
clauses, or sections contained in this License shall not effect the remaining
portions of this License or any part thereof.
8.03 Amendments
No changes, amendments, modifications or discharge of this License, or
any part thereof, shall be valid unless in writing
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<PAGE> 34
[missing page]???
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<PAGE> 35
incorporated by reference herein, or as may be required by the terms and
conditions hereof.
IN WITNESS WHEREOF, the parties have caused this License to be
executed on the date first written above.
City: Airline
- - -------------------------- By:
Mayor --------------------------------
Name:
------------------------------
Title:
-----------------------------
- - --------------------------
City Clerk Attest
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
- - ---------------------------
Commissioner
Department of Aviation
Airline's Agent for Service of
Process:
- - ---------------------------
Comptroller -----------------------------------
-----------------------------------
-----------------------------------
-----------------------------------
Approved as to form and
legality:
- - -----------------------------
Corporation Counsel
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<PAGE> 36
Chicago Midway Airport ("Airport")
Insurance Requirements
The Airline shall procure and maintain at all times, at the Airline's own
expense, the types of insurance specified below, with insurance companies
authorized to do business in the State of Illinois, covering all operations at
Airport, whether performed by the Airline of by subcontractor.
The kinds and amounts of insurance required are as follows:
1. Workers Compensation and Occupational Disease Insurance
Workers' Compensation and Occupational Disease Insurance, in statutory
amounts, covering all employees who are to provide a service at
Airport. Such insurance shall include employer's liability coverage
with limits of not less than $500,000 each accident or illness.
2. Commercial liability insurance (Primary and Umbrella)
Commercial Liability Insurance or equivalent coverage with limits of not
less than $100,000,000 per occurrence, combined single limit, for bodily
injury, and property damage liability, and personal injury.
Products/completed operations, independent contractors, broad form
property damage and contractual liability coverages are to be
included. The City shall be named as an additional insured.
3. Automobile Liability Insurance
When any motor vehicles are used in connection with work to be performed
by or on behalf of the Airline, the Airline shall provide Automobile
Liability Insurance with limits of not less than $5,000,000 per
occurrence combined single limit, for bodily injury and property damage.
The City shall be named as an additional insured.
4. All Risk Property Insurance
Whenever the Airline has control over any premise, All Risk Property
Insurance shall be maintained at replacement cost for such premises and
the City shall be named as owner and loss payee.
The Airline will furnish the Commissioner with original Certificates of
Insurance evidencing the coverage required to be in force during Airline's
operations at Airport. Failure to carry or keep such insurance in force shall
constitute a violation of agreements between the City and the Airline. All
insurance policies shall provide for sixty (60) days prior written notice to
the City prior to the effective date of any change, cancellation or
termination of such coverage. The Airline expressly understands
<PAGE> 37
and agrees that any insurance coverages and limits furnished by the Airline
shall in no way limit the Airline's liabilities and responsibilities specified
within the contract documents or by law. The Airline hereby waives its rights
of subrogation against the City, including the City's appointed and elected
officials, agents and employees.
<PAGE> 38
CONTRACT INSURANCE REQUIREMENTS
Midway Airport
Baggage Claim Devices/Storage Areas
The Airlines shall procure and maintain at all times, at Airlines's own
expense, during the term of this Agreement, the types of insurance specified
below, with insurance companies authorized to do business in the State of
Illinois covering all operations under this Contract, whether performed by the
Airlines or by subcontractors.
The kinds and amounts of insurance required are as follows:
1) Worker's Compensation and Occupational Disease Insurance
Workers Compensation and Occupational Disease Insurance, in statutory
amounts, covering all employees who are to provide a service under this
Agreement. Employer's liability coverage with limits of not less than
$500,000 each accident or illness shall be included.
2) Commercial Liability Insurance (Primary and Umbrella)
Commercial Liability Insurance or equivalent with limits of not less
than $5,000,000 per occurrence, combined single limit, for bodily injury,
personal injury, and property damage liability. Products/completed
operations, independent contractors, broad form property damage and
contractual liability coverages are to be included. The City of Chicago
is to be named as an additional insured, without resource or right of
contribution for any liability arising out of the services to be
performed.
3) Automobile Liability Insurance
When any motor vehicles are used in connection with services to be
performed, the Airlines shall provide Automobile Liability Insurance with
limits of not less than $1,000,000 per occurrence combined single limit,
for bodily injury and property damage. The City of Chicago is to be named
as an additional insured.
The Airlines shall furnish the City of Chicago, Department of Purchases
Contracts and Supplies, City Hall, Room 403, 121 North La Salle Street 60502,
original Certificates of Insurance evidencing the required coverage to be in
force on the date of this Agreement, and Renewal Certificates of Insurance, or
such similar evidence, if the coverages have an expiration or renewal date
occurring during the term of this Agreement. The Airlines shall submit evidence
of insurance on the City of Chicago Insurance Certificate of Coverage Form,
(copy attached) prior to awarding the Agreement.
The insurance hereinbefore specified shall be carried until all services
required to be performed under the terms of the Agreement is satisfactorily
completed. Failure to carry or keep such insurance in force may constitute a
violation of the Agreement, and the City maintains the right to terminate the
Agreement until proper evidence of insurance is provided.
The insurance shall provide for 60 days prior written notice to be given to the
City in the event coverage is substantially changed, canceled, or non-renewed.
The Airlines shall require all subcontractors to carry the insurance required
herein, or Airline may provide the coverage for any or all subcontractors, and,
if so, the evidence of insurance submitted shall so stipulate.
Airlines expressly understands and agrees that any insurance coverages and
limits furnished by Airlines shall in no way limit the Airline's liabilities
and responsibilities specified within the contract documents or by law.
Any and all deductibles shall be borne by the Airlines.
<PAGE> 39
SAMPLE FORM OF LETTER OF CREDIT
Issuing Bank Letterhead
(must be a bank located in the Chicagoland area)
Irrevocable Standby Letter of Credit
Letter of Credit No.______________
Date: ______________, 19________
Department of Aviation
City of Chicago
Chicago O'Hare International Airport
P.O. Box 66142
Chicago, Illinois 60666
Attention: Commissioner
1. We hereby open in your favor, at the request and for the account of
_____________________________________, this irrevocable standby letter of
credit in an aggregate amount not to exceed $__________ Dollars, to be
available for payment of your drafts drawn at sight on us and accompanied,
in the case of each draft, by a written statement purportedly signed by the
Commissioner of the Department of Aviation, or his designee, addressed to
us stating that: "the amount drawn is equal to the amounts due to the
City of Chicago."
2. Partial and multiple drawings are permitted.
3. This credit sets forth in full the terms of our undertaking, and
such undertaking shall not in any way be modified, amended, amplified or
limited by any document, instrument or agreement referred to herein, or in
which this credit is referred to, or to which this credit relates; and no
such reference shall be deemed to incorporate herein by reference any such
document, instrument or agreement. The Account Party is not the owner or
beneficiary under this Letter of Credit and possesses no interest
whatsoever in this Letter of Credit or its proceeds. Further, this Letter
of Credit shall not be affected by any bankruptcy or other insolvency
proceeding initiated by or against the Account Party.
This credit shall expire on ____________, 19______, unless extended as
provided herein.
4. It is a condition of this credit that it will be automatically
extended without amendment for an additional period of twelve (12) months
from the present and each future expiration date, unless, not less than
sixty (60) days prior to the then-relevant expiration date, we notify you
by Registered Mail
1
<PAGE> 40
that we elect not to extend this credit for any additional period.
Upon receipt of such a notification you may draw your sight draft on us
prior to the then-relevant expiration date for the unused balance of this
credit, which shall be accompanied by your signed written statement that
you received notification of our election not to extend. At time of
notice to Beneficiary, the Account Party shall also be notified by
Registered Mail.
Drafts must be marked "Drawn under Irrevocable Standby Letter of Credit
No. ____________."
5. We hereby agree to honor each draft drawn under and in compliance
with the terms of this credit if duly presented at our offices at
_______________________________________ on or before the close of business
on the expiration date.
6. This Letter of Credit is subject to the Uniform Customs and Practice
for Documentary Credits, International Chamber of Commerce Publication No.
500, 1993 revision, ("IUCP") and to the Uniform Commercial Code - Letters
of Credit, 810 ILCS 5-101 et seg., as amended ("UCC"). To the extent that
the provision of the IUCP and UCC conflict, the provision of the UCC shall
govern.
By: ___________________________ Attest: ___________________________
Name: _________________________ Name: _____________________________
Title: ________________________ Title: ____________________________
Subscribed and sworn to before me this _______ day of _______, 19____.
Notary Public: _________________________
(Seal)
2
<PAGE> 41
The Airlines and each subcontractor agree that insurer shall waive their rights
of subrogation against the City of Chicago.
The Airlines expressly understands and agrees that any insurance maintained by
the City of Chicago shall apply in excess of and not contribute with insurance
provided by the Airlines under the Agreement.
If Airlines, or its subcontractors desire additional coverage, higher limits of
liability, or other modifications for its own protection, the Airlines and each
of its subcontractors, shall be responsible for the acquisition and cost of
such additional protection.
The City of Chicago maintains the right to modify, delete, alter or change
these requirements.
3
<PAGE> 42
Calculation of Security Deposit Requirement 05-Mar-96
Air South
Chicago Midway Airport
SECURITY
ANNUAL REQUIREMENT
ITEM QUANTITY RATE (2 MONTHS)
============================= ========== ============ ============
Ramp Area 0 $2.90 $0
SF
Ticket Counter 0 $61.61 $0
SF
Ticket Counter Office 0 $61.61 $0
SF
Bag Make-up 0 $61.61 $0
SF
Concourse Ops/Office 0 $61.61 $0
SF
Concourse Holdroom 0 $61.61 $0
SF
Gate Usage - Per Turn Charges 730 $150.00 $18,287
Turns
Bag Claim Use Pro rata $1,219,431 $2,036
estimate: 1.00%
-----------
SUBTOTAL (FACILITIES) $20,323
ESTIMATED SECURITY
ANNUAL ANNUAL REQUIREMENT
ITEM QUANTITY RATE (2 MONTHS)
============================= ========== ============= =============
Passenger Facility Charge Collecti 44,530 $3.00 $22,310
-------------
SUBTOTAL (PFC COLLECTION) $22,310
AIRCRAFT EST ANNUAL SECURITY
MGLW WEEKLY ANNUAL ANNUAL LANDING FEE REQUIREMENT
AIRCRAFT (X1,000) FLIGHTS FLIGHTS WEIGHT $2.300 (2 MONTHS)
========== ======== ======= ======= ======== =========== ===========
737-200 103.000 14 730 75,190 $172,937 $28,880
----------
SUBTOTAL (LANDING FEES) 730 $28,800
==========
GRAND TOTAL $71,513
<PAGE> 43
CONTRACTOR'S AFFIDAVIT
SPECIFICATION NUMBER: ____________________________
Bidder/Proposer Name: ____________________________
Bidder/Proposer Address: ____________________________
____________________________
____________________________
Federal Employer I.D.#___________________ or Social Security#_______________
Instructions: FOR USE WITH A NON-BID, NON-PROFESSIONAL SERVICES CONTRACT
FUNDED BY CITY, STATE OR FEDERAL FUNDS EXCEPT USDOT FUNDS.
Every Contractor submitting a bid/proposal to the
City of Chicago must complete this Contractor Affidavit.
Special attention should be paid to Sections I (p.1 to 4),
II (p.4), IIIC (p.6), IV (p.8) and VII (p.10) which require the
contractor to provide certain information to the City. The
Contractor should complete this Contractor's Affidavit by
signing Section IX (p.10). Please note that in the event the
Contractor is a joint venture, the joint venture and each of
the joint venture partners must submit a completed Contractor's
Affidavit. In the event that the Contractor is unable to
certify to any of the statements contained herein, Contractor
must contact the Department of Purchases, Contracts and
Supplies for the City of Chicago and provide a detailed factual
explanation of the circumstances leading to the Contractor's
inability to so certify.
The undersigned___________________________, as____________________________
(Name) (Title)
and on behalf of__________________________ ("Contractor") having been duly
(Business Name)
sworn under oath certifies that:
I. DISCLOSURE OF OWNERSHIP INTERESTS
Pursuant to Chapter 2-92-010, 2-92-020 and 2-92-030 of the Municipal
Code of the City of Chicago, a bidders/proposers shall provide the following
information with their bid/proposal. If the question is not applicable
answer with "NA." If the answer is none, please answer "none."
Bidder/Proposer is a: [ ] Corporation [ ] Sole Proprietor
(Check One) [ ] Partnership [ ] Not-for-Profit-Corporation
[ ] Joint Venture [ ] Other
Page 1 of 10
<PAGE> 44
SECTION 1. FOR PROFIT CORPORATIONS
a. Incorporated in the State of _____________________________________
b. Authorized to do business in the State of Illinois YES [ ] NO [ ]
c. Names of all officers of corporation (or Attach List): Names of all
directors of corporation (or Attach List):
<TABLE>
<C> <C> <C> <C>
Name(Print or Type) Title(Print or Type) Name(Print or Type) Title(Print or Type)
_____________________ _______________________ _______________________ _________________________
_____________________ _______________________ _______________________ _________________________
_____________________ _______________________ _______________________ _________________________
_____________________ _______________________ _______________________ _________________________
</TABLE>
d. If the corporation has fewer than 100 shareholders indicate here or attach a
list of names and addresses of all shareholders and the percentage interest
of each.
Name(Print or Type) Address Ownership Interest
________________________ __________________ _______________________%
________________________ __________________ _______________________%
________________________ __________________ _______________________%
________________________ __________________ _______________________%
e. Is the corporation owned partially or completely by one or more other
Corporations? YES [ ] NO [ ]
If "yes," provide the above information, as applicable, for each of said
corporations.
f. If the corporation has 100 or more shareholders, indicate here or attach a
list of names and addresses of all shareholders owning shares equal to or in
excess of 10% of the proportionate ownership of the corporation and
indicate the percentage interest of each.
Name(Print or Type) Address Ownership Interest
________________________ __________________ _______________________%
________________________ __________________ _______________________%
________________________ __________________ _______________________%
________________________ __________________ _______________________%
NOTE: Generally, with corporations having 100 or more shareholders where
no shareholder owns 10% of the shares, the requirements of this Section 1
would be satisfied by the bidder/proposer enclosing with this bid/proposal,
a copy of the corporation's latest published annual report and/or Form 10-K
the information is contained therein.
Page 2 of 10
<PAGE> 45
SECTION 2. PARTNERSHIPS
If the bidder/proposer is a partnership, indicate the name of each partner and
the percentage of interest of each therein:
Names of Partners(Print or Type) Percentage Interest
________________________________ __________________%
________________________________ __________________%
________________________________ __________________%
________________________________ __________________%
SECTION 3. SOLE PROPRIETORSHIPS
a. The bidder/proposer is a sole proprietor and is not acting in any
representative capacity in behalf of beneficiary:
YES[ ] NO[ ] If NO, complete items b. and c. of this Section 3.
b. If the sole proprietorship is held by an agent(s) or a nominee(s),
indicate the principal(s) for whom the agent nominee hold such interest.
Names(s) of Principal(s) (Print or Type)
_________________________________________________________
_________________________________________________________
_________________________________________________________
_________________________________________________________
c. If the interest of a spouse or any other party is constructively controlled
by another person or legal entity state the name and address of such person
or entity possessing such control and the relationship under with such
control is being or may be exercised:
________________________________________________________
________________________________________________________
SECTION 4. LAND TRUSTS, BUSINESS TRUST, ESTATES & OTHER ENTITIES
If the bidder/proposer is a land trust, business trust, estate or other similar
commercial or legal entity, identify any representative, person or entity
holding legal title as well as each beneficiary in whose behalf title is held
including the name, address and percentage of interest of each beneficiary.
________________________________________________________
________________________________________________________
Page 3 of 10
<PAGE> 46
SECTION 5. NOT-FOR-PROFIT CORPORATIONS
a. Incorporated in the State of _____________________________________________
b. Authorized to do business in the State of Illinois YES [ ] NO [ ]
c. Names of all officers of corporation (or Attach List): Names of all
directors of corporation (or Attach List):
<TABLE>
<S> <C> <C> <C>
Names(Print or Type) Title(Print or Type) Name(Print or Type) Title(Print or Type)
_____________________ ____________________ ____________________ ____________________
_____________________ ____________________ ____________________ ____________________
_____________________ ____________________ ____________________ ____________________
_____________________ ____________________ ____________________ ____________________
</TABLE>
NOTE: Pursuant to Chapter 2-154, Section 2-154-030 of the Municipal Code of
the City of Chicago, the Corporation Counsel may require any such additional
information from any entity to achieve full disclosure relevant to the
contract. Further, pursuant to Chapter 2-154, Section 2-154-020, any
material change in the information required above must be provided by
supplementing this statement at any time up to the time the Purchasing
Agent takes action on the contract or other action requested of the
Purchasing Agent.
II. AFFIDAVIT OF LOCAL BUSINESS
"LOCAL BUSINESS" means a business located within the corporate limits of
the City of Chicago, which has the majority of its regular, full-time work
force located within the City, and which is subject to City Taxes.
Joint Ventures: For purposes of establishing a firm's eligibility for two
percent (2%) local business preference (allowed by the specification), each
partner must complete a separate affidavit. A Joint Venture is a "Local
Business" only if at least fifty percent (50%) interest in the venture is
held by "Local Businesses."
1) Is bidder/proposer a "Local Business" as defined above?
Yes:_________ No:________
2) How many persons are currently employed by bidder/proposer?__________
3) Does bidder/proposer have business locations outside of City of Chicago?
Yes:_________ No:________
If yes, list such bidder/proposer business addresses:
___________________________________________________________
___________________________________________________________
___________________________________________________________
(Attach Additional Sheets if Necessary)
4) How many of bidder/proposer's current employees work at City of Chicago
locations?________
5) Is bidder/proposer subject to City of Chicago taxes (including the Head
Tax)?
Yes:_________ No:________
Page 4 of 10
<PAGE> 47
III. CONTRACTOR CERTIFICATION
A. CONTRACTOR
1. The Contractor or any subcontractor to be used in the
performance of this contract, or any affiliated entity of the
Contractor or any such subcontractor, or any responsible official
thereof, or any other official, agent, employee of the Contractor,
any such subcontractor or any such affiliated entity(1), acting
pursuant to the direction or authorization of a responsible
official thereof has not, during a period of 3 years prior to the
day of execution of this certification or if a subcontractor or
subcontractor's affiliated entity(1) during a period of years prior
to the date of award of the subcontract:
a. Bribed or attempted to bride, or been convicted of bribery or
attempting to bribe a public officer or employee of the City of
Chicago, the State of Illinois, any agency of the federal
government or any state or local government in the United
States (if an officer or employee, in that officer's or
employee's official capacity); or
b. Agreed or colluded, or been convicted of agreement or collusion
among bidders or prospective bidders restraint of freedom of
competition by agreement to bid a fixed price or otherwise; or
c. Made an admission of guilt of such conduct described in 1(a) and
(b) above which is a matter of record but has not been
prosecuted for such conduct.
2. The Contractor or any agent, partner, employee or officer of the
Contractor is not barred from contracting with any unit of state or
local government as a result of engaging in or being convicted of
bid-rigging(3) violation of Section 3 of Article 33E of the
Illinois Criminal Code of 1961, as amended (Ill. Rev. Stat., 19
Chapter 38, Section 33E-3) or any similar offense of any state or
the United States which contains the same elements as the offense
of bid-rigging(3) during a period of five years prior to the
date of submittal of this bid proposal or response. (2)
3. The Contractor or any agent, partner, employee, or officer of the
Contractor is not barred from contracting with any unit of state or
local government as a result of engaging in or being convicted of
bid-rotating(4) violation of Section 4 of Article 33E of the
Illinois Criminal Code of 1961, as amended (Ill. Rev. Stat., 19 ,
Chapter 38, Section 33E-4) or any similar offense of any state or
the United States which contains the same elements as the offense
of bid-rotating(4).
4. The Contractor understands and will abide by all provisions of
Chapter 2-56 of the Municipal Code Chicago entitled "Office of
Inspector General".
B. SUBCONTRACTOR
1. The Contractor has obtained from all subcontractors to be
used in the performance of this contract, known by the Contractor
at this time, certifications in form and substance equal to Section
I of this certification. Based on such certification(s) and any
other information known or obtained by the Contractor, the
Contractor is not aware of any such subcontractor, subcontractor's
affiliated entity(1), or any agent, partner, employee or officer of
such subcontractor or subcontractor's affiliated entity(1) having
engaged in or been convicted of: (a) any of the conduct described
in Section III.A.1 (a) or (b) of this certification, (b)
bid-rigging(3), bid rotating(4), or any similar offense of any state
or the United States which contains the same elements as bid-rigging
and bid-rotating, or having made an admission of guilt of the
conduct described in Section III.A.1 (a) or (b) which is a matter
of record but has/have not been prosecuted for such conduct.
Page 5 of 10
<PAGE> 48
c. Are not presently indicated for or otherwise criminally or
civilly charged by a governmental entity (Federal, State or
Local) with commission of any of the offense enumerated in
paragraph (D)(1)(a) above and
d. Have not within a three-year period preceding this Agreement
had one or more public transaction (Federal, State or Local)
terminated for cause or default.
2. If the Contractor is unable to certify to any of the statements in
this Certification, Contractor shall attach explanation to this
Certification.
3. If any subcontractors are to be used in the performance of this
Agreement, Contractor shall cause such subcontractors to certify
as to paragraph (D)(1) of this Certification. In the event than
any subcontractor is unable to certify to any of the statements in
this Certification, such subcontractor shall attach an explanation
to this Certification.
E. ANTI-COLLUSION
The Contractor, its agent, officers or employees have not directly or
indirectly entered into any agreement participated in any collusion, or
otherwise taken any action in restraint of free competitive bidding
connection with this proposal. Failure to submit this statement as
part of the bid proposal will make the bid nonresponsive and not
eligible for award consideration.
F. PUNISHMENT
A Contractor who makes a false statement, material to Section III (A)
(2) of this certification commits a class felony. Ill. Rev. Stat.
1989, Chapt. 38, 33E-11(B). Making a false statement concerning
Section III of the certification is a Class A misdemeanor, voids the
contract and allows the municipality to recover all amounts paid to the
contract under the contract in a civil action. Ill. Rev. Stat. Ch.24,
11-42.1-1.
Notes 1-5 for Section III, Contractor Certification
1. In accordance with Chapter 2-92, Section 2-92-320 of the City of Chicago
Municipal Code, the Contractor or subcontractor shall be chargeable with the
conduct of an affiliated entity. Business entities are affiliated if, directly
or indirectly, one controls or has the power to control the other, or if a
third person control or has the power to control both entities. Indicia of
control include without limitation: interlocking management or ownership
identity of interests among family members; shared facilities and equipment;
common use of employees; or organization of a business entity following the
ineligibility of a business entity under Chapter 2-92 Section 2-92-320 of the
City of Chicago Municipal Code using substantially the same management,
ownership or principals as the ineligible entity.
2. No corporation shall be barred from contracting with any unit of State or
local government as a result of conviction, under either Section 33E-3 or
Section 33E-4 of Article 33 of the State of Illinois Criminal Code of 1961, as
amended, or any employee or agent of such corporation if the employee so
convicted is no longer employed by the corporation and: (1) it has been finally
adjudicated not guilty or (2) if it demonstrates to the governmental entity
with which it seeks to contract and that entity finds that the commission of
the offense was neither authorized, requested, commanded, nor performed by a
director, officer or a high managerial agent in behalf of the corporation as
provided in paragraph (2) of subsection (a) of Section 5-4 of the State of
Illinois Criminal Code.
3. For purposes of Section IIIA of this certification, a person commits the
offense of and engages in bid-rigging when he knowingly agrees with any person
who is, or but for such agreement should be, a competitor of such person
concerning any bid submitted or not submitted by such person or another to a
unit of State or local government when with the intent that the bid submitted
or not submitted will result in the award of a contract to such person or
another and he either (1) provides such person or receives from another
information concerning the price or other material term or terms of the bid
which would otherwise not be disclosed to a competitor in an independent
noncollusive submission of bids or (2) submits a bid that is of such a price or
other material term or terms that he does not intend the bid to be accepted.
Ill. Rev. Stat., 1991, Chapt. 38 Section 33E-3.
Page 7 of 10
<PAGE> 49
4. For purposes of Section IIIA of this certification, a person commits the
offense of and engages in bid rotating when pursuant to any collusive scheme or
agreement with another, he engages in a pattern over time (which, for the
purpose hereof, shall include at least 3 contract bids within a period of ten
years, the most recent of which occurs after January 1989) of submitting sealed
bids to units of State or local government with the intent that the award of
such bids rotate or is distributed among, persons or business entities which
submit bids on a substantial number of the same contract Ill. Rev. Stat., 1991,
Chapt. 38, Section 33E-4.
5. Chapter 24, Section 11-42.1-1 of the Illinois Revised Statutes provides
that a municipality may not enter into a contract agreement with an individual
or other entity that is delinquent in the payment of any tax administered by the
Illinois Department of Revenue unless the contracting party is contesting, in
accordance with the procedures established by the appropriate Revenue Act its
liability for the tax or the amount of the tax or unless the contracting party
has entered in an agreement to pay the tax and is in compliance with the
Agreement. Notwithstanding the above, the municipality may enter into the
contract if the contracting authority for the municipality determines that:
(1) the contract is for good or services vital to the public health,
safety, or welfare; and
(2) the municipality is unable to acquire the goods or services at a
comparable price and of comparable quality from other sources.
IV. ANTI-APARTHEID
Contractor certifies that the terms used in this Certification are
defined in the Anti-Apartheid Ordinance and the regulations issued
thereunder, and have the same meanings in this affidavit as in the
ordinance and regulation. In completing this Section IV, authorized
signatory must, if appropriate, place his/her initials in brackets (A)
and/or (B) below. If unable to certify as to the statements contained in
(A) or (B), below, please contact the Department of Purchases, Contracts
and Supplies for the City of Chicago.
A.(___) The Contractor certifies that neither it nor any of its affiliates
does business in South Africa or with any public or private entity
located in South Africa.
B.(___) Further, no goods to be provided to the City by the Contractor or
by any of its subcontractors under the contract were principally
manufactured, produced, assembled, grown or mined in South Africa.
Page 8 of 10
<PAGE> 50
IN THE EVENT THAT THIS CONTRACT IS FUNDED IN WHOLE OR IN PART BY FEDERAL FUND
CONTRACTOR SHALL COMPLY WITH SECTIONS V thru VII below.
V. CERTIFICATION OF RESTRICTION ON LOBBYING
A. No Federal appropriated funds have been paid or will be paid, by or
on behalf of the undersigned, to any person for influencing or
attempting to influence an officer or employee of any agency, a Member
of Congress, an officer or employee of Congress, or an employee of a
member of Congress in connection with the awarding of a Federal
contract, the making of any Federal grant, the making of any Federal
loan, the entering into a cooperative agreement, and the extension,
continuation, renewal, amendment, or modification of any Federal
Contract, grant loan, or cooperative agreement.
B. If any funds other than Federal appropriated funds have been paid or
will be paid to any person for influencing or attempting to influence an
officer or employee of any agency, a Member of Congress, an officer or
employee of Congress, or an employee of a member of Congress in
connection with this Federal contract, grant, loan, cooperative
agreement, the undersigned shall complete and submit Standard Form-LLL,
"Disclosure Form Report Lobbying," in accordance with its instruction.
C. The undersigned shall require that the language of this certification
be included in the award documents for subawards at all tiers (including
subcontracts, subagents, and contracts under grants, loans, and
cooperative agreements) and that all subrecipients shall certify and
disclose accordingly.
D. This certification is a material representation of fact upon which
reliance is placed when this transaction was made or entered into.
Submission of this certification is a prerequisite for making or
entering into the transaction imposed by section 1352, title 31, U.S.
Code. Any person who fails to file the required certification shall be
subject to a civil penalty of not less than $10,000 and more than
$100,000 for each such failure.
VI. CERTIFICATION OF NONSEGREGATED FACILITIES
A. By submission of this proposal, bidder certifies that it does not
and will not maintain or provide for its employees any segregated
facilities at any of its establishments, and that it does not and will
not permit its employees to perform their services at any location under
its control where segregated facilities are maintained. The offender
agrees that a breach of this certification is a violation of the Equal
Opportunity clause in the contract.
B. "Segregated facilities," as used in this provision, means any
waiting rooms, work areas, rest rooms and wash rooms, restaurants and
other eating areas, time clocks, locker rooms and other storage or
dressing areas, parking lots, drinking fountains, recreating or
entertainment areas, transportation, and housing facilities provided
for employees, that are segregated by explicit directive or are in fact
segregated on the basis of race, color, religion, or national origin
because of habit, local custom, or otherwise.
C. The bidder further agrees that (except where it has obtained identical
certifications from proposal subcontractors for specific time periods)
it will: 1) Obtain identical certifications from proposed
subcontractors before the award of subcontracts exceeding $10,000 under
which the subcontractor will be subject to the Equal Opportunity clause;
2) Retain the certifications in the files; and 3) Forward the following
notice to the proposed subcontractors (except if the proposed
subcontractors have submitted identical certifications for specific time
periods):
D. NOTICE TO PROSPECTIVE SUBCONTRACTORS OF REQUIREMENTS FOR
CERTIFICATIONS OF NONSEGREGATED FACILITIES
A Certification of Nonsegregated Facilities must be submitted before
the award of a subcontract under which the subcontractor will be subject
to the Equal Opportunity clause. The certifications may be submitted
either for each subcontract or for all subcontracts during a period
(i.e., quarterly, semiannually, or annually).
NOTE: THE PENALTY FOR MAKING FALSE STATEMENTS IN OFFERS IS PRESCRIBED IN 18
U.S. Code 1001.
Page 9 of 10
<PAGE> 51
VII. EQUAL EMPLOYMENT OPPORTUNITY
The Equal Employment Opportunity Regulations of the Secretary of Labor
(Volume 33, Federal Register Section 60-1.7(b)(1) require that each
prospective contractor or proposed subcontractor submit the following
information with his bid, or at the outset of negotiations.
1. Have you participated in any previous contracts or subcontracts subject
to the equal opportunity clause?
_______ ______
YES NO
2. If answer to #1 is yes, have you filed with the Joint Reporting
Committee, the Director of OFCC, any Federal agency, or the former
President's Committee on Equal Employment Opportunity, all reports due
under applicable filing requirements of these organizations?
_______ ______
YES NO
VIII. INCORPORATION INTO CONTRACT AND COMPLIANCE
The above certifications shall be part of any contract awarded to the
Contractor set forth on page 1 of the Contractor's Affidavit. Further,
Contractor shall comply with these certifications during the term of the
Contract.
IX. VERIFICATION
Under penalty of perjury, I certify that I am authorized to execute this
Contractor's Affidavit on behalf of the Contractor set forth on page 1,
that I have personal knowledge of all the certifications made herein and
that the same are true.
___________________________________________
Signature of Authorized Officer
___________________________________________
Name of Authorized Officer (Print or Type)
___________________________________________
Title
___________________________________________
Telephone Number
State of __________
County of _________
Signed and sworn to before me this _______ day of ________________, 19_____ by
________________________________(Name) as___________________ (Title) of
______________________________________________(Contractor.)
______________________________________________
Notary Public Signature
Page 10 of 10
<PAGE> 52
City of Chicago
Department of Aviation 03/06/96
Chicago Midway Airport
1996 1st Half Rate Structure
Signatory Non-Signatory
---------------- -----------------
Landing Fee (per 1000 lbs) $1.84 $2.30
Preferential Use Rate (per sqft/annum) $49.29 $61.61
Terminal Ramp (per sqft/annum) $2.32 $2.90
Baggage Claim Device 80/20 Formula which allocates Rental,
Maintenance and Debt Service costs for
baggage claim system
80% of costs allocation based on deplanements
20% of costs fixed among participating carriers
Air Carrier Air Commuter
(51 Seats or More) (50 Seats or Less)
------------------ ------------------
Remain Overnights (RON's) $100.00 $50.00
Turns (1 Full Gate Operation) $150.00 $75.00
<PAGE> 1
EXHIBIT 10.29
AIRPORT USE AND
LEASE AGREEMENT
RICHLAND-LEXINGTON AIRPORT DISTRICT
and
AIR SOUTH, INC.
<PAGE> 2
RICHLAND-LEXINGTON AIRPORT DISTRICT
and
AIR SOUTH, INC.
Airport Use and Lease Agreement
INDEX
<TABLE>
<CAPTION>
Page #:
-------
<S> <C> <C>
Article I Term 2
Article II Lessor to Maintain and Operate Airport 2
Article III Rights of Airline 2-5
Article IV Passenger Terminal Building 6-7
Article V Landing Fees and Landing Fee Rate 7-8
Article VI Establishment of Rates and Charges in Future 8-13
Article VII No Other Charges 13-14
Article VIII Quiet Enjoyment 14
Article IX Inspection By Lessor 14
Article X Indemnification and Liability Insurance 14-15
Article XI Letter of Credit 15-16
Article XII Rules and Regulations 16
Article XIII Assignment and Subletting 16
Article XIV Force Majeure 16-17
Article XV Surrender of Possession 17
Article XVI Cancellation By Lessor 17-18
Article XVII Cancellation By Airline 18-19
Article XVIII Damage or Destruction of Leased Premises 19-20
Article XIX Right To Convert Rate Formula 20
Article XX Non-Waiver of Rights 21
Article XXI Invalidity of Clauses 21
Article XXII Approval By Lessor 21
Article XXIII Headings 21
Article XXIV Equal Terms 21
</TABLE>
<PAGE> 3
Table of Contents (continued)
<TABLE>
<CAPTION>
Page #:
-------
<S> <C> <C>
Article XXV Title to Airline Installed Improvements
and Property 22
Article XXVI Alterations and Additions 22
Article XXVII Licenses and Permits 22
Article XXVIII Notices 22
Article XXIX Charges for Late Payment 23
Article XXX Attorneys Fees 23
</TABLE>
Exhibit "A"
Exhibit "B" (2 Pages)
Exhibit "C"
Exhibit "D"
Exhibit "E"
Exhibit "F"
Exhibit "G"
<PAGE> 4
AIRPORT USE AND LEASE AGREEMENT
THIS AGREEMENT, made and entered into as of the 15th day of August 1994
by and between the RICHLAND-LEXINGTON AIRPORT DISTRICT, a public body corporate
organized under the laws of the State of South Carolina, hereinafter called
"Lessor" and AIR SOUTH, INC., a South Carolina based corporation, hereinafter
called "Airline".
WITNESSETH:
WHEREAS, Lessor owns and operates the Airport known as Columbia
Metropolitan Airport, which is depicted on the attached Exhibit A, which as it
now exists, or as it may be changed in the future, is hereinafter called
"Airport"; and
WHEREAS, Lessor has the right to lease property on the Airport
together with the facilities, rights, licenses and privileges hereinafter
granted, and has full power and authority to enter into this Agreement in
respect thereof; and
WHEREAS, Airline has applied for certification to engage in the
business of air transportation by aircraft for carriage of persons, property
and mail, hereinafter called "Air Carrier Service"; and
WHEREAS, Approval by all regulatory authority shall be required prior
to the commencement of service by Airline at Airport; and,
WHEREAS, Airline desires to lease certain premises, facilities, rights
and privileges and to use the Airport in connection with the operation of its
Air Carrier Service and Lessor is willing to lease such premises, facilities,
rights and privileges and to grant the use of the Airport to Airline for such
purposes upon the terms and conditions hereafter stated; and,
WHEREAS, Airport is now operating with all Airlines on a residual cost
rate formula but plans to convert to a modified residual rate formula as early
as practicable so that the revenues received from operating the airfield and
the passenger terminal facilities are allocated in accordance with the cost of
the provision and operation of those facilities;
1
<PAGE> 5
NOW, THEREFORE, for and in consideration of the premises and the
mutual covenants hereinafter contained to be observed and performed, the
parties hereto hereby formally covenant, agree and bind themselves as follows:
ARTICLE I
TERM
The term of this Agreement shall be for a period of 14 years, 4 months
and 16 days, commencing on August 15, 1994 and terminating at the end of
December 31, 2008.
ARTICLE II
LESSOR TO MAINTAIN AND OPERATE AIRPORT
Throughout the term of this Agreement, Lessor shall operate, maintain,
manage and control the Airport in a first class, efficient, economical and
businesslike manner. Such operation, maintenance, management and control shall
comply with all pertinent requirements of the Federal Aviation Administration,
or successor in duties related thereto, and shall include without limitation
the adequate and proper operation and maintenance of the land, runways,
taxiways, navigation aids, lighting, equipment, entrances, exits, roads,
parking areas and all other public facilities and appurtenances within the
boundaries of the Airport.
ARTICLE III
RIGHTS OF AIRLINE
Lessor does hereby grant to Airline the non-exclusive use of the
Airport, in common with other users of the Airport.
In addition, but not as a limitation upon the generality of any other
provision hereof, Airline may use the Airport, excepting those areas
exclusively leased to others, for the following specific purposes:
(a) The operation of its Air Carrier Service;
(b) The landing, taking off, flying over, taxiing, pushing,
towing, parking, loading and unloading of aircraft and other
equipment, including the right to handle all or part of the
operation or services of another airline;
2
<PAGE> 6
(c) The repairing, maintaining, conditioning and servicing of
aircraft and other equipment;
(d) The sale of air transportation tickets and service,
conveniences and facilities related to air travel and the
processing of passengers and their baggage for air travel; the
sale, handling and providing of mail, freight and express
services and conveniences related thereto and the performance
of other activities connected with the operation of its Air
Carrier Service;
(e) The training at the Airport of personnel in the employ of or
to be employed by Airline, and the testing of aircraft and
other equipment owned or operated by Airline such training and
testing to be incidental to the use of the Airport in the
operation by Airline of its Air Carrier Service provided,
however, that such training and testing will not unreasonably
hamper or interfere with the use of the Airport and its
facilities by other users entitled to the use of the same;
(f) The sale, disposal or exchange of Airline's aircraft, engines,
accessories, aviation fuels, ground vehicle fuels, oil,
greases, lubricants, and other materials, supplies and
equipment related to its Air Carrier Service;
(g) The full right to purchase at the Airport, or elsewhere, from
any person, or company, of its choice, its lubricating oil,
greases, and all other materials and supplies and services;
and no charges, fees, licenses, exercise or operating taxes,
tolls, or charges upon any such purchases shall be charged or
collected by Lessor from Airline, or from any other person for
the privilege of, or in connection with the purchasing,
handling, loading, unloading, storing, servicing, using, or
transporting, to, from, or at, the Airport, such materials and
supplies, or other property in connection with Airline's
business;
3
<PAGE> 7
(h) The servicing by Airline, or its suppliers, at appropriate
locations, of aircraft and other equipment, owned, or
operated, by Airline, or its suppliers of materials and
furnishers of services; by truck, or otherwise, with aviation
fuel, ground vehicle fuel, lubricating oil, greases, and all
other materials and supplies and services required by Airline
in the conduct of its Air Carrier Service; such right shall
include, without limiting the generality hereof, the right to
erect, or install and maintain on the Airport, adequate
storage facilities for such aviation fuel, ground vehicle
fuel, lubricating oil, greases and other materials and
supplies, at convenient locations, in accordance with
insurance underwriters' standards, together with the necessary
pipes, pumps, motors, filters and other appurtenances
incidental to the use thereof; such structures and
appurtenances to be and remain the severable property of
Airline.
(i) The loading and unloading of persons, property and mail by
such motor vehicles, or other means of conveyance as Airline
may require in the operation of its Air Carrier Service and
Airline may designate the particular carrier, or carriers,
which may transport Airline's employees, property, mail,
express and freight, to, from and on the Airport;
(j) The right to install and operate identifying signs on the
Airport and the general type, design and location thereof to
be subject to the approval of Lessor;
(k) The right to install, maintain and operate, in, on and about
the Airport, such radio communications, meteorological and
aerial navigation equipment and facilities as may be
necessary, or convenient, for its operation; such equipment
and facilities to be located in areas leased to Airline for
its exclusive use, or on such other portions of the Airport as
may be designated for that purpose by Lessor;
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(l) Such rights of way as it may require for communications
controls, teletype, telephone, interphone, pneumatic tubes and
power lines, in and between the Passenger Terminal Building
and other points on the Airport, provided, however, that the
location of such rights of way shall be subject to the
approval of Lessor;
(m) The conduct of any other function, or operation, reasonably
necessary to the proper performance and operation by Airline
of its Air Carrier Service;
(n) The full, free and unobstructed ingress to and egress from the
Airport and all premises leased exclusively or preferentially
to it, or in common with others; subject to the provisions of
Article XI herein, which provides for Rules and Regulations of
Lessor; for Airline, its employees, passengers, invitees,
suppliers of materials and furnishers of services; its, or
their, aircraft, equipment, vehicles, or machinery and
furnishers of services; provided, however, that such rights
shall not be construed to prevent Lessor from charging ground
vehicle parking fees to the public in the area designated by
Lessor for public parking. Ground vehicle parking charges to
Airline's employees, if applicable, are covered elsewhere
herein.
(o) Airport reserves the right to charge all users of the Airport,
except Airline, its employees, Airline's suppliers of
materials and furnishers of services, a minimum parking fee
for ground vehicles to enter the Airport.
Nothing herein contained shall be construed to mean that Airline is
authorized to conduct a business of any kind on the Airport except its Air
Carrier Service and nothing herein contained shall be construed as authorizing
Airline, in its conduct of its business, to interfere, unreasonably, with other
persons, or tenants, lawfully using, or leasing, Airport facilities.
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ARTICLE IV
PASSENGER TERMINAL BUILDING
Lessor hereby leases to Airline the areas in the Passenger Terminal
Building area as set forth on Exhibit B, which is attached hereto; for which
Airline shall pay monthly rentals, in advance, as set forth on Exhibit C which
is attached hereto; for the time periods specified on the said Exhibit C.
Services, Utilities and Maintenance - Lessor and Airline shall each
respectively furnish in the Passenger Terminal Building the services, utilities
and maintenance, and pay the costs and expenses therefor, as indicated on
Exhibit D attached hereto.
Employee Ground Vehicle Parking - Lessor shall make available to
Airline's employees reasonably adequate automobile parking facilities. Lessor
may, at its discretion, charge Airline's employees a parking fee, to recover
its costs and expenses for providing such parking facilities.
Rent for Aircraft Loading Positions - Lessor has the right to include
the charges for the use of the aircraft loading and unloading positions serving
the Passenger Terminal Building, (herein referred to as "Aircraft Loading
Positions" in the singular as well as in the plural form;) in the Landing Fee
Rate, or to negotiate a separate rental, or use charge, therefor, at any time
that the Landing Fee rate is established.
Use of Aircraft Loading Positions and Passenger Hold Rooms - Airline
is granted the preferential use of the Aircraft Loading Position designated on
Exhibit B, which is attached hereto, for loading and unloading aircraft.
Lessor retains the right to permit other authorized airlines to use the
Aircraft Loading Position for loading and unloading aircraft and to use the
Passenger Hold Room related thereto for the processing of passengers, when it
is not required by Airline for such purpose. Airline covenants to use its best
efforts to minimize its time of usage of such facilities and to remove its
aircraft promptly when they are not being loaded, or unloaded, from the
Aircraft Loading Position, and to make available the use of the related
Passenger Hold Room (including any Passenger Loading Bridge which may be
attached thereto), whenever
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Lessor notifies it that the said Aircraft Loading Position and related
Passenger Hold Room, are required for loading, or unloading, aircraft of other
authorized airlines. Whenever such facilities are used by others, Airline has
the right to charge such other users its reasonable costs and expenses related
to providing such facilities. Airline agrees to submit to Lessor a schedule of
its charges for the use of such facilities during the following year. However,
Airline shall not have the right to make a use charge for the Aircraft Loading
Position if the use thereof is included in the Landing Fee Rate and Lessor
makes no separate rental, or use, charge to Airline, therefor.
Flights originating at Airport will not be parked on an Aircraft
Loading Position for a period of time longer than one hour prior to such
flight's scheduled departure, if the Lessor advises that such is required for
loading, or unloading, aircraft of others not having such facilities available
for their use during the time involved.
Whenever Lessor requires Airline to move its aircraft from the
Aircraft Loading Positions, Lessor will provide substitute parking facilities
for such aircraft, of an adequate nature, in the event that Airline does not
have space for such aircraft, on the premises which it leases on the Airport.
If the Airport is required by an agency of the United States
government to modify, or add to, the facilities exclusively or preferentially
leased to Airline herein, or leased in common to Airline and other airlines
herein; for safety, or other reasons; the expense of such, amortized over a
reasonable period of time, will be charged to Airline as additional rental, at
the time that the modifications, or additions, are made ready for beneficial
use or occupancy.
ARTICLE V
LANDING FEES AND LANDING FEE RATE
Charges for the non-exclusive use of facilities, rights, licenses and
privileges at Airport which are granted to Airline herein, except those
expressly set forth herein and in separate lease agreements with Airline, shall
be combined in and represented by Landing Fees which shall be determined by
multiplying the Landing Fee Rate of Forty-Two and 95 Hundredth Cents ($.4295)
per thousand pounds, times the total number of thousands of pounds of maximum
certificated gross landing weight of Airline's aircraft
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actually landing at the Airport, in revenue service including training flight
landings, during the preceding month; from August 15, 1994 through the end of
December 31, 1994.
Airline shall submit to Lessor not later than the 5th day of each
month during the term hereof, a statement showing the information set forth
below pertaining to Airline's actual landing of revenue and training flights at
the Airport for the preceding month, and the Airline shall pay Landing Fees to
Lessor promptly upon receipt of an invoice for such, as applicable:
1. The number of aircraft actually landing at the Airport in
revenue service and for training purposes, separately stated
by types of aircraft, and whether such are in revenue, or
training service.
2. The number of enplaned passengers and the number of deplaned
passengers, separately stated, and the pounds of enplaned
mail, freight and express separately stated; and if available
the pounds of deplaned mail, freight and express separately
stated.
The term "maximum certificated gross landing weight" of aircraft as
used herein, shall mean the maximum landing weight as published by Airline in
the then current Flight Operations Manual and approved by the Federal Aviation
Administration, or its successor in duties, for landing such aircraft at the
Airport.
ARTICLE VI
ESTABLISHMENT OF RATES AND CHARGES IN FUTURE
During the term hereof, Landing Fees and Terminal Rentals will be
established annually for the ensuing one year period. Prior to the end of each
fiscal year Commission will furnish to Airline a statement of estimated Airport
Revenues and Expenses along with Commission's proposed budget for the following
fiscal year for which new rates and charges are to be adopted. The information
furnished to Airline will include the estimated rates and charges to be payable
by Airline pursuant to the new budget. Also prior to the end of the fiscal
year and prior to the adoption of the estimated rates and charges, Commission's
representatives will meet with Airline and other signatory airlines to discuss
the estimated revenues and expenses for the year
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ending, and the proposed budget for the new year and the resulting estimated
rates and charges. Airline will have the opportunity to comment on and be heard
with respect to the matters to be discussed at the meeting.
Following such meeting Commission will adopt its new budget and
proposed rates and charges after giving effect to the changes therein, if any,
suggested by/pursuant to Airline's comments. Commission will provide Airline
with a copy of the final budget and the new rates and charges to be effective
in the new fiscal year: Provided, however, that the new rates and charges will
not be finally adopted or placed into effect until after Commission's audited
financial statements from the prior year have been accepted by Commission and
Commission issues its letter to Airline establishing such new final rates and
charges. From the first day of each new fiscal year Airline shall continue to
pay rentals and landing fees at the prior year's rates until notified by
Commission that the final rates are in effect. The final rates shall be
retroactive to the first day of the new fiscal year and Commission will cause
its invoice to Airline to be issued giving effect to such new rates, including
a credit for any overpayment by Airline or an additional charge for any
underpayment by Airline under the new schedule of rates and charges. When
establishing such fees, rentals and charges it is agreed that the following
principles shall be observed:
1. The Airport is operated primarily for the benefit of the users
thereof and in accordance with this premise it is the purpose
of Lessor to establish fair and reasonable Airport rates, fees
and charges for all such users which will return to Lessor,
when added to other Airport income, sufficient revenues which
will enable it to operate the Airport in a competent,
efficient and economical manner, considering the factors set
forth in this Article VI and elsewhere herein.
2. Grants and participating funds from the United States of
America, or an agency thereof, and grants and participating
funds from the State of South Carolina, or an agency thereof,
shall be applied to
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reduce the costs and expenses of the Airport before computing
Airline's fees, rentals, or charges, hereunder.
3. No depreciation will be charged to land which is considered to
be a non-depreciating asset.
4. Reasonable fees, rentals and charges, as appropriate, will be
charged to all users of the Airport.
5. Lessor agrees to use its best efforts to maximize concession
revenue and ancillary income in order to help defray the
expenses of the Airport.
6. Consistent with good business practices Lessor agrees to use
its best efforts to obtain the maximum amount of grants and
participating funds for the Airport from the United States of
America, or an agency thereof.
7. Payments, coverage requirements, deposits into funds and
accounts as required by future acts authorizing the issuance
of bonds for Airport purposes will be chargeable as Airport
expense following the date hereof, as provided for herein.
8. Sound accounting principles recognizing the particular
requirements of airports, consistently applied, will be used
by Lessor for keeping the books, accounts and records of the
Airport.
9. The overhead and indirect expenses of Lessor will be determined
and allocated equitably to the various cost centers of the
Airport.
10. Deficits or surpluses of the Airport during the preceding rate
period will be carried forward and applied to increase or
reduce, as the case may be, the fees, rentals and charges to
be charged in the following rate period.
11. Forecasted income and expenses for the Airport for the next
ensuing rate period will be taken into consideration.
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12. Passenger boarding taxes, use fees or similar charges upon
passengers using the Airport will be credited to the costs,
expenses, financing and bond requirements of the Airport.
13. The projects called for in the Airport's Master Plan as
approved by the Federal Aviation Administration, may be
undertaken by Lessor and the amortization of the costs and
expenses related thereto, not covered by grants and
participating funds from the United States of America, or an
agency thereof; will be considered as Airport expense,
including all payments and deposits required by authorizations
for the issuance of bonds, payments to banks and other lenders
and the amortization of Airport funds.
14. Projects required by the Federal Aviation Administration for
safety will be undertaken by Lessor when it is prudent to do
so and the amortization of the costs and expenses related
thereto, not covered by grants and participating funds from
the United States of America, or an agency thereof; or the
State of South Carolina, or an agency thereof; will be
considered as Airport expense, including all payments and
deposits required by authorizations for the issuance of bonds,
payment to banks and other lenders and the amortization of
Airport funds.
15. Payments and deposits required by authorization for the
issuance of bonds, or payments to banks and other lenders,
will not be charged to Airport cost or expense, for projects
that are not included in the then current Master Plan of the
Airport, which has been approved by the Federal Aviation
Administration; or are not required by Federal Aviation
Administration for safety; unless such projects are entirely
self-supporting through lease commitments made by the user or
users, thereof, to make all payments required related thereto;
unless such bonds or borrowing are approved by a
Majority-In-Interest of the Airlines. A Majority-In-Interest
of the
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Airlines is defined to consist of a least one half in number
of the airlines serving the Airport which have agreements in
effect substantially similar to this one, which collectively
enplaned at least fifty percent of the passengers at the
Airport during the preceding calendar year.
16. Principal and interest on the bonds which fall due as set
forth on the attached Exhibit E will be treated for the
purpose hereof as Airport expense.
17. Lessor will furnish to Airline annually the proposed Airport
budget for the following year as soon as it is available and
in a reasonable time prior to its being adopted by Lessor, in
order to provide Airline with sufficient opportunity to
provide comments and to present objections thereto, if it
desires to do so.
18. Beginning on January 1, 1992 the Airport rate base will be
increased by an amount equal to the discount previously
granted airlines, having agreements substantially similar to
this one with Lessor, serving the Airport, during the period
January 1, 1979 through the end of December 31, 1981, as set
forth on Exhibit F, which is attached hereto. The said
discount will be computed in accordance with the provisions of
Exhibit F and the total amount so computed will be amortized
over a period of ten (10) years, without interest, and will be
deposited in the Capital Fund as set forth in Article V
herein, and will not be treated as surplus income when
establishing rates and charges in the future years as provided
for in this Article.
19. The gross revenues derived from the Airport shall be used
solely for the operation, maintenance, improvement,
acquisition of equipment and supplies, management, expansion
and financing requirements of the Airport.
20. All costs and expenses associated with screening passengers,
other persons, baggage and hand-carried objects, entering the
aircraft
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boarding areas of the Passenger Terminal Building, pursuant to
applicable Federal Air Regulations; will be paid for by
Airline, on a pro rata basis with other airlines serving the
Airport; which airlines are required to, or actually do, use
the passenger screening facilities.
21. Lessor agrees to exercise prudence in the operation,
maintenance, improvement, expansion, management and financing
of the Airport.
There is currently pending a resolution to a controversy involving
interpretation of the Airport Use and Lease Agreement with Delta Air Lines,
USAir Air Lines, United Air Lines, and American Airlines. Airline agrees that
resolution of that issue may effect signatory rates and charges hereunder and
agrees that it will participate in such additional charges as may be ordered or
agreed to between the parties or receive reductions in signatory airline rates
as may occur.
ARTICLE VII
NO OTHER CHARGES
Lessor agrees that no rents, fees, charges, or tolls, other than those
expressly provided for in this Agreement or other Agreements between Lessor and
Airline; shall be charged or collected by it from Airline, from Airline's
passengers, employees, suppliers of materials, or furnishers of services; for
the use of any of the premises, facilities, licenses and privileges expressed
in or reasonably inferred from these presents, or for any of the services
required to be performed by Lessor; the rents, fees and charges expressly
provided herein, being full and complete consideration and compensation to
Lessor for the use of said premises, facilities, licenses and privileges and
the performance of said services.
Notwithstanding the foregoing, Lessor has the right to make a separate
and additional charge to Airline, for additional facilities leased to it; for
its exclusive use, preferential use or for common use with other airlines, or
other users; not expressly covered herein; provided such is included in a
written agreement.
In the event that the Congress of the United States shall permit, or
it shall otherwise become lawful at any time in the future; to assess and
collect a head tax,
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passenger boarding tax, use fee, or similar charge upon passengers using the
Airport, or any of its facilities, or services; this provision shall not limit
the right of Lessor to assess and collect such tax, fee or charge.
ARTICLE VIII
QUIET ENJOYMENT
Lessor agrees that on payment of the rents, fees and other charges
provided for herein and the performance of the covenants and agreements on the
part of Airline to be performed hereunder, Airline shall peaceably have and
enjoy the premises, appurtenances, facilities, rights, licenses and privileges
granted herein.
ARTICLE IX
INSPECTION BY LESSOR
Lessor may enter upon any premises which are leased exclusively or
preferentially to Airline, or jointly to Airline and others, at any reasonable
time, for any purpose necessary, incidental to, or connected with, the
performance of its obligations hereunder, or in the exercise of its
governmental functions as it relates to public health, safety and general
welfare of the Airport.
ARTICLE X
INDEMNIFICATION AND LIABILITY INSURANCE
Airline shall protect, defend and hold Lessor completely harmless from
and against any and all liabilities, losses, suits, claims, judgments, fines or
demands arising by reason of injury or death of any person or damage to any
property, (including but not limited to attorney fees, court costs, and expert
fees), of any nature whatsoever arising out of or incidental to this Lease and
the use or occupancy of the Premises or the acts or omissions of Airline's
directors, officers, agents, employees, contractors, subcontractors or
licensees; however, the above indemnity shall not apply to any injury, death or
damage caused by the negligence or wilful misconduct of Lessor, its
commissioners, directors, officers, agents and employees, Lessor shall give
reasonable notice of any such claims or actions. The provisions of this
section shall survive the expiration of early termination of this Lease.
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Airline agrees to carry and keep in force public liability insurance
with an insurance company of recognized responsibility covering personal injury
and property damage to protect the Lessor, its commissioners, directors,
agents, officers and employees from liability covered by the indemnification
provisions of this Article. Without limiting its liability as aforesaid,
Airline agrees to carry and keep in force such insurance with limits of
liability for death, personal injury and property damage in a sum not less than
Fifty Million and No/100 ($50,000,000.00) Dollars with the Lessor and its
commissioners, directors, officers, agents and employees as additional named
insured. The aforesaid minimum amounts may be reviewed from time-to-time by
the parties hereto and adjusted so as to be adequate after consultation with an
insurance underwriting consultant. Airline will furnish Lessor with proper
certification that such insurance is in force.
ARTICLE XI
LETTER OF CREDIT
Airline covenants and agrees that no later than fourteen (14) calendar
days from the date of Airline's execution of this Agreement, Airline will
provide Airport an irrevocable Letter of Credit in the form of Exhibit G. The
Letter of Credit shall name the Richland-Lexington Airport District as
beneficiary and shall be in a stated amount of not less than three (3) months'
pecuniary obligation calculated by reference to Exhibit C and Article V.
If at any time Airline fails to make timely payment under the terms
of this Agreement, Airport may draw on the Letter of Credit or any portion of
it for payment or to compensate Airport for any damages sustained by Airport
resulting from Airline's default. Airline shall immediately on demand provide
Airport with another irrevocable Letter of Credit equal to that portion of the
Letter of Credit expended or applied by Airport to bring payments current or
cure such default as to maintain an irrevocable Letter of Credit in the sum
initially provided to Airport. Airport's obligations to Airline with respect
to the Letter of Credit are those of a beneficiary and not a creditor or
trustee.
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Airline's failure to provide Airport with a Letter of Credit within
the period stated herein shall be deemed a material default of this Agreement's
terms, covenants, and conditions and upon the happening of same this Agreement
shall be terminated without further notice to Airline.
ARTICLE XII
RULES AND REGULATIONS
Lessor may adopt and enforce reasonable rules and regulations, which
Airline agrees to observe and obey, with respect to the use of the Airport and
appurtenances, together with all facilities, improvements, equipment and
services of the Airport for the purpose of providing for safety, good order,
good conduct, sanitation and preservation of the Airport and its facilities;
provided that such rules and regulations are not inconsistent with the rules,
regulations and orders of the Federal Aviation Administration, or its successor
in duties, with respect to aircraft operations at the Airport; and provided
further that such are not inconsistent with the provisions of this Agreement,
or other agreements with Airline at the Airport; or the procedures prescribed,
or approved, from time-to-time by the Federal Aviation Administration, or its
successor in duties, with respect to the operation of aircraft operated by
Airline at the Airport.
ARTICLE XIII
ASSIGNMENT AND SUBLETTING
Airline shall not assign this Agreement, or any part thereof, without
the prior written approval of Lessor; provided, however, that Airline may,
without such consent, assign this Agreement to any person, firm or corporation
with which Airline may merge, or consolidate, or which may succeed to the
business of Airline.
Airline shall not sublet all or any part of the premises leased
hereunder without the prior written approval of Lessor.
ARTICLE XIV
FORCE MAJEURE
Neither Lessor, nor Airline, shall be deemed in violation of this
Agreement if it is prevented from performing any of its obligations hereunder
by reasons of strikes,
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boycotts, labor disputes, embargoes, shortages of material, acts of God, acts
of the public enemy, acts of superior governmental authority, weather
conditions, floods, riots, rebellions, acts of sabotage, or any other
circumstances for which it is not responsible, or which are not in its control;
provided, however, that this Article does not apply to failure by Airline to
pay the rentals, fees and charges set forth herein. In any such case, a prompt
written notice shall be given to the other party of the existence of such cause
and of readiness to resume performance upon the removal, or non-existence
thereof.
ARTICLE XV
SURRENDER OF POSSESSION
Airline agrees to yield and deliver to Lessor possession of the
premises leased exclusively, preferentially, or in common with others, at the
termination of this Agreement, by expiration or otherwise, or of any renewal or
extension thereof, in good condition in accordance with its express obligations
hereunder, except for reasonable wear and tear, fire or other casualty, and
Airline shall have the right any time during said term, or any renewal or
extension hereof, and for thirty (30) days after the termination hereof, to
remove its trade fixtures and equipment situated on the premises which were
installed, or placed by it, at its expense, in, on, or about, the premises
leased hereunder; subject, however, to any valid lien which Lessor may have
thereon for unpaid rents, fees, or charges.
ARTICLE XVI
CANCELLATION BY LESSOR
Lessor may cancel this Agreement and terminate all of its obligations
hereunder at any time that it is not in default upon or after the happening of
any of the following events:
(a) Airline shall file a voluntary petition in bankruptcy; or
(b) Proceedings in bankruptcy shall be instituted against Airline
and Airline is hereafter adjudicated bankrupt pursuant to such
proceedings; or
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(c) A court shall take jurisdiction of Airline and its assets
pursuant to proceedings brought under the provisions of any
Federal reorganization act; or
(d) A receiver of Airline's assets shall be appointed; or
(e) Airline shall be lawfully divested of, or prevented by any
final action of any cognizant Federal, or State Authority,
from conducting and operating its Air Carrier Service at the
Airport; or
(f) Airline voluntarily abandons its conduct of its Air Carrier
Service at the Airport for a period of thirty days, except if
such is due to a labor strike, or labor dispute, in which
Airline is involved; or
(g) Any assignment is made by Airline for the benefit of its
creditors; or
(h) The material default by Airline of any of the covenants or
agreements herein contained and the failure of Airline to
remedy such default as hereinafter provided. In the event of
such material default Lessor may give Airline notice in
writing to correct such default and if such default shall
continue for sixty days after the receipt of such notice by
Airline (except where fulfillment of its obligation requires
activity over a period of time and Airline shall commence to
perform whatever may be required for the fulfillment within
forty-five days after the receipt of notice and continues such
performance without interruption, except for causes beyond its
control), Lessor may, after the lapse of said sixty day
period, cancel this Agreement, without forfeiture, waiver, or
release of Lessor's rights to any sum of money due under the
provisions of this Agreement.
ARTICLE XVII
CANCELLATION BY AIRLINE
Airline may cancel this Agreement and terminate all of its obligations
hereunder at any time that Airline is not in default in the payment of any
rentals, fees, or charges,
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to Lessor hereunder, by giving Lessor twenty (20) days written notice if
Airline shall be prevented from operating its Air Carrier Service to and from
the Airport by reason of its inability to use a substantial part, or all, of
the runways, taxiways and Aircraft Loading Positions; as hereinafter set forth:
(a) For a period of longer than thirty (30) consecutive days,
resulting from any condition of the Airport not due to the
fault of Airline; or
(b) For a period of longer than ninety (90) consecutive days,
resulting from a permanent injunction issued by any court of
competent jurisdiction; or
(c) For a period of longer than ninety (90) consecutive days,
resulting from any order, rule, or regulation, of the Federal
Aviation Administration or any governmental agency having
jurisdiction over the operations of Airline at the time, with
which Airline is unable to comply at reasonable cost, or
expense.
Airline may also cancel this Agreement if any governmental agency
having jurisdiction over the operations of Airline at the time, suspends for a
period of sixty (60) days, or longer; cancels; or terminates Airline's right to
serve the Airport; unless Airline voluntarily sought, or failed to take
reasonable action to prevent, such suspension, cancellation, or termination.
If Lessor shall fail to perform any of its obligations under this
Agreement within thirty (30) days after receipt of notice of default thereunder
from Airline (except where fulfillment of its obligation requires activity over
a period of time and Lessor shall commence to perform whatever may be required
for fulfillment within twenty (20) days after the receipt of notice and
continues such performance without interruption, except for causes beyond its
control) then Airline may terminate this Agreement, such termination to be
effective upon the date set forth in such notice.
ARTICLE XVIII
DAMAGE OR DESTRUCTION OF LEASED PREMISES
If any property, part or all of which is leased to Airline, shall be
partially damaged by fire or other casualty but not rendered untenantable, the
same shall be
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repaired with due diligence by the Lessor at its own cost and expense, unless
such fire or other casualty was caused by the negligence of Airline; if the
damage shall be so extensive as to render part or all of such premises
untenantable but capable of being repaired in sixty (60) days, the same shall
be repaired with due diligence by the Lessor at its own expense, and the rent
payable hereunder shall be proportionately paid up to the time of such damage
and shall thenceforth cease as to the untenantable premises until such time as
they shall be tenantable; and in case such property, or any part thereof, is
completely destroyed by fire or other casualty or so damaged as to remain
untenantable for more than sixty (60) days, at the option of Airline either (1)
said premises shall be repaired or reconstructed with due diligence by the
Lessor at its own cost and expense and the rent payable hereunder for the
destroyed premises shall be proportionately paid up to the time of such damage
or destruction and shall thenceforth cease until such time as the premises
shall be put in order; or (2) within ninety (90) days after the time of such
damage or destruction and before the said premises shall be put in order and
before contract for repair or reconstruction thereof has been signed, the
Airline shall give Lessor notice of its intention to cancel this Agreement in
its entirety, or the portion thereof relating to such property, shall forthwith
cease and terminate.
ARTICLE XIX
RIGHT TO CONVERT RATE FORMULA
Notwithstanding any other provision in this Agreement, the Airport
reserves the right to convert from its current residual cost rate formula to a
modified residual rate formula which will provide for rates and charges based
on a determination of the cost of provision of and operating the airfield and
the passenger terminal facilities and other facilities used by Airline by
allocating these costs to other airlines and this Airline in proportion to
their use of airfield and passenger terminal facilities at Airport. This
modification shall not take place until sixty (60) days after the Agreement is
reached with other Airlines operating at the Airport to the adoption to the
modified residual rate system or a modification of same.
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ARTICLE XX
NON WAIVER OF RIGHTS
Continued performance by either party hereto pursuant to the terms of
this Agreement after a default of any of the terms, covenants and conditions
herein contained to be performed, kept or observed, by the other party hereto,
shall not be deemed a waiver of any right to cancel this Agreement for any
subsequent default and no waiver of any such default shall be construed or act
as a waiver of any subsequent default.
ARTICLE XXI
INVALIDITY OF CLAUSES
The invalidity of any portion, paragraph, provision, or clause of this
Agreement, shall have no effect upon the validity of any other part, or portion
hereof.
ARTICLE XXII
APPROVAL BY LESSOR
Wherever the approval of Lessor is called for herein it is understood
and agreed that such approval shall be in writing and shall not be unreasonably
withheld.
ARTICLE XXIII
HEADINGS
The Article title shown in this Agreement is inserted only as a matter
of convenience and for reference and in no way define, limit or describe the
scope or intent of any provision of this Agreement.
ARTICLE XXIV
EQUAL TERMS
Lessor covenants and agrees that if it enters into any contract,
agreement, or lease; with any other Airline which offers to the public the same
or substantially the same scheduled daily passenger service at the Airport,
containing more favorable terms than those set forth in this Agreement; or if
Lessor grants to any other such air transportation operator, or Airline;
rights, licenses, or privileges with respect to the Airport; which are more
favorable than those accorded to Airline; then the same terms and conditions
will automatically and concurrently be made available to Airline.
21
<PAGE> 25
ARTICLE XXV
TITLE TO AIRLINE INSTALLED IMPROVEMENTS AND PROPERTY
As to improvements and property installed and paid for by Airline
under the terms of this Agreement, Airline will retain title to all of its
trade fixtures and equipment only, except as may otherwise be provided for in
this Agreement, or other Agreements, between the parties hereto.
ARTICLE XXVI
ALTERATIONS AND ADDITIONS
Airline shall make no alterations, or additions, to its premises leased
hereunder without the prior written approval of Lessor.
ARTICLE XXVII
LICENSES AND PERMITS
It is agreed that any licenses, permits, or documentary stamps required
shall be paid by Airline.
ARTICLE XXVIII
NOTICES
Notices to Lessor provided for herein shall be in writing and shall be
sufficient if sent by registered, or certified, mail, postage prepaid; or by
hand, addressed to and receipted for by Lessor, as follows:
EXECUTIVE DIRECTOR
COLUMBIA METROPOLITAN AIRPORT
P.O. BOX 280037
COLUMBIA, SOUTH CAROLINA 29228-0037
and to Airline as follows:
AIR SOUTH, INC.
OFFICE OF GENERAL COUNSEL
1800 ST. JULIAN PLACE, SUITE 400
COLUMBIA, SOUTH CAROLINA 29204
ARTICLE XXIX
CHARGES FOR LATE PAYMENT
Time is of the essence for the payment of all charges hereunder.
Should Airline fail to make payment on statements so that it is received by
Lessor by no later than
22
<PAGE> 26
thirty (30) days of its due date, the sum shall be adjudged to be past due and
a late penalty of one and one-half (1 1/2%) percent shall be due and payable.
Thereafter, a late penalty of 1 1/2% per month shall continue to accrue until
paid.
ARTICLE XXX
ATTORNEY'S FEES
In the event of any action, suit or proceeding brought to collect the
rentals and fees (or any portion thereof) due or to become due hereunder, to
take possession of the demised premises, to enforce compliance with this
Agreement, or for failure to observe any of the covenants of this Agreement,
Airline shall pay Lessor's attorney fees in such sum as the Court may adjudge
reasonable for attorney's fees to be allowed in said suit, action or proceeding.
IN WITNESS WHEREOF, the parties hereto have executed these presents as
of the day and year first above written.
ATTEST: LESSOR:
RICHLAND-LEXINGTON AIRPORT DISTRICT
/s/ Donna B. Seigles BY: /s/ H. Ray
- - ------------------------------------ -------------------------------------
Secretary Chairman
/s/ Dee BY: /s/
- - ------------------------------------ -------------------------------------
Executive Director
ATTEST: AIRLINE:
AIR SOUTH, INC.
/s/ Dianne Peagler BY: /s/
- - ------------------------------------ -------------------------------------
Title: CFO
----------------------------------
APPROVED AS TO FORM:
/s/ Kelly J. Gelder
- - ------------------------------------
Attorney for RIAD
August 12, 1994
- - ------------------------------------
Date
23
<PAGE> 27
AS4
<TABLE>
<CAPTION>
SQUARE 1994 RATE 1994 ANNUAL 1994 MONTHLY
1994 AIR SOUTH RATE FEET PER SQUARE INVOICED INVOICED
SIGNATORY AIRLINE RATES LEASED FOOT CHARGE CHARGE
08/01/94 (PER DRAWING)
- - -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AIR SOUTH
- - -----------
SECOND LEVEL
- - ------------
TICKET COUNTER 210.00 $33.19 $ 6,969.90 $ 580.83
OFFICE 510.00 $24.90 $ 12,699.00 $ 1,058.25
BAGGAGE MAKE-UP 277.00 $23.19 $ 6,423.63 $ 535.30
CANOPY 980.00 $10.49 $ 10.280.20 $ 856.68
-------- --------------------------
SUB-TOTAL 1,977.00 $ 36,372.73 $ 3,031.06
-------- --------------------------
LOWER LEVEL
- - -----------
COMMON BAG CLAIM 482.00 $25.63 $ 12,353.66 $ 1,029.47
BAGGAGE OFFICE 0.00 $24.90 $ 0.00 $ 0.00
-------- --------------------------
SUB-TOTAL 482.00 $ 12,353.66 $ 1,029.47
-------- --------------------------
EAST CONCOURSE
- - -----------
HOLD ROOM GATE 11 3,853.00 $27.34 $105,341.02 $ 8,778.42
OPERATIONS 708.00 $20.01 $ 14,167.08 $ 1,180.59
RAMP STORAGE 333.00 $16.60 $ 5,527.80 $ 460.65
-------- --------------------------
SUB-TOTAL 4,894.00 125,035.90 10.419.66
-------- --------------------------
TOTALS 7,353.00 173,762.29 14.480.19
======== ==========================
</TABLE>
(Per Article V, Landing Fees For 3 Months Estimated at $22,000)
EXHIBIT C
AUGUST 1, 1994
<PAGE> 28
COLUMBIA METROPOLITAN AIRPORT
PASSENGER TERMINAL SPACE USAGE & SERVICES
<TABLE>
<CAPTION>
TERMINAL SERVICE PROVIDED
AIRLINE LEASED SPACE SQUARE FEET A=AIRPORT T=TENANT
- - ------------------------------------------------------------------------------------------------------------------------------------
SECOND LEVEL DELTA AMERICAN USAIR UNITED AIR SOUTH TOTAL CLEANING ELECTRICITY RELAMPING AC/HEAT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Ticket Counter Area 632 158 396 177 210 1,573 T A A A
Offices 1,110 587 963 547 510 3,717 T A A A
Baggage Make Up 1,269 225 883 271 277 2,925 T A A A
Canopy 745 144 279 275 980 2,423
TOTAL 3,756 1,114 2,521 1,270 1,977 10,638
LOWER LEVEL
Offices 211 527 225 229 1,192 T A A A
Common Bag Claim 4,893.58 1,117.85 2,578.53 1,040.04 482 10,112 A A A A
TOTAL 5,104.58 1,644.85 2,803.53 1,269.04 482 11,304
CONCOURSE
Hold Rooms 4,477 2,492 3,156 1,930 3,853 15,908 A A A A
Operations 1,729 643 1,195 141 708 4,416 T A A A
Crown Room 822 822 T A A A
Maintenance 397 397 T A A A
Ramp Storage 918 154 58 333 1,463 T A A A
Employee Lounge 358 358 T A A A
TOTAL 8,701 3,289 4,409 2,071 4,894 23,364
GRAND TOTAL 17,561.58 6,047.85 9,733.53 4,610.04 7,353 45,306
</TABLE>
EXHIBIT D
<PAGE> 29
EXHIBIT G
IRREVOCABLE LETTER OF CREDIT
Irrevocable Letter of Credit Number: _____________________________________
Date: _____________________________________
To: The State of South Carolina
Richland-Lexington Airport District
Post Office Box 280037
Columbia, South Carolina 29228-0037
From: Bank: __________________________________________________
Address: __________________________________________________
__________________________________________________
Authorized
Signature: __________________________________________________
Title: __________________________________________________
We have established this irrevocable letter of credit solely in favor
of the Richland-Lexington Airport District for drawings up to $________________
U.S. Dollars (Currency and Amount in Words: _________________________________)
and expiring on close of business on ____________________, provided that this
letter of credit shall be deemed automatically extended without amendment for
one year from the expiration date, or any future expiration date, unless sixty
(60) days prior to the expiration date, the advising bank notifies the
Richland-Lexington Airport District that it elects not to consider this letter
of credit renewed for such additional period.
This undertaking is not subject to any condition or qualification.
The obligation of this bank under this letter of credit shall be the individual
obligation of the bank, and no way contingent upon reimbursement with respect
thereto. This letter of credit shall be governed by the laws of South
Carolina, and any legal proceedings initiated with respect to payment of this
letter of credit shall be brought in the State of South Carolina, County of
Lexington, subject to the laws of the State of South Carolina.
________________________________________________________________________________
BANK USE ONLY
Approved:________________ City:_________________ Date:___________________
_________________________ Telephone:____________ Fee:_____% RC
Account Officer
Second Charge DDA#:__________ Purpose/Collateral Code:_____
Level
Approval:________________ Facility ID:__________ Credit Grade:
_________________________ Customer SIC Code:
(Print Name and Title)
Exhibit G
<PAGE> 30
RICHLAND-LEXINGTON AIRPORT DISTRICT
SCHEDULE of GENERAL LONG-TERM DEBT PROJECTED DEBT SERVICE
Year Ended December 31, 1985
<TABLE>
<CAPTION>
Bond Maturity Schedule
------------------------------
Year
Ending
December 31 Principal Interest Total
- - ----------- --------- --------- ---------
<S> <C> <C> <C>
1985 $ 420 000 $ 154 595 $ 574 595
1986 420 000 132 370 552 370
1987 400 000 109 700 509 700
1988 400 000 88 600 488 600
1989 400 000 67 000 467 000
1990 410 000 45 000 455 000
1991 410 000 22 500 432 000
$5760 000 $2001 889 $7761 889
</TABLE>
EXHIBIT E
September 1, 198
<PAGE> 1
EXHIBIT 10.30
LEASE AND AGREEMENT
BY AND BETWEEN
RICHLAND-LEXINGTON AIRPORT DISTRICT,
LANDLORD
AND
AIR SOUTH, INC.,
TENANT
<PAGE> 2
RICHLAND-LEXINGTON AIRPORT DISTRICT, LANDLORD
AND
AIR SOUTH, INC.
LEASE AND AGREEMENT
INDEX
<TABLE>
<CAPTION> Page No.
Article I --------
<S> <C>
PREMISES, RESTRICTIONS AND PRIVILEGES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.1 Demised Premises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.2 Restrictions on the Use of Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.3 General Privileges and Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.4 Definition of Public Airport Facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Article II
OBLIGATIONS OF LANDLORD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.1 Clear Title . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.2 Operation as Public Airport . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.3 Condition and Maintenance of Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Article III
OBLIGATIONS OF TENANT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.1 Right and Obligation to Construct . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.2 Submission of Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.3 Net Lease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.4 Condition of Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.5 Maintenance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.6 Trash, Garbage, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.7 Signs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Article IV
LEASE, TERM, RENT AND FEES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
4.1 Original Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
4.2 Renewal Option . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
4.3 Rental Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
4.4 Rental Escalation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
4.5 Charges for Late Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
4.6 Field Use Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
4.7 Utilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
4.8 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Article V
IMPROVEMENTS, ALTERATIONS, AND REPAIRS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
5.1 Requirements of Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
5.2 Repairs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
5.3 Alterations and Removals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
5.4 Landlord's Right of Access . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Article VI
ENVIRONMENTAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
6.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
6.2 Landlord's Representations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
6.3 Tenant's Representations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
6.4 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
6.5 Inspection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
6.6 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Article VII
INDEMNIFICATION AND INSURANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
7.1 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
7.2 Property Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
7.3 Liability Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
7.4 Worker's Compensation and Employer's Liability Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . 18
7.5 Certificates of Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Article VIII
TERMINATION OF AGREEMENT, CANCELLATION, ASSIGNMENT, AND SUSPENSION . . . . . . . . . . . . . . . . . . . . . . . . . 19
8.1 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
8.2 Cancellation by Landlord . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
8.3 Landlord Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
8.4 Cancellation by Tenant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
8.5 Assignment and Subletting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
8.6 Suspension of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
8.7 Relocation of Improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Article IX
MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
9.1 Non-Disturbance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
9.2 Non-Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
9.3 Quiet Enjoyment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
9.4 Surrender . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
9.5 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
</TABLE>
ii
<PAGE> 4
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
9.6 Compliance with Laws and Non-Discrimination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
9.7 Succesor and Assigns. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
9.8 Captions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
9.9 Integration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
9.10 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
9.11 Joint and Several Liability; Number and Gender. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
9.12 Recording . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
</TABLE>
Exhibit A - Description or Plan of the Property
iii
<PAGE> 5
STATE OF SOUTH CAROLINA )
COUNTY OF LEXINGTON )
)
RICHLAND-LEXINGTON AIRPORT DISTRICT, )
LANDLORD, )
AND )
) LEASE AND AGREEMENT
AIR SOUTH, INC. )
TENANT. )
- - -------------------------------------------
THIS LEASE AND AGREEMENT (this "Agreement"), made on this 12th day of
December, 1995, but executed on January ___, 1996, between the Richland-
Lexington Airport District, a political subdivision of the State of South
Carolina (hereinafter referred to as "Landlord"), and Air South, Inc., an
Illinois corporation authorized to do business in South Carolina, (hereinafter
referred to as "Tenant").
WITNESSETH:
WHEREAS, Landlord owns and operates Columbia Metropolitan Airport
(hereinafter called "Airport") located in Lexington County, South Carolina;
and
WHEREAS, Tenant is signatory to the Airport Use and Lease Agreement
dated August 15, 1994 which authorizes Tenant to operate its air transportation
business at the Airport; and
WHEREAS, Landlord deems it advantageous to itself and to its operation
of the Airport to lease unto Tenant that certain parcel of land together with
any improvements
1
<PAGE> 6
thereon, being located at the Airport as shown on plat marked Exhibit "A"
attached hereto and by this reference made a part hereof;
NOW, THEREFORE, Landlord and Tenant, for and in consideration of the
rents, covenants and agreements herein contained, agree as follows:
ARTICLE I
PREMISES, RESTRICTIONS AND PRIVILEGES
1.1 Demised Premises. Landlord, for and in consideration of the covenants
and conditions hereinafter contained on the part of the Tenant to be performed,
and in consideration of the rental hereinafter reserved, does hereby grant,
lease, demise and let unto Tenant and Tenant does hereby rent and take from
Landlord certain real premises, together with improvements thereon (hereinafter
called "Property"), and certain attendant privileges, uses and rights, as
hereinafter specifically set out. The exclusive premises conveyed by this
Agreement shall be:
All that certain real property consisting of approximately
11.132 acres and containing two metal buildings of
approximately 21,850 sq. ft. and 1,500 sq. ft. respectively,
all being located at the Airport as shown and depicted on
plat marked Exhibit "A" attached hereto and by this
reference made a part hereof.
1.2 Restrictions on use of Property. Tenant by acceptance of this
Agreement for itself and its successors and assigns agrees that the Property
shall be used as aircraft hangar, maintenance, repair facility, and
administrative offices, and such other purposes as the Landlord may approve in
writing.
Tenant for itself, its successors and assigns does hereby agree that
it shall not in the future install, construct or erect, or cause to be
installed, constructed or erected any form
2
<PAGE> 7
of underground storage tanks for the storage of fuel, petroleum products or any
other product at the Property.
The Tenant additionally agrees to the following restrictions which are
hereby declared to be placed on the Property.
A. That the Landlord reserves unto itself, its successors and
assigns, for the use and benefit of the public, a right of
flight for the passage of aircraft in the airspace above the
surface of the Property, together with the right to cause in
said airspace such noise as may be inherent in the operation
of aircraft, which might be now known or hereafter invented,
used or designed for navigation of or flight in said airspace,
and for use of said airspace for landing on, taking off from
or operating at the Airport.
B. That Tenant expressly agrees for itself, its successors and
assigns that it will not make any use of the Property which
would interfere with the landing or taking off of aircraft at
the Airport nor will the Property be used in any fashion so as
to constitute an airport hazard.
1.3 General Privileges and Rights. Landlord grants to Tenant the right
and privilege to use, on a non-exclusive basis, the Public Airport Facilities,
as defined in Section 1.4, and improvements which are now or may hereafter be
connected with or appurtenant to the Airport. These general privileges and
rights are applicable only to Tenant's operations under this Agreement. Tenant
has other privileges and rights under the terms of other leases and agreements
and specifically under the Airport Lease and Use Agreement that Tenant executed
as an air carrier operating pursuant to 14 C.F.R., Part 121 and doing business
at the Airport.
1.4 Definition of Public Airport Facilities. Public Airport Facilities
shall include all necessary landing area appurtenances including but not
limited to approach areas, runways, taxiways, aprons, aircraft and automobile
parking areas, roadways, sidewalks, navigational
3
<PAGE> 8
aids, lighting facilities, terminal facilities or other public facilities
appurtenant to the Airport and available to Tenant in connection with the use
of the Property.
ARTICLE II
OBLIGATIONS OF LANDLORD
2.1 Clear Title. Landlord covenants and agrees that at and until the
granting and delivery of this Agreement it is well seized of the Property and
has good title thereto, free and clear of all liens and encumbrances having
priority over this Agreement; and that Landlord has the full right and
authority to lease the same as herein set forth except for such restrictions as
may have been imposed by the United States Government by reason of certain
Grant Agreements.
Landlord further covenants that all things have happened and been done
to make its granting of this Agreement effective and Landlord warrants to
Tenant peaceful possession and quiet enjoyment of the Property during the term
hereof, upon performance of Tenant's covenants herein.
2.2 Operating as Public Airport. Landlord covenants and agrees that
during the term hereof it will operate and maintain the Airport and its Public
Airport Facilities as a public airport consistent and pursuant to the Sponsor's
Assurances given by Landlord to the United States Government under the Federal
Airport Act, P.L. 91-258, as amended.
2.3 Condition and Maintenance of Property. Subject to the representations
and warranties contained in Sections 5.1B and 6.2 below, Landlord shall
maintain the demised premises, including the building and any and all
equipment, fixtures, and appurtenances, furnished by the Landlord under this
lease in good repair and tenantable condition, except
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in case of damage arising from the act or the negligence of the Tenant, its
agents, employees, or licensees. For the purpose of so maintaining said
premises and property, the Landlord may at reasonable times, and with the
approval of the Tenant, enter and inspect the same and make any necessary
repairs thereto.
ARTICLE III
OBLIGATIONS OF TENANT
3.1 Right and Obligation to Construct. Tenant shall have the right and the
responsibility to provide for the location, construction, erection, maintenance
and removal of all buildings and structures on, and improvements to the
Property for the purpose of carrying out Tenant's authorized operations.
3.2 Submission of Plans. Should Tenant wish to make improvements or
modifications on the site, all plans and specifications for the construction of
facilities and improvements (including landscaping) shall be prepared as
hereinafter set out and shall require the written approval of Landlord before
construction or installation may be undertaken. Tenant shall use its best
efforts to submit to Landlord final plans and specifications for any
improvements herein referred to in advance of Tenant's anticipated beginning
date of construction. Should plans not be in final form, it shall submit such
plans as are available and submit final plans within thirty (30) days of the
execution of any construction contract between Tenant and its contractor.
These plans shall include a plat plan, drawn to scale, showing the area to be
improved, including kind of pavement to be laid, building plans, the area to be
fenced, if any, and the kind of fencing to be used, and copies of landscaping
plans.
All improvements shall conform to Landlord's general requirements and
shall be
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architecturally consistent with existing Airport structures.
3.3 Net Lease. This lease in every sense shall be without cost to the
Landlord for the development, maintenance and improvement of the Property,
except as set forth in Section 2.3 above. It shall be the sole responsibility
of the Tenant to keep, maintain, repair and operate the entirety of the
Property and all improvements and facilities placed thereon, at Tenant's sole
cost and expense, except as set forth in Section 2.3 above.
3.4 Condition of Property. Subject to the representations and warranties
contained in Section 6.2 below, Tenant accepts the Property in its present
condition, and, without expense to Landlord, will remove or cause to be removed
any construction debris to the extent required for its use thereof.
3.5 Maintenance. Tenant shall, at its sole cost and expense, maintain the
Property and the buildings, improvements and appurtenances thereto, in a
presentable condition and at least equal in appearance and character to other
similar improvements at the Airport. Tenant shall repair all damages to the
Property caused by its agents, employees, licensees or its operation thereon;
shall maintain and repair all equipment thereon, including any drainage
installations, paving, curbs, islands, buildings and improvements; and shall
repaint its own buildings and structures as necessary; subject, however, to
Landlord's obligations as set forth in Section 2.3 above.
Landlord, in its discretion, shall be the sole judge of the quality of
maintenance. Upon written notice by Landlord to Tenant, Tenant shall be
required to perform whatever maintenance Landlord deems necessary. If said
maintenance is not undertaken by Tenant within thirty (30) days after receipt
of written notice, Landlord shall have the right to enter
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upon the Property and perform the necessary maintenance, the cost of which
shall be borne by Tenant.
3.6 Trash, Garbage, etc. Tenant shall provide a complete and proper
arrangement for the adequate sanitary handling and disposal, away from the
Airport, of all trash, garbage and other refuse caused by or as a result of the
operation of its business. Tenant shall provide and use suitable covered metal
receptacles for all such garbage, trash and other refuse. Piling of boxes,
cartons, barrels or other similar items, in any unsightly or unsafe manner, on
or about the demised premises, is forbidden.
3.7 Signs. Tenant shall not maintain or erect upon the outside of any
improvements on the Property any billboards or advertising signs without first
obtaining written approval of the Landlord.
ARTICLE IV
LEASE, TERM, RENT AND FEES
4.1 Original Term. This Agreement shall be effective from the date first
above set forth. The term of this Agreement shall commence on January 1, 1996,
(the "Commencement Date") and expire at midnight on fifth (5th) anniversary of
the Commencement Date.
4.2 Renewal Option. Tenant is hereby granted one (1) five-year option to
renew and extend the term of this Agreement, commencing upon the expiration of
the original term, upon the same terms and conditions set forth in this
Agreement for the Original Term, except for the rent which will be adjusted as
described in Section 4.4. Tenant may exercise the renewal option by written
notice to Landlord at least sixty (60) days before expiration of the original
term.
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4.3 Rental Fees. Tenant agrees to pay Landlord for the use of the
premises and facilities herein granted the sum of One Hundred Thirty Four
Thousand ($134,000.00) Dollars per annum, payable in equal monthly installments
in the amount of Eleven Thousand One Hundred Sixty Six and 67/00 ($11,166.67)
Dollars on the first (1st) day of each month in advance, with the first
installment due and payable on the Commencement Date, and with similar payments
on the first day of each and every calendar month thereafter and continuing for
the first five years of the Original Term. If the Commencement Date does not
coincide with the first day of a calendar month, the rental fees for that
calendar month shall be prorated for the number of days remaining in such a
calendar month.
4.4 Rental Escalation. For the period commencing with the option period,
January 1, 2001, through December 31, 2005, the rental fee shall be calculated
and adjusted based on the percentage increase in the Consumer Price Index
("CPI") for the base month of October, 1995 as compared with the base month of
October 2000 and the rent adjusted and paid on a monthly basis; provided,
however, that the annual rental fees for any given year shall not be less than
the annual rental fees paid during the immediately preceding year.
The percentage increase in the CPI as outlined above shall be
conclusively determined by the "Consumer Price Index: U.S. city average and
available local area data: all items; South urban, Size C - 50,000 to 450,000"
as published by the Bureau of Labor Statistics of the United States Department
of Labor or its successors. Should the CPI as now prepared be modified or
changed, the parties agree to be bound by its comparable successor.
Rental adjustments shall be paid retroactively in the event of a
delayed calculation
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for such rental adjustment. Such adjustment, in lump sum, shall be due on the
first (1st) day of the month following such adjustment.
4.5 Charges for Late Payment. Time is of the essence for the payment of
all rents, fees and charges hereunder. Should Tenant fail to make any payment
so that it is received by Landlord not later than permitted under this
Agreement, the sum shall be adjudged to be past due and a late charge of one
and one-half (1-1/2%) percent shall be due and payable. Thereafter, a late
charge of 1-1/2% per month shall continue to accrue until paid.
4.6 Field Use Charges. Nothing herein shall be deemed to relieve Tenant,
its agents, servants, employees, independent contractors, licensees, invitees
and others from rates and charges due and payable under the terms of other
leases and agreements and specifically under the Airport Lease and Use
Agreement that Tenant executed as an air carrier operating pursuant to 14
C.F.R., Part 121 doing business at the Airport.
4.7 Utilities. Tenant shall pay all charges for heat, gas, steam, water,
electricity and other utilities and services, including sprinkler and sewage
charges, used by Tenant in connection with the Property (the "Utilities").
Landlord and Tenant agree that such Utilities and storm sewer facilities are
adequate for Tenant's expected use.
4.8 Taxes. During the pendency of this Agreement, Tenant agrees that it
will pay any and all taxes of whatsoever kind or nature levied against the use
of the Property, and, should any present or subsequent legislation or
modification impose real estate taxes, "in lieu of" fees, or possessory interest
taxes on the Property or otherwise, Tenant agrees that it will pay such taxes.
Furthermore, Tenant agrees to pay all documentary stamp taxes applicable to
this Agreement pursuant to the prevailing statutory law and rules promulgated
thereto by
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the South Carolina Department of Revenue.
ARTICLE V
IMPROVEMENTS, ALTERATIONS AND REPAIRS
5.1 Requirements of Law.
A. Tenant shall, at Tenants expense, promptly comply with all
federal, state and local laws, statutes, ordinances, rules, codes, orders,
regulations and requirements (the "Law") applicable to facilities and
improvements constructed or erected by Tenant pursuant to this Agreement as
well as to Tenant's particular use of the Property.
B. Landlord represents and warrants that the Property is
presently in compliance with the Laws and that the Property shall be in
compliance with the Laws on the Commencement Date. Thereafter, Landlord shall,
at Landlord's expense, promptly comply with all Laws applicable to the physical
nature and character of the Property or otherwise applicable to the makeup of
the Property as opposed to Tenant's use thereof.
5.2 Repairs. Tenant, at Tenant's expense, shall assume the responsibility
for maintenance, upkeep and repair necessary to keep the Property and all
improvements and facilities placed thereon in a safe and serviceable
condition, except as set forth in Section 2.3, above.
5.3 Alterations and Removals. Tenant may make such alterations,
additions, and improvements to the Property as Tenant may in its discretion
deem necessary or appropriate for the conduct of Tenant's business therein.
Tenant shall first obtain Landlord's approval, which approval shall not be
unreasonably withheld, conditioned, or delayed. Such alterations, additions
and improvements shall become the property of Landlord after the term of this
Agreement and shall be surrendered with the Property as a part thereof.
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Provided, however, that at Landlord's option, Tenant shall be required to
remove all buildings, structures and improvements to the Property, including
all foundations, and any debris thereon and return the Property to Landlord in
a clean and clear condition. Notwithstanding the foregoing, Tenant may install
and shall have the right to remove from time to time and at the expiration or
earlier termination of this Agreement, Tenant's trade and business fixtures and
equipment. Tenant shall promptly repair any damage to the Property caused by
the removal of any of Tenant's property.
5.4 Landlord's Right of Access. Landlord, its agents and employees may
enter the Property during normal business hours to inspect the same to
ascertain whether Tenant is performing its obligations under this Agreement,
and at any time, as agreed upon with Tenant, to make required repairs,
alterations, improvements or additions. During such entries, Landlord may take
onto the Property all material required for the foregoing purposes without the
same constituting an eviction of Tenant in whole or in part provided that the
same does not unreasonably interfere with Tenant's operations.
Landlord or Landlord's agents may, only during the three (3) months
preceding expiration of this Agreement, during normal business hours, show the
Property to prospective tenants and place in one or more conspicuous places
upon the exterior of the Property, sale and rental notices in usual form,
provided they do not interfere with Tenant's use. Such entry for this purpose
must be upon at least twenty-four (24) hours notice to Tenant. Landlord's
entry onto the Property for this purpose shall not result in any inconvenience
or interference of Tenant's operations.
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ARTICLE VI
ENVIRONMENTAL PROVISIONS
6.1 Definition. The following definitions are for purposes of this
Article VI.
A. "Environmental Condition" means any condition that may exist or
have existed with respect to soil, surface or ground waters, stream sediments,
and every other environmental medium, which conditions could require
investigation and/or remediation or which could result in claims, demands,
orders or liabilities by or to third parties, including without limit
governmental entities.
B. "Hazardous Materials" means any chemical, compound,
constituent, material, waste, contaminant, or other substance as defined in or
regulated by any of the following sources as amended from time to time:
i. The Resource Conservation and Recovery Act of
1976 ("RCRA") 42 U.S.C. Section 6901 et seq.
as amended by the Solid Waste Disposal Act;
ii. The Comprehensive Environmental Response,
Compensation, and Liability Act of 1980
("CERCLA") 42 U.S.C. Section 9601 et seq. as
amended by the Superfund Amendments and
Reauthorization Act of 1986 ("SARA");
iii. The Hazardous Materials Transportation Act,
49 U.S.C. Section 1801 et seq.;
iv. The Toxic Substances Control Act, 15 U.S.C.
Section 2601, et seq.;
v. The Clean Water Act, 33 U.S.C. Section 1251,
et seq.;
vi. The Clean Air Act, 42 U.S.C. Section 1857,
et seq.;
vii. The Emergency Planning and Community
Right-to-know Act, 42 U.S.C. Section 11001,
et seq.; and
viii. Any other environmental law.
C. "Petroleum" or "petroleum product(s)" means crude oil or any
fraction thereof,
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including, but not limited to, gasoline, diesel fuel, kerosene, aviation fuel,
and any combination, mixture, or constituents of any of the foregoing as
defined in or regulated by any of the following sources as amended from time to
time:
i. The State Underground Petroleum Environmental
Response Bank Act of 1988 ("SUPERB"), S.C.
Code Ann. Section 44-2-10 et seq. (Law
Co-op. Supp. 1993);
ii. The South Carolina Pollution Control Act,
S.C. Code Ann. Section 48-1-10 et seq. (Law
Co-op. 1987 and Supp. 1993);
iii. S.C. Code Ann. Section 48-43-10 et seq. (Law
Co-op. 1987 and Supp. 1993) (Regulation of
Oil and Gas Exploration, Drilling,
Transportation, and Production); and
iv. Any other environmental law.
6.2 Landlord's Representations. Landlord represents and warrants to
Tenant as follows:
A. Landlord has at all times complied and shall at all times
during the term this Agreement comply with all applicable federal, state and
local environmental laws and regulations applicable to the Property and any
activities conducted thereon.
B. There is no pending or threatened private or governmental
claim, order or litigation, nor is there any pending or threatened judicial or
administrative action or order, pertaining to or affecting the Property.
C. Landlord has not caused or permitted, shall not cause or
permit, and Landlord has no knowledge of any Environmental Condition on the
Property.
D. Landlord has no knowledge of any Environmental Condition
concerning any real property adjacent to the Property that would adversely
affect the Property.
6.3 Tenant's Representations. Tenant shall not cause or
permit any Hazardous Material or Petroleum Product, including any solid,
liquid, vapor, soot, fumes, acids, alkalis, or waste
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including materials to be recycled, reconditioned, or reclaimed, to be brought
upon, kept, or used in or about the Property by Tenant, its agents, employees,
contractors, or up without the prior written consent of Landlord, which consent
Landlord shall not unreasonably withhold as long as Tenant demonstrates to
Landlord's reasonable satisfaction that such Hazardous Material or Petroleum
Product is necessary or useful to Tenant's business and will be used, kept, and
stored in a manner that complies with all laws, existing or as they may be
enacted in the future, regulating any such Hazardous Material or Petroleum
Product so brought upon or used or kept in or about the Property. This Section
6.3 shall not be construed to prohibit routine aircraft maintenance activities
performed in compliance with applicable state and federal guidelines.
If Tenant breaches the obligations stated in the preceding paragraph,
or if the presence of Hazardous Material or Petroleum Product on the Property
caused or permitted by Tenant results in contamination of the Property, or if
contamination of the Property by Hazardous Material or Petroleum Product
otherwise occurs, then Tenant shall indemnify, defend and hold Landlord
harmless from any and all claims, judgments, damages, penalties, fines, costs,
liabilities, or losses (including, without limitation, diminution in value of
the Property, damages for the loss or restriction on use of rentable or usable
space or of any amenity of the Property, damages arising from any adverse
impact on marketing of the Property, and sums paid in settlement of claims,
attorneys' fees, consultant fees and expert fees) which arise during or after
the term of this Agreement as a result of such contamination. This
indemnification of Landlord by Tenant includes, without limitation, costs
incurred in connection with any investigation of site conditions or any
clean-up,
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remedial, removal, or restoration work required by any federal, state, or local
government agency or political subdivision because of Hazardous Material or
Petroleum Product present in the air, soil or ground water on or under the
Property. Without limiting the foregoing, if the presence of any Hazardous
Material or Petroleum Product on the Property caused or permitted by Tenant
results in any contamination of the Property, Tenant shall promptly take all
actions at its sole expense as are necessary to return the Property to the
condition existing prior to the introduction of any such Hazardous Material or
Petroleum Product to the Property; provided that Landlord's approval of such
actions shall first be obtained, which approval shall not be unreasonably
withheld so long as such actions would not potentially have any material
adverse long-term or short-term effect on the Property.
6.4 Disclosure. At the commencement of this Agreement, and on January 1
of each year thereafter (each such date being hereafter called "Disclosure
Dates"), including January 1 of the year after the termination of this
Agreement, Tenant shall disclose to Landlord the names and amounts of all
Hazardous Materials or Petroleum Products, or any mixture or combination
thereof, which were brought upon, kept or used on the Property, or which Tenant
intends to bring upon, keep or use on the Property, other than such products
excluded by the provisions of Section 6.3 above.
6.5 Inspection. Landlord and its agents shall have the right, but not the
duty, to inspect the Property at any time to determine whether Tenant is
complying with the terms of this Agreement. If Tenant is not in compliance
with this Agreement, Landlord shall have the right to immediately enter upon
the Property to remedy any contamination or Environmental Condition caused by
Tenants failure to comply, notwithstanding any other
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provision of this Agreement. Landlord shall use its best efforts to minimize
interference with Tenant's business but shall not be liable for any
interference caused thereby.
6.6 Survival. Notwithstanding any provision in this Agreement to the
contrary, the representations and warranties made and the indemnity
obligations provided for in this Article VI shall survive the expiration or
termination of this Agreement.
ARTICLE VII
INDEMNIFICATION AND INSURANCE
7.1 Indemnification. Tenant shall protect, defend and hold Landlord
completely harmless from and against any and all liabilities, losses, suits,
claims, judgments, fines, or demands arising by reason of injury or death of
any person or damage to any property, (including but not limited to attorney
fees, court costs, and expert fees), of any nature whatsoever arising out of or
incidental to this Agreement and the use or occupancy of the Premises or the
acts or omissions of Tenant's directors, officers, agents, employees,
contractors, subcontractors, or licensees. Landlord shall give Tenant
reasonable notice of any claims or actions made against Landlord which may
result in a judgment for damage, penalty, time, cost, liability claim of loss
against Landlord because of such injury or damage and deliver to Tenant all
papers, notices, documents, summonses and other legal process served on
Landlord or its agents; provided, that Tenant and its insurer or either of them
shall have the right to compromise and defend all claims, actions, suits and
proceedings to the extent of Tenant's interest therein and in connection
therewith and that the parties agree to faithfully cooperate with each other
and with Tenant's insurer in the defense thereof.
It is expressly understood and agreed that Tenant is and shall be
deemed to be an
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independent contractor and operator responsible to all parties for its acts
and omissions. It is further agreed that in the use of the Airport, in the
erection or construction of any improvements thereon, and in the exercise or
enjoyment of the privileges herein granted, Tenant shall indemnify and save
harmless the Landlord from any and all losses that may proximately result to
the Landlord because of any negligence on the part of Tenant. The provisions
of this section shall survive the expiration or early termination of this
Agreement for a period of twenty (20) years, except for environmental matters
or matters for which there is no statute of limitations.
7.2 Property Insurance. During all terms of this Agreement, Tenant shall,
at Tenant's expense, provide and maintain, insurance on all buildings,
structures and leasehold improvements constructed or erected on the Property
against the perils covered by a standard fire insurance policy with extended
coverage, vandalism and malicious mischief, and sprinkler leakage
endorsements. Such insurance shall be maintained on a basis of not less than
one hundred percent (100%) of actual replacement value of all buildings,
structures and improvements located on the Property and sufficient to meet
co-insurance requirements. Tenant shall have the right to obtain a policy
containing a deductible provision. Tenant shall name Landlord as an
additional insured on such policy.
The proceeds of any such insurance, paid on account of casualties
covered under said policy, shall be used to defray the cost of repairing,
restoring or reconstructing said buildings, structures and leasehold
improvements, as necessary. If all or any portion of buildings, structures or
leasehold improvements constructed or erected on the Property are partially or
wholly destroyed by fire or other casualty, rental fees with respect to the
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Property shall be proportionately abated from the date of such damage or
destruction until such time as Tenant, at its own expense and cost, exercising
due diligence, shall put such buildings, structures or leasehold improvements
in useable order; provided, however, rental fees shall not be abated for a
period longer than one hundred eighty (180) days.
7.3 Liability Insurance.
Tenant shall at all times during the term of this Agreement
carry commercial general liability insurance covering Tenants operations on the
Property, and its officers, employees, servants, agents, up, and licensees;
insuring against liability for personal injury, bodily injury, including death
in a minimum sum of Five Million ($5,000,000) Dollars per person and a maximum
of Twenty-Five Million ($25,000,000) Dollars for any one accident or
occurrence; and property damage for Five Million ($5,000,000) Dollars for any
one accident or occurrence. Landlord shall be named as an additional insured
on all insurance coverage.
7.4 Worker's Compensation and Employer's Liability Insurance. Tenant
shall, at its sole cost and expense, obtain Worker's Compensation and
Employer's Liability insurance with South Carolina statutory limits.
7.5 Certificates of Insurance. Tenant shall provide the Landlord with a
certificate of insurance evidencing the insurance required to be maintained by
Tenant upon the execution of this Agreement, and upon the reasonable request
from the Landlord from time to time, a certificate of insurance evidencing that
such insurance is in full force and effect.
Tenant shall maintain said insurance required under this Article VII
with insurance underwriters authorized to do business in the State of South
Carolina reasonably satisfactory to Landlord. Said policies or certificates
shall contain a provision that written notice of
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cancellation or of any material change in said policy by the insurer shall be
delivered to Landlord ten (10) days in advance of the effective date thereof.
ARTICLE VIII
TERMINATION OF AGREEMENT,
CANCELLATION, ASSIGNMENT, AND SUSPENSION
8.1 Termination. This Agreement shall terminate at the expiration of the
full term hereof, and Tenant shall have no further right or interest in any of
the lands or improvements hereby demised, except as provided in Section 6.7
hereof.
8.2 Cancellation by Landlord. Landlord shall have the right, upon
notice to Tenant, to cancel this Agreement in its entirety, upon or after the
happening of one or more of the following events, if said event or events shall
be then continuing:
A. The permanent abandonment of the Airport as an air terminal.
B. The lawful assumption by the United States government, or any
authorized agency thereof, of the operation, control, or use
of the Airport, or any substantial part or parts thereof in
such manner as to substantially restrict Tenant from operating
at the Property for a period of at least ninety (90) days;
provided, however, Tenant shall not be obligated to make
rental payments after the effective date of such assumption.
C. The default by Tenant in the performance of any covenant or
agreement herein required (other than payment of rent) to be
performed by Tenant and failure of Tenant to remedy such
default for a period of thirty (30) days after receipt from
Landlord of notice to remedy same.
D. Tenant fails to pay when due any rental fee or other payment
to be made by Tenant hereunder and does not cure such failure
within thirty (30) days after Landlord's Executive Director,
or his successor, gives Tenant notice thereof.
E. Tenant violates or breaches or fails to fully and completely
observe, keep, satisfy, perform and comply with, any
agreement, term, covenant, condition, requirement,
restriction, or provision of this Agreement (other than
payment of rent, additional rent, or any other payment to be
made by Tenant) and
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does not cure such failure within thirty (30) days after
Landlord gives Tenant notice thereof or, if such failure shall
be incapable of cure within thirty (30) days, Tenant does not
commence to cure such failure within the thirty (30) day
period and continuously prosecute the performance of same to
completion with due diligence.
F. Tenant becomes insolvent as defined in the Uniform Commercial
Code in effect in the State of South Carolina, or makes an
assignment for the benefit of creditors; or any action is
brought by Tenant seeking its dissolution or the liquidation
of its assets or seeking an appointment of a trustee, interim
trustee, receiver or other custodian for any of its property;
or Tenant commences a voluntary proceeding under the Federal
Bankruptcy Code; or any reorganization or arrangement
proceeding is instituted by Tenant for the settlement,
readjustment, composition, or extension of any of its debts
upon any terms; or any action or petition is otherwise brought
by Tenant seeking similar relief or alleging that it is
insolvent or unable to pay its debt as they mature; or if any
action is brought against the Tenant seeking its dissolution
or liquidation of any of its assets, or seeking the
appointment of a trustee, interim trustee, receiver, or other
custodian for any of its property and any such action as
consented to or acquiesced in by the Tenant or is not
dismissed within thirty (30) days after the date upon which it
was instituted; or any proceeding under the Federal Bankruptcy
Code is instituted against Tenant and either an order for
relief is entered in such proceeding or such proceeding is
consented to or acquiesced in by Tenant or is not dismissed
within thirty (30) days after the day upon which it was
instituted; or any reorganization or arrangement proceeding is
instituted against Tenant for the settlement, readjustment,
composition or extension of any of its debts upon terms, and
such proceeding is consented to or acquiesced in by Tenant or
is not dismissed within thirty (30) days after the date upon
which it was instituted; or any action or petition is
otherwise brought against Tenant seeking similar relief
alleging that it is insolvent, unable to pay its debts as they
mature, or generally not paying its debts as they become due,
and such action or petition is consented to or acquiesced in
by Tenant or is not dismissed within thirty (30) days after
the date upon which it was brought, the Tenant shall be in
default under this Agreement.
G. Tenant abandons the premises leased to it hereunder for a
continuous period of sixty (60) days at any one time, except
when such abandonment is caused by fire, earthquake, war,
strike, or other calamity beyond Tenant's control.
H. Tenant is divested of, or is prevented by any final action of
any Federal or State authority from conducting and operating
the transportation of persons using its fleet of aircraft.
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In the event of any cancellation or termination of this Agreement by
Landlord under circumstances specified in this Article VIII, all fixed
improvements erected or installed in or upon the demised premises by Tenant
shall become the absolute property of Landlord.
8.3 Landlord Remedies. If Tenant is in default under this Agreement,
Landlord may pursue any one or more of the following remedies, without any
notice (except as specifically provided below) or demand whatsoever and
without prejudice to any other remedy which it may have for possession of
the premises, for arrearage in rent, or other amounts payable by Tenant.
A. Landlord may terminate this Agreement by giving Tenant sixty
(60) days notice of termination in which event Tenant shall
quit and vacate the premises and deliver and surrender
possession of the premises to Landlord and this Agreement
shall be terminated at the time designated by Landlord in its
notice of termination to Tenant.
B. With or without terminating this Agreement, Landlord may enter
upon and take possession of the premises and expel or remove
Tenant and any other person who may be occupying the premises,
without being liable for prosecution or any claim for damages.
C. Landlord may re-lease the premises or any part thereof and
receive a rental fee for any such re-leasing, in which event
Tenant shall pay to Landlord on demand any deficiency that may
arise by reason of such re-leasing.
D. Landlord may collect and sue Tenant from time-to-time for the
amount of any rent, additional rent, late charges, or other
amounts then owing by Tenant to Landlord; and exercise all
other remedies provided by law, including distraint.
E. With or without terminating this Agreement, Landlord may bring
an action against Tenant to recover from Tenant all damages
suffered, incurred, or sustained by Landlord (including
without limitation court costs, reasonable attorneys' fees,
and expert fees actually incurred) as a result of, by reason
of, or in connection with such default, or to obtain specific
performance of Tenant's obligations under this Agreement.
F. Landlord may do whatever Tenant is obligated to do under the
terms of this Agreement, in which event Tenant shall reimburse
Landlord on demand for
21
<PAGE> 26
any expenses, including, without limitation, court costs,
reasonable attorneys' fees, and expert fees which Landlord
may incur, thus effecting satisfaction and performance of, or
compliance with Tenant's duties and obligations under this
Agreement. No action taken by or on behalf of Landlord shall
be construed to be an acceptance of surrender of this
Agreement. No termination of this Agreement shall affect
Landlord's right to collect rent or other amounts due for the
period prior to the termination.
8.4 Cancellation by Tenant. Tenant may cancel this Agreement in its
entirety by giving Landlord sixty (60) days notice of same upon or after the
breach by Landlord of any of the covenants or agreements herein contained and
the failure of Landlord to remedy such breach for a period of thirty (30) days
after receipt of a notice of the existence of such breach; provided, however,
that if the breach cannot reasonably be remedied within the thirty-day
period, this Agreement shall not be canceled if Landlord commences to cure
the breach within the thirty-day period and diligently and in good faith
continues to cure the breach. Additionally, Tenant may cancel this Agreement
under the provisions provided in Section 8.2 (B) above.
8.5 Assignment and Subletting. Tenant shall not at any time sublet,
assign, transfer, convey, mortgage, pledge or encumber its interest under this
Agreement, or any part of the Property, to any party, without prior written
consent of Landlord, which consent shall not be unreasonably withheld or
delayed. Tenant shall have the right to sub-lease portions of its buildings
provided that such sub-leasing shall be with the prior written consent of
Landlord, which consent shall not be unreasonably withheld or delayed.
All such assignments, transfers or sub-leases shall be to financially
responsible parties and shall provide that the uses to which the Property is
put shall remain unchanged. Tenant shall have the right to make assignments of
this Agreement to any lender, provided that such assignment shall be with the
prior written consent of Landlord, which consent shall not
22
<PAGE> 27
be unreasonably withheld or delayed.
8.6 Suspension of Agreement. During the time of war or national
emergency, Landlord shall have the right to lease the landing area or any part
thereof to the United States Government for military use. If any such lease is
executed, any provisions of this instrument which are inconsistent with the
provisions of the lease to the United States Government shall be suspended.
Additionally, and at the option of Tenant, this Agreement may be canceled or
extended by the amount of time in the period of such suspension.
8.7 Relocation of Improvements. In the event Landlord requires the
demised premises for expansion or development of the Airport, Landlord reserves
the right, on six (6) months' notice, to relocate or replace Tenant's
improvements at Landlord's cost and expense in substantially similar form at
another generally comparable location on said Airport.
ARTICLE IX
MISCELLANEOUS
9.1 Non-Disturbance. Landlord represents and warrants that there are no
ground leases, mortgages, or other encumbrances affecting the Property or
Tenants proposed use thereof except land use guidelines and Federal Aviation
Administration grant assurance restrictions.
9.2 Non-Waiver. The failure of either party to insist upon strict
compliance with any of the covenants or conditions of this Agreement or to
exercise any right hereunder in any one or more instances shall not be
construed as a waiver for the future of any such covenant, condition or right.
9.3 Quiet Enjoyment. Landlord covenants that on paying the rental fee and
performing the covenants to be performed by Tenant, Tenant shall peaceably and
quietly have, hold and enjoy the Property for the Term of this Agreement,
including any renewal or extension
23
<PAGE> 28
periods.
9.4 Surrender. Except as provided in Section 5.4 hereof, Tenant shall
surrender the Property at the expiration or earlier termination of this
Agreement in broom clean condition and good order and repair, except that
Tenant shall not be responsible for conditions resulting from ordinary wear and
tear or any condition which is not an obligation of Tenant to remediate or
repair under the terms of this Agreement.
9.5 Notices. All notices and demands of any kind (a "Notice") which either
party may be required or may desire to give the other party pursuant to this
Agreement shall be in writing and shall be served by personal delivery,
registered or certified mail return receipt requested and postage prepaid or by
overnight delivery service which obtains a receipt for delivery. Either party
may change the address or person to which Notices to it are to be given by
notice to the other party as provided herein.
9.6 Compliance with Laws and Non-Discrimination.
A. All provisions of this Agreement shall be subordinate to the
rights of the United States of America to operate the National Aviation System
or any part thereof during time of war or national emergency. Such rights
supersede any provisions of this Agreement inconsistent with the operations of
the National Aviation System of the United States; provided, however, Tenant
shall have the right to terminate this Agreement if its use is not allowed or
is substantially impaired.
B. Tenant for itself, its personal representatives, successors in
interest, and assigns, as a part of the consideration hereof, does hereby agree
that (i) no person shall be excluded from participation in, denied the benefits
of, or otherwise discriminated in the use
24
<PAGE> 29
of the Property on the grounds of race, color, national origin or sex; (ii) no
person shall be excluded from participation in, denied the benefits of, or
otherwise discriminated in the construction of any improvements on, over, or
under the Property and the furnishing of services thereon on the grounds of
race, color, national origin or sex; and (iii) Tenant shall use the Premises
in compliance with all other requirements imposed by or pursuant to 49 CFR,
Subtitle A, Part 21, Nondiscrimination in Federally Assisted Programs of the
Department of Transportation, and as said Title and Regulations may be amended.
C. Tenant acknowledges that the provisions of 49 CFR, Part 23,
Disadvantaged Business Enterprises ("DBE"), as said regulations may be amended,
and such other similar regulations as may be enacted, may be applicable to the
activities of Tenant under the terms of this Agreement, unless exempted by said
regulations, and hereby agrees to comply with the Federal Aviation
Administration and the United States Department of Transportation laws and
Regulations, in reference thereto. These requirements may include, but not be
limited to, compliance with DBE participation goals, the keeping of certain
records of good faith compliance efforts, which would be subject to review by
the various agencies, the submission of various reports and, if so directed,
the contracting of specified percentages of goods and services contracts to
Minority Business Enterprises.
D. In the event of breach of any of the above nondiscrimination
covenants, Landlord shall have the right to cancel this Agreement after such
action as the United States Government may direct to enforce this covenant has
been followed and completed, including exercise or expiration of appeal rights.
25
<PAGE> 30
9.7 Successors and Assigns. All of the provisions of this Agreement shall
be binding upon and inure to the benefit of the parties hereto and their
respective executors, administrators, heirs, successors and assigns.
9.8 Captions. The headings and captions used in this Agreement are for
convenience of reference only and shall not affect the meaning of this
Agreement in any way.
9.9 Integration. This Agreement constitutes the entire understanding
between the parties hereto and the parties shall not be bound by any prior or
contemporaneous agreements, understandings or conditions respecting the subject
matter hereof other than those expressly set forth and stipulated in this
Agreement. This Agreement may be amended only by writing signed by Landlord
and Tenant. Except as provided in Section 6.7 hereof, no provision of this
Agreement shall survive the expiration or earlier termination of this
Agreement.
9.10 Governing Law. This Agreement shall be governed by, construed and
enforced in accordance with the laws of the State of South Carolina.
9.11 Joint and Several Liability Number and Gender. If any of the parties
to this Agreement consist of more than one person or entity, each such person
and entity shall be jointly and severally liable for the performance of this
Agreement. For purposes of this Agreement the neuter shall include the
masculine and the feminine, and the singular shall include the plural and the
plural the singular, as the context may require.
9.12 Recording. The parties hereto agree to execute a memorandum for
recording purposes in lieu of recording the entire Agreement should recording
be desirable.
26
<PAGE> 31
IN WITNESS WHEREOF, the parties hereto intending to be legally bound,
hereby, have caused this Agreement to be duly executed as of the day and year
first above written.
TENANT:
WITNESS AS TO TENANT AIR SOUTH, INC.
(CORPORATE SEAL)
BY:
- - ------------------------------ --------------------------------
Its:
- - ------------------------------ --------------------------------
Address for Notice:
Air South, Inc.
Attn: President
1800 St. Julian Place, 4th Floor
Columbia, SC 29211
Copy to:
David Y. Monteith, Esquire
Attorney at Law
2805 Millwood Avenue
Columbia, SC 29205
LANDLORD:
WITNESS AS TO LANDLORD: RICHLAND-LEXINGTON AIRPORT DISTRICT
(SEAL)
BY:
- - ----------------------------- -----------------------------------
H. Ray Ham, Chairman
BY:
- - ----------------------------- -----------------------------------
Robert H. Waddle, AAE, Executive Director
Address for Notice:
Executive Director,
Columbia Metropolitan Airport
3000 Aviation Way
West Columbia, SC 29170
Mailing address:
P.O. Box 280037
Columbia, SC 29228-0037
27
<PAGE> 32
EXHIBIT A
[ROAD MAP]
<PAGE> 33
STATE OF SOUTH CAROLINA )
COUNTY OF LEXINGTON )
RICHLAND-LEXINGTON AIRPORT DISTRICT, )
LANDLORD, )
AND ) ADDENDUM No. 1 TO
) LEASE AND AGREEMENT
AIR SOUTH, INC. )
)
TENANT. )
THIS ADDENDUM No. 1 is made on this 12th day of December, 1995, but
executed on January 5, 1996, between the Richland-Lexington Airport
District, a political subdivision of the State of South Carolina (the
"Landlord"), and Air South, Inc., an Illinois corporation, (the "Tenant").
WITNESSETH:
WHEREAS, Landlord owns and operates Columbia Metropolitan Airport (the
"Airport") located in Lexington County, South Carolina; and
WHEREAS, contemporaneously with this Addendum No. 1, Landlord and
Tenant have entered into a Lease and Agreement for certain real property as
described therein (the "Property"); and
WHEREAS, the Property is subject to a Lease For Real Property No.
DACA21-5-90-1047 between the District and the United States of America (the
"Government Lease") which expires and terminates all leasehold interests on
December 31, 1995; and
WHEREAS, Landlord believes that commencing on January 1, 1996, it has
the legal
1
<PAGE> 34
right to be well seized of the Property and has good title thereto, free and
clear of all liens, encumbrances and prior leases, including the Government
Lease, and it has the full right and authority to lease the Property subject to
certain restrictions which might have been imposed by the United States
Government by reason of certain Grant Agreements unrelated to the Government
Lease; and
WHEREAS, Landlord believes that it may have actual or implied notice
that the United States Government will not vacate the Property at the
expiration of the Government Lease on December 31, 1995.
NOW, THEREFORE, Landlord and Tenant, for and in consideration of the
mutual covenants and promises herein contained, and notwithstanding any
agreements to the contrary contained in the Lease and Agreement, agree as
follows:
1. Landlord shall warrant and defend Tenant against any condemnation
action initiated by the United States Government with respect to the Lease and
Agreement entered between Landlord and Tenant regarding the Property.
2. In the event that the United States Government does not vacate the
Property at the expiration and termination of the Government Lease, Landlord
shall initiate eviction proceedings in a court of competent jurisdiction, and
shall proceed in good faith and without unreasonable delay to remove any
hold-over tenant from the Property.
3. In the event that the United States Government prevails in
condemnation proceedings against the Lease and Agreement, or in the event that
Landlord does not prevail in eviction proceedings or is otherwise unable to
terminate and remove any holdover tenant from the Property within ninety (90)
days from the commencement of such hold-
2
<PAGE> 35
over tenancy, Tenant may cancel the Lease and Agreement without prejudice.
4. No rent shall be due and payable until possession of the property is
delivered to the Tenant; provided, however, beginning January 31, 1996, Tenant
may, upon thirty (30) days notice, cancel the Lease and Agreement without
prejudice.
5. This Addendum No. 1 to the Lease and Agreement shall become effective
upon its execution and shall expire and all of its provisions terminate on the
30th of June, 1996.
IN WITNESS WHEREOF, the parties hereto intending to be legally bound,
hereby, have caused this Addendum No. 1 to the Lease and Agreement to be duly
executed as of the day and year first above written.
TENANT:
WITNESS AS TO TENANT AIR SOUTH, INC.
(CORPORATE SEAL)
BY:
- - ------------------------- --------------------------------
Its:
- - ------------------------- -------------------------------
LANDLORD:
WITNESS AS TO LANDLORD: RICHLAND-LEXINGTON AIRPORT DISTRICT
(SEAL)
BY:
- - ------------------------- ----------------------------------
H. Ray Ham, Chairman
BY:
- - ------------------------- ----------------------------------
Robert H. Waddle, AAE, Executive Director
3
<PAGE> 1
EXHIBIT 10.31
AIRCRAFT LEASE AGREEMENT
Dated as of
April 29, 1996
between
POLARIS AIRCRAFT LEASING K.B.
as
Lessor
and
AIR SOUTH AIRLINES, INC.
as
Lessee
in respect of Boeing 737-2P6 Advanced Aircraft
Serial Number 21612
Ref. 21612A
<PAGE> 2
THIS AGREEMENT is made as of the 29th day of April, 1996 between:-
(1) POLARIS AIRCRAFT LEASING K.B., a limited partnership formed under the
laws of Sweden whose principal office is at Birger Jarlsgatan 33,
S-111 45, Stockholm, Sweden ("Lessor"); and
(2) AIR SOUTH AIRLINES, INC., a company incorporated under the laws of the
State of Illinois whose chief executive office is at 1800 St. Julian
Place, 4th Floor, Columbia, South Carolina, 29204, U.S.A. ("Lessee").
WHEREAS: Lessor wishes to lease to Lessee and Lessee is willing to
lease from Lessor the Aircraft (MSN 21612) on the terms of this
Agreement.
IT IS AGREED as follows:-
1. INTERPRETATION
1.1 DEFINITIONS
In this Agreement the following expressions have the meanings set out
opposite:-
AGREED MAINTENANCE PERFORMER Lessee (up to and including
B Check) or any FAA approved
maintenance facility (for C
Check and higher) or any
other person agreed to from
time to time in writing by
Lessor.
AGREED MAINTENANCE PROGRAMME the Maintenance Programme
agreed to from time to time
in writing by Lessor.
AGREED VALUE $8,000,000 or such other
amount as Lessor may require
from time to time provided
such other amount does not
exceed 115% of the fair
market value of the Aircraft.
AIR AUTHORITY the Irish Aviation Authority
or any successor thereto.
AIRCRAFT the aircraft described in
Part 1 of Schedule 1, (which
term includes where the
context admits a separate
reference to all Engines,
Parts and Aircraft
Documents).
AIRCRAFT COMMITMENT FEE all amounts paid pursuant to
Clause 5.1 of the October
1994 Lease.
AIRCRAFT DOCUMENTS the documents, data and
records identified in Part 2
of Schedule 1 and all
additions, renewals,
revisions and replacements
from time to time made in
accordance with this
Agreement.
1
<PAGE> 3
AIRFRAME the Aircraft, excluding the
Engines and Aircraft
Documents.
APU the auxiliary power unit
installed on the Aircraft on
the Previous Delivery Date
and any replacement auxiliary
power unit installed in
accordance with this
Agreement.
BANKS such financial institution(s)
which from time to time
finance the Aircraft for
Owner and/or for whose
benefit security over, or
rights relating to, the
Aircraft and/or this
Agreement is granted by Owner
or at its request.
BASIC RENT means the rent payable for
the Aircraft during the Term
pursuant to Clause 5.3 of
this Agreement.
BOEING The Boeing Company, a
Delaware corporation with its
principal office in Seattle,
State of Washington, U.S.A.
BUSINESS DAY a day (other than a Saturday
or Sunday) on which business
of the nature required by
this Agreement is carried out
in Sweden and the State of
Incorporation or where used
in relation to payments on
which banks are open for
business in London and New
York.
CERTIFICATED AIR CARRIER shall mean any corporation
(except the United States
Government) domiciled in the
United States of America and
holding a Certificate of
Convenience and Necessity
issued under Section 401 of
the Federal Aviation Act by
the Department of
Transportation or any
predecessor or successor
agency thereto, or, in the
event such Certificates shall
no longer be issued, any
corporation (except the
United States Government)
domiciled in the United
States of America and legally
engaged in the business of
transporting for hire
passengers or cargo by air
predominantly to, from or
between points within the
United States of America,
and, in either event,
operating commercial jet
aircraft, which also is
certificated so as to fall
within the purview of Section
1110 of Title
2
<PAGE> 4
11 of the United States Code
or any analogous statute.
COLD SECTION REFURBISHMENT the completion of the
following tasks with respect
to an Engine: completely
unstack both high and low
compressors and accomplish
complete visual inspection;
deblade disks as necessary;
accomplish visual inspections
of all disks; measure to
ensure all snap diameters on
disks are within limits;
inspect blades for proper
chord dimensions and
cracking; repair or replace
blades below minimums;
inspect and repair stators as
necessary; blade up disks
using new lock plates;
assemble compressor rotors;
balance both rotors; and
install rotors in such
Engine.
CYCLE one take-off and landing of
the Aircraft.
DAMAGE NOTIFICATION THRESHOLD $100,000.
DEFAULT any Event of Default and any
event or condition which with
the giving of notice or lapse
of time would constitute an
Event of Default.
DELIVERY DATE the date hereof.
DELIVERY LOCATION Columbia, South Carolina or
such other location as the
parties may agree.
DOLLARS AND $ the lawful currency of the
United States of America.
ENGINE whether or not installed on
the Aircraft:-
(a) each engine of the
manufacture and model
specified in Part 1 of
Schedule 1 (each of
which has 750 or more
rated takeoff horsepower
or the equivalent of
such horsepower);
or
(b) any engine which has
replaced that engine,
title to which has or
should have, passed to
Owner in accordance with
this Agreement;
and in each case
includes all modules and
Parts from time to time
belonging to or
installed in
3
<PAGE> 5
that engine but excludes
any properly replaced
engine title to which
has, or should have,
passed to Lessee
pursuant to this
Agreement.
EVENT OF DEFAULT an event or condition
specified in Clause 13.1
or Letter Agreement No. 1.
EVENT OF LOSS with respect to the Aircraft
(including for the purposes
of this definition the
Airframe):-
(a) the actual or
constructive total loss
of the Aircraft
(including any damage to
the Aircraft which
results in an insurance
settlement on the basis
of a total loss, or
requisition for use or
hire which results in an
insurance settlement on
the basis of a
total loss); or
(b) it being destroyed,
damaged beyond repair or
permanently rendered
unfit for normal use
for any reason
whatsoever, or
(c) the requisition of
title, or other
compulsory acquisition,
capture, seizure,
deprivation,
confiscation or
detention for any reason
of the Aircraft by the
government of the State
of Registration or other
competent authority
(whether de jure or de
facto), but excluding
requisition for use or
hire not involving
requisition of title;
or
(d) the hi-jacking, theft,
condemnation,
confiscation, seizure or
requisition for use or
hire of the Aircraft
which deprives any
person permitted by this
Agreement to have
possession and/or use of
the Aircraft of its
possession and/or use
for more than 15 days.
EXPIRY DATE subject to Clause 4.5, May
20, 1998 or if earlier the
date on which:-
4
<PAGE> 6
(a) the Aircraft has been
redelivered in accordance
with this Agreement; or
(b) Lessor receives the
Agreed Value following
an Event of Loss.
FAA the Federal Aviation
Administration of the United
States of America and any
successor thereof.
FEDERAL AVIATION ACT United States Federal
Aviation Act of 1958,
as amended, or any similar
legislation of the United
States of America enacted in
substitution or replacement
thereof.
FINANCIAL INDEBTEDNESS any indebtedness in respect
of:-
(a) moneys borrowed or
raised;
(b) any liability under any
debenture, bond, note,
loan stock, acceptance,
documentary credit or
other security;
(c) the acquisition cost of
any asset to the extent
payable before or after
the time of acquisition
or possession; or
(d) any guarantee, indemnity
or similar assurance
against financial loss
of any person in respect
of the above.
FINANCING STATEMENTS Uniform Commercial Code
Financing Statements in
respect of this Agreement and
the collateral described
therein prepared in a form
acceptable for filing with
the applicable Government
Entities in the Habitual
Base, the State in which the
chief executive office (as
that term is defined in
Article 9 of the Uniform
Commercial Code as in effect
in the State of South
Carolina) and such other
jurisdiction as Lessor shall
reasonably require.
FLIGHT HOUR each hour or part thereof
(rounded up to two decimal
places) elapsing from the
moment the wheels of the
Aircraft leave
5
<PAGE> 7
the ground on take off until
the wheels of the Aircraft
next touch the ground.
GOVERNING LAW the laws of the State of New
York.
GOVERNMENT ENTITY (a) any national government,
political subdivision
thereof, or local
jurisdiction therein;
(b) any instrumentality,
board, commission, court
or agency of any
thereof, however
constituted; and
(c) any association,
organization, or
institution of which any
of the above is a member
or to whose jurisdiction
any thereof is subject
or in whose activities
any of the above is a
participant.
HABITUAL BASE the State of South Carolina
or, subject to the prior
written consent of Lessor,
any other state, country or
countries in which the
Aircraft is for the time
being habitually based.
HEAD LEASE the aircraft lease agreement
between Owner and Sub Lessor
in respect of the Aircraft.
HOT SECTION REFURBISHMENT the complete visual
inspection and repair as
necessary of the combustion
section of an Engine. In
conducting such inspection
and repair, the engine shop
must completely unstack the
high pressure turbine and
accomplish complete visual
inspection; de-blade disks as
necessary; accomplish visual
inspections of all disks;
measure to ensure all snap
diameters on disks are within
limits; inspect blades for
proper chord dimensions and
cracking; repair or replace
blades below minimums;
inspect and repair stators as
necessary; blade up disks
using new lock plates;
assemble compressor rotors;
balance both rotors; and
install rotors in such
Engine.
INDEMNITEES each of Owner, Sub
Lessor, Lessor and Banks
including any of their
respective successors and
assigns, shareholders,
subsidiaries, affiliates,
partners,
6
<PAGE> 8
contractors, directors,
officers, servants, agents and
employees.
LANDING GEAR the landing gear assembly of
the Aircraft excluding any
rotable components.
LESSOR LIEN (a) any security interest
whatsoever from time to
time created by or
through Lessor, Sub
Lessor or Owner in
connection with the
financing of the
Aircraft;
(b) any other security
interest in respect of
the Aircraft which
results from acts of or
claims against Lessor,
Sub Lessor or Owner not
related to the
transactions
contemplated by or
permitted under this
Agreement; and
(c) liens in respect of the
Aircraft for Lessor
Taxes.
LESSOR TAXES Taxes:-
(a) imposed as a direct
result of activities of
Lessor, Sub Lessor or
Owner in the
jurisdiction imposing
the liability unrelated
to Lessor's dealings
with Lessee or to the
transactions
contemplated by this
Agreement or the
operation of the
Aircraft by Lessee; or
(b) imposed on the income,
profits or gains of
Lessor, Sub Lessor or
Owner by any Government
Entity in (x) Sweden; or
(y) the U.S.A.; or
(c) imposed with respect to
any period commencing or
event occurring after
the Expiry Date and
unrelated to Lessor's
dealings with Lessee or
to the transactions
contemplated by this
Agreement.
LETTER AGREEMENT NO. 1 Letter Agreement No 1. of
even date herewith between
Lessor and Lessee in
respect of the Aircraft, the
terms of which
7
<PAGE> 9
constitute an integral part
of this Agreement.
MAINTENANCE PROGRAMME an FAA and Air Authority
approved maintenance
programme for the
Aircraft encompassing
scheduled maintenance
(including block
maintenance), condition
monitored maintenance, and/or
on condition maintenance of
Airframe, Engines and Parts,
including but not limited to,
servicing, testing,
preventive maintenance,
repairs, structural
inspections, system checks,
overhauls, approved
modifications, service
bulletins, engineering
orders, airworthiness
directives, corrosion
control, inspections and
treatments.
MAJOR CHECKS any C-Check, multiple
C-Check, D-Check or
annual heavy maintenance
visit or segment thereof
suggested for commercial
aircraft of the same model as
the Aircraft by its
manufacturer (however
denominated) as set out in
the Agreed Maintenance
Programme.
MANUFACTURER Boeing.
MARCH 29 1996 LETTER AGREEMENT Letter Agreement, dated March
29, 1996, between Lessor,
Lessee, Polairs Holding
Company and GE Capital
Aviation Services, Inc.
MINIMUM LIABILITY COVERAGE $400,000,000 on each
occurrence.
OCTOBER 1994 LEASE the Aircraft Lease
Agreement, dated as of
October 24, 1994, between
Lessor and Lessee, as
supplemented and amended,
relating to the Aircraft
which agreement has
heretofore been terminated by
agreement of the parties
hereto.
OTHER AGREEMENTS any agreement (other than
this Agreement) made or to be
made between Lessor (or an
affiliate, associate or
subsidiary of lessor) and
Lessee (or an affiliate,
associate or Subsidiary of
Lessee), including without
limitation the October 1994
Lease and the March 29 1996
Letter Agreement.
OWNER Polaris Aircraft Leasing
K.B., a Swedish partnership
in which Polaris Aircraft.
8
<PAGE> 10
Leasing A.B. is the general
partner which is owned by
Polaris Aircraft Leasing
Corporation, a United States
corporation since December,
1989.
PART whether or not installed on
the Aircraft:-
(a) any component,
furnishing or equipment
(other than a complete
Engine) furnished with
the Aircraft on the
Delivery Date; and
(b) any other component,
furnishing or equipment
(other than a complete
Engine) title to which
has, or should have
passed to Owner pursuant
to this Agreement;
but excludes any such
items title to which
has, or should have,
passed to Lessee
pursuant to this
Agreement.
PERMITTED LIEN (a) any lien for Taxes not
assessed or, if
assessed, not yet due
and payable, or being
contested in good faith
by appropriate
proceedings;
(b) any lien of a repairer,
mechanic, carrier,
hangarkeeper or other
similar lien arising in
the ordinary course of
business or by operation
of law in respect of
obligations which are
not overdue or are being
contested in good faith
by appropriate
proceedings;
but only if (in the case
of both (a) and (b)) (i)
adequate reserves have
been provided by Lessee
for the payment of the
Taxes or obligations;
and (ii) such
proceedings, or the
continued existence of
the lien, do not give
rise to any likelihood
of the sale, forfeiture
or other loss of the
Aircraft or any interest
therein or of criminal
liability on Owner, Sub
Lessor, Lessor or any
Bank; and
9
<PAGE> 11
(c) any Lessor Lien.
PERSON shall mean and include any
individual person,
corporation, partnership,
firm, joint stock company,
joint venture, trust, estate,
unincorporated organization,
association, government
Entity, or organization or
association of which any of
the above is a member or a
participant.
PREVIOUS DELIVERY DATE the date on which the
Aircraft was delivered by
Lessor to Lessee pursuant to
the Previous Lease.
PREVIOUS LEASE the Aircraft Lease Agreement
dated as of 10 August, 1994
between Lessor and Lessee
which will have expired or
otherwise been terminated
prior to the delivery of the
Aircraft by Lessor to Lessee
pursuant to this Agreement.
REDELIVERY LOCATION Will Rogers World Airport,
Oklahoma City, Oklahoma or
such other location in the
United States as Lessor shall
advise Lessee or such other
location as the parties may
agree.
RENT means, collectively, Basic
Rent, Supplemental Rent and
all other amounts,
liabilities and obligations
which Lessee assumes or
agrees to pay to Lessor or
other Persons hereunder
(other than Basic Rent and
Supplemental Rent) or under
any Other Agreement,
including without limitation
the payment of deposits,
indemnities and the Agreed
Value.
RENTAL PERIOD each period ascertained in
accordance with Clause 5.2.
RENT DATE the first day of each Rental
Period.
SECURITY INTEREST any mortgage, charge, pledge,
lien, assignment,
hypothecation, right of
set-off or any agreement or
arrangement having the effect
of creating a security
interest other than a
Permitted Lien, or any
agreement to create the
foregoing other than a
Permitted Lien.
STATE OF INCORPORATION the State of Illinois.
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<PAGE> 12
STATE OF REGISTRATION Ireland.
SUB LEASE the aircraft lease agreement
between Sub Lessor and
Lessor in respect of the
Aircraft.
SUB LESSOR Dormacken Limited, a company
incorporated under the laws
of Ireland whose registered
office is at 1 Earlsfort
Centre, Hatch Street, Dublin
2, Ireland.
SUBSIDIARY (a) in relation to any
reference to accounts,
any company whose
accounts are
consolidated with the
accounts of Lessee in
accordance with
accounting principles
generally accepted under
accounting standards of
the State of
Incorporation;
(b) for any other purpose
an entity from time to
time:-
(i) of which another has
direct or indirect
control or owns
directly or
indirectly more than
50 per cent. of the
voting share
capital; or
(ii) which is a direct
or indirect
subsidiary of
another under the
laws of the
jurisdiction of its
incorporation.
SUPPLEMENTAL RENT all amounts payable under
Clause 5.4(a).
TAXES taxes, duties and the like
of all kinds and any other
amount corresponding to any
taxation together with any
penalties, fines, surcharge
or interest thereon.
TERM the period commencing on the
Delivery Date and ending on
the Expiry Date.
1.2 CONSTRUCTION
(a) In this Agreement, unless the contrary intention is stated, a
reference to:-
(i) each of "Owner", "Sub Lessor", "Lessor" or "Lessee" or any
other person includes without prejudice to the provisions of
this Agreement any successor in title to it and any permitted
assignee;
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<PAGE> 13
(ii) words importing the plural shall include the singular and vice
versa;
(iii) any document shall include that document as amended, novated
or supplemented;
(iv) a law (1) includes any statute, decree, constitution,
regulation, order, judgment or directive of any Government
Entity; (2) includes any treaty, pact, compact or other
agreement to which any Government Entity is a signatory or
party; (3) includes any judicial or administrative
interpretation or application thereof and (4) is a reference
to that provision as amended, substituted or re-enacted;
(v) a Clause or a Schedule is a reference to a clause of or a
schedule to this Agreement; and
(b) the headings in this Agreement are to be ignored in construing this
Agreement.
2. REPRESENTATIONS AND WARRANTIES
2.1 Lessee's Representations and Warranties: Lessee represents and
warrants to Lessor that:-
(a) STATUS: Lessee is a corporation duly incorporated and validly existing
in good standing under the laws of the State of Incorporation and has
the corporate power to own its assets and carry on its business as it
is being conducted and is the holder of all necessary air
transportation licences required in connection therewith and with the
use and operation of the Aircraft;
(b) POWER AND AUTHORITY: Lessee has the corporate power to enter into and
perform, and has taken all necessary corporate action to authorise the
entry into, performance and delivery of, this Agreement and the
transactions contemplated by this Agreement;
(c) LEGAL VALIDITY: this Agreement constitutes Lessee's legal, valid and
binding obligation;
(d) NON-CONFLICT: the entry into and performance by Lessee of, and the
transactions contemplated by, this Agreement do not and will not:-
(i) conflict with any laws binding on Lessee; or
(ii) conflict with the constitutional documents of Lessee; or
(iii) conflict with or result in default under any indenture,
mortgage, chattel mortgage, deed of trust, conditional sales
contract, lease, bank loan or credit agreement or other
agreement which is binding upon Lessee or any of its assets
nor result in the creation of any Security Interest over any
of its assets;
(e) AUTHORISATION: all authorisations, consents, registrations and
notifications required in connection with the entry into, performance,
validity and enforceability of, this Agreement and the transactions
contemplated by this Agreement, have been (or will on or before the
Delivery Date have been) obtained or effected (as appropriate) and are
(or will on their being obtained or effected be) in full force and
effect;
(f) NO IMMUNITY:
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<PAGE> 14
(i) Lessee is subject to civil commercial law with respect to its
obligations under this Agreement; and
(ii) neither Lessee nor any of its assets is entitled to any right
of immunity and the entry into and performance of this
Agreement by Lessee constitute private and commercial acts;
(g) ACCOUNTS: the audited consolidated accounts of Lessee and its
Subsidiaries most recently delivered to Lessor:-
(i) have been prepared in accordance with accounting principles
and practices generally accepted and consistently applied in
the State of Incorporation; and
(ii) fairly represent the consolidated financial condition of
Lessee and its Subsidiaries as at the date to which they were
drawn up;
(h) CHIEF EXECUTIVE OFFICE: Lessee's chief executive office (as that term
is defined in Article 9 of the Uniform Commercial Code as in effect in
the State of South Carolina) is located at 1800 St. Julian Place, 4th
Floor, Columbia, South Carolina;
(i) CERTIFICATED AIR CARRIER: Lessee is a Certificated Air Carrier and
Lessor, as lessor of the Aircraft to Lessee, is entitled to the
benefits of Section 1110 of Title 11 of the United States Code with
respect to the Aircraft; and
(j) CITIZEN OF THE UNITED STATES: Lessee is a "citizen of the United
States" as defined in Section 101(16) of the Federal Aviation Act.
2.2 LESSEE'S FURTHER REPRESENTATIONS AND WARRANTIES: Lessee further
represents and warrants to Lessor that:-
(a) NO DEFAULT:
(i) no Default has occurred and is continuing or might result from
the entry into or performance of this Agreement; and
(ii) no other event or condition has occurred and is continuing
which constitutes (or with the giving of notice, lapse of
time, determination of materiality or the fulfilment of any
other applicable condition or any combination of the
foregoing, might constitute) a material default under any
indenture, mortgage, chattel mortgage, deed of trust,
conditional sales contract, lease, bank loan or credit
agreement or other agreement which is binding on Lessee or any
assets of Lessee;
(b) REGISTRATION:
(i) it is not necessary or advisable under the laws of the State
of Incorporation or the Habitual Base in order to ensure the
validity, effectiveness and enforceability of this Agreement
or to, establish, perfect or protect the property rights of
Owner, Sub Lessor or Lessor in the Aircraft or any Engine or
Part that this Agreement or any other instrument relating
thereto be filed, registered or recorded or that any other
action be taken or if any such filings, registrations,
13
<PAGE> 15
recordings or other actions are necessary or advisable, the
same have been effected or will have been effected on or
before the Delivery Date; and
(ii) under the laws of the State of Incorporation and the Habitual
Base the property rights of Owner, Sub Lessor and Lessor in
the Aircraft, have been fully established, perfected and
protected and this Agreement will have priority in all
respects over the claims of all creditors of Lessee;
(c) LITIGATION: no litigation, arbitration or administrative proceedings
are pending or to Lessee's knowledge threatened against Lessee which,
if adversely determined, would have a material adverse effect upon its
financial condition or business or its ability to perform its
obligations under this Agreement;
(d) PARI PASSU: the obligations of Lessee under this Agreement rank at
least pari passu with all other present and future unsecured and
unsubordinated obligations (including contingent obligations) of
Lessee, with the exception of such obligations as are mandatorily
preferred by law and not by virtue of any contract;
(e) MATERIAL ADVERSE CHANGE: there has been no material adverse change in
the consolidated financial condition of Lessee and its Subsidiaries or
the financial condition of Lessee since the date to which the accounts
most recently provided to Lessor on or prior to the Delivery Date were
drawn up;
(f) TAXES: Lessee has delivered all necessary returns and payments due to
the tax authorities in the State of Incorporation and the Habitual
Base and all other jurisdictions in which Lessee is required to pay
taxes and/or file tax returns or reports and Lessee is not required by
law to deduct any Taxes from any payments under this Agreement;
(g) INFORMATION: the financial and other information furnished by Lessee
in connection with this Agreement does not contain any untrue
statement or omit to state facts, the omission of which makes the
statements therein, in the light of the circumstances under which they
were made, misleading, nor omits to disclose any material matter to
Lessor and all forecasts and opinions contained therein were honestly
made on reasonable grounds after due and careful enquiry by Lessee;
(h) FOREIGN ASSET CONTROL: as of the date of this Agreement, Lessee does
not hold any contract or other obligation to operate the Aircraft to
any of the countries designated under the United States Foreign Asset
Control Regulations (31 C.F.R. Parts 500-599), including, as of the
date hereof, Cuba, Haiti, Iraq, Libya, North Korea, and the Federal
Republic of Yugoslavia (Serbia and Montenegro);
(i) ERISA: Lessee is not engaged in any transaction in connection with
which it could be subjected to either a civil penalty assessed
pursuant to Section 502(c) of ERISA or any tax imposed by Section 5975
of the Internal Revenue Code; no material liability of the Pension
Benefit Guaranty Corporation has been or is expected by Lessee to be
incurred with respect to any employee pension benefit plan (as defined
in Section 3 of ERISA) maintained by Lessee; there has been no
reportable event (as defined in Section 4043(b) of ERISA) with respect
to any such employee pension benefit plan. There is no event of
termination of any such employee pension benefit plan by the Pension
Benefit Guaranty Corporation; and no accumulated funding deficiency
(as defined in Section 302 of ERISA
14
<PAGE> 16
or Section 412 of the Internal Revenue Code), whether or not waived,
exists with respect to any such employee pension benefit plan; and
(j) MAINTENANCE PROGRAMME: the Maintenance Programme for the Aircraft
complies with all FAA requirements.
2.3 REPETITION: The representations and warranties in Clause 2.1 and
Clause 2.2 will survive the execution of this Agreement. The
representations and warranties contained in Clause 2.1 will be deemed
to be repeated by Lessee on each Rent Date as if made with reference
to the facts and circumstances then existing.
2.4 LESSOR'S REPRESENTATIONS AND WARRANTIES: Lessor represents and
warrants to Lessee that:-
(a) STATUS: Lessor is a limited partnership existing under the laws of
Sweden and has the power to own its assets and carry on its business
as it is now being conducted;
(b) POWER AND AUTHORITY: Lessor has the power to enter into and perform,
and has taken all necessary action to authorise the entry into,
performance and delivery of, this Agreement and the transactions
contemplated by this Agreement;
(c) LEGAL VALIDITY: this Agreement constitutes Lessor's legal, valid and
binding obligation;
(d) NON-CONFLICT: the entry into and performance by Lessor of, and the
transactions contemplated by, this Agreement do not and will not:-
(i) conflict with any laws binding on Lessor; or
(ii) conflict with the constitutional documents of Lessor; or
(iii) conflict with any document which is binding upon Lessor or any
of its assets;
(e) AUTHORISATION: so far as concerns the obligations of Lessor, all
authorisations, consents, registrations and notifications required
under the laws of Sweden in connection with the entry into,
performance, validity and enforceability of, and the transactions
contemplated by, this Agreement by Lessor have been (or will on or
before the Delivery Date have been) obtained or effected (as
appropriate) and are (or will on their being obtained or effected be)
in full force and effect; and
(f) NO IMMUNITY:
(i) Lessor is subject to civil commercial law with respect to its
obligations under this Agreement; and
(ii) neither Lessor nor any of its assets is entitled to any right
of immunity and the entry into and performance of this
Agreement by Lessor constitute private and commercial acts.
3. CONDITIONS PRECEDENT
3.1 CONDITIONS PRECEDENT: Lessor's obligation to deliver and lease the
Aircraft under this Agreement is subject to satisfaction, or waiver
by Lessor, of each of the following conditions:-
15
<PAGE> 17
(a) receipt by Lessor from Lessee not later than the date set forth in, or
determined in accordance with, Clause 4.1 of the following
satisfactory in form and substance to Lessor:-
(i) CONSTITUTIONAL DOCUMENTS: a copy of the constitutional
documents of Lessee;
(ii) RESOLUTIONS: a copy of a resolution of the board of directors
of Lessee approving the terms of, and the transactions
contemplated by, this Agreement, resolving that it enter into
this Agreement, and authorising a specified person or persons
to execute this Agreement and accept delivery of the Aircraft
on its behalf.-
(iii) OPINION: evidence that an opinion in the form of Schedule 5
will be issued on the Delivery Date by legal counsel
acceptable to Lessor in the Habitual Base and the State of
Incorporation;
(iv) FAA OPINION: evidence that there will be issued an opinion of
Daugherty, Fowler & Peregrin or other counsel acceptable to
Lessor who are recognised specialists with regard to FAA
registration matters in a form acceptable to Lessor as to the
due filing for recordation of this Agreement;
(v) APPROVALS: evidence of the issue of each approval, licence and
consent which may be required in relation to the performance
by Lessee of any of its obligations hereunder (including,
without limitation, any consent to the export of the Aircraft
from the Habitual Base upon the termination of the leasing of
the Aircraft under this Agreement);
(vi) [INTENTIONALLY OMITTED)
(vii) LICENCES: copies of Lessee's air transport licence, air
operator's certificates and all other licences, certificates
and permits required by Lessee in relation to, or in
connection with, the operation of the Aircraft;
(viii) PROCESS AGENT: a letter from the process agent appointed by
Lessee in this Agreement accepting that appointment;
(ix) CERTIFICATE: a certificate of a duly authorised officer of
Lessee:-
(a) setting out a specimen of each signature referred to in Clause
3.1(a)(ii); and
(b) certifying that each document specified in this Clause is
correct, complete and in full force and effect; and
(c) certifying the matters set forth in sub-clause 3.1(a)(x)
below;
(x) AIR TRAFFIC CONTROL: a letter from Lessee addressed to all
relevant air traffic control authorities pursuant to which
Lessee authorises the addressee to issue to Lessor, upon
Lessor's request from time to time, a statement of account of
all sums due by Lessee to the authority in respect of all
aircraft (including, without limitation, the Aircraft)
operated by Lessee and an officer's certificate from the
Lessee certifying that on the Delivery Date, no amounts are
past due and outstanding by Lessee to any air traffic control
authorities, except as otherwise set forth on a schedule
thereto; and
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<PAGE> 18
(xi) GENERAL: such other documents as Lessor may reasonably
request;
(b) the receipt by Lessor on or before the Delivery Date of:-
(i) OPINIONS: a signed original of each of the opinions referred
to in Clauses 3.1(a)(iii) and (iv);
(ii) PAYMENTS: all sums due to Lessor under this Agreement on or
before the Delivery Date including, without limitation, the
payment of Rent;
(iii) INSURANCES: certificates of insurance, an undertaking from
Lessee's insurance broker and other evidence satisfactory to
Lessor that Lessee is taking the required steps to ensure due
compliance with the provisions of this Agreement as to
Insurances with effect on and after the Delivery Date;
(iv) ACCOUNTS: the latest available accounts of Lessee as described
in Clause 8.2(b)(i) and (ii);
(v) DOCUMENTS: a confirmation of receipt of the Aircraft Documents
delivered with the Aircraft on the Previous Delivery Date;
(vi) GENERAL: such other documents as Lessor may reasonably
request;
(c) receipt by Lessor of such information and documents relating to the
proposed Maintenance Programme as Lessor may require and Lessor having
agreed the proposed Maintenance Programme on or prior to the Delivery
Date; and
(d) evidence that on the Delivery Date the Aircraft has been validly
registered under the laws of the State of Registration, that the
Financing Statements have been duly filed and that all filings,
registrations, recordings and other actions have been or will be taken
which are necessary or advisable to ensure the validity, effectiveness
and enforceability of this Agreement and to protect the property
rights of Owner, Sub Lessor and Lessor in the Aircraft or any Part.
3.2 FURTHER CONDITIONS PRECEDENT: The obligations of Lessor to deliver and
lease the Aircraft under this Agreement are subject to the further
conditions precedent that:-
(a) the representations and warranties of Lessee under Clauses 2.1 and 2.2
are correct and would be correct if repeated on delivery of the
Aircraft under this Agreement; and
(b) no Default has occurred and is continuing or might result from the
leasing of the Aircraft to Lessee under this Agreement.
3.3 WAIVER: The conditions specified in Clauses 3.1 and 3.2 are for the
sole benefit of Lessor and may be waived or deferred in whole or in
part and with or without conditions by Lessor. If any of those
conditions are not satisfied on the Delivery Date and Lessor (in its
absolute discretion) nonetheless agrees to deliver the Aircraft to
Lessee, Lessee will ensure that those conditions are fulfilled within
15 days after the Delivery Date and Lessor may treat as an Event of
Default the failure of Lessee to do so.
4. COMMENCEMENT
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<PAGE> 19
4.1 LEASING: Lessor will lease the Aircraft to Lessee and Lessee will take
the Aircraft on lease in accordance with this Agreement for the
duration of the Term. Lessor will deliver and Lessee will accept the
Aircraft on or about April 29, 1996 or such other day as may be
agreed. After delivery the Aircraft and every Part will be in every
respect at the sole risk of Lessee, who will bear all risk of loss,
theft, damage or destruction to the Aircraft from any cause
whatsoever.
4.2 DELIVERY: The Aircraft will be constructively delivered to and
accepted by Lessee as is at the Delivery Location or such other
location as may be agreed. Lessee will effect acceptance of the
Aircraft by execution and delivery to Lessor of the duly completed and
executed Certificate of Acceptance in the form of Schedule 2.
4.3 [INTENTIONALLY OMITTED]
4.4 [INTENTIONALLY OMITTED]
4.5 Lessee's Lease Term Option.
(a) Notwithstanding any other provision of this Agreement to the contrary,
Lessor hereby grants Lessee the option (the "Lease Term Option") to
terminate or extend the Term two (2) months earlier or later than the
numerically corresponding day twenty-four (24) months after the
Delivery Date provided that:
(i) Lessee shall give Lessor six months prior written notice (the
"Option Notice") of Lessee's intention to exercise the Lease Term
Option to either terminate or extend the Term by two (2) months, which
Option Notice, once given, shall be irrevocable; and
(ii) no Default shall have occurred and be continuing on the date that
the Option Notice is given;
(b) Option Exercised: Upon exercise by Lessee of the Lease Term Option,
but without prejudice to all the other terms and conditions of this
Agreement (including, without limitation, Lessee's obligation to
fulfil the conditions contained in Clause 4.5(a)) which shall remain
in full force and effect, the definition of "Expiry Date" contained in
Clause 1 of this Agreement shall be deemed to be amended such that the
words "Subject to any amendment pursuant to Clause 4.5(b), the day
preceding the numerically corresponding day 24 months after the
Delivery Date" shall be replaced with the words "the day preceding the
numerically corresponding day twenty-two (22) or twenty-six months
after the Delivery Date subject in all cases to the term identified in
the Option Notice".
(c) Option Not Exercised: If Lessee has not furnished Lessor with the
Option Notice on or before the date specified in sub-clause (a) above,
the Lease Term Option shall be forfeited, no longer available to
Lessee and of no further effect.
4.6 [Intentionally Omitted]
5. PAYMENTS
5.1 AIRCRAFT COMMITMENT FEE: Lessor hereby acknowledges receipt from
Lessee of the Aircraft Commitment Fee in the amount set forth in
Letter Agreement No. 1.
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<PAGE> 20
5.2 RENTAL PERIODS: The Term will be divided into Rental Periods. The
first Rental Period will commence on the Delivery Date and end May 19,
the second Rental Period will commence on May 20 and each subsequent
Rental Period will commence on the date succeeding the last day of the
previous Rental Period. Each Rental Period will end on the date
immediately preceding the numerically corresponding day in the next
month except that:-
(a) if there is no such numerically corresponding day in that month, it
will end on the last day of that month; and
(b) if a Rental Period would otherwise overrun the Expiry Date, it will
end on the Expiry Date.
5.3 BASIC RENT: Except as otherwise set forth in Letter Agreement No. 1,
on each Rent Date Lessee will pay to Lessor or its order Basic Rent in
advance in the amount set forth in paragraph A of Letter Agreement No.
1. Payment must be initiated adequately in advance of the Rent Date
to ensure that Lessor receives credit for the payment on the Rent
Date. If a Rental Period begins on a non-Business Day, the Basic Rent
payable in respect of that Rental Period shall be paid on the Business
Day immediately preceding the date on which such Rental Period
commences.
5.4 SUPPLEMENTAL RENT:
(a) AMOUNT: Except as otherwise set forth in Letter Agreement No. 1,
Lessee will further pay to Lessor Supplemental Rent in relation to
each Rental Period (including without limitation the last Rental
Period of the Term) on the 10th day following the end of that Rental
Period as follows:-
(i) in respect of the Airframe, the amount set forth in paragraph
B (i)(a) of Letter Agreement No. 1 in respect of each Flight
Hour operated by the Aircraft during that Rental Period
("Airframe Supplemental Rent"); and
(ii) in respect of each Engine, the amount set forth in paragraph B
(i)(b) of Letter Agreement No. 1 in respect of each Flight
Hour operated by that Engine during that Rental Period
("Engine Refurbishment Supplemental Rent"); and
(iii) in respect of each Engine, the amount set forth in paragraph B
(i)(c) of Letter Agreement No. 1 in respect of each Flight
Hour operated by that Engine during that Rental Period
("Engine Life Limited Parts Supplemental Rent"); and
(v) in respect of the Landing Gear, the amount set forth in
paragraph B (i)(d) of Letter Agreement No. 1 in respect of
each Flight Hour operated by the Landing Gear during that
Rental Period ("Landing Gear Supplemental Rent").
Notwithstanding the foregoing, with respect to any Engine, provided
that (x) no Default shall have occurred and be continuing; and (y)
there shall have been no material adverse change in Lessee's financial
position since the Delivery Date, if at any time commencing from the
Previous Delivery Date and falling during the Term the aggregate
amount of Engine Refurbishment Supplemental Rent and Engine Life
Limited Parts Supplemental Rent previously paid by Lessee in respect
of that Engine less any amount paid by Lessor with respect to that
Engine pursuant to Clause 7.2 equals or exceeds $600,000, then
Lessee's obligation to pay Engine Refurbishment Supplemental Rent and
Engine Life
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<PAGE> 21
Limited Parts Supplemental Rent in respect of that Engine shall abate.
Lessee's obligation to pay Engine Refurbishment Supplemental Rent and
Engine Life Limited Parts Supplemental Rent shall recommence at such
time as the aggregage amount of Engine Refurbishment Supplemental Rent
and Engine Life Limited Parts Supplemental Rent held by Lessor in
respect of that Engine less any amount paid by Lessor with respect to
that Engine pursuant to Clause 7.2 falls below $600,000.
(b) ADJUSTMENT: the rate of Supplemental Rent shall be adjusted upwards
annually by Lessor at the rate of 5% per annum commencing 1 January,
1997. In addition, but not limited to the foregoing, Lessee
acknowledges that the rates of Supplemental Rent currently provided
for in this Agreement are based upon the assumptions that (i) the
Aircraft will be operated on a one Flight Hour to one Cycle ratio; and
(ii) the Agreed Maintenance Programme for the Aircraft during the Term
will be the same as that in effect on the Delivery Date. In the event
that either or both of the foregoing assumptions prove to be incorrect
at any time during the Term, Lessor and Lessee agree that Lessor shall
have the right, upon written notice to Lessee, to adjust the rate of
Supplemental Rent in accordance with the Table set forth in Letter
Agreement No. 1. In the event that the Agreed Maintenance Programme
changes during the Term (any such change to be in accordance with the
relevant terms and conditions of this Agreement), Lessor shall make
the aforementioned adjustment in the manner which Lessor determines,
in its reasonable discretion, is necessary to maintain the rates of
Supplemental Rent at levels which accurately reflect the costs
associated with obtaining maintenance services at prevailing industry
rates. Each such notice shall specify the revised rate of
Supplemental Rent and the effective date of such revision. Lessee
agrees to advise Lessor, in writing, of any circumstances or events
which would result in the foregoing assumptions becoming incorrect at
any time during the Term.
5.5 PAYMENTS: All payments by Lessee to Lessor under this Agreement will
be made for value on the due date in Dollars and in immediately
available funds settled through the New York Clearing House System or
such other funds as may for the time being be customary for the
settlement in New York City of international payments in Dollars by
telegraphic transfer to ABN Amro Bank Box 26096 Stockholm Sweden
Account number 9090-008-468 for credit to the account of Polaris
Aircraft Leasing K.B. or to such other account as Lessor may advise
Lessee in writing.
5.6 GROSS-UP:
(a) All payments by Lessee under or in connection with this Agreement will
be made without set-off or counterclaim, free and clear of and without
deduction for or on account of all Taxes (other than Lessor Taxes);
(b) all Taxes (other than Lessor Taxes) in respect of payments under this
Agreement shall be for the account of and will be paid by Lessee for
its own account prior to the date on which penalties apply; and
(c) if Lessee is compelled by law to make payment subject to any Tax
(other than Lessor Taxes) and Lessor does not actually receive for its
own benefit on the due date a net amount equal to the full amount
provided for under this Agreement, Lessee will pay all necessary
additional amounts to ensure receipt by Lessor of the full amount so
provided for.
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<PAGE> 22
5.7 TAXATION: Lessee will on demand pay and indemnify Lessor against all
Taxes (other than Lessor Taxes) levied or imposed against or upon
Owner, Sub Lessor, Lessor or Lessee and relating to or attributable to
Lessee, this Agreement or the Aircraft directly or indirectly in
connection with the importation, exportation, registration, ownership,
leasing, subleasing, delivery, possession, use, operation, repair,
maintenance, overhaul, transportation, landing, storage, presence or
redelivery of the Aircraft or any part thereof or any rent, receipts,
insurance proceeds, income or other amounts arising therefrom.
5.8 VALUE ADDED TAX:
(a) For the purposes of this sub-clause:-
(i) "VAT" means value added tax and any sales or turnover tax,
imposition or levy of a like nature;
(ii) "supply" includes anything on which VAT is chargeable;
(b) Lessee will pay to Lessor the amount of any VAT chargeable in respect
of any supply of goods or services for VAT purposes under this
Agreement; and
(c) each amount stated as payable by Lessee under this Agreement is
exclusive of VAT (if any) and is accordingly to be construed as a
reference to that amount plus any VAT in respect of it.
5.9 INFORMATION: If Lessee is required by any applicable law, or by any
third party, to deliver any report or return in connection with any
Taxes, Lessee will complete the same in a manner satisfactory to
Lessor and in particular will state therein that Lessee is exclusively
responsible for the use and operation of the Aircraft and for any
Taxes arising therefrom, and Lessee will, on request, supply a copy of
the report or return to Lessor.
5.10 TAXATION OF INDEMNITY PAYMENTS:
(a) If and to the extent that any sums payable to Lessor by Lessee under
this Agreement by way of indemnity are insufficient, by reason of any
Taxes (other than Lessor Taxes) payable in respect of those sums, for
Lessor to discharge the corresponding liability to the relevant third
party (including any taxation authority), or to reimburse Lessor for
the cost incurred by it to a third party (including any taxation
authority) Lessee will pay to Lessor such sum as will after the tax
liability has been fully satisfied leave Lessor with the same amount
as it would have been entitled to receive in the absence of that
liability together with interest on the amount of the deficit at the
rate of interest stated in Clause 5.11 in respect of the period
commencing on the date on which the payment of taxation is finally due
until payment by Lessee (both before and after judgment); and
(b) If and to the extent that any sums constituting (directly or
indirectly) an indemnity to Lessor but paid by Lessee to any person
other than Lessor are treated as taxable in the hands of Lessor,
Lessee will pay to Lessor such sum as will after the tax liability has
been fully satisfied indemnify Lessor to the same extent as it would
have been indemnified in the absence of such liability together with
interest on the amount payable by Lessee under this sub-clause at the
rate of interest stated in Clause 5.11 in respect of the period
commencing on the date on which the payment of taxation is finally due
until payment by Lessee (both before and after judgment) provided
however that Lessee will not be liable
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for any Lessor Taxes incurred as a result of the payment of the Agreed
Value pursuant to Clause 11.
5.11 DEFAULT INTEREST: If Lessee fails to pay any amount payable under this
Agreement on the due date, Lessee will pay on demand from time to time
to Lessor interest (both before and after judgment) on that amount,
from the due date to the date of payment in full by Lessee to Lessor,
at the rate calculated by Lessor to be one month Dollar LIBOR plus 500
basis points per annum. All such interest will be compounded monthly
and calculated on the basis of the actual number of days elapsed and a
360 day year.
5.12 CONTEST: If Lessee disputes the payment of any Taxes payable by Lessor
for which Lessee is responsible under this Agreement, Lessor will
consider with Lessee the taking of such action as Lessee may
reasonably request at Lessee's expense to contest that payment but
will not be obliged to take any such action:-
(a) which Lessor considers in its sole discretion may prejudice it; or
(b) which Lessor considers does not have a reasonable prospect of success;
or
(c) for which Lessee has not made adequate provision to the satisfaction
of Lessor in respect of the expense concerned.
5.13 ABSOLUTE: Lessee's obligations under this Agreement are absolute and
unconditional irrespective of any contingency whatsoever including
(but not limited to):-
(a) any right of set-off, counterclaim, recoupment, defence or other right
which either party to this Agreement may have against the other;
(b) any unavailability of the Aircraft for any reason, including, but not
limited to, a requisition of the Aircraft or any prohibition or
interruption of or interference with or other restriction against
Lessee's use, operation or possession of the Aircraft;
any lack or invalidity of title or any other defect in title,
airworthiness, merchantability, fitness for any purpose, condition,
design, or operation of any kind or nature of the Aircraft for any
particular use or trade, or for registration or documentation under
the laws of any relevant jurisdiction, or any Event of Loss in respect
of or any damage to the Aircraft;
(d) any insolvency, bankruptcy, reorganisation, arrangement, readjustment
of debt, dissolution, liquidation or similar proceedings by or against
Lessor or Lessee;
(e) any invalidity or unenforceability or lack of due authorisation of, or
other defect in, this Agreement; and
any other cause which but for this provision would or might otherwise
have the effect of terminating or in any way affecting any obligation
of Lessee under this Agreement.
5.14 SECURITY:
(a) It is intended by Lessor and Lessee that the Aircraft Commitment Fee
paid by Lessee to Lessor and referenced in Clause 5.1, the
Supplemental Rent and, if applicable, the Insurance Security Deposit
contemplated by the first paragraph of Schedule 4 are amounts
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paid by Lessee to Lessor in consideration for Lessor removing the
Aircraft from the market, the use of the Aircraft by Lessee and the
satisfaction of Lessor's obligations under this Agreement and that,
once paid, those monies irrevocably and unconditionally shall be the
property of Lessor. Notwithstanding that stated intent, if and to the
extent that those monies or any thereof, under any applicable law or
otherwise, are determined to be security deposits or otherwise the
property of Lessee or if it is so determined those monies are a debt
owed to Lessee or that Lessee shall have any interest in those monies
(the "Charged Monies"), the parties agree that subclauses (b), (c) and
(d) shall apply;
(b) To the fullest extent permitted by law and by way of continuing
security Lessee charges and grants a security interest in the Charged
Monies and all rights of Lessee to payment thereof, the debt
represented thereby and/or any and all interest of Lessee therein to
Lessor by way of first priority security interest and first fixed
charge as security for Lessee's obligations and liabilities under this
Agreement and the Other Agreements (the "Secured Liabilities").
Except as expressly permitted under this Agreement, Lessee will not be
entitled to payment of the Charged Monies. Lessee will not assign,
transfer or otherwise dispose of all or part of its rights in the
Charged Monies and Lessee agrees that it will enter into any
additional documents and instruments necessary or reasonably requested
by Lessor to evidence, create or perfect Lessor's rights to the
Charged Monies.
(c) If Lessee fails to comply with any provision of this Agreement or any
Event of Default has occurred and is continuing Lessor may immediately
or at any time thereafter, without prior notice to Lessee:-
(i) set-off all or any part of the Secured Liabilities against the
liabilities of Lessor in respect of the Charged Monies; or
(ii) apply or appropriate the Charged Monies in or towards the
payment or discharge of the Secured Liabilities in such order as
Lessor sees fit; and
(d) If Lessor has exercised the set-off described in sub-clause (c) above,
Lessee shall, following a demand in writing from Lessor, promptly
restore the Charged Monies to the level at which they stood
immediately prior to such set-off.
6 MANUFACTURER'S WARRANTIES
6.1 ASSIGNMENT: Notwithstanding this Agreement, Lessor will remain
entitled to the benefit of each warranty, express or implied, with
respect to the Aircraft, any Engine or Part so far as concerns any
manufacturer, vendor, subcontractor or supplier. Except to the extent
Lessor otherwise directs, Lessor hereby authorises Lessee to pursue
any claim thereunder in relation to defects affecting the Aircraft,
any Engine or Part and Lessee agrees diligently to pursue any such
claim which arises at its own cost. Lessee will notify Lessor
promptly upon becoming aware of any such claim.
6.2 PROCEEDS: Except to the extent Lessor otherwise agrees in a particular
case, all proceeds of any such claim will be paid directly to Lessor
but if and to the extent that such claim relates:-
(a) to defects affecting the Aircraft which Lessee has rectified; or
(b) to compensation for loss of use of the Aircraft, an Engine or any Part
during the Term; and
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provided no Default has occurred and is continuing the proceeds will be
paid to Lessee by Lessor but in the case of (a) only on receipt of
evidence satisfactory to Lessor that Lessee has rectified the relevant
defect.
6.3 PARTS: Except to the extent Lessor otherwise agrees in a particular
case, Lessee will procure that all engines, components, furnishings or
equipment provided by the manufacturer, vendor, subcontractor or
supplier in replacement of a defective Engine or Part pursuant to the
terms of any warranty will be installed promptly by Lessee, that title
thereto free of Security Interests vests in Owner. On installation
those items will be deemed to be an Engine or Part as applicable.
6.4 AGREEMENT: To the extent any warranties relating to the Aircraft are
made available under an agreement between any manufacturer, vendor,
subcontractor or supplier and Lessee, this Clause 6 is subject to that
agreement. However Lessee will:-
(a) pay the proceeds of any claim thereunder to Lessor to be applied
pursuant to Clause 6.2 and pending such payment will hold the claim
and the proceeds on trust for Lessor; and
(b) Lessee will take all such steps as are necessary at the end of the
Term to ensure the benefit of any of those warranties which have not
expired are vested in Lessor.
7. LESSOR'S COVENANTS
7.1 QUIET ENJOYMENT: Lessor will not interfere with the quiet use,
possession and enjoyment of the Aircraft by Lessee but the exercise by
Lessor of its rights under or in connection with this Agreement will
not constitute such an interference.
7.2 MAINTENANCE CONTRIBUTION: Provided no Default has occurred and is
continuing Lessor will pay to Lessee, by way of contribution to the
cost of maintenance of the Aircraft, upon submission by Lessee to
Lessor within 6 months of the commencement of that maintenance and
before the Expiry Date of an invoice and supporting documentation
reasonably satisfactory to Lessor evidencing:-
(a) with respect to the Airframe, the completion, in accordance with this
Agreement, of those items of maintenance characterised by the
Manufacturer's maintenance planning document and best industry
practice as D Check and/or individual structural inspections having an
interval of not less than 15,000 Flight Hours or 6 years for the
Aircraft (but not including repairs arising as the result of
operational or maintenance mishandling and not including airworthiness
directives), the lesser of (i) the amount of that invoice and (ii) an
amount equal to the aggregate amount of Airframe Supplemental Rent
paid under this Agreement at the time of commencement of such
maintenance less the aggregate amount previously paid by Lessor under
this sub-clause;
(b) with respect to any Engine, the performance, in accordance with this
Agreement, of a Hot Section Refurbishment or a Cold Section
Refurbishment (other than (i) repairs arising as a result of foreign
object damage or operational or maintenance mishandling and/or (ii)
removal, installation, maintenance and repair of QEC (Quick Engine
Change) kits and/or airworthiness directives), the lesser of (i) the
amount of that invoice and (ii) an amount equal to the aggregate
amount of Engine Refurbishment Supplemental Rent paid in respect of
that Engine under this Agreement at the time of commencement of such
maintenance less the aggregate amount previously paid in respect of
that Engine by Lessor under this sub-clause;
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(c) with respect to any Engine, the replacement, in accordance with this
Agreement, of life limited Parts (other than replacement which is
occassioned by foreign object damage or operational or maintenance
mishandling and other than replacement occassioned by airworthiness
directives or elective replacement), the lesser of (i) the amount of
that invoice and (ii) an amount equal to the aggregate amount of
Engine Life Limited Parts Supplemental Rent paid in respect of that
Engine under this Agreement at the time of commencement of such
maintenance less the aggregate amount previously paid in respect of
that Engine by Lessor under this sub-clause; and
(d) with respect to the Landing Gear, the performance in accordance with
this Agreement, of all work on the Landing Gear in the nature of
overhaul and requiring removal and disassembly (other than repairs
arising as the result of operational or maintenance mishandling and/or
airworthiness directives), the lesser of (i) the amount of that
invoice and (ii) an amount equal to the aggregate amount of Landing
Gear Supplemental Rent paid under this Agreement at the time of
commencement of such maintenance less the aggregate amount previously
paid by Lessor under this sub-clause.
7.3 LESSOR OBLIGATIONS FOLLOWING EXPIRY DATE: Within 5 Business Days of:-
(a) redelivery of the Aircraft to Lessor in accordance with and in the
condition required by this Agreement; or
(b) payment to Lessor of the Agreed Value following an Event of Loss after
the Delivery Date;
or in each case such later time as Lessor is satisfied Lessee has
irrevocably paid to Lessor all Rent which may then be outstanding or
become payable under this Agreement or the Other Agreements and
provided that no Default shall have occurred and is continuing, Lessor
will pay to Lessee:-
(i) an amount equal to (x) the amount of the Aircraft Commitment
Fee paid by Lessee and referenced in Clause 5.1; plus (y) the
amount of interest at the rate and otherwise calculated in
accordance with Letter Agreement No. 1 which would have
accrued on the amount referred to in (x); and
(ii) the amount of any Basic Rent received in respect of any period
falling after the date of redelivery of the Aircraft or
payment of the Agreed Value, as the case may be; and
(iii) an amount equal to (x) the aggregate amount of Supplemental
Rent previously paid by Lessee under this Agreement; minus (y)
the aggregate amount previously paid by Lessor under Clause
7.2 without payment of interest.
8. LESSEE'S COVENANTS
8.1 DURATION: The undertakings in this Clause and in Clause 12 will:-
(a) except as otherwise stated, be performed at the expense of Lessee; and
(b) remain in force until the Expiry Date in accordance with this
Agreement and thereafter to the extent of any accrued rights of Lessor
in relation to those undertakings.
8.2 INFORMATION: Lessee will:-
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(a) notify Lessor forthwith of the occurrence of any Default or any other
event which might adversely affect Lessee's ability to perform any of
its obligations under this Agreement;
(b) furnish to Lessor:-
(i) on a quarterly and annual basis, the consolidated management
accounts of Lessee (comprising a balance sheet and profit and
loss statement) prepared for the most recent previous
financial quarter certified by Lessee's chief financial
officer as being true and correct;
(ii) as soon as available but not in any event later than 120 days
after the last day of each financial year of Lessee, its
audited consolidated balance sheet as of such day and its
audited consolidated profit and loss statement for the year
ending on such day;
(iii) at the same time as it is issued to the shareholders or
creditors of Lessee, a copy of each notice or circular issued
to Lessee's shareholders or creditors as a group;and
(iv) on request from time to time such other information relevant
to the transaction contemplated by this Agreement regarding
Lessee and its business and affairs as Lessor may reasonably
request;
(c) keep Lessor informed as to current serial numbers of the Engines and
any engine installed on the Aircraft;
(d) promptly furnish to Lessor all information Lessor from time to time
reasonably requests regarding the Aircraft, any Engine or any Part,
its use, location and condition including, without limitation, the
hours available on the Aircraft and any Engine until the next
scheduled check, inspection, overhaul or shop visit, as the case may
be;
(e) on request, within 10 days after the end of any Rental Period, furnish
to Lessor evidence satisfactory to Lessor of payment of all Taxes due
during that or any previous Rental Period;
(f) on request, furnish to Lessor evidence satisfactory to Lessor that all
Taxes and charges incurred by Lessee with respect to the Aircraft,
including without limitation all payments due to the relevant air
traffic control authorities, have been paid and discharged in full;
(g) provide Lessor with a monthly report on the Aircraft and each Engine
in the form required from time to time by Lessor;
(h) give Lessor not less than 60 days' written notice as to the time and
location of all Major Checks; and
(i) promptly notify Lessor of:-,
(i) any loss, theft, damage or destruction to the Aircraft, any
Engine or any Part, or any modification to the Aircraft if the
potential cost may exceed the Damage Notification Threshold;
and
(ii) any claim or other occurrence likely to give rise to a claim
under the Insurances
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(but in the case of hull claims only in excess of the Damage
Notification Threshold) and details of any negotiations with
the insurance brokers over any such claim.
8.3 LAWFUL AND SAFE OPERATION: Lessee will:-
(a) comply with the law for the time being in force in any country or
jurisdiction which may for the time being be applicable to the
Aircraft or, so far as concerns the use and operation of the Aircraft
or an owner or operator thereof and take all reasonable steps to
ensure that the Aircraft is not used for any illegal purpose;
(b) not use the Aircraft in any manner contrary to any recommendation of
the manufacturers of the Aircraft, any Engine or any Part or any
recommendation or regulation of the Air Authority or for any purpose
for which the Aircraft is not designed or reasonably suitable;
(c) ensure that the crew and engineers employed by it in connection with
the operation and maintenance of the Aircraft have the qualifications
and hold the licences required by the Air Authority and applicable
law;
(d) use the Aircraft solely in commercial or other operations for which
Lessee is duly authorised by the Air Authority and applicable law;
(e) not use the Aircraft for the carriage of:-
(i) whole animals living or dead except in the cargo compartments
according to I.A.T.A. regulations, and except domestic pet
animals carried in a suitable container to prevent the escape
of any liquid and to ensure the welfare of the animal;
(ii) acids, toxic chemicals, other corrosive materials, explosives,
nuclear fuels, nuclear wastes, or any nuclear assemblies or
components, except as permitted for passenger aircraft under
the "Restriction of Goods" schedule issued by I.A.T.A. from
time to time and provided that all the requirements for
packaging or otherwise contained therein are fulfilled;
(iii) any other goods, materials or items of cargo which could
reasonably be expected to cause damage to the Aircraft and
which would not be adequately covered by the Insurances; or
(iv) any illegal item or substance;
(f) not utilise the Aircraft for purposes of training, qualifying or
re-confirming the status of cockpit personnel except for the benefit
of Lessee's cockpit personnel, and then only if the use of the
Aircraft for such purpose is not disproportionate to the use for such
purpose of other aircraft of the same type operated by Lessee;
(g) not cause or permit the Aircraft to proceed to, or remain at, any
location which is then the subject of a prohibition order (or any
similar order or directive), sanctions or restrictions by:-
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(i) the United Nations Security Council, the U.S. International
Economic Emergency Powers Act or U.N. Security Council
directives (including, as of the date hereof, Haiti, Iraq,
Libya and the Federal Republic of Yugoslavia (Serbia and
Montenegro) and the Unita Rebels of Angola) or the U.S. Export
Administration Act Regulations (15 C.F.R. Parts 730-799)
(including as of the date hereof Cuba, Iran, North Korea,
Sudan, Syria and Vietnam), except as may be permitted by
operating in accordance with the conditions specified by the
U.S. Export Administration Regulations, General License GATS
(15 C.F.R. Part 771.19);
(i) any Government Entity of the State of Registration or the
Habitual Base;
(iii) any Government Entity of the country in which such location is
situated; or
(iv) any Government Entity having jurisdiction over Owner, Sub
Lessor, Lessor, the Banks or the Aircraft;
(h) obtain and maintain in full force all certificates, licences, permits
and authorisations required for the use and operation of the Aircraft
for the time being, and for the making of payments required by, and
the compliance by Lessee with its other obligations under, this
Agreement;
(i) not operate or locate the Aircraft or suffer or permit the Aircraft to
be operated or located during the Term in any area excluded from
coverage by any insurance policy issued pursuant to the requirements
of this Agreement; and
(j) not operate or locate the Aircraft in, to or over any country which is
(x) the subject of sanctions under the U.S. International Economic
Emergency Powers Act or United Nations Security Council Directives
(currently Haiti, Iraq, Libya, the Federal Republic of Yugoslavia
(Serbia and Montenegro) and the Unita Rebels of Angola) and/or (y)
restricted under the United States Trading with the Enemy Act or the
United States Export Administration Act except as may be permitted by
operating in accordance with the conditions specified by the United
States Export Administration Regulations, General Licence GATS (15 CFR
Part 771.19) (currently Cuba, Iran, North Korea and Syria).
8.4 TAXES AND OTHER OUTGOINGS: Lessee will promptly pay:-
(a) all licence and registration fees, Taxes (other than Lessor Taxes) and
other amounts of any nature imposed by any Government Entity with
respect to the Aircraft, including without limitation the purchase,
ownership, delivery, leasing, possession, use, operation, return, sale
or other disposition of the Aircraft; and
(b) all rent, fees, charges, Taxes (other than Lessor Taxes) and other
amounts in respect of any premises where the Aircraft or any Part
thereof is located from time to time;
except to the extent that in the reasonable opinion of Lessor such
payment is being contested in good faith by appropriate proceedings,
in respect of which adequate reserves have been provided by Lessee and
non-payment of which does not give rise to any material likelihood of
the Aircraft or any interest therein being sold, forfeited or
otherwise lost or of criminal liability on the part of Owner, Lessor,
Sub Lessor or any Bank.
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8.5 SUB-LEASING: LESSEE WILL NOT, WITHOUT THE PRIOR WRITTEN CONSENT OF
LESSOR, SUB-LEASE OR OTHERWISE PART WITH POSSESSION OF THE AIRCRAFT,
THE ENGINES OR ANY PART EXCEPT THAT LESSEE MAY PART WITH POSSESSION
(A) WITH RESPECT TO THE AIRCRAFT, THE ENGINES OR ANY PART TO THE
RELEVANT MANUFACTURERS FOR TESTING OR SIMILAR PURPOSES OR TO THE
AGREED MAINTENANCE PERFORMER FOR SERVICE, REPAIR, MAINTENANCE OR
OVERHAUL WORK, OR ALTERATIONS, MODIFICATIONS OR ADDITIONS TO THE
EXTENT REQUIRED OR PERMITTED BY THIS AGREEMENT, AND (B) WITH RESPECT
TO AN ENGINE OR PART, AS EXPRESSLY PERMITTED BY THIS AGREEMENT.
8.6 INSPECTION:
(a) Lessor and any person designated by Lessor may at any time visit,
inspect and survey the Aircraft, any Engine or any Part and for such
purpose may, subject to any applicable Air Authority regulation,
travel on the flight deck as observer;
(b) Lessee will pay to Lessor on demand all reasonable out-of-pocket
expenses incurred by Lessor in connection with any such visit,
inspection or survey; and
(c) Lessor will:
(i) have no duty or liability to make, or arising out of any such
visit, inspection or survey; and
(ii) so long as no Default has occurred and is continuing, not
exercise such right other than on reasonable notice and so as
not to disrupt unreasonably the commercial operations of
Lessee.
8.7 OWNERSHIP; PROPERTY INTERESTS; RELATED MATTERS: Lessee will:-
(a) not do or knowingly permit to be done or omit or knowingly permit the
omission of any act or thing which might reasonably be expected to
jeopardise the rights of Owner as owner of the Aircraft, the rights of
Sub Lessor as sub lessor of the Aircraft and the rights of Lessor as
lessor of the Aircraft;
(b) on all occasions when the ownership of the Aircraft, any Engine or any
Part is relevant, make clear to third parties that title is held by
Owner;
(c) not at any time (i) represent or hold out Owner, Sub Lessor, Lessor or
the Banks as carrying goods or passengers on the Aircraft or as being
in any way connected or associated with any operation or carriage
(whether for hire or reward or gratuitously) which may be undertaken
by Lessee or (ii) pledge the credit of Owner, Sub Lessor, Lessor or
the Banks;
(d) ensure that there is always affixed, and not removed or in any way
obscured, a fireproof plate (having dimensions of not less than 10 cm.
x 7 cm.) in a reasonably prominent position in the cockpit of the
Aircraft adjacent to the certificate of airworthiness and on each
Engine stating:-
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"This Aircraft/ Engine is owned by Polaris Aircraft Leasing K.B. and
is leased to Air South Airlines, Inc. and may not be operated by any
other person without the prior written consent of Polaris Aircraft
Leasing K.B.";
(e) not create or permit to exist any Security Interest upon the Aircraft,
any Engine or any Part;
(f) not do or permit to be done anything which may reasonably be expected
to expose the Aircraft, any Engine or any Part to penalty, forfeiture,
impounding, detention, appropriation, damage or destruction and
without prejudice to the foregoing, if any such penalty, forfeiture,
impounding, detention or appropriation, damage or destruction occurs,
give Lessor notice and use best endeavours to procure the immediate
release of the Aircraft, any Engine or the Part, as the case may be;
(g) not abandon the Aircraft, the Engine or any Part;
(h) pay and discharge or cause to be paid and discharged when due and
payable or make adequate provision by way of security or otherwise for
all debts, damages, claims and liabilities which have given or might
give rise to a Security Interest over or affecting the Aircraft, any
Engine or any Part; and
(i) not attempt, or hold itself out as having any power, to sell, lease or
otherwise dispose of the Aircraft, any Engine or any Part.
8.8 GENERAL: Lessee will:-
(a) not liquidate or dissolve (except in connection with a transaction
otherwise permitted by this Clause 8.8 (a)), and Lessee shall not
consolidate with or merge into, any other corporation, and Lessee
shall not convey, transfer, lease or otherwise dispose of all or
substantially all of its property and other assets, whether in one or
a series of related transactions unless in the case of any such
consolidation, merger, conveyance, transfer, lease or other
disposition:-
(i) the corporation formed by or surviving such consolidation or
merger or the corporation which acquires by conveyance,
transfer, lease or other disposition all or a material portion
of such property and other assets or stock (the "Successor
Entity")--
(A) shall be a corporation organised and existing under
the laws of the United States or any state thereof;
(B) immediately after giving effect to such transaction,
shall be Lessee or shall have acquired or succeeded
to all or substantially all of the property and other
assets (including, without limitation, all or
substantially all of Lessee's property and other
assets) as an entirety; and .
(C) shall execute and deliver to Lessor an agreement, in
form and substance reasonably satisfactory to Lessor,
which is a legal, valid, binding and enforceable
assumption by such Successor Entity of the due and
punctual performance and observance of each covenant
and condition of this Agreement and agreement to be
bound thereby, and
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shall execute, deliver and/or file such recordations
and filings with any Government Entity and such other
documents as Lessor shall reasonably deem to be
necessary or advisable (including, without
limitation, to preserve and protect the interests of
Lessor) to evidence, or in connection with, such
consolidation, merger, sale, lease, transfer or other
disposition or acquisition and an officer's
certificate from a responsible officer of the
Successor Entity confirming the legal, valid, binding
and enforceable nature of such assumption, and to the
effect that the other requirements of this paragraph
have been satisfied, and a legal opinion from counsel
confirming the legal, valid, binding and enforceable
nature of such assumption and otherwise in such form
and substance reasonably satisfactory to Lessor; and
(ii) prior to and immediately after giving effect to such
transaction, no Default or Event of Default shall have
occurred and be continuing.
No such permitted disposition to a Successor Entity shall relieve or
release Lessee of or from any obligations hereunder which arose or
existed prior to such disposition. Promptly following the closing of
such disposition, Lessee shall provide Lessor with a certificate
signed by Lessee's chief financial officer to the effect that such
disposition will not have a material adverse effect on Lessee's
ability to perform its obligations under this Agreement;
(b) ensure that no change will occur in the Habitual Base of the Aircraft
without the prior written consent of Lessor. Lessor agrees that it
shall not withhold its consent to a change in the Habitual Base to
another state of the United States if Lessee shall have provided
Lessor with an opinion of counsel practising in the state of the
United States proposed by Lessee to be the Habitual Base in form and
in substance reasonably satisfactory to Lessor to the effect that the
rights and interests of Lessor are duly protected;
(c) not, without giving Lessor 30 days prior written notice (in accordance
with this Agreement), change its chief executive office (as such term
is defined in Article 9 of the Uniform Commercial Code as in effect in
the State of South Carolina) from 1800 St. Julian Place, 4th Floor,
Columbia, South Carolina 29204;
(d) remain a Certificated Air Carrier and maintain, without limitation,
its status so as to fall within the purview of Section 1110 of Title
11 of the United States Code or any analogous Statute; and
(e) remain a "citizen of the United States" as defined in Section 101(16)
of the Federal Aviation Act.
8.9 RECORDS: Lessee will:-
(a) cause accurate, complete and current records of all flights made by,
and all maintenance carried out on, the Aircraft (including in
relation to each Engine and Part subsequently installed, before the
installation) to be kept; keep the records in such manner as the Air
Authority may from time to time require, and ensure that they comply
with the recommendations of any manufacturers of the Aircraft, any
Engine or any Part. All records must be maintained in English. The
records will form part of the Aircraft Documents; and
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(b) procure access to a revision service in respect of, and will maintain
with appropriate revisions in English, all Aircraft Documents,
records, logs, and other materials required by applicable laws and
best practice of major international air transport operators in
respect of the Aircraft.
8.10 PROTECTION: Lessee will:-
(a) maintain the registration of the Aircraft with the Air Authority in
the name of Lessor and, to the extent permitted under the laws of the
State of Registration, reflecting the respective interests of Owner
and Sub Lessor and not do or suffer to be done anything which might
adversely affect that registration; and
(b) do all acts and things (including, without limitation, making any
filing or registration with the Air Authority or any other Government
Entity) and execute and deliver, notarise, file, register and record
all documents (including, without limitation, any amendment of this
Agreement) as may be required by Lessor:-
(i) following any change or proposed change in the ownership or
financing of the Aircraft or in the manner of securing Owner's
and/or Sub Lessor's and/or Lessor's obligations to the Banks;
or
(ii) following any modification of the Aircraft, any Engine or any
Part or the permanent replacement of any Engine or Part in
accordance with this Agreement, so as to ensure that the
rights of Owner as owner of the Aircraft, the rights of Sub
Lessor as sub lessor of the Aircraft and the rights of Lessor
as lessor of the Aircraft and under this Agreement apply with
the same effect as before; or
(iii) to establish, maintain, preserve, perfect and protect the
rights of Lessor under this Agreement or the interest of Sub
Lessor as sub lessor of the Aircraft and the interest of Owner
as owner of the Aircraft.
8.11 MAINTENANCE AND REPAIR: Lessee will:-
(a) keep the Aircraft airworthy in all respects and in good repair and
condition;
(b) not change the Agreed Maintenance Programme or the schedule of the
Agreed Maintenance Programme without the written consent of Lessor;
(c) maintain the Aircraft in accordance with the Agreed Maintenance
Programme through the Agreed Maintenance Performer and perform (at the
respective intervals provided in the Agreed Maintenance Programme) all
Major Checks;
(d) maintain the Aircraft in accordance with FAA Federal Air Regulations
Part 121 and any other rules and regulations of the FAA as may be
applicable to passenger category aircraft and in at least the same
manner and with at least the same care, including, without limitation,
maintenance scheduling, modification status and technical condition,
as is the case with respect to similar aircraft owned or otherwise
operated by Lessee and as if Lessee were to retain the Aircraft in its
fleet and continue to operate the Aircraft after the Expiry Date and
including, without limitation, all maintenance to the Airframe, any
Engine or any Part required to maintain all warranties, performance
guarantees or service life policies in full force and effect;
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(e) comply with all mandatory inspection and modification requirements,
airworthiness directives and similar requirements applicable to the
Aircraft, any Engine or Part having a compliance date during the Term
or within 180 days after the Expiry Date and which are required by the
Air Authority, and/or the FAA and/or the laws of the state of
manufacture of the Aircraft, any Engine or Part and/or recommended by
any manufacturer of the Aircraft, any Engine or Part (each of the
foregoing being hereinafter referred to as a "Relevant AD").
The cost of compliance with any single Relevant AD shall be allocated
among Lessor and Lessee as follows:-
(i) Lessee shall be responsible for the first $100,000 of such
cost;
(ii) Lessor and Lessee shall share, on an equal basis, the portion
of such cost (if any) which exceeds $100,000 up to and
including $200,000; and
(iii) Lessor shall be wholly responsible for the portion of such
cost (if any) which exceeds $200,000 (subject always to the
provisions of the following paragraph).
Notwithstanding the foregoing, in the event that the total cost of any
single Relevant AD (such total cost to be mutually agreed, in good
faith, between Lessor and Lessee) exceeds $200,000 (the "Threshold
Amount"), Lessor may elect not to make its contribution to the cost of
compliance with such Relevant AD as described in (iii) above. If
Lessor shall so elect, Lessee shall be entitled, by giving prior
written notice to Lessor, to terminate this Agreement and redeliver
the Aircraft to Lessor in accordance with Clause 12 and Schedule 3
(except for compliance with the Relevant AD which gave rise to such
termination) on the earlier of (x) the date which is 30 days after the
date of such notice from Lessee to Lessor; or (y) the date on which
the Aircraft is required to be removed from service by reason of
non-compliance with the applicable Relevant AD. Such notice shall
specify the proposed redelivery date of the Aircraft by Lessee and,
upon the receipt of such notice by Lessor, the then current definition
of Expiry Date shall be deemed to have been amended accordingly. Upon
any termination of this Agreement pursuant to this Clause 8.11 (e),
neither party shall be under any further obligation to the other
hereunder except for (x) accrued obligations of Lessee hereunder; and
(y) obligations hereunder which are expressed to continue
notwithstanding the expiration of the Term and provided further that
Lessor shall, if applicable having regard to the provisions of Clause
7.3, make the rebate described in Clause 7.3 (i) and the adjustment
payments described in Schedule 3 shall be payable by Lessee;
(f) comply with all applicable laws and the regulations of the Air
Authority and other aviation authorities with jurisdiction over Lessee
or the Aircraft, any Engine or Part regardless of upon whom such
requirements are imposed and which relate to the maintenance,
condition, use or operation of the Aircraft or require any
modification or alteration to the Aircraft, any Engine or Part;
(g) maintain in good standing a current certificate of airworthiness (in
the appropriate category for the nature of the operations of the
Aircraft) for the Aircraft issued by the Air Authority except where
the Aircraft is undergoing maintenance, modification or repair
required or permitted by this Agreement and will from time to time
provide to Lessor a copy on request;
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(h) if required by the Air Authority, maintain a current certification as
to maintenance issued by or on behalf of the Air Authority in respect
of the Aircraft and will from time to time provide to Lessor a copy on
request; and
(i) procure promptly the replacement of any Engine or Part which has
become time, cycle or calendar expired, lost, stolen, seized,
confiscated, destroyed, damaged beyond repair, unserviceable or
permanently rendered unfit for use, with an engine or part complying
with the conditions set out in Clause 8.13(a).
8.12 REMOVAL OF ENGINES AND PARTS: Lessee will ensure that no Engine or
Part installed on the Aircraft is at any time removed from the
Aircraft other than:-
(a) if replaced as expressly permitted by this Agreement; or
(b) if the removal is of an obsolete item and is in accordance with the
Agreed Maintenance Programme; or
(c) (i) during the course of maintaining, servicing, repairing,
overhauling or testing that Engine or the Aircraft, as the
case may be; or
(ii) as part of a normal engine or part rotation programme; or
(iii) for the purpose of making such modifications to the Engine or
the Aircraft, as the case may be, as are permitted under this
Agreement;
and then in each case only if it is reinstalled or replaced by an
engine or part complying with Clause 8.13(a) as soon as practicable
and in any event no later than the Expiry Date.
8.13 INSTALLATION OF ENGINES AND PARTS: Lessee will:-
(a) ensure that, except as permitted by this Agreement, no engine or part
is installed on the Aircraft unless:-
(i) in the case of an engine, it is an engine of the same model
as, or an improved or advanced version of the Engine it
replaces, which is in the same or better operating condition,
has substantially similar hours available until the next
scheduled checks, inspections, overhauls and shop visits and
has the same or greater value and utility as the replaced
Engine;
(ii) in the case of a part, it is in as good operating condition,
has substantially similar hours available until the next
scheduled checks, inspections, overhauls and shop visits, is
of the same or a more advanced make and model and is of the
same interchangeable modification status as the replaced Part;
(iii) in each case, it has become and remains the property of Owner
free from Security Interests and on installation on the
Aircraft will without further act be subject to the Head
Lease, the Sub Lease and this Agreement; and
(iv) in each case, Lessee has full details as to its source and
maintenance records;
(b) if no Default has occurred which is continuing, be entitled to install
any engine or part on the Aircraft by way of replacement
notwithstanding Clause 8.13(a) if:-
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(i) there is not available to Lessee at the time and in the place
that suchengine or part is required to be installed on the
Aircraft, a replacement engine or part, as the case may be,
complying with the requirements of Clause 8.13(a);
(ii) it would result in an unreasonable disruption of the operation
of the Aircraft and/or the business of Lessee to ground the
Aircraft until an engine or part, as the case may be,
complying with Clause 8.13(a) becomes available for
installation on the Aircraft; and
(iii) as soon as practicable after installation of the same on the
Aircraft but, in any event, no later than the Expiry Date,
Lessee removes any such engine or part and replaces it with
the Engine or Part replaced by it or by an engine or part, as
the case may be, complying with Clause 8.13(a).
8.14 NON-INSTALLED ENGINES AND PARTS: Lessee will:-
(a) ensure that any Engine or Part which is not installed on the Aircraft
(or any other aircraft as permitted by this Agreement) is, except as
expressly permitted by this Agreement, properly and safely stored, and
kept free from Security Interests;
(b) notify Lessor whenever any Engine is removed from the Aircraft and,
from time to time, on request procure that any person to whom
possession of an Engine is given acknowledges in writing to Lessor, in
form and substance satisfactory to Lessor, that it will respect the
interests of Owner as owner, Sub Lessor as sub lessor and Lessor as
lessor of the Engine and will not seek to exercise any rights
whatsoever in relation to it;
(c) (notwithstanding the foregoing provisions of this sub-clause), be
permitted, if no Default has occurred and is continuing, to install
any Engine or Part on an aircraft, or in the case of a Part, an
engine:-
(i) owned and operated by Lessee free from Security Interests; or
(ii) leased or hired to Lessee pursuant to a lease or conditional
sale agreement on a long-term basis and on terms whereby
Lessee has full operational control of that aircraft or
engine; or
(iii) acquired by Lessee and/or financed or refinanced, and operated
by Lessee, on terms that ownership of that aircraft or engine,
as the case may be, pursuant to a lease or conditional sale
agreement, or a Security Interest therein, is vested in or
held by any other person;
provided that in the case of (ii) and (iii):-
(1) the terms of any such lease, conditional sale agreement or
Security Interest will not have the effect of prejudicing the
interests of Owner as owner, Sub Lessor as sub lessor and
Lessor as lessor of that Engine or Part; and
(2) the lessor under such lease, the seller under such conditional
sale agreement or the holder of such Security Interest, as the
case may be, has confirmed and acknowledged in writing to
Lessor, in form and substance satisfactory to Lessor, that it
will respect the interest of Owner as owner, Sub Lessor as sub
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lessor and Lessor as lessor of that Engine or Part and that it
will not seek to exercise any rights whatsoever in relation
thereto.
8.15 POOLING OF ENGINES AND PARTS: Lessee will not enter into nor permit
any pooling agreement or arrangement in respect of an Engine or Part
without the prior written consent of Lessor.
8.16 EQUIPMENT CHANGES:
(a) Lessee will not make any modification or addition to the Aircraft
(each an "Equipment Change"), except for an Equipment Change which:-
(i) is expressly permitted by this Agreement, or
(ii) has the prior written approval of Lessor and which does not
diminish the value, utility, condition, or airworthiness of
the Aircraft; and
(b) So long as a Default has not occurred and is continuing, Lessee may
remove any Equipment Change if it can be removed from the Aircraft
without diminishing or impairing the value, utility, condition or
airworthiness of the Aircraft.
8.17 TITLE ON AN EQUIPMENT CHANGE:
(a) Title to all Engines and Parts installed on the Aircraft whether by
way of replacement, as the result of an Equipment Change or otherwise
(except those installed pursuant to Clause 8.13(b)) will on
installation, without further act, vest in Owner subject to this
Agreement, the Head Lease and the Sub Lease free and clear of all
Security Interests. Lessee will at its own expense take all such
steps and execute, and procure the execution of, all such instruments
as Lessor may require and which are necessary to ensure that title so
passes to Owner according to all applicable laws. At any time when
requested by Lessor, Lessee will provide evidence to Lessor's and
Owner's satisfaction (including the provision, if required, to Lessor
and Owner of one or more legal opinions) that title has so passed to
Owner;
(b) Lessor may require Lessee to remove any Equipment Change and to
restore the Aircraft to its condition prior to that Equipment Change;
and
(c) Except as referred to in Clause 8.17(b) any Engine or Part at any time
removed from the Aircraft will remain the property of Owner until a
replacement has been made in accordance with this Agreement and until
title in that replacement has passed, according to applicable laws, to
Owner subject to this Agreement, the Head Lease and the Sub Lease free
of all Security Interests whereupon title to the replaced Engine or
Part will pass to Lessee.
8.18 THIRD PARTY: Lessee will procure that no person (other than Owner, Sub
Lessor, Lessor or any Bank) will act in any manner inconsistent with
its obligations under this Agreement and that all persons will comply
with those obligations as if references to "Lessee" included a
separate reference to those persons.
9. INSURANCE
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9.1 INSURANCES: Lessee will maintain in full force during the Term
insurances in respect of the Aircraft in form and substance
satisfactory to Lessor (the "Insurances" which expression includes,
where the context so admits, any relevant re-insurance(s)) through
such brokers and with such insurers and having such deductibles and
being subject to such exclusions as may be approved by Lessor. The
Insurances will be effected either:-
(a) on a direct basis with insurers of recognised standing who normally
participate in aviation insurances in the leading international
insurance markets and led by reputable underwriter(s) approved by
Lessor; or
(b) with a single insurer or group of insurers approved by Lessor who
does not retain the risk but effects substantial reinsurance with
reinsurers in the leading international insurance markets and through
brokers each of recognised standing and acceptable to Lessor for a
percentage acceptable to Lessor of all risks insured (the
"Reinsurances").
9.2 REQUIREMENTS: Lessor's current requirements as to required Insurances
are as specified in this Clause and in Schedule 4. Lessor may from
time to time stipulate other requirements for the Insurances so that
the scope and level of cover is maintained in line with best industry
practice and the interests of Lessor, Sub Lessor and Owner protected.
9.3 CHANGE: If at any time Lessor wishes to revoke its approval of any
insurer, reinsurer, insurance or reinsurance, Lessor and/or its
brokers will consult with Lessee and Lessee's brokers (as for the
time being approved by Lessor) regarding whether that approval should
be revoked to protect the interests of the parties insured. If,
following the consultation, Lessor considers that any change should
be made, Lessee will then arrange or procure the arrangement of
alternative cover satisfactory to Lessor.
9.4 INSURANCE COVENANTS: Lessee will:-
(a) ensure that all legal requirements as to insurance of the Aircraft,
any Engine or any Part which may from time to time be imposed by the
laws of the State of Registration or any state to, from or over which
the Aircraft may be flown, in so far as they affect or concern the
operation of the Aircraft, are complied with and in particular those
requirements compliance with which is necessary to ensure that (i)
the Aircraft is not in danger of detention or forfeiture, (ii) the
Insurances remain valid and in full force and effect, and (iii) the
interests of the Indemnitees in the Insurances and the Aircraft or
any Part are not thereby prejudiced;
(b) not use, cause or permit the Aircraft, any Engine or any Part to be
used for any purpose or in any manner not covered by the Insurances
or outside any geographical limit imposed by the Insurances;
(c) comply with the terms and conditions of each policy of the Insurances
and not do, consent or agree to any act or omission which:-
(i) invalidates or may invalidate the Insurances; or
(ii) renders or may render void or voidable the whole or any part
of any of the Insurances; or
(iii) brings any particular liability within the scope of an
exclusion or exception to the Insurances;
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(d) not take out without the prior written approval of Lessor any
insurance or reinsurance in respect of the Aircraft other than those
required under this Agreement unless relating solely to hull total
loss, business interruption, profit commission and deductible risk;
(e) commence renewal procedures at least 30 days prior to expiry of any
of the Insurances and provide to Lessor:-
(i) if requested by Lessor, a written status report of renewal
negotiation 14 days prior to each expiry date;
(ii) telexed confirmation of completion of renewal prior to each
expiry date;
(iii) certificates of insurance (and where appropriate certificates
of reinsurance), and broker's (and any reinsurance brokers')
letter of undertaking in a form acceptable to Lessor in
English, detailing the coverage and confirming the insurers'
(and any reinsurers') agreement to the specified insurance
requirements of this Agreement within 7 days after each
renewal date;
(f) on request, provide to Lessor copies of documents evidencing the
Insurances;
(g) on request, provide to Lessor evidence that the Insurance premiums
have been paid;
(h) not make any modification or alteration to the Insurances material
and adverse to the interests of any of the Indemnitees;
(i) be responsible for any deductible under the Insurances; and
(j) provide any other insurance and reinsurance related information, or
assistance, in respect of the Insurances as Lessor may reasonably
require.
9.5 FAILURE TO INSURE: If Lessee fails to maintain the Insurances in
compliance with this Agreement, each of the Indemnitees will be
entitled but not bound, (without prejudice to any other rights of
Lessor under this Agreement):-
(a) to pay the premiums due or to effect and maintain insurances
satisfactory to it or otherwise remedy Lessee's failure in such
manner (including, without limitation to effect and maintain an
"owner's interest" policy) as it considers appropriate. Any sums so
expended by it will become immediately due and payable by Lessee to
Lessor together with interest thereon at the rate specified in Clause
5.11, from the date of expenditure by it up to the date of
reimbursement by Lessee; and
(b) at any time while such failure is continuing to require the Aircraft
to remain at any airport or to proceed to and remain at any airport
designated by it until the failure is remedied to its satisfaction.
9.6 CONTINUING INDEMNITY: Lessor may require Lessee to effect and to
maintain insurance after the Expiry Date with respect to its
liability under the indemnities in Clause 10 for such period as
Lessor may reasonably require (but in any event not more than 3
years) which provides for each Indemnitee to be named as additional
insured. Lessee's obligation in this Clause shall not be affected by
Lessee ceasing to be lessee of the Aircraft and/or any of the
Indemnitees ceasing to have any interest in respect of the Aircraft.
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9.7 APPLICATION OF INSURANCE PROCEEDS:
As between Lessor and Lessee:-
(a) all insurance payments received as the result of an Event of Loss
occurring during the Term will be paid to Lessor and Lessor will pay
the balance of those amounts to Lessee after deduction of all amounts
which may be or become payable by Lessee to Lessor under this
Agreement (including under Clause 11.1(b));
(b) all insurance proceeds of any property, damage or loss to the
Aircraft, any Engine or any Part occurring during the Term not
constituting an Event of Loss and in excess of the Damage
Notification Threshold will be paid to Lessor and applied in payment
(or to reimburse Lessee) for repairs or replacement property upon
Lessor being satisfied that the repairs or replacement have been
effected in accordance with this Agreement. Insurance proceeds in
amounts below the Damage Notification Threshold may be paid by the
insurer directly to Lessee. Any balance remaining may be retained by
Lessor;
(c) all insurance proceeds in respect of third party liability will,
except to the extent paid by the insurers to the relevant third
party, be paid to Lessor to be paid directly in satisfaction of the
relevant liability or to Lessee in reimbursement of any payment so
made;
(d) notwithstanding Clauses 9.7(a), (b) or (c), if at the time of the
payment of any such insurance proceeds a Default has occurred and is
continuing, all such proceeds will be paid to or retained by Lessor
to be applied toward payment of any amounts which may be or become
payable by Lessee in such order as Lessor sees fit or as Lessor may
elect.
10. INDEMNITY
10.1 GENERAL: Lessee agrees to assume liability for, defend, indemnify and
hold harmless the Indemnitees on an after tax basis from and against
any and all claims, proceedings, losses, liabilities, damages
(whether direct, indirect, special, incidental or consequential)
suits, judgments, costs, expenses (including, without limitation,
legal fees and expenses), penalties (whether civil or criminal) or
fines (each a "Claim") (regardless of when the same is made or
incurred, whether during or after the Term (but not before)):-
(a) which may at any time be suffered or incurred directly or
indirectly as a result of or in any manner connected with the
possession, delivery, performance, management, ownership,
registration, control, maintenance, condition, service,
repair, overhaul, leasing, use, operation or return of the
Aircraft, any Engine or Part (either in the air or on the
ground) whether or not the Claim may be attributable to any
defect in the Aircraft, any Engine or any Part or to its
design, testing or use or otherwise, and regardless of when
the same arises or whether it arises out of or is attributable
to any act or omission, negligent or otherwise, of any
Indemnitee;
(b) which arise out of any act or omission which invalidates or
which renders voidable any of the Insurances;
(c) which may at any time be suffered or incurred as a consequence
of any design, article or material in the Aircraft, any Engine
or any Part or its operation or use constituting an
infringement of patent, copyright, trademark, design or other
proprietary right or a breach of any obligation of
confidentiality owed to any person;
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(d) which results from Lessee's breach of any of its
representations or warranties or any other Event of Default
under this Agreement.
but excluding any Claim in relation to a particular Indemnitee to the
extent that such Claim is covered pursuant to another indemnity
provision of this Agreement or to the extent it arises solely as a
result of the wilful misconduct of such Indemnitee or Lessor as a
result of Lessor Taxes or a Lessor Lien.
10.2 DURATION: The indemnities contained in this Agreement will continue
in full force after the Expiry Date.
11. EVENTS OF LOSS
11.1 If an Event of Loss occurs after delivery of the Aircraft to Lessee,
Lessee will pay the Agreed Value to Lessor on or prior to the earlier
of (i) 5 Business Days after the Event of Loss and (ii) the date of
receipt of insurance proceeds in respect of that Event of Loss.
Subject to the rights of any insurers and reinsurers or other third
party, upon irrevocable payment in full to Lessor of that amount and
all other amounts which may be or become payable to Lessor under this
Agreement, Lessor will without recourse or warranty (except as to
Lessor's Liens) and without further act, be deemed to have
transferred to Lessee all of Lessor's rights to any Engines and Parts
not installed when the Event of Loss occurred, all on an as-is
where-is basis, and will at Lessee's expense, execute and deliver
such bills of sale and other documents and instruments as Lessee may
reasonably request to evidence (on the public record or otherwise)
the transfer and the vesting of Lessor's rights in such Engines and
Parts in Lessee, free and clear of all rights of Lessor and Lessor
Liens.
11.2 REQUISITION: During any requisition for use or hire of the Aircraft,
any Engine or Part which does not constitute an Event of Loss:-
(a) the Rent and other charges payable under this Agreement will not be
suspended or abated either in whole or in part, and Lessee will not
be released from any of its other obligations under the Agreement
(other than operational obligations with which Lessee is unable to
comply solely by virtue of the requisition);
(b) so long as no Default has occurred and is continuing, Lessee will be
entitled to any hire paid by the requisitioning authority in respect
of the Term. Lessee will, as soon as practicable after the end of
any such requisition, cause the Aircraft to be put into the condition
required by this Agreement. Lessor will be entitled to all
compensation payable by the requisitioning authority in respect of
any change in the structure, state or condition of the Aircraft
arising during the period of requisition, and Lessor will apply such
compensation in reimbursing Lessee for the cost of complying with its
obligations under this Agreement in respect of any such change, but
so that, if any Default has occurred and is continuing, Lessor may
apply the compensation or hire in or towards settlement of any
amounts owing by Lessee under this Agreement.
12. RETURN OF AIRCRAFT
12.1 RETURN: On the Expiry Date or termination of the leasing of the
Aircraft under this Agreement Lessee will unless an Event of Loss has
occurred, at its expense, redeliver the Aircraft and Aircraft
Documents to Lessor at the Redelivery Location or such other airport
as is mutually acceptable to the parties hereto, in a condition
complying with Schedule 3, free and clear of all Security Interests
and Permitted Liens (other than Lessor
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Liens) and in a condition qualifying for immediate certification of
airworthiness by the FAA or as otherwise agreed by Lessor and Lessee,
and thereupon cause the Aircraft to be deregistered by the Air
Authority.
12.2 FINAL INSPECTION: Immediately prior to redelivery of the Aircraft,
Lessee will make the Aircraft available to Lessor for inspection
("Final Inspection") in order to verify that the condition of the
Aircraft complies with this Agreement. The Final Inspection will be
long enough to permit Lessor to:-
(a) inspect the Aircraft Documents;
(b) inspect the Aircraft and uninstalled Parts;
(c) inspect the Engines, including without limitation (i) at Lessor's
expense, a borescope inspection of (A) the low pressure and high
pressure compressors and (B) turbine area and (ii) at Lessee's expense
engine condition runs; and
(d) observe a 2 hour demonstration flight (with Lessor's representatives
as on-board observers).
12.3 NON-COMPLIANCE: To the extent that, at the time of Final Inspection,
the condition of the Aircraft does not comply with this Agreement,
Lessee will at Lessor's option:-
(a) immediately rectify the non-compliance and to the extent the
non-compliance extends beyond the Expiry Date, the Term will be
automatically extended and this Agreement will remain in force until
the non-compliance has been rectified; or
(b) redeliver the Aircraft to Lessor and indemnify Lessor, and provide to
Lessor's satisfaction cash as security for that indemnity, against the
cost of putting the Aircraft into the condition required by this
Agreement.
12.4 REDELIVERY: Upon redelivery Lessee will provide to Lessor all
documents necessary to export the Aircraft from the Habitual Base
(including, without limitation, a valid and subsisting export licence
for the Aircraft) and required in relation to the deregistration of
the Aircraft with the Air Authority.
12.5 ACKNOWLEDGEMENT: Provided Lessee has complied with its obligations
under this Agreement, following redelivery of the Aircraft by Lessee
to Lessor at the Redelivery Location, Lessor will deliver to Lessee an
acknowledgement confirming that Lessee has redelivered the Aircraft to
Lessor in accordance with this Agreement.
12.6 MAINTENANCE PROGRAMME:
(a) Prior to the Expiry Date and upon Lessor's request, Lessee will
provide Lessor or its agent reasonable access to the Agreed
Maintenance Programme and the Aircraft Documents in order to
facilitate the Aircraft's integration into any subsequent operator's
fleet;
(b) Lessee will, if requested by Lessor to do so, upon return of the
Aircraft deliver to Lessor a certified true current and complete copy
of the Agreed Maintenance Programme together with a letter authorising
Lessor to use such copy for "bridging" purposes for the next lessee of
the Aircraft. Lessor agrees that it will not disclose the contents of
the Agreed
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Maintenance Programme to any person or entity except to the extent
necessary to monitor Lessee's compliance with this Agreement and/or to
bridge the maintenance programme for the Aircraft from the Agreed
Maintenance Programme to another programme after the Expiry Date.
12.7 FUEL: Upon redelivery of the Aircraft to Lessor, an adjustment will be
made in respect of fuel on board on the Previous Delivery Date and the
Expiry Date at the price then prevailing at the Redelivery Location.
12.8 AIRCRAFT STORAGE: During the period of 90 days after the Expiry Date,
Lessor shall have the right to require Lessee to maintain, store and
insure the Aircraft at a location having a facility capable of
performing required maintenance of the Aircraft (to be nominated by
Lessor). Any maintenance, storage or insurance cost actually incurred
in connection with the foregoing and which is in excess of the costs
payable by Lessee in meeting its obligations under this Agreement,
shall be payable by Lessor at Lessee's direct cost without "mark-up".
Prior to the Expiry Date, Lessor shall advise Lessee as to whether
Lessor requires Lessee to provide the services contemplated by this
Clause 12.8.
13. DEFAULT
13.1 EVENTS: Each of the following events or conditions will constitute an
Event of Default and a repudiation of this Agreement by Lessee
(whether any such event or condition is voluntary or involuntary or
occurs by operation of law or pursuant to or in compliance with any
judgment, decree or order of any court or any order, rule or
regulation of any Government Entity):-
(a) NON-PAYMENT: Lessee fails to make any payment of Rent under this
Agreement on the due date and such failure continues for 3 Business
Days; or
(b) INSURANCE: Lessee fails to comply with any provision of Clause 9 or
any insurance required to be maintained under this Agreement is
cancelled or terminated or notice of cancellation is given in respect
of any such insurance; or
(c) BREACH: Lessee fails to comply with any other provision of this
Agreement and, if such failure is in the reasonable opinion of Lessor
capable of remedy, the failure continues for 5 days after notice from
Lessor to Lessee; or
(d) REPRESENTATION: any representation or warranty made (or deemed to be
repeated) by Lessee in or pursuant to this Agreement or in any
document or certificate or statement is or proves to have been
incorrect in any material respect when made or deemed to be repeated;
or
(e) CROSS DEFAULT:
(i) any Financial Indebtedness of Lessee or any of its
Subsidiaries is not paid when due; or
(ii) any such Financial Indebtedness becomes due or capable of
being declared due prior to the date when it would otherwise
have become due; or
(iii) the security for any such Financial Indebtedness becomes
enforceable; or
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(iv) any event of default or termination event, howsoever
described, occurs under any Other Agreement or under any
lease, hire purchase, conditional sale or credit sale
agreement of Lessee or any of its Subsidiaries; or
(f) APPROVALS: any consent, authorisation, licence, certificate or
approval of or registration with or declaration to any Government
Entity in connection with this Agreement (including, without
limitation):-
(i) required by Lessee to authorise, or in connection with, the
execution, delivery, validity, enforceability or admissibility
in evidence of this Agreement or the performance by Lessee of
its obligations under this Agreement; or
(ii) the registration of the Aircraft (to the extent that the same is
within the control of Lessee); or
(iii) any airline licence or air transport licence including, without
limitation, authority to operate the Aircraft under Part 121 of
the Federal Aviation Regulations and a Certificate of
Convenience and Necessity issued under Section 401 of the
Federal Aviation Act;
is modified in a manner unacceptable to Lessor or is withheld, or is
revoked, suspended, cancelled, withdrawn, terminated or not renewed,
or otherwise ceases to be in full force; or
(g) BANKRUPTCY, ETC:
(i) Lessee or any Subsidiary consents to the appointment of a
custodian, receiver, trustee or liquidator of itself or all or
any material part of Lessee's property or Lessee's consolidated
property, or Lessee or any Subsidiary admits in writing its
inability to, or is unable to, or does not, pay its debts
generally as they come due, or makes a general assignment for
the benefit of creditors, or Lessee or any Subsidiary files a
voluntary petition in bankruptcy or a voluntary petition seeking
reorganisation in a proceeding under any bankruptcy or
insolvency laws (as now or hereafter in effect), or an answer
admitting the material allegations of a petition filed against
Lessee or any Subsidiary in any such proceeding, or Lessee or
any Subsidiary by voluntary petition, answer or consent seeks
relief under the provisions of any other bankruptcy, insolvency
or other similar law providing for the reorganisation or
winding-up of corporations, or provides for an agreement,
composition, extension or adjustment with its creditors, or any
corporate action (including, without limitation, any board of
directors or shareholder action) is taken by Lessee or any
Subsidiary in furtherance of any of the foregoing, whether or
not the same is fully effected or accomplished; or
(ii) an order, judgment or decree is entered by any court appointing,
without the consent of Lessee or any Subsidiary, a custodian,
receiver, trustee or liquidator of Lessee or any Subsidiary, or
of all or any material part of Lessee's property or Lessee's
consolidated property is sequestered, and any such order,
judgment or decree of appointment or sequestration remains in
effect, undismissed, unstayed or unvacated for a period of 30
days after the date of entry thereof or at any time an order for
relief is granted; or
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<PAGE> 45
(iii) an involuntary petition against Lessee or any Subsidiary in a
proceeding under the United States Federal Bankruptcy laws or
other insolvency laws (as now or hereafter in effect) is filed
and is not withdrawn or dismissed within 30 days thereafter or
at any time an order for relief is granted in such proceeding,
or if, under the provisions of any law providing for
reorganisation or winding-up of corporations which may apply to
Lessee or any Subsidiary, any court of competent jurisdiction
assumes jurisdiction over, or custody or control of, Lessee or
any Subsidiary or of all or any material part of Lessee's
property, or Lessee's consolidated property and such
jurisdiction, custody or control remains in effect,
unrelinquished, unstayed or unterminated for a period of 30 days
or at any time an order for relief is granted in such
proceeding; or
(h) UNLAWFUL: it becomes unlawful for Lessee to perform any of its
obligations under this Agreement or this Agreement becomes wholly or
partly invalid or unenforceable; or
(i) SUSPENSION OF BUSINESS: Lessee or any of its Subsidiaries suspends or
ceases or threatens to suspend or cease to carry on all or a
substantial part of its business as a Certificated Air Carrier; or
(j) DISPOSAL: Lessee or any of its Subsidiaries disposes, conveys or
transfers or threatens to dispose, convey or transfer of all or a
material part of its assets, liquidates or dissolves or consolidates
or merges with any other Person whether by one or a series of
transactions, related or not, other than for the purpose of a
reorganisation of the terms of which have received the previous
consent in writing of Lessor; or
(k) RIGHTS: the existence, validity, enforceability or priority of the
rights of Owner as owner, the rights of Sub Lessor as sub lessor and
the rights of Lessor as lessor in respect of the Aircraft are
challenged by Lessee or any other person claiming by or through
Lessee; or
(l) CHANGE OF OWNERSHIP: any single person, or group of persons acquire
control of Lessee without the previous consent in writing of Lessor;
or
(m) DELIVERY: Lessee fails to accept delivery of the Aircraft when validly
tendered pursuant to this Agreement by Lessor; or
(n) ADVERSE CHANGE: any event or series of events occurs which, in the
reasonable opinion of Lessor might have a material adverse effect on
the financial condition or operations of Lessee and its Subsidiaries
or on the ability of Lessee to comply with its obligations under this
Agreement.
13.2 RIGHTS: If an Event of Default occurs, Lessor may at its option (and
without prejudice to any of its other rights under this Agreement), at
any time thereafter (without notice to Lessee except as required under
applicable law):-
(a) accept such repudiation and by notice to Lessee and with immediate
effect terminate the letting of the Aircraft (but without prejudice
to the continuing obligations of Lessee under this Agreement),
whereupon all rights of Lessee under this Agreement shall cease;
and/or
(b) proceed by appropriate court action or actions to enforce performance
of this Agreement or to recover damages for the breach of this
Agreement; and/or
(c) either:-
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<PAGE> 46
(i) take possession of the Aircraft, for which purpose Lessor may
enter any premises belonging to or in the occupation of or
under the control of Lessee where the Aircraft may be located,
or cause the Aircraft to be redelivered to Lessor at Shannon
International Airport, Co. Clare, Ireland (or such other
location as Lessor may require), and Lessor is hereby
irrevocably by way of security for Lessee's obligations under
this Agreement appointed attorney for Lessee in causing the
redelivery or in directing the pilots of Lessee or other
pilots to fly the Aircraft to that airport and will have all
the powers and authorisations necessary for taking that
action; or
(ii) by serving notice require Lessee to redeliver the Aircraft to
Lessor at Shannon International Airport, Ireland (or such
other location as Lessor may require).
13.3 DEREGISTRATION: If an Event of Default occurs, Lessor may sell or
otherwise deal with the Aircraft free and clear of any leasehold or
other interest of Lessee as if this Agreement had never been made and
Lessee will at the request of Lessor take all steps necessary to
effect (if applicable) deregistration of the Aircraft and its export
from the country where the Aircraft is for the time being situated and
any other steps necessary to enable the Aircraft to be redelivered to
Lessor in accordance with this Agreement; Lessee hereby irrevocably
and by way of security for its obligations under this Agreement
appoints (which appointment is coupled with an interest) Lessor as its
attorney to execute and deliver any documentation and to do any act or
thing required in connection with the foregoing.
13.4 DEFAULT PAYMENTS: If:-
(a) a Default occurs; or
(b) the Aircraft is not delivered on the proposed Delivery Date by
reason of failure of Lessee to satisfy any conditions to that
delivery;
Lessee will indemnify Lessor on its own behalf and on behalf of Owner
and Sub Lessor on demand against any loss (including loss of profit),
damage, expense, cost or liability which Lessor, Sub Lessor or Owner
may sustain or incur directly or indirectly as a result including but
not limited to:-
(a) any loss of profit suffered by Lessor, Sub Lessor or Owner
because of Lessor's or Owner's inability to place the Aircraft
on lease with another lessee on terms as favourable to Lessor
as this Agreement or because whatever use, if any, to which
Lessor, Sub Lessor or Owner is able to put the Aircraft upon
its return to Lessor, or the funds arising upon a sale or
other disposal of the Aircraft, is not as profitable to
Lessor, Sub Lessor or Owner as this Agreement;
(b) any amount of principal, interest, fees or other sums
whatsoever paid or payable on account of funds borrowed in
order to carry any unpaid amount;
(c) any loss, premium, penalty or expense which may be incurred in
repaying funds raised to finance the Aircraft or in unwinding
any swap, forward interest rate agreement or other financial
instrument relating in whole or in part to Lessor's, Sub
Lessor's or Owner's financing of the Aircraft; and
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<PAGE> 47
(d) any loss, cost, expense or liability sustained or incurred by
Lessor owing to Lessee's failure to redeliver the Aircraft on
the date, at the place and in the condition required by this
Agreement.
14. ASSIGNMENT
14.1 LESSEE WILL NOT ASSIGN, TRANSFER (VOLUNTARILY OR INVOLUNTARILY BY
OPERATION OF LAW OR OTHERWISE) OR CREATE OR PERMIT TO EXIST ANY
SECURITY INTEREST OVER, ANY OF ITS RIGHTS UNDER THIS AGREEMENT.
14.2 Owner and/or Lessor may assign or transfer all or any of its rights
under this Agreement and in the Aircraft provided that Lessor will in
the case of an assignment other than by way of security have no
further obligation under this Agreement following the assignment of
all its rights under this Agreement but notwithstanding that
assignment will remain entitled to the benefit of each indemnity and
the liability insurances effected under this Agreement. Lessee will
comply with all reasonable requests of Owner and/or Lessor, their
successors and assigns in respect of any such assignment. Lessor will
promptly notify Lessee of any assignment.
14.3 If Lessor desires to effect any assignment or transfer of its rights
and obligations under this Agreement, Lessee agrees to cooperate and
take all such steps as Lessor may reasonably request to give the
transferee the benefit of this Agreement. Any reasonable expenses
incurred by Lessee directly as a result of any assignment contemplated
by Clause 14.2.
15. ILLEGALITY
If it is or becomes unlawful in any jurisdiction for Lessor to give
effect to any of its obligations as contemplated by this Agreement or
to continue this Agreement Lessor may by notice in writing to Lessee
terminate the leasing of the Aircraft under this Agreement and Lessee
will forthwith redeliver the Aircraft to Lessor in accordance with
Clause 12. Without prejudice to the foregoing Lessor will consult in
good faith with Lessee as to any steps which may be taken to
restructure the transaction to avoid that unlawfulness but will be
under no obligation to take any such steps.
16. MISCELLANEOUS
16.1 WAIVERS, REMEDIES CUMULATIVE: The rights of Lessor under this
Agreement:-
(i) may be exercised as often as necessary;
(ii) are cumulative and not exclusive of its rights under any law;
and
(iii) may be waived only in writing and specifically.
Delay in exercising or non-exercise of any such right will not
constitute a waiver of that right.
16.2 DELEGATION: Lessor may delegate to any person or persons all or any of
the trusts, powers or discretions, vested in it by these presents and
any such delegation may be made upon such terms and conditions and
subject to such regulations (including power to subdelegate) as Lessor
in its absolute discretion thinks fit.
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<PAGE> 48
16.3 CERTIFICATES: Save where expressly provided in this Agreement, any
certificate or determination by Lessor as to any rate of interest or
as to any other amount payable under this Agreement will, in the
absence of manifest error, be conclusive and binding on Lessee.
16.4 APPROPRIATION: If any sum paid or recovered in respect of the
liabilities of Lessee under this Agreement is less than the amount
then due, Lessor may apply that sum to amounts due under this
Agreement in such proportions and order and generally in such manner
as Lessor may determine at its sole discretion.
16.5 CURRENCY INDEMNITY:
(a) If Lessor receives an amount in respect of Lessee's liability under
this Agreement or if such liability is converted into a claim, proof,
judgment or order in a currency other than the currency (the
"contractual currency") in which the amount is expressed to be payable
under this Agreement:-
(i) Lessee will indemnify Lessor as an independent obligation
against any loss arising out of or as a result of such
conversion;
(ii) if the amount received by Lessor, when converted into the
contractual currency (at the market rate at which Lessor is
able on the date of receipt by Lessor (or on the next date
thereafter on which under normal banking practice Lessor is
able to convert the amount received into the contractual
currency) to purchase the contractual currency in London or at
its option New York with that other currency) is less than the
amount owed in the contractual currency, Lessee will,
forthwith on demand, pay to Lessor an amount in the
contractual currency equal to the deficit; and
(iii) Lessee will pay to Lessor on demand any exchange costs and
Taxes payable in connection with the conversion; and
(b) Lessee waives any right it may have in any jurisdiction to pay any
amount under this Agreement in a currency other than that in which it
is expressed to be payable.
16.6 SET-OFF: Lessor may set off any matured obligation owed by Lessee
under this Agreement or the Other Agreements (to the extent
beneficially owned by Lessor) against any obligation (whether or not
matured) owed by Lessor to Lessee, regardless of the place of payment
or currency. If the obligations are in different currencies, Lessor
may convert either obligation at the market rate of exchange available
in London or at its option New York for the purpose of the set-off.
If an obligation is unascertained or unliquidated, Lessor may in good
faith estimate that obligation and set off in respect of the estimate,
subject to the relevant party accounting to the other when the
obligation is ascertained or liquidated. Lessor will not be obliged
to pay any amounts to Lessee under this Agreement so long as any sums
which are then due from Lessee under this Agreement or the Other
Agreements remain unpaid and any such amounts which would otherwise be
due will fall due only if and when Lessee has paid all such sums
except to the extent Lessor otherwise agrees or sets off such amounts
against such payment pursuant to the foregoing.
16.7 SEVERABILITY: If a provision of this Agreement is or becomes illegal,
invalid or unenforceable in any jurisdiction, that will not affect:-
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<PAGE> 49
(a) the legality, validity or enforceability in that jurisdiction of any
other provision of this Agreement; or
(b) the legality, validity or enforceability in any other jurisdiction of
that or any other provision of this Agreement.
16.8 REMEDY: If Lessee fails to comply with any provision of this
Agreement, Lessor may, without being in any way obliged to do so or
responsible for so doing and without prejudice to the ability of
Lessor to treat the non-compliance as a Default or an Event of
Default, effect compliance on behalf of Lessee, whereupon Lessee shall
become liable to pay immediately any sums expended by Lessor together
with all costs and expenses (including legal costs) in connection
therewith.
16.9 EXPENSES: Whether or not the Aircraft is delivered to Lessee pursuant
to this Agreement, Lessee will pay to Lessor on demand:-
(a) all expenses (including legal, professional, and out-of-pocket
expenses) incurred or payable by Lessor in connection with the
negotiation, preparation, and execution of this Agreement and
all such expenses related to any amendment to or extension of
or other documentation in connection with, or the granting of
any waiver or consent under this Agreement or the monitoring
of compliance by Lessee with this Agreement; and
(b) all expenses (including legal, survey and other costs) payable
or incurred by Lessor in contemplation of, or otherwise in
connection with, the enforcement of or preservation of any of
Lessor's or Owner's rights under this Agreement, or in respect
of the repossession of the Aircraft.
All expenses payable pursuant to this Clause 16.9 will be paid in the
currency in which they are incurred by Lessor.
16.10 TIME OF ESSENCE: The time stipulated in this Agreement for all
payments payable by Lessee to Lessor and for the performance of
Lessee's other obligations under this Agreement will be of the essence
of this Agreement.
16.11 NOTICES: All notices under, or in connection with, this Agreement
will, unless otherwise stated, be given in writing by letter, telex,
facsimile or SITA. Any such notice is deemed effective to be given as
follows:-
(i) if by letter, when delivered;
(ii) if by telex, when despatched, but only if, at the time of
transmission, the correct answerback appears at the start and
at the end of the sender's copy of the notice; and
(iii) if by facsimile or SITA, when transmitted and full
transmission has been confirmed by a printout of the facsimile
transmittal confirmation of the transmitting party.
The address, telex numbers, SITA, facsimile and telephone numbers of
Lessee, Sub Lessor, Lessor and Owner are as follows:
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<PAGE> 50
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Lessee: Address: 1800
St. Julian Place
4th Floor
Columbia
South Carolina
29204
Attn: President
Telex: None
SITA: None
Facsimile: 803 771 9067
Telephone: 803 771 0038
Sub Lessor: Address: 1 Earlsfort Terrace
Hatch Street
Dublin 2
Ireland
Telex: None
SITA: None
Facsimile: 353 1 6613278
Telephone: 353 1 6613311
Lessor and Owner: Address: Birger Jarlsgatan 33
S-11145
Stockholm
Sweden
Telex: None
SITA: None
Facsimile: 46 8 611 34 34
Telephone: 46 8 611 58 79
with a copy to: Address: GE Capital Aviation
Services, Inc.
201 High Ridge Road
Stamford, Connecticut
06927-4900
Attn: Senior Vice President,
Portfolio Management
Facsimile: 212-357-4585 Telephone:
212-357-4279
</TABLE>
16.12 LAW AND JURISDICTION:
(a) THIS AGREEMENT IN ALL RESPECTS IS GOVERNED BY THE GOVERNING LAW;
(b) For the benefit of Lessor, Lessee agrees that the courts of the State
of New York are to have non exclusive jurisdiction to settle any
disputes in connection with this Agreement and submits itself and its
property to the nonexclusive jurisdiction of the courts of the State
of New York in connection with this Agreement;
(c) Without prejudice to any other mode of service, Lessee:-
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<PAGE> 51
(i) appoints CT Corporation System, New York as its agent for
service of process relating to any proceedings before the New
York courts in connection with this Agreement and agrees to
maintain the process agent in New York notified to Lessor;
(ii) agrees that failure by a process agent to notify Lessee of the
process shall not invalidate the proceedings concerned;
(iii) consents to the service of process relating to any such
proceedings by prepaid mailing of a copy of the process to
Lessee's agent at the address identified in paragraph (i);
(d) Lessee:-
(i) waives objection to the courts of the State of New York on
grounds of inconvenient forum or otherwise as regards
proceedings in connection with this Agreement;
(ii) agrees that a judgment or order of a court of the State of New
York in connection with this Agreement is conclusive and
binding on it and may be enforced against it in the courts of
any other jurisdiction;
(e) Nothing in this Clause limits the right of Lessor to bring proceedings
against Lessee in connection with this Agreement:-
(i) in any other court of competent jurisdiction; or
(ii) concurrently in more than one jurisdiction;
(f) Lessee irrevocably and unconditionally:-
(i) agrees that if Lessor brings legal proceedings against it or
its assets in relation to this Agreement no immunity from such
legal proceedings (which will be deemed to include without
limitation, suit, attachment prior to judgment, other
attachment, the obtaining of judgment, execution or other
enforcement) will be claimed by or on behalf of itself or with
respect to its assets;
(ii) waives any such right of immunity which it or its assets now
has or may in the future acquire;
(iii) consents generally in respect of any such proceedings to the
giving of any relief or the issue of any process in connection
with such proceedings including, without limitation, the
making, enforcement or execution against any property
whatsoever (irrespective of its use or intended use) of any
order or judgment which may be made or given in such
proceedings.
16.13 SOLE AND ENTIRE AGREEMENT: This Agreement, Letter Agreement No. 1 and
any related side-letters are the sole and entire agreement between
Lessor and Lessee in relation to the leasing of the Aircraft, and
supersede all previous agreements in relation to that leasing.
16.14 INDEMNITIES: All rights expressed to be granted to each Indemnitee
under this Agreement (other than Lessor) are given to Lessor on behalf
of that Indemnitee.
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<PAGE> 52
16.15 COUNTERPARTS: This Agreement may be executed in counterparts each of
which will constitute one and the same document.
16.16 LANGUAGE: All notices to be given under this Agreement will be in
English. All documents delivered to Lessor pursuant to this Agreement
will be in English, or if not in English, will be accompanied by a
certified English translation. If there is any inconsistency between
the English version of this Agreement and any version in any other
language, the English version will prevail.
16.17 NO BROKERS: Each party agrees to indemnify and hold the other harmless
from and against any and all claims, suits, damages, costs and
expenses (including, but not limited to, reasonable attorneys' fees)
asserted by any agent, broker or other third party for any commission
or compensation of any nature whatsoever based upon the lease of the
Aircraft, if such claim, suit, damage, cost or expense arises out of
any action or alleged action by the indemnifying party, its employees
or agents. Lessee hereby represents and warrants that it has not
paid, agreed to pay or caused to be paid directly or indirectly in any
form, any commission, percentage, contingent fee, brokerage or other
similar payments of any kind, in connection with the establishment or
operation of this Agreement, to any employee of Lessor or to any
person or entity in the State of Incorporation or elsewhere, except to
Excluded Persons, as defined below. For the purposes hereof, the term
"Excluded Persons" shall mean (x) in the case of Lessor, any of its
officers, directors, employees, attorneys or other professional
advisors, wherever located; and (y) in the case of Lessee, any of its
officers, directors, employees, attorneys or other professional
advisors, wherever located.
17. DISCLAIMERS AND WAIVERS
17.1 EXCLUSION: THE AIRCRAFT IS DELIVERED "AS IS, WHERE IS" AND LESSEE
AGREES AND ACKNOWLEDGES THAT, SAVE AS EXPRESSLY STATED IN THIS
AGREEMENT, LESSOR WILL HAVE NO LIABILITY IN RELATION TO, AND LESSOR
HAS NOT AND WILL NOT BE DEEMED TO HAVE MADE OR GIVEN, ANY WARRANTIES
OR REPRESENTATIONS, EXPRESS OR IMPLIED, WITH RESPECT TO, THE AIRCRAFT,
INCLUDING BUT NOT LIMITED TO:-
(a) THE DESCRIPTION, AIRWORTHINESS, MERCHANTABILITY, FITNESS FOR ANY
PARTICULAR USE OR PURPOSE, VALUE, CONDITION, OR DESIGN, OF THE
AIRCRAFT OR ANY PART; OR
(b) ANY OBLIGATION, LIABILITY, RIGHT, CLAIM OR REMEDY IN TORT, WHETHER OR
NOT ARISING FROM LESSOR'S NEGLIGENCE, ACTUAL OR IMPUTED; OR
(c) ANY OBLIGATION, LIABILITY, RIGHT, CLAIM OR REMEDY FOR LOSS OF OR
DAMAGE TO THE AIRCRAFT, FOR ANY LIABILITY OF LESSEE TO ANY THIRD
PARTY, OR FOR ANY OTHER DIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES.
17.2 WAIVER: LESSEE HEREBY WAIVES, AS BETWEEN ITSELF AND THE LESSOR, ALL
ITS RIGHTS IN RESPECT OF ANY WARRANTY OR REPRESENTATION, EXPRESS OR
IMPLIED, ON THE PART OF LESSOR AND ALL CLAIMS AGAINST LESSOR HOWSOEVER
AND WHENEVER ARISING AT ANY TIME IN RESPECT OF OR OUT OF THE OPERATION
OR PERFORMANCE OF THE AIRCRAFT OR THIS AGREEMENT EXCEPT TO THE EXTENT
ARISING UNDER CLAUSE 2.4.
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<PAGE> 53
17.3 CONFIRMATION: LESSEE CONFIRMS THAT IT IS FULLY AWARE OF THE PROVISIONS
OF THIS CLAUSE AND ACKNOWLEDGES THAT RENT AND OTHER AMOUNTS HAVE BEEN
CALCULATED BASED ON ITS PROVISIONS.
18. SECTION 1110
Lessee acknowledges that Lessor would not have entered into this
Agreement unless it had available to it the benefits of a lessor under
Section 1110 of Title 11 of the United States Code. Lessee
covenants and agrees with Lessor that to better ensure the
availability of such benefits, Lessee shall support any motion,
petition or application filed by Lessor with any bankruptcy court
having jurisdiction over Lessee, whereby Lessor seeks recovery of
possession of the Aircraft under said Section 1110 and shall not in
any way oppose such action by Lessor unless Lessee shall have complied
with the requirements of said Section 1110 to be fulfilled in order to
entitle Lessee to continued use and possession of the Aircraft
hereunder. In the event said Section 1110 is amended, or if it is
repealed and another statute is enacted in lieu thereof, Lessor and
Lessee agree to amend this Agreement and take such other action not
inconsistent with this Agreement as Lessor reasonably deems necessary
so as to afford to Lessor the rights and benefits as such amended or
substituted statute confers upon owners and lessors of aircraft
similarly situated to Lessor.
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<PAGE> 54
SCHEDULE 1
PART 1
DESCRIPTION OF AIRCRAFT
AIRCRAFT
MANUFACTURER: Boeing
MODEL: 737-2P6 Advanced
SERIAL NUMBER: 21612
ENGINES
ENGINE TYPE AND NO.: Pratt & Whitney JT8D-15 x 2
SERIAL NOS: As set out in the Certificate of Acceptance
On the Delivery Date, the Aircraft shall be in "as is, where is" condition.
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<PAGE> 55
PART 2
AIRCRAFT DOCUMENTS
A. CERTIFICATES
- FAA Certificate of Airworthiness
B. AIRCRAFT STATUS RECORDS
- Log Books
- Airframe Maintenance Status Report
- Supplemental Structural Inspection Document Status (if
applicable)
- Manufacturer's Service Bulletin Status Report
- Airworthiness Directive Compliance Report
(terminated and repetitive)
- Modification Status Report List
documents will be provided upon request)
- Last Weighing Report
- List of Life Limited Components with remaining hours/cycles
C. AIRCRAFT MAINTENANCE RECORDS (LAST HEAVY MAINTENANCE VISITS)
- Test Flight Reports
- X-ray pictures
- Last annual check and heaviest maintenance check Work Cards
D. AIRCRAFT HISTORY RECORDS
- Aircraft Maintenance History Cards
- Service Difficulty Report
- Accident or Incident Report (Major Structural Repair)
E. ENGINE RECORDS (FOR EACH ENGINE)
- Engine time and cycle records
- Last overhaul and repair documents (including FAA Forms 337)
- Airworthiness Directive Compliance Report
(terminated and repetitive)
- Manufacturer's Service Bulletin Status Report
- List of Time Controlled Components with remaining hours and
cycles
- Modification Status Report
- Engine Disc Sheets
- Engine Build Specifications
F. APU RECORDS
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<PAGE> 56
- Last Overhaul and Repair Documents
(including modification status)
- Airworthiness Directive Compliance Report
(terminated and repetitive)
- Manufacturer's Service Bulletin Status Report
- List of Time Controlled Components with remaining hours/cycles
- Modification Status Report
G. COMPONENT RECORDS
- Time Controlled Component Historical Records with
Installation and Serviceability
- Tags
H. MANUALS
- Airplane Flight Manual (Manufacturer Approved, FAA Approved)
- Flight Crew Operating Manual
- Weight and Balance Manual
- Wiring Diagram Manual (microfilm and hard copy if available)
- Illustrated Parts Catalog (microfilm)
- Aircraft Maintenance Manual (microfilm)
- Manufacturer's Engine Maintenance Manual and any approved
engineering changes, as applicable
I. MISCELLANEOUS TECHNICAL DOCUMENTS
- Maintenance Program Specifications
- Interior Configuration Drawings
- Original Delivery Documents
- Loose Equipment Inventory
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<PAGE> 57
SCHEDULE 2
CERTIFICATE OF ACCEPTANCE
This Certificate of Acceptance is delivered, on the date set out below
by Air South Airlines, Inc. ("Lessee"), to Polaris Aircraft Leasing
K.B. ("Lessor"), pursuant to the Aircraft Lease Agreement dated April
29, 1996 between Lessor and Lessee (the "Agreement"). The capitalised
terms used in this Certificate shall have the meaning given to such
terms in the Agreement.
1. DETAILS OF ACCEPTANCE
Lessee hereby confirms to Lessor that Lessee has at on this 29th day
of April, 1996, at Columbia, South Carolina, accepted the Aircraft
constructively described below in "where is, as is" condition:-
(a) Boeing 737-2P6 Advanced airframe, Manufacturer's Serial No. 21612;
(b) 2 Pratt & Whitney JT8D-15 Engines:-
Engine Number Manufacturer's Serial No.
1 ; and
2 ;
(Each of which shall have more than 750 rated takeoff horsepower or
the equivalent of such horsepower).
(c) Fuel Status: (N/A - see Previous Delivery Date Certificate of
Acceptance) and
(d) Loose Equipment Check List: as per list signed by Lessor and Lessee on
the Previous Delivery Date.
2. CONFIRMATION
Lessee confirms to Lessor that as at the time indicated above, being
the Delivery Date:-
(a) the representations and warranties contained in Clause 2 are hereby
repeated;
(b) the Aircraft is insured as required by the Agreement;
(c) Lessee confirms that there have been affixed to the Aircraft and the
Engines the fireproof notices required by the Agreement; and
(d) Lessee's authorised technical experts have inspected the Aircraft to
ensure the Aircraft conforms to Lessee's requirements. The Aircraft
is in accordance with the specifications of the Agreement and
satisfactory in all respects.
IN WITNESS WHEREOF, Lessee has, by its duly authorised representative,
executed this Certificate as of April 29, 1966.
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<PAGE> 58
LESSEE: Air South Airlines, Inc.
By:
----------------------------
Title:
----------------------------
58
<PAGE> 59
SCHEDULE 3
OPERATING CONDITION AT REDELIVERY
On the Expiry Date the Aircraft, subject to fair wear and tear
generally, will be in the condition set out below:-
1. GENERAL CONDITION
The Aircraft will:-
(a) be clean by airline standards;
(b) have installed the full complement of engines and other equipment,
parts and accessories and loose equipment as is normally installed in
the Aircraft, and be in a condition suitable for immediate operation
in commercial service;
(c) have in existence a valid certificate of airworthiness (or if required
by Lessor, a valid export certificate of airworthiness) with respect
to the Aircraft issued by the Air Authority. The Aircraft will also
be eligible for an FAA Certificate of Airworthiness, shall meet all
requirements for U.S. domestic operations under FAR Part 121 and will
meet the requirements of FAR Part 36, appendix C, Stage 2 noise
compliance without waiver or restriction. There will be no deferred,
open or carryover items on the Aircraft or any Engine on the Expiry
Date;
(d) comply with the manufacturer's original specifications;
(e) have undergone, immediately prior to redelivery, a C check (including
all phases and multiples thereof) so that all Airframe inspections
falling due within the next following C Check interval in accordance
with the Agreed Maintenance Programme, have been accomplished. The
time since the heaviest maintenance inspection (complete block
overhaul/D Check) will not be more than when the Aircraft was
delivered by Lessor to Lessee under the Previous Lease.
Notwithstanding the foregoing, Lessee may redeliver the Aircraft to
Lessor with fewer Flight Hours remaining until the next D Check
(complete block overhaul) than as at the Previous Delivery Date as a
percentage of the allowed interval between such overhauls if (x)
at least 7,500 Flight Hours remain since the last D Check (complete
block check) (determined in accordance with the Agreed Maintenance
Programme); and (y) Lessee pays to Lessor on the Expiry Date the
product of (xx) the difference (if greater than zero) between the
number of Flight Hours so remaining on the Expiry Date and the number
of Flight Hours that were so remaining on the Previous Delivery Date;
and (yy) the then current rate of Airframe Supplemental Rent;
(f) have had accomplished all outstanding airworthiness directives and
mandatory orders affecting that model of Aircraft issued by the FAA
which, if the Aircraft were registered with the FAA, would have to be
complied with during the Term and within 180 days after the Expiry
Date;
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(g) have installed all applicable vendor's and manufacturer's service
bulletin kits received free of charge by Lessee that are appropriate
for the Aircraft and to the extent not installed, those kits will be
furnished free of charge to Lessor;
(h) be sanded and freshly painted and in such external livery as advised
by Lessor; and
(i) have all signs and decals clean, secure and legible.
2. COMPONENTS
(a) time since overhaul on all time controlled (other than the APU, the
Engines and the Landing Gear) shall be not less than as on the
Previous Delivery Date.
(b) Each "on-condition" and "condition monitored" component will be
serviceable;
(c) The APU will be in the same operational condition as at the Previous
Delivery Date having no more than 1,500 Flight Hours used since the
last APU hot section inspection with temperatures and air outputs
within the APU manufacturer's limits at all operational settings; and
3. ENGINES
Each Engine will be installed on the Aircraft and if not the engines
installed on the Previous Delivery Date will be accompanied by all
documentation Lessor may require to evidence that title thereto is
properly vested in Owner and:-
(a) each life limited part within each Engine will have at least the same
life remaining as when delivered by Lessor to Lessee under the
Previous Lease;
(b) each Engine will have no more time since last hot section
refurbishment and no more time since the last Cold Section
Refurbishment than as when delivered by Lessor to Lessee under the
Previous Lease;
(c) each Engine will have had a complete hot (including combustion
chamber) and cold section video boroscope inspection, at Lessor's
expense, and a power assurance run in accordance with the Engine
manufacturer's maintenance manual and all items beyond such
manufacturer's limits will be repaired at Lessee's expense. No Engine
will be "on watch" for any reason requiring any special or out of
sequence inspection.
Notwithstanding Paragraph 3 (a) above, Lessee may redeliver an Engine
to Lessor with less life so remaining if (x) at least 3,000 Flight
Hours and Cycles remain until the next scheduled life limited Parts
replacement (determined in accordance with the Agreed Maintenance
Programme); and (y) Lessee pays to Lessor on the Expiry Date the
product of (xx) the difference (if greater than zero) between the
average number of Flight Hours and Cycles so remaining on the Expiry
Date and the average number of Flight Hours and Cycles that were so
remaining on the Previous Delivery Date; and (yy) the then current
rate of Engine Life Limited Parts Supplemental Rent.
Notwithstanding Paragraph 3 (b) above, Lessee may redeliver an Engine
to Lessor with fewer Flight Hours remaining until the next Hot Section
Refurbishment or Cold Section Refurbishment, as applicable than as at
the Previous Delivery Date if (x) at least 3,000 Flight Hours and
Cycles remain until the next Hot Section Refurbishment or Cold Section
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Refurbishment, as applicable (determined in accordance with the Agreed
Maintenance Programme); and (y) Lessee pays to Lessor on the Expiry
Date the product of (xx) the difference (if greater than zero) between
the number of Flight Hours and Cycles so remaining on the Expiry Date
and the number of Flight Hours that were so remaining on the Previous
Delivery Date; and (yy) the then current rate of Engine Refurbishment
Supplemental Rent.
[Notwithstanding Paragraph 3 (b) above, Lessee may redeliver an Engine
to Lessor with fewer Flight Hours remaining until the next Cold
Section Refurbishment than as at the Previous Delivery Date if (x) at
least 6,000 Flight Hours and Cycles remain until the next Cold Section
Refurbishment (determined in accordance with the Agreed Maintenance
Programme); and (y) Lessee pays to Lessor on the Expiry Date the
product of (xx) the difference (if greater than zero) between the
number of Flight Hours and Cycles so remaining on the Expiry Date and
the number of Flight Hours that were so remaining on the Previous
Delivery Date; and (yy) the then current rate of Engine Cold Section
Refurbishment Supplemental Rent.]
4. FUSELAGE, WINDOWS AND DOORS
(a) The fuselage will be free of major dents and abrasions and loose or
pulled or missing rivets;
(b) Doors will be free moving, correctly rigged and be fitted with
serviceable seals.
5. WINGS AND EMPENNAGE
(a) Leading edges will be free from damage;
(b) Wings will be free of fuel leaks.
6. INTERIOR
(a) Ceilings, sidewalls and bulkhead panels will be clean and free of
cracks and stains.
(b) Carpets and seat covers will be in good condition, clean and free of
stains and meet FAR burn certification regulations;
(c) Seats will be serviceable, in good condition and repainted as
necessary; and
(d) Emergency equipment having a calendar life will have a minimum of 1
year or 100% of its total approved life, whichever is less, remaining.
7. COCKPIT
(a) Trim panels shall be free of stains and cracks, will be clean secure
and repainted as necessary;
(b) Seat covers will be in good condition, clean and free of stains and
will conform to FAR burn certification regulations; and
8. CARGO COMPARTMENTS
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(a) Panels will be in good condition; and
(b) Nets will be in good condition.
9. LANDING GEAR
Time since overhaul on the Landing Gear will not be greater than as at
the Previous Delivery Date. Each life limited part within the landing
gear will have at least the same time remaining as at the Previous
Delivery Date. The Landing Gear and wheel wells will be clean, free
of leaks and repaired as necessary.
Notwithstanding the foregoing, Lessee may redeliver the Landing Gear
to Lessor with fewer Flight Hours remaining until the next overhaul
than as at the Previous Delivery Date as a percentage of the allowable
interval between such overhauls if (x) at least 6,000 Flight Hours
remain since the last overhaul (determined in accordance with the
Agreed Maintenance Programme); and (y) Lessee pays to Lessor on the
Expiry Date the product of (xx) the difference (if greater than zero)
between the number of Flight Hours so remaining on the Expiry Date and
the number of Flight Hours that were so remaining on the Previous
Delivery Date; and (yy) the then current rate of Landing Gear
Supplemental Rent.
10. CORROSION
(a) The Aircraft will have been inspected and treated with respect to
corrosion as defined in the Agreed Maintenance Programme and/or Boeing
Document No.D6-38528 relative to compliance with the Corrosion
Prevention and Control Program (CPCP). The entire fuselage will be
substantially free from corrosion and will be adequately treated and
an approved corrosion prevention programme will be in operation; and
(b) Fuel tanks will be free from contamination and corrosion and a tank
treatment programme will be in operation.
Notwithstanding anything contained in this Schedule 3, Lessor shall not be
required to make any payments to Lessee in the event that any or all of the
Airframe, the Engines, the Landing Gear, any time, cycle or calendar controlled
component is returned to Lessor in a condition better than that specified in
Clause 12 and this Schedule 3.
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SCHEDULE 4
INSURANCE REQUIREMENTS
The Insurances required to be maintained are as follows:-
(a) HULL ALL RISKS of Loss or Damage whilst flying and on the ground with
respect to the Aircraft on an "agreed value basis" for the Agreed
Value and with a deductible not exceeding $350,000, or such other
amount agreed by Lessor from time to time. Without prejudice to the
foregoing, (x) with the prior written consent of Lessor, Lessee may
increase the aforesaid deductible amount to $500,000 if, prior to
doing so, Lessee shall have paid to Lessor the sum of $150,000 by way
of an insurance security deposit (the "Insurance Security Deposit")
(which Insurance Deposit shall also be available to be applied to
deductible losses between $350,000 and $500,000 in relation to
B737-2P6 Aircraft Serial Number 21356 leased to Lessee pursuant to an
Other Agreement); and (y) provided no Default shall have occurred and,
in Lessor's reasonable opinion, Lessee remains in good financial
standing, following the expiration of Rental Period 12, Lessor,
without being under any obligation, will consider a request from
Lessee to increase the aforementioned deductible amount to $500,000
without the requirement for Lessee to pay an Insurance Security
Deposit. The Insurance Security Deposit, which shall be held by
Lessor as security for the performance by Lessee of its obligations
under this Agreement (and under the Other Agreement), shall be
returned to Lessee on the Expiry Date if all amounts payable by Lessee
under this Agreement and any Other Agreement shall have been paid in
full and no Default shall have occurred and be continuing. With
Lessor's prior consent, the Insurance Deposit may be provided by
Lessee by way of Letter of Credit issued by a bank acceptable to
Lessor and in form and in substance acceptable to Lessor.
(b) HULL WAR AND ALLIED PERILS, being such risks excluded from the Hull
All Risks Policy to the fullest extent available from the leading
international insurance markets including confiscation and requisition
by the State of Registration for the Agreed Value;
(c) ALL RISKS (INCLUDING WAR AND ALLIED RISK except when on the ground or
in transit other than by air) property insurance on all Engines and
Parts when not installed on the Aircraft on an "agreed value" basis
for their full replacement value and including engine test and running
risks;
(d) AIRCRAFT THIRD PARTY, PROPERTY DAMAGE, PASSENGER, BAGGAGE, CARGO AND
MAIL AND AIRLINE GENERAL THIRD PARTY (INCLUDING PRODUCTS) LEGAL
LIABILITY for a Combined Single Limit (Bodily Injury/Property Damage)
of an amount not less than the Minimum Liability Coverage for the time
being any one occurrence (but in respect of products and personal
injury liability this limit may be an aggregate limit for any and all
losses occurring during the currency of the policy). War and Allied
Risks are also to be covered under the Policy to the fullest extent
available from the leading international insurance markets;
(e) All required hull and spares insurance (as specified above), so far as
it relates to the Aircraft will: -
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(i) name Owner, Sub Lessor, Lessor and their respective successors
and assigns as additional assureds for their respective rights
and interests, warranted, each as to itself only, no
operational interest;
(ii) provide that any loss will be settled jointly with Lessor and
Lessee, subject to final prior approval of Owner and will be
payable in Dollars to Owner, for the account of all interests
except where the loss does not exceed the Damage Notification
Threshold, and neither Lessor nor Owner has notified the
insurers to the contrary, in which case the loss will be
settled with and paid to Lessee;
(iii) include a notice and/or acknowledgement of assignment in a
form acceptable to Lessor;
(iv) if separate Hull "all risks" and "war risks" insurances are
arranged, include a 50/50 provision in accordance with market
practice (AVS. 103 is the current market language);
(v) confirm that the insurers are not entitled to replace the
Aircraft in the event of an insured Event of Loss;
(vi) confirm that the insurers will not obtain a valid discharge of
the obligations under the Insurances by payment to the broker,
notwithstanding market practice to the contrary;
(f) All required liability insurances (specified above) will:-
(i) include Owner, Sub Lessor, Lessor and their respective
successors and assigns and their respective shareholders,
subsidiaries, directors, officers, agents, employees and
indemnitees as additional insureds for their respective rights
and interests, warranted, each as to itself only, no
operational interest;
(ii) include a Severability of Interest Clause which provides that
the insurance, except for the limit of liability, will operate
to give each assured the same protection as if there was a
separate policy issued to each assured;
(iii) contain a provision confirming that the policy is primary
without right of contribution and the liability of the
insurers will not be affected by any other insurance of which
Owner, Sub Lessor, Lessor or Lessee have the benefit so as to
reduce the amount payable to the additional insureds under
such policies;
(g) All Insurances will:-
(i) be in accordance with normal industry practice of persons
operating similar aircraft in similar circumstances;
(ii) provide cover denominated in Dollars and any other currencies
which Lessor may reasonably require in relation to liability
insurance;
(iii) operate on a worldwide basis subject to such limitations and
exclusions as Lessor may agree;
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(iv) acknowledge the insurer is aware (and has seen a copy) of this
Agreement and that the Aircraft is owned by Owner and is
subject to the Head Lease and the Sub Lease;
(v) provide that, in relation to the interests of each of the
additional assureds the Insurances will not be invalidated by
any act or omission by Lessee, or any other person other than
the respective additional assured seeking protection and shall
insure the interests of each of the additional assureds
regardless of any breach or violation by Lessee, or any other
person other than the respective additional assured seeking
protection of any warranty, declaration or condition,
contained in such Insurances;
(vi) provide that the insurers will hold harmless and waive any
rights of recourse and/or subrogation against the additional
assureds or to be subrogated to any rights of the Banks
against Lessor, Sub Lessor, Owner or Lessee;
(vii) provide that the additional assureds will have no obligation
or responsibility for the payment of any premiums due (but
reserve the right to pay the same should any of them elect so
to do) and that the insurers will not exercise any right of
set-off or counter-claim in respect of any premium due against
the respective interests of the additional assureds other than
outstanding premiums relating to the Aircraft, any Engine or
Part the subject of the relevant claim;
(viii) provide that the Insurances will continue unaltered for the
benefit of the additional assureds for at least 30 days after
written notice by registered mail or telex of any
cancellation, change, event of non-payment of premium or
instalment thereof has been sent to Lessor, Sub Lessor and
Owner, except in the case of war risks for which 7 days (or
such lesser period as is or may be customarily available in
respect of war risks or allied perils) will be given, or in
the case of war between the 5 great powers or nuclear peril
for which termination is automatic;
(ix) if reinsurance is a requirement of this Agreement such
reinsurance will (i) be on the same terms as the original
insurances and will include the provisions of this Schedule,
(h) provide that notwithstanding any bankruptcy, insolvency,
liquidation, dissolution or similar proceedings of or
affecting the reinsured that the reinsurers' liability will be
to make such payments as would have fallen due under the
relevant policy of reinsurance if the reinsured had
(immediately before such bankruptcy, insolvency, liquidation,
dissolution or similar proceedings) discharged its obligations
in full under the original insurance policies in respect of
which the then relevant policy of reinsurance has been
effected; and (iii) contain a "cut-through" clause in the
following form (or otherwise, satisfactory to Lessor): "The
Reinsurers and the Reinsured hereby mutually agree that in the
event of any claim arising under the reinsurances in respect
of a total loss or other claim where as provided by the
Aircraft Lease Agreement dated [ ] 1994 and made between
Polaris Aircraft Leasing K.B. and Air South, Inc. such claim
is to be paid to the person named as sole loss payee under the
primary insurances, the Reinsurers will in lieu of payment to
the Reinsured, its successors in interest and assigns pay to
the person named as sole loss payee under the primary
insurances effected by the Reinsured that portion of any loss
due for which the Reinsurers would otherwise be liable to
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pay the Reinsured (subject to proof of loss), it being
understood and agreed that any such payment by the Reinsurers
will (to the extent of such payment) fully discharge and
release the Reinsurers from any and all further liability in
connection therewith"; subject to such provisions not
contravening any law of the State of Incorporation;
(x) contain a provision entitling Lessor, Owner, Sub Lessor or any
insured party to initiate a claim under any policy in the
event of the refusal or failure of Lessee to do so; and
(xi) accept and insure the indemnity provisions of the Head Lease
and the Sub Lease and of this Agreement to the extent of the
risks covered by the policies.
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SCHEDULE 5
FORM OF LEGAL OPINION
To: [Owner] [Sub Lessor] [Lessor]
[Date]
Dear Sirs
1. You have asked us to render an opinion in connection with the
transaction governed, inter alia, by the under mentioned documents.
Words and expressions used herein will bear the same meanings as
defined in an Aircraft Lease Agreement (the "Lease") dated 1994
between Polaris Aircraft Leasing K.B. ("Lessor") and Air South,
Inc. ("Lessee") in respect of one Boeing 737-2P6 Advanced aircraft
with manufacturer's serial number 21612 together with the 2
installed Pratt & Whitney JT8D-15 engines (the "Aircraft").
1.1. the Lease;
1.2. the Memorandum and Articles of Association of Lessee;
1.3. all other documents, approvals and consents of whatever nature and
wherever kept which it was, in our judgment and to our knowledge,
necessary or appropriate to examine to enable us to give the
opinion expressed below.
2. Having considered the documents listed in paragraph 1 above, and
having regard to the relevant laws of [] we are pleased to advise
that in our opinion:-
(a) Lessee is a corporation duly organised and validly existing under
the laws of [], is qualified to do business as a foreign
corporation in each jurisdiction where failure to so qualify would
have a materially adverse effect on Lessee's business or its
ability to perform its obligations under the lease is subject to
suit in its own name, and, to the best of our knowledge, no steps
have been, or are being, taken to appoint a receiver, liquidator,
trustee or similar officer over, or to wind up, Lessee;
(b) Lessee has the corporate power to enter into and perform, and has
taken all necessary corporate action to authorise the entry into,
performance and delivery of, the Lease and the transactions
contemplated by the Lease;
(c) the entry into and performance by Lessee of, and the transactions
contemplated by, the Lease do not and will not:-
(i) conflict with any laws binding on Lessee; or
(ii) conflict with the Certificate of Incorporation of By Laws
of Lessee; or
(iii) conflict with or result in default under any indenture,
mortgage, chattel mortgage, deed of trust, conditional
sales contract, lease, bank loan or credit agreement or
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other agreement which is binding upon Lessee or any of its
assets or result in the creation of any Security Interest
over any of its assets.
(d) no authorisations, consents, licences, approvals and registrations
(other than those which have been obtained and of which copies are
attached hereto) are necessary or desirable to be obtained from any
governmental or other regulatory authorities in having jurisdiction
over Lessee or its properties to enable Lessee:-
(1) to enter into and perform the transactions contemplated by
the Lease;
(2) to import the Aircraft into the United States and [ ] for
the duration of the Term;
(3) to operate the Aircraft in the United States for the
transport of fare-paying passengers; or
(4) to make the payments provided for in the Lease;
(e) except for the filing and recordation of the Lease with the FAA and
the filing of the Financial Statements with [] (which filing has
been duly made on or before this date) it is not necessary or
desirable, to ensure the priority, validity and enforceability of
all the obligations of Lessee under the Lease that the Lease be
filed, registered, recorded or notarised in any public office or
elsewhere or that any other instrument relating thereto be signed,
delivered, filed, registered or recorded, that any tax or duty be
paid or that any other action whatsoever be taken;
(f) no steps are necessary or desirable to record or perfect either
Lessor's, Sub Lessor's or Owner's interest in the Aircraft in the
United States or [];
(g) on termination of the Lease (whether on expiry or otherwise) as
contemplated in the Lease, Lessor would be entitled:-
(1) to repossess the Aircraft;
(2) to export the Aircraft from the United States and [];
without requiring any further consents, approvals or
licences from any governmental or regulatory authority in
the United States or [];
(h) the Lease has been properly signed and delivered on behalf of
Lessee and the obligations on the part of Lessee contained therein,
assuming them to be valid and binding according to the Governing
Law, are valid and legally binding on and enforceable against
Lessee respectively under the laws of [];
(i) the events described in Clause 13.1(g), (h) and (i) of the Lease
comprise an accurate and complete statement of all events and
situations provided for by the laws of [] which may lead to the
cessation of activities, winding up or dissolution of Lessee;
(j) Lessee is a Certificated Air Carrier;
(k) Lessee is a "citizen of the United States" as defined in Section
101(16) of the Federal Aviation Act;
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(l) Lessor is entitled to the benefits of Section 1110 of Title 11 of
the United States Code;
(m) Lessee's chief executive office (as defined in the Uniform
Commercial in effect in []) is located at [].
(n) the obligations of Lessee under the Lease rank at least pari passu
with all other present and future unsecured and unsubordinated
(including contingent obligations) of Lessee;
(o) there is no withholding tax or other Tax to be deducted from any
payment whatsoever which may be made by Lessee pursuant to the
Lease; with respect to any withholdings, the provisions of Clauses
5.6, 5.7 and 5.10 of the Lease are fully effective; and the
arrangements contemplated by the Lease do not give rise to any
charge whatsoever to Taxes in [];
(p) there is no applicable usury or interest limitation law in [] which
may restrict the recovery of payments in accordance with the Lease;
(q) there are no registration, stamp or other taxes or duties of any
kind payable in [] in connection with the signature, performance or
enforcement by legal proceedings of the Lease;
(r) Lessor will not violate any law or regulation in [] nor become
liable to tax in [] by reason of entering into the Lease with
Lessee, or performing its obligations thereunder;
(s) it is not necessary to establish a place of business in [] in order
to enforce any provisions of the Lease;
(t) the choice of the Governing Law to govern the Lease will be upheld
as a valid choice of law in any action in the Courts of [];
(u) the consent to the jurisdiction by Lessee contained in the Lease is
valid and binding on Lessee and not subject to revocation;
(v) any judgement for a definite sum given by the courts of [ ]
against Lessee would be recognised and accepted by the courts of []
without re-trial or examination of the merits of the case;
(w) (i) Lessee is subject to civil commercial law with respect to
its obligations under the Lease; and
(ii) neither Lessee nor any of its assets is entitled to any
right of immunity and the entry into and performance of the
Lease by Lessee constitute private and commercial acts;
(x) there are no laws or other rules in [] (including, without
limitation, Emergency Powers laws) pursuant to which Lessee may be
deprived of the Aircraft by any Government Entity or any other
person, other than Lessor or any assignee of Lessor.
Yours faithfully,
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LETTER AGREEMENT NO. 1
April 29, 1996
Air South Airlines, Inc.
1800 St. Julian Place
Columbia, South Carolina 29204
Attention: Mr. Clif E. Haley
Re: Aircraft Lease Agreement, dated as of April 29, 1996, relating to one
Boeing 737-2P6 aircraft bearing MSN 21612 and Irish Registration Number EI-CKK.
Dear Sirs:
Reference is made to the Aircraft Lease Agreement, dated this date (THE "LEASE
AGREEMENT"), between Polaris Aircraft Leasing K.B., a limited partnership
formed under the laws of Sweden ("LESSOR") and Air South Airlines, Inc., an
Illinois corporation (THE "LESSEE"), for the lease of one used Boeing 737-2P6
aircraft bearing MSN 21612 and Irish Registration Number EI-CKK (THE
"AIRCRAFT") and the Letter Agreement, dated March 29, 1996, as amended by the
Letter Agreements, dated April 11 and April 26, 1996 between Lessee and GECAS
(AS AMENDED, THE "MARCH LETTER AGREEMENT"), between the Lessee, GE Capital
Aviation Services, Inc. ("GECAS"), Polaris Holding Company ("PHC" AND
COLLECTIVELY WITH THE LESSOR, THE "LESSORS") and the Lessor. Capitalized terms
used herein and not otherwise defined shall have the meanings ascribed to such
terms in the Lease Agreement or the March Letter Agreement, as applicable.
Each party hereto hereby agrees that such party shall preserve the
confidentiality of, and shall not disclose, the information set forth in this
Letter Agreement No. 1 (THIS "LETTER AGREEMENT") to any other Person without
obtaining the prior written consent of the other party except to the extent
required by applicable law; provided that Lessor shall not be required to seek
such consent of Lessee following an Event of Default which has not been cured.
Lessor and Lessee have agreed that certain provisions referred to in the Lease
Agreement, and certain other terms, shall be set forth in this Letter
Agreement. If the Lease Agreement and this Letter Agreement shall differ as to
any term or condition, this Letter Agreement shall prevail, notwithstanding
anything to the contrary contained in the Lease Agreement. In that connection
and in order to preserve the confidentiality of certain of the business terms
of the Lease Agreement, Lessor and Lessee hereby agree as to (A) certain
provisions regarding Basic Rent, a Restructuring Fee and certain arrearages
of Rent; (B) certain provisions relating to Supplemental Rent; (C) certain
provisions regarding Events of Default; (D) certain provisions relating to the
Aircraft Commitment Fee; (E) certain provisions relating to the application of
supplemental rent under the Other Agreements; (F) certain provisions relating
to the payment of legal fees of Lessors; (G) further assurances; (H) governing
law; and (I) counterparts.
A. RENT.
(i) BASIC RENT AND RENT ARREARAGE. Lessee shall pay to Lessor Basic Rent
in respect of each Rental Period pursuant to Clause 5.3 of the Lease Agreement
in an amount equal to $100,000. Lessee may accrue arrearages of Basic Rent
during the Term from the date hereof to a date on or before September 27, 1996
(THE "RENT ARREARAGE"); provided, however, that the Rent Arrearage shall not
exceed $12,500 per month and, in the aggregate for the lease of all Aircraft by
Lessee from the Lessors, such aggregate Rent Arrearage shall not exceed a total
of $350,417,00. Any Rent Arrearage accrued by Lessee shall be subject to a fixed
rate of interest of 10.44% which interest shall be calculated from the date
Basic Rent shall be otherwise due and payable to the date of payment of the
Rent Arrearage. The full amount of Rent Arrearage and any
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interest due thereon shall be paid in full on or before the earlier to occur of
(x) the date of the IPO or PPO as referenced below or (y) September 30, 1996.
(ii) PAYMENT OF BASIC RENT. From the date hereof to September 27, 1996
Lessee shall pay Basic Rent and Supplemental Rent in the aggregate for all five
(5) Aircraft on the dates and in the amounts as are set forth in Table IV of
Schedule C attached hereto. A pro-rata portion of each payment of Rent, based
upon the amount of Basic Rent otherwise due and payable, shall be allocated to
each Aircraft. On the Rent Payment Date next succeeding September 30, 1996,
Basic Rent for the Aircraft shall be due and payable in monthly increments in
advance for the remainder of the Term on the Rent Payment Dates as set forth in
Clause 5.3 of the Lease Agreement.
(iii) RESTRUCTURING FEE AND ADJUSTMENT OF RENT. In consideration of the
restructuring of the Other Agreements and the lease of the Aircraft pursuant to
the Lease Agreements (as such term is defined in Schedule A attached hereto),
the Lessee shall pay to GECAS, on behalf of the Lessors, a restructuring fee
(THE "RESTRUCTURING FEE") on the terms and conditions as set forth herein. If
the Lessee completes an initial public offering ("IPO") of common stock of
Lessee, par value $.001 per share (THE "COMMON STOCK"), or a private placement
(A "PPO") of Common Stock, then, upon the occurrence of such IPO or PPO, Lessee
shall pay GECAS, on behalf of the Lessors, a Restructuring Fee in an amount as
set forth in Schedule A attached hereto. The Restructuring Fee shall be
reduced by the difference between (1) aggregate Basic Rent actually paid by
the Lessee to the Lessors, pursuant to all Lease Agreements (and excluding any
Rent Arrearages) from the date hereof to the date the Restructuring Fee is due
and payable and (2) the aggregate of the Initial Rents as such term is defined
in Schedule A for the same period. Upon the payment of the Restructuring Fee
and commencing with the Rent Payment Date next succeeding such payment of the
Restructuring Fee, the amount of Basic Rent for the Aircraft thereafter due and
payable shall be adjusted, based upon the initial base amount of the
Restructuring Fee prior to adjustment, to equal the amount set forth for such
Aircraft in Schedule B attached hereto with respect to the Lease Agreement.
The Restructuring Fee shall be paid in cash, warrants or a combination
thereof, as GECAS may elect. If the Restructuring Fee is due and payable on a
date other than a Rent Payment Date, any adjustments to the Restructuring Fee
or Basic Rent shall be made on a pro-rata basis using a 30 day calendar month.
(iv) WARRANTS FOR COMMON STOCK. In the event that GECAS shall elect to be
paid the Restructuring Fee in whole or in part by a warrant or warrants for
Common Stock (THE "WARRANT"), such Warrant shall be substantially in the form
attached hereto as Exhibit I and shall otherwise be reasonably acceptable to
GECAS. The Warrant shall be issued by Lessee to GECAS on the request of GECAS
and shall comply with the following terms and conditions: (a) the Warrant shall
not require the payment of any additional amounts by GECAS or the Lessors to
the Lessee; (b) the number of shares of Common Stock issuable pursuant to the
Warrant shall equal the amount of the Restructuring Fee elected by GECAS to be
paid in Warrants divided by the selling price of the Common Stock in the IPO or
PPO, net of underwriting discounts, commissions and expenses; (c) the holder of
such Warrant shall be granted "piggy-back" registration rights, (d) the Warrant
shall be exercisable for a period of five years after its date of issuance and
(e) shall otherwise be on terms and conditions mutually satisfactory to Lessor
and Lessee.
B. SUPPLEMENTAL RENT.
(i) SUPPLEMENTAL RENT. The amount of Supplemental Rent payable pursuant
to Clause 5.4 of the Lease Agreement shall be as follows:
(a) Airframe Supplemental Rent - $ 66.15 per Flight Hour;
(b) Engine Refurbishment Supplemental Rent - $72.45 per Flight Hour
in respect of each Engine;
(c) Engine Life Limited Parts Supplemental Rent - $12.60 per Flight
Hour in respect if each
2
<PAGE> 72
Engine; and
(d) Landing Gear Supplemental Rent - $ 8.40 per Flight Hour.
(ii) ADJUSTMENT OF SUPPLEMENTAL RENT. Lessor and Lessee acknowledge that
the rates of Supplemental Rent specified herein are based upon the assumptions
that (i) the Aircraft will operate on average not less than 1 Flight Hour per
Cycle ratio and (ii) the Agreed Maintenance Programme applicable to the
Aircraft during the Term will be the same as the Agreed Maintenance Programme
in effect on the Delivery Date. In the event that either or both of the
foregoing assumptions prove to be incorrect at any time during the Term, Lessor
and Lessee agree that Lessor shall have the right, upon written notice to
Lessee, to adjust the rate of Supplemental Rent. In the case of a change in
the ratio of Flight Hours per Cycle relating to Aircraft operation, the
adjustment of Supplemental Rent shall be as follows:
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
HOUR/CYCLE RATIO .5 1.0 1.5 2.0 2.5 3.0 3.5
$/hr. $/hr. $/hr. $/hr $/hr. $/hr. $/hr.
ENGINE
REFURBISHMENT 98.70 72.45 65.10 58.80 54.60 52.50 50.40
SUPPLEMENTAL RENT
$/cyc. $/cyc. $/cyc. $/cyc. $/cyc. $/cyc. $/cyc.
ENGINE LLP
SUPPLEMENTAL RENT 12.60 12.60 12.60 12.60 12.60 12.60 12.60
</TABLE>
In the event that the Agreed Maintenance Programme is revised, Lessor shall
make the adjustment in the manner which Lessor determines, in its reasonable
discretion, is necessary to maintain the rate of Supplemental Rent at levels
which accurately reflect the costs associated with obtaining maintenance
services at prevailing industry rates. Each such notice shall specify the
revised Supplemental Rent and the effective date of such revision. Lessee
agrees to advise Lessor, in writing, promptly following the occurrence of any
circumstances or events which would result in the foregoing assumptions
becoming incorrect at any time during the Term.
(iii) SUPPLEMENTAL RENT ABATEMENT. Lessor agrees to abate temporarily
Lessee's obligation to pay Supplemental Rent towards specific Engine
Refurbishment and Life Limited Parts in cases where the Lessee uses its own
funds ("OUT-OF-POCKET EXPENSES") to pay for respective Engine overhauls during
the Term. Lessee's Out-of-Pocket Expenses shall be defined as the excess of
(x) the actual cost for the over-haul of such Engine paid by Lessee as duly
substantiated to Lessor's satisfaction and (y) the individual Supplemental Rent
balance for such Engine at the time of its overhaul. Overhaul work scopes
shall be preapproved by the Lessor. The overhaul cost shall relate to the
actual overhaul and shall not include any ancillary or consequential costs
including, but not limited to (1) substitute equipment leases and (2)
transportation charges. The periods of Supplemental Rent abatement shall
commence respectively, on the first day that the Engine is returned to service
after its overhaul and shall continue until such time that the Engine has
lapsed Flight Hours and Cycles such that, when multiplied by the Supplemental
Rent rate defined herein, the total dollar amount equals the Out-of-Pocket
Expenses that the Lessee paid for the respective overhaul.
(iv) ESTIMATED SUPPLEMENTAL RENT. From the date hereof to September 27,
1996, Lessee shall pay Lessor an estimated amount of Supplemental Rent pursuant
to Schedule C hereof in the aggregate for all Aircraft. Such amount shall take
into account all Supplemental Rent abatements granted pursuant to paragraph
(iii) above. Each month, Lessee shall submit to Lessor a summary of the hours
and cycles of operation of the Aircraft. Credit and debits against the
Supplemental Rent actually due and payable shall be accrued until September 30,
1996. Prior to October 10, 1996, Lessor shall provide Lessee with an
accounting of all Supplemental Rent due and payable and actual Supplemental
Rent paid. Any arrears payments or credits
3
<PAGE> 73
with respect to overpayments with respect to Supplemental Rent shall be paid by
Lessee to Lessor or credited by Lessor to Lessee, as applicable, on October 10,
1996.
C. EVENTS OF DEFAULT.
For purposes of the Lease Agreement, each of the following shall constitute a
Event of Default, in addition to the Events of Default as set forth in Clause
13.1 of the Lease Agreement: (i) the failure to pay the Current Arrearage and
all interest due thereon on or before April 29, 1996; (ii) the failure to pay
the Rent Arrearage and all interest due thereon on or before the earlier of (x)
the IPO or PPO or (y) September 30, 1996; and (iii) the failure to pay any Rent
when due and owing under the March Letter Agreement or the Lease Agreement,
including without limitation the amount of Rent Adjustment as set forth in
paragraph A of this Letter Agreement.
D. AIRCRAFT COMMITMENT FEE.
Lessor acknowledges that Lessee, pursuant to the October 1994 Lease, has paid
to Lessor an Aircraft Commitment Fee in an amount equal to (x) $225,000 plus
(y) Relevant Interest (as hereinafter defined) calculated from the date the
Aircraft Commitment Fee or any part thereof was actually paid. For purposes of
this Letter Agreement, Relevant Interest shall mean interest on the sum of
$225,000 accrued over a period commencing from the date following the Previous
Delivery Date on which the Aircraft Commitment Fee or any part thereof was
actually paid to the Expiry Date, at the average rate over such period of
General Electric Capital Corporation Commercial Paper (for 240 to 270 days) as
reported from time to time in The Wall Street Journal less 25 basis points
(i.e. 0.25% per annum).
E. ACCRUAL AND APPLICATION OF CERTAIN SUPPLEMENTAL RENT.
The reconciliation of all Rent previously due and owing pursuant to the Other
Agreements shall be set forth in Schedule C attached hereto. In addition,
Lessor shall credit certain Supplemental Rent against approved maintenance
performed on the Aircraft in the amounts as set forth in Schedule C. All
discrepancies in the accrual, payment and application of Rent attributable to
the October 1994 Lease are set forth and shall be resolved as between the
Lessor and Lessee in accordance with Schedule C.
F.LEGAL FEES.
Lessee hereby agrees to pay to GECAS, on behalf of the Lessors, on the date
hereof legal fees in the amount of $30,000 for the reasonable costs and
expenses of Lessors' counsel in connection with the restructuring Lessee's
obligations under the Other Agreements and the preparation, negotiation and
documentation of the March Letter Agreement, this Letter Agreement, the
Warrant, the Lease Agreements and negotiation of certain other matters
including the transactions contemplated herein and therein. Reasonable legal
counsel fees and expenses incurred by GECAS or the Lessors in connection with
the administration and enforcement of Lessors' rights and remedies under the
March Letter Agreement, the Warrant, the Lease Agreement or this Letter
Agreement shall be for the account of Lessee and Lessee shall upon written
demand by the Lessor reimburse and indemnify the Lessor for such costs and
expenses.
G. FURTHER ASSURANCES.
Lessee, at Lessee's expense, shall execute and deliver such further agreements,
leases, documents, certificates or any supplements or additions hereto as may
reasonably be requested by GECAS of the Lessors in furtherance of the
agreements herein contained.
4
<PAGE> 74
SCHEDULE A
SIZE OF IPO/PPO RESTRUCTURING FEE UNADJUSTED
More than $20 million $3 million
$15 million to $20 million $2 million
Less than $15 million but greater
than $4 million $1.5 million
Less than $4 million $ - 0 -
CERTAIN DEFINITIONS: AIRCRAFT LEASE AGREEMENTS
Aircraft Lease Agreement, dated as of November 11, 1994, between Polaris
Holding Company, as lessor, and Air South, Inc., as lessee, in respect of one
used Boeing 737-242 advanced aircraft (the "21186 Aircraft") bearing
manufacturers serial number 21186 (as supplemented and amended, "LEASE 21186")
and FAA Registration Number N,159PL.
Aircraft Lease Agreement, dated as of March 21, 1995, between Polaris Aircraft
Leasing K.B., as lessor and Air South, Inc., as lessee, in respect of one used
Boeing 737-2P6 advanced aircraft (the "21733 Aircraft") bearing manufacturers
serial number 21733 and Irish Registration Number EI-CLK (as supplemented and
amended, "LEASE 21733") equipped with Stage 3 hushkit.
Aircraft Lease Agreement, dated as of December 12, 1994, between Polaris
Aircraft Leasing K.B., as lessor, and Air South, Inc., as lessee, in
respect of one used Boeing 737-2P6 advanced aircraft (the "21677 Aircraft"),
bearing manufacturers serial number 21677 and Irish Registration Number GKW (as
supplemented and amended, "LEASE 21677").
Aircraft Lease Agreement, dated as of October 25, 1994, between Polaris
Aircraft Leasing K.B., as lessor, and Air South, Inc., as lessee, in respect
of one used Boeing 737-2P6 advanced aircraft (the "21612 Aircraft"), bearing
manufacturers serial number 21612 and Irish Registration Number EI-CKK (as
supplemented and amended, "LEASE 21612").
Aircraft Lease Agreement, dated as of November 9, 1994, between Polaris
Aircraft Leasing K.B., as lessor, and Air South, Inc., as lessee, in respect
of one used Boeing 737-200A advanced aircraft (the "21356 Aircraft"), bearing
manufacturers serial number 21356 and Irish Registration Number CKL (as
supplemented and amended, "LEASE 21356").
For purposes of Letter Agreement No. 1, Lease 21186, Lease 21733, Lease 21677,
Lease 21612 and Lease 21356 shall collectively be defined as the "LEASE
AGREEMENTS" and the 21186 Aircraft, 21733 Aircraft, 21677 Aircraft, 21612
Aircraft and 21356 Aircraft shall collectively be defined as the "AIRCRAFT".
6
<PAGE> 75
INITIAL RENTS: For purposes of this Letter Agreement No. 1, Initial Rents shall
be defined as the following amounts for the Lease Agreements as indicated:
Lease 21186 Initial Rent: $90,000
Lease 21733 Initial Rent: $97,500
Lease 21677 Initial Rent: $75,000
Lease 21612 Initial Rent: $75,000
Lease 21356 Initial Rent: $75,000
7
<PAGE> 76
SCHEDULE B
ADJUSTMENTS TO BASIC RENT
Restructuring Fee (Base Amount, Unadjusted) Basic Rent as Adjusted:
$3,000,000 Lease 21186: $90,000
Lease 21733: $97,500
Lease 21677: $75,000
Lease 21612: $75,000
Lease 21356: $75,000
$2,000,000 Lease 21186: $98,333
Lease 21733: $105,833
Lease 21677: $83,833
Lease 21612: $83,833
Lease 21356 $83,833
$1,500,000 Lease 21186: $102,500
Lease 21733: $110,000
Lease 21677: $87,500
Lease 21612: $87,500
Lease 21356: $87,500
8
<PAGE> 77
SCHEDULE C
Rent Reconciliation
TABLE I - UNADJUSTED ARREARAGE
<TABLE>
<CAPTION>
1 2 1-2
CATEGORY ACCRUED PAID DELTA
-------- ------- ---- -----
<S> <C> <C> <C>
Rent $ 7,020,390 $ 7,020,390 $ -
Deposits $ 1,170,000 $ 1,170,000 $ -
Maintenance $ 3,655,313 $ 2,922,746 $ 732,567
Other $ 26,042 $ 26,042 $ -
----------- ----------- ----------
TOTAL $11,871,745 $11,139,178 $ 732,567
</TABLE>
TABLE II - ADJUSTMENTS
<TABLE>
<S> <C>
MRF Claim 3040 $ (113,894)
MRF Claim 3040(b) $ (67,488)
MRF Claim 3241 $ (199,543)
MRF Claim 3262 $ (24,849)
Misc Adjustment $ (3,897)
----------
TOTAL $ (409,670)
</TABLE>
<TABLE>
<CAPTION>
TABLE III - INTERIM RENT CALCULATIONS W/O DEFERRAL W/ DEFERRAL
START DATE 4/29/96 0 1
CONTRACT INTERIM CONTRACT INTERIM
MSN DATE DAYS RENT (/M) RENT RENT (/M) RENT
--- ---- ---- --------- ---- --------- ----
<S> <C> <C> <C> <C> <C> <C>
21356 (CKL) 5/6/96 7 $ 100,000 $ 23,333 $ 87,500 $ 20,417
21186 (N159PL) 5/13/96 14 $ 115,000 $ 53,667 $ 102,500 $ 47,833
21677 (GKW) 5/20/96 21 $ 100,000 $ 70,000 $ 87,500 $ 61,250
21612 (EI-CKK) 5/20/96 21 $ 100,000 $ 70,000 $ 87,500 $ 61,250
21733 (EI-CLK) 5/27/96 28 $ 122,500 $ 114,333 $ 110,000 $ 102,667
----------- ----------- ----------- -----------
TOTAL $ 537,500 $ 331,333 $ 475,000 $ 293,417
INTERIM DEF $ 37,917
</TABLE>
TABLE IV - WEEKLY PAYMENT CALCULATIONS (SEPARATE SHEET)
TABLE V - APRIL 29,1996 PAYMENT SUMMARY W/ PAYMENTS ON LEASE PAYMENT DATES
<TABLE>
<S> <C>
TOTAL from TABLE I $ 732,567
TOTAL from TABLE II $ (409,670)
TOTAL from TABLE III $ 293,417
Legal Costs $ 30,000
-----------
TOTAL $ 646,313
===========
</TABLE>
TABLE VI - APRIL 29,1996 PAYMENT SUMMARY W/ EVEN WEEKLY PAYMENTS THRU 9/23/96
<TABLE>
<S> <C>
TOTAL from TABLE I $ 732,567
TOTAL from TABLE II $ (409,670)
TOTAL from TABLE IV $ 169,928
Legal Costs $ 30,000
------------
TOTAL $ 522,825
============
</TABLE>
9
<PAGE> 78
SCHEDULE C
Rent Reconciliation
TABLE IV - Weekly Payment Calculations
<TABLE>
<CAPTION>
WEEKLY PMT $ 169,928 INT RATE 10.44%
DEFERRED RENT $ 12,500 /AC/M 1M LIBOR +5%
INTERIM DEF Y/N 1
- - ---------------------------------------------------------------------------------------------------------------------------
CONTRACT RENT/ TOTAL WEEKLY TOTAL RENT TOTAL INTEREST
DATE EST MX (RUNNING) PAYMENT (RUNNING) DEFERRAL (RUNNING) (DEFERRAL)
---- ------ --------- ------- --------- -------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
4/29/96 $ 293,417 $ 293,417 $ 169,928 $ 169,928 $ 37,917 $ 37,917 $ -
5/6/96 87,500 380,917 169,928 339,856 12,500 50,417 76
5/10/96 214,000 594,917 - 339,856 - 50,417 134
5/13/96 102,500 697,417 169,928 509,784 12,500 62,917 177
5/20/96 175,000 872,417 169,928 679,712 25,000 87,917 303
5/27/96 110,000 982,417 169,928 849,640 12,500 100,417 479
6/3/96 - 982,417 169,928 1,019,568 - 100,417 680
6/6/96 87,500 1,069,917 - 1,019,568 12,500 112,917 766
6/10/96 214,000 1,283,917 169,928 1,189,496 - 112,917 895
6/13/96 102,500 1,386,417 - 1,189,496 12,500 125,417 992
6/17/96 - 1,386,417 169,928 1,359,424 - 125,417 1,136
6/20/96 175,000 1,561,417 - 1,359,424 25,000 150,417 1,243
6/24/96 - 1,561,417 169,928 1,529,352 - 150,417 1,415
6/27/96 110,000 1,671,417 - 1,529,352 12,500 162,917 1,544
7/1/96 - 1,671,417 169,928 1,699,280 - 162,917 1,731
7/6/96 87,500 1,758,917 - 1,699,280 12,500 175,417 1,964
7/8/96 - 1,758,917 169,928 1,869,208 - 175,417 2,064
7/10/96 214,000 1,972,917 - 1,869,208 - 175,417 2,165
7/13/96 102,500 2,075,417 - 1,869,208 12,500 187,917 2,315
7/15/96 - 2,075,417 169,928 2,039,136 - 187,917 2,423
7/20/96 175,000 2,250,417 - 2,039,136 25,000 212,917 2,691
7/22/96 - 2,250,417 169,928 2,209,064 - 212,917 2,813
7/27/96 110,000 2,360,417 - 2,209,064 12,500 225,417 3,118
7/29/96 - 2,360,417 169,928 2,378,992 - 225,417 3,247
8/5/96 - 2,360,417 169,928 2,548,920 - 225,417 3,698
8/6/96 87,500 2,447,917 - 2,548,920 12,500 237,917 3,762
8/10/96 214,000 2,661,917 - 2,548,920 - 237,917 4,035
8/12/96 - 2,661,917 169,928 2,718,848 - 237,917 4,171
8/13/96 102,500 2,764,417 - 2,718,848 12,500 250,417 4,239
8/19/96 - 2,764,417 169,928 2,888,777 - 250,417 4,668
8/20/96 175,000 2,939,417 - 2,888,777 25,000 275,417 4,740
8/26/96 - 2,939,417 169,928 3,058,705 - 275,417 5,213
8/27/96 110,000 3,049,417 - 3,058,705 12,500 287,917 5,292
9/2/96 - 3,049,417 169,928 3,228,633 - 287,917 5,786
9/6/96 87,500 3,136,917 - 3,228,633 12,500 300,417 6,115
9/9/96 - 3,136,917 169,928 3,398,561 - 300,417 6,373
9/10/96 214,000 3,350,917 - 3,398,561 - 300,417 6,459
9/13/96 102,500 3,453,417 - 3,398,561 12,500 312,917 6,717
9/16/96 - 3,453,417 169,928 3,568,489 - 312,917 6,985
9/20/96 175,000 3,628,417 - 3,568,489 25,000 337,917 7,343
9/23/96 - 3,628,417 169,928 3,738,417 - 337,917 7,633
9/27/96 110,000 3,738,417 - 3,738,417 12,500 350,417 8,020
</TABLE>
10
<PAGE> 1
EXHIBIT 10.32
AIRCRAFT LEASE AGREEMENT
Dated as of
April 29, 1996
between
POLARIS AIRCRAFT LEASING K.B.
as
Lessor
and
AIR SOUTH AIRLINES, INC.
as
Lessee
in respect of Boeing 737-200A Advanced Aircraft
Serial Number 21356
Ref. 21356A
<PAGE> 2
THIS AGREEMENT is made as of the 29th day of April, 1996 between:-
(1) POLARIS AIRCRAFT LEASING K.B., a limited partnership formed under the
laws of Sweden whose principal office is at Birger Jarlsgatan 33,
S-111 45, Stockholm, Sweden ("Lessor"); and
(2) AIR SOUTH AIRLINES, INC., a company incorporated under the laws of the
State of Illinois whose chief executive office is at 1800 St. Julian
Place, 4th Floor, Columbia, South Carolina, 29204, U.S.A. ("Lessee").
WHEREAS: Lessor wishes to lease to Lessee and Lessee is willing to
lease from Lessor the Aircraft (MSN 21356) on the terms of this
Agreement.
IT IS AGREED as follows:-
1. INTERPRETATION
1.1 DEFINITIONS
In this Agreement the following expressions have the meanings set out
opposite:-
AGREED MAINTENANCE PERFORMER Lessee (up to and including
B Check) or any FAA approved
maintenance facility (for C
Check and higher) or any
other person agreed to from
time to time in writing by
Lessor.
AGREED MAINTENANCE PROGRAMME the Maintenance Programme
agreed to from time to time
in writing by Lessor.
AGREED VALUE $8,000,000 or such other
amount as Lessor may require
from time to time provided
such other amount does not
exceed 115% of the fair
market value of the Aircraft.
AIR AUTHORITY the Irish Aviation Authority
or any successor thereto.
AIRCRAFT the aircraft described in
Part 1 of Schedule 1, (which
term includes where the
context admits a separate
reference to all Engines,
Parts and Aircraft
Documents).
AIRCRAFT COMMITMENT FEE all amounts paid by Lessee
pursuant to Clause 5.1 of
the November 9 1994 Lease.
AIRCRAFT DOCUMENTS the documents, data and
records identified in Part 2
of Schedule 1 and all
additions, renewals,
revisions and replacements
from time to time made in
accordance with this
Agreement.
1
<PAGE> 3
AIRFRAME the Aircraft, excluding the
Engines and Aircraft
Documents.
APU the auxiliary power unit
installed on the Aircraft on
the Previous Delivery Date
and any replacement auxiliary
power unit installed in
accordance with this
Agreement.
BANKS such financial institution(s)
which from time to time
finance the Aircraft for
Owner and/or for whose
benefit security over, or
rights relating to, the
Aircraft and/or this
Agreement is granted by Owner
or at its request.
BASIC RENT means the rent payable for
the Aircraft during the Term
pursuant to Section 5.3 of
this Agreement.
BOEING The Boeing Company, a
Delaware corporation with its
principal office in Seattle,
State of Washington, U.S.A.
BUSINESS DAY a day (other than a Saturday
or Sunday) on which business
of the nature required by
this Agreement is carried out
in Sweden and the State of
Incorporation or where used
in relation to payments on
which banks are open for
business in London and New
York.
CERTIFICATED AIR CARRIER shall mean any corporation
(except the United States
Government) domiciled in the
United States of America and
holding a Certificate of
Convenience and Necessity
issued under Section 401 of
the Federal Aviation Act by
the Department of
Transportation or any
predecessor or successor
agency thereto, or, in the
event such Certificates shall
no longer be issued, any
corporation (except the
United States Government)
domiciled in the United
States of America and legally
engaged in the business of
transporting for hire
passengers or cargo by air
predominantly to, from or
between points within the
United States of America,
and, in either event,
operating commercial jet
aircraft, which also is
certificated so as to fall
within the purview of Section
1110 of Title
2
<PAGE> 4
11 of the United States Code
or any analogous statute.
COLD SECTION REFURBISHMENT the completion of the
following tasks with respect
to an Engine: completely
unstack both high and low
compressors and accomplish
complete visual inspection;
deblade disks as necessary;
accomplish visual inspections
of all disks; measure to
ensure all snap diameters on
disks are within limits;
inspect blades for proper
chord dimensions and
cracking; repair or replace
blades below minimums;
inspect and repair stators as
necessary; blade up disks
using new lock plates;
assemble compressor rotors;
balance both rotors; and
install rotors in such
Engine.
CYCLE one take-off and landing of
the Aircraft.
DAMAGE NOTIFICATION THRESHOLD $100,000.
DEFAULT any Event of Default and any
event or condition which with
the giving of notice or lapse
of time would constitute an
Event of Default.
DELIVERY DATE the date hereof.
DELIVERY LOCATION Columbia, South Carolina or
such other location as the
parties may agree.
DOLLARS AND $ the lawful currency of the
United States of America.
ENGINE whether or not installed on
the Aircraft:-
(a) each engine of the
manufacture and model
specified in Part 1 of
Schedule 1 (each of
which has 750 or more
rated takeoff horsepower
or the equivalent of
such horsepower);
or
(b) any engine which has
replaced that engine,
title to which has or
should have, passed to
Owner in accordance with
this Agreement;
and in each case
includes all modules and
Parts from time to time
belonging to or
installed in
3
<PAGE> 5
that engine but excludes
any properly replaced
engine title to which
has, or should have,
passed to Lessee
pursuant to this
Agreement.
EVENT OF DEFAULT an event or condition
specified in Clause 13.1
or Letter Agreement No. 1.
EVENT OF LOSS with respect to the Aircraft
(including for the purposes
of this definition the
Airframe):-
(a) the actual or
constructive total loss
of the Aircraft
(including any damage to
the Aircraft which
results in an insurance
settlement on the basis
of a total loss, or
requisition for use or
hire which results in an
insurance settlement on
the basis of a
total loss); or
(b) it being destroyed,
damaged beyond repair or
permanently rendered
unfit for normal use
for any reason
whatsoever; or
(c) the requisition of
title, or other
compulsory acquisition,
capture, seizure,
deprivation,
confiscation or
detention for any reason
of the Aircraft by the
government of the State
of Registration or other
competent authority
(whether de jure or de
facto), but excluding
requisition for use or
hire not involving
requisition of title;
or
(d) the hi-jacking, theft,
condemnation,
confiscation, seizure or
requisition for use or
hire of the Aircraft
which deprives any
person permitted by this
Agreement to have
possession and/or use of
the Aircraft of its
possession and/or use
for more than 15 days.
EXPIRY DATE subject to Clause 4.5, May
6, 1998:-
4
<PAGE> 6
(a) the Aircraft has been
redelivered in accordance
with this Agreement; or
(b) Lessor receives the
Agreed Value following
an Event of Loss.
FAA the Federal Aviation
Administration of the United
States of America and any
successor thereof.
FEDERAL AVIATION ACT United States Federal
Aviation Act of 1958,
as amended, or any similar
legislation of the United
States of America enacted in
substitution or replacement
thereof.
FINANCIAL INDEBTEDNESS any indebtedness in respect
of:-
(a) moneys borrowed or
raised;
(b) any liability under any
debenture, bond, note,
loan stock, acceptance,
documentary credit or
other security;
(c) the acquisition cost of
any asset to the extent
payable before or after
the time of acquisition
or possession; or
(d) any guarantee, indemnity
or similar assurance
against financial loss
of any person in respect
of the above.
FINANCING STATEMENTS Uniform Commercial Code
Financing Statements in
respect of this Agreement and
the collateral described
therein prepared in a form
acceptable for filing with
the applicable Government
Entities in the Habitual
Base, the State in which the
chief executive office (as
that term is defined in
Article 9 of the Uniform
Commercial Code as in effect
in the State of South
Carolina) and such other
jurisdiction as Lessor shall
reasonably require.
FLIGHT HOUR each hour or part thereof
(rounded up to two decimal
places) elapsing from the
moment the wheels of the
Aircraft
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<PAGE> 7
next touch the ground.
GOVERNING LAW the laws of the State of New
York.
GOVERNMENT ENTITY (a) any national government,
political subdivision
thereof, or local
jurisdiction therein;
(b) any instrumentality,
board, commission, court
or agency of any
thereof, however
constituted; and
(c) any association,
organization, or
institution of which any
of the above is a member
or to whose jurisdiction
any thereof is subject
or in whose activities
any of the above is a
participant.
HABITUAL BASE the State of South Carolina
or, subject to the prior
written consent of Lessor,
any other state, country or
countries in which the
Aircraft is for the time
being habitually based.
HEAD LEASE the aircraft lease agreement
between Owner and Sub Lessor
in respect of the Aircraft.
HOT SECTION REFURBISHMENT the complete visual
inspection and repair as
necessary of the combustion
section of an Engine. In
conducting such inspection
and repair, the engine shop
must completely unstack the
high pressure turbine and
accomplish complete visual
inspection; de-blade disks as
necessary; accomplish visual
inspections of all disks;
measure to ensure all snap
diameters on disks are within
limits; inspect blades for
proper chord dimensions and
cracking; repair or replace
blades below minimums;
inspect and repair stators as
necessary; blade up disks
using new lock plates;
assemble compressor rotors;
balance both rotors; and
install rotors in such
Engine.
INDEMNITEES each of Owner, Sub
Lessor, Lessor and Banks
including any of their
respective successors and
assigns, shareholders,
subsidiaries, affiliates,
partners,
6
<PAGE> 8
contractors, directors,
officers, servants, agents and
employees.
LANDING GEAR the landing gear assembly of
the Aircraft excluding any
rotable components.
LESSOR LIEN (a) any security interest
whatsoever from time to
time created by or
through Lessor, Sub
Lessor or Owner in
connection with the
financing of the
Aircraft;
(b) any other security
interest in respect of
the Aircraft which
results from acts of or
claims against Lessor,
Sub Lessor or Owner not
related to the
transactions
contemplated by or
permitted under this
Agreement; and
(c) liens in respect of the
Aircraft for Lessor
Taxes.
LESSOR TAXES Taxes:-
(a) imposed as a direct
result of activities of
Lessor, Sub Lessor or
Owner in the
jurisdiction imposing
the liability unrelated
to Lessor's dealings
with Lessee or to the
transactions
contemplated by this
Agreement or the
operation of the
Aircraft by Lessee; or
(b) imposed on the income,
profits or gains of
Lessor, Sub Lessor or
Owner by any Government
Entity in (x) Sweden; or
(y) the U.S.A.; or
(c) imposed with respect to
any period commencing or
event occurring after
the Expiry Date and
unrelated to Lessor's
dealings with Lessee or
to the transactions
contemplated by this
Agreement.
LETTER AGREEMENT NO. 1 Letter Agreement No 1. of
even date herewith between
Lessor and Lessee in
respect of the Aircraft, the
terms of which
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<PAGE> 9
constitute an integral part
of this Agreement.
MAINTENANCE PROGRAMME an FAA and Air Authority
approved maintenance
programme for the
Aircraft encompassing
scheduled maintenance
(including block
maintenance), condition
monitored maintenance, and/or
on condition maintenance of
Airframe, Engines and Parts,
including but not limited to,
servicing, testing,
preventive maintenance,
repairs, structural
inspections, system checks,
overhauls, approved
modifications, service
bulletins, engineering
orders, airworthiness
directives, corrosion
control, inspections and
treatments.
MAJOR CHECKS any C-Check, multiple
C-Check, D-Check or
annual heavy maintenance
visit or segment thereof
suggested for commercial
aircraft of the same model as
the Aircraft by its
manufacturer (however
denominated) as set out in
the Agreed Maintenance
Programme.
MANUFACTURER Boeing.
MARCH 29 1996 LETTER AGREEMENT Letter Agreement, dated March
29, 1996, between Lessor,
Lessee, Polaris Holding
Company and GE Capital
Aviation Services, Inc.
MINIMUM LIABILITY COVERAGE $400,000,000 on each
occurrence.
NOVEMBER 9 1994 LEASE the Aircraft Lease
Agreement, dated as of
November 9, 1994, between
Lessor and Lessee, as
supplemented and amended,
relating to the Aircraft
which agreement has
heretofore been terminated by
agreement of the parties
hereto.
OTHER AGREEMENTS any agreement (other than
this Agreement) made or to be
made between Lessor (or an
affiliate, associate or
subsidiary of Lessor) and
Lessee (or an affiliate,
associate or Subsidiary of
Lessee), including without
limitation the November 1994
Lease and the March 29 1996
Letter Agreement.
OWNER Polaris Aircraft Leasing
K.B., a Swedish partnership
in which Polaris Aircraft
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<PAGE> 10
Leasing A.B. is the general
partner which is owned by
Polaris Aircraft Leasing
Corporation, a United States
corporation since December,
1989.
PART whether or not installed on
the Aircraft:-
(a) any component,
furnishing or equipment
(other than a complete
Engine) furnished with
the Aircraft on the
Delivery Date; and
(b) any other component,
furnishing or equipment
(other than a complete
Engine) title to which
has, or should have
passed to Owner pursuant
to this Agreement;
but excludes any such
items title to which
has, or should have,
passed to Lessee
pursuant to this
Agreement.
PERMITTED LIEN (a) any lien for Taxes not
assessed or, if
assessed, not yet due
and payable, or being
contested in good faith
by appropriate
proceedings;
(b) any lien of a repairer,
mechanic, carrier,
hangarkeeper or other
similar lien arising in
the ordinary course of
business or by operation
of law in respect of
obligations which are
not overdue or are being
contested in good faith
by appropriate
proceedings;
but only if (in the case
of both (a) and (b)) (i)
adequate reserves have
been provided by Lessee
for the payment of the
Taxes or obligations;
and (ii) such
proceedings, or the
continued existence of
the lien, do not give
rise to any likelihood
of the sale, forfeiture
or other loss of the
Aircraft or any interest
therein or of criminal
liability on Owner, Sub
Lessor, Lessor or any
Bank; and
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<PAGE> 11
(c) any Lessor Lien.
PERSON shall mean and include any
individual person,
corporation, partnership,
firm, joint stock company,
joint venture, trust, estate,
unincorporated organisation,
association, Government
Entity, or organisation or
association of which any of
the above is a member or a
participant.
PREVIOUS DELIVERY DATE the date on which the
Aircraft was delivered by
Lessor to Lessee pursuant to
the Previous Lease.
PREVIOUS LEASE the Aircraft Lease Agreement
dated as of 10 August, 1994
between Lessor and Lessee
which will have expired or
otherwise been terminated
prior to the delivery of the
Aircraft by Lessor to Lessee
pursuant to this Agreement.
REDELIVERY LOCATION Will Rogers World Airport,
Oklahoma City, Oklahoma or
such other location in the
United States as Lessor shall
advise Lessee or such other
location as the parties may
agree.
RENT means, collectively, Basic
Rent, Supplemental Rent and
all other amounts,
liabilities and obligations
which Lessee assumes or
agrees to pay to Lessor or
other Persons hereunder
(other than Basic Rent and
Supplemental Rent) or under
any Other Agreement,
including without limitation
the payment of deposits,
indemnities and the Agreed
Value.
RENTAL PERIOD each period ascertained in
accordance with Clause 5.2.
RENT DATE the first day of each Rental
Period.
SECURITY INTEREST any mortgage, charge, pledge,
lien, assignment,
hypothecation, right of
set-off or any agreement or
arrangement having the effect
of creating a security
interest other than a
Permitted Lien, or any
agreement to create the
foregoing other than a
Permitted Lien.
STATE OF INCORPORATION the State of Illinois.
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<PAGE> 12
STATE OF REGISTRATION Ireland.
SUB LEASE the aircraft lease agreement
between Sub Lessor and
Lessor in respect of the
Aircraft.
SUB LESSOR Dormacken Limited, a company
incorporated under the laws
of Ireland whose registered
office is at 1 Earlsfort
Centre, Hatch Street, Dublin
2, Ireland.
SUBSIDIARY (a) in relation to any
reference to accounts,
any company whose
accounts are
consolidated with the
accounts of Lessee in
accordance with
accounting principles
generally accepted under
accounting standards of
the State of
Incorporation;
(b) for any other purpose
an entity from time to
time:-
(i) of which another has
direct or indirect
control or owns
directly or
indirectly more than
50 per cent. of the
voting share
capital; or
(ii) which is a direct
or indirect
subsidiary of
another under the
laws of the
jurisdiction of its
incorporation.
SUPPLEMENTAL RENT all amounts payable under
Clause 5.4(a).
TAXES taxes, duties and the like
of all kinds and any other
amount corresponding to any
taxation together with any
penalties, fines, surcharge
or interest thereon.
TERM the period commencing on the
Delivery Date and ending on
the Expiry Date.
1.2 CONSTRUCTION
(a) In this Agreement, unless the contrary intention is stated, a
reference to:-
(i) each of "Owner", "Sub Lessor", "Lessor" or "Lessee" or any
other person includes without prejudice to the provisions of
this Agreement any successor in title to it and any permitted
assignee;
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<PAGE> 13
(ii) words importing the plural shall include the singular and vice
versa;
(iii) any document shall include that document as amended, novated
or supplemented;
(iv) a law (1) includes any statute, decree, constitution,
regulation, order, judgment or directive of any Government
Entity; (2) includes any treaty, pact, compact or other
agreement to which any Government Entity is a signatory or
party; (3) includes any judicial or administrative
interpretation or application thereof and (4) is a reference
to that provision as amended, substituted or re-enacted;
(v) a Clause or a Schedule is a reference to a clause of or a
schedule to this Agreement; and
(b) the headings in this Agreement are to be ignored in construing this
Agreement.
2. REPRESENTATIONS AND WARRANTIES
2.1 LESSEE'S REPRESENTATIONS AND WARRANTIES: Lessee represents and
warrants to Lessor that:-
(a) STATUS: Lessee is a corporation duly incorporated and validly existing
in good standing under the laws of the State of Incorporation and has
the corporate power to own its assets and carry on its business as it
is being conducted and is the holder of all necessary air
transportation licences required in connection therewith and with the
use and operation of the Aircraft;
(b) POWER AND AUTHORITY: Lessee has the corporate power to enter into and
perform, and has taken all necessary corporate action to authorise the
entry into, performance and delivery of, this Agreement and the
transactions contemplated by this Agreement;
(c) LEGAL VALIDITY: this Agreement constitutes Lessee's legal, valid and
binding obligation;
(d) NON-CONFLICT: the entry into and performance by Lessee of, and the
transactions contemplated by, this Agreement do not and will not:-
(i) conflict with any laws binding on Lessee; or
(ii) conflict with the constitutional documents of Lessee; or
(iii) conflict with or result in default under any indenture,
mortgage, chattel mortgage, deed of trust, conditional sales
contract, lease, bank loan or credit agreement or other
agreement which is binding upon Lessee or any of its assets
nor result in the creation of any Security Interest over any
of its assets;
(e) AUTHORISATION: all authorisations, consents, registrations and
notifications required in connection with the entry into, performance,
validity and enforceability of, this Agreement and the transactions
contemplated by this Agreement, have been (or will on or before the
Delivery Date have been) obtained or effected (as appropriate) and are
(or will on their being obtained or effected be) in full force and
effect;
(f) NO IMMUNITY:
12
<PAGE> 14
(i) Lessee is subject to civil commercial law with respect to its
obligations under this Agreement; and
(ii) neither Lessee nor any of its assets is entitled to any right
of immunity and the entry into and performance of this
Agreement by Lessee constitute private and commercial acts;
(g) ACCOUNTS: the audited consolidated accounts of Lessee and its
Subsidiaries most recently delivered to Lessor:-
(i) have been prepared in accordance with accounting principles
and practices generally accepted and consistently applied in
the State of Incorporation; and
(ii) fairly represent the consolidated financial condition of
Lessee and its Subsidiaries as at the date to which they were
drawn up;
(h) CHIEF EXECUTIVE OFFICE: Lessee's chief executive office (as that term
is defined in Article 9 of the Uniform Commercial Code as in effect in
the State of South Carolina) is located at 1800 St. Julian Place, 4th
Floor, Columbia, South Carolina;
(i) CERTIFICATED AIR CARRIER: Lessee is a Certificated Air Carrier and
Lessor, as lessor of the Aircraft to Lessee, is entitled to the
benefits of Section 1110 of Title 11 of the United States Code with
respect to the Aircraft; and
(j) CITIZEN OF THE UNITED STATES: Lessee is a "citizen of the United
States" as defined in Section 101(16) of the Federal Aviation Act.
2.2 LESSEE'S FURTHER REPRESENTATIONS AND WARRANTIES: Lessee further
represents and warrants to Lessor that:-
(a) NO DEFAULT:
(i) no Default has occurred and is continuing or might result from
the entry into or performance of this Agreement; and
(ii) no other event or condition has occurred and is continuing
which constitutes (or with the giving of notice, lapse of
time, determination of materiality or the fulfilment of any
other applicable condition or any combination of the
foregoing, might constitute) a material default under any
indenture, mortgage, chattel mortgage, deed of trust,
conditional sales contract, lease, bank loan or credit
agreement or other agreement which is binding on Lessee or any
assets of Lessee;
(b) REGISTRATION:
(i) it is not necessary or advisable under the laws of the State
of Incorporation or the Habitual Base in order to ensure the
validity, effectiveness and enforceability of this Agreement
or to, establish, perfect or protect the property rights of
Owner, Sub Lessor or Lessor in the Aircraft or any Engine or
Part that this Agreement or any other instrument relating
thereto be filed, registered or recorded or that any other
action be taken or if any such filings, registrations,
13
<PAGE> 15
recordings or other actions are necessary or advisable, the
same have been effected or will have been effected on or
before the Delivery Date; and
(ii) under the laws of the State of Incorporation and the Habitual
Base the property rights of Owner, Sub Lessor and Lessor in
the Aircraft, have been fully established, perfected and
protected and this Agreement will have priority in all
respects over the claims of all creditors of Lessee;
(c) LITIGATION: no litigation, arbitration or administrative proceedings
are pending or to Lessee's knowledge threatened against Lessee which,
if adversely determined, would have a material adverse effect upon its
financial condition or business or its ability to perform its
obligations under this Agreement;
(d) PARI PASSU: the obligations of Lessee under this Agreement rank at
least pari passu with all other present and future unsecured and
unsubordinated obligations (including contingent obligations) of
Lessee, with the exception of such obligations as are mandatorily
preferred by law and not by virtue of any contract;
(e) MATERIAL ADVERSE CHANGE: there has been no material adverse change in
the consolidated financial condition of Lessee and its Subsidiaries or
the financial condition of Lessee since the date to which the accounts
most recently provided to Lessor on or prior to the Delivery Date were
drawn up;
(f) TAXES: Lessee has delivered all necessary returns and payments due to
the tax authorities in the State of Incorporation and the Habitual
Base and all other jurisdictions in which Lessee is required to pay
taxes and/or file tax returns or reports and Lessee is not required by
law to deduct any Taxes from any payments under this Agreement;
(g) INFORMATION: the financial and other information furnished by Lessee
in connection with this Agreement does not contain any untrue
statement or omit to state facts, the omission of which makes the
statements therein, in the light of the circumstances under which they
were made, misleading, nor omits to disclose any material matter to
Lessor and all forecasts and opinions contained therein were honestly
made on reasonable grounds after due and careful enquiry by Lessee;
(h) FOREIGN ASSET CONTROL: as of the date of this Agreement, Lessee does
not hold any contract or other obligation to operate the Aircraft to
any of the countries designated under the United States Foreign Asset
Control Regulations (31 C.F.R. Parts 500-599), including, as of the
date hereof, Cuba, Haiti, Iraq, Libya, North Korea, and the Federal
Republic of Yugoslavia (Serbia and Montenegro);
(i) ERISA: Lessee is not engaged in any transaction in connection with
which it could be subjected to either a civil penalty assessed
pursuant to Section 502(c) of ERISA or any tax imposed by Section 5975
of the Internal Revenue Code; no material liability of the Pension
Benefit Guaranty Corporation has been or is expected by Lessee to be
incurred with respect to any employee pension benefit plan (as defined
in Section 3 of ERISA) maintained by Lessee; there has been no
reportable event (as defined in Section 4043(b) of ERISA) with respect
to any such employee pension benefit plan. There is no event of
termination of any such employee pension benefit plan by the Pension
Benefit Guaranty Corporation; and no accumulated funding deficiency
(as defined in Section 302 of ERISA
14
<PAGE> 16
or Section 412 of the Internal Revenue Code), whether or not waived,
exists with respect to any such employee pension benefit plan; and
(j) MAINTENANCE PROGRAMME: the Maintenance Programme for the Aircraft
complies with all FAA requirements.
2.3 REPETITION: The representations and warranties in Clause 2.1 and
Clause 2.2 will survive the execution of this Agreement. The
representations and warranties contained in Clause 2.1 will be deemed
to be repeated by Lessee on each Rent Date as if made with reference
to the facts and circumstances then existing.
2.4 LESSOR'S REPRESENTATIONS AND WARRANTIES: Lessor represents and
warrants to Lessee that:-
(a) STATUS: Lessor is a limited partnership existing under the laws of
Sweden and has the power to own its assets and carry on its business
as it is now being conducted;
(b) POWER AND AUTHORITY: Lessor has the power to enter into and perform,
and has taken all necessary action to authorise the entry into,
performance and delivery of, this Agreement and the transactions
contemplated by this Agreement;
(c) LEGAL VALIDITY: this Agreement constitutes Lessor's legal, valid and
binding obligation;
(d) NON-CONFLICT: the entry into and performance by Lessor of, and the
transactions contemplated by, this Agreement do not and will not:-
(i) conflict with any laws binding on Lessor; or
(ii) conflict with the constitutional documents of Lessor; or
(iii) conflict with any document which is binding upon Lessor or any
of its assets;
(e) AUTHORISATION: so far as concerns the obligations of Lessor, all
authorisations, consents, registrations and notifications required
under the laws of Sweden in connection with the entry into,
performance, validity and enforceability of, and the transactions
contemplated by, this Agreement by Lessor have been (or will on or
before the Delivery Date have been) obtained or effected (as
appropriate) and are (or will on their being obtained or effected be)
in full force and effect; and
(f) NO IMMUNITY:
(i) Lessor is subject to civil commercial law with respect to its
obligations under this Agreement; and
(ii) neither Lessor nor any of its assets is entitled to any right
of immunity and the entry into and performance of this
Agreement by Lessor constitute private and commercial acts.
3. CONDITIONS PRECEDENT
3.1 CONDITIONS PRECEDENT: Lessor's obligation to deliver and lease the
Aircraft under this Agreement is subject to satisfaction, or waiver
by Lessor, of each of the following conditions:-
15
<PAGE> 17
(a) receipt by Lessor from Lessee not later than the date set forth in, or
determined in accordance with, Clause 4.1 of the following
satisfactory in form and substance to Lessor:-
(i) CONSTITUTIONAL DOCUMENTS: a copy of the constitutional
documents of Lessee;
(ii) RESOLUTIONS: a copy of a resolution of the board of directors
of Lessee approving the terms of, and the transactions
contemplated by, this Agreement, resolving that it enter into
this Agreement, and authorising a specified person or persons
to execute this Agreement and accept delivery of the Aircraft
on its behalf.-
(iii) OPINION: evidence that an opinion in the form of Schedule 5
will be issued on the Delivery Date by legal counsel
acceptable to Lessor in the Habitual Base and the State of
Incorporation;
(iv) FAA OPINION: evidence that there will be issued an opinion of
Daugherty, Fowler & Peregrin or other counsel acceptable to
Lessor who are recognised specialists with regard to FAA
registration matters in a form acceptable to Lessor as to the
due filing for recordation of this Agreement;
(v) APPROVALS: evidence of the issue of each approval, licence and
consent which may be required in relation to the performance
by Lessee of any of its obligations hereunder (including,
without limitation, any consent to the export of the Aircraft
from the Habitual Base upon the termination of the leasing of
the Aircraft under this Agreement);
(vi) [INTENTIONALLY OMITTED)
(vii) LICENCES: copies of Lessee's air transport licence, air
operator's certificates and all other licences, certificates
and permits required by Lessee in relation to, or in
connection with, the operation of the Aircraft;
(viii) PROCESS AGENT: a letter from the process agent appointed by
Lessee in this Agreement accepting that appointment;
(ix) CERTIFICATE: a certificate of a duly authorised officer of
Lessee:-
(a) setting out a specimen of each signature referred to in Clause
3.1(a)(ii); and
(b) certifying that each document specified in this Clause is
correct, complete and in full force and effect; and
(c) certifying the matters set forth in sub-clause 3.1(a)(x)
below;
(x) AIR TRAFFIC CONTROL: a letter from Lessee addressed to all
relevant air traffic control authority pursuant to which
Lessee authorises the addressee to issue to Lessor, upon
Lessor's request from time to time, a statement of account of
all sums due by Lessee to the authority in respect of all
aircraft (including, without limitation, the Aircraft)
operated by Lessee and an officer's certificate from the
Lessee certifying that on the Delivery Date, no amounts are
past due and outstanding by Lessee to any air traffic control
authorities, except as set forth in a schedule attached
thereto; and
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<PAGE> 18
(xi) GENERAL: such other documents as Lessor may reasonably
request;
(b) the receipt by Lessor on or before the Delivery Date of:-
(i) OPINIONS: a signed original of each of the opinions referred
to in Clauses 3.1(a)(iii) and (iv);
(ii) PAYMENTS: all sums due to Lessor under this Agreement on or
before the Delivery Date including, without limitation, the
payment of Rent;
(iii) INSURANCES: certificates of insurance, an undertaking from
Lessee's insurance broker and other evidence satisfactory to
Lessor that Lessee is taking the required steps to ensure due
compliance with the provisions of this Agreement as to
Insurances with effect on and after the Delivery Date;
(iv) ACCOUNTS: the latest available accounts of Lessee as described
in Clause 8.2(b)(i) and (ii);
(v) DOCUMENTS: a confirmation of receipt of the Aircraft Documents
delivered with the Aircraft on the Previous Delivery Date;
(vi) GENERAL: such other documents as Lessor may reasonably
request;
(c) receipt by Lessor of such information and documents relating to the
proposed Maintenance Programme as Lessor may require and Lessor having
agreed the proposed Maintenance Programme on or prior to the Delivery
Date; and
(d) evidence that on the Delivery Date the Aircraft has been validly
registered under the laws of the State of Registration, that the
Financing Statements have been duly filed and that all filings,
registrations, recordings and other actions have been or will be taken
which are necessary or advisable to ensure the validity, effectiveness
and enforceability of this Agreement and to protect the property
rights of Owner, Sub Lessor and Lessor in the Aircraft or any Part.
3.2 FURTHER CONDITIONS PRECEDENT: The obligations of Lessor to deliver and
lease the Aircraft under this Agreement are subject to the further
conditions precedent that:-
(a) the representations and warranties of Lessee under Clauses 2.1 and 2.2
are correct and would be correct if repeated on delivery of the
Aircraft under this Agreement; and
(b) no Default has occurred and is continuing or might result from the
leasing of the Aircraft to Lessee under this Agreement.
3.3 WAIVER: The conditions specified in Clauses 3.1 and 3.2 are for the
sole benefit of Lessor and may be waived or deferred in whole or in
part and with or without conditions by Lessor. If any of those
conditions are not satisfied on the Delivery Date and Lessor (in its
absolute discretion) nonetheless agrees to deliver the Aircraft to
Lessee, Lessee will ensure that those conditions are fulfilled within
15 days after the Delivery Date and Lessor may treat as an Event of
Default the failure of Lessee to do so.
4. COMMENCEMENT
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<PAGE> 19
4.1 LEASING: Lessor will lease the Aircraft to Lessee and Lessee will take
the Aircraft on lease in accordance with this Agreement for the
duration of the Term. Lessor will deliver and Lessee will accept the
Aircraft on or about April 29, 1996 or such other day as may be
agreed. After delivery the Aircraft and every Part will be in every
respect at the sole risk of Lessee, who will bear all risk of loss,
theft, damage or destruction to the Aircraft from any cause
whatsoever.
4.2 DELIVERY: The Aircraft will be constructively delivered to and
accepted by Lessee as is at the Delivery Location or such other
location as may be agreed. Lessee will effect acceptance of the
Aircraft by execution and delivery to Lessor of the duly completed and
executed Certificate of Acceptance in the form of Schedule 2.
4.3 [INTENTIONALLY OMITTED]
4.4 [INTENTIONALLY OMITTED]
4.5 LESSEE'S LEASE TERM OPTION.
(a) Notwithstanding any other provision of this Agreement to the contrary,
Lessor hereby grants Lessee the option (the "Lease Term Option") to
terminate or extend the Term two (2) months earlier or later than the
numerically corresponding day twenty-four (24) months after the
Delivery Date provided that:
(i) Lessee shall give Lessor six months prior written notice (the
"Option Notice") of Lessee's intention to exercise the Lease Term
Option to either terminate or extend the Term by two (2) months, which
Option Notice, once given, shall be irrevocable; and
(ii) no Default shall have occurred and be continuing on the date that
the Option Notice is given;
(b) Option Exercised: Upon exercise by Lessee of the Lease Term Option,
but without prejudice to all the other terms and conditions of this
Agreement (including, without limitation, Lessee's obligation to
fulfil the conditions contained in Clause 4.5(a)) which shall remain
in full force and effect, the definition of "Expiry Date" contained in
Clause 1 of this Agreement shall be deemed to be amended such that the
words "Subject to any amendment pursuant to Clause 4.5(b), the day
preceding the numerically corresponding day 24 months after the
Delivery Date" shall be replaced with the words "the day preceding the
numerically corresponding day twenty-two (22) or twenty-six months
after the Delivery Date subject in all cases to the term identified in
the Option Notice".
(c) Option Not Exercised: If Lessee has not furnished Lessor with the
Option Notice on or before the date specified in sub-clause (a) above,
the Lease Term Option shall be forfeited, no longer available to
Lessee and of no further effect.
4.6 [Intentionally Omitted]
5. PAYMENTS
5.1 AIRCRAFT COMMITMENT FEE: Lessor hereby acknowledges receipt from
Lessee of the Aircraft Commitment Fee in the amount set forth in
Letter Agreement No. 1.
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<PAGE> 20
5.2 RENTAL PERIODS: The Term will be divided into Rental Periods. The
first Rental Period will commence on the Delivery Date and end May 5,
the second Rental Period will commence on May 6 and each subsequent
Rental Period will commence on the date succeeding the last day of the
previous Rental Period. Each Rental Period will end on the date
immediately preceding the numerically corresponding day in the next
month except that:-
(a) if there is no such numerically corresponding day in that month, it
will end on the last day of that month; and
(b) if a Rental Period would otherwise overrun the Expiry Date, it will
end on the Expiry Date.
5.3 BASIC RENT: Except as otherwise set forth in Letter Agreement No. 1,
on each Rent Date on each Rent Date on each Rent Date Lessee will pay
to Lessor or its order Basic Rent in advance in the amount set forth
in paragraph A of Letter Agreement No. 1. Payment must be initiated
adequately in advance of the Rent Date to ensure that Lessor receives
credit for the payment on the Rent Date. If a Rental Period begins
on a non-Business Day, the Basic Rent payable in respect of that
Rental Period shall be paid on the Business Day immediately preceding
the date on which such Rental Period commences.
5.4 SUPPLEMENTAL RENT:
(a) AMOUNT: Except as otherwise set forth in Letter Agreement No. 1, on
each Rent Date Lessee will further pay to Lessor Supplemental Rent in
relation to each Rental Period (including without limitation the last
Rental Period of the Term) on the 10th day following the end of that
Rental Period as follows:-
(i) in respect of the Airframe, the amount set forth in paragraph
B (i)(a) of Letter Agreement No. 1 in respect of each Flight
Hour operated by the Aircraft during that Rental Period
("Airframe Supplemental Rent"); and
(ii) in respect of each Engine, the amount set forth in paragraph B
(i)(b) of Letter Agreement No. 1 in respect of each Flight
Hour operated by that Engine during that Rental Period
("Engine Refurbishment Supplemental Rent"); and
(iii) in respect of each Engine, the amount set forth in paragraph B
(i)(c) of Letter Agreement No. 1 in respect of each Flight
Hour operated by that Engine during that Rental Period
("Engine Life Limited Parts Supplemental Rent"); and
(v) in respect of the Landing Gear, the amount set forth in
paragraph B (i)(d) of Letter Agreement No. 1 in respect of
each Flight Hour operated by the Landing Gear during that
Rental Period ("Landing Gear Supplemental Rent").
Notwithstanding the foregoing, with respect to any Engine, provided
that (x) no Default shall have occurred and be continuing; and (y)
there shall have been no material adverse change in Lessee's financial
position since the Delivery Date, if at any time commencing from the
Previous Delivery Date and falling during the Term the aggregate
amount of Engine Refurbishment Supplemental Rent, and Engine Life
Limited Parts Supplemental Rent previously paid by Lessee in respect
of that Engine less any amount paid by Lessor with respect to that
Engine pursuant to Clause 7.2 equals or exceeds $600,000, then
Lessee's obligation to pay Engine Refurbishment Supplemental Rent and
Engine Life
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Limited Parts Supplemental Rent in respect of that Engine shall abate.
Lessee's obligation to pay Engine Refurbishment Supplemental Rent and
Engine Life Limited Parts Supplemental Rent shall recommence at such
time as the aggregage amount of Engine Hot Section Refurbishment
Supplemental Rent, Engine Cold Section Refurbishment Supplemental Rent
and Engine Life Limited Parts Supplemental Rent held by Lessor in
respect of that Engine less any amount paid by Lessor with respect to
that Engine pursuant to Clause 7.2 falls below $600,000.
(b) ADJUSTMENT: the rate of Supplemental Rent shall be adjusted upwards
annually by Lessor at the rate of 5% per annum commencing 1 January,
1996. In addition, but not limited to the foregoing, Lessee
acknowledges that the rates of Supplemental Rent currently provided
for in this Agreement are based upon the assumptions that (i) the
Aircraft will be operated on a one Flight Hour to one Cycle ratio; and
(ii) the Agreed Maintenance Programme for the Aircraft during the Term
will be the same as that in effect on the Delivery Date. In the event
that either or both of the foregoing assumptions prove to be incorrect
at any time during the Term, Lessor and Lessee agree that Lessor shall
have the right, upon written notice to Lessee, to adjust the rate of
Supplemental Rent in accordance with the Table set forth in Letter
Agreement No. 1. In the event that the Agreed Maintenance Programme
changes during the Term (any such change to be in accordance with the
relevant terms and conditions of this Agreement), Lessor shall make
the aforementioned adjustment in the manner which Lessor determines,
in its reasonable discretion, is necessary to maintain the rates of
Supplemental Rent at levels which accurately reflect the costs
associated with obtaining maintenance services at prevailing industry
rates. Each such notice shall specify the revised rate of
Supplemental Rent and the effective date of such revision. Lessee
agrees to advise Lessor, in writing, of any circumstances or events
which would result in the foregoing assumptions becoming incorrect at
any time during the Term.
5.5 PAYMENTS: All payments by Lessee to Lessor under this Agreement will
be made for value on the due date in Dollars and in immediately
available funds settled through the New York Clearing House System or
such other funds as may for the time being be customary for the
settlement in New York City of international payments in Dollars by
telegraphic transfer to ABN Amro Bank Box 26096 Stockholm Sweden
Account number 9090-008-468 for credit to the account of Polaris
Aircraft Leasing K.B. or to such other account as Lessor may advise
Lessee in writing.
5.6 GROSS-UP:
(a) All payments by Lessee under or in connection with this Agreement will
be made without set-off or counterclaim, free and clear of and without
deduction for or on account of all Taxes (other than Lessor Taxes);
(b) all Taxes (other than Lessor Taxes) in respect of payments under this
Agreement shall be for the account of and will be paid by Lessee for
its own account prior to the date on which penalties apply; and
(c) if Lessee is compelled by law to make payment subject to any Tax
(other than Lessor Taxes) and Lessor does not actually receive for its
own benefit on the due date a net amount equal to the full amount
provided for under this Agreement, Lessee will pay all necessary
additional amounts to ensure receipt by Lessor of the full amount so
provided for.
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5.7 TAXATION: Lessee will on demand pay and indemnify Lessor against all
Taxes (other than Lessor Taxes) levied or imposed against or upon
Owner, Sub Lessor, Lessor or Lessee and relating to or attributable to
Lessee, this Agreement or the Aircraft directly or indirectly in
connection with the importation, exportation, registration, ownership,
leasing, subleasing, delivery, possession, use, operation, repair,
maintenance, overhaul, transportation, landing, storage, presence or
redelivery of the Aircraft or any part thereof or any rent, receipts,
insurance proceeds, income or other amounts arising therefrom.
5.8 VALUE ADDED TAX:
(a) For the purposes of this sub-clause:-
(i) "VAT" means value added tax and any sales or turnover tax,
imposition or levy of a like nature;
(ii) "supply" includes anything on which VAT is chargeable;
(b) Lessee will pay to Lessor the amount of any VAT chargeable in respect
of any supply of goods or services for VAT purposes under this
Agreement; and
(c) each amount stated as payable by Lessee under this Agreement is
exclusive of VAT (if any) and is accordingly to be construed as a
reference to that amount plus any VAT in respect of it.
5.9 INFORMATION: If Lessee is required by any applicable law, or by any
third party, to deliver any report or return in connection with any
Taxes, Lessee will complete the same in a manner satisfactory to
Lessor and in particular will state therein that Lessee is exclusively
responsible for the use and operation of the Aircraft and for any
Taxes arising therefrom, and Lessee will, on request, supply a copy of
the report or return to Lessor.
5.10 TAXATION OF INDEMNITY PAYMENTS:
(a) If and to the extent that any sums payable to Lessor by Lessee under
this Agreement by way of indemnity are insufficient, by reason of any
Taxes (other than Lessor Taxes) payable in respect of those sums, for
Lessor to discharge the corresponding liability to the relevant third
party (including any taxation authority), or to reimburse Lessor for
the cost incurred by it to a third party (including any taxation
authority) Lessee will pay to Lessor such sum as will after the tax
liability has been fully satisfied leave Lessor with the same amount
as it would have been entitled to receive in the absence of that
liability together with interest on the amount of the deficit at the
rate of interest stated in Clause 5.11 in respect of the period
commencing on the date on which the payment of taxation is finally due
until payment by Lessee (both before and after judgment); and
(b) If and to the extent that any sums constituting (directly or
indirectly) an indemnity to Lessor but paid by Lessee to any person
other than Lessor are treated as taxable in the hands of Lessor,
Lessee will pay to Lessor such sum as will after the tax liability has
been fully satisfied indemnify Lessor to the same extent as it would
have been indemnified in the absence of such liability together with
interest on the amount payable by Lessee under this sub-clause at the
rate of interest stated in Clause 5.11 in respect of the period
commencing on the date on which the payment of taxation is finally due
until payment by Lessee (both before and after judgment) provided
however that Lessee will not be liable
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for any Lessor Taxes incurred as a result of the payment of the Agreed
Value pursuant to Clause 11.
5.11 DEFAULT INTEREST: If Lessee fails to pay any amount payable under this
Agreement on the due date, Lessee will pay on demand from time to time
to Lessor interest (both before and after judgment) on that amount,
from the due date to the date of payment in full by Lessee to Lessor,
at the rate calculated by Lessor to be one month Dollar LIBOR plus 500
basis points per annum. All such interest will be compounded monthly
and calculated on the basis of the actual number of days elapsed and a
360 day year.
5.12 CONTEST: If Lessee disputes the payment of any Taxes payable by Lessor
for which Lessee is responsible under this Agreement, Lessor will
consider with Lessee the taking of such action as Lessee may
reasonably request at Lessee's expense to contest that payment but
will not be obliged to take any such action:-
(a) which Lessor considers in its sole discretion may prejudice it; or
(b) which Lessor considers does not have a reasonable prospect of success;
or
(c) for which Lessee has not made adequate provision to the satisfaction
of Lessor in respect of the expense concerned.
5.13 ABSOLUTE: Lessee's obligations under this Agreement are absolute and
unconditional irrespective of any contingency whatsoever including
(but not limited to):-
(a) any right of set-off, counterclaim, recoupment, defence or other right
which either party to this Agreement may have against the other;
(b) any unavailability of the Aircraft for any reason, including, but not
limited to, a requisition of the Aircraft or any prohibition or
interruption of or interference with or other restriction against
Lessee's use, operation or possession of the Aircraft;
(c) any lack or invalidity of title or any other defect in title,
airworthiness, merchantability, fitness for any purpose, condition,
design, or operation of any kind or nature of the Aircraft for any
particular use or trade, or for registration or documentation under
the laws of any relevant jurisdiction, or any Event of Loss in respect
of or any damage to the Aircraft;
(d) any insolvency, bankruptcy, reorganisation, arrangement, readjustment
of debt, dissolution, liquidation or similar proceedings by or against
Lessor or Lessee;
(e) any invalidity or unenforceability or lack of due authorisation of, or
other defect in, this Agreement; and
(f) any other cause which but for this provision would or might otherwise
have the effect of terminating or in any way affecting any obligation
of Lessee under this Agreement.
5.14 SECURITY:
(a) It is intended by Lessor and Lessee that the Aircraft Commitment Fee
paid by Lessee to Lessor and referenced in Clause 5.1 the
Supplemental Rent and, if applicable, the Insurance Security Deposit
contemplated by the first paragraph of Schedule 4 are amounts
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paid by Lessee to Lessor in consideration for Lessor removing the
Aircraft from the market, the use of the Aircraft by Lessee and the
satisfaction of Lessor's obligations under this Agreement and that,
once paid, those monies irrevocably and unconditionally shall be the
property of Lessor. Notwithstanding that stated intent, if and to the
extent that those monies or any thereof, under any applicable law or
otherwise, are determined to be security deposits or otherwise the
property of Lessee or if it is so determined those monies are a debt
owed to Lessee or that Lessee shall have any interest in those monies
(the "Charged Monies"), the parties agree that subclauses (b), (c) and
(d) shall apply;
(b) To the fullest extent permitted by law and by way of continuing
security Lessee charges and grants a security interest in the Charged
Monies and all rights of Lessee to payment thereof, the debt
represented thereby and/or any and all interest of Lessee therein to
Lessor by way of first priority security interest and first fixed
charge as security for Lessee's obligations and liabilities under this
Agreement and the Other Agreements (the "Secured Liabilities").
Except as expressly permitted under this Agreement, Lessee will not be
entitled to payment of the Charged Monies. Lessee will not assign,
transfer or otherwise dispose of all or part of its rights in the
Charged Monies and Lessee agrees that it will enter into any
additional documents and instruments necessary or reasonably requested
by Lessor to evidence, create or perfect Lessor's rights to the
Charged Monies.
(c) If Lessee fails to comply with any provision of this Agreement or any
Event of Default has occurred and is continuing Lessor may immediately
or at any time thereafter, without prior notice to Lessee:-
(i) set-off all or any part of the Secured Liabilities against the
liabilities of Lessor in respect of the Charged Monies; or
(ii) apply or appropriate the Charged Monies in or towards the
payment or discharge of the Secured Liabilities in such order as
Lessor sees fit; and
(d) If Lessor has exercised the set-off described in sub-clause (c) above,
Lessee shall, following a demand in writing from Lessor, promptly
restore the Charged Monies to the level at which they stood
immediately prior to such set-off.
6 MANUFACTURER'S WARRANTIES
6.1 ASSIGNMENT: Notwithstanding this Agreement, Lessor will remain
entitled to the benefit of each warranty, express or implied, with
respect to the Aircraft, any Engine or Part so far as concerns any
manufacturer, vendor, subcontractor or supplier. Except to the extent
Lessor otherwise directs, Lessor hereby authorises Lessee to pursue
any claim thereunder in relation to defects affecting the Aircraft,
any Engine or Part and Lessee agrees diligently to pursue any such
claim which arises at its own cost. Lessee will notify Lessor
promptly upon becoming aware of any such claim.
6.2 PROCEEDS: Except to the extent Lessor otherwise agrees in a particular
case, all proceeds of any such claim will be paid directly to Lessor
but if and to the extent that such claim relates:-
(a) to defects affecting the Aircraft which Lessee has rectified; or
(b) to compensation for loss of use of the Aircraft, an Engine or any Part
during the Term; and
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provided no Default has occurred and is continuing the proceeds will be
paid to Lessee by Lessor but in the case of (a) only on receipt of
evidence satisfactory to Lessor that Lessee has rectified the relevant
defect.
6.3 PARTS: Except to the extent Lessor otherwise agrees in a particular
case, Lessee will procure that all engines, components, furnishings or
equipment provided by the manufacturer, vendor, subcontractor or
supplier in replacement of a defective Engine or Part pursuant to the
terms of any warranty will be installed promptly by Lessee, that title
thereto free of Security Interests vests in Owner. On installation
those items will be deemed to be an Engine or Part as applicable.
6.4 AGREEMENT: To the extent any warranties relating to the Aircraft are
made available under an agreement between any manufacturer, vendor,
subcontractor or supplier and Lessee, this Clause 6 is subject to that
agreement. However Lessee will:-
(a) pay the proceeds of any claim thereunder to Lessor to be applied
pursuant to Clause 6.2 and pending such payment will hold the claim
and the proceeds on trust for Lessor; and
(b) Lessee will take all such steps as are necessary at the end of the
Term to ensure the benefit of any of those warranties which have not
expired are vested in Lessor.
7. LESSOR'S COVENANTS
7.1 QUIET ENJOYMENT: Lessor will not interfere with the quiet use,
possession and enjoyment of the Aircraft by Lessee but the exercise by
Lessor of its rights under or in connection with this Agreement will
not constitute such an interference.
7.2 MAINTENANCE CONTRIBUTION: Provided no Default has occurred and is
continuing Lessor will pay to Lessee, by way of contribution to the
cost of maintenance of the Aircraft, upon submission by Lessee to
Lessor within 6 months of the commencement of that maintenance and
before the Expiry Date of an invoice and supporting documentation
reasonably satisfactory to Lessor evidencing:-
(a) with respect to the Airframe, the completion, in accordance with this
Agreement, of those items of maintenance characterised by the
Manufacturer's maintenance planning document and best industry
practice as D Check and/or individual structural inspections having an
interval of not less than 15,000 Flight Hours or 6 years for the
Aircraft (but not including repairs arising as the result of
operational or maintenance mishandling and not including airworthiness
directives), the lesser of (i) the amount of that invoice and (ii) an
amount equal to the aggregate amount of Airframe Supplemental Rent
paid under this Agreement at the time of commencement of such
maintenance less the aggregate amount previously paid by Lessor under
this sub-clause;
(b) with respect to any Engine, the performance, in accordance with this
Agreement, of a Hot Section Refurbishment or a Cold Section
Refurbishment (other than (i) repairs arising as a result of foreign
object damage or operational or maintenance mishandling and/or (ii)
removal, installation, maintenance and repair of QEC (Quick Engine
Change) kits and/or airworthiness directives), the lesser of (i) the
amount of that invoice and (ii) an amount equal to the aggregate
amount of Engine Refurbishment Supplemental Rent paid in respect of
that Engine under this Agreement at the time of commencement of such
maintenance less the aggregate amount previously paid in respect of
that Engine by Lessor under this sub-clause;
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(c) with respect to any Engine, the replacement, in accordance with this
Agreement, of life limited Parts (other than replacement which is
occasioned by foreign object damage or operational or maintenance
mishandling and other than replacement occasioned by airworthiness
directives or elective replacement), the lesser of (i) the amount of
that invoice and (ii) an amount equal to the aggregate amount of
Engine Life Limited Parts Supplemental Rent paid in respect of that
Engine under this Agreement at the time of commencement of such
maintenance less the aggregate amount previously paid in respect of
that Engine by Lessor under this sub-clause; and
(d) with respect to the Landing Gear, the performance in accordance with
this Agreement, of all work on the Landing Gear in the nature of
overhaul and requiring removal and disassembly (other than repairs
arising as the result of operational or maintenance mishandling and/or
airworthiness directives), the lesser of (i) the amount of that
invoice and (ii) an amount equal to the aggregate amount of Landing
Gear Supplemental Rent paid under this Agreement at the time of
commencement of such maintenance less the aggregate amount previously
paid by Lessor under this sub-clause.
7.3 LESSOR OBLIGATIONS FOLLOWING EXPIRY DATE: Within 5 Business Days of:-
(a) redelivery of the Aircraft to Lessor in accordance with and in the
condition required by this Agreement; or
(b) payment to Lessor of the Agreed Value following an Event of Loss after
the Delivery Date;
or in each case such later time as Lessor is satisfied Lessee has
irrevocably paid to Lessor all amounts which may then be outstanding or
become payable under this Agreement or the Other Agreements and
provided that no Default shall have occurred and is continuing, Lessor
will pay to Lessee:-
(i) an amount equal to (x) the amount of the Aircraft Commitment
Fee paid by Lessee and referenced in Clause 5.1; plus (y) the
amount of interest at the rate and otherwise calculated in
accordance with Letter Agreement No. 1 which would have
accrued on the amount referred to in (x); and
(ii) the amount of any Rent received in respect of any period
falling after the date of redelivery of the Aircraft or
payment of the Agreed Value, as the case may be; and
(iii) an amount equal to (x) the aggregate amount of Supplemental
Rent previously paid by Lessee under this Agreement; minus (y)
the aggregate amount previously paid by Lessor under Clause
7.2 without payment of interest.
8. LESSEE'S COVENANTS
8.1 DURATION: The undertakings in this Clause and in Clause 12 will:-
(a) except as otherwise stated, be performed at the expense of Lessee; and
(b) remain in force until the Expiry Date in accordance with this
Agreement and thereafter to the extent of any accrued rights of Lessor
in relation to those undertakings.
8.2 INFORMATION: Lessee will:-
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(a) notify Lessor forthwith of the occurrence of any Default or any other
event which might adversely affect Lessee's ability to perform any of
its obligations under this Agreement;
(b) furnish to Lessor:-
(i) on a quarterly and annual basis, the consolidated management
accounts of Lessee (comprising a balance sheet and profit and
loss statement) prepared for the most recent previous
financial quarter certified by Lessee's chief financial
officer as being true and correct;
(ii) as soon as available but not in any event later than 120 days
after the last day of each financial year of Lessee, its
audited consolidated balance sheet as of such day and its
audited consolidated profit and loss statement for the year
ending on such day;
(iii) at the same time as it is issued to the shareholders or
creditors of Lessee, a copy of each notice or circular issued
to Lessee's shareholders or creditors as a group; and
(iv) on request from time to time such other information relevant
to the transaction contemplated by this Agreement regarding
Lessee and its business and affairs as Lessor may reasonably
request;
(c) keep Lessor informed as to current serial numbers of the Engines and
any engine installed on the Aircraft;
(d) promptly furnish to Lessor all information Lessor from time to time
reasonably requests regarding the Aircraft, any Engine or any Part,
its use, location and condition including, without limitation, the
hours available on the Aircraft and any Engine until the next
scheduled check, inspection, overhaul or shop visit, as the case may
be;
(e) on request, within 10 days after the end of any Rental Period, furnish
to Lessor evidence satisfactory to Lessor of payment of all Taxes due
during that or any previous Rental Period;
(f) on request, furnish to Lessor evidence satisfactory to Lessor that all
Taxes and charges incurred by Lessee with respect to the Aircraft,
including without limitation all payments due to the relevant air
traffic control authorities, have been paid and discharged in full;
(g) provide Lessor with a monthly report on the Aircraft and each Engine
in the form required from time to time by Lessor;
(h) give Lessor not less than 60 days' written notice as to the time and
location of all Major Checks; and
(i) promptly notify Lessor of:-,
(i) any loss, theft, damage or destruction to the Aircraft, any
Engine or any Part, or any modification to the Aircraft if the
potential cost may exceed the Damage Notification Threshold;
and
(ii) any claim or other occurrence likely to give rise to a claim
under the Insurances
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(but in the case of hull claims only in excess of the Damage
Notification Threshold) and details of any negotiations with
the insurance brokers over any such claim.
8.3 LAWFUL AND SAFE OPERATION: Lessee will:-
(a) comply with the law for the time being in force in any country or
jurisdiction which may for the time being be applicable to the
Aircraft or, so far as concerns the use and operation of the Aircraft
or an owner or operator thereof and take all reasonable steps to
ensure that the Aircraft is not used for any illegal purpose;
(b) not use the Aircraft in any manner contrary to any recommendation of
the manufacturers of the Aircraft, any Engine or any Part or any
recommendation or regulation of the Air Authority or for any purpose
for which the Aircraft is not designed or reasonably suitable;
(c) ensure that the crew and engineers employed by it in connection with
the operation and maintenance of the Aircraft have the qualifications
and hold the licences required by the Air Authority and applicable
law;
(d) use the Aircraft solely in commercial or other operations for which
Lessee is duly authorised by the Air Authority and applicable law;
(e) not use the Aircraft for the carriage of:-
(i) whole animals living or dead except in the cargo compartments
according to I.A.T.A. regulations, and except domestic pet
animals carried in a suitable container to prevent the escape
of any liquid and to ensure the welfare of the animal;
(ii) acids, toxic chemicals, other corrosive materials, explosives,
nuclear fuels, nuclear wastes, or any nuclear assemblies or
components, except as permitted for passenger aircraft under
the "Restriction of Goods" schedule issued by I.A.T.A. from
time to time and provided that all the requirements for
packaging or otherwise contained therein are fulfilled;
(iii) any other goods, materials or items of cargo which could
reasonably be expected to cause damage to the Aircraft and
which would not be adequately covered by the Insurances; or
(iv) any illegal item or substance;
(f) not utilise the Aircraft for purposes of training, qualifying or
re-confirming the status of cockpit personnel except for the benefit
of Lessee's cockpit personnel, and then only if the use of the
Aircraft for such purpose is not disproportionate to the use for such
purpose of other aircraft of the same type operated by Lessee;
(g) not cause or permit the Aircraft to proceed to, or remain at, any
location which is then the subject of a prohibition order (or any
similar order or directive), sanctions or restrictions by:-
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(i) the United Nations Security Council, the U.S. International
Economic Emergency Powers Act or U.N. Security Council
directives (including, as of the date hereof, Haiti, Iraq,
Libya and the Federal Republic of Yugoslavia (Serbia and
Montenegro) and the Unita Rebels of Angola) or the U.S. Export
Administration Act Regulations (15 C.F.R. Parts 730-799)
(including as of the date hereof Cuba, Iran, North Korea,
Sudan, Syria and Vietnam), except as may be permitted by
operating in accordance with the conditions specified by the
U.S. Export Administration Regulations, General License GATS
(15 C.F.R. Part 771.19);
(i) any Government Entity of the State of Registration or the
Habitual Base;
(iii) any Government Entity of the country in which such location is
situated; or
(iv) any Government Entity having jurisdiction over Owner, Sub
Lessor, Lessor, the Banks or the Aircraft;
(h) obtain and maintain in full force all certificates, licences, permits
and authorisations required for the use and operation of the Aircraft
for the time being, and for the making of payments required by, and
the compliance by Lessee with its other obligations under, this
Agreement;
(i) not operate or locate the Aircraft or suffer or permit the Aircraft to
be operated or located during the Term in any area excluded from
coverage by any insurance policy issued pursuant to the requirements
of this Agreement; and
(j) not operate or locate the Aircraft in, to or over any country which is
(x) the subject of sanctions under the U.S. International Economic
Emergency Powers Act or United Nations Security Council Directives
(currently Haiti, Iraq, Libya, the Federal Republic of Yugoslavia
(Serbia and Montenegro) and the Unita Rebels of Angola) and/or (y)
restricted under the United States Trading with the Enemy Act or the
United States Export Administration Act except as may be permitted by
operating in accordance with the conditions specified by the United
States Export Administration Regulations, General Licence GATS (15 CFR
Part 771.19) (currently Cuba, Iran, North Korea and Syria).
8.4 TAXES AND OTHER OUTGOINGS: Lessee will promptly pay:-
(a) all licence and registration fees, Taxes (other than Lessor Taxes) and
other amounts of any nature imposed by any Government Entity with
respect to the Aircraft, including without limitation the purchase,
ownership, delivery, leasing, possession, use, operation, return, sale
or other disposition of the Aircraft; and
(b) all rent, fees, charges, Taxes (other than Lessor Taxes) and other
amounts in respect of any premises where the Aircraft or any Part
thereof is located from time to time;
except to the extent that in the reasonable opinion of Lessor such
payment is being contested in good faith by appropriate proceedings,
in respect of which adequate reserves have been provided by Lessee and
non-payment of which does not give rise to any material likelihood of
the Aircraft or any interest therein being sold, forfeited or
otherwise lost or of criminal liability on the part of Owner, Lessor,
Sub Lessor or any Bank.
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8.5 SUB-LEASING: LESSEE WILL NOT, WITHOUT THE PRIOR WRITTEN CONSENT OF
LESSOR, SUB-LEASE OR OTHERWISE PART WITH POSSESSION OF THE AIRCRAFT,
THE ENGINES OR ANY PART EXCEPT THAT LESSEE MAY PART WITH POSSESSION
(A) WITH RESPECT TO THE AIRCRAFT, THE ENGINES OR ANY PART TO THE
RELEVANT MANUFACTURERS FOR TESTING OR SIMILAR PURPOSES OR TO THE
AGREED MAINTENANCE PERFORMER FOR SERVICE, REPAIR, MAINTENANCE OR
OVERHAUL WORK, OR ALTERATIONS, MODIFICATIONS OR ADDITIONS TO THE
EXTENT REQUIRED OR PERMITTED BY THIS AGREEMENT, AND (B) WITH RESPECT
TO AN ENGINE OR PART, AS EXPRESSLY PERMITTED BY THIS AGREEMENT.
8.6 INSPECTION:
(a) Lessor and any person designated by Lessor may at any time visit,
inspect and survey the Aircraft, any Engine or any Part and for such
purpose may, subject to any applicable Air Authority regulation,
travel on the flight deck as observer;
(b) Lessee will pay to Lessor on demand all reasonable out-of-pocket
expenses incurred by Lessor in connection with any such visit,
inspection or survey; and
(c) Lessor will:
(i) have no duty or liability to make, or arising out of any such
visit, inspection or survey; and
(ii) so long as no Default has occurred and is continuing, not
exercise such right other than on reasonable notice and so as
not to disrupt unreasonably the commercial operations of
Lessee.
8.7 OWNERSHIP; PROPERTY INTERESTS; RELATED MATTERS: Lessee will:-
(a) not do or knowingly permit to be done or omit or knowingly permit the
omission of any act or thing which might reasonably be expected to
jeopardise the rights of Owner as owner of the Aircraft, the rights of
Sub Lessor as sub lessor of the Aircraft and the rights of Lessor as
lessor of the Aircraft;
(b) on all occasions when the ownership of the Aircraft, any Engine or any
Part is relevant, make clear to third parties that title is held by
Owner;
(c) not at any time (i) represent or hold out Owner, Sub Lessor, Lessor or
the Banks as carrying goods or passengers on the Aircraft or as being
in any way connected or associated with any operation or carriage
(whether for hire or reward or gratuitously) which may be undertaken
by Lessee or (ii) pledge the credit of Owner, Sub Lessor, Lessor or
the Banks;
(d) ensure that there is always affixed, and not removed or in any way
obscured, a fireproof plate (having dimensions of not less than 10 cm.
x 7 cm.) in a reasonably prominent position in the cockpit of the
Aircraft adjacent to the certificate of airworthiness and on each
Engine stating:-
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"This Aircraft/Engine is owned by Polaris Aircraft Leasing K.B. and
is leased to Air South Airlines, Inc. and may not be operated by any
other person without the prior written consent of Polaris Aircraft
Leasing K.B.";
(e) not create or permit to exist any Security Interest upon the Aircraft,
any Engine or any Part;
(f) not do or permit to be done anything which may reasonably be expected
to expose the Aircraft, any Engine or any Part to penalty, forfeiture,
impounding, detention, appropriation, damage or destruction and
without prejudice to the foregoing, if any such penalty, forfeiture,
impounding, detention or appropriation, damage or destruction occurs,
give Lessor notice and use best endeavours to procure the immediate
release of the Aircraft, any Engine or the Part, as the case may be;
(g) not abandon the Aircraft, the Engine or any Part;
(h) pay and discharge or cause to be paid and discharged when due and
payable or make adequate provision by way of security or otherwise for
all debts, damages, claims and liabilities which have given or might
give rise to a Security Interest over or affecting the Aircraft, any
Engine or any Part; and
(i) not attempt, or hold itself out as having any power, to sell, lease or
otherwise dispose of the Aircraft, any Engine or any Part.
8.8 GENERAL: Lessee will:-
(a) not liquidate or dissolve (except in connection with a transaction
otherwise permitted by this Clause 8.8 (a)), and Lessee shall not
consolidate with or merge into, any other corporation, and Lessee
shall not convey, transfer, lease or otherwise dispose of all or
substantially all of its property and other assets, whether in one or
a series of related transactions unless in the case of any such
consolidation, merger, conveyance, transfer, lease or other
disposition:-
(i) the corporation formed by or surviving such consolidation or
merger or the corporation which acquires by conveyance,
transfer, lease or other disposition all or a material portion
of such property and other assets or stock (the "Successor
Entity"):-
(A) shall be a corporation organised and existing under
the laws of the United States or any state thereof;
(B) immediately after giving effect to such transaction,
shall be Lessee or shall have acquired or succeeded
to all or substantially all of the property and other
assets (including, without limitation, all or
substantially all of Lessee's property and other
assets) as an entirety; and
(C) shall execute and deliver to Lessor an agreement, in
form and substance reasonably satisfactory to Lessor,
which is a legal, valid, binding and enforceable
assumption by such Successor Entity of the due and
punctual performance and observance of each covenant
and condition of this Agreement and agreement to be
bound thereby, and
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shall execute, deliver and/or file such recordations
and filings with any Government Entity and such other
documents as Lessor shall reasonably deem to be
necessary or advisable (including, without
limitation, to preserve and protect the interests of
Lessor) to evidence, or in connection with, such
consolidation, merger, sale, lease, transfer or other
disposition or acquisition and an officer's
certificate from a responsible officer of the
Successor Entity confirming the legal, valid, binding
and enforceable nature of such assumption, and to the
effect that the other requirements of this paragraph
have been satisfied, and a legal opinion from counsel
confirming the legal, valid, binding and enforceable
nature of such assumption and otherwise in such form
and substance reasonably satisfactory to Lessor; and
(ii) prior to and immediately after giving effect to such
transaction, no Default or Event of Default shall have
occurred and be continuing.
No such permitted disposition to a Successor Entity shall relieve or
release Lessee of or from any obligations hereunder which arose or
existed prior to such disposition. Promptly following the closing of
such disposition, Lessee shall provide Lessor with a certificate
signed by Lessee's chief financial officer to the effect that such
disposition will not have a material adverse effect on Lessee's
ability to perform its obligations under this Agreement;
(b) ensure that no change will occur in the Habitual Base of the Aircraft
without the prior written consent of Lessor. Lessor agrees that it
shall not withhold its consent to a change in the Habitual Base to
another state of the United States if Lessee shall have provided
Lessor with an opinion of counsel practising in the state of the
United States proposed by Lessee to be the Habitual Base in form and
in substance reasonably satisfactory to Lessor to the effect that the
rights and interests of Lessor are duly protected;
(c) not, without giving Lessor 30 days prior written notice (in accordance
with this Agreement), change its chief executive office (as such term
is defined in Article 9 of the Uniform Commercial Code as in effect in
the State of South Carolina) from 1800 St. Julian Place, 4th Floor,
Columbia, South Carolina 29204;
(d) remain a Certificated Air Carrier and maintain, without limitation,
its status so as to fall within the purview of Section 1110 of Title
11 of the United States Code or any analogous Statute; and
(e) remain a "citizen of the United States" as defined in Section 101(16)
of the Federal Aviation Act.
8.9 RECORDS: Lessee will:-
(a) cause accurate, complete and current records of all flights made by,
and all maintenance carried out on, the Aircraft (including in
relation to each Engine and Part subsequently installed, before the
installation) to be kept; keep the records in such manner as the Air
Authority may from time to time require, and ensure that they comply
with the recommendations of any manufacturers of the Aircraft, any
Engine or any Part. All records must be maintained in English. The
records will form part of the Aircraft Documents; and
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(b) procure access to a revision service in respect of, and will maintain
with appropriate revisions in English, all Aircraft Documents,
records, logs, and other materials required by applicable laws and
best practice of major international air transport operators in
respect of the Aircraft.
8.10 PROTECTION: Lessee will:-
(a) maintain the registration of the Aircraft with the Air Authority in
the name of Lessor and, to the extent permitted under the laws of the
State of Registration, reflecting the respective interests of Owner
and Sub Lessor and not do or suffer to be done anything which might
adversely affect that registration; and
(b) do all acts and things (including, without limitation, making any
filing or registration with the Air Authority or any other Government
Entity) and execute and deliver, notarise, file, register and record
all documents (including, without limitation, any amendment of this
Agreement) as may be required by Lessor:-
(i) following any change or proposed change in the ownership or
financing of the Aircraft or in the manner of securing Owner's
and/or Sub Lessor's and/or Lessor's obligations to the Banks;
or
(ii) following any modification of the Aircraft, any Engine or any
Part or the permanent replacement of any Engine or Part in
accordance with this Agreement, so as to ensure that the
rights of Owner as owner of the Aircraft, the rights of Sub
Lessor as sub lessor of the Aircraft and the rights of Lessor
as lessor of the Aircraft and under this Agreement apply with
the same effect as before; or
(iii) to establish, maintain, preserve, perfect and protect the
rights of Lessor under this Agreement or the interest of Sub
Lessor as sub lessor of the Aircraft and the interest of Owner
as owner of the Aircraft.
8.11 MAINTENANCE AND REPAIR: Lessee will:-
(a) keep the Aircraft airworthy in all respects and in good repair and
condition;
(b) not change the Agreed Maintenance Programme or the schedule of the
Agreed Maintenance Programme without the written consent of Lessor;
(c) maintain the Aircraft in accordance with the Agreed Maintenance
Programme through the Agreed Maintenance Performer and perform (at the
respective intervals provided in the Agreed Maintenance Programme) all
Major Checks;
(d) maintain the Aircraft in accordance with FAA Federal Air Regulations
Part 121 and any other rules and regulations of the FAA as may be
applicable to passenger category aircraft and in at least the same
manner and with at least the same care, including, without limitation,
maintenance scheduling, modification status and technical condition,
as is the case with respect to similar aircraft owned or otherwise
operated by Lessee and as if Lessee were to retain the Aircraft in its
fleet and continue to operate the Aircraft after the Expiry Date and
including, without limitation, all maintenance to the Airframe, any
Engine or any Part required to maintain all warranties, performance
guarantees or service life policies in full force and effect;
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(e) comply with all mandatory inspection and modification requirements,
airworthiness directives and similar requirements applicable to the
Aircraft, any Engine or Part having a compliance date during the Term
or within 180 days after the Expiry Date and which are required by the
Air Authority, and/or the FAA and/or the laws of the state of
manufacture of the Aircraft, any Engine or Part and/or recommended by
any manufacturer of the Aircraft, any Engine or Part (each of the
foregoing being hereinafter referred to as a "Relevant AD").
The cost of compliance with any single Relevant AD shall be allocated
among Lessor and Lessee as follows:-
(i) Lessee shall be responsible for the first $100,000 of such
cost;
(ii) Lessor and Lessee shall share, on an equal basis, the portion
of such cost (if any) which exceeds $100,000 up to and
including $200,000; and
(iii) Lessor shall be wholly responsible for the portion of such
cost (if any) which exceeds $200,000 (subject always to the
provisions of the following paragraph).
Notwithstanding the foregoing, in the event that the total cost of any
single Relevant AD (such total cost to be mutually agreed, in good
faith, between Lessor and Lessee) exceeds $200,000 (the "Threshold
Amount"), Lessor may elect not to make its contribution to the cost of
compliance with such Relevant AD as described in (iii) above. If
Lessor shall so elect, Lessee shall be entitled, by giving prior
written notice to Lessor, to terminate this Agreement and redeliver
the Aircraft to Lessor in accordance with Clause 12 and Schedule 3
(except for compliance with the Relevant AD which gave rise to such
termination) on the earlier of (x) the date which is 30 days after the
date of such notice from Lessee to Lessor; or (y) the date on which
the Aircraft is required to be removed from service by reason of
non-compliance with the applicable Relevant AD. Such notice shall
specify the proposed redelivery date of the Aircraft by Lessee and,
upon the receipt of such notice by Lessor, the then current definition
of Expiry Date shall be deemed to have been amended accordingly. Upon
any termination of this Agreement pursuant to this Clause 8.11 (e),
neither party shall be under any further obligation to the other
hereunder except for (x) accrued obligations of Lessee hereunder; and
(y) obligations hereunder which are expressed to continue
notwithstanding the expiration of the Term and provided further that
Lessor shall, if applicable having regard to the provisions of Clause
7.3, make the rebate described in Clause 7.3 (i) and the adjustment
payments described in Schedule 3 shall be payable by Lessee;
(f) comply with all applicable laws and the regulations of the Air
Authority and other aviation authorities with jurisdiction over Lessee
or the Aircraft, any Engine or Part regardless of upon whom such
requirements are imposed and which relate to the maintenance,
condition, use or operation of the Aircraft or require any
modification or alteration to the Aircraft, any Engine or Part;
(g) maintain in good standing a current certificate of airworthiness (in
the appropriate category for the nature of the operations of the
Aircraft) for the Aircraft issued by the Air Authority except where
the Aircraft is undergoing maintenance, modification or repair
required or permitted by this Agreement and will from time to time
provide to Lessor a copy on request;
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(h) if required by the Air Authority, maintain a current certification as
to maintenance issued by or on behalf of the Air Authority in respect
of the Aircraft and will from time to time provide to Lessor a copy on
request; and
(i) procure promptly the replacement of any Engine or Part which has
become time, cycle or calendar expired, lost, stolen, seized,
confiscated, destroyed, damaged beyond repair, unserviceable or
permanently rendered unfit for use, with an engine or part complying
with the conditions set out in Clause 8.13(a).
8.12 REMOVAL OF ENGINES AND PARTS: Lessee will ensure that no Engine or
Part installed on the Aircraft is at any time removed from the
Aircraft other than:-
(a) if replaced as expressly permitted by this Agreement; or
(b) if the removal is of an obsolete item and is in accordance with the
Agreed Maintenance Programme; or
(c) (i) during the course of maintaining, servicing, repairing,
overhauling or testing that Engine or the Aircraft, as the
case may be; or
(ii) as part of a normal engine or part rotation programme; or
(iii) for the purpose of making such modifications to the Engine or
the Aircraft, as the case may be, as are permitted under this
Agreement;
and then in each case only if it is reinstalled or replaced by an
engine or part complying with Clause 8.13(a) as soon as practicable
and in any event no later than the Expiry Date.
8.13 INSTALLATION OF ENGINES AND PARTS: Lessee will:-
(a) ensure that, except as permitted by this Agreement, no engine or part
is installed on the Aircraft unless:-
(i) in the case of an engine, it is an engine of the same model
as, or an improved or advanced version of the Engine it
replaces, which is in the same or better operating condition,
has substantially similar hours available until the next
scheduled checks, inspections, overhauls and shop visits and
has the same or greater value and utility as the replaced
Engine;
(ii) in the case of a part, it is in as good operating condition,
has substantially similar hours available until the next
scheduled checks, inspections, overhauls and shop visits, is
of the same or a more advanced make and model and is of the
same interchangeable modification status as the replaced Part;
(iii) in each case, it has become and remains the property of Owner
free from Security Interests and on installation on the
Aircraft will without further act be subject to the Head
Lease, the Sub Lease and this Agreement; and
(iv) in each case, Lessee has full details as to its source and
maintenance records;
(b) if no Default has occurred which is continuing, be entitled to install
any engine or part on the Aircraft by way of replacement
notwithstanding Clause 8.13(a) if:-
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(i) there is not available to Lessee at the time and in the place
that such engine or part is required to be installed on the
Aircraft, a replacement engine or part, as the case may be,
complying with the requirements of Clause 8.13(a);
(ii) it would result in an unreasonable disruption of the operation
of the Aircraft and/or the business of Lessee to ground the
Aircraft until an engine or part, as the case may be,
complying with Clause 8.13(a) becomes available for
installation on the Aircraft; and
(iii) as soon as practicable after installation of the same on the
Aircraft but, in any event, no later than the Expiry Date,
Lessee removes any such engine or part and replaces it with
the Engine or Part replaced by it or by an engine or part, as
the case may be, complying with Clause 8.13(a).
8.14 NON-INSTALLED ENGINES AND PARTS: Lessee will:-
(a) ensure that any Engine or Part which is not installed on the Aircraft
(or any other aircraft as permitted by this Agreement) is, except as
expressly permitted by this Agreement, properly and safely stored, and
kept free from Security Interests;
(b) notify Lessor whenever any Engine is removed from the Aircraft and,
from time to time, on request procure that any person to whom
possession of an Engine is given acknowledges in writing to Lessor, in
form and substance satisfactory to Lessor, that it will respect the
interests of Owner as owner, Sub Lessor as sub lessor and Lessor as
lessor of the Engine and will not seek to exercise any rights
whatsoever in relation to it;
(c) (notwithstanding the foregoing provisions of this sub-clause), be
permitted, if no Default has occurred and is continuing, to install
any Engine or Part on an aircraft, or in the case of a Part, an
engine:-
(i) owned and operated by Lessee free from Security Interests; or
(ii) leased or hired to Lessee pursuant to a lease or conditional
sale agreement on a long-term basis and on terms whereby
Lessee has full operational control of that aircraft or
engine; or
(iii) acquired by Lessee and/or financed or refinanced, and operated
by Lessee, on terms that ownership of that aircraft or engine,
as the case may be, pursuant to a lease or conditional sale
agreement, or a Security Interest therein, is vested in or
held by any other person;
provided that in the case of (ii) and (iii):-
(1) the terms of any such lease, conditional sale agreement or
Security Interest will not have the effect of prejudicing the
interests of Owner as owner, Sub Lessor as sub lessor and
Lessor as lessor of that Engine or Part; and
(2) the lessor under such lease, the seller under such conditional
sale agreement or the holder of such Security Interest, as the
case may be, has confirmed and acknowledged in writing to
Lessor, in form and substance satisfactory to Lessor, that it
will respect the interest of Owner as owner, Sub Lessor as sub
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lessor and Lessor as lessor of that Engine or Part and that it
will not seek to exercise any rights whatsoever in relation
thereto.
8.15 POOLING OF ENGINES AND PARTS: Lessee will not enter into nor permit
any pooling agreement or arrangement in respect of an Engine or Part
without the prior written consent of Lessor.
8.16 EQUIPMENT CHANGES:
(a) Lessee will not make any modification or addition to the Aircraft
(each an "Equipment Change"), except for an Equipment Change which:-
(i) is expressly permitted by this Agreement, or
(ii) has the prior written approval of Lessor and which does not
diminish the value, utility, condition, or airworthiness of
the Aircraft; and
(b) So long as a Default has not occurred and is continuing, Lessee may
remove any Equipment Change if it can be removed from the Aircraft
without diminishing or impairing the value, utility, condition or
airworthiness of the Aircraft.
8.17 TITLE ON AN EQUIPMENT CHANGE:
(a) Title to all Engines and Parts installed on the Aircraft whether by
way of replacement, as the result of an Equipment Change or otherwise
(except those installed pursuant to Clause 8.13(b)) will on
installation, without further act, vest in Owner subject to this
Agreement, the Head Lease and the Sub Lease free and clear of all
Security Interests. Lessee will at its own expense take all such
steps and execute, and procure the execution of, all such instruments
as Lessor may require and which are necessary to ensure that title so
passes to Owner according to all applicable laws. At any time when
requested by Lessor, Lessee will provide evidence to Lessor's and
Owner's satisfaction (including the provision, if required, to Lessor
and Owner of one or more legal opinions) that title has so passed to
Owner;
(b) Lessor may require Lessee to remove any Equipment Change and to
restore the Aircraft to its condition prior to that Equipment Change;
and
(c) Except as referred to in Clause 8.17(b) any Engine or Part at any time
removed from the Aircraft will remain the property of Owner until a
replacement has been made in accordance with this Agreement and until
title in that replacement has passed, according to applicable laws, to
Owner subject to this Agreement, the Head Lease and the Sub Lease free
of all Security Interests whereupon title to the replaced Engine or
Part will pass to Lessee.
8.18 THIRD PARTY: Lessee will procure that no person (other than Owner, Sub
Lessor, Lessor or any Bank) will act in any manner inconsistent with
its obligations under this Agreement and that all persons will comply
with those obligations as if references to "Lessee" included a
separate reference to those persons.
9. INSURANCE
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9.1 INSURANCES: Lessee will maintain in full force during the Term
insurances in respect of the Aircraft in form and substance
satisfactory to Lessor (the "Insurances" which expression includes,
where the context so admits, any relevant re-insurance(s)) through
such brokers and with such insurers and having such deductibles and
being subject to such exclusions as may be approved by Lessor. The
Insurances will be effected either:-
(a) on a direct basis with insurers of recognised standing who normally
participate in aviation insurances in the leading international
insurance markets and led by reputable underwriter(s) approved by
Lessor; or
(b) with a single insurer or group of insurers approved by Lessor who
does not retain the risk but effects substantial reinsurance with
reinsurers in the leading international insurance markets and through
brokers each of recognised standing and acceptable to Lessor for a
percentage acceptable to Lessor of all risks insured (the
"Reinsurances").
9.2 REQUIREMENTS: Lessor's current requirements as to required Insurances
are as specified in this Clause and in Schedule 4. Lessor may from
time to time stipulate other requirements for the Insurances so that
the scope and level of cover is maintained in line with best industry
practice and the interests of Lessor, Sub Lessor and Owner protected.
9.3 CHANGE: If at any time Lessor wishes to revoke its approval of any
insurer, reinsurer, insurance or reinsurance, Lessor and/or its
brokers will consult with Lessee and Lessee's brokers (as for the
time being approved by Lessor) regarding whether that approval should
be revoked to protect the interests of the parties insured. If,
following the consultation, Lessor considers that any change should
be made, Lessee will then arrange or procure the arrangement of
alternative cover satisfactory to Lessor.
9.4 INSURANCE COVENANTS: Lessee will:-
(a) ensure that all legal requirements as to insurance of the Aircraft,
any Engine or any Part which may from time to time be imposed by the
laws of the State of Registration or any state to, from or over which
the Aircraft may be flown, in so far as they affect or concern the
operation of the Aircraft, are complied with and in particular those
requirements compliance with which is necessary to ensure that (i)
the Aircraft is not in danger of detention or forfeiture, (ii) the
Insurances remain valid and in full force and effect, and (iii) the
interests of the Indemnitees in the Insurances and the Aircraft or
any Part are not thereby prejudiced;
(b) not use, cause or permit the Aircraft, any Engine or any Part to be
used for any purpose or in any manner not covered by the Insurances
or outside any geographical limit imposed by the Insurances;
(c) comply with the terms and conditions of each policy of the Insurances
and not do, consent or agree to any act or omission which:-
(i) invalidates or may invalidate the Insurances; or
(ii) renders or may render void or voidable the whole or any part
of any of the Insurances; or
(iii) brings any particular liability within the scope of an
exclusion or exception to the Insurances;
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(d) not take out without the prior written approval of Lessor any
insurance or reinsurance in respect of the Aircraft other than those
required under this Agreement unless relating solely to hull total
loss, business interruption, profit commission and deductible risk;
(e) commence renewal procedures at least 30 days prior to expiry of any
of the Insurances and provide to Lessor:-
(i) if requested by Lessor, a written status report of renewal
negotiation 14 days prior to each expiry date;
(ii) telexed confirmation of completion of renewal prior to each
expiry date;
(iii) certificates of insurance (and where appropriate certificates
of reinsurance), and broker's (and any reinsurance brokers')
letter of undertaking in a form acceptable to Lessor in
English, detailing the coverage and confirming the insurers'
(and any reinsurers') agreement to the specified insurance
requirements of this Agreement within 7 days after each
renewal date;
(f) on request, provide to Lessor copies of documents evidencing the
Insurances;
(g) on request, provide to Lessor evidence that the Insurance premiums
have been paid;
(h) not make any modification or alteration to the Insurances material
and adverse to the interests of any of the Indemnitees;
(i) be responsible for any deductible under the Insurances; and
(j) provide any other insurance and reinsurance related information, or
assistance, in respect of the Insurances as Lessor may reasonably
require.
9.5 FAILURE TO INSURE: If Lessee fails to maintain the Insurances in
compliance with this Agreement, each of the Indemnitees will be
entitled but not bound, (without prejudice to any other rights of
Lessor under this Agreement):-
(a) to pay the premiums due or to effect and maintain insurances
satisfactory to it or otherwise remedy Lessee's failure in such
manner (including, without limitation to effect and maintain an
"owner's interest" policy) as it considers appropriate. Any sums so
expended by it will become immediately due and payable by Lessee to
Lessor together with interest thereon at the rate specified in Clause
5.11, from the date of expenditure by it up to the date of
reimbursement by Lessee; and
(b) at any time while such failure is continuing to require the Aircraft
to remain at any airport or to proceed to and remain at any airport
designated by it until the failure is remedied to its satisfaction.
9.6 CONTINUING INDEMNITY: Lessor may require Lessee to effect and to
maintain insurance after the Expiry Date with respect to its
liability under the indemnities in Clause 10 for such period as
Lessor may reasonably require (but in any event not more than 3
years) which provides for each Indemnitee to be named as additional
insured. Lessee's obligation in this Clause shall not be affected by
Lessee ceasing to be lessee of the Aircraft and/or any of the
Indemnitees ceasing to have any interest in respect of the Aircraft.
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9.7 APPLICATION OF INSURANCE PROCEEDS:
As between Lessor and Lessee:-
(a) all insurance payments received as the result of an Event of Loss
occurring during the Term will be paid to Lessor and Lessor will pay
the balance of those amounts to Lessee after deduction of all amounts
which may be or become payable by Lessee to Lessor under this
Agreement (including under Clause 11.1(b));
(b) all insurance proceeds of any property, damage or loss to the
Aircraft, any Engine or any Part occurring during the Term not
constituting an Event of Loss and in excess of the Damage
Notification Threshold will be paid to Lessor and applied in payment
(or to reimburse Lessee) for repairs or replacement property upon
Lessor being satisfied that the repairs or replacement have been
effected in accordance with this Agreement. Insurance proceeds in
amounts below the Damage Notification Threshold may be paid by the
insurer directly to Lessee. Any balance remaining may be retained by
Lessor;
(c) all insurance proceeds in respect of third party liability will,
except to the extent paid by the insurers to the relevant third
party, be paid to Lessor to be paid directly in satisfaction of the
relevant liability or to Lessee in reimbursement of any payment so
made;
(d) notwithstanding Clauses 9.7(a), (b) or (c), if at the time of the
payment of any such insurance proceeds a Default has occurred and is
continuing, all such proceeds will be paid to or retained by Lessor
to be applied toward payment of any amounts which may be or become
payable by Lessee in such order as Lessor sees fit or as Lessor may
elect.
10. INDEMNITY
10.1 GENERAL: Lessee agrees to assume liability for, defend, indemnify and
hold harmless the Indemnitees on an after tax basis from and against
any and all claims, proceedings, losses, liabilities, damages
(whether direct, indirect, special, incidental or consequential)
suits, judgments, costs, expenses (including, without limitation,
legal fees and expenses), penalties (whether civil or criminal) or
fines (each a "Claim") (regardless of when the same is made or
incurred, whether during or after the Term (but not before)):-
(a) which may at any time be suffered or incurred directly or
indirectly as a result of or in any manner connected with the
possession, delivery, performance, management, ownership,
registration, control, maintenance, condition, service,
repair, overhaul, leasing, use, operation or return of the
Aircraft, any Engine or Part (either in the air or on the
ground) whether or not the Claim may be attributable to any
defect in the Aircraft, any Engine or any Part or to its
design, testing or use or otherwise, and regardless of when
the same arises or whether it arises out of or is attributable
to any act or omission, negligent or otherwise, of any
Indemnitee;
(b) which arise out of any act or omission which invalidates or
which renders voidable any of the Insurances;
(c) which may at any time be suffered or incurred as a consequence
of any design, article or material in the Aircraft, any Engine
or any Part or its operation or use constituting an
infringement of patent, copyright, trademark, design or other
proprietary right or a breach of any obligation of
confidentiality owed to any person;
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(d) which results from Lessee's breach of any of its
representations or warranties or any other Event of Default
under this Agreement.
but excluding any Claim in relation to a particular Indemnitee to the
extent that such Claim is covered pursuant to another indemnity
provision of this Agreement or to the extent it arises solely as a
result of the willful misconduct of such Indemnitee or Lessor as a
result of Lessor Taxes or a Lessor Lien.
10.2 DURATION: The indemnities contained in this Agreement will continue
in full force after the Expiry Date.
11. EVENTS OF LOSS
11.1 If an Event of Loss occurs after delivery of the Aircraft to Lessee,
Lessee will pay the Agreed Value to Lessor on or prior to the earlier
of (i) 5 Business Days after the Event of Loss and (ii) the date of
receipt of insurance proceeds in respect of that Event of Loss.
Subject to the rights of any insurers and reinsurers or other third
party, upon irrevocable payment in full to Lessor of that amount and
all other amounts which may be or become payable to Lessor under this
Agreement, Lessor will without recourse or warranty (except as to
Lessor's Liens) and without further act, be deemed to have
transferred to Lessee all of Lessor's rights to any Engines and Parts
not installed when the Event of Loss occurred, all on an as-is
where-is basis, and will at Lessee's expense, execute and deliver
such bills of sale and other documents and instruments as Lessee may
reasonably request to evidence (on the public record or otherwise)
the transfer and the vesting of Lessor's rights in such Engines and
Parts in Lessee, free and clear of all rights of Lessor and Lessor
Liens.
11.2 REQUISITION: During any requisition for use or hire of the Aircraft,
any Engine or Part which does not constitute an Event of Loss:-
(a) the Rent and other charges payable under this Agreement will not be
suspended or abated either in whole or in part, and Lessee will not
be released from any of its other obligations under the Agreement
(other than operational obligations with which Lessee is unable to
comply solely by virtue of the requisition);
(b) so long as no Default has occurred and is continuing, Lessee will be
entitled to any hire paid by the requisitioning authority in respect
of the Term. Lessee will, as soon as practicable after the end of
any such requisition, cause the Aircraft to be put into the condition
required by this Agreement. Lessor will be entitled to all
compensation payable by the requisitioning authority in respect of
any change in the structure, state or condition of the Aircraft
arising during the period of requisition, and Lessor will apply such
compensation in reimbursing Lessee for the cost of complying with its
obligations under this Agreement in respect of any such change, but
so that, if any Default has occurred and is continuing, Lessor may
apply the compensation or hire in or towards settlement of any
amounts owing by Lessee under this Agreement.
12. RETURN OF AIRCRAFT
12.1 RETURN: On the Expiry Date or termination of the leasing of the
Aircraft under this Agreement Lessee will unless an Event of Loss has
occurred, at its expense, redeliver the Aircraft and Aircraft
Documents to Lessor at the Redelivery Location or such other airport
as is mutually acceptable to the parties hereto, in a condition
complying with Schedule 3, free and clear of all Security Interests
and Permitted Liens (other than Lessor
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<PAGE> 42
Liens) and in a condition qualifying for immediate certification of
airworthiness by the FAA or as otherwise agreed by Lessor and Lessee,
and thereupon cause the Aircraft to be deregistered by the Air
Authority.
12.2 FINAL INSPECTION: Immediately prior to redelivery of the Aircraft,
Lessee will make the Aircraft available to Lessor for inspection
("Final Inspection") in order to verify that the condition of the
Aircraft complies with this Agreement. The Final Inspection will be
long enough to permit Lessor to:-
(a) inspect the Aircraft Documents;
(b) inspect the Aircraft and uninstalled Parts;
(c) inspect the Engines, including without limitation (i) at Lessor's
expense, a borescope inspection of (A) the low pressure and high
pressure compressors and (B) turbine area and (ii) at Lessee's expense
engine condition runs; and
(d) observe a 2 hour demonstration flight (with Lessor's representatives
as on-board observers).
12.3 NON-COMPLIANCE: To the extent that, at the time of Final Inspection,
the condition of the Aircraft does not comply with this Agreement,
Lessee will at Lessor's option:-
(a) immediately rectify the non-compliance and to the extent the
non-compliance extends beyond the Expiry Date, the Term will be
automatically extended and this Agreement will remain in force until
the non-compliance has been rectified; or
(b) redeliver the Aircraft to Lessor and indemnify Lessor, and provide to
Lessor's satisfaction cash as security for that indemnity, against the
cost of putting the Aircraft into the condition required by this
Agreement.
12.4 REDELIVERY: Upon redelivery Lessee will provide to Lessor all
documents necessary to export the Aircraft from the Habitual Base
(including, without limitation, a valid and subsisting export licence
for the Aircraft) and required in relation to the deregistration of
the Aircraft with the Air Authority.
12.5 ACKNOWLEDGEMENT: Provided Lessee has complied with its obligations
under this Agreement, following redelivery of the Aircraft by Lessee
to Lessor at the Redelivery Location, Lessor will deliver to Lessee an
acknowledgement confirming that Lessee has redelivered the Aircraft to
Lessor in accordance with this Agreement.
12.6 MAINTENANCE PROGRAMME:
(a) Prior to the Expiry Date and upon Lessor's request, Lessee will
provide Lessor or its agent reasonable access to the Agreed
Maintenance Programme and the Aircraft Documents in order to
facilitate the Aircraft's integration into any subsequent operator's
fleet;
(b) Lessee will, if requested by Lessor to do so, upon return of the
Aircraft deliver to Lessor a certified true current and complete copy
of the Agreed Maintenance Programme together with a letter authorising
Lessor to use such copy for "bridging" purposes for the next lessee of
the Aircraft. Lessor agrees that it will not disclose the contents of
the Agreed
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<PAGE> 43
Maintenance Programme to any person or entity except to the extent
necessary to monitor Lessee's compliance with this Agreement and/or to
bridge the maintenance programme for the Aircraft from the Agreed
Maintenance Programme to another programme after the Expiry Date.
12.7 FUEL: Upon redelivery of the Aircraft to Lessor, an adjustment will be
made in respect of fuel on board on the Previous Delivery Date and the
Expiry Date at the price then prevailing at the Redelivery Location.
12.8 AIRCRAFT STORAGE: During the period of 90 days after the Expiry Date,
Lessor shall have the right to require Lessee to maintain, store and
insure the Aircraft at a location having a facility capable of
performing required maintenance of the Aircraft (to be nominated by
Lessor). Any maintenance, storage or insurance cost actually incurred
in connection with the foregoing and which is in excess of the costs
payable by Lessee in meeting its obligations under this Agreement,
shall be payable by Lessor at Lessee's direct cost without "mark-up".
Prior to the Expiry Date, Lessor shall advise Lessee as to whether
Lessor requires Lessee to provide the services contemplated by this
Clause 12.8.
13. DEFAULT
13.1 EVENTS: Each of the following events or conditions will constitute an
Event of Default and a repudiation of this Agreement by Lessee
(whether any such event or condition is voluntary or involuntary or
occurs by operation of law or pursuant to or in compliance with any
judgment, decree or order of any court or any order, rule or
regulation of any Government Entity):-
(a) NON-PAYMENT: Lessee fails to make any payment of Rent under this
Agreement on the due date and such failure continues for 3 Business
Days; or
(b) INSURANCE: Lessee fails to comply with any provision of Clause 9 or
any insurance required to be maintained under this Agreement is
cancelled or terminated or notice of cancellation is given in respect
of any such insurance; or
(c) BREACH: Lessee fails to comply with any other provision of this
Agreement and, if such failure is in the reasonable opinion of Lessor
capable of remedy, the failure continues for 5 days after notice from
Lessor to Lessee; or
(d) REPRESENTATION: any representation or warranty made (or deemed to be
repeated) by Lessee in or pursuant to this Agreement or in any
document or certificate or statement is or proves to have been
incorrect in any material respect when made or deemed to be repeated;
or
(e) CROSS DEFAULT:
(i) any Financial Indebtedness of Lessee or any of its
Subsidiaries is not paid when due; or
(ii) any such Financial Indebtedness becomes due or capable of
being declared due prior to the date when it would otherwise
have become due; or
(iii) the security for any such Financial Indebtedness becomes
enforceable; or
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<PAGE> 44
(iv) any event of default or termination event, howsoever
described, occurs under any Other Agreement or under any
lease, hire purchase, conditional sale or credit sale
agreement of Lessee or any of its Subsidiaries; or
(f) APPROVALS: any consent, authorisation, licence, certificate or
approval of or registration with or declaration to any Government
Entity in connection with this Agreement (including, without
limitation):-
(i) required by Lessee to authorise, or in connection with, the
execution, delivery, validity, enforceability or admissibility
in evidence of this Agreement or the performance by Lessee of
its obligations under this Agreement; or
(ii) the registration of the Aircraft (to the extent that the same is
within the control of Lessee); or
(iii) any airline licence or air transport licence including, without
limitation, authority to operate the Aircraft under Part 121 of
the Federal Aviation Regulations and a Certificate of
Convenience and Necessity issued under Section 401 of the
Federal Aviation Act;
is modified in a manner unacceptable to Lessor or is withheld, or is
revoked, suspended, cancelled, withdrawn, terminated or not renewed,
or otherwise ceases to be in full force; or
(g) BANKRUPTCY, ETC:
(i) Lessee or any Subsidiary consents to the appointment of a
custodian, receiver, trustee or liquidator of itself or all or
any material part of Lessee's property or Lessee's consolidated
property, or Lessee or any Subsidiary admits in writing its
inability to, or is unable to, or does not, pay its debts
generally as they come due, or makes a general assignment for
the benefit of creditors, or Lessee or any Subsidiary files a
voluntary petition in bankruptcy or a voluntary petition seeking
reorganisation in a proceeding under any bankruptcy or
insolvency laws (as now or hereafter in effect), or an answer
admitting the material allegations of a petition filed against
Lessee or any Subsidiary in any such proceeding, or Lessee or
any Subsidiary by voluntary petition, answer or consent seeks
relief under the provisions of any other bankruptcy, insolvency
or other similar law providing for the reorganisation or
winding-up of corporations, or provides for an agreement,
composition, extension or adjustment with its creditors, or any
corporate action (including, without limitation, any board of
directors or shareholder action) is taken by Lessee or any
Subsidiary in furtherance of any of the foregoing, whether or
not the same is fully effected or accomplished; or
(ii) an order, judgment or decree is entered by any court appointing,
without the consent of Lessee or any Subsidiary, a custodian,
receiver, trustee or liquidator of Lessee or any Subsidiary, or
of all or any material part of Lessee's property or Lessee's
consolidated property is sequestered, and any such order,
judgment or decree of appointment or sequestration remains in
effect, undismissed, unstayed or unvacated for a period of 30
days after the date of entry thereof or at any time an order for
relief is granted; or
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<PAGE> 45
(iii) an involuntary petition against Lessee or any Subsidiary in a
proceeding under the United States Federal Bankruptcy laws or
other insolvency laws (as now or hereafter in effect) is filed
and is not withdrawn or dismissed within 30 days thereafter or
at any time an order for relief is granted in such proceeding,
or if, under the provisions of any law providing for
reorganisation or winding-up of corporations which may apply to
Lessee or any Subsidiary, any court of competent jurisdiction
assumes jurisdiction over, or custody or control of, Lessee or
any Subsidiary or of all or any material part of Lessee's
property, or Lessee's consolidated property and such
jurisdiction, custody or control remains in effect,
unrelinquished, unstayed or unterminated for a period of 30 days
or at any time an order for relief is granted in such
proceeding; or
(h) UNLAWFUL: it becomes unlawful for Lessee to perform any of its
obligations under this Agreement or this Agreement becomes wholly or
partly invalid or unenforceable; or
(i) SUSPENSION OF BUSINESS: Lessee or any of its Subsidiaries suspends or
ceases or threatens to suspend or cease to carry on all or a
substantial part of its business as a Certificated Air Carrier; or
(j) DISPOSAL: Lessee or any of its Subsidiaries disposes, conveys or
transfers or threatens to dispose, convey or transfer of all or a
material part of its assets, liquidates or dissolves or consolidates
or merges with any other Person whether by one or a series of
transactions, related or not, other than for the purpose of a
reorganisation of the terms of which have received the previous
consent in writing of Lessor; or
(k) RIGHTS: the existence, validity, enforceability or priority of the
rights of Owner as owner, the rights of Sub Lessor as sub lessor and
the rights of Lessor as lessor in respect of the Aircraft are
challenged by Lessee or any other person claiming by or through
Lessee; or
(l) CHANGE OF OWNERSHIP: any single person, or group of persons acquire
control of Lessee without the previous consent in writing of Lessor;
or
(m) DELIVERY: Lessee fails to accept delivery of the Aircraft when validly
tendered pursuant to this Agreement by Lessor; or
(n) ADVERSE CHANGE: any event or series of events occurs which, in the
reasonable opinion of Lessor might have a material adverse effect on
the financial condition or operations of Lessee and its Subsidiaries
or on the ability of Lessee to comply with its obligations under this
Agreement.
13.2 RIGHTS: If an Event of Default occurs, Lessor may at its option (and
without prejudice to any of its other rights under this Agreement), at
any time thereafter (without notice to Lessee except as required under
applicable law):-
(a) accept such repudiation and by notice to Lessee and with immediate
effect terminate the letting of the Aircraft (but without prejudice
to the continuing obligations of Lessee under this Agreement),
whereupon all rights of Lessee under this Agreement shall cease;
and/or
(b) proceed by appropriate court action or actions to enforce performance
of this Agreement or to recover damages for the breach of this
Agreement; and/or
(c) either:-
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<PAGE> 46
(i) take possession of the Aircraft, for which purpose Lessor may
enter any premises belonging to or in the occupation of or
under the control of Lessee where the Aircraft may be located,
or cause the Aircraft to be redelivered to Lessor at Shannon
International Airport, Co. Clare, Ireland (or such other
location as Lessor may require), and Lessor is hereby
irrevocably by way of security for Lessee's obligations under
this Agreement appointed attorney for Lessee in causing the
redelivery or in directing the pilots of Lessee or other
pilots to fly the Aircraft to that airport and will have all
the powers and authorisations necessary for taking that
action; or
(ii) by serving notice require Lessee to redeliver the Aircraft to
Lessor at Shannon International Airport, Ireland (or such
other location as Lessor may require).
13.3 DEREGISTRATION: If an Event of Default occurs, Lessor may sell or
otherwise deal with the Aircraft free and clear of any leasehold or
other interest of Lessee as if this Agreement had never been made and
Lessee will at the request of Lessor take all steps necessary to
effect (if applicable) deregistration of the Aircraft and its export
from the country where the Aircraft is for the time being situated and
any other steps necessary to enable the Aircraft to be redelivered to
Lessor in accordance with this Agreement; Lessee hereby irrevocably
and by way of security for its obligations under this Agreement
appoints (which appointment is coupled with an interest) Lessor as its
attorney to execute and deliver any documentation and to do any act or
thing required in connection with the foregoing.
13.4 DEFAULT PAYMENTS: If:-
(a) a Default occurs; or
(b) the Aircraft is not delivered on the proposed Delivery Date by
reason of failure of Lessee to satisfy any conditions to that
delivery;
Lessee will indemnify Lessor on its own behalf and on behalf of Owner
and Sub Lessor on demand against any loss (including loss of profit),
damage, expense, cost or liability which Lessor, Sub Lessor or Owner
may sustain or incur directly or indirectly as a result including but
not limited to:-
(a) any loss of profit suffered by Lessor, Sub Lessor or Owner
because of Lessor's or Owner's inability to place the Aircraft
on lease with another lessee on terms as favourable to Lessor
as this Agreement or because whatever use, if any, to which
Lessor, Sub Lessor or Owner is able to put the Aircraft upon
its return to Lessor, or the funds arising upon a sale or
other disposal of the Aircraft, is not as profitable to
Lessor, Sub Lessor or Owner as this Agreement;
(b) any amount of principal, interest, fees or other sums
whatsoever paid or payable on account of funds borrowed in
order to carry any unpaid amount;
(c) any loss, premium, penalty or expense which may be incurred in
repaying funds raised to finance the Aircraft or in unwinding
any swap, forward interest rate agreement or other financial
instrument relating in whole or in part to Lessor's, Sub
Lessor's or Owner's financing of the Aircraft; and
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<PAGE> 47
(d) any loss, cost, expense or liability sustained or incurred by
Lessor owing to Lessee's failure to redeliver the Aircraft on
the date, at the place and in the condition required by this
Agreement.
14. ASSIGNMENT
14.1 LESSEE WILL NOT ASSIGN, TRANSFER (VOLUNTARILY OR INVOLUNTARILY BY
OPERATION OF LAW OR OTHERWISE) OR CREATE OR PERMIT TO EXIST ANY
SECURITY INTEREST OVER, ANY OF ITS RIGHTS UNDER THIS AGREEMENT.
14.2 Owner and/or Lessor may assign or transfer all or any of its rights
under this Agreement and in the Aircraft provided that Lessor will in
the case of an assignment other than by way of security have no
further obligation under this Agreement following the assignment of
all its rights under this Agreement but notwithstanding that
assignment will remain entitled to the benefit of each indemnity and
the liability insurances effected under this Agreement. Lessee will
comply with all reasonable requests of Owner and/or Lessor, their
successors and assigns in respect of any such assignment. Lessor will
promptly notify Lessee of any assignment.
14.3 If Lessor desires to effect any assignment or transfer of its rights
and obligations under this Agreement, Lessee agrees to cooperate and
take all such steps as Lessor may reasonably request to give the
transferee the benefit of this Agreement. Any reasonable expenses
incurred by Lessee directly as a result of any assignment contemplated
by Clause 14.2.
15. ILLEGALITY
If it is or becomes unlawful in any jurisdiction for Lessor to give
effect to any of its obligations as contemplated by this Agreement or
to continue this Agreement Lessor may by notice in writing to Lessee
terminate the leasing of the Aircraft under this Agreement and Lessee
will forthwith redeliver the Aircraft to Lessor in accordance with
Clause 12. Without prejudice to the foregoing Lessor will consult in
good faith with Lessee as to any steps which may be taken to
restructure the transaction to avoid that unlawfulness but will be
under no obligation to take any such steps.
16. MISCELLANEOUS
16.1 WAIVERS, REMEDIES CUMULATIVE: The rights of Lessor under this
Agreement:-
(i) may be exercised as often as necessary;
(ii) are cumulative and not exclusive of its rights under any law;
and
(iii) may be waived only in writing and specifically.
Delay in exercising or non-exercise of any such right will not
constitute a waiver of that right.
16.2 DELEGATION: Lessor may delegate to any person or persons all or any of
the trusts, powers or discretions, vested in it by these presents and
any such delegation may be made upon such terms and conditions and
subject to such regulations (including power to subdelegate) as Lessor
in its absolute discretion thinks fit.
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<PAGE> 48
16.3 CERTIFICATES: Save where expressly provided in this Agreement, any
certificate or determination by Lessor as to any rate of interest or
as to any other amount payable under this Agreement will, in the
absence of manifest error, be conclusive and binding on Lessee.
16.4 APPROPRIATION: If any sum paid or recovered in respect of the
liabilities of Lessee under this Agreement is less than the amount
then due, Lessor may apply that sum to amounts due under this
Agreement in such proportions and order and generally in such manner
as Lessor may determine at its sole discretion.
16.5 CURRENCY INDEMNITY:
(a) If Lessor receives an amount in respect of Lessee's liability under
this Agreement or if such liability is converted into a claim, proof,
judgment or order in a currency other than the currency (the
"contractual currency") in which the amount is expressed to be payable
under this Agreement:-
(i) Lessee will indemnify Lessor as an independent obligation
against any loss arising out of or as a result of such
conversion;
(ii) if the amount received by Lessor, when converted into the
contractual currency (at the market rate at which Lessor is
able on the date of receipt by Lessor (or on the next date
thereafter on which under normal banking practice Lessor is
able to convert the amount received into the contractual
currency) to purchase the contractual currency in London or at
its option New York with that other currency) is less than the
amount owed in the contractual currency, Lessee will,
forthwith on demand, pay to Lessor an amount in the
contractual currency equal to the deficit; and
(iii) Lessee will pay to Lessor on demand any exchange costs and
Taxes payable in connection with the conversion; and
(b) Lessee waives any right it may have in any jurisdiction to pay any
amount under this Agreement in a currency other than that in which it
is expressed to be payable.
16.6 SET-OFF: Lessor may set off any matured obligation owed by Lessee
under this Agreement or the Other Agreements (to the extent
beneficially owned by Lessor) against any obligation (whether or not
matured) owed by Lessor to Lessee, regardless of the place of payment
or currency. If the obligations are in different currencies, Lessor
may convert either obligation at the market rate of exchange available
in London or at its option New York for the purpose of the set-off.
If an obligation is unascertained or unliquidated, Lessor may in good
faith estimate that obligation and set off in respect of the estimate,
subject to the relevant party accounting to the other when the
obligation is ascertained or liquidated. Lessor will not be obliged
to pay any amounts to Lessee under this Agreement so long as any sums
which are then due from Lessee under this Agreement or the Other
Agreements remain unpaid and any such amounts which would otherwise be
due will fall due only if and when Lessee has paid all such sums
except to the extent Lessor otherwise agrees or sets off such amounts
against such payment pursuant to the foregoing.
16.7 SEVERABILITY: If a provision of this Agreement is or becomes illegal,
invalid or unenforceable in any jurisdiction, that will not affect:-
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<PAGE> 49
(a) the legality, validity or enforceability in that jurisdiction of any
other provision of this Agreement; or
(b) the legality, validity or enforceability in any other jurisdiction of
that or any other provision of this Agreement.
16.8 REMEDY: If Lessee fails to comply with any provision of this
Agreement, Lessor may, without being in any way obliged to do so or
responsible for so doing and without prejudice to the ability of
Lessor to treat the non-compliance as a Default or an Event of
Default, effect compliance on behalf of Lessee, whereupon Lessee shall
become liable to pay immediately any sums expended by Lessor together
with all costs and expenses (including legal costs) in connection
therewith.
16.9 EXPENSES: Whether or not the Aircraft is delivered to Lessee pursuant
to this Agreement, Lessee will pay to Lessor on demand:-
(a) all expenses (including legal, professional, and out-of-pocket
expenses) incurred or payable by Lessor in connection with the
negotiation, preparation, and execution of this Agreement and
all such expenses related to any amendment to or extension of
or other documentation in connection with, or the granting of
any waiver or consent under this Agreement or the monitoring
of compliance by Lessee with this Agreement; and
(b) all expenses (including legal, survey and other costs) payable
or incurred by Lessor in contemplation of, or otherwise in
connection with, the enforcement of or preservation of any of
Lessor's or Owner's rights under this Agreement, or in respect
of the repossession of the Aircraft.
All expenses payable pursuant to this Clause 16.9 will be paid in the
currency in which they are incurred by Lessor.
16.10 TIME OF ESSENCE: The time stipulated in this Agreement for all
payments payable by Lessee to Lessor and for the performance of
Lessee's other obligations under this Agreement will be of the essence
of this Agreement.
16.11 NOTICES: All notices under, or in connection with, this Agreement
will, unless otherwise stated, be given in writing by letter, telex,
facsimile or SITA. Any such notice is deemed effective to be given as
follows:-
(i) if by letter, when delivered;
(ii) if by telex, when despatched, but only if, at the time of
transmission, the correct answerback appears at the start and
at the end of the sender's copy of the notice; and
(iii) if by facsimile or SITA, when transmitted and full
transmission has been confirmed by a printout of the facsimile
transmittal confirmation of the transmitting party.
The address, telex numbers, SITA, facsimile and telephone numbers of
Lessee, Sub Lessor, Lessor and Owner are as follows:
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<PAGE> 50
<TABLE>
<CAPTION>
<S> <C> <C>
Lessee: Address: 1800
St. Julian Place
4th Floor
Columbia
South Carolina
29204
Attn: President
Telex: None
SITA: None
Facsimile: 803 771 9067
Telephone: 803 771 0038
Sub Lessor: Address: 1 Earlsfort Terrace
Hatch Street
Dublin 2
Ireland
Telex: None
SITA: None
Facsimile: 353 1 6613278
Telephone: 353 1 6613311
Lessor and Owner: Address: Birger Jarlsgatan 33
S-11145
Stockholm
Sweden
Telex: None
SITA: None
Facsimile: 46 8 611 34 34
Telephone: 46 8 611 58 79
with a copy to: Address: GE Capital Aviation
Services, Inc.
201 High Ridge Road
Stamford, Connecticut
06927-4900
Attn: Senior Vice President,
Portfolio Management
Facsimile: 212-357-4585
Telephone: 212-357-4279
</TABLE>
16.12 LAW AND JURISDICTION:
(a) THIS AGREEMENT IN ALL RESPECTS IS GOVERNED BY THE GOVERNING LAW;
(b) For the benefit of Lessor, Lessee agrees that the courts of the State
of New York are to have non exclusive jurisdiction to settle any
disputes in connection with this Agreement and submits itself and its
property to the nonexclusive jurisdiction of the courts of the State
of New York in connection with this Agreement;
(c) Without prejudice to any other mode of service, Lessee:-
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<PAGE> 51
(i) appoints CT Corporation System, New York as its agent for
service of process relating to any proceedings before the New
York courts in connection with this Agreement and agrees to
maintain the process agent in New York notified to Lessor;
(ii) agrees that failure by a process agent to notify Lessee of the
process shall not invalidate the proceedings concerned;
(iii) consents to the service of process relating to any such
proceedings by prepaid mailing of a copy of the process to
Lessee's agent at the address identified in paragraph (i);
(d) Lessee:-
(i) waives objection to the courts of the State of New York on
grounds of inconvenient forum or otherwise as regards
proceedings in connection with this Agreement;
(ii) agrees that a judgment or order of a court of the State of New
York in connection with this Agreement is conclusive and
binding on it and may be enforced against it in the courts of
any other jurisdiction;
(e) Nothing in this Clause limits the right of Lessor to bring proceedings
against Lessee in connection with this Agreement:-
(i) in any other court of competent jurisdiction; or
(ii) concurrently in more than one jurisdiction;
(f) Lessee irrevocably and unconditionally:-
(i) agrees that if Lessor brings legal proceedings against it or
its assets in relation to this Agreement no immunity from such
legal proceedings (which will be deemed to include without
limitation, suit, attachment prior to judgment, other
attachment, the obtaining of judgment, execution or other
enforcement) will be claimed by or on behalf of itself or with
respect to its assets;
(ii) waives any such right of immunity which it or its assets now
has or may in the future acquire;
(iii) consents generally in respect of any such proceedings to the
giving of any relief or the issue of any process in connection
with such proceedings including, without limitation, the
making, enforcement or execution against any property
whatsoever (irrespective of its use or intended use) of any
order or judgment which may be made or given in such
proceedings.
16.13 SOLE AND ENTIRE AGREEMENT: This Agreement, Letter Agreement No. 1 and
any related side-letters are the sole and entire agreement between
Lessor and Lessee in relation to the leasing of the Aircraft, and
supersede all previous agreements in relation to that leasing.
16.14 INDEMNITIES: All rights expressed to be granted to each Indemnitee
under this Agreement (other than Lessor) are given to Lessor on behalf
of that Indemnitee.
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<PAGE> 52
16.15 COUNTERPARTS: This Agreement may be executed in counterparts each of
which will constitute one and the same document.
16.16 LANGUAGE: All notices to be given under this Agreement will be in
English. All documents delivered to Lessor pursuant to this Agreement
will be in English, or if not in English, will be accompanied by a
certified English translation. If there is any inconsistency between
the English version of this Agreement and any version in any other
language, the English version will prevail.
16.17 NO BROKERS: Each party agrees to indemnify and hold the other harmless
from and against any and all claims, suits, damages, costs and
expenses (including, but not limited to, reasonable attorneys' fees)
asserted by any agent, broker or other third party for any commission
or compensation of any nature whatsoever based upon the lease of the
Aircraft, if such claim, suit, damage, cost or expense arises out of
any action or alleged action by the indemnifying party, its employees
or agents. Lessee hereby represents and warrants that it has not
paid, agreed to pay or caused to be paid directly or indirectly in any
form, any commission, percentage, contingent fee, brokerage or other
similar payments of any kind, in connection with the establishment or
operation of this Agreement, to any employee of Lessor or to any
person or entity in the State of Incorporation or elsewhere, except to
Excluded Persons, as defined below. For the purposes hereof, the term
"Excluded Persons" shall mean (x) in the case of Lessor, any of its
officers, directors, employees, attorneys or other professional
advisors, wherever located; and (y) in the case of Lessee, any of its
officers, directors, employees, attorneys or other professional
advisors, wherever located.
17. DISCLAIMERS AND WAIVERS
17.1 EXCLUSION: THE AIRCRAFT IS DELIVERED "AS IS, WHERE IS" AND LESSEE
AGREES AND ACKNOWLEDGES THAT, SAVE AS EXPRESSLY STATED IN THIS
AGREEMENT, LESSOR WILL HAVE NO LIABILITY IN RELATION TO, AND LESSOR
HAS NOT AND WILL NOT BE DEEMED TO HAVE MADE OR GIVEN, ANY WARRANTIES
OR REPRESENTATIONS, EXPRESS OR IMPLIED, WITH RESPECT TO, THE AIRCRAFT,
INCLUDING BUT NOT LIMITED TO:-
(a) THE DESCRIPTION, AIRWORTHINESS, MERCHANTABILITY, FITNESS FOR ANY
PARTICULAR USE OR PURPOSE, VALUE, CONDITION, OR DESIGN, OF THE
AIRCRAFT OR ANY PART; OR
(b) ANY OBLIGATION, LIABILITY, RIGHT, CLAIM OR REMEDY IN TORT, WHETHER OR
NOT ARISING FROM LESSOR'S NEGLIGENCE, ACTUAL OR IMPUTED; OR
(c) ANY OBLIGATION, LIABILITY, RIGHT, CLAIM OR REMEDY FOR LOSS OF OR
DAMAGE TO THE AIRCRAFT, FOR ANY LIABILITY OF LESSEE TO ANY THIRD
PARTY, OR FOR ANY OTHER DIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES.
17.2 WAIVER: LESSEE HEREBY WAIVES, AS BETWEEN ITSELF AND THE LESSOR, ALL
ITS RIGHTS IN RESPECT OF ANY WARRANTY OR REPRESENTATION, EXPRESS OR
IMPLIED, ON THE PART OF LESSOR AND ALL CLAIMS AGAINST LESSOR HOWSOEVER
AND WHENEVER ARISING AT ANY TIME IN RESPECT OF OR OUT OF THE OPERATION
OR PERFORMANCE OF THE AIRCRAFT OR THIS AGREEMENT EXCEPT TO THE EXTENT
ARISING UNDER CLAUSE 2.4.
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17.3 CONFIRMATION: LESSEE CONFIRMS THAT IT IS FULLY AWARE OF THE PROVISIONS
OF THIS CLAUSE AND ACKNOWLEDGES THAT RENT AND OTHER AMOUNTS HAVE BEEN
CALCULATED BASED ON ITS PROVISIONS.
18. SECTION 1110
Lessee acknowledges that Lessor would not have entered into this
Agreement unless it had available to it the benefits of a lessor under
Section 1110 of Title 11 of the United States Code. Lessee
covenants and agrees with Lessor that to better ensure the
availability of such benefits, Lessee shall support any motion,
petition or application filed by Lessor with any bankruptcy court
having jurisdiction over Lessee, whereby Lessor seeks recovery of
possession of the Aircraft under said Section 1110 and shall not in
any way oppose such action by Lessor unless Lessee shall have complied
with the requirements of said Section 1110 to be fulfilled in order to
entitle Lessee to continued use and possession of the Aircraft
hereunder. In the event said Section 1110 is amended, or if it is
repealed and another statute is enacted in lieu thereof, Lessor and
Lessee agree to amend this Agreement and take such other action not
inconsistent with this Agreement as Lessor reasonably deems necessary
so as to afford to Lessor the rights and benefits as such amended or
substituted statute confers upon owners and lessors of aircraft
similarly situated to Lessor.
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SCHEDULE 1
PART 1
DESCRIPTION OF AIRCRAFT
AIRCRAFT
MANUFACTURER: Boeing
MODEL: 737-200A Advanced
SERIAL NUMBER: 21356
ENGINES
ENGINE TYPE AND NO.: Pratt & Whitney JT8D-15 x 2
SERIAL NOS: As set out in the Certificate of Acceptance
On the Delivery Date, the Aircraft shall be in "as is, where is" condition.
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PART 2
AIRCRAFT DOCUMENTS
A. CERTIFICATES
- FAA Certificate of Airworthiness
B. AIRCRAFT STATUS RECORDS
- Log Books
- Airframe Maintenance Status Report
- Supplemental Structural Inspection Document Status (if
applicable)
- Manufacturer's Service Bulletin Status Report
- Airworthiness Directive Compliance Report
(terminated and repetitive)
- Modification Status Report List
documents will be provided upon request)
- Last Weighing Report
- List of Life Limited Components with remaining hours/cycles
C. AIRCRAFT MAINTENANCE RECORDS (LAST HEAVY MAINTENANCE VISITS)
- Test Flight Reports
- X-ray pictures
- Last annual check and heaviest maintenance check Work Cards
D. AIRCRAFT HISTORY RECORDS
- Aircraft Maintenance History Cards
- Service Difficulty Report
- Accident or Incident Report (Major Structural Repair)
E. ENGINE RECORDS (FOR EACH ENGINE)
- Engine time and cycle records
- Last overhaul and repair documents (including FAA Forms 337)
- Airworthiness Directive Compliance Report
(terminated and repetitive)
- Manufacturer's Service Bulletin Status Report
- List of Time Controlled Components with remaining hours and
cycles
- Modification Status Report
- Engine Disc Sheets
- Engine Build Specifications
F. APU RECORDS
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- Last Overhaul and Repair Documents
(including modification status)
- Airworthiness Directive Compliance Report
(terminated and repetitive)
- Manufacturer's Service Bulletin Status Report
- List of Time Controlled Components with remaining hours/cycles
- Modification Status Report
G. COMPONENT RECORDS
- Time Controlled Component Historical Records with
Installation and Serviceability Tags
H. MANUALS
- Airplane Flight Manual (Manufacturer Approved, FAA Approved)
- Flight Crew Operating Manual
- Weight and Balance Manual
- Wiring Diagram Manual (microfilm and hard copy if available)
- Illustrated Parts Catalog (microfilm)
- Aircraft Maintenance Manual (microfilm)
- Manufacturer's Engine Maintenance Manual and any approved
engineering changes, as applicable
I. MISCELLANEOUS TECHNICAL DOCUMENTS
- Maintenance Program Specifications
- Interior Configuration Drawings
- Original Delivery Documents
- Loose Equipment Inventory
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SCHEDULE 2
CERTIFICATE OF ACCEPTANCE
This Certificate of Acceptance is delivered, on the date set out below
by Air South Airlines, Inc. ("Lessee"), to Polaris Aircraft Leasing
K.B. ("Lessor"), pursuant to the Aircraft Lease Agreement dated April
29, 1996 between Lessor and Lessee (the "Agreement"). The capitalised
terms used in this Certificate shall have the meaning given to such
terms in the Agreement.
1. DETAILS OF ACCEPTANCE
Lessee hereby confirms to Lessor that Lessee has as of this 29th day
of April, 1996, at Columbia, South Carolina, accepted the constructive
delivery of the Aircraft described below in "where is, as is"
condition:-
(a) Boeing 737-200A Advanced airframe, Manufacturer's Serial No. 21356;
(b) 2 Pratt & Whitney JT8D-15 Engines:-
Engine Number Manufacturer's Serial No.
1 ; and
2 ;
(Each of which shall have more than 750 rated takeoff horsepower or
the equivalent of such horsepower).
(c) Fuel Status: (N/A - see Previous Delivery Date Certificate of
Acceptance; and
(d) Loose Equipment Check List: as per list signed by Lessor and Lessee
and attached hereto.
2. CONFIRMATION
Lessee confirms to Lessor that as at the time indicated above, being
the Delivery Date:-
(a) the representations and warranties contained in Clause 2 are hereby
repeated;
(b) the Aircraft is insured as required by the Agreement;
(c) Lessee confirms that there have been affixed to the Aircraft and the
Engines the fireproof notices required by the Agreement; and
(d) Lessee's authorised technical experts have inspected the Aircraft to
ensure the Aircraft conforms to Lessee's requirements. The Aircraft
is in accordance with the specifications of the Agreement and
satisfactory in all respects.
IN WITNESS WHEREOF, Lessee has, by its duly authorised representative,
executed this Certificate on the date in paragraph 1 above.
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LESSEE: Air South Airlines, Inc.
By:
----------------------------
Title:
----------------------------
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SCHEDULE 3
OPERATING CONDITION AT REDELIVERY
On the Expiry Date the Aircraft, subject to fair wear and tear
generally, will be in the condition set out below:-
1. GENERAL CONDITION
The Aircraft will:-
(a) be clean by airline standards;
(b) have installed the full complement of engines and other equipment,
parts and accessories and loose equipment as is normally installed in
the Aircraft, and be in a condition suitable for immediate operation
in commercial service;
(c) have in existence a valid certificate of airworthiness (or if required
by Lessor, a valid export certificate of airworthiness) with respect
to the Aircraft issued by the Air Authority. The Aircraft will also
be eligible for an FAA Certificate of Airworthiness, shall meet all
requirements for U.S. domestic operations under FAR Part 121 and will
meet the requirements of FAR Part 36, appendix C, Stage 2 noise
compliance without waiver or restriction. There will be no deferred,
open or carryover items on the Aircraft or any Engine on the Expiry
Date;
(d) comply with the manufacturer's original specifications;
(e) have undergone, immediately prior to redelivery, a C Check (including
all phases and multiples thereof) so that all Airframe inspections
falling due within the next following C Check interval in accordance
with the Agreed Maintenance Programme, have been accomplished. The
time since the heaviest maintenance inspection (complete block
overhaul/D Check) will not be more than when the Aircraft was
delivered by Lessor to Lessee under the Previous Lease.
Notwithstanding the foregoing, Lessee may redeliver the Aircraft to
Lessor with fewer Flight Hours remaining until the next D Check
(complete block overhaul) than as at the Previous Delivery Date as a
percentage of the allowed interval between such overhauls if (x)
at least 7,500 Flight Hours remain since the last D Check (complete
block check) (determined in accordance with the Agreed Maintenance
Programme); and (y) Lessee pays to Lessor on the Expiry Date the
product of (xx) the difference (if greater than zero) between the
number of Flight Hours so remaining on the Expiry Date and the number
of Flight Hours that were so remaining on the Previous Delivery Date;
and (yy) the then current rate of Airframe Supplemental Rent;
(f) have had accomplished all outstanding airworthiness directives and
mandatory orders affecting that model of Aircraft issued by the FAA
which, if the Aircraft were registered with the FAA, would have to be
complied with during the Term and within 180 days after the Expiry
Date;
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(g) have installed all applicable vendor's and manufacturer's service
bulletin kits received free of charge by Lessee that are appropriate
for the Aircraft and to the extent not installed, those kits will be
furnished free of charge to Lessor;
(h) be sanded and freshly painted and in such external livery as advised
by Lessor; and
(i) have all signs and decals clean, secure and legible.
2. COMPONENTS
(a) time since overhaul on all time controlled (other than the APU, the
Engines and the Landing Gear) shall be not less than as on the
Previous Delivery Date.
(b) Each "on-condition" and "condition monitored" component will be
serviceable;
(c) The APU will be in the same operational condition as at the Previous
Delivery Date having no more than 1,500 Flight Hours used since the
last APU hot section inspection with temperatures and air outputs
within the APU manufacturer's limits at all operational settings; and
3. ENGINES
Each Engine will be installed on the Aircraft and if not the engines
installed on the Previous Delivery Date will be accompanied by all
documentation Lessor may require to evidence that title thereto is
properly vested in Owner and:-
(a) each life limited part within each Engine will have at least the same
life remaining as when delivered by Lessor to Lessee under the
Previous Lease;
(b) each Engine will have no more time since last hot section
refurbishment and no more time since the last Cold Section
Refurbishment than as when delivered by Lessor to Lessee under the
Previous Lease;
(c) each Engine will have had a complete hot (including combustion
chamber) and cold section video boroscope inspection, at Lessor's
expense, and a power assurance run in accordance with the Engine
manufacturer's maintenance manual and all items beyond such
manufacturer's limits will be repaired at Lessee's expense. No Engine
will be "on watch" for any reason requiring any special or out of
sequence inspection.
Notwithstanding Paragraph 3 (a) above, Lessee may redeliver an Engine
to Lessor with less life so remaining if (x) at least 3,000 Flight
Hours and Cycles remain until the next scheduled life limited Parts
replacement (determined in accordance with the Agreed Maintenance
Programme); and (y) Lessee pays to Lessor on the Expiry Date the
product of (xx) the difference (if greater than zero) between the
average number of Flight Hours and Cycles so remaining on the Expiry
Date and the average number of Flight Hours and Cycles that were so
remaining on the Previous Delivery Date; and (yy) the then current
rate of Engine Life Limited Parts Supplemental Rent.
Notwithstanding Paragraph 3 (b) above, Lessee may redeliver an Engine
to Lessor with fewer Flight Hours remaining until the next Hot Section
Refurbishment or Cold Section Refurbishment, as applicable than as at
the Previous Delivery Date if (x) at least 3,000 Flight Hours and
Cycles remain until the next Hot Section Refurbishment or Cold Section
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Refurbishment, as applicable (determined in accordance with the Agreed
Maintenance Programme); and (y) Lessee pays to Lessor on the Expiry
Date the product of (xx) the difference (if greater than zero) between
the number of Flight Hours and Cycles so remaining on the Expiry Date
and the number of Flight Hours that were so remaining on the Previous
Delivery Date; and (yy) the then current rate of Engine Refurbishment
Supplemental Rent.
[Notwithstanding Paragraph 3 (b) above, Lessee may redeliver an Engine
to Lessor with fewer Flight Hours remaining until the next Cold
Section Refurbishment than as at the Previous Delivery Date if (x) at
least 6,000 Flight Hours and Cycles remain until the next Cold Section
Refurbishment (determined in accordance with the Agreed Maintenance
Programme); and (y) Lessee pays to Lessor on the Expiry Date the
product of (xx) the difference (if greater than zero) between the
number of Flight Hours and Cycles so remaining on the Expiry Date and
the number of Flight Hours that were so remaining on the Previous
Delivery Date; and (yy) the then current rate of Engine Cold Section
Refurbishment Supplemental Rent.]
4. FUSELAGE, WINDOWS AND DOORS
(a) The fuselage will be free of major dents and abrasions and loose or
pulled or missing rivets;
(b) Doors will be free moving, correctly rigged and be fitted with
serviceable seals.
5. WINGS AND EMPENNAGE
(a) Leading edges will be free from damage;
(b) Wings will be free of fuel leaks.
6. INTERIOR
(a) Ceilings, sidewalls and bulkhead panels will be clean and free of
cracks and stains.
(b) Carpets and seat covers will be in good condition, clean and free of
stains and meet FAR burn certification regulations;
(c) Seats will be serviceable, in good condition and repainted as
necessary; and
(d) Emergency equipment having a calendar life will have a minimum of 1
year or 100% of its total approved life, whichever is less, remaining.
7. COCKPIT
(a) Trim panels shall be free of stains and cracks, will be clean secure
and repainted as necessary;
(b) Seat covers will be in good condition, clean and free of stains and
will conform to FAR burn certification regulations; and
8. CARGO COMPARTMENTS
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(a) Panels will be in good condition; and
(b) Nets will be in good condition.
9. LANDING GEAR
Time since overhaul on the Landing Gear will not be greater than as at
the Previous Delivery Date. Each life limited part within the landing
gear will have at least the same time remaining as at the Previous
Delivery Date. The Landing Gear and wheel wells will be clean, free
of leaks and repaired as necessary.
Notwithstanding the foregoing, Lessee may redeliver the Landing Gear
to Lessor with fewer Flight Hours remaining until the next overhaul
than as at the Previous Delivery Date as a percentage of the allowable
interval between such overhauls if (x) at least 6,000 Flight Hours
remain since the last overhaul (determined in accordance with the
Agreed Maintenance Programme); and (y) Lessee pays to Lessor on the
Expiry Date the product of (xx) the difference (if greater than zero)
between the number of Flight Hours so remaining on the Expiry Date and
the number of Flight Hours that were so remaining on the Previous
Delivery Date; and (yy) the then current rate of Landing Gear
Supplemental Rent.
10. CORROSION
(a) The Aircraft will have been inspected and treated with respect to
corrosion as defined in the Agreed Maintenance Programme and/or Boeing
Document No.D6-38528 relative to compliance with the Corrosion
Prevention and Control Program (CPCP). The entire fuselage will be
substantially free from corrosion and will be adequately treated and
an approved corrosion prevention programme will be in operation; and
(b) Fuel tanks will be free from contamination and corrosion and a tank
treatment programme will be in operation.
Notwithstanding anything contained in this Schedule 3, Lessor shall not be
required to make any payments to Lessee in the event that any or all of the
Airframe, the Engines, the Landing Gear, any time, cycle or calendar controlled
component is returned to Lessor in a condition better than that specified in
Clause 12 and this Schedule 3.
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SCHEDULE 4
INSURANCE REQUIREMENTS
The Insurances required to be maintained are as follows:-
(a) HULL ALL RISKS of Loss or Damage whilst flying and on the ground with
respect to the Aircraft on an "agreed value basis" for the Agreed
Value and with a deductible not exceeding $350,000, or such other
amount agreed by Lessor from time to time. Without prejudice to the
foregoing, (x) with the prior written consent of Lessor, Lessee may
increase the aforesaid deductible amount to $500,000 if, prior to
doing so, Lessee shall have paid to Lessor the sum of $150,000 by way
of an insurance security deposit (the "Insurance Security Deposit")
(which Insurance Deposit shall also be available to be applied to
deductible losses between $350,000 and $500,000 in relation to
B737-200A Aircraft Serial Number 21612 leased to Lessee pursuant to an
Other Agreement); and (y) provided no Default shall have occurred and,
in Lessor's reasonable opinion, Lessee remains in good financial
standing, following the expiration of Rental Period 12, Lessor,
without being under any obligation, will consider a request from
Lessee to increase the aforementioned deductible amount to $500,000
without the requirement for Lessee to pay an Insurance Security
Deposit. The Insurance Security Deposit, which shall be held by
Lessor as security for the performance by Lessee of its obligations
under this Agreement (and under the Other Agreement), shall be
returned to Lessee on the Expiry Date if all amounts payable by Lessee
under this Agreement and any Other Agreement shall have been paid in
full and no Default shall have occurred and be continuing. With
Lessor's prior consent, the Insurance Deposit may be provided by
Lessee by way of Letter of Credit issued by a bank acceptable to
Lessor and in form and in substance acceptable to Lessor.
(b) HULL WAR AND ALLIED PERILS, being such risks excluded from the Hull
All Risks Policy to the fullest extent available from the leading
international insurance markets including confiscation and requisition
by the State of Registration for the Agreed Value;
(c) ALL RISKS (INCLUDING WAR AND ALLIED RISK except when on the ground or
in transit other than by air) property insurance on all Engines and
Parts when not installed on the Aircraft on an "agreed value" basis
for their full replacement value and including engine test and running
risks;
(d) AIRCRAFT THIRD PARTY, PROPERTY DAMAGE, PASSENGER, BAGGAGE, CARGO AND
MAIL AND AIRLINE GENERAL THIRD PARTY (INCLUDING PRODUCTS) LEGAL
LIABILITY for a Combined Single Limit (Bodily Injury/Property Damage)
of an amount not less than the Minimum Liability Coverage for the time
being any one occurrence (but in respect of products and personal
injury liability this limit may be an aggregate limit for any and all
losses occurring during the currency of the policy). War and Allied
Risks are also to be covered under the Policy to the fullest extent
available from the leading international insurance markets;
(e) All required hull and spares insurance (as specified above), so far as
it relates to the Aircraft will: -
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(i) name Owner, Sub Lessor, Lessor and their respective successors
and assigns as additional assureds for their respective rights
and interests, warranted, each as to itself only, no
operational interest;
(ii) provide that any loss will be settled jointly with Lessor and
Lessee, subject to final prior approval of Owner and will be
payable in Dollars to Owner, for the account of all interests
except where the loss does not exceed the Damage Notification
Threshold, and neither Lessor nor Owner has notified the
insurers to the contrary, in which case the loss will be
settled with and paid to Lessee;
(iii) include a notice and/or acknowledgement of assignment in a
form acceptable to Lessor;
(iv) if separate Hull "all risks" and "war risks" insurances are
arranged, include a 50/50 provision in accordance with market
practice (AVS. 103 is the current market language);
(v) confirm that the insurers are not entitled to replace the
Aircraft in the event of an insured Event of Loss;
(vi) confirm that the insurers will not obtain a valid discharge of
the obligations under the Insurances by payment to the broker,
notwithstanding market practice to the contrary;
(f) All required liability insurances (specified above) will:-
(i) include Owner, Sub Lessor, Lessor and their respective
successors and assigns and their respective shareholders,
subsidiaries, directors, officers, agents, employees and
indemnitees as additional insureds for their respective rights
and interests, warranted, each as to itself only, no
operational interest;
(ii) include a Severability of Interest Clause which provides that
the insurance, except for the limit of liability, will operate
to give each assured the same protection as if there was a
separate policy issued to each assured;
(iii) contain a provision confirming that the policy is primary
without right of contribution and the liability of the
insurers will not be affected by any other insurance of which
Owner, Sub Lessor, Lessor or Lessee have the benefit so as to
reduce the amount payable to the additional insureds under
such policies;
(g) All Insurances will:-
(i) be in accordance with normal industry practice of persons
operating similar aircraft in similar circumstances;
(ii) provide cover denominated in Dollars and any other currencies
which Lessor may reasonably require in relation to liability
insurance;
(iii) operate on a worldwide basis subject to such limitations and
exclusions as Lessor may agree;
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(iv) acknowledge the insurer is aware (and has seen a copy) of this
Agreement and that the Aircraft is owned by Owner and is
subject to the Head Lease and the Sub Lease;
(v) provide that, in relation to the interests of each of the
additional assureds the Insurances will not be invalidated by
any act or omission by Lessee, or any other person other than
the respective additional assured seeking protection and shall
insure the interests of each of the additional assureds
regardless of any breach or violation by Lessee, or any other
person other than the respective additional assured seeking
protection of any warranty, declaration or condition,
contained in such Insurances;
(vi) provide that the insurers will hold harmless and waive any
rights of recourse and/or subrogation against the additional
assureds or to be subrogated to any rights of the Banks
against Lessor, Sub Lessor, Owner or Lessee;
(vii) provide that the additional assureds will have no obligation
or responsibility for the payment of any premiums due (but
reserve the right to pay the same should any of them elect so
to do) and that the insurers will not exercise any right of
set-off or counter-claim in respect of any premium due against
the respective interests of the additional assureds other than
outstanding premiums relating to the Aircraft, any Engine or
Part the subject of the relevant claim;
(viii) provide that the Insurances will continue unaltered for the
benefit of the additional assureds for at least 30 days after
written notice by registered mail or telex of any
cancellation, change, event of non-payment of premium or
instalment thereof has been sent to Lessor, Sub Lessor and
Owner, except in the case of war risks for which 7 days (or
such lesser period as is or may be customarily available in
respect of war risks or allied perils) will be given, or in
the case of war between the 5 great powers or nuclear peril
for which termination is automatic;
(ix) if reinsurance is a requirement of this Agreement such
reinsurance will (i) be on the same terms as the original
insurances and will include the provisions of this Schedule,
(ii) provide that notwithstanding any bankruptcy, insolvency,
liquidation, dissolution or similar proceedings of or
affecting the reinsured that the reinsurers' liability will be
to make such payments as would have fallen due under the
relevant policy of reinsurance if the reinsured had
(immediately before such bankruptcy, insolvency, liquidation,
dissolution or similar proceedings) discharged its obligations
in full under the original insurance policies in respect of
which the then relevant policy of reinsurance has been
effected; and (iii) contain a "cut-through" clause in the
following form (or otherwise, satisfactory to Lessor): "The
Reinsurers and the Reinsured hereby mutually agree that in the
event of any claim arising under the reinsurances in respect
of a total loss or other claim where as provided by the
Aircraft Lease Agreement dated [ ] 1994 and made between
Polaris Aircraft Leasing K.B. and Air South, Inc. such claim
is to be paid to the person named as sole loss payee under the
primary insurances, the Reinsurers will in lieu of payment to
the Reinsured, its successors in interest and assigns pay to
the person named as sole loss payee under the primary
insurances effected by the Reinsured that portion of any loss
due for which the Reinsurers would otherwise be liable to
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pay the Reinsured (subject to proof of loss), it being
understood and agreed that any such payment by the Reinsurers
will (to the extent of such payment) fully discharge and
release the Reinsurers from any and all further liability in
connection therewith"; subject to such provisions not
contravening any law of the State of Incorporation;
(x) contain a provision entitling Lessor, Owner, Sub Lessor or any
insured party to initiate a claim under any policy in the
event of the refusal or failure of Lessee to do so; and
(xi) accept and insure the indemnity provisions of the Head Lease
and the Sub Lease and of this Agreement to the extent of the
risks covered by the policies.
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SCHEDULE 5
FORM OF LEGAL OPINION
To: [Owner] [Sub Lessor] [Lessor]
[Date]
Dear Sirs
1. You have asked us to render an opinion in connection with the
transaction governed, inter alia, by the under mentioned documents.
Words and expressions used herein will bear the same meanings as
defined in an Aircraft Lease Agreement (the "Lease") dated [ ] 1994
between Polaris Aircraft Leasing K.B. ("Lessor") and Air South,
Inc. ("Lessee") in respect of one Boeing 737-200A Advanced aircraft
with manufacturer's serial number 21356 together with the 2
installed Pratt & Whitney JT8D-15 engines (the "Aircraft").
1.1. the Lease;
1.2. the Memorandum and Articles of Association of Lessee;
1.3. all other documents, approvals and consents of whatever nature and
wherever kept which it was, in our judgment and to our knowledge,
necessary or appropriate to examine to enable us to give the
opinion expressed below.
2. Having considered the documents listed in paragraph 1 above, and
having regard to the relevant laws of [] we are pleased to advise
that in our opinion:-
(a) Lessee is a corporation duly organised and validly existing under
the laws of [], is qualified to do business as a foreign
corporation in each jurisdiction where failure to so qualify would
have a materially adverse effect on Lessee's business or its
ability to perform its obligations under the lease is subject to
suit in its own name, and, to the best of our knowledge, no steps
have been, or are being, taken to appoint a receiver, liquidator,
trustee or similar officer over, or to wind up, Lessee;
(b) Lessee has the corporate power to enter into and perform, and has
taken all necessary corporate action to authorise the entry into,
performance and delivery of, the Lease and the transactions
contemplated by the Lease;
(c) the entry into and performance by Lessee of, and the transactions
contemplated by, the Lease do not and will not:-
(i) conflict with any laws binding on Lessee; or
(ii) conflict with the Certificate of Incorporation of By Laws
of Lessee; or
(iii) conflict with or result in default under any indenture,
mortgage, chattel mortgage, deed of trust, conditional
sales contract, lease, bank loan or credit agreement or
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other agreement which is binding upon Lessee or any of its
assets or result in the creation of any Security Interest
over any of its assets.
(d) no authorisations, consents, licences, approvals and registrations
(other than those which have been obtained and of which copies are
attached hereto) are necessary or desirable to be obtained from any
governmental or other regulatory authorities in having jurisdiction
over Lessee or its properties to enable Lessee:-
(1) to enter into and perform the transactions contemplated by
the Lease;
(2) to import the Aircraft into the United States and [ ] for
the duration of the Term;
(3) to operate the Aircraft in the United States for the
transport of fare-paying passengers; or
(4) to make the payments provided for in the Lease;
(e) except for the filing and recordation of the Lease with the FAA and
the filing of the Financial Statements with [] (which filing has
been duly made on or before this date) it is not necessary or
desirable, to ensure the priority, validity and enforceability of
all the obligations of Lessee under the Lease that the Lease be
filed, registered, recorded or notarised in any public office or
elsewhere or that any other instrument relating thereto be signed,
delivered, filed, registered or recorded, that any tax or duty be
paid or that any other action whatsoever be taken;
(f) no steps are necessary or desirable to record or perfect either
Lessor's, Sub Lessor's or Owner's interest in the Aircraft in the
United States or [];
(g) on termination of the Lease (whether on expiry or otherwise) as
contemplated in the Lease, Lessor would be entitled:-
(1) to repossess the Aircraft;
(2) to export the Aircraft from the United States and [];
without requiring any further consents, approvals or
licences from any governmental or regulatory authority in
the United States or [];
(h) the Lease has been properly signed and delivered on behalf of
Lessee and the obligations on the part of Lessee contained therein,
assuming them to be valid and binding according to the Governing
Law, are valid and legally binding on and enforceable against
Lessee respectively under the laws of [];
(i) the events described in Clause 13.1(g), (h) and (i) of the Lease
comprise an accurate and complete statement of all events and
situations provided for by the laws of [] which may lead to the
cessation of activities, winding up or dissolution of Lessee;
(j) Lessee is a Certificated Air Carrier;
(k) Lessee is a "citizen of the United States" as defined in Section
101(16) of the Federal Aviation Act;
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(l) Lessor is entitled to the benefits of Section 1110 of Title 11 of
the United States Code;
(m) Lessee's chief executive office (as defined in the Uniform
Commercial in effect in []) is located at [].
(n) the obligations of Lessee under the Lease rank at least pari passu
with all other present and future unsecured and unsubordinated
(including contingent obligations) of Lessee;
(o) there is no withholding tax or other Tax to be deducted from any
payment whatsoever which may be made by Lessee pursuant to the
Lease; with respect to any withholdings, the provisions of Clauses
5.6, 5.7 and 5.10 of the Lease are fully effective; and the
arrangements contemplated by the Lease do not give rise to any
charge whatsoever to Taxes in [];
(p) there is no applicable usury or interest limitation law in [] which
may restrict the recovery of payments in accordance with the Lease;
(q) there are no registration, stamp or other taxes or duties of any
kind payable in [] in connection with the signature, performance or
enforcement by legal proceedings of the Lease;
(r) Lessor will not violate any law or regulation in [] nor become
liable to tax in [] by reason of entering into the Lease with
Lessee, or performing its obligations thereunder;
(s) it is not necessary to establish a place of business in [] in order
to enforce any provisions of the Lease;
(t) the choice of the Governing Law to govern the Lease will be upheld
as a valid choice of law in any action in the Courts of [];
(u) the consent to the jurisdiction by Lessee contained in the Lease is
valid and binding on Lessee and not subject to revocation;
(v) any judgement for a definite sum given by the courts of [ ]
against Lessee would be recognised and accepted by the courts of []
without re-trial or examination of the merits of the case;
(w) (i) Lessee is subject to civil commercial law with respect to
its obligations under the Lease; and
(ii) neither Lessee nor any of its assets is entitled to any
right of immunity and the entry into and performance of the
Lease by Lessee constitute private and commercial acts;
(x) there are no laws or other rules in [] (including, without
limitation, Emergency Powers laws) pursuant to which Lessee may be
deprived of the Aircraft by any Government Entity or any other
person, other than Lessor or any assignee of Lessor.
Yours faithfully,
69
<PAGE> 70
LETTER AGREEMENT NO. 1
April 29, 1996
Air South Airlines, Inc.
1800 St. Julian Place
Columbia, South Carolina 29204
Attention: Mr. Clif E. Haley
Re: Aircraft Lease Agreement, dated as of April 29, 1996, relating to one
Boeing 737-200A aircraft bearing MSN 21356 and Irish Registration Number CKL.
Dear Sirs:
Reference is made to the Aircraft Lease Agreement, dated this date (THE "LEASE
AGREEMENT"), between Polaris Aircraft Leasing K.B., a limited partnership
formed under the laws of Sweden ("LESSOR") and Air South Airlines, Inc., an
Illinois corporation (THE "LESSEE"), for the lease of one used Boeing 737-200A
aircraft bearing MSN 21356 and Irish Registration Number EI-CKL (THE
"AIRCRAFT") and the Letter Agreement, dated March 29, 1996, as amended by the
Letter Agreements, dated April 11 and April 26, 1996 between Lessee and GECAS
(AS AMENDED, THE "MARCH LETTER AGREEMENT"), between the Lessee, GE Capital
Aviation Services, Inc. ("GECAS"), Polaris Holding Company ("PHC" AND
COLLECTIVELY WITH THE LESSOR, THE "LESSORS") and the Lessor. Capitalized terms
used herein and not otherwise defined shall have the meanings ascribed to such
terms in the Lease Agreement or the March Letter Agreement, as applicable.
Each party hereto hereby agrees that such party shall preserve the
confidentiality of, and shall not disclose, the information set forth in this
Letter Agreement No. 1 (THIS "LETTER AGREEMENT") to any other Person without
obtaining the prior written consent of the other party except to the extent
required by applicable law; provided that Lessor shall not be required to seek
such consent of Lessee following an Event of Default which has not been cured.
Lessor and Lessee have agreed that certain provisions referred to in the Lease
Agreement, and certain other terms, shall be set forth in this Letter
Agreement. If the Lease Agreement and this Letter Agreement shall differ as to
any term or condition, this Letter Agreement shall prevail, notwithstanding
anything to the contrary contained in the Lease Agreement. In that connection
and in order to preserve the confidentiality of certain of the business terms
of the Lease Agreement, Lessor and Lessee hereby agree as to (A) certain
provisions regarding Basic Rent, a Restructuring Fee and certain arrearages
of Rent; (B) certain provisions relating to Supplemental Rent; (C) certain
provisions regarding Events of Default; (D) certain provisions relating to the
Aircraft Commitment Fee; (E) certain provisions relating to the application of
supplemental rent under the Other Agreements; (F) certain provisions relating
to the payment of legal fees of Lessors; (G) further assurances; (H) governing
law; and (I) counterparts.
A. RENT.
(i) BASIC RENT AND RENT ARREARAGE. Lessee shall pay to Lessor Basic Rent
in respect of each Rental Period pursuant to Clause 5.3 of the Lease Agreement
in an amount equal to $122,500. Lessee may accrue arrearages of Basic Rent
during the Term from the date hereof to a date on or before September 27, 1996
(THE "RENT ARREARAGE"); provided, however, that the Rent Arrearage shall not
exceed $12,500 per month and, in the aggregate for the lease of all Aircraft by
Lessee from the Lessors, such aggregate Rent Arrearage shall not exceed a total
of $350,417,00. Any Rent Arrearage accrued by Lessee shall be subject to a fixed
rate of interest of 10.44% which interest shall be calculated from the date
Basic Rent shall be otherwise due and payable to the date of payment of the
Rent Arrearage. The full amount of Rent Arrearage and any
1
<PAGE> 71
interest due thereon shall be paid in full on or before the earlier to occur of
(x) the date of the IPO or PPO as referenced below or (y) September 30, 1996.
(ii) PAYMENT OF BASIC RENT. From the date hereof to September 27, 1996
Lessee shall pay Basic Rent and Supplemental Rent in the aggregate for all five
(5) Aircraft on the dates and in the amounts as are set forth in Table IV of
Schedule C attached hereto. A pro-rata portion of each payment of Rent, based
upon the amount of Basic Rent otherwise due and payable, shall be allocated to
each Aircraft. On the Rent Payment Date next succeeding September 30, 1996,
Basic Rent for the Aircraft shall be due and payable in monthly increments in
advance for the remainder of the Term on the Rent Payment Dates as set forth in
Clause 5.3 of the Lease Agreement.
(iii) RESTRUCTURING FEE AND ADJUSTMENT OF RENT. In consideration of the
restructuring of the Other Agreements and the lease of the Aircraft pursuant to
the Lease Agreements (as such term is defined in Schedule A attached hereto),
the Lessee shall pay to GECAS, on behalf of the Lessors, a restructuring fee
(THE "RESTRUCTURING FEE") on the terms and conditions as set forth herein. If
the Lessee completes an initial public offering ("IPO") of common stock of
Lessee, par value $.001 per share (THE "COMMON STOCK"), or a private placement
(A "PPO") of Common Stock, then, upon the occurrence of such IPO or PPO, Lessee
shall pay GECAS, on behalf of the Lessors, a Restructuring Fee in an amount as
set forth in Schedule A attached hereto. The Restructuring Fee shall be
reduced by the difference between (1) aggregate Basic Rent actually paid by
the Lessee to the Lessors, pursuant to all Lease Agreements (and excluding any
Rent Arrearages) from the date hereof to the date the Restructuring Fee is due
and payable and (2) the aggregate of the Initial Rents as such term is defined
in Schedule A for the same period. Upon the payment of the Restructuring Fee
and commencing with the Rent Payment Date next succeeding such payment of the
Restructuring Fee, the amount of Basic Rent for the Aircraft thereafter due and
payable shall be adjusted, based upon the initial base amount of the
Restructuring Fee prior to adjustment, to equal the amount set forth for such
Aircraft in Schedule B attached hereto with respect to the Lease Agreement.
The Restructuring Fee shall be paid in cash, warrants or a combination
thereof, as GECAS may elect. If the Restructuring Fee is due and payable on a
date other than a Rent Payment Date, any adjustments to the Restructuring Fee
or Basic Rent shall be made on a pro-rata basis using a 30 day calendar month.
(iv) WARRANTS FOR COMMON STOCK. In the event that GECAS shall elect to be
paid the Restructuring Fee in whole or in part by a warrant or warrants for
Common Stock (THE "WARRANT"), such Warrant shall be substantially in the form
attached hereto as Exhibit I and shall otherwise be reasonably acceptable to
GECAS. The Warrant shall be issued by Lessee to GECAS on the request of GECAS
and shall comply with the following terms and conditions: (a) the Warrant shall
not require the payment of any additional amounts by GECAS or the Lessors to
the Lessee; (b) the number of shares of Common Stock issuable pursuant to the
Warrant shall equal the amount of the Restructuring Fee elected by GECAS to be
paid in Warrants divided by the selling price of the Common Stock in the IPO or
PPO, net of underwriting discounts, commissions and expenses; (c) the holder of
such Warrant shall be granted "piggy-back" registration rights, (d) the Warrant
shall be exercisable for a period of five years after its date of issuance and
(e) shall otherwise be on terms and conditions mutually satisfactory to Lessor
and Lessee.
B. SUPPLEMENTAL RENT.
(i) SUPPLEMENTAL RENT. The amount of Supplemental Rent payable pursuant
to Clause 5.4 of the Lease Agreement shall be as follows:
(a) Airframe Supplemental Rent - $ 66.15 per Flight Hour;
(b) Engine Refurbishment Supplemental Rent - $72.45 per Flight Hour
in respect of each Engine;
(c) Engine Life Limited Parts Supplemental Rent - $12.60 per Flight
Hour in respect of each
2
<PAGE> 72
Engine; and
(d) Landing Gear Supplemental Rent - $ 8.40 per Flight Hour.
(ii) ADJUSTMENT OF SUPPLEMENTAL RENT. Lessor and Lessee acknowledge that
the rates of Supplemental Rent specified herein are based upon the assumptions
that (i) the Aircraft will operate on average not less than 1 Flight Hour per
Cycle ratio and (ii) the Agreed Maintenance Programme applicable to the
Aircraft during the Term will be the same as the Agreed Maintenance Programme
in effect on the Delivery Date. In the event that either or both of the
foregoing assumptions prove to be incorrect at any time during the Term, Lessor
and Lessee agree that Lessor shall have the right, upon written notice to
Lessee, to adjust the rate of Supplemental Rent. In the case of a change in
the ratio of Flight Hours per Cycle relating to Aircraft operation, the
adjustment of Supplemental Rent shall be as follows:
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
HOUR/CYCLE RATIO .5 1.0 1.5 2.0 2.5 3.0 3.5
$/hr. $/hr. $/hr. $/hr $/hr. $/hr. $/hr.
ENGINE
REFURBISHMENT 98.70 72.45 65.10 58.80 54.60 52.50 50.40
SUPPLEMENTAL RENT
$/cyc. $/cyc. $/cyc. $/cyc. $/cyc. $/cyc. $/cyc.
ENGINE LLP
SUPPLEMENTAL RENT 12.60 12.60 12.60 12.60 12.60 12.60 12.60
</TABLE>
In the event that the Agreed Maintenance Programme is revised, Lessor shall
make the adjustment in the manner which Lessor determines, in its reasonable
discretion, is necessary to maintain the rate of Supplemental Rent at levels
which accurately reflect the costs associated with obtaining maintenance
services at prevailing industry rates. Each such notice shall specify the
revised Supplemental Rent and the effective date of such revision. Lessee
agrees to advise Lessor, in writing, promptly following the occurrence of any
circumstances or events which would result in the foregoing assumptions
becoming incorrect at any time during the Term.
(iii) SUPPLEMENTAL RENT ABATEMENT. Lessor agrees to abate temporarily
Lessee's obligation to pay Supplemental Rent towards specific Engine
Refurbishment and Life Limited Parts in cases where the Lessee uses its own
funds ("OUT-OF-POCKET EXPENSES") to pay for respective Engine overhauls during
the Term. Lessee's Out-of-Pocket Expenses shall be defined as the excess of
(x) the actual cost for the over-haul of such Engine paid by Lessee as duly
substantiated to Lessor's satisfaction and (y) the individual Supplemental Rent
balance for such Engine at the time of its overhaul. Overhaul work scopes
shall be preapproved by the Lessor. The overhaul cost shall relate to the
actual overhaul and shall not include any ancillary or consequential costs
including, but not limited to (1) substitute equipment leases and (2)
transportation charges. The periods of Supplemental Rent abatement shall
commence respectively, on the first day that the Engine is returned to service
after its overhaul and shall continue until such time that the Engine has
lapsed Flight Hours and Cycles such that, when multiplied by the Supplemental
Rent rate defined herein, the total dollar amount equals the Out-of-Pocket
Expenses that the Lessee paid for the respective overhaul.
(iv) ESTIMATED SUPPLEMENTAL RENT. From the date hereof to September 27,
1996, Lessee shall pay Lessor an estimated amount of Supplemental Rent pursuant
to Schedule C hereof in the aggregate for all Aircraft. Such amount shall take
into account all Supplemental Rent abatements granted pursuant to paragraph
(iii) above. Each month, Lessee shall submit to Lessor a summary of the hours
and cycles of operation of the Aircraft. Credit and debits against the
Supplemental Rent actually due and payable shall be accrued until September 30,
1996. Prior to October 10, 1996, Lessor shall provide Lessee with an
accounting of all Supplemental Rent due and payable and actual Supplemental
Rent paid. Any arrears payments or credits
3
<PAGE> 73
with respect to overpayments with respect to Supplemental Rent shall be paid by
Lessee to Lessor or credited by Lessor to Lessee, as applicable, on October 10,
1996.
C. EVENTS OF DEFAULT.
For purposes of the Lease Agreement, each of the following shall constitute a
Event of Default, in addition to the Events of Default as set forth in Clause
13.1 of the Lease Agreement: (i) the failure to pay the Current Arrearage and
all interest due thereon on or before April 29, 1996; (ii) the failure to pay
the Rent Arrearage and all interest due thereon on or before the earlier of (x)
the IPO or PPO or (y) September 30, 1996; and (iii) the failure to pay any Rent
when due and owing under the March Letter Agreement or the Lease Agreement,
including without limitation the amount of Rent Adjustment as set forth in
paragraph A of this Letter Agreement.
D. AIRCRAFT COMMITMENT FEE.
Lessor acknowledges that Lessee, pursuant to the November 9, 1994 Lease, has
paid to Lessor an Aircraft Commitment Fee in an amount equal to (x) $270,000
plus (y) Relevant Interest (as hereinafter defined) calculated from the date the
Aircraft Commitment Fee or any part thereof was actually paid. For purposes of
this Letter Agreement, Relevant Interest shall mean interest on the sum of
$225,000 accrued over a period commencing from the date following the Previous
Delivery Date on which the Aircraft Commitment Fee or any part thereof was
actually paid to the Expiry Date, at the average rate over such period of
General Electric Capital Corporation Commercial Paper (for 240 to 270 days) as
reported from time to time in The Wall Street Journal less 25 basis points
(i.e. 0.25% per annum).
E. ACCRUAL AND APPLICATION OF CERTAIN SUPPLEMENTAL RENT.
The reconciliation of all Rent previously due and owing pursuant to the Other
Agreements shall be set forth in Schedule C attached hereto. In addition,
Lessor shall credit certain Supplemental Rent against approved maintenance
performed on the Aircraft in the amounts as set forth in Schedule C. All
discrepancies in the accrual, payment and application of Rent attributable to
the October 1994 Lease are set forth and shall be resolved as between the
Lessor and Lessee in accordance with Schedule C.
F. LEGAL FEES.
Lessee hereby agrees to pay to GECAS, on behalf of the Lessors, on the date
hereof legal fees in the amount of $30,000 for the reasonable costs and
expenses of Lessors' counsel in connection with the restructuring Lessee's
obligations under the Other Agreements and the preparation, negotiation and
documentation of the March Letter Agreement, this Letter Agreement, the
Warrant, the Lease Agreements and negotiation of certain other matters
including the transactions contemplated herein and therein. Reasonable legal
counsel fees and expenses incurred by GECAS or the Lessors in connection with
the administration and enforcement of Lessors' rights and remedies under the
March Letter Agreement, the Warrant, the Lease Agreement or this Letter
Agreement shall be for the account of Lessee and Lessee shall upon written
demand by the Lessor reimburse and indemnify the Lessor for such costs and
expenses.
G. FURTHER ASSURANCES.
Lessee, at Lessee's expense, shall execute and deliver such further agreements,
leases, documents, certificates or any supplements or additions hereto as may
reasonably be requested by GECAS of the Lessors in furtherance of the
agreements herein contained.
4
<PAGE> 74
SCHEDULE A
SIZE OF IPO/PPO RESTRUCTURING FEE UNADJUSTED
More than $20 million $3 million
$15 million to $20 million $2 million
Less than $15 million but greater
than $4 million $1.5 million
Less than $4 million $ - 0 -
CERTAIN DEFINITIONS: AIRCRAFT LEASE AGREEMENTS
Aircraft Lease Agreement, dated as of November 11, 1994, between Polaris
Holding Company, as lessor, and Air South, Inc., as lessee, in respect of one
used Boeing 737-242 advanced aircraft (the "21186 Aircraft") bearing
manufacturers serial number 21186 (as supplemented and amended, "LEASE 21186")
and FAA Registration Number N159PL.
Aircraft Lease Agreement, dated as of March 21, 1995, between Polaris Aircraft
Leasing K.B., as lessor and Air South, Inc., as lessee, in respect of one used
Boeing 737-2P6 advanced aircraft (the "21733 Aircraft") bearing manufacturers
serial number 21733 and Irish Registration Number EI-CLK (as supplemented and
amended, "LEASE 21733") equipped with Stage 3 hushkit.
Aircraft Lease Agreement, dated as of December 12, 1994, between Polaris
Aircraft Leasing K.B., as lessor, and Air South, Inc., as lessee, in
respect of one used Boeing 737-2P6 advanced aircraft (the "21677 Aircraft"),
bearing manufacturers serial number 21677 and Irish Registration Number GKW (as
supplemented and amended, "LEASE 21677").
Aircraft Lease Agreement, dated as of October 25, 1994, between Polaris
Aircraft Leasing K.B., as lessor, and Air South, Inc., as lessee, in respect
of one used Boeing 737-2P6 advanced aircraft (the "21612 Aircraft"), bearing
manufacturers serial number 21612 and Irish Registration Number EI-CKK (as
supplemented and amended, "LEASE 21612").
Aircraft Lease Agreement, dated as of November 9, 1994, between Polaris
Aircraft Leasing K.B., as lessor, and Air South, Inc., as lessee, in respect
of one used Boeing 737-200A advanced aircraft (the "21356 Aircraft"), bearing
manufacturers serial number 21356 and Irish Registration Number CKL (as
supplemented and amended, "LEASE 21356").
For purposes of Letter Agreement No. 1, Lease 21186, Lease 21733, Lease 21677,
Lease 21612 and Lease 21356 shall collectively be defined as the "LEASE
AGREEMENTS" and the 21186 Aircraft, 21733 Aircraft, 21677 Aircraft, 21612
Aircraft and 21356 Aircraft shall collectively be defined as the "AIRCRAFT".
6
<PAGE> 75
INITIAL RENTS: For purposes of this Letter Agreement No. 1, Initial Rents shall
be defined as the following amounts for the Lease Agreements as indicated:
Lease 21186 Initial Rent: $90,000
Lease 21733 Initial Rent: $97,500
Lease 21677 Initial Rent: $75,000
Lease 21612 Initial Rent: $75,000
Lease 21356 Initial Rent: $75,000
7
<PAGE> 76
SCHEDULE B
ADJUSTMENTS TO BASIC RENT
Restructuring Fee (Base Amount, Unadjusted) Basic Rent as Adjusted:
$3,000,000 Lease 21186: $90,000
Lease 21733: $97,500
Lease 21677: $75,000
Lease 21612: $75,000
Lease 21356: $75,000
$2,000,000 Lease 21186: $98,333
Lease 21733: $105,833
Lease 21677: $83,833
Lease 21612: $83,833
Lease 21356 $83,833
$1,500,000 Lease 21186: $102,500
Lease 21733: $110,000
Lease 21677: $87,500
Lease 21612: $87,500
Lease 21356: $87,500
8
<PAGE> 77
SCHEDULE C
Rent Reconciliation
TABLE I - UNADJUSTED ARREARAGE
<TABLE>
<CAPTION>
1 2 1-2
CATEGORY ACCRUED PAID DELTA
-------- ------- ---- -----
<S> <C> <C> <C>
Rent $ 7,020,390 $ 7,020,390 $ -
Deposits $ 1,170,000 $ 1,170,000 $ -
Maintenance $ 3,655,313 $ 2,922,746 $ 732,567
Other $ 26,042 $ 26,042 $ -
----------- ----------- ----------
TOTAL $11,871,745 $11,139,178 $ 732,567
</TABLE>
TABLE II - ADJUSTMENTS
<TABLE>
<S> <C>
MRF Claim 3040 $ (113,894)
MRF Claim 3040(b) $ (67,488)
MRF Claim 3241 $ (199,543)
MRF Claim 3262 $ (24,849)
Misc Adjustment $ (3,897)
----------
TOTAL $ (409,670)
</TABLE>
<TABLE>
<CAPTION>
TABLE III - INTERIM RENT CALCULATIONS W/O DEFERRAL W/ DEFERRAL
------------ -----------
START DATE 4/29/96 0 1
---------- ------- ------------ -----------
CONTRACT INTERIM CONTRACT INTERIM
MSN DATE DAYS RENT (/M) RENT RENT (/M) RENT
--- ---- ---- --------- ---- --------- ----
<S> <C> <C> <C> <C> <C> <C>
21356 (CKL) 5/6/96 7 $ 100,000 $ 23,333 $ 87,500 $ 20,417
21186 (N159PL) 5/13/96 14 $ 115,000 $ 53,667 $ 102,500 $ 47,833
21677 (GKW) 5/20/96 21 $ 100,000 $ 70,000 $ 87,500 $ 61,250
21612 (EI-CKK) 5/20/96 21 $ 100,000 $ 70,000 $ 87,500 $ 61,250
21733 (EI-CLK) 5/27/96 28 $ 122,500 $ 114,333 $ 110,000 $ 102,667
----------- ----------- ----------- -----------
TOTAL $ 537,500 $ 331,333 $ 475,000 $ 293,417
INTERIM DEF $ 37,917
</TABLE>
TABLE IV - WEEKLY PAYMENT CALCULATIONS (SEPARATE SHEET)
TABLE V - APRIL 29, 1996 PAYMENT SUMMARY W/PAYMENTS ON LEASE PAYMENT DATES
<TABLE>
<S> <C>
TOTAL from TABLE I $ 732,567
TOTAL from TABLE II $ (409,670)
TOTAL from TABLE III $ 293,417
Legal Costs $ 30,000
-----------
TOTAL $ 646,313
===========
</TABLE>
TABLE VI - APRIL 29, 1996 PAYMENT SUMMARY W/EVEN WEEKLY PAYMENTS THRU 9/23/96
<TABLE>
<S> <C>
TOTAL from TABLE I $ 732,567
TOTAL from TABLE II $ (409,670)
TOTAL from TABLE IV $ 169,928
Legal Costs $ 30,000
------------
TOTAL $ 522,825
============
</TABLE>
9
<PAGE> 78
SCHEDULE C
Rent Reconciliation
TABLE IV - Weekly Payment Calculations
<TABLE>
<CAPTION>
WEEKLY PMT $ 169,928 INT RATE 10.44%
DEFERRED RENT $ 12,500 /AC/M 1M LIBOR +5%
INTERIM DEF Y/N 1
- - ---------------------------------------------------------------------------------------------------------------------------
CONTRACT RENT/ TOTAL WEEKLY TOTAL RENT TOTAL INTEREST
DATE EST MX (RUNNING) PAYMENT (RUNNING) DEFERRAL (RUNNING) (DEFERRAL)
---- ------ --------- ------- --------- -------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
4/29/96 $ 293,417 $ 293,417 $ 169,928 $ 169,928 $ 37,917 $ 37,917 $ -
5/6/96 87,500 380,917 169,928 339,856 12,500 50,417 76
5/10/96 214,000 594,917 - 339,856 - 50,417 134
5/13/96 102,500 697,417 169,928 509,784 12,500 62,917 177
5/20/96 175,000 872,417 169,928 679,712 25,000 87,917 303
5/27/96 110,000 982,417 169,928 849,640 12,500 100,417 479
6/3/96 - 982,417 169,928 1,019,568 - 100,417 680
6/6/96 87,500 1,069,917 - 1,019,568 12,500 112,917 766
6/10/96 214,000 1,283,917 169,928 1,189,496 - 112,917 895
6/13/96 102,500 1,386,417 - 1,189,496 12,500 125,417 992
6/17/96 - 1,386,417 169,928 1,359,424 - 125,417 1,136
6/20/96 175,000 1,561,417 - 1,359,424 25,000 150,417 1,243
6/24/96 - 1,561,417 169,928 1,529,352 - 150,417 1,415
6/27/96 110,000 1,671,417 - 1,529,352 12,500 162,917 1,544
7/1/96 - 1,671,417 169,928 1,699,280 - 162,917 1,731
7/6/96 87,500 1,758,917 - 1,699,280 12,500 175,417 1,964
7/8/96 - 1,758,917 169,928 1,869,208 - 175,417 2,064
7/10/96 214,000 1,972,917 - 1,869,208 - 175,417 2,165
7/13/96 102,500 2,075,417 - 1,869,208 12,500 187,917 2,315
7/15/96 - 2,075,417 169,928 2,039,136 - 187,917 2,423
7/20/96 175,000 2,250,417 - 2,039,136 25,000 212,917 2,691
7/22/96 - 2,250,417 169,928 2,209,064 - 212,917 2,813
7/27/96 110,000 2,360,417 - 2,209,064 12,500 225,417 3,118
7/29/96 - 2,360,417 169,928 2,378,992 - 225,417 3,247
8/5/96 - 2,360,417 169,928 2,548,920 - 225,417 3,698
8/6/96 87,500 2,447,917 - 2,548,920 12,500 237,917 3,762
8/10/96 214,000 2,661,917 - 2,548,920 - 237,917 4,035
8/12/96 - 2,661,917 169,928 2,718,848 - 237,917 4,171
8/13/96 102,500 2,764,417 - 2,718,848 12,500 250,417 4,239
8/19/96 - 2,764,417 169,928 2,888,777 - 250,417 4,668
8/20/96 175,000 2,939,417 - 2,888,777 25,000 275,417 4,740
8/26/96 - 2,939,417 169,928 3,058,705 - 275,417 5,213
8/27/96 110,000 3,049,417 - 3,058,705 12,500 287,917 5,292
9/2/96 - 3,049,417 169,928 3,228,633 - 287,917 5,786
9/6/96 87,500 3,136,917 - 3,228,633 12,500 300,417 6,115
9/9/96 - 3,136,917 169,928 3,398,561 - 300,417 6,373
9/10/96 214,000 3,350,917 - 3,398,561 - 300,417 6,459
9/13/96 102,500 3,453,417 - 3,398,561 12,500 312,917 6,717
9/16/96 - 3,453,417 169,928 3,568,489 - 312,917 6,985
9/20/96 175,000 3,628,417 - 3,568,489 25,000 337,917 7,343
9/23/96 - 3,628,417 169,928 3,738,417 - 337,917 7,633
9/27/96 110,000 3,738,417 - 3,738,417 12,500 350,417 8,020
</TABLE>
10
<PAGE> 1
EXHIBIT 10.33
AIRCRAFT LEASE AGREEMENT
Dated as of
April 29, 1996
between
POLARIS HOLDING COMPANY
as
Lessor
and
AIR SOUTH AIRLINES, INC.
as
Lessee
in respect of Boeing 737-242 Advanced Aircraft
Serial Number 21186
Ref. 21186A
<PAGE> 2
THIS AGREEMENT is made as of the 29th day of April, 1996 between:-
(1) POLARIS HOLDING COMPANY, a company incorporated under the
laws of the State of Delaware whose principal office is at
201 Mission Street, 27th Floor, San Francisco, California 94105,
U.S.A. ("Lessor"); and
(2) AIR SOUTH AIRLINES, INC., a company incorporated under the laws of the
State of Illinois whose chief executive office is at 1800 St. Julian
Place, 4th Floor, Columbia, South Carolina, 29204, U.S.A. ("Lessee").
WHEREAS: Lessor wishes to lease to Lessee and Lessee is willing to
lease from Lessor the Aircraft (MSN 21186) on the terms of this
Agreement.
IT IS AGREED as follows:-
1. INTERPRETATION
1.1 DEFINITIONS
In this Agreement the following expressions have the meanings set out
opposite:-
AGREED MAINTENANCE PERFORMER Lessee (up to and including
B Check) or any FAA approved
maintenance facility (for C
Check and higher) or any
other person agreed to from
time to time in writing by
Lessor.
AGREED MAINTENANCE PROGRAMME the Maintenance Programme
agreed to from time to time
in writing by Lessor.
AGREED VALUE $6,500,000 or such other
amount as Lessor may require
from time to time provided
such other amount does not
exceed 115% of the fair
market value of the Aircraft.
AIR AUTHORITY the FAA.
AIRCRAFT the aircraft described in
Part 1 of Schedule 1, (which
term includes where the
context admits a separate
reference to all Engines,
Parts and Aircraft
Documents).
AIRCRAFT COMMITMENT FEE all amounts paid pursuant to
Clause 5.1 of the November
1994 Lease.
AIRCRAFT DOCUMENTS the documents, data and
records identified in Part 2
of Schedule 1 and all
additions, renewals,
revisions and replacements
from time to time made in
accordance with this
Agreement.
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AIRFRAME the Aircraft, excluding the
Engines and Aircraft
Documents.
APU the auxiliary power unit
installed on the Aircraft on
the Previous Delivery Date
and any replacement auxiliary
power unit installed in
accordance with this
Agreement.
BANKS such financial institution(s)
which from time to time
finance the Aircraft for
Lessor and/or for whose
benefit security over, or
rights relating to, the
Aircraft and/or this
Agreement is granted by
Lessor or at its request.
BASIC RENT means the rent payable for
the Aircraft during the Term
pursuant to Section 5.3 of
this Agreement.
BOEING The Boeing Company, a
Delaware corporation with its
principal office in Seattle,
State of Washington, U.S.A.
BUSINESS DAY a day (other than a Saturday
or Sunday) on which business
of the nature required by
this Agreement is carried out
in the State of Delaware
and the State of
Incorporation or where used
in relation to payments on
which banks are open for
business in London and New
York.
CERTIFICATED AIR CARRIER shall mean any corporation
(except the United States
Government) domiciled in the
United States of America and
holding a Certificate of
Convenience and Necessity
issued under Section 401 of
the Federal Aviation Act by
the Department of
Transportation or any
predecessor or successor
agency thereto, or, in the
event such Certificates shall
no longer be issued, any
corporation (except the
United States Government)
domiciled in the United
States of America and legally
engaged in the business of
transporting for hire
passengers or cargo by air
predominantly to, from or
between points within the
United States of America,
and, in either event,
operating commercial jet
aircraft, which also is
certificated so as to fall
within the purview of Section
1110 of Title
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11 of the United States Code
or any analogous statute.
COLD SECTION REFURBISHMENT the completion of the
following tasks with respect
to an Engine: completely
unstack both high and low
compressors and accomplish
complete visual inspection;
deblade disks as necessary;
accomplish visual inspections
of all disks; measure to
assure all snap diameters on
disks are within limits;
inspect blades for proper
chord dimensions and
cracking; repair or replace
blades below minimums;
inspect and repair stators as
necessary; blade up disks
using new lock plates;
assemble compressor rotors;
balance both rotors; and
install rotors in such
Engine.
CYCLE one take-off and landing of
the Aircraft.
DAMAGE NOTIFICATION THRESHOLD $100,000.
DEFAULT any Event of Default and any
event or condition which with
the giving of notice or lapse
of time would constitute an
Event of Default.
DELIVERY DATE the date hereof.
DELIVERY LOCATION Columbia, South Carolina or
such other location as the
parties may agree.
DOLLARS AND $ the lawful currency of the
United States of America.
ENGINE whether or not installed on
the Aircraft:-
(a) each engine of the
manufacture and model
specified in Part 1 of
Schedule 1 (each of
which has 750 or more
rated takeoff horsepower
or the equivalent of
such horsepower);
or
(b) any engine which has
replaced that engine,
title to which has or
should have, passed to
Lessor in accordance with
this Agreement;
and in each case
includes all modules and
Parts from time to time
belonging to or
installed in
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that engine but excludes
any properly replaced
engine title to which
has, or should have,
passed to Lessee
pursuant to this
Agreement.
EVENT OF DEFAULT an event or condition
specified in Clause 13.1
or Letter Agreement No. 1.
EVENT OF LOSS with respect to the Aircraft
(including for the purposes
of this definition the
Airframe):-
(a) the actual or
constructive total loss
of the Aircraft
(including any damage to
the Aircraft which
results in an insurance
settlement on the basis
of a total loss, or
requisition for use or
hire which results in an
insurance settlement on
the basis of a
total loss); or
(b) it being destroyed,
damaged beyond repair or
permanently rendered
unfit for normal use
for any reason
whatsoever, or
(c) the requisition of
title, or other
compulsory acquisition,
capture, seizure,
deprivation,
confiscation or
detention for any reason
of the Aircraft by the
government of the State
of Registration or other
competent authority
(whether de jure or de
facto), but excluding
requisition for use or
hire not involving
requisition of title;
or
(d) the hi-jacking, theft,
condemnation,
confiscation, seizure or
requisition for use or
hire of the Aircraft
which deprives any
person permitted by this
Agreement to have
possession and/or use of
the Aircraft of its
possession and/or use
for more than 15 days.
EXPIRY DATE subject to Clause 4.5 and
4.6, the day preceding the
numerically corresponding day
24 months after May 13, 1996
or if earlier the date on
which:-
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<PAGE> 6
(a) the Aircraft has been
redelivered in accordance
with this Agreement; or
(b) Lessor receives the
Agreed Value following
an Event of Loss.
FAA the Federal Aviation
Administration of the United
States of America and any
successor thereof.
FEDERAL AVIATION ACT United States Federal
Aviation Act of 1958,
as amended, or any similar
legislation of the United
States of America enacted in
substitution or replacement
thereof.
FINANCIAL INDEBTEDNESS any indebtedness in respect
of:-
(a) moneys borrowed or
raised;
(b) any liability under any
debenture, bond, note,
loan stock, acceptance,
documentary credit or
other security;
(c) the acquisition cost of
any asset to the extent
payable before or after
the time of acquisition
or possession; or
(d) any guarantee, indemnity
or similar assurance
against financial loss
of any person in respect
of the above.
FINANCING STATEMENTS Uniform Commercial Code
Financing Statements in
respect of this Agreement and
the collateral described
therein prepared in a form
acceptable for filing with
the applicable Government
Entities in the Habitual
Base, the State in which the
chief executive office (as
that term is defined in
Article 9 of the Uniform
Commercial Code as in effect
in the State of South
Carolina) and such other
jurisdiction as Lessor shall
reasonably require.
FLIGHT HOUR each hour or part thereof
(rounded up to two decimal
places) elapsing from the
moment the wheels of the
Aircraft leave
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<PAGE> 7
the ground on take off until
the wheels of the Aircraft
next touch the ground.
GOVERNING LAW the laws of the State of New
York.
GOVERNMENT ENTITY (a) any national government,
political subdivision
thereof, or local
jurisdiction therein;
(b) any instrumentality,
board, commission, court
or agency of any
thereof, however
constituted; and
(c) any association,
organization, or
institution of which any
of the above is a member
or to whose jurisdiction
any thereof is subject
or in whose activities
any of the above is a
participant.
HABITUAL BASE the State of South Carolina
or, subject to the prior
written consent of Lessor,
any other state, country or
countries in which the
Aircraft is for the time
being habitually based.
HOT SECTION REFURBISHMENT the complete visual
inspection and repair as
necessary of the combustion
section of an Engine. In
conducting such inspection
and repair, the engine shop
must completely unstack the
high pressure turbine and
accomplish complete visual
inspection; de-blade disks as
necessary; accomplish visual
inspections of all disks;
measure to assure all snap
diameters on disks are within
limits; inspect blades for
proper chord dimensions and
cracking; repair or replace
blades below minimums;
inspect and repair stators as
necessary; blade up disks
using new lock plates;
assemble compressor rotors;
balance both rotors; and
install rotors in such
Engine.
INDEMNITEES each of Lessor and Banks
including any of their
respective successors and
assigns, shareholders,
subsidiaries, affiliates,
partners,
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<PAGE> 8
contractors, directors,
officers, servants, agents and
employees.
LANDING GEAR the landing gear assembly of
the Aircraft excluding any
rotable components.
LESSOR LIEN (a) any security interest
whatsoever from time to
time created by or
through Lessor in
connection with the
financing of the
Aircraft;
(b) any other security
interest in respect of
the Aircraft which
results from acts of or
claims against Lessor,
Sub Lessor or Owner not
related to the
transactions
contemplated by or
permitted under this
Agreement; and
(c) liens in respect of the
Aircraft for Lessor
Taxes.
LESSOR TAXES Taxes:-
(a) imposed as a direct
result of activities of
Lessor in the
jurisdiction imposing
the liability unrelated
to Lessor's dealings
with Lessee or to the
transactions
contemplated by this
Agreement or the
operation of the
Aircraft by Lessee; or
(b) imposed on the income,
profits or gains of
Lessor by any Government
Entity in the United
States of America; or
(c) imposed with respect to
any period commencing or
event occurring after
the Expiry Date and
unrelated to Lessor's
dealings with Lessee or
to the transactions
contemplated by this
Agreement.
LETTER AGREEMENT NO. 1 Letter Agreement No 1. of
even date herewith between
Lessor and Lessee in
respect of the Aircraft, the
terms of which
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<PAGE> 9
constitute an integral part
of this Agreement.
MAINTENANCE PROGRAMME an FAA and Air Authority
approved maintenance
programme for the
Aircraft encompassing
scheduled maintenance
(including block
maintenance), condition
monitored maintenance, and/or
on condition maintenance of
Airframe, Engines and Parts,
including but not limited to,
servicing, testing,
preventive maintenance,
repairs, structural
inspections, system checks,
overhauls, approved
modifications, service
bulletins, engineering
orders, airworthiness
directives, corrosion
control, inspections and
treatments.
MAJOR CHECKS any C-Check, multiple
C-Check, D-Check or
annual heavy maintenance
visit or segment thereof
suggested for commercial
aircraft of the same model as
the Aircraft by its
manufacturer (however
denominated) as set out in
the Agreed Maintenance
Programme.
MANUFACTURER Boeing.
MARCH 29 1996 LETTER AGREEMENT Letter Agreement, dated March
29, 1996, between Lessor,
Lessee, Polaris Aircraft
Leasing K.B. and GE Capital
Aviation Services, Inc.
MINIMUM LIABILITY COVERAGE $400,000,000 on each
occurrence.
NOVEMBER 1994 LEASE the Aircraft Lease
Agreement, dated as of
November 11, 1994, between
Lessor and Lessee relating to
the Aircraft, as supplemented
and amended which agreement
has heretofore been
terminated by agreement of
the parties hereto.
OTHER AGREEMENTS any agreement (other than
this Agreement) made or to be
made between Lessor (or an
affiliate, associate or
subsidiary of Lessor
(including, without
limitation, Polaris Aircraft
Leasing K.B.)) and
Lessee (or an affiliate,
associate or Subsidiary of
Lessee), including without
limitation the November 1994
Lease and the March 29 1996
Letter Agreement.
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<PAGE> 10
PART whether or not installed on
the Aircraft:-
(a) any component,
furnishing or equipment
(other than a complete
Engine) furnished with
the Aircraft on the
Delivery Date; and
(b) any other component,
furnishing or equipment
(other than a complete
Engine) title to which
has, or should have
passed to Lessor pursuant
to this Agreement;
but excludes any such
items title to which
has, or should have,
passed to Lessee
pursuant to this
Agreement.
PERMITTED LIEN (a) any lien for Taxes not
assessed or, if
assessed, not yet due
and payable, or being
contested in good faith
by appropriate
proceedings;
(b) any lien of a repairer,
mechanic, carrier,
hangarkeeper or other
similar lien arising in
the ordinary course of
business or by operation
of law in respect of
obligations which are
not overdue or are being
contested in good faith
by appropriate
proceedings;
but only if (in the case
of both (a) and (b)) (i)
adequate reserves have
been provided by Lessee
for the payment of the
Taxes or obligations;
and (ii) such
proceedings, or the
continued existence of
the lien, do not give
rise to any likelihood
of the sale, forfeiture
or other loss of the
Aircraft or any interest
therein or of criminal
liability on Lessor or
any Bank; and
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<PAGE> 11
(c) any Lessor Lien.
PERSON shall mean and include any
individual person,
corporation, partnership,
firm, joint stock company,
joint venture, trust, estate,
unincorporated organisation,
association, Government
Entity, or organisation or
association of which any of
the above is a member or a
participant.
PREVIOUS DELIVERY DATE the date on which the
Aircraft was delivered by
Lessor to Lessee pursuant to
the November 1994 Lease.
PREVIOUS LEASE the November Lease which
will have expired or
otherwise been terminated
prior to the delivery of the
Aircraft by Lessor to Lessee
pursuant to this Agreement.
REDELIVERY LOCATION Will Rogers World Airport,
Oklahoma City or such other
location in the south western
United States as Lessor shall
advise Lessee or such other
location as the parties may
agree.
RENT means, collectively, Basic
Rent, Supplemental Rent and
all other amounts,
liabilities and obligations
which Lessee assumes or
agrees to pay to Lessor or
other Persons hereunder
(other than Basic Rent and
Supplemental Rent) or under
any Other Agreement,
including without limitation
the payment of deposits,
indemnities and the Agreed
Value.
RENTAL PERIOD each period ascertained in
accordance with Clause 5.2.
RENT DATE the first day of each Rental
Period.
SECURITY INTEREST any mortgage, charge, pledge,
lien, assignment,
hypothecation, right of
set-off or any agreement or
arrangement having the effect
of creating a security
interest other than a
Permitted Lien, or any
agreement to create the
foregoing other than a
Permitted Lien.
STATE OF INCORPORATION the State of Illinois.
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<PAGE> 12
STATE OF REGISTRATION the United States of America.
SUBSIDIARY (a) in relation to any
reference to accounts,
any company whose
accounts are
consolidated with the
accounts of Lessee in
accordance with
accounting principles
generally accepted under
accounting standards of
the State of
Incorporation;
(b) for any other purpose
an entity from time to
time:-
(i) of which another has
direct or indirect
control or owns
directly or
indirectly more than
50 per cent of the
voting share
capital; or
(ii) which is a direct
or indirect
subsidiary of
another under the
laws of the
jurisdiction of its
incorporation.
SUPPLEMENTAL RENT all amounts payable under
Clause 5.4(a).
TAXES taxes, duties and the like
of all kinds and any other
amount corresponding to any
taxation together with any
penalties, fines, surcharge
or interest thereon.
TERM the period commencing on the
Delivery Date and ending on
the Expiry Date.
1.2 CONSTRUCTION
(a) In this Agreement, unless the contrary intention is stated, a
reference to:-
(i) each of "Lessor" or "Lessee" or any other person includes with
out prejudice to the provisions of this Agreement any
successor in title to it and any permitted assignee;
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<PAGE> 13
(ii) words importing the plural shall include the singular and vice
versa;
(iii) any document shall include that document as amended, novated
or supplemented;
(iv) a law (1) includes any statute, decree, constitution,
regulation, order, judgment or directive of any Government
Entity; (2) includes any treaty, pact, compact or other
agreement to which any Government Entity is a signatory or
party; (3) includes any judicial or administrative
interpretation or application thereof and (4) is a reference
to that provision as amended, substituted or re-enacted;
(v) a Clause or a Schedule is a reference to a clause of or a
schedule to this Agreement; and
(b) the headings in this Agreement are to be ignored in construing this
Agreement.
2. REPRESENTATIONS AND WARRANTIES
2.1 Lessee's Representations and Warranties: Lessee represents and
warrants to Lessor that:-
(a) STATUS: Lessee is a corporation duly incorporated and validly existing
in good standing under the laws of the State of Incorporation and has
the corporate power to own its assets and carry on its business as it
is being conducted and is the holder of all necessary air
transportation licences required in connection therewith and with the
use and operation of the Aircraft;
(b) POWER AND AUTHORITY: Lessee has the corporate power to enter into and
perform, and has taken all necessary corporate action to authorise the
entry into, performance and delivery of, this Agreement and the
transactions contemplated by this Agreement;
(c) LEGAL VALIDITY: this Agreement constitutes Lessee's legal, valid and
binding obligation;
(d) NON-CONFLICT: the entry into and performance by Lessee of, and the
transactions contemplated by, this Agreement do not and will not:-
(i) conflict with any laws binding on Lessee; or
(ii) conflict with the constitutional documents of Lessee; or
(iii) conflict with or result in default under any indenture,
mortgage, chattel mortgage, deed of trust, conditional sales
contract, lease, bank loan or credit agreement or other
agreement which is binding upon Lessee or any of its assets
nor result in the creation of any Security Interest over any
of its assets;
(e) AUTHORISATION: all authorisations, consents, registrations and
notifications required in connection with the entry into, performance,
validity and enforceability of, this Agreement and the transactions
contemplated by this Agreement, have been (or will on or before the
Delivery Date have been) obtained or effected (as appropriate) and are
(or will on their being obtained or effected be) in full force and
effect;
(f) NO IMMUNITY:
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<PAGE> 14
(i) Lessee is subject to civil commercial law with respect to its
obligations under this Agreement; and
(ii) neither Lessee nor any of its assets is entitled to any right
of immunity and the entry into and performance of this
Agreement by Lessee constitute private and commercial acts;
(g) ACCOUNTS: the audited consolidated accounts of Lessee and its
Subsidiaries most recently delivered to Lessor:-
(i) have been prepared in accordance with accounting principles
and practices generally accepted and consistently applied in
the State of Incorporation; and
(ii) fairly represent the consolidated financial condition of
Lessee and its Subsidiaries as at the date to which they were
drawn up;
(h) CHIEF EXECUTIVE OFFICE: Lessee's chief executive office (as that term
is defined in Article 9 of the Uniform Commercial Code as in effect in
the State of South Carolina) is located at 1800 St. Julian Place, 4th
Floor, Columbia, South Carolina;
(i) CERTIFICATED AIR CARRIER: Lessee is a Certificated Air Carrier and
Lessor, as lessor of the Aircraft to Lessee, is entitled to the
benefits of Section 1110 of Title 11 of the United States Code with
respect to the Aircraft; and
(j) CITIZEN OF THE UNITED STATES: Lessee is a "citizen of the United
States" as defined in Section 101(16) of the Federal Aviation Act.
2.2 LESSEE'S FURTHER REPRESENTATIONS AND WARRANTIES: Lessee further
represents and warrants to Lessor that:-
(a) NO DEFAULT:
(i) no Default has occurred and is continuing or might result from
the entry into or performance of this Agreement; and
(ii) no other event or condition has occurred and is continuing
which constitutes (or with the giving of notice, lapse of
time, determination of materiality or the fulfilment of any
other applicable condition or any combination of the
foregoing, might constitute) a material default under any
indenture, mortgage, chattel mortgage, deed of trust,
conditional sales contract, lease, bank loan or credit
agreement or other agreement which is binding on Lessee or any
assets of Lessee;
(b) REGISTRATION:
(i) it is not necessary or advisable under the laws of the State
of Incorporation or the Habitual Base in order to ensure the
validity, effectiveness and enforceability of this Agreement
or to, establish, perfect or protect the property rights of
Lessor in the Aircraft or any Engine or Part that this
Agreement or any other instrument relating thereto be filed,
registered or recorded or that any other action be taken or
if any such filings, registrations,
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<PAGE> 15
recordings or other actions are necessary or advisable, the
same have been effected or will have been effected on or
before the Delivery Date; and
(ii) under the laws of the State of Incorporation and the Habitual
Base the property rights of Lessor in the Aircraft, have been
fully established, perfected and protected and this Agreement
will have priority in all respects over the claims of all
creditors of Lessee;
(c) LITIGATION: no litigation, arbitration or administrative proceedings
are pending or to Lessee's knowledge threatened against Lessee which,
if adversely determined, would have a material adverse effect upon its
financial condition or business or its ability to perform its
obligations under this Agreement;
(d) PARI PASSU: the obligations of Lessee under this Agreement rank at
least pari passu with all other present and future unsecured and
unsubordinated obligations (including contingent obligations) of
Lessee, with the exception of such obligations as are mandatorily
preferred by law and not by virtue of any contract;
(e) MATERIAL ADVERSE CHANGE: there has been no material adverse change in
the consolidated financial condition of Lessee and its Subsidiaries or
the financial condition of Lessee since the date to which the accounts
most recently provided to Lessor on or prior to the Delivery Date were
drawn up;
(f) TAXES: Lessee has delivered all necessary returns and payments due to
the tax authorities in the State of Incorporation and the Habitual
Base and all other jurisdictions in which Lessee is required to pay
taxes and/or file tax returns or reports and Lessee is not required by
law to deduct any Taxes from any payments under this Agreement;
(g) INFORMATION: the financial and other information furnished by Lessee
in connection with this Agreement does not contain any untrue
statement or omit to state facts, the omission of which makes the
statements therein, in the light of the circumstances under which they
were made, misleading, nor omits to disclose any material matter to
Lessor and all forecasts and opinions contained therein were honestly
made on reasonable grounds after due and careful enquiry by Lessee;
(h) FOREIGN ASSET CONTROL: as of the date of this Agreement, Lessee does
not hold any contract or other obligation to operate the Aircraft to
any of the countries designated under the United States Foreign Asset
Control Regulations (31 C.F.R. Parts 500-599), including, as of the
date hereof, Cuba, Haiti, Iraq, Libya, North Korea, and the Federal
Republic of Yugoslavia (Serbia and Montenegro) and the Unita Rebels of
Angola;
(i) ERISA: Lessee is not engaged in any transaction in connection with
which it could be subjected to either a civil penalty assessed
pursuant to Section 502(c) of ERISA or any tax imposed by Section 5975
of the Internal Revenue Code; no material liability of the Pension
Benefit Guaranty Corporation has been or is expected by Lessee to be
incurred with respect to any employee pension benefit plan (as defined
in Section 3 of ERISA) maintained by Lessee; there has been no
reportable event (as defined in Section 4043(b) of ERISA) with respect
to any such employee pension benefit plan. There is no event of
termination of any such employee pension benefit plan by the Pension
Benefit Guaranty Corporation; and no accumulated funding deficiency
(as defined in Section 302 of ERISA
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<PAGE> 16
or Section 412 of the Internal Revenue Code), whether or not waived,
exists with respect to any such employee pension benefit plan; and
(j) MAINTENANCE PROGRAMME: the Maintenance Programme for the Aircraft
complies with all FAA requirements.
2.3 REPETITION: The representations and warranties in Clause 2.1 and
Clause 2.2 will survive the execution of this Agreement. The
representations and warranties contained in Clause 2.1 will be deemed
to be repeated by Lessee on each Rent Date as if made with reference
to the facts and circumstances then existing.
2.4 LESSOR'S REPRESENTATIONS AND WARRANTIES: Lessor represents and
warrants to Lessee that:-
(a) STATUS: Lessor is a company existing under the laws of the State of
Delaware and has the power to own its assets and carry on its business
as it is now being conducted;
(b) POWER AND AUTHORITY: Lessor has the corporate power to enter into and
perform, and has taken all necessary corporate action to authorise the
entry into, performance and delivery of, this Agreement and the
transactions contemplated by this Agreement;
(c) LEGAL VALIDITY: this Agreement constitutes Lessor's legal, valid and
binding obligation;
(d) NON-CONFLICT: the entry into and performance by Lessor of, and the
transactions contemplated by, this Agreement do not and will not:-
(i) conflict with any laws binding on Lessor; or
(ii) conflict with the constitutional documents of Lessor; or
(iii) conflict with any document which is binding upon Lessor or any
of its assets;
(e) AUTHORISATION: so far as concerns the obligations of Lessor, all
authorisations, consents, registrations and notifications required
under the laws of the State of Delaware in connection with the entry
into, performance, validity and enforceability of, and the
transactions contemplated by, this Agreement by Lessor have been (or
will on or before the Delivery Date have been) obtained or effected
(as appropriate) and are (or will on their being obtained or effected
be) in full force and effect; and
(f) NO IMMUNITY:
(i) Lessor is subject to civil commercial law with respect to its
obligations under this Agreement; and
(ii) neither Lessor nor any of its assets is entitled to any right
of immunity and the entry into and performance of this
Agreement by Lessor constitute private and commercial acts.
3. CONDITIONS PRECEDENT
3.1 CONDITIONS PRECEDENT: Lessor's obligation to deliver and lease the
Aircraft under this Agreement is subject to satisfaction, or waiver
by Lessor, of each of the following conditions:-
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<PAGE> 17
(a) receipt by Lessor from Lessee not later than 1 Business Day prior to
the date set forth in, or determined in accordance with, Clause 4.1 of
the following satisfactory in form and substance to Lessor:-
(i) CONSTITUTIONAL DOCUMENTS: a copy of the constitutional
documents of Lessee;
(ii) RESOLUTIONS: a copy of a resolution of the board of directors
of Lessee approving the terms of, and the transactions
contemplated by, this Agreement, resolving that it enter into
this Agreement, and authorising a specified person or persons
to execute this Agreement and accept delivery of the Aircraft
on its behalf.-
(iii) OPINION: evidence that an opinion in the form of Schedule 5
will be issued on the Delivery Date by independent legal
counsel acceptable to Lessor in the Habitual Base and the
State of Incorporation;
(iv) FAA OPINION: evidence that there will be issued an opinion of
Daugherty, Fowler & Peregrin or other counsel acceptable to
Lessor who are recognised specialists with regard to FAA
registration matters in a form acceptable to Lessor as to the
due filing for recordation of this Agreement;
(v) APPROVALS: evidence of the issue of each approval, licence and
consent which may be required in relation to the performance
by Lessee of any of its obligations hereunder (including,
without limitation, any consent to the export of the Aircraft
from the Habitual Base upon the termination of the leasing of
the Aircraft under this Agreement);
(vi) [INTENTIONALLY OMITTED)
(vii) LICENCES: copies of Lessee's air transport licence, air
operator's certificates and all other licences, certificates
and permits required by Lessee in relation to, or in
connection with, the operation of the Aircraft;
(viii) PROCESS AGENT: a letter from the process agent appointed by
Lessee in this Agreement accepting that appointment;
(ix) CERTIFICATE: a certificate of a duly authorised officer of
Lessee:-
(a) setting out a specimen of each signature referred to in Clause
3.1(a)(ii); and
(b) certifying that each document specified in this Clause is
correct, complete and in full force and effect; and
(c) certifying the matters set forth in sub-clause 3.1(a)(x)
below;
(x) AIR TRAFFIC CONTROL: a letter from Lessee addressed to all
relevant air traffic control authorities pursuant to which
Lessee authorises the addressee to issue to Lessor, upon
Lessor's request from time to time, a statement of account of
all sums due by Lessee to the authority in respect of all
aircraft (including, without limitation, the Aircraft)
operated by Lessee and an officer's certificate from the
Lessee certifying that on the Delivery Date, no amounts are
past due and outstanding by Lessee to any air traffic control
authorities, except as otherwise set forth on a schedule
thereto; and
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(xi) GENERAL: such other documents as Lessor may reasonably
request;
(b) the receipt by Lessor on or before the Delivery Date of:-
(i) OPINIONS: a signed original of each of the opinions referred
to in Clauses 3.1(a)(iii) and (iv);
(ii) PAYMENTS: all sums due to Lessor under this Agreement on or
before the Delivery Date including, without limitation, the
payment of Rent;
(iii) INSURANCES: certificates of insurance, an undertaking from
Lessee's insurance broker and other evidence satisfactory to
Lessor that Lessee is taking the required steps to ensure due
compliance with the provisions of this Agreement as to
Insurances with effect on and after the Delivery Date;
(iv) ACCOUNTS: the latest available accounts of Lessee as described
in Clause 8.2(b)(i) and (ii);
(v) DOCUMENTS: a confirmation of receipt of the Aircraft Documents
delivered with the Aircraft on the Previous Delivery Date;
(vi) GENERAL: such other documents as Lessor may reasonably
request;
(c) receipt by Lessor of such information and documents relating to the
proposed Maintenance Programme as Lessor may require and Lessor having
agreed the proposed Maintenance Programme on or prior to the Delivery
Date; and
(d) evidence that on the Delivery Date the Aircraft has been validly
registered under the laws of the State of Registration, that the
Financing Statements have been duly filed and that all filings,
registrations, recordings and other actions have been or will be taken
which are necessary or advisable to ensure the validity, effectiveness
and enforceability of this Agreement and to protect the property
rights of Lessor in the Aircraft or any Part.
3.2 FURTHER CONDITIONS PRECEDENT: The obligations of Lessor to deliver and
lease the Aircraft under this Agreement are subject to the further
conditions precedent that:-
(a) the representations and warranties of Lessee under Clauses 2.1 and 2.2
are correct and would be correct if repeated on delivery of the
Aircraft under this Agreement; and
(b) no Default has occurred and is continuing or might result from the
leasing of the Aircraft to Lessee under this Agreement.
3.3 WAIVER: The conditions specified in Clauses 3.1 and 3.2 are for the
sole benefit of Lessor and may be waived or deferred in whole or in
part and with or without conditions by Lessor. If any of those
conditions are not satisfied on the Delivery Date and Lessor (in its
absolute discretion) nonetheless agrees to deliver the Aircraft to
Lessee, Lessee will ensure that those conditions are fulfilled within
15 days after the Delivery Date and Lessor may treat as an Event of
Default the failure of Lessee to do so.
4. COMMENCEMENT
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4.1 LEASING: Lessor will lease the Aircraft to Lessee and Lessee will take
the Aircraft on lease in accordance with this Agreement for the
duration of the Term. Lessor will deliver and Lessee will accept the
Aircraft on or about April 29, 1996 or such other day as may be
agreed. After delivery the Aircraft and every Part will be in every
respect at the sole risk of Lessee, who will bear all risk of loss,
theft, damage or destruction to the Aircraft from any cause
whatsoever.
4.2 DELIVERY: The Aircraft will be constructively delivered to and
accepted by Lessee as is at the Delivery Location or such other
location as may be agreed. Lessee will effect acceptance of the
Aircraft by execution and delivery to Lessor of the duly completed and
executed Certificate of Acceptance in the form of Schedule 2.
4.3 [INTENTIONALLY OMITTED]
4.4 [INTENTIONALLY OMITTED]
4.5 LESSEE'S LEASE TERM OPTION.
(a) LEASE TERM OPTION: Notwithstanding any other provision of this
Agreement to the contrary, Lessor hereby grants Lessee the option (the
"Lease Term Option") to terminate or extend the Term two (2) months
earlier or later than the numerically corresponding day twenty-four
(24) months after the Delivery Date provided that:
(i) Lessee shall give Lessor six months prior written notice (the
"Option Notice") of Lessee's intention to exercise the Lease Term
Option to either terminate or extend the Term by two (2) months, which
Option Notice, once given, shall be irrevocable; and
(ii) no Default shall have occurred and be continuing on the date that
the Option Notice is given;
(b) OPTION EXERCISED: Upon exercise by Lessee of the Lease Term Option,
but without prejudice to all the other terms and conditions of this
Agreement (including, without limitation, Lessee's obligation to
fulfil the conditions contained in Clause 4.5(a)) which shall remain
in full force and effect, the definition of "Expiry Date" contained in
Clause 1 of this Agreement shall be deemed to be amended such that the
words "Subject to any amendment pursuant to Clause 4.5(b), the day
preceding the numerically corresponding day 24 months after the
Delivery Date" shall be replaced with the words "the day preceding the
numerically corresponding day twenty-two (22) or twenty-six months
after the Delivery Date subject in all cases to the term identified in
the Option Notice".
(c) OPTION NOT EXERCISED: If Lessee has not furnished Lessor with the
Option Notice on or before the date specified in sub-clause (a) above,
the Lease Term Option shall be forfeited, no longer available to
Lessee and of no further effect.
4.6 [Intentionally Omitted]
5. PAYMENTS
5.1 AIRCRAFT COMMITMENT FEE: Lessor hereby acknowledges receipt from
Lessee of the Aircraft Commitment Fee in the amount set forth in
Letter Agreement No. 1.
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5.2 RENTAL PERIODS: The Term will be divided into Rental Periods. The
first Rental Period will commence on the Delivery Date and end May 12,
1996, the second Rental Period will commence on May 13, 1996 and each
subsequent Rental Period will commence on the date succeeding the last
day of the previous Rental Period. Each Rental Period will end on the
date immediately preceding the numerically corresponding day in the
next month except that:-
(a) if there is no such numerically corresponding day in that month, it
will end on the last day of that month; and
(b) if a Rental Period would otherwise overrun the Expiry Date, it will
end on the Expiry Date.
5.3 BASIC RENT: Except as otherwise set forth in Letter Agreement No. 1,
on each Rent Date Lessee will pay to Lessor or its order Basic Rent in
advance in the amount set forth in paragraph A of Letter Agreement No.
1. Payment must be initiated adequately in advance of the Rent Date
to ensure that Lessor receives credit for the payment on the Rent
Date. If a Rental Period begins on a non-Business Day, the Basic Rent
payable in respect of that Rental Period shall be paid on the Business
Day immediately preceding the date on which such Rental Period
commences.
5.4 SUPPLEMENTAL RENT:
(a) AMOUNT: Except as otherwise set forth in Letter Agreement No. 1,
Lessee will further pay to Lessor Supplemental Rent in relation to
each Rental Period (including without limitation the last Rental
Period of the Term) on the 10th day following the end of that Rental
Period as follows:-
(i) in respect of the Airframe, the amount set forth in paragraph
B (i)(a) of Letter Agreement No. 1 in respect of each Flight
Hour operated by the Aircraft during that Rental Period
("Airframe Supplemental Rent"); and
(ii) in respect of each Engine, the amount set forth in paragraph B
(i)(b) of Letter Agreement No. 1 in respect of each Flight
Hour operated by that Engine during that Rental Period
("Engine Refurbishment Supplemental Rent"); and
(iii) in respect of each Engine, the amount set forth in paragraph B
(i)(c) of Letter Agreement No. 1 in respect of each Flight
Hour operated by that Engine during that Rental Period
("Engine Life Limited Parts Supplemental Rent"); and
(v) in respect of the Landing Gear, the amount set forth in
paragraph B (i)(d) of Letter Agreement No. 1 in respect of
each Flight Hour operated by the Landing Gear during that
Rental Period ("Landing Gear Supplemental Rent").
Notwithstanding the foregoing, with respect to any Engine, provided
that (x) no Default shall have occurred and is continuing; and (y)
there shall have been no material adverse change in Lessee's financial
position since the Delivery Date, if at any time commencing from the
Previous Delivery Date and falling during the Term the aggregate
amount of Engine Refurbishment Supplemental Rent and Engine Life
Limited Parts Supplemental Rent previously paid by Lessee in respect
of that Engine less any amount paid by Lessor with respect to that
Engine pursuant to Clause 7.2 equals or exceeds $400,000, then
Lessee's obligation to pay Engine Refurbishment Supplemental Rent and
Engine Life
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Limited Parts Supplemental Rent in respect of that Engine shall abate.
Lessee's obligation to pay Engine Refurbishment Supplemental Rent and
Engine Life Limited Parts Supplemental Rent shall recommence at such
time as the aggregage amount of Engine Refurbishment Supplemental Rent
and Engine Life Limited Parts Supplemental Rent held by Lessor in
respect of that Engine less any amount paid by Lessor with respect to
that Engine pursuant to Clause 7.2 falls below $400,000.
(b) ADJUSTMENT: the rate of Supplemental Rent shall be adjusted upwards
annually by Lessor at the rate of 5% per annum commencing 1 January,
1997. In addition, but not limited to the foregoing, Lessee
acknowledges that the rates of Supplemental Rent currently provided
for in this Agreement are based upon the assumptions that (i) the
Aircraft will be operated on a one Flight Hour to one Cycle ratio; and
(ii) the Agreed Maintenance Programme for the Aircraft during the Term
will be the same as that in effect on the Delivery Date. In the event
that either or both of the foregoing assumptions prove to be incorrect
at any time during the Term, Lessor and Lessee agree that Lessor shall
have the right, upon written notice to Lessee, to adjust the rate of
Supplemental Rent in accordance with the Table set forth in Letter
Agreement No. 1. In the event that the Agreed Maintenance Programme
changes during the Term (any such change to be in accordance with the
relevant terms and conditions of this Agreement), Lessor shall make
the aforementioned adjustment in the manner which Lessor determines,
in its reasonable discretion, is necessary to maintain the rates of
Supplemental Rent at levels which accurately reflect the costs
associated with obtaining maintenance services at prevailing industry
rates. Each such notice shall specify the revised rate of
Supplemental Rent and the effective date of such revision. Lessee
agrees to advise Lessor, in writing, of any circumstances or events
which would result in the foregoing assumptions becoming incorrect at
any time during the Term.
5.5 PAYMENTS: All payments by Lessee to Lessor under this Agreement will
be made for value on the due date in Dollars and in immediately
available funds settled through the New York Clearing House System or
such other funds as may for the time being be customary for the
settlement in New York City of international payments in Dollars by
telegraphic transfer to Bankers Trust Company, New York, NY; Account
Name: Polaris Holding Company/GECC, Account No. 50-232-571, ABA No.
021-001-033 or to such other account as Lessor may advise Lessee in
writing.
5.6 GROSS-UP:
(a) All payments by Lessee under or in connection with this Agreement will
be made without set-off or counterclaim, free and clear of and without
deduction for or on account of all Taxes (other than Lessor Taxes);
(b) all Taxes (other than Lessor Taxes) in respect of payments under this
Agreement shall be for the account of and will be paid by Lessee for
its own account prior to the date on which penalties apply; and
(c) if Lessee is compelled by law to make payment subject to any Tax
(other than Lessor Taxes) and Lessor does not actually receive for its
own benefit on the due date a net amount equal to the full amount
provided for under this Agreement, Lessee will pay all necessary
additional amounts to ensure receipt by Lessor of the full amount so
provided for.
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5.7 TAXATION: Lessee will on demand pay and indemnify Lessor against all
Taxes (other than Lessor Taxes) levied or imposed against or upon
Lessor or Lessee and relating to or attributable to Lessee, this
Agreement or the Aircraft directly or indirectly in connection with
the importation, exportation, registration, ownership, leasing,
subleasing, delivery, possession, use, operation, repair, maintenance,
overhaul, transportation, landing, storage, presence or redelivery of
the Aircraft or any part thereof or any rent, receipts, insurance
proceeds, income or other amounts arising therefrom.
5.8 VALUE ADDED TAX:
(a) For the purposes of this sub-clause:-
(i) "VAT" means value added tax and any sales or turnover tax,
imposition or levy of a like nature;
(ii) "supply" includes anything on which VAT is chargeable;
(b) Lessee will pay to Lessor the amount of any VAT chargeable in respect
of any supply of goods or services for VAT purposes under this
Agreement; and
(c) each amount stated as payable by Lessee under this Agreement is
exclusive of VAT (if any) and is accordingly to be construed as a
reference to that amount plus any VAT in respect of it.
5.9 INFORMATION: If Lessee is required by any applicable law, or by any
third party, to deliver any report or return in connection with any
Taxes, Lessee will complete the same in a manner satisfactory to
Lessor and in particular will state therein that Lessee is exclusively
responsible for the use and operation of the Aircraft and for any
Taxes arising therefrom, and Lessee will, on request, supply a copy of
the report or return to Lessor.
5.10 TAXATION OF INDEMNITY PAYMENTS:
(a) If and to the extent that any sums payable to Lessor by Lessee under
this Agreement by way of indemnity are insufficient, by reason of any
Taxes payable in respect of those sums, for Lessor to discharge the
corresponding liability to the relevant third party (including any
taxation authority), or to reimburse Lessor for the cost incurred by
it to a third party (including any taxation authority) Lessee will
pay to Lessor such sum as will after the tax liability has been fully
satisfied leave Lessor with the same amount as it would have been
entitled to receive in the absence of that liability together with
interest on the amount of the deficit at the rate of interest stated
in Clause 5.11 in respect of the period commencing on the date on
which the payment of taxation is finally due until payment by Lessee
(both before and after judgment); and
(b) If and to the extent that any sums constituting (directly or
indirectly) an indemnity to Lessor but paid by Lessee to any person
other than Lessor are treated as taxable in the hands of Lessor,
Lessee will pay to Lessor such sum as will after the tax liability has
been fully satisfied indemnify Lessor to the same extent as it would
have been indemnified in the absence of such liability together with
interest on the amount payable by Lessee under this sub-clause at the
rate of interest stated in Clause 5.11 in respect of the period
commencing on the date on which the payment of taxation is finally due
until payment by Lessee (both before and after judgment) provided
however that Lessee will not be liable
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for any Lessor Taxes incurred as a result of the payment of the Agreed
Value pursuant to Clause 11.
5.11 DEFAULT INTEREST: If Lessee fails to pay any amount payable under this
Agreement on the due date, Lessee will pay on demand from time to time
to Lessor interest (both before and after judgment) on that amount,
from the due date to the date of payment in full by Lessee to Lessor,
at the rate calculated by Lessor to be one month Dollar LIBOR plus 500
basis points per annum. All such interest will be compounded monthly
and calculated on the basis of the actual number of days elapsed and a
360 day year.
5.12 CONTEST: If Lessee disputes the payment of any Taxes payable by Lessor
for which Lessee is responsible under this Agreement, Lessor will
consider with Lessee the taking of such action as Lessee may
reasonably request at Lessee's expense to contest that payment but
will not be obliged to take any such action:-
(a) which Lessor considers in its sole discretion may prejudice it; or
(b) which Lessor considers does not have a reasonable prospect of success;
or
(c) for which Lessee has not made adequate provision to the satisfaction
of Lessor in respect of the expense concerned.
5.13 ABSOLUTE: Lessee's obligations under this Agreement are absolute and
unconditional irrespective of any contingency whatsoever including
(but not limited to):-
(a) any right of set-off, counterclaim, recoupment, defence or other right
which either party to this Agreement may have against the other;
(b) any unavailability of the Aircraft for any reason, including, but not
limited to, a requisition of the Aircraft or any prohibition or
interruption of or interference with or other restriction against
Lessee's use, operation or possession of the Aircraft;
(c) any lack or invalidity of title or any other defect in title,
airworthiness, merchantability, fitness for any purpose, condition,
design, or operation of any kind or nature of the Aircraft for any
particular use or trade, or for registration or documentation under
the laws of any relevant jurisdiction, or any Event of Loss in respect
of or any damage to the Aircraft;
(d) any insolvency, bankruptcy, reorganisation, arrangement, readjustment
of debt, dissolution, liquidation or similar proceedings by or against
Lessor or Lessee;
(e) any invalidity or unenforceability or lack of due authorisation of, or
other defect in, this Agreement; and
(f) any other cause which but for this provision would or might otherwise
have the effect of terminating or in any way affecting any obligation
of Lessee under this Agreement.
5.14 SECURITY:
(a) It is intended by Lessor and Lessee that the Aircraft Commitment Fee
paid by Lessee to Lessor and referenced in Clause 5.1, the
Supplemental Rent and, if applicable, the Insurance Security Deposit
contemplated by the first paragraph of Schedule 4 are amounts
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paid by Lessee to Lessor in consideration for Lessor removing the
Aircraft from the market, the use of the Aircraft by Lessee and the
satisfaction of Lessor's obligations under this Agreement and that,
once paid, those monies irrevocably and unconditionally shall be the
property of Lessor. Notwithstanding that stated intent, if and to the
extent that those monies or any thereof, under any applicable law or
otherwise, are determined to be security deposits or otherwise the
property of Lessee or if it is so determined those monies are a debt
owed to Lessee or that Lessee shall have any interest in those monies
(the "Charged Monies"), the parties agree that subclauses (b), (c) and
(d) shall apply;
(b) To the fullest extent permitted by law and by way of continuing
security Lessee charges and grants a security interest in the Charged
Monies and all rights of Lessee to payment thereof, the debt
represented thereby and/or any and all interest of Lessee therein to
Lessor by way of first priority security interest and first fixed
charge as security for Lessee's obligations and liabilities under this
Agreement and the Other Agreements (the "Secured Liabilities").
Except as expressly permitted under this Agreement, Lessee will not be
entitled to payment of the Charged Monies. Lessee will not assign,
transfer or otherwise dispose of all or part of its rights in the
Charged Monies and Lessee agrees that it will enter into any
additional documents and instruments necessary or reasonably requested
by Lessor to evidence, create or perfect Lessor's rights to the
Charged Monies.
(c) If Lessee fails to comply with any provision of this Agreement or any
Event of Default has occurred and is continuing Lessor may immediately
or at any time thereafter, without prior notice to Lessee:-
(i) set-off all or any part of the Secured Liabilities against the
liabilities of Lessor in respect of the Charged Monies; or
(ii) apply or appropriate the Charged Monies in or towards the
payment or discharge of the Secured Liabilities in such order as
Lessor sees fit; and
(d) If Lessor has exercised the set-off described in sub-clause (c) above,
Lessee shall, following a demand in writing from Lessor, promptly
restore the Charged Monies to the level at which they stood
immediately prior to such set-off.
6 MANUFACTURER'S WARRANTIES
6.1 ASSIGNMENT: Notwithstanding this Agreement, Lessor will remain
entitled to the benefit of each warranty, express or implied, with
respect to the Aircraft, any Engine or Part so far as concerns any
manufacturer, vendor, subcontractor or supplier. Except to the extent
Lessor otherwise directs, Lessor hereby authorises Lessee to pursue
any claim thereunder in relation to defects affecting the Aircraft,
any Engine or Part and Lessee agrees diligently to pursue any such
claim which arises at its own cost. Lessee will notify Lessor
promptly upon becoming aware of any such claim.
6.2 PROCEEDS: Except to the extent Lessor otherwise agrees in a particular
case, all proceeds of any such claim will be paid directly to Lessor
but if and to the extent that such claim relates:-
(a) to defects affecting the Aircraft which Lessee has rectified; or
(b) to compensation for loss of use of the Aircraft, an Engine or any Part
during the Term; and
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provided no Default has occurred and is continuing the proceeds will be
paid to Lessee by Lessor but in the case of (a) only on receipt of
evidence satisfactory to Lessor that Lessee has rectified the relevant
defect.
6.3 PARTS: Except to the extent Lessor otherwise agrees in a particular
case, Lessee will procure that all engines, components, furnishings or
equipment provided by the manufacturer, vendor, subcontractor or
supplier in replacement of a defective Engine or Part pursuant to the
terms of any warranty will be installed promptly by Lessee, that title
thereto free of Security Interests vests in Lessor. On installation
those items will be deemed to be an Engine or Part as applicable.
6.4 AGREEMENT: To the extent any warranties relating to the Aircraft are
made available under an agreement between any manufacturer, vendor,
subcontractor or supplier and Lessee, this Clause 6 is subject to that
agreement. However Lessee will:-
(a) pay the proceeds of any claim thereunder to Lessor to be applied
pursuant to Clause 6.2 and pending such payment will hold the claim
and the proceeds on trust for Lessor; and
(b) Lessee will take all such steps as are necessary at the end of the
Term to ensure the benefit of any of those warranties which have not
expired are vested in Lessor.
7. LESSOR'S COVENANTS
7.1 QUIET ENJOYMENT: Lessor will not interfere with the quiet use,
possession and enjoyment of the Aircraft by Lessee but the exercise by
Lessor of its rights under or in connection with this Agreement will
not constitute such an interference.
7.2 MAINTENANCE CONTRIBUTION: Provided no Default has occurred and is
continuing Lessor will pay to Lessee, by way of contribution to the
cost of maintenance of the Aircraft, upon submission by Lessee to
Lessor within 6 months of the commencement of that maintenance and
before the Expiry Date of an invoice and supporting documentation
reasonably satisfactory to Lessor evidencing:-
(a) with respect to the Airframe, the completion, in accordance with this
Agreement, of those items of maintenance characterised by the
Manufacturer's maintenance planning document and best industry
practice as D Check and/or individual structural inspections having an
interval of not less than 15,000 Flight Hours or 6 years for the
Aircraft (but not including repairs arising as the result of
operational or maintenance mishandling and not including airworthiness
directives), the lesser of (i) the amount of that invoice and (ii) an
amount equal to the aggregate amount of Airframe Supplemental Rent
paid under this Agreement at the time of commencement of such
maintenance less the aggregate amount previously paid by Lessor under
this sub-clause;
(b) with respect to any Engine, the performance, in accordance with this
Agreement, of a Hot Section Refurbishment and a Cold Section
Refurbishment (other than (i) repairs arising as a result of foreign
object damage or operational or maintenance mishandling and/or (ii)
removal, installation, maintenance and repair of QEC (Quick Engine
Change) kits; and/or (iii) airworthiness directives), the lesser of
(i) the amount of that invoice and (ii) an amount equal to the
aggregate amount of Engine Refurbishment Supplemental Rent paid in
respect of that Engine under this Agreement at the time of
commencement of such maintenance less the aggregate amount previously
paid in respect of that Engine by Lessor under this sub-clause;
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(c) with respect to any Engine, the replacement, in accordance with this
Agreement, of life limited Parts (other than replacement which is
occasioned by foreign object damage or operational or maintenance
mishandling and other than replacement occasioned by airworthiness
directive or elective replacement), the lesser of (i) the amount of
that invoice and (ii) an amount equal to the aggregate amount of
Engine Life Limited Parts Supplemental Rent paid in respect of that
Engine under this Agreement at the time of commencement of such
maintenance less the aggregate amount previously paid in respect of
that Engine by Lessor under this sub-clause; and
(d) with respect to the Landing Gear, the performance in accordance with
this Agreement, of all work on the Landing Gear in the nature of
overhaul and requiring removal and disassembly (other than repairs
arising as the result of operational or maintenance mishandling or
airworthiness directives), the lesser of (i) the amount of that
invoice and (ii) an amount equal to the aggregate amount of Landing
Gear Supplemental Rent paid under this Agreement at the time of
commencement of such maintenance less the aggregate amount previously
paid by Lessor under this sub-clause.
7.3 LESSOR OBLIGATIONS FOLLOWING EXPIRY DATE: Within 5 Business Days of:-
(a) redelivery of the Aircraft to Lessor in accordance with and in the
condition required by this Agreement; or
(b) payment to Lessor of the Agreed Value following an Event of Loss after
the Delivery Date;
or in each case such later time as Lessor is satisfied Lessee has
irrevocably paid to Lessor all Rent which may then be outstanding or
become payable under this Agreement or the Other Agreements and
provided that no Default shall have occurred and is continuing, Lessor
will pay to Lessee:-
(i) an amount equal to (x) the amount of the Aircraft Commitment
Fee paid by Lessee and referenced in Clause 5.1; plus (y) the
amount of interest at the rate and otherwise calculated in
accordance with Letter Agreement No. 1 which would have
accrued on the amount referred to in (x); and
(ii) the amount of any Basic Rent received in respect of any period
falling after the date of redelivery of the Aircraft or
payment of the Agreed Value, as the case may be; and
(iii) an amount equal to (x) the aggregate amount of Supplemental
Rent previously paid by Lessee under this Agreement; minus (y)
the aggregate amount previously paid by Lessor under Clause
7.2 without payment of interest.
8. LESSEE'S COVENANTS
8.1 DURATION: The undertakings in this Clause and in Clause 12 will:-
(a) except as otherwise stated, be performed at the expense of Lessee; and
(b) remain in force until the Expiry Date in accordance with this
Agreement and thereafter to the extent of any accrued rights of Lessor
in relation to those undertakings.
8.2 INFORMATION: Lessee will:-
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(a) notify Lessor forthwith of the occurrence of any Default or any other
event which might adversely affect Lessee's ability to perform any of
its obligations under this Agreement;
(b) furnish to Lessor:-
(i) on a quarterly and annual basis, the consolidated management
accounts of Lessee (comprising a balance sheet and profit and
loss statement) prepared for the most recent previous
financial quarter certified by Lessee's chief financial
officer as being true and correct;
(ii) as soon as available but not in any event later than 120 days
after the last day of each financial year of Lessee, its
audited consolidated balance sheet as of such day and its
audited consolidated profit and loss statement for the year
ending on such day;
(iii) at the same time as it is issued to the shareholders or
creditors of Lessee, a copy of each notice or circular issued
to Lessee's shareholders or creditors as a group; and
(iv) on request from time to time such other information relevant
to the transaction contemplated by this Agreement regarding
Lessee and its business and affairs as Lessor may reasonably
request;
(c) keep Lessor informed as to current serial numbers of the Engines and
any engine installed on the Aircraft;
(d) promptly furnish to Lessor all information Lessor from time to time
reasonably requests regarding the Aircraft, any Engine or any Part,
its use, location and condition including, without limitation, the
hours available on the Aircraft and any Engine until the next
scheduled check, inspection, overhaul or shop visit, as the case may
be;
(e) on request, within 10 days after the end of any Rental Period, furnish
to Lessor evidence satisfactory to Lessor of payment of all Taxes due
during that or any previous Rental Period;
(f) on request, furnish to Lessor evidence satisfactory to Lessor that all
Taxes and charges incurred by Lessee with respect to the Aircraft,
including without limitation all payments due to the relevant air
traffic control authorities, have been paid and discharged in full;
(g) provide Lessor with a monthly report on the Aircraft and each Engine
in the form required from time to time by Lessor;
(h) give Lessor not less than 60 days' written notice as to the time and
location of all Major Checks; and
(i) promptly notify Lessor of:-
(i) any loss, theft, damage or destruction to the Aircraft, any
Engine or any Part, or any modification to the Aircraft if the
potential cost may exceed the Damage Notification Threshold;
and
(ii) any claim or other occurrence likely to give rise to a claim
under the Insurances
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(but in the case of hull claims only in excess of the Damage
Notification Threshold) and details of any negotiations with
the insurance brokers over any such claim.
8.3 LAWFUL AND SAFE OPERATION: Lessee will:-
(a) comply with the law for the time being in force in any country or
jurisdiction which may for the time being be applicable to the
Aircraft or, so far as concerns the use and operation of the Aircraft
or an owner or operator thereof and take all reasonable steps to
ensure that the Aircraft is not used for any illegal purpose;
(b) not use the Aircraft in any manner contrary to any recommendation of
the manufacturers of the Aircraft, any Engine or any Part or any
recommendation or regulation of the Air Authority or for any purpose
for which the Aircraft is not designed or reasonably suitable;
(c) ensure that the crew and engineers employed by it in connection with
the operation and maintenance of the Aircraft have the qualifications
and hold the licences required by the Air Authority and applicable
law;
(d) use the Aircraft solely in commercial or other operations for which
Lessee is duly authorised by the Air Authority and applicable law;
(e) not use the Aircraft for the carriage of:-
(i) whole animals living or dead except in the cargo compartments
according to I.A.T.A. regulations, and except domestic pet
animals carried in a suitable container to prevent the escape
of any liquid and to ensure the welfare of the animal;
(ii) acids, toxic chemicals, other corrosive materials, explosives,
nuclear fuels, nuclear wastes, or any nuclear assemblies or
components, except as permitted for passenger aircraft under
the "Restriction of Goods" schedule issued by I.A.T.A. from
time to time and provided that all the requirements for
packaging or otherwise contained therein are fulfilled;
(iii) any other goods, materials or items of cargo which could
reasonably be expected to cause damage to the Aircraft and
which would not be adequately covered by the Insurances; or
(iv) any illegal item or substance;
(f) not utilise the Aircraft for purposes of training, qualifying or
re-confirming the status of cockpit personnel except for the benefit
of Lessee's cockpit personnel, and then only if the use of the
Aircraft for such purpose is not disproportionate to the use for such
purpose of other aircraft of the same type operated by Lessee;
(g) not cause or permit the Aircraft to proceed to, or remain at, any
location which is then the subject of a prohibition order (or any
similar order or directive), sanctions or restrictions by:-
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(i) the United Nations Security Council, the U.S. International
Economic Emergency Powers Act or U.N. Security Council
directives (including, as of the date hereof, Haiti, Iraq,
Libya, the Federal Republic of Yugoslavia (Serbia and
Montenegro) and the Unita Rebels of Angola) or the U.S. Export
Administration Act Regulations (15 C.F.R. Parts 730-799)
(including as of the date hereof Cuba, Iran, North Korea,
Sudan, Syria and Vietnam), except as may be permitted by
operating in accordance with the conditions specified by the
U.S. Export Administration Regulations, General License GATS
(15 C.F.R. Part 771.19);
(ii) any Government Entity of the State of Registration or the
Habitual Base;
(iii) any Government Entity of the country in which such location is
situated; or
(iv) any Government Entity having jurisdiction over Lessor, the
Banks or the Aircraft;
(h) obtain and maintain in full force all certificates, licences, permits
and authorisations required for the use and operation of the Aircraft
for the time being, and for the making of payments required by, and
the compliance by Lessee with its other obligations under, this
Agreement;
(i) not operate or locate the Aircraft or suffer or permit the Aircraft to
be operated or located during the Term in any area excluded from
coverage by any insurance policy issued pursuant to the requirements
of this Agreement; and
(j) not operate or locate the Aircraft in, to or over any country which is
(x) the subject of sanctions under the U.S. International Economic
Emergency Powers Act or United Nations Security Council Directives
(currently Haiti, Iraq, Libya, the Federal Republic of Yugoslavia
(Serbia and Montenegro) and the Unita Rebels of Angola) and/or (y)
restricted under the United States Trading with the Enemy Act or the
United States Export Administration Act except as may be permitted by
operating in accordance with the conditions specified by the United
States Export Administration Regulations, General Licence GATS (15 CFR
Part 771.19) (currently Cuba, Iran, North Korea and Syria).
8.4 TAXES AND OTHER OUTGOINGS: Lessee will promptly pay:-
(a) all licence and registration fees, Taxes (other than Lessor Taxes) and
other amounts of any nature imposed by any Government Entity with
respect to the Aircraft, including without limitation the purchase,
ownership, delivery, leasing, possession, use, operation, return, sale
or other disposition of the Aircraft; and
(b) all rent, fees, charges, Taxes (other than Lessor Taxes) and other
amounts in respect of any premises where the Aircraft or any Part
thereof is located from time to time;
except to the extent that in the reasonable opinion of Lessor such
payment is being contested in good faith by appropriate proceedings,
in respect of which adequate reserves have been provided by Lessee and
non-payment of which does not give rise to any material likelihood of
the Aircraft or any interest therein being sold, forfeited or
otherwise lost or of criminal liability on the part of Lessor or
any Bank.
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8.5 SUB-LEASING: LESSEE WILL NOT, WITHOUT THE PRIOR WRITTEN CONSENT OF
LESSOR, SUB-LEASE OR OTHERWISE PART WITH POSSESSION OF THE AIRCRAFT,
THE ENGINES OR ANY PART EXCEPT THAT LESSEE MAY PART WITH POSSESSION
(A) WITH RESPECT TO THE AIRCRAFT, THE ENGINES OR ANY PART TO THE
RELEVANT MANUFACTURERS FOR TESTING OR SIMILAR PURPOSES OR TO THE
AGREED MAINTENANCE PERFORMER FOR SERVICE, REPAIR, MAINTENANCE OR
OVERHAUL WORK, OR ALTERATIONS, MODIFICATIONS OR ADDITIONS TO THE
EXTENT REQUIRED OR PERMITTED BY THIS AGREEMENT, AND (B) WITH RESPECT
TO AN ENGINE OR PART, AS EXPRESSLY PERMITTED BY THIS AGREEMENT.
8.6 INSPECTION:
(a) Lessor and any person designated by Lessor may at any time visit,
inspect and survey the Aircraft, any Engine or any Part and for such
purpose may, subject to any applicable Air Authority regulation,
travel on the flight deck as observer;
(b) Lessee will pay to Lessor on demand all reasonable out-of-pocket
expenses incurred by Lessor in connection with any such visit,
inspection or survey; and
(c) Lessor will:-
(i) have no duty or liability to make, or arising out of any such
visit, inspection or survey; and
(ii) so long as no Default has occurred and is continuing, not
exercise such right other than on reasonable notice and so as
not to disrupt unreasonably the commercial operations of
Lessee.
8.7 OWNERSHIP; PROPERTY INTERESTS; RELATED MATTERS: Lessee will:-
(a) not do or knowingly permit to be done or omit or knowingly permit the
omission of any act or thing which might reasonably be expected to
jeopardise the rights of Lessor as owner and lessor of the Aircraft;
(b) on all occasions when the ownership of the Aircraft, any Engine or any
Part is relevant, make clear to third parties that title is held by
Lessor;
(c) not at any time (i) represent or hold out Lessor or the Banks as
carrying goods or passengers on the Aircraft or as being in any way
connected or associated with any operation or carriage (whether for
hire or reward or gratuitously) which may be undertaken by Lessee or
(ii) pledge the credit of Lessor or the Banks;
(d) ensure that there is always affixed, and not removed or in any way
obscured, a fireproof plate (having dimensions of not less than 10 cm.
x 7 cm.) in a reasonably prominent position in the cockpit of the
Aircraft adjacent to the certificate of airworthiness and on each
Engine stating:-
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"This Aircraft/Engine is owned by Polaris Holding Company and is
leased to Air South Airlines, Inc. and may not be operated by any
other person without the prior written consent of Polaris Holding
Company";
(e) not create or permit to exist any Security Interest upon the Aircraft,
any Engine or any Part;
(f) not do or permit to be done anything which may reasonably be expected
to expose the Aircraft, any Engine or any Part to penalty, forfeiture,
impounding, detention, appropriation, damage or destruction and
without prejudice to the foregoing, if any such penalty, forfeiture,
impounding, detention or appropriation, damage or destruction occurs,
give Lessor notice and use best endeavours to procure the immediate
release of the Aircraft, any Engine or the Part, as the case may be;
(g) not abandon the Aircraft, the Engine or any Part;
(h) pay and discharge or cause to be paid and discharged when due and
payable or make adequate provision by way of security or otherwise for
all debts, damages, claims and liabilities which have given or might
give rise to a Security Interest over or affecting the Aircraft, any
Engine or any Part; and
(i) not attempt, or hold itself out as having any power, to sell, lease or
otherwise dispose of the Aircraft, any Engine or any Part.
8.8 GENERAL: Lessee will:-
(a) not liquidate or dissolve (except in connection with a transaction
otherwise permitted by this Clause 8.8 (a), and Lessee shall not
consolidate with or merge into, any other corporation, and Lessee
shall not convey, transfer, lease or otherwise dispose of all or
substantially all of its property and other assets, whether in one or
series of related transactions unless in the case of any such
consolidation, merger, conveyance, transfer, lease or other
disposition:-
(i) the corporation formed by or surviving such consolidation or
merger or the corporation which acquires by conveyance,
transfer, lease or other disposition all or a material portion
of such property and other assets or stock (the "Successor
Entity")-
(A) shall be a corporation organised and existing under
the laws of the United States of America or any state
thereof;
(B) immediately after giving effect to such transaction,
shall be Lessee or shall have acquired or succeeded
to all or substantially all of the property and other
assets (including, without limitation, all or
substantially all of Lessee's property and other
assets) as an entirety; and
(C) shall execute and deliver to Lessor an agreement, in
form and substance reasonably satisfactory to Lessor,
which is a legal, valid, binding and enforceable
assumption by such Successor Entity of the due and
punctual performance and observance of each covenant
and condition of this Agreement and agreement to be
bound thereby, and
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shall execute, deliver and/or file such recordations
and filings with any Government Entity and such other
documents as Lessor shall reasonably deem to be
necessary or advisable (including, without
limitation, to preserve and protect the interests of
Lessor) to evidence, or in connection with, such
consolidation, merger, sale, lease, transfer or other
disposition or acquisition and an officer's
certificate from a responsible officer of the
Successor Entity confirming the legal, valid, binding
and enforceable nature of such assumption, and to the
effect that the other requirements of this paragraph
have been satisfied, and a legal opinion from counsel
confirming the legal, valid, binding and enforceable
nature of such assumption and otherwise in such form
and substance reasonably satisfactory to Lessor; and
(ii) prior to and immediately after giving effect to such
transaction, no Default or Event of Default shall have
occurred and be continuing.
No such permitted disposition to a Successor Entity shall relieve or
release Lessee of or from any obligations hereunder which arose or
existed prior to such disposition. Promptly following the closing of
such disposition, Lessee shall provide Lessor with a certificate
signed by Lessee's chief financial officer to the effect that such
disposition will not have a material adverse effect on Lessee's
ability to perform its obligations under this Agreement;
(b) ensure that no change will occur in the Habitual Base of the Aircraft
without the prior written consent of Lessor. Lessor agrees that it
shall not withhold its consent to a change in the Habitual Base to
another state of the United States of America if Lessee shall have
provided Lessor with an opinion of counsel practising in the state of
the United States of America proposed by Lessee to be the Habitual
Base in form and in substance reasonably satisfactory to Lessor to the
effect that the rights and interests of Lessor are duly protected; and
(c) not, without giving Lessor 30 days prior notice (in accordance with
this Agreement), change its chief executive office (as such term
is defined in Article 9 of the Uniform Commercial Code as in effect in
the State of South Carolina) from 1800 St. Julian Place, 4th Floor,
Columbia, South Carolina 29204;
(d) remain a Certificated Air Carrier and maintain, without limitation,
its status so as to fall within the purview of Section 1110 of Title
11 of the United States Code or any analogous Statute; and
(e) remain a "citizen of the United States" as defined in Section 101(16)
of the Federal Aviation Act.
8.9 RECORDS: Lessee will:-
(a) cause accurate, complete and current records of all flights made by,
and all maintenance carried out on, the Aircraft (including in
relation to each Engine and Part subsequently installed, before the
installation) to be kept; keep the records in such manner as the Air
Authority may from time to time require, and ensure that they comply
with the recommendations of any manufacturers of the Aircraft, any
Engine or any Part. All records must be maintained in English. The
records will form part of the Aircraft Documents; and
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(b) procure access to a revision service in respect of, and will maintain
with appropriate revisions in English, all Aircraft Documents,
records, logs, and other materials required by applicable laws and
best practice of major international air transport operators in
respect of the Aircraft.
8.10 PROTECTION: Lessee will:-
(a) maintain the registration of the Aircraft with the Air Authority in
the name of Lessor and, to the extent permitted under the laws of the
State of Registration, reflecting the interests of Lessor and not do
or suffer to be done anything which might adversely affect that
registration; and
(b) do all acts and things (including, without limitation, making any
filing or registration with the Air Authority or any other Government
Entity) and execute and deliver, notarise, file, register and record
all documents (including, without limitation, any amendment of this
Agreement) as may be required by Lessor:-
(i) following any change or proposed change in the ownership or
financing of the Aircraft or in the manner of securing
Lessor's obligations to the Banks; or
(ii) following any modification of the Aircraft, any Engine or any
Part or the permanent replacement of any Engine or Part in
accordance with this Agreement, so as to ensure that the
rights of Lessor as owner and lessor of the Aircraft and
under this Agreement apply with the same effect as before; or
(iii) to establish, maintain, preserve, perfect and protect the
rights of Lessor under this Agreement or the interest of
Lessor as owner of the Aircraft.
8.11 MAINTENANCE AND REPAIR: Lessee will:-
(a) keep the Aircraft airworthy in all respects and in good repair and
condition;
(b) not change the Agreed Maintenance Programme or the schedule of the
Agreed Maintenance Programme without the written consent of Lessor;
(c) maintain the Aircraft in accordance with the Agreed Maintenance
Programme through the Agreed Maintenance Performer and perform (at the
respective intervals provided in the Agreed Maintenance Programme) all
Major Checks;
(d) maintain the Aircraft in accordance with FAA Federal Air Regulations
Part 121 and any other rules and regulations of the FAA as may be
applicable to passenger category aircraft and in at least the same
manner and with at least the same care, including, without limitation,
maintenance scheduling, modification status and technical condition,
as is the case with respect to similar aircraft owned or otherwise
operated by Lessee and as if Lessee were to retain the Aircraft in its
fleet and continue to operate the Aircraft after the Expiry Date and
including, without limitation, all maintenance to the Airframe, any
Engine or any Part required to maintain all warranties, performance
guarantees or service life policies in full force and effect;
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(e) comply with all mandatory inspection and modification requirements,
airworthiness directives and similar requirements applicable to the
Aircraft, any Engine or Part having a compliance date during the Term
or within 180 days after the Expiry Date and which are required by the
Air Authority, and/or the FAA and/or the laws of the state of
manufacture of the Aircraft, any Engine or Part and/or recommended by
any manufacturer of the Aircraft, any Engine or Part (each of the
foregoing being hereinafter referred to as a "Relevant AD").
The cost of compliance with any single Relevant AD shall be allocated
among Lessor and Lessee as follows:-
(i) Lessee shall be responsible for the first $100,000 of such
cost;
(ii) Lessor and Lessee shall share, on an equal basis, the portion
of such cost (if any) which exceeds $100,000 up to and
including $200,000; and
(iii) Lessor shall be wholly responsible for the portion of such
cost (if any) which exceeds $200,000 (subject always to the
provisions of the following paragraph).
Notwithstanding the foregoing, in the event that the total cost of any
single Relevant AD (such total cost to be mutually agreed, in good
faith, between Lessor and Lessee) exceeds $200,000 (the "Threshold
Amount"), Lessor may elect not to make its contribution to the cost of
compliance with such Relevant AD as described in (iii) above. If
Lessor shall so elect, Lessee shall be entitled, by giving prior
written notice to Lessor, to terminate this Agreement and redeliver
the Aircraft to Lessor in accordance with Clause 12 and Schedule 3
(except for compliance with the Relevant AD which gave rise to such
termination) on the earlier of (x) the date which is 30 days after the
date of such notice from Lessee to Lessor; or (y) the date on which
the Aircraft is required to be removed from service by reason of
non-compliance with the applicable Relevant AD. Such notice shall
specify the proposed redelivery date of the Aircraft by Lessee and,
upon the receipt of such notice by Lessor, the then current definition
of Expiry Date shall be deemed to have been amended accordingly. Upon
any termination of this Agreement pursuant to this Clause 8.11 (e),
neither party shall be under any further obligation to the other
hereunder except for (x) accrued obligations of Lessee hereunder; and
(y) obligations hereunder which are expressed to continue
notwithstanding the expiration of the Term and provided further that
Lessor shall, if applicable having regard to the provisions of Clause
7.3, make the rebate described in Clause 7.3 (i) and the adjustment
payments described in Schedule 3 shall be payable by Lessee;
(f) comply with all applicable laws and the regulations of the Air
Authority and other aviation authorities with jurisdiction over Lessee
or the Aircraft, any Engine or Part regardless of upon whom such
requirements are imposed and which relate to the maintenance,
condition, use or operation of the Aircraft or require any
modification or alteration to the Aircraft, any Engine or Part;
(g) maintain in good standing a current certificate of airworthiness (in
the appropriate category for the nature of the operations of the
Aircraft) for the Aircraft issued by the Air Authority except where
the Aircraft is undergoing maintenance, modification or repair
required or permitted by this Agreement and will from time to time
provide to Lessor a copy on request;
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(h) if required by the Air Authority, maintain a current certification as
to maintenance issued by or on behalf of the Air Authority in respect
of the Aircraft and will from time to time provide to Lessor a copy on
request; and
(i) procure promptly the replacement of any Engine or Part which has
become time, cycle or calendar expired, lost, stolen, seized,
confiscated, destroyed, damaged beyond repair, unserviceable or
permanently rendered unfit for use, with an engine or part complying
with the conditions set out in Clause 8.13(a).
8.12 REMOVAL OF ENGINES AND PARTS: Lessee will ensure that no Engine or
Part installed on the Aircraft is at any time removed from the
Aircraft other than:-
(a) if replaced as expressly permitted by this Agreement; or
(b) if the removal is of an obsolete item and is in accordance with the
Agreed Maintenance Programme; or
(c) (i) during the course of maintaining, servicing, repairing,
overhauling or testing that Engine or the Aircraft, as the
case may be; or
(ii) as part of a normal engine or part rotation programme; or
(iii) for the purpose of making such modifications to the Engine or
the Aircraft, as the case may be, as are permitted under this
Agreement;
and then in each case only if it is reinstalled or replaced by an
engine or part complying with Clause 8.13(a) as soon as practicable
and in any event no later than the Expiry Date.
8.13 INSTALLATION OF ENGINES AND PARTS: Lessee will:-
(a) ensure that, except as permitted by this Agreement, no engine or part
is installed on the Aircraft unless:-
(i) in the case of an engine, it is an engine of the same model
as, or an improved or advanced version of the Engine it
replaces, which is in the same or better operating condition,
has substantially similar hours available until the next
scheduled checks, inspections, overhauls and shop visits and
has the same or greater value and utility as the replaced
Engine;
(ii) in the case of a part, it is in as good operating condition,
has substantially similar hours available until the next
scheduled checks, inspections, overhauls and shop visits, is
of the same or a more advanced make and model and is of the
same interchangeable modification status as the replaced Part;
(iii) in each case, it has become and remains the property of Lessor
free from Security Interests and on installation on the
Aircraft will without further act be subject to this
Agreement; and
(iv) in each case, Lessee has full details as to its source and
maintenance records;
(b) if no Default has occurred which is continuing, be entitled to install
any engine or part on the Aircraft by way of replacement
notwithstanding Clause 8.13(a) if:-
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(i) there is not available to Lessee at the time and in the place
that such engine or part is required to be installed on the
Aircraft, a replacement engine or part, as the case may be,
complying with the requirements of Clause 8.13(a);
(ii) it would result in an unreasonable disruption of the operation
of the Aircraft and/or the business of Lessee to ground the
Aircraft until an engine or part, as the case may be,
complying with Clause 8.13(a) becomes available for
installation on the Aircraft; and
(iii) as soon as practicable after installation of the same on the
Aircraft but, in any event, no later than the Expiry Date,
Lessee removes any such engine or part and replaces it with
the Engine or Part replaced by it or by an engine or part, as
the case may be, complying with Clause 8.13(a).
8.14 NON-INSTALLED ENGINES AND PARTS: Lessee will:-
(a) ensure that any Engine or Part which is not installed on the Aircraft
(or any other aircraft as permitted by this Agreement) is, except as
expressly permitted by this Agreement, properly and safely stored, and
kept free from Security Interests;
(b) notify Lessor whenever any Engine is removed from the Aircraft and,
from time to time, on request procure that any person to whom
possession of an Engine is given acknowledges in writing to Lessor, in
form and substance satisfactory to Lessor, that it will respect the
interests of Lessor and as owner of the Engine and will not seek to
exercise any rights whatsoever in relation to it;
(c) (notwithstanding the foregoing provisions of this sub-clause), be
permitted, if no Default has occurred and is continuing, to install
any Engine or Part on an aircraft, or in the case of a Part, an
engine:-
(i) owned and operated by Lessee free from Security Interests; or
(ii) leased or hired to Lessee pursuant to a lease or conditional
sale agreement on a long-term basis and on terms whereby
Lessee has full operational control of that aircraft or
engine; or
(iii) acquired by Lessee and/or financed or refinanced, and operated
by Lessee, on terms that ownership of that aircraft or engine,
as the case may be, pursuant to a lease or conditional sale
agreement, or a Security Interest therein, is vested in or
held by any other person;
provided that in the case of (ii) and (iii):-
(1) the terms of any such lease, conditional sale agreement or
Security Interest will not have the effect of prejudicing the
interests of Lessor as owner and lessor of that Engine or
Part; and
(2) the lessor under such lease, the seller under such conditional
sale agreement or the holder of such Security Interest, as the
case may be, has confirmed and acknowledged in writing to
Lessor, in form and substance satisfactory to Lessor, that it
will respect the interest of Lessor as owner
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and lessor of that Engine or Part and that it
will not seek to exercise any rights whatsoever in relation
thereto.
8.15 POOLING OF ENGINES AND PARTS: Lessee will not enter into nor permit
any pooling agreement or arrangement in respect of an Engine or Part
without the prior written consent of Lessor.
8.16 EQUIPMENT CHANGES:
(a) Lessee will not make any modification or addition to the Aircraft
(each an "Equipment Change"), except for an Equipment Change which:-
(i) is expressly permitted by this Agreement, or
(ii) has the prior written approval of Lessor and which does not
diminish the value, utility, condition, or airworthiness of
the Aircraft; and
(b) So long as a Default has not occurred and is continuing, Lessee may
remove any Equipment Change if it can be removed from the Aircraft
without diminishing or impairing the value, utility, condition or
airworthiness of the Aircraft.
8.17 TITLE ON AN EQUIPMENT CHANGE:
(a) Title to all Engines and Parts installed on the Aircraft whether by
way of replacement, as the result of an Equipment Change or otherwise
(except those installed pursuant to Clause 8.13(b)) will on
installation, without further act, vest in Lessor subject to this
Agreement free and clear of all Security Interests. Lessee will at
its own expense take all such steps and execute, and procure the
execution of, all such instruments as Lessor may require and which are
necessary to ensure that title so passes to Lessor according to all
applicable laws. At any time when requested by Lessor, Lessee will
provide evidence to Lessor's satisfaction (including the provision,
if required, to Lessor of one or more legal opinions) that title has
so passed to Lessor;
(b) Lessor may require Lessee to remove any Equipment Change and to
restore the Aircraft to its condition prior to that Equipment Change;
and
(c) Except as referred to in Clause 8.17(b) any Engine or Part at any time
removed from the Aircraft will remain the property of Lessor until a
replacement has been made in accordance with this Agreement and until
title in that replacement has passed, according to applicable laws, to
Lessor subject to this Agreement free of all Security Interests
whereupon title to the replaced Engine or Part will pass to Lessee.
8.18 THIRD PARTY: Lessee will procure that no person (other than Lessor or
any Bank) will act in any manner inconsistent with its obligations
under this Agreement and that all persons will comply with those
obligations as if references to "Lessee" included a separate reference
to those persons.
9. INSURANCE
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9.1 INSURANCES: Lessee will maintain in full force during the Term
insurances in respect of the Aircraft in form and substance
satisfactory to Lessor (the "Insurances" which expression includes,
where the context so admits, any relevant re-insurance(s)) through
such brokers and with such insurers and having such deductibles and
being subject to such exclusions as may be approved by Lessor. The
Insurances will be effected either:-
(a) on a direct basis with insurers of recognised standing who normally
participate in aviation insurances in the leading international
insurance markets and led by reputable underwriter(s) approved by
Lessor; or
(b) with a single insurer or group of insurers approved by Lessor who
does not retain the risk but effects substantial reinsurance with
reinsurers in the leading international insurance markets and through
brokers each of recognised standing and acceptable to Lessor for a
percentage acceptable to Lessor of all risks insured (the
"Reinsurances").
9.2 REQUIREMENTS: Lessor's current requirements as to required Insurances
are as specified in this Clause and in Schedule 4. Lessor may from
time to time stipulate other requirements for the Insurances so that
the scope and level of cover is maintained in line with best industry
practice and the interests of Lessor protected.
9.3 CHANGE: If at any time Lessor wishes to revoke its approval of any
insurer, reinsurer, insurance or reinsurance, Lessor and/or its
brokers will consult with Lessee and Lessee's brokers (as for the
time being approved by Lessor) regarding whether that approval should
be revoked to protect the interests of the parties insured. If,
following the consultation, Lessor considers that any change should
be made, Lessee will then arrange or procure the arrangement of
alternative cover satisfactory to Lessor.
9.4 INSURANCE COVENANTS: Lessee will:-
(a) ensure that all legal requirements as to insurance of the Aircraft,
any Engine or any Part which may from time to time be imposed by the
laws of the State of Registration or any state to, from or over which
the Aircraft may be flown, in so far as they affect or concern the
operation of the Aircraft, are complied with and in particular those
requirements compliance with which is necessary to ensure that (i)
the Aircraft is not in danger of detention or forfeiture, (ii) the
Insurances remain valid and in full force and effect, and (iii) the
interests of the Indemnitees in the Insurances and the Aircraft or
any Part are not thereby prejudiced;
(b) not use, cause or permit the Aircraft, any Engine or any Part to be
used for any purpose or in any manner not covered by the Insurances
or outside any geographical limit imposed by the Insurances;
(c) comply with the terms and conditions of each policy of the Insurances
and not do, consent or agree to any act or omission which:-
(i) invalidates or may invalidate the Insurances; or
(ii) renders or may render void or voidable the whole or any part
of any of the Insurances; or
(iii) brings any particular liability within the scope of an
exclusion or exception to the Insurances;
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(d) not take out without the prior written approval of Lessor any
insurance or reinsurance in respect of the Aircraft other than those
required under this Agreement unless relating solely to hull total
loss, business interruption, profit commission and deductible risk;
(e) commence renewal procedures at least 30 days prior to expiry of any
of the Insurances and provide to Lessor:-
(i) if requested by Lessor, a written status report of renewal
negotiation 14 days prior to each expiry date;
(ii) telexed confirmation of completion of renewal prior to each
expiry date;
(iii) certificates of insurance (and where appropriate certificates
of reinsurance), and broker's (and any reinsurance brokers')
letter of undertaking in a form acceptable to Lessor in
English, detailing the coverage and confirming the insurers'
(and any reinsurers') agreement to the specified insurance
requirements of this Agreement within 7 days after each
renewal date;
(f) on request, provide to Lessor copies of documents evidencing the
Insurances;
(g) on request, provide to Lessor evidence that the Insurance premiums
have been paid;
(h) not make any modification or alteration to the Insurances material
and adverse to the interests of any of the Indemnitees;
(i) be responsible for any deductible under the Insurances; and
(j) provide any other insurance and reinsurance related information, or
assistance, in respect of the Insurances as Lessor may reasonably
require.
9.5 FAILURE TO INSURE: If Lessee fails to maintain the Insurances in
compliance with this Agreement, each of the Indemnitees will be
entitled but not bound, (without prejudice to any other rights of
Lessor under this Agreement):-
(a) to pay the premiums due or to effect and maintain insurances
satisfactory to it or otherwise remedy Lessee's failure in such
manner (including, without limitation to effect and maintain an
"owner's interest" policy) as it considers appropriate. Any sums so
expended by it will become immediately due and payable by Lessee to
Lessor together with interest thereon at the rate specified in Clause
5.11, from the date of expenditure by it up to the date of
reimbursement by Lessee; and
(b) at any time while such failure is continuing to require the Aircraft
to remain at any airport or to proceed to and remain at any airport
designated by it until the failure is remedied to its satisfaction.
9.6 CONTINUING INDEMNITY: Lessor may require Lessee to effect and to
maintain insurance after the Expiry Date with respect to its
liability under the indemnities in Clause 10 for such period as
Lessor may reasonably require (but in any event not more than 3
years) which provides for each Indemnitee to be named as additional
insured. Lessee's obligation in this Clause shall not be affected by
Lessee ceasing to be lessee of the Aircraft and/or any of the
Indemnitees ceasing to have any interest in respect of the Aircraft.
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9.7 APPLICATION OF INSURANCE PROCEEDS:
As between Lessor and Lessee:-
(a) all insurance payments received as the result of an Event of Loss
occurring during the Term will be paid to Lessor and Lessor will pay
the balance of those amounts to Lessee after deduction of all amounts
which may be or become payable by Lessee to Lessor under this
Agreement (including under Clause 11.1(b));
(b) all insurance proceeds of any property, damage or loss to the
Aircraft, any Engine or any Part occurring during the Term not
constituting an Event of Loss and in excess of the Damage
Notification Threshold will be paid to Lessor and applied in payment
(or to reimburse Lessee) for repairs or replacement property upon
Lessor being satisfied that the repairs or replacement have been
effected in accordance with this Agreement. Insurance proceeds in
amounts below the Damage Notification Threshold may be paid by the
insurer directly to Lessee. Any balance remaining may be retained by
Lessor;
(c) all insurance proceeds in respect of third party liability will,
except to the extent paid by the insurers to the relevant third
party, be paid to Lessor to be paid directly in satisfaction of the
relevant liability or to Lessee in reimbursement of any payment so
made;
(d) notwithstanding Clauses 9.7(a), (b) or (c), if at the time of the
payment of any such insurance proceeds a Default has occurred and is
continuing, all such proceeds will be paid to or retained by Lessor
to be applied toward payment of any amounts which may be or become
payable by Lessee in such order as Lessor sees fit or as Lessor may
elect.
10. INDEMNITY
10.1 GENERAL: Lessee agrees to assume liability for, defend, indemnify and
hold harmless the Indemnitees on an after tax basis from and against
any and all claims, proceedings, losses, liabilities, damages
(whether direct, indirect, special, incidental or consequential)
suits, judgments, costs, expenses (including, without limitation,
legal fees and expenses), penalties (whether civil or criminal) or
fines (each a "Claim") (regardless of when the same is made or
incurred, whether during or after the Term (but not before)):-
(a) which may at any time be suffered or incurred directly or
indirectly as a result of or in any manner connected with the
possession, delivery, performance, management, ownership,
registration, control, maintenance, condition, service,
repair, overhaul, leasing, use, operation or return of the
Aircraft, any Engine or Part (either in the air or on the
ground) whether or not the Claim may be attributable to any
defect in the Aircraft, any Engine or any Part or to its
design, testing or use or otherwise, and regardless of when
the same arises or whether it arises out of or is attributable
to any act or omission, negligent or otherwise, of any
Indemnitee;
(b) which arise out of any act or omission which invalidates or
which renders voidable any of the Insurances;
(c) which may at any time be suffered or incurred as a consequence
of any design, article or material in the Aircraft, any Engine
or any Part or its operation or use constituting an
infringement of patent, copyright, trademark, design or other
proprietary right or a breach of any obligation of
confidentiality owed to any person;
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(d) which results from Lessee's breach of any of its
representations or warranties or any other Event of Default
under this Agreement.
but excluding any Claim in relation to a particular Indemnitee to the
extent that such Claim is covered pursuant to another indemnity
provision of this Agreement or to the extent it arises solely as a
result of the willful misconduct of such Indemnitee or Lessor as a
result of Lessor Taxes or a Lessor Lien.
10.2 DURATION: The indemnities contained in this Agreement will continue
in full force after the Expiry Date.
11. EVENTS OF LOSS
11.1 If an Event of Loss occurs after delivery of the Aircraft to Lessee,
Lessee will pay the Agreed Value to Lessor on or prior to the earlier
of (i) 5 Business Days after the Event of Loss and (ii) the date of
receipt of insurance proceeds in respect of that Event of Loss.
Subject to the rights of any insurers and reinsurers or other third
party, upon irrevocable payment in full to Lessor of that amount and
all other amounts which may be or become payable to Lessor under this
Agreement, Lessor will without recourse or warranty (except as to
Lessor's Liens) and without further act, be deemed to have
transferred to Lessee all of Lessor's rights to any Engines and Parts
not installed when the Event of Loss occurred, all on an as-is
where-is basis, and will at Lessee's expense, execute and deliver
such bills of sale and other documents and instruments as Lessee may
reasonably request to evidence (on the public record or otherwise)
the transfer and the vesting of Lessor's rights in such Engines and
Parts in Lessee, free and clear of all rights of Lessor and Lessor
Liens.
11.2 REQUISITION: During any requisition for use or hire of the Aircraft,
any Engine or Part which does not constitute an Event of Loss:-
(a) the Rent and other charges payable under this Agreement will not be
suspended or abated either in whole or in part, and Lessee will not
be released from any of its other obligations under the Agreement
(other than operational obligations with which Lessee is unable to
comply solely by virtue of the requisition);
(b) so long as no Default has occurred and is continuing, Lessee will be
entitled to any hire paid by the requisitioning authority in respect
of the Term. Lessee will, as soon as practicable after the end of
any such requisition, cause the Aircraft to be put into the condition
required by this Agreement. Lessor will be entitled to all
compensation payable by the requisitioning authority in respect of
any change in the structure, state or condition of the Aircraft
arising during the period of requisition, and Lessor will apply such
compensation in reimbursing Lessee for the cost of complying with its
obligations under this Agreement in respect of any such change, but
so that, if any Default has occurred and is continuing, Lessor may
apply the compensation or hire in or towards settlement of any
amounts owing by Lessee under this Agreement.
12. RETURN OF AIRCRAFT
12.1 RETURN: On the Expiry Date or termination of the leasing of the
Aircraft under this Agreement Lessee will unless an Event of Loss has
occurred, at its expense, redeliver the Aircraft and Aircraft
Documents to Lessor at the Redelivery Location or such other airport
as is mutually acceptable to the parties hereto, in a condition
complying with Schedule 3, free and clear of all Security Interests
and Permitted Liens (other than Lessor
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Liens) and in a condition qualifying for immediate certification of
airworthiness by the FAA or as otherwise agreed by Lessor and Lessee,
and thereupon cause the Aircraft to be deregistered by the Air
Authority.
12.2 FINAL INSPECTION: Immediately prior to redelivery of the Aircraft,
Lessee will make the Aircraft available to Lessor for inspection
("Final Inspection") in order to verify that the condition of the
Aircraft complies with this Agreement. The Final Inspection will be
long enough to permit Lessor to:-
(a) inspect the Aircraft Documents;
(b) inspect the Aircraft and uninstalled Parts;
(c) inspect the Engines, including without limitation (i) at Lessor's
expense, a borescope inspection of (A) the low pressure and high
pressure compressors and (B) turbine area and (ii) at Lessee's expense
engine condition runs; and
(d) observe a 2 hour demonstration flight (with Lessor's representatives
as on-board observers).
12.3 NON-COMPLIANCE: To the extent that, at the time of Final Inspection,
the condition of the Aircraft does not comply with this Agreement,
Lessee will at Lessor's option:-
(a) immediately rectify the non-compliance and to the extent the
non-compliance extends beyond the Expiry Date, the Term will be
automatically extended and this Agreement will remain in force until
the non-compliance has been rectified; or
(b) redeliver the Aircraft to Lessor and indemnify Lessor, and provide to
Lessor's satisfaction cash as security for that indemnity, against the
cost of putting the Aircraft into the condition required by this
Agreement.
12.4 REDELIVERY: Upon redelivery Lessee will provide to Lessor all
documents necessary to export the Aircraft from the Habitual Base
(including, without limitation, a valid and subsisting export licence
for the Aircraft) and required in relation to the deregistration of
the Aircraft with the Air Authority.
12.5 ACKNOWLEDGEMENT: Provided Lessee has complied with its obligations
under this Agreement, following redelivery of the Aircraft by Lessee
to Lessor at the Redelivery Location, Lessor will deliver to Lessee an
acknowledgement confirming that Lessee has redelivered the Aircraft to
Lessor in accordance with this Agreement.
12.6 MAINTENANCE PROGRAMME:
(a) Prior to the Expiry Date and upon Lessor's request, Lessee will
provide Lessor or its agent reasonable access to the Agreed
Maintenance Programme and the Aircraft Documents in order to
facilitate the Aircraft's integration into any subsequent operator's
fleet;
(b) Lessee will, if requested by Lessor to do so, upon return of the
Aircraft deliver to Lessor a certified true current and complete copy
of the Agreed Maintenance Programme together with a letter authorising
Lessor to use such copy for "bridging" purposes for the next lessee of
the Aircraft. Lessor agrees that it will not disclose the contents of
the Agreed
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Maintenance Programme to any person or entity except to the extent
necessary to monitor Lessee's compliance with this Agreement and/or to
bridge the maintenance programme for the Aircraft from the Agreed
Maintenance Programme to another programme after the Expiry Date.
12.7 FUEL: Upon redelivery of the Aircraft to Lessor, an adjustment will be
made in respect of fuel on board on the Previous Delivery Date and the
Expiry Date at the price then prevailing at the Redelivery Location.
12.8 AIRCRAFT STORAGE: During the period of 90 days after the Expiry Date,
Lessor shall have the right to require Lessee to maintain, store and
insure the Aircraft at a location having a facility capable of
performing required maintenance of the Aircraft (to be nominated by
Lessor). Any maintenance, storage or insurance cost actually incurred
in connection with the foregoing and which is in excess of the costs
payable by Lessee in meeting its obligations under this Agreement,
shall be payable by Lessor at Lessee's direct cost without "mark-up".
Prior to the Expiry Date, Lessor shall advise Lessee as to whether
Lessor requires Lessee to provide the services contemplated by this
Clause 12.8.
13. DEFAULT
13.1 EVENTS: Each of the following events or conditions will constitute an
Event of Default and a repudiation of this Agreement by Lessee
(whether any such event or condition is voluntary or involuntary or
occurs by operation of law or pursuant to or in compliance with any
judgment, decree or order of any court or any order, rule or
regulation of any Government Entity):-
(a) NON-PAYMENT: Lessee fails to make any payment of Rent under this
Agreement on the due date and such failure continues for 3 Business
Days; or
(b) INSURANCE: Lessee fails to comply with any provision of Clause 9 or
any insurance required to be maintained under this Agreement is
cancelled or terminated or notice of cancellation is given in respect
of any such insurance; or
(c) BREACH: Lessee fails to comply with any other provision of this
Agreement and, if such failure is in the reasonable opinion of Lessor
capable of remedy, the failure continues for 5 days after notice from
Lessor to Lessee; or
(d) REPRESENTATION: any representation or warranty made (or deemed to be
repeated) by Lessee in or pursuant to this Agreement or in any
document or certificate or statement is or proves to have been
incorrect in any material respect when made or deemed to be repeated;
or
(e) CROSS DEFAULT:
(i) any Financial Indebtedness of Lessee or any of its
Subsidiaries is not paid when due; or
(ii) any such Financial Indebtedness becomes due or capable of
being declared due prior to the date when it would otherwise
have become due; or
(iii) the security for any such Financial Indebtedness becomes
enforceable; or
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(iv) any event of default or termination event, howsoever
described, occurs under any Other Agreement or under any
lease, hire purchase, conditional sale or credit sale
agreement of Lessee or any of its Subsidiaries; or
(f) APPROVALS: any consent, authorisation, licence, certificate or
approval of or registration with or declaration to any Government
Entity in connection with this Agreement (including, without
limitation):-
(i) required by Lessee to authorise, or in connection with, the
execution, delivery, validity, enforceability or admissibility
in evidence of this Agreement or the performance by Lessee of
its obligations under this Agreement; or
(ii) the registration of the Aircraft (to the extent that the same is
within the control of Lessee); or
(iii) any airline licence or air transport licence including, without
limitation, authority to operate the Aircraft under Part 121 of
the Federal Aviation Regulations and a Certificate of
Convenience and Necessity issued under Section 401 of the
Federal Aviation Act;
is modified in a manner unacceptable to Lessor or is withheld, or is
revoked, suspended, canceled, withdrawn, terminated or not renewed,
or otherwise ceases to be in full force; or
(g) BANKRUPTCY, ETC:
(i) Lessee or any Subsidiary consents to the appointment of a
custodian, receiver, trustee or liquidator of itself or all or
any material part of Lessee's property or Lessee's consolidated
property, or Lessee or any Subsidiary admits in writing its
inability to, or is unable to, or does not, pay its debts
generally as they come due, or makes a general assignment for
the benefit of creditors, or Lessee or any Subsidiary files a
voluntary petition in bankruptcy or a voluntary petition seeking
reorganisation in a proceeding under any bankruptcy or
insolvency laws (as now or hereafter in effect), or an answer
admitting the material allegations of a petition filed against
Lessee or any Subsidiary in any such proceeding, or Lessee or
any Subsidiary by voluntary petition, answer or consent seeks
relief under the provisions of any other bankruptcy, insolvency
or other similar law providing for the reorganisation or
winding-up of corporations, or provides for an agreement,
composition, extension or adjustment with its creditors, or any
corporate action (including, without limitation, any board of
directors or shareholder action) is taken by Lessee or any
Subsidiary in furtherance of any of the foregoing, whether or
not the same is fully effected or accomplished; or
(ii) an order, judgment or decree is entered by any court appointing,
without the consent of Lessee or any Subsidiary, a custodian,
receiver, trustee or liquidator of Lessee or any Subsidiary, or
of all or any material part of Lessee's property or Lessee's
consolidated property is sequestered, and any such order,
judgment or decree of appointment or sequestration remains in
effect, undismissed, unstayed or unvacated for a period of 30
days after the date of entry thereof or at any time an order for
relief is granted; or
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(iii) an involuntary petition against Lessee or any Subsidiary in a
proceeding under the United States Federal Bankruptcy laws or
other insolvency laws (as now or hereafter in effect) is filed
and is not withdrawn or dismissed within 30 days thereafter or
at any time an order for relief is granted in such proceeding,
or if, under the provisions of any law providing for
reorganisation or winding-up of corporations which may apply to
Lessee or any Subsidiary, any court of competent jurisdiction
assumes jurisdiction over, or custody or control of, Lessee or
any Subsidiary or of all or any material part of Lessee's
property, or Lessee's consolidated property and such
jurisdiction, custody or control remains in effect,
unrelinquished, unstayed or unterminated for a period of 30 days
or at any time an order for relief is granted in such
proceeding; or
(h) UNLAWFUL: it becomes unlawful for Lessee to perform any of its
obligations under this Agreement or this Agreement becomes wholly or
partly invalid or unenforceable; or
(i) SUSPENSION OF BUSINESS: Lessee or any of its Subsidiaries suspends or
ceases or threatens to suspend or cease to carry on all or a
substantial part of its business as a Certificated Air Carrier; or
(j) DISPOSAL: Lessee or any of its Subsidiaries disposes, conveys or
transfers or threatens to dispose, convey or transfer of all or a
material part of its assets, liquidates or dissolves or consolidates
or merges with any other Person whether by one or a series of
transactions, related or not, other than for the purpose of a
reorganisation of the terms of which have received the previous
consent in writing of Lessor; or
(k) RIGHTS: the existence, validity, enforceability or priority of the
rights of Lessor as owner and lessor in respect of the Aircraft are
challenged by Lessee or any other person claiming by or through
Lessee; or
(l) CHANGE OF OWNERSHIP: any single person, or group of persons acquire
control of Lessee without the previous consent in writing of Lessor;
or
(m) DELIVERY: Lessee fails to accept delivery of the Aircraft when validly
tendered pursuant to this Agreement by Lessor; or
(n) ADVERSE CHANGE: any event or series of events occurs which, in the
reasonable opinion of Lessor might have a material adverse effect on
the financial condition or operations of Lessee and its Subsidiaries
or on the ability of Lessee to comply with its obligations under this
Agreement.
13.2 RIGHTS: If an Event of Default occurs, Lessor may at its option (and
without prejudice to any of its other rights under this Agreement), at
any time thereafter (without notice to Lessee except as required under
applicable law):-
(a) accept such repudiation and by notice to Lessee and with immediate
effect terminate the letting of the Aircraft (but without prejudice
to the continuing obligations of Lessee under this Agreement),
whereupon all rights of Lessee under this Agreement shall cease;
and/or
(b) proceed by appropriate court action or actions to enforce performance
of this Agreement or to recover damages for the breach of this
Agreement; and/or
(c) either:-
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(i) take possession of the Aircraft, for which purpose Lessor may
enter any premises belonging to or in the occupation of or
under the control of Lessee where the Aircraft may be located,
or cause the Aircraft to be redelivered to Lessor at Shannon
International Airport, Co. Clare, Ireland (or such other
location as Lessor may require), and Lessor is hereby
irrevocably by way of security for Lessee's obligations under
this Agreement appointed attorney for Lessee in causing the
redelivery or in directing the pilots of Lessee or other
pilots to fly the Aircraft to that airport and will have all
the powers and authorisations necessary for taking that
action; or
(ii) by serving notice require Lessee to redeliver the Aircraft to
Lessor at Shannon International Airport, Ireland (or such
other location as Lessor may require).
13.3 DEREGISTRATION: If an Event of Default occurs, Lessor may sell or
otherwise deal with the Aircraft free and clear of any leasehold or
other interest of Lessee as if this Agreement had never been made and
Lessee will at the request of Lessor take all steps necessary to
effect (if applicable) deregistration of the Aircraft and its export
from the country where the Aircraft is for the time being situated and
any other steps necessary to enable the Aircraft to be redelivered to
Lessor in accordance with this Agreement; Lessee hereby irrevocably
and by way of security for its obligations under this Agreement
appoints (which appointment is coupled with an interest) Lessor as its
attorney to execute and deliver any documentation and to do any act or
thing required in connection with the foregoing.
13.4 DEFAULT PAYMENTS: If:-
(a) a Default occurs; or
(b) the Aircraft is not delivered on the proposed Delivery Date
by reason of failure of Lessee to satisfy any conditions to
that delivery;
Lessee will indemnify Lessor on demand against any loss
(including loss of profit), damage, expense, cost or liability
which Lessor may sustain or incur directly or indirectly as a
result including but not limited to:-
(a) any loss of profit suffered by Lessor because of Lessor's
inability to place the Aircraft on lease with another lessee
on terms as favourable to Lessor as this Agreement or because
whatever use, if any, to which Lessor is able to put the
Aircraft upon its return to Lessor, or the funds arising upon
a sale or other disposal of the Aircraft, is not as profitable
to Lessor as this Agreement;
(b) any amount of principal, interest, fees or other sums
whatsoever paid or payable on account of funds borrowed in
order to carry any unpaid amount;
(c) any loss, premium, penalty or expense which may be incurred in
repaying funds raised to finance the Aircraft or in unwinding
any swap, forward interest rate agreement or other financial
instrument relating in whole or in part to Lessor's financing
of the Aircraft; and
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(d) any loss, cost, expense or liability sustained or incurred by
Lessor owing to Lessee's failure to redeliver the Aircraft on
the date, at the place and in the condition required by this
Agreement.
14. ASSIGNMENT
14.1 LESSEE WILL NOT ASSIGN, TRANSFER (VOLUNTARILY OR INVOLUNTARILY BY
OPERATION OF LAW OR OTHERWISE) OR CREATE OR PERMIT TO EXIST ANY
SECURITY INTEREST OVER, ANY OF ITS RIGHTS UNDER THIS AGREEMENT.
14.2 Lessor may assign or transfer all or any of its rights under this
Agreement and in the Aircraft provided that Lessor will in the case of
an assignment other than by way of security have no further obligation
under this Agreement following the assignment of all its rights under
this Agreement but notwithstanding that assignment will remain
entitled to the benefit of each indemnity and the liability insurances
effected under this Agreement. Lessee will comply with all reasonable
requests of Lessor, their successors and assigns in respect of any
such assignment. Lessor will promptly notify Lessee of any assignment.
14.3 If Lessor desires to effect any assignment or transfer of its rights
and obligations under this Agreement, Lessee agrees to cooperate and
take all such steps as Lessor may reasonably request to give the
transferee the benefit of this Agreement. Any reasonable expenses
incurred by Lessee directly as a result of any assignment contemplated
by Clause 14.2.
15. ILLEGALITY
If it is or becomes unlawful in any jurisdiction for Lessor to give
effect to any of its obligations as contemplated by this Agreement or
to continue this Agreement Lessor may by notice in writing to Lessee
terminate the leasing of the Aircraft under this Agreement and Lessee
will forthwith redeliver the Aircraft to Lessor in accordance with
Clause 12. Without prejudice to the foregoing Lessor will consult in
good faith with Lessee as to any steps which may be taken to
restructure the transaction to avoid that unlawfulness but will be
under no obligation to take any such steps.
16. MISCELLANEOUS
16.1 WAIVERS, REMEDIES CUMULATIVE: The rights of Lessor under this
Agreement:-
(i) may be exercised as often as necessary;
(ii) are cumulative and not exclusive of its rights under any law;
and
(iii) may be waived only in writing and specifically.
Delay in exercising or non-exercise of any such right will not
constitute a waiver of that right.
16.2 DELEGATION: Lessor may delegate to any person or persons all or any of
the trusts, powers or discretions vested in it by these presents and
any such delegation may be made upon such terms and conditions and
subject to such regulations (including power to subdelegate) as Lessor
in its absolute discretion thinks fit.
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16.3 CERTIFICATES: Save where expressly provided in this Agreement, any
certificate or determination by Lessor as to any rate of interest or
as to any other amount payable under this Agreement will, in the
absence of manifest error, be conclusive and binding on Lessee.
16.4 APPROPRIATION: If any sum paid or recovered in respect of the
liabilities of Lessee under this Agreement is less than the amount
then due, Lessor may apply that sum to amounts due under this
Agreement in such proportions and order and generally in such manner
as Lessor may determine at its sole discretion.
16.5 CURRENCY INDEMNITY:
(a) If Lessor receives an amount in respect of Lessee's liability under
this Agreement or if such liability is converted into a claim, proof,
judgment or order in a currency other than the currency (the
"contractual currency") in which the amount is expressed to be payable
under this Agreement:-
(i) Lessee will indemnify Lessor as an independent obligation
against any loss arising out of or as a result of such
conversion;
(ii) if the amount received by Lessor, when converted into the
contractual currency (at the market rate at which Lessor is
able on the date of receipt by Lessor (or on the next date
thereafter on which under normal banking practice Lessor is
able to convert the amount received into the contractual
currency) to purchase the contractual currency in London or at
its option New York with that other currency) is less than the
amount owed in the contractual currency, Lessee will,
forthwith on demand, pay to Lessor an amount in the
contractual currency equal to the deficit; and
(iii) Lessee will pay to Lessor on demand any exchange costs and
Taxes payable in connection with the conversion; and
(b) Lessee waives any right it may have in any jurisdiction to pay any
amount under this Agreement in a currency other than that in which it
is expressed to be payable.
16.6 SET-OFF: Lessor may set off any matured obligation owed by Lessee
under this Agreement or the Other Agreements (to the extent
beneficially owned by Lessor) against any obligation (whether or not
matured) owed by Lessor to Lessee, regardless of the place of payment
or currency. If the obligations are in different currencies, Lessor
may convert either obligation at the market rate of exchange available
in London or at its option New York for the purpose of the set-off.
If an obligation is unascertained or unliquidated, Lessor may in good
faith estimate that obligation and set off in respect of the estimate,
subject to the relevant party accounting to the other when the
obligation is ascertained or liquidated. Lessor will not be obliged
to pay any amounts to Lessee under this Agreement so long as any sums
which are then due from Lessee under this Agreement or the Other
Agreements remain unpaid and any such amounts which would otherwise be
due will fall due only if and when Lessee has paid all such sums
except to the extent Lessor otherwise agrees or sets off such amounts
against such payment pursuant to the foregoing.
16.7 SEVERABILITY: If a provision of this Agreement is or becomes illegal,
invalid or unenforceable in any jurisdiction, that will not affect:-
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(a) the legality, validity or enforceability in that jurisdiction of any
other provision of this Agreement; or
(b) the legality, validity or enforceability in any other jurisdiction of
that or any other provision of this Agreement.
16.8 REMEDY: If Lessee fails to comply with any provision of this
Agreement, Lessor may, without being in any way obliged to do so or
responsible for so doing and without prejudice to the ability of
Lessor to treat the non-compliance as a Default or an Event of
Default, effect compliance on behalf of Lessee, whereupon Lessee shall
become liable to pay immediately any sums expended by Lessor together
with all costs and expenses (including legal costs) in connection
therewith.
16.9 EXPENSES: Whether or not the Aircraft is delivered to Lessee pursuant
to this Agreement, Lessee will pay to Lessor on demand:-
(a) all expenses (including legal, professional, and out-of-pocket expense
s) incurred or payable by Lessor in connection with the negotiation,
preparation, and execution of this Agreement and all such expenses
related to any amendment to or extension of or other documentation in
connection with, or the granting of any waiver or consent under this
Agreement or the monitoring of compliance by Lessee with this
Agreement; an
(b) all expenses (including legal, survey and other costs) payable or
incurred by Lessor in contemplation of, or otherwise in connection
with, the enforcement of or preservation of any of Lessor's rights
under this Agreement, or in respect of the repossession of the
Aircraft.
All expenses payable pursuant to this Clause 16.9 will be paid in the
currency in which they are incurred by Lessor.
16.10 TIME OF ESSENCE: The time stipulated in this Agreement for all
payments payable by Lessee to Lessor and for the performance of
Lessee's other obligations under this Agreement will be of the essence
of this Agreement.
16.11 NOTICES: All notices under, or in connection with, this Agreement
will, unless otherwise stated, be given in writing by letter, telex,
facsimile or SITA. Any such notice is deemed effectively to be given
as follows:-
(i) if by letter, when delivered;
(ii) if by telex, when despatched, but only if, at the time of
transmission, the correct answerback appears at the start and
at the end of the sender's copy of the notice; and
(iii) if by facsimile or SITA, when transmitted and full
transmission has been confirmed by a printout of the facsimile
transmittal confirmation of the transmitting party.
The address, telex numbers, SITA, facsimile and telephone numbers of
Lessee and, Lessor are as follows:
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<TABLE>
<CAPTION>
<S> <C> <C> <C>
Lessee: Address: 1800
St. Julian Place
4th Floor
Columbia
South Carolina
29204
Attn: President
Telex: None
SITA: None
Facsimile: 803 771 9067
Telephone: 803 771 0038
Lessor: Address: 201 Mission Street,
27th floor
San Francisco
California 94105
Attn: Senior Vice President
Facsimile: 415 284 7466
Telephone: 415 284 7400
with a copy to: Address: GE Capital Aviation
Services, Inc.
201 High Ridge Road
Stamford, Connecticut
06927-4900
Attn: Senior Vice President,
Portfolio Management
Facsimile: 212-357-4585
Telephone: 212-357-4279
</TABLE>
16.12 LAW AND JURISDICTION:
(a) THIS AGREEMENT IN ALL RESPECTS IS GOVERNED BY THE GOVERNING LAW;
(b) For the benefit of Lessor, Lessee agrees that the courts of the State
of New York are to have nonexclusive jurisdiction to settle any
disputes in connection with this Agreement and submits itself and its
property to the nonexclusive jurisdiction of the courts of the State
of New York in connection with this Agreement;
(c) Without prejudice to any other mode of service, Lessee:-
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<PAGE> 51
(i) appoints CT Corporation System as its agent for service of
process relating to any proceedings before the New York
courts in connection with this Agreement and agrees to
maintain the process agent in New York notified to Lessor;
(ii) agrees that failure by a process agent to notify Lessee of the
process shall not invalidate the proceedings concerned;
(iii) consents to the service of process relating to any such
proceedings by prepaid mailing of a copy of the process to
Lessee's agent at the address identified in paragraph (i);
(d) Lessee:-
(i) waives objection to the courts of the State of New York on
grounds of inconvenient forum or otherwise as regards
proceedings in connection with this Agreement;
(ii) agrees that a judgment or order of a court of the State of New
York in connection with this Agreement is conclusive and
binding on it and may be enforced against it in the courts of
any other jurisdiction;
(e) Nothing in this Clause limits the right of Lessor to bring proceedings
against Lessee in connection with this Agreement:-
(i) in any other court of competent jurisdiction; or
(ii) concurrently in more than one jurisdiction;
(f) Lessee irrevocably and unconditionally:-
(i) agrees that if Lessor brings legal proceedings against it or
its assets in relation to this Agreement no immunity from such
legal proceedings (which will be deemed to include without
limitation, suit, attachment prior to judgment, other
attachment, the obtaining of judgment, execution or other
enforcement) will be claimed by or on behalf of itself or with
respect to its assets;
(ii) waives any such right of immunity which it or its assets now
has or may in the future acquire;
(iii) consents generally in respect of any such proceedings to the
giving of any relief or the issue of any process in connection
with such proceedings including, without limitation, the
making, enforcement or execution against any property
whatsoever (irrespective of its use or intended use) of any
order or judgment which may be made or given in such
proceedings.
16.13 SOLE AND ENTIRE AGREEMENT: This Agreement, Letter Agreement No. 1 and
any related side-letters are the sole and entire agreement between
Lessor and Lessee in relation to the leasing of the Aircraft, and
supersede all previous agreements in relation to that leasing.
16.14 INDEMNITIES: All rights expressed to be granted to each Indemnitee
under this Agreement (other than Lessor) are given to Lessor on behalf
of that Indemnitee.
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16.15 COUNTERPARTS: This Agreement may be executed in counterparts each of
which will constitute one and the same document.
16.16 LANGUAGE: All notices to be given under this Agreement will be in
English. All documents delivered to Lessor pursuant to this Agreement
will be in English, or if not in English, will be accompanied by a
certified English translation. If there is any inconsistency between
the English version of this Agreement and any version in any other
language, the English version will prevail.
16.17 NO BROKERS: Each party agrees to indemnify and hold the other harmless
from and against any and all claims, suits, damages, costs and
expenses (including, but not limited to, reasonable attorneys' fees)
asserted by any agent, broker or other third party for any commission
or compensation of any nature whatsoever based upon the lease of the
Aircraft, if such claim, suit, damage, cost or expense arises out of
any action or alleged action by the indemnifying party, its employees
or agents. Lessee hereby represents and warrants that it has not
paid, agreed to pay or caused to be paid directly or indirectly in any
form, any commission, percentage, contingent fee, brokerage or other
similar payments of any kind, in connection with the establishment or
operation of this Agreement, to any employee of Lessor or to any
person or entity in the State of Incorporation or elsewhere, except to
Excluded Persons, as defined below. For the purposes hereof, the term
"Excluded Persons" shall mean (x) in the case of Lessor, any of its
officers, directors, employees, attorneys or other professional
advisors, wherever located; and (y) in the case of Lessee, any of its
officers, directors, employees, attorneys or other professional
advisors, wherever located.
17. DISCLAIMERS AND WAIVERS
17.1 EXCLUSION: THE AIRCRAFT IS DELIVERED "AS IS, WHERE IS" AND LESSEE
AGREES AND ACKNOWLEDGES THAT, SAVE AS EXPRESSLY STATED IN THIS
AGREEMENT, LESSOR WILL HAVE NO LIABILITY IN RELATION TO, AND LESSOR
HAS NOT AND WILL NOT BE DEEMED TO HAVE MADE OR GIVEN, ANY WARRANTIES
OR REPRESENTATIONS, EXPRESS OR IMPLIED, WITH RESPECT TO, THE AIRCRAFT,
INCLUDING BUT NOT LIMITED TO:-
(a) THE DESCRIPTION, AIRWORTHINESS, MERCHANTABILITY, FITNESS FOR ANY
PARTICULAR USE OR PURPOSE, VALUE, CONDITION, OR DESIGN, OF THE
AIRCRAFT OR ANY PART; OR
(b) ANY OBLIGATION, LIABILITY, RIGHT, CLAIM OR REMEDY IN TORT, WHETHER OR
NOT ARISING FROM LESSOR'S NEGLIGENCE, ACTUAL OR IMPUTED; OR
(c) ANY OBLIGATION, LIABILITY, RIGHT, CLAIM OR REMEDY FOR LOSS OF OR
DAMAGE TO THE AIRCRAFT, FOR ANY LIABILITY OF LESSEE TO ANY THIRD
PARTY, OR FOR ANY OTHER DIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES.
17.2 WAIVER: LESSEE HEREBY WAIVES, AS BETWEEN ITSELF AND THE LESSOR, ALL
ITS RIGHTS IN RESPECT OF ANY WARRANTY OR REPRESENTATION, EXPRESS OR
IMPLIED, ON THE PART OF LESSOR AND ALL CLAIMS AGAINST LESSOR HOWSOEVER
AND WHENEVER ARISING AT ANY TIME IN RESPECT OF OR OUT OF THE OPERATION
OR PERFORMANCE OF THE AIRCRAFT OR THIS AGREEMENT EXCEPT TO THE EXTENT
ARISING UNDER CLAUSE 2.4.
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<PAGE> 53
17.3 CONFIRMATION: LESSEE CONFIRMS THAT IT IS FULLY AWARE OF THE PROVISIONS
OF THIS CLAUSE AND ACKNOWLEDGES THAT RENT AND OTHER AMOUNTS HAVE BEEN
CALCULATED BASED ON ITS PROVISIONS.
18. SECTION 1110
Lessee acknowledges that Lessor would not have entered into this
Agreement unless it had available to it the benefits of a lessor under
Section 1110 of Title 11 of the United States Code. Lessee
covenants and agrees with Lessor that to better ensure the
availability of such benefits, Lessee shall support any motion,
petition or application filed by Lessor with any bankruptcy court
having jurisdiction over Lessee, whereby Lessor seeks recovery of
possession of the Aircraft under said Section 1110 and shall not in
any way oppose such action by Lessor unless Lessee shall have complied
with the requirements of said Section 1110 to be fulfilled in order to
entitle Lessee to continued use and possession of the Aircraft
hereunder. In the event said Section 1110 is amended, or if it is
repealed and another statute is enacted in lieu thereof, Lessor and
Lessee agree to amend this Agreement and take such other action not
inconsistent with this Agreement as Lessor reasonably deems necessary
so as to afford to Lessor the rights and benefits as such amended or
substituted statute confers upon owners and lessors of aircraft
similarly situated to Lessor.
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<PAGE> 54
SCHEDULE 1
PART 1
DESCRIPTION OF AIRCRAFT
AIRCRAFT
MANUFACTURER: Boeing
MODEL: 737-242 Advanced
SERIAL NUMBER: 21186
ENGINES
ENGINE TYPE AND NO.: Pratt & Whitney JT8D-9A x 2 with Stage III
Nordan Mini-Hushkits
SERIAL NOS: 701310 and 687897
On the Delivery Date, the Aircraft shall be delivered constructively "as is,
where is ":-
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<PAGE> 55
PART 2
AIRCRAFT DOCUMENTS
A. CERTIFICATES
- FAA Certificate of Airworthiness
B. AIRCRAFT STATUS RECORDS
- Log Books
- Airframe Maintenance Status Report
- Supplemental Structural Inspection Document Status (if
applicable)
- Manufacturer's Service Bulletin Status Report
- Airworthiness Directive Compliance Report
(terminated and repetitive)
- Modification Status Report List
documents will be provided upon request)
- Last Weighing Report
- List of Life Limited Components with remaining hours/cycles
C. AIRCRAFT MAINTENANCE RECORDS (LAST HEAVY MAINTENANCE VISITS)
- Test Flight Reports
- X-ray pictures
- Last annual check and heaviest maintenance check Work Cards
D. AIRCRAFT HISTORY RECORDS
- Aircraft Maintenance History Cards
- Service Difficulty Report
- Accident or Incident Report (Major Structural Repair)
E. ENGINE RECORDS (FOR EACH ENGINE)
- Engine time and cycle records
- Last overhaul and repair documents (including FAA Forms 337)
- Airworthiness Directive Compliance Report
(terminated and repetitive)
- Manufacturer's Service Bulletin Status Report
- List of Time Controlled Components with remaining hours and
cycles
- Modification Status Report
- Engine Disc Sheets
- Engine Build Specifications
F. APU RECORDS
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<PAGE> 56
- Last Overhaul and Repair Documents
(including modification status)
- Airworthiness Directive Compliance Report
(terminated and repetitive)
- Manufacturer's Service Bulletin Status Report
- List of Time Controlled Components with remaining hours/cycles
- Modification Status Report
G. COMPONENT RECORDS
- Time Controlled Component Historical Records with
Installation and Serviceability Tags
H. MANUALS
- Airplane Flight Manual (Manufacturer Approved, FAA Approved)
- Flight Crew Operating Manual
- Weight and Balance Manual
- Wiring Diagram Manual (microfilm and hard copy if available)
- Illustrated Parts Catalog (microfilm)
- Aircraft Maintenance Manual (microfilm)
- Manufacturer's Engine Maintenance Manual and any approved
engineering changes, as applicable
I. MISCELLANEOUS TECHNICAL DOCUMENTS
- Maintenance Program Specifications
- Interior Configuration Drawings
- Original Delivery Documents
- Loose Equipment Inventory
55
<PAGE> 57
SCHEDULE 2
CERTIFICATE OF ACCEPTANCE
This Certificate of Acceptance is delivered, on the date set out below
by Air South, Inc. ("Lessee"), to Polaris Holding Company ("Lessor"),
pursuant to the Aircraft Lease Agreement dated April 29, 1996 between
Lessor and Lessee (the "Agreement"). The capitalised terms used in
this Certificate shall have the meaning given to such terms in the
Agreement.
1. DETAILS OF ACCEPTANCE
Lessee hereby confirms to Lessor that Lessee has as of this 29th day
of April, 1996, at Columbia, South Carolina, accepted by constructive
delivery the Aircraft described below in "where is, as is" condition:-
(a) Boeing 737-242 Advanced airframe, Manufacturer's Serial No. 21186
(b) 2 Pratt & Whitney JT8D-9A Engines:-
Engine Number Manufacturer's Serial No.
1 707310 ; and
2 687897 ;
(Each of which shall have more than 750 rated takeoff horsepower or
the equivalent of such horsepower and each with Stage III Nordam Mini-
Hushkits installed).
(c) Fuel Status: (N/A - see Previous Delivery Date Certificate of
Acceptance; and
(d) Loose Equipment Check List: as per list signed by Lessor and Lessee
and attached hereto.
2. CONFIRMATION
Lessee confirms to Lessor that as at the time indicated above, being
the Delivery Date:-
(a) the representations and warranties contained in Clause 2 are hereby
repeated;
(b) the Aircraft is insured as required by the Agreement;
(c) Lessee confirms that there have been affixed to the Aircraft and the
Engines the fireproof notices required by the Agreement; and
(d) Lessee's authorised technical experts have inspected the Aircraft to
ensure the Aircraft conforms to Lessee's requirements. The Aircraft
is in accordance with the specifications of the Agreement and
satisfactory in all respects.
IN WITNESS WHEREOF, Lessee has, by its duly authorised representative,
executed this Certificate on the date in paragraph 1 above.
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<PAGE> 58
LESSEE: Air South Airlines, Inc.
By:
----------------------------
Title:
----------------------------
57
<PAGE> 59
SCHEDULE 3
OPERATING CONDITION AT REDELIVERY
On the Expiry Date the Aircraft, subject to fair wear and tear
generally, will be in the condition set out below:-
1. GENERAL CONDITION
The Aircraft will:-
(a) be clean by airline standards;
(b) have installed the full complement of engines and other equipment,
parts and accessories and loose equipment as is normally installed in
the Aircraft, and be in a condition suitable for immediate operation
in commercial service;
(c) have in existence a valid certificate of airworthiness (or if required
by Lessor, a valid export certificate of airworthiness) with respect
to the Aircraft issued by the Air Authority. The Aircraft will also
meet all requirements for U.S. domestic operations under FAR Part 121
and will meet the requirements of FAR Part 36, appendix C, Stage 3
noise compliance without waiver or restriction. There will be no
deferred, open or carryover items on the Aircraft or any Engine on
the Expiry Date;
(d) comply with the manufacturer's original specifications;
(e) have undergone, immediately prior to redelivery, a complete C check
(including all phases and multiples so that all Airframe inspections
falling due within the next following C Check interval in accordance
with the Agreed Maintenance Programme, have been accomplished. The
time since the heaviest maintenance inspection (complete block
overhaul/D Check) will not be more than when the Aircraft was
delivered by Lessor to Lessee hereunder.
Notwithstanding the foregoing, Lessee may redeliver the Aircraft to
Lessor with fewer Flight Hours remaining until the next D Check
(complete block overhaul) than as at the Previous Delivery Date as a
percentage of the allowed interval between such overhauls if (x)
at least 7,500 Flight Hours remain since the last D Check (complete
block check) (determined in accordance with the Agreed Maintenance
Programme); and (y) Lessee pays to Lessor on the Expiry Date the
product of (xx) the difference (if greater than zero) between the
number of Flight Hours so remaining on the Expiry Date and the number
of Flight Hours that were so remaining on the Previous Delivery Date;
and (yy) the then current rate of Airframe Supplemental Rent;
(f) have had accomplished all outstanding airworthiness directives and
mandatory orders affecting that model of Aircraft issued by the FAA
which, if the Aircraft were registered with the FAA, would have to be
complied with during the Term and within 180 days after the Expiry
Date;
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(g) have installed all applicable vendor's and manufacturer's service
bulletin kits received free of charge by Lessee that are appropriate
for the Aircraft and to the extent not installed, those kits will be
furnished free of charge to Lessor;
(h) be sanded and freshly painted and in such external livery as advised
by Lessor; and
(i) have all signs and decals clean, secure and legible.
2. COMPONENTS
(a) time since overhaul on all time controlled (other than the APU, the
Engines and the Landing Gear) shall be not less than as on the
Previous Delivery Date.
(b) Each "on-condition" and "condition monitored" component will be
serviceable;
(c) The APU will be in the same operational condition as at the Previous
Delivery Date having no more than 1,500 Flight Hours used since the
last APU hot section inspection with temperatures and air outputs
within the APU manufacturer's limits at all operational settings; and
3. ENGINES
Each Engine will be installed on the Aircraft and if not the engines
installed on the Previous Delivery Date will be accompanied by all
documentation Lessor may require to evidence that title thereto is
properly vested in Lessor and:-
(a) each life limited part within each Engine will have at least the same
life remaining as when delivered by Lessor to Lessee hereunder;
(b) each Engine will have no more time since last hot section
refurbishment and no more time since the last cold section
refurbishment than as when delivered by Lessor to Lessee
[hereunder];
(c) each Engine will have had a complete hot (including combustion
chamber) and cold section video boroscope inspection, at Lessor's
expense, and a power assurance run in accordance with the Engine
manufacturer's maintenance manual and all items beyond such
manufacturer's limits will be repaired at Lessee's expense. No Engine
will be "on watch" for any reason requiring any special or out of
sequence inspection.
Notwithstanding Paragraph 3. (a) above, Lessee may redeliver an Engine
to Lessor with less life so remaining if (x) at least 4,000 Flight
Hours and Cycles remain until the next scheduled life limited Parts
replacement (determined in accordance with the Agreed Maintenance
Programme); and (y) Lessee pays to Lessor on the Expiry Date the
product of (xx) the difference (if greater than zero) between the
average number of Flight Hours and Cycles so remaining on the Expiry
Date and the average number of Flight Hours and Cycles that were so
remaining on the Previous Delivery Date; and (yy) the then current
rate of Engine Life Limited Parts Supplemental Rent.
Notwithstanding Paragraph 3. (b) above, Lessee may redeliver an Engine
to Lessor with fewer Flight Hours remaining until the next Hot Section
Refurbishment or Cold Section Refurbishment, as applicable, than as at
the Previous Delivery Date if (x) at least 3,000 Flight Hours and
Cycles remain until the next Hot Section Refurbishment or Cold Section
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<PAGE> 61
Refurbishment, as applicable (determined in accordance with the Agreed
Maintenance Programme); and (y) Lessee pays to Lessor on the Expiry
Date the product of (xx) the difference (if greater than zero) between
the number of Flight Hours and Cycles so remaining on the Expiry Date
and the number of Flight Hours that were so remaining on the Previous
Delivery Date; and (yy) the then current rate of Engine Refurbishment
Supplemental Rent.
[Notwithstanding Paragraph 3. (b) above, Lessee may redeliver an Engine
to Lessor with fewer Flight Hours remaining until the next Cold
Section Refurbishment than as at the Previous Delivery Date if (x) at
least 4,000 Flight Hours and Cycles remain until the next Cold Section
Refurbishment (determined in accordance with the Agreed Maintenance
Programme); and (y) Lessee pays to Lessor on the Expiry Date the
product of (xx) the difference (if greater than zero) between the
number of Flight Hours and Cycles so remaining on the Expiry Date and
the number of Flight Hours that were so remaining on the Delivery
Date; and (yy) the then current rate of Engine Cold Section
Refurbishment Supplemental Rent.]
4. FUSELAGE, WINDOWS AND DOORS
(a) The fuselage will be free of major dents and abrasions and loose or
pulled or missing rivets;
(b) Doors will be free moving, correctly rigged and be fitted with
serviceable seals.
5. WINGS AND EMPENNAGE
(a) Leading edges will be free from damage;
(b) Wings will be free of fuel leaks.
6. INTERIOR
(a) Ceilings, sidewalls and bulkhead panels will be clean and free of
cracks and stains.
(b) Carpets and seat covers will be in good condition, clean and free of
stains and meet FAR burn certification regulations;
(c) Seats will be serviceable, in good condition and repainted as
necessary;
(d) Emergency equipment having a calendar life will have a minimum of 1
year or 100% of its total approved life, whichever is less, remaining;
(e) Galleys will contain all equipment installed and functional including
service carts (trolleys), containers and coffee pots, which will be
clean by airline standards and shall have all FAA required markings
installed;
(f) Overhead stowage compartments will be clean by airline standards and
serviceable with proper markings installed; and
(g) Lavatories will be clean by airline standards and serviceable with
correct FAA markings installed
7. COCKPIT
(a) Trim panels shall be free of stains and cracks, will be clean secure
and repainted as necessary;
(b) Seat covers will be in good condition, clean and free of stains and
will conform to FAR burn certification regulations; and
8. CARGO COMPARTMENTS
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(a) Panels will be in good condition; and
(b) Nets will be in good condition.
9. LANDING GEAR
Time since overhaul on the Landing Gear will not be greater than as at
the Previous Delivery Date. Each life limited part within the landing
gear will have at least the same time remaining as at the Previous
Delivery Date. The Landing Gear and wheel wells will be clean, free
of leaks and repaired as necessary.
Notwithstanding the foregoing, Lessee may redeliver the Landing Gear
to Lessor with fewer Flight Hours remaining until the next overhaul
than as at the Previous Delivery Date as a percentage of the allowable
interval between such overhauls if (x) at least 12,000 Flight Hours
remain since the last overhaul (determined in accordance with the
Agreed Maintenance Programme); and (y) Lessee pays to Lessor on the
Expiry Date the product of (xx) the difference (if greater than zero)
between the number of Flight Hours so remaining on the Expiry Date and
the number of Flight Hours that were so remaining on the Previous
Delivery Date; and (yy) the then current rate of Landing Gear
Supplemental Rent.
10. CORROSION
(a) The Aircraft will have been inspected and treated with respect to
corrosion as defined in the Agreed Maintenance Programme and/or Boeing
Document No.D6-38528 relative to compliance with the Corrosion
Prevention and Control Program (CPCP). The entire fuselage will be
substantially free from corrosion and will be adequately treated and
an approved corrosion prevention programme will be in operation; and
(b) Fuel tanks will be free from contamination and corrosion and a tank
treatment programme will be in operation.
Notwithstanding anything contained in this Schedule 3, Lessor shall not be
required to make any payments to Lessee in the event that the Airframe, the
Engines, the Landing Gear, any time, cycle or calendar controlled component is
returned to Lessor in a condition better than that specified in Clause 12 and
this Schedule 3.
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SCHEDULE 4
INSURANCE REQUIREMENTS
The Insurances required to be maintained are as follows:-
(a) HULL ALL RISKS of Loss or Damage whilst flying and on the ground with
respect to the Aircraft on an "agreed value basis" for the Agreed
Value and with a deductible not exceeding $350,000, or such other
amount agreed by Lessor from time to time. Without prejudice to the
foregoing, (x) with the prior written consent of Lessor, Lessee may
increase the aforesaid deductible amount to $500,000 if, prior to
doing so, Lessee shall have paid to Lessor the sum of $150,000 by way
of an insurance security deposit (the "Insurance Security Deposit")
(which Insurance Deposit shall also be available to be applied to
deductible losses between $350,000 and $500,000 in relation to the
B737-2P6 aircraft leased to Lessee pursuant to certain of the
Other Agreements); and (y) provided no Default shall have occurred and,
in Lessor's reasonable opinion, Lessee remains in good financial
standing, following the expiration of Rental Period 12, Lessor,
without being under any obligation, will consider a request from
Lessee to increase the aforementioned deductible amount to $500,000
without the requirement for Lessee to pay an Insurance Security
Deposit. The Insurance Security Deposit, (which shall be held by
Lessor as security for the performance by Lessee of its obligations
under this Agreement and the Other Agreements), shall be
returned to Lessee on the Expiry Date if all amounts payable by Lessee
under this Agreement and any Other Agreement shall have been paid in
full and no Default shall have occurred and be continuing. With
Lessor's prior consent, the Insurance Deposit may be provided by
Lessee by way of letter of credit issued by a bank acceptable to
Lessor and in form and in substance satisfactory to Lessor.
In the event that the Insurance Security Deposit is applied to a loss
claim thereby reducing the balance thereof, Lessee will either (a)
replace any deficiency in such balance; or (b) lower the all risk hull
insurance deductible to $500,000 within 15 days after the
aforementioned application.
(b) HULL WAR AND ALLIED PERILS, being such risks excluded from the Hull
All Risks Policy to the fullest extent available from the leading
international insurance markets including confiscation and requisition
by the State of Registration for the Agreed Value;
(c) ALL RISKS (INCLUDING WAR AND ALLIED RISK except when on the ground or
in transit other than by air) property insurance on all Engines and
Parts when not installed on the Aircraft on an "agreed value" basis
for their full replacement value and including engine test and running
risks;
(d) AIRCRAFT THIRD PARTY, PROPERTY DAMAGE, PASSENGER, BAGGAGE, CARGO AND
MAIL AND AIRLINE GENERAL THIRD PARTY (INCLUDING PRODUCTS) LEGAL
LIABILITY for a Combined Single Limit (Bodily Injury/Property Damage)
of an amount not less than the Minimum Liability Coverage for the time
being any one occurrence (but in respect of products and personal
injury liability this limit may be an aggregate limit for any and all
losses occurring during the currency of the policy). War and Allied
Risks are also to be covered under the Policy to the fullest extent
available from the leading international insurance markets;
(e) All required hull and spares insurance (as specified above), so far as
it relates to the Aircraft will: -
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(i) name Lessor and their respective successors and assigns as
additional assureds for their respective rights and interests,
warranted, each as to itself only, no operational interest;
(ii) provide that any loss will be settled jointly with Lessor and
Lessee, subject to final prior approval of Lessor and will be
payable in Dollars to Lessor, for the account of all interests
except where the loss does not exceed the Damage Notification
Threshold, and Lessor has not notified the insurers to the
contrary, in which case the loss will be settled with and paid
to Lessee;
(iii) include a notice and/or acknowledgement of assignment in a
form acceptable to Lessor;
(iv) if separate Hull "all risks" and "war risks" insurances are
arranged, include a 50/50 provision in accordance with market
practice (AVS. 103 is the current market language);
(v) confirm that the insurers are not entitled to replace the
Aircraft in the event of an insured Event of Loss;
(vi) confirm that the insurers will not obtain a valid discharge of
the obligations under the Insurances by payment to the broker,
notwithstanding market practice to the contrary;
(f) All required liability insurances (specified above) will:-
(i) include Lessor and its successors and assigns and their
respective shareholders, subsidiaries, directors, officers,
agents, employees and indemnitees as additional insureds for
their respective rights and interests, warranted, each as to
itself only, no operational interest;
(ii) include a Severability of Interest Clause which provides that
the insurance, except for the limit of liability, will operate
to give each assured the same protection as if there was a
separate policy issued to each assured;
(iii) contain a provision confirming that the policy is primary
without right of contribution and the liability of the
insurers will not be affected by any other insurance of which
Lessor or Lessee have the benefit so as to
reduce the amount payable to the additional insureds under
such policies;
(g) All Insurances will:-
(i) be in accordance with normal industry practice of persons
operating similar aircraft in similar circumstances;
(ii) provide cover denominated in Dollars and any other currencies
which Lessor may reasonably require in relation to liability
insurance;
(iii) operate on a worldwide basis subject to such limitations and
exclusions as Lessor may agree;
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(iv) acknowledge the insurer is aware (and has seen a copy) of this
Agreement and that the Aircraft is owned by Lessor;
(v) provide that, in relation to the interests of each of the
additional assureds the Insurances will not be invalidated by
any act or omission by Lessee, or any other person other than
the respective additional assured seeking protection and shall
insure the interests of each of the additional assureds
regardless of any breach or violation by Lessee, or any other
person other than the respective additional assured seeking
protection of any warranty, declaration or condition,
contained in such Insurances;
(vi) provide that the insurers will hold harmless and waive any
rights of recourse and/or subrogation against the additional
assureds or to be subrogated to any rights of the Banks
against Lessor or Lessee;
(vii) provide that the additional assureds will have no obligation
or responsibility for the payment of any premiums due (but
reserve the right to pay the same should any of them elect so
to do) and that the insurers will not exercise any right of
set-off or counter-claim in respect of any premium due against
the respective interests of the additional assureds other than
outstanding premiums relating to the Aircraft, any Engine or
Part the subject of the relevant claim;
(viii) provide that the Insurances will continue unaltered for the
benefit of the additional assureds for at least 30 days after
written notice by registered mail or telex of any
cancellation, change, event of non-payment of premium or
installment thereof has been sent to Lessor, except in the
case of war risks for which 7 days (or such lesser period as
is or may be customarily available in respect of war risks or
allied perils) will be given, or in the case of war between
the 5 great powers or nuclear peril for which termination is
automatic;
(ix) if reinsurance is a requirement of this Agreement such
reinsurance will (i) be on the same terms as the original
insurances and will include the provisions of this Schedule,
(ii) provide that notwithstanding any bankruptcy, insolvency,
liquidation, dissolution or similar proceedings of or
affecting the reinsured that the reinsurers' liability will be
to make such payments as would have fallen due under the
relevant policy of reinsurance if the reinsured had
(immediately before such bankruptcy, insolvency, liquidation,
dissolution or similar proceedings) discharged its obligations
in full under the original insurance policies in respect of
which the then relevant policy of reinsurance has been
effected; and (iii) contain a "cut-through" clause in the
following form (or otherwise, satisfactory to Lessor): "The
Reinsurers and the Reinsured hereby mutually agree that in the
event of any claim arising under the reinsurances in respect
of a total loss or other claim where as provided by the
Aircraft Lease Agreement dated [ ] 1994 and made between
Polaris Holding Company and Air South, Inc. such claim
is to be paid to the person named as sole loss payee under the
primary insurances, the Reinsurers will in lieu of payment to
the Reinsured, its successors in interest and assigns pay to
the person named as sole loss payee under the primary
insurances effected by the Reinsured that portion of any loss
due for which the Reinsurers would otherwise be liable to
64
<PAGE> 66
pay the Reinsured (subject to proof of loss), it being
understood and agreed that any such payment by the Reinsurers
will (to the extent of such payment) fully discharge and
release the Reinsurers from any and all further liability in
connection therewith"; subject to such provisions not
contravening any law of the State of Incorporation;
(x) contain a provision entitling Lessor or any insured party to
initiate a claim under any policy in the event of the refusal
or failure of Lessee to do so; and
(xi) accept and insure the indemnity provisions of this Agreement
to the extent of the risks covered by the policies.
65
<PAGE> 67
SCHEDULE 5
FORM OF LEGAL OPINION
To: [Lessor]
[Date]
Dear Sirs
1. You have asked us to render an opinion in connection with the
transaction governed, inter alia, by the under mentioned documents.
Words and expressions used herein will bear the same meanings as
defined in an Aircraft Lease Agreement (the "Lease") dated [] 1994
between Polaris Holding Company ("Lessor") and Air South,
Inc. ("Lessee") in respect of one Boeing 737-242 Advanced aircraft
with manufacturer's serial number 21186 together with the 2
installed Pratt & Whitney JT8D-9A engines (the "Aircraft").
1.1. the Lease;
1.2. the Memorandum and Articles of Association of Lessee;
1.3. all other documents, approvals and consents of whatever nature and
wherever kept which it was, in our judgment and to our knowledge,
necessary or appropriate to examine to enable us to give the
opinion expressed below.
2. Having considered the documents listed in paragraph 1 above, and
having regard to the relevant laws of [] we are pleased to advise
that in our opinion:-
(a) Lessee is a corporation duly organised and validly existing under
the laws of [ ], is qualified to do business as a foreign
corporation in each jurisdiction where failure to so qualify would
have a materially adverse effect on Lessee's business or its
ability to perform its obligations under the lease is subject to
suit in its own name, and, to the best of our knowledge, no steps
have been, or are being, taken to appoint a receiver, liquidator,
trustee or similar officer over, or to wind up, Lessee;
(b) Lessee has the corporate power to enter into and perform, and has
taken all necessary corporate action to authorise the entry into,
performance and delivery of, the Lease and the transactions
contemplated by the Lease;
(c) the entry into and performance by Lessee of, and the transactions
contemplated by, the Lease do not and will not:-
(i) conflict with any laws binding on Lessee; or
(ii) conflict with the Certificate of Incorporation of Bylaws
of Lessee; or
(iii) conflict with or result in default under any indenture,
mortgage, chattel mortgage, deed of trust, conditional
sales contract, lease, bank loan or credit agreement or
66
<PAGE> 68
other agreement which is binding upon Lessee or any of its
assets or result in the creation of any Security Interest
over any of its assets.
(d) no authorisations, consents, licences, approvals and registrations
(other than those which have been obtained and of which copies are
attached hereto) are necessary or desirable to be obtained from any
governmental or other regulatory authorities in having jurisdiction
over Lessee or its properties to enable Lessee:-
(1) to enter into and perform the transactions contemplated by
the Lease;
(2) to import the Aircraft into the United States and [ ] for
the duration of the Term;
(3) to operate the Aircraft in the United States for the
transport of fare-paying passengers; or
(4) to make the payments provided for in the Lease;
(e) except for the filing and recordation of the Lease with the FAA and
the filing of the Financial Statements with [ ] (which filing has
been duly made on or before this date) it is not necessary or
desirable, to ensure the priority, validity and enforceability of
all the obligations of Lessee under the Lease that the Lease be
filed, registered, recorded or notarised in any public office or
elsewhere or that any other instrument relating thereto be signed,
delivered, filed, registered or recorded, that any tax or duty be
paid or that any other action whatsoever be taken;
(f) no steps are necessary or desirable to record or perfect
Lessor's interest in the Aircraft in the United States or [];
(g) on termination of the Lease (whether on expiry or otherwise) as
contemplated in the Lease, Lessor would be entitled:-
(1) to repossess the Aircraft;
(2) to de-register the Aircraft from the aircraft registry of
the Air Authority;
(3) to export the Aircraft form the United States and [];
without requiring any further consents, approvals or
licences from any governmental or regulatory authority in
the United States or [];
(h) the Lease has been properly signed and delivered on behalf of
Lessee and the obligations on the part of Lessee contained therein,
assuming them to be valid and binding according to the Governing
Law, are valid and legally binding on and enforceable against
Lessee respectively under the laws of [];
(i) the events described in Clause 13.1(g), (h) and (i) of the Lease
comprise an accurate and complete statement of all events and
situations provided for by the laws of [] which may lead to the
cessation of activities, winding up or dissolution of Lessee;
(j) Lessee is a Certificated Air Carrier;
(k) Lessee is a "citizen of the United States" as defined in Section
101(16) of the Federal Aviation Act;
67
<PAGE> 69
(l) Lessor is entitled to the benefits of Section 1110 of Title 11 of
the United States Code with respect to the Aircraft;
(m) Lessee's chief executive office (as defined in the Uniform
Commercial in effect in [ ]) is located at [].
(n) the obligations of Lessee under the Lease rank at least pari passu
with all other present and future unsecured and unsubordinated
(including contingent obligations) of Lessee;
(o) there is no withholding tax or other Tax to be deducted from any
payment whatsoever which may be made by Lessee pursuant to the
Lease; with respect to any withholdings, the provisions of Clauses
5.6, 5.7 and 5.10 of the Lease are fully effective; and the
arrangements contemplated by the Lease do not give rise to any
charge whatsoever to Taxes in [];
(p) there is no applicable usury or interest limitation law in [] which
may restrict the recovery of payments in accordance with the Lease;
(q) there are no registration, stamp or other taxes or duties of any
kind payable in [] in connection with the signature, performance or
enforcement by legal proceedings of the Lease;
(r) Lessor will not violate any law or regulation in [] nor become
liable to tax in [] by reason of entering into the Lease with
Lessee, or performing its obligations thereunder;
(s) it is not necessary to establish a place of business in [] in order
to enforce any provisions of the Lease;
(t) the choice of the Governing Law to govern the Lease will be upheld
as a valid choice of law in any action in the Courts of [];
(u) the consent to the jurisdiction by Lessee contained in the Lease is
valid and binding on Lessee and not subject to revocation;
(v) any judgement for a definite sum given by the courts of [ ]
against Lessee would be recognised and accepted by the courts of []
without re-trial or examination of the merits of the case;
(w) (i) Lessee is subject to civil commercial law with respect to
its obligations under the Lease; and
(ii) neither Lessee nor any of its assets is entitled to any
right of immunity and the entry into and performance of the
Lease by Lessee constitute private and commercial acts;
(x) there are no laws or other rules in [ ] (including, without
limitation, Emergency Powers laws) pursuant to which Lessee may be
deprived of the Aircraft by any Government Entity or any other
person, other than Lessor or any assignee of Lessor.
Yours faithfully,
68
<PAGE> 70
LETTER AGREEMENT NO. 1
April 29, 1996
Air South Airlines, Inc.
1800 St. Julian Place
Columbia, South Carolina 29204
Attention: Mr. Clif E. Haley
Re: Aircraft Lease Agreement, dated as of April 29, 1996, relating to one
Boeing 737-242 advanced aircraft bearing MSN 21186 and FAA Registration Number
N159PL.
Dear Sirs:
Reference is made to the Aircraft Lease Agreement, dated this date (THE "LEASE
AGREEMENT"), between Polaris Holding Company, a Delaware corporation ("LESSOR")
and Air South Airlines, Inc., an Illinois corporation (THE "LESSEE"), for the
lease of one used Boeing 737-242 aircraft bearing MSN 21186 and FAA
Registration Number N159PL (THE "AIRCRAFT") and the Letter Agreement, dated
March 29, 1996, as amended by the Letter Agreements, dated April 11 and April
26, 1996 between Lessee and GECAS (AS AMENDED, THE "MARCH LETTER AGREEMENT"),
between the Lessee, GE Capital Aviation Services, Inc. ("GECAS"), Polaris
Aircraft Leasing KB ("PAL-KB AND COLLECTIVELY WITH THE LESSOR, THE "LESSORS")
and the Lessor. Capitalized terms used herein and not otherwise defined shall
have the meanings ascribed to such terms in the Lease Agreement or the March
Letter Agreement, as applicable.
Each party hereto hereby agrees that such party shall preserve the
confidentiality of, and shall not disclose, the information set forth in this
Letter Agreement No. 1 (THIS "LETTER AGREEMENT") to any other Person without
obtaining the prior written consent of the other party except to the extent
required by applicable law; provided that Lessor shall not be required to seek
such consent of Lessee following an Event of Default which has not been cured.
Lessor and Lessee have agreed that certain provisions referred to in the Lease
Agreement, and certain other terms, shall be set forth in this Letter
Agreement. If the Lease Agreement and this Letter Agreement shall differ as to
any term or condition, this Letter Agreement shall prevail, notwithstanding
anything to the contrary contained in the Lease Agreement. In that connection
and in order to preserve the confidentiality of certain of the business terms
of the Lease Agreement, Lessor and Lessee hereby agree as to (A) certain
provisions regarding Basic Rent, a Restructuring Fee and certain arrearages
of Rent; (B) certain provisions relating to Supplemental Rent; (C) certain
provisions regarding Events of Default; (D) certain provisions relating to the
Aircraft Commitment Fee; (E) certain provisions relating to the application of
supplemental rent under the Other Agreements; (F) certain provisions relating
to the payment of legal fees of Lessors; (G) further assurances; (H) governing
law; and (I) counterparts.
A. RENT.
(i) BASIC RENT AND RENT ARREARAGE. Lessee shall pay to Lessor Basic Rent
in respect of each Rental Period pursuant to Clause 5.3 of the Lease Agreement
in an amount equal to $115,000. Lessee may accrue arrearages of Basic Rent
during the Term from the date hereof to a date on or before September 27, 1996
(THE "RENT ARREARAGE"); provided, however, that the Rent Arrearage shall not
exceed $12,500 per month and, in the aggregate for the lease of all Aircraft by
Lessee from the Lessors, such aggregate Rent Arrearage shall not exceed a total
of $350,417,00. Any Rent Arrearage accrued by Lessee shall be subject to a fixed
rate of interest of 10.44% which interest shall be calculated from the date
Basic Rent shall be otherwise due and payable to the date of payment of the
Rent Arrearage. The full amount of Rent Arrearage and any
1
<PAGE> 71
interest due thereon shall be paid in full on or before the earlier to occur of
(x) the date of the IPO or PPO as referenced below or (y) September 30, 1996.
(ii) PAYMENT OF BASIC RENT. From the date hereof to September 27, 1996
Lessee shall pay Basic Rent and Supplemental Rent in the aggregate for all five
(5) Aircraft on the dates and in the amounts as are set forth in Table IV of
Schedule C attached hereto. A pro-rata portion of each payment of Rent, based
upon the amount of Basic Rent otherwise due and payable, shall be allocated to
each Aircraft. On the Rent Payment Date next succeeding September 30, 1996,
Basic Rent for the Aircraft shall be due and payable in monthly increments in
advance for the remainder of the Term on the Rent Payment Dates as set forth in
Clause 5.3 of the Lease Agreement.
(iii) RESTRUCTURING FEE AND ADJUSTMENT OF RENT. In consideration of the
restructuring of the Other Agreements and the lease of the Aircraft pursuant to
the Lease Agreements (as such term is defined in Schedule A attached hereto),
the Lessee shall pay to GECAS, on behalf of the Lessors, a restructuring fee
(THE "RESTRUCTURING FEE") on the terms and conditions as set forth herein. If
the Lessee completes an initial public offering ("IPO") of common stock of
Lessee, par value $.001 per share (THE "COMMON STOCK"), or a private placement
(A "PPO") of Common Stock, then, upon the occurrence of such IPO or PPO, Lessee
shall pay GECAS, on behalf of the Lessors, a Restructuring Fee in an amount as
set forth in Schedule A attached hereto. The Restructuring Fee shall be
reduced by the difference between (1) aggregate Basic Rent actually paid by
the Lessee to the Lessors, pursuant to all Lease Agreements (and excluding any
Rent Arrearages) from the date hereof to the date the Restructuring Fee is due
and payable and (2) the aggregate of the Initial Rents as such term is defined
in Schedule A for the same period. Upon the payment of the Restructuring Fee
and commencing with the Rent Payment Date next succeeding such payment of the
Restructuring Fee, the amount of Basic Rent for the Aircraft thereafter due and
payable shall be adjusted, based upon the initial base amount of the
Restructuring Fee prior to adjustment, to equal the amount set forth for such
Aircraft in Schedule B attached hereto with respect to the Lease Agreement.
The Restructuring Fee shall be paid in cash, warrants or a combination
thereof, as GECAS may elect. If the Restructuring Fee is due and payable on a
date other than a Rent Payment Date, any adjustments to the Restructuring Fee
or Basic Rent shall be made on a pro-rata basis using a 30 day calendar month.
(iv) WARRANTS FOR COMMON STOCK. In the event that GECAS shall elect to be
paid the Restructuring Fee in whole or in part by a warrant or warrants for
Common Stock (THE "WARRANT"), such Warrant shall be substantially in the form
attached hereto as Exhibit I and shall otherwise be reasonably acceptable to
GECAS. The Warrant shall be issued by Lessee to GECAS on the request of GECAS
and shall comply with the following terms and conditions: (a) the Warrant shall
not require the payment of any additional amounts by GECAS or the Lessors to
the Lessee; (b) the number of shares of Common Stock issuable pursuant to the
Warrant shall equal the amount of the Restructuring Fee elected by GECAS to be
paid in Warrants divided by the selling price of the Common Stock in the IPO or
PPO, net of underwriting discounts, commissions and expenses; (c) the holder of
such Warrant shall be granted "piggy-back" registration rights, (d) the Warrant
shall be exercisable for a period of five years after its date of issuance and
(e) shall otherwise be on terms and conditions mutually satisfactory to Lessor
and Lessee.
B. SUPPLEMENTAL RENT.
(i) SUPPLEMENTAL RENT. The amount of Supplemental Rent payable pursuant
to Clause 5.4 of the Lease Agreement shall be as follows:
(a) Airframe Supplemental Rent - $ 66.15 per Flight Hour;
(b) Engine Refurbishment Supplemental Rent - $72.45 per Flight Hour
in respect of each Engine;
(c) Engine Life Limited Parts Supplemental Rent - $12.60 per Flight
Hour in respect of each
2
<PAGE> 72
Engine; and
(d) Landing Gear Supplemental Rent - $ 8.40 per Flight Hour.
(ii) ADJUSTMENT OF SUPPLEMENTAL RENT. Lessor and Lessee acknowledge that
the rates of Supplemental Rent specified herein are based upon the assumptions
that (i) the Aircraft will operate on average not less than 1 Flight Hour per
Cycle ratio and (ii) the Agreed Maintenance Programme applicable to the
Aircraft during the Term will be the same as the Agreed Maintenance Programme
in effect on the Delivery Date. In the event that either or both of the
foregoing assumptions prove to be incorrect at any time during the Term, Lessor
and Lessee agree that Lessor shall have the right, upon written notice to
Lessee, to adjust the rate of Supplemental Rent. In the case of a change in
the ratio of Flight Hours per Cycle relating to Aircraft operation, the
adjustment of Supplemental Rent shall be as follows:
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
HOUR/CYCLE RATIO .5 1.0 1.5 2.0 2.5 3.0 3.5
$/hr. $/hr. $/hr. $/hr $/hr. $/hr. $/hr.
ENGINE
REFURBISHMENT 98.70 72.45 65.10 58.80 54.60 52.50 50.40
SUPPLEMENTAL RENT
$/cyc. $/cyc. $/cyc. $/cyc. $/cyc. $/cyc. $/cyc.
ENGINE LLP
SUPPLEMENTAL RENT 12.60 12.60 12.60 12.60 12.60 12.60 12.60
</TABLE>
In the event that the Agreed Maintenance Programme is revised, Lessor shall
make the adjustment in the manner which Lessor determines, in its reasonable
discretion, is necessary to maintain the rate of Supplemental Rent at levels
which accurately reflect the costs associated with obtaining maintenance
services at prevailing industry rates. Each such notice shall specify the
revised Supplemental Rent and the effective date of such revision. Lessee
agrees to advise Lessor, in writing, promptly following the occurrence of any
circumstances or events which would result in the foregoing assumptions
becoming incorrect at any time during the Term.
(iii) SUPPLEMENTAL RENT ABATEMENT. Lessor agrees to abate temporarily
Lessee's obligation to pay Supplemental Rent towards specific Engine
Refurbishment and Life Limited Parts in cases where the Lessee uses its own
funds ("OUT-OF-POCKET EXPENSES") to pay for respective Engine overhauls during
the Term. Lessee's Out-of-Pocket Expenses shall be defined as the excess of
(x) the actual cost for the over-haul of such Engine paid by Lessee as duly
substantiated to Lessor's satisfaction and (y) the individual Supplemental Rent
balance for such Engine at the time of its overhaul. Overhaul work scopes
shall be preapproved by the Lessor. The overhaul cost shall relate to the
actual overhaul and shall not include any ancillary or consequential costs
including, but not limited to (1) substitute equipment leases and (2)
transportation charges. The periods of Supplemental Rent abatement shall
commence respectively, on the first day that the Engine is returned to service
after its overhaul and shall continue until such time that the Engine has
lapsed Flight Hours and Cycles such that, when multiplied by the Supplemental
Rent rate defined herein, the total dollar amount equals the Out-of-Pocket
Expenses that the Lessee paid for the respective overhaul.
(iv) ESTIMATED SUPPLEMENTAL RENT. From the date hereof to September 27,
1996, Lessee shall pay Lessor an estimated amount of Supplemental Rent pursuant
to Schedule C hereof in the aggregate for all Aircraft. Such amount shall take
into account all Supplemental Rent abatements granted pursuant to paragraph
(iii) above. Each month, Lessee shall submit to Lessor a summary of the hours
and cycles of operation of the Aircraft. Credit and debits against the
Supplemental Rent actually due and payable shall be accrued until September 30,
1996. Prior to October 10, 1996, Lessor shall provide Lessee with an
accounting of all Supplemental Rent due and payable and actual Supplemental
Rent paid. Any arrears payments or credits
3
<PAGE> 73
with respect to overpayments with respect to Supplemental Rent shall be paid by
Lessee to Lessor or credited by Lessor to Lessee, as applicable, on October 10,
1996.
C. EVENTS OF DEFAULT.
For purposes of the Lease Agreement, each of the following shall constitute a
Event of Default, in addition to the Events of Default as set forth in Clause
13.1 of the Lease Agreement: (i) the failure to pay the Current Arrearage and
all interest due thereon on or before April 29, 1996; (ii) the failure to pay
the Rent Arrearage and all interest due thereon on or before the earlier of (x)
the IPO or PPO or (y) September 30, 1996; and (iii) the failure to pay any Rent
when due and owing under the March Letter Agreement or the Lease Agreement,
including without limitation the amount of Rent Adjustment as set forth in
paragraph A of this Letter Agreement.
D. AIRCRAFT COMMITMENT FEE.
Lessor acknowledges that Lessee, pursuant to the November 1994 Lease, has paid
to Lessor an Aircraft Commitment Fee in an amount equal to (x) $225,000 plus
(y) Relevant Interest (as hereinafter defined) calculated from the date the
Aircraft Commitment Fee or any part thereof was actually paid. For purposes of
this Letter Agreement, Relevant Interest shall mean interest on the sum of
$225,000 accrued over a period commencing from the date following the Previous
Delivery Date on which the Aircraft Commitment Fee or any part thereof was
actually paid to the Expiry Date, at the average rate over such period of
General Electric Capital Corporation Commercial Paper (for 240 to 270 days) as
reported from time to time in The Wall Street Journal less 25 basis points
(i.e. 0.25% per annum).
E. ACCRUAL AND APPLICATION OF CERTAIN SUPPLEMENTAL RENT.
The reconciliation of all Rent previously due and owing pursuant to the Other
Agreements shall be set forth in Schedule C attached hereto. In addition,
Lessor shall credit certain Supplemental Rent against approved maintenance
performed on the Aircraft in the amounts as set forth in Schedule C. All
discrepancies in the accrual, payment and application of Rent attributable to
the October 1994 Lease are set forth and shall be resolved as between the
Lessor and Lessee in accordance with Schedule C.
F.LEGAL FEES.
Lessee hereby agrees to pay to GECAS, on behalf of the Lessors, on the date
hereof legal fees in the amount of $30,000 for the reasonable costs and
expenses of Lessors' counsel in connection with the restructuring Lessee's
obligations under the Other Agreements and the preparation, negotiation and
documentation of the March Letter Agreement, this Letter Agreement, the
Warrant, the Lease Agreements and negotiation of certain other matters
including the transactions contemplated herein and therein. Reasonable legal
counsel fees and expenses incurred by GECAS or the Lessors in connection with
the administration and enforcement of Lessors' rights and remedies under the
March Letter Agreement, the Warrant, the Lease Agreement or this Letter
Agreement shall be for the account of Lessee and Lessee shall upon written
demand by the Lessor reimburse and indemnify the Lessor for such costs and
expenses.
G. FURTHER ASSURANCES.
Lessee, at Lessee's expense, shall execute and deliver such further agreements,
leases, documents, certificates or any supplements or additions hereto as may
reasonably be requested by GECAS of the Lessors in furtherance of the
agreements herein contained.
4
<PAGE> 74
SCHEDULE A
SIZE OF IPO/PPO RESTRUCTURING FEE UNADJUSTED
More than $20 million $3 million
$15 million to $20 million $2 million
Less than $15 million but greater
than $4 million $1.5 million
Less than $4 million $ - 0 -
CERTAIN DEFINITIONS: AIRCRAFT LEASE AGREEMENTS
Aircraft Lease Agreement, dated as of November 11, 1994, between Polaris
Holding Company, as lessor, and Air South, Inc., as lessee, in respect of one
used Boeing 737-242 advanced aircraft (the "21186 Aircraft") bearing
manufacturers serial number 21186 (as supplemented and amended, "LEASE 21186")
and FAA Registration Number N159PL.
Aircraft Lease Agreement, dated as of March 21, 1995, between Polaris Aircraft
Leasing K.B., as lessor and Air South, Inc., as lessee, in respect of one used
Boeing 737-2P6 advanced aircraft (the "21733 Aircraft") bearing manufacturers
serial number 21733 and Irish Registration Number EI-CLK (as supplemented and
amended, "LEASE 21733") equipped with Stage 3 hushkit.
Aircraft Lease Agreement, dated as of December 12, 1994, between Polaris
Aircraft Leasing K.B., as lessor, and Air South, Inc., as lessee, in
respect of one used Boeing 737-2P6 advanced aircraft (the "21677 Aircraft"),
bearing manufacturers serial number 21677 and Irish Registration Number GKW (as
supplemented and amended, "LEASE 21677").
Aircraft Lease Agreement, dated as of October 25, 1994, between Polaris
Aircraft Leasing K.B., as lessor, and Air South, Inc., as lessee, in respect
of one used Boeing 737-2P6 advanced aircraft (the "21612 Aircraft"), bearing
manufacturers serial number 21612 and Irish Registration Number EI-CKK (as
supplemented and amended, "LEASE 21612").
Aircraft Lease Agreement, dated as of November 9, 1994, between Polaris
Aircraft Leasing K.B., as lessor, and Air South, Inc., as lessee, in respect
of one used Boeing 737-200A advanced aircraft (the "21356 Aircraft"), bearing
manufacturers serial number 21356 and Irish Registration Number CKL (as
supplemented and amended, "LEASE 21356").
For purposes of Letter Agreement No. 1, Lease 21186, Lease 21733, Lease 21677,
Lease 21612 and Lease 21356 shall collectively be defined as the "LEASE
AGREEMENTS" and the 21186 Aircraft, 21733 Aircraft, 21677 Aircraft, 21612
Aircraft and 21356 Aircraft shall collectively be defined as the "AIRCRAFT".
6
<PAGE> 75
INITIAL RENTS: For purposes of this Letter Agreement No. 1, Initial Rents shall
be defined as the following amounts for the Lease Agreements as indicated:
Lease 21186 Initial Rent: $90,000
Lease 21733 Initial Rent: $97,500
Lease 21677 Initial Rent: $75,000
Lease 21612 Initial Rent: $75,000
Lease 21356 Initial Rent: $75,000
-------
412,500
7
<PAGE> 76
SCHEDULE B
ADJUSTMENTS TO BASIC RENT
Restructuring Fee (Base Amount, Unadjusted) Basic Rent as Adjusted:
$3,000,000 Lease 21186: $90,000
Lease 21733: $97,500
Lease 21677: $75,000
Lease 21612: $75,000
Lease 21356: $75,000
$2,000,000 Lease 21186: $98,333
Lease 21733: $105,833
Lease 21677: $83,833
Lease 21612: $83,833
Lease 21356 $83,833
$1,500,000 Lease 21186: $102,500
Lease 21733: $110,000
Lease 21677: $87,500
Lease 21612: $87,500
Lease 21356: $87,500
8
<PAGE> 77
SCHEDULE C
Rent Reconciliation
TABLE I - UNADJUSTED ARREARAGE
<TABLE>
<CAPTION>
1 2 1-2
CATEGORY ACCRUED PAID DELTA
-------- ------- ---- -----
<S> <C> <C> <C>
Rent $ 7,020,390 $ 7,020,390 $ -
Deposits $ 1,170,000 $ 1,170,000 $ -
Maintenance $ 3,655,313 $ 2,922,746 $ 732,567
Other $ 26,042 $ 26,042 $ -
----------- ----------- ----------
TOTAL $11,871,745 $11,139,178 $ 732,567
</TABLE>
TABLE II - ADJUSTMENTS
<TABLE>
<S> <C>
MRF Claim 3040 $ (113,894)
MRF Claim 3040(b) $ (67,488)
MRF Claim 3241 $ (199,543)
MRF Claim 3262 $ (24,849)
Misc Adjustment $ (3,897)
----------
TOTAL $ (409,670)
</TABLE>
<TABLE>
<CAPTION>
TABLE III - INTERIM RENT CALCULATIONS W/O DEFERRAL W/ DEFERRAL
START DATE 4/29/96 0 1
CONTRACT INTERIM CONTRACT INTERIM
MSN DATE DAYS RENT (/M) RENT RENT (/M) RENT
--- ---- ---- --------- ---- --------- ----
<S> <C> <C> <C> <C> <C> <C>
21356 (CKL) 5/6/96 7 $ 100,000 $ 23,333 $ 87,500 $ 20,417
21186 (N159PL) 5/13/96 14 $ 115,000 $ 53,667 $ 102,500 $ 47,833
21677 (GKW) 5/20/96 21 $ 100,000 $ 70,000 $ 87,500 $ 61,250
21612 (EI-CKK) 5/20/96 21 $ 100,000 $ 70,000 $ 87,500 $ 61,250
21733 (EI-CLK) 5/27/96 28 $ 122,500 $ 114,333 $ 110,000 $ 102,667
----------- ----------- ----------- -----------
TOTAL $ 537,500 $ 331,333 $ 475,000 $ 293,417
INTERIM DEF $ 37,917
</TABLE>
TABLE IV - WEEKLY PAYMENT CALCULATIONS (SEPARATE SHEET)
TABLE V - APRIL 29,1996 PAYMENT SUMMARY W/ PAYMENTS ON LEASE PAYMENT DATES
<TABLE>
<S> <C>
TOTAL from TABLE I $ 732,567
TOTAL from TABLE II $ (409,670)
TOTAL from TABLE III $ 293,417
Legal Costs $ 30,000
-----------
TOTAL $ 646,313
===========
</TABLE>
TABLE VI - APRIL 29,1996 PAYMENT SUMMARY W/ EVEN WEEKLY PAYMENTS THRU 9/23/96
<TABLE>
<S> <C>
TOTAL from TABLE I $ 732,567
TOTAL from TABLE II $ (409,670)
TOTAL from TABLE IV $ 169,928
Legal Costs $ 30,000
------------
TOTAL $ 522,825
============
</TABLE>
9
<PAGE> 78
SCHEDULE C
Rent Reconciliation
TABLE IV - Weekly Payment Calculations
<TABLE>
<CAPTION>
WEEKLY PMT $ 169,928 INT RATE 10.44%
DEFERRED RENT $ 12,500 /AC/M 1M LIBOR +5%
INTERIM DEF Y/N 1
- - ---------------------------------------------------------------------------------------------------------------------------
CONTRACT RENT/ TOTAL WEEKLY TOTAL RENT TOTAL INTEREST
DATE EST MX (RUNNING) PAYMENT (RUNNING) DEFERRAL (RUNNING) (DEFERRAL)
---- ------ --------- ------- --------- -------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
4/29/96 $ 293,417 $ 293,417 $ 169,928 $ 169,928 $ 37,917 $ 37,917 $ -
5/6/96 87,500 380,917 169,928 339,856 12,500 50,417 76
5/10/96 214,000 594,917 - 339,856 - 50,417 134
5/13/96 102,500 697,417 169,928 509,784 12,500 62,917 177
5/20/96 175,000 872,417 169,928 679,712 25,000 87,917 303
5/27/96 110,000 982,417 169,928 849,640 12,500 100,417 479
6/3/96 - 982,417 169,928 1,019,568 - 100,417 680
6/6/96 87,500 1,069,917 - 1,019,568 12,500 112,917 766
6/10/96 214,000 1,283,917 169,928 1,189,496 - 112,917 895
6/13/96 102,500 1,386,417 - 1,189,496 12,500 125,417 992
6/17/96 - 1,386,417 169,928 1,359,424 - 125,417 1,136
6/20/96 175,000 1,561,417 - 1,359,424 25,000 150,417 1,243
6/24/96 - 1,561,417 169,928 1,529,352 - 150,417 1,415
6/27/96 110,000 1,671,417 - 1,529,352 12,500 162,917 1,544
7/1/96 - 1,671,417 169,928 1,699,280 - 162,917 1,731
7/6/96 87,500 1,758,917 - 1,699,280 12,500 175,417 1,964
7/8/96 - 1,758,917 169,928 1,869,208 - 175,417 2,064
7/10/96 214,000 1,972,917 - 1,869,208 - 175,417 2,165
7/13/96 102,500 2,075,417 - 1,869,208 12,500 187,917 2,315
7/15/96 - 2,075,417 169,928 2,039,136 - 187,917 2,423
7/20/96 175,000 2,250,417 - 2,039,136 25,000 212,917 2,691
7/22/96 - 2,250,417 169,928 2,209,064 - 212,917 2,813
7/27/96 110,000 2,360,417 - 2,209,064 12,500 225,417 3,118
7/29/96 - 2,360,417 169,928 2,378,992 - 225,417 3,247
8/5/96 - 2,360,417 169,928 2,548,920 - 225,417 3,698
8/6/96 87,500 2,447,917 - 2,548,920 12,500 237,917 3,762
8/10/96 214,000 2,661,917 - 2,548,920 - 237,917 4,035
8/12/96 - 2,661,917 169,928 2,718,848 - 237,917 4,171
8/13/96 102,500 2,764,417 - 2,718,848 12,500 250,417 4,239
8/19/96 - 2,764,417 169,928 2,888,777 - 250,417 4,668
8/20/96 175,000 2,939,417 - 2,888,777 25,000 275,417 4,740
8/26/96 - 2,939,417 169,928 3,058,705 - 275,417 5,213
8/27/96 110,000 3,049,417 - 3,058,705 12,500 287,917 5,292
9/2/96 - 3,049,417 169,928 3,228,633 - 287,917 5,786
9/6/96 87,500 3,136,917 - 3,228,633 12,500 300,417 6,115
9/9/96 - 3,136,917 169,928 3,398,561 - 300,417 6,373
9/10/96 214,000 3,350,917 - 3,398,561 - 300,417 6,459
9/13/96 102,500 3,453,417 - 3,398,561 12,500 312,917 6,717
9/16/96 - 3,453,417 169,928 3,568,489 - 312,917 6,985
9/20/96 175,000 3,628,417 - 3,568,489 25,000 337,917 7,343
9/23/96 - 3,628,417 169,928 3,738,417 - 337,917 7,633
9/27/96 110,000 3,738,417 - 3,738,417 12,500 350,417 8,020
</TABLE>
10
<PAGE> 1
EXHIBIT 10.34
AIRCRAFT LEASE AGREEMENT
Dated as of
April 29, 1996
between
POLARIS AIRCRAFT LEASING K.B.
as
Lessor
and
AIR SOUTH AIRLINES, INC.
as
Lessee
in respect of Boeing 737-2P6 Advanced Aircraft
Serial Number 21677
Ref. 21677A
<PAGE> 2
THIS AGREEMENT is made as of the 29th day of April, 1996 between:-
(1) POLARIS AIRCRAFT LEASING K.B., a limited partnership formed under the
laws of Sweden whose principal office is at Birger Jarlsgatan 33,
S-111 45, Stockholm, Sweden ("Lessor"); and
(2) AIR SOUTH AIRLINES, INC., a company incorporated under the laws of the
State of Illinois whose chief executive office is at 1800 St. Julian
Place, 4th Floor, Columbia, South Carolina, 29204, U.S.A. ("Lessee").
WHEREAS: Lessor wishes to lease to Lessee and Lessee is willing to
lease from Lessor the Aircraft (MSN 21677) on the terms of this
Agreement.
IT IS AGREED as follows:-
1. INTERPRETATION
1.1 DEFINITIONS
In this Agreement the following expressions have the meanings set out
opposite:-
AGREED MAINTENANCE PERFORMER Lessee (up to and including
B Check) or any FAA approved
maintenance facility (for C
Check and higher) or any
other person agreed to from
time to time in writing by
Lessor.
AGREED MAINTENANCE PROGRAMME the Maintenance Programme
agreed to from time to time
in writing by Lessor.
AGREED VALUE $8,900,000 or such other
amount as Lessor may require
from time to time provided
such other amount does not
exceed 115% of the fair
market value of the Aircraft.
AIR AUTHORITY the Irish Aviation Authority
or any successor thereto.
AIRCRAFT the aircraft described in
Part 1 of Schedule 1, (which
term includes where the
context admits a separate
reference to all Engines,
Parts and Aircraft
Documents).
AIRCRAFT COMMITMENT FEE all amounts paid by Lessee
pursuant to Clause 5.1 of the
December 1994 Lease.
AIRCRAFT DOCUMENTS the documents, data and
records identified in Part 2
of Schedule 1 and all
additions, renewals,
revisions and replacements
from time to time made in
accordance with this
Agreement.
1
<PAGE> 3
AIRFRAME the Aircraft, excluding the
Engines and Aircraft
Documents.
APU the auxiliary power unit
installed on the Aircraft on
the Previous Delivery Date
and any replacement auxiliary
power unit installed in
accordance with this
Agreement.
BANKS such financial institution(s)
which from time to time
finance the Aircraft for
Owner and/or for whose
benefit security over, or
rights relating to, the
Aircraft and/or this
Agreement is granted by Owner
or at its request.
BASIC RENT means the rent payable for
the Aircraft during the Term
pursuant to Section 5.3 of
this Agreement.
BOEING The Boeing Company, a
Delaware corporation with its
principal office in Seattle,
State of Washington, U.S.A.
BUSINESS DAY a day (other than a Saturday
or Sunday) on which business
of the nature required by
this Agreement is carried out
in Sweden and the State of
Incorporation or where used
in relation to payments on
which banks are open for
business in London and New
York.
CERTIFICATED AIR CARRIER shall mean any corporation
(except the United States
Government) domiciled in the
United States of America and
holding a Certificate of
Convenience and Necessity
issued under Section 401 of
the Federal Aviation Act by
the Department of
Transportation or any
predecessor or successor
agency thereto, or, in the
event such Certificates shall
no longer be issued, any
corporation (except the
United States Government)
domiciled in the United
States of America and legally
engaged in the business of
transporting for hire
passengers or cargo by air
predominantly to, from or
between points within the
United States of America,
and, in either event,
operating commercial jet
aircraft, which also is
certificated so as to fall
within the purview of Section
1110 of Title
2
<PAGE> 4
11 of the United States Code
or any analogous statute.
COLD SECTION REFURBISHMENT the completion of the
following tasks with respect
to an Engine: completely
unstack both high and low
compressors and accomplish
complete visual inspection;
deblade disks as necessary;
accomplish visual inspections
of all disks; measure to
ensure all snap diameters on
disks are within limits;
inspect blades for proper
chord dimensions and
cracking; repair or replace
blades below minimums;
inspect and repair stators as
necessary; blade up disks
using new lock plates;
assemble compressor rotors;
balance both rotors; and
install rotors in such
Engine.
CYCLE one take-off and landing of
the Aircraft.
DAMAGE NOTIFICATION THRESHOLD $100,000.
DECEMBER 1994 LEASE the Aircraft Lease Agreement,
dated as of December 12, 1994,
between Lessor and Lessee
relating to the Aircraft, as
supplemented and amended which
agreement has heretofore been
terminated by agreement of the
parties hereto.
DEFAULT any Event of Default and any
event or condition which with
the giving of notice or lapse
of time would constitute an
Event of Default.
DELIVERY DATE the date hereof.
DELIVERY LOCATION Columbia, South Carolina or
such other location as the
parties may agree.
DOLLARS AND $ the lawful currency of the
United States of America.
ENGINE whether or not installed on
the Aircraft:-
(a) each engine of the
manufacture and model
specified in Part 1 of
Schedule 1 (each of
which has 750 or more
rated takeoff horsepower
or the equivalent of
such horsepower);
or
(b) any engine which has
replaced that engine,
title to which has or
should have, passed to
Owner in accordance with
this Agreement;
and in each case
includes all modules and
Parts from time to time
belonging to or
installed in
3
<PAGE> 5
that engine but excludes
any properly replaced
engine title to which
has, or should have,
passed to Lessee
pursuant to this
Agreement.
EVENT OF DEFAULT an event or condition
specified in Clause 13.1
or Letter Agreement No. 1.
EVENT OF LOSS with respect to the Aircraft
(including for the purposes
of this definition the
Airframe):-
(a) the actual or
constructive total loss
of the Aircraft
(including any damage to
the Aircraft which
results in an insurance
settlement on the basis
of a total loss, or
requisition for use or
hire which results in an
insurance settlement on
the basis of a
total loss); or
(b) it being destroyed,
damaged beyond repair or
permanently rendered
unfit for normal use
for any reason
whatsoever, or
(c) the requisition of
title, or other
compulsory acquisition,
capture, seizure,
deprivation,
confiscation or
detention for any reason
of the Aircraft by the
government of the State
of Registration or other
competent authority
(whether de jure or de
facto), but excluding
requisition for use or
hire not involving
requisition of title;
or
(d) the hi-jacking, theft,
condemnation,
confiscation, seizure or
requisition for use or
hire of the Aircraft
which deprives any
person permitted by this
Agreement to have
possession and/or use of
the Aircraft of its
possession and/or use
for more than 15 days.
EXPIRY DATE subject to Clause 4.5 and
4.6, the day preceding the
numerically corresponding day
24 months after May 20, 1996
or if earlier the date on
which:-
4
<PAGE> 6
(a) the Aircraft has been
redelivered in accordance
with this Agreement; or
(b) Lessor receives the
Agreed Value following
an Event of Loss.
FAA the Federal Aviation
Administration of the United
States of America and any
successor thereof.
FEDERAL AVIATION ACT United States Federal
Aviation Act of 1958,
as amended, or any similar
legislation of the United
States of America enacted in
substitution or replacement
thereof.
FINANCIAL INDEBTEDNESS any indebtedness in respect
of:-
(a) moneys borrowed or
raised;
(b) any liability under any
debenture, bond, note,
loan stock, acceptance,
documentary credit or
other security;
(c) the acquisition cost of
any asset to the extent
payable before or after
the time of acquisition
or possession; or
(d) any guarantee, indemnity
or similar assurance
against financial loss
of any person in respect
of the above.
FINANCING STATEMENTS Uniform Commercial Code
Financing Statements in
respect of this Agreement and
the collateral described
therein prepared in a form
acceptable for filing with
the applicable Government
Entities in the Habitual
Base, the State in which the
chief executive office (as
that term is defined in
Article 9 of the Uniform
Commercial Code as in effect
in the State of South
Carolina) and such other
jurisdiction as Lessor shall
reasonably require.
FLIGHT HOUR each hour or part thereof
(rounded up to two decimal
places) elapsing from the
moment the wheels of the
Aircraft leave
5
<PAGE> 7
the ground on take off until
the wheels of the Aircraft
next touch the ground.
GOVERNING LAW the laws of the State of New
York.
GOVERNMENT ENTITY (a) any national government,
political subdivision
thereof, or local
jurisdiction therein;
(b) any instrumentality,
board, commission, court
or agency of any
thereof, however
constituted; and
(c) any association,
organization, or
institution of which any
of the above is a member
or to whose jurisdiction
any thereof is subject
or in whose activities
any of the above is a
participant.
HABITUAL BASE the State of South Carolina
or, subject to the prior
written consent of Lessor,
any other state, country or
countries in which the
Aircraft is for the time
being habitually based.
HEAD LEASE the aircraft lease agreement
between Owner and Sub Lessor
in respect of the Aircraft.
HOT SECTION REFURBISHMENT the complete visual
inspection and repair as
necessary of the combustion
section of an Engine. In
conducting such inspection
and repair, the engine shop
must completely unstack the
high pressure turbine and
accomplish complete visual
inspection; de-blade disks as
necessary; accomplish visual
inspections of all disks;
measure to ensure all snap
diameters on disks are within
limits; inspect blades for
proper chord dimensions and
cracking; repair or replace
blades below minimums;
inspect and repair stators as
necessary; blade up disks
using new lock plates;
assemble compressor rotors;
balance both rotors; and
install rotors in such
Engine.
INDEMNITEES each of Owner, Sub
Lessor, Lessor and Banks
including any of their
respective successors and
assigns, shareholders,
subsidiaries, affiliates,
partners,
6
<PAGE> 8
contractors, directors,
officers, servants, agents and
employees.
LANDING GEAR the landing gear assembly of
the Aircraft excluding any
rotable components.
LESSOR LIEN (a) any security interest
whatsoever from time to
time created by or
through Lessor, Sub
Lessor or Owner in
connection with the
financing of the
Aircraft;
(b) any other security
interest in respect of
the Aircraft which
results from acts of or
claims against Lessor,
Sub Lessor or Owner not
related to the
transactions
contemplated by or
permitted under this
Agreement; and
(c) liens in respect of the
Aircraft for Lessor
Taxes.
LESSOR TAXES Taxes:-
(a) imposed as a direct
result of activities of
Lessor, Sub Lessor or
Owner in the
jurisdiction imposing
the liability unrelated
to Lessor's dealings
with Lessee or to the
transactions
contemplated by this
Agreement or the
operation of the
Aircraft by Lessee; or
(b) imposed on the income,
profits or gains of
Lessor, Sub Lessor or
Owner by any Government
Entity in (x) Sweden; or
(y) the U.S.A.; or
(c) imposed with respect to
any period commencing or
event occurring after
the Expiry Date and
unrelated to Lessor's
dealings with Lessee or
to the transactions
contemplated by this
Agreement.
LETTER AGREEMENT NO. 1 Letter Agreement No 1. of
even date herewith between
Lessor and Lessee in
respect of the Aircraft, the
terms of which
7
<PAGE> 9
constitute an integral part
of this Agreement.
MAINTENANCE PROGRAMME an FAA and Air Authority
approved maintenance
programme for the
Aircraft encompassing
scheduled maintenance
(including block
maintenance), condition
monitored maintenance, and/or
on-condition maintenance of
Airframe, Engines and Parts,
including but not limited to,
servicing, testing,
preventive maintenance,
repairs, structural
inspections, system checks,
overhauls, approved
modifications, service
bulletins, engineering
orders, airworthiness
directives, corrosion
control, inspections and
treatments.
MAJOR CHECKS any C-Check, multiple
C-Check, D-Check or
annual heavy maintenance
visit or segment thereof
suggested for commercial
aircraft of the same model as
the Aircraft by its
manufacturer (however
denominated) as set out in
the Agreed Maintenance
Programme.
MANUFACTURER Boeing.
MARCH 29 1996 LETTER AGREEMENT Letter Agreement, dated March
29, 1996, between Lessor,
Lessee, Polairs Holding
Company and GE Capital
Aviation Services, Inc.
MINIMUM LIABILITY COVERAGE $400,000,000 on each
occurrence.
OTHER AGREEMENTS any agreement (other than
this Agreement) made or to be
made between Lessor (or an
affiliate, associate or
subsidiary of Lessor) and
Lessee (or an affiliate,
associate or Subsidiary of
Lessee), including without
limitation the December 1994
Lease and the March 29 1996
Letter Agreement.
OWNER Polaris Aircraft Leasing
K.B., a Swedish partnership
in which Polaris Aircraft
8
<PAGE> 10
Leasing A.B. is the general
partner which is owned by
Polaris Aircraft Leasing
Corporation, a United States
corporation since December,
1989.
PART whether or not installed on
the Aircraft:-
(a) any component,
furnishing or equipment
(other than a complete
Engine) furnished with
the Aircraft on the
Delivery Date; and
(b) any other component,
furnishing or equipment
(other than a complete
Engine) title to which
has, or should have
passed to Owner pursuant
to this Agreement;
but excludes any such
items title to which
has, or should have,
passed to Lessee
pursuant to this
Agreement.
PERMITTED LIEN (a) any lien for Taxes not
assessed or, if
assessed, not yet due
and payable, or being
contested in good faith
by appropriate
proceedings;
(b) any lien of a repairer,
mechanic, carrier,
hangarkeeper or other
similar lien arising in
the ordinary course of
business or by operation
of law in respect of
obligations which are
not overdue or are being
contested in good faith
by appropriate
proceedings;
but only if (in the case
of both (a) and (b)) (i)
adequate reserves have
been provided by Lessee
for the payment of the
Taxes or obligations;
and (ii) such
proceedings, or the
continued existence of
the lien, do not give
rise to any likelihood
of the sale, forfeiture
or other loss of the
Aircraft or any interest
therein or of criminal
liability on Owner, Sub
Lessor, Lessor or any
Bank; and
9
<PAGE> 11
(c) any Lessor Lien.
PERSON shall mean and include any
individual person,
corporation, partnership,
firm, joint stock company,
joint venture, trust, estate,
unincorporated organisation,
association, Government
Entity, or organisation or
association of which any of
the above is a member or a
participant.
PREVIOUS DELIVERY DATE the date on which the
Aircraft was delivered by
Lessor to Lessee pursuant to
the December 1994 Lease.
PREVIOUS LEASE the December 1994 Lease
which will have expired or
otherwise been terminated
prior to the delivery of the
Aircraft by Lessor to Lessee
pursuant to this Agreement.
REDELIVERY LOCATION Will Rogers World Airport,
Oklahoma City, Oklahoma or
such other location in the
United States as Lessor shall
advise Lessee or such other
location as the parties may
agree.
RENT means, collectively, Basic
Rent, Supplemental Rent and
all other amounts,
liabilities and obligations
which Lessee assumes or
agrees to pay to Lessor or
other Persons hereunder
(other than Basic Rent and
Supplemental Rent) or under
any Other Agreement,
including without limitation
the payment of deposits,
indemnities and the Agreed
Value.
RENTAL PERIOD each period ascertained in
accordance with Clause 5.2.
RENT DATE the first day of each Rental
Period.
SECURITY INTEREST any mortgage, charge, pledge,
lien, assignment,
hypothecation, right of
set-off or any agreement or
arrangement having the effect
of creating a security
interest other than a
Permitted Lien, or any
agreement to create the
foregoing other than a
Permitted Lien.
STATE OF INCORPORATION the State of Illinois.
10
<PAGE> 12
STATE OF REGISTRATION Ireland.
SUB LEASE the aircraft lease agreement
between Sub Lessor and
Lessor in respect of the
Aircraft.
SUB LESSOR Dormacken Limited, a company
incorporated under the laws
of Ireland whose registered
office is at 1 Earlsfort
Centre, Hatch Street, Dublin
2, Ireland.
SUBSIDIARY (a) in relation to any
reference to accounts,
any company whose
accounts are
consolidated with the
accounts of Lessee in
accordance with
accounting principles
generally accepted under
accounting standards of
the State of
Incorporation;
(b) for any other purpose
an entity from time to
time:-
(i) of which another has
direct or indirect
control or owns
directly or
indirectly more than
50 per cent. of the
voting share
capital; or
(ii) which is a direct
or indirect
subsidiary of
another under the
laws of the
jurisdiction of its
incorporation.
SUPPLEMENTAL RENT all amounts payable under
Clause 5.4(a).
TAXES taxes, duties and the like
of all kinds and any other
amount corresponding to any
taxation together with any
penalties, fines, surcharge
or interest thereon.
TERM the period commencing on the
Delivery Date and ending on
the Expiry Date.
1.2 CONSTRUCTION
(a) In this Agreement, unless the contrary intention is stated, a
reference to:-
(i) each of "Owner", "Sub Lessor", "Lessor" or "Lessee" or any
other person includes without prejudice to the provisions of
this Agreement any successor in title to it and any permitted
assignee;
11
<PAGE> 13
(ii) words importing the plural shall include the singular and vice
versa;
(iii) any document shall include that document as amended, novated
or supplemented;
(iv) a law (1) includes any statute, decree, constitution,
regulation, order, judgment or directive of any Government
Entity; (2) includes any treaty, pact, compact or other
agreement to which any Government Entity is a signatory or
party; (3) includes any judicial or administrative
interpretation or application thereof and (4) is a reference
to that provision as amended, substituted or re-enacted;
(v) a Clause or a Schedule is a reference to a clause of or a
schedule to this Agreement; and
(b) the headings in this Agreement are to be ignored in construing this
Agreement.
2. REPRESENTATIONS AND WARRANTIES
2.1 Lessee's Representations and Warranties: Lessee represents and
warrants to Lessor that:-
(a) STATUS: Lessee is a corporation duly incorporated and validly existing
in good standing under the laws of the State of Incorporation and has
the corporate power to own its assets and carry on its business as it
is being conducted and is the holder of all necessary air
transportation licences required in connection therewith and with the
use and operation of the Aircraft;
(b) POWER AND AUTHORITY: Lessee has the corporate power to enter into and
perform, and has taken all necessary corporate action to authorise the
entry into, performance and delivery of, this Agreement and the
transactions contemplated by this Agreement;
(c) LEGAL VALIDITY: this Agreement constitutes Lessee's legal, valid and
binding obligation;
(d) NON-CONFLICT: the entry into and performance by Lessee of, and the
transactions contemplated by, this Agreement do not and will not:-
(i) conflict with any laws binding on Lessee; or
(ii) conflict with the constitutional documents of Lessee; or
(iii) conflict with or result in default under any indenture,
mortgage, chattel mortgage, deed of trust, conditional sales
contract, lease, bank loan or credit agreement or other
agreement which is binding upon Lessee or any of its assets
nor result in the creation of any Security Interest over any
of its assets;
(e) AUTHORISATION: all authorisations, consents, registrations and
notifications required in connection with the entry into, performance,
validity and enforceability of, this Agreement and the transactions
contemplated by this Agreement, have been (or will on or before the
Delivery Date have been) obtained or effected (as appropriate) and are
(or will on their being obtained or effected be) in full force and
effect;
(f) NO IMMUNITY:
12
<PAGE> 14
(i) Lessee is subject to civil commercial law with respect to its
obligations under this Agreement; and
(ii) neither Lessee nor any of its assets is entitled to any right
of immunity and the entry into and performance of this
Agreement by Lessee constitute private and commercial acts;
(g) ACCOUNTS: the audited consolidated accounts of Lessee and its
Subsidiaries most recently delivered to Lessor:-
(i) have been prepared in accordance with accounting principles
and practices generally accepted and consistently applied in
the State of Incorporation; and
(ii) fairly represent the consolidated financial condition of
Lessee and its Subsidiaries as at the date to which they were
drawn up;
(h) CHIEF EXECUTIVE OFFICE: Lessee's chief executive office (as that term
is defined in Article 9 of the Uniform Commercial Code as in effect in
the State of South Carolina) is located at 1800 St. Julian Place, 4th
Floor, Columbia, South Carolina;
(i) CERTIFICATED AIR CARRIER: Lessee is a Certificated Air Carrier and
Lessor, as lessor of the Aircraft to Lessee, is entitled to the
benefits of Section 1110 of Title 11 of the United States Code with
respect to the Aircraft; and
(j) CITIZEN OF THE UNITED STATES: Lessee is a "citizen of the United
States" as defined in Section 101(16) of the Federal Aviation Act.
2.2 LESSEE'S FURTHER REPRESENTATIONS AND WARRANTIES: Lessee further
represents and warrants to Lessor that:-
(a) NO DEFAULT:
(i) no Default has occurred and is continuing or might result from
the entry into or performance of this Agreement; and
(ii) no other event or condition has occurred and is continuing
which constitutes (or with the giving of notice, lapse of
time, determination of materiality or the fulfilment of any
other applicable condition or any combination of the
foregoing, might constitute) a material default under any
indenture, mortgage, chattel mortgage, deed of trust,
conditional sales contract, lease, bank loan or credit
agreement or other agreement which is binding on Lessee or any
assets of Lessee;
(b) REGISTRATION:
(i) it is not necessary or advisable under the laws of the State
of Incorporation or the Habitual Base in order to ensure the
validity, effectiveness and enforceability of this Agreement
or to, establish, perfect or protect the property rights of
Owner, Sub Lessor or Lessor in the Aircraft or any Engine or
Part that this Agreement or any other instrument relating
thereto be filed, registered or recorded or that any other
action be taken or if any such filings, registrations,
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<PAGE> 15
recordings or other actions are necessary or advisable, the
same have been effected or will have been effected on or
before the Delivery Date; and
(ii) under the laws of the State of Incorporation and the Habitual
Base the property rights of Owner, Sub Lessor and Lessor in
the Aircraft, have been fully established, perfected and
protected and this Agreement will have priority in all
respects over the claims of all creditors of Lessee;
(c) LITIGATION: no litigation, arbitration or administrative proceedings
are pending or to Lessee's knowledge threatened against Lessee which,
if adversely determined, would have a material adverse effect upon its
financial condition or business or its ability to perform its
obligations under this Agreement;
(d) PARI PASSU: the obligations of Lessee under this Agreement rank at
least pari passu with all other present and future unsecured and
unsubordinated obligations (including contingent obligations) of
Lessee, with the exception of such obligations as are mandatorily
preferred by law and not by virtue of any contract;
(e) MATERIAL ADVERSE CHANGE: there has been no material adverse change in
the consolidated financial condition of Lessee and its Subsidiaries or
the financial condition of Lessee since the date to which the accounts
most recently provided to Lessor on or prior to the Delivery Date were
drawn up;
(f) TAXES: Lessee has delivered all necessary returns and payments due to
the tax authorities in the State of Incorporation and the Habitual
Base and all other jurisdictions in which Lessee is required to pay
taxes and/or file tax returns or reports and Lessee is not required by
law to deduct any Taxes from any payments under this Agreement;
(g) INFORMATION: the financial and other information furnished by Lessee
in connection with this Agreement does not contain any untrue
statement or omit to state facts, the omission of which makes the
statements therein, in the light of the circumstances under which they
were made, misleading, nor omits to disclose any material matter to
Lessor and all forecasts and opinions contained therein were honestly
made on reasonable grounds after due and careful enquiry by Lessee;
(h) FOREIGN ASSET CONTROL: as of the date of this Agreement, Lessee does
not hold any contract or other obligation to operate the Aircraft to
any of the countries designated under the United States Foreign Asset
Control Regulations (31 C.F.R. Parts 500-599), including, as of the
date hereof, Cuba, Haiti, Iraq, Libya, North Korea, and the Federal
Republic of Yugoslavia (Serbia and Montenegro);
(i) ERISA: Lessee is not engaged in any transaction in connection with
which it could be subjected to either a civil penalty assessed
pursuant to Section 502(c) of ERISA or any tax imposed by Section 5975
of the Internal Revenue Code; no material liability of the Pension
Benefit Guaranty Corporation has been or is expected by Lessee to be
incurred with respect to any employee pension benefit plan (as defined
in Section 3 of ERISA) maintained by Lessee; there has been no
reportable event (as defined in Section 4043(b) of ERISA) with respect
to any such employee pension benefit plan. There is no event of
termination of any such employee pension benefit plan by the Pension
Benefit Guaranty Corporation; and no accumulated funding deficiency
(as defined in Section 302 of ERISA
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<PAGE> 16
or Section 412 of the Internal Revenue Code), whether or not waived,
exists with respect to any such employee pension benefit plan; and
(j) MAINTENANCE PROGRAMME: the Maintenance Programme for the Aircraft
complies with all FAA requirements.
2.3 REPETITION: The representations and warranties in Clause 2.1 and
Clause 2.2 will survive the execution of this Agreement. The
representations and warranties contained in Clause 2.1 will be deemed
to be repeated by Lessee on each Rent Date as if made with reference
to the facts and circumstances then existing.
2.4 LESSOR'S REPRESENTATIONS AND WARRANTIES: Lessor represents and
warrants to Lessee that:-
(a) STATUS: Lessor is a limited partnership existing under the laws of
Sweden and has the power to own its assets and carry on its business
as it is now being conducted;
(b) POWER AND AUTHORITY: Lessor has the power to enter into and perform,
and has taken all necessary action to authorise the entry into,
performance and delivery of, this Agreement and the transactions
contemplated by this Agreement;
(c) LEGAL VALIDITY: this Agreement constitutes Lessor's legal, valid and
binding obligation;
(d) NON-CONFLICT: the entry into and performance by Lessor of, and the
transactions contemplated by, this Agreement do not and will not:-
(i) conflict with any laws binding on Lessor; or
(ii) conflict with the constitutional documents of Lessor; or
(iii) conflict with any document which is binding upon Lessor or any
of its assets;
(e) AUTHORISATION: so far as concerns the obligations of Lessor, all
authorisations, consents, registrations and notifications required
under the laws of Sweden in connection with the entry into,
performance, validity and enforceability of, and the transactions
contemplated by, this Agreement by Lessor have been (or will on or
before the Delivery Date have been) obtained or effected (as
appropriate) and are (or will on their being obtained or effected be)
in full force and effect; and
(f) NO IMMUNITY:
(i) Lessor is subject to civil commercial law with respect to its
obligations under this Agreement; and
(ii) neither Lessor nor any of its assets is entitled to any right
of immunity and the entry into and performance of this
Agreement by Lessor constitute private and commercial acts.
3. CONDITIONS PRECEDENT
3.1 CONDITIONS PRECEDENT: Lessor's obligation to deliver and lease the
Aircraft under this Agreement is subject to satisfaction, or waiver
by Lessor, of each of the following conditions:-
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<PAGE> 17
(a) receipt by Lessor from Lessee not later than the date set forth in, or
determined in accordance with, Clause 4.1 of the following
satisfactory in form and substance to Lessor:-
(i) CONSTITUTIONAL DOCUMENTS: a copy of the constitutional
documents of Lessee;
(ii) RESOLUTIONS: a copy of a resolution of the board of directors
of Lessee approving the terms of, and the transactions
contemplated by, this Agreement, resolving that it enter into
this Agreement, and authorising a specified person or persons
to execute this Agreement and accept delivery of the Aircraft
on its behalf;
(iii) OPINION: evidence that an opinion in the form of Schedule 5
will be issued on the Delivery Date by legal counsel
acceptable to Lessor in the Habitual Base and the State of
Incorporation;
(iv) FAA OPINION: evidence that there will be issued an opinion of
Daugherty, Fowler & Peregrin or other counsel acceptable to
Lessor who are recognised specialists with regard to FAA
registration matters in a form acceptable to Lessor as to the
due filing for recordation of this Agreement;
(v) APPROVALS: evidence of the issue of each approval, licence and
consent which may be required in relation to the performance
by Lessee of any of its obligations hereunder (including,
without limitation, any consent to the export of the Aircraft
from the Habitual Base upon the termination of the leasing of
the Aircraft under this Agreement);
(vi) [INTENTIONALLY OMITTED)
(vii) LICENCES: copies of Lessee's air transport licence, air
operator's certificates and all other licences, certificates
and permits required by Lessee in relation to, or in
connection with, the operation of the Aircraft;
(viii) PROCESS AGENT: a letter from the process agent appointed by
Lessee in this Agreement accepting that appointment;
(ix) CERTIFICATE: a certificate of a duly authorised officer of
Lessee:-
(a) setting out a specimen of each signature referred to in Clause
3.1(a)(ii); and
(b) certifying that each document specified in this Clause is
correct, complete and in full force and effect; and
(c) certifying the matters set forth in sub-clause 3.1(a)(x)
below;
(x) AIR TRAFFIC CONTROL: a letter from Lessee addressed to all
relevant air traffic control authorities pursuant to which
Lessee authorises the addressee to issue to Lessor, upon
Lessor's request from time to time, a statement of account of
all sums due by Lessee to the authority in respect of all
aircraft (including, without limitation, the Aircraft)
operated by Lessee and an officer's certificate from the
Lessee certifying that on the Delivery Date, no amounts are
past due and outstanding by Lessee to any air traffic control
authorities except as set forth in a schedule thereto; and
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<PAGE> 18
(xi) GENERAL: such other documents as Lessor may reasonably
request;
(b) the receipt by Lessor on or before the Delivery Date of:-
(i) OPINIONS: a signed original of each of the opinions referred
to in Clauses 3.1(a)(iii) and (iv);
(ii) PAYMENTS: all sums due to Lessor under this Agreement on or
before the Delivery Date including, without limitation, the
payment of Rent;
(iii) INSURANCES: certificates of insurance, an undertaking from
Lessee's insurance broker and other evidence satisfactory to
Lessor that Lessee is taking the required steps to ensure due
compliance with the provisions of this Agreement as to
Insurances with effect on and after the Delivery Date;
(iv) ACCOUNTS: the latest available accounts of Lessee as described
in Clause 8.2(b)(i) and (ii);
(v) DOCUMENTS: a confirmation of receipt of the Aircraft Documents
delivered with the Aircraft on the Previous Delivery Date;
(vi) GENERAL: such other documents as Lessor may reasonably
request;
(c) receipt by Lessor of such information and documents relating to the
proposed Maintenance Programme as Lessor may require and Lessor having
agreed the proposed Maintenance Programme on or prior to the Delivery
Date; and
(d) evidence that on the Delivery Date the Aircraft has been validly
registered under the laws of the State of Registration, that the
Financing Statements have been duly filed and that all filings,
registrations, recordings and other actions have been or will be taken
which are necessary or advisable to ensure the validity, effectiveness
and enforceability of this Agreement and to protect the property
rights of Owner, Sub Lessor and Lessor in the Aircraft or any Part.
3.2 FURTHER CONDITIONS PRECEDENT: The obligations of Lessor to deliver and
lease the Aircraft under this Agreement are subject to the further
conditions precedent that:-
(a) the representations and warranties of Lessee under Clauses 2.1 and 2.2
are correct and would be correct if repeated on delivery of the
Aircraft under this Agreement; and
(b) no Default has occurred and is continuing or might result from the
leasing of the Aircraft to Lessee under this Agreement.
3.3 WAIVER: The conditions specified in Clauses 3.1 and 3.2 are for the
sole benefit of Lessor and may be waived or deferred in whole or in
part and with or without conditions by Lessor. If any of those
conditions are not satisfied on the Delivery Date and Lessor (in its
absolute discretion) nonetheless agrees to deliver the Aircraft to
Lessee, Lessee will ensure that those conditions are fulfilled within
15 days after the Delivery Date and Lessor may treat as an Event of
Default the failure of Lessee to do so.
4. COMMENCEMENT
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4.1 LEASING: Lessor will lease the Aircraft to Lessee and Lessee will take
the Aircraft on lease in accordance with this Agreement for the
duration of the Term. Lessor will deliver and Lessee will accept the
Aircraft on or about April 29, 1996 or such other day as may be
agreed. After delivery the Aircraft and every Part will be in every
respect at the sole risk of Lessee, who will bear all risk of loss,
theft, damage or destruction to the Aircraft from any cause
whatsoever.
4.2 DELIVERY: The Aircraft will be constructively delivered to and
accepted by Lessee at the Delivery Location or such other location as
may be agreed. Lessee will effect acceptance of the Aircraft by
execution and delivery to Lessor of the duly completed and executed
Certificate of Acceptance in the form of Schedule 2.
4.3 [INTENTIONALLY OMITTED]
4.4 [INTENTIONALLY OMITTED]
4.5 Lessee's Lease Term Option.
(a) Notwithstanding any other provision of this Agreement to the contrary,
Lessor hereby grants Lessee the option (the "Lease Term Option") to
terminate or extend the Term two (2) months earlier or later than the
numerically corresponding day twenty-four (24) months after the
Delivery Date provided that:
(i) Lessee shall give Lessor six months prior written notice (the
"Option Notice") of Lessee's intention to exercise the Lease Term
Option to either terminate or extend the Term by two (2) months, which
Option Notice, once given, shall be irrevocable; and
(ii) no Default shall have occurred and be continuing on the date that
the Option Notice is given;
(b) Option Exercised: Upon exercise by Lessee of the Lease Term Option,
but without prejudice to all the other terms and conditions of this
Agreement (including, without limitation, Lessee's obligation to
fulfil the conditions contained in Clause 4.5(a)) which shall remain
in full force and effect, the definition of "Expiry Date" contained in
Clause 1 of this Agreement shall be deemed to be amended such that the
words "Subject to any amendment pursuant to Clause 4.5(b), the day
preceding the numerically corresponding day 24 months after the
Delivery Date" shall be replaced with the words "the day preceding the
numerically corresponding day twenty-two (22) or twenty-six months
after the Delivery Date subject in all cases to the term identified in
the Option Notice".
(c) Option Not Exercised: If Lessee has not furnished Lessor with the
Option Notice on or before the date specified in sub-clause (a) above,
the Lease Term Option shall be forfeited, no longer available to
Lessee and of no further effect.
4.6 [Intentionally Omitted]
5. PAYMENTS
5.1 AIRCRAFT COMMITMENT FEE: Lessor hereby acknowledges receipt from
Lessee of the Aircraft Commitment Fee in the amount set forth in
Letter Agreement No. 1.
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5.2 RENTAL PERIODS: The Term will be divided into Rental Periods. The
first Rental Period will commence on the Delivery Date and end May 19,
1996, the second Rental Period will commence on May 20, 1996 and each
subsequent Rental Period will commence on the date succeeding the last
day of the previous Rental Period. Each Rental Period will end on the
date immediately preceding the numerically corresponding day in the
next month except that:-
(a) if there is no such numerically corresponding day in that month, it
will end on the last day of that month; and
(b) if a Rental Period would otherwise overrun the Expiry Date, it will
end on the Expiry Date.
5.3 RENT: Except as otherwise set forth in Letter Agreement No. 1, on each
Rent Date Lessee will pay to Lessor or its order Basic Rent in
advance in the amount set forth in paragraph A of Letter Agreement No.
1. Payment must be initiated adequately in advance of the Rent Date
to ensure that Lessor receives credit for the payment on the Rent
Date. If a Rental Period begins on a non-Business Day, the Basic Rent
payable in respect of that Rental Period shall be paid on the Business
Day immediately preceding the date on which such Rental Period
commences.
5.4 SUPPLEMENTAL RENT:
(a) AMOUNT: Except as otherwise set forth in Letter Agreement No. 1,
Lessee will further pay to Lessor Supplemental Rent in relation to
each Rental Period (including without limitation the last Rental
Period of the Term) on the 10th day following the end of that Rental
Period as follows:-
(i) in respect of the Airframe, the amount set forth in paragraph
B (i)(a) of Letter Agreement No. 1 in respect of each Flight
Hour operated by the Aircraft during that Rental Period
("Airframe Supplemental Rent"); and
(ii) in respect of each Engine, the amount set forth in paragraph B
(i)(b) of Letter Agreement No. 1 in respect of each Flight
Hour operated by that Engine during that Rental Period
("Engine Refurbishment Supplemental Rent"); and
(iii) in respect of each Engine, the amount set forth in paragraph B
(i)(c) of Letter Agreement No. 1 in respect of each Flight
Hour operated by that Engine during that Rental Period
("Engine Life Limited Parts Supplemental Rent"); and
(v) in respect of the Landing Gear, the amount set forth in
paragraph B (i)(d) of Letter Agreement No. 1 in respect of
each Flight Hour operated by the Landing Gear during that
Rental Period ("Landing Gear Supplemental Rent").
Notwithstanding the foregoing, with respect to any Engine, provided
that (x) no Default shall have occurred and be continuing; and (y)
there shall have been no material adverse change in Lessee's financial
position since the Delivery Date, if at any time commencing from the
Previous Delivery Date and falling during the Term the aggregate
amount of Engine Refurbishment Supplemental Rent and Engine Life
Limited Parts Supplemental Rent previously paid by Lessee in respect
of that Engine less any amount paid by Lessor with respect to that
Engine pursuant to Clause 7.2 equals or exceeds $600,000, then
Lessee's obligation to pay Engine Refurbishment Supplemental Rent and
Engine Life
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Limited Parts Supplemental Rent in respect of that Engine shall abate.
Lessee's obligation to pay Engine Refurbishment Supplemental Rent and
Engine Life Limited Parts Supplemental Rent shall recommence at such
time as the aggregate amount of Engine Refurbishment Supplemental Rent
and Engine Life Limited Parts Supplemental Rent held by Lessor in
respect of that Engine less any amount paid by Lessor with respect to
that Engine pursuant to Clause 7.2 falls below $600,000.
(b) ADJUSTMENT: the rate of Supplemental Rent shall be adjusted upwards
annually by Lessor at the rate of 5% per annum commencing 1 January,
1997. In addition, but not limited to the foregoing, Lessee
acknowledges that the rates of Supplemental Rent currently provided
for in this Agreement are based upon the assumptions that (i) the
Aircraft will be operated on a one Flight Hour to one Cycle ratio; and
(ii) the Agreed Maintenance Programme for the Aircraft during the Term
will be the same as that in effect on the Delivery Date. In the event
that either or both of the foregoing assumptions prove to be incorrect
at any time during the Term, Lessor and Lessee agree that Lessor shall
have the right, upon written notice to Lessee, to adjust the rate of
Supplemental Rent in accordance with the Table set forth in Letter
Agreement No. 1. In the event that the Agreed Maintenance Programme
changes during the Term (any such change to be in accordance with the
relevant terms and conditions of this Agreement), Lessor shall make
the aforementioned adjustment in the manner which Lessor determines,
in its reasonable discretion, is necessary to maintain the rates of
Supplemental Rent at levels which accurately reflect the costs
associated with obtaining maintenance services at prevailing industry
rates. Each such notice shall specify the revised rate of
Supplemental Rent and the effective date of such revision. Lessee
agrees to advise Lessor, in writing, of any circumstances or events
which would result in the foregoing assumptions becoming incorrect at
any time during the Term.
5.5 PAYMENTS: All payments by Lessee to Lessor under this Agreement will
be made for value on the due date in Dollars and in immediately
available funds settled through the New York Clearing House System or
such other funds as may for the time being be customary for the
settlement in New York City of international payments in Dollars by
telegraphic transfer to ABN Amro Bank Box 26096 Stockholm Sweden
Account number 9090-008-468 for credit to the account of Polaris
Aircraft Leasing K.B. or to such other account as Lessor may advise
Lessee in writing.
5.6 GROSS-UP:
(a) All payments by Lessee under or in connection with this Agreement will
be made without set-off or counterclaim, free and clear of and without
deduction for or on account of all Taxes (other than Lessor Taxes);
(b) all Taxes (other than Lessor Taxes) in respect of payments under this
Agreement shall be for the account of and will be paid by Lessee for
its own account prior to the date on which penalties apply; and
(c) if Lessee is compelled by law to make payment subject to any Tax
(other than Lessor Taxes) and Lessor does not actually receive for its
own benefit on the due date a net amount equal to the full amount
provided for under this Agreement, Lessee will pay all necessary
additional amounts to ensure receipt by Lessor of the full amount so
provided for.
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5.7 TAXATION: Lessee will on demand pay and indemnify Lessor against all
Taxes (other than Lessor Taxes) levied or imposed against or upon
Owner, Sub Lessor, Lessor or Lessee and relating to or attributable to
Lessee, this Agreement or the Aircraft directly or indirectly in
connection with the importation, exportation, registration, ownership,
leasing, subleasing, delivery, possession, use, operation, repair,
maintenance, overhaul, transportation, landing, storage, presence or
redelivery of the Aircraft or any part thereof or any rent, receipts,
insurance proceeds, income or other amounts arising therefrom.
5.8 VALUE ADDED TAX:
(a) For the purposes of this sub-clause:-
(i) "VAT" means value added tax and any sales or turnover tax,
imposition or levy of a like nature;
(ii) "supply" includes anything on which VAT is chargeable;
(b) Lessee will pay to Lessor the amount of any VAT chargeable in respect
of any supply of goods or services for VAT purposes under this
Agreement; and
(c) each amount stated as payable by Lessee under this Agreement is
exclusive of VAT (if any) and is accordingly to be construed as a
reference to that amount plus any VAT in respect of it.
5.9 INFORMATION: If Lessee is required by any applicable law, or by any
third party, to deliver any report or return in connection with any
Taxes, Lessee will complete the same in a manner satisfactory to
Lessor and in particular will state therein that Lessee is exclusively
responsible for the use and operation of the Aircraft and for any
Taxes arising therefrom, and Lessee will, on request supply a copy of
the report or return to Lessor.
5.10 TAXATION OF INDEMNITY PAYMENTS:
(a) If and to the extent that any sums payable to Lessor by Lessee under
this Agreement by way of indemnity are insufficient, by reason of any
Taxes (other than Lessor Taxes) payable in respect of those sums, for
Lessor to discharge the corresponding liability to the relevant third
party (including any taxation authority), or to reimburse Lessor for
the cost incurred by it to a third party (including any taxation
authority) Lessee will pay to Lessor such sum as will after the tax
liability has been fully satisfied leave Lessor with the same amount
as it would have been entitled to receive in the absence of that
liability together with interest on the amount of the deficit at the
rate of interest stated in Clause 5.11 in respect of the period
commencing on the date on which the payment of taxation is finally due
until payment by Lessee (both before and after judgment); and
(b) If and to the extent that any sums constituting (directly or
indirectly) an indemnity to Lessor but paid by Lessee to any person
other than Lessor are treated as taxable in the hands of Lessor,
Lessee will pay to Lessor such sum as will after the tax liability has
been fully satisfied indemnify Lessor to the same extent as it would
have been indemnified in the absence of such liability together with
interest on the amount payable by Lessee under this sub-clause at the
rate of interest stated in Clause 5.11 in respect of the period
commencing on the date on which the payment of taxation is finally due
until payment by Lessee (both before and after judgment) provided
however that Lessee will not be liable
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for any Lessor Taxes incurred as a result of the payment of the Agreed
Value pursuant to Clause 11.
5.11 DEFAULT INTEREST: If Lessee fails to pay any amount payable under this
Agreement on the due date, Lessee will pay on demand from time to time
to Lessor interest (both before and after judgment) on that amount,
from the due date to the date of payment in full by Lessee to Lessor,
at the rate calculated by Lessor to be one month Dollar LIBOR plus 500
basis points per annum. All such interest will be compounded monthly
and calculated on the basis of the actual number of days elapsed and a
360 day year.
5.12 CONTEST: If Lessee disputes the payment of any Taxes payable by Lessor
for which Lessee is responsible under this Agreement, Lessor will
consider with Lessee the taking of such action as Lessee may
reasonably request at Lessee's expense to contest that payment but
will not be obliged to take any such action:-
(a) which Lessor considers in its sole discretion may prejudice it; or
(b) which Lessor considers does not have a reasonable prospect of success;
or
(c) for which Lessee has not made adequate provision to the satisfaction
of Lessor in respect of the expense concerned.
5.13 ABSOLUTE: Lessee's obligations under this Agreement are absolute and
unconditional irrespective of any contingency whatsoever including
(but not limited to):-
(a) any right of set-off, counterclaim, recoupment, defence or other right
which either party to this Agreement may have against the other;
(b) any unavailability of the Aircraft for any reason, including, but not
limited to, a requisition of the Aircraft or any prohibition or
interruption of or interference with or other restriction against
Lessee's use, operation or possession of the Aircraft;
(c) any lack or invalidity of title or any other defect in title,
airworthiness, merchantability, fitness for any purpose, condition,
design, or operation of any kind or nature of the Aircraft for any
particular use or trade, or for registration or documentation under
the laws of any relevant jurisdiction, or any Event of Loss in respect
of or any damage to the Aircraft;
(d) any insolvency, bankruptcy, reorganisation, arrangement, readjustment
of debt, dissolution, liquidation or similar proceedings by or against
Lessor or Lessee;
(e) any invalidity or unenforceability or lack of due authorisation of, or
other defect in, this Agreement; and
(f) any other cause which but for this provision would or might otherwise
have the effect of terminating or in any way affecting any obligation
of Lessee under this Agreement.
5.14 SECURITY:
(a) It is intended by Lessor and Lessee that the Aircraft Commitment Fee
paid by Lessee to Lessor and referenced in Clause 5.1, the
Supplemental Rent and, if applicable, the Insurance Security Deposit
contemplated by the first paragraph of Schedule 4 are amounts
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paid by Lessee to Lessor in consideration for Lessor removing the
Aircraft from the market, the use of the Aircraft by Lessee and the
satisfaction of Lessor's obligations under this Agreement and that,
once paid, those monies irrevocably and unconditionally shall be the
property of Lessor. Notwithstanding that stated intent, if and to the
extent that those monies or any thereof, under any applicable law or
otherwise, are determined to be security deposits or otherwise the
property of Lessee or if it is so determined those monies are a debt
owed to Lessee or that Lessee shall have any interest in those monies
(the "Charged Monies"), the parties agree that subclauses (b), (c) and
(d) shall apply;
(b) To the fullest extent permitted by law and by way of continuing
security Lessee charges and grants a security interest in the Charged
Monies and all rights of Lessee to payment thereof, the debt
represented thereby and/or any and all interest of Lessee therein to
Lessor by way of first priority security interest and first fixed
charge as security for Lessee's obligations and liabilities under this
Agreement and the Other Agreements (the "Secured Liabilities").
Except as expressly permitted under this Agreement, Lessee will not be
entitled to payment of the Charged Monies. Lessee will not assign,
transfer or otherwise dispose of all or part of its rights in the
Charged Monies and Lessee agrees that it will enter into any
additional documents and instruments necessary or reasonably requested
by Lessor to evidence, create or perfect Lessor's rights to the
Charged Monies.
(c) If Lessee fails to comply with any provision of this Agreement or any
Event of Default has occurred and is continuing Lessor may immediately
or at any time thereafter, without prior notice to Lessee:-
(i) set-off all or any part of the Secured Liabilities against the
liabilities of Lessor in respect of the Charged Monies; or
(ii) apply or appropriate the Charged Monies in or towards the
payment or discharge of the Secured Liabilities in such order as
Lessor sees fit; and
(d) If Lessor has exercised the set-off described in sub-clause (c) above,
Lessee shall, following a demand in writing from Lessor, promptly
restore the Charged Monies to the level at which they stood
immediately prior to such set-off.
6 MANUFACTURER'S WARRANTIES
6.1 ASSIGNMENT: Notwithstanding this Agreement, Lessor will remain
entitled to the benefit of each warranty, express or implied, with
respect to the Aircraft, any Engine or Part so far as concerns any
manufacturer, vendor, subcontractor or supplier. Except to the extent
Lessor otherwise directs, Lessor hereby authorises Lessee to pursue
any claim thereunder in relation to defects affecting the Aircraft,
any Engine or Part and Lessee agrees diligently to pursue any such
claim which arises at its own cost. Lessee will notify Lessor
promptly upon becoming aware of any such claim.
6.2 PROCEEDS: Except to the extent Lessor otherwise agrees in a particular
case, all proceeds of any such claim will be paid directly to Lessor
but if and to the extent that such claim relates:-
(a) to defects affecting the Aircraft which Lessee has rectified; or
(b) to compensation for loss of use of the Aircraft, an Engine or any Part
during the Term; and
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provided no Default has occurred and is continuing the proceeds will be
paid to Lessee by Lessor but in the case of (a) only on receipt of
evidence satisfactory to Lessor that Lessee has rectified the relevant
defect.
6.3 PARTS: Except to the extent Lessor otherwise agrees in a particular
case, Lessee will procure that all engines, components, furnishings or
equipment provided by the manufacturer, vendor, subcontractor or
supplier in replacement of a defective Engine or Part pursuant to the
terms of any warranty will be installed promptly by Lessee, that title
thereto free of Security Interests vests in Owner. On installation
those items will be deemed to be an Engine or Part as applicable.
6.4 AGREEMENT: To the extent any warranties relating to the Aircraft are
made available under an agreement between any manufacturer, vendor,
subcontractor or supplier and Lessee, this Clause 6 is subject to that
agreement. However Lessee will:-
(a) pay the proceeds of any claim thereunder to Lessor to be applied
pursuant to Clause 6.2 and pending such payment will hold the claim
and the proceeds on trust for Lessor; and
(b) Lessee will take all such steps as are necessary at the end of the
Term to ensure the benefit of any of those warranties which have not
expired are vested in Lessor.
7. LESSOR'S COVENANTS
7.1 QUIET ENJOYMENT: Lessor will not interfere with the quiet use,
possession and enjoyment of the Aircraft by Lessee but the exercise by
Lessor of its rights under or in connection with this Agreement will
not constitute such an interference.
7.2 MAINTENANCE CONTRIBUTION: Provided no Default has occurred and is
continuing Lessor will pay to Lessee, by way of contribution to the
cost of maintenance of the Aircraft, upon submission by Lessee to
Lessor within 6 months of the commencement of that maintenance and
before the Expiry Date of an invoice and supporting documentation
reasonably satisfactory to Lessor evidencing:-
(a) with respect to the Airframe, the completion, in accordance with this
Agreement, of those items of maintenance characterised by the
Manufacturer's maintenance planning document and best industry
practice as D Check and/or individual structural inspections having an
interval of not less than 15,000 Flight Hours or 6 years for the
Aircraft (but not including repairs arising as the result of
operational or maintenance mishandling and not including airworthiness
directives), the lesser of (i) the amount of that invoice and (ii) an
amount equal to the aggregate amount of Airframe Supplemental Rent
paid under this Agreement at the time of commencement of such
maintenance less the aggregate amount previously paid by Lessor under
this sub-clause;
(b) with respect to any Engine, the performance, in accordance with this
Agreement, of a Hot Section Refurbishment or a Cold Section
Refurbishment (other than (i) repairs arising as a result of foreign
object damage or operational or maintenance mishandling and/or (ii)
removal, installation, maintenance and repair of QEC (Quick Engine
Change) kits and/or airworthiness directives), the lesser of (i) the
amount of that invoice and (ii) an amount equal to the aggregate
amount of Engine Refurbishment Supplemental Rent paid in respect of
that Engine under this Agreement at the time of commencement of such
maintenance less the aggregate amount previously paid in respect of
that Engine by Lessor.
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(c) with respect to any Engine, the replacement, in accordance with this
Agreement, of life limited Parts (other than replacement which is
occassioned by foreign object damage or operational or maintenance
mishandling and other than replacement occassioned by airworthiness
directives or elective replacement), the lesser of (i) the amount of
that invoice and (ii) an amount equal to the aggregate amount of
Engine Life Limited Parts Supplemental Rent paid in respect of that
Engine under this Agreement at the time of commencement of such
maintenance less the aggregate amount previously paid in respect of
that Engine by Lessor under this sub-clause; and
(d) with respect to the Landing Gear, the performance in accordance with
this Agreement, of all work on the Landing Gear in the nature of
overhaul and requiring removal and disassembly (other than repairs
arising as the result of operational or maintenance mishandling and/or
airworthiness directives), the lesser of (i) the amount of that
invoice and (ii) an amount equal to the aggregate amount of Landing
Gear Supplemental Rent paid under this Agreement at the time of
commencement of such maintenance less the aggregate amount previously
paid by Lessor under this sub-clause.
7.3 LESSOR OBLIGATIONS FOLLOWING EXPIRY DATE: Within 5 Business Days of:-
(a) redelivery of the Aircraft to Lessor in accordance with and in the
condition required by this Agreement; or
(b) payment to Lessor of the Agreed Value following an Event of Loss after
the Delivery Date;
or in each case such later time as Lessor is satisfied Lessee has
irrevocably paid to Lessor all Rent which may then be outstanding or
become payable under this Agreement or the Other Agreements and
provided that no Default shall have occurred and is continuing, Lessor
will pay to Lessee:-
(i) an amount equal to (x) the amount of the Aircraft Commitment
Fee paid by Lessee and referenced in Clause 5.1; plus (y) the
amount of interest at the rate and otherwise calculated in
accordance with Letter Agreement No. 1 which would have
accrued on the amount referred to in (x); and
(ii) the amount of any Basic Rent received in respect of any period
falling after the date of redelivery of the Aircraft or
payment of the Agreed Value, as the case may be; and
(iii) an amount equal to (x) the aggregate amount of Supplemental
Rent previously paid by Lessee under this Agreement; minus (y)
the aggregate amount previously paid by Lessor under Clause
7.2 without payment of interest.
8. LESSEE'S COVENANTS
8.1 DURATION: The undertakings in this Clause and in Clause 12 will:-
(a) except as otherwise stated, be performed at the expense of Lessee; and
(b) remain in force until the Expiry Date in accordance with this
Agreement and thereafter to the extent of any accrued rights of Lessor
in relation to those undertakings.
8.2 INFORMATION: Lessee will:-
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(a) notify Lessor forthwith of the occurrence of any Default or any other
event which might adversely affect Lessee's ability to perform any of
its obligations under this Agreement;
(b) furnish to Lessor:-
(i) on a quarterly and annual basis, the consolidated management
accounts of Lessee (comprising a balance sheet and profit and
loss statement) prepared for the most recent previous
financial quarter certified by Lessee's chief financial
officer as being true and correct;
(ii) as soon as available but not in any event later than 120 days
after the last day of each financial year of Lessee, its
audited consolidated balance sheet as of such day and its
audited consolidated profit and loss statement for the year
ending on such day;
(iii) at the same time as it is issued to the shareholders or
creditors of Lessee, a copy of each notice or circular issued
to Lessee's shareholders or creditors as a group; and
(iv) on request from time to time such other information relevant
to the transaction contemplated by this Agreement regarding
Lessee and its business and affairs as Lessor may reasonably
request;
(c) keep Lessor informed as to current serial numbers of the Engines and
any engine installed on the Aircraft;
(d) promptly furnish to Lessor all information Lessor from time to time
reasonably requests regarding the Aircraft, any Engine or any Part,
its use, location and condition including, without limitation, the
hours available on the Aircraft and any Engine until the next
scheduled check, inspection, overhaul or shop visit, as the case may
be;
(e) on request, within 10 days after the end of any Rental Period, furnish
to Lessor evidence satisfactory to Lessor of payment of all Taxes due
during that or any previous Rental Period;
(f) on request, furnish to Lessor evidence satisfactory to Lessor that all
Taxes and charges incurred by Lessee with respect to the Aircraft,
including without limitation all payments due to the relevant air
traffic control authorities, have been paid and discharged in full;
(g) provide Lessor with a monthly report on the Aircraft and each Engine
in the form required from time to time by Lessor;
(h) give Lessor not less than 60 days' written notice as to the time and
location of all Major Checks; and
(i) promptly notify Lessor of:-,
(i) any loss, theft, damage or destruction to the Aircraft, any
Engine or any Part, or any modification to the Aircraft if the
potential cost may exceed the Damage Notification Threshold;
and
(ii) any claim or other occurrence likely to give rise to a claim
under the Insurances
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(but in the case of hull claims only in excess of the Damage
Notification Threshold) and details of any negotiations with
the insurance brokers over any such claim.
8.3 LAWFUL AND SAFE OPERATION: Lessee will:-
(a) comply with the law for the time being in force in any country or
jurisdiction which may for the time being be applicable to the
Aircraft or, so far as concerns the use and operation of the Aircraft
or an owner or operator thereof and take all reasonable steps to
ensure that the Aircraft is not used for any illegal purpose;
(b) not use the Aircraft in any manner contrary to any recommendation of
the manufacturers of the Aircraft, any Engine or any Part or any
recommendation or regulation of the Air Authority or for any purpose
for which the Aircraft is not designed or reasonably suitable;
(c) ensure that the crew and engineers employed by it in connection with
the operation and maintenance of the Aircraft have the qualifications
and hold the licences required by the Air Authority and applicable
law;
(d) use the Aircraft solely in commercial or other operations for which
Lessee is duly authorised by the Air Authority and applicable law;
(e) not use the Aircraft for the carriage of:-
(i) whole animals living or dead except in the cargo compartments
according to I.A.T.A. regulations, and except domestic pet
animals carried in a suitable container to prevent the escape
of any liquid and to ensure the welfare of the animal;
(ii) acids, toxic chemicals, other corrosive materials, explosives,
nuclear fuels, nuclear wastes, or any nuclear assemblies or
components, except as permitted for passenger aircraft under
the "Restriction of Goods" schedule issued by I.A.T.A. from
time to time and provided that all the requirements for
packaging or otherwise contained therein are fulfilled;
(iii) any other goods, materials or items of cargo which could
reasonably be expected to cause damage to the Aircraft and
which would not be adequately covered by the Insurances; or
(iv) any illegal item or substance;
(f) not utilise the Aircraft for purposes of training, qualifying or
re-confirming the status of cockpit personnel except for the benefit
of Lessee's cockpit personnel, and then only if the use of the
Aircraft for such purpose is not disproportionate to the use for such
purpose of other aircraft of the same type operated by Lessee;
(g) not cause or permit the Aircraft to proceed to, or remain at, any
location which is then the subject of a prohibition order (or any
similar order or directive), sanctions or restrictions by:-
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(i) the United Nations Security Council, the U.S. International
Economic Emergency Powers Act or U.N. Security Council
directives (including, as of the date hereof, Haiti, Iraq,
Libya and the Federal Republic of Yugoslavia (Serbia and
Montenegro) and the Unita Rebels of Angola) or the U.S. Export
Administration Act Regulations (15 C.F.R. Parts 730-799)
(including as of the date hereof Cuba, Iran, North Korea,
Sudan, Syria and Vietnam), except as may be permitted by
operating in accordance with the conditions specified by the
U.S. Export Administration Regulations, General License GATS
(15 C.F.R. Part 771.19);
(ii) any Government Entity of the State of Registration or the
Habitual Base;
(iii) any Government Entity of the country in which such location is
situated; or
(iv) any Government Entity having jurisdiction over Owner, Sub
Lessor, Lessor, the Banks or the Aircraft;
(h) obtain and maintain in full force all certificates, licences, permits
and authorisations required for the use and operation of the Aircraft
for the time being, and for the making of payments required by, and
the compliance by Lessee with its other obligations under, this
Agreement;
(i) not operate or locate the Aircraft or suffer or permit the Aircraft to
be operated or located during the Term in any area excluded from
coverage by any insurance policy issued pursuant to the requirements
of this Agreement; and
(j) not operate or locate the Aircraft in, to or over any country which is
(x) the subject of sanctions under the U.S. International Economic
Emergency Powers Act or United Nations Security Council Directives
(currently Haiti, Iraq, Libya, the Federal Republic of Yugoslavia
(Serbia and Montenegro) and the Unita Rebels of Angola) and/or (y)
restricted under the United States Trading with the Enemy Act or the
United States Export Administration Act except as may be permitted by
operating in accordance with the conditions specified by the United
States Export Administration Regulations, General Licence GATS (15 CFR
Part 771.19) (currently Cuba, Iran, North Korea and Syria).
8.4 TAXES AND OTHER OUTGOINGS: Lessee will promptly pay:-
(a) all licence and registration fees, Taxes (other than Lessor Taxes) and
other amounts of any nature imposed by any Government Entity with
respect to the Aircraft, including without limitation the purchase,
ownership, delivery, leasing, possession, use, operation, return, sale
or other disposition of the Aircraft; and
(b) all rent, fees, charges, Taxes (other than Lessor Taxes) and other
amounts in respect of any premises where the Aircraft or any Part
thereof is located from time to time;
except to the extent that in the reasonable opinion of Lessor such
payment is being contested in good faith by appropriate proceedings,
in respect of which adequate reserves have been provided by Lessee and
non-payment of which does not give rise to any material likelihood of
the Aircraft or any interest therein being sold, forfeited or
otherwise lost or of criminal liability on the part of Owner, Lessor,
Sub Lessor or any Bank.
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8.5 SUB-LEASING: LESSEE WILL NOT, WITHOUT THE PRIOR WRITTEN CONSENT OF
LESSOR, SUB-LEASE OR OTHERWISE PART WITH POSSESSION OF THE AIRCRAFT,
THE ENGINES OR ANY PART EXCEPT THAT LESSEE MAY PART WITH POSSESSION
(A) WITH RESPECT TO THE AIRCRAFT, THE ENGINES OR ANY PART TO THE
RELEVANT MANUFACTURERS FOR TESTING OR SIMILAR PURPOSES OR TO THE
AGREED MAINTENANCE PERFORMER FOR SERVICE, REPAIR, MAINTENANCE OR
OVERHAUL WORK, OR ALTERATIONS, MODIFICATIONS OR ADDITIONS TO THE
EXTENT REQUIRED OR PERMITTED BY THIS AGREEMENT, AND (B) WITH RESPECT
TO AN ENGINE OR PART, AS EXPRESSLY PERMITTED BY THIS AGREEMENT.
8.6 INSPECTION:
(a) Lessor and any person designated by Lessor may at any time visit,
inspect and survey the Aircraft, any Engine or any Part and for such
purpose may, subject to any applicable Air Authority regulation,
travel on the flight deck as observer;
(b) Lessee will pay to Lessor on demand all reasonable out-of-pocket
expenses incurred by Lessor in connection with any such visit,
inspection or survey; and
(c) Lessor will:
(i) have no duty or liability to make, or arising out of any such
visit, inspection or survey; and
(ii) so long as no Default has occurred and is continuing, not
exercise such right other than on reasonable notice and so as
not to disrupt unreasonably the commercial operations of
Lessee.
8.7 OWNERSHIP; PROPERTY INTERESTS; RELATED MATTERS: Lessee will:-
(a) not do or knowingly permit to be done or omit or knowingly permit the
omission of any act or thing which might reasonably be expected to
jeopardise the rights of Owner as owner of the Aircraft, the rights of
Sub Lessor as sub lessor of the Aircraft and the rights of Lessor as
lessor of the Aircraft;
(b) on all occasions when the ownership of the Aircraft, any Engine or any
Part is relevant, make clear to third parties that title is held by
Owner;
(c) not at any time (i) represent or hold out Owner, Sub Lessor, Lessor or
the Banks as carrying goods or passengers on the Aircraft or as being
in any way connected or associated with any operation or carriage
(whether for hire or reward or gratuitously) which may be undertaken
by Lessee or (ii) pledge the credit of Owner, Sub Lessor, Lessor or
the Banks;
(d) ensure that there is always affixed, and not removed or in any way
obscured, a fireproof plate (having dimensions of not less than 10 cm.
x 7 cm.) in a reasonably prominent position in the cockpit of the
Aircraft adjacent to the certificate of airworthiness and on each
Engine stating:-
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"This Aircraft/Engine is owned by Polaris Aircraft Leasing K.B. and
is leased to Air South Airlines, Inc. and may not be operated by any
other person without the prior written consent of Polaris Aircraft
Leasing K.B.";
(e) not create or permit to exist any Security Interest upon the Aircraft,
any Engine or any Part;
(f) not do or permit to be done anything which may reasonably be expected
to expose the Aircraft, any Engine or any Part to penalty, forfeiture,
impounding, detention, appropriation, damage or destruction and
without prejudice to the foregoing, if any such penalty, forfeiture,
impounding, detention or appropriation, damage or destruction occurs,
give Lessor notice and use best endeavours to procure the immediate
release of the Aircraft, any Engine or the Part, as the case may be;
(g) not abandon the Aircraft, the Engine or any Part;
(h) pay and discharge or cause to be paid and discharged when due and
payable or make adequate provision by way of security or otherwise for
all debts, damages, claims and liabilities which have given or might
give rise to a Security Interest over or affecting the Aircraft, any
Engine or any Part; and
(i) not attempt, or hold itself out as having any power, to sell, lease or
otherwise dispose of the Aircraft, any Engine or any Part.
8.8 GENERAL: Lessee will:-
(a) not liquidate or dissolve (except in connection with a transaction
otherwise permitted by this Clause 8.8 (a)), and Lessee shall not
consolidate with or merge into, any other corporation, and Lessee
shall not convey, transfer, lease or otherwise dispose of all or
substantially all of its property and other assets, whether in one or
a series of related transactions unless in the case of any such
consolidation, merger, conveyance, transfer, lease or other
disposition:-
(i) the corporation formed by or surviving such consolidation or
merger or the corporation which acquires by conveyance,
transfer, lease or other disposition all or a material portion
of such property and other assets or stock (the "Successor
Entity"):
(A) shall be a corporation organised and existing under
the laws of the United States or any state thereof;
(B) immediately after giving effect to such transaction,
shall be Lessee or shall have acquired or succeeded
to all or substantially all of the property and other
assets (including, without limitation, all or
substantially all of Lessee's property and other
assets) as an entirety; and
(C) shall execute and deliver to Lessor an agreement, in
form and substance reasonably satisfactory to Lessor,
which is a legal, valid, binding and enforceable
assumption by such Successor Entity of the due and
punctual performance and observance of each covenant
and condition of this Agreement and agreement to be
bound thereby, and
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shall execute, deliver and/or file such recordations
and filings with any Government Entity and such other
documents as Lessor shall reasonably deem to be
necessary or advisable (including, without
limitation, to preserve and protect the interests of
Lessor) to evidence, or in connection with, such
consolidation, merger, sale, lease, transfer or other
disposition or acquisition and an officer's
certificate from a responsible officer of the
Successor Entity confirming the legal, valid, binding
and enforceable nature of such assumption, and to the
effect that the other requirements of this paragraph
have been satisfied, and a legal opinion from counsel
confirming the legal, valid, binding and enforceable
nature of such assumption and otherwise in such form
and substance reasonably satisfactory to Lessor; and
(ii) prior to and immediately after giving effect to such
transaction, no Default or Event of Default shall have
occurred and be continuing.
No such permitted disposition to a Successor Entity shall relieve or
release Lessee of or from any obligations hereunder which arose or
existed prior to such disposition. Promptly following the closing of
such disposition, Lessee shall provide Lessor with a certificate
signed by Lessee's chief financial officer to the effect that such
disposition will not have a material adverse effect on Lessee's
ability to perform its obligations under this Agreement;
(b) ensure that no change will occur in the Habitual Base of the Aircraft
without the prior written consent of Lessor. Lessor agrees that it
shall not withhold its consent to a change in the Habitual Base to
another state of the United States if Lessee shall have provided
Lessor with an opinion of counsel practising in the state of the
United States proposed by Lessee to be the Habitual Base in form and
in substance reasonably satisfactory to Lessor to the effect that the
rights and interests of Lessor are duly protected;
(c) not, without giving Lessor 30 days prior written notice (in accordance
with this Agreement), change its chief executive office (as such term
is defined in Article 9 of the Uniform Commercial Code as in effect in
the State of South Carolina) from 1800 St. Julian Place, 4th Floor,
Columbia, South Carolina 29204;
(d) remain a Certificated Air Carrier and maintain, without limitation,
its status so as to fall within the purview of Section 1110 of Title
11 of the United States Code or any analogous Statute; and
(e) remain a "citizen of the United States" as defined in Section 101(16)
of the Federal Aviation Act.
8.9 RECORDS: Lessee will:-
(a) cause accurate, complete and current records of all flights made by,
and all maintenance carried out on, the Aircraft (including in
relation to each Engine and Part subsequently installed, before the
installation) to be kept; keep the records in such manner as the Air
Authority may from time to time require, and ensure that they comply
with the recommendations of any manufacturers of the Aircraft, any
Engine or any Part. All records must be maintained in English. The
records will form part of the Aircraft Documents; and
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(b) procure access to a revision service in respect of, and will maintain
with appropriate revisions in English, all Aircraft Documents,
records, logs, and other materials required by applicable laws and
best practice of major international air transport operators in
respect of the Aircraft.
8.10 PROTECTION: Lessee will:-
(a) maintain the registration of the Aircraft with the Air Authority in
the name of Lessor and, to the extent permitted under the laws of the
State of Registration, reflecting the respective interests of Owner
and Sub Lessor and not do or suffer to be done anything which might
adversely affect that registration; and
(b) do all acts and things (including, without limitation, making any
filing or registration with the Air Authority or any other Government
Entity) and execute and deliver, notarise, file, register and record
all documents (including, without limitation, any amendment of this
Agreement) as may be required by Lessor:-
(i) following any change or proposed change in the ownership or
financing of the Aircraft or in the manner of securing Owner's
and/or Sub Lessor's and/or Lessor's obligations to the Banks;
or
(ii) following any modification of the Aircraft, any Engine or any
Part or the permanent replacement of any Engine or Part in
accordance with this Agreement, so as to ensure that the
rights of Owner as owner of the Aircraft, the rights of Sub
Lessor as sub lessor of the Aircraft and the rights of Lessor
as lessor of the Aircraft and under this Agreement apply with
the same effect as before; or
(iii) to establish, maintain, preserve, perfect and protect the
rights of Lessor under this Agreement or the interest of Sub
Lessor as sub lessor of the Aircraft and the interest of Owner
as owner of the Aircraft.
8.11 MAINTENANCE AND REPAIR: Lessee will:-
(a) keep the Aircraft airworthy in all respects and in good repair and
condition;
(b) not change the Agreed Maintenance Programme or the schedule of the
Agreed Maintenance Programme without the written consent of Lessor;
(c) maintain the Aircraft in accordance with the Agreed Maintenance
Programme through the Agreed Maintenance Performer and perform (at the
respective intervals provided in the Agreed Maintenance Programme) all
Major Checks;
(d) maintain the Aircraft in accordance with FAA Federal Air Regulations
Part 121 and any other rules and regulations of the FAA as may be
applicable to passenger category aircraft and in at least the same
manner and with at least the same care, including, without limitation,
maintenance scheduling, modification status and technical condition,
as is the case with respect to similar aircraft owned or otherwise
operated by Lessee and as if Lessee were to retain the Aircraft in its
fleet and continue to operate the Aircraft after the Expiry Date and
including, without limitation, all maintenance to the Airframe, any
Engine or any Part required to maintain all warranties, performance
guarantees or service life policies in full force and effect;
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(e) comply with all mandatory inspection and modification requirements,
airworthiness directives and similar requirements applicable to the
Aircraft, any Engine or Part having a compliance date during the Term
or within 180 days after the Expiry Date and which are required by the
Air Authority, and/or the FAA and/or the laws of the state of
manufacture of the Aircraft, any Engine or Part and/or recommended by
any manufacturer of the Aircraft, any Engine or Part (each of the
foregoing being hereinafter referred to as a "Relevant AD").
The cost of compliance with any single Relevant AD shall be allocated
among Lessor and Lessee as follows:-
(i) Lessee shall be responsible for the first $100,000 of such
cost;
(ii) Lessor and Lessee shall share, on an equal basis, the portion
of such cost (if any) which exceeds $100,000 up to and
including $200,000; and
(iii) Lessor shall be wholly responsible for the portion of such
cost (if any) which exceeds $200,000 (subject always to the
provisions of the following paragraph).
Notwithstanding the foregoing, in the event that the total cost of any
single Relevant AD (such total cost to be mutually agreed, in good
faith, between Lessor and Lessee) exceeds $200,000 (the "Threshold
Amount"), Lessor may elect not to make its contribution to the cost of
compliance with such Relevant AD as described in (iii) above. If
Lessor shall so elect, Lessee shall be entitled, by giving prior
written notice to Lessor, to terminate this Agreement and redeliver
the Aircraft to Lessor in accordance with Clause 12 and Schedule 3
(except for compliance with the Relevant AD which gave rise to such
termination) on the earlier of (x) the date which is 30 days after the
date of such notice from Lessee to Lessor; or (y) the date on which
the Aircraft is required to be removed from service by reason of
non-compliance with the applicable Relevant AD. Such notice shall
specify the proposed redelivery date of the Aircraft by Lessee and,
upon the receipt of such notice by Lessor, the then current definition
of Expiry Date shall be deemed to have been amended accordingly. Upon
any termination of this Agreement pursuant to this Clause 8.11 (e),
neither party shall be under any further obligation to the other
hereunder except for (x) accrued obligations of Lessee hereunder; and
(y) obligations hereunder which are expressed to continue
notwithstanding the expiration of the Term and provided further that
Lessor shall, if applicable having regard to the provisions of Clause
7.3, make the rebate described in Clause 7.3 (i) and the adjustment
payments described in Schedule 3 shall be payable by Lessee;
(f) comply with all applicable laws and the regulations of the Air
Authority and other aviation authorities with jurisdiction over Lessee
or the Aircraft, any Engine or Part regardless of upon whom such
requirements are imposed and which relate to the maintenance,
condition, use or operation of the Aircraft or require any
modification or alteration to the Aircraft, any Engine or Part;
(g) maintain in good standing a current certificate of airworthiness (in
the appropriate category for the nature of the operations of the
Aircraft) for the Aircraft issued by the Air Authority except where
the Aircraft is undergoing maintenance, modification or repair
required or permitted by this Agreement and will from time to time
provide to Lessor a copy on request;
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(h) if required by the Air Authority, maintain a current certification as
to maintenance issued by or on behalf of the Air Authority in respect
of the Aircraft and will from time to time provide to Lessor a copy on
request; and
(i) procure promptly the replacement of any Engine or Part which has
become time, cycle or calendar expired, lost, stolen, seized,
confiscated, destroyed, damaged beyond repair, unserviceable or
permanently rendered unfit for use, with an engine or part complying
with the conditions set out in Clause 8.13(a).
8.12 REMOVAL OF ENGINES AND PARTS: Lessee will ensure that no Engine or
Part installed on the Aircraft is at any time removed from the
Aircraft other than:-
(a) if replaced as expressly permitted by this Agreement; or
(b) if the removal is of an obsolete item and is in accordance with the
Agreed Maintenance Programme; or
(c) (i) during the course of maintaining, servicing, repairing,
overhauling or testing that Engine or the Aircraft, as the
case may be; or
(ii) as part of a normal engine or part rotation programme; or
(iii) for the purpose of making such modifications to the Engine or
the Aircraft, as the case may be, as are permitted under this
Agreement;
and then in each case only if it is reinstalled or replaced by an
engine or part complying with Clause 8.13(a) as soon as practicable
and in any event no later than the Expiry Date.
8.13 INSTALLATION OF ENGINES AND PARTS: Lessee will:-
(a) ensure that, except as permitted by this Agreement, no engine or part
is installed on the Aircraft unless:-
(i) in the case of an engine, it is an engine of the same model
as, or an improved or advanced version of the Engine it
replaces, which is in the same or better operating condition,
has substantially similar hours available until the next
scheduled checks, inspections, overhauls and shop visits and
has the same or greater value and utility as the replaced
Engine;
(ii) in the case of a part, it is in as good operating condition,
has substantially similar hours available until the next
scheduled checks, inspections, overhauls and shop visits, is
of the same or a more advanced make and model and is of the
same interchangeable modification status as the replaced Part;
(iii) in each case, it has become and remains the property of Owner
free from Security Interests and on installation on the
Aircraft will without further act be subject to the Head
Lease, the Sub Lease and this Agreement; and
(iv) in each case, Lessee has full details as to its source and
maintenance records;
(b) if no Default has occurred which is continuing, be entitled to install
any engine or part on the Aircraft by way of replacement
notwithstanding Clause 8.13(a) if:-
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(i) there is not available to Lessee at the time and in the place
that such engine or part is required to be installed on the
Aircraft, a replacement engine or part, as the case may be,
complying with the requirements of Clause 8.13(a);
(ii) it would result in an unreasonable disruption of the operation
of the Aircraft and/or the business of Lessee to ground the
Aircraft until an engine or part, as the case may be,
complying with Clause 8.13(a) becomes available for
installation on the Aircraft; and
(iii) as soon as practicable after installation of the same on the
Aircraft but, in any event, no later than the Expiry Date,
Lessee removes any such engine or part and replaces it with
the Engine or Part replaced by it or by an engine or part, as
the case may be, complying with Clause 8.13(a).
8.14 NON-INSTALLED ENGINES AND PARTS: Lessee will:-
(a) ensure that any Engine or Part which is not installed on the Aircraft
(or any other aircraft as permitted by this Agreement) is, except as
expressly permitted by this Agreement, properly and safely stored, and
kept free from Security Interests;
(b) notify Lessor whenever any Engine is removed from the Aircraft and,
from time to time, on request procure that any person to whom
possession of an Engine is given acknowledges in writing to Lessor, in
form and substance satisfactory to Lessor, that it will respect the
interests of Owner as owner, Sub Lessor as sub lessor and Lessor as
lessor of the Engine and will not seek to exercise any rights
whatsoever in relation to it;
(c) (notwithstanding the foregoing provisions of this sub-clause), be
permitted, if no Default has occurred and is continuing, to install
any Engine or Part on an aircraft, or in the case of a Part, an
engine:-
(i) owned and operated by Lessee free from Security Interests; or
(ii) leased or hired to Lessee pursuant to a lease or conditional
sale agreement on a long-term basis and on terms whereby
Lessee has full operational control of that aircraft or
engine; or
(iii) acquired by Lessee and/or financed or refinanced, and operated
by Lessee, on terms that ownership of that aircraft or engine,
as the case may be, pursuant to a lease or conditional sale
agreement, or a Security Interest therein, is vested in or
held by any other person;
provided that in the case of (ii) and (iii):-
(1) the terms of any such lease, conditional sale agreement or
Security Interest will not have the effect of prejudicing the
interests of Owner as owner, Sub Lessor as sub lessor and
Lessor as lessor of that Engine or Part; and
(2) the lessor under such lease, the seller under such conditional
sale agreement or the holder of such Security Interest, as the
case may be, has confirmed and acknowledged in writing to
Lessor, in form and substance satisfactory to Lessor, that it
will respect the interest of Owner as owner, Sub Lessor as sub
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lessor and Lessor as lessor of that Engine or Part and that it
will not seek to exercise any rights whatsoever in relation
thereto.
8.15 POOLING OF ENGINES AND PARTS: Lessee will not enter into nor permit
any pooling agreement or arrangement in respect of an Engine or Part
without the prior written consent of Lessor.
8.16 EQUIPMENT CHANGES:
(a) Lessee will not make any modification or addition to the Aircraft
(each an "Equipment Change"), except for an Equipment Change which:-
(i) is expressly permitted by this Agreement, or
(ii) has the prior written approval of Lessor and which does not
diminish the value, utility, condition, or airworthiness of
the Aircraft; and
(b) So long as a Default has not occurred and is continuing, Lessee may
remove any Equipment Change if it can be removed from the Aircraft
without diminishing or impairing the value, utility, condition or
airworthiness of the Aircraft.
8.17 TITLE ON AN EQUIPMENT CHANGE:
(a) Title to all Engines and Parts installed on the Aircraft whether by
way of replacement, as the result of an Equipment Change or otherwise
(except those installed pursuant to Clause 8.13(b)) will on
installation, without further act, vest in Owner subject to this
Agreement, the Head Lease and the Sub Lease free and clear of all
Security Interests. Lessee will at its own expense take all such
steps and execute, and procure the execution of, all such instruments
as Lessor may require and which are necessary to ensure that title so
passes to Owner according to all applicable laws. At any time when
requested by Lessor, Lessee will provide evidence to Lessor's and
Owner's satisfaction (including the provision, if required, to Lessor
and Owner of one or more legal opinions) that title has so passed to
Owner;
(b) Lessor may require Lessee to remove any Equipment Change and to
restore the Aircraft to its condition prior to that Equipment Change;
and
(c) Except as referred to in Clause 8.17(b) any Engine or Part at any time
removed from the Aircraft will remain the property of Owner until a
replacement has been made in accordance with this Agreement and until
title in that replacement has passed, according to applicable laws, to
Owner subject to this Agreement, the Head Lease and the Sub Lease free
of all Security Interests whereupon title to the replaced Engine or
Part will pass to Lessee.
8.18 THIRD PARTY: Lessee will procure that no person (other than Owner, Sub
Lessor, Lessor or any Bank) will act in any manner inconsistent with
its obligations under this Agreement and that all persons will comply
with those obligations as if references to "Lessee" included a
separate reference to those persons.
9. INSURANCE
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9.1 INSURANCES: Lessee will maintain in full force during the Term
insurances in respect of the Aircraft in form and substance
satisfactory to Lessor (the "Insurances" which expression includes,
where the context so admits, any relevant re-insurance(s)) through
such brokers and with such insurers and having such deductibles and
being subject to such exclusions as may be approved by Lessor. The
Insurances will be effected either:-
(a) on a direct basis with insurers of recognised standing who normally
participate in aviation insurances in the leading international
insurance markets and led by reputable underwriter(s) approved by
Lessor; or
(b) with a single insurer or group of insurers approved by Lessor who
does not retain the risk but effects substantial reinsurance with
reinsurers in the leading international insurance markets and through
brokers each of recognised standing and acceptable to Lessor for a
percentage acceptable to Lessor of all risks insured (the
"Reinsurances").
9.2 REQUIREMENTS: Lessor's current requirements as to required Insurances
are as specified in this Clause and in Schedule 4. Lessor may from
time to time stipulate other requirements for the Insurances so that
the scope and level of cover is maintained in line with best industry
practice and the interests of Lessor, Sub Lessor and Owner protected.
9.3 CHANGE: If at any time Lessor wishes to revoke its approval of any
insurer, reinsurer, insurance or reinsurance, Lessor and/or its
brokers will consult with Lessee and Lessee's brokers (as for the
time being approved by Lessor) regarding whether that approval should
be revoked to protect the interests of the parties insured. If,
following the consultation, Lessor considers that any change should
be made, Lessee will then arrange or procure the arrangement of
alternative cover satisfactory to Lessor.
9.4 INSURANCE COVENANTS: Lessee will:-
(a) ensure that all legal requirements as to insurance of the Aircraft,
any Engine or any Part which may from time to time be imposed by the
laws of the State of Registration or any state to, from or over which
the Aircraft may be flown, in so far as they affect or concern the
operation of the Aircraft, are complied with and in particular those
requirements compliance with which is necessary to ensure that (i)
the Aircraft is not in danger of detention or forfeiture, (ii) the
Insurances remain valid and in full force and effect, and (iii) the
interests of the Indemnitees in the Insurances and the Aircraft or
any Part are not thereby prejudiced;
(b) not use, cause or permit the Aircraft, any Engine or any Part to be
used for any purpose or in any manner not covered by the Insurances
or outside any geographical limit imposed by the Insurances;
(c) comply with the terms and conditions of each policy of the Insurances
and not do, consent or agree to any act or omission which:-
(i) invalidates or may invalidate the Insurances; or
(ii) renders or may render void or voidable the whole or any part
of any of the Insurances; or
(iii) brings any particular liability within the scope of an
exclusion or exception to the Insurances;
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(d) not take out without the prior written approval of Lessor any
insurance or reinsurance in respect of the Aircraft other than those
required under this Agreement unless relating solely to hull total
loss, business interruption, profit commission and deductible risk;
(e) commence renewal procedures at least 30 days prior to expiry of any
of the Insurances and provide to Lessor:-
(i) if requested by Lessor, a written status report of renewal
negotiation 14 days prior to each expiry date;
(ii) telexed confirmation of completion of renewal prior to each
expiry date;
(iii) certificates of insurance (and where appropriate certificates
of reinsurance), and broker's (and any reinsurance brokers')
letter of undertaking in a form acceptable to Lessor in
English, detailing the coverage and confirming the insurers'
(and any reinsurers') agreement to the specified insurance
requirements of this Agreement within 7 days after each
renewal date;
(f) on request, provide to Lessor copies of documents evidencing the
Insurances;
(g) on request, provide to Lessor evidence that the Insurance premiums
have been paid;
(h) not make any modification or alteration to the Insurances material
and adverse to the interests of any of the Indemnitees;
(i) be responsible for any deductible under the Insurances; and
(j) provide any other insurance and reinsurance related information, or
assistance, in respect of the Insurances as Lessor may reasonably
require.
9.5 FAILURE TO INSURE: If Lessee fails to maintain the Insurances in
compliance with this Agreement, each of the Indemnitees will be
entitled but not bound, (without prejudice to any other rights of
Lessor under this Agreement):-
(a) to pay the premiums due or to effect and maintain insurances
satisfactory to it or otherwise remedy Lessee's failure in such
manner (including, without limitation to effect and maintain an
"owner's interest" policy) as it considers appropriate. Any sums so
expended by it will become immediately due and payable by Lessee to
Lessor together with interest thereon at the rate specified in Clause
5.11, from the date of expenditure by it up to the date of
reimbursement by Lessee; and
(b) at any time while such failure is continuing to require the Aircraft
to remain at any airport or to proceed to and remain at any airport
designated by it until the failure is remedied to its satisfaction.
9.6 CONTINUING INDEMNITY: Lessor may require Lessee to effect and to
maintain insurance after the Expiry Date with respect to its
liability under the indemnities in Clause 10 for such period as
Lessor may reasonably require (but in any event not more than 3
years) which provides for each Indemnitee to be named as additional
insured. Lessee's obligation in this Clause shall not be affected by
Lessee ceasing to be lessee of the Aircraft and/or any of the
Indemnitees ceasing to have any interest in respect of the Aircraft.
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9.7 APPLICATION OF INSURANCE PROCEEDS:
As between Lessor and Lessee:-
(a) all insurance payments received as the result of an Event of Loss
occurring during the Term will be paid to Lessor and Lessor will pay
the balance of those amounts to Lessee after deduction of all amounts
which may be or become payable by Lessee to Lessor under this
Agreement (including under Clause 11.1(b));
(b) all insurance proceeds of any property, damage or loss to the
Aircraft, any Engine or any Part occurring during the Term not
constituting an Event of Loss and in excess of the Damage
Notification Threshold will be paid to Lessor and applied in payment
(or to reimburse Lessee) for repairs or replacement property upon
Lessor being satisfied that the repairs or replacement have been
effected in accordance with this Agreement. Insurance proceeds in
amounts below the Damage Notification Threshold may be paid by the
insurer directly to Lessee. Any balance remaining may be retained by
Lessor;
(c) all insurance proceeds in respect of third party liability will,
except to the extent paid by the insurers to the relevant third
party, be paid to Lessor to be paid directly in satisfaction of the
relevant liability or to Lessee in reimbursement of any payment so
made;
(d) notwithstanding Clauses 9.7(a), (b) or (c), if at the time of the
payment of any such insurance proceeds a Default has occurred and is
continuing, all such proceeds will be paid to or retained by Lessor
to be applied toward payment of any amounts which may be or become
payable by Lessee in such order as Lessor sees fit or as Lessor may
elect.
10. INDEMNITY
10.1 GENERAL: Lessee agrees to assume liability for, defend, indemnify and
hold harmless the Indemnitees on an after tax basis from and against
any and all claims, proceedings, losses, liabilities, damages
(whether direct, indirect, special, incidental or consequential)
suits, judgments, costs, expenses (including, without limitation,
legal fees and expenses), penalties (whether civil or criminal) or
fines (each a "Claim") (regardless of when the same is made or
incurred, whether during or after the Term (but not before)):-
(a) which may at any time be suffered or incurred directly or
indirectly as a result of or in any manner connected with the
possession, delivery, performance, management, ownership,
registration, control, maintenance, condition, service,
repair, overhaul, leasing, use, operation or return of the
Aircraft, any Engine or Part (either in the air or on the
ground) whether or not the Claim may be attributable to any
defect in the Aircraft, any Engine or any Part or to its
design, testing or use or otherwise, and regardless of when
the same arises or whether it arises out of or is attributable
to any act or omission, negligent or otherwise, of any
Indemnitee;
(b) which arise out of any act or omission which invalidates or
which renders voidable any of the Insurances;
(c) which may at any time be suffered or incurred as a consequence
of any design, article or material in the Aircraft, any Engine
or any Part or its operation or use constituting an
infringement of patent, copyright, trademark, design or other
proprietary right or a breach of any obligation of
confidentiality owed to any person;
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(d) which results from Lessee's breach of any of its
representations or warranties or any other Event of Default
under this Agreement.
but excluding any Claim in relation to a particular Indemnitee to the
extent that such Claim is covered pursuant to another indemnity
provision of this Agreement or to the extent it arises solely as a
result of the willful misconduct of such Indemnitee or Lessor as a
result of Lessor Taxes or a Lessor Lien.
10.2 DURATION: The indemnities contained in this Agreement will continue
in full force after the Expiry Date.
11. EVENTS OF LOSS
11.1 If an Event of Loss occurs after delivery of the Aircraft to Lessee,
Lessee will pay the Agreed Value to Lessor on or prior to the earlier
of (i) 5 Business Days after the Event of Loss and (ii) the date of
receipt of insurance proceeds in respect of that Event of Loss.
Subject to the rights of any insurers and reinsurers or other third
party, upon irrevocable payment in full to Lessor of that amount and
all other amounts which may be or become payable to Lessor under this
Agreement, Lessor will without recourse or warranty (except as to
Lessor's Liens) and without further act, be deemed to have
transferred to Lessee all of Lessor's rights to any Engines and Parts
not installed when the Event of Loss occurred, all on an as-is
where-is basis, and will at Lessee's expense, execute and deliver
such bills of sale and other documents and instruments as Lessee may
reasonably request to evidence (on the public record or otherwise)
the transfer and the vesting of Lessor's rights in such Engines and
Parts in Lessee, free and clear of all rights of Lessor and Lessor
Liens.
11.2 REQUISITION: During any requisition for use or hire of the Aircraft,
any Engine or Part which does not constitute an Event of Loss:-
(a) the Rent and other charges payable under this Agreement will not be
suspended or abated either in whole or in part, and Lessee will not
be released from any of its other obligations under the Agreement
(other than operational obligations with which Lessee is unable to
comply solely by virtue of the requisition);
(b) so long as no Default has occurred and is continuing, Lessee will be
entitled to any hire paid by the requisitioning authority in respect
of the Term. Lessee will, as soon as practicable after the end of
any such requisition, cause the Aircraft to be put into the condition
required by this Agreement. Lessor will be entitled to all
compensation payable by the requisitioning authority in respect of
any change in the structure, state or condition of the Aircraft
arising during the period of requisition, and Lessor will apply such
compensation in reimbursing Lessee for the cost of complying with its
obligations under this Agreement in respect of any such change, but
so that, if any Default has occurred and is continuing, Lessor may
apply the compensation or hire in or towards settlement of any
amounts owing by Lessee under this Agreement.
12. RETURN OF AIRCRAFT
12.1 RETURN: On the Expiry Date or termination of the leasing of the
Aircraft under this Agreement Lessee will unless an Event of Loss has
occurred, at its expense, redeliver the Aircraft and Aircraft
Documents to Lessor at the Redelivery Location or such other airport
as is mutually acceptable to the parties hereto, in a condition
complying with Schedule 3, free and clear of all Security Interests
and Permitted Liens (other than Lessor
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Liens) and in a condition qualifying for immediate certification of
airworthiness by the FAA or as otherwise agreed by Lessor and Lessee,
and thereupon cause the Aircraft to be deregistered by the Air
Authority.
12.2 FINAL INSPECTION: Immediately prior to redelivery of the Aircraft,
Lessee will make the Aircraft available to Lessor for inspection
("Final Inspection") in order to verify that the condition of the
Aircraft complies with this Agreement. The Final Inspection will be
long enough to permit Lessor to:-
(a) inspect the Aircraft Documents;
(b) inspect the Aircraft and uninstalled Parts;
(c) inspect the Engines, including without limitation (i) at Lessor's
expense, a borescope inspection of (A) the low pressure and high
pressure compressors and (B) turbine area and (ii) at Lessee's expense
engine condition runs; and
(d) observe a 2 hour demonstration flight (with Lessor's representatives
as on-board observers).
12.3 NON-COMPLIANCE: To the extent that, at the time of Final Inspection,
the condition of the Aircraft does not comply with this Agreement,
Lessee will at Lessor's option:-
(a) immediately rectify the non-compliance and to the extent the
non-compliance extends beyond the Expiry Date, the Term will be
automatically extended and this Agreement will remain in force until
the non-compliance has been rectified; or
(b) redeliver the Aircraft to Lessor and indemnify Lessor, and provide to
Lessor's satisfaction cash as security for that indemnity, against the
cost of putting the Aircraft into the condition required by this
Agreement.
12.4 REDELIVERY: Upon redelivery Lessee will provide to Lessor all
documents necessary to export the Aircraft from the Habitual Base
(including, without limitation, a valid and subsisting export licence
for the Aircraft) and required in relation to the deregistration of
the Aircraft with the Air Authority.
12.5 ACKNOWLEDGEMENT: Provided Lessee has complied with its obligations
under this Agreement, following redelivery of the Aircraft by Lessee
to Lessor at the Redelivery Location, Lessor will deliver to Lessee an
acknowledgement confirming that Lessee has redelivered the Aircraft to
Lessor in accordance with this Agreement.
12.6 MAINTENANCE PROGRAMME:
(a) Prior to the Expiry Date and upon Lessor's request, Lessee will
provide Lessor or its agent reasonable access to the Agreed
Maintenance Programme and the Aircraft Documents in order to
facilitate the Aircraft's integration into any subsequent operator's
fleet;
(b) Lessee will, if requested by Lessor to do so, upon return of the
Aircraft deliver to Lessor a certified true current and complete copy
of the Agreed Maintenance Programme together with a letter authorising
Lessor to use such copy for "bridging" purposes for the next lessee of
the Aircraft. Lessor agrees that it will not disclose the contents of
the Agreed
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Maintenance Programme to any person or entity except to the extent
necessary to monitor Lessee's compliance with this Agreement and/or to
bridge the maintenance programme for the Aircraft from the Agreed
Maintenance Programme to another programme after the Expiry Date.
12.7 FUEL: Upon redelivery of the Aircraft to Lessor, an adjustment will be
made in respect of fuel on board on the Previous Delivery Date and the
Expiry Date at the price then prevailing at the Redelivery Location.
12.8 AIRCRAFT STORAGE: During the period of 90 days after the Expiry Date,
Lessor shall have the right to require Lessee to maintain, store and
insure the Aircraft at a location having a facility capable of
performing required maintenance of the Aircraft (to be nominated by
Lessor). Any maintenance, storage or insurance cost actually incurred
in connection with the foregoing and which is in excess of the costs
payable by Lessee in meeting its obligations under this Agreement,
shall be payable by Lessor at Lessee's direct cost without "mark-up".
Prior to the Expiry Date, Lessor shall advise Lessee as to whether
Lessor requires Lessee to provide the services contemplated by this
Clause 12.8.
13. DEFAULT
13.1 EVENTS: Each of the following events or conditions will constitute an
Event of Default and a repudiation of this Agreement by Lessee
(whether any such event or condition is voluntary or involuntary or
occurs by operation of law or pursuant to or in compliance with any
judgment, decree or order of any court or any order, rule or
regulation of any Government Entity):-
(a) NON-PAYMENT: Lessee fails to make any payment of Rent under this
Agreement on the due date and such failure continues for 3 Business
Days; or
(b) INSURANCE: Lessee fails to comply with any provision of Clause 9 or
any insurance required to be maintained under this Agreement is
canceled or terminated or notice of cancellation is given in respect
of any such insurance; or
(c) BREACH: Lessee fails to comply with any other provision of this
Agreement and, if such failure is in the reasonable opinion of Lessor
capable of remedy, the failure continues for 5 days after notice from
Lessor to Lessee; or
(d) REPRESENTATION: any representation or warranty made (or deemed to be
repeated) by Lessee in or pursuant to this Agreement or in any
document or certificate or statement is or proves to have been
incorrect in any material respect when made or deemed to be repeated;
or
(e) CROSS DEFAULT:
(i) any Financial Indebtedness of Lessee or any of its
Subsidiaries is not paid when due; or
(ii) any such Financial Indebtedness becomes due or capable of
being declared due prior to the date when it would otherwise
have become due; or
(iii) the security for any such Financial Indebtedness becomes
enforceable; or
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(iv) any event of default or termination event, howsoever
described, occurs under any Other Agreement or under any
lease, hire purchase, conditional sale or credit sale
agreement of Lessee or any of its Subsidiaries; or
(f) APPROVALS: any consent, authorisation, licence, certificate or
approval of or registration with or declaration to any Government
Entity in connection with this Agreement (including, without
limitation):-
(i) required by Lessee to authorise, or in connection with, the
execution, delivery, validity, enforceability or admissibility
in evidence of this Agreement or the performance by Lessee of
its obligations under this Agreement; or
(ii) the registration of the Aircraft (to the extent that the same is
within the control of Lessee); or
(iii) any airline licence or air transport licence including, without
limitation, authority to operate the Aircraft under Part 121 of
the Federal Aviation Regulations and a Certificate of
Convenience and Necessity issued under Section 401 of the
Federal Aviation Act;
is modified in a manner unacceptable to Lessor or is withheld, or is
revoked, suspended, cancelled, withdrawn, terminated or not renewed,
or otherwise ceases to be in full force; or
(g) BANKRUPTCY, ETC:
(i) Lessee or any Subsidiary consents to the appointment of a
custodian, receiver, trustee or liquidator of itself or all or
any material part of Lessee's property or Lessee's consolidated
property, or Lessee or any Subsidiary admits in writing its
inability to, or is unable to, or does not, pay its debts
generally as they come due, or makes a general assignment for
the benefit of creditors, or Lessee or any Subsidiary files a
voluntary petition in bankruptcy or a voluntary petition seeking
reorganisation in a proceeding under any bankruptcy or
insolvency laws (as now or hereafter in effect), or an answer
admitting the material allegations of a petition filed against
Lessee or any Subsidiary in any such proceeding, or Lessee or
any Subsidiary by voluntary petition, answer or consent seeks
relief under the provisions of any other bankruptcy, insolvency
or other similar law providing for the reorganisation or
winding-up of corporations, or provides for an agreement,
composition, extension or adjustment with its creditors, or any
corporate action (including, without limitation, any board of
directors or shareholder action) is taken by Lessee or any
Subsidiary in furtherance of any of the foregoing, whether or
not the same is fully effected or accomplished; or
(ii) an order, judgment or decree is entered by any court appointing,
without the consent of Lessee or any Subsidiary, a custodian,
receiver, trustee or liquidator of Lessee or any Subsidiary, or
of all or any material part of Lessee's property or Lessee's
consolidated property is sequestered, and any such order,
judgment or decree of appointment or sequestration remains in
effect, undismissed, unstayed or unvacated for a period of 30
days after the date of entry thereof or at any time an order for
relief is granted; or
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(iii) an involuntary petition against Lessee or any Subsidiary in a
proceeding under the United States Federal Bankruptcy laws or
other insolvency laws (as now or hereafter in effect) is filed
and is not withdrawn or dismissed within 30 days thereafter or
at any time an order for relief is granted in such proceeding,
or if, under the provisions of any law providing for
reorganisation or winding-up of corporations which may apply to
Lessee or any Subsidiary, any court of competent jurisdiction
assumes jurisdiction over, or custody or control of, Lessee or
any Subsidiary or of all or any material part of Lessee's
property, or Lessee's consolidated property and such
jurisdiction, custody or control remains in effect,
unrelinquished, unstayed or unterminated for a period of 30 days
or at any time an order for relief is granted in such
proceeding; or
(h) UNLAWFUL: it becomes unlawful for Lessee to perform any of its
obligations under this Agreement or this Agreement becomes wholly or
partly invalid or unenforceable; or
(i) SUSPENSION OF BUSINESS: Lessee or any of its Subsidiaries suspends or
ceases or threatens to suspend or cease to carry on all or a
substantial part of its business as a Certificated Air Carrier; or
(j) DISPOSAL: Lessee or any of its Subsidiaries disposes, conveys or
transfers or threatens to dispose, convey or transfer of all or a
material part of its assets, liquidates or dissolves or consolidates
or merges with any other Person whether by one or a series of
transactions, related or not, other than for the purpose of a
reorganisation of the terms of which have received the previous
consent in writing of Lessor; or
(k) RIGHTS: the existence, validity, enforceability or priority of the
rights of Owner as owner, the rights of Sub Lessor as sub lessor and
the rights of Lessor as lessor in respect of the Aircraft are
challenged by Lessee or any other person claiming by or through
Lessee; or
(l) CHANGE OF OWNERSHIP: any single person, or group of persons acquire
control of Lessee without the previous consent in writing of Lessor;
or
(m) DELIVERY: Lessee fails to accept delivery of the Aircraft when validly
tendered pursuant to this Agreement by Lessor; or
(n) ADVERSE CHANGE: any event or series of events occurs which, in the
reasonable opinion of Lessor might have a material adverse effect on
the financial condition or operations of Lessee and its Subsidiaries
or on the ability of Lessee to comply with its obligations under this
Agreement.
13.2 RIGHTS: If an Event of Default occurs, Lessor may at its option (and
without prejudice to any of its other rights under this Agreement), at
any time thereafter (without notice to Lessee except as required under
applicable law):-
(a) accept such repudiation and by notice to Lessee and with immediate
effect terminate the letting of the Aircraft (but without prejudice
to the continuing obligations of Lessee under this Agreement),
whereupon all rights of Lessee under this Agreement shall cease;
and/or
(b) proceed by appropriate court action or actions to enforce performance
of this Agreement or to recover damages for the breach of this
Agreement; and/or
(c) either:-
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(i) take possession of the Aircraft, for which purpose Lessor may
enter any premises belonging to or in the occupation of or
under the control of Lessee where the Aircraft may be located,
or cause the Aircraft to be redelivered to Lessor at Shannon
International Airport, Co. Clare, Ireland (or such other
location as Lessor may require), and Lessor is hereby
irrevocably by way of security for Lessee's obligations under
this Agreement appointed attorney for Lessee in causing the
redelivery or in directing the pilots of Lessee or other
pilots to fly the Aircraft to that airport and will have all
the powers and authorisations necessary for taking that
action; or
(ii) by serving notice require Lessee to redeliver the Aircraft to
Lessor at Shannon International Airport, Ireland (or such
other location as Lessor may require).
13.3 DEREGISTRATION: If an Event of Default occurs, Lessor may sell or
otherwise deal with the Aircraft free and clear of any leasehold or
other interest of Lessee as if this Agreement had never been made and
Lessee will at the request of Lessor take all steps necessary to
effect (if applicable) deregistration of the Aircraft and its export
from the country where the Aircraft is for the time being situated and
any other steps necessary to enable the Aircraft to be redelivered to
Lessor in accordance with this Agreement; Lessee hereby irrevocably
and by way of security for its obligations under this Agreement
appoints (which appointment is coupled with an interest) Lessor as its
attorney to execute and deliver any documentation and to do any act or
thing required in connection with the foregoing.
13.4 DEFAULT PAYMENTS: If:-
(a) a Default occurs; or
(b) the Aircraft is not delivered on the proposed Delivery Date by
reason of failure of Lessee to satisfy any conditions to that
delivery;
Lessee will indemnify Lessor on its own behalf and on behalf of Owner
and Sub Lessor on demand against any loss (including loss of profit),
damage, expense, cost or liability which Lessor, Sub Lessor or Owner
may sustain or incur directly or indirectly as a result including but
not limited to:-
(a) any loss of profit suffered by Lessor, Sub Lessor or Owner
because of Lessor's or Owner's inability to place the Aircraft
on lease with another lessee on terms as favourable to Lessor
as this Agreement or because whatever use, if any, to which
Lessor, Sub Lessor or Owner is able to put the Aircraft upon
its return to Lessor, or the funds arising upon a sale or
other disposal of the Aircraft, is not as profitable to
Lessor, Sub Lessor or Owner as this Agreement;
(b) any amount of principal, interest, fees or other sums
whatsoever paid or payable on account of funds borrowed in
order to carry any unpaid amount;
(c) any loss, premium, penalty or expense which may be incurred in
repaying funds raised to finance the Aircraft or in unwinding
any swap, forward interest rate agreement or other financial
instrument relating in whole or in part to Lessor's, Sub
Lessor's or Owner's financing of the Aircraft; and
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(d) any loss, cost, expense or liability sustained or incurred by
Lessor owing to Lessee's failure to redeliver the Aircraft on
the date, at the place and in the condition required by this
Agreement.
14. ASSIGNMENT
14.1 LESSEE WILL NOT ASSIGN, TRANSFER (VOLUNTARILY OR INVOLUNTARILY BY
OPERATION OF LAW OR OTHERWISE) OR CREATE OR PERMIT TO EXIST ANY
SECURITY INTEREST OVER, ANY OF ITS RIGHTS UNDER THIS AGREEMENT.
14.2 Owner and/or Lessor may assign or transfer all or any of its rights
under this Agreement and in the Aircraft provided that Lessor will in
the case of an assignment other than by way of security have no
further obligation under this Agreement following the assignment of
all its rights under this Agreement but notwithstanding that
assignment will remain entitled to the benefit of each indemnity and
the liability insurances effected under this Agreement. Lessee will
comply with all reasonable requests of Owner and/or Lessor, their
successors and assigns in respect of any such assignment. Lessor will
promptly notify Lessee of any assignment.
14.3 If Lessor desires to effect any assignment or transfer of its rights
and obligations under this Agreement, Lessee agrees to cooperate and
take all such steps as Lessor may reasonably request to give the
transferee the benefit of this Agreement. Any reasonable expenses
incurred by Lessee directly as a result of any assignment contemplated
by Clause 14.2.
15. ILLEGALITY
If it is or becomes unlawful in any jurisdiction for Lessor to give
effect to any of its obligations as contemplated by this Agreement or
to continue this Agreement Lessor may by notice in writing to Lessee
terminate the leasing of the Aircraft under this Agreement and Lessee
will forthwith redeliver the Aircraft to Lessor in accordance with
Clause 12. Without prejudice to the foregoing Lessor will consult in
good faith with Lessee as to any steps which may be taken to
restructure the transaction to avoid that unlawfulness but will be
under no obligation to take any such steps.
16. MISCELLANEOUS
16.1 WAIVERS, REMEDIES CUMULATIVE: The rights of Lessor under this
Agreement:-
(i) may be exercised as often as necessary;
(ii) are cumulative and not exclusive of its rights under any law;
and
(iii) may be waived only in writing and specifically.
Delay in exercising or non-exercise of any such right will not
constitute a waiver of that right.
16.2 DELEGATION: Lessor may delegate to any person or persons all or any of
the trusts, powers or discretions, vested in it by these presents and
any such delegation may be made upon such terms and conditions and
subject to such regulations (including power to subdelegate) as Lessor
in its absolute discretion thinks fit.
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16.3 CERTIFICATES: Save where expressly provided in this Agreement, any
certificate or determination by Lessor as to any rate of interest or
as to any other amount payable under this Agreement will, in the
absence of manifest error, be conclusive and binding on Lessee.
16.4 APPROPRIATION: If any sum paid or recovered in respect of the
liabilities of Lessee under this Agreement is less than the amount
then due, Lessor may apply that sum to amounts due under this
Agreement in such proportions and order and generally in such manner
as Lessor may determine at its sole discretion.
16.5 CURRENCY INDEMNITY:
(a) If Lessor receives an amount in respect of Lessee's liability under
this Agreement or if such liability is converted into a claim, proof,
judgment or order in a currency other than the currency (the
"contractual currency") in which the amount is expressed to be payable
under this Agreement:-
(i) Lessee will indemnify Lessor as an independent obligation
against any loss arising out of or as a result of such
conversion;
(ii) if the amount received by Lessor, when converted into the
contractual currency (at the market rate at which Lessor is
able on the date of receipt by Lessor (or on the next date
thereafter on which under normal banking practice Lessor is
able to convert the amount received into the contractual
currency) to purchase the contractual currency in London or at
its option New York with that other currency) is less than the
amount owed in the contractual currency, Lessee will,
forthwith on demand, pay to Lessor an amount in the
contractual currency equal to the deficit; and
(iii) Lessee will pay to Lessor on demand any exchange costs and
Taxes payable in connection with the conversion; and
(b) Lessee waives any right it may have in any jurisdiction to pay any
amount under this Agreement in a currency other than that in which it
is expressed to be payable.
16.6 SET-OFF: Lessor may set off any matured obligation owed by Lessee
under this Agreement or the Other Agreements (to the extent
beneficially owned by Lessor) against any obligation (whether or not
matured) owed by Lessor to Lessee, regardless of the place of payment
or currency. If the obligations are in different currencies, Lessor
may convert either obligation at the market rate of exchange available
in London or at its option New York for the purpose of the set-off.
If an obligation is unascertained or unliquidated, Lessor may in good
faith estimate that obligation and set off in respect of the estimate,
subject to the relevant party accounting to the other when the
obligation is ascertained or liquidated. Lessor will not be obliged
to pay any amounts to Lessee under this Agreement so long as any sums
which are then due from Lessee under this Agreement or the Other
Agreements remain unpaid and any such amounts which would otherwise be
due will fall due only if and when Lessee has paid all such sums
except to the extent Lessor otherwise agrees or sets off such amounts
against such payment pursuant to the foregoing.
16.7 SEVERABILITY: If a provision of this Agreement is or becomes illegal,
invalid or unenforceable in any jurisdiction, that will not affect:-
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<PAGE> 49
(a) the legality, validity or enforceability in that jurisdiction of any
other provision of this Agreement; or
(b) the legality, validity or enforceability in any other jurisdiction of
that or any other provision of this Agreement.
16.8 REMEDY: If Lessee fails to comply with any provision of this
Agreement, Lessor may, without being in any way obliged to do so or
responsible for so doing and without prejudice to the ability of
Lessor to treat the non-compliance as a Default or an Event of
Default, effect compliance on behalf of Lessee, whereupon Lessee shall
become liable to pay immediately any sums expended by Lessor together
with all costs and expenses (including legal costs) in connection
therewith.
16.9 EXPENSES: Whether or not the Aircraft is delivered to Lessee pursuant
to this Agreement, Lessee will pay to Lessor on demand:-
(a) all expenses (including legal, professional, and out-of-pocket
expenses) incurred or payable by Lessor in connection with the
negotiation, preparation, and execution of this Agreement and
all such expenses related to any amendment to or extension of
or other documentation in connection with, or the granting of
any waiver or consent under this Agreement or the monitoring
of compliance by Lessee with this Agreement; and
(b) all expenses (including legal, survey and other costs) payable
or incurred by Lessor in contemplation of, or otherwise in
connection with, the enforcement of or preservation of any of
Lessor's or Owner's rights under this Agreement, or in respect
of the repossession of the Aircraft.
All expenses payable pursuant to this Clause 16.9 will be paid in the
currency in which they are incurred by Lessor.
16.10 TIME OF ESSENCE: The time stipulated in this Agreement for all
payments payable by Lessee to Lessor and for the performance of
Lessee's other obligations under this Agreement will be of the essence
of this Agreement.
16.11 NOTICES: All notices under, or in connection with, this Agreement
will, unless otherwise stated, be given in writing by letter, telex,
facsimile or SITA. Any such notice is deemed effective to be given as
follows:-
(i) if by letter, when delivered;
(ii) if by telex, when dispatched, but only if, at the time of
transmission, the correct answerback appears at the start and
at the end of the sender's copy of the notice; and
(iii) if by facsimile or SITA, when transmitted and full
transmission has been confirmed by a printout of the facsimile
transmittal confirmation of the transmitting party.
The address, telex numbers, SITA, facsimile and telephone numbers of
Lessee, Sub Lessor, Lessor and Owner are as follows:
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<PAGE> 50
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Lessee: Address: 1800
St. Julian Place
4th Floor
Columbia
South Carolina
29204
Attn: President
Telex: None
SITA: None
Facsimile: 803 771 9067
Telephone: 803 771 0038
Sub Lessor: Address: 1 Earlsfort Terrace
Hatch Street
Dublin 2
Ireland
Telex: None
SITA: None
Facsimile: 353 1 6613278
Telephone: 353 1 6613311
Lessor and Owner: Address: Birger Jarlsgatan 33
S-11145
Stockholm
Sweden
Telex: None
SITA: None
Facsimile: 46 8 611 34 34
Telephone: 46 8 611 58 79
with a copy to: Address: GE Capital Aviation
Services, Inc.
201 High Ridge Road
Stamford, Connecticut
06927-4900
Attn: Senior Vice President,
Portfolio Management
Facsimile: 212-357-4585
Telephone: 212-357-4279
</TABLE>
16.12 LAW AND JURISDICTION:
(a) THIS AGREEMENT IN ALL RESPECTS IS GOVERNED BY THE GOVERNING LAW;
(b) For the benefit of Lessor, Lessee agrees that the courts of the State
of New York are to have non exclusive jurisdiction to settle any
disputes in connection with this Agreement and submits itself and its
property to the nonexclusive jurisdiction of the courts of the State
of New York in connection with this Agreement;
(c) Without prejudice to any other mode of service, Lessee:-
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<PAGE> 51
(i) appoints CT Corporation System, New York as its agent for
service of process relating to any proceedings before the New
York courts in connection with this Agreement and agrees to
maintain the process agent in New York notified to Lessor;
(ii) agrees that failure by a process agent to notify Lessee of the
process shall not invalidate the proceedings concerned;
(iii) consents to the service of process relating to any such
proceedings by prepaid mailing of a copy of the process to
Lessee's agent at the address identified in paragraph (i);
(d) Lessee:-
(i) waives objection to the courts of the State of New York on
grounds of inconvenient forum or otherwise as regards
proceedings in connection with this Agreement;
(ii) agrees that a judgment or order of a court of the State of New
York in connection with this Agreement is conclusive and
binding on it and may be enforced against it in the courts of
any other jurisdiction;
(e) Nothing in this Clause limits the right of Lessor to bring proceedings
against Lessee in connection with this Agreement:-
(i) in any other court of competent jurisdiction; or
(ii) concurrently in more than one jurisdiction;
(f) Lessee irrevocably and unconditionally:-
(i) agrees that if Lessor brings legal proceedings against it or
its assets in relation to this Agreement no immunity from such
legal proceedings (which will be deemed to include without
limitation, suit, attachment prior to judgment, other
attachment, the obtaining of judgment, execution or other
enforcement) will be claimed by or on behalf of itself or with
respect to its assets;
(ii) waives any such right of immunity which it or its assets now
has or may in the future acquire;
(iii) consents generally in respect of any such proceedings to the
giving of any relief or the issue of any process in connection
with such proceedings including, without limitation, the
making, enforcement or execution against any property
whatsoever (irrespective of its use or intended use) of any
order or judgment which may be made or given in such
proceedings.
16.13 SOLE AND ENTIRE AGREEMENT: This Agreement, Letter Agreement No. 1 and
any related side-letters are the sole and entire agreement between
Lessor and Lessee in relation to the leasing of the Aircraft, and
supersede all previous agreements in relation to that leasing.
16.14 INDEMNITIES: All rights expressed to be granted to each Indemnitee
under this Agreement (other than Lessor) are given to Lessor on behalf
of that Indemnitee.
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<PAGE> 52
16.15 COUNTERPARTS: This Agreement may be executed in counterparts each of
which will constitute one and the same document.
16.16 LANGUAGE: All notices to be given under this Agreement will be in
English. All documents delivered to Lessor pursuant to this Agreement
will be in English, or if not in English, will be accompanied by a
certified English translation. If there is any inconsistency between
the English version of this Agreement and any version in any other
language, the English version will prevail.
16.17 NO BROKERS: Each party agrees to indemnify and hold the other harmless
from and against any and all claims, suits, damages, costs and
expenses (including, but not limited to, reasonable attorneys' fees)
asserted by any agent, broker or other third party for any commission
or compensation of any nature whatsoever based upon the lease of the
Aircraft, if such claim, suit, damage, cost or expense arises out of
any action or alleged action by the indemnifying party, its employees
or agents. Lessee hereby represents and warrants that it has not
paid, agreed to pay or caused to be paid directly or indirectly in any
form, any commission, percentage, contingent fee, brokerage or other
similar payments of any kind, in connection with the establishment or
operation of this Agreement, to any employee of Lessor or to any
person or entity in the State of Incorporation or elsewhere, except to
Excluded Persons, as defined below. For the purposes hereof, the term
"Excluded Persons" shall mean (x) in the case of Lessor, any of its
officers, directors, employees, attorneys or other professional
advisors, wherever located; and (y) in the case of Lessee, any of its
officers, directors, employees, attorneys or other professional
advisors, wherever located.
17. DISCLAIMERS AND WAIVERS
17.1 EXCLUSION: THE AIRCRAFT IS DELIVERED "AS IS, WHERE IS" AND LESSEE
AGREES AND ACKNOWLEDGES THAT, SAVE AS EXPRESSLY STATED IN THIS
AGREEMENT, LESSOR WILL HAVE NO LIABILITY IN RELATION TO, AND LESSOR
HAS NOT AND WILL NOT BE DEEMED TO HAVE MADE OR GIVEN, ANY WARRANTIES
OR REPRESENTATIONS, EXPRESS OR IMPLIED, WITH RESPECT TO, THE AIRCRAFT,
INCLUDING BUT NOT LIMITED TO:-
(a) THE DESCRIPTION, AIRWORTHINESS, MERCHANTABILITY, FITNESS FOR ANY
PARTICULAR USE OR PURPOSE, VALUE, CONDITION, OR DESIGN, OF THE
AIRCRAFT OR ANY PART; OR
(b) ANY OBLIGATION, LIABILITY, RIGHT, CLAIM OR REMEDY IN TORT, WHETHER OR
NOT ARISING FROM LESSOR'S NEGLIGENCE, ACTUAL OR IMPUTED; OR
(c) ANY OBLIGATION, LIABILITY, RIGHT, CLAIM OR REMEDY FOR LOSS OF OR
DAMAGE TO THE AIRCRAFT, FOR ANY LIABILITY OF LESSEE TO ANY THIRD
PARTY, OR FOR ANY OTHER DIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES.
17.2 WAIVER: LESSEE HEREBY WAIVES, AS BETWEEN ITSELF AND THE LESSOR, ALL
ITS RIGHTS IN RESPECT OF ANY WARRANTY OR REPRESENTATION, EXPRESS OR
IMPLIED, ON THE PART OF LESSOR AND ALL CLAIMS AGAINST LESSOR HOWSOEVER
AND WHENEVER ARISING AT ANY TIME IN RESPECT OF OR OUT OF THE OPERATION
OR PERFORMANCE OF THE AIRCRAFT OR THIS AGREEMENT EXCEPT TO THE EXTENT
ARISING UNDER CLAUSE 2.4.
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<PAGE> 53
17.3 CONFIRMATION: LESSEE CONFIRMS THAT IT IS FULLY AWARE OF THE PROVISIONS
OF THIS CLAUSE AND ACKNOWLEDGES THAT RENT AND OTHER AMOUNTS HAVE BEEN
CALCULATED BASED ON ITS PROVISIONS.
18. SECTION 1110
Lessee acknowledges that Lessor would not have entered into this
Agreement unless it had available to it the benefits of a lessor under
Section 1110 of Title 11 of the United States Code. Lessee
covenants and agrees with Lessor that to better ensure the
availability of such benefits, Lessee shall support any motion,
petition or application filed by Lessor with any bankruptcy court
having jurisdiction over Lessee, whereby Lessor seeks recovery of
possession of the Aircraft under said Section 1110 and shall not in
any way oppose such action by Lessor unless Lessee shall have complied
with the requirements of said Section 1110 to be fulfilled in order to
entitle Lessee to continued use and possession of the Aircraft
hereunder. In the event said Section 1110 is amended, or if it is
repealed and another statute is enacted in lieu thereof, Lessor and
Lessee agree to amend this Agreement and take such other action not
inconsistent with this Agreement as Lessor reasonably deems necessary
so as to afford to Lessor the rights and benefits as such amended or
substituted statute confers upon owners and lessors of aircraft
similarly situated to Lessor.
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<PAGE> 54
SCHEDULE 1
PART 1
DESCRIPTION OF AIRCRAFT
AIRCRAFT
MANUFACTURER: Boeing
MODEL: 737-2PB
SERIAL NUMBER: 21677
ENGINES
ENGINE TYPE AND NO.: Pratt & Whitney JT8D-15 x 2
SERIAL NOS: As set out in the Certificate of Acceptance
On the Delivery Date, the Aircraft shall be delivered constructively
"as is, where is".
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<PAGE> 55
PART 2
AIRCRAFT DOCUMENTS
A. CERTIFICATES
- FAA Certificate of Airworthiness
B. AIRCRAFT STATUS RECORDS
- Log Books
- Airframe Maintenance Status Report
- Supplemental Structural Inspection Document Status (if
applicable)
- Manufacturer's Service Bulletin Status Report
- Airworthiness Directive Compliance Report
(terminated and repetitive)
- Modification Status Report List
documents will be provided upon request)
- Last Weighing Report
- List of Life Limited Components with remaining hours/cycles
C. AIRCRAFT MAINTENANCE RECORDS (LAST HEAVY MAINTENANCE VISITS)
- Test Flight Reports
- X-ray pictures
- Last annual check and heaviest maintenance check Work Cards
D. AIRCRAFT HISTORY RECORDS
- Aircraft Maintenance History Cards
- Service Difficulty Report
- Accident or Incident Report (Major Structural Repair)
E. ENGINE RECORDS (FOR EACH ENGINE)
- Engine time and cycle records
- Last overhaul and repair documents (including FAA Forms 337)
- Airworthiness Directive Compliance Report
(terminated and repetitive)
- Manufacturer's Service Bulletin Status Report
- List of Time Controlled Components with remaining hours and
cycles
- Modification Status Report
- Engine Disc Sheets
- Engine Build Specifications
F. APU RECORDS
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<PAGE> 56
- Last Overhaul and Repair Documents
(including modification status)
- Airworthiness Directive Compliance Report
(terminated and repetitive)
- Manufacturer's Service Bulletin Status Report
- List of Time Controlled Components with remaining hours/cycles
- Modification Status Report
G. COMPONENT RECORDS
- Time Controlled Component Historical Records with
Installation and Serviceability Tags
H. MANUALS
- Airplane Flight Manual (Manufacturer Approved, FAA Approved)
- Flight Crew Operating Manual
- Weight and Balance Manual
- Wiring Diagram Manual (microfilm and hard copy if available)
- Illustrated Parts Catalog (microfilm)
- Aircraft Maintenance Manual (microfilm)
- Manufacturer's Engine Maintenance Manual and any approved
engineering changes, as applicable
I. MISCELLANEOUS TECHNICAL DOCUMENTS
- Maintenance Program Specifications
- Interior Configuration Drawings
- Original Delivery Documents
- Loose Equipment Inventory
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<PAGE> 57
SCHEDULE 2
CERTIFICATE OF ACCEPTANCE
This Certificate of Acceptance is delivered, on the date set out below
by Air South Inc. ("Lessee"), to Polaris Aircraft Leasing
K.B. ("Lessor"), pursuant to the Aircraft Lease Agreement dated April
29, 1996 between Lessor and Lessee (the "Agreement"). The capitalised
terms used in this Certificate shall have the meaning given to such
terms in the Agreement.
1. DETAILS OF ACCEPTANCE
Lessee hereby confirms to Lessor that Lessee has on this 29th day
of April, 1996, at Columbia, South Carolina, accepted the constructed
delivery of the Aircraft described below in "where is, as is"
condition:-
(a) Boeing 737-2P6 Advanced airframe, Manufacturer's Serial No. 21677;
(b) 2 Pratt & Whitney JT8D-15 Engines:-
Engine Number Manufacturer's Serial No.
1 ; and
2 ;
(Each of which shall have more than 750 rated takeoff horsepower or
the equivalent of such horsepower).
(c) Fuel Status: (N/A - see Previous Delivery Date Certificate of
Acceptance; and
(d) Loose Equipment Check List: as per list signed by Lessor and Lessee
and attached hereto.
2. CONFIRMATION
Lessee confirms to Lessor that as at the time indicated above, being
the Delivery Date:-
(a) the representations and warranties contained in Clause 2 are hereby
repeated;
(b) the Aircraft is insured as required by the Agreement;
(c) Lessee confirms that there have been affixed to the Aircraft and the
Engines the fireproof notices required by the Agreement; and
(d) Lessee's authorised technical experts have inspected the Aircraft to
ensure the Aircraft conforms to Lessee's requirements. The Aircraft
is in accordance with the specifications of the Agreement and
satisfactory in all respects.
IN WITNESS WHEREOF, Lessee has, by its duly authorised representative,
executed this Certificate as of April 29, 1966.
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<PAGE> 58
LESSEE: Air South Airlines, Inc.
By:
----------------------------
Title:
----------------------------
58
<PAGE> 59
SCHEDULE 3
OPERATING CONDITION AT REDELIVERY
On the Expiry Date the Aircraft, subject to fair wear and tear
generally, will be in the condition set out below:-
1. GENERAL CONDITION
The Aircraft will:-
(a) be clean by airline standards;
(b) have installed the full complement of engines and other equipment,
parts and accessories and loose equipment as is normally installed in
the Aircraft, and be in a condition suitable for immediate operation
in commercial service;
(c) have in existence a valid certificate of airworthiness (or if required
by Lessor, a valid export certificate of airworthiness) with respect
to the Aircraft issued by the Air Authority. The Aircraft will also
be eligible for an FAA Certificate of Airworthiness, shall meet all
requirements for U.S. domestic operations under FAR Part 121 and will
meet the requirements of FAR Part 36, appendix C, Stage 2 noise
compliance without waiver or restriction. There will be no deferred,
open or carryover items on the Aircraft or any Engine on the Expiry
Date;
(d) comply with the manufacturer's original specifications;
(e) have undergone, immediately prior to redelivery, a C Check (including
all phases and multiples thereof) so that all Airframe inspections
falling due within the next following C Check interval in accordance
with the Agreed Maintenance Programme, have been accomplished. The
time since the heaviest maintenance inspection (complete block
overhaul/D Check) will not be more than when the Aircraft was
delivered by Lessor to Lessee under the Previous Lease.
Notwithstanding the foregoing, Lessee may redeliver the Aircraft to
Lessor with fewer Flight Hours remaining until the next D Check
(complete block overhaul) than as at the Previous Delivery Date as a
percentage of the allowed interval between such overhauls if (x)
at least 7,500 Flight Hours remain since the last D Check (complete
block check) (determined in accordance with the Agreed Maintenance
Programme); and (y) Lessee pays to Lessor on the Expiry Date the
product of (xx) the difference (if greater than zero) between the
number of Flight Hours so remaining on the Expiry Date and the number
of Flight Hours that were so remaining on the Previous Delivery Date;
and (yy) the then current rate of Airframe Supplemental Rent;
(f) have had accomplished all outstanding airworthiness directives and
mandatory orders affecting that model of Aircraft issued by the FAA
which, if the Aircraft were registered with the FAA, would have to be
complied with during the Term and within 180 days after the Expiry
Date;
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(g) have installed all applicable vendor's and manufacturer's service
bulletin kits received free of charge by Lessee that are appropriate
for the Aircraft and to the extent not installed, those kits will be
furnished free of charge to Lessor;
(h) be sanded and freshly painted and in such external livery as advised
by Lessor; and
(i) have all signs and decals clean, secure and legible.
2. COMPONENTS
(a) time since overhaul on all time controlled (other than the APU, the
Engines and the Landing Gear) shall be not less than as on the
Previous Delivery Date.
(b) Each "on-condition" and "condition monitored" component will be
serviceable;
(c) The APU will be in the same operational condition as at the Previous
Delivery Date having no more than 1,500 Flight Hours used since the
last APU hot section inspection with temperatures and air outputs
within the APU manufacturer's limits at all operational settings; and
3. ENGINES
Each Engine will be installed on the Aircraft and if not the engines
installed on the Delivery Date will be accompanied by all
documentation Lessor may require to evidence that title thereto is
properly vested in Owner and:-
(a) each life limited part within each Engine will have at least the same
life remaining as when delivered by Lessor to Lessee under this
Agreement;
(b) each Engine will have no more time since last hot section
refurbishment and no more time since the last Cold Section
Refurbishment than as when delivered by Lessor to Lessee under this
Agreement;
(c) each Engine will have had a complete hot (including combustion
chamber) and cold section video boroscope inspection, at Lessor's
expense, and a power assurance run in accordance with the Engine
manufacturer's maintenance manual and all items beyond such
manufacturer's limits will be repaired at Lessee's expense. No Engine
will be "on watch" for any reason requiring any special or out of
sequence inspection.
Notwithstanding Paragraph 3 (a) above, Lessee may redeliver an Engine
to Lessor with less life so remaining if (x) at least 3,000 Flight
Hours and Cycles remain until the next scheduled life limited Parts
replacement (determined in accordance with the Agreed Maintenance
Programme); and (y) Lessee pays to Lessor on the Expiry Date the
product of (xx) the difference (if greater than zero) between the
average number of Flight Hours and Cycles so remaining on the Expiry
Date and the average number of Flight Hours and Cycles that were so
remaining on the Previous Delivery Date; and (yy) the then current
rate of Engine Life Limited Parts Supplemental Rent.
Notwithstanding Paragraph 3 (b) above, Lessee may redeliver an Engine
to Lessor with fewer Flight Hours remaining until the next Hot Section
Refurbishment or Cold Section Refurbishment, as applicable, than as at
the Previous Delivery Date if (x) at least 3,000 Flight Hours and
Cycles remain until the next Hot Section Refurbishment or Cold Section
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<PAGE> 61
Refurbishment, as applicable (determined in accordance with the Agreed
Maintenance Programme); and (y) Lessee pays to Lessor on the Expiry
Date the product of (xx) the difference (if greater than zero) between
the number of Flight Hours and Cycles so remaining on the Expiry Date
and the number of Flight Hours that were so remaining on the Previous
Delivery Date; and (yy) the then current rate of Engine Refurbishment
Supplemental Rent.
[Notwithstanding Paragraph 3 (b) above, Lessee may redeliver an Engine
to Lessor with fewer Flight Hours remaining until the next Cold
Section Refurbishment than as at the Delivery Date if (x) at
least 4,000 Flight Hours and Cycles remain until the next Cold Section
Refurbishment (determined in accordance with the Agreed Maintenance
Programme); and (y) Lessee pays to Lessor on the Expiry Date the
product of (xx) the difference (if greater than zero) between the
number of Flight Hours and Cycles so remaining on the Expiry Date and
the number of Flight Hours that were so remaining on the Delivery
Date; and (yy) the then current rate of Engine Refurbishment
Supplemental Rent.]
4. FUSELAGE, WINDOWS AND DOORS
(a) The fuselage will be free of major dents and abrasions and loose or
pulled or missing rivets;
(b) Doors will be free moving, correctly rigged and be fitted with
serviceable seals.
5. WINGS AND EMPENNAGE
(a) Leading edges will be free from damage;
(b) Wings will be free of fuel leaks.
6. INTERIOR
(a) Ceilings, sidewalls and bulkhead panels will be clean and free of
cracks and stains.
(b) Carpets and seat covers will be in good condition, clean and free of
stains and meet FAR burn certification regulations;
(c) Seats will be serviceable, in good condition and repainted as
necessary; and
(d) Emergency equipment having a calendar life will have a minimum of 1
year or 100% of its total approved life, whichever is less, remaining.
7. COCKPIT
(a) Trim panels shall be free of stains and cracks, will be clean secure
and repainted as necessary;
(b) Seat covers will be in good condition, clean and free of stains and
will conform to FAR burn certification regulations; and
8. CARGO COMPARTMENTS
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(a) Panels will be in good condition; and
(b) Nets will be in good condition.
9. LANDING GEAR
Time since overhaul on the Landing Gear will not be greater than as at
the Previous Delivery Date. Each life limited part within the landing
gear will have at least the same time remaining as at the Previous
Delivery Date. The Landing Gear and wheel wells will be clean, free
of leaks and repaired as necessary.
Notwithstanding the foregoing, Lessee may redeliver the Landing Gear
to Lessor with fewer Flight Hours remaining until the next overhaul
than as at the Previous Delivery Date as a percentage of the allowable
interval between such overhauls if (x) at least 6,000 Flight Hours
remain since the last overhaul (determined in accordance with the
Agreed Maintenance Programme); and (y) Lessee pays to Lessor on the
Expiry Date the product of (xx) the difference (if greater than zero)
between the number of Flight Hours so remaining on the Expiry Date and
the number of Flight Hours that were so remaining on the Previous
Delivery Date; and (yy) the then current rate of Landing Gear
Supplemental Rent.
10. CORROSION
(a) The Aircraft will have been inspected and treated with respect to
corrosion as defined in the Agreed Maintenance Programme and/or Boeing
Document No.D6-38528 relative to compliance with the Corrosion
Prevention and Control Program (CPCP). The entire fuselage will be
substantially free from corrosion and will be adequately treated and
an approved corrosion prevention programme will be in operation; and
(b) Fuel tanks will be free from contamination and corrosion and a tank
treatment programme will be in operation.
Notwithstanding anything contained in this Schedule 3, Lessor shall not be
required to make any payments to Lessee in the event that any or all of the
Airframe, the Engines, the Landing Gear, any time, cycle or calendar controlled
component is returned to Lessor in a condition better than that specified in
Clause 12 and this Schedule 3.
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SCHEDULE 4
INSURANCE REQUIREMENTS
The Insurances required to be maintained are as follows:-
(a) HULL ALL RISKS of Loss or Damage whilst flying and on the ground with
respect to the Aircraft on an "agreed value basis" for the Agreed
Value and with a deductible not exceeding $350,000, or such other
amount agreed by Lessor from time to time. Without prejudice to the
foregoing, (x) with the prior written consent of Lessor, Lessee may
increase the aforesaid deductible amount to $500,000 if, prior to
doing so, Lessee shall have paid to Lessor the sum of $150,000 by way
of an insurance security deposit (the "Insurance Security Deposit")
(which Insurance Deposit shall also be available to be applied to
deductible losses between $350,000 and $500,000 in relation to
B737-2P6 Advanced Aircraft Serial Numbers 21356, 21612, and 21733
leased, or to be leased, to Lessee pursuant to Other Agreements);
and (y) provided no Default shall have occurred and, in Lessor's
reasonable opinion, Lessee remains in good financial standing,
following the expiration of Rental Period 12, Lessor, without being
under any obligation, will consider a request from Lessee to increase
the aforementioned deductible amount to $500,000 without the
requirement for Lessee to pay an Insurance Security Deposit. The
Insurance Security Deposit, which shall be held by Lessor as security
for the performance by Lessee of its obligations under this Agreement
(and under the Other Agreement), shall be returned to Lessee on the
Expiry Date if all amounts payable by Lessee under this Agreement and
any Other Agreement shall have been paid in full and no Default shall
have occurred and be continuing. With Lessor's prior consent, the
Insurance Deposit may be provided by Lessee by way of Letter of
Credit issued by a bank acceptable to Lessor and in form and in
substance acceptable to Lessor.
In the event that the Insurance Security Deposit is applied to a
loss claim thereby reducing the balance thereof, Lessee will
either (a) replace any deficiency in such balance; or (b)
lower the all risk hull insurance deductible to $500,000
within 15 days after the aforementioned application.
(b) HULL WAR AND ALLIED PERILS, being such risks excluded from the Hull
All Risks Policy to the fullest extent available from the leading
international insurance markets including confiscation and requisition
by the State of Registration for the Agreed Value;
(c) ALL RISKS (INCLUDING WAR AND ALLIED RISK except when on the ground or
in transit other than by air) property insurance on all Engines and
Parts when not installed on the Aircraft on an "agreed value" basis
for their full replacement value and including engine test and running
risks;
(d) AIRCRAFT THIRD PARTY, PROPERTY DAMAGE, PASSENGER, BAGGAGE, CARGO AND
MAIL AND AIRLINE GENERAL THIRD PARTY (INCLUDING PRODUCTS) LEGAL
LIABILITY for a Combined Single Limit (Bodily Injury/Property Damage)
of an amount not less than the Minimum Liability Coverage for the time
being any one occurrence (but in respect of products and personal
injury liability this limit may be an aggregate limit for any and all
losses occurring during the currency of the policy). War and Allied
Risks are also to be covered under the Policy to the fullest extent
available from the leading international insurance markets;
(e) All required hull and spares insurance (as specified above), so far as
it relates to the Aircraft will: -
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(i) name Owner, Sub Lessor, Lessor and their respective successors
and assigns as additional assureds for their respective rights
and interests, warranted, each as to itself only, no
operational interest;
(ii) provide that any loss will be settled jointly with Lessor and
Lessee, subject to final prior approval of Owner and will be
payable in Dollars to Owner, for the account of all interests
except where the loss does not exceed the Damage Notification
Threshold, and neither Lessor nor Owner has notified the
insurers to the contrary, in which case the loss will be
settled with and paid to Lessee;
(iii) include a notice and/or acknowledgement of assignment in a
form acceptable to Lessor;
(iv) if separate Hull "all risks" and "war risks" insurances are
arranged, include a 50/50 provision in accordance with market
practice (AVS. 103 is the current market language);
(v) confirm that the insurers are not entitled to replace the
Aircraft in the event of an insured Event of Loss;
(vi) confirm that the insurers will not obtain a valid discharge of
the obligations under the Insurances by payment to the broker,
notwithstanding market practice to the contrary;
(f) All required liability insurances (specified above) will:-
(i) include Owner, Sub Lessor, Lessor and their respective
successors and assigns and their respective shareholders,
subsidiaries, directors, officers, agents, employees and
indemnitees as additional insureds for their respective rights
and interests, warranted, each as to itself only, no
operational interest;
(ii) include a Severability of Interest Clause which provides that
the insurance, except for the limit of liability, will operate
to give each assured the same protection as if there was a
separate policy issued to each assured;
(iii) contain a provision confirming that the policy is primary
without right of contribution and the liability of the
insurers will not be affected by any other insurance of which
Owner, Sub Lessor, Lessor or Lessee have the benefit so as to
reduce the amount payable to the additional insureds under
such policies;
(g) All Insurances will:-
(i) be in accordance with normal industry practice of persons
operating similar aircraft in similar circumstances;
(ii) provide cover denominated in Dollars and any other currencies
which Lessor may reasonably require in relation to liability
insurance;
(iii) operate on a worldwide basis subject to such limitations and
exclusions as Lessor may agree;
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(iv) acknowledge the insurer is aware (and has seen a copy) of this
Agreement and that the Aircraft is owned by Owner and is
subject to the Head Lease and the Sub Lease;
(v) provide that, in relation to the interests of each of the
additional assureds the Insurances will not be invalidated by
any act or omission by Lessee, or any other person other than
the respective additional assured seeking protection and shall
insure the interests of each of the additional assureds
regardless of any breach or violation by Lessee, or any other
person other than the respective additional assured seeking
protection of any warranty, declaration or condition,
contained in such Insurances;
(vi) provide that the insurers will hold harmless and waive any
rights of recourse and/or subrogation against the additional
assureds or to be subrogated to any rights of the Banks
against Lessor, Sub Lessor, Owner or Lessee;
(vii) provide that the additional assureds will have no obligation
or responsibility for the payment of any premiums due (but
reserve the right to pay the same should any of them elect so
to do) and that the insurers will not exercise any right of
set-off or counter-claim in respect of any premium due against
the respective interests of the additional assureds other than
outstanding premiums relating to the Aircraft, any Engine or
Part the subject of the relevant claim;
(viii) provide that the Insurances will continue unaltered for the
benefit of the additional assureds for at least 30 days after
written notice by registered mail or telex of any
cancellation, change, event of non-payment of premium or
instalment thereof has been sent to Lessor, Sub Lessor and
Owner, except in the case of war risks for which 7 days (or
such lesser period as is or may be customarily available in
respect of war risks or allied perils) will be given, or in
the case of war between the 5 great powers or nuclear peril
for which termination is automatic;
(ix) if reinsurance is a requirement of this Agreement such
reinsurance will (i) be on the same terms as the original
insurances and will include the provisions of this Schedule,
(ii) provide that notwithstanding any bankruptcy, insolvency,
liquidation, dissolution or similar proceedings of or
affecting the reinsured that the reinsurers' liability will be
to make such payments as would have fallen due under the
relevant policy of reinsurance if the reinsured had
(immediately before such bankruptcy, insolvency, liquidation,
dissolution or similar proceedings) discharged its obligations
in full under the original insurance policies in respect of
which the then relevant policy of reinsurance has been
effected; and (iii) contain a "cut-through" clause in the
following form (or otherwise, satisfactory to Lessor): "The
Reinsurers and the Reinsured hereby mutually agree that in the
event of any claim arising under the reinsurances in respect
of a total loss or other claim where as provided by the
Aircraft Lease Agreement dated [ ] 1994 and made between
Polaris Aircraft Leasing K.B. and Air South, Inc. such claim
is to be paid to the person named as sole loss payee under the
primary insurances, the Reinsurers will in lieu of payment to
the Reinsured, its successors in interest and assigns pay to
the person named as sole loss payee under the primary
insurances effected by the Reinsured that portion of any loss
due for which the Reinsurers would otherwise be liable to
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<PAGE> 66
pay the Reinsured (subject to proof of loss), it being
understood and agreed that any such payment by the Reinsurers
will (to the extent of such payment) fully discharge and
release the Reinsurers from any and all further liability in
connection therewith"; subject to such provisions not
contravening any law of the State of Incorporation;
(x) contain a provision entitling Lessor, Owner, Sub Lessor or any
insured party to initiate a claim under any policy in the
event of the refusal or failure of Lessee to do so; and
(xi) accept and insure the indemnity provisions of the Head Lease
and the Sub Lease and of this Agreement to the extent of the
risks covered by the policies.
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SCHEDULE 5
FORM OF LEGAL OPINION
To: [Owner] [Sub Lessor] [Lessor]
[Date]
Dear Sirs
1. You have asked us to render an opinion in connection with the
transaction governed, inter alia, by the under mentioned documents.
Words and expressions used herein will bear the same meanings as
defined in an Aircraft Lease Agreement (the "Lease") dated [ ] 1994
between Polaris Aircraft Leasing K.B. ("Lessor") and Air South,
Inc. ("Lessee") in respect of one Boeing 737-2P6 Advanced aircraft
with manufacturer's serial number 21677 together with the 2
installed Pratt & Whitney JT8D-15 engines (the "Aircraft").
1.1. the Lease;
1.2. the Memorandum and Articles of Association of Lessee;
1.3. all other documents, approvals and consents of whatever nature and
wherever kept which it was, in our judgment and to our knowledge,
necessary or appropriate to examine to enable us to give the
opinion expressed below.
2. Having considered the documents listed in paragraph 1 above, and
having regard to the relevant laws of [] we are pleased to advise
that in our opinion:-
(a) Lessee is a corporation duly organised and validly existing under
the laws of [], is qualified to do business as a foreign
corporation in each jurisdiction where failure to so qualify would
have a materially adverse effect on Lessee's business or its
ability to perform its obligations under the lease is subject to
suit in its own name, and, to the best of our knowledge, no steps
have been, or are being, taken to appoint a receiver, liquidator,
trustee or similar officer over, or to wind up, Lessee;
(b) Lessee has the corporate power to enter into and perform, and has
taken all necessary corporate action to authorise the entry into,
performance and delivery of, the Lease and the transactions
contemplated by the Lease;
(c) the entry into and performance by Lessee of, and the transactions
contemplated by, the Lease do not and will not:-
(i) conflict with any laws binding on Lessee; or
(ii) conflict with the Certificate of Incorporation of By Laws
of Lessee; or
(iii) conflict with or result in default under any indenture,
mortgage, chattel mortgage, deed of trust, conditional
sales contract, lease, bank loan or credit agreement or
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other agreement which is binding upon Lessee or any of its
assets or result in the creation of any Security Interest
over any of its assets.
(d) no authorisations, consents, licences, approvals and registrations
(other than those which have been obtained and of which copies are
attached hereto) are necessary or desirable to be obtained from any
governmental or other regulatory authorities in having jurisdiction
over Lessee or its properties to enable Lessee:-
(1) to enter into and perform the transactions contemplated by
the Lease;
(2) to import the Aircraft into the United States and [ ] for
the duration of the Term;
(3) to operate the Aircraft in the United States for the
transport of fare-paying passengers; or
(4) to make the payments provided for in the Lease;
(e) except for the filing and recordation of the Lease with the FAA and
the filing of the Financial Statements with [] (which filing has
been duly made on or before this date) it is not necessary or
desirable, to ensure the priority, validity and enforceability of
all the obligations of Lessee under the Lease that the Lease be
filed, registered, recorded or notarised in any public office or
elsewhere or that any other instrument relating thereto be signed,
delivered, filed, registered or recorded, that any tax or duty be
paid or that any other action whatsoever be taken;
(f) no steps are necessary or desirable to record or perfect either
Lessor's, Sub Lessor's or Owner's interest in the Aircraft in the
United States or [];
(g) on termination of the Lease (whether on expiry or otherwise) as
contemplated in the Lease, Lessor would be entitled:-
(1) to repossess the Aircraft;
(2) to export the Aircraft from the United States and [];
without requiring any further consents, approvals or
licences from any governmental or regulatory authority in
the United States or [];
(h) the Lease has been properly signed and delivered on behalf of
Lessee and the obligations on the part of Lessee contained therein,
assuming them to be valid and binding according to the Governing
Law, are valid and legally binding on and enforceable against
Lessee respectively under the laws of [];
(i) the events described in Clause 13.1(g), (h) and (i) of the Lease
comprise an accurate and complete statement of all events and
situations provided for by the laws of [] which may lead to the
cessation of activities, winding up or dissolution of Lessee;
(j) Lessee is a Certificated Air Carrier;
(k) Lessee is a "citizen of the United States" as defined in Section
101(16) of the Federal Aviation Act;
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<PAGE> 69
(l) Lessor is entitled to the benefits of Section 1110 of Title 11 of
the United States Code;
(m) Lessee's chief executive office (as defined in the Uniform
Commercial in effect in []) is located at [].
(n) the obligations of Lessee under the Lease rank at least pari passu
with all other present and future unsecured and unsubordinated
(including contingent obligations) of Lessee;
(o) there is no withholding tax or other Tax to be deducted from any
payment whatsoever which may be made by Lessee pursuant to the
Lease; with respect to any withholdings, the provisions of Clauses
5.6, 5.7 and 5.10 of the Lease are fully effective; and the
arrangements contemplated by the Lease do not give rise to any
charge whatsoever to Taxes in [];
(p) there is no applicable usury or interest limitation law in [] which
may restrict the recovery of payments in accordance with the Lease;
(q) there are no registration, stamp or other taxes or duties of any
kind payable in [] in connection with the signature, performance or
enforcement by legal proceedings of the Lease;
(r) Lessor will not violate any law or regulation in [] nor become
liable to tax in [] by reason of entering into the Lease with
Lessee, or performing its obligations thereunder;
(s) it is not necessary to establish a place of business in [] in order
to enforce any provisions of the Lease;
(t) the choice of the Governing Law to govern the Lease will be upheld
as a valid choice of law in any action in the Courts of [];
(u) the consent to the jurisdiction by Lessee contained in the Lease is
valid and binding on Lessee and not subject to revocation;
(v) any judgement for a definite sum given by the courts of [ ]
against Lessee would be recognised and accepted by the courts of []
without re-trial or examination of the merits of the case;
(w) (i) Lessee is subject to civil commercial law with respect to
its obligations under the Lease; and
(ii) neither Lessee nor any of its assets is entitled to any
right of immunity and the entry into and performance of the
Lease by Lessee constitute private and commercial acts;
(x) there are no laws or other rules in [] (including, without
limitation, Emergency Powers laws) pursuant to which Lessee may be
deprived of the Aircraft by any Government Entity or any other
person, other than Lessor or any assignee of Lessor.
Yours faithfully,
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LETTER AGREEMENT NO. 1
April 29, 1996
Air South Airlines, Inc.
1800 St. Julian Place
Columbia, South Carolina 29204
Attention: Mr. Clif E. Haley
Re: Aircraft Lease Agreement, dated as of April 29, 1996, relating to one
Boeing 737-2P6 aircraft bearing MSN 21677 and Irish Registration Number GKW.
Dear Sirs:
Reference is made to the Aircraft Lease Agreement, dated this date (THE "LEASE
AGREEMENT"), between Polaris Aircraft Leasing K.B., a limited partnership
formed under the laws of Sweden ("LESSOR") and Air South Airlines, Inc., an
Illinois corporation (THE "LESSEE"), for the lease of one used Boeing 737-2P6
aircraft bearing MSN 21677 and Irish Registration Number GKW (THE
"AIRCRAFT") and the Letter Agreement, dated March 29, 1996, as amended by the
Letter Agreements, dated April 11 and April 26, 1996 between Lessee and GECAS
(AS AMENDED, THE "MARCH LETTER AGREEMENT"), between the Lessee, GE Capital
Aviation Services, Inc. ("GECAS"), Polaris Holding Company ("PHC" AND
COLLECTIVELY WITH THE LESSOR, THE "LESSORS") and the Lessor. Capitalized terms
used herein and not otherwise defined shall have the meanings ascribed to such
terms in the Lease Agreement or the March Letter Agreement, as applicable.
Each party hereto hereby agrees that such party shall preserve the
confidentiality of, and shall not disclose, the information set forth in this
Letter Agreement No. 1 (THIS "LETTER AGREEMENT") to any other Person without
obtaining the prior written consent of the other party except to the extent
required by applicable law; provided that Lessor shall not be required to seek
such consent of Lessee following an Event of Default which has not been cured.
Lessor and Lessee have agreed that certain provisions referred to in the Lease
Agreement, and certain other terms, shall be set forth in this Letter
Agreement. If the Lease Agreement and this Letter Agreement shall differ as to
any term or condition, this Letter Agreement shall prevail, notwithstanding
anything to the contrary contained in the Lease Agreement. In that connection
and in order to preserve the confidentiality of certain of the business terms
of the Lease Agreement, Lessor and Lessee hereby agree as to (A) certain
provisions regarding Basic Rent, a Restructuring Fee and certain arrearages
of Rent; (B) certain provisions relating to Supplemental Rent; (C) certain
provisions regarding Events of Default; (D) certain provisions relating to the
Aircraft Commitment Fee; (E) certain provisions relating to the application of
supplemental rent under the Other Agreements; (F) certain provisions relating
to the payment of legal fees of Lessors; (G) further assurances; (H) governing
law; and (I) counterparts.
A. RENT.
(i) BASIC RENT AND RENT ARREARAGE. Lessee shall pay to Lessor Basic Rent
in respect of each Rental Period pursuant to Clause 5.3 of the Lease Agreement
in an amount equal to $100,000. Lessee may accrue arrearages of Basic Rent
during the Term from the date hereof to a date on or before September 27, 1996
(THE "RENT ARREARAGE"); provided, however, that the Rent Arrearage shall not
exceed $12,500 per month and, in the aggregate for the lease of all Aircraft by
Lessee from the Lessors, such aggregate Rent Arrearage shall not exceed a total
of $350,417,00. Any Rent Arrearage accrued by Lessee shall be subject to a fixed
rate of interest of 10.44% which interest shall be calculated from the date
Basic Rent shall be otherwise due and payable to the date of payment of the
Rent Arrearage. The full amount of Rent Arrearage and any
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interest due thereon shall be paid in full on or before the earlier to occur of
(x) the date of the IPO or PPO as referenced below or (y) September 30, 1996.
(ii) PAYMENT OF BASIC RENT. From the date hereof to September 27, 1996
Lessee shall pay Basic Rent and Supplemental Rent in the aggregate for all five
(5) Aircraft on the dates and in the amounts as are set forth in Table IV of
Schedule C attached hereto. A pro-rata portion of each payment of Rent, based
upon the amount of Basic Rent otherwise due and payable, shall be allocated to
each Aircraft. On the Rent Payment Date next succeeding September 30, 1996,
Basic Rent for the Aircraft shall be due and payable in monthly increments in
advance for the remainder of the Term on the Rent Payment Dates as set forth in
Clause 5.3 of the Lease Agreement.
(iii) RESTRUCTURING FEE AND ADJUSTMENT OF RENT. In consideration of the
restructuring of the Other Agreements and the lease of the Aircraft pursuant to
the Lease Agreements (as such term is defined in Schedule A attached hereto),
the Lessee shall pay to GECAS, on behalf of the Lessors, a restructuring fee
(THE "RESTRUCTURING FEE") on the terms and conditions as set forth herein. If
the Lessee completes an initial public offering ("IPO") of common stock of
Lessee, par value $.001 per share (THE "COMMON STOCK"), or a private placement
(A "PPO") of Common Stock, then, upon the occurrence of such IPO or PPO, Lessee
shall pay GECAS, on behalf of the Lessors, a Restructuring Fee in an amount as
set forth in Schedule A attached hereto. The Restructuring Fee shall be
reduced by the difference between (1) aggregate Basic Rent actually paid by
the Lessee to the Lessors, pursuant to all Lease Agreements (and excluding any
Rent Arrearages) from the date hereof to the date the Restructuring Fee is due
and payable and (2) the aggregate of the Initial Rents as such term is defined
in Schedule A for the same period. Upon the payment of the Restructuring Fee
and commencing with the Rent Payment Date next succeeding such payment of the
Restructuring Fee, the amount of Basic Rent for the Aircraft thereafter due and
payable shall be adjusted, based upon the initial base amount of the
Restructuring Fee prior to adjustment, to equal the amount set forth for such
Aircraft in Schedule B attached hereto with respect to the Lease Agreement.
The Restructuring Fee shall be paid in cash, warrants or a combination
thereof, as GECAS may elect. If the Restructuring Fee is due and payable on a
date other than a Rent Payment Date, any adjustments to the Restructuring Fee
or Basic Rent shall be made on a pro-rata basis using a 30 day calendar month.
(iv) WARRANTS FOR COMMON STOCK. In the event that GECAS shall elect to be
paid the Restructuring Fee in whole or in part by a warrant or warrants for
Common Stock (THE "WARRANT"), such Warrant shall be substantially in the form
attached hereto as Exhibit I and shall otherwise be reasonably acceptable to
GECAS. The Warrant shall be issued by Lessee to GECAS on the request of GECAS
and shall comply with the following terms and conditions: (a) the Warrant shall
not require the payment of any additional amounts by GECAS or the Lessors to
the Lessee; (b) the number of shares of Common Stock issuable pursuant to the
Warrant shall equal the amount of the Restructuring Fee elected by GECAS to be
paid in Warrants divided by the selling price of the Common Stock in the IPO or
PPO, net of underwriting discounts, commissions and expenses; (c) the holder of
such Warrant shall be granted "piggy-back" registration rights, (d) the Warrant
shall be exercisable for a period of five years after its date of issuance and
(e) shall otherwise be on terms and conditions mutually satisfactory to Lessor
and Lessee.
B. SUPPLEMENTAL RENT.
(i) SUPPLEMENTAL RENT. The amount of Supplemental Rent payable pursuant
to Clause 5.4 of the Lease Agreement shall be as follows:
(a) Airframe Supplemental Rent - $ 66.15 per Flight Hour;
(b) Engine Refurbishment Supplemental Rent - $72.45 per Flight Hour
in respect of each Engine;
(c) Engine Life Limited Parts Supplemental Rent - $12.60 per Flight
Hour in respect if each
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Engine; and
(d) Landing Gear Supplemental Rent - $ 8.40 per Flight Hour.
(ii) ADJUSTMENT OF SUPPLEMENTAL RENT. Lessor and Lessee acknowledge that
the rates of Supplemental Rent specified herein are based upon the assumptions
that (i) the Aircraft will operate on average not less than 1 Flight Hour per
Cycle ratio and (ii) the Agreed Maintenance Programme applicable to the
Aircraft during the Term will be the same as the Agreed Maintenance Programme
in effect on the Delivery Date. In the event that either or both of the
foregoing assumptions prove to be incorrect at any time during the Term, Lessor
and Lessee agree that Lessor shall have the right, upon written notice to
Lessee, to adjust the rate of Supplemental Rent. In the case of a change in
the ratio of Flight Hours per Cycle relating to Aircraft operation, the
adjustment of Supplemental Rent shall be as follows:
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
HOUR/CYCLE RATIO .5 1.0 1.5 2.0 2.5 3.0 3.5
$/hr. $/hr. $/hr. $/hr $/hr. $/hr. $/hr.
ENGINE
REFURBISHMENT 98.70 72.45 65.10 58.80 54.60 52.50 50.40
SUPPLEMENTAL RENT
$/cyc. $/cyc. $/cyc. $/cyc. $/cyc. $/cyc. $/cyc.
ENGINE LLP
SUPPLEMENTAL RENT 12.60 12.60 12.60 12.60 12.60 12.60 12.60
</TABLE>
In the event that the Agreed Maintenance Programme is revised, Lessor shall
make the adjustment in the manner which Lessor determines, in its reasonable
discretion, is necessary to maintain the rate of Supplemental Rent at levels
which accurately reflect the costs associated with obtaining maintenance
services at prevailing industry rates. Each such notice shall specify the
revised Supplemental Rent and the effective date of such revision. Lessee
agrees to advise Lessor, in writing, promptly following the occurrence of any
circumstances or events which would result in the foregoing assumptions
becoming incorrect at any time during the Term.
(iii) SUPPLEMENTAL RENT ABATEMENT. Lessor agrees to abate temporarily
Lessee's obligation to pay Supplemental Rent towards specific Engine
Refurbishment and Life Limited Parts in cases where the Lessee uses its own
funds ("OUT-OF-POCKET EXPENSES") to pay for respective Engine overhauls during
the Term. Lessee's Out-of-Pocket Expenses shall be defined as the excess of
(x) the actual cost for the over-haul of such Engine paid by Lessee as duly
substantiated to Lessor's satisfaction and (y) the individual Supplemental Rent
balance for such Engine at the time of its overhaul. Overhaul work scopes
shall be preapproved by the Lessor. The overhaul cost shall relate to the
actual overhaul and shall not include any ancillary or consequential costs
including, but not limited to (1) substitute equipment leases and (2)
transportation charges. The periods of Supplemental Rent abatement shall
commence respectively, on the first day that the Engine is returned to service
after its overhaul and shall continue until such time that the Engine has
lapsed Flight Hours and Cycles such that, when multiplied by the Supplemental
Rent rate defined herein, the total dollar amount equals the Out-of-Pocket
Expenses that the Lessee paid for the respective overhaul.
(iv) ESTIMATED SUPPLEMENTAL RENT. From the date hereof to September 27,
1996, Lessee shall pay Lessor an estimated amount of Supplemental Rent pursuant
to Schedule C hereof in the aggregate for all Aircraft. Such amount shall take
into account all Supplemental Rent abatements granted pursuant to paragraph
(iii) above. Each month, Lessee shall submit to Lessor a summary of the hours
and cycles of operation of the Aircraft. Credit and debits against the
Supplemental Rent actually due and payable shall be accrued until September 30,
1996. Prior to October 10, 1996, Lessor shall provide Lessee with an
accounting of all Supplemental Rent due and payable and actual Supplemental
Rent paid. Any arrears payments or credits
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<PAGE> 73
with respect to overpayments with respect to Supplemental Rent shall be paid by
Lessee to Lessor or credited by Lessor to Lessee, as applicable, on October 10,
1996.
C. EVENTS OF DEFAULT.
For purposes of the Lease Agreement, each of the following shall constitute a
Event of Default, in addition to the Events of Default as set forth in Clause
13.1 of the Lease Agreement: (i) the failure to pay the Current Arrearage and
all interest due thereon on or before April 29, 1996; (ii) the failure to pay
the Rent Arrearage and all interest due thereon on or before the earlier of (x)
the IPO or PPO or (y) September 30, 1996; and (iii) the failure to pay any Rent
when due and owing under the March Letter Agreement or the Lease Agreement,
including without limitation the amount of Rent Adjustment as set forth in
paragraph A of this Letter Agreement.
D. AIRCRAFT COMMITMENT FEE.
Lessor acknowledges that Lessee, pursuant to the December 1994 Lease, has paid
to Lessor an Aircraft Commitment Fee in an amount equal to (x) $225,000 plus
(y) Relevant Interest (as hereinafter defined) calculated from the date the
Aircraft Commitment Fee or any part thereof was actually paid. For purposes of
this Letter Agreement, Relevant Interest shall mean interest on the sum of
$225,000 accrued over a period commencing from the date following the Previous
Delivery Date on which the Aircraft Commitment Fee or any part thereof was
actually paid to the Expiry Date, at the average rate over such period of
General Electric Capital Corporation Commercial Paper (for 240 to 270 days) as
reported from time to time in The Wall Street Journal less 25 basis points
(i.e. 0.25% per annum).
E. ACCRUAL AND APPLICATION OF CERTAIN SUPPLEMENTAL RENT.
The reconciliation of all Rent previously due and owing pursuant to the Other
Agreements shall be set forth in Schedule C attached hereto. In addition,
Lessor shall credit certain Supplemental Rent against approved maintenance
performed on the Aircraft in the amounts as set forth in Schedule C. All
discrepancies in the accrual, payment and application of Rent attributable to
the October 1994 Lease are set forth and shall be resolved as between the
Lessor and Lessee in accordance with Schedule C.
F. LEGAL FEES.
Lessee hereby agrees to pay to GECAS, on behalf of the Lessors, on the date
hereof legal fees in the amount of $30,000 for the reasonable costs and
expenses of Lessors' counsel in connection with the restructuring Lessee's
obligations under the Other Agreements and the preparation, negotiation and
documentation of the March Letter Agreement, this Letter Agreement, the
Warrant, the Lease Agreements and negotiation of certain other matters
including the transactions contemplated herein and therein. Reasonable legal
counsel fees and expenses incurred by GECAS or the Lessors in connection with
the administration and enforcement of Lessors' rights and remedies under the
March Letter Agreement, the Warrant, the Lease Agreement or this Letter
Agreement shall be for the account of Lessee and Lessee shall upon written
demand by the Lessor reimburse and indemnify the Lessor for such costs and
expenses.
G. FURTHER ASSURANCES.
Lessee, at Lessee's expense, shall execute and deliver such further agreements,
leases, documents, certificates or any supplements or additions hereto as may
reasonably be requested by GECAS of the Lessors in furtherance of the
agreements herein contained.
4
<PAGE> 74
SCHEDULE A
SIZE OF IPO/PPO RESTRUCTURING FEE UNADJUSTED
More than $20 million $3 million
$15 million to $20 million $2 million
Less than $15 million but greater
than $4 million $1.5 million
Less than $4 million $ - 0 -
CERTAIN DEFINITIONS: AIRCRAFT LEASE AGREEMENTS
Aircraft Lease Agreement, dated as of November 11, 1994, between Polaris
Holding Company, as lessor, and Air South, Inc., as lessee, in respect of one
used Boeing 737-242 advanced aircraft (the "21186 Aircraft") bearing
manufacturers serial number 21186 (as supplemented and amended, "LEASE 21186")
and FAA Registration Number N159PL.
Aircraft Lease Agreement, dated as of March 21, 1995, between Polaris Aircraft
Leasing K.B., as lessor and Air South, Inc., as lessee, in respect of one used
Boeing 737-2P6 advanced aircraft (the "21733 Aircraft") bearing manufacturers
serial number 21733 and Irish Registration Number EI-CLK (as supplemented and
amended, "LEASE 21733") equipped with Stage 3 hushkit.
Aircraft Lease Agreement, dated as of December 12, 1994, between Polaris
Aircraft Leasing K.B., as lessor, and Air South, Inc., as lessee, in
respect of one used Boeing 737-2P6 advanced aircraft (the "21677 Aircraft"),
bearing manufacturers serial number 21677 and Irish Registration Number GKW (as
supplemented and amended, "LEASE 21677").
Aircraft Lease Agreement, dated as of October 25, 1994, between Polaris
Aircraft Leasing K.B., as lessor, and Air South, Inc., as lessee, in respect
of one used Boeing 737-2P6 advanced aircraft (the "21612 Aircraft"), bearing
manufacturers serial number 21612 and Irish Registration Number EI-CKK (as
supplemented and amended, "LEASE 21612").
Aircraft Lease Agreement, dated as of November 9, 1994, between Polaris
Aircraft Leasing K.B., as lessor, and Air South, Inc., as lessee, in respect
of one used Boeing 737-200A advanced aircraft (the "21356 Aircraft"), bearing
manufacturers serial number 21356 and Irish Registration Number CKL (as
supplemented and amended, "LEASE 21356").
For purposes of Letter Agreement No. 1, Lease 21186, Lease 21733, Lease 21677,
Lease 21612 and Lease 21356 shall collectively be defined as the "LEASE
AGREEMENTS" and the 21186 Aircraft, 21733 Aircraft, 21677 Aircraft, 21612
Aircraft and 21356 Aircraft shall collectively be defined as the "AIRCRAFT".
6
<PAGE> 75
INITIAL RENTS: For purposes of this Letter Agreement No. 1, Initial Rents shall
be defined as the following amounts for the Lease Agreements as indicated:
Lease 21186 Initial Rent: $90,000
Lease 21733 Initial Rent: $97,500
Lease 21677 Initial Rent: $75,000
Lease 21612 Initial Rent: $75,000
Lease 21356 Initial Rent: $75,000
7
<PAGE> 76
SCHEDULE B
ADJUSTMENTS TO BASIC RENT
Restructuring Fee (Base Amount, Unadjusted) Basic Rent as Adjusted:
$3,000,000 Lease 21186: $90,000
Lease 21733: $97,500
Lease 21677: $75,000
Lease 21612: $75,000
Lease 21356: $75,000
$2,000,000 Lease 21186: $98,333
Lease 21733: $105,833
Lease 21677: $83,833
Lease 21612: $83,833
Lease 21356 $83,833
$1,500,000 Lease 21186: $102,500
Lease 21733: $110,000
Lease 21677: $87,500
Lease 21612: $87,500
Lease 21356: $87,500
8
<PAGE> 77
SCHEDULE C
Rent Reconciliation
TABLE I - UNADJUSTED ARREARAGE
<TABLE>
<CAPTION>
1 2 1-2
CATEGORY ACCRUED PAID DELTA
-------- ------- ---- -----
<S> <C> <C> <C>
Rent $ 7,020,390 $ 7,020,390 $ -
Deposits $ 1,170,000 $ 1,170,000 $ -
Maintenance $ 3,655,313 $ 2,922,746 $ 732,567
Other $ 26,042 $ 26,042 $ -
----------- ----------- ----------
TOTAL $11,871,745 $11,139,178 $ 732,567
</TABLE>
TABLE II - ADJUSTMENTS
<TABLE>
<S> <C>
MRF Claim 3040 $ (113,894)
MRF Claim 3040(b) $ (67,488)
MRF Claim 3241 $ (199,543)
MRF Claim 3262 $ (24,849)
Misc Adjustment $ (3,897)
----------
TOTAL $ (409,670)
</TABLE>
<TABLE>
<CAPTION>
TABLE III - INTERIM RENT CALCULATIONS W/O DEFERRAL W/ DEFERRAL
------------ -----------
START DATE 4/29/96 0 1
--------- ------- -----------------------
CONTRACT INTERIM CONTRACT INTERIM
MSN DATE DAYS RENT (/M) RENT RENT (/M) RENT
--- ---- ---- --------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
21356 (CKL) 5/6/96 7 $ 100,000 $ 23,333 $ 87,500 $ 20,417
21186 (N159PL) 5/13/96 14 $ 115,000 $ 53,667 $ 102,500 $ 47,833
21677 (GKW) 5/20/96 21 $ 100,000 $ 70,000 $ 87,500 $ 61,250
21612 (EI-CKK) 5/20/96 21 $ 100,000 $ 70,000 $ 87,500 $ 61,250
21733 (EI-CLK) 5/27/96 28 $ 122,500 $ 114,333 $ 110,000 $ 102,667
----------- ----------- ----------- -----------
TOTAL $ 537,500 $ 331,333 $ 475,000 $ 293,417
INTERIM DEF $ 37,917
</TABLE>
TABLE IV - WEEKLY PAYMENT CALCULATIONS (SEPARATE SHEET)
TABLE V - APRIL 29, 1996 PAYMENT SUMMARY W/PAYMENTS ON LEASE PAYMENT DATES
<TABLE>
<S> <C>
TOTAL from TABLE I $ 732,567
TOTAL from TABLE II $ (409,670)
TOTAL from TABLE III $ 293,417
Legal Costs $ 30,000
-----------
TOTAL $ 646,313
===========
</TABLE>
TABLE VI - APRIL 29, 1996 PAYMENT SUMMARY W/EVEN WEEKLY PAYMENTS THRU 9/23/96
<TABLE>
<S> <C>
TOTAL from TABLE I $ 732,567
TOTAL from TABLE II $ (409,670)
TOTAL from TABLE IV $ 169,928
Legal Costs $ 30,000
------------
TOTAL $ 522,825
============
</TABLE>
9
<PAGE> 78
SCHEDULE C
Rent Reconciliation
TABLE IV - WEEKLY PAYMENT CALCULATIONS
<TABLE>
<CAPTION>
WEEKLY PMT $ 169,928 INT RATE 10.44%
DEFERRED RENT $ 12,500 /AC/M 1M LIBOR +5%
INTERIM DEF Y/N 1
- - ---------------------------------------------------------------------------------------------------------------------------
CONTRACT RENT/ TOTAL WEEKLY TOTAL RENT TOTAL INTEREST
DATE EST MX (RUNNING) PAYMENT (RUNNING) DEFERRAL (RUNNING) (DEFERRAL)
---- ------------- --------- ------- --------- -------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
4/29/96 $ 293,417 $ 293,417 $ 169,928 $ 169,928 $ 37,917 $ 37,917 $ -
5/6/96 87,500 380,917 169,928 339,856 12,500 50,417 76
5/10/96 214,000 594,917 - 339,856 - 50,417 134
5/13/96 102,500 697,417 169,928 509,784 12,500 62,917 177
5/20/96 175,000 872,417 169,928 679,712 25,000 87,917 303
5/27/96 110,000 982,417 169,928 849,640 12,500 100,417 479
6/3/96 - 982,417 169,928 1,019,568 - 100,417 680
6/6/96 87,500 1,069,917 - 1,019,568 12,500 112,917 766
6/10/96 214,000 1,283,917 169,928 1,189,496 - 112,917 895
6/13/96 102,500 1,386,417 - 1,189,496 12,500 125,417 992
6/17/96 - 1,386,417 169,928 1,359,424 - 125,417 1,136
6/20/96 175,000 1,561,417 - 1,359,424 25,000 150,417 1,243
6/24/96 - 1,561,417 169,928 1,529,352 - 150,417 1,415
6/27/96 110,000 1,671,417 - 1,529,352 12,500 162,917 1,544
7/1/96 - 1,671,417 169,928 1,699,280 - 162,917 1,731
7/6/96 87,500 1,758,917 - 1,699,280 12,500 175,417 1,964
7/8/96 - 1,758,917 169,928 1,869,208 - 175,417 2,064
7/10/96 214,000 1,972,917 - 1,869,208 - 175,417 2,165
7/13/96 102,500 2,075,417 - 1,869,208 12,500 187,917 2,315
7/15/96 - 2,075,417 169,928 2,039,136 - 187,917 2,423
7/20/96 175,000 2,250,417 - 2,039,136 25,000 212,917 2,691
7/22/96 - 2,250,417 169,928 2,209,064 - 212,917 2,813
7/27/96 110,000 2,360,417 - 2,209,064 12,500 225,417 3,118
7/29/96 - 2,360,417 169,928 2,378,992 - 225,417 3,247
8/5/96 - 2,360,417 169,928 2,548,920 - 225,417 3,698
8/6/96 87,500 2,447,917 - 2,548,920 12,500 237,917 3,762
8/10/96 214,000 2,661,917 - 2,548,920 - 237,917 4,035
8/12/96 - 2,661,917 169,928 2,718,848 - 237,917 4,171
8/13/96 102,500 2,764,417 - 2,718,848 12,500 250,417 4,239
8/19/96 - 2,764,417 169,928 2,888,777 - 250,417 4,668
8/20/96 175,000 2,939,417 - 2,888,777 25,000 275,417 4,740
8/26/96 - 2,939,417 169,928 3,058,705 - 275,417 5,213
8/27/96 110,000 3,049,417 - 3,058,705 12,500 287,917 5,292
9/2/96 - 3,049,417 169,928 3,228,633 - 287,917 5,786
9/6/96 87,500 3,136,917 - 3,228,633 12,500 300,417 6,115
9/9/96 - 3,136,917 169,928 3,398,561 - 300,417 6,373
9/10/96 214,000 3,350,917 - 3,398,561 - 300,417 6,459
9/13/96 102,500 3,453,417 - 3,398,561 12,500 312,917 6,717
9/16/96 - 3,453,417 169,928 3,568,489 - 312,917 6,985
9/20/96 175,000 3,628,417 - 3,568,489 25,000 337,917 7,343
9/23/96 - 3,628,417 169,928 3,738,417 - 337,917 7,633
9/27/96 110,000 3,738,417 - 3,738,417 12,500 350,417 8,020
</TABLE>
10
<PAGE> 1
EXHIBIT 10.35
AIRCRAFT LEASE AGREEMENT
Dated as of
April 29, 1996
between
POLARIS AIRCRAFT LEASING K.B.
as
Lessor
and
AIR SOUTH AIRLINES, INC.
as
Lessee
in respect of Boeing 737-2P6 Advanced Aircraft
Serial Number 21733
equipped with Stage 3 hushkit
Ref. 21733A
<PAGE> 2
THIS AGREEMENT is made as of the 29th day of April, 1996 between:-
(1) POLARIS AIRCRAFT LEASING K.B., a limited partnership formed under the
laws of Sweden whose principal office is at Birger Jarlsgatan 33,
S-111 45, Stockholm, Sweden ("Lessor"); and
(2) AIR SOUTH AIRLINES, INC., a company incorporated under the laws of the
State of Illinois whose chief executive office is at 1800 St. Julian
Place, 4th Floor, Columbia, South Carolina, 29204, U.S.A. ("Lessee").
WHEREAS: Lessor wishes to lease to Lessee and Lessee is willing to
lease from Lessor the Aircraft (MSN 21733) on the terms of this
Agreement.
IT IS AGREED as follows:-
1. INTERPRETATION
1.1 DEFINITIONS
In this Agreement the following expressions have the meanings set out
opposite:-
AGREED MAINTENANCE PERFORMER Lessee (up to and including
B Check) or any FAA approved
maintenance facility (for C
Check and higher) or any
other person agreed to from
time to time in writing by
Lessor.
AGREED MAINTENANCE PROGRAMME the Lessee Maintenance
Programme agreed to from time
to time in writing by Lessor,
an FAA and Air Authority
approved maintenance programme
for the Aircraft encompassing
scheduled maintenance
(including block maintenance),
condition monitored
maintenance, and/or
on-condition maintenance of
Airframe, Engines and Parts,
including but not limited to,
servicing, testing, preventive
maintenance, repairs,
structural inspections, system
checks, overhauls, approved
modifications, service
bulletins, engineering orders,
airworthiness directives,
corrosion control, inspections
and treatments.
AGREED VALUE $10,600,000 or such other
amount as Lessor may require
from time to time provided
such other amount does not
exceed 115% of the fair
market value of the Aircraft.
AIR AUTHORITY the Irish Aviation Authority
or any successor thereto.
AIRCRAFT the aircraft described in
Part 1 of Schedule 1, (which
term includes where the
context admits a separate
reference to all Engines,
Parts and Aircraft
Documents).
AIRCRAFT COMMITMENT FEE all amounts paid pursuant to
Clause 5.1 of the March
1995 Lease.
AIRCRAFT DOCUMENTS the documents, data and
records identified in Part 2
of Schedule 1 and all
additions, renewals,
revisions and replacements
from time to time made in
accordance with this
Agreement.
1
<PAGE> 3
AIRFRAME the Aircraft, excluding the
Engines and Aircraft
Documents.
APU the auxiliary power unit
installed on the Aircraft on
the Previous Delivery Date
and any replacement auxiliary
power unit installed in
accordance with this
Agreement.
BANKS such financial institution(s)
which from time to time
finance the Aircraft for
Owner and/or for whose
benefit security over, or
rights relating to, the
Aircraft and/or this
Agreement is granted by Owner
or at its request.
BASIC RENT means the rent payable for
the Aircraft during the Term
pursuant to Clause 5.3 of
this Agreement.
BOEING The Boeing Company, a
Delaware corporation with its
principal office in Seattle,
State of Washington, U.S.A.
BUSINESS DAY a day (other than a Saturday
or Sunday) on which business
of the nature required by
this Agreement is carried out
in Sweden and the State of
Incorporation or where used
in relation to payments on
which banks are open for
business in London and New
York.
CERTIFICATED AIR CARRIER shall mean any corporation
(except the United States
Government) domiciled in the
United States of America and
holding a Certificate of
Convenience and Necessity
issued under Section 401 of
the Federal Aviation Act by
the Department of
Transportation or any
predecessor or successor
agency thereto, or, in the
event such Certificates shall
no longer be issued, any
corporation (except the
United States Government)
domiciled in the United
States of America and legally
engaged in the business of
transporting for hire
passengers or cargo by air
predominantly to, from or
between points within the
United States of America,
and, in either event,
operating commercial jet
aircraft, which also is
certificated so as to fall
within the purview of Section
1110 of Title
2
<PAGE> 4
11 of the United States Code
or any analogous statute.
COLD SECTION REFURBISHMENT the completion of the
following tasks with respect
to an Engine: completely
unstack both high and low
compressors and accomplish
complete visual inspection;
deblade disks as necessary;
accomplish visual inspections
of all disks; measure to
ensure all snap diameters on
disks are within limits;
inspect blades for proper
chord dimensions and
cracking; repair or replace
blades below minimums;
inspect and repair stators as
necessary; blade up disks
using new lock plates;
assemble compressor rotors;
balance both rotors; and
install rotors in such
Engine.
CYCLE one take-off and landing of
the Aircraft.
DAMAGE NOTIFICATION THRESHOLD $100,000.
DEFAULT any Event of Default and any
event or condition which with
the giving of notice or lapse
of time would constitute an
Event of Default.
DELIVERY DATE the date hereof.
DELIVERY LOCATION Columbia, South Carolina or
such other location as the
parties may agree.
DOLLARS AND $ the lawful currency of the
United States of America.
ENGINE whether or not installed on
the Aircraft:-
(a) each engine of the
manufacture and model
specified in Part 1 of
Schedule 1 (each of
which has 750 or more
rated takeoff horsepower
or the equivalent of
such horsepower);
or
(b) any engine which has
replaced that engine,
title to which has or
should have, passed to
Owner in accordance with
this Agreement;
and in each case
includes all modules and
Parts from time to time
belonging to or
installed in
3
<PAGE> 5
that engine but excludes
any properly replaced
engine title to which
has, or should have,
passed to Lessee
pursuant to this
Agreement.
EVENT OF DEFAULT an event or condition
specified in Clause 13.1
or Letter Agreement No. 1.
EVENT OF LOSS with respect to the Aircraft
(including for the purposes
of this definition the
Airframe):-
(a) the actual or
constructive total loss
of the Aircraft
(including any damage to
the Aircraft which
results in an insurance
settlement on the basis
of a total loss, or
requisition for use or
hire which results in an
insurance settlement on
the basis of a
total loss); or
(b) it being destroyed,
damaged beyond repair or
permanently rendered
unfit for normal use
for any reason
whatsoever, or
(c) the requisition of
title, or other
compulsory acquisition,
capture, seizure,
deprivation,
confiscation or
detention for any reason
of the Aircraft by the
government of the State
of Registration or other
competent authority
(whether de jure or de
facto), but excluding
requisition for use or
hire not involving
requisition of title;
or
(d) the hi-jacking, theft,
condemnation,
confiscation, seizure or
requisition for use or
hire of the Aircraft
which deprives any
person permitted by this
Agreement to have
possession and/or use of
the Aircraft of its
possession and/or use
for more than 15 days.
EXPIRY DATE subject to Clause 4.5, May
27, 1998 or if earlier the
date on which:-
4
<PAGE> 6
(a) the Aircraft has been
redelivered in accordance
with this Agreement; or
(b) Lessor receives the
Agreed Value following
an Event of Loss.
FAA the Federal Aviation
Administration of the United
States of America and any
successor thereof.
FEDERAL AVIATION ACT United States Federal
Aviation Act of 1958,
as amended, or any similar
legislation of the United
States of America enacted in
substitution or replacement
thereof.
FINANCIAL INDEBTEDNESS any indebtedness in respect
of:-
(a) moneys borrowed or
raised;
(b) any liability under any
debenture, bond, note,
loan stock, acceptance,
documentary credit or
other security;
(c) the acquisition cost of
any asset to the extent
payable before or after
the time of acquisition
or possession; or
(d) any guarantee, indemnity
or similar assurance
against financial loss
of any person in respect
of the above.
FINANCING STATEMENTS Uniform Commercial Code
Financing Statements in
respect of this Agreement and
the collateral described
therein prepared in a form
acceptable for filing with
the applicable Government
Entities in the Habitual
Base, the State in which the
chief executive office (as
that term is defined in
Article 9 of the Uniform
Commercial Code as in effect
in the State of South
Carolina) and such other
jurisdiction as Lessor shall
reasonably require.
FLIGHT HOUR each hour or part thereof
(rounded up to two decimal
places) elapsing from the
moment the wheels of the
Aircraft leave
5
<PAGE> 7
the ground on take off until
the wheels of the Aircraft
next touch the ground.
GOVERNING LAW the laws of the State of New
York.
GOVERNMENT ENTITY (a) any national government,
political subdivision
thereof, or local
jurisdiction therein;
(b) any instrumentality,
board, commission, court
or agency of any
thereof, however
constituted; and
(c) any association,
organization, or
institution of which any
of the above is a member
or to whose jurisdiction
any thereof is subject
or in whose activities
any of the above is a
participant.
HABITUAL BASE the State of South Carolina
or, subject to the prior
written consent of Lessor,
any other state, country or
countries in which the
Aircraft is for the time
being habitually based.
HEAD LEASE the aircraft lease agreement
between Owner and Sub Lessor
in respect of the Aircraft.
HOT SECTION REFURBISHMENT the complete visual
inspection and repair as
necessary of the combustion
section of an Engine. In
conducting such inspection
and repair, the engine shop
must completely unstack the
high pressure turbine and
accomplish complete visual
inspection; de-blade disks as
necessary; accomplish visual
inspections of all disks;
measure to ensure all snap
diameters on disks are within
limits; inspect blades for
proper chord dimensions and
cracking; repair or replace
blades below minimums;
inspect and repair stators as
necessary; blade up disks
using new lock plates;
assemble turbine rotors;
balance both rotors; and
install rotors in such
Engine.
INDEMNITEES each of Owner, Sub
Lessor, Lessor and Banks
including any of their
respective successors and
assigns, shareholders,
subsidiaries, affiliates,
partners,
6
<PAGE> 8
contractors, directors,
officers, servants, agents and
employees.
LANDING GEAR the landing gear assembly of
the Aircraft excluding any
rotable components.
LESSOR LIEN (a) any security interest
whatsoever from time to
time created by or
through Lessor, Sub
Lessor or Owner in
connection with the
financing of the
Aircraft;
(b) any other security
interest in respect of
the Aircraft which
results from acts of or
claims against Lessor,
Sub Lessor or Owner not
related to the
transactions
contemplated by or
permitted under this
Agreement; and
(c) liens in respect of the
Aircraft for Lessor
Taxes.
LESSOR TAXES Taxes:-
(a) imposed as a direct
result of activities of
Lessor, Sub Lessor or
Owner in the
jurisdiction imposing
the liability unrelated
to Lessor's dealings
with Lessee or to the
transactions
contemplated by this
Agreement or the
operation of the
Aircraft by Lessee; or
(b) imposed on the income,
profits or gains of
Lessor, Sub Lessor or
Owner by any Government
Entity in (x) Sweden; or
(y) the U.S.A.; or
(c) imposed with respect to
any period commencing or
event occurring after
the Expiry Date and
unrelated to Lessor's
dealings with Lessee or
to the transactions
contemplated by this
Agreement.
LETTER AGREEMENT NO. 1 Letter Agreement No 1. of
even date herewith between
Lessor and Lessee in
respect of the Aircraft, the
terms of which
7
<PAGE> 9
constitute an integral part
of this Agreement.
MAINTENANCE PROGRAMME an FAA and Air Authority
approved maintenance
programme for the
Aircraft encompassing
scheduled maintenance
(including block
maintenance), condition
monitored maintenance, and/or
on condition maintenance of
Airframe, Engines and Parts,
including but not limited to,
servicing, testing,
preventive maintenance,
repairs, structural
inspections, system checks,
overhauls, approved
modifications, service
bulletins, engineering
orders, airworthiness
directives, corrosion
control, inspections and
treatments.
MAJOR CHECKS any C-Check, multiple
C-Check, D-Check or
annual heavy maintenance
visit or segment thereof
suggested for commercial
aircraft of the same model as
the Aircraft by its
manufacturer (however
denominated) as set out in
the Agreed Maintenance
Programme.
MANUFACTURER Boeing.
MARCH 1995 LEASE the Aircraft Lease Agreement,
dated as of March 21, 1995,
between Lessor and Lessee, as
supplemented and amended,
relating to the Aircraft which
agreement has heretofore been
terminated by agreement of the
parties hereto.
MARCH 29 1996 LETTER AGREEMENT Letter Agreement, dated March
29, 1996, between Lessor,
Lessee, Polairs Holding
Company and GE Capital
Aviation Services, Inc.
MINIMUM LIABILITY COVERAGE $400,000,000 on each
occurrence.
OCTOBER 1994 LEASE the Aircraft Lease
Agreement, dated as of
October 24, 1994, between
Lessor and Lessee, as
supplemented and amended,
relating to the Aircraft
which agreement has
heretofore been terminated by
agreement of the parties
hereto.
OTHER AGREEMENTS any agreement (other than
this Agreement) made or to be
made between Lessor (or an
affiliate, associate or
subsidiary of lessor) and
Lessee (or an affiliate,
associate or Subsidiary of
Lessee), including without
limitation the March 1995
Lease and the March 29 1996
Letter Agreement.
OWNER Polaris Aircraft Leasing
K.B., a Swedish partnership
in which Polaris Aircraft
8
<PAGE> 10
Leasing A.B. is the general
partner which is owned by
Polaris Aircraft Leasing
Corporation, a United States
corporation since December,
1989.
PART whether or not installed on
the Aircraft:-
(a) any component,
furnishing or equipment
(other than a complete
Engine) furnished with
the Aircraft on the
Delivery Date; and
(b) any other component,
furnishing or equipment
(other than a complete
Engine) title to which
has, or should have
passed to Owner pursuant
to this Agreement;
but excludes any such
items title to which
has, or should have,
passed to Lessee
pursuant to this
Agreement.
PERMITTED LIEN (a) any lien for Taxes not
assessed or, if
assessed, not yet due
and payable, or being
contested in good faith
by appropriate
proceedings;
(b) any lien of a repairer,
mechanic, carrier,
hangarkeeper or other
similar lien arising in
the ordinary course of
business or by operation
of law in respect of
obligations which are
not overdue or are being
contested in good faith
by appropriate
proceedings;
but only if (in the case
of both (a) and (b)) (i)
adequate reserves have
been provided by Lessee
for the payment of the
Taxes or obligations;
and (ii) such
proceedings, or the
continued existence of
the lien, do not give
rise to any likelihood
of the sale, forfeiture
or other loss of the
Aircraft or any interest
therein or of criminal
liability on Owner, Sub
Lessor, Lessor or any
Bank; and
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<PAGE> 11
(c) any Lessor Lien.
PERSON shall mean and include any
individual person,
corporation, partnership,
firm, joint stock company,
joint venture, trust, estate,
unincorporated organisation,
association, Government
Entity, or organisation or
association of which any of
the above is a member or a
participant.
PREVIOUS DELIVERY DATE the date on which the
Aircraft was delivered by
Lessor to Lessee pursuant to
the Previous Lease.
PREVIOUS LEASE the Aircraft Lease Agreement
dated as of 10 August, 1994
between Lessor and Lessee
which will have expired or
otherwise been terminated
prior to the delivery of the
Aircraft by Lessor to Lessee
pursuant to this Agreement.
REDELIVERY LOCATION Will Rogers World Airport,
Oklahoma City, Oklahoma or
such other location in the
United States as Lessor shall
advise Lessee or such other
location as the parties may
agree.
RENT means, collectively, Basic
Rent, Supplemental Rent and
all other amounts,
liabilities and obligations
which Lessee assumes or
agrees to pay to Lessor or
other Persons hereunder
(other than Basic Rent and
Supplemental Rent) or under
any Other Agreement,
including without limitation
the payment of deposits,
indemnities and the Agreed
Value.
RENTAL PERIOD each period ascertained in
accordance with Clause 5.2.
RENT DATE the first day of each Rental
Period.
SECURITY INTEREST any mortgage, charge, pledge,
lien, assignment,
hypothecation, right of
set-off or any agreement or
arrangement having the effect
of creating a security
interest other than a
Permitted Lien, or any
agreement to create the
foregoing other than a
Permitted Lien.
STATE OF INCORPORATION the State of Illinois.
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<PAGE> 12
STATE OF REGISTRATION Ireland.
SUB LEASE the aircraft lease agreement
between Sub Lessor and
Lessor in respect of the
Aircraft.
SUB LESSOR Dormacken Limited, a company
incorporated under the laws
of Ireland whose registered
office is at 1 Earlsfort
Centre, Hatch Street, Dublin
2, Ireland.
SUBSIDIARY (a) in relation to any
reference to accounts,
any company whose
accounts are
consolidated with the
accounts of Lessee in
accordance with
accounting principles
generally accepted under
accounting standards of
the State of
Incorporation;
(b) for any other purpose
an entity from time to
time:-
(i) of which another has
direct or indirect
control or owns
directly or
indirectly more than
50 per cent. of the
voting share
capital; or
(ii) which is a direct
or indirect
subsidiary of
another under the
laws of the
jurisdiction of its
incorporation.
SUPPLEMENTAL RENT all amounts payable under
Clause 5.4(a).
TAXES taxes, duties and the like
of all kinds and any other
amount corresponding to any
taxation together with any
penalties, fines, surcharge
or interest thereon.
TERM the period commencing on the
Delivery Date and ending on
the Expiry Date.
1.2 CONSTRUCTION
(a) In this Agreement, unless the contrary intention is stated, a
reference to:-
(i) each of "Owner", "Sub Lessor", "Lessor" or "Lessee" or any
other person includes without prejudice to the provisions of
this Agreement any successor in title to it and any permitted
assignee;
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<PAGE> 13
(ii) words importing the plural shall include the singular and vice
versa;
(iii) any document shall include that document as amended, novated
or supplemented;
(iv) a law (1) includes any statute, decree, constitution,
regulation, order, judgment or directive of any Government
Entity; (2) includes any treaty, pact, compact or other
agreement to which any Government Entity is a signatory or
party; (3) includes any judicial or administrative
interpretation or application thereof and (4) is a reference
to that provision as amended, substituted or re-enacted;
(v) a Clause or a Schedule is a reference to a clause of or a
schedule to this Agreement; and
(b) the headings in this Agreement are to be ignored in construing this
Agreement.
2. REPRESENTATIONS AND WARRANTIES
2.1 Lessee's Representations and Warranties: Lessee represents and
warrants to Lessor that:-
(a) STATUS: Lessee is a corporation duly incorporated and validly existing
in good standing under the laws of the State of Incorporation and has
the corporate power to own its assets and carry on its business as it
is being conducted and is the holder of all necessary air
transportation licences required in connection therewith and with the
use and operation of the Aircraft;
(b) POWER AND AUTHORITY: Lessee has the corporate power to enter into and
perform, and has taken all necessary corporate action to authorise the
entry into, performance and delivery of, this Agreement and the
transactions contemplated by this Agreement;
(c) LEGAL VALIDITY: this Agreement constitutes Lessee's legal, valid and
binding obligation;
(d) NON-CONFLICT: the entry into and performance by Lessee of, and the
transactions contemplated by, this Agreement do not and will not:-
(i) conflict with any laws binding on Lessee; or
(ii) conflict with the constitutional documents of Lessee; or
(iii) conflict with or result in default under any indenture,
mortgage, chattel mortgage, deed of trust, conditional sales
contract, lease, bank loan or credit agreement or other
agreement which is binding upon Lessee or any of its assets
nor result in the creation of any Security Interest over any
of its assets;
(e) AUTHORISATION: all authorisations, consents, registrations and
notifications required in connection with the entry into, performance,
validity and enforceability of, this Agreement and the transactions
contemplated by this Agreement, have been (or will on or before the
Delivery Date have been) obtained or effected (as appropriate) and are
(or will on their being obtained or effected be) in full force and
effect;
(f) NO IMMUNITY:
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<PAGE> 14
(i) Lessee is subject to civil commercial law with respect to its
obligations under this Agreement; and
(ii) neither Lessee nor any of its assets is entitled to any right
of immunity and the entry into and performance of this
Agreement by Lessee constitute private and commercial acts;
(g) ACCOUNTS: the audited consolidated accounts of Lessee and its
Subsidiaries most recently delivered to Lessor:-
(i) have been prepared in accordance with accounting principles
and practices generally accepted and consistently applied in
the State of Incorporation; and
(ii) fairly represent the consolidated financial condition of
Lessee and its Subsidiaries as at the date to which they were
drawn up;
(h) CHIEF EXECUTIVE OFFICE: Lessee's chief executive office (as that term
is defined in Article 9 of the Uniform Commercial Code as in effect in
the State of South Carolina) is located at 1800 St. Julian Place, 4th
Floor, Columbia, South Carolina;
(i) CERTIFICATED AIR CARRIER: Lessee is a Certificated Air Carrier and
Lessor, as lessor of the Aircraft to Lessee, is entitled to the
benefits of Section 1110 of Title 11 of the United States Code with
respect to the Aircraft; and
(j) CITIZEN OF THE UNITED STATES: Lessee is a "citizen of the United
States" as defined in Section 101(16) of the Federal Aviation Act.
2.2 LESSEE'S FURTHER REPRESENTATIONS AND WARRANTIES: Lessee further
represents and warrants to Lessor that:-
(a) NO DEFAULT:
(i) no Default has occurred and is continuing or might result from
the entry into or performance of this Agreement; and
(ii) no other event or condition has occurred and is continuing
which constitutes (or with the giving of notice, lapse of
time, determination of materiality or the fulfilment of any
other applicable condition or any combination of the
foregoing, might constitute) a material default under any
indenture, mortgage, chattel mortgage, deed of trust,
conditional sales contract, lease, bank loan or credit
agreement or other agreement which is binding on Lessee or any
assets of Lessee;
(b) REGISTRATION:
(i) it is not necessary or advisable under the laws of the State
of Incorporation or the Habitual Base in order to ensure the
validity, effectiveness and enforceability of this Agreement
or to, establish, perfect or protect the property rights of
Owner, Sub Lessor or Lessor in the Aircraft or any Engine or
Part that this Agreement or any other instrument relating
thereto be filed, registered or recorded or that any other
action be taken or if any such filings, registrations,
13
<PAGE> 15
recordings or other actions are necessary or advisable, the
same have been effected or will have been effected on or
before the Delivery Date; and
(ii) under the laws of the State of Incorporation and the Habitual
Base the property rights of Owner, Sub Lessor and Lessor in
the Aircraft, have been fully established, perfected and
protected and this Agreement will have priority in all
respects over the claims of all creditors of Lessee;
(c) LITIGATION: no litigation, arbitration or administrative proceedings
are pending or to Lessee's knowledge threatened against Lessee which,
if adversely determined, would have a material adverse effect upon its
financial condition or business or its ability to perform its
obligations under this Agreement;
(d) PARI PASSU: the obligations of Lessee under this Agreement rank at
least pari passu with all other present and future unsecured and
unsubordinated obligations (including contingent obligations) of
Lessee, with the exception of such obligations as are mandatorily
preferred by law and not by virtue of any contract;
(e) MATERIAL ADVERSE CHANGE: there has been no material adverse change in
the consolidated financial condition of Lessee and its Subsidiaries or
the financial condition of Lessee since the date to which the accounts
most recently provided to Lessor on or prior to the Delivery Date were
drawn up;
(f) TAXES: Lessee has delivered all necessary returns and payments due to
the tax authorities in the State of Incorporation and the Habitual
Base and all other jurisdictions in which Lessee is required to pay
taxes and/or file tax returns or reports and Lessee is not required by
law to deduct any Taxes from any payments under this Agreement;
(g) INFORMATION: the financial and other information furnished by Lessee
in connection with this Agreement does not contain any untrue
statement or omit to state facts, the omission of which makes the
statements therein, in the light of the circumstances under which they
were made, misleading, nor omits to disclose any material matter to
Lessor and all forecasts and opinions contained therein were honestly
made on reasonable grounds after due and careful enquiry by Lessee;
(h) FOREIGN ASSET CONTROL: as of the date of this Agreement, Lessee does
not hold any contract or other obligation to operate the Aircraft to
any of the countries designated under the United States Foreign Asset
Control Regulations (31 C.F.R. Parts 500-599), including, as of the
date hereof, Cuba, Haiti, Iraq, Libya, North Korea, and the Federal
Republic of Yugoslavia (Serbia and Montenegro);
(i) ERISA: Lessee is not engaged in any transaction in connection with
which it could be subjected to either a civil penalty assessed
pursuant to Section 502(c) of ERISA or any tax imposed by Section 5975
of the Internal Revenue Code; no material liability of the Pension
Benefit Guaranty Corporation has been or is expected by Lessee to be
incurred with respect to any employee pension benefit plan (as defined
in Section 3 of ERISA) maintained by Lessee; there has been no
reportable event (as defined in Section 4043(b) of ERISA) with respect
to any such employee pension benefit plan. There is no event of
termination of any such employee pension benefit plan by the Pension
Benefit Guaranty Corporation; and no accumulated funding deficiency
(as defined in Section 302 of ERISA
14
<PAGE> 16
or Section 412 of the Internal Revenue Code), whether or not waived,
exists with respect to any such employee pension benefit plan; and
(j) MAINTENANCE PROGRAMME: the Maintenance Programme for the Aircraft
complies with all FAA requirements.
2.3 REPETITION: The representations and warranties in Clause 2.1 and
Clause 2.2 will survive the execution of this Agreement. The
representations and warranties contained in Clause 2.1 will be deemed
to be repeated by Lessee on each Rent Date as if made with reference
to the facts and circumstances then existing.
2.4 LESSOR'S REPRESENTATIONS AND WARRANTIES: Lessor represents and
warrants to Lessee that:-
(a) STATUS: Lessor is a limited partnership existing under the laws of
Sweden and has the power to own its assets and carry on its business
as it is now being conducted;
(b) POWER AND AUTHORITY: Lessor has the power to enter into and perform,
and has taken all necessary action to authorise the entry into,
performance and delivery of, this Agreement and the transactions
contemplated by this Agreement;
(c) LEGAL VALIDITY: this Agreement constitutes Lessor's legal, valid and
binding obligation;
(d) NON-CONFLICT: the entry into and performance by Lessor of, and the
transactions contemplated by, this Agreement do not and will not:-
(i) conflict with any laws binding on Lessor; or
(ii) conflict with the constitutional documents of Lessor; or
(iii) conflict with any document which is binding upon Lessor or any
of its assets;
(e) AUTHORISATION: so far as concerns the obligations of Lessor, all
authorisations, consents, registrations and notifications required
under the laws of Sweden in connection with the entry into,
performance, validity and enforceability of, and the transactions
contemplated by, this Agreement by Lessor have been (or will on or
before the Delivery Date have been) obtained or effected (as
appropriate) and are (or will on their being obtained or effected be)
in full force and effect; and
(f) NO IMMUNITY:
(i) Lessor is subject to civil commercial law with respect to its
obligations under this Agreement; and
(ii) neither Lessor nor any of its assets is entitled to any right
of immunity and the entry into and performance of this
Agreement by Lessor constitute private and commercial acts.
3. CONDITIONS PRECEDENT
3.1 CONDITIONS PRECEDENT: Lessor's obligation to deliver and lease the
Aircraft under this Agreement is subject to satisfaction, or waiver
by Lessor, of each of the following conditions:-
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<PAGE> 17
(a) receipt by Lessor from Lessee not later than the date set forth in, or
determined in accordance with, Clause 4.1 of the following
satisfactory in form and substance to Lessor:-
(i) CONSTITUTIONAL DOCUMENTS: a copy of the constitutional
documents of Lessee;
(ii) RESOLUTIONS: a copy of a resolution of the board of directors
of Lessee approving the terms of, and the transactions
contemplated by, this Agreement, resolving that it enter into
this Agreement, and authorising a specified person or persons
to execute this Agreement and accept delivery of the Aircraft
on its behalf.-
(iii) OPINION: evidence that an opinion in the form of Schedule 5
will be issued on the Delivery Date by legal counsel
acceptable to Lessor in the Habitual Base and the State of
Incorporation;
(iv) FAA OPINION: evidence that there will be issued an opinion of
Daugherty, Fowler & Peregrin or other counsel acceptable to
Lessor who are recognised specialists with regard to FAA
registration matters in a form acceptable to Lessor as to the
due filing for recordation of this Agreement;
(v) APPROVALS: evidence of the issue of each approval, licence and
consent which may be required in relation to the performance
by Lessee of any of its obligations hereunder (including,
without limitation, any consent to the export of the Aircraft
from the Habitual Base upon the termination of the leasing of
the Aircraft under this Agreement);
(vi) [INTENTIONALLY OMITTED)
(vii) LICENCES: copies of Lessee's air transport licence, air
operator's certificates and all other licences, certificates
and permits required by Lessee in relation to, or in
connection with, the operation of the Aircraft;
(viii) PROCESS AGENT: a letter from the process agent appointed by
Lessee in this Agreement accepting that appointment;
(ix) CERTIFICATE: a certificate of a duly authorised officer of
Lessee:-
(a) setting out a specimen of each signature referred to in Clause
3.1(a)(ii); and
(b) certifying that each document specified in this Clause is
correct, complete and in full force and effect; and
(c) certifying the matters set forth in sub-clause 3.1(a)(x)
below;
(x) AIR TRAFFIC CONTROL: a letter from Lessee addressed to all
relevant air traffic control authorities pursuant to which
Lessee authorises the addressee to issue to Lessor, upon
Lessor's request from time to time, a statement of account of
all sums due by Lessee to the authority in respect of all
aircraft (including, without limitation, the Aircraft)
operated by Lessee except as otherwise set forth in a
schedule thereto; and
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<PAGE> 18
(xi) GENERAL: such other documents as Lessor may reasonably
request;
(b) the receipt by Lessor on or before the Delivery Date of:-
(i) OPINIONS: a signed original of each of the opinions referred
to in Clauses 3.1(a)(iii) and (iv);
(ii) PAYMENTS: all sums due to Lessor under this Agreement on or
before the Delivery Date including, without limitation, the
payment of Rent;
(iii) INSURANCES: certificates of insurance, an undertaking from
Lessee's insurance broker and other evidence satisfactory to
Lessor that Lessee is taking the required steps to ensure due
compliance with the provisions of this Agreement as to
Insurances with effect on and after the Delivery Date;
(iv) ACCOUNTS: the latest available accounts of Lessee as described
in Clause 8.2(b)(i) and (ii);
(v) DOCUMENTS: a confirmation of receipt of the Aircraft Documents
delivered with the Aircraft on the Previous Delivery Date;
(vi) GENERAL: such other documents as Lessor may reasonably
request;
(c) receipt by Lessor of such information and documents relating to the
proposed Agreed Maintenance Programme as Lessor may require on or prior
to the Delivery Date; and
(d) evidence that on the Delivery Date the Aircraft has been validly
registered under the laws of the State of Registration, that the
Financing Statements have been duly filed and that all filings,
registrations, recordings and other actions have been or will be taken
which are necessary or advisable to ensure the validity, effectiveness
and enforceability of this Agreement and to protect the property
rights of Owner, Sub Lessor and Lessor in the Aircraft or any Part.
3.2 FURTHER CONDITIONS PRECEDENT: The obligations of Lessor to deliver and
lease the Aircraft under this Agreement are subject to the further
conditions precedent that:-
(a) the representations and warranties of Lessee under Clauses 2.1 and 2.2
are correct and would be correct if repeated on delivery of the
Aircraft under this Agreement; and
(b) no Default has occurred and is continuing or might result from the
leasing of the Aircraft to Lessee under this Agreement.
3.3 WAIVER: The conditions specified in Clauses 3.1 and 3.2 are for the
sole benefit of Lessor and may be waived or deferred in whole or in
part and with or without conditions by Lessor. If any of those
conditions are not satisfied on the Delivery Date and Lessor (in its
absolute discretion) nonetheless agrees to deliver the Aircraft to
Lessee, Lessee will ensure that those conditions are fulfilled within
15 days after the Delivery Date and Lessor may treat as an Event of
Default the failure of Lessee to do so.
4. COMMENCEMENT
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<PAGE> 19
4.1 LEASING: Lessor will lease the Aircraft to Lessee and Lessee will take
the Aircraft on lease in accordance with this Agreement for the
duration of the Term. Lessor will deliver and Lessee will accept the
Aircraft on or about April 29, 1996 or such other day as may be
agreed. After delivery the Aircraft and every Part will be in every
respect at the sole risk of Lessee, who will bear all risk of loss,
theft, damage or destruction to the Aircraft from any cause
whatsoever.
4.2 DELIVERY: The Aircraft will be constructively delivered to and
accepted by Lessee as is at the Delivery Location or such other
location as may be agreed. Lessee will effect acceptance of the
Aircraft by execution and delivery to Lessor of the duly completed and
executed Certificate of Acceptance in the form of Schedule 2.
4.3 [INTENTIONALLY OMITTED]
4.4 [INTENTIONALLY OMITTED]
4.5 Lessee's Lease Term Option.
(a) Notwithstanding any other provision of this Agreement to the contrary,
Lessor hereby grants Lessee the option (the "Lease Term Option") to
terminate or extend the Term two (2) months earlier or later than the
numerically corresponding day twenty-four (24) months after the
Delivery Date provided that:
(i) Lessee shall give Lessor six months prior written notice (the
"Option Notice") of Lessee's intention to exercise the Lease Term
Option to either terminate or extend the Term by two (2) months, which
Option Notice, once given, shall be irrevocable; and
(ii) no Default shall have occurred and be continuing on the date that
the Option Notice is given;
(b) Option Exercised: Upon exercise by Lessee of the Lease Term Option,
but without prejudice to all the other terms and conditions of this
Agreement (including, without limitation, Lessee's obligation to
fulfil the conditions contained in Clause 4.5(a)) which shall remain
in full force and effect, the definition of "Expiry Date" contained in
Clause 1 of this Agreement shall be deemed to be amended such that the
words "Subject to any amendment pursuant to Clause 4.5(b), the day
preceding the numerically corresponding day 24 months after the
Delivery Date" shall be replaced with the words "the day preceding the
numerically corresponding day twenty-two (22) or twenty-six months
after the Delivery Date subject in all cases to the term identified in
the Option Notice".
(c) Option Not Exercised: If Lessee has not furnished Lessor with the
Option Notice on or before the date specified in sub-clause (a) above,
the Lease Term Option shall be forfeited, no longer available to
Lessee and of no further effect.
4.6 [Intentionally Omitted]
4.7 [Intentionally Omitted]
5. PAYMENTS
5.1 AIRCRAFT COMMITMENT FEE: Lessor hereby acknowledges receipt from
Lessee of the Aircraft Commitment Fee in the amount set forth in
Letter Agreement No. 1.
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<PAGE> 20
5.2 RENTAL PERIODS: The Term will be divided into Rental Periods. The
first Rental Period will commence on the Delivery Date and end May 26,
1996, the second Rental Period will commence on May 20 and each
subsequent Rental Period will commence on May 27, 1996 and each
subsequent Rental Period will commence on the date succeeding the last
day of the previous Rental Period. Each Rental Period will end on the
date immediately preceding the numerically corresponding day in the
next month except that:-
(a) if there is no such numerically corresponding day in that month, it
will end on the last day of that month; and
(b) if a Rental Period would otherwise overrun the Expiry Date, it will
end on the Expiry Date.
5.3 RENT: Except as otherwise set forth in Letter Agreement No. 1, on each
Rent Date Lessee will pay to Lessor or its order Basic Rent in advance
in the amount set forth in paragraph A of Letter Agreement No. 1.
Payment must be initiated adequately in advance of the Rent Date to
ensure that Lessor receives credit for the payment on the Rent Date.
If a Rental Period begins on a non-Business Day, the Basic Rent payable
in respect of that Rental Period shall be paid on the Business Day
immediately preceding the date on which such Rental Period commences.
5.4 SUPPLEMENTAL RENT:
(a) AMOUNT: Except as otherwise set forth in Letter Agreement No. 1,
Lessee will further pay to Lessor Supplemental Rent in relation to
each Rental Period (including without limitation the last Rental
Period of the Term) on the 10th day following the end of that Rental
Period as follows:-
(i) in respect of the Airframe, the amount set forth in paragraph
B (i)(a) of Letter Agreement No. 1 in respect of each Flight
Hour operated by the Aircraft during that Rental Period
("Airframe Supplemental Rent"); and
(ii) in respect of each Engine, the amount set forth in paragraph B
(i)(b) of Letter Agreement No. 1 in respect of each Flight
Hour operated by that Engine during that Rental Period
("Engine Refurbishment Supplemental Rent"); and
(iii) in respect of each Engine, the amount set forth in paragraph B
(i)(c) of Letter Agreement No. 1 in respect of each Flight
Hour operated by that Engine during that Rental Period
("Engine Life Limited Parts Supplemental Rent"); and
(v) in respect of the Landing Gear, the amount set forth in
paragraph B (i)(d) of Letter Agreement No. 1 in respect of
each Flight Hour operated by the Landing Gear during that
Rental Period ("Landing Gear Supplemental Rent").
Notwithstanding the foregoing, with respect to any Engine, provided
that (x) no Default shall have occurred and be continuing; and (y)
there shall have been no material adverse change in Lessee's financial
position since the Delivery Date, if at any time commencing from the
Previous Delivery Date and falling during the Term the aggregate
amount of Engine Refurbishment Supplemental Rent and Engine Life
Limited Parts Supplemental Rent previously paid by Lessee in respect
of that Engine less any amount paid by Lessor with respect to that
Engine pursuant to Clause 7.2 equals or exceeds $600,000, then
Lessee's obligation to pay Engine Refurbishment Supplemental Rent and
Engine Life
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<PAGE> 21
Limited Parts Supplemental Rent in respect of that Engine shall abate.
Lessee's obligation to pay Engine Refurbishment Supplemental Rent and
Engine Life Limited Parts Supplemental Rent shall recommence at such
time as the aggregate amount of Engine Refurbishment Supplemental Rent
and Engine Life Limited Parts Supplemental Rent held by Lessor in
respect of that Engine less any amount paid by Lessor with respect to
that Engine pursuant to Clause 7.2 falls below $600,000.
(b) ADJUSTMENT: the rate of Supplemental Rent shall be adjusted upwards
annually by Lessor at the rate of 5% per annum commencing 1 January,
1997. In addition, but not limited to the foregoing, Lessee
acknowledges that the rates of Supplemental Rent currently provided for
in this Agreement are based upon the assumptions that (i) the Aircraft
will be operated on a one Flight Hour to one Cycle ratio; and (ii) the
Agreed Maintenance Programme for the Aircraft during the Term will be
substantially the same as that in effect on the Delivery Date. In the
event that either or both of the foregoing assumptions prove to be
incorrect at any time during the Term, Lessor and Lessee agree that
Lessor shall have the right, upon written notice to Lessee, to adjust
the rate of Supplemental Rent in accordance with the Table set forth in
Letter Agreement No. 1. In the event that the Agreed Maintenance
Programme changes during the Term (any such change to be in accordance
with the relevant terms and conditions of this Agreement), Lessor shall
make the aforementioned adjustment in the manner which Lessor
determines, in its reasonable discretion, is necessary to maintain the
rates of Supplemental Rent at levels which accurately reflect the costs
associated with obtaining maintenance services at prevailing industry
rates. Each such notice shall specify the revised rate of Supplemental
Rent and the effective date of such revision. Lessee agrees to advise
Lessor, in writing, of any circumstances or events which would result
in the foregoing assumptions becoming incorrect at any time during the
Term.
5.5 PAYMENTS: All payments by Lessee to Lessor under this Agreement will
be made for value on the due date in Dollars and in immediately
available funds settled through the New York Clearing House System or
such other funds as may for the time being be customary for the
settlement in New York City of international payments in Dollars by
telegraphic transfer to ABN Amro Bank Box 26096 Stockholm Sweden
Account number 9090-008-468 for credit to the account of Polaris
Aircraft Leasing K.B. or to such other account as Lessor may advise
Lessee in writing.
5.6 GROSS-UP:
(a) All payments by Lessee under or in connection with this Agreement will
be made without set-off or counterclaim, free and clear of and without
deduction for or on account of all Taxes (other than Lessor Taxes);
(b) all Taxes (other than Lessor Taxes) in respect of payments under this
Agreement shall be for the account of and will be paid by Lessee for
its own account prior to the date on which penalties apply; and
(c) if Lessee is compelled by law to make payment subject to any Tax
(other than Lessor Taxes) and Lessor does not actually receive for its
own benefit on the due date a net amount equal to the full amount
provided for under this Agreement, Lessee will pay all necessary
additional amounts to ensure receipt by Lessor of the full amount so
provided for.
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<PAGE> 22
5.7 TAXATION: Lessee will on demand pay and indemnify Lessor against all
Taxes (other than Lessor Taxes) levied or imposed against or upon
Owner, Sub Lessor, Lessor or Lessee and relating to or attributable to
Lessee, this Agreement or the Aircraft directly or indirectly in
connection with the importation, exportation, registration, ownership,
leasing, subleasing, delivery, possession, use, operation, repair,
maintenance, overhaul, transportation, landing, storage, presence or
redelivery of the Aircraft or any part thereof or any rent, receipts,
insurance proceeds, income or other amounts arising therefrom.
5.8 VALUE ADDED TAX:
(a) For the purposes of this sub-clause:-
(i) "VAT" means value added tax and any sales or turnover tax,
imposition or levy of a like nature;
(ii) "supply" includes anything on which VAT is chargeable;
(b) Lessee will pay to Lessor the amount of any VAT chargeable in respect
of any supply of goods or services for VAT purposes under this
Agreement; and
(c) each amount stated as payable by Lessee under this Agreement is
exclusive of VAT (if any) and is accordingly to be construed as a
reference to that amount plus any VAT in respect of it.
5.9 INFORMATION: If Lessee is required by any applicable law, or by any
third party, to deliver any report or return in connection with any
Taxes, Lessee will complete the same in a manner satisfactory to
Lessor and in particular will state therein that Lessee is exclusively
responsible for the use and operation of the Aircraft and for any
Taxes arising therefrom, and Lessee will, on request, supply a copy of
the report or return to Lessor.
5.10 TAXATION OF INDEMNITY PAYMENTS:
(a) If and to the extent that any sums payable to Lessor by Lessee under
this Agreement by way of indemnity are insufficient, by reason of any
Taxes (other than Lessor Taxes) payable in respect of those sums, for
Lessor to discharge the corresponding liability to the relevant third
party (including any taxation authority), or to reimburse Lessor for
the cost incurred by it to a third party (including any taxation
authority) Lessee will pay to Lessor such sum as will after the tax
liability has been fully satisfied leave Lessor with the same amount
as it would have been entitled to receive in the absence of that
liability together with interest on the amount of the deficit at the
rate of interest stated in Clause 5.11 in respect of the period
commencing on the date on which the payment of taxation is finally due
until payment by Lessee (both before and after judgment); and
(b) If and to the extent that any sums constituting (directly or
indirectly) an indemnity to Lessor but paid by Lessee to any person
other than Lessor are treated as taxable in the hands of Lessor,
Lessee will pay to Lessor such sum as will after the tax liability has
been fully satisfied indemnify Lessor to the same extent as it would
have been indemnified in the absence of such liability together with
interest on the amount payable by Lessee under this sub-clause at the
rate of interest stated in Clause 5.11 in respect of the period
commencing on the date on which the payment of taxation is finally due
until payment by Lessee (both before and after judgment) provided
however that Lessee will not be liable
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for any Lessor Taxes incurred as a result of the payment of the Agreed
Value pursuant to Clause 11.
5.11 DEFAULT INTEREST: If Lessee fails to pay any amount payable under this
Agreement on the due date, Lessee will pay on demand from time to time
to Lessor interest (both before and after judgment) on that amount,
from the due date to the date of payment in full by Lessee to Lessor,
at the rate calculated by Lessor to be one month Dollar LIBOR plus 500
basis points per annum. All such interest will be compounded monthly
and calculated on the basis of the actual number of days elapsed and a
360 day year.
5.12 CONTEST: If Lessee disputes the payment of any Taxes payable by Lessor
for which Lessee is responsible under this Agreement, Lessor will
consider with Lessee the taking of such action as Lessee may
reasonably request at Lessee's expense to contest that payment but
will not be obliged to take any such action:-
(a) which Lessor considers in its sole discretion may prejudice it; or
(b) which Lessor considers does not have a reasonable prospect of success;
or
(c) for which Lessee has not made adequate provision to the satisfaction
of Lessor in respect of the expense concerned.
5.13 ABSOLUTE: Lessee's obligations under this Agreement are absolute and
unconditional irrespective of any contingency whatsoever including
(but not limited to):-
(a) any right of set-off, counterclaim, recoupment, defence or other right
which either party to this Agreement may have against the other;
(b) any unavailability of the Aircraft for any reason, including, but not
limited to, a requisition of the Aircraft or any prohibition or
interruption of or interference with or other restriction against
Lessee's use, operation or possession of the Aircraft;
any lack or invalidity of title or any other defect in title,
airworthiness, merchantability, fitness for any purpose, condition,
design, or operation of any kind or nature of the Aircraft for any
particular use or trade, or for registration or documentation under
the laws of any relevant jurisdiction, or any Event of Loss in respect
of or any damage to the Aircraft;
(d) any insolvency, bankruptcy, reorganisation, arrangement, readjustment
of debt, dissolution, liquidation or similar proceedings by or against
Lessor or Lessee;
(e) any invalidity or unenforceability or lack of due authorisation of, or
other defect in, this Agreement; and
(f) any other cause which but for this provision would or might otherwise
have the effect of terminating or in any way affecting any obligation
of Lessee under this Agreement.
5.14 SECURITY:
(a) It is intended by Lessor and Lessee that the Aircraft Commitment Fee
paid by Lessee to Lessor and referenced in Clause 5.1, the
Supplemental Rent and, if applicable, the Insurance Security Deposit
contemplated by the first paragraph of Schedule 4 are amounts
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paid by Lessee to Lessor in consideration for Lessor removing the
Aircraft from the market, the use of the Aircraft by Lessee and the
satisfaction of Lessor's obligations under this Agreement and that,
once paid, those monies irrevocably and unconditionally shall be the
property of Lessor. Notwithstanding that stated intent, if and to the
extent that those monies or any thereof, under any applicable law or
otherwise, are determined to be security deposits or otherwise the
property of Lessee or if it is so determined those monies are a debt
owed to Lessee or that Lessee shall have any interest in those monies
(the "Charged Monies"), the parties agree that subclauses (b), (c) and
(d) shall apply;
(b) To the fullest extent permitted by law and by way of continuing
security Lessee charges and grants a security interest in the Charged
Monies and all rights of Lessee to payment thereof, the debt
represented thereby and/or any and all interest of Lessee therein to
Lessor by way of first priority security interest and first fixed
charge as security for Lessee's obligations and liabilities under this
Agreement and the Other Agreements (the "Secured Liabilities").
Except as expressly permitted under this Agreement, Lessee will not be
entitled to payment of the Charged Monies. Lessee will not assign,
transfer or otherwise dispose of all or part of its rights in the
Charged Monies and Lessee agrees that it will enter into any
additional documents and instruments necessary or reasonably requested
by Lessor to evidence, create or perfect Lessor's rights to the
Charged Monies.
(c) If Lessee fails to comply with any provision of this Agreement or any
Event of Default has occurred and is continuing Lessor may immediately
or at any time thereafter, without prior notice to Lessee:-
(i) set-off all or any part of the Secured Liabilities against the
liabilities of Lessor in respect of the Charged Monies; or
(ii) apply or appropriate the Charged Monies in or towards the
payment or discharge of the Secured Liabilities in such order as
Lessor sees fit; and
(d) If Lessor has exercised the set-off described in sub-clause (c) above,
Lessee shall, following a demand in writing from Lessor, promptly
restore the Charged Monies to the level at which they stood
immediately prior to such set-off.
6 MANUFACTURER'S WARRANTIES
6.1 ASSIGNMENT: Notwithstanding this Agreement, Lessor will remain
entitled to the benefit of each warranty, express or implied, with
respect to the Aircraft, any Engine or Part so far as concerns any
manufacturer, vendor, subcontractor or supplier. Except to the extent
Lessor otherwise directs, Lessor hereby authorises Lessee to pursue
any claim thereunder in relation to defects affecting the Aircraft,
any Engine or Part and Lessee agrees diligently to pursue any such
claim which arises at its own cost. Lessee will notify Lessor
promptly upon becoming aware of any such claim.
6.2 PROCEEDS: Except to the extent Lessor otherwise agrees in a particular
case, provided no Default has occurred and is continuing all proceeds
of any such claim will be paid directly to Lessee if and to the extent
that such claim relates:-
(a) to defects affecting the Aircraft which Lessee has rectified and
Lessor has received from Lessee evidence satisfactory to Lessor that
Lessee has rectified the relevant defect; or
(b) to compensation for loss of use of the Aircraft, an Engine or any Part
during the Term; and
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6.3 PARTS: Except to the extent Lessor otherwise agrees in a particular
case, Lessee will procure that all engines, components, furnishings or
equipment provided by the manufacturer, vendor, subcontractor or
supplier in replacement of a defective Engine or Part pursuant to the
terms of any warranty will be installed promptly by Lessee, that title
thereto free of Security Interests vests in Owner. On installation
those items will be deemed to be an Engine or Part as applicable.
6.4 AGREEMENT: To the extent any warranties relating to the Aircraft are
made available under an agreement between any manufacturer, vendor,
subcontractor or supplier and Lessee, this Clause 6 is subject to that
agreement. However Lessee will:-
(a) apply the proceeds of any claim thereunder to Lessor to be applied
pursuant to Clause 6.2 and pending such payment will hold the claim
and the proceeds on trust for Lessor; and
(b) Lessee will take all such steps as are necessary at the end of the
Term to ensure the benefit of any of those warranties which have not
expired are vested in Lessor.
7. LESSOR'S COVENANTS
7.1 QUIET ENJOYMENT: Lessor will not interfere with the quiet use,
possession and enjoyment of the Aircraft by Lessee but the exercise by
Lessor of its rights under or in connection with this Agreement will
not constitute such an interference.
7.2 MAINTENANCE CONTRIBUTION: Provided no Default has occurred and is
continuing Lessor will pay to Lessee, by way of contribution to the
cost of maintenance of the Aircraft, upon submission by Lessee to
Lessor within 6 months of the commencement of that maintenance and
before the Expiry Date of an invoice and supporting documentation
reasonably satisfactory to Lessor evidencing:-
(a) with respect to the Airframe, the completion, in accordance with this
Agreement, of those items of maintenance characterised by the
Manufacturer's maintenance planning document and best industry
practice as D Check and/or individual structural inspections having an
interval of not less than 15,000 Flight Hours or 6 years for the
Aircraft (but not including repairs arising as the result of
operational or maintenance mishandling and not including airworthiness
directives), the lesser of (i) the amount of that invoice and (ii) an
amount equal to the aggregate amount of Airframe Supplemental Rent
paid under this Agreement at the time of commencement of such
maintenance less the aggregate amount previously paid by Lessor under
this sub-clause;
(b) with respect to any Engine, the performance, in accordance with this
Agreement, of a Hot Section Refurbishment or a Cold Section
Refurbishment (other than (i) repairs arising as a result of foreign
object damage or operational or maintenance mishandling and/or (ii)
removal, installation, maintenance and repair of QEC (Quick Engine
Change) kits and/or airworthiness directives), the lesser of (i) the
amount of that invoice and (ii) an amount equal to the aggregate
amount of Engine;
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(c) with respect to any Engine, the replacement, in accordance with this
Agreement, of life limited Parts (other than replacement which is
occassioned by foreign object damage or operational or maintenance
mishandling and other than replacement occassioned by airworthiness
directives or elective replacement), the lesser of (i) the amount of
that invoice and (ii) an amount equal to the aggregate amount of
Engine Life Limited Parts Supplemental Rent paid in respect of that
Engine under this Agreement at the time of commencement of such
maintenance less the aggregate amount previously paid in respect of
that Engine by Lessor under this sub-clause; and
(d) with respect to the Landing Gear, the performance in accordance with
this Agreement, of all work on the Landing Gear in the nature of
overhaul and requiring removal and disassembly (other than repairs
arising as the result of operational or maintenance mishandling and/or
airworthiness directives), the lesser of (i) the amount of that
invoice and (ii) an amount equal to the aggregate amount of Landing
Gear Supplemental Rent paid under this Agreement at the time of
commencement of such maintenance less the aggregate amount previously
paid by Lessor under this sub-clause.
Lessor will make the payment to Lessee within 14 days of the receipt of
the invoice referred to above.
To the extent that any Engine undergoes maintenance and repairs as a
result of foreign object damage and the work performed on the Engine at
the time of the maintenance and repair includes work which would have
been performed at the time of the Hot Section Refurbishment and/or Cold
Section Refurbishment or includes the replacement of life limited Parts
(in each and all cases, the "Betterment") then Lessor shall pay to
Lessee the lesser of (i) the amount of the invoice which relates solely
to the Betterment and (ii) an amount equal to the aggregate amount of
Engine Hot Section Refurbishment Supplemental Rent, Engine Cold Section
Refurbishment Supplemental Rent and/or Engine Life Limited Parts
Supplemental Rent, as the case may be, paid in respect of that Engine
under this Agreement at the time of commencement of such maintenance
and repair less the aggregate amount previously paid in respect of that
Engine by Lessor under sub-clause (b), (c) and/or (d) respectively.
7.3 LESSOR OBLIGATIONS FOLLOWING EXPIRY DATE: Within 5 Business Days of:-
(a) redelivery of the Aircraft to Lessor in accordance with and in the
condition required by this Agreement; or
(b) payment to Lessor of the Agreed Value following an Event of Loss after
the Delivery Date;
or in each case such later time as Lessor is satisfied Lessee has
irrevocably paid to Lessor all Rent which may then be outstanding or
become payable under this Agreement or the Other Agreements and
provided that no Default shall have occurred and is continuing, Lessor
will pay to Lessee:-
(i) an amount equal to (x) the amount of the Aircraft Commitment
Fee paid by Lessee and referenced in Clause 5.1; plus (y) the
amount of interest at the rate and otherwise calculated in
accordance with Letter Agreement No. 1 which would have
accrued on the amount referred to in (x); and
(ii) the amount of any Basic Rent received in respect of any period
falling after the date of redelivery of the Aircraft or
payment of the Agreed Value, as the case may be; and
(iii) an amount equal to (x) the aggregate amount of Supplemental
Rent previously paid by Lessee under this Agreement; minus (y)
the aggregate amount previously paid by Lessor under Clause
7.2 without payment of interest.
8. LESSEE'S COVENANTS
8.1 DURATION: The undertakings in this Clause and in Clause 12 will:-
(a) except as otherwise stated, be performed at the expense of Lessee; and
(b) remain in force until the Expiry Date in accordance with this
Agreement and thereafter to the extent of any accrued rights of Lessor
in relation to those undertakings.
8.2 INFORMATION: Lessee will:-
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(a) notify Lessor forthwith of the occurrence of any Default or any other
event which might adversely affect Lessee's ability to perform any of
its obligations under this Agreement;
(b) furnish to Lessor:-
(i) on a quarterly and annual basis, the consolidated management
accounts of Lessee (comprising a balance sheet and profit and
loss statement) prepared for the most recent previous
financial quarter certified by Lessee's chief financial
officer as being true and correct;
(ii) as soon as available but not in any event later than 120 days
after the last day of each financial year of Lessee, its
audited consolidated balance sheet as of such day and its
audited consolidated profit and loss statement for the year
ending on such day;
(iii) at the same time as it is issued to the shareholders or
creditors of Lessee, a copy of each notice or circular issued
to Lessee's shareholders or creditors as a group;and
(iv) on request from time to time such other information relevant
to the transaction contemplated by this Agreement regarding
Lessee and its business and affairs as Lessor may reasonably
request;
(c) keep Lessor informed as to current serial numbers of the Engines and
any engine installed on the Aircraft;
(d) promptly furnish to Lessor all information Lessor from time to time
reasonably requests regarding the Aircraft, any Engine or any Part,
its use, location and condition including, without limitation, the
hours available on the Aircraft and any Engine until the next
scheduled check, inspection, overhaul or shop visit, as the case may
be;
(e) on request, within 10 days after the end of any Rental Period, furnish
to Lessor evidence satisfactory to Lessor of payment of all Taxes due
during that or any previous Rental Period;
(f) on request, furnish to Lessor evidence satisfactory to Lessor that all
Taxes and charges incurred by Lessee with respect to the Aircraft,
including without limitation all payments due to the relevant air
traffic control authorities, have been paid and discharged in full;
(g) provide Lessor with a monthly report on the Aircraft and each Engine
in the form required from time to time by Lessor;
(h) give Lessor not less than 30 days' written notice as to the time and
location of all Major Checks; and
(i) promptly notify Lessor of:-,
(i) any loss, theft, damage or destruction to the Aircraft, any
Engine or any Part, or any modification to the Aircraft if the
potential cost may exceed the Damage Notification Threshold;
and
(ii) any claim or other occurrence likely to give rise to a claim
under the Insurances
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(but in the case of hull claims only in excess of the Damage
Notification Threshold) and details of any negotiations with
the insurance brokers over any such claim.
8.3 LAWFUL AND SAFE OPERATION: Lessee will:-
(a) comply with the law for the time being in force in any country or
jurisdiction which may for the time being be applicable to the
Aircraft or, so far as concerns the use and operation of the Aircraft
or an owner or operator thereof and take all reasonable steps to
ensure that the Aircraft is not used for any illegal purpose;
(b) not use the Aircraft in any manner contrary to any recommendation of
the manufacturers of the Aircraft, any Engine or any Part or any
recommendation or regulation of the Air Authority or for any purpose
for which the Aircraft is not designed or reasonably suitable;
(c) ensure that the crew and engineers employed by it in connection with
the operation and maintenance of the Aircraft have the qualifications
and hold the licences required by the Air Authority and applicable
law;
(d) use the Aircraft solely in commercial or other operations for which
Lessee is duly authorised by the Air Authority and applicable law;
(e) not use the Aircraft for the carriage of:-
(i) whole animals living or dead except in the cargo compartments
according to I.A.T.A. regulations, and except domestic pet
animals carried in a suitable container to prevent the escape
of any liquid and to ensure the welfare of the animal;
(ii) acids, toxic chemicals, other corrosive materials, explosives,
nuclear fuels, nuclear wastes, or any nuclear assemblies or
components, except as permitted for passenger aircraft under
the "Restriction of Goods" schedule issued by I.A.T.A. from
time to time and provided that all the requirements for
packaging or otherwise contained therein are fulfilled;
(iii) any other goods, materials or items of cargo which could
reasonably be expected to cause damage to the Aircraft and
which would not be adequately covered by the Insurances; or
(iv) any illegal item or substance;
(f) not utilise the Aircraft for purposes of training, qualifying or
re-confirming the status of cockpit personnel except for the benefit
of Lessee's cockpit personnel, and then only if the use of the
Aircraft for such purpose is not disproportionate to the use for such
purpose of other aircraft of the same type operated by Lessee;
(g) not cause or permit the Aircraft to proceed to, or remain at, any
location which is then the subject of a prohibition order (or any
similar order or directive), sanctions or restrictions by:-
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(i) the United Nations Security Council, the U.S. International
Economic Emergency Powers Act or U.N. Security Council
directives (including, as of the date hereof, Haiti, Iraq,
Libya and the Federal Republic of Yugoslavia (Serbia and
Montenegro) and the Unita Rebels of Angola) or the U.S. Export
Administration Act Regulations (15 C.F.R. Parts 730-799)
(including as of the date hereof Cuba, Iran, North Korea,
Sudan, Syria and Vietnam), except as may be permitted by
operating in accordance with the conditions specified by the
U.S. Export Administration Regulations, General License GATS
(15 C.F.R. Part 771.19);
(i) any Government Entity of the State of Registration or the
Habitual Base;
(iii) any Government Entity of the country in which such location is
situated; or
(iv) any Government Entity having jurisdiction over Owner, Sub
Lessor, Lessor, the Banks or the Aircraft;
(h) obtain and maintain in full force all certificates, licences, permits
and authorisations required for the use and operation of the Aircraft
for the time being, and for the making of payments required by, and
the compliance by Lessee with its other obligations under, this
Agreement;
(i) not operate or locate the Aircraft or suffer or permit the Aircraft to
be operated or located during the Term in any area excluded from
coverage by any insurance policy issued pursuant to the requirements
of this Agreement; and
(j) not operate or locate the Aircraft in, to or over any country which is
(x) the subject of sanctions under the U.S. International Economic
Emergency Powers Act or United Nations Security Council Directives
(currently Iraq, Libya, the Federal Republic of Yugoslavia (Serbia and
Montenegro) and the Unita Rebels of Angola) and/or (y) restricted
under the United States Trading with the Enemy Act or the United
States Export Administration Act except as may be permitted by
operating in accordance with the conditions specified by the United
States Export Administration Regulations, General Licence GATS (15 CFR
Part 771.19) (currently Cuba, Iran, North Korea and Syria).
8.4 TAXES AND OTHER OUTGOINGS: Lessee will promptly pay:-
(a) all licence and registration fees, Taxes (other than Lessor Taxes) and
other amounts of any nature imposed by any Government Entity with
respect to the Aircraft, including without limitation the purchase,
ownership, delivery, leasing, possession, use, operation, return, sale
or other disposition of the Aircraft; and
(b) all rent, fees, charges, Taxes (other than Lessor Taxes) and other
amounts in respect of any premises where the Aircraft or any Part
thereof is located from time to time;
except to the extent that in the reasonable opinion of Lessor such
payment is being contested in good faith by appropriate proceedings,
in respect of which adequate reserves have been provided by Lessee and
non-payment of which does not give rise to any material likelihood of
the Aircraft or any interest therein being sold, forfeited or
otherwise lost or of criminal liability on the part of Owner, Lessor,
Sub Lessor or any Bank.
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8.5 SUB-LEASING: LESSEE WILL NOT, WITHOUT THE PRIOR WRITTEN CONSENT OF
LESSOR, SUB-LEASE OR OTHERWISE PART WITH POSSESSION OF THE AIRCRAFT,
THE ENGINES OR ANY PART EXCEPT THAT LESSEE MAY PART WITH POSSESSION
(A) WITH RESPECT TO THE AIRCRAFT, THE ENGINES OR ANY PART TO THE
RELEVANT MANUFACTURERS FOR TESTING OR SIMILAR PURPOSES OR TO THE
AGREED MAINTENANCE PERFORMER FOR SERVICE, REPAIR, MAINTENANCE OR
OVERHAUL WORK, OR ALTERATIONS, MODIFICATIONS OR ADDITIONS TO THE
EXTENT REQUIRED OR PERMITTED BY THIS AGREEMENT, AND (B) WITH RESPECT
TO AN ENGINE OR PART, AS EXPRESSLY PERMITTED BY THIS AGREEMENT.
8.6 INSPECTION:
(a) Lessor and any person designated by Lessor may at any time visit,
inspect and survey the Aircraft, any Engine or any Part and for such
purpose may, subject to any applicable Air Authority regulation,
travel on the flight deck as observer;
(b) Lessee will pay to Lessor on demand all reasonable out-of-pocket
expenses incurred by Lessor in connection with any such visit,
inspection or survey; and
(c) Lessor will:
(i) have no duty or liability to make, or arising out of any such
visit, inspection or survey; and
(ii) so long as no Default has occurred and is continuing, not
exercise such right other than on reasonable notice and so as
not to disrupt unreasonably the commercial operations of
Lessee.
8.7 OWNERSHIP; PROPERTY INTERESTS; RELATED MATTERS: Lessee will:-
(a) not do or knowingly permit to be done or omit or knowingly permit the
omission of any act or thing which might reasonably be expected to
jeopardise the rights of Owner as owner of the Aircraft, the rights of
Sub Lessor as sub lessor of the Aircraft and the rights of Lessor as
lessor of the Aircraft;
(b) on all occasions when the ownership of the Aircraft, any Engine or any
Part is relevant, make clear to third parties that title is held by
Owner;
(c) not at any time (i) represent or hold out Owner, Sub Lessor, Lessor or
the Banks as carrying goods or passengers on the Aircraft or as being
in any way connected or associated with any operation or carriage
(whether for hire or reward or gratuitously) which may be undertaken
by Lessee or (ii) pledge the credit of Owner, Sub Lessor, Lessor or
the Banks;
(d) ensure that there is always affixed, and not removed or in any way
obscured, a fireproof plate (having dimensions of not less than 10 cm.
x 7 cm.) in a reasonably prominent position in the cockpit of the
Aircraft adjacent to the certificate of airworthiness and on each
Engine stating:-
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"This Aircraft/ Engine is owned by Polaris Aircraft Leasing K.B. and
is leased to Air South Airlines, Inc. and may not be operated by any
other person without the prior written consent of Polaris Aircraft
Leasing K.B.";
(e) not create or permit to exist any Security Interest upon the Aircraft,
any Engine or any Part;
(f) not do or permit to be done anything which may reasonably be expected
to expose the Aircraft, any Engine or any Part to penalty, forfeiture,
impounding, detention, appropriation, damage or destruction and
without prejudice to the foregoing, if any such penalty, forfeiture,
impounding, detention or appropriation, damage or destruction occurs,
give Lessor notice and use best endeavours to procure the immediate
release of the Aircraft, any Engine or the Part, as the case may be;
(g) not abandon the Aircraft, the Engine or any Part;
(h) pay and discharge or cause to be paid and discharged when due and
payable or make adequate provision by way of security or otherwise for
all debts, damages, claims and liabilities which have given or might
give rise to a Security Interest over or affecting the Aircraft, any
Engine or any Part; and
(i) not attempt, or hold itself out as having any power, to sell, lease or
otherwise dispose of the Aircraft, any Engine or any Part.
8.8 GENERAL: Lessee will:-
(a) not liquidate or dissolve (except in connection with a transaction
otherwise permitted by this Clause 8.8 (a)), and Lessee shall not
consolidate with or merge into, any other corporation, and Lessee
shall not convey, transfer, lease or otherwise dispose of all or
substantially all of its property and other assets, whether in one or
a series of related transactions unless in the case of any such
consolidation, merger, conveyance, transfer, lease or other
disposition:-
(i) the corporation formed by or surviving such consolidation or
merger or the corporation which acquires by conveyance,
transfer, lease or other disposition all or a material portion
of such property and other assets or stock (the "Successor
Entity")--
(A) shall be a corporation organised and existing under
the laws of the United States or any state thereof;
(B) immediately after giving effect to such transaction,
shall be Lessee or shall have acquired or succeeded
to all or substantially all of the property and other
assets (including, without limitation, all or
substantially all of Lessee's property and other
assets) as an entirety; and .
(C) shall execute and deliver to Lessor an agreement, in
form and substance reasonably satisfactory to Lessor,
which is a legal, valid, binding and enforceable
assumption by such Successor Entity of the due and
punctual performance and observance of each covenant
and condition of this Agreement and agreement to be
bound thereby, and
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shall execute, deliver and/or file such recordations
and filings with any Government Entity and such other
documents as Lessor shall reasonably deem to be
necessary or advisable (including, without
limitation, to preserve and protect the interests of
Lessor) to evidence, or in connection with, such
consolidation, merger, sale, lease, transfer or other
disposition or acquisition and an officer's
certificate from a responsible officer of the
Successor Entity confirming the legal, valid, binding
and enforceable nature of such assumption, and to the
effect that the other requirements of this paragraph
have been satisfied, and a legal opinion from counsel
confirming the legal, valid, binding and enforceable
nature of such assumption and otherwise in such form
and substance reasonably satisfactory to Lessor; and
(ii) prior to and immediately after giving effect to such
transaction, no Default or Event of Default shall have
occurred and be continuing.
No such permitted disposition to a Successor Entity shall relieve or
release Lessee of or from any obligations hereunder which arose or
existed prior to such disposition. Promptly following the closing of
such disposition, Lessee shall provide Lessor with a certificate
signed by Lessee's chief financial officer to the effect that such
disposition will not have a material adverse effect on Lessee's
ability to perform its obligations under this Agreement;
(b) ensure that no change will occur in the Habitual Base of the Aircraft
without the prior written consent of Lessor. Lessor agrees that it
shall not withhold its consent to a change in the Habitual Base to
another state of the United States if Lessee shall have provided
Lessor with an opinion of counsel practising in the state of the
United States proposed by Lessee to be the Habitual Base in form and
in substance reasonably satisfactory to Lessor to the effect that the
rights and interests of Lessor are duly protected;
(c) not, without giving Lessor 30 days prior written notice (in accordance
with this Agreement), change its chief executive office (as such term
is defined in Article 9 of the Uniform Commercial Code as in effect in
the State of South Carolina) from 1800 St. Julian Place, 4th Floor,
Columbia, South Carolina 29204;
(d) remain a Certificated Air Carrier and maintain, without limitation,
its status so as to fall within the purview of Section 1110 of Title
11 of the United States Code or any analogous Statute; and
(e) remain a "citizen of the United States" as defined in Section 101(16)
of the Federal Aviation Act.
8.9 RECORDS: Lessee will:-
(a) cause accurate, complete and current records of all flights made by,
and all maintenance carried out on, the Aircraft (including in
relation to each Engine and Part subsequently installed, before the
installation) to be kept; keep the records in such manner as the Air
Authority may from time to time require, and ensure that they comply
with the recommendations of any manufacturers of the Aircraft, any
Engine or any Part. All records must be maintained in English. The
records will form part of the Aircraft Documents; and
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(b) procure access to a revision service in respect of, and will maintain
with appropriate revisions in English, all Aircraft Documents,
records, logs, and other materials required by applicable laws and
best practice of major international air transport operators in
respect of the Aircraft.
8.10 PROTECTION: Lessee will:-
(a) maintain the registration of the Aircraft with the Air Authority in
the name of Lessor and, to the extent permitted under the laws of the
State of Registration, reflecting the respective interests of Owner
and Sub Lessor and not do or suffer to be done anything which might
adversely affect that registration; and
(b) do all acts and things (including, without limitation, making any
filing or registration with the Air Authority or any other Government
Entity) and execute and deliver, notarise, file, register and record
all documents (including, without limitation, any amendment of this
Agreement) as may be required by Lessor:-
(i) following any change or proposed change in the ownership or
financing of the Aircraft or in the manner of securing Owner's
and/or Sub Lessor's and/or Lessor's obligations to the Banks;
or
(ii) following any modification of the Aircraft, any Engine or any
Part or the permanent replacement of any Engine or Part in
accordance with this Agreement, so as to ensure that the
rights of Owner as owner of the Aircraft, the rights of Sub
Lessor as sub lessor of the Aircraft and the rights of Lessor
as lessor of the Aircraft and under this Agreement apply with
the same effect as before; or
(iii) to establish, maintain, preserve, perfect and protect the
rights of Lessor under this Agreement or the interest of Sub
Lessor as sub lessor of the Aircraft and the interest of Owner
as owner of the Aircraft.
8.11 MAINTENANCE AND REPAIR: Lessee will:-
(a) keep the Aircraft airworthy in all respects and in good repair and
condition;
(b) not materially change the Agreed Maintenance Programme or the schedule
of the Agreed Maintenance Programme without the written consent of
Lessor;
(c) maintain the Aircraft in accordance with the Agreed Maintenance
Programme through the Agreed Maintenance Performer and perform (at the
respective intervals provided in the Agreed Maintenance Programme) all
Major Checks;
(d) maintain the Aircraft in accordance with FAA Federal Air Regulations
Part 121 and any other rules and regulations of the FAA as may be
applicable to passenger category aircraft and in at least the same
manner and with at least the same care, including, without limitation,
maintenance scheduling, modification status and technical condition,
as is the case with respect to similar aircraft owned or otherwise
operated by Lessee and as if Lessee were to retain the Aircraft in its
fleet and continue to operate the Aircraft after the Expiry Date and
including, without limitation, all maintenance to the Airframe, any
Engine or any Part required to maintain all warranties, performance
guarantees or service life policies in full force and effect;
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(e) comply with all mandatory inspection and modification requirements and
airworthiness directives applicable to the Aircraft, any Engine or
Part issued during the Term having a compliance date during the Term
or within 180 days after the Expiry Date (except as provided in
paragraph (f) of Section 1 of Schedule 3) and which are required by the
Air Authority, and/or the FAA and/or the laws of the state of
manufacture of the Aircraft, any Engine or Part and/or recommended by
any manufacturer of the Aircraft, any Engine or Part (each of the
foregoing being hereinafter referred to as a "Relevant AD").
The cost of compliance with any single Relevant AD shall be allocated
among Lessor and Lessee as follows:-
(i) Lessee shall be responsible for the first $100,000 of such
cost;
(ii) Lessor and Lessee shall share, on an equal basis, the portion
of such cost (if any) which exceeds $100,000 up to and
including $200,000; and
(iii) Lessor shall be wholly responsible for the portion of such
cost (if any) which exceeds $200,000 (subject always to the
provisions of the following paragraph).
Notwithstanding the foregoing, in the event that the total cost of any
single Relevant AD (such total cost to be mutually agreed, in good
faith, between Lessor and Lessee) exceeds $200,000 (the "Threshold
Amount"), Lessor may elect not to make its contribution to the cost of
compliance with such Relevant AD as described in (iii) above. If
Lessor shall so elect, Lessee shall be entitled, by giving prior
written notice to Lessor, to terminate this Agreement and redeliver
the Aircraft to Lessor in accordance with Clause 12 and Schedule 3
(except for compliance with the Relevant AD which gave rise to such
termination) on the earlier of (x) the date which is 30 days after the
date of such notice from Lessee to Lessor; or (y) the date on which
the Aircraft is required to be removed from service by reason of
non-compliance with the applicable Relevant AD. Such notice shall
specify the proposed redelivery date of the Aircraft by Lessee and,
upon the receipt of such notice by Lessor, the then current definition
of Expiry Date shall be deemed to have been amended accordingly. Upon
any termination of this Agreement pursuant to this Clause 8.11 (e),
neither party shall be under any further obligation to the other
hereunder except for (x) accrued obligations of Lessee hereunder; and
(y) obligations hereunder which are expressed to continue
notwithstanding the expiration of the Term and provided further that
Lessor shall, if applicable having regard to the provisions of Clause
7.3, make the rebate described in Clause 7.3 (i) and the adjustment
payments described in Schedule 3 shall be payable by Lessee;
(f) comply with all applicable laws and the regulations of the Air
Authority and other aviation authorities with jurisdiction over Lessee
or the Aircraft, any Engine or Part regardless of upon whom such
requirements are imposed and which relate to the maintenance,
condition, use or operation of the Aircraft or require any
modification or alteration to the Aircraft, any Engine or Part;
(g) maintain in good standing a current certificate of airworthiness (in
the appropriate category for the nature of the operations of the
Aircraft) for the Aircraft issued by the Air Authority except where
the Aircraft is undergoing maintenance, modification or repair
required or permitted by this Agreement and will from time to time
provide to Lessor a copy on request;
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(h) if required by the Air Authority, maintain a current certification as
to maintenance issued by or on behalf of the Air Authority in respect
of the Aircraft and will from time to time provide to Lessor a copy on
request; and
(i) procure promptly the replacement of any Engine or Part which has
become time, cycle or calendar expired, lost, stolen, seized,
confiscated, destroyed, damaged beyond repair, unserviceable or
permanently rendered unfit for use, with an engine or part complying
with the conditions set out in Clause 8.13(a).
8.12 REMOVAL OF ENGINES AND PARTS: Lessee will ensure that no Engine or
Part installed on the Aircraft is at any time removed from the
Aircraft other than:-
(a) if replaced as expressly permitted by this Agreement; or
(b) if the removal is of an obsolete item and is in accordance with the
Agreed Maintenance Programme; or
(c) (i) during the course of maintaining, servicing, repairing,
overhauling or testing that Engine or the Aircraft, as the
case may be; or
(ii) as part of a normal engine or part rotation programme; or
(iii) for the purpose of making such modifications to the Engine or
the Aircraft, as the case may be, as are permitted under this
Agreement;
and then in each case only if it is reinstalled or replaced by an
engine or part complying with Clause 8.13(a) as soon as practicable
and in any event no later than the Expiry Date.
8.13 INSTALLATION OF ENGINES AND PARTS: Lessee will:-
(a) ensure that, except as permitted by this Agreement, no engine or part
is installed on the Aircraft unless:-
(i) in the case of an engine, it is an engine of the same model
as, or an improved or advanced version of the Engine it
replaces, which is in the same or better operating condition
and has the same or greater value and utility as the replaced
Engine;
(ii) in the case of a part, it is in as good operating condition,
has substantially similar hours available until the next
scheduled checks, inspections, overhauls and shop visits,
is of the same or a more advanced make and model and
is of the same interchangeable modification status as the
replaced Part;
(iii) in each case, it has become and remains the property of Owner
free from Security Interests and on installation on the
Aircraft will without further act be subject to the Head
Lease, the Sub Lease and this Agreement; and
(iv) in each case, Lessee has full details as to its source and
maintenance records;
(b) if no Default has occurred which is continuing, be entitled to install
any engine or part on the Aircraft by way of replacement
notwithstanding Clause 8.13(a) if:-
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(i) there is not available to Lessee at the time and in the place
that such engine or part is required to be installed on the
Aircraft, a replacement engine or part, as the case may be,
complying with the requirements of Clause 8.13(a);
(ii) it would result in an unreasonable disruption of the operation
of the Aircraft and/or the business of Lessee to ground the
Aircraft until an engine or part, as the case may be,
complying with Clause 8.13(a) becomes available for
installation on the Aircraft; and
(iii) as soon as practicable after installation of the same on the
Aircraft but, in any event, no later than the Expiry Date,
Lessee removes any such engine or part and replaces it with
the Engine or Part replaced by it or by an engine or part, as
the case may be, complying with Clause 8.13(a).
8.14 NON-INSTALLED ENGINES AND PARTS: Lessee will:-
(a) ensure that any Engine or Part which is not installed on the Aircraft
(or any other aircraft as permitted by this Agreement) is, except as
expressly permitted by this Agreement, properly and safely stored, and
kept free from Security Interests;
(b) notify Lessor whenever any Engine is removed from the Aircraft and,
from time to time, on request procure that any person to whom
possession of an Engine is given acknowledges in writing to Lessor, in
form and substance satisfactory to Lessor, that it will respect the
interests of Owner as owner, Sub Lessor as sub lessor and Lessor as
lessor of the Engine and will not seek to exercise any rights
whatsoever in relation to it;
(c) (notwithstanding the foregoing provisions of this sub-clause), be
permitted, if no Default has occurred and is continuing, to install
any Engine or Part on an aircraft, or in the case of a Part, an
engine:-
(i) owned and operated by Lessee free from Security Interests; or
(ii) leased or hired to Lessee pursuant to a lease or conditional
sale agreement on a long-term basis and on terms whereby
Lessee has full operational control of that aircraft or
engine; or
(iii) acquired by Lessee and/or financed or refinanced, and operated
by Lessee, on terms that ownership of that aircraft or engine,
as the case may be, pursuant to a lease or conditional sale
agreement, or a Security Interest therein, is vested in or
held by any other person;
provided that in the case of (ii) and (iii):-
(1) the terms of any such lease, conditional sale agreement or
Security Interest will not have the effect of prejudicing the
interests of Owner as owner, Sub Lessor as sub lessor and
Lessor as lessor of that Engine or Part; and
(2) the lessor under such lease, the seller under such conditional
sale agreement or the holder of such Security Interest, as the
case may be, has confirmed and acknowledged in writing to
Lessor, in form and substance satisfactory to Lessor, that it
will respect the interest of Owner as owner, Sub Lessor as sub
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lessor and Lessor as lessor of that Engine or Part and that it
will not seek to exercise any rights whatsoever in relation
thereto.
8.15 POOLING OF ENGINES AND PARTS: So long as no Default has occurred and is
continuing Lessee may lease, let or hire or charter or otherwise part
with possession of an Engine or Part (on terms conferring no more than
a contractual right against Lessee but not rights against the Engine or
Part) pursuant to pooling arrangements to which Lessee is a party and a
copy of which agreement has been provided to Lessor and which:-
(a) are arrangements involving responsible, solvent scheduled
commercial air carriers or aircraft operators or the
manufacturers or suppliers of the Engine or Part previously
approved in writing by Lessor;
(b) are arrangements which involve engines and parts with
traceability consistent with the Engine or Part;
(c) do not contemplate transfer of title to the pooled Engine or
Part; and
(d) either provide that Lessor will be sole loss payee in respect
of any loss or damage to the Engine or Part or provide for
Lessor to acquire title to a substitute engine satisfying the
conditions set out in Clause 8.13(a) if the Engine or Part is
destroyed;
or are otherwise acceptable to Lessor in its sole discretion.
8.16 EQUIPMENT CHANGES:
(a) Lessee will not make any modification or addition to the Aircraft
(each an "Equipment Change"), except for an Equipment Change which:-
(i) is expressly permitted by this Agreement, or
(ii) has the prior written approval of Lessor and which does not
diminish the value, utility, condition, or airworthiness of
the Aircraft; and
(b) So long as a Default has not occurred and is continuing, Lessee may
remove any Equipment Change if it can be removed from the Aircraft
without diminishing or impairing the value, utility, condition or
airworthiness of the Aircraft.
8.17 TITLE ON AN EQUIPMENT CHANGE:
(a) Title to all Engines and Parts installed on the Aircraft whether by
way of replacement, as the result of an Equipment Change or otherwise
(except those installed pursuant to Clause 8.13(b)) will on
installation, without further act, vest in Owner subject to this
Agreement, the Head Lease and the Sub Lease free and clear of all
Security Interests. Lessee will at its own expense take all such
steps and execute, and procure the execution of, all such instruments
as Lessor may require and which are necessary to ensure that title so
passes to Owner according to all applicable laws. At any time when
requested by Lessor, Lessee will provide evidence to Lessor's and
Owner's satisfaction (including the provision, if required, to Lessor
and Owner of one or more legal opinions) that title has so passed to
Owner;
(b) Lessor may require Lessee to remove any Equipment Change and to
restore the Aircraft to its condition prior to that Equipment Change;
and
(c) Except as referred to in Clause 8.17(b) any Engine or Part at any time
removed from the Aircraft will remain the property of Owner until a
replacement has been made in accordance with this Agreement and until
title in that replacement has passed, according to applicable laws, to
Owner subject to this Agreement, the Head Lease and the Sub Lease free
of all Security Interests whereupon title to the replaced Engine or
Part will pass to Lessee.
8.18 THIRD PARTY: Lessee will procure that no person (other than Owner, Sub
Lessor, Lessor or any Bank) will act in any manner inconsistent with
its obligations under this Agreement and that all persons will comply
with those obligations as if references to "Lessee" included a
separate reference to those persons.
9. INSURANCE
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9.1 INSURANCES: Lessee will maintain in full force during the Term
insurances in respect of the Aircraft in form and substance
satisfactory to Lessor (the "Insurances" which expression includes,
where the context so admits, any relevant re-insurance(s)) through
such brokers and with such insurers and having such deductibles and
being subject to such exclusions as may be approved by Lessor. The
Insurances will be effected either:-
(a) on a direct basis with insurers of recognised standing who normally
participate in aviation insurances in the leading international
insurance markets and led by reputable underwriter(s) approved by
Lessor; or
(b) with a single insurer or group of insurers approved by Lessor who
does not retain the risk but effects substantial reinsurance with
reinsurers in the leading international insurance markets and through
brokers each of recognised standing and acceptable to Lessor for a
percentage acceptable to Lessor of all risks insured (the
"Reinsurances").
9.2 REQUIREMENTS: Lessor's current requirements as to required Insurances
are as specified in this Clause and in Schedule 4. Lessor may from
time to time stipulate other requirements for the Insurances so that
the scope and level of cover is maintained in line with best industry
practice and the interests of Lessor, Sub Lessor and Owner protected.
9.3 CHANGE: If at any time Lessor wishes to revoke its approval of any
insurer, reinsurer, insurance or reinsurance, Lessor and/or its
brokers will consult with Lessee and Lessee's brokers (as for the
time being approved by Lessor) regarding whether that approval should
be revoked to protect the interests of the parties insured. If,
following the consultation, Lessor considers that any change should
be made, Lessee will then arrange or procure the arrangement of
alternative cover satisfactory to Lessor.
9.4 INSURANCE COVENANTS: Lessee will:-
(a) ensure that all legal requirements as to insurance of the Aircraft,
any Engine or any Part which may from time to time be imposed by the
laws of the State of Registration or any state to, from or over which
the Aircraft may be flown, in so far as they affect or concern the
operation of the Aircraft, are complied with and in particular those
requirements compliance with which is necessary to ensure that (i)
the Aircraft is not in danger of detention or forfeiture, (ii) the
Insurances remain valid and in full force and effect, and (iii) the
interests of the Indemnitees in the Insurances and the Aircraft or
any Part are not thereby prejudiced;
(b) not use, cause or permit the Aircraft, any Engine or any Part to be
used for any purpose or in any manner not covered by the Insurances
or outside any geographical limit imposed by the Insurances;
(c) comply with the terms and conditions of each policy of the Insurances
and not do, consent or agree to any act or omission which:-
(i) invalidates or may invalidate the Insurances; or
(ii) renders or may render void or voidable the whole or any part
of any of the Insurances; or
(iii) brings any particular liability within the scope of an
exclusion or exception to the Insurances;
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(d) not take out without the prior written approval of Lessor any
insurance or reinsurance in respect of the Aircraft other than those
required under this Agreement unless relating solely to hull total
loss, business interruption, profit commission and deductible risk;
(e) commence renewal procedures at least 30 days prior to expiry of any
of the Insurances and provide to Lessor:-
(i) if requested by Lessor, a written status report of renewal
negotiation 14 days prior to each expiry date;
(ii) telexed confirmation of completion of renewal prior to each
expiry date;
(iii) certificates of insurance (and where appropriate certificates
of reinsurance), and broker's (and any reinsurance brokers')
letter of undertaking in a form acceptable to Lessor in
English, detailing the coverage and confirming the insurers'
(and any reinsurers') agreement to the specified insurance
requirements of this Agreement within 7 days after each
renewal date;
(f) on request, provide to Lessor copies of documents evidencing the
Insurances;
(g) on request, provide to Lessor evidence that the Insurance premiums
have been paid;
(h) not make any modification or alteration to the Insurances material
and adverse to the interests of any of the Indemnitees;
(i) be responsible for any deductible under the Insurances; and
(j) provide any other insurance and reinsurance related information, or
assistance, in respect of the Insurances as Lessor may reasonably
require.
9.5 FAILURE TO INSURE: If Lessee fails to maintain the Insurances in
compliance with this Agreement, each of the Indemnitees will be
entitled but not bound, (without prejudice to any other rights of
Lessor under this Agreement):-
(a) to pay the premiums due or to effect and maintain insurances
satisfactory to it or otherwise remedy Lessee's failure in such
manner (including, without limitation to effect and maintain an
"owner's interest" policy) as it considers appropriate. Any sums so
expended by it will become immediately due and payable by Lessee to
Lessor together with interest thereon at the rate specified in Clause
5.11, from the date of expenditure by it up to the date of
reimbursement by Lessee; and
(b) at any time while such failure is continuing to require the Aircraft
to remain at any airport or to proceed to and remain at any airport
designated by it until the failure is remedied to its satisfaction.
9.6 CONTINUING INDEMNITY: Lessor may require Lessee to effect and to
maintain insurance after the Expiry Date with respect to its
liability under the indemnities in Clause 10 for such period as
Lessor may reasonably require (but in any event not more than 3
years) which provides for each Indemnitee to be named as additional
insured. Lessee's obligation in this Clause shall not be affected by
Lessee ceasing to be lessee of the Aircraft and/or any of the
Indemnitees ceasing to have any interest in respect of the Aircraft.
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9.7 APPLICATION OF INSURANCE PROCEEDS:
As between Lessor and Lessee:-
(a) all insurance payments received as the result of an Event of Loss
occurring during the Term will be paid to Lessor and Lessor will pay
the balance of those amounts to Lessee after deduction of all amounts
which may be or become payable by Lessee to Lessor under this
Agreement (including under Clause 11.1(b));
(b) all insurance proceeds of any property, damage or loss to the
Aircraft, any Engine or any Part occurring during the Term not
constituting an Event of Loss and in excess of the Damage Notification
Threshold will be paid to Lessor and applied in payment (or to
reimburse Lessee) for repairs or replacement property within 10 days
of Lessor being satisfied that the repairs or replacement have been
effected in accordance with this Agreement. Insurance proceeds in
amounts below the Damage Notification Threshold may be paid by the
insurer directly to Lessee. Any balance remaining may be retained by
Lessor;
(c) all insurance proceeds in respect of third party liability will,
except to the extent paid by the insurers to the relevant third
party, be paid to Lessor to be paid directly in satisfaction of the
relevant liability or to Lessee in reimbursement of any payment so
made;
(d) notwithstanding Clauses 9.7(a), (b) or (c), if at the time of the
payment of any such insurance proceeds a Default has occurred and is
continuing, all such proceeds will be paid to or retained by Lessor
to be applied toward payment of any amounts which may be or become
payable by Lessee in such order as Lessor sees fit or as Lessor may
elect.
10. INDEMNITY
10.1 GENERAL: Lessee agrees to assume liability for, defend, indemnify and
hold harmless the Indemnitees on an after tax basis from and against
any and all claims, proceedings, losses, liabilities, damages
(whether direct, indirect, special, incidental or consequential)
suits, judgments, costs, expenses (including, without limitation,
legal fees and expenses), penalties (whether civil or criminal) or
fines (each a "Claim") (regardless of when the same is made or
incurred, whether during or after the Term (but not before)):-
(a) which may at any time be suffered or incurred directly or
indirectly as a result of or in any manner connected with the
possession, delivery, performance, management, ownership,
registration, control, maintenance, condition, service,
repair, overhaul, leasing, use, operation or return of the
Aircraft, any Engine or Part (either in the air or on the
ground) whether or not the Claim may be attributable to any
defect in the Aircraft, any Engine or any Part or to its
design, testing or use or otherwise, and regardless of when
the same arises or whether it arises out of or is attributable
to any act or omission, negligent or otherwise, of any
Indemnitee;
(b) which arise out of any act or omission which invalidates or
which renders voidable any of the Insurances;
(c) which may at any time be suffered or incurred as a consequence
of any design, article or material in the Aircraft, any Engine
or any Part or its operation or use constituting an
infringement of patent, copyright, trademark, design or other
proprietary right or a breach of any obligation of
confidentiality owed to any person;
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(d) which results from Lessee's breach of any of its
representations or warranties or any other Event of Default
under this Agreement.
but excluding any Claim in relation to a particular Indemnitee to the
extent that such Claim is covered pursuant to another indemnity
provision of this Agreement or to the extent it arises solely as a
result of the willful misconduct of such Indemnitee or Lessor as a
result of Lessor Taxes or a Lessor Lien.
10.2 DURATION: The indemnities contained in this Agreement will continue
in full force after the Expiry Date.
11. EVENTS OF LOSS
11.1 If an Event of Loss occurs after delivery of the Aircraft to Lessee,
Lessee will pay the Agreed Value to Lessor on or prior to the earlier
of (i) 5 Business Days after the Event of Loss and (ii) the date of
receipt of insurance proceeds in respect of that Event of Loss.
Subject to the rights of any insurers and reinsurers or other third
party, upon irrevocable payment in full to Lessor of that amount and
all other amounts which may be or become payable to Lessor under this
Agreement, Lessor will without recourse or warranty (except as to
Lessor's Liens) and without further act, be deemed to have
transferred to Lessee all of Lessor's rights to any Engines and Parts
not installed when the Event of Loss occurred, all on an as-is
where-is basis, and will at Lessee's expense, execute and deliver
such bills of sale and other documents and instruments as Lessee may
reasonably request to evidence (on the public record or otherwise)
the transfer and the vesting of Lessor's rights in such Engines and
Parts in Lessee, free and clear of all rights of Lessor and Lessor
Liens.
11.2 REQUISITION: During any requisition for use or hire of the Aircraft,
any Engine or Part which does not constitute an Event of Loss:-
(a) the Rent and other charges payable under this Agreement will not be
suspended or abated either in whole or in part, and Lessee will not
be released from any of its other obligations under the Agreement
(other than operational obligations with which Lessee is unable to
comply solely by virtue of the requisition);
(b) so long as no Default has occurred and is continuing, Lessee will be
entitled to any hire paid by the requisitioning authority in respect
of the Term. Lessee will, as soon as practicable after the end of
any such requisition, cause the Aircraft to be put into the condition
required by this Agreement. Lessor will be entitled to all
compensation payable by the requisitioning authority in respect of
any change in the structure, state or condition of the Aircraft
arising during the period of requisition, and Lessor will apply such
compensation in reimbursing Lessee for the cost of complying with its
obligations under this Agreement in respect of any such change, but
so that, if any Default has occurred and is continuing, Lessor may
apply the compensation or hire in or towards settlement of any
amounts owing by Lessee under this Agreement.
12. RETURN OF AIRCRAFT
12.1 RETURN: On the Expiry Date or termination of the leasing of the
Aircraft under this Agreement Lessee will unless an Event of Loss has
occurred, at its expense, redeliver the Aircraft and Aircraft
Documents to Lessor at the Redelivery Location or such other airport
as is mutually acceptable to the parties hereto, in a condition
complying with Schedule 3, free and clear of all Security Interests
and Permitted Liens (other than Lessor
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Liens) and in a condition qualifying for immediate certification of
airworthiness by the FAA or as otherwise agreed by Lessor and Lessee,
and thereupon cause the Aircraft to be deregistered by the Air
Authority.
12.2 FINAL INSPECTION: Immediately prior to redelivery of the Aircraft,
Lessee will make the Aircraft available to Lessor for inspection
("Final Inspection") in order to verify that the condition of the
Aircraft complies with this Agreement. The Final Inspection will be
long enough to permit Lessor to:-
(a) inspect the Aircraft Documents;
(b) inspect the Aircraft and uninstalled Parts and Lessor shall
use reasonable efforts to carry out the Final Inspection at the time
the Aircraft undergoes the final C Check;
(c) inspect the Engines, including without limitation (i) at Lessor's
expense, a borescope inspection of (A) the low pressure and high
pressure compressors and (B) turbine area and (C) combustion section
and (ii) at Lessee's expense engine condition runs as installed on
the Airframe; and
(d) observe a 2 hour demonstration flight (with Lessor's representatives
as on-board observers).
12.3 NON-COMPLIANCE: To the extent that, at the time of Final Inspection,
the condition of the Aircraft does not comply with this Agreement,
Lessee will at Lessor's option:-
(a) immediately rectify the non-compliance and to the extent the
non-compliance extends beyond the Expiry Date, the Term will be
automatically extended and this Agreement will remain in force until
the non-compliance has been rectified; or
(b) redeliver the Aircraft to Lessor and indemnify Lessor, and provide to
Lessor's satisfaction cash as security for that indemnity, against the
cost of putting the Aircraft into the condition required by this
Agreement.
12.4 REDELIVERY: Upon redelivery Lessee will provide to Lessor all
documents necessary to export the Aircraft from the Habitual Base
(including, without limitation, a valid and subsisting export licence
for the Aircraft) and required in relation to the deregistration of
the Aircraft with the Air Authority.
12.5 ACKNOWLEDGEMENT: Provided Lessee has complied with its obligations
under this Agreement, following redelivery of the Aircraft by Lessee
to Lessor at the Redelivery Location, Lessor will deliver to Lessee an
acknowledgement confirming that Lessee has redelivered the Aircraft to
Lessor in accordance with this Agreement.
12.6 MAINTENANCE PROGRAMME:
(a) Prior to the Expiry Date and upon Lessor's request, Lessee will
provide Lessor or its agent reasonable access to the Agreed
Maintenance Programme and the Aircraft Documents in order to
facilitate the Aircraft's integration into any subsequent operator's
fleet;
(b) Lessee will, if requested by Lessor to do so, upon return of the
Aircraft deliver to Lessor a certified true current and complete copy
of the Agreed Maintenance Programme together with a letter authorising
Lessor to use such copy for "bridging" purposes for the next lessee of
the Aircraft. Lessor acknowledges that the Agreed Maintenance
Programme is proprietary and agrees that it will not disclose the
contents of the Agreed Maintenance Programme to any person or entity
except to the extent necessary to monitor Lessee's compliance with this
Agreement and/or to bridge the maintenance programme for the Aircraft
from the Agreed Maintenance Programme to another programme after the
Expiry Date.
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12.7 FUEL: Upon redelivery of the Aircraft to Lessor, an adjustment will be
made in respect of fuel on board on the Previous Delivery Date and the
Expiry Date at the price then prevailing at the Redelivery Location.
12.8 AIRCRAFT STORAGE: During the period of 90 days after the Expiry Date,
Lessor shall have the right to require Lessee to maintain, store and
insure the Aircraft at a location having a facility capable of
performing required maintenance of the Aircraft (to be nominated by
Lessor). Any maintenance, storage or insurance cost actually incurred
in connection with the foregoing and which is in excess of the costs
payable by Lessee in meeting its obligations under this Agreement,
shall be payable by Lessor at Lessee's direct cost without "mark-up".
Prior to the Expiry Date, Lessor shall advise Lessee as to whether
Lessor requires Lessee to provide the services contemplated by this
Clause 12.8.
13. DEFAULT
13.1 EVENTS: Each of the following events or conditions will constitute an
Event of Default and a repudiation of this Agreement by Lessee
(whether any such event or condition is voluntary or involuntary or
occurs by operation of law or pursuant to or in compliance with any
judgment, decree or order of any court or any order, rule or
regulation of any Government Entity):-
(a) NON-PAYMENT: Lessee fails to make any payment of Rent under this
Agreement on the due date and such failure continues for 3 Business
Days; or
(b) INSURANCE: Lessee fails to comply with any provision of Clause 9 or
any insurance required to be maintained under this Agreement is
canceled or terminated or notice of cancellation is given in respect
of any such insurance; or
(c) BREACH: Lessee fails to comply with any other provision of this
Agreement and, if such failure is in the reasonable opinion of Lessor
capable of remedy, the failure continues for 10 Business Days after
notice from Lessor to Lessee; or
(d) REPRESENTATION: any representation or warranty made (or deemed to be
repeated) by Lessee in or pursuant to this Agreement or in any
document or certificate or statement is or proves to have been
incorrect in any material respect when made or deemed to be repeated;
or
(e) CROSS DEFAULT:
(i) any Financial Indebtedness of Lessee or any of its
Subsidiaries is not paid when due; or
(ii) any such Financial Indebtedness becomes due or capable of
being declared due prior to the date when it would otherwise
have become due; or
(iii) the security for any such Financial Indebtedness becomes
enforceable; or
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<PAGE> 44
(iv) any event of default or termination event, howsoever
described, occurs under any Other Agreement or under any
lease, hire purchase, conditional sale or credit sale
agreement of Lessee or any of its Subsidiaries; or
(f) APPROVALS: any consent, authorisation, licence, certificate or
approval of or registration with or declaration to any Government
Entity in connection with this Agreement (including, without
limitation):-
(i) required by Lessee to authorise, or in connection with, the
execution, delivery, validity, enforceability or admissibility
in evidence of this Agreement or the performance by Lessee of
its obligations under this Agreement; or
(ii) the registration of the Aircraft (to the extent that the same is
within the control of Lessee); or
(iii) any airline licence or air transport licence including, without
limitation, authority to operate the Aircraft under Part 121 of
the Federal Aviation Regulations and a Certificate of
Convenience and Necessity issued under Section 401 of the
Federal Aviation Act;
is modified in a manner unacceptable to Lessor or is withheld, or is
revoked, suspended, canceled, withdrawn, terminated or not renewed, or
otherwise ceases to be in full force; or
(g) BANKRUPTCY, ETC:
(i) Lessee or any Subsidiary consents to the appointment of a
custodian, receiver, trustee or liquidator of itself or all or
any material part of Lessee's property or Lessee's consolidated
property, or Lessee or any Subsidiary admits in writing its
inability to, or is unable to, or does not, pay its debts
generally as they come due, or makes a general assignment for
the benefit of creditors, or Lessee or any Subsidiary files a
voluntary petition in bankruptcy or a voluntary petition seeking
reorganisation in a proceeding under any bankruptcy or
insolvency laws (as now or hereafter in effect), or an answer
admitting the material allegations of a petition filed against
Lessee or any Subsidiary in any such proceeding, or Lessee or
any Subsidiary by voluntary petition, answer or consent seeks
relief under the provisions of any other bankruptcy, insolvency
or other similar law providing for the reorganisation or
winding-up of corporations, or provides for an agreement,
composition, extension or adjustment with its creditors, or any
corporate action (including, without limitation, any board of
directors or shareholder action) is taken by Lessee or any
Subsidiary in furtherance of any of the foregoing, whether or
not the same is fully effected or accomplished; or
(ii) an order, judgment or decree is entered by any court appointing,
without the consent of Lessee or any Subsidiary, a custodian,
receiver, trustee or liquidator of Lessee or any Subsidiary, or
of all or any material part of Lessee's property or Lessee's
consolidated property is sequestered, and any such order,
judgment or decree of appointment or sequestration remains in
effect, undismissed, unstayed or unvacated for a period of 30
days after the date of entry thereof or at any time an order for
relief is granted; or
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<PAGE> 45
(iii) an involuntary petition against Lessee or any Subsidiary in a
proceeding under the United States Federal Bankruptcy laws or
other insolvency laws (as now or hereafter in effect) is filed
and is not withdrawn or dismissed within 30 days thereafter or
at any time an order for relief is granted in such proceeding,
or if, under the provisions of any law providing for
reorganisation or winding-up of corporations which may apply to
Lessee or any Subsidiary, any court of competent jurisdiction
assumes jurisdiction over, or custody or control of, Lessee or
any Subsidiary or of all or any material part of Lessee's
property, or Lessee's consolidated property and such
jurisdiction, custody or control remains in effect,
unrelinquished, unstayed or unterminated for a period of 30 days
or at any time an order for relief is granted in such
proceeding; or
(h) UNLAWFUL: it becomes unlawful for Lessee to perform any of its
obligations under this Agreement or this Agreement becomes wholly or
partly invalid or unenforceable; or
(i) SUSPENSION OF BUSINESS: Lessee or any of its Subsidiaries suspends or
ceases or threatens to suspend or cease to carry on all or a
substantial part of its business as a Certificated Air Carrier; or
(j) DISPOSAL: Lessee or any of its Subsidiaries disposes, conveys or
transfers or threatens to dispose, convey or transfer of all or a
material part of its assets, liquidates or dissolves or consolidates
or merges with any other Person whether by one or a series of
transactions, related or not, other than for the purpose of a
reorganisation of the terms of which have received the previous
consent in writing of Lessor; or
(k) RIGHTS: the existence, validity, enforceability or priority of the
rights of Owner as owner, the rights of Sub Lessor as sub lessor and
the rights of Lessor as lessor in respect of the Aircraft are
challenged by Lessee or any other person claiming by or through
Lessee; or
(l) CHANGE OF OWNERSHIP: any single person, or group of persons acquire
control of Lessee without the previous consent in writing of Lessor;
or
(m) DELIVERY: Lessee fails to accept delivery of the Aircraft when validly
tendered pursuant to this Agreement by Lessor; or
(n) ADVERSE CHANGE: any event or series of events occurs which, in the
reasonable opinion of Lessor might have a material adverse effect on
the financial condition or operations of Lessee and its Subsidiaries
or on the ability of Lessee to comply with its obligations under this
Agreement.
13.2 RIGHTS: If an Event of Default occurs, Lessor may at its option (and
without prejudice to any of its other rights under this Agreement), at
any time thereafter (without notice to Lessee except as required under
applicable law):-
(a) accept such repudiation and by notice to Lessee and with immediate
effect terminate the letting of the Aircraft (but without prejudice
to the continuing obligations of Lessee under this Agreement),
whereupon all rights of Lessee under this Agreement shall cease;
and/or
(b) proceed by appropriate court action or actions to enforce performance
of this Agreement or to recover damages for the breach of this
Agreement; and/or
(c) either:-
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<PAGE> 46
(i) take possession of the Aircraft, for which purpose Lessor may
enter any premises belonging to or in the occupation of or
under the control of Lessee where the Aircraft may be located,
or cause the Aircraft to be redelivered to Lessor at Shannon
International Airport, Co. Clare, Ireland (or such other
location as Lessor may require), and Lessor is hereby
irrevocably by way of security for Lessee's obligations under
this Agreement appointed attorney for Lessee in causing the
redelivery or in directing the pilots of Lessee or other
pilots to fly the Aircraft to that airport and will have all
the powers and authorisations necessary for taking that
action; or
(ii) by serving notice require Lessee to redeliver the Aircraft to
Lessor at Shannon International Airport, Ireland (or such
other location as Lessor may require).
13.3 DEREGISTRATION: If an Event of Default occurs, Lessor may sell or
otherwise deal with the Aircraft free and clear of any leasehold or
other interest of Lessee as if this Agreement had never been made and
Lessee will at the request of Lessor take all steps necessary to
effect (if applicable) deregistration of the Aircraft and its export
from the country where the Aircraft is for the time being situated and
any other steps necessary to enable the Aircraft to be redelivered to
Lessor in accordance with this Agreement; Lessee hereby irrevocably
and by way of security for its obligations under this Agreement
appoints (which appointment is coupled with an interest) Lessor as its
attorney to execute and deliver any documentation and to do any act or
thing required in connection with the foregoing.
13.4 DEFAULT PAYMENTS: If:-
(a) a Default occurs; or
(b) the Aircraft is not delivered on the proposed Delivery Date by
reason of failure of Lessee to satisfy any conditions to that
delivery;
Lessee will indemnify Lessor on its own behalf and on behalf of Owner
and Sub Lessor on demand against any loss (including loss of profit),
damage, expense, cost or liability which Lessor, Sub Lessor or Owner
may sustain or incur directly or indirectly as a result including but
not limited to:-
(a) any loss of profit suffered by Lessor, Sub Lessor or Owner
because of Lessor's or Owner's inability to place the Aircraft
on lease with another lessee on terms as favourable to Lessor
as this Agreement or because whatever use, if any, to which
Lessor, Sub Lessor or Owner is able to put the Aircraft upon
its return to Lessor, or the funds arising upon a sale or
other disposal of the Aircraft, is not as profitable to
Lessor, Sub Lessor or Owner as this Agreement;
(b) any amount of principal, interest, fees or other sums
whatsoever paid or payable on account of funds borrowed in
order to carry any unpaid amount;
(c) any loss, premium, penalty or expense which may be incurred in
repaying funds raised to finance the Aircraft or in unwinding
any swap, forward interest rate agreement or other financial
instrument relating in whole or in part to Lessor's, Sub
Lessor's or Owner's financing of the Aircraft; and
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<PAGE> 47
(d) any loss, cost, expense or liability sustained or incurred by
Lessor owing to Lessee's failure to redeliver the Aircraft on
the date, at the place and in the condition required by this
Agreement.
14. ASSIGNMENT
14.1 LESSEE WILL NOT ASSIGN, TRANSFER (VOLUNTARILY OR INVOLUNTARILY BY
OPERATION OF LAW OR OTHERWISE) OR CREATE OR PERMIT TO EXIST ANY
SECURITY INTEREST OVER, ANY OF ITS RIGHTS UNDER THIS AGREEMENT.
14.2 Owner and/or Lessor may assign or transfer all or any of its rights
under this Agreement and in the Aircraft provided that Lessor will in
the case of an assignment other than by way of security have no
further obligation under this Agreement following the assignment of
all its rights under this Agreement but notwithstanding that
assignment will remain entitled to the benefit of each indemnity and
the liability insurances effected under this Agreement. Lessee will
comply with all reasonable requests of Owner and/or Lessor, their
successors and assigns in respect of any such assignment. Lessor will
promptly notify Lessee of any assignment.
14.3 If Lessor desires to effect any assignment or transfer of its rights
and obligations under this Agreement, Lessee agrees to cooperate and
take all such steps as Lessor may reasonably request to give the
transferee the benefit of this Agreement. Any reasonable expenses
incurred by Lessee directly as a result of any assignment contemplated
by Clause 14.2.
15. ILLEGALITY
If it is or becomes unlawful in any jurisdiction for Lessor to give
effect to any of its obligations as contemplated by this Agreement or
to continue this Agreement Lessor may by notice in writing to Lessee
terminate the leasing of the Aircraft under this Agreement and Lessee
will forthwith redeliver the Aircraft to Lessor in accordance with
Clause 12. Without prejudice to the foregoing Lessor will consult in
good faith with Lessee as to any steps which may be taken to
restructure the transaction to avoid that unlawfulness but will be
under no obligation to take any such steps.
16. MISCELLANEOUS
16.1 WAIVERS, REMEDIES CUMULATIVE: The rights of Lessor under this
Agreement:-
(i) may be exercised as often as necessary;
(ii) are cumulative and not exclusive of its rights under any law;
and
(iii) may be waived only in writing and specifically.
Delay in exercising or non-exercise of any such right will not
constitute a waiver of that right.
16.2 DELEGATION: Lessor may delegate to any person or persons all or any of
the trusts, powers or discretions vested in it by these presents and
any such delegation may be made upon such terms and conditions and
subject to such regulations (including power to subdelegate) as Lessor
in its absolute discretion thinks fit.
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<PAGE> 48
16.3 CERTIFICATES: Save where expressly provided in this Agreement, any
certificate or determination by Lessor as to any rate of interest or
as to any other amount payable under this Agreement will, in the
absence of manifest error, be conclusive and binding on Lessee.
16.4 APPROPRIATION: If any sum paid or recovered in respect of the
liabilities of Lessee under this Agreement is less than the amount
then due, Lessor may apply that sum to amounts due under this
Agreement in such proportions and order and generally in such manner
as Lessor may determine at its sole discretion.
16.5 CURRENCY INDEMNITY:
(a) If Lessor receives an amount in respect of Lessee's liability under
this Agreement or if such liability is converted into a claim, proof,
judgment or order in a currency other than the currency (the
"contractual currency") in which the amount is expressed to be payable
under this Agreement:-
(i) Lessee will indemnify Lessor as an independent obligation
against any loss arising out of or as a result of such
conversion;
(ii) if the amount received by Lessor, when converted into the
contractual currency (at the market rate at which Lessor is
able on the date of receipt by Lessor (or on the next date
thereafter on which under normal banking practice Lessor is
able to convert the amount received into the contractual
currency) to purchase the contractual currency in London or at
its option New York with that other currency) is less than the
amount owed in the contractual currency, Lessee will,
forthwith on demand, pay to Lessor an amount in the
contractual currency equal to the deficit; and
(iii) Lessee will pay to Lessor on demand any exchange costs and
Taxes payable in connection with the conversion; and
(b) Lessee waives any right it may have in any jurisdiction to pay any
amount under this Agreement in a currency other than that in which it
is expressed to be payable.
16.6 SET-OFF: Lessor may set off any matured obligation owed by Lessee
under this Agreement or the Other Agreements (to the extent
beneficially owned by Lessor) against any obligation (whether or not
matured) owed by Lessor to Lessee, regardless of the place of payment
or currency. If the obligations are in different currencies, Lessor
may convert either obligation at the market rate of exchange available
in London or at its option New York for the purpose of the set-off.
If an obligation is unascertained or unliquidated, Lessor may in good
faith estimate that obligation and set off in respect of the estimate,
subject to the relevant party accounting to the other when the
obligation is ascertained or liquidated. Lessor will not be obliged
to pay any amounts to Lessee under this Agreement so long as any sums
which are then due from Lessee under this Agreement or the Other
Agreements remain unpaid and any such amounts which would otherwise be
due will fall due only if and when Lessee has paid all such sums
except to the extent Lessor otherwise agrees or sets off such amounts
against such payment pursuant to the foregoing.
16.7 SEVERABILITY: If a provision of this Agreement is or becomes illegal,
invalid or unenforceable in any jurisdiction, that will not affect:-
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<PAGE> 49
(a) the legality, validity or enforceability in that jurisdiction of any
other provision of this Agreement; or
(b) the legality, validity or enforceability in any other jurisdiction of
that or any other provision of this Agreement.
16.8 REMEDY: If Lessee fails to comply with any provision of this
Agreement, Lessor may, without being in any way obliged to do so or
responsible for so doing and without prejudice to the ability of
Lessor to treat the non-compliance as a Default or an Event of
Default, effect compliance on behalf of Lessee, whereupon Lessee shall
become liable to pay immediately any sums expended by Lessor together
with all costs and expenses (including legal costs) in connection
therewith.
16.9 EXPENSES: Whether or not the Aircraft is delivered to Lessee pursuant
to this Agreement, Lessee will pay to Lessor on demand:-
(a) all expenses (including legal, professional, and out-of-pocket
expenses) incurred or payable by Lessor in connection with any
amendment to or extension of or other documentation in
connection with, or the granting of any waiver or consent
under this Agreement or, where a Default has occurred, the
monitoring of compliance by Lessee with this Agreement; and
(b) all expenses (including legal, survey and other costs) payable
or incurred by Lessor in contemplation of, or otherwise in
connection with, the enforcement of or preservation of any of
Lessor's or Owner's rights under this Agreement, or in respect
of the repossession of the Aircraft.
All expenses payable pursuant to this Clause 16.9 will be paid in the
currency in which they are incurred by Lessor.
16.10 TIME OF ESSENCE: The time stipulated in this Agreement for all
payments payable by Lessee to Lessor and for the performance of
Lessee's other obligations under this Agreement will be of the essence
of this Agreement.
16.11 NOTICES: All notices under, or in connection with, this Agreement
will, unless otherwise stated, be given in writing by letter, telex,
facsimile or SITA. Any such notice is deemed effectively to be given
as follows:-
(i) if by letter, when delivered;
(ii) if by telex, when despatched, but only if, at the time of
transmission, the correct answerback appears at the start and
at the end of the sender's copy of the notice; and
(iii) if by facsimile or SITA, when transmitted and full
transmission has been confirmed by a printout of a facsimile
transmittal confirmation by the transmitting party.
The address, telex numbers, SITA, facsimile and telephone numbers of
Lessee, Sub Lessor, Lessor and Owner are as follows:
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<PAGE> 50
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Lessee: Address: 1800
St. Julian Place
4th Floor
Columbia
South Carolina
29204
Attn: President
Telex: None
SITA: None
Facsimile: 803 771 9067
Telephone: 803 771 0038
Sub Lessor: Address: 1 Earlsfort Terrace
Hatch Street
Dublin 2
Ireland
Telex: None
SITA: None
Facsimile: 353 1 6613278
Telephone: 353 1 6613311
Lessor and Owner: Address: Birger Jarlsgatan 33
S-11145
Stockholm
Sweden
Telex: None
SITA: None
Facsimile: 46 8 611 34 34
Telephone: 46 8 611 58 79
with a copy to: Address: GE Capital Aviation
Services, Inc.
201 High Ridge Road
Stamford, Connecticut
06927-4900
Attn: Senior Vice President,
Portfolio Management
Facsimile: 212-357-4585
Telephone: 212-357-4279
</TABLE>
16.12 LAW AND JURISDICTION:
(a) THIS AGREEMENT IN ALL RESPECTS IS GOVERNED BY THE GOVERNING LAW;
(b) For the benefit of Lessor, Lessee agrees that the courts of the State
of New York are to have non exclusive jurisdiction to settle any
disputes in connection with this Agreement and submits itself and its
property to the nonexclusive jurisdiction of the courts of the State
of New York in connection with this Agreement;
(c) Without prejudice to any other mode of service, Lessee:-
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<PAGE> 51
(i) appoints CT Corporation System, New York as its agent for
service of process relating to any proceedings before the New
York courts in connection with this Agreement and agrees to
maintain the process agent in New York notified to Lessor;
(ii) agrees that failure by a process agent to notify Lessee of the
process shall not invalidate the proceedings concerned;
(iii) consents to the service of process relating to any such
proceedings by prepaid mailing of a copy of the process to
Lessee's agent at the address identified in paragraph (i);
(d) Lessee:-
(i) waives objection to the courts of the State of New York on
grounds of inconvenient forum or otherwise as regards
proceedings in connection with this Agreement;
(ii) agrees that a judgment or order of a court of the State of New
York in connection with this Agreement is conclusive and
binding on it and may be enforced against it in the courts of
any other jurisdiction;
(e) Nothing in this Clause limits the right of Lessor to bring proceedings
against Lessee in connection with this Agreement:-
(i) in any other court of competent jurisdiction; or
(ii) concurrently in more than one jurisdiction;
(f) Lessee irrevocably and unconditionally:-
(i) agrees that if Lessor brings legal proceedings against it or
its assets in relation to this Agreement no immunity from such
legal proceedings (which will be deemed to include without
limitation, suit, attachment prior to judgment, other
attachment, the obtaining of judgment, execution or other
enforcement) will be claimed by or on behalf of itself or with
respect to its assets;
(ii) waives any such right of immunity which it or its assets now
has or may in the future acquire;
(iii) consents generally in respect of any such proceedings to the
giving of any relief or the issue of any process in connection
with such proceedings including, without limitation, the
making, enforcement or execution against any property
whatsoever (irrespective of its use or intended use) of any
order or judgment which may be made or given in such
proceedings.
16.13 SOLE AND ENTIRE AGREEMENT: This Agreement, Letter Agreement No. 1 and
any related side-letters are the sole and entire agreement between
Lessor and Lessee in relation to the leasing of the Aircraft, and
supersede all previous agreements in relation to that leasing.
16.14 INDEMNITIES: All rights expressed to be granted to each Indemnitee
under this Agreement (other than Lessor) are given to Lessor on behalf
of that Indemnitee.
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16.15 COUNTERPARTS: This Agreement may be executed in counterparts each of
which will constitute one and the same document.
16.16 LANGUAGE: All notices to be given under this Agreement will be in
English. All documents delivered to Lessor pursuant to this Agreement
will be in English, or if not in English, will be accompanied by a
certified English translation. If there is any inconsistency between
the English version of this Agreement and any version in any other
language, the English version will prevail.
16.17 NO BROKERS: Each party agrees to indemnify and hold the other harmless
from and against any and all claims, suits, damages, costs and
expenses (including, but not limited to, reasonable attorneys' fees)
asserted by any agent, broker or other third party for any commission
or compensation of any nature whatsoever based upon the lease of the
Aircraft, if such claim, suit, damage, cost or expense arises out of
any action or alleged action by the indemnifying party, its employees
or agents. Lessee hereby represents and warrants that it has not
paid, agreed to pay or caused to be paid directly or indirectly in any
form, any commission, percentage, contingent fee, brokerage or other
similar payments of any kind, in connection with the establishment or
operation of this Agreement, to any employee of Lessor or to any
person or entity in the State of Incorporation or elsewhere, except to
Excluded Persons, as defined below. For the purposes hereof, the term
"Excluded Persons" shall mean (x) in the case of Lessor, any of its
officers, directors, employees, attorneys or other professional
advisors, wherever located; and (y) in the case of Lessee, any of its
officers, directors, employees, attorneys or other professional
advisors, wherever located.
17. DISCLAIMERS AND WAIVERS
17.1 EXCLUSION: THE AIRCRAFT IS DELIVERED "AS IS, WHERE IS" AND LESSEE
AGREES AND ACKNOWLEDGES THAT, SAVE AS EXPRESSLY STATED IN THIS
AGREEMENT, LESSOR WILL HAVE NO LIABILITY IN RELATION TO, AND LESSOR
HAS NOT AND WILL NOT BE DEEMED TO HAVE MADE OR GIVEN, ANY WARRANTIES
OR REPRESENTATIONS, EXPRESS OR IMPLIED, WITH RESPECT TO, THE AIRCRAFT,
INCLUDING BUT NOT LIMITED TO:-
(a) THE DESCRIPTION, AIRWORTHINESS, MERCHANTABILITY, FITNESS FOR ANY
PARTICULAR USE OR PURPOSE, VALUE, CONDITION, OR DESIGN, OF THE
AIRCRAFT OR ANY PART; OR
(b) ANY OBLIGATION, LIABILITY, RIGHT, CLAIM OR REMEDY IN TORT, WHETHER OR
NOT ARISING FROM LESSOR'S NEGLIGENCE, ACTUAL OR IMPUTED; OR
(c) ANY OBLIGATION, LIABILITY, RIGHT, CLAIM OR REMEDY FOR LOSS OF OR
DAMAGE TO THE AIRCRAFT, FOR ANY LIABILITY OF LESSEE TO ANY THIRD
PARTY, OR FOR ANY OTHER DIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES.
17.2 WAIVER: LESSEE HEREBY WAIVES, AS BETWEEN ITSELF AND THE LESSOR, ALL
ITS RIGHTS IN RESPECT OF ANY WARRANTY OR REPRESENTATION, EXPRESS OR
IMPLIED, ON THE PART OF LESSOR AND ALL CLAIMS AGAINST LESSOR HOWSOEVER
AND WHENEVER ARISING AT ANY TIME IN RESPECT OF OR OUT OF THE OPERATION
OR PERFORMANCE OF THE AIRCRAFT OR THIS AGREEMENT EXCEPT TO THE EXTENT
ARISING UNDER CLAUSE 2.4.
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<PAGE> 53
17.3 CONFIRMATION: LESSEE CONFIRMS THAT IT IS FULLY AWARE OF THE PROVISIONS
OF THIS CLAUSE AND ACKNOWLEDGES THAT RENT AND OTHER AMOUNTS HAVE BEEN
CALCULATED BASED ON ITS PROVISIONS.
18. SECTION 1110
Lessee acknowledges that Lessor would not have entered into this
Agreement unless it had available to it the benefits of a lessor under
Section 1110 of Title 11 of the United States Code. Lessee
covenants and agrees with Lessor that to better ensure the
availability of such benefits, Lessee shall support any motion,
petition or application filed by Lessor with any bankruptcy court
having jurisdiction over Lessee, whereby Lessor seeks recovery of
possession of the Aircraft under said Section 1110 and shall not in
any way oppose such action by Lessor unless Lessee shall have complied
with the requirements of said Section 1110 to be fulfilled in order to
entitle Lessee to continued use and possession of the Aircraft
hereunder. In the event said Section 1110 is amended, or if it is
repealed and another statute is enacted in lieu thereof, Lessor and
Lessee agree to amend this Agreement and take such other action not
inconsistent with this Agreement as Lessor reasonably deems necessary
so as to afford to Lessor the rights and benefits as such amended or
substituted statute confers upon owners and lessors of aircraft
similarly situated to Lessor.
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<PAGE> 54
SCHEDULE 1
PART 1
DESCRIPTION OF AIRCRAFT
AIRCRAFT
MANUFACTURER: Boeing
MODEL: 737-2P6
SERIAL NUMBER: 21733
ENGINES
ENGINE TYPE AND NO.: Pratt & Whitney JT8D-15 x 2 equipped with Stage 3
Hushkits
SERIAL NOS: As set out in the Certificate of Acceptance
On the Delivery Date, the Aircraft shall be delivered constructively in "as is,
where is" condition.
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<PAGE> 55
PART 2
AIRCRAFT DOCUMENTS
A. CERTIFICATES
- FAA Certificate of Airworthiness
B. AIRCRAFT STATUS RECORDS
- Log Books
- Airframe Maintenance Status Report
- Supplemental Structural Inspection Document Status (if
applicable)
- Manufacturer's Service Bulletin Status Report
- Airworthiness Directive Compliance Report
(terminated and repetitive)
- Modification Status Report List
(documents will be provided upon request)
- Last Weighing Report
- List of Life Limited Components with remaining hours/cycles
C. AIRCRAFT MAINTENANCE RECORDS (LAST HEAVY MAINTENANCE VISITS)
- Test Flight Reports
- X-ray pictures
- Last annual check and heaviest maintenance check Work Cards
D. AIRCRAFT HISTORY RECORDS
- Aircraft Maintenance History Cards
- Service Difficulty Report
- Accident or Incident Report (Major Structural Repair)
E. ENGINE RECORDS (FOR EACH ENGINE)
- Engine time and cycle records
- Last overhaul and repair documents (including FAA Forms 337)
- Airworthiness Directive Compliance Report
(terminated and repetitive)
- Manufacturer's Service Bulletin Status Report
- List of Time Controlled Components with remaining hours and
cycles
- Modification Status Report
- Engine Disc Sheets
- Engine Build Specifications
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<PAGE> 56
F. APU RECORDS
- Last Overhaul and Repair Documents
(including modification status)
- Airworthiness Directive Compliance Report
(terminated and repetitive)
- Manufacturer's Service Bulletin Status Report
- List of Time Controlled Components with remaining hours/cycles
- Modification Status Report
G. COMPONENT RECORDS
- Time Controlled Component Historical Records with
Installation and Serviceability Tags
H. MANUALS
- Airplane Flight Manual (Manufacturer Approved, FAA Approved)
- Flight Crew Operating Manual
- Weight and Balance Manual
- Wiring Diagram Manual (microfilm and hard copy if available)
- Illustrated Parts Catalog (microfilm)
- Aircraft Maintenance Manual (microfilm)
- Manufacturer's Engine Maintenance Manual and any approved
engineering changes, as applicable
I. MISCELLANEOUS TECHNICAL DOCUMENTS
- Maintenance Program Specifications
- Interior Configuration Drawings
- Original Delivery Documents
- Loose Equipment Inventory
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SCHEDULE 2
CERTIFICATE OF ACCEPTANCE
This Certificate of Acceptance is delivered, on the date set out below
by Air South Airlines, Inc. ("Lessee"), to Polaris Aircraft Leasing
K.B. ("Lessor"), pursuant to the Aircraft Lease Agreement dated April
29, 1996 between Lessor and Lessee (the "Agreement"). The capitalised
terms used in this Certificate shall have the meaning given to such
terms in the Agreement.
1. DETAILS OF ACCEPTANCE
Lessee hereby confirms to Lessor that Lessee has on this 29th day
of April, 1996, at Columbia, South Carolina, accepted the Aircraft
described below in "where is, as is" condition:-
(a) Boeing 737-2P6 Advanced airframe, Manufacturer's Serial No. 21733;
(b) 2 Pratt & Whitney JT8D-15 Engines:-
Engine Number Manufacturer's Serial No.
1 ; and
2 ;
(Each of which shall have more than 750 rated takeoff horsepower or
the equivalent of such horsepower).
(c) Fuel Status: (N/A - see Previous Delivery Date Certificate of
Acceptance) and
(d) Loose Equipment Check List: as per list signed by Lessor and Lessee and
attached hereto.
2. CONFIRMATION
Lessee confirms to Lessor that as at the time indicated above, being
the Delivery Date:-
(a) the representations and warranties contained in Clause 2 are hereby
repeated;
(b) the Aircraft is insured as required by the Agreement;
(c) Lessee confirms that there have been affixed to the Aircraft and the
Engines the fireproof notices required by Clause 8.7(d) of the
Agreement; and
(d) Lessee's authorised technical experts have inspected the Aircraft to
ensure the Aircraft conforms to Lessee's requirements. The Aircraft
is in accordance with the specifications of the Agreement and
satisfactory in all respects.
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IN WITNESS WHEREOF, Lessee has, by its duly authorised representative,
executed this Certificate as of April 29, 1966.
LESSEE: Air South Airlines, Inc.
By:
----------------------------
Title:
----------------------------
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SCHEDULE 3
OPERATING CONDITION AT REDELIVERY
On the Expiry Date the Aircraft, subject to fair wear and tear
generally, will be in the condition set out below:-
1. GENERAL CONDITION
The Aircraft will:-
(a) be clean by airline standards;
(b) have installed the full complement of engines and other equipment,
parts and accessories and loose equipment as is normally installed in
the Aircraft, and be in a condition suitable for immediate operation
in commercial service;
(c) have in existence a valid certificate of airworthiness (or if required
by Lessor, a valid export certificate of airworthiness) with respect
to the Aircraft issued by the Air Authority. The Aircraft will also
be eligible for an FAA Certificate of Airworthiness, shall meet all
requirements for U.S. domestic operations under FAR Part 121 and will
meet the requirements of FAR Part 36, appendix C, Stage 2 noise
compliance without waiver or restriction, except as provided by the
hushkit manufacturer. There will be no deferred, open or carryover
items on the Aircraft or any Engine on the Expiry Date;
(d) comply with the manufacturer's original specifications;
(e) have undergone, immediately prior to redelivery, a C check (including
all phases and multiples thereof) so that all Airframe inspections
falling due within the next following C Check interval in accordance
with the Agreed Maintenance Programme, have been accomplished. The
time since the heaviest maintenance inspection (complete block
overhaul/D Check) will not be more than when the Aircraft was
delivered by Lessor to Lessee under the Previous Lease.
Notwithstanding the foregoing, Lessee may redeliver the Aircraft to
Lessor with fewer Flight Hours remaining until the next D Check
(complete block overhaul) than as at the Previous Delivery Date as a
percentage of the allowed interval between such overhauls if (x)
a maximum of 7,500 Flight Hours elapsed since the last D Check
(complete block check) (determined in accordance with the Agreed
Maintenance Programme); and (y) Lessee pays to Lessor on the Expiry
Date the product of (xx) the difference (if greater than zero) between
the number of Flight Hours so remaining on the Expiry Date and the
number of Flight Hours that were so remaining on the Previous Delivery
Date; and (yy) the then current rate of Airframe Supplemental Rent;
(f) have had accomplished all outstanding airworthiness directives
affecting that model of Aircraft issued by the FAA which, if the
Aircraft were registered with the FAA, would have to be complied with
during the Term and within 180 days after the Expiry Date, except that
such AD's requiring repetitive compliance at intervals of less than
180 days between each accomplishment ("Repetitive AD's'') shall be
complied with by Lessee immediately prior to the Expiry Date and
Lessee shall not be responsible for any subsequent repetitive
compliance of the Repetitive AD after the Expiry Date;
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(g) have installed all applicable vendor's and manufacturer's service
bulletin kits received free of charge by Lessee that are appropriate
for the Aircraft and to the extent not installed, those kits will be
furnished free of charge to Lessor;
(h) be sanded and freshly painted and in such external livery as advised
by Lessor; and
(i) have all signs and decals clean, secure and legible.
2. COMPONENTS
(a) The time since overhaul on all time controlled (other than the APU, the
Engines and the Landing Gear) shall be not less than as on the
Previous Delivery Date.
(b) Each "on-condition" and "condition monitored" component will be
serviceable;
(c) The APU will be in the same operational condition as at the Previous
Delivery Date having no more than 1,500 Flight Hours used since the
last APU hot section inspection with temperatures and air outputs
within the APU manufacturer's limits at all operational settings.
Notwithstanding Paragraphs (a) to (c) above, if the time remaining to
overhaul of each time, cycle and calendar controlled component in the
Aircraft (excluding each Engine and the Landing Gear but including any
time, cycle or calendar controlled components thereon) is less on the
Expiry Date than at the Previous Delivery Date Lessee will pay to
Lessor on the Expiry Date an amount determined by (i) subtracting the
hours, days and cycles (whichever is the more limiting factor)
remaining on such component on the Expiry Date from the hours, days or
cycles, as the case may be, remaining on the Previous Delivery Date and
(ii) by multiplying the difference calculated in (i) above by an amount
determined by dividing the standard overhaul cost for such component as
charged by an FAA approved repair station approved by Lessor by the
number of hours, days and cycles between overhauls for such component.
In any event and notwithstanding the preceding sentence no component
shall have less than 1 calendar year or 3,000 hours and cycles
(whichever is the more limiting factor) remaining to the next overhaul
in accordance with the Agreed Maintenance Programme (the ""Minimum
Requirement''). Any such component which has less than the Minimum
Requirement shall have zero time since the last overhaul.
3. ENGINES
Each Engine will be installed on the Aircraft and if not the engines
installed on the Previous Delivery Date will be accompanied by all
documentation Lessor may require to evidence that title thereto is
properly vested in Owner and:-
(a) each life limited part within each Engine will have at least the same
life remaining as when delivered by Lessor to Lessee under this
Agreement.
Notwithstanding Paragraph 3 (a) above, Lessee may redeliver an Engine
to Lessor with less life so remaining if (x) at least 2,000 Flight
Hours and Cycles remaining and have a two engine aggregate of no less
than 6,000 Flight Hours of life remaining until the next scheduled life
limited Parts replacement (determined in accordance with the Agreed
Maintenance Programme); and (y) Lessee pays to Lessor on the Expiry
Date the product of (xx) the difference (if greater than zero) between
the average number of Flight Hours and Cycles so remaining on the
Expiry Date and the average number of Flight Hours and Cycles that were
so remaining on the Previous Delivery Date; and (yy) the then current
rate of Engine Life Limited Parts Supplemental Rent.
(b) each Engine will have no more time since last Hot Section
Refurbishment and no more time since the last Cold Section
Refurbishment than as when delivered by Lessor to Lessee under this
Agreement.
Notwithstanding Paragraph 3 (b) above, Lessee may redeliver an Engine
to Lessor with fewer Flight Hours remaining until the next Hot Section
Refurbishment or Cold Section Refurbishment, as applicable than as at
the Previous Delivery Date if (x) at least 2,000 Flight Hours and
Cycles remaining and have a two engine aggregate of no less than 6,000
Flight Hours of life remaining until the next Hot Section Refurbishment
or Cold Section Refurbishment, as applicable (determined in accordance
with the Agreed Maintenance Programme); and (y) Lessee pays to Lessor
on the Expiry Date the product of (xx) the difference (if greater than
zero) between the number of Flight Hours and Cycles so remaining on the
Expiry Date and the number of Flight Hours that were so remaining on
the Previous Delivery Date; and (yy) the then current rate of Engine
Refurbishment Supplemental Rent.
(c) each Engine will have had a complete hot (including combustion
chamber) and cold section video boroscope inspection, at Lessor's
expense, and a power assurance run in accordance with the Engine
manufacturer's maintenance manual and all items beyond such
manufacturer's limits will be repaired at Lessee's expense. No Engine
will be "on watch" for any reason requiring any special or out of
sequence inspection.
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4. FUSELAGE, WINDOWS AND DOORS
(a) The fuselage will be free of major dents and abrasions exceeding the
limits defined in the Boeing Structural Repair Manual ("SRM") and
applicable maintenance manuals and loose or pulled or missing rivets;
(b) Doors will be free moving, correctly rigged and be fitted with
serviceable seals.
5. WINGS AND EMPENNAGE
(a) Leading edges will be free from damage exceeding the limits defined in
SRM and applicable maintenance manuals;
(b) Wings will be free of fuel leaks.
6. INTERIOR
(a) Ceilings, sidewalls and bulkhead panels will be clean and free of
cracks and stains.
(b) Carpets and seat covers will be in good condition, clean and free of
stains and meet FAR burn certification regulations;
(c) Seats will be serviceable, in good condition and repainted as
necessary; and
(d) Emergency equipment having a calendar life will have a minimum of 1
year or 100% of its total approved life, whichever is less, remaining.
7. COCKPIT
(a) Trim panels shall be free of stains and cracks, will be clean secure
and repainted as necessary;
(b) Seat covers will be in good condition, clean and free of stains and
will conform to FAR burn certification regulations; and
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8. CARGO COMPARTMENTS
(a) Panels will be in good condition; and
(b) Nets will be in good condition.
9. LANDING GEAR
Time since overhaul on the Landing Gear will not be greater than as at
the Previous Delivery Date. Each life limited part within the landing
gear will have at least the same time remaining as at the Delivery
Date. The Landing Gear and wheel wells will be clean, free of leaks
and repaired as necessary.
Notwithstanding the foregoing, Lessee may redeliver the Landing Gear
to Lessor with fewer Flight Hours remaining until the next overhaul
than as at the Previous Delivery Date as a percentage of the allowable
interval between such overhauls if (x) at least 7,500 Flight Hours
remain until the next overhaul (determined in accordance with the
Agreed Maintenance Programme); and (y) Lessee pays to Lessor on the
Expiry Date the product of (xx) the difference (if greater than zero)
between the number of Flight Hours so remaining on the Expiry Date and
the number of Flight Hours that were so remaining on the Previous
Delivery Date; and (yy) the then current rate of Landing Gear
Supplemental Rent.
10. CORROSION
(a) The Aircraft will have been inspected and treated with respect to
corrosion as defined in the Agreed Maintenance Programme and/or Boeing
Document No.D6-38528 relative to compliance with the Corrosion
Prevention and Control Program (CPCP). The entire fuselage will be
substantially free from corrosion and will be adequately treated and
an approved corrosion prevention programme will be in operation; and
(b) Fuel tanks will be free from contamination and corrosion and a tank
treatment programme will be in operation.
Notwithstanding anything contained in this Schedule 3, Lessor shall not be
required to make any payments to Lessee in the event that any or all of the
Airframe, the Engines, the Landing Gear, any time, cycle or calendar controlled
component is returned to Lessor in a condition better than that specified in
Clause 12 and this Schedule 3.
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SCHEDULE 4
INSURANCE REQUIREMENTS
The Insurances required to be maintained are as follows:-
(a) HULL ALL RISKS of Loss or Damage whilst flying and on the ground with
respect to the Aircraft on an "agreed value basis" for the Agreed Value
and with a deductible not exceeding $350,000, or such other amount
agreed by Lessor from time to time. Without prejudice to the
foregoing, (x) with the prior written consent of Lessor, Lessee may
increase the aforesaid deductible amount to $500,000 if, prior to doing
so, Lessee shall have paid to Lessor the sum of $150,000 by way of an
insurance security deposit (the "Insurance Security Deposit") (which
Insurance Deposit shall also be available to be applied to deductible
losses between $350,000 and $500,000 in relation to B737-2P6 Advanced
Aircraft Serial Numbers 21356, 21612 and 21677 leased, or to be leased,
to Lessee pursuant to Other Agreements); and (y) provided no Default
shall have occurred and, in Lessor's reasonable opinion, Lessee remains
in good financial standing, following the expiration of Rental Period
12, Lessor, without being under any obligation, will consider a request
from Lessee to increase the aforementioned deductible amount to
$500,000 without the requirement for Lessee to pay an Insurance
Security Deposit. The Insurance Security Deposit, which shall be held
by Lessor as security for the performance by Lessee of its obligations
under this Agreement (and under the Other Agreement), shall be returned
to Lessee on the Expiry Date if all amounts payable by Lessee under
this Agreement and any Other Agreement shall have been paid in full and
no Default shall have occurred and be continuing. With Lessor's prior
consent, the Insurance Deposit may be provided by Lessee by way of
Letter of Credit issued by a bank acceptable to Lessor and in form and
in substance acceptable to Lessor.
In the event that the Insurance Security Deposit is applied to a loss
claim thereby reducing the balance thereof, Lessee will either (a)
replace any deficiency in such balance; or (b) lower the all risk hull
insurance deductible to $500,000 within 15 days after the
aforementioned application.
(b) HULL WAR AND ALLIED PERILS, being such risks excluded from the Hull
All Risks Policy to the fullest extent available from the leading
international insurance markets including confiscation and requisition
by the State of Registration for the Agreed Value;
(c) ALL RISKS (INCLUDING WAR AND ALLIED RISK except when on the ground or
in transit other than by air) property insurance on all Engines and
Parts when not installed on the Aircraft on an "agreed value" basis
for their full replacement value and including engine test and running
risks;
(d) AIRCRAFT THIRD PARTY, PROPERTY DAMAGE, PASSENGER, BAGGAGE, CARGO AND
MAIL AND AIRLINE GENERAL THIRD PARTY (INCLUDING PRODUCTS) LEGAL
LIABILITY for a Combined Single Limit (Bodily Injury/Property Damage)
of an amount not less than the Minimum Liability Coverage for the time
being any one occurrence (but in respect of products and personal
injury liability this limit may be an aggregate limit for any and all
losses occurring during the currency of the policy). War and Allied
Risks are also to be covered under the Policy to the fullest extent
available from the leading international insurance markets;
(e) All required hull and spares insurance (as specified above), so far as
it relates to the Aircraft will: -
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(i) name Owner, Sub Lessor, Lessor and their respective successors
and assigns as additional assureds for their respective rights
and interests, warranted, each as to itself only, no
operational interest;
(ii) provide that any loss will be settled jointly with Lessor and
Lessee, subject to final prior approval of Owner and will be
payable in Dollars to Owner, for the account of all interests
except where the loss does not exceed the Damage Notification
Threshold, and neither Lessor nor Owner has notified the
insurers to the contrary, in which case the loss will be
settled with and paid to Lessee;
(iii) include a notice and/or acknowledgement of assignment in a
form acceptable to Lessor;
(iv) if separate Hull "all risks" and "war risks" insurances are
arranged, include a 50/50 provision in accordance with market
practice (AVS. 103 is the current market language);
(v) confirm that the insurers are not entitled to replace the
Aircraft in the event of an insured Event of Loss;
(vi) confirm that the insurers will not obtain a valid discharge of
the obligations under the Insurances by payment to the broker,
notwithstanding market practice to the contrary;
(f) All required liability insurances (specified above) will:-
(i) include Owner, Sub Lessor, Lessor and their respective
successors and assigns and their respective shareholders,
subsidiaries, directors, officers, agents, employees and
indemnitees as additional insureds for their respective rights
and interests, warranted, each as to itself only, no
operational interest;
(ii) include a Severability of Interest Clause which provides that
the insurance, except for the limit of liability, will operate
to give each assured the same protection as if there was a
separate policy issued to each assured;
(iii) contain a provision confirming that the policy is primary
without right of contribution and the liability of the
insurers will not be affected by any other insurance of which
Owner, Sub Lessor, Lessor or Lessee have the benefit so as to
reduce the amount payable to the additional insureds under
such policies;
(g) All Insurances will:-
(i) be in accordance with normal industry practice of persons
operating similar aircraft in similar circumstances;
(ii) provide cover denominated in Dollars and any other currencies
which Lessor may reasonably require in relation to liability
insurance;
(iii) operate on a worldwide basis subject to such limitations and
exclusions as Lessor may agree;
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(iv) acknowledge the insurer is aware (and has seen a copy) of this
Agreement and that the Aircraft is owned by Owner and is
subject to the Head Lease and the Sub Lease;
(v) provide that, in relation to the interests of each of the
additional assureds the Insurances will not be invalidated by
any act or omission by Lessee, or any other person other than
the respective additional assured seeking protection and shall
insure the interests of each of the additional assureds
regardless of any breach or violation by Lessee, or any other
person other than the respective additional assured seeking
protection of any warranty, declaration or condition,
contained in such Insurances;
(vi) provide that the insurers will hold harmless and waive any
rights of recourse and/or subrogation against the additional
assureds or to be subrogated to any rights of the Banks
against Lessor, Sub Lessor, Owner or Lessee;
(vii) provide that the additional assureds will have no obligation
or responsibility for the payment of any premiums due (but
reserve the right to pay the same should any of them elect so
to do) and that the insurers will not exercise any right of
set-off or counter-claim in respect of any premium due against
the respective interests of the additional assureds other than
outstanding premiums relating to the Aircraft, any Engine or
Part the subject of the relevant claim;
(viii) provide that the Insurances will continue unaltered for the
benefit of the additional assureds for at least 30 days after
written notice by registered mail or telex of any
cancellation, change, event of non-payment of premium or
installment thereof has been sent to Lessor, Sub Lessor and
Owner, except in the case of war risks for which 7 days (or
such lesser period as is or may be customarily available in
respect of war risks or allied perils) will be given, or in
the case of war between the 5 great powers or nuclear peril
for which termination is automatic;
(ix) if reinsurance is a requirement of this Agreement such
reinsurance will (i) be on the same terms as the original
insurances and will include the provisions of this Schedule,
(ii) provide that notwithstanding any bankruptcy, insolvency,
liquidation, dissolution or similar proceedings of or affecting
the reinsured that the reinsurers' liability will be to make
such payments as would have fallen due under the relevant
policy of reinsurance if the reinsured had (immediately before
such bankruptcy, insolvency, liquidation, dissolution or
similar proceedings) discharged its obligations in full under
the original insurance policies in respect of which the then
relevant policy of reinsurance has been effected; and (iii)
contain a "cut-through" clause in the following form (or
otherwise, satisfactory to Lessor): "The Reinsurers and the
Reinsured hereby mutually agree that in the event of any claim
arising under the reinsurances in respect of a total loss or
other claim where as provided by the Aircraft Lease Agreement
dated as of April 29, 1996 and made between Polaris Aircraft
Leasing K.B. and Air South, Inc. such claim is to be paid to
the person named as sole loss payee under the primary
insurances, the Reinsurers will in lieu of payment to the
Reinsured, its successors in interest and assigns pay to the
person named as sole loss payee under the primary insurances
effected by the Reinsured that portion of any loss due for
which the Reinsurers would otherwise be liable to
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pay the Reinsured (subject to proof of loss), it being
understood and agreed that any such payment by the Reinsurers
will (to the extent of such payment) fully discharge and
release the Reinsurers from any and all further liability in
connection therewith"; subject to such provisions not
contravening any law of the State of Incorporation;
(x) contain a provision entitling Lessor, Owner, Sub Lessor or any
insured party to initiate a claim under any policy in the
event of the refusal or failure of Lessee to do so; and
(xi) accept and insure the indemnity provisions of the Head Lease
and the Sub Lease and of this Agreement to the extent of the
risks covered by the policies.
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SCHEDULE 5
FORM OF LEGAL OPINION
To: [Owner] [Sub Lessor] [Lessor]
[Date]
Dear Sirs
1. You have asked us to render an opinion in connection with the
transaction governed, inter alia, by the under mentioned documents.
Words and expressions used herein will bear the same meanings as
defined in an Aircraft Lease Agreement (the "Lease") dated [ ]
1995 between Polaris Aircraft Leasing K.B. ("Lessor") and Air South,
Inc. ("Lessee") in respect of one Boeing 737-2P6 Advanced aircraft
with manufacturer's serial number 21733 together with the 2
installed Pratt & Whitney JT8D-15 engines (the "Aircraft").
1.1. the Lease;
1.2. the Memorandum and Articles of Association of Lessee;
1.3. all other documents, approvals and consents of whatever nature and
wherever kept which it was, in our judgment and to our knowledge,
necessary or appropriate to examine to enable us to give the
opinion expressed below.
2. Having considered the documents listed in paragraph 1 above, and
having regard to the relevant laws of [] we are pleased to advise
that in our opinion:-
(a) Lessee is a corporation duly organised and validly existing under
the laws of [], is qualified to do business as a foreign
corporation in each jurisdiction where failure to so qualify would
have a materially adverse effect on Lessee's business or its
ability to perform its obligations under the lease is subject to
suit in its own name, and, to the best of our knowledge, no steps
have been, or are being, taken to appoint a receiver, liquidator,
trustee or similar officer over, or to wind up, Lessee;
(b) Lessee has the corporate power to enter into and perform, and has
taken all necessary corporate action to authorise the entry into,
performance and delivery of, the Lease and the transactions
contemplated by the Lease;
(c) the entry into and performance by Lessee of, and the transactions
contemplated by, the Lease do not and will not:-
(i) conflict with any laws binding on Lessee; or
(ii) conflict with the Certificate of Incorporation of By Laws
of Lessee; or
(iii) conflict with or result in default under any indenture,
mortgage, chattel mortgage, deed of trust, conditional
sales contract, lease, bank loan or credit agreement or
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other agreement which is binding upon Lessee or any of its
assets or result in the creation of any Security Interest
over any of its assets.
(d) no authorisations, consents, licences, approvals and registrations
(other than those which have been obtained and of which copies are
attached hereto) are necessary or desirable to be obtained from any
governmental or other regulatory authorities in having jurisdiction
over Lessee or its properties to enable Lessee:-
(1) to enter into and perform the transactions contemplated by
the Lease;
(2) to import the Aircraft into the United States and [ ] for
the duration of the Term;
(3) to operate the Aircraft in the United States for the
transport of fare-paying passengers; or
(4) to make the payments provided for in the Lease;
(e) except for the filing and recordation of the Lease with the FAA and
the filing of the Financial Statements with [] (which filing has
been duly made on or before this date) it is not necessary or
desirable, to ensure the priority, validity and enforceability of
all the obligations of Lessee under the Lease that the Lease be
filed, registered, recorded or notarised in any public office or
elsewhere or that any other instrument relating thereto be signed,
delivered, filed, registered or recorded, that any tax or duty be
paid or that any other action whatsoever be taken;
(f) no steps are necessary or desirable to record or perfect either
Lessor's, Sub Lessor's or Owner's interest in the Aircraft in the
United States or [];
(g) on termination of the Lease (whether on expiry or otherwise) as
contemplated in the Lease, Lessor would be entitled:-
(1) to repossess the Aircraft;
(2) to export the Aircraft from the United States and [];
without requiring any further consents, approvals or
licences from any governmental or regulatory authority in
the United States or [];
(h) the Lease has been properly signed and delivered on behalf of
Lessee and the obligations on the part of Lessee contained therein,
assuming them to be valid and binding according to the Governing
Law, are valid and legally binding on and enforceable against
Lessee respectively under the laws of [];
(i) the events described in Clause 13.1(g), (h) and (i) of the Lease
comprise an accurate and complete statement of all events and
situations provided for by the laws of [] which may lead to the
cessation of activities, winding up or dissolution of Lessee;
(j) Lessee is a Certificated Air Carrier;
(k) Lessee is a "citizen of the United States" as defined in Section
101(16) of the Federal Aviation Act;
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(l) Lessor is entitled to the benefits of Section 1110 of Title 11 of
the United States Code;
(m) Lessee's chief executive office (as defined in the Uniform
Commercial in effect in []) is located at [].
(n) the obligations of Lessee under the Lease rank at least pari passu
with all other present and future unsecured and unsubordinated
(including contingent obligations) of Lessee;
(o) there is no withholding tax or other Tax to be deducted from any
payment whatsoever which may be made by Lessee pursuant to the
Lease; with respect to any withholdings, the provisions of Clauses
5.6, 5.7 and 5.10 of the Lease are fully effective; and the
arrangements contemplated by the Lease do not give rise to any
charge whatsoever to Taxes in [];
(p) there is no applicable usury or interest limitation law in [] which
may restrict the recovery of payments in accordance with the Lease;
(q) there are no registration, stamp or other taxes or duties of any
kind payable in [] in connection with the signature, performance or
enforcement by legal proceedings of the Lease;
(r) Lessor will not violate any law or regulation in [] nor become
liable to tax in [] by reason of entering into the Lease with
Lessee, or performing its obligations thereunder;
(s) it is not necessary to establish a place of business in [] in order
to enforce any provisions of the Lease;
(t) the choice of the Governing Law to govern the Lease will be upheld
as a valid choice of law in any action in the Courts of [];
(u) the consent to the jurisdiction by Lessee contained in the Lease is
valid and binding on Lessee and not subject to revocation;
(v) any judgement for a definite sum given by the courts of [ ]
against Lessee would be recognised and accepted by the courts of []
without re-trial or examination of the merits of the case;
(w) (i) Lessee is subject to civil commercial law with respect to
its obligations under the Lease; and
(ii) neither Lessee nor any of its assets is entitled to any
right of immunity and the entry into and performance of the
Lease by Lessee constitute private and commercial acts;
(x) there are no laws or other rules in [] (including, without
limitation, Emergency Powers laws) pursuant to which Lessee may be
deprived of the Aircraft by any Government Entity or any other
person, other than Lessor or any assignee of Lessor.
Yours faithfully,
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LETTER AGREEMENT NO. 1
April 29, 1996
Air South Airlines, Inc.
1800 St. Julian Place
Columbia, South Carolina 29204
Attention: Mr. Clif E. Haley
Re: Aircraft Lease Agreement, dated as of April 29, 1996, relating to one
Boeing 737-2P6 aircraft bearing MSN 21733 and Irish Registration Number EI-CLK.
Dear Sirs:
Reference is made to the Aircraft Lease Agreement, dated this date (THE "LEASE
AGREEMENT"), between Polaris Aircraft Leasing K.B., a limited partnership
formed under the laws of Sweden ("LESSOR") and Air South Airlines, Inc., an
Illinois corporation (THE "LESSEE"), for the lease of one used Boeing 737-2P6
aircraft bearing MSN 21733 and Irish Registration Number EI-CLK (THE
"AIRCRAFT") and the Letter Agreement, dated March 29, 1996, as amended by the
Letter Agreements, dated April 11 and April 26, 1996 between Lessee and GECAS
(AS AMENDED, THE "MARCH LETTER AGREEMENT"), between the Lessee, GE Capital
Aviation Services, Inc. ("GECAS"), Polaris Holding Company ("PHC" AND
COLLECTIVELY WITH THE LESSOR, THE "LESSORS") and the Lessor. Capitalized terms
used herein and not otherwise defined shall have the meanings ascribed to such
terms in the Lease Agreement or the March Letter Agreement, as applicable.
Each party hereto hereby agrees that such party shall preserve the
confidentiality of, and shall not disclose, the information set forth in this
Letter Agreement No. 1 (THIS "LETTER AGREEMENT") to any other Person without
obtaining the prior written consent of the other party except to the extent
required by applicable law; provided that Lessor shall not be required to seek
such consent of Lessee following an Event of Default which has not been cured.
Lessor and Lessee have agreed that certain provisions referred to in the Lease
Agreement, and certain other terms, shall be set forth in this Letter
Agreement. If the Lease Agreement and this Letter Agreement shall differ as to
any term or condition, this Letter Agreement shall prevail, notwithstanding
anything to the contrary contained in the Lease Agreement. In that connection
and in order to preserve the confidentiality of certain of the business terms
of the Lease Agreement, Lessor and Lessee hereby agree as to (A) certain
provisions regarding Basic Rent, a Restructuring Fee and certain arrearages
of Rent; (B) certain provisions relating to Supplemental Rent; (C) certain
provisions regarding Events of Default; (D) certain provisions relating to the
Aircraft Commitment Fee; (E) certain provisions relating to the application of
supplemental rent under the Other Agreements; (F) certain provisions relating
to the payment of legal fees of Lessors; (G) further assurances; (H) governing
law; and (I) counterparts.
A. RENT.
(i) BASIC RENT AND RENT ARREARAGE. Lessee shall pay to Lessor Basic Rent
in respect of each Rental Period pursuant to Clause 5.3 of the Lease Agreement
in an amount equal to $122,500. Lessee may accrue arrearages of Basic Rent
during the Term from the date hereof to a date on or before September 27, 1996
(THE "RENT ARREARAGE"); provided, however, that the Rent Arrearage shall not
exceed $12,500 per month and, in the aggregate for the lease of all Aircraft by
Lessee from the Lessors, such aggregate Rent Arrearage shall not exceed a total
of $350,417.00. Any Rent Arrearage accrued by Lessee shall be subject to a fixed
rate of interest of 10.44% which interest shall be calculated from the date
Basic Rent shall be otherwise due and payable to the date of payment of the
Rent Arrearage. The full amount of Rent Arrearage and any
1
<PAGE> 71
interest due thereon shall be paid in full on or before the earlier to occur of
(x) the date of the IPO or PPO as referenced below or (y) September 30, 1996.
(ii) PAYMENT OF BASIC RENT. From the date hereof to September 27, 1996
Lessee shall pay Basic Rent and Supplemental Rent in the aggregate for all five
(5) Aircraft on the dates and in the amounts as are set forth in Table IV of
Schedule C attached hereto. A pro-rata portion of each payment of Rent, based
upon the amount of Basic Rent otherwise due and payable, shall be allocated to
each Aircraft. On the Rent Payment Date next succeeding September 30, 1996,
Basic Rent for the Aircraft shall be due and payable in monthly increments in
advance for the remainder of the Term on the Rent Payment Dates as set forth in
Clause 5.3 of the Lease Agreement.
(iii) RESTRUCTURING FEE AND ADJUSTMENT OF RENT. In consideration of the
restructuring of the Other Agreements and the lease of the Aircraft pursuant to
the Lease Agreements (as such term is defined in Schedule A attached hereto),
the Lessee shall pay to GECAS, on behalf of the Lessors, a restructuring fee
(THE "RESTRUCTURING FEE") on the terms and conditions as set forth herein. If
the Lessee completes an initial public offering ("IPO") of common stock of
Lessee, par value $.001 per share (THE "COMMON STOCK"), or a private placement
(A "PPO") of Common Stock, then, upon the occurrence of such IPO or PPO, Lessee
shall pay GECAS, on behalf of the Lessors, a Restructuring Fee in an amount as
set forth in Schedule A attached hereto. The Restructuring Fee shall be
reduced by the difference between (1) aggregate Basic Rent actually paid by
the Lessee to the Lessors, pursuant to all Lease Agreements (and excluding any
Rent Arrearages) from the date hereof to the date the Restructuring Fee is due
and payable and (2) the aggregate of the Initial Rents as such term is defined
in Schedule A for the same period. Upon the payment of the Restructuring Fee
and commencing with the Rent Payment Date next succeeding such payment of the
Restructuring Fee, the amount of Basic Rent for the Aircraft thereafter due and
payable shall be adjusted, based upon the initial base amount of the
Restructuring Fee prior to adjustment, to equal the amount set forth for such
Aircraft in Schedule B attached hereto with respect to the Lease Agreement.
The Restructuring Fee shall be paid in cash, warrants or a combination
thereof, as GECAS may elect. If the Restructuring Fee is due and payable on a
date other than a Rent Payment Date, any adjustments to the Restructuring Fee
or Basic Rent shall be made on a pro-rata basis using a 30 day calendar month.
(iv) WARRANTS FOR COMMON STOCK. In the event that GECAS shall elect to be
paid the Restructuring Fee in whole or in part by a warrant or warrants for
Common Stock (THE "WARRANT"), such Warrant shall be substantially in the form
attached hereto as Exhibit I and shall otherwise be reasonably acceptable to
GECAS. The Warrant shall be issued by Lessee to GECAS on the request of GECAS
and shall comply with the following terms and conditions: (a) the Warrant shall
not require the payment of any additional amounts by GECAS or the Lessors to
the Lessee; (b) the number of shares of Common Stock issuable pursuant to the
Warrant shall equal the amount of the Restructuring Fee elected by GECAS to be
paid in Warrants divided by the selling price of the Common Stock in the IPO or
PPO, net of underwriting discounts, commissions and expenses; (c) the holder of
such Warrant shall be granted "piggy-back" registration rights, (d) the Warrant
shall be exercisable for a period of five years after its date of issuance and
(e) shall otherwise be on terms and conditions mutually satisfactory to Lessor
and Lessee.
B. SUPPLEMENTAL RENT.
(i) SUPPLEMENTAL RENT. The amount of Supplemental Rent payable pursuant
to Clause 5.4 of the Lease Agreement shall be as follows:
(a) Airframe Supplemental Rent - $ 66.15 per Flight Hour;
(b) Engine Refurbishment Supplemental Rent - $72.45 per Flight Hour
in respect of each Engine;
(c) Engine Life Limited Parts Supplemental Rent - $12.60 per Flight
Hour in respect of each
2
<PAGE> 72
Engine; and
(d) Landing Gear Supplemental Rent - $ 8.40 per Flight Hour.
(ii) ADJUSTMENT OF SUPPLEMENTAL RENT. Lessor and Lessee acknowledge that
the rates of Supplemental Rent specified herein are based upon the assumptions
that (i) the Aircraft will operate on average not less than 1 Flight Hour per
Cycle ratio and (ii) the Agreed Maintenance Programme applicable to the
Aircraft during the Term will be the same as the Agreed Maintenance Programme
in effect on the Delivery Date. In the event that either or both of the
foregoing assumptions prove to be incorrect at any time during the Term, Lessor
and Lessee agree that Lessor shall have the right, upon written notice to
Lessee, to adjust the rate of Supplemental Rent. In the case of a change in
the ratio of Flight Hours per Cycle relating to Aircraft operation, the
adjustment of Supplemental Rent shall be as follows:
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
HOUR/CYCLE RATIO .5 1.0 1.5 2.0 2.5 3.0 3.5
$/hr. $/hr. $/hr. $/hr. $/hr. $/hr. $/hr.
ENGINE
REFURBISHMENT 98.70 72.45 65.10 58.80 54.60 52.50 50.40
SUPPLEMENTAL RENT
$/cyc. $/cyc. $/cyc. $/cyc. $/cyc. $/cyc. $/cyc.
ENGINE LLP
SUPPLEMENTAL RENT 12.60 12.60 12.60 12.60 12.60 12.60 12.60
</TABLE>
In the event that the Agreed Maintenance Programme is revised, Lessor shall
make the adjustment in the manner which Lessor determines, in its reasonable
discretion, is necessary to maintain the rate of Supplemental Rent at levels
which accurately reflect the costs associated with obtaining maintenance
services at prevailing industry rates. Each such notice shall specify the
revised Supplemental Rent and the effective date of such revision. Lessee
agrees to advise Lessor, in writing, promptly following the occurrence of any
circumstances or events which would result in the foregoing assumptions
becoming incorrect at any time during the Term.
(iii) SUPPLEMENTAL RENT ABATEMENT. Lessor agrees to abate temporarily
Lessee's obligation to pay Supplemental Rent towards specific Engine
Refurbishment and Life Limited Parts in cases where the Lessee uses its own
funds ("OUT-OF-POCKET EXPENSES") to pay for respective Engine overhauls during
the Term. Lessee's Out-of-Pocket Expenses shall be defined as the excess of
(x) the actual cost for the over-haul of such Engine paid by Lessee as duly
substantiated to Lessor's satisfaction and (y) the individual Supplemental Rent
balance for such Engine at the time of its overhaul. Overhaul work scopes
shall be preapproved by the Lessor. The overhaul cost shall relate to the
actual overhaul and shall not include any ancillary or consequential costs
including, but not limited to (1) substitute equipment leases and (2)
transportation charges. The periods of Supplemental Rent abatement shall
commence respectively, on the first day that the Engine is returned to service
after its overhaul and shall continue until such time that the Engine has
lapsed Flight Hours and Cycles such that, when multiplied by the Supplemental
Rent rate defined herein, the total dollar amount equals the Out-of-Pocket
Expenses that the Lessee paid for the respective overhaul.
(iv) ESTIMATED SUPPLEMENTAL RENT. From the date hereof to September 27,
1996, Lessee shall pay Lessor an estimated amount of Supplemental Rent pursuant
to Schedule C hereof in the aggregate for all Aircraft. Such amount shall take
into account all Supplemental Rent abatements granted pursuant to paragraph
(iii) above. Each month, Lessee shall submit to Lessor a summary of the hours
and cycles of operation of the Aircraft. Credit and debits against the
Supplemental Rent actually due and payable shall be accrued until September 30,
1996. Prior to October 10, 1996, Lessor shall provide Lessee with an
accounting of all Supplemental Rent due and payable and actual Supplemental
Rent paid. Any arrears payments or credits
3
<PAGE> 73
with respect to overpayments with respect to Supplemental Rent shall be paid by
Lessee to Lessor or credited by Lessor to Lessee, as applicable, on October 10,
1996.
C. EVENTS OF DEFAULT.
For purposes of the Lease Agreement, each of the following shall constitute a
Event of Default, in addition to the Events of Default as set forth in Clause
13.1 of the Lease Agreement: (i) the failure to pay the Current Arrearage and
all interest due thereon on or before April 29, 1996; (ii) the failure to pay
the Rent Arrearage and all interest due thereon on or before the earlier of (x)
the IPO or PPO or (y) September 30, 1996; and (iii) the failure to pay any Rent
when due and owing under the March Letter Agreement or the Lease Agreement,
including without limitation the amount of Rent Adjustment as set forth in
paragraph A of this Letter Agreement.
D. AIRCRAFT COMMITMENT FEE.
Lessor acknowledges that Lessee, pursuant to the March 1994 Lease, has paid
to Lessor an Aircraft Commitment Fee in an amount equal to (x) $270,000 plus
(y) Relevant Interest (as hereinafter defined) calculated from the date the
Aircraft Commitment Fee or any part thereof was actually paid. For purposes of
this Letter Agreement, Relevant Interest shall mean interest on the sum of
$225,000 accrued over a period commencing from the date following the Previous
Delivery Date on which the Aircraft Commitment Fee or any part thereof was
actually paid to the Expiry Date, at the average rate over such period of
General Electric Capital Corporation Commercial Paper (for 240 to 270 days) as
reported from time to time in The Wall Street Journal less 25 basis points
(i.e. 0.25% per annum).
E. ACCRUAL AND APPLICATION OF CERTAIN SUPPLEMENTAL RENT.
The reconciliation of all Rent previously due and owing pursuant to the Other
Agreements shall be set forth in Schedule C attached hereto. In addition,
Lessor shall credit certain Supplemental Rent against approved maintenance
performed on the Aircraft in the amounts as set forth in Schedule C. All
discrepancies in the accrual, payment and application of Rent attributable to
the October 1994 Lease are set forth and shall be resolved as between the
Lessor and Lessee in accordance with Schedule C.
F. LEGAL FEES.
Lessee hereby agrees to pay to GECAS, on behalf of the Lessors, on the date
hereof legal fees in the amount of $30,000 for the reasonable costs and
expenses of Lessors' counsel in connection with the restructuring Lessee's
obligations under the Other Agreements and the preparation, negotiation and
documentation of the March Letter Agreement, this Letter Agreement, the
Warrant, the Lease Agreements and negotiation of certain other matters
including the transactions contemplated herein and therein. Reasonable legal
counsel fees and expenses incurred by GECAS or the Lessors in connection with
the administration and enforcement of Lessors' rights and remedies under the
March Letter Agreement, the Warrant, the Lease Agreement or this Letter
Agreement shall be for the account of Lessee and Lessee shall upon written
demand by the Lessor reimburse and indemnify the Lessor for such costs and
expenses.
G. FURTHER ASSURANCES.
Lessee, at Lessee's expense, shall execute and deliver such further agreements,
leases, documents, certificates or any supplements or additions hereto as may
reasonably be requested by GECAS of the Lessors in furtherance of the
agreements herein contained.
4
<PAGE> 74
SCHEDULE A
SIZE OF IPO/PPO RESTRUCTURING FEE UNADJUSTED
More than $20 million $3 million
$15 million to $20 million $2 million
Less than $15 million but greater
than $4 million $1.5 million
Less than $4 million $ - 0 -
CERTAIN DEFINITIONS: AIRCRAFT LEASE AGREEMENTS
Aircraft Lease Agreement, dated as of November 11, 1994, between Polaris
Holding Company, as lessor, and Air South, Inc., as lessee, in respect of one
used Boeing 737-242 advanced aircraft (the "21186 Aircraft") bearing
manufacturers serial number 21186 (as supplemented and amended, "LEASE 21186")
and FAA Registration Number N159PL.
Aircraft Lease Agreement, dated as of March 21, 1995, between Polaris Aircraft
Leasing K.B., as lessor and Air South, Inc., as lessee, in respect of one used
Boeing 737-2P6 advanced aircraft (the "21733 Aircraft") bearing manufacturers
serial number 21733 and Irish Registration Number EI-CLK (as supplemented and
amended, "LEASE 21733") equipped with Stage 3 hushkit.
Aircraft Lease Agreement, dated as of December 12, 1994, between Polaris
Aircraft Leasing K.B., as lessor, and Air South, Inc., as lessee, in
respect of one used Boeing 737-2P6 advanced aircraft (the "21677 Aircraft"),
bearing manufacturers serial number 21677 and Irish Registration Number GKW (as
supplemented and amended, "LEASE 21677").
Aircraft Lease Agreement, dated as of October 25, 1994, between Polaris
Aircraft Leasing K.B., as lessor, and Air South, Inc., as lessee, in respect
of one used Boeing 737-2P6 advanced aircraft (the "21612 Aircraft"), bearing
manufacturers serial number 21612 and Irish Registration Number EI-CKK (as
supplemented and amended, "LEASE 21612").
Aircraft Lease Agreement, dated as of November 9, 1994, between Polaris
Aircraft Leasing K.B., as lessor, and Air South, Inc., as lessee, in respect
of one used Boeing 737-200A advanced aircraft (the "21356 Aircraft"), bearing
manufacturers serial number 21356 and Irish Registration Number CKL (as
supplemented and amended, "LEASE 21356").
For purposes of Letter Agreement No. 1, Lease 21186, Lease 21733, Lease 21677,
Lease 21612 and Lease 21356 shall collectively be defined as the "LEASE
AGREEMENTS" and the 21186 Aircraft, 21733 Aircraft, 21677 Aircraft, 21612
Aircraft and 21356 Aircraft shall collectively be defined as the "AIRCRAFT".
6
<PAGE> 75
INITIAL RENTS: For purposes of this Letter Agreement No. 1, Initial Rents shall
be defined as the following amounts for the Lease Agreements as indicated:
Lease 21186 Initial Rent: $90,000
Lease 21733 Initial Rent: $97,500
Lease 21677 Initial Rent: $75,000
Lease 21612 Initial Rent: $75,000
Lease 21356 Initial Rent: $75,000
7
<PAGE> 76
SCHEDULE B
ADJUSTMENTS TO BASIC RENT
Restructuring Fee (Base Amount, Unadjusted) Basic Rent as Adjusted:
$3,000,000 Lease 21186: $90,000
Lease 21733: $97,500
Lease 21677: $75,000
Lease 21612: $75,000
Lease 21356: $75,000
$2,000,000 Lease 21186: $98,333
Lease 21733: $105,833
Lease 21677: $83,833
Lease 21612: $83,833
Lease 21356 $83,833
$1,500,000 Lease 21186: $102,500
Lease 21733: $110,000
Lease 21677: $87,500
Lease 21612: $87,500
Lease 21356: $87,500
8
<PAGE> 77
SCHEDULE C
Rent Reconciliation
TABLE I - UNADJUSTED ARREARAGE
<TABLE>
<CAPTION>
1 2 1-2
CATEGORY ACCRUED PAID DELTA
-------- ------- ---- -----
<S> <C> <C> <C>
Rent $ 7,020,390 $ 7,020,390 $ -
Deposits $ 1,170,000 $ 1,170,000 $ -
Maintenance $ 3,655,313 $ 2,922,746 $ 732,567
Other $ 26,042 $ 26,042 $ -
----------- ----------- ----------
TOTAL $11,871,745 $11,139,178 $ 732,567
</TABLE>
TABLE II - ADJUSTMENTS
<TABLE>
<S> <C>
MRF Claim 3040 $ (113,894)
MRF Claim 3040(b) $ (67,488)
MRF Claim 3241 $ (199,543)
MRF Claim 3262 $ (24,849)
Misc Adjustment $ (3,897)
----------
TOTAL $ (409,670)
</TABLE>
<TABLE>
<CAPTION>
TABLE III - INTERIM RENT CALCULATIONS W/O DEFERRAL W/ DEFERRAL
START DATE 4/29/96 0 1
CONTRACT INTERIM CONTRACT INTERIM
MSN DATE DAYS RENT (/M) RENT RENT (/M) RENT
--- ---- ---- --------- ---- --------- ----
<S> <C> <C> <C> <C> <C> <C>
21356 (CKL) 5/6/96 7 $ 100,000 $ 23,333 $ 87,500 $ 20,417
21186 (N159PL) 5/13/96 14 $ 115,000 $ 53,667 $ 102,500 $ 47,833
21677 (GKW) 5/20/96 21 $ 100,000 $ 70,000 $ 87,500 $ 61,250
21612 (EI-CKK) 5/20/96 21 $ 100,000 $ 70,000 $ 87,500 $ 61,250
21733 (EI-CLK) 5/27/96 28 $ 122,500 $ 114,333 $ 110,000 $ 102,667
----------- ----------- ----------- -----------
TOTAL $ 537,500 $ 331,333 $ 475,000 $ 293,417
INTERIM DEF $ 37,917
</TABLE>
TABLE IV - WEEKLY PAYMENT CALCULATIONS (SEPARATE SHEET)
TABLE V - APRIL 29,1996 PAYMENT SUMMARY W/ PAYMENTS ON LEASE PAYMENT DATES
<TABLE>
<S> <C>
TOTAL from TABLE I $ 732,567
TOTAL from TABLE II $ (409,670)
TOTAL from TABLE III $ 293,417
Legal Costs $ 30,000
-----------
TOTAL $ 646,313
===========
</TABLE>
TABLE VI - APRIL 29,1996 PAYMENT SUMMARY W/ EVEN WEEKLY PAYMENTS THRU 9/23/96
<TABLE>
<S> <C>
TOTAL from TABLE I $ 732,567
TOTAL from TABLE II $ (409,670)
TOTAL from TABLE IV $ 169,928
Legal Costs $ 30,000
------------
TOTAL $ 522,825
============
</TABLE>
9
<PAGE> 78
SCHEDULE C
Rent Reconciliation
TABLE IV - Weekly Payment Calculations
<TABLE>
<CAPTION>
WEEKLY PMT $ 169,928 INT RATE 10.44%
DEFERRED RENT $ 12,500 /AC/M 1M LIBOR +5%
INTERIM DEF Y/N 1
- - ---------------------------------------------------------------------------------------------------------------------------
CONTRACT RENT/ TOTAL WEEKLY TOTAL RENT TOTAL INTEREST
DATE EST MX (RUNNING) PAYMENT (RUNNING) DEFERRAL (RUNNING) (DEFERRAL)
---- ------ --------- ------- --------- -------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
4/29/96 $ 293,417 $ 293,417 $ 169,928 $ 169,928 $ 37,917 $ 37,917 $ -
5/6/96 87,500 380,917 169,928 339,856 12,500 50,417 76
5/10/96 214,000 594,917 - 339,856 - 50,417 134
5/13/96 102,500 697,417 169,928 509,784 12,500 62,917 177
5/20/96 175,000 872,417 169,928 679,712 25,000 87,917 303
5/27/96 110,000 982,417 169,928 849,640 12,500 100,417 479
6/3/96 - 982,417 169,928 1,019,568 - 100,417 680
6/6/96 87,500 1,069,917 - 1,019,568 12,500 112,917 766
6/10/96 214,000 1,283,917 169,928 1,189,496 - 112,917 895
6/13/96 102,500 1,386,417 - 1,189,496 12,500 125,417 992
6/17/96 - 1,386,417 169,928 1,359,424 - 125,417 1,136
6/20/96 175,000 1,561,417 - 1,359,424 25,000 150,417 1,243
6/24/96 - 1,561,417 169,928 1,529,352 - 150,417 1,415
6/27/96 110,000 1,671,417 - 1,529,352 12,500 162,917 1,544
7/1/96 - 1,671,417 169,928 1,699,280 - 162,917 1,731
7/6/96 87,500 1,758,917 - 1,699,280 12,500 175,417 1,964
7/8/96 - 1,758,917 169,928 1,869,208 - 175,417 2,064
7/10/96 214,000 1,972,917 - 1,869,208 - 175,417 2,165
7/13/96 102,500 2,075,417 - 1,869,208 12,500 187,917 2,315
7/15/96 - 2,075,417 169,928 2,039,136 - 187,917 2,423
7/20/96 175,000 2,250,417 - 2,039,136 25,000 212,917 2,691
7/22/96 - 2,250,417 169,928 2,209,064 - 212,917 2,813
7/27/96 110,000 2,360,417 - 2,209,064 12,500 225,417 3,118
7/29/96 - 2,360,417 169,928 2,378,992 - 225,417 3,247
8/5/96 - 2,360,417 169,928 2,548,920 - 225,417 3,698
8/6/96 87,500 2,447,917 - 2,548,920 12,500 237,917 3,762
8/10/96 214,000 2,661,917 - 2,548,920 - 237,917 4,035
8/12/96 - 2,661,917 169,928 2,718,848 - 237,917 4,171
8/13/96 102,500 2,764,417 - 2,718,848 12,500 250,417 4,239
8/19/96 - 2,764,417 169,928 2,888,777 - 250,417 4,668
8/20/96 175,000 2,939,417 - 2,888,777 25,000 275,417 4,740
8/26/96 - 2,939,417 169,928 3,058,705 - 275,417 5,213
8/27/96 110,000 3,049,417 - 3,058,705 12,500 287,917 5,292
9/2/96 - 3,049,417 169,928 3,228,633 - 287,917 5,786
9/6/96 87,500 3,136,917 - 3,228,633 12,500 300,417 6,115
9/9/96 - 3,136,917 169,928 3,398,561 - 300,417 6,373
9/10/96 214,000 3,350,917 - 3,398,561 - 300,417 6,459
9/13/96 102,500 3,453,417 - 3,398,561 12,500 312,917 6,717
9/16/96 - 3,453,417 169,928 3,568,489 - 312,917 6,985
9/20/96 175,000 3,628,417 - 3,568,489 25,000 337,917 7,343
9/23/96 - 3,628,417 169,928 3,738,417 - 337,917 7,633
9/27/96 110,000 3,738,417 - 3,738,417 12,500 350,417 8,020
</TABLE>
10
<PAGE> 1
EXHIBIT 10.36
AIRCRAFT LEASE NO. 2
THIS LEASE made as of the 31st day of October, 1994 ("Lease") by and
between AIR SOUTH, INC., an Illinois corporation having its principal offices
located at 1800 St. Julian Place, Columbia, South Carolina, U.S.A. 29204
("Lessee") and MIMI LEASING CORP., an Iowa corporation having offices at 600
Sunset Ridge, Dubuque, Iowa 52003 ("Lessor").
WHEREAS Lessor is willing to acquire on behalf of and to lease to Lessee
the Boeing 737 S/N 19612 (the "Aircraft") more particularly described on
Schedule 1 hereto (the "Lease Schedule"); and
WHEREAS Lessee has agreed to lease said Aircraft pursuant to the terms
of this Lease Agreement.
Now, THEREFORE THE PARTIES HERETO AGREE AS FOLLOWS:
1. Lease of the Aircraft. Subject to the terms and conditions
contained herein, Lessor agrees to lease to Lessee, and Lessee agrees to lease
from Lessor, for the Lease Term (as defined hereinafter), the Aircraft
described in the Lease Schedule. Capitalized terms used herein and not
otherwise defined are used as defined in the Schedule.
2. Delivery and Acceptance of Aircraft; Aircraft Improvements.
(a) Lessor and Lessee acknowledge that Lessee has received a letter of intent
(the "Letter of Intent") dated October 28, 1994 from Great Western Leasing
Corporation ("Seller"), a copy of which is attached hereto as Exhibit A,
pursuant to which Seller has agreed to sell the Aircraft to Lessee on the terms
and conditions set forth in said Letter of Intent, all of which interest under
the Letter of Intent, Lessee agrees to assign to Lessor. Subject to the terms
and conditions hereinafter set forth:
(i) On or before November 30, 1994, Lessor
agrees, subject to performance by Seller under the Purchase Agreement attached
to the Letter of Intent or such other definitive purchase agreement acceptable
to Lessor and Seller (the "Purchase Agreement") and subject to execution by
Lessee's representative of the Delivery and Acceptance Certificate referred to
in clause (b) below, to accept delivery from Seller under the Purchase
Agreement of, and to make payment of the sum of $850,000 to Seller in payment
for, the Aircraft and simultaneously lease the Aircraft to the Lessee
hereunder, and Lessee agrees to lease from the Lessor hereunder the Aircraft
delivered by Seller under the Purchase Agreement; and
<PAGE> 2
(ii) Lessor hereby authorizes one or more persons
designated by Lessee, who shall be an employee or employees of the Lessee, as
the authorized representative or representatives of the Lessor, to accept
delivery of the Aircraft by executing and delivering a Delivery and Acceptance
Certificate substantially in the form of Exhibit B hereto. The date of
execution of such Delivery and Acceptance Certificate being hereinafter
referred to as the "Delivery Date". Lessee hereby agrees that execution and
delivery of such Delivery and Acceptance Certificate by such authorized
representative or representatives of Lessee shall, without further action,
irrevocably constitute acceptance by Lessee of the Aircraft for all purposes of
this Lease, and the Aircraft is considered to be in service.
(b) Lessor and Lessee also acknowledge that promptly
following the Delivery Date, Lessee intends to contract with one or more third
parties to make the improvements to the Aircraft described in Exhibit C hereto
(the "Improvements"). Subject to the terms and conditions of this Agreement:
(i) Lessor consents to the Improvements, and
agrees to pay up to a maximum of $525,000 to third party vendors in payment
for such Improvements, promptly upon receipt of such invoices from Lessee
together with Lessee's written direction to make such payments; and
(ii) Lessee hereby agrees that execution and
delivery of Lessee's written direction to pay such invoice or invoices shall,
without further action, irrevocably constitute Lessee's acceptance of the
Improvements for all purposes of this Lease and that Lessor shall have no
further responsibility for, nor shall Lessor make any representation or
warranty to Lessee in respect of, such Improvements.
3. Term.
(a) Base Term. The term of this Lease ("Lease Term")
shall be as specified in the Lease Schedule and shall commence on the Delivery
Date.
(b) Renewal Options. So long as no Event of Default (or
event which with notice and/or lapse of time would constitute an Event of
Default) exists, Lessee shall have the option at the expiration of the Lease
Term to extend the Lease Term for three (3) additional periods of twelve (12)
months each at the same rent in effect at the time of such renewal and
otherwise on the same terms and conditions. Such option shall automatically
expire unless Lessee shall provide Lessor with written notice of its
irrevocable election to exercise the same at least thirty (30) days prior
to the expiration of the Lease Terms.
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<PAGE> 3
(c) Noncancellable. Neither Lessor nor Lessee may
terminate this Lease before the end of the Lease Term (as same may have been
extended pursuant to Section 3(b) above), except as may otherwise be expressly
provided herein.
4. Rent. Lessee shall pay to Lessor the following:
(a) Fixed Rent. Commencing on November 30, 1994 (for the
month of November 1994), Lessee shall pay Lessor in arrears on the last day of
each and every calendar month during the Lease Term (each a "Rental Payment
Date"), as rent for the immediately preceding month, a base monthly rental for
the Aircraft (the "Fixed Rental") in the amount of the Fixed Rental specified
on Schedule 1 hereto; provided, however, that if the Delivery Date occurs after
October 31, 1994, the Fixed Rental for the month of November and the last month
of the Lease Term (as the same may have been extended pursuant to Section 3(b)
above) shall be prorated on a daily basis at the rate of one-thirtieth (1/30th)
of the Fixed Rental per day. All payments of Fixed Rentals shall be made by
wire transfer to Lessor's account number 16-451-8 at Hawkeye Bank of Dubuque
N.A. ("Bank").
(b) Reserve Payments. In addition to the Fixed Rentals,
Lessee shall establish and make payments monthly into an Engine maintenance and
Auxiliary Power Unit ("APU") reserve account (the "Reserve Account")
established by Lessee at Bank to be used to cover the cost of maintaining and
repairing the Engines and APU in accordance with the following:
(i) Within ten (10) days after the end of each
month during the Lease Term, Lessee shall compute the flight hours accumulated
on the Aircraft's engines and APU during the immediately preceding month and
shall prepare and send to Lessor a report in the form of Exhibit D showing such
accumulated flight hours, together with evidence of Lessee's payment into the
Reserve Account of an amount equal to $50.00 per accumulated flight hour shown
on such report (each, a "Reserve Payment"), up to a maximum of $250,000 per
engine and $500,000 in the aggregate at any time during the Lease Term;
(ii) During the Lease Term, Bank shall make
payments from the Reserve Account upon receipt of written signatures of [A]
Lessor and Lessee, jointly, or [B] following the occurrence of an Event of
Default, Lessor only;
(iii) Lessee agrees to use the Reserve Account to
pay all costs associated with maintaining the Aircraft's Engines and APU or
their then current replacements in accordance with the terms of this Lease, and
any balance remaining in the Reserve Account at the expiration of the Lease
Term (as extended pursuant to Section 3(b) hereof) shall be remitted to Lessee
so long as no
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<PAGE> 4
Event of Default (or event which with notice or lapse of time would constitute
an Event of Default) then exists;
(iv) Lessor agrees to approve payments to third
party vendors from the Reserve Account referred to in Section 4(b)(ii) within
two (2) business days of receipt by Lessor of Lessee's written request
therefor; and
(v) Lessor and/or the Bank may, in their
discretion, take a security interest in the Reserve Account, and Lessee agrees
to cooperate in executing such security agreement and U.C.C.-1 financing
statements as shall be necessary to perfect such security interest and use its
best efforts to secure the consent of the County of Lexington under its Loan
Agreement with Lessee to the grant by Lessor of such security interest.
(c) Aggregate Rentals. The sum of the Fixed Rentals, the
Reserve Payments and all other charges, payments and indemnities due by Lessee
to Lessor hereunder are referred to collectively in this Lease as the
"Aggregate Rentals." In the event that any Aggregate Rental is not received
by Lessor within five (5) days after its due date, Lessee agrees to pay to
Lessor, together with such Aggregate Rental, a per diem service charge on the
amount of such unpaid Aggregate Rental at the prime interest rate established
from time to time by the Bank.
5. Net Lease. This Lease is a net lease. Subject to Sections
9(b) and 9(c) below, Lessee's obligation to pay the Aggregate Rentals shall be
absolute and unconditional, and Lessee shall not be entitled to any abatement
or reductions of, or set-offs against such Aggregate Rentals, including, without
limitation, those arising or allegedly arising out of claims (present or
future, alleged or actual, and including claims arising out of strict tort or
negligence of Lessor) of Lessee against Lessor or its affiliates under this
Lease or otherwise. This Lease shall not terminate or the obligations of
Lessee shall not be affected by reason of any defect or damage to, or loss of
possession or use, or destruction of the Aircraft from whatsoever cause. It is
the intention of the parties that the Aggregate Rentals shall continue to be
payable in all events in the manner and at the times set forth herein unless
the obligation to do so shall have been terminated pursuant to the express
terms hereof.
6. Certain Covenants of Lessee. Lessee hereby covenants and
agrees as follows:
(a) Furnishing of Information. Lessee shall furnish to
Lessor quarterly (or more frequently as Lessor may request following an Event
of Default) such information regarding Lessee's use, operation or maintenance
of the Aircraft as Lessor may reasonably request. Further, during the Lease
Term, Lessee shall provide Lessor (i) quarterly, within thirty (30) days after
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<PAGE> 5
the last day of each fiscal year quarter, unaudited financial statements of
Lessee and (ii) annually, within ninety (90) days after the last day of each
fiscal year of Lessee, audited financial statements of Lessee.
(b) Lawful Use. The Aircraft shall not be maintained,
used, operated or stored in violation of any law or any rule, regulation or
order of any government or governmental authority having jurisdiction (domestic
or foreign), or in violation of any airworthiness certificate, license or
registration relating to the Aircraft or its use, or in violation or breach of
any representation or warranty made with respect to obtaining insurance on the
Aircraft or any term or condition of such insurance policy. Aircraft
operations shall be limited to operations allowed under Parts 91 and 121 of
Title 14 of the Code of Federal Regulations.
(c) Aircraft Location. The Aircraft shall not be
operated or located in (i) any area excluded from coverage by the terms of
insurance or (ii) any recognized or threatened area of hostilities, unless
fully covered to Lessor's satisfaction by war risk insurance. The predominant
use of the Aircraft will be within the United States.
(d) Base of the Aircraft. The Aircraft shall be
principally based at the Primary Location (as defined in the Lease Schedule)
and shall be there at all times when not in use, except as required in normal
airline operations. Lessee may, upon at least 5 days prior written notice to
Lessor, change the Primary Location to such other location specified in such
notice; provided, however, in no event shall the Primary Location be outside
of the continental United States.
(e) Federal Aviation Act Filings. Lessee shall, at its
sole cost and expense, take all steps necessary to preserve and protect
Lessor's U.S. Registration of the Aircraft under the Federal Aviation Act of
1958, as amended, and the rules and regulations promulgated thereunder.
(f) Aircraft Operation. Lessee will be in operational
control of the Aircraft at all times during the term hereof, and subject to
paragraph (m) below, shall not sell, transfer, assign, encumber or, except upon
retaining operational control thereof (i.e., "wet"), sublet or part with
possession of the Aircraft or any of its rights under this Lease and shall be
solely responsible for its possession, use and operation. Lessee shall bear
all operating costs including, but not limited to: the cost of fuel, pilots'
salaries, expenses and employee benefits; handling and custom fees and related
charges; hangar and storage charges; insurance premiums for all insurance
coverage required by this Lease, and all fines, fees or penalties arising
directly
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<PAGE> 6
or indirectly out of this Lease or the Lessee's operation of the Aircraft.
(g) Aircraft Records. Lessee shall maintain all current
Aircraft records as required by FAR 121.380, and at any time the Lessor shall
take possession of the Aircraft due to default, the records will be redelivered
in a legible and orderly fashion.
(h) Pilots. The Aircraft shall, at all times during the
Lease Term, be operated by duly qualified, current, and rated (appropriate to
the Aircraft) pilots employed, paid and/or contracted for by the Lessee, whose
licenses are in good standing, who meet the requirements established and
specified by the insurance policies required hereunder and by the FAA, and who
have attended and successfully completed the approved Air South training course
for this type of Aircraft.
(i) Alterations. Lessee shall not in any way alter or
modify the Aircraft or Engines in such fashion as shall materially reduce the
value of the Aircraft or Engines, except as specifically provided for in
Section 2(b) or required by Section 7, without the prior written consent of
Lessor. All alterations, modifications, additions and improvements which are
made shall become the property of Lessor and shall be subject to all the terms
of this Lease.
(j) Identification. Lessee shall keep a legible copy of
the Lease in its file and available to use as proof of ownership at all times.
(k) Liens. Lessee will not directly or indirectly
create, incur, assume or suffer to exist any liens on or with respect to (i)
the Aircraft or any part thereof, (ii) the Lessor's title thereto or (iii) any
interest of the Lessor therein, and Lessee shall promptly, at its own expense,
take such action as may be necessary to promptly discharge any such lien,
except (x) any which reflect the respective rights of the Lessor and the
Lessee, as-herein provided, and (y) liens created solely by, through or under
the Lessor.
(l) Taxes. Lessee shall not be responsible for (i) any
taxes on, or measured by, the net income of Lessor or amounts in lieu of such
taxes (including, without limitation, any taxes on, or measured by, any fees
that Lessor may receive) or (ii) any taxes, or any penalties, fines or interest
thereon, imposed solely as a result of the willful misconduct or gross
negligence of Lessor. Lessee shall pay on behalf of and indemnify the Lessor
for, and hold the Lessor harmless from and against, all other income,
franchise, gross receipts, rental, sales, use, excise, personal property, ad
valorem, value added, leasing, leasing use, stamp, landing, airport use or
other taxes, levies,
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<PAGE> 7
imposts, duties, charges, fees or withholdings of any nature, together with any
penalties, fines or interest thereon ("Taxes") arising out of the transaction
contemplated by this Lease and imposed against the Lessor, the Lessee or the
Aircraft or any part thereof by the U.S. federal or any foreign government,
any state, municipal or local subdivision, any agency or instrumentality
thereof or other taxing authority upon or with respect to the Aircraft or any
part thereof or upon the ownership, delivery, leasing, possession, use,
operation, return, transfer or release thereof, or upon the rentals, receipts
or earnings arising therefrom, or upon or with respect to this Lease. If a
claim is made against Lessor for any Tax that is subject to indemnification
hereunder, Lessor shall notify Lessee promptly of such claim in writing. In
case any report or return is required to be made with respect to any Taxes,
Lessee will make such report or return in such manner as will show the
ownership of the Aircraft in Lessor and send a copy of such report or return to
lessor. Lessor agrees to cooperate fully with Lessee in the preparation of any
such report or return.
(m) Other Agreements. Lessee shall during the Lease
term, without limiting any of the terms and conditions of this Lease, operate
and maintain the Aircraft and its engines in full compliance with the terms of
the Air South approved maintenance program.
7. Aircraft Maintenance. Except as otherwise provided in Section
9(c), during the Lease Term and until such time as the aircraft is returned to
Lessor, Lessee agrees, at its own cost and expense (including payments from the
Reserve Account), to keep the Aircraft at all times (a) in a fully operational,
duly certified and airworthy condition and (b) maintained in accordance with
Lessee's FAA-approved maintenance program (the "FAA Maintenance Program").
Without limiting the foregoing, Lessee, at its own cost and expense, shall
maintain, inspect, service and test the aircraft and perform all repairs on the
Aircraft (including, without limitation, its Airframe, Engines and other
Equipment) in accordance with all maintenance manuals for the Aircraft from
time to time issued by the Airframe Manufacturer, the Engine Manufacturer or
any other manufacturer, all recommended service bulletins which might have a
detrimental effect on the Aircraft airworthiness or safety of the Aircraft if
not performed, and Aircraft modification kits issued, supplied or available in
relation thereto by or through any such manufacturer, and all airworthiness
alerts and airworthiness directives issued by the FAA or any other approved
governmental agency having jurisdiction. All work required by this Section 7
shall be undertaken and completed only by properly trained, licensed and
certified maintenance personnel. All replacement parts shall be of the type
approved under, and airworthy in accordance with the standards established in,
the FAA Maintenance Program and become the property of Lessor (free and clear
of all
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<PAGE> 8
liens and encumbrances) upon installation. All parts removed will become the
property of the Lessee upon installation of the replacement part. The Lessee
shall maintain, repair and overhaul each engine in a maintenance facility
approved by the FAA. Lessee shall be entitled to the benefit of any warranties
issued by or available from any manufacturer, vendor, subcontractor or supplier
of the Aircraft, any engine or part. Lessee shall be entitled to collect and
retain any amounts paid by such warranties. Lessor authorizes Lessee to pursue
any claim under any warranty and agrees to render whatever assistance which may
be required in perfecting such claims.
8. Inspection. Lessor or its designee shall have the right, but
not the duty, to inspect the Aircraft at any reasonable time and upon
reasonable notice, at the Primary Location, in flight or wherever the Aircraft
may then be located. Upon Lessor's request, Lessee shall advise Lessor of the
Aircraft's location and, within a reasonable time and, provided there is no
undue inconvenience and delay to Lessee, shall permit Lessor to examine all
information, logs, documents and Lessee's records regarding or with respect to
the Aircraft and its use, maintenance or condition. The expenses of in flight
inspection shall be borne by Lessor.
9. Loss or Damage.
(a) Risk of Loss. During the Lease Term and until such
time as the Aircraft is returned to Lessor, Lessee hereby assumes and shall
bear the entire risk of loss, theft, confiscation, damage to or destruction of
the Aircraft from any cause whatsoever, and shall promptly notify Lessor
thereof. Except as otherwise provided in Sections 9(b) or 9(c) below, this
Lease shall not terminate and the obligations of Lessee shall not be affected
by reason of any damage to or loss of the Aircraft.
(b) Casualty Occurrence. In the event of a Casualty
Occurrence, Lessee shall be obligated to pay Lessor, on the next succeeding
Rental Payment Date, an amount equal to the lesser of the Catastrophic Loss
Value (defined in Section 9(c) below) or the amount of the all-risk Aircraft
hull insurance referred to in Section 10 below (such amount is hereinafter
referred to as the "Stipulated Loss Value"). Upon payment in full of the
Stipulated Loss Value, the Aggregate Rentals for the Aircraft shall cease to
accrue as of the date of such payment, the Lease Term shall terminate, and,
except in the case of the loss, theft, confiscation or complete destruction of
the Aircraft and subject to the rights of the insurer following payment of a
settlement to request transfer of title and possession of the Aircraft, Lessee
shall be entitled to recover possession of the Aircraft and obtain title
thereto. As used herein, a "Casualty Occurrence" shall mean any of the
following events with respect to the Aircraft: (i) loss of the Aircraft or the
use thereof due to the
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<PAGE> 9
destruction, damage beyond repair or rendition of the Aircraft permanently
unfit for normal use for any reason whatsoever; (ii) any damage to the Aircraft
(including, but not limited to, anything requiring the completion of an FAA 337
"Major Repair and Alteration Statement") which results in an insurance
settlement with respect to the Aircraft on the basis of a total loss; (iii) the
theft or disappearance of the Aircraft which shall have resulted in the loss of
possession of the Aircraft by Lessee for a period of thirty (30) consecutive
days or more (or for a shorter period ending on the date on which there is an
insurance settlement for total loss on the basis of the theft or disappearance
of the Aircraft; (iv) the condemnation, confiscation or seizure of, or the
requisition of title to or use or possession of, the Aircraft, while under
condemnation, confiscation, seizure or requisition, in any area excluded from
coverage by any insurance policy in effect with resect to the Aircraft required
by the provisions of Section 10 hereof; or (vi) any event other than a default
where Lessee is obligated to pay Lessor the Stipulated Loss Value under this
Lease. A Casualty Occurrence with respect to the Aircraft shall be deemed to
have occurred if a Casualty Occurrence occurs with respect to the airframe of
such Aircraft.
(c) Catastrophic Loss Value. In the event that the FAA,
other governmental authority or manufacturer of the Aircraft, engine or
component part issues an airworthiness directive or other order requiring
changes to the Aircraft, engines or component parts which in Lessee's opinion
render the use of the Aircraft uneconomic (a "Catastrophic Loss"), Lessee may
terminate this Lease upon payment to the Lessor of an amount equal to the then
present value of all future payments under this Lease (the "Catastrophic Loss
Value"). The rate used to calculate the present value of the remaining lease
payments at the time of Lease acceleration shall be the discounted compound
interest rate used to amortize the initial investment of $1,375,000 over 60
months to generate an actual return of $1,987.505.
10. Insurance. Lessee shall secure and maintain in effect at its
own expense throughout the term hereof, and on Lessor's request shall provide
Lessor with true, correct and complete copies of, insurance policies covering
the Aircraft against a Casualty Occurrence and containing such provisions and
with such companies as shall be satisfactory to Lessor. Without limiting the
generality of the foregoing, Lessee shall maintain (i) $100,000,000.00
liability insurance covering bodily injuries, and property damage, (including
resulting environmental damage in amounts not less than for any single
occurrence, (ii) all-risk Aircraft hull insurance (including, without
limitation, foreign object damage insurance) in an amount which is not less
than $1,500,000.00 and in the event an engine should be removed from the
Aircraft for any reason or purpose whatsoever, specific
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<PAGE> 10
insurance coverage shall be obtained by Lessee to cover said engine to its
replacement value, (iii) breach of warranty insurance, and (iv) confiscation
and war risk insurance. All insurance policies shall name the Lessor as owner
of the Aircraft and as loss payee, shall (except with respect to insurance
under the preceding clause (i)), name Lessor and its affiliates as additional
assured with respect to insurance under the preceding clause (i), shall provide
that any cancellation or substantial change in coverage shall not be effective
as to any assured for thirty (30) days after receipt by such assured of written
notice from such insurer(s) of such cancellation or change and shall contain an
endorsement providing for payment by the insurer(s) to Lessor (or its
affiliates, as the came may be) despite any misrepresentations or breach of
warranty by Lessee or any other person (other than the assured receiving
payment). Such insurance shall not be subject to any offset by any other
insurance carried by Lessor, Lessee or any other assured. Lessee hereby
appoints Lessor as Lessee's attorney-in-fact to receive payment of and to
execute and endorse all documents, checks or drafts on behalf of Lessee in
connection with all policies of insurance in respect of the Aircraft (other
than insurance under clause (i) of the second sentence of this paragraph).
Lessor may, but shall have no obligation to, act as Lessee's attorney-in-fact to
make proof of loss and claim on behalf of Lessee in connection with all
policies of insurance in respect of the Aircraft. Any expense of adjusting or
collecting insurance proceeds (other than insurance under clause (i) of the
second sentence of this paragraph) shall be borne by Lessee. Lessor may, at
its option, apply proceeds of insurance, in whole or in part, to (i) repair or
replace the Aircraft or any part thereof or (ii) satisfy any obligation of
Lessee to Lessor hereunder, except that in the event of a Casualty Occurrence,
any insurance proceeds (other than for liability insurance) received by the
Lessor with respect to the Aircraft shall be credited against Lessee's
obligation to pay the Stipulated Loss Value under Sections 9(b) and 10 hereof
(and such proceeds shall be used to reimburse Lessee if Lessee has already paid
such Stipulated Loss Value in full to Lessor).
11. Return.
(a) Location. Upon the termination or expiration of the
Lease Term, Lessee shall return the Aircraft, in accordance with Section 11(b)
below, at Miami International Airport, Florida, and all expenses for delivery
and return of the Aircraft shall be borne by Lessee. In the event that Lessee
fails for any reason whatsoever to return the Aircraft on or before twelve
o'clock noon (Central Time) on the last day of the Lease Term, Lessor's damages
shall include, but shall not be limited to, loss rentals at the rate of
one-thirtieth (1/30th) of the Fixed Rentals for each day (or portion thereof)
that such return is delayed, together with applicable Engine Reserve.
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<PAGE> 11
(b) Return Condition. Upon return at Lessee's expense,
except for compliance with FAR 36 noise regulations applicable to transport
category aircraft, the Aircraft must satisfy all of the following conditions:
(i) The Aircraft must be in airworthy and
serviceable condition, meet all of the applicable regulations of the FAA, and
have a valid and continuing FAA certificate of airworthiness;
(ii) The Aircraft must be returned with all
equipment, parts, components, passenger service items and other accessories
that were on or in the Aircraft when delivered to Lessee in a serviceable
condition or with an equivalent or better replacement thereof, and with
approximately the same hours/cycles since overhaul at lease inception.
(iii) The Aircraft must have completed the
next regular scheduled major airframe and engine inspection, except D-Check
(including, without limitation, the completion of any necessary repairs
resulting therefrom), provided that the cost thereof shall be shared between
Lessee and Lessor on prorata based on the number of flight hours elapsed since
the last regularly scheduled airframe and engine inspection and the number of
flight hours left until the next regularly scheduled major airframe and engine
inspection if different from that at Lease inspection.
(iv) All exterior paint and interior components
(including, without limitation, paint, carpet, fabric and wood panelling) must
be in the same good appearance as when the Aircraft was delivered to Lessee
(reasonable wear and tear excepted), and any Lessee identification or logo in
or on the Aircraft shall have been removed by Lessee;
(v) The Aircraft must be returned with all and
complete originals of the logs (or if originals are not available, then any
steps required by (or conditions to) use of new logs and new maintenance
records as may be required under FAA rules and regulations shall be observed or
complied with, including without limitation any engine and/or airframe rebuild
under FAA rules and regulations. Manual, certificates, data, inspection,
modification, and overhaul records, and all entries therein must be complete,
correct and current, and in the case of any modifications made to, or
supplement type certificates incorporated in, the Aircraft, all engineering
documents and drawings therefore must also be returned; and
(vi) The Aircraft shall undergo an inspection or
inspections or flight test or tests, as required in Lessor's discretion, up to
two hours, resulting in the Lessor's determination that the Aircraft and all
parts, components,
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<PAGE> 12
systems and records comply with FAA standards at that date and meet all of the
above conditions.
If the Lessee does not return the Aircraft in accordance with the
above condition, (i) Lessor may make (or cause to be made) any repairs
reasonably necessary to restore the Aircraft to the required condition, (ii)
Lessee shall reimburse Lessor, upon demand, for any cost, expenses and fees
(including, without limitation, fees and expenses for repairs and lost rentals
at the per diem rate of one-thirtieth (1/30th) of the Fixed Rentals) related to
such restoration (including, without limitation, cost and expenses incurred as
a result of actions pursuant to the parenthetical in clause (vii) above) and/or
(iii) Lessee shall compensate Lessor for the diminished value of the Aircraft
resulting from Lessee's failure to return the Aircraft in such condition to
Lessor's satisfaction.
If the parties hereto cannot agree on the diminished value of the
Aircraft mentioned in preceding clause (iii) above, said value shall be
established by using the average of the diminished value determined by two
appraisals (each party appointing one appraiser) if these are within five
percent (5%) of the highest if not a third appraisal shall be done (the
appraiser being appointed by the two preceding appraisers) and the average of
the two closest appraisals shall be used.
12. Expiration of Lease. So long as no Event of Default (or
event which with notice and/or lapse of time would constitute an Event of
Default) exists, Lessee shall have the option to purchase the Aircraft for the
sum of $275,000.00 (which Lessor and Lessee agree represents the fair market
value thereof) upon expiration of the Lease Term.
13. Representations and Warranties of Lessee. Lessee represents
and warrants to Lessor as follows:
(a) Due Organization. Lessee is and will continue to be
a corporation duly organized and validly existing in good standing under the
laws of the jurisdiction of its incorporation (as set forth hereinabove), is
and will continue to be duly qualified to do business as a foreign corporation
in good standing in each other jurisdiction where the conduct of this business
requires it to be so qualified, is and will continue to be a "Citizen of the
United States" within the meaning of Section 101(16) of the Federal Aviation
Act of 1958, as from time to time amended, and has and will continue to have
the corporate power and authority to carry on its business and to enter into
and perform its obligations under this Lease.
(b) Due Authorization; Enforceability; No Violation.
This Lease has been duly authorized by all necessary corporate action on the
part of Lessee, does not require any approval of
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<PAGE> 13
the stockholders of Lessee, has been duly executed and delivered by Lessee, and
constitutes the legal, valid and binding obligation of Lessee, enforceable
against Lessee in accordance with its terms. The execution and delivery by
Lessee of this lease, and the performance by Lessee of its obligations
hereunder, will not be inconsistent with its charter or by-laws, do not and
will not contravene any law, governmental rule or regulation, judgment or order
applicable to or binding on Lessee, do not and will not contravene any
provisions of, or constitute a default or result in the creation of any lien
(except Lessee's interest hereunder) under, any indenture, mortgage, contract
or other instrument to which Lessee is a party or by which it is bound, and do
not and will not require any approval or consent of any trustee or holders of
indebtedness or obligations of Lessee, except such as have been duly obtained.
(c) Government Approvals. No consent or approval of,
giving of notice to, registration with, or taking of any other action in
respect of or by, any federal, state or local governmental authority or agency
(including, without limitation, the FAA or any similar agency) is or will be
required with respect to the execution, delivery and performance by Lessee of
this lease or the consummation of any of the transactions by Lessee
contemplated hereby, except for the approval referred to in Section 4(b)(v)
hereof, or if any such approval, notice, registration or action is required, it
has been duly given or obtained, except that as a condition to being able to
operate the Aircraft, Lessee is required to, and shall, comply with Section
91.54(c) of Title 14 of the Code of Federal Regulations.
(d) Location of Chief Executive Offices. The chief
executive office or chief place of business (as either such term is used in
Article 9 of the Uniform Commercial Code) of Lessee is located at its address
set forth hereinabove, and Lessee agrees to give Lessor prior written notice of
any relocation of said executive office or chief place of business from its
present location.
14. Lessor's Disclaimer. LESSOR (AND ITS AFFILIATES) DO NOT MAKE,
HAVE NOT MADE, NOR SHALL BE DEEMED TO MAKE OR HAVE MADE, ANY WARRANTY OR
REPRESENTATION, EITHER EXPRESS OR IMPLIED, WRITTEN OR ORAL, WITH RESPECT TO THE
AIRCRAFT LEASED HEREUNDER ANY IMPROVEMENTS THERETO OR ANY ENGINE OR COMPONENT
THEREOFf INCLUDING WITHOUT LIMITATION, ANY WARRANTY AS TO DESIGN, COMPLIANCE
WITH SPECIFICATIONS, QUALITY OF MATERIALS OR WORKMANSHIP, MERCHANTABILITY,
FITNESS FOR ANY PURPOSE, USE OR OPERATION, AIRWORTHINESS, SAFETY, PATENT,
TRADEMARK OR COPYRIGHT INFRINGEMENT, OR TITLE, EXCEPT AS SHALL HAVE BEEN
EXPRESSLY ASSUME HEREIN. All such risks, as between Lessor (and its
affiliates) and Lessee, are to be borne by Lessee. Without limiting the
foregoing, Lessor and its affiliates shall have no responsibility or liability
to Lessee or any other person with
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<PAGE> 14
respect to any of the following, regardless of any negligence of Lessor or its
affiliates (i) any liability, loss or damage caused or alleged to be caused
directly or indirectly by the Aircraft, any inadequacy thereof, any deficiency
or defect (latent or otherwise) therein, or any other circumstance in
connection therewith; (ii) the use, operation or performance of the Aircraft or
any risks relating thereto, (iii) any interruption of service, loss of business
or anticipated profits or consequential damages, or (iv) the delivery,
operation, servicing, maintenance, repair, improvement or replacement of the
Aircraft.
15. Indemnification
(a) General Indemnity. Lessee shall indemnify, defend
and save harmless Lessor, its affiliates, successors and assigns, and their
respective directors, officers and employees, from and against any and all
losses, claims (including without limitations, claims involving strict or
absolute liability in tort, damage, injury, death, liability and third party
claims), suits, demands, costs and expenses of every nature (including, without
limitation, reasonable attorneys' fees) arising directly or indirectly from or
in connection with the possession, maintenance, condition, storage, use,
operation or return operation of the Aircraft and Lessee shall, upon request of
Lessor and at Lessee's sole cost and expense, defend Lessor from any actions
based on or arising out of any of the foregoing.
(b) Survival. Lessee's obligations under this Section 15
shall survive termination of this Lease and shall remain in effect until all
required indemnity payments have been made by Lessee to Lessor. All references
to Lessor in this Section 14 include Lessor and the consolidated taxpayer group
of which Lessor is a member.
16. Lessee's Default. Each of the following events shall
constitute an "Event of Default" hereunder (whatever the reason for such event
of default and whether it shall be voluntary or involuntary, or come about or
be effected by operation of law, or be pursuant to or in compliance with any
judgment, decree or order of any court or any order, rule or regulation of any
administrative or governmental body):
(a) Lessee shall fail to make payment of any Aggregate
Rental within ten (10) days after the same shall become due; or
(b) Lessee shall breach any covenant, condition or
agreement set forth in Section 6(b), Section 6(c), the first sentence of
Section 6(f), Section 6(m) or Section 10 or this Lease; or
(c) Lessee shall fail to perform or observe any other
covenant, condition or agreement to be performed or observed by
- 14 -
<PAGE> 15
it under this Lease or any agreement, document or certificate delivered by
Lessee in connection herewith, and such failure shall continue for thirty (30)
days after receipt of written notice thereof from Lessor to Lessee; or
(d) Any representative or warranty made by Lessee in this
Lease or any agreement, document or certificate delivered by the Lessee in
connection herewith is or shall become incorrect in any material respect, and,
if such a default is susceptible of being corrected, Lessee fails to correct
such default within thirty (30) days of a written notice of Lessor requested
correct of same; or
(e) Lessee shall become insolvent or cease to do business
as a going concern; or
(f) Lessee makes an assignment for the benefit of
creditors, or if a petition is filed by or against Lessee under any bankruptcy
or insolvency law; or
(g) If a receiver is appointed for Lessee or any of
Lessee's property.
17. Lessor's Remedies.
(a) Remedies. Upon the occurrence of any Event of
Default Lessor may, at its option exercise any or all remedies available at law
or in equity, including, without limitation, any or all of the following
remedies, as Lessor in its sole discretion shall elect:
(i) By notice in writing terminate this Lease,
whereupon all rights of the Lessee to the use of the Aircraft or any part
thereof shall absolutely cease and terminate but Lessee shall remain liable as
hereinafter provided; and thereupon Lessee, if so requested by the Lessor,
shall at its expense promptly return the Aircraft as required by Section 11
hereof or Lessor, at its option, may, with or without legal process, enter upon
the premises where the Aircraft may be located and take immediately possession
of and remove the same (together with any engine which is not an Engine but
which is installed on the Airframe, which engine shall, at Lessor's option and
Lessee's expense, be exchanged for an Engine). Lessee specifically authorizes
Lessor's entry upon any premises where the Aircraft may be located for the
purpose of, and waives any cause of action it may have arising from a peaceful
retaking of the Aircraft. Lessee shall without further demand, pay the total
accrued and unpaid amounts due hereunder; or
(ii) Perform or cause to be performed any
obligation, covenant or agreement of Lessee hereunder. Lessee agrees to pay
all costs and expenses incurred by Lessor for such
- 15 -
<PAGE> 16
performance as additional Aggregate Rental hereunder and acknowledges that such
performance by Lessor shall not be deemed to cure said Event of Default.
(b) Costs And Attorneys' Fees. Lessee shall be liable
for all costs, charges and expenses, including reasonable legal fees and
disbursements, incurred by Lessor by reason of the occurrence of any Event of
Default or the exercise of lessor's remedies with respect thereto.
(c) Nonexclusive. No remedy referred to herein is
intended to be exclusive, but each shall be cumulative and in addition to any
other remedy referred to above or otherwise available to Lessor at law or in
equity. Lessor shall not be deemed to have waived any breach, Event of Default
or right hereunder unless the same is acknowledged in writing by a duly
authorized representative of Lessor. No waiver by Lessor of any default or
Event of Default hereunder shall in any way be, or be construed to be, a
waiver of any future or subsequent default or Event of Default. The failure or
delay of Lessor in exercising any rights granted it hereunder upon any
occurrence of any of the contingencies set forth herein shall not constitute a
waiver of any such right upon the continuation or recurrence of any such
contingencies or similar contingencies and any single or partial exercise of
any particular right by Lessor shall not exhaust the same or constitute a
waiver of any other right provided herein.
18. Lessor's Assignment. Lessee may not assign or pledge any or
all of its rights in this Lease or the Aircraft without notice to and the prior
written consent of the Lessor. It is understood that Lessor may assign or
pledge any or all of its rights in this Lease or the Aircraft without notice to
or the consent of Lessee. Lessee hereby waives and agrees not to assert
against any such assignee any defense, set-off, recoupment claims or
counterclaim which Lessee has or may at any time have against lessor for
whatsoever reason.
19. Notices. Unless specifically provided to the contrary herein
all notices permitted or required by this Lease shall be in writing and shall
be deemed given when sent by registered or certified mail, return receipt
requested, postage prepaid or by facsimile transmission, to the address set
forth hereinbelow, or such other address as may hereafter be designated by the
addressee in a written notice to the other party.
20. Entire Agreement. The terms and conditions of this Lease
constitute the entire agreement between the parties as to the subject matter
hereof and supersede all prior written and oral negotiations, representations
and agreements, if any, between the parties on such matters and shall be
binding upon the, their successors, assigns and legal representatives.
- 16 -
<PAGE> 17
between the parties on such matters and shall be binding upon the, their
sucessors, assigns and legal representatives.
21. Modification Of Agreement. No change or modification hereto
or waiver of any term or condition hereof shall he effective unless the change
or modification is in writing and signed by the party to be changed.
22. Time of the Essence. Time is of the essence in this Lease.
23. Headings. The headings of Sections and subsections of this
lease are included for convenience only and shall not be used in its
construction or interpretation.
24. Governing Law. The parties hereto acknowledge that this Lease
shall be governed by and construed in all respects in accordance with the
substantive laws of the State of Iowa (without regard to its choice of law
rules).
25. True Lease. It is the intent of the parties to this Lease
that it will be a true lease and not a "conditional sale" and that the Lessor
shall be the owner of the Aircraft for all purposes hereof, including all
federal, state, local and other taxes.
IN WITNESS WHEREOF, the parties hereto have each caused this Lease to
be duly executed as of the year and day first above written. THIS AGREEMENT
SHALL NOT BE EFFECTIVE UNTIL EXECUTED ON BEHALF OF EACH PARTY.
LESSOR: LESSEE:
MIMI LEASING CORP. AIR SOUTH, INC.
BY: /s/ Robert Wahlert BY: /s/ Patrick O'Shea
---------------------- -----------------------------------
Title: President Title: President and Chief
--------- Executive Officer
-------------------
Address: 600 Sunset Ridge Address: P.O. Box 11129
Dubuque, Iowa 52003 Columbia, South Carolina 29211
Facsimile No. 319-588-5317 Facsimile No. 803-771-9067
Attn: Robert H. Wahlert Attn: Patrick O'Shea
- 17 -
<PAGE> 18
SCHEDULE 1
LEASE SCHEDULE
TO AIRCRAFT LEASE NO. 2
DATED AS OF OCTOBER 31, 1994
Name of Lessee: Air South, Inc.
Aircraft: Shall include, without limitation, the Airframe,
Engines, and Avionics more particularly described hereinbelow.
<TABLE>
<CAPTION>
Airframe Engine(s)
- - -------- ---------
<S> <C>
Type: Jet Transport Type: Two (2) Jet Engines
------------------------------ --------------------------------
Manufacturer: Boeing Manufacturer: Pratt & Whitney
---------------------- ------------------------
Model Number: 737-247 Model Number: JT8D-9A (both)
---------------------- ------------------------
Serial Number: 19612 Serial Numbers: P674191, P674214
--------------------- ----------------------
"N" Number: N4515W Total Hours: See Annex A
------------------------ -------------------------
Hours since last major overhaul
or
Hot Section: See Annex A
-------------------------
Horse Power: Each Engine is 750 or
-------------------------
more rated takeoff horsepower or
--------------------------------------
its equivalent.
--------------
APU Garrett (S/N P34641)
---------------------------------
</TABLE>
Accessories and Equipment Avionics
- - ----------------------------------
See Annex A hereto
Type of Aircraft: Jet Transport
- - ---------------- -------------
Lease Term: Sixty (60) months from the Delivery Date
Scheduled Delivery Date: Not Later Than November 30, 1994
--------------------------------
Delivery Site:
-------------------------------------------------------------
Fixed Rental: $28,648.33 ea. months 1 and 2
-------------------------------------------------------------
$63,020.83 ea. months 3-12
-------------------------------------------------------------
$27,083.33 ea. months 13-60 and during renewal
-------------------------------------------------------------
term
-------------------------------------------------------------
- 18 -
<PAGE> 19
Primary Location: Columbia Metropolitan Airfield in the City of
Columbia, State of South Carolina, USA.
<TABLE>
<CAPTION>
<S> <C>
Local Maintenance Facility: Major Maintenance Facility:
- - ----------------------------------- ----------------------------------------
- - ----------------------------------- ----------------------------------------
- - ----------------------------------- ----------------------------------------
Major Engine maintenance Facility:
------------------------------------------
LESSOR: LESSEE:
MIMI LEASING CORP. AIR SOUTH, INC.
BY: /s/ BY: /s/
------------------------------- -------------------------------------
Title: President Title: President and Chief Executive
--------- -----------------------------
Officer
-----------------------------
</TABLE>
- 19 -
<PAGE> 20
AMENDMENT NO. 1
TO AIRCRAFT LEASE NO. 2
DATED AS OF OCTOBER 31, 1994
BETWEEN AIR SOUTH, INC.
AND MIMI LEASING CORP.
THIS AMENDMENT NO. 1 TO AIRCRAFT LEASE NO. 2 (this
"Amendment") is made as of the 25th day of April, 1995 by and between Air
South, Inc., an Illinois corporation having its principal offices located at
1800 St. Julian Place, Columbia, South Carolina, U.S.A. 29204 ("Lessee"), and
Mimi Leasing Corp., an Iowa corporation having offices at 600 Sunset Ridge,
Dubuque, Iowa 52003 ("Lessor").
WITNESSETH:
WHEREAS, Lessor and Lessee are parties to an Aircraft Lease
No. 2 dated as of October 31, 1994 (the "Lease") pursuant to which Lessor is
leasing to Lessee a certain Boeing 737, S/N 19612, N4515W; and
WHEREAS, Lessor and Lessee are also parties to an Aircraft
Lease No. 1 dated as of October 31, 1994 (the "Related Lease") pursuant to
which Lessor is leasing to Lessee a certain Boeing 737, S/N 19607, N4510W; and
WHEREAS, Lessee has requested that Lessor provide funds to pay
for additional improvements and/or repairs to aircraft leased to Lessee under
the Related Lease and to consent to exchanging and/or leasing certain engines
for use on the aircraft leased to Lessee under the Lease and the Related Lease;
and
<PAGE> 21
WHEREAS, subject to the terms and conditions set forth in this
Amendment, including the parties making certain modifications to the Lease and
the Related Lease, Lessor is willing to advance certain additional sums to pay
for improvements and/or repairs described herein; and
WHEREAS, capitalized terms used but not otherwise defined
herein shall have the meanings set forth in the Lease.
NOW, THEREFORE, for good and valuable consideration, and in
consideration of the mutual premises, covenants and agreements of Lessor and
Lessee herein contained, the parties hereto agree as follows:
1. Amendment to Lease. The Lease is hereby amended as
follows:
(a) By deleting the existing recitals in their entirety
and substituting the following recitals in lieu thereof:
WHEREAS, Lessor is willing to acquire on behalf of and to
lease to Lessee the Boeing 737 S/N 19612 (the "Aircraft") more
particularly described on Schedule 1 hereto (the "Lease
Schedule"); and
WHEREAS, Lessor is further willing to acquire on behalf of
and to lease to Lessee the Boeing 737 S/N 19607 (the "Related
Aircraft") more particularly described on Schedule 1 to
Aircraft Lease No. 1 dated of even date herewith between
Lessor and Lessee (the "Related Lease"); and
WHEREAS, Lessee has agreed to lease the Aircraft and the
Related Aircraft pursuant to the terms of the Lease and the
Related Lease.
(b) By adding a new Section 2(c) to read as
follows:
- 2 -
<PAGE> 22
(c) Lessor and Lessee further agree that, on or after
March 10, 1995:
(i) Lessee may, at its sole expense, contract with
Lessee's third party engine repair facility to make
such checks, repairs and/or overhauls as may be necessary
for the engines on the Aircraft and/or the Related
Aircraft; and
(ii) Lessee may, at its option and sole
expense, install on the Aircraft, either temporarily or
for the balance of the Lease Term, one of the engines
currently installed on the Related Aircraft.
(c) By deleting Section 4(b) in its entirety and
substituting the following therefor:
(b) Reserve Payments. In addition to the Fixed Rentals,
Lessee shall maintain and make payments monthly into an Engine
Maintenance and Auxiliary Power Unit ("APU") reserve account (the
"Reserve Account") established and owned by Lessor, at Bank, to be used
to cover the cost of maintaining and repairing the Engines and APU in
accordance with the following:
(i) Within ten (10) days after the end of each month
during the Lease Term, Lessee shall compute the flight
hours and cycles accumulated on the Aircraft's engines and APU
during the immediately preceding month and shall prepare and
send to Lessor a report in the form of Exhibit D, showing such
accumulated flight hours and cycles, together with evidence of
Lessee's payment into the Reserve Account of an amount equal
to [A] $50.00 per flight hour or cycle, whichever is greater,
accumulated on each engine during such month and [B] $10.00
per flight hour or cycle, whichever is greater, accumulated on
the APU during such month, as shown on such report (each, a
"Reserve Payment"), up to a maximum of $400,000 per engine and
$800,000 in the aggregate held by Lessor
- 3 -
<PAGE> 23
at any one time during the Lease Term; provided, however, that
Lessee shall not be required to make payments into the Reserve
Account for flight hours or cycles accumulated in respect of
any rental engine if, but only if, Lessee makes prompt and
final payments to such lessor of all amounts owing to such
lessor in respect of such rental engine(s);
(ii) During the Lease Term, Bank shall make payments
from the Reserve Account upon receipt of the written signature
of Lessor only;
(iii) Upon Lessee's submission of a valid invoice and
proper documentation of work accomplished, Lessor agrees to
approve (such approval not to be unreasonably withheld)
release of funds from the Reserve Account, up to the aggregate
amount contained therein, to pay such invoice associated with
maintaining the Aircraft's Engines and APU or their then
current replacements (but not in maintaining any rental
engine(s)) in accordance with terms of this Lease, but shall
have no other obligation to maintain, inspect, service, test
and/or repair any engines and/or the Aircraft during the Lease
Term, and any balance remaining in the Reserve Account at the
expiration of the Lease Term (as extended pursuant to Section
3(b) hereof) or any earlier termination thereof shall be
retained and/or distributed in accordance with the terms of
Section 4(b)(v) below;
(iv) Lessor agrees to approve or reject Lessee's
requests for payments to third party vendors from the
Reserve Account referred to in Section 4(b)(ii) within two (2)
business days of receipt by Lessor of Lessee's written request
therefor; and
(v) Upon the expiration of the Lease Term (as
extended pursuant to Section 3(b) hereof) or any earlier
termination thereof, any balance remaining in the Reserve
Account shall be retained and/or distributed as follows:
- 4 -
<PAGE> 24
[A] To Lessor, in its entirety, if (1) Lessee
fails to purchase the Aircraft pursuant to and in
accordance with the terms of Section 12 below, or (2)
the termination of the Lease occurs following the
occurrence of an Event of Default; or
[B] Eighty percent (80%) of such remaining
balance to Lessee and twenty percent (20%) of such
remaining balance to Lessor, if Lessee purchases the
Aircraft pursuant to and in accordance with the terms of
Section 12 below at a time when no rental engine is
installed on either the Aircraft or the Related Aircraft.
(vi) The Bank may, in its discretion, take a security
interest in the Reserve Account, and Lessee agrees to
cooperate in executing such security agreement and U.C.C.-1
financing statements as shall be necessary to perfect such
security interest and use its best efforts to secure the
consent of the County of Lexington under its Loan Agreement
with Lessee to the grant by Lessor of such security interest.
(d) By deleting the second sentence of Section 6(a) in its
entirety and substituting the following in lieu thereof:
Further, during the Lease Term, Lessee shall provide Lessor
(i) monthly, within ten (10) days after the last day of
each month, unaudited financial statements of Lessee for such
month and for such year to date, (ii) quarterly, within thirty
(30) days after the last day of each fiscal year quarter,
unaudited financial statements of Lessee for such quarter and
such fiscal year to date, and (iii) annually, within ninety
(90) days after the last day of each fiscal year of Lessee,
audited financial statements of Lessee for such fiscal year.
- 5 -
<PAGE> 25
(e) By deleting the second sentence of Section 10 and
substituting the following in lieu thereof:
Without limiting the generality of the foregoing, Lessee shall
maintain (i) $100,000,000.00 liability insurance covering
bodily injuries (including death) and property damage
(including resulting environmental damage) in amounts not less
than for any single occurrence, (ii) all-risk Aircraft hull
insurance with a deductible or similar retention not to exceed
$100,000 per occurrence (including, without limitation,
foreign object damage insurance with a deductible or similar
retention not to exceed $100,000 per engine per occurrence) in
an amount which is not less than the greater of [A] the
appraised value of the Aircraft set forth in the existing
appraisal report prepared by Morton Beyer Associates or [B]
the aggregate of all sums paid by Lessor to acquire, improve
and/or repair the Aircraft pursuant to Section 2 of this
Lease, and in the event an engine should be removed from the
Aircraft for any reason or purpose whatsoever, specific
insurance coverage shall be obtained by Lessee to cover said
engine to its replacement value, (iii) breach of warranty
insurance, and (iv) confiscation and war risk insurance.
(f) By adding a new Subsection 16(h) to read as
follows:
(h) Lessee shall fail to make payment of any rental or
breach any covenant, condition or agreement contained in the
Related Lease, and such failure shall continue beyond the
applicable cure period set forth in the Related Lease.
(g) Schedule 1 to the Lease shall be deleted in its entirety
and Schedule 1 to this Amendment shall be substituted in lieu thereof.
- 6 -
<PAGE> 26
(h) Exhibit D to the Lease shall be deleted in its
entirety and Exhibit D to this Amendment shall be substituted in lieu thereof.
2. Representations and Warranties of Lessee. In order to
induce Lessor to enter into this Amendment, Lessee represents and warrants to
Lessor as follows:
(a) Due Organization. Lessee is and will continue to
be a corporation duly organized and validly existing in good standing under
the laws of Illinois, is and will continue to be duly qualified to do business
as a foreign corporation in good standing in South Carolina and in each other
jurisdiction where the conduct of its business requires it to be so qualified,
is and will continue to be a "Citizen of the United States" within the meaning
of Section 101(16) of the Federal Aviation Act of 1958, as from time to time
amended, and has and will continue to have the corporate power and authority to
carry on its business and to enter into and perform its obligations under the
Lease and this Amendment.
(b) Due Authorization; Enforceability; No Violation.
The form, terms and provisions and the execution and delivery by Lessee of this
Amendment and the issuance to Lessor of a warrant to purchase at $1.00 per
share that amount of shares of common stock of Lessee as set forth in Section
1(d) of this Amendment adding Section 4(d) to the Lease (the "Warrant") have
each been duly authorized by all necessary corporate action on the part of
Lessee, do not require any approval of the
- 7 -
<PAGE> 27
shareholders of Lessee, and constitute the legal, valid and binding obligations
of Lessee, enforceable against Lessee in accordance with their respective
terms. The execution and delivery by Lessee of this Amendment, the performance
by Lessee of its obligations hereunder, and the issuance to Lessor of the
Warrants does not violate or will not contravene any provision of Lessee's
charter or by-laws, does not and will not contravene any law, governmental rule
or regulation, judgment or order applicable to or binding on Lessee, does not
and will not contravene any provisions of, or constitute a default or result in
the creation of any lien under, any indenture, mortgage, contract or other
instrument to which Lessee is a party or by which it is bound, and does not and
will not require any approval or consent of any trustee or holders of
indebtedness or obligations of Lessee, except such as have been duly obtained.
3. Conditions to Effectiveness of Amendment. This
Amendment shall be effective as of the date first above written, but only
subject to and conditioned upon the prior delivery to the Lessor of each of the
following:
(a) An original of this Amendment which has been
duly executed by Lessor and Lessee;
(b) Original copies of Lessee's insurance policies
on or pertaining to the Aircraft, which policies evidence Lessee's compliance
with each of the terms of Section 10 of the Lease (including, but not limited
to, reduction of the
- 8 -
<PAGE> 28
deductible or similar retention on foreign object damage coverage to an amount
not to exceed $100,000 per engine per occurrence);
(c) The Warrant shall have been issued to Lessor
and/or its designee, substantially in the form of the warrant issued to Lessor
in connection with the execution and delivery of the Lease; and
(d) Certified copies of corporate resolutions of
Lessee, duly authorizing the form, terms and provisions and the execution and
delivery of this Amendment and issuance of the Warrants.
4. Lease In Full Force. Except as expressly modified
herein, the provisions of the Lease shall remain in full force and effect, and
are hereby ratified and confirmed in all respects.
IN WITNESS WHEREOF the parties have executed this Amendment as of
the day and year first above written.
AIR SOUTH, INC.
By /s/
---------------------------------
Title VP Airline Operations
------------------------------
MIMI LEASING CORP
By Robert H. Walbert
---------------------------------
Title President and Treasurer
------------------------------
- 9 -
<PAGE> 29
AMENDED SCHEDULE 1
LEASE SCHEDULE
TO AIRCRAFT LEASE NO. 2
DATED AS OF OCTOBER 31, 1994
Name of Lessee: Air South, Inc.
Aircraft: Shall include, without limitation, the Airframe,
Engines, and Avionics more particularly described hereinbelow.
<TABLE>
<CAPTION>
Airframe Engine(s)
- - -------- ---------
<S> <C>
Type: Jet Transport Type: Two (2) Jet Engines
------------------------------ --------------------------------
Manufacturer: Boeing Manufacturer: Pratt & Whitney
---------------------- ------------------------
Model Number: 737-247 Model Number: JT8D-9A (both)
---------------------- ------------------------
Serial Number: 19612 Serial Numbers: P674191, P674214
--------------------- ----------------------
"N" Number: N4515W Total Hours: See Annex A
------------------------ -------------------------
Hours since last major overhaul
or
Hot Section: See Annex A
-------------------------
Horse Power: Each Engine is 750 or
-------------------------
more rated takeoff horsepower or
--------------------------------------
its equivalent.
--------------
APU Garrett (S/N P34641)
---------------------------------
</TABLE>
Accessories and Equipment Avionics
- - ----------------------------------
See Annex A hereto
Type of Aircraft: Jet Transport
- - ---------------- -------------
Lease Term: Sixty (60) months from the Delivery Date
Scheduled Delivery Date: Not Later Than November 30, 1994
--------------------------------
Delivery Site:
-------------------------------------------------------------
Fixed Rental: $28,648.33 ea. month 1 and 2
-------------------------------------------------------------
$63,020.83 ea. month 3-6
-------------------------------------------------------------
$77,106.79 ea. months 7-12
-------------------------------------------------------------
$41,169.29 ea. months 13-18
-------------------------------------------------------------
$31,255.11 ea. months 19-60 and during renewal
-------------------------------------------------------------
term
-------------------------------------------------------------
An additional $7,640.50 is due with the rental for month 60
covering the period October 30, 1999 - November 8, 1999
(because month 1 rental was prorated due to November 8, 1994
delivery date).
- 10 -
<PAGE> 1
EXHIBIT 10.37
AIRCRAFT LEASE NO. 1
THIS LEASE made as of the 31st day of October, 1994 ("Lease") by and between
AIR SOUTH, INC., an Illinois corporation having its principal offices located
at 1800 St. Julian Place, Columbia, South Carolina, U.S.A. 29204 ("Lessee") and
MIMI LEASING CORP., an Iowa corporation having offices at 600 Sunset Ridge,
Dubuque, Iowa 52003 ("Lessor").
WHEREAS Lessor is willing to acquire on behalf of and to lease to Lessee the
Boeing 737 S/N 19607 (the "Aircraft") more particularly described on Schedule 1
hereto (the "Lease Schedule"); and
WHEREAS Lessee has agreed to lease said Aircraft pursuant to the terms of
this Lease Agreement.
Now, THEREFORE THE PARTIES HERETO AGREE AS FOLLOWS:
1. Lease of the Aircraft. Subject to the terms and conditions contained
herein, Lessor agrees to lease to Lessee, and Lessee agrees to lease from
Lessor, for the Lease Term (as defined hereinafter), the Aircraft described in
the Lease Schedule. Capitalized terms used herein and not otherwise defined
are used as defined in the Schedule.
2. Delivery and Acceptance of Aircraft; Aircraft Improvements. (a) Lessor
and Lessee acknowledge that Lessee has received a letter of intent (the "Letter
of Intent") dated October 28, 1994 from Great Western Leasing Corporation
("Seller"), a copy of which is attached hereto as Exhibit A, pursuant to which
Seller has agreed to sell the Aircraft to Lessee on the terms and conditions
set forth in said Letter of Intent, all of which interest under the Letter of
Intent, Lessee agrees to assign to Lessor. Subject to the terms and
conditions hereinafter set forth:
(i) On or before November 30, 1994, Lessor agrees,
subject to performance by Seller under the Purchase Agreement attached to the
Letter of Intent or such other definitive purchase agreement acceptable to
Lessor and Seller (the "Purchase Agreement") and subject to execution by
Lessee's representative of the Delivery and Acceptance Certificate referred to
in clause (b) below, to accept delivery from Seller under the Purchase
Agreement of, and to make payment of the sum of $850,000 to Seller in payment
for, the Aircraft and
<PAGE> 2
simultaneously lease the Aircraft to the Lessee hereunder, and Lessee agrees to
lease from the Lessor hereunder the Aircraft delivered by Seller under the
Purchase Agreement; and
(ii) Lessor hereby authorizes one or more persons
designated by Lessee, who shall be an employee or employees of the Lessee, as
the authorized representative or representatives of the Lessor, to accept
delivery of the Aircraft by executing and delivering a Delivery and Acceptance
Certificate substantially in the form of Exhibit B hereto. The date of
execution of such Delivery and Acceptance Certificate being hereinafter
referred to as the "Delivery Date". Lessee hereby agrees that execution and
delivery of such Delivery and Acceptance Certificate by such authorized
representative or representatives of Lessee shall, without further action,
irrevocably constitute acceptance by Lessee of the Aircraft for all purposes of
this Lease, and the Aircraft is considered to be in service.
(b) Lessor and Lessee also acknowledge that promptly
following the Delivery Date, Lessee intends to contract with one or more third
parties to make the improvements to the Aircraft described in Exhibit C hereto
(the "Improvements"). Subject to the terms and conditions of this Agreement:
(i) Lessor consents to the Improvements, and
agrees to pay up to a maximum of $525,000 to third party vendors in payment for
such Improvements, promptly upon receipt of such invoices from Lessee together
with Lessee's written direction to make such payments; and
(ii) Lessee hereby agrees that execution and
delivery of Lessee's written direction to pay such invoice or invoices shall,
without further action, irrevocably constitute Lessee's acceptance of the
Improvements for all purposes of this Lease and that Lessor shall have no
further responsibility for, nor shall Lessor make any representation or
warranty to Lessee in respect of, such Improvements.
3. Term.
(a) Base Term. The term of this Lease ("Lease Term")
shall be as specified in the Lease Schedule and shall commence on the Delivery
Date.
(b) Renewal Options. So long as no Event of Default (or
event which with notice and/or lapse of time would constitute an Event of
Default) exists, Lessee shall have the option at the expiration of the Lease
Term to extend the Lease Term for three (3) additional periods of twelve (12)
months each at the same rent in effect at the time of such renewal and
otherwise on the same terms and conditions. Such option shall automatically
- 2 -
<PAGE> 3
expire unless Lessee shall provide Lessor with written notice of its
irrevocable election to exercise the same at least thirty (30) days prior
to the expiration of the Lease Terms.
(c) Noncancellable. Neither Lessor nor Lessee may
terminate this Lease before the end of the Lease Term (as same may have been
extended pursuant to Section 3(b) above), except as may otherwise be expressly
provided herein.
4. Rent. Lessee shall pay to Lessor the following:
(a) Fixed Rent. Commencing on November 30, 1994 (for the
month of November 1994), Lessee shall pay Lessor in arrears on the last day of
each and every calendar month during the Lease Term (each a "Rental Payment
Date"), as rent for the immediately preceding month, a base monthly rental for
the Aircraft (the "Fixed Rental") in the amount of the Fixed Rental specified
on Schedule 1 hereto; provided, however, that if the Delivery Date occurs after
October 31, 1994, the Fixed Rental for the month of November and the last month
of the Lease Term (as the same may have been extended pursuant to Section 3(b)
above) shall be prorated on a daily basis at the rate of one-thirtieth (1/30th)
of the Fixed Rental per day. All payments of Fixed Rentals shall be made by
wire transfer to Lessor's account number 16-451-8 at Hawkeye Bank of Dubuque
N.A. ("Bank").
(b) Reserve Payments. In addition to the Fixed Rentals,
Lessee shall establish and make payments monthly into an Engine maintenance and
Auxiliary Power Unit ("APU") reserve account (the "Reserve Account")
established by Lessee at Bank to be used to cover the cost of maintaining and
repairing the Engines and APU in accordance with the following:
(i) Within ten (10) days after the end of each
month during the Lease Term, Lessee shall compute the flight hours accumulated
on the Aircraft's engines and APU during the immediately preceding month and
shall prepare and send to Lessor a report in the form of Exhibit D showing such
accumulated flight hours, together with evidence of Lessee's payment into the
Reserve Account of an amount equal to $50.00 per accumulated flight hour shown
on such report (each, a "Reserve Payment"), up to a maximum of $250,000 per
engine and $500,000 in the aggregate at any time during the Lease Term;
(ii) During the Lease Term, Bank shall make
payments from the Reserve Account upon receipt of written signatures of [A]
Lessor and Lessee, jointly, or [B] following the occurrence of an Event of
Default, Lessor only;
(iii) Lessee agrees to use the Reserve Account to
pay all costs associated with maintaining the Aircraft's Engines and APU or
their then current replacements in accordance with the
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<PAGE> 4
terms of this Lease, and any balance remaining in the Reserve Account at the
expiration of the Lease Term (as extended pursuant to Section 3(b) hereof)
shall be remitted to Lessee so long as no Event of Default (or event which with
notice or lapse of time would constitute an Event of Default) then exists;
(iv) Lessor agrees to approve payments to third
party vendors from the Reserve Account referred to in Section 4(b)(ii) within
two (2) business days of receipt by Lessor of Lessee's written request
therefor; and
(v) Lessor and/or the Bank may, in their
discretion, take a security interest in the Reserve Account, and Lessee agrees
to cooperate in executing such security agreement and U.C.C.-l financing
statements as shall be necessary to perfect such security interest and use its
best efforts to secure the consent of the County of Lexington under its Loan
Agreement with Lessee to the grant by Lessor of such security interest.
(c) Aggregate Rentals. The sum of the Fixed Rentals, the
Reserve Payments and all other charges, payments and indemnities due by Lessee
to Lessor hereunder are referred to collectively in this Lease as the
"Aggregate Rentals." In the event that any Aggregate Rental is not received by
Lessor within five (5) days after its due date, Lessee agrees to pay to Lessor,
together with such Aggregate Rental, a per diem service charge on the amount of
such unpaid Aggregate Rental at the prime interest rate established from time
to time by the Bank.
5. Net Lease. This Lease is a net lease. Subject to Sections
9(b) and 9(c) below, Lessee's obligation to pay the Aggregate Rentals shall be
absolute and unconditional, and Lessee shall not be entitled to any abatement
or reductions of, or set-offs against such Aggregate Rentals, including, without
limitation, those arising or allegedly arising out of claims (present or
future, alleged or actual, and including claims arising out of strict tort or
negligence of Lessor) of Lessee against Lessor or its affiliates under this
Lease or otherwise. This Lease shall not terminate or the obligations of
Lessee shall not be affected by reason of any defect or damage to, or loss of
possession or use, or destruction of the Aircraft from whatsoever cause. It is
the intention of the parties that the Aggregate Rentals shall continue to be
payable in all events in the manner and at the times set forth herein unless
the obligation to do so shall have been terminated pursuant to the express
terms hereof.
6. Certain Covenants of Lessee. Lessee hereby covenants and
agrees as follows:
(a) Furnishing of Information. Lessee shall furnish to
Lessor quarterly (or more frequently as Lessor may request following an Event
of Default) such information regarding
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<PAGE> 5
Lessee's use, operation or maintenance of the Aircraft as Lessor may reasonably
request. Further, during the lease Term, Lessee shall provide Lessor (i)
quarterly, within thirty (30) days after the last day of each fiscal year
quarter, unaudited financial statements of Lessee and (ii) annually, within
ninety (90) days after the last day of each fiscal year of Lessee, audited
financial statements of Lessee.
(b) Lawful Use. The Aircraft shall not be maintained,
used, operated or stored in violation of any law or any rule, regulation or
order of any government or governmental authority having jurisdiction (domestic
or foreign), or in violation of any airworthiness certificate, license or
registration relating to the Aircraft or its use, or in violation or breach of
any representation or warranty made with respect to obtaining insurance on the
Aircraft or any term or condition of such insurance policy. Aircraft
operations shall be limited to operations allowed under Parts 91 and 121 of
Title 14 of the Code of Federal Regulations
(c) Aircraft Location. The Aircraft shall not be
operated or located in (i) any area excluded from coverage by the terms of
insurance or (ii) any recognized or threatened area of hostilities, unless
fully covered to Lessor's satisfaction by war risk insurance. The predominant
use of the Aircraft will be within the United States.
(d) Base of the Aircraft. The Aircraft shall be
principally based at the Primary Location (as defined in the Lease Schedule)
and shall be there at all times when not in use, except as required in normal
airline operations. Lessee may, upon at least 5 days prior written notice to
Lessor, change the Primary Location to such other location specified in such
notice; provided, however, in no event shall the Primary Location be outside of
the continental United States.
(e) Federal Aviation Act Filings. Lessee shall, at its
sole cost and expense, take all steps necessary to preserve and protect
Lessor's U.S. Registration of the Aircraft under the Federal Aviation Act of
1958, as amended, and the rules and regulations promulgated thereunder.
(f) Aircraft Operation. Lessee will be in operational
control of the Aircraft at all times during the term hereof, and subject to
paragraph (m) below, shall not sell, transfer, assign, encumber or, except upon
retaining operational control thereof (i.e., "wet"), sublet or part with
possession of the Aircraft or any of its rights under this Lease and shall be
solely responsible for its possession, use and operation. Lessee shall bear
all operating costs including, but not limited to: the cost of fuel, pilots'
salaries, expenses and employee benefits; handling and custom fees and related
charges; hangar and storage
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<PAGE> 6
charges; insurance premiums for all insurance coverage required by this Lease,
and all fines, fees or penalties arising directly or indirectly out of this
Lease or the Lessee's operation of the Aircraft.
(g) Aircraft Records. Lessee shall maintain all current
Aircraft records as required by FAR 121.380, and at any time the Lessor shall
take possession of the Aircraft due to default, the records will be redelivered
in a legible and orderly fashion.
(h) Pilots. The Aircraft shall, at all times during the
Lease Term, be operated by duly qualified, current, and rated (appropriate to
the Aircraft) pilots employed, paid and/or contracted for by the Lessee, whose
licenses are in good standing, who meet the requirements established and
specified by the insurance policies required hereunder and by the FAA, and who
have attended and successfully completed the approved Air South training course
for this type of Aircraft.
(i) Alterations. Lessee shall not in any way alter or
modify the Aircraft or Engines in such fashion as shall materially reduce the
value of the Aircraft or Engines, except as specifically provided for in
Section 2(b) or required by Section 7, without the prior written consent of
Lessor. All alterations, modifications, additions and improvements which are
made shall become the property of Lessor and shall be subject to all the terms
of this Lease.
(j) Identification. Lessee shall keep a legible copy of
the Lease in its file and available to use as proof of ownership at all times.
(k) Liens. Lessee will not directly or indirectly
create, incur, assume or suffer to exist any liens on or with respect to (i)
the Aircraft or any part thereof, (ii) the Lessor's title thereto or (iii) any
interest of the Lessor therein, and Lessee shall promptly, at its own expense,
take such action as may be necessary to promptly discharge any such lien,
except (x) any which reflect the respective rights of the Lessor and the Lessee
as herein provided, and (y) liens created solely by, through or under the
Lessor.
(1) Taxes. Lessee shall not be responsible for (i) any
taxes on, or measured by, the net income of Lessor or amounts in lieu of such
taxes (including, without limitation, any taxes on, or measured by, any fees
that Lessor may receive) or (ii) any taxes, or any penalties, fines or interest
thereon, imposed solely as a result of the willful misconduct or gross
negligence of Lessor. Lessee shall pay on behalf of and indemnify the Lessor
for, and hold the Lessor harmless from and against, all other income,
franchise, gross receipts, rental, sales, use,
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<PAGE> 7
excise, personal property, ad valorem, value added, leasing, leasing use,
stamp, landing, airport use or other taxes, levies, imposts, duties, charges,
fees or withholdings of any nature, together with any penalties, fines or
interest thereon ("Taxes") arising out of the transaction contemplated by this
Lease and imposed against the Lessor, the Lessee or the Aircraft or any part
thereof by the U.S. federal or any foreign government, any state, municipal or
local subdivision, any agency or instrumentality thereof or other taxing
authority upon or with respect to the Aircraft or any part thereof or upon the
ownership, delivery, leasing, possession, use, operation, return, transfer or
release thereof, or upon the rentals, receipts or earnings arising therefrom,
or upon or with respect to this Lease. If a claim is made against Lessor for
any Tax that is subject to indemnification hereunder, Lessor shall notify
Lessee promptly of such claim in writing. In case any report or return is
required to be made with respect to any Taxes, Lessee will make such report or
return in such manner as will show the ownership of the Aircraft in Lessor and
send a copy of such report or return to lessor. Lessor agrees to cooperate
fully with Lessee in the preparation of any such report or return.
(m) Other Agreements. Lessee shall during the Lease term,
without limiting any of the terms and conditions of this Lease, operate and
maintain the Aircraft and its engines in full compliance with the terms of the
Air South approved maintenance program.
7. Aircraft Maintenance. Except as otherwise provided in Section 9(c),
during the Lease Term and until such time as the aircraft is returned to
Lessor, Lessee agrees, at its own cost and expense (including payments from the
Reserve Account), to keep the Aircraft at all times (a) in a fully operational,
duly certified and airworthy condition and (b) maintained in accordance with
Lessee's FAA-approved maintenance program (the "FAA Maintenance Program").
Without limiting the foregoing, Lessee, at its own cost and expense, shall
maintain, inspect, service and test the aircraft and perform all repairs on the
Aircraft (including, without limitation, its Airframe, Engines and other
Equipment) in accordance with all maintenance manuals for the Aircraft from
time to time issued by the Airframe Manufacturer, the Engine Manufacturer or
any other manufacturer, all recommended service bulletins which might have a
detrimental effect on the Aircraft airworthiness or safety of the Aircraft if
not performed, and Aircraft modification kits issued, supplied or available in
relation thereto by or through any such manufacturer, and all airworthiness
alerts and airworthiness directives issued by the FAA or any other approved
governmental agency having jurisdiction. All work required by this Section 7
shall be undertaken and completed only by properly trained, licensed and
certified maintenance personnel. All replacement parts shall be of the type
approved under, and airworthy in
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<PAGE> 8
accordance with the standards established in, the FAA Maintenance Program and
become the property of Lessor (free and clear of all liens and encumbrances)
upon installation. All parts removed will become the property of the Lessee
upon installation of the replacement part. The Lessee shall maintain, repair
and overhaul each engine in a maintenance facility approved by the FAA. Lessee
shall be entitled to the benefit of any warranties issued by or available from
any manufacturer, vendor, subcontractor or supplier of the Aircraft, any engine
or part. Lessee shall be entitled to collect and retain any amounts paid by
such warranties. Lessor authorizes Lessee to pursue any claim under any
warranty and agrees to render whatever assistance which may be required in
perfecting such claims.
8. Inspection. Lessor or its designee shall have the right, but
not the duty, to inspect the Aircraft at any reasonable time and upon
reasonable notice, at the Primary Location, in flight or wherever the Aircraft
may then be located. Upon Lessor's request, Lessee shall advise Lessor of the
Aircraft's location and, within a reasonable time and, provided there is no
undue inconvenience and delay to Lessee, shall permit Lessor to examine all
information, logs, documents and Lessee's records regarding or with respect to
the Aircraft and its use, maintenance or condition. The expenses of in flight
inspection shall be borne by Lessor.
9. Loss or Damage.
(a) Risk of Loss. During the Lease Term and until such
time as the Aircraft is returned to Lessor, Lessee hereby assumes and shall
bear the entire risk of loss, theft, confiscation, damage to or destruction of
the Aircraft from any cause whatsoever, and shall promptly notify Lessor
thereof. Except as otherwise provided in Sections 9(b) or 9(c) below, this
Lease shall not terminate and the obligations of Lessee shall not be affected
by reason of any damage to or loss of the Aircraft.
(b) Casualty Occurrence. In the event of a Casualty
Occurrence, Lessee shall be obligated to pay Lessor, on the next succeeding
Rental Payment Date, an amount equal to the lesser of the Catastrophic Loss
Value (defined in Section 9(c) below) or the amount of the all-risk Aircraft
hull insurance referred to in Section 10 below (such amount is hereinafter
referred to as the "Stipulated Loss Value") . Upon payment in full of the
Stipulated Loss Value, the Aggregate Rentals for the Aircraft shall cease to
accrue as of the date of such payment, the Lease Term shall terminate, and,
except in the case of the loss, theft, confiscation or complete destruction of
the Aircraft and subject to the rights of the insurer following payment of a
settlement to request transfer of title and possession of the Aircraft, Lessee
shall be entitled to recover possession of the Aircraft and obtain title
thereto. As used herein, a "Casualty Occurrence"
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<PAGE> 9
shall mean any of the following events with respect to the Aircraft: (i) loss
of the Aircraft or the use thereof due to the destruction, damage beyond repair
or rendition of the Aircraft permanently unfit for normal use for any reason
whatsoever; (ii) any damage to the Aircraft (including, but not limited to,
anything requiring the completion of an FAA 337 "Major Repair and Alteration
Statement") which results in an insurance settlement with respect to the
Aircraft on the basis of a total loss; (iii) the theft or disappearance of the
Aircraft which shall have resulted in the loss of possession of the Aircraft by
Lessee for a period of thirty (30) consecutive days or more (or for a shorter
period ending on the date on which there is an insurance settlement for total
loss on the basis of the theft or disappearance of the Aircraft; (iv) the
condemnation, confiscation or seizure of, or the requisition of title to or use
or possession of, the Aircraft, while under condemnation, confiscation, seizure
or requisition, in any area excluded from coverage by any insurance policy in
effect with resect to the Aircraft required by the provisions of Section 10
hereof; or (vi) any event other than a default where Lessee is obligated to pay
Lessor the Stipulated Loss Value under this Lease. A Casualty Occurrence with
respect to the Aircraft shall be deemed to have occurred if a Casualty
Occurrence occurs with respect to the airframe of such Aircraft.
(c) Catastrophic Loss Value. In the event that the FAA,
other governmental authority or manufacturer of the Aircraft, engine or
component part issues an airworthiness directive or other order requiring
changes to the Aircraft, engines or component parts which in Lessee's opinion
render the use of the Aircraft uneconomic (a "Catastrophic Loss"), Lessee may
terminate this Lease upon payment to the Lessor of an amount equal to the then
present value of all future payments under this Lease (the "Catastrophic Loss
Value"). The rate used to calculate the present value of the remaining lease
payments at the time of Lease acceleration shall be the discounted compound
interest rate used to amortize the initial investment of $1,375,000 over 60
months to generate an actual return of $1,987.505.
10. Insurance. Lessee shall secure and maintain in effect at its
own expense throughout the term hereof, and on Lessor's request shall provide
Lessor with true, correct and complete copies of, insurance policies covering
the Aircraft against a Casualty Occurrence and containing such provisions and
with such companies as shall be satisfactory to Lessor. Without limiting the
generality of the foregoing, Lessee shall maintain (i) $100,000,000.00
liability insurance covering bodily injuries, and property damage, (including
resulting environmental damage in amounts not less than for any single
occurrence, (ii) all-risk Aircraft hull insurance (including, without
limitation, foreign object damage insurance) in an amount which is not less
than
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<PAGE> 10
$1,500,000.00 and in the event an engine should be removed from the Aircraft
for any reason or purpose whatsoever, specific insurance coverage shall be
obtained by Lessee to cover said engine to its replacement value, (iii)
breach of warranty insurance, and (iv) confiscation and war risk insurance.
All insurance policies shall name the Lessor as owner of the Aircraft and as
loss payee, shall (except with respect to insurance under the preceding
clause(i)), name Lessor and its affiliates as additional assured with respect
to insurance under the preceding clause (i), shall provide that any
cancellation or substantial change in coverage shall not be effective as to any
assured for thirty (30) days after receipt by such assured of written notice
from such insurer(s) of such cancellation or change and shall contain an
endorsement providing for payment by the insurer(s) to Lessor (or its
affiliates, as the came may be) despite any misrepresentations or breach of
warranty by Lessee or any other person (other than the assured receiving
payment). Such insurance shall not be subject to any offset by any other
insurance carried by Lessor, Lessee or any other assured. Lessee hereby
appoints Lessor as Lessee's attorney-in-fact to receive payment of and to
execute and endorse all documents, checks or drafts on behalf of Lessee in
connection with all policies of insurance in respect of the Aircraft (other
than insurance under clause (i) of the second sentence of this paragraph).
Lessor may, but shall have no obligation to, act as Lessee's attorney-in-fact
to make proof of loss and claim on behalf of Lessee in connection with all
policies of insurance in respect of the Aircraft. Any expense of adjusting or
collecting insurance proceeds (other than insurance under clause (i) of the
second sentence of this paragraph) shall be borne by Lessee. Lessor may, at
its option, apply proceeds of insurance, in whole or in part, to (i) repair or
replace the Aircraft or any part thereof or (ii) satisfy any obligation of
Lessee to Lessor hereunder, except that in the event of a Casualty Occurrence,
any insurance proceeds (other than for liability insurance) received by the
Lessor with respect to the Aircraft shall be credited against Lessee's
obligation to pay the Stipulated Loss Value under Sections 9(b) and 10 hereof
(and such proceeds shall be used to reimburse Lessee if Lessee has already paid
such Stipulated Loss Value in full to Lessor).
11. Return.
(a) Location. Upon the termination or expiration of the
Lease Term, Lessee shall return the Aircraft, in accordance with Section 11(b)
below, at Miami International Airport, Florida, and all expenses for delivery
and return of the Aircraft shall be borne by Lessee. In the event that Lessee
fails for any reason whatsoever to return the Aircraft on or before twelve
o'clock noon (Central Time) on the last day of the Lease Term, Lessor's damages
shall include, but shall not be limited to, loss rentals at the rate of
one-thirtieth (1/30th) of the Fixed
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<PAGE> 11
Rentals for each day (or portion thereof) that such return is delayed, together
with applicable Engine Reserve.
(b) Return Condition. Upon return at Lessee's expense,
except for compliance with FAR 36 noise regulations applicable to transport
category aircraft, the Aircraft must satisfy all of the following conditions:
(i) The Aircraft must be in airworthy and
serviceable condition, meet all of the applicable regulations of the FAA, and
have a valid and continuing FAA certificate of airworthiness;
(ii) The Aircraft must be returned with all
equipment, parts, components, passenger service items and other accessories
that were on or in the Aircraft when delivered to Lessee in a serviceable
condition or with an equivalent or better replacement thereof, and with
approximately the same hours/cycles since overhaul at lease inception.
(iii) The Aircraft must have completed the
next regular scheduled major airframe and engine inspection, except D-check
(including, without limitation, the completion of any necessary repairs
resulting therefrom), provided that the cost thereof shall be shared between
Lessee and Lessor on prorata based on the number of flight hours elapsed since
the last regularly scheduled airframe and engine inspection and the number of
flight hours left until the next regularly scheduled major airframe and engine
inspection if different from that at Lease inspection.
(iv) All exterior paint and interior components
(including, without limitation, paint, carpet, fabric and wood panelling) must
be in the same good appearance as when the Aircraft was delivered to Lessee
(reasonable wear and tear excepted), and any Lessee identification or logo in
or on the Aircraft shall have been removed by Lessee;
(v) The Aircraft must be returned with all and
complete originals of the logs (or if originals are not available, then any
steps required by (or conditions to) use of new logs and new maintenance
records as may be required under FAA rules and regulations shall be observed or
complied with, including without limitation any engine and/or airframe rebuild
under FAA rules and regulations. Manual, certificates, data, inspection,
modification, and overhaul records, and all entries therein must be complete,
correct and current, and in the case of any modifications made to, or
supplement type certificates incorporated in, the Aircraft, all engineering
documents and drawings therefore must also be returned; and
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<PAGE> 12
(vi) The Aircraft shall undergo an inspection or
inspections or flight test or tests, as required in Lessor's discretion, up to
two hours, resulting in the Lessor's determination that the Aircraft and all
parts, components, systems and records comply with FAA standards at that date
and meet all of the above conditions.
If the Lessee does not return the Aircraft in accordance with the
above condition, (i) Lessor may make (or cause to be made) any repairs
reasonably necessary to restore the Aircraft to the required condition, (ii)
Lessee shall reimburse Lessor, upon demand, for any cost, expenses and fees
(including, without limitation, fees and expenses for repairs and lost rentals
at the per diem rate of one-thirtieth (1/30th) of the Fixed Rentals) related to
such restoration (including, without limitation, cost and expenses incurred as
a result of actions pursuant to the parenthetical in clause (vii) above) and/or
(iii) Lessee shall compensate Lessor for the diminished value of the Aircraft
resulting from Lessee's failure to return the Aircraft in such condition to
Lessor's satisfaction.
If the parties hereto cannot agree on the diminished value of the
Aircraft mentioned in preceding clause (iii) above, said value shall be
established by using the average of the diminished value determined by two
appraisals (each party appointing one appraiser) if these are within five
percent (5%) of the highest if not a third appraisal shall be done (the
appraiser being appointed by the two preceding appraisers) and the average of
the two closest appraisals shall be used.
12. Expiration of Lease. So long as no Event of Default (or event
which with notice and/or lapse of time would constitute an Event of Default)
exists, Lessee shall have the option to purchase the Aircraft for the sum of
$275,000.00 (which Lessor and Lessee agree represents the fair market value
thereof) upon expiration of the Lease Term.
13. Representations and Warranties of Lessee. Lessee represents
and warrants to Lessor as follows:
(a) Due Organization. Lessee is and will continue to be
a corporation duly organized and validly existing in good standing under the
laws of the jurisdiction of its incorporation (as set forth hereinabove), is
and will continue to be duly qualified to do business as a foreign corporation
in good standing in each other jurisdiction where the conduct of this business
requires it to be so qualified, is and will continue to be a "Citizen of the
United States" within the meaning of Section 101(16) of the Federal Aviation
Act of 1958, as from time to time amended, and has and will continue to have
the corporate power and authority to carry on its business and to enter into
and perform its obligations under this Lease.
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<PAGE> 13
(b) Due Authorization; Enforceability; No Violation.
This Lease has been duly authorized by all necessary corporate action on the
part of Lessee, does not require any approval of the stockholders of Lessee,
has been duly executed and delivered by Lessee, and constitutes the legal,
valid and binding obligation of Lessee, enforceable against Lessee in
accordance with its terms. The execution and delivery by Lessee of this lease,
and the performance by Lessee of its obligations hereunder, will not be
inconsistent with its charter or by-laws, do not and will not contravene any
law, governmental rule or regulation, judgment or order applicable to or
binding on Lessee, do not and will not contravene any provisions of, or
constitute a default or result in the creation of any lien (except Lessee's
interest hereunder) under, any indenture, mortgage, contract or other
instrument to which Lessee is a party or by which it is bound, and do not and
will not require any approval or consent of any trustee or holders of
indebtedness or obligations of Lessee, except such as have been duly obtained.
(c) Government Approvals. No consent or approval of,
giving of notice to, registration with, or taking of any other action in
respect of or by, any federal, state or local governmental authority or agency
(including, without limitation, the FAA or any similar agency) is or will be
required with respect to the execution, delivery and performance by Lessee of
this lease or the consummation of any of the transactions by Lessee
contemplated hereby, except for the approval referred to in Section 4(b)(v)
hereof, or if any such approval, notice, registration or action is required, it
has been duly given or obtained, except that as a condition to being able to
operate the Aircraft, Lessee is required to, and shall, comply with Section
91.54(c) of Title 14 of the Code of Federal Regulations.
(d) Location of Chief Executive Offices. The chief
executive office or chief place of business (as either such term is used in
Article 9 of the Uniform Commercial Code) of Lessee is located at its address
set forth hereinabove, and Lessee agrees to give Lessor prior written notice of
any relocation of said executive office or chief place of business from its
present location.
14. Lessor's Disclaimer. LESSOR (AND ITS AFFILIATES) DO NOT MAKE,
HAVE NOT MADE, NOR SHALL BE DEEMED TO MAKE OR HAVE MADE, ANY WARRANTY OR
REPRESENTATION, EITHER EXPRESS OR IMPLIED, WRITTEN OR ORAL, WITH RESPECT TO THE
AIRCRAFT LEASED HEREUNDER ANY IMPROVEMENTS THERETO OR ANY ENGINE OR COMPONENT
THEREOF, INCLUDING WITHOUT LIMITATION, ANY WARRANTY AS TO DESIGN, COMPLIANCE
WITH SPECIFICATIONS, QUALITY OF MATERIALS OR WORKMANSHIP, MERCHANTABILITY,
FITNESS FOR ANY PURPOSE, USE OR OPERATION, AIRWORTHINESS, SAFETY, PATENT,
TRADEMARK OR COPYRIGHT INFRINGEMENT, OR TITLE, EXCEPT AS SHALL HAVE BEEN
EXPRESSLY ASSUME HEREIN. All such risks, as between Lessor (and its
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<PAGE> 14
affiliates) and Lessee, are to be borne by Lessee. Without limiting the
foregoing, Lessor and its affiliates shall have no responsibility or liability
to Lessee or any other person with respect to any of the following, regardless
of any negligence of Lessor or its affiliates (i) any liability, loss or damage
caused or alleged to be caused directly or indirectly by the Aircraft, any
inadequacy thereof, any deficiency or defect (latent or otherwise) therein, or
any other circumstance in connection therewith; (ii) the use, operation or
performance of the Aircraft or any risks relating thereto, (iii) any
interruption of service, loss of business or anticipated profits or
consequential damages, or (iv) the delivery, operation, servicing, maintenance,
repair, improvement or replacement of the Aircraft.
15. Indemnification
(a) General Indemnity. Lessee shall indemnify, defend
and save harmless Lessor, its affiliates, successors and assigns, and their
respective directors, officers and employees, from and against any and all
losses, claims (including without limitations, claims involving strict or
absolute liability in tort, damage, injury, death, liability and third party
claims), suits, demands, costs and expenses of every nature (including, without
limitation, reasonable attorneys' fees) arising directly or indirectly from or
in connection with the possession, maintenance, condition, storage, use,
operation or return operation of the Aircraft and Lessee shall, upon request of
Lessor and at Lessee's sole cost and expense, defend Lessor from any actions
based on or arising out of any of the foregoing.
(b) Survival. Lessee's obligations under this Section 15
shall survive termination of this Lease and shall remain in effect until all
required indemnity payments have been made by Lessee to Lessor. All references
to Lessor in this Section 14 include Lessor and the consolidated taxpayer group
of which Lessor is a member.
16. Lessee's Default. Each of the following events shall
constitute an "Event of Default" hereunder (whatever the reason for such event
of default and whether it shall be voluntary or involuntary, or come about or
be effected by operation of law, or be pursuant to or in compliance with any
judgment, decree or order of any court or any order, rule or regulation of any
administrative or governmental body):
(a) Lessee shall fail to make payment of any Aggregate
Rental within ten (10) days after the same shall become due; or
(b) Lessee shall breach any covenant, condition or
agreement set forth in Section 6(b), Section 6(c), the first sentence of
Section 6(f), Section 6(m) or Section 10 or this Lease; or
- 14 -
<PAGE> 15
(c) Lessee shall fail to perform or observe any other covenant,
condition or agreement to be performed or observed by it under this Lease or
any agreement, document or certificate delivered by Lessee in connection
herewith, and such failure shall continue for thirty (30) days after receipt of
written notice thereof from Lessor to Lessee; or
(d) Any representative or warranty made by Lessee in this Lease
or any agreement, document or certificate delivered by the Lessee in connection
herewith is or shall become incorrect in any material respect, and, if such a
default is susceptible of being corrected, Lessee fails to correct such default
within thirty (30) days of a written notice of Lessor requested correct of
same; or
(e) Lessee shall become insolvent or cease to do business as a
going concern; or
(f) Lessee makes an assignment for the benefit of creditors, or
if a petition is filed by or against Lessee under any bankruptcy or insolvency
law; or
(g) If a receiver is appointed for Lessee or any of Lessee's
property.
17. Lessor's Remedies.
(a) Remedies. Upon the occurrence of any Event of Default
Lessor may, at its option exercise any or all remedies available at law or in
equity, including, without limitation, any or all of the following remedies, as
Lessor in its sole discretion shall elect:
(i) By notice in writing terminate this Lease, whereupon
all rights of the Lessee to the use of the Aircraft or any part thereof shall
absolutely cease and terminate but Lessee shall remain liable as hereinafter
provided; and thereupon Lessee, if so requested by the Lessor, shall at its
expense promptly return the Aircraft as required by Section 11 hereof or
Lessor, at its option, may, with or without legal process, enter upon the
premises where the Aircraft may be located and take immediately possession of
and remove the same (together with any engine which is not an Engine but which
is installed on the Airframe, which engine shall, at Lessor's option and
Lessee's expense, be exchanged for an Engine). Lessee specifically authorizes
Lessor's entry upon any premises where the Aircraft may be located for the
purpose of, and waives any cause of action it may have arising from a peaceful
retaking of the Aircraft. Lessee shall without further demand, pay the total
accrued and unpaid amounts due hereunder; or
- 15 -
<PAGE> 16
(ii) Perform or cause to be performed any
obligation, covenant or agreement of Lessee hereunder. Lessee agrees to pay
all costs and expenses incurred by Lessor for such performance as additional
Aggregate Rental hereunder and acknowledges that such performance by Lessor
shall not be deemed to cure said Event of Default.
(b) Costs and Attorneys' Fees. Lessee shall be liable
for all costs, charges and expenses, including reasonable legal fees and
disbursements, incurred by Lessor by reason of the occurrence of any Event of
Default or the exercise of lessor's remedies with respect thereto.
(c) Nonexclusive. No remedy referred to herein is
intended to be exclusive, but each shall be cumulative and in addition to any
other remedy referred to above or otherwise available to Lessor at law or in
equity. Lessor shall not be deemed to have waived any breach, Event of Default
or right hereunder unless the same is acknowledged in writing by a dully
authorized representative of Lessor. No waiver by Lessor of any default or
Event of Default hereunder shall in any way be, or be construed to bed, a
waiver of any future or subsequent default or Event of Default. The failure or
delay of Lessor in exercising any rights granted it hereunder upon any
occurrence of any of the contingencies set forth herein shall not constitute a
waiver of any such right upon the continuation or recurrence of any such
contingencies or similar contingencies and any single or partial exercise of
any particular right by Lessor shall not exhaust the same or constitute a
waiver of any other right provided herein.
18. Lessor's Assignment. Lessee may not assign or pledge any or
all of its rights in this Lease or the Aircraft without notice to and the prior
written consent of the Lessor. It is understood that Lessor may assign or
pledge any or all of its rights in this Lease or the Aircraft without notice to
or the consent of Lessee. Lessee hereby waives and agrees not to assert
against any such assignee any defense, set-off, recoupment claims or
counterclaim which Lessee has or may at any time have against lessor for
whatsoever reason.
19. Notices. Unless specifically provided to the contrary herein
all notices permitted or required by this Lease shall be in writing and shall
be deemed given when sent by registered or certified mail, return receipt
requested, postage prepaid or by facsimile transmission, to the address set
forth hereinbelow, or such other address as may hereafter be designated by the
addressee in a written notice to the other party.
20. Entire Agreement. The terms and conditions of this Lease
constitute the entire agreement between the parties as to the subject matter
hereof and supersede all prior written and oral negotiations, representations
and agreements, if any,
- 16 -
<PAGE> 17
21. Modification of Agreement. No change or modification
hereto or waiver of any term or condition hereof shall be effective unless the
change or modification is in writing and signed by the party to be changed.
22. Tina of the Essence. Time is of the essence in this Lease,
23. Headings, The headings of Sections and subsections of this
lease are included for convenience only and shall not be used in its
construction or interpretation.
24, Governing Law. The parties hereto acknowledge that this Lease
shall be governed by and construed in all respects in accordance with the
substantive laws of the State of Iowa (without regard to its choice of law
rules.)
25. True Lease. It is the intent of the parties to this Lease that
it will be a true lease and not a "conditional sale" and that the Lessor shall
be the owner of the Aircraft for all purposes hereof, including all federal,
state, local and other taxes.
IN WITNESS WHEREOF, the parties hereto have each caused this Lease to
be duly executed as of the year and day first above written. THIS AGREEMENT
SHALL NOT' BE EFFECTIVE UNTIL EXECUTED ON BEHALF OF EACH PARTY.
LESSOR: LESSEE:
MIMI LEASING CORP. AIR SOUTH INC.
BY: /s/ Robert Wahlert By: /s/Patrick O'Shea
----------------------- -----------------------------
Title: President Title: President and Chief
--------------------------
Executive Officer
Address: 600 Sunset Ridge Address: P.O. Box 11129
Dubuque, Iowa 52003 Columbia, South Carolina 29211
Facsimile No. 319-588-5317 Facsimile No. 803-771-9067
Attn: Robert H. Wahlert Attn: Patrick O'Shea
- 17 -
<PAGE> 18
SCHEDULE 1
LEASE SCHEDULE
TO AIRCRAFT LEASE NO. 2
DATED AS OF OCTOBER 31, 1994
Name of Lessee: Air South, Inc.
Aircraft: Shall include, without limitation, the Airframe,
Engines, and Avionics more particularly described hereinbelow.
<TABLE>
<CAPTION>
Airframe Engine(s)
- - -------- --------
<S> <C>
Type: Jet Transport Type: Two (2) Jet Engines
Manufacturer: Boeing Manufacturer: Pratt & Whitney
Model Number: 737-247 Model Number: JT8D-9A (both)
Serial Number: 19612 Serial Numbers: P674191, P674214
"N" Number: N4515W Total Hours: See Annex A
Hours since last major overhaul
or
Hot Section: See Annex A
Horse Power: Each Engine is 750 or
more rated takeoff horsepower or
its equivalent.
APU Garrett (S/N P34641)
</TABLE>
Accessories and Equipment Avionics
See Annex A hereto
Type of Aircraft: Jet Transport
Lease Term: Sixty (60) months from the Delivery Date
Scheduled Delivery Date: Not Later Than November 30, 1994
Delivery Site:
Fixed Rental: $28,648.33 ea. months 1 and 2
$63,020.83 ea. months 3-12
$27,083.33 ea. months 13-60 and during renewal
term
- 18 -
<PAGE> 19
AMENDMENT NO. 1
TO AIRCRAFT LEASE NO. 1
DATED AS OF OCTOBER 31, 1994
BETWEEN AIR SOUTH, INC.
AND MIMI LEASING CORP.
THIS AMENDMENT NO. 1 TO AIRCRAFT LEASE NO. 1 (this
"Amendment") is made as of the 25th day of April, 1995 by and between Air South,
Inc., an Illinois corporation having its principal offices located at 1800 St.
Julian Place, Columbia, South Carolina, U.S.A. 29204 ("Lessee"), and Mimi
Leasing Corp., an Iowa corporation having offices at 600 Sunset Ridge, Dubuque,
Iowa 52003 ("Lessor").
WITNESSETH:
WHEREAS, Lessor and Lessee are parties to an Aircraft Lease
No. 1 dated as of October 31, 1994 (the "Lease") pursuant to which Lessor is
leasing to Lessee a certain Boeing 737, S/N 19607, N4510W; and
WHEREAS, Lessor and Lessee are also parties to an Aircraft
Lease No. 2 dated as of October 31, 1994 (the "Related Lease") pursuant to
which Lessor is leasing to Lessee a certain Boeing 737, S/N 19612, N4515W; and
WHEREAS, Lessee has requested that Lessor provide funds to pay
for additional improvements and/or repairs to aircraft leased to Lessee under
the Lease and to consent to exchanging
<PAGE> 20
and/or leasing certain engines for use on the aircraft leased to
Lessee under the Lease and the Related Lease; and
WHEREAS, subject to the terms and conditions set forth in this
Amendment, including the parties making certain modifications to the Lease and
the Related Lease, Lessor is willing to advance certain additional sums to pay
for improvements and/or repairs described herein; and
WHEREAS, capitalized terms used but not otherwise defined
herein shall have the meanings set forth in the Lease.
NOW, THEREFORE, for good and valuable consideration, and in
consideration of the mutual premises, covenants and agreements of Lessor and
Lessee herein contained, the parties hereto agree as follows:
1. Amendment to Lease. The Lease is hereby amended as
follows:
(a) By deleting the existing recitals in
their entirety and substituting the following recitals in lieu thereof:
WHEREAS, Lessor is willing to acquire on behalf of and to lease
to Lessee the Boeing 737 S/N 19607 (the "Aircraft") more
particularly described on Schedule 1 hereto (the "Lease Schedule");
and
WHEREAS, Lessor is further willing to acquire on behalf of and
to lease to Lessee the Boeing 737 S/N 19612 (the "Related
Aircraft") more particularly described on Schedule 1 to Aircraft
Lease No. 2 dated of even date herewith between Lessor and Lessee
(the "Related Lease"); and
WHEREAS, Lessee has agreed to lease the Aircraft and the
Related Aircraft pursuant to the terms of the Lease and the Related
Lease.
- 2 -
<PAGE> 21
(b) By adding a new Section 2(c) to read as follows:
(c) Lessor and Lessee further agree that, on or after
March 10, 1995:
(i) Lessee may, at its sole expense,
contract with Lessee's third party engine repair facility to
make such checks, repairs and/or overhauls as may be necessary
for the engines on the Aircraft and/or the Related Aircraft;
and
(ii) Lessee may, at its option and sole expense,
install on the Related Aircraft, either temporarily or for the
balance of the Lease Term, one of the engines currently
installed on the Aircraft; and
(iii) Lessee may, at its option, rent or lease on a
daily or monthly basis one (1) or more engines (a "rental
engine") for installation on and use in the operation of the
Aircraft, provided that Lessee shall be solely responsible for
all payments, liabilities and/or other obligations arising out
of Lessee's rental and/or use of such rental engine(s) and
Lessor shall have no responsibility for any such payments,
liabilities or obligations in respect of any rental engine;
and
(iv) Lessor agrees to pay to, or for the benefit of,
AAR Corporation, in payment of the open invoices for
improvements and/or repairs to the Aircraft described in
Exhibit E hereto, up to a maximum of $570,000, provided that
Lessee pays to AAR Corporation and/or other third parties any
additional sums as may be necessary to place the Aircraft in
service on or before April 30, 1995; and
- 3 -
<PAGE> 22
(v) Lessee hereby agrees that execution and
delivery hereof shall, without further action, irrevocably
constitute Lessee's acceptance of, and Lessor shall have no
further responsibility for, nor shall Lessor make any
representation or warranty to Lessee in respect of, any other
improvements and/or repairs in respect of the Aircraft and/or
its engines.
(c) By deleting Section 4(b) in its entirety and substituting
the following therefor:
(b) Reserve Payments. In addition to the Fixed Rentals,
Lessee shall maintain and make payments monthly into an Engine
Maintenance and Auxiliary Power Unit ("APU") reserve account
(the "Reserve Account") established and owned by Lessor, at
Bank, to be used to cover the cost of maintaining and
repairing the Engines and APU in accordance with the
following:
(i) Within ten (10) days after the end of each
month during the Lease Term, Lessee shall compute the flight
hours and cycles accumulated on the Aircraft's engines and APU
during the immediately preceding month and shall prepare and
send to Lessor a report in the form of Exhibit D, showing such
accumulated flight hours and cycles, together with evidence of
Lessee's payment into the Reserve Account of an amount equal
to [A] $50.00 per flight hour or cycle, whichever is greater,
accumulated on each engine during such month and [B] $10.00
per flight hour or cycle, whichever is greater, accumulated on
the APU during such month, as shown on such report (each, a
"Reserve Payment"), up to a maximum of $400,000 per engine and
$800,000 in the aggregate held by Lessor at any one time
during the Lease Term; provided, however, that Lessee shall
not be required to make payments into the Reserve Account for
flight hours or cycles accumulated in respect of any
- 4 -
<PAGE> 23
rental engine if, but only if, Lessee makes prompt and final
payments to such lessor of all amounts owing to such lessor in
respect of such rental engine(s);
(ii) During the Lease Term, Bank shall make
payments from the Reserve Account upon receipt of the written
signature of Lessor only;
(iii) Upon Lessee's submission of a valid invoice
and proper documentation of work accomplished, Lessor agrees
to approve (such approval not to be unreasonably withheld)
release of funds from the Reserve Account, up to the aggregate
amount contained therein, to pay such invoice associated with
maintaining the Aircraft's Engines and APU or their then
current replacements (but not in maintaining any rental
engine(s)) in accordance with terms of this Lease, but shall
have no other obligation to maintain, inspect, service, test
and/or repair any engines and/or the Aircraft during the Lease
Term, and any balance remaining in the Reserve Account at the
expiration of the Lease Term (as extended pursuant to Section
3(b) hereof) or any earlier termination thereof shall be
retained and/or distributed in accordance with the terms of
Section 4(b)(v) below;
(iv) Lessor agrees to approve or reject Lessee's
requests for payments to third party vendors from the Reserve
Account referred to in Section 4(b)(ii) within two (2)
business days of receipt by Lessor of Lessee's written request
therefor; and
(v) Upon the expiration of the Lease Term (as
extended pursuant to Section 3(b) hereof) or any earlier
termination thereof, any balance remaining in the Reserve
Account shall be retained and/or distributed as follows:
[A] To Lessor, in its entirety, if (1) Lessee fails to
purchase the Aircraft pursuant to and in accordance with
the terms of
- 5 -
<PAGE> 24
Section 12 below or (2) the termination of the Lease
occurs following the occurrence of an Event of Default;
or
[B] Eighty percent (80%) of such remaining balance to
Lessee and twenty percent (20%) of such remaining
balance to Lessor, if Lessee purchases the Aircraft
pursuant to and in accordance with the terms of Section
12 below at a time when no rental engine is installed on
either the Aircraft or the Related Aircraft.
(vi) The Bank may, in its discretion, take a
security interest in the Reserve Account, and Lessee agrees to
cooperate in executing such security agreement and U.C.C.-1
financing statements as shall be necessary to perfect such
security interest and use its best efforts to secure the
consent of the County of Lexington under its Loan Agreement
with Lessee to the grant by Lessor of such security interest.
(d) By adding a new Section 4(d) as follows:
(d) Additional Consideration. In exchange for the
funds to be provided by Lessor to AAR Corporation pursuant to
new Section 2(c)(iv) below, Lessee shall issue to Lessor or
its assigns a warrant to purchase common stock of Lessee as
follows:
(i) If Lessor advances additional funds to
Lessee of up to but not exceeding $250,000, Lessee
shall issue a warrant to purchase 100,000 shares;
(ii) If Lessor advances additional funds to
Lessee of $250,001 up to but not exceeding $570,000,
Lessee shall issue a warrant to purchase a total of
200,000 shares; and
6
<PAGE> 25
(iii) If Lessor advances additional funds in excess
of $570,000, Lessee shall issue a warrant to purchase a
total of 400,000 shares.
"Warrant" shall mean a warrant to purchase Lessee's
common stock at $1.00 per share, substantially on the terms
and in the form of the Warrant issued by Lessee dated October
31, 1994; provided that the anti-dilution provision of the
Warrant shall not apply to stock issued pursuant to the
$1,500,000 employee and shareholder stock offerings currently
being finalized by Lessee.
(e) By deleting the second sentence of Section
6(a) in its entirety and substituting the following in lieu thereof:
Further, during the Lease Term, Lessee shall provide
Lessor (i) monthly, within ten (10) days after the last day of
each month, unaudited financial statements of Lessee for such
month and for such year to date, (ii) quarterly, within thirty
(30) days after the last day of each fiscal year quarter,
unaudited financial statements of Lessee for such quarter and
such fiscal year to date, and (iii) annually, within ninety
(90) days after the last day of each fiscal year of Lessee,
audited financial statements of Lessee for such fiscal year.
(f) By adding a new Section 6(n) as follows:
(n) Not later than April 28, 1995, Lessee shall, at
its expense, obtain an appraisal of the Aircraft, in form and
substance satisfactory to Lessor, from Morton Beyer Associates
(the "Appraisal").
(g) By deleting the second sentence of Section 10 and
substituting the following in lieu thereof:
- 7 -
<PAGE> 26
Without limiting the generality of the foregoing,
Lessee shall maintain (i) $100,000,000.00 liability insurance
covering bodily injuries (including death) and property damage
(including resulting environmental damage) in amounts not less
than for any single occurrence, (ii) all-risk Aircraft hull
insurance with a deductible or similar retention not to exceed
$100,000 per occurrence (including, without limitation,
foreign object damage insurance with a deductible or similar
retention not to exceed $100,000 per engine per occurrence) in
an amount which is not less than the greater of [A] the
appraised value of the Aircraft set forth in the Appraisal or
[B] the aggregate of all sums paid by Lessor to acquire,
improve and/or repair the Aircraft pursuant to Section 2 of
this Lease, and in the event an engine should be removed from
the Aircraft for any reason or purpose whatsoever, specific
insurance coverage shall be obtained by Lessee to cover said
engine to its replacement value, (iii) breach of warranty
insurance, and (iv) confiscation and war risk insurance.
(h) By adding a new Subsection 16(h) to read as follows:
(h) Lessee shall fail to make payment of any rental
or breach any covenant, condition or agreement contained in the
Related Lease, and such failure shall continue beyond the applicable
cure period set forth in the Related Lease.
(i) Schedule 1 to the Lease shall be deleted in
its entirety and Schedule 1 to this Amendment shall be substituted in lieu
thereof.
(j) Exhibit D to the Lease shall be deleted in
its entirety and Exhibit D to this Amendment shall be substituted in lieu
thereof.
- 8 -
<PAGE> 27
(k) A new Exhibit E, in the form attached as
Exhibit E to this Amendment, shall be attached to and incorporated into and
made a part of the Lease.
2. Representations and Warranties of Lessee. In order
to induce Lessor to enter into this Amendment, Lessee represents and warrants
to Lessor as follows:
(a) Due Organization. Lessee is and will
continue to be a corporation duly organized and validly existing in good
standing under the laws of Illinois, is and will continue to be duly qualified
to do business as a foreign corporation in good standing in South Carolina and
in each other jurisdiction where the conduct of its business requires it to be
so qualified, is and will continue to be a "Citizen of the United States"
within the meaning of Section 101(16) of the Federal Aviation Act of 1958, as
from time to time amended, and has and will continue to have the corporate
power and authority to carry on its business and to enter into and perform its
obligations under the Lease and this Amendment.
(b) Due Authorization; Enforceability; No
Violation. The form, terms and provisions and the execution and delivery by
Lessee of this Amendment and the issuance to Lessor of a warrant to purchase at
$1.00 per share that number of shares of common stock of Lessee as set forth in
Section 1(d) of this Amendment adding Section 4(d) to the Lease (the "Warrant")
have each been duly authorized by all necessary corporate action on the part of
Lessee, do not require any approval of the
- 9 -
<PAGE> 28
shareholders of Lessee, and constitute the legal, valid and binding obligations
of Lessee, enforceable against Lessee in accordance with their respective
terms. The execution and delivery by Lessee of this Amendment, the performance
by Lessee of its obligations hereunder, and the issuance to Lessor of the
Warrants does not violate or will not contravene any provision of Lessee's
charter or by-laws, does not and will not contravene any law, governmental rule
or regulation, judgment or order applicable to or binding on Lessee, does not
and will not contravene any provisions of, or constitute a default or result in
the creation of any lien under, any indenture, mortgage, contract or other
instrument to which Lessee is a party or by which it is bound, and does not and
will not require any approval or consent of any trustee or holders of
indebtedness or obligations of Lessee, except such as have been duly obtained.
3. Conditions to Effectiveness of Amendment. This
Amendment shall be effective as of the date first above written, but only
subject to and conditioned upon the prior delivery to the Lessor of each of the
following:
(a) An original of this Amendment which has been
duly executed by Lessor and Lessee;
(b) Original copies of Lessee's insurance
policies on or pertaining to the Aircraft, which policies evidence Lessee's
compliance with each of the terms of Section 10 of the Lease (including, but
not limited to, reduction of the
- 10 -
<PAGE> 29
deductible or similar retention on foreign object damage coverage to an amount
not to exceed $100,000 per engine per occurrence);
(c) The Warrant shall have been issued to Lessor
and/or its designee, substantially in the form of the warrant issued to Lessor
in connection with the execution and delivery of the Lease; and
(d) Certified copies of corporate resolutions of
Lessee, duly authorizing the form, terms and provisions and the execution and
delivery of this Amendment and issuance of the Warrants.
4. Lease In Full Force. Except as expressly modified
herein/ the provisions of the Lease shall remain in full force and effect, and
are hereby ratified and confirmed in all respects.
IN WITNESS WHEREOF the parties have executed this Amendment
as of the day and year first above written.
AIR SOUTH, INC.
By /s/
------------------------------
Title VP Airline OPS
---------------------------
MIMI LEASING CORP.
By /s/
------------------------------
Title Pres. & Treas
---------------------------
- 11 -
<PAGE> 30
AMENDED SCHEDULE 1
LEASE SCHEDULE
TO AIRCRAFT LEASE NO. 1
DATED AS OF OCTOBER 31, 1994
Name of Lessee: Air South, Inc.
Aircraft: Shall include, without limitation, the Airframe, Engines, and
Avionics more particularly described hereinbelow.
<TABLE>
<S> <C>
Airframe Engine(s)
Type: - Jet Transport Type: Two (2) Jet Engines
Manufacturer: Boeing Manufacturer: Pratt & Whitney
Model Number: 737-247 Model Number: JT8D-9A (both)
Serial Number: 19607 Serial Numbers: P674289, P674165B
"N" Number: N4510W Total Hours: See Annex A
Hours since last major overhaul
or
Hot Section: See Annex A
Horse Power: Each Engine is 750 or more
rated takeoff horsepower or
its equivalent.
APU Garrett (S/N P40178)
</TABLE>
Accessories and Equipment Avionics
See Annex A hereto
Type of Aircraft: Jet Transport
Lease Term: Sixty (60) months from the Delivery Date
Scheduled Delivery Date: Not Later Than November 30, 1994
Delivery Site:
Fixed Rental: $28,648.33 ea. months 1 and 2
$63,020.83 ea. months 3-6
$77,106.79 ea. months 7-12
$41,169.29 ea. months 13-18
$31,255.11 ea. months 19-60 and during renewal term
An additional $7,640.50 is due with the rental
for month 60 covering the period October 30, 1999-
November 8, 1999 (because month 1 rental was prorated
due to November 8, 1994 delivery date).
- 12 -
<PAGE> 31
AMENDED EXHIBIT E
TO
AIRCRAFT LEASE NO. 1
DATED AS OF OCTOBER 31, 1994
<TABLE>
<CAPTION>
INVOICE No. AMOUNT $ A/C NO.
---------- -------- -------
<S> <C> <C>
19003155 56,961.40 4510
19003155-1 2,698.98 4510
19003156 245,406.60 4510
19003156-1 11,446.40 4510
19003156-2 61,856.57 4510
19003156-3 23,956.75 4510
19003159 42,175.00 4510
19003164 69,681.23 4510
19003165 6,438.32 4510
19003166 20,809.08 4510
19003166-1 54,775.51 4510
19003166-2 7,499.42 4510
TOTAL $603,705.24
<CAPTION>
INVOICE NO. AMOUNT $ A/C N0.
---------- -------- ------
<S> <C> <C>
19003157 61,334.94 4515
10003157-1 2,235.57 4515
19003158 182,062.49 4515
19003158-1 20,816.86 4515
15003158-2 61,175.56 4515
19003158-3 16,806.31 4515
19003160 42,175.00 4515
18003161 33,610.69 4615
10003162 36,328.05 4515
19003163 21,005.57 4515
19003163-1 41,750.71 4615
19003163-2 6,714.98 4515
19005462 37,355.11 4515
TOTAL $583.371.84
Paid by ASI 465,759.89
BALANCE $ 97,611.95
TOTAL BALANCE DUE AAR $701,317.19
</TABLE>
- 14 -
<PAGE> 1
EXHIBIT 10.38
GRANT AGREEMENT
This GRANT AGREEMENT, dated as of the 15th day of July, 1994 (the
"Agreement") between the City of Columbia, a body corporate and politic and a
political subdivision of the State of South Carolina, (the "City") and Air
South, Inc., an Illinois corporation qualified to do business in the State of
South Carolina (the "Grantee"),
WITNESSETH:
WHEREAS, the City, the Grantee, Lexington County, South Carolina
("Lexington County") and Richland County, South Carolina ("Richland County")
entered into that certain Memorandum of Understanding dated March 15, 1994 (the
"Local Memorandum") and the Grantee and the State of South Carolina (the
"State") entered into that certain Memorandum of Understanding dated March 25,
1994 (the "State Memorandum"), pursuant to which memoranda the Grantee agreed,
inter alia, to establish a regional passenger airline with its principal
operational base at the Columbia Metropolitan Airport and its corporate
headquarters and primary reservation center in the downtown area of the City
(the "Air South Operations") in exchange for certain grants to be made by the
City, Lexington County and Richland County and a certain loan to be made by
Lexington County (the "Term Loan"), all as described more particularly therein;
and
WHEREAS, in furtherance of its agreements under the Local Memorandum,
the City has agreed that, upon receipt by the City of funding under the City's
application to the Department of Housing and Urban Development ("HUD") for a
loan guarantee under Section 108 of the Housing and Community Development Act
of 1974, as amended, (the "Federal Act") as administered by HUD pursuant to the
Federal Act and by the City pursuant to Section 6-1-30, Code of Laws of South
Carolina, 1976, as amended, (the "State Act") (the loan guarantee program so
authorized and administered hereinafter referred to as the "Section 108
Program") and subject to the terms and conditions set forth herein, the City
shall provide financing assistance to the Grantee under the terms and subject
to the conditions of this Agreement, applicable laws, regulations and all other
federal and State requirements now or hereafter in effect, including without
limitation the Federal Act and the regulations promulgated thereunder (the
"Federal Regulations"), which transaction the City has authorized pursuant to
that certain Ordinance enacted by the City Council of the City on July 13,
1994; and
WHEREAS, the City and the Secretary of Housing and Urban Development
(the "Secretary") are, contemporaneously herewith, entering into that certain
CONTRACT FOR LOAN GUARANTEE ASSISTANCE UNDER SECTION 108 OF THE HOUSING AND
<PAGE> 2
COMMUNITY DEVELOPMENT ACT OF 1974, AS AMENDED, 42 U.S.C. Section 5308 (the "HUD
Contract"), pursuant to which the City will obtain funds for the purpose of
providing assistance to the Grantee under the Section 108 Program; and
WHEREAS, under the Section 108 Program, HUD provides a guarantee (the
"HUD Guarantee") with respect to non-recourse notes issued by units of local
government such as the City, enabling them to sell their HUD-Guaranteed Notes
to lending institutions or to the public through underwritten public offerings,
and the units of local government may then loan or grant the proceeds obtained
from the sale of the HUD-Guaranteed Notes to business enterprises that meet job
creation and other requirements under the Section 108 Program; and
WHEREAS, as security for any HUD-Guaranteed Notes issued by the City,
federal law requires that the City pledge to the Secretary its entitlement to
certain Community Development Block Grant ("CDBG") monies (the "CDBG Pledge")
to provide funds with which to reimburse the Secretary if the HUD Guarantee is
paid on account of a default by the City under any HUD-Guaranteed Notes; and
WHEREAS, under the terms of the HUD Contract HUD has agreed to provide
a HUD-Guarantee of one or more HUD-Guaranteed Notes issued by the City
(collectively, if more than one, the "Air South HUD-Guaranteed Note") with the
proceeds of which the City will fund pursuant hereto a $1,500,000.00 grant to
Grantee for purposes of providing space for the corporate and operational
headquarters of Grantee and for relocation expenses and costs of advertising in
establishing the Air South Operations (the "Grant") and up to $15,000 of the
expenses of such transaction as set forth hereinbelow, and in consideration for
such HUD Guarantee the City has agreed to give its City Pledge in respect to
the Air South HUD-Guaranteed Note (the "Air South City Pledge"); and
WHEREAS, as a condition to and as consideration for its assistance in
obtaining the HUD Guarantee of the Air South HUD-Guaranteed Note, for the Air
South City Pledge and for making the Grant to the Grantee, the City requires
the Grantee to make certain representations and warranties and to enter into
certain covenants with respect to job creation and other federal requirements
under the Section 108 Program and with respect to the other terms and
conditions upon which the Grant will be made, all as set forth herein,
NOW THEREFORE, in consideration of the premises and other good and
valuable consideration the receipt and sufficiency of which are hereby
acknowledged, the parties aforesaid agree to the following terms and
conditions:
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ARTICLE 1. TERMS AND CONDITIONS OF GRANT
Section 1.1. Amount of Grant: The Grant shall not exceed the
maximum principal amount of One Million Five Hundred Thousand and 00/100 Dollars
($1,500,000.00) and shall, subject to the provisions of Sections 1.7 and Article
IV hereof, be funded from time to time as needed for the purposes set forth in
Section 1.2 hereof and in accordance with the terms and conditions set forth in
Article III hereof. The City's obligation to make disbursements of funds under
the Grant shall expire on June 30, 1995 or such later date as the City, in its
sole discretion, shall determine (the "Cutoff Date").
Section 1.2. Purpose: The Grant assistance provided herein shall
be used solely for the following purposes:
(a) Up to $750,000 of the Grant shall be used to make lease payments
with respect to the office space at the location heretofore
approved by the City Manager at 1800 St. Julian Place, 4th Floor,
Columbia, S.C. 29204, to be used by Grantee for its corporate
headquarters and central reservation center for the Air South
Operations ("Corporate Headquarters"), such payments to be made in
accordance with that certain Lease Agreement dated May 9, 1994
between Nepotes Limited Partnership (the "Lessor") and the Grantee
(the "Lease"); and
(b) Up to $750,000 of the Grant shall be used for payment of
relocation expenses and costs of advertising for the Air South
Operations.
Section 1.3. Expenses: Grantee shall pay, from sources other than
the Grant or the Term Loan, all fees, expenses and other costs related to the
making or securing of this Grant, excluding only the payment of legal and
financial fees payable to HUD pursuant to the HUD Contract which HUD charges the
City shall fund in part with up to $15,000 from the proceeds of the Air South
HUD-Guaranteed Note; provided, however, that upon failure on the part of the
Grantee to pay any such fees, expenses or costs to be paid by the Grantee, the
City may, in its sole discretion, pay the same and deduct the amount so paid
from the amount of the Grant to be disbursed to the Grantee hereunder.
Section 1.4. Low-to-Moderate Income Hiring: The Grantee agrees to
create not less than 200 full time equivalent jobs at its Corporate Headquarters
within two years following the date of initial air carrier service by the
Grantee (the "Start-up Date"). Of the total number of jobs created at the
Corporate Headquarters, not less than 51% shall be filled by persons from low
and moderate income families, all as determined in accordance with current HUD
Income Guidelines and other the Federal Regulations. The Grantee agrees to
maintain records adequate to document compliance with this Section 1.4 and,
until such time as the Grantee has fulfilled the requirements of the preceding
sentences of this Section 1.4, to provide the City within 30 days following the
end of each calendar quarter with written evidence satisfactory to the City as
to the number of jobs created at the Corporate
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Headquarters and the number of such jobs which have been made available to
persons of low to moderate income.
Section 1.5. Regulatory Compliance Required under Section 108
Program: Notwithstanding any other provision hereof or of any other instrument
or agreement to the contrary, the provisions of the Federal Act, the Federal
Regulations and, to the extent not inconsistent therewith, the provisions of
all other applicable federal, State or City laws, regulations or requirements
shall govern the award and administration of the Grant, and the Grantee agrees
to comply with, and be bound by, such laws and requirements and to cooperate
fully with the City with respect thereto. Such agreement on the part of the
Grantee shall include, but shall not be limited to the following federal laws
to the extent applicable to the Grantee's operations at the Corporate
Headquarters and such laws are incorporated herein by reference:
(a) Davis-Bacon Act (40 USC 276a to a7);
(b) Certification Regarding Lobbying and Drug Free Workplace Act
(Appendix D);
(c) Policy Prohibiting Use of Excessive Force, 1990 HUD
Appropriations Act (P.L. 101-144) (Appendix E);
(d) Drug Free Workplace Act of 1988 (Appendix D);
(e) American Disabilities Act of 1990,
(f) Age Discrimination Act of 1975;
(g) Section 504 of the Rehabilitation Act of 197;
(h) Program Income (24 CFR 570.503 and 570.504);
(i) Programmatic and Budget Changes;
(j) Civil Rights and Fair Housing; Employment and Contracting
Opportunities (570.601, 570.607);
(k) Labor Standards (24 CFR 570.603);
(l) Environmental Requirements (25 CFR 570.604);
(m) Historic Preservation;
(n) National Flood Insurance Program (24 CFR 570.605);
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(o) Relocation, Real Property Acquisition and One-for-One Housing
Replacement (24 CFR 570.606);
(p) Lead-based Paint (24 CFR 570.608);
(r) Political Activity (24 CFR 570.207(a)(3));
(s) Conflict of Interest (24 CFR 570.611);
(t) Program Monitoring (24 CFR 570.501(b), 24 CFR 85-40(a) and
(e), and OMB Circular A-110, Attachment H, Paragraph (2));
(u) Suspension and Termination (24 CFR 570.503(b)(7), 24 CFR 85.43
and 44);
(v) Resident Aliens (24 CFR 570.613).
Section 1.6. Grantee to Obtain Authorization to Initiate and
Maintain Air South Operations: As a condition of making the initial disbursement
under the Grant, the Grantee shall provide the City with written evidence
satisfactory to the City that the Grantee has obtained and maintained a Section
401 Certificate from the U.S. Department of Transportation ("DOT") and such
other permits, consents and authorizations as may be required to initiate and
maintain the Air South Operations as contemplated by the Business Plan of the
Borrower dated February 17, 1994 with respect to the Air South Operations, as
amended from time to time with the prior written consent of the City, (the
"Business Plan") and by this Agreement and that all conditions precedent to
initial funding under the Term Loan have been met.
Section 1.7. No Warranty by City: The City's obligations
hereunder are limited to making a good faith effort to process requests for
advances under the Air South HUD-Guaranteed Note in order to obtain funds with
which to fund the Grant from time to time and to forwarding to the Grantee the
proceeds of the Air South HUD-Guaranteed Note, net of expenses, upon receipt
thereof by the City. The City makes no warranty that funds will be made
available from time to time under the HUD Contract or that funds will be
received at the times anticipated by the Borrower. Neither the City nor any of
its officers, employees or agents shall be liable for any action or failure to
act hereunder taken in good faith.
Section 1.8. Additional Documentation: The Grantee shall,
contemporaneously herewith, execute and deliver to the City the following:
(a) An opinion of counsel acceptable to the City in the form
attached hereto as Exhibit A; and
(b) Such other certificates and instruments as the City shall
reasonably
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require.
Upon request, the Grantee shall deliver to the City an assignment of
leasehold interest, acceptable to the City as to form and substance, which has
been duly executed by the Grantee and accepted by the Lessor and recorded in
the Office of the Register of Mesne Conveyances for Richland County and such
other places as may be required to preserve and protect the City's interest
thereunder.
The Grantee agrees that it will, at its own expense, maintain hazard,
public liability and key-man life insurance in such amounts and against such
risks as are customarily insured against by businesses of like size and type
and as is otherwise required by the provisions of the Term Loan and will
simultaneously with the execution and delivery of this Agreement and on each
anniversary hereof provide the City with certificates evidencing such insurance
coverages in form acceptable to the City.
ARTICLE II. GRANTEE'S REPRESENTATIONS AND WARRANTIES AND COVENANTS
Section 2.1. Representations, Warranties and Covenants by the Grantee:
The Grantee hereby makes the following representations and warranties and
acknowledges and agrees that each and every such representation and warranty
has been material to the City's determination to make the Grant shall be true,
accurate and complete as of the date of any disbursement of the Grant:
(a) The Grantee has been duly organized and validly exists as a
corporation under the laws of the State of Illinois, has power
to enter into this Agreement and to carry out and give effect
to the transactions contemplated by this Agreement to be
performed by the Borrower, including without limitation the
establishment and operation of the Air South Operations, and
has authorized the taking of all action necessary to enter
into this Agreement and carry out such transactions.
(b) There is no action or proceeding pending or threatened against
the Grantee before any court or administrative agency that
might adversely affect the ability of the Grantee to perform
its obligations under this Agreement, including without
limitation the establishment and operation of the Air South
Operations, and all authorizations, consents and approvals of
governmental bodies or agencies, required in connection with
the performance of the Grantee's obligations hereunder,
including without limitation the establishment and operation
of the Air South Operations, have been obtained and will be
obtained whenever required hereunder or by law.
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(c) Neither the execution and delivery of this Agreement, the
consummation of the transactions contemplated hereby,
including without limitation the establishment and operation
of the Air South Operations, nor the fulfillment of or
compliance with the terms and conditions of this Agreement is
prevented, limited by, or conflicts with or results in a
breach of, the terms, conditions, or provisions of any
corporate restrictions or any evidence of indebtedness,
agreement or instrument of whatever nature to which the
Grantee is now a party or by which it or its property is
bound, or constitutes a default under any of the foregoing.
(d) The Grantee has received paid in capital contributions
aggregating not less than $1,000,000 (excluding from such
calculation any shares purchased with money borrowed from the
Grantee).
(e) The Grantee acknowledges that the City is making the Grant in
reliance upon the Business Plan, a copy of which has been
provided to the City by the Grantee, and the Grantee
represents and warrants that such Business Plan is true,
accurate and complete as of the date hereof and will be true,
accurate and complete in all material respects as of the date
of each draw under the Grant pursuant to Article III hereof
and that its Section 401 Certificate is in full force and
effect and will be in full force and effect as of the date of
each draw under the Grant pursuant to Article III hereof.
(f) The Grantee's Corporate Headquarters is located at 1800 St.
Julian Place, 4th Floor, Columbia, South Carolina 29204; the
Grantee shall give the City not less than thirty (30) days
prior written notice of any change in the location of the
Grantee's Corporate Headquarters or base of operations or of
any substantial change in the nature of the operations
conducted at such locations or of any substantial reduction in
the level of employment at such locations which occur during
the five year period following the Start-up Date.
(g) Grantee represents to the City that it has at all times
pertinent to this Agreement been represented by advisors of its
own selection, including but not limited to attorneys-at-law
and/or certified public accountants; that it has not relied
upon any statement, representation, warranty, agreement or
information provided by the City, its employees, agents or
attorneys; that it acknowledges that it is informed by its
advisors of its respective rights, duties, and obligations with
respect to the Grant under all applicable laws.
(h) The Grantee agrees to comply with all applicable DOT
requirements and all other governmental requirements as may be
necessary to operate the
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Air South Operations as contemplated by the Business Plan and
this Agreement.
(i) If any time during the period ending five years from the
Start-up Date, the Grantee becomes aware of any facts,
occurrences, information, statements, or events that render
any of the foregoing representations or warranties herein made
untrue or materially misleading or incomplete, Grantee shall
immediately notify the City in writing of such facts,
occurrences, information, statements or events.
Section 2.2. No Assignment by Grantee: The Grantee may not assign
or transfer the whole or any part of this Agreement, and any such assignment by
the Grantee without the prior written consent of the City shall render this
Agreement null and void.
Section 2.3. Maintenance of Air South Operations in Current
Location: Except as set forth in this Section 2.3, the Grantee, for a period of
not less than five years from the Start-up Date shall maintain its existence and
continue as a corporation either organized under the laws of, or duly qualified
to do business as a corporation in, the State, and the Grantee shall not during
such five year period, without the prior written consent of the City:
(a) sell, lease, convey, assign, transfer or otherwise dispose of
all or substantially all of its assets or consolidate with or
merge into another entity or assign, convey or dispose of any
interest in its assets or operating rights (including without
limitation operating or landing rights, type certificates,
operating certificates, licenses, regulatory approvals,
leasehold or contract rights, tradenames or trademarks or
other rights in tangible or intangible property) or permit the
sale of stock to a third person or group of persons so that
current management relinquishes control over more than
one-half of either of the assets, operations or voting rights
with respect to the stock of the Grantee; or
(b) relocate its principal operational base to a location other
than the Columbia Metropolitan Airport or its Corporate
Headquarters from its current location.
The Grantee need not comply with the provisions of paragraph (a) of
this Section 2.3 if the successor corporation or person or group succeeding to
control of the Grantee, as the case may be, agrees to comply with the
provisions of this Agreement by delivery to the City of a written assumption
agreement which shall be satisfactory to the City as to form and content. The
Grantee need not comply with the provisions of paragraphs (a) or (b) of this
Section 2.3 if there is paid to the City liquidated damages in an amount equal
to $3,000,000 (or such lesser amount as has been advanced to the Grantee by the
City, Lexington County and Richland County under their respective grants),
together with interest thereon at the rate
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per annum equal to 4% from the date of the respective advances under such
grants. Such liquidated damages represent a return of the respective grants
made by the City, Lexington County and Richland County in the amounts of
$1,500,000, $750,000 and $750,000, respectively, and the City shall receive the
liquidated damages attributable to the respective amounts advanced by Lexington
and Richland Counties on behalf of such Counties and shall pay over such
amounts to the respective County. Each of Lexington and Richland Counties shall
be deemed to be a third party beneficiary of this Grant Agreement for purposes
of this Section 2.3 The amount of liquidated damages shall be reduced by twenty
percent (20%) at the end of each year after the Start-up Date, and the
provisions of this Section 2.3 shall terminate at the end of the fifth year
following the Start-up Date.
Section 2.4. Financial Statements and Other Information: During the
five-year period following the Start-up Date, the Grantee shall furnish to the
City copies of all financial information provided to Lexington County or the
South Carolina Jobs-Economic Development Authority ("JEDA") in connection with
the Term Loan, which financial information shall include, at minimum, the
following:
(a) within 90 days following the end of each fiscal year, annual
audited financial statements for the Grantee prepared by an
independent accountant acceptable to the City;
(b) such other information as the City shall reasonably request
regarding the Grantee's employment levels, including without
limitation all such information as may be required to
determine compliance with Section 1.4 hereof; and
(c) such other information as the City shall reasonably request
regarding the making and administration of the Grant.
ARTICLE Ill. DISBURSEMENTS OF GRANT MONIES
Section 3.1. Procedures: The City shall disburse that portion of
the Grant to be used to pay the cost of providing office space for the Corporate
Headquarters monthly in Installments of $15,625 each directly to Lessor for
application to the Basic Rent then due and owing by the Grantee under the Lease
or in such other manner as may be agreed to between the City and Lessor.
That portion of the Grant to be used for advertising purposes shall be
disbursed not more frequently than twice monthly by JEDA as agent for the City
in accordance with the terms and conditions set forth in the Grant
Administration Agreement of even date herewith between the City and JEDA and
upon the occurrence of the following:
(a) receipt by JEDA not less than twenty (20) days prior to the date when
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the funds are requested to be paid of a requisition in the
standard form used by JEDA signed by the President or Chief
Financial Officer of the Grantee stating the name of the
person, firm or corporation to whom payment is to be made or
has been made and the amount to be paid or which has been paid
or for which reimbursement is sought, accompanied by invoices
or other documentation acceptable to JEDA verifying such
expenses;
(b) determination by JEDA that the use intended by the Grantee of
the proceeds of the Grant is eligible for financing under the
Section 108 Program and this Agreement;
(c) there shall exist no event of default hereunder, and JEDA
shall have received a written certificate to such effect
executed by the President or Chief Financial Officer of the
Grantee in the form attached hereto as EXHIBIT B.
Such disbursements by JEDA shall be subject to receipt of adequate funding
under the Air South HUD-Guaranteed Note and to the further terms and conditions
specified in that certain Grant Administration Agreement of even date herewith
among the City, the Grantee and JEDA. JEDA shall deduct from each disbursement
its administration fee as specified in the above-mentioned Grant Administration
Agreement. The City reserves the right to designate from time to time other
agents or subcontractors to administer the Grant or perform any of its
obligations hereunder.
The Grantee acknowledges that the City must submit each request for
funds under the Grant to HUD and agrees that neither the City nor JEDA shall be
liable for any delays in processing any requisition submitted hereunder. The
City shall use, and shall require JEDA to use, their respective best efforts to
submit to HUD a request for payment with respect to each acceptable requisition
within ten (10) days following receipt thereof.
Notwithstanding anything herein to the contrary, no disbursement shall
be made under the Grant until such time as the Grantee has paid, from sources
other than Grant funds or other Section 108 Program funds, all amounts due and
owing under the interim loan by the Columbia Development Corporation described
in the Local Memorandum.
Section 3.2. Suspension of Disbursements: Notwithstanding
anything herein to the contrary, the City shall not be obligated to disburse any
monies under the Grant after the Cutoff Date, and no disbursements shall be made
under the Grant for any purpose without the written consent of the City Manager
during any period as to which an event of default hereunder shall exist nor
during any period as to which either Lexington County, JEDA or any agency of the
State shall have notified the Grantee that disbursements under the Term Loan
have been terminated or suspended. It shall be within the sole discretion of the
City to determine whether an event of default hereunder or a cessation of
disbursements
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under the Term Loan will give rise to termination of this Agreement or whether
the City will resume advances hereunder.
ARTICLE IV. AGREEMENT NON-RECOURSE TO CITY
Section 4.1. Release and Indemnification of City: The Grantee
hereby releases the City from, and agrees that the City and JEDA and their
respective officers, directors, members, employees, attorneys and agents shall
not be liable for, and agrees to indemnify and hold harmless the City and JEDA
and their respective officers, directors, members, employees, attorneys and
agents against:
(a) any liability, cost or expense, including without limitation
reasonable attorneys' fees in the administration of the HUD
Contract, the Air South HUD-Guaranteed Note, the Grant and
this Agreement (hereinafter collectively referred to as the
"Section 108 Documents") and the obligations imposed on the
City and JEDA thereby and hereby (except as expressly set
forth otherwise in Section 1.3 hereof);
(b) any or all liability or loss, cost or expense, including
without limitation reasonable attorneys' fees, resulting from
or arising out of any loss or damage to property or any injury
to or death of any person occurring in connection with or on
or about the Corporate Headquarters or the Air South
Operations or resulting from any defect in the fixtures,
machinery, equipment or other property used in connection with
the Corporate Headquarters or the Air South Operations or
arising out of, pertaining to, or having any connection with,
the Corporate Headquarters or the Air South Operations or the
financing thereof (whether or not arising out of acts,
omissions or negligence of the Grantee or any of its agents,
contractors, servants, employees, licensees, lessees or
assignees);
(c) any or all liability or loss, cost or expense, including
without limitation reasonable attorneys' fees, arising out of
or in connection with or pertaining to the issuance, sale or
delivery of the Air South HUD-Guaranteed Note, including, but
not limited to, liabilities arising under the Securities Act
of 1933, the Securities Exchange Act of 1934 or any applicable
state securities laws, but such indemnity for securities
liabilities shall be subject to the limitation that the
Grantee shall not be liable for any representations made with
respect to the City; and
(d) any or all liability or loss, cost or expense, including
without limitation reasonable attorneys' fees, arising out of
or in connection with or pertaining to the transactions
contemplated under this Agreement and the other Section 108
Documents, including without limitation any
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liability, loss, cost or expense arising under the
environmental laws of any jurisdiction.
Notwithstanding the fact that it is in the intention of the parties
hereto that neither the City, JEDA, nor their respective officers, directors,
members, employees, attorneys and agent shall incur any pecuniary liability by
reason of the terms of this Agreement or of any other Section 108 Document, or
the undertakings required of the City and JEDA hereunder and thereunder, by
reason of the issuance and sale of the Air South HUD-Guaranteed Note, the
execution of the Section 108 Documents or the performance of any act requested
of the City or JEDA by the Grantee, including all claims, liabilities or losses
arising in connection with the violation of any statutes or regulations
pertaining to the foregoing; nevertheless, if the City or JEDA or any of their
respective officers, directors, members, employees, attorneys or agents should
incur any such pecuniary liability, then in such event the Grantee shall
indemnify and hold the City or JEDA and their respective officers, directors,
members, employees, attorneys and agents harmless against all claims by or on
behalf of any person, firm or corporation or other legal entity arising out of
the same and all costs and expenses incurred in connection with any such claim
or in connection with any action or proceeding brought thereon. Upon notice
from the City or JEDA, the Grantee shall defend the City and JEDA and their
respective officers, directors, members, employees, attorneys and agents in any
such action or proceeding. If called upon to provide indemnity under this
Section 4.1, the Grantee shall be subrogated to the rights of the indemnified
party.
Section 4.2. Limited Liability of City: no breach by the City of
this Agreement or of any provision or condition hereof shall result in the
imposition of any pecuniary liability upon the City or any charge upon the
general credit or taxing power of the City. The liability of the City under
this Agreement and any provision or condition hereof or for any breach or
default by the City of any of the foregoing shall be limited solely and
exclusively to the proceeds of the Air South HUD-Guaranteed Note received by
the City pursuant to the HUD Contract. The City shall not be required to
execute or perform any of its duties, obligations, powers or covenants
hereunder except to the extent said proceeds are available therefor.
No covenant, agreement or obligation contained herein shall be deemed
to be a covenant, agreement or obligation of any present or future director,
member, officer, employee or agent of the City in his individual capacity, and
neither the members of the City Council of the City nor any officer thereof
executing this Agreement shall be liable personally under this Agreement. No
officer, director, member, employee or agent of the City shall incur any
personal liability with respect to any other action taken, or not taken, by him
pursuant to this Agreement, provided he does not act with malicious intent.
The provisions of this Section 4.2 shall control every other provision
of this Agreement, anything in such other provisions to the contrary
notwithstanding.
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ARTICLE V. EVENTS OF DEFAULT
Section 5.1. Events of Default: The following shall constitute
events of default by the Grantee under this Agreement:
(a) Any material representation or warranty of the Grantee shall
have been false, inaccurate or misleading when made;
(b) The Grantee shall have breached its covenant in Section 2.3
hereof;
(c) The Grantee shall default in any of its covenants and
agreements hereunder other than those specified in paragraph
(b) hereof, and such default shall not have been cured within
thirty (30) days following the occurrence thereof; or
(d) The Grantee shall be in default under the Term Loan.
Section 5.2. Remedies: If Grantee does not comply with the
provisions of this Agreement, the City may in its sole discretion take any
and/or all of the following actions:
(a) In the case of a violation of the low-to-moderate-income
hiring requirement specified at Section 1.4 hereof, require
repayment of all of the Grant, together with interest thereon
at the rate per annum equal to the federal debt collection
rate in effect on the first business day following expiration
of the two year period specified in Section 1.4 above as
documented by the South Carolina Governor's Office and
computed on the basis of a 360 day year and the actual number
of days elapsed from the date of each advance of Grant monies
to the Grantee;
(b) In the case of a violation of its covenants in Section 2.3,
require the Grantee to pay the liquidated damages specified in
Section 2.3 hereof;
(c) Require the Grantee to take corrective actions to comply with
this Agreement;
(d) Cancel, terminate or suspend in whole or in part funding under
this Agreement or refrain from extending further assistance to
the Grantee until such time as Grantee is in full compliance;
or
(e) Take such other action at law or in equity as may be necessary
to protect its rights and interests hereunder, including
without limitation a suit for specific performance.
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ARTICLE VI. MISCELLANEOUS
Section 6.1. Severability: Any provision of this Agreement which
is or becomes illegal, invalid or unenforceable in any respect shall not in any
way affect or impair the legality, validity and enforceability of the other
provisions of this Agreement.
Section 6.2. Notices: Notices hereunder shall be sent by first
class mail or facsimile transmission as follows:
If to the City:
City of Columbia
City Hall
1737 Main Street
Columbia, SC 29201
Attention: City Manager
Fax # (803) 733-8317
If to the Grantee:
Air South, Inc.
1800 St. Julian Place, 4th Floor
Columbia, South Carolina 29204
Attention: Chief Financial Officer
Fax # (803) 771-9067
The parties may by notice given hereunder designate changes of address
for purposes of this Agreement.
Section 6.3. Governing Laws: In addition to the federal laws and
regulations cited herein, this Agreement is made under and shall be construed
in accordance with the laws, regulations and ordinances of the State of South
Carolina and the City. By executing this Grant, the Grantee agrees to submit to
the jurisdiction in the courts of the State of South Carolina or the
appropriate federal courts for all matters arising or to arise hereunder.
Section 6.4. Effective Date: This Agreement is effective as of the
date of initial funding to the Grantee in accordance with the provisions of
Article III hereof.
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IN WITNESS WHEREOF, this Agreement has been executed as of the 15th day of
July, 1994.
CITY OF COLUMBIA SOUTH CAROLINA
By: /s/ Robert Coble
----------------------------------
ATTEST: Robert Coble
Its: Mayor
By: /s/ Zenda Leaks
----------------------------------
Zenda Leaks
Clerk to the City
GRANTEE:
AIR SOUTH, INC.
By: /s/
-----------------
Its: C.F.O.
<PAGE> 16
EXHIBIT A
(DRAFT OF GRANTEE'S COUNSEL OPINION]
September __, 1994
City of Columbia, South Carolina
City Hall
1737 Main Street
Columbia, South Carolina 29201
South Carolina Jobs-Economic Development Authority
1201 Gervais Street, Ste. 1701
Columbia, South Carolina 29201
McNair & Sanford, P.A.
NationsBank Tower
1301 Gervais Street
Columbia, South Carolina 29201
RE: $1,500,000 Maximum Amount Section 108 Grant from the City
of Columbia, South Carolina to Air South, Inc.
Ladies and Gentlemen:
I am general counsel to Air South, Inc. (the "Grantee") and have acted
as such in connection with the execution and delivery of a Grant Agreement
dated as of July 15, 1994 (the "Grant Agreement") between the City of Columbia,
South Carolina (the "City") and the Grantee, pursuant to which the City will
make available funds to the Grantee from time to time in amounts aggregating
up to $12,000,000 (the "Grant"). In connection with the execution and delivery
of the Grant Agreement, the City and the Secretary of Housing and Urban
Development ("HUD") will enter into that certain CONTRACT FOR Grant GUARANTEE
ASSISTANCE UNDER SECTION 108 OF THE HOUSING AND COMMUNITY DEVELOPMENT ACT OF
1974 AS AMENDED, 42 U.S.C. Section 5308 (the "HUD Contract"), pursuant to which
the City will issue certain notes to be guaranteed by HUD in order to obtain
the funds with which to make the Grant. In exchange for the HUD guarantee of
the City's notes, the City has pledged to HUD
<PAGE> 17
certain community development block grant funds to which the City is or may
become entitled as security for repayment of the notes (the ("CDBG Pledge").
As a condition to and as consideration for its assistance in obtaining
the HUD guarantee of the City's notes, for the CDBG Pledge and for making the
Grant to the Grantee, the City has required the Grantee to make certain
representations and warranties and to enter into and perform certain covenants
with respect to job creation and other federal requirements in connection with
HUD's guarantee and with respect to the other terms and conditions upon which
the Grant will be made, all as set forth in the Grant Agreement. Disbursement
of a portion of the Grant shall be made in accordance with the Grant Agreement
and with that certain Grant Administration Agreement dated as of July 15, 1994
among the City, the South Carolina Jobs-Economic Development Authority and the
Grantee (the "Grant Administration Agreement").
The Grant Agreement and the Grant Administration Agreement are
hereinafter collectively referred to as the "Grant Documents". Capitalized
terms utilized herein and not otherwise defined herein shall have the meanings
ascribed to them in the Grant Agreement.
Please be advised that I have examined the Grant Documents and such
corporate proceedings and records of the Grantee and public registries and have
made investigation of such other matters as in my judgment permits me to render
an informed opinion on the matters set forth herein. I am a member of the Bar
of the State of Illinois and have assumed for purposes of this opinion that the
law of the State of South Carolina, where controlling as to the matters set
forth herein, is the same as the law of Illinois. Based upon the foregoing, it
is my opinion that:
1. The Grantee is a corporation duly organized, validly existing
and in good standing under the laws of the State of Illinois, with corporate
powers adequate to own its property, to carry on its business as now conducted
and as proposed in the Business Plan and the Grant Documents to be conducted
and to perform its obligations under the Grant Documents. The Grantee is duly
qualified as a foreign corporation and is in good standing in the State of
South Carolina and in each other jurisdiction in which its conduct of business
or ownership of property makes such qualification necessary.
2. The execution, delivery and performance by the Grantee of each
of the Grant Documents are within the Grantee's power and authority, and the
Grantee has duly authorized the execution and delivery thereof and the taking
of all action necessary to carry out and give effect to the transactions
contemplated thereby.
<PAGE> 18
3. Neither the execution and delivery of any of the Grant
Documents, nor the consummation of the transactions therein contemplated, nor
fulfillment of or compliance with the provisions thereof, will (i) violate or
contravene any of the provisions of the charter, by-laws, articles of
incorporation or other governing documents of the Grantee; (ii) violate or
contravene any of the provisions of any law, governmental rule, regulation,
judgment, decree, writ, injunction, demand, order, franchise or permit binding
on the Grantee or its properties; (iii) conflict with or result in a breach of,
or constitute a default under (nor is there any waiver in effect which, if not
in effect, would result in any of the foregoing), any of the provisions of any
mortgage, contract or other instrument to which the Grantee is a party or by
which it or its property is bound; (iv) result in the creation or imposition of
any lien, charge or encumbrance upon any property of the Grantee pursuant to
the terms of any such indenture, mortgage, contract or other instrument except
the lien created by the Grant Documents; or (v) result in an occurrence of an
event for which any holder or holders of indebtedness may declare the same due
and payable.
4. Each of the Grant Documents has been duly executed and
delivered by the Grantee. Assuming the due execution and delivery thereof by
the other parties thereto, each Grant Document constitutes a legal, valid and
binding instrument enforceable in accordance with its terms.
5. There is no pending action or proceeding before any court,
governmental agency or arbitrator against or directly involving the Grantee,
and, to the best of my knowledge after diligent inquiry, there is no threatened
action, law suit or proceeding or any basis therefor affecting the Grantee
before any court, governmental agency or arbitrator which, in any case, may
materially and adversely affect the financial condition, operations or business
prospects of the Grantee or which affects the validity of any Grant Document or
any action taken or to be taken pursuant thereto.
6. No consent of any person and no authorization or approval or
other action by, and no notice to or filing with, any governmental authority or
regulatory body or other person is required for the due execution, delivery
and performance by the Grantee of the Grant Documents, except such as have been
obtained, including without limitation, approval of the shareholders or the
trustees or holders of any indebtedness of the Grantee.
Sincerely,
Donald Baker, General Counsel
<PAGE> 19
EXHIBIT B
CERTIFICATE AS TO NO DEFAULT
The undersigned, the duly appointed_____________________________ of Air
South, Inc. (the "Grantee"), hereby certifies as follows:
(1) all of the representations and warranties of the Grantee in
the Grant Agreement dated as of July 15, 1994 (the "Grant
Agreement") are true, accurate and complete in all material
respects as of the date hereof as if made on the date hereof;
(2) no events of default exist under the terms of the Grant
Agreement;
(3) the Grantee has complied with all covenants and agreements to
be performed on its part under the Grant Agreement; and
(4) the Grantee currently maintains in effect all insurance
required to be maintained under the terms of the Grant
Agreement.
IN WITNESS WHEREOF, the undersigned has caused this certificate to be
executed and delivered this _____ day of _____, 199__.
By:
----------------------------------
, Air South, Inc.
-----------------
16
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AS OF DECEMBER 31, 1995 AND STATEMENT OF OPERATIONS FOR THE FOUR MONTHS
ENDED DECEMBER 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS INCORPORATED IN AIR SOUTH AIRLINES, INC. REGISTRATION
STATEMENT ON FORM 10.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 4-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> SEP-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 2,369,614
<SECURITIES> 694,430
<RECEIVABLES> 2,419,171
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 6,918,653
<PP&E> 2,594,600
<DEPRECIATION> 0
<TOTAL-ASSETS> 11,617,463
<CURRENT-LIABILITIES> (15,464,310)
<BONDS> (12,000,000)
0
(1,250)
<COMMON> (6,818)
<OTHER-SE> 16,359,915
<TOTAL-LIABILITY-AND-EQUITY> (11,617,463)
<SALES> 0
<TOTAL-REVENUES> (19,858,131)
<CGS> 0
<TOTAL-COSTS> 24,666,431
<OTHER-EXPENSES> (153,645)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 164,764
<INCOME-PRETAX> 4,826,295
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,826,295
<EPS-PRIMARY> (.69)
<EPS-DILUTED> (.69)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AS OF JUNE 30, 1996 AND STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED
JUNE 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS INCORPORATED IN AIR SOUTH AIRLINES, INC. REGISTRATION STATEMENT ON
FORM 10.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 122,199
<SECURITIES> 1,365,473
<RECEIVABLES> 4,191,994
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 7,203,900
<PP&E> 2,593,062
<DEPRECIATION> 0
<TOTAL-ASSETS> 12,327,803
<CURRENT-LIABILITIES> (22,394,108)
<BONDS> (12,000,000)
0
(1,995)
<COMMON> (6,829)
<OTHER-SE> 22,075,129
<TOTAL-LIABILITY-AND-EQUITY> (12,327,803)
<SALES> 0
<TOTAL-REVENUES> (27,982,110)
<CGS> 0
<TOTAL-COSTS> 38,153,089
<OTHER-EXPENSES> (371,317)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 360,694
<INCOME-PRETAX> 10,160,356
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,160,356
<EPS-PRIMARY> (1.49)
<EPS-DILUTED> (1.49)
</TABLE>
